Financial Damages – How Are They Calculated?

Most business disputes involve a business (the plaintiff), accusing another business (the defendant), of doing something wrong – wrongdoing that caused some harm. For instance – You, Defendant:

• Breached our agreement. You said you were going to bring me 300 widgets per month. You only gave me 200 widgets for 3 months, and then you stopped.
• Told me you were going to build my building by March 15th, and it’s now April 1st and it’s not built.
• Promised that when you stopped working for me you wouldn’t compete with my business for 3 years. But the minute you left, you stole some customers and started competing against me.
• Conspired with a competitor to put me out of business.

Wrongdoing is illegal, but it’s not a crime. A breach of an agreement, a breach of duty that you owe to your employer or a breach of duty that you owe to your employee are not criminal activities – they are business wrongdoing. The determination of wrongdoing is processed during the part of the case that is known as the “liability part,” which focuses on whether or not the defendant is liable for the wrongdoing alleged by the plaintiff. Assuming the defendant is found liable, then the plaintiff is entitled to money. The amount of money the plaintiff is entitled to is known as “damages.”

Damages are an amount of money that makes the plaintiff whole. What does that mean? The amount of money is intended to put the plaintiff in the position that he would have been in, had there been no wrongdoing. It doesn’t reward the plaintiff and it doesn’t penalize the defendant. The defendant is simply required to give the plaintiff sufficient amounts of money so that the plaintiff is made whole – given the amount that was lost as a result of the wrongdoing.

In most cases, the plaintiff is not made whole because the plaintiff’s trial costs – attorney’s fees and expert fees – are rarely recovered because they are not included in damages. Our system doesn’t permit the winner to obtain his costs from the defendant. So, in reality, the plaintiff is rarely made whole. In some rare cases, in addition to the damages awarded, the plaintiff is entitled to recover the costs of the dispute – but that’s rare.

How does an expert calculate damages? That exercise requires the expert to create a hypothetical universe. What would have happened had the wrongdoing that the plaintiff complains about not occurred:

• Would there have been additional revenue generated by the plaintiff?
• Would there have been reduced costs realized by the plaintiff?
• How would the plaintiff’s business have changed if what the plaintiff alleges happened or didn’t happen?

That’s the methodology that is used to calculate damages in every case. The expert compares what actually happened to what is reasonably believed would have happened had there been no wrongdoing. That difference, between what actually happened and what would have happened is, in a nutshell, financial damages.

If you have any questions about damages, please give us a call. We will be happy to speak with you at no charge.

At Rosenfarb LLC we produce well supported, well-reasoned and well communicated damage calculations that withstand the rigors of litigation. We are a firm of forensic accounting and valuation experts. We understand business, have keen insights and always connect the dots. We understand the litigation process. We frame the issues simply and in alignment with the litigation strategy. We use logic to support our opinions, while creating compelling stories. We are sincere, professional and credible. We are accounting experts with legal acumen.

Rosenfarb LLC
Phone: (855) 415-1100
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