Reasonable Uncertainty of Lost Profits

In the 2011 Appellate Division of the Supreme Court of New York case Blinds to Go (U.S.), Inc. v. Times Plaza Development, L.P., the court reversed a $3.7 million judgment entirely due to the negligence of the plaintiff’s damages expert. The plaintiff (tenant) entered into a ten year lease with defendant (landlord). The lease allowed the landlord to “recapture” the premises and rent it to another entity if the tenant closed its business on the property for a period of three months or more.

Two and a half years after entering into the lease the tenant had yet to open for business. Therefore, the landlord elected to “recapture” the premises and terminate the lease.

Tenant took the landlord to court claiming the landlord breached the lease. The jury agreed and awarded damages that included the loss of tenant’s security deposit, payment of one month’s rent and taxes, fees, costs and expenses; and $3.75 million for lost profits.

The landlord appealed the amount awarded for lost profits, contending that the jury’s verdict was not supported by legally sufficient evidence. The appellate court agreed and reversed the lost profits award.

“Lost profits may be recoverable for breach of a contract if it is demonstrated with certainty that such damages have been caused by the breach, and the alleged loss is capable of proof with reasonable certainty. There also must be a showing that the particular damages were fairly within the contemplation of the parties to the contract at the time the contract was made.” “In the case of a ‘new business,’ there generally ‘does not exist a reasonable basis of experience upon which to estimate lost profits with the requisite degree of reasonable certainty.’ However, there is no per se rule barring new enterprises from recovering lost profits, so long as lost profits may be established with reasonable certainty.”

In order to recover lost profits, those lost profits must be established with reasonable certainty. In this case, the tenant’s retail store was part of a chain. The plaintiff had four of its stores in the New York metropolitan area, but none in Brooklyn, which is where the new store was to be located. According to the plaintiff’s so called expert, this new Brooklyn store would be “an urban store, not a suburban store.” The expert contended, after examination, that plaintiff operated only one comparable urban store. The expert noted many differences between the four opened stores and the unopened Brooklyn store. These differences included, but were not limited to, available parking, demographics of the residents, median income of the residents, and the standards applied to running the different stores.

“The expert offered no evidence on the profits of other stores in Brooklyn that sold window blinds, or evidence of profits in the industry in general. The expert concentrated solely on stores owned by this particular plaintiff, and acknowledged that he used the stores which the tenant told him were comparable. Thus, the expert did not use independent judgment in reaching his conclusions regarding comparability.”

Yes, you read that correctly. The expert did not use his own independent judgment in reaching his conclusions.

The experts testimony and “the evidence on lost profits was so lacking that the verdict could not have been reached on any fair interpretation of the evidence.”

The initial jury award of $3,751,006 for lost profits was reversed by the appellate court and now vanished into thin air. This case proves that choosing the right expert is critical to the anticipated outcome.

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