Past profits indicative of future profits; adopting a litigant’s projection; and incremental overhead costs.
Boellner v. Clinical Study Centers, 2011 Ark. 83 – Ark: Supreme Court 2011
Opinion delivered February 24, 2011
Damages were claimed, resulting from breach of contract, tortious interference with business expectancy and defamation. Clinical Study Centers performs drug studies or clinical trials for certain pharmaceutical companies and some of the business’s owners. Boellner argues that “substantial evidence does not support the amount of damages awarded.”
In this opinion, the Arkansas Supreme Court addresses several concepts related to lost profits analyses. First, the court cites that “proof of an established business’s past profits is sufficient proof of its lost future profits.” Past profits could be a reasonable proxy for future profits if a business is, as cited, “established” and that evidence in the record supports the likelihood of the business continuing to achieve in a matter similar to historical levels. Such evidence could include information about the business’s customers, the historical performance of the industry, and about national, regional, or local economic prospects.
Second, the court indicated that the jury “chose to believe [Clinical Study’s expert’s] testimony” which testimony reflected the expert’s adoption of a projection prepared by Clinical Study. Adopting a litigant’s projection or forecast by the litigant’s expert could be reasonable, and not impede the expert’s independence and objectivity if the expert determines that such a projection or forecast is reasonable. In this case, Clinical Study’s expert “testified that his calculations represented a conservative estimate of the damages because he only identified” specific, and not all studies lost during the loss period.
Third, the expert’s lost profits analysis – accepted by the jury – includes consideration of only “incremental costs” which Boellner’s expert contested, claiming that it should include overhead expenses such as “rent and full-time salaries.” Overhead expenses could be considered incremental if they are reasonably and uniquely attributable to lost revenues. All overhead expenses could be considered attributable if the expert’s assignment is calculating lost profits resulting from the loss of an entire business. The instant matter only identified some, but not all drug studies lost. Some overhead expenses could be considered attributable if the expert’s assignment relates to the loss of a portion of a business. However, a determination of attribution must be based on sound methodology by which the expert traces the expenses or some portion of the expenses directly to the finished goods or services.
