§23.6 Damages for Lost Profits

The Case: Waggoner Motors, Inc. v. Waverly Church of Christ , 159 S.W.3d 42 (Tenn. Ct. App. 2004), perm. appeal denied (Feb. 28. 2005).

The Basic Facts: Church was being repainted. Overspray caused damage to vehicles at nearby dealership.

The Bottom Line:

• "The purpose of compensatory damages is to compensate a party for the loss or injury caused by a wrongdoer's conduct. Inland Container Corp. v. March, 529 S.W.2d 43, 44 (Tenn. 1975); Overstreet v. Shoney's, Inc., 4 S.W.3d 694, 703 (Tenn. Ct. App. 1999). The goal is to restore the injured party, as nearly as possible, to the position the party would have been in had the wrongful conduct not occurred. Beaty v. McGraw, 15 S.W.3d 819, 828-29 (Tenn. Ct. App. 1998). The injured party should be fully compensated for all losses caused by the wrongdoer's conduct. General Constr. Contractors Ass'n, Inc. v. Greater St. Thomas Baptist Church, 107 S.W.3d 513, 526 (Tenn. Ct. App. 2002)." 159 S.W.3d at 57.
• "The party seeking damages has the burden of proving them. Walker v. Sidney Gilreath & Assocs., 40 S.W.3d 66, 71 (Tenn. Ct. App. 2000); Inman v. Union Planters Nat'l Bank, 634 S.W.2d 270, 272 (Tenn. Ct. App. 1982). While there is no mathematical formula for calculating damages in negligence cases, Brown v. Chesor, 6 S.W.3d 479, 483 (Tenn. Ct. App. 1999), the proof of damages must be as certain as the nature of the case permits and must enable the trier of fact to make a fair and reasonable assessment of the claimed damages.Provident Life & Accident Ins. Co. v. Globe Indem. Co., [3 S.W.2d 1057, 1058 (Tenn. 1928)]; Pinson & Assocs. Ins. Agency, Inc. v. Kreal, 800 S.W.2d 486, 488 (Tenn. Ct. App. 1990)." Id.
• "Damages may never be based on speculation or conjecture. Overstreet v. Shoney's, Inc., 4 S.W.3d at 703; Western Sizzlin, Inc. v. Harris, 741 S.W.2d 334, 335-36 (Tenn. Ct. App. 1987). However, damages become too speculative only when the existence of damages is uncertain, not when the precise amount is uncertain. Church v. Perales, 39 S.W.3d 149, 172 (Tenn. Ct. App. 2000). The evidence required to support a claim for damages need only prove the amount of damages with reasonable certainty.Wright Med. Tech., Inc. v. Grisoni, 135 S.W.3d 561, 595 (Tenn. Ct. App. 2001); Overstreet v. Shoney's, Inc., 4 S.W.3d at 703." Id. at 57-58.
• "Injured parties seeking to recover damages for lost anticipated profits have traditionally faced an uphill climb. The traditional rule was that anticipated damages of a commercial business are too speculative and dependent on changing circumstances to warrant a judgment for their loss.Chisholm & Moore Mfg. Co. v. United States Canopy Co., [77 S.W. 1062, 1063 (Tenn. 1903)]; General Constr. Contractors Ass'n, Inc. v. Greater St. Thomas Baptist Church, 107 S.W.3d at 525. Now, however, the courts recognize that an injured party may recover lost anticipated profits when their nature and occurrence have been established with reasonable certainty. Baker v. Hooper, 50 S.W.3d 463, 470 (Tenn. Ct. App. 2001); Tire Shredders, Inc. v. ERM-North Cent., Inc., 15 S.W.3d 849, 857 (Tenn. Ct. App. 1999); [1 Recovery of Damages for Lost Profits § 1.4, at 9]." Id. at 58.
• "The reasonable certainty standard applies chiefly to the evidence regarding the existence of damages. 1 [Recovery of Damages for Lost Profits] § 1.6, at 17. It is a flexible standard that permits the courts to take the particular facts of each case into consideration. Texas Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 279 (Tex. 1994). The existence of damages has been proven with reasonable certainty when the mind of a prudently impartial person is satisfied that the injured party has been damaged.Brevard County Fair Ass'n, Inc. v. Cocoa Expo, Inc., 832 So.2d 147, 153 (Fla. Dist. Ct. App. 2002); Welch v. U.S. Bancorp Realty & Mortgage Trust, 596 P.2d 947, 963 (Or. 1979)." Id.
• "Once an injured party proves that it has been damaged, the amount of the damages need not be proved with certainty or mathematical precision.McClain v. Kimbrough Constr. Co., 806 S.W.2d 194, 200 (Tenn. Ct. App. 1990); see also Authentic Architectural Millworks, Inc. v. SCM Group USA, Inc., 586 S.E.2d 726, 731 (Ga. Ct. App. 2003). After the fact of damages had been established, less certainty is required with regard to the amount of the damages. The amount of lost profits damages may be based on estimates. Hill v. Republic of Iraq, 328 F.3d 680, 684 (D.C. Cir. 2003); Sostchin v. Doll Enters., Inc., 847 So.2d 1123, 1128 (Fla. Dist. Ct. App. 2003). While definite proof regarding the amount of damages is desirable as far as it is reasonably possible,^FN29 it is even more desirable that an injured party not be deprived of compensation merely because it cannot prove the extent of the harm suffered with complete certainty. [RESTATEMENT (SECOND) OF TORTS] § 912 cmt. a (1979). This principle is based on the policy that defendants should not be permitted to complain about the lack of exactness or precision in the proof regarding the amount of damages when their wrongdoing created the damages in the first place. Walgreen Co. v. Walton, [64 S.W.2d 44, 50 (Tenn. Ct. App. 1932)]; [1 RECOVERY OF DAMAGES FOR LOST PROFITS § 5.2, at 385.]

  FN29 Parties seeking to recover lost profits damages would be well advised to provide the best available proof as to the amount of their loss that the particular situation permits. Vickers v. Wichita State Univ., 518 P.2d 512, 517 (Kan. 1974)."

  Id .
• "An award for lost profits damages depends on whether the evidence provides a satisfactory basis for estimating what the injured party's probable earnings and expenses would have been had the wrongdoing not occurred. Kids' Universe v. In2Labs, 116 Cal. Rptr. 2d 158, 168 (Ct. App. 2002). Since lost profits can rarely be computed down to the last penny, [1 Recovery of Damages for Lost Profits § 5.1, at 382], the evidence needed to support an award for lost profits need only provide a reasonable or rational basis for calculating what the lost profits would have been. [1 Recovery of Damages for Lost Profits § 5.5, at 391]." Id. at 58-59.
• "Anticipated future profits may be reasonably ascertained from the past volume of the injured party's business and from other provable data relevant to probable future sales. Kids' Universe v. In2Labs, 116 Cal. Rptr. 2d at 168. The best evidence of lost profits is a comparison of the experience of the injured party's own business before and after the wrongdoing. Swierczynski v. Arnold Foods Co., 265 F. Supp. 2d 802, 811 (E.D. Mich. 2003); KW Plastics v. United States Can Co., 131 F. Supp. 2d 1265, 1269 (M.D. Ala. 2001); Walgreen Co. v. Walton, 16 Tenn. App. at 222; 64 S.W.2d at 49 (approving the comparison approach but disapproving the length of the post-wrongdoing period); [1 Recovery of Damages for Lost Profits § 5.7, at 396]." Id. at 59.
• "Damages for lost profits must be based on net profits, not on gross revenues or on gross profits. In cases involving the loss of expected profits from the sale of goods, the expected net profits equals the expected revenue from the sale of the goods minus the cost of the goods sold minus all of the seller's expenses fairly attributable to the sale of the goods. First Tenn. Bank, Nat'l Ass'n v. Hurd Lock & Mfg. Co., No. 117, 1988 WL 86493, at *3 (Tenn. Ct. App. Aug. 19, 1988), perm. app. denied (Tenn. Oct. 31, 1988) (defining net profits as gross profits minus the 'costs necessary to achieve those gross profits'); Tri-Fuels, Inc. v. Automotive Franchise Corp., No. 87-180-II, 1987 WL 18967, at *9 (Tenn. Ct. App. Oct. 30, 1987) (No Tenn. R. App. P. 11 application filed) (holding that 'net profit" means gross profit minus 'administrative costs including selling expenses, which are 'overhead''). Thus, persons seeking to recover for lost expected profits must prove not only the probable income from the sale of the goods but also the expenses they would have incurred to produce that income. Authentic Architectural Millworks, Inc. v. SCM Group USA, Inc., 586 S.E.2d at 731." Id. at 59.
• "Defenses predicated on the assertion that the plaintiff cannot prove a history of profitability have frequently been rejected by the courts. Generally, the courts hold that an injured party is not required to prove a history of profitability to be entitled to recover lost anticipated profits. See, e.g., Beverly Hills Concepts, Inc., v. Schatz & Schatz, Ribicoff & Kothin, 717 A.2d 724, 739 (Conn. 1998); Sostchin v. Doll Enters., Inc., 847 So. 2d at 1128; North Dade Cmty. Dev. Corp. v. Dinner's Place, Inc., 827 So. 2d 352, 353 (Fla. Dist. Ct. App. 2002); Helena Chem. Co. v. Wilkins, 47 S.W.3d 486, 505 (Tex. 2001); Capital Metro. Transp. Auth./Cent. of Tenn. Ry. & Navigation Co. v. Central of Tenn. Ry. & Navigation Co., 114 S.W.3d 573, 579 (Tex. App. 2003). Courts recognize that a commercial enterprise can suffer economic injury regardless of its financial starting point. As one court has noted, 'simply because a business may have a net loss does not mean that it cannot suffer further damage at the hands of another.'Frank B. Hall & Co. v. Beach, Inc., 733 S.W.2d 251, 258 (Tex. App. 1987); see also [1 Recovery of Damages for Lost Profits § 4.10, at 370] (noting that an injured party could have lost less had the wrongdoing not occurred)." Id. at 60.
• "To hold otherwise would produce a particularly egregious result in cases like this one in which the injured party is hovering around the break-even point. Were we to follow the church's logic, Waggoner could recover if the overspray occurred during one of its good years but not if the injury occurred during one of its down years. A common sense reading of the law cannot sustain this position. Accordingly, having determined that Waggoner presented sufficient proof to establish that its business was damaged as a direct result of the paint overspray, we now turn to Waggoner's evidence concerning the amount of these damages." Id.
• "The existence and amount of lost profits damages may be established by expert testimony.^FN32 See, e.g., M-S-R Pub. Power Agency v. Tucson Elec. Power Co., 742 F. Supp. 1058, 1059 (D. Ariz. 1990); AGF, Inc. v. Great Lakes Heat Treating Co., 555 N.E.2d 634, 640 (Ohio 1990); Global Pro. Corp. v. Halbersberg, 503 S.E.2d 483, 487 (S.C. Ct. App. 1998); Cook Assocs., Inc. v. Warnick, 664 P.2d 1161, 1166 n.4 (Utah 1983). Accountants and economists are commonly retained to provide expert opinions regarding a business's lost profits, [2 Recovery of Damages for Lost Profits §§ 7.5, to 7.6, at 541-45], and courts have relied on their testimony to calculate lost profits damages.

  FN32 However, in many circumstances, lost profits may also be established without presenting expert testimony.See, e.g., Cardinal Consulting Co. v. Circo Resorts, Inc., 297 N.W.2d 260, 269 (Minn. 1980); Rocky Mountain Enters., Inc. v. Pierce Flooring, 951 P.2d 1326, 1331-32 (Mont. 1997); Southwestern Bell Media, Inc. v. Lyles, 825 S.W.2d 488, 499 (Tex. App. 1992)."

  Id . at 60-61.
• "Expert opinions or estimates of lost expected profits must be based on objective facts, figures, or data from which the amount of lost profits may be reasonably ascertained. Long v. Langley, No. W2001-01490-COA-R3-CV, 2002 WL 818224, at *7 (Tenn. Ct. App. Apr. 23, 2002) (No Tenn. R. App. P. 11 application filed); SBC Operations, Inc. v. Business Equation, Inc., 75 S.W.3d 462, 467 (Tex. App. 2001); [Neil P. Cohen et al., Tennessee Law of Evidence § 7.02[12] (4th ed. 2000)]. In addition, the expert must employ recognized and acceptable methodology and must apply the methodology in a proper manner. If an expert relies on unreliable foundational data, any opinion drawn from that data is likewise unreliable. By the same token, an expert's testimony is unreliable, even when the underlying data is sound, if the expert employed flawed methodology^FN33 or applied sound methodology in a flawed way.

  FN33 Kumho Tire Co. v. Carmichael, 526 U.S. 137, 153, 119 S. Ct. 1167, 1176-77 (1999); Gilbert v. Daimler Chrysler Corp., [685 N.W.2d 391, 409 (Mich. 2004)]; Helena Chem. Co. v. Wilkins, 47 S.W.3d at 499."

  Id . at 61.

Other Sources of Note: Phillips Contractor's and Management, LLC v. Stealth Group, LLC , No. E2006-01960-COA-R3-CV, 2007 WL 1373189 (Tenn. Ct. App. May 10, 2007) (damages for lost profits must include consideration of expenses which would have been incurred to produce income).

Recent Cases: Hannan v. Alltel Publishing Co. , 270 S.W.3d 1 (Tenn. 2008) (reversing summary judgment finding defendant did not negate essential element of plaintiffs' claims with regard to lost profits); Ellis v. Sprouse, No. E2009-00654-COA-RM-CV, S.W.3d, No. E2009-00654-COA-RM-CV, 2009 WL 1871930 (Tenn. Ct. App. Jun. 30, 2009) (upholding jury award of damages for loss of crops).