Page 33 - Acertaining Economic Damages Calculation

When engaged to perform a lost profits calculation (including identification of the appropriate costs to
deduct), the practitioner may also consider the principle articulated by the Court of Appeals of Texas in
Holmes v. Jetall Cos. After referencing and summarizing a number of decisions addressing lost profits
calculations, including revenue and cost estimates, the court wrote the following:

The common thread running through each of the cases we have summarized is that a party seek-
ing to prove lost profits must provide a model showing how the amount of lost profits can be de-
termined, support that model with facts and assumptions, and demonstrate how the assumptions
in the model are reasonable. fn 7

Focus on Net Profits vs. Gross Profits

A lost profits calculation is intended to place the plaintiff in the position that would have occurred had
the events at issue not arisen, whether it be a contract that was, in fact, performed, or a tort that had not
occurred. At its basic level, this is the difference between what a party should have made in profits on a
series of transactions and what was actually made on such a series of transactions. Thus, in a situation in
which an event at issue prevented transactions from occurring (for instance, lost sales), then an analysis
would seek to calculate the lost profits on those sales, which courts have stated requires an analysis of
any avoided costs in determining the actual loss suffered by a party. Courts have enunciated that such an
analysis seeks to measure lost net profits rather than lost gross profits, as the "measure of damages is just
compensation for the loss or damage actually sustained." fn 8

The cases in this section provide examples of instances when courts have addressed the issue of properly
identifying avoided costs to calculate lost net profits in the but-for world. These cases demonstrate the
need for the practitioner to analyze the nature of the lost revenue and the particular costs associated with
that particular revenue stream, a theme present in each of the sections in this chapter.

Kellmann v. Workstation Integrations, Inc., 332 S.W.3d 679 (Tex. App. 2010)

Workstation Integration, Inc. (Workstation) operated as a computer support business to small and mid-
size oil and gas companies. Jennifer Kellmann (Kellmann) was a senior consultant at Workstation for six
years before leaving the company to start her own consulting firm, Kellmann Consulting, Inc.
(Kellmann Consulting). After Kellmann left employment at Workstation, a number of Workstation cli-
ents transferred business to Kellmann Consulting based on "her personal relationship," causing Work-
station to lose what the court described as "most" of its business. Workstation subsequently brought suit
against Kellmann and Kellmann Consulting for, among other claims, theft of trade secrets, misappropri-
ation of trade secrets, and breach of fiduciary duty based on allegations that Kellmann took confidential
information related to Workstation clients with her when she left Workstation to start Kellmann Consult-
ing.

At trial, the jury found Kellmann personally liable for theft of trade secrets, misappropriation of trade
secrets, and breaching her fiduciary duty to Workstation, while finding Kellmann Consulting not liable.
The jury awarded Workstation $148,486 in damages, $25,832 in prejudgment interest, and $35,000 in
attorney’s fees. Kellmann appealed the jury’s finding and challenged, among other things, the legal and

fn 7 Holmes v. Jetall Cos., Inc., 2016 Tex. App. LEXIS 7213 (Tex. App. July 7, 2016).

fn 8 South Plains Switching, Ltd. v. BNSF Railway Co., 255 S.W.3d 690, 705 (Tex. App. 2008).

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