Page 34 - Acertaining Economic Damages Calculation

factual sufficiency of the evidence of lost profits. Kellmann claimed that the lost profits calculation was
based upon "insufficient evidence."

On appeal, the Court of Appeals of Texas noted that "[l]ost profit estimates or opinions must be based
on objective facts, figures, or data from which the lost profits amount may be ascertained." The court of
appeals continued, explaining that net profits are the appropriate measure for lost profits:

Lost profits are damages for the loss of net income to a business and, broadly speaking, reflect
income from lost-business activity, less expenses that would have been attributable to that activi-
ty. A claimant must demonstrate one complete calculation of lost profits. The calculation of lost-
profits damages must be based on net profits, not gross revenue or gross profits. fn 9 [internal ci-
tations omitted]

At trial, one of Workstation’s founders (who held a finance degree) testified to Workstation’s claims of
lost profits based upon an analysis of revenue per invoices and tax returns from Kellmann and Kellmann
Consulting. The court of appeals pointed out that the damages figures available to the jury "did not ac-
count for any expenses, such as software licenses, medical insurance, rent, phone bills, taxes, employee
salaries or any equipment costs." Workstation’s witness further admitted at trial that Kellmann’s ex-
penses could not be determined from the tax returns relied upon to calculate lost profits.

Workstation’s counsel attempted to cure the failures noted previously by providing information regard-
ing expenses during closing argument. However, the court of appeals pointed out that counsel’s figures
were at odds with Workstation’s own witness’ testimony and, more importantly, that a lawyer’s state-
ments during argument "do not constitute evidence."

In an additional effort to arrive at a net lost profits calculation, Workstation’s founder testified to Work-
station’s markup and then attempted to apply it to Kellman’s revenue. The court of appeals ultimately
concluded that this failed as well:

[T]estimony regarding Workstation Integrations’s average markup on equipment did not provide
evidence from which lost profits may be calculated with reasonable certainty. Laura Kay testified
only to Workstation Integrations’s general average markup for "large" equipment; her testimony
did not account for other equipment or expenses, and Kellmann testified that the gross figures in-
clude equipment, software, and license costs. Further, testimony about Workstation Integrations's
typical mark-ups does not constitute evidence as to actual costs to Kellmann. Without
Kellmann's costs deducted from the relevant invoices, it is impossible to discern Kellmann's net
profits. Workstation Integrations's attempt to apply its own costs to Kellmann's gross profits did
not provide the jury with the required "one complete calculation" of lost profits. fn 10

Finally, the court of appeals rejected Workstation’s attempt to claim that lost profits based upon gross
profits were appropriate under the circumstances, when there was testimony and information available
that suggested there were increased costs with additional business. Thus, the court of appeals found
Workstation’s evidence of its lost profits "legally insufficient," rendering "judgment that Workstation
Integrations take nothing from Kellmann."

fn 9 Kellmann, 332 S.W.3d at 684.

fn 10 Id. at 686.

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