Page 35 - Acertaining Economic Damages Calculation

It is worth noting that the Court of Appeals of Texas pointed out that Workstation’s damages witness
acknowledged that she had used the tax returns in a manner that was not customary in her industry. Fur-
thermore, the court of appeals had concerns with a number of inconsistencies between information and
calculations, including conflicting testimony by Workstation’s witnesses. Experts should consider view-
ing the court of appeals reasoning and conclusions in this light. Setting these other issues aside, the court
of appeals was clear that in Texas, testimony and evidence regarding revenues without sufficient evi-
dence regarding expenses saved in order to get to net lost profits is not appropriate for a lost profits
analysis.

Englewood Terrace Ltd. P’ship v. United States, 113 Fed. Cl. 718 (Fed. Cl. 2013)

Englewood Terrace Limited Partnership (Englewood) operated a high-rise apartment building in Chica-
go, Illinois (South Pointe) and had entered into a housing assistance payment (HAP) contract with the
United States Department of Housing and Urban Development (HUD). The HAP contract provided Eng-
lewood with rent subsidies for apartment tenants. HUD had unilaterally amended the HAP contract re-
sulting in Englewood bringing suit for breach of contract and lost profits. At trial, the court found that
HUD had breached the contract, awarding $3.2 million in "lost profits" to Englewood based on taking
"the Potential Revenue less the Actual Revenue received."

On appeal to the United States Court of Appeals for the Federal Circuit, the Federal Circuit found that
such a "lost profits" calculation was simply a "gross revenue" calculation and failed to "deduct costs and
expenses Englewood saved, that is, did not pay, as a result of the breach." As a result, Englewood had
been inappropriately placed in a "better position than it would have been in had there been no breach."
The Federal Circuit remanded the limited issue of the lost profits calculation to the trial court, with the
following instruction:

The Claims Court must reduce the award by any operational costs or expenses Englewood did
not pay but would have been obligated to pay if HUD had not breached the HAP contract. These
may include mortgage payments, liability insurance, property taxes, and money for repairs and
rehabilitation of [the apartment building]. fn 11

The Federal Circuit pointed out that this "may include mortgage payments, liability insurance, property
taxes, and money for repairs and rehabilitation of South Pointe." The Federal Circuit also noted that if
the plaintiff had retained legal obligations to repay these costs and expenses they would not need to be
deducted because they would not be avoided.

On remand, the Court of Federal Claims instructed plaintiff and defendant to submit a detailed list of the
expenses and costs plaintiff would have been obligated to pay had HUD not breached its contract, ulti-
mately finding that the plaintiff had not followed this instruction.

Plaintiff did not submit a list of costs avoided, but instead tried, once again, to reargue plaintiff's
case stating that by ‘[a]pplying Judge Dyk's logic to this case, Englewood should receive as
damages the rental revenue it lost as a result of the HUD beach [sic] [gains prevented] and the

fn 11 Englewood Terrace, 113 Fed. Cl. at 728.

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