Page 39 - Acertaining Economic Damages Calculation

ployee testified unequivocally that the figures in the survey represented gross income from which
"’[Morales] would pay his overhead and his salary[,] ...his staff salary, his malpractice, his supplies, his
lease, his utilities, everything he needed to run his practice..." fn 21

Further, the Supreme Court of Mississippi stated that to arrive at net lost profits, "gross profits must be
reduced by the reasonable overhead expenses common to the Jackson HMA service area," concluding
Morales’ reliance "solely on the document provided by Jackson HMA" was misplaced for proving lost
net income under the facts and "insufficient to support the amount of damages awarded" at trial. fn 22 The
Supreme Court of Mississippi affirmed the judgment for Morales, but reversed on the issue of damages
and remanded the case to the circuit court for a new trial solely on damages. fn 23

Although a financial expert was not used in this case, the Supreme Court of Mississippi’s analysis did
not focus on the nature of the expertise of the person providing damages testimony. Although this is may
be a factor, as experts are aware, the court made clear that a failure to consider the nature of the infor-
mation relied upon, as well as appropriately considering and deducting avoided expenses, can be fatal to
damages testimony and analyses relied upon by a plaintiff in meeting plaintiff’s burden to establish the
amount of lost net profits.

Bettius & Sanderson, P.C. v. National Union Fire Ins. Co., 839 F.2d 1009 (4th Cir. 1988)

In this matter, Bettius & Sanderson, P.C. (Bettius) sued National Union Fire Insurance Co. (National
Union) claiming that National Union failed to satisfy claims against Bettius related to its work related to
the sale of a high-rise condominium building in Alexandria, Virginia. Bettius alleged this failure led to
"adverse publicity," causing it to "lose clients and staff and eventually forced it to dissolve." During the
damages phase of the trial, Bettius relied on a CPA who testified to Bettius’s "gross receipts, some of its
expenses, and the amount of compensation it paid to its principals." The jury returned a verdict in favor
of Bettius, awarding $2 million in compensatory damages as well as additional punitive damages. In
post-judgment filings by defendant, the court ordered a new trial regarding compensatory damages but
ruled that "evidence of compensation to Bettius’s principals would be admitted only as an expense of
Bettius and not as evidence of its net profit." Bettius subsequently appealed this decision.

The Fourth Circuit analyzed whether compensation to Bettius’s principals was only an expense or was
"relevant evidence" for proving Bettius’s lost net profits. The court wrote the following:

All relevant evidence is generally admissible at trial. In this case, the compensation paid to Bet-
tius's principals clearly tends to prove whether Bettius operated profitably, and it is therefore rel-
evant evidence of its net profits. Proof of net profits is material evidence in an action to recover
damages for lost profits. fn 24

fn 21 Id. at 500.

fn 22 Id. at 499-500.

fn 23 In remanding the case for a new trial regarding damages, the Supreme Court of Mississippi also analyzed, and ultimately rejected,
separate testimony and evidence regarding alternate bases provided by Morales to support the jury’s award of damages. These are not
discussed here.

fn 24 Bettius & Sanderson, 839 F.2d at 1012.

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