Page 42 - Acertaining Economic Damages Calculation

Waverly Church’s expert analyzed Waggoner’s records and found that the dealership had experienced a
steady decline in sales during the two years preceding the overspray incident, and that the rate of loss in
the six months immediately preceding the incident was greater than the rate during the past two years.
Additionally, Waverly Church’s expert concluded that there were no losses traceable to the overspray
incident after November 1997. Waverly Church’s expert submitted five alternative damage calculations,
with damages ranging between $10,624 to $44,304.

After hearing the testimony of the parties and their experts, the court criticized both experts’ opinions
for a variety of reasons related to the calculation of revenue and the revenue period. Both parties pre-
sented revised damages calculations, and the court awarded Waggoner $342,278 in lost profits. Waverly
Church appealed, asserting Waggoner was not entitled to damages because it had not been a profitable
business at the time of the overspray incident.

The Court of Appeals of Tennessee noted that damages for anticipated lost profits had traditionally been
thought to be "too speculative." However, the court of appeals cited recent decisions at the time and the
Recovery of Damages for Lost Profits fn 31 that courts had begun to recognize that "lost anticipated prof-
its may be recovered when their nature and occurrence have been established with reasonable certainty."
The court of appeals continued:

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. fn 32

In looking at what lost profits means in the context of a claim for damages, the court of appeals stated
that such "lost profits must be based on net profits," with "net profits equal[ing] the expected revenue
from the sale of the goods minus the cost of the goods sold minus all of the seller’s expenses fairly at-
tributable to the sale of the goods." fn 33 According to the court of appeals, net profits did not include
fixed overhead expenses, which "would have [been] incurred notwithstanding the wrongful act." fn 34

Turning to Waggoner’s expert’s analysis relied upon by the trial court, the court of appeals found the
expert’s methodology to be "so flawed that basing an award of lost profits on his projections is little
more than speculation." fn 35 The court of appeals found, among other failings (including unsupportable
revenue assumptions), that the expert failed to include all of Waggoner’s variable expenses properly at-
tributable to the sale of vehicles. In addition, the court of appeals found that Waggoner’s expert’s calcu-
lation using the average gross profit per vehicle multiplied by the number of vehicles sold was an "ap-
proach inconsistent with the requirement that lost profits be based on net profits." fn 36

fn 31 Citing Robert L. Dunn, Recovery of Damages for Lost Profits, § 1.4 at 9 (5th ed. 1998).

fn 32 Waggoner Motors, 159 S.W.3d at 58-59.

fn 33 Id. at 59.

fn 34 Id. at 59 n.31.

fn 35 Id. at 60.

fn 36 Id. at 62.

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