Page 62 - Acertaining Economic Damages Calculation

costs, and profits and losses in the months or years leading up to the alleged breach to that in the damage
period. As discussed by one scholar of economic damages, "The before-and-after method is probably the
most reliable method for proving lost profits as damages. Courts in nearly every jurisdiction have en-
dorsed its use." fn 4

Moreover, damages experts are generally expected to consider whether other factors (other than the de-
fendant’s alleged bad acts) caused changes between the pre- and post-damage periods. Such an analysis
could not typically be done without some consideration of the underlying historical financial data, as
discussed in the following cases:

Travellers Int'l, A.G. v. Trans World Airlines, 41 F.3d 1570 (2d Cir. 1994)

The plaintiff Travellers International, A.G. (Travellers) and defendant Trans World Airlines (TWA) en-
tered into a joint venture agreement for the mass marketing of foreign leisure escorted tours. After TWA
terminated the agreement in 1987, it began providing these services in-house and conducting business
with Travellers’ competitors. Travellers filed suit for wrongful termination. The court found that TWA
breached the agreement and awarded Travellers lost profits of $10.4 million plus pre-judgment interest.

TWA challenged the award on appeal, arguing, among other things, that the resulting damages were not
proven with sufficient certainty. The Second Circuit found in favor of Travellers, concluding that

the statistical evidence presented at trial to establish damages was of the same type used and re-
lied upon by the parties in conducting their own businesses... The ratio analysis relied on figures
derived from the historical relationship between TWA and Travellers to determine the average
percentage of TWA's transatlantic traffic that Getaway tours represented and applied the result-
ing ratio to TWA's actual operating data for each tour seasons at issue to project the expected
demand for Getaway tours during that period... TWA had used such a ratio analysis in the past to
project the expected demand for Getaway tours for each tour season... [T]he ratio analysis adopt-
ed by Judge Ward was a technique recognized and used in the industry, was integral to project-
ing the expected demand for Getaway tours at each annual planning meeting, and was of the
same type of data relied on by both TWA and Travellers in conducting their businesses. fn 5

In this case, the court found Travellers use of the same type of data used historically by management to
make operating decisions to be persuasive.

California Fed. Bank v. United States, 395 F.3d 1263 (Fed. Cir. 2005)

California Federal Bank (CalFed) acquired six failing thrifts in 1981 and 1982, under the assurance that
it could include more than $600 million in "supervisory goodwill" in its calculation of regulatory capital.
When Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) was enacted in 1989,
institutions such as CalFed were no longer permitted to include this supervisory goodwill and were re-
quired to write down the goodwill over a 5-year period. CalFed filed a breach of contract action based
on FIRREA’s new restrictions on supervisory goodwill and was granted summary judgment. CalFed

fn 4 Lloyd, Robert M., "Proving Damages for Lost Profits: The Before-and-After Method" (2014). College of Law Faculty Scholar-
ship. http://trace.tennessee.edu/utk_lawpubl/71.

fn 5 Travellers Int’l, 41 F.3d at 1579-80.

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