Page 48 - Economic Damages Calculation

W.W. Gay Mech. Contractor, Inc. v. Wharfside Two, Ltd.

The respondent filed a counter claim against the petitioner in which the petitioner was alleged to have
installed a defective water system at a hotel property. fn 33 The respondent sought damages arising from a
loss of business due to the foul smell caused by the petitioner’s allegedly poor quality of construction.
The trial court excluded the respondent’s damages expert, ruling that because this was a new business, fn
34 lost profits were deemed to be too speculative.

The Appellate Court perceived the case differently and took note of the following facts:

Wharfside introduced into evidence several studies it had commissioned, prior to litigation, to
obtain commercial financing for the project. These studies were based on similar hotel operations
in Jacksonville and other localities, and were used to persuade lenders to finance the project by
showing them the level of profitability Wharfside could expect once it began operation. Alt-
hough the trial court allowed Wharfside to enter the studies into evidence, it refused to allow ex-
pert testimony comparing projected occupancy rates with those actually realized in order to show
how much profit was lost. If permitted, Wharfside’s witness would have testified that Wharfside
lost profits of approximately one million dollars from 1981 to 1983. fn 35

The Appellate Court reversed the ruling by the trial court and remanded for a new trial. In doing so, it
reiterated that the standard for the award of lost profits is reasonable certainty rather than the otherwise
inflexible new business rule (refer to chapter 4 for a discussion of the new business rule). It concluded
the following information:

We find that under the facts of this case, the proffered evidence was not so speculative as to re-
quire its exclusion. The studies the trial court admitted, which were prepared prior to litigation
by reputable economic analysts, provided a sufficient standard to support the proffered testimo-
ny. It is undisputed that these studies were considered sufficiently reliable within the hotel and
banking fields to justify consummating a multi-million-dollar arrangement for financing the pro-
spective hotel. This evidence is sufficiently reliable to support a jury's consideration of the claim
for loss of prospective profits. fn 36

On further appeal, the Florida Supreme Court affirmed the Appellate Court’s ruling "[a] business can re-
cover lost prospective profits regardless of whether it is established or has any ‘track record.’" fn 37 It al-
so addressed the issue of causation as follows:

We reject the contention that the causal connection between foul-smelling water and lost reve-
nues was too tenuous. There was competent and substantial evidence that the odor was a cause of
reduced occupancy. This evidence was supported by studies prepared by reputable economic an-

fn 33 W.W. Gay Mech. Contractor, Inc. v. Wharfside Two, Ltd., 545 So. 2d 1348 (Fla. 1989).

fn 34 Issues associated with unestablished businesses are addressed in further detail in chapter 4.

fn 35 Wharfside Two, Ltd. v. W.W. Gay Mech. Contractor, Inc., 523 So. 2d 193, 194 (Fla. Dist. Ct. App 1988).

fn 36 Id. at 195.

fn 37 Id.

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