Page 67 - Economic Damages Calculation

• "Strict application of the certainty doctrine would place a new business at a substantial disad-
vantage. To hold recovery is precluded as a matter of law merely because a business is newly es-
tablished would encourage those contracting with such a business to breach their contracts. The
law is not so deficient." fn 8

In a 2000 decision applying Arkansas law, Judge Posner pointed out the failure of the per se version of
the new business rule, applying a "rule" rather than a better alternative — a "standard":

A rule singles out one or a few facts and makes it or them conclusive of legal liability; a standard
permits consideration of all or at least most facts that are relevant to the standard's rationale. ...
States that have rejected the ‘new business’ rule are content to control the award of damages for
lost profits by means of a standard — damages may not be awarded on the basis of wild conjec-
ture, they must be proved to a reasonable certainty ... The "new business" rule is an attempt now
widely regarded as failed to control the award of such damages by means of a rule. fn 9

Additionally, the move away from a strict application of the new business rule recognizes changes in the
type of evidence and analysis at the disposal of financial and economic experts, such that strict adher-
ence to the new business rule is no longer necessary. The modern trend recognizes that the "fact that the
business is new does not prohibit lost profits from being recovered. It only is to be considered as a mat-
ter of ‘evidentiary sufficiency rather than an automatic bar to recovery.’" fn 10

Bernadette J. Bollas wrote of this trend in the late 1980s, observing at the time that "modern rules of ev-
idence help ensure that extensive and complicated statistical evidence needed to prove lost profits is pre-
sented in a manner understandable to the trier of fact." fn 11 Ms. Bollas further observed that courts seem-
ingly recognized that "reasonable evidence" is what is required, which may be found in some facts other
than past profits. fn 12

Courts following a sufficiency of evidence standard recognize that modern techniques in analysis and
modeling have also become more sophisticated, lending more confidence in damage calculations for
new and unproven businesses. fn 13 In her commentary, Ms. Bollas noted that the increased accuracy of
methodologies used to calculate lost profits was one of the factors supporting the movement to a rule of

fn 8 Vickers v. Wichita State Univ., 619; 518 P.2d 512, 517 (Kan. 1974).

fn 9 MindGames, Inc. v. W Publ’g Co. 218 F.3d 652, 657 (7th Cir. 2000) (applying Arkansas law) (citations omitted).
fn 10 Moore v. Moore, 599 S.E. 2d 467, 475 (S.C. Ct. App. 2004). (Citations omitted).

fn 11 Bernadette J. Bollas, Note, "The New Business Rule and the Denial of Lost Profits," 48 Ohio St. L.J. 855, 865 (1987).

fn 12 Id. at 868.

fn 13 See Houston Exploration Inc. v. Meredith, 728 P.2d 437, 438 (Nev. 1986) "The history of Nevada's law concerning the recovery
of lost profits for a new business venture reflects an evolution consistent with an increasing sophistication in economic forecasting."

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