Page 69 - Economic Damages Calculation

The following sections contain a discussion of case law, intended to provide perspective on these issues,
the types of analyses courts have considered, and relevant facts in cases with claims of lost profits suf-
fered by new or unestablished businesses. These cases have been selected to illustrate particular issues
and not for precedential value. For any particular engagement, the expert can work with counsel to as-
sess the particular requirements of the case at hand, including identifying the relevant damages case law
and facts necessary to build an adequate damages model.

Cases Identifying What Is a "New" or "Established" Business

General Observations

As the discussion in the earlier sections makes clear, when a business is characterized as "new," "unes-
tablished," or "unproved," that has historically had a significant impact on a plaintiff’s right to recovery.
A review of cases indicates that, as expected, courts have often found that businesses operating for only
months are "new." However, courts have made more detailed inquiries, also considering the time period
covered by the relevant data used and whether the business in question had been profitable over its peri-
od of existence.

Delahanty v. First Pa. Bank

In this case, First Pennsylvania Bank argued on appeal that the trial court had made a number of errors
in finding for the plaintiffs regarding allegations of fraud, including the award of "anticipated lost prof-
its" of the business at issue. fn 16 The plaintiffs alleged the defendant failed to uphold its promises to ful-
ly support a new retail automobile leasing business the plaintiffs opened in early 1973 (and other allega-
tions pertained to an existing automobile sales business). The plaintiffs also alleged that the defendant
had violated its assurance that it had no intention of entering the leasing business itself.

Soon after the plaintiffs opened an automobile leasing business, the defendant informed the plaintiffs
that it intended to enter the automobile leasing business as well — something that it ultimately did in
early 1974. Evidence in the record suggested that the bank had been contemplating such a strategy for at
least a few years. Not long thereafter, the plaintiffs sought additional working capital to build inventory
for the upcoming Fall 1973 sales season, when new automobile models traditionally were introduced.
The defendant refused and ultimately forced the plaintiffs, after less than a year of operation, to return
all cars purchased by not only the new leasing business, but also the established auto sales business the
plaintiff also owned and operated.

The Superior Court of Pennsylvania noted that a "review of the cases [at the time] in Pennsylvania in-
volving lost profits showed the courts [to be] reluctant to award [lost profits to] . . . businesses . . . [iden-
tified as] ‘new and untried.’" fn 17 However, the court noted that its decisions in recent cases did not
foreclose recovery of lost profits for a new business — though it was clear that in Pennsylvania, such
businesses had a "heavier burden in proving that lost profits are sufficiently certain to be recovered." fn 18

fn 16 Delahanty v. First Pa. Bank, N.A. 318 Pa.Super. 90 (Pa. Super. Ct. 1983).

fn 17 Delahanty v. First Pa. Bank, N.A., 464 A.2d 1243, 1258 (Pa. Super. Ct. 1983).

fn 18 Id. at 1260.

© 2020, Association of International Certified Professional Accountants 67