Page 71 - Economic Damages Calculation

Virginia appears to follow a stricter form of the new business rule, although cases indicate Virginia
courts have identified exceptions that allow recovery. Thus, any failure to achieve the business status of
"established," according to the courts, may preclude recovery of lost profits. In Clark, the court focused
on the two months of data upon which Clark relied, and how the partnership’s performance during this
time differed from its earlier experience. Setting aside whether the eight months of operation would have
led the court to conclude the dental partnership was a new business, it seems clear the court was also
troubled by the limited data that were used to calculate lost profits.

Gorjuice Wrap, Inc. v. Okin, Hollander & De Luca, LLP (unpublished)

In a more recent, unpublished case, a Superior Court of New Jersey (Appellate Division) heard an ap-
peal of a summary judgment ruling in favor of the defendants in a legal malpractice case. Underlying
this action was a lease into which Gorjuice entered, to open "a computer lounge and facility that offered
educational services," along with "recreational and entertainment services," in a community center. fn 23

Due to a subsequent sale of a contiguous property containing parking spaces relied upon by Gorjuice in
its zoning application, Gorjuice ultimately was unable to obtain full zoning approval for all of the activi-
ties for which its business plan called. Approximately 10 months after opening, Gorjuice ceased opera-
tions, allegedly due to its inability to provide the services in its business plan, the landlord’s alleged fail-
ures to perform required repairs on the property, and a flood in an adjacent business, which caused dam-
age to Gorjuice’s business.

In seeking recovery for the harm caused by the defendants’ role in failing to protect its interests in enter-
ing into the lease and enforcing its rights thereunder, Gorjuice alleged that it was unable to gain access
to its leased property after the flood, preventing it from accessing educational materials that it was con-
tracted to provide to a third party. The court noted that Gorjuice sought damages for malpractice, includ-
ing lost profits of $6.4 million related to the contract with the third party, as well as $1.67 million in lost
profits related to its regular business — all calculated in an expert report prepared by a CPA.

The defendants argued that, under the new business rule, the plaintiff was precluded from recovering
any lost profits. In analyzing this particular argument, the court noted that Gorjuice was a "new compa-
ny" that "had been in operation for only two and one-half years, even if [it] include[d] its predecessor,
Edream." fn 24 The court then pointed to tax returns and evidence of Gorjuice’s financial condition dur-
ing the lease, evidencing that for the entirety of its existence Gorjuice and its predecessor had failed to
make any profits. The court concluded that "Gorjuice was therefore ‘a new and unproved enterprise.’" fn
25

Turning to the claims regarding lost profits associated with its third party contract, the court noted Gor-
juice had failed to meet its obligations under the contract prior to some of the events at issue in the mat-

fn 23 Gorjuice Wrap, Inc. v. Okin, Hollander & De Luca, LLP, 2011 N.J. Super. Unpub. LEXIS 93, *3–4 (App. Div. Jan. 12, 2011).

fn 24 Id. at *37.

fn 25 Id.

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