Page 76 - Economic Damages Calculation

The following cases demonstrate that courts are interested in objectively verifiable dimensions of simi-
larity.

Chung v. Kaonohi Ctr. Co.

In this case, the plaintiffs negotiated a 10-year lease with the defendants’ agent for a Chinese fast-food
restaurant outlet being constructed at a mall owned by the defendants. fn 47 In furtherance of opening the
restaurant, the parties executed a lease and the plaintiffs paid the defendants a deposit. The plaintiffs also
began to order equipment and furnishings, hire chefs and workers, and advertise for the new restaurant
in the Yellow Pages. During this time and unbeknownst to the plaintiffs, the defendants also negotiated
with other parties to lease the same space for a similar purpose. Ultimately, the defendants leased the en-
tire "international kitchen" space in the mall containing the restaurant location to Sergio Battistetti, re-
funding the plaintiffs’ deposit and informing them that the defendants had decided not to move ahead
with the plaintiffs’ lease of the Chinese restaurant.

The plaintiffs sought specific performance of the lease agreement, as well as damages for breach of con-
tract — including future lost profits. At trial, the jury awarded $175,000 for lost future profits. The
plaintiffs’ expert was a real estate and business appraiser whose analysis included three different valua-
tion approaches: reproduction cost analysis, comparative market analysis, and income stream analysis.
His final valuation figure relied heavily on the income stream analysis, for which the plaintiffs’ expert
determined gross income for the first year of operations by looking at the actual gross income of the
Chinese kitchen run by Mr. Battistetti at the exact location at issue in this dispute. Additionally, the ex-
pert provided significant detail on the cost of goods and other expenses in his analysis. For some of
these inputs, the expert relied on actual figures from Mr. Battistetti’s restaurant, while others were based
on the expert’s industry knowledge and a projected rise in prices over time.

On appeal, the Supreme Court upheld the jury’s damages award despite the defendants’ assertion that an
unestablished business was barred as a matter of law from recovery of future lost profits. Specifically,
the court adopted the trend in other courts to allow new businesses to recover future lost profits where
these have been proven with reasonable certainty.

The defendants also argued it was inappropriate for the plaintiffs’ expert to use actual gross income fig-
ures from Mr. Battistetti’s Chinese restaurant in his damages analysis. The court rejected the defendants’
argument that the expert should not have used a figure "based on an existing operation not run by plain-
tiffs." fn 48 The court concluded that "[t]he restaurant most nearly approximating plaintiffs’ proposed
kitchen was Battistetti’s Chinese kitchen. It was in the identical location and serviced the same type of
food to the same type of clientele as plaintiffs’ proposed restaurant." fn 49 The court also noted that one
of the plaintiffs owned and operated two other Chinese restaurants, including one in the Pearlridge Mall,
and the profit and expense sheets from at least one of the restaurants had been introduced into evidence.

This case identifies geography and clientele as possible similarities that an expert may consider when
calculating lost profits of a new business. Moreover, it seems that the Supreme Court of Washington al-

fn 47 Chung v. Kaonohi Ctr. Co., 618 P.2d 283 (Haw. 1980).

fn 48 Chung v. Kaonohi Ctr. Co., 618 P.2d 283, 292 (Haw. 1980).

fn 49 Id.

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