Page 79 - Economic Damages Calculation

The discussion in this section highlights courts’ concern with applying information or metrics based on a
yardstick company to a new business in order to calculate lost profits. Consistent with a theme prevalent
in this chapter, courts appear to look more favorably on a damages analysis for an injured new business
where the damages analysis has been constructed by an expert who has considered relevant information,
provided specific bases for any assumptions (including those related to similarity), and built the damag-
es model to fit the facts of the case.

Cases Addressing the Use of Projections

General Observations

When building a damages model, an expert may seek out projections from the client. The expert then
may compare any projections to the past performance of the business. However, by their very nature,
new businesses have little or no operating history for comparison. Thus, how is the expert supposed to
confirm or adjust the assumptions reflected in projections?

Courts recognize this dilemma as well. The following cases highlight situations in which courts have
addressed whether or not the expert appropriately relied upon pre-litigation projections incorporated into
a damages model for a new business. As one would expect, courts appear to be more accepting of the
expert’s reliance on projections when the record indicates that the expert knows who constructed the
projections, and the expert or individual (or both) who prepared the projections has or had requisite ex-
pertise and training. This observation is similar to that addressed in chapter 2.

The following cases illustrate some of the issues the expert can expect to confront when using projec-
tions to construct a lost profits damages model for a new business.

SuperValu Stores, Inc. v. Peterson

In this case, the Supreme Court of Alabama confirmed an award of lost profits resulting from SuperValu
Stores’ failure to build a discount grocery store and lease it to Peterson. fn 56 Peterson had been an em-
ployee of SuperValu Stores at the time SuperValu Stores had agreed to build the grocery store and lease
it to Peterson. To finalize the agreement, Peterson retired due to SuperValu Stores’ policy prohibiting
employee interest in retail grocery stores. Ultimately, SuperValu Stores failed to build the grocery store
and lease it to Peterson.

Peterson’s expert relied upon SuperValu Stores’ own pre-litigation profit projections for the first three
years of the future grocery store’s operation, using these to extrapolate and calculate lost profits over the
15-year life of the agreement. SuperValu Stores first argued that the "per se" rule of lost profits should
apply in this case, precluding recovery for a new business. Alternatively, SuperValu Stores claimed that
despite evidence introduced in the case that showed SuperValu Stores characterized its ability to project
profitability as "extremely accurate," the expert’s lost profits calculation was "remote, speculative, and
conjectural evidence," even though the calculation was based on SuperValu Stores’ own calculations. fn
57

fn 56 SuperValu Stores, Inc. v. Peterson, 506 So. 2d 317, (Ala. 1987).

fn 57 SuperValu Stores, Inc. v. Peterson, 506 So. 2d 317, 326 (Ala. 1987).

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