Page 82 - Economic Damages Calculation

Cases Addressing the Nature of the Market for the Business in Question

General Observations

As would be expected, courts frequently are interested in the industry and the nature of the market of the
new business in question. Cases show that, under certain conditions, courts have concluded that the es-
tablished nature of the industry itself may determine if a business is "new," as well as whether the indus-
try’s experience lends itself to the calculation of lost profits. However, in other situations, courts have
concluded the relevant inquiry concerns the nature of the business activity or the specific product in
question and whether or not the business is sufficiently established to support a damages claim. The cas-
es in this section touch on this issue and its evaluation by courts.

Butler v. Westgate State Bank

The plaintiff sued Westgate State Bank for allegedly breaching a contract to make a $30,000 loan to
purchase a franchise in the telephone directory business. fn 66 The plaintiff was a salesman and sales
manager for Better Business Pages telephone directories in Kansas City, Missouri, prior to attempting to
purchase a telephone directory business franchise in Kansas City.

The plaintiff attempted to secure funding from the defendant — a bank with which he had a pre-existing
relationship — for the purchase. After providing verbal confirmation that the loan would be approved
and providing funds for a down payment, the defendant ultimately decided to not approve the loan or
advance additional funds. After failing to obtain funding elsewhere, the plaintiff was unable to complete
the purchase of the directory business.

To calculate damages, the seller of the Kansas City telephone directory business, George Schuler, pro-
vided testimony regarding the calculation of the plaintiff’s lost profits. Schuler’s experience included
operating similar businesses in Texas and Louisiana and he provided opinions as to the comparability of
the area, the rights to which the plaintiff was prevented from acquiring, allegedly due to the defendant’s
actions. In particular, Schuler testified as to the profits of the businesses he operated, concluding the
plaintiff could have expected similar results. Although the jury awarded lost profits, the trial judge over-
turned the award. Among the reasons the trial court cited was the lack of comparability of the businesses
Schuler used in calculating the plaintiff’s damages.

On appeal, the Court of Appeals of Kansas overturned the trial judge’s determination related to lost
profits. The court specifically rejected the claims that Butler could not establish lost profits because he
never successfully operated the business and that the businesses Schuler used in his analysis were not
comparable to the plaintiff’s prospective business. According to the Court of Appeals of Kansas, the
question was "whether the general business which the partnership or company will carry on is new or
untried." fn 67 The Court of Appeals stated that "[a]ll that is required is that the directory business in gen-
eral be sufficiently established so that people of experience in the business can estimate profits with rea-
sonable certainty. That test was met." fn 68

fn 66 Butler v. Westgate State Bank, 596 P.2d 156 (Kan. Ct. App. 1979).

fn 67 Butler v. Westgate State Bank, 596 P.2d 156, 165 (Kan. Ct. App. 1979).

fn 68 Id.

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