Page 86 - Economic Damages Calculation

Harsha v. State Sav. Bank

In this case, State Savings Bank (State Savings) agreed to lend $25,000 to David Harsha (Harsha) and
Baxter Feed Center, Inc. (Baxter Feed) for the purpose of opening and operating a livestock feed busi-
ness. fn 82 Harsha subsequently began the feed operation after receiving a portion of the funds under the
agreement. When State Savings refused to lend the remaining funds, Harsha argued that he was forced
to go out of business. Harsha then sought damages for the lost profits caused by State Savings’ actions.
At trial, Harsha and Baxter Feed were awarded $126,000 in damages relating to the breach of contract,
an additional $104,864 in compensatory damages, and $85,000 in punitive damages for a separate claim
related to tortious interference with prospective business relationships.

The Supreme Court of Iowa noted that Harsha’s "well-qualified expert carefully explained to the jury
the nature and source of the facts he relied on in formulating his opinion." fn 83 Additionally, the court
noted that the expert considered evidence that included the newness of the business, the effect on profit-
ability due to proper management, projections of profitability based on actual experience in the industry,
the expert’s own experience with new businesses, the willingness of Harsha to put in the time and effort
for the business to succeed, and Harsha’s prior sales experience.

Despite the court’s recitation of Iowa’s apparent adherence to the per se new business rule, the court
concluded:

The trial court did not abuse its discretion in admitting the opinions of the expert witness unless
they were barred by the new business rule. The new business rule is not absolute. If factual data
are presented which furnish a basis for compilation of probable loss of profits, evidence of future
profits should be admitted and its weight, if any, should be left to the jury. fn 84

Although the court noted that the damages award may have been "generous," it concluded that it "was
within the evidence and should be allowed to stand." fn 85 This case illustrates the value of the expert’s
past experience and qualifications (and that of the plaintiff) and knowledge as supporting components of
a lost profits calculation for a new business. Moreover, the court’s reasoning reinforces the importance
of adequately considering factors that may impact the lost profits calculation.

Farm Crop Energy v. Old Nat’l Bank of Wash.

In Farm Crop Energy v. Old National Bank of Wash., the plaintiff sought damages from a bank for fail-
ure to honor a loan commitment. fn 86 The defendant agreed to lend the plaintiff approximately $1.5 mil-
lion that the plaintiff intended to use to build a fuel-grade alcohol plant. In June 1981, the defendant re-
voked the loan commitment, contending that the plaintiff had not complied with required conditions.

fn 82 Harsha v. State Sav. Bank, 346 N.W.2d 791 (Iowa 1984).

fn 83 Id. at 798.

fn 84 Id.

fn 85 Id. at 799.

fn 86 Farm Crop Energy v. Old Nat’l Bank of Wash., 750 P.2d 231 (Wash. 1988).

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