Page 88 - Economic Damages Calculation

on market conditions and profit showings of identical similar business in the vicinity, operating
under substantially the same conditions. None of the criteria identified in Larsen as justifying a
departure from the new business rule are present here. [The expert’s] testimony here did not de-
part from the realm of uncertainty and speculation so as to support an award of lost profits. fn 91

In rejecting the plaintiff’s lost profits calculation, the Supreme Court stated, "The new business rule bars
recovery of lost profits here." fn 92 The Supreme Court’s statement regarding the new business rule ap-
pears to reference a heightened level of scrutiny of lost profits calculations for new businesses, rather
than a per se rule. Additionally, this case highlights the value courts may place on the expert’s qualifica-
tions and the court’s expectation that the expert’s analysis will be adequately supported, including ad-
dressing any conflicts among the evidence available and analyses performed.

Cases Addressing Chain/Franchise Operations

General Observations

One yardstick that has been used in estimating "but for" revenues and profits is the performance of other
stores and locations within a chain (for example, franchises). For new businesses that are part of a chain
or a franchise and are seeking lost profits, courts generally find more comfort with an expert’s reliance
on evidence and data gathered from other franchise operations. However, an expert cannot rely solely on
the fact that the harmed business is a "franchise" and end the inquiry. Some courts have found that it
may be important for the expert to account for any differences between the yardstick franchises and the
harmed franchise, including facts such as locations and competitive environments.

No Ka Oi Corp v. Nat’l 60 Minute Tune, Inc.

No Ka Oi Corporation had entered into an agreement with a national franchisor of automobile tune-up
and service franchises, which gave No Ka Oi the "exclusive rights to sell or own up to 10 of the fran-
chises in Hawaii over a 25-year period." fn 93 While the plaintiff began investigating the Hawaiian mar-
ket, the franchisor entered into a merger agreement with a competitor. Due to disputes regarding disclo-
sures of the plaintiff’s agreement granting it rights to the Hawaii territory, the other party to the merger
refused to deal with the plaintiff regarding the required registration in Hawaii for doing business as a
sub-franchisor, allowing the registration to lapse.

Ultimately, the plaintiff brought claims against the defendants (National 60 Minute Tune, Inc. and its
parent corporation, Precision Tune, Inc.), including breach of contract and tortious interference. At
summary judgment, the trial judge dismissed the plaintiff’s claims for lost profits, reasoning that the
case law for evaluating lost profits of a new business required the plaintiff to calculate any lost profits
"based on comparisons with the same type of business in the same locale," which the plaintiff’s expert
had not done. fn 94

fn 91 Id. at 234-36 (referencing Larsen v. Walton Plywood Co., 390 P.2d 677 (1964) (citations omitted).

fn 92 Id. at 236.

fn 93 No Ka Oi Corp v. Nat’l 60 Minute Tune, Inc., 863 P.2d 79 (Wash. Ct. App. 1993).

fn 94 Id. at 81.

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