Page 90 - Economic Damages Calculation

should be excluded because the expert lacked "franchise-specific experience" was also rejected by the
Court of Appeals.

This case illustrates that courts recognize that franchise operations have unique characteristics that alle-
viate uncertainty associated with new businesses, and which may also support an award of lost profits
sought by a new business. While some facts regarding the characteristics of the relevant market were not
identified in the court’s opinion, courts may be more open to awarding lost profits by a new business
when franchise operations are at issue.

Flying J, Inc. v. Dept. of Trans.

In this case, the underlying claims related to the California Transportation Commission’s decision to put
a 20-acre parcel up for sale, rather than proceed with an agreement to transfer the property to the plain-
tiff. fn 102 That agreement had settled an eminent domain action in which under the settlement, the plain-
tiff transferred 4 acres to CalTrans in exchange for the 20-acre parcel. The plaintiff’s desire to receive
property in exchange for the 4 acres CalTrans needed was ostensibly to enable the plaintiff to have
enough space to build and operate a travel plaza.

At trial, the defendant filed a motion to strike evidence of lost profits. The plaintiff had presented two
experts to testify to the financial, industry, and market issues related to its claim of lost profits for the
defendant’s role in preventing the plaintiff from opening a travel plaza at the site in Mojave, California.
Agreeing with the defendant, the trial court instructed the jury that the plaintiff’s claims for lost profits
were no longer at issue.

In reviewing the trial court’s ruling, the California Court of Appeal focused on whether the plaintiff’s
lost profits calculations were established with "requisite certainty." The plaintiff argued that "the meth-
odologies of its experts were not speculative and the foundation for its lost profits claim was the histori-
cal sales and profit information from its other travel plazas." fn 103

However, the Court of Appeal concluded that the five California travel plazas that relied upon by Flying
J’s experts were not "substantially similar" to the Mojave site. In particular, the court found that the ra-
tionale and reasoning used by the industry expert for comparability did not support an award for damag-
es. The Court of Appeal explained the following:

[The industry expert’s] assumptions or predictions about the diversion of traffic to a route
through Mojave and his statement that the Mojave site is ‘unusual’ demonstrate that the Mojave
site was not substantially similar (i.e., comparable) to the five other travel plazas. The other sites
are located on established trucking routes and did not depend upon diversions of traffic from
other routes to achieve their fuel sales... In short, the Mojave location is different from (not sub-
stantially similar to) the other locations because its prospective sales are based on [the industry
expert’s] diversion-of-traffic theory — a theory that cannot be tested against the experience at

fn 102 Flying J, Inc. v. Dept. of Trans., No. F060545 (Ca. Ct. App. 2012) (unpublished).

fn 103 Flying J, Inc. v. Dept. of Trans., 2012 Cal. App. Unpub. LEXIS 392, *22–23 (Ca. Ct. App. 5th Dist. Jan. 19, 2012).

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