Page 91 - Economic Damages Calculation

the five other sites [that were on established trucking routes and did not depend on diversions of
traffic from other routes]. fn 104

Courts seem to recognize that a chain or franchise presents unique circumstances that may provide suffi-
cient evidence to prove lost profits. However, in this case the court was also concerned that the sales and
profits of the yardstick businesses — the other Flying J travel centers — are generated in a similar man-
ner. Thus, although franchisees may have access to seemingly comparable data to calculate lost profits,
the expert may need to adjust calculations derived from yardstick franchisees and chain locations (or
both) to account for differences compared to the subject business or location.

Mullen v. Brantley

The plaintiff sued the defendant for contract repudiation. fn 105 Both parties individually owned Shakey’s
Pizza Parlor franchises, but had entered into an agreement to buy percentages of one another’s fran-
chises to bring all of their individual franchises under common control. Ultimately, the agreement col-
lapsed and the plaintiff sued the defendant.

The trial court limited the plaintiff’s recoverable damages to a four-month period, causing both parties to
appeal. Upon review, the Supreme Court of Virginia concluded that the defendant had "willfully and de-
liberately breached the contract and conceded that Mullen was entitled to some damages." fn 106 Howev-
er, the Supreme Court rejected the proffered damages computation.

The plaintiff was an experienced franchise operator of Shakey’s Pizza Parlors and had used profit in-
formation from existing Shakey’s Pizza Parlors to support a lost profits calculation for the location in
question, including using individual franchise profits, averages, and national averages. The Supreme
Court found that despite the underlying business being part of a national chain, the fact that two
Shakey’s were to be located in close proximity to one another — and evidence showed a negative im-
pact on both businesses’ profits — indicated that the franchisee financial data was not a reasonable basis
in this case to use to calculate lost profits of the new Shakey’s franchise location.

At the time of this decision, Virginia ostensibly followed a stricter form of the new business rule, alt-
hough other more recent cases indicate Virginia courts have found exceptions that allow for recovery.
Thus, while the court’s treatment of the plaintiff’s use of franchise information can be read in this con-
text, this case reminds the expert that despite the benefit of apparent comparability inherent when a fran-
chise is at issue, courts may not accept a lost profits calculation when the expert has not established that
the franchise data reflects the lost business opportunity at issue.

fn 104 Id. at *33–34.

fn 105 Mullen v. Brantley, 195 S.E.2d 696 (Va. 1973).

fn 106 Mullen v. Brantley, 195 S.E.2d 696, 700 (Va. 1973).

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