Page 94 - Economic Damages Calculation

bases pointed to by the Supreme Court of Appeals were questions as to similarities between Mr. Barn-
hart’s grocery operations and those of the harmed prospective business, issues with the application of
Mr. Barnhart’s operating results to market data, and Mr. Barnhart’s extensive experience with grocery
stores (compared to the lack of experience of plaintiff’s management.)

The expert in this case incorporated what appeared on its face to be a number of relevant analyses into
his damage calculation, yet the court found the application and underlying bases lacking. One potential
takeaway from this case is that courts may assess whether the operations of the comparable business re-
lied upon by the expert were likely to reflect what the plaintiff could have achieved, given the type and
level of experience of the plaintiff.

Cases From New Business Rule States Where Exceptions May Exist to Allow for Recovery

General Observations

Even in states that follow the traditional per se new business rule, courts have been willing in some cir-
cumstances to make exceptions. Those cases appear to be fact driven and may or may not be helpful to
an expert attempting to offer an opinion in such a jurisdiction relating to a new business. The following
cases are from Illinois and Virginia where a strong form of the new business rule has been followed.

Milex Prods., Inc. v. Alra Labs. Inc.

In this case, Milex Products, Inc. (Milex) sued Alra Laboratories, Inc. (Alra Labs) for breach of contract,
alleging that Alra Labs had failed to meet its obligations under the agreement related to Alra Labs’ re-
sponsibility to research and develop a manufacturing process for a generic drug. fn 115 The agreement al-
so specified that Alra Labs was to manufacture the generic drug to be sold by Milex.

Prior to the agreement, Milex had hired a firm to survey the market regarding the drug and to evaluate
the potential demand for its generic version. The results of this study led it to seek out a party to develop
the necessary manufacturing process and produce the generic drug, resulting in the agreement with Alra
Labs.

Although Alra Labs finished its research and Milex had been given the appropriate regulatory approval
to manufacture the generic drug, the parties ultimately could not agree on a price Alra could charge
Milex for producing the drug. Apparently, Alra Labs told Milex that the original production volume dis-
cussed throughout the stages of initial assessment and regulatory approval was not adequate to be eco-
nomically feasible. In addition to other claims, Milex then sued Alra Labs for the damages it incurred as
a result of not being able to market the generic drug.

Alra Labs argued Milex could not seek lost profits because the damages were "not the result of the inter-
ruption of an existing business and were based upon the speculation and conjecture of the plaintiff’s ex-
pert witness." fn 116 The trial court rejected this argument, pointing to specific information: (1) Milex’s
expert was "very credible"; (2) the expert’s lost profits calculation was "based upon fact, not specula-
tion"; (3) the expert’s testimony was "based upon actual products in the marketplace" and authoritative

fn 115 Milex Prods., Inc. v. Alra Labs. Inc., 603 N.E.2d 1226 (Ill. App. Ct. 1992).

fn 116 Id. at 1236.

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