Page 18 - Calculating Lost Profits

 the data used in the analysis, including data supplied by the client, are reliable; and

 the assumptions applied in the damages analysis are reasonable and tethered to the evidence ex-
pected to be admitted in the case.

As noted in the Attaining Reasonable Certainty in Economic Damages Calculations practice aid, a key
objective of the reasonable certainty standard is to ensure that plaintiffs are not awarded speculative,
overly optimistic, or unrealistic damages.

Foreseeability

When the damages are being calculated for a breach of contract cause of action, the damages typically
also need to have been reasonably foreseeable at the time of contracting. fn 11 This requirement dates
back to an English decision, Hadley v. Baxendale, 156 Eng. Rep. 145, 151 (Ex. 1854), and is still law
today. In Hadley, the court set out that damages are recoverable only if they were reasonably foreseeable
by both parties at the time of the contract. This does not, however, mean that a plaintiff needs to dis-
close, at the time of contracting, the amount of profit anticipated to or by the defendant. fn 12

A damages expert may provide testimony regarding foreseeability if such opinions are within the profes-
sional expertise of the witness and supported by the evidence. For example, an expert might analyze the
circumstances surrounding the development of a projection by the parties, contemporaneous to contract-
ing. Some cases require an analysis of the foreseeability of damages arising after the stated term of the
contract. One such example was Belle City Amusements, Inc. v. Doorway Promotions, Inc., 936 N.E.2d
243 (Ind. App. 2010). In this matter, an event promoter, Belle, alleged that Doorway, a carnival operator,
ceased performance of services during the first year of the parties’ contract. Belle subsequently can-
celled the event indefinitely. The court ruled losses beyond the one-year contract were not foreseeable
because Doorway could not have anticipated that Belle would cancel the event indefinitely. In these sit-
uations, a practitioner may look to information such as prior renewal patterns, if available. A practitioner
may also consider presenting multiple scenarios, varying whether a contract was renewed and for how
long.

Distinguishing Alleged Violative Acts From Other Acts, Including Subsequent Events

A practitioner’s analysis of the data and other evidence may indicate that multiple acts, including multi-
ple acts by the defendant, contributed to the plaintiff’s loss. The practitioner should be aware, however,
that not all the defendant’s acts may be violative (included in the causes of action before the court) or
wrongful. If the practitioner includes the impact of non-violative acts in the calculation of damages, then
the reliability and relevance of the damages may be called into question. This is a concept related to cau-
sation in that the calculation of damages needs to be causally linked to the violative events.

As an example, in Biren v. Equality Emergency Med. Grp., the appellate court affirmed the trial court’s
opinion that $2 million of lost profits were speculative because the expert did not disaggregate the effect

fn 11 Foreseeability is also a consideration in tort matters; however, the issue is often intertwined with reasonable certainty.

fn 12 Emerald Investments Limited Partnership v. Allmerica Financial Life Insurance & Annuity Co., 516 F.3d 612 (7th Cir. 2008), "A
buyer is not required to disclose the profit he anticipates from dealing with the seller; such a requirement would kill the incentive to
seek out profit opportunities."

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