Page 19 - Calculating Lost Profits

of damages caused by undercoded billings, as distinct from a lack of collection efforts, the latter of
which was determined to be non-violative. fn 13

Similarly, the practitioner should consider whether losses could be associated with unrelated external
events or events subsequent to the wrongful act. Practitioners need to attempt to identify the non-
violative facts affecting losses and ensure that the damage analysis identifies and calculates as damages
only those losses that are violative within the asserted causes of action. For example, in the American
Kitchen example, reduced revenues (and profits) due to subsequent events would not be recoverable: the
opening of a nearby restaurant by a competitor, a salmonella outbreak, a decrease in promotions and
marketing spend, or a low rating of American Kitchen locations by health services inspectors.

Identifying Multiple Harmful Acts

In some instances, there may be multiple alleged violative acts that lead to damages. In these instances,
the acts may consolidate into a single claim or multiple claims. For example, a plaintiff may claim that
the defendant breached, in multiple ways, a contract to develop software (for example, alleged failures
to develop five different features). In this case, the different alleged violative acts may be analyzed as
one cumulative breach of contract claim, such that the practitioner does not ascribe specific losses to
each individual failure (for example, each feature failed to be delivered). fn 14

In some situations, though, each alleged wrongful act could be modeled and evaluated as a separate
claim. The practitioner may want to discuss with counsel the ability and need to quantify damages by
wrongful act or claim. When it is practical and cost-efficient to do so, the damages expert may separate-
ly quantify the damage resulting from each alleged wrongful act (or a combination of them). In certain
situations, if the acts are not "disaggregated," the rejection of a claim for one act may result in refutation
of the entire analysis. For example, in O2 Micro Intern. Ltd. v. Monolithic Power Systems, the plaintiff’s
expert computed a single damages amount assuming the misappropriation of 11 trade secrets. The court
cautioned O2 against such an approach. fn 15 Later, when the jury found that only 1 trade secret had been
misappropriated, the court concluded that the expert’s testimony had not been helpful to the jury.

When damages are disaggregated, the practitioner should ensure that damages for separate acts do not
have an additive effect, or, if there are issues relating to such combinations, they are disclosed. In other
words, damages may be common to both acts, and it may be improper for them to simply be added to-

fn 13 Biren v. Equality Emergency Med. Grp., 102 Cal. App. 4th 125 (2002), "[Expert] opined that PHSS's billing inefficiencies cost
Equality more than $2 million in lost profits. These deficiencies included undercoding billing and lack of collection efforts. The court
questioned [expert] what portion of the $2 million loss was caused by undercoding, but [expert] was unable to allocate the portion of
damage caused by PHSS's poor collection efforts. The court could reasonably infer [expert’s] conclusions involved speculation, mak-
ing the claimed damages uncertain."

fn 14 For example, the court in Braun Elevator Co. v. Thyseenkrupp Elevator Corp. (W.D. Wis. 2005) 379 F. Supp. 2d 993 held "Nei-
ther case suggests that where multiple breaches combine to cause lost sales the jury must match particular lost sales to particular
breaches, an exercise which in many instances will be impossible because intertwined breaches combine to cause lost sales."

fn 15 O2 Micro Intern. Ltd. v. Monolithic Power Systems, 399 F. Supp. 2d 1064, "[I]t seems to me that if [expert] is saying the damages
are X dollars if they stole all our trade secrets, he can say that. But if the jury finds that he only stole 11 of them, then his testimony
would be stricken and you would have no testimony because there'd be no basis upon which a jury could decide what the damages
were from the theft of 11 secrets when they've heard testimony only about what the damages are from 12 secrets unless somehow he
can say that no matter how many secrets are stolen, the same damages are accrued."

© 2020 Association of International Certified Professional Accountants 17