Page 56 - Calculating Lost Profits

 Interest rates and the investment environment during the relevant time period

 Case law in the case’s jurisdiction or venue (which may affect interest rate limits or methodolo-
gies used)

 Compounding of interest

Courts have approved several measures and considered a wide variety of issues in determining and cal-
culating prejudgment interest. As referenced previously, frequently, the jurisdiction or venue of a dis-
pute (for example, state vs. federal court), as well as the causes of action (for example, torts vs. breach
of contract claims), will define parameters for a prejudgment interest calculation.

Prejudgment Interest and Lost Profits Calculations Under Federal and State Law

Prejudgment interest can be awarded, at the discretion of the court, in federal matters. This aligns with
consideration of the foregone opportunity to use the damages amount, from the time of loss to the time
of judgment.

However, prejudgment interest is not always available — particularly in cases tried in state courts. For
example, in many states, damages must be liquidated to avail prejudgment interest. Liquidated damages
are amounts known by the parties or capable of being calculated without the assistance of experts. fn 5

For example, under California Civil Code Section 3287, prejudgment interest is due on "damages cer-
tain."

3287. (a) A person who is entitled to recover damages certain, or capable of being made certain
by calculation, and the right to recover which is vested in the person upon a particular day, is en-
titled also to recover interest thereon from that day, except when the debtor is prevented by law,
or by the act of the creditor from paying the debt.

In this context, a dispute over whether a specified amount is or is not owed by defendant to plaintiff
would be a sum certain. In contrast, if a defendant owes a percentage of future lost profits, and there is a
projection needed to estimate future lost profits, those would not qualify as liquidated damages (a sum
certain). For example, in Watson Bowman Acme Corp. v. RGW Construction, Inc., fn 6 the California
Court of Appeal found that when the parties in the litigation disputed the amount that was owed, that
showed the amount to be uncertain, which rendered prejudgment interest unavailable in a breach of con-
tract matter.

As a result, given that a lost profits calculation frequently involves a calculation of lost revenue or prof-
its, or both, based on a comparison of a but-for world and the actual or mitigating world, and those
worlds are often based at least in part on projections, lost profits calculations frequently do not qualify as
liquidated damages, which leaves prejudgment interest unrecoverable in some lost profits calculations.

fn 5 Liquidated damages "can be ascertained by mere computation, and when the damages are complete at a particular time and can be
determined as of such time with fixed rules of evidence and known standards of value." Roper Corp. v. Reisz, 718 F.2d 1004, 1007–
1008 (11th Cir. 1983).

fn 6 Watson Bowman Acme Corp. v. RGW Construction, Inc., 2016 Cal. App. LEXIS 659 (Cal. App. 5th Dist. Aug. 9, 2016).

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