Page 62 - Calculating Lost Profits

Sometimes, a plaintiff is required to make an election or provide notice that the plaintiff seeks prejudg-
ment interest, whereas in other situations, prejudgment interest is available by statute under certain con-
ditions or per the court's discretion.

Normally, damage calculations prepared before or during a trial (for example, in an expert report) do not
allow for the practitioner to make the calculation with knowledge of the exact judgment date. In this
context, practitioners frequently make estimates of the judgment date or calculate prejudgment interest
through the report date, with an expectation of updating the calculation, including at the court's request
at trial.

As such, an expert may choose in the report and disclosure of opinions stage to identify that prejudg-
ment interest is sought, identify which interest rate or structure the expert believes is appropriate (and
why), or perform calculations. Additionally, in some instances, the expert will determine and present the
daily interest that accrues on the damage amount calculated.

Post-Judgment Interest

As described previously, in contrast to prejudgment interest, post-judgment interest is almost always
awarded.

The U.S. Supreme Court explained that the "purpose of post-judgment interest is to compensate the suc-
cessful plaintiff for being deprived of compensation for the loss from the time between the ascertain-
ment of the damage and the payment by the defendant." fn 20

Post-judgment interest in federal matters generally uses the one-year Treasury bill rate, compounded an-
nually. fn 21

Ex Ante and Ex Post Calculations

Ex ante damages calculations (including ex ante lost profits calculations) discount damages from all pe-
riods back to the date of the damaging event (for example, the breach of contract) and then apply pre-
judgment interest to bring that total damages amount forward to the date of trial. In contrast, an ex post
damages calculation (for example, an ex post lost profits calculation) does not discount damages from
periods prior to the damages calculation (past damages) but does discount future damages back to the
date of the calculation (for example, the trial date). Prejudgment interest in an ex post damages calcula-
tion, then, only applies to past damages.

This issue and these approaches are addressed in detail in the practice aid Discount Rates, Risk, and Un-
certainty in Economic Damages Calculations. The following is a graphic from that practice aid showing
how in an ex ante calculation damages from a future period are discounted back to the time of the dam-
ages event and then brought forward with prejudgment interest. The graphic shows that when the dis-
count rate exceeds the prejudgment interest rate, it results in a smaller award to a plaintiff when using an
ex ante approach compared to an ex post approach.

fn 20 Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827, 835–36 (1990).

fn 21 Judiciary and Judicial Procedure, U.S. Code (USC) 28, Section 1961; Crimes and Criminal Procedure U.S. Code 18, Section
3612(f)(2); and Public Buildings, Property, and Works, U.S. Code 40, Section 3116.

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