When a business files a lawsuit, it is common for the business to seek damages for lost profits. These can be fairly simple to prove in the circumstance where the business has a long history of operations, with consistent and provable income over time. Where the business is new or for one reason or another does not have a long financial history for those profits it seeks to recoup, one must consider the jurisdiction in order to determine the likelihood of success in seeking these damages.
The National Law Review recently spoke on this issue, discussing the fact that "[s]ome states are extremely hostile to such claims or apply a heightened standard of evidence, such as 'reasonable certainty,' which can make it nearly impossible to establish lost profits for a new business, product, or operation." Other states, however, merely consider the length of operations as a single factor in a list of elements to consider when appraising claims for lost profits.
For example, states like Georgia, Illinois, Ohio and Virginia categorically bar new or un-established businesses from recovering lost profits due to the level of speculation involved in determining these damages. See Molly Pitcher Canning Co. v. Central Georgia Ry. Co., 149 Ga. App. 5 (1979) (holding that since the company was in its "incipiency...there plainly exists no basis upon which a reasonably accurate computation of lost profits might be made....")
Other jurisdictions, however, such as New York and Missouri, do not completely bar recovery of lost profits for a new company. Courts in these jurisdiction do hold such companies to a higher burden and more strict standard than they would apply to an established business. See Handi Caddy, Inc. v. American Home Products Corp., 557 F.2d 136 (8th Cir. 1977) ("A new business labors under a greater burden of proof in overcoming the general rule that evidence of expected profits is too speculative...it does not follow, however, that so-called 'new' business can never recover lost profits.")
Pennsylvania appears, for the time being, to continue employing the general rule that "a new business with no record of profitability" generally cannot meet the reasonable certainty standard." Amco Ukrservice v. Am. Meter Co., 312 F. Supp. 2d 681, 694 (E.D. Pa. 2004). Pennsylvania courts, however, have employed an exception for "a new business that can show a 'significant interest' in its product or service." Ultimately, "[a]lthough the law does not command mathematical precision from evidence in finding damages, sufficient facts must be introduced so that the court can arrive at an intelligent estimate without conjecture." Delahanty v. First Pa. Bank, N.A., 318 Pa. Super. 90, 119 (1983). See also Applecross Club Operations, LLC v. Pulte Homes of PA, 2017 Pa. Super. Unpub. LEXIS 2276 (2017) ("we have consistently held that 'the breaching party should not be allowed to shift the loss to the injured party when damages, even if uncertain in amount, were certainly the responsibility of the party in breach.'")
As stated in the National Law Review, "The majority of jurisdictions in the United States take the modern approach of creating a subjective rule for determining whether a new business may collect lost profits." Where the jurisdiction employs this approach, the length of operations of the company is only one factor to be considered in determining whether to award lost profits. In seeking to demonstrate their lost profits, a business may be able to use evidence of subsequent operations, the operations of similar businesses in the same geographic area, previous company experience, expert testimony, and market surveys.
If you have questions regarding your ability to seek lost profits for your business, or you think you have suffered other damages to your company, please contact the Law Offices of Kent Petry today!