Where Lost Profits Projection and Business Valuation Converge

 M & A Technology, Inc. v. iValue Group, Inc. rejected a claim for lost business value arising from the destruction of a business, an issue which intersects lost profits projection and business valuation. Plaintiff disclaimed recovery of lost profits damages at trial. The court held, however, that use of a business valuation approach (which the court analyzed in detail) could not remedy deficiencies in proof of value by methodology dependent on income projection. This case is perhaps the first to explore the relation between damages derived by business valuation and damages derived by lost profits projection. The court correctly concluded that a business valuation based on speculative income projections is subject to the same objections that the income projections would be if a lost profits analysis were done. River Bridge Corp. v. American Somax Ventures considered what was necessary to prove lost profits damages by a “yardstick” approach, developing a lost profits analysis by comparison to data derived from others in the same business. The court found the “yardstick” not to be comparable and rejected plaintiff’s proof.

What Are the Limits on a Claim for Breach of Contract?

DuretteBradshaw, P.C. v. MRC Consulting, L.C. explores the limits on a claim for inducing breach of contract. The court held that profits alleged to have been lost on a different contract, dependent on the breached contract, are not recoverable. Citing Restatement, Torts (Second) §766 (1977), the court concluded that interference with a contract is actionable if the interferor knows of and intends to cause a breach of that contract. Others with contractual relations who may be harmed (as MRC here) cannot recover unless the interferor acted intending also to interfere with the other contract.

Direct or Consequential Damages?

The recurring question whether lost profits damages are direct damages or consequential damages received searching analysis in Cherokee County Cogeneration Partners, L.P. v. Dynegy Marketing & Trade. After defining direct and consequential damages, the court concluded that the buyer’s lost profits damages for the seller’s failure to deliver goods were direct damages, not consequential damages which were excluded by the contract of sale.

When a Tax Shelter Goes South

A taxpayer buys a tax shelter program from professionals in the business of selling tax shelters. The IRS disallows the tax benefits that had been promised the tax shelter buyer.  The tax shelter buyer sues the tax shelter seller for the value of the lost tax benefits, saying, in effect, “You guys were the experts, not me. I want damages for the loss of what I was promised.” Finderne Management Co. v. Barrett, a recent New Jersey case, denied recovery of the tax benefits. The court stated it would not enforce a tax shelter plan found to violate the tax laws by allowing a lost profits damages recovery against the tax shelter seller.  Robert L. Dunn discusses this case in detail in Recovery of Damages for Lost Profits.

Can an Expert Witness be Sued for Allegedly Negligent Testimony?

Lambert v. Carneghi, a recent California case, held that an expert witness retained to value property in an insurance arbitration proceeding could be sued by the property owner for alleged negligent testimony.  The property owner alleged that the expert had failed to educate the retired judge who was the neutral arbitrator in the proceeding with the result that the valuation of the property owner’s loss came in too low.  The court recognized that ordinarily witnesses cannot be sued for their testimony under California law. But the court carved out an exception for experts. It gets worse. The expert here was not claimed to have made some identifiable professional error.  He was only alleged to have failed to convince the trier of fact of the merit of the property owner’s position. If that is enough to state a cause of action against an expert, then any expert on the losing side of a case can be sued by the party that retained the expert.