Lost Profit Damages in Connecticut for New Business Ventures

When business lawyers evaluate the merits of bringing a lawsuit, one of the first questions to ask a client should be “what are the damages?”  Many times, in business litigation cases, business owners want to seek recovery of lost profits with a very optimistic view of what is recoverable in a case.  In such cases, the next question to the client should be  “how do we prove the damages.”

When I consult with a new client that wants to bring a claim in court for lost profits, I will often ask the client to articulate how he or she would go about proving the lost profits.  There are no clear, bright line tests in Connecticut for what is or is not recoverable for lost profits.  Instead, attorneys are guided by the general law on lost profit damages and case precedents.

In Connecticut, the plaintiff bringing the case bears the burden of proving lost profit damages by a preponderance of the evidence.  When lost profit damages are available, the general standard is that a plaintiff must prove the damages with reasonable certainty.  Difficulty in establishing damages is not necessarily a bar to recovery and mathematical exactitude is not required.  Nevertheless, the facts and evidence must permit the trier of fact to form an objective basis to award damages, not merely speculation or subjective belief.  Basically, this means that the plaintiff has to provide evidence to support the claim for damages, not merely a subjective belief or speculative theory.

In the case of a new business venture, lost profit damages are available if a plaintiff can prove the damages with reasonable certainty.  Of course, proof of lost profits damages for a new business likely will require some creativity and perhaps an expert to provide the necessary proof.  The reason is that there is a lack of history of profits in the business so it may be difficult to project what would have happened in the future.  As a result, courts typically will look for more evidence from the new business plaintiff than an established business.

A recent appellate court case in Connecticut pointed out that the evidence in the case of a new business will often have to focus on the likelihood of whether the new business would have succeeded including an evaluation of factors such as business climate, business planning, experience of the business owners, and the success of similar businesses.  An expert may be necessary to help with proof of lost profit damages.  Simply providing a subjective belief without documentation or statistical analysis may fall short of the required proof.

Here are some instances where a new business satisfied the required proof for lost profit damages: (1) statistical analysis of future profits deemed reliable by the court; (2) expert testimony including an analysis based on similar new businesses; and (3) expert testimony based on relevant industry models for profits.  It is important to note that expert testimony alone will not necessarily suffice to prove damages.  A damages expert likely will face a reliability challenge from an opponent.  Once challenged in court, an expert’s methodology on determining lost profits must be deemed reliable before the testimony is permitted.  An expert’s subjective opinion alone, or opinion based on speculation, will not satisfy the standards for admissibility.

The take away here is that lost profit damages are available to a new business venture.  However, the level of proof required to recover such damages likely will be more difficult than for an established business.  Subject belief and speculation by the business owner as to the probable success of the business will likely fall short of the required proof.   A plaintiff considering a claim for lost profit damages for a new business venture may want to bring in an expert to evaluate the case and remove the damages from the realm of speculation.

 

 

 

“I Don’t Want To Be Your Partner Anymore” …. Can That Statement End A Partnership?

After 5 years of litigation, two appeals, and one trial, the answer is…….Yes, that statement can constitute a valid offer to end a Connecticut partnership between two feuding sisters who had agreed in writing to split lottery winnings.  The story of the feuding sisters has been covered by Alaine Griffin at the Hartford Courant and the local news stations (NBC CT;   CBS NEWS).

According to yesterday’s ruling by Connecticut Superior Court Judge Cynthia Swienton, when one sister said "I don’t want to be your partner anymore" and the other said "okay," the partnership was over and the contract rescinded. 

The case involved a dispute between two sisters, Terry and Rose,  over a written contract that dated back to 1995.  Terry split some poker winnings ($165,000) with her sister Rose and decided they needed a contract to make sure there would be a split for any future winnings.  You might call the contract a  paper napkin partnership agreement, but it was notarized and drafted by an accountant.  It was simple and straightforward.  The relevant part of the contract read:

We are partners in any winning we shall receive, to be shared equally.

Fast forward to 2004 and a fight over $250.  The Court found that Terry said during the fight "I don’t want to be your partner anymore."  Rose replied "okay."  Rose then went and became partners with her brother, Joe.  Of course, Joe then went out and bought a $500,000 winning Powerball ticket.  Terry found out, Rose refused to pay Terry, and finally a lawsuit was filed for breach of contract.   

After going through the history of the relationship and finding credibility in favor of Rose, the Court found that Terry and Rose mutually agreed to rescind or cancel the contract on the basis of that exchange of words and the conduct of the sisters after the exchange.  Case closed, at least for now.  It is unclear if there will be any appeal.   

In reading the decision, I found it interesting that there was no mention of Connecticut’s partnership statute.  It is not clear if either party raised the statute in the case.  The case was decided on pure contractual grounds based on an agreement to rescind the contract.  Nevertheless, it also appears to me that the Court was swayed by more than just the exchange of words, but the actual conduct of the parties after the exchange.  In other words, you could say that they stopped acting like partners, they agreed not to be partners, and therefore, no partnership continued to exist.  

Interesting case, but also sad to see.  In the end, Terry’s frustration over $250 might have cost her not only a share of the $500,000 winning ticket, but the good relationship she had with her sister.