The first case that required my testimony in court 18 years ago involved economic damages from a failed real estate transaction. Retained by the Plaintiffs attorney, I calculated the loss sustained as a result of the actions of the defendant. The plaintiff, using a contract sale, purchased an old independently run RV campground from the defendant. The property was on a desert road that had long since lost its high traffic due to a new highway which diverted most of the previous travelers. The contract price was quite low and the defendant was glad to “unload” the property. The plaintiff had the knowledge and experience that enabled him to convert the use of the campground from that of an independently operated destination facility to that of a membership campground, which was part of a nationwide network. Under the new use, memberships could be purchased like time-shares and then traded in a nationwide network for, perhaps, more desirable destination campgrounds. Under this new use, the property’s value rose sharply. The suit claimed that when the defendant realized how valuable the property was, given its new use, he sabotaged the transaction before all the improvements could be made and the new business could be established.
Reasonable certainty is a legal principle that states that “lost profits damages” must be proved to a reasonable degree of certainty to be awarded. The measurement of the damages has a somewhat lower standard because such measurement is an estimate. Also, part of making a case hold to the reasonable certainty standard includes demonstrating causation. It must be proved that the defendant’s behavior was the cause of the economic loss.
This case had an even more difficult challenge in that it had to be proved that the occurrence and amount of lost profits were beyond mere speculation. Since the business was not yet established at the time of the alleged breach, there was no track record for this business from which to calculate a loss. A previous court case addressed this when it had at issue that the “plaintiff had not conducted a profitable business operation for a sufficient period of time to ascertain with reasonable certainty loss of future profits.” In that case, the court stated:
“Strict application of the certainty doctrine would place a new business at a substantial disadvantage. To hold recovery is precluded as a matter of law merely because a business is newly established would encourage those contracting with such a business to breach their contracts. The law is not so deficient.”1
Given such precedent in the law, the lack of a history of earnings will not automatically deem future lost profits as speculative. But attaining “reasonable certainty” can prove to be difficult. Based on the facts and circumstances of this membership campground case and the strength of the track record and experience of the plaintiff himself, my calculation of losses met the court’s threshold of reasonable certainty. The plaintiff’s attorney proved his case and the claim of damages was awarded.
In spite of the universality of this legal principle, the courts have never really defined what constitutes “reasonable certainty,” and case law differs among jurisdictions. Each potential case is unique and other legal principles in addition to reasonable certainty apply. But reasonable certainty that damages occurred must be proved before a claim of damages will be awarded. We would welcome the opportunity to discuss your particular circumstances to see if we can assist you with an economic damages calculation.
1 Vickers v. Wichita State Univ., 619; 518 P.2d 512, 517 (Kan. 1974).