In breach of contract litigation between businesses, a frequent issue is the amount of allowable damages. Florida appellate courts scrutinize the method for computing damages in business litigation, using the “de novo” standard of review (i.e., no deference to the decision of the trial court) when the method used at trial for computing damages involves a strictly legal issue. Peter Mavrick is a Fort Lauderdale business litigation attorney, and represents clients in business litigation in Miami, Boca Raton, and Palm Beach. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.
In cases where a business repudiates a contract and prevents the opposing party from performing the contract, Florida law allows the non-breaching party to elect between what are called “reliance damages” (i.e, the expenses of preparing to perform, the recovery of which will place the recipient in the same position it occupied before entering into the contract) or, alternatively, “lost profits (i.e., the benefit of the bargain or “expectation interest”). On this legal issue, Florida law is aligned with the Restatement (Second) of Contracts, which discusses at sections 347 and 349, respectively, compensation for the non-breaching party’s “expectation interest” and “reliance interest.” This seemingly simple legal distinction has resulted in a great deal of litigation. In many cases, plaintiffs have made the mistake of not thinking carefully about how to prove their damages at trial.
It is no surprise that many parties in commercial litigation seek the “lost profits” method because it seems to provide the potential for a larger damages award. As Miami’s Third District Court of Appeal explained in the case Pathway Fin. v. Miami Int’l Realty Co., 588 So.2d 1000 (Fla. 3d DCA 1991), a party can recover only those prospective profits “which would have been possible only if the contract would have been fully performed by the [non-breaching party].” The computation of damages in such a case requires the non-breaching party to deduct from the anticipated contract revenue the costs incurred in performing the contractual services. See, e.g., Marabella Park Homeowners Ass’n, Inc. v. My Lawn Serv., Inc., 12 o.3d 807 (Fla. 3d DCA 2009) (In reversing damages award, the appellate court explained that “although the contract price could easily be ascertained, [the non-breaching party] failed to produce evidence of its costs and expenses in performing the five-year contract”). Typically, these costs include an appropriate allocation of overhead as well as any personnel expenses that would have been incurred.
When a non-breaching party fails to properly calculate damages, it can have a devastating result on appeal. For example, in Del Monte Fresh Produce Company v. Net Results, Inc., the appellate court reversed a jury’s decision awarding lost profits damages, exceeding $15.7 million, in favor of a consultant for the client’s breach and repudiation of a telecommunications-cost consulting contract. The appellate court held that the consultant’s lost profits methodology was incorrect as a matter of law, because the consultant presented no evidence at trial regarding the costs of performing the contracts. At trial, the consultant provided proof merely of lost revenue instead of proof of lost profits, i.e., income less expense. The appellate court explained, “Net Results provided no evidence regarding its overhead, its historical profit margins on such contracts, or the costs of the professionals who worked (and who would have been required to continue working, absent Del Monte’s repudiation of the Agreement) on the Del Monte contract.” In deciding to overturn the jury’s verdict on damages, the appellate court explained that, “Net Results’ damages methodology was…reversibly flawed because it failed to prove the other half of the ledger involved in a lost profits case—the expenses that Net Results would have borne to provide the performance excused by the breach.”
Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents business litigation clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.