The calculation of business damages has specific consideration based upon the particulars of the business as well as the industry that it operates in. In order to determine the amount of business damages, one must first determine the proper measure of damages incurred. Measures of sales, revenue, or profit, can all be considered reasonable under certain circumstances. However, CACI 3903N and California caselaw provides specific guidance to judges, juries, and damage practitioners when a claim for lost profits is being made.
Specifically, CACI 3903N states:
“To decide the amount of damages for lost profits, you must determine the gross amount Plaintiff would have received but for Defendant's conduct and then subtract from that amount the expenses, including the value of labor, materials, rents, and interest Plaintiff would have had if Defendant’s conduct had not occurred.”
Translating this into layman’s terms, CACI 3903N is directing a calculation to determine the net profit that would have otherwise been achieved. As the court in Meister v. Mensinger stated, “[i]n business cases, damages are based on net profits, as opposed to gross revenue.” Meister v. Mensinger (2014) 230 Cal.App.4th 381, 397.
To calculate net profit, one takes the gross revenue that would have occurred and subtracts the operating expenses associated with that particular level of production. “Historical data, such as past business volume, supply an acceptable basis for ascertaining lost future profits. ” Sargon Enterprises, Inc. v. University of Southern California (2012) 55 Cal.4th 747, 773.
In the case of recently established business or business that were not able to open because of the Defendant’s actions, historical data may be insufficient. In those cases “lost profits may be recovered where plaintiff introduces evidence of the profits lost by similar businesses operating under similar conditions. In either case, recovery is limited to net profits.” Berge v. International Harvester Co. (1983) 142 Cal.App.3d 152, 161–162.
As in all cases there must be an element of certainty in the calculation. “[I]f the business is . . . new . . . or . . . speculative . . . , damages may be established with reasonable certainty with the aid of expert testimony, economic and financial data, market surveys and analyses, business records of similar enterprises, and the like.” Meister, 230 Cal.App.4th at p. 397.
Stated another way, “the lost profit inquiry is always speculative to some degree. Inevitably, there will always be an element of uncertainty. Courts must not be too quick to exclude expert evidence as speculative merely because the expert cannot say with absolute certainty what the profits would have been. Courts must not eviscerate the possibility of recovering lost profits by too broadly defining what is too speculative. A reasonable certainty only is required, not absolute certainty.” Orozco v. WPV San Jose, LLC (2019) 36 Cal.App.5th 375, 397–398.
Should you need assistance with the calculation of business damages, Juris Economics is here to the assist with damages calculations and the application of CACI 3903N. Contact a representative today at (858) 477-9537 or customerservice@juriseconomics.com.
