Pleading Lost Profits Damages In New York And Federal Courts

The ability for plaintiffs to plead and prove lost profits, and for defendants to avoid the results of such potential adverse judgments, has long been a unique, shifting and challenging issue in New York state and federal litigation.

Lost profits do not need to be merely speculative damages if a plaintiff can provide a strong basis for the damages alleged. For their part, defendants can overcome claims for lost profits by making a substantial showing that the plaintiff cannot demonstrate damages with reasonable certainty.

This article will examine the current jurisprudence and highlight recent case law in several different kinds of cases concerning the recoverability of lost profits, the evidence required for a party's burden of proof, and what potential defendants should consider in attacking such prima facie evidence.

Lost Profits in Breach of Contract Cases

In a breach of contract action brought under New York law, a party generally may recover lost profits if: (1) its alleged lost profits were caused by the breach of contract; (2) the damages were fairly within the contemplation of the parties when contracting and; (3) the damages can be proved with a reasonable certainty.1 Damages from lost profits are often considered speculative when a party cannot provide an adequate evidentiary basis for the damages claim.2

In June 2015, on appeal from a nonjury trial in which the Supreme Court, Kings County, denied a motion for judgment as a matter of law, the Appellate Division, Second Department, highlighted an important issue in the calculus of lost profits: that the standard of reasonable certainty does not wholly preclude approximations.3 Family Operating v. Young Cab, involved a breach of contract action between a taxi operator and the owner of two New York City taxi medallions. There, the Appellate Division faced a claim that the owner of the taxi medallions violated the terms of an agreement to lease the taxi medallions.4 The Appellate Division upheld New York law in ruling that "[w]here the plaintiff seeks to recover damages for lost profits, such profits must also be 'within the contemplation of the parties at the time the contract was entered into' and, even though required to be proven with reasonable certainty, damages 'resulting from the loss of future profits are often an approximation.'" (internal quotations omitted) (emphasis added).5

Several courts have ruled similarly and permitted lost profits to be proven as an approximation. For example, the Appellate Division, First Department, in Wathne Imports v. PRL USA, applied New York common law in affirming that "a degree of uncertainty is to be expected in assessing lost profits" (internal quotations omitted).6 The Appellate Division further affirmed that an estimate of lost profits incurred through a breach of contract "necessarily requires some improvisation, and the party who has caused the loss may not insist on theoretical perfection." (internal quotation marks omitted).7 Likewise the U.S. Court of Appeals for the Second Circuit, applying New York law, held that the district court confused the benefit of the bargain with speculative profits on collateral transactions, and that a plaintiff could seek lost profits as general damages.8 Thus, lost profit calculations should include enough evidence to plead and prove approximate lost profits.

As Always, Evidence Matters

Central to a plaintiff's ability to successfully prove lost profits is a strong evidentiary showing that links the defendant as the proximate cause of the plaintiff's lost profits. Although lost profits may appear to be speculative, strong admissible evidence can shift the alleged theory of damages from the overly abstract to the legitimate.

The plaintiff in Family Operating, was able to satisfy...