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Availability of Lost Profits in a Breach of Contract Lawsuit

Business and Commercial DisputesLitigation By Harvey Binnall PLLC - 2018/06/08 at 12:01pm

In Virginia, and in most other states, those who have suffered losses in a contract dispute are entitled to sue the breaching party and not only recover damages that compensate them for losses that directly resulted from the breach at-issue, but may also be entitled to recover damages for lost profits.

Depending on the nature of the breach, and the products or services involved, lost profits can form a substantial portion of the total damage recovery — as such, they frequently serve as a source of disagreement between the plaintiff and the defendant.  In order to successfully recover lost profits damages, you’ll therefore have to craft an airtight claim and introduce evidence that clearly supports the purported loss.

As lost profits can be complicated, let’s explore some of the fundamentals for a clearer picture of its limitations.

Fundamentals of Lost Profits Recovery

Lost profits damages are “expectation damages” in the sense that they are inherently speculative.  When asserting a claim for lost profits, you are projecting damages — in other words, you are estimating the financial gain that you otherwise would have benefited from had the defendant not breached the agreement.

Suppose, for example, that you entered into an agreement with the defendant to repair your delivery truck.  In the agreement, the language made it clear that timeliness was critical, but the defendant delayed their repair anyways.  As a result, you could not perform necessary deliveries for the period of time that your truck was being repaired past the agreed-upon date.

The profits that you would have earned from delivering your company’s products to the purchasers (who are now entitled to refunds, due to the delay) would likely be recoverable, so long as you could provide sufficient evidence that the profits are reasonably calculated.

As with all damage claims involving a speculative element, the calculation of lost profits damages must have a reasonable basis in reality.  If your estimation of the cost per unit is not supported by the evidence, for example, then the court may choose not to award lost profits due to your inability to pin down more precise numbers.

Lost Profits Cannot Be Too Speculative

When making a claim for lost profits, you must ensure that the damages are not so speculative that the court will refuse to award them.  The lost profits you suffered must be reasonably linked to the breach at-issue.  Simply put, the lost profits damages must directly and proximately arise due to the defendant’s conduct.  If the connection is “too speculative,” lost profits will likely not be recoverable.

For example, suppose that you are involved in a contract dispute where the defendant breached an agreement to provide a model of your architectural proposal in a timely manner.  During your architectural proposal to the City, the lack of a professionally-built “model” may have hurt the overall presentation, causing you to lose the contract to competitors.

If you attempt to sue the defendant for the profits that you would have obtained had you been awarded the City contract, it is highly likely that the court will find the connection to speculative to justify lost profits damages.  Though the connection is plausible, there is no guarantee that you would have obtained the contract even if the model had been built in time.

The relationship between the defendant’s breach and the lost profits you suffered can be supported by evidence of past profits — data clearly indicating your “history of profits.”  In Virginia, however, it’s worth noting that for new and unestablished businesses, the fact that you have no “history of profits” will not necessary hurt your lost profits claim (pursuant to section 8.01-221.1 of the Virginia Code).  You can still recover lost profits, though the claim will be somewhat more speculative.

Contact an Experienced Alexandria Commercial Litigation Lawyer for Assistance

Harvey & Binnall, PLLC is a boutique litigation firm operating out of Alexandria, VA, but serving clients throughout the Virginia, Maryland, and Washington D.C. areas.  Our attorneys have decades of combined experience litigating contract disputes between commercial entities and are therefore well-positioned to navigate the complications typical of such litigation and secure a favorable verdict or settlement on behalf of our clients.

Unlike many other firms, we approach the process of litigation with a comprehensive and aggressive mentality — to that end, we prepare for the possibility of trial litigation, even in the early stages of client-engagement.  This gives us a substantial competitive advantage during negotiations with the defendant.

Call (703) 888-1943 or submit an online form to connect to an experienced Alexandria commercial litigation lawyer here at Harvey & Binnall, PLLC for further assistance.  We will evaluate your claims and work with you to determine the best strategy for securing maximum recovery.