If your company lost profits because of another company’s actions, you may be able to recoup some, if not all, of that loss.
“Most civil lawsuits arise out of a plaintiff’s belief they have been monetarily damaged due to actions of the defendant,” says Richard Squar, Tax & Litigation Support director at Glenn M. Gelman & Associates, CPAs and Business Consultants. “If damages exist, the plaintiff’s reward is recovering money to be made whole as if the losses did not occur.”
It’s a complicated process, and both sides will have to work with a financial expert to estimate the damages.
Smart Business spoke with Squar about how the recovery process works.
When are damages due to lost profits recoverable?
There are three requirements that must be met for these damages to be recoverable:
- The defendant is proven to be at fault.
- It’s found that the defendant could foresee that his actions would cause damages when he was at fault.
- Damages can be calculated with reasonable and acceptable certainty, not just through speculation.
What is the role of a financial expert in the recovery process?
First, he or she must come up with an opinion on the damages — how much should be paid if the defendant is found to be at fault. Second, he or she should be an adviser to the lawyers, judges and juries. The expert should use clear language without getting too technical.
An often-used phrase is ‘But for the fact that the damage happened, what would have happened?’ This refers to an estimate of what would have happened if the damages did not occur, less what happened, less what the plaintiff did to try to minimize those damages (mitigation).
How are monetary damages from lost profits calculated?
It doesn’t have to be an exact calculation of the damages. Estimates are OK, just as long as they aren’t speculative. ‘Speculative’ is a term that the opposing counsel will use to try to discredit the expert’s testimony. If the expert isn’t provided with enough information and tries to make a conclusion from limited data, the other side may say he or she is just speculating as to what the number would be.
The expert has to be using some kind of tested techniques and theories that are generally accepted by peers in order to withstand the scrutiny of the opposing counsel.
