The Lost Profit Rule

on February 17, 2014 by James Hunt

Jim hunt picLawsuits involving the claim of “lost profits” as damages can present unique challenges, especially if your business cannot identify specific transactions or deals that were lost due to the defendant’s wrongful conduct. Some states have strict guidelines governing the ability to claim lost profits.

New Business Rule

New Jersey follows the “new business rule,” which prohibits a newly established business from seeking lost profits. The reasoning behind the new business rule is that lost profits cannot be determined with a reasonable degree of certainty because there is not an established history of revenue and profits. The short existence of the entity makes a determination of lost profits too speculative. You may be wondering what constitutes a “new business?” The answer is decided upon a case-by-case analysis of the individual factual circumstances involved.

Reasonable Certainty Standard

In most states, lost profits are considered to be speculative, but they can be recovered if they are proven with “reasonable certainty.” In New York, lost profits do not have to be shown with mathematical precision, but they may be recovered only when they are “capable of measurement based upon known reliable factors without undue speculation.” See Schonfeld v. Hillard. Thus, New York courts apply a heightened standard for new businesses to prove lost profits because there is no track record to use to establish reasonable certainty.

Jurisdiction is Important

If you have the ability to file a lawsuit in several different jurisdictions, it is always important to confer with an experienced business law attorney to determine which jurisdiction will be most beneficial to you. This is especially true if you have a new business that intends to claim lost profits as part of the damages suffered.

To learn more about claiming lost profits, contact Slater, Tenaglia, Fritz & Hunt to schedule a free initial consultation.

The attorneys at Slater, Tenaglia, Fritz & Hunt, P.A., provide clients with experienced legal representation.  We handle many types of business disputes on behalf of corporate clients, including Fortune 500 Corporations and individuals throughout New York, New Jersey, Pennsylvania and nationally. Our attorneys handle cases from pre-litigation negotiations through litigation to obtaining and enforcing judgments.  If you need assistance, or are interested in learning more, please contact us by phone at (201) 820-6001 in New Jersey or (212) 692-0200 in New York. We can also be found on Facebook, Linkedin, Twitter, Google+, Youtube and the Internet. All initial consultations are free of charge.