Calculating damages, or the amount of money that a litigant wants to recover in their business related litigation, is a critical element of any case. In fact, it is an element that needs to be proven in court for many causes of action, such as breach of contract, tortious interference with contractual relations, fraud, and many others. The following few practice points are provided from experience to help businesses and business owners consider their own internal damages analysis in preparing their cases for trial.
INTERNAL ANALYSIS OF CONTRACTS AND COURSE OF DEALING
Before going to outside counsel, the company can consider doing its own internal review of the contract at issue and the course of contractual and business performance at issue in the dispute. For example, more than seven years ago now, a major conglomerate client faced a situation where one of its key suppliers of an integral component product for its technology had the contract terminated because the supplier was forced into bankruptcy. Working with the engineers and the finance departments, we helped formulate a damages calculation that was millions of dollars higher than the client initially estimated.
When analyzing damages, clients are advised to consider the terms of the contract. Certain contracts provide for a limitations on damages. Such contractual clauses can provide that neither party shall be liable for any “lost profit” damages, or other types of damages. Such clauses can also provide for certain “liquidated” damages, or a sum certain that can be recovered in the event of a contractual breach. For these reasons, calculations of damages need to begin with a thorough review of the contract to determine if there are any limitations on the types of damages that can be recovered.
COORDINATE BETWEEN LEGAL, FINANCE & OTHER DEPARTMENTS
As shown in the example above, it was the coordination between professionals in the legal, finance and engineering departments that enabled the calculation of damages to be much more thorough and accurate. Without knowledge of all the costs involved in the development of technology, the sales of the technology, the contractual provisions impacting damages, and other intricacies of this specific business, it would have been impossible to accurately calculate damages, and such knowledge was split between different parts of the business. The same is no doubt true for other types of businesses.
RESEARCH WHAT CAUSES OF ACTION EXIST
Many business cases involve circumstances of breach of contract, but this is not the only cause of action that can be pursued in court. There may be others, such as tort based claims (tortious interference with contractual relations, fraud (in certain circumstances), unjust enrichment, quantum meruit, and others. To properly understand what your case is worth in court, it is important to understand the legal effect of such causes of action and what potential risks exist for the defendant if the case goes to a jury. In certain instances, particular claims (such as fraud) may enable the fact finder (judge or jury) to award punitive damages.
PREPARE, PREPARE IN ADVANCE
For these reasons, it is critically important to gather all the relevant information about the damages analysis at the inception of the case. Companies and business owners can help lawyers from the beginning of their engagement if they come prepared with relevant information about both the facts and the financial impact of the wrongful conduct or breach on their business. They should gather the contract, all relevant documents and correspondence pertaining to the business (e.g. projections of anticipated profits), tax records, sales records, profit and loss statements, and consider obtaining an informal report from their accountants before going to the litigation shop. Having this evidence and analysis conducted by the client in advance of contacting the lawyer can definitely help expedite matters and increase the chance that your case will succeed and help lower your initial costs.
BENAUR LAW specializes in international and commercial commercial litigation matters, especially judgment enforcement, debt recovery and creditor bankruptcy claims, breach of contract, business fraud, and shareholder litigation matters. Contact us if you would like more information regarding these matters.
George Benaur, Esq.
BENAUR LAW LLC
General Business Counsel
Domestic & International Litigation
SuperLawyers and AV Preeminent Rated by Martindale