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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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Meet the Faculty
MODERATOR:
Max Stein - Boodell & Domanskis, LLC
PANELISTS:
Jessica Fishfeld - Greenberg Traurig
Adam Hirsch - Roetzel & Andress
Linda Leali - Linda Leali, P.A.
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About This Webinar
Nuts & Bolts of Lost Profit Cases
Business does not always go as planned. When a vendor breaches their contract to supply
key parts, a lender reneges on their loan commitment, or a fire decimates a central
distribution facility, the impacted business may have grounds to seek compensation in the
form of the profits it would have earned had everything just gone smoothly. In order to
successfully win (or defend against) any such claim, one must compile and analyze certain
types of documents and information, understand and apply appropriate methodologies, and
present their case in a manner consistent with that which the court or trier of fact requires. In
this webinar, the expert panel discusses the circumstances that warrant lost profits claims,
key considerations for both the claimant and defendant, and how such claims will ultimately
be evaluated.
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About This Series
Complex Financial Litigation
This webinar series focuses on the legal and financial realities that accompany unanticipated
adverse events, soured business relationships, and failing organizations. Whether you are a
general litigator, business owner, aspiring shareholder, or insurance claims analyst, this
webinar series will help you to understand and prioritize key concepts associated with
business breakups, shareholder disputes, claims for lost profits, and bankruptcy avoidance
actions.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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Episodes in this Series
#1: Common Issues and Strategies in Business Breakups
Premiere date: 2/24/21
#2: Nuts & Bolts of Lost Profit Cases
Premiere date: 3/24/21
#3: Resolving Shareholder Disputes
Premiere date: 4/21/21
#4: Defending Against Bankruptcy Avoidance Actions
Premiere date: 5/19/21
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Episode #2
Nuts & Bolts of Lost Profit Cases
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What Are Lost Profit?
• Revenues that would have been earned but for the wrongful act („but for‟ revenues)
LESS
• Incremental costs necessary to derive these revenues
EQUALS
• Lost Profits
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What Are Lost Profit?
• Economic damages caused by disruption of a business.
• Causes:
 Breach of contract
 Liability due to accident or damage to property
 Intellectual property infringement

What Are Lost Profit?
The factual or “but for” causation showing needed for recovery of lost profits damages -- as
with all damages -- requires a plaintiff to prove by a preponderance of the evidence that there
is „some reasonable connection between the act or omission of the defendant and the
damage which the plaintiff has suffered.‟

What Are Lost Profit?
• Profits must be shown to have been factually and legally caused by -- and a reasonably
foreseeable result of -- the defendant‟s wrongful conduct.
• Further, a plaintiff must prove his or her estimate of lost profits to a “reasonable
certainty,” establishing such damages through an adequate evidentiary foundation.

What is the Difference Between Lost Profits and Lost
Value?
• Lost Profits = Incremental profits the company would had have earned but for the
wrongful act
• Diminution in Value = The present value of lost profits over the life of the company
discounted at the appropriate risk adjusted rate of return
• How do you decide which analysis to utilize?
 When lost profits extend over the life of the company

Standard for Proving Lost Profits
• Tort or Contract must have:
 Causation - Some reasonable connection between the act or omission of the
defendant and the damage which the plaintiff has suffered.
 Reasonable foreseeability – Lost profits must be shown to have been factually and
legally caused by the defendant‟s wrongful conduct.
 Reasonable certainty - Establishing such damages through an adequate evidentiary
foundation; applies only to the fact of damages, not to the amount of damages

Evidentiary Support
• Informed opinion - Lost profits may be established by evidence of past experience or
expert testimony sufficient to quantify the extent of loss, either of which must be properly
supported by admissible evidence.
• Judgmental approximation - Plaintiff's owner provided evidence of the company's past
experience and lost profits; owner has substantial experience.
• Credible evidence – Industry averages, governmental information, official statistics, etc.
• IMPORTANT: Must determine how to get this non-company-specific data into evidence.

General Flow of Calculating Lost Profits
• Understand which lost profits damages model is appropriate
• Use evidentiary standards
• Calculate lost profits
• Develop the causal economic link between defendant‟s action (event) and the loss
• Select the period to examine
• Estimate the relevant lost revenues and associated costs
• Utilize assumptions that have reasonable certainty

What Evidence is Necessary?
• “The Company‟s profits would have been $XXX,XXX, based on…”
 Examine financial statements for history
 Demand for product
 Consistent pricing trends over time
 Industry trends over time
 Competitive risk is low
 Technology risk is low
 Customer retention is constant/high

What Evidence is Necessary?
• “The risk the Company would NOT achieve $XXX,XXX in profits is very low, based on …”
 Customer and product demand
 Low risk of product/service obsolescence
 Industry trends that support achievability
 Backlog orders

What Evidence is Necessary?
• “The Company‟s profits are now only $X,XXX, due to …”
 Customer cancellations of orders or contracts
 Lost customer or documented market share
 Lost productivity

What Evidence is Necessary?
• “The Defendant‟s actions are directly responsible for the loss in profits, based on …”
 Customers lost as a direct result of the defendant‟s actions
o Cancellation documentation/letters
 Inability to gain new customers
o Documentation of futile efforts

What Evidence is Necessary?
• “No other factors contributed the Company‟s ability to earn $XXX,XXX in profits, as
proved by …”
 Industry stability
 Economic stability
 No new competitive entrants into market place
 No new governmental or regulatory issues

Qualified Expert
• Must be a qualified expert, experienced in field (highly recommend credentialed
individual)
 Accounting Professional (CPA)
 Valuation expert (ASA, ABV, CFA)
 Economist
• Must use proper methodology
• Must be objective
• Must have sufficient evidentiary support

Lost Profit Methods
• Before-and-After Approach
• Yardstick Approach
• Sales Projection Approach
• Market Share Approach
• Alternative methodologies

Before and After Approach: Historical Damages with
Full Recovery

Before and After Approach
• Method
 Estimate of lost profits based on the plaintiff‟s sales (and sales trends) before the
damaging event with a projection of sales (based on sales and sales trends) that
would have been achieved had the damaging act not occurred (“but for” sales)
reduced by incremental costs
 Incremental costs: costs that rise and fall with sales; sales fall, have to deduct those
costs that decrease because of the sales fall
• When Appropriate
 When reliable historical data exists
 When growth trends are steady and predictable
 In relatively stable economic environments

Before and After Approach
• Strengths
 Relies on plaintiff‟s actual, historical financial results as basis for comparison to
estimated future results
 Courts often favor financial projections based on past results
• Limitations
 Requires sufficient historical data
 May not account for industry changes that occur subsequent to damages date

Before and After Approach
Plaintiff Company - Sales
1998 1999 2000 2001
E
V
E
N
T
2002 2003 2004
Actual Sales $180,000 $219,000 $262,000 $317,000 $298,000 $295,000 $302,000
Actual Growth Rate 21.70% 19.60% 21.00% -6.00% -1.00% 2.40%
Assumed or But
For Growth Rate - - - - 21.0% 21.0% 21.0%
Projected Sales 380,400 460,240 556,890
Lost Sales - - - - ($82,400) ($165,240) ($254,890)
Total Lost Sales ($502,530)

Yardstick Approach
• Method
 Estimate of the plaintiff‟s profits based on a yardstick – e.g., a comparable company,
division or industry benchmark - that is not affected by the damaging act
• When Appropriate
 When a reliable yardstick exists
 With newly established firms
 Accounts for differences in time periods
 When market conditions may have changed subsequent to the damages event date

Yardstick Approach

Yardstick Approach
• Strengths
 Can provide objective, reliable benchmark for estimating
 Yardstick is independent of damaging act, but able to reflect its effects
 Accounts for changes in the industry or market that may have occurred subsequent
to the damages event date
• Limitations
 Lack of comparability between plaintiff and yardstick (e.g., size, sales channels)
 Yardstick data may not be available

Sales Projection Approach
• Method
 Utilizes company-specific forecasts the company has prepared in the ordinary
course of business or for some purpose other than the litigation
• When Appropriate
 If plaintiff has prepared the documentation contemporaneously or prior to the
occurrence of the alleged harmful event
 When projections have been historically reliable
 When calculation is for expert who is not engaged by party who has made the
projections
 If no other approach is reliable

Sales Projection Approach: Expected Impairment of
FCFS

Sales Projection Approach
• Strengths
 May allow the expert to incorporate more easily the effects of other factors (beyond
the harmful act) that might increase or decrease the estimated economic damages
 Can be very effective if used by expert for party opposing the party who made the
projection
• Limitations
 Does not control for market events that may have occurred subsequent to the
damages event
 Difficult to independently support the underlying foundation for the projections
 Speculative or nothing more than a “wish list”

Market Share Approach
• Method
 Calculates lost profits based on the difference between the plaintiff‟s “but-for” market
share and its market share after the damaging act.
• When Appropriate
 When reliable market share data exists
 When plaintiff company products/services fit within “market”

Market Share Approach
• Strengths
 Can provide objective, reliable basis for estimating
 Other companies in “market” are independent of damaging act
 Accounts for changes in the industry during relevant period
• Limitations
 Difficult to determine market share – lack of data, comparability
 May be difficult to assess due to dynamic markets

Established Businesses
• Provides evidence of a successful past track record of business, along with evidence
establishing anticipated future net profits, offer the greatest likelihood of recovering lost
profits
• Use expert testimony based upon a solid evidentiary foundation addressing the
underlying economic data quantifying gross revenue and variable expenses
• May use outside or inside expert testimony

What About Recently Established or New
Businesses?
• Most states allow for recovery of lost profits for newly established business; however, the
level of scrutiny may be increased.
• The New Business Rule (NBR) applies to new businesses as well as new products.
However, despite the newness of a given company or enterprise, courts will allow
discovery on the lost profits question. The longer the parties‟ contractual relationship, the
less likely the NBR will defeat a lost profits claim.
• May use alternative forms of proof to establish lost profits, such as industry averages,
governmental standards
• Must still meet the “reasonable certainty” standard

What About Recently Established or New
Businesses?
• Actual Case example: There was a five-year relationship between the wall furnishings
manufacturer and designer wall furnishings as well as a multi-year history of contracts
the designer had with “big box” retailers . the court held it was premature to dismiss the
designer‟s counterclaim without allowing the designer to take oral and written discovery
to support the damages claim. Williamson Co. v. Ill-Eagle Enterprises, Ltd., 2015 WL
802250
• Damages for lost profits are confined to the period in which it would be reasonable to
replace the profits

What About Recently Established or New
Businesses?
• The longer the parties‟ contractual relationship, the less likely the New Business Rule will
defeat a lost profits claim
• E.g. Williamson Co. v. Ill-Eagle Enterprises, Ltd., 2015 WL 802250
• AICPA practice aid, “Attaining Reasonable Certainty in Economic Damage Calculations,”
includes an entire chapter (chapter 4) on proving damages for newly established
businesses.

Estimating Incremental Costs
• Costs should only be those costs related to the lost incremental revenues (“Avoidable or
incremental Costs”)
• Examples of Incremental Costs
 Direct costs that change with amounts of sales (materials, commissions, royalties)
 Other variable or semi-variable costs
o Salaries
o Infrastructure (rent, utilities)

Estimating Incremental Costs
• Examples of costs that should not be included
 Corporate overhead
 Other fixed costs (depreciation, amortization)

Defending Against an Action
• What defenses exist to a lost profit action?
• What can a party do to challenge the lost profits findings of an expert?

Concluding Thoughts
• Applicable standards
• Burden of proof
• Evidentiary challenges
• Remedies
• Methodologies
• Qualified expert
• Other remedies

About the Faculty
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About The Faculty
Max Stein - MStein@boodlaw.com
Max Stein, a member of Boodell & Domanskis, LLC, is a business litigator focused on
meeting clients‟ business objectives, helping them resolve disputes at the most opportune
times. Max represents clients as both plaintiffs and defendants in a wide variety of forums.
Additionally, Max notes that one advantage of practicing at a smaller firm, is that he is able to
offer his clients high-quality, nimble representation at reasonable rates. To aid his clients in
achieving their business objectives, Max approaches cases as though they will go to trial,
utilizing his extensive trial experience. Max also counsels his clients, helping to identify and
navigate legal risks to achieve their business goals and protect their competitive interests
while managing and, where possible, avoiding the expense and uncertainty of litigation.
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About The Faculty
Jessica Fishfeld - Jessica.fishfeld@gmail.com
Jessica Fishfeld is an associate in the litigation group at Greenberg Traurig in Miami, Florida.
She has vast experience litigating complex commercial disputes and advising clients on how to
diffuse commercial conflicts and avoid litigation. She has particular experience handling
disputes between commercial competitors, such as in matters involving allegations of breach of
contract, unfair trade practices, intellectual property infringement, trade secret misappropriation,
and other business torts. She also handles matters regarding data privacy and protection of
proprietary information and intellectual property. By the nature of her practice and experience,
she is very knowledgeable about complex technologies and the entertainment industry.
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About The Faculty
Adam Hirsch - AHirsch@ralaw.com
Adam is Of Counsel with ROETZEL, Chicago and focuses his practice on commercial and
business litigation, representing a wide variety of clients ranging from individuals to small
business owners to large corporations. He has a particular focus on investment disputes and
business fraud claims, and has represented investors and investment companies as plaintiffs
and defendants in lawsuits around the country. He regularly writes and presents on current
issues relating to business fraud. Adam also has extensive experience litigating contract
disputes, and has argued and tried multi-million dollar contract issues before judges and
juries nationwide. He also has experience in advising clients in employment disputes relating
to matters such as separation, severance, and non-compete agreements.
Before joining ROETZEL, Adam was a partner at Robinson, Curley & Clayton and an
associate at Jenner & Block in Chicago, where his practice focused on complex business
litigation.
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About The Faculty
Linda Leali - lleali@lealilaw.com
Linda Leali is the founding shareholder of Linda Leali P.A. Ms. Leali has extensive experience
and expertise with bankruptcy reorganizations, receiverships, debt restructuring and creditors‟
rights. She has been involved in some of the largest cases in U.S. history including the
bankruptcies of a Fortune 100 publicly traded energy producer, a publicly traded real estate
development company, large privately owned physician staffing company and automotive parts
manufacturer. Ms. Leali also regularly serves as a court-appointed receiver. She frequently
lectures to both attorneys and judges on both bankruptcy and receivership law.
To read more, go to https://www.financialpoise.com/webinar-faculty/linda-leali/
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Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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About Financial Poise
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