Lost Profits, Business Cycles, and the Reasonable Certainty Standard

March 18, 2015 | Download PDF

Courts standards require that damages analysis results be within “reasonable certainty”, and objective rather than speculative, terms more of art than of science.  Given these standards, it is of vital importance to analyze all relevant factors to the extent permitted by the best data available. And it is the responsibility of the damages expert to present an analysis that is both reasonably certain and objective by making every effort to request and/or research the best data available. The expert who is unable to isolate the wrongdoing from exogenous factors may be challenged on the basis that analysis is speculative.

This article, “Lost Profits, Business Cycles, and the Reasonable Certainty Standard”, appeared in the March 18, 2015 issue of QuickRead, published by the National Association of Certified Valuators and Analysts and the Consultants’ Training Institute.


About the Author


[i] Celebrity Cruises, Inc. v. Essef Corp., 478 F.Supp. 2d 440, 447-55 (S.D.N.Y. 2007); Texaco, Inc. v. Penzoil Corp., 729 S.W.2d 768, 831, 866.

[ii] Russell v. Allianze Life Ins. Co. of N. Am., 2015 U.S. Dist. LEXIS 1946 (Jan. 8, 2015).

[iii] Fannon, Nancy J.: The Comprehensive Guide to Lost Profits and Other Commercial Damages, Third Edition, Volume 1, BVR, 2014.

[iv] Elements to be analyzed aside from the legal functions of counsel.

[v] Lazear, Victoria A. and Mark A. Allen, Estimating Economic Damages: Identifying Sources of Disagreement Between Experts. Cornerstone Research. 

[vi] National Market Share, Inc. Sterling National Bank, 392 F.3d 520, 525 (2d Cir. 2004).

[vii] However, the absence of historical business data does not necessarily preclude a new business from recovering profits.  Under certain circumstances, the absence of business specify data does not necessarily preclude the expert from conducting an analysis, if data can be obtained and analyzed based on the principles of the yardstick, for example.  Court standards regarding the recovery of lost profits by new businesses with the adoption of the Modern New Business Rule.

[viii] Bollas, Bernadette J., The New Business Rule and the Denial of Lost Profits. Ohio State Law Journal, vol. 48, no. 3 (1987).

[ix] Anderson, Patrick L., The Economics of Business Valuation, Towards and Value Functional Approach. Stanford Economics and Finance, 2012.

[x] Gaughan, Patrick A., Measuring Business Interruption Losses and Other Commercial Damages. Second Edition. John Wiley & Sons, Inc., 2009.

[xi] http://www.nber.org/cycles/recessions.html

About the Author

Josefina V. Tranfa-Abboud, Ph.D., CFE, is a Principal in the Litigation and Corporate Financial Advisory Services Group at Marks Paneth LLP. She has extensive experience in economic analysis related to labor and employment disputes such as employment discrimination and other employment disputes, as well as claims of product liability, personal injury and wrongful death. Dr. Tranfa-Abboud also has extensive experience in the analysis of damages in commercial disputes involving claims of breach of contract business interruption and professional malpractice. 

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