When a business deal breaks down because one party allegedly failed to uphold their end of the bargain, the other party may incur various losses. In a business dispute, lost profits can become the largest source of financial loss for a party. However, if you file a lawsuit due to a dispute in a commercial agreement or relationship, can you recover lost profits resulting from your counterparty’s actions or omissions? Businesses can recover lost profits in certain types of claims. However, the law imposes an evidentiary burden on a party to prove the extent of their lost profits before a court will award them.
What Counts as “Lost Profits?”
In a lawsuit involving claims arising from a broken-down business deal, “lost profits” refers to the net income a party would have earned but for a counterparty’s misconduct or failure to fulfill its obligations under the parties’ agreement. Lost profits do not mean the revenue a party would have received from a deal; profits exclude the expenses a party would have incurred to earn the revenue.
Lost profits can take two forms: direct and consequential. Direct lost profits include the immediate and obvious profit a party expected to earn from a business deal that failed because of a counterparty’s breach of contract or misconduct. Consequential lost profits include profits that a party would have earned but for the disruption caused by the failed business relationship, including profits from collateral deals, lost business opportunities, or lost future business deals due to damaged goodwill.
Oregon’s “Reasonable Certainty” Standard
Oregon courts require parties seeking compensation for lost profits in business lawsuits to establish the amount of the loss with “reasonable certainty.” Courts will not award lost profits if a party can only speculate as to the amount. However, a party does not need to calculate their lost profits with exact precision down to the dollar or cent. Instead, the requested lost profits must have a solid basis in the evidentiary record.
Established businesses that have done similar deals in the past (including with the same counterparty) may have an easier time calculating lost profits as they can use historical earnings and expenses. However, proving lost profits for new business or unproven business lines may become more challenging, although parties might use verifiable market data to calculate lost profits on the specific deal at issue.
Proving Lost Profits: The Importance of Evidence and Expert Testimony
Parties may rely on various forms of evidence to prove lost profits in a business lawsuit, such as:
- Sales records, including historical records from past similar deals
- Profit and loss statements
- Tax returns
- Industry data
- Sales contracts
- Formal or audited financial projections
In many cases, a lost profits claim may require expert testimony to provide greater certainty as to the specific amount of loss.
Limits on Recovery of Lost Profits in Business Lawsuits
Certain principles can also limit a party’s ability to recover lost profits, including:
- Foreseeability: Parties must have contemplated consequential profits when they entered their relationship.
- Contract clauses: Business agreements may waive the right to recover consequential lost profits or include limitation-of-liability clauses that cap financial recovery or bar recovery altogether.
- Causation: A party seeking lost profits must prove that the loss arose from a counterparty’s breach rather than intervening, superseding causes like market conditions or the party’s business decisions.
Contact Our Business Litigation Firm Today
When you file a complaint in court to resolve a business dispute, you may seek lost profits as part of your financial relief. An experienced business litigation firm can help you recover the compensation owed to you under the law. Contact Wayne A. Lamb Law today for an initial consultation with an experienced Oregon business litigation attorney to learn more about recovering lost profits after a business deal goes sour by filing a lawsuit.