Without Damages Expert No Award of Lost Profits
In 2017, the New Jersey Superior Court ruled in favor of the plaintiff Professional Stone, Stucco & Siding Applicators, Inc. (“Plaintiff”) and held that the defendant JMOC Builders, Inc. (“Defendant”) wrongfully terminated a contract entered into between them without providing Plaintiff proper notice to afford it the opportunity to cure defective performance. According to the trial court, any breach by Plaintiff as alleged by Defendant was not a material breach and Plaintiff should have been given an opportunity to cure the work before being terminated from the project. Following a three day bench trial, the court ruled that Defendant’s actions in not paying the balance due under the contract and not permitting Plaintiff to finish the work without a valid explanation constituted a breach of the contract between them.
On appeal, the Appellate Division held that the trial court had determined the gross amount that Plaintiff was entitled to under the contract but omitted the necessary second step of calculating “the difference between the contract price and the cost of performance or production.” (Citations omitted.) In other words, the trial court failed to calculate Plaintiff’s lost profits. The Appellate Division held that “where the plaintiff is a … contractor who has been prevented by the defendant from completing his contract, the plaintiff is entitled to the profit that would have been realized if performance had been completed.” (Citations omitted.) The Appellate Division further held that even if the trial court had attempted to calculate Plaintiff’s lost profits, it could not do so because there was no evidence of lost profits. At trial, Plaintiff failed to offer any evidence of the costs that it would have incurred to complete the services, or of its historical profit margin in business. “Proof of the relevant costs or expenses is not a matter of mitigation. It is part of the damage case of the party seeking recovery for lost profits.” (Citations omitted.)
The Appellate Division stated in its decision, “[p]rofits lost by reason of breach of contract may be recovered ‘if there are any criteria by which probable profits can be estimated with reasonable certainty.'” The Appellate Division further stated that “a plaintiff’s historical profit margin in business, rather than exact dollar amounts attributable to the specific contract, can provide a suitable basis to calculate lost profits.” (Citations omitted.)
Based on Plaintiff’s failure to offer any evidence of the costs that it would have incurred to complete the services, or of its historical profit margin in business, the Appellate Division reversed the trial court’s judgment and dismissed the complaint with prejudice.
Had Plaintiff utilized the services of a damages expert, it would have been awarded applicable lost profits.
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