Judge Holwell’s opinion in Ho Myung Moolsan v. Manitou Mineral Water (pdf), 07 Civ. 07843 (S.D.N.Y., Dec. 2, 2010) is a good read if you ever wrestle with proving “lost profits.”
Plaintiff Moolsan, a South Korean mineral water reseller, brought a breach of contract action against defendant Manitou, a mineral water manufacturer. Moolsan claimed $133 million of damages in lost profits due to Manitou’s inability to deliver the contracted for quantities of a “start up” brand of mineral water. The case went to a jury, but Judge Holwell granted Manitou’s trial motion that Moolsan failed as a matter of law to meet its burden of proving lost profits.
Although lost profits can be recovered in certain circumstances, they cannot be based merely on projections and plans of sales, particularly those created after the commencement of litigation. “A document prepared after the events leading to the litigation took place, and for litigation purposes, without any independent indication of reliability, is often inherently unreliable and may be excluded,” even if it’s otherwise admissible as a hearsay rule exception. Judge Holwell also noted that lost profits claims involving new ventures “must be judged with special scrutiny” due to the absence of any track record.
The opinion addresses the “wrongdoer rule,” which states that a party in breach of contract cannot escape damages simply because the amount of damages is uncertain. However, Judge Holwell determined that “in a lost profits scenario, because the existence of damages is in question instead of the amount of damages, the wrongdoer rule applies only after plaintiff has established the damages existence with the requisite level of certainty.”
Moolsan covers a lot of other ground as well, and is a valuable guide for anyone going to trial on a lost profits claim.