Quick Summary
Mr. Fera (plaintiff) sued Village Plaza, Inc. (defendant) after a breach of lease prevented him from opening a ‘book and bottle’ shop. The dispute centered around whether he could claim lost anticipated profits as damages for this breach.
The jury awarded him $200,000, but the Court of Appeals reversed it. The Supreme Court of Michigan reinstated the award, stating that new businesses can claim lost anticipated profits if proven with reasonable certainty.
Facts of the Case
Mr. Fera (plaintiff) entered a ten-year lease agreement with Fairborn-Village Plaza (defendant) to open a ‘book and bottle’ shop in a new shopping center. As part of the deal, they agreed on a monthly rent plus a percentage of the annual receipts. However, Fera gave up some space, which led to liquor sales being excluded from the percentage rent.
Construction delays caused by work stoppages resulted in the premises not being ready on time. The bank financing the project ended up taking control and misplaced the lease, renting the space to someone else. With no suitable alternative space available, Fera sued for lost profits he anticipated from the business.
Procedural Posture and History
- A jury awarded Mr. Fera $200,000 for lost anticipated profits.
- The Court of Appeals reversed the decision, stating lost profits for a new business were too speculative.
- Mr. Fera appealed to the Supreme Court of Michigan.
I.R.A.C. Format
Issue
Whether a new business can recover damages for lost anticipated profits due to breach of a lease agreement.
Rule of Law
Anticipated profits from a new business may be recovered as damages if they can be established with a reasonable degree of certainty.
Reasoning and Analysis
The Michigan Supreme Court disagreed with the appellate court’s ruling that new businesses are not entitled to damages for lost anticipated profits and that the evidence presented was too speculative. The Supreme Court emphasized that it is the sufficiency of the proof that matters, not a blanket rule against new businesses recovering such damages.
They pointed out that there was extensive testimony from both sides regarding the potential profits and losses. The jury had been instructed correctly on the law concerning speculative damages and made their decision based on substantial evidence presented during the trial.
The trial judge confirmed that the jury’s findings were supported by testimony, and hence, the award was justified. The Supreme Court reinstated the jury’s award, indicating that reasonable minds could differ on the evidence presented, which is why they would not overturn the jury’s verdict.
Conclusion
The Supreme Court of Michigan reversed the Court of Appeals’ decision and reinstated the jury’s award of $200,000 to Mr. Fera.
Dissenting Opinions
Justice Coleman dissented in part, agreeing that profits from the bookstore could be considered but argued that profits from liquor sales were too speculative since there was no liquor license and testimony suggested it wouldn’t have been granted.
Key Takeaways
- New businesses can recover lost anticipated profits due to breach of contract if such profits can be established with reasonable certainty.
- Jury awards based on substantial and conflicting testimony regarding damages should not be overturned if reasonable minds could differ on the evidence presented.
- The proof of lost profits should not be considered speculative if there is sufficient evidence to provide a reasonable basis for estimating potential earnings.
Relevant FAQs of this case
What factors must be considered to determine if lost profits of a new business are recoverable?
When evaluating if a new business’s lost profits are recoverable, courts consider the ability to predict these profits with a reasonable degree of certainty. This involves examining historical data, market trends, expert testimony, and the experience of similar businesses.
- For example: In the case of a new restaurant, a court might look at the success rate of similar restaurants in the same area, anticipated customer base, and pre-opening reservations.
How can parties to a contract mitigate the risk of uncertain damages in case of breach?
Parties can mitigate the risk by including detailed clauses in the contract that outline the method for calculating damages or by agreeing on liquidated damages, which is a predetermined amount to be paid in case of breach.
- For example: A software development contract might stipulate that for every week the delivery is late, a certain sum is to be paid as liquidated damages.
In what ways can expert testimony contribute to proving lost profits in a lawsuit?
Expert testimony can assist in proving lost profits by providing an objective analysis of potential earnings based on industry standards, market analyses, and economic models to establish lost profits with reasonable certainty.
- For example: An economic consultant might use statistical models comparing the plaintiff’s business plan with similar enterprises to estimate the revenue that could have been earned.
References
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