"For want of a nail": applying Florida's reasonable certainty test to lost profit damage claims.
For want of a nail the shoe was lost. For want of a shoe the horse was lost. For want of a horse the rider was lost. For want of a rider the battle was lost. For want of a battle the kingdom was lost.
And all for the want of a horseshoe nail. (1) This is a follow-up to a previous article discussing the future lost profits (2) prong of what has been called the "flexibility theory of damages." (3) Under this doctrine of alternative remedies, a claimant in either contract or tort may seek recovery of out-of-pocket expenses or reasonable future lost profits, but not both. As succinctly explained in Beefy Trail, Inc. v. Beefy King Intern., Inc., 267 So. 2d 853, 856 (Fla. 4th DCA 1972):
(1) [H]e may prove the gains he would have made had the defendant performed in full as the contract required subtracting therefrom the costs of the operations necessary to realize those gains, i.e., the injured party may seek lost profits and in such case the interest he seeks to protect is his "expectation interest"; (2) he may omit an attempt to show lost profits and prove instead his actual expenditures made before the repudiation or nonperformance by the defendant insofar as those expenditures were reasonably to have been foreseen, i.e., ... his "reliance interest."
The flexibility theory is equitable in nature. As explained recently in Ehrman v. Mann, 979 So. 2d 1011, 1012 (Fla. 4th DCA 2008) (quoting Liddle v. A.F. Dozier, 777 So. 2d 421, 422 (Fla. 4th DCA 2000)): "The purpose of the election of remedies doctrine is to 'prevent double recoveries for a single wrong.'" The remedy available, however, is not entirely up to the claimant. While reliance expenditures are allowed as an alternative to expectation damages, future lost profits "may be too speculative to form a part of any damage award." (4)
Election of Remedies Must Not Be Confused with Alternative Pleading
Lost profits, as seen above, constitute an alternative remedy to out-of-pocket losses under the flexibility theory. This does not mean that lawsuits must be framed or tried under an "either or" damage limitation. On the contrary--successful suits can, and often do, include the pleading of alternative legal theories. It is only after liability is determined that the appropriate damage model should be applied. The remedy is elected at the award stage of the litigation.
Florida Rule of Civil Procedure 1.110(g) specifically allows a pleader to "set up in the same action as many claims or causes of action" as he has, and a "claim for relief may be stated in the alternative." This use of alternative pleading is "a perfectly acceptable practice under Florida law." (5) Since different legal theories may be presented, an "election between inconsistent remedies need only occur before judgment is entered." (6) The election of a plaintiff's ultimate remedy--be it lost profit, out-of-pocket, quantum meruit, or other damages--cannot be required before the trial takes place. A plaintiff is entitled to put on all proper legal theories. (7)
While the alternative pleading rule appears to be straightforward, some trial judges (not to mention practitioners) have confused alternative pleading with the flexibility theory of damages. As a result, some properly pleaded (but alternative) theories of recovery have been dismissed through trial court error before trial. (8) This problem is often manifested when a cause of action for fraud in the inducement is coupled with a cause of action for breach of contract: These theories can properly be pursued concurrently, and a trial court's pretrial elimination of either theory is reversible error. (9)
In addition to showing that it is reversible error to dismiss a proper legal theory before the trial, the Williams case illustrates that a double recovery is still precluded by the flexibility theory even though separate legal claims may be pursued simultaneously. "It is well settled that a party may not recover damages for both breach of contract and fraud unless the party first establishes that the damages arising from the fraud are separate and distinguishable from the damages arising from the breach of contract." (10)
Eliminating viable alternative claims before judgment is a misapplication of the "election of remedies" doctrine. The election in question, as the phrase indicates, refers to the ultimate remedy and not the theory by which a remedy is recovered. There is no remedy available until liability has been established, so eliminating a theory of liability before entitlement to recovery has been determined puts the conceptual cart before the horse.
Levitt-Ansca Towne Park Partnership v. Smith & Co., Inc., 873 So. 2d 392 (Fla. 4th DCA 2004), which involved a trial court error, illustrates this point. There, a contractor/ plaintiff's remedies under a partially performed construction contract were both equitable (via a quantum meruit recovery) and legal (as in a lost profit calculation). (11) The jury awarded damages under both theories. That double award violated the flexibility theory and required a remand back to the trial court so the contractor could "elect" between the two mutually exclusive forms of relief. (12) There was nothing improper about presenting the two alternative theories to the jury; the windfall recovery was the problem.
Louie's Oyster, Inc. v. Villaggio Di Las Olas, Inc., 902 So. 2d 901 (Fla. 4th DCA 2005), represents the proper method of awarding damages when independent theories of recovery are pursued. There, the claimant in a lease dispute sought two mutually exclusive forms of damage via alternative pleaded theories, thus, allowing the trial court to consider the alternative award of either loss of use or loss of future profits. Because damages were awarded based only on lost profits, the result was acceptable: "[W]e find the tenant is entitled to seek damages by alternative theories so long as the judgment does not result in a double recovery for the same wrong." (13)
The difference between Williams and Levitt-Ansca on one side, and Louie's Oyster on the other, can be summarized as follows: Lawsuits can seek alternative remedies under alternative theories up through trial, but damages will be awarded based on only one theory. Williams violated Florida's alternative pleading rules and Levitt-Ansca correctly applied Florida's "flexibility theory." If the damages awarded are lost profits, they are proper only when they can be proven and measured with "reasonable certainty."
Lost Profits Hinge on Legal "Certainty"
All lost profit claims hinge on at least some speculation, as they depend on "would have" assumptions about the future, and assume an anticipated future gain that did not actually materialize. Additionally, determining the profits that would have been realized requires some educated guesswork, which by definition is not subject to absolute precision.
What is the reasonable certainty standard applied? "The mind of a prudent impartial person should be satisfied that the damages are not the result of speculation or conjecture." (14) This test is, therefore, an objective reasonable man standard, however imprecise, and is not subjective.
Florida Has Long Recognized the Certainty Rule
For more than 70 years, the law in Florida has been that lost future profit damages are recoverable for an established business only as long as the loss is the natural result of the wrong and the amount can be established with reasonable certainty. Once the causation element is satisfied, certainty as to damages must be considered. "The rule is well settled that if there is a yardstick or measure of damages by which prospective profits may be determined and they arise out of a contract in which profit is the inducement to its making, they may be allowed if proven, whether they arise from farming, mechanical, or other contracts." (15) Uncertainty as to the exact amount of the lost profits is not fatal, either: "if prospective profits form an elemental constituent of the contract, their loss, the natural result of its breach, and the amount can be established with reasonable certainty, such certainty as satisfied the mind of a prudent and impartial person, they are allowed." (16) The objective "prudent impartial person" standard on prospective profit damages in Twyman v. Roell, 166 So. 2d 215, 217 (Fla. 1936), has stood the test of time. (17)
Whether lost profits can also be recovered for a business with no proven track record, however, was not resolved until 1989 in W.W. Gay Mechanical Contractor, Inc. v. Wharfside Two, Ltd., 545 So. 2d 1348 (Fla. 1989). Until then, it was generally considered that "an award for lost profits requires the existence of an ongoing business." (18) Then, in W.W. Gay, the Florida Supreme Court reaffirmed the rule that causation and reasonable certainty were preconditions to lost profits claims. Citing Twyman, the court ruled "[a] business can recover lost prospective profits regardless of whether it is established or has any 'track record.'" (19)
Even more recently, the Florida Supreme Court clarified that future economic damages are available in noncommercial torts. In Auto-Owners Ins. Co. v. Tompkins, 651 So. 2d 89, 90 (Fla. 1995), the court resolved a clear conflict in the appellate circuits, holding that, when the prospective economic effects of a personal injury are reasonably certain, damages for that future harm will be allowed.
Nevertheless, the legal certainty required to warrant lost profit damages entails a fact-specific analysis and numerous cases have found that certainty (and, therefore, damage entitlement) was lacking. One early example is Brock v. Gale, 14 Fla. 523 (Fla. 1874), when a dentist was allowed to recover the actual value of his lost tools but not the damages flowing from their loss, because the latter would be too "remote and contingent" to be held against the defendant. One might argue that Brock turned more on an equitable "reasonable forseeability" limitation than a "certainty" analysis but the result is the same--no lost profits were awarded.
Forest's Men's Shop v. Schmidt, 536 So. 2d 334, 336 (Fla. 4th DCA 1988), also illustrates how the objective reasonable person standard is applied to lost profit claims. There, subjective (and creative) damages testimony by the claimant's president (a CPA) and an economist was rejected for good reason: Financial statements showed that prior to the events giving rise to the claim, the business had been failing.
Similarly, in Stensby v. Effjohn Oy Ab, 806 So. 2d 542 (Fla. 3d DCA 2002), the dispute involved a failed agreement between a fundraiser and a cruise ship owner/operator. Stensby's claim for lost profits was rejected because there was no evidence that, but for the breach, the venture would have otherwise been consummated. A lost profit claim could not be predicated on a string of hypothetical "what ifs":
The uncontroverted evidence concerning conditions in the industry and the actual, woeful, financial record of the two vessels during the critical period established the unlikelihood that any profits at all would have been realized during that time, let alone that all such profits would have been declared in dividends; let alone in the extravagant amount testified to by the plaintiff's "expert" and reflected in the verdict. It is unnecessary to multiply the "let alones" to make the point.... (20)
Simply put, lost profit is not meant to be the judicial equivalent of a winning lottery ticket for the plaintiff. (21)
A hypothetical what if scenario was also fatal to a lost profit claim in Halliburton Co. v. Eastern Cement Corp., 672 So. 2d 844 (Fla. 4th DCA 1996). There, the plaintiff advanced a theory that, had a cement pumping system worked as warranted, the plaintiff would have taken other actions, leading to alleged ever-expanding lost profit. The court rejected the plaintiff 's economist expert's speculative testimony as to projected revenues, profits, and probabilities arising out of anticipated success of an unrealized venture. (22) The Halliburton court even cited the "For Want of a Nail" parable:
All that was offered was a hope of commercial fortune hanging from a thin thread of "what-ifs"--buoyed by the buyer's after-the-fact testimonial conviction that success and profits would surely have been there for the taking. The evidence forming the necessary chain of causation between the defects in the single system sold under the contract in suit and any possible future profits lost in the containerized cargo business comes down to little more than pure speculation.... It is in short, as seller argues, the nail that lost the kingdom. (23)
More recently, in Hammer Const. Corp. v. George Phillips & Assoc., Inc., 994 So. 2d 1135, 1138 (Fla. 3d DCA 2008), lost profit was again denied on certainty grounds: The simplistic and conclusory testimony from the owner provided no reasonable yardstick for their measurement.
A request for lost profits is not always a losing prospect, but given the constraints of the certainty rule, it is definitely an uphill battle. Two 2007 cases with differing results illustrate the parameters of the certainty required. In Miami-Dade County v. Cardoso, 963 So. 2d 825 (Fla. 3d DCA 2007), a licensed flower peddler who was arrested 18 times sued the county for false arrest and sought future damages in the form of lost income capacity. The arrestee prevailed on eight of his false imprisonment claims, but still failed to convince the appellate court that his future economic damages were supported by valid evidence. The claimant's credibility was little enhanced by his failure to produce tax returns establishing his income, his refusal to answer questions about his earnings, or his invocation of the Fifth Amendment right against self-incrimination when asked about economic matters. (24)
In contrast to Cardoso is West Boca Medical Center Inc. v. Marzigliano, 965 So. 2d 240 (Fla. 3d DCA 2007), decided by the same appellate court. This time, a $360,000 jury award for loss of future earning capacity was affirmed on appeal because the plaintiff presented tax returns showing that her income dropped following the incident. Citing Cardoso, the court in Marzigliano explained: "The 'reasonable certainty' rule for the calculation of damages does not require mathematical precision, and such an award by the jury will not be disturbed if supported, as here, by substantial competent evidence." (25)
Federal Decisions and Other States Apply the Certainty Test
A number of federal decisions apply the certainty rule as well. In Messer v. E.F. Hutton & Co., 833 F.2d 909 (11th Cir. 1987), an investor unsuccessfully sought lost profi t damages for unauthorized trades by claiming that but for the defendant's actions, he would have followed a different investment plan. The requisite causation was, therefore, lacking. Kane v. Shearson Lehman Hutton, Inc., 916 F.2d 643, 647 (11th Cir. 1990), similarly rejected damages that merely hinged on "would have" speculation. There, the investor unsuccessfully claimed that he lost future profits because his broker failed to inform him about negative information.
In Resolution Trust Corp. v. Strook & Strook & Lavan, 853 F. Supp. 1422, 1426 (S.D. Fla. 1994), which involved business-related tort claims, the RTC sued a law firm for alleged malpractice and negligent misrepresentation. The lost profit claimed was rejected due to its speculative nature:
[E]ven in an alternative world where the investment option is known, time-sensitivity of transactions alone can inject enough uncertainty into the measurement of damages to render lost profits unrecoverable.... While difficulty in determining the precise amount of damages will not prevent recovery, there must be "such certainty as satisfies the mind of a prudent and impartial person."
Lipscher v. LRP Publications, Inc., 266 F.3d 1305, 1317 (11th Cir. 2001), also rejected lost profits when a publisher claimed expectation damages based on sales it would have made absent the defendants' alleged misconduct. The district court, applying Florida law, granted summary judgment for LRP, which the 11th Circuit affirmed.
The economic consequences of an improper lost profit claim can be substantial. In Brough v. Imperial Sterling Ltd., 297 F.3d 1172 (11th Cir. 2002), a future commissions award in excess of $2,500,000 was reversed on the basis that "the loss must be proven with a reasonable degree of certainty before it is recoverable. The mind of a prudent impartial person should be satisfied that the damages are not the result of speculation or conjecture." (26)
In fact, inadequate evidence of lost profit should not even reach the finder of fact. For example, in Sun Ins. Marketing Network, Inc. v. AIG Life Ins. Co., 254 F. Supp. 2d 1239 (M.D. Fla. 2003), a federal district court struck the plaintiff's expert's testimony on lost profits as too speculative and conjectural, and even cited the "For Want of a Nail" proverb that begins this article. (27) Federal courts sitting outside of Florida have also applied the flexibility theory to future damage claims. For instance, in Three Crown Ltd. Partnership v. Salomon Bros., Inc., 906 F. Supp. 876, 882 (S.D. N.Y. 1995), a district court entered a partial summary judgment barring the plaintiff's future damages claims when the amounts demanded consisted not only of actual out-of-pocket losses, but also future contingent damage theories.
State courts including those in Maryland, Oregon, and Texas also subscribe to the fl exibility theory. (28) Not surprisingly, those other state courts recognize the certainty test as an applicable limitation on future lost profit damages. (29)
Lost Profits and Fraud Cases
There is conflicting case law on whether lost profit damages can be awarded in fraud cases, but the answer appears to be yes. Nordyne, Inc. v. Florida Mobile Home Supply, Inc., 625 So. 2d 1283 (Fla. 1st DCA 1993), states, "[t]he evidence of lost future profits was properly admitted as relevant to the fraud claim." (30) However, the First District's position in Nordyne is directly contrary to a sweeping pronouncement by the Fourth District Court of Appeal in Kind v. Gittman, 889 So. 2d 87, 90 (Fla. 4th DCA 2004), rev. denied, 907 So. 2d 1170 (Fla. 2005), which is: "Lost profits or lost rents are not the proper measure of damages in a fraudulent misrepresentation case." (31)
These conflicting statements in Nordyne and Kind are irreconcilable on their face. It appears to this author, however, that Nordyne represents the correct rule. The Kind decision relies in part on Teca, Inc. v. WM-TAB, Inc., 726 So. 2d 828 (Fla. 4th DCA 1999), but Teca, upon closer examination, does not support Kind's conclusion.
Teca resulted from an appellate rehearing en banc in which the "plaintiff has presented no evidence at trial on the correct measure of damages"; because there was "no testimony fixing the actual value of the business on the date of the sale, a crucial element in the damage equation," the case was remanded for entry of a judgment in favor of the defendants. (32) The damage award in Teca failed because of a corresponding failure of proof; Teca does not stand for the proposition that lost profit damages cannot be recovered in fraud.
Teca also suffers from several analytical problems of its own. The appellate court noted that the measure of damages for misrepresentation could take one of two forms, either "the difference between the value of the business as it would have been had it been as represented and warranted and the actual value of the business determined as of the date of the sale," or "the difference in value between the purchase price and the actual value at the time of the sale." (33) However, the court utterly failed to consider the possibility that the misrepresentation might include the value of future business profits.
This is not all. Teca cited Nordyne without any analysis, but Nordyne had allowed a claimant to present lost profit evidence in a fraud case. Had Teca (and Kind, citing Teca) followed the Nordyne holding, they could not have concluded that lost profit damages are not available in fraud. Furthermore, the Teca claimant proffered no evidence of lost profit losses; had adequate proof existed, the outcome might have been quite different. Finally, by recasting a contract case as a fraud case, the Teca appellate court violated the fundamental rule that the plaintiff is the "master of its complaint."34 The authority of the appellate court to recast the pleaded complaint in this matter was not the subject of further challenge.
Five years after Teca and one year before Kind, the Fourth District in Totale, Inc. v. Smith, 877 So. 2d 813 (Fla. 4th DCA 2004), reiterated the "flexibility theory" in a fraud context, calling the first damage model presented in Teca (the difference between the represented value and the actual value) the "benefit of the bargain" rule, and the second Teca model (the difference between the purchase price and the actual value) the "out-of-pocket" rule.35 These two models acknowledge that the represented value, the purchase price value, and the actual value might be different things. What would explain the difference? The prospect of future lost profit.
Totale, citing Nordyne, then stated that the damage model to be applied should be the model "more likely to fully compensate the injured party." (36) In other words, if lost profit was part of the bargain struck, and the award of lost profits is more likely to fully compensate the plaintiff, those damages should be recoverable whether the action is brought in fraud or in contract. (37) A misrepresentation of value which includes the promise of future lost profits should, therefore, be subject to recovery providing adequate proof is tendered to the trier of fact.
Even more recently, in Morgan Stanley & Co., Inc. v. Coleman Holdings, Inc., 955 So. 2d 1124, 1128 (Fla. 4th DCA 2007), the Fourth District again recognized that under either model "a defrauded party is entitled to the damages that will fully compensate him." Morgan Stanley, like Totale, cites Nordyne with approval. (38) Because Nordyne and the cases which cite it all recognize that reasonably certain evidence of lost profits may properly be admitted in fraud cases, only one conclusion can be reached: Kind is an aberration that misstates the applicable law.
The flexibility theory of damages, of course, also applies in fraud cases, but with a single exception: If the plaintiff can demonstrate that the fraud damages are "separate or distinguishable" from the contract damages, both can be awarded so long as there is no double recovery. This is not an impermissible double recovery. As Ashland Oil Inc. v. Pickard, 269 So. 2d 714, 723 (Fla. 3d DCA 1972), cert. denied, 285 So. 2d 18 (Fla. 1973), points out, an action on a contract induced by fraud is not inconsistent with an action for the damages flowing from the deceit. On the other hand, fraud damages are unavailable if they merely duplicate the damages that are recoverable for the breach of a related contract. (39)
Claimants who seek lost profit "benefit of the bargain" damages rather than out-of-pocket damages must be prepared to present trial testimony to prove them with reasonable certainty. Failure to proffer adequate lost profit evidence will prevent a claimant from getting that damage model before the trier of fact. Litigants ignore the flexibility theory of damages and the related certainty rule for lost profit claims at their peril, and the consequence of imprudence is a likely appellate revesal.
(1) For Want of a Nail, proverb, history available at www.wikipedia.com.
(2) Bird Lakes Dev. Corp. v. Meruelo, 626 So. 2d 234, 238 (Fla. 3d D.C.A. 1993). "Lost profits are recoverable as general damages where they flow directly and immediately from the breach of a contract," and need not be pleaded specially.
(3) Jonathan S. Coleman, Understanding and Applying Florida's Flexibility Theory of Damages, 80 Fla. B. J. 5 (May 2006).
(4) Beefy Trail, 267 So. 2d at 856.
(5) Palagrugell Holdings, Inc. v. Cassel, 825 So. 2d 937, 939 n. 2 (Fla. 3d D.C.A. 2001). See also Harris v. School Bd. of Duval County, 921 So. 2d 725 (Fla. 1st D.C.A. 2006) (a plaintiff is entitled to pursue his case through alternative pleading).
(6) Monco of Orlando, Inc. v. ITT Ind. Credit Corp., 458 So. 2d 332, 334 (Fla. 5th D.C.A. 1984). See also Liddle v. A.F. Dozier, Inc., 777 So. 2d 421, 422 (Fla. 4th D.C.A. 2000) ("An election between mutually exclusive remedies can be made at any time prior to the entry of judgment.").
(7) Improper evidence, of course, may always be excluded.
(8) In Burr v. Morris, 667 So. 2d 424, 426 (Fla. 2d D.C.A. 1996), for instance, a trial court's refusal to allow the plaintiff to present alternative theories was reversed on appeal, with the appellate court explaining that plaintiffs are "allowed to plead inconsistent or alternative actions and need only elect remedies before final judgment." One can only guess how many attorneys have unnecessarily self-limited their potential success by failing to plead applicable alternative theories in their complaints.
(9) See, e.g., Williams v. Peak Resorts International, Inc., 676 So. 2d 513, 516 (Fla. 5th D.C.A. 1996).
(10) Id. at 517.
(11) Cases seeking such alternative remedies are commonplace. See, e.g., Shadow Lakes, Inc. v. Cudlipp Constr. & Dev. Co., Inc., 658 So. 2d 116, 117 (Fla. 2d D.C.A. 1995) (in a contract case, the recovery may be either in quantum meruit or based on lost profits). In that case, the future damages sought were denied because they violated the "reasonable certainty test" and were based on "pure speculation and conjecture." Id. at 118.
(12) Levitt-Ansca, 873 So. 2d at 396. The court of appeal also found that the lost profit damages awarded were too speculative to be legally supported.
(13) Louie's Oyster, 902 So. 2d at 902. The case, which came out of a summary judgment ruling, was nevertheless remanded to finalize damages, because the amount of those lost profits constituted a material factual dispute.
(14) Levitt-Ansca, 873 So. 2d at 396. See also Shadow Lakes, Inc. v. Cudlipp Const. et al., 659 So. 2d 116, 117 (Fla. 2d D.C.A. 1995), citing Marshall Const., Ltd. v. Coastal Sheet Metal & Roofing, Inc., 569 So. 2d 845 (Fla. 1st D.C.A. 1990).
(15) Twyman v. Roell, 166 So. 2d 215, 217 (Fla. 1936).
(16) Id. at 6-7.
(17) See, e.g., Paul Gottlieb & Co., Inc. v. Alps South Corp., 985 So. 2d 1, 9 (Fla. 2d D.C.A. 2007) (lost profits "must be proven with a reasonable degree of certainty before [the loss' is recoverable" [and the] "mind of a prudent impartial person should be satisfied that the damages are not the result of speculation or conjecture.").
(18) F.A. Connor v. Atlas Aircraft Corp., 310 So. 2d 352 (Fla. 3d D.C.A. 1975), citing New Amsterdam Casualty Co. v. Utility Battery Mfg. Co., 166 So. 856 (Fla. 1936).
(19) W.W. Gay Mechanical Contractor, Inc. v. Wharfside Two, Ltd., 545 So. 2d 1348, 1351 (Fla. 1989).
(20) Stensby v. Effjohn Oy Ab, 806 So. 2d 542, 544 (Fla. 3d D.C.A. 2002).
(21) Sostchin v. Doll Enterprises, Inc., 847 So. 2d 1123 (Fla. 3d D.C.A. 2003).
(22) Halliburton Co. v. Eastern Cement Corp., 672 So. 2d at 846-47 (Fla. 4th D.C.A. 1996).
(23) Id. at 847.
(24) Id. at 828.
(25) Marzigliano, 965 So. 2d at 244-45.
(26) Brough v. Imperial Sterling Ltd., 297 F.3d at 1177 (11th Cir. 2002).
(27) Sun Ins. Marketing Network, Inc. v. AIG Life Ins. Co., 254 F. Supp. 2d at 1247 (M.D. Fla. 2003).
(28) Coleman, Understanding and Applying Florida's Flexibility Theory of Damages, 80 Fla. B. J. at 12-14 (May 2006).
(29) The certainty rule is particularly well developed in Missouri. See Cadle Co. v. Shearer, 69 S.W.3d 122, 125 (Mo. Ct. App. 2002) ("Generally, damages need not be established with absolute certainty, but reasonable certainty is required as to both existence and amount, and the evidence must not leave the matter to speculation."); Fust v. Francois, 913 S.W.2d 38, 47 (Mo. Ct. App. 1996) ("It is well-settled that damages need not be proved with exact certainty, but rather it is the fact of damages, not the amount of damages, that must be proven with reasonable certainty.").
(30) In an earlier case, Jet Engine Support, Inc. v. Jet Research, Inc., 474 So. 2d 337 (Fla. 3d D.C.A. 1985), a defendant was awarded lost profit damages on a counterclaim grounded in fraud and misrepresentation, though the appellate court reversed that award on the basis of inadequate evidence. Similarly, in Schonfeld v. Albert Alpert & Sons, Ltd., 427 So. 2d 1035 (Fla. 3d D.C.A. 1983), a lost profits award in a fraud case was reversed because it was based on "mere conjecture." These decisions should be read as applications of the reasonable certainty requirement, and they do not stand for the proposition that lost profit damages cannot be awarded in fraud cases regardless of the facts.
(31) In Straub Capital Corp. v. L. Frank Chopin, P.A., 724 So. 2d 577 (Fla. 4th D.C.A. 1998), which arose out of a lease dispute, the Fourth District reversed a lost profits award given on a misrepresentation theory, but only because the award conflicted with the economic loss rule, under which ordinary performance-of-contract claims could not also be pursued as tort claims. The doctrine has subsequently been clarified to exempt fraud or misrepresentations that induced a party to enter into a transaction (as opposed to fraud during the course of performance of the contract). See, e.g., Allen v. Stephan Co., 784 So. 2d 456 (Fla. 4th D.C.A. 2000).
(32) Teca, 726 So. 2d at 829, 830.
(34) See, e.g., American Intern. Group, Inc. v. Cornerstone Businesses, Inc., 872 So. 2d 333, 338 (Fla. 2d D.C.A. 2004).
(35) "The first standard is the 'benefit of the bargain' rule which awards as damages the difference between the actual value of the property and the value had the alleged facts regarding it been true. The second standard is the 'out-of-pocket' rule which awards as damages the difference between the purchase price and the real or actual value of the property." Totale, 877 So. 2d at 815.
(37) See also Meadows v. English, McCaughan & O'Bryan, P.A., 909 So. 2d 926, 927 (Fla. 4th D.C.A. 2005), stating in a tort case that lost profit benefit-of-the-bargain damages may properly be considered when the evidence is reasonably certain.
(38) Morgan Stanley, 955 So. 2d at 1128; Totale, 877 So. 2d at 815. The damages award in Morgan Stanley was reversed because of inadequate proof: "[T]here was no proof presented at trial on the correct measure of damages" and the plaintiff "was not entitled to have the jury speculate as to the value of the stock on the date of sale." Morgan Stanley, 955 So. 2d 1131. But again, this is simply an application of the "certainty rule" and does not mean that, had lost profit damages been properly demonstrated to be part of the bargain, they could not have been recovered.
(39) Huie v. Dent & Cook, P.A., 635 So. 2d 111 (Fla. 2d D.C.A. 1994). Cases like Williams and Ashland Oil should not be read for the proposition that trial courts may eliminate legal theories before trial. Fraud and contract theories have different standards of proof and a plaintiff might succeed on one theory but not the other. The flexibility theory protects the defendant against the prospect of duplicative damages arising out of a windfall recovery for the plaintiff.
Jonathan S. Coleman, an attorney at the Tampa office of Johnson, Pope, Bokor, Ruppel & Burns, P.A., graduated from the University of Richmond, the University of Florida College of Law, and holds a graduate degree in history from the University of North Carolina at Chapel Hill. His practice areas are complex commercial litigation and securities and class action litigation and arbitration.
|Printer friendly Cite/link Email Feedback|
|Author:||Coleman, Jonathan S.|
|Publication:||Florida Bar Journal|
|Date:||May 1, 2009|
|Previous Article:||Deconstructing warranties in the construction industry.|
|Next Article:||Trust me: practical advice for drafting Florida trusts.|