Reasonable Certainty and Lost (Anticipated) Profits in Texas

Proving lost profits in a case is always difficult and the proof required must be more than a bare assertion that a contract was lost because of the opposing party’s behavior. Lost profits in Texas can only be recovered when both the fact and amount of damages are proved with reasonable certainty. The good news is that lost profits can be recovered in both tort and contract cases in Texas as long as there is no double recovery. See, e.g. Waite Hill Servs., Inc. v. World Class Metal Works, Inc., 959 S.W.2d 182, 184-185 (Tex, 1998).

The general rule in Texas is that recovery of lost profits as damages will be allowed where it is shown that a loss of profits is the natural and probable consequence of the act or omissions complained and and the amount is shown with sufficient certainty. See Horizon Healthcare Corp. v. Acadia Healthcare Co., 520 S.W.3d 848 (Tex. 2017). The phrase “sufficient certainty” is the problem and the Supreme Court in Horizon Healthcare focuses on the specificity required to show reasonable certainty in a case where a party seeks lost anticipated profits.

The issue before the Supreme Court in Horizon Healthcare was whether the evidence was sufficient to uphold the award of future lost profits in a case that was based on an assumption that the plaintiff would have won the underlying contract had defendants not committed the underlying wrongdoing. According to the Supreme Court of Texas, anticipated profits cannot be recovered where they are dependent upon uncertain and changing conditions, such as market fluctuations, or the chances of business. Horizon Healthcare Corp. v. Acadia Healthcare Co., 520 S.W.3d 848 (Tex. 2017), citing, Tex. Instruments, Inc. v. Teltron Energy Mgmt., Inc., 877 S.W.2d 276, 279 (Tex. 1994). The Supreme Court also held that “the law is wisely skeptical of claims of lost profits from untested ventures or in unpredictable circumstances, which in reality are little more than wishful thinking.” Healthcare Corp. v. Acadia Healthcare Co., 520 S.W.3d 848, 860 (Tex. 2017), citing, Phillips v. Carlton Energy Group, LLC, 475 S.W.3d 265, 280 (Tex. 2015).

When the evidence supporting a claim for lost anticipated profits is largely speculative or a mere hope for success, the Supreme Court has consistently held that the reasonable certainty standard has not been met.Horizon Healthcare Corp. v. Acadia Healthcare Co., 520 S.W.3d 848 (Tex. 2017), citing, Tex. Instruments, Inc. v. Teltron Energy Mgmt., Inc., 877 S.W.2d 276, 279 (Tex. 1994). A business owner’s testimony, by itself, is generally insufficient unless he can specify which specific contracts were lost, how many contracts were lost, how much profit they would have received from the contracts and evidence that the contracting party would have entered into the contract with them as opposed to some other party but for the defendants misconduct. Healthcare Corp. v. Acadia Healthcare Co., 520 S.W.3d 848, 861 (Tex. 2017), citing, Holt Atherton Indus., Inc. v. Heine, 835 S.W.2d 80, 84 (Tex. 1992).

Texas courts will grant an award of damages for lost profits in Texas, but the evidence must be detailed, reasonably certain and very specific. Early on in the discovery phase, a party really needs to focus on what is going to be needed to obtain the evidence to show the loss of profits with certainty. Counting on the business’ owner’s testimony alone to do the trick will not be enough. The opinions in this blog are solely the author’s and any comments, suggestions or replies should be sent to john@jrjoneslaw.com.

 

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