Recovering Lost Profits Is a Fine Art in the Legal World
February 21, 2019
Perhaps the most important aspect of any case is determining what your damages are. After all, isn’t that generally the point of all our efforts – to try to recover the most amount of money? The defendant may undeniably be the villain you make them out to be, and undoubtedly they have caused you all the harm and damage you allege. But, a recent decision by the Honorable Saliann Scarpulla highlights the difficulty in proving your damages, particularly a claim for lost profits.
In Sullivan v. Christie’s Fine Art Storage Services, Inc., Sullivan and his business partner concocted a plan to reproduce, market, and sell prints of artwork created by Alberto Vargas (“Mara Corday or Pin-Up Girl,” “Beauty and the Beast,” formerly known as “Ziegfeld Girl with Mask,” and “Miss America”). In October 2012, Sullivan stored the artwork in Christie’s Fine Art Storage Services’ (“CFASS”) warehouse, and not even a month later the property was destroyed or damaged by Superstorm Sandy.
Sullivan sued CFASS seeking to recover compensatory damages over $11 million, including lost profits. On summary judgment, the Court dismissed Sullivan’s claim for lost profits because it was not within contemplation of the parties at the time of the contract, and even more so because the lost profits were too speculative.
First, the Court noted that the agreements between the parties did not directly discuss lost profits, and there was no dispute that “CFASS knew or had any basis upon which to reasonably contemplate that the works of art were intended for reproduction, marketing, and sale with an alleged net profit of more than $10 million.”
Second, the court stated “Sullivan’s potential consequential damages are not capable of measurement with reasonable certainty.” Which was the polite way of saying they were far too speculative. The court found that Sullivan had no experience in this area, and that this new business venture created by him and his partner in 2012, had “no track record of previous profits.” Therefore, Sullivan could not “estimate lost profits with the requisite degree of reasonable certainty.”
The major takeaway here, as in any case, is that “it’s not what you know it’s what you can prove.” And proving lost profits is one of the more difficult things to do in court. Nonetheless, if you want to recover lost profits, at the very minimum, at the time of contract, make sure the other party is aware of what your damages may be, so they are within contemplation of the parties. Also, in order to prove your lost future profits, make sure to keep records of your past profits. Only then will you be able to win an award for your lost profits.