If you don’t know the “flexibility theory of damages” you’re not alone. But if you assist clients with tort or breach of contract matters in which lost profits is an issue then you should.
Florida originated the theory, more a rule or doctrine, in 1970 in the case of Dupuis v. 79th St. Hotel, Inc., 231 So. 2d 532 (Fla. 3d DCA 1970). In DuPuis it was held that plaintiffs in contract or tort can seek reimbursement of out-of-pocket expenses or reasonable future lost profits, but not both, and it’s been the law ever since. The 5th DCA and the Middle District have both applied it in recent years. It has been adopted in numerous state and federal courts outside of Florida as well, although not necessarily referred to by name. Even in Florida court opinions it is rare that the term “flexibility theory of damages” is used; which no doubt contributes to its relative anonymity among practitioners. But don’t be mistaken, it is the law.
Since the 1936 Supreme Court decision of Twyman v. Roell, 166 So. 215 (Fla. 1936), reasonably certain lost future profits of an established business have been recoverable in contract. Almost fifty years later, in W.W. Gay Mechanical Contractor, Inc. v. Wharfside Two, Ltd., 545 So. 2d 1348 (Fla. 1989), the same became true for a business with no track record. Future economic damages in personal injury i.e. tort matters became recoverable as of the 1995 decision in Auto-Owners Ins. Co. v. Tompkins, 651 So. 2d 89 (Fla. 1995).
Lost profits, if proven, whether in contract or tort, often would result in a larger recovery than would recovery for out-of-pocket expenses. However, proving them can be a formidable challenge. There is a legion of Florida appellate decisions in which lost profits were deemed not to have been proven with reasonable certainty i.e. to have been too speculative. Regrettably, it’s apparent in many of these decisions that had counsel or an expert done more the outcome may have been different. Similarly, when defending against claims of lost profits counsel must be up to the task or risk suffering the consequences.
Sufficiently proving lost profits requires a thorough understanding of the applicable law. Attacks on the related pleadings and evidence should be anticipated. Amassing the proof demands thoughtful, directed and, quite possibly, extensive discovery efforts. It is also critical that retained experts be qualified, properly prepared and capable of rendering necessary opinions. None of this is for the faint of heart but if lost profits can be proven the reward can certainly justify the effort.1
Greg Snell is an attorney with the firm Snell Legal who provides representation in a wide range of business litigation matters. He accepts referrals and is also available for consultation or to serve as co-counsel to assist with business damage or other business litigation issues. Mr. Snell can be contacted by telephone at 386-677-3232 or by e-mail at info@SnellLegal.com.