Are the Damages Really that High? Don’t be Surprised with Limitation on Damages

By Heather Deskins, CPA/ABV/CFF, CFE, CVA

Your client is the plaintiff and you hired an expert to calculate damages and you’re preparing your case for trial. Again, you ask yourself where the holes are in your case or the areas that could limit the damages amount? You review the important factors: (1) Does the damages report prove damages with a reasonable certainty? (2) Are the damages too remote? (3) Did the Plaintiff mitigate damages? (4) Was there a clause in a prior agreement that could limit damages?

Morris Concrete, Inc. v. Warrick, 868 So. 2d 429, 440 (Ala. Civ. App. 2003) explains the rule of reasonable certainty, “In order that it may be a recoverable element of damages, the loss of profits must be the natural and proximate, or direct result of the breach complained of and they must also be capable of ascertainment with reasonable, or sufficient certainty, or there must be some basis on which a reasonable estimate of the amount of the profit can be made; absolute certainty is not called for or required.” The rule of reasonable certainty excludes damages that are speculative; however, it allows those that are not mathematically certain. There could be a fine line between speculative and reasonable certainty, which is a matter of law and can result in a Daubert challenge. Does the damages expert conduct the analysis in accordance with the Daubert principals?

Where the loss is too remote, damages can be limited. If the plaintiff cannot show the loss could be reasonably expected at the time of the breach, was it foreseeable? This foreseeability concept is when a reasonable person would be able to predict or expect a loss because of their actions. The resulting damages will be limited to those that were foreseeable.

The plaintiff has a duty to minimize losses. If there were opportunities for the plaintiff to mitigate damages and the plaintiff did not take advantage of those opportunities, damages may be reduced by the losses that could have been mitigated. The plaintiff must try to minimize or reduce any losses and try to prevent further losses and losses from getting worse. The good news is, it’s the defendant’s burden of proof to show the plaintiff failed to take reasonable steps to mitigate.

If the parties entered into a contract, they may have agreed to liquidating damages, which is a fixed amount of damages detailed in the contract, should a breach occur. The parties may dispute whether the liquidating damages clause is enforceable. If the liquidating damages clause estimates the probable damages from a breach, and it is not grossly understated, damages may be limited to the liquidating damages.

When reviewing your expert’s report or the opposing expert’s report, has the expert taken these factors into consideration? It’s important for the expert to be aware of these issues.

If you have questions regarding using a damages expert, please contact us at 614.722.7914.

Heather Deskins, CPA/ABV/CFF, CFE, CVA

Heather Deskins,
CPA/ABV/CFF, CFE, CVA

Managing Member
P.D. Eye Forensics, LLC