Monday, December 03, 2007

Trying to Disprove Franchisee Damages Without an Expert Fails Again

This posting was written by Bruce S. Schaeffer of Franchise Valuations, Ltd., co-author of CCH Franchise Regulation and Damages.

In Section 13.04 of CCH Franchise Regulation and Damages, we’ve long noted, as a cautionary tale, the case of Century 21 Real Estate Corporation v. Meraj International Investment Corp, (10th Cir. 2003) CCH Business Franchise Guide ¶12,490.

Franchisee's Testimony

In this case, a franchisor, Century 21, argued that the franchisee's testimony was too speculative to support a jury award of lost profits and disputed all of the franchisee’s underlying assumptions.

The court made clear that it shared, at least in part, Century 21's concern about the reliability of the plaintiff's testimony and felt that his projections of income and costs seemed unrealistic in light of his minimal profits prior to the termination of the franchise agreement.

The jury verdict of $700,000 was half of the franchisee's request and about 70% of his lowest projection of lost income. The court nonetheless noted that at trial the franchisor did almost nothing to dispute the assumptions on which the franchisee based his projections.

No Evidence, No Expert

The franchisor had tried to get away with presenting no evidence of its own and called no expert. But on appeal the court said, "In these circumstances, despite our concerns about the award of a windfall . . . [w]hen a litigant is knocked out after tying both its hands behind its back, a court may properly refuse to heed the litigant's plea to be given a second chance for a fair fight."

Well, it happened again in the recent case of FMS, Inc. v. Volvo Construction, (ND IL March 20, 2007), CCH Business Franchise Guide ¶13,599.

"Risky Strategy"

In that case, the court rejected Volvo’s arguments on appeal that FMS’ lost profit calculations were overly speculative, noting that Volvo had chosen the “risky strategy” of not proposing an alternative damage calculation by putting on its own expert.

Once again, this raises the question: Why do reputable litigators try to “wing it” in these areas without damages experts?

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