An incident occurs that requires your client to incur out-of-pocket costs that it otherwise would not have incurred. Or but for a harmful event, your client would have earned lots of money, or saved lots of money.

According to Tom Pratt, director of Gleason & Associates, scenarios like these involving either “restitution” or “expectation” damages are the most common economic damage theories encountered in commercial litigation. To recover economic damages under either theory, clients must be able to isolate the impact of the harmful event and document their losses.

Restitution Damages
Also referred to in legal parlance as “reliance” damages, restitution damages reimburse a claimant for out-of-pocket expenses related to a wrongful act or harmful event. When analyzing restitution claims, Gleason looks at two key areas:

• Are the out-of-pocket expenses well documented and verifiable?
• Were the expenses directly attributable to the event in question?

In a dispute involving a restitution claim for the costs of cleaning up a train derailment allegedly caused by another company’s neglect, Gleason analyzed the time charges of the laborers to assess the hours and equipment costs specifically attributable to the cleanup. We also looked for potential cost duplication – for example, even though overhead costs were built into the hourly wage rate, the plaintiff also claimed the cost of management staff time. In addition, to determine the company’s true out-of-pocket costs, we identified the income generated from the sale of scrapped rail cars, which had already “reimbursed” the plaintiff for some of the cleanup expense.

Expectation Damages
When companies sue for expected or lost profits as a result of a harmful event, it is important to separate the negative impact of the event in question from other events that may have also caused or contributed to the company’s lost profits.

For example, when analyzing the claim for lost profits of a printing company against a major supplier accused of price discrimination, one of Gleason’s roles was to determine who the plaintiff was losing business to and why. Our analyses explored all of the factors that contribute positively or negatively to the plaintiff’s profitability, such as its costs for labor and overhead, and customer service. We also conducted a competitive analysis by talking to some of the company’s competitors and customers.

“Emotions can often get in the way of the facts,” says Pratt. “While one harmful event can, indeed, cause significant economic damages, the losses must be attributable to the harmful event. In the final analysis in this case, numerous factors contributed to the company’s losses and financial difficulty. Because the plaintiff wasn’t able to isolate the harmful affect of the alleged price discrimination, its damage claim was unsuccessful.”

Excerpted from Briefly Speaking, a complimentary newsletter published by Gleason & Associates. Subscribe