Florida Shareholder Case Shows the Complexity of Collecting ‘Lost Profits’ as Damages
On March 17th, 2017, the Florida Second District Court of Appeal released a decision in the case of ICMFG Associates Inc v. Bare Board Group Inc. This case involved a complex shareholder dispute. As a part of the case, one company sought lost profits as damages from its former shareholders. Though the firm was entitled to these damages, the appeals court sent the case back down to the lower court to conduct a re-calculate of lost profits. Obtaining lost profits as damages is extremely complicated. Here, our West Palm Beach business law attorneys discuss the case as well as the general concept of lost profits as damages.
Understanding the Case
Bare Board Group (BBG) is a company that supplies circuit boards. In 2010, two of its officers, Mr. Coghlan and Ms. Del Grosso, helped a third person, Mr. Doyle, get funding to form another company that would operate within the same industry. In 2012, Mr. Coghlan and Ms. Del Grosso both resigned their positions at BBG. At this time, both individuals held approximately 11 percent of the outstanding shares of the company. When a dispute arose of the exact value of these shares, BBG brought a counterclaim against these individuals alleging tortious interference and breach of their fiduciary duty.
Damages Were Awarded
BBG sought damages from Mr. Coghlan and Ms. Del Grosso on the grounds that they breached their fiduciary duty by diverting business opportunities away from the company. Specifically, the company sought disgorgement of salary and bonuses and lost profits. The trial court ruled in favor of BBG on both issues; it awarded the company nearly $1.5 million in returned salary and approximately $1.9 million in lost profits.
Appeals Court Reverses and Remands on Lost Profits
At the trial stage, expert testimony was used to establish the value of BBG’s alleged lost profits. However, the Appeals court found an error with the way the trial court made the lost profits calculation. Indeed, the appeals courts found the award, in its current form, amounted to an unmerited windfall. This is because the trial court failed to find sufficient causation between the specific misconduct and the alleged lost profits.
In Florida, for lost profits to be awarded as damages, there must be very strong, well documented evidence that indicates with certainty and specificity that profits were actually lost as a direct consequence of the defendant’s misconduct. As BBG was unable to meet this bar at the trial court stage, the appeals court reversed the ruling on lost profits and remanded the proceedings to go through a new trial on that issue. Establishing lost profits is never easy. Businesses seeking lost profits as damages need to get an attorney involved in their case as soon as possible.
Contact Our Team Today
At Pike & Lustig, LLP, we have extensive experience handling business litigation, including shareholder disputes and partnership disputes. We always look for efficient and cost effective solutions that will best protect the interests of our clients. To request a free review of your case, please contact our team today at 561-291-8298 (West Palm Beach office) or 305-697-9799 (Miami office).