Proving lost profits to the required degree of “reasonable certainty” can be problematic, especially for fledgling businesses without a proven financial track record. One plaintiff may have recently circumvented the “assumption” minefields that accompany lost profits damages by asserting a lost asset value instead.

The plaintiff entered a development option agreement (DOA) with a local municipality to develop an RV park and golf course. By the time plaintiff secured the necessary permits and approvals, the defendant had signed a contract with another developer to build out the land. At trial, the plaintiff recognized the inherent risks of claiming lost future profits and asked its expert to value the “bundle of rights” acquired in the assignable DOA (a 50-year lease, shoreline permit, etc.). Relying on the plaintiff’s projections used during the development proposal, the expert concluded that an investor would pay $2.5 million to $3 million to acquire these rights. The jury awarded the plaintiff $3 million and the defendant appealed, claiming that damages for the “hoped for” venture were too speculative.

The expert’s approach to calculating lost asset value parallels the method by which he could have calculated lost profits, “to be sure,” the appellate court observed. But unlike a lost profits claim, a lost asset value “exists in a market, at a known point in time,” and could be explored on cross-examination. The defendant did not have to challenge “facts hypothesized to exist decades after trial,” the court explained, but could challenge whether a market for the specific development opportunities existed at the time of the breach, and, if so, whether investors would accept the projections by plaintiff’s expert as a sufficiently reasonable and reliable basis for arriving at a proposed price of $3 million. Read the complete digest of Columbia Park Golf Course, Inc. v. City of Kennewick, 2011 WL 450704 (Wash. App.)(Feb. 10, 2011) in the May 2011 Business Valuation Update; the court’s decision will be posted soon at BVLaw.