When hindsight is 20/20 in calculating construction claims

BVWireIssue #113-1
February 1, 2012

The general rule in construction contract cases is to measure lost profits damages at the time of the breach, without considering subsequent events—including (in the latest cases) the collapse of the real estate market. Yet, some courts allow experts to factor post-breach economic conditions into their lost profits calculations, following the “Book of Wisdom” doctrine. The key question: when can an expert “unclasp” the rule of law to consider hindsight in determining construction damages?

Complicating the issue in a recent case was the nature of damages; i.e., the losses arose from contracts collateral to the broken one, and so didn’t even exist at the time of the breach. The plaintiffs had secured leases to build two residential apartment towers by 2006, but the landlord decided to get a better deal—and blocked their attempts to get financing. By the time the plaintiffs got a court order to demand compliance, the real estate market had bottomed-out and so had the deal. The plaintiffs sued for lost profits based on 2006 projections, and after the defendants lost a motion to exclude post-breach market conditions, they tried to “re-tool” their rebuttal expert. Instead of critiquing the methods and assumptions used by the plaintiffs’ lost profits expert, the defendants’ financial expert went after the underlying real estate projections, which the court said he was not qualified to do. Read the complete digest of CR-RSC Tower I, LLC v. RSC Tower I, LLC, 2011 Md. App. LEXIS 141 (Oct. 26, 2011) in the in February 2012 Business Valuation Update; the court’s decision is posted at BVLaw.

An up-to-date overview of construction damages: On Tuesday, February 7, join attorney George F. Burns (Bernstein Shur) for Lost Profits for Construction Claims. Part 7 of BVR’s Online Symposium on Litigation & Economic Damages will focus on the unique challenges posed by performing lost profits and economic damages analysis for claims in the construction industry, including how to account for evolving current market conditions. 

Please let us know if you have any comments about this article or enhancements you would like to see.