Plaintiff Awarded Direct Damages But Not Speculative 'Growth Damages'

Taylor Precision Prods. v. Larimer Grp., Inc., 2023 U.S. Dist. LEXIS 184565 (Oct. 13, 2023) 

In a recent damages case, the U.S. District Court for the Southern District of New York awarded damages to the plaintiff, Taylor Precision Products. The court had determined liability in a 2018 opinion, but the issue of the amount of damages was not settled, and the court had found certain damage claims to be duplicative. On April 13, 2023, the parties filed a letter requesting the court issue its opinion regarding damages.

The damages derived from breaches of a purchase agreement between Taylor Precision Products (the buyer) and Larimer Grp. Inc, et al. (the seller). The court awarded damages of $4,482,208.50.

The court was asked to determine the damages in a letter from both parties. The buyer’s expert divided his damages calculation into two components. In the first component, called general damages under New York law, the expert provided a calculation of damages due to the failure of the seller to inform the buyer of an expected reduction of SKUs from sales to Walmart and Target. By calculating the expected but not disclosed lost sales, the expert was able to adjust the projected EBITDA. He multiplied this adjusted EBITDA by the 7.55 multiplier the buyer used to determine the purchase price under the contract. He then compared this adjusted value to the actual value used to determine the purchase price under the contract, and the difference between the two was general damages.

The second component, called consequential damages under New York law, was the buyer’s calculation of the reduction in overall growth of the business due to the cuts in SKUs from Walmart and Target. The buyer’s expert calculated this by "adjusting the purchase price multiple implied in the deal of 7.55x downward for the remaining amount of the purchase price (i.e., $69.5 million minus  the TTM EBITDA associated with the lost SKUs)." Because, at the time of the negotiations in 2013, 50% of the expected 2% was due to Walmart and Target, the plaintiff’s expert associated an expected loss in growth of 1%. The expert then derived the decrease in the purchase price multiple to yield an additional $6.8 million in damages.

The buyer offered its expert’s flexible approach to damages so the court could calculate an award in keeping with its prior rulings. The buyer suggested the court could use a change in the growth rate of 0.5% rather than 1% to 2% to represent the higher risk to Taylor. The sellers assert that the buyer did not provide the court with any acceptable, stable, or rational damages and have not met their burden.

The court did not accept the consequential damages of the second component. The court found the second component to be speculative. Here, the buyer asked the court to select a number between 0.5% and 2% to represent Taylor’s higher risk. The buyer had not provided a "stable foundation for a reasonable estimate" of damages as required by New York law.

So, in this case, the lack of a certain number renders the presented damages speculative. Interestingly, in another recent case,¹ the court determined the value of a husband’s business in a divorce case as the average of a range of values the wife’s expert provided. Admittedly, this was a divorce case and not a damages case. Nevertheless, the value provided in the divorce case was no more certain than the value the buyer’s expert provided in this case.

There are a couple of points to consider in this case:

• In general, a court can only deal with evidence presented during the trial on which to make its decision. So, if the court, as in this case, decided that the evidence presented did not provide a specific amount of consequential damages, then it was within its purview to determine the damages were speculative. The lesson here is to make sure that what you get into evidence provides a basis for a court to arrive at a decision on the basis of that evidence.
• The court’s opinion of general damages relied on a methodology based on a purchase price multiple of EBITDA. Again, this was a result of the evidence presented and not based on an affirmation of the methodology. Since this was not a valuation case, it did not provide any indication that this methodology was the “correct” methodology in the court’s opinion.

¹ B.M. v. R.C., 2023 Alas. LEXIS 102 (Oct. 11, 2023).