No Lost Profit Damages in Failed Law Firm Case

The Connecticut appeal in Adler v. Rosenthal involved two lawyers who talked about starting a firm together. They got close enough to sign a “Preliminary Partnership Agreement” which set out draws and profit shares for the two members. They also filed organizational documents with the Secretary of the State and agreed on a starting date for the partnership.

To be ready for the start date, plaintiff “met with landlords to discuss potential office space, negotiated with payroll, telephone, and insurance companies, interviewed and negotiated with prospective staff members, put an advertisement in the yellow pages, set up e-mail accounts and a computer system, opened bank accounts, purchased office supplies, and arranged for a construction crew to construct an office space ….”

Then defendant said he didn’t want to do it. Plaintiff sued him for breach of contract, seeking lost profits, among other things. After a bench trial, “[t]he court awarded the plaintiff $38,786.93 as damages for lost profits and $3678.79 as reliance damages for costs that the plaintiff incurred prior to the breach.”

Defendant appealed. Plaintiff cross-appealed. The Connecticut Appellate Court affirmed everything, except the lost profits award as to which it remanded with an instruction to vacate that part of the judgment.

Defendant’s Argument on Appeal Concerning Lost Profits

Defendant advanced three reasons why the trial court erred in awarding plaintiff lost profits. The Appellate Court found one of those reasons dispositive so it did not address the other two. The dispositive reason was that plaintiff and the trial court based there conclusions on the notion that defendant would have contributed a certain amount of revenue to the firm. But, defendant argued, “there was no support in the evidence for the court’s finding that the defendant would have contributed $250,000 to the firm’s annual revenue.”

Appellate Court Concludes it was Error to Award Lost Profits

The court noted that plaintiff has the “burden of proving lost profits to a reasonable certainty.” This must be done with evidence that “is not merely subjective or speculative . . . but which allows for some objective ascertainment of the amount…. Evidence is considered speculative when there is no documentation or detail in support of it and when the party relies on subjective opinion.”

In awarding lost profits in this case, “[a] crucial piece of evidence upon which the court relied consisted of the defendant’s alleged representation to the plaintiff during the formation of the preliminary agreement that he regularly brought in $250,000 a year to his own law firm ….” But, “plaintiff did not present, to a degree of reasonable certainty, expert testimony or statistical evidence regarding lost profits that resulted from the defendant’s failure to join the law firm. Instead, the plaintiff only produced his own law firm’s profit and loss statement for the … time period
following the defendant’s failure to join the firm. The plaintiff supplemented this data with his own testimony that the defendant had given him a confident projection, orally, that he would bring $250,000 in business to the law firm…. Despite the facts that the defendant had an established law practice and that he continued to practice law after failing to join the plaintiff’s firm, the plaintiff failed to submit any of the defendant’s financial statements into evidence in support of his lost profits claim.”

“The proper remedy in the present situation is to remand the case to the trial court with direction to vacate the award of lost profits. Although the court erred in awarding lost profits, the plaintiff is not entitled to further relief in the form of a new hearing related to lost profits. As our foregoing analysis demonstrates, the plaintiff failed in his burden of proving an entitlement to any amount of lost profits resulting from the defendant’s failure to join the firm. It is well established that in administrative, civil and criminal cases, when the party charged with the burden of proof fails to satisfy that burden, it is not entitled to a second ‘bite at the apple’ on remand.”

Appellate Court Rejects Plaintiff’s Cross-Appeal

“In his cross appeal, the plaintiff claims that the trial court erred by not allowing him to amend his complaint to include a claim for damages related to paralegal fees incurred as a result of the defendant’s failure to join the firm. Next, the plaintiff claims that the court erred by not awarding him damages to compensate him for the time that he personally expended addressing the defendant’s failure to join the firm. Finally, the plaintiff claims that the court erred by excluding $80,000 from his damages award, which he alleges was a cost that he incurred due to his need to hire a new associate to replace the defendant.”

As to plaintiff’s first argument, the Appellate Court concluded: “In light of the evidence considered by the court, the lateness of the plaintiff’s request made during the trial, and the likelihood that an amendment would have caused significant prejudice to the defendant, we conclude that the court’s ruling did not reflect an abuse of its discretion.”

As to plaintiff’s second argument, the Appellate Court concluded: “The [trial] court therefore ruled that there was no sufficient factual predicate for the award requested, and it refused to speculate as to the time that the plaintiff actually spent on those matters…. The court was in the best position to assess the credibility of the evidence submitted at trial and to make findings of fact based upon this assessment. On the basis of our review of the record, we conclude that the court’s findings regarding the time that the plaintiff spent in addressing the defendant’s failure to join the firm were not clearly erroneous.”

The Appellate Court also rejected plaintiff’s third argument, “observ[ing] that there was no persuasive evidence that the plaintiff’s hiring of the new associate was done for the primary purpose of ‘replac[ing]’ the defendant, given that the defendant never actually joined the firm and accordingly added nothing to the plaintiff’s caseload, which required the attention of a new associate regardless of the defendant’s actions. In this regard, the [trial] court observed that one of the reasons why the defendant did not join the firm was that, apart from his work with his own clients, he was concerned about the ‘many new files he would be assigned to by the plaintiff.'”

Other Things to Note

The trial court denied plaintiff’s application for a prejudgment remedy. Plaintiff failed to serve his signed summons and complaint within thirty days of the denial as required by CGS § 52-278j(b).  Defendant moved to dismiss, arguing that, pursuant to the statute, “the civil action effectively was withdrawn, and any action filed after the thirty day period must be dismissed for lack of subject matter jurisdiction.” The trial court denied the motion. On appeal, the Appellate Court confirmed that the statute deems withdrawn only the application for the prejudgment remedy, not the action itself.

Plaintiff also took issue, in the trial court and on appeal, with “plaintiff’s failure to include a return date on the writ of summons and his failure, in amending the writ of summons and complaint, to
include a return date that was within two months from the date on which the plaintiff had first served the defendant.” Once he learned of the omission, plaintiff attempted to cure it with two requests for leave to amend. The Appellate Court “decline[d] to decide this issue on its merits because, procedurally, it was not properly raised in the trial court. The defendant did not object to the plaintiff’s first request for leave to amend within fifteen days, as required by Practice Book §10-60(a)(3). Accordingly, the complaint as amended was deemed to have been filed with the consent of the adverse party by operation of the rule of practice sixteen days after the filing of the request …. The defendant did not file his objection until [too late], and the court never ruled on it, nor was
it required to do so, because of the lateness of the filing of the objection.”