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Lack of Evidence of Expenses Costs Florida Radiosurgery Center in Pursuit of Lost Profits Damages

calculatorWhen you’re involved in commercial litigation, there may be several elements to your case. In a breach of contract case, you must not only show that the other side breached your agreement but also prove that you suffered damages (and the amount of those damages). Each piece is critical to your case. In one recent case decided by the Fourth District Court of Appeal, a radiosurgery center lost its case, even though it proved that the hospital with which it had contracted had breached the agreement. The center lost because its evidence of damages brought forward at trial demonstrated how much revenue it lost, but the correct measure of its damages was its lost profits, rather than lost revenue.

In 2007, the St. Lucie Medical Center signed a contract with CyberKnife Center of the Treasure Coast. The contract called for CyberKnife to provide the equipment and the site for radiosurgery treatments needed by patients of the hospital. For each hospital patient receiving a treatment, the contract called for the hospital to pay CyberKnife $5,150 plus sales tax.

Less than one year into the five-year contract term, on Jan. 25, 2008, the hospital informed CyberKnife that it was terminating the agreement. One factor influencing this decision was that the federal government had changed certain regulations, and those changes made illegal agreements structured like the one between CyberKnife and the hospital. The new regulations, though, did not take effect until Oct. 1, 2009.

CyberKnife sued for breach of contract. At trial, CyberKnife’s expert witness estimated that the amount of revenue CyberKnife would have received between Jan. 25, 2008 and Oct. 1, 2009 was $1.84 million. In entering a judgment in favor of CyberKnife, the trial court assessed damages exactly equal to the $1.84 million revenue figure stated by the CyberKnife expert.

The hospital appealed, and, in the appeals court, it won. That court ruled that the proper way to calculate CyberKnife’s damages was to assess its lost profits. When a party that has complied with the terms of a contract is prevented from performing under the terms of the agreement due to the other party’s breach, the harmed party can choose between two forms of damages:  reliance damages or lost profits. Reliance damages, which compensate the party for the costs and expenses it expended for preparing to meet its contractual obligations, essentially seek to put the party back in the same financial position in which it would have been had the agreement never been reached.

Alternately, an award of expectation damages, or lost profits, seeks to award the wronged party the financial benefit it would have received had the agreement been carried out. The law requires, in the calculation of lost profits, the non-breaching party to deduct from its anticipated revenue the amount of the costs it would have incurred in performing its obligations. This includes things like overhead and personnel expenses. That’s where CyberKnife went wrong in its case. It had evidence of lost revenue, but it brought forward no evidence of its expenses. Florida law has long held that proof of “loss of income or gross receipts, without specific evidence concerning expenses, is inadequate to prove lost profits.”

Since CyberKnife did not introduce any evidence of its expenses, and therefore it had only evidence of lost revenue as opposed to lost profits, it lacked the “correct measure of expectation damages.” In this circumstance, when a party asserting a breach of contract claim does not present evidence of the correct measure of the damages it suffered as a result of the breach of contract, Florida law does not allow it a second chance to do so. What this meant was that, instead of sending the case back to the trial court for additional hearings regarding the amount of CyberKnife’s damages, the appeals court ordered the case sent back to the trial court and for the trial court to enter a judgment in favor of the hospital, wiping out CyberKnife’s claim entirely.

If you find yourself involved in a breach of contract case, reach out to the skilled Florida contract dispute attorneys at Stok Folk + Kon. Our attorneys have the knowledge and experience you need on your side in order to protect your legal rights.

Contact us online or by calling (305) 935-4440 to schedule your consultation.

More blog posts:

Lack of Proof of Florida Company’s Profitability Causes Co-Founder to Lose Breach of Contract Case, Florida Business Lawyers Blog, June 14, 2016

Federal Court in Florida Favors Subcontractor in Dispute Over Assessment of Delay Damages, Florida Business Lawyers Blog, April 15, 2016