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Property Seller’s Lack of Proof of Lost Profits Causes Florida Appeals Court to Throw Out $4.2M Damages Award

In science, there is something called the “butterfly effect.” This is a concept that Google defines as a “phenomenon whereby a minute localized change in a complex system can have large effects elsewhere.” An example is a 1972 article in a science journal entitled, “Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?” Just as is true in science, there are situations in legal matters in which sometimes seemingly small changes or decisions can have massive impacts down the road. Thus, when you are faced with a contract dispute, it is important to have skilled Florida contract litigation counsel, who can advise you about all of your options and the possible ramifications of each decision.

A recent case originating from Palm Beach highlights this concept. The transaction that led to the litigation was a sale of a commercial property, specifically, a cemetery in Boca Raton. The buyer agreed to pay $6.125 million. After the sale, however, the sellers learned that an attorney had been working both sides of the deal and had received a $100,000 kickback from the buyer after the transaction closed.

This discovery led the seller to sue both the buyer and the lawyer. The seller alleged that the lawyer’s misconduct led it to sell the property for less than fair market value. The lawsuit stated claims for breach of contract, intentional misrepresentation, and conspiring to breach a fiduciary duty. The lawyer settled, but the case went to a trial against the buyer. The jury ruled for the seller and awarded it $4.2 million, with $2.2 million of that being punitive damages. The other $2 million was “damages relating to attorneys’ fees and costs incurred in connection with the transaction.”

On appeal, however, the buyers emerged successful. The seller lost, not because their case was lacking with regard to proof of liability, but instead because they lacked proof of damages. The outcome is a highly instructive one for any party to a commercial contract who is pursuing or defending a commercial litigation action like breach of contract or breach of fiduciary duty.

The purpose of these types of lawsuits, called “tort actions,” is to, as the court of appeal stated it, “restore the injured party to the position it would have been in had the wrong not been committed.” In order to do that, the law says that the courts must first look at whether the harmed party affirmed or rescinded the contract in dispute. If that party rescinds the contract, it is entitled to a damages award that includes everything it expended in preparing to perform its obligations under the agreement. That includes attorneys’ fees. The goal is to return that party to the position it was in when it signed the contract.

If, however, the harmed party affirmed the contract, it is entitled to the amount of its lost profits, but not the cost of preparing to perform.

In this case, the seller chose affirmance over rescission, so it was only entitled to its lost profits. The problem for the seller was, however, that the jury concluded that there was no difference between the actual sale price and the property’s fair market value. In other words, the seller suffered $0 of lost profit damages. The seller wasn’t entitled to the $2 million in damages related to fees and costs. Since there was no compensatory damages award, that also meant there could be no punitive damages award either.

In this case, the choice to affirm rather than rescind the contract had a multi-million dollar consequence. The skilled South Florida contract litigation attorneys at Stok Folk + Kon have been helping business clients for many years assess their options and protect their interests. If you think you’ve been harmed by a breach of a commercial contract, don’t delay.

Contact us online or by calling (305) 935-4440 to schedule your consultation and find out how this firm can help you.

More blog posts:

Nutritional Supplement Company Allowed to Use Expert’s Opinion on Lost Profits in Florida Contract Breach Case, Florida Business Lawyers Blog, March 15, 2017

Lack of Evidence of Expenses Costs Florida Radiosurgery Center in Pursuit of Lost Profits Damages, Florida Business Lawyers Blog, Nov. 11, 2016