berkowitz pollack brant advisors and accountants

Mitigation of Damages in Lost Profits Calculations

Posted on March 24, 2018 by Richard Pollack

Berkowitz Pollack Brant directors Richard A. Pollack and Scott Bouchner were invited to join experts in the fields of accounting, economics, finance and law to write a chapter for a recently published guidebook about lost profits, damages and business valuations. Here is an excerpt of their contribution to “Lost Profits Damages: Principles, Methods, and Applications”, which Quickreads and The National Association of Certified Valuators and Analysts (NACVA) calls “a must have for aspiring and experienced lost profits damages experts.”

 To order a copy of “Lost Profits Damages: Principles, Methods, and Applications”, visit

 Mitigation of Damages in Lost Profits Calculations

 The concept of mitigation of damages pertains to the legal principle that an injured party cannot recover damages that it could have otherwise avoided with reasonable effort. As discussed in the Restatement (Second) of Contracts,

  1. Except as stated in Subsection (2), damages are not recoverable for loss that the injured party could have avoided without undue risk, burden or humiliation.
  2.  The injured party is not precluded from recovery by the rule stated in Subsection (1) to the extent that he has made reasonable but unsuccessful efforts to avoid loss.[1]

Like breach of contract actions, this principle of mitigation is similarly applicable in tort cases, as discussed in Restatement (Second) of Torts.

  1. Except as stated in Subsection (2), one injured by the tort of another is not entitled to recover damages for any harm that he could have avoided by the use of reasonable effort or expenditure after the commission of the tort.
  2.  One is not prevented from recovering damages for a particular harm resulting from a tort if the tortfeasor intended the harm or was aware of it and was recklessly disregardful of it, unless the injured person with knowledge of the danger of the harm intentionally or heedlessly failed to protect his own interests. [2]

Contrary to common understanding, there is no absolute “duty to mitigate” as an affirmative obligation. While the failure to do so could result in a reduction of the damage award, establishing liability and determining the gross damages award are not dependent upon the plaintiff’s efforts to mitigate. The plaintiff is required to act in good faith and take appropriate actions to overcome the damages purported caused by the defendant.[3]

Also referred to as the avoidable consequences doctrine, mitigation “finds its application in virtually every type of case in which the recovery of a money judgment or award is authorized.”[4]

The implications of mitigation in the computation of lost profits, however, are often overlooked or underappreciated by the damages expert. Plaintiff’s expert may focus upon analyzing plaintiff’s economic profits “but for” the alleged wrongdoing by defendant while substantially accepting plaintiff’s “actual” earnings as recorded for past damages computations or as projected for future damages calculations. Likewise, defendant’s expert may concentrate on rebutting the “but for” projections of plaintiff’s expert while also paying little attention to plaintiff’s recorded or projected post-injury economic profits. In contrast, the concept of mitigation is directed toward an analysis of whether plaintiff’s actual post-injury net economic profits could or should have been greater had plaintiff reasonably mitigated its losses. If so, plaintiff’s lost profits damages will be less when measured as the difference between the “but for” and successful mitigation-adjusted “actual” returns than if the mitigation adjustments were not performed. There may be circumstances, however, where the plaintiff’s efforts to mitigate its damages are unsuccessful, which could result in an increase in damages.

To the extent that the defendant is able to demonstrate that the plaintiff could have avoided or limited its damages by taking reasonable actions, it may be possible to reduce or eliminate the defendant’s obligation to pay for damages suffered by the plaintiff. Conversely, if challenged, the plaintiff should be able to offer evidence as to whether it was possible to mitigate its losses, what the costs of such mitigation efforts would have been relative to the potential benefits, what attempts, if any, were made to avoid losses caused by the defendant, and what were the results of these efforts. While the parties’ damages experts often address these issues, they may be better addressed in some instances directly by or in concert with industry experts and fact witnesses.


About the Authors: Richard A. Pollack, CPA/ABV/CFF/PFS, ASA, CBA, CFE, CAMS, CIRA, CVA, is director-in-charge of Berkowitz Pollack Brant’s Forensic and Business Valuation Services practice. Scott Bouchner, CMA, CVA, CFE, CIRA, is a director with the practice. Both professionals have served as litigation consultants, expert witnesses, court-appointed experts and forensic investigators on a number of high-profile cases. They can be reached at the CPA firm’s Miami office as (305) 379-7000 or via email at



[1] Restatement (Second) of Contracts § 350. St. Paul, Minn: American Law Institute, (1981)

[2] Restatement (Second) of Torts § 918. St. Paul, Minn: American Law Institute, (1977); See also National Communications Assoc. v. AT&T, 93 Civ. 3707 (LAP) (New York 2001) (which states that “A plaintiff who fails to take reasonable steps to avoid the alleged loss ‘has broken the chain of causation, and loss resulting to him thereafter is suffered through his own act[; i]t is not damage that has been caused by the wrongful act of the [defendant]”), citing McClelland v. Climax Hosier Mills, 252 N.Y. 347, 359, 169 N.E. 605, 609-10 (New York 1930)

[3] See Restatement (Second) of Contracts § 350 (1981), which states “It is sometimes said that it is the “duty” of the aggrieved party to mitigate damages, but this is misleading because he incurs no liability for his failure to act. The amount of loss that he could reasonably have avoided by stopping performance, making substitute arrangements or otherwise is simply subtracted from the amount that would otherwise have been recoverable as damages.” Also see In re Std. Jury Instructions-Contract & Bus. Cases, 116 So. 3d 284, (Supreme Court of Florida 2013), which states that “[t]here is no actual ‘duty to mitigate,’ because the injured party is not compelled to undertake any ameliorative efforts.”

[4] See Sedgwick on Damages, 9th ed., sec.204, p. 390; 15 Am. Jur., sec. 27, p. 420; 25 C.J.S., Damages, sec. 33, p. 499.

Forensic Interview Techniques are Key to Uncovering Financial Crimes by Richard A. Pollack, CPA

Posted on June 08, 2017 by Richard Pollack

This article originally appeared in Daily Business Review. 

Attorneys involved in forensic investigations are well-versed in the finer points of gathering information and conducting interviews that can uncover the truth from the most reluctant and guarded sources. Careful preparation and planning goes a long way toward building trust and rapport with interviewees, recognizing their verbal and non-verbal clues and avoiding a broad field of legal landmines that can contaminate the entire interview process. Oftentimes, when investigations involve financial issues, for which fraudsters will go to great lengths to cover their tracks, attorneys should consider the benefits of engaging forensic accountants to collect, analyze and interpret complex physical and electronic data and conduct interviews with relevant parties to bring the truth to light.


While forensic accountants do have the technical accounting and audit skills required to understand and unravel complex financial subjects, they are also uniquely proficient in the art and science of investigating the people involved in these matters. It is rare for an alleged criminal to simply confess his or her actions and the extent of their wrongdoing. Rather, a fraud investigation must include interviews with plaintiffs, defendants, expert witnesses and other related parties to identify the non-financial facts of a case, including opportunity and motive as well as causation and damages. Gaining this insight requires forensic accountants, like attorneys, to have a broad understanding of the law, expert knowledge of the financial facts of a particular case and a mastery of effective interview techniques.


Establish Rapport. During the investigation of a purported crime, it is not uncommon for the parties involved to view law enforcement, lawyers, judges and opposing parties as threats. The more intimidated they feel, the more reluctant they will be to answer questions. Therefore, it is important that interviewers take steps to garner the trust of interview subjects and make them feel comfortable from the onset. Remember that an interview should be perceived as a conversation rather than an interrogation.


Establishing a rapport with witnesses can be as simple as offering them a drink before the interview and beginning the conversation with a basic overview of the examiner’s role followed by simple, non-confrontational background questions that are easy for subjects to answer. As the interview proceeds, questions may become more targeted. Another method for interviewers to engage the willing cooperation of witnesses is to mirror the witnesses’ verbal and nonverbal behaviors and repeat their words or sentiments. This gives witnesses the perception that the interviewers “get” them. It puts subjects at ease and allows the interviewers to control the conversation and transition the interview to their line of questioning.


Be Objective.  Establishing a connection with witnesses and avoiding any contamination of evidence also requires interviewers to demonstrate professionalism, empathy and objectivity while avoiding any hints of judgement, criticism or blame. This means that interviewers should choose their words carefully and pay attention to the tone and nonverbal cues they communicate as well as those communicated by witnesses. Open-ended questions should be phrased so that they are not accusatory and do not intimidate witnesses or reveal any facts that the examiners may already know.


Listen and Observe Actively.  Active listening requires interviewers to not only hear and understand the words witnesses speak but to also recognize what they do not say and what they communicate via nonverbal cues. Examiners must pay meticulous attention to a witness’s tone and syntax and his or her body language in order to establish a baseline of the interviewee’s behavioral patterns early on in the interview process. Deviations from these norms may indicate that an examiner has “struck a nerve” and should serve as a signal that they should change the line of questioning or dig deeper to identify if this inconsistency is a sign of deceit. While nervous laughs and uncomfortable pauses are not proof of deception in and of themselves, interviewers must be sensitive to reading changes in witnesses’ behaviors and leverage these opportunities to control the direction of the interview.


Be Flexible. Examiners must remember that the intent of the interview is to gain knowledge and gather new evidence through information provided by the interviewees. Therefore, they should be prepared to think quickly and deviate from a script of carefully prepared questions in order to allow an interviewee’s responses to lead the discussion toward the ultimate pursuit of facts. Some of the most productive interviews are those in which the interviewee does most of the talking.


Understand the People Behind the Numbers.  There is no doubt that financial litigation often involves complex financial transactions. Sorting through layers upon layers of empirical data to connect seemingly invisible dots to trace funds and compute economic damages requires not only technical and analytical math proficiency but also an understanding of the human condition.  Financial statement misrepresentation, fraud and misappropriation of funds do not occur organically in a vacuum. Rather, they require the action of willing participant(s) who have a perceived pressure or motivation to commit these acts, the perceived opportunity to carry them out and a rationalization for their behavior. Forensic accountants are well trained in analyzing communications to identify evidence of these elements, which may be carefully concealed in a subject’s word choice, sentence structure and syntax.


Get out of Your Own Way.  Examiners can be a significant impediment to effective interviews when they fail to pay attention to their own words and behaviors. Interviewers should spend a considerable amount of preparation time deciding how to construct their questions, from the words they use to their tone and demeanor during questioning. There is a fine line between developing a professional rapport with an interview subject and stepping over a line that can contaminate the interview. Similarly, interviewers should be prepared to spend most of their time during the interview process listening, rather than talking, in order to avoid the risk of interfering in a subject’s testimony.


Forensic accountants can be a significant asset to attorneys representing clients in a wide range of litigation matters, including shareholder disputes, breaches of contracts, lost profits, hidden assets and other types of financial fraud. Their advanced knowledge of financial schemes, their ability to analyze significant amounts of complicated data and their understanding of the law are powerful tools that attorneys may leverage to gather pertinent evidence to support and defend claims.


The professionals with Berkowitz Pollack Brant’s Forensic Accounting and Litigation Support practice have extensive experience working with federal and state agencies, legal counsel and other parties on many high-profile fraud investigations.  Their business acumen, technical forensic skills and expert testimony have proven critical in creating a trail of facts to support a wide range of complex legal matters.


About the Author: Richard A. Pollack, CPA/ABV/CFF/PFS, ASA, CBA, CFE, CAMS, CIRA, CVA, is director-in-charge of the Forensic and Business Valuation Services practice with Berkowitz Pollack Brant, where he has served as a litigation consultant, expert witness, court-appointed expert, forensic accountant and forensic investigator on a number of high-profile cases. He can be reached at the firm’s Miami office at 305-379-7000 or via email at




Computer Forensic Tools, Investigative Skills Critical for Reviewing Large Amounts of Emails by Martin Prinsloo, CFE, CISA, CITP, CFF

Posted on December 07, 2016 by Martin Prinsloo

Sorting through mountains of emails to identify one single piece of evidence may seem like an impossible undertaking for the average person. Computer forensic experts, however, are well-versed in applying the right methods and using the appropriate software and other tools to turn what many consider an overwhelming and unmanageable process into a simple task that may be completed within hours or days. It all boils down to narrowing a search to only relevant email addresses, eliminating duplicates, conducting key word searches and leveraging software to extract and preserve vital data that is stored, or even deleted, from a hard drive, a cloud server or a mobile device. What’s left is a much smaller, more manageable population of data to weed through.


Early Case Assessment. Prior to beginning the eDiscovery process, it is important for investigators to conduct an early case assessment that identifies, among other things, the key issues at stake and the amount of potentially relevant data involved to determine the costs and risks associated with pursuing legal action. After an assessment of the relevant data, counsel can craft a more informed strategy for how to proceed.


Filter Out Non-Relevant Emails. Consider the recent, well-publicized FBI investigation into Hillary Clinton’s private emails. The FBI sought to find specifically those messages in which Clinton was the sender, the recipient, or a copied participant in the communication via carbon copy (CC) and blind carbon copy (BCC). To filter out its database to only those emails relevant to its investigation, the FBI simply ran a search to identify all emails in which Clinton’s email address was in the To, From, CC and BCC fields.


Eliminate Duplicate Emails. De-duplication is the process of comparing electronic records based on certain characteristics and eliminating duplicates from the database. This, combined with the filtering out of non-relevant emails, helps to pare down large databases of emails to a more manageable size. As the number of devices consumers use increases, de-duplication is an important and beneficial process in eDiscovery matters. This is because every time an email is sent, a minimum of two copies are created in the user’s sent box and the recipient’s inbox. In the case of Clinton’s emails, computer forensic experts relied on software to help the FBI compare newly identified emails to those already reviewed from Clinton’s server to eliminate duplicate messages from its search and reduce the population of emails it had to review.


Application of Search Terms. Forensic experts can further reduce the population of emails for review by applying search terms that are based on the knowledge of the issues gained by counsel, the computer forensic expert and other interested parties during the course of an investigation. These search terms can be applied to the subject, body and metadata associated with email messages. Examples of metadata associated with a file are the author, date created, date modified and file size. Perhaps the most effective use of metadata information to reduce population size is to limit searches to relevant dates or to a specific date range. In the case of emails, these would include sent and delivery dates.


Automated searching through email attachments and documents may not always be possible, especially when these files are saved as photos or documents scanned to Adobe Portable Document Format (PDF), neither of which may be in a searchable format. However, computer forensic experts can use optical character recognition (OCR) to convert the characters contained in these files into searchable text documents. This will facilitate attachment searches that may otherwise be overlooked or would require a time-consuming manual review. The overall result of these techniques allows the investigative team to focus their detailed review to relevant de-duplicated emails within a specific date range and applying only certain key words germane to the issues within the investigation.


Efficient Review. Emails and files not eliminated from the scope of inquiry by the above steps must be reviewed by an actual human being. Due to time limitations, it is usually not feasible for a single person to review all items, especially in matters involving a significant amount of files. A coordinated review plan and a dedicated team of reviewers is critical to ensure success. Such coordinated review plans are now conducted in tandem with third-party eDiscovery vendors that provide a platform allowing for the review by multiple individuals across various locations. The comparison and selection of an appropriate eDiscovery vendor are therefore crucial given the wildly different platforms and technologies used by these vendors and the significant associated costs.


Berkowitz Pollack Brant’s Forensic Accounting and Litigation Support practice has the tools and professional skills required to conduct forensic computer and mobile device investigations on a wide range of complex matters, including eDiscovery issues on matters where search and review are at the forefront. Our professionals have extensive experience supporting legal counsel and analyzing large quantities of data to uncover a trail of financial facts in matters involving divorce and family disputes, complex business litigation and business disputes, bankruptcy and reorganization, and claims of fraud brought by corporations and governmental regulatory agencies.

About the Author: Martin Prinsloo, CFE, CISA, CITP, CFF, is an Associate Director with Berkowitz Pollack Brant’s Forensic and Business Valuation Services practice, where he applies business skills and technical expertise to support acquire, preserve, validate and analyze digital data for use in legal proceedings. He can be reached at the CPA firm’s Miami office at (305) 379-7000, or via email at


Financial Statement Red Flags: Detecting the Threat from Within by Richard A. Pollack, CPA

Posted on July 19, 2016 by Richard Pollack

Despite the rising number of security breaches conducted by criminals outside corporate offices, businesses throughout the world are continuing to be plagued by internal threats that result in significant losses in revenue and reputation. According to the Association of Certified Fraud Examiners Global Fraud Study for 2016, businesses worldwide are continuing to lose 5 percent of revenue each year due to occupational frauds committed by their very own employees. In 94.5 percent of fraud cases, perpetrators took some effort to hide the fraud by creating or altering physical documents.


The intentional misstatements or omission of material information in an organization’s financial reports are typically perpetrated to conceal poor financial performance or to create an inflated picture of a business’s true financial health. While these instances of financial statement fraud represent the least common form of occupational fraud, they typically are the most costly, resulting in median losses of $975,000 per organization. Moreover, the longer a fraud goes undetected, the greater the financial damage to the company.


Preventing and mitigating the damaging effects of financial statement fraud requires businesses to accept the possibility that it can happen to them and to put into place a series of internal anti-fraud controls. Because perpetrators will go to extremes to evade these controls, businesses must also be able to recognize the red flags that point to the most common schemes.


Misstated Assets. In order to portray a business in the most positive financial light, fraudsters may exaggerate assets by improperly presenting accounts receivables, inventory, fixed assets and investments. They may create fictitious clients, sales transactions, assets and accounts receivable, or they may understate an asset’s basis, manipulate the estimation of an asset’s useful life and residual value, or fail to account for obsolete inventory.


Red flags may include a large and unexplainable accumulation of fixed assets or depreciation schedules and estimates of assets’ useful lives that are inconsistent with the business’s industry. Or, there may be missing documents and discrepancies between recorded transactions and evidence obtained from third-parties. Similarly, a warning sign of misstated assets may be identified when a business reports a growth in inventory without corresponding growth in sales.


Concealed Expenses and Liabilities. A business may understate or hide expenses and debt in an effort to bump up its recognition of revenue. Examples of expense manipulation include misclassifying expenses as assets, failing to record certain obligations as liabilities or leaving special purpose entities or subsidiaries off a parent company’s books.  In some instances a business may avoid recording any expenses at all, including notes and loans to executives, or it may overstate liabilities in order to establish “cookie jar reserves” to pay for future expenses and appear that it is boosting profits.


Red flags can include a high number of complex third-party transactions, unauthorized journal entries or discrepancies between journal entries and that which is reported in financial statements, as well as transactional entries made to unrelated or rarely used accounts. Additionally, a business may manipulate its expenses by improperly capitalizing expenses in excess of industry norms.


Improper Revenue Recognition. The most common form of financial statement fraud occurs when a business falsifies revenue.  This is often accomplished by overstating revenue through premature revenue recognition or the recording of fictitious sales that never actually occurred. Alternatively, a business may understate its revenue by shifting revenue to a later period or improperly recording its percentage-of-completion contracts.


Red flags include the reporting of increasing revenue without corresponding growth in cash flow, a significant increase in revenue at the end of a reporting period, and the recording of revenue for consignment sales, or any sale, before a product or service is delivered to a customer. Similarly, a business engaged in improper revenue recognition may report growth in revenue or margins that far exceeds those of other companies in the same industry, or it may report positive earnings while cash flow declines.


Fraudulent Disclosures. Businesses may include footnotes in their financial statements to provide readers with material information and additional explanations about their operations that are not easily understood by reviewing the numbers in the financial statement by themselves. However, there are times when a business will purposely omit from these statements information, such as related-party transactions, liabilities arising from legal actions or accounting method changes, in order to conceal its true financial condition and outlook.


Financial statement fraud is a real threat to businesses large and small across all industries. The first line of defense against these criminal activities is the implementation of systems, policies and controls intended to safeguard an organization and deter fraud or stop it in its tracks at the first sign of detection. Investigations conducted by qualified forensic accountants can also aid in exposing a fraud before businesses suffer significant losses. These professionals have the knowledge and experience required to interview relevant parties and analyze multiple years of financial records, public documents and other forms of physical and electronic evidence to identify the source of a fraud. Moreover, their understanding of the law and their ability to provide expert testimony in legal proceedings further provide businesses with valuable support in prosecuting fraudsters.


About the Author: Richard A. Pollack, CPA/ABV/CFF/PFS, ASA, CBA, CFE, CAMS, CIRA, CVA, is director-in-charge of the Forensic and Business Valuation Services practice with Berkowitz Pollack Brant, where he has served as a litigation consultant, expert witness, court-appointed expert, forensic accountant and forensic investigator on a number of high-profile cases. He can be reached in the CPA firm’s Miami office at 305-379-7000 or via email at



Options for Mitigating Losses in Lost Profit Claims by Scott Bouchner, CMA, CVA, CFE, CIRA

Posted on May 04, 2016 by Scott Bouchner

Disputes involving breach of contract and commercial tort claims are not uncommon in the normal course of business. When brought before the courts, the burden to prove damages rests with the plaintiff.  However, a defendant has an opportunity to reduce or eliminate entirely its obligation to pay damages when it can demonstrate that the injured party, or plaintiff, failed to take steps to avoid, reduce or minimize its economic losses.  While the law does not require a plaintiff to “mitigate” its damages, failure to do so may result in it receiving a significantly reduced award.

The Concept of Mitigation

In cases of lost profits, damage awards are often based on the amount a plaintiff would have earned “but for” the defendant’s actions as compared to its actual earnings. The concept of mitigation focuses on an analysis of whether a plaintiff’s actual post-injury net economic profits could or should have been greater had the plaintiff reasonably mitigated its losses. If so, a plaintiff’s lost profits damages will be less when measured as the difference between the “but for” and successful mitigation-adjusted “actual” returns than if the mitigation adjustments were not performed.

Mitigation of damages “arises from the cardinal principle that the damages award should put the injured party in as good a condition had the contract not been breached at the least cost to the defaulting party…. to prevent an inclusion in the damage award of such damages that could have been avoided by reasonable affirmative action by the injured party without substantial risk to such party.” [F. Enterprises, Inc. v. Kentucky Fried Chicken Corp., 47 Ohio St. 2d 154, 351 N.E.2d 121, 125 (Ohio 1976)]

While the plaintiff’s failure to mitigate losses could result in a reduced damage award for those losses that could have otherwise been avoided, it is the defendant’s burden of proof to establish plaintiff’s failure to mitigate.

Types of Mitigation

Mitigating losses can be broadly classified as either negative or affirmative mitigation.

Negative mitigation is based on the principal that once one party breaches an agreement, the other party should discontinue its own activities in order to avoid or reduce additional expenses or losses. For example, consider a homebuilder who enters into a contract with a developer. After the homebuilder completes 30 percent of the contracted work, it receives a notice that the developer intends to terminate the contract. As a result of the breach, the homebuilder may be entitled to a claim for lost profits that it would have otherwise earned had the developer followed through on the contract terms. However, if the homebuilder chooses to ignore the developer’s notice, continue work and incur additional costs, it may be argued that the homebuilder failed to mitigate losses that it could have avoided.

Unlike negative mitigation, which often requires the plaintiff to simply discontinue its activities, affirmative mitigation requires the plaintiff to make an active effort to prevent, reduce or eliminate damages suffered as a result of the defendant’s actions. This can often be achieved when the plaintiff replaces the source of a loss, repairs it or sells it at a discount.

Replacement Mitigation. An injured party may mitigate its losses by seeking out and obtaining comparable substitutes for goods, parts, customers or suppliers it lost due to a contract breach.   Losses may be limited to those the plaintiff incurred from the time the contract was cancelled until it establishes a replacement from a comparable source.  If the replacement product or service is more expensive that the original, the plaintiff may be entitled to claim losses for the increased cost charged by the new supplier. However, if the replacement product or service is less expensive than the original, the plaintiff would theoretically lose its claims to damages because it would be placed in a better economic position than it would have been, “but for” the contract breach.

Perhaps a more challenging example of replacement mitigation concerns a contract breach that results in loss of customers. Consider a manufacturer who enters into an exclusive agreement with a large customer to purchase a fixed number of units of a product each month. Should the customer cancel the contract, the manufacturer may attempt to mitigate its losses by looking for a replacement customer(s) to whom it may sell the products.  Depending on the type of products being sold, the demand for the products, the intensity of competition from other manufacturers, the manufacturer’s ability to mitigate could be limited.

Repair Mitigation. In situations in which a plaintiff incurs losses due to a defendant’s negligence or faulty products, the plaintiff may be able to limit its losses by expending the resources necessary to repair the damage. Consider a contractor who negligently cuts a fiber optic cable that transmits voice and data communications to a developer’s building. The developer has an obligation to repair the cable as soon as possible. However, if the developer waits two months two begin repairs and subsequently incurs significant losses in that extended time period, the contractor may argue that its responsibility to cover the costs of repair should be limited to a reasonable amount of time to have the cable fixed.

Discount Mitigation. Plaintiffs may mitigate losses incurred from damaged goods by selling those products at a discount. While a plaintiff will not recoup the entirety of its lost profits, it will be able to use the proceeds from a discounted sale to offset its losses.

Regardless of the method used, an injured party should make reasonable efforts to mitigate losses, without incurring additional risks, in order to recover damages that it is due. In deciding what is considered “reasonable efforts,” the courts will look at the plaintiff’s costs, financial abilities, risk of additional losses and good faith efforts to minimize losses as well as the availability of reasonable substitutes to replace lost resources and profits.

While there are many situations in which a plaintiff may not have the ability to mitigate losses caused by the defendant, it is generally prudent that the damages expert consider whether the plaintiff has taken, should have taken or would have been able to take actions to mitigate its claimed damages, and, if applicable, quantify the impact that such efforts would have on damages awards. From the plaintiff’s perspective, the failure to consider its ability to mitigate its losses may preclude the plaintiff from addressing these issues if they are subsequently raised as deficiencies by the defendant.  Conversely, from the perspective of the defendant, consideration of mitigation may provide an opportunity to demonstrate potential flaws in the plaintiff’s analysis, and, if applicable, provide the court with a reasonable basis to reduce or eliminate claimed damages.

Supporting claims of lost profits is a complex endeavor. With the expertise of experienced forensic accountants, however, legal counsel can avoid missteps and navigate past common challenges. The advisors and accountants with Berkowitz Pollack Brant’s Forensic and Litigation Support Services practice regularly work with businesses and lawyers to provide counsel or serve as expert witnesses in assessing damages, uncovering facts during discovery and exposing weaknesses in opposing testimony.

About the Author: Scott Bouchner, CMA, CVA, CFE, CIRA, is a director with Berkowitz Pollack Brant’s Forensic Accounting and Business Valuation Services practice. A frequent lecturer and author, he has served as litigation consultant, expert witness, court-appointed expert and forensic investigator on a number of high-profile cases. He can be reached in the CPA firm’s Miami office at (305) 379-7000 or via email at

Pin It on Pinterest

Menu Title