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 http://www.valuationproducts.com/lostprofits/.
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,
- 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.
- 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.
Like breach of contract actions, this principle of mitigation is similarly applicable in tort cases, as discussed in Restatement (Second) of Torts.
- 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.
- 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. 
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.
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.”
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 email@example.com.
 Restatement (Second) of Contracts § 350. St. Paul, Minn: American Law Institute, (1981)
 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)
 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.”
 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.
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 firstname.lastname@example.org.
The ability to collect, recover and preserve digital data stored on individuals’ personal computers and networks is not new. In fact, according to the FBI, the history of computer forensics and its use in the investigation and substantiation of evidence in legal cases can be traced as far back as the 1980s.
As technology has evolved, so too have the methods of forensic investigations and data collection. Today, individuals increasingly use their mobile devices for all of their business and personal activities, far beyond just making and receiving phone calls. In fact, the amount of information stored on one’s smartphone and its applications produce a large digital footprint that can reveal as much about that person as his or her physical fingerprint. In addition to call logs, text messages, emails, contacts, photos and videos, smartphones can reveal users’ web browser search histories; online purchases; use of social media networks, such as Facebook, Twitter and Instagram; use of instant messaging services, such as WhatsApp and Snapchat; and GPS location history. Even more interesting is that a forensic investigation can turn up information regarding what smartphone users delete and the time they delete such data from their devices.
With access to such a wealth of information, it is no wonder that courtrooms are turning increasingly to mobile device forensics to provide critical evidence in legal cases that can involve divorce, business disputes, child protection, fraud and even violent crimes. Yet, the process of mobile phone forensic investigations is not without challenges. As a relatively new field, it is used by a limited number of specialists who not only have access to the tools required to recover cellular phone data but also the unique forensic investigation skills one needs to extract, organize and present the data in a legally defensible manner in a court of law.
Key Requirements for a Successful Mobile Device Forensic Investigation
Recovery and Extraction Tools. Recovering cell phone data requires software that can perform equally well on all operating systems, including Apple’s iOS, Google’s Android and Windows, and keep up with each system’s regular updates. It should also be able to extract the information readily available on a device as well as data that may be hidden in third-party applications or that users previously deleted. For optimal efficiency, the solution must also be able to produce reports in a variety of formats that are both customizable and searchable for use in legal proceedings.
Data Preservation. It is vital that forensic investigators preserve and protect the original data on a mobile device without making any alterations that could damage its admissibility as evidence. Moreover, because smartphone users have the ability to remotely wipe all data from their devices, forensic analysts must take necessary steps to prevent any remote wipes.
Investigative Expertise. Like any forensic investigation, cell phone forensics is a science that requires specialized training and skill to sort through mountains of data to uncover the proverbial needle in the haystack that points to misconduct or suspicious activity. Investigators must know what specific information to look for, where and how to find it, how to build a timeline of facts and how to interpret those facts to support their findings. Moreover, they must understand the legal challenges of data privacy, access to passwords and ownership of the device in question. A final requirement is the ability to present findings as an expert witness in a court of law while considering the Daubert or Frye standards governing the admissibility of expert testimony.
It is clear that the data stored on mobile phones create revealing cyber trails about their owners, including who they contacted, what they communicated about and where they were at a particular date and time. In matters of divorce, evidentiary smartphone data may reveal an App from an unknown banking institution, transactions pointing to hidden money or where a spouse was or traveled to at a particular point in time. The same holds true for business disputes, for which cell phone data may reveal users’ attempts to threaten of undermine their partners and commit fraud.
A successful smartphone forensic investigation will hinge on many factors. Key elements should include access to and reliance on mobile data and extraction solutions, such as those offered by Cellebrite, as well as a forensic examiner’s unique ability to gather, authenticate and analyze data and present his or her findings within the constraints of the legal system.
Berkowitz Pollack Brant’s Forensic Accounting and Litigation Support practice has the tools and professional skills required to conduct forensic investigations on a wide range of complex matters. Our professionals have deep 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 a senior manager 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 email@example.com.
In December, the Florida Bar challenged the 2013 legislative adoption of the Daubert standard governing the admissibility of expert testimony in cases involving lost damages. In a vote of 33-9, the Florida Bar board of governors rejected the strict Daubert standard used by Federal courts and 27 states in favor of the Frye standard of expert testimony that was in place in Florida two years ago.
The Frye standard contains a Pure Opinion Exception (POE) that, unlike Daubert, allows an expert to provide testimony that relies solely on his or her experience and training without any regard for scientific fact. This exception is so inclusive that Florida state courts infrequently heard challenges to the admissibility of expert testimony. Conversely, the Daubert standard for expert testimony requires a rigorous three-part test to determine the scientific reliability of such testimony that would be admissible in a court of law. As a result, plaintiffs relying on Daubert face greater scrutiny in building the facts of their cases, while defendants benefit from new opportunities to challenge the basis of those facts.
Since Florida Adopted the Daubert standard in 2013, Florida attorneys have filed numerous challenges to expert testimony under the Daubert guidelines, which, in some instances, have led to the Court’s exclusion of expert opinions. It is unclear whether the Florida Bar’s recent rejection of Daubert would or could have any impact on these decisions in the future, of if they would have been different under Frye.
The final decision regarding which standard the state will apply will rest in the hands of the Florida Supreme Court.
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, where Scott Bouchner, CMA, CVA, CFE, CIRA, serves as a director. Both are frequent lecturers and published authors on topics related to forensic accounting and litigation support, and they served as litigation consultants, expert witnesses, court-appointed experts and forensic investigators on a number of high-profile cases. They can be reached in the CPA firm’s Miami office at 305-379-7000 or via email at firstname.lastname@example.org.
When Donald Trump sought to terminate a lease agreement between his Trump National Doral resort and Pritikin Longevity Center, legal counsel for Pritikin turned to Berkowitz Pollack Brant’s Forensic and Litigation Support practice.
The firm’s team of forensic accountants conducted analysis to refute Trump’s request for a 10 percent increase in room rates charged to Pritkin guests. Rich Pollack delivered testimony in Miami-Dade Circuit Court demonstrating that, based on the resort’s historic revenue per available room rate (RevPar), Pritikin should be entitled to a 15 percent decrease in room rates.
Ultimately, Pritikin and its team prevailed, securing a 15 percent rent reduction through 2020.
Berkowitz Pollack Brant’s Forensic Accounting and Litigation Support professionals have the technical skills and business acumen to analyze large quantities of financial data to uncover a trail of facts to support legal matters involving complex business litigation and business disputes, bankruptcy and reorganization, and claims of fraud brought by corporations and governmental regulatory agencies.