What Constitutes Best Evidence to Support Claims of Economic Damages? by Scott Bouchner, CMA, CVA, CFE, CIRA

Posted on September 07, 2022 by Scott Bouchner

In cases involving economic damages, attorneys have an obligation to prove lost profits with “reasonable certainty” based on the use of “best evidence.” Considering that the courts have not agreed on one universally accepted standard for defining “best evidence,” such decisions inevitably rely on the facts and circumstances of each individual case. As a result, two courts confronted with similar issues may reach entirely different opinions when deciding whether a plaintiff has supported its damage claim based on this principle.

In Eastern Fireproofing Co. v. United States Gypsum Co., No. 57-938-G (US District Court Mass., 1970), the court stated:

“a plaintiff may not conjure up favorable estimations and hold back more solid but less favorable evidence otherwise available. And the admissibility of a particular class of evidence will depend to a degree upon the availability of less speculative evidence. On the other hand, there is no rule of law that only the best available evidence may be used. This would necessarily imply a determination of what class of evidence is best, and it seems that such a determination cannot be made without infringing on the proper function of the jury as the finder of fact.”

With this in mind, attorneys have an opportunity to strengthen damages cases when they focus on reliable facts and sound methodology that other experts have attempted to use to meet or fail to meet the reasonable-certainty standard. Following are some of the factors that attorneys may consider when proving or disproving economic damages.

Use of Plaintiffs / Defendants Historical Financial Data

Supporting claims for economic damages in a commercial dispute typical begins with an historical assessment of a plaintiff’s/defendant’s financial data, including revenue, costs and profits/losses in the years preceded the alleged bad act of the other party, and comparing that information to the facts that occurred during and after the alleged damages period. Legal counsel also must be careful to consider whether the injured party’s lost profits resulted from factors other than the defendant’s alleged bad acts, such as changes in the economy, technological advancement and governmental regulation; new competitors entering the market; or introductions of alternative products.

 Use of Contemporaneous Third-Party Market Data

The availability of contemporaneous, third-party market data has the potential to help plaintiffs’ experts establish claims for damages. Conversely, defendants’ experts have been successful using contradictory data to demonstrate flaws in the plaintiffs’ analyses. Therefore, expert witnesses should tread carefully to assess the credibility and relevance of the data they use as foundations for their testimony and take into consideration how other information could potentially lead to different conclusions. In fact, they should be prepared to explain how they weighed alternative sources of data and the reasons why one set of data was preferable or more reliable than another.

Use of Plaintiff’s Other Businesses

When a plaintiff’s business does not have a sufficient track record to establish evidence of profitable operations, its historical financial data may not be an appropriate basis for estimating future profitability. Under these circumstances, some courts have accepted the historical data of plaintiffs’ other businesses as benchmarks to establish economic damages. However, under these circumstances, a plaintiff must demonstrate sufficient comparability between the subject business and the benchmark business(es) and make adjustments to account for any differences to the extent applicable.

Reliance on Specific Customer Sales Data

The identification of specific lost sales caused by a defendant’s bad acts goes a long way to help substantiate a claim for lost profits and persuade a jury. With this in mind, it is generally a useful exercise to review historical sales patterns, analyze communications with customers and attempt to demonstrate sales that a plaintiff would have made but for the defendant’s actions.

From a practical standpoint, rarely can a plaintiff identify the names of all its prospective customers, the dates of communication with those prospects, the amounts of would-be sales and the reasons for the losses. When this is the case, some plaintiffs have been able to overcome this lack of direct information by analyzing changes in customer behavior and sales patterns, and demonstrating their connection to the specific allegations.

Use of Contemporaneous Pre-Litigation Projections and Transactions

The court’s decision in Reese Schonfeld vs. Russ Hilliard, Les Hilliard and International News Network, Inc., 218 F.3d 164; 2000 U.S. App. LEXIS 15684 is cited frequently in economic damages cases to demonstrate that a plaintiff’s contemporaneous, arm’s-length transactions involving investments in or the sale of ownership interests in the subject company may provide more reliable evidence of damages than lost profit calculations, especially when the lack of a track record would require the development of potentially “speculative assumptions.”

Similarly, the courts have often found financial projections prepared by one or both parties prior to litigation to be more persuasive than those prepared solely for, or in response to, litigation. Consequently, attorneys should be prepared to share with their experts their clients’ accounting and operational data, budgets, financial forecasts and projections, pre-trial business and marketing plans, sales and pricing agreements, memorandums of understanding and other transactional contracts, all of which may be useful to identify and substantiate assumptions used to quantify damages.

Use of Multiple Regression Analysis / Statistical Analyses

 Multiple regression analysis, sampling methodologies and other statistical analyses have become increasingly common and accepted methods to establish reasonable certainty in damages calculations. However, the effectiveness of such statistical approaches is dependent on an expert’s understanding of proper execution based on verifiable facts in an effort to avoid common errors that could invalidate the results.

Plaintiffs, along with their counsel and retained experts, should work collaboratively to identify the best evidence available to establish with reasonable certainty a defensible claim for economic damages. In determining what constitutes best evidence, it generally is advisable that the parties identify other information that may be contrary to the data they relied upon and that they be prepared to explain how they considered this additional information in the preparation of the damages claim.

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