The New Jersey Supreme Court recently rejected a per se ban on lost profits damages claims by new businesses.
Previously, NJ courts followed the Weiss v. Revenue Building & Loan Associates decision which held that profits of new businesses are “too remote, contingent and speculative to meet the legal standard of reasonable certainty.” Since lost profits damages claims must meet the reasonable certainty standard, this created a per se ban on new business claims.
The new business rule came to the NJ Supreme Court in two consolidated appeals from plaintiff Larry Schwartz:
- In the first action, plaintiffs sued their former counsel and two real estate developers, alleging that defendants’ tortious conduct deprived them of profits that would have been gained by developing a New Jersey property.
- In the second action, plaintiff sued his former counsel for legal malpractice and breach of contract in connection with another proposed residential development.
Prior to both cases, plaintiff did not have experience developing residential properties. Despite plaintiff’s assertions that he had experience rehabbing homes, trial court determined that the plaintiff was undertaking a new business. Due to the new business rule, trial courts barred plaintiff from presenting evidence of lost profits damages. The Appellate Division affirmed in both cases.
In the Supreme Court opinion rejecting the new business rule, Justice Anne M. Patterson noted that, “A majority of courts in our sister states that have resolved the issue recognize that, although it is difficult for a new business to meet the standard of reasonable certainty, a per se ban on any claims for lost profits damages by a new business is unwarranted.”
The NJ Supreme Court reversed the Appellate Division decision and sent the cases back to trial court to be accessed under the Supreme Court’s standard.
StraightforWARD Legal Advice:
Although it may be difficult for new businesses to meet the reasonable certainty standard, the change is an impactful one. New Jersey businesses (both new and old) should be aware of this change as it is an opportunity for some and a concern for others.
New Jersey businesses with questions about lost profits damages should contact Christopher Curci at ccurci@thewardlaw.com or at 215-647-6603.