Recovery of Lost Profits for a New Business

Can a new business that does not have an established track record recover lost profits as part of a breach of contract claim?

Assuming the losses are a natural, probable, and foreseeable consequence of the defendant’s breach, then under Texas law, the answer depends upon a fact intensive inquiry, which focuses on the experience of the people involved in the business, the nature of the business, and the relevant market.  See Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 280 (Tex.1994).  “To recover damages for breach of contract, a plaintiff must show that he suffered a pecuniary loss as a result of the breach. To recover lost profit damages, a plaintiff must show the loss by competent evidence and with reasonable certainty.” Peterson Group, Inc. v. PLTQ Lotus Group, L.P., 417 S.W.3d 46, 64 (Tex. App. Hous. [1st Dist.] 2013).  “Lost profits are damages for the loss of net income to a business and, broadly speaking, reflect income from lost business activity, less expenses that would have been attributable to that activity. As a minimum, opinions or estimates of lost profits must be based on objective facts, figures, or data from which the amount of lost profits can be ascertained. Lost profits cannot be based on pure speculation or wishful thinking.” Peterson Group, Inc. v. PLTQ Lotus Group, L.P., 417 S.W.3d 46, 64-65 (Tex. App. Hous. [1st Dist.] 2013) (citations and quotation marks omitted) citing Tex. Instruments, 877 S.W.2d at 279.  “Profits which are largely speculative, as from an activity dependent on uncertain or changing market conditions, or on chancy business opportunities, or on promotion of untested products or entry into unknown or unviable markets, or on the success of a new and unproven enterprise, cannot be recovered. Factors like these and others which make a business venture risky in prospect preclude recovery of lost profits in retrospect . . . .  The mere hope for success of an untried enterprise, even when that hope is realistic, is not enough for recovery of lost profits.”  Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 279-80 (Tex.1994).  However, the fact that a business is new does not absolutely preclude recovery of lost profits. See id. at 280.  Recovery will depend upon the experience of the people involved in the business, the nature of the business, and the relevant market.  See Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276, 280 (Tex.1994).