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No Putting Price On Potential Profits
by Ron Davis

Two brothers who lease space at a California shopping center have failed in their attempt to link an accidental flooding of their store to their loss of potential profits from an Internet business.

The store that the brothers operate, located in a Beverly Hills shopping center, sells toys, educational products and computer training services for children. And the flooding occurred when a tenant directly above their leased premises left water running in a sink overnight. As a result of the consequent damage, the brothers’ store closed for two weeks, and when it reopened, many of its shelves were empty.

The brothers eventually received $200,000 for damage to their store. But they claimed that the actual amount owed them was much more. That’s because, they pointed out, the flooding of their premises deprived them of a chance to establish a Web site that would have competed with other retailers of children’s products.

In fact, when the flooding occurred, the brothers had developed a functioning Web site scheduled to go online in time for the holiday shopping season. Plus, they had signed a one-year contract with a Web site "portal" that could have assured them of a substantial increase in sales.

The brothers argued that because of the flooding, they were unable to both rebuild their store and launch the Web site. The brothers therefore withdrew their contract with the Web site portal. Then, when they were finally able to continue their pursuit of their Internet venture, the costs for portal access had risen beyond their means.

In their lawsuit, the brothers demanded payment for profits lost because of the inability to launch the Web site at the optimal time. And they asked for damages that would compensate them for expected revenue in the "$15 million a year range."

A California appellate court rejected the argument of the brothers. Explained the judges, "As substantial as their evidence sounds on the surface, we conclude it does not suffice to raise a triable issue as to lost profits. This is because the evidence, while suggesting the Web site would have been viable, is not of a type necessary to demonstrate that a triable controversy exists to a reasonable certainty that the unestablished business would have made a profit…. Further, the whole scenario presented by the brothers is rife with speculation…. They presented no evidence to the effect it was reasonably probable the venture would have been profitable; that is, gains from online sales would have exceeded the costs of operating the Web site venture." (Kids’ Universe v. In2Labs, 116 Cal.Rptr. 2d 138 [Cal.App. 2 Dist. 2002])

Decision: February 2002
Published: March 2002



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