A Capehart Scatchard Blog

Lost Profits Claim Barred Under New Business Rule

By on November 13, 2020 in Claims with 0 Comments

In the legal malpractice case, Schwartz v. Menas, 2020 N.J. Super. Unpub. LEXIS 2104 (App. Div. Nov. 6, 2020), the Appellate Division was faced with an appeal over whether the trial court properly barred plaintiffs’ expert reports supporting claims for lost profits as too speculative under the “new business rule.” Plaintiff Larry Schwartz and his company (NJ 322, LLC) sued their attorneys over what they claimed was a real estate development project that never materialized due to the alleged malfeasance of their attorneys, claiming lost profits as a result.

One of the issues in the case as to damages was whether Plaintiffs could pursue a claim for lost profits based upon this new venture. Plaintiffs produced an expert report to support their lost profits claim, which the trial court barred on the basis of the “new business rule.” Summary judgment was also granted to the defendants and this appeal ensued.

The Appellate Division noted that lost profits are a measure of compensatory damages and they are recoverable “if they are capable of being established to a reasonable degree of certainty.” Under the Supreme Court new business rule, however, “prospective profits of a new business are considered too remote and speculative to meet the legal standard of reasonable certainty.”  While other jurisdictions have abandoned this rule, the Court felt bound by prior Supreme Court precedent to continue to apply it as the law in this State.           

Here, Schwartz had never previously undertaken responsibility for a major residential development project that he envisioned for the properties he purchased. He had no experience at all in this type of venture. The Court noted that he was definitely engaging in an entirely new business from his role in the few prior rehab projects he had performed. The Appellate Division found that “[b]ecause Schwartz was unquestionably a new business within the intendment of the governing case law, his claim for lost profits was not permitted by the new business rule.”            

Based upon the application of this rule, the Appellate Division upheld the trial court’s orders barring Plaintiff’s expert reports and, thus, without being able to prove damages, the summary judgment dismissal as to his claims was upheld.


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About the Author

About the Author:

Ms. Ramos is an Executive Committee Member and Co-Chair of the Litigation Department at Capehart Scatchard, P.A. located in Mount Laurel, New Jersey. She is an experienced litigator with over 30 years experience handling diverse matters. Practice areas include tort defense, business litigation, estate litigation, tort claims and civil rights defense, construction litigation, insurance coverage, employment litigation, shareholder disputes, and general litigation.

For the years 2020-2023, Ms. Ramos was selected for inclusion in The Best Lawyers in America© in the practice area of Litigation - Insurance. The attorneys on this list are selected based upon the consensus opinion of leading lawyers about the professional abilities of their colleagues within the same geographical area and legal practice area. A complete description of The Best Lawyers in America© methodology can be viewed via their website at: https://www.bestlawyers.com/methodology.

In 2021, Capehart Scatchard and Ms. Ramos received the “Best Law Firm” ranking in the area of Litigation – Insurance (Metro, Tier 3) published by U.S. News & World Report and Best Lawyers®. Law firms included on the list are recognized for professional excellence with consistently impressive ratings from clients and peers. To be eligible for a ranking, a firm must have at least one attorney who has been included in the current edition of Best Lawyers in America, which recognizes the top five percent of practicing lawyers in the United States. Betsy Ramos (Litigation – Insurance) was recognized for this prestigious award in the 2021 edition. For a description of the “Best Law Firm” selection methodology please visit: https://bestlawfirms.usnews.com/methodology.aspx.

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