Opinion ID: 684071
Heading Depth: 3
Heading Rank: 2

Heading: Reasonable Certainty of Damages Traceable to Breach

Text: 44 Damages for lost profits are not recoverable unless the plaintiff proves with a reasonable degree of certainty the amount of lost profits traceable to the breach. Kenford I, 502 N.Y.S.2d at 132, 493 N.E.2d at 235. The extensive record contains ample evidence to support Judge Ward's factual conclusions. Furthermore, Judge Ward took great care to adopt a formula for assessing damages based on lost profits which was tailored to the particular industry at issue, relied exclusively on historical data and actual operating statistics of a kind relied on by the parties in the conduct of their business. It is on this basis that we conclude that Judge Ward's determination of damages for lost profits was of sufficient certainty to satisfy the rigorous standard set forth in Kenford and its progeny. 45 Courts distinguish between established businesses and new or fledgling enterprises in fixing the level of proof needed to achieve reasonable certainty as to the amount of damages. See Merlite Indus., Inc. v. Valassis Inserts, Inc., 12 F.3d 373, 376 (2d Cir.1993); Trademark Research, 995 F.2d at 332-34. Established businesses have a record of past performance that may offer a reliable statistical basis for prediction. See Merlite, 12 F.3d at 376. TWA and Travellers were joint venturers for over 20 years. Judge Ward set forth in detail the pricing structure for Getaway tours, which he found to be typical for the escorted tour industry. Travellers would design the tour packages to which it would add a fixed margin to the cost of the land arrangements. To this figure, TWA would add a 14% commission for the travel agents, the price of the air arrangements, and TWA's fixed margin for the land-based tours. Prior to 1988, TWA's margin was 6%, but in 1988 TWA increased its margin to 10%. Here, an established long-term course of dealings between the parties, demonstrable profit margins, and a verifiable pricing structure permits lost profits to be calculated with reasonable certainty. See generally, Care Travel Co. v. Pan American World Airways, Inc., 944 F.2d 983 (2d Cir.1991). 46 Fixing lost profits damages with reasonable certainty requires careful examination of the nature and reliability of the statistical proof. See Merlite, 12 F.3d at 375. Any calculation of damages based on lost profits always entails a degree of uncertainty caused by the need to rely on assumptions and estimates. The mere fact that [a party] disagrees with the methodology utilized ... or [a particular] assumption ... does not render ... proof speculative. Care Travel, 944 F.2d at 994-95. In both Merlite and Care Travel, we emphasized that the statistical evidence was derived from historical operating statistics between the parties and was of the kind used by the parties in conducting their own business. In Merlite the plaintiff presented statistics based on established, provable figures of past performance derived from a virtually identical distribution agreement between the parties for the prior year. Merlite, 12 F.3d at 375. In Care Travel, the plaintiff relied on a track record of actual transactions between the parties, derived from the reports and documents of the other party, in support of its lost profits claim. Care Travel, 944 F.2d at 994, 994 n. 8. 47 In this case, the statistical evidence presented at trial to establish damages was of the same type used and relied upon by the parties in conducting their own businesses. Judge Ward employed a ratio analysis to calculate Travellers' lost profits. The ratio analysis relied on figures derived from the historical relationship between TWA and Travellers to determine the average percentage of TWA's transatlantic traffic that Getaway tours represented and applied the resulting ratio to TWA's actual operating data for each tour seasons at issue to project the expected demand for Getaway tours during that period. As Judge Ward found, TWA had used such a ratio analysis in the past to project the expected demand for Getaway tours for each tour season. The planning meeting for the 1988 tour season is instructive. In forecasting the expected demand for Getaway tours, T.G. Brier, TWA's representative in charge of Getaway tours, first estimated the total TWA international eastbound originating passenger traffic. Brier then used Travellers' historical volumes to estimate the percentage of TWA traffic attributable to Getaway. Finally, Brier used this historical average to project the 1988 tour season's expected passengers. Thus, the ratio analysis adopted by Judge Ward was a technique recognized and used in the industry, was integral to projecting the expected demand for Getaway tours at each annual planning meeting, and was of the same type of data relied on by both TWA and Travellers in conducting their businesses. 48 TWA argues that the decline in Getaway business was entirely due to intervening circumstances beyond its control. In support of its position, TWA offers a list of factors that potentially had an adverse impact on leisure passenger traffic abroad, including fear of terrorism, fluctuation in exchange rates, shifting demand for types of pre-packaged tours, a flight attendants' strike and changes in management. Judge Ward recognized that the leisure travel industry is highly elastic and sensitive to such external factors. In rejecting TWA's argument that the reduction in the number of Getaway passengers was attributable entirely to external circumstances, Judge Ward made the following findings. First, TWA's international traffic grew significantly during the period in which TWA claims that general economic factors depressed Getaway business. Second, TWA's position that internal factors (such as TWA's change in management or labor problems) account for the decline in Getaway's business is undermined by the performance of Travellers' direct competitors with which TWA also conducted business. Over the same period and facing the same conditions, Travellers' competitors dramatically increased their market shares as well as the aggregate number of their European tours. Judge Ward was also careful to normalize the figures to factor in and account for potential anomalies caused by such external factors. 49 In calculating the historical average percentage of TWA's transatlantic traffic accounted for by Getaway, Judge Ward carefully reviewed the entire 20 year relationship between the parties and selected 1978 through 1982 as benchmark years representative of normal business relations and industry conditions. He then applied this ratio to TWA's actual number of transatlantic passengers. The resulting estimate of Getaway passengers thus accounts for external factors specific to TWA because it utilizes TWA's actual passenger statistics. Furthermore, Judge Ward recognized that the anomalies of the 1986 tour season had a lingering effect on European leisure travel. Given this, and the fact that the relationship between Travellers and TWA did not dramatically deteriorate until after the 1987 planning meeting had been completed, Judge Ward decided not to award any damages for the 1987 tour season.