Opinion ID: 1649623
Heading Depth: 2
Heading Rank: 4

Heading: Joint Claims

Text: ¶ 38. Finally, PMI and Mrozek argue that Mallery's negligence resulted in lost profits for PMI and rendered Mrozek's contract to manage the AmericInn worthless because her compensation was based on the profitability of PMI. The court of appeals summarized the plaintiffs' burden in proving damages for lost profits: Damages for lost profits need not be proven with absolute certainty, but the claimant must produce sufficient evidence ... on which to base a reasonable inference as to a damage amount. To establish lost profits, the claimant must produce evidence of the business's revenue as well as its expenses. Assertions as to the amount of lost profits have no evidentiary value unless supported by figures showing profits and losses. Lindevig v. Dairy Equip. Co., 150 Wis. 2d 731, 740, 442 N.W.2d 504 (Ct. App. 1989) (citations omitted). In situations like this, where a new business has no previous profit history, the court of appeals has provided further guidance on how lost profits may be recovered, stating that the party seeking lost profits must present credible comparable evidence or business history and business experience sufficient to allow a fact finder to reasonably ascertain future lost profits. T & HW Enters. v. Kenosha Assocs., 206 Wis. 2d 591, 605 n.6, 557 N.W.2d 480 (Ct. App. 1996). ¶ 39. PMI and Mrozek argue that at trial they would have produced numerous sources of information showing a basis for ascertaining lost profits, including the AmericInn franchise license agreement offering assistance in operating the motel and representing that the franchise would be profitable; the forecasted statement of operations and pre-tax cash flow prepared by CPAs and included in the stock offering documents prepared by Mallery; a 1992 appraisal of the PMI property; deposition testimony establishing that the area surrounding the motel has been developed, having a positive effect on the motel's profitability; and five years of tax returns from the entity that ultimately purchased the property and operated the motel. ¶ 40. Notwithstanding the above recitation, the information presented is not sufficient for a fact finder to reasonably ascertain lost profits. The franchise license agreement does not provide any specific profit projections for the motel and in fact disclaims such projections: The LICENSOR expressly disclaims the making of ... any estimates, projections, warranties or guaranties, express or implied, regarding the potential Gross Revenues, profits, earnings or financial success of the LICENSEE'S AmericInn® Motel, except as may be set forth in the LICENSOR'S Uniform Franchise Offering Circular, a copy of which has been received by the LICENSEE. [10] The forecast statement prepared by CPAs likewise included a disclaimer, stating: [The forecast statement] is limited to presenting in the form of a forecast information that is the representation of management and does not include evaluation of the support for the assumptions underlying the forecast. We have not examined the forecast and, accordingly, do not express an opinion or any other form of assurance on the accompanying statements or assumptions. Furthermore, there will usually be differences between the forecasted and actual results, because events and circumstances frequently do not occur as expected, and those differences may be material. The 1992 appraisal contains a valuation based on the income capitalization approach, but states that [t]he income, expenses and conversion rates estimated in this analysis are unknown variables which will occur in the future. . . . [B]ecause the real estate market is constantly changing, no warranty or representation is made that these projections will occur as estimated in this report. Therefore, any income or expense projections in these documents are purely speculative. ¶ 41. Although Mrozek claims she would produce deposition testimony establishing that the area surrounding the motel had been developed, there is no evidence of this in the record, and a court considering a motion for summary judgment cannot rely on mere allegations in the pleadings, but must examine the facts of record. See Moulas v. PBC Prods., Inc., 213 Wis. 2d 406, 410-11, 570 N.W.2d 739 (Ct. App. 1997), aff'd, 217 Wis. 2d 449, 576 N.W.2d 929 (1998). Furthermore, even if this information about the surrounding area had been supplied, it would not allow us to reasonably ascertain the profitability of a particular establishment within that area. ¶ 42. The last documents Mrozek points us to, the tax returns of the entity that eventually operated the motel, contain the type of information that may be useful in making a determination of lost profits. The returns show that the new owner began to show positive ordinary income in 1997, year three of operation, and averaged roughly $31,000 in ordinary income through the six-year period. Looking at this data, the circuit court stated: I think that ... the income history of the corporation that's actually functioning there is relevant information and would be admissible as to profit projections for the proposed PMI, Plover Motel, Incorporated. What I don't believe is here, however, is the opposite side of the ledger and that is evidence that would detail the proposed expenses of this operation. Certainly the purchase price for the operating business that's at that location now and the purchase price for the Plover Motel, Incorporated were different and the capitalization of those two operations, how much debt they incurred, what the interest rates were on the debt that was incurred are, I would assume, different.... And the projection of profit can't be accomplished without a correlation between the expense portion of the ledger and the projections on income.... So lacking that, I don't believe there is evidence in the record that's sufficient to support the judgment in terms of projected profit of the corporation and, therefore, management expenses to be paid to [Mrozek].... We agree with the circuit court's analysis. Given that we must look to figures showing profits and losses in order to ascertain damages, PMI's failure to provide evidence of expenses relating to a business owner in its position results in PMI's failing to meet its burden. See Lindevig, 150 Wis. 2d at 740. The evidence we are left with on the summary judgment record makes a determination of PMI's lost profits speculative. It also follows that if PMI has demonstrated no profits, Mrozek's contract that required profitability before she received payments under it has no value. Accordingly, we conclude the circuit court correctly granted summary judgment on PMI's and Mrozek's claims relating to lost profits.