In a recent business litigation case, the Texas Supreme Court affirmed that lost profits may only be recovered when the amount can be proven with reasonable certainty, even when the damages sought are for the “market value” of an investment, as determined by lost profits.
In Phillips v. Carlton Energy Group, LLC, Carlton sued entrepreneur Gene Phillips and other entities, alleging tortious interference with the company’s attempt to invest in an unproven methane exploration project in Bulgaria. Carlton sought the lost “market value” of its interest in the venture, and an expert witness testified that the fair market value of the investment ranged from $12.54 million to $11.305 billion, under three different models of damages. The jury found for Carlton and awarded actual damages of $66.5 million and exemplary damages of $8.5 million.
The First District Court of Appeals in Houston upheld the jury’s award on appeal. However, the Texas Supreme Court unanimously reversed the damages award, ruling that there was no evidence that the amount was based on objective facts from which the amount of lost profits could be determined. The court stated that while the requirement of “reasonable certainty” clearly applies when the damages sought are the lost profits themselves, it had not previously made clear that the standard also applies when lost profits are used instead to ascertain the market value of property. However, the court ruled that the reasonable certainty standard “clearly must” apply in such a case as well.