If a fire burns down a business and the business loses profits, should you argue whether the fire caused the lost profits or who started the fire, and can you clearly define the difference to a jury?
It is clear in this scenario that the fire burning the building down is the cause of the business losing profits. Determining who is responsible for the fire is where attorneys will argue over liability. Being able to distinguish between causation and liability can be very important when dealing with economic damages. In today’s litigation world, it seems that everyone is focused on liability, liability, liability. And while liability is central to a dispute, it is not the only piece that must be considered. Even if a party believes they were harmed, there needs to be a reasonably certain, quantifiable financial loss or harm associated with the allegations related to the cause of the damages. Because really, what does liability matter if there aren’t any financial implications?
The financial implications in a case often stem from damage and damages. It is important to remember that these terms are not synonymous and are not interchangeable. In the legal world, damage is defined as a loss or harm resulting from injury to a person, property or reputation. Damages, on the other hand, refers to compensation — such as a mandatory judgment — provided to a person who has suffered a loss or harm due to the unlawful act or omission of another.
So, once the damage occurs, the claim for liability and damages soon follows — often in the form of litigation. This is the distinction between causation and liability. The consideration of filing a lawsuit means lawyers are brought in, and the consideration of damages often means retaining a financial expert.
The financial aspects of the case — the quantification of past damages and potential future damages, as well as compensation for harm and suffering — should be supported by sound financial calculations. There are many types of financial professionals who can perform a damages calculation, including a forensic accountant. The economic damages expert is frequently brought into a case well after complaints and motions have been filed but often find that the basic principles have been neglected, such as damage and damages being different and that damages must be a result of the actions and allegations in the complaint.
Once a formal complaint has been filed, any damages sought must be as a direct result of the allegations. It is not unusual to see large numbers claimed in a case where part of the calculation is not directly related to the actual allegations in the complaint. This is where case strategy must balance and include both the liability and damages issues. Calculating damages can be deemed irrelevant, depending on the outcome of the liability part of the case. However, to disregard analyzing damages simultaneously with liability can jeopardize a case. This is true for both the plaintiff and defense.
On the plaintiff side, failing to link the alleged damages to the actions of the defendant makes it difficult to win the liability part of the case, though; it is not uncommon for experts to be asked to make assumptions about causation. Understanding if the link of causation to damages is something that a financial expert needs to support, or whether it is a point to be argued by the attorneys, is important.
On the defense side, focusing strictly on a decision of no liability and nothing else can also present problems. If the defense loses on the liability decision and has not prepared an alternative damages number to the plaintiff’s expert, then they could be stuck with the plaintiff’s expert’s big number.
Additionally, arguments can be bolstered or weakened by the ability to show that the damages presented by the plaintiff’s expert are not related to the complaint. If there are no financial damages related to the complaint, it brings into question the ability to recover any damages in the case at all.
When it comes to case strategy, having a strong argument prepared to support, defend or attack the damages calculation and link it directly to (or separate it from) the complaint can be imperative.
— Jeff George is a director in the Denver office of RGL Forensics.