Black-letter law dictates that in breach-of-contract cases implicating lost profits, plaintiffs are entitled to recover their “expectancy damages”; plaintiffs can recover what they reasonably anticipate they would have earned had the breach not occurred. Another well-accepted axiom of contract law is that a plaintiff’s damages are to be determined at the time of the breach and later events, such as fluctuations in market value after the breach, do not affect the plaintiff’s measure of damages.
However, the recent market downturn has sparked litigation about whether that general rule should apply in situations in which the plaintiff is seeking to recover its lost future profits in a market that has been dramatically affected by the global financial crisis. In essence, because of decreasing property values between 2008 and today, defendants in real estate litigation are increasingly taking the position that a plaintiff’s damages should be far lower — or even nonexistent — because damages should be calculated at the time of trial instead of the time of the breach. Accordingly, defendants have increasingly begun to argue that courts should depart from the general rule of measuring damages as of the date of breach and instead consider post-breach changes in the market when determining plaintiffs’ lost-profit damages. And in some instances these arguments have begun to work.
