Don't Forget About Damages

The Virginia Business Conspiracy Statute, § 18.2-500, provides that the damages recoverable may include the business' lost profits. As the plaintiff in Saks Fifth Avenue, Inc. v. James, Ltd., 272 Va. 177, 630 S.E.2d 304 (2006) http://www.courts.state.va.us/opinions/opnscvwp/1051613.pdf learned the hard way, however, such a recovery is not simple.

James, Ltd., is a high-end retailer of men's clothing that operated a store at Tysons Corner, Virginia. Douglas Thompson had been the highest grossing salesman at that store. After 17 years, Thompson, an at-will employee, resigned and became employed by Saks Fifth Avenue also located at Tysons Corner. James sued, alleging that Thompson had taken his list of customers from James and used that information in a way that breached his fiduciary duty and interfered with James' relationships with those clients. James also alleged that Thompson and Saks had engaged in a conspiracy to injure James’ business.

After a bench trial, the court entered judgment against Saks and Thompson and awarded James $1,645,833 in damages, plus attorneys' fees and expenses.

On appeal to the Virginia Supreme Court, the defendants challenged the trial court’s award of damages arguing that James had failed to prove both causation and the amount of damages with reasonable certainty. The appellate court did not address the reasonable certainty issue because it reversed the judgment on the basis of lack of proof of causation.

The Supreme Court noted the long standing requirement in Virginia that a plaintiff prove two elements of a damages claim. First, there must be proof of a causal connection between the damages sought and the wrongful conduct. Second, the plaintiff must prove the amount of damages using both a factual foundation and accepted method for calculating damages.

As to the first element, proximate causation is required. The Court accepted the trial court’s findings that James had demonstrated that Thompson violated his fiduciary duty to James by taking and using confidential information to benefit Saks and that Saks was liable for essentially aiding and abetting Thompson’s conduct. The Court found, however, that James failed to connect its damages to that specific conduct. In particular, James’ expert witness failed to consider whether any of Thompson's clients actually shopped at Saks after Thompson became employed there, whether Thompson’s customers were regulars or "walk-in" types and any historic attrition levels. Instead, James’ expert merely assumed that all of Thompson’s customers would have remained loyal to James had Thompson not resigned. His calculation of lost profits was thus based on an assumption of what James' profits would have been had Thompson remained employed there. Under his analysis, James' damages would have been the same had Thompson merely retired.

Having found that James failed to demonstrate any causal connection between the defendants' conduct and its damages, the Supreme Court reversed and entered final judgment for the defendants. The case is significant as a reminder to litigants that proof of lost profits damages requires a factual basis that links the wrongful conduct at issue to the quantum of damages sought in the litigation.