279 A.3d 436
N.J.2022Background
- Larry Schwartz and NJ 322, LLC (Schwartz) sought to develop residential projects in Monroe Township and Egg Harbor Township; neither Schwartz nor NJ 322 had prior experience developing residential housing.
- In Monroe Township, plaintiffs alleged defendants (including lawyer Nicholas Menas and Pulte Homes) arranged rezoning that forced Surace to withdraw and compelled sale of the property; plaintiffs claimed lost profits from the thwarted development.
- In Egg Harbor, Schwartz alleged legal malpractice and breach of contract relating to two proposed developments; he claimed lost profits he would have earned from those projects.
- Plaintiffs’ damages expert (Dr. Robert Powell) offered lost-profits models for both projects but did not expressly account for Schwartz’s lack of residential-development experience.
- Trial courts deemed both ventures "new businesses," applied the old Weiss "new business rule" to bar the lost-profits testimony, granted summary judgment for defendants; the Appellate Division affirmed.
- The Supreme Court granted certification, reversed the Appellate Division, rejected a per se ban on lost-profits claims by new businesses, and remanded for fact-sensitive reconsideration under the reasonable-certainty standard.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether New Jersey should follow Weiss and impose a per se bar on lost-profits claims by new businesses | Weiss should be overruled; new businesses may recover lost profits if proven with reasonable certainty | Weiss remains controlling; new ventures are too speculative to permit lost-profits recovery | Court rejected a per se ban; declined to follow Weiss to the extent it forbids any new-business recovery; adopted a reasonable-certainty, fact-specific approach |
| Standard for admitting lost-profits evidence from a new business | Lost-profits models here were adequate; plaintiff had taken concrete steps toward development | Expert opinions are speculative given plaintiff’s inexperience; testimony should be barred | Trial courts must scrutinize new-business lost-profits claims more strictly and exclude evidence that is remote, uncertain, or speculative; remand for reevaluation |
| Whether trial court properly barred plaintiffs’ damages expert and entered summary judgment | Plaintiffs argued projects were expansions or otherwise supported by sufficient proof | Defendants argued expert ignored inexperience and relied on speculative assumptions | Supreme Court remanded; did not rule Powell’s opinions sufficient or insufficient — directed trial court to reassess under the correct standard |
| Burden and means to prove lost profits for a new business | Expert testimony, market data, comparable enterprises can establish reasonable certainty | Absent prior track record, proof will usually be inadequate | New businesses may recover lost profits if proof meets reasonable-certainty standard, but courts should require heightened scrutiny and robust evidence |
Key Cases Cited
- Weiss v. Revenue Building & Loan Ass'n, 116 N.J.L. 208 (E. & A. 1936) (origin of the "new business rule" barring lost-profits recovery for new ventures)
- Perini Corp. v. Greate Bay Hotel & Casino, Inc., 129 N.J. 479 (1992) (plurality recognizing trend to allow lost profits for new businesses when proven with reasonable certainty)
- RSB Laboratory Servs., Inc. v. BSI, Corp., 368 N.J. Super. 540 (App. Div. 2004) (Appellate Division addressing Weiss and noting national trend against a per se rule)
- Passaic Valley Sewerage Comm'rs v. St. Paul Fire & Marine Ins. Co., 206 N.J. 596 (2011) (reiterating that lost profits are recoverable only with reasonable certainty; remote or speculative profits are barred)
- Kenford Co. v. County of Erie, 493 N.E.2d 234 (N.Y. 1986) (New York decision treating the new-business rule as an evidentiary standard requiring higher proof rather than a categorical bar)
- Mindgames, Inc. v. West Publ'g Co., 218 F.3d 652 (7th Cir. 2000) (explaining that rejecting the new-business rule imposes a damages standard preventing awards based on wild conjecture)