In the legal malpractice case, Schwartz v. Menas, 2020 N.J. Super. Unpub. LEXIS 2104 (App. Div. Nov. 6, 2020), the Appellate Division was faced with an appeal over whether the trial court properly barred plaintiffs’ expert reports supporting claims for lost profits as too speculative under the “new business rule.” Plaintiff Larry Schwartz and his company (NJ 322, LLC) sued their attorneys over what they claimed was a real estate development project that never materialized due to the alleged malfeasance of their attorneys, claiming lost profits as a result.
One of the issues in the case as to damages was whether Plaintiffs could pursue a claim for lost profits based upon this new venture. Plaintiffs produced an expert report to support their lost profits claim, which the trial court barred on the basis of the “new business rule.” Summary judgment was also granted to the defendants and this appeal ensued.
The Appellate Division noted that lost profits are a measure of compensatory damages and they are recoverable “if they are capable of being established to a reasonable degree of certainty.” Under the Supreme Court new business rule, however, “prospective profits of a new business are considered too remote and speculative to meet the legal standard of reasonable certainty.” While other jurisdictions have abandoned this rule, the Court felt bound by prior Supreme Court precedent to continue to apply it as the law in this State.
Here, Schwartz had never previously undertaken responsibility for a major residential development project that he envisioned for the properties he purchased. He had no experience at all in this type of venture. The Court noted that he was definitely engaging in an entirely new business from his role in the few prior rehab projects he had performed. The Appellate Division found that “[b]ecause Schwartz was unquestionably a new business within the intendment of the governing case law, his claim for lost profits was not permitted by the new business rule.”
Based upon the application of this rule, the Appellate Division upheld the trial court’s orders barring Plaintiff’s expert reports and, thus, without being able to prove damages, the summary judgment dismissal as to his claims was upheld.
