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Lesson Learned: Restitution vs. When to Push for Lost Profits

By Gabriella Khorasanee, JD on February 26, 2014 | Last updated on March 21, 2019

Nycal Offshore Development Corporation just learned a lesson on pushing things too far. It was one of several oil companies that were involved in litigation against the United States, beginning in 2002, over breach of contract claims related to the Government's actions preventing the oil companies from drilling.

All the other companies, except Nycal, accepted restitution awards from the Government.

Court of Federal Claims

Nycal, instead, took it further and sued for lost profits, and presumably to its surprise, lost. The Court of Federal Claims found that though the Government could have foreseen that damages would result from its breach, Nycal nonetheless did not prove that the Government actually caused the damages, and that the damages could not be reasonably calculated.

Federal Circuit Analysis

Nycal's primary argument on appeal was that the court improperly placed the burden of proof on the plaintiff to prove that the Government's breach caused the lost profits. The court disagreed finding that the law in the area was settled and clear: the plaintiff must prove causation in a lost profits claim. That a cause may be labeled as "intervening" is irrelevant, causation is causation, and it's for the plaintiff to prove.

Next, the court found Nycal's arguments as to the trial court's erroneous findings of fact unpersuasive, and not supported by the evidence. As to Nycal's argument that the trial court improperly found that there was too much uncertainty to calculate damages, the Federal Circuit held that since the claim failed on causation grounds, it was unnecessary to decide the issue.

Knowing When to Stop

This basic contracts case decided by the Federal Circuit highlights practical issues attorneys must consider when advising clients whether or not to pursue further litigation.

  • Cost v. Benefit -- Before proceeding with litigation, always go over the cost/benefit analysis with the client. Will the costs of litigation, together with the risk of losing outweigh the possible benefit?
  • Something Is Better Than Nothing -- Sometimes it's better to accept a little less, when there's a possibility that your client will get nothing. Help your client pick its battles wisely.
  • Rose Colored Glasses -- If all of the case law you base your arguments on are easily distinguishable from the facts of your case, then don't be surprised when your claims fail.

It's easy to get caught up in the heat of litigation, but don't forget to continue to evaluate what is in your client's best interest.

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