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Chavez Properties-Airport Parking Albuquerque, L.P. v. Lorentzen, 2006 U.S. App. LEXIS 27735 (November 2006)

Chavez Properties-Airport Parking Albuquerque, L.P. v. Lorentzen highlights the importance of expert valuation testimony in calculating lost profit damages. The dispute involved several income producing parking lots located throughout Metro-Albuquerque. The partnership was created to consolidate operating expenses and streamline the management of the lots. However, shortly after formation, one partner complained that he was harboring more expenses than his counterpart. After several contentious months, the disgruntled partner removed the cash collection machines from the lots, resulting in litigation.

In the case, the tax court found the disgruntled partner liable for the lost profits. However, the plaintiffs failed to hire a qualified third-party valuation expert. Instead, the owners attempted to demonstrate lost profits through their own "expert" testimony, citing the principle "that owners are qualified to testify as experts regarding lost profits for their enterprises". To prove lost profit damages, the plaintiffs' relied solely on testimony from the owners and managers of the enterprise. The tax court found several flaws in the testimony, most notably, the failure to present value lost expenses and a shortfall in demonstrating the relationship between the lost expenses and profits. Additionally, the owners used outdated financial statements and provided no market evidence to support the selection of a 9.5 percent capitalization rate utilized to calculate lost profits.

Despite the owner's best efforts, the tax court easily recognized the flaws in their analysis and ruled they had failed to prove lost profits with "reasonably certainty". Accordingly, the tax court awarded damages of $1.00 to the plaintiffs, a ruling which withstood an appeal by the plaintiffs.

Category(s): Tax Court Cases
Posted by Chad Wilbur at 08:04 PM | Permalink | Comments (0) | TrackBacks (0)