January 31, 2017 Practice Points

Louisiana Federal Court Applies Lost Profits Law to New Oil Ventures

Matthew A. Moeller

In keeping with federal Fifth Circuit law and expert opinion admissibility generally, Judge Kurt Englehardt recently ruled in favor of defendants, dismissing plaintiffs' ability to recover hundreds of millions of dollars from a claimed failed business venture, as they were unable to come forward with sufficient summary judgment evidence proving claimed lost profits.  In Peaker Energy Group, LLC, et al. v. Cargill, Incorporated, et al., 2:14-cv-02106 (E.D. La. Dec. 30, 2016), the court granted defendants' motion for summary judgment on "lost profits" and "lost business value" stemming from a crude-by-rail terminal project that had not proceeded past its initial development stages.  There, the court held that plaintiffs could not recover "lost profits" from defendants (one being the owner of certain land at issue) because doing so could not be proven with reasonable certainty.  Defendants had also argued that plaintiffs could not show the requisite causation of defendants' actions causing plaintiffs' damages and, further, that the measure of damages should have been calculated differently.  In reaching only the first argument, the court restated that damages are not recoverable for a claim of lost expected profits that is overly speculative or uncertain. See, e.g., Tex. Instruments, Inc. v. Teletron Energy Mgmt., Inc., 877 S.W.2d 276 (Tex. 1994); George W. Garig Transfer v. Harris, 226 La. 117, 75 So. 2d 28, 33 (1954); see also Transverse, L.L.C. v. Iowa Wireless Servs., L.L.C., 617 F. App'x 272, 278 (5th Cir. 2015) (“Lost profit damages may not be based on evidence that is speculative, uncertain, contingent, or hypothetical.”). Rather, "[f]or both their tort and their contract claims, to recover damages for lost profits, Plaintiffs must prove with reasonable certainty that [they] would have actually earned [future] profits but for Defendants' conduct."

The plaintiffs were required to put forth sufficient evidence to establish to a reasonable certainty that they would have been successful even if the defendant had not leased the land at issue to the plaintiffs.  In reaching its decision, the court focused primarily on the fact that plaintiffs' company was a brand-new entity without a well-established track record, the plaintiffs' questionable ability to finance their project, and the undisputed uncertainty of the crude oil markets in Canada and the United States.  While one of their experts opined that they would need "between $109 million and $123 million to initially fund the project [and] anticipated that it would need an additional $56.2 million for later capital expenditures," another opined that "the necessary capital expenditure for phase 1 to be between $111.5 million and $120.25 million with additional $65.11 million needed for phases 2 and 3."  Plaintiffs' crude-by-rail terminal would have been the first of its kind that plaintiffs envisioned, and there were many undetermined issues such as whether the defendants would lease the land at issue to the plaintiffs as well as whether plaintiffs could secure the requisite "take or pay" contracts to sustain its business model.  Based on the myriad conditions that had not yet occurred—those mentioned above, as well as the need for securing (1) additional surrounding land; (2) permits and licenses from federal, state, and local agencies; (3) sufficient oil production; and (4) agreements with necessary railroads for use of their tracks—"the value of Plaintiffs' venture [was] far beyond a level upon which an award of damages for lost profits or lost business value [could] rest." 

Matthew A. Moeller is an attorney at The Moeller Firm LLC in New Orleans, Louisiana.

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