On April 26, 2022, the New Jersey Supreme Court heard arguments on whether New Jersey should keep the “new business rule” created by the court. Since 1936, the rule has stated that in the context of calculating damages, “the potential profits of a new venture are considered too remote and speculative to meet the legal standard of reasonable certainty”. RSB Laboratory. Servs., Inc. c. BSI, Corp. This case is of interest to aggrieved commercial litigants as well as interested observers of the appellate process.
The case before the Court, Larry Schwartz v. Nicholas Menas, Esq. involved allegations of professional misconduct against defendants Menas and his law firm. Plaintiff Schwartz, who had no experience in construction or real estate development, purchased properties in Monroe Township and Egg Harbor Township, NJ with the intention of developing them. He alleged that his lawyer Menas improperly arranged the rezoning of Monroe Township land for affordable housing, which ultimately resulted in the sale of his property. He also alleged that Menas improperly allowed another person to take over the Egg Harbor Township project. His complaint alleged conspiracy, fraud, conversion and tortious interference. Schwartz sought damages, including lost profits. In support of its claims for damages, the plaintiff submitted expert reports that assessed the benefits that would have been realized had its development objectives not been thwarted by the defendants’ alleged negligence and breach of duty. fiduciary.
Defendants filed motions to bar expert testimony under the new business rule, which was created in the 1936 case Weiss v. Revenue Bldg. & Loan Ass’n, In Weiss, the Court of Errors and Appeals held that:
There is a well-established distinction, when it comes to determining likely future profits, between a new business or venture and a going concern. In the first case, the potential benefits are too remote, contingent and speculative to meet the legal standard of reasonable certainty; while in the second, the provable data provided by actual experience provide the basis for estimating the quantum of these benefits with a satisfactory degree of precision.
In an unpublished opinion, the Schwartz District Court excluded the plaintiff’s expert report and dismissed his case based on the new business rule.
However, the New Jersey Appellate Division has repeatedly acknowledged that the stake in Weiss is no longer the controlling position in the United States. See, eg. RSB, Bell Atl. Network services. v PM Video Corp., VAL Floors, Inc. v Westminster Cmtys., Inc.
In the following appeal, a three-judge panel of the Appellate Division cited the above cases in which the Appellate Division had previously suggested that the new trade rule was obsolete, as well as the Restatement (Second) of Contracts, § 352, which notes the majority rule that even if a business is new or speculative, “damages can be established with reasonable certainty using expert testimony, economic and financial data, market studies and analyses, commercial registers of similar companies, etc.”
Despite this analysis, the Appellate Division nevertheless applied the rule because “until the Supreme Court decides otherwise, the new business rule remains the law in this state.” Thereby “[b]Because Schwartz was unquestionably a new business within the meaning of the prevailing case law, its claim for lost profits was not permitted by the new business rule. In other words, the appellate court made it clear that it disagreed with the new trading rule, but was bound to apply it nonetheless.
Plaintiff accepted this implied invitation to appeal to the Supreme Court, and the Supreme Court granted certiorari in April 2021. Whether or not the New Jersey Supreme Court chooses to withdraw the new trade rule, the history of this case provides a model of how courts can both stay true to the law as it exists and be willing to consider whether changes are needed.
©2022 Epstein Becker & Green, PC All rights reserved.National Law Review, Volume XII, Number 123