ABSTRACT
By mid-February 2021, the outlook for the franchise sector had improved greatly, with IFA predicting that the number of franchised businesses would grow by the end of the year to offset 2020 losses and the number of franchise jobs would grow more than 10%, almost recovering fully from the 11.2% decline in 2020 employment, provided that COVID19 was managed.2 In July 2021, a fourth wave of COVID-19 swept through the United States fueled by the more transmissible Delta variant.3 The new surge in cases led businesses to delay their plans to require employees to return to the office starting in September 2021, creating concern that the economic recovery could be negatively impacted.4 At the time of this article's publication, the Omicron variant has just been discovered, with conflicting reports about its transmissibility and severity.5 When the influence of the pandemic recedes from the economy, the abatement may not benefit all sectors. [...]franchisors may become more aggressive about pursuing claims against franchisees for potential violations to try to enforce quality controls and preserve goodwill if the franchisees have fallen behind in compliance with brand standards due to the economic stresses of the pandemic, in which case the franchisors will seek to recover their lost future royalty streams to compensate for the loss of revenue until they can install a new franchisee to service the terminated franchisee's service area. [...]it is likely that the pandemic's long-term impact will cause an overall increase in franchisor-franchisee disputes and litigation. [...]for some claims, the onset of the pandemic might serve as a functional barrier on lost profit damages available to a plaintiff in a franchise dispute. "11 Thus, for a plaintiff to establish that it is entitled to an award of lost profits, it must prove not only that the underlying breach was both the "but-for" cause of its lost profits, but also that the conduct was a "substantial factor in bringing about the harm" and that the lost profits were caused by the breach and not some other factor.12 Moreover, if a plaintiff cannot prove that its lost profits were attributable specifically to the underlying breach where there are other potential causes of their loss, that lost profits claim should be rejected.13 B. Proving the Amount of Lost Profits Given that an award of lost profits necessarily requires an evaluation of potential events that ultimately did not come to pass, courts must weed out claims for damages that are too remote or speculative.14 Claims for lost profits are subjected to a heightened burden and must be proven with "reasonable certainty," or they will be deemed "too speculative" and will be rejected.15 Unfortunately, this "reasonable certainty" standard is not well defined, and courts have observed the difficulty in determining the precise quantum of proof needed to meet this standard.16 When making this evaluation, courts seek to balance the possibility of awarding a windfall to a wrongdoer by applying too high a bar to the recovery of lost profits, but also prevent that wrongdoer from becoming an unwitting guarantor of profits for plaintiffs.17 To carry its burden, a plaintiff must present evidence that is sufficiently persuasive not only to prove that it should be granted relief on its underlying claim, but also to prove that it meets this heightened "reasonable certainty" standard required for an award of lost profits and do so without the benefit of bright-line rules about what that standard requires or how it will be applied.