The Critical Recipe: Mitigating Damages in Litigation

When it comes to determining the damages to be awarded in litigation, the mitigation of damages is a critical factor for the plaintiff to consider. Failure to address mitigation in a damages analysis is akin to omitting a key ingredient in a recipe — resulting in a disconcerting outcome that could potentially render the entire matter unsatisfactory.

Mitigation of Damages Doctrine

Under the mitigation of damages doctrine, the nonbreaching party is expected to make reasonable efforts to mitigate damages or face the risk of a reduction in recovery for the breach. For instance, consider a scenario in which Party A contracts with Party B for the construction of a building, only to later cancel the contract, causing a breach. In this case, Party B is obligated to make efforts to mitigate its damages resulting from the breach.

Potential actions for mitigation could include selling previously purchased materials, reallocating Cesar J. Mejia is a CPA and a Certified Fraud Examiner who may be able to assist in matters involving questions about mitigating damages.them to another project, reassigning workers to alternative jobs, or implementing cost-reducing measures related to the breached contract. These proactive steps serve to diminish the damages recoverable by Party B from Party A. In instances where Party B fails to take appropriate mitigation measures, the court or jury may opt to reduce the damages recovery by an estimated amount corresponding to the lack of mitigation efforts.

Sources of Mitigation Data

Typically, a damages expert provides an analysis of mitigating efforts as part of their damages report. In some cases, the plaintiff’s attorney may oversee the calculation of mitigation efforts. It is crucial for the plaintiff’s expert to collaborate with the attorney to determine who will be responsible for analyzing mitigation efforts. If the expert, such as a CPA, is tasked with this analysis, they should initially independently assess what measures the client should have taken to mitigate their damages. Subsequently, the expert should review with the client the actual actions taken to mitigate damages, verifying the results and addressing any disparities between the recommended course of action and the actions taken.

Failing to address mitigation, or providing inadequate support for mitigation efforts, may be perceived as bias on the part of the expert in favor of the client. Furthermore, it places the determination of the mitigation amount in the hands of the judge or jury, or opens the door for the defendant’s expert to make this determination on behalf of the plaintiff.

Defendant’s Expert

The expert engaged by the defendant typically uses the plaintiff’s expert report as a starting point for assessing the validity of the mitigation amount. At a minimum, the defendant’s expert should verify the reasonableness of the amount determined by the plaintiff’s expert. If deemed unreasonable, or if the plaintiff’s expert has not adequately supported the mitigation amount, the defendant’s expert should provide their own analysis of mitigation and rebut the amount specified by the plaintiff’s expert.

An effective rebuttal by the defendant’s expert can not only challenge the plaintiff’s expert’s mitigation analysis but also cast doubt on their entire damages report. Consequently, a deficient mitigation analysis might raise concerns about bias in the plaintiff’s expert’s primary damages report, calling into question the accuracy of their assumptions and calculations.

Close Monitoring of Mitigation

Mitigation analysis and conclusion often receive inadequate attention in damages support and evidence. However, it is a crucial aspect of the process that both parties’ experts and attorneys should prioritize from the outset of the engagement process.

The importance of closely monitoring mitigation issues in a damages analysis cannot be understated. Just as every ingredient is essential in a recipe, a properly determined mitigation analysis is indispensable to the damages conclusion — ensuring a thorough and reliable recovery assessment for the plaintiff.