Parlour Enterprises, Inc. v. Kirin Group, Inc

In Parlour Enterprises, Inc. v. Kirin Group, Inc. (2007) 152 Cal.App.4th 281, a jury had awarded approximately $ 6.6 million to the plaintiffs for lost profits, lost franchise fees, and other expenses incurred when the defendants terminated a franchise agreement to develop subfranchises for ice cream parlors that also sold food in a restaurant called Farrell's. (Parlour, supra, 152 Cal.App.4th at pp. 283-284, 287.) To calculate damages, plaintiffs' expert had relied upon projections the plaintiffs had prepared to give to investors, and "not based on actual operations, but rather consisted of the plaintiffs' assumptions for the next five years. Each contained disclaimers that the income and expense estimates might not reflect actual results. The record did not reveal the method used to calculate the projections." (Id. at p. 289.) Two of plaintiffs' representatives did not testify as to "any particular qualifications that would allow them to predict income, expenses, or profits for the restaurants, as opposed to any other restaurant. Nor did anyone testify as to the facts underlying the projections or the calculations used to prepare them. There was no testimony they based their predictions on the operation of the single Farrell's that the plaintiffs were able to open . . . or any other actual numbers that would be reliable indicators of future income, expenses, or profits of a Farrell's in another city." (Id. at pp. 289-290.) Parlour held that the projections were not sufficiently reliable to support a claim for lost revenues as they had been prepared by the plaintiff and there was no evidence as to how the projections were calculated. (Id. at p. 290.) In Parlour, supra, 152 Cal.App.4th 281, the expert compared the new business with a publicly traded restaurant chain called Friendly's. Because the expert's description of Friendly's business model was cursory and "failed to establish its profit-and-loss experience," the appellate court held it was not "sufficiently similar to Farrell's to be relevant to the question of the plaintiffs' alleged lost profits. " (Id. at p. 290.) Also, the dozen or so ice cream parlors the expert had discussed as a basis for his analysis were not shown to be sufficiently similar in concept to Farrell's to provide valuable data. (Ibid.) Lastly, the appellate court held that other items relied upon by the expert did not support the expert's lost profits analysis because the expert had not used actual data, or there was no evidence as to how the evidence affected his calculations. (Id. at p. 291.)