In cases of fraud, how much is truly fair when it comes to victim compensation? Perpetrators of fraud are typically required to repay their victims – and in some states restitution is the law – but the exact amount a victim has “lost” and should be awarded is often up to the court’s judgment.
Harder than it seems
At first glance, calculating restitution may seem like an easy process: Someone steals $10,000, so he or she should repay that amount, perhaps with interest. But what about the profits the victim lost because of the fraud? Experts typically use either the “benefit of the bargain” or “out of pocket” rule to determine damages.
Take this simplified example: A hypothetical feed company decides to buy and race a thoroughbred horse for promotional purposes. A horse dealer locates a suitable animal valued at $1 million, but offered at $900,000 because the current owner is retiring. In truth, however, the owner is selling the horse because it hasn’t lived up to expectations and is actually worth about $750,000 — information the dealer has known for several weeks. Putting aside the buyer’s failure to perform proper due diligence, how much should it be able to expect in restitution?
Under the out-of-pocket rule, the company would be awarded $150,000 in damages, or the difference between the horse’s real value and the amount paid for it. Using the benefit-of-the-bargain rule, however, damages could be calculated at $250,000 — the difference between the dealer’s misrepresented value and the animal’s true worth.
Understandably, fraud victims generally prefer the benefit-of-the-bargain rule. It allows them to recover not only their actual losses and fraud-related expenses, but also the lost profits on their investments.
Despite the simplistic example above, the calculation of fraud damages in real life scenarios, including lost profits, is generally much more complicated. The method and calculations used to arrive at an amount depend on the specific circumstances of the fraudulent event. The litigation experts at JLK Rosenberger work closely with attorneys to arrive at a fair and defendable amount in order to recover as much of the loss as possible. For more information about winning appropriate restitution or other litigation assistance, please call us at (949) 860-9902 or click here to contact us. We look forward to hearing from you soon.