## Facts

- Beverly Hills Concepts, Inc. (BHC) was a start-up selling regional distributorships and licenses to operate women’s fitness clubs using its branding and operating system.
- BHC retained the law firm Schatz & Schatz, Ribicoff & Kotkin and certain attorneys for legal advice initially related to trademark matters and later related to business structuring and marketing.
- BHC’s program qualified as a “business opportunity” under Connecticut law, requiring registration with the state banking commissioner before sales.
- BHC alleged the attorneys failed to advise about, and failed to ensure compliance with, the registration requirement.
- The banking commissioner issued a cease and desist order and a notice of intent to fine BHC for sales made without registration.
- BHC sued for legal malpractice and related tort and contract claims, asserting the regulatory action caused the company’s failure.

## Issues

1. Whether a nascent or unestablished business may recover damages for legal malpractice, and whether lost profits may be used as the measure of damages.
2. What level of proof is required to recover lost profits for the claimed destruction of a start-up business.
3. Whether the evidence supported a $15,931,289 award based on twelve years of projected lost profits.
4. Whether a junior associate could be held liable for negligent misrepresentation and breach of fiduciary duty based on her involvement in the representation.

## Decision

- The Supreme Court of Connecticut held that unestablished enterprises may recover damages for legal malpractice and that lost profits may be an appropriate measure for a reasonable period when proven with reasonable certainty.
- The court vacated the $15.9 million lost-profits award, concluding BHC failed to prove the amount of lost profits to a reasonable certainty and that the twelve-year projections rested on assumptions not supported by the record.
- The court held the junior associate was improperly found liable for negligent misrepresentation and breach of fiduciary duty where she made no false statements and her conduct did not establish a fiduciary breach beyond ordinary professional negligence.
- The court upheld the trial court’s decision to admit the plaintiff’s accountant expert testimony as to qualifications, while rejecting the reliability of the long-range projections as a basis for the damages award.
- Because BHC did not seek nominal damages, the court did not order a new trial on damages, effectively leaving no substantial monetary recovery.

## Legal Principles

- A new or unestablished business is not categorically barred from recovering damages for malpractice; courts may use flexible methods to value loss.
- Lost profits may be awarded for destruction of a business if (1) causation is shown with reasonable probability and (2) the amount is proven with reasonable certainty.
- Long-term lost-profit forecasts for start-ups are subject to close scrutiny; unsupported assumptions about growth, profitability, and market penetration render damages speculative.
- Expert witnesses may be deemed qualified without industry-specific credentials; disputes about specialized experience often affect weight rather than admissibility.
- A lawyer’s mere presence during another attorney’s misstatement does not establish negligent misrepresentation; fiduciary-duty liability requires more than ordinary negligence and depends on the attorney’s role and the client’s special reliance.

## Conclusion

The court recognized that start-ups may recover lost-profit damages in malpractice cases, but it set aside a large award where the plaintiff’s twelve-year profit projections lacked reasonable certainty and where liability findings against a junior associate were not supported by proof of misrepresentation or fiduciary breach.


Beverly Hills Concepts, Inc. v. Schatz & Schatz, Ribicoff & Kotkin, 247 Conn. 48 (1998)