What are fictitious profits, and how do they affect damages in accounting malpractice. Accounting malpractice is akin to legal malpractice, especially in that economic damages are paramount. Fictitious profits cannot serve as the source of actual damages. So, in Delollis v Margolin, Winer & Evens, LLP 2014 NYSlipOp 06935 October 15, 2014 Appellate Division, Second Department the question of damages remains open. “While damages may not be based solely on fictitious profits, the defendant failed to establish, as a matter of law, at this stage of the proceedings, that the plaintiffs’ claimed damages merely constituted fictitious profits or were speculative (see Hecht v Andover Assoc. Mgt. Corp., 114 AD3d 638 [2014]). Accordingly, the Supreme Court properly denied the defendant’s motion for partial summary judgment limiting the plaintiffs’ damages (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851 [1985]).”
From Hecht v Andover Assoc. Mgt. Corp. 114 AD3d 638 (2d Dept, 2014): “Contrary to the plaintiff’s contention, Citrin Cooperman raised the issue of the measure of Andover’s damages before the Supreme Court. Further, damages may properly be limited on a motion to dismiss (see Howard S. v Lillian S., 14 NY3d 431, 437 [2010]; Sand v Chapin, 238 AD2d 862, 863 [1997]; Swersky v Dreyer & Traub, 219 AD2d 321, 328 [1996]; Crossland Sav. v Foxwood & S. Co., 202 AD2d 544, 546 [1994]). When a party seeks damages for lost profits, the profits may not be imaginary (see Kenford Co. v County of Erie, 67 NY2d 257, 261 [1986]; O’Neill v Warburg, Pincus & Co., 39 AD3d 281, 283 [2007]). It is undisputed that the profits reported by Madoff were completely imaginary. [*3]The fictitious profits never existed and, thus, Andover did not suffer any loss with respect to the fictitious sum (see Jacobson Family Invs., Inc. v National Union Fire Ins. Co. of Pittsburgh, PA, 102 AD3d 223, 233-234 [2012]). However, the Supreme Court did not merely determine that the plaintiff may not recover the amount of the fictitious profits, but specifically limited damages to the amount of Andover’s un-recouped investment. The plaintiff pleaded facts based on which other damages related to the payment of fees may be recoverable and thus, it was error for the Supreme Court to limit damages to the amount of Andover’s un-recouped investment.”