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Editor’s Note: An email newsletter from Protect the Peninsula this week included a piece by OMP resident Jim Raphael. PTP prefaced Jim’s note with this: “Dear OMP Neighbors, The article that follows is longer than our usual newsletter. It’s also unusual in that it wasn’t written by PTP. But, we were so impressed with its deep analysis of the flaws in the reasoning behind the $50M judgment assessed on Peninsula Township by the district court that we feel we should share it. It underscores PTP’s confidence that the award won’t survive the appeal filed in the 6th Circuit in Cincinnati. The author, Jim Raphael, has lived on Old Mission Peninsula since 2008. He has served as executive director of several different organizations that planned and sponsored a wide range of public and private events. In addition, he is the former Director of Research, Asia/Pacific Research Center, Stanford University.” Read on for Jim’s note. -jb
The WOMP “Lost Profits” Award: An Optimistic Look at the Road Ahead for Our Community
Like most residents of Old Mission Peninsula, I was shocked to learn earlier this year about the nearly $50 million in damages awarded to WOMP (Wineries of Old Mission Peninsula) in its lawsuit against our township. For a community of just over 6,000 residents, this figure is daunting, and it’s understandable that many of us are concerned about what this could mean for our taxes and our future.
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However, after carefully reviewing the court’s methodology for calculating this exorbitant award, I have concluded that the judgment is unlikely to survive the appeals process. I’d like to share the reasons why I feel optimistic that a more just outcome will prevail.
Peninsula Township has filed a notice of appeal with the 6th Circuit Court of Appeals, a necessary step to protect our community from the excessive award to WOMP for supposed “lost profits” due to unconstitutional ordinance restrictions. There is substantial court precedent in cases like this for how damages for lost profits are calculated. The plaintiff bears a heavy burden of proof to provide sufficient evidence and documentation showing their lost profits claim is not speculative. There must be a reasonable, reliably factual basis for calculating and awarding lost profit damages.
None of these conditions were met in the WOMP case. The plaintiff’s “expert” witness, a CPA with no prior business experience in wineries, viticulture, or event planning, failed to produce any documentation to support his calculations. His arguments were based on “what if” scenarios –hypothetical events that were never planned, staffed, or executed. The CPA created matrices that allowed the wineries to self-report their own estimates of phantasmic lost business opportunities without even minimal verification or validation. Prior to issuing his damages estimates report, the CPA never visited them to see if each winery had the necessary facilities to host all the claimed activities.
No effort was made to compare what the WOMP wineries might have earned hosting various events with what similar businesses in the Grand Traverse area in fact earn. The CPA took no notes of his discussions with wineries. He didn’t ask to see past profit and loss statements of the wineries to confirm their own overhead costs or profit margins.
Despite the absence of factual support to validate their claims, the judge accepted WOMP’s unsubstantiated lost profit projections. Related to the speculative nature of the wineries’ lost profits claims, there are three main reasons why I believe the judgment is likely to be overturned or significantly reduced on appeal.
1. The Flawed Use of Gross vs. Net Profits
The first issue is the CPA’s use of gross profit margins, not net profits, to calculate lost profits. Even Judge Paul Maloney’s own Bench Opinion acknowledges that the accepted practice in Michigan courts is to use net profit calculations in such cases. Despite acknowledging this legal precedent, he accepted [or adopted] the CPA’s gross profit methodology without explanation.
The CPA claimed that lost profits for events at all the wineries should be calculated using a gross profit margin of 65 percent. Given the different facilities, staffing, and operating expenses of each winery, it doesn’t make sense to apply a single, uniform profit margin across the board. The CPA never saw the wineries’ financial records, so he had no way of knowing their actual margins.
So, where did the 65 percent figure come from? The CPA simply pulled it from a book published by a financial consulting firm, RMA. The figure is a general average gleaned from over 597 different industries and has nothing to do specifically with the event business or the finances of wineries generally or of these wineries. The book’s introduction even states that these figures should not be used as absolute norms and are only meant to supplement other analysis methods. The CPA used no other method. Applying the 65 percent gross profit margin was arbitrary and without justification.
As former director of organizations in the event business, I know from experience that it’s meaningless to generalize about gross profit margins when running activities of various sizes and as diverse as culinary events, talks, musical performances, celebratory occasions, and wedding events. Different types of events have different revenue and cost components, and thus different profit margins.
If the court had adopted the net profit formula, as the township rightly argued it should have, the damages would likely have been in the 5 percent range of hypothetical revenues (an estimate provided by the CPA himself), which would have put the judgment somewhere between $4 and $5 million — a far cry from the $50 million awarded.
2. Unrealistic Business Projections
The second reason I expect a different outcome in the appeal process is the wineries’ grossly inflated estimates of lost business opportunities. All but one of the eleven wineries claimed they could have hosted three “large events and weddings” a week during the six-month peak season, in addition to running a full schedule of small events and managing tasting room traffic, plus holding many other large and small events in the off season. The wineries claimed these large events would each command per person participation rates of $125 to $250. They never explained what events they thought could justify such prices and where they would find the customer base willing to pay them.
Lost in the wineries’ fantasy number-crunching is the fact that all these activities were to take place on properties zoned for agricultural use (A-1). The lost profit claims seem to be less about hosting activities ancillary to agricultural production than pushing their objective of turning OMP wineries into multi-purpose event centers.
Based on projections they provided to the court, the wineries asserted that without township zoning they could have annually hosted collectively over 1,000 large events and weddings, drawing 100,000 or more people. Putting these unrealistic numbers in perspective, the annual average number of marriages in Grand Traverse County over the last five years has been 620. To meet their estimates, the OMP wineries would need to capture almost all those weddings and stage hundreds of other events, at the same time competing with every other hospitality venue in the Grand Traverse area.
The judge also allowed a troubling contradiction to muddy the Bench Opinion. He awarded damages for “lost profits” because the Township’s 2004 winery ordinance was deemed “unconstitutionally vague” about the meaning of “guest activities.” However, in court filings and the final Bench Opinion, there is no definition of what is meant by “events” at the wineries to support “lost profits.” The judge set two different standards, punishing the Township for lack of precise language while awarding damages based on an undefined term.
3. Ignoring the Impact of COVID-19
Finally, in arriving at total damages of nearly $50 million, the court took the wineries’ projected annual lost profits and multiplied them by 5.14 (covering the years 2017-2022). This time frame includes the entire COVID period.
In his calculations, WOMP’s CPA claimed COVID only cost the wineries 11 percent of hypothetical pre-COVID profits. This gross underestimation is nothing short of fiction. It fails to account for the statewide restrictions that forbade indoor and group activities for extended periods (March 2020 – June 2021); the public’s understandable wariness about gathering in large groups even after restrictions were lifted; and the severe labor shortages that plagued the hospitality industry.
The fact is, holding large in-person events at WOMP wineries was not lawful for a time nor financially viable for much of this period. A survey of Michigan restaurants in early 2022, for example, found that 60 percent of establishments saw their profits decrease by at least half since 2020. The CPA’s 11 percent estimate for lost profits reductions due to COVID is meaningless. But the court accepted it.
In sum, while the appeal process will take time, it is the pathway to a more just and rational outcome for our community. The appellate court will have the opportunity to scrutinize the many flaws in the judgment. I am optimistic, based on research I and others have done, that our community will not be saddled with the excessive judgment it presently faces. The damages awarded the wineries are likely to be reduced significantly or eliminated entirely.
– Jim Raphael, OMP Resident
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Very sound , very understandable Jim
Thank you for your time in research and composing.
I too am optimistic as well as I understand from attirneys and public officers in Michigan I have spoken with who are familiar with this matter
Best regards
Joe Gorka
Exactly! Well written!
I think these statements from the court filings speak for themselves:
“All but one of the eleven wineries claimed they could have hosted three ‘large events and weddings’ a week during the six-month peak season, in addition to running a full schedule of small events and managing tasting room traffic, plus holding many other large and small events in the off season.”
and
“Based on projections they provided to the court, the wineries asserted that without township zoning they could have annually hosted collectively over 1,000 large events and weddings, drawing 100,000 or more people.”
For those of us who live here, that says everything.
We have been repeatedly told that large events wouldn’t create significant traffic or change the character of Old Mission — that this was simply about fairness and agricultural viability. But the wineries’ own statements in court paint an entirely different picture.
A thousand+ large events. One hundred thousand additional people. On a rural peninsula with one narrow road in and out.
This isn’t about preserving agriculture, or protecting heritage, or “progress.”
It’s about maximizing revenue — even if it means overwhelming our roads, straining emergency access, and fundamentally altering the place we all share and love.
Residents haven’t opposed wineries. We’ve supported them — under the rules in place to protect this land and community. But it’s now painfully clear that some wineries saw those protections not as a partnership, but as an obstacle to be litigated away.
And when you look at the proposed settlement, it reads remarkably similar to what the wineries sought from the beginning. If the end result is essentially the same expanded event rights they originally pushed for — then what, exactly, has changed? How is this now being presented as compromise?
That’s why people are frustrated and losing trust.
We all want a thriving peninsula — but thriving doesn’t mean turning a fragile, historic, two-lane agricultural community into a high-capacity event corridor. Growth without limits isn’t stewardship. It’s exploitation, and the court filings make that impossible to ignore.
And frankly, many of us are tired of seeing small communities and ordinary residents pushed aside and pressured while larger financial interests get their way. Old Mission has always stood for balance and preservation — not for the little guy being bullied into accepting whatever benefits the most powerful players.
For these reasons, I strongly support the Township’s decision to appeal. This land — and the community that has protected it for generations — deserves to be defended.
And thank you, Jim, for another thoughtful, well-written piece that brings clarity to a complicated issue. Your commitment to keeping residents informed is invaluable.
Thank you for your thoughtfulness, Jim.
Much of your analysis aligns with thoughts I’ve shared here elsewhere on the Gazette. The $49M is a gross revenue, not a “profits” number based upon the trial record. Hopefully, that brings the number down. A word of caution is needed, however. Appellate law is a highly technical, specialized area. Many issues are not open on appeal and others carry over to the appellate court with imperfect facts & findings depending upon the trial record that carries over & whether issues have been properly preserved for appeal based upon the trial court record. We know that the Township was not well represented at trial by township counsel. “(T)he judge accepted WOMP’s unsubstantiated lost profits “projections” is accurate, for example. I agree this was nothing more than a gross “revenues” assessment, but in many cases, as here, the judge has little choice given the fact the Township failed to present its own damage expert’s opinion. That failure will lead to a separate malpractice action & outcome that will have its own timetable over the next years.
It gets very technical, which is why reliance upon appeals is a dangerous avenue, although our only shot here other than settlement.
Jim,
Your analysis is very good and similar to my thinking after I observed the hearing where the arguments were made. However, I have one point of difference with you and that is on the net profits. I believe the percentage should be higher than 5%. My reasoning is that with large events there will be more sales of glasses of wines as opposed to bottles. There is a much higher mark up on the glasses than the equivalent bottles. Because events where wine would be sold by the glass instead of the bottle one can assume the lost sales and profits would have created a much higher net profit than 5%. Also restaurants that serve liquor traditionally make a higher return on their liquor sales than their food sales. What this works out to in this case, I don’t know. I just know it would be higher than 5% but lower than $50 million.
Thank you for your thoughtfulness, Jim.
Much of your analysis aligns with thoughts I’ve shared here elsewhere on the Gazette. The $49M is a gross revenue, not a “profits” number based upon the trial record. Hopefully, that brings the number down. A word of caution is needed, however. Appellate law is a highly technical, specialized area. Many issues are not open on appeal and others carry over to the appellate court with imperfect facts & findings depending upon the trial record that carries over & whether issues have been properly preserved for appeal based upon the trial court record. We know that the Township was not well represented at trial by township counsel. “(T)he judge accepted WOMP’s unsubstantiated lost profits “projections” is accurate, for example. I agree this was nothing more than a gross “revenues” assessment, but in many cases, as here, the judge has little choice given the fact the Township failed to present its own damage expert’s opinion. That failure will lead to a separate malpractice action & outcome that will have its own timetable over the next years.
It gets very technical, which is why reliance upon appeals is a dangerous avenue, although our only shot here other than settlement.
Rationality as sound as it seems is like rolling the dice in court outcome. Appeals are costly. The wineries are our neighbors and have offered negotiations. I have been out of town in October. Are negotiations planned or taking place at any level now?