In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 01-3826 and 01-3827
DESIGNER DIRECT, INC.,
Plaintiff-Appellee,
Cross-Appellant,
v.
DEFOREST REDEVELOPMENT AUTHORITY,
Defendant-Appellant,
Cross-Appellee.
KERRY LEVIN,
Counter-Defendant,
Appellee.
____________
Appeals from the United States District Court
for the Western District of Wisconsin.
No. 01 C 40 S—John C. Shabaz, Judge.
____________
ARGUED SEPTEMBER 10, 2002—DECIDED DECEMBER 13, 2002
____________
Before FLAUM, Chief Judge, and BAUER and MANION,
Circuit Judges.
BAUER, Circuit Judge. This case arises out of a contrac-
tual relationship between Designer Direct, Inc. d/b/a/ Levin
Associates Architects (“Levin”) and the DeForest Redevel-
opment Authority (“DRA”). The contract between the par-
ties involved the redevelopment of the downtown area of
DeForest, Wisconsin. Levin brought a breach of contract
claim against the DRA after the DRA failed to provide
2 Nos. 01-3826 and 01-3827
certain services required by the contract. The DRA filed a
counterclaim alleging that Levin’s actions constituted a
breach of contract. After a bench trial, the district court
found the DRA breached the contract but limited damages
to only certain aspects of the breach. The district court
entered a judgement in favor of Levin for $85,270.02 and
dismissed the DRA’s counterclaim. Both parties filed
notices of appeal. Levin bases its appeal on the district
court’s denial of reliance damages. The DRA contends that
the district court erred when it granted judgement in favor
of Levin and denied its counterclaim. For the reasons set
forth below, we reverse and remand in part, and affirm in
part.
BACKGROUND
In 1995, the Village of DeForest (“Village”) devised a
plan to revitalize its downtown area. The Village sought
to create a downtown district that, as the center of com-
munity life, would generate increased property, sales, and
income taxes for the town. To accomplish this, the Village
created a separate entity, the DRA, which was respon-
sible for the redevelopment. The Village also established
a Tax Incremental Financing District, which would en-
courage investment in the downtown. The DRA chose
Levin to create a redevelopment plan to achieve the goals
of the DRA. The parties entered into a redevelopment
plan agreement and a Phase I sub-agreement in October
1996.
Phase I consisted primarily of the creation of a redevel-
opment plan. Phase I established Levin as the developer. As
developer, Levin was responsible for finishing the remain-
der of the redevelopment plan. The parties entered into
a second agreement in August 1998 reflecting the new
arrangement. This contract consisted of two more phases.
Phase II concerned the construction of the infrastruc-
Nos. 01-3826 and 01-3827 3
ture which would support Levin’s plan and Phase III
dealt with the sale of the land and the subsequent con-
struction.
A synopsis of the agreement is as follows: Levin was
required to purchase land obtained by the DRA and con-
struct buildings on it. These buildings would increase the
value of the property to at least $12,000,000.00. Assum-
ing everything went according to plan, this increase in
property value would result in increased tax revenues for
the Village.
The plan ran into snags. To begin with, the DRA had
a contractual obligation to provide a full-time liaison to
work with Levin but failed to do so. The DRA assigned
one Joan Laine to be the designated liaison, but she
worked only two days a week. To meet the problem, Levin
hired outside sources to provide liaison services at a cost
of $20,000.00. The DRA reimbursed Levin but Levin ob-
jected to the DRA’s failure to appoint a full-time liaison.
Levin presented amendments to the contract in an at-
tempt to negotiate a resolution of the liaison problem
but without success.
Another area of dispute between the parties involved
an area of land known as Carriage Way. The contract
required the DRA to acquire parcels of land identified in
the redevelopment plan. The agreement also required the
DRA to prepare the parcels for development and convey
them to Levin at the appropriate time. The redevelopment
area known as Carriage Way, experienced problems from
the start. Plans were behind schedule and the parcel sizes
were constantly being changed by the DRA. This confu-
sion hampered Levin’s ability to perform infrastructure
work on Carriage Way and resulted in costs to Levin of
approximately $490,000.00 in architectural design, draw-
ings, and engineering changes in the Phase III proper-
ty development. In addition, the modifications frustrated
4 Nos. 01-3826 and 01-3827
Levin’s ability to purchase the land when the DRA de-
manded payment on the original closing date. Levin ob-
jected to the closing date because there was, among other
things, a lack of infrastructure, a lack of zoning, and a lack
of building permits. The DRA refused to extend the clos-
ing date and notified Levin that it was in breach but
took no other action.
The parties’ relationship finally broke under the strain
of a disagreement over plans to build a public library. A
major goal of the redevelopment project was to find an
entity to serve as an anchor tenant. It became appar-
ent that a public library in the downtown area would be
a plausible anchor tenant. The DRA authorized Levin to
contact the DeForest Library Board about the construc-
tion of a new library in the downtown area of the city.
Under the agreement, Levin had the right to purchase
and develop the land where the DRA wanted to put the
library. The DRA wanted Levin to give up its right to
purchase the land so that the library could be developed
on that site. Levin agreed to this on the condition that
it would be given the job of overseeing the design and
construction of the library. Levin prepared a four-party
agreement concerning the proposed library site. The DeFor-
est Library Board was willing to sign the agreement; the
DRA refused. Levin contends, and the district court found,
that there was a secret meeting between the DeForest
Library Board and the DRA in which the DRA suggested
that the Board delay the library development plan. The
DRA contends that Levin’s construction manager was
present and thus the meeting was not secret. The secrecy
of the meeting notwithstanding, Levin became aware
that the Library Board would likely delay a month before
signing any agreement. At this point Levin elected to ter-
minate all contacts with the DRA.
Levin filed a complaint against the DRA for failure to
pay fees and expenses, failure to return earnest money,
Nos. 01-3826 and 01-3827 5
and contractual breaches of the Phase II and III agree-
ment.1 The DRA filed a counterclaim against Levin for
failure to develop a new tax base, failure to purchase
land, and failure to construct infrastructure improve-
ments as provided for in the contract.
After a bench trial, the district court entered judg-
ment in favor of Levin in the amount of $85,270.02 and
dismissed the DRA’s counterclaim. The damages awarded
to Levin consisted of the return of $50,000 of earnest
money and approximately $35,000 in billed fees. While
the district court found the DRA breached the Phase II
and III agreements, the court did not award Levin dam-
ages for the breach of contract claims.
ANALYSIS
I. The Liaison Requirement
One of the main disputes in this case is the liaison
requirement under Section 2.5 of the contract. This pro-
vision states in part:
In the event the DRA shall default on its obligation to
provide a designated representative to perform the
required tasks, and failure to cure the default upon
reasonable written notice from the Developer, Devel-
oper shall be entitled to a change order authorizing
the necessary work by Developer and making appro-
priate adjustments to the deadlines and compensa-
tion as provided in secs. 4.1, 4.2, 4.3, and/or 5.9.
1
Levin also alleged tortious interference on the part of the DRA
but the district court dismissed this cause of action at summary
judgement. This claim has not been pursued on appeal.
6 Nos. 01-3826 and 01-3827
Our inquiry into this contract dispute is governed by
Wisconsin law.2 Under Wisconsin law, whether the DRA
breached Section 2.5 is a matter of contract interpreta-
tion and is a question of law. Harris v. Metro. Mall, 112
Wis. 2d 487, 503 (Wis. 1983). Following a bench trial, we
will review the district court’s conclusions of law de novo.
Nat’l Solid Wastes Mgmt. Ass’n v. Meyer, 63 F.3d 652, 656
(7th Cir. 1995).
The district court determined the DRA breached the
contract when it failed to provide a designated liaison. The
DRA does not dispute its failure to provide a liaison. The
DRA does argue that its failure to appoint a liaison was
remedied by its willingness to refund Levin for any costs
it incurred for liaison services.
In essence, the DRA maintains that its commitment to
refunding these costs was sufficient to meet its contrac-
tual obligation. This confuses a remedy provided in the
contract with the absence of a breach. The DRA fails to rec-
ognize the consequences of its inaction. By halfheartedly
following its duties under the liaison provision, the DRA
left Levin in a precarious position. The parties clearly
agreed upon the designation of a full-time liaison. In the
beginning of the relationship, the DRA provided a liai-
son, Joan Laine, who only worked two days a week. Lat-
er, Duane Gau, the Village Administrator, took up the
liaison duties, but was even less available than Joan
Laine. Following these unsuccessful arrangements, the
DRA assigned a planning intern to fulfill the liaison
duties. The DRA’s unorganized and haphazard approach
to the liaison service had detrimental effects on the
quality and efficiency of Levin’s work. The liaisons were
achieving little of what the contract required or Levin
2
The contract between the parties contains a choice of law pro-
vision which states, “This Agreement shall be governed by and
construed according to the laws of the State of Wisconsin.”
Nos. 01-3826 and 01-3827 7
intended. Important aspects of the development plan such
as completing promotional work, organizing hearings,
obtaining necessary approvals, and acting as an interface
with various governmental agencies were delayed or
neglected. All of this culminated in delays to the rede-
velopment plan and undermined Levin’s efficiency and
effectiveness.
While it is true that the DRA faithfully repaid Levin for
any costs incurred as a result of paying for liaison ser-
vices, the DRA fails to recognize that there was more
than just failing to comply with the liaison provision. Levin
was forced to work in a climate rife with disorganiza-
tion and inefficiency. Levin had to deal with the addi-
tional headaches of finding outside resources, negotiating
costs, and evaluating the efficiency and ability of these
outside sources. These problems created additional costs
which deprived Levin of what it expected from the con-
tractual relationship. For these reasons, we find the dis-
trict court’s determination that the DRA breached the
agreement by failing to provide liaison services was correct.
The DRA next contends that even if it breached this
provision of the agreement, it was not a material breach.
The issue of whether a party’s breach is material presents
a question of fact. Mgmt. Computer Servs., Inc. v. Hawkins,
206 Wis.2d 158, 184 (Wis. 1996). We review findings of
fact for clear error.
A breach is material if it destroys the essential object
of the agreement. Ranes v. Am. Family Mut. Ins. Co., 219
Wis.2d 49, 57 (Wis. 1988). The district court found that
each of the DRA’s breaches were material because they
went to the “core purpose,” the “very essence of the Agree-
ment.” The failure to appoint a full-time liaison not only
placed a strain on the relationship between the parties,
but also resulted in a waste of time and resources on the
part of Levin in trying to secure an outside source for the
liaison work. This was documented by Levin in a letter
it sent to the DRA on April 13, 1999:
8 Nos. 01-3826 and 01-3827
Throughout the course of the project, our office has
regularly reminded both staff and the DRA that the
lack of a person with a full time, daily commitment
has placed enormous strain on the working relation-
ships between all parties, as well as costing our firm
a considerable amount of man-hours and money in
attempts to cover the liaison’s responsibilities. Addi-
tionally, the absence of this person has contributed to
project delays that are costly to us, as well the DRA.
The DRA points to the Restatement factors as support
for its argument. However, the DRA takes an abbrevi-
ated approach in its Restatement analysis, citing Man-
agement Computer Services, Inc. v. Hawkins, 206 Wis.2d
158, 184 (Wis. 1996). The DRA fails to consider that Man-
agement Computer Services did not examine all of the
factors under § 241 of the Restatement of Contracts. Since
all of the factors have some relevance to the case at bar,
we will consider all of them. In determining whether
a breach is material, § 241 of the Restatement of Con-
tracts lists the following circumstances as significant:
(a) the extent to which the injured party will be de-
prived of the benefit which he reasonably expected;
(b) the extent to which the injured party can be ade-
quately compensated for the part of that benefit of
which he will be deprived;
(c) the extent to which the party failing to perform or
to offer to perform will suffer forfeiture;
(d) the likelihood that the party failing to perform or
to offer to perform will cure his failure, taking ac-
count of all the circumstances including any reason-
able assurances;
(e) the extent to which the behavior of the party fail-
ing to perform or to offer to perform comports with
standards of good faith and fair dealing.
Restatement (Second) of Contracts § 241 (1981).
Nos. 01-3826 and 01-3827 9
Levin expected and continuously requested the DRA to
appoint a full-time liaison. The absence of such a person
had a particularly significant effect on Levin’s ability to
perform. The DRA’s failure to provide a full-time liai-
son deprived Levin of the right to purchase and develop
land because it substantially delayed and interfered with
the redevelopment. An effective liaison was necessary
for Levin to fulfill its duties under the contract. The dis-
trict court specifically found a lack of good faith on the
part of the DRA, and we cannot find fault with this deci-
sion.
Finally, the DRA argues that even if we find the breach
was material, Levin waived any claim of materiality
by continuing to perform under the agreement for al-
most two years. The question of whether materiality of
a breach has been waived for purposes of justifying a
right of non-performance is one of fact. Entzminger v. Ford
Motor Co., 47 Wis. 2d 751, 755 (Wis. 1970). We review
determinations of fact for clear error.
The DRA contends that this ruling was in error be-
cause the parties performed under the contract for an-
other two years after the DRA failed to provide liaison
services. However, Levin should not be penalized because
it decided to wait and see if the situation improved. Re-
peatedly, Levin asked the DRA to live up to its obliga-
tions to provide liaison services.
The DRA cites Entzminger v. Ford Motor Co., 47 Wis.2d
751 (Wis. 1970) as support for its position. However, in
Entzminger, the non-breaching party waited four years
and based its claim on conduct that had minimal impact
on the parties and the contract. Further, there was no
evidence in Entzminger that the non-breaching party
objected to the breaches. In the instant case the time peri-
od is shorter, the lack of a full-time liaison had a detri-
mental impact, and Levin repeatedly objected to the situ-
ation. We cannot find that Levin waived any claim that
the breaches were material.
10 Nos. 01-3826 and 01-3827
II. Carriage Way Property
The second point of contention between the parties
involved a parcel of land known as Carriage Way. Sec-
tion 5.1 of the Phase II and III agreement required the
DRA to acquire parcels of land identified in the redevel-
opment plan. The contract also provided that the DRA
prepare the land for development and convey the land to
Levin. Both parties agreed that Carriage Way would be
developed first. However, with the problems above re-
cited, the project stalled, and the land was never redevel-
oped. The district court determined that the DRA further
materially breached the contract when it insisted on the
closing of the Carriage Way property before Levin was
ready and when it failed to negotiate in good faith with
Levin over the purchase price or the closing time.
The DRA does not deny that its actions with regard to
Carriage Way amounted to a breach; rather, it contends
that the breach was not material. Once more, the issue of
whether a party’s breach is material presents a question
of fact. We will review findings of fact for clear error. Nat’l.
Solid Wastes Mgmt. Ass’n v. Meyer, 63 F.3d 652, 656 (7th
Cir. 1995).
The DRA argues that the attempted closing was not
a material breach because it did not destroy the essence
of the agreement. It supports its claim by pointing to
the lack of evidence in the record indicating any adverse
consequence material to the contract. This fails to prop-
erly consider the cumulative effect the breaches had on
Levin.
As we observed in our consideration of the DRA’s breach
of the liaison provision, for a breach to be material it
must be so serious as to destroy the essential object of
the agreement. Ranes v. American Family Mut. Ins.
Co., 219 Wis. 2d 49, 57 (Wis. 1998). Similar to its liaison
provision argument, Levin points out that the DRA’s
breach prevented it from buying land, entering into infra-
Nos. 01-3826 and 01-3827 11
structure contracts, and resulted in expending addi-
tional resources on designs and drawings.
In its finding that the DRA breached the contract with
regard to the Carriage Way property, the district court
found that the DRA breached the expressed good-faith
requirements of the contract. The testimony of Kerry
Levin, the owner of Levin, reveals the difficulties Levin
had with Carriage Way. A project as complex as this one
must be planned well in advance. Yet the size of the final
parcel for Carriage Way had been in question up until
the closing date, forcing Levin to modify its designs. The
modifications included eliminating garages and chang-
ing master bedroom units. In addition, Levin had to
change engineering drawings for the infrastructure work
and the architectural drawings. Despite this major over-
haul the DRA caused by its actions, the DRA still ex-
pected Levin to close in November though Levin had not
finished its architectural drawings and other designs.
Kerry Levin also testified that building permits had not
yet been obtained, the land was not rezoned, and the
infrastructure was not yet built because Levin was still
modifying the engineering.3
The district court also found the price charged by the
DRA was in excess of the amount required by the contract.
The DRA defends its actions regarding the purchase
price of Carriage Way as stemming from the change of
the status of a road from public to private. Thus, it claims
3
In a letter dated November 16, 1999, Levin informed the DRA
that it could not close until the DRA had completed the follow-
ing contract terms: all demolition and hauling work on the con-
veyance parcels, a Phase I environmental study, final zoning
modifications, receipt of building permit approvals, the parcels are
accessible by road, the parcels are served by completed gas,
electrical, and phone utilities, and that the parcels are served
by storm, sanitary, and water service.
12 Nos. 01-3826 and 01-3827
to be merely demanding adherence to specific contract
requirements. A closer inspection reveals that there was
more to this situation than the DRA suggests.
Mark Levin testified that the purchase price of Car-
riage Way was originally at $300,000.00. However, the
DRA was charging approximately $450,000.00. The DRA
apparently justified the price increase by informing
Levin that future prices of land would be lowered in or-
der to make up the difference. The result of a sale accord-
ing to these terms amounted to Levin accepting a road
that diminished the value of its project while simulta-
neously raising the price it had to pay. The DRA failed
to consider the effect this price increase might have on
Levin’s plans or its budget. The DRA presented Levin
with no alternative but to pay the increased price. It is
difficult to accept the DRA’s portrayal of the closing as
an insistence on adhering to the contractual options.
Given Levin’s position at the time of the closing and its
reaction to the price makes it especially difficult to accept
the DRA’s position. We fail to see how such actions on the
part of the DRA can amount to anything other than bad
faith.
For these reasons, we find the DRA violated the ex-
press provisions in the contract requiring good faith. The
DRA’s demand for a November closing when its own ac-
tions placed Levin in the position of being unable to meet
this date exemplifies the DRA’s failure to fulfill the good-
faith requirements of the contract. The DRA’s delays and
failure to cooperate with Levin on the Carriage Way clos-
ing date and price confirm the DRA’s lack of good faith.
For these reasons, we agree with the district court’s find-
ing that the DRA breached the express provisions requir-
ing good faith.
Nos. 01-3826 and 01-3827 13
III. The Public Library
The third point of contention between the parties con-
cerns the plans to construct a public library in down-
town DeForest. Levin attempted to secure a right to design
and build a library on land promised to it for redevelop-
ment. The DRA wanted Levin to give up its right to buy
the land so that a library could be developed on the site.
Under this proposal, Levin agreed to give up its right to
purchase the land if it could design and build the library.
As this proposal was about to be formally agreed to, Levin
became aware that the Library Board planned to hold
out on signing the agreement for another month after a
secret meeting it had with the DRA.
The district court found that the DRA failed to act in
good faith with respect to the library negotiations. The
court based its decision on the fact that a secret meet-
ing occurred involving all the interested parties except
Levin. The district court noted that if good-faith negotia-
tions are to exist, all parties should be present. The
DRA claims that the district court erred and that the
contract did not require it to negotiate in good faith with
regard to the library negotiations.
Whether the DRA had a contractual duty to negotiate
in good faith is a matter of contract interpretation and
a question of law. Harris v. Metro. Mall, 112 Wis. 2d 487,
503 (Wis. 1983). We review questions of law de novo.
The provisions of the Phase II & III Sub-Agreement
relevant to the library negotiations include the following:
Section 5.1. Notwithstanding the foregoing, if due to
environmental contamination or other conditions or
circumstances DRA cannot obtain any parcel at what
it deems a reasonable cost, Developer agrees to meet
with DRA or its representative and negotiate in good
faith for adjustment of the Redevelopment Plan and
the terms of this Agreement to avoid, if possible, the
need to acquire such parcel(s).
14 Nos. 01-3826 and 01-3827
Section 5.10. In the event the Redevelopment Plan
is modified resulting in a positive economic benefit
to the project (including, but not limited to, inclusion
of a new public library or a new restaurant), . . . the
parties shall meet and negotiate in good faith for
appropriate adjustments to the amount of guaranteed
development value as provided in sec. 5.8, the develop-
ment phasing as provided in sec. 5.9 and/or the pro-
motional efforts and expenditures as provided by secs.
3.2 and 4.1, considering such factors as the . . . reason-
able expectation of the parties at the time of execu-
tion of this Agreement and any other factors which
have, or are expected to, increase or decrease the over-
all expense or benefits from the project to the Devel-
oper or DRA from any other previously unanticipated
changes in circumstances.
The DRA misreads the plain language of Section 5.10 and
attempts to devise an interpretation of it that simply
ignores the unambiguous nature of Section 5.10. We agree
with the DRA that Levin had no contractual right to
build a library. But this does not preclude the DRA from
acting in good faith when it negotiated with Levin about
the library. Contractual language is ambiguous only when
it is “reasonably or fairly susceptible of more than one
construction.” Borchardt v. Wilk, 156 Wis.2d 420, 427 (Ct.
App. 1990). Unambiguous contractual language must be
enforced as written. Dykstra v. Arthur G. McKee & Co., 92
Wis.2d 17, 38 (Ct. App. 1979). We cannot agree that the
contractual language at issue is ambiguous. Section 5.10
specifically asserts that the parties are to “negotiate in good
faith” if a new public library is included in the plan.
The DRA also points out that 5.10 delineates the spe-
cific subjects to which the parties must negotiate in good
faith. It then notes that construction of the library was
not one of them. The DRA focuses its attention on the
following passage of Section 5.10: “the parties shall meet
and negotiate in good faith for appropriate adjustments
Nos. 01-3826 and 01-3827 15
to the amount of guaranteed development value as pro-
vided in sec. 5.8, the development phasing as provided
in sec. 5.9 and/or the promotional efforts and expenditures
as provided by secs. 3.2 and 4.1.” It is true that Section 5.10
limits what the good-faith conduct applies to. However,
once the DRA, Library Board, and Levin began negotiat-
ing about the possible construction of a public library in
downtown DeForest, we think those aspects specifically
listed in 5.10 came into effect, invoking the DRA’s duty to
negotiate in good faith.
After finding these good-faith provisions of the agree-
ment apply, we must consider whether the DRA breached
them in its negotiations concerning the library. The dis-
trict court found that there was a secret meeting between
the DRA, the DeForest Village Board, and the Library
Board and that this meeting constituted bad faith negotia-
tions. The determination that a secret meeting occurred
is a question of fact.
The DRA argues that the meeting was not secret, that
there was in attendance Levin’s construction manager,
Scott Pulvermacher. The significance of Pulvermacher’s
alleged presence is questionable. Pulvermacher never was
called as a witness, nor was he ever deposed, leaving the
reality of the DRA’s position in doubt. The record instead
demonstrates the importance the DRA placed on keeping
the meeting secret. An email sent to members of the
Library Board noted, “Please do not disclose this meeting
to the other members of your staff or Levin.” The same
email later states, “Amy and Dan do not disclose this
meeting to Levin or his staff.” The DRA never addresses
this correspondence between it and the Library Board. We
agree with the district court that backroom deals between
parties conspiring to outmaneuver the other party to the
contract do not epitomize good-faith negotiations. The
district court found that no representative of Levin was
present at the meeting, and given the factual surround-
ings, we find no error in its assessment.
16 Nos. 01-3826 and 01-3827
IV. Implied Covenant of Good Faith
Amidst the various breaches found by the district court,
it also determined that the DRA breached the implied
covenant of good faith. Wisconsin law recognizes an implied
covenant of good faith and fair dealing in every contract.
Wis. Natural Gas Co. v. Gabe’s Constr. Co., 220 Wis. 2d 14,
21, 582 N.W.2d 118, 121 (Ct. App. 1998). Wisconsin law
further imparts a duty of cooperation between the parties
to a contract. Id. In explaining what good faith means,
Wisconsin law defines good-faith conduct in the negative:
Subterfuges and evasions violate the obligation of
good faith in performance even though the actor be-
lieves his conduct to be justified. But the obligation
goes further: bad faith may be overt or may consist of
inaction, and fair dealing may require more than
honesty. A complete catalogue of types of bad faith is
impossible, but the following types are among those
which have been recognized in judicial decisions: eva-
sion of the spirit of the bargain, lack of diligence
and slacking off, willful rendering of imperfect perfor-
mance, abuse of a power to specify terms, and interfer-
ence with or failure to cooperate in the other party’s
performance.
Foseid v. State Bank, 197 Wis. 2d 772, 796-97, 541 N.W.2d
203, 213 (Ct. App. 1995).
We need not pigeonhole the DRA’s conduct into one of
these categories. The DRA’s actions represent many of
these types of bad faith conduct. The DRA’s only argument
on this question is that the district court made contradic-
tory findings with respect to the issue of good faith and
therefore made a mistake of law. It notes the district court’s
finding that “this contract was founded on ongoing coop-
eration and there is no question that the witnesses who
testified here from the defendant were implementing
the spirit of that bargain” as support for its position. The
Nos. 01-3826 and 01-3827 17
DRA’s claim misses the import of the district court’s
ultimate finding. The district court noted that it found
good faith in the “witnesses who appeared.” The court was
not addressing the DRA’s actions as a whole. Instead, the
district court went on to say:
I believe the lack of a liaison did undermine the com-
munication, the cooperation essential to successful
completion of the contract. The Court believes there
may very well have been the unreasonable insistence
on Carriage Way closing with a threat to terminate,
failure to renegotiate the good faith as required by
the contract, and of course the construction of the
library contract. Again that’s directly relating to long-
term cooperative behavior.
Taking the DRA’s conduct as a whole, we agree with the
district court that the DRA’s actions violated the stan-
dards of fairness and reasonableness. Spanning the entire
contractual relationship reveals that the DRA was uncoop-
erative, evasive, and at times uninterested in the project.
Unreasonable delays with the liaison service adversely
affected Levin’s performance in multiple ways. The Car-
riage Way endeavor accomplished nothing because of the
DRA’s disorganized performance. Finally, the library nego-
tiations revealed the DRA’s abuse of power and interference
with Levin’s attempts at developing a public library in
downtown DeForest. In sum, these actions reveal a clear
breach of Wisconsin’s implied covenant of good faith.
The DRA’s sole response that the district court found
some of its witnesses implemented the spirit of the bar-
gain does not persuade us. The argument not only ignores
a substantial portion of the district court’s finding but
also lacks any legal authority supporting its position. We
therefore affirm the district court’s ruling that the DRA
breached the implied covenant of good faith and fair
dealing.
18 Nos. 01-3826 and 01-3827
V. Damages
Not surprisingly, the parties also disagree over the
district court’s decisions regarding damages. The district
court found that Levin was entitled to receive damages
and awarded Levin damages consisting of unpaid invoices
of $35,270.02 and the return of earnest money totaling
$50,000.00. In this appeal, Levin argues that the district
court erred when it refused to grant it reliance damages.
The DRA, on the other hand, claims that the district
court erred when it awarded Levin the $50,000.00 in
earnest money and the $35,270.02 in unpaid fees. We re-
view the determination of damages for clear error. CSC
Holdings, Inc. v. Redisi, 2002 U.S. App. LEXIS 22487 at *15
(7th Cir. 2002).
We will first consider the DRA’s argument that Levin is
not entitled to the damages awarded by the district
court. The district court awarded Levin $50,000.00 of
earnest money because the failure to close on the purchase
of Carriage Way was not Levin’s fault. The DRA argues
that Levin is not entitled to the earnest money because it
never purchased any parcels of land.
The DRA attempts to deflect attention away from its
conduct during Phase I and II by arguing that Levin’s
inaction in Phase III supports the finding that it is not
entitled to the $50,000.00. According to the DRA, Levin
is not entitled to recover the $50,000.00 because it never
purchased any parcels during Phase III. This argument
fails to consider the real reason for this outcome. The very
reason the parties never reached Phase III, the actual
development, was due to the evasive conduct of the DRA.
To place blame on Levin for something that it not only
had no control over, but was also in actuality the fault of
the DRA, is an argument that we reject.
The DRA next claims that, in addition to the factual ba-
sis noted above, there is a legal basis for its argument
Nos. 01-3826 and 01-3827 19
that Levin is not entitled to the earnest money. It cites,
as support for its position, Schwartz v. Syver, 264 Wis. 526,
529 (Wis. 1953) (quoting 55 Am. Jur., Vendor and Pur-
chaser, § 535, p.927), which notes: “So long as the vendor is
not in default and is willing and able to perform, the
purchaser cannot wrongfully refuse to complete the trans-
action and recover what he has paid toward the purchase
money.” The DRA fails to consider that the relationship
in this case was not the typical buyer-seller relationship
that this statement envisions. The DRA and Levin were
more akin to partners in a business venture. Thus, the
traditional vendor type analysis which the DRA refers to
is legally inapposite to the underlying situation and we,
therefore, find it unpersuasive. Levin’s failure to close
on the purchase price of Carriage Way was not its fault
because the property was not available for conveyance
before the termination of the contract and the trial court
so found.
The DRA also contests the district court’s ruling that
Levin was entitled to recover $35,270.02 in billing fees. The
DRA argues that the unpaid invoices were miscalculated.
It claims Levin is not entitled to $35,270.02 because
Levin did not consider contractor inefficiency in its calcula-
tion of the invoices. Thus, it merely disputes the accuracy
of the numbers, not the validity of awarding the damages
itself.
The invoices Levin submitted were based on a percent-
age of the work completed. Levin also submitted time
records to show what was done during that time period.
The DRA never objected to Levin’s method of billing its
services. In addition, Kerry Levin testified as an expert
that the fees charged were reasonable as to the type and
amount. The DRA’s reliance on Metropolitan Sewerage
Com. v. R. W. Constr., Inc., 72 Wis. 2d 365, 241 N.W.2d 371
(Wis. 1976), is misplaced. In Metropolitan Sewerage, the
Wisconsin Supreme Court held that the calculation for
20 Nos. 01-3826 and 01-3827
contract damages must take into account contractor
inefficiency in planning and performance. Id. at 382.
However, the court noted “our holding here is limited
to concluding that the MSC is liable for an equitable
adjustment under the changed-conditions clause.” Id. at
383-84. The case before us does not involve an equitable
adjustment or a changed-condition clause. In addition,
Metropolitan Sewerage is factually distinguishable from
the case at bar. The Wisconsin Supreme Court docu-
mented the serious inefficiencies on the part of the party
seeking fees for its services. Id. at 383. Such inefficiencies
have not been alleged by the DRA. Thus, Metropolitan
Sewerage is inapplicable to our analysis. For these reasons,
we find the district court did not err in its determination
of damages for the unpaid invoices.
The last issue relating to damages concerns the district
court’s denial of reliance damages to Levin. The district
court denied Levin its reliance damages because its ex-
penses were not incurred in reliance on any contractual
obligation. The reliance damages requested by Levin would
reimburse it for those expenses made in anticipation of
Phase III property development. The district court’s un-
derlying reasoning for its decision centered around its
finding that Levin subjectively believed it could termi-
nate the contract without cause at anytime. On appeal,
Levin argues the court erred and that it is entitled to its
reliance damages.
Wisconsin law recognizes the propriety of reliance dam-
ages when proof of an expectation interest (profit) is
uncertain. Reimer v. Badger Wholesale Co.,433 N.W.2d
592, 594 (1988). The case at bar fits that description.
The purpose behind reliance damages is to reimburse
the injured party so that he is put in “as good a position
as he would have been in had the contract not been made.”
Restatement (Second) of Contracts § 344 (1981). The dis-
Nos. 01-3826 and 01-3827 21
trict court and the DRA give the definition of reliance
damages a narrow reading. The district court noted,
“Certainly the plaintiff incurred expenses in anticipation
of development. But he did not do so in reliance on any
contractual obligation of the defendant to proceed under
the contract because he did not believe the DRA was
obligated to proceed.” The district court puts heavy em-
phasis on the phrase “contractual obligation,” as if there
must be some specific provision spelled out in the con-
tract that must be relied upon for a party to recover ex-
penses. The Restatement and case law are clear that an
injured party has a right to damages based on expendi-
tures “made in preparation for performance.” Restatement
(Second) of Contracts § 349(b) (1981); Glendale Fed. Bank,
FSB v. United States, 239 F.3d 1374, 1383 (Fed. Cir. 2001).
Thus, reliance damages are not limited to those expenses
made in relation to duties spelled out in the contractual
agreement.4 The second vulnerable point in the district
court’s reasoning is that Levin is not entitled to reliance
damages because it did not believe the DRA was obli-
gated to proceed. The expenses at issue were not incurred
before it made the contract. See Farnsworth, Contracts
§ 12.16, at 928 n.2 (2d ed. 1990) (“Reliance damages are
limited to those expenses incurred after an agreement has
been reached”). We also believe that Levin would not
perform the services and work it did (over $490,000 worth)
without thinking the DRA would proceed with its end of
4
Restatement (Second) of Contracts § 344 (1981) states: The
promisee may have changed his position in reliance on the con-
tract by, for example, incurring expenses in preparing to perform,
in performing, or in foregoing opportunities to make other con-
tracts. In that case, the court may recognize a claim based on his
reliance rather than on his expectation. It does this by attempt-
ing to put him back in the position in which he would have been
had the contract not been made. The interest protected in this
way is called “reliance interest.”
22 Nos. 01-3826 and 01-3827
the deal. The services Levin performed were the type
that would have no value to them in another project or
with a future client.
The district court analyzed the issue in a divisible time
frame context. However, this project, like most complex
ventures, cannot be viewed in such a fashion. Tasks such
as infrastructure preparation, architectural design, and
final construction plans must be developed far in ad-
vance of when they are actually to be worked on. Levin
should not be punished simply for preparing for Phase
III of the contract. The district court’s position of view-
ing the contractual relationship in neat time frames led
it to reject Levin’s claim for reliance damages. Design,
engineering, construction, and promotion costs were all
incurred by Levin for its Phase III work. The precise
reason the parties never reached Phase III was due to the
various contract breaches of the DRA. These costs are a
classic example of why reliance damages exist: to put
the party in as good a position as he would have been in
had the contract not been made. See Restatement (Second)
of Contracts § 349(b) (1981).
We are not holding that any costs incurred before the
contractual relationship was terminated comes under the
guise of reliance damages. However, the expenses Levin
incurred were made in reliance to its duties under Phase
III of the redevelopment plan. If Levin had not under-
taken these expenses when it did, the project would have
been severely delayed. This redevelopment project was
a complex, expensive, long-term undertaking. The parties
interacted frequently and relied upon each other to
achieve the goals of the redevelopment plan. Levin’s duties
included architectural work, infrastructure work, and de-
sign work which is highly technical and arduous. The
expenses it incurred are a reflection of this process and
the nature of the work. Without reliance damages, Levin
would suffer a loss of expenses made in preparation for
Nos. 01-3826 and 01-3827 23
the Phase III redevelopment. Thus, we find the dis-
trict court erred in denying reliance damages to Levin. We
reverse and remand for a determination of an award of
reliance damages consistent with the facts of the record.
CONCLUSION
For the foregoing reasons, we AFFIRM the district court’s
decision as it relates to the judgment in favor of Levin,
and REVERSE and REMAND the matter concerning the
denial of reliance damages to Levin.
Costs to be assessed against defendant-appellant.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—12-13-02