01-3826 & 01-3827 Designer Direct, Inc. v. DeForest Redevelopment Authority

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“Wisconsin law recognizes the propriety of reliance damages 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 º 344 (1981). The district 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 emphasis on the phrase ‘contractual obligation,’ as if there must be some specific provision spelled out in the contract that must be relied upon for a party to recover expenses. The Restatement and case law are clear that an injured party has a right to damages based on expenditures ‘made in preparation for performance.’ Restatement (Second) of Contracts º 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. 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 obligated to proceed. The expenses at issue were not incurred before it made the contract. See Farnsworth, Contracts º 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 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 advance 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 viewing 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.”

Affirmed in part, and reversed and remanded in part.

Appeals from the United States District Court for the Western District of Wisconsin, Shabaz, J., Bauer, J.