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State can't be sued for lost profits

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“The lost profits and the incurred expenses he seeks to recover are not liquidated; they cannot be readily determined from the terms of the alleged contract or from fixed data or mathematical computation.”

Hon. Margaret J. Vergeront
Wisconsin Court of Appeals

The state has not waived its sovereign immunity from contract claims seeking lost profits, the Wisconsin Court of Appeals held on Sept. 8.

According to John C. Koshick, on June 2, 1999, he entered into a contract with the director of the Wisconsin State Fair Park to lease part of the park to him on July 30, 1999 and July 31, 1999, so that he could produce the Milwaukee Metal Fest — the largest speed metal festival in North America.

Koshick was to pay the State Fair Park Board $10,000 for use of the park and was to receive in return specified percentages of the gross revenues from sales of food, beverages, merchandise, and tickets. The contract was to be reduced to writing, but this was apparently never done.

In reliance on the contract, according to Koshick, he engaged bands to play at the festival, began advertising, arranged for tickets to be printed, and entered into agreements with MTV to broadcast the festival. On or about July 1, 1999, the State Fair Park director told Koshick that the State Fair Park Board would not honor its agreement to lease the park to him.

Koshick presented a claim for $5.91 million to the Wisconsin Claims Board and the board rejected his claim. Koshick then introduced a bill into the Wisconsin legislature to enact legislation providing for payment to him of $5.91 million, but the bill was defeated.

Koshick then filed suit, alleging breach of contract and promissory estoppel, and seeking damages for lost profits and expenses incurred. The complaint does not allege that Koshick paid any money to the State Fair Park Board.

The state moved to dismiss the complaint based on the doctrine of sovereign immunity, and Dane County Circuit Court Judge Maryann Sumi granted the motion.

Koshick appealed, but the court of appeals affirmed in a decision by Judge Margaret J. Vergeront.

Article IV, Section 27 of the Wisconsin Constitution provides the state with sovereign immunity from suit, except as expressly permitted by the Legislature. Section 775.01 permits suit against the state as follows:

"Upon the refusal of the legislature to allow a claim against the state the claim-ant may commence an action against the state by service as provided in s. 801.11(3) and by filing with the clerk of court a bond, not exceeding $1,000, with 2 or more sureties, to be approved by the attorney general, to the effect that the claimant will indemnify the state against all costs that may accrue in such action and pay to the clerk of court all costs, in case the claimant fails to obtain judgment against the state."

The statute has remained substantially the same since 1850.

What the court held

Case: John C. Koshick v. State of Wisconsin, No. 2005AP539.

Issue: Can a citizen sue the State for lost profits resulting from the state’s alleged breach of a contract?

Holding: No. The state has only waived immunity for contract damages that can be readily determined from the terms of the contract or from fixed data or mathematical computation.

Counsel: Kent A. Tess-Mattner, Brookfield, for appellant; Sandra L. Tarver, Madison, for respondent.

After reviewing nineteenth-century cases, holding mostly that the purpose of the statute is to permit contract, but not tort, claims, the court considered Trempealeau County v. State, 260 Wis. 602, 605, 51 N.W.2d 499 (1952), at length.

Trempealeau involved an action by a county against the state for money the state had received, and which the county alleged was rightfully its own.

The court resolved the issue by considering the definition of "debt" in Corpus Juris Secundum: "’debt’ is that for which an action for debt or indebitatus assumpsit will lie; and includes a sum of money due upon a contract, implied in law, 26 C.J.S., Debt, p 1."

The court in Trempealeau concluded the claim was authorized by statute because it was based upon a contract implied in law and the relationship of debtor-creditor between the plaintiff county and the state existed. Trempeleau, 260 Wis. at 606.

Discussing Trempealeau, the court of appeals wrote, "The Trempealeau court concluded that the claim there was authorized by the statute not because it was a breach of contract claim, but because it was for a sum of money due upon a contract implied in law, thus making the State a debtor. Id. at 605-06. Therefore, the relevant inquiry here is whether Koshick’s breach of contract claim is an action of debt or indebitatus assumpsit."

Again, the court turned to CJS for guidance, which explains that "debt," as used in this context, is "a specific sum of money which is due or owing from one to another." 26 C.J.S. Debt sec. 1 (2001).

According to CJS, an essential element of the action is that it is for a: "fixed and definite sum of money, or one that can readily be made fixed and definite, either from fixed data or agreement, or by mathematical computation or operation of law. Thus, an action of debt does not lie to recover unliquidated or unascertained damages.

Further, the action cannot be maintained where the sum must be ascertained by resorting to extraneous evidence.

"However, an action for debt can be maintained for the reasonable value of goods and materials where goods are sold and delivered … or where the terms of a contract furnish the means of ascertaining the exact amount due for specific articles or services." 26 C.J.S. Debt sec. 4 (2001).

The court concluded that Koshick’s breach of contract claim is not an action on a "debt" under this definition.

The court wrote, "He is not seeking an amount due for goods or services that he has sold or delivered to the State; he is not, as was the plaintiff in Trempealeau, seeking money that the State has received that he asserts he is entitled to. The lost profits and the incurred expenses he seeks to recover are not liquidated; they cannot be readily determined from the terms of the alleged contract or from fixed data or mathematical computation."

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Case Analysis

The court then reviewed a number of cases since Trempealeau, and found that they support its holding.

In CleanSoils Wisconsin, Inc. v. DOT, 229 Wis. 2d 600, 605, 599 N.W.2d 903 (Ct. App. 1999), for example, a subcontractor on a State project brought suit, alleging it was owed for work it had done but for which it had not been paid because the general contractor had not been paid by the State.

The court concluded that the subcontractor’s claim for unjust enrichment was not a claim for money had and received, and thus, was not allowed under the statute. Id., at 612-613.

In the case at bar, the court acknowledged that "the distinction between an action on debt and other types of actions for breach of contract may appear archaic and may well have no procedural or substantive significance for litigants bringing claims against non-State entities today."

However, because the distinction was recognized in the early sovereign immunity cases, and the legislature has not acted to alter that construction, the court concluded it must recognize the distinction. Accordingly, the court affirmed.

Click here for Case Analysis.

David Ziemer can be reached by email.

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