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Designer Direct, Inc. v. Deforest Redevelopment Authority

December 13, 2002

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.

Before Flaum, Chief Judge, and Bauer and Manion, Circuit Judges.

The opinion of the court was delivered by: Bauer, Circuit Judge

ARGUED SEPTEMBER 10, 2002

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 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 infrastructure which would support Levin's plan and Phase III dealt with the sale of the land and the subsequent construction.

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. Assuming 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 attempt 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, drawings, and engineering changes in the Phase III proper- ty development. In addition, the modifications frustrated 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, and contractual breaches of the Phase II and III agree- ment. *fn1 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 provision 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.

Our inquiry into this contract dispute is governed by Wisconsin law. *fn2 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 liaison, 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 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 disorganization 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 ...


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