## Facts

- The Village of DeForest, Wisconsin created the DeForest Redevelopment Authority (DRA) to implement a downtown redevelopment plan funded through tax incremental financing.
- DRA contracted with Designer Direct, Inc., doing business as Levin Associates Architects (Levin), for a multi-phase redevelopment project: (1) planning, (2) infrastructure construction, and (3) DRA’s sale of parcels to Levin for building development.
- The agreements required DRA to perform specific obligations, including providing a full-time liaison to coordinate the project, and contained an express duty of good faith.
- DRA did not provide the required full-time liaison, instead assigning a part-time person; Levin incurred additional coordination costs (later reimbursed in part).
- Disputes arose over DRA’s repeated changes to parcel sizes and configurations for the “Carriage Way” property, requiring Levin to revise plans and complicating infrastructure work.
- Levin alleged DRA failed to timely secure needed permits and complete promised infrastructure improvements before scheduled property conveyances; Levin requested an extension of a closing date, which DRA refused.
- Levin spent approximately $490,000 on architectural and engineering work in preparation for anticipated Phase III development.
- A further conflict involved a potential public library site where Levin held development rights; Levin alleged DRA and related public entities held meetings about the library and site without Levin, worsening relations.
- Levin terminated the relationship and sued for breach of contract (unpaid fees, return of earnest money, and reliance damages); DRA counterclaimed that Levin breached.

## Issues

1. Whether the district court clearly erred in finding that DRA materially breached the redevelopment agreements (and that Levin’s termination was justified), warranting judgment for Levin and dismissal of DRA’s counterclaim.
2. Whether the district court erred in denying Levin’s claimed reliance damages for expenditures made in preparation for Phase III.

## Decision

- The Seventh Circuit affirmed the district court’s liability findings that DRA materially breached the contract and that DRA’s counterclaim failed.
- The Seventh Circuit reversed the denial of reliance damages to the extent the district court rejected them categorically, and remanded for further proceedings to determine recoverable reliance damages.
- The disposition was “affirmed in part” and “reversed and remanded in part.”

## Legal Principles

- A party’s failure to perform multiple significant contractual obligations—viewed together and in context—may constitute a material breach that excuses the other party’s further performance and supports termination.
- Where an agreement includes an express duty of good faith, conduct inconsistent with cooperative performance in a long-term, staged development arrangement can support a breach finding.
- On appellate review after a bench trial, factual findings regarding breach and causation are reviewed for clear error.
- Reliance damages may be available to reimburse a non-breaching party for reasonable expenditures incurred in preparation for or performance of a contract, particularly where expectation damages are difficult to prove.
- A court should not deny reliance damages solely because they relate to later phases of a project; instead, it must determine whether the expenditures were caused by the contract and are otherwise recoverable under standard limitations (including proof and reasonable certainty).

## Conclusion

The Seventh Circuit upheld the finding that DRA’s nonperformance and related conduct amounted to a material breach excusing Levin’s termination and defeating DRA’s counterclaim, but required further proceedings on Levin’s claimed reliance damages for substantial Phase III preparatory expenditures.


Designer Direct, Inc. v. DeForest Redevelopment Auth., 313 F.3d 1036 (7th Cir. 2002)