In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 03-2429

DESIGNER DIRECT, INCORPORATED, doing

business as LEVIN ASSOCIATES ARCHITECTS,

Plaintiff-Appellee,

v.

DEFOREST REDEVELOPMENT AUTHORITY,

Defendant-Counter Plaintiff-Appellant,

v.

KERRY LEVIN,

Counter Defendant-Appellee.

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Appeal from the United States District Court

for the Western District of Wisconsin.

No. 01 C 40—John C. Shabaz, Judge.

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ARGUED FEBRUARY 20, 2004—DECIDED MAY 14, 2004

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Before FLAUM, Chief Judge, and BAUER and MANION,

Circuit Judges.

BAUER, Circuit Judge. The facts of this controversy,

based on diversity jurisdiction, were recited in our earlier

opinion, Designer Direct, Inc. v. Deforest Redevelopment
2 No. 03-2429

Authority, 313 F.3d 1036 (7th Cir. 2002), and so only those

facts relevant to the issue at hand will be discussed here. In

that opinion we reversed the trial court’s refusal to award

reliance damages to Plaintiff. Id. at 1047-50. On remand,

the trial court calculated reliance damages by using the

hourly rates agreed to in the Phase I contract—based on an

arm’s-length negotiation. That rate was then multiplied by

the number of hours Plaintiff invested in Phase III of the

redevelopment contract—the phase at issue here. Finally,

the judge reduced the calculated figure by ten percent to

account for the profits and “inevitable unrecoverable time”

due to Plaintiff’s employee’s mistakes and the like. The

award amounted to $444,927. Defendant, Deforest Redevelopment Authority (DRA), appealed. 

Under applicable Wisconsin law, damages are a finding of

fact. Kolbe & Kolbe, Millwork Co., 476 N.W.2d 305 (Wis. Ct.

App. 1991). Therefore, we review the determination of

damages for clear error. Designer Direct, 313 F.3d at 1047-

48 (citing CSC Holdings, Inc. v. Redisi, 309 F.3d 988, 994-

95 (7th Cir. 2002)).

“Remedies for injury to a reliance interest are defined as

‘being reimbursed for loss caused by reliance on the contract

by being put in as good a position as [the plaintiff] would

have been in had the contract not been made.’ ” Reimer v.

Badger Wholesale Co., 433 N.W.2d 592, 594 (Wis. Ct. App.

1998) (quoting RESTATEMENT (SECOND) OF CONTRACTS § 344

(1981)). Such damages are usually construed to include outof-pocket expenditures incurred in preparation or performance of the contract. RESTATEMENT (SECOND) OF CONTRACTS § 349 (1981). A plaintiff may also seek reliance

damages under a theory of lost opportunity. RESTATEMENT

(SECOND) OF CONTRACTS § 344 cmt. a. (1981). Damages

must be proven with reasonable certainty. Pleasure Time,

Inc. v. Kuss, 254 N.W.2d 463, 470 (Wis. 1977).

First, it should be noted that Plaintiff did not prove the

existence of a lost opportunity. While Designer Direct did
No. 03-2429 3

show that there was some interest from other potential

clients, it failed to name them or show that it was likely

that a contract would have been entered into but for

Designer Direct’s contract with the DRA. Therefore,

recoverable damages are limited to those losses actually

caused by Plaintiff’s reliance on the Phase III redevelopment plan.

Defendant argues that the reliance damages awarded to

Plaintiff cannot be sustained. Its main complaint, beyond

the argument that Plaintiff did not prove lost opportunity,

is that Plaintiff did not show actual out-of-pocket expenses.

While the argument has some merit, it misses the mark.

Plaintiff rightly contends that there is more than one way

to skin a cat. It argues that adding up all of the expenses

paid in reliance upon the Phase III redevelopment plan

should produce the same figure as subtracting the profits

from the hourly-pay-rate-figure. Unfortunately, that

method of calculation, at least upon the facts of this case,

fails to satisfy the requirement of reasonable certainty of

damages.

Under Autotrol Corp. v. Continental Water Sys. Corp., 918

F.2d 689, 692-94 (7th Cir. 1990), overhead expenses are

recoverable as reliance damages. This is true provided that

the plaintiff seeking to recover can show that those expenses were properly allocated to the breached contract,

Cyberchron Corp. v. Calldata Sys. Development, Inc., 47

F.3d 39, 46 (2d Cir. 1995), and that they would have probably obtained those overhead expenses on other projects,

Autotrol Corp., 918 F.2d at 693. Plaintiff failed to satisfy

the former.

While it appears as though most of the work being performed by Plaintiff was directly related to the redevelopment project, other work was being done in both the

Wisconsin field office and the main office in Des Plaines,

Illinois. Plaintiff cannot recover that portion of overhead
4 No. 03-2429

costs which is attributable to those other projects. To clarify, let us say, hypothetically, that an employee of Designer

Direct spent 80% of his working hours on the redevelopment project. That would mean that 20% of his salary and

benefits is not recoverable as damages. In other words, we

simply do not know what percentage of the overall working

hours were spent on Phase III of the DRA project and what

percentage of time was spent on other projects. Without

such information, we cannot determine the percentage of

benefits, and other overhead expenses that should be

allocated to the breached contract. Allowing Designer Direct

to recover those overhead expenses not allocated to the

breached contract would result in a windfall for Plaintiff.

We refuse to announce a rule forbidding Plaintiff’s

method of calculating damages. However, we suspect that

plaintiffs seeking to use such a method will find themselves

in the same quagmire as Plaintiff in this case. The fact is

that Plaintiff’s calculation is an estimated guess. While we

believe that the properly calculated damages figure will be

close to the figure previously announced, we do not

know—and therein lies the problem.

We remand with instructions to recalculate the damages.

We invite Plaintiff to supplement the record with concrete

evidence of expenditures and the percentage of overhead

costs which can be attributed to the Phase III redevelopment plan. As Judge Shabaz has already found that “[i]t is

entirely reasonable to infer that had Plaintiff not invested

its efforts in this project it would have gainfully applied the

hours to another,” the inquiry on remand should focus on

determining those expenses which may be properly allocated to the breached contract.

REVERSED AND REMANDED WITH DIRECTIONS
No. 03-2429 5

A true Copy:

Teste: 

 ________________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit 

USCA-02-C-0072—5-14-04