Opinion Summary: Pavone v. Kirke

By: Administrator on December 12th, 2011

By Ryan Koopmans

A breach arising out of the complete termination of a contract creates a single cause of action, and thus all claims for damages must be brought at once.  That was the Iowa Supreme Court’s ruling last Friday in Pavone v. Kirke.

The dispute arose out of failed negotiations between Signature Management Group, L.L.C. and Wild Rose Entertainment.  In 2004, Wild Rose was seeking a license to operate casinos in Iowa.  The company initially looked to Signature Management Group (“SMG”) as a possible manager of those casinos.  The two companies entered into a contract in which they agreed to negotiate a management agreement in good faith if the Iowa Racing and Gaming Commission did indeed grant Wild Rose a license for any casino location.

The next year, Wild Rose received a license to operate a casino in Emmetsburg, Iowa.  But negotiations between it and SMG did not result in a management agreement, and Wild Rose later terminated the contract. 

SMG sued Wild Rose for breach of contract, and requested damages based upon expected profits from the Emmetsburg casino.  Later, Wild Rose received a license for a second casino – this one in Clinton, Iowa.  SMG then filed a second action for profits that would be expected from the management of that operation.

Wild Rose moved to dismiss the second case, claiming that it was barred by claim preclusion.  The district court granted the motion, the Court of Appeals affirmed, and the Supreme Court did the same on further review.  Five of the justices (Justices Waterman and Mansfield were recused) concluded that because Wild Rose unequivocally terminated the agreement, all claims for damages needed to be brought in one action.  Quoting from the Second Restatement of Contracts, the Court explained: “a breach by non-performance accompanied or followed by a repudiation gives rise to a claim for damages for total breach” that must be “based on all of the injured party’s remaining rights to performance.”  In this case, SMG tried to separate its damage claim into two separate actions.  That was impermissible, and thus the Court ruled that the second case was barred.

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