                            In the

United States Court of Appeals
               For the Seventh Circuit

Nos. 09-2418 & 09-2482

L OUIS AND K AREN M ETRO F AMILY, LLC, et al.,

                                            Plaintiffs-Appellees,
                                              Cross-Appellants,
                               v.



L AWRENCEBURG C ONSERVANCY D ISTRICT, et al.,

                                        Defendants-Appellants,
                                              Cross-Appellees.


             Appeals from the United States District Court
      for the Southern District of Indiana, New Albany Division.
 No. 4:06-cv-177-WGH-DFH—William G. Hussman, Magistrate Judge.



     A RGUED D ECEMBER 7, 2009—D ECIDED JULY 29, 2010




 Before C UDAHY, W OOD , and E VANS, Circuit Judges.
  W OOD , Circuit Judge. Louis and Karen Metro would
like very much to acquire some land that they believe
the City of Lawrenceburg, Indiana, and the Lawrenceburg
Conservancy District promised to convey to them. The
option contract their company held, however, was pre-
2                                  Nos. 09-2418 & 09-2482

mised on the construction of a flood control project that
the City and the District had planned. When that project
was abandoned, the District told the Metros that their
option could no longer be exercised. This lawsuit, brought
under the diversity jurisdiction, asserts that the City and
the District breached their contract with the Metros’
business. The district court found for the plaintiffs and
ordered reformation of the option contract to extend
the date by which the option could be exercised, but it
rejected the Metros’ request for money damages on the
ground that their proof of injury was too speculative.
We agree with the district court that the contract was
breached. The remedy that the court ordered, however,
needs some additional attention, and so we remand for
that limited purpose.


                             I
   Louis and Karen Metro are both citizens of Ohio. They
are the sole members of a limited liability company,
Metro Family, LLC, that owns properties and rents them
to businesses in Ohio and Indiana. Southern Ohio Pizza,
an Ohio corporation that the Metros own, operates Dom-
ino’s Pizza franchises in properties that it leases from
Metro Family. One of its pizza shops was located on the
west bank of Tanners Creek, which is a tributary of the
Ohio River. Tanners Creek bisects Lawrenceburg, which
itself is situated at the point where Ohio, Indiana, and
Kentucky meet.
  Several times during the 20th century, floods have
surged down the Ohio River from the east and have
Nos. 09-2418 & 09-2482                                  3

overwhelmed the river’s tributary system and the
adjacent towns. In 1997, a particularly bad flood hit
Lawrenceburg, prompting the City to entertain the idea
of building a new levee. It turned to the District to
carry out any such plans. In 2000, the City and the
District inaugurated the Westside Flood Protection
Project, which had the goal of building a flood wall
along the west bank of Tanners Creek, just where
Metro Family’s property (on which a pizza shop was
operating) was located. In order to fund the project, the
City and the District entered into a contract entitled
the Extension of Revenue Sharing Agreement, dated
December 21, 2000, under which each party promised to
use the revenue from a riverboat casino for that purpose.
   This arrangement enabled the District to move forward
with the acquisition of land along Tanners Creek. One
parcel it needed was the spot where Metro Family had
its Domino’s franchise. It notified the Metros that it
intended to acquire the property using its eminent domain
powers. About ten months later, a professional appraiser
concluded that the fair market value of the property
was $417,000.
  In the meantime, as required by Ind. Code § 32-24-1-5,
the District sent an offer to Metro Family to purchase
the property for $417,000. The Metros were not satisfied
with this offer, and so negotiations ensued. On July 19,
their lawyer counteroffered for terms calling for Metro
Family to receive $417,000 and an option contract. The
District accepted the counteroffer, and the parties signed
the modified agreement on October 31, 2001. Paragraph 2
read as follows, in relevant part:
4                                   Nos. 09-2418 & 09-2482

      At the time of closing, which shall occur on or
    before November 30, 2001, District shall execute an
    irrevocable Option in favor of Metro [Family] wherein
    Metro shall have the right to purchase 0.827 acres
    of the real estate described in Exhibit A and the ad-
    joining 0.555 acres . . . for a purchase price of . . .
    $269,490.00 . . . . [The option] shall be exercisable for
    a period of eighteen (18) months commencing with
    the date written notice of Substantial Completion of
    the District’s facilities is given by the District to
    Metro by registered mail . . . .
Exhibit A contained the legal description of the 1.4-acre
parcel of land, sometimes called the Taylor tract, to which
the option applied. Unfortunately, the agreement did not
address what would happen if the levee project was not
completed. The deal was closed on November 30, 2001.
  At the time the option was executed, the District in-
tended to use the property solely for the construction of
the levee. But, as the poet Robert Burns famously observed,
    The best-laid schemes o’ mice an’ men,
    Gang aft agley,
    An’ lea’e us nought but grief an’ pain,
    For promis’d joy!

“To a Mouse, On Turning Her Up in Her Nest With
the Plough” (1785). Only two months after signing the
agreement, the Common Council of Lawrenceburg
passed a resolution withdrawing its funding from the
levee project. This unraveled everything: without City
funding, the District decided that it could not go forward
on its own. It estimated that the cost of completion
Nos. 09-2418 & 09-2482                                   5

was somewhere between $29 and $32 million; it had
only $20 million available for the project at the time;
and the District did not want to raise taxes.
   Left with the property for which it had paid $417,000,
the District eventually conveyed it to the City. The
City then decided to put it to an alternative use, and
a highway bridge now exists on the area that was to be
used for the levee project. The parcel described by
the option contract is now virtually unusable, because
it lies underneath a new extension of Indiana Route 50.


                            II
  Proceeding by agreement before a magistrate judge,
see 28 U.S.C. § 636(c), the parties participated in a bench
trial. The district court found that as of the time the
agreement was executed, it was not ambiguous, because
everyone concerned expected that the levee project
would be completed within a reasonable time, and that
there would be enough land behind the levee for Metro
Family to exercise its option and rebuild its pizza store.
When the City decided to withdraw funding for the
project, the court concluded, the essential purpose of the
agreement failed. Under Indiana law, such an occurrence
creates a latent ambiguity in the document. The court
thus turned to extrinsic evidence, principally from the
negotiating history of the option agreement (which it
reviewed in detail in its opinion), and drew from that
the conclusion that Metro Family should be entitled to
exercise its option even if the levee project was never
completed.
6                                   Nos. 09-2418 & 09-2482

  The court also found that the District did not defini-
tively decide to abandon the project until as late as Dec-
ember 4, 2003. The evidence indicated that no member
of the District ever communicated to Metro Family
that the option could not be exercised until at least
August of 2005. To the contrary, on several earlier occa-
sions, District representatives expressed the hope to
Metro Family that the project would be resumed or com-
pleted and thus that the option would eventually be
usable. As the court saw it, Metro Family relied on
these representations when it allowed its building to be
demolished, which happened some time after Feb-
ruary 2002.
  At the bench trial, Metro Family offered evidence in
an effort to prove that the City’s and District’s actions
had caused it to suffer a lost future stream of income. The
court, however, found their expert’s account to be too
speculative to give it any weight. It also found that Louis
Metro’s testimony about the fair market value of the
property on the date of the taking and about the
damage caused to him by the destruction of the building
was too vague to support any conclusions.
    The court summarized its findings as follows:
     . . . Metro Family has proven: (1) the existence of an
     Option contract; (2) that the contract contained a
     latent ambiguity; (3) that the intention of the parties
     was to allow Metro Family to exercise the Option if
     the Levee Project was not completed; (4) that [the
     District] breached the Option contract by refusing to
     allow Metro Family to exercise the Option within
Nos. 09-2418 & 09-2482                                   7

   eighteen (18) months of [the District]’s final decision
   not to proceed with the project, which in this case
   is its decision to convey the Property to the City.
It found that Metro Family was not entitled to money
damages for the breach, however, because of a failure
of proof. That said, the court found that the market
value of the property was “$417,000 plus the right to
exercise the Option.” (Emphasis in original.) Even though
there was no evidence of the monetary value of the
option, the court thought that reformation of the con-
tract was appropriate, because the parties had made a
mutual mistake of fact. It thus ruled, both on that ground
and under the theory of promissory estoppel, that Metro
Family was entitled to exercise the option within 18
months of the date of its order.
  The City and the District appealed from the court’s final
judgment, and the Metro Family parties cross-appealed
from the court’s decision to refrain from awarding dam-
ages.


                            III
                            A
   Everyone agrees that Indiana law applies in this case.
Like the law of every state of which we are aware, it
provides that an unambiguous contract should be given
its plain and ordinary meaning, Reuille v. E.E. Branden-
berger Constr., Inc., 888 N.E.2d 770, 771 (Ind. 2008), and
that no extrinsic evidence is admissible to explain the
terms of such an agreement, Univ. of S. Ind. Found. v.
8                                   Nos. 09-2418 & 09-2482

Baker, 843 N.E.2d 528, 532 (Ind. 2006). When the con-
tract is ambiguous, however, extrinsic evidence is permis-
sible to explain the intentions of the parties. Reuille,
888 N.E.2d at 771.
   Here, the district court decided that the abandonment
of the project created a latent ambiguity that required the
use of extrinsic evidence. The court interpreted that
evidence to show that both parties intended, through the
option contract, to allow Metro Family to buy back the
property, whether or not the project was completed.
Accordingly, the defendants’ failure to allow the plain-
tiffs to exercise the option within 18 months of the
decision to cancel the project was a breach of the contract.
  Neither party challenges the conclusion that a breach
occurred, and so we do not second-guess it here. Instead,
we move directly to the question whether the court
abused its discretion by deciding to invoke the equitable
remedy of reformation. This can be used in Indiana only
(1) when there was a mutual mistake such that the
written instrument does not reflect the parties’ intentions,
or (2) when there has been a mistake on the part of one
party accompanied by fraud or inequitable conduct
by the other party. Carr Dev. Group, LLC v. Town of
N. Webster, 899 N.E.2d 12, 13 (Ind. App. Ct. 2008).
  The City and the District argue that reformation was
inappropriate here, because there was no mutual
mistake of fact at the time the option contract was
formed. As of then, funding for the project was secure
and no one doubted that it would be completed. The
City’s removal of its funding, they continue, was an
Nos. 09-2418 & 09-2482                                    9

independent future event, and predictions are not a
proper basis for reformation. Metro Family responds
that both parties were mistaken about a present fact: the
security of the funding for the levee project. Had anyone
realized that the funding could be revoked so easily,
they would have provided for the “no action” possibility
in the contract.
  The real problem here, no matter what label we use,
stems from the fact that the parties to this contract failed
to allocate the risk that the levee project would be can-
celed. In such a situation, on whom should the loss
fall? There is an argument that the risk should lie on
the party who wants to compel additional compensa-
tion—here, Metro Family. Supporters of that view might
point to the fact that under Indiana law, the burden of
proof with respect to the amount of damages in an
eminent domain case lies on the landowner. See, e.g.,
Gradison v. State, 300 N.E.2d 67, 75 (Ind. 1973). On the
other hand, it is established in Indiana and elsewhere
that “the basic measure of damages in eminent domain
cases is the fair market value of the property” at the
time of the taking, and that value is “the price at which
property would change hands between a willing buyer
and seller, neither being under any compulsion to con-
summate the sale.” State v. Bishop, 800 N.E.2d 918, 923
(Ind. 2003) (internal quotation marks omitted). We know
exactly what that price was, in this case, because the
October 31 agreement tells us. As the district court prop-
erly found, the price had two components: a payment
of $417,000 in cash, plus an option to re-purchase for
$269,490 specified land behind the levee. If we were to
10                                    Nos. 09-2418 & 09-2482

relieve the District (and now the City, the District’s suc-
cessor in interest) of the obligation to make good on the
option, then it would be getting the property for less
than its fair market value. There is no doubt that Metro
Family sold its property to the District in response to the
impending eminent domain proceedings. In the absence
of any evidence suggesting that it intended to forgive
part of the price if the levee project was abandoned,
we think that an Indiana court would probably place
the risk of that event’s occurrence on the District.
  As we read Indiana cases, this is the result that they
would reach using the rubric of mutual mistake. The
case of Jay County Rural Electric Membership Corp. v. Wabash
Valley Power Association, Inc., 692 N.E.2d 905 (Ind. App. Ct.
1998), is helpful in sorting out who has the better argu-
ment. The court there summarized Indiana law on
mutual mistake:
     [W]here both parties share a common assumption
     about a vital fact upon which they based their
     bargain, and that assumption is false, the transaction
     may be avoided if, because of the mistake, a quite
     different exchange of values occurs from the ex-
     change of values contemplated by the parties . . . . It is
     not enough that both parties are mistaken about any
     fact; rather, the mistaken fact complained of must
     be one that is of the essence of the agreement, the
     sine qua non, or, as is sometimes said, the efficient
     cause of the agreement, and must be such that it
     animates and controls the conduct of the parties.
Id. at 158 (internal quotation marks and citations omitted).
Here, the district court was justified in regarding the
Nos. 09-2418 & 09-2482                                    11

completion of the project as the central purpose of the
agreement.
  The City and District have referred us to a number of
cases that stand for the unexceptional proposition that
predications cannot be the basis of mutual mistake. E.g.,
Jay County Rural Elec. Membership Corp., 692 N.E.2d at
912; United States v. Sw. Elec. Coop., Inc., 869 F.2d 310,
314 (7th Cir. 1989). But that is not what the district found,
nor what Metro Family has argued. Metro Family’s asser-
tion is that at the time the agreement was signed there
was a mutual mistake of present fact. The mutual mis-
take was that the project had reached the point beyond
which cancellation was out of the question. (One might
question how rational this factual assumption really was,
because legislative bodies from Congress down to the
smallest town council both have and exercise the
power to change appropriations when they wish, unless
the recipient actually has a vested right in the payment.
It is hard to imagine that anyone, least of all Metro
Family, had acquired a property right in the planned
levee. But no one has made anything of this point, and
so we do not either.)
  Although Metro Family has suggested that we might
affirm the district court on the alternate ground that
reformation was appropriate because of a unilateral
mistake, induced by fraudulent or inequitable conduct
on the defendants’ part, we do not believe that the
record is sufficiently developed to permit that step.
Furthermore, from what we do see before us, the City
and District did not engage in behavior so egregious
that it would qualify as either fraudulent or inequitable.
12                                  Nos. 09-2418 & 09-2482

  The alternate ground that the district court did reach
was that of promissory estoppel. Indiana courts have
applied this doctrine in the context of commercial con-
tracts. Lyon Metal Prods., Inc. v. Hagerman Const. Corp., 391
N.E.2d 1152, 1154-55 (Ind. App. Ct. 1979). Indiana
follows section 90 of the Restatement (Second) of Con-
tracts, which says:
     A promise which the promisor should reasonably
     expect to induce action or forbearance on the part of
     the promisee or third person and which does induce
     such action or forbearance is binding if injustice
     can be avoided only by enforcement of the promise.
     The remedy for breach may be limited as justice
     requires.
Jarboe v. Landmark Cmty. Newspapers of Ind., Inc., 644 N.E.2d
118, 121 (Ind. 1994) (quoting the Restatement (Second) of
Contracts § 90(1) (1981)). While no special words are
necessary to create the kind of promise the Restatement
describes, Indiana courts have said that an expression of
intention, prediction, opinion, or prophecy is not good
enough. E.g., Medtech Corp. v. Ind. Ins. Co., 555 N.E.2d
844, 847 (Ind. App. Ct. 1990).
  The district court decided that Metro Family relied on
the District’s promises to go forward with the project
even without the City’s support, and that its reliance
was reasonable. Metro Family states that, had it not been
for the District’s promises, it would not have stood by
quietly while its building was demolished, and it would
have tried to prevent the District from conveying the
property to the City. We do not regard this as Metro
Nos. 09-2418 & 09-2482                                  13

Family’s strongest argument. It cannot dispute the fact
that after the agreement of sale was concluded, the
District held title to the property. Under the circum-
stances, it is not clear how it would have prevented the
demolition and transfer. It is better off stressing the
simple fact of its undercompensation for its land. In
addition, what does appear to be reasonably supported
is the fact that the District continued to express hope
that the project would go forward until it finally told
Metro Family on August 31, 2005, that the District had
abandoned the project. On November 17, 2005, the
District followed up with a letter saying that Metro
Family could not exercise its option to purchase the
property.


                            B
  We thus find no fault in the district court’s finding
that the District and City breached the October 31 contract
(in particular, the option part of that agreement) and
that Metro Family is entitled to some kind of remedy
for that breach. The difficult question is what remedy
is supported by the record and appropriate. The
district court found that Metro Family failed to introduce
competent evidence of damages, commenting that the
expert testimony was “too speculative to base any
opinion about what the fair market value of the Metro
Family Property is or was, or to establish with any cer-
tainty the amount of any income stream lost from
an inability to exercise the option.”
  The plaintiffs had offered a few different estimates of
their damages. Their appraiser, Mr. Taylor, reported
14                                  Nos. 09-2418 & 09-2482

that Metro Family had lost close to $1 million in rents.
He based his calculation on the fact that Metro Family
had received $36,000 in gross annual rent in 2001, and
he then adjusted that number upward for inflation
each year for a 20-year period. After that, he deducted
10% of the gross income as maintenance expenses for
each year. This produced a number for lost rents between
2001 and 2021 of $971,727.35. (Taylor’s report was just a
five-column, 20-row Excel spreadsheet that provided no
explanation of his methodology.) Metro Family’s back-up
position was that it was entitled to at least $36,000
per year for a 10-year period. If neither of those was ac-
ceptable, it urged that it was entitled to lost rents from
the period between January 2002 (when the City canceled
the funding) and May 2009, when the district court’s
judgment was entered.
  The district court did not recognize the biggest problem
with this testimony, which was that it did not address
the right thing. Taylor was talking about how much
money someone could make by running a pizza shop
on that parcel of land, but that amount represents a
return to entrepreneurship, not the value of the land (or
more precisely the value of the option to purchase the
land). The value of the option depends on the difference
between what Metro Family could make by selling pizza
at that location, compared with what it could earn by
selling pizza at the best alternative location. See Van Zelst
v. CIR, 100 F.3d 1259, 1262-63 (7th Cir. 1996). Taylor
offered no opinion about that, and so his evidence
was not helpful at all.
Nos. 09-2418 & 09-2482                                    15

  This is not to criticize the district court’s assessment of
the value, or lack thereof, of these estimates; the court
was right about that, too. That means that we are left
with the fact that Metro Family has already received the
$417,000 component of the compensation promised in
the October 31 agreement, and that it has yet to receive
anything representing the option. As we noted at the
outset, the district court thought that the best way to
handle this was to reform the contract to change the
date by which the option could be exercised, from
18 months after completion of the project to 18 months
after the date of the opinion. That would have been a
reasonable decision if the 1.4 acres were still available
to purchase, from either the City or the District. But it
is not. The land itself has not vanished, obviously, but
it now lies beneath a spaghetti-bowl of freeway lanes
and is utterly inaccessible. It is plainly not a place
suitable for a Domino’s pizza franchise.
  In our view, the closest that one can come to making
Metro Family whole for the shortfall in compensation is
to determine how much it lost at the moment that the
option became impossible to exercise. The record does
not show when the highway was built, but that date is
important. If highway construction had not yet begun as
of November 17, 2005, when the District definitively
told Metro Family that it could not exercise its option,
then November 17, 2005, is the best date to use. If high-
way construction had begun, then it will be necessary
to look back further to see when the last time an objec-
tive assessment of the Taylor tract’s value would be
possible. If expert testimony shows that the tract on the
16                                 Nos. 09-2418 & 09-2482

relevant date was worth more than the option price of
$269,490, then Metro Family suffered a loss equal to the
difference between the actual value and the option
price; interest would also be due on any such loss, up to
the date when the damages are paid. If it was worth
the same or less than the option price, then Metro Family
did not suffer any damages and it should take nothing.
  The judgment of the district court is vacated and the
case is remanded for further proceedings consistent
with this opinion. Costs are to be assessed against the
District and the City.
                               V ACATED AND R EMANDED.




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