Want to Sue? Make Sure You Can Prove Your Damages, and You Weren’t the First to Violate the Agreement

If you’re going to sue somebody, make sure you didn’t first violate the agreement, and if you’re going to make a claim for damages, make sure you can establish them with reasonable certainty.  These are the two important concepts addressed in Accredited Home Care vs. Champion Nursing Care. 

Facts

Accredited and Champion entered into an agreement where Accredited would manage Champion’s nursing home, and ultimately, take over the business upon governmental approval of the transfer of Champion’s Medicare provider number to Accredited.  As part of the agreement, Accredited represented that it had “never been sanctioned, excluded, or debarred under Medicare, Medicaid, or any other state or federal program.”  Once Champion found out Accredited had been barred from billing Medicaid, it terminated the Agreement.  Accredited then sued Champion for failing to pay for services.  Champion then filed a counterclaim for damages created by Accredited’s inability to manage the contract and Champion’s facilities. 

Court’s Analysis

First and most importantly, Accredited’s breach of contract claim was thrown out, because longstanding Michigan law states that the party who commits the first substantial breach of a contract cannot later maintain an action against the other party to the contract for failing to perform.  In essence, to preserve your rights, you need to perform your obligations. 

Once Accredited’s claims were thrown out, the trial court focused on whether Champion had adequately made its case for damages.  The court stated that “uncertainty as to the fact of the amount of damages caused by the breach of contract is fatal.”  It’s important for clients to always remember that “the party asserting a breach of contract has the burden of proving its damages with reasonable certainty and may recover only those damages that are the direct, natural, and proximate result of the breach.”  This standard is often forgotten in many cases. and one of the many reasons I have lengthy conversations when clients want to sue another party. 

The Court ultimately ruled that Champion did not prove its damages, so it was not awarded any compensation for Accredited’s breach.

A corollary to this is that it often makes sense to have a liquidated damages clause to eliminate having won the battle (i.e., the lawsuit), but lose the war (recovering nothing, because you couldn’t prove your damages). 

Lessons Learned

The lessons learned from this case.  If you’re going to file a lawsuit because the other party violated the agreement, make sure you haven’t breached first.  As well, when you make a claim for damages, make sure you can establish them with adequate certainty.  Otherwise, your court victory will be worthless. 

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