Wisconsin Court Nixes Settlement Negotiated Without a Lawyer

October 25th, 2012 admin No comments

Yeah, the title is a bit self-serving, but check out the case before you cast stones. 

The parties in Betz v. Diamond Jim’s Auto Sales (October 16, 2012) were anxious to reach a settlement.  So anxious, in fact, that they negotiated an agreement without including their lawyers until the actual settlement document was signed.  The problem, at least from the plaintiff’s lawyer’s point of view, was that Betz had agreed that his lawyer, in exchange for taking the case, would either recover a portion of the settlement value, or attorney’s fees recovered under one of the consumer-protectoin statutes cited in the complaint.  Betz’s settlement didn’t account for either.

Betz’s lawyers sought a variety of relief, including setting aside the contract and adding to the settlement value the attorney’s fees, but the trial court found the settlement agreement was enforceable.  The court of appeals disagreed, citing the reasons for fee-shifting statutes and the policy reasons for making sure that there’s an incentive for lawyers to take small-dollar consumer-type cases:

The law in Wisconsin and elsewhere is clear: Although, generally, nothing forbids a party from settling with a represented party without the presence or consent of the represented party’s lawyer, such settlements, like all contracts, are scrutinized in light of public-policy interests. The public-policy considerations here are obvious; as we have seen, the legislature created fee-shifting statutes to help persons who might not otherwise get legal redress. To permit one side to go behind the backs of the other side’s lawyers in order to get a settlement that removed the fee-shifting incentives that prompted the lawyers to take the case, would nullify the legislative fee-shifting scheme.

It is true, of course, that the client retains the right to settle or not settle, on terms that he or she deems appropriate. SCR 20:1.2 (“A lawyer shall abide by a client’s decision whether to settle a matter.”). But to sustain the settlement here, where, as we have seen, Betz assigned to Megna Betz’s rights to collect attorneys fees, violates the public-policy considerations inherent in the legislature’s creation of the fee-shifting statutes.

Sometimes, settlements are better worked out without lawyers present — I’ve had clients settle their own disputes, in fact.  But based on this case, Wisconsin attorneys should take care in talking with their clients about the possibility of a negotiated settlement without the lawyers present.  Caution should especially be taken in cases that involve fee-shifting statutes.  This case indicates that the appellate courts will rigorously scrutinize non-lawyer settlement agreements that don’t account for the statutory attorney’s fees. 

photo courtesy stephend9’s photostream via this license

The Sticky Wicket of Arbitration Clauses

October 19th, 2012 admin No comments

In Mortimer v. Merge Technologies, the Wisconsin Court of Appeals considered the ruling of Milwaukee Circuit Court Judge William Brash regarding the arbitrability of a dispute between a company and its former CEO.  The result is a quick review of the law of arbitrability and an application of a relatively unremarkable tenet of contract construction. 

Mortimer and Merge entered into an employment agreement in 2004 that contained an arbitratoin provision requiring the application of the rules of the American Arbitration Association.  The contract, as do most contracts, prohibited oral amendment.

A dispute between Merge and Mortimer eventually led to a breach of contract claim against Merge, which Merge sought to stay pending mandatory arbitration, citing the written contract.  Mortimer argued that the written contract had been superseded by oral terms and conditions, essentially creating a new contract that did not contain an arbitration provision.  The circuit court agreed, but the appellate court didn’t. 

The 2004 contract states that “[n]o amendment or modification of this Agreement shall be valid or binding upon the Company unless made in writing and signed by an officer of the Company duly authorized by the Board or upon the Executive unless made in writing and signed by him.”  Although the circuit court found that Merge’s conduct effectively created an oral contract, the record shows that no such modifications or changes eliminating an arbitration requirement were ever made in writing, as required by plain language of the 2004 contract.  Mortimore’s arguments essentially reveal a process of negotiation by which Merge agreed to new contractual terms as a result of Mortimore’s position as interim-CEO.  The 2004 contract contemplated that amendments or modifications, such as those negotiated between Mortimore and Merge, would be enforceable and binding only if made in writing.  Thus, any dispute pertaining to the amendment or modification of the 2004 contract necessarily arises out of the 2004 contract, thereby maintaining the arbitration clause.  By not challenging the validity of the 2004 contract, Mortimore implicitly agrees that if the 2004 contract controls, arbitration is required.

The lesson for Wisconsin attorneys is that when drafting or reviewing an arbitration provision, remember Wisconsin’s statutory inclination toward arbitration.  I’m not a huge proponent of arbitration, at least in most cases, but that’s neither here nor there.  The legislature has chosen to encourage it, and most form arbitration provisions default to making arbitrability an issue for an arbitrator, rather than a judge.  If it seems kind of circular, that’s because it is.

Dead Man’s Statute Alive and Well in Wisconsin

October 9th, 2012 admin No comments

There are a lot of evidentiary statutes out there, and one of the least liked is the dead man’s statute.  The statute (Wis. Stat. 885.16) prohibits evidence from a witness that would benefit the witness if the evidence was a communication or transaction with someone now dead.  Many states have done away with it completely, but while Wisconsin courts continue to suggest similar action, and various Wisconsin Bar committees request removal, the legislature leave it on the books, and the courts have to keep applying it. 

The latest application comes in Rutter v. Copper (Oct. 4, 2012), in which the Court of Appeals recounted all the criticisms and then applied the statute anyway, because that’s what courts have to do.  In this case, the parties owned three adjoining parcels of land, situated so that the Rutters, when moving from one owned parcel to another owned parcel, were required to cross over a portion of the Copper property.

The Rutters claimed that, after more than 20 years of crossing over, they had established a prescriptive easement.  Not so fast, argued the Coppers — their predecessor in interest, Tower, had orally granted permission for such crossings years ago, defeating the prescriptive easement claim.  Unfortunately for the Coppers, that oral permission was granted to a person now deceased, and because Tower owned a life estate in the property (which meant that her testimony would benefit her), the court prohibited testimony relating to the oral grant of permission:

The Towers appeal a circuit court judgment declaring that Gary D. Rutter and Jeanne M. Rutter possess a prescriptive easement on the Tower property.  The Towers assert that the circuit court erred in its application of § 885.16.  Specifically, the Towers argue that the proper application of § 885.16 renders Beulah Tower competent to testify that she gave the Rutters’ predecessor-in-interest, Laverne Hutson, permission to use a land corridor on the Tower property in a conversation with Hutson in 1962.  We conclude, under controlling case law and on the specific facts before us, that § 885.16 prohibits Beulah Tower from testifying about her having given Laverne Hutson permission to use that corridor in a conversation with Hutson in 1962.

The Court of Appeals addressed three of the most commonly argued exceptions to the dead man’s statute (the witness didn’t qualify as an “interested party” under the statute; the oral grant was not a “communication” under the statute; and the door to the evidence was opened by the plaintiff), and reiterated the extensive criticism of the statute.  Perhaps the most interesting observation of the Court of Appeals was made in reference to the communication argument, when the Court opined that while the Supreme Court espouses a strict interpretation of the statute, it has conversely “laid down a fairly broad rule for applying the statute to statements made to deceased persons.”

Although the statute isn’t used much, it can be a make or break in many cases, particularly those involving property.  Since this is the latest and greatest analysis, Wisconsin lawyers should take the time to read this case.

Reach Out and Touch Someone — Wisconsin’s Latest Interpretation of Its Long-Arm Statute

September 21st, 2012 admin No comments

In Johnson Litho Graphics v. Sarver (Sep. 6, 2012), the Court of Appeals considered a defendant’s argument that he had insufficient contacts with the state of Wisconsin to justify personal jurisdiction by its courts.  Defendant Sarver (at various times a resident of Illinois and Arizona) initiated telephone contact with Johnson Litho to establish a business relationship that included placing, changing and confirming order, payment, and directing shipment of those orders. 

Sarver refused to pay for one of the orders, and Johnson Litho sued him in Eau Claire County Circuit Court.  Sarver successfully sought dismissal from the trial court for lack of personal jurisdiction, but the court of appeals reversed.  Its analysis is worth reading in detail for Wisconsin lawyers who work with clients that do business with foreign companies.

Most surprising to me was the court’s reading of Wis. Stat. s. 801.05(5)(d), which provides personal jurisdiction in any action which: “[r]elates to goods, documents of title, or other things of value shipped from this state by the plaintiff to the defendant on the defendant’s order or direction.”  Sarver argued that because Johnson Litho had never shipped anything to Sarver, this provision did not create jurisdiction.  Based on the plain language of the statute, he’s right.  Not so fast, said the court of appeals: 

We conclude that the meaning of the phrase “to the defendant” in Wis. Stat. § 801.05(5)(d) includes shipping goods from Wisconsin to third parties at the defendant’s order or direction. This construction of § 801.05(5)(d) is consistent with the admonition that courts are to construe the long-arm statute liberally in favor of exercising jurisdiction.

The remainder of the decision is a detailed review of the facts of the case and application of various principles of long-arm jurisdiction.  Definitely a case worth reading the next time a foreign party is involved. 

Long arm statue photo courtesy Jim Linwood via this license.

Wisconsin More Intensely Scrutinizes Records Custodians

September 13th, 2012 admin No comments

In the unpublished Arch Bay Holdings v. Gartland (Aug. 30, 2012), the court of appeals took a hard look at the evidentiary foundation of an affidavit underlying a motion for summary judgment in a foreclosure case.  While this case is unpublished, it’s a warning to Wisconsin attorneys that over the past few years the courts appear to be looking more closely at the foundations for records custodians and those who provide evidentiary affidavits.  See, e.g., Palisades Collection LLC v. Kalal, 2010 WI App 38, 324 Wis. 2d 180, 781 N.W.2d 503.

In this case, Arch Bay moved for summary judgment on its foreclosure claim, supporting the motion with an affidavit:

In support of its motion, Arch Bay submitted … an affidavit of a person whose handwritten name looks like Susan Ceduc, an employee of Marix Servicing, LLC (“Marix”).  In the affidavit, Ceduc refers to Marix as a “loan servicer” and lists her title as “Contested Foreclosure Liaison.”  Copies of the following documents are attached as exhibits to Ceduc’s affidavit: an assignment of mortgage from GMAC or another entity to Arch Bay; an unsigned letter addressed to Gartland and dated October 2, 2009, representing that his mortgage was “in default” with the “amount due and owing” allegedly totaling $3,233.75; and a five-page document purporting to be a “history for account” of GMAC, reflecting payments made or not made on the mortgage loan.

The trial court granted judgment, but the appellate court was not impressed with the affidavit:

As this court explained in Palisades, simply stating that the affiant is the current custodian of records is insufficient to satisfy the requirements of Wis. Stat. § 908.03(6). Palisades, 324 Wis. 2d 180, ¶20.  A testifying custodian of records “must be qualified to testify that the records (1) were made at or near the time by, or from information transmitted by, a person with knowledge; and (2) that this was done in the course of a regularly conducted activity.”  Id.  The Ceduc affidavit does not meet these qualification requirements.  Other than simply reciting that Ceduc has inspected the records, the affidavit does not state facts showing that Ceduc has personal knowledge of how the attached records were prepared and whether they were prepared in the ordinary course of GMAC’s business.

On a personal note, I had a judge in the last couple of years refuse to permit testimony from a records custodian despite the fact that the person was a corporate representative provided in response to a subpoena directing the appearance of the records custodian, and setting forth in detail the requirements in the statute.  While it turned out to not make a difference in the outcome of the case, you can be sure that since then, third-party records custodians in my cases have received much more intensive attention and investigation.  Often, the business records themselves are not impeachable, and so opposing parties will attack the foundation for those records.  It’s best to be prepared for that, or to use it to your advantage.

Photo courtesy MC4 Army via this license.

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Unjust Enrichment Requires the Return of Stolen Money

September 5th, 2012 admin No comments

About a year ago, I wrote about a case in which I represented an accounting firm from whom an employee (Shinabargar) stole $60,000 in order to repay a previous employer (Good To Go) from whom the employee had also stolen money.  The trial court found in my client’s favor under a theory of unjust enrichment, and directed Good To Go to return the money.  Good To Go appealed, and we got the appellate decision this past week in Anderson v Good To Go Quik Mart (unpublished).

The appellate court upheld the Waukesha County Circuit Court Judge Hassin’s decision, which was based, as you can see from the appellate decision, on the idea that Good To Go knew or should have known that Shinabargar had merely stolen from someone else to repay the debt:

The circuit court found that, knowing all too well that Shinabarger was a thief, Good to Go had reason to be wary when, a short while after being fired, Shinabarger “rolls up with $60,000 in satisfaction of a larger debt[] he acknowledged he had stolen you can’t basically cover up and say I don’t want to know where you got that money.” The court continued:

One is [left] with the thought it’s simply nothing more than a case of rob Peter to pay Paul. Somehow Paul seems to want to keep the money even though he knew it was in satisfaction of a theft.

….

If nothing else it’s not a matter of good public policy that we permit people to keep money that is stolen regardless of whatever circumstances they may have been victimized.

Although the defendants argued that the court should have applied the innocent transferee for value defense to the unjust enrichment claim, the court declined for two reasons.  First, the defense has never been used in Wisconsin in this type of case.  Second, the defense is based upon the good faith of the party receiving the money.  Here, as the trial court found, Good To Go was not an innocent transferee.

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Claim Preclusion Arises from an Affirmative Defense

August 20th, 2012 admin No comments

In WPSC v Arby Construction, 2012 WI 87 (July 11, 2012), the Wisconsin Supreme Court decided that a claim need not be stated as a claim to give rise to claim preclusion.  In fact, the Court decided that the mention of the circumstances giving rise to the claim as part of an affirmative defense was sufficient to trigger claim preclusion.  I’ll spare you the fairly complicated relationship between the multiple parties, and cut to the chase of the Supreme Court’s inquiry:

[T]he issue is whether the actual statement of a claim as an affirmative defense is substantively the same as its statement in a cross-claim. If the statement is substantively the same, as we conclude it is, then a claim has actually been raised, and we do not need to decide whether AEGIS was required to raise the claim.

Id., at Par. 34.  The affirmative defense was raised in a federal case that was later dismissed, including all contibution and counterclaims between the parties to the state case in which WPSC and AEGIS sought common law and contractual indemnification against Arby Construction. 

To be fair, the affirmative defense in the federal case was very specific:

That, upon information and belief, based upon the contractual language and other agreements between Wisconsin Public Service Corporation and Arby Construction, Inc., Arby Construction, Inc. and its insurers and reinsurers is required to fully defend, indemnify and hold harmless Wisconsin Public Service Corporation and its insurers with respect to the negligence and any other act or violation alleged against Wisconsin Public Service Corporation in this case, and any damages asserted against Wisconsin Public Service Corporation and its insurers or reinsurers in this matter.

(emphasis added).  This affirmative defense was later incorporated by yet another affirmative defense:

As and for a third and separate affirmative defense, this answering defendant alleges, upon information and belief, that as an excess indemnity insurer, it is liable only if one or more of its insureds is found to be liable, and, therefore, to that extent, any affirmative defense available to its insureds is available to it and, therefore, this answering defendant affirmatively incorporates by reference any affirmative defense raised by any of its insureds, namely, Arby Construction, Inc., Wisconsin Public Service Corporation and/or [Ferrellgas, Inc.] and/or Ferrellgas, L.P.

(emphasis added). 

Although AEGIS argued that it hadn’t pled its claim as a claim, but rather as an affirmative defense, the Court characterized its analysis as looking to the “substance” of the language, rather than the labels the party chose to affix.  This application of claim preclusion isn’t a change from the current state of affairs so much as a clarification.  While the current state of claim preclusion authority made this a likely outcome (the trial court reached the same decision), the Court’s review and clarification of the principles of preclusion make this case worth reading for Wisconsin attorneys.

More on the Wisconsin Supreme Court’s Sizzler Decision: Attorney Fees Under the Weinhagen Exception to the American Rule

July 25th, 2012 admin No comments

In a previous post, I promised more when I’d had a chance to thoroughly read and consider the Supreme Court’s decision in Kriefall v Sizzler.  I’ve been through the Court’s reasoning on attorney fees a few times now, and I’m left with the feeling that the Court didn’t clarify much of anything when it addressed the Weinhagen doctrine (in other jurisdictions, this doctrine is often called something like “tort-of-another”). 

Weinhagen, published in 1922, provides an exception to the American rule that parties to litigation pay their own attorneys regardless of success.  According to the Court, Weinhagen held that “an innocent party, wrongfully drawn into litigation with a third party, may recover those fees reasonably incurred in defending against such action.”  The Court’s application of the law to the facts of the Kriefall case raises questions. 

For instance, the Court first requires that there be some showing of a wrongful act, similar to fraud or a breach of fiduciary tudy by the party from whom the fees are sought.  By requiring more than mere negligence, the Court reasons, it “preserves access to justice without fear that a litigant will be liable for her opponent’s attorney fees if she loses.”  While interesting, this statement is totally inapplicable to a Weinhagen-type case where an innocent party is pulled into litigation as a result of another’s wrongdoing.    Rather, the Court’s analysis applies only to plaintiffs who seek the help of the courts, and certainly not to an innocent party that is trying to avoid being pulled into litigation in the first place. 

The Court next goes on to suggest that there’s a distinction between seeking attorney’s fees arising from defending a tort action versus defending a contract action.  The Court appears to reason that because Sizzler’s relationship with Excel (the meat producer) was one based in contract, and the plaintiff’s claims against Sizzler were based in tort, Sizzler could therefore not recover its attorney’s fees from Excel. 

In the end, the Court determined that Sizzler had not “demonstrated that Excel engaged in wrongful conduct as to Sizzler.”  I’m not sure how this conclusion arises from the tort/contract issue, or what it has to do with a potential plaintiff’s decision to seek relief from the court system, and I invite those of you who’ve read this case to explain it to me.  I could obviously use the help.

Milwaukee’s M Magazine Names Me a Top Milwaukee-Area Litigator

July 9th, 2012 admin No comments

Since there’s no one else on this blog that will sing my praises, I guess I have to do it myself.  M Magazine, Milwaukee’s Lifestyle Magazine, has a history of naming the top doctors in the area.  This year the magazine added a profession, and published its first list of Top Lawyers.  The attorneys selected by M Magazine comprise the top 2-5% of lawyers in and around Milwaukee. 

I am honored to be included as one of 31 named as Milwaukee’s leading litigators.

Be sure to check M Magazine’s list for lawyers in other categories, including divorce, DUI, tax, and bankruptcy.

Wisconsin Supreme Court Issues Decision in the Milwaukee Sizzler e. coli Case

June 29th, 2012 admin No comments

After 12 years, two rounds at the court of appeals, and a shot at the U.S. Supreme Court, the litigation surrounding the 2000 Milwaukee e. coli outbreak is finally concluded.  Maybe.  Today, the Wisconsin Supreme Court issued its decision, which upholds in all respects the court of appeals’ previous decision (see my June 24, 2011 post).

For Sizzler (whom I represented in this case), this means that Excel (the meat company that sold the tainted meat to Sizzler’s franchisee) owes the jury verdict of about $7.5 million for lost profits and the $1.5 million that Sizzler paid to settle the Kriefall’s claim.  The Supreme Court did not award to Sizzler its attorneys fees, which Sizzler sought under the Weinhagen doctrine (also known in other states as the “tort of another” doctrine).  More on this particular issue as I have a chance to further review and reflect on the court’s analysis. 

The other party seeking recovery from Excel was E&B, Sizzler’s franchisee, the company that ran the Sizzler restaurant where the biggest outbreak occurred, and where Brianna Kriefall ate.  As to E&B, the Supreme Court awarded partial indemnification by Excel for E&B’s payments to settle with other outbreak plaintiffs, limited by the percent of negligence (80%) the jury attributed to Excel.

This case is the Supreme Court’s most recent review of principles of implied warranty, equitable and contractual indemnification, contribution, and subrogation.  It deserves a thorough reading, which I have not yet had a chance to give it (the case was posted around 7:30 this morning).  I will have more from this case to discuss coming up next week, when I’ve had a better chance to digest what the court did and said.