Wisconsin Business and Commercial Litigation

The Wisconsin Legislature recently passed a new statute defining “reasonable” attorney fees.  Effective on December 21, 2011, 2011 Wisconsin Act 92 lists categories to be taken into consideration in determining the reasonableness of attorney fees:

(a) The time and labor required by the attorney.

(b) The novelty and difficulty of the questions involved in the action.

(c) The skill requisite to perform the legal service properly.

(d) The likelihood that the acceptance of the particular case precluded other employment by the attorney.

(e) The fee customarily charged in the locality for similar legal services.

(f) The amount of damages involved in the action.

(g) The results obtained in the action.

(h) The time limitations imposed by the client or by the circumstances of the action.

(i) The nature and length of the attorney’s professional relationship with his or her client.

(j) The experience, reputation, and ability of the attorney.

(k) Whether the fee is fixed or contingent.

(L) The complexity of the case.

(m) Awards of costs and fees in similar cases.

(n) The legitimacy or strength of any defenses or affirmative defenses asserted in the action.

 In addition, the statute places a presumptive (and arbitrary) limit of three times the amount of compensatory damages awarded.  Because this is a new statute, there are now issues that will be litigated.  For instance, does the presumptive limit apply to reasonable attorney fees contractually recoverable in the completely successful defense of an action? 

The statute, I think, is a continuation of an effort to make Wisconsin more business-friendly.  While I favor the goal, I think that some of the measures taken to try to reach that goal (at least as far as litigation-related topics go) have been under-considered and appear to arise from common, and sometimes incorrect, conceptions about the legal system from those who don’t work in the legal system.  I don’t think this statute is going to make much difference at all, other than to give Wisconsin attorneys a statute to cite instead of case law.  Time will tell, though.

In Barricade Flasher v. Wind Lake Auto Parts, the Wisconsin Court of Appeals considered Barricade Flasher’s efforts to bring suit against Wind Lake in Racine County after failing to name Wind Lake as a defendant in an ongoing Milwaukee County case, also brought by Barricade.  

The procedural history isn’t complicated:

On February 12, 2008, Barricade filed suit in Milwaukee County against Jeffrey E. Bodendorfer Jr. and Sr., alleging theft, fraud, conversion, conspiracy, and breach of fiduciary duty.  The Bodendorfers subsequently sought contribution and indemnification from Wind Lake, and thus added them as third party defendants on November 2, 2009.  On February 15, 2010, the circuit court set a March 15, 2010 deadline for the parties to amend their pleadings.  Two weeks after the deadline, Barricade amended its summons and complaint to add Wind Lake as a defendant.  Barricade then filed a motion to extend the deadline to allow it to add Wind Lake. The circuit court denied the motion.

Barricade then filed suit against Wind Lake in Racine County for fraud.  Wind Lake filed a motion to dismiss pursuant to Wis. Stat. § 802.06(2)(a)10., which provides that a court may dismiss a lawsuit when there is “[a]nother action pending between the same parties for the same cause.”  Barricade argued that as it did not sue Wind Lake in Milwaukee County, its lawsuit in Racine County was not the same action.  The circuit court rejected this argument, stating that “both the Milwaukee County and the Racine County cases are going to deal with the same factual circumstances and the same parties (whether named or not).”  The court also noted that:

Barricade had every opportunity to commence an action against Wind Lake in Milwaukee County and was unable to do so in a timely manner. The Racine County action would cause the parties to essentially litigate the same case in two separate counties. While the relief sought is different, the underlying theory of recovery is not.

Barricade appealed, but the appellate court was also not a fan of the end run:

Barricade argues that its Racine County lawsuit should not have been dismissed because the parties differ from those involved in the Milwaukee County lawsuit.  The defendants in the two Aon lawsuits, however, differed as well, yet we held that the circuit court properly dismissed the second lawsuit because Aon did not demonstrate how the claims it raised in the second lawsuit could not have been brought in the first lawsuit, or why the defendant in the second lawsuit could not have been named in the first lawsuit.  Id.  Bringing a new action against a different party is not enough to get around Wis. Stat. § 802.06(2)(a)10.  As the circuit court noted, the Racine County lawsuit against Wind Lake is based on facts and circumstances that would be brought out in the Milwaukee County lawsuit.  There is no basis for Wind Lake to defend itself against two lawsuits stemming from the same claim.  Barricade had its chance to add Wind Lake as a party and did not do so.  Barricade’s only remedy is to appeal the Milwaukee County circuit court’s decision to deny Barricade’s motion to extend the deadline to amend its complaint.  See Aon, 289 Wis. 2d 127, ¶44.

The lesson for Wisconsin attorneys is to do your best to get all defendants lined up when you find out about them, and follow, to the extent possible, the scheduling order put in place by the court.  My experience is that judges are typically sympathetic to good reasons, and to those who want the ability to present their positions, as long as other parties are not improperly disadvantaged.  But it’s always preferable not to find that out the hard way.

In Radley v. Ives (Oct. 20, 2011), the Wisconsin Court of Appeals wrestled with the costs statute, Wis. Stat. 814.01.  In this medical malpractice case, William Radley was hospitalized following a heart attack.  While his discharging physician recommended daily anticoagulant tests, a ThedaCare physican at the Veterans Home where Radley moved determined daily anticoagulant testing was unnecessary.  Radley died of excessive blood loss two days after the first anticoagulant test was performed. 

ThedaCare stipulated that its negligence in monitoring Radely’s anticoagulants were a substantial factor in causing his death, and that, because it was responsible for about $10,000 in funeral expenses, the court could answer the funeral expenses question on the jury verdict.  A trial was held regarding pre-death pain and suffering caused by ThedaCare, in which the jury awarded no damages. 

Following the trial, the plaintiff submitted a bill of costs pursuant to Wis. Stat. 814.01(1).  Over ThedaCare’s objections, the trial court awarded costs to the plaintiff.  The appellate court agreed with the trial court, reasoning:

 Based upon the plain language of Wis. Stat. § 814.01(1) and Hartwig’s interpretation of “recovery” in an early version of the statute, we conclude that a plaintiff obtains a “recovery” and is entitled to statutory expenses under § 814.01(1) when litigation results in a court judgment awarding a recovery. A prevailing plaintiff for purposes of § 814.01(1) is a plaintiff who is awarded a recovery in a judgment, not, as ThedaCare incorrectly suggests, a plaintiff who obtains a recovery as a result of a recovery dispute resolved by a trial.

The lesson here is that when settling and permitting a judgment to be taken, be aware that the rule in Wisconsin is that costs will be awarded unless the parties agree differently. 

Dr. Tom photo courtesy aue04117’s photostream via this license.

This is a big one — a business dispute within a large Wisconsin company fanned by the flames of bitter inter-family arguments between a father and his two sons.  The father, Jack Link, and his two sons, Jay and Troy Link, were all shareholders in Minong, Wisconsin based Link’s Snacks, which you may recognize as “Jack’s Snacks” from the popular “Messing with Sasquatch” ad series.  

In 2005, Jack and Troy filed suit seeking to force Jay to surrender his stock in the company.  Not to be outdone, Jay counterclaimed, alleging that Jack and Troy had conspired to force him out of the company and buy his shares at a discount price.  After a six week jury trial, it became apparent that Jack, Troy, and Jay had all breached duties, and awarded a variety of damages.  The court forced Jay to sell his shares, and found that he, a minority shareholder, had not been oppressed under Wis. Stat. 180.1430(2)(b).  The jury also awarded punitive damages in the amount of $5 million to Jay from Jack, and for $5 million from Jay to Link’s Snacks. 

A flurry of post-verdict motions followed.  Interestingly, Jack filed his motions at 4:32, two minutes after the close of business on the due date.  Luckily for him, the clerk accepted the filing, anyway.  The post-trial motions convinced the trial court to reduce the punitive damages verdicts, and the result was:

Jay was ordered to pay $1 in compensatory damages and $1 in punitive damages to Link Snacks and $1 in compensatory damages and $1 in punitive damages to L.S.I., and Jack was ordered to pay Jay compensatory damages in the amount of $736,000 and punitive damages in the amount of $736,000.

Everyone appealed.  The Wisconsin court of appeals affirmed the reduction of punitive damages awarded to Link’s Snacks and to LSI;  reversed the reduction of the $5 million punitive damages award to Jay, because Jack’s post-verdict motions were untimely, and could not form the basis for a reduction;  and decided that because Jay surrendered his shares as ordered by the court, the benefit-estoppel doctrine acted to waive his right to appeal any other portion of the trial court’s verdict.

To make a long story even longer, the Wisconsin Supreme Court, in a decision written by Justice Gableman, decided the case this way:

(1) The circuit court erred in remitting the award of punitive damages against Jack. The circuit court’s reliance on Treadway in considering Jack’s tardy postverdict motion was misplaced. Treadway does not apply to multi-phase civil actions, such as the instant case. Further, we would decline to extend the bright-line rule of St. John’s Home in order to limit the discretion of the clerk of circuit court in accepting pleadings received after usual business hours. Accordingly, we affirm the court of appeals in its conclusion the circuit court improperly considered Jack’s postverdict motion.

(2) The court of appeals properly rejected Jay’s oppression claim under Wis. Stat. § 180.1430(2)(b). We do not address, however, whether Jay waived his right to bring his oppression claim under the benefit-estoppel doctrine because we conclude he does not have standing to appeal his oppression claim under § 180.1430(2)(b). The statutory language of § 180.1430(2)(b) clearly states that a party must be a “shareholder” in order to seek judicial dissolution of a corporation. Jay lost his status as a shareholder in Link Snacks when he surrendered his shares under the Buy-Sell Agreement. Therefore, we affirm the court of appeals on this issue, but on different grounds.

(3) Jay did not, under the benefit-estoppel doctrine, waive his right to appeal the circuit court’s decision to limit the evidence Jay could present regarding his theory of damages relating to his breach of fiduciary duty claims against Jack and Troy. The contractual obligations set forth in the Buy-Sell Agreement, which were enforced by the circuit court, would not be affected if Jay, on appeal, was successful in arguing that the circuit court erred in limiting the evidence Jay could present regarding his theory of damages relating to his breach of fiduciary duty claims against Jack and Troy. Consequently, the benefit-estoppel doctrine is inapplicable to Jay’s appeal of the circuit court’s decision to limit the evidence Jay could present regarding his fiduciary duty damages theory relating to his breach of fiduciary duty claims against Jack and Troy. We therefore reverse and remand to the court of appeals to decide whether the circuit court erred in limiting the evidence Jay could present regarding his theory of damages relating to his breach of fiduciary duty claims against Jack and Troy.

This is a fascinating case for anyone involved in shareholder litigation, and a cautionary tale for all litigators.  Get your motions and other papers filed timely!  When it comes to high-stakes litigation, the need to address all details can soak up the time you need to get the documents to the court.  While this sort of thing can happen to anyone, the Supreme Court has signalled its position on leniency.

In Mahoney v. Menard (Aug. 17, 2011), the Wisconsin Court of Appeals reviewed a motion to dismiss arising from the plaintiff’s service of an authenticated but unsigned complaint.  Even though a signed copy was filed with the court, Menard argued that the lack of a signature on the served complaint was a fundamental defect, and the court therefore lacked personal jurisdiction.

The Court of Appeals disagreed, finding that the defect was technical in nature, and upholding Kenosha County Judge Schroeder’s denial of the motion to dismiss:

Obviously, the copy of the summons and complaint received by Menards was not identical to the one filed in that it was missing signatures, so the clerk erred by authenticating the unsigned copy, and the attorney erred by failing to sign it. However, Menards has not alleged that its copy differed in any substantive way from the original. So, it is obvious to us that the copy of the summons and complaint Menards received gave it notice that the allegations contained within it were on file with the court. As we already explained, the purpose of the signature requirement was fulfilled in the signed complaint on file with the court. We cannot see how the purpose of the authentication requirement in Wis. Stat. § 801.02 was unfulfilled based on the missing signature alone. So, yes, there was a defect. But it was a technical defect, not a fundamental one.

Despite this court’s willingness in this case to overlook such a defect, the decision certainly could have gone the other direction.  In any event, it caused a lot of additional cost to both parties to chase this one down.  It’s best to avoid all defects if you can — although none of us is perfect — but when one arises, this case may assist you in demonstrating technicality.

In Casper v. American Intern. South. Ins. Co., the Wisconsin Supreme Court took on three different issues, all important in business litigation.  The case arose from a collision between a truck driven by a trucker full of three different drugs and a minivan with a Sheboygan family on vacation in Milwaukee.  Multiple serious injuries resulted, and a lawsuit with numerous defendants (and plaintiffs) followed. 

Part way into the litigation, the plaintiffs sought to obtain a default judgment when a defendant’s excess insurer (National Union) failed to answer the fifth amended complaint within 45 days.  National Union, of course, claimed excusable neglect under Wis. Stat. 801.15(2)(a), because, although it followed its claims procedures, the complaint was “lost in the mail.”  Accepting National Union’s argument, the Supreme Court provided some guidance to lower courts when faced with similar circumstances:

At the court of appeals, the Caspers argued that “lost in the mail” cannot constitute excusable neglect as a matter of law. The court of appeals rejected this argument, and we agree. We cannot reject out-of-hand the possibility that a packet was actually “lost in the mail,” although courts should be skeptical of glib claims that attribute fault to the United States Postal Service. Here, the affidavits from Weisinger and Lanphear show that these individuals acted in normal fashion and that their established routine worked previously to provide timely answers to the plaintiffs in this case. When an entity is processing thousands of complaints, a few inadvertent mishaps are bound to occur. Courts should carefully scrutinize what steps an organization has taken to avoid such mishaps, how quickly the organization responds when it discovers its delinquency, and whether its delay has caused prejudice to the plaintiffs. The circuit court here considered these factors, and the Caspers have not shown that the circuit court erroneously exercised its discretion after considering all the circumstances involved.

Not content with dodging a fairly strong motion for default judgment, National Union moved for summary judgment, arguing that  the plaintiffs could not maintain a direct action claim when National Union’s policy of insurance was neither delivered nor issued for delivery in Wisconsin.  The court considered Wis. Stats. 632.24 and 631.01, along with Kenison v. Wellington Insurance Co., 218 Wis. 2d 700, 582 N.W.2d 69 (Ct. App. 1998).  The court expressly overruled Kenison and granted the plaintiffs the ability to pursue direct action against National Union:

Consequently, we hold only that Wis. Stat. § 632.24 applies to any policy of insurance covering liability, irrespective of whether that policy was delivered or issued for delivery in Wisconsin, so long as the accident or injury occurs in this state.

Finally, the Supreme Court avoided taking up the potential individual liability of corporate officers for negligence in the performance of their duties as a corporate officer by finding that in this case public policy precluded liability, even if it were available.

car accident photo courtesy digitizedchaos via this license

In Ciccantelli v. Bishop’s Grove Condo Association, 2011 WI 36, the Supreme Court addressed a challenge by Bishop’s Grove to the attorney representing the Ciccantellis.  Opposing parties often make noise about conflicts of interest, but typically, unless there’s a current conflict or past representation on an issue directly related to the case, it goes nowhere.  Here, though, the Supreme Court broadened the standing requirements for parties to disqualify opposing counsel. 

The main issue was whether a nonclient party (one who is not a former or current client of opposing counsel) had standing to to move for disqulification of opposing counsel.  The court, in a bit of a fractured opinion, found that they do, but disagreed about how to make that decision.  Justices Abrahamson, Bradley, and Crooks, joined in part by Justice Prosser, effectively broadened the standing requirements to include nonclient parties.  Justices Roggensack, Gableman, and Ziegler agreed that the requirements should be broadened, but disagreed on the analysis required for the determination. 

In short, this case means that nonclient parties can move to disqualify opposing counsel when opposing counsel (or his or her firm) has has represented a nonparty on matters closely tied to the case.  For more analysis of the decision, have a look at Joe Forward’s article for the State Bar of Wisconsin.  This decision is sure to bring a rise in disqualification motions as parties and lawyers test the parameters of the new standards.

Writing for the State Bar, Timothy Edwards does a good job of breaking down the new language relating to awards of costs and fees for a frivolous action.  While the language relating to payment (assuming a finding of frivolousness) now makes award of costs and fees mandatory, I don’t expect to see a big change in the impact of the law.  The determination of frivolousness still requires a higher burden of proof (clear and convincing), and the typical finding that the claim or claims are without any factual or legal support.  Judges haven’t been very anxious to exercise their power in this way in the past, and there’s no reason to think this new language will alter that approach.

Due to a recent decision on the business records exception to the hearsay rule, this has been something of a hot topic.  A fellow southeastern Wisconsin blogger recently wrote about the subject, giving a thorough and typically well-thought-out explanation of the exception.  He discusses the recent Palisades Collection case and the often-missed hearsay-within-hearsay that can appear in business records.  From what I’ve seen of Milwaukee County Circuit Judge DiMotto’s blog “Bench and Bar Experiences,” it’s been a review of various rules of evidence, and the Judge’s take on them.  If you get into the courtroom, have a look at it.  It’s definitely worth the time.

In Johnson v. Cintas Corp. No. 2, the District II court of appeal reviewed a default judgment entered by Judge Bastianelli in Kenosha County.  The  plaintiff’s summons named Cintas Corp. as the defendant, and was served on Cintas Corp.’s registered agent.  When Cintas Corp. didn’t answer, the plaintiff moved for a default judgment.  At the hearing on the default, Cintas Corp. informed the judge that the correct party was a different entity — Cintas Corp. No. 2 (a wholly-owned subsidiary of Cintas Corp.), the plaintiff’s employer.  The court granted the plaintiff’s oral motion to amend the summons to name Cintas No. 2, and immediately granted the motion for default judgment against Cintas No. 2. 

The court of appeal reversed the default judgment, reasoning that Cintas No. 2 had never been properly served:

A Wisconsin court obtains personal jurisdiction through correct service of process upon a defendant. See WIS. STAT. 801.05.  The United States Constitution requires that a court have personal jurisdiction over a defendant in order to render a judgment in a civil suit.  See Haselow v. Gauthier, 212 Wis. 2d 580, 586, 569 N.W.2d 97 (Ct. App. 1997); see also U.S. CONST. amend XIV.  In order to comply with due process, Wisconsin law mandates a strict compliance with all procedural elements of service.  Mech v. Borowski, 116 Wis. 2d 683, 686, 342 N.W.2d 759 (Ct. App. 1983) (“Wisconsin requires strict compliance with its rules of statutory service, even though the consequences may appear to be harsh.”).  These requirements include naming the defendant in the summons and complaint. WIS. STAT. §§ 801.02(1), 801.09(1).

Pursuant to WIS. STAT. § 801.02(1), “[A] civil action in which a personal judgment is sought is commenced as to any defendant when a summons and a complaint naming the person as defendant are filed with the court.”  WISCONSIN STAT. § 801.09(1) provides that the summons shall contain the names of the parties to the action.  “Proper commencement of an action serves two purposes: it gives notice and confers jurisdiction.”  American Family Mut. Ins. Co. v. Royal Ins. Co. of Am., 160 Wis. 2d 455, 459, 465 N.W.2d 841 (Ct. App. 1991).  Indeed, a court has jurisdiction only over the parties named.  This court has observed, “Citizens deserve the legal protection of being specified as a party to a lawsuit before jurisdiction attaches over them.  Any court action taken before the party is named is a deprivation of that protection.”  Bulik, 148 Wis. 2d at 446.

Because the summons and complaint that were served did not accurately name the defendant, and were not served on the proper defendant, the court lacked authority to enter default judgment. 

Even if you know what the dispute is all about, read the summons and complaint carefully, including the captions.  You never know what fun defenses you might find.

Astronaut twins photo courtesy oskay’s flickr gallery via this creative commons license.