Wisconsin Business and Commercial Litigation

I don’t usually mention current cases that my firm is working on, but this one got some press, and it’s an interesting case.  While the claim is for legal malpractice rather than entirely business or commercial litigation-related, the underlying patent management concerns affect many of those who read this blog, and the damages issue will be much like any business litigation matter.  According to the Milwaukee Journal-Sentinel,

The Mequon makers of a device that measures the quality of gemstones have sued their former patent attorneys, contending they negligently let a critical patent lapse, allowing competitors to copy the valuable technology.

GemEx patented a process that scientifically measures and records the interplay of light reflecting and refracting within gemstones, according to the lawsuit, and offers an alternative to a jeweler’s subjective assessment of color, clarity, carat weight and cut.

According to the suit, filed in Milwaukee County Circuit Court, GemEx had the market for testing cut gems with scientific spectrophotometry to itself because its patent prevented others from using the proprietary process. The patent was issued in 1997 and would have lasted until 2014, the suit said.

But GemEx and UGTS say their patent lawyers failed to file a maintenance fee in 2004, and as a result the patent expired in 2005. Since then, competitors have been using the technology and cutting into GemEx’s share of the market, the suit contends.

The rest of the article is available at JSOnline.  My partners David Hanus and Tom McGarry represent one of the law firm defendants.

In Krier v. Vilione, released on June 10, 2009, the Supreme Court revisited issues addressed in Notz, previously discussed below, of shareholder claims, derivative action, and shareholder standing.   The difference is that the shareholder claims in Krier depend upon a showing of accountant malpractice, and a corresponding requirement that the plaintiffs demonstrate standing to bring a claim based upon an accountant assisting his shareholder brother rip off the corporation, which arguably resulted in damage to the other shareholders. 

As with Notz, the Krier case is not a quick read, but worth a look for those interested in shareholder issues and professional liability.  Once again, Bradley and Abrahamson part ways with their colleagues, this time complaining that the court doesn’t follow the reasoning established in Notz (which, ironically, Bradley and Abrahamson dissented from, as well).

In Krier, the majority decided that:

In summary: The plaintiffs do not have standing to assert these claims against the defendant for at least three reasons.  First, the plaintiffs’ claims are inconsistent with traditional corporate law principles and the damages sought are far beyond that afforded to a plaintiff in a derivative action.  In order to initiate a derivative action, a plaintiff must be a current shareholder of the subject corporation.  Second, the plaintiffs’ claims are quite distinguishable from accountant third-party liability jurisprudence, which has traditionally allowed claims for the foreseeable injuries resulting from the accountant’s negligent acts, i.e., the injuries that result when a third party takes action based upon reasonable reliance on misinformation provided by an accountant.  Third, the damages claimed by the plaintiffs do not correspond with the claims alleged

Bradley and Abrahamson argue that the majority’s reasoning is inconsistent with Notz:

This case and Notz are in direct conflict.  In Notz, one shareholder got a disproportionate financial benefit.  It was as though one shareholder was able to put money in its pocket while another was not.  The court concluded that because one shareholder did not receive the same financial benefit as the other, a direct claim could be maintained.  In this case, Michael Vilione actually did put corporate money in his pocket, yet the majority concludes that Krier, who did not receive the benefit, has no direct claim.  Ultimately, due to this conflict with Notz, the majority here confuses the law, giving practitioners and judges no real guidance.

 The plaintiff’s damage claim was also very creative, based upon an expert opinion of the future value of the company if the misappropriations had been prevented.

In Racine County v. Oracular Milwaukee, Inc., et al., dated April 8, 1009, the court of appeals was clear about one thing – computer consultants (whatever that means) are not professionals as that term is used in the tort of professional negligence.

Racine County contracted with Oracular for the installation of software and related training.  When the project lagged, Racine County terminated the agreement and sued Oracular for breach, and violation of Wisconsin’s false advertising statute (p 9).  Oracular moved for summary judgment, arguing that because the contract was one for professional services, and Racine County had not disclosed an expert witness, the claim should be dismissed.

The court could have simply decided that this case was not one for professional malpractice, and been done with it.  In fact, it pointed out that

A plaintiff who is injured by a professional’s malpractice wants to be made whole.  But the case at bar is not a malpractice action;  it is a contract action.  The County wants the benefit of the bargain; it does not seek to be “made whole.”

You’d think that would have been enough.  But, judges being lawyers too, more talking was required.  The court went on to address whether or not the contract was for professional services, and if so, whether expert testimony was necessary in litigating a breach. 

From two lower Federal court cases, the court pieced together the following characteristics of a profession:

(1) a requirement of extensive formal training and learning; (2) admission to practice by a licensing body; (3) a code of ethics imposing standards qualitatively and extensively beyond those that prevail or are tolerated in the marketplace; (4) a system of discipline for violating the code of ethics; (5) a duty to subordinate financial gain to social responsibility; and (6) an obligation of all members to conduct themselves as members of a learned, disciplined and honorable occupation, even in nonprofessional matters.

And

“professional” is commonly understood to refer to the learned professions, such as medicine and law.  .…  The court went on to remark, “[A] professional relationship is one of trust and confidence, carrying with it a duty to counsel and advise clients.”

Finally, the court reminded us that expert testimony is “not generally required” to prove negligence, and is an “extraordinary step” to be used for “unusually complex or esoteric issues” are involved.  The general rule, applicable “across the entire spectrum professional negligence cases,” is

While not required in every malpractice case, expert testimony will generally be required to satisfy this standard of care as to those matters which fall outside the area of common knowledge and lay comprehension.  Stated differently, but to the same effect, expert testimony is not necessary “in cases involving conduct not necessarily related to legal expertise where the matters to be proven do not involve ‘special knowledge or skill or experience on subjects which are not within the realm of the ordinary experience of [persons], and which require special learning, study or experience.’”

While this is not a Supreme Court case (and it doesn’t appear that the case was appealed), the guidance is worth noting.  If you’re suing a computer consultant, it just became safer to prosecute a case without expert opinion.  On the other hand, to do so may invite unwanted motion practice.  In any event, it’s best to make this decision after a thorough discussion with the client about the costs, risks, and benefits of retention versus non-retention.