Wisconsin Business and Commercial Litigation

Back in July of 2010, I wrote about Cottonwood, a court of appeals case holding that class-action waivers run afoul of Wis. Stat. § 421.106(1), and are therefore unenforceable against consumers.  Then came Cottonwood II, in which the Wisconsin Supreme Court on December 20, 2011 considered the US Supreme Court case AT&T Mobility LLC v. Concepcion, 131 S. Ct. 1740 (2011), and its impact on the Cottonwood decision.  According to the Wisconsin State Bar’s Joe Forward,

However, in Concepcion, the nation’s high court ruled (5-4), that the Federal Arbitration Act (FAA), section 2, preempts state laws that classify “most collective-arbitration waivers in consumer contracts as unconscionable.” Id. at 1746, 1753.

After Concepcion, the Wisconsin Supreme Court vacated Cottonwood I and remanded for reconsideration. In Cottonwood II, the appeals court ruled that, “[i]n light of Concepcion,” the classwide arbitration waiver at issue “is enforceable and is not substantively unconscionable.”

Thus, under Concepcion and Cottonwood II, Wisconsin consumers cannot challenge similar arbitration provisions.

You can read the rest of Forward’s article here. 

But now there’s a new twist to the story.  The Supreme Court, on January 11, withdrew its Dec. 20 opinion.  It’s anyone’s guess as to where we’re headed from here, but it certainly seems like this won’t be good news for any Wisconsin business with a class-action waiver in its consumer contracts.

On Friday, January 13th, 2012, the Supreme Court heard oral argument from the three remaining parties to the litigation arising from a 2000 e. coli outbreak at a Milwaukee-area Sizzler restaurant.  This case, begun in 2000, is the longest-running I’ve ever been involved with. 

The issues presented to the court have implications for warranty and UCC interpretation, equitable indemnity, the Weinhagen exception to the American attorney fee rule, and contractual indemnity and offset for insurer payments.  If you’re interested in reviewing the briefs filed with the Supreme Court, you can find them on the appellate version of CCAP, called WSCCA (Wisconsin Supreme Court and Court of Appeals Access).  For easy access and searching, the appellate case number is 09AP1212 (a number I will likely not be able to forget).  The court of appeals briefs are available on the same page.

This decision is sure to hold interest for pretty much all Wisconsin attorneys who practice in civil litigation.  The court of appeals decision, authored by Judge Fine and filed on June 7, 2011, is available here.

The Wisconsin Supreme Court has accepted the Milwaukee Sizzler e. coli case for review.  As explained by the Wisconsin Bar,

A three-year-old child died and others became ill after ingesting E. coli contaminated meat at two Milwaukee-area Sizzler area restaurants in 2000. Now, Sizzler USA is fighting to obtain damages and attorney fees from the supplier of beef containing the strain.

The Wisconsin Supreme Court accepted review in Estate of Kriefall v. Sizzler USA Franchise, 2009AP1212/2010AP491, a case in which franchisor Sizzler USA obtained a $6.5 million lost profits award from the meat supplier, Excel Corp., for breaching an implied warranty of merchantability.  Sizzler USA is also seeking $1.7 million in attorney fees and costs incurred in defending the personal injury suit.

The court is asked to examine legal issues related to damage/lost profit limitations for breaches of express and implied warranties, indemnification, and attorney fees.

Although not specifically mentioned in the article above, the court of appeals also awarded to Sizzler $1.5 million that it paid to settle the underlying plaintiff’s claim against Sizzler, which is also part of the Supreme Court review.  The case is a tangle of appeals and cross-appeals, and should make for interesting reading when the Court releases its decision.

I’ve been working on this case since 2005 with  my partner Russ Klingaman.  Since the case was originally filed in 2000 or so, it’s good to see that we’re getting close to a resolution.

In Bushard v. Reisman, 2011 WI 51, the Wisconsin Supreme Court applied Wis. Stat. 178.15 to a unique set of facts.  However, the holding reaches beyond the listed facts, and expressly brings Wisconsin into line with most other states that have adopted the Uniform Partnership Act. 

In Bushard, two partners started a dial-up internet access company (quaint, right?) in western Wisconsin.  In 1999, when the relationship between the partners went south, Bushard sent a letter to Reisman, expressing the desire to wind up the partnership, to sell the business to a third party, or to sell to Reisman Bushard’s interest in the partnership.  The partnership was never sold, and Reisman continued to operate the partnership for years.  The company paid draws to both partners and a salary to Reisman. 

In 2006, when dial-up was following 8-tracks, cassettes, and CD players down the tubes, and Reisman wrote to Bushard limiting the monthly partnership draws, the partnership dispute reached a head.   Bushard sued, alleging that Reisman had no authority to take a salary, and seeking an accounting.  Reisman counterclaimed, essentially arguing that Bushard had been admirably compensated for years, and that it would be inequitable to make Reisman pay anything back.

Reisman asserted that because Bushard sought wind-up in 1999, the partnership as of 2006 was in the process of winding up, rather than continuing.  Further, because Bushard had absented himself from the running of the business since 1999, Bushard could be compared to a partner that died, and Wis. Stat 178.15(6) should apply:  “No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his or her services in winding up the partnership affairs.”  That is, Reisman should be paid for his efforts in running/winding up the business for the past 7 years.  Seems fair — after all, Bushard collected his partnership payouts for those years, and did nothing to encourage Reisman to actually wind up the business.

Not so fast, according to the Supreme Court.  Reisman, if he wished to protect himself from such an outcome, could have prevailed upon Bushard to agree in writing to pay the salary, or better yet, prepared a more complete partnership agreement:

The apparent inequity that results in this case underscores the value of a written partnership agreement. Commentators have explained that “the partnership statute is, to a large extent, a standard form agreement that can be varied by the parties. Because the standard form often produces unwanted results, partners are well advised to give careful advance consideration to dissolution and its consequences and to draft explicit agreements.” Bromberg & Ribstein, supra, § 7.01(c). 

If the provisions of the UPA are unsatisfactory, partners can and should protect their interests by agreeing to different terms. In the absence of an agreement modifying the provisions of the UPA, a court should decline from fashioning an after-the-fact remedy in pursuit of an equitable result when that remedy contravenes the public policy choices established by the legislature. 

We conclude that the distribution of PressEnter’s profits and losses is governed by Wis. Stat. § 178.15. Reisman’s arguments about equity are insufficient to overcome the plain language of the statute.

Clients often think attorneys are intent on squashing business deals, that lawyers can focus too much on the unlikely bad outcome and weigh the business decision down with a myriad of what ifs and cautionary tails.  Clients are often exactly right in their perceptions, too — but it’s cases like this that demonstrate that there’s a happy medium that must be achieved between the desire to move the deal forward and the desire to protect against at least the most likely bad outcomes.  The best lawyers work cooperatively with their clients to achieve the results the clients desire while protecting from the worst (or most likely) of the possible risks.

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 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.

Beloit Liquidating holds that corporate officers and directors do not owe fiduciary duties to the corporation’s creditors until the corporation is both insolvent and no longer a going concern.  There was the distinct possibility of a change to the rule when the District IV court of appeal invited the Supreme Court to have another look and all but begged for a change in Polsky v. Virnich. 

However, it was not to be.  When Justice Ziegler did not participate, the outcome was a 3-3 tie.  Prosser, Roggensack, and Gableman would have affirmed the appellate court ruling (favoring the corporate officers).  On the other side of the fence, Abrahamson, Bradley, and Crooks would have overturned the appellate court ruling (resulting in a change to the rule).

Joe Forward of the Wisconsin State Bar does a nice job in summarizing the issue.

In Tews v. NHI, LLC, 2010 WI 137 (Dec. 21, 2010), the Wisconsin Supreme Court addressed the relation back of pleadings by a plaintiff to avoid the statute of limitations.  Tews was injured when he stumbled into a transformer station operated by WEPCo.  Unfortunately, and for a number of reasons, he named WEEnergies, among others, in his complaint, and didn’t add WEPCo until after the statute had run.  When WEPCo moved to dismiss the complaint, Tews argued that his complaint should relate back because WEPCo had notice of the claim and but for a mistake, would have been properly named.

The procedural facts are too complicated to list here.  Suffice it to say that the Court read the relation back principle expansively to give Tews another kick at the cat:

The purpose of the relation-back statute, Wis. Stat. § 802.09(3),⁽²⁾ is to ameliorate the effect of the statute of limitations in a situation where the opposing party has received fair notice of the claim. When a defendant is added as a party after the applicable limitations period and all the requirements of the relation-back statute are satisfied, fair notice has been provided, and the added defendant has been given the full benefit of the protections that the statute of limitations was intended to provide.

The relation-back statute as applied here requires first that the claim asserted in the second amended complaint arose out of the same transaction, occurrence, or event set forth in the original complaint. There is no dispute that this requirement is satisfied. Second, the relation-back statute requires that within the time period provided by law for commencing an action, WEPCo received such notice of the institution of the action that it will not be prejudiced in maintaining a defense on the merits. Third, the relation-back statute requires that within the time period provided by law for commencing an action, WEPCo knew or should have known that but for a mistake concerning the identity of the proper party, the action would have been brought against WEPCo.

One other interesting part of the opinion addresses just how to categorize motions to dismiss versus motions for summary judgment, and more importantly, whether a response to a summary judgment motion is required to present facts by affidavit or not.  Both the majority and the dissent (Ziegler, Crooks, and Gableman) agree that a motion for summary judgment need not come forward with affidavits.  However, the dissent implies that respondents must present their facts by affidavit, while the majority requires only that the facts be of record (admissions in responsive pleadings, for instance):

It bears emphasis that, even though the statute does not always require affidavits to be filed in a proceeding for summary judgment, the best and safest practice is to do so. Attorneys who fail to support or oppose a motion for summary judgment with an affidavit do so at their own peril.

The discussion, both of the relation back principle and the evidentiary requirements to oppose a motion for summary judgment are well worth the read.

Transformer photo courtesy MontyPython’s flickr gallery via this creative commons license.

Like many others, I took a little time off around the holiday, and now I’m playing catch up on Wisconsin business and commercial litigation cases that came out late in 2010.  The case below has a good discussion of the application of merger clauses and the parol evidence rule, a must for anyone who deals with contracts even occasionally.

In Town Bank v. City Real Estate, 2010 WI 134 (Dec. 14, 2010), the parties signed a commitment letter outlining the expected financing for a condo development in Milwaukee, Wisconsin.  Later, the parties signed a Term Credit Agreement (TCA) that included a merger clause encompassing all previous agreements and discussions.  When the relationship fell apart, and City Real Estate had to obtain alternative financing, Town Bank sought a declaration that it had fully complied with the TCA, and City Real Estate counterclaimed for breach.

The Supreme Court summarized the applicable merger clause / integration law and its effect on the application of the parol evidence rule:

However, as Town Bank accurately points out, when the contract contains an unambiguous merger or integration clause, the court is barred from considering evidence of any prior or contemporaneous understandings or agreements between the parties, even as to the issue of integration. See Dairyland Equip. Leasing, 94 Wis. 2d at 608; Matthew, 54 Wis. 2d at 341-42. Again, this principle stems from basic contract law: if the contract is unambiguous, the court’s attempt to determine the parties’ intent ends with the language of the contract, without resort to extrinsic evidence. See Huml, 293 Wis. 2d 169, ¶52. In Dairyland Equipment Leasing, this court defined a merger clause as a “written provision which expressly negatives collateral or antecedent understandings.” 94 Wis. 2d at 608. Thus, by definition, an unambiguous merger or integration clause demonstrates that the parties intended the contract to be a final and complete expression of their agreement. See id.; Matthew, 54 Wis. 2d at 341-42. The contract is therefore fully integrated, and the parol evidence rule goes into effect.

In the end, the Court determined that the merger clause effectively integrated the agreements between the parties, and the parol evidence rule applied.  As a result, the Court also determined that the TCA had been fully complied with, and affirmed the decision of the appellate court.  Justices Bradley and Abrahamson dissented, providing good fodder for arguments on both sides of future merger clauses.