Wisconsin Business and Commercial Litigation

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.

On April 29, 2009, a very divided Wisconsin Supreme Court addressed, in a thorough if fractured manner, issues of direct claims for breach of fiduciary duty to a minority shareholder and judicial dissolution.  The decision in Notz v. Everett Smith Group, et. al, 2006AP3156, arises from a motion to dismiss, so it is particularly instructive for those of us drafting or responding to initial pleadings.  However, don’t make the mistake of thinking this case will be a quick read.

The unanimous Court permitted Notz’s fiduciary breach claims based on a so-called “constructive dividend” to proceed, along with his claim for judicial dissolution.  This decision was exhaustively explained, with Roggensack writing a separate concurrence (joined by Gableman) and Bradley also writing a separate concurrence (joined by Abrahamson).  Ziegler did not participate. 

Where Bradley and Abrahamson parted ways with the rest was on the majority’s dismissal of Notz’s claims for breach of fiduciary duty based on loss of corporate opportunity.  Bradley’s arguments that the majority’s reasoning is inconsistent are definitely worth having a look at.