Wisconsin Business and Commercial Litigation

In a case arising out of Madison, the Court of Appeals decided that to qualify under the business records exception to the hearsay rule, a party must provide testimony of someone with personal knowledge of how the business records were prepared and used.  Palisades Collection v. Kalal puts Wisconsin in the minority, according to Dave Ziemer of the Wisconsin Law Journal:

Nationwide, there is a consensus among the federal courts of appeal that third party business records are admissible evidence under the hearsay exception in FRE 803(6).

Ziemer’s article about the case provides some interesting insights into the Wisconsin rule and its comparison with other jurisdictions, pointing out many that go exactly the opposite direction:

However, there is a plethora of federal cases holding that records created by a third party and integrated into another entity’s records is admissible as the record of the custodian entity, provided the custodian relied on the accuracy of the record. (U.S. v. Adefehinti, 510 F.3d 319 (D.C.Cir.2007); Air Land Forwarders, Inc. v. U.S., 12 F.3d 1338 (Fed.Cir.1999); U.S. v. Childs, 5 F.3d 1328 (9th Cir. 1993); U.S. v. Duncan, 919 F.2d 981 (5th Cir. 1990); Resolution Trust Corp. v. Eason, 17 F.3d 1126 (8th Cir. 1994).)

The Eighth Circuit reaffirmed this principle just last month in Brawner v. Allstate Indemnity Co., No. 08-3544 (8th Cir., Jan. 8, 2010).

In addition, on facts materially identical to those in the case at bar, Massachusetts highest court held that the records were admissible business records. (Beal Bank, SSB, v. Eurich, 831 N.E.2d 909 (Mass. 2005).)

Regardless, for now, those of you who intend to rely on the business records of another company to prove your case would be wise to come prepared with a witness who has personal knowledge of the creation and use of those records.

Witness photo courtesy Extraordinary Chambers in the Courts of Cambodia flickr photostream through this creative commons license.

In Gillitzer v. Andersen, the court of appeals once again addressed the divisibility of various employment-related covenants.  Employees signed a contract agreeing that: 1)  if the employer paid for their electric apprenticeship training, and the employee left the company’s employ within four years, the employee would repay the training costs;  and 2) the employee would, for four years after leaving the company, not solicit present or past customers, employees, or disclose price or customer lists.  The employee defendants, of course, left before the four years was up and Gillitzer wanted its money back.

The employees claimed that the unreasonable non-compete provision, under Streiff v. American Family Mutual Insurance Co., 118 Wis. 2d 602, 348 N.W.2d 505 (1984), was indivisible from the admittedly reasonable repayment provision, and should therefore be struck down.  Gillitzer claimed that admittedly unreasonable non-compete provision, under Star Direct, Inc. v. Dal Pra, 2009 WI 76, 319 Wis. 2d 274, 767 N.W.2d 898, was divisible from the reasonable and enforceable repayment provision.

The court ducked the decision, finding the provisions divisible under both cases:

Both cases describe the divisibility test in terms of whether the provisions must be read together to determine the meaning of either. See Streiff, 118 Wis. 2d at 612; Star Direct, 319 Wis. 2d 274, ¶78. Both acknowledge the fact-intensive nature of the divisibility analysis. See id. We do not decide, because it is not essential to our resolution of this appeal, whether the Star Direct test for divisibility is new and different from the test set forth in Streiff. We conclude that under the court’s language in either Streiff or Star Direct, the training reimbursement provision is divisible from the non-compete provision.

Whether viewed under the Streiff or Star Direct language, the training reimbursement provision here is clearly divisible from the non-compete clauses.

For those involved in drafting, enforcing, or challenging non-compete or comparable provisions, take note of the court’s comments about both Streiff and Star Direct.

Contract picture courtesy ol slambert flickr gallery under this creative commons license.

In Polsky v. Virnich, the court of appeals has some suggestions for the Supreme Court.  The court of appeals is unhappy with the rule set forth in Beloit Liquidating, calling it “not sensible.”  Under Beloit Liquidating, a corporation’s officers and directors owe no fiduciary duty to the creditors of the corporation until the corporation is both insolvent and no longer a going concern:

The court’s decision flowed from its holding that “a corporation must be both insolvent and no longer a going concern before a duty is owed to the corporation’s creditors. “  . . .  The court concluded that the corporation was a going concern during the relevant period of time and, therefore, “any claim asserted by Beloit Corporation’s creditors for breach of fiduciary duty and any claim on behalf of Beloit Corporation resulted in no injury to the corporation.”

Polsky, par. 11.  While the Polsky court conceded that it was bound by Beloit Liquidating, it wasn’t happy about the situation. 

The court of appeals commented that the law in most jurisdictions applies a fiduciary duty to officers upon the corporation’s insolvency, regardless of the “going concern” analysis. 

The problem, as we see it, is this:  A business can be run as a “going concern” long after it is insolvent, thus making it a relatively simple matter for the officers and owners of a closely held corporation to strip many of the remaining assets of the “sinking ship” without fear of running afoul of a duty to creditors.  At oral argument before the supreme court, counsel for amicus Wisconsin Bankers Association explained that one consequence of diminished creditor protection is that creditors will make it more difficult and more expensive for many corporations to borrow money.  For example, according to the Association’s counsel, more ‘personal guaranties, regular audits, periodic examinations, [and] stricter underwriting’ will be imposed on corporate borrowers.  Therefore, it appears to us that corporations as a whole would benefit if our supreme court modified the Beloit Liquidating holding to bring it into line with the majority of other jurisdictions.

Stay tuned to this issue to see if the Supreme Court takes up this issue, and whether or not it concurs with its brethren on the lower court.  You can read more on this issue from Alex De Grande of the State Bar of Wisconsin. 

Decaying ship photograph courtesy Michael (mx5tx)’s flickr gallery under this creative commons license.

In what is one of the least surprising revelations of this relatively new year,

Rep. Marlin Schneider, D-Wisconsin Rapids, admitted to The Associated Press that he overstated his case when he said in a public hearing and a memo to lawmakers that he’s received hundreds of letters of complaint about an online court database.

Instead, as Scott Bauer points out in his article found on the Wisconsin Law Journal,

Turns out, he was only able to produce letters from 22 people who contacted his office since 2006 to complain that records on the database have hurt them even though their charges have been dismissed.

He had letters from 17 others who actually were convicted, but complained about the records being viewable to the public. Another 20 were commenting in general on his attempts to limit access.

Note that those are only people who thought that the sole basis of their mistreatment was the CCAP record of their own trail through our judicial system.  You wonder how many would be able to muster any kind of proof supporting their claim.  And even if all 22 could, does that mean that we need a blanket rule impacting all the people who use CCAP for legitimate, reasonable purposes?  Or does it make more sense to deal with the outlyers as just that — aberrations in an otherwise decently functioning system?

This initiative, like many others that are based on relieving just about everyone from just about everything that in any way relates to personal responsibility, is based on rhetoric, born of anecdote, and supported by the unrealistic position that just because someone didn’t pay for the last five things they bought or apartments they rented doesn’t mean they won’t pay for this one.  And, because the proponents are doing what they believe to be “right,” the ends often justify the means, and it doesn’t matter that the facts demonstrate that access to public court information (in this case, but insert whatever the issue may be — income requirements to show you can afford a loan you want, background check to determine if you’ve been convicted of a violent or sex-related crime before becoming employed by a school, etc) works for nearly everyone nearly all the time. 

Sometimes, in our rush to right each and every one of life’s unjust bumps, we forget that not every seemingly good idea needs to become a law.  All this reminds me of a line from one of my favorite movies:  “Doin’ good ain’t got no end.”  Too often, it’s also short on common sense.

In the Wisconsin Law Journal, Jack Zemlicka writes about a potential statutory change that would increase the statute of limitations on an intentional cause of action from two years to three years.  The additional time would bring the statute on intentional claims into line with the statue for negligent claims, which is already three years. 

From a practical perspective, it may not make much of a difference, except in cases where there are likely to be claims of both negligent and intentional action.  For instance, negligent hiring and supervision claims often include claims of intentional action by the employee, or claims of inadequate security which often include claims of an underlying attack by a patron or invitee. 

This change might also curb attempts by plaintiffs’ counsel to characterize intentional behavior as negligent in order to obtain the benefit of a longer statute of limitation.  While not often successful, this strategy can cause expensive motion practice which increase settlement leverage.

Although it’s not Wisconsin-related yet, those of you in in-house practice want to keep a close eye (if you haven’t already been) on a case currently up on appeal from the First Circuit to the Supreme Court:  U.S. v. Textron.  The issue in the case is the viability of the work product privilege as it relates to the work of in-house counsel.  Susan Hackett of the Association of Corporate Counsel filed an amicus brief with the court, and writes a great post on the topic.  As I said, although it’s not a Wisconsin court, the case will impact what you do for your company and how you do it.

Although Wisconsin’s rules of civil procedure don’t currently deal specifically with e-discovery, the spectre of continuing increases in the number of cases that require it may force action sooner rather than later.  Jack Zemlicka of the Wisconsin Law Journal writes:

According to the Wisconsin Judicial Council, about 25 other states are considering or have already implemented rules incorporating elements of the 2006 amendments to the Federal Rules of Civil Procedure pertaining to e-discovery.

The Judicial Council recently presented a petition to the state Supreme Court seeking many of the same updates, including enabling parties to specify the form or forms in which electronically stored information is to be produced and a “safe harbor” provision that would prohibit court sanctions if a party fails to produce electronically stored information lost as a result of routine operation of a system

The Council is also recommending that business records be allowed to be produced in electronic form and that parties be permitted to request an opportunity to test or sample materials sought in addition to inspecting and copying them. However, the petition includes commentary from the Federal Rules of Civil Procedure Advisory Committee notes stating that “courts should guard against undue intrusiveness resulting from inspecting or testing such systems.”

One of the major problems with the current proposal, points out Zemlicka, is that there is no claw-back provision.  Given the volume of production and the time required to review the information, claw-back has become a mainstay of the federal system.  Of course, nothing official has happened yet, but stay on your toes — it’s sure to impact you one way or another.

Photo courtesy Robert S. Donovan’s Flickr gallery under this creative commons licence.

I’ve just signed on to attend (and my firm will sponsor) the annual conference of the Wisconsin Chapter of the Association of Corporate Counsel.  From the looks of the materials from past conferences, it’s a great way to brush up on issues vital to in-house counsel, and to stay (or get) in touch with lawyers who practice in business law, whether that means employment, litigation, or transactions.  Having run a trade association before, I can tell you that this chapter’s board of directors is more involved than most and takes a hands-on approach to the convention.  That sort of involvement inevitably results in programs that offer great value and insight for the members.  I look forward to being a part of this year’s event, and will keep you updated as the program takes more definite shape.

In Parkland Plaza Vet. Clinics v. Gerard, the court of appeals upheld Waukesha County Judge Ralph Ramirez’s restrictions on Gerard’s access to courts.  The court describes Gerard’s “Quixotic tilting at windmills,” and her frequent and unfounded tilting practices.  As a result of Gerard’s actions, Judge Ramirez imposed a number of sanctions “designed to protect the court and its staff from her vexatious conduct”:

That the Clerk of Courts for Waukesha County shall no longer accept any filings or correspondence from Gerard or anyone on her behalf;

That any documents or filings that are received by mail are to be sent back to Gerard’s last known address without review by the court or clerk;

That only upon proof of payment in full ($2,538.82) to Parkland Plaza Veterinary clinic S.C., or its attorney Basil Loeb, shall any documents be accepted from Defendant Gerard.

Gerard naturally appealed, and the appellate court upheld Ramirez:

An individual has a due process right of access to the courts, Piper v. Popp, 167 Wis. 2d 633, 644, 482 N.W.2d 353 (1992), however, that right is not absolute and may be curtailed where a litigant abuses the court system.  See Support Sys. Int’l, Inc. v. Mack, 45 F.3d 185, 186 (7th Cir. 1995) (prohibiting prodigious litigator from filing noncriminal motions).  A trial court has “inherent power to protect itself against any action that would unreasonably curtail its powers or materially impair its efficiency.”  Jacobson v. Avestruz, 81 Wis. 2d 240, 245, 260 N.W.2d 267 (1977) (citation omitted).

. . . .

 We agree with the trial court’s finding that Gerard’s vast and vexatious filings in this case establish Gerard has “a history of non-compliance with court orders, prosecution of frivolous motions, [and] reckless disregard of court orders.”  A court faced with a litigant who has engaged in a pattern of frivolous litigation has the authority to implement a remedy that may include restrictions on that litigant’s access to the court.  Minniecheske v. Griesbach, 161 Wis. 2d 743, 748, 468 N.W.2d 760 (Ct. App. 1991).  Such restrictions may include barring the litigant from filing further civil actions, aside from habeas corpus, until the litigant has paid fees or costs imposed in the same case or a prior case.  Puchner v. Hepperla, 2001 WI App 50, ¶¶6, 10 and n.7, 241 Wis. 2d 545, 625 N.W.2d 609.  We are satisfied the trial court’s restriction on future filings by Gerard was appropriately crafted to be a bar only until she paid the sanction previously imposed and well within its discretion given Gerard’s pattern of abusing the court system.

Although unpublished, the court’s reasoning will provide ammunition when faced with an unreasonable chronic filer of lawsuits.

Cannon County Courthouse photo courtesy SeeMidTn.com (aka Brent) flickr gallery under this creative commons license.

The case law, although there is not much of it, indicates that offers of judgment inclusive of costs are acceptable.

When an offer-of-settlement provision is implicated, as it is here, costs are added to any settlement, unless the terms of the settlement provide otherwise. Alberte v. Anew Health Care Serv., Inc., 2004 WI App 146, ¶6, 275 Wis.2d 571, 685 N.W.2d 614.  That case cites Marek v. Chesny, 473 U.S. 1, 6, 105 S.Ct. 3012, 87 L.Ed.2d 1 (1985), for the proposition that cost-inclusive offers are legitimate within the bounds of the statute:

If an offer recites that costs are included or specifies an amount for costs, and the plaintiff accepts the offer, the judgment will necessarily include costs; if the offer does not state that costs are included and an amount for costs is not specified, the court will be obliged by the terms of the Rule to include in its judgment an additional amount which in its discretion, it determines to be sufficient to cover the costs. In either case, however, the offer has allowed judgment to be entered against the defendant both for damages caused by the challenged conduct and for costs.

The Marek case analyzes the federal counterpart to Wis. Stat. §807.01, Fed. R. Civ. P. 68.

FRCP 68 is the Federal Rules’ equivalent of Wis. Stat. § 807.01(1), and is descended from the same New York statute from which 807.01 traces its lineage.  DeWitt Ross & Stevens, S.C. v. Galaxy Gaming and Racing Limited Partnership, 2004 WI 92, ¶35, 273 Wis.2d 577, 682 N.W.2d 839; see, e.g., Duello v. Board of Regents of University of Wisconsin System, 220 Wis.2d 554, 570, 583 N.W.2d 863 (Ct. App. 1998)(noting the similarity between FRCP 68 and Wis. Stat. §807.01 and finding it appropriate for Wisconsin courts to apply the state rule to federal claims); Donaldson v. West Bend Mut. Ins. Co., 2009 WI App 134, n. 9, 773 N.W.2d 470 (”When a state statute mirrors federal law, we may look to federal cases for guidance in interpreting the state statute.”)