Wisconsin Business and Commercial Litigation

In Yates v. Holt-Smith, May 14, 2009, the District 4 Court of Appeals confronts an issue that frequently arises in shareholder disputes, particularly in smaller companies that have grown significantly, or been otherwise successful:  When is a payment a dividend? 

In Yates, the company typically paid a year-end bonus to its two shareholders, based on annual profit over a certain amount.  Because this payment was based on the company’s profits, and paid based on ownership interest, rather than productivity, contribution, or the desire to retain either shareholder’s services, the payment was a dividend. 

The court goes on to discuss the existence and breach of fiduciary duty and the business judgment rule — less interesting, but still a good refresher.

It’s pretty apparent, even from a quick read, that neither of the two shareholders is a model citizen.  However, the trial court certainly found one more convincing than the other, which, I think, was the key to both the trial court and appellate court outcome.

S.B.20, passed by the Wisconsin legislature in Madison and sent to Governor Doyle for his signature, ratchets up the cost of discrimination on employers.  Under current statutes, an employer can be required to reinstate a discriminated-against employee, pay back pay, and cover the successful claimant’s attorney’s fees. 

The new bill would, in addition, permit the employee or the Department of Workforce to sue in circuit court to recover compensatory and punitive damages caused by the discrimination.  And as the cherry on top, an employer found liable would pay an additional 10% surcharge, based on the total amount of compensatory and punitive damages, into the circuit court.  According to the bill, this additional penalty would be used to further enforce the so-called Fair Employment Law.

As of this writing, Doyle hadn’t signed the bill yet, nor had his office indicated his intent.  Honestly, though, does anyone really think that Doyle won’t sign this?

Dealing with outside litigation counsel can be frustrating.  And believe me, we outside litigation counsel know that.  To point the finger in exactly the opposite direction, it can be equally frustrating dealing with the corporate counsel or litigation manager assigned to the matter.  The additional layer of schedules and reporting, over and above that imposed by the court, can cause friction even in the best of relationships.  To top it off, all clients’ timing requirements and formats differ.

There are a number of things that have helped make it easier for me to make the corporate counsel, litigation or risk manager, or other company contact not only stay in control, but also appear that way their board or boss, which makes everyone happier.

First, provide to us a copy of the company reporting requirements with the first contact regarding the litigation, even if we already have a copy.  Remind us that there is an initial report and budget due within 30 days – if nothing else, it will prod us to calendar future reporting just as we do the court’s scheduling order. 

Also helpful, but less necessary, are litigation reporting systems, like Serengeti or TyMetrix, employed by many organizations.  Systems like this make it relatively easy to format the information in a way that’s helpful to you, and often provide the third thing that helps us sometimes-forgetful litigation counsel to report timely:  email reminders or some other form of notification.

We are often caught up in defending or prosecuting your interests, and our reporting will therefore organically occur based on the ebb and flow of the matter, rather than on the arbitrary 30-, 60-, or 90- day intervals you desire.  It’s not that we’re not happy to provide the information, it’s just that nothing in the substantive or procedural events of the case demands that sort of reaction on regularly-scheduled intervals.  Reminders help – and also help us to look at the requirements provided, and have the remainder of the due dates calendared.

On May 19, 2009, the Milwaukee Journal-Sentinel ran an article discussing the $765,000 cost of a lawsuit brought by five local school districts seeking the return of $200 million in investments made in 2006.

The Houston law firm involved is charging $325 per hour.  Milwaukee firms involved in highly specialized litigation generally charge, on purely hourly basis, this much or more.  What’s interesting here is that the school districts’ payment arrangement also includes a contingent-fee component, providing for additional legal fees ranging from 5% of any recovery below $50 million and up to 15% of the total recovery if the case gets to trial.

These kinds of blended-fee arrangements are becoming more common, particularly in high-dollar cases.  Agreements like this can be useful, guaranteeing the law firm some sort of payment for its work, but also saving the client from paying the full price of hiring specialized litigation counsel unless there’s some measure of success.

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.

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.

As most everyone reading this will know, Wisconsin’s comparative negligence statute is Wis. Stat. §895.045.  The language of the statute is complicated on a first reading, and only gets worse when it’s applied to any specific situation.  Governor Doyle’s proposed budget (AB75) contains a number of provisions that would significantly alter the effect of a party’s portion of negligence, and how comparative negligence is handled at trial.

All major changes (in law and in everything else) create divided camps, and this is no exception.  Plaintiff’s attorneys call the provision a “restoration of consumer rights,” while some defense lawyers and business groups opine that the change will expose businesses to unfair portions of liability awards.  The Wisconsin State Bar supports Doyle’s proposed change.  

The current statute became law in 1995, and, not surprisingly, accounts of just how that statute came to be vary widely.  You can draw your own conclusions about whether the proposed change is good or bad – there certainly are widely diverse opinions out there.

The major changes proposed by Doyle:

·        While existing law requires that a person be at least 51% at fault before the party can be held responsible for 100% of the damages, Doyle’s proposal would allow anyone with equal or greater fault than the plaintiff to be held 100% responsible.

·        Currently, a plaintiff must be less at fault than each individual defendant.  Doyle’s proposal would permit suit as long as the combined fault of all defendants is greater than that of the plaintiff.

·        Now, courts do not inform juries of the effects of the percentages of fault assigned to each party.  The new law would require a court to instruct the jury how findings of fault affect responsibility for damages. 

And finally, for your continued edification, the text of the contributory negligence statute, with proposed amendments:

895.045 Contributory negligence.  Contributory negligence does not bar recovery in an action by any person or the person’s legal representative to recover damages for negligence resulting in death or in injury to the person or property, if that negligence was not greater than the combined negligence of all of the person persons against whom recovery is sought, but any damages allowed shall be diminished in the proportion to the amount of negligence attributed to the person recovering.  The negligence of the plaintiff shall be measured separately against the negligence of each person found to be causally negligent.  The liability of each person found to be causally negligent whose percentage of causal negligence is less than 51% is limited to the percentage of the total causal negligence attributed to that person.  A person found to be causally negligent whose percentage of causal negligence is 51% or more  Any person found to be causally negligent whose percentage of causal negligence is equal to or greater than the negligence of the person recovering shall be jointly and severally liable for the damages allowed.