Wisconsin Business and Commercial Litigation

It should go without saying, shouldn’t it?  And yet every day, people get involved in partnerships without written agreements, or where there are two partners, each of whom is a 50% partner (if I remember right, that was day one of Bus Orgs in law school).  A recent, although unpublished, review of a Pierce County case once again demonstrates the potential pitfalls (they are many and deep) of not adequately thinking through a partnership.

In Bushard v. Reisman (Pierce County June 15, 2010), Bushard and Reisman formed a limited liability partnership in 1995, but didn’t enter into any written agreement.  Inevitably, there was a dispute over how to run the business and in August 1999, Bushard sent a letter declaring that he was exercising his right to dissolve the partnership and wind up its affairs.  This didn’t happen, Bushard didn’t push the issue, and Reisman ran the partnership profitably for the next nine years, towards the end taking a salary in addition to his partnership draws, justified because he was the one running the business, doing the work. 

Not so fast, said Bushard, who asked the court to dissolve the partnership and require that Reisman, who was responsible for all the partnership’s income for the last nine years, to pay back all the salary he took.  Apparently against all common sense, the circuit court agreed with Bushard:

The circuit court denied Reisman’s motion for summary judgment, concluding that Reisman was prohibited, as a matter of law, from taking a salary from the partnership without Bushard’s agreement. Bushard then moved for orders directing the winding up of the partnership and compelling Reisman to repay the amounts he took as a salary.

The court granted the motion, directing the parties “to complete the winding up of the affairs of PressEnter … and to report to the court in 60 days regarding the progress.” It also ordered Reisman “as part of the winding up of the affairs of PressEnter … to account to and reimburse PressEnter … for the amounts which he took as guaranteed draws or salary,” and dismissed his counterclaims for unjust enrichment and breach of fiduciary duty.

The appellate court agreed, holding that Reisman would have to pay back his salary, and that the partnership was to be dissolved:

When a partner dissolves a partnership, he or she may either (1) “permit the business to continue and claim his or her interest in the dissolution value as a creditor, or (2) … force the dissolved business to wind up and take his or her part of the proceeds.” Matteson v. Matteson, 2008 WI 48, ¶25, 309 Wis. 2d 311, 749 N.W.2d 557. “[T]he settlement of the former partner’s account differs depending on whether it is a wind-up or a continuation.” Lange v. Bartlett, 121 Wis. 2d 599, 601-02, 360 N.W.2d 702 (Ct. App. 1984). Therefore, it is important “for a trial court faced with making a settlement of a former partner’s account … to determine what election the retiring partner made at the point of dissolution.” Id.

Reisman argues Bushard’s election is disputed because he permitted Reisman to continue operating the business for years after initiating the dissolution. He therefore contends the court should not have ordered the parties to complete PressEnter’s winding up without determining whether Bushard in fact elected to wind up the business.

Bushard’s letter dissolving the partnership explicitly referred to “the winding up of the partnership ….” Moreover, wind-up is the default option. “Every partnership dissolution causes a wind-up rather than a continuation unless the outgoing partner ‘consents’ to a continuation.” Id. at 601-02. Thus, unless the dissolving partner expressly elects continuation, we presume he or she elected to force the business to wind up. See id. at 601.

If you’re even thinking about getting involved in a partnership, think long and hard, read this case, and then be sure you have a partnership agreement drafted by people who know what kind of trouble might result in the future.

In Simandl & Murray v. Mainstreet Homes, the appellate court reviewed Milwaukee County Judge Elsa Lamelas’s grant of summary judgment to a law firm suing to recover unpaid legal fees.  When the affidavits supporting the summary judgment motion didn’t attach or authenticate the bills, the circuit court relied on the bills that were attached to the complaint.  While the defendant had denied in its answer that the bills were accurate, and that the bills reflected reasonable work and fees, the court granted summary judgment anyway, and the appellate court upheld the decision.  I always thought that denials in the complaint were sufficient until the moving party proved up a prima facie case by evidence as defined in the statutes, but apparently, the standards are now a little more generous.

Mainstreet’s argument fails because it ignores the summary judgment procedure. The trial court was first obligated to look at the pleadings. The complaint stated that Simandl & Murray was retained by Mainstreet, Simandl & Murray provided legal services to Mainstreet which amounted to approximately $27,000, Simandl & Murray sent requests for payments along with itemized bills and no money was paid on the account, and Mainstreet did not object to the bills. In addition, the complaint contained the letter of engagement stating what work Simandl & Murray was to do for Mainstreet and the hourly rate of the lawyers. It also contained all the itemized bills sent to Mainstreet. The answer filed by Mainstreet denies knowledge or information sufficient to form a belief as to the truth of the averments, but also lists the following as affirmative defenses: improper service of process; lack of personal jurisdiction; that Mainstreet is a dissolving limited liability company and any distribution of its assets is subject to Chapter 184 of the Wisconsin Statutes; and finally, that Simandl & Murray breached the contract by engaging in a conflict of interest. Inasmuch as the pleadings state a claim, the trial court was required to then examine the moving party’s affidavits for evidentiary facts and other proof. Here, Attorney Simandl explained in his affidavit that his firm was hired by Mainstreet, that there was no conflict as the issue of a conflict was addressed in the letter of engagement, that work was done and monthly bills sent, and that Mainstreet failed to pay them.

It’s an interesting decision, and definitely worth reading the entire analysis.  I can tell you that my summary judgment submissions will not change as a result of this case, and I don’t think that most others will change theirs, either.  But it’s good to know that you’ve got options.

“Unconscionability is an amorphous concept that evades precise definition.” Wisconsin Auto Title Loans, Inc. v. Jones, 2006 WI 53, ¶31, 290 Wis. 2d 514, 714 N.W.2d 155.

Not exactly where you want the court of appeals to start when analyzing whether or not an arbitration provision is unconscionable.  It looks like a set-up to get where they want to go without having to rely on anything other than some generalized, and rarely consistent, sense of fairness.

Beginning with just that statement in Cottonwood Financial v. Estes, the District III court of appeals reviewed a Pierce County decision regarding the claimed unconscionability of an arbitration provision in a payday lending contract.  To its credit, court steered clear of fuzzy and emotional thinking and went to the heart of the matter, which in this case was a provision that prevented the plaintiff from being part of a class action suit:

Finally, we reach, and accept, Estes’s argument that the arbitration agreement was substantively unconscionable because it precluded her from proceeding as a member of a class.  The arbitration provision states:

You are waiving your right to serve as a representative, as a private attorney general, or in any other representative capacity, and/or to participate as a member of a class of claimants, in any lawsuit filed against us …. [A]ll disputes including any representative claims against us … shall be resolved by binding arbitration only on an individual basis with you. Therefore, the arbitrator shall not conduct class arbitration; that is, the arbitrator shall not allow you to serve as a representative, as a private attorney general, or in any other representative capacity for others in the arbitration. (Capitalization and bold omitted.)

This provision runs afoul of WIS. STAT. § 421.106(1), which provides, “[A] customer may not waive or agree to forego rights or benefits under” the consumer act. WISCONSIN STAT. § 426.110(1) explicitly recognizes a consumer’s right to “bring a civil action on behalf of himself or herself and all persons similarly situated.”

The lesson:  take care to ensure that your contracts don’t over-reach, particularly when dealing with consumers.  Also, the case provides a pretty good shorthand lesson on unconscionability in contract language.

As I mentioned a few weeks ago, I had the privilege of speaking at the 2010 conference of the Wisconsin Chapter of the Association of Corporate Counsel.  The presentation Chris Schilder (of Safway Services LLC) and I did on contract litigation issues was the most well-attended of the conference (to be fair, we were programmed against a tax presentation, so it’s possible that it wasn’t my scholarly nature and irrepressible personality that brought people in).  The presentation came off without a hitch, as did the rest of the conference.

Carrie Booher, the new executive director of WisACCA, put together a great meeting, and made it look easy.  I’ve done a few of them in a previous life, and her organization was excellent.  Thanks also to Tony Karabon, counsel for the Boucher Group, and my contact on the Board of Directors, for his assistance in making the conference run smoothly (at least for me).

If you haven’t attended this conference, I’d recommend it.   The topics covered were geared specifically toward inside counsel.  If nothing else, it’s a great place to talk with other inside counsel about common issues and concerns.  I hope everyone enjoyed it as much as I did, and I’m looking forward to next year.