Wisconsin Business and Commercial Litigation

Those of you who believe golfing is the idle pasttime of the decadent rich, gather ’round.  In Gennrich v. Grand Geneva LLC , a golfer leaned back against a wooden fence that bordered a tee box at the Grand Geneva golf course in Walworth County.  You can see it coming, can’t you?  The fence gave way, and he fell, injuring himself, and later suing Grand Geneva (and its insurer) claiming that it violated the safe place statute and was negligent.

On summary judgment, Grand Geneva argued that because the safe place limitation should fail, the negligence claim must also be dismissed:

The circuit court granted Grand Geneva’s motion for summary judgment on the common law negligence claim by relying on the following statements in our opinion in Megal, 267 Wis. 2d 800, ¶25: “A negligence claim cannot be maintained when a safe place violation cannot be established. Since we have upheld the dismissal of the safe place violation claim, we also uphold the dismissal of the negligence claim.” (Citation omitted.) It further reasoned that Grand Geneva had to have had actual or constructive knowledge under both the safe place statute and common law negligence, and since it concluded Gennrich had not proven notice under the safe place statute, his common law negligence claim must fail.

Because the safe place statute imposes a higher standard than common law, the court of appeals disagreed:

there is no reason why, if an employee or frequenter has not proved that the employer or owner violated the higher standard of care in WIS. STAT. § 101.11(1) that it necessarily follows that the employee or frequenter cannot prove that the employer or owner violated the lower standard of common-law negligence by committing a negligent act.

Moreover, it held that the safe place statute claim could also proceed.  My question is, who leans that hard on one of those split rail fences anyway?

golf sign photo courtesy Brian O’Donovan’s flickr gallery via this creative commons license.

Congratulations to my partner Randy Arnold and, less modestly, to me.  We just got the court of appeal’s decision in Smith v. Weigelt, et. al, from the District 1 Court of Appeals.  We were retained to defend a surgeon accused of malpractice when a sponge was left in a patient after emergency surgery.  Randy and I tried this Milwaukee County case one and a half times. 

The first trial ended (early) in mistrial and the court ordered our client to pay costs and fees to the plaintiff’s counsel.  The court found that a question and answer during the direct examination of the defendant violated a pre-trial order in limine preventing any testimony that the doctors had saved the plaintiff’s life.  The court ordered the case re-tried.  After the second trial, in which the jury found that our surgeon client had not been negligent (yeah, you read that right), we appealed the mistrial and costs order.  The court of appeals agreed with us, and overturned the trial court’s mistrial order and order to pay costs.

Today’s decision is fact-specific, doesn’t break any new legal ground, and likely won’t be published.  The court analyzes the specific question asked on direct examination in light of the pre-trial order in limine.  But it sure is nice to have some vindication of a defense strategy and related trial action.  If you read it, I hope you enjoy it – I know I did.

Employers, take heart.  There’s a new case that give guidance on how to escape the glaring scrutiny cast on your non-competition/solicit agreements by Wis. Stat. s. 103.465.  In The Selmer Co. v. Rinn, the Wisconsin Court of Appeals upheld a Brown County trial court decision that concluded the non-compete at issue did not fall within the reach of the statute., but rather was to be examined under the “rule of reason.”  How was this possible?

The court began by citing Reiman Associates, Inc. v. R/A Advertising, Inc., 102 Wis. 2d 305, 306 N.W.2d 292 (Ct. App. 1981), for the proposition that not all non-compete agreements are governed by the statute.  Specifically, it drew parallels with the facts of the Rinn case:

Rinn was, of course, an employee at the time he contracted for the right to purchase corporate stock, and Selmer’s motivation for the offer–made explicit on the first page of the agreement–was to “promote [Selmer's] growth and development by providing increased incentives for key employees .” However, unlike typical restrictive covenants, upon which a prospective employee’s position may depend, there were no consequences attached to Rinn’s refusal to accept the agreement. The circuit court found Rinn was not pressured to sign the stock option agreement, nor was his employment conditioned upon his doing so. Indeed, the circuit court found Rinn’s refusal would not have affected his employment in any way.

Accordingly, Selmer held no bargaining advantage over Rinn. Rinn was free to walk away from the transaction; instead, he seized the opportunity to purchase an ownership interest in Selmer’s parent company. In exchange for Selmer’s promise to make discount stock available, Rinn forfeited his ability to tap Selmer customers for one year following his employment.⁽⁸⁾ Although Rinn has received the benefit of that bargain–he exercised the stock option and more than quadrupled his initial investment–he now seeks to evade the consequences of that choice by invoking WIS. STAT. § 103.465’s protections. This case falls closer to the bargained-for exchange in Reiman than it does to the employment cases cited above.

The court appeared most convinced by the idea that while there was an incentive provided to Rinn to sign the non-compete (discount stock prices), there were no consequences if he did not sign the agreement.  The court followed up with a common-law reasonableness analysis:

Having determined WIS. STAT. § 103.465 does not apply, we must determine whether the covenant not to compete satisfies the common law’s rule of reason. In determining reasonableness, we examine whether the covenant is:  “(1) reasonably necessary for the protection of the beneficiary;” (2) reasonable between the parties, “particularly as to the party restrained, considering time, space, purpose, and scope; and (3) not specially injurious to the public.” Reiman, 102 Wis. 2d at 309. Whether a covenant is reasonable is a matter of law to be determined from the writing. My Laundry Co. v. Schmeling, 129 Wis. 597, 613, 109 N.W. 540 (1906).

The elements are materially identical to the Wis. Stat. 103.465 analysis, but the scrutiny is much lower.  Consider this when the next non-compete discussion arises.

chains photo courtesy [sic]’s flickr gallery via this license

Otherwise known as frustration of purpose, discharge by supervening frustration is a policy that excuses contractual non-performance, such as in Ryan v. Estate of Sheppard, a recent District II court of appeals case arising in Washington County.  There, Sheppard c0ntracted with Ryan to provide personal flight instruction and pilot in command services for Sheppard.  Unfortunately, Sheppard died before any payment or services could be rendered, and Ryan sued his estate, seeking to recover the payments agreed to in the contract.

The Estate argued that the contract was for personal services, and non-performance was excused by frustration:

The doctrine of frustration of purpose, referred to generally as “frustration,” or as “discharge by supervening frustration” by the Restatement, is as follows:

Where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.

RESTATEMENT (SECOND) OF CONTRACTS § 265. See also WIS JI–CIVIL 3070.

The court of appeals agreed.

We agree with the circuit court’s conclusion that the purpose of the agreement has been frustrated, discharging the Estate of its applicable duties. While Sheppard’s promise in the agreement was only to pay, his purpose in making the contract is clear: to obtain personal flight instruction and pilot services, as evidenced by Ryan’s obligations. In a personal service contract such as this one, a basic assumption is that both parties will be alive. See RESTATEMENT (SECOND) OF CONTRACTS §§ 262, 265 cmt. a.  Sheppard’s death, then, frustrated the contract’s purpose–it made personal flight instruction unfeasible. When there is nothing an obligor can do to fulfill his or her contractual duties, the obligee’s duty to compensate is excused. See Wm. Beaudoin, 63 Wis. 2d at 448-49. The Estate’s duty to render payment is thus discharged under frustration of purpose.

Ryanair photo courtesy aromano’s flickr gallery via this license.

In Turner v. Sanoski, the Wisconsin Court of Appeals addressed the statute of limitations for a malicious prosecution claim arising in Douglas County.  For those of you who hate to wade through text to get to the answer, I’ll cut to the chase:

because malicious prosecution is an intentional tort to the person, the WIS. STAT. § 893.57 two-year statute of limitations applies

Seems to make sense, given the statute’’s language that says it applies to “other intentional tort to the person.”  What’s surprising is that this is the first published decision on this topic in almost 30 years.

On July 9, 2009, I posted about Luckett v. Bodner, a Wisconsin Supreme Court case that dealt with the withdrawal of responses to requests to admit.  One year later, and we’re right back where we started.  In Rivera v. Perez, the court of appeals reviews an Iowa County circuit court case on withdrawing admissions.  There, Perez failed to answer requests to admit, and the opposing parties moved for summary judgment based on the constructive admissions.  The court of appeals decided that the trial court erroneously exercised its discretion by denying Perez’s motion to withdraw the admissions.

The key issue, according to the court of appeals, is the centrality of the admission to the case, not whether there is evidence in the record that may contradict the admission.  Analyzing Luckett:

The court then said that “[t]he first requirement of WIS. STAT. § 804.11(2) emphasizes the importance of having the action resolved on the merits.” Id., ¶38. The court rejected the argument “that withdrawal of an admission cannot subserve the presentation of the merits of the action unless the admission is ’squarely and conclusively contradicted by something in the court’s record,’” holding instead “that withdrawal or amendment of an admission will promote the presentation of the merits of the action even when the admission is not conclusively contradicted by something in the record.” Id., ¶40. The court then concluded that “[t]he [trial] court’s discretionary determination that withdrawal of the plaintiffs’ admissions will subserve the presentation of the merits of the action was not an erroneous exercise of discretion,” because “[t]he parties evidently regard[ed] the question of Ms. Luckett’s damages for conscious pain and suffering as a key issue that they [would] dispute at trial,” and “[t]he plaintiffs’ admissions, if allowed to stand, would [have] effectively eliminate[d] a determination on the merits of these issues.” Id., ¶41. Accordingly, the court concluded that “granting the plaintiffs’ motion to withdraw the admissions aid[ed] in the ascertainment of the truth and the development of the merits,” satisfying the first requirement under § 804.11(2). Id.

So apparently, the only admissions that will not be subject to immediate withdrawal are those that are peripheral to the claims.  Why would anyone bother with admissions that are not central to the case?

Paralleling the prejudice element of the withdrawal inquiry with the application of a discovery penalty, the court established  what appears to be a nearly unreachable hurdle for those who try to enforce admissions.

Here, in contrast, the requests for admissions and interrogatories were approximately two months overdue when Perez moved to withdraw her admissions and provided answers to the requests; Perez agreed to participate in a deposition scheduled for the time period while the requests for admissions were outstanding, and further agreed to reschedule the deposition at the request of counsel; only approximately one month passed between the time of the deemed admissions and Perez’s request to withdraw her admissions; and Perez moved to withdraw her admissions when trial was still several months away.⁽¹⁶⁾ These facts, unlike the facts in Mucek, do not support a reasonable finding that allowing Perez to withdraw her admissions would result in prejudice to Haushalter based on egregious discovery violations.

We conclude that, under Mucek and Luckett, the record does not support a finding of prejudice in this case. While NCI’s egregious conduct supported the trial court’s exercise of discretion in Mucek, the same is not true of Perez’s conduct here. In Mucek, NCI took no action to comply with discovery for two years, separate from its failure to answer the requests for admissions; its first attorney withdrew based on NCI’s refusal to cooperate with discovery; NCI failed to comply with an order by the court compelling discovery; and NCI did not request to withdraw its admissions until five days before trial, and did not respond to Mucek’s requests for admissions until the first day of trial. Mucek, 252 Wis. 2d 426, ¶¶7, 14, 27. Accordingly, the trial court exercised its discretion to find that Mucek would be prejudiced by allowing NCI to withdraw its admissions, saying: “Rarely have I really seen such egregious conduct on the part of a defendant and to come in at the last moment and say the other side is not prejudiced and we should be able to essentially reopen this matter simply doesn’t carry any weight with me.” Id., ¶27.

Read it, perhaps weep, but almost certainly give up using requests to admit.  What’s the point when the only admissions that will stick are those that aren’t central to the case and only made by those who have committed egregious discovery violations?

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.

In Loppnow v. Bielik, the court of appeals reversed the decision of Waukesha County Circuit Court Judge Michael Bohren that the plaintiff hadn’t exercised reasonable diligence in attempting to personally serve the defendant before resorting to service by publication.  The court of appeals explained its reasoning:

The guiding principle in these cases is that, when pursuing any leads or information reasonably calculated to make personal service possible, the plaintiff must not stop short of pursuing a viable lead–or in other words, stop short “of the place where if [the diligence] were continued might reasonably be expected to uncover an address of the person on whom service is sought.” Haselow, 212 Wis. 2d at 589. In West, the plaintiff stopped short of pursuing information he had about the defendant’s whereabouts, and also stopped short of making an inquiry to either his relatives or defendant’s relatives who were likely to know the defendant’s whereabouts. West, 82 Wis. 2d at 164-65. In Haselow, the plaintiff stopped short of attempting to locate the defendant in Hawaii despite information from the defendant’s father that he was living there. Here, there is simply no evidence that Loppnow “stopped short” in his pursuit of Bielik’s address, in Orlando or elsewhere.

If you’re like me, you’re wondering what good this definition of “reasonable diligence” is.  How can you ever tell when you’re at a place where if diligence were continued, you might find the address of the person you’re looking for?  Don’t you only know that if you’ve taken the step and it either succeeds or it doesn’t?  And if it doesn’t, how can you know whether the next thing you try won’t do the trick?   The next private investigator you hire may be the one who gets the information.

This isn’t the first time a court has given us the “I’ll know it when I see it” standard, though.  I think the court in this case was influenced by defense counsel’s close personal relationship with his client’s family and his related refusal to provide any information permitting service.

The court’s analysis (although short) of the adequacy of service by publication is also instructive.  While it doesn’t provide a wealth of guidance, this case should figure prominently in your next sufficiency-of-service argument.