The Wisconsin Supreme Court has selected seven cases for review. Rather than rehash them all in my own words, I invite you to check out the pithy descriptions of the Wisconsin Law Journal’s Dave Ziemer (at least, I think it’s Ziemer). As the cases get decided, I’ll keep you up to date.
The ways in which the claim arises are many and varied, but often, plaintiffs will seek to recover allegedly lost earnings of a self-employed business owner by proving the lost profits of the business. This claim and the defenses against it can be somewhat complicated.
The first inquiry, where the injured party is self-employed and derives his income from the profits of a business, is to determine whether the profits of the business measure the injured plaintiff’s earning capacity, or the earning capacity of the business itself. Featherly v. Continental Ins. Co., 73 Wis.2d 273, 276-77, 243 N.W.2d 806 (1976). If the profits arise entirely or substantially out of the personal endeavors of the injured plaintiff, evidence of the diminution of profits may be received as bearing on the plaintiff’s lost earning capacity. If, however, the income of the business is chiefly the result of the services of others or investments, the profits obtained by the business are inadmissible as evidence of the injured party’s earning ability.
A plaintiff seeking to establish business profits as evidence relating to a claim of loss of personal earning capacity must clearly connect the plaintiff’s injury with the lost profits of the plaintiff’s business. Such foundational evidence includes the character and magnitude of the business including the number and value of other employees, fluctuations in value of the product and the market, the capital and assistance employed in the business, fluctuations in costs of labor and materials, the quality and value of the plaintiff’s services in the business before the accident, and the amount of profits of the business.
The idea is to prove the value of the plaintiff’s services before the injury, thus throwing light on the plaintiff’s earning earning capacity as connected to the profits of the business. Evidence of the amount of profits should not be received until all the other necessary elements are shown. The case law requires a clear causal relationship between the injury and the value of the lost earning capacity in order to compensate an injured plaintiff.
Businessman photo courtesy vandelizer’s flickr account via this creative commons license.
Last week, I wrote about the Shadley case, and encouraged that care be taken in selecting causes of action and damages when there’s an attorney fee clause in the underlying contract. There are other lessons to be taken from that case, though, that apply to lawyers and clients alike.
It’s not unusual for clients to have unreasonable expectations, and for lawyers to do too little to correct the belief. In Shadley, we can’t tell whether it was the client that wanted the damaged piano and her daughter’s education paid for, along with repainting a variety of rooms in the broken home, or whether it was the lawyer who encouraged the claims. In the end, I guess it doesn’t really matter. We just know that it didn’t turn out well because expectations weren’t adjusted.
It’s the responsibility of both lawyers and clients to work together to set reasonable expectations about the outcome of a dispute. Clients come to lawyers to benefit from our experience and training — let’s face it, pretty much anyone can describe a dispute in writing and file it with the court. That’s hows small claims court functions.
Clients need to remember that part of what they pay for is our role as counsel: our detachment from the emotion of the dispute and our ability to dispassionately weigh the evidence and arguments on both sides. Sure, the advocacy part of the relationship is a big one, but that’s based upon a rational judgment as to what arguments and evidence are most convincing to someone who doesn’t care who wins or loses.
Lawyers, for their part, should immediately share their opinions about expectations, and begin to educate clients on the possible outcomes of the dispute. The Shadley case demonstrates that when the lawyer/client relationship doesn’t function completely properly, it can be costly.
The Wisconsin Court of Appeals, reviewing a Milwaukee County case, handed down a seemingly reasonable decision that will affect claim pleading and discovery responses for many. In Shadley v. Stys, the question was the interpretation of a clause in a house-moving contract providing that the “successful party” would recover its attorney fees from the “unsuccessful party.” Unlike whoever drafted the contract, you can, of course, see the potential problem already.
Damaged house courtesy abundantc flickr collection under creative commons license
Shadley sued Stys, seeking to recover about $100,000 in damages resulting from negligence and breach of contract when the Stys moved Shadley’s house. Her damages included things like her dauther’s tuition, painting the house walls, and damage to a piano she left in the house for the move. The Stys made a statutory offer to settle the case for $25,000, and at trial, the court awarded damages to Shadley in the amount of $14,976.
Shadley, of course, wanted her attorney fees paid, and so did the Stys, but the court was less than agreeable:
Shadley’s definitions of “successful” reveal the contract’s apparent ambiguity. It does not seem to us that Shadley “bested” the Stys or that the result was “favorable” to her when she recovered only $14,976 after claiming a right to over $100,000. That her recovery was not “favorable” seems especially true in light of the Stys’ previous $25,000 settlement offer. Additionally, it seems unlikely that Shadley’s “aim or purpose” was to receive a $14,976 damages award after spending significantly more on attorney fees and turning down a $25,000 settlement offer. Accordingly, even adopting Shadley’s definitions of “successful party,” it is not at all clear to us that she is the party that satisfies them.
Nor is it clear that the Stys are the successful party using Shadley’s proposed definitions of “successful.” Surely it was the Stys’ “aim or purpose” to be free from liability on all counts. The trial court’s findings, that the Stys breached the contract and were negligent in some respects, are certainly not findings that are “favorable” or that demonstrate that the Stys “bested” Shadley.
In the end, the court reached what appears to be a baby-splitting decision:
A more rational reading of the provision would grant Shadley that proportion of her attorney fees that equate to her success at trial. On remand, the trial court is directed to determine the total amount of damages Shadley sought to recover and calculate the percentage of that total on which she was successful, i.e., the amount Shadley actually recovered divided by the total amount of damages she sought to recover. Allowing Shadley to recover her attorney fees only in proportion to her success seems to us the better reasoned and rational interpretation of the parties’ contract provision. The Stys in turn, should receive that percentage of their attorney fees on which they were successful. That is the portion of Shadley’s claim on which Shadley was not successful. For instance, if the trial court were to determine that Shadley recovered only 20% of the total amount of damages she sought, she should receive 20% of her requested attorney fees and the Stys should receive 80% of theirs, for a total of 100%. With these directions, we remand the case back to the trial court to redetermine attorney fees and statutory costs.
Two lessons are immediately apparent. First, when drafting or signing a contract that contains an attorney fees provision, define your terms. Second, if you hold an affirmative claim in a case where there is an attorney fees clause, take care in advancing damages beyond your expectation of ability to obtain them from the final fact finder.
