Wisconsin Business and Commercial Litigation

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.