Wisconsin Business and Commercial Litigation

In a single appeal from a Racine County case, a busy court of appeals addressed three issues of first impression.   The first issue from S.C. Johnson v. Morris revolved around the impact of invoking Fifth Amendment rights in civil discovery proceedings:

The first issue concerns a party’s continuous invocation of the Fifth Amendment privilege against self-incrimination in a civil action where that party later waives the privilege in the middle of trial when all discovery and preparation for trial is complete and the other party’s theory of the case has been established.  Federal case law instructs that this decision requires the trial court to balance the prejudice to both parties.  And one of the most important factors in the balancing test is the timing of the request to withdraw because invoking during discovery and then waiting until trial to withdraw runs the danger of undermining the purpose of discovery.  We find this authority persuasive and adopt it in Wisconsin. 

Second, the court addressed the duty to mitigate in intentional tort cases:

We again adopt persuasive federal case law which explains that expanding the duty to mitigate in such a way as to place a burden on the victim to investigate whether warning signals existed would allow tortfeasors to purposely exploit a victim’s weak internal investigation mechanism and then use it as an affirmative defense at trial.  We conclude that adopting Russell and Buske’s position would place too high a burden on victims.  Thus, as the trial court ruled, actual knowledge is required for the duty of mitigation to apply.

Finally, the court analyzed the damages provision of WOCCA:

And third, is the multiple damages provision of the Wisconsin Organized Crime Control Act (WOCCA) remedial such that the entire damage award is doubled?  The answer is “yes” because that provision, like its federal counterpart, is a remedy to address the private economic injury aspect of the violation, not the penal, criminal feature.  Therefore, we again affirm the trial court, and thus uphold its doubling of the entire damage award.

Cases of this size ($147 million damages finding remitted to $101.9 million) make it worthwhile for parties to chase down and elaborate novel issues.

municipal court judges 2001 photo courtesy Seattle Municipal Archives flickr gallery under this creative commons license

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.

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.

Olson v. Darlington Mut. Ins. Co., has made yet another interlocutory trip to the appellate court.  This time, the issue was a proposed jury instruction that would have informed the jury that the total damages suffered by the plaintiff did not exceed $75,000.  The trial court determined that the instruction was justified because of the allegation in the complaint:

THAT THE AMOUNT OF DAMAGES SOUGHT AND IN CONTROVERSY IS LESS THAN THE AMOUNT REQUIRED FOR REMOVAL TO THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF WISCONSIN UNDER DIVERSITY OF CITIZENSHIP PURSUANT TO 28 USC 1332(A).

The appellate court disagreed:

The complaint clearly states Olson is seeking less than $75,000 in damages, not that she has, in fact, suffered less than $75,000 in damages.

The Court analogized the plaintiff’s position to that of a small claims plaintiff who proceeds in small claims court to obtain procedural benefits, even though the amount of damages might exceed the amount a small claims court may award. 

Cases like this emphasize the care that must be taken in word and phrase selection in pleadings and briefs.  Choosing phrases that don’t say exactly what you want to convey, no more and no less, can come back to haunt you.  Of course, even painstaking drafting cannot possibly take into account the endless possible issues that may later arise.  If you didn’t believe that writing is one of the most important crafts a lawyer can perfect, this case should convince you.