Wisconsin Business and Commercial Litigation

In Anderson v. Hebert, the District III Wisconsin Court of Appeals reviewed a Barron County decision regarding the application of the exclusive remedy of workers compensation to a claim alleging post-employment defamation.  The plaintiff resigned from his Barron County Highway Department post after his part in a scheme to overcharge the state by falsifying county work records came to light.   Hebert, the county administrator, made a number of statements on the topic to the local media and in an open meeting of the County Board.  Anderson sued, claiming among other things, that the statements were defamatory.

The County won summary judgment on the defamation claim, arguing that Farady-Sultze v. Aurora Medical Center, 2010 WI App 99, 327 Wis. 2d 110, 787 N.W.2d 433 “stands for the proposition that the Worker’s Compensation Act provides the exclusive remedy for defamation by an employer, even if the defamation occurs after the employee has been terminated.”  Anderson appealed, and the court of appeals reversed:

We conclude the language of the Act is plain and unambiguous. The Act’s exclusive remedy provision states that, where an injury is covered by the Act, “the right to the recovery of compensation under [the Act] shall be the exclusive remedy against the employer, any other employee of the same employer and the worker’s compensation insurance carrier.” WIS. STAT. § 102.03(2). An injury is covered by the Act where certain conditions are present. See WIS. STAT. § 102.03(1).

As relevant here, an injury is only covered if, at the time of the injury: (1) both the employer and employee are subject to the provisions of the Act; and (2) the employee is performing service growing out of and incidental to his or her employment. WIS. STAT. § 102.03(1)(b)-(c)1. It is undisputed that the injury to Anderson–the alleged defamation–did not occur until after Anderson resigned. Thus, at the time of the injury, Anderson was not the County’s employee and was not subject to the provisions of the Act. See WIS. STAT. § 102.03(1)(b). Furthermore, because he had already resigned, Anderson was not “performing service growing out of and incidental to his employment” at the time of the injury. See WIS. STAT. § 102.03(1)(c)1. Anderson’s injury therefore is not covered by the Act. Consequently, the Act’s exclusive remedy provision does not bar his defamation claim.

That’s the current state of the law.  However, stay tuned for what is likely to be a request for review by the Supreme Court. 

Highway truck photo courtesy OregonDOT’s photostream via this creative commons license.

In Briggs & Stratton v. Generac Power Systems (Feb. 8, 2011), these two Wisconsin industrial heavyweights went toe-to-toe over the interpretation of contract language by Milwaukee Circuit Court Judges Jean DiMotto and Bill Pocan.  In 2001, Briggs purchased the assets of Generac’s Portable Products Division.  Four years earlier (1997), Generac created its Portable Products Division, later selling the Division by means of a 1998 Asset Purchase and Sale Agreement to GPPC, which then sold its rights in the Agreement to Briggs. 

A 2005 products lawsuit began the disagreement between Generac and Briggs.  The 2005 lawsuit sought damages arising from the use of a generator manufactured in 1992.  Generac tendered defense of the lawsuit to Briggs, who refused the tender and brought a declaratory judgment action to determine who was on the hook for the defense.

Citing basic rules of grammar and punctuation, the court determined that Briggs only bought liabilities arising after the Division was formally created:

As relevant to this appeal, the parties agreed the Assumed Liabilities consist only of “[a]ll liabilities of [Generac] related to the Division arising in the ordinary course of business after the Closing Date directly on account of [Generac's] ownership and operation of the Division prior to the Closing Date.”  The qualifying phrase “prior to the Closing Date” modifies the next preceding phrase “directly on account of Seller’s ownership and operation of the Division.”  See Hope Acres, Inc., 27 Wis. 2d at 291.  Because the Division did not exist until January 1, 1997, Generac could not have owned or operated the Division before that time.  The Closing Date identified in the Agreement is June 30, 1998.  Thus the Assumed Liabilities for which Briggs agreed to be responsible must relate to Generac’s ownership or operation of the Division between January 1, 1997 and June 30, 1998.  The portable generator involved in the Thompson claim was manufactured in 1992 and sold by Generac several years before the Division existed.  Generac did not own the generator when it operated the Division or when it sold all of the Purchased Assets to Briggs.

The court also relied on the default asset purchase rule that an asset purchaser does not purchase liabilities, unless expressly or impliedly agreed.

Yet another reminder to carefully word your agreements and carefully define terms.

Portable generator photo courtesy Sarvodaya Sri Lanka’s flickr gallery via this creative commons license.

The dispute in Champion Cos. v. Stafford Development (Dec. 22, 2010) , arose over defective bricks used to construct a home in Kenosha County.  The plaintiff wanted $344,000 to remove and replace every brick on the house.  The defendant, on the other hand, argued that it would only cost $7500 to to remedy the defect by re-staining the bricks.  After a bench trial, the court determined that replacing the bricks would cause an economic waste, and awarded $11,000 to the plaintiff.  The plaintiff appealed, arguing that the court was required to consider diminished property value in its damages analysis. 

The appellate court recited the damages possibilities for property damages:

There are multiple ways to calculate damages in a lawsuit over injury to property. One is the cost to repair the property (i.e., replace the bricks). A second is the cost to restore the property (i.e., re-stain the bricks). A third way to measure damages is the diminished value calculation–”the difference between the value the building would have had if properly constructed and the value that the building does have as constructed.” W. G. Slugg Seed & Fertilizer, Inc. v. Paulsen Lumber, Inc., 62 Wis. 2d 220, 226, 214 N.W.2d 413 (1974). Any party may submit estimates of the cost of repair/restoration or diminished property value. Laska, 69 Wis. 2d at 314. The plaintiff is entitled to the smaller amount. Id.

It also discussed the economic waste rule:

The rationale for the economic waste rule is that if the cost to repair or restore a defect is so high as to exceed the diminished value of the property based on the defect, a party is unlikely to use the extra money to fix the defect. Instead, the party will keep the money and receive a windfall. See Nischke, 187 Wis. 2d at 118. Typically, this rule comes into play because the defendant, believing cost of repair evidence submitted by the plaintiff to be too high, submits evidence of diminished value for the fact finder to consider.

The application of the economic waste rule is not limited solely to a comparison of the diminished value measure of damages versus a cost to repair measure of damages. A fact finder presented with estimates for both a cost of repair and a cost to restore may determine whether the repair or restore option would result in unreasonable destruction to the property.

Because the economic waste rule did not require that the court consider diminished value, the appellate court upheld the trial court’s award.

Bricks photo courtesy TheArtGuy’s flickr gallery via this creative commons license.

In Crown Castle v. Orion Construction (Dec. 7, 2010), the District 3 Court of Appeals considered whether a judgment creditor could obtain supplemental examination of the books and records of a corporate entity sharing common ownership with the judgment debtor.  The short answer is yes.  The Court was so concerned enough about cagey debtors avoiding the responsibility to pay by moving assets that it cited an 1885 case to make its point:

The order and scope of the examination of a judgment debtor in a proceeding supplementary to execution are largely in the discretion of the judge or commissioner before whom such examination is being taken. This is necessarily so, because, if the debtor has concealed property which is sought to be discovered, he is called to testify against his supposed interest, and will always give his testimony reluctantly. Unless a comprehensive and searching examination be allowed, an artful debtor might defeat the discovery sought. To apply to such an examination the strict technical rules governing the examination of a witness on the trial of a cause, or even the less strict rules applicable to a cross-examination, which it more nearly resembles, would be to impair greatly the efficiency and usefulness of the remedy intended to be given by the proceeding, and, in many cases, to destroy it entirely.

As important to the court’s considerations were other telltale signs like no records or assets of any sort in the judgment debtor.  If you’re looking to enforce a judgment against a knowledgeable judgment debtor, have a look at this case.

In Johnson v. Cintas Corp. No. 2, the District II court of appeal reviewed a default judgment entered by Judge Bastianelli in Kenosha County.  The  plaintiff’s summons named Cintas Corp. as the defendant, and was served on Cintas Corp.’s registered agent.  When Cintas Corp. didn’t answer, the plaintiff moved for a default judgment.  At the hearing on the default, Cintas Corp. informed the judge that the correct party was a different entity — Cintas Corp. No. 2 (a wholly-owned subsidiary of Cintas Corp.), the plaintiff’s employer.  The court granted the plaintiff’s oral motion to amend the summons to name Cintas No. 2, and immediately granted the motion for default judgment against Cintas No. 2. 

The court of appeal reversed the default judgment, reasoning that Cintas No. 2 had never been properly served:

A Wisconsin court obtains personal jurisdiction through correct service of process upon a defendant. See WIS. STAT. 801.05.  The United States Constitution requires that a court have personal jurisdiction over a defendant in order to render a judgment in a civil suit.  See Haselow v. Gauthier, 212 Wis. 2d 580, 586, 569 N.W.2d 97 (Ct. App. 1997); see also U.S. CONST. amend XIV.  In order to comply with due process, Wisconsin law mandates a strict compliance with all procedural elements of service.  Mech v. Borowski, 116 Wis. 2d 683, 686, 342 N.W.2d 759 (Ct. App. 1983) (“Wisconsin requires strict compliance with its rules of statutory service, even though the consequences may appear to be harsh.”).  These requirements include naming the defendant in the summons and complaint. WIS. STAT. §§ 801.02(1), 801.09(1).

Pursuant to WIS. STAT. § 801.02(1), “[A] civil action in which a personal judgment is sought is commenced as to any defendant when a summons and a complaint naming the person as defendant are filed with the court.”  WISCONSIN STAT. § 801.09(1) provides that the summons shall contain the names of the parties to the action.  “Proper commencement of an action serves two purposes: it gives notice and confers jurisdiction.”  American Family Mut. Ins. Co. v. Royal Ins. Co. of Am., 160 Wis. 2d 455, 459, 465 N.W.2d 841 (Ct. App. 1991).  Indeed, a court has jurisdiction only over the parties named.  This court has observed, “Citizens deserve the legal protection of being specified as a party to a lawsuit before jurisdiction attaches over them.  Any court action taken before the party is named is a deprivation of that protection.”  Bulik, 148 Wis. 2d at 446.

Because the summons and complaint that were served did not accurately name the defendant, and were not served on the proper defendant, the court lacked authority to enter default judgment. 

Even if you know what the dispute is all about, read the summons and complaint carefully, including the captions.  You never know what fun defenses you might find.

Astronaut twins photo courtesy oskay’s flickr gallery via this creative commons license.

In BV/B1, LLC v. InvestorsBank, the court of appeals reviewed a summary judgment decision by Judge Kahn in the Milwaukee County Circuit Court awarding $833,798.52 to InvestorsBank.  BV/B1 sought financing from InvestorsBank without the necessity of personal guaranties from the borrower’s principals.  InvestorsBank was willing to provide the financing, but required that the agreement provide a penalty for prepayment of the loan.  The penalty provision, drafted specifically for the contract, read: 

If the loan is prepaid in full or in part at any time on or before July 30, 2006 there shall be no prepayment penalty. If the loan is prepaid in full or in part at any time after July 30, 2006 or if the prepayment is the result of an acceleration due to an event of default, the prepayment penalty shall be equal to the fixed rate on the loan minus the yield on a US Treasury Bond with a maturity similar to the number of years remaining on the fixed rate loan plus 2.5% times the number of years remaining at a fixed rate times the outstanding principal balance of the loan.

Naturally, there was a prepayment (if there wasn’t, the story would have ended happily), and a fight over how to calculate the prepayment penalty.  The court of appeals considered and discarded BV/B1’s three different suggestions, and also disagreed that InvestorsBank waived its right to collect its penalty. 

The best lesson to draw from this case is to take care in negotiating and drafting contract clauses.  Lawyers will pick everything apart with the benefit of hindsight, and unless you’ve got things completely screwed down, they’re going to get screwed up.

Everyone just move along, there’s nothing to see here.  This one sputtered and fizzled to a finish.  The Supreme Court split evenly (3-3) on overturning or upholding the court of appeals, and so sent the case back to the court of appeals.  A disappointment for those of us looking for a statement by the state’s high court.

In CA Investments v. Kelly (Oct. 19, 2010), the District III Court of Appeals reviewed the results of an Eau Claire County trial.  The jury found that the defendants fraudulently conveyed assets to avoid a judgment previously obtained by the plaintiff, also found that the defendants acted in intentional disregard of the rights of the plaintiff, and awarded a total of $275,000 in punitive damages against the defendants. 

The defendants appealed, arguing that Wisconsin law does not permit an award of punitive damages for an underlying violation of the Uniform Fraudulent Transfers Act.  The court of appeals agreed:

Thus, the general rule in Wisconsin is that there can be no punitive damages without compensatory damages. Nothing in the Uniform Fraudulent Transfers Act changes this principle of law. The legislature is presumed to know the state of the law when it enacts or amends legislation. Eau Claire Cnty. v. General Teamsters Union Local No. 662, 228 Wis. 2d 640, 646, 599 N.W.2d 423 (Ct. App. 1999). In enacting the Uniform Fraudulent Transfers Act, the legislature could have provided an exception to the compensatory damages requirement for punitive damages, if it intended that result. Because the legislature did not do so, we conclude punitive damages are not available under the Act.

This holding, presumably, affects only those cases where the violation of the Act results in injunctive or other non-monetary, non-compensatory, relief.

The procedural history recounted in a recent Wisconsin Court of Appeals decision reviewing a ruling by Waukesha County Circuit Court Judge Michael Bohren is Exhibit 1 in demonstrating that arbitrations are often as costly, if not more so, than litigation.  The parties in Sewart v. Silvercryst Ltd. agreed to arbitrate their construction dispute (a leaky basement claim) in the Metropolitan Builders Association arbitration system. 

Hilarious highjinks (if you’re not one of the parties) ensued, including the arbitration board’s order directing the contractor to fix the problem rather than pay for it, the contractor’s failure to timely remedy the problem, recurrent basement flooding, a reconsideration request by the contractor, a second written decision by the arbitration board, and eventually, resort to the courts to enforce the decision.

Regardless of the outcome, the point is that arbitration can often lead to either an exercise in Solomonic baby-splitting, or end up back in court trying to enforce an order that’s required substantial legal wrangling to obtain.  Which isn’t to say that litigation’s always better — this case could potentially have had similar issues even before a court of law. 

Arbitration isn’t to be avoided at all costs, and it has its place.  However, such a decision should be made carefully and only after consideration of possible outcomes, both good and bad.  In general, I favor litigation — it has become more streamlined as courts permit the parties to work out their disputes, often frame the issues themselves, and limit discovery as the parties see fit.  There may be a particular dispute that lends itself to a more specialized decision-maker, but those instances are the exception rather than the rule.

Flooded basement photo courtesy Massachusettes Dept. of Environmental Protection photostream via this creative commons license.

Some rulings can even garner sympathy for insurance companies.  This may be one of them.  In Accola v. Fontana Builders, the Wisconsin Court of Appeals overturned a decision by Walworth County Circuit Court Judge John Race regarding insurance coverage.  The Accolas sued Fontana Builders and its insurance company, Westfield, to recover damages to the Accolas’ personal property that burned while they slept in their soon-to-be home (the Accolas had moved in early while Fontana, still technically the owner of the property, competed construction). 

There is an interesting catch in the story that probably played to the trial judge:

At the time of the fire, the house was owned by Fontana, but legally occupied by the Accolas under a thirty-day temporary occupancy permit.  Interestingly, James Accola happens to be both owner and president of Fontana.  The fire was allegedly caused by some dirty (and apparently flammable) rags left behind by a Fontana employee.

After the fire, the Accolas filed a negligence claim against Fontana and Westfield, Fontana’s liability insurer.  They acknowledged that damage to the house itself was not covered because the liability policy excludes coverage for property owned by the insured (here, Fontana).  However, they claim that the personal property they moved into the house was covered because it was not owned by Fontana and was not in Fontana’s care, custody, or control.

Westfield filed for summary judgment, claiming that the Accolas’ personal property was excluded from their policy by the “care, custody, or control” exclusion.  It claims that this exclusion is in place to avoid precisely this scenario, where an insured allows valuable property to be stored on its property while it is still doing work on it.  Westfield also claims that James Accola’s status as owner of Fontana strengthens its argument that his personal property should be excluded because it was under supervision “24 hours a day” by a Fontana employee–Accola himself.  The trial court granted summary judgment to Westfield and dismissed it from the lawsuit.

Based on the case law principle that the personal property is not covered only if it is necessary to the work on the property, the court of appeals overturned the trial court.  The court, while sympathetic to the argument, reasoned that the facts of the case compelled its conclusion.

We can understand why Westfield feels strongly, and why the trial court agreed, that the Accolas should not be able to sue Fontana to recover for damage done to their personal property based on the negligence of construction laborers who worked for and under James Accola himself.  Indeed, the issue of James Accola’s degree of supervision of the property may well be relevant to the merits of the potential negligence claim.  But the odd facts of this case do not change the legal standard that must be applied under Meiser and Silverton.

In order to win under the “care, custody, or control” exclusion of its policy at the summary judgment level, Westfield had to show that the Accolas’ personal property was necessary to the work being done by Fontana and this is something it has not done.

Sometimes even insurance companies get caught by the technicalities.

House fire photo courtesy 111 Emergency’s flickr gallery via this creative commons license.