Wisconsin Business and Commercial Litigation

The Wisconsin Supreme Court has accepted the Milwaukee Sizzler e. coli case for review.  As explained by the Wisconsin Bar,

A three-year-old child died and others became ill after ingesting E. coli contaminated meat at two Milwaukee-area Sizzler area restaurants in 2000. Now, Sizzler USA is fighting to obtain damages and attorney fees from the supplier of beef containing the strain.

The Wisconsin Supreme Court accepted review in Estate of Kriefall v. Sizzler USA Franchise, 2009AP1212/2010AP491, a case in which franchisor Sizzler USA obtained a $6.5 million lost profits award from the meat supplier, Excel Corp., for breaching an implied warranty of merchantability.  Sizzler USA is also seeking $1.7 million in attorney fees and costs incurred in defending the personal injury suit.

The court is asked to examine legal issues related to damage/lost profit limitations for breaches of express and implied warranties, indemnification, and attorney fees.

Although not specifically mentioned in the article above, the court of appeals also awarded to Sizzler $1.5 million that it paid to settle the underlying plaintiff’s claim against Sizzler, which is also part of the Supreme Court review.  The case is a tangle of appeals and cross-appeals, and should make for interesting reading when the Court releases its decision.

I’ve been working on this case since 2005 with  my partner Russ Klingaman.  Since the case was originally filed in 2000 or so, it’s good to see that we’re getting close to a resolution.

In Bushard v. Reisman, 2011 WI 51, the Wisconsin Supreme Court applied Wis. Stat. 178.15 to a unique set of facts.  However, the holding reaches beyond the listed facts, and expressly brings Wisconsin into line with most other states that have adopted the Uniform Partnership Act. 

In Bushard, two partners started a dial-up internet access company (quaint, right?) in western Wisconsin.  In 1999, when the relationship between the partners went south, Bushard sent a letter to Reisman, expressing the desire to wind up the partnership, to sell the business to a third party, or to sell to Reisman Bushard’s interest in the partnership.  The partnership was never sold, and Reisman continued to operate the partnership for years.  The company paid draws to both partners and a salary to Reisman. 

In 2006, when dial-up was following 8-tracks, cassettes, and CD players down the tubes, and Reisman wrote to Bushard limiting the monthly partnership draws, the partnership dispute reached a head.   Bushard sued, alleging that Reisman had no authority to take a salary, and seeking an accounting.  Reisman counterclaimed, essentially arguing that Bushard had been admirably compensated for years, and that it would be inequitable to make Reisman pay anything back.

Reisman asserted that because Bushard sought wind-up in 1999, the partnership as of 2006 was in the process of winding up, rather than continuing.  Further, because Bushard had absented himself from the running of the business since 1999, Bushard could be compared to a partner that died, and Wis. Stat 178.15(6) should apply:  “No partner is entitled to remuneration for acting in the partnership business, except that a surviving partner is entitled to reasonable compensation for his or her services in winding up the partnership affairs.”  That is, Reisman should be paid for his efforts in running/winding up the business for the past 7 years.  Seems fair — after all, Bushard collected his partnership payouts for those years, and did nothing to encourage Reisman to actually wind up the business.

Not so fast, according to the Supreme Court.  Reisman, if he wished to protect himself from such an outcome, could have prevailed upon Bushard to agree in writing to pay the salary, or better yet, prepared a more complete partnership agreement:

The apparent inequity that results in this case underscores the value of a written partnership agreement. Commentators have explained that “the partnership statute is, to a large extent, a standard form agreement that can be varied by the parties. Because the standard form often produces unwanted results, partners are well advised to give careful advance consideration to dissolution and its consequences and to draft explicit agreements.” Bromberg & Ribstein, supra, § 7.01(c). 

If the provisions of the UPA are unsatisfactory, partners can and should protect their interests by agreeing to different terms. In the absence of an agreement modifying the provisions of the UPA, a court should decline from fashioning an after-the-fact remedy in pursuit of an equitable result when that remedy contravenes the public policy choices established by the legislature. 

We conclude that the distribution of PressEnter’s profits and losses is governed by Wis. Stat. § 178.15. Reisman’s arguments about equity are insufficient to overcome the plain language of the statute.

Clients often think attorneys are intent on squashing business deals, that lawyers can focus too much on the unlikely bad outcome and weigh the business decision down with a myriad of what ifs and cautionary tails.  Clients are often exactly right in their perceptions, too — but it’s cases like this that demonstrate that there’s a happy medium that must be achieved between the desire to move the deal forward and the desire to protect against at least the most likely bad outcomes.  The best lawyers work cooperatively with their clients to achieve the results the clients desire while protecting from the worst (or most likely) of the possible risks.

This is a big one — a business dispute within a large Wisconsin company fanned by the flames of bitter inter-family arguments between a father and his two sons.  The father, Jack Link, and his two sons, Jay and Troy Link, were all shareholders in Minong, Wisconsin based Link’s Snacks, which you may recognize as “Jack’s Snacks” from the popular “Messing with Sasquatch” ad series.  

In 2005, Jack and Troy filed suit seeking to force Jay to surrender his stock in the company.  Not to be outdone, Jay counterclaimed, alleging that Jack and Troy had conspired to force him out of the company and buy his shares at a discount price.  After a six week jury trial, it became apparent that Jack, Troy, and Jay had all breached duties, and awarded a variety of damages.  The court forced Jay to sell his shares, and found that he, a minority shareholder, had not been oppressed under Wis. Stat. 180.1430(2)(b).  The jury also awarded punitive damages in the amount of $5 million to Jay from Jack, and for $5 million from Jay to Link’s Snacks. 

A flurry of post-verdict motions followed.  Interestingly, Jack filed his motions at 4:32, two minutes after the close of business on the due date.  Luckily for him, the clerk accepted the filing, anyway.  The post-trial motions convinced the trial court to reduce the punitive damages verdicts, and the result was:

Jay was ordered to pay $1 in compensatory damages and $1 in punitive damages to Link Snacks and $1 in compensatory damages and $1 in punitive damages to L.S.I., and Jack was ordered to pay Jay compensatory damages in the amount of $736,000 and punitive damages in the amount of $736,000.

Everyone appealed.  The Wisconsin court of appeals affirmed the reduction of punitive damages awarded to Link’s Snacks and to LSI;  reversed the reduction of the $5 million punitive damages award to Jay, because Jack’s post-verdict motions were untimely, and could not form the basis for a reduction;  and decided that because Jay surrendered his shares as ordered by the court, the benefit-estoppel doctrine acted to waive his right to appeal any other portion of the trial court’s verdict.

To make a long story even longer, the Wisconsin Supreme Court, in a decision written by Justice Gableman, decided the case this way:

(1) The circuit court erred in remitting the award of punitive damages against Jack. The circuit court’s reliance on Treadway in considering Jack’s tardy postverdict motion was misplaced. Treadway does not apply to multi-phase civil actions, such as the instant case. Further, we would decline to extend the bright-line rule of St. John’s Home in order to limit the discretion of the clerk of circuit court in accepting pleadings received after usual business hours. Accordingly, we affirm the court of appeals in its conclusion the circuit court improperly considered Jack’s postverdict motion.

(2) The court of appeals properly rejected Jay’s oppression claim under Wis. Stat. § 180.1430(2)(b). We do not address, however, whether Jay waived his right to bring his oppression claim under the benefit-estoppel doctrine because we conclude he does not have standing to appeal his oppression claim under § 180.1430(2)(b). The statutory language of § 180.1430(2)(b) clearly states that a party must be a “shareholder” in order to seek judicial dissolution of a corporation. Jay lost his status as a shareholder in Link Snacks when he surrendered his shares under the Buy-Sell Agreement. Therefore, we affirm the court of appeals on this issue, but on different grounds.

(3) Jay did not, under the benefit-estoppel doctrine, waive his right to appeal the circuit court’s decision to limit the evidence Jay could present regarding his theory of damages relating to his breach of fiduciary duty claims against Jack and Troy. The contractual obligations set forth in the Buy-Sell Agreement, which were enforced by the circuit court, would not be affected if Jay, on appeal, was successful in arguing that the circuit court erred in limiting the evidence Jay could present regarding his theory of damages relating to his breach of fiduciary duty claims against Jack and Troy. Consequently, the benefit-estoppel doctrine is inapplicable to Jay’s appeal of the circuit court’s decision to limit the evidence Jay could present regarding his fiduciary duty damages theory relating to his breach of fiduciary duty claims against Jack and Troy. We therefore reverse and remand to the court of appeals to decide whether the circuit court erred in limiting the evidence Jay could present regarding his theory of damages relating to his breach of fiduciary duty claims against Jack and Troy.

This is a fascinating case for anyone involved in shareholder litigation, and a cautionary tale for all litigators.  Get your motions and other papers filed timely!  When it comes to high-stakes litigation, the need to address all details can soak up the time you need to get the documents to the court.  While this sort of thing can happen to anyone, the Supreme Court has signalled its position on leniency.

Viking Packaging Technologies v. Vassallo Foods (August 9, 2011) saw the Wisconsin Court of Appeals address UCC issues of acceptance, the definition of “commercial unit,” and revocation of acceptance, all in the context of a contract for the purchase of a pasta bagging system.  Vassallo Foods (d/b/a Country Pasta) ordered from Viking a system to more accurately weigh bags of pasta and automatically close the pasta bags.  The package closing proved to be impossible to accomplish, but that was only discovered after the system had been delivered and installed. 

When Vassallo demanded a refund, Viking sued for the balance of the purchase price, and Vassallo counterclaimed for breach of contract.  As did the trial court, the court of appeals made short work of the breach of contract claim, determining that the lack of specification in the contract meant that Vassallo got what it contracted to get:

The trial court found specifically that Country Pasta wanted its packaging system to be more automatic. It wanted to have the “bags closed or tied and the bags to be weighed more accurately.” Nothing in those photographs, or elsewhere in the contract, establish how quickly the packaging system was required to function. By the end of his second visit to Country Pasta, Parrish testified he was able to give Kellogg a package closed with a tin-tie, but Kellogg was dissatisfied because of the way the tin-tied bag performed during handling. Kellogg himself testified that he thought the bags looked “sloppy.” Nothing in the contract even hints at any handling standards the tin-tie must withstand. The record does not explain how the “look” of the bag delivered differed from the photographs attached to the contract. Country Pasta has not established that the packaging system as a whole, or the tin-tie applicator specifically, failed to meet any identifiable “[p]roduct [p]erformance [s]pecifications.”

Likewise, the court determined that Vassallo had accepted the entire packaging system by accepting a part of the commercial unit:

By retaining all of the items in the contract, Country Pasta treated the packaging system in a way that was inconsistent with the seller’s ownership. This conduct constitutes acceptance of goods pursuant to Wis. Stat. § 402.606(1)(c).

Finally, the court of appeals relied upon the factual findings of the trial court in deciding that Country Pasta knew too much to revoke the contract:

The trial court found that when Parrish “told [Country Pasta's] employees that the tin-tie applicator would not work, that certainly was an indication that there was not going to be additional work done.” The trial court also found that “there was no evidence presented at trial as to any further discussion of [additional work].” Thereafter, as the trial court found, Country Pasta “could not reasonably assume that the nonconformity of the machinery would be cured.” These findings make revocation under Wis. Stat. § 402.608(1)(a) and (2) unavailable to Country Pasta.

The moral of the story is the same as always — make your contracts as specific as you can.  What works 99% of the time in business will fail the 1% of the time you land in litigation.  If something’s wrong with an expensive product purchase, complain early, and often, and find someone who knows how to protect your rights under the UCC. 

Pasta photo courtesy Dottie Mae’s photostream via this license.

In Mahoney v. Menard (Aug. 17, 2011), the Wisconsin Court of Appeals reviewed a motion to dismiss arising from the plaintiff’s service of an authenticated but unsigned complaint.  Even though a signed copy was filed with the court, Menard argued that the lack of a signature on the served complaint was a fundamental defect, and the court therefore lacked personal jurisdiction.

The Court of Appeals disagreed, finding that the defect was technical in nature, and upholding Kenosha County Judge Schroeder’s denial of the motion to dismiss:

Obviously, the copy of the summons and complaint received by Menards was not identical to the one filed in that it was missing signatures, so the clerk erred by authenticating the unsigned copy, and the attorney erred by failing to sign it. However, Menards has not alleged that its copy differed in any substantive way from the original. So, it is obvious to us that the copy of the summons and complaint Menards received gave it notice that the allegations contained within it were on file with the court. As we already explained, the purpose of the signature requirement was fulfilled in the signed complaint on file with the court. We cannot see how the purpose of the authentication requirement in Wis. Stat. § 801.02 was unfulfilled based on the missing signature alone. So, yes, there was a defect. But it was a technical defect, not a fundamental one.

Despite this court’s willingness in this case to overlook such a defect, the decision certainly could have gone the other direction.  In any event, it caused a lot of additional cost to both parties to chase this one down.  It’s best to avoid all defects if you can — although none of us is perfect — but when one arises, this case may assist you in demonstrating technicality.

In Manlick v. Loppnow, the Wisconsin Court of Appeals reviewed a decision by Waukesha County Judge Michael Bohren regarding the riparian rights of two feuding lakefront neighbors.  In my experience, riparian rights lead to disputes as bitter as anything you’ll find in divorce court.  This case doesn’t appear to have been out of character.

When it broke down, the Manlicks put their boat on the opposite side of their pier from where they normally stored it.  The Loppnows took exception to the parking place, and the next season, put their pier right next to the Manlick’s pier, preventing a recurrence.  Chaos ensued:

[T]he Manlicks filed this suit, alleging trespass and conversion, private nuisance, and property loss through misrepresentation pursuant to Wis. Stat. §§ 895.446 and 943.20 (2009-10) because they believed the location of the Loppnows’ pier and shore station since 2007 infringed upon their riparian area. The Loppnows counterclaimed, alleging nuisance and trespass. The crux of the parties’ dispute centered on how to determine the boundaries of the parties’ riparian areas.

The court handily listed the various means of discerning the proper riparian boundaries:

“There is no set rule in Wisconsin for establishing the extension of boundaries into a lake between contiguous shoreline properties.” Borsellino v. Kole, 168 Wis. 2d 611, 616, 484 N.W.2d 564 (Ct. App. 1992).  However, Wisconsin case law sets forth three general methods for determining where riparian boundaries lie.  First, “where the course of the shore approximates a straight line and the onshore property division lines are at right angles with the shore, the boundaries are determined by simply extending the onshore property division lines into the lake.”  Nosek, 103 Wis. 2d at 635.  Second, if “the boundary lines on land are not at right angles with the shore but approach the shore at obtuse or acute angles the division lines should be drawn in a straight line at a right angle to the shoreline without respect to the onshore boundaries.”  Id. at 636 (internal citations omitted).  Third, “where the shoreline is irregular then the boundary line should be run in such a way as to divide the total navigable waterfront in proportion to the length of the actual shorelines of each owner taken according to the general trend of the shore.”  Id. at 637.  Here, the parties advocate for only two of the three methods.  . . . .

Despite providing general methods for determining riparian boundaries based upon property lines, Wisconsin law does not mandate the use of any particular method in any particular circumstance.  See Borsellino, 168 Wis. 2d at 617 (“The methods are not wooden requirements.”).  Instead, case law dictates the proper method is to be determined based upon what is fair and equitable under the circumstances

The court of appeals concluded that the decision about which method to apply was for the court, rather than a jury.  And in this case, the court’s determination that the coterminous method was the fairest was a correct decision. 

Having worked on a number of these cases, I can tell you that it’s not terribly easy to dig up all the necessary precedent.  Having it in one place, set forth in a published decision, is of great help to counsel working in this area.  As the lakes in our state get more and more developed, this sort of dispute is going to become more and more common.  Pay attention to this decision — the next case to walk through your door could be another one of these.

boats photo courtesy momentcaptured1 via this license.

In Casper v. American Intern. South. Ins. Co., the Wisconsin Supreme Court took on three different issues, all important in business litigation.  The case arose from a collision between a truck driven by a trucker full of three different drugs and a minivan with a Sheboygan family on vacation in Milwaukee.  Multiple serious injuries resulted, and a lawsuit with numerous defendants (and plaintiffs) followed. 

Part way into the litigation, the plaintiffs sought to obtain a default judgment when a defendant’s excess insurer (National Union) failed to answer the fifth amended complaint within 45 days.  National Union, of course, claimed excusable neglect under Wis. Stat. 801.15(2)(a), because, although it followed its claims procedures, the complaint was “lost in the mail.”  Accepting National Union’s argument, the Supreme Court provided some guidance to lower courts when faced with similar circumstances:

At the court of appeals, the Caspers argued that “lost in the mail” cannot constitute excusable neglect as a matter of law. The court of appeals rejected this argument, and we agree. We cannot reject out-of-hand the possibility that a packet was actually “lost in the mail,” although courts should be skeptical of glib claims that attribute fault to the United States Postal Service. Here, the affidavits from Weisinger and Lanphear show that these individuals acted in normal fashion and that their established routine worked previously to provide timely answers to the plaintiffs in this case. When an entity is processing thousands of complaints, a few inadvertent mishaps are bound to occur. Courts should carefully scrutinize what steps an organization has taken to avoid such mishaps, how quickly the organization responds when it discovers its delinquency, and whether its delay has caused prejudice to the plaintiffs. The circuit court here considered these factors, and the Caspers have not shown that the circuit court erroneously exercised its discretion after considering all the circumstances involved.

Not content with dodging a fairly strong motion for default judgment, National Union moved for summary judgment, arguing that  the plaintiffs could not maintain a direct action claim when National Union’s policy of insurance was neither delivered nor issued for delivery in Wisconsin.  The court considered Wis. Stats. 632.24 and 631.01, along with Kenison v. Wellington Insurance Co., 218 Wis. 2d 700, 582 N.W.2d 69 (Ct. App. 1998).  The court expressly overruled Kenison and granted the plaintiffs the ability to pursue direct action against National Union:

Consequently, we hold only that Wis. Stat. § 632.24 applies to any policy of insurance covering liability, irrespective of whether that policy was delivered or issued for delivery in Wisconsin, so long as the accident or injury occurs in this state.

Finally, the Supreme Court avoided taking up the potential individual liability of corporate officers for negligence in the performance of their duties as a corporate officer by finding that in this case public policy precluded liability, even if it were available.

car accident photo courtesy digitizedchaos via this license

In my last post, I talked about a case I was working on where my client’s employee stole money from my client in order to repay a previous employer from whom he had also stolen money.  My client demanded that the previous employer, to whom the stolen money was paid, return the money.  The previous employer refused, and litigation followed. 

My client sought return of the money under, among other things, a theory of unjust enrichment.  The trial court agreed that stolen money should be returned, and granted summary judgment to my client directing repayment.  The court reasoned that stolen money, if it can reasonably be identified as the stolen money, should be returned to its proper owner, much like any other type of property.  To permit a party to keep stolen money is bad public policy — for instance, it encourages serial thefts, and encourages people to “look the other way” when they knew or should have known about a crime.

This outcome is fair, even when the receiving party didn’t know at the time of receipt that the money was stolen.  After-acquired knowledge of the source of the mony is sufficient to fulfill the elements of unjust enrichment.

Photo courtesy of  CarbonNYC  under this license.

I just finished up the circuit court proceedings in a case where my client had an employee that stole a large amount of money in order to repay money that he had previously stolen from another employer.  No one disputed that the money was stolen from both employers and that the money stolen from my client was used to pay the first employer.  The employee paid the first employer by check, telling it that he had “borrowed” the money from a friend. 

My client sought to recover its money, claiming, among other things, unjust enrichment.  Wisconsin, from what I can tell, hasn’t directly addressed the issue of whether money stolen from one part to repay another party must be returned to the first party.  I argued that public policy and fairness require that the money be re-paid.  What are your thoughts on the issue, which is admittedly not an easy one?

In Alsteen v. Wauleco, the asymptomatic plaintiff argued that because she was exposed to a dangerous chemical, which increased her risk of developing cancer, she should be able to recover from the defendants.  The defendants argued that increased risk of injury is not enough, and because there was no physical injury, the plaintiff’s claim should be dismissed. 

On June 14, 2011, the Wisconsin District III Court of Appeals agreed with the defendants:

In Wisconsin, a plaintiff does not have a personal injury claim until he or she has suffered “actual” injury or damage. Increased risk of future harm is not an actual injury under Wisconsin law.

In an exhaustive review of applicable case law, the Court of Appeals confirms Wisconsin’s requirement of actual injury or damages.  This case, while written in the context of a personal injury, can certainly be applied in other contexts, as demonstrated by the breadth of case law interpreted by the court in its analysis.  As plaintiff’s lawyers become more creative in their approaches, this case is certain to be useful in limiting claims that include risk of damage.