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COURT OF APPEALS DECISION DATED AND RELEASED SEPTEMBER 4, 1996 |
NOTICE |
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A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See § 808.10 and
Rule 809.62(1), Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 96-0325
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT III
KATHERINE KAATZ,
Plaintiff-Respondent,
v.
TOMMY E. HAMILTON,
INDIVIDUALLY, AND
DOING
BUSINESS AS VARIETY
BUILDERS
AND COMPANY, INC.,
Defendant-Appellant,
PINKERT, SMITH, WEIR,
JENKINS & NESBITT,
Defendant.
APPEAL from a judgment
of the circuit court for Door County:
CHARLES D. HEATH, Judge. Affirmed
in part; reversed in part and cause remanded with directions.
Before Cane, P.J.,
LaRocque and Myse, JJ.
LaROCQUE, J. Tommy Hamilton appeals a judgment based
upon a jury verdict awarding his former business associate, Katherine Kaatz,
compensatory damages of $125,000 and punitive damages of $400,000 for
intentional misrepresentation. Kaatz
testified that Hamilton falsely represented that he would drop his lawsuit
against her in Illinois for misappropriation of his funds in exchange for
mediation/arbitration, but then took a default judgment for $77,000. Kaatz also testified that Hamilton falsely
represented that he would transfer ownership of their Illinois business
operations to her. Hamilton raises
numerous challenges to the money judgment and several are dispositive.
Kaatz filed a Wisconsin
lawsuit seeking a declaration that the Illinois judgment was void because it
was obtained by fraud. Kaatz's failure
to appeal the Wisconsin trial court's decision dismissing her request for a
declaration that the Illinois judgment is void because she failed to prove
fraud renders her other Wisconsin claim to recover the amount of that judgment
invalid by virtue of the doctrine of claim preclusion.
Kaatz's separate and
second unpleaded misrepresentation claim, i.e., that Hamilton falsely promised
that he would transfer his Illinois business to her, fails on several grounds,
first and foremost because she failed to prove damages resulting from the
alleged agreement.
Hamilton also appeals
the trial court's dismissal of his counterclaim seeking transfer in equity of
Kaatz's Door County homestead on grounds of insufficient evidence. Because Hamilton seeks relief in equity with
unclean hands, the trial court did not erroneously exercise its discretion by
denying him relief. We therefore affirm
in part and reverse in part.
Much of the relevant
evidence was in dispute. On review, we
look at the evidence in the light most favorable to sustain the verdict, and
when more than one inference may be drawn from the evidence presented at trial,
we are bound to accept the inference drawn by the jury. Gonzalez v. City of Franklin,
137 Wis.2d 109, 134, 403 N.W.2d 747, 757 (1987). So viewed, the evidence revealed the following: Hamilton operated a sole proprietorship,
T&A Home Improvement, repairing and remodeling homes in Illinois. Beginning in 1986, Kaatz was employed by
Hamilton as a bookkeeper for T&A.
Soon thereafter, she began her own business cleaning and painting houses
repaired by T&A. In early 1988,
Kaatz began using a new trade name for her business, Variety Builders, and
continued operations under that name.
Kaatz and Hamilton developed a personal relationship as well and began
living together.
Later in 1988, Hamilton
began proceedings to obtain a divorce from his estranged wife. In a scheme designed to prevent Hamilton's
wife from obtaining any T&A assets in the divorce action, he transferred
T&A operations to Variety Builders, and began working for Kaatz as an
employee. As part of the transfer,
Variety assumed all T&A debts and liabilities. In the course of this transfer, and presumably in consideration
of her assumption of the debts and other factors, Hamilton represented to Kaatz
that she would own the construction business.
Kaatz testified that she believed his representations and that she was
entitled to draw on the accounts for her expenses and compensation. Hamilton was paid out of the Variety account
and was not paid a salary, but instead received periodic checks for whatever
expenses he requested payment.
Hamilton testified that
he agreed with Kaatz to have her purchase the Door County property in her name
"[t]o hide the funds from my ex-wife." Kaatz claimed that she paid for the home out of her income from
the business and was not concealing Hamilton's assets.
By late 1989 the
business began to experience financial difficulties. Shortly thereafter, the parties ended their personal and
professional relationships. Hamilton,
however, continued the construction business under the name Variety Builders,
without Kaatz. He took over all of
Variety's existing equipment and jobs.
In 1990, Hamilton incorporated his business in Illinois as Variety
Builders and Company, Inc.
In early 1990, Hamilton
filed an action in Illinois, requesting an accounting and damages from Kaatz,
alleging that Kaatz misappropriated monies from him. In March of that year, the parties, their counsel and a CPA met
in Chicago to discuss an out-of-court settlement, and Kaatz testified that all
parties agreed to pursue an accounting out of court. According to Kaatz, as a result of negotiations, Hamilton agreed
that he would not pursue his Illinois lawsuit.
Hamilton obtained an
Illinois default judgment against Kaatz on September 24, 1991, in the sum of
$77,195.42. Hamilton's Illinois
complaint alleged that he operated the business in question from August 1988 to
November 1989 under the trade name Variety Builders, that Kaatz appropriated
monies from the business for her personal use and therefore those monies were
due and owing. The judgment provides
that Hamilton was the owner of the business operation and that Kaatz converted
the monies to her own use without Hamilton's consent.
Kaatz became aware of
the Illinois judgment no later than December 1991 when Hamilton filed it in
Door County as a foreign judgment precedent to attempts to execute against
Kaatz's property there. Although there
was extensive conflicting evidence concerning notice to Kaatz and whether the
default judgment was properly taken under Illinois law, after hearing evidence
concerning the circumstances, the trial court dismissed Kaatz's action to
declare it void on grounds of fraud because the evidence was insufficient. Kaatz does not appeal the trial court's
dismissal and concedes in her brief that the Illinois judgment is still
valid.
Kaatz's request for a
declaratory judgment that her Door County real estate be exempt from execution
as homestead property was tried along with Hamilton's counterclaim seeking to
have the Door County property transferred directly to him under the court's
equitable powers. The trial court
dismissed the counterclaim at the close of evidence on grounds that Hamilton
failed to meet his burden of proof.
Following an advisory jury verdict that the property was Kaatz's
homestead, the court entered judgment consistent with that finding.
Kaatz's claim made in
her amended complaint alleging that Hamilton intentionally misrepresented that
he would drop the Illinois lawsuit was tried to a jury along with an unpleaded
claim that he also misrepresented that he would transfer his Illinois business
to Kaatz. The jury found in Kaatz's
favor and awarded $125,000 in compensatory damages and $400,000 in punitive
damages.[1] Hamilton now appeals this judgment, arguing
that the valid Illinois judgment bars Kaatz's action under principles of claim
preclusion. Alternatively, Hamilton
attacks the sufficiency of the evidence of compensatory damages.[2] He also challenges the trial court's
dismissal of his counterclaim.
CLAIM PRECLUSION
Hamilton argues that the
trial court erred by failing to dismiss Kaatz's misrepresentation claims based
upon the doctrine of claim preclusion.
We separately examine the two misrepresentation claims addressed in the
verdict. See note 2.
Last year our supreme
court joined the trend adopting "claim preclusion" and "issue
preclusion" in lieu of the terms "res judicata" and
"collateral estoppel," respectively.
NSP v. Bugher, 189 Wis.2d 541, 549-50, 525 N.W.2d 723, 727
(1995). The doctrine of claim preclusion
provides that a final judgment is conclusive in all subsequent actions between
the same parties, or their privies, as to all matters that were litigated or
that might have been litigated in the former proceedings. Id. at 550, 525 N.W.2d at
727. Whether the doctrine of claim
preclusion applies under a given set of facts is a question of law we must
review de novo. De Pratt
v. West Bend Mutual Ins. Co., 113 Wis.2d 306, 310, 334 N.W.2d 883, 885
(1983).
The Illinois complaint sufficiently pleaded
that Hamilton owned the business from which Kaatz misappropriated funds without
consent. Kaatz's subsequent (second
amended) complaint in Wisconsin pleaded that Hamilton misrepresented that he
would drop the Illinois lawsuit in return for mediation/arbitration. Kaatz, however, has not appealed the trial
court's dismissal of her action to declare the Illinois judgment void, and
concedes on this appeal that the Illinois judgment is valid. Kaatz's misrepresentation claim seeking to
recover the amount of the Illinois judgment violates the claim preclusion
doctrine because it would simply nullify the Illinois judgment if
successful. Kaatz's claim in this
respect cannot serve as a basis for the verdict awarding her compensatory
damages.
We turn to the other misrepresentation
claim addressed in the verdict and for which Kaatz may have been awarded
compensatory damages. Although the
claim for misrepresentation was never pleaded, the jury was asked whether
Hamilton misrepresented that he would transfer the Illinois business to
Kaatz.
Wisconsin follows the
benefit of the bargain rule in intentional misrepresentation cases. Ollerman v. O'Rourke Co., 94
Wis.2d 17, 52, 288 N.W.2d 95, 112 (1980).
The purchaser is not limited to direct damage, that is, the purchaser
may recover for indirect or consequential damages such as loss of profits, as
long as they do not duplicate the recovery under a benefit of the bargain
damage claim. See Wis. J I— Civil 2405 cmt. 2,
citing Ollerman and others.
Kaatz provides no record reference in response to Hamilton's contention
that the record is devoid of proof of damages.
See Keplin v. Hardware Mut. Cas. Co., 24 Wis.2d
319, 324, 129 N.W.2d 321, 323 (1964); § 809.19(1)(d), Stats.
Although Kaatz's failure violates the appellate rules, we have examined
the trial transcript for evidence of her alleged damages.
The only reference
relevant to potential damages was testimony elicited from Hamilton regarding
business "revenues" for the months of November and December 1989, as
evidenced from several exhibits. These
exhibits consisted of a business bank checking account statement showing
deposits for the month of November 1989 and a general business ledger that
Kaatz's counsel advised the jury showed business deposits for the month of December
1989. Mere proof of deposits or revenue
covering a two-month period without any evidence of expenses is inadequate to
prove Kaatz's lost profits.
Damages
for lost profits need not be proven with absolute certainty, but the claimant
must produce evidence of sufficient evidence ... in this case, the books and
records, on which to base a reasonable inference as to a damage amount. To establish lost profits, the claimant must
prove the business's revenue as well as its expenses.
Skrupky
v. Elbert, 189 Wis.2d 31, 51, 526 N.W.2d 264, 272 (Ct. App. 1994)
(quoting Lindevig v. Dairy Equip. Co., 150 Wis.2d 731, 740, 442
N.W.2d 504, 508 (Ct. App. 1989)).
We conclude that this
record is woefully inadequate to sustain a compensatory damage award ostensibly
based on Kaatz's loss of benefit of the bargain and connected consequential
damages.
Apart from the failure
to prove damages, another defect is noteworthy: The verdict inquires about a misrepresentation relating to a
future event. The jury verdict may have
found that Hamilton made the representation "that he would give her his
construction business." See
note 1. Such a finding, however,
demonstrates a promise relating to a future event. Ordinarily, an unfulfilled promise or statement of future events
will not suffice to support a tort claim for misrepresentation. Chitwood v. A.O. Smith Harvestore
Products, 170 Wis.2d 622, 631, 489 N.W.2d 697, 702 (Ct. App. 1992).[3] While a promise may be actionable as a tort
upon proper proof that there was no present intent to perform the promise when
it was made, Hartwig v. Bitter, 29 Wis.2d 653, 658, 139 N.W.2d
644, 647 (1966), neither the pleadings, the verdict, arguments of counsel nor
the jury instructions address the question of Hamilton's present intent when
his alleged promise was made.
Because any part of the
judgment awarding damages based upon the Illinois judgment is barred by the
doctrine of claim preclusion, and because any remaining damages rest upon
insufficient evidence, we reverse the judgment awarding Kaatz damages. Because the compensatory damages cannot
stand, the punitive damage award must also fail. Because it does, we do not address Hamilton's contention that the
award was based on unfair prejudicial argument to the jury concerning his
misconduct toward persons other than Kaatz.
THE DOOR COUNTY PROPERTY
Hamilton also appeals
the trial court's dismissal of his counterclaim. Hamilton sought transfer of Kaatz's Door County property to him
under equitable principles. Hamilton
sought equitable relief. Apparently
Hamilton's counterclaim was based upon a theory of fraudulent conveyance. According to Hamilton's testimony, Kaatz was
instructed to purchase the home from funds from his business operations in
order to hide the income from his estranged wife in their contested divorce
action. Kaatz's version of the circumstances
was different.
His counterclaim is an
attempt to invoke the Wisconsin court's equitable powers to escape the results
of a corrupt scheme. The decision to
grant equitable relief is within the trial court's discretion. Zinda v. Krause, 191 Wis.2d
154, 175, 528 N.W.2d 55, 62 (Ct. App. 1995).
"One of the fundamental tenets of equity is that a person seeking
equitable relief must come to the court with clean hands." Id. at 174, 528 N.W.2d at
62. We can think of no more appropriate
circumstances to uphold the application of this doctrine than the scheme so
arrogantly admitted here.
Moreover, there is
conflicting evidence from Kaatz indicating that the money used to purchase the
property did not come from the monies misappropriated by Kaatz. The record in this case is filled with
conflicting testimony regarding what monies Kaatz used to purchase the Door
County property. In this case, Hamilton
apparently sought a jury verdict on the issue whether the funds came from
misappropriations by Kaatz.
[W]hen
the trial judge rules, either on motion for nonsuit [or] motion for a directed
verdict ... that there is or is not sufficient evidence upon a given question
to take the case to the jury, the trial court has such superior advantages for
judging of the weight of the testimony and its relevancy and effect that this
court should not disturb the decision merely because, on a doubtful balancing
of probabilities, the mind inclines slightly against the decision, but only
when the mind is clearly convinced that the conclusion of the trial judge is
wrong.
Olfe
v. Gordon, 93 Wis.2d 173, 186, 286 N.W.2d 573, 579 (1980)
(quoting Trogan v. Fruchtman, 58 Wis.2d 569, 585, 207 N.W.2d 297,
306 (1973)). The trial court held that
Hamilton failed to prove his evidence by clear and convincing standards. Thus, in addition to the rejection of
Hamilton's claim on equitable grounds, we defer to the trial court's view of
the evidence and affirm the judgment dismissing the attempt to acquire Kaatz's
Door County property.
By the Court.—Judgment
affirmed in part; reversed in part and cause remanded with directions. No costs on appeal.
Not recommended for
publication in the official reports.
[1]
Although Kaatz pleaded only one claim of misrepresentation, the first
question in the special verdict inquired of two separate
misrepresentations. Hamilton does not
challenge the form of the verdict on appeal.
The first question asked:
Did the defendant Tommy Hamilton
make the representation to the plaintiff Katherine Kaatz that he would stop his
Illinois lawsuit against her or did the defendant Tommy Hamilton make the
representation that he would give her his construction business?
The jury answered "yes," creating an ambiguity. Because the question combined two separate claims, it is not possible to determine whether the jury found two misrepresentations or only one, and, if only one, which one. Further, because there was only one compensatory damage and one punitive damage question, we cannot determine whether those awards represent damages for two separate torts or only one and, if one, which one.
[2] Because we reverse the judgment against Hamilton, we need not address his other arguments, including the sufficiency of the evidence to include his Illinois corporation in the judgment on a theory that it was liable as a "successor corporation." We do note that Kaatz did not plead a claim against the corporation.