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COURT OF APPEALS
DECISION
DATED AND FILED
December 23, 2009
David
R. Schanker
Clerk of Court of Appeals
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NOTICE
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This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official
Reports.
A party may file with the
Supreme Court a petition to review an adverse decision by the Court of
Appeals. See Wis. Stat. § 808.10 and Rule 809.62.
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Appeal No.
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STATE OF WISCONSIN
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IN COURT OF
APPEALS
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DISTRICT IV
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Betty
Andrews Revocable Trust, Donald Derr, Eleanor A.
Torrey,
Ralph Benjamin, James Oestmann, Jamo Trust Number
2 and Gerald
J. & Arlene B. Storms Living Trust,
Plaintiffs,
WHI
Liquidation, Inc. f/k/a Windsor Homes, Inc.,
Plaintiff-Respondent-Cross-Appellant,
v.
Vrakas/Blum,
S.C., Vrakas/Blum Mergers and Acquisitions,
Inc. and
Karin M. Gale, CPA,
Defendants-Appellants-Cross-Respondents.
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APPEAL
and CROSS-APPEAL from a judgment and an order of the circuit court for Dane County: richard
g. niess, Judge. Affirmed.
Before Vergeront, Higginbotham and Bridge, JJ.
¶1 HIGGINBOTHAM, J. This appeal and
cross-appeal arise from an action brought by Windsor Homes, Inc. (Windsor), and
minority shareholders against Vrakas/Blum
for its activities in connection with the marketing and sale of Windsor’s assets. Windsor
brought direct claims and the minority shareholders brought derivative claims
alleging breach of contract, strict responsibility misrepresentation and
negligent misrepresentation. Following a
bench trial, the circuit court dismissed all of the minority shareholders’
derivative claims and Windsor’s
breach of contract claim. However, the
court awarded judgment and damages of $2.9 million to Windsor on its strict
responsibility and negligent misrepresentation claims for Vrakas/Blum’s
nondisclosure of information relating to the marketing and sale of Windsor
president Len Linzmeier’s stock to a third party.
¶2 Vrakas/Blum challenges the judgment on several grounds. First, it contends that the minority
shareholders and Windsor lacked standing to pursue their claims. Second, Vrakas/Blum argues that Windsor’s
misrepresentation claims must fail because they are barred by the two-year
statute of limitations for intentional torts.
Third, Vrakas/Blum maintains that Wisconsin
courts have never held and should not hold that claims for strict
responsibility and negligent misrepresentation can be based solely on
nondisclosures. Fourth, Vrakas/Blum
argues that it was not required to disclose information relating to Linzmeier’s
stock sale because Linzmeier’s knowledge of the transaction was imputed to Windsor as a matter of
law. Fifth, Vrakas/Blum asserts that Windsor failed to prove that Windsor
relied on any alleged nondisclosures, and that such nondisclosures damaged Windsor. Finally, Vrakas/Blum maintains that the award
of damages must be reversed because Windsor
failed to present evidence to support the amount of the award. We reject each of these arguments.
¶3 In its cross-appeal, Windsor
argues that the trial court erred in granting Vrakas/Blum’s motion on
reconsideration to strike that portion of the court’s judgment that awarded Windsor prejudgment
interest on the damage award. We reject this argument as well. Accordingly, we affirm the trial court’s
judgment and its reconsideration order.
BACKGROUND
¶4 The trial court made the following findings, which are
undisputed on appeal. In February 1998,
Windsor Homes entered into a contract with Vrakas/Blum for the purpose of
marketing Windsor
for sale. The contract was signed by Len Linzmeier and
James Ballweg, Windsor’s
board president and vice-president, respectively, and Karin Gale of
Vrakas/Blum. Vrakas/Blum prepared a
confidential sales document that estimated the value of Windsor to be $6,333,000.00.
¶5 At the time Windsor entered
into the agreement with Vrakas/Blum, Linzmeier and Ballweg owned 43.75% and
18.75% of the shares in Windsor,
respectively. Linzmeier and Ballweg were
the only shareholders involved in day-to-day management of the company. The remaining two directors of the company
were Peter Uttech and Linzmeier’s daughter, Jayna Schultz, who was also employed
by Vrakas/Blum.
¶6 In January 1999, Ballweg resigned as an employee and officer
of Windsor. Several weeks later, Ballweg reached an
agreement with Windsor
to redeem his shares. As a result of the
agreement, Linzmeier became the majority shareholder in the company. Victor Schultz, Jayna Schultz’s husband and Linzmeier’s
son-in-law, represented Windsor Homes in the Ballweg transaction. Gale and others at Vrakas/Blum knew of the
transaction, but none of Windsor’s
minority shareholders were told about it for many months.
¶7 Shortly after becoming majority shareholder in March 1999,
Linzmeier discussed with Gale the possibility of marketing only his share in Windsor, rather than the
whole company. This idea was immediately
taken up by Gale and the focus of Vrakas/Blum’s efforts shifted from selling
the company to selling Linzmeier’s share of the company.
¶8 In March 1999, Camberwell Companies, Inc., submitted an offer
to purchase Windsor. In response, Gale informed a Camberwell
accountant of the recent buyout of Ballweg’s shares, and indicated that
Camberwell could acquire a controlling interest in Windsor by purchasing only Linzmeier’s shares
instead of the whole company.
¶9 In April 1999, Gale began negotiating with Camberwell
president Ron Wald regarding the sale of Linzmeier’s shares. In an April 1999 letter to Wald, Gale
proposed that Camberwell purchase Linzmeier’s 53.85% interest in Windsor for
$2,900,000. Gale explained that the
purchase of Linzmeier’s shares would benefit Camberwell by “separating the
majority shareholder from the minority shareholder[s].” Gale projected that Camberwell could then
purchase the remaining shares—representing a 46.15% interest in the company—for
only $720,000 based on recent sale prices of shares held by non-active minority
shareholders. Gale reminded Wald that
Vrakas/Blum had estimated that Windsor
was “valued in excess of $5,000,000.”
Wrote Gale: “[I]t is very possible that you could ultimately gain a 100%
ownership interest for $3,620,000 ($2,900,000.00 + $720,000.00)…. You save $1,380,000.00.”
¶10 As a result of these discussions, Wald and Linzmeier signed a
letter of intent dated May 1999, which stated that Wald and Camberwell agreed
to negotiate in good faith with Linzmeier and Windsor to acquire Linzmeier’s
shares for $2,900,000. The letter of
intent contained several contingencies, including that the buyer would secure
financing and inform the seller of such financing. The letter required that Vrakas/Blum cease
marketing the sale of Windsor to other potential suitors, and that Windsor
suspend dividend payments to its shareholders.
¶11 Gale was in regular contact with Camberwell’s bank, Wells Fargo
Business Credit, Inc., in May 1999, and provided Wells Fargo with audited
financial statements for Windsor. In June 1999, Wells Fargo submitted a
financing proposal to Wald, which was copied to Gale. Under Wells Fargo’s proposal, Camberwell and
Windsor would be co-borrowers under a security and credit agreement, and the
transaction would be secured by a first real estate mortgage on all real estate
property owned by Windsor.
¶12 Over the next few months, Gale and others at Vrakas/Blum
continued to negotiate the details of the agreement with Camberwell. In September 1999, Wald wrote to Gale and
Linzmeier expressing his concern that the mortgage on Windsor’s assets was a breach of fiduciary duty. In October 1999, Wells Fargo submitted a
financing proposal to Wald which listed Camberwell and Windsor as co-borrowers
on a $10,000,000 line of credit for the purchase of Linzmeier’s shares and
“subsequent advances to fund cash flow irregularities experienced during Borrowers
normal operating cycle.” The proposal
stated that a first lien would be placed as collateral on all accounts,
inventory, equipment and general intangibles of both Camberwell and Windsor. Finally, the financing would be secured by a
first real estate mortgage on all real estate owned by Windsor.
¶13 At trial, Gale denied having knowledge of the details of the
financing proposals. The trial court
found this testimony to be not credible.
It found that Gale knew in June 1999 that Wells Fargo’s initial
financing proposal included a first mortgage on her client’s assets, and that
she knew in October 1999 that its subsequent proposal included the same
provision. It found that neither Gale
nor anyone else at Vrakas/Blum disclosed this information to anyone at Windsor other than Linzmeier, although Gale was aware that
Windsor’s
bylaws required that the board of directors receive sixty days notice before
any sale of shares.
¶14 In mid-November 1999, Gale provided financial statements to
Wald’s attorney which showed that Windsor
had $4,369,729 in assets and $257,745 in long-term liabilities. On November 23, 1999, a final stock purchase
agreement for Linzmeier’s shares was executed.
¶15 Windsor
held its annual meeting on December 14, 1999.
Minority shareholders in attendance received annual financial
statements, which notified them for the first time that Ballweg had redeemed
his shares and Linzmeier was now the majority shareholder. At the end of the meeting, Linzmeier
announced that he had received an offer to purchase his shares, and that he
would be calling a special shareholders meeting soon.
¶16 A special meeting of the shareholders and directors was held on
December 22, 1999. Under Windsor’s bylaws, the
corporation could match any third-party offer to purchase shares within sixty
days of receiving notice of the offer.
Director Peter Uttech moved to waive the sixty-day right of first
refusal; Linzmeier and Jayna Schultz abstained.
Uttech was unaware of the financing for the purchase of Linzmeiers’
shares. None of the details of the
financing arrangement were disclosed at the December 14th or 22nd shareholder
meetings. The trial court found that
neither Gale nor anyone else at Vrakas/Blum advised Uttech, Windsor’s corporate counsel Gary Hebl, or any
minority shareholder regarding any of the details of the financing arrangement
with Wells Fargo for the purchase of Linzmeier’s shares.
¶17 The sale of Linzmeiers’ shares was executed in January 2000. Neither Windsor’s corporate counsel, the
other directors, nor any attorney for Windsor
had learned of the financing provisions until some time after the financial
statements for the fiscal year ending September 30, 2000, were issued in March
2001.
¶18 In February 2002, the minority shareholders sued Linzmeier,
Windsor and Camberwell among others for breach of fiduciary duty, conspiracy
and misrepresentation. The trial court
dismissed the minority shareholders’ action on summary judgment, concluding
that their claims were barred by the two-year statute of limitations for
intentional torts. The court determined
that by January 2000 the shareholders had sufficient opportunity to discover
the facts underlying their claims.
¶19 Windsor
ceased operations in 2004, and all of its assets and real estate were sold to a
third party. The proceeds of these sales went to Wells
Fargo. The parties agree that Windsor is an empty shell
with substantial negative value.
¶20 In 2005, the minority shareholders brought this action against
Vrakas/Blum for breach of contract, intentional and strict responsibility
misrepresentation and civil conspiracy.
The minority shareholders made their claims individually and
derivatively on behalf of Windsor. Vrakas/Blum moved for summary judgment on all
claims, and the trial court granted the motion in part, dismissing the
shareholders’ direct claims and their derivative claim for conspiracy. The court left for trial the shareholders’
derivative claims for breach of contract and misrepresentation.
¶21 In June 2007, the minority shareholders appealed the order
dismissing their direct claims for breach of contract and misrepresentation,
and their conspiracy claim in its entirety, and we affirmed. See Betty Andrews Revocable Trust v.
Vrakas/Blum, S.C., No. 2007AP1414, unpublished slip op. (WI App Nov. 6,
2008).
¶22 A trial was scheduled on the remaining derivative claims. On October 17, 2007, the trial court granted
Vrakas/Blum’s motion to try the case to the bench rather than a jury. In response to the court’s order, the
minority shareholders convened a meeting later that day, and elected
shareholder Don Derr to be a director of Windsor. Derr then appointed himself president, and
voted to authorize Windsor
to take over the action against Vrakas/Blum.
Windsor
filed a motion to allow the corporation to assume prosecution of the complaint
as a direct action, and for a jury trial.
The court denied the request for a jury trial, but allowed the action to
proceed as both a direct action by Windsor
and a derivative action by the minority shareholders.
¶23 Following a week-long trial, the court issued a written
decision containing rulings on outstanding motions, findings of fact,
conclusions of law and an order for judgment.
The court dismissed the derivative claims, but awarded judgment and
damages of $2,900,000 plus interest to Windsor
on its direct claims for strict responsibility and negligent misrepresentation
based on Vrakas/Blum’s failure to disclose certain information to Windsor. The court found that, contrary to its
marketing agreement with Windsor, Vrakas/Blum
was required to disclose and failed to disclose the following to Windsor:
A) In March, 1999, that Linzmeier
had ceased efforts to sell the corporation as a whole, had imposed conditions
on the corporation itself (nonpayment of dividends and restrictions on
negotiating with other potential suitors), and was now actively seeking to sell
his stake in the company (recently increased to a majority position);
B) That defendants
were actively assisting him in this effort and had agreed to stop further
efforts to market the corporation as a whole, contrary to the contract;
C) In June, 1999,
the possibility that money would be borrowed for the purchase of Linzmeier’s
stock on which Windsor
Homes, Inc. would bear the risk;
D) By no later than
December 22, 1999, that Windsor Homes, Inc.’s real estate and other assets
would be encumbered to secure all the outstanding debt of Windsor Homes, Inc.
and Camberwell, including but not limited to that amount borrowed to purchase
Linzmeier shares.
The court also determined that
Vrakas/Blum breached its contract with Windsor,
but concluded that the claim for breach of contract was barred by the two-year
statute of limitations for intentional torts because the claim was premised on
a breach of fiduciary duty. The court
dismissed motions by Vrakas/Blum for a mistrial and to dismiss at the close of
evidence.
¶24 Vrakas/Blum moved for reconsideration of the trial court’s
award of prejudgment interest on the damages.
The trial court granted the reconsideration motion, and modified the
judgment to strike the award of prejudgment interest. Vrakas/Blum appeals the judgment in favor of Windsor on its direct claims for misrepresentation, and Windsor cross-appeals the
judgment against it on its breach of contract claim and the post-judgment order
striking the award of prejudgment interest.
DISCUSSION
¶25 Vrakas/Blum argues on appeal that Windsor’s misrepresentation
claims must fail because: (1) the
minority shareholders lacked standing to pursue the derivative action, and
therefore no action existed for Windsor to assume; (2) the claims are
barred by the two-year statute of limitations for intentional torts; (3) Wisconsin
courts have not held, and should not hold, that claims for strict
responsibility and negligent misrepresentation may be based solely on nondisclosure;
(4) Linzmeier’s knowledge of the sale is imputed to Windsor as a matter of
law, and thus Vrakas/Blum’s nondisclosure to Windsor is immaterial; (5) Windsor
presented no evidence showing that Windsor Homes relied on Vrakas/Blum’s
nondisclosure; and (6) Windsor presented no evidence that it was damaged
by Vrakas/Blum’s nondisclosure, and, regardless, the amount of damages awarded
is not supported by the record.
¶26 In its cross-appeal, Windsor
argues that the trial court erred in declining to award pre-judgment interest
on the damage award.
¶27 We reject each of Vrakas/Blum’s and Windsor’s arguments, either on the merits or
on forfeiture grounds. We address each argument
in turn.
Minority
Shareholders’ Standing to Pursue Claims
¶28 Vrakas/Blum contends that the minority shareholders lacked
standing to pursue a derivative action on Windsor’s
behalf on two grounds. First,
Vrakas/Blum asserts that the shareholders failed to prove that they submitted a
written demand notifying Windsor
of the action pursuant to Wis. Stat. § 180.0742
(2007-08). Second, Vrakas/Blum argues the shareholders
lacked standing to pursue a derivative action because they never “fairly and
adequately” represented Windsor’s
interests as required by Wis. Stat. § 180.0741(2). Vrakas/Blum maintains that, as a result of
the minority shareholders’ lack of standing, there was no valid action for Windsor to assume when it requested to take over the suit
following the Windsor shareholders’ October 17,
2007 meeting at which new officers and directors of Windsor were elected.
¶29 Windsor views Vrakas/Blum’s
arguments as an attack on the October 17, 2007 shareholder meeting,
and argues that Vrakas/Blum itself lacks standing to make such attacks on Windsor’s internal
operations, citing Wis. Stat. § 180.0304. This section prohibits challenges to a
corporation’s power to act except in specified circumstances, which include
“proceeding[s] by the corporation, directly, derivatively or through a
receiver, trustee or other legal representative, against an incumbent or former
director, officer, employee or agent of the corporation.” Section 180.0304(2)(b). Vrakas/Blum maintains that this provision
plainly allows it to challenge Windsor’s
power to act against it, as this is a proceeding against an “agent of the
corporation,” Vrakas/Blum.
¶30 Windsor
all but concedes that Vrakas/Blum’s interpretation of Wis. Stat. § 180.0304(2)(b)
is consistent with the statute’s plain language. Nonetheless, it argues that application of
§ 180.0304(2)(b) in these circumstances would be contrary to the purpose
of the provision, which Windsor urges is to allow the corporation to assert that
an agent has exceeded its corporate authority, not to allow an agent to
challenge the power of the corporation to bring suit against the agent.
¶31 We decline to decide whether Vrakas/Blum has a right under Wis. Stat. § 180.0304 to
challenge the minority shareholders’ standing to pursue a derivative action
because, assuming for purposes of argument only that Vrakas/Blum has such a
right, we conclude in the analysis below that (1) Vrakas/Blum has
forfeited its argument that the minority shareholders did not serve the
statutory written demand on Windsor, and (2) the minority shareholders
fairly and adequately represent Windsor’s interests.
¶32 When determining whether an argument was raised in the trial
court, we conduct an independent review of the record and will generally refuse
to address an argument made for the first time on appeal. See Preuss v. Preuss, 195 Wis. 2d 95, 104-105,
536 N.W.2d 101 (Ct. App. 1995). In its reply brief, Vrakas/Blum offers no
response to Windsor’s assertion that it failed
to argue on summary judgment or at trial that the minority shareholders never
submitted a written demand to Windsor
as required by Wis. Stat. § 180.0742, and we
find no indication in the record that such an argument was made. We therefore conclude that Vrakas/Blum has
forfeited its right to make this argument.
¶33 We turn now to Vrakas/Blum’s claim that the minority
shareholders lacked standing to bring a derivative action because they could
not fairly and adequately represent Windsor’s
interests pursuant to Wis. Stat. § 180.0741(2). In both its decision on Vrakas/Blum’s motion
for summary judgment and its decision following the verdict, the trial court
determined that the minority shareholders had demonstrated that they could
fairly and adequately represent Windsor’s interests, and therefore they had
standing to pursue the derivative action under § 180.0741(2).
¶34 Vrakas/Blum argues our review of this determination is de novo
because, as a general matter, standing is a legal issue subject to independent
review, citing Kiser v. Jungbacker, 2008 WI App 88, ¶10, 312 Wis. 2d
621, 754 N.W.2d 180. As Windsor points
out, however, we addressed this issue at length in Read v. Read, 205 Wis. 2d
558, 563-565, 556 N.W.2d 768 (Ct. App. 1996), and concluded that, when the
circuit court’s determination regarding whether a shareholder has standing to
bring a derivative action turns on the court’s assessment of the shareholder’s
ability to fairly and adequately represent the corporation’s interests under
§ 180.0741(2), our review of the trial court’s decision is under the
erroneous exercise of discretion standard.
We thus apply a deferential standard of review to this particular
standing challenge.
¶35 In arguing that the minority shareholders cannot fairly and
adequately represent Windsor’s interests,
Vrakas/Blum notes that they sought dissolution of Windsor in their February 2002 action against
Linzmeier, Camberwell, Windsor and others.
Vrakas/Blum argues that such conduct alone deprives the minority
shareholders of standing, citing Read, 205 Wis. 2d at 567. Further, Vrakas/Blum cites trial testimony of
Derr and other minority shareholders establishing that the shareholders were
motivated by a desire to recover damages for themselves and not Windsor. Vrakas/Blum points to a statement to the trial
court by minority shareholders’ counsel that, if the shareholders prevailed in
this action, they would pursue “a separate claim on the corporation to try to
deprive the majority shareholders from receiving all of that or the share of
that.” Vrakas/Blum’s arguments fail to
persuade us that the trial court misused its discretion.
¶36 The trial court noted in its decision on summary judgment that
the minority shareholders had made a prima
facie case that the majority shareholders, with Vrakas/Blum’s assistance,
substantially injured the corporation by overleveraging it to finance
Camberwell’s purchase of Linzmeier’s shares.
After trial, the court found that this financing deal ultimately caused
damage to Windsor. Under these circumstances, we conclude that
the trial court reasonably determined that minority shareholders—who were not
informed of the decision to mortgage Windsor’s real estate and were thus not
complicit in the harm that was a substantial factor in Windsor’s demise—could
fairly and adequately represent Windsor’s interests in the derivative
action.
¶37 Moreover, Vrakas/Blum reads Read too broadly. The trial court in Read determined that a
lone minority shareholder who filed motions for the dissolution of the
corporation only five months after filing his derivative claim could not fairly
and adequately represent the corporation in a derivative action, and this court
affirmed. Read, 205 Wis. 2d at 566-69. The Read court concluded only that the
trial court’s determination was not a misuse of its discretion; it did not
hold, as Vrakas/Blum suggests, that no minority shareholder who files a motion
to dissolve the corporation can ever fairly and adequately represent the interests
of the corporation in a derivative action.
See id. Further, Read is
distinguishable on grounds that only one minority shareholder sought to
represent the entire company’s interests there, see id. at 562-63, while all of Windsor’s minority shareholders—representing
a 46% ownership stake in the company—brought suit here. We also observe that the minority shareholder’s
motion to dissolve the corporation in Read occurred five months after the shareholder sought to
represent the corporation’s interests in a derivative suit. Here, the minority shareholders’ action to
dissolve the company occurred three years before
the present derivative action, and, most significantly, after a change in Windsor’s circumstances
had placed the minority shareholders in a better position to represent the
company’s interests in a derivative action against Vrakas/Blum.
¶38 For the reasons set forth above, we therefore conclude that the
trial court did not misuse its discretion in determining that the minority
shareholders could fairly and adequately represent Windsor’s interests in the
derivative action, and, accordingly, that the minority shareholders had standing
to pursue the action pursuant to Wis. Stat. § 180.0741(2).
Applicability of Statute of Limitations for Intentional Torts to
Windsor’s Misrepresentation Claims; Nondisclosure as Sole Basis for Strict
Responsibility and Negligent Misrepresentation Claims
¶39 Relying on Zastrow v. Journal Communications, Inc.,
2006 WI 72, 291 Wis. 2d 426, 718 N.W.2d 51, the trial court determined
that the factual basis for Windsor’s breach of contract claim was predicated on
a breach of Vrakas/Blum’s fiduciary duty of loyalty to Windsor, and was
therefore barred by the two-year statute of limitations for intentional torts
set forth in Wis. Stat. § 893.57. Vrakas/Blum contends that the trial court
should have applied a similar analysis to Windsor Homes’ claims of
misrepresentation, contending that the court based its judgment in favor of
Windsor Homes on findings that Vrakas/Blum breached its duties “to act with
absolute fidelity and loyalty” and “to disclose material facts,” duties
Vrakas/Blum maintains are also strictly fiduciary in nature.
¶40 Vrakas/Blum also contends that we should reverse the judgment
and dismiss all claims because Wisconsin
courts have never held, and should not hold, that strict responsibility and
negligent misrepresentation claims can be based solely on nondisclosures. Vrakas/Blum notes that the supreme court
stated in Kaloti Enterprises, Inc. v. Kellogg Sales Co., 2005 WI 111, ¶13
n.3, 283 Wis. 2d 555, 699 N.W.2d 205, it “ha[s] never held that a claim
for strict responsibility … misrepresentation or negligent misrepresentation
can arise from a failure to disclose,” and therefore the issue “remains an open
question.”
¶41 Windsor
argues that Vrakas/Blum has forfeited both of these arguments by failing to
raise them in the trial court. We agree
and, therefore, do not consider either argument. See State v. Ndina, 2009 WI 21, ¶30, 315
Wis. 2d
653, 761 N.W.2d 612 (right to make an argument on appeal is forfeited when not
raised in trial court).
¶42 With respect to its statute of limitations argument,
Vrakas/Blum argues that it asserted the statute as an affirmative defense in
its answer and post-trial briefing. The
trial court record shows that, while Vrakas/Blum’s answer generically asserts
that Windsor’s
claims are barred by the statute of limitations, its only specific argument to
the trial court was that the misrepresentation claims were barred by the
six-year statute of limitations applicable to such claims. It did not make the argument made here that the
two-year statute of limitations for intentional torts bars Windsor’s misrepresentation claims. Vrakas/Blum has thus failed to preserve this
argument, and we decline to address it on forfeiture grounds.
¶43 With respect to Vrakas/Blum’s argument that Wisconsin
law does not recognize misrepresentation by nondisclosure claims, our review of
the record shows that Vrakas/Blum did not argue in the trial court that nondisclosure
may not serve as a basis for a misrepresentation claim. While we acknowledge that this issue is a
legal question of statewide importance, we nonetheless apply the rule of
forfeiture and decline to address it. We
leave this issue for the supreme court, in light of its statement in Kaloti
that, because the court has never been presented with the issue, whether
nondisclosure may serve as a basis for a claim of misrepresentation “remains an
open question.”
Imputation
of Linzmeier’s Knowledge of Sale to Windsor
¶44 As a general rule, the knowledge of a corporate officer or
agent acquired while acting within the scope of the officer’s or agent’s
authority is imputed to the corporation.
See Suburban Motors of Grafton, Inc. v. Forester, 134 Wis. 2d 183, 192, 396
N.W.2d 351 (Ct. App. 1986) (citing 3 W. Fletcher, Cyclopedia of the Law of Private Corporations
§ 790 (rev. perm. ed. 1975)). An
exception to the general rule of imputation is the adverse agent exception,
which provides that knowledge is not imputed to the corporation when the
interests of the officer or agent are completely adverse to those of the
corporation. See First Nat’l Bank of Cicero v. Lewco Sec.
Corp., 860 F.2d 1407, 1417 (7th Cir. 1989). There is, however, an exception to the
adverse agency exception known as the sole actor doctrine. Id. Under this doctrine, knowledge is
imputed to the corporation even if the interests of the officer or agent are
adverse to those of the corporation when the adverse agent or officer is the
sole actor in the transaction at issue. Id. at
1417-18.
¶45 Vrakas/Blum asserts that the minority shareholders’
misrepresentation by nondisclosure claims fail because Windsor already had
knowledge—imputed to it by Linzmeier—of the financing for Linzmeier’s
transaction with Camberwell, and that the circuit court erred by concluding
otherwise. Vrakas/Blum contends that the
adverse agency exception to the rule of imputation does not apply because
Linzmeier’s stock sale was not adverse to Windsor’s
interests. Vrakas/Blum notes that
Linzmeier wanted to leave the business, and urges that the sale of his shares
to Camberwell kept the business in operation for the benefit of the remaining
shareholders and the corporation.
Alternatively, Vrakas/Blum contends that, to the extent that Linzmeier’s
interests were adverse to those of the company, the sole actor doctrine applies
because, it argues, he was the only corporate actor involved in the
transaction.
¶46 Windsor responds that the
circuit court correctly determined that Linzmeier’s interests were adverse to
those of Windsor,
and maintains that the sole actor exception does not apply. We agree with Windsor.
¶47 Neither party addresses the standard of review that should be
applied to the trial court’s ruling that Linzmeier’s knowledge was not imputed
to Windsor. We observe that the court’s imputation
analysis is brief; the court merely concluded that Linzmeier’s knowledge was
not imputed to Windsor
because Linzmeier “was in an obvious conflict of interest and acting on his own
behalf to the detriment of the corporation at all times material.” To the extent that this statement represents
a factual finding, we conclude that it is not clearly erroneous and thus must
be upheld. Ndina, 315 Wis. 2d 653, ¶45. We observe that this statement implicitly
rejects Vrakas/Blum’s view that Linzmeier was acting in favor of (or at least
was not completely adverse to) Windsor’s
interests because the sale of his shares to Camberwell kept the business in
operation for the benefit of the remaining shareholders and the
corporation.
¶48 To the extent that the trial court’s statement that Linzmeier
was “acting on his own behalf to the detriment of the corporation at all times
material” represents a legal conclusion that the adverse agency exception
applies under these facts, we agree.
With Linzmeier’s knowledge, Vrakas/Blum marketed his majority stake in Windsor instead of Windsor
as a whole, contrary to the marketing agreement Linzmeier signed on Windsor’s behalf. As the trial court found, Linzmeier was aware
that Windsor would become a co-borrower in the
financing of the purchase of his shares, and that the deal would be secured by
a mortgage on Windsor’s
assets. This information was not
disclosed to anyone else within the company until after the December 22, 1999
shareholders meeting. We conclude, under
these circumstances, that the adverse agency exception applies, and thus
Linzmeier’s knowledge of the relevant facts not disclosed were not imputed to Windsor.
¶49 Vrakas/Blum argues in the alternative that the sole actor
doctrine applies, an issue that the trial court did not address. It appears from our review of the record that
Vrakas/Blum failed to raise its sole actor argument in the trial court. Accordingly, we conclude that Vrakas/Blum has
forfeited its right to make this argument here. See Preuss, 195 Wis. 2d at 104-105.
¶50 For the reasons discussed above, we conclude that Linzmeier’s
knowledge of information not disclosed to any other representative of Windsor is not imputed to Windsor,
and thus the misrepresentation claims cannot be dismissed on grounds that Windsor already had
knowledge of the information that Vrakas/Blum failed to disclose to it.
Reliance
¶51 Vrakas/Blum contends that Windsor
failed to present any admissible evidence showing that it relied on any
nondisclosure by Vrakas/Blum to Windsor’s
detriment, and thus the trial court erred in rejecting its motion to dismiss at
the close of evidence. Vrakas/Blum
maintains that, to prove reliance, Windsor had to show that, had the financing
terms of the sale of Linzmeier’s shares been disclosed, someone in a position
of authority at Windsor at the time would have attempted to prevent the sale,
whether by pressing for Windsor to match Camberwell’s offer on Linzmeier’s
shares within sixty days, as provided in Windsor’s bylaws, or by seeking
injunctive relief. We disagree, and
conclude that the evidence presented supports a determination that Windsor relied on
Vrakas/Blum’s nondisclosures to its detriment.
¶52 “All misrepresentation claims share the following required
elements: 1) the defendant must have made a representation of fact to the
plaintiff; 2) the representation of fact must be false; and 3) the
plaintiff must have believed and relied on the misrepresentation to his
detriment or damage.” Tietsworth
v. Harley-Davidson, Inc., 2004 WI 32, ¶13, 270 Wis. 2d 146, 677 N.W.2d 233. In addition to these requirements, strict
responsibility misrepresentation requires proof that: (1) the reliance was justifiable;
(2) the misrepresentation was “made on the defendant’s personal knowledge
or under circumstances in which he necessarily ought to have known the truth or
untruth of the statement,” and (3) “the defendant … ha[d] an economic
interest in the transaction.” See Ollerman
v. O’Rourke Co., 94 Wis. 2d
17, 25, 288 N.W.2d 95 (1980) (citation omitted). Negligent misrepresentation requires proof
that the defendant was negligent in making the untrue representation of fact. Chevron Chem. Co. v. Deloitte & Touche,
168 Wis. 2d
323, 331-32, 483 N.W.2d 314 (Ct. App. 1992).
¶53 The alleged misrepresentation in the present case is based on
the nondisclosure of material facts that Vrakas/Blum had a duty to
disclose. As a general rule, silence or
a failure to disclose does not constitute misrepresentation unless the
defendant had a duty to disclose. See Ollerman, 94
Wis. 2d at
25. Vrakas/Blum does not dispute that it
had a duty to disclose to Windsor
the material facts, or that it failed to make such disclosures. It argues, rather, that Windsor failed to prove that it relied on
Vrakas/Blum’s nondisclosures to its detriment.
¶54 Reliance in a claim of negligent misrepresentation “is
equivalent to the causation element” in a traditional negligence claim. Ramsden v. Farm Credit Servs. of North Cent.
Wis. ACA, 223 Wis. 2d 704, 721, 590 N.W.2d 1 (Ct. App. 1998); see also Cuene v. Hilliard, 2008
WI App 85, ¶19, 312 Wis. 2d 506, 754 N.W.2d 509. The defendant’s
negligence is a “cause” when it is a “substantial factor” in producing the
plaintiff’s injury. See Baumeister v. Automated
Prods., Inc., 2004 WI 148, ¶24, 277 Wis. 2d 21, 690 N.W.2d 1. To fulfill this element, the negligent
conduct “need not be the sole factor or the primary factor, only a ‘substantial
factor.’” Clark v. Leisure Vehicles, Inc.,
96 Wis. 2d
607, 617, 292 N.W.2d 630 (1980). As
noted above, reliance must be justifiable in a claim of strict responsibility
misrepresentation. See Malzewski v. Rapkin,
2006 WI App 183, ¶19, 296 Wis. 2d
98, 723 N.W.2d 156.
¶55 We review a trial court’s denial of a motion to dismiss for
sufficiency of the evidence de novo, applying the same methodology as the trial
court. Poluk v. J.N. Manson Agency, Inc.,
2002 WI App 286, ¶24, 258 Wis. 2d
725, 653 N.W.2d 905. We must consider
all credible evidence and all reasonable inferences that can be made from it in
the light most favorable to the party against whom the motion is made. Id.;
see Wis. Stat. § 805.14(1).
¶56 Windsor
argues that we need look no further than Linzmeier’s testimony to find evidence
of reliance. Windsor notes that Linzmeier testified that
Gale of Vrakas/Blum never disclosed to him where Camberwell was getting the
money to buy his shares. Linzmeier also
testified that, before resigning as an officer and director at Windsor,
he was unaware that Camberwell planned to obtain a loan secured by Windsor’s assets. As Windsor
notes, Linzmeier testified that if he had thought that there was something
illegal or wrongful or harmful about the sale of his shares to Camberwell, he
would not have closed the deal. Windsor contends that this
testimony proves that Vrakas/Blum did not disclose even to Linzmeier the
financing arrangement, and that, had he known, he would not have sold his
shares to Camberwell. The problem with
this argument is that the trial court apparently did not believe this
testimony, finding that “[n]either [Gale] nor anyone else at Vrakas/Blum ever
disclosed [Wells Fargo’s financing proposal] to anyone at Windsor Homes, Inc. other than Linzmeier.” (Emphasis added.)
¶57 Windsor next points to testimony
of Don Derr, the Windsor shareholder elected as
a director and appointed president of Windsor
at the October 2007 shareholder meeting.
Derr testified that he had been a Windsor
shareholder since 1974, and first served as a director from approximately 1981
to sometime in the mid-1990s. In 1999,
Derr owned 12 of the 104 total shares issued by Windsor, an 11.54% stake in the company.
¶58 Derr testified that no one from Vrakas/Blum provided him with
financial information about the sale of Linzmeier’s shares. Derr further testified that, had he known
that Vrakas/Blum was marketing the sale of Linzmeier’s shares only, and that
Windsor was borrowing money for a third party to purchase Linzmeier’s shares
and that the deal was secured by a mortgage on Windsor’s assets, he would not
have “voted in favor” of these actions.
¶59 Vrakas/Blum argues that, because Derr was not on Windsor’s board of
directors at the time, he could not have “voted in favor” of certain actions in
1999, and thus his testimony about how he might have voted was speculative, and
was erroneously admitted over Vrakas/Blum’s objections. We review a trial court’s decision to admit
evidence under the erroneous exercise of discretion standard. See Kettner
v. Kettner, 2002 WI App 173, ¶14, 256 Wis. 2d 329, 649 N.W.2d 317.
¶60 We conclude that the trial court’s admission of Derr’s
testimony was an appropriate exercise of its discretion. To prove reliance, Windsor had to elicit testimony about how
certain individuals may have acted had they known the information that was not
disclosed to them. Specifically, Windsor needed to
establish that certain stakeholders in the company may not have acquiesced to
the financing for Camberwell’s purchase of Linzmeier’s shares had they known
about it. Thus, some degree of
speculation was relevant and necessary to establish whether stakeholders in Windsor may have acted
differently had they known the information Vrakas/Blum withheld from them. Cf. Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 153-54 (1972) (noting the
difficulty of proving reliance where the alleged misrepresentation is based on
the seller’s failure to disclose).
¶61 Moreover, we reject Vrakas/Blum’s view that the only testimony
competent to prove reliance had to come from a director. Vrakas/Blum is correct that Derr was not a
director, and thus would not have had a “vote” had Windsor’s board taken up a motion to block
the Linzmeier-Camberwell transaction.
However, Derr was a long-time shareholder with an 11.54% stake in the
company and a former director who was in a position to influence others in
positions of authority such as Peter Uttech, the lone director who had no
personal interest in the transaction.
The proper inquiry is whether the failure to disclose to Derr was a
significant factor in inducing Windsor’s
reliance, not whether Derr himself could have called a board vote on whether to
either match Camberwell’s offer to purchase Linzmeier’s shares or seek an
injunction to block the sale. Derr’s
status within the company as a long-time shareholder, former director and an
owner of 11.54% of the company’s shares, and his testimony that he would not
have “voted in favor” of the financing for the purchase of Linzmeier’s shares,
are sufficient to establish Windsor’s reliance on Vrakas/Blum’s
misrepresentation by nondisclosure.
¶62 Finally, Windsor argues that the transaction required the
assent of the shareholders because the mortgage on the company’s assets was for
the benefit of an individual stockholder, citing Western Industries, Inc. v.
Vilter Manufacturing Co., 257 Wis.
268, 278, 43 N.W.2d 430 (1950). “‘Undoubtedly
a private corporation may … even without consideration … give away its assets,
or mortgage its property for the benefit of individual stockholders or
officers, where all the stockholders
assent to any such transaction, and where there are no corporate creditors
and there is no statute expressly forbidding such transaction.’” Id.
at 277 (quoting 3 Thompson, Corporations (3d ed.) sec. 2301,
page 989) (emphasis added). Vrakas/Blum
does not respond to this argument in its reply brief, and we take its failure
to respond as a concession. See Schlieper
v. DNR, 188 Wis. 2d
318, 322, 525 N.W.2d 99 (Ct. App. 1994) (arguments not refuted may be deemed
conceded). On this basis, we conclude
that Derr (and all of the other shareholders without a personal interest in the
transaction—i.e., all of the minority shareholders) would have had a vote on
the transaction. This fact, taken with
Derr’s testimony that he would not have “voted in favor” of the transaction, is
sufficient to prove Windsor
relied on Vrakas/Blum’s nondisclosure of the financing arrangement to its
detriment.
¶63 For the reasons provided above, we conclude that the record
contains sufficient evidence to support
a determination that Windsor
relied on Vrakas/Blum’s nondisclosure of the financing terms of the
Linzmeier-Camberwell transaction to its detriment, and therefore the trial
court did not err in denying the motion to dismiss.
¶64 With regard to the strict responsibility misrepresentation
claim only, Vrakas/Blum also argues that the trial court erred in denying its
motion to dismiss because the evidence presented did not support a
determination that Windsor’s
reliance on Vrakas/Blum’s nondisclosures were justifiable. Vrakas/Blum notes that Linzmeier gave the
lone disinterested director, Peter Uttech, and the minority shareholders a copy
of his stock purchase agreement with Camberwell before Uttech waived Windsor’s right to match
Camberwell’s offer. The copy of this
agreement, Vrakas/Blum argues, gave Uttech and the shareholders all they needed
to know to discover any information they deemed pertinent, including the
financing arrangement. We disagree.
¶65 “The general rule in Wisconsin, as elsewhere, is that the
recipient of a fraudulent misrepresentation is justified in relying on it,
unless the falsity is actually known or is obvious to ordinary observation.” Hennig v. Ahearn, 230 Wis. 2d 149, 170, 601
N.W.2d 14 (Ct. App. 1999). A review of the eighteen-page stock purchase
agreement shows that it contains only a passing reference to the existence of
financing (“pursuant to Buyer’s proposed financing facility with [Wells Fargo
Business Credit, Inc.],”) within the context of committing Linzmeier to make
reasonable efforts to persuade Windsor to waive the sixty-day period Windsor
had to match Camberwell’s offer. The
trial court did not find that this passing reference made obvious to ordinary
observation the fact that Camberwell’s stock purchase was secured by a mortgage
on Windsor’s
assets, and such a finding would be inconsistent with the trial court’s
ruling. Vrakas/Blum points to no other
evidence that would suggest that Windsor’s
reliance was not justified. Accordingly,
we conclude that the evidence presented demonstrated that Windsor’s reliance on Vrakas/Blum’s
nondisclosures was justified, and thus the trial court did not err in denying
Vrakas/Blum’s motion to dismiss.
Damages
¶66 Vrakas/Blum next contends that Windsor
failed to prove that its nondisclosures caused damage to Windsor, and that, despite this failure of
proof, the trial court erred in failing to grant its motion to dismiss at the
close of evidence. It further argues
that Windsor
presented no evidence to establish the amount of its damages, and thus the
court’s damage award is unsupported by the record. We disagree on both counts, and address each
argument in turn.
¶67 Like its reliance argument in the prior section, Vrakas/Blum’s
argument that Windsor
failed to prove the existence of damages relates to the causation element of
the misrepresentation claims. As noted,
causation exists when the defendant’s conduct is a “substantial factor” in
producing the plaintiff’s damages. See Wolnak v. Cardiovascular & Thoracic
Surgeons, 2005 WI App 217, ¶15,
287 Wis. 2d
560, 706 N.W.2d 667. As noted, our
review of the trial court’s denial of the motion to dismiss for sufficiency of
the evidence is de novo, considering all of the evidence in the light most
favorable to the nonmoving party. Poluk,
258 Wis. 2d
725, ¶24.
¶68 Vrakas/Blum maintains that Windsor
failed to present any admissible evidence to establish that a lien was placed
on Windsor’s
assets in connection with the Linzmeier-Camberwell transaction. Vrakas/Blum asserts that the document on
which the trial court relied in establishing the existence of the lien—the credit
and security agreement executed by Camberwell, Windsor and Wells Fargo and
marked as Exhibit 49—was not admitted into evidence until after Windsor rested
its case and was therefore erroneously admitted over Vrakas/Blum’s objections
on lack of foundation, hearsay and authenticity grounds. Further, Vrakas/Blum notes that it presented
uncontroverted expert testimony establishing that Windsor’s
demise was not caused by the lien on its assets, but by adverse market
conditions, a loss of personnel and poor management decisions, and that Windsor presented no
expert testimony on the issue of causation.
Vrakas/Blum argues Windsor’s failure to present expert testimony on
causation constituted an insufficiency of proof because a determination of
causation in this case involves complex, technical and unusually complicated
issues, citing Netzel v. State Sand & Gravel Co., 51 Wis. 2d 1, 7, 186
N.W.2d 258 (1971).
¶69 Windsor
does not take issue with Vrakas/Blum’s assertion that the trial court mistakenly
admitted Exhibit 49, arguing instead that it proved by other evidence that its
damages were caused by Vrakas/Blum’s nondisclosures. We agree that the record supports the trial
court’s finding that Vrakas/Blum’s nondisclosures were a substantial cause of Windsor’s damages.
¶70 First, as discussed, the record contains evidence to support
the trial court’s implicit determination of reliance. In a misrepresentation claim, reliance is one
means of establishing the causal connection between the defendant’s misconduct
and the plaintiff’s injury. Cuene,
312 Wis. 2d
506, ¶19.
¶71 Second, additional evidence was presented to further prove
causation, including evidence relating to the lien. Wells Fargo’s financing proposal of October
1999, entered into evidence as Exhibit 31, states that, as collateral, “[a]
first lien” will be placed “on all accounts, inventory, equipment, general
intangibles of both Camberwell and Windsor, and all subsidiaries…. In addition the loan will be secured by a
first real estate mortgage on all real estate owed by Windsor ….”
In specifically rejecting testimony of Vrakas/Blum’s Gale that she was
unaware of the financing proposal, the trial court found that “Gale knew of a
substantial risk, perhaps even probability, that Wells Fargo’s financing would
involve pledging her client’s corporate assets to secure a corporate loan to
fund the purchase of Linzmeier’s shares by []Camberwell.”
¶72 Finally, we reject Vrakas/Blum’s argument that Windsor’s
failure to present expert testimony to establish how the nondisclosure harmed Windsor constituted an
insufficiency of proof. We conclude that
the issue of causation in this case is not of such a technical or scientific
nature, see Wis. Stat. § 907.02,
that Windsor’s
failure to introduce expert testimony was fatal to its case. Whether the nondisclosure of the fact that
Camberwell’s purchase of Linzmeier’s shares was secured by a first mortgage on
the company’s assets was a substantial factor in producing harm to Windsor is a question
that is within the ken of the ordinary layperson. This case does not involve particularly
complex financial instruments or transactions, and was tried to the court and
not a jury. In these circumstances,
expert testimony was not required to determine causation.
¶73 We turn next to Vrakas/Blum’s contention that Windsor failed to present evidence
establishing the amount of its damages, and thus the court’s award of damages
lacks support in the record. We view
this argument as a challenge to the sufficiency of evidence supporting the
court’s verdict on the damage award. Our
review of a challenge to a verdict’s award of damages is highly
deferential. We may not disturb the fact
finder’s finding of the amount of damages “[i]f there is any credible evidence
which under any reasonable view supports the … finding.” D.L. Anderson’s Lakeside Leisure Co., Inc.
v. Anderson, 2008 WI 126,
¶26, 314 Wis. 2d 560, 757 N.W.2d 803.
¶74 “For negligent misrepresentation, the measure of damages is the
‘sum of money that will fairly and reasonably compensate the plaintiff for his
[or] her out-of-pocket loss.’” Schwigel
v. Kohlmann, 2002 WI App 121, ¶11, 254 Wis. 2d
830, 647 N.W.2d 362 (citing Wis JI—Civil 2403 suggested special verdict
question 7). The measure of damages for
a strict responsibility misrepresentation claim is the sum of money that will
fairly and reasonably compensate the plaintiff for his or her loss of the
bargain. Wis JI—Civil 2402 suggested special verdict
question 5.
¶75 Vrakas/Blum argues that Windsor’s
damages cannot be calculated under either methodology because (1) Windsor had no out-of-pocket expenses and (2) Windsor failed to show
that it missed out on any bargain and failed to present evidence to establish its
fair market value at the time Linzmeier’s shares were sold or at any time
thereafter. We conclude that Windsor’s damages were
readily ascertainable using the out-of-pocket expense methodology, and that the
record contains sufficient evidence to support the award.
¶76 The trial court awarded Windsor
damages of $2.9 million, applying the out-of-pocket methodology:
Due to defendants’
misrepresentations by omission, Windsor Homes, Inc. was directly damaged by its
inability to protect itself against the illegal appropriation of corporate
assets for Linzmeier’s and []Camberwell’s gain.
In particular, $2,900,000 worth of Windsor Homes, Inc.’s real estate and
assets were wrongfully pledged to Wells Fargo to secure the loan used to
purchase Linzmeier’s shares by []Camberwell, with no advantage to the
corporation. The transaction was a fait accompli long before anyone acting
for the corporation knew anything about it.
… Here as [a] result of the
misrepresentations by omission, both negligent and strict responsibility,
Windsor Homes, Inc. suffered an immediate direct net loss at the time of
closing on January 11, 2000 totaling at least $2.9 million ….
¶77 The following evidence is sufficient evidence to support the
damage award of $2.9 million. Under the
stock purchase agreement, signed by Len and Betty Linzmeier and Ron Wald of
Camberwell on November 23, 1999, and entered into evidence as Exhibit 37,
Camberwell agreed to purchase Linzmeier’s shares for $2.9 million. As noted, the stock purchase agreement
referred to the existence of financing provided through Wells Fargo Business
Credit, Inc. The October 1999 Wells
Fargo financing proposal listed Camberwell and Windsor as co-borrowers on a
$10,000,000 line of credit, and stated that a portion of the loan would be used
“to finance the purchase of 54% of the stock of Windsor Homes.” The same financing proposal noted that a
first lien would be placed on Windsor’s assets, and that the “loan will be
secured by a first real estate mortgage on all real estate owed by Windsor
….” An invoice from Vrakas/Blum to
Linzmeier dated January 18, 2000, entered into evidence as Exhibit 39, for
services related to the “sale of your stock in Windsor Homes, Inc. for
$2,930,554,” discloses the actual sale price of Linzmeier’s shares. Finally, Windsor’s
2000 annual report, entered into evidence as Exhibit 55, discloses the
existence of a $3.1 million “note receivable,” the amount Windsor had taken on its line of credit that
year to purchase Linzmeier’s shares ($2.9 million) and for other expenses.
Prejudgment
Interest
¶78 In its cross-appeal, Windsor
contends that the trial court erred in reversing on reconsideration that
portion of the verdict that had granted prejudgment interest on the damage
award. Whether a party is entitled to
prejudgment interest on an award is a question of law subject to de novo
review. Teff v. Unity Health Plans Ins.
Corp., 2003 WI App 115, ¶42, 265 Wis. 2d 703, 666 N.W.2d 38.
¶79 Prejudgment interest is not available when “the existence of
multiple defendants prevents any single defendant from knowing prior to trial
the precise amount of his [or her] liability.”
Johnson v. Pearson Agri-Systems, Inc., 119 Wis. 2d 766, 781, 350 N.W.2d 127
(1984). In Teff, we explained that,
as a rule, the prejudgment interest may be recovered
only when damages are either liquidated or liquidable,
that is, there is a reasonably certain standard of measurement by the correct
application of which one can ascertain the amount he or she owes. The most
frequently stated rationale for the rule is that if the amount of damages is
either liquidated or determinable by reference to some objective standard, the
defendant can avoid the accrual of interest by simply tendering to the
plaintiff a sum equal to the amount of damages.
Teff, 265 Wis. 2d 703, ¶43
(citations omitted). Prejudgment
interest is not available when the calculation of damages turns on the
resolution of factual disputes. See id.,
¶45 (citing Loehrke v. Wanta Builders, Inc.,
151 Wis. 2d
695, 707, 445 N.W.2d 717 (Ct. App.
1989)).
¶80 Windsor
argues that it is entitled to prejudgment interest because, while there are
multiple defendants, the apportionment of liability is not an issue in this
case. Windsor argues that the rationale
for the rule denying prejudgment interest when there are multiple defendants
does not pertain because the defendants in this case acted as one and were all
represented by an attorney hired by the sole insurer in the case, Continental Casualty.
¶81 Vrakas/Blum does not take issue with Windsor’s assertion that the
multiple-defendant rule should not apply.
Instead, Vrakas/Blum argues that Windsor
is not entitled to prejudgment interest on grounds that the amount of damages
was not readily ascertainable.
Vrakas/Blum notes that Windsor,
in its post-trial brief, made two competing requests for damages of
approximately $5.4 million plus interest and $2.9 million plus interest each,
based on two different measures of damages.
Citing these competing requests, Vrakas/Blum argues that the amount of Windsor’s putative damages was not readily ascertainable,
and therefore Windsor
is not entitled to prejudgment interest under Teff. Vrakas/Blum adds that Windsor was not entitled to prejudgment
interest on the additional ground that the court’s damage award was dependent
on the resolution of factual disputes.
We agree with Vrakas/Blum’s arguments.
¶82 First, as Vrakas/Blum notes, Windsor made competing requests for damages
after trial using two different measures of damages. Under the heading “Benefit of Bargain and Out
of Pocket,” Windsor requested damages of
$5,442,439 based on a determination of Windsor’s
fair market value plus $2,176,976 in interest.
Alternatively, Windsor
requested damages of $2,930,544 based on the purchase price of Linzmeier’s
shares plus $1,172,218 in interest under the heading of “Out of Pocket Damages
Based on Loan.” Windsor’s competing damage requests
illustrate that there was not “a reasonably certain standard of measurement by
the correct application of which” Vrakas/Blum could “ascertain the amount [it]
owes.” Teff, 265 Wis. 2d 703,
¶43.
¶83 Moreover, while we have already concluded that the court’s
award of $2.9 million was reasonable and was supported by the record, and $2.9
million was the lower of the two amounts requested by Windsor, we cannot conclude that Vrakas/Blum
was on notice that its liability was at least $2.9 million. For example, the court could have made
factual findings that would have justified a reduction in the award from $2.9
million for the benefits Windsor
received as a result of Vrakas/Blum’s misrepresentations by nondisclosure. Following the sale of Linzmeier’s shares to
Camberwell, Windsor
continued operations for four more years.
Based on evidence that Vrakas/Blum had been unable to find a buyer for
the entire company, evidence that Linzmeier wanted out of the business, and
testimony that no one then associated with the company other than Linzmeier
could have operated the business, the trial court could have found that,
without the deal with Camberwell, Windsor might have ceased operations prior to
2004.
¶84 For the foregoing reasons, we thus conclude that the trial
court correctly concluded that Windsor
is not entitled to prejudgment interest because the award is not readily
ascertainable using a reasonably certain standard of measurement, and is at
least partially dependent on factual findings relevant to the calculation of
damages.
Conclusion
¶85 In sum, we conclude that the trial court did not misuse its
discretion in determining that the minority shareholders could fairly and
adequately represent Windsor’s
interests in the derivative action, and the minority shareholders thus had
standing to pursue the action pursuant to Wis. Stat. § 180.0741(2). Further, we decline to address on forfeiture
grounds Vrakas/Blum’s arguments that Windsor’s
misrepresentation claims must fail because they are barred by the two-year
statute of limitations for intentional torts, and because Wisconsin
courts do not recognize claims of strict responsibility and negligent
misrepresentation based on nondisclosure.
We also conclude that Linzmeier’s knowledge of information not disclosed
to any other representative of Windsor is not
imputed to Windsor, and thus Windsor did not already have knowledge of the
information that Vrakas/Blum failed to disclose.
¶86 Additionally, we conclude that the trial court did not err in
denying Vrakas/Blum’s motion to dismiss at the close of evidence because
sufficient evidence was presented to demonstrate that Windsor relied on
Vrakas/Blum’s misrepresentations by nondisclosure to its detriment, and that
Windsor suffered damages as result of the nondisclosures. Moreover, we conclude that the record
contained sufficient evidence to reasonably support the trial court’s award of
$2.9 million in damages. Finally, we
conclude that the trial court properly denied Windsor’s request for prejudgment interest on
the award. Accordingly, we affirm the
trial court’s judgment and its reconsideration order.
By the Court.—Judgment and order
affirmed.
Not recommended
for publication in the official reports.