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COURT OF APPEALS DECISION DATED AND RELEASED September 19, 1995 |
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, Stats. |
This opinion is subject to
further editing. If published, the
official version will appear in the bound volume of the Official Reports. |
No. 94-2827
STATE
OF WISCONSIN IN COURT OF
APPEALS
DISTRICT I
CHEVRON CHEMICAL
COMPANY,
Plaintiff-Respondent-
Cross Appellant,
FIRST BRANDS
CORPORATION,
Plaintiff,
v.
DELOITTE & TOUCHE
LLP,
Defendant-Appellant-
Cross Respondent.
APPEAL and CROSS-APPEAL
from a judgment of the circuit court for Milwaukee County: MICHAEL P. SULLIVAN, Judge. Reversed and cause remanded with
directions.
Before Wedemeyer, P.J.,
Sullivan and Schudson, JJ.
PER CURIAM. Deloitte & Touche LLP (Deloitte)
appeals from a judgment rendered in favor of Chevron Chemical Company (Chevron)
for the sum of $2,364,043 in claims plus double costs. Chevron cross-appeals from the same judgment
denying it an award of attorney fees as taxable costs.
Deloitte claims the
trial court erred both: (1) because it failed to hold an evidentiary
hearing on the issue of damages on its negligent misrepresentation claim; and
(2) because it employed an erroneous methodology in computing
damages. Chevron claims the trial court
erred as a matter of law in failing to exercise its discretionary power to
determine whether attorney fees should be awarded as taxable costs.
Because the trial court
erred as a matter of law in failing to hold an evidentiary hearing on damages
resulting from negligent misrepresentation and because the trial court failed
to exercise its discretionary power to determine whether the award of attorney
fees was appropriate, we reverse.[1]
I. BACKGROUND
Because this litigation
between Deloitte and Chevron has had such a contorted past, in the interest of
clarity, we trouble the reader with a brief synopsis of this modern-day version
of Jarndyce v. Jarndyce.[2]
Deloitte, a certified
public accounting firm, audited American Fuel and Supply Co.'s (AFSCO)
financial condition for the year ending December 31, 1985. AFSCO was a distributor of Chevron
products. In August 1986, Deloitte
discovered that the financial statements of the year 1985 were materially false
and withdrew its audit report.
Deloitte, however, failed to disclose its withdrawal of the audit to
Chevron. Chevron sued Deloitte claiming
it had extended credit to AFSCO in reliance upon Deloitte's audit report. Chevron alleged both negligence in auditing
and negligent misrepresentation based on Deloitte's failure to disclose to
Chevron that it had withdrawn its audit report.
Prior to trial, Chevron
was granted partial summary judgment on its misrepresentation-by-nondisclosure
claim. The parties proceeded to a jury
trial on the negligent audit and the remaining misrepresentation claim. Throughout the trial, Chevron complained
about Deloitte's counsel's trial conduct (which included repeatedly violating
court orders, making inappropriate outbursts, levelling charges against
opposing counsel in front of the jury, and mischaracterizing the contents of
exhibits), and moved for judgment as a sanction. The trial court took the motion under advisement. The jury absolved Deloitte of any liability
and made no findings on damages regarding the misrepresentation claim. In postverdict motions, Chevron moved for
judgment of $1.6 million and alternatively sought a new trial plus attorney
fees. The trial court granted the
request for judgment for negligent misrepresentation, but did not reach the
motion for a new trial plus attorney fees.
Deloitte appealed to
this court and we issued a published opinion.
Chevron Chemical Co. v. Deloitte & Touche, 168 Wis.2d
323, 483 N.W.2d 314 (Ct. App. 1992) [hereinafter Chevron I]. This court affirmed the judgment, holding
Deloitte liable as a matter of law on the merits of Chevron's negligent
misrepresentation by nondisclosure claim, but remanded because issues of fact
remained regarding damages. Id.
at 327, 483 N.W.2d at 315. We further
concluded that the “cause must now be remanded to the trial court for the
determination of damages.” Id.
at 342, 483 N.W.2d at 322. Our decision
was appealed to our supreme court by both parties resulting in the published
decision Chevron Chemical Co. v. Deloitte & Touche, 176
Wis.2d 935, 501 N.W.2d 15 (1993) [hereinafter Chevron II]. The supreme court, exercising its statutory
authority under §§ 805.03 and 804.12, Stats.,
as well as its inherent authority, affirmed the liability of Deloitte as a
sanction, but remanded the case to the trial court “for a hearing on damages,”
because there were “genuine issues of fact remaining regarding damages,” Chevron
II, 176 Wis.2d at 950-51, 501 N.W.2d at 22, as in a typical default
judgment case. Id. at
950, 501 N.W.2d at 22.
Upon remand, the trial
court, after reviewing this court's
decision (Chevron I) and the supreme court's decision (Chevron
II) concluded that “Chevron ... is entitled to have deemed proved all
elements of the claim of negligent misrepresentation ... except the extent of
damages.” Instead of conducting an
evidentiary hearing, the trial court determined that it would decide the
damages issue based on the trial record, together with briefs and oral argument
from the parties. Using only this
information, the trial court determined that Chevron was entitled to $2,364,043
in damages plus double costs. The trial
court also concluded that it did not have authority to award attorney
fees. Both Deloitte and Chevron now
appeal.
II. DISCUSSION
A. Appeal: Evidentiary
Hearing on Damages.
Deloitte asserts that
the trial court erred when it refused to hold an evidentiary hearing on
damages. We agree.
In Chevron II,
our supreme court acknowledged this court's conclusion in Chevron I
that “there had been a genuine dispute over damages throughout the trial.” Chevron II, 176 Wis.2d at 950,
501 N.W.2d at 22. It then concluded
that the determination of the amount of damages “is to be treated as it is in
typical default judgment cases.” Id. Citing Hedtcke v. Sentry
Insurance Co., 109 Wis.2d 461, 478-79 n.5, 326 N.W.2d 727, 735-36 n.5
(1982), and Midwest Developers v. Goma Corp., 121 Wis.2d 632,
651-53, 360 N.W.2d 554, 564 (Ct. App. 1984), the court then declared: “Because
Deloitte has challenged the amount awarded and because there are genuine issues
of fact remaining regarding damages, we remand for a hearing on damages.” Id. at 950-51, 501 N.W.2d at 22.
By mentioning the Hedtcke
and Midwest cases in support for its remand, the court was
referring to § 806.02(2), Stats.,
the default judgment statute. Although
the procedural posture of neither Hedtcke nor Midwest
required a contested hearing to determine damages, both cases relied on Bartelt
v. Braunsdorf, 57 Wis. 1, 3-4, 14 N.W. 829, 830 (1883), and Smithers
v. Brunkhorst, 178 Wis. 530, 533, 190 N.W. 349, 350 (1922), for
the proposition that a defendant in a default judgment setting is entitled to
introduce evidence to mitigate or to be heard as to the diminution of
damages. Both Hedtcke and
Midwest then logically suggest that if the amount of damages is
challenged, it is necessary to conduct a hearing to present proof.[3] In the instant case, it is undisputed that
Deloitte has consistently challenged the amount of damages. A plain reading of § 806.02(2), Stats., only requires that if proof of
any fact is necessary, the court should receive proof be it by hearing or some
other means of submission. In reviewing
Bartlett and Smithers, (decided long before
§ 806.02(2) was amended to its present form, see 101 Wis.2d xii),
an evidentiary hearing is a proper alternative means to resolve disputed issues
of fact relating to damages. Thus, in
the context of the dispute between Chevron and Deloitte about the amount of consequential
damages suffered by Chevron, the supreme court's mandate line reasonably
contemplates an evidentiary hearing.
Although it is not
altogether clear from its brief, Chevron appears to base its reply to
Deloitte's claim of trial court error on the mandate line language of the
supreme court, i.e., “and the cause is remanded for a determination by the
circuit court of the amount of damages to be awarded as a judgment against
Deloitte.” Chevron II,
176 Wis.2d at 951, 501 N.W.2d at 22.
Thus, argues Chevron, the trial court acted properly in deciding the
damage issue based on letter briefs, the record of the five-week long trial,
and oral argument because to allow an evidentiary hearing “would, in effect,
erase the sanction by rewarding Deloitte” with a new trial for its
misconduct. The trial court reached the
same conclusion, reasoning:
Chevron
would have obtained a Pyrrhic victory--nominally declared to be the winner yet
forced to spend yet more money on a second trial as well as incurring the
almost certain delay that another evidentiary hearing would entail given the
conflicting schedules of witnesses, counsel and the court.
We share the trial
court's concern that justice is not served by hollow victories after trial, but
at the same time, we recognize the superintending administrative authority of
our supreme court and the clearly expressed language implementing its order
remanding the issue of consequential damages to the trial court. Although the effect of § 806.02(2), Stats., may entail a contentious damage
determination, it does not require a new trial. Because of the dispute as to how those damages were to be
calculated and because it would be sheer speculation how the proofs would
develop, the trial court ought not be encumbered by any conclusions or restrictions
from this court. See Lingott
v. Bihlmire, 38 Wis.2d 114, 129, 156 N.W.2d 439, 446-47 (1968)
(trial court is free to make any order or direction not inconsistent with
appellate court when confronted with a remand for further proceedings). We conclude, therefore, that the intention
of the supreme court is clear and unequivocal and that an evidentiary hearing
must be held on the total question of damages.[4]
B. Cross-Appeal: Attorney
Fees.
Chevron cross-appeals
from the trial court's decision that it did not have the authority to entertain
Chevron's motion seeking attorney fees.
Chevron contends that our supreme court's mandate in Chevron II
does not preclude the trial court from considering the additional sanction of
attorney fees. Deloitte responds that
the trial court appropriately determined that it did not have the authority to
consider the attorney fees issue.
Deloitte further argues that even though it is within the trial court's
authority to consider the issue, Chevron waived it.
Because this issue goes
to the power of a trial court under a supreme court mandate, it is a question
of law that we review de novo. See
Schaeffer v. State Personnel Comm'n, 150 Wis.2d 132, 138, 441
N.W.2d 292, 295 (Ct. App. 1989) (questions of law are reviewed de novo).
1. Authority
to Consider Attorney Fees.
Ordinarily, the trial
court has inherent and statutory authority to impose attorney fees as a
sanction. Chevron II, 176
Wis.2d at 946-47, 501 N.W.2d at 20. The
disputed issue presented in this case, however, is whether that authority still
exists given the procedural posture of this case; that is, whether the
authority exists upon remand from a decision by the supreme court. We conclude that the supreme court's mandate
in Chevron II does not preclude the trial court from exercising
its inherent and statutory authority to consider Chevron's motion seeking
attorney fees.
The Chevron II court decided
that the trial court's order granting judgment to Chevron was somewhat
ambiguous—that is, it was unclear whether the trial court granted judgment
against Deloitte on the merits, or whether the trial court granted
judgment against Deloitte as a sanction for egregious misconduct. Id. at 943-46, 501 N.W.2d at
19-20. The supreme court decided that
“regardless of whether the circuit court actually entered judgment as a
sanction, in furtherance of our obligation to maintain professionalism and civility
in the courts, we address the sanction issue.”
Id. at 946, 501 N.W.2d at 20. The foregoing history is important to our assessment of whether
the supreme court's mandate forecloses the trial court's authority to consider
attorney fees as an additional sanction.
When a matter is remanded to the trial court for further proceedings,
the trial court “is left free to make any order or direction in further
progress of the case, not inconsistent with the decision of the appellate
court, as to any question not presented or settled by such decision.” Lingott, 38 Wis.2d at 129, 156
N.W.2d at 446-47.
Our review of Chevron II
demonstrates that the supreme court intended to make a strong statement about
the type of conduct evinced by Deloitte.
The supreme court proclaimed that if legal professionals engage in such
egregious, repeated conduct, the most harsh penalty of judgment is
appropriate. Id. at
946-50, 501 N.W.2d at 20-22. The
supreme court's opinion does not address whether, in addition to the sanction
of judgment, other sanctions such as attorney fees may be imposed. Id. We conclude that the supreme court's mandate in Chevron II
does not supplant the trial court's authority to impose any additional
sanctions that may be appropriate given the egregious nature of Deloitte's
conduct. Our conclusion is based on the
following factors: (1) the supreme
court's remand was pursuant to § 808.08(3), Stats.; (2) considering the attorney fees issue on
remand is not inconsistent with the supreme court's mandate, see Lingott,
38 Wis.2d at 129, 156 N.W.2d 446-47; and (3) when a decision of a
trial court is overturned on appeal, any motions pending which were superseded
by the overturned order must be considered, see Kennedy-Ingalls
Corp. v. Meissner, 8 Wis.2d 126, 132, 98 N.W.2d 386, 389 (1959).
Section 808.08(3), Stats., provides in pertinent part: “If
action or proceedings other than those mentioned in sub. (1) or (2) is ordered,
any party may, within one year after receipt of the remitted record by the
clerk of the trial court, make appropriate motion for further proceedings.”
The supreme court
remanded Chevron to the trial court for further proceedings
regarding the damage issue.
Accordingly, the remand falls under § 808.08(3), Stats.
Where a matter is remanded under § 808.08(3) for further
proceedings, consideration of awards of costs are typically deemed open for
determination upon remand. See Boehck
Constr. Equip. Corp. v. Voigt, 17 Wis.2d 62, 78a, 115 N.W.2d 627, 117
Wis.2d 372, 372 (1962). In accord with
the statute, Chevron moved for further proceedings. Included within its motion was a request for the attorney fees to
be included as costs. As long as
Chevron's requested relief is not inconsistent with and is not precluded by the
supreme court's mandate in Chevron II, the trial court has
authority to entertain the request.
As noted above, our
review of the record and case law governing this case demonstrates that
considering the attorney fees issue on remand would not be inconsistent with
the supreme court's mandate in Chevron II. The supreme court issued a strong statement
regarding attorney misconduct in holding that the facts presented in this case
support imposing the most severe sanction available—judgment. The decision did not, however, supplant the
trial court's authority to, in its discretion, consider requests for further
sanction.
Further, Chevron had
moved for sanctions prior to Deloitte taking an appeal. Because judgment was entered against
Deloitte and Deloitte appealed, the sanction issue was not addressed. On remand, the trial court has the authority
to consider motions that were pending prior to appeal. See Kennedy-Ingalls Corp.,
8 Wis.2d at 132, 98 N.W.2d at 389.
Accordingly, the trial court in the instant case has the authority to
consider the attorney fees motion which was raised prior to the appeal.
2. Waiver.
Deloitte contends that
even if the trial court has the authority to consider the issue of attorney
fees at this stature, Chevron did not preserve this issue. We disagree.
To preserve the issue of
attorney fees, Chevron is required to request that the trial court exercise its
discretion to impose sanctions and to present the range of sanctions
available. The record demonstrates that
Chevron complied with this requirement.
We hold, therefore, that
the trial court in this case has the authority to consider Chevron's motion
seeking attorney fees. Accordingly, we
reverse the trial court's decision on the cross-appeal and remand for a hearing
to determine whether any additional sanctions are appropriate, and if so, the
extent of those sanctions.
III. CONCLUSION
In accordance with this
opinion, on remand, we direct the trial court to: (1) conduct an evidentiary hearing limited to the issue of
the appropriate amount of damages regarding the negligent misrepresentation
claim; and (2) to consider Chevron's motion seeking attorney fees. Further, because each party has prevailed in
part on this appeal and cross-appeal, we conclude that neither party is
entitled to appeal costs. See §
809.25, Stats.
By the Court.—Judgment
reversed and cause remanded with directions.
This opinion will not be
published. See Rule 809.23(1)(b)5, Stats.
[1] Because of our conclusion, it is not necessary for us to address the method in which the trial court determined damages. See Gross v. Hoffman, 227 Wis. 296, 300, 277 N.W. 663, 665 (1938) (only dispositive issue need be addressed).
[3] In Hedtcke v. Sentry Insurance Co., 109 Wis.2d 461, 478-79 n.5, 326 N.W.2d 727, 735-36 n.5 (1982), our supreme court, after hypothesizing a default judgment scenario, declared “if Sentry contests the amount of damages claimed in the complaint, it may appear at the hearing to assess damages, cross-examine the plaintiff's witnesses and present evidence to contest the amount of recovery.”