Case Title: Beloit Liquidating Trust v. Jeffrey T. Grade

Citation: 2004 WI 39

Docket Number: 2002AP002035

State: wisconsin

Court: Wisconsin Supreme Court

Date: 2004-04-06T00:00:00Z

Document:
2004 WI 39 
 
 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
02-2035 
COMPLETE TITLE: 
 
 
Beloit Liquidating Trust, a Delaware Trust,  
          Plaintiff-Appellant, 
     v. 
Jeffrey T. Grade, Francis M. Corby, Jr.,  
Mark E. Readinger, James A. Chokey, Robert A. 
Messier, Alton L. Daffin, and Thomas E. 
Engelsman,  
          Defendants-Respondents-Petitioners. 
 
 
 
 
REVIEW OF A DECISION OF THE COURT OF APPEALS 
2003 WI App 176 
Reported at: 266 Wis. 2d 388, 669 N.W.2d 232 
(Ct. App. 2003-Published) 
 
 
OPINION FILED: 
April 6, 2004   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
February 19, 2004   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Milwaukee   
 
JUDGE: 
Timothy G. Dugan   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
        
 
DISSENTED: 
        
 
NOT PARTICIPATING: PROSSER, J., did not participate.   
 
 
 
ATTORNEYS: 
 
For the defendant-respondent-petitioner Engelsman there 
were briefs by Gregory A. Kotsonis and VonBriesen & Roper, S.C., 
Milwaukee and Mitchell Bryan and Levenfeld Pearlstein, Chicago, 
and oral argument by Mitchell Bryan. 
 
For 
the 
defendants-respondents-petitioners 
Chokey, 
Readinger, Messier & Daffin there were briefs by Paul F. Linn, 
Christopher C. Mohrman, Charles J. Crueger, and Michael Best & 
Friedrich, LLP, Milwaukee, and oral argument by Paul F. Linn. 
 
For the defendants-respondents-petitioners Grade and Corby 
there was a brief by Christopher T. Hale, K. Scott Wagner and 
Hale & Wagner, S.C., Milwaukee. 
 
 
For the plaintiff-appellant there were briefs by John F. 
Hovel, Leonard G. Leverson and Kravit, Gass, Hovel & Leitner, 
S.C., Milwaukee, and Curtis C. Mechling and Stroock & Stroock & 
Lavan, LLP, New York, and oral argument by Curtis C. Mechling. 
 
 
 
2004 WI 39 
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  02-2035  
(L.C. No. 
01 CV 5042) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Beloit Liquidating Trust, a Delaware  
Trust,  
 
          Plaintiff-Appellant, 
 
     v. 
 
Jeffrey T. Grade, Francis M. Corby, Jr.,  
Mark E. Readinger, James A. Chokey,  
Robert A. Messier, Alton L. Daffin, and  
Thomas E. Engelsman,  
 
          Defendants-Respondents- 
          Petitioners. 
 
FILED 
 
 APR 6, 2004 
 
Cornelia G. Clark 
Clerk of Supreme Court 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed.   
 
¶1 
N. PATRICK CROOKS, J.   The petitioners in this case, 
Jeffrey T. Grade, Francis M. Corby, Jr., Mark E. Readinger, 
James A. Chokey, Robert A. Messier, Alton L. Daffin, and Thomas 
E. Engelsman, officers and directors of Beloit Corporation, or 
its 
former 
parent 
corporation, 
Harnischfeger 
Industries, 
Incorporated (Harnischfeger), seek review of a published court 
of appeals' decision, Beloit Liquidating Trust v. Grade, 2003 WI 
App 176, 266 Wis. 2d 388, 669 N.W.2d 232, reversing a circuit 
No. 
02-2035   
 
2 
 
court decision.  The court of appeals held that the petitioners 
(officers and directors) had a duty to Beloit Corporation's 
creditors before it went out of business.  The circuit court 
dismissed the supplemental complaint filed by Beloit Corporation 
Liquidating Trust (Trust), which alleged that the officers and 
directors breached their fiduciary duties.  The circuit court 
held that no duty is owed to the creditors of a corporation 
unless the corporation is both insolvent and no longer a going 
concern.  The court of appeals reversed the circuit court, 
concluding that the officers and directors had a duty to the 
creditors before Beloit Corporation went out of business.  The 
court of appeals further concluded that Delaware, not Wisconsin, 
law was applicable to the present case.  The court of appeals 
also held that the petitioners were precluded from asserting 11 
U.S.C. § 108(a) (1999)1 as a defense, and the Official Committee 
of Unsecured Creditors of Beloit Corporation (Committee) could 
                                                 
1 Unless otherwise indicated, all references to United 
States Code are to the 1999 edition.  In relevant part, 11 
U.S.C. § 108(a) states:   
If applicable nonbankruptcy law, an order entered in a 
nonbankruptcy proceeding, or an agreement fixes a 
period within which the debtor may commence an action, 
and such period has not expired before the date of the 
filing of the petition, the trustee may commence 
 . . .  only before the later of —— 
 
(1)  the end of such period, including any 
suspension of such period occurring on or after the 
commencement of the case; or 
 
(2)  two years after the order for relief. 
No. 
02-2035   
 
3 
 
use § 108(a) to extend the statute of limitations for its breach 
of fiduciary duty claims. 
¶2 
We conclude that, given the legislature's enactment of 
Wis. Stat. § 180.1704 (1999-2000)2 and the prevailing Wisconsin 
case law regarding choice of law, Wisconsin law applies in this 
case.  Primarily relying on the decisions of Boyd v. Mutual Fire 
Ass'n, 116 Wis. 155, 90 N.W. 1086 (1902), and McGivern v. Amasa 
Lumber Co., 77 Wis. 2d 241, 252 N.W.2d 371 (1977), we further 
conclude that, in order for officers and directors to have a 
fiduciary duty to creditors, a corporation must be both 
insolvent and no longer a going concern.  Because Beloit 
Corporation was a going concern during the applicable two-year 
period in which a claim could have been brought, we conclude 
that its officers and directors owed no duty to its creditors 
during that time.  Given these conclusions, we do not need to 
address the court of appeals' holding regarding issue preclusion 
in this case. 
I 
 
¶3 
For 
approximately 
140 
years, 
Beloit 
Corporation 
designed and manufactured pulp and papermaking machines.  Beloit 
Corporation was a profitable corporation for many of those years 
and reported an operating income of over $65 million as late as 
1995.  Although Beloit Corporation was organized under the laws 
                                                 
2 Unless otherwise indicated, all references to Wisconsin 
Statutes are to the 1999-2000 edition.  In relevant part, 
Wis. Stat. § 180.1704 states: "(T)his chapter applies to all 
foreign corporations transacting business in this state on or 
after January 1, 1991." 
No. 
02-2035   
 
4 
 
of Delaware, its primary place of business was located in 
Beloit, Wisconsin.  Beloit Corporation also operated 65 wholly-
owned or partially-owned subsidiaries, including subsidiaries 
located in the United Kingdom, Asia, Italy, Poland, and Austria.  
Harnischfeger was organized under Delaware law as well, and its 
principal place of business was in Milwaukee County, Wisconsin.  
Harnischfeger owned 80 percent of Beloit Corporation, while 
Mitsubishi Heavy Industries owned the remaining 20 percent of 
the corporation. 
 
¶4 
On June 7, 1999, Harnischfeger, Beloit Corporation, 
and all of the other businesses owned by Harnischfeger filed for 
bankruptcy protection in Delaware under Chapter 11 of the United 
States Code.3  At the time of filing, Beloit Corporation's 
reported liabilities exceeded its reported assets by more than 
$1 billion.  While bankruptcy proceedings were pending, the 
bankruptcy court appointed the Committee to explore potential 
conflicts of interest between debtors and related parties.  The 
Committee then sought the right to sue, on behalf of Beloit 
Corporation, the current and former officers and directors of 
Beloit 
Corporation 
and 
Harnischfeger 
for 
their 
alleged 
mismanagement of Beloit Corporation and breach of fiduciary 
duty.   
¶5 
The bankruptcy court confirmed Beloit Corporation's 
reorganization plan on May 18, 2001.  According to the plan, 
                                                 
3 After emerging from bankruptcy, Harnischfeger changed its 
name to Joy Global, Incorporated. 
No. 
02-2035   
 
5 
 
Beloit Corporation's unsecured creditors were given the right to 
share in the proceeds resulting from the liquidation of Beloit 
Corporation's assets.  The unsecured creditors were also given 
title to Beloit Corporation's potential claims, including the 
claims of Beloit Corporation asserted in this action.  On June 
5, 2001, the bankruptcy court permitted Beloit Corporation's 
unsecured creditors to initiate this action.  On June 7, 2001, 
the Committee commenced this action in Milwaukee County Circuit 
Court. 
 
¶6 
On July 12, 2001, the Trust was created to liquidate 
Beloit Corporation's remaining assets.  The Trust filed a 
supplemental complaint, in which the Trust was substituted as 
the plaintiff in this action in place of the Committee.  Aside 
from general claims of mismanagement and corporate waste, the 
Trust cited two major events as contributing to the demise of 
Beloit Corporation.  First, the Trust alleged in its complaint 
that the directors and officers breached their duties in 1994 by 
entering into a contract to build a de-inking and pulping mill 
in Fitchburg, Massachusetts.  According to the Trust, Beloit 
Corporation never fulfilled its contractual obligations to the 
mill.  The mill closed two years later, and its owner filed 
bankruptcy.  The directors and officers of Beloit Corporation 
decided that, instead of forfeiting their sizeable investment, 
they would take over the mill and resume its operation.  Beloit 
Corporation assumed the mill's lease obligations, and the 
corporation invested more money in the project.  The mill 
continued to sustain substantial losses, and the bankruptcy 
No. 
02-2035   
 
6 
 
court 
authorized 
Beloit 
Corporation 
to 
cease 
the 
mill's 
operations in July 1999. 
 
¶7 
The second event cited by the Trust as leading to the 
demise of Beloit Corporation occurred in 1996.  The officers and 
directors concluded that, in order for Beloit Corporation to 
regain some of its market share, it needed to expand its 
business dealings abroad.  Thus, Beloit Corporation, through its 
wholly-owned 
subsidiary, 
Beloit 
Corporation 
Asia 
Pacific, 
Incorporated, entered into two contracts with Asia Pulp and 
Paper Company (Asia Pulp), the largest Indonesian pulp and paper 
producer, to build and install two large fine paper machines in 
Indonesia.  The complaint alleged that there were substantial 
cost overruns on these first two contracts because the officers 
and directors miscalculated various start-up and construction 
costs.   
¶8 
Beloit Corporation then decided to enter into two more 
contracts with Asia Pulp.  However, due to its dissatisfaction 
with 
Beloit 
Corporation's 
performance 
on 
the 
first 
two 
contracts, Asia Pulp ultimately cancelled the second two 
contracts at a substantial loss to Beloit Corporation.  The 
Trust alleged that the decision of the officers and directors to 
enter into these contracts resulted in a breach of the officers' 
and directors' fiduciary duties.  The Trust further alleged that 
the officers and directors attempted to conceal the losses from 
the Asia Pulp contracts.  The complaint acknowledged, however, 
that losses incurred from those contracts were disclosed on 
Beloit Corporation's March 1998 financial statements.  
No. 
02-2035   
 
7 
 
 
¶9 
The Trust further alleged that, beginning in 1996, the 
officers and directors should have managed Beloit Corporation 
for the benefit of the unsecured creditors.  The complaint 
alleges that Beloit Corporation was rapidly losing its market 
share in 1995.  The complaint alleged that, by early 1996, 
Beloit Corporation was able to pay its outstanding debt only by 
virtue of hundreds of millions of dollars in loans from 
Harnischfeger.  According to the complaint, Beloit Corporation 
was continuously insolvent as early as 1996.  From 1995 to 1999, 
the 
officers 
and 
directors 
allegedly 
mismanaged 
Beloit 
Corporation and drove it further into insolvency by negligently 
entering into contracts the corporation was incapable of 
performing.   
 
¶10 The Trust asserted that the officers and directors 
breached their fiduciary duties to Beloit Corporation and its 
creditors.  The complaint alleged that, during the time when 
Beloit Corporation was insolvent or near insolvency, the 
directors and officers negligently allowed the corporation to 
enter into money-losing contracts, failed to keep adequate 
accounting systems to deal with the losses, continued operations 
after prudent managers would have shut the corporation down, and 
failed to disclose the corporation's losses. 
 
¶11 The 
officers and 
directors 
answered 
the Trust's 
complaint and moved for judgment on the pleadings.4  Their motion 
                                                 
4 Only Chokey, Readinger, Messier, and Daffin filed the 
motion for judgment on the pleadings with the circuit court. 
No. 
02-2035   
 
8 
 
alleged that the creditors' breach of fiduciary duties claims 
failed to state claims upon which relief could be granted 
because no fiduciary duty was owed to the creditors.  The motion 
further stated that both Beloit Corporation's and the creditors' 
breach of fiduciary duties claims were time-barred under the 
two-year 
statute 
of 
limitations 
set 
forth 
in 
Wis. Stat. § 893.57. 
 
¶12 Judge Timothy G. Dugan, Milwaukee County Circuit 
Court, granted the officers' and directors' motion for judgment 
on the pleadings and dismissed the creditors' breach of 
fiduciary duty claims with prejudice.5  The circuit court 
concluded that the creditors' claims should be separated from 
the corporation's claims for purposes of analysis.  With respect 
to the creditors' claims, the circuit court concluded that the 
breach of fiduciary duty claims alleged in the complaint were 
governed by Wisconsin law.  The circuit court also stated that 
the officers and directors of an ongoing entity owed no duty to 
its creditors.  Thus, because Beloit Corporation was an ongoing 
corporation at the times relevant to this case, the officers and 
                                                 
5 The parties in this case ultimately entered into a 
stipulation dismissing the Trust's fourth and fifth claims, 
which alleged that the officers and directors conspired to 
commit a fraudulent conveyance, and which sought to declare that 
any 
officer 
release 
of 
liability 
was 
null 
and 
void, 
respectively.  The stipulation and order stated that the claims 
were dismissed without prejudice.  Moreover, the Trust was not 
permitted to reassert its fourth and fifth claims until the date 
of the ultimate disposition of any appeal.  As these claims are 
not material to this appeal, we decline to further address them 
in this opinion. 
No. 
02-2035   
 
9 
 
directors owed no duty to the creditors.  Moreover, the circuit 
court noted that the creditors' claims were derivative of the 
corporation's claims.  Thus, if the corporation was barred from 
asserting certain claims, the creditors were equally limited by 
such restrictions. 
 
¶13 With respect to the corporation's claims, the circuit 
court dismissed the creditors' breach of fiduciary duty claims 
because the statute of limitations had expired.  The court 
concluded that the statute of limitations in Wis. Stat. § 893.576 
regarding intentional torts was applicable in this case.  Citing 
the Boyd case, the court rejected the Trust's assertion that the 
adverse domination doctrine7 extended the applicable window of 
time through the June 1999 bankruptcy filing.  The court 
asserted that the two-year extension permitted in 11 U.S.C. 
§ 108(a) could not be used to toll the statute of limitations, 
as only a trustee or a debtor-in-possession had standing to 
assert § 108(a).  The court noted that, when the bankruptcy 
                                                 
6 Wisconsin Stat. § 893.57 states in relevant part:  "An 
action to recover damages for libel, slander, assault, battery, 
invasion of privacy, false imprisonment or other intentional 
tort to the person shall be commenced within 2 years after the 
cause of action accrues or be barred." 
7 The adverse domination doctrine involves an equitable 
principle to the effect that the statute of limitations on a 
breach of fiduciary duty claim against officers and directors is 
tolled as long as a corporate plaintiff is controlled by the 
alleged wrongdoers.  The statute is tolled until a majority of 
the disinterested directors discover or are put on notice of the 
claim against the wrongdoers.  This doctrine is available to 
benefit only the corporation.  Black's Law Dictionary 54 (7th 
ed. 1999). 
No. 
02-2035   
 
10 
 
court confirmed the plan of reorganization on May 18, 2001, 
Beloit Corporation ceased to be a debtor-in-possession, and its 
assets revested with Beloit Corporation until the Trust was 
formed in July.  Thus, the circuit court reasoned, no one could 
take advantage of § 108(a). 
 
¶14 A divided court of appeals reversed the circuit 
court's decision.  The court of appeals, Judges Ralph A. Fine 
and Charles B. Schudson, concluded that, under McGivern and 
other Wisconsin case law, officers and directors of an insolvent 
corporation have a duty to its creditors prior to the time the 
corporation actually goes out of business.  Beloit, 266 
Wis. 2d 388, ¶41.  In analyzing the claims, the court of appeals 
did not separate the corporation's claims from the creditors' 
claims.  Relying on the internal affairs doctrine8 and the 
factors outlined in Heath v. Zellmer, 35 Wis. 2d 578, 151 
N.W.2d 664 (Ct. App. 1967), the court of appeals concluded that 
Delaware law applied in this case.  Moreover, the court of 
appeals sua sponte concluded that issue preclusion barred the 
defendants from raising a defense under 11 U.S.C. § 108(a).  The 
court stated that the creditors' committee that originally filed 
this action could use § 108(a), because Beloit Corporation 
remained a debtor-in-possession until the reorganization plan 
went into effect.  Thus, the court reasoned that the breach of 
                                                 
8 The internal affairs doctrine is a conflict of laws rule 
that states that in disputes involving a corporation and its 
relationships with its shareholders, directors, officers, or 
agents, the law to be applied is the law of the state of 
incorporation.  Black's Law Dictionary 820 (7th ed. 1999). 
No. 
02-2035   
 
11 
 
fiduciary duty claims were timely under a two-year statute of 
limitations.  The court concluded that § 108(a) extended the 
applicable statute of limitations to June 7, 2001, the second 
anniversary of Beloit Corporation's bankruptcy filing.  The 
court noted that, because the Trust's complaint alleged that the 
officers and directors breached their fiduciary duties within 
two years preceding the 1999 bankruptcy filing, the claims were 
brought within the time period proscribed by the applicable 
statute of limitations.     
 
¶15 In his dissent, Judge Ted E. Wedemeyer, Jr. stated 
that he would affirm the circuit court's holding that officers 
and directors of a corporation have a duty to creditors only 
when the corporation is both insolvent and no longer a going 
concern.  The dissent noted that, although the majority relied 
on the internal affairs doctrine, no controlling Wisconsin law 
had adopted this doctrine.  Given that Wis. Stat. § 180.1704 
applies to all foreign corporations transacting business in 
Wisconsin, the dissent concluded that Wisconsin corporate law 
governed Beloit Corporation's activities. 
 
¶16 In response to the court of appeals' decision, the 
officers and directors filed a motion for reconsideration.  The 
court of appeals' majority denied the defendants' motion and 
slightly amended ¶9 of its decision, stating that the court 
based its decision on federal bankruptcy law.  Thus, the court 
of appeals reasoned, it did not have to decide the issue of 
whether the discovery rule set forth in Hansen v. A.H. Robins, 
Inc., 113 Wis. 2d 550, 335 N.W.2d 578 (1983), the non-corporate 
No. 
02-2035   
 
12 
 
analog to the adverse domination doctrine,9 was applicable or 
which state statute of limitation was applicable.   
II 
 
¶17 We now consider which state's laws apply to the issues 
in this case, and whether the officers and directors of Beloit 
Corporation owed a duty to its creditors.  Procedurally, this 
case centers on whether the circuit court appropriately granted 
judgment on the pleadings to the officers and directors.  The 
issue of whether a complaint states a claim is a question of 
law, and we review the matter de novo.  Watts v. Watts, 137 
Wis. 2d 506 512, 405 N.W.2d 303 (1987).  A motion to dismiss a 
complaint for failure to state a claim upon which relief can be 
granted tests the legal sufficiency of the complaint.  Id.  All 
facts pleaded and reasonable inferences that may be drawn from 
such facts are accepted as true, but only for purposes of 
testing the complaint's legal sufficiency.  Id.; State v. 
Mauthe, 
123 
Wis. 2d 288, 
292, 
366 
N.W.2d 871 
(1985).  
Nevertheless, legal inferences and unreasonable inferences need 
not be accepted as true.  Morgan v. Pa. Gen. Ins. Co., 87 
Wis. 2d 723, 731, 275 N.W.2d 660 (1979).  A complaint should not 
be dismissed as legally insufficient unless it appears certain 
                                                 
9 In Hansen v. A.H. Robins, Inc., 113 Wis. 2d 550, 560, 335 
N.W.2d 578 (1983), we adopted the discovery rule for all tort 
actions other than those governed by a statute.  We stated that 
"(s)uch tort claims shall accrue on the date the injury is 
discovered or with reasonable diligence should be discovered, 
whichever occurs first." 
No. 
02-2035   
 
13 
 
that a plaintiff cannot recover under any circumstances.  Watts, 
137 Wis. 2d at 512; Morgan, 87 Wis. 2d at 731.     
 
¶18 The officers and directors10 assert that they did not 
owe a fiduciary duty to Beloit Corporation's creditors.  The 
officers 
and 
directors 
contend 
that, 
given 
Wis. Stat. § 180.1704, Wisconsin law is applicable to the issues 
in this case.  The officers and directors point out that 
Wisconsin has never adopted the internal affairs doctrine.  
Moreover, they contend that application of Wisconsin's choice of 
law principles clearly show that Wisconsin law is applicable.  
Under Wisconsin law, as explained in cases such as McGivern and 
Boyd, the officers and directors assert that they owe no duty to 
creditors unless the corporation is both insolvent and no longer 
a going concern.  They state that the definition of insolvency 
found in Schmitz v. Wisconsin Soap Mfg. Co., 204 Wis. 149, 235 
N.W. 409 (1931), should be used, because it allows for directors 
to take calculated business risks without having to change their 
strategies to protect creditors from month to month, simply 
because the corporation appears short on cash.  The officers and 
directors contend that the facts alleged in the Trust's 
complaint prove that Beloit Corporation was a going concern 
because it was entering into contracts directly related to its 
product. 
                                                 
10 Chokey, Readinger, Messier, and Daffin filed a brief for 
the petitioners, which Grade and Corby joined in its entirety.  
Engelsman also adopted his co-petitioners arguments but filed an 
additional brief regarding the question of issue preclusion.   
No. 
02-2035   
 
14 
 
 
¶19 The officers and directors further assert that the 
Trust's claims are time-barred.  According to them, the statute 
of limitations found in Wis. Stat. § 893.57 applies to both 
Beloit Corporation's and the creditors' breach of fiduciary 
duties claims.  The officers and directors note that, since this 
action was filed on June 5, 2001, the claims are time-barred 
because the complaint alleges that all of the instances of 
breaches of fiduciary duties accrued before June 5, 1999.  
Further, they claim that 11 U.S.C. § 108(a) is inapplicable to 
the present case, as only trustees or debtors-in-possession may 
use § 108(a) to extend a statute of limitations.  Because the 
Trust is a creditors' committee, and not a trustee or debtor-in-
possession, the officers and directors contend that the Trust 
does not have the power to toll the statute of limitations under 
§ 108(a).  As further evidence of § 108(a)'s inapplicability, 
the officers and directors contend that the Bankruptcy Code does 
not 
contain 
a 
plain 
statement 
that 
unsecured 
creditors' 
committees may take advantage of the provision.  They note that 
Beloit Corporation itself was no longer a debtor-in-possession 
after the bankruptcy plan was confirmed.  Finally, the officers 
and directors assert that the theory of adverse domination does 
not toll the claims of Beloit Corporation or its creditors.  The 
petitioners contend that adverse domination would apply to 
Beloit Corporation's claims only, not its creditors.  According 
to the petitioners, Wisconsin rejected the adverse domination 
No. 
02-2035   
 
15 
 
doctrine in Boyd, and Hansen's discovery rule did not overrule 
this holding.11 
 
¶20 According to the Trust, officers and directors owe a 
fiduciary duty to creditors when a corporation is in the 
vicinity of insolvency, regardless of whether Wisconsin or 
Delaware law is applicable.  Nevertheless, the Trust asserts 
that the laws of Delaware should govern this case.  The Trust 
rejects the officers' and directors' argument that Wisconsin law 
should apply, given Wisconsin choice of law principles.  The 
Trust argues that if Wisconsin law is held to be applicable 
simply because Beloit Corporation had more significant contacts 
with Wisconsin, and the acts complained of occurred in this 
state, the laws governing officers and directors would vary in 
each individual case, according to where the relevant events 
occurred.   
¶21 The Trust contends that application of the internal 
affairs doctrine would prevent such inconsistencies and protect 
parties' expectations.  The Trust rejects the argument that 
Wis. Stat. § 180.1704 supplants the internal affairs doctrine 
and contends that, even applying Wisconsin choice of law 
principles, Delaware law is applicable.  According to the Trust, 
Delaware has a significant interest in regulating the directors 
and officers of companies incorporated within its state.  The 
Trust notes that Delaware law states that directors and officers 
                                                 
11 The officers and directors also included arguments 
regarding issue preclusion.  Because we do not discuss this 
issue in this opinion, those arguments have been omitted. 
No. 
02-2035   
 
16 
 
owe a fiduciary duty to creditors before the corporation goes 
out of business.  Under Delaware case law, the Trust asserts 
that such duty arises when a corporation is in the vicinity of 
insolvency.  Moreover, even if this court concludes that 
Wisconsin law is applicable, the Trust contends that Wisconsin 
does not require that a corporation be both insolvent and no 
longer a going concern before a duty is owed to its creditors. 
 
¶22 The 
Trust 
further 
asserts 
that 
the 
creditors' 
committee had the benefit of 11 U.S.C. § 108(a) because it 
brought this action on behalf of Beloit Corporation.  The Trust 
rejects the defendants' contention that Beloit Corporation 
ceased to be a debtor-in-possession after the bankruptcy court 
confirmed the reorganization plan.  Moreover, the Trust contends 
that its breach of fiduciary duty claims are governed by the 
six-year statute of limitations found in Wis. Stat. § 893.53.12  
The statute of limitations, the Trust contends, was tolled by 
either the adverse domination doctrine or the discovery rule set 
forth in Hansen.13  
 
¶23  First, we must resolve the choice of law issue 
presented in this case.  We begin our analysis by examining 
                                                 
12 Wisconsin Stat. § 893.53 states in relevant part:  "An 
action to recover damages for an injury to the character or 
rights of another, not arising on contract, shall be commenced 
within 6 years after the cause of action accrues, except where a 
different period is expressly prescribed, or be barred." 
13 The 
Trust 
also 
included 
arguments 
regarding 
issue 
preclusion.  Because we do not discuss this issue in this 
opinion, those arguments have been omitted. 
No. 
02-2035   
 
17 
 
Wis. Stat. § 180.1704, which states, in relevant part, that 
Chapter 180, which governs Wisconsin's business corporations, 
"applies to all foreign corporations transacting business in 
this state."  Although the court of appeals' majority opinion 
rejected § 180.1704's application to the circumstances presented 
in this case,14 we find the plain language of § 180.1704 helpful 
in 
discerning 
our 
legislature's 
intent 
with 
respect 
to 
corporations and choice of law principles.  Section 180.1704 
puts all corporations on notice that, when transacting business 
in Wisconsin, they are subject to Chapter 180.  Given this clear 
statutory language, and Wisconsin's failure to adopt the 
internal affairs doctrine, either by statute or through case 
law, we conclude that the language of § 180.1704 supports the 
holding that Wisconsin law should be applied in determining 
whether the directors or offices breached their fiduciary duty 
to Beloit Corporation's creditors. 
 
¶24 The application of Wisconsin law to this case is 
further supported by the choice of law principles articulated in 
Wisconsin's case law.   In American Standard Ins. Co. v. 
Cleveland, 124 Wis. 2d 258, 263, 369 N.W.2d 168 (Ct. App. 1985), 
                                                 
14 The court of appeals' majority stated that, except for 
Wis. Stat. §§  180.0740-180.0747 
regarding 
shareholder 
derivative actions, provisions regulating the liability of 
officers and directors for breach of fiduciary duty to a 
corporation were absent from Chapter 180.  The court of appeals' 
majority further stated that, under §§  180.0740-180.0747, the 
laws of the state of incorporation are applicable.  Beloit 
Liquidating Trust 
v. Grade, 
2003 
WI 
App 
176, 
¶33, 266 
Wis. 2d 388, 669 N.W.2d 232.  
No. 
02-2035   
 
18 
 
the court of appeals noted that there are two applicable tests 
when deciding which forum's laws apply.  First, we must judge 
"whether the contacts of one state to the facts of the case are 
so obviously limited and minimal that application of that 
state's law constitutes officious intermeddling."  Id. (citing 
Gavers v. Fed. Life Ins. Co., 118 Wis. 2d 113, 115-16, 345 
N.W.2d 900 (Ct. App. 1984)).  In deciding whether application of 
Delaware laws would constitute officious intermeddling, we are 
required to look at Beloit Corporation's contacts with both 
Delaware 
and 
Wisconsin. 
 
While 
Beloit 
Corporation 
was 
incorporated under Delaware laws and filed bankruptcy in 
Delaware, that comprised the extent of Beloit Corporation's 
contact with Delaware.  In contrast, Beloit Corporation's 
contacts with Wisconsin exceeded its isolated interaction with 
Delaware.  Beloit Corporation's principal place of business was 
located in Wisconsin for 140 years.  The majority owner of 
Beloit 
Corporation's 
stock, 
Harnischfeger, 
was 
also 
headquartered in Wisconsin.  Moreover, every officer and 
director named in this case worked in Wisconsin for either 
Beloit Corporation or Harnischfeger, and the alleged breaches of 
fiduciary duty occurred within Wisconsin.  After considering 
these factors, we conclude that application of Delaware law in 
this case would constitute officious intermeddling with the laws 
of Wisconsin. 
No. 
02-2035   
 
19 
 
 
¶25 The second test involves examining the choice of law 
factors set forth in Heath15  See Am. Standard, 124 Wis. 2d at 
263.  In Heath, we listed five factors and concluded that they 
should be considered when taking into account choice of law 
considerations, regardless of the precise area of law involved.  
Heath, 35 Wis. 2d at 596.  See also Zelinger v. State Sand and 
Gravel Co., 38 Wis. 2d 98, 106, 156 N.W.2d 466 (1968).  Such 
factors to be considered are (1) predictability of results; (2) 
maintenance 
of 
interstate 
and 
international 
order; 
(3) 
simplification of the judicial task; (4) advancement of the 
forum's governmental interests; and (5) application of the 
better rule of law.  Heath, 35 Wis. 2d at 596.  See State Farm 
Mut. Auto. Ins. Co. v. Gillette, 2002 WI 31, ¶53, 251 
Wis. 2d 561, 641 N.W.2d 662.  The importance of each factor will 
vary depending upon the specific facts presented in each case.  
Zelinger, 38 Wis. 2d at 106.  We now discuss each of these 
factors as it relates to the present case. 
 
¶26 With respect to the predictability factor, the court 
of appeals' majority opinion noted the numerous places, both 
domestic 
and 
foreign, 
where 
Beloit 
Corporation 
conducted 
business and cited Heath for the proposition that parties 
entering into a legal relationship need to "know that their 
rights will be the same, irrespective of the forum."  Beloit, 
                                                 
15 The 
factors 
set 
forth 
in 
Heath 
v. 
Zellmer, 
35 
Wis. 2d 578, 595, 151 N.W.2d 664 (Ct. App. 1967) were suggested 
by 
Robert 
A. 
Leflar 
in 
his 
article, 
Choice-Influencing 
Considerations in Conflicts Law, 41 N.Y.U. L. Rev. 267 (1966). 
No. 
02-2035   
 
20 
 
266 Wis. 2d 388, ¶¶31-32 (quoting Heath, 35 Wis. 2d at 596).  
See 
also 
State 
Farm, 
251 
Wis. 2d 561, 
¶53.  
Wisconsin Stat. § 180.1704 is clear on its face and puts 
corporations on notice that, if they choose to transact business 
in this state, they will be subject to Wisconsin law.  Thus, we 
conclude that applying Wisconsin law to the present case will 
enhance 
predictability 
of 
results 
for 
corporations 
doing 
business in this state.       
¶27 Moreover, the maintenance of interstate order will be 
retained by applying Wisconsin law to this case.  In Heath, we 
noted that "(d)eference to the substantial interests of another 
state are necessary and for a state that is only minimally 
concerned with a transaction or tort to thrust its law upon the 
parties would be disruptive of the comity between states."  
Heath, 35 Wis. 2d at 596.  See State Farm, 251 Wis. 2d 561, ¶55.  
Beloit 
Corporation's 
principal 
place 
of 
business 
was 
in 
Wisconsin for over 140 years.  Although Beloit Corporation was 
incorporated and filed bankruptcy in Delaware, its contacts with 
Delaware end there.  Certainly, Beloit Corporation has had more 
substantial contacts with Wisconsin in carrying out its routine 
business transactions for 140 years, and Wis. Stat. § 180.1704 
leads to the conclusion that such contact is sufficient to 
render Wisconsin law applicable here.  
¶28 Simplification of the judicial task means that a 
"'simple and easily applied rule of substantive or procedural 
law is to be preferred.'"  Id., ¶59 (citation omitted).  In 
Heath, we noted that "a court's task is rarely simplified when 
No. 
02-2035   
 
21 
 
the lawyers and judges must apply themselves to foreign rather 
than forum law."  Heath, 35 Wis. 2d at 597.  Wisconsin law 
regarding whether officers and directors owe a fiduciary duty to 
a corporation's creditors is not complex or unmanageable.  Thus, 
application of Wisconsin law in this case will simplify our task 
of reaching a decision in this case. 
¶29 Further, this state's governmental interests will be 
advanced by applying Wisconsin law.  In Heath, we stated the 
following: 
(E)ven when we are confronted with the law of another 
jurisdiction and that jurisdiction is admittedly a 
"concerned jurisdiction" as determined by our analysis 
of relevant contacts, forum law should continue to be 
a primary concern of the forum court for "Courts are 
instruments of state policy . . . ," and it is the 
duty of a Wisconsin court to identify and effectuate 
Wisconsin policies. 
Id. (citation omitted).  See also Hunker v. Royal Indem. Co., 57 
Wis. 2d 588, 603, 204 N.W.2d 897 (1973). 
¶30  We further noted that "(i)f it appears that the 
application of forum law will advance the governmental interest 
of the forum state, this becomes a major, though not in itself a 
determining, factor in the ultimate choice of law."  Heath, 35 
Wis. 2d at 598.  Certainly, as evidenced by the enactment of 
Wis. Stat. § 180.1704, Wisconsin has an interest in having its 
laws applied to corporations, and their officers and directors, 
transacting business within the state.       
¶31 Finally, 
Wisconsin 
law 
regarding 
liability 
to 
creditors is the better law and should be applied in this case.  
No. 
02-2035   
 
22 
 
"(C)ourts will select the law that most adequately does justice 
to the parties and has the greatest likelihood of being 
applicable with justness in the future."  Id.  Wisconsin laws 
regarding a corporation's duty to its creditors are not obsolete 
or 
senseless, 
as 
contemplated 
by 
Heath. 
 
Since 
Beloit 
Corporation's activities that are the subject of this case 
primarily occurred in Wisconsin, it makes sense to apply the 
laws of this state. 
¶32 Based on the abovementioned factors, we conclude that 
Wisconsin law is applicable in this case.  We note that, 
although Beloit Corporation had contact with Delaware for both 
its incorporation and its bankruptcy, the continuous nature of 
the contacts of Beloit Corporation and its officers and 
directors with Wisconsin for the duration of its 140-year 
business outweigh any interests supporting the application of 
Delaware law to this case. 
 
¶33 We further conclude that Wisconsin law regarding 
fiduciary duties to creditors governs this case as well.  The 
Trust contends that Hinz v. Van Dusen, 95 Wis. 503, 70 N.W. 657 
(1897), stands for the proposition that there is no requirement 
that a corporation must no longer be a going concern, in order 
for it to be declared insolvent.  The Trust cites the following 
language in support of this argument: 
It is when a corporation ceases to be a going 
institution, or its business is in such shape that its 
directors know, or ought to know, that suspension is 
impending, that its assets in the hands of such 
directors become, by equitable conversion, a trust 
fund for the benefit of its general creditors . . . . 
No. 
02-2035   
 
23 
 
Id. at 508. 
¶34 Nevertheless, we conclude that the Trust's argument 
misses its mark, as subsequent cases interpreting and applying 
our Hinz decision clearly contemplate that a corporation must be 
both insolvent and no longer a going concern before a duty is 
owed to the corporation's creditors.  In Hamilton v. Menominee 
Falls Quarry Co., 106 Wis. 352, 81 N.W. 876 (1900), this court 
stated the following:  
It is now settled in this state, as the result of a 
series of decisions, that the directors of a going 
corporation are in no sense trustees for the corporate 
creditors in the management of the corporate business, 
even though the corporation be insolvent; and that it 
is only when the corporation ceases to be a going 
concern, or the situation is such that its directors 
know, or ought to know, that suspension is impending, 
that its assets become a trust fund, so that directors 
may 
not 
prefer 
themselves 
over 
general 
creditors . . . . 
Id. at 360 (citing Hinz, 95 Wis. at 508). 
¶35 Moreover, in Slack v. Northwestern National Bank of 
Superior, 103 Wis. 57, 79 N.W. 51 (1899), this court stated:  
It has been held by this court in a number of cases 
that when a corporation is insolvent and has ceased to 
be a going concern, and its officers know, or ought to 
know, that suspension is impending, then such officers 
are so far trustees that they may not transfer 
corporate property to themselves in payment of debts 
due them, and that such a transfer constitutes a fraud 
in law. 
Id. at 64 (citing Hinz, 95 Wis. at 508).  See also Killen 
v. Barnes, 106 Wis. 546, 564, 82 N.W. 536 (1900).    
¶36 Our decision in Boyd further supports the notion that 
a duty is owed to a corporation's creditors only when the 
No. 
02-2035   
 
24 
 
corporation is insolvent and no longer a going concern.  In 
Boyd, creditors brought suit against an insolvent corporation to 
wind up its affairs after the officers and directors of such 
corporation grossly mismanaged its financial affairs.  Boyd, 116 
Wis. at 165-66.  We noted that "the managing officers of a 
corporation are at all times trustees for the corporation and 
its 
stockholders, 
and 
also 
for 
the 
creditors 
after 
the 
corporation is adjudged insolvent."  Id. at 173.  This court 
granted a rehearing in the case to determine whether the statute 
of limitations had run in favor of the officers and directors.  
In this court's second opinion in Boyd, we noted that our 
previous opinion did not hold that officers and directors of a 
corporation that remained a going concern were trustees of its 
creditors.  Id. at 178.  We further explained that "(n)either 
the corporation nor its governing body, so long as it is a going 
concern, holds its property in trust for creditors."  Id. at 
181.   
¶37 While 
the 
abovementioned 
cases 
discussed 
whether 
officers and directors were trustees or held property in trust 
for the creditors when the corporation was still a going 
concern, we conclude that the reasoning in such cases is equally 
applicable to determining whether a fiduciary duty is owed to 
such creditors.  We disagree with the court of appeals' 
conclusion that "Boyd and the cases upon which it relied merely 
recognized that Wisconsin law would not impose a trust on the 
property of a corporation that, although financially distressed, 
was still 'a going concern.'"  Beloit, 266 Wis. 2d 388, ¶41 n.7 
No. 
02-2035   
 
25 
 
(quoting Boyd, 116 Wis. at 170-74).  Having the benefit of 
previous case analyses, it seems clear that a fiduciary duty on 
the part of officers and directors is owed to a corporation's 
creditors, only after the corporation is both insolvent and no 
longer a going concern. 
¶38 Our decision in McGivern further solidified this 
conclusion based on this line of cases by holding that officers 
and directors owe no fiduciary duty to creditors, unless the 
corporation is insolvent and no longer a going concern.  In 
McGivern, a creditor sued, among others, the former president of 
a corporation to which she had loaned a total of $67,000.  
McGivern, 77 Wis. 2d at 249.  The corporation ultimately went 
out of business and failed to repay the creditor.  Id.  However, 
during the time the former president was associated with the 
corporation, it remained solvent and a going concern.  Id. at 
250.  
¶39 We noted that, while "some have viewed officers and 
directors of a solvent corporation as trustees or agents for 
creditors of the corporation, this court has not adopted this 
view."  Id. at 253.  Although we noted that language in Haywood 
v. Lincoln Lumber Co., 64 Wis. 639, 26 N.W. 184 (1885) could be 
interpreted as supporting a fiduciary relationship between 
officers and directors and creditors generally, regardless of 
the solvency status of the corporation, we concluded that our 
"(d)ecisions after Haywood have moved away from the concept of a 
director's fiduciary duty to creditors except perhaps where the 
No. 
02-2035   
 
26 
 
corporation was insolvent16 and no longer a going concern."  
McGivern, 77 Wis. 2d at 255 (citing Killen, 106 Wis. at 564; 
Boyd, 116 Wis. at 181; and Schmitz, 204 Wis. at 154).  See also 
Malloy v. Korf, 352 F.Supp. 569, 572 (E.D. Wis. 1972).  Thus, 
our conclusion in McGivern was consistent with our decisions in 
Boyd and other cases discussing the duties of officers and 
directors to the corporation's creditors.  
¶40 Here, we hold that Beloit Corporation was a going 
concern during the relevant time period.  We conclude that the 
two-year statute of limitations set forth in Wis. Stat. § 893.57 
is applicable, because a breach of fiduciary duty claim involves 
an intentional tort.  Thus, the applicable window of time is 
from June 7, 1997 through June 7, 1999, the date that Beloit 
Corporation filed for bankruptcy protection.  In the complaint, 
the only significant occurrence alleged during this time frame 
                                                 
16 This court defined insolvency in Schmitz.  We noted that 
insolvency 
does not mean the inability of the concern or person 
giving 
the 
alleged 
preference 
to 
meet 
current 
obligations as they become due in the regular course 
of business.  Neither does it mean that the company or 
person is presently operating its business at a loss.  
It simply means that the assets of the alleged 
insolvent are insufficient, at a fair valuation, to 
pay his debts. 
Schmitz v. Wis. Soap Mfg. Co., 204 Wis. 149, 153, 235 N.W. 409 
(1931) (emphasis added).  McGivern relied on this definition of 
insolvency provided in Schmitz.  We reaffirm that this is the 
appropriate test for insolvency, as it permits officers and 
directors 
of 
a 
corporation 
sufficient 
latitude 
to 
take 
calculated business risks. 
No. 
02-2035   
 
27 
 
was the disclosure of Beloit Corporation's losses from the Asia 
Pulp contracts in March 1998.  However, Beloit Corporation was 
still a going concern at this time; thus, any claim asserted by 
Beloit Corporation's creditors for breach of fiduciary duty 
during this time frame is not actionable, and any claim on 
behalf of Beloit Corporation resulted in no injury to the 
corporation.  Accordingly, 11 U.S.C. § 108(a) has no application 
to the claims made here. 
¶41 While we invited the parties to address the matter of 
issue preclusion and the position taken by the court of appeals 
in this case, it is not necessary that we resolve this issue in 
order to reach our holding.  Thus, we decline to delve into a 
lengthy analysis and discussion regarding issue preclusion here. 
III 
 
¶42 In summary, we conclude that, given the legislature's 
enactment of Wis. Stat. § 180.1704 and the prevailing Wisconsin 
case law regarding choice of law, Wisconsin law applies in this 
case.  Primarily relying on the decisions of Boyd v. Mutual        
Fire Ass'n, 116 Wis. 155, 90 N.W. 1086 (1902), and McGivern v. 
Amasa Lumber Co., 77 Wis. 2d 241, 252 N.W.2d 371 (1977), we 
further conclude that, in order for officers and directors to 
have a fiduciary duty to creditors, a corporation must be both 
insolvent and no longer a going concern.  Because Beloit 
Corporation was a going concern during the applicable two-year 
period in which a claim could have been brought, we conclude 
that its officers and directors owed no duty to its creditors 
during that time.  Given these conclusions, we do not need to 
No. 
02-2035   
 
28 
 
address the court of appeals' holding regarding issue preclusion 
in this case. 
By the Court.—The decision of the court of appeals is 
reversed. 
¶43 DAVID T. PROSSER, JR., J., did not participate. 
   
No. 
02-2035   
 
 
 
1