Title: Park Bank v. Westburg

State: wisconsin

Issuer: Wisconsin Supreme Court

Document:

2013 WI 57 
 
SUPREME COURT OF WISCONSIN 
 
 
 
 
 
CASE NO.: 
2010AP3158   
COMPLETE TITLE: 
Park Bank, 
          Plaintiff-Respondent, 
     v. 
Roger E. Westburg and Sandra L. Westburg, 
          Defendants-Appellants-Petitioners.   
 
 
 
 
 
REVIEW OF A DECISION BY THE COURT OF APPEALS 
340 Wis. 2d 497, 812 N.W.2d 539 
(Ct. App. 2012 – Unpublished)     
 
 
OPINION FILED: 
July 3, 2013   
SUBMITTED ON BRIEFS: 
        
ORAL ARGUMENT: 
January 10, 2013   
 
 
SOURCE OF APPEAL: 
 
 
COURT: 
Circuit   
 
COUNTY: 
Walworth   
 
JUDGE: 
John R. Race   
 
 
 
JUSTICES: 
 
 
CONCURRED: 
ROGGENSACK, ZIEGLER, GABLEMAN, JJJ., concur. 
(Opinion filed.)   
 
DISSENTED: 
        
 
NOT PARTICIPATING:         
 
 
 
ATTORNEYS: 
 
For 
the 
defendants-appellants-petitioners, 
there 
were 
briefs by Mark Sostarich, Elkhorn, and oral argument by Mr. 
Sostarich.   
 
For the plaintiff-respondent, there was a brief by Michael 
T. Hopkins, and Hopkins McCarthy LLC, Milwaukee, and oral 
argument by Mr. Hopkins.  
 
An amicus curiae brief was filed by John E. Knight and 
Kirsten E. Spira, and Boardman and Clark, LLP, Madison, on 
behalf of the Wisconsin Bankers Association. Oral argument by 
Mr. Knight. 
  
 
 
2013 WI 57
NOTICE 
This opinion is subject to further 
editing and modification.  The final 
version will appear in the bound 
volume of the official reports.   
No.  2010AP3158 
(L.C. No. 
2007CV1028) 
STATE OF WISCONSIN  
 
 
   : 
IN SUPREME COURT 
 
 
Park Bank, 
 
          Plaintiff-Respondent, 
 
     v. 
 
Roger E. Westburg and Sandra L. Westburg, 
 
          Defendants-Appellants-Petitioners. 
 
 
 
FILED 
 
JUL 3, 2013 
 
Diane M. Fremgen 
Clerk of Supreme Court 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Affirmed.   
 
¶1 
ANN WALSH BRADLEY, J.   The petitioners, Roger E. 
Westburg and Sandra L. Westburg (collectively, the Westburgs), 
seek review of an unpublished decision of the court of appeals 
affirming the circuit court's grant of summary judgment to Park 
Bank.1   Park Bank commenced an action against the Westburgs 
seeking payment under two guaranty contracts and the Westburgs 
alleged several counterclaims and affirmative defenses in 
response.   
                                                 
1 Park Bank v. Westburg, No. 2010AP3158, unpublished slip 
op. (Ct. App. Feb. 8, 2012), affirming the circuit court for 
Walworth County, John R. Race, J., presiding. 
No. 
2010AP3158   
 
2 
 
¶2 
Park Bank argues that the alleged counterclaims are 
derivative of the corporation.  Therefore, as guarantors of 
payment, the Westburgs have no standing in this action to allege 
counterclaims that are derivative.  Further, Park Bank asserts 
that the Westburgs' affirmative defenses are barred because they 
are subject to claim preclusion. 
¶3 
We conclude that Park Bank is entitled to summary 
judgment dismissing all of the Westburgs' counterclaims.  With 
the exception of their claim of injuries arising from Park 
Bank's denial of access to their personal account, each of the 
Westburgs' counterclaims is derivative.  Because each is 
derivative, the Westburgs have no standing to raise them given 
that they appear in this action as guarantors.  Even if the 
Westburgs' remaining claim of injuries arising from Park Bank's 
denial of access to their personal account would be determined 
to be a direct claim, summary judgment dismissing the claim is 
appropriate because their alleged damages do not arise from Park 
Bank's denial of access.  
¶4 
We need not address whether claim preclusion bars the 
Westburgs' affirmative defenses because we determine that the 
affirmative defenses do not defeat Park Bank's demand under the 
guaranties for payment.   
¶5 
Finally, we conclude that Park Bank has made a prima 
facie case for summary judgment on its claims for payment.  
Because the Westburgs have failed to raise any genuine issue of 
material fact showing that payment is not due or that any debtor 
was not the subject of an insolvency proceeding, the circuit 
No. 
2010AP3158   
 
3 
 
court 
correctly 
granted 
summary 
judgment 
to 
Park 
Bank.  
Accordingly, we affirm the court of appeals. 
I 
¶6 
This case is an action seeking payment under two 
"Continuing Guaranty (Unlimited)" contracts (the guaranties) 
executed by the Westburgs.  In 2005, the Westburgs decided to 
start a manufacturing business specializing in the manufacture 
of retail fixtures and point-of-purchase advertising displays.  
They found a failing woodcraft business located in Walworth, 
Wisconsin that had woodworking equipment and other assets 
necessary for their new business.     
¶7 
The Westburgs created two entities to house the 
business' operations and assets.  Zaddo, Inc. (Zaddo) was 
created to run the business operations, while Zaddo Holdings, 
LLC (Zaddo Holdings) was created for the purpose of holding 
title to real estate.     
¶8 
In order to fund the purchase of the failing woodcraft 
business, the Westburgs sought financing from Park Bank.  To 
secure the needed financing, the Westburgs executed the two 
guaranties that are at issue in this case.  One of the 
guaranties guaranteed payment of Zaddo Holdings' debts to Park 
Bank and the other guaranteed payment of Zaddo's debts to Park 
Bank.  The guaranties are otherwise identical in the obligations 
imposed upon the Westburgs.   
¶9 
Each of the guaranties provides that the Westburgs 
"jointly and severally guarantee[] payment of the Obligations 
defined below when due or, to the extent not prohibited by law, 
No. 
2010AP3158   
 
4 
 
at the time any Debtor becomes the subject of bankruptcy or 
other insolvency proceedings."  The term "Obligations" under the 
guaranties is defined as "all loans . . . and all other debts, 
obligations 
and 
liabilities 
of 
every 
kind 
and 
description. . . ." 
¶10 The guaranties additionally grant to Park Bank "a 
security interest and lien in any deposit account" that the 
Westburgs might have with Park Bank.  Under the guaranties, Park 
Bank may "after the occurrence of an event of default" set-off 
any unpaid amounts owed "against any deposit balances . . . or 
other money now or hereafter owed [the Westburgs] by [Park 
Bank]." 
¶11 Park Bank took a mortgage on the Westburgs' home in 
Illinois as a part of the financing process but subsequently 
released the mortgage when the Westburgs sold their home in 
2005.  Park Bank required the Westburgs to deposit the proceeds 
from the sale of the home into an account with Park Bank and it 
took a security interest in that account as collateral for the 
business loans.  The proceeds from the sale of the home were in 
excess of $600,000.   
¶12 The Westburgs utilized the funds in the account for 
several purposes.  They withdrew $227,668.12 from the account in 
order to pay down a portion of the business' real estate loan, 
which they allege caused Park Bank to release its security 
interest in the account.  The record also indicates that the 
Westburgs used the account for their daily living expenses 
because they did not, at least as of August 30, 2006, draw a 
No. 
2010AP3158   
 
5 
 
salary from Zaddo.  The account represented the Westburgs' sole 
source of funds since all of their other assets had been 
invested in Zaddo and Zaddo Holdings.   
¶13 In 2006, the business relationship between Park Bank, 
Zaddo, Zaddo Holdings, and the Westburgs began to fall apart.  
By the spring of 2006, Park Bank argued that Zaddo had defaulted 
on its loans.  In response, the Westburgs asserted that the 
loans were never in monetary default.  
¶14 As a result of Zaddo's alleged default, the Westburgs, 
as guarantors and on behalf of Zaddo and Zaddo Holdings, 
executed a "Forbearance Agreement" with Park Bank that was dated 
May 11, 2006.  The Westburgs allege that Park Bank pressured 
them into signing the forbearance agreement without adequate 
time to review it and without an opportunity to have an attorney 
review it.   
¶15 In the forbearance agreement, the parties agreed that 
Zaddo's loans were in default, but Park Bank agreed to forbear 
taking any further action on the loans until September 30, 2006.  
In return, the parties agreed that Zaddo would meet certain 
conditions related to its profitability and to staying current 
on its loan obligations.  Additionally, Zaddo was required to 
furnish certain financial information to Park Bank on a regular 
basis and was to comply with its outstanding loan obligations to 
Park Bank and other third-party creditors. 
¶16 According to Park Bank, Zaddo was unable to meet the 
terms of the forbearance agreement.  Zaddo's alleged non-
performance prompted a meeting between the Westburgs and Park 
No. 
2010AP3158   
 
6 
 
Bank on August 30, 2006.  At that meeting, Park Bank informed 
the 
Westburgs 
that 
it 
was 
prepared 
to 
petition 
for 
a 
receivership if Zaddo did not petition for one voluntarily.2  The 
Westburgs argued against petitioning for a receivership.   
¶17 During a break in the August 30 meeting, Roger 
Westburg attempted to withdraw money from the Westburgs' 
personal account with Park Bank.  He discovered that Park Bank 
had put a hold on the account and would not allow him access to 
it.   
¶18 Roger Westburg returned to the meeting and demanded 
access to the personal account.  When the Westburgs advanced 
that Park Bank had no right to freeze their account, Park Bank 
responded that it was entitled to the entire account.   
¶19 The Westburgs allege that Park Bank said it would 
release the hold on the account only if the Westburgs agreed to 
Park Bank's demand that Zaddo enter a receivership.  As a 
result, the Westburgs agreed that Zaddo would petition for a 
receivership under what they described as "extreme duress."   
¶20 Shortly after the August 30, 2006 meeting, the 
Westburgs executed a "Cooperation Agreement" with Park Bank in 
which Park Bank agreed to allow them access to the funds in the 
                                                 
2 Under Chapter 128 of the Wisconsin Statutes, a court may 
"sequestrate the property of a debtor and appoint a receiver" 
under certain conditions.  Wis. Stat. § 128.08(1) (2009-10).  
One such condition is when a corporation "has been dissolved or 
is insolvent or is in imminent danger of insolvency or has 
forfeited its corporate rights."  Id.  A creditor may petition 
for the appointment of a receiver.  Id.   
No. 
2010AP3158   
 
7 
 
personal account. The Cooperation Agreement was executed on 
September 6, 2006, restoring the Westburgs' access to the 
personal account.   
¶21 Zaddo later filed a petition for a receivership and a 
receiver was appointed.  During the receivership, Zaddo's assets 
were liquidated and the receiver made payments to Park Bank.  
The Westburgs did not receive a complete breakdown regarding how 
Park Bank applied different funds from assets that were 
liquidated by the receiver. 
¶22 Park Bank then commenced a foreclosure action against 
Zaddo Holdings on October 19, 2006.  The circuit court granted a 
default judgment against Zaddo Holdings, and the foreclosed 
property was sold at a sheriff's sale.   
¶23 This action against the Westburgs seeking payment 
under the guaranties was commenced by Park Bank following the 
receivership and foreclosure proceedings.  In its complaint, 
Park Bank alleged that when the payments from the receiver were 
applied, the Westburgs owed Park Bank $681,852.05 plus interest 
on the Zaddo guaranty.  Additionally, it alleged that the 
Westburgs owed Park Bank $698,718.17 plus interest on the Zaddo 
Holdings guaranty.   
¶24 As grounds for collection under the Zaddo guaranty, 
Park Bank alleged that Zaddo was in default on its loans for 
failure to make the required payments.  Additionally, Park Bank 
contended that Zaddo's receivership triggered the Westburgs' 
obligations under the Zaddo guaranty.  Regarding the Zaddo 
Holdings guaranty, Park Bank likewise alleged "payment default" 
No. 
2010AP3158   
 
8 
 
and that the Zaddo receivership triggered the Westburgs' 
obligation to pay.  
¶25 In their 
answer, the Westburgs asserted several 
counterclaims against Park Bank.  One such counterclaim alleged 
a breach of fiduciary duty.  In that counterclaim, the Westburgs 
maintained that Park Bank had wrongly denied them access to the 
funds in their personal account.  They also alleged that Park 
Bank forced Zaddo into an unnecessary receivership along with 
several other breaches of fiduciary duty based upon Park Bank's 
conduct toward Zaddo and Zaddo Holdings.   
¶26 In 
a 
counterclaim 
for 
breach 
of 
contract, 
the 
Westburgs further alleged that Park Bank breached its duty of 
good faith and fair dealing when it froze the Westburgs' 
personal account and authorized its release only when the 
Westburgs agreed to Park Bank's demands.  As with their breach 
of fiduciary duty counterclaim, the Westburgs asserted that Park 
Bank breached its duty of good faith and fair dealing by forcing 
Zaddo into a receivership and taking other allegedly unlawful 
actions toward Zaddo in its business dealings.  Additionally, 
the Westburgs alleged several other counterclaims including a 
counterclaim for declaratory judgment and injunctive relief, a 
counterclaim of negligence, and a counterclaim that Park Bank 
breached a duty to disclose. 
¶27 Although the Westburgs' answer did not specify the 
damages they sought for each counterclaim, they later filed an 
itemized list of damages.  They sought damages for the loss of 
their personal investment and loans to Zaddo and Zaddo Holdings, 
No. 
2010AP3158   
 
9 
 
liability resulting from their personal guaranties of Zaddo's 
debt to third-party vendors, and for liability stemming from 
their personal guaranties of Zaddo's corporate credit cards.  
Furthermore, 
the 
Westburgs 
claimed 
damages 
based 
upon 
unreimbursed expenses that they incurred on behalf of Zaddo and 
Zaddo Holdings on their personal credit cards and liability 
stemming from their personal guaranty of sales commissions owed 
by Zaddo.  Finally, they sought damages for lost wages and 
employment benefits from Zaddo and for liability on their 
guaranties of other loan obligations under a separate Small 
Business Administration loan to Zaddo.    
¶28 The Westburgs additionally pled several affirmative 
defenses, including an affirmative defense incorporating the 
Westburgs' counterclaims; a failure by Park Bank to state a 
claim upon which relief can be granted; that Park Bank was 
estopped from asserting its claims by its own conduct; that Park 
Bank breached its contracts with Zaddo, Zaddo Holdings, and the 
Westburgs; 
that 
the 
forbearance 
agreement 
is 
void 
and 
unenforceable having been obtained under duress; that the 
doctrine of laches barred Park Bank's claims; that Park Bank's 
claims were barred by an insufficient service of process; that 
Park Bank failed to mitigate damages; and that Park Bank failed 
to properly marshal assets and remedies.    
¶29 Park Bank moved for summary judgment, arguing that it 
had made a prima facie case with regard to the Westburgs' 
obligations under the guaranties and that the Westburgs' 
counterclaims and affirmative defenses should be dismissed.  The 
No. 
2010AP3158   
 
10 
 
circuit court denied the motion at a hearing, reasoning that 
disputes of material fact precluded the entry of summary 
judgment.  The circuit court indicated that it would address the 
Westburgs' counterclaims and affirmative defenses at a later 
date.   
¶30 Park Bank later renewed its motion for summary 
judgment, 
arguing 
that 
the 
Westburgs' 
counterclaims 
and 
affirmative 
defenses 
must 
be 
dismissed 
because 
they 
are 
derivative and the Westburgs lack standing to raise them.  The 
circuit court held a second hearing to address Park Bank's 
motion.  For each counterclaim, the circuit court concluded that 
the Westburgs alleged an action that belonged to Zaddo.  
However, the circuit court did not grant summary judgment on the 
Westburgs' counterclaim for injunctive and declaratory relief in 
its entirety, but instead dismissed it to the extent that it 
purported to claim injunctive or declaratory relief on behalf of 
Zaddo.  With regard to the remainder of the counterclaims, the 
circuit court granted summary judgment. 
¶31 Turning to the Westburgs' affirmative defenses, the 
circuit court determined that they could "only present defenses 
available to themselves."  The circuit court proceeded to 
analyze each affirmative defense in turn.  It granted summary 
judgment to Park Bank on the Westburgs' affirmative defenses of 
a failure to state a claim, laches, insufficiency of process, 
and failure to marshal assets, concluding that the evidence did 
not support those defenses.    
No. 
2010AP3158   
 
11 
 
¶32 As for the remainder of the Westburgs' affirmative 
defenses, the circuit court determined that if the Westburgs 
could raise defenses that Zaddo could have raised as a matter of 
law, then summary judgment would not be warranted.  The circuit 
court 
canceled 
the 
previously-scheduled trial and ordered 
further briefing from the parties for the purpose of determining 
whether summary judgment was appropriate on any of the remaining 
affirmative defenses.   
¶33 After additional briefing and at a third hearing, the 
circuit court concluded that claim preclusion prevented the 
Westburgs from asserting any defenses which might have been 
raised in the Zaddo Holdings foreclosure action.  However, with 
regard to the remainder of the Westburgs' affirmative defenses, 
the circuit court reasoned that the Westburgs could assert 
defenses that otherwise could have been raised by Zaddo or Zaddo 
Holdings and denied summary judgment.  
¶34 Prior to trial, the case was assigned to another judge 
due to judicial rotation.  The parties again began to dispute 
the issues remaining for trial.  The circuit court permitted 
summary judgment briefing and, in a written decision, granted 
summary judgment to Park Bank on all issues.  It concluded that 
although the "path to this point is convoluted," Park Bank had 
made a prima facie case for summary judgment.  Additionally, the 
circuit court concluded that the affirmative defenses asserted 
by the Westburgs did not raise any issue of material fact. 
¶35 The Westburgs appealed and the court of appeals 
affirmed the circuit court.  Stating that all of the Westburgs' 
No. 
2010AP3158   
 
12 
 
claims "arise out of the alleged injury to Zaddo," the court of 
appeals determined that the Westburgs "raise defenses and claims 
involving alleged harm and damage to Zaddo and/or Zaddo 
Holdings."  Therefore, the court of appeals concluded that the 
Westburgs' counterclaims and affirmative defenses are derivative 
and that they lack standing to raise them in this action.   
II 
¶36 In this case, we are called upon to review the circuit 
court's grant of summary judgment to Park Bank.  We review the 
grant of summary judgment independently of the determinations 
rendered by the circuit court and the court of appeals, but we 
apply the same methodology as the circuit court.  Green Spring 
Farms v. Kersten, 136 Wis. 2d 304, 315-17, 401 N.W.2d 816 
(1987).  Summary judgment is appropriate where there is no 
genuine dispute of material fact and the moving party is 
entitled to judgment as a matter of law.  Wis. Stat. § 802.08(2) 
(2009-10).3 
¶37 The first issue raised on review is whether the 
Westburgs, 
as 
guarantors, 
lack 
standing 
to 
raise 
their 
counterclaims.  In addressing this issue, we also must examine 
the nature of the counterclaims to determine whether they are 
derivative 
of 
the 
corporation. 
 
Issues 
of 
standing 
and 
determinations of whether a counterclaim is derivative present 
questions 
of 
law 
that 
we 
review 
independently 
of 
the 
                                                 
3 All subsequent references to the Wisconsin Statutes refer 
to the 2009-10 version unless otherwise indicated. 
No. 
2010AP3158   
 
13 
 
determinations of the circuit court and the court of appeals.  
Krier v. Vilione, 2009 WI 45, ¶14, 317 Wis. 2d 288, 766 N.W.2d 
517.   
¶38 The second issue we address is whether the Westburgs' 
affirmative defenses defeat Park Bank's claims for payment under 
the guaranties.  Whether an affirmative defense defeats a demand 
for payment under a guaranty contract requires construction of 
the guaranty contract, which presents a question of law that we 
review independently of the determinations rendered by the 
circuit court and the court of appeals.4  Crown Life Ins. Co. v. 
LaBonte, 111 Wis. 2d 26, 32, 330 N.W.2d 201 (1983).      
III 
¶39 We begin our analysis by addressing the Westburgs' 
counterclaims.  Park Bank argues that the Westburgs have no 
standing to allege counterclaims that are derivative because as 
guarantors they may not raise claims that are derivative of the 
corporation.  It contends that the Westburgs' counterclaims are 
derivative in nature.     
                                                 
4 The Westburgs also challenge the court of appeals' 
conclusion that claim preclusion bars them from asserting their 
affirmative defenses.  We do not address their argument, and 
thus do not affirm the reasoning of the court of appeals, 
because we conclude that the circuit court properly granted 
summary judgment to Park Bank on other grounds.   
Furthermore, the Westburgs argue that Park Bank cannot rely 
on what they argue are unpled allegations in a motion for 
summary judgment and in motions in limine.  We likewise do not 
address that argument. 
No. 
2010AP3158   
 
14 
 
¶40 In a derivative action, a shareholder "assumes the 
mantle of the corporation itself to right wrongs committed by 
those temporarily in control" of the corporation.  Roger J. 
Magnuson, 1 Shareholder Litigation § 9:1 (2012).  The purpose of 
a shareholder derivative action is "'to prevent injustice to the 
corporation by 
allowing shareholders to enforce corporate 
interests, 
when 
the 
directors 
refuse 
to 
take 
corrective 
action.'"5  Ewer v. Lake Arrowhead Ass'n, Inc., 2012 WI App 64, 
¶42, 342 Wis. 2d 194, 817 N.W.2d 465 (quoting 13 William Meade 
Fletcher, Fletcher Cyclopedia of the Law of Corporations, § 5949 
(2004)).6   
                                                 
5 The Westburgs in their briefing refer to themselves as 
"shareholders-guarantors," a label that reflects two of their 
several roles as business owners.  In addition to being the sole 
shareholders of Zaddo and the sole members of Zaddo Holdings, 
the Westburgs are also the officers in charge of each business 
entity.  However, as explained in ¶¶45-56, infra, the Westburgs 
appear in this action solely as guarantors, not in their 
capacities as officers, members, or shareholders.   
6 In contrast, a direct action is an action seeking a 
judgment awarding damages to the plaintiff individually due to 
injuries that the plaintiff individually suffered.  Read v. 
Read, 205 Wis. 2d 558, 569-70, 556 N.W.2d 768 (Ct. App. 1996).  
In a direct action the complaining plaintiff individually 
recovers damages.  Roger J. Magnuson, 1 Shareholder Litigation, 
§ 9:1 (2012). 
No. 
2010AP3158   
 
15 
 
¶41 In a shareholder derivative action, the claims belong 
to the corporation, not to the complaining individual.7  Einhorn 
v. Culea, 2000 WI 65, ¶16, 235 Wis. 2d 646, 612 N.W.2d 78.  
Generally, a derivative claim is one that "a corporation could 
bring because the corporation's assets are affected."  Borne v. 
Gonstead Advanced Techniques, Inc., 2003 WI App 135, ¶15, 266 
Wis. 2d 253, 667 N.W.2d 709. 
¶42 In Rose v. Schantz, 56 Wis. 2d 222, 201 N.W.2d 593 
(1972), this court set forth the general framework to evaluate 
whether a claim is direct, derivative, or both.  Under Rose, the 
"[r]ights of action accruing to a corporation belong to the 
corporation, and an action at law or in equity, cannot be 
maintained" by the complaining individual in a direct action.  
Id. at 229 (quoting Marshfield Clinic v. Doege, 269 Wis. 519, 
526, 69 N.W.2d 558 (1955)).  The focus of the inquiry is 
"[w]hose right is sought to be enforced" by the individual's 
direct action.  Id.   
                                                 
7 Shareholder derivative actions often involve minority 
shareholders 
seeking 
to 
remedy 
alleged 
mismanagement 
or 
malfeasance by officers or directors of a corporation.  See, 
e.g., Read, 205 Wis. 2d at 569 (alleging controlling directors 
mismanaged a corporation); Notz v. Everett Smith Group, Ltd., 
2009 WI 30, ¶23, 316 Wis. 2d 640, 764 N.W.2d 904 (determining 
that a breach of fiduciary duty claim is derivative based on a 
lost corporate opportunity).  However, shareholder derivative 
actions may also arise where officers or directors have not 
injured the corporation but instead refuse to adequately advance 
the corporation's interests.  See Ewer v. Lake Arrowhead Ass'n, 
Inc., 2012 WI App 64, ¶42, 342 Wis. 2d 194, 817 N.W.2d 465 
(quoting 13 William Meade Fletcher, Fletcher Cyclopedia of the 
Law of Corporations, § 5949 (2004)). 
No. 
2010AP3158   
 
16 
 
¶43 The Rose court determined that where the injury to the 
corporation is 
the 
primary injury and any injury to a 
shareholder is secondary, the shareholder may not bring a direct 
action, and is instead limited to commencing a derivative 
action: 
That such primary and direct injury to a corporation 
may have a subsequent impact on the value of the 
stockholders' shares is clear, but that is not enough 
to create a right to bring a direct, rather than 
derivative, 
action. 
Where 
the 
injury 
to 
the 
corporation is the primary injury, and any injury to 
stockholders secondary, it is the derivative action 
alone that can be brought and maintained. That is the 
general rule, and, if it were to be abandoned, there 
would be no reason left for the concept of derivative 
actions for the redress of wrongs to a corporation. 
Id. at 229-30.  Thus, where an individual's injury results 
from the corporation's injury, the resulting claim is derivative 
and the individual lacks standing to raise it in a direct 
action.  See also Notz v. Everett Smith Group, Ltd., 2009 WI 30, 
¶20, 316 Wis. 2d 640, 764 N.W.2d 904. 
¶44 Although the Rose court did not address whether the 
same course of conduct may give rise to both direct and 
derivative claims, it is well established that where the injury 
and damages are independent, both a direct action and a 
shareholder derivative action may be commenced.  An individual 
"may sue to redress direct injuries to him or herself regardless 
of whether the same violation injured the corporation."  12B 
William Meade Fletcher, Fletcher Cyclopedia of the Law of 
Corporations, § 5911 (perm.ed., rev.vol.2009).  Case law further 
indicates that in a direct action the individual may not claim 
No. 
2010AP3158   
 
17 
 
damages sustained by the corporation or damages that the 
corporation could have sought in its own capacity.  Buschmann v. 
Professional Men's Ass'n, 405 F.2d 659, 663 (7th Cir. 1969) 
(concluding that a direct claim existed where the plaintiff 
sought damages "which he sustained individually" that were not 
sustained by the corporation and could not have been asserted by 
the corporation in its own right).         
¶45 However, examining the differences between direct 
claims, derivative claims, or claims that are both direct and 
derivative does not fully resolve our inquiry into whether the 
Westburgs as guarantors have standing to raise derivative 
counterclaims.  Whether a guarantor may raise derivative claims 
individually in an action seeking payment under a guaranty is a 
question not previously addressed by Wisconsin courts.  The 
court of appeals analogized the present case to Mid-State 
Fertilizer Co. v. Exchange Nat'l Bank of Chicago, 877 F.2d 1333 
(7th Cir. 1989).  It found Mid-State's rationale persuasive, and 
we likewise agree that it is persuasive. 
¶46 In Mid-State, a bank loaned money to a corporation and 
also 
obtained 
guaranties 
from 
the 
corporation's 
sole 
shareholders, Lasley and Maxine Kimmel.  Id. at 1334.  The 
corporation proceeded to lose money.  Id.  When the bank stopped 
making additional advances to the corporation, the corporation 
was unable to secure additional financing and was liquidated in 
bankruptcy.  Id.  The corporation and the Kimmels commenced an 
action against the bank, alleging several claims which included 
No. 
2010AP3158   
 
18 
 
violations of federal banking laws and violations of the 
Racketeer Influenced and Corrupt Organizations Act (RICO).  Id.   
¶47 The Mid-State court recognized that there are "good 
reasons . . . for the enduring distinction between direct and 
derivative injury," even when applied to guarantors.  Id. at 
1335.  To avoid "double counting," courts must either attempt to 
apportion the recovery according to who bears the effects, or 
insist that the corporation recover and allow creditors, 
shareholders, officers, and all others involved in the corporate 
venture to "share any recovery according to the same rules that 
govern all receipts."  Id. at 1336.  Divvying up the recovery 
"would be a nightmare," and is an unnecessary task when 
"recovery by the firm handles everything automatically."  Id.  
Additionally, requiring shareholder derivative actions prevents 
"efforts to divert the debtor's assets-to pay off one set of 
creditors . . . while keeping the proceeds out of the hands of 
the firm's other creditors."  Id.  
¶48 Rejecting 
the 
premise 
that 
guarantors 
are 
any 
different from "shareholders, creditors, managers, lessors, 
suppliers, and the like," the Mid-State court determined that 
guarantors "cannot recover on account of injury done [to] the 
corporation."  Id.  It would be "extreme" to allow "anyone who 
has dealt with a bank as guarantor [to] recover for derivative 
injuries."  Id.  Only where a guarantor suffers direct injury, 
which the Mid-State court emphasized is an "injury independent 
of the firm's fate," may the guarantor pursue direct remedies.  
Id. at 1336-37. 
No. 
2010AP3158   
 
19 
 
¶49 In Labovitz v. Washington Times Corp., 172 F.3d 897 
(D.C. Cir. 1999), the Court of Appeals for the District of 
Columbia Circuit agreed that Mid-State presented persuasive 
authority for determining whether guarantors have standing to 
raise derivative claims.  In that case, two guarantors of a 
corporation alleged several claims, which included a claim that 
the Washington Times Corporation failed to fully fund the 
corporation as it had promised.8  Id. at 901-02.  The failure to 
fund 
the 
corporation 
allegedly 
triggered 
the 
guarantors' 
obligations.  Id. at 901-02.  Agreeing with the Mid-State 
court's conclusion that guarantors may not advance derivative 
claims, the Labovitz court determined that the failure to fully 
fund the corporation was derivative.  Id. at 903. 
¶50 Both Mid-State and Labovitz recognize that guarantors 
are treated no differently from creditors in determining whether 
the guarantor may bring a derivative action.  877 F.2d at 1336; 
172 F.3d at 898.  Therefore, their conclusions accord with the 
general principle that "creditors may not maintain a derivative 
                                                 
8 The 
guarantors 
in 
Labovitz 
were 
also 
shareholders, 
directors, and officers of the corporation that they guaranteed.  
Labovitz v. Washington Times Corp., 172 F.3d 897, 898 (D.C. Cir. 
1999).   
No. 
2010AP3158   
 
20 
 
proceeding."9  13 William Meade Fletcher, Fletcher Cyclopedia of 
the Law of Corporations, § 5972.20 (2004).     
¶51 Accordingly, we conclude that a guarantor lacks 
standing to raise derivative claims.  Having arrived at that 
                                                 
9 The concurrence states that "our decisions...specifically 
provide that only a shareholder or beneficial owner has standing 
to bring a derivative claim."  Concurring op., ¶83.  In support 
of that premise, the concurrence focuses on Krier v. Vilione, 
2009 WI 45, ¶29, 317 Wis. 2d 288, 766 N.W.2d 517 and also 
references Borne v. Gonstead Advanced Techniques, Inc., 2003 WI 
App 135, 266 Wis. 2d 253, 667 N.W.2d 709 and Shelstad v. Cook, 
77 Wis. 2d 547, 253 N.W.2d 517 (1977).  Not one of those cases 
involved a guarantor. 
The concurrence is alone in its interpretation.  No one in 
this case, not the circuit court, the court of appeals, the 
amicus (the Wisconsin Bankers Association) or even the parties, 
advances the concurrence's interpretation of those cases.   
Likewise, neither the Wisconsin Bankers Association, the 
circuit court, the court of appeals, nor Park Bank shares the 
concurrence's interpretation of Mid-State Fertilizer Co. v. 
Exchange Nat'l Bank of Chicago, 877 F.2d 1333 (7th Cir. 1989).  
Park Bank, unpublished slip op. 
The concurrence asserts that Mid-State "has nothing to do 
with whether a guarantor has standing to bring a derivative 
claim" in Wisconsin.  Concurring op., ¶88.  In stark contrast to 
the concurrence's interpretation of Mid-State, the Wisconsin 
Bankers Association advances that the reasoning of Mid-State 
establishes that in this case, "[t]he guarantors lack standing 
to 
raise 
[derivative] 
claims 
and 
defenses 
against 
the 
bank . . . ." 
Likewise, the circuit court and the court of appeals 
disagree with the concurrence's interpretation of Mid-State.  
Both courts relied on Mid-State in arriving at their conclusions 
that guarantors lack standing to bring a derivative claim.  
Finally, Park Bank extensively quoted Mid-State in its brief, 
arguing that it requires this court to conclude that "the 
Westburgs [lack] standing to pursue [their] derivative claims." 
No. 
2010AP3158   
 
21 
 
conclusion, we turn next to evaluate whether the counterclaims 
alleged by the Westburgs as guarantors are derivative.   
¶52 With the exception of their claim that Park Bank 
unlawfully denied them access to their personal account, each of 
the Westburgs' counterclaims is derivative.  The Westburgs' 
alleged injuries are secondary to those of Zaddo, arising as a 
result of Park Bank's conduct toward Zaddo before, during, and 
after Zaddo entered receivership.  Zaddo was primarily injured 
by allegedly being forced into receivership and any alleged 
resulting injury to the Westburgs occurred as a result of 
Zaddo's alleged injury.  Under Rose and subsequent case law, 
those counterclaims are considered derivative.  56 Wis. 2d at 
229. 
¶53 Furthermore, 
there 
is 
no 
indication 
that 
those 
counterclaims are both direct and derivative.  The Westburgs' 
injuries, with the exception of Park Bank denying them access to 
their personal account, arise as a result of Zaddo's injuries, 
not independently of Zaddo's injuries.  Therefore, the Westburgs 
do not have standing in the context of this action to assert 
their derivative counterclaims.   
¶54 The sole counterclaim alleged by the Westburgs that is 
arguably direct is the claim that Park Bank unlawfully denied 
the Westburgs access to their personal account.  However, even 
if Park Bank unlawfully had denied access to the personal 
account, Park Bank is still entitled to summary judgment on that 
counterclaim because the Westburgs claim damages based upon 
their investment losses to Zaddo and not based upon Park Bank's 
No. 
2010AP3158   
 
22 
 
denial of access to their personal account.10  Each and every 
category of damages claimed by the Westburgs arises from their 
losses as guarantors, investors, and officers of Zaddo.11   
¶55 The Westburgs were ultimately denied access to their 
personal account for approximately seven or eight days, from the 
August 30, 2006 meeting through when the Cooperation Agreement 
was executed on September 6, 2006.  Any damages alleged must 
arise from a lack of access to the account during that time 
period.  Like the court of appeals, we conclude that none of the 
alleged damages has any connection with Park Bank denying the 
                                                 
10 The guaranties grant to Park Bank "a security interest 
and lien in any deposit account" that the Westburgs may have 
with Park Bank.  Under the guaranties, Park Bank may "after the 
occurrence of an event of default" set-off any unpaid amounts 
owed "against any deposit balances...or other money now or 
hereafter owed [the Westburgs] by [Park Bank]."  Furthermore, 
the guaranties in this case provide that the Westburgs have 
waived "all...legal and equitable surety defenses."   
Although we need not examine the exact scope of the 
security interest granted to Park Bank by the guaranties or the 
Westburgs' waiver of all legal and equitable surety defenses, we 
observe 
that 
those 
provisions 
of 
the 
guaranties 
further 
strengthen our conclusion that they may not raise their 
counterclaims in this action. 
11 The Westburgs claim as damages losses on personal 
investments to Zaddo, losses resulting from personal guaranties 
of Zaddo's debt to third-party vendors, losses resulting from 
Zaddo corporate credit card debts, losses from personally 
guaranteed sales commissions owed by Zaddo, losses resulting 
from Zaddo's failure to reimburse their personal credit cards, 
liability on Small Business Administration loan guaranties of 
Zaddo, and lost wages and benefits from Zaddo.   
No. 
2010AP3158   
 
23 
 
Westburgs access to a personal account from August 30, 2006 
until September 6, 2006.12  
¶56 The Westburgs in other circumstances may have raised 
derivative claims as shareholders.  See Wis. Stat. § 180.0741.  
However, in order to commence or maintain a shareholder 
derivative action, they must comply with certain statutory 
requirements. 
 
See 
Wis. 
Stat. 
§ 
180.0741 
(allowing 
a 
"shareholder or beneficial owner" to commence or maintain a 
shareholder derivative action if the "shareholder or beneficial 
owner" meets certain conditions); see also Wis. Stat. § 180.0742 
(setting forth additional limitations for when a shareholder 
derivative action may be commenced); Wis. Stat. § 180.0744 
(requiring a court to dismiss a derivative proceeding under 
certain circumstances).  No argument is advanced by the parties 
that the statutory prerequisites for a derivative action were 
met in this case.  Therefore, we conclude that summary judgment 
dismissing all of the Westburgs' counterclaims is appropriate. 
IV 
¶57 Having addressed the Westburgs' counterclaims, we 
address next the Westburgs' affirmative defenses.  Although the 
                                                 
12 In addressing Park Bank's denial of access to the 
personal account, the court of appeals concluded as follows: 
While the Westburgs may have suffered individual 
duress when Park Bank denied them access to their 
personal money market accounts, the Westburgs do not 
allege any resulting monetary injury because the bank 
did eventually return the funds. 
Park Bank, unpublished slip op., ¶17 n.11. 
No. 
2010AP3158   
 
24 
 
parties primarily address the affirmative defenses in their 
arguments for and against the application of claim preclusion in 
this case, we do not reach their claim preclusion arguments.  
Instead, we examine the Westburgs' affirmative defenses to 
determine whether they defeat Park Bank's demand for payment 
under the guaranties.   
¶58 The guaranties in this case are guaranties of payment.  
The guaranties provide that payment is required "when due or, to 
the extent not prohibited by law, at the time any Debtor becomes 
the subject of bankruptcy or other insolvency proceedings."   
¶59 Guaranties 
of 
payment 
are 
different 
from 
other 
guaranties such as guaranties of collection.  A guaranty of 
payment binds the guarantor to pay the debt according to the 
terms and conditions of the guaranty.  Jack Levin, 38 Am. Jur. 
2d Guaranty § 16 (2012).  In contrast, a guaranty of collection 
is a promise that if the principal creditor cannot collect the 
claim with due diligence, generally following suit against the 
principal debtor, the guarantor will pay the creditor.  Id.   
¶60 Unlike a guaranty of collection, a guaranty of payment 
does not condition liability upon the creditor exhausting 
remedies against the debtor.  Id.  A creditor is under no 
obligation to first seek collection from the principal debtor or 
any other guarantor under a guaranty of payment.  Bank of Sun 
Prairie v. Opstein, 86 Wis. 2d 669, 677, 273 N.W.2d 279 (1979) 
(quoting First Wis. Nat'l Bank of Oshkosh v. Kramer, 74 Wis. 2d 
207, 211-12, 246 N.W.2d 536 (1976)).  The law similarly imposes 
no duty upon the creditor to notify the guarantor of nonpayment 
No. 
2010AP3158   
 
25 
 
of the note by the principal debtor.  Farmers State Bank v. 
Hansen, 174 Wis. 100, 103, 182 N.W.2d 944 (1921).      
¶61 This court has recognized that affirmative defenses to 
a guaranty may be limited in scope depending on specific 
obligations imposed by the guaranty.  In Continental Bank & 
Trust v. Akwa, 58 Wis. 2d 376, 206 N.W.2d 174 (1973), this court 
acknowledged that some affirmative defenses must be raised in a 
proceeding seeking payment of the underlying debts rather than 
by a guarantor in a proceeding seeking payment under the 
guaranty.  In response to an affirmative defense that a bank was 
not the holder of the underlying debts in an action upon a 
guaranty under the Uniform Commercial Code, this court stated: 
While the affirmative defenses, as asserted by the 
defendants, concerning the possession, transfer and 
cancellation of the notes, may be fatal to plaintiff's 
cause of action, if he were proceeding upon the 
instruments, 
they 
are 
not 
necessarily 
fatal 
to 
plaintiff's cause of action upon its separate and 
independent contract of guaranty with the defendants. 
Id. at 387.  Instead, this court emphasized that satisfaction in 
full of the underlying indebtedness generally constitutes a 
defense in an action upon a guaranty.  Id. at 389-90.  A 
creditor is entitled to "but one performance, and if he receives 
that, by payment or other satisfaction, the [guaranty] is 
discharged."  Id. at 389.  Alternatively, release of the 
principal debtor from the underlying debt is normally also a 
defense in a guaranty action because "release of the principal 
also releases the [guarantor]."  Id. at 390.    
No. 
2010AP3158   
 
26 
 
 
¶62 However, the Akwa court identified two exceptions to 
the defense of releasing the principal debtor: "[w]here the 
creditor releases a principal [debtor], the [guarantor] is 
discharged unless the creditor in the release reserves his 
rights against the [guarantor] or the [guarantor] consents to 
remain liable notwithstanding the release."  Id. at 392.  
Accordingly, the defenses available to a guarantor are grounded 
in the specific terms and conditions of the guaranty contract.  
Id. at 387-90; see also Crown Life Ins. Co. v. LaBonte, 111 
Wis. 2d 26, 43, 330 N.W.2d 201 (1983); Lakeshore Commercial 
Finance Corp. v. Drobac, 107 Wis. 2d 445, 454, 319 N.W.2d 839 
(1982).13 
¶63 
The 
Westburgs 
must 
therefore 
assert 
affirmative 
defenses that defeat Park Bank's demands for payment under the 
guaranties in this case.  In order to demand payment under the 
guaranties, Park Bank need show only that payment is due or that 
any debtor has become the subject of a bankruptcy or insolvency 
proceeding.  Accordingly, the Westburgs' defenses must logically 
                                                 
13 Additional or differing defenses to a guaranty may exist 
depending on the specific terms and conditions of the guaranty 
contract.  As the Restatement (Third) of Suretyship and Guaranty 
notes, there is probably no area of guaranty law in which there 
is less consensus than the law of guaranty defenses.  Rules 
"vary from jurisdiction to jurisdiction, from context to 
context, and from common law to the Uniform Commercial Code."  
Restatement (Third) of Suretyship and Guarantee, Ch. 3, Topic 3, 
Title B, Introductory Note (1995). 
No. 
2010AP3158   
 
27 
 
address whether payment is due or whether a debtor has become 
the subject of a bankruptcy or insolvency proceeding.14  
¶64 In pleading their affirmative defenses, the Westburgs 
do not assert that payment is not due or that Zaddo was not the 
subject of a bankruptcy or insolvency proceeding.  Rather, they 
assert defenses that address whether Zaddo and Zaddo Holdings 
are in default on their debts.  Park Bank need not re-litigate 
the previous proceedings in order to demand payment under the 
guaranties.  Instead, it must show only that payment is due or 
that a debtor was the subject of a bankruptcy or insolvency 
proceeding.   
¶65 An examination of the summary judgment record shows 
that Park Bank has made the required showing.  The Westburgs do 
not challenge that Zaddo became the subject of an insolvency 
proceeding when it petitioned for a receivership.  Park Bank has 
additionally set forth in its summary judgment materials the 
amounts due and payable both from Zaddo and Zaddo Holdings that 
result from Zaddo entering the insolvency proceeding. 
¶66 Therefore, we conclude that the Westburgs' affirmative 
defenses do not defeat Park Bank's prima facie case for summary 
                                                 
14 The Westburgs' affirmative defenses appear to confuse 
their 
responsibilities 
under 
the 
guaranties 
with 
Zaddo's 
defenses to an allegation that it has defaulted upon its debts.  
The liability of a guarantor arises not from a debt incurred by 
a debtor, but rather from a separate guaranty contract.  Bank 
Mut. v. S.J. Boyer Const., Inc., 2010 WI 74, ¶53, 326 Wis. 2d 
521, 785 N.W.2d 462.  A guarantor's liability is "separate and 
distinct" from the liability of the principal debtor.  Id. at 
54. 
No. 
2010AP3158   
 
28 
 
judgment.  Because the Westburgs have failed to raise any 
genuine issue of material fact showing that payment is not due 
or that Zaddo was not the subject of an insolvency proceeding, 
the circuit court correctly granted summary judgment to Park 
Bank. 
V 
¶67 In sum, we conclude that Park Bank is entitled to 
summary judgment dismissing all of the Westburgs' counterclaims.  
With the exception of their claim of injuries arising from Park 
Bank's denial of access to their personal account, each of the 
Westburgs' 
counterclaims 
is 
derivative. 
 
Because 
the 
counterclaims are derivative, the Westburgs have no standing to 
raise them given that they appear in this action as guarantors.  
Even if the Westburgs' remaining claim of injuries arising from 
Park Bank's denial of access to their personal account would be 
determined to be a direct claim, summary judgment dismissing the 
claim is appropriate because their alleged damages do not arise 
from Park Bank's denial of access.  
¶68 We need not address whether claim preclusion bars the 
Westburgs' affirmative defenses because we determine that the 
affirmative defenses do not defeat Park Bank's demand under the 
guaranties for payment.   
¶69 Finally, we conclude that Park Bank has made a prima 
facie case for summary judgment.  Because the Westburgs have 
failed to raise any genuine issue of material fact showing that 
payment is not due or that any debtor was not the subject of an 
insolvency proceeding, the circuit court correctly granted 
No. 
2010AP3158   
 
29 
 
summary judgment to Park Bank on its claims for payment.  
Accordingly, we affirm the court of appeals. 
 
By the Court.—The decision of the court of appeals is 
affirmed. 
 
No.  2010AP3158.pdr 
 
1 
 
 
¶70 PATIENCE DRAKE ROGGENSACK, J. (concurring).   I write 
separately to point out two fundamental principles:  (1) the 
rights and obligations of guarantors are established by the 
guaranty contract, under which the guarantor and the creditor 
for whose benefit the guaranty was given operate; and (2) the 
majority opinion affirms that only a shareholder or beneficial 
owner has standing to bring a derivative claim under Wisconsin 
corporate law.1   
¶71 I 
agree 
with 
the 
majority 
opinion 
that 
all 
counterclaims and affirmative defenses raised herein, except 
one, are derivative and therefore, they cannot be brought in 
this action.  However, because in some of its discussion, the 
majority 
opinion 
could 
be 
read 
erroneously 
to 
equate 
shareholders' rights and obligations with those of guarantors, I 
do not join the majority opinion, but respectfully concur.   
I.  BACKGROUND 
¶72 Park Bank's claims in this action against Roger 
Westburg and Sandra Westburg (hereinafter, the Westburgs) are 
based on the continuing guaranties the Westburgs signed on 
January 28, 2005, for the business loans that Park Bank made to 
Zaddo, Inc. and Zaddo Holdings.2  The terms of the two guaranties 
are identical, with the exception of the named debtors.   
                                                 
1 Majority op., ¶¶3, 67. 
2 Litigation arising from these business loans has occurred 
in a Wis. Stat. ch. 128 receivership, in which the assets of 
Zaddo, Inc. were liquidated, and a foreclosure action, in which 
the assets of Zaddo Holdings were sold.   
No.  2010AP3158.pdr 
 
2 
 
¶73 The Westburgs defend against Park Bank's enforcement 
of the guaranties by affirmative defenses and counterclaims.  
With one exception, the affirmative defenses and counterclaims 
alleged are derivative of underlying injuries to a corporation, 
which only the corporation or a person who has statutory 
standing may raise.3  See Rose v. Schantz, 56 Wis. 2d 222, 229, 
201 N.W.2d 593 (1972).  Although the Westburgs are shareholders 
who may have had standing to bring derivative claims, they did 
not follow the statutory requirements to do so; therefore, they 
cannot raise them in this lawsuit.4  See Read v. Read, 205 
Wis. 2d 558, 565, 556 N.W.2d 768 (Ct. App. 1996) (explaining 
that in order to have standing to bring a derivative claim, a 
litigant must meet the test set out in Wis. Stat. § 180.0741). 
¶74 The one claim for which the Westburgs allege direct 
injury to them is Park Bank's freezing their personal money-
                                                 
3 Wisconsin Stat. § 180.0741 provides that a "shareholder or 
beneficial owner" may have standing to bring derivative claims 
of damage to a corporation, and then only if the shareholder or 
beneficial 
owner 
meets 
certain 
statutory 
requirements.  
Wisconsin Stat. § 180.0740(1) defines "beneficial owner" as "a 
person whose shares are held in a voting trust or held by a 
nominee on the person's behalf."   
4 Wisconsin Stat. § 180.0741 through Wis. Stat. § 180.0744 
set out requirements that must be met in order to bring a 
derivative claim.  See Read v. Read, 205 Wis. 2d 558, 565, 556 
N.W.2d 768 (Ct. App. 1996).  The Westburgs did not meet those 
statutory 
requirements 
and 
therefore, 
they 
cannot 
raise 
counterclaims or affirmative defenses that rest on injury to the 
corporations. 
No.  2010AP3158.pdr 
 
3 
 
market account on August 30, 2006.5  That claim is based on the 
Westburgs' assertion that the funds in their personal money-
market account were not subject to any security or credit 
agreement.6  They allege that freezing that account damaged them 
because it was their sole source of funds for living expenses, 
as they were not drawing a salary from Zaddo.  The Westburgs 
alleged that access to their personal account was denied until 
they agreed to place Zaddo, Inc. into a ch. 128 receivership.  
On September 7, 2006, the Westburgs placed Zaddo, Inc. into 
receivership.   
II.  DISCUSSION 
A.  Standard of Review 
¶75 Whether the facts alleged in a complaint state a claim 
for relief that is based on an injury that is primarily to a 
corporation or whether the claimed injury is primarily a direct 
injury to another person are questions of law that we review 
independently.  Borne v. Gonstead Advanced Techniques, Inc., 
2003 WI App 135, ¶10, 266 Wis. 2d 253, 677 N.W.2d 709.  The 
scope of a guarantor's liability under a written guaranty 
contract presents a question of law also subject to our 
                                                 
5 The Westburgs allege that their money-market account was 
frozen "prior to" August 15, 2006.  See Counterclaims, ¶34.  
Park Bank denies this allegation, but admits that it did freeze 
the account on August 30, 2006.  See Reply to Counterclaims, 
¶¶34, 38.  I have chosen to use the August 30 date because there 
is agreement that the Westburgs were denied access to their 
money-market account on August 30, 2006. 
6 Counterclaim, ¶48.a.  
No.  2010AP3158.pdr 
 
4 
 
independent review.  See Cont'l Bank & Trust Co. v. Akwa, 58 
Wis. 2d 376, 388, 206 N.W.2d 174 (1973).   
B.  The Westburgs' Claims 
¶76 When an act that is alleged to have caused injury to a 
corporation is alleged also to have caused an injury to another 
person, we must determine whether the alleged injury to the 
other person is direct or merely derivative of the injury to the 
corporation.  Rose, 56 Wis. 2d at 229.  "Where the injury to the 
corporation 
is 
the 
primary 
injury, 
and 
any 
injury 
to 
stockholders secondary, it is the derivative action alone that 
can be brought and maintained."  Id.  Stated otherwise, to raise 
a direct claim of injury, the right sought to be enforced must 
be that of the person seeking to enforce it and not dependent on 
a right of a corporation.  Id.   
¶77 There are occasions where the separate right of a 
corporation and the separate right of another person are both 
wrongfully affected by one act.  See Harpole Architects, P.C. v. 
Barlow, 668 F. Supp. 2d 68, 77-78 (D.C. 2009) (explaining that 
where conversion by former bookkeeper was an injury to the 
corporation, bookkeeper's misrepresentation, which was made to 
hide the conversion of corporate funds, caused a separate injury 
to Harpole).  Claims raised as affirmative defenses are subject 
to the same analysis of whether the defense belongs primarily to 
the corporation or is based on a separate and distinct right of 
the person who is asserting it.   
¶78 In the case at hand, I agree with the majority opinion 
that the only right to which injury is claimed that does not 
No.  2010AP3158.pdr 
 
5 
 
depend on an underlying injury to a corporation is the temporary 
freezing of the Westburgs' personal money-market account by Park 
Bank.7   
C.  Guaranty Principles 
¶79 The rights and obligations of a guarantor are separate 
and distinct from those of the debtor, as the guarantor's 
obligations arise from the terms of the guaranty contract.  Bank 
Mut. v. S.J. Boyer Constr., Inc., 2010 WI 74, ¶54, 326 Wis. 2d 
521, 785 N.W.2d 462 (explaining that a guarantor's rights and 
obligations are set by contract).  One may guarantee the debts 
of an individual, as well as the debts of a corporation.  The 
legal principles that apply to a guarantor's rights and 
obligations are based on the terms of the guaranty contract, not 
on the nature of the debtor.  See  McFarland State Bank v. 
Sherry, 2011 WI App 4, ¶1, 338 Wis. 2d 462, 809 N.W.2d 58.   
¶80 Under 
the 
facts 
of 
this 
case, 
the 
Westburgs' 
obligations 
under 
the 
guaranty 
contract 
do 
not 
involve 
consideration of their status as shareholders.8  Rather, in this 
action, it is the terms of the guaranty contract upon which the 
validity of Park Bank's actions and the Westburgs' counterclaims 
depend.  Bank Mut., 326 Wis. 2d 521, ¶54.   
                                                 
7 Majority op., ¶¶54-55. 
8 The significant legal question that escapes review under 
the facts of this case is:  whether the Westburgs could have 
relied on a judgment from a successful derivative claim as a 
defense to Park Bank's claims under the guaranty contracts.  
Because the Westburgs did not follow the statutory requirements 
for bringing a derivative claim, we cannot address this 
question.  
No.  2010AP3158.pdr 
 
6 
 
¶81 The guaranty the Westburgs signed is a guaranty of 
payment.9  Under a guaranty of payment, when the debtor is in 
default, the creditor is entitled to enforce collection from the 
guarantor without first seeking collection from other sources.  
Bank of Sun Prairie v. Opstein, 86 Wis. 2d 669, 677-78, 273 
N.W.2d 279 (1979).  Stated otherwise, a guaranty of payment is a 
primary, not a collateral, promise to pay when the debtor 
defaults.  Id. at 678.  No efforts to collect on other security 
are necessary before a creditor may enforce a guaranty of 
payment against a guarantor.  First Wis. Nat'l Bank of Oshkosh 
v. Kramer, 74 Wis. 2d 207, 212, 246 N.W.2d 536 (1976).   
¶82 However, a creditor is not permitted to recover from a 
guarantor for more than the total debt due.  Cont'l Bank, 58 
Wis. 2d at 389.  Therefore, a guarantor of payment is entitled 
to an offset from the debt owed by the debtor for the amount 
that the creditor has obtained from other sources.  See 
McFarland State Bank, 338 Wis. 2d 462, ¶31. 
¶83 The majority opinion imprecisely states the law when 
it 
combines 
principles 
for 
determining 
who 
may 
bring 
a 
derivative claim with the rights and obligations of a guarantor.  
For example, it posits that "Whether a guarantor may raise 
derivative claims individually in an action seeking payment 
under a guaranty is a question not previously addressed by 
Wisconsin courts."10  However, our decisions, as well as 
                                                 
9 The majority opinion also concludes that the guaranty the 
Westburgs signed is a guaranty of payment.  Majority op., ¶58.   
10 Majority op., ¶45. 
No.  2010AP3158.pdr 
 
7 
 
Wisconsin Statutes, specifically provide that only a shareholder 
or a beneficial owner has standing to bring a derivative claim.  
Krier v. Vilione, 2009 WI 45, ¶29, 317 Wis. 2d 288, 766 N.W.2d 
517 (explaining that Krier could not sue on behalf of EOG 
Environmental because Krier was not a shareholder and therefore, 
"lacks standing" to bring a derivative suit); Borne, 266 Wis. 2d 
253, ¶15 (stating that "[t]he failure to plead that one was a 
registered shareholder requires the dismissal of derivative 
claims"); Shelstad v. Cook, 77 Wis. 2d 547, 554, 253 N.W.2d 517 
(1977) (explaining that "[p]laintiff's special relation to the 
corporation as a stockholder is intrinsic to the very nature of 
the [derivative claim] and thus a prerequisite to plaintiff's 
standing to pursue it"); see also Wis. Stat. § 180.0741.   
¶84 Furthermore, when one is either a shareholder or a 
beneficial owner, a derivative claim may be brought only when 
the specific requirements set out in the statutes have been met.  
Read, 205 Wis. 2d at 565; see also Wis. Stat. §§ 180.0741-.0744 
(setting out those requirements).  Stated otherwise, unless a 
person or entity has the status of shareholder or beneficial 
owner, Wisconsin case law and statutes preclude standing to 
bring derivative claims.  Krier, 317 Wis. 2d 288, ¶¶18, 29; 
Borne, 266 Wis. 2d 253, ¶15;  Read, 205 Wis. 2d at 565; 
Shelstad, 77 Wis. 2d at 554; § 180.0741.   
¶85 The majority opinion's use of Mid-State Fertilizer Co. 
v. Exch. Nat'l Bank of Chi. (Mid-State II), 877 F.2d 1333 (7th 
Cir. 1989), is interesting and merits comment for a number of 
reasons.  First, in Mid-State II, the corporation that was 
No.  2010AP3158.pdr 
 
8 
 
alleged to have suffered injury from Exchange National Bank's 
actions was a plaintiff and therefore, it proceeded on seven 
counts alleging injury to itself.  Mid-State Fertilizer Co. v. 
Exch. Nat'l Bank of Chi. (Mid-State I), 693 F.Supp. 666, 669 
(N.D. Ill. 1988).  Second, the non-corporate plaintiffs, Lasley 
and Maxine Kimmel, sued as both shareholders and as guarantors.  
Id. at 668.  Third, the standing question in Mid-State II turned 
on federal statutes that comprise the Bank Holding Company Act 
(BHCA) and the Racketeer Influenced Corrupt Organizations Act 
(RICO), which accorded standing to "[a]ny person who is injured 
in his business or property by reason of anything forbidden 
[under the acts]."  Mid-State II, 877 F.2d at 1334-35 (citing 12 
U.S.C § 1975 and 18 U.S.C § 1964(c)).11   
¶86 Only direct injuries are sufficient to afford standing 
to sue under BHCA or RICO.  Id. at 1335.  Accordingly, the 
Kimmels were required to show a direct injury; a derivative 
injury was insufficient to establish federal standing to bring a 
claim under either BHCA or RICO.  Id.  
¶87 Therefore, the question presented in Mid-State II was 
not whether a guarantor could bring a derivative claim.  Rather, 
the question presented in Mid-State II was whether the Kimmels 
had pled a direct or a derivative injury.  Id. at 1335.  The 
                                                 
11 The plaintiffs' principal grievances were controlled by 
Illinois law.  Mid-State Fertilizer Co. v. Exch. Nat'l Bank of 
Chi. (Mid-State II), 877 F.2d 1333, 1334 (7th Cir. 1989).  The 
court addressed the standing question to determine whether there 
was federal jurisdiction for the pendent state law claims.  Id. 
at 1334-35.  
No.  2010AP3158.pdr 
 
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court reasoned that shareholders' and guarantors' injuries were 
derivative because "[s]uits by shareholders, guarantors, and the 
like may well be efforts to divert the debtor's assets——to pay 
off one set of creditors (here, the Kimmels) while keeping the 
proceeds out of the hands of the firm's other creditors."  Id. 
at 1336.  Accordingly, because the court concluded that the 
Kimmels pled only derivative injury, they did not have standing 
to proceed on their federal claims.  Id.   
¶88 The reasoning in Mid-State II supports a guarantor's 
standing to proceed on a federal claim under BHCA or RICO if the 
guarantor can show a direct, rather than a derivative injury.  
Id. at 1336 ("Guarantors must be treated as creditors.  When 
they suffer direct injury——injury independent of the firm's 
fate——they may pursue their own remedies").  Likewise in 
Wisconsin, if a guarantor has a direct injury, the guarantor 
owns the claim and may proceed on it.12  However, Mid-State II 
has nothing to do with whether a guarantor has standing to bring 
a derivative claim grounded in Wisconsin law.   
¶89 Wisconsin Statutes limit standing to bring derivative 
claims to shareholders and beneficial owners.  Krier, 317 
Wis. 2d 288, ¶29 (explaining that standing to sue based on a 
corporate injury requires one to be a shareholder); Borne, 266 
Wis. 2d 253, ¶15 (same); Shelstad, 77 Wis. 2d at 554 (same); see 
also Wis. Stat. § 180.0741.  A guarantor cannot bring a 
derivative claim under Wisconsin law if his sole status is that 
                                                 
12 The Westburgs raise a direct claim against Park Bank in 
regard to freezing their personal money-market account. 
No.  2010AP3158.pdr 
 
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of a guarantor.  Krier, 317 Wis. 2d 288, ¶¶18, 29; Borne, 266 
Wis. 2d 253, ¶15; Read, 205 Wis. 2d at 565; Shelstad, 77 Wis. 2d 
at 554; see also Wis. Stat. §§ 180.0741-.0744. 
¶90 In Wisconsin, a guarantor's rights and obligations are 
controlled by the guaranty contract.  See Bank Mut., 326 Wis. 2d 
521, ¶54.  On the other hand, a shareholder's rights are 
established by the articles of incorporation, the corporate by-
laws and the Wisconsin Statutes.  A guarantor cannot bring a 
derivative claim, unless the guarantor is also a shareholder or 
a beneficial owner.  However, it is the status as a shareholder 
or beneficial owner that is necessary to bringing a derivative 
claim; being a guarantor is never a sufficient status to bring a 
derivative claim.   
¶91 The majority opinion cites Labovitz v. Washington 
Times Corp., 172 F.3d 897 (D.C. Cir. 1999), as supporting its 
contention that "Mid-State presented persuasive authority for 
determining whether guarantors have standing to raise derivative 
claims."13  Standing alone, the above quotation from the majority 
opinion could cause confusion because it could be read to imply 
that there are occasions when having the status of a guarantor 
is sufficient to bring a derivative claim on behalf of a 
corporation.  However, as Mid-State II clearly explains, a 
guarantor needs a direct injury to sue under either BHCA or 
RICO.  Stated otherwise, even under the federal law considered 
in Mid-State II, the Kimmels, as guarantors, did not have 
standing to bring a derivative claim.  Mid-State II, 877 F.2d at 
                                                 
13 Majority op., ¶49. 
No.  2010AP3158.pdr 
 
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1335.  Accordingly, any concern that the quoted language from 
the majority opinion may be misinterpreted is quelled because 
the majority opinion repeatedly concludes that a guarantor 
cannot bring a derivative claim in Wisconsin.  The majority 
opinion explains "[b]ecause each is derivative, the Westburgs 
have no standing to raise them given that they appear in this 
action as guarantors."14  I agree with the majority opinion's 
conclusion that the status of a guarantor is insufficient to 
bring a derivative claim in Wisconsin.   
D.  The Westburgs' Direct Counterclaim 
¶92 Park Bank asserts it had the right to freeze the 
Westburgs' money-market account under the continuing guaranty; 
the Westburgs allege Park Bank did not have that right.  Both 
the claim and the defense are founded on the guaranty contract 
signed by the Westburgs on January 28, 2005.  
¶93 Park Bank's rights under the guaranty contract are 
very broad.  First, the guaranty gives particularized notice to 
the Westburgs that it is a continuing guaranty that includes 
debt in existence on January 28, 2005, when the guaranty was 
signed, as well as debt that accrues subsequently.  The guaranty 
provides:  
You are being asked to guarantee the past, present and 
future Obligations of Debtor.  If Debtor does not pay, 
you will have to.  You may also have to pay collection 
costs.  Lender can collect the Obligations from you 
without first trying to collect from Debtor or another 
guarantor.   
                                                 
14 Majority op., ¶3. 
No.  2010AP3158.pdr 
 
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Second, the guaranty specifically granted Park Bank rights in 
regard to the personal money-market account that was frozen from 
August 30, 2006 to September 7, 2006.  In this regard, the 
guaranty provides: 
Guarantor grants to Lender a security interest and 
lien in any deposit account Guarantor may at any time 
have with Lender.  Lender may, at any time after the 
occurrence of an event of default and notice and 
opportunity to cure, if required by § 425.105, Wis. 
Stats.,15 set-off any amount unpaid on the Obligations 
against any deposit balances Guarantor may at any time 
have with Lender, or other money now or hereafter owed 
Guarantor by Lender. . . .  This Guaranty is valid and 
enforceable 
against 
Guarantor 
even 
though 
any 
Obligation is invalid or unenforceable against any 
Debtor.  
¶94 Third, it appears that Park Bank could have taken the 
entire money-market account if Zaddo, Inc. or Zaddo Holdings 
were in default of their obligations under the loan documents, 
rather than simply preventing access to the account as was done 
from August 30, 2006 until September 7, 2006.  However, on the 
                                                 
15 Wisconsin 
Stat. 
§ 425.105 
addresses 
a 
merchant's 
obligation to give notice of default and a right to cure to 
consumers in consumer credit transactions.  The Westburgs do not 
argue to us that Park Bank is a "merchant" in regard to the 
continuing guaranty, that the guaranty involved a "consumer 
credit transaction," or that notice of default is required under 
law.  Accordingly, I do not address § 425.105 further. 
No.  2010AP3158.pdr 
 
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documents presented in this review, it is not possible for me to 
determine whether a default existed on August 30, 2006.16   
¶95 It also is not possible to determine what damages the 
Westburgs sustained during the period of time when they did not 
have 
access to their personal account, as they do not 
particularize the damages that they allege arose from Park 
Bank's freezing their account for this period of time.  Rather, 
all 
of the damages they list on the document entitled 
"Defendant's Counterclaimed Damages" rest upon an underlying 
injury to the corporation.  See Appendix of Appellants-
Petitioners, pp. 101-02.  Those damages are derivative of the 
corporations' injuries and may not be brought here, as I have 
explained above.   
¶96 Because 
the 
Westburgs 
identify 
no 
damages 
that 
resulted from the temporary freeze of their personal account, I 
agree with the majority opinion that without a particularized 
statement of those damages, the Westburgs have not made a 
                                                 
16 The majority opinion is unclear when it says that Park 
Bank made the required showing for summary judgment, and then 
links that statement to:  "The Westburgs do not challenge that 
Zaddo became the subject of an insolvency proceeding when it 
petitioned for a receivership."  Majority op., ¶65.  First, the 
receivership 
is 
the 
insolvency 
proceeding. 
 
Second, 
the 
Westburgs do point out that the receivership was filed on 
September 7, 2006, but their personal account was frozen no 
later than August 30, 2006.  Therefore, in regard to the 
freezing of their money-market account based on the allegation 
that Zaddo, Inc. was in default, the Westburgs do allege Zaddo 
was not in an insolvency proceeding when Park Bank froze their 
personal account.  Accordingly, payment of the obligations that 
the Westburgs guaranteed could not be based on Zaddo's filing an 
insolvency proceeding, which filing would have been a default 
causing the guaranty to be available to Park Bank.   
No.  2010AP3158.pdr 
 
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showing sufficient to overturn summary judgment dismissing the 
Westburgs' direct counterclaim.17   
III.  CONCLUSION 
¶97 In conclusion, I write separately to point out two 
fundamental principles:  (1) the rights and obligations of 
guarantors are established by the guaranty contract, under which 
the guarantor and the creditor for whose benefit the guaranty 
was given operate; and (2) the majority opinion affirms that 
only a shareholder or beneficial owner has standing to bring a 
derivative claim in Wisconsin.18  
¶98 I 
agree 
with 
the 
majority 
opinion 
that 
all 
counterclaims and affirmative defenses raised herein, except 
one, are derivative and therefore, they cannot be brought in 
this action.  However, because in some of its discussion, the 
majority 
opinion 
could 
be 
read 
erroneously 
to 
equate 
shareholders' rights and obligations with those of guarantors, I 
do not join the majority opinion, but respectfully concur.   
¶99 I am authorized to state that Justices ANNETTE 
KINGSLAND ZIEGLER and MICHAEL J. GABLEMAN join this concurrence. 
 
 
 
                                                 
17 Majority op., ¶55 & n.12. 
18 Majority op., ¶¶3, 67. 
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