Title: Apex Electronics Corporation v. James Gee
Citation: N/A
Docket Number: 1997AP000353-FT
State: Wisconsin
Issuer: Wisconsin Supreme Court
Date: April 30, 1998

SUPREME COURT OF WISCONSIN 
 
 
Case No.: 
97-0353-FT 
 
 
Complete Title 
of Case: 
 
 
Apex Electronics Corporation, a domestic  
corporation,  
 
Plaintiff-Respondent, 
 
v. 
James Gee, d/b/a U.S. Cable Supply,  
 
Defendant-Appellant-Petitioner.  
 
ON REVIEW OF A DECISION OF THE COURT OF APPEALS 
Reported at:  NO CITE 
 
 
Opinion Filed: 
April 30, 1998 
Submitted on Briefs: 
 
Oral Argument: 
February 19, 1998 
 
 
Source of APPEAL 
 
COURT: 
Circuit 
 
COUNTY: 
Racine 
 
JUDGE: 
Wayne J. Marik 
 
 
JUSTICES: 
 
Concurred: 
 
 
Dissented: 
 
 
Not Participating:  
 
 
ATTORNEYS: 
For the defendant-appellant-petitioner there were 
briefs by Alice A. Nejedlo and Hanson & Gasiorkiewicz, S.C., 
Racine and oral argument by Alice A. Nejedlo. 
 
 
For the plaintiff-respondent there was a brief by 
Mary F. Wyant and Wyant Law Offices, S.C., Racine and oral 
argument by C. Judley Wyant. 
 
No.  97-0353-FT 
 
1 
 
NOTICE 
This opinion is subject to further editing and 
modification.  The final version will appear in 
the bound volume of the official reports. 
 
 
No. 97-0353-FT 
 
STATE OF WISCONSIN               :        
        
 
 
 
 
IN SUPREME COURT 
 
 
Apex Electronics Corporation, a domestic  
corporation,  
 
          Plaintiff-Respondent, 
 
     v. 
 
James Gee, d/b/a U.S. Cable Supply,  
 
          Defendant-Appellant-Petitioner.  
 
FILED 
 
APR 30, 1998 
 
Marilyn L. Graves 
Clerk of Supreme Court 
Madison, WI 
 
 
 
 
 
REVIEW of a decision of the Court of Appeals.  Reversed and 
cause remanded. 
¶1 
SHIRLEY S. ABRAHAMSON, CHIEF JUSTICE.   This is a 
review of an unpublished decision of the court of appeals, Apex 
Electronics Corp. v. James Gee, d/b/a/ U.S. Cable Supply, No. 
97-0353-FT, unpublished slip op. (Wis. Ct. App. July 2, 1997), 
affirming an order of the Circuit Court for Racine County, Wayne 
J. Marik, Judge.  The circuit court denied the motion of the 
defendant, James Gee, to vacate a default judgment.   
¶2 
This court's order granting review limited our review 
to two issues:  Did the defendant waive his right to challenge 
the punitive damages award in this court when he failed to 
challenge the award in the circuit court?  Did the circuit court 
err by awarding punitive damages to the plaintiff, Apex 
Electronics Corporation, solely on the basis of the complaint?  
No.  97-0353-FT 
 
2 
¶3 
We answer these questions as follows:  We need not 
determine whether the defendant waived his right to challenge 
the punitive damages award in this court.  We exercise our 
discretion to decide whether the circuit court erred by awarding 
punitive damages solely on the basis of the complaint.  Pursuant 
to 
Wis. 
Stat. 
§ 806.02(2) 
(1995-96),1 
governing 
default 
judgments, and Wis. Stat. § 895.85, governing punitive damages, 
we conclude that a circuit court entering a default judgment on 
a punitive damages claim must make inquiry beyond the complaint 
to determine the merits of the punitive damages claim and the 
amount of punitive damages, if any, to be awarded.   
¶4 
Because the circuit court in this case relied solely 
on the complaint to determine whether to award punitive damages 
and in what amount, we hold that the circuit court erred in 
awarding 
the 
plaintiff 
$100,000 
in 
punitive 
damages.  
Accordingly, we vacate the portion of the default judgment 
awarding the plaintiff $100,000 in punitive damages and remand 
the cause to the circuit court for further proceedings to 
determine the merits of the punitive damages claim and the 
amount of punitive damages, if any, to be awarded.2 
I 
                     
1 All references to the Wisconsin statutes are to the 1995-
96 statutes unless otherwise indicated.  
2 The circuit court entered a judgment in the amount of 
$356,800 against the defendant.  Although the circuit court did 
not specify which portion of the award was for punitive damages, 
the parties and the court assumed that the judgment included 
$256,800 in compensatory damages and $100,000 in punitive 
damages, as specified in the complaint. 
The only part of the judgment at issue in this review is 
the $100,000.   
No.  97-0353-FT 
 
3 
¶5 
For purposes of this review the facts are not in 
dispute.  This case arose from a partnership agreement between 
Apex Electronics Corp., the plaintiff, and U.S. Cable Supply.  
On May 31, 1996, the plaintiff filed suit against the defendant, 
James Gee, the sole shareholder and president of U.S. Cable 
Supply.   
¶6 
On June 23, 1996, the defendant was served with a 
summons and a complaint alleging five causes of action.  The 
first and fifth causes of action relate to punitive damages and 
are relevant to this review.  The second, third and fourth 
causes of action allege that the defendant breached agreements 
with the plaintiff.3  These allegations are not relevant to this 
review. 
¶7 
The 
first 
cause 
of 
action 
alleges 
conversion.  
According to the complaint, the plaintiff had an agreement with 
the defendant to lend funds to a partnership for the purchase of 
equipment.  The parties agreed that when this equipment was 
sold, the partners' loans would be repaid from the sale 
                     
3 The second cause of action alleges that in return for the 
plaintiff's release of the defendant for claims of conversion, 
the defendant would make weekly payments to the plaintiff and 
that the defendant has defaulted in payment under the payment 
plan.  The complaint alleges that the plaintiff is entitled to 
recover the sum of $215,000. 
The third cause of action alleges that the plaintiff 
shipped the defendant goods for an agreed-upon price and that 
the defendant paid by a check that was returned for insufficient 
funds.  The complaint alleges that the defendant is indebted to 
the plaintiff for $21,800 for that shipment. 
 
The fourth cause of action alleges that the plaintiff 
transferred $20,000 to the partnership for the purchase of 
equipment and that the defendant converted the sum to his own 
use.  
No.  97-0353-FT 
 
4 
proceeds, and the parties would divide any profits.  According 
to the complaint, after the loans were made and the equipment 
was bought and sold, the defendant converted all proceeds from 
the sale to his own use.  Consequently, according to the 
complaint, the partnership was unable to pay the plaintiff the 
$150,000 due.  
¶8 
The fifth cause of action incorporates the allegations 
of the first cause of action relating to the conversion and 
further alleges that the defendant's conversion "was in willful 
disregard of the rights of Plaintiff and made knowing that it 
would cause injury to Plaintiff," that "Defendant's conversion 
[was] a breach of Defendant's fiduciary responsibility to 
Plaintiff," and that "Plaintiff is entitled to recover punitive 
damages from Defendant . . . in the amount of $100,000.00."4  In 
addition to the punitive damages, the complaint also demanded 
compensatory damages in the amount of $256,800, plus costs and 
                     
4 The allegations in the complaint appear to incorporate the 
common law standards relating to punitive damages.  The action 
is, however, governed by Wis. Stat. § 895.85(3), which provides 
as follows: 
(3) STANDARD OF CONDUCT.  The plaintiff may receive punitive 
damages if evidence is submitted showing that the defendant 
acted maliciously toward the plaintiff or in an intentional 
disregard of the rights of the plaintiff.  
Wisconsin Stat. § 895.85 applies to civil actions commenced 
on or after May 17, 1995.  The action in this case was commenced 
on June 23, 1996.  The parties agree that the statute applies to 
this case. 
The plaintiff asserts in this court that the allegations 
describing the defendant's conduct are sufficient to meet the 
requirements of Wis. Stat. § 895.85(3).  The defendant asserts 
that 
the 
plaintiff's 
allegations 
are 
insufficient 
under 
§ 895.85(3) because the plaintiff alleges only a willful, not an 
intentional disregard of the plaintiff's rights.   
No.  97-0353-FT 
 
5 
disbursements, and any other remedy the court might deem just 
and proper. 
¶9 
On August 29, 1996, the plaintiff filed a motion for a 
default judgment after the defendant failed to file an answer to 
the complaint.  On September 5, 1996, the circuit court entered 
a default judgment against the defendant in the amount of 
$356,800, plus costs.  On October 10, 1996, the defendant filed 
a motion to set aside the default judgment, claiming excusable 
neglect and asserting a meritorious defense.   
¶10 On December 16, 1996, the circuit court denied the 
defendant's motion to set aside the default judgment.  The court 
of appeals affirmed the circuit court order but declined to 
address the defendant's challenge to the punitive damages award, 
holding that the defendant had waived his right to raise the 
issue by failing to challenge the award in the circuit court. 
II 
¶11 The first issue is whether the defendant waived his 
right to challenge the punitive damages award in this court when 
he failed to challenge the award in his motion to vacate the 
default judgment in the circuit court. 
¶12 The oft-repeated rule of Wisconsin appellate practice 
is that issues not raised in the circuit court will not be 
considered for the first time on appeal.  See Wirth v. Ehly, 93 
Wis. 2d 433, 443, 287 N.W.2d 140 (1980).  This rule does not 
relate to the jurisdiction of the court and is not absolute.  
See Wirth, 93 Wis. 2d at 444.  When an issue involves a question 
of law rather than of fact, when the question of law has been 
briefed by both parties and when the question of law is of 
No.  97-0353-FT 
 
6 
sufficient public interest to merit a decision, this court may 
exercise its discretion to address the issue.  See id.  
¶13 The issue upon which this court accepted review, 
whether the circuit court erred by awarding the plaintiff 
punitive damages solely on the basis of the complaint, is a 
question of law involving statutory interpretation.  The issue 
was, by order of this court, briefed by both parties.  Finally, 
because questions about punitive damages awarded in default 
judgments will likely arise in other cases, this question of law 
is of sufficient public interest to merit our addressing it in 
this case.  Accordingly, we exercise our discretion and address 
the merits of the legal issue presented without deciding the 
waiver issue. 
III 
¶14 We turn to the issue whether the circuit court in this 
case erred by failing to make inquiry beyond the complaint 
before it awarded punitive damages in the default judgment.  Our 
order granting the petition for review limited our review of the 
decision of the court of appeals to this issue of law which 
neither the circuit court nor the court of appeals addressed. 
¶15 To determine whether the circuit court erred in 
awarding punitive damages solely on the basis of the complaint, 
we examine the law relating to default judgments and punitive 
damages.  Three statutes come into play in this case:  Wis. 
Stat. § 802.02(1m) governing complaints seeking damages in tort 
claims, Wis. Stat. § 806.02 governing default judgments and Wis. 
Stat. § 895.85 governing punitive damages. 
No.  97-0353-FT 
 
7 
¶16 Under Wis. Stat. § 802.02(1m)(a) a complaint may not 
specify the amount of money sought when alleging a tort claim 
seeking money damages.  Section 802.02(1m)(a) provides that 
"[w]ith respect to a tort claim seeking recovery of money, the 
demand for judgment may not specify the amount of money the 
pleader seeks."5  
¶17 In this case the plaintiff is seeking punitive damages 
on a tort claim of conversion.  The complaint is, therefore, 
subject to the requirements of Wis. Stat. § 802.02(1m)(a).  
Despite the proscription of § 802.02(1m)(a), the complaint 
demanded $100,000 in punitive damages.  Accordingly, the 
$100,000 specified in the complaint must be viewed as a nullity, 
and the complaint must be read as if no dollar amount had been 
demanded for punitive damages.  Unless § 802.02(1m)(a) is 
interpreted in this way, a complainant would have no incentive 
to comply with the statute.  Therefore, the circuit court erred 
as a matter of law in awarding punitive damages based on the 
amount of money specified in the complaint. 
¶18 This 
reading 
of 
Wis. 
Stat. 
§ 802.02(1m)(a) 
is 
reinforced 
by 
Wis. 
Stat. 
§ 806.02(2) 
governing 
default 
judgments.  Section 806.02(2) provides that if the amount of 
money sought is required to be excluded from the demand for 
judgment under § 802.02(1m)(a), then in order to obtain a 
default judgment a complainant must specify the amount claimed 
and provide that information to the court and the other parties.6 
                     
5 Wisconsin Stat. § 802.02(1m)(b) states that (1m)(a) "does 
not affect any right of a party to specify to the jury or the 
court the amount of money the party seeks." 
6 Wisconsin Stat. § 806.02(2) states:  
No.  97-0353-FT 
 
8 
 See Stein v. Illinois State Assistance Comm'n, 194 Wis. 2d 775, 
782, 535 N.W.2d 101 (Ct. App. 1995) (requiring a plaintiff to 
serve a defendant with notice of the specific amount of money 
sought before a default judgment is entered).   
¶19 In this case the complaint did not comply with Wis. 
Stat. § 806.02(2).  Before the circuit court granted the motion 
for a default judgment, the plaintiff did not specify to the 
circuit court and the defendant the amount of punitive damages 
being sought.  The plaintiff argues, however, that the complaint 
put the defendant and the circuit court on notice of the amount 
of punitive damages sought, even though the complaint violated 
Wis. Stat. § 802.02(1m) by demanding judgment for  punitive 
damages in the amount of $100,000.  Thus, the plaintiff argues, 
it complied with the substance, if not the form, of the default 
judgment statute.   
¶20 Even if we were to adopt the plaintiff's position that 
its complaint satisfied the notice requirement of Wis. Stat. 
§ 806.02(2), the circuit court failed to require the plaintiff 
to satisfy the other requirement of § 806.02(2):  "If proof of 
                                                                  
After filing the complaint and proof of service of the 
summons on one or more of the defendants and an 
affidavit that the defendant is in default for failure 
to join issue, the plaintiff may move for judgment 
according to the demand of the complaint.  If the 
amount of money sought was excluded from the demand 
for judgment, as required under s. 802.02(1m), the 
court shall require the plaintiff to specify the 
amount of money claimed and provide that information 
to the court and to the other parties prior to the 
court rendering judgment.  If proof of any fact is 
necessary for the court to give judgment, the court 
shall receive the proof.  
 
No.  97-0353-FT 
 
9 
any fact is necessary for the court to give judgment, the court 
shall receive the proof." 
¶21 Wisconsin Stat. § 806.02 makes clear that when a 
complaint seeks unliquidated damages on a tort claim, a circuit 
court must first determine whether proof of any fact is 
necessary for the court to give judgment.7  Wisconsin courts have 
declared that when determining damages for personal injury or 
other unliquidated damages, a circuit court will require 
additional proof beyond the complaint.8  
¶22 If the circuit court determines that additional proof 
is necessary, it then determines the procedure for receiving the 
proof.  The circuit court may receive proof by affidavit or 
hearing.9 The procedure for obtaining the additional proof and 
the nature of the additional proof is within the discretion of 
the circuit court.  When a circuit court has sufficient proof of 
                     
7 Wisconsin Stat. § 806.02 distinguishes between default 
judgments on liquidated and unliquidated damage claims.  Section 
806.02(4) grants the clerk authority to enter a default judgment 
only in actions "on express contract for recovery of a 
liquidated amount of money" (emphasis added).  This authority is 
not granted in tort claims for recovery of unliquidated damages.  
8 See, e.g., Gaertner v. 880 Corp., 131 Wis. 2d 492, 505-06, 
389 N.W.2d 59 (Ct. App. 1986) (where a record does not provide 
underlying support for amount of damages awarded, proof of facts 
is necessary for a circuit court to fix a damage amount and to 
render judgment).  See also 3A Grenig & Harvey, Civil Procedure 
2nd Ed. § 602.3, at 149 (West's Wis. Prac. Series). 
9 See 
Judicial 
Council 
Notes 
(1981) 
to 
Wis. 
Stat. 
§ 806.02(2); Hedtcke v. Sentry Ins. Co., 109 Wis. 2d 461, 478-79 
n.5, 326 N.W.2d 727 (1982); Martin v. Griffin, III, 117 Wis. 2d 
438, 445, 344 N.W.2d 206 (Ct. App. 1984).  
No.  97-0353-FT 
 
10
a defendant's conduct, the court need not hold a hearing or take 
additional proof before awarding punitive damages.10 
¶23 This interpretation of the Wisconsin default judgment 
statute is similar to the federal courts' interpretation of Fed. 
R. Civ. P. 55(b)(2).11  As a general proposition, federal courts 
do not award punitive damages simply on the basis of the 
pleadings 
but 
require 
some 
form 
of 
inquiry 
beyond 
the 
pleadings.12  Without such an inquiry, a trial court has no basis 
for determining the nature of the plaintiff's conduct and the 
amount of punitive damages, if any, to be awarded.   
¶24 The bases upon which punitive damages are awarded also 
dictate that a circuit court inquire beyond a complaint before 
                     
10 In James v. Frame, 6 F.3d 307, 310 (5th Cir. 1993), a 
hearing was not required when the court ordered a default 
judgment apparently as a sanction and was familiar with the 
defendant's conduct by virtue of the litigation which had been 
pending before the court for several years. 
11 We look to federal cases because Wis. Stat. § 806.02 is 
similar in language and effect to Fed. R. Civ. P. 55 governing 
default judgments.  See Midwest Developers v. Goma Corp., 121 
Wis. 2d 632, 652, 360 N.W.2d 554 (Ct. App. 1984).  
Under Fed. R. Civ. P. 55(b)(2), if the sum requested in the 
complaint is uncertain or unliquidated, the trial court may hold 
whatever hearing or inquiry it deems necessary.  Fed. R. Civ. P. 
55(b)(2) provides: 
If, in order to enable the court to enter judgment or 
to carry it into effect, it is necessary to take an 
account or to determine the amount of damages or to 
establish the truth of any averment by evidence or to 
make an investigation of any other matter, the court 
may conduct such hearings or order such references as 
it deems necessary and proper . . . . 
 
12 See Comdyne I, Inc. v. Corbin, 908 F.2d 1142, 1152 (3d 
Cir. 1990); Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974); 
Al-Kazemi v. General Acceptance & Inv. Corp., 633 F. Supp. 540, 
542 (D.D.C. 1986). 
No.  97-0353-FT 
 
11
awarding punitive damages in a default judgment.  Punitive 
damages are not automatically awarded when a wrongdoer engages 
in conduct prohibited by Wis. Stat. § 895.85, the punitive 
damages statute.13  The fact finder must decide whether to award 
punitive damages.  
¶25 Furthermore, the fact finder determines the amount of 
punitive damages, if any, to be awarded.14  A punitive damages 
award must be calculated to accomplish the purposes of punitive 
damages, that is, to punish the wrongdoer and to deter the 
wrongdoer and others from engaging in similar conduct.  See 
Management Computer Services, Inc. v. Hawkins, Ash, Baptie & 
Co., 206 Wis. 2d 158, 193, 557 N.W.2d 67 (1996).   
¶26 In addition, the due process clause of the Fourteenth 
Amendment imposes substantive limits on the size of punitive 
damage awards.  Due process concerns are raised if a punitive 
damage award inflicts a penalty or burden on a tortfeasor that 
is disproportionate to the wrongdoing or exceeds what is 
necessary to serve the purposes of punitive damages.15  
                     
13 See Haack v. Haack, 149 Wis. 2d 243, 255-56, 440 N.W.2d 
794 (Ct. App. 1989) (citing Jeffers v. Nysse, 98 N.W.2d 543, 
553, 297 N.W.2d 495 (1980)). 
14 Wisconsin Stat. § 895.85(3) sets forth the standard of 
conduct for punitive damages.  The statute provides that 
punitive damages may be granted if evidence submitted shows that 
the defendant acted maliciously toward the plaintiff or in an 
intentional 
disregard 
of 
the 
plaintiff's 
rights. 
 
See 
§ 895.85(3).  Section 895.85(4) further requires the plaintiff 
to establish a prima facie case for the allowance of punitive 
damages before the plaintiff may introduce evidence of a 
defendant's wealth.  See § 895.85(4). 
15 See Honda Motor Co., Ltd. v. Oberg, 512 U.S. 415, 420 
(1994); Management Computer Services, Inc. v. Hawkins, Ash, 
Baptie & Co., 206 Wis. 2d 158, 193, 557 N.W.2d 67 (1996).  
No.  97-0353-FT 
 
12
¶27 Without conducting an inquiry beyond the complaint, a 
circuit court cannot determine whether a defendant's conduct 
justifies a punitive damages award and, if an award is 
justified, what amount would accomplish the purposes of punitive 
damages while satisfying the requirements of due process.  
Without an inquiry beyond the complaint, a circuit court cannot 
evaluate the various factors to be considered in awarding 
punitive damages.  These factors include the grievousness of the 
acts, the degree of malicious intent, the relationship of the 
punitive damages award to the compensatory damages award, the 
potential damage that might have been caused by the acts, the 
ratio of the award to civil or criminal penalties that could be 
imposed for comparable misconduct, and the wealth of the 
wrongdoer.16 
¶28 Applying both Wis. Stat. § 806.02 and Wis. Stat. 
§ 895.85, we conclude that a circuit court entering a default 
judgment on a punitive damages claim must make inquiry beyond 
the complaint to determine the merits of the punitive damages 
claim and the amount of punitive damages, if any, to be awarded. 
 The circuit court in this case had no information about the 
nature of the defendant's conduct other than a conclusory 
description in the complaint and, therefore, had no information 
upon which to gauge whether the defendant's conduct justified an 
award of punitive damages and, if so, what amount of punitive 
damages should be awarded.   
                     
16 See Management Computer Services, 206 Wis. 2d at 194; BMW 
of North America, Inc. v. Gore, 116 S. Ct. 1589, 1598-1603 
(1996). 
No.  97-0353-FT 
 
13
¶29 Thus we conclude that the circuit court erred when it 
relied solely on the plaintiff's demand in the complaint for 
judgment for $100,000 in punitive damages and when it failed to 
receive proof of facts necessary to determine the merits of the 
punitive damages claim and the amount of punitive damages, if 
any, to be awarded.  
¶30 We reverse the decision of the court of appeals.  We 
remand the cause to the circuit court with directions to vacate 
the portion of the default judgment awarding the plaintiff 
$100,000 in punitive damages and to conduct further proceedings 
to determine the merits of the punitive damages claim and the 
amount of punitive damages, if any, to be awarded. 
By the Court.—The decision of the court of appeals is 
reversed and the cause is remanded to the circuit court.   
 
 
 
1