Opinion ID: 1873143
Heading Depth: 2
Heading Rank: 2

Heading: sufficiency of the evidence

Text: ¶ 38 Berner claims that Krug had a fiduciary relationship with it because he was Berner's corporation counsel. Krug agrees with this contention. Berner also contends that Krug's conduct prior to Berner's settlement with Dairy Source, together with the amount it paid to Dairy Source for that settlement, is sufficient to establish that Krug breached his fiduciary duty to Berner resulting in damage to Berner. ¶ 39 Berner further contends that the settlement constitutes a business transaction between Krug and Berner and, as such, the transaction is presumed to be unlawfully tainted by Krug's undue influence. Moreover, Berner argues that because Krug engaged in a transaction with his client, Berner, it is Krug's burden to prove that the settlement was not the product of undue influence, rather than Berner's burden to prove that the settlement was the product of Krug's undue influence. Finally, Berner asserts that, because its settlement with Dairy Source was reached as a result of Krug's undue influence, it was harmed by the entire amount of the settlement, $1.35 million.
¶ 40 The elements of a claim for breach of fiduciary duty are: (1) the defendant owed the plaintiff a fiduciary duty; (2) the defendant breached that duty; and (3) the breach of duty caused the plaintiff's damage. Reget v. Paige, 2001 WI App 73, ¶ 12, 242 Wis.2d 278, 626 N.W.2d 302. ¶ 41 Wisconsin law has long recognized that attorneys owe a fiduciary duty of loyalty to their clients, e.g., In re Law Examination of 1926, 191 Wis. 359, 362, 210 N.W. 710 (1926). An attorney may breach that duty when he enters into a transaction with his client without fully informing the client of the risks that the transaction will potentially benefit the attorney and will potentially disadvantage the client. See Zastrow v. Journal Commc'ns, Inc., 2006 WI 72, ¶ 30, 291 Wis.2d 426, 718 N.W.2d 51. Indeed, we have promulgated a Supreme Court Rule forbidding lawyers licensed in Wisconsin from entering into business transactions with clients, unless they ensure the presence of certain safeguards. [10] SCR 20:1.8(a). ¶ 42 Berner is correct in asserting that the Restatement (Third) of the Law Governing Lawyers § 126 (2000) (Restatement § 126) presumes that transactions between attorneys and clients are tainted by undue influence. Berner is also correct in asserting that Restatement § 126 places the burden on an attorney who enters into a transaction with a client to show that he did not impose undue influence on the client. [11] However, we have not yet adopted Restatement § 126 as Wisconsin law. Furthermore, we do not need to decide whether to do so here because Berner has failed to prove that the settlement between Berner and Dairy Source constitutes a transaction between Krug and Berner. ¶ 43 The undisputed testimony is that Ed and Steve Kneubuehl personally met with Rose and Tony Steinmann and negotiated for the dismissal of all of Dairy Source's claims against Berner. The payment of $1.35 million to Dairy Source by Berner was agreed to at that meeting. The testimony shows that the Kneubuehls did not know how Krug's name came to be listed among those released from claims in the settlement document; they did not request it. Therefore, Berner did not bargain to pay Dairy Source $1.35 million for a release that included Krug. In sum, there is nothing in the record to demonstrate that Berner's settlement with Dairy Source for the payment of $1.35 million was a transaction between Berner and Krug. The settlement was a transaction between Berner and Dairy Source. ¶ 44 That the settlement was not an attorney-client transaction is even more apparent upon review of those occasions when we have evaluated actual transactions between attorneys and clients. For instance, in In re Disciplinary Proceedings Against Peckham, 2000 WI 17, 233 Wis.2d 28, 606 N.W.2d 170, in the context of a disciplinary proceeding, we evaluated the conduct of Peckham, who accepted a loan from a client. Id. ¶¶ 7, 10. Peckham had appeared at a July 1997 pretrial conference short on cash and asked a client to loan him $500. Id., ¶ 7. Peckham scribbled out a promissory note indicating he would return payment with 12 percent interest by September 5, 1997. Id., ¶ 7. The client agreed to the terms. Id. Peckham received the money and his client provided that money. We affirmed that the loan constituted a business transaction between an attorney and a client. Id., ¶ 10. ¶ 45 Armstrong v. Morrow, 166 Wis. 1, 163 N.W. 179 (1917), provides another example of an attorney engaging in a transaction with his client. There, an attorney, Morrow, represented a client, Phillips, in a matter in which Phillips had agreed to loan Oconto Brewing Company $10,900. Id. at 3, 163 N.W. 179. However, Phillips was $1,250 short of the full amount needed to complete his loan to Oconto Brewing. Id. Attorney Morrow contributed the $1,250 balance. Id. Oconto Brewing issued Phillips a mortgage to secure its debt. Id. Morrow and Phillips had a tacit understanding that Phillips would repay Morrow at Phillips' convenience. Id. However, they also agreed that Morrow would retain possession of the Oconto Brewing mortgage and promissory note until Phillips repaid the $1,250, with interest. Id. ¶ 46 Approximately a year and a half later, Morrow drafted an assignment of the Oconto Brewing mortgage to him. Id. Phillips signed the assignment, which Morrow recorded. Id. Morrow provided Phillips no additional consideration in return for the additional benefit he received from the assignment of the mortgage. Id. ¶ 47 We held that the assignment prepared by Morrow was presumptively invalid. Id. at 8, 163 N.W. 179. As we stated, it is incumbent upon the attorney in a case like the one at bar to show affirmatively either that he paid an adequate consideration for the property, or that a gratuity was intended and that no advantage was taken of the confidential relations existing between the attorney and his client to obtain it. Id. at 7, 163 N.W. 179. Armstrong shows a giving up of an asset by the client and a taking of the asset by the attorney as evidence of their transaction. ¶ 48 Other cases from outside Wisconsin provide additional examples of attorney-client transactions. For example, In re Smith, 572 N.E.2d 1280, 1286 (Ind.1991), the Indiana Supreme Court held that Smith had engaged in a transaction with a client, Mary Maxon, when the attorney made gifts to himself, his family, and employees of his law firm from the entrusted assets of an elderly, mentally incompetent client. [12] Once again, the attorney-client transaction involved a giving up of an asset by the client and a taking of the asset by the attorney. ¶ 49 In Duggan v. Gonsalves, 65 Mass. App.Ct. 250, 838 N.E.2d 614 (2005), the Appeals Court of Massachusetts held that Duggan engaged in a transaction with his client, when he purchased his client's house at foreclosure for substantially less than the appraised value, then rented the property back to the client for the equivalent of the mortgage payment. The attorney-client transaction was evidenced by the attorney benefiting himself at the expense of the client. ¶ 50 The cases reviewed above demonstrate that the Berner-Dairy Source settlement is patently different from transactions between attorneys and clients that courts have reviewed under claims that they were improper. In all the cases we have located where attorney-client transactions were involved, there was a communication or activity that reciprocally affected the client and the attorney. That is, one party gave up something and the other party received something at the expense of the one who relinquished it. Our understanding of a transaction is consistent with that set out in Black's Law Dictionary, which defines transaction as, An agreement that is intended by the parties to prevent or end a dispute and in which they make reciprocal concessions. Black's Law Dictionary 1535 (8th ed.2004). ¶ 51 In contrast, there is no evidence that the Berner-Dairy Source settlement embodies reciprocal activity affecting Berner and Krug. Krug was not involved in Berner's decision to pay Dairy Source in a settlement. That determination was made in a meeting between Berner and Dairy Source. Accordingly, Dairy Source, not Krug, is the party with whom Berner engaged in reciprocal activity. Berner paid Dairy Source $1.35 million dollars and in return received from Dairy Source its commitment not to use, distribute or copy Berner's proprietary information, including its recipes, pricing information, and formulas. In addition, the parties agreed to drop all claims against each other and to refrain from filing new suits against each other. Therefore, Berner gave up nothing to Krug when it agreed to pay Dairy Source $1.35 million as settlement. The settlement negotiation that resulted in the settlement was a transaction between Berner and Dairy Source, not between Berner and Krug. ¶ 52 Furthermore, Brennan, not Krug, represented Berner in the litigation with Dairy Source. Berner does not dispute that its attorneys at Brennan were engaged with Dairy Source representatives in drafting the settlement document. Moreover, the admissions by Ed and Cheryl Kneubuehl belie Berner's claim that, because the settlement document releases Krug from all claims, the settlement was the product of undue influence. When asked whether Krug had any input into the settlement amount, Ed Kneubuehl testified that Krug had not. Cheryl Kneubuehl also testified that she did not recall Krug having any input in the settlement. ¶ 53 Therefore, although the settlement document may have conferred a benefit on Krug, there is no evidence that releasing Krug came at a cost to Berner, and thereby affected the parties reciprocally. Furthermore, although it is possible that some finite value could be attributed to the release of Krug, Berner has not presented any evidence to show what that value may be. For example, Berner has not presented any evidence that the cost of its settlement was increased due to Krug's release. Berner instead alleges that the full cost of the settlement agreement, $1.35 million, constitutes its damages for releasing Krug. No credible evidence supports Berner's claim in this regard. ¶ 54 Berner also has contended that it is entitled to a presumption that the settlement was the product of undue influence. The party seeking the benefit of a presumption carries the burden of establishing that presumption. See Patterson v. Jensen, 246 Wis. 319, 345-46, 17 N.W.2d 423 (1945). Because the settlement was not a transaction between Berner and Krug, Berner has failed in its proof that it is entitled to the presumption it seeks. [13] See Restatement § 126. Therefore, the burden remained with Berner to show that Krug's inclusion in the settlement was a breach of Krug's fiduciary duty that caused Berner damages.
¶ 55 In the absence of a breach of the fiduciary duty that an attorney owes to his client, there are, of course, no damages that can be caused by a breach of that duty. However, we discuss Berner's arguments with respect to damages to further explain how the evidence presented at trial falls short of what the law requires to maintain a claim for breach of fiduciary duty. ¶ 56 Berner argues that it is entitled to a presumption that it was damaged by the entire settlement amount of $1.35 million. Berner supports this argument by asserting that Krug assured Berner that it would recover money from Dairy Source and that Krug advised Berner not to offer to settle if Dairy Source were to pay Berner $300,000. However, Dairy Source never offered to pay Berner one dollar to settle. It was Berner who was required to pay Dairy Source in order to settle the multiple suits between them. Therefore, this contention has no support in the facts, as well as none under the law. See ¶ 27, above. ¶ 57 Berner also argues that it incurred $1.35 million in damages because Krug planned and oversaw the entry into the Delavan offices. Berner's arguments are misplaced in regard to a breach of fiduciary duty claim, although those arguments were before the jury in regard to Berner's legal malpractice claim. [14] A breach of fiduciary duty does not arise simply because a lawyer gives poor, but well-meaning, legal advice. Zastrow, 291 Wis.2d 426, ¶ 30, 718 N.W.2d 51; see also Cmty. Nat'l Bank v. Med. Benefit Adm'rs, 2001 WI App 98, ¶ 8, 242 Wis.2d 626, 626 N.W.2d 340. It requires something more: the breach of the attorney's duty of loyalty to the client. Zastrow, 291 Wis.2d 426, ¶ 30, 718 N.W.2d 51. ¶ 58 Furthermore, the law requires Berner to establish the magnitude of the damages it sustained as a result of Krug's alleged breach of fiduciary duty. See, e.g., Reget, 242 Wis.2d 278, ¶ 12, 626 N.W.2d 302. Berner has proved neither that it incurred damages nor the magnitude of its damages in regard to its breach of fiduciary duty claim. ¶ 59 Berner retained an expert, Professor Rofes, who testified that Krug's conduct in representing Berner fell below the standard of care that Wisconsin law requires attorneys to exercise. But Professor Rofes expressed no opinion about whether the settlement amount was appropriate or whether Krug had caused Berner any damages. Furthermore, Berner presented no evidence to show that the settlement amount was greater than it otherwise would have been absent Krug's alleged breach of fiduciary duty. Accordingly, Berner has not satisfied its burden of proving it incurred damages as a result of any alleged breach of fiduciary duty by Krug. ¶ 60 In sum, as we have recounted and as two previous courts have concluded, the record is devoid of credible evidence to sustain a finding in favor of Berner on its claim for breach of fiduciary duty. Wis. Stat. § 805.14(1). Accordingly, the circuit court did not err when it dismissed this claim.
¶ 61 Berner next contends that the circuit court erred by refusing to submit a punitive damages question to the jury. [15] Before discussing why the credible evidence is insufficient to support a jury question on punitive damages, the parties ask us to resolve one preliminary issue: Which state law applies with respect to Berner's punitive damages claim? Krug contends that Illinois law should apply in this case. Illinois law precludes punitive damages in legal malpractice cases, [16] while Wisconsin law does not. We conclude that there is no need to answer this question because, even if we assume that Wisconsin law applies, the evidence adduced at trial is insufficient to support a claim for punitive damages. ¶ 62 Wisconsin Stat. § 895.043(3) regulates the availability of punitive damages. It provides: 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. Berner does not argue that Krug acted maliciously; it argues only that Krug acted in intentional disregard for its rights. ¶ 63 The legislature enacted Wis. Stat. § 895.043(3) in 1995, thereby altering Wisconsin's common law standard for punitive damages. Strenke, 279 Wis.2d 52, ¶ 19, 694 N.W.2d 296. In doing so, it heightened the state of mind required of a defendant from a wanton, willful and reckless disregard for rights of another to an intentional disregard for rights of another. Id. ¶ 64 A defendant acts with intentional disregard if he or she: (1) acts with a purpose to cause the result or consequence, or (2) is aware that the result or consequence is substantially certain to occur from the person's conduct. Id., ¶ 36. Accordingly, in order to fall within Wis. Stat. § 895.043(3), a defendant's conduct must be (1) deliberate, (2) in actual disregard of the rights of another, and (3) sufficiently aggravated to warrant punishment by punitive damages. Id., ¶ 38. We explained in Strenke that under this heightened threshold for punitive damages, we expect circuit courts to serve as gatekeepers before sending a question on punitive damages to the jury. Id., ¶ 40. ¶ 65 Since the legislative change, we have decided two cases that considered whether a defendant's conduct warranted submitting a jury question on punitive damages under the heightened standard of Wis. Stat. § 895.043(3): Strenke, 279 Wis.2d 52, 694 N.W.2d 296 and Wischer v. Mitsubishi Heavy Industries America, Inc., 2005 WI 26, 279 Wis.2d 4, 694 N.W.2d 320. We review the factual background of both cases, before we consider whether Krug's conduct warranted submitting a jury question on punitive damages under § 895.043(3). ¶ 66 In Strenke, we concluded that the plaintiff presented sufficient evidence to submit to a jury question in regard to punitive damages. Strenke, 279 Wis.2d 52, ¶ 58, 694 N.W.2d 296. Strenke arose in the context of a personal injury action, where the injury was caused by a drunk driver. Id., ¶ 6. Hogner got behind the wheel of his vehicle and proceeded southbound down Highway 48, after consuming 16-18 beers in five hours. Id., ¶ 8. Strenke was driving northbound on the same highway. Id., ¶ 5. As Strenke approached an intersection, Hogner veered left into Strenke's path and the two collided, causing injury to Strenke. Id., ¶ 5. During trial, Hogner admitted that he had four prior convictions for driving while intoxicated. Id., ¶ 8. ¶ 67 We concluded that there was sufficient evidence from which a reasonable jury could find that Hogner's conduct was (1) deliberate, (2) in actual disregard for the plaintiff's rights and (3) sufficiently aggravated to warrant punishment by punitive damages. Id., ¶¶ 55-57. First, Hogner's consumption of 16-18 beers in five hours and then driving while intoxicated was deliberate. Id., ¶ 55. Second, Hogner's drunk driving disregarded Strenke's right to safely use the highway with other sober motorists. Id., ¶ 56. Finally, Hogner's four previous convictions for driving while intoxicated and his consumption of 16-18 beers in five hours the evening of the collision with Strenke constituted sufficiently aggravated conduct to warrant punishment by punitive damages. Id., ¶ 57. ¶ 68 Similarly, in Wischer, we concluded that the defendant's conduct was sufficiently aggravated that a jury could consider whether to award punitive damages. Wischer, 279 Wis.2d 4, ¶ 8, 694 N.W.2d 320. Wischer also arose from personal injuries. Id. On a windy afternoon, three ironworkers, standing in a basket atop a crane, prepared to bolt into place a 913,000-pound, 120 by 76-foot panel of Miller Park's retractable roof. Id., ¶ 14. The crane collapsed and the workers fell to their deaths. Id., ¶ 12. ¶ 69 In concluding that a question on punitive damages could be submitted to the jury, the following facts were noted: (1) Users of the crane were issued a load chart that set out the crane's limitations in wind. See id., ¶ 38. (2) The load chart stated that the crane could not be used safely in winds exceeding 20 mph, regardless of the load. Id., ¶ 39. (3) Mitsubishi was aware that the maximum safe wind speed for the crane to conduct a lift was 20 mph and that a tragedy could occur if a lift was conducted during winds in excess of 20 mph. Id., ¶¶ 40, 42. (4) Various witnesses placed the wind speed during the afternoon of the accident as being between 20-32 mph. Id., ¶ 48. (5) At the time of the lift, Mitsubishi was aware of winds that exceeded the 20 mph maximum wind velocity for a safe lift. Id., ¶¶ 74-75 (Roggensack, J., concurring). (6) Notwithstanding Mitsubishi's awareness of the conditions then present, the lift proceeded, even though Mitsubishi was aware that performing the lift could imperil the ironworkers' right to personal safety. Id., ¶ 8. ¶ 70 The basis for Berner's contention that it provided sufficient evidence to submit a punitive damages question to a jury is distinguishable from Strenke and Wischer. For example, unlike Mitsubishi's awareness that tragedy could occur through a crane lift when the wind speeds exceeded 20 mph and that the winds were then in excess of 20 mph, no credible evidence was presented to show that Krug was aware that Berner's rights would be disregarded as a result of his legal advice. To the contrary, the evidence demonstrates that Krug believed that Berner's entry into the Delavan offices was lawful. ¶ 71 In addition, the evidence shows that, by attempting to mitigate the risks attending the entry into the Delavan offices, Krug took steps to ensure that he preserved Berner's property rights: he advised Berner (1) not to enter at night; (2) not to remove anything that was Dairy Source's property; (3) to stay away from Dairy Source's computers; (4) to apprise local law enforcement in advance that it planned to enter the Delavan offices; and (5) to hire Brennan to seek any of Berner's property that remained in Delavan in a replevin action. ¶ 72 Berner contends that Krug's inclusion among those released by the settlement document warrants submission of a punitive damages question to the jury. To be sure, by March 2000, Krug had become concerned that Berner could come out the loser in its many lawsuits against Dairy Source. He did ask Berner to indemnify him and the settlement document lists Krug among those who are released by Dairy Source. However, Berner has not presented any evidence to prove that its rights were disregarded by Dairy Source's release of Krug. Stated otherwise, Berner elicited no evidence providing a causal link between Krug's release and Berner's payment of $1.35 million to settle with Dairy Source. Accordingly, no credible evidence indicates that Krug was aware that his conduct was substantially certain to result in Berner's rights being disregarded. See Strenke, 279 Wis.2d 52, ¶ 36, 694 N.W.2d 296; Wischer, 279 Wis.2d 4, ¶ 8, 694 N.W.2d 320. The circuit court correctly concluded that the evidence adduced at trial was insufficient to submit a question on punitive damages to the jury.