Court Opinion

ID: 987954
Source: CourtListenerOpinion
Date Created: 2013-07-03 13:14:50.013577+00
Date Added: 2024-06-11T12:34:16.826655
License: Public Domain

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 App. 2012 – Unpublished)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,
                                                                        FILED
      v.
                                                                    JUL 3, 2013
Roger E. Westburg and Sandra L. Westburg,
                                                                      Diane M. Fremgen
            Defendants-Appellants-Petitioners.                     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   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
                                             2
                                                                                   No.        2010AP3158

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,
                                                    3
                                                                                No.    2010AP3158

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
                                                 4
                                                                        No.     2010AP3158

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
                                           5
                                                                                No.     2010AP3158

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.

                                               6
                                                                         No.    2010AP3158

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"
                                           7
                                                                            No.    2010AP3158

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,
                                             8
                                                                                   No.       2010AP3158

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
                                                  9
                                                                            No.    2010AP3158

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.

                                                10
                                                                           No.     2010AP3158

        ¶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'
                                            11
                                                                               No.     2010AP3158

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.

                                              12
                                                                 No.    2010AP3158

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.

                                        13
                                                                    No.    2010AP3158

     ¶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).

                                         14
                                                                         No.     2010AP3158

       ¶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)).

                                             15
                                                                                No.     2010AP3158

       ¶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

                                               16
                                                                                No.       2010AP3158

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

                                                  17
                                                                          No.    2010AP3158

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.
                                             18
                                                                          No.    2010AP3158

       ¶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).

                                             19
                                                        No.   2010AP3158

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."

                                 20
                                                                         No.       2010AP3158

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
                                             21
                                                    No.     2010AP3158

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.

                                 22
                                                                          No.     2010AP3158

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.

                                             23
                                                                         No.    2010AP3158

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
                                           24
                                                                               No.      2010AP3158

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.

                                                    25
                                                                         No.    2010AP3158

      ¶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).

                                             26
                                                       No.   2010AP3158

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.

                                 27
                                                                          No.    2010AP3158

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
                                             28
                                                               No.     2010AP3158

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.

                                     29
                                                                          No.   2010AP3158.pdr

        ¶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.

                                                1
                                                                    No.    2010AP3158.pdr

        ¶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.

                                          2
                                                                        No.   2010AP3158.pdr

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.

                                               3
                                                                         No.   2010AP3158.pdr

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

                                            4
                                                                        No.   2010AP3158.pdr

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.

                                               5
                                                                                    No.    2010AP3158.pdr

        ¶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.

                                                   6
                                                                             No.    2010AP3158.pdr

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

                                                7
                                                           No.       2010AP3158.pdr

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.

                                     8
                                                                     No.   2010AP3158.pdr

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.

                                             9
                                                                         No.     2010AP3158.pdr

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.

                                                10
                                                                       No.    2010AP3158.pdr

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.

                                           11
                                                      No.   2010AP3158.pdr

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.

                                   12
                                                                         No.    2010AP3158.pdr

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.

                                               13
                                                                  No.   2010AP3158.pdr

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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    No.   2010AP3158.pdr

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