Court Opinion

ID: 9569464
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:14:02.659982+00
Date Added: 2024-06-11T11:58:58.627494
License: Public Domain

*427WEDEMEYER, EJ.
¶ 44. (dissenting). I would affirm the trial court for the reasons that follow. The crux of my disagreement with the Majority opinion centers on the choice-of-law analysis pertinent to whether officers and directors of a corporation owe creditors fiduciary responsibilities. The Majority concludes that whether Delaware or Wisconsin law applies, the answer to that question is the samea duty is owed. The Majority also concludes, after engaging in a choice of law analysis, that Delaware corporate law applies. I cannot agree with either conclusion.
¶ 45. First, the Majority begins the choice-of-law analysis by stating the general rule that the state of incorporation, here Delaware, provides the law governing liability of corporate officers/directors. See Majority op. at ¶ 29. It cites as authority for this proposition the Restatement (Second) of Conflict of Laws § 309 (1971). The Majority opinion also turns to the "internal affairs doctrine" in addressing this issue. Id. Based on my review, I conclude that Wisconsin has not specifically adopted either the cited restatement or the "internal affairs doctrine."
¶ 46. Second, I find compelling the legislature's decision that Wisconsin's corporation law "applies to all foreign corporations transacting business in this state." Wis. Stat. § 180.1704. The Beloit Corporation was doing business in this state and, therefore, on the face of the statute alone, its activities are governed by Wisconsin corporate law. The dispute, as I see it, then centers on *428whether officers/directors of Wisconsin corporations owe a fiduciary duty to creditors. Based on my review of Wisconsin law, I conclude that the fiduciary duty to creditors exists in limited circumstances: when a corporation is insolvent and going out of business. See McGivern v. Amasa Lumber Co., 77 Wis. 2d 241, 255, 252 N.W.2d 371 (1977); Malloy v. Korf, 352 F. Supp. 569, 572 (E.D. Wis. 1972).
¶ 47. The Majority opinion suggests that these two phrases are redundant and, therefore, the fiduciary duty extends in any situation where the corporation is insolvent. I cannot agree. Perhaps our difference of opinion arises out of contrary definitions as to what being "insolvent" means to a corporation. In my opinion, being insolvent is not simply an "inability to pay debts as they become due." This definition was rejected long ago by our supreme court in Schmitz v. Wisconsin Soap Mfg. Co., 204 Wis. 149, 153, 235 N.W. 409 (1931). Rather, Schmitz stated that insolvency "simply means that the assets of the alleged insolvent are insufficient, at a fair valuation, to pay his debts." Id. I agree with the respondents that on any given day, quarter or year, a corporation may be "both flush with cash and struggling to pay its creditors."
¶ 48. Thus, I conclude that for the fiduciary duty to extend from an officer/director to a creditor, both requirements — insolvency and no longer a going concern — are required. The policy behind this rule of law is a matter of common sense. Officers and directors have certain responsibilities to the corporation and its shareholders. Each is supposed to act in the best interests of the corporation. Sometimes these officers and directors also have a personal interest in the corporation. When a corporation is insolvent to the point where it is going out of business, the personal *429interest often clashes with the interest for the corporation as a whole. As a result, under such circumstances, common law dictates that an officer/director may not act in a fraudulent matter to the detriment of the creditors. Hinz v. Van Dusen, 95 Wis. 503, 508-09, 70 N.W 657 (1897). At that point, the officer/director has a fiduciary obligation to the creditors of the corporation and must act in good faith. Until that point, "[n] either the corporation nor its governing body, so long as it is a going concern, holds its property in trust for creditors." Boyd v. Mutual Fire Ass'n of Eau Claire, 116 Wis. 155, 181, 90 N.W 1086 (1903) (emphasis added).
¶ 49. To rule otherwise would open up creditor suits against officers/directors while a corporation is still a "going concern" but, according to some, is "insolvent." It may also negatively affect decisions being made when a corporation is struggling through a particularly difficult quarter or year.
¶ 50. The complaint filed by the creditors here asserts that the officers/directors breached a fiduciary duty to the creditors during times when the corporation was still a going concern. Under those circumstances, and based on my analysis, the creditors lack standing to assert such claims because at the time of the alleged conduct, the officers/directors did not owe a fiduciary duty to individual creditors of the corporation. On this basis, I disagree with the Majority opinion and respectfully dissent.