In a construction loan lawsuit filed by a general contractor against a bank, the Wisconsin Supreme Court recently ruled that: (1) The court duly exercised its discretion in a default judgment against the defendant bank as a penalty for uncovering violations; (2) the unjust enrichment damages were in error because Wisconsin law does not allow the enforcement of damages for both breach of contract and unjust enrichment for the same conduct; and (3) the punitive damages must be waived because it is based on a claim for damages for the contractual claims and punitive damages are only recoverable for tort.
A copy of the statement in Mohns Inc. v. BMO Harris Bank Nat’l Ass’n is available at: Link to the statement.
In February 2016, the plaintiff general contractor filed a lawsuit against the defendant bank, asserting three pleas in law: (1) the defendant violated her contract to pay the plaintiff for her work on a condominium construction project; (2) Defendant was unjustifiably enriched by Plaintiff’s construction work on the condominium project, which increased the value of the loan sold by Defendant; and (3) the defendant misrepresented the plaintiff that funds were available to pay him for the work he was doing on the project, which the defendant would pay the plaintiff if he continued building the condominiums. The complaint alleged that if the plaintiff demonstrated that the misrepresentation was “willful and / or negligently disregarded” [the plaintiff’s] Rights ”, the plaintiff should receive punitive damages.
In its written decision of August 29, 2017, the district court:
- Confirmed its previous decision denying the defendant’s request for a summary judgment;
- Granted the plaintiff’s motions for detection penalties;
- Gives the plaintiff a judgment on the liability of the defendant, including the liability of the defendant for willful misrepresentation;
- Due to the investigative behavior of the defendant and his disregard of the orders of the court of first instance, the plaintiff was awarded a judgment on his legal fees in an amount to be determined by the court;
- Paused the case for trial but stated that the issues to be negotiated are damages and punitive damages against the defendant.
The case went to court in October 2017 as planned. The jury awarded the plaintiff general contractor US $ 106,581 for breach of contract by the defendant bank, US $ 132,668 for the unjust enrichment of the defendant bank and US $ 1 million for punitive damages. The court eventually lowered the punitive damages to $ 458,484.
The defendant bank appealed the decision of the court of first instance to the court of appeal. The appellate court upheld this and ruled that the court of first instance had properly exercised its discretion in imposing a liability judgment against the defendant as a sanction for the defendant’s monstrous behavior. However, the appellate court did not address the merits of the defendant bank’s arguments regarding the mutually exclusive contractual and unjustified claim for enrichment or the exclusively contractually awarded punitive damages. In their opinion, the defendant bank did not adequately address or briefly address these issues.
The defendant bank appealed to the Wisconsin Supreme Court in good time.
The defendant bank alleged that the appellate court erroneously confirmed the appellate court for three reasons: (1) The appellate court erroneously exercised its discretion in imposing a default judgment as a disclosure sanction because that sanction was too severe and the court of first instance failed to find it that the plaintiff was prejudiced by the defendant’s violations; (2) Wisconsin law does not allow a plaintiff to seek damages for both breach of contract and unjust enrichment; and (3) the punitive damages awarded were based on contract rather than tort.
The Wisconsin Supreme Court is examining sanctions as part of the erroneous exercise of discretion. See Industrial Roofing Serv. Marquardt, 2007 WI 19, §41, 299 Wis. 2d 81, 726 NW2d 898. If the court of first instance “examines the relevant facts, applies an appropriate legal standard and, following a proven rational process, concludes that a reasonable judge could achieve,” the court upholds the decision. I would. The court’s examination of whether a party can claim damages for breach of contract as well as for unjust enrichment and whether punitive damages were permissible here raises legal questions which the Court of Justice has examined de novo. Miller v Wal-Mart Stores, Inc., 219 Wis. 2d 250, 259, 580 NW2d 233 (1998).
First, the Supreme Court found that it had expressly refused to seek discrimination against the offended party when imposing a default judgment as a sanction. See Industrial Roofing Serv., 299 Wisdom 2d 81, §43; Johnson v Allis Chalmers Corp., 162 Wis. 2d 261, 282, 470 NW2d 859 (1991). The court found that, because of their conduct, parties were acting outrageously or in bad faith, “significant”[ly] Prejudices … the [trial] the ability of the court to administer judicial matters efficiently and effectively. ” Johnson, 162 Wis. 2d at 282. “[I]In some cases, the need to punish and deter the blatant disobedience of court orders requires that [trial] Court to impose greater sanctions than fines. I would. at 286.
The court found that the defendant bank’s investigative conduct was outrageous and insincere, aimed at burying documents and concealing a “smoking gun” email, and was in breach of its investigation warrant. The Supreme Court ruled that these findings were not clearly false as the file contained evidence to support them. “[F]not to be observed [trial] Appointments in court and investigative orders without a clear and justified apology are outrageous behavior. ” Industrial roofing service, 299 Wisdom 2d 81, ¶43
On the basis of the warnings of the court of first instance to the defendant bank, the refusal of the defendant bank to obey the judicial disclosure order, the determination of the enormity by the court and the availability of a default judgment according to Wis. Stat. In Section 804.12 (2), the Supreme Court found that the decision of the court of first instance to impose the sanction was a reasoned decision. Accordingly, the court concluded that the court of first instance had not erroneously exercised its discretion and upheld the appeal court’s decision on the detection sanctions.
However, the Supreme Court also ruled that the appellate court wrongly upheld the jury’s verdict, which awarded the plaintiff general contractor damages for both breach of contract and unjust enrichment.
The Supreme Court ruled that a plaintiff cannot obtain damages under Wisconsin law for breach of contract and unjust enrichment for the same conduct. See Meyer v The Laser Vision Inst., LLC, 2006 WI App 70, ¶26, 290 Wis. 2d 764, 714 NW2d 223. The court stated that unjust enrichment is a fair claim that cannot be accompanied by a right to breach of contract. I would., §28. The court also pointed out that unjust enrichment does not apply if the parties have entered into an effective, enforceable contract. Continental Cas. Co. v. Wisconsin Patients Comp. Funds, 164 Wis.2d 110, 118, 473 NW2d 584 (Ct. App. 1991).
Since the regional court has established a contract here and the jury has awarded damages to the defendant bank for breach of contract, the BGH decided that the claim for damages due to unjust enrichment must be lifted. The court has made it clear that a party can alternatively assert claims for relief, as in this case the plaintiff, Wis. Stat. Section 802.02 (5) (b), but that the party can only fall back on one of the claims.
Eventually, the Supreme Court ruled that punitive damages were not available as a remedy in an infringement suit in Wisconsin. Entzminger versus Ford Motor Co., 47 Wis. 2d 751, 757, 177 NW2d 899 (1970). Instead, the court made it clear that the award of punitive damages by a jury must be based on a determination of unlawful liability. Hansen v Texas Roadhouse, Inc., 2013 WI App 2, ¶29, 345 Wis. 2d 669, 827 NW2d 99.
The punitive damages questions before the jury in this case did not relate to criminal liability. Instead, the punitive damages awarded by the jury were based on the amounts they had awarded the defendant bank for breaches of contract and unjustified claims for unjust enrichment. Therefore, the Supreme Court ruled that punitive damages must be waived.
Accordingly, the Wisconsin Supreme Court ruled that the Court of First Instance did not erroneously exercise its discretion in issuing a default judgment against the defendant as a sanction.
However, the Court also concluded that Wisconsin law does not allow a plaintiff to simultaneously appeal for breach of contract and unjust enrichment for the same conduct or subject, and that the jury’s award for unjust enrichment here must be overturned. Additionally, the court found that Wisconsin law only allows punitive damages to be based on a tort, not a contract, and therefore punitive damages must be waived here as well.
The court thus partially confirmed the decision of the appellate court, partially reversed it and referred the matter back to the court of first instance for a further decision corresponding to this view.