In Link v. Link (2018AP1715), the Court of Appeals District III addressed fair value and corporate misappropriation claims among the owners of Link Snacks and various related entities, which sell and distribute meat products.

Jack, Troy, and Jay Link together owned various related entities including Link Snacks, Link Global, and its subsidiary Link Canada. When Jay and Troy acquired their shares of Link Snacks, they entered into a Buy-Sell Agreement, which gave Link Snacks the option to redeem their shares at fair market value if their employment was terminated. After a dispute and initial litigation in 2005, a court ordered the execution of the Buy-Sell Agreement, forcing Jay to return his Link Snack shares at fair market value. As a result of the 2005 litigation, the parties also dissolved the jointly-owned company Link Global.

Jay later filed the instant fair value claim and corporate misappropriation claims against Jack, Troy, and Link Snacks chief financial officer John Hermeier.

Fair Value

Jay alleged that the defendants had breached their fiduciary duty and that he should receive “fair value” for his Link Snacks shares as damages, instead of “fair market value” as stated in the Buy-Sell Agreement. (“Fair value” is the corporation’s net worth over the total number of shares. “Fair market value” reduces fair value by adjusting for lack of control and lack of marketability.)

The defendants argued Jay’s fair value claim was barred by claim preclusion. The court acknowledged that Jay’s claim meets the three requirements of claim preclusion. (The court found an identity of parties, final judgment, and identity of causes of action between the 2005 litigation and the instant case.) However, an exception to claim preclusion applied because Jay’s fair value claim had not been ripe for adjudication in the 2005 litigation. The fair value claim was contingent on the outcome of the sale of Jay’s Link Snacks shares, which had not yet occurred at the time of the 2005 litigation.

Furthermore, the two-year statute of limitations on the intentional tort of breach of fiduciary duty (Wis. Stat. § 893.57) did not bar Jay’s fair value claim because the fair value claim accrued when Jay sold his Link Snacks shares in 2009. The court rejected the defendants’ argument that the claim accrued in 2005 when Jay was allegedly forced out of Link Snacks.

Corporate Misappropriation

Jay’s corporate misappropriation claims alleged that the defendants had intentionally devalued Link Global’s subsidiary Link Canada in order to decrease the value of Jay’s share in Link Global. The court dismissed these claims, finding that Jay did not have standing to pursue the claims on his own behalf or on behalf of Link Global.

Since the injuries from the defendants’ alleged improper devaluation of Link Canada were primary to Link Canada, Jay would have had to file a derivative action on behalf of Link Canada. Shareholders may file derivative actions on behalf a corporation when the claim belongs to the corporation. In this case, Jay did not have standing as an individual because the claim belonged to Link Canada.  

The court further found that Jay could not bring corporate misappropriation claims as a derivative action on behalf of Link Global. Again, the court found the primary injury of the devaluation of Link Canada was to Link Canada itself. Link Global did not have standing to sue for injuries on behalf of its subsidiary Link Canada, so the court dismissed Jay’s derivative claim in addition to his individual claim.

In Anderson v. Town of Newbold (2018AP547), the Court of Appeals District III held that towns may enact shoreland frontage requirements under their subdivision authority, even though state law prohibits towns from enacting those requirements under their zoning authority.

Wisconsin law prohibits towns from enacting shoreland zoning ordinances (Wis. Stat. § 59.692). However, towns do have authority to enact subdivision regulations under Wis. Stat. § 236.45. The issue before the court in this case was whether the Town of Newbold could enforce a Shoreland Ordinance establishing minimum shoreland frontage requirements.

Plaintiff Michael Anderson argued the Shoreland Ordinance was in actuality an illegal zoning ordinance and thus unenforceable by the town. However, the court found that the town could enforce the ordinance because it enacted the ordinance via subdivision authority procedures under Ch. 236, not as a zoning ordinance.

The court noted the tension its decision creates with the Legislature’s intent in § 59.692 to prohibit towns from regulating shoreland. However, the court said it could not ignore explicit language in Ch. 236 allowing towns to enact subdivision regulations as the town did in this case. The court left it to the Legislature to resolve any conflict between § 59.692 and Ch. 236.

In Sinkler v. American Family Insurance Co. (2019AP88), the Court of Appeals District III upheld an award of $0 in attorney’s fees to a worker’s compensation insurer and declined to adopt a rule dividing costs of collection on a pro rata basis – in proportion to their recoveries – between the employee’s and the insurer’s attorneys in third-party liability actions.

Plaintiff Brian Sinkler was injured in a work-related automobile accident and received worker’s compensation benefits from EMCASO Insurance Co. (EMC). Sinkler also hired law firm Habush Habush & Rottier to pursue a third-party liability claim against the other driver in the accident. Sinkler entered into a contingency fee agreement with Habush in which the firm would receive one-third of the recovery from the case.

Named as a defendant in Sinkler’s case, EMC hired attorneys from the Ron Harmeyer Law Office and also entered into a contingency fee arrangement with the firm.

Sinkler settled with the other driver’s insurer, but EMC and Sinkler disputed the distribution of the settlement proceeds.

Wis. Stat. § 102.29(1)(b) provides a formula for dividing third-party liability claim proceeds like Sinkler’s settlement. First, the parties deduct amounts for loss of consortium claims – in this case, 30 percent of the recovery was awarded to Sinkler’s wife. The remaining proceeds go to:

1. Cost of collection
2. The injured person (one-third of proceeds remaining after step one)
3. The worker’s compensation insurer (reimbursement for all benefits paid)
4. The injured person (any proceeds remaining after steps one through three)

Regarding cost of collection, the Sinklers argued that one-third of all the proceeds remaining after the loss of consortium claim, plus costs, should go to their attorney Habush. EMC argued that one-third of all the proceeds remaining should be distributed between Habush and EMC’s attorney Harmeyer on a pro rata basis based on their clients’ recoveries.

The appeals court upheld the circuit court’s decision in favor of the Sinklers, awarding no portion of the reasonable cost of collection to EMC’s attorney. The court found Habush’s attorney fees were reasonable because contingency fee arrangements are typical for plaintiffs in third-party liability actions, Habush had extensive experience in these types of actions, and Habush “aggressively pursued” the case on behalf of the Sinklers. In contrast, EMC’s attorney Harmeyer’s participation in the settlement negotiations was minimal and the Harmeyer attorneys had less expertise. Additionally, the court found worker’s compensation insurer EMC’s contingency fee arrangement with Harmeyer “non-customary” and thus found Harmeyer’s attorney fees were unreasonable.

The court declined to adopt a rule dividing the cost of collection on a pro rata basis between the injured employee and worker’s compensation insurer in third-party liability actions, when both parties hire lawyers on a contingency fee basis. According to the court, the statutes and previous case law grant courts wide discretion in dividing the cost of collection, and pro rata distribution would be unreasonable.