Petition for Writ of Certiorari — Debra K. Sands, Petitioner v. John R. Menard, Jr., et al.
Supreme Court briefMay 19, 2018
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Mel C. Orchard, III
The Spence Law Firm, LLC
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Jackson, WY 83001
Michael D. Freeborn
Andrew C. Nordahl
Brian P. Norton
Freeborn & Peters, LLP
311 South Wacker Drive, Ste. 3000
Chicago, IL 60606
App. 1a
Nos. 2012AP2377 & 2015AP870
Supreme Court of Wisconsin
Debra K. SANDS,
Plaintiff-Appellant-Petitioner,
v.
John R. MENARD, Jr., Menard Thoroughbreds,
Inc., Webster Hart as Trustee of the John R.
Menard, Jr. 2002 Trust and Related Trusts,
Angela L. Bowe as Trustee of the John R.
Menard, Jr. 2002 Trust and Related Trusts and
Alphons Pitterle as Trustee of the John R.
Menard, Jr. 2002 Trust and Related Trusts,
Defendants-Respondents,
Midwest Manufacturing Co., Wood Ecology Inc.,
Countertops Inc., Team Menard Inc., Menard
Engine Group, Menard Competition Technologies
LTD, MC Technologies Inc., Menard EngineeringLTD, UltraMotive LTD and Merchant Capital LLC,
Defendants,
Menard, Inc.,
Defendant-Respondent-Cross
Petitioner.
Debra K. Sands,
Plaintiff-Appellant-Cross-RespondentPetitioner,
App. 2a
v.
John R. Menard, Jr. and Menard Thoroughbreds, Inc.,
Defendants-Respondents-Cross-Apellants,
Webster Hart as Trustee of the John R. Menard, Jr.
2002 Trust and Related Trusts, Angela L. Bowe as
Trustee of the John R. Menard, Jr. 2002 Trust and Related Trusts, Alphons Pitterle as Trustee of the John
R. Menard, Jr. 2002 Trust and Related Trusts, Midwest Manufacturing Co., Wood Ecology Inc., Countertops Inc., Team Menard Inc., Menard Engine Group,
Menard Competition Technologies LTD, MC Technologies Inc., Menard Engineering LTD, UltraMotive
LTD and Merchant Capital LLC,
Defendants,
Menard, Inc.,
Defendant-Respondent-Cross-Appellant-Cross
Petitioner.
PATIENCE DRAKE ROGGENSACK, C.J.
¶1 We review a decision of the court of appeals,
affirming the circuit court’s1 grant of summary judgment dismissing Debra Sands’ claims and Menard,
Inc.’s counterclaim. Debra Sands and John Menard,
Jr., were involved in a romantic relationship from late
1997 to April 2006.2 Sands alleges that from 1998
1
sided.
The Honorable Paul J. Lenz of Eau Claire County, pre-
Debra Sands appeals from a judgment of the court of
appeals, affirming the circuit court’s grant of summary judgment
dismissing Sands’ claims against John Menard, Jr. (“Menard”),
2
App. 3a
until 2006 she cohabitated with Menard and they
engaged in a “joint enterprise” to work together and
grow Menard’s businesses for their mutual benefit.
Menard and his affiliated entities argue that by failing
to comply with Supreme Court Rule 20:1.8(a), which
regulates business transactions between lawyers and
their clients, Sands is precluded from seeking an ownership interest in any of Menard’s various business
ventures.
¶2 We review four issues. First, we consider whether Sands has pleaded facts sufficient to establish what
she styled as an unjust enrichment claim under Watts
v. Watts, 137 Wis. 2d 506, 405 N.W.2d 303 (1987),
thereby necessitating a remand to the circuit court
for a full hearing on the merits. Second, we consider
whether the court of appeals properly concluded that
SCR 20:1.8(a) may be raised as a defense to an unjust
enrichment claim. Third, we consider whether the
court of appeals properly granted summary jugment
to Sands on Menard, Inc.’s counterclaim for breach of
fiduciary duty. And fourth, we consider whether the
court of appeals properly granted summary judgment
to the Menard Trustees.
¶3 As to the claim she has characterized as a Watts
unjust enrichment claim, we conclude that Sands has
failed to allege facts which, if true, would support her
legal conclusion that she and Menard had a joint enterprise that included accumulation of assets in which
both she and Menard expected to share equally. On
the second issue, for the reasons explained below, we
Menard, Inc., and Menard Thoroughbreds, Inc. (“collectively, the
Menard Defendants”) and against the trustees of the John R.
Menard, Jr. 2002 Trust and related trusts (“the Trustees”). The
Menard Defendants appeal from an order affirming summary
judgment to Sands on Menard, Inc.’s counterclaim for breach of
fiduciary duty.
App. 4a
conclude that SCR 20:1.8(a) may guide courts in determining required standards of care generally; however, it may not be used as an absolute defense to a
civil claim involving an attorney.3 And finally, we also
conclude that the court of appeals properly granted
summary judgment to Sands on Menard, Inc.’s counterclaim for breach of fiduciary duty, and to the Trustees on their motion for summary judgment dismissing
Sands’ claim.
¶4 Accordingly, we affirm the court of appeals.
I. BACKGROUND
¶5 Menard is the founder, president, and CEO of
Menard, Inc., a privately held chain of home improvement stores that began in Eau Claire, Wisconsin. In
November 1997, nearly 40 years after starting his
business, Menard began dating Sands, a lawyer licensed to practice in the state of Minnesota, who at
the time was directing several business ventures with
her sister in St. Paul. Sands claims that she moved in
with Menard in the summer of 1998, and they became
engaged later that year. Menard admits that he and
Sands were engaged, but denies that they ever lived
together.
¶6 During their relationship, Sands alleges she
made a number of business and personal contributions
to both Menard and his companies, including Menard,
Inc. and Menard Thoroughbreds, Inc. Although the
parties agree that Sands made certain contributions,
they do not agree as to the nature of those contributions, when they began, or who was the recipient at
We do not consider whether Menard or the Menard Defendants waived, ratified, or may be estopped to assert Sands’
alleged non-compliance with SCR 20:1.8(a).
3
App. 5a
any given time. Sands describes her contributions to
Menard and his companies as follows:
She was Menard’s life partner, social companion, and manager and hostess of his
households.
Sands protected Menard
from unwanted approaches by serving as a
“gate-keeper.” She supervised his health
care and medical needs; managed the remodeling of three residences; and advised on the
acquisition of airplanes and their design and
décor. She provided ideas for new products
and product lines for the Menard, Inc., stores,
such as garden centers; and scouted and proposed new store locations, store layouts, and
product displays. She represented Menard,
Inc., as a product buyer. She reviewed and
suggested changes and additions to Menard,
Inc., marketing plans. She assisted with
government and public relations. She participated in the redesign of store signs and
logos. She helped find new business and investment opportunities. She assisted in the
management of the Team Menard auto racing venture and newly-acquired businesses,
including two engine design companies in
England, a thoroughbred racing business,
and a $400 million private equity fund. She
made her joint enterprise with Menard her
focus, which occupied her every moment.
¶7 Sands claims that Menard repeatedly promised
her that in return for these contributions, he would
give her an ownership interest in his various business
ventures. Menard denies ever making such promises,
and states only that Sands provided certain legal services beginning in approximately 1997.
¶8 The parties also disagree as to whether Sands
App. 6a
performed legal work for Menard or the Menard Defendants prior to the beginning of their romantic relationship. Sands contends that there was never any
attorney-client relationship with the Menard Defendants prior to 1998. Conversely, the Menard Defendants assert that Sands began providing legal services
in October 1997, before she and Menard began dating.
¶9 As evidence, the Menard Defendants submitted
a May 28, 1998, invoice from Prima Group, a company owned by Sands and her sister, in the amount of
$49,635.84. The invoice referenced a “client matter,”
listed as “Wisconsin Dept. of Natural Resources v.
Menard, Inc.” The invoice further indicated it was for
“Governmental relations & Legal services rendered
Oct. 15, 1997 – May 15, 1998.” Sands claims that the
invoice was prepared at Menard’s request, in response
to his offer to pay off Sands’ remaining student loans
of $49,635.84. Sands claims that Menard told her
to send the invoice to Menard, Inc., so that the payment would be tax deductible as a business expense.
Menard, however, claims this invoice related to legal
services that Sands provided in connection with a
Wisconsin DNR investigation into Menard, Inc.’s disposal of wood ash.4
¶10 Although the parties disagree as to the nature of the legal services provided prior to 2003, both
concede that beginning in 2003 Sands began to provide significant legal services to Menard, Inc.5 Sands
A similarly questionable transaction involving race
car driver Robby Gordon began in September 1998. The record
reflects that Menard, Inc. paid Sands $3,000 on September 21,
1999, for her work on the Gordon transaction. Sands concedes
that she performed some work as Menard’s business advisor—
not lawyer—but states that the payment was actually a reimbursement for wedding planning expenses. Sands v. Menard,
2016 WI App 76, ¶¶9-10, 372 Wis. 2d 126, 887 N.W.2d 94.
5
The parties disagree as to whether Sands ever provided
4
App. 7a
billed at an hourly rate of $145, and Menard, Inc. paid
Sands a total of $152,105 for seven invoices.
¶11 In early 2004, Sands assisted in the creation
of a private equity fund (“the Fund”). Steve Hilbert,
a businessman with money management experience
and a long-time friend of Menard’s, began to meet
with Menard to discuss the Fund. According to Sands,
Menard asked her to review documentation used to
create the Fund. Menard, Inc., however, asserts that
from at least January 2005 through October 2005,
Menard, Inc. had retained Sands as its outside legal
counsel to represent it in the Fund transaction.
¶12 Menard alleges that Sands was responsible for
negotiating the terms of the transaction with Hilbert,
in addition to reviewing and editing the Fund transaction documents. Sands states that she was never
asked and never did create invoices for her work for
Menard, in part because she believed her efforts were
part of her and Menard’s “joint enterprise.” It was not
until her relationship with Menard ended in 2006 that
Menard instructed her to provide itemized invoices for
all legal services for which she had not been paid, dating back to 2003. Sands then submitted 190 separate
invoices for work performed between February 2003
and April 2006, representing 7,487.10 hours of legal
work at $145 per hour, for a total fee of $1,085,629.50.
¶13 Sands met with Menard and Pete Liupakka,
Menard, Inc.’s CFO, to discuss the invoices in October
2006. Liupakka believed that the number of hours
reflected on the invoices was excessive. Nevertheless,
Menard, Inc. offered to pay Sands $961,518 – the
amount claimed in the invoices minus payments that
Menard, Inc. believed Sands had already received.
legal services to Menard personally. According to Sands, Menard
himself was never a client.
App. 8a
However, Menard, Inc. made receipt of this payment
conditioned on Sands signing a one-page “release of
all claims” that included a waiver of any “quasi-marital claims.” Sands refused to sign, prompting Menard,
Inc. to offer an additional $100,000. Sands again refused, and Menard, Inc. rescinded its offer to pay any
portion of the fees reflected in the invoices.
¶14 On November 3, 2008, Sands filed suit against
Menard, the Menard Defendants, and eleven other
parties owned or controlled by Menard. She asserted claims for Unjust Enrichment, Implied Contract,
Promissory Estoppel, Intentional Infliction of Emotional Distress, Negligent Infliction of Emotional
Distress, Fraudulent Misrepresentation, Conversion,
and Breach of Fiduciary Relationship. On November
19, 2009, Sands filed an amended complaint, re-alleging her claims of unjust enrichment against Menard,
asserting breach of contract and promissory estoppel
claims against Menard, and claims for unjust enrichment against Menard, Inc., Menard Thoroughbreds,
Inc., and MH Private Equity Fund LLC (“MH Equity”). A second amended complaint was filed on May
10, 2011, adding the Trustees as defendants.
¶15 Shortly after Sands filed her second amended
complaint, the Menard Defendants discovered evidence that Sands had a side agreement with Hilbert,
prompting accusations that Sands had been attempting to obtain an ownership interest or employment
with MH Equity while she was representing them in
the Fund transaction. Therefore, on May 25, 2011,
the Menard Defendants asserted a counterclaim for
breach of fiduciary duty under SCR 20:1.8(a).
¶16 On April 12, 2012, the Menard Defendants
moved for summary judgment to dismiss all of Sands’
claims by which she sought a portion of Menard’s “net
worth or assets, ownership interests in the Menard
App. 9a
companies, or any part of the increase in value of the
Menard Companies.” The Menard Defendants argued
that SCR 20:1.8(a) barred Sands from recovering any
portion of Menard’s assets or an ownership interest in
his companies because she had failed to comply with
SCR 20:1.8(a), which regulates business transactions
between attorneys and their clients.
¶17 The Trustees also moved for summary judgment, arguing that Sands’ theory of unjust enrichment failed as a matter of law because: (1) even if
Sands benefitted Menard or Menard, Inc., her claim
would therefore be against the Menard Defendants,
not the Trustees; (2) she did not allege facts, which if
true, would show any benefit conferred to the Trustees; and (3) she failed to allege facts showing “unjust
circumstances.”
¶18 Following an oral ruling on October 12, 2012,
the circuit court entered summary judgment on October 22, 2012. The court acknowledged that Sands
had violated SCR 20:1.8(a),6 but declined to adopt a
bright-line rule that SCR 20:1.8(a) prohibits an attorney from bringing what Sands has styled as a Watts
unjust enrichment claim regarding past contributions.
Rather, the court recognized an implicit exception to
SCR 20:1.8(a), such that it does not bar an attorney
from bringing an equitable claim for contributions
provided in a romantic relationship if: (1) the romantic relationship predates the attorney-client relationship; and (2) “the legal services rendered are merely
ancillary or incidental to the larger joint enterprise of
The court found that: (1) Sands is a lawyer and was a
lawyer at all relevant times; (2) Sands performed legal services
for Menard and the Menard Defendants; and (3) Sands did not
obtain a written agreement to acquire any portion of the Menard
Defendants’ assets.
6
App. 10a
the parties.”7
¶19 As to the first requirement, the court focused
on whether Sands’ May 28, 1998, invoice for “Governmental relations & Legal services” established that
her attorney-client relationship began before her romantic relationship with Menard.8 Even accepting as
true Sands’ claim that the invoice was a fraudulent
document submitted at Menard’s request, the court
stated that it would deny relief in equity due to Sands’
admitted fraud regarding the invoice, which showed
that she was in pari delicto9 with Menard and, thus,
the court would “leave matters where they stand.”10
¶20 Looking to the second element of the exception, the court found that no reasonable jury could
find that Sands’ legal services were “merely ancillary
or incidental.” Therefore, because neither exception
to its test applied, the court concluded that Sands’
violation of SCR 20:1.8(a) barred her claims against
the Menard Defendants. The court then held that
because Sands could not recover against Menard, she
could not recover against the Trustees. The circuit
court then granted summary judgment to the Trustees. Sands’ claim against the Menard Defendants for
During this hearing Judge Lenz focused on the legal services as opposed to Sands’ general contributions because the proposed defense, namely, that SCR 20:1.8(a) barred Sands’ claim,
applies to attorney-client relationships and their attendant legal
services.
8
See Security Pac. Nat’l Bank v. Ginkowski, 140 Wis. 2d
332, 339, 410 N.W.2d 589, 593 (Ct. App. 1987) (Stating that for
the concept of the clean hands doctrine to be applied, “it must
be shown that the alleged conduct constituting ‘unclean hands’
caused the harm from which the plaintiff now seeks relief.”).
9
Latin for “in equal fault.” Black’s Law Dictionary 911
(10th ed. 2014).
10
The circuit court did not address the waiver, ratification,
or estoppel arguments.
7
App. 11a
compensation for services rendered remained.
¶21 Sands appealed from the order regarding the
Trustees and petitioned for leave to appeal from the
order regarding the Menard Defendants. The court of
appeals denied Sands’ motion, but stayed her appeal
of the order regarding the Trustees pending the disposition of her remaining claims in circuit court. Sands
v. Menard, 2016 WI App 76, ¶21, 372 Wis. 2d 126, 887
N.W.2d 94.
¶22 After the circuit court granted partial summary judgment, Sands claimed that she was entitled to
compensation for her non-legal services. In support,
she submitted extensive documentation of the various
“non-legal” services she had provided, and for which
she alleged she was entitled to receive compensation.
The Menard Defendants moved to strike, pointing to
Sands’ previous affidavit in which she stated that she
never expected to be compensated for personal and
family services. The court granted the motion.
¶23 Refusing to concede that her only remaining
claim was for compensation for legal services “at a
rate of $145 per hour,” Sands next asserted that she
was entitled to the quantum meruit value of her legal services, which she claimed was between $355
and $640 per hour. Again, the Menard Defendants
moved to strike, arguing that Sands could not recover
on a quasi-contract theory when she had an express
contract with Menard to be paid $145 per hour for
her legal services. The court agreed, explaining that
“even if [$145 per hour] was dictated by the client,
Mr. Menard, this was clearly the agreed rate.” The
circuit court distinguished unjust enrichment claims
from quantum meruit, stating that while a plaintiff
asserting a Watts unjust enrichment claim seeks to
recover a fair portion of the increase in the couple’s
net worth, a quantum meruit claim seeks to recover
App. 12a
the fair value of services performed based on a contract implied by law. The dismissal of Sands’ quantum meruit claim therefore did not affect her unjust
enrichment claim. The circuit court also stated that
Sands’ quantum meruit claims were barred because of
her failure to comply with SCR 20:1.8(a).
¶24 Sands moved for summary judgment on
Menard, Inc.’s counterclaim for breach of fiduciary
duty. The circuit court granted the motion, concluding that the counterclaim was barred by the applicable statute of limitations and that a reasonable person
in Menard’s situation would have further investigated
his suspicions of Sands’ disloyalty at an earlier date.
¶25 On April 24, 2015, Sands filed a notice of appeal from the circuit court’s final order, and Menard,
Inc. cross-appealed from the order dismissing its
counterclaim for breach of fiduciary duty.
¶26 Proceedings at the court of appeals involved
the consolidation of the direct appeal from the 2012
judgment disposing of all claims between Sands and
the Trustees, and a direct appeal from the 2015 final judgment disposing of all claims between Sands,
Menard, and the Menard Defendants. The court of
appeals affirmed the circuit court, but on different
grounds.
¶27 Sands filed a petition for review on October 19,
2016, which was followed by a petition for cross-review filed by the Menard Defendants on November 18,
2016. We granted review, and now affirm.
II. DISCUSSION
A. Standard of Review
¶28 We review a grant or denial of summary judgment independently, applying the same standards as
employed by the circuit court, while benefitting from
App. 13a
the discussions of the court of appeals and the circuit
court. Dufour v. Progressive Classic Ins. Co., 2016 WI
59, ¶12, 370 Wis. 2d 313, 881 N.W.2d 678; Preisler v.
General Cas. Ins. Co., 2014 WI 135, ¶16, 360 Wis. 2d
129, 857 N.W.2d 136. Summary judgment is appropriate in cases where there is no genuine issue of material fact and the moving party has established his or
her right to judgment as a matter of law. Wis. Stat. §
802.08(2);11 Wadzinski v. Auto-Owners Ins. Co., 2012
WI 75, ¶10, 342 Wis. 2d 311, 818 N.W.2d 819. We
review summary judgment submissions in the light
most favorable to the nonmoving party. Id.
B. Unjust Enrichment Claim
¶29 Sands asserts she has a claim against Menard
for unjust enrichment. She relies on her interpretation of Watts, where we concluded that public policy
does not preclude unmarried, former cohabitants
from raising “claims based upon unjust enrichment
following the termination of their relationships where
one of the parties attempts to retain an unreasonable
amount of the property acquired through the efforts of
both.” Watts, 137 Wis. 2d 506 at 532-33, 405 N.W.2d
303.12
All subsequent references to the Wisconsin Statutes are
to the 2009-10 version unless otherwise indicated.
12
Plaintiff, Sue Ann Watts, asserted five legal theories to
support her claim: (1) Sue Ann and James, and their children,
constituted a “family,” thus entitling Sue Ann to bring an action
for property division under Wis. Stat. § 767.02(1)(h) (1985-86),
and to have the court divide their property pursuant to Wis. Stat.
§ 767.255 (1985-86); (2) James’s words and conduct estopped him
from asserting the lack of a legal marriage as a defense under
Wis. Stat. § 767.255; (3) Sue Ann and James had a contract,
either express or implied in fact, to share equally the property
accumulated during their relationship; (4) unjust enrichment;
and (5) partition. The Watts court dismissed claims one and two,
holding that divorce statutes were exclusively for those persons
11
App. 14a
¶30 The Watts court relied on the usual legal standard for unjust enrichment:
[A] claim for unjust enrichment does not
arise out of an agreement entered into by the
parties. Rather, an action for recovery based
upon unjust enrichment is grounded on the
moral principle that one who has received a
benefit has a duty to make restitution where
retaining such a benefit would be unjust.
Id. at 530, 405 N.W.2d 303. Unjust enrichment requires proof of three elements: (1) a benefit conferred
on the defendant by the plaintiff; (2) appreciation or
knowledge by the defendant of the benefit; and (3) acceptance or retention of the benefit by the defendant
under circumstances making it inequitable to do so.
Id. at 531, 405 N.W.2d 303. In order to plead an unjust enrichment claim, the party seeking judicial relief must allege facts that, if true, would be sufficient
to satisfy a court that the above elements are present.
In Watts, we concluded that they were. Id. at 533, 405
N.W.2d 303.
¶31 Watts held that neither public policy nor the
abolition of common-law marriage prohibited an unmarried cohabitant from asserting a contractual or
quasi-contractual claim against another cohabitant.13
Sue Ann Watts sued James Watts over their respecwho were legally married, but concluded that all other legal remedies were available. Watts v. Watts, 137 Wis. 2d 506, 511-12,
405 N.W.2d 303 (1987). We focus our analysis on the decision’s
holding as to unjust enrichment.
13
Common law marriage was abolished in Wisconsin by
statute in 1917. Meyer v. Meyer, 2000 WI 132, ¶63 n.1, 239 Wis.
2d 731, 620 N.W.2d 382 (Sykes, J., dissenting) (citing § 21, ch.
218, Laws of 1917). Watts did not preclude the remedy of unjust
enrichment for parties—unmarried cohabitants—who may otherwise have been precluded from seeking judicial relief.
App. 15a
tive interests in property accumulated during their
12-year cohabitation. Id. at 510, 405 N.W.2d 303. Sue
Ann assumed James’ last name as her own, and together the couple raised two children, who also shared
the Watts name. They filed joint income tax returns
and maintained joint bank accounts. Sue Ann and
James purchased real and personal property together; Sue Ann co-signed for the loans James obtained.
Watts, 137 Wis. 2d at 513-14, 405 N.W.2d 303.
¶32 During this period Sue Ann managed the
home front so that James could build Watts Landscaping. She was a homemaker who cared for their
children. She cleaned, cooked, laundered, shopped,
ran errands, and maintained the grounds surrounding the parties’ home. Id. at 513, 405 N.W.2d 303.
She contributed personal property that she owned at
the beginning of the relationship, served as hostess
for James at both social and business-related events,
and for a time worked 20-25 hours per week at James’
office, performing duties as a receptionist, typist and
assistant bookkeeper. Id. at 513-14, 405 N.W.2d 303.
¶33 Sue Ann alleged that because of her personal
and business contributions, the business and personal
wealth of the couple increased. Id. at 514, 405 N.W.2d
303. Following the termination of their relationship,
however, James refused to compensate Sue Ann for
these contributions despite his indications that she
would share equally in the increased wealth. Id.
¶34 In holding that Sue Ann had stated a claim for
relief, we focused our analysis on principles of equity
and fairness. Id. at 532-33, 405 N.W.2d 303. Specifically, we concluded that regardless of the nature
of the relationship, the court should enforce contract,
quasi-contract, and property rights where “one party
keeps all or most of the assets accumulated during the
relationship, while the other party, no more or less
App. 16a
‘guilty,’ is deprived of property which he or she has
helped to accumulate.” Id. at 526, 405 N.W.2d 303.
¶35 In concluding that Sue Ann had stated a claim,
we determined it would be unjust and inequitable to
allow James to retain the entire benefit of their joint
enterprise. As to the three elements of unjust enrichment, we concluded: (1) Sue Ann contributed property
and services to the relationship; (2) the couple’s assets
increased as a result of these contributions; and (3)
James’ retaining all of the assets was inequitable.
Watts, 137 Wis. 2d at 533, 405 N.W.2d 303.
¶36 Subsequent to our decision in Watts, unjust
enrichment claims in the context of unmarried cohabitants have appeared before Wisconsin courts on an
infrequent basis.14 Nevertheless, case law does provide some guidance on the scope of unjust enrichment
claims and, in particular, the types of facts that must
be pled in order to survive summary judgment.
¶37 In Waage v. Borer, 188 Wis. 2d 324, 525 N.W.2d
96 (Ct. App. 1994), the court of appeals held that proof
of the elements of unjust enrichment must be demonstrated by showing: (1) an accumulation of assets; (2)
acquired through the efforts of the claimant and the
other party; and (3) retained by the other party in an
unreasonable amount. Id. at 329-30, 525 N.W.2d 96.
At trial, Borer claimed money for her housekeeping
efforts after Waage reneged on an alleged promise to
marry her. The court concluded that despite her cooking, cleaning, and childcare services, Borer failed to
allege facts sufficient to meet the Watts unjust enrichment standard. Specifically, the court held that only
certain benefits will constitute “assets” or “property”
Indeed, of the 171 cases citing to Watts, only a handful
discuss Sue Ann’s unjust enrichment claim, and fewer are published or authored decisions.
14
App. 17a
for the purposes of unjust enrichment. “Watts does
not recognize recompense for housekeeping or other
services unless the services are linked to an accumulation of wealth or assets during the relationship.” Id.
at 330, 525 N.W.2d 96. In alleging only that Waage
retained a benefit from Borer’s uncompensated housekeeping efforts made in contemplation of marriage,
the court concluded that Borer had not met the unjust
enrichment standard. Furthermore, the court explained that there is no cause of action for breaching
an alleged promise to marry.
¶38 In Ward v. Jahnke, 220 Wis. 2d 539, 583
N.W.2d 656 (Ct. App. 1998), the court of appeals reemphasized that in order for a plaintiff to successfully
demonstrate unjust enrichment he or she must present proof that the assets or property acquired during
cohabitation were acquired as a result of a mutual
undertaking or joint effort. Id. at 552. 583 N.W.2d
656. Sandra Ward and Dennis Jahnke had shared an
apartment for nearly four years, during which time
Ward paid rent and all other household expenses so
that Jahnke could save money for a down payment
on a house. Jahnke eventually purchased a home,
making the $11,000 down payment and all mortgage
and tax payments on the property. For the next nine
years, Ward lived in the home rent-free, although she
did pay utilities and purchased groceries. All finances were kept separate. Upon their separation, Ward
claimed that Jahnke was unjustly enriched because
he was able to accumulate a down payment while she
paid for nearly all of their household expenses. Id. at
544, 583 N.W.2d 656. She also argued that because
she moved into Jahnke’s house and continued to pay
certain expenses, the house itself was an asset accumulated through their joint efforts and retained by
Jahnke in an unreasonable amount. Id.
App. 18a
¶39 Applying the elements of unjust enrichment
to the facts, the court of appeals affirmed the circuit
court’s conclusion that Jahnke was unjustly enriched
by Ward’s efforts during the period of cohabitation
in which she paid rent and all other household expenses. Id. at 550, 583 N.W.2d 656. “We agree that
under these facts, Ward’s assumption of the cost of
the couple’s living expenses was a benefit conferred
on Jahnke which resulted in an accumulation of the
asset – the [$11,000] down payment.” Id. However,
the court reversed the circuit court’s conclusion that
Jahnke had been unjustly enriched following the purchase of the home.15 “Not only does Ward’s claim lack a
single Watts factor, her testimony as to their financial
arrangements shows only that she and Jahnke were
cohabitants who divided their household expenses in
such a way that it made it easy to maintain separate
finances and avoid commingling their individual resources.” Id. at 550-51, 583 N.W.3d 656.
¶40 In so holding, the appeals court stated that
it does not read the list of factors outlined in Watts
as a checklist, but rather as “requiring a plaintiff to
put forth facts which indicate a shared enterprise and
some form of proof that the assets or property in dispute were ‘acquired through the efforts of both.’” Id. at
547-48, 583 N.W.3d 656 (quoting Watts, 137 Wis. 2d
at 533, 405 N.W.2d 303) (emphasis in original).16 It
is only after a party can demonstrate the existence of
At the circuit court, Ward had received a jury award of
$45,000, or one-half of the equity in the house. Ward v. Jahnke,
220 Wis. 2d 539, 544, 583 N.W.2d 656 (Ct. App. 1998).
16
See, e.g., Watts, 137 Wis. 2d at 533 n.21, 405 N.W.2d 303
(listing four out-of-state decisions in which a cohabitant’s unjust
enrichment claim was founded on specific facts that showed a
mutual undertaking or joint effort); Ward, 220 Wis. 2d at 548
n.3, 583 N.W.2d 656 (describing in further detail the footnote
found in Watts).
15
App. 19a
a joint enterprise that the court may award equitable
relief. See Ulrich v. Zemke, 2002 WI App 246, ¶12,
258 Wis. 2d 180, 654 N.W.2d 458.
The proper legal standard requires the court
to . . . analyze the character of the parties’
relationship by inquiring whether the relationship was a joint enterprise which encompassed the accumulation of assets. A court
makes this determination by considering
the total circumstances of the parties’ relationship, specifically whether the parties’
contributed property and services to the relationship producing an increase in wealth.
Id., ¶12.17
¶41 Properly understood, Watts stands for a very
simple proposition: Wisconsin’s public policy favoring
marriage does not prohibit unmarried formerly cohabitating couples from asserting unjust enrichment
claims against one another. Watts, 137 Wis. 2d at
532, 405 N.W.2d 303. In such cases, the focus is on
the benefit received by one party from the other party
which would be inequitable to retain. Boldt v. State,
101 Wis. 2d 566, 573, 305 N.W.2d 133 (1981). Therefore, the proper focus is on property accumulated,
not on the type of personal relationship that existed
between the parties. Stated otherwise, a claim for unjust enrichment may lie when two people work together to acquire property “through the efforts of both,”
regardless of their personal relationship. Watts, 137
Wis. 2d at 533, 405 N.W.2d 303.
In Ulrich v. Zemke, 2002 WI App 246, 258 Wis. 2d
180, 654 N.W.2d 458, the court concluded that where a couple
maintained a house together, raised four children, shared living
expenses, and continually acquired real and personal property,
they had acted as a joint enterprise.
17
App. 20a
¶42 That James and Sue Ann Watts were romantic
cohabitants is not central to the merits of Sue Ann’s
unjust enrichment claim. For example, if James, instead, had a joint enterprise to accumulate wealth with
his sister, mom or next door neighbor who provided
necessary child care, domestic services and part-time
office help, an unjust enrichment claim by that person would require the same proof as Watts required
of Sue Ann. Watts simply provided that cohabitation
between unmarried romantic partners is not a bar to
an otherwise valid claim of unjust enrichment. It did
not provide that the romantic relationship created
the claim for relief. Watts, 137 Wis. 2d at 532-33, 405
N.W.2d 303.
2. Sands’ pleadings
¶43 To plead facts sufficient to support an unjust
enrichment claim, Sands must demonstrate: (1) a benefit conferred on Menard by Sands; (2) appreciation or
knowledge by Menard of the benefit;18 and (3) acceptance or retention of assets arising from the benefit by
Menard under circumstances making it inequitable
for him to retain all of those assets. Stated otherwise,
Sands’ unjust enrichment claim must demonstrate
that, viewed in their entirety, the contributions she
made to a joint enterprise in which she and Menard
were mutually engaged resulted in an accumulation
of wealth that Menard unfairly retained. Ward, 220
Wis. 2d at 552, 583 N.W.2d 656 (explaining the importance of a mutual undertaking or joint effort).
¶44 Based on her allegations in the pleadings,
which we accept as true for purposes of summary
judgment, Sands made a variety of contributions to
For purposes of our discussion it is undisputed that
Menard was aware of Sands’ contributions. We therefore focus
our analysis on the first and third prongs.
18
App. 21a
Menard, both professionally and personally. Professionally, she offered business and legal advice, political consultation services, marketing and research
expertise. She was directly involved in decisions
regarding Menards’ Indycar and NASCAR racing
sponsorships, and she advised Menard on numerous
corporate matters. In their personal relationship,19
Sands supervised Menard’s health care and medical
needs, planned and prepared meals, and assisted
with gardening and other household tasks. Sands advised about refurbishment and redecoration of three
personal residences, acted as hostess of Menards’
households, and provided both personal and family
advice. Sands contends that as a result of these and
other contributions she is entitled to judgment in an
amount equal to the fair and reasonable share of the
property, wealth, and increased net worth acquired by
Menard during their cohabitation. We disagree.
¶45 First, Watts and the cases that followed make
clear that unjust enrichment by a former cohabitant
is founded on the premise of a mutual undertaking or
joint enterprise which results in an accumulation of
assets in which the parties expected to share equally but which are unfairly retained by one party. In
Watts, we emphasized that as a direct result of Sue
Ann’s efforts, James’ business grew and the parties’
assets increased.
¶46 In Ward, the court distinguished between the
couple’s initial, forty-four month cohabitation, during
We again clarify that unjust enrichment claims do not
require an intimate relationship; the emphasis is on the property acquired. However, to the extent that Sands claims these
personal contributions allowed Menard to focus his attention on
his companies, they are relevant to her unjust enrichment claim,
namely, whether any assets were acquired “through the efforts of
both.” See Ward, 220 Wis. 2d at 549, 583 N.W.2d 656.
19
App. 22a
which time they lived in Ward’s apartment where the
$11,000 down payment was accumulated, and the
latter period during which they lived in the house
purchased by Jahnke. The court affirmed the circuit
court’s finding that Ward’s assumption of most household expenses during the initial forty-four months was
“predicated on a mutual undertaking to accumulate a
down payment on a house.” Ward, 220 Wis. 2d at 550,
583 N.W.2d 656. “The length of time this arrangement persisted, with undisputed testimony that Ward
assumed nearly all of the couple’s living expenses,
coupled with the fact that Jahnke then made a substantial down payment on a house lends credibility to
Ward’s claim that this was a shared undertaking.” Id.
¶47 However, the court concluded that Ward had
failed to satisfy the unjust enrichment standard for
the period following the purchase of the home. First,
Jahnke had paid all closing costs associated with the
house, and all mortgage and tax payments thereafter. Second, although Ward did the cooking, cleaning,
and laundry, as well as paid for groceries and utilities
while living in the house, these contributions were
offset by the fact that she did not pay rent, and that
Jahnke took care of all maintenance work. Finally,
the evidence did not support the assertion of a joint
enterprise after the house had been purchased. Each
maintained separate bank accounts and had individual insurance policies. Each purchased, paid for, and
maintained his or her own vehicle. They never held
joint savings or checking accounts, purchased items
together, took on any joint debt, or loaned each other
money. Ward, 220 Wis. 2d at 543, 583 N.W.2d 656.
Given these facts, the court concluded, “Ward cannot
claim that her assumption of the costs of the utilities
and groceries in a shared living arrangement, while
living rent free, entitles her to share in the equity of a
App. 23a
house titled in another’s name. Evidence of a mutual
undertaking is completely lacking.” Id. at 552, 583
N.W.2d 656. Comparing the facts and outcomes in
Watts and Ward with the facts alleged by Sands, we
conclude that Sands’ and Menard’s relationship more
closely resembles that of Ward and Jahnke after the
purchase of Jahnke’s home.
¶48 First, at the time Sands and Menard met,
Menard, Inc. had been a business for almost forty
years, and Menard was already a multi-millionaire.
Sands, meanwhile, was a graduate of law school operating at least three separate businesses with her sister in St. Paul, Minnesota. Therefore, while Menard’s
net worth was undoubtedly higher than Sands’, both
parties had sufficient financial means and business
acumen. We therefore reject any comparison of
Sands’ contributions to those of Sue Ann Watts, who
helped James Watts begin and grow his landscaping
business, or to those of Sandra Ward, whose contributions allowed Dennis Jahnke to save $11,000 for the
down payment on a house. In each of those cases, the
parties had very little, and it was only through their
joint efforts that their assets or property increased.
Sands, however, did not support Menard as he built
his empire; he already had it when they met.
¶49 Second, we note the inherent differences between how Sue Ann and James Watts conducted
themselves, and how Sands and Menard conducted
themselves during their respective relationships.
Sands has not alleged that during their relationship
she and Menard commingled finances, filed joint tax
returns, or made joint purchases of real and/or personal property. Sands did not obligate herself to any
business or personal debt Menard incurred. Given
these undisputed facts, we conclude that Sands and
Menard were not engaged in a “joint enterprise” as
App. 24a
required under Watts.20
¶50 Although we conclude that there was no “joint
enterprise,” we nonetheless turn to Watts’ three-part
unjust enrichment analysis to evaluate the underlying
merits of Sands’ unjust enrichment claim. Under the
first prong, Sands must allege sufficient facts which,
if true, would prove that her contributions were material to increasing Menard’s wealth. Here, despite
the litany of contributions she made, see, e.g. supra
¶6, we cannot conclude that Sands’ contributions were
“material” given Menard’s wealth and the success of
his company when the parties met. In particular, although Sands has listed a series of business transactions in which she “participated” or “assisted,” she has
alleged no facts from which we could conclude that her
contributions caused an increase in Menard’s assets
or property.
¶51 We are similarly disinclined to conclude that
Sands has pled sufficient facts which, if true, would
demonstrate that Menard’s acceptance or retention
of her contributions would be inequitable under the
circumstances. In particular, Sands must demonstrate that the benefits she conferred to Menard are
not offset by the benefits she derived from him. First,
the record indicates that Sands enjoyed an expansive
lifestyle as the companion of a wealthy man.21 SecOnce again, the precise nature of the underlying relationship is not the linchpin of our analysis. However, we do consider the circumstances of the relationship relevant in helping
us determine whether the elements of unjust enrichment have
been met, particularly the second element under the Waage test,
Waage v. Borer, 188 Wis. 2d 324, 329-30, 525 N.W.2d 96 (Ct.
App. 1994) (requiring “(1) an accumulation of assets; (2) acquired
through the efforts of the claimant and the other party and (3)
retained by the other party in an unreasonable amount.”).
21
For example, the record reflects that Sands and Menard
took multiple boating and skiing trips, vacations to St. Martin,
20
App. 25a
ond, unlike the plaintiffs in Watts or Ward, Sands did
receive compensation for some of her services. Over
the course of their eight-year relationship, Sands was
paid $49,635.84 for the balance of her student loans,22
$3,000 to compensate her for “wedding expenses,” and
$152,105 for various legal services.
¶52 Sands argues, however, that because Menard
“repeatedly” promised her that she would obtain a
certain ownership interest in Menard, Inc., and because she made contributions “fully and faithfully and
in reliance on the promises and representations of
Menard,” it would be inequitable to deny her an ownership interest in his property. Given that a specific
agreement is unnecessary under Watts, Sands’ allegations that she was promised a certain ownership
interest are not persuasive. In short, we conclude that
Sands has failed to allege facts which, if true, would
support her legal conclusion that she and Menard had
a shared enterprise that included accumulation of assets in which both she and Menard expected to share
equally.23
C. Rules of Professional Conduct
¶53 In light of our conclusion that Sands has failed
to allege facts which, if true, would support what
London, and Italy, and that Menard gifted Sands with a Ford
Mustang for Christmas in 2005. They went to horse races, NASCAR events, and fashion shows, and met prominent political
figures at that time.
22
As referenced above, it is disputed whether this payment was for her student loans or for legal services in regard to
the DNR matter.
23
We do not suggest that a former cohabitant may never
plead facts sufficient to establish a “material benefit” unjustly
obtained by a wealthy partner. We simply hold that in this case,
Sands did not plead facts sufficient to meet the criteria for unjust
enrichment set forth in Watts.
App. 26a
she has styled as a Watts unjust enrichment claim,
analyzing whether her claim also is barred by SCR
20:1.8(a) may not seem necessary. Nonetheless, because the question of whether a Supreme Court Rule
can be used as an absolute defense against an attorney in a civil action is an important issue, we address
it here. For the reasons stated below, we conclude:
(1) the court of appeals erred in holding SCR 20:1.8(a)
created an absolute bar to Sands’ unjust enrichment
claim; and (2) although SCR ch. 20 may not be used as
an absolute defense to a civil claim where an attorney
is a party, SCR 20:1.8(a) may guide courts in determining whether those standards of care that generally are required of lawyers have been met.
1. General principles
¶54 Supreme Court Rule ch. 20 sets forth the regulations governing professional conduct of attorneys
licensed to practice law in the State of Wisconsin. Attorneys not admitted to the State Bar of Wisconsin
may be subject to the disciplinary action in Wisconsin
“if the lawyer provides or offers any legal services in
the state.” SCR 20:8.5(a). We have the exclusive authority to define the “practice of law.” See Seitzinger
v. Cmty. Health Network, 2004 WI 28, ¶39, 270 Wis.
2d 1, 676 N.W.2d 426. We have previously concluded
that deciding whether one engaged in the “practice of
law” is determined on a case-by-case basis. State ex
rel. Junior Ass’n of Milwaukee Bar v. Rice, 236 Wis.
38, 53, 294 N.W. 550, 556 (1940).
¶55 At all times relevant to the current litigation,
attorneys licensed outside of Wisconsin who were acting as in-house counsel in this state were not “practicing law” for the purposes of bar admission. See
Mostkoff v. Bd. of Bar Exam’rs, 2005 WI 33, ¶19, 279
Wis. 2d 249, 693 N.W.2d 748 (concluding Michigan
App. 27a
attorney’s legal services as corporate counsel were
not the “practice of law” for purposes of admission
to the State Bar of Wisconsin). Therefore, because at
that time an attorney who was not licensed to practice in Wisconsin, but who was nonetheless serving
as in-house counsel for a Wisconsin corporation, was
not eligible for bar admission based solely on in-house
counsel services, he also was not subject to regulation
by the State Bar of Wisconsin.
¶56 As to all attorneys practicing law in this state,
we have previously ruled that “[v]iolations of the Code
of Professional Conduct are determined only by means
of disciplinary action.” Foley-Ciccantelli v. Bishop’s
Grove Condo., 2011 WI 36, ¶2, 333 Wis. 2d 402, 797
N.W.2d 789. Indeed, as stated in preamble [20]24 to
the Rules in effect during Sands’ alleged cohabitation:
Violation of a rule should not itself give rise
to a cause of action against a lawyer nor
should it create any presumption in such a
case that a legal duty has been breached. In
addition, violation of a rule does not necessarily warrant any other nondisciplinary
remedy, such as disqualification of a lawyer in pending litigation. The rules are designed to provide guidance to lawyers and
to provide a structure for regulating conduct through disciplinary agencies. They are
not designed to be a basis for civil liability.
Furthermore, the purpose of the rules can
be subverted when they are invoked by opposing parties as procedural weapons. The
fact that a rule is a just basis for a lawyer’s
The preamble was amended in 2007 to add the following
concluding sentence: “Nevertheless, since the rules do establish
standards of conduct by lawyers, a lawyer’s violation of a rule
may be evidence of breach of the applicable standard of conduct.”
24
App. 28a
self-assessment, or for sanctioning a lawyer
under the administration of a disciplinary
authority, does not imply that an antagonist
in a collateral proceeding or transaction has
standing to seek enforcement of the rule.
¶57 The court of appeals has also endorsed the use
of the Rules of Professional Conduct as guidelines or
principles in civil litigation. Gustafson v. Physicians
Ins. Co., 223 Wis. 2d 164, 176-78, 588 N.W.2d 363 (Ct.
App. 1998). In Gustafson, the plaintiffs’ attorney in a
medical malpractice case also agreed to represent the
interests of the plaintiffs’ subrogated health insurer
in exchange for one-third of the health insurer’s recovery. Id. at 168, 588 N.W.2d 363. After a jury rendered
a verdict in favor of the defendants, the plaintiffs’
attorney reached a settlement agreement with the defendants whereby the plaintiffs waived their right to
appeal the judgment in exchange for the defendants’
agreement not to seek taxable costs against them. Id.
at 169, 588 N.W.2d 363. However, the plaintiffs’ attorney never consulted with the subrogated insurer about
the settlement and it expressly left the defendants the
option of taxing costs against the subrogated insurer,
which they did. Id. The subrogated insurer appealed
on the basis that the judgment was unfair because of
the attorney’s misconduct, whereupon the settlement
was voided. Id.
¶58 In determining whether the judgment for
taxable costs should be reversed due to the attorney’s
conduct, the court of appeals considered several of the
Rules of Professional Conduct as guidelines or principles. For example, SCR 20:1.16 was considered to
determine whether the plaintiffs’ attorney properly
withdrew from representing the subrogated insurer;
SCR 20:1.2 was considered to determine whether the
attorney should have informed the subrogated insurer
App. 29a
of the proposed settlement; and SCR 20:1.7 was reviewed to determine whether the attorney had an impermissible conflict of interest when he negotiated the
settlement. Id. at 176-78, 588 N.W.2d 363. Taxable
costs were reversed because the attorney failed to adequately protect his client. Id. at 182, 588 N.W.2d 363.
2. SCR 20:1.8(a) general principles
¶59 Supreme Court Rule 20:1.8(a) applies to financial conflicts of interest that may arise when an attorney “enter[s] into a business transaction with a client
or knowingly acquire[s] an ownership, possessory, security or other pecuniary interest adverse to a client.”
SCR 20:1.8(a). During the relevant time period, SCR
20:1.8(a) provided:
A lawyer shall not enter into a business transaction with a client or knowingly acquire an
ownership, possessory, security or other pecuniary interest adverse to the client unless:
(1) the transaction and terms on which
the lawyer acquires the interest are fair
and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can
be reasonably understood by the client;
(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
(3) the client consents in writing thereto.
¶60 Supreme Court Rule 20:1.8(a) is grounded in
the concern that “[a] lawyer’s legal skill and training,
together with the relationship of trust and confidence
between lawyer and client, create the possibility of
overreaching when the lawyer participates in a business, property or financial transaction with a client.”
App. 30a
See Model Rules of Prof’l Conduct r. 1.8 cmt. (Am. Bar
Ass’n 2015). The rule applies to all attorney-client
relationships, and includes transactions in which an
attorney seeks an ownership interest in the client’s
business as compensation for his or her legal services.
See id. The existence of an attorney-client relationship “depends upon the intent of the parties and is
a question of fact.” In re Disciplinary Proceedings
Against Kostich, 2010 WI 136, ¶16, 330 Wis. 2d 378,
793 N.W.2d 494.
3. SCR 20:1.8(a) and Sands
¶61 Both the circuit court and the court of appeals
applied SCR 20:1.8(a) to Sands’ Watts unjust enrichment claim. The circuit court formulated a two-part
exception to Menard’s proposed bright-line rule,
namely, that SCR 20:1.8(a) is an absolute defense
unless two conditions are met: (1) the attorney and
client had a romantic relationship that predated their
attorney-client relationship; and (2) the legal services
rendered by the attorney were “merely ancillary or
incidental” to the larger joint enterprise. The court of
appeals went one step further, holding that a violation
of SCR 20:1.8(a) is an absolute bar to recovery. Sands,
372 Wis. 2d 126, ¶38, 887 N.W.2d 94. As to both dispositions, we disagree, and conclude that while Supreme
Court Rules may guide courts in determining required
standards of care generally, they may not be employed
as an absolute defense in a civil action involving an
attorney.
¶62 As Sands has repeatedly pointed out, the
preamble to the Supreme Court Rules clearly demonstrates that alleged violations are to be determined
in disciplinary proceedings, not civil litigation. “The
Preamble demonstrates that the purpose of the rules
is not to provide remedies outside the realm of profes-
App. 31a
sional discipline.” Foley-Ciccantelli, 333 Wis. 2d 402,
¶173, 797 N.W.2d 789 (Roggensack, J., concurring).
See also Nauga, Inc. v. Westel Milwaukee Co., Inc.,
216 Wis. 2d 306, 318 n.5, 576 N.W.2d 573, (Ct. App.
1998) (“Violation of a rule should not give rise to a
cause of action nor should it create any presumption
that a legal duty has been breached. The rules are not
designed to be a basis for civil liability.”).
¶63 The Menard Defendants argue that they have
not invoked SCR 20:1.8(a) as a basis for civil liability, to obtain disciplinary sanctions, or as a procedural weapon. Instead, they look to the language of the
amended preamble “because it establishes the standards of conduct with which Sands needed to comply if
she wanted to enforce such an arrangement.” Similar
to Sands, the Menard Defendants ground their argument in the language of Foley-Ciccantelli. However,
while Sands focuses on the language cited above, the
Menard Defendants focus on ¶86, which reads, in part:
The resolution of the issue of disqualification in the present case is thus guided by
our prior case law and the precepts of the
Supreme Court Rules of Professional Conduct for Attorneys regarding an attorney’s
duties to former clients. Appellate courts
have often cited the Rules of Professional
Conduct for guidance in non-disciplinary
cases, including disqualification cases.
Foley-Ciccantelli, 333 Wis. 2d 402, ¶86, 797 N.W.2d
789.
¶64 The arguments of the Menard Defendants are
not persuasive. Foley-Ciccantelli arose from a disqualification motion, not from a claim that the lawyer’s
conduct violated SCR ch. 20. Id., ¶91.
¶65 Accordingly, we conclude that SCR ch. 20 does
App. 32a
not apply here for at least two reasons. First, Supreme
Court Rules that regulate the ethical practice of law
in Wisconsin cannot be used as an absolute defense in
a civil action in which an attorney is a party. In that
regard, we clarify Foley-Ciccantelli to so hold. Second,
Sands’ provision of legal services was not the practice
of law, as we defined the practice of law in Mostkoff;
therefore, she was not entitled to membership in the
State Bar of Wisconsin during the times relevant to
her Watts claim. Accordingly, she was not subject to
SCR 20:1.8(a).
D. Menard, Inc.’s Counterclaim
¶66 The court of appeals concluded that the accrual date for Menard, Inc.’s counterclaim for breach
of fiduciary duty was September 1, 2005, the date of
closing for the Fund transaction. As we consider the
court of appeals’ conclusion, we note that the question
presented is whether on September 1, 2005, Menard,
as the president and CEO of Menard, Inc., knew or
should have known that Sands’ loyalty was questionable. Hansen v. A.H. Robins, Inc., 113 Wis. 2d 550,
560, 335 N.W.2d 578 (1983) (concluding that a claim
accrues “on the date the injury is discovered or with
reasonable diligence should be discovered, whichever
occurs first.”). To answer that question, we consider
Menard’s personal characteristics.
¶67 Menard was a skilled businessman who had
been involved in countless business transactions in
his individual capacity and as the CEO of Menard,
Inc. On September 1, 2005, he had enough information to be required to investigate further. As he said
in regard to the closing of the transaction that created
the Fund, “it was very difficult to tell whose side [she]
was on, was she on [Hilbert’s] side or my side.” He
also said that he then believed that Sands was lying
App. 33a
to him. Although the degree of certainty of suspicion
is variable, here, Menard was not a novice. He was in
charge of a multi-billion dollar corporation. He also
had outside advisors by his side. His suspicion triggered the obligation to investigate further, and he had
plenty of assistance to do so. See Goff v. Seldera, 202
Wis. 2d 600, 611, 550 N.W.2d 144 (Ct. App. 1996) (citing Awve v. Physicians Ins. Co., 181 Wis. 2d 815, 825,
512 N.W.2d 216 (Ct. App. 1994)). Yet, he did nothing
until after Sands sued him.
¶68 Even with the tolling rule of Donaldson v.
West Bend Mut. Ins. Co., 2009 WI App 134, ¶¶23-24,
321 Wis. 2d 244, 773 N.W.2d 470, which makes the
effective filing date November 3, 2008, Menard, Inc.’s
counterclaim was well outside the applicable statute
of limitations.25
E. Claim Regarding Trustees
¶69 Sands also appeals the court of appeals’ dismissal of her claim against the Trustees, in which the
court of appeals affirmed the circuit court’s grant of
summary judgment to the Trustees based on its earlier ruling granting partial summary judgment to the
Menard Defendants. The court stated, “since there is
no avenue to recover against the Menard principal,
there cannot be recovery against the [Trustees].”
¶70 Before us, Sands’ brief-in-chief asserted only
what she styled as a Watts unjust enrichment claim,
and in her combined response brief regarding the
Menard Defendants and Trustees, Sands stated, “This
Appeal is Solely a Watts v. Watts Unjust Enrichment
Claim.”
We concur with the conclusion of the court of appeals on
this matter, and largely adopt their factual narration as our own.
Sands, 372 Wis. 2d 126, ¶¶53-59, 887 N.WS.2d 94.
25
App. 34a
¶71 Watts, as we have discussed above in some
detail, does not preclude an unmarried cohabitant
from bringing an unjust enrichment claim on equitable grounds when the cohabitants engaged in a joint
enterprise to work together to accumulate wealth and
one cohabitant has retained the accumulated wealth
in an unjust amount. Watts provides no support for
an unjust enrichment claim made by a third party
because unjust enrichment claims are premised on
two people working towards a joint accumulation of
property in which they both expect to share equally.
¶72 However, we understand Sands’ claim against
the Trustees to be made under the theory that they
are the repositories of significant property that
once belonged to Menard. Therefore, if Sands were
to prevail on what she has styled as a Watts unjust
enrichment claim against Menard, she would need
to reach the Trustees to garner a share of Menard’s
property that they hold. We offer no opinion on her
theory of recovery from the Trustees because she has
not prevailed on her unjust enrichment claim against
Menard. Accordingly, she can have no interest in any
property that the Trustees hold. Therefore, Sands’
claim against the Trustees was properly dismissed.
III. CONCLUSION
¶73 There were four issues argued before this
court on appeal. First, we considered whether Sands
has pled facts sufficient to show unjust enrichment.
We conclude that she has not. Sands has failed to
demonstrate facts which, if true, would support her
legal conclusion that she and Menard had a joint enterprise that included accumulation of assets in which
both she and Menard expected to share equally.
¶74 Second, we considered whether the court of
appeals properly concluded that SCR 20:1.8(a) may
App. 35a
be raised as an absolute defense to what Sands has
styled as a Watts unjust enrichment claim arising
from a long-term romantic relationship. We conclude
that SCR 20:1.8(a) may guide courts in determining
required standards of care generally; however, it may
not be employed as an absolute defense to a civil claim
involving an attorney.
¶75 And finally, we also conclude that the court
of appeals properly granted summary judgment to
Sands on Menard, Inc.’s counterclaim for breach of fiduciary duty, and to the Trustees on their motion for
summary judgment dismissing Sands’ claim.
By the Court.—The decision of the court of appeals
is affirmed.
SHIRLEY S. ABRAHAMSON, J. (concurring in
part and dissenting in part).
¶76 Unlike the majority, I conclude that Debra
Sands pleaded sufficient facts to establish an unjust
enrichment claim under Watts v. Watts, 137 Wis. 2d
506, 405 N.W.2d 303 (1987), against John R. Menard,
Jr.1 I would remand Sands’ unjust enrichment claim
against Menard to the circuit court for trial. Accordingly, I dissent from the majority’s contrary conclusion.
I.
¶77 I begin by setting forth the applicable standard of review, which is muddied by the majority. The
I agree with the following conclusions of the majority:
(1) SCR 20:1.8(a ) may guide courts in determining required
standards of care for attorneys generally, but may not be used
as an absolute bar in a civil claim involving an attorney; (2) the
court of appeals properly granted summary judgment to Sands
on Menard, Inc.’s counterclaim for breach of fiduciary duty; and
(3) the court of appeals properly granted summary judgment to
the Menard Trustees. Majority op., ¶3.
1
App. 36a
supreme court reviews a grant of summary judgment
independently, applying the same standards as employed by the circuit court. Dufour v. Progressive
Classic Ins. Co., 2016 WI 59, ¶12, 370 Wis. 2d 313, 881
N.W.2d 678. “There is a standard methodology which
a trial court follows when faced with a motion for summary judgment.” Green Spring Farms v. Kersten, 136
Wis. 2d 304, 314, 401 N.W.2d 816 (1987).
¶78 “The first step of that methodology requires the
court to examine the pleadings to determine whether a claim for relief has been stated.” Green Spring
Farms, 136 Wis. 2d at 315, 401 N.W.2d 816; see also
Moya v. Aurora Healthcare, Inc., 2017 WI 45, ¶15, 375
Wis. 2d 38, 894 N.W.2d 405. This step tests the “legal
sufficiency of the complaint.” Kaloti Enters., Inc. v.
Kellogg Sales Co., 2005 WI 111, ¶11, 283 Wis. 2d 555,
699 N.W.2d 205. All facts alleged in the complaint, as
well as all reasonable inferences from those facts, are
accepted as true, and the complaint is given a liberal
construction. Ollerman v. O’Rourke Co., 94 Wis. 2d
17, 24, 288 N.W.2d 95 (1980).
¶79 “If a claim for relief has been stated, the inquiry then shifts to whether any factual issues exist.”
Green Spring Farms, 136 Wis. 2d at 315, 401 N.W.2d
816. Summary judgment is only appropriate “if the
pleadings, depositions, answers to interrogatories,
and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to
a judgment as a matter of law.” Wis. Stat. § 802.08.2
The evidence is viewed in the light most favorable to
the non-moving party, and all reasonable inferences
are drawn in favor of the non-moving party. Burbank
Grease Servs., LLC v. Sokolowski, 2006 WI 103, ¶40,
All subsequent references to the Wisconsin Statutes are
to the 2009-10 version unless otherwise indicated.
2
App. 37a
294 Wis. 2d 274, 717 N.W.2d 781. It is not the job of
the court on summary judgment to “decide issues of
credibility, weigh the evidence, or choose between differing but reasonable inferences from the undisputed
facts.” Fortier v. Flambeau Plastics Co., 164 Wis. 2d
639, 665, 476 N.W.2d 593 (Ct. App. 1991).
II
¶80 I conclude that the facts alleged in Sands’ complaint, taken as true (as we must), adequately state a
claim for unjust enrichment against Menard.3
¶81 An unjust enrichment claim has three elements: “(1) a benefit conferred on the defendant by
the plaintiff, (2) appreciation or knowledge by the defendant of the benefit, and (3) acceptance or retention
of the benefit by the defendant under circumstances
making it inequitable for the defendant to retain the
benefit.” Watts, 137 Wis. 2d at 531, 405 N.W. 303.
¶82 Watts did not change the elements of unjust
enrichment. Nor did it create a sub-category of unjust enrichment claim. It merely recognized that
unmarried cohabitants may state a claim for unjust
enrichment where one party retains an unreasonable
amount of property acquired through the efforts of
both. As the Watts court explained:
Many courts have held, and we now so
hold, that unmarried cohabitants may raise
claims based upon unjust enrichment following the termination of their relationships where one of the parties attempts to
retain an unreasonable amount of the property acquired through the efforts of both.
In this case, the plaintiff alleges that she
The operative complaint in the instant case is Sands’
Second Amended Complaint.
3
App. 38a
contributed both property and services to the
parties’ relationship. She claims that because of these contributions the parties’ assets increased, but that she was never compensated for her contributions. She further
alleges that the defendant, knowing that the
plaintiff expected to share in the property accumulated, “accepted the services rendered to
him by the plaintiff” and that it would be unfair under the circumstances to allow him to
retain everything while she receives nothing.
Watts, 137 Wis. 2d at 532-33, 405 N.W.2d 303.
¶83 Additionally, nothing in Watts limits an unjust
enrichment claim to two persons. A claim for unjust
enrichment may involve more than two persons so
long as all those involved worked towards the joint
accumulation of property or wealth in which they all
expected to share. Any contrary suggestion by the
majority is unsupported. See majority op., ¶71.
¶84 In Watts, the plaintiff alleged that during her
relationship with the defendant, she contributed both
property and services to the parties’ relationship with
the expectation that she would enjoy equally with the
defendant the wealth accumulated through their joint
efforts. Watts, 137 Wis. 2d at 513-14, 405 N.W.2d 303.
The plaintiff alleged:
During their relationship, the plaintiff contributed childcare and homemaking services,
including cleaning, cooking, laundering,
shopping, running errands, and maintaining
the grounds surrounding the parties’ home.
Additionally, the plaintiff contributed personal property to the relationship which she
owned at the beginning of the relationship or
acquired through gifts or purchases during
App. 39a
the relationship. She served as hostess for
the defendant for social and business-related events. The amended complaint further asserts that periodically, between 1969
and 1975, the plaintiff cooked and cleaned
for the defendant and his employees while
his business, a landscaping service, was
building and landscaping a golf course.
From 1973 to 1976, the plaintiff worked 2025 hours per week at the defendant’s office,
performing duties as a receptionist, typist, and assistant bookkeeper. From 1976
to 1981, the plaintiff worked 40-60 hours
per week at a business she started with
the defendant’s sister-in-law, then continued and managed the business herself
after the dissolution of that partnership.
Watts, 137 Wis. 2d at 513-14, 405 N.W.2d 303.
¶85 The Watts court held that the plaintiff stated
a claim for unjust enrichment against her former cohabitant:
In this case, the plaintiff alleges that she
contributed both property and services to
the parties’ relationship. She claims that because of these contributions the parties’ assets increased, but that she was never compensated for her contributions. She further
alleges that the defendant, knowing that
the plaintiff expected to share in the property accumulated, “accepted the services
rendered to him by the plaintiff” and that
it would be unfair under the circumstances to allow him to retain everything while
she receives nothing. We conclude that the
facts alleged are sufficient to state a claim
App. 40a
for recovery based upon unjust enrichment.
Watts, 137 Wis. 2d at 533, 405 N.W.2d 303.
¶86 In the instant case, Sands pleaded extensive
facts spanning approximately eight pages of her complaint supporting her unjust enrichment claim against
Menard. Sands alleges in her complaint as follows:
[D]uring the eight-year period of Sands’s cohabitation and engagement with Menard, the
substantial and continuing efforts of Sands
resulted directly in the acquisition of valuable
property, wealth, and substantial increase in
the net worth of Menard, who now attempts
to retain not merely an unreasonable amount
of property, wealth, and increased net worth
acquired through the efforts of Sands, but all
of the property, wealth, and increased net
worth acquired through the efforts of Sands.
Appendix to Brief of Plaintiff-Appellant-Petitioner
Debra K. Sands, Volume I, at A061.
¶87 Sands summarized her contributions as follows:
Sands relied on Menard’s promises, representations, and conduct, and devoted over
eight years to working with and helping him
in his business and personal matters. Sands
contributed to their enterprise in numerous
ways. She was Menard’s life partner, social companion, and manager and hostess
of his households. Sands protected Menard
from unwanted approaches by serving as a
“gate-keeper.” She supervised his health
care and medical needs; managed the remodeling of three residences; and advised on the
acquisition of airplanes and their design and
décor. She provided ideas for new products
App. 41a
and product lines for the Menard, Inc., stores,
such as garden centers; and scouted and proposed new store locations, store layouts, and
product displays. She represented Menard,
Inc., as a product buyer. She reviewed and
suggested changes and additions to Menard,
Inc., marketing plans. She assisted with
government and public relations. She participated in the redesign of store signs and
logos. She helped find new business and investment opportunities. She assisted in the
management of the Team Menard auto racing venture and newly-acquired businesses,
including two engine design companies in
England, a thoroughbred racing business,
and a $400 million private equity fund. She
made her joint enterprise with Menard her
focus, which occupied her every moment.
Brief of Plaintiff-Appellant-Petitioner, Debra K.
Sands 14-15.
¶88 Construing Sands’ complaint liberally and taking all factual allegations as true (as the court must), I
conclude that Sands alleged facts sufficient to state a
claim for unjust enrichment.
¶89 The majority concludes that Sands failed to
adequately plead unjust enrichment by relying on inapposite cases and drawing distinctions that were not
essential to the court’s holding in Watts vis-à-vis the
plaintiff’s unjust enrichment claim.
¶90 The majority relies on Waage v. Borer, 188
Wis. 2d 324, 525 N.W.2d 96 (Ct. App. 1994), and Ward
v. Jahnke, 220 Wis. 2d 539, 583 N.W.2d 656 (Ct. App.
1998), asserting that these cases shed light on “the
types of facts that must be pled in order to survive
summary judgment.” Majority op., ¶36. They do not.
App. 42a
These cases do not support the majority’s position.
¶91 In Waage, the court of appeals held that under
the particular facts of that case, the complainant could
not recover on her unjust enrichment claim because
“Watts does not recognize recompense for housekeeping or other services unless the services are linked to
an accumulation of wealth or assets during the relationship.” Waage, 188 Wis. 2d at 330, 525 N.W.2d 96.
¶92 Importantly, the Waage court did not conclude
that the complainant had failed to adequately plead
unjust enrichment. Rather, the unjust enrichment
claim proceeded to trial, and the court of appeals held
that the complainant did not present sufficient evidence of any assets accumulated during the relationship as a result of joint efforts: “[Plaintiff] arguably
alleged but did not set forth any evidence to satisfy
[the elements of her unjust enrichment claim]. . . .
[Plaintiff] presented absolutely no evidence of assets
accumulated during their relationship.” Waage, 188
Wis. 2d at 330, 525 N.W.2d 96. Simply stated, Waage
has nothing to say about pleading requirements.
¶93 The Ward case also did not analyze the sufficiency of the complaint. In Ward, the question presented was the sufficiency of the evidence produced
at trial.
¶94 In Ward, the complainant recovered at trial
her fair share of the down payment on the couple’s
house, but the court of appeals held that the defendant
had not been unjustly enriched following the purchase
of the home. Ward, 220 Wis. 2d at 544-50, 583 N.W.2d
656. In so holding, the court of appeals pointed out
that the plaintiff’s own trial testimony established
that after the couple moved into the home, the couple split household expenses as evenly as possible, so
that a reasonable finder of fact could not find that the
App. 43a
defendant had been unjustly enriched. See Ward, 220
Wis. 2d at 550-53, 583 N.W.2d 656.
¶95 In addition to relying on inapposite cases, the
majority misunderstands what facts were relevant to
the court’s holding in Watts vis-à-vis the plaintiff’s
unjust enrichment claim. The majority magnifies differences in Sands’ and Menard’s personal relationship
and in the personal relationship of the parties at the
center of Watts.4 For example, the majority points out
that unlike in Watts, in which the plaintiff helped the
defendant begin and grow his landscaping business,
Menard was already a multi-millionaire and had been
a successful businessman for almost 40 years when
Sands and Menard met. Majority op., ¶48.
¶96 This reasoning suggests that the court would
not have allowed the unjust enrichment claim in Watts
to proceed if the defendant’s business had already
been established and profitable at the time the parties
cohabitated, as opposed to being built from scratch by
the efforts of both. Watts does not support this suggestion. The fact that Menard was already successful
does not preclude Sands’ unjust enrichment claim if
Menard’s assets became more valuable as a result of
the parties’ joint efforts.
¶97 The majority also highlights that “Sands has
not alleged that during their relationship she and
The majority appears to acknowledge that the joint accumulation of property and wealth, not the nature of the relationship, is the focus of the unjust enrichment claim, see majority op.,
¶¶33-34, 41-42, 44 n.19, 49 n.20, but nonetheless, the majority
places great emphasis on these relationship differences, see majority op., ¶¶31, 48-49. The majority disclaims any reliance on
a “checklist” of similarities with the specific facts of Watts, majority op., ¶40, but that is exactly what the majority does. What
should readers rely upon for future cases: what the majority
opinion says or what the majority opinion does?
4
App. 44a
Menard commingled finances, filed joint tax returns,
or made joint purchases of real and/or personal property . Sands did not obligate herself to any business
or personal debt Menard incurred.” Majority op., ¶49.
These facts are not dispositive of unjust enrichment.
¶98 In Watts, we detailed certain aspects of the
parties’ relationship, but those facts were not necessary to our holding on the unjust enrichment issue.
We explained:
Early in 1969, the parties began living together in a “marriage-like” relationship, holding
themselves out to the public as husband and
wife. The plaintiff assumed the defendant’s
surname as her own. Subsequently, she gave
birth to two children who were also given the
defendant’s surname. The parties filed joint
income tax returns and maintained joint
bank accounts asserting that they were husband and wife. The defendant insured the
plaintiff as his wife on his medical insurance policy. He also took out a life insurance
policy on her as his wife, naming himself
as the beneficiary. The parties purchased
real and personal property as husband and
wife. The plaintiff executed documents and
obligated herself on promissory notes to
lending institutions as the defendant’s wife.
Watts, 137 Wis. 2d at 513, 405 N.W.2d 303.
¶99 None of these facts reappears in the analysis
of the plaintiff’s unjust enrichment claim. See Watts,
137 Wis. 2d at 530-533, 405 N.W.2d 303. Rather, they
were relevant to the plaintiff’s claim that the plaintiff,
the defendant, and their children constituted a “family,” thus entitling her to bring an action for property
division under Wisconsin’s marriage dissolution stat-
App. 45a
ute. Watts, 137 Wis. 2d at 514-15, 405 N.W.2d 303.5
III
¶100 This matter is here on summary judgment.
Although the majority opinion is confusing, it purports to dismiss Sands’ unjust enrichment claim as
inadequately pleaded. It nonetheless impermissibly
ventures outside the pleadings to weigh the evidence,
reaching the conclusion that Sands would not prevail
on the merits of her unjust enrichment claim.6
In support, the plaintiff relied upon a Washington court
of appeals case with similar facts, Warden v. Warden, 36 Wash.
App. 693, 676 P.2d 1037 (1984). The Washington court of appeals applied its marriage dissolution statute to divide property
acquired by unmarried cohabitants in what was tantamount to
a marital family except for a legal marriage. We recognized that
“Warden is remarkably similar on its facts to the instant case.
The parties in Warden had lived together for 11 years, had two
children, held themselves out as husband and wife, acquired
property together, and filed joint tax returns.” Watts, 137 Wis.
2d at 516, 405 N.W.2d 303. Thus, the plaintiff in Watts pleaded
similar facts not to support her unjust enrichment claim, but because she was also arguing that her relationship with the defendant should be considered a “family” under Wisconsin’s marriage
dissolution statute.
6
The majority concludes:
5
[D]espite the litany of contributions she made, we cannot conclude that Sands’ contributions were “material”
given Menard’s wealth and the success of his company
when the parties met. In particular, although Sands
has listed a series of business transactions in which
she “participated” or “assisted,” she has alleged no facts
from which we could conclude that her contributions
caused an increase in Menard’s assets or property.
We are similarly disinclined to conclude that Sands has
pled sufficient facts which, if true, would demonstrate
that Menard’s acceptance or retention of her contributions would be inequitable under the circumstances. In
particular, Sands must demonstrate that the benefits
she conferred to Menard are not offset by the benefits
App. 46a
¶101 In contrast, I conclude that Sands pleaded
sufficient facts to state a claim for unjust enrichment
against Menard. After reviewing the summary judgment record, viewing all the evidence in the light
most favorable to Sands, and drawing all reasonable
inferences in her favor (as I must), I would hold that
genuine issues of material fact preclude summary
judgment. I would remand Sands’ unjust enrichment
claim to the circuit court for trial.
¶102 For the reasons set forth, I write separately.
¶103 I am authorized to state that Justice ANN
WALSH BRADLEY joins this separate writing.
she derived from him. First, the record indicates that
Sands enjoyed an expansive lifestyle as the companion
of a wealthy man. Second, unlike the plaintiffs in Watts
or Ward, Sands did receive compensation for some of
her services. Over the course of their eight-year relationship, Sands was paid $49,635.84 for the balance of
her student loans, $3,000 to compensate her for “wedding expenses,” and $152,105 for various legal services.
Majority op., ¶50-51 (footnotes omitted). The majority noted
specific examples of luxuries enjoyed by Sands as Menard’s companion including “multiple boating and skiing trips, vacations
to St. Martin, London, and Italy, and . . . a Ford Mustang for
Christmas in 2005. They went to horse races, NASCAR events,
and fashion shows, and met prominent political figures at that
time.” Majority op., ¶51 n.21.
Clearly, the majority reaches beyond the pleadings and has
substituted itself as the finder of fact in order to resolve genuine issues of material fact in favor of Menard. At this stage, it
is not the court’s task to “decide issues of credibility, weigh the
evidence, or choose between differing but reasonable inferences
from the undisputed facts.” Fortier, 164 Wis. 2d at 665, 476
N.W.2d 593.
App. 47a
2012AP2377 & 2015AP870
Court of Appeals of Wisconsin
Debra K. SANDS,
Plaintiff-Appellant,
v.
John R. MENARD, Jr., Menard, Inc., Menard Thoroughbreds, Inc., Webster Hart as Trustee of the John
R. Menard, Jr. 2002 Trust and Related Trusts, Angela L. Bowe as Trustee of the John R. Menard, Jr.
2002 Trust and Related Trusts and Alphons Pitterle
as Trustee of the John R. Menard, Jr. 2002 Trust and
Related Trusts,
Defendants-Respondents,
Midwest Manufacturing Co., Wood Ecology Inc.,
Countertops Inc., Team Menard Inc., Menard Engine
Group, Menard Competition Technologies LTD, MC
Technologies Inc., Menard Engineering LTD, Ultramotive LTD And Merchant Capital LLC,
Defendants.
Debra K. Sands,
Plaintiff-Appellant-Cross-Respondent,
v.
John R. Menard, Jr., Menard, Inc., and
Menard Thoroughbreds, Inc.,
Defendants-Respondents-Cross-Appellants,
Webster Hart as Trustee of the John R. Menard, Jr.
App. 48a
2002 Trust and Related Trusts, Angela L. Bowe
as Trustee of the John R. Menard, Jr. 2002 Trust
and Related Trusts, Alphons Pitterle as Trustee
of the John R. Menard, Jr. 2002 Trust and Related
Trusts, Midwest Manufacturing Co., Wood Ecology
Inc., Countertops Inc., Team Menard Inc., Menard
Engine Group, Menard Competition Technologies
Ltd, MC Technologies Inc., Menard Engineering
LTD, Ultramotive LTD And Merchant Capital LLC,
Defendants.
STARK, P.J.
¶1 This case involves, in part, the extent to which
an attorney can assert a claim under Watts v. Watts,
137 Wis. 2d 506, 405 N.W.2d 303 (1987), arising out
of legal services allegedly provided to a cohabiting
partner and his businesses. Debra Sands appeals orders dismissing her claims against John Menard, Jr.,
Menard, Inc., and Menard Thoroughbreds, Inc., (“the
Menard Defendants”)1 and against the trustees of the
John R. Menard, Jr. 2002 Trust and related trusts
(“the Trustees”). Sands claims she cohabitated with
Menard from 1998 until 2006, and during that time
she performed work for Menard and his companies
that increased their value and for which she was not
fully compensated. Sands further claims Menard repeatedly represented to her during their relationship
that he would give her ownership interests in his companies as compensation for her services, but he has
since failed to do so.
We refer to John Menard, Jr., Menard, Inc., and Menard
Thoroughbreds, Inc., collectively, as “the Menard Defendants.”
We refer to John Menard, Jr., individually, as “Menard” and to
Menard, Inc., individually, as “Menard, Inc.”
1
App. 49a
¶2 For the reasons explained below, we conclude
the circuit court properly granted summary judgment dismissing Sands’ claims against the Menard
Defendants and the Trustees. We also conclude the
court properly granted summary judgment to Sands
on Menard, Inc.’s counterclaim for breach of fiduciary
duty. We therefore affirm.
BACKGROUND
¶3 Menard is the founder of Menards, a highly
successful, privately held chain of home improvement
stores, and is president and chief executive officer
(CEO) of Menard, Inc. In November 1997, nearly
forty years after starting his business, Menard began
dating Sands. Sands had graduated from William
Mitchell College of Law in 1993 and was licensed to
practice law in Minnesota.
¶4 Sands contends she moved into Menard’s home
in August 1998, and they became engaged in December 1998. She claims they lived together until their
relationship ended in April 2006. Menard concedes
he and Sands were engaged; however, he denies they
ever lived together.
¶5 It is undisputed that, during Sands’ relationship with Menard, she performed work on behalf of
Menard and his companies. Sands asserts:
Among the many contributions Sands made,
in addition to being Menard’s life’s partner, social companion, and manager and
hostess of his households, were acting as
a “gate-keeper” to screen Menard from unwanted approaches; supervising his health
care and medical needs; managing the remodeling of three residences; advising on the
acquisition of airplanes and their design and
App. 50a
décor; finding and suggesting ideas for new
products and product lines for the Menard
stores, such as garden centers; scouting and
proposing new store locations; proposing redesign of store layout and product displays;
representing Menard, Inc., as a product buyer; reviewing and suggesting changes and
additions to Menard, Inc., marketing plans;
assisting with government and public relations; participating in the redesign of store
signs and logo; helping find new business
and investment opportunities; and assisting
in the management of newly-acquired businesses, including two engine design companies in England, a thoroughbred racing business, and a $400 million private equity fund.
Sands
contends
Menard
repeatedly
promised to compensate her for her services by giving her “an ownership interest in the various Menard business ventures for which she provided assistance.”
Menard denies making any such promises.
¶6 Sands contends she did not perform any legal
work for Menard until 2003, over five years after
their relationship began. Conversely, the Menard
Defendants assert that Sands began providing legal
services for Menard in October 1997, about one month
before she and Menard began dating. Specifically, the
Menard Defendants claim Sands was retained to provide legal services in connection with an investigation
by the Wisconsin Department of Natural Resources
(DNR) regarding Menard’s disposal of wood ash.
¶7 The record reflects that, on or about May 28,
1998, the Prima Group, a company owned by Sands
and her sister, sent Menard, Inc., an invoice for a
“Client Matter” entitled “Wisconsin Dept. of Natural
App. 51a
Resources v. Menard, Inc.” The invoice stated it was
for “Governmental relations & Legal services rendered Oct. 15, 1997–May 15, 1998.” The total amount
of the invoice was $49,635.84, which was comprised
of a $35,000 retainer, $35.84 in “Disbursements,”
and $14,600 for “Gov’t Relations & Legal Services.”
Menard, Inc., paid this invoice in full on May 29, 1998,
and recorded the payment in its financial records as a
legal expense.
¶8 Sands disputes that the May 29, 1998 payment
was compensation for legal services. Instead, Sands
contends that, in May 1998, Menard offered to give
her money so that she could pay off an outstanding
student loan in the amount of $49,635.84. According
to Sands, Menard directed her to bill Menard, Inc.,
for the exact amount of the loan and to state the invoice was for government relations and legal services.
Sands contends this was done so that the payment
would be tax deductible by Menard, Inc., as a business
expense.
¶9 In addition to the DNR/wood ash matter, the
Menard Defendants contend Sands provided legal
services to both Menard and Menard, Inc., beginning
in September 1998 in a transaction involving race car
driver Robby Gordon. Gordon’s affidavit supports the
Menard Defendants’ claim. In addition, the record
reflects that Menard, Inc., paid Sands $3,000 on September 21, 1999, and the Menard Defendants contend
that payment was for her work on the Gordon transaction.
¶10 Sands concedes she performed “a small amount
of work . . . in assisting with negotiation” of the Gordon transaction. However, she asserts her role in the
transaction was “as [Menard’s] business advisor, and
not as his lawyer.” Sands further claims she was never paid for her work on the Gordon transaction, and
App. 52a
the $3,000 payment she received from Menard, Inc.,
was actually a reimbursement for wedding planning
expenses.
¶11 The parties do agree, however, that by the year
2003 Sands had begun doing legal work for Menard
and Menard, Inc. From May 2003 to June 2004, Sands
sent Menard, Inc., seven invoices for a total of 1,049
hours of “legal services” provided between April 9,
2003 and June 7, 2004.2 Sands billed at an hourly rate
of $145, which she testified at deposition was “suggested, demanded, . . . approved” and “agreed” upon by
Menard. Menard, Inc., paid Sands a total of $152,105
for the legal work reflected in the seven invoices.
¶12 Sands continued providing legal services for
Menard and Menard, Inc., until her relationship
with Menard ended in 2006. At that point, Menard
instructed Sands to submit a bill for all legal services for which she had not been paid dating back to
2003. Sands then submitted 190 separate invoices
to Menard, Inc., for work performed between February 2003 and April 2006. According to those invoices,
Sands performed 7,487.10 hours of legal work during
that time period, which, at a rate of $145 per hour,
amounted to $1,085,629.50 in legal fees.
¶13 Sands met with Menard and Peter Liupakka,
Menard, Inc.’s chief financial officer (CFO), in October 2006. During the meeting, Liupakka advised
Beginning in May 2003, all of the invoices Sands sent to
Menard, Inc., bore the following header:
2
Debra K. Sands, Esq.
Attorney-at-Law
Each invoice also included the following description: “Professional fees in respect of legal services in acting on your behalf.”
None of the invoices dated May 2003 or later referred to the Prima Group.
App. 53a
Sands he believed the number of hours reflected in
her invoices was excessive. Menard, Inc., nevertheless
offered to pay Sands $961,518—the amount claimed
in the invoices, less payments Menard, Inc., believed
Sands had already received. However, payment of that
amount was conditioned on Sands signing a one‑page
“Release of All Claims,” which expressly included a
waiver of any “quasi-marital claims.” Sands refused
to sign the release. According to Sands, Menard then
“said that he would add an additional $100,000 to the
total of these invoices and [Liupakka] would go prepare the check as [she] sat there if [she] would sign
the [r]elease.” Sands again refused to sign. Because
of Sands’ refusal, Menard, Inc., declined to pay her
any portion of the fees reflected in the 190 invoices she
had submitted.
¶14 On November 3, 2008, Sands filed the instant
lawsuit against the Menard Defendants and various
other parties. Two weeks later, Sands filed an amended complaint dropping all of the additional defendants
except MH Private Equity Fund, LLC. A second
amended complaint was filed on May 10, 2011, adding
the Trustees as defendants. Among other things, the
second amended complaint alleged that, in 2002, unbeknownst to Sands, Menard had transferred the vast
majority of his non-voting stock in Menard, Inc., to the
John R. Menard, Jr. 2002 Trust.
¶15 Sands’ second amended complaint asserted
claims for unjust enrichment, breach of contract, and
promissory estoppel against Menard. As damages
for those claims, Sands sought “a fair and reasonable
share of the property, wealth, and increased net worth
acquired by Menard through [Sands’] efforts” during
their relationship, or damages equal to the fair value of the ownership interest Menard had allegedly
promised her. The second amended complaint also
App. 54a
asserted unjust enrichment claims against the other
Menard Defendants and the Trustees, claiming in
each case that Sands was entitled to “judgment in
an amount equal to the fair and reasonable value of
the substantial . . . benefits” she had provided. In response to Sands’ second amended complaint, Menard,
Inc., asserted a counterclaim against Sands for breach
of fiduciary duty.3
¶16 In April 2012, the Menard Defendants moved
for partial summary judgment, seeking dismissal of
“all of [Sands’] claims by which she [sought] a portion
of [Menard’s] net worth or assets, ownership interests
in the Menard companies, or any part of the increase
in value of the Menard companies.” (Some capitalization omitted.) The Menard Defendants argued, among
other things, that Sands was barred from recovering a
portion of Menard’s assets or an ownership interest in
his companies because she had failed to comply with
the requirements of SCR 20:1.8(a) (hereinafter, Rule
1.8(a)), which regulates business transactions between
attorneys and clients.4 The Trustees also moved for
summary judgment. They contended Sands’ unjust
enrichment claim against them failed as a matter of
law because: (1) Sands did not allege she had provided any services to the Trustees; (2) Sands could not
The Menard Defendants also asserted various other counterclaims against Sands. However, they have since abandoned
those additional counterclaims, and, as a result, we need not discuss them further.
4
All references to SCR 20:1.8(a) are to the 1997 version, which was in effect when Sands and Menard began their
relationship and when, according to the Menard Defendants,
Sands first performed legal work for Menard. The rule remained
unchanged until 2007, after Sands’ relationship with Menard
ended. Compare SCR 20:1.8(a) (1997), and SCR 20:1.8(a) (2006),
with SCR 20:1.8(a) (2007); see also SUP. CT. ORDER 04-07, 293
Wis. 2d xv, xv-xvii, lx (eff. July 1, 2007).
3
App. 55a
establish the value of her alleged contributions; and
(3) the Trustees did not retain any benefit provided by
Sands under inequitable circumstances.
¶17 Following a hearing, the circuit court granted
both summary judgment motions. With respect to
the Menard Defendants’ motion, the court declined
to adopt a bright-line rule that an attorney’s claims
against his or her client stemming from a business
transaction with the client are necessarily barred if
the attorney violated Rule 1.8(a). Instead, the court
held that Rule 1.8(a) does not bar the attorney’s claim
if: (1) the attorney and client had a romantic relationship that predated their attorney-client relationship;
and (2) the legal services rendered by the attorney
were “merely ancillary or incidental” to the parties’
larger joint enterprise.
¶18 Applying the first prong of this test, the circuit court focused on whether the May 28, 1998 invoice from the Prima Group to Menard, Inc., for “legal
services” rendered between October 15, 1997, and
May 15, 1998, established that Sands’ attorney-client
relationship with Menard preceded their romantic
relationship. The court noted that, for purposes of
summary judgment, it was required to accept as true
Sands’ claim—which the court referred to as “quite a
tale”—that the invoice was
a fraudulent document she submitted to
Menard, Inc., so that a personal gift from
John R. Menard, Jr., to Debra Sands to pay
her student loans could be run through his
company and, with the magic of fraud, transforms a taxable event under the gift tax to a
tax deductible event as a business expense,
albeit a tax shifting event to Sands as income.
Even accepting Sands’ claim regarding the invoice as
App. 56a
true, however, the court stated it would deny Sands
relief in equity because her admitted fraud regarding
the invoice was evidence of unclean hands and showed
she was in pari delicto5 with Menard. The court therefore refused to “ignor[e]” the invoice, which, according
to the court, showed that Sands had an attorney-client relationship with Menard before their romantic
relationship began.
¶19 Applying the second prong of the test stated
above, the circuit court noted the record contained
“invoices . . . approaching one million dollars covering
eight years’ period, which is, on average, . . . over a
hundred thousand dollars a year.” The court stated
that amount of legal services was “certainly not . . . ancillary, much less incidental.” Because the court concluded neither prong of the test it had formulated was
met, it ruled Sands’ violation of Rule 1.8(a) barred her
claims against the Menard Defendants for an ownership interest in Menard’s businesses or for a portion of
the increase in their value.
¶20 The circuit court then held that, “since there
[was] no avenue to recover against the Menard principal,” Sands could not recover from the Trustees. Accordingly, the court granted the Trustees’ motion for
summary judgment. The court stated that, following
these rulings, Sands’ only remaining claim was her
claim “against [the Menard Defendants] for compensation for services rendered.”
¶21 The circuit court subsequently entered written
orders granting summary judgment to the Trustees
and partial summary judgment to the Menard DefenIn pari delicto is a Latin phrase meaning “in equal fault.”
BLACK’S LAW DICTIONARY 911 (10th ed. 2014). The in pari
delicto doctrine refers to “[t]he principle that a plaintiff who has
participated in wrongdoing may not recover damages resulting
from the wrongdoing.” Id.
5
App. 57a
dants. Sands appealed as of right from the order regarding the Trustees and petitioned for leave to appeal
from the order regarding the Menard Defendants. On
December 27, 2012, we denied Sands’ motion for leave
to appeal the order regarding the Menard Defendants; however, we stayed Sands’ appeal of the order
regarding the Trustees pending the disposition of her
remaining claims in the circuit court.
¶22 Thereafter, in the circuit court, Sands submitted a thirty-seven page list of “nonlegal” services for
which she alleged she was entitled to be compensated. Among other things, Sands sought compensation
for selecting and purchasing furniture for Menard’s
residences, planning and preparing meals, managing
and coordinating Menard’s medical care, assisting
with gardening and lawn mowing, providing “personal . . . and family advice,” and advising Menard
regarding various aspects of his businesses. The
Menard Defendants moved to strike Sands’ claim for
nonlegal services on several grounds, including that
Sands had previously averred in an affidavit that she
never expected to be compensated for her nonlegal
services. The circuit court granted the Menard Defendants’ motion to strike, finding Sands had previously
admitted she had no expectation of compensation for
her nonlegal services. Sands does not challenge that
ruling on appeal.
¶23 After the circuit court struck Sands’ claim for
nonlegal services, the Menard Defendants sought an
admission from Sands that her only remaining claim
was “for the legal services that she rendered to the
Menard Defendants at $145 per hour.” However,
Sands refused to admit that fact, instead asserting,
apparently for the first time, that she was entitled
App. 58a
to the quantum meruit6 value of her legal services,
which she claimed was between $355 and $640 per
hour. After multiplying those hourly rates by 6,779.25
hours—the number of hours for which Sands claimed
she had not yet been paid—Sands asserted she was
entitled to damages of between $2,406,633.75 and
$4,338,720.
¶24 The Menard Defendants moved to strike
Sands’ quantum meruit claim, arguing she could not
recover on a quasi-contract theory when she had an
express contract with Menard to be paid $145 per hour
for her legal services. The circuit court agreed with
the Menard Defendants and granted their motion to
strike the quantum meruit claim, explaining:
All the invoices in this case generated by
[Sands] show the rate of $145 per hour.
Even if this sum was dictated by the client,
Mr. Menard, this was clearly the agreed rate.
[Sands] claims that Mr. Menard repudiated
the contract and thus the contract amount
when he refused to pay the amount without
there being the signature of a general release.
Refusal to pay when the services have been
fully performed is not a repudiation of the
contract, it is rather a breach of the contract.
Sands does not challenge this ruling on appeal.
¶25 In the meantime, Sands moved for summary
judgment on Menard Inc.’s counterclaim for breach of
fiduciary duty. The circuit court ultimately granted
that motion, concluding the counterclaim was barred
Latin for “as much as he has deserved,” quantum meruit
refers to “[t]he reasonable value of services; damages awarded
in an amount considered reasonable to compensate a person
who has rendered services in a quasi-contractual relationship.”
BLACK’S LAW DICTIONARY, supra, at 1437.
6
App. 59a
by the applicable statute of limitations.
¶26 Thus, the only remaining claim before the circuit court was Sands’ claim that Menard had breached
an express contract to pay her $145 per hour for legal
services. On March 27, 2015, Sands moved the circuit
court to dismiss that claim with prejudice and enter
a final judgment so that she could pursue an appeal
of the court’s previous order granting the Menard
Defendants partial summary judgment. The court
granted Sands’ motion, and a final order was entered
on April 8, 2015, disposing of the entire matter in litigation with respect to all the parties.
¶27 On April 24, 2015, Sands filed a notice of appeal from the circuit court’s April 8, 2015 final order.
Menard, Inc., cross-appealed from the order dismissing its counterclaim for breach of fiduciary duty. Sands
moved to consolidate her appeal from the April 8 order with her previous appeal from the order granting
summary judgment to the Trustees. We granted that
motion on June 15, 2015. Additional facts are included in the discussion section as necessary.
DISCUSSION
¶28 We review a grant of summary judgment independently, using the same methodology as the circuit
court. Hardy v. Hoefferle, 2007 WI App 264, ¶6, 306
Wis. 2d 513, 743 N.W.2d 843. Summary judgment
is appropriate where there are no genuine issues of
material fact and the moving party is entitled to judgment as a matter of law. WIS. STAT. § 802.08(2).7 The
burden is on the party seeking summary judgment to
demonstrate “the absence of any genuine factual disputes and entitlement to judgment as a matter of law
under the legal standards applicable to the claim.”
All references to the Wisconsin Statutes are to the 201314 version unless otherwise noted.
7
App. 60a
Steven V. v. Kelley H., 2004 WI 47, ¶35, 271 Wis. 2d 1,
678 N.W.2d 856. We review summary judgment materials in the light most favorable to the nonmoving
party. Thomas v. Mallett, 2005 WI 129, ¶4, 285 Wis.
2d 236, 701 N.W.2d 523.
I. Sands’ appeal
A. Sands’ claims against the Menard Defendants
¶29 In her second amended complaint, Sands asserted claims for unjust enrichment against all three
of the Menard Defendants. In addition, she asserted
breach of contract and promissory estoppel claims
against Menard only. The Menard Defendants contend the circuit court properly granted summary judgment on all of these claims, to the extent they were
premised on legal services Sands provided during her
relationship with Menard, because the undisputed
facts show that Sands violated Rule 1.8(a), which
governs business transactions between attorneys and
clients. The Menard Defendants contend Sands’ violation of Rule 1.8(a) is a complete bar to any claim that
Sands is entitled to an ownership interest in Menard’s
businesses based on legal services she provided.
¶30 During the time period relevant to this case,
Rule 1.8(a) provided:
A lawyer shall not enter into a business transaction with a client or knowingly acquire an
ownership, possessory, security or other pecuniary interest adverse to the client unless:
(1) the transaction and terms on which
the lawyer acquires the interest are fair
and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner which can
be reasonably understood by the client;
App. 61a
(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and
(3) the client consents in writing thereto.
These requirements are necessary because “[a] lawyer’s legal skill and training, together with the relationship of trust and confidence between lawyer and
client, create the possibility of overreaching when the
lawyer participates in a business, property or financial
transaction with a client.” Model Rules Of Prof’l Conduct r. 1.8 cmt. (AM. BAR ASS’N 2015). This includes
transactions, like the one Sands alleges here, in which
an attorney seeks an ownership interest in the client’s
business as compensation for legal services. See id.
(“[Rule 1.8(a)] does not apply to ordinary fee arrangements between client and lawyer, which are governed
by Rule 1.5, although its requirements must be met
when the lawyer accepts an interest in the client’s
business or other nonmonetary property as payment
of all or part of a fee.”).
¶31 Sands argues Rule 1.8(a) does not apply to her
because she did not have an attorney-client relationship with Menard at the time he agreed to give her an
ownership interest in his businesses as compensation
for her services. Sands contends she did not begin
performing legal work for any of the Menard Defendants until 2003. Although the Menard Defendants
claim Sands acted as Menard’s attorney in 1997 and
1998 in conjunction with the DNR/wood ash matter
and the Robby Gordon transaction, Sands contends
there are disputed issues of material fact regarding
whether she provided legal services in those matters.
¶32 The Menard Defendants argue Sands judicially
admitted, in her second amended complaint, that she
provided legal services to Menard throughout their
App. 62a
entire relationship.8 Regardless of whether Sands judicially admitted to providing legal services to Menard
throughout their relationship, we conclude Rule 1.8(a)
applies to the conduct at issue in this case. In the
second amended complaint, Sands clearly alleged that
she provided nonlegal services to the Menard Defendants prior to 2003. However, the circuit court concluded Sands could not recover for any nonlegal services because she conceded she never expected to be
compensated for them. Sands does not challenge that
ruling on appeal. Thus, Sands is barred from seeking
compensation for nonlegal services provided at any
time during her relationship with Menard. To the
extent Sands seeks compensation for legal services,
whenever provided, based upon the alleged representation by Menard that he would give Sands an ownership interest in his businesses in exchange for her
services, whenever that representation was alleged to
have been made, Sands had an attorney-client relationship with Menard and was subject to the requirements of Rule 1.8(a). Consequently, any arrangement
for Sands to acquire an interest in Menard’s businesses in exchange for her legal services required her to
comply with Rule 1.8(a)’s requirements.
¶33 Having concluded that Sands was required to
comply with Rule 1.8(a) in order to receive an ownership interest in Menard’s businesses in exchange for
her legal services, we note it is undisputed that Sands
violated the rule. Sands affirmatively alleges that she
entered into an agreement to provide legal services to
Judicial admissions are “formal statements in stipulations or pleadings which are created in the course of proceedings
in an action.” TED M. WARSHAFSKY & FRANK T. CRIVELLO II, 11 WIS. PRACTICE SERIES: TRIAL HANDBOOK FOR
WIS. LAWYERS § 18:02 (3d ed. 2005). A judicial admission is
“conclusive on the party making it” and “forecloses the admitter
from contradicting the admission.” Id.
8
App. 63a
Menard in exchange for an interest in his businesses,
and she does not dispute that she failed to provide
the disclosures required by Rule 1.8(a) and to obtain
Menard’s written consent to the transaction. Nevertheless, Sands argues her violation of Rule 1.8(a) does
not bar her claims against the Menard Defendants
because violations of the Rules of Professional Conduct can only be considered in attorney disciplinary
proceedings.
¶34 In support of this assertion, Sands cites the
preamble to the Rules of Professional Conduct, which
states, in relevant part:
Violation of a rule should not give rise to a
cause of action nor should it create any presumption that a legal duty has been breached.
The rules are designed to provide guidance to
lawyers and to provide a structure for regulating conduct through disciplinary agencies. They are not designed to be a basis for
civil liability. Furthermore, the purpose of
the rules can be subverted when they are
invoked by opposing parties as procedural
weapons. The fact that a rule is a just basis
for a lawyer’s self-assessment, or for sanctioning a lawyer under the administration of
a disciplinary authority, does not imply that
an antagonist in a collateral proceeding or
transaction has standing to seek enforcement
of the rule. Accordingly, nothing in the rules
should be deemed to augment any substantive legal duty of lawyers or the extra-disciplinary consequences of violating such duty.
SCR ch. 20, Preamble: A Lawyer’s Responsibilities,
Scope (1997).
¶35 Sands also cites Foley-Ciccantelli v. Bishop’s
App. 64a
Grove Condominium Association, 2011 WI 36, 333
Wis. 2d 402, 797 N.W.2d 789, which addressed the
proper standard for deciding a motion to disqualify an
opposing party’s attorney based on a conflict of interest. Id., ¶¶20, 26, 81. In resolving that question, our
supreme court stated:
The circuit court concluded that the plaintiffs’ law firm did not engage in any unethical conduct of any kind. The instant case
is not a determination of unethical conduct.
Violations of the Code of Professional Conduct are determined only by means of disciplinary action. This is a disqualification
proceeding, not a disciplinary proceeding.
Id., ¶2 (emphasis added).
¶36 Finally, Sands cites three additional cases for
the proposition that violations of the Rules of Professional Conduct do not provide a basis for civil liability
or create a presumption that a legal duty has been
breached. See Industrial Roofing Servs. v. Marquardt,
2007 WI 19, ¶68 n.14, 299 Wis. 2d 81, 726 N.W.2d
898; Williams v. Rexworks, Inc., 2004 WI App 228,
¶20, 277 Wis. 2d 495, 691 N.W.2d 897; Nauga, Inc. v.
Westel Milwaukee Co., 216 Wis. 2d 306, 318 n.5, 576
N.W.2d 573 (Ct. App. 1998).
¶37 Contrary to Sands’ assertion, the preamble to
the Rules of Professional Conduct and the cases cited
above do not establish that the Rules of Professional
Conduct can never be considered outside the attorney disciplinary context. In fact, the preamble was
amended in 2007 to add the following concluding sentence to the paragraph quoted above: “Nevertheless,
since the rules do establish standards of conduct by
lawyers, a lawyer’s violation of a rule may be evidence
of breach of the applicable standard of conduct.” SUP.
App. 65a
CT. ORDER 04-07, 293 Wis. 2d xv, xxii (eff. July 1,
2007). Furthermore, although the Foley-Ciccantelli
court initially stated violations of the Rules of Professional Conduct could be determined only by means of
disciplinary action, see Foley-Ciccantelli, 333 Wis. 2d
402, ¶2, 797 N.W.2d 789, the court went on to hold that
the Rules can be considered in determining whether
an attorney should be disqualified because the Rules
“provide principles for an attorney’s duties to former
and current clients.” Id., ¶91. The court explained
that Wisconsin courts “have often cited the Rules of
Professional Conduct for guidance in non-disciplinary
cases, including disqualification cases.” Id., ¶86.
¶38 With these principles in mind, we conclude
Sands’ undisputed violation of Rule 1.8(a) barred her
equitable claims against the Menard Defendants—
that is, her unjust enrichment claims against all three
Menard Defendants and her promissory estoppel
claim against Menard.9 It is axiomatic that a party
seeking to recover in equity must come to court with
clean hands. See Zinda v. Krause, 191 Wis. 2d 154,
174, 528 N.W.2d 55 (Ct. App. 1995).
Equity imperatively demands of suitors in
its courts fair dealing and righteous conduct
with reference to the matters concerning
which they seek relief. He who has acted in
bad faith, resorted to trickery and deception,
or been guilty of fraud, injustice, or unfairness, will appeal in vain to a court of conAs noted above, the circuit court concluded Rule 1.8(a)
barred Sands’ claims if: (1) her attorney-client relationship with
Menard predated their romantic relationship; and (2) the legal
services she provided were “merely ancillary or incidental” to the
parties’ larger joint enterprise. The court did not, however, cite
any legal authority in support of this two-factor test. We therefore decline to adopt it.
9
App. 66a
science, even though in his wrongdoing he
may have kept himself strictly “within the
law.” Misconduct which will bar relief in
a court of equity need not necessarily be of
such nature as to be punishable as a crime
or to constitute the basis of legal action. Under this maxim, any wilful act in regard to
the matter in litigation, which would be condemned and pronounced wrongful by honest and fair-minded men, will be sufficient
to make the hands of the applicant unclean.
David Adler & Sons Co. v. Maglio, 200 Wis. 153, 160,
228 N.W. 123 (1929) (quoting Weegham v. Killefer,
215 F. 168, 171 (W.D. Mich. 1914)).
¶39 Here, Rule 1.8(a) sets forth a standard of
conduct with which an attorney must comply when
entering into a business transaction with his or her
client. If, as Sands alleges, she entered into a business transaction with Menard by which she agreed to
perform legal services for him in exchange for an interest in his businesses, Sands was required to comply
with Rule 1.8(a). It is undisputed that Sands failed to
comply with the rule. By doing so, Sands committed a
willful act that would be “condemned and pronounced
wrongful by honest and fair-minded men.” See David Adler & Sons, 200 Wis. at 160, 228 N.W. 123. As
such, Sands’ hands are unclean, and her violation of
Rule 1.8(a) therefore bars her from recovering on her
equitable claims.
¶40 Sands raises several arguments in attempt to
save her equitable claims. First, she argues Menard
waived his right to raise her violation of Rule 1.8(a)
as a defense by ratifying their agreement after the
violation occurred. Sands cites three cases in support
App. 67a
of this proposition.10 See DiLuglio v. Providence Auto
Body, Inc., 755 A.2d 757 (R.I. 2000); Milo Fields Trust
v. Britz, 378 N.J.Super. 137, 874 A.2d 1130 (Ct. App.
Div. 2005); Murdock v. Nalbandian, Nos. 218-2008CV-1062, 218-2009-EQ-0031, 2010 WL 8484210 (N.H.
Super. Ct. Oct. 26, 2010).
¶41 Assuming without deciding that Menard
performed acts sufficient to constitute ratification,11
we nevertheless reject Sands’ ratification argument.
None of the foreign cases Sands cites involved a client attempting to use an attorney’s violation of Rule
1.8(a) as a defense to the client’s equitable claims
against the attorney. Because none of those cases
involved equitable claims, but rather contract claims,
they did not address whether an attorney’s violation
of Rule 1.8(a) rendered the attorney’s hands unclean
and therefore prevented the attorney from pursuing
equitable claims against the client. Here, in contrast,
we have concluded Sands’ hands are unclean due to
her Rule 1.8(a) violation, and she is therefore precluded from recovering on her equitable claims. Sands
cites no authority for the proposition that Menard’s
alleged ratification of the underlying transaction was
sufficient to show the safeguards required when an
attorney enters into an arrangement with a client to
obtain an interest in the client’s businesses were met.
Absent such a showing, Menards’ alleged ratification
cannot cleanse Sands’ unclean hands, thus permitting
her to recover in equity.
Sands also cites a fourth case. See Twachtman v. Hastings, No. CV 9557307S, 1997 WL 433878 (Conn. Super. Ct. July
23, 1997). However, Twachtman does not discuss waiver or ratification.
11
Sands contends Menard ratified his promise to give her a
share of his businesses by “repeat[ing]” that promise throughout
their relationship; she does not contend that any such agreement
was ever reduced to writing.
10
App. 68a
¶42 Sands also argues Rule 1.8(a) does not apply to
an unjust enrichment claim brought under Watts. In
Watts, the plaintiff (Sue Ann) and defendant (James)
lived together for twelve years, during which time they
had two children together and held themselves out to
the public as husband and wife. Watts, 137 Wis. 2d at
513, 405 N.W.2d 303. Sue Ann contributed childcare
and homemaking services to the relationship, as well
as personal property. Id. She also worked at James’
business and at a separate business she started with
his sister-in-law. Id. at 514. After the parties’ romantic relationship ended, James “refused to share equally with [Sue Ann] the wealth accumulated through
their joint efforts or to compensate her in any way for
her contributions to the relationship.” Id. Sue Ann
therefore sued James, asserting several grounds for
relief.
¶43 On appeal, our supreme court rejected Sue
Ann’s argument that she was entitled to a division of
property under the statutes governing the disposition
of property at divorce. Id. at 519-20, 405 N.W.2d 303.
The court also rejected Sue Ann’s claim that James
was estopped from asserting their lack of a legal marriage as a defense against Sue Ann’s claim for property
division under the divorce statutes. Id. at 520-21, 405
N.W.2d 303. However, the court concluded the circuit
court had improperly dismissed Sue Ann’s remaining
claims for breach of an express or implied contract,
unjust enrichment, and partition. Id. at 528-29, 533,
537, 405 N.W.2d 303. With respect to the unjust enrichment claim, the court rejected James’ argument
that it should “leave the parties to an illicit relationship such as the one in this case essentially as they
are found, providing no relief at all to either party.”
Id. at 532, 405 N.W.2d 303. Instead, the court held
that “unmarried cohabitants may raise claims based
App. 69a
upon unjust enrichment following the termination of
their relationships where one of the parties attempts
to retain an unreasonable amount of the property acquired through the efforts of both.” Id. at 532‑33, 405
N.W.2d 303.
¶44 Sands argues Watts affirms her right to bring
an unjust enrichment claim against Menard.12 However, unlike Sands, the plaintiff in Watts was not an
attorney and was therefore not subject to the requirements of Rule 1.8(a). There is no exception to Rule
1.8(a) for attorneys who cohabitate with their clients,
and we decline Sands’ invitation to read Watts as establishing such an exception. Sands’ own pleadings
allege that she entered into an arrangement with
Menard, her client, by which she provided legal services in exchange for a promise that Menard would
give her a share of his businesses. This situation
falls squarely within the parameters of Rule 1.8(a),
and Sands was therefore required to comply with the
rule’s requirements.
¶45 Sands next asserts the ownership interests
she sought to acquire were not “adverse” to her client. See SCR 20:1.8(a) (“A lawyer shall not enter into
a business transaction with a client or knowingly
acquire an ownership, possessory, security or other
pecuniary interest adverse to a client unless . . . ” (emphasis added)). However, Sands’ own pleadings belie
this assertion. According to Sands’ second amended
complaint, she provided legal services to both Menard
Sands frequently refers to her unjust enrichment claim
as a “Watts claim.” However, Watts v. Watts, 137 Wis. 2d 506,
405 N.W.2d 303 (1987), did not create a new cause of action for
unmarried cohabitants. It merely recognized that such parties
are not barred from asserting existing legal or equitable claims
by virtue of their cohabitation. See, e.g., id. at 532, 405 N.W.2d
303.
12
App. 70a
and his businesses “in reliance on the promises and
representations of Menard … to compensate her with
an ownership interest for her contributions to the
increase in the net worth of Menard and his various
business interests.” If Sands succeeded in gaining
either an ownership interest in Menard’s businesses
or the economic equivalent in damages, that result
would clearly be adverse to Menard because Sands’
gain would be Menard’s loss.
¶46 Finally, Sands claims that barring her unjust
enrichment claim in this case would mean that no
lawyer could ever bring an unjust enrichment claim
under Watts against a former cohabitant. However,
that is not the case. We merely hold that an attorney
cannot bring an unjust enrichment claim under Watts
to recover an ownership interest in a former cohabitant’s business (or equivalent damages) as compensation for legal services, unless the attorney complied
with Rule 1.8(a). Our holding in this case does not
address other circumstances in which an attorney
might attempt to bring an unjust enrichment claim
under Watts—for instance, a circumstance in which
the attorney provided only nonlegal services to a joint
enterprise with a cohabitant, or a circumstance in
which the attorney contributed to a joint enterprise
the salary he or she earned while working at a law
firm on unrelated matters.
¶47 Having concluded that Sands’ violation of Rule
1.8(a) bars her equitable claims against the Menard
Defendants, we turn to Sands’ claim that Menard
breached a contract with her by failing to give her an
ownership interest in his companies as compensation
for her legal services. Assuming without deciding that
Sands’ failure to comply with Rule 1.8(a) does not bar
her breach of contract claim, or that Menard waived
his right to assert the rule violation as a defense by
App. 71a
ratifying the parties’ transaction, we nevertheless
conclude the claim was properly dismissed because it
was insufficiently pled.
¶48 “A contract must be definite and certain as to
its basic terms and requirements to be enforceable.”
Metropolitan Ventures, LLC v. GEA Assocs., 2006 WI
71, ¶ 22, 291 Wis. 2d 393, 717 N.W.2d 58, opinion
clarified on denial of reconsideration, 2007 WI 23, 299
Wis. 2d 174, 727 N.W.2d 502. “Indefiniteness means
that an essential term of the agreement is so vague
or indefinite that that agreement is not ‘definite as to
the parties’ basic commitments and obligations,’ thus
preventing the formation of a contract.” Ehlinger v.
Hauser, 2008 WI App 123, ¶28, 313 Wis. 2d 718, 758
N.W.2d 476 (quoting Management Comput. Servs.
Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis. 2d 158,
178, 557 N.W.2d 67 (1996)). Indefiniteness is not synonymous with ambiguity. Id. “[W]hereas ambiguity
in itself does not render a contract unenforceable, indefiniteness does.” Id.
¶49 Here, Sands’ second amended complaint simply alleges that Menard
repeatedly promised, agreed, and represented to Sands that, in consideration for Sands’s
assistance, advice, and efforts on behalf of
Menard and his various business interests
and entities, Menard would compensate
Sands with an ownership interest for her
contributions to the acquisition of property,
wealth, and the increase in his net worth
and the net worth of his various business[es].
The complaint does not identify the amount or value of the ownership interest Menard agreed to give
Sands, or even in which entity or entities he agreed
to give her an ownership interest. It therefore fails to
App. 72a
identify with specificity the consideration Menard allegedly promised Sands in exchange for her services.
Without this essential term, Sands has failed to allege
a valid and enforceable contract. Accordingly, her
breach of contract claim against Menard was properly
dismissed. See Trinity Ev. Luth. Church & Sch.-Freistadt v. Tower Ins. Co., 2003 WI 46, ¶32, 261 Wis. 2d
333, 661 N.W.2d 789 (“[T]he first step in the summary
judgment review analysis is to determine whether the
pleadings set forth a claim of relief.”).
B. Sands’ claim against the Trustees
¶50 Sands also appeals the circuit court’s order
dismissing her unjust enrichment claim against the
Trustees. Sands’ second amended complaint alleged
that Sands, through her work for Menard and his businesses, “conferred substantial benefits” on the Trustees “in their representative capacity” as trustees of
the John R. Menard, Jr. 2002 Trust; that the Trustees
were aware of the substantial benefits; and that the
Trustees “accepted and retained the substantial benefits … under circumstances making it inequitable to
retain those benefits without payment of their value.”
Sands therefore alleged she was entitled to “judgment
in an amount equal to the fair and reasonable value of
the substantial benefits” she provided.
¶51 The circuit court granted the Trustees summary judgment based on its earlier ruling granting
partial summary judgment to the Menard Defendants. The court reasoned, “[S]ince there is no avenue
to recover against the Menard principal, there cannot
be recovery against the [Trustees].” On appeal, Sands
does not challenge the court’s conclusion that, if her
claims against the Menard Defendants were properly
dismissed, dismissal of her claim against the Trustees
was also required. In fact, in her brief-in-chief, Sands’
entire argument regarding the order granting sum-
App. 73a
mary judgment to the Trustees is as follows:
The [c]ircuit [c]ourt entered summary judgment for the Trustees solely because it granted summary judgment for the Menard Defendants. Because the Menard Order must
be reversed, then so must the Trustee Order
granting summary judgment for the Trustees.
In her reply brief, Sands similarly fails to dispute the
circuit court’s conclusion that dismissal of her claims
against the Menard Defendants necessitated dismissal of her claim against the Trustees.
¶52 Failure to address the grounds on which the
circuit court ruled constitutes a concession of the ruling’s validity. Schlieper v. DNR, 188 Wis. 2d 318, 322,
525 N.W.2d 99 (Ct. App. 1994); see also Industrial Risk
Insurers v. American Eng’g Testing, Inc., 2009 WI App
62, ¶25, 318 Wis. 2d 148, 769 N.W.2d 82 (“[W]e will
not abandon our neutrality to develop arguments” for
the parties.). Here, we have already concluded the
circuit court properly dismissed Sands’ claims against
the Menard Defendants, and Sands does not challenge
the circuit court’s ruling that dismissal of her claims
against the Menard Defendants was fatal to her claim
against the Trustees. We therefore affirm the order
dismissing Sands’ unjust enrichment claim against
the Trustees.
II. Menard, Inc.’s cross-appeal
¶53 In a cross-appeal, Menard, Inc., argues the
circuit court erred by granting Sands summary judgment on its counterclaim for breach of fiduciary duty.
Specifically, Menard, Inc., contends Sands breached
her fiduciary duties while representing Menard, Inc.,
in a transaction involving the formation of MH Private Equity Fund, LLC (the Fund).
A. Factual background
App. 74a
¶54 It is undisputed that Sands acted as outside
legal counsel for Menard, Inc., from at least January
2005 until October 2005 in connection with the Fund’s
formation. As part of the transaction, Menard, Inc.,
created a wholly-owned subsidiary known as Merchant Capital, LLC, which ultimately invested more
than $300 million in the Fund. The Fund was managed by MH Equity Managing Member, LLC (MH
Equity), a company owned by Stephen Hilbert and
his wife. As Menard, Inc.’s attorney, Sands negotiated the terms of the Fund transaction with Stephen
Hilbert, who was a personal friend of Menard. She
also reviewed, edited, and drafted the necessary legal documents. Sands later billed Menard, Inc., for
753.75 hours of legal services in connection with the
Fund transaction. At Sands’ hourly rate of $145, this
amounted to $109,239.75 in legal fees.
¶55 Menard, Inc., asserts Sands breached her fiduciary duties in three primary ways with respect to the
Fund transaction. First, Menard, Inc., asserts that,
during her negotiations with Hilbert, Sands attempted
to obtain a twenty-percent ownership interest in the
entity created to manage the Fund. The record shows
that, on March 11, 2005, Sands received an email
from Hilbert attaching draft documents regarding the
Fund’s formation, including a “Subscription Agreement” through which Sands would purchase 30,000
shares in TH Investment, LLC, a Hilbert-owned entity that was a forerunner of MH Equity. Another
document in the record, a draft of the “Summary of
Selected Terms and Conditions” for the Fund, showed
Sands as having a twenty-percent interest in MH Equity.13
Sands never actually obtained an ownership interest in
MH Equity. Hilbert testified at deposition that he refused to provide Sands an ownership interest in MH Equity because doing so
13
App. 75a
¶56 Menard, Inc., also contends Sands breached
her fiduciary duties by “bec[oming] an advocate for
the Fund transaction and disclos[ing] confidential information to Hilbert to ensure the transaction would
close.” It is undisputed that a meeting was scheduled
for September 1, 2005, to negotiate the final terms of
the Fund transaction. The day before the meeting,
Sands sent Hilbert an email that stated, in relevant
part:
Bob brought up the issue of board approval today. Obviously, John [Menard] should
have approval for this undertaking, but
as you and I know, board approval for him
is a minor formality. Since he is 90% Maj
SH (and the others are his kids) it is really a moot point. He is THE decision maker
and it wouldn’t be the first deal that was approved post-signing. So, if he uses that as a
stall – I would push him a bit, at least try to
get the signature – maybe date it out a week
in order for him to “document” approval.
Despite our concerns over funding – I think we
should be very careful not to raise this issue
with him. Let’s see if we can get everything in
place first. It isn’t something he has thought
about and I’d rather he didn’t think too much
about it. It’s best if he “feels” that this is a
“Menard” deal and obligation—which he does.
I would play to the idea that the financial
strength of the Fund and its backing by
Menards gives it a tremendous advantage
would have been a “conflict [due to her representation of] John
[Menard].” Sands contends she did not receive an ownership
interest primarily because she was not an “accredited investor,”
but also because she did not want to be “in a position where it
could be construed as any kind of conflict of interest.”
App. 76a
in the market and the ability to attract the
best deals. He’ll like that and it’s true and
it will make him want to make sure the
Fund is strong. He’s proud of his financial strength and he wants only to be associated with “winners”. The only thing he
probably hates more than actually losing
money is for others to know he has made
a bad investment and is losing money . . .
¶57 The parties met the next day as scheduled.
During the meeting, accountant Joseph Stienessen
and Menard, Inc.’s CFO, Peter Liupakka, counseled
against going forward with the transaction. Sands
then began advocating strongly in favor of the transaction and, according to Menard, Inc., falsely informed Menard he was legally obligated to proceed.
In response, Menard asked Sands, “[W]hose side are
you on?” and queried whether he “should get different
counsel to represent him.” Despite his misgivings,
Menard went forward with the Fund transaction.
Sands later asserted that she was “responsible for
saving the deal.”
¶58 Finally, Menard, Inc., asserts Sands breached
her fiduciary duties by accepting certain payments
from Hilbert without disclosing them to Menard, Inc.
Menard, Inc., notes that, on October 6, 2005, approximately one month after the transaction closed, Sands
received a check for $15,000 from the “Stephen C. Hilbert Trust.” At her deposition, Sands described that
payment as a “bonus.” The record also shows that,
after the Fund transaction closed, Sands was named
general counsel of the Fund. From September 2005
until February 2007, she received $180,000 for her
work as general counsel.
¶59 As discussed above, after Sands filed the
instant lawsuit, Menard, Inc., filed a counterclaim
App. 77a
against her for breach of fiduciary duty on January
15, 2009. Sands later moved for summary judgment
on the counterclaim, asserting it was barred by the
two-year statute of limitations in WIS. STAT. § 893.57
(2007-08).14 The circuit court agreed and granted
Sands summary judgment on the counterclaim.
Menard, Inc., cross-appeals from that order.15
B. Analysis
¶60 On appeal, it is undisputed that Menard,
Inc.’s counterclaim for breach of fiduciary duty was
subject to the two-year statute of limitations in WIS.
STAT. § 893.57. It is also undisputed that, under
WIS. STAT. § 893.14, the filing of Sands’ complaint
on November 3, 2008, tolled the statute of limitations
on the counterclaim.16 The operative issue is therefore
whether Menard, Inc.’s counterclaim accrued prior to
At all times relevant to this case, WIS. STAT. § 893.57 set
forth a two-year statute of limitations for intentional tort claims.
See § 893.57 (2007-08); see also Zastrow v. Journal Commc’ns,
Inc., 2006 WI 72, ¶¶35-40, 291 Wis. 2d 426, 718 N.W.2d 51
(breach of fiduciary duty is an intentional tort). The statute was
subsequently amended to provide a three-year limitations period. See 2009 Wis. Act 120, § 1. The three-year limitations period
“first applie[d] to injuries occurring on” the act’s effective date—
February 26, 2010. See id., § 2; see also WIS. STAT. § 991.11
(unless otherwise specified, the effective date of an act is the day
after publication). It is undisputed that any breach of Sands’
fiduciary duties with respect to the Fund transaction occurred
before February 26, 2010; accordingly, the two-year statute of
limitations in § 893.57 (2007-08), applies. As a result, all further
references to § 893.57 in this opinion are to the 2007-08 version.
15
During the circuit court proceedings, Menard, Inc., was
granted leave to amend its breach of fiduciary duty counterclaim
to add Merchant Capital as a counterclaim plaintiff. However,
Merchant Capital did not file a notice of appeal from the order
granting Sands summary judgment on the counterclaim, and we
therefore do not discuss it further.
16
WISCONSIN STAT. § 893.14 provides, in relevant
part:
14
App. 78a
November 3, 2006. If it did, the claim is barred by the
two-year statute of limitations in § 893.57, and the
circuit court properly granted Sands summary judgment.
¶61 “It is well settled that a cause of action accrues
when there exists a claim capable of enforcement, a
suitable party against whom it may be enforced, and
a party with a present right to enforce it.” Pritzlaff v.
Archdiocese of Milwaukee, 194 Wis. 2d 302, 315, 533
N.W.2d 780 (1995). Sands argues that, with respect
to Menard, Inc.’s counterclaim, these elements were
fully satisfied as of September 1, 2005, the date on
which the Fund transaction was finalized. Menard,
Inc., does not dispute Sands’ contention that these
elements were satisfied as of September 1, 2005. Instead, Menard, Inc., argues its counterclaim was nevertheless timely pursuant to the discovery rule.
¶62 Our supreme court adopted the discovery rule
in Hansen v. A.H. Robins, Inc., 113 Wis. 2d 550, 560,
335 N.W.2d 578 (1983), for “all tort actions other than
those already governed by a legislatively created discovery rule.” The rule provides that such tort claims
“shall accrue on the date the injury is discovered or
with reasonable diligence should be discovered, whichever occurs first.” Id. The discovery rule, as adopted
Unless otherwise specifically prescribed by law, the
period within which a cause of action may be used as
a defense or counterclaim is computed from the time of
the accrual of the cause of action until the time that the
plaintiff commences the action in which the defense or
counterclaim is made.
We have previously explained that this language tolls a
statute of limitations applicable to a defendant’s counterclaim
beginning on the date the plaintiff files his or her complaint. See
Donaldson v. West Bend Mut. Ins. Co., 2009 WI App 134, ¶¶12,
24, 321 Wis. 2d 244, 773 N.W.2d 470.
App. 79a
in Hansen, balances “the threat of stale or fraudulent
actions against the injustice of barring meritorious
claims before the claimant knows of the injury.” Dakin v. Marciniak, 2005 WI App 67, ¶14, 280 Wis. 2d
491, 695 N.W.2d 867.
¶63 Sands contends the undisputed facts show
that Menard, Inc., had enough information as of September 1, 2005, that it should have, with reasonable
diligence, discovered Sands’ alleged breach of her
fiduciary duties.17 Reasonable diligence “means such
diligence as the great majority of persons would use
in the same or similar circumstances.” Awve v. Physicians Ins. Co., 181 Wis. 2d 815, 823, 512 N.W.2d
216 (Ct. App. 1994). “Plaintiffs may not close their
eyes to means of information reasonably accessible to
them and must in good faith apply their attention to
those particulars which may be inferred to be within
their reach.” Spitler v. Dean, 148 Wis. 2d 630, 638,
436 N.W.2d 308 (1989). “[I]n an appropriate case,
an initial suspicion may trigger the discovery or the
obligation to exercise reasonable diligence to discover
the injury.” Goff v. Seldera, 202 Wis. 2d 600, 611, 550
N.W.2d 144 (Ct. App. 1996). “When the material facts
are undisputed and only one inference can reasonably
be drawn, whether a plaintiff exercise[d] reasonable
diligence in the discovery of an injury is a question of
law.” Dakin, 280 Wis. 2d 491, ¶14.
¶64 We agree with Sands that, as of September 1,
2005, Menard, Inc., had enough information that it
should have, with reasonable diligence, discovered the
Sands also suggests, in a footnote, that the discovery rule
may not apply to a claim for breach of fiduciary duty. However,
Sands fails to develop an argument in support of this assertion,
and we therefore decline to address it. See State v. Pettit, 171
Wis. 2d 627, 646-47, 492 N.W.2d 633 (Ct. App. 1992) (court of
appeals need not address undeveloped arguments).
17
App. 80a
alleged breach of Sands’ fiduciary duties. Menard, the
president and CEO of Menard, Inc., conceded at deposition that he had formed a belief as early as 2004 that
Sands and Hilbert were “increasingly close, and it was
very difficult to tell whose side [Sands] was on, was
she on [Hilbert’s] side or my side.” Menard further
testified he believed at that time that Sands was lying
to him, and he did not think she was protecting his
interests.
¶65 With respect to the Fund transaction, Menard
testified that, by the time the September 1, 2005
meeting occurred, he suspected that Sands, her sister, and Hilbert were conspiring against him. During
that meeting, Menard openly questioned Sands’ loyalty to him, asking her, “[W]hose side are you on?” and
querying whether he “should get different counsel to
represent him.” Menard conceded in his deposition
testimony that he discussed his concerns about Sands’
loyalty with both Stienessen and Liupakka before finalizing the Fund transaction.
¶66 The only reasonable conclusion that can be
drawn from these undisputed facts is that, as of September 1, 2005, Menard, Inc. had suspicions about
Sands’ loyalty that would have been significant
enough to prompt a reasonable person in Menard,
Inc.’s position to investigate further. Menard, Inc.,
however, chose not to do so. By doing nothing in the
face of these suspicions, Menard, Inc., failed to exercise reasonable diligence to discover the alleged breach
of Sands’ fiduciary duties. C.f. id., ¶18 (“Speculation
after the fact about why an investigation might have
failed does not alter the fact that [plaintiff] never attempted any investigation . . . [Plaintiff] simply did
nothing that might have produced more information
and we conclude that, in this case, doing nothing was
not an exercise of reasonable diligence.”).
App. 81a
¶67 Menard, Inc., argues its mere suspicions regarding Sands were insufficient to trigger its obligation to exercise reasonable diligence. However, as
noted above, an initial suspicion may in some cases be
enough to trigger a plaintiff’s duty to investigate. Goff,
202 Wis. 2d at 611, 550 N.W.2d 144. For instance, in
KDC Foods, Inc. v. Gray, Plant, Mooty, Mooty & Bennett, P.A., 763 F.3d 743 (7th Cir. 2014), KDC Foods
asserted fraud and conspiracy claims against its former law firm. Id. at 748. The district court concluded those claims were barred by the six‑year statute
of limitations in WIS. STAT. § 893.93(1)(b), and the
Seventh Circuit affirmed that ruling on appeal. KDC
Foods, 763 F.3d at 749, 754. In so doing, the Seventh
Circuit rejected KDC Foods’ argument that its claims
were timely under the discovery rule. The court noted
that, under Wisconsin law,
“Discovery occurs when the plaintiff has information that would constitute the basis
for an objective belief as to his or her injury and its cause.” As soon as the defrauded
party has “sufficient knowledge to make a
reasonable person aware of the need for diligent investigation,” the clock begins to run.
KDC Foods, 763 F.3d at 750 (citations omitted).
¶68 The Seventh Circuit further observed that
the degree of certainty required to trigger a plaintiff’s
duty to investigate “is variable, depending on the particular facts and circumstances of the plaintiff,” and
that “with corporate players, a different quantum of
expertise and knowledge is in play.” Id. at 751. Consequently, “ignorance is a less compelling excuse for
corporate enterprises in the context of the discovery
rule.” Id. Observing that both of the parties in KDC
Foods were “experienced corporate players,” the court
concluded:
App. 82a
Accordingly, we do not find that the circumstances justified a more forgiving application
of the discovery rule to KDC. KDC did not
require “a greater degree of certainty” than
“initial suspicion” to trigger discovery of its
alleged injury, and it certainly was not required to be convinced that actual fraud
had occurred, as KDC argues in its briefs.
Id.
¶69 Similarly, in this case, Menard, Inc., is an experienced corporate player. As of September 1, 2005,
Menard—its president and CEO—suspected Sands
was acting in a way that violated her fiduciary duties.
Menard raised concerns about Sands with Liupakka
and Stienessen, both of whom advised against going
forward with the Fund transaction. As in KDC Foods,
these “initial suspicions” were sufficient to trigger
Menard, Inc.’s duty to exercise reasonable diligence to
investigate Sands’ conduct. See id.
¶70 Menard, Inc., correctly notes that Sands, as its
attorney and fiduciary, had an obligation to disclose
any conflicts of interest pertaining to the Fund transaction. Menard, Inc., therefore argues it was not obligated to exercise reasonable diligence to investigate
and discover any breach of Sands’ fiduciary duties.
Citing cases from Mississippi and Texas, Menard,
Inc., asserts that, “because of the high level of trust
that a client must necessarily place in his [or her] attorney, some courts have categorically refused to bar
a client’s claim against an attorney on statute-of-limitations grounds.”
¶71 We do not find the foreign cases cited by Menard,
Inc., persuasive. Instead, we conclude the existence of
a fiduciary relationship, rather than excusing a client
entirely from its obligation to investigate, is merely
App. 83a
one factor to be considered in determining whether
the client exercised reasonable diligence to discover a
claim against its attorney. Under the circumstances
of this case, although a fiduciary relationship existed
between Sands and Menard, Inc., other undisputed
facts show that Menard, Inc., was a sophisticated corporate actor and that its president and CEO harbored
suspicions about Sands’ conduct for approximately one
year before the Fund transaction closed. Those facts
gave rise to a duty to investigate, regardless of the fiduciary relationship between Sands and Menard, Inc.
¶72 Finally, Menard, Inc., argues it cannot be expected to have discovered Sands’ breach of fiduciary
duty in September 2005 because it “was not able to
confirm and complete its investigation . . . until after
it obtained discovery in this case.” Again, we reject
Menard, Inc.’s argument, based on the Seventh Circuit’s reasoning in KDC Foods. There, relying on an
1884 case, KDC Foods had argued it did not have any
reason to suspect its former law firm had committed
misconduct until it deposed attorneys from that firm in
related litigation. KDC Foods, 763 F.3d at 752 (citing
O’Dell v. Burnham, 61 Wis. 562, 21 N.W. 635 (1884)).
According to KDC Foods, only after those depositions
were conducted did it have “objective evidence” of the
attorneys’ “specific role in the fraud.” Id. In rejecting
this argument, the Seventh Circuit explained:
O’Dell does not stand for the proposition
that a plaintiff must have more knowledge
than that which would prompt a reasonable
person to inquire further into the alleged
fraud. The Wisconsin courts—in over a hundred years of interpreting O’Dell and the
discovery rule—have been clear that “actual and complete knowledge of the fraud on
the part of the plaintiff is not necessary in
App. 84a
order to set the limitation period running.”
It is well-understood that Wisconsin courts
impute knowledge to a party when it “finds
out enough to cause a reasonable [party] to
make sufficient inquiries to discover a fraud.”
Id. at 752-53 (internal citations omitted).
¶73 Here, although Menard, Inc., may not have had
full knowledge of Sands’ alleged misconduct on September 1, 2005, it certainly had enough information
at that time to prompt a reasonable person—or, more
to the point, a reasonable corporation—to inquire further. As a result, Menard, Inc.’s counterclaim against
Sands for breach of fiduciary duty accrued on September 1, 2005. Because the counterclaim accrued before
November 3, 2006, it is barred by the two-year statute of limitations in WIS. STAT. § 893.57. See supra,
¶60. Consequently, the circuit court properly granted
Sands summary judgment on the counterclaim.18
Orders affirmed.
On appeal, Sands also argues Menard, Inc., lacked standing to bring the counterclaim because any injury caused by the
alleged breach of Sands’ fiduciary duties was sustained by Merchant Capital, rather than Menard, Inc. Because we conclude
the circuit court properly dismissed Menard, Inc.’s counterclaim
on statute of limitations grounds, we need not address Sands’
argument regarding standing. See Sweet v. Berge, 113 Wis. 2d
61, 67, 334 N.W.2d 559 (Ct. App. 1983) (appellate court need not
address every issue raised by the parties when one issue is dispositive).
18
App. 85a
[Filed: September 4, 2013]
STATE OF WISCONSIN
CIRCUIT COURT EAU CLAIRE COUNTY
BRANCH V
Case No.: 08-CV-990
DEBRA K. SANDS,
Plaintiff,
v.
MENARD, INC., et al,
Defendants.
ORDER GRANTING THE MENARD DEFENDANTS’
MOTION TO STRIKE ALL OF PLAINTIFF’S CLAIMS
FOR NON-LEGAL SERVICES AND DENYING THE
MENARD DEFENDANTS’ MOTION TO STRIKE
CERTAIN OF PLAINTIFF’S CLAIMS FOR LEGAL
SERVICES
The above-entitled action came before the Honorable Paul J. Lenz on August 12, 2013, on the Menard
Defendants’ Motion to Strike all of Plaintiff’s Claim for
Non-Legal Services and Certain of Plaintiff’s Claims
for Legal Services. Appearances were as noted on the
Record. Based upon the Record and proceedings herein,
IT IS HEREBY ORDERED:
App. 86a
That the Menard Defendants’ Motion to Strike all
for Plaintiff’s Claim for Non-Legal Services is granted
for the reasons stated on the Record; and
That the Menard Defendants’ Motion to Strike
Certain of Plaintiff’s Claims for Legal Services is denied for the reasons stated on the Record.
Dated this 3 day of Sept, 2013.
BY THE COURT:
/s/
Honorable Paul J. Lenz
Circuit Court Judge
Eau Claire County, Wisconsin
App. 87a
STATE OF WISCONSIN:
CIRCUIT COURT EAU CLAIRE COUNTY
BRANCH 5
ORAL RULING
Case No. 08-CV-990
DEBRA K. SANDS,
Plaintiff,
-vsJOHN R. MENARD, JR.; MENARD,
INC.; MENARD THOROUGHBREDS, INC.;
MH PRIVATE EQUITY FUND, LLC;
WEBSTER HART, AS TRUSTEE OF THE
JOHN R. MENARD, JR., 2002 TRUST
AND RELATED TRUSTS; ANGELA L. BOWE,
AS TRUSTEE OF THE JOHN R. MENARD, JR.,
2002 TRUST AND RELATED TRUSTS; AND
ALPHONS PITTERLE, AS TRUSTEE OF THE
JOHN R. MENARD, JR., 2002 TRUST AND
RELATED TRUSTS,
Defendants.
MENARD, INC.,
Counter-Plaintiff,
-vsDEBRA K. SANDS,
Counter-Defendant.
App. 88a
The above-entitled matter coming on to be heard
before the Honorable Paul J. Lenz, judge of the abovenamed court, on the 12th day of August, 2013, commencing at approximately 1:30 p.m., in the courthouse
in the City of Eau Claire, County of Eau Claire, State
of Wisconsin.
APPEARANCES:
DANIEL R. SHULMAN and JULIE L. BOEHMKE, of the firm of Gray, Plant, Mooty, Mooty & Bennett, 500 IDS Center, 80 South Eighth Street, Minneapolis, Minnesota 55402, appeared via telephone
representing the Plaintiff.
BRIAN P. NORTON and MICHAEL D. FREEBORN, of the firm of Freeborn & Peters, LLP, 311
South Wacker Drive, Suite 3000, Chicago, Illinois
60606, appeared representing the Defendants.
STEPHANIE L. FINN, of the firm of Herrick &
Hart, S.C., 116 West Grand Avenue, Eau Claire, Wisconsin 54703, appeared representing the Defendants.
JAMES ANDERSON, Attorney at Law, 5101
Menard Drive, Eau Claire, Wisconsin 54703, appeared
representing Menard, Inc.
THE COURT: All right. This is 08-CV-990. This
one’s misnumbered. The appearances today, please.
MR. SHULMAN: Your Honor, good afternoon.
For the plaintiff, by phone, Dan Shulman and Julie
Boehmke.
MR. NORTON: Good afternoon, Your Honor.
Brian Norton and Michael Freeborn from Freeborn &
Peters, Stephanie Finn from Herrick & Hart, James
Anderson from Menard, and John Menard is here as
well.
THE COURT: All right. This is the time set
App. 89a
for an oral ruling. Once in a while, you come across a
quote that kind of goes to the point on things; and this
is one from someone that the folks, when they were
starting the revolution in this country, quoted a lot.
His name was Charles de Montesquieu said: “There
is no crueler tyranny than that which is perpetuated
under the shield of law and in the name of justice.” I
just kind of like that.
We need to remember here that the lawyer
regulation rules as the court has interpreted them in
Wisconsin are a shield, not a sword. The Menards defendants bring motions to strike/summary judgment
type motions on the following areas: a motion to strike
all nonlegal services claims; second, a motion to strike
Sands’ claims for legal services after March of 2005.
The nonlegal services. As to the nonlegal services claims, Menards defendants assert that at all
relevant times Sands was John Menard, Jr.’s attorney
and she did not set forth an agreement in writing as
required by SCR 20:1.8(a) as to the business related
services and that the personal services were given gratuitously with no expectation of compensation, being
further barred by the two-year statute of limitations.
As to the nonlegal services claims, Sands asserts that although there was not compliance with
SCR 20:1.8(a), she is nevertheless able to recover on a
quantum meruit grounds because, one, John Menard,
Jr., is a sophisticated businessman, not merely a lovestruck, vulnerable victim, so that the provisions of
SCR 20:1.8(a) create no bar to recovery and that the
defendant requested the services and Sands expected
reasonable compensation for her services. Further,
Sands asserts that the six-year rather than the twoyear statute of limitations applies or that since this
is an action in equity only, it should be determined
under the doctrine of latches.
App. 90a
There is a motion to strike legal services after
March 2005. The Menards defendants assert that the
legal services rendered after March 2005 should be
barred because Sands breached her fiduciary duty to
the Menards defendants in the formation of the MH
Private Equity Fund, LLC, promoting her interests
over his, or the interests of the fund manager, Stephen
Hilbert, over his, as demonstrated by an undisclosed
$15,000 payoff for closing the deal favorable to him,
him being Mr. Hilbert. Further, serving as the general counsel for the MH Private Equity Fund, LLC, and
receiving $10,000 per month for a total of $180,000
was either a conflict of interest for which there was no
signed waiver or a business transaction with a client
and accordingly barred. Sands asserts there was no
breach of fiduciary duty or not so serious as to deny
relief under quantum meruit.
The special master recommends that both motions to strike should be granted, indicating, regarding the nonlegal services, that at all relevant times
there existed an attorney-client relationship between
Sands and Menard such that every business related
service plaintiff had with a client was prohibited by
SCR 20:1.8(a) unless set forth clearly in writing and
consented to in writing by the client, Mr. Menard.
The plaintiff cannot recover on any of these business
related services under any theory whatsoever, end of
quote. And I quote, all remaining claims for services
involve truly personal services; and she expected no
compensation for them and that they are outside the
two-year statute of limitations.
This is a hearing de novo without deference to
the special master’s decision. However, the court has
considered the arguments of the parties and the rationale and recommendations of the special master in
this portion of the motions, and it is the order of the
App. 91a
court that the Menards defendants’ motion to strike
as to the nonlegal services is granted.
There are two categories of services: business
related and personal services. The plaintiff had no
expectation of compensation for either the business
related services or the personal services. In an affidavit in the arbitration of the claim of Dawn Sands’ employment dispute, Debra Sands swore, quote, During
discussions with John on matters for which I had no
professional responsibility, John Menard often sought,
and I provided, my personal opinions, business advice,
and general input. It was my clear understanding
and belief that John was not, at such times, seeking
my professional legal counsel but rather the personal, trusted advice of his significant other. Emphasis
is added to the next sentence. Such understanding
is further evidenced by the fact that I never invoiced
him or the company for such discussions.
To counter this now, Sands claims that the joint
venture understanding as the parties had in the Watts
portion of the claim shows that Sands expected compensation. The court disagrees with this proposition.
The expectations in the Watts unjust enrichment claim
is very different from the expectation in a quantum
meruit claim. Quantum meruit meaning “as much
as he deserves.” In a Watts unjust enrichment claim,
it is the expectation that the parties to the joint venture will share in the fruits of their venture, not that
a party will be compensated for the value of the efforts
placed into that venture. Ramsey v. Ellis, 168 Wis.2d
779, 484 N.W.2d 331, 333 (1992) cited by Lindquist
Ford, Inc. v. Middleton Motors, Inc., 557 F.3rd 469,
476 (7th Cir. 2009). Quote, Quantum meruit is a distinct cause of action from an action for unjust enrichment, with distinct elements and distinct measure of
damages, end quote. The expectation element under
App. 92a
the unjust enrichment claim under Watts is found in
the element, quote, under circumstances such that it
would be inequitable to retain the benefit, end quote,
because the defendant knew the plaintiff expected to
share the fruits of the joint venture. Watts v. Watts,
137 Wis.2d 506, 533 (1987).
Under the quantum meruit, the expectation is
different. The element requires that, quote, the plaintiff expected reasonable compensation for the services.
Lindquist Ford at 478 citing Ramsey at 484 N.W.2d
at 333. There is no genuine issue of fact. Sands did
not expect compensation as services for nonlegal services. Therefore, as a matter of law, she cannot meet
her burden of proof under a quantum meruit theory.
Thus, under whatever title you want to call it, motion
to strike or summary judgment is granted dismissing
that portion of the claim.
Further, additional grounds exist. The court
agrees with the conclusions of the special master. Any
reviewing court should review those conclusions. At
all relevant times, there existed an attorney-client
relationship between Sands and Menard. It is undisputed that there is no written agreement and consent
for Attorney Sands to be compensated for nonlegal
services, as required by SCR 20:1.8(a). There is a
bright line that there is no recovery regardless of
theory when an explicit agreement is barred by that
agreement being unenforceable as contrary to public
policy. Abbott v. Marker, 295 Wis.2d 636 (2006). Declarations of the Wisconsin Supreme Court as found in
the Supreme Court Rules regulating the conduct of
attorneys is the public policy of the State of Wisconsin. The judicial branch of government is a coequal
branch of government with the legislative and executive branches. Sometimes the authority is exclusive
to the court. Frequently, however, the authority over
App. 93a
an area is shared. Regulation of attorney conduct is
shared by the three branches. The legislature and
executive can legislate -- regulate attorney conduct
through statutes. Likewise, the Wisconsin Supreme
Court has the inherent authority to regulate attorney
conduct as found in the Supreme Court Rules. The
plaintiff urges the court to adopt the reason -- reasoning of DiLuglio v. Providence Auto Body, 755 A.2d 757
(R.I. 2000), which was found persuasive in Milo Fields
Trust v. Britz, 874 A.2d 1130, New Jersey Superior Court, Appellate Division 2005, that as a, quote,
knowledgeable and experienced businessman, end
quote, because sophisticapted clients -- quote, sophisticated clients who bargain with their lawyers from
positions of substantial parity are less susceptible to
overreaching, citing Cohen v. Radio-Elecs. Officers
Union, 679 A.2d 1188 (N.J. 1996). Sands combines
this with the proposition as found in Liggett v. Young,
877 N.E.2d 178 (Ind. 2007) that the rules of professional conduct, quote, does not imply that an antagonistic in a collateral proceeding or transaction has
standing to seek enforcement of the rule, end quote.
They base this as found in the preamble of the rules.
That’s 877 N.E.2d at 182 to 183. The preamble states,
quote, The violation of a rule should not give rise to a
cause of action nor should it create any presumption
that a legal duty has been breached. They are not designed to be a basis for civil liability, but reference to
these rules as -- as evidence of an applicable standard
of care is not prohibited. Examination of the Wisconsin Supreme Court Rules on the regulation of attorney conduct provides identical language. Thus, the
plaintiff m
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