Hoida, Inc. v. M&I MIDSTATE BANK

• Decision Date: 16 September 2004
• Docket Number: No. 03-2108.,03-2108.
• Parties: HOIDA, INC., Plaintiff-Appellant, v. M&I MIDSTATE BANK and McDonald Title Company, Inc., Defendants-Respondents, William C. HERBERT, Defendant-(In T.Ct.).
• Court: Wisconsin Court of Appeals

276 Wis.2d 705

2004 WI App 191

688 N.W.2d 691

HOIDA, INC., Plaintiff-Appellant,¹ v. M&I MIDSTATE BANK and McDonald Title Company, Inc., Defendants-Respondents, William C. HERBERT, Defendant-(In T.Ct.).

No. 03-2108.

Court of Appeals of Wisconsin.

Submitted on briefs May 6, 2004.

Decided September 16, 2004.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of Scott R. Halloin of Mallery & Zimmerman, S.C., Milwaukee. On behalf of the defendant-respondent, McDonald Title Co., Inc., the cause was submitted on the brief of William J. Ewald of Denissen, Kranzush, Mahoney & Ewald, S.C., Green Bay.

On behalf of the defendant-respondent, M&I Mid-state Bank, the cause was submitted on the brief of Russell T. Golla of Anderson, O'Brien, Bertz, Skrenes & Golla, Stevens Point.

A nonparty brief was filed by John E. Knight, James E. Bartzen, Kirsten E. Spira of Boardman, Suhr, Curry & Field LLP, Madison, for Wisconsin Bankers Association.

Before Dykman, Vergeront and Higginbotham, JJ.

¶ 1. DYKMAN, J.

Hoida, Inc., appeals from a summary judgment granted to McDonald Title Co., Inc., and M&I Midstate Bank. Hoida, a construction subcontractor on a Plover, Wisconsin, building project, incurred losses when the prime contractor, Packard Construction, Inc., failed to pay Hoida for materials it supplied to Packard. Hoida seeks to hold M&I, the construction lender on the project, and McDonald Title, M&I's disbursing agent, liable for these losses. It contends M&I and McDonald Title breached a duty of care owed to Hoida by failing to obtain lien waivers² and by continuing to fund draw requests without securing such waivers. Hoida asserts that this breach was a cause of its loss. The circuit court granted summary judgment to M&I and McDonald because it found that they did not owe a duty to Hoida. Though we disagree with the circuit court's methodology, we affirm its judgment because we conclude that to allow Hoida to recover from M&I and McDonald for failure to obtain lien waivers would contravene public policy.

STATEMENT OF FACTS

¶ 2. In October 1996, a corporation named The Villager at Nashotah entered into a construction loan agreement with M&I to build four eight-unit apartment buildings in Plover.³ The agreement called for M&I to lend a total of $1,320,000.00 to The Villager, secured by four real estate mortgages. The loan agreement stated that M&I "shall not be responsible for any aspect of the [c]onstruction . . . or the procurement of lien waivers." An M&I vice president, Thomas Domaszek, was the loan officer for the project. The disbursing agent on the project was McDonald Title, owned by Robert McDonald.

¶ 3. The Villager hired Packard Construction, Inc., as the general contractor. In February 1997, Packard subcontracted with Hoida for prefabricated wooden wall sections and roof trusses. Packard submitted its first draw request in October 1996 for four draws of $50,500 each, for each of the four buildings. Domaszek paid the draw requests without obtaining lien waivers, although he testified that he told the owners that M&I would ultimately have to receive such waivers. McDonald paid the remaining draw requests, also without obtaining lien waivers. ¶ 4. Domaszek testified that it was contrary to M&I's usual practice to authorize the payment of draws before receiving lien waivers on previous draws. M&I concedes for the sake of the court's analysis that its failure to obtain lien waivers was contrary to its internal procedures and standards within the lending industry. McDonald also admitted that failure to procure lien waivers was contrary to accepted practice in Portage County.

¶ 5. Domaszek and McDonald became concerned when promised lien waivers did not arrive and progress on the project lagged behind the goals set forth in Packard's draw requests. On June 6, 1997, McDonald informed Packard that no more funds would be disbursed until M&I and McDonald received lien waivers totaling $786,118.72. Domaszek and McDonald's concerns proved well founded; Packard Construction and Michael Imperl, a principal of the Villager, had misappropriated or diverted $650,000 to $700,000 of the draws, by M&I's count. Imperl was subsequently indicted on multiple counts of bank fraud. The project's architect, William Herbert, averred that his signature was forged on several of the draw requests that were honored by M&I.

¶ 6. M&I assumed a greater role in the project after Packard defaulted, taking on Packard's role of approving work and processing subcontractor draws. M&I discovered that a disproportionate amount of the alleged theft came from the draws related to two of the buildings. As a result, two of the buildings stood near completion, while the other two were unfinished. M&I combined the financing of the four buildings and used the collateral of the nearly completed buildings to finance the construction of the two unfinished units. ¶ 7. In November of 1998, M&I obtained a judgment of foreclosure on the Villager's mortgages. Hoida also obtained a judgment against the Villager and its guarantors. M&I recovered its losses, but Hoida remained unpaid. Hoida estimates that it is owed $548,175.68. In May of 2001, Hoida sued M&I and McDonald. Hoida, M&I and McDonald each filed motions for summary judgment. The parties agreed that the issue was whether M&I and McDonald, in their respective capacities on the Villager project, owed any duties to Hoida. In a bench ruling, the circuit court concluded that "there has not been a duty shown whereby Hoida could recover."

STANDARD OF REVIEW

[1, 2]

¶ 8. We review a grant or denial of summary judgment de novo, and we use the same method as did the circuit court. Cole v. Hubanks, 2004 WI 74, ¶ 5, 272 Wis. 2d 539, 681 N.W.2d 147. This methodology requires a court to determine whether a claim has been stated, and then if a material issue has been presented. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315, 401 N.W.2d 816 (1987). We review all material facts, drawing all reasonable inferences in favor of Hoida, the nonmoving party. See Garcia v. Mazda Motor Company, 2004 WI 93 ¶ 4 n.3, 273 Wis. 2d 485, 682 N.W.2d 365

.

DISCUSSION

[3]

¶ 9. By concluding that M&I and McDonald had no duty to Hoida under which Hoida could recover, the circuit court determined that Hoida failed to state a cognizable claim. When considering the sufficiency of a claim on summary judgment, "[w]e will reverse a decision granting summary judgment if the trial court incorrectly decided legal issues or if material facts were in dispute." Mrozek v. Intra Financial Corp., 2004 WI App 43, ¶ 11, 271 Wis. 2d 485, 678 N.W.2d 264.

[4]

¶ 10. Hoida's complaint states negligence claims against M&I and McDonald. A plaintiff alleging negligence must prove: (a) the existence of a duty of care on the part of a defendant; (b) a breach of that duty of care; (c) a causal connection between the defendant's breach of the duty of care and the plaintiff's injury; and (d) actual loss or damage resulting from the injury. See, e.g., Gritzner v. Michael R., 2000 WI 68, ¶ 19, 235 Wis. 2d 781, 611 N.W.2d 906

. We therefore examine whether Hoida raises an issue of fact as to each of these elements, or if either party is entitled to summary judgment on the question of negligence.

[5, 6]

¶ 11. We consider first whether M&I and McDonald owed a duty of care to Hoida. In Wisconsin, everyone owes a duty to all others to refrain from any act that will cause foreseeable harm to others. Dixson v. WI Health Organization Ins. Corp., 2000 WI 95, ¶ 22, 237 Wis. 2d 149, 612 N.W.2d 721. Duty is the obligation of any person "`to refrain from any act which will cause foreseeable harm to others even though the nature of that harm and the identity of the harmed person or harmed interest is unknown at the time of the act.'" Rockweit v. Senecal, 197 Wis. 2d 409, 419-20, 541 N.W.2d 742 (1995) (quoting A.E. Investment Corp. v. Link Building, Inc., 62 Wis. 2d 479, 483-84, 214 N.W.2d 764 (1974)).

¶ 12. The circuit court concluded that M&I and McDonald did not owe Hoida a duty. We disagree. Wisconsin courts rarely limit liability under a duty analysis. See Gritzner, 235 Wis. 2d 781,

¶ 24 n.4. Rather, courts more often limit liability by applying public policy factors. Id. "The consistent analyses of [the Wisconsin Supreme Court] reveal that the question of duty is not an element of the court's policy determination. It is, rather, an ingredient in the determination of negligence." A.E. Investment Corp.,

62 Wis.2d at 484.

¶ 13. Here, the circuit court limited liability because it did not favor "extending the law of negligence to deal with this kind of commercial environment," deciding instead "to maintain the fundamental distinction between tort and contract law."⁴ It added that the Wisconsin Statutes already "establish[] a statutory scheme that create[s] rights and obligations" for subcontractors and lenders that courts should be reluctant to venture into. These may be valid policy reasons to limit M&I and McDonald's liability. But duty is a broad concept in Wisconsin, and usually does not limit a plaintiff's recovery.

[7]

¶ 14. M&I and McDonald owed Hoida the obligation "to refrain from any act which [would] cause foreseeable harm to Hoida." Rockweit, 197 Wis. 2d 419-20 (citation omitted). Here, the act (or failure to act) was the failure to procure lien waivers. M&I and McDonald witnesses stated that obtaining lien waivers was the industry standard, and that this was the usual practice of M&I and McDonald. Domaszek averred that it was inconsistent with M&I's policy to pay draws when lien waivers had not been obtained on previous draws. Robert McDonald averred that in Portage County, lien waivers are customarily obtained by disbursing agents before the funding of the next draw request. McDonald also averred that the guidelines and procedures of the insurance manual governing the title insurance issued for the project stated that "w...