Berner Cheese Corporation v. Krug

• Decision Date: 15 July 2008
• Docket Number: No. 2005AP1527.,2005AP1527.
• Citation: 2008 WI 95,752 N.W.2d 800
• Parties: BERNER CHEESE CORPORATION n/k/a Berner Foods Corporation, Plaintiff-Appellant-Petitioner, v. Lyle A. KRUG, Plager, Hasting & Krug, Ltd. and ISBA Mutual Insurance Company, Defendants-Respondents.
• Court: Wisconsin Supreme Court

752 N.W.2d 800

2008 WI 95

BERNER CHEESE CORPORATION n/k/a Berner Foods Corporation, Plaintiff-Appellant-Petitioner, v. Lyle A. KRUG, Plager, Hasting & Krug, Ltd. and ISBA Mutual Insurance Company, Defendants-Respondents.

No. 2005AP1527.

Supreme Court of Wisconsin.

Argued November 28, 2007.

Decided July 15, 2008.

For the plaintiff-appellant-petitioner there were briefs by Edward R. Garvey, Christa Westerberg and Garvey McNeil & McGillivray, Madison, and Eugene J. Schiltz, Sean B. Crotty, and Robert F. Coleman & Associates, Chicago, Ill., and there was oral argument by Eugene J. Schiltz.

For the defendants-respondents there was a brief by Michael B. Van Sicklen, Michael S. Heffernan, and Foley & Lardner LLP, Madison, and Daniel F. Konicek and Konicek & Dillion, P.C., Geneva, Ill., and there was oral argument by Daniel F. Konicek.

¶ 1 PATIENCE DRAKE ROGGENSACK, J

We review a decision by the court of appeals that affirmed the circuit court's¹ dismissal of the petitioner's claim for breach of fiduciary duty and its request for a jury question on punitive damages. The circuit court concluded that the evidence admitted at trial was insufficient to support both Berner Cheese Corporation's² (Berner) breach of fiduciary duty claim and the submission of a punitive damages question to the jury. The court of appeals agreed that Berner did not present credible evidence that it suffered damages due to conduct Berner characterized as a breach of Attorney Lyle Krug's fiduciary duty to it. Berner Cheese Corp. v. Krug, No.2005AP1527, 2006 WL 3490352, unpublished slip op., ¶ 24 (Wis.Ct.App. Dec. 5, 2006). In regard to punitive damages, the court of appeals concluded that due to the set-offs from damages awarded in Berner's legal malpractice claim, Berner collected no compensatory damages. Therefore, it could not be awarded punitive damages. Id., ¶ 29.

¶ 2 On this review, we are asked to resolve two issues: (1) whether Berner presented credible evidence to maintain its claim for breach of fiduciary duty; and (2) whether Berner presented credible evidence to submit a punitive damages question to the jury. We answer both inquiries in the negative and affirm the court of appeals, albeit on different grounds.

I. BACKGROUND

¶ 3 This case arises from a series of separate lawsuits and countersuits between Berner and Dairy Source, Inc. (Dairy Source) that proceeded in both federal and state courts. Therefore, a review of two distinct phases of litigation will assist the reader in understanding our resolution of the case now before us. Accordingly, we divide the "Background" section, such that part A discusses the underlying litigation between Berner and Dairy Source, as well as the events precipitating that litigation, and part B summarizes the present lawsuit.

A. Underlying Litigation

¶ 4 Berner is located in Illinois. It manufactures and sells cheese. The company is owned and operated by brothers, Steve and Ed Kneubuehl. Berner had employed Lyle Krug as its corporation counsel since the Kneubuehls purchased the company in the early 1980s. Dairy Source is a cheese brokerage and distribution company that maintained its offices in Delavan, Wisconsin.

¶ 5 The first lawsuit between Berner and Dairy Source began in Walworth County Circuit Court in April 1999, as a part of Berner's efforts to retrieve its recipes and customer lists from a former employee, Tony Steinmann. Tony Steinmann was the spouse of Dairy Source's owner, Rose Steinmann.

¶ 6 Prior to his resignation from Berner, Tony worked out of an office in Delavan, Wisconsin leased by Dairy Source. Although Dairy Source was identified as the leaseholder of the Delavan office space, Dairy Source and Berner shared the rent evenly and split the cost of support staff.

¶ 7 Tony Steinmann resigned from Berner in March 1999. His departure from Berner was acrimonious. At that time, Tony, alone, possessed Berner's full customer list, as well as Berner's catalogue of recipes, pricing and formulas for its processed cheese division. The information was stored in his Delavan office. The ill-will created by Tony's departure and Tony's subsequent employment by his wife's company, Dairy Source, led Berner's owners to fear that Tony would use Berner's customer and product information to Berner's detriment.

¶ 8 Steve and Ed Kneubuehl, Berner's owners, expressed their concern to Krug about Tony's possession of Berner's customer lists and recipes. They sought Krug's advice about retrieving their property. Krug responded in an April 5, 1999 letter to Steve Kneubuehl, outlining possible courses of action.

¶ 9 Krug advised the Kneubuehls of three options available to Berner to retrieve its property: (1) directly communicate with Rose Steinmann, owner of Dairy Source, to obtain her consent for Berner to retrieve its property located in the Delavan office; (2) obtain a court order directing that Berner's property located in Delavan be returned to it; or (3) enter the Delavan office without Rose Steinmann's prior consent and retrieve Berner's property. Krug characterized the third option as a "self-help" option.

¶ 10 In the letter, Krug discussed certain risks attending the identified courses of action. He explained that the first two options were of equally low risk. However, while Krug indicated in the letter that "as a matter of law" Berner is "entitled to access [its] leased property and to inspect [that] property at any time of the day or night," he also explained that the third option "features certain legal risks and practical risks." Krug identified those risks as being criminal liability for computer crime, for acting as a "`party to a crime,'" and for "theft and burglary." Accordingly, Krug's letter instructed that only those electronic files belonging to Berner should be "removed or copied" and that "[n]o files that relate to Dairy Source, Inc. or any other non-Berner business should be removed." Krug also counseled Berner to "take all practical steps possible to advise the local law enforcement authorities" that Berner was on the premises to remove its property, because doing so would render it "less likely that a prosecution will be brought." Krug's letter concluded by stating that he has "not authorized or directed your entry onto [the Delavan offices'] premises."

¶ 11 Ed Kneubuehl testified that Krug recommended that Berner pursue the "self-help" option and enter the Delavan offices without Dairy Source's prior consent. However, he also testified that he, Steve and Cheryl Kneubuehl,³ decided collectively to take the "self-help" course of action and enter the Delavan office without Dairy Source's consent. Ed testified that, although Krug informed the Kneubuehls that "anybody can file a lawsuit at any time," Krug assured them that they "were doing everything correctly and that since [they] were following [Krug's] orders" Berner encountered no appreciable risk of being sued by Dairy Source. Krug assured Ed and Steve that, "as long as [Berner employees] go [into the Delavan offices] during the day⁴ and present ourselves to the people up front there shouldn't be any problem with going in and demanding [Berner's] property back," because Berner "paid for the rent" and "paid for the people" at the Delavan offices.

¶ 12 Krug accounted for certain contingencies associated with Berner's plan to enter the Delavan offices. For instance, he enlisted the services of a private detective, Michael Boomgarden, who participated in the entry. Krug sent Boomgarden a letter four days before the entry occurred, with instructions related to the entry. Krug instructed that those participating in the entry deliver to Michael Matthias, an employee of Dairy Source who was anticipated to be the most senior of the Dairy Source personnel present at the Delavan offices, letters documenting Berner's purpose for entering. In the letter, Krug admonished Boomgarden to "be prepared to testify after service [of the letters] whether or not [Matthias] agreed to the removal of the property or objected to the removal of the property."

¶ 13 Krug also advised them to steer clear of computer equipment, not to remove anything that was not Berner property, and, as Ed Kneubuehl testified, if the police arrived at any point, to "get the . . . trucks with the documents out of there and back to [the Berner headquarters in] Illinois so that they wouldn't be tied up." Krug explained that the individuals from Berner "should talk to the police and explain to them what [they] were doing."

¶ 14 In addition, because Krug anticipated that Berner would not recover all of the documents related to its customers and products that Berner sought, he advised Berner to retain the law firm of Brennan, Steil, Bastings and MacDougall, S.C. (Brennan) to file a replevin action against Dairy Source in Walworth County Circuit Court the day after the entry.

¶ 15 Ed Kneubuehl, Boomgarden and other Berner employees entered the Delavan offices the morning of April 12, 1999, when the Kneubuehls knew that Rose and Tony Steinmann⁵ would be in Las Vegas. Ed testified that he was prepared to follow Krug's advice not to enter the offices unless Matthias was present and gave them consent to enter. The group arrived at the offices at approximately 7:30 a.m. and, as expected, Matthias was present. Ed greeted Matthias by saying he had an "order" from his brother Steve in the form of a letter explaining the group was there to perform an "audit," then handed Matthias the letter and informed him that they were there to retrieve Berner's property. Matthias permitted the group to enter, and they began to collect boxes of material.

¶ 16 While Ed and Matthias talked, the others removed 33 boxes of documents from the Delavan offices. At some point during the removal of documents, a Dairy Source employee reached Rose Steinmann in Las Vegas to inform her that Berner employees were removing boxes of documents from the premises. She instructed the employee to call...