Groshek v. Trewin

• Decision Date: 24 June 2010
• Docket Number: No. 2008AP787.,2008AP787.
• Citation: 325 Wis.2d 250,2010 WI 51,784 N.W.2d 163
• Parties: Francis GROSHEK and Karen Groshek, Plaintiffs-Respondents-Petitioners,v.Michael G. TREWIN, Defendant-Appellant-Cross Petitioner.
• Court: Wisconsin Supreme Court

325 Wis.2d 250

784 N.W.2d 163

2010 WI 51

Francis GROSHEK and Karen Groshek, Plaintiffs-Respondents-Petitioners,v.Michael G. TREWIN, Defendant-Appellant-Cross Petitioner.

No. 2008AP787.

Supreme Court of Wisconsin.

Argued: Feb. 9, 2010.

Decided: June 24, 2010.

For the plaintiffs-respondents-petitioners there were briefs by Gary L. Dreier, Eric R. Johnson, and First Law Group S.C., Stevens Point, and oral argument by Gary L. Dreier.

For the defendant-appellant-cross petitioner there were briefs by Mark J. Steichen and Boardman, Suhr, Curry & Field, LLP, Madison, and oral argument by Mark J. Steichen.

¶ 1 N. PATRICK CROOKS, J.

This is a review of an unpublished decision of the court of appeals ¹ concerning rescission of a real estate contract on the grounds that the circumstances surrounding the transaction-an attorney's purchase of land from clients whose bankruptcy petition he handled-constituted a breach of fiduciary duty.

¶ 2 The two questions presented by this case are whether the circuit court's findings of fact concerning the transaction, if not clearly erroneous, and its conclusions of law satisfy the elements of a claim for breach of fiduciary duty, and whether the circuit court's award of punitive damages was proper.

¶ 3 We conclude that the findings of fact are supported by the evidence and that they satisfy the elements of a claim for breach of fiduciary duty, and we therefore affirm the court of appeals' decision that the attorney breached his fiduciary duty and that rescission is therefore warranted.

¶ 4 We also affirm the court of appeals' decision that punitive damages are not available in this case. The court of appeals' rationale focused on the equitable nature of the case; however, our decision is based on the rule articulated in Tucker v. Marcus² that where there is no award of compensatory damages, punitive damages are not available. Because no compensatory damages were sought or awarded in this case, we do not reach the question of whether, in an action in which compensatory damages are awarded, recovery of punitive damages would be barred solely on the grounds that the action is equitable in nature.

I. BACKGROUND

¶ 5 This action arises from the circumstances surrounding attorney Michael Trewin's November 2004 purchase of the Groshek family farm and saw mill. Trewin was the Grosheks' attorney of record when they filed for Chapter 13 bankruptcy in March 2004. In July of that year, the Grosheks fell behind on payments due to the bank, their major creditor, under the bankruptcy plan. Also in July, this court entered an order suspending for five months Trewin's Wisconsin law license, effective August 31, 2004.³ In August, Trewin reached an agreement with the Grosheks' bank, which ultimately failed. Near the end of August, Trewin sent the Grosheks a written proposal that involved his buying their land and allowing them to lease it from him with an option to purchase. On August 30, the Grosheks signed two documents drafted by Trewin-a waiver of conflict of interest ⁴ and an agreement to sell the property to him.⁵ There was testimony from the Grosheks at trial that Trewin rushed the signing of the documents; they testified that their understanding was that it was necessary to sign the paperwork prior to Trewin's license suspension.

¶ 6 The conveyance of the property to Trewin occurred in November; he paid $94,500 ⁶ for the home and 34 acres. After that, the Grosheks continued to live on the property and to pay rent to Trewin under a lease agreement, but they eventually stopped making rent payments, which resulted in Trewin's canceling of the lease.

¶ 7 The Grosheks subsequently sued Trewin for breach of fiduciary duty and sought rescission of the conveyance. The complaint was amended prior to trial to add a claim for punitive damages. Trewin counterclaimed for eviction and for the money he was owed for rent and moved for summary judgment on the Grosheks' claim.

¶ 8 The Portage County Circuit Court, the Honorable Thomas T. Flugaur presiding, denied Trewin's motion for summary judgment. After a three-day trial to the court, the circuit court determined that Trewin had breached his fiduciary duty to the Grosheks; it then granted rescission of the conveyance of the property upon payment of $96,872.⁷ The circuit court dismissed Trewin's counterclaim. The circuit court based its conclusion on the following findings of fact:

The idea for the whole transaction was Trewin's, not the Grosheks'.

The Grosheks did not want to sell their property, but Trewin portrayed the sale to them as the only option they had.

The Grosheks did not understand the transaction and did not understand Trewin would have the ability to sell their property “out from underneath them.”

Trewin told the Grosheks the deal had to be done right away, and both of the Grosheks felt it was a rush deal because he was losing his license on August 31.

Although the signed August 30 agreement stated that the Grosheks “ha[ve] had the opportunity to review this agreement prior to the execution of this agreement, and ha[ve] been advised to review the agreement with another attorney of their choosing, which they have done,” the Grosheks had not done this when they signed it because Trewin had not given them a reasonable opportunity to do so.

Trewin did not make full disclosure in that there was no purchase price specified, the profit he was going to make was not disclosed, and the buy-back process was not specified.

Trewin knew of the Grosheks' financial situation because he represented them in the bankruptcy, he knew it would be difficult for them to make the rental payments under the lease, and he expected that he would benefit from their default under the lease-if they defaulted in the first year, the lease would be terminated, as would the option to buy their property back.

Trewin's letter to his own bank on August 24, 2004, seeking a loan to buy the property-in which he described his plans to subdivide twenty-four acres and sell the lots for a total of between $175,000 and $200,000-showed ... his “predatory” intent toward the property.

... [T]he terms of the transaction were unfair because the property was valued at $180,000 and Trewin purchased it for $94,500; even if the Grosheks had been able to buy it back at $127,500, the terms were still not fair to them.

Groshek v. Trewin, No.2008AP787, unpublished slip op., ¶¶ 19-20, 2009 WL 778351 (Wis.Ct.App. Mar. 26, 2009). The circuit court went on to determine that punitive damages were appropriate, citing the vulnerability of the Grosheks, the access the defendant had gained as counsel for the Grosheks, and the defendant's repeated discipline for improperly making similar transactions with other clients.

¶ 9 Trewin appealed. The court of appeals affirmed the denial of summary judgment, the dismissal of the counterclaim, and the determination that Trewin had breached his fiduciary duty to the Grosheks. It acknowledged the arguments of the parties about whether punitive damages could be awarded in the absence of compensatory damages; however, it held that the case was governed by Karns v. Allen,⁸ which holds that punitive damages are not available in an action that seeks equitable relief.

¶ 10 Trewin petitioned for review of the court of appeals' affirmance on the issue of breach of fiduciary duty; the Grosheks cross-petitioned the denial of punitive damages. This court granted the petition and cross-petition.

¶ 11 In reviewing the circuit court's findings of fact, we will not disturb them unless they are clearly erroneous. Wis. Stat. § 805.17(2).⁹ “The trial court is the ultimate arbiter of the credibility of witnesses and a reviewing court will accept the inference drawn by the trier of fact.” Rivera v. Eisenberg, 95 Wis.2d 384, 388, 290 N.W.2d 539 (Ct.App.1980). Whether the facts as found satisfy the elements of a claim for a breach of fiduciary duty is a question of law reviewed de novo. Jorgensen v. Water Works, Inc., 2001 WI App 135, ¶ 8, 246 Wis.2d 614, 630 N.W.2d 230. See also Beloit Liquidating Trust v. Grade, 2004 WI 39, ¶¶ 40-42, 270 Wis.2d 356, 677 N.W.2d 298 (treating the question of whether a fiduciary duty existed as a question of law). Whether punitive damages are available is a question of law and is thus reviewed de novo. Tucker, 142 Wis.2d at 432, 418 N.W.2d 818.

II. WHETHER TREWIN BREACHED HIS FIDUCIARY DUTY TO THE GROSHEKS

¶ 12 To support their claim for breach of fiduciary duty, the Grosheks must satisfy three elements: (1) that Trewin owed the plaintiffs a fiduciary duty, (2) that Trewin breached that duty, and (3) that that breach caused the Grosheks damage. See Berner Cheese Corp. v. Krug, 2008 WI 95, ¶ 40, 312 Wis.2d 251, 752 N.W.2d 800. The circuit court held that the Grosheks had proved that Trewin breached his fiduciary duty, and the court of appeals determined that the circuit court's findings in support of that determination were not clearly erroneous, and were sufficient to establish that breach.

¶ 13 Trewin maintains that the elements are not met because nothing he did while he had an attorney-client relationship with the Grosheks constituted a breach of fiduciary duty, and because such a duty no longer existed at the time he purchased the Grosheks' land because the attorney-client relationship ceased when his law license was suspended on August 31, 2004. Specifically, he argues that an attorney has no fiduciary duty to former clients, and at the time of the property sale, the Grosheks were former clients. Because the bankruptcy filing made the Grosheks' financial distress a matter of public knowledge, Trewin argues that there is no basis for concluding that he used confidential information gained as the Grosheks' counsel in negotiating the purchase. He further argues that there was no injury to the Grosheks because the underlying cause of the sale of their land-their financial difficulties-did not result from his actions; in other words, they would have lost the...