Hennig v. Ahearn
| Decision Date | 26 August 1999 |
| Docket Number | No. 98-2319.,98-2319. |
| Citation | 230 Wis.2d 149,601 N.W.2d 14 |
| Parties | Douglas A. HENNIG, Plaintiff-Appellant-Cross-Respondent, v. Lance W. AHEARN and Heartland Development Corporation, Defendants-Respondents-Cross-Appellants. |
| Court | Wisconsin Court of Appeals |
On behalf of the plaintiff-appellant-cross-respondent, the cause was submitted on the briefs of Donald K. Schott and Valerie Bailey-Rihn of Quarles & Brady, LLP, Madison.
On behalf of the defendants-respondents-cross-appellants, the cause was submitted on the briefs of Edward A. Hannan and Alexander E. Gasser of Hannan, Siesennop & Sullivan, Milwaukee.
Before Dykman, P.J., Roggensack and Deininger, JJ.
Douglas Hennig appeals an order dismissing his misrepresentation and contract reformation claims against Heartland Development Corporation and its president, Lance Ahearn.2 Hennig claims that during the negotiation of an executive compensation agreement, Ahearn altered a crucial provision of the agreement at the last minute but failed to point out the alteration, as had been the practice with revisions during earlier phases of the negotiation. On Ahearn's motion at the close of Hennig's case, the trial court dismissed the latter's claims. The trial court concluded that Ahearn had no duty to disclose the alteration, and that Hennig's negligence in failing to detect the alteration barred his claims as a matter of law. We conclude, however, that Hennig presented credible evidence at trial showing that his claims turn on disputed facts; that the parties' conduct during the course of the negotiation may have given rise to a duty on Ahearn's part to disclose alterations to the agreement; and that, in light of the parties' conduct, Hennig's failure to discover the last-minute alteration might not bar his recovery. Accordingly, we reverse the order dismissing Hennig's claims and remand them for trial.
Hennig also cites as errors the trial court's exclusion of testimony from Hennig's attorney regarding why he did not reread the entire document after the final version was forwarded to him, and the court's refusal to permit testimony from Hennig's expert regarding the customs of the business and legal communities. We conclude that the trial court's exclusion of this testimony was based on an erroneous view of the law, and we instruct the court on remand to admit the testimony at trial.
Ahearn cross-appeals the trial court's denial of his motion for summary judgment. We affirm the trial court's ruling because genuine issues of material fact were shown to be disputed, precluding dismissal of Hennig's claims on summary judgment. Ahearn also cross-appeals the trial court's denial of his motion for sanctions against Hennig for maintaining a frivolous action. We conclude that Hennig's claims are not frivolous, and we thus affirm the trial court's order denying sanctions.
Hennig claims that during the negotiation of a contract, Ahearn altered a crucial paragraph that established Hennig's compensation, but that Ahearn failed to point out the alteration, as had been the custom of the parties and their attorneys during earlier phases of the negotiation. Although Hennig and his attorney reviewed the final draft of the contract, neither noticed the crucial alteration. Hennig signed the contract and later received substantially less compensation than he expected. He now seeks damages in tort, or reformation of the contract, hoping to obtain the compensation specified in earlier drafts of the contract.
As we discuss in more detail below, the general rule is that a party who signs a contract after a fair opportunity to read the contract is bound by its terms. This rule is subject to exceptions, however, and a party's failure to carefully read a contract does not in every case bar relief from the contract as signed. The principal question before us is whether Hennig produced sufficient evidence in support of his tort and contract theories for his claims to survive Ahearn's motion to dismiss. With this in mind, we now review in some detail the evidence adduced during Hennig's presentation of his case to the jury. Many relevant facts were undisputed, but some crucial facts were very much in dispute.
Hennig founded a small business, and in order to raise capital to expand it, he engaged in a series of transactions with Heartland Development Corporation. Hennig's company became Heartland Retirement Services, with Hennig serving as president and owning 4.5% of the company's stock. Heartland Development owned the remaining 95.5% of the stock. Ahearn was president of Heartland Development. In July 1995, Heartland Development decided to sell Heartland Retirement. Ahearn believed that Heartland Retirement would garner a higher price if the company were sold with established management in place. Accordingly, Ahearn was prepared to offer Hennig an incentive payment if Hennig would commit to assisting in the sale and to continuing his employment with the buyer. Thus began negotiations between Hennig and Ahearn, and their attorneys, which led to the current dispute.
Hennig and Ahearn first discussed Hennig's incentive payment in July 1995. Terms of the incentive payment were expressed in a letter from Ahearn to Hennig dated October 11, 1995, which provided that Hennig's incentive payment would be calculated as a percentage of the money Heartland Development would realize from the sale. The October 11 letter provided, in relevant part:
(Emphasis added.) The term "net equity realized" was not specifically defined in the letter. The schedule attached to the letter, however, indicated that "net equity realized" amounted to the gross sales price, less outstanding debt, the commission to the brokers of the sale, and Hennig's 4.5% share of the equity.
The first draft of the agreement itself was prepared by Ahearn's attorney and presented to Hennig on November 16, 1995. Hennig retained his own attorney to review the proposed agreement and to advise him during the negotiations. Between November 16 and November 30, the attorneys exchanged five drafts of the proposal. Each side proposed numerous changes, and each draft highlighted the differences between the current draft and that side's prior proposal. Ahearn and his attorney presented the November 30 draft to Hennig's attorney, indicating that it was their final offer.
From Ahearn's October 11 letter to the November 30 draft, the incentive compensation arrangement was essentially unchanged. The definition of "net equity realized" was refined, but only to clarify how it would be calculated in the event the sale were structured as a stock sale rather than an asset sale. Paragraph 4 of the November 30 draft provided, in relevant part:
For purposes of this determination [of Hennig's incentive compensation], "Net Equity Realized" means 100% of the price received by Heartland Development Corporation in the Sale (in the event of a Stock Sale) or 95.5% of the price paid by the Purchaser in the Sale (in the event of an Asset sale), less (i) Company debt or other obligations of the Company which are not assumed by Purchaser as part of the Sale and (ii) fees and expenses incurred by the Company in connection with the Sale, including but not limited to, attorneys' fees, accountants' fees, environmental audit fees, and fees or commissions payable to investment bankers or brokers for services in connection with the Sale. The gross remuneration paid under this section shall, as determined by the Company, be subject to applicable withholding and payroll taxes.
Thus, under the terms of the November 30 draft, net equity realized retained essentially the same meaning it had in Ahearn's October 11 letter: the gross amount received by Heartland Development from the sale, less outstanding debt not assumed by the purchaser, and less the costs of conducting the sale.
Over the weekend of December 2-3, however, Ahearn had second thoughts about the compensation arrangement that had been offered to Hennig in the November 30 draft. After discussing the matter with Heartland Development's chief financial officer, Ahearn changed the definition of "net equity realized," without his attorney's assistance or knowledge. On Tuesday, December 5, 1995, Ahearn delivered the final version of the agreement to Hennig—on Heartland Retirement letterhead and already signed by Ahearn—without explaining or pointing out any of the several changes that had been made to the document. The relevant passage from paragraph 4 as delivered to Hennig read:
For purposes of this determination [of Hennig's incentive compensation], "Net Equity Realized" means one hundred percent (100%) of the price received by Heartland Development Corporation in the Sale (in the event of a Stock Sale) or ninety five and five-tenths percent (95.5%) of the price paid by the Purchaser in the Sale (in the event of an Asset sale), less (i) Company debt, investment in common stock and additional paid in capital, any other obligations of the Company which are not assumed by Purchaser as part of the Sale and (ii) fees and expenses incurred by the Company in connection with the Sale, including but not limited to, attorneys' fees, accountants' fees, environmental audit fees, and fees or commissions payable to investment bankers or brokers for services...
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