Krier v. Vilione
| Decision Date | 10 June 2009 |
| Docket Number | No. 2006AP2290.,No. 2006AP1573.,2006AP1573.,2006AP2290. |
| Citation | 2009 WI 45,766 N.W.2d 517 |
| Parties | Henry J. KRIER and Badger Investment Realty, LLC f/k/a Vil-Kri Investments, LLC, Plaintiffs, Badger Disposal of WI, Inc., Plaintiff-Appellant, v. Donald N. VILIONE and Virchow Krause & Company, LLP, Defendants-Respondents-Petitioners. Henry J. Krier, Badger Disposal of WI, Inc. and Badger Investment Realty, LLC, Plaintiffs-Appellants, v. Donald N. Vilione and Virchow Krause & Company, LLP, Defendants-Respondents-Petitioners. |
| Court | Wisconsin Supreme Court |
For the defendants-respondents-petitioners there were briefs filed by Ward I. Richter, William C. Williams, Bell Gierhart & Moore, S.C., Madison, and Terry E. Johnson, Maria D. Sanders, and Peterson, Johnson & Murray, S.C., Milwaukee, and oral argument by Ward I. Richter.
For the plaintiffs-appellants there was a brief by Robert J. Gingras, Michael J. Luebke, Eric J. Haag, and Gingras, Cates & Luebke, S.C., Madison, and oral argument by Eric J. Haag.
This is a review of a published court of appeals' decision1 that reversed and remanded the decision of the Milwaukee County Circuit Court, Jeffrey A. Kremers and Jean W. DiMotto, Judges.2 The circuit court granted the defendants'—Virchow Krause & Company, LLP, and Donald Vilione (collectively hereinafter "the accountants")—summary judgment motion thereby dismissing the claims of the plaintiffs, Henry J. Krier and Badger Investment Realty, LLC (f/k/a Vil-Kri Investments, LLC), but as to the plaintiff, Badger Disposal of WI, Inc. (f/k/a EOG Disposal, Inc.),3 the accountants were granted partial summary judgment in that only EOG Disposal's claim against the accountants for $7,000 in damages survived because it arose out of Michael Vilione's alleged misappropriation from plaintiff, EOG Disposal. The court of appeals reversed the circuit court's dismissal of the plaintiffs' claims,4 and as result, the accountants petitioned this court for review. We accepted review and now reverse the court of appeals' decision.
¶ 2 This case requires us to determine whether the plaintiffs, who are not shareholders in EOG Environmental,5 have standing to make a claim against that corporation's accountants (who were also the plaintiffs' accountants) for damages because the accountants allegedly failed to disclose, failed to prevent, and assisted in the misappropriation of funds from EOG Environmental. The complaint alleges that had the accountants informed the plaintiffs of the misappropriations, they would have ceased doing business with EOG Environmental. The damages sought by the plaintiffs are not for damages due to EOG Environmental or for damages to the plaintiffs prior to the discovery of the misappropriations. Rather, the plaintiffs' expert calculates damages for future, consequential loss to the plaintiffs despite the fact that they voluntarily and knowingly continued in a business relationship post-misappropriations. The expert calculates that the plaintiffs would have realized greater future profits had the accountants prevented one of EOG Environmental's owners from misappropriating funds or had the accountants warned the plaintiffs about the misappropriations. In other words, the plaintiffs allege that the accountants are liable to them even though the plaintiffs are separate and distinct entities with no shareholder interest in EOG Environmental, they voluntarily and knowingly continued to do business with that separate corporate entity, and they do not allege that they continued to do business based on any advice by the accountants.
¶ 3 We conclude that the court of appeals must be reversed because the summary judgment determination by the circuit court was correct. Therefore, we conclude that the plaintiffs, i.e., Vil-Kri, Krier, and EOG Disposal, lack standing to bring such claims against the accountants for their alleged role in the misappropriation of funds from EOG Environmental because, as explained in section III-A, ¶¶ 20-52, corporate law principles establish that the plaintiffs have no standing in this case, third-party liability precedent does not provide the plaintiffs with standing, and the damages claimed by the plaintiffs do not correspond with the claims alleged. However, as determined by the circuit court, EOG Disposal does have standing to assert claims against its own accountants, i.e., Donald Vilione and Virchow Krause & Co., for damages arising out of the accountants' actions when acting as EOG Disposal's accountant. To date, EOG Disposal has produced expert testimony to support a claim for $7,000 in damages.
¶ 4 Separately, as discussed in section III-B, ¶¶53-67, the plaintiffs' claims do not survive summary judgment because: (1) assuming the defendants owed the plaintiffs a duty of ordinary care, their negligence claims of accounting negligence, negligent training and supervision, and negligent misrepresentation would be barred on public policy grounds; and (2) their breach of fiduciary duty claim would be barred by the statute of limitations and the plaintiffs have not shown any damages that are tied to this claim.
¶ 5 In 1991, Krier and Michael Vilione formed three different corporations: EOG Environmental, EOG Disposal, and Vil-Kri. EOG Environmental, which is a sales, marketing, and waste collection corporation, was formed as a C-corporation.6 EOG Disposal, which received and disposed of waste products by virtue of working with other waste disposal companies, was formed as an S-corporation.7 Vil-Kri, the owner of the building that EOG Disposal leased for its business, was formed as a limited liability company (LLC).8
¶ 6 EOG Environmental, the C-corporation, was owned by Michael Vilione (47.17%), Krier (47.17%), Jeff Vilione (5%), and Kandy Schmit (0.66%). EOG Disposal, the S-corporation, was owned by Michael Vilione (50%) and Krier (50%). Vil-Kri, the limited liability company, was owned by Michael Vilione (50%) and Krier (50%).
¶ 7 Donald Vilione, i.e., the accountant, a partner in the accounting firm of Virchow Krause & Co., was the accountant for each of the three corporations and Krier's personal accountant until approximately January 31, 2003. Donald Vilione and Michael Vilione are brothers.
¶ 8 Between December 1, 1995, and December 11, 2002, Michael Vilione allegedly misappropriated over $1.2 million from EOG Environmental and $7,000 from EOG Disposal. Krier discovered the misappropriations in 2002, and as a result, he instituted litigation on January 3, 2003, against Michael Vilione alleging fraud and misappropriations of funds.9
¶ 9 On January 31, 2003, Krier and Michael Vilione reached a comprehensive settlement agreement with regard to that litigation. This was also the approximate date that Krier and his entities ceased to employ the accountants. In the settlement agreement, Michael Vilione became the sole owner of the C-corporation, EOG Environmental. As a part of that agreement, Krier conveyed all of his common stock in EOG Environmental to Michael Vilione. Also as a part of that agreement, Krier became the sole owner of the S-corporation, EOG Disposal, and he also became the sole owner of the limited liability company, Vil-Kri. Similarly, Michael Vilione conveyed all of his common stock in EOG Disposal to Krier. In addition, Michael Vilione sold his ownership interest in Vil-Kri to Krier for the sum of $95,000. However, Michael Vilione and Krier also agreed to continue doing business together for approximately the next two years. As part of the agreement, all debts Krier owed to EOG Environmental were eliminated and all debts Michael Vilione owed to EOG Disposal and Vil-Kri were eliminated. In addition, under the agreement Krier, EOG Disposal, and Vil-Kri released Michael Vilione and EOG Environmental from all claims "from the beginning of time to the date of execution of th[e] Release." In the agreement, Michael Vilione and EOG Environmental also released Krier, EOG Disposal, and Vil-Kri of all claims "from the beginning of time to the date of execution of th[e] Release." However, in the agreement, Krier, EOG Disposal, and Vil-Kri reserved the right to file an action against Michael Vilione's brother, i.e., Donald Vilione, who was the accountant. Donald Vilione was not a party to that lawsuit or the settlement agreement.
¶ 10 On January 20, 2005, nearly two years after Krier had divested himself of any interest in EOG Environmental and approximately two years from filing the lawsuit regarding the misappropriations, Krier, EOG Disposal, and Vil-Kri10 filed an action against the accountants. The plaintiffs alleged that had the accountants informed them of the misappropriations from EOG Environmental or stopped the misappropriations, they would have ceased to do business with EOG Environmental. They then offer an expert's opinion that the misappropriation of funds from EOG Environmental caused the plaintiffs' businesses to have a future, consequential reduced value. The plaintiffs' complaint asserted ten causes of action: violation of Wis. Stat. § 134.01 (2007-08),11 injury to business; civil conspiracy; accounting negligence; breach of fiduciary duty; negligent training and supervision; negligent misrepresentation; strict responsibility misrepresentation; misrepresentation-intentional deceit; violation of Wis. Stat. §§ 895.80 (2003-04) and 943.20, civil theft; and violation of the Wisconsin Organized Crime Control Act. In short, the plaintiffs alleges that the defendants either (1) failed to discover the alleged misappropriations; (2) knew of the misappropriations but "fail[ed] to disclose" or prevent them; or (3) "acted together" "purposefully" and "intentionally" with Michael Vilione to allegedly misappropriate the funds.
¶ 11 Even though the complaint is that had the accountants acted properly, the plaintiffs would have ceased doing business with EOG Environmental, the plaintiffs' expert renders an opinion...
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