Lane v. SHARP PACKAGING SYSTEMS, INC., 01-0708.

• Decision Date: 26 September 2001
• Docket Number: No. 01-0708.,01-0708.
• Citation: 2001 WI App 250,635 N.W.2d 896,248 Wis.2d 380
• Parties: Harold C. LANE, Jr., Plaintiff-Appellant, v. SHARP PACKAGING SYSTEMS, INC., Paul W. Scarberry and Virginia Scarberry, Defendants, John H. NIEBLER, Esq. and Niebler, Pyzyk, Klaver & Wagner, LLP, Defendant-Respondent.
• Court: Wisconsin Court of Appeals

248 Wis.2d 380

2001 WI App 250

635 N.W.2d 896

Harold C. LANE, Jr., Plaintiff-Appellant, v. SHARP PACKAGING SYSTEMS, INC., Paul W. Scarberry and Virginia Scarberry, Defendants, John H. NIEBLER, Esq. and Niebler, Pyzyk, Klaver & Wagner, LLP, Defendant-Respondent.¹

No. 01-0708.

Court of Appeals of Wisconsin.

Submitted on briefs August 24, 2001.

Decided September 26, 2001.

On behalf of the plaintiff-appellant, the cause was submitted on the briefs of James O. Huber, Maureen A. McGinnity, and David W. Simon of Foley & Lardner of Milwaukee.

On behalf of the defendant-respondent, the cause was submitted on the brief of Terry E. Johnson and Maria DelPizzo Sanders of Peterson, Johnson & Murray, S.C. of Milwaukee.

Before Nettesheim, P.J., Brown and Anderson, JJ.

¶ 1. NETTESHEIM, P.J.

Harold C. Lane, Jr., brought an action alleging fraud and conspiracy claims against his former employer, Sharp Packaging Systems, Inc., its owners, Paul W. and Virginia Scarberry (the Sharp defendants) and the Scarberrys' personal attorney, John H. Niebler and his firm, Niebler, Pyzyk, Klaver & Wagner, LLP (Niebler).² Lane appeals from a trial court order granting Niebler's pretrial motion to dismiss Lane's amended complaint. The court dismissed the complaint without prejudice, ruling that Lane's action was presently precluded by the court of appeals' holding in Badger Cab Co. v. Soule, 171 Wis. 2d 754, 492 N.W.2d 375 (Ct. App. 1992).

¶ 2. The first issue is whether a lawyer can be liable to a third party, nonclient for acts committed within the attorney-client relationship where the attorney does not have direct contact with the third party. We conclude that an attorney can be held liable for actions rendered in the course of representation if those actions are fraudulent. Goerke v. Vojvodich, 67 Wis. 2d 102, 226 N.W.2d 211 (1975); Green Spring Farms v. Kersten, 136 Wis. 2d 304, 401 N.W.2d 816 (1987).

¶ 3. The second issue is whether a lawyer and a client are incapable, as a matter of law, of engaging in a conspiracy pursuant to Ford Motor Co. v. Lyons, 137 Wis. 2d 397, 405 N.W.2d 354 (Ct. App. 1987). We conclude that they are not.

¶ 4. The third issue is whether Badger Cab permits a plaintiff to pursue an action against the defendant and the defendant's attorney where the plaintiff alleges that the defendant engaged in fraud and a conspiracy giving rise to the litigation. We hold that Badger Cab does not bar an action against the defendant's attorney under such circumstances.

¶ 5. We reverse the trial court's order dismissing Lane's complaint against Niebler. We remand for further proceedings.

FACTS AND TRIAL COURT PROCEEDINGS

[1]

¶ 6. Since the issue on appeal is whether the trial court properly granted Niebler's motion to dismiss Lane's amended complaint, we are required to limit our review to the facts alleged in the complaint and we must assume those facts to be true. See Town of Eagle v. Christensen, 191 Wis. 2d 301, 311-12, 529 N.W.2d 245 (Ct. App. 1995)

. Whether those alleged facts can withstand the rigors of a trial has yet to be determined.

¶ 7. Lane's alleged facts are as follows.³ Sharp is a Subchapter S corporation engaged in the business of manufacturing and distributing preopened bags. The Scarberrys are the sole shareholders of Sharp and both are members of Sharp's board of directors.

¶ 8. Lane entered into an employment agreement with Sharp in December 1992. The agreement designated Lane as president and chief operating officer reporting to Paul Scarberry, who was chairman and chief executive officer. Subsequently, in 1995, Lane entered into an Employment Agreement and Stock Option Agreement with Sharp and the Scarberrys. The agreements provided Lane with a 25% interest in the value of the company. Lane's interest was structured as a stock option with "stock appreciation rights." The Stock Option Agreement provided that if Lane were terminated prior to the exercise of his option, he would have the choice of exercising his option or receiving his 25% share of the company as stock appreciation rights. More specifically, the agreement provided that if Lane's employment were terminated, Sharp would be required to redeem his unexercised stock option, paying him the fair market value of his 25% interest in the company as determined by an appraisal. The agreement also included antidilution adjustments as well as a "make up" provision to assure Lane would receive his 25% share in the event of the sale or other disposition of substantially all of the company's assets following his termination. Lane was entitled to at least a forty-eight-hour notice of any shareholder meetings and he was to be consulted regarding any action to be taken by the shareholders.

¶ 9. Pursuant to the Employment Agreement, Lane was elected to and remained a member of Sharp's board of directors. He also held the right to veto or discharge any professional providing services to Sharp if that professional was not performing to Lane's satisfaction. In 1995, Lane caused Sharp to replace Niebler as Sharp's corporate counsel and to remove Niebler from Sharp's board of directors. Niebler had represented Sharp at times since 1985 and the Niebler firm acted as Sharp's general counsel. Sharp replaced Niebler's services as corporate counsel with those of Meissner & Tierney.

¶ 10. Lane alleges in his complaint that as a result of the exercise of his contractual right to cause Niebler to be discharged as Sharp's counsel and to have him removed from Sharp's board of directors, Niebler harbored personal resentment, animosity and malice toward him. Lane contends that despite the termination of Niebler's services, Niebler secretly continued to provide services to Sharp without Lane's knowledge, consent or authority from 1995 through 1999.

¶ 11. Lane also alleges that from the outset of his employment with Sharp, Niebler tried to persuade the Scarberrys that there was no enforceable agreement with Lane and that Lane was trying to "steal Sharp from the Scarberrys." Lane contends that commencing in mid-1998, the Scarberrys and Niebler conspired and agreed to have the Scarberrys secretly withdraw funds from Sharp without paying Lane his 25% share. Lane further contends that in July 1998, without advising Lane, Niebler devised and proposed to the Scarberrys a plan for the withdrawal of a substantial portion of Sharp's retained earnings as a shareholder distribution. It is Lane's position that Niebler himself proposed the plan and the Scarberrys accepted and acted upon the plan, with full knowledge that such distribution would violate and impair Lane's rights to his 25% vested interest in Sharp. On February 23, 1999, Sharp paid the Scarberrys an approximately $3.8 million shareholder distribution without the unanimous consent of Sharp's board of directors and without notifying Lane or obtaining his consent. The transfer of assets out of the company significantly diminished the value of Lane's 25% interest in Sharp. On March 2, 1999, the Scarberrys informed Lane that he had been removed from the board of directors effective immediately and that he had been terminated effective May 31, 1999.

¶ 12. Lane filed his original complaint on December 14, 1999, raising the following allegations against Sharp and the Scarberrys: (1) fraudulent transfer, (2) breach of the Employment Agreement, (3) breach of the Stock Option Agreement, (4) civil conspiracy to deprive him of his 25% interest in Sharp, (5) request for an accounting, and (6) request for declaratory and injunctive relief. Sharp and the Scarberrys appeared in the action represented by Stafford & Rosenbaum with Niebler listed as co-counsel.

¶ 13. Following discovery, Lane filed an amended complaint impleading Niebler and the Niebler law firm as additional defendants to the allegations of fraudulent transfer and conspiracy and adding a claim of tortious interference of contract.

¶ 14. Niebler filed a motion to dismiss Lane's claims pursuant to WIS. STAT. § 802.06(2)(a)6 (1999-2000),⁴ arguing that as a matter of law, a party may not state a claim against another party's attorney and that Lane's claim was barred by our holding in Badger Cab. Following a hearing on February 16, 2001, the trial court granted Niebler's motion to dismiss, but ordered that the dismissal be without prejudice. Lane appeals.

DISCUSSION

[2-4]

¶ 15. We review a trial court's decision to grant or deny a motion to dismiss for failure to state a claim de novo. Town of Eagle, 191 Wis. 2d at 311-12. The purpose of a motion to dismiss for failure to state a claim is to test the legal sufficiency of the complaint. Id. at 311. As we have noted, we assume that the facts alleged in the complaint are true and liberally construe the pleadings, dismissing only if it is quite clear that under no conditions can the plaintiff recover. Id.

1. Attorney Liability

[5]

¶ 16. The first issue is whether an attorney may be liable to a third party, nonclient for fraudulent acts committed within the attorney-client relationship.⁵ While we conclude, and the parties agree, that the answer is "yes," Niebler argues that he cannot be held liable under the circumstances presented in this case. We disagree.

¶ 17. In Goerke, 67 Wis. 2d at 105, the supreme court set forth the general statement adhered to in Wisconsin regarding the liability of attorneys to third parties:

While an attorney is not liable to a third person for acts performed in good faith, and mere negligence on the part of an attorney is insufficient to give a right of action to a third party injured thereby, an attorney is personally liable to a third party who sustains injury in consequence of his wrongful act or improper exercise of authority where the attorney has been guilty of fraud or collusion, or of a malicious or tortious act. (Emphasis added; citation omitted.)

¶ 18. This standard was subsequently confirmed in Green Spring Farms, 136 Wis. 2d at 321-24. There the court observed, "Goerk...