Management Computer Services, Inc. v. Hawkins, Ash, Baptie & Co.
| Decision Date | 20 December 1996 |
| Docket Number | No. 93-0140,93-0140 |
| Citation | 206 Wis.2d 158,557 N.W.2d 67 |
| Court | Wisconsin Supreme Court |
| Parties | MANAGEMENT COMPUTER SERVICES, INC., a Wisconsin corporation, Plaintiff-Appellant-Cross Respondent-Petitioner, v. HAWKINS, ASH, BAPTIE & CO., a Wisconsin Partnership, Hawkins, Ash, Baptie, Inc., a Wisconsin corporation, David D. Baptie, James O. Ash, R. Roy Campbell, Robert J. Daley, Walter L. Leifeld, Larry E. Vangen and Jack E. White, Defendants-Counter Claimants-Respondents-Cross Appellants, v. MANAGEMENT COMPUTER SERVICES, INC., Counter Defendant-Appellant-Petitioner. |
For the plaintiff-appellant-cross respondent-petitioner there were briefs by Thomas D. Bell, Matthew A. Biegert and Doar, Drill & Skow, S.C., New Richmond and oral argument by Matthew A. Biegert.
For the defendants-counter claimants-respondents-cross appellants there was a brief by Daniel W. Hildebrand, Steven J. Kirschner and DeWitt Ross & Stevens, S.C., Madison and oral argument by Daniel W. Hildebrand.
Management Computer Services, Inc. (MCS) seeks review of a published decision of the court of appeals, 1 which affirmed in part and reversed in part a judgment of the circuit court for La Crosse County, the Honorable Robert W. Radcliffe presiding. In particular, the court of appeals held the following: (1) the circuit court correctly entered judgment notwithstanding the verdict (JNOV) on the breach of contract claim and counterclaim, because the contract is too indefinite to enforce; (2) the circuit court erroneously changed the jury answer to reduce the conversion award against Hawkins, Ash, Baptie & Company (HABCO) 2 from $65,000 to $62,000, but correctly changed the jury answer to reduce the unjust enrichment award from $1,000,000 to $0 based on lack of sufficient evidence as to damages; (3) the circuit court erroneously ordered a new trial on punitive damages unless MCS accepted a reduced sum of $50,000; instead, the court of appeals set the amount of reasonable punitive damages at $650,000. We conclude, as a matter of law, that the contract at issue is not too indefinite to enforce and that HABCO was not excused from performance by MCS's breach of contract. Therefore, we reverse the court of appeals' decision in part. However, we affirm the court of appeals' decision regarding the claims of conversion and unjust enrichment, and the award of punitive damages.
The factual background of this case is lengthy and complicated. HABCO is a regional certified public accounting firm with offices in La Crosse, Manitowoc, Marshfield, Medford, Green Bay, Sturgeon Bay, Wisconsin, and Winona, Minnesota. Part of HABCO's business involves providing accounting services to public housing authorities (PHAs). 3 In 1968, Robert Sierp and Robert Daley, employees of HABCO, worked together to develop computer programs to service PHA clients.
On January 1, 1970, HABCO incorporated MCS, which served as a separate department providing computer services to HABCO's clients. MCS also processed HABCO's internal accounting work, as well as its time and billing systems. In the late 1970's, MCS began pursuing opportunities to provide turnkey computer systems 4 to PHAs.
Initially, the HABCO partners and members of their families owned ninety percent of the shares of MCS stock and Sierp owned ten percent of the shares. However, on March 31, 1979, MCS redeemed the HABCO partners' and families' shares, leaving Sierp as sole shareholder. Sierp also became president of MCS. At the time of the redemption, neither HABCO nor MCS carried any of the existing software on their books as assets.
Prior to the redemption, HABCO and MCS began negotiating an agreement intended primarily to outline the terms and conditions under which MCS would provide HABCO with a computer and the software necessary to continue its monthly services accounting operations. An MCS employee 5 drafted the initial agreement, and it was later revised by HABCO. In fact, the agreement went through numerous revisions, with Sierp and James Ash, a HABCO partner, serving as the primary negotiators.
In addition, Gerard O'Flaherty, an attorney, reviewed one of the contract drafts. O'Flaherty sent a letter to MCS indicating that Attachment C should be re-drafted because of its "loose construction." During the trial, Ash testified that he was aware O'Flaherty had reviewed the agreement and made comments on it, but he was not aware of the content of those comments. In addition, both Ash and O'Flaherty testified that O'Flaherty was not representing HABCO, even though it paid half of his fees for reviewing the contract.
On June 1, 1979, shortly after the stock redemption, MCS and HABCO signed a thirty-one page "Contract for Computer Services and Equipment." The contract established four classes of software, with Classes III and IV being the most relevant to this case. Class III software (contract software) was jointly owned by MCS and HABCO, but there were certain restrictions on its use. In particular, Attachment C of the contract provides in pertinent part:
HABCO shall have the use of the Jointly Owned Software on a single computer system as defined in this Agreement for an unrestricted number of clients.
HABCO shall pay MCS 25% of the program value as identified in this Agreement for the use of the Jointly Owned Software on each additional computer system purchased through MCS, and installed or operated by HABCO.
Class IV software was application software, including most of the software needed to operate the PHA turnkey systems. However, Class IV software became Class III software pursuant to the contract, because HABCO did not exercise an option to purchase it before November 1, 1979.
MCS subsequently developed additional proprietary software that was not covered by the contract (non-contract software). MCS and HABCO agreed that MCS could store back-up tapes containing the non-contract software at HABCO's offices. 6 In 1981 or early 1982, a HABCO employee and partner 7 copied programs from the back-up tapes onto HABCO's computer, backed it up on another tape, printed a copy of the software, and removed the software from the HABCO computer. 8 This process ensured that no one would be able to tell that the software had been copied to HABCO's computer. HABCO then used the programs in its own operations. In fact, HABCO changed its billing format so that MCS would not discover that HABCO was using the software to process accounts receivable.
On January 20, 1989, MCS filed suit in circuit court. 9 The complaint alleged several claims, including breach of contract, conversion, unjust enrichment, and punitive damages. The breach of contract claim involved the contract software, in particular, the software needed to run the PHA turnkey systems. MCS alleged that HABCO breached the contract by making unauthorized copies of the contract software, using those copies on equipment that was not purchased from MCS and was not the single computer system designated in the contract, and selling or licensing copies of the software to PHAs across the country. MCS's claims for conversion, unjust enrichment, and punitive damages were based on HABCO's copying of the non-contract software from MCS's back-up tape. In addition, HABCO filed a counterclaim for breach of contract against MCS. 10
On October 1, 1990, MCS brought a motion in limine to exclude all testimony regarding ownership of the contract software prior to June 1, 1979, based on the parol evidence rule. 11 In its response, HABCO claimed that the parol evidence rule did not apply because the contract was ambiguous as to ownership of the software. The circuit court judge denied MCS's motion, and thus allowed parol evidence to be presented.
A jury trial was held on April 15 through April 26, 1991. In the opening statement, an attorney for HABCO said:
Unfortunately one of the big problems in this case is the ambiguity of the contract. HABCO did not have legal representation, and that's--of course, when you have an ambiguous contract you wind up in a courtroom like this, and you have to leave it to ladies and gentlemen like yourselves to figure out what the parties meant by this contract. And this will be one of your important jobs in this case.
(R. 117 at 72.) In fact, much of the evidence presented by both HABCO and MCS related to their interpretations of the contract.
At the close of MCS's evidence, HABCO moved the court to dismiss the claim of breach of contract, based on its contention that the contract was not susceptible of MCS's alleged construction. The circuit court judge denied the motion. He specifically stated:
There is a reasonable disagreement between the parties as to the interpretation of this contract, and if the interpretation of the contract as pled and claimed by the plaintiff is correct, why then the court would have to find that there would be evidence to support a finding that they, HABCO, had failed to pay 25 percent of the program value for the software....
(R. 120-7 at 1068) (emphasis added.)
Again, at the close of all the evidence, HABCO moved the court to dismiss the breach of contract claim. However, this time HABCO argued that the contract was void for indefiniteness. 12 The circuit court judge once more denied the motion, concluding:
Certainly the interpretations that are being given to the contract now by the parties would come very close to finding that there was never a meeting of the minds as to what it was intended by the parties. But the contract is susceptible of different interpretations. The jury has heard [HABCO's] evidence concerning [its] understanding, Mr. Sierp has testified as to his understanding of the contract, each of the principals for the defendant have had their opportunity to testify to their understanding. .... I'm satisfied that this issue of breach of contract by the plaintiffs, as well as by the defendant, will have to go to the jury, and the...
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