Menard, Inc. v. Liteway Lighting Products

• Decision Date: 29 June 2005
• Docket Number: No. 2003AP1391.,2003AP1391.
• Parties: Menard, Inc., Plaintiff-Respondent-Petitioner, v. Liteway Lighting Products, Defendant-Appellant.
• Court: Wisconsin Supreme Court

2005 WI 98

698 NW 2d 738

Menard, Inc., Plaintiff-Respondent-Petitioner, v. Liteway Lighting Products, Defendant-Appellant.

No. 2003AP1391.

Supreme Court of Wisconsin.

Oral Argument: February 2, 2005.

Opinion Filed: June 29, 2005.

For the plaintiff-respondent-petitioner there were briefs by Stephanie L. Finn, Webster A. Hart and Herrick & Hart, S.C., Eau Claire, and oral argument by Webster A. Hart.

For the defendant-appellant there was a brief by Carol S. Dittmar, Teresa E. O'Halloran and Garvey, Anderson, Johnson, Geraci & Mirr, S.C., Eau Claire, and oral argument by Carol S. Dittmar.

¶1 JON P. WILCOX, J

Menard, Inc. (Menard) seeks review of a published court of appeals decision, Menard, Inc. v. Liteway Lighting Products, 2004 WI App 95, 273 Wis. 2d 439, 685 N.W.2d 365, that reversed a judgment of the Eau Claire County Circuit Court, Lisa K. Stark, Judge, in favor of Menard and an order denying summary judgment to Liteway Lighting Products (Liteway).

¶2 The court of appeals concluded that Menard's lawsuit against Liteway, which seeks credit for allegedly defective products Menard returned to Liteway, was barred by the doctrine of claim preclusion based on Liteway's previous suit against Menard for nonpayment of invoices. Id., ¶1. Because it is undisputed that all of the allegedly defective goods for which Menard seeks credit in its suit against Liteway were returned prior to Liteway's original action for unpaid invoices, the issue of returned products formed the basis of the dispute between the parties from the beginning, and allowing Menard to recover in the present case would undermine Liteway's original judgment, we conclude that Menard's suit is barred under the doctrine of claim preclusion and the common-law compulsory counterclaim rule. Therefore, we affirm the decision of the court of appeals.

I. FACTUAL BACKGROUND AND PROCEDURAL POSTURE

¶3 Menard purchased lighting products from Liteway for approximately six years beginning sometime in late 1993 until December 1999. During their business relationship, Menard often held back sums of money due to Liteway as "credit" for products Menard claimed were defective. Following the cessation of their business relationship, the parties began disputing the amount of money Menard owed Liteway.

¶4 Menard filed a complaint against Liteway on August 23, 2001, alleging that it had returned some of the products due to their defective condition and that Liteway had not reimbursed it for the returns.¹ Menard alleged that as a result, Liteway had been unjustly enriched and that it breached its obligations under the Uniform Commercial Code (UCC). Menard sought damages in the sum of $315,345.54, representing the cost of all goods returned plus storage and shipping fees.

¶5 Liteway answered, asserting claim preclusion as an affirmative defense. Specifically, Liteway alleged that Menard's claims could have been brought in a prior action Liteway filed against Menard.

¶6 Liteway's previous action began on October 19, 2000, when it filed suit for breach of contract against Menard, seeking a money judgment of $354,954.77 for unpaid invoices on lighting fixtures as of September 1, 2000. The record indicates that Liteway attached copies of accounting records to its complaint in order to establish the amount owed by Menard. The record reflects that Menard stopped buying products from Liteway by at least December 1999, and that the parties began disputing the amount owed to Liteway as early as August 18, 1999. During oral argument before this court, counsel for Menard conceded that all the allegedly defective goods were discovered and returned to Liteway prior to the time when Liteway filed suit.

¶7 Menard's answer was due on December 11, 2000. On December 12, 2000, Liteway filed a motion for a default judgment. Menard, realizing it was in default, filed an untimely answer on December 12, 2000.² Menard also filed a motion to enlarge the time to respond to Liteway's complaint on this date. The Eau Claire County Circuit Court, Eric J. Wahl, Judge, granted Liteway's motion for default judgment on December 13, 2000, and docketed it on December 14, 2000.

¶8 On December 27, 2000, a hearing was held on Menard's motion to enlarge the time to file its answer. During the hearing, Menard alleged that it should be allowed to answer based on excusable neglect. Menard also asserted that while it owed Liteway money, it was not the amount alleged in the complaint. Following the hearing, the circuit court entered an order on January 8, 2001, staying the effect of the default judgment for 30 days in order to provide Liteway an opportunity to respond to Menard's motion to enlarge the time to answer. The circuit court also strongly advised the parties to attempt to settle the matter out of court and stated its belief that Menard's failure to timely answer was not excusable neglect.

¶9 On February 15, 2001, Menard filed a motion to extend the stay of enforcement of the default judgment. Attached to this motion was an affidavit of Dawn Sands, coordinator of Menard's legal department, which discussed the parties' dispute over the amount of money Menard owed Liteway. In the affidavit, Ms. Sands confirmed that Menard stopped buying products from Liteway by at least December 1999, and that the parties began disputing the amount owed to Liteway as early as August 18, 1999. This affidavit also contained an internal company memorandum from Menard indicating that the dispute between the parties over amounts due to Liteway related to customer returns. The Menard memorandum stated: "We have held back payment in order to cover future customer returns. . . . The difference between their numbers and our numbers are most likely customer returns." (Emphasis added.)

¶10 On June 24, 2001, a status conference was held that resulted in the circuit court entering a scheduling order on July 27, 2001. The scheduling order directed Menard and Liteway to file briefs discussing, inter alia, whether Menard's failure to timely answer constituted excusable neglect and whether Menard's claims based on return of defective products would constitute compulsory counterclaims that would be precluded if the default judgment were to stand. Menard filed its brief on August 31, 2001, arguing: 1) the circuit court erred in granting the default judgment; 2) Menard's failure to timely answer was excusable neglect because of ongoing discussions with Liteway and miscommunication between Menard's legal staff; 3) Menard was entitled to a hearing on damages; and 4) Menard's claims for credit for defective products did not constitute compulsory counterclaims.

¶11 The same day Menard filed its brief, it filed the present action against Liteway. As noted, Menard alleged that Liteway had been unjustly enriched and that it breached its obligations under the UCC.

¶12 The circuit court subsequently entered an order lifting the stay on enforcement of the default judgment on October 9, 2001. The circuit court stated: "Menards has now attempted to avoid the effect of its default during December, 2000 by raising various procedural arguments and again claiming its failure to answer within the statutory time limits was excusable." The court also noted that Menard had, in the year since the default judgment was entered, continuously attempted to litigate the dispute by raising various claims and defenses rather than attempting to resolve the controversy. Thus, the circuit court entered an order that lifted the stay on the default judgment and granted judgment to Liteway in the amount prayed for plus costs and one year's statutory interest. Menard did not satisfy the default judgment until November 16, 2001. Menard, 273 Wis. 2d 439, ¶24.

¶13 Menard's present action against Liteway proceeded before the Honorable Lisa K. Stark, and on November 16, 2001, Liteway filed a motion for summary judgment, arguing that Menard's action was barred by claim preclusion. In an oral ruling on February 7, 2002, the circuit court entered a partial ruling in favor of Menard but allowed Liteway to supplement the record before it entered a final decision. Liteway's supplement contained much of the circuit court record in its previous action. On May 3, 2002, the circuit court entered a formal order denying Liteway's motion for summary judgment.

¶14 The matter was tried to the court, and on April 14, 2003, a judgment was entered in favor of Menard. An amended judgment was filed on May 14, 2003, nunc pro tunc to May 12, 2003, in the amount of $140,478.41. On May 20, 2003, Liteway filed its notice of appeal.

¶15 The court of appeals reversed the judgment of the circuit court and its order denying summary judgment to Liteway. Menard, 273 Wis. 2d 439, ¶1. The court of appeals, addressing the issue of claim preclusion, concluded that Menard's claims against Liteway were part of the same transaction that gave rise to Liteway's claims against Menard:

A buyer's return of a set of goods for credit or an offset is a component of the transaction that began when the seller shipped those goods.

. . . .

. . . The common "nucleus of operative facts" is the exchange of goods for payment. The transaction will be complete when Menard no longer has a balance due and owing.

Id., ¶¶14, 18.

¶16 The court of appeals further reasoned:

Liteway alleged sufficient information in its first complaint for us to conclude there was the single transaction as described above. It alleged that it sold fixtures to Menard on credit pursuant to a contract, that Menard accepted the goods, that Liteway sent invoices for payment, and that Menard refused to pay for the items. Menard's claimed return for credit of these items is part of the transaction Liteway pled.

Id., ¶19.

¶17 Next, the court of appeals concluded that all of Menard's claims could have been raised as affirmative defenses or counterclaims in Liteway's original action. Id., ¶21. The court also noted that the factual predicates for both...