Neumann v. Industrial Sound Engineering, Inc.

• Decision Date: 01 July 1966
• Parties: Carl W. NEUMANN, Respondent, v. INDUSTRIAL SOUND ENGINEERING, INC., a Wisconsin corporation, Appellant. D. W. GELLERUP, d/b/a Midwest Engineering Co., Respondent, v. INDUSTRIAL SOUND ENGINEERING, INC., a Wisconsin corporation, Appellant. John A. KOLLER, Respondent, v. INDUSTRIAL SOUND ENGINEERING, INC., a Wisconsin corporation, Appellant.
• Court: Wisconsin Supreme Court

Page 543

143 N.W.2d 543

31 Wis.2d 471

Carl W. NEUMANN, Respondent, v. INDUSTRIAL SOUND ENGINEERING, INC., a Wisconsin corporation,

Appellant.

D. W. GELLERUP, d/b/a Midwest Engineering Co., Respondent, v. INDUSTRIAL SOUND ENGINEERING, INC., a Wisconsin corporation,

Appellant.

John A. KOLLER, Respondent, v. INDUSTRIAL SOUND ENGINEERING, INC., a Wisconsin corporation,

Appellant.

Supreme Court of Wisconsin.

July 1, 1966.

Thomas F. Nelson, Milwaukee, William S. Porter, Porter, Alverson & Porter, Milwaukee, of counsel, for appellant.

Jack D. Moertl, Milwaukee, for respondents.

HALLOWS, Justice.

In its findings of fact the trial court found the action in the bankruptcy court 'was commenced upon the advice of counsel after a full and fair statement of the facts pertinent to the case as known to the plaintiffs at the time of the commencement of the action' and concluded such acts of the respondents constituted a defense to the claims of lack of probable cause and of malice. It is this finding of the trial court which is attacked on this appeal.

The appellant was incorporated in 1959 to operate an FM radio station and to furnish background music service. It succeeded a partnership composed of Larry C. LaRue and John E. Dieringer, each of whom became stockholders, directors and officers of the corporation. LaRue became its president and general manager; Dieringer its secretary and treasurer. Ernest Behagen later became a stockholder and director and was its vice president and chief engineer. From its incorporation, the appellant was almost constantly in need of working capital.

The respondent Neumann was a general contractor who built the radio station and had a final invoice due of $1,322.51. The respondent Gellerup had performed services in securing an FM license and one of his invoices for $400 was unpaid. The respondent Koller had done masonry work on the studio building and payment of $250 had been withheld because of some minor dispute. Most of the negotiations with these respondents for payment of their claims were had with LaRue, who on behalf of the appellant was attempting to raise working capital. In this attempt a dispute arose between Dieringer, Behagen and LaRue, as a result of which LaRue resigned. He notified the respondents of the failure of his negotiations to secure the loan, told them the inventory had disappeared, the appellant had no bookkeeping system and he did not think they would receive payment of their claims, and advised them to see his attorney who was familiar with the affairs of the appellant.

The respondents sought the advice of LaRue's attorney, whom they told what they knew about their claims and the affairs of the appellant, and were advised to sign a petition to put it into involuntary bankruptcy. This petition was not sworn to on the personal knowledge of the respondents but they did affirm the truth of the allegations; the only important allegation being concealment of assets by the appellant with intent to hinder or delay its creditors as an act of bankruptcy. Some months later the petition was amended to include general allegations of the making of deceptive and false balance sheets.

The appellant raises six issues but they are all related to lack of probable cause or malice in their relationship with reliance upon the advice of counsel as a defense. In Elmer v. Chicago & N.W.R. Co. (1950), 257 Wis. 228, 43 N.W.2d 244, this court set down the six essential elements necessary to successfully sustain an action for malicious prosecution. See also Pollock v. Vilter Mfg. Corp. (1964), 23 Wis.2d 29, 126 N.W.2d 602; Schier v. Denny (1960), 9 Wis.2d 340, 101 N.W.2d 35; and 34 Am.Jur., Malicious Prosecution, p. 706, sec. 6. Involved here are the two elements of the want of probable cause and the existence of malice in instituting the unsuccessful judicial proceeding and as to these, the appellant has the burden of proof. Gladfelter v. Doemal (1958), 2 Wis.2d 635, 87 N.W.2d 490; Bromund v. Holt (1964), 24 Wis.2d 336, 129 N.W.2d 149. In this the appellant is undoubtedly helped by the rule that the dismissal of the involuntary bankruptcy petition is prima facie evidence of lack of probable cause because unlike an ordinary civil suit a proceeding for involuntary bankruptcy stands in the same class as a criminal case or an insanity matter, wherein the rule applies. Manz v. Klippel (1914), 158 Wis. 557, 149 N.W. 375; Bigelow v. Sickles (1891), 80 Wis. 98, 49 N.W. 106; Myhre v. Hessey (1943), 242 Wis. 638, 9 N.W.2d 106, 150 A.L.R. 889. See also Wilkinson v. Goodfellow-Brooks Shoe Co. (1905), 8 Cir., 141 F. 218.

It is the generally recognized rule that the advice of an attorney, whom a client has no reason to believe to be personally interested, is conclusive of the existence of probable cause for initiating a criminal proceeding in reliance upon such advice when it is sought in good faith and given after a full disclosure of the facts within the client's knowledge and information. Restatement, Torts, p. 416, sec. 666. The respondents' attorney had no personal interest in the outcome of the bankruptcy proceeding and his professional relationship to LaRue was not sufficient to destroy the effect of his advice upon the issue of probable cause. If the bankruptcy proceeding for this purpose is considered a civil proceeding, the rule is substantially the same and is stated in sec. 675 as follows:

'One who initiates civil proceedings against another has probable cause for so doing if he reasonably believes in the existence of the facts upon which his claim is based, and

(a) reasonably believes that under such facts the claim may be valid at common law or under an existing statute, or

(b) so believes in reliance upon the advice of counsel given under the conditions stated in sec. 666.'

In Brinsley v. Schulz (1905), 124 Wis. 426, 102 N.W. 918, this court pointed out one of the most efficient ways of negating a prima facie showing of lack of probable cause was to prove the action was brought upon advice of counsel, particularly by a proper prosecuting officer if the action was a criminal matter, after a full statement to him of all the facts known to the defendant. The ultimate truth of the facts is not as important as an honest belief in the...