Schimpf v. Gerald, Inc.

• Decision Date: 24 April 1998
• Docket Number: No. 97-C-545.,97-C-545.
• Citation: 2 F.Supp.2d 1150
• Parties: Nick SCHIMPF, Helen Schimpf, Frank Schimpf, Bonnie Schimpf, Alfred Schimpf, Edith Schimpf, Ernest Schimpf, Christine Schimpf, Helga Schimpf-Heizmann, John Heizmann, S & R Egg Farm, Inc., Frank Schwarzmann and Eve Schwarzmann, Plaintiffs, v. GERALD, INC. and Edward Keiser, Defendants.
• Court: U.S. District Court — Eastern District of Wisconsin

Page 1150

2 F.Supp.2d 1150

Nick SCHIMPF, Helen Schimpf, Frank Schimpf, Bonnie Schimpf, Alfred Schimpf, Edith Schimpf, Ernest Schimpf, Christine Schimpf, Helga Schimpf-Heizmann, John Heizmann, S & R Egg Farm, Inc., Frank Schwarzmann and Eve Schwarzmann, Plaintiffs, v. GERALD, INC. and Edward Keiser, Defendants.

No. 97-C-545.

United States District Court, E.D. Wisconsin.

April 24, 1998.

James E. Culhane, Susan G. Shellinger, Davis & Kuelthau, Milwaukee, WI, for Plaintiffs.

Scott W. Hansen, Reinhart, Patrick J. Hodan, Reinhart, Boerner, Van Deuren, Norris & Rieselbach, Milwaukee, WI, for Defendant Gerald Inc.

Janice A. Rhodes, Kravit & Gass, Milwaukee, WI, for Defendant Ed Keiser & Charles Marino.

DECISION AND ORDER

ADELMAN, District Judge.

Currently pending before me are two motions: (1) the plaintiffs' motion for reconsideration of an order substituting the administrator of defendant Edward Keiser's estate for Keiser, and (2) Keiser's (or his representative's) motion to dismiss the case for lack of personal jurisdiction or to transfer it to the Northern District of Illinois. For the reasons set forth below, the motion for reconsideration will be granted and upon reconsideration the motion for substitution will be granted in part and denied in part, and the motion to dismiss or transfer the case will be denied.

I. Factual and Procedural Background

The following facts derive from the Amended Complaint. The twelve individual plaintiffs in this case are relatives, all living in Wisconsin. Plaintiff S & R Egg Farms, Inc., their family business, is a Wisconsin corporation; its principal place of business is in Wisconsin. Defendant Gerald, Inc. is a New York corporation; its principal place of business is in New York. At all times material to this lawsuit, Gerald had an office in Chicago, Illinois, and was in the business of buying and selling commodities for customers through the Chicago Board of Trade. Defendant Edward Keiser lived in Illinois at the time this case was filed; Keiser was Gerald's vice president of accounts in its Chicago office.

Although not a party to this lawsuit, Michael Schwarzmann ("Michael") played a large role in causing it. Michael is a close relative of the individual plaintiffs. Working through his company, M.S.I. Capital Management, Michael held himself out as an expert and investor in the commodities futures market. He solicited funds from the plaintiffs, who gave him substantial amounts of money to invest on their behalf, based on Michael's representation that the money would be invested with defendants Keiser and Gerald in Chicago. Michael's parents, Eve and Frank Schwarzmann, for instance, gave him $332,000, aunt and uncle Helen and Nick Schimpf gave Michael $881,200, and S & R put in $578,000, all of which was supposed to be invested with Gerald.

But rather than investing the money, Michael and Keiser allegedly were defrauding plaintiffs. Michael invested little, if any, of his relatives' money with Gerald. Instead, by making small "interest" payments and by providing plaintiffs with falsified statements, Michael was able to keep them satisfied and unconcerned, while he used the money for his own purposes. In 1995 Michael pled guilty to wire fraud in connection with the scam. According to plaintiffs, Keiser used his position at Gerald to assist Michael in various ways.

Plaintiffs allege they are still short approximately $1,265,000. On March 31, 1997, they filed this lawsuit against Keiser and Gerald in an attempt to recover that money. Plaintiffs brought the case in Walworth County Circuit Court, but defendants removed it to this district on May 8, 1997, because diversity jurisdiction exists under 28 U.S.C. § 1332. Plaintiffs allege three causes of action: (1) civil conspiracy to defraud, (2) violation of the Wisconsin Organized Crime Control Act (WOCCA), Wis. Stat. §§ 946.80-946.88, and (3) negligent misrepresentation. According to plaintiffs, Gerald is liable because at all times material, Keiser was acting within the scope of his employment and was Gerald's agent.

In 1997, Keiser died. Plaintiffs filed a suggestion of death and moved to substitute Charles F. Marino, administrator of Keiser's estate, for Keiser. At the time of the motion, this case was assigned to District Judge Rudolph T. Randa. Judge Randa granted the motion for substitution on December 2, 1997, but he inaccurately calculated the deadline for responses and incorrectly assumed the defendants and the estate had no objection, as none had been filed. On December 8, Gerald filed a motion for reconsideration, indicating it indeed planned to object. The next day Judge Randa acknowledged the mistake, indicated he would accept responses to the motion for substitution, and ordered his prior ruling on the substitution matter held in abeyance pending further review of the merits of the issue. The case was transferred to me when I became a district judge. The parties have since fully briefed the motion for substitution and agree that reconsideration is appropriate. As the objection to substitution of the estate for Keiser concerns only the second count of the Amended Complaint, Judge Randa's order granting the substitution will be reinstated as to counts one and three.

On January 6, 1998, the estate (assuming it would be substituted for at least part of the case) filed a motion to dismiss the claims against it for lack of personal jurisdiction or, alternatively, for transfer of the case to the Northern District of Illinois. That motion has been fully briefed as well. Plaintiffs have since filed an Amended Complaint. The motion to dismiss or transfer has been renewed as to the Amended Complaint and is ready for decision.

II. Survival of WOCCA Claim Against Keiser

A. Survival is an Issue of Wisconsin Law

Federal Rule of Civil Procedure 25(a)(1) (emphasis added) states that "[i]f a party dies and the claim is not thereby extinguished, the court may order substitution of the proper parties." In their motion for substitution plaintiffs asserted that the WOCCA claim was not extinguished by Keiser's death and thus Marino and the estate should be substituted as defendants for all claims. Notice of Motion and Motion for Substitution (Nov. 17, 1997) at 2. Keiser's estate and Gerald object to the substitution because they believe the WOCCA count of the Amended Complaint expired along with Keiser. According to Gerald, because its liability would be derivative of Keiser's the WOCCA count evaporates against it as well as the estate.

Whether an action survives the death of a party must be determined by looking to the law, state or federal, under which the cause of action arose. Continental Assurance Co. v. American Bankshares Corp., 483 F.Supp. 175, 177 (E.D.Wis.1980). Wisconsin case law does not address whether a WOCCA civil claim survives death. In the absence of a legal ruling directly on point by the state courts, a federal court should rule as the state supreme court would, if squarely presented with the issue. L.S. Heath & Son v. AT&T Info. Sys., 9 F.3d 561, 574 (7th Cir.1993).

Survivability of plaintiffs' WOCCA claim is governed first and foremost by Wisconsin's omnibus survival statute, Wis. Stat. § 895.01(1), which provides that all "causes of action that survive at common law" survive in Wisconsin, as do certain other specified causes of action, including claims "for all damage done to the property rights or interest of another." The list of causes enumerated in section 895.01(1) is exclusive, In re Marriage of Pettygrove by Scholl v. Pettygrove, 132 Wis.2d 456, 463, 393 N.W.2d 116 (Ct.App.1986), and a WOCCA claim is not among them. WOCCA itself fails to address the survivability of a civil lawsuit brought under its terms. Therefore, unless a WOCCA cause of action can be considered a "cause[] of action that survive[s] at common law" in Wisconsin, or a statutory action for "damage done" to property rights, it evaporated when Keiser died.

Plaintiffs' WOCCA claim does not "survive at common law." The original version of Wisconsin's survival statute was enacted in 1849, see Wis. Stat. § 895.01 note (Historical and Statutory Notes); Prunty v. Schwantes, 40 Wis.2d 418, 422 n. 3, 162 N.W.2d 34 (1968), and the "causes of action that survive at common law" appear to have been fixed at that time, see Prunty, 40 Wis.2d at 424, 162 N.W.2d 34 (because personal injury cause of action did not survive death of injured party until legislature acted in 1887, "it is quite obvious that the common law of Wisconsin will not support an award of damages to the deceased's estate" under version of survival statute in effect in 1968). WOCCA became effective in 1982. See Wis. Stat. §§ 946.80-946.88 notes (Historical and Statutory Notes). Thus a WOCCA claim is not part of the "common law" as contemplated in section 895.01(1). And even if "causes of action that survive at common law" as stated in section 895.01(1) is a developing concept, the Wisconsin Supreme Court recognizes as "an accepted axiom of law in Wisconsin" that "[s]tatutes are not to be construed as changing the common law unless the purpose to effect such change is clearly expressed therein." Kranzush v. Badger State Mutual Cas. Co., 103 Wis.2d 56, 74, 307 N.W.2d 256 (1981). WOCCA is silent in regard to any intent to change the common law. See Wis. Stat. §§ 946.80-946.88.

Therefore, in order to survive, a WOCCA civil suit would have to be deemed a claim "for all damage done to the property rights or interest of another." "Damage" is undefined by the statute, but, in general, it means a "[l]oss, injury, or deterioration", that produces "a right in them who have suffered any damage ... to demand reparation of such damage from the authors of the injury." Black's Law Dictionary 389 (6th ed.1990). A person who has suffered "loss, detriment, or injury" then may be able to recover "damages", meaning "a pecuniary compensation or indemnity." Id.; see also Employers Mut. Liab....