Schlueter v. Latek

• Decision Date: 06 June 2012
• Docket Number: No. 11–3679.,11–3679.
• Citation: 683 F.3d 350
• Parties: John SCHLUETER, Plaintiff–Appellant, v. Edward C. LATEK and Latek Capital Corp., Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

683 F.3d 350

John SCHLUETER, Plaintiff–Appellant,

v.Edward C. LATEK and Latek Capital Corp., Defendants–Appellees.

No. 11–3679.

United States Court of Appeals, Seventh Circuit.

Argued April 10, 2012.

Decided June 6, 2012.

John A. Busch, Adam E. Witkov (argued), Attorneys, Michael Best & Friedrich LLP, Milwaukee, WI, for Plaintiff–Appellant.

Andrew J. Barragry, Andrew J. Wronski (argued), Attorneys, Foley & Lardner LLP, Milwaukee, WI, for Defendants–Appellees.

Before POSNER, ROVNER, and HAMILTON, Circuit Judges.

POSNER, Circuit Judge.

This appeal in a diversity suit presents issues of Wisconsin law, both statutory law and common law. The plaintiff seeks recovery, on a theory of restitution, of a brokerage fee that he paid the defendants. The district court, deeming the parties in pari delicto (equally at fault), granted the defendants' motion to dismiss the complaint for failure to state a claim. The defendants are a corporation engaged in providing investment banking services to the equipment rental industry, and the corporation's principal. See www. latekcapital. com/ services. html (visited May 22, 2012). We'll simplify our opinion by pretending that the only defendant is the corporation, which we'll call Latek; but at the end of the opinion we'll discuss briefly the plaintiff's joinder of Mr. Latek as an additional defendant.

The plaintiff, John Schlueter, was the owner of a corporation named Karl's Rental Center. He retained Latek to help him obtain either an equity investor in, or a buyer of, Karl's. On the advice of Latek, Schlueter entered into negotiations with a company called Horizon Partners that culminated in a sale of a majority of the plaintiff's stock in Karl's for some $30 million.

Latek billed the plaintiff $758,675 for its services in negotiating the deal. The plaintiff paid the fee without complaint or reservations but later brought this suit for the return of the entire fee on the ground that Latek had not had a brokerage license. Chapter 452 of the Wisconsin Statutes, entitled “Real Estate Practice,” requires that one have a license to “negotiate a sale” of “an interest or estate in real estate, a time share, or a business or its goodwill, inventory, or fixtures, whether or not the business includes real property.” Wis. Stats. §§ 452.01(2)(a), 452.03. Latek doesn't have a broker's license, or at least didn't when negotiating the deal with Horizon.

Besides defending the district court's ground of dismissal (the in pari delicto doctrine), Latek argues that under Wisconsin law, as under federal securities law, see Landreth Timber Co. v. Landreth, 471 U.S. 681, 689–91, 105 S.Ct. 2297, 85 L.Ed.2d 692 (1985); SEC v. National Presto Industries, Inc., 486 F.3d 305, 309–10 (7th Cir.2007), the sale of stock in a business is not the sale of a business, and so Latek was not required to have a license to negotiate the sale of a majority stake in Karl's.

The only judicial decisions that we've found that bear on the issue are two federal district court decisions, only one recent. They agree with Latek. Bertha v. Remy Int'l, Inc., 414 F.Supp.2d 869, 877–81 (E.D.Wis.2006); Schaller v. Litton Industries, Inc., 307 F.Supp. 126, 133–35 (E.D.Wis.1969). The opinions are well reasoned, but being federal trial court opinions they are not authoritative construals of the Wisconsin statute. Even a federal court of appeals opinion would not be authoritative on a question of state law.

The statute was amended after the Bertha decision, moreover, and it is the amended statute that applies to this case. The provision on which the court focused in Bertha, see 414 F.Supp.2d at 874, 877, was not section 452.01(2)(a), quoted above, but section 452.01(2)(d), which defines (or, rather, defined) “broker” as someone who “negotiate[s] a sale ... of any business, its goodwill, inventory, fixtures or an interest therein.” That section has been deleted, while section 452.01(2)(a), which further defined a broker to include one who “negotiate[s] a sale ... of an interest or estate in real estate,” now reads, as we know, “negotiate[s] a sale ... of ... an interest or estate in real estate, a time share, or a business or

its goodwill, inventory, or fixtures, whether or not the business includes real property.” The words we've italicized are the key to the plaintiff's argument; one who owns stock in a corporation, he argues, owns “an interest” in a business and therefore anyone who negotiates a sale of stock requires a license.

This can't be right, because it would require every securities broker in Wisconsin to have a real estate broker's license as well as a securities license, which securities brokers are already required to have. Wis. Stat. § 551.401(1). We don't know whether Latek has a securities license, and it doesn't matter; the plaintiff doesn't argue that it matters and probably Latek is exempt from having to have one because it was brokering a deal involving the issuer of the securities that were sold (Karl's Rental Center), and such brokering is exempt. Wis. Stat. § 551.401(2)(a).

The statutory changes to which the plaintiff points do not undermine the analysis in the Bertha opinion. The question whether ownership of stock is ownership of an interest in a business was the precise question that the court addressed in Bertha (as well as in the earlier district court opinion that we cited) and the amendments on which the plaintiff relies merely shifted the language interpreted in Bertha (“interest ... in ... a business”) from subsection 2(d), which was repealed, to subsection 2(a), which was enlarged.

A considerable complication, however, is that Latek was hired to sell either the business or the plaintiff's stock in it. Had he done the former, as he initially tried to do, clearly he would have needed a license. He didn't consummate a sale of the business, but a failed negotiation is still a negotiation; the statute defines “negotiate” broadly, to mean “to provide to a party assistance within the scope of the knowledge, skills, and training required under this chapter in developing a proposal or agreement relating to a transaction, including ... participating in communications between parties related to the parties' interests in a transaction.” Wis. Stat. § 452.01(5m)(a). Latek negotiated on Schlueter's behalf the letter of intent to sell the assets of his business, and this was “negotiating” for the sale of the business, albeit that sale fell through in favor of a sale of stock.

Is a license required for a failed attempt? Who knows? There's enough uncertainty about the proper interpretation of the amended statute that were it essential for our deciding this case correctly to choose between the rival interpretations, we would be inclined to certify the question to the Supreme Court of Wisconsin for an authoritative answer. But it is not essential. For there is another potentially dispositive issue, concerning the relief sought by the plaintiff for the alleged violation of the brokerage statute.

Although there is no indication that Latek was aware that it might be violating a statute in negotiating the sale of the plaintiff's stock in Karl's Rental Center, and no complaint about the quality of the service it rendered or the reasonableness of its fee, the plaintiff argues that he's entitled to restitution of the fee as punishment for Latek's violation, if there was a violation as we are now assuming for the sake of argument. The assumption is the premise of an alternative ground for affirmance—that the plaintiff is not entitled to the relief he is seeking even if there was a violation.

The fact that he was helped rather than hurt by the alleged violation and so is not entitled to damages is not dispositive. Restitution and damages are different remedies. Damages are measured by the plaintiff's loss, restitution by the defendant's gain. Management Computer Services, Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis.2d 158, 557 N.W.2d 67, 79–80 (1996); Ryerson Inc. v. Federal Ins. Co., 676 F.3d 610, 612–13 (7th Cir.2012); 1 Dan B. Dobbs, Law of Remedies § 4.1(1), p. 555 (2d ed. 1993). Often they're equivalent, as when the plaintiff had overpaid the defendant by mistake and seeks to recover the overpayment. But not always. A defendant who takes something (and not because of an innocent mistake, either) that belongs to the plaintiff must give it back together with any profit from the unlawful appropriation even if that profit exceeded what the plaintiff would have earned had his property not been taken. City of Milwaukee v. Knox, 221 Wis. 335, 266 N.W. 911, 914 (1936); Warren v. Century Bankcorporation, Inc., 741 P.2d 846, 851–52 (Okla.1987); Restatement (Third) of Restitution & Unjust Enrichment §§ 51(4), (5)(a), and comment f; and § 53 (2011); 1 Dobbs, supra, § 4.1(1), p. 554; Douglas Laycock, “The Scope and Significance of Restitution,” 67 Tex. L. Rev. 1277, 1288–89 (1989). If someone steals your pregnant cow, you are entitled to get the cow back but also the calf even if the thief incurred expenses in assisting the birth of the calf and his assistance was essential to its survival.

Speaking of thieves, “suppose a thief takes the plaintiff's $10 watch and sells it for $20. The thief is liable for $20, as ‘restitution.’ One possible justification for this result is that we think the thief's sale price is good evidence of the actual value of the watch, in which case $20 would represent damages for the plaintiff's loss. But even if the plaintiff concedes that the watch was only worth $10, he can recover the $20 as restitution.... The defendant is liable for the $20 because the ... $20 is perceived as [including] a gain [$20–$10] produced by the plaintiff's property. By identifying the $20 as a product of the plaintiff's property, we can think of it as a replacement or substitute for the property.” 1 Dobbs, supra, § 4.1(1), p. 554 (emphasis in original). There isn't anything like that in this case. Latek didn't take...