St. Croix Reg'l Med. Ctr. v. Keller

• Decision Date: 26 July 2016
• Docket Number: No. 2015AP1058.,2015AP1058.
• Citation: 371 Wis.2d 564,884 N.W.2d 534 (Table)
• Parties: ST. CROIX REGIONAL MEDICAL CENTER, individually, and as assignee of Badger State, Inc., Plaintiff–Respondent, NEI Northern Electricians, Inc. and W. Zintl Construction, Inc., Plaintiffs, v. Robert KELLER, Defendant–Appellant, Keller Companies, Inc. and Keller Construction Midwest, LLC, Defendants.
• Court: Wisconsin Court of Appeals

371 Wis.2d 564
884 N.W.2d 534 (Table)

ST. CROIX REGIONAL MEDICAL CENTER, individually, and as assignee of Badger State, Inc., Plaintiff–Respondent,

NEI Northern Electricians, Inc. and W. Zintl Construction, Inc., Plaintiffs,
v.
Robert KELLER, Defendant–Appellant,

Keller Companies, Inc. and Keller Construction Midwest, LLC, Defendants.

No. 2015AP1058.

Court of Appeals of Wisconsin.

July 26, 2016.

¶ 1 PER CURIAM.

Robert Keller appeals a grant of summary judgment in favor of St. Croix Regional Medical Center (St.Croix). He argues the circuit court erroneously interpreted Wisconsin's theft-by-contractor statute, Wis. Stat. § 779.02(5), and, by extension, the statute prohibiting the misappropriation of construction loan proceeds, Wis. Stat. § 706.11(3).¹ Keller's brief-in-chief appears principally to argue he was not liable for violations of those statutes as a matter of law, while his reply brief appears principally to argue summary judgment was inappropriate because a genuine issue of material fact existed as to whether such violations occurred. We reject both arguments. Keller also asserts the circuit court erred by awarding treble damages for the violations under Wis. Stat. § 895.446. Again, we disagree. Accordingly, we affirm the judgment.

BACKGROUND

¶ 2 Keller Construction is a corporation formerly owned jointly by Robert Keller and his brother, Ronald Keller.² Keller Construction was a general contractor primarily involved in the construction of commercial buildings. In 2006, St. Croix hired Keller Construction as the general contractor for a hospital addition. St. Croix financed the design and construction of the hospital addition through a construction loan obtained from U.S. Bank. U.S. Bank recorded a mortgage on the hospital property as security for the loan.

¶ 3 The hospital project involved fourteen pay requests, or “draws.” For each draw, Keller Construction prepared and submitted a draw request to the project architect and to St. Croix, which request itemized the progress of the work through the date of the application and identified the amounts owed to Keller Construction and each subcontractor. Once approved, the request was submitted to U.S. Bank and its title company for review and payment. The contract between Keller Construction and St. Croix called for St. Croix to make direct payments to subcontractors and material suppliers for the materials furnished for use on the project, with the amount of those payments being subtracted from Keller Construction's contract price. Keller Construction was responsible for paying the subcontractors for their labor. Keller Construction would obtain lien waivers from its subcontractors for payments they received from each draw request. Keller Construction also executed lien waivers for each payment made to, and retained by, it.

¶ 4 Draw request numbers one through ten and number twelve were paid to Keller Construction in full. Keller Construction then distributed the funds to its subcontractors consistent with the itemization presented in each draw request. A portion of draw request number eleven was withheld, but Keller Construction's subcontractors were paid in full from the approved amount. Between March 1, 2007, and June 27, 2008, St. Croix made ten payments, totaling approximately $1.2 million, directly to Keller Construction and to be retained by it.

¶ 5 Draw request number thirteen, however, proved unlucky for Keller Construction. Keller Construction submitted the request on July 22, 2008, in the amount of $200,000.³ Four subcontractors—Badger State, Northern Electricians, Inc., W. Zintl Construction, Inc., and O'Keefe, Inc.—were among the intended recipients of the money sought through the draw. St. Croix authorized a payment of $546.43 for materials, but it refused to pay the balance of the draw request because of a dispute regarding the quality of the construction work, in particular the adequacy of the air handling system.

¶ 6 The dispute between St. Croix and Keller Construction was submitted to arbitration. On September 25, 2009, the arbitrator issued a decision awarding Keller Construction a net amount of $9,132.29. The arbitrator found Keller Construction was entitled to an award of $320,295.82, which represented, among other things, the approximate $199,450 balance of draw request number thirteen. However, the arbitrator also concluded St. Croix was entitled to an award of $311,163.53, consisting of a $200,000 credit to fix the air handling system and a $111,163.53 credit against the amount of draw request number thirteen for payments made by St. Croix directly to subcontractors. Despite the nearly offsetting awards, the arbitrator directed Keller Construction to “pay or otherwise satisfy all valid and legally enforceable liens or claims of [its] sub-subcontractors or suppliers.”⁴ Keller Construction stipulated to confirmation of the arbitration award in October 2009.

¶ 7 Keller Construction then failed to pay the four subcontractors, justifying its refusal on the rationale that it “was never paid the money in the first place” and “there was no money available for subcontractors.” Badger State, Northern Electricians, and W. Zintl Construction subsequently filed suit against Keller Construction and St. Croix. St. Croix was dismissed from the lawsuit and the subcontractors obtained judgments against Keller Construction in the amounts of $76,143.55, $58,484.65, and $87,975.28, respectively. Pursuant to a settlement agreement, the subcontractors assigned these judgments to St. Croix and provided satisfactions of their respective liens. O'Keefe filed a separate suit against Keller Construction and obtained a money judgment in the amount of $26,547.07, which judgment was also later assigned to St. Croix along with satisfaction of O'Keefe's lien.

¶ 8 In 2012, St. Croix filed the present suit against Keller personally and his companies. St. Croix alleged Keller had created a new entity, Keller Companies, Inc., and had attempted to prevent St. Croix from enforcing the judgments against Keller Construction by transferring all its assets to the new entity. Accordingly, the amended complaint alleged Keller Companies was liable to St. Croix for the subcontractors' assigned claims, both as Keller Construction's alter ego and pursuant to Wis. Stat. ch. 242, the Uniform Fraudulent Transfer Act. The amended complaint also alleged Keller and his companies were jointly and severally liable in the amount of the judgments for theft by contractor, see Wis. Stat . § 779.02(5), and misappropriation of construction loan proceeds, see Wis. Stat. § 706.11(3). St. Croix also sought treble damages for the latter violations under Wis. Stat. § 895.446(3)(c).

¶ 9 On December 21, 2012, St. Croix filed a motion seeking summary judgment on all claims against Keller and his companies. St. Croix argued that there was no genuine issue of material fact that Keller had committed theft by contractor and misappropriation of construction loan proceeds, and that Keller was liable for treble damages as a result of those violations. St. Croix also argued there was no genuine issue of material fact regarding application of the Uniform Fraudulent Transfer Act and the alter-ego doctrine to reach the assets of Keller Companies to satisfy the judgments against Keller Construction.

¶ 10 The circuit court granted summary judgment with respect to St. Croix's claims that Keller was personally liable for the statutory violations. The court concluded the undisputed facts established all elements of theft by contractor pursuant to Wis. Stat. § 779.02(5) and State v. Hess, 99 Wis.2d 22, 28, 298 N.W.2d 111 (Ct.App.1980). In rejecting Keller's argument that he could not have committed theft because Keller Construction did not receive any money from draw number thirteen, the court noted that Keller Construction had received over $1.2 million in direct payments by virtue of the hospital project and that § 779.02(5) imposes a trust over “all moneys” paid to a general contractor “until all the claims [of subcontractors] have been paid.” The court concluded the “same analysis” applied to St. Croix's claim for misappropriation of loan proceeds, as there was “no genuine issue of material fact that Robert Keller failed to hold sufficient funds in trust” to pay the subcontractors.

¶ 11 The circuit court awarded St. Croix treble damages for Keller's statutory violations but denied St. Croix's summary judgment motion with respect to Keller Companies' liability. Responding to Keller's argument that a factual issue existed regarding whether Keller had the criminal intent necessary to award treble damages, the court observed that refusal to deliver contractor trust funds on demand is prima facie evidence of criminal intent under Wis. Stat. § 943.20(1)(b). However, the court declined to award summary judgment on St. Croix's fraudulent transfer claims, determining there was insufficient factual support to conclude “as a matter of law that the corporate form of Keller Companies is a mere sham.” The circuit court formalized its decision in a document entitled, “Findings of Fact and Order for Judgment.”

¶ 12 Keller attempted an appeal from the circuit court's “Findings of Fact and Order for Judgment,” but, observing that St. Croix's fraudulent transfer claims were still unresolved, we concluded we lacked jurisdiction because that document was not a final order. On March 5, 2014, we dismissed Keller's appeal, and proceedings subsequently resumed in the circuit court on St. Croix's remaining claims. Those claims were resolved...