Terranova v. Terranova

• Decision Date: 12 April 1995
• Docket Number: No. 94-C-543-C.,94-C-543-C.
• Citation: 883 F. Supp. 1273
• Parties: Joanne TERRANOVA, Frank Terranova, Jr., Victoria Terranova, Marianne Terranova, Joanne Jody Terranova and F & A Dairy of California, Inc., Plaintiffs, v. Angelo TERRANOVA, F & A Dairy Products, Inc., Helmholdt & Co. and Harold Bayle, Defendants.
• Court: U.S. District Court — Western District of Wisconsin

883 F. Supp. 1273

Joanne TERRANOVA, Frank Terranova, Jr., Victoria Terranova, Marianne Terranova, Joanne Jody Terranova and F & A Dairy of California, Inc., Plaintiffs, v. Angelo TERRANOVA, F & A Dairy Products, Inc., Helmholdt & Co. and Harold Bayle, Defendants.

No. 94-C-543-C.

United States District Court, W.D. Wisconsin.

April 12, 1995.

Allen A. Arntsen, Foley & Lardner, Madison, WI, for Joanne Terranova, Frank Jr. Terranova, Victoria Terranova, Marianne Terranova, Joanne Jody Terranova, F & A Dairy of California, Inc.

Blair Rosenthal, Winthrop & Weinstine, Minneapolis, MN, for Angelo Terranova, F & A Dairy Products, Inc.

Barbara J. Janaszek, Whyte Hirschboeck & Dudek, S.C., Milwaukee, WI, for Helmholdt & Co., Harold Bayle.

OPINION AND ORDER

CRABB, Chief Judge.

This is a diversity action arising from the 1988 division of a family owned business and a subsequent tax assessment by the State of California against members of one side of the family based on capital assets they received in the breakup. As the parties against whom the tax was assessed, plaintiffs seek reimbursement for all or part of this liability from their former business partners and their former accountants under various theories sounding in both tort and breach of contract. The case is before the court on defendants' motion for summary judgment, grounded on the assertion that plaintiffs' claims are subject to and time-barred by California's applicable statutes of limitations.¹ Plaintiffs oppose the motion, contending that their claims are instead subject to as well as timely under the statutes of limitation provided by the laws of Wisconsin.

For the reasons expressed below, defendants' motion will be granted in part and denied in part. I conclude that all of plaintiffs' claims sounding in tort are "foreign causes of action" under Wisconsin's borrowing statute and are subject to and barred by the applicable California statutes of limitation. Plaintiffs' additional contract claims for indemnification, however, are not "foreign" and are timely under the applicable Wisconsin periods of limitation.

For the purpose of deciding this motion for summary judgment, I find as undisputed the following material facts.

UNDISPUTED FACTS

The five individually named plaintiffs — Joanne Terranova, Frank Terranova, Jr., Victoria Terranova, Marianne Terranova, and Joanne Jody Terranova — are surviving relatives of Frank Terranova, Sr., who died in August 1987. All are California citizens. They own and control plaintiff F & A Dairy of California, a California corporation with its principal place of business in California. Defendant Angelo Terranova is the brother of Frank Terranova, Sr. He is a citizen of Wisconsin. Defendant F & A Dairy Products, Inc. is a Wisconsin corporation with its principal place of business in Wisconsin, owned and controlled by Angelo and his family. Defendant Harold Bayle is a certified public accountant and a citizen of Michigan. Since the early 1980s, Bayle has been associated professionally with defendant Helmholdt & Co., a Michigan partnership with its principal place of business in Michigan.

Prior to his death, Frank Terranova and his family along with his brother Angelo Terranova and Angelo's family owned and operated F & A Corporation and its several subsidiaries, including plaintiff F & A Dairy of California and defendant F & A Dairy Products, Inc. These corporations, known collectively as the F & A Companies, were engaged primarily in the business of producing and distributing cheese. Frank served as the F & A Companies' president, Angelo as vice-president.

In the 1970s, Frank Terranova moved his family to California and attempted to establish a presence for the F & A Companies in the California cheese market. Apparently he was successful because from 1984 through 1986, F & A engaged in the construction of a cheese plant there, in Newman. To outfit this plant, F & A purchased several large pieces of industrial equipment costing millions. Angelo Terranova supervised the project because Frank's health was failing. Angelo was advised by defendant Harold Bayle, the F & A Companies' accountant, that the equipment either could be or would be subject to a state of California sales or use tax. He ignored Bayle's advice and chose not to pay the tax, and Bayle never reflected the potential tax liability on the F & A Companies' books.

During the period that Frank Terranova was ill, disputes arose between the two sides of the Terranova family regarding the operations of the F & A Companies. These differences came to a head after Frank's death, when the two sides decided to end their business relationship and entered into a formal "Agreement and Plan of Separation and Reorganization." The terms of the separation agreement were negotiated in Los Angeles, California, in September and November 1987 and June 1988, by members of each side of the family along with their advisers. The parties also met once in Minneapolis, Minnesota, and their attorneys engaged in numerous discussions and negotiations over the telephone and by facsimile. Harold Bayle and Helmholdt & Co. provided accounting services to the parties relating to the separation agreement, including the valuation and division of assets. The separation agreement was executed on August 3, 1988. A face-to-face closing in Upland, California had been contemplated by the parties but never occurred; instead, the parties simply exchanged signature papers through the mail.

The separation agreement effectuated a number of complex transactions between the parties. At bottom, though, it separated ownership of the assets and operations of the F & A Companies such that plaintiffs obtained sole control of the California operations and the Wisconsin defendants obtained sole control of the Wisconsin operations. As for the specific provisions relevant to this suit, in sections 2.3 and 3.2 the parties agreed to remain responsible for fifty percent of the "Outside Indebtedness" of the F & A Companies. In section 12, the parties agreed to indemnify and hold each other harmless from and against fifty percent (50%) of all "claims, demands, damages, losses, liabilities, costs and expenses, including reasonable attorneys' fees, arising out of or in connection with ... any alleged or actual activities of the F & A Companies prior to the closing." The parties agreed also to remain solely responsible for and to indemnify and hold each other harmless "from and against any and all claims, demands, damages, losses, liabilities, costs and expenses, including reasonable attorneys' fees, arising out of or in connection with the deliberate wrongful act of the indemnifying parties." Finally, in section 13, the parties represented and warranted to each other that except as set forth elsewhere in the agreement, no party was

aware of any obligations ... for which another party hereto may become liable in the future. Each party agrees to indemnify and hold the other harmless from and against any and all claims, demands, damages, losses, liabilities, costs and expenses, including attorneys' fees arising out of or in connection with the breach of the foregoing representation and warranty.

A little over a year after the agreement was executed, in either late December 1989 or early January 1990, the California Board of Equalization notified plaintiffs that the board was performing a use tax audit of their company relating to the equipment purchased for the Newman plant. From this point forward plaintiffs negotiated extensively with the board to arrive at a final appraisal of their liability and as a result incurred significant accounting, legal, and other professional expenses.

On May 30, 1990, although the full amount of plaintiffs' delinquent tax liability had not yet been determined, plaintiffs paid the state of California $129,297.30, representing a portion of the taxes owed, in an attempt to limit the accrual of penalties and interest. The total balance of the assessed tax remained in dispute until July 1990, when the Board of Equalization issued a field audit report indicating that plaintiffs owed a total of $266,370.48, plus interest and penalties. The vast majority of this tax liability related to the equipment purchased for the Newman plant.

In October 1990, plaintiffs demanded that defendants indemnify them for the taxes on the Newman plant equipment. Defendants rejected plaintiffs' demands in January 1991, but suggested that the parties meet to resolve their dispute. To date, plaintiffs have made the following payments, totaling $189,125.56, to the state of California for back sales and use taxes, interest and penalties: (1) $129,297.30 on May 30, 1990; (2) $39,828.26 on July 12, 1994; and (3) $20,000.00 on October 18, 1994. Plaintiffs commenced this action on July 27, 1994.

OPINION

Plaintiffs allege eight separate causes of action. All are based essentially on defendants' alleged failure either to disclose to plaintiffs the California tax liability before the separation agreement was executed or to indemnify plaintiffs for any portion of the liability. Angelo Terranova is charged with breach of fiduciary duty (Claim I); misrepresentation by non-disclosure (Claim III); and breach of the implied covenant of good faith and fair dealing (Claim V).² F & A Dairy Products, Inc. is charged with breach of warranty based on the written contract (Claim IV). Together these defendants are charged with breach of contract (Claim II). Plaintiffs' final three claims are asserted against the accountant defendants for breach of fiduciary duty (Claim VI); misrepresentation by non-disclosure (Claim VII); and professional negligence (Claim VIII).

A party moving for summary judgment will prevail if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986); ...