Virnich v. Vorwald

• Decision Date: 03 January 2012
• Docket Number: No. 10–3271.,10–3271.
• Parties: Daniel VIRNICH, Plaintiff–Appellant, v. Jeffrey VORWALD, et al., Defendants–Appellees.
• Court: U.S. Court of Appeals — Seventh Circuit

664 F.3d 206

Daniel VIRNICH, Plaintiff–Appellant,

v.Jeffrey VORWALD, et al., Defendants–Appellees.

No. 10–3271.

United States Court of Appeals, Seventh Circuit.

Argued Sept. 7, 2011.Decided Dec. 20, 2011.Amended Jan. 3, 2012.

Philip J. Bradbury (argued), Attorney, Melli Law, Madison, WI, for Plaintiff–Appellant.

Andrew J. Clarkowski (argued), Attorney, Axley Brynelson, LLP, Madison, WI, Nathan A. Fishbach, Barbara J. Zabawa (argued), Attorneys, Whyte Hirschboeck Dudek S.C., Milwaukee, WI, for Defendants–Appellees.

Before POSNER, FLAUM, and HAMILTON, Circuit Judges.

HAMILTON, Circuit Judge.

Plaintiff Daniel Virnich sued defendants Jeffrey Vorwald, American Trust and Savings Bank, Michael Polsky, and Beck Chaet Bamburger & Polsky, S.C., in this diversity action alleging violations of Wisconsin Statute section 134.01. That statute prohibits conspiracies between two or more people to willfully or maliciously injure the reputation, trade, business or profession of another. The district court dismissed Virnich's suit for failure to state a claim under Rule 12(b)(6) pursuant to the Supreme Court's interpretation and application of that rule and Rule 8 in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949–50, 173 L.Ed.2d 868 (2009). See Virnich v. Vorwald, 2010 WL 3489770, at *7 (W.D.Wis. Sept. 1, 2010). Virnich appeals. We find that, although Virnich has met the necessary pleading threshold, subsequent developments in state court show that his claim is barred by issue preclusion. Accordingly, we affirm the district court's judgment.¹

We review the district court's dismissal of Virnich's complaint de novo. The following description of the events underlying Virnich's claim is drawn from the allegations in his complaint, which we construe in the light most favorable to him, as the non-moving party. See Kolbe & Kolbe Health & Welfare Benefit Plan v. Medical College of Wisconsin, Inc., 657 F.3d 496, 502 (7th Cir.2011). In addition, we take judicial notice of the relevant state court proceedings. See Fed.R.Evid. 201(b); 520 South Michigan Ave. Associates, Ltd. v. Shannon, 549 F.3d 1119, 1138 n. 14 (7th Cir.2008).

Before he was a plaintiff in federal court, Virnich was a defendant in Wisconsin state court. Before that, he was a director and an indirect owner of Communications Products Corporation, or CPC.² According to Virnich's second amended complaint, from 1986 until 2002, CPC was a successful enterprise, employing as many as 250 people and having total audited net profits in excess of $12 million. Virnich acted and was compensated as a director of CPC.

Defendant American Trust solicited CPC's banking business, and in 1999 CPC entered into several loan agreements with the bank. Although CPC agreed to a covenant in those agreements that required it to retain at least $900,000 of net worth, Virnich and co-owner Jack Moores refused to provide personal guarantees of American Trust's loans to CPC. At the inception of the relationship, American Trust was fully aware of CPC's finances and ownership structure. CPC continued to inform American Trust of its financial situation directly and through audited and unaudited financial statements.

CPC experienced financial difficulties in 2001 and 2002 but remained current in its obligations to American Trust through May 2003. Defendant Vorwald became the primary American Trust loan officer on the CPC account in 2002. In January 2003, American Trust again requested personal guarantees on CPC's obligations from Virnich and Moores. Virnich and Moores again refused. On April 24, 2003, American Trust held a meeting at CPC's facility with Virnich, Moores, and other members of CPC management. Vorwald demanded additional collateral or repayment of some of CPC's obligations, and once more asked for personal guarantees from Virnich and Moores. Virnich and Moores indicated that they were willing to infuse money into the company, but they continued to refuse to give personal guarantees. Vorwald became “visibly upset” but did not express any concerns about CPC's solvency at the April 24, 2003 meeting.

Virnich alleges that it was around the time of the April 24 meeting that Vorwald consulted with legal counsel to determine the requirements for appointment of a receiver:

Motivated by personal animosity toward Virnich, Vorwald developed a plan to attack Virnich and Moores' reputations and otherwise cause harm to them. The basic elements of the plan were to remove Virnich and Moores from their positions with CPC by seeking the improper ex parte appointment of a receiver based on Vorwald's knowingly false and misleading affidavit, with the intent to misrepresent CPC's financial condition and damage Virnich and Moores' reputations. Upon information and belief, Mr. Vorwald furthered this malicious plan by representing, in April and May of 2003, to [defendant] Polsky and his immediate superior at American Trust, [non-party] Thomas Utzig, that Virnich and Moores were essentially “bad guys” that were “looting” CPC. Upon information and belief, Vorwald enlisted Polsky and Utzig's cooperation to go after Virnich and Moores by initiating and continuing the receivership action and taking other malicious actions to harm Virnich and Moores.

Second Amended Complaint ¶ 22. Vorwald also contacted one of CPC's other lenders, informing that lender that American Trust intended to file a receivership action. As a result, that lender cut off negotiations with CPC over release of proceeds from a property sale. Vorwald then contacted the FBI in a fruitless attempt to instigate an investigation of Virnich for bank fraud and tax evasion.

In May 2003, Vorwald contacted defendant Polsky and told him that American Trust was considering seeking an involuntary receivership action against CPC and asking if Polsky could serve as receiver. Polsky did not do an independent investigation of what he was told, but “knowingly and intentionally joined Vorwald's plan with malicious intent to harm Virnich and Moores' reputations.” Id., ¶ 28. Polsky had never met Virnich or Moores, but the information he had received from Vorwald caused him to develop a malicious attitude toward them. Polsky then allegedly helped Vorwald in preparing a “false and misleading” affidavit and an inaccurate schedule of assets for the court in support of American Trust's motion for a receivership.

On June 3, 2003, American Trust brought its ex parte motion to appoint a receiver for CPC in Grant County Wisconsin, Case No. 03–CV–285. American Trust's motion was granted, and Polsky was appointed receiver. Virnich contends that Vorwald and Polsky moved forward even though both had reason to believe that CPC was not insolvent or in imminent danger of becoming insolvent because “the primary purpose for the receivership action was to remove Virnich and Moores from the company and damage their reputations.” Id., ¶ 38.

On June 4, 2003, Polsky, now receiver, visited CPC's plant. Virnich alleges that Polsky announced to CPC's employees that the plant might be closing, worrying CPC's employees, customers, and suppliers. Days later, Polsky spoke to two CPC employees and described Virnich and Moores as “characters” who had created the most convoluted corporate structure he had ever seen. He also said that Virnich and Moores were “bad guys” who had done “bad things.” He spoke in a tone “which suggested anger and disdain for Virnich and Moores.” Id., ¶ 48. Polsky also met with union representatives, telling them that they needed to support him as receiver or the plant would be closed. In a court hearing, Polsky testified that the “insider transactions” involving Virnich and Moores and their holding entities were unusual and not commercially reasonable, and stated that Virnich and Moores did not really care about CPC and were interested only in protecting themselves.

Virnich and Moores contested the appointment of the receiver, but Vorwald threatened that if they continued in those efforts, American Trust would cut off CPC's funding and CPC would immediately shut down, which would diminish the value of CPC's assets. On September 9, 2003, Basic Products (CPC's owner, a Virnich and Moores holding company) entered into an agreement to sell CPC's assets and entered releases with Polsky and American Trust. Then, years later, Basic Products filed a motion in the receivership action for leave to file a derivative action on behalf of CPC against American Trust. In the meantime, Polsky, as receiver, had filed a separate but related lawsuit against Virnich and Moores individually for breach of fiduciary duty and related claims (Case No. 04–CV–285). The receivership court stayed Basic Products' motion for leave to file a derivative action pending resolution of Polsky's lawsuit.

In the fiduciary action, Polsky sought millions of dollars in damages, including punitive damages, against Virnich and Moores. Virnich alleges here that Polsky filed that suit both to force Virnich and Moores to incur substantial legal fees and to subject their reputations to further damage. The suit was covered in the press, and Polsky's counsel made several public statements about the case to the effect that Virnich and Moores had “looted” CPC, had put their interests ahead of the company's, and deserved to be punished. Id., ¶¶ 56–57. On January 17, 2007, a jury found for CPC and against Virnich and Moores, awarding $6.5 million. Polsky attempted to collect the judgment from Virnich and Moores and arranged to have pleadings in the collection action served on Virnich while he was appearing at a charity golf event. In addition, Polsky attempted to force a sheriff's sale of Virnich's residence and to freeze Virnich's and Moores' retirement accounts. However, the jury's verdict was later overturned by the Wisconsin Court of Appeals on procedural grounds, Polsky v. Virnich, 323 Wis.2d 811, 779 N.W.2d...