Wickenhauser v. Lehtinen
| Decision Date | 29 June 2007 |
| Docket Number | No. 2004AP2681.,2004AP2681. |
| Citation | 2007 WI 82,734 N.W.2d 855 |
| Parties | Steven J. WICKENHAUSER and Christy K. Wickenhauser, Plaintiffs-Respondents-Petitioners, v. Jack LEHTINEN and Carolyn Lehtinen, Defendants-Appellants, Joseph Nielsen and Sharon Nielsen, Defendants. |
| Court | Wisconsin Supreme Court |
Appeal from Circuit Court, St. Croix County, Eric J. Lundell, Judge.
For the plaintiffs-respondents there were briefs by Timothy J. O'Brien and Bakke Norman, S.C., New Richmond, and oral argument by Timothy J. O'Brien.
For the defendants-appellants there was a brief by Steven L. Miller and Miller & Miller, River Falls, and oral argument by Steven L. Miller.
This is a review of an unpublished per curiam decision of the court of appeals that reversed the circuit court's judgment1 awarding Steven and Christy Wickenhauser (the Wickenhausers) compensatory and punitive damages and denying Jack Lehtinen's (Lehtinen) motions for summary judgment based on claim preclusion. The court of appeals reasoned that since the Wickenhausers obtained rescission of an option to purchase 300 acres of their property in a prior action, they were barred by the election of remedies doctrine from obtaining damages in this action. Wickenhauser v. Lehtinen, No.2004AP2681, unpublished slip op., ¶ 1, 2006 WL 44082 (2006).
¶ 2 We conclude that the election of remedies doctrine does not bar the Wickenhausers from obtaining damages in this action because rescission of the option in the prior action is consistent with the subsequent award of damages. In addition, their claim in this action is not barred by claim preclusion, nor did the common-law compulsory counterclaim rule require the Wickenhausers to bring their claim for damages as a counterclaim in the first action. Furthermore, the fraud in the inducement exception to the economic loss doctrine is consistent with our holding. However, we do not address several alternative arguments raised by Lehtinen to the court of appeals because they were not brought before us for consideration. Accordingly, we reverse the court of appeals determination and remand to the court of appeals for further proceedings consistent with this opinion.
¶ 3 The Wickenhausers and Wickenhauser Farms, Inc. own and operate a dairy farm outside of New Richmond, Wisconsin, in St. Croix County. The original farm parcel consists of 146 acres, the Wickenhausers' residence and buildings related to their farming operation. On August 29, 1997, the Wickenhausers purchased 300 additional acres from Thomas Burow (Burow). At that time, the Wickenhausers used Bison Financial's services in an attempt to secure additional financing to consolidate debt and fund the expansion of their farm operation. Bison Financial was not able to secure a financing package for the Wickenhausers, but it did introduce the Wickenhausers to Lehtinen, a retired dentist who frequently invested in real estate.
¶ 4 The Wickenhausers and Lehtinen entered into a series of transactions where Lehtinen loaned money or paid bills on the Wickenhausers' behalf. On September 10, 1997, the Wickenhausers borrowed $130,000 from Lehtinen, which was secured by a mortgage on the 300-acre parcel the Wickenhausers purchased from Burow. Another loan was made by Lehtinen in December 1997, when he provided $66,000 to the Wickenhausers, which also was secured by a mortgage on the 300-acre parcel.
¶ 5 Lehtinen presented the Wickenhausers with an option that he asked the Wickenhausers to sign, which gave Lehtinen a three-year right to purchase the entire 300-acre parcel for $300,000. Lehtinen contended that in exchange for the $66,000 loan, together with his promise to secure an additional loan of $200,000 from his friends Joseph and Sharon Nielsen (the Nielsens), the Wickenhausers agreed to make Lehtinen one-half owner of the 300-acre parcel. However, the Wickenhausers believed that Lehtinen wanted the option only to show the Nielsens that there was sufficient security for their loan and as protection for Lehtinen's loans, if the Wickenhausers defaulted or went bankrupt. Lehtinen told the Wickenhausers that he would not record the option.
¶ 6 In November 2000, Lehtinen claimed he owned a one-half interest in the 300-acre parcel and asked the Wickenhausers to sign a quit claim deed conveying him that interest. The Wickenhausers refused. In December 2000, based on previous loans, Lehtinen attempted to exercise the option to purchase the entire 300-acre parcel, which he had recorded, but the Wickenhausers refused to convey the property. On March 28, 2001, Lehtinen filed an action against the Wickenhausers (the first action) wherein he sought enforcement of the option to purchase the 300-acre parcel.
¶ 7 The Wickenhausers filed an answer in the first action, asserting, as an affirmative defense, that Lehtinen fraudulently induced them to sign the option. The Wickenhausers did not counterclaim for damages in the first action. On April 16, 2001, the Wickenhausers commenced this action, seeking to quiet title to the 300-acre parcel in their names and damages arising from the fraudulent misrepresentations Lehtinen made to induce them to sign the option.
¶ 8 On June 11, 2001, the Wickenhausers moved to consolidate the actions, but their motion was denied. On July 27, the Wickenhausers filed an amended answer in the first action providing more detail about the fraud allegations, but they did not counterclaim for damages.
¶ 9 After testimony had concluded in the first action, the court asked the parties to submit proposed findings of fact, conclusions of law and judgments. In September 2001, the court adopted the Wickenhausers' document without modification. The court found that the Wickenhausers did not agree to grant Lehtinen an ownership interest in the 300-acre parcel. The judgment also rescinded the option for these reasons: (1) it was void for lack of consideration; (2) Lehtinen made material misrepresentations to the Wickenhausers and the Wickenhausers reasonably relied on the misrepresentations to their detriment; and (3) Lehtinen was acting as a dual agent at the time he induced the Wickenhausers to sign the option.
¶ 10 In this action, the Wickenhausers moved to apply issue preclusion to Lehtinen's defenses to their allegations of misrepresentation and liability, asserting that Lehtinen's misrepresentation had been decided in their favor in the first action; and therefore, Lehtinen could not deny liability in this action. Lehtinen moved to dismiss this action based on claim preclusion and the election of remedies doctrine. He asserted that the Wickenhausers were precluded from claiming damages in this action because they were granted rescission in the first action.
¶ 11 The circuit court applied issue preclusion to Lehtinen's defenses to the allegations of misrepresentation and liability, and it also denied Lehtinen's motion to apply claim preclusion to the Wickenhausers' claim in this action. The circuit court did so because it concluded that there are no compulsory counterclaims in Wisconsin. The circuit court recognized that the Wickenhausers had attempted to consolidate the two cases and also noted that "damages were not available in [the first action] and the fact that the remedies available in each case were separate and distinct precludes the application of claim preclusion." The jury found damages resulting from the fraud in the amount of $274,184 and punitive damages in the amount of $500,000. Judgment was entered accordingly.
¶ 12 Lehtinen appealed the circuit court's decision, arguing, among other theories, that since the Wickenhausers obtained rescission in the first action, they are barred by the election of remedies doctrine from obtaining damages in this action. The court of appeals agreed. It concluded that the election of remedies doctrine bars a plaintiff from maintaining inconsistent legal theories and defrauded parties have to elect either to rescind or to affirm a contract. Wickenhauser, No.2004AP2681, unpublished slip op., ¶ 13, 2006 WL 44082 (citations omitted). The court of appeals concluded that rescission is inconsistent with a claim for damages; and therefore, it reversed the circuit court. Id., ¶ 18.
¶ 13 Since the court of appeals concluded that rescission in the first action barred recovery of damages in this action, it did not address a number of Lehtinen's alternative arguments that were made to the court of appeals but not to us, including whether: (1) applying issue preclusion to the questions of liability and fraud in the first action is fundamentally unfair in this action for damages; (2) the actual damages found by the jury were not supported by the evidence; (3) punitive damages should have been denied as a matter of law; and (4) Lehtinen was denied due process when the jury did not hear all the facts and circumstances surrounding the alleged fraud. Id., ¶ 1 n. 1.
¶ 14 We granted the Wickenhausers' petition to review the decision of the court of appeals.
¶ 15 The circuit court resolved this case by denying Lehtinen's motion for summary judgment that was based on claim preclusion and by confirming the jury's award of damages. The court of appeals applied the election of remedies doctrine to overturn the circuit court's decision. We review a denial of summary judgment independently, applying the same methodology as the circuit court. AKG Real Estate, LLC v. Kosterman, 2006 WI 106, ¶ 14, 296 Wis.2d 1, 717 N.W.2d 835 (citing O'Neill v. Reemer, 2003 WI 13, ¶ 8, 259 Wis.2d 544, 657 N.W.2d 403). The applications of the election of remedies doctrine, the doctrine of claim preclusion and the common-law compulsory counterclaim rule to a particular set of facts present us with questions of law that we review independently. See Menard, Inc. v. Liteway Lighting Prods., 2005 WI 98, ¶ 23, 282 Wis.2d 582, 698 N.W.2d 738.
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