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Sands v. Menard

Supreme Court of Wisconsin

December 29, 2017

Debra K. Sands, Plaintiff-Appellant-Petitioner,
John R. Menard, Jr., Menard Thoroughbreds, Inc., Webster Hart as Trustee of the John R. Menard, Jr. 2002 Trust and Related Trusts, Angela L. Bowe as Trustee of the John R. Menard, Jr. 2002 Trust and Related Trusts and Alphons Pitterle as Trustee of the John R. Menard, Jr. 2002 Trust and Related Trusts, Defendants-Respondents, Midwest Manufacturing Co., Wood Ecology Inc., Countertops Inc., Team Menard Inc., Menard Engine Group, Menard Competition Technologies LTD, MC Technologies Inc., Menard Engineering LTD, UltraMotive LTD and Merchant Capital LLC, Defendants, Menard, Inc., Defendant-Respondent-Cross Petitioner. Debra K. Sands, Plaintiff-Appellant-Cross-Respondent-Petitioner,
John R. Menard, Jr. and Menard Thoroughbreds, Inc., Defendants-Respondents-Cross-Appellants, Webster Hart as Trustee of the John R. Menard, Jr. 2002 Trust and Related Trusts, Angela L. Bowe as Trustee of the John R. Menard, Jr. 2002 Trust and Related Trusts, Alphons Pitterle as Trustee of the John R. Menard, Jr. 2002 Trust and Related Trusts, Midwest Manufacturing Co., Wood Ecology Inc., Countertops Inc., Team Menard Inc., Menard Engine Group, Menard Competition Technologies LTD, MC Technologies Inc., Menard Engineering LTD, UltraMotive LTD and Merchant Capital LLC, Defendants, Menard, Inc., Defendant-Respondent-Cross-Appellant-Cross Petitioner.

          Oral Argument: September 12, 2017

         Eau Claire County L.C. No. 2008CV990, Circuit Court, Paul J. Lenz Judge.

          For the plaintiff-appellant-cross-respondent-petitioner, there were briefs filed by Charles K. Maier, Daniel R. Shulman, Richard C. Landon, and Gray, Plant, Mooty, Mooty & Bennett, P. A., Minneapolis, Minnesota, with whom on the briefs were Mel C. Orchard, III, and The Spence law Firm, LLC, Jackson, Wyoming. There was an oral argument by Daniel R. Shulman.

          For the defendant-respondent-cross-appellant-cross petitioner, there were briefs filed by G. Richard White and Weld Riley, S.C., Eau Claire, with whom on the briefs were Michael D. Freeborn, Brian P. Norton, Andrew C. Nordahl, and Freeborn & Peters, LLP, Chicago, Illinois. There was an oral argument by Brian P. Norton.

          For the defendants-respondents, there was a brief by G. Richard White and Weld Riley, S.C., Eau Claire, with whom on the brief were Todd Wind and Fredrikson & Byron, P.A., Minneapolis, Minnesota. There was an oral argument by Todd Wind.

          For the defendants-respondents-cross-appellants, there was a brief filed by there was a brief filed by G. Richard White and Weld Riley, S.C., Eau Claire, with whom on the briefs were Michael D. Freeborn, Brian P. Norton, Andrew C. Nordahl, and Freeborn & Peters, LLP, Chicago, Illinois.


         ¶1 We review a decision of the court of appeals, affirming the circuit court's[1] grant of summary judgment dismissing Debra Sands' claims and Menard, Inc.'s counterclaim. Debra Sands and John Menard, Jr., were involved in a romantic relationship from late 1997 to April 2006.[2] Sands alleges that from 1998 until 2006 she cohabitated with Menard and they engaged in a "joint enterprise" to work together and grow Menard's businesses for their mutual benefit. Menard and his affiliated entities argue that by failing to comply with Supreme Court Rule 20:1.8(a), which regulates business transactions between lawyers and their clients, Sands is precluded from seeking an ownership interest in any of Menard's various business ventures.

         ¶2 We review four issues. First, we consider whether Sands has pleaded facts sufficient to establish what she styled as an unjust enrichment claim under Watts v. Watts, 137 Wis.2d 506, 405 N.W.2d 305');">405 N.W.2d 305 (1987), thereby necessitating a remand to the circuit court for a full hearing on the merits. Second, we consider whether the court of appeals properly concluded that SCR 20:1.8 (a) may be raised as a defense to an unjust enrichment claim. Third, we consider whether the court of appeals properly granted summary judgment to Sands on Menard, Inc.'s counterclaim for breach of fiduciary duty. And fourth, we consider whether the court of appeals properly granted summary judgment to the Menard Trustees.

         ¶3 As to the claim she has characterized as a Watts unjust enrichment claim, we conclude that Sands has failed to allege facts which, if true, would support her legal conclusion that she and Menard had a joint enterprise that included accumulation of assets in which both she and Menard expected to share equally. On the second issue, for the reasons explained below, we conclude that SCR 20:1.8(a) may guide courts in determining required standards of care generally; however, it may not be used as an absolute defense to a civil claim involving an attorney.[3] And finally, we also conclude that the court of appeals properly granted summary judgment to Sands on Menard, Inc.'s counterclaim for breach of fiduciary duty, and to the Trustees on their motion for summary judgment dismissing Sands' claim.

         ¶4 Accordingly, we affirm the court of appeals.

         I. BACKGROUND

         ¶5 Menard is the founder, president, and CEO of Menard, Inc., a privately held chain of home improvement stores that began in Eau Claire, Wisconsin. In November 1997, nearly 40 years after starting his business, Menard began dating Sands, a lawyer licensed to practice in the state of Minnesota, who at the time was directing several business ventures with her sister in St. Paul. Sands claims that she moved in with Menard in the summer of 1998, and they became engaged later that year. Menard admits that he and Sands were engaged, but denies that they ever lived together.

         ¶6 During their relationship, Sands alleges she made a number of business and personal contributions to both Menard and his companies, including Menard, Inc. and Menard Thoroughbreds, Inc. Although the parties agree that Sands made certain contributions, they do not agree as to the nature of those contributions, when they began, or who was the recipient at any given time. Sands describes her contributions to Menard and his companies as follows:

She was Menard's life partner, social companion, and manager and hostess of his households. Sands protected Menard from unwanted approaches by serving as a "gate-keeper." She supervised his health care and medical needs; managed the remodeling of three residences; and advised on the acquisition of airplanes and their design and decor. She provided ideas for new products and product lines for the Menard, Inc., stores, such as garden centers; and scouted and proposed new store locations, store layouts, and product displays. She represented Menard, Inc., as a product buyer. She reviewed and suggested changes and additions to Menard, Inc., marketing plans. She assisted with government and public relations. She participated in the redesign of store signs and logos. She helped find new business and investment opportunities. She assisted in the management of the Team Menard auto racing venture and newly-acquired businesses, including two engine design companies in England, a thoroughbred racing business, and a $400 million private equity fund. She made her joint enterprise with Menard her focus, which occupied her every moment.

         ¶7 Sands claims that Menard repeatedly promised her that in return for these contributions, he would give her an ownership interest in his various business ventures. Menard denies ever making such promises, and states only that Sands provided certain legal services beginning in approximately 1997.

         ¶8 The parties also disagree as to whether Sands performed legal work for Menard or the Menard Defendants prior to the beginning of their romantic relationship. Sands contends that there was never any attorney-client relationship with the Menard Defendants prior to 1998. Conversely, the Menard Defendants assert that Sands began providing legal services in October 1997, before she and Menard began dating.

         ¶9 As evidence, the Menard Defendants submitted a May 28, 1998, invoice from Prima Group, a company owned by Sands and her sister, in the amount of $49, 635.84. The invoice referenced a "client matter, " listed as "Wisconsin Dept. of Natural Resources v. Menard, Inc." The invoice further indicated it was for "Governmental relations & Legal services rendered Oct. 15, 1997 - May 15, 1998." Sands claims that the invoice was prepared at Menard's request, in response to his offer to pay off Sands' remaining student loans of $49, 635.84. Sands claims that Menard told her to send the invoice to Menard, Inc., so that the payment would be tax deductible as a business expense. Menard, however, claims this invoice related to legal services that Sands provided in connection with a Wisconsin DNR investigation into Menard, Inc.'s disposal of wood ash.[4]

         ¶10 Although the parties disagree as to the nature of the legal services provided prior to 2003, both concede that beginning in 2003 Sands began to provide significant legal services to Menard, Inc.[5] Sands billed at an hourly rate of $145, and Menard, Inc. paid Sands a total of $152, 105 for seven invoices.

         ¶11 In early 2004, Sands assisted in the creation of a private equity fund ("the Fund"). Steve Hilbert, a businessman with money management experience and a long-time friend of Menard's, began to meet with Menard to discuss the Fund. According to Sands, Menard asked her to review documentation used to create the Fund. Menard, Inc., however, asserts that from at least January 2005 through October 2005, Menard, Inc. had retained Sands as its outside legal counsel to represent it in the Fund transaction.

         ¶12 Menard alleges that Sands was responsible for negotiating the terms of the transaction with Hilbert, in addition to reviewing and editing the Fund transaction documents. Sands states that she was never asked and never did create invoices for her work for Menard, in part because she believed her efforts were part of her and Menard's "joint enterprise." It was not until her relationship with Menard ended in 2006 that Menard instructed her to provide itemized invoices for all legal services for which she had not been paid, dating back to 2003. Sands then submitted 190 separate invoices for work performed between February 2003 and April 2006, representing 7, 487.10 hours of legal work at $145 per hour, for a total fee of $1, 085, 629.50.

         ¶13 Sands met with Menard and Pete Liupakka, Menard, Inc.'s CFO, to discuss the invoices in October 2006. Liupakka believed that the number of hours reflected on the invoices was excessive. Nevertheless, Menard, Inc. offered to pay Sands $961, 518-the amount claimed in the invoices minus payments that Menard, Inc. believed Sands had already received. However, Menard, Inc. made receipt of this payment conditioned on Sands signing a one-page "release of all claims" that included a waiver of any "quasi-marital claims." Sands refused to sign, prompting Menard, Inc. to offer an additional $100, 000. Sands again refused, and Menard, Inc. rescinded its offer to pay any portion of the fees reflected in the invoices.

         ¶14 On November 3, 2008, Sands filed suit against Menard, the Menard Defendants, and eleven other parties owned or controlled by Menard. She asserted claims for Unjust Enrichment, Implied Contract, Promissory Estoppel, Intentional Infliction of Emotional Distress, Negligent Infliction of Emotional Distress, Fraudulent Misrepresentation, Conversion, and Breach of Fiduciary Relationship. On November 19, 2009, Sands filed an amended complaint, re-alleging her claims of unjust enrichment against Menard, asserting breach of contract and promissory estoppel claims against Menard, and claims for unjust enrichment against Menard, Inc., Menard Thoroughbreds, Inc., and MH Private Equity Fund LLC ("MH Equity"). A second amended complaint was filed on May 10, 2011, adding the Trustees as defendants.

         ¶15 Shortly after Sands filed her second amended complaint, the Menard Defendants discovered evidence that Sands had a side agreement with Hilbert, prompting accusations that Sands had been attempting to obtain an ownership interest or employment with MH Equity while she was representing them in the Fund transaction. Therefore, on May 25, 2011, the Menard Defendants asserted a counterclaim for breach of fiduciary duty under SCR 20:1.8(a).

         ¶16 On April 12, 2012, the Menard Defendants moved for summary judgment to dismiss all of Sands' claims by which she sought a portion of Menard's "net worth or assets, ownership interests in the Menard companies, or any part of the increase in value of the Menard Companies." The Menard Defendants argued that SCR 20:1.8(a) barred Sands from recovering any portion of Menard's assets or an ownership interest in his companies because she had failed to comply with SCR 20:1.8(a), which regulates business transactions between attorneys and their clients.

         ¶17 The Trustees also moved for summary judgment, arguing that Sands' theory of unjust enrichment failed as a matter of law because: (1) even if Sands benefitted Menard or Menard, Inc., her claim would therefore be against the Menard Defendants, not the Trustees; (2) she did not allege facts, which if true, would show any benefit conferred to the Trustees; and (3) she failed to allege facts showing "unjust circumstances."

         ¶18 Following an oral ruling on October 12, 2012, the circuit court entered summary judgment on October 22, 2012. The court acknowledged that Sands had violated SCR 20:1.8(a), [6] but declined to adopt a bright-line rule that SCR 20:1.8(a) prohibits an attorney from bringing what Sands has styled as a Watts unjust enrichment claim regarding past contributions. Rather, the court recognized an implicit exception to SCR 20:1.8 (a), such that it does not bar an attorney from bringing an equitable claim for contributions provided in a romantic relationship if: (1) the romantic relationship predates the attorney-client relationship; and (2) "the legal services rendered are merely ancillary or incidental to the larger joint enterprise of the parties."[7]

         ¶19 As to the first requirement, the court focused on whether Sands' May 28, 1998, invoice for "Governmental relations & Legal services" established that her attorney-client relationship began before her romantic relationship with Menard.[8]Even accepting as true Sands' claim that the invoice was a fraudulent document submitted at Menard's request, the court stated that it would deny relief in equity due to Sands' admitted fraud regarding the invoice, which showed that she was in pari delicto[9] with Menard and, thus, the court would "leave matters where they stand."[10]

         ¶20 Looking to the second element of the exception, the court found that no reasonable jury could find that Sands' legal services were "merely ancillary or incidental." Therefore, because neither exception to its test applied, the court concluded that Sands' violation of SCR 20:1.8(a) barred her claims against the Menard Defendants. The court then held that because Sands could not recover against Menard, she could not recover against the Trustees. The circuit court then granted summary judgment to the Trustees. Sands' claim against the Menard Defendants for compensation for services rendered remained.

         ¶21 Sands appealed from the order regarding the Trustees and petitioned for leave to appeal from the order regarding the Menard Defendants. The court of appeals denied Sands' motion, but stayed her appeal of the order regarding the Trustees pending the disposition of her remaining claims in circuit court. Sands v. Menard, 2016 WI.App. 76, ¶21, 372 Wis.2d 126, 887 N.W.2d 94');">887 N.W.2d 94.

         ¶22 After the circuit court granted partial summary judgment, Sands claimed that she was entitled to compensation for her non-legal services. In support, she submitted extensive documentation of the various "non-legal" services she had provided, and for which she alleged she was entitled to receive compensation. The Menard Defendants moved to strike, pointing to Sands' previous affidavit in which she stated that she never expected to be compensated for personal and family services. The court granted the motion.

         ¶23 Refusing to concede that her only remaining claim was for compensation for legal services "at a rate of $145 per hour, " Sands next asserted that she was entitled to the quantum meruit value of her legal services, which she claimed was between $355 and $640 per hour. Again, the Menard Defendants moved to strike, arguing that Sands could not recover on a quasi-contract theory when she had an express contract with Menard to be paid $145 per hour for her legal services. The court agreed, explaining that "even if [$145 per hour] was dictated by the client, Mr. Menard, this was clearly the agreed rate." The circuit court distinguished unjust enrichment claims from quantum meruit, stating that while a plaintiff asserting a Watts unjust enrichment claim seeks to recover a fair portion of the increase in the couple's net worth, a quantum meruit claim seeks to recover the fair value of services performed based on a contract implied by law. The dismissal of Sands' quantum meruit claim therefore did not affect her unjust enrichment claim. The circuit court also stated that Sands' quantum meruit claims were barred because of her failure to comply with SCR 20:1.8(a).

         ¶24 Sands moved for summary judgment on Menard, Inc.'s counterclaim for breach of fiduciary duty. The circuit court granted the motion, concluding that the counterclaim was barred by the applicable statute of limitations and that a reasonable person in Menard's situation would have further investigated his suspicions of Sands' disloyalty at an earlier date.

         ¶25 On April 24, 2015, Sands filed a notice of appeal from the circuit court's final order, and Menard, Inc. cross-appealed from the order dismissing its counterclaim for breach of fiduciary duty.

         ¶26 Proceedings at the court of appeals involved the consolidation of the direct appeal from the 2012 judgment disposing of all claims between Sands and the Trustees, and a direct appeal from the 2015 final judgment disposing of all claims between Sands, Menard, and the Menard Defendants. The court of appeals affirmed the circuit court, but on different grounds.

         ¶27 Sands filed a petition for review on October 19, 2016, which was followed by a petition for cross-review filed by the Menard Defendants on November 18, 2016. We granted review, and now affirm.


         A. Standard of Review

         ¶28 We review a grant or denial of summary judgment independently, applying the same standards as employed by the circuit court, while benefitting from the discussions of the court of appeals and the circuit court. Dufour v. Progressive Classic Ins. Co., 2016 WI 59, ¶12, 370 Wis.2d 313, 881 N.W.2d 678; Preisler v. General Cas. Ins. Co., 2014 WI 135, ¶16, 360 Wis.2d 129, 857 N.W.2d 136. Summary judgment is appropriate in cases where there is no genuine issue of material fact and the moving party has established his or her right to judgment as a matter of law. Wis.Stat. § 802.08 (2);[11] Wadzinski v. Auto-Owners Ins. Co., 2012 WI 75, ¶10, 342 Wis.2d 311, 818 N.W.2d 819. We review summary judgment submissions in the light most favorable to the nonmoving party. Id.

         B. Unjust Enrichment Claim

         1. General principles

         ¶29 Sands asserts she has a claim against Menard for unjust enrichment. She relies on her interpretation of Watts, where we concluded that public policy does not preclude unmarried, former cohabitants from raising "claims based upon unjust enrichment following the termination of their relationships where one of the parties attempts to retain an unreasonable amount of the property acquired through the efforts of both." Watts, 137 Wis.2d 506 at 532-33.[12]

         ¶30 The Watts court relied on the usual legal standard for unjust enrichment:

[A] claim for unjust enrichment does not arise out of an agreement entered into by the parties. Rather, an action for recovery based upon unjust enrichment is grounded on the moral principle that one who has received a benefit has a duty to make restitution where retaining such a benefit would be unjust.

Id. at 530. Unjust enrichment requires proof of three elements: (1) a benefit conferred on the defendant by the plaintiff; (2) appreciation or knowledge by the defendant of the benefit; and (3) acceptance or retention of the benefit by the defendant under circumstances making it inequitable to do so. Id. at 531. In order to plead an unjust enrichment claim, the party seeking judicial relief must allege facts that, if true, would be sufficient to satisfy a court that the above elements are present. In Watts, we concluded that they were. Id. at 533.

         ¶31 Watts held that neither public policy nor the abolition of common-law marriage prohibited an unmarried cohabitant from asserting a contractual or quasi-contractual claim against another cohabitant.[13] Sue Ann Watts sued James Watts over their respective interests in property accumulated during their 12-year cohabitation. Id. at 510. Sue Ann assumed James' last name as her own, and together the couple raised two children, who also shared the Watts name. They filed joint income tax returns and maintained joint bank accounts. Sue Ann and James purchased real and personal property together; Sue Ann co-signed for the loans James obtained. Watts, 137 Wis.2d at 513-14.

         ¶32 During this period Sue Ann managed the home front so that James could build Watts Landscaping. She was a homemaker who cared for their children. She cleaned, cooked, laundered, shopped, ran errands, and maintained the grounds surrounding the parties' home. Id. at 513. She contributed personal property that she owned at the beginning of the relationship, served as hostess for James at both social and business-related events, and for a time worked 20-25 hours per week at James' office, performing duties as a receptionist, typist and assistant bookkeeper. Id. at 513-14.

         ¶33 Sue Ann alleged that because of her personal and business contributions, the business and personal wealth of the couple increased. Id. at 514. Following the termination of their relationship, however, James refused to compensate Sue Ann for these contributions despite his indications that she would share equally in the increased wealth. Id.

         ¶34 In holding that Sue Ann had stated a claim for relief, we focused our analysis on principles of equity and fairness. Id. at 532-33. Specifically, we concluded that regardless of the nature of the relationship, the court should enforce contract, quasi-contract, and property rights where "one party keeps all or most of the assets accumulated during the relationship, while the other party, no more or less 'guilty, ' is deprived of property which he or she has helped to accumulate." Id. at 52 6.

         ¶35 In concluding that Sue Ann had stated a claim, we determined it would be unjust and inequitable to allow James to retain the entire benefit of their joint enterprise. As to the three elements of unjust enrichment, we concluded: (1) Sue Ann contributed property and services to the relationship; (2) the couple's assets increased as a result of these contributions; and (3) James' retaining all of the assets was inequitable. Watts, 137 Wis.2d at 533.

         ¶36 Subsequent to our decision in Watts, unjust enrichment claims in the context of unmarried cohabitants have appeared before Wisconsin courts on an infrequent basis.[14] Nevertheless, case law does provide some guidance on the scope of unjust enrichment claims and, in particular, the types of facts that must be pled in order to survive summary judgment.

         ¶37 In Waage v. Borer, 188 Wis.2d 324, 525 N.W.2d 96');">525 N.W.2d 96 (Ct. App. 1994), the court of appeals held that proof of the elements of unjust enrichment must be demonstrated by showing: (1) an accumulation of assets; (2) acquired through the efforts of the claimant and the other party; and (3) retained by the other party in an unreasonable amount. Id. at 329-30. At trial, Borer claimed money for her housekeeping efforts after Waage reneged on an alleged promise to marry her. The court concluded that despite her cooking, cleaning, and childcare services, Borer failed to allege facts sufficient to meet the Watts unjust enrichment standard. Specifically, the court held that only certain benefits will constitute "assets" or "property" for the purposes of unjust enrichment. "Watts does not recognize recompense for housekeeping or other services unless the services are linked to an accumulation of wealth or assets during the relationship." Id. at 330. In alleging only that Waage retained a benefit from Borer's uncompensated housekeeping efforts made in contemplation of marriage, the court concluded that Borer had not met the unjust enrichment standard. Furthermore, the court explained that there is no cause of action for breaching an alleged promise to marry.

         ¶38 In Ward v. Jahnke, 220 Wis.2d 539, 583 N.W.2d 656');">583 N.W.2d 656 (Ct. App. 1998), the court of appeals reemphasized that in order for a plaintiff to successfully demonstrate unjust enrichment he or she must present proof that the assets or property acquired during cohabitation were acquired as a result of a mutual undertaking or joint effort. Id. at 552. Sandra Ward and Dennis Jahnke had shared an apartment for nearly four years, during which time Ward paid rent and all other household expenses so that Jahnke could save money for a down payment on a house. Jahnke eventually purchased a home, making the $11, 000 down payment and all mortgage and tax payments on the property. For the next nine years, Ward lived in the home rent-free, although she did pay utilities and purchased groceries. All finances were kept separate. Upon their separation, Ward claimed that Jahnke was unjustly enriched because he was able to accumulate a down payment while she paid for nearly all of their household expenses. Id. at 544. She also argued that because she moved into Jahnke's house and continued to pay certain expenses, the house itself was an asset accumulated through their joint efforts and retained by Jahnke in an unreasonable amount. Id.

         ¶39 Applying the elements of unjust enrichment to the facts, the court of appeals affirmed the circuit court's conclusion that Jahnke was unjustly enriched by Ward's efforts during the period of cohabitation in which she paid rent and all other household expenses. Id. at 550. "We agree that under these facts, Ward's assumption of the cost of the couple's living expenses was a benefit conferred on Jahnke which resulted in an accumulation of the asset - the [$11, 000] down payment." Id. However, the court reversed the circuit court's conclusion that Jahnke had been unjustly enriched following the purchase of the home.[15] "Not only does Ward's claim lack a single Watts factor, her testimony as to their financial arrangements shows only that she and Jahnke were cohabitants who divided their household expenses in such a way that it made it easy to maintain separate finances and avoid commingling their individual resources." Id. at 550-51.

         ¶40 In so holding, the appeals court stated that it does not read the list of factors outlined in Watts as a checklist, but rather as "requiring a plaintiff to put forth facts which indicate a shared enterprise and some form of proof that the assets or property in dispute were 'acquired through the efforts of both. ' " Id. at 547-48 (quoting Watts, 137 Wis.2d at 533) (emphasis in original).[16] It is only after a party can demonstrate the existence of a joint enterprise that the court may award equitable relief. See Ulrich v. Zemke, 2002 WI.App. 246, ¶12, 258 Wis.2d 180, 654 N.W.2d 458');">654 N.W.2d 458.

The proper legal standard requires the court to . . . analyze the character of the parties' relationship by inquiring whether the relationship was a joint enterprise which encompassed the accumulation of assets. A court makes this determination by considering the total circumstances of the parties' relationship, specifically whether the ...

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