Breach of fiduciary duty is intentional tort

Listen to this article

Breach of fiduciary duty is an intentional tort, the Wisconsin Supreme Court held on June 20.

As a result, the two-year statute of limitations in sec. 893.57, applicable to intentional torts “to the person,” governs such claims.

Perry Printing was a wholly owned subsidiary of Journal Communications, Inc. Since 1937, 90 percent of Journal Communi-cations’ stock has been held in the Journal Employees Stock Trust (Trust). Administration of that Trust is governed by the Journal Employees’ Stock Trust Agreement (JESTA).

Employees of Perry were eligible to own units of the Trust. The JESTA required employees who owned trust-units and whose employment terminated for any reason other than retirement to immediately offer their units for sale.

When an employee retired, however, the employee was permitted to offer his units for sale over a period of 10 years. This option has a significant benefit, because the trust-units have always appreciated in value.

In 1995, Journal Communications sold Perry’s assets. The sale agreement required the buyer to continue to operate the business and to offer comparable employment and compensation to all Perry employees. When the sale closed, all employees were terminated by Perry and rehired by the buyer of Perry’s assets.

Because their employment with Journal Communications terminated when Perry was sold, the trustees told the former employees they had to offer to sell back their trust-units immediately, and gave them one to five years to sell their units.

In April 2000, former Perry employees who had sold their units at the time of the restructuring filed a class action against Journal Communications, the trust, and its trustees. The complaint alleged that the plaintiffs were entitled under the JESTA to be treated as retirees with the right to sell their trust-units over a 10-year period, but that the trustees denied them this right, in violation of their fiduciary duty.

Jefferson County Circuit Court Judge John Ullsvik granted partial summary judgment to the defendants, allowing only the fiduciary duty claims of those who were eligible to retire at the time of the sale to go forward. The court rejected the defendants’ argument that the two-year statute of limitations barred those claims as well, finding that the complaint alleged negligent, rather than intentional, breach of fiduciary duty, and applying a six-year statute of limitations.

Defendants appealed, and the court of appeals reversed, in a published decision, Zastrow v. Journal Communications, Inc., 2005 WI App 178, 286 Wis.2d 416, 703 N.W.2d 673.

The court of appeals concluded that it was bound by language in Beloit Liquidating Trust v. Grade, 2004 WI 39, 270 Wis.2d 356, 677 N.W.2d 298, stating that breach of fiduciary duty is an intentional tort governed by the two-year statute of limitations in sec. 893.57.

The Supreme Court granted review, but affirmed, in a decision by Justice Patience Drake Roggensack. Chief Justice Shirley S. Abrahamson wrote a concurrence, joined by Justice Ann Walsh Bradley, and partially joined by Justice N. Patrick Crooks.

Section 893.57 provides: “An action to recover damages for libel, slander, assault, battery, invasion of privacy, false imprisonment or other intentional tort to the person shall be commenced within 2 years after the cause of action accrues or be barred.”

The court concluded that a breach of fiduciary duty is an intentional tort, and therefore (following the holding in Beloit Liquidating), falls within the ambit of this statute.

The court concluded, “A fiduciary agrees to assume a position of authority in regard to the affairs of another in which position the fiduciary may have access to confidential information or to property of the object of the fiduciary’s obligation. Therefore, if a trustee does not make a full disclosure of material facts to a beneficiary, that conduct is a breach of the trustee’s duty of loyalty. The law concludes this breach is intentional.”

The court acknowledged that a fiduciary could comport with his fiduciary duty of loyalty, but nevertheless violate the duty of ordinary care, but concluded that the failure to make full disclosure of material facts is a breach of the duty of loyalty, and thus, intentional.

The court concluded its result was required by prior case law, in Beloit Liquidating, 270 Wis. 2d 356, par. 40, where the court held that sec. 893.57 applies to breach of fiduciary duty claims, even though the court in Beloit Liquidating did not provide any reasoning for that holding.

Likewise, in Warmka v. Hartland Cicero Mut. Ins. Co., 136 Wis.2d 31, 400 N.W.2d 923 (1987), the court held, “The breach of the fiduciary duty is an intentional tort” and therefore, sec. 893.57 provides the applicable statute of limitations.

Finally, the court noted that federal courts interpreting Wisconsin law, and courts from other jurisdictions, have held that the breach of the fiduciary duty of loyalty is an intentional tort.

Finding that the plaintiffs’ allegations stated a claim for breach of that duty, the court held that are precluded by the two-year statute of limitations.

The Concurrence

Chief Justice Abrahamson wrote a concurrence, taking issue with the way the lead opinion framed the issues.

	Related Links Wisconsin Court System Related Article Case Analysis

Abrahamson noted that the lead opinion framed the issue as, “whether a claim for breach of fiduciary duty of loyalty must be intentional, or whether it can also be based on negligence.”

The parties, however, framed the issue as, “whether a claim for a negligent breach of fiduciary duty is governed by the two-year statute of limitations in Wis. Stat. sec. 893.57, or by the six-year statute of limitations in either Wis. Stat. sec. 893.52 or sec. 893.43.”

Abrahamson wrote that the court should have addressed the issue as stated by parties, concluding, “The present case does not require this court to determine whether a claim for the Trustees’ breach of fiduciary duty of loyalty must be intentional or may be based on negligence. We need determine only what statute of limitations applies to the claim for breach of fiduciary duty presented in the instant case.”

Nevertheless, Abrahamson agreed with the ultimate holding that sec. 893.57 applies. Although acknowledging, as did the lead opinion, that Beloit Liquidating provides no reasoning for its holding that the two-year statute of limitations applies to breach of fiduciary duty, Abrahamson wrote, “In the interest of stare decisis and relying on the text of Beloit Liquidating, I conclude that Beloit Liquidating controls the outcome of the instant case and creates a uniform, predictable rule that the statute of limitations applicable in all claims of any breach of fiduciary duty is the two-year statute.”

Click here for Case Analysis.

David Ziemer can be reached by email.