Godfrey & Kahn escapes sanctions for pre-litigation advice

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Even if a court finds that a law firm’s actions were like putting “a gun to the head of the plaintiff,” this may not be enough for a trial judge to impose sanctions that survive appellate review.

In the recently published case of State of Wisconsin ex. Rel Godfrey & Kahn v. Circuit Court for Milwaukee County et al., 2011 AP 921-W, the Wisconsin Court of Appeals confirmed the sanctioned law firm was wrongly punished for client advice given months before litigation began, and not for acts that took place before the court.

Citing State v. Henley, 2010 WI 97, the court found that sanctions against Godfrey & Kahn were improper because they were not imposed “to guard against actions that would impair the powers or efficacy of the courts or judicial system” “to regulate the bench and bar” or “to ensure the efficient and effective functioning of the court, and to fairly administer justice.”

In the underlying litigation, Richard Stone alleged he had been wrongfully terminated by his former employer, Midwest Air Group, which had terminated him for cause in the face of sexual harassment allegations from fellow employees.

At a May 30, 2008, meeting, according to court documents, Stone and Midwest’s COO Timothy Hoeksema talked about Stone’s possible separation from the company due to alleged “performance” issues. Before a subsequent meeting took place, allegations that Stone sexually harassed several female employees were brought to Midwest’s attention.

At a follow-up meeting on June 3, 2008, Hoeksema told Stone that Midwest would investigate the matter. Trial evidence showed that Godfrey & Kahn was retained by Midwest on June 3, 2008.

After conducting its own investigation — including a July 23, 2008, interview with Stone — Midwest notified Stone that its outside counsel, G&K, had found there was enough evidence to have Midwest’s board of directors review the matter to determine if Stone should be terminated for cause.

In an email, Stone asked Midwest’s in-house counsel for copies of any documents that would be considered by board members at the Aug. 4, 2008, board meeting. This should “include any documents prepared by [Godfrey & Kahn] justifying their recommendation of termination for cause.”

Soon thereafter, Stone submitted a letter to the board, strongly denying that his conduct had been inappropriate, and generally denying all of the sexual harassment charges against him.

In a letter dated July 31, 2008, Godfrey & Kahn’s Michael Huitink informed Stone’s attorney that he could not turn over all of the documents Stone had requested. Huitink asserted that Stone’s employment contract did not require such disclosure and could lead to retaliation against Midwest employees.

Trial testimony indicated Huitink did offer to send a copy of the board’s Final Investigation Report, but only if Stone signed a release limiting distribution of the report, and also agreed not to retaliate against or contact any of the complainants.

The appellate court could not determine if Stone ever signed a copy of the release. Before the Aug. 4, 2008, board meeting the firm did send a copy of the Final Investigative Report to Stone’s counsel, which Stone claimed lacked a copy of interview summaries of the alleged victims.

After Stone and his attorney had a chance to give statements before the board, the board voted unanimously to terminate Stone for cause. Stone then filed a wrongful termination suit in Milwaukee County.

Stone charged that Midwest had not only wrongfully terminated his employment, but also violated its duty of fair dealings in failing to give him sufficient documentation to defend himself before the Aug. 4, 2008, board meeting.

At trial, Stone point-by-point rebutted each allegation made against him. During Huitink’s cross-examination of the plaintiff, the attorney questioned why Stone had failed to respond to each and every allegation during the Aug. 4, 2008, board meeting, instead giving a general denial of all claims.

Huitink suggested the omission could have been made for strategic reasons.

Counsel for the plaintiff objected, stating that Midwest improperly tried to get the earlier interview summary statements admitted into evidence, which had been deemed inadmissible before trial.

In sustaining the objection of Stone’s counsel, the court berated G&K counsel for “not just crossing the line, but going a hundred miles beyond the line” because G&K had chosen “not to give to [Stone], the information it had relative to the charges against him.”

The trial continued to a jury verdict, and Stone was awarded $405,000 due to Midwest’s breach of its duty of good faith and fair dealing. A month after the primary trial was over, Judge Dennis Flynn sua sponte brought up attorney sanctions during post-trial motions, with no notice to G&K attorneys.

In supporting its decision to require G&K to pay all of Stone’s legal fees and costs, Flynn essentially said that the advice of G&K was directly responsible for the jury finding of bad faith.

“It was Midwest acting through its legal agent, Godfrey & Kahn, that acted unfairly and in true bad faith,” Flynn wrote. “If ever in the history of Wisconsin, there was a bad faith case, this is the bad faith case.”

On appeal for Writ of Prohibition, G&K claimed Flynn had overstepped his boundaries, and that the court’s broad inherent powers to allow the courts to properly function did not here extend to sanctioning advice given before litigation.

The appellate court acknowledged that trial courts in Wisconsin have “broad inherent powers” to enable them to function as courts, citing State v. Cannon, 196 Wis. 534.

However, Wisconsin has a well-established test as stated in Henley, the court elaborated, that asks whether “such power is necessary to the functioning of the court.”

In this case, the appellate court could find no legal authority that supported a trial judge’s ability to impose sanctions on pre-litigation advice given to a client, dismissing the contention that the sanctions were for “disruptive” G&K court tactics during the trial.

The transcript of the trial court’s ruling imposing sanctions “never mentioned Godfrey & Kahn’s trial strategy or trial conduct at any time,” the court explained. “When justifying its sanctions, the trial court focused exclusively on … Godfrey & Kahn’s pre-litigation legal advice to Midwest.”

The appellate court did not reach the question whether pre-litigation advice by a law firm could ever be sanctionable.