No punitives or attorney fees despite infringement

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A Nov. 1 decision from the Wisconsin Court of Appeals is a must-read for both litigators and attorneys drafting asset purchase agreements containing noncompete clauses.

In the late 1970s, Donald Anderson started a business installing piers and boatlifts in Waunakee. He named the business D.L. Anderson Co., and operated under that name, as well as under the name D.L. Anderson Marine Contractors. The business grew to offer a range of services and products, including marine contracting, shoreline restoration, rip rapping (dumping crushed rock on the shoreline), landscaping, manufacture, sales and service of marine accessories, docks, piers, lifts and hoists.

In 2000, Anderson sold the business to M. Scott Statz and Steven Statz, pursuant to an asset purchase agreement. Included in the sale was the tradename D.L. Anderson Co.

The agreement also contained a noncompete clause, which provided that for a period of seven years, within a radius of 120 miles of the city of Waunakee, Anderson would not permit his name to be used by any business in competition with the pier and lift business as carried on by the buyer, nor would he engage in such a business.

The purchase price of $891,000 was allocated as follows: $400,000 for the noncompete clause, $200,000 for goodwill, $200,000 for equipment, and the remainder for inventory. The Statzes operated the business under the name D.L. Anderson Co.

What's in a Name?

Anderson then took a job with a Minnesota-based manufacturer and distributor of piers and boatlifts, which distributes its products throughout Wisconsin. Anderson also formed another business, Anderson Marine, LLC.

The Statzes then filed suit against Anderson, alleging that Anderson violated the noncompete clause and the tradename rights they had purchased.

The jury found that Anderson had breached the noncompete clause and awarded $15,000 in compensatory damages. It also found that Anderson committed tradename infringement and awarded $75,000 in compensatory damages. The jury further awarded $180,000 in punitive damages on the tradename infringement claim.

Dane County Circuit Court Judge Shelley J. Gaylord entered a judgment on the verdict, ordered an extension of the noncompete clause, granted injunctive relief on both claims, and awarded the Statzes $118,435 in attorney fees, pursuant to an attorney fee provision in the asset purchase agreement.

Anderson appealed, and, in a decision by Judge Margaret J. Vergeront, the court of appeals affirmed in part, and reversed in part.

Breach of Noncompete Clause

The court affirmed the finding that Anderson breached the noncompete clause, because both his duties with his new employer, and his own new business, competed with the Statzes. The court further affirmed the jury's finding that $15,000 reasonably approximated the Statzes damages, and the circuit court's extension of the noncompete clause.

The court next held that the evidence supported the Statzes' claim of tradename infringement. The court found that the name "Anderson" was associated with marine business in the Waunakee area, and Anderson admitted that he chose the name "Anderson" for his new business because he knew it would be a familiar name.

Turning to damages, however, the court concluded that the Statzes failed to prove any compensatory damages from the tradename infringement. Thus, they were only entitled to injunctive relief, not monetary relief. The court therefore reversed the jury's award of $75,000 in compensatory damages on this claim.

In addition, because the evidence was insufficient to support compensatory damages, the court also reversed the award of punitive damages, citing Tucker v. Marcus, 142 Wis. 2d 425, 418 N.W.2d 818 (1988).

On the issue of the breadth of the injunctive relief, the court affirmed, with one exception.

The circuit court's injunction contained no geographic restriction, so the court directed that, on remand, the injunction be modified to include the same 120-mile radius from Waunakee that the noncompete clause contained.

The court also reduced the amount of attorney fees that the circuit court had awarded.

Limited Attorneys Fees

The purchase agreement provided, "In any action concerning this Agreement, the party obtaining the monetary judgment, after all offsets, shall also be entitled to recover reasonable attorney fees and costs."

The court concluded that the Statzes could not recover any attorney fees on the tradename claim pursuant to this provision, because they did not recover a monetary judgment on that claim.

Hunzinger Const. Co. v. Granite Resources, 196 Wis. 2d 327, 340, 538 N.W.2d 804 (Ct. App. 1995), provides that a party is not entitled to attorney fees based on a contractual provision unless the language clearly and unambiguously provides for them.

The language in the contract only allowed for attorney fees for the party "obtaining the monetary judgment."

The court thus held, "We have concluded that the Statzes are not entitled to a monetary judgment on the tradename claim. Therefore the contract does not clearly and unambiguously provide for the recovery of attorney fees on the tradename claim."

Analysis

Attorneys drafting asset purchase agreements for sellers can easily avoid one unfortunate aspect of this decision for their own clients — the reduction of attorney fees.

The clause providing for attorney fees can simply be changed so that reasonable attorney fees and costs are recoverable by a party obtaining either a monetary judgment or injunctive relief.

Two other problematic aspects of this opinion cannot be avoided merely by careful drafting, but will require review and reversal in the Wisconsin Supreme Court.

The first is the court's holding that, absent compensatory damage for tradename infringement, plaintiffs cannot recover punitive damages.

The court of appeals' discussion of this issue consists of but one sentence, and one citation, Tucker v. Marcus, 142 Wis.2d 425, 438-39, 418 N.W.2d 818 (1988).

The court fails to even cite the most recent Supreme Court case on the issue, Jacque v. Steenberg Homes, Inc., 209 Wis.2d 605, 563 N.W.2d 154, 158 (1997). In Jacque, the jury awarded nominal damages only for an intentional trespass, and $100,000 in punitive damages.

The Supreme Court in Jacque acknowledged that Tucker states the "general rule of punitive damages in Wisconsin." Id. Nevertheless, it created an exception to the general rule for intentional trespass, and affirmed the award of punitive damages, despite the absence of any actual damages.

Arguably, Jacque is limited to actions for intentional trespass; however, the reasoning suggests it applies to all intentional torts. Id., at 161.If the reasoning of Jacque applies to all intentional torts, it could also be easily extended to common law trade name infringement.

Whether trade name infringement should, or should not, be an exception to the general rule is beyond the scope of this analysis, but the issue is definitely worthy of certiorari.

A second debatable holding of the court is that the Statzes cannot recover any attorney fees for their trade name infringement claim, because they recovered no monetary damages on that claim (
even assuming the court is correct in its holding that the Statzes cannot recover punitive damages).

The agreement provides "In any action concerning this Agreement, the party obtaining the monetary judgment, after all offsets, shall also be entitled to recover reasonable attorney fees and costs."

The court held that, because the Statzes did not recover monetary damages on the trade name claim, they cannot recover attorney fees on the trade name claim.

Arguably, the court has confused the concepts of "action" and "cause of action."

The trade name infringement claim is a "cause of action"; on that "cause of action," the Statzes failed to recover "monetary damages." However, the lawsuit as a whole is an "action," and the Statzes did recover "the monetary judgment" in that "action."
Giving "action" its usual meaning of "lawsuit," rather than "cause of action" or "claim," as the court of appeals gave it in this case, the purchase agreement as written does allow for the recovery of all reasonable attorney fees and costs.

Furthermore, by including the phrase, "after all offsets," the language of the clause contemplates the possibility that a party may not recover on every claim, while still providing for full reasonable attorney fees and costs.

So, whether the language of this agreement allows for all reasonable attorney fees in an action, even if the plaintiff does not recover on all claims, is another issue worthy of review in the Supreme Court.