Park Bank v. Westburg
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Defendants executed guaranty contracts in order to secure financing to run their business operations. Bank subsequently commenced foreclosure proceedings on the business. Afterwards, Bank commenced an action against Defendants seeking payment under the guaranty contracts. Defendants, in response, alleged several counterclaims and affirmative defenses. Bank filed a motion for summary judgment, arguing that Defendants' counterclaims and affirmative defenses were derivative of the corporation, and therefore Defendants lacked standing to raise them. Bank also asserted that Defendants' affirmative defenses were barred because they were subject to claim preclusion. The circuit court ultimately granted summary judgment to Bank. The court of appeals affirmed, concluding that Defendants' counterclaims and affirmative defenses were derivative and that they lacked standing to raise them in this action. The Supreme Court affirmed, holding (1) Bank was entitled to summary judgment dismissing all of Defendants' counterclaims, as each of the counterclaims was derivative; (2) Defendants' affirmative defenses did not defeat Bank's demand under the guaranties for payment; and (3) the circuit court correctly granted summary judgment to Bank because Defendants failed to raise any genuine issue of material fact showing payment was not due.
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2013 WI 57 SUPREME COURT CASE NO.: COMPLETE TITLE: OF WISCONSIN 2010AP3158 Park Bank, Plaintiff-Respondent, v. Roger E. Westburg and Sandra L. Westburg, Defendants-Appellants-Petitioners. REVIEW OF A DECISION BY THE COURT OF APPEALS 340 Wis. 2d 497, 812 N.W.2d 539 (Ct. App. 2012 Unpublished) OPINION FILED: SUBMITTED ON BRIEFS: ORAL ARGUMENT: July 3, 2013 January 10, 2013 SOURCE OF APPEAL: COURT: COUNTY: JUDGE: Circuit Walworth John R. Race JUSTICES: CONCURRED: ROGGENSACK, ZIEGLER, GABLEMAN, JJJ., concur. (Opinion filed.) DISSENTED: NOT PARTICIPATING: ATTORNEYS: For briefs the defendants-appellants-petitioners, by Mark Sostarich, Elkhorn, and oral there argument were by Mr. Sostarich. For the plaintiff-respondent, there was a brief by Michael T. Hopkins, and Hopkins McCarthy LLC, Milwaukee, and oral argument by Mr. Hopkins. An amicus curiae brief was filed by John E. Knight and Kirsten E. Spira, and Boardman and Clark, LLP, Madison, on behalf of the Wisconsin Bankers Association. Oral argument by Mr. Knight. 2013 WI 57 NOTICE This opinion is subject to further editing and modification. The final version will appear in the bound volume of the official reports. No. 2010AP3158 (L.C. No. 2007CV1028) STATE OF WISCONSIN : IN SUPREME COURT Park Bank, Plaintiff-Respondent, FILED v. JUL 3, 2013 Roger E. Westburg and Sandra L. Westburg, Defendants-Appellants-Petitioners. Diane M. Fremgen Clerk of Supreme Court REVIEW of a decision of the Court of Appeals. ¶1 ANN WALSH BRADLEY, J. The Affirmed. petitioners, Roger E. Westburg and Sandra L. Westburg (collectively, the Westburgs), seek review of an unpublished decision of the court of appeals affirming the circuit court's grant of summary judgment to Park Bank.1 Park Bank commenced an action against the Westburgs seeking payment under two guaranty contracts and the Westburgs alleged several counterclaims and affirmative defenses in response. 1 Park Bank v. Westburg, No. 2010AP3158, unpublished slip op. (Ct. App. Feb. 8, 2012), affirming the circuit court for Walworth County, John R. Race, J., presiding. No. ¶2 2010AP3158 Park Bank argues that the alleged counterclaims are derivative of the corporation. Therefore, as guarantors of payment, the Westburgs have no standing in this action to allege counterclaims that are derivative. Further, Park Bank asserts that the Westburgs' affirmative defenses are barred because they are subject to claim preclusion. ¶3 We conclude that Park Bank is entitled to summary judgment dismissing all of the Westburgs' counterclaims. With the Park exception of their claim of injuries arising from Bank's denial of access to their personal account, each of the Westburgs' counterclaims is derivative. Because each is derivative, the Westburgs have no standing to raise them given that they appear in this action as guarantors. Even if the Westburgs' remaining claim of injuries arising from Park Bank's denial of access to their personal account would be determined to be a direct claim, summary judgment dismissing the claim is appropriate because their alleged damages do not arise from Park Bank's denial of access. ¶4 We need not address whether claim preclusion bars the Westburgs' affirmative defenses because we determine that the affirmative defenses do not defeat Park Bank's demand under the guaranties for payment. ¶5 facie Finally, we conclude that Park Bank has made a prima case for summary judgment on its claims for payment. Because the Westburgs have failed to raise any genuine issue of material fact showing that payment is not due or that any debtor was not the subject of an insolvency proceeding, the circuit 2 No. court correctly granted summary judgment to 2010AP3158 Park Bank. Accordingly, we affirm the court of appeals. I ¶6 This "Continuing case is Guaranty an action seeking (Unlimited)" executed by the Westburgs. payment contracts (the under two guaranties) In 2005, the Westburgs decided to start a manufacturing business specializing in the manufacture of retail fixtures and point-of-purchase advertising displays. They found a failing woodcraft business located in Walworth, Wisconsin that had woodworking equipment and other assets necessary for their new business. ¶7 The business' Westburgs operations created and two assets. entities Zaddo, to the (Zaddo) Inc. house was created to run the business operations, while Zaddo Holdings, LLC (Zaddo Holdings) was created for the purpose of holding title to real estate. ¶8 In order to fund the purchase of the failing woodcraft business, the Westburgs sought financing from Park Bank. secure the guaranties needed that financing, are at the issue Westburgs in this executed case. One To the two of the guaranties guaranteed payment of Zaddo Holdings' debts to Park Bank and the other guaranteed payment of Zaddo's debts to Park Bank. The guaranties are otherwise identical in the obligations imposed upon the Westburgs. ¶9 Each of the guaranties provides that the Westburgs "jointly and severally guarantee[] payment of the Obligations defined below when due or, to the extent not prohibited by law, 3 No. 2010AP3158 at the time any Debtor becomes the subject of bankruptcy or other insolvency proceedings." The term "Obligations" under the guaranties is defined as "all loans . . . and all other debts, obligations and liabilities of every kind and description. . . ." ¶10 The guaranties security interest and additionally lien in any Westburgs might have with Park Bank. grant deposit to Park account" Bank that "a the Under the guaranties, Park Bank may "after the occurrence of an event of default" set-off any unpaid amounts owed "against any deposit balances . . . or other money now or hereafter owed [the Westburgs] by [Park Bank]." ¶11 Park Bank took a mortgage on the Westburgs' home in Illinois as a part of the financing process but subsequently released 2005. the mortgage when the Westburgs sold their home in Park Bank required the Westburgs to deposit the proceeds from the sale of the home into an account with Park Bank and it took a security interest in that account as collateral for the business loans. The proceeds from the sale of the home were in excess of $600,000. ¶12 The Westburgs utilized the funds in the account for several purposes. They withdrew $227,668.12 from the account in order to pay down a portion of the business' real estate loan, which they allege caused interest in the account. Westburgs used the Park Bank to release its security The record also indicates that the account for their daily living expenses because they did not, at least as of August 30, 2006, draw a 4 No. salary from Zaddo. source of funds 2010AP3158 The account represented the Westburgs' sole since all of their other assets had been invested in Zaddo and Zaddo Holdings. ¶13 In 2006, the business relationship between Park Bank, Zaddo, Zaddo Holdings, and the Westburgs began to fall apart. By the spring of 2006, Park Bank argued that Zaddo had defaulted on its loans. In response, the Westburgs asserted that the loans were never in monetary default. ¶14 as As a result of Zaddo's alleged default, the Westburgs, guarantors and on behalf of Zaddo and Zaddo Holdings, executed a "Forbearance Agreement" with Park Bank that was dated May 11, 2006. them into The Westburgs allege that Park Bank pressured signing the forbearance agreement without adequate time to review it and without an opportunity to have an attorney review it. ¶15 In the forbearance agreement, the parties agreed that Zaddo's loans were in default, but Park Bank agreed to forbear taking any further action on the loans until September 30, 2006. In return, the parties agreed that Zaddo would meet certain conditions related to its profitability and to staying current on its loan obligations. Additionally, Zaddo was required to furnish certain financial information to Park Bank on a regular basis and was to comply with its outstanding loan obligations to Park Bank and other third-party creditors. ¶16 terms of According to Park Bank, Zaddo was unable to meet the the forbearance agreement. Zaddo's alleged non- performance prompted a meeting between the Westburgs and Park 5 No. 2010AP3158 Bank on August 30, 2006. At that meeting, Park Bank informed the was Westburgs that it prepared to petition for receivership if Zaddo did not petition for one voluntarily.2 a The Westburgs argued against petitioning for a receivership. ¶17 Westburg During a break attempted to in the withdraw personal account with Park Bank. August money 30 from meeting, the Roger Westburgs' He discovered that Park Bank had put a hold on the account and would not allow him access to it. ¶18 Roger Westburg returned to the meeting and demanded access to the personal account. When the Westburgs advanced that Park Bank had no right to freeze their account, Park Bank responded that it was entitled to the entire account. ¶19 The Westburgs allege that Park Bank said it would release the hold on the account only if the Westburgs agreed to Park Bank's demand that Zaddo enter a receivership. As a result, the Westburgs agreed that Zaddo would petition for a receivership under what they described as "extreme duress." ¶20 Shortly after the August 30, 2006 meeting, the Westburgs executed a "Cooperation Agreement" with Park Bank in which Park Bank agreed to allow them access to the funds in the 2 Under Chapter 128 of the Wisconsin Statutes, a court may "sequestrate the property of a debtor and appoint a receiver" under certain conditions. Wis. Stat. § 128.08(1) (2009-10). One such condition is when a corporation "has been dissolved or is insolvent or is in imminent danger of insolvency or has forfeited its corporate rights." Id. A creditor may petition for the appointment of a receiver. Id. 6 No. personal account. September 6, The 2006, Cooperation restoring Agreement the was Westburgs' 2010AP3158 executed access to on the personal account. ¶21 Zaddo later filed a petition for a receivership and a receiver was appointed. During the receivership, Zaddo's assets were liquidated and the receiver made payments to Park Bank. The Westburgs did not receive a complete breakdown regarding how Park Bank applied different funds from assets that were liquidated by the receiver. ¶22 Park Bank then commenced a foreclosure action against Zaddo Holdings on October 19, 2006. default judgment against Zaddo The circuit court granted a Holdings, and the foreclosed property was sold at a sheriff's sale. ¶23 This action against the Westburgs seeking payment under the guaranties was commenced by Park Bank following the receivership and foreclosure proceedings. In its complaint, Park Bank alleged that when the payments from the receiver were applied, the Westburgs owed Park Bank $681,852.05 plus interest on the Zaddo guaranty. Additionally, it alleged that the Westburgs owed Park Bank $698,718.17 plus interest on the Zaddo Holdings guaranty. ¶24 As grounds for collection under the Zaddo guaranty, Park Bank alleged that Zaddo was in default on its loans for failure to make the required payments. contended that obligations Zaddo's under the receivership Zaddo Additionally, Park Bank triggered guaranty. the Regarding Westburgs' the Zaddo Holdings guaranty, Park Bank likewise alleged "payment default" 7 No. and that the Zaddo receivership triggered the 2010AP3158 Westburgs' obligation to pay. ¶25 In their answer, the counterclaims against Park Bank. a breach of fiduciary duty. Westburgs asserted several One such counterclaim alleged In that counterclaim, the Westburgs maintained that Park Bank had wrongly denied them access to the funds in their personal account. They also alleged that Park Bank forced Zaddo into an unnecessary receivership along with several other breaches of fiduciary duty based upon Park Bank's conduct toward Zaddo and Zaddo Holdings. ¶26 In a counterclaim for breach of contract, the Westburgs further alleged that Park Bank breached its duty of good faith personal and account fair and dealing when authorized its it froze the release Westburgs agreed to Park Bank's demands. Westburgs' only when the As with their breach of fiduciary duty counterclaim, the Westburgs asserted that Park Bank breached its duty of good faith and fair dealing by forcing Zaddo into a receivership and taking other allegedly unlawful actions toward Zaddo in its business dealings. Additionally, the Westburgs alleged several other counterclaims including a counterclaim for declaratory judgment and injunctive relief, a counterclaim of negligence, and a counterclaim that Park Bank breached a duty to disclose. ¶27 Although the Westburgs' answer did not specify the damages they sought for each counterclaim, they later filed an itemized list of damages. They sought damages for the loss of their personal investment and loans to Zaddo and Zaddo Holdings, 8 No. 2010AP3158 liability resulting from their personal guaranties of Zaddo's debt to third-party vendors, and for liability stemming from their personal Furthermore, guaranties the of Zaddo's Westburgs corporate claimed credit damages cards. based upon unreimbursed expenses that they incurred on behalf of Zaddo and Zaddo Holdings on their personal credit cards and liability stemming from their personal guaranty of sales commissions owed by Zaddo. Finally, they sought damages employment benefits from Zaddo guaranties of loan obligations other and for for lost wages liability under a and on their separate Small Business Administration loan to Zaddo. ¶28 The defenses, including Westburgs' claim Westburgs additionally affirmative an pled defense counterclaims; upon which relief a failure can be by several incorporating Park granted; affirmative Bank that to Park the state a Bank was estopped from asserting its claims by its own conduct; that Park Bank breached its contracts with Zaddo, Zaddo Holdings, and the Westburgs; that unenforceable the having forbearance been obtained agreement under is duress; void that and the doctrine of laches barred Park Bank's claims; that Park Bank's claims were barred by an insufficient service of process; that Park Bank failed to mitigate damages; and that Park Bank failed to properly marshal assets and remedies. ¶29 had made Park Bank moved for summary judgment, arguing that it a obligations prima facie under the case with guaranties regard and to that the Westburgs' the Westburgs' counterclaims and affirmative defenses should be dismissed. 9 The No. 2010AP3158 circuit court denied the motion at a hearing, reasoning that disputes of material fact precluded the entry of summary judgment. The circuit court indicated that it would address the Westburgs' counterclaims and affirmative defenses at motion for a later date. ¶30 Park judgment, Bank arguing later because they are derivative and the Westburgs lack standing to raise them. The second dismissed court motion. For each counterclaim, the circuit court concluded that Westburgs a be circuit the held must Westburgs' summary and defenses the its counterclaims affirmative that renewed alleged an hearing action to that address Park belonged to Bank's Zaddo. However, the circuit court did not grant summary judgment on the Westburgs' counterclaim for injunctive and declaratory relief in its entirety, but instead dismissed it to the extent that it purported to claim injunctive or declaratory relief on behalf of Zaddo. With regard to the remainder of the counterclaims, the circuit court granted summary judgment. ¶31 Turning to the Westburgs' affirmative defenses, the circuit court determined that they could "only present defenses available to themselves." The circuit analyze each affirmative defense in turn. court proceeded to It granted summary judgment to Park Bank on the Westburgs' affirmative defenses of a failure to state a claim, laches, insufficiency of process, and failure to marshal assets, concluding that the evidence did not support those defenses. 10 No. ¶32 As for the remainder of the Westburgs' 2010AP3158 affirmative defenses, the circuit court determined that if the Westburgs could raise defenses that Zaddo could have raised as a matter of law, then summary judgment would not be warranted. court canceled the previously-scheduled trial The circuit and ordered further briefing from the parties for the purpose of determining whether summary judgment was appropriate on any of the remaining affirmative defenses. ¶33 circuit After additional briefing and at a third hearing, the court Westburgs from concluded asserting that any claim preclusion defenses which prevented might raised in the Zaddo Holdings foreclosure action. have the been However, with regard to the remainder of the Westburgs' affirmative defenses, the circuit court reasoned that the Westburgs could assert defenses that otherwise could have been raised by Zaddo or Zaddo Holdings and denied summary judgment. ¶34 Prior to trial, the case was assigned to another judge due to judicial rotation. The parties again began to dispute the issues remaining for trial. The circuit court permitted summary judgment briefing and, in a written decision, granted summary judgment to Park Bank on all issues. It concluded that although the "path to this point is convoluted," Park Bank had made a prima facie case for summary judgment. Additionally, the circuit court concluded that the affirmative defenses asserted by the Westburgs did not raise any issue of material fact. ¶35 The Westburgs appealed affirmed the circuit court. and the court of appeals Stating that all of the Westburgs' 11 No. 2010AP3158 claims "arise out of the alleged injury to Zaddo," the court of appeals determined that the Westburgs "raise defenses and claims involving alleged Holdings." harm and damage to Zaddo and/or Zaddo Therefore, the court of appeals concluded that the Westburgs' counterclaims and affirmative defenses are derivative and that they lack standing to raise them in this action. II ¶36 In this case, we are called upon to review the circuit court's grant of summary judgment to Park Bank. We review the grant of summary judgment independently of the determinations rendered by the circuit court and the court of appeals, but we apply the same methodology as the circuit court. Farms v. Kersten, (1987). genuine Summary dispute 136 Wis. judgment of 2d is material 304, 315-17, appropriate fact and entitled to judgment as a matter of law. 401 where the Green Spring N.W.2d there moving 816 is no party is Wis. Stat. § 802.08(2) (2009-10).3 ¶37 Westburgs, The as counterclaims. first issue raised guarantors, lack on review standing is to whether raise the their In addressing this issue, we also must examine the nature of the counterclaims to determine whether they are derivative of the corporation. Issues of standing and determinations of whether a counterclaim is derivative present questions of law that we review 3 independently of the All subsequent references to the Wisconsin Statutes refer to the 2009-10 version unless otherwise indicated. 12 No. 2010AP3158 determinations of the circuit court and the court of appeals. Krier v. Vilione, 2009 WI 45, ¶14, 317 Wis. 2d 288, 766 N.W.2d 517. ¶38 The second issue we address is whether the Westburgs' affirmative defenses defeat Park Bank's claims for payment under the guaranties. Whether an affirmative defense defeats a demand for payment under a guaranty contract requires construction of the guaranty contract, which presents a question of law that we review independently of the determinations circuit court and the court of appeals.4 rendered by the Crown Life Ins. Co. v. LaBonte, 111 Wis. 2d 26, 32, 330 N.W.2d 201 (1983). III ¶39 We begin counterclaims. our Park analysis Bank argues by addressing that the the Westburgs' Westburgs have no standing to allege counterclaims that are derivative because as guarantors they may not raise claims that are derivative of the corporation. It contends that the Westburgs' counterclaims are derivative in nature. 4 The Westburgs also challenge the court of appeals' conclusion that claim preclusion bars them from asserting their affirmative defenses. We do not address their argument, and thus do not affirm the reasoning of the court of appeals, because we conclude that the circuit court properly granted summary judgment to Park Bank on other grounds. Furthermore, the Westburgs argue that Park Bank cannot rely on what they argue are unpled allegations in a motion for summary judgment and in motions in limine. We likewise do not address that argument. 13 No. ¶40 In a derivative action, a shareholder 2010AP3158 "assumes the mantle of the corporation itself to right wrongs committed by those temporarily in control" of the corporation. Magnuson, 1 Shareholder Litigation § 9:1 (2012). Roger J. The purpose of a shareholder derivative action is "'to prevent injustice to the corporation by allowing interests, when action.'"5 Ewer v. Lake Arrowhead Ass'n, Inc., 2012 WI App 64, the shareholders directors refuse to to enforce corporate take corrective ¶42, 342 Wis. 2d 194, 817 N.W.2d 465 (quoting 13 William Meade Fletcher, Fletcher Cyclopedia of the Law of Corporations, § 5949 (2004)).6 5 The Westburgs in their briefing refer to themselves as "shareholders-guarantors," a label that reflects two of their several roles as business owners. In addition to being the sole shareholders of Zaddo and the sole members of Zaddo Holdings, the Westburgs are also the officers in charge of each business entity. However, as explained in ¶¶45-56, infra, the Westburgs appear in this action solely as guarantors, not in their capacities as officers, members, or shareholders. 6 In contrast, a direct action is an action seeking a judgment awarding damages to the plaintiff individually due to injuries that the plaintiff individually suffered. Read v. Read, 205 Wis. 2d 558, 569-70, 556 N.W.2d 768 (Ct. App. 1996). In a direct action the complaining plaintiff individually recovers damages. Roger J. Magnuson, 1 Shareholder Litigation, § 9:1 (2012). 14 No. ¶41 2010AP3158 In a shareholder derivative action, the claims belong to the corporation, not to the complaining individual.7 Einhorn v. Culea, 2000 WI 65, ¶16, 235 Wis. 2d 646, 612 N.W.2d 78. Generally, a derivative claim is one that "a corporation could bring because the corporation's assets are affected." Borne v. Gonstead Advanced Techniques, Inc., 2003 WI App 135, ¶15, 266 Wis. 2d 253, 667 N.W.2d 709. ¶42 In Rose v. Schantz, 56 Wis. 2d 222, 201 N.W.2d 593 (1972), this court set forth the general framework to evaluate whether a claim is direct, derivative, or both. "[r]ights of corporation, action accruing to and an action at a law corporation or in Under Rose, the belong equity, to the cannot be maintained" by the complaining individual in a direct action. Id. at 229 (quoting Marshfield Clinic v. Doege, 269 Wis. 519, 526, 69 N.W.2d 558 (1955)). The focus of the inquiry is "[w]hose right is sought to be enforced" by the individual's direct action. Id. 7 Shareholder derivative actions often involve minority shareholders seeking to remedy alleged mismanagement or malfeasance by officers or directors of a corporation. See, e.g., Read, 205 Wis. 2d at 569 (alleging controlling directors mismanaged a corporation); Notz v. Everett Smith Group, Ltd., 2009 WI 30, ¶23, 316 Wis. 2d 640, 764 N.W.2d 904 (determining that a breach of fiduciary duty claim is derivative based on a lost corporate opportunity). However, shareholder derivative actions may also arise where officers or directors have not injured the corporation but instead refuse to adequately advance the corporation's interests. See Ewer v. Lake Arrowhead Ass'n, Inc., 2012 WI App 64, ¶42, 342 Wis. 2d 194, 817 N.W.2d 465 (quoting 13 William Meade Fletcher, Fletcher Cyclopedia of the Law of Corporations, § 5949 (2004)). 15 No. ¶43 2010AP3158 The Rose court determined that where the injury to the corporation is the primary injury and any injury to a shareholder is secondary, the shareholder may not bring a direct action, and is instead limited to commencing a derivative action: That such primary and direct injury to a corporation may have a subsequent impact on the value of the stockholders' shares is clear, but that is not enough to create a right to bring a direct, rather than derivative, action. Where the injury to the corporation is the primary injury, and any injury to stockholders secondary, it is the derivative action alone that can be brought and maintained. That is the general rule, and, if it were to be abandoned, there would be no reason left for the concept of derivative actions for the redress of wrongs to a corporation. Id. at 229-30. Thus, where an individual's injury results from the corporation's injury, the resulting claim is derivative and the action. individual lacks standing to raise it in a direct See also Notz v. Everett Smith Group, Ltd., 2009 WI 30, ¶20, 316 Wis. 2d 640, 764 N.W.2d 904. ¶44 same Although the Rose court did not address whether the course of conduct may give rise to both direct and derivative claims, it is well established that where the injury and damages are independent, both a direct action shareholder derivative action may be commenced. and a An individual "may sue to redress direct injuries to him or herself regardless of whether the same violation injured the corporation." William Meade Fletcher, Fletcher Cyclopedia Corporations, § 5911 (perm.ed., rev.vol.2009). of the Law 12B of Case law further indicates that in a direct action the individual may not claim 16 No. damages sustained by the corporation or damages corporation could have sought in its own capacity. Professional (concluding Men's Ass'n, that a 405 direct F.2d claim 659, 663 existed that the Buschmann v. (7th where 2010AP3158 Cir. 1969) the plaintiff sought damages "which he sustained individually" that were not sustained by the corporation and could not have been asserted by the corporation in its own right). ¶45 However, examining the differences between direct claims, derivative claims, or claims that are both direct and derivative does not fully resolve our inquiry into whether the Westburgs as guarantors counterclaims. have standing to raise derivative Whether a guarantor may raise derivative claims individually in an action seeking payment under a guaranty is a question court of not previously appeals addressed analogized the by Wisconsin present courts. case to The Mid-State Fertilizer Co. v. Exchange Nat'l Bank of Chicago, 877 F.2d 1333 (7th Cir. 1989). It found Mid-State's rationale persuasive, and we likewise agree that it is persuasive. ¶46 also In Mid-State, a bank loaned money to a corporation and obtained shareholders, guaranties Lasley and from Maxine the Kimmel. corporation proceeded to lose money. Id. corporation's Id. at 1334. sole The When the bank stopped making additional advances to the corporation, the corporation was unable to secure additional financing and was liquidated in bankruptcy. Id. The corporation and the Kimmels commenced an action against the bank, alleging several claims which included 17 No. violations of federal banking laws and 2010AP3158 violations of Racketeer Influenced and Corrupt Organizations Act (RICO). ¶47 the Id. The Mid-State court recognized that there are "good reasons . . . for the enduring distinction between direct and derivative injury," even when applied to guarantors. 1335. Id. at To avoid "double counting," courts must either attempt to apportion the recovery according to who bears the effects, or insist that the corporation recover and allow creditors, shareholders, officers, and all others involved in the corporate venture to "share any recovery according to the same rules that govern all receipts." "would be a Id. at 1336. nightmare," and is Divvying up the recovery an unnecessary task when "recovery by the firm handles everything automatically." Id. Additionally, requiring shareholder derivative actions prevents "efforts to divert the debtor's assets-to pay off one set of creditors . . . while keeping the proceeds out of the hands of the firm's other creditors." ¶48 different Rejecting from the Id. premise "shareholders, that creditors, guarantors managers, are any lessors, suppliers, and the like," the Mid-State court determined that guarantors "cannot recover on account of injury done [to] the corporation." Id. It would be "extreme" to allow "anyone who has dealt with a bank as guarantor [to] recover for derivative injuries." Id. Only where a guarantor suffers direct injury, which the Mid-State court emphasized is an "injury independent of the firm's fate," may the guarantor pursue direct remedies. Id. at 1336-37. 18 No. ¶49 (D.C. In Labovitz v. Washington Times Corp., 172 F.3d 897 Cir. Columbia 2010AP3158 1999), Circuit the Court agreed of that Appeals Mid-State for the District presented of persuasive authority for determining whether guarantors have standing to raise derivative claims. In that case, two guarantors of a corporation alleged several claims, which included a claim that the Washington Times Corporation corporation as it had promised.8 fund the corporation obligations. Id. at failed fully Id. at 901-02. allegedly 901-02. to triggered Agreeing the The failure to the with fund guarantors' the Mid-State court's conclusion that guarantors may not advance derivative claims, the Labovitz court determined that the failure to fully fund the corporation was derivative. ¶50 Id. at 903. Both Mid-State and Labovitz recognize that guarantors are treated no differently from creditors in determining whether the guarantor may bring a derivative action. 172 F.3d at 898. 877 F.2d at 1336; Therefore, their conclusions accord with the general principle that "creditors may not maintain a derivative 8 The guarantors in Labovitz were also shareholders, directors, and officers of the corporation that they guaranteed. Labovitz v. Washington Times Corp., 172 F.3d 897, 898 (D.C. Cir. 1999). 19 No. proceeding."9 2010AP3158 13 William Meade Fletcher, Fletcher Cyclopedia of the Law of Corporations, § 5972.20 (2004). ¶51 Accordingly, we conclude standing to raise derivative claims. that a guarantor lacks Having arrived at that 9 The concurrence states that "our decisions...specifically provide that only a shareholder or beneficial owner has standing to bring a derivative claim." Concurring op., ¶83. In support of that premise, the concurrence focuses on Krier v. Vilione, 2009 WI 45, ¶29, 317 Wis. 2d 288, 766 N.W.2d 517 and also references Borne v. Gonstead Advanced Techniques, Inc., 2003 WI App 135, 266 Wis. 2d 253, 667 N.W.2d 709 and Shelstad v. Cook, 77 Wis. 2d 547, 253 N.W.2d 517 (1977). Not one of those cases involved a guarantor. The concurrence is alone in its interpretation. No one in this case, not the circuit court, the court of appeals, the amicus (the Wisconsin Bankers Association) or even the parties, advances the concurrence's interpretation of those cases. Likewise, neither the Wisconsin Bankers Association, the circuit court, the court of appeals, nor Park Bank shares the concurrence's interpretation of Mid-State Fertilizer Co. v. Exchange Nat'l Bank of Chicago, 877 F.2d 1333 (7th Cir. 1989). Park Bank, unpublished slip op. The concurrence asserts that Mid-State "has nothing to do with whether a guarantor has standing to bring a derivative claim" in Wisconsin. Concurring op., ¶88. In stark contrast to the concurrence's interpretation of Mid-State, the Wisconsin Bankers Association advances that the reasoning of Mid-State establishes that in this case, "[t]he guarantors lack standing to raise [derivative] claims and defenses against the bank . . . ." Likewise, the circuit court and the court of appeals disagree with the concurrence's interpretation of Mid-State. Both courts relied on Mid-State in arriving at their conclusions that guarantors lack standing to bring a derivative claim. Finally, Park Bank extensively quoted Mid-State in its brief, arguing that it requires this court to conclude that "the Westburgs [lack] standing to pursue [their] derivative claims." 20 No. 2010AP3158 conclusion, we turn next to evaluate whether the counterclaims alleged by the Westburgs as guarantors are derivative. ¶52 With the exception of their claim that Park Bank unlawfully denied them access to their personal account, each of the Westburgs' counterclaims is derivative. The Westburgs' alleged injuries are secondary to those of Zaddo, arising as a result of Park Bank's conduct toward Zaddo before, during, and after Zaddo entered receivership. by allegedly resulting being injury forced to the Zaddo's alleged injury. into Zaddo was primarily injured receivership Westburgs occurred and as any a alleged result of Under Rose and subsequent case law, those counterclaims are considered derivative. 56 Wis. 2d at 229. ¶53 Furthermore, there is no indication counterclaims are both direct and derivative. that those The Westburgs' injuries, with the exception of Park Bank denying them access to their personal account, arise as a result of Zaddo's injuries, not independently of Zaddo's injuries. Therefore, the Westburgs do not have standing in the context of this action to assert their derivative counterclaims. ¶54 The sole counterclaim alleged by the Westburgs that is arguably direct is the claim that Park Bank unlawfully denied the Westburgs access to their personal account. However, even if the Park Bank unlawfully had denied access to personal account, Park Bank is still entitled to summary judgment on that counterclaim because the Westburgs claim damages based upon their investment losses to Zaddo and not based upon Park Bank's 21 No. denial of access to their personal account.10 2010AP3158 Each and every category of damages claimed by the Westburgs arises from their losses as guarantors, investors, and officers of Zaddo.11 ¶55 The Westburgs were ultimately denied access to their personal account for approximately seven or eight days, from the August 30, 2006 meeting through when the Cooperation Agreement was executed on September 6, 2006. Any damages alleged must arise from a lack of access to the account during that time period. Like the court of appeals, we conclude that none of the alleged damages has any connection with Park Bank denying the 10 The guaranties grant to Park Bank "a security interest and lien in any deposit account" that the Westburgs may have with Park Bank. Under the guaranties, Park Bank may "after the occurrence of an event of default" set-off any unpaid amounts owed "against any deposit balances...or other money now or hereafter owed [the Westburgs] by [Park Bank]." Furthermore, the guaranties in this case provide that the Westburgs have waived "all...legal and equitable surety defenses." Although we need not examine the exact scope of the security interest granted to Park Bank by the guaranties or the Westburgs' waiver of all legal and equitable surety defenses, we observe that those provisions of the guaranties further strengthen our conclusion that they may not raise their counterclaims in this action. 11 The Westburgs claim as damages losses on personal investments to Zaddo, losses resulting from personal guaranties of Zaddo's debt to third-party vendors, losses resulting from Zaddo corporate credit card debts, losses from personally guaranteed sales commissions owed by Zaddo, losses resulting from Zaddo's failure to reimburse their personal credit cards, liability on Small Business Administration loan guaranties of Zaddo, and lost wages and benefits from Zaddo. 22 No. Westburgs access to a personal account from 2010AP3158 August 30, 2006 until September 6, 2006.12 ¶56 The Westburgs in other circumstances may have raised derivative claims as shareholders. However, in derivative order action, requirements. "shareholder to they See or commence must See Wis. Stat. § 180.0741. or comply Wis. Stat. § beneficial owner" to maintain with a shareholder certain 180.0741 commence statutory (allowing or a maintain a shareholder derivative action if the "shareholder or beneficial owner" meets certain conditions); see also Wis. Stat. § 180.0742 (setting forth additional derivative action (requiring a may court to certain circumstances). be limitations commenced); dismiss a for when Wis. a shareholder Stat. derivative § 180.0744 proceeding under No argument is advanced by the parties that the statutory prerequisites for a derivative action were met in this case. Therefore, we conclude that summary judgment dismissing all of the Westburgs' counterclaims is appropriate. IV ¶57 Having addressed the Westburgs' counterclaims, address next the Westburgs' affirmative defenses. Although the 12 In addressing Park Bank's denial of access to personal account, the court of appeals concluded as follows: While the Westburgs may have suffered individual duress when Park Bank denied them access to their personal money market accounts, the Westburgs do not allege any resulting monetary injury because the bank did eventually return the funds. Park Bank, unpublished slip op., ¶17 n.11. 23 we the No. parties primarily address the affirmative defenses 2010AP3158 in their arguments for and against the application of claim preclusion in this case, we do not reach their claim preclusion arguments. Instead, we examine the Westburgs' affirmative defenses to determine whether they defeat Park Bank's demand for payment under the guaranties. ¶58 The guaranties in this case are guaranties of payment. The guaranties provide that payment is required "when due or, to the extent not prohibited by law, at the time any Debtor becomes the subject of bankruptcy or other insolvency proceedings." ¶59 Guaranties guaranties such of payment as guaranties of are different collection. from A other guaranty of payment binds the guarantor to pay the debt according to the terms and conditions of the guaranty. 2d Guaranty § 16 (2012). Jack Levin, 38 Am. Jur. In contrast, a guaranty of collection is a promise that if the principal creditor cannot collect the claim with due diligence, generally following suit against the principal debtor, the guarantor will pay the creditor. ¶60 does not remedies Id. Unlike a guaranty of collection, a guaranty of payment condition against the liability upon the debtor. Id. A creditor creditor exhausting is under no obligation to first seek collection from the principal debtor or any other guarantor under a guaranty of payment. Bank of Sun Prairie v. Opstein, 86 Wis. 2d 669, 677, 273 N.W.2d 279 (1979) (quoting First Wis. Nat'l Bank of Oshkosh v. Kramer, 74 Wis. 2d 207, 211-12, 246 N.W.2d 536 (1976)). The law similarly imposes no duty upon the creditor to notify the guarantor of nonpayment 24 No. of the note by the principal debtor. 2010AP3158 Farmers State Bank v. Hansen, 174 Wis. 100, 103, 182 N.W.2d 944 (1921). ¶61 a This court has recognized that affirmative defenses to guaranty may be obligations imposed limited by in scope depending the guaranty. In on Continental specific Bank & Trust v. Akwa, 58 Wis. 2d 376, 206 N.W.2d 174 (1973), this court acknowledged that some affirmative defenses must be raised in a proceeding seeking payment of the underlying debts rather than by a guarantor guaranty. in a proceeding seeking payment under the In response to an affirmative defense that a bank was not the holder of the underlying debts in an action upon a guaranty under the Uniform Commercial Code, this court stated: While the affirmative defenses, as asserted by the defendants, concerning the possession, transfer and cancellation of the notes, may be fatal to plaintiff's cause of action, if he were proceeding upon the instruments, they are not necessarily fatal to plaintiff's cause of action upon its separate and independent contract of guaranty with the defendants. Id. at 387. full of defense Instead, this court emphasized that satisfaction in the in an underlying action indebtedness upon a generally guaranty. Id. constitutes at 389-90. a A creditor is entitled to "but one performance, and if he receives that, by payment discharged." Id. or at other 389. satisfaction, the Alternatively, [guaranty] release of is the principal debtor from the underlying debt is normally also a defense in a guaranty action because "release of the principal also releases the [guarantor]." Id. at 390. 25 No. ¶62 the 2010AP3158 However, the Akwa court identified two exceptions to defense creditor of releasing releases discharged unless a the the principal principal [debtor], creditor in the debtor: the "[w]here the [guarantor] release reserves is his rights against the [guarantor] or the [guarantor] consents to remain liable notwithstanding the release." Id. at 392. Accordingly, the defenses available to a guarantor are grounded in the specific terms and conditions of the guaranty contract. Id. at 387-90; see also Crown Life Ins. Co. v. LaBonte, 111 Wis. 2d 26, 43, 330 N.W.2d 201 (1983); Lakeshore Commercial Finance Corp. v. Drobac, 107 Wis. 2d 445, 454, 319 N.W.2d 839 (1982).13 ¶63 The Westburgs must therefore assert affirmative defenses that defeat Park Bank's demands for payment under the guaranties in this case. In order to demand payment under the guaranties, Park Bank need show only that payment is due or that any debtor has become the subject of a bankruptcy or insolvency proceeding. Accordingly, the Westburgs' defenses must logically 13 Additional or differing defenses to a guaranty may exist depending on the specific terms and conditions of the guaranty contract. As the Restatement (Third) of Suretyship and Guaranty notes, there is probably no area of guaranty law in which there is less consensus than the law of guaranty defenses. Rules "vary from jurisdiction to jurisdiction, from context to context, and from common law to the Uniform Commercial Code." Restatement (Third) of Suretyship and Guarantee, Ch. 3, Topic 3, Title B, Introductory Note (1995). 26 No. 2010AP3158 address whether payment is due or whether a debtor has become the subject of a bankruptcy or insolvency proceeding.14 ¶64 In pleading their affirmative defenses, the Westburgs do not assert that payment is not due or that Zaddo was not the subject of a bankruptcy or insolvency proceeding. Rather, they assert defenses that address whether Zaddo and Zaddo Holdings are in default on their debts. Park Bank need not re-litigate the previous proceedings in order to demand payment under the guaranties. Instead, it must show only that payment is due or that a debtor was the subject of a bankruptcy or insolvency proceeding. ¶65 An examination of the summary judgment record shows that Park Bank has made the required showing. The Westburgs do not challenge that Zaddo became the subject of an insolvency proceeding when it petitioned for a receivership. Park Bank has additionally set forth in its summary judgment materials the amounts due and payable both from Zaddo and Zaddo Holdings that result from Zaddo entering the insolvency proceeding. ¶66 Therefore, we conclude that the Westburgs' affirmative defenses do not defeat Park Bank's prima facie case for summary 14 The Westburgs' affirmative defenses appear to confuse their responsibilities under the guaranties with Zaddo's defenses to an allegation that it has defaulted upon its debts. The liability of a guarantor arises not from a debt incurred by a debtor, but rather from a separate guaranty contract. Bank Mut. v. S.J. Boyer Const., Inc., 2010 WI 74, ¶53, 326 Wis. 2d 521, 785 N.W.2d 462. A guarantor's liability is "separate and distinct" from the liability of the principal debtor. Id. at 54. 27 No. judgment. Because the Westburgs have failed to 2010AP3158 raise any genuine issue of material fact showing that payment is not due or that Zaddo was not the subject of an insolvency proceeding, the circuit court correctly granted summary judgment to Park Bank. V ¶67 In sum, we conclude that Park Bank is entitled to summary judgment dismissing all of the Westburgs' counterclaims. With the exception of their claim of injuries arising from Park Bank's denial of access to their personal account, each of the Westburgs' counterclaims is derivative. Because the counterclaims are derivative, the Westburgs have no standing to raise them given that they appear in this action as guarantors. Even if the Westburgs' remaining claim of injuries arising from Park Bank's denial of access to their personal account would be determined to be a direct claim, summary judgment dismissing the claim is appropriate because their alleged damages do not arise from Park Bank's denial of access. ¶68 We need not address whether claim preclusion bars the Westburgs' affirmative defenses because we determine that the affirmative defenses do not defeat Park Bank's demand under the guaranties for payment. ¶69 Finally, we conclude that Park Bank has made a prima facie case for summary judgment. Because the Westburgs have failed to raise any genuine issue of material fact showing that payment is not due or that any debtor was not the subject of an insolvency proceeding, the circuit 28 court correctly granted No. summary judgment to Park Bank on its claims 2010AP3158 for payment. Accordingly, we affirm the court of appeals. By the Court. The decision affirmed. 29 of the court of appeals is No. ¶70 2010AP3158.pdr PATIENCE DRAKE ROGGENSACK, J. (concurring). I write separately to point out two fundamental principles: (1) the rights and obligations of guarantors are established by the guaranty contract, under which the guarantor and the creditor for whose benefit the guaranty was given operate; and (2) the majority opinion affirms that only a shareholder or beneficial owner has standing to bring a derivative claim under Wisconsin corporate law.1 ¶71 I agree counterclaims and with the affirmative majority defenses opinion raised that herein, all except one, are derivative and therefore, they cannot be brought in this action. majority However, because in some of its discussion, the opinion could be read erroneously to equate shareholders' rights and obligations with those of guarantors, I do not join the majority opinion, but respectfully concur. I. ¶72 Park Bank's BACKGROUND claims in this action against Roger Westburg and Sandra Westburg (hereinafter, the Westburgs) are based on the continuing guaranties the Westburgs signed on January 28, 2005, for the business loans that Park Bank made to Zaddo, Inc. and Zaddo Holdings.2 The terms of the two guaranties are identical, with the exception of the named debtors. 1 Majority op., ¶¶3, 67. 2 Litigation arising from these business loans has occurred in a Wis. Stat. ch. 128 receivership, in which the assets of Zaddo, Inc. were liquidated, and a foreclosure action, in which the assets of Zaddo Holdings were sold. 1 No. ¶73 of the 2010AP3158.pdr The Westburgs defend against Park Bank's enforcement guaranties by affirmative defenses and counterclaims. With one exception, the affirmative defenses and counterclaims alleged are derivative of underlying injuries to a corporation, which only the corporation standing may raise.3 or a person who has statutory See Rose v. Schantz, 56 Wis. 2d 222, 229, 201 N.W.2d 593 (1972). Although the Westburgs are shareholders who may have had standing to bring derivative claims, they did not follow the statutory requirements to do so; therefore, they cannot raise them in this lawsuit.4 See Read v. Read, 205 Wis. 2d 558, 565, 556 N.W.2d 768 (Ct. App. 1996) (explaining that in order to have standing to bring a derivative claim, a litigant must meet the test set out in Wis. Stat. § 180.0741). ¶74 The one claim for which the Westburgs allege direct injury to them is Park Bank's freezing their personal money- 3 Wisconsin Stat. § 180.0741 provides that a "shareholder or beneficial owner" may have standing to bring derivative claims of damage to a corporation, and then only if the shareholder or beneficial owner meets certain statutory requirements. Wisconsin Stat. § 180.0740(1) defines "beneficial owner" as "a person whose shares are held in a voting trust or held by a nominee on the person's behalf." 4 Wisconsin Stat. § 180.0741 through Wis. Stat. § 180.0744 set out requirements that must be met in order to bring a derivative claim. See Read v. Read, 205 Wis. 2d 558, 565, 556 N.W.2d 768 (Ct. App. 1996). The Westburgs did not meet those statutory requirements and therefore, they cannot raise counterclaims or affirmative defenses that rest on injury to the corporations. 2 No. market account on August 30, 2006.5 2010AP3158.pdr That claim is based on the Westburgs' assertion that the funds in their personal moneymarket account agreement.6 were not subject to any security or credit They allege that freezing that account damaged them because it was their sole source of funds for living expenses, as they were not drawing a salary from Zaddo. The Westburgs alleged that access to their personal account was denied until they agreed to place Zaddo, Inc. into a ch. 128 receivership. On September 7, 2006, the Westburgs placed Zaddo, Inc. into receivership. II. A. ¶75 DISCUSSION Standard of Review Whether the facts alleged in a complaint state a claim for relief that is based on an injury that is primarily to a corporation or whether the claimed injury is primarily a direct injury to another person are questions of law that we review independently. Borne v. Gonstead Advanced Techniques, 2003 WI App 135, ¶10, 266 Wis. 2d 253, 677 N.W.2d 709. scope of contract a guarantor's presents a liability question of 5 under law a also written subject Inc., The guaranty to our The Westburgs allege that their money-market account was frozen "prior to" August 15, 2006. See Counterclaims, ¶34. Park Bank denies this allegation, but admits that it did freeze the account on August 30, 2006. See Reply to Counterclaims, ¶¶34, 38. I have chosen to use the August 30 date because there is agreement that the Westburgs were denied access to their money-market account on August 30, 2006. 6 Counterclaim, ¶48.a. 3 No. independent review. 2010AP3158.pdr See Cont'l Bank & Trust Co. v. Akwa, 58 Wis. 2d 376, 388, 206 N.W.2d 174 (1973). B. ¶76 The Westburgs' Claims When an act that is alleged to have caused injury to a corporation is alleged also to have caused an injury to another person, we must determine whether the alleged injury to the other person is direct or merely derivative of the injury to the corporation. Rose, 56 Wis. 2d at 229. corporation is the primary "Where the injury to the injury, and any injury to stockholders secondary, it is the derivative action alone that can be brought and maintained." Id. Stated otherwise, to raise a direct claim of injury, the right sought to be enforced must be that of the person seeking to enforce it and not dependent on a right of a corporation. ¶77 There are Id. occasions where the separate right of a corporation and the separate right of another person are both wrongfully affected by one act. See Harpole Architects, P.C. v. Barlow, 668 F. Supp. 2d 68, 77-78 (D.C. 2009) (explaining that where conversion by former bookkeeper was an injury to the corporation, bookkeeper's misrepresentation, which was made to hide the conversion of corporate funds, caused a separate injury to Harpole). Claims raised as affirmative defenses are subject to the same analysis of whether the defense belongs primarily to the corporation or is based on a separate and distinct right of the person who is asserting it. ¶78 In the case at hand, I agree with the majority opinion that the only right to which injury is claimed that does not 4 No. 2010AP3158.pdr depend on an underlying injury to a corporation is the temporary freezing of the Westburgs' personal money-market account by Park Bank.7 C. ¶79 and Guaranty Principles The rights and obligations of a guarantor are separate distinct from those of the debtor, as the guarantor's obligations arise from the terms of the guaranty contract. Bank Mut. v. S.J. Boyer Constr., Inc., 2010 WI 74, ¶54, 326 Wis. 2d 521, 785 N.W.2d 462 (explaining that a guarantor's rights and obligations are set by contract). One may guarantee the debts of an individual, as well as the debts of a corporation. The legal and principles that apply to a guarantor's rights obligations are based on the terms of the guaranty contract, not on the nature of the debtor. See McFarland State Bank v. Sherry, 2011 WI App 4, ¶1, 338 Wis. 2d 462, 809 N.W.2d 58. ¶80 Under obligations the under facts the of guaranty this case, contract consideration of their status as shareholders.8 the do Westburgs' not involve Rather, in this action, it is the terms of the guaranty contract upon which the validity of Park Bank's actions and the Westburgs' counterclaims depend. 7 Bank Mut., 326 Wis. 2d 521, ¶54. Majority op., ¶¶54-55. 8 The significant legal question that escapes review under the facts of this case is: whether the Westburgs could have relied on a judgment from a successful derivative claim as a defense to Park Bank's claims under the guaranty contracts. Because the Westburgs did not follow the statutory requirements for bringing a derivative claim, we cannot address this question. 5 No. ¶81 2010AP3158.pdr The guaranty the Westburgs signed is a guaranty of payment.9 Under a guaranty of payment, when the debtor is in default, the creditor is entitled to enforce collection from the guarantor without first seeking collection from other sources. Bank of Sun Prairie v. Opstein, 86 Wis. 2d 669, 677-78, 273 N.W.2d 279 (1979). primary, not defaults. are a Stated otherwise, a guaranty of payment is a collateral, Id. at 678. necessary before promise to pay when the debtor No efforts to collect on other security a creditor payment against a guarantor. may enforce a guaranty of First Wis. Nat'l Bank of Oshkosh v. Kramer, 74 Wis. 2d 207, 212, 246 N.W.2d 536 (1976). ¶82 However, a creditor is not permitted to recover from a guarantor for more than the total debt due. Wis. 2d at 389. Cont'l Bank, 58 Therefore, a guarantor of payment is entitled to an offset from the debt owed by the debtor for the amount that the creditor has obtained from other sources. See McFarland State Bank, 338 Wis. 2d 462, ¶31. ¶83 it The majority opinion imprecisely states the law when combines principles for determining who may bring a derivative claim with the rights and obligations of a guarantor. For example, derivative under a Wisconsin it claims guaranty posits that "Whether individually is courts."10 a in question However, 9 an a guarantor action may seeking raise payment not previously addressed by our decisions, as as well The majority opinion also concludes that the guaranty the Westburgs signed is a guaranty of payment. Majority op., ¶58. 10 Majority op., ¶45. 6 No. 2010AP3158.pdr Wisconsin Statutes, specifically provide that only a shareholder or a beneficial owner has standing to bring a derivative claim. Krier v. Vilione, 2009 WI 45, ¶29, 317 Wis. 2d 288, 766 N.W.2d 517 (explaining that Krier could not sue on behalf of EOG Environmental because Krier was not a shareholder and therefore, "lacks standing" to bring a derivative suit); Borne, 266 Wis. 2d 253, ¶15 (stating that "[t]he failure to plead that one was a registered shareholder requires the dismissal of derivative claims"); Shelstad v. Cook, 77 Wis. 2d 547, 554, 253 N.W.2d 517 (1977) (explaining that "[p]laintiff's special relation to the corporation as a stockholder is intrinsic to the very nature of the [derivative claim] and thus a prerequisite to plaintiff's standing to pursue it"); see also Wis. Stat. § 180.0741. ¶84 Furthermore, when one is either a shareholder or a beneficial owner, a derivative claim may be brought only when the specific requirements set out in the statutes have been met. Read, 205 Wis. 2d at 565; see also Wis. Stat. §§ 180.0741-.0744 (setting out those requirements). Stated otherwise, unless a person or entity has the status of shareholder or beneficial owner, bring Wisconsin derivative Borne, 266 case law claims. Wis. 2d 253, and statutes Krier, 317 ¶15; preclude Wis. 2d Read, 205 standing to 288, ¶¶18, 29; Wis. 2d at 565; Shelstad, 77 Wis. 2d at 554; § 180.0741. ¶85 The majority opinion's use of Mid-State Fertilizer Co. v. Exch. Nat'l Bank of Chi. (Mid-State II), 877 F.2d 1333 (7th Cir. 1989), is interesting and merits comment for a number of reasons. First, in Mid-State 7 II, the corporation that was No. 2010AP3158.pdr alleged to have suffered injury from Exchange National Bank's actions was a plaintiff and therefore, it proceeded on seven counts alleging injury to itself. Mid-State Fertilizer Co. v. Exch. Nat'l Bank of Chi. (Mid-State I), 693 F.Supp. 666, 669 (N.D. Ill. 1988). Second, the non-corporate plaintiffs, Lasley and Maxine Kimmel, sued as both shareholders and as guarantors. Id. at 668. Third, the standing question in Mid-State II turned on federal statutes that comprise the Bank Holding Company Act (BHCA) and the Racketeer Influenced Corrupt Organizations Act (RICO), which accorded standing to "[a]ny person who is injured in his business or property [under the acts]." by reason of anything forbidden Mid-State II, 877 F.2d at 1334-35 (citing 12 U.S.C § 1975 and 18 U.S.C § 1964(c)).11 ¶86 Only direct injuries are sufficient to afford standing to sue under BHCA or RICO. Kimmels were required Id. at 1335. to show a direct Accordingly, the injury; a derivative injury was insufficient to establish federal standing to bring a claim under either BHCA or RICO. ¶87 Id. Therefore, the question presented in Mid-State II was not whether a guarantor could bring a derivative claim. Rather, the question presented in Mid-State II was whether the Kimmels had pled a direct or a derivative injury. 11 Id. at 1335. The The plaintiffs' principal grievances were controlled by Illinois law. Mid-State Fertilizer Co. v. Exch. Nat'l Bank of Chi. (Mid-State II), 877 F.2d 1333, 1334 (7th Cir. 1989). The court addressed the standing question to determine whether there was federal jurisdiction for the pendent state law claims. Id. at 1334-35. 8 No. 2010AP3158.pdr court reasoned that shareholders' and guarantors' injuries were derivative because "[s]uits by shareholders, guarantors, and the like may well be efforts to divert the debtor's assets to pay off one set of creditors (here, the Kimmels) while keeping the proceeds out of the hands of the firm's other creditors." Id. at the 1336. Accordingly, because the court concluded that Kimmels pled only derivative injury, they did not have standing to proceed on their federal claims. ¶88 Id. The reasoning in Mid-State II supports a guarantor's standing to proceed on a federal claim under BHCA or RICO if the guarantor can show a direct, rather than a derivative injury. Id. at 1336 ("Guarantors must be treated as creditors. they suffer fate they direct may injury injury pursue their own independent of remedies"). the When firm's Likewise in Wisconsin, if a guarantor has a direct injury, the guarantor owns the claim and may proceed on it.12 However, Mid-State II has nothing to do with whether a guarantor has standing to bring a derivative claim grounded in Wisconsin law. ¶89 claims Wisconsin Statutes limit standing to bring derivative to shareholders and beneficial owners. Krier, 317 Wis. 2d 288, ¶29 (explaining that standing to sue based on a corporate injury requires one to be a shareholder); Borne, 266 Wis. 2d 253, ¶15 (same); Shelstad, 77 Wis. 2d at 554 (same); see also Wis. Stat. § 180.0741. A guarantor cannot bring a derivative claim under Wisconsin law if his sole status is that 12 The Westburgs raise a direct claim against Park Bank in regard to freezing their personal money-market account. 9 No. of a guarantor. 2010AP3158.pdr Krier, 317 Wis. 2d 288, ¶¶18, 29; Borne, 266 Wis. 2d 253, ¶15; Read, 205 Wis. 2d at 565; Shelstad, 77 Wis. 2d at 554; see also Wis. Stat. §§ 180.0741-.0744. ¶90 In Wisconsin, a guarantor's rights and obligations are controlled by the guaranty contract. 521, ¶54. On the other hand, See Bank Mut., 326 Wis. 2d a shareholder's rights are established by the articles of incorporation, the corporate bylaws and the Wisconsin Statutes. A guarantor cannot bring a derivative claim, unless the guarantor is also a shareholder or a beneficial owner. However, it is the status as a shareholder or beneficial owner that is necessary to bringing a derivative claim; being a guarantor is never a sufficient status to bring a derivative claim. ¶91 The majority opinion cites Labovitz v. Washington Times Corp., 172 F.3d 897 (D.C. Cir. 1999), as supporting its contention that "Mid-State presented persuasive authority for determining whether guarantors have standing to raise derivative claims."13 Standing alone, the above quotation from the majority opinion could cause confusion because it could be read to imply that there are occasions when having the status of a guarantor is sufficient corporation. to bring derivative as However, a Mid-State claim II on behalf clearly of a explains, a guarantor needs a direct injury to sue under either BHCA or RICO. in Stated otherwise, even under the federal law considered Mid-State II, the Kimmels, as standing to bring a derivative claim. 13 Majority op., ¶49. 10 guarantors, did not have Mid-State II, 877 F.2d at No. 1335. 2010AP3158.pdr Accordingly, any concern that the quoted language from the majority opinion may be misinterpreted is quelled because the majority opinion cannot bring a repeatedly derivative claim concludes in that guarantor The Wisconsin. a majority opinion explains "[b]ecause each is derivative, the Westburgs have no standing to raise them given that they appear in this action as guarantors."14 I agree with the majority opinion's conclusion that the status of a guarantor is insufficient to bring a derivative claim in Wisconsin. D. ¶92 Park The Westburgs' Direct Counterclaim Bank asserts it had the right to freeze the Westburgs' money-market account under the continuing guaranty; the Westburgs allege Park Bank did not have that right. Both the claim and the defense are founded on the guaranty contract signed by the Westburgs on January 28, 2005. ¶93 Park very broad. Bank's rights under the guaranty contract are First, the guaranty gives particularized notice to the Westburgs that it is a continuing guaranty that includes debt in existence on January 28, 2005, when the guaranty was signed, as well as debt that accrues subsequently. The guaranty provides: You are being asked to guarantee the past, present and future Obligations of Debtor. If Debtor does not pay, you will have to. You may also have to pay collection costs. Lender can collect the Obligations from you without first trying to collect from Debtor or another guarantor. 14 Majority op., ¶3. 11 No. 2010AP3158.pdr Second, the guaranty specifically granted Park Bank rights in regard to the personal money-market account that was frozen from August 30, 2006 to September 7, 2006. In this regard, the guaranty provides: Guarantor grants to Lender a security interest and lien in any deposit account Guarantor may at any time have with Lender. Lender may, at any time after the occurrence of an event of default and notice and opportunity to cure, if required by § 425.105, Wis. Stats.,15 set-off any amount unpaid on the Obligations against any deposit balances Guarantor may at any time have with Lender, or other money now or hereafter owed Guarantor by Lender. . . . This Guaranty is valid and enforceable against Guarantor even though any Obligation is invalid or unenforceable against any Debtor. ¶94 Third, it appears that Park Bank could have taken the entire money-market account if Zaddo, Inc. or Zaddo Holdings were in default of their obligations under the loan documents, rather than simply preventing access to the account as was done from August 30, 2006 until September 7, 2006. 15 However, on the Wisconsin Stat. § 425.105 addresses a merchant's obligation to give notice of default and a right to cure to consumers in consumer credit transactions. The Westburgs do not argue to us that Park Bank is a "merchant" in regard to the continuing guaranty, that the guaranty involved a "consumer credit transaction," or that notice of default is required under law. Accordingly, I do not address § 425.105 further. 12 No. 2010AP3158.pdr documents presented in this review, it is not possible for me to determine whether a default existed on August 30, 2006.16 ¶95 It also is not possible to determine what damages the Westburgs sustained during the period of time when they did not have access to particularize their the personal damages that account, they as allege they not from arose do Park Bank's freezing their account for this period of time. all of the "Defendant's injury to damages they Counterclaimed the list Damages" corporation. Petitioners, pp. 101-02. on See the rest document upon Appendix an of Rather, entitled underlying Appellants- Those damages are derivative of the corporations' injuries and may not be brought here, as I have explained above. ¶96 Because the Westburgs identify no damages that resulted from the temporary freeze of their personal account, I agree with the majority opinion that without a particularized statement of those damages, the 16 Westburgs have not made a The majority opinion is unclear when it says that Park Bank made the required showing for summary judgment, and then links that statement to: "The Westburgs do not challenge that Zaddo became the subject of an insolvency proceeding when it petitioned for a receivership." Majority op., ¶65. First, the receivership is the insolvency proceeding. Second, the Westburgs do point out that the receivership was filed on September 7, 2006, but their personal account was frozen no later than August 30, 2006. Therefore, in regard to the freezing of their money-market account based on the allegation that Zaddo, Inc. was in default, the Westburgs do allege Zaddo was not in an insolvency proceeding when Park Bank froze their personal account. Accordingly, payment of the obligations that the Westburgs guaranteed could not be based on Zaddo's filing an insolvency proceeding, which filing would have been a default causing the guaranty to be available to Park Bank. 13 No. 2010AP3158.pdr showing sufficient to overturn summary judgment dismissing the Westburgs' direct counterclaim.17 III. ¶97 CONCLUSION In conclusion, I write separately to point out two fundamental principles: (1) the rights and obligations of guarantors are established by the guaranty contract, under which the guarantor and the creditor for whose benefit the guaranty was given operate; and (2) the majority opinion affirms that only a shareholder or beneficial owner has standing to bring a derivative claim in Wisconsin.18 ¶98 I counterclaims agree and with the affirmative majority defenses opinion raised that herein, all except one, are derivative and therefore, they cannot be brought in this action. majority However, because in some of its discussion, the opinion could be read erroneously to equate shareholders' rights and obligations with those of guarantors, I do not join the majority opinion, but respectfully concur. ¶99 I am authorized to state that Justices ANNETTE KINGSLAND ZIEGLER and MICHAEL J. GABLEMAN join this concurrence. 17 Majority op., ¶55 & n.12. 18 Majority op., ¶¶3, 67. 14 No. 1 2010AP3158.pdr
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