Debra K. Sands v. John R. Menard, Jr.
2017 WI 110 (2017)
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Rule of Law:
Unmarried cohabitants asserting an unjust enrichment claim must demonstrate a mutual undertaking or joint enterprise that led to the accumulation of assets, which one party then unfairly retains; however, an attorney's non-compliance with professional conduct rules regarding business transactions with clients (such as SCR 20:1.8(a)) does not serve as an absolute defense to such a civil claim but may guide the court in assessing standards of care.
Facts:
- In November 1997, Debra Sands, a lawyer licensed in Minnesota, began a romantic relationship with John R. Menard, Jr., the founder, president, and CEO of Menard, Inc., a successful chain of home improvement stores.
- Sands claims she moved in with Menard in the summer of 1998, and they became engaged later that year, though Menard denies they ever lived together.
- During their relationship, which lasted until April 2006, Sands alleges she made numerous business and personal contributions to Menard and his companies, including advising on product lines, store locations, marketing, government relations, and assisting with auto racing and other business ventures.
- Sands also managed Menard's households, supervised his health care, and advised on property refurbishment and acquisition of airplanes, while Menard was already a multi-millionaire with a nearly 40-year-old business empire.
- Sands alleges Menard repeatedly promised her an ownership interest in his business ventures in return for her contributions, which Menard denies, stating Sands primarily provided legal services.
- The parties dispute whether Sands provided legal services to Menard or Menard, Inc., prior to 2003; an invoice dated May 28, 1998, referenced 'Governmental relations & Legal services rendered Oct. 15, 1997 – May 15, 1998' for $49,635.84, which Sands claims was to pay off her student loans at Menard's request for tax purposes.
- From 2003 to 2006, Sands provided significant legal services to Menard, Inc., billing at an hourly rate of $145 and receiving a total of $152,105, but she claims she did not regularly invoice for her broader efforts, believing they were part of a 'joint enterprise.'
- After the relationship ended in April 2006, Menard instructed Sands to submit itemized invoices for all unpaid legal services, leading her to submit 190 invoices totaling $1,085,629.50 for over 7,400 hours; Menard, Inc. offered a reduced payment conditioned on Sands signing a release of 'quasi-marital claims,' which she refused.
Procedural Posture:
- On November 3, 2008, Debra Sands filed suit in Eau Claire County Circuit Court (trial court) against John R. Menard, Jr., the Menard Defendants, and eleven other parties, asserting claims including Unjust Enrichment, Implied Contract, and Promissory Estoppel.
- On November 19, 2009, Sands filed an amended complaint, re-alleging unjust enrichment against Menard and adding breach of contract and promissory estoppel claims against Menard, and unjust enrichment claims against Menard, Inc., Menard Thoroughbreds, Inc., and MH Private Equity Fund LLC.
- On May 10, 2011, Sands filed a second amended complaint, adding the Trustees of the John R. Menard, Jr. 2002 Trust and Related Trusts as defendants.
- On May 25, 2011, the Menard Defendants asserted a counterclaim for breach of fiduciary duty against Sands under SCR 20:1.8(a).
- On April 12, 2012, the Menard Defendants moved for summary judgment to dismiss Sands' claims seeking an ownership interest in Menard's assets, arguing SCR 20:1.8(a) barred recovery due to Sands' non-compliance.
- The Trustees also moved for summary judgment to dismiss Sands' claims against them.
- On October 22, 2012, the Eau Claire County Circuit Court (Judge Paul J. Lenz) entered summary judgment, finding Sands violated SCR 20:1.8(a) but recognized an implicit exception; the court ultimately denied relief to Sands due to her admitted fraud regarding an invoice and finding her legal services were not 'merely ancillary.'
- The circuit court also granted summary judgment to the Trustees, reasoning that if Sands could not recover against Menard, she could not recover against the Trustees.
- Sands appealed from the order regarding the Trustees and petitioned for leave to appeal from the order regarding the Menard Defendants, which the Wisconsin Court of Appeals denied, but stayed her appeal of the Trustees' order.
- After the circuit court granted partial summary judgment, Sands claimed entitlement to compensation for non-legal services and later for quantum meruit value of legal services, but the Menard Defendants moved to strike, and the court granted the motions, finding her prior statements contradictory and an express contract for $145/hour. The circuit court also stated Sands' quantum meruit claims were barred by SCR 20:1.8(a).
- Sands moved for summary judgment on Menard, Inc.'s counterclaim for breach of fiduciary duty, which the circuit court granted, finding it barred by the applicable statute of limitations.
- 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.
- The Wisconsin Court of Appeals affirmed the circuit court's decisions, but on different grounds.
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Issue:
1) Does an unmarried cohabitant sufficiently plead an unjust enrichment claim under Watts v. Watts by alleging extensive personal and professional contributions to a wealthy partner's established businesses and personal life, without evidence of commingled finances or joint accumulation of wealth? 2) May Supreme Court Rule 20:1.8(a), which regulates business transactions between lawyers and clients, be raised as an absolute defense to a civil unjust enrichment claim brought by an attorney against a former client?
Opinions:
Majority - Patience Drake Roggensack, C.J.
No, Sands has not pleaded facts sufficient to establish an unjust enrichment claim under Watts v. Watts, and while SCR 20:1.8(a) may guide courts, it does not act as an absolute defense. The court found Sands failed to allege facts supporting a 'joint enterprise' that led to the accumulation of assets in which both Sands and Menard expected to share equally, as required by Watts. Unlike the plaintiffs in Watts and Ward, Menard was already wealthy with an established business when the relationship began, and Sands did not help build his empire from scratch. The parties did not commingle finances, file joint tax returns, or incur joint debt. Sands' extensive contributions were not shown to be 'material' to increasing Menard's already substantial wealth, and any benefits she conferred were offset by the 'expansive lifestyle' she enjoyed and the substantial compensation she did receive for legal and other services. The court clarified that Supreme Court Rules of Professional Conduct (SCR ch. 20) are intended for disciplinary proceedings and cannot be used as an absolute defense in civil actions. While they may 'guide courts in determining required standards of care generally,' they do not create civil liability or an absolute bar to claims. Furthermore, Sands was not subject to SCR 20:1.8(a) for her in-house counsel services in Wisconsin at the relevant time, as Wisconsin's definition of 'practice of law' for bar admission (under Mostkoff) meant she was not regulated by the State Bar of Wisconsin for those services. Menard, Inc.'s counterclaim for breach of fiduciary duty was properly dismissed as barred by the statute of limitations because John Menard, Jr., as a skilled businessman, knew or should have known of his suspicions regarding Sands' loyalty by September 1, 2005 (the Fund transaction closing date), triggering his obligation to investigate, yet he did nothing until Sands sued him. Finally, since Sands did not prevail on her unjust enrichment claim against Menard, she could have no interest in any property held by the Trustees, thus her claim against them was properly dismissed.
Concurring_dissenting - Shirley S. Abrahamson, J., joined by A.W. Bradley, J.
No, the majority incorrectly concluded that Sands did not plead sufficient facts for an unjust enrichment claim under Watts v. Watts; however, the majority correctly decided the other issues. Justice Abrahamson argued that Sands did plead sufficient facts to establish an unjust enrichment claim, citing the extensive list of contributions Sands alleged, which mirrored those found sufficient in Watts. The dissent contended that the majority impermissibly ventured outside the pleadings and weighed the evidence by drawing distinctions about Menard's existing wealth, the lack of commingled finances, and Sands' lifestyle, which are not relevant to the pleading stage or to the core holding of Watts regarding unjust enrichment. Watts recognized that unmarried cohabitants may state a claim where property is acquired through joint efforts and one party retains an unreasonable amount; it does not impose a 'checklist' of specific relationship types or financial arrangements. The majority's reliance on Waage and Ward was misplaced, as those cases dealt with the sufficiency of evidence at trial, not the sufficiency of pleadings. Justice Abrahamson concurred with the majority's conclusions regarding the application of SCR 20:1.8(a), the dismissal of Menard, Inc.'s counterclaim, and the dismissal of claims against the Trustees.
Analysis:
This case significantly clarifies the scope of unjust enrichment claims for unmarried cohabitants under Watts v. Watts, emphasizing the need for concrete evidence of a 'joint enterprise' that directly led to asset accumulation, and differentiating it from general contributions in a relationship with disparate financial means. It also provides a critical clarification that violations of Wisconsin's Rules of Professional Conduct, such as SCR 20:1.8(a), are primarily for disciplinary actions and cannot be used as an absolute defense in civil litigation. This reinforces the distinction between ethical violations and civil liability, though ethical rules can inform standards of care. Additionally, the court reaffirms the discovery rule for statutes of limitations, stressing a party's obligation to investigate suspicions of a claim in a timely manner, especially for sophisticated actors.
