$11 Million Judgment for Food Manufacturer

A start-up company developed several innovative food products, including shelf stable cookie dough that needed no refrigeration before baking. After several years of development efforts and product improvement, a large national retailer agreed to sell the product in its stores. Other companies were also negotiating to license the product. The company’s CEO, seeing this success, developed a plan to intentionally bankrupt and steal the business opportunity from the existing company and pursue it with his own newly-formed company.

The bankruptcy trustee retained Bakke Norman to sue to recover damages from the former CEO and his co-conspirators due to the theft of the business opportunity.

During 14 days of trial, we established that the CEO and others were guilty of racketeering, violating Wisconsin’s Organized Crime Control Act, conspiracy and malicious injury to the manufacturer. The court found the defendants guilty of theft, misappropriation of trade secrets and intentional interference with contractual relations. All of this amounted to a serious breach of their fiduciary duty to the company and its investors.

Although the defendants claimed that our client’s company was worthless, we established its value at $5,200,789. Because of the defendants’ fraud and other intentional acts, that amount was doubled by the court, increasing the award to $10,401,578. In addition, the court assessed punitive damages against the CEO for $600,000, making the total judgment $11,001,578.

Disabled Logger Prevails

Our client had worked for many years as a logger. To protect his family from lost income, he bought insurance that would provide compensation if he became disabled from work. Over the years, his spine wore down, requiring several spine operations. Eventually, he became disabled and could no longer work.

Despite paying his premiums for many years with the expectation of insurance coverage under these facts, when the logger claimed payment under his disability policy, he was denied by the insurance company. The insurer based its denial on a complicated definition of “disability” in its policy.

The logger sought Bakke Norman’s assistance to challenge the insurance company’s denial of coverage. The arbitration provisions of the policy were triggered. We contested the insurance company’s refusal to pay anything under the policy. The arbitrators agreed with our arguments and concluded that the logger was totally disabled under the insurance policy’s definition. The arbitrator’s ruling allowed the logger to receive the full amount owing under the insurance policy, the benefit for which he paid premiums for years.

Large Manufacturing Company Sold

A corporate buyer based in Chicago expressed interest in acquiring a Hudson-based manufacturing company. The Hudson company’s general manager contacted Bakke Norman to assist the company’s 20 shareholders to negotiate the stock purchase agreement and close the sale.

The shareholders resided throughout the Midwest and included the founder’s family members; company employees, who had received stock in recognition of their efforts for the company; and various business partners. The number and location of shareholders presented challenges for efficiently conveying information and answering questions, as well as conducting a prompt shareholder meeting to approve the sale.

We utilized our in-house technology to conduct an electronic meeting. All participants were able to view and discuss the transaction documents from their homes or offices via a secure online connection and our VOIP telephone system.

Following the shareholders’ approval of the sale, we worked with opposing counsel in Chicago through the due diligence process to the closing. The closing took place in Chicago, with the founder’s family and other shareholders repeating the benefits of the many years of effort in building the company. It was the first and only time that counsel on each side of the transaction met in person.

Bank Client Gains Secured Creditor Status

A bank client found itself as an unsecured creditor in a Chapter 13 bankruptcy proceeding after omitting a portion of the legal description in mortgage documents.

We reviewed the documents to determine whether this error could be corrected. Wisconsin law does not require an exact legal description to perfect a mortgage. The mortgage is only required to reasonably describe the property so that the document can be properly recorded and indexed.

This mortgage was missing part of the legal description but contained the tax parcel identification number for the missing property. The document had been accepted for recording and indexed against the missing property based on the parcel identification number.

The result was secured claim status for the bank on a matter it had already charged off and assumed it would never recover.

Nonconforming Use – use it or lose it!

In an unpublished case, Wilderness Waters & Woods Preserve, LLC v Oneida County Board of Adjustments, the courts reviewed a decision by Onieda County to deny a resort permission to convert to condominiums.

A resort had operated as a nonconforming use for some time. However, in the early 2000s, business had apparently tapered off, and the resort was used less and less. In 2006 the resort saw very little, possibly no use as a resort, and in December of 2006 the owner sold the resort to Wilderness Waters. Wilderness cleaned up and restored the property and applied to Oneida County for permission to convert the resort to condominiums. The Oneida County Board of Adjustment denied the application, finding that the nonconforming use as a resort had been abandoned for a period of longer than one year, thus the legal nonconforming status was lost.

Wilderness sought certiorari review in court, and presented some evidence that the resort had been used during that one year period, but there was substantial evidence that it had not been used, including a 2006 tax return which showed zero income for the resort (apparently proving there had been no paid guests). The Circuit Court and the Appeals Court upheld the Board decision, noting that in these types of reviews of board decisions, courts do not weigh the evidence and retry the case, but review for abuse. If the board decision can reasonably be supported, it must be upheld, even if a court might have come to a different decision. Here there was solid evidence to support the Board’s position, and thus the courts refused to overturn the County Board’s decision.

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Fund Balance

Municipal Law Alert, April 2011

Fund balance is a term used in annual audits for municipalities and schools, newspaper articles during the fall budget cycle and public discussions at various times. What is a fund balance? In its simplest terms, a fund balance is the amount on deposit at any particular time in a particular fund. For municipalities, the fund balance usually refers to the balance on hand in its General Fund. The General Fund is the group of accounts through which most transactions in a municipality are handled. The General Fund has revenue accounts and expenditure accounts. The difference between the total revenues and total expenditures is the fund balance. Another way to think of it on a more personal basis is the balance you have in your checking account at any one time. The fund balance varies every day in much the same way as your checkbook balance changes.

Although the fund balance changes throughout the year with every deposit or expenditure, for purposes of understanding the financial health of a public entity, a snapshot of the fund balance is captured at the end of the fiscal year. The fiscal year ends in December for municipalities and on June 30 for schools. The financial audit verifies the fund balance on the last day of the fiscal year. During the course of the year, the balance goes up and down based on the timing of revenues and expenditures. The big revenue items are taxes and state aid. These revenues come in at a couple different times during the year. The date for the receipt of state aid has been pushed back periodically in order to permit state government in Madison to utilize tax receipts for a longer period of time. Expenditures for the municipality occur on a daily basis throughout the year. The timing differences mean that, at certain times of the year, such as just prior to the receipt of tax revenues, state aid or shared revenues, a municipality may not have much cash on hand. If the municipality runs out of cash, it will have to borrow funds on a short term basis. If a municipality needs to borrow funds to pay bills, that means that its fund balance has gone to zero.

Over a period of several years a municipality can accumulate a fund balance by spending less than the revenue it receives. Once a fund balance has accumulated, the municipality can utilize the balance to cover expenditures during the times of the year when it is waiting for expected revenues. Again, comparing this to your personal checkbook, it would mean that you deposit more money in your checking account than you spend, resulting in an increasing balance in your account. Audits generally describe the fund balance in the General Fund as a percentage of annual expenditures from the General Fund. Thus if a municipality has a fund balance of 50%, it means that the year-end fund balance is sufficient to pay one-half of the municipality’s annual expenditures. The amount in the fund balance can be a strong indicator of the relative financial strength of the public entity. The larger the fund balance, the longer a municipality can continue to operate while it waits to receive additional revenues. If the fund balance is sufficient, the municipality can avoid having to borrow funds on a short-term basis. The larger the fund balance, the more prepared the municipality is to handle unanticipated expenditures.

What does it mean if someone advocates using the fund balance to make a capital expenditure, for example to purchase a $100,000 fire truck? Assume that there is an ongoing fund balance of $250,000, which is 25% of the annual expenditures. Spending the money on the vehicle reduces the fund balance to $150,000. By using the funds on hand, the municipality saves the cost of interest on a loan to purchase the vehicle. But, if the purchase comes during a time of the year in which cash is short, the reduced balance may require short-term borrowing or cause a delay in the payment of amounts owed to employees or third parties. It may be necessary to borrow funds on a short-term basis to cover cash flow needs. Public entities must weigh the pros and cons when deciding to make expenditures from the fund balance.

A fund balance contributes to tax rate stability and the orderly provision of municipal services. What percentage should be maintained in a fund balance? Is it one month, three months or six months of expenditures? There is no single correct answer. Generally, smaller communities need to maintain higher percentage balances, because most categories of expenditures do not vary based upon the size of the community – a fire truck costs the same in Milwaukee as it does in New Richmond.

Having a fund balance can provide several positive benefits. The fund may be used to cover capital expenditures, contingencies and avoid the costs of short-term borrowing. The general consensus among financial advisors is that there should be a fund balance of 20% to 25% of operating expenditures. A larger fund balance will improve the credit rating for a municipality when municipal bonds are sold to raise money for major expenditures. Thus, public entities should work toward maintaining a fund balance when possible, keeping in mind that too large a fund balance may signal an unnecessarily high imposition of taxes.

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Blight: In the Eye of the Beholder

Municipal Law Alert, April 2011

Do you have blighted property in your municipality? I suspect most readers of this article reside in beautiful northwestern Wisconsin, so your answer will be no. This is an understandable answer because the term blight carries with it such negative connotations. Dictionary.com defines blight as “the state or result of being blighted or deteriorated; dilapidation; decay: urban blight.” Well, that certainly does not paint a very pretty picture. To the contrary, it brings to mind images from around the rust belt of decaying factories with broken and boarded up windows, broken doors, out of control vegetation, broken bottles, trash and rats. My suspicion is, with few exceptions, most of the communities in this area do not have very many of these structures.

Notwithstanding the ugly picture painted by the dictionary definition and the common parlance use of the term blight, under Wisconsin’s definition of blight, a property containing pristine wetlands may fall within the definition of the term “blight”. Wisconsin Stat. § 66.1333 contains a very broad definition of blight, which includes, among other things, “An area which is predominantly open and which because of obsolete platting, diversity of ownership, deterioration of structures or of site improvements, or otherwise, substantially impairs or arrests the sound growth of the community.” The underscored section, “An area which is predominantly open,” appears to open the door to an extraordinarily broad interpretation of the word blight.

At least one Wisconsin Court has interpreted the term broadly. Grunwald v Community Development Authority of the City of West Allis, 202 Wis. 2d 471, 551 N.W.2d 36 (Ct. App. 1996). In Grunwald, the City of West Allis declared blighted a piece of property that contained a building that was only 7 years old and was compliant with all building codes. Grunwald’s building was part of a larger area targeted for razing and redevelopment. Relying on the provision of the Blight Elimination and Slum Clearance Act that provides that the Act be liberally construed [Wis. Stat. § 66.1333(17)], the Court held that a municipality may focus on “the general character of the area and its structures”. Thus, even though the specific piece of property at issue in the Grunwald case was in good shape, viewing all of the properties in the aggregate, it fit within the definition of blight.

What does this mean? The practical implication is that municipalities appear to have broad legislative authority to take myriad actions with respect to eliminating “blight” – which as we have now learned, can include a wide range of properties that may not appear at first sight to be blighted. These actions may include exercising the municipality’s eminent domain powers or issuing tax exempt bonds to finance the improvement of the property.

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Municipal Facts

Municipal Law Alert, April 2011

The Wisconsin Taxpayers Alliance collects and publishes “Municipal Facts”, a booklet that contains detailed financial and demographic data for Wisconsin cities and villages.

The financial statistics included in the study include some gross spending information but most are broken out into spending by category per capita. That per capita breakout allows for comparison of municipalities of various populations. The categories include: general government, street maintenance, fire, ambulance, police, basic spending, operating, general obligation debt, municipal tax levy, municipal tax rates, equalized value, shared revenue, property tax base (total and broken down to residential, commercial and manufacturing). The study also includes information about total income reported by residents of that municipality, both gross amount and per tax return. When a category produces some revenue such as police, the spending is presented both in gross terms and net of the related revenue.

The current version of Municipal Facts reveals some interesting data for local area municipalities (populations as of 2008):

When I first looked at the data, I thought that I might be able to find some interesting correlations in the information. Is spending per capita related to population? Does the presence of a university (Eau Claire, Menomonie, River Falls) impact spending categories? Does the percentage of tax base that is residential impact per capita costs? I find that the questions I can ask are much more sophisticated than my analytical abilities with the above small sample. The only area of further inquiry that looks like it might produce an interesting correlation is general obligation debt per capita and how it relates to the municipal tax rate. I’ll leave it to the statisticians to determine whether my hunch is correct. But, even if a statistical correlation is found, that does not establish that high debt causes high tax rates. Maybe it just means that conservative officials keep both the debt and tax rate low. You will have to draw your own conclusions from the data but it is very interesting.

The printing of the current booklet has been underwritten by Ehlers & Associates, advisors for municipal finance, and by Baker Tilly (formerly Virchow Krause), CPAs. The book is available from Wisconsin Taxpayers Alliance.* The Taxpayers Alliance has been providing detailed, accurate, non-partisan information about state and local finance to individuals, businesses and government for more than 75 years. There is a wealth of information available to download from its website at http://www.wistax.org/.

* Wisconsin Taxpayers Alliance, 401 North Lawn Avenue, Madison, WI 53704-5033. (608) 241-9789. http://www.wistax.org.

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Employment Law Client Guide for Employees

Employment Law Attorneys: Who Are They? What Do They Do? How Much Will They Charge?

Bakke Norman, S.C. has experienced attorneys with expertise in employment law matters. We employ skilled legal assistants and paralegals to help you and your attorney with your file and to assure you of the best professional representation. You are encouraged to contact the legal assistant or paralegal regarding any questions about your case if the attorney is unavailable. A legal assistant or paralegal is not an attorney and is not permitted to give legal advice. However, the legal assistant or paralegal can answer many questions regarding your case. The legal assistant or paralegal will refer questions calling for legal advice to your attorney.

What Will Your Attorney Do?

Your attorney will advise you about the law and help you prepare and present your case, which might involve hiring or consulting other professionals such as private investigators, physicians, psychologists or vocational rehabilitation counselors.

We will keep you advised regarding the legal proceedings, give you our advice regarding your options and answer any questions you have.

What Does It Cost?

Clients of Bakke Norman, S.C. are normally charged for legal services on a contingent fee basis or based on the total time spent on the file. The type of fee will be discussed and agreed between you and your attorney. If you and your attorney agree to a contingent fee, the attorney fees will be a percentage of what you are awarded or what you receive. If you and your attorney agree that the fee will be based on the time spent on your file, an hourly fee will be charged. The hourly rate charged can vary based on the experience and expertise of the attorney working on the file and the complexity of the issues presented. Time records are maintained for all work on the file, including telephone calls. These records are one factor used to calculate your bill unless you have a different fee agreement with your attorney.

An employment matter’s cost is difficult to predict accurately. The cost depends on the amount of work required of us, the number of witnesses and documents, the complexity of the legal issues involved, and our opponent’s attitude and behavior.

During our representation, we might advance certain fees and costs for our clients. These can include such items as filing fees, process servers’ fees, court reporter fees for depositions, witness subpoena fees, private investigator fees, expert witness fees, and so forth. We might ask you to pay some or all these fees and costs as your case proceeds. You will always be billed for the fees and costs we advance on your case. In certain employment cases, a prevailing employee is entitled to recovery of attorney’s fees and costs. Therefore, if you prevail, the opposing party might be ordered to pay your attorney’s fees and costs.

We must have an agreement with you regarding fees and costs before any work is started. If, for any reason, you do not have a complete understanding regarding the fees to be paid, please discuss this with your attorney immediately.

Telephone Calls and E-mail

We welcome your telephone calls and e-mail with questions about your case or with new information we need. When your attorney is in court or meeting with another client, your call might be referred to the legal assistant or paralegal assisting on your file. We will make every effort to respond to your inquiries promptly.

Settlement

At various stages of the proceedings, we might explore the possibility of settlement. We might do this by informal contact with the other attorney or by a formal settlement conference. Although we will start and participate in settlement discussions, you are the only one who can agree on a settlement. Settlement might not be possible or advisable until all facts and values have been uncovered through the discovery process. When we have all the facts, we will offer you our professional advice and recommendations for settlement based on the law and our view of the case.

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