Breach
of fiduciary duty is intentional tort
By
David Ziemer
Wisconsin Law Journal
June
28, 2006
| What
the court held Case:
Zastrow v. Journal Communications, Inc., No. 2004AP276. Issue:
Is a trustee's failure to disclose material information a breach of fiduciary
duty, and therefore, an intentional tort governed by the statute of limitations
in sec. 893.57? Holding:
Yes. Failure to disclose material information is a breach of the duty of loyalty,
an intentional tort, rather than an act of negligence. Counsel:
For plaintiff: Kevin Demet, Donal Demet, Milwaukee; For defendants: Thomas
L. Shriner, Jr., David W. Simon, Milwaukee. |
Breach
of fiduciary duty is an intentional tort, the Wisconsin Supreme Court held on
June 20.
As
a result, the two-year statute of limitations in sec. 893.57, applicable to intentional
torts “to the person,” governs such claims.
Perry
Printing was a wholly owned subsidiary of Journal Communications, Inc. Since 1937,
90 percent of Journal Communi-cations’ stock has been held in the Journal
Employees Stock Trust (Trust). Administration of that Trust is governed by the
Journal Employees’ Stock Trust Agreement (JESTA).
Employees
of Perry were eligible to own units of the Trust. The JESTA required employees
who owned trust-units and whose employment terminated for any reason other than
retirement to immediately offer their units for sale.
When
an employee retired, however, the employee was permitted to offer his units for
sale over a period of 10 years. This option has a significant benefit, because
the trust-units have always appreciated in value.
In
1995, Journal Communications sold Perry’s assets. The sale agreement required
the buyer to continue to operate the business and to offer comparable employment
and compensation to all Perry employees. When the sale closed, all employees were
terminated by Perry and rehired by the buyer of Perry’s assets.
Because
their employment with Journal Communications terminated when Perry was sold, the
trustees told the former employees they had to offer to sell back their trust-units
immediately, and gave them one to five years to sell their units.
In
April 2000, former Perry employees who had sold their units at the time of the
restructuring filed a class action against Journal Communications, the trust,
and its trustees. The complaint alleged that the plaintiffs were entitled under
the JESTA to be treated as retirees with the right to sell their trust-units over
a 10-year period, but that the trustees denied them this right, in violation of
their fiduciary duty.
Jefferson
County Circuit Court Judge John Ullsvik granted partial summary judgment to the
defendants, allowing only the fiduciary duty claims of those who were eligible
to retire at the time of the sale to go forward. The court rejected the defendants’
argument that the two-year statute of limitations barred those claims as well,
finding that the complaint alleged negligent, rather than intentional, breach
of fiduciary duty, and applying a six-year statute of limitations.
“If
a trustee does not make a full disclosure of material facts to a beneficiary,
that conduct is a breach of the trustee's duty of loyalty. The law concludes this
breach is intentional.” Hon.
Patience Drake Roggensack
Wisconsin Supreme Court |
Defendants
appealed, and the court of appeals reversed, in a published decision, Zastrow
v. Journal Communications, Inc., 2005 WI App 178, 286 Wis.2d 416, 703 N.W.2d 673.
The
court of appeals concluded that it was bound by language in Beloit Liquidating
Trust v. Grade, 2004 WI 39, 270 Wis.2d 356, 677 N.W.2d 298, stating that breach
of fiduciary duty is an intentional tort governed by the two-year statute of limitations
in sec. 893.57.
The
Supreme Court granted review, but affirmed, in a decision by Justice Patience
Drake Roggensack. Chief Justice Shirley S. Abrahamson wrote a concurrence, joined
by Justice Ann Walsh Bradley, and partially joined by Justice N. Patrick Crooks.
Section
893.57 provides: “An action to recover damages for libel, slander, assault,
battery, invasion of privacy, false imprisonment or other intentional tort to
the person shall be commenced within 2 years after the cause of action accrues
or be barred.”
The
court concluded that a breach of fiduciary duty is an intentional tort, and therefore
(following the holding in Beloit Liquidating), falls within the ambit of this
statute.
The
court concluded, “A fiduciary agrees to assume a position of authority in
regard to the affairs of another in which position the fiduciary may have access
to confidential information or to property of the object of the fiduciary’s
obligation. Therefore, if a trustee does not make a full disclosure of material
facts to a beneficiary, that conduct is a breach of the trustee’s duty of
loyalty. The law concludes this breach is intentional.”
The
court acknowledged that a fiduciary could comport with his fiduciary duty of loyalty,
but nevertheless violate the duty of ordinary care, but concluded that the failure
to make full disclosure of material facts is a breach of the duty of loyalty,
and thus, intentional.
The
court concluded its result was required by prior case law, in Beloit Liquidating,
270 Wis. 2d 356, par. 40, where the court held that sec. 893.57 applies to breach
of fiduciary duty claims, even though the court in Beloit Liquidating did not
provide any reasoning for that holding.
Likewise,
in Warmka v. Hartland Cicero Mut. Ins. Co., 136 Wis.2d 31, 400 N.W.2d 923 (1987),
the court held, “The breach of the fiduciary duty is an intentional tort”
and therefore, sec. 893.57 provides the applicable statute of limitations.
Finally,
the court noted that federal courts interpreting Wisconsin law, and courts from
other jurisdictions, have held that the breach of the fiduciary duty of loyalty
is an intentional tort.
Finding
that the plaintiffs’ allegations stated a claim for breach of that duty,
the court held that are precluded by the two-year statute of limitations.
The
Concurrence
Chief
Justice Abrahamson wrote a concurrence, taking issue with the way the lead opinion
framed the issues.
Abrahamson
noted that the lead opinion framed the issue as, “whether a claim for breach
of fiduciary duty of loyalty must be intentional, or whether it can also be based
on negligence.”
The
parties, however, framed the issue as, “whether a claim for a negligent breach
of fiduciary duty is governed by the two-year statute of limitations in Wis. Stat.
sec. 893.57, or by the six-year statute of limitations in either Wis. Stat. sec.
893.52 or sec. 893.43.”
Abrahamson
wrote that the court should have addressed the issue as stated by parties, concluding,
“The present case does not require this court to determine whether a claim
for the Trustees’ breach of fiduciary duty of loyalty must be intentional
or may be based on negligence. We need determine only what statute of limitations
applies to the claim for breach of fiduciary duty presented in the instant case.”
Nevertheless,
Abrahamson agreed with the ultimate holding that sec. 893.57 applies. Although
acknowledging, as did the lead opinion, that Beloit Liquidating provides no reasoning
for its holding that the two-year statute of limitations applies to breach of
fiduciary duty, Abrahamson wrote, “In the interest of stare decisis and relying
on the text of Beloit Liquidating, I conclude that Beloit Liquidating controls
the outcome of the instant case and creates a uniform, predictable rule that the
statute of limitations applicable in all claims of any breach of fiduciary duty
is the two-year statute.”
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David
Ziemer can be reached by email.
