Window Well Experts, Inc. v. Safety Well, Inc. ( 2023 )

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
September 13, 2023
A party may file with the Supreme Court a
Samuel A. Christensen petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.
Appeal No. 2022AP1742 Cir. Ct. No. 2021CV150
STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT II
WINDOW WELL EXPERTS, INC.,
PLAINTIFF-APPELLANT,
V.
SAFETY WELL, INC., DYNE, INC. AND ROY BEAUDOIN,
DEFENDANTS-RESPONDENTS.
APPEAL from an order of the circuit court for Walworth County:
KRISTINE E. DRETTWAN, Judge. Reversed and cause remanded with
directions.
Before Neubauer, Grogan and Lazar, JJ.
Per curiam opinions may not be cited in any court of this state as precedent
or authority, except for the limited purposes specified in WIS. STAT. RULE 809.23(3).
No. 2022AP1742
¶1 PER CURIAM. Window Well Experts, Inc. appeals from an order
dismissing its claims against Roy Beaudoin, which arise out of a failed business
transaction, under WIS. STAT. § 802.06(2)(a)6. (2021-22).1 Window Well also
challenges the circuit court’s decision, before it dismissed the claims, to grant
Beaudoin’s motion to reopen a default judgment that it had entered against him
after he failed to respond timely to the complaint.2 We reverse the order granting
the motion to dismiss because the circuit court erroneously concluded that
Window Well’s conversion and civil theft claims were barred by an
indemnification provision in a contract between Window Well and two companies
owned by Beaudoin. In addition, we disagree with the circuit court’s conclusion
that Window Well’s complaint fails to allege facts sufficient to plausibly allege a
basis for holding Beaudoin personally liable for his companies’ breach of the
contract. Finally, we conclude that the circuit court erroneously exercised its
discretion in granting Beaudoin’s motion to reopen the default judgment because it
did not make sufficient findings of fact or consider all of the factors relevant to the
question of whether relief from judgment for excusable neglect is appropriate
under WIS. STAT. § 806.07(1)(a). We remand this case for further consideration of
Beaudoin’s motion to reopen.
1
All references to the Wisconsin Statutes are to the 2021-22 version unless otherwise
noted.
2
Window Well’s notice of appeal refers only to the order granting Beaudoin’s motion to
dismiss, but the parties also briefed the issue of whether the circuit court erred in granting the
motion to vacate the default judgment. We can and will consider this issue since its resolution is
closely related to the court’s decision to grant Beaudoin’s motion to dismiss. See WIS. STAT.
RULE 809.10(4) (“An appeal from a final judgment or final order brings before the court all prior
nonfinal judgments, orders and rulings adverse to the appellant and favorable to the respondent
made in the action or proceeding not previously appealed and ruled upon.”).
2
No. 2022AP1742
BACKGROUND
I. Allegations in the Complaint
¶2 Joseph Sikorski is the sole owner and shareholder of Window Well,
a Wisconsin corporation. Roy Beaudoin is the sole owner and shareholder of
Safety Well, Inc. and Dyne, Inc., which are Illinois corporations. Window Well,
Safety Well, and Dyne each manufacture and sell window-well covers and other
products.
¶3 In the fall of 2020, Sikorski learned that Beaudoin might be looking
to sell the assets of Safety Well and Dyne. Sikorski contacted Beaudoin, and the
two began working on the terms of a Letter of Intent under which Window Well
would purchase the assets of both corporations. On October 15, 2020, Sikorski
and Beaudoin signed the Letter of Intent on behalf of their respective corporations.
Per its terms, Window Well would purchase the assets of Safety Well and Dyne
for $720,000 and the companies’ inventory for a projected price of $480,000,
subject to adjustment at closing. Window Well would pay $250,000 in cash at
closing (less $10,000 due at the time the parties signed the Letter of Intent) and
sign three promissory notes to pay the rest of the purchase price over time.
¶4 The parties then began drafting an Asset Purchase Agreement (the
APA), which Sikorski and Beaudoin signed on October 27, 2020.3 The APA
itemized the equipment and assets that Safety Well and Dyne would transfer to
Window Well at closing, which was scheduled for November 4, and stated that
3
The Letter of Intent and the Asset Purchase Agreement are attached to Window Well’s
complaint and are thus part of it. See WIS. STAT. § 802.04(3).
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No. 2022AP1742
Beaudoin would “reasonably assist” in transitioning Safety Well’s and Dyne’s
customers and business assets to Window Well. Consistent with the Letter of
Intent, the APA stated the purchase price of $720,000 for the business assets and
the projected $480,000 for inventory. The APA also made closing contingent on
Safety Well, Dyne, or Beaudoin providing financing to Window Well via the three
promissory notes. Finally, the APA acknowledged that Window Well had already
paid $10,000, which would be refundable if Safety Well and Dyne defaulted on its
obligations under the agreement.
¶5 The APA also contains an indemnification provision that reads in
relevant part as follows:
The parties hereby agree to indemnify, defend[,] and hold
each other harmless, including but not limited to, Mr. Roy
Beaudoin and Mr. Joe Sikorski, individually, from and
against all claims asserted against, resulting to, imposed
upon[,] or incurred by any such entity or person, directly or
indirectly, by reason of or resulting from (a) the inaccuracy
or breach of any representation or warranty contained in or
made pursuant to this Agreement; (b) the breach or default
in the performance of any covenant, obligation, or
agreements contained in or pursuant to this Agreement; or
(c) all Claims of or against one party which were
specifically assumed by the other party contained in or
pursuant to this Agreement.
¶6 Finally, the APA contains a general good faith and cooperation
clause that states that the parties “covenant, warrant[,] and represent to each other
good faith, complete cooperation, due diligence[,] and honesty in fact in the
performance of all obligations of the parties pursuant to this Agreement. All
promises and covenants are mutual and dependent.”
¶7 On November 2, 2020, Beaudoin signed two Bills of Sale, assigning
Safety Well’s and Dyne’s interests in their respective business assets to Window
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No. 2022AP1742
Well. The following day, Window Well wired the $240,000 in cash due at closing
to the trust account of Beaudoin’s counsel. Beaudoin, however, did not transfer
possession of the assets to Window Well and refused several requests from
Sikorski to do so. Instead, Window Well alleges, Beaudoin “or an entity in which
he has an ownership interest” retains possession of the assets. Beaudoin, Safety
Well, and Dyne have also refused to return any of the money paid by Window
Well in connection with the transaction.
II. Procedural History
¶8 In March 2021, five months after the closing was to occur, Window
Well filed a complaint against Safety Well, Dyne, and Beaudoin alleging the
following claims:
(1) a breach of contract claim against Safety Well and Dyne;
(2) a claim against Beaudoin under the “alter ego doctrine” that alleges
that Beaudoin “exercises complete and sole control” over Safety
Well and Dyne and used that control “to perpetuate the violation of a
legal duty, or a dishonest and unjust act in contravention [of]
WINDOW WELL’S legal rights”;
(3) a claim for conversion against all of the defendants based on their
intentional retention of Window Well’s property without authority
or Window Well’s consent;
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No. 2022AP1742
(4) a claim of civil theft under WIS. STAT. § 943.204 against all of the
defendants based on the same conduct; and
(5) an unjust enrichment claim against Beaudoin based on his alleged
acceptance and retention of a “benefit conferred by WINDOW
WELL” “under circumstances that it would be inequitable for
BEAUDOIN to retain the benefit.”
¶9 At some point after “th[e] deal went south and soured,” Beaudoin
moved from Illinois to Florida. To accomplish service of process, Window Well
arranged for the sheriff in Beaudoin’s county of residence to deliver copies of the
summons and complaint to Beaudoin’s wife at their residence on June 7, 2021.
This made Beaudoin’s deadline to answer the complaint July 22, 2021. See WIS.
STAT. § 802.06(1)(a). That deadline was later extended by agreement of the
parties to August 5, 2021, and then again to Friday, August 6.
¶10 On August 3, 2021, the circuit court entered an order finding that the
case had “not been diligently prosecuted” and set the case for dismissal without
prejudice in twenty days “unless good cause is shown … why this order should not
take effect.” In response to that order, Window Well filed a letter explaining that
Beaudoin’s answer deadline had been extended until August 6 and asked that the
“case be removed from the dismissal calendar.” In the letter, Window Well also
advised the court that the service on Beaudoin’s wife was not proper as to Safety
Well and Dyne and that because the deadline in which to accomplish service had
4
WISCONSIN STAT. § 943.20 is a criminal statute, but intentional conduct that violates
the statute may serve as the basis for a civil cause of action under WIS. STAT. § 895.446(1).
6
No. 2022AP1742
passed, Window Well “appear[ed] to have no other choice but to dismiss this case
against the corporations[.]”5
¶11 Beaudoin did not file an answer on August 6, 2021; instead, at some
point, Beaudoin’s out-of-state counsel informed Window Well that Beaudoin’s
answer would be filed the following Monday, August 9. On August 10,
Beaudoin’s local counsel filed a notice of retainer and a motion to admit
Beaudoin’s out-of-state counsel pro hac vice, but not an answer. On August 12,
Window Well’s counsel informed both of Beaudoin’s attorneys that it would file a
motion for default if Window Well did not receive an answer by August 13.
¶12 The parties’ attorneys exchanged multiple emails on August 13. The
first, from Beaudoin’s out-of-state counsel, stated: “I never said I would file an
Answer to your flawed complaint. What I said is that I would appear, two distinct
differences. Please don’t misrepresent our conversations.” Window Well’s
counsel then forwarded to Beaudoin’s out-of-state counsel the email Beaudoin’s
out-of-state counsel had sent on July 22, which referenced the first extension to
file “responsive pleadings” by August 5. In response, Beaudoin’s out-of-state
counsel wrote: “Responsive pleadings is [sic] different from an Answer.”
Window Well’s counsel then informed Beaudoin’s out-of-state counsel that
Window Well would file its motion for default.
¶13 On August 16, 2021, Window Well filed a motion for default
judgment. That same day, Beaudoin filed a motion seeking to vacate default and
5
Though no order was ever filed dismissing the claims against Safety Well and Dyne
after Window Well filed the letter, the circuit court stated at a subsequent hearing that “Safety
Well and Dyne[] were dismissed from the case for lack of service and that left only [Beaudoin].”
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No. 2022AP1742
extend his time to file a response to the complaint. Beaudoin asserted that his
delay stemmed from “determining whether to contest personal jurisdiction” and
“seek[ing] local counsel to file his appearance pro hac vice[.]”
¶14 At a hearing on December 17, 2021, the circuit court6 stated that
Beaudoin appeared to be in default because he had not timely filed an answer.
Believing it lacked authority to extend Beaudoin’s answer deadline, the court
focused on his motion to vacate, specifically on the ground of excusable neglect
under WIS. STAT. § 806.07(1)(a). Citing our discussion of excusable neglect in
Mohns, Inc., v. TCF National Bank, 2006 WI App 65, ¶¶9-10, 292 Wis. 2d 243,
714 N.W.2d 245, the court stated that it had to consider “whether the moving party
has acted promptly to remedy the default judgment, whether the default judgment
imposes excessive damages, and whether vacatur of the judgment is necessary to
prevent a miscarriage of justice.” Beaudoin argued, among other things, that a
default judgment would constitute a miscarriage of justice because Beaudoin
signed the APA on behalf of his corporations and “[t]here’s no personal liability
because the parties didn’t intend to be personally bound.” His out-of-state counsel
also explained that he “wasn’t prepared to do an answer” because he had not
decided whether to file a motion to dismiss. At the end of the hearing, the court
granted Window Well’s motion for default judgment, invited Beaudoin to file a
motion to “reopen” the default, and ordered the parties to submit briefs regarding
“whether Mr. Beaudoin has personal liability in this action.”
6
The Honorable David M. Reddy presided at the December 17, 2021 hearing.
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No. 2022AP1742
¶15 On April 19, 2022, the circuit court held a hearing regarding
Beaudoin’s motion to reopen and the issue of Beaudoin’s individual liability.7
The court reviewed Wisconsin’s law of corporate limited liability, noting that “the
legal fiction of a corporation is not one to be lightly disregarded[.]” The court also
stated that it saw “issues, factual issues, with respect to whether individual liability
can lie under [the] piercing the corporate veil concept.” Given this uncertainty,
the court concluded that Beaudoin “deserve[d] to have his day in court” in the
interest of “fairness and the prevention of a potential miscarriage of justice[.]”
The court also stated that Beaudoin had acted promptly to remedy the default and
that the case had not progressed to an award of damages, which weighed in favor
of vacating the default. Based upon these determinations, the court concluded that
Beaudoin had shown excusable neglect, vacated the default judgment, and ordered
him to file his answer by April 26, 2022.
¶16 Beaudoin timely filed his answer and then, on June 15, 2022, filed a
motion to dismiss the claims against him pursuant to WIS. STAT. § 802.06(2)(a)6.
Beaudoin raised two arguments in the motion. First, he argued that he had not
acted in a personal capacity, but rather as president of both corporations, in
connection with the transaction and thus could not be held personally liable to
Window Well. Second, Beaudoin argued that the indemnification provision in the
APA barred all of Window Well’s claims against him.
¶17 The circuit court held a hearing on September 7, 2022, at which it
granted Beaudoin’s motion.8 The court stated that Window Well’s “claims
7
Judge Reddy presided at the April 19, 2022 hearing.
8
The case was assigned to the Honorable Kristine E. Drettwan effective August 1, 2022.
Judge Drettwan entered the court order granting Beaudoin’s motion to dismiss.
9
No. 2022AP1742
essentially boil down to an alleged breach of contract” by Safety Well and Dyne
and that Beaudoin signed the transaction documents in his capacity as a
representative of those entities, a “point that I think shines strongly for the court
here.” Next, the court looked to the indemnification provision in the APA, stating
that it “explicitly and specifically states and agrees between … the three corporate
entities here that all of the corporations involved, their individual officers and
signatories to the agreements were to be held harmless.” The court noted further
that such provisions “are valid and are not contrary to public policy” and that the
provision barred Window Well’s claims because it specifically held Beaudoin
personally harmless and both he and Sikorski “received the benefit of that bargain
when they—when the corporations agreed to it and signed those contracts[.]”
Additionally, the court discerned “little in the complaint” that would “justify[]
piercing the corporate veil,” stating that Beaudoin’s status as sole shareholder of
Safety Well and Dyne “[didn’t] change the legal ramification of the fact that these
are corporations” and “that the legal fiction of a corporation is not one to be lightly
disregarded” under Wisconsin law. Even construing the allegations in the light
most favorable to Window Well, the court saw no “facts or conditions under
which [Window Well] … can recover personally against … Beaudoin” and no
facts that would support piercing the corporate veil.
DISCUSSION
I. Standard of Review
¶18 We review a circuit court’s decision to grant a motion to dismiss for
failure to state a claim de novo. Data Key Partners v. Permira Advisers LLC,
2014 WI 86, ¶17, 356 Wis. 2d 665, 849 N.W.2d 693. We take the well-pleaded
factual allegations in the complaint as true and draw reasonable inferences from
10
No. 2022AP1742
the facts in Window Well’s favor. See id., ¶19; Pagoudis v. Keidl, 2023 WI 27,
¶9, 406 Wis. 2d 542, 988 N.W.2d 606. To survive a motion to dismiss, the well-
pleaded factual allegations must “plausibly suggest a violation of applicable law.”
Data Key Partners, 356 Wis. 2d 665, ¶21. Legal conclusions in the allegations,
however, are not given deference. Pagoudis, 406 Wis. 2d 542, ¶9.
¶19 A circuit court’s decision to grant relief from a default judgment
under WIS. STAT. § 806.07(1)(a) is reviewed for an erroneous exercise of
discretion. Fritz v. Fritz, 231 Wis. 2d 33, 39, 605 N.W.2d 270 (Ct. App. 1999).
“A proper exercise of discretion occurs when the court’s determination is
reasonably based on facts in the record and founded on proper legal standards.”
Id.; see also Lane v. Sharp Packaging Sys., Inc., 2002 WI 28, ¶19, 251 Wis. 2d
68, 640 N.W.2d 788 (“We will sustain a discretionary act if … the [circuit] court
examined the relevant facts, applied a proper standard of law, and using a
demonstrative rational process, reached a conclusion that a reasonable judge could
reach.”). “Whether the circuit court utilized the proper legal standard, however, is
a question of law we review independently of the circuit court[.]” Lane, 251
Wis. 2d 68, ¶19.
II. Motion to Dismiss
¶20 The circuit court gave two reasons for dismissing the claims asserted
against Beaudoin: (1) the indemnification provision in the APA; and (2) the
absence of a factual basis in the complaint to pierce the corporate veil and hold
Beaudoin liable for his companies’ alleged breach of the agreement. Window
Well challenges both conclusions, which we address separately below.
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No. 2022AP1742
A. Indemnification Provision
¶21 Window Well argues that the indemnification provision does not
compel dismissal of its claims against Beaudoin for two reasons.9 First, it
contends that the provision does not, as a matter of public policy, bar claims for
intentionally tortious conduct. We agree. Parties are generally free in Wisconsin
to incorporate indemnification provisions into their contracts, but the operation of
such provisions can be limited by countervailing interests. Of import here, “[a]
[contractual] term exempting a party from tort liability for harm caused
intentionally or recklessly is unenforceable on grounds of public policy.” Finch v.
Southside Lincoln-Mercury, Inc., 2004 WI App 110, ¶11, 274 Wis. 2d 719, 685
N.W.2d 154 (first alteration in original; quoting RESTATEMENT (SECOND) OF
CONTRACTS § 195(1) (AM. L. INST. 1981)).
¶22 In Finch, the Finches entered into agreements to lease property they
owned to a corporation “formed and controlled” by Ford Motor Company that
would operate car dealerships on the property. Finch, 274 Wis. 2d 719, ¶¶2-3.
The leases contained provisions purporting to foreclose any recourse against Ford
or its directors for any claim or obligation arising under the leases. Id., ¶5. The
subsidiary later ceased conducting business and making lease payments to the
Finches, prompting them to sue Ford and three directors for intentionally
interfering with the subsidiary’s performance under the leases. Id. The circuit
court dismissed the Finches’ claim because of the nonrecourse clause, but we
reversed, concluding that “an exculpatory clause, though otherwise valid as
9
Window Well does not argue that its claims fall outside the scope of the
indemnification provision’s terms. We thus assume for the purpose of this opinion that Window
Well’s claims are within the provision’s reach.
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No. 2022AP1742
applied to some causes of action, cannot operate to relieve a party from the
consequences of intentional or reckless conduct.” Id., ¶23.
¶23 This principle applies here. Window Well’s complaint includes two
claims against Beaudoin—conversion and civil theft—that require proof of
intentional misconduct. Conversion is the intentional taking or control of
another’s property without consent that interferes with the other’s right to possess
the property. H.A. Friend & Co. v. Professional Stationery, Inc., 2006 WI App
141, ¶11, 294 Wis. 2d 754, 720 N.W.2d 96. Similarly, civil theft under WIS.
STAT. § 943.20 requires proof that a “[d]efendant intentionally used, transferred,
or retained possession of movable property of another” knowing he lacked the
owner’s consent to do so and intended to permanently deprive the owner of
possession of the property. Estate of Miller v. Storey, 2017 WI 99, ¶40, 378
Wis. 2d 358, 903 N.W.2d 759.
¶24 In the complaint, Window Well alleges that Beaudoin and his
companies committed conversion and theft by intentionally retaining and refusing
to relinquish possession of property belonging to Window Well. That Beaudoin
allegedly engaged in this conduct in his capacity as the sole owner and shareholder
of Safety Well and Dyne does not shield him from liability; an individual may be
held liable for intentionally tortious acts, even if committed while acting on a
corporation’s behalf. See Oxmans’ Erwin Meat Co. v. Blacketer, 86 Wis. 2d 683,
692, 273 N.W.2d 285 (1979). Window Well’s conversion and civil theft claims
are premised on allegations of intentional misconduct that, if proven, would not be
barred by the indemnification provision in the APA. The circuit court erred in
reaching a contrary conclusion.
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No. 2022AP1742
¶25 That leaves two claims against Beaudoin potentially barred by the
indemnification provision—alter ego and unjust enrichment. Window Well’s
second argument is that Safety Well and Dyne’s breach of the APA excuses
Window Well’s obligation to indemnify Beaudoin. In Wisconsin, “a material
breach by one party to a contract excuses subsequent performance by the other
party.” Entzminger v. Ford Motor Co., 47 Wis. 2d 751, 755, 177 N.W.2d 899(1970); see also Management Comput. Servs., Inc. v. Hawkins, Ash, Baptie &
Co., 206 Wis. 2d 158, 183, 557 N.W.2d 67 (1996). Not every breach will excuse
future performance; the breach must be “so serious … as to destroy the essential
objects of the contract.” Management Comput. Servs., 206 Wis. 2d at 183(citation omitted). “Moreover, even where such a material breach has occurred,
the nonbreaching party may waive the claim of materiality through its actions.”
Id. at 183-84.
¶26 Window Well’s allegations suggest a breach of the APA by Safety
Well and Dyne that meets the standard for materiality. Distilled to its essence, the
APA memorializes a straightforward transaction under which Window Well was
to receive certain assets and inventory belonging to Safety Well and Dyne in
exchange for a payment of $250,000 at closing and Window Well’s execution of
promissory notes for payment of the rest of the purchase price over time. Though
the APA includes other promises and agreements, including Window Well’s
promise to indemnify Beaudoin, the exchange of money and promissory notes for
assets and inventory is the crux of the parties’ bargain. Window Well alleges that
Safety Well and Dyne have failed to deliver on the core element of the bargain
because they have held onto both their assets and inventory and the $250,000 paid
by Window Well to date. If Window Well proves that allegation, a factfinder
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No. 2022AP1742
could determine that it “destroy[ed] the essential objects of the contract” and thus
constitutes a material breach. See id. at 183 (citation omitted).
¶27 Ultimately, however, we are unable to reach a firm conclusion as to
whether that material breach would excuse Window Well’s obligation to
indemnify Beaudoin because we have only the allegations in the complaint before
us and because of certain language in the indemnification provision. Specifically,
the provision states that the parties agree “to indemnify, defend and hold each
other harmless, including but not limited to, Mr. Roy Beaudoin and Mr. Joe
Sikorski … from and against all claims … resulting from … (b) the breach or
default in the performance of any covenant, obligation, or agreements contained in
or pursuant to this Agreement[.]” By this language, the parties promised to
indemnify and hold each other (and Beaudoin and Sikorski) harmless from any
claim that they breached the APA. Put differently, the parties have agreed not to
sue each other (or Beaudoin and Sikorski) for breach. It is thus unclear to us
whether a material breach by Safety Well and Dyne would excuse Window Well’s
promise to indemnify and hold Beaudoin and his companies harmless. The parties
do not address this question in their briefs on appeal and did not address it in the
circuit court.10 Accordingly, we conclude that the prudent course of action is to
allow the parties to brief this issue on remand, if appropriate, and for the circuit
court to consider the issue in the first instance.
10
Window Well argued in the circuit court that the indemnification clause did not
preclude it from asserting claims against Safety Well, Dyne, and Beaudoin, claiming that such an
interpretation of the language “makes no sense.” But that is what the clause appears to do: it
requires each side to “indemnify, defend and hold [the other side] harmless … from and against
all claims … resulting from” the breach of “any covenant, obligation, or agreements” in the APA.
No language in the provision carves out claims each side may assert against the other for a breach
of the agreement.
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No. 2022AP1742
B. Alter Ego/Veil Piercing
¶28 Window Well contends that its allegations are sufficient to establish
a basis to pierce the corporate veil and hold Beaudoin liable for his companies’
breach of the APA. In Wisconsin, corporations are recognized as separate legal
entities from their shareholders and are “treated as such under all ordinary
circumstances.” Consumer’s Co-op of Walworth Cnty. v. Olsen, 142 Wis. 2d
465, 474, 419 N.W.2d 211 (1988) (citation omitted). The legal fiction of the
corporate form, which “is not one to be lightly disregarded,” shields shareholders
from personal liability for corporate liabilities. Id. In certain circumstances,
however, Wisconsin law allows for “‘piercing of the corporate veil’ or, stated
otherwise, ‘disregarding the corporate fiction’” in order to hold a shareholder
personally liable. Id. at 475 (citation omitted). One such circumstance is when
the corporation functions as the mere “alter ego” of the shareholder. See id. at
484. Liability under the alter ego doctrine requires proof of three elements:
(1) Control, not mere majority or complete stock control, but
complete domination, not only of finances but of policy and
business practice in respect to the transaction attacked so
that the corporate entity as to this transaction had at the
time no separate mind, will or existence of its own; and
(2) Such control must have been used by the defendant to
commit fraud or wrong, to perpetrate the violation of a
statutory or other positive legal duty, or [a] dishonest and
unjust act in contravention of plaintiff’s legal rights; and
(3) The aforesaid control and breach of duty must proximately
cause the injury or unjust loss complained of.
Id. (citation omitted).
¶29 We conclude at this early stage of the case that the complaint
contains sufficient allegations to plausibly suggest a basis to pierce the corporate
veil and impose personal liability. The complaint alleges that Beaudoin is the sole
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No. 2022AP1742
owner and shareholder of Safety Well and Dyne and that he “exercises complete
and sole control” over their “business practices and decisions.” The allegations
also suggest that Beaudoin exercised that “complete and sole control” over Safety
Well and Dyne with respect to the transaction at issue in this case. Window Well
identifies Beaudoin as the sole negotiator on behalf of those entities with respect
to the deal terms. Beaudoin also signed the Letter of Intent, the APA, and the
Bills of Sale on their behalf. Window Well alleges further that although Beaudoin
signed the Bills of Sale, which “convey[ed] ownership” of the assets and
equipment of his companies to Window Well, he has exercised control over the
companies to prevent them from transferring physical possession of the assets and
equipment and has caused them to retain the $250,000 paid by Window Well prior
to closing. We agree with Window Well that it is reasonable to infer from these
allegations that Beaudoin used his control over Safety Well and Dyne to commit a
“dishonest and unjust act in contravention of” Window Well’s rights under the
APA. See Consumer’s Co-op, 142 Wis. 2d at 484.
¶30 We emphasize that we are only scrutinizing the allegations in the
complaint and that Window Well will bear the burden of proving that the
circumstances surrounding this transaction warrant the equitable remedy of veil
piercing. The rule of limited shareholder liability is firmly established in
Wisconsin law, whereas “[t]he doctrine of piercing the corporate veil … is the rare
exception, applied in the case of fraud or certain other exceptional
circumstances[.]” Dole Food Co. v. Patrickson, 538 U.S. 468, 475 (2003). We
conclude only that the well-pleaded factual allegations in the complaint, together
with reasonable inferences therefrom, plausibly allege a basis to do so.
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No. 2022AP1742
III. Motion to Reopen Default Judgment
¶31 We next examine the circuit court’s decision to grant Beaudoin relief
from the default judgment. Beaudoin argued that he was entitled to that relief
under WIS. STAT. § 806.07(1)(a) because his failure to timely answer the
complaint was the result of excusable neglect. A party seeking to vacate a default
judgment pursuant to § 806.07(1)(a) must not only demonstrate that the judgment
is the result of mistake, inadvertence, surprise, or excusable neglect; the party
must also show a meritorious defense to the action—that is, one that could survive
a motion for judgment on the pleadings. See J.L. Phillips & Assocs., Inc. v. E&H
Plastic Corp., 217 Wis. 2d 348, 358, 577 N.W.2d 13 (1998); Shirk v. Bowling,
Inc., 2001 WI 36, ¶19, 242 Wis. 2d 153, 624 N.W.2d 375.
¶32 “Excusable neglect is ‘that neglect which might have been the act of
a reasonably prudent person under the same circumstances.’” Mohns, 292
Wis. 2d 243, ¶9 (quoting Hedtcke v. Sentry Ins. Co., 109 Wis. 2d 461, 468, 326
N.W.2d 727 (1982)). It is different from “neglect, carelessness or
inattentiveness.” Shirk, 242 Wis. 2d 153, ¶18 (citation omitted). In addition to
evaluating the reasons for the default, a circuit court must consider other factors,
including “whether the moving party has acted promptly to remedy the default
judgment, whether the default judgment imposes excessive damages, and whether
vacatur of the judgment is necessary to prevent a miscarriage of justice.” Mohns,
292 Wis. 2d 243, ¶10. In addition, the court “must also consider that the law
favors the finality of judgments, and the reluctance to excuse neglect when too
easy a standard for the vacatur of default judgments would reduce deterrence to
litigation-delay.” Id.18
No. 2022AP1742
¶33 The circuit court considered Beaudoin’s motion at the December
2021 and April 2022 hearings. The transcripts from those hearings indicate that in
granting the motion, the court placed significant weight on the need to avoid a
miscarriage of justice. On that point, the court spent a significant portion of the
December 2021 hearing discussing whether Window Well could assert a claim
against Beaudoin for alter ego liability, going so far as to ask the parties to brief
that issue. Then, at the April 2022 hearing, the court reviewed the law regarding
limited shareholder liability as set forth in Consumer’s Co-op, including our
state’s reluctance to disregard the corporate form. Following this discussion, the
court concluded “that fairness and the prevention of a potential miscarriage of
justice warrant[ed] vacating the default judgment[.]”
¶34 The circuit court’s analysis as to the other factors relevant to
excusable neglect and relief under WIS. STAT. § 806.07(1)(a) was perfunctory or
nonexistent. First and foremost, the circuit court made no findings of fact as to
why Beaudoin did not timely answer the complaint. It made no mention of the
communications and other acts of Beaudoin’s counsel before Window Well
moved for a default judgment. Nor did it offer any reasoned explanation as to why
Beaudoin’s neglect in not serving and filing an answer, despite having been given
multiple extensions of time to do so and despite at one point denying he ever said
he would do so, was “the act of a reasonably prudent person under the same
circumstances.” See Mohns, 292 Wis. 2d 243, ¶9 (citation omitted).
¶35 Turning to the other relevant factors, the circuit court determined
that Beaudoin had “acted promptly to remedy the default judgment,” but it did not
identify any facts to support that determination. In addition, the court did not
discuss multiple other factors such as the interest in preserving the finality of
judgments and the interest in not creating incentives for delay.
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No. 2022AP1742
¶36 To be upheld, an exercise of discretion must rest on a demonstrated
application of the correct legal standards to the relevant facts and the use of logic
and reasoning to reach a reasonable conclusion. See Estate of Burgess v.
Peterson, 214 Wis. 2d 180, 186-87, 571 N.W.2d 432 (Ct. App. 1997). Here, the
circuit court did not discuss whether Beaudoin’s neglect was excusable and did not
reference other factors relevant to the issue of whether relief from default was
appropriate under WIS. STAT. § 806.07(1)(a). The erroneous analysis as to
whether Beaudoin had a meritorious defense and the omissions discussed above
lead us to conclude that the circuit court erroneously exercised its discretion in
granting Beaudoin’s motion.
CONCLUSION
¶37 For the reasons stated above, we reverse the circuit court’s decision
to reopen the default judgment and the order granting Beaudoin’s motion to
dismiss. We remand this matter to the circuit court to
re-examine the facts relevant to Beaudoin’s motion to reopen in light of the legal
standards governing excusable neglect and relief from judgment under WIS. STAT.
§ 806.07(1)(a). The court should make a record of its factual findings and its
reasoning as to whether those facts meet the standard for excusable neglect and, if
so, how the other factors weigh in favor of or against relief from the default
judgment. If the court finds relief proper, the court should then, if the parties
request it, address the question of whether the rule of material breach excuses
Window Well’s performance of its indemnity obligation and thus precludes
Beaudoin from relying on the provision as a basis for dismissal of Window Well’s
alter ego and unjust enrichment claims.
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No. 2022AP1742
By the Court.—Order reversed and cause remanded with directions.
This opinion will not be published. See WIS. STAT.
RULE 809.23(1)(b)5.
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