Daniel Virnich v. Jeffrey Vorwald

In the
United States Court of Appeals
For the Seventh Circuit
No. 10-3271
D ANIEL V IRNICH,
Plaintiff-Appellant,
v.
JEFFREY V ORWALD , et al.,
Defendants-Appellees.
Appeal from the United States District Court
for the Western District of Wisconsin.
No. 3:09-cv-00340—Barbara B. Crabb, Judge.
A RGUED S EPTEMBER 7, 2011—D ECIDED D ECEMBER 20, 2011
Before P OSNER, F LAUM, and H AMILTON, Circuit Judges.
H AMILTON, Circuit Judge. Plaintiff Daniel Virnich sued
defendants Jeffrey Vorwald, American Trust and Savings
Bank, Michael Polsky, and Beck Chaet Bamburger &
Polsky, S.C., in this diversity action alleging violations
of Wisconsin Statute section 134.01. That statute
prohibits conspiracies between two or more people to
willfully or maliciously injure the reputation, trade,
business or profession of another. The district court
2 No. 10-3271
dismissed Virnich’s suit for failure to state a claim
under Rule 12(b)(6) pursuant to the Supreme Court’s
interpretation and application of that rule and Rule 8 in
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), and
Ashcroft v. Iqbal, 556 U.S. 662, 120 S. Ct. 1937, 1949-50
(2009). See Virnich v. Vorwald, 2010 WL 3489770, at *7 (W.D.
Wis. Sept. 1, 2010). Virnich appeals. We find that,
although Virnich has met the necessary pleading thresh-
old, subsequent developments in state court show that
his claim is barred by issue preclusion. Accordingly,
we affirm the district court’s judgment.1
We review the district court’s dismissal of Virnich’s
complaint de novo. The following description of the
events underlying Virnich’s claim is drawn from the
allegations in his complaint, which we construe in the
light most favorable to him, as the non-moving party. See
Kolbe & Kolbe Health & Welfare Benefit Plan v. Medical College
of Wisconsin, Inc., 657 F.3d 496, 502 (7th Cir. 2011). In
addition, we take judicial notice of the relevant state
court proceedings. See Fed. R. Evid. 201(b); 520 South
Michigan Ave. Associates, Ltd. v. Shannon, 549 F.3d 1119,
1138 n.14 (7th Cir. 2008).
Before he was a plaintiff in federal court, Virnich was
a defendant in Wisconsin state court. Before that, he was
1
Because we dismiss on grounds of issue preclusion, we
do not address the defendants’ alternative arguments:
waiver, quasi-judicial immunity of Polsky as the receiver, and
dismissal of Beck Chaet for failure to plead sufficient facts
under Rule 8.
No. 10-3271 3
a director and an indirect owner of Communications
Products Corporation, or CPC.2 According to Virnich’s
second amended complaint, from 1986 until 2002, CPC
was a successful enterprise, employing as many as 250
people and having total audited net profits in excess
of $12 million. Virnich acted and was compensated as
a director of CPC.
Defendant American Trust solicited CPC’s banking
business, and in 1999 CPC entered into several loan
agreements with the bank. Although CPC agreed to a
covenant in those agreements that required it to retain
at least $900,000 of net worth, Virnich and co-owner
Jack Moores refused to provide personal guarantees of
American Trust’s loans to CPC. At the inception of the
relationship, American Trust was fully aware of CPC’s
finances and ownership structure. CPC continued to
inform American Trust of its financial situation directly
and through audited and unaudited financial statements.
CPC experienced financial difficulties in 2001 and 2002
but remained current in its obligations to American Trust
through May 2003. Defendant Vorwald became the pri-
mary American Trust loan officer on the CPC account
in 2002. In January 2003, American Trust again requested
2
Virnich was the sole owner of Virdanco, Inc., a holding
company. Virdanco owned 50% of CePro, Inc. CePro owned
100% of Basic Products, Inc., and Basic Products owned 100%
of CPC. The upshot is that Virnich indirectly owned 50% of
CPC. Jack Moores, who is not a party to this action, owned
the other 50%.
4 No. 10-3271
personal guarantees on CPC’s obligations from Virnich
and Moores. Virnich and Moores again refused. On
April 24, 2003, American Trust held a meeting at CPC’s
facility with Virnich, Moores, and other members of CPC
management. Vorwald demanded additional collateral
or repayment of some of CPC’s obligations, and once
more asked for personal guarantees from Virnich and
Moores. Virnich and Moores indicated that they were
willing to infuse money into the company, but they
continued to refuse to give personal guarantees. Vorwald
became “visibly upset” but did not express any
concerns about CPC’s solvency at the April 24, 2003
meeting.
Virnich alleges that it was around the time of the April 24
meeting that Vorwald consulted with legal counsel to
determine the requirements for appointment of a receiver:
Motivated by personal animosity toward Virnich,
Vorwald developed a plan to attack Virnich and
Moores’ reputations and otherwise cause harm to
them. The basic elements of the plan were to
remove Virnich and Moores from their positions with
CPC by seeking the improper ex parte appointment of
a receiver based on Vorwald’s knowingly false and
misleading affidavit, with the intent to misrepresent
CPC’s financial condition and damage Virnich and
Moores’ reputations. Upon information and belief,
Mr. Vorwald furthered this malicious plan by repre-
senting, in April and May of 2003, to [defendant]
Polsky and his immediate superior at American Trust,
[non-party] Thomas Utzig, that Virnich and Moores
No. 10-3271 5
were essentially “bad guys” that were “looting” CPC.
Upon information and belief, Vorwald enlisted
Polsky and Utzig’s cooperation to go after Virnich
and Moores by initiating and continuing the receiver-
ship action and taking other malicious actions to
harm Virnich and Moores.
Second Amended Complaint ¶ 22. Vorwald also con-
tacted one of CPC’s other lenders, informing that lender
that American Trust intended to file a receivership
action. As a result, that lender cut off negotiations with
CPC over release of proceeds from a property sale.
Vorwald then contacted the FBI in a fruitless attempt
to instigate an investigation of Virnich for bank fraud
and tax evasion.
In May 2003, Vorwald contacted defendant Polsky
and told him that American Trust was considering
seeking an involuntary receivership action against CPC
and asking if Polsky could serve as receiver. Polsky did
not do an independent investigation of what he was
told, but “knowingly and intentionally joined Vorwald’s
plan with malicious intent to harm Virnich and Moores’
reputations.” Id., ¶ 28. Polsky had never met Virnich or
Moores, but the information he had received from
Vorwald caused him to develop a malicious attitude
toward them. Polsky then allegedly helped Vorwald in
preparing a “false and misleading” affidavit and an
inaccurate schedule of assets for the court in support
of American Trust’s motion for a receivership.
On June 3, 2003, American Trust brought its ex parte
motion to appoint a receiver for CPC in Grant County
6 No. 10-3271
Wisconsin, Case No. 03-CV-285. American Trust’s motion
was granted, and Polsky was appointed receiver. Virnich
contends that Vorwald and Polsky moved forward even
though both had reason to believe that CPC was not
insolvent or in imminent danger of becoming insolvent
because “the primary purpose for the receivership
action was to remove Virnich and Moores from the com-
pany and damage their reputations.” Id., ¶ 38.
On June 4, 2003, Polsky, now receiver, visited CPC’s
plant. Virnich alleges that Polsky announced to CPC’s
employees that the plant might be closing, worrying
CPC’s employees, customers, and suppliers. Days later,
Polsky spoke to two CPC employees and described
Virnich and Moores as “characters” who had created the
most convoluted corporate structure he had ever seen.
He also said that Virnich and Moores were “bad guys”
who had done “bad things.” He spoke in a tone “which
suggested anger and disdain for Virnich and Moores.” Id.,
¶ 48. Polsky also met with union representatives, telling
them that they needed to support him as receiver or the
plant would be closed. In a court hearing, Polsky testified
that the “insider transactions” involving Virnich and
Moores and their holding entities were unusual and not
commercially reasonable, and stated that Virnich and
Moores did not really care about CPC and were in-
terested only in protecting themselves.
Virnich and Moores contested the appointment of the
receiver, but Vorwald threatened that if they continued
in those efforts, American Trust would cut off CPC’s
funding and CPC would immediately shut down, which
No. 10-3271 7
would diminish the value of CPC’s assets. On Septem-
ber 9, 2003, Basic Products (CPC’s owner, a Virnich and
Moores holding company) entered into an agreement to
sell CPC’s assets and entered releases with Polsky and
American Trust. Then, years later, Basic Products filed
a motion in the receivership action for leave to file a
derivative action on behalf of CPC against American
Trust. In the meantime, Polsky, as receiver, had filed a
separate but related lawsuit against Virnich and
Moores individually for breach of fiduciary duty and
related claims (Case No. 04-CV-285). The receivership
court stayed Basic Products’ motion for leave to file a
derivative action pending resolution of Polsky’s lawsuit.
In the fiduciary action, Polsky sought millions of
dollars in damages, including punitive damages, against
Virnich and Moores. Virnich alleges here that Polsky
filed that suit both to force Virnich and Moores to incur
substantial legal fees and to subject their reputations to
further damage. The suit was covered in the press, and
Polsky’s counsel made several public statements about
the case to the effect that Virnich and Moores had
“looted” CPC, had put their interests ahead of the com-
pany’s, and deserved to be punished. Id., ¶¶ 56-57. On
January 17, 2007, a jury found for CPC and against
Virnich and Moores, awarding $6.5 million. Polsky at-
tempted to collect the judgment from Virnich and Moores
and arranged to have pleadings in the collection action
served on Virnich while he was appearing at a charity
golf event. In addition, Polsky attempted to force a
sheriff’s sale of Virnich’s residence and to freeze
Virnich’s and Moores’ retirement accounts. However, the
8 No. 10-3271
jury’s verdict was later overturned by the Wisconsin Court
of Appeals on procedural grounds, Polsky v. Virnich, 779
N.W.2d 712 (Wis. App. 2010), and the Wisconsin
Supreme Court affirmed by an equally divided court.
Polsky v. Virnich, 800 N.W.2d 742 (Wis. 2011). With the
resolution of the appeal of Polsky’s suit against Virnich
and Moores, the receivership court lifted the stay on
Basic Products’ motion for leave to file a derivative
action, and briefing commenced on the question of how
to proceed in the ongoing receivership action.
In the interim, however, Virnich and co-plaintiffs
Virdanco, Basic Products, and CePro, had filed this
action in federal court against defendants Vorwald,
American Trust, Polsky, and Beck Chaet, alleging tortious
interference with contract, negligence, and violation of
Wisconsin Statute section 134.01, which prohibits con-
spiracy to willfully or maliciously injure the reputation,
trade, business or profession of another. The district
court dismissed all claims in the plaintiffs’ original com-
plaint on the basis that they were derivative and should
have been brought by CPC. Then, on reconsideration,
the district court held that Virnich’s section 134.01
claim was not derivative to the extent that Virnich
alleged an individual injury to his reputation. However,
the court found that the complaint failed to state a
claim under the standard set by Twombly, 550 U.S. at
555, and Iqbal, 129 S. Ct. at 1949-50. Virnich filed a
second complaint, which the court also dismissed on
Rule 12(b)(6) grounds. Virnich filed this appeal.
While Virnich’s appeal was pending before this court, the
state receivership court denied Basic Products’ motion to
No. 10-3271 9
file a derivative lawsuit against American Trust on
behalf of CPC. Specifically, in an order dated February 21,
2011, the receivership court found that, “CPC, Virnich
and Moores, have waived their right to seek dam-
ages against American Trust for the alleged filing of
inaccurate documentation to support the appointment
of the Receiver in this case, and against the Receiver
for actions taken prior to the September 2003 Agreement.”
I. Rule 12(b)(6) Dismissal
Dismissal for failure to state a claim under Rule 12(b)(6)
is proper “when the allegations in a complaint, however
true, could not raise a claim of entitlement to relief.”
Twombly, 550 U.S. at 558. Under the pleading standard
now articulated by the Supreme Court, the complaint
must contain allegations that “state a claim to relief that
is plausible on its face” or it is subject to dismissal under
Rule 12(b)(6). Iqbal, 129 S. Ct. at 1940, quoting Twombly,
550 U.S. at 570. “Factual allegations must be enough to
raise a right to relief above the speculative level. . . .”
Twombly, 550 U.S. at 555. That is, the complaint must
contain “allegations plausibly suggesting (not merely
consistent with)” an entitlement to relief. Id. at 557. A
claim has facial plausibility when the plaintiff pleads
“factual content that allows the court to draw the rea-
sonable inference that the defendant is liable for the mis-
conduct alleged.” Iqbal, 129 S. Ct. at 1949. In reviewing a
plaintiff’s claim, the court must construe all of the plain-
tiff’s factual allegations as true, and must draw all reason-
able inferences in the plaintiff’s favor. However, legal
10 No. 10-3271
conclusions and conclusory allegations merely reciting
the elements of the claim are not entitled to this presump-
tion. Iqbal, 129 S. Ct. at 1951.
In relevant part, section 134.01 states: “Any 2 or more
persons who shall combine, associate, agree, mutually
undertake or concert together for the purpose of willfully
or maliciously injuring another in his or her reputation,
trade, business or profession by any means whatever . . .
shall be punished by imprisonment in the county jail
not more than one year or by fine not exceeding $500.”
The statute is a criminal statute, but Wisconsin courts
have found an implied private right of action for victims
of such conspiracies. Radue v. Dill, 246 N.W.2d 507, 511
(Wis. 1976). Wisconsin defines a civil conspiracy as “a
combination of two or more persons by some con-
certed action to accomplish some unlawful purpose or
to accomplish by unlawful means some purpose not in
itself unlawful.” Id. at 509. Thus, to prevail at trial on a
section 134.01 claim, a plaintiff must prove that (1) the
defendants acted together; (2) with a common purpose
to injure the plaintiff’s reputation or business; (3) with
malice; and (4) the plaintiff suffered financial harm. See
Wis. Jury Instructions Civil 2820.
The district court found that Virnich failed to plead a
plausible conspiracy under section 134.01. In the district
court’s view, “Polsky, a professional receiver, was con-
tacted by a creditor about a possible position as a
receiver for a company that was having financial troubles
and was delinquent on a loan. . . . Polsky accepted the
position because it is his profession and he was being
No. 10-3271 11
compensated.” Virnich, 2010 WL 3489770, at *11. In
support of the district court’s interpretation of Virnich’s
allegations, the defendants argue that Virnich’s claim
makes no sense, and is based on “vague aspersions,
conclusory statements, and supposed ‘wrongful’ con-
duct.” The defendants ask in their brief:
Why would Polsky, who had never worked with
American Trust or Vorwald before, have decided to
endanger his career as a court-appointed professional
by entering into a conspiracy with this third party?
Why would this “conspiracy” take the form of com-
mencing a receivership against a company Virnich
owned in part, which seems an odd and indirect
way to strike a blow at someone you supposedly
wish to harm to the exclusion of legitimate business
interests?
These are fine questions for summary judgment, but
to accept such doubts as dispositive on a Rule 12(b)(6)
motion to dismiss would in effect amend Wisconsin law
to prohibit section 134.01 conspiracy claims in any
situation in which receiverships or other professional
contracts are involved. Wisconsin law has not gone that
far. As noted above, to allege the requisite conspiracy for
a viable section 134.01 claim under Wisconsin law, a
plaintiff must allege an agreement between two or more
people, and acts taken in furtherance of that agreement.
Virnich has pled both of these ingredients. Virnich
alleged facts sufficient to show that Vorwald sought the
receivership on behalf of American Trust, that Polsky
agreed to participate in that endeavor, and that Vorwald
12 No. 10-3271
and Polsky compiled the allegedly false affidavit for
the receivership court and, once the receivership was
established, acted in concert to pursue the ends of the
receivership. Vorwald and Polsky allegedly agreed, and
then acted in cooperation — in short, they “conspired.” Is
Virnich’s claim probable? Perhaps not. But it has met
the plausibility standard of Twombly and Iqbal.
The district court also found that Virnich had failed to
plead the malice needed for a viable section 134.01 ac-
tion. Malice for purposes of a section 134.01 claim
means “doing a harm malevolently for the sake of the
harm as an end in itself, and not merely as a means to
some further end legitimately desired [such as hurting
someone else’s business by competition].” Maleki v.
Fine-Lando Clinic Chartered, S.C., 469 N.W.2d 629, 635
(Wis. 1991), quoting Aikens v. Wisconsin, 195 U.S. 194, 203
(1904). In short, an irrational desire to cause harm for the
sake of harm is actionable under section 134.01. A rational
desire to cause harm for the sake of competitive
advantage is not. Also, both parties to the conspiracy
must have acted out of malice for a plaintiff’s section
134.01 claim to survive. See Maleki, 469 N.W.2d at 634.
So, for Virnich’s claim to withstand a motion to dismiss,
he must plead facts from which it could plausibly be
inferred that both Vorwald and Polsky irrationally
wanted to harm him for harm’s sake.
Here, the district court found that Virnich failed to
plead sufficient facts to suggest that Polsky acted with
the requisite intent to cause him harm. Believing that “it
would be difficult, if not impossible, to show that a
No. 10-3271 13
person develops malice toward a person he has never
met and knows nothing about,” the district court consid-
ered but dismissed as inadequate Virnich’s allegations
that Polsky, in reliance on Vorwald’s assertion that
Virnich was “a bad guy,” became malicious and assisted
Vorwald in preparing a purposely “false and misleading”
receivership affidavit. Virnich, 2010 WL 3489770, at *9.
In other words, the district court did not find that the
malice alleged by Virnich was rational.
But under Wisconsin law, that is exactly the point. The
malice that must be pled to satisfy section 134.01, by
definition, must not be based on the defendant’s intent
to gain a competitive advantage. To be actionable, the
defendant’s motive is not supposed to make sense. The
plaintiff must allege and then prove an irrational desire
to harm for harm’s sake. Virnich’s allegations that
Polsky set out to harm him without having met him
fit that bill, at least at the pleading stage. Moreover, we
believe the district court’s finding that it would have
been “difficult if not impossible” for Polsky to want to
harm Virnich for the sake of harming him without
having met him is based on a mistaken premise. People
hate and irrationally want to harm people they have
never met all the time. Far from being “difficult” or
“impossible,” such insensible vitriol is fairly common.
(For example, relatively few people in the United States
have personally met Bernie Madoff, but we feel safe in
surmising that many in the country would admit to
feeling some malice towards him.) It is all too common
for people to feel divided from others based on real or
imagined political, social, or financial lines (to name just
14 No. 10-3271
a few). Whether or not any two individuals have ever
met in person, those divides are often coupled with
irrational loathing towards any person perceived to be
on the other side of the line. Although the inference
might not be probable, it is at least plausible to infer
from Virnich’s allegations that, even though Polsky had
never met Virnich, he developed the irrational malice
needed to survive a motion to dismiss.
In short, Virnich alleged that Polsky heard Vorwald’s
description of Virnich as a “bad guy” and signed on to the
receivership plan. He assisted in drafting a “false and
misleading” affidavit, presented a doctored CPC balance
sheet to the receivership court, and got himself ap-
pointed as receiver. Once installed as the receiver, it is
alleged, he met with certain CPC employees and told
them that Virnich was a “character” who had created the
most convoluted financial structure he had ever seen,
accused Virnich of insider trading in the receivership
action, arranged to have pleadings served on Virnich at
a charity golf event and attempted to force a sheriff’s
sale of Virnich’s residence and to freeze his retirement
accounts. Even after Twombly and Iqbal, the pleading
standard has been met here.
II. Issue Preclusion
Although properly pled, Virnich’s claim fails for a
different reason. The receivership was established by an
order of the Grant County court, and once established,
the receivership was supervised by that court. All of the
actions that Virnich complains of in his section 134.01
No. 10-3271 15
conspiracy claim were taken either in pursuit of or
under the auspices of the court-supervised receivership.
In essence, Virnich is attempting to relitigate whether or
not the imposition and ends of the receivership were
proper, conceding as much in oral argument. (Question:
“If Polsky and Vorwald did not concoct a phony receiver-
ship, you have no case.” Answer: “That’s correct, your
honor.”) But under applicable Wisconsin law, issue
preclusion, also called collateral estoppel, bars the
relitigation of a factual or legal issue that actually was
litigated and decided in an earlier action. See Northern
States Power Co. v. Bugher, 525 N.W.2d 723, 727 (Wis.
1995). Accordingly, Virnich’s section 134.01 conspiracy
claim is precluded, and fails.3
Virnich’s complaint plainly sets forth that, “subsequent
to the ex parte appointment, Virnich and Moores sought
to contest the appointment of the receiver.” Second
Amended Complaint ¶ 54. The receivership court had not
ruled on that objection before Virnich and Moores with-
drew it. On September 10, 2003, the court approved the
sale of CPC. Nearly two years had passed after the sale
was approved when Basic Products (i.e., Virnich and
Moores) filed a motion for leave to commence a
derivative action against American Trust “for alleged
falsehoods in the documents filed in support of the
3
We apply state law when our jurisdiction rests on diversity
of citizenship, and the adjudication argued to have preclusive
effect (under either issue or claim preclusion) was issued by
a state tribunal. See Jarrard v. CDI Telecommunications, Inc.,
408 F.3d 905, 916 (7th Cir. 2005).
16 No. 10-3271
initial appointment of the Receiver.” 2/21/2011 Order in
Case No. 03-CV-285. In opposition, American Trust
argued that Virnich and Moores, having participated in
and received benefits from the receivership action, had
delayed too long to object to the receivership action, and
that any objections they had to the receivership were
waived.
In its February 21, 2011 order, the receivership court
considered that eight years had passed since the receiver-
ship was instituted, that Virnich and Moores had
delayed two years after the sale of CPC to move for
leave to file their derivative action, and that in the mean-
time, a jury had concluded that Virnich and Moores
had had inappropriate financial dealings with CPC to
the $6.5 million detriment of CPC and its creditors.
The receivership court concluded:
Under these circumstances, CPC, Virnich and
Moores’ failure to pursue their objection to the ap-
pointment of the Receiver and their subsequent
agreement to allow for the sale of CPC’s assets in
exchange for a determination that the disputed
leased equipment was not [American Trust’s] col-
lateral, constitutes waiver. This waiver encompasses
both the right to file a derivative action against
the bank and to maintain any claim against the Re-
ceiver for pre-agreement activities.
....
The court finds that CPC, Virnich and Moores, have
waived their right to seek damages against [American
Trust] for the alleged filing of inaccurate documenta-
No. 10-3271 17
tion to support the appointment of the Receiver in
this case, and against the Receiver for actions taken
prior to the September 2003 Agreement.
For Virnich’s section 134.01 conspiracy claim to be
viable, the receivership action would have to be
relitigated. More specifically, we would have to order the
district court to reopen the receivership court’s finding
of waiver. Thus, issue preclusion bars Virnich’s section
134.01 conspiracy claim.
To avoid this result, Virnich argues that he was not
personally a party to the receivership or the agreement
upon which the order is based. That argument goes
nowhere. For purposes of issue preclusion, he stands
in privity with CPC, see Manu-Tronics, Inc. v. Effective
Management Systems, Inc., 471 N.W.2d 263, 267 (Wis. App.
1991) (privity requirement is met where the two actions
involve a closely held corporation and a principal share-
holder, where the shareholder actively participated),
and CPC was a party to the receivership and the agree-
ment. Virnich also argues that the February 21, 2011 order
has no preclusive effect because it is being appealed, but
that is also immaterial. See Wis. Pleading and Practice
§ 37:103 (5th ed. May 2011) (“It is the Wisconsin rule
that an appeal from a judgment does not preclude
that judgment from being a bar to another action.”); see
also Slabosheske v. Chikowske, 77 N.W.2d 497 (Wis. 1956)
(judgment was effective pending appeal, and parties
to bond transaction could properly rely on judgment
before it was reversed); Knuth v. Lepp, 193 N.W. 519, 522
(Wis. 1923) (pending appeal did not affect presumption
18 No. 10-3271
that judgment was still in force with respect to issues
decided in the judgment).4
We also reject Virnich’s contention that some of
his section 134.01 conspiracy allegations survive the
February 21, 2011 order because that order addressed
only “Polsky’s conduct surrounding his improper ap-
pointment as receiver,” whereas his conspiracy claim
also addresses acts that occurred after the receivership
was established. Any acts by Polsky or Vorwald taken
after the receivership was established, and in furtherance
of the goals of the receivership, were taken pursuant
to the receivership and under the supervision of the
receivership court. Those acts are subject to the prin-
ciples of issue preclusion along with the receivership
court’s finding of waiver. Virnich cannot parse his al-
legations to escape this result. The receivership court
has found that Virnich’s arguments that the actions taken
by Vorwald and Polsky in pursuit of and in furtherance
of the receivership were improper are waived, either
explicitly in the February 21, 2011 order or implicitly by
4
This rule is consistent with federal law and the state law of
Illinois and Indiana. See Kurek v. Pleasure Driveway & Park
District, 557 F.2d 580, 595 (7th Cir. 1977) (federal and Illinois
law), vacated on other grounds, 435 U.S. 992 (1978); Starzenski v.
City of Elkhart, 87 F.3d 872, 878 (7th Cir. 1996) (Indiana law); see
also Erebia v. Chrysler Plastic Products Corp., 891 F.2d 1212, 1215
n. 1 (6th Cir. 1989) (“the established rule in the federal courts
is that a final judgment retains all of its preclusive effect
pending appeal”); Robi v. Five Platters, Inc., 838 F.2d 318, 327
(9th Cir. 1988) (same for issue preclusion).
No. 10-3271 19
the receivership court’s establishment and ongoing super-
vision of the receivership. Virnich cannot bring his
nearly identical allegations in the guise of a section 134.01
conspiracy action without running headlong into the
principle of issue preclusion.
Under Wisconsin law, we must also consider several
factors to determine whether application of the doctrine
of issue preclusion would comport with “fundamental
fairness” before closing the book on Virnich’s section
134.01 claim. See Aldrich v. Labor and Industry Review
Comm’n, 801 N.W.2d 457, 465-66 (Wis. App. 2011), citing
Lindas v. Cady, 515 N.W.2d 458, 463 (Wis. 1994). The
Wisconsin courts have identified five factors to be con-
sidered in this analysis:
(1) could the party against whom preclusion is
sought, as a matter of law, have obtained judicial
review of the judgment; (2) is the question one of
law that involves two distinct claims or intervening
contextual shifts in the law; (3) do significant differ-
ences in the quality or extensiveness of proceedings
between the two courts warrant relitigation of the
issue; (4) have the burdens of persuasion shifted
such that the party seeking preclusion had a lower
burden of persuasion in the first trial than in the
second; or (5) are matters of public policy and in-
dividual circumstances involved that would render
the application of collateral estoppel to be funda-
mentally unfair, including inadequate opportunity
or incentive to obtain a full and fair adjudication in
the initial action.
20 No. 10-3271
Aldrich, 801 N.W.2d at 465, quoting Lindas, 515 N.W.2d
at 464. We see nothing “fundamentally unfair” about
applying issue preclusion to bar Virnich’s claims. To
address the listed factors: (1) the parties inform us that
the receivership court’s order is being appealed; (2) the
questions of law in the receivership action and in
the section 134.01 conspiracy action are factually
indistinct, each turning on whether imposition of the
receivership was proper; (3) nothing suggests that there
were significant differences in the quality or extent of the
proceedings in state or federal court; (4) the defendants
did not have a lower burden of persuasion in seeking
imposition of the receivership or in seeking waiver; and
(5) Virnich had plenty of incentive to obtain full and
fair adjudication of his allegations of impropriety in
the initial action. He chose instead to withdraw and
then to sit on those allegations in state court. He has at-
tempted to bite this apple not just twice but three times.
The doctrine of issue preclusion bars him from doing so.
A FFIRMED.
12-20-11