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Robert S. Duxstad
Daniel P. Bestul
Lance A. McNaughton
Nathan R. Martin

Big Money Case Decided on Basic Principles

Posted: 5.23.2017  |  Author: 

Relationships, unfortunately, often come to an end. When the relationship involves the founder of one of the most recognizable businesses in the Midwest, and his lawyer/former fiancée, you have the makings of a plot worthy of a primetime soap opera. Such was the case of Dawn Sands v. John Menard & Menard, Inc., which recently found its way to the Wisconsin Court of Appeals.


Menard is the founder, president and CEO of Menard, Inc. and, according to several sources, one of the wealthiest Wisconsinites. Sands graduated from law school in 1993, and four years later she and Menard began dating. A year later Menard and Sands became engaged, although they never married. They broke off their relationship in 2006.

After their relationship ended, Sands brought a lawsuit against Menard, claiming she had made many contributions as Menard’s life partner, and that Menard had repeatedly promised to compensate her for her services by giving her an ownership interest in his various business ventures.

 

Menard denied this, and contended the only promise he made to her was to compensate her for her work as his lawyer.

This caused some problems for Sands. The Wisconsin Supreme Court rules governing a lawyer’s conduct state that a lawyer may not enter into a business transaction with a client, or acquire an ownership interest adverse to the client, unless the transaction is fully disclosed and set out in writing and the client consents in writing. There were no writings documenting any agreement between Sands and Menard.

 

In response, Sands claimed she did not become Menard’s attorney until long after the agreement had been reached, and so the Supreme Court rule did not apply to her situation. In response to that claim, Menard produced an invoice from Sands for “governmental relations and legal services rendered”, showing she started this work a month before their dating relationship commenced. Sands claimed the invoice was actually a fraudulent document she had submitted to Menard so Menard could gift her money to pay her student loans, which would eliminate any risk of gift tax, and, in fact, would make the gift a tax-deductible business expense.

 

Menard also produced a bill for work Sands did on behalf of Menard’s racing team, negotiating a contract for a race car driver. This bill, too, was for work done well before Sands’ claim she became Menard’s lawyer. Sands also claimed this bill was phony, as well, and was really reimbursement for wedding planning expenses Sands incurred shortly after the engagement.

While the facts of the case might sound like a TV script, the legal principles the courts used to resolve the dispute are applicable to unmarried couples throughout the state.

 

If Sands and Menard had married, their dispute would have been covered by Wisconsin’s divorce law. Since they never married, Sands made two other arguments: first, she and Menard had a contract that the court could enforce, and second, that Menard would be unfairly or unjustly enriched if she did not get a portion of the wealth he accumulated during their relationship.

The trial court and Court of Appeals analyzed Sands’ claim that she and Menard had a formal agreement, or contract, for her to receive a potion of Menard’s wealth, a claim that is guided by precise legal principles and, if you prove your case, precise legal outcomes. One of those principles is that the contract must be definite and certain as to its basic terms and requirements. A contract that is not definite as to the parties’ basic commitments and obligations is not enforceable.

 

In this case, Sands only claimed that Menard had promised that he would compensate her with “an ownership interest for her contributions . . . to the increase in his net worth.” She conceded there was never any specific statement as to what that compensation would consist of. The trial court dismissed her breach of contract claim, because Sands was unable to say exactly what Menard had agreed to do. The Court of Appeals upheld that decision.

 

While parties who live together are not entitled to a division of property following the rules for divorcing couples, the Wisconsin Supreme Court has ruled that an unmarried cohabitant may bring a claim against the other based on a theory of unjust enrichment, where one party attempts to retain an unreasonable amount of the property acquired through the efforts of both. Unjust enrichment is called an “equitable claim”; unlike divorce and contract cases, the Legislature has not provided any specific guidance on how to decide these claims, and it is up to the courts to determine what is fair in each individual case.

While there are no specific laws governing equitable claims, the courts have developed some doctrines and principles on who can ask for this kind of relief. One of them is that the party asking for equitable relief must have “clean hands.” Under the “clean hands” doctrine, a person who has knowingly participated in wrongdoing cannot recover damages resulting from the wrongdoing.

 

For Menard it really made no difference when Sands became his attorney, because she was acting with unclean hands either way. If she was already his attorney when they began dating, then she failed to comply with the Supreme Court rule regarding business transactions between a lawyer and a client. If she was not actually his attorney, then she willingly participated in a scheme to commit tax fraud by creating bills for work she never performed so Menard could deduct money he gifted to her as a business expense.

The trial court determined Sands had unclean hands, and therefore could not ask for equitable relief. The Court of Appeals upheld that ruling.

 

While the facts of this case are unusual, the principles the trial court and Court of Appeals relied on are applicable to cases throughout the state. First, if cohabitating couples wish to enter into an agreement on how their property will be handled if the relationship breaks up, it is important that the agreement be in writing, and that it be very clear as to the respective obligations and commitments of each party.

 

Second, if they are not going to use such an agreement--and very few couples do--any claims one might bring against the other will be decided based on what a judge seems is fair, and not on any specific rules or presumptions. Going one step further, a person’s request for an equitable relief can go up in smoke if the court determines that he or she has unclean hands.

 

Dan Bestul is a fellow of the American Academy of Matrimonial Lawyers and has been certified as a Family Law Advocate by the National Board of Trial Advocacy. In addition to his work with clients in traditional and collaborative family law representation, Dan serves as a mediator and lawyer-coach in family law matters. Dan practices primarily in Green and Lafayette Counties in Wisconsin, and can be reached by e-mail at  bestul@duxstadlaw.com.


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