For those wondering what I do all day. Here it is. Well, that and this way I’ll never loose it.
IN THE CIRCUIT COURT FOR RACINE COUNTY, WISCONSIN
DENISE SANER, )
PLAINTIFF, ) DOC. 2012 PAGE 317
JUDY VERMEER, d/b/a JUDY’S DOG ) DEFENDANT’S MOTION
GROOMING, ) IN RESISTENCE TO
) PARTIAL SUMMARY JUDGMENT
Under Wis. Stat. 802.08 should the plaintiff’s motion for partial summary judgments regarding the liquidated damages clause in the contract signed between Denise Saner and Judy’s Dog Grooming be denied because she fails to prove that the stipulated damages clause is unreasonable as a matter of law given the textual evidence of the subjective intent of the parties to create a damages clause, the difficulty to ascertain the actual damages Vermeer will suffer by loss of clientele?
STATEMENT OF THE FACTS
Judy Vermeer (“Vermeer”) has been in the dog grooming industry in Milwaukee for 30 years (R 8:21). Vermeer began her business, Judy’s Dog Grooming, (“JDG”) in her basement (R 8:22). After 20 years of hard work she was able to move the business out of the basement and into a shop and hire employees (R 8:26-27). With time some of her employees quit and used the specialized skills they acquired from Vermeer to compete against JDG (R 8:7-8). The loss of experienced employees placed a burden on Vermeer to find and train new employees (R 9:15, 25-26). Vermeer estimates it takes an average of 30 months to help a new employee become an average good groomer (R 9:16-17).
In response to this problem, Vermeer created a standard non-compete agreement which she required all new employees to sign (R 9:9). Vermeer thought that including a 50-mile radius and a 30 month limitation on future employees would give her a fair opportunity to find and train new employees (R 9:25). The contract also contains a stipulated damages which reads:
(c) Damages—Employee agrees to foreit $200,000 as grooming fees for any violation of the noncompetition agreement.” (R 3).
The plaintiff, Judy Saner (“Saner”) joined JDG and signed the non-compete agreement (R 9:9). Prior to joining JDG, Saner had worked for six years for Marcy’s Dog Kennel (“MDK” ) a breeding and grooming company that specialized in pooddles and pulis (R 11:28). Saner was making a good reputation for herself through her grooming at MDK, but quit in order to move back to Milwaukee to help her sick mother.” (R 12:12-14). When Saner was offered a position at JDG she was grateful to have found a job that allowed her to peruse her love of dog grooming but did not require her to leave town or go on shows (R 12:14).
Although Saner was very skilled with poodles and pulis, Vermeer had to teach her how to groom every other breed of dog (R 12:331-33). Vermeer also named Saner her lead groomer and provided her with customers and began to advertise specifically for Saner and the work she was doing (R 9:13, 14:4). Because of Vermeer’s hard work and advertising and Saner’s excellent work business was becoming quite busy and Vermeer was looking to hire another employee (R 14:1-4). However, it was at this point in time that Saner’s mother recovered (R 14:9). Saner quit shortly thereafter, hoping to open a grooming business with Marcy, a previous business associate (R 14:26-27). Vermeer is now trying to replace an employee during a very busy time in the season (R 10:6).
Saner and Marcy desire to open a dog grooming business in Racine, a location that would be in violation of the noncompetition’s 50 mile radius (R14:27). Saner plans on using the skills she acquired at JDG to train her own employees and grow her new business (R 15:5). Saner filed suit challenging challenging the legality of the noncompetition agreement. (R 6).
- ALTHOUGH THERE IS NO ISSUE OF MATERIAL FACT IN THIS CASE, THE PLAINTIFF FAILS TO PROVE THAT THE STIPULATED DAMAGES CLAUSE IS UNREASONABLE AS A MATTER OF LAW
Despite the absence of any issue of material fact in the current case, the plaintiff’s motion for summary judgment ought to be denied because she fails to prove she is entitled to judgment as a matter of law. Wisconsin statutory law states “the judgment sought shall be rendered if the pleadings…show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law” Wis. Stat. Ann. § 802.08 (West 1994). The two requirements that the statute say must be met for summary judgment are: first, that there is no genuine issue of material fact, and second that the moving party is entitled to judgment as a matter of law with the burden of proof being placed on the moving party. Affeldt v. Green Lake County, 335 Wis.2d 104, 803 N.W.2d 56, 2011 WL 2624455, 2011 WI 56 (Wis., 2011). In the case before us there is no dispute as to material fact, leaving only the question of whether the moving party is entitled to a judgment as a matter of law.
As a matter of law the plaintiff is not entitled to judgment because the plaintiff fails to meet their burden of proof that the stipulated damages clause is unreasonable. In Wassenaar v. Panos the court gave a three prong test to identify reasonableness if a stipulated damages clause is reasonable, which are: (1) Did the parties intend to sign a stipulated damages clause or a penalty? (2) Is the injury caused by the breach difficult to ascertain? (3) Are the stipulated damages a reasonable forecast of the harm caused by the breach? This test is not a mechanical test, but rather one which allows courts to give different interpretations of how important various factors are to the specific case. Wassenaar v. Panos, 111 Wis. 2D 518, 526 (1983).
- B. BOTH THE TEXT AND CIRCUMSTANCES OF THE CREATION OF THE CONTRACT SHOW THE PARTIES INTENDED TO SIGN A STIPULATED DAMAGES CLAUSE AND NOT A PENALTY
The stipulated damages clause passes the subjective intent test because the provision was titled “damages” showing the parties intended the clause to create a damages clause and not a penalty. The first test is to determine the subjective intent of the parties; whether the parties intended to create a penalty or stipulated damages clause. The court generally spends little time on this prong of the test “because subjective intent has little bearing on whether the clause is objectively reasonable.” Id. 530. To determine the subjective intent of the party the court will examine the “circumstances which give rise to the formation of the contract.” Koenings v. Joseph Schlitz Brewing Co., 126 Wis. 2d 349, 362 (1985). The court also uses the title of the clause to determine the party’s intent. Id.
In Equity Enterprises, Inc. v.Milosch, the court demonstrated how it uses the text of the contract to determine subjective intent. In the case, Milosch, who was an insurance salesperson for Equity Enterprises, signed a non-compete agreement which contained a provision requiring that if he broke the non-compete he “shall forfeit any and all right to further commissions otherwise payable.” Equity Enterprises, Inc. v. Milosch, 247 Wis. 2d 172, 182 (App., 2001). Milosch later quit and accepted a position elsewhere, and Equity filed suit requesting the court enforce the forfeiture of commissions clause. Id. To determine the intent of the parties the court first examined the title of the clause, which was “Commissions After Other Termination.”Id. The court ruled that because the provision was dealing with the forfeiture of commissions that Milosch had lawfully earned the clause was intended as a penalty. Id. at 190.
JDG’s stipulated damages clause passes the textual anylis the court used in Equity. In Equity, the clause was named “Commissions After Other Termination,” whereas, the clause before the court is clearly labeled “damages.” Although the stipulated damages clause uses the word “forfeit” it is used in an entirely different context than Equity. In the Equity case, the clause took away commissions that Milosch had earned. Id. Saner’s contract says if she violated the agreement she would “forfeit $200,000 as grooming fees.” These grooming fees are referencing grooming fees JDG lost because of the breach; Saner will not lose any commissions, salary, benefits or grooming fees she has earned. Rather, taken in the larger context the parties signed a damages clause to provide compensation for damages by stipulating that the employee would forfeit—or pay—$200,000 to compensate for the lost grooming fees that JDG would incur as a result of the breach. Thus, using the courts textual method for analyzing contracts, the clause is not a penalty but a damages clause because JDG specifically labeled it “damages” to clear up any ambiguity.
Further, the court’s second inquiry into the circumstances that gave rise to the contract further shows that the parties intended to sign a damages clause because the record clearly shows the document was created with the intent of being a fair mechanism to make unfair business practices difficult. Circumstances drove Vermeer to create a non-compete contract because past employees would quit and use their specialized skills against her. Vermeer said that “she wanted to make it difficult, maybe even painful” for someone to use such unfair business practices. Although Vermeer’s language is harsh, the record clearly shows she only wanted to make unfair competition painful, but picked a 30 month time limitation in an effort to be fair to herself and her employees. The contract doesn’t stop Saner from perusing her business interests with the specialized skills she acquired from JDG. It only asks that in furthering her career she either give JDG 50 miles of space so that she doesn’t use her personal relationships with the customers unfairly or to give JDG 30 months to find and train a new employee and to allow the customers the opportunity to build a personal relationship with the new dog groomer. Because both the text—by identifying the provision as a damages clause—and the context—Vermeer creating the contract as a way to protect herself from unfair business practices—the stipulated damages clause passes both inquiries in the subjective intent prong, and was therefore signed with the intention of it being a stipulated damages clause.
- THE STIPULATED DAMAGES ARE REASONABLE BECAUSE IT IS VERY
DIFFICULT TO ASCERTAIN THE MONETARY DAMAGES FOR LOST CLIENTELE
The stipulated damages clause is reasonable because it is currently impossible to ascertain any actual damages that will result from lost clientele to MDK because Saner hasn’t begun to work there yet. The court has said in the past that the more difficult it is to ascertain actual damages the more likely it is the court will uphold the stipulated damages. Wassenaar, 111 Wis. 2d at 530. The court has also recognized that it is extremely difficult to ascertain damages caused by lost clientele resulting from a breach. Pollack v. Calimag, 157 Wis. 2d 222, 241 (Ct. App. 1990).
The court addressed the difficulty of ascertaining losses caused by lost clientele in Pollack v. Calimag. Calimag, a neurologist, bought a medical clinic where Pollack was employed. Id. at 227. After becoming the owner of the clinic, Calimag had Pollack sign a non-compete agreement and stipulated damages clause of $25,000; in exchange Calimag’s clinic would provide Pollack with patients, work space, medical equipment, support staff and billing services. Id. at 228. Pollack later argued that the contract was a penalty because the stipulated damages were in excess to the actual damages Calimag’s health clinic suffered. However, the court ruled that the stipulated damages clause was reasonable because “it was unknowable at the time of contracting how many established patients might follow Pollack to a competitor or how many potential ones might be lost.” Pollack, 157 Wis. 2d at 241. Similarly, Vermeer can not accurately estimate how much damage Saner will cause by breaching the contract. In businesses like health clinics and dog grooming, the relationship between the employees and clients are vital to the structure of the business itself. Like Pollack, JDG was advertising and providing Saner with clients. Because Saner is opening a business is such close proximity to JDG, she’ll be able to use the goodwill and personal connections provided and paid for by Vermeer. Making matters worse, Saner is bringing this suit prematurely because Saner has not breached the contract by working for MDK, making it impossible to predict how many clients will leave, and what Vermeer’s actual damages will be. Because the law suit is premature, the court should rule that the stipulated damages clause is reasonable because it is impossible for anyone to be able to predict what the actual damages will be because of lost clientèle.
- THE STIPULATED DAMAGES CLAUSE IS REASONABLE BECAUSE IT IS DIFFICULT TO ASCERTAIN DAMAGES CAUSED BY THE TIMING OF THE BREACH.
The stipulated damages clause is also reasonable because it is difficult to ascertain how long it will take Vermeer to acquire a new groomer. The court has also considered the uncertainty of the damages caused by the timing of the breach as another way of measuring the how difficult ascertaining damages were for the parties. Wassenaar v. Panos, 111 Wis. 2d at 521-22. Under this inquiry, the court has not just looked at the damages caused by the inability of the parties to know when a breach would happen, but also the damages caused by the uncertainty of being able to find new employees.
The court used the uncertainty of the timing of the breach in Wassenaar v. Panos to uphold a stipulated damages clause. Towne Hotel hired Wassenaar as a general manager and the parties signed a contract which contained a stipulated damages clause that guaranteed Wassenaar three years salary, even if he was fired before the end of the contract. Id. at 321. However, Towne Hotel terminated Wassenaar’s employment 21 months before the contract would expire. Wassenaar was unemployed for less than three months when he was hired by another hotel. Id. Towne Hall argued that the court should use the traditional method of calculating damages by getting an estimation of “the salary the employee would have received during the unexpired term of the contract plus the expenses of securing other employment reduced by the income which he or she has earned.” Id. at 337. Towne argued it was unfair to pay damages to Wassenaar for 21 months unemployment when usually the court would only award damages for the three months Wassenaar was actually unemployed. Id. The court did not find this reasoning persuasive because although the court could easily retrospectively calculate the damages, at the time of the contract neither party could be sure of the damages caused by the timing of the breach. Once Towne Hotel breached it was uncertain how long Wassenaar would remain unemployed or whether he would find a comparable job. Id. at 339. Because it would be difficult for the parties to know just how much Wassenaar would lose if his contract was terminated, the court ruled that three years salary was a reasonable estimation.
Similarly, Vermeer could not know when she hired Saner if and when she would breach her contract. Saner left at a very busy time, making it even more difficult for Vermeer to find a groomer to replace her. Vermeer has yet to be able to find a replacement, and it is very difficult to know how long it will take for Vermeer to locate a new groomer. Like Wassenaar, because estimating damages is difficult to do without knowing the timing of the breach and how long it will take for Vermeer to repair it, the stipulated damages clause was a reasonable way for Vermeer to help manage the risk of Saner’s breach of contract.
- THE STIPULATED DAMAGES ARE A REASONABLE PROJECTION BECAUSE THEY INTENDED TO PROTECT BOTH ACTUAL AND CONSEQUENTIAL DAMAGES.
The stipulated damages clause is a reasonable forecast of the damages because the court defers to the projection of the parties when the contract protects against consequential damages. The third prong of the test asks whether the stipulated damages were a reasonable forecast of the actual damages. The court has also used this prong to consider if the parties intended to protect against consequential damages. Wassenaar v. Panos, 111 Wis. 2d at 522. Consequential damages include “permanent injury to professional reputation, loss of career development opportunities, and emotional stress.” Id. The court does not regularly calculate consequential damages, because of their speculative nature, however, if the parties intended to protect against consequential damages in the contract the court will enforce it. Id. The court has never struck down a stipulated damages clause when it rules that the contract protects consequential damage, because of the speculative nature of consequential damges.. Id.; Koenings, 126 Wis. 2d at 365. In order to determine whether the parties intended to protect against consequential damages the court examines the text of the document and the surrounding circumstances which give rise to the contract. Id.
The court used the text of a stipulated damages clause to show it protected against consequential damages in Koenings v. Joseph Schlitz Brewing. Koenings was working for Schlitz when they merged with a competing company. As a result of the merger Koenings signed a contract to protect his position and pay despite the merger. The contract said that if Schlitz fired Koenings or greatly reduced his responsibility he would be entitled to one year’s salary plus benefits. Id. at 354. When Schlitz reduced Koenings hours, Koening quit and found employment elsewhere immediately. Id. The court found that although the stipulated damages clause was much higher than the court would normally project it was still reasonable because it protected against consequential damages. Id. at 365. Although the contract did not explicitly say it protected consequential damages, the court reasoned that since the contract protected Koenings’ actual damages—loss of salary by being terminated—and his standing within the company—his responsibilities and hours of work—the contract implicitly intended to protect against consequential as well as actual damages. Id.
The text and the circumstances surrounding the creation of the stipulated damages clause implicitly protects Vermeer against consequential damages by placing limitations that clearly protect against loss of reputation and mental and emotional stress. First, Vermeer tells us the 30 month non-compete period was to give her adequate time to obtain and train new groomers. The provision helps mitigate some of the mental and emotional anxiety which comes with finding new breeders and keeping your customers satisfied, while being forced to compete with a nearby ex-employee who is siphoning off clients she knows from working with JDG. Second, 50 mile geographic limitation protects Vermeer from a loss of reputation, which will quite logically occur from gossiping customers trying to figure out why Vermeer’s old head groomer left, opened up a shop relatively nearby, and is now offering the same service for $15 cheaper. asdfBecause the contract protects against consequential damages, Wisconsin case law in both Wassenaar and Koenings assumes that when Vermeer and Saner entered into the agreement, they both agreed that $200,000 was a reasonable estimation of what it would require to make Vermeer whole in case of a breach, and the court defers to the intent of the parties.
The plaintiff fails her burden of proof that the stipulated damages clause is unreasonable as a matter of law. The contract explicitly says in the title of the clause that the parties knew they were agreeing to damages and not a penalty. Because the plaintiff brought suit prematurely, it is impossible to ascertain what actual damages JDG will suffer from lost clients. It is also difficult to know the damages that will be caused by the timing of Saner’s breach, since no one knows how long it will take for Saner to find new employees. The contract very clearly also protects against consequential damages which a breach might inflict on Vermeer’s reputation and emotional and mental health. Because projecting damages in these areas are so next to impossible, we pray the court to deny Saner’s premature motion for summary judgment.
Attorney for Defendant
1234 Creighton Street
Omaha, Euphoria 68135
CERTIFICATE OF SERVICE
The undersigned hereby certifies that a true and correct copy of the above and foregoing Brief in Opposition to Motion for Partial Summary Judgment was served first-class, United States mail, postage prepaid, on this 20th day of April, 2012.