Pro-Pac, Inc. v. WOW Logistics Co.

Summarized by Mazyar Hedayat , M. Hedayat & Associates, PC
12 years 8 months ago

Citation:

No. 12-2976

Tag(s):

Ruling:

The Wisconsin Bankruptcy Court and District Court erred by applying BR 7015 instead of BR 7054, which is based on FRCP 54(a)-(c). That rule of civil procedure directs that a Federal Trial Court should grant the relief to which each party is entitled, regardless of whether they request that relief. In this case, that meant considering all forms of damages applicable in Wisconsin law, including restitution, punitive, and compensatory. Reversed and remanded to the Bankruptcy Court and District Court with instructions.

Procedural context:

The Bankruptcy Court for the Eastern District of Wisconsin ruled that WOW Logistics had assisted Chapes, an employee of Pro-Pac, in breaching his fiduciary duty. On that basis the Bankruptcy Court awarded damages arising from what it perceived to be unjust enrichment per BR 7015. The result was a finding of punitive damages against Chapes and a finding of compensatory damages against WOW. Chapes and WOW appealed to the District Court. The District Court upheld the damage finding against Chapes but determined that the unjust enrichment finding could not be the basis of damages against WOW. Pro-Pac appealed that ruling. The 7th Circuit reversed the damages portion of both the Bankruptcy Court and District Court.

Facts:

Pro-Pac filed Chapter 11 in 2006 before the Bankruptcy Court for the Eastern District of Wisconsin and brought an adversary proceeding against an employee who breached his fiduciary duty by steering business to WOW, as well as against WOW. The Bankrutpcy Court conducted a trial in June 2011 at which Pro-Pac presented evidence of its claims and damages. The damages were based on the brokerage commission it would have received if Chapes had not directed business to WOW. The Bankruptcy Court agreed that Chapes had breached his fiduciary duty and WOW was liable of a tort for collaborating with him. In calculating damages the Bankruptcy Court presumed in accordance with BR 7015 that its award had to rest on an independent claim for unjust enrichment. It found that claim based on an argument originally made by Pro-Pac. Chapes and WOW appealed separately. The District Court upheld the award against Chapes but ordered the Bankruptcy Court to dismiss the unjust enrichment claim based on its reading of BR 7015. The 7th Circuit found that under BR 7054 no additional claim to determine damages was needed, but to develop the record further to calculate damages appropriately.

Judge(s):

MANION and WOOD, Circuit Judges. BARKER, District Judge.

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