By Tracy Will
MADISON — The state Supreme Court today heard oral arguments in a case observers say could impact corporate case law in Wisconsin. As the two sides argued the case, comments alternated between extolling two Wisconsin businessmen for cashing in on the success of their company and vilifying them for alleged extreme corporate chicanery.
The case involves two Grant County businessmen — Daniel Virnich and Jack Moores — who operated Communications Products Corp. After the company defaulted on its loans, attorney Michael Polsky sued on behalf of American Trust & Savings Bank alleging that the two men paid themselves excessive salaries instead of paying creditors. The bank won a $6.5 million jury verdict in circuit court. Virnich and Moores appealed the decision.
The court is expected to decide if directors and officers who own a corporation have any fiduciary duty to creditors when the corporation is insolvent but still operating. The case relates to a state Supreme Court 2004 decision in Beloit Liquidating Trust v. Grade.
Defense attorney Donald Schott painted the owners as well-intentioned stewards of the company who kept payments up to date and took care of their workers, creditors, bankers and clients, save for one, American Trust and Savings.
“It was only when the bank [began] acting as the receiver, after 2003, that CPC began to have problems paying its creditors,” Schott said.
Justice Patrick Crooks said he was concerned that the defense relied on inappropriate case law to support its case. Schott responded that the cases he relied on questioned the role of the receiver, in this case the bank that his client owed $100,000, which Schott said prevented CPC from paying its debts.
When Chief Justice Shirley Abrahamson asked plaintiff’s attorney Robert Kasieta to assess the case, he likened it to corporate plundering, saying it was a case of “Wall Street comes to Main Street” as he detailed how Moores and Virnich got millions from the company.
But Abrahamson asked Kasieta why entrepreneurs who take a risk and build a lucrative company wouldn’t deserve the profits.
“These guys came in with very little money, and they got a very lucrative business going. … It’s their money, what’s the matter with that?” Abrahamson asked.
Kasieta called the money paid to Virnich and Moores “ill-gotten gains” and said his client had the statutory right to take the money back.
In rebuttal, Schott acknowledged that the two owners should have paid the loan back in 2003 instead of letting the bank bring in receivers.
Abrahamson interjected, “It seems you should have made a deal then. Paying off the $100,000 in 2003 would have been better.”
Justice Patience Roggensack recused herself in the case, and Justices Michael Gableman and Annette Ziegler offered a few questions amid the dominant lines of questioning from Abrahamson and Crooks.
A decision in the case is expected in the spring.