Watts v. Watts, 137 Wis. 2d 506, 405 N.W.2d 303 (1987) provides the legal framework for unjust enrichment or joint enterprise claims asserted by non-married, cohabitating partners when a relationship ends. In Sands v. Menard, Case Nos. 2012AP2377 and 2015AP870, the Wisconsin Court of Appealsupheld dismissal ofWatts-type claims brought by an attorney and former fiancée of John Menard, Jr., CEO of Menard’s, Inc., on the grounds that Wisconsin Supreme Court Rule 20:1.8(a) (“Rules 1.8(a)”) regulating business transactions between attorneys and clients precluded her from recovering any business interest in her former betrothed’s business.
Menard began dating Debra Sands, a licensed attorney, in late 1997. While the two dispute whether they ever cohabitated, both agree they were engaged. During their relationship, Sands provided services to Menard and his companies, including legal work relating to a Wisconsin Department of Natural Resources investigation and advice on a transaction involving race car driver Robby Gordon. The parties disagree about precisely when the Sands began providing legal services to Menard. Sands claims she did not do legal work for Menard until 2003, well after their relationship began, and alleges that a payment in 1997 classified as one for legal services relating to the DNR investigation was really a disguised gift from Menard to pay off her student loans. It is undisputed that from 2003 onward, Sands forwarded numerous invoices to Menard, Inc. for legal services, including bills for more than $150,000 for legal work performed between April 2003 and June 2004. Sands was paid for these services, and continued to provide legal services to Menard and his companies until their relationship ended in April 2006.
In addition to legal work, Sands claims she provided various other services to Menard, including “managing the remodeling of three residences [and] advising on the acquisition of airplanes and their design and décor.” Id. ¶ 5. She contends Menard promised to compensate her for her services by awarding her an interest in his businesses. In addition, when the relationship ended, Sands submitted 190 invoices to Menard, Inc. for work performed between February 2003 and April 2006. The invoices totaled $1,085,629.50. The parties were unable to reach a resolution on the outstanding legal fees due Sands, at least in part because Sands refused to sign a release proffered by Menard that would have waived her right to assert any “quasi-marital claims” against Menard.
Ultimately, Sands filed suit against Menard for unjust enrichment, breach of contract and promissory estoppel, seeking “a fair and reasonable share of the property, wealth, and increased net worth acquired by Menard through [Sands’] efforts” during the parties’ relationship, or in the alternative, the fair market value of the allegedly promised business interest. Id. ¶ 15. Sands lawsuit also included trusts and other entities related to Menard. Menard counterclaimed against Sands for breach of fiduciary duty. The circuit court granted summary judgment on all counts, dismissing all of Sands’ claims, as well as Menard’s counterclaims. The parties cross-appealed.
The court of appeals affirmed the circuit court on all accounts, though its main focus was the effect of Rule 1.8(a) on Sands’ equitable claims to an interest in Menard’s businesses. Sands failed to challenge the circuit court finding that she did not expect to compensated for any nonlegal services provided to Menard and, therefore, the court found she was barred from such a claim on appeal. With respect to legal services, the court held any alleged promise by Menard to provide business interest in exchange for legal services was subject to Rule 1.8(a). The version of Rule 1.8(a) in place at the time of the parties’ relationship precluded an attorney from entering into business transactions or taking action to obtain an ownership or other interest adverse to a client unless certain requirements were met. Specifically, the attorney was required to provide written disclosure of the terms of the transaction and obtain written consent from the client. There was no dispute that Sands violated Rule 1.8(a) as she failed to provide written disclosure of the terms of the transaction and failed to obtain Menard’s written consent, both express requirements under the rule. Rule 1.8(a) has since been amended to provide additional safeguards for clients, including that the attorney must obtain a written, informed consent listing the essential terms of any such transaction and must disclose the benefits of the client seeking independent legal advice.
Relying on a variety of cases, the court also rejected Sands’ argument that the Rules of Professional Conduct only apply to disciplinary proceedings, not civil matters. Instead, the court pointed out that a party seeking to recover on an equitable claim – as Sands did here – must have clean hands. While the misconduct necessary to bar an equitable claim need not be criminal, Sands’ failure to comply with Rule 1.8(a) constituted a violation of the standard of conduct and dirtied her hands enough to preclude recovery.
The court discussed Watts, but easily distinguished this case on the grounds that the plaintiff in Watts was not an attorney, and therefore, not subject to Rule 1.8(a). The court noted the limited scope of its decision, stating “[w]e merely hold that an attorney cannot bring an unjust enrichment claim under Watts to recover an ownership interest in a former cohabitant’s business (or equivalent damages) as compensation for legal services, unless the attorney complied with Rule 1.8(a)”. Id. ¶ 46. However, the court noted a variety of circumstances wherein Watts claims could still be pursued by attorneys and non-attorneys alike.
The court upheld the dismissal of Sands’ final claim for breach of contract due for failure to allege with specificity in her complaint the consideration allegedly promised by Menard, and upheld the dismissal of Menard’s counterclaim for breach of fiduciary duty as barred by the statute of limitations.
This case reminds attorneys and non-attorneys that no matter one’s business acumen or age, the mixing of personal relationships and business can have complicated, and often expensive, repercussions. Litigants will no doubt attempt to apply the Watts holding to different scenarios and relationships in the future, which will certainly result in interesting opinions. However, one cannon of the legal profession will remain unchanged – always get it in writing!