VHC, Inc. v. Tissue Tech., LLC

968 N.W.2d 876 (Table)

2022 WI App 1

VHC, INC., Plaintiff,

v.TISSUE TECHNOLOGY, LLC, Defendant-Third-Party Plaintiff-Appellant,

v.Nicolet Bankshares, Inc., Third-Party Defendant-Respondent.

Appeal No. 2020AP2013

Court of Appeals of Wisconsin.

November 9, 2021

PER CURIAM.

¶1 Tissue Technology, LLC, appeals an order granting summary judgment and dismissing its third-party complaint against Nicolet Bankshares, Inc. (Nicolet). The circuit court concluded that claim preclusion bars Tissue Technology's breach of contract claim because Tissue Technology could have pled the claim in an earlier lawsuit between the parties, but it failed to do so. The court also concluded that Tissue Technology did not establish its need for discovery in order to respond to Nicolet's summary judgment motion. We agree with those conclusions, and we therefore affirm.¹

BACKGROUND

¶2 The underlying facts of this case involve several parties, contracts, and lawsuits. In 2006, Tissue Technology executed an Amended and Restated Sales and Marketing Agreement ("the Agreement") with ST Paper, LLC, wherein ST Paper agreed to pay commissions to Tissue Technology for selling ST Paper products. Tissue Technology later assigned all of its rights and interests in the Agreement to Nicolet ("the Assignment") as collateral for a multi-million dollar loan, which was facilitated through a note between the parties ("the Note"). Among other rights, Nicolet obtained the right to "any and all [c]ommissions due" and the right "to take any and all such actions as necessary ... for breach of payment with respect to any fees due" under the Agreement. The Assignment further provided that "[u]pon payment in full of the Note and the [i]ndebtedness defined in the Commercial Security Agreement," Nicolet's interests in the Agreement would be released to Tissue Technology and the Assignment would be terminated. VHC, Inc., guaranteed payment of the Note, and it subsequently made payments on the Note after Tissue Technology failed to do so.

¶3 In 2013, Tissue Technology and Nicolet executed a Restated and Amended Assignment of Sales and Marketing Agreement and Pledge of Commercial Tort Claim ("the Amended Assignment"). The Amended Assignment stated that ST Paper had defaulted under the terms of the Agreement by failing to make certain commission payments to Tissue Technology. It also purportedly granted Tissue Technology "a limited license to collect, at [Tissue Technology]’s own expense, amounts due and owing by ST Paper" under the Agreement, "so as to give [Tissue Technology] standing to file [a lawsuit against ST Paper]."

¶4 Tissue Technology subsequently commenced an action against ST Paper to recover commissions allegedly earned under the Agreement, but its claims were dismissed on summary judgment after this court concluded that Tissue Technology was not a real party in interest able to enforce the Agreement. See Tissue Tech., LLC v. ST Paper, LLC , No. 2017AP2527-FT, unpublished slip op. ¶¶1, 5 (WI App June 19, 2018). In reaching that conclusion, we recognized that the Amended Assignment was invalid because ST Paper never provided its written consent to the Amended Assignment, as required under the Agreement. Id. , ¶9. We also noted that even if Tissue Technology had the right to collect commissions, it still was not a real party in interest because it did not control the litigation or the fruits of that litigation. Id. , ¶12.

¶5 Following the dismissal of that action, Tissue Technology commenced a lawsuit ("the Second Lawsuit") against Nicolet in late February 2019, alleging breach of contract, breach of fiduciary duty, and negligence claims.² Those claims arose from Nicolet allegedly failing or refusing to commence an action against ST Paper to recover approximately $20,000,000 in commissions allegedly due under the Agreement. Tissue Technology thus alleged $20,000,000 in damages under its breach of contract claim.

¶6 Nicolet subsequently moved to dismiss Tissue Technology's claims, arguing, in part, that Tissue Technology had failed to state a claim upon which relief could be granted. In opposing the motion to dismiss, Tissue Technology notified the circuit court on May 6, 2019, that it intended to file a motion for leave to amend the complaint because it learned on March 21, 2019, that Nicolet had transferred the Note and all rights and remedies under the Agreement to VHC. During a later hearing on the motion to dismiss, Tissue Technology stated that it "[had] asked for the opportunity to replead" because it wanted to add allegations regarding Nicolet improperly transferring Nicolet's rights and remedies under the Agreement to VHC. Despite stating that it wanted to amend its complaint, Tissue Technology never filed an amended complaint, nor did it file a motion for leave to amend the complaint.

¶7 On June 26, 2019, the circuit court granted Nicolet's motion to dismiss, concluding, among other things, that Nicolet did not breach the Assignment.³ Specifically, the court recognized that the Assignment did not grant Nicolet "some of the rights," but rather the Assignment granted Nicolet all of the rights, "including the right not to sue." The court issued a final order on July 8, 2019, dismissing Tissue Technology's claims "with prejudice." Tissue Technology never appealed that order.

¶8 Shortly after the Second Lawsuit was dismissed, VHC commenced this action against Tissue Technology, alleging that VHC purchased the Note from Nicolet and that Tissue Technology defaulted on the Note by failing to make timely payments. After filing a responsive pleading to VHC's claims, Tissue Technology filed a third-party complaint against Nicolet for breach of contract. It alleged that Nicolet breached the Assignment by transferring the Agreement to VHC after the debt owed to Nicolet was paid in full. Nicolet, in turn, filed a responsive pleading to Tissue Technology's third-party claim and then promptly moved for dismissal or summary judgment on that claim.

¶9 Following Nicolet's motion, Tissue Technology moved to compel discovery from Nicolet and VHC. According to Tissue Technology, Nicolet and VHC refused to comply with discovery because part of Nicolet's motion was a motion to dismiss. See WIS. STAT. § 802.06(1)(b) (2019-20).⁴ In its response brief to Nicolet's motion, Tissue Technology also argued, citing WIS. STAT. § 802.08(4), that summary judgment should not be granted because Tissue Technology did not have an opportunity to conduct discovery.

¶10 The circuit court ultimately granted Nicolet's motion and dismissed Tissue Technology's third-party claim. The court concluded that claim preclusion barred Tissue Technology's claim because Tissue Technology could have alleged that claim in the Second Lawsuit. Nevertheless, the court also concluded that Tissue Technology had failed to state a claim upon which relief could be granted. Regarding discovery, the court concluded that Tissue Technology did not need discovery to respond to Nicolet's claim preclusion arguments and concluded that Tissue Technology's motion to compel was moot following the court's decision. Tissue Technology now appeals.⁵

DISCUSSION

¶11 We review a grant of summary judgment de novo, using the same methodology as the circuit court. Jones v. Baecker , 2017 WI App 3, ¶23, 373 Wis. 2d 235, 891 N.W.2d 823 (2016). Summary judgment must be granted if the pleadings, depositions, answers to interrogatories, admissions and affidavits establish 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. § 802.08(2).

¶12 Tissue Technology argues that the circuit court erred by applying claim preclusion to its third-party claim against Nicolet. The doctrine of claim preclusion provides that a final judgment is conclusive in all subsequent actions between the same parties or their privies as to all matters that were litigated, or which might have been litigated, in the former proceedings. Federal Nat'l Mortg. Ass'n v. Thompson , 2018 WI 57, ¶30, 381 Wis. 2d 609, 912 N.W.2d 364. Claim preclusion has three elements: (1) an identity between the parties or their privies in the prior and present suits; (2) an identity between the causes of action in the two suits; and (3) a final judgment on the merits in a court of competent jurisdiction. Id. , ¶31. Tissue Technology concedes that the relevant parties are the same in this lawsuit as in the Second Lawsuit, but it argues that there is no identity between causes of action in the two lawsuits and that there has not been a final judgment on the merits of its current claim.

¶13 We employ the "transactional approach" to determine whether there is an identity between causes of action. Id. , ¶33. The transactional approach is pragmatic, considering such factors as whether the facts are related in time, space, origin, or motivation; whether they form a convenient trial unit; and whether their treatment as a unit conforms to the parties’ expectations or business understanding or usage. Kruckenberg v. Harvey , 2005 WI 43, ¶25, 279 Wis. 2d 520, 694 N.W.2d 879. In short, we consider whether there is a common nucleus of operative facts. Thompson , 381 Wis. 2d 609, ¶36.

¶14 Here, Tissue Technology's third-party claim shares a common nucleus of operative facts with its claim in the Second Lawsuit. The factual basis for each claim begins with Tissue Technology and Nicolet executing the Assignment in 2007, which assigned the rights and remedies in the Agreement to Nicolet. Each claim is then premised on Nicolet having breached a provision of that Assignment. The claims also involve common background facts that occurred during the parties’ decade-long relationship, such as ST Paper allegedly not paying commissions under the Agreement, Nicolet and Tissue Technology executing the Amended Assignment, and Tissue Technology unsuccessfully attempting to recover commissions from ST Paper. Finally, both claims appear to involve the same...