Estate of Leon Luterbach v. Ace Redi-Mix, Inc.

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
January 3, 2024
A party may file with the Supreme Court a
Samuel A. Christensen petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10 and
RULE 809.62.

Appeal No. 2023AP472 Cir. Ct. No. 2019CV1552

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT II

ESTATE OF LEON LUTERBACH, LAURA BOWEN AND DARREN J.
LUTERBACH,

PLAINTIFFS-APPELLANTS,

V.

ACE REDI-MIX, INC., DALE LUTERBACH AND DOUGLAS D.
LUTERBACH,

DEFENDANTS-RESPONDENTS.

APPEAL from a judgment and an order of the circuit court for
Waukesha County: WILLIAM DOMINA, Judge. Affirmed.

Before Gundrum, P.J., Neubauer and Lazar, JJ.

Per curiam opinions may not be cited in any court of this state as precedent

or authority, except for the limited purposes specified in Wis. Stat. Rule 809.23(3).
No. 2023AP472

¶1 PER CURIAM. Darren Luterbach, Laura Bowen, and the Estate of
Leon Luterbach (together, the “Minority Shareholders”) appeal from a judgment
dismissing their breach of fiduciary duty claim and from an order denying their
motion for reconsideration. Darren and Laura, who are shareholders in Ace
Redi-Mix, Inc., assert that the trial court erred by not finding several year-end
payments made by Ace to two other shareholders, Dale Luterbach and Douglas
Luterbach, to be distributions of corporate profits. We affirm.

¶2 Ace is a Wisconsin subchapter S corporation that operates a concrete
ready-mix business.1 After the death of Ace’s then-president Leon Luterbach in
April 2016, his two children, Darren and Laura, were assigned equal portions of
Leon’s 45 percent ownership interest in Ace (22.5 percent each). Darren and Laura
remain shareholders of Ace but are not employees, officers, or directors of the
company. Dale Luterbach, Leon’s brother, holds a 45 percent ownership interest in
Ace and serves as the company’s president and sole director. Dale’s son, Doug
Luterbach, owns the remaining 10 percent of shares and is Ace’s vice president and
an employee of the company. Doug also served on the company’s board of directors
from 2014-2020.

¶3 The Minority Shareholders’ claim arises out of certain year-end
payments Ace made to Dale and Doug from 2016 to 2021. The Minority
Shareholders allege that these payments “constitute[] undeclared dividends or other
distributions of corporate profits” and that Dale and Doug had breached their

1
A subchapter S corporation under the Internal Revenue Code generally “does not pay
dividends from corporate profits, but rather, passes-through its profits to the shareholders on a pro
rata basis.” Jorgensen v. Water Works, Inc., 2001 WI App 135, ¶11, 246 Wis. 2d 614, 630
N.W.2d 230.

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fiduciary duties by not “distribut[ing] an equal pro-rata share of dividends and
distributions” to the Minority Shareholders.2

¶4 Over the course of a two-day bench trial, the trial court focused on the
nature of these year-end payments, which ranged from between $100,000 and
$150,000 each year for Dale and between approximately $20,000 and $75,000 each
year for Doug. The court heard testimony from Darren, Laura, Dale, Doug, Keith
Prince, Ace’s accountant from 1995-99 and 2013-present, and Joel Nettesheim, a
certified public accountant called by the Minority Shareholders as an expert witness.

¶5 Following the presentation of evidence, the trial court delivered an
oral ruling in which it found that the payments were the result of a “business process
… based upon a primary effort to provide a fair wage to the employees, including
those employed and also serving as officers and directors of the corporation.” The
court concluded that the Minority Shareholders had not carried their burden of
proving that the payments were, in fact, distributions of profits in which they were
entitled to share. The Minority Shareholders filed a motion for reconsideration,
arguing that the court had improperly focused on the process Ace used to determine
the payments, rather than the fact that the payments were based on Ace’s
profitability in a given year rather than Dale’s and Doug’s performance. The court
denied the motion, and this appeal followed.

2
The Minority Shareholders raised other claims against Ace, Dale, and Doug, including a
derivative claim for excessive compensation based on the bonus payments, that were dismissed
before trial. The parties agree that the only claim that proceeded to trial was a claim for breach of
fiduciary duty. They appear to agree this claim is based on the Minority Shareholder’s contention
that profits, under the guise of bonus payments, were paid to the majority shareholders, but not to
them. The circuit court determined this claim was a direct claim. The parties also agree that
resolution of this case centers on whether the payments were bonuses or profits.

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No. 2023AP472

¶6 Under Wisconsin law, directors of a corporation owe a fiduciary duty
of good faith and fair dealing to the corporation’s shareholders. Yates v. Holt-
Smith, 2009 WI App 79, ¶19, 319 Wis. 2d 756, 768 N.W.2d 213. That fiduciary
duty requires directors to refrain from “us[ing] their position of trust to further their
private interests.” Jorgensen v. Water Works, Inc., 2001 WI App 135, ¶10, 246
Wis. 2d 614, 630 N.W.2d 230 (citation omitted). A director may breach this duty
by treating shareholders differently and inequitably by, for example, causing the
corporation to pay distributions of profits to some shareholders but not others. See
id., ¶18.3

¶7 Whether a director has breached a fiduciary duty to a shareholder
presents a mixed question of law and fact. Id., ¶8. We review a trial court’s factual
findings deferentially and will not disturb them unless they are clearly erroneous,
WIS. STAT. § 805.17(2) (2021-22),4 but whether those findings establish a breach of
fiduciary duty presents a question of law that we review de novo, Jorgensen, 246
Wis. 2d 614, ¶8. A finding of fact is clearly erroneous if “the evidence for a contrary
finding itself constitutes the great weight and clear preponderance of the evidence.”
Dickman v. Vollmer, 2007 WI App 141, ¶15, 303 Wis. 2d 241, 736 N.W.2d 202.

¶8 The Minority Shareholders’ arguments on appeal focus on the nature
of the payments received by Doug and Dale. Whether the payments are a

3
Although a subchapter S corporation may distribute profits to its shareholders, it is not
required to do so. See 18B AM. JUR. 2D Corporations § 1083 (2023); Harrison v. Harrison, 949
N.W.2d 369, 383 (Neb. Ct. App. 2020). “Earnings are owned by the corporation, not by the
shareholders…. Subchapter S corporations may accumulate profits, referred to as ‘retained
earnings.’” Harrison, 949 N.W.2d at 383. However, where a distribution has been approved by a
majority of the shareholders, the distribution must be distributed to all the shareholders. See
Jorgensen, 246 Wis. 2d 614, ¶18. Again, the only issue here is whether the bonuses were an
unequal distribution.

4
All references to the Wisconsin Statutes are to the 2021-22 version unless otherwise
noted.

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distribution of profits or year-end performance bonuses is a question of fact, subject
to our clearly erroneous standard of review. See Jorgensen, 246 Wis. 2d 614, ¶¶12-
19 (examining trial court’s findings of fact concerning the nature of payments to
corporate directors and officers).

¶9 Initially, the Minority Shareholders contend the trial court did not
make any finding of fact as to whether the payments were profit distributions or
bonuses that were part of Dale’s and Doug’s compensation. We disagree. The court
specifically identified this as the key issue in its oral ruling when it stated that Darren
and Laura had the burden to prove that Dale and Doug “had distributed what were
otherwise profits of this closely held S [c]orporation under the guise of bonuses and
wages to enrich themselves rather than share that with minority shareholders who
were not employed by Ace Redi-Mix.” The court then summarized the evidence
presented, noting in particular Prince’s testimony that Ace’s “process of payment of
bonuses dependent upon your performance was not a new practice but was a practice
which extended well over 20 years in the past … almost to the very beginnings of
this entity.” The court then explained that a breach of fiduciary duty did not exist
merely “because there are payments of bonuses for employees who accept a lower
base wage in order to see what kind of year it’s going to be.” It found that the
payments were part of a “business process.… based upon a primary effort to provide
a fair wage to the employees” and concluded that the Minority Shareholders had not
carried their burden of proving that they had been treated unfairly when they did not
receive similar year-end payments. The court repeatedly characterized the
payments as “bonuses” linked to Ace’s annual performance. From these statements,
it is apparent that the court’s conclusion that the Minority Shareholders had not
established a breach of fiduciary duty rested on its finding that the payments were
in fact bonuses, not distributions of profit.

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No. 2023AP472

¶10 The Minority Shareholders next argue that the “undisputed evidence”
presented at trial shows that the payments were distributions of profit rather than
year-end bonuses. The Minority Shareholders highlight certain evidence presented
at trial to support their argument, including: (1) testimony from Dale and Prince
that the amounts of each year’s payments were based on Ace’s year-end cash on
hand; (2) Dale’s acknowledgement that the amount of the payments depended on
Ace’s profitability in a given year; (3) Ace’s lack of “a bonus policy to measure
employee performance”; and (4) Dale’s and Doug’s admissions that their
performance at Ace is not reviewed in connection with the setting of the payment
amounts. These portions of trial testimony are not sufficient to show that the trial
court clearly erred in finding the payments to be part of Doug’s and Dale’s
compensation. Evidence supportive of each characterization was presented at trial,
and the Minority Shareholders cannot show clear error merely by emphasizing the
evidence that supports their view.

¶11 In its oral ruling, the trial court summarized Prince’s testimony, which
it found credible, as to the process he and Ace undertook to determine the year-end
payments:

Mr. Prince testified that on an annual basis he would meet
with the controlling shareholders and their supportive team
… and other than the base wage the very first thing that
would be discussed would be whether or not there should be
the payment of bonuses to certain employees. Mr. Prince
testified that that listing of potential recipients of employees
of [Ace] was bigger or broader than the two controlling
shareholders Doug and Dale Luterbach in this case.

… He also testified that the process of payment of
bonuses dependent upon your performance was not a new
practice but was a practice which extended well over 20
years in the past to the very—almost to the very beginnings
of this entity or at least when there became more than one
head of the entity.

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No. 2023AP472

Dale confirmed that Ace made year-end payments to several nonshareholder
employees, including its dispatcher, mechanic, and secretary. He confirmed that
those payments were made to the employees because of their importance to Ace,
the company’s desire to retain them, and in light of the company’s performance that
year. Prince testified similarly that the payments were based on the company’s
performance. Prince explained that because the ready-mix industry was a seasonal
business, the company paid Dale and Doug (and before he died, Leon) a base salary
and then waited until the end of the year to issue performance bonuses. This was
prudent given the nature of the business and it allowed for a delay in compensation
to allow for a full evaluation of the company’s performance.

¶12 We defer to the trial court’s credibility determination, State v.
Vollbrecht, 2012 WI App 90, ¶27, 344 Wis. 2d 69, 820 N.W.2d 443, and given the
evidence tending to show that the payments were intended to reward Dale, Doug,
and the other employees for Ace’s performance, we cannot say the court clearly
erred in finding the payments to be year-end bonus compensation rather than
distributions of profit.

¶13 The Minority Shareholders argue that our decision in Jorgensen
compels reversal. Again, we disagree. In Jorgensen, minority shareholders brought
suit against majority shareholders-directors for causing a corporation to stop making
regular payments to the minority shareholders after they were removed as officers
and directors. Jorgensen, 246 Wis. 2d 614, ¶¶3-4. The trial court found that these
payments “were not based on work performed for the corporation but instead were
distributions related to profits.” Id., ¶12. On appeal, we declined to disturb this
finding given the evidence in the trial record that supported it. Id., ¶¶12-15, 18.
Here, in contrast, the trial court found that the year-end payments were not based on
profits but on services performed for the company by Dale, Doug, and the other
employees who received them. The Minority Shareholders have not shown that the

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No. 2023AP472

great weight and clear preponderance of the evidence supports a contrary finding.
Thus, Jorgensen does not control this case.

¶14 The Minority Shareholders’ reliance on Yates, 319 Wis. 2d 756, is
unavailing for similar reasons. That case involved a dispute between two owners of
a financial services company, each of whom was an officer, director, and
shareholder. Id. ¶¶1, 3. Yates sued Holt-Smith for breach of fiduciary duty,
asserting that Holt-Smith withheld a year-end bonus to which Yates was entitled.
Id., ¶1. Upon review, we refused to disturb a trial court finding that the year-end
payment was based on the firm’s profits and therefore a constructive dividend. Id.,
¶¶15, 17 (“It is apparent that the year-end payments were based on HSYA’s profits
each year and were paid to Yates and Holt-Smith based on their ownership
interests.”). We specifically noted the absence of “evidence suggesting the
payments were based on the relative contributions or productivity of either party”
or “were used as an incentive to retain either party’s services.” Id., ¶17.5 The
opposite is true here: the record contains evidence that the year-end payments were
tied to performance and used as an incentive to retain the services of certain

5
Citing Yates v. Holt-Smith, 2009 WI App 79, 319 Wis. 2d 756, 768 N.W.2d 213, the
Minority Shareholders also argue that a bonus must be linked to a specific employee’s performance.
In Yates, we concluded only that the trial record did not contain evidence that “the payments were
based on the relative contributions or productivity of either party.” Id., ¶17. Yates does not stand
for the proposition that year-end payments to corporate employees that are based on the
corporation’s performance as a whole, rather than each employee’s individual performance, cannot
be considered bonuses. The Minority Shareholders provide no authority holding that bonuses based
on the company’s performance as a whole, reflecting the labor and contributions of the employees,
officers, and directors of a small closely held corporation, are necessarily profit.

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No. 2023AP472

nonshareholder employees.6 Therefore, the trial court did not clearly err in
finding the payments to be bonuses and properly entered judgment dismissing the
breach of fiduciary duty claim as a matter of law.

By the Court.—Judgment and order affirmed.

This opinion will not be published. See WIS. STAT.
Rule 809.23(1)(b)5.

6
Given our conclusion that the Minority Shareholders have not shown that the trial court
clearly erred in finding the payments to be year-end bonuses, we need not address the alternative
basis for affirmance advanced by Ace, Doug, and Dale that the Minority Shareholders lack standing
to assert a breach of fiduciary duty claim to the extent the claim is one for excessive contribution,
a derivative rather than direct claim. See Lakeland Area Prop. Owners Ass’n, U.A. v. Oneida
County, 2021 WI App 19, ¶17, 396 Wis. 2d 622, 957 N.W.2d 605 (“[W]e need not address all
arguments raised by the parties if one of those arguments is dispositive.”).

9