Coleman & Hartman, S.C. v. iAMg, LLC

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.
July 18, 2023
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. 2021AP1398 Cir. Ct. No. 2016CV317

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT III

COLEMAN & HARTMAN, S.C., LARRY COLEMAN AND SUE HARTMAN,

PLAINTIFFS-RESPONDENTS-CROSS-APPELLANTS,

V.

IAMG, LLC,

DEFENDANT-APPELLANT-CROSS-RESPONDENT,

SETH PARKER, AMANDA OESTREICH AND MELISSA BARTHMAN,

DEFENDANTS,

CARLSONSV, LLP,

CROSS-CLAIM DEFENDANT-RESPONDENT.

APPEAL and CROSS-APPEAL from orders of the circuit court for
Polk County: J. MICHAEL BITNEY, Judge. Affirmed in part; reversed in part
and cause remanded with directions.
No. 2021AP1398

Before Stark, P.J., Hruz and Gill, JJ.

¶1 GILL, J. Prior to 2014, Coleman & Hartman, S.C., Larry Coleman,
and Sue Hartman (collectively, C&H) owned and operated an accounting firm. In
2014, C&H entered into two agreements to sell the accounting business to iAMg,
LLC, Seth Parker, Amanda Oestreich, and Melissa Barthman (collectively,
iAMg).1 C&H ultimately sued iAMg, asserting a number of causes of action
arising out of that sale. iAMg, in turn, counterclaimed asserting various causes of
action arising out of C&H’s claimed breach of the sale agreements.

¶2 iAMg now appeals and C&H cross-appeals. Both parties claim that
the circuit court erroneously exercised its discretion by dismissing with prejudice
all of their respective claims based upon discovery violations. The parties also
argue that the court erred in denying their respective motions for reconsideration,
and CarlsonSV—where Hartman works as a CPA and which was impleaded by
iAMg—asserts that the court properly exercised its discretion in dismissing
iAMg’s counterclaims because dismissal of only C&H’s claims would unfairly
prejudice CarlsonSV.2

¶3 We conclude that the circuit court did not erroneously exercise its
discretion in sanctioning C&H for discovery violations, pursuant to WIS. STAT.

1
iAMg’s name in the record before us is at times inconsistent. For example, documents
refer to it as iAM G and iAMG. For the sake of this opinion, we use the name given in iAMg’s
notice of appeal.
2
There is some confusion as to whether CarlsonSV is properly identified as a
cross-claim defendant, as opposed to a counterclaim defendant or a third-party defendant.
Resolution of this issue is not relevant to our analysis. Accordingly, and following the parties’
lead in their pleadings, we will identify iAMg’s claim against CarlsonSV as a “counterclaim.”

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§ 804.12(2) (2021-22),3 by dismissing its claims with prejudice after finding that
C&H’s violations were “egregious,” without excuse, and “extreme, substantial,
and persistent.” Nor did the court erroneously deny C&H’s motion for
reconsideration. However, we further conclude that the court did erroneously
exercise its discretion in sanctioning iAMg for discovery violations by dismissing
its counterclaims with prejudice because the court did not make a finding that
iAMg violated any discovery order, or that it did so egregiously or in bad faith and
without excuse. Section 804.12(2) only permits a court to sanction an offending
party for discovery violations. Furthermore, the court erroneously found that
CarlsonSV would be prejudiced if iAMg’s counterclaims were not dismissed.

¶4 We therefore affirm the circuit court’s decision dismissing C&H’s
claims with prejudice. We reverse the court’s decision dismissing iAMg’s
counterclaims with prejudice, and we remand for the court to reinstate those
claims.

BACKGROUND

¶5 In October 2016, C&H, a services corporation engaged in
accounting and tax preparation and planning, filed the present lawsuit against
iAMg, an investment and wealth management firm. C&H’s complaint alleged
seven claims, including breach of contract, defamation, and intentional infliction
of emotional distress.

3
All references to the Wisconsin Statutes are to the 2021-22 version unless otherwise
noted.

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No. 2021AP1398

¶6 According to the complaint, in late 2014 and early 2015, C&H
entered into two agreements with iAMg. The first agreement was an Asset
Purchase Agreement (APA), providing for iAMg’s purchase of “various assets of
[C&H’s] business” from C&H. The APA included non-compete and
non-solicitation provisions which prohibited C&H from “directly or indirectly”
inducing or attempting to induce “any client … to cease doing business with
[iAMg] … or in any way interfere with the relationship between any such
customer.”

¶7 The second agreement, a Management Services Agreement (MSA),
involved the two parties combining their business services “subject to [C&H]
retaining control over [its] daily management operation.” As part of the
agreements, Coleman would serve as an employee of iAMg. C&H alleged that in
August 2016, iAMg terminated Coleman’s employment, terminated the MSA, and
declared the MSA to be no longer in effect.

¶8 iAMg filed an answer and counterclaimed against C&H alleging that
C&H breached the APA’s restrictive covenants. iAMg also sought a declaration
of the restrictive covenants’ validity. Later, the circuit court granted iAMg’s
motions to implead CarlsonSV and to file an amended answer and counterclaims
alleging, among other things, that CarlsonSV tortiously interfered with the APA
by hiring Hartman.4

4
The circuit court later granted CarlsonSV’s motion for summary judgment as to
iAMg’s other counterclaim against CarlsonSV (tortious interference with a prospective contract).
That counterclaim is not at issue in iAMg’s appeal.

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¶9 The lawsuit continued for nearly five years. In that time, iAMg and
C&H filed numerous motions to compel against each other. iAMg continuously
alleged that C&H was withholding discoverable information and, at one point,
alleged that Coleman, specifically, accessed iAMg’s servers and then destroyed
the evidence of his access to the servers (i.e., iAMg accused C&H of spoliation).

¶10 As relevant to this appeal, the circuit court ordered C&H to provide
specific discovery to iAMg on two occasions: February 2018 and
November 2019. In the February 2018 discovery order, the court required C&H to
provide iAMg with discovery “regarding when, why and how clients of [iAMg]
came to do business with Mr. Coleman or Ms. Hartman or her firm after
August 26, 2016.” The November 2019 discovery order against C&H stated that
C&H failed to comply with the court’s February 2018 order, and it directed C&H
to provide iAMg with specific information, including documents related to C&H’s
alleged business with iAMg clients. The court issued only one discovery order
directed specifically to iAMg.5 That order, issued in November 2019, required
iAMg to respond to C&H’s interrogatory requests and C&H’s documents requests.

¶11 Throughout the litigation, the circuit court repeatedly warned the
parties that discovery sanctions were a possibility. For example, in its November
2019 discovery orders, the court warned C&H and iAMg that “[f]ailure to comply
shall result in sanctions being imposed.” The court also gave oral warnings to the

5
The circuit court had previously signed a similar discovery order that was prepared by
C&H. The court later vacated that order because it did not accurately reflect the court’s oral
rulings. The court also signed numerous scheduling orders, some of which included discovery
compliance deadlines.

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parties. At a November 2019 hearing regarding pending motions to compel from
both C&H and iAMg, the court admonished counsel for both parties, stating:

And instead of finalizing jury trial preparations this
afternoon for the half hour that I allotted for this hearing,
the [c]ourt is now bombarded with discovery motions,
alleged discovery violations and a motion to amend the
final scheduling order again, including resetting the trial,
which will necessitate, at the very least, a six-month delay
in this litigation. To say that the [c]ourt is disappointed and
concerned would be an understatement, gentlemen.

….

I expect the [c]ourt’s orders to be followed. If they’re not,
there will be the appropriate sanctions levied against the
offender or the offenders. It is obvious to this [c]ourt that
the parties are nowhere near ready to try this case …. The
new dates that the [c]ourt will set are expected to be
complied with to the letter and without fail.

….

I can advise counsel for the record that in looking at what I
have seen thus far, there have been discovery violations on
both sides of the ledger. What troubles the [c]ourt is that
not only have the parties failed to comply with the
discovery demands that were issued, but they then failed to
approach the [c]ourt for the appropriate relief, be it by way
of protective orders or otherwise, until way late in the game
to where we could no longer salvage this trial date. That’s
not going to happen again, gentlemen, because if it does,
there will be the appropriate sanctions levied by the [c]ourt
and we will try this case and bring this matter to conclusion
for the parties on the next jury trial date that’s available to
the [c]ourt and counsel’s calendar.

….

The parties are expected to comply fully with any and all
outstanding interrogatories, production of documents or
other discovery demands that have been made thus far. I
have read them, I believe that they are reasonable, I believe
that they were likely to lead to evidence at trial. Whether
and how much of that will ultimately be admissible
obviously will be determined at a later date. But the
requests that are outstanding must be complied with in full

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under penalty of contempt and the appropriate sanctions by
January 31st of 2020. Do you understand that, counsel?

….

This is the last kick at the cat you’re going to get to wrap
this up to make sure that you’re fully prepared ….

¶12 In February 2021, iAMg filed a motion for discovery sanctions
against C&H, stating that C&H had recently produced emails between C&H and
iAMg clients—which, according to iAMg, proved that C&H violated the APA—
“five years after they were requested,” “more than three years after the [c]ourt
ordered that they be produced,” and “more than fifteen months after the [c]ourt
again ordered these documents to be produced.” (Emphasis omitted.) iAMg filed
a proposed order that requested, among other things: (1) $50,000 for reasonable
costs and fees; (2) a finding that C&H intentionally breached the APA and that
C&H was “dishonest in their representations to iAMg regarding the existence,
nature and scope of their breaches”; and (3) an order stating that C&H was
prohibited from arguing or introducing evidence regarding their breach of the
APA.

¶13 C&H responded to iAMg’s motion for discovery sanctions by
arguing that C&H had “made a good faith effort to provide discovery” and that
C&H “produced information [on January 31, 2020,] … that included lists of
people that [C&H] had worked with after the [MSA] was wrongfully terminated.”
C&H also requested that iAMg be sanctioned for attorney’s fees and expenses due
to iAMg’s own failure to respond to discovery requests.

¶14 CarlsonSV also opposed iAMg’s motion for discovery sanctions
against C&H. Specifically, CarlsonSV argued that if iAMg’s discovery sanctions
motion and the relief sought were granted, iAMg’s counterclaim against it—that

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CarlsonSV tortiously interfered with the APA—would not be defendable at trial.
CarlsonSV stated that “[a] significant portion of [its] defense at trial w[ould] be
presenting evidence and argument that [Hartman] did not breach the [APA]
through her employment with CarlsonSV.” According to CarlsonSV, iAMg’s
proposed court-ordered finding that C&H intentionally violated the APA would
directly conflict with CarlsonSV’s theory of defense. To the extent the circuit
court granted iAMg’s motion for discovery sanctions and granted its relief sought,
CarlsonSV argued that the court should “make arrangements to remove the
prejudicial effect … by allowing the [counter]claim against CarlsonSV to be tried
separately.”

¶15 iAMg responded to CarlsonSV’s objection, conceding that
CarlsonSV did not engage in discovery violations. However, iAMg asserted that
CarlsonSV “was repeatedly made aware that [Hartman] was the subject of
restrictive covenants when they hired her … [and] CarlsonSV was a beneficiary of
her misconduct.” Therefore, iAMg argued, the issue could be “remedied with jury
instructions at the time of trial[] so that CarlsonSV [would] not [be] unfairly
punished for [Hartman’s] discovery failures.”

¶16 Following iAMg’s discovery sanctions motion, the circuit court held
a scheduling conference on February 19, 2021. The court informed the parties:

Having read all the pleadings filed since we were last
together in October, it’s obvious that I’m going to have to
make significant decisions regarding the issues of
discovery despite my hope that counsel would be able to
work together and in concert with their experts to resolve
these. That, unfortunately, hasn’t been done ….

….

I think counsel both know that when I make the decision on
what is going to be ultimately discoverable and the
mechanism for which that’s gonna be done by, if that’s not

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complied with by a date certain in advance of trial, standard
sanctions would be the exclusion of evidence or the
exclusion of witnesses as may be appropriate, and that goes
both ways ….

¶17 The circuit court then scheduled a motion hearing for March 29,
2021, to address iAMg’s discovery sanctions motion as well as C&H’s motion to
compel iAMg to produce specific discovery and allow C&H to forensic image
certain devices. On March 26, iAMg filed a letter with the court requesting an
adjournment due to an iAMg attorney’s “serious health concern.” According to
iAMg, C&H did not object to the adjournment.

¶18 As the circuit court had warned, it imposed discovery sanctions on
both C&H and iAMg, and it denied iAMg’s adjournment request. In a written
decision and order, the court dismissed with prejudice C&H’s claims and iAMg’s
counterclaims. In rendering its decision, the court focused on C&H’s discovery
violations—specifically violations of the court’s February 2018 and
November 2019 discovery orders. The court did not find in its decision that iAMg
had violated the court’s November 2019 discovery order against it or any other
order. Despite this omission, the court dismissed iAMg’s counterclaims because,
according to the court, dismissing only C&H’s claims would unfairly prejudice
CarlsonSV.

¶19 Following motions for clarification and reconsideration from iAMg
and C&H, the circuit court affirmed its discovery sanctions decision and order. Of
note, the court denied iAMg’s motion because the court “granted the relief
requested by” iAMg and because all of the claims from both parties “are so
inextricably intertwined … that to partially reopen th[e] litigation” would create
“an inability to fairly and fully prosecute or defend” the counterclaims. The court
reaffirmed its reasoning that CarlsonSV would be unfairly prejudiced if iAMg’s

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counterclaims continued. Again, the court did not make a finding that iAMg
violated the November 2019 discovery order against it or any other order.

¶20 iAMg appeals, and C&H cross-appeals. Additional facts will be
presented below where necessary.

DISCUSSION

¶21 C&H and iAMg both argue that the circuit court erroneously
exercised its discretion by sanctioning them with dismissal of their respective
claims with prejudice. As relevant to this appeal and cross-appeal, a party “may
apply for an order compelling discovery” “[i]f a deponent fails to answer a
question propounded or submitted”; “a party fails to answer an interrogatory
submitted”; or “if a party, in response to a request for inspection … fails to
produce documents or fails to respond that inspection will be permitted as
requested or fails to permit inspection as requested.” See WIS. STAT.
§ 804.12(1)(a). An order compelling discovery may require “an answer, or a
designation, or” an inspection. Id.

¶22 Upon a party’s failure “to obey an order to provide or permit
discovery,” a circuit court “in which the action is pending may make such orders
in regard to the failure as are just,” including “dismissing the action or proceeding
or any part thereof, or rendering a judgment by default against the disobedient
party.” WIS. STAT. § 804.12(2)(a)3. (emphasis added); see also WIS. STAT.
§ 805.03 (“[F]or failure of any party … to obey any order of court, the court in
which the action is pending may make such orders in regard to the failure as are
just, including but not limited to orders authorized under [§] 804.12(2)(a).”). Prior
to issuing sanctions, due process “requires at least a fair and adequate warning by
court rule or notice of the imposition of the sanctions or penalties to be invoked

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for the failure to comply with a court order.” Latham v. Casey & King Corp., 23
Wis. 2d 311, 316, 127 N.W.2d 225 (1964).

¶23 Before dismissing a party’s claims based upon a party’s failure to
obey a circuit court order to provide or permit discovery pursuant to WIS. STAT.
§ 804.12(2)(a)3., a circuit court must “make a finding of ‘egregious conduct’ or
‘bad faith’ without a ‘clear and justifiable excuse.’” Mohns Inc. v. BMO Harris
Bank Nat’l Ass’n, 2021 WI 8, ¶36, 395 Wis. 2d 421, 954 N.W.2d 339 (citations
omitted). “Where the … court finds that failures to respond to discovery and
follow court orders are ‘extreme, substantial, and persistent’ it may dismiss the
action with prejudice on the grounds that the conduct is egregious.” Industrial
Roofing Servs., Inc. v. Marquardt, 2007 WI 19, ¶43, 299 Wis. 2d 81, 726 N.W.2d
898 (citation omitted).

¶24 “A discovery sanction represents a discretionary determination of [a]
circuit court and is examined under the erroneous exercise of discretion standard
of review.”6 Mohns, 395 Wis. 2d 421, ¶33. A circuit court’s discretionary power
6
iAMg argues for a de novo review of the circuit court’s discovery sanction against
iAMg because it is “only challenging the legal conclusion that [its] [counter]claims were properly
dismissed.” We disagree that iAMg’s framing of its argument on appeal alters the standard of
review we apply to a court’s discovery sanctions decision. Regardless of whether the party
challenging a discovery sanction takes issue with a court’s factual findings or legal conclusions,
the court still must “examine[] the relevant facts, appl[y] a proper standard of law [and] us[e] a
demonstrated rational process [to] reach[] a conclusion that a reasonable judge could reach.”
See Mohns Inc. v. BMO Harris Bank Nat’l Ass’n, 2021 WI 8, ¶33, 395 Wis. 2d 421, 954
N.W.2d 339. Therefore, we apply the erroneous exercise of discretion standard to the court’s
decisions to issue discovery sanctions, including the dismissal of claims.

iAMg and CarlsonSV both discuss the circuit court “abus[ing]” its discretion in issuing
the discovery sanctions. Our supreme court, however, long ago abandoned the practice of using
the language “abuse of discretion” in place of “erroneous exercise of discretion” because the
former “carries unjustified negative connotations.” City of Brookfield v. Milwaukee Metro.
Sewerage Dist., 171 Wis. 2d 400, 423, 491 N.W.2d 484 (1992). While the two phrases refer to
the same standard of review, id., we urge counsel to use the correct terminology going forward.

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to issue discovery sanctions “is absolutely essential to the court’s ability to
efficiently and effectively administer its calendar.” Sentry Ins. v. Davis, 2001
WI App 203, ¶19, 247 Wis. 2d 501, 634 N.W.2d 553. We will uphold a court’s
discretionary decision if the court “examined the relevant facts, applied a proper
standard of law, and, using a demonstrated rational process, reached a conclusion
that a reasonable judge could reach.” Mohns, 395 Wis. 2d 421, ¶33 (citation
omitted). “We affirm a circuit court’s factual findings unless they are clearly
erroneous.” Id. (citing WIS. STAT. § 805.17(2)). “Additionally, this case involves
questions of statutory interpretation and application,” which present questions of
law that we review de novo. Townsend v. ChartSwap, LLC, 2021 WI 86, ¶11,
399 Wis. 2d 599, 967 N.W.2d 21.

I. Discovery violation sanction against C&H

¶25 The circuit court did not erroneously exercise its discretion when it
dismissed C&H’s claims with prejudice pursuant to WIS. STAT. § 804.12(2)(a)3.
as a sanction for C&H’s failure to comply with the court’s discovery orders, which
failure the court described as “extreme, substantial, and persistent.” Specifically,
the court found that iAMg served “multiple discovery demands,” including
interrogatories, requests for the production of documents, and depositions, on
C&H beginning in December 2016. These demands sought “all communications
relating to when, why and how clients of [iAMg] came to do business with Mr.
Coleman or Ms. Hartman or her firm [CarlsonSV], despite their agreed-upon
restrictive covenants.”

¶26 The circuit court further found that:

Despite the plaintiffs’ and their attorney’s claim that no
such communication existed, [iAMg] discovered from
documents subpoenaed from former clients that both of the
plaintiffs had used a variety of email accounts to

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communicate with and provide tax and accounting services
to [iAMg’s] clients beginning in the fall of 2016 through
early 2017. The plaintiffs, however, produced none of
these emails themselves, and even denied their existence,
despite these disclosures and [iAMg’s] repeated demands
therefor and [c]ourt [o]rders compelling the production
thereof.

….

It was not until late February[] 2021 that the plaintiffs
finally produced at least some of the emails that [iAMg]
ha[d] sought over the last five years and which this [c]ourt
ordered be produced by two separate [o]rders.

Furthermore, many of the emails that the plaintiffs finally
turned over to [iAMg] appeared to have been altered to
delete information regarding the date and time that the
emails were originally sent and to what email addresses
they were sent to, leading this [c]ourt to suspect a possible
effort to cover up the plaintiffs’ violations of the restrictive
covenants, which again are material to [iAMg’s] defense
and counterclaims.

The court then discussed both its February 2018 and November 2019 orders, with
which the court found that C&H had refused to comply. The court’s first
discovery order required C&H to provide discovery relating to “when, why and
how clients of [iAMg] came to do business with Mr. Coleman or Ms. Hartman or
her firm [CarlsonSV] after August 23, 2016.” The court’s second discovery order
required C&H to “provide responses to” specific iAMg requests for the production
of documents and an interrogatory concerning “when, why and how clients of
[iAMg] came to do business with Mr. Coleman or Ms. Hartman or her firm
[CarlsonSV] after August 23, 2016.”

¶27 After outlining the factual basis for its decision, the circuit court
found that C&H “repeated[ly] and persistent[ly] refus[ed] to comply with” both
iAMg’s discovery demands and the court’s discovery orders. The court
characterized C&H’s refusals as “egregious in every sense of the word … leaving

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the [c]ourt with no option[] but to dismiss this action under” WIS. STAT.
§§ 804.12(2)(a)3. and 805.03.

¶28 The circuit court’s findings that C&H “repeated[ly] and
persistent[ly] refus[ed] to comply with” both iAMg’s discovery demands and the
court’s discovery orders, and that the refusals were “extreme, substantial, and
persistent” and “egregious,” are not clearly erroneous and support the court’s
discovery sanction against C&H. It is undisputed that the court required C&H to
comply with iAMg’s discovery requests regarding communication between C&H
and iAMg clients. After the court’s November 2019 order, C&H did provide
iAMg with some documents. However, iAMg then sent C&H responses it had
received, pursuant to multiple subpoenas to former clients, showing that both
Coleman and Hartman used a variety of email accounts to communicate and
provide tax and accounting services to iAMg clients in the fall of 2016 and early
2017. Almost none of these emails were provided through discovery by C&H up
to that point. Almost immediately thereafter, C&H produced the documents
requested by iAMg and required by the court’s earlier orders. In total, C&H
delayed in responding to the court’s February 2018 order by over 1,100 days, and
it delayed in responding to the court’s November 2019 order by over 450 days.

¶29 Despite the record before the circuit court, C&H contends that an
evidentiary hearing was required prior to the dismissal of its claims because,
according to C&H, “all the facts relied upon by the circuit court [in its decision
and order] were disputed.” Citing the affidavits of its forensic expert, who was
hired to address “technical issues … related to the discovery of electronically
stored information (ESI),” C&H argues that there were “technical issues
underlying the parties’ discovery dispute” and that it denies failing to produce
emails that were available to it.

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¶30 Regardless of whether there were technical discovery issues, C&H’s
reliance on its forensic expert’s affidavits and discovery issues to argue that an
evidentiary hearing was required prior to the circuit court’s issuance of its
dismissal order is misplaced. A circuit court is required to hold an evidentiary
hearing on a discovery sanctions motion “if the [court] relies upon disputed facts
or inferences from those facts in its decision” and if the motion is for dismissal
with prejudice. Industrial Roofing, 299 Wis. 2d 81, ¶66 n.13. However, an
evidentiary hearing is not required if the court relies on undisputed facts that are
reasonably supported by the record. Id.

¶31 First, the forensic expert did not opine that the purported “technical
issues” caused C&H to not comply with the circuit court’s discovery orders;
specifically, the expert did not explain how C&H was able to produce the emails
in February 2021, but not previously. Second, the court did not find that technical
issues had any impact on C&H’s ability to produce the ordered discovery, and the
court did not consider any factual disputes surrounding technical issues when
sanctioning C&H. This reasoning is supported by the record given that there was
no evidence before the court to the contrary. Furthermore, C&H’s motion to
compel at the February 2021 hearing dealt with “forensic imaging” of certain
iAMg devices, and did not deal with C&H’s ability to produce documents related
to communications with iAMg’s clients.7 Therefore, the court’s findings that
C&H “repeated[ly] and persistent[ly] refus[ed] to comply with” both iAMg’s
discovery demands and the court’s discovery orders, and that the refusals were

7
At the February 19, 2021 hearing, C&H admitted as much when it argued to the circuit
court that its “motion to compel has to do with the production of devices that our experts are
prepared to look at and conduct a forensic imaging of those devices. [iAMg’s] motion for
sanctions is not really interrelated to that.”

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“extreme, substantial, and persistent,” are not clearly erroneous and support the
court’s discovery sanction against C&H.

¶32 C&H also argues that the circuit court made erroneous factual
findings in its written decision and order demonstrating “a fundamental
misunderstanding concerning the nature of the discovery demands” and “the
nature of the parties’ claims.” For example, C&H points to the court’s
misstatement that the MSA was terminated because C&H violated the restrictive
covenants. However, C&H fails to explain how the court’s misstatement of these
particular background facts affected the court’s ultimate decision regarding
discovery violations. We conclude that these findings, although erroneous, were
not material to the court’s decision and therefore provide no grounds for reversal.

¶33 Next, C&H argues that the circuit court failed to “give warning to
either party that its claims were subject to dismissal.” Instead, C&H cites the
court’s statements at the February 2021 hearing, at which it stated that “standard
sanctions would be the exclusion of evidence or the exclusion of witnesses as may
be appropriate.” Furthermore, C&H argues that because the court scheduled a
hearing for March 29, 2021, to address the sanctions motion, the court was barred
from issuing a decision prior to holding that hearing. In support of this latter
argument, C&H cites the court’s statement that C&H should have “a full
opportunity to respond” prior to the court’s sanctions decision.

¶34 C&H’s arguments fail for several reasons. First, C&H
mischaracterizes the circuit court’s statement regarding it giving C&H an
opportunity to respond to iAMg’s motion for sanctions. The court stated that it
was giving C&H an opportunity to “support … their position that they are entitled
to the discovery that they are demanding” iAMg to produce. In other words, the

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court was offering C&H an opportunity to reply to iAMg’s response to C&H’s
motion to compel discovery related to forensic imaging. Regarding iAMg’s
motion for sanctions, the court asked C&H “how long is a fair and reasonable
opportunity for you to respond to” iAMg’s motion, indicating that it wanted C&H
to file a written response. And, following the February 19, 2021 hearing, C&H
indeed filed a response to iAMg’s motion for sanctions. The court, therefore, was
fully apprised of C&H’s position as to iAMg’s motion for sanctions prior to
issuing its order. Even assuming dismissal of C&H’s claims with prejudice was
not “the self-evident remedy for an overt violation of a court order or rule,” the
court gave C&H an opportunity to respond to iAMg’s sanctions motion. See B &
B Invs. v. Mirro Corp., 147 Wis. 2d 675, 683-84, 434 N.W.2d 104 (Ct. App.
1988).

¶35 Second, as noted above, the circuit court warned the parties on a
number of occasions that if a party violated its discovery orders, it could impose
serious sanctions. At the November 2019 hearing, the court warned of sanctions
on three occasions. Initially, the court stated that it expected its “orders to be
followed. If they’re not, there will be the appropriate sanctions levied against the
offender or the offenders.” Later, the court again warned that “the [discovery]
requests that are outstanding must be complied with in full under penalty of
contempt and the appropriate sanctions.” And again, at the end of the hearing, the
court informed the parties that if the parties “aren’t willing to comply, be fair and
be fully disclosing what’s being ordered, there will be the appropriate sanctions by
way of either admissions or exclusions of evidence or testimony, as well as any
other necessary sanctions that the [c]ourt finds reasonable and appropriate.
Counsel, do you understand?” Similarly, the court’s November 2019 order
identified that C&H failed to comply with its previous February 2018 discovery

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order and required C&H to provide iAMg with specific discovery. The order
further stated that “[f]ailure to comply shall result in sanctions being imposed.”8
These warnings were more than adequate to give “a fair and adequate warning
by … notice of the imposition of the sanctions or penalties to be invoked for the
failure to comply with” the court’s discovery order. See Latham, 23 Wis. 2d at
316.

¶36 Additionally, WIS. STAT. § 804.12(2)(a)3. expressly provides circuit
courts the authority to dismiss an action for a party’s failure to comply with a
discovery order. Therefore, the court’s warnings to C&H that “appropriate
sanctions” could be imposed for a party’s failure to follow the court’s discovery
orders—in addition to the circumstances of this particular case, including the
numerous warnings and length of litigation—clearly put C&H on notice that
dismissal with prejudice was a possibility. See Latham, 23 Wis. 2d at 316
(holding that the absence of a court rule allowing sanctions meant an attorney was
not on notice of sanctions for failure to “obey an order to appear at a pretrial
conference”).

¶37 C&H relies on Industrial Roofing to argue that statutory notice is
insufficient to give notice of sanctions. In Industrial Roofing, our supreme court
stated that “before a client is subjected to dismissal with prejudice, the client
should have notice that [a circuit] court is considering such a harsh sanction.”

8
At a September 21, 2020 hearing, the circuit court warned the parties that “one of
the … requests on the table … is the ultimate dynamite sanction, which is a dismissal of this
case.” The court’s statement was in response to iAMg’s motion for dismissal relating to the
spoliation issue. While the court’s warning at this particular hearing was not expressly in relation
to alleged discovery violations, it further supports the fact that the court warned the parties that
they could be sanctioned for their improper actions, including sanction with dismissal of claims.

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Industrial Roofing, 299 Wis. 2d 81, ¶71. This holding was made in the context of
an argument made on appeal by a sanctioned party. Specifically, the sanctioned
party argued “that it was an erroneous exercise of discretion for the circuit court to
impute the conduct of the attorney to the client where the client is blameless.” Id.,
¶57.

¶38 Ultimately, our supreme court determined “that it is an erroneous
exercise of discretion for a circuit court to enter a sanction of dismissal with
prejudice, imputing the attorney’s conduct to the client, where the client is
blameless.” Id., ¶61. In this context, the court held that the attorney’s conduct in
that case could be imputed upon the client because the client “knew that the court
was considering the dismissal with prejudice sanction and was given an
opportunity by the court to avoid those consequences.” Id., ¶71.

¶39 Here, C&H does not argue that Coleman and Hartman were
blameless or that they, specifically, did not receive proper notice. Even so, the
circuit court found that the attorneys, as well Coleman and Hartman, were also to
blame. For example, the circuit court found in its order dismissing C&H’s claims
with prejudice, that “[d]espite the plaintiffs’ and their attorney’s claim that no such
communication” between Coleman and Hartman and iAMg clients “existed,
[iAMg] discovered from documents subpoenaed from former clients that both of
the plaintiffs had used a variety of email accounts to communicate with and
provide tax and accounting services” to iAMg’s clients. Yet, Coleman and
Hartman “denied” that the emails existed “despite these disclosures and the
defendant’s repeated demands therefor and [c]ourt [o]rders compelling the
production thereof.” This finding is not clearly erroneous. Therefore, we do not
find persuasive C&H’s reliance on Industrial Roofing’s notice standard. In any
event, we conclude that C&H did receive notice of the impending sanction.

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¶40 We therefore conclude that the circuit court’s discovery sanction
decision against C&H was not without warning. Additionally, the fact that the
court did not wait to issue its discovery sanction decision until after another
motion hearing—when the case had already languished for nearly five years, after
the court expressed its irritation with the parties’ discovery tactics, and after the
court gave C&H an opportunity to respond to iAMg’s motion for sanctions—does
not constitute an erroneous exercise of the court’s discretion.

II. Discovery violation sanction against iAMg

¶41 We conclude that the circuit court erroneously exercised its
discretion when it dismissed iAMg’s counterclaims because WIS. STAT.
§ 804.12(2), by its plain language, allows a circuit court to impose sanctions only
on a party that it finds violated a discovery order.9 See Rao v. WMA Sec., Inc.,
2008 WI 73, ¶36, 310 Wis. 2d 623, 752 N.W.2d 220.

¶42 WISCONSIN STAT. § 804.12(2)(a) begins by stating that sanctions are
permissible “[i]f a party … fails to obey an order.” Id. Section 804.12(2)(a) limits
a court’s discovery sanctions “in regard to the failure.” Id. (emphasis added).
Dismissal of the action is one such sanction listed under § 804.12(2)(a), but the

9
In its written decision and order regarding discovery sanctions, the circuit court cited
three cases to support dismissal of iAMg’s counterclaims: (1) Industrial Roofing Services., Inc.
v. Marquardt, 2007 WI 19, 299 Wis. 2d 81, 726 N.W.2d 898; (2) Lister v. Sure-Dry Basement
Systems, Inc., 2008 WI App 124, 313 Wis. 2d 151, 758 N.W.2d 126; and (3) Garfoot v.
Fireman’s Fund Insurance Co., 228 Wis. 2d 707, 599 N.W.2d 411 (Ct. App. 1999). Although it
is not clear from the decision whether the court was relying on these three cases to support
dismissal against iAMg—as opposed to dismissal against C&H only—we conclude that the cases
do not support dismissal against a non-violating party under WIS. STAT. § 804.12(2)(a). See
Industrial Roofing, 299 Wis. 2d 81, ¶¶20-38 (disobedient party appealing); Lister, 313 Wis. 2d
151, ¶8 (same); Garfoot, 228 Wis. 2d at 711 (same).

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sanction is limited to “the disobedient party.” Sec. 804.12(2)(a)3. The statute is
devoid of any language allowing a court to sanction a non-violating party.

¶43 This interpretation of WIS. STAT. § 804.12(2) produces the most
logical outcome, particularly where a non-violating party has claims pending. The
statute allows the non-violating party harmed by the discovery abuses to continue
its claims instead of further harming that party by also dismissing its claims.
Conversely, dismissing the non-violating party’s claims would benefit the
“disobedient” party by dismissing claims against it.

¶44 The circuit court’s decision and order did not make any finding
regarding iAMg’s purported discovery violations. The court issued only one
discovery order to iAMg—the November 2019 order. That order required iAMg
to respond to interrogatories and produce documents, but the court never found
that iAMg violated the order.10

¶45 C&H concedes that “the circuit court did not make any specific
findings of egregiousness against iAMg” in its written decision and order. Despite
this concession, C&H urges this court to “imply such a finding given the record in
this case.” In making this argument, C&H cites the court’s statements throughout
the nearly five-year litigation, in which the court placed blame on both C&H and
iAMg for discovery issues.

¶46 Be that as it may, the circuit court did not make a single finding that
iAMg violated a discovery order. As outlined above, a circuit court is authorized

10
Nor did the circuit court find that iAMg failed to comply with any of the court’s
scheduling orders that included discovery compliance deadlines.

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No. 2021AP1398

to issue the discovery sanctions at issue here only “against the disobedient party.”
See WIS. STAT. § 804.12(2)(a)3. The court cannot be said to have made an
implicit finding of egregiousness warranting the dismissal of iAMg’s
counterclaims when there was no underlying finding of a discovery order
violation. Even then, the court never made a finding that iAMg violated such an
order through “‘egregious conduct’ or ‘bad faith’ without a ‘clear and justifiable
excuse.’” See id.; Mohns, 395 Wis. 2d 421, ¶36 (citations omitted). Furthermore,
to dismiss iAMg’s counterclaims with prejudice, the court was required to find,
but failed to on the record before us, that iAMg ignored discovery requests and
orders in an “extreme, substantial, and persistent” manner. See Industrial
Roofing, 299 Wis. 2d 81, ¶43 (citation omitted). The only comment the court
made regarding iAMg’s discovery violations came at the November 2019 hearing,
where it stated that the court observed “discovery violations on both sides of the
ledger.” This statement—made prior to a discovery order specifically directed at
iAMg—does not meet the standard required to dismiss a party’s claims with
prejudice under § 804.12(2)(a)3.

¶47 C&H cites a number of cases in support of its assertion that even if a
circuit court does not make an express finding that a party acted egregiously, we
can look for implicit findings in the record. We disagree that these cases support
C&H’s proposition as applied to this case. For example, in Teff v. Unity Health
Plans Insurance Corp., 2003 WI App 115, ¶14, 265 Wis. 2d 703, 666 N.W.2d 38,
the circuit court ordered a default judgment against the plaintiff for discovery
violations. While the court did not specifically use the words “‘egregious’ or ‘bad
faith’ to describe [the plaintiff’s] conduct,” we concluded that there was “an
implicit finding” of such conduct. Id. Notably, the court found at a motion
hearing that the plaintiff violated numerous discovery orders and did not “take the

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lawsuit seriously and give it the attention it deserved.” Id., ¶¶9, 14; see also
Englewood Cmty. Apts. Ltd. P’ship v. Alexander Grant & Co., 119 Wis. 2d 34,
39 n.3, 349 N.W.2d 716 (Ct. App. 1984) (circuit court’s failure to use precise
“magic words” did not preclude this court from relying on the circuit court’s
factual findings regarding the disobedient party’s discovery violations).

¶48 Again, here, unlike in Teff, the circuit court never found that iAMg
violated a discovery order. We cannot search the record for implicit findings
supporting a court’s discovery sanction for egregious or bad faith conduct in
violation of court orders if the court never found that iAMg violated the court’s
discovery orders to begin with. Further, unlike in Teff, here, the court never made
a finding—implicitly or expressly—that iAMg engaged in egregious conduct.

¶49 Following iAMg’s motion for clarification and reconsideration, the
circuit court defended its dismissal of iAMg’s counterclaims on two different
grounds. We conclude that the court erroneously exercised its discretion in
dismissing iAMg’s counterclaims under both grounds.

¶50 First, the circuit court stated that it “granted the relief requested by
[iAMg], that this matter be dismissed with prejudice because of [C&H’s]
egregious discovery abuses.” However, as iAMg argues on appeal, its motion for
discovery sanctions did not request dismissal of the entire case. Instead, as it
related to the discovery sanctions, iAMg only requested: (1) $50,000 for
reasonable costs and fees; (2) a finding that C&H intentionally breached the APA
and that C&H was “dishonest in their representations to iAMg regarding the
existence, nature and scope of their breaches”; (3) an order stating that C&H was
prohibited from arguing or introducing evidence regarding their breach of the

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APA; and (4) the requested discovery. We therefore conclude the court
erroneously exercised its discretion in this sense.

¶51 Second, the circuit court justified dismissing the entire case because
the parties—specifically, CarlsonSV—would be unfairly prejudiced if the entire
case was not dismissed. In particular, the court found in its order denying iAMg’s
motion for reconsideration that all of the parties’ claims were “so inextricably
intertwined with [C&H’s] alleged violations of the restrictive covenants … and the
discovery abuses surrounding them … that to partially reopen this litigation would
put the parties right back in the same quagmire that existed at the time of the”
court’s original sanctions decision and order, “namely, an inability to fairly and
fully prosecute or defend all of the claims and counterclaims.” (Formatting
altered.)

¶52 Assuming without deciding that the circuit court’s decision to
analyze the potential prejudice to CarlsonSV when applying WIS. STAT.
§ 804.12(2) was not in error, we disagree with the court’s finding that CarlsonSV
would be unfairly prejudiced if iAMg’s counterclaim against CarlsonSV were not
dismissed. The court dismissed C&H’s claims against iAMg for violating the
court’s discovery orders. Notably, the court did not grant iAMg’s request to make
a finding that C&H intentionally breached the APA, which would have some
bearing on CarlsonSV’s ability to defend itself against the tortious interference
claim. See Briesemeister v. Lehner, 2006 WI App 140, ¶48, 295 Wis. 2d 429, 720
N.W.2d 531 (listing the elements for tortious interference with contract). Nor did
the court order a default judgment in favor of iAMg’s claims against C&H.
See § 804.12(2)(a)3. (a circuit court is authorized to dismiss the action or
proceeding, or render a default judgment against the disobedient party). In other
words, there has been no ruling on the merits of any parties’ claims in this case.

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We therefore conclude that the court erroneously exercised its discretion by
finding that CarlsonSV would be unfairly prejudiced by allowing iAMg’s
counterclaims to continue.

¶53 Lastly, CarlsonSV argues in the alternative that even if this court
reverses and remands on iAMg’s counterclaims, we should “order the
[counter]claim against [CarlsonSV] be tried separately to insulate [it] from the
prejudicial taint of the sanctions imposed against C&H.” Again, in granting
iAMg’s motion for discovery sanctions against C&H, the circuit court did not
adopt iAMg’s requested relief. Instead, the court dismissed C&H’s claims with
prejudice. CarlsonSV’s request on appeal would require this court to issue an
advisory opinion, which we refuse to do in this case. See State v. Armstead, 220
Wis. 2d 626, 631, 583 N.W.2d 444 (Ct. App. 1998) (“If the resolution of a claim
depends on hypothetical or future facts, the claim is not ripe for adjudication and
will not be addressed by this court.”). Regardless, the court on remand is in the
best position to determine the manner and mode of the remaining litigation.

¶54 In all, the circuit court did not erroneously exercise its discretion in
dismissing C&H’s claims with prejudice under WIS. STAT. § 804.12(2). Nor did
the court erroneously deny C&H’s motion for reconsideration. The court did,
however, erroneously sanction iAMg without finding that it had violated a
discovery order or engaged in egregious conduct. We therefore reverse the court’s
decision dismissing iAMg’s counterclaims with prejudice and we remand for the
court to reinstate those claims. We affirm the court’s order dismissing C&H’s
claims with prejudice.

¶55 No costs are awarded to any party.

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By the Court.—Orders affirmed in part; reversed in part and cause
remanded with directions.

Not recommended for publication in the official reports.

26