Issue preclusion bars corporate officer’s conspiracy action
in federal court
A corporate officer and business owner who claims a bank loan officer,
the bank, and a receiver conspired maliciously to damage his reputation
already made that argument, panel concludes.
By org jforward wisbar Joe Forward, Legal Writer,
State Bar of Wisconsin
20, 2011 – A three-judge panel for Seventh Circuit Court of
Appeals recently “closed the book” on a years-long,
multi-suit squabble between corporate officers, a corporate creditor,
and a receiver appointed to preserve the corporation’s assets for
Plaintiff Daniel Virnich, a corporation co-owner and officer, filed a
diversity action in federal court alleging that a former creditor, a
loan officer, and an appointed receiver conspired to maliciously injure
his reputation and his business in violation of Wis. Stat. section 134.01.
Applying Wisconsin law, the three-judge panel in Virnich
v. Vorwald et. al., No. 10-3271 (Dec. 20, 2011), ruled that
Virnich met the “plausibility standard” necessary to
overcome a Fed. R. Civ. Pro. 12(b)(6) motion, but concluded
that issue preclusion barred the case from continuing.
The panel explained that issue preclusion barred Virnich’s claim
because he and his business partner had previously waived, in state
receivership court, the argument that a bank loan officer and the
court-appointed receiver took improper actions in pursuit of
Through ownership of a holding company, Virnich indirectly owned 50
percent of Communications Products Corporation (CPC), which employed
around 250 employees. He was also a CPC director along with Jack Moores,
who owned the other 50 percent of CPC.
CPC entered loan agreements with American Trust and Savings Bank. In
2002, amidst CPC’s financial difficulties, Jeffrey Vorwald became
American Trust’s loan officer on the CPC account.
Vorwald developed personal animosity towards Moores and Virnich, it was
alleged in federal court pleadings, when they refused to personally
guarantee CPC’s loans. Vorwald subsequently sought and obtained
appointment of Michael Polsky as a receiver to preserve CPC’s
Virnich and Moore sought to contest as improper the appointment of
Polsky as receiver, alleging that Polsky and Vorwald submitted false and
misleading affidavit’s to support American Trust’s motion
for a receivership. But they later withdrew the objection.
In 2003, the state court approved the sale of CPC.
Two years later, the receivership court stayed a motion to challenge
the receiver appointment, pending an appeal in another case. In his role
as receiver, Polsky had filed a lawsuit in state court against Moores
and Virnich, alleging a breach of fiduciary duties owed to CPC.
That lawsuit resulted in a $6.5 million verdict against Moores and
Virnich, but the Wisconsin Supreme Court effectively overturned
the verdict in March.
In February 2011, after Virnich filed the federal lawsuit against
Polsky, Vorwald, and American Trust for conspiracy under Wis. Stat.
section 134.01, the state receivership court ruled that Virnich had
waived a right to challenge as improper the appointment of Polsky as
Because of the waiver, the panel for the Seventh Circuit Court of
Appeals ruled that Virnich’s claims under section 134.01 were
barred by issue preclusion. Moores was not a party.
“The receivership court has found that Virnich’s arguments
that the actions taken by Vorwald and Polsky in pursuit of and in
furtherance of the receivership were improper are waived,” wrote
Judge David Hamilton. “Virnich cannot bring his nearly identical
allegations in the guise of a section 134.01 conspiracy action without
running headlong into the principle of issue preclusion.”
In addition, the panel found that application of issue preclusion to
bar Virnich’s claim would not be fundamentally unfair.
“[Virnich] has attempted to bite this apple not just twice but
three times. The doctrine of issue preclusion bars him from doing
so,” Hamilton wrote.