Backus Electric, Inc. v. Hubbartt Electric, 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.
October 12, 2022
A party may file with the Supreme Court a
Sheila T. Reiff 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. 2019AP1651 Cir. Ct. No. 2013CV517

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT II

BACKUS ELECTRIC, INC.,

PLAINTIFF-RESPONDENT,

V.

HUBBARTT ELECTRIC, INC., JOHN M. LEPICH AND JOSEPH D.

STAUFFER,

DEFENDANTS,

JASON L. HUBBARTT,

DEFENDANT-APPELLANT.

APPEAL from a judgment of the circuit court for Manitowoc
County: MARK ROHRER, Judge. Affirmed.

Before Gundrum, P.J., Neubauer and Stark, JJ.
No. 2019AP1651

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).

¶1 PER CURIAM. Jason L. Hubbartt appeals a judgment awarding
Backus Electric, Inc. $555,562 in compensatory damages and $1,000,000 in
punitive damages after a jury found that Hubbartt breached his fiduciary duty to
Backus. Hubbartt argues that: (1) the circuit court erred by allowing Backus’s
expert witness to testify; (2) there was insufficient evidence to support the jury’s
verdict on causation and the amount of damages; (3) the award of punitive
damages was unwarranted and excessive; and (4) a new trial is warranted in the
interests of justice because the real controversy was not fully tried. For the
reasons that follow, we affirm.

¶2 Don Backus started Backus Electric, Inc. in 1981. Hubbartt, an
electrician, began work for Backus in 1999, and in 2006, was made vice president.
Backus thought of Hubbartt as the son he never had, an heir apparent who would
eventually purchase Backus Electric. The sale of the business was expected to
fund the retirement of Don Backus and his wife, Mary Jane. In 2011 and 2012,
Backus and Hubbartt began discussing price, valuation, and financing. They
reached an impasse in 2013.

¶3 In early 2013, Hubbartt set up an email for himself using the domain
name of “hubbarttelectric.com.” He began doing electrical work on the side and
sent out invoices under the name Hubbartt Electric. Hubbartt bought three work
vans under the name Hubbartt Electric and purchased a commercial property. He
transferred to his personal computer nearly 100 Backus Electric work files. All of
this was unknown to Backus and his wife.

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¶4 Mary Jane Backus discovered some of Hubbartt’s activities on or
around April 10, 2013, when she came across a Hubbartt Electric invoice in his
Backus work truck. This led to a confrontation between Don Backus and
Hubbartt. Though Hubbartt told Backus he would continue to work for Backus
Electric, he officially formed Hubbartt Electric, Inc. that night, while still
employed as Backus’s vice president.

¶5 The relationship between Backus and Hubbartt quickly deteriorated.
In April 2013, Backus terminated Hubbartt’s employment and Hubbartt continued
his work at Hubbartt Electric. Two other Backus employees, John Lepich and
Joseph Stauffer, quit Backus and joined Hubbartt Electric. In a matter of weeks,
Hubbartt Electric took Backus’s best clients. The next year, Backus’s company
shut down.

¶6 Backus filed suit, alleging in pertinent part that Hubbartt breached
his fiduciary duty to Backus Electric.1 Specifically, Backus claimed that Hubbartt
planned or engaged in a competing business while still in Backus’s employ and
thereafter utilized proprietary information gained through his employment to
compete with Backus.

¶7 Prior to trial, Backus named former accountant Stephen Bischel as
an expert witness on the issue of damages. Hubbartt filed a pretrial motion
seeking to preclude Bischel’s expert testimony. As grounds, Hubbartt asserted

1
Backus’s complaint alleged nine causes of action against Hubbartt and/or Lepich and
Stauffer, the two employees that left Backus to work for Hubbartt. Specifically, the complaint
alleged breach of fiduciary duty and duty of loyalty, aiding and abetting a breach of duties, breach
of union contract, tortious interference with contractual relationships, unjust enrichment,
misappropriation of trade secrets, violation of WIS. STAT. § 134.01 (injury to business), civil
conspiracy, and a claim for punitive damages.

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that Bischel’s method of calculating damages ran afoul of WIS. STAT. § 907.02
(2019-20)2 and Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993), in
that it was not based on reliable principles or methods. The circuit court denied
the motion, stating:

In his report Bischel is comparing normalized income for
Backus Electric, Inc, for a period of time from June 30,
2010 until June 30, 2013 against a period of time from
June 30, 2014 until June 30th 2017. He is using the same
methodology and factors in arriving at these figures during
this time period. He is not saying that this data shows a
loss in profits over this time. All it appears he is doing is
pointing out the differences in income utilizing the same
factors.

Now Bischel has a vast amount of experience in the CPA
field and has testified in over 200 cases involving
testimony about loss profits and loss of income and loss of
earnings. Clearly with this experience as a CPA he can
disseminate and calculate this information.

He can based on his accounting experience attest that this
information is accurate.

Therefore under Wisconsin Statute Section 970.02 he may
render the opinion contained in his report. He though can
be cross examined about his data by the defense as to the
weight of his opinion in determining damages.

Now this decision is premised on the fact that the plaintiff
has not indicated to this Court that it’s going to have
Mr. Bischel testify beyond what is contained in his report.
If Mr. Bischel’s testimony were to venture into testifying
that this is a proper measurement for accessing loss of
profit damages the Court will have to take a closer look at
this.

¶8 At trial, the jury heard from two competing accountants regarding
the monetary damage to Backus from Hubbartt’s conduct. As stated previously,

2
All references to the Wisconsin Statutes are to the 2019-20 version unless otherwise
noted.

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for Backus, the jury heard from Bischel, a semi-retired certified public accountant
with over thirty years of experience valuing businesses, particularly businesses in
the construction trade. Bischel had worked as an expert approximately 250 times
and testified in court about thirty times. Bischel testified that in order to calculate
the amount of damages, he took the revenue from the four years prior to April 10,
2013, and the four years after that date, and compared what the business could
have sold for before versus after April 10, 2013, given the precipitous drop in high
value clients that were lost to Hubbartt. Bischel calculated the difference to be
$552,000. He explained his methodology and indicated that the method he used is
the same method he uses when valuing businesses for non-litigation clients.
Because the construction trade is a volatile one, he used a shorter four-year period
of sales which necessarily drives the price of the business lower.

¶9 Barbara Bader testified as Hubbartt’s expert. She did not perform an
analysis of the numbers but instead criticized Bischel’s methodology, which she
called “diminished economic performance.” She testified that Bischel’s
methodology is not a generally accepted method of calculating damages for a loss-
of-business case, and took Bischel to task for not analyzing other potential factors
that might have contributed to Backus’s economic loss.

¶10 The jury found Hubbartt liable to Backus Electric for breach of
fiduciary duty, and awarded compensatory damages in the amount of $555,562.
The jury also awarded $1,000,000 in punitive damages to Backus Electric.3
Hubbartt appeals.

3
The jury did not find Hubbartt or the other defendants liable for any other causes of
action. The circuit court dismissed Backus Electric’s remaining claim for unjust enrichment.

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The circuit court properly admitted Bischel’s expert testimony.

¶11 On appeal, Hubbartt maintains that Bischel’s testimony did not meet
the reliability standard set forth in WIS. STAT. §907.02 and Daubert. Relying on
the testimony and opinions of Bader, Hubbartt asserts that Bischel did not use an
accepted method of calculating damages in a loss-of-business case, and that he
should have but did not analyze other potential causes of Backus’s economic loss.

¶12 The admissibility of expert testimony is governed by WIS. STAT.
§ 907.02(1), which provides:

If scientific, technical, or other specialized knowledge will
assist the trier of fact to understand the evidence or to
determine a fact in issue, a witness qualified as an expert by
knowledge, skill, experience, training, or education, may
testify thereto in the form of an opinion or otherwise, if the
testimony is based upon sufficient facts or data, the
testimony is the product of reliable principles and methods,
and the witness has applied the principles and methods
reliably to the facts of the case.

¶13 This version of the statute was enacted to embody Daubert’s
reliability standard. State v. Giese, 2014 WI App 92, ¶17, 356 Wis. 2d 796, 854
N.W.2d 687. It assigns to the trial court a gate-keeping function “to ensure that
the expert’s opinion is based on a reliable foundation and is relevant to the
material issues.” Id., ¶18. A trial court’s decision to admit expert testimony is
discretionary and will not be reversed if it has a rational basis and was made in
accordance with the accepted legal standards and facts of record. Id., ¶16.

¶14 We conclude that the circuit court properly exercised its discretion in
admitting Bischel’s expert testimony. The circuit court properly focused on
Bischel’s experience applying the income approach to valuing businesses both
inside and outside of the courtroom. The data underlying Bischel’s opinion was

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available to Hubbartt’s counsel for cross-examination, which made his opinions
testable and not conclusory. His analysis was not esoteric; it relied on simple
addition and subtraction. Bischel acknowledged the viability of a lost profits
analysis, but explained why he considered his diminished economic performance
analysis more appropriate on the facts of this case. Given this, the court properly
exercised its discretion when it denied Hubbartt’s Daubert motion.

¶15 Citing the federal statute on expert testimony, Hubbartt maintains
that Bischel’s diminished economic performance analysis should not have been
placed before the jury. We need not look past the plain language in WIS. STAT.
§ 907.02(1), which is more instructive and was followed in this case. Here,
Bischel used “other specialized knowledge” to “assist the trier of fact to
understand the evidence or to determine a fact in issue,” based upon his
“knowledge, skill, experience, training, or education,” and thus was permitted to
testify “in the form of an opinion or otherwise” because the testimony was “based
upon sufficient facts or data,” was “the product of reliable principles and
methods,” and Bischel “applied the principles and methods reliably to the facts of
the case.” Sec. 907.02(1).

¶16 Contrary to the characterization in Hubbartt’s briefs, the circuit court
did not abandon its gatekeeper function in admitting Bischel’s testimony. The
court engaged in a well-reasoned and transparent analysis. It limited the scope of
Bischel’s testimony, which also was subject to rigorous cross-examination by
Hubbartt’s counsel and directly criticized by Bader.

Ample evidence supports the jury’s finding that Hubbartt’s breach caused
Backus’s loss.

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¶17 Hubbartt argues that Backus needed expert testimony to prove that
his alleged breach caused damage to Backus, and that even if expert testimony was
not required to establish causation, there was insufficient evidence at trial to
support an inference that Hubbartt’s actions caused Backus’s loss.

¶18 Whether Hubbartt’s breach caused Backus’s damage is a question of
fact. Estate of Sheppard ex rel. McMorrow v. Specht, 2012 WI App 124, ¶5, 344
Wis. 2d 696, 824 N.W.2d 907. We will “sustain a jury’s damage award as long as
it is supported by credible evidence.” Tony Spychalla Farms, Inc. v. Hopkins
Agr. Chem. Co., 151 Wis. 2d 431, 442, 444 N.W.2d 743 (Ct. App. 1989). To
support a damage award, the evidence must demonstrate that a party was injured
in some way and establish sufficient data from which the jury could probably
estimate the amount of damages. Id.

¶19 First, we reject as unsupported Hubbartt’s assertion that Backus
needed expert testimony to prove causation. Hubbartt provides no legal authority
for and does not adequately develop this contention. See State v. Pettit, 171
Wis. 2d 627, 646-47, 492 N.W.2d 633 (Ct. App. 1992).

¶20 Second, there was ample evidence from which a jury could infer that
Hubbartt’s breach caused Backus’s loss. Backus Electric is not a large business; a
juror could easily infer from the facts of record that the precipitous decline in
revenue was due to Hubbartt’s actions.

¶21 Hubbartt argues that causation was not established because Bischel
did not consider alternative explanations for Backus’s precipitous drop in income,
such as customer dissatisfaction. From this, Hubbartt asserts that without
testimony about alternative potential causes, the jury’s verdict was impermissibly
speculative.

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¶22 We are not persuaded. Through his own testimony along with the
testimony of his codefendants and expert witness, Hubbartt provided the jury with
alternative explanations for Backus’s lost business. Bader’s testimony criticized
Bischel for failing to look at alternative explanations, and Bischel underwent
extensive cross-examination. The jury’s verdict shows that it found Backus’s
witnesses to be more credible than those presented by Hubbartt. We will not
disturb the jury’s verdict, which is supported by the evidence of record.

¶23 Hubbartt also argues that the circuit court erroneously excluded
evidence of customer overbilling by Backus Electric. According to Hubbartt, such
evidence might have rebutted Backus’s theory of causation by providing an
alternative explanation for Backus’s lost business.

¶24 We disagree. This court reviews the circuit court’s evidentiary
rulings for an erroneous exercise of discretion. Here, the circuit court performed a
thorough analysis under WIS. STAT. § 904.03, and explained its reasoning on the
record. Though Hubbartt might disagree with the court’s ultimate decision, he has
not pointed us to any misuse of discretion.

The Jury’s award of punitive damages is warranted and not excessive.

¶25 A plaintiff may be awarded punitive damages “if evidence is
submitted showing that the defendant acted maliciously toward the plaintiff or in
an intentional disregard of the rights of the plaintiff.” WIS. STAT. § 895.043(3).
The statute requires a plaintiff to prove that the defendant’s improper conduct:
(1) was deliberate; (2) actually disregarded the rights of the plaintiff, “whether it
be a right to safety, health or life, a property right, or some other right;” and

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(3) was “sufficiently aggravated to warrant punishment by punitive damages.”
Strenke v. Hogner, 2005 WI 25, ¶38, 279 Wis. 2d 52, 70, 694 N.W.2d 296.

¶26 Hubbartt argues that the jury’s award of punitive damages was
unwarranted because there was insufficient evidence that Hubbartt acted
maliciously or with intentional disregard for Backus’s rights. We are not
persuaded.

¶27 Ample evidence in the record supports an inference that Hubbartt
acted maliciously towards Backus or in intentional disregard of Backus’s rights.
Rather than purchasing Backus Electric, Hubbartt, while its vice president, began a
scheme that involved setting up a competing enterprise, purchasing trucks for that
competing enterprise, purchasing a location for that competing enterprise, and
actually organizing that competing enterprise. Hubbartt went a step further and
stole Backus’s computer programs to help with his competing enterprise.
Hubbartt then coordinated with Backus’s two key employees to leave Backus at
the same time and began poaching Backus’s best clients.

¶28 Hubbartt also took steps to conceal his actions from Backus, and
provided misleading information in discovery. For example, Hubbartt repeatedly
denied taking any computer programs from Backus Electric, and stated under oath
at a deposition that the personal computer he had while employed at Backus
Electric was stolen. However, his personal computer was later discovered and
analyzed by Backus’s forensic computer expert, who testified that he found close
to 100 files transferred from Backus Electric. Most of these were transferred
shortly before Hubbartt left Backus. Additionally, Backus’s computer expert
testified that years into the litigation and after Hubbartt denied taking Backus’s
computer files, Hubbartt searched his computer using the term “Backus”, deleted

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all of the Backus-related folders, and ran file-wiping software to erase any
remnants.

¶29 Next, we reject Hubbartt’s argument that the punitive damages
award of $1,000,000 was excessive. The award of punitive damages in a
particular case is within the discretion of the jury and “we are reluctant to set aside
an award merely because it was large or we would have awarded less.” Jacque v.
Steenberg Homes, Inc., 209 Wis. 2d 605, 626, 563 N.W.2d 154 (Ct. App. 1997).
An award is excessive, and therefore violates due process, if it is more than
necessary to serve the purpose of punitive damages, or inflicts a penalty or burden
on the defendant that is disproportionate to the wrongdoing. Management
Comput. Servs., Inc. v. Hawkins, Ash, Baptie & Co., 206 Wis. 2d 158, 193, 577
N.W.2d 67, 81 (Ct. App. 1996). Punitive damages are meant to punish the
wrongdoer, and to deter the wrongdoer and others from similar conduct, rather
than to compensate the plaintiff for any loss. Trinity Evangelical Lutheran
Church and Sch. – Freistadt v. Tower Ins. Co., 2003 WI 46, ¶50, 261 Wis. 2d
333, 611 N.W.2d 789. In reviewing claims of excessive punitives, the evidence
must be viewed in light most favorable to the plaintiff, and a jury’s punitive
damages award will not be disturbed, unless the verdict is so clearly excessive as
to indicate passion and prejudice. Id. at ¶56.

¶30 Wisconsin courts use a six-factor test to evaluate whether punitive
damages are excessive such that they violate due process. Kimble v. Land
Concepts, Inc., 2014 WI 21, ¶¶46-47, 353 Wis. 2d 377, 845 N.W.2d 395. Those
factors are as follows:

1. The grievousness of the acts;

2. The degree of malicious intent;

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3. Whether the award bears a reasonable relationship to the
award of compensatory damages;

4. The potential damage that might have been caused by
the acts;

5. The ratio of the award to civil or criminal penalties that
could be imposed for comparable misconduct; and

6. The wealth of the wrongdoer.

Id.

¶31 Hubbartt acknowledges that the punitive damages award was within
the caps provided by WIS. STAT. § 895.043(6), but argues that it was unreasonable
“because there was no testimony providing a causal nexus between Hubbartt’s
actions and the amount of compensatory damages awarded” and because the
award “is the product of [the alleged] errors argued above.” Indeed, Hubbartt’s
analysis of all six factors relies on arguments that we have addressed and rejected,
or that are legally undeveloped and unsupported. Viewing the verdict in the light
most favorable to Backus, we cannot say that the award was so clearly excessive
as to indicate impermissible passion or prejudice.

Hubbartt is not entitled to a new trial in the interest of justice because the real
controversy was fully and fairly tried.

¶32 Finally, Hubbartt seeks a new trial under WIS. STAT. § 752.35 on the
grounds that the real controversy was not fully tried. To succeed, he must
demonstrate “that the jury was precluded from considering ‘important testimony
that bore on an important issue’ or that certain evidence which was improperly
received ‘clouded a crucial issue’ in the case.” State v. Darcy N.K., 218 Wis. 2d
640, 667, 581 N.W.2d 567 (Ct. App. 1998) (quoting State v. Hicks, 202 Wis. 2d
150, 160, 549 N.W.2d 435 (1996)). An appellate court will exercise its discretion

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to grant a new trial in the interest of justice “only in exceptional cases.” State v.
Cuyler, 110 Wis. 2d 133, 141, 327 N.W.2d 662 (1983).

¶33 Hubbartt argues that the accumulation of errors in this case entitles
him to a new trial. To the claims we have already addressed, Hubbartt adds that
the circuit court sua sponte restricted witness testimony and disciplined Hubbartt’s
witnesses, or otherwise improperly curtailed his case. Again, we are not
persuaded.

¶34 First, Hubbartt points out that Backus’s case spanned four of five
trial days, and suggests that Hubbartt’s counsel was strong-armed into entering
stipulations in lieu of presenting live witnesses. This is contradicted by the record,
which demonstrates that the streamlining or stipulations of witnesses was
accomplished with the consent of Hubbartt’s counsel.

¶35 Second, Hubbartt complains that the circuit court prevented him
from introducing the testimony of a former Backus Electric customer, and
improperly restricted the testimony of defense witnesses Barbara Bader and
Nicholas Reimann. With regard to the former Backus customer who was
allegedly overbilled, there was no evidence that the customer even knew of the
claimed overbilling. As such, this testimony was not relevant to explain why the
customer left Backus for Hubbartt.

¶36 As for the alleged restrictions on Hubbartt’s witnesses, the circuit
court thoroughly explained each of its evidentiary rulings. In terms of
admonishments, the court gave ample warning before admonishing two defense
witnesses in front of the jury. Despite the court’s warnings, Bader and Reimann
repeatedly refused to follow the court’s instructions. Hubbartt develops no
coherent legal theory as to how this constitutes an erroneous exercise of discretion.

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By the Court.—Judgment affirmed.

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

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