Interest under sec. 807.01(4) can't be stacked.

Byline: David Ziemer

Interest accruing pursuant to contract cannot be stacked with interest pursuant to sec. 807.01(4), the Wisconsin Court of Appeals held on Aug. 21.

Galaxy Gaming and Racing Limited Partnership was engaged in litigation with the City of Hudson over a casino, and retained the law firm of DeWitt Ross & Stevens, S.C.

The retainer letter, signed by the president of Galaxy, provided: "[Y]ou will be billed for disbursements and other expenses incurred on behalf of [Galaxy] Partnership (for example, long distance telephone charges, photocopying, facsimile charges, travel expenses, court reporter fees and other similar disbursements or expenses). You will receive a statement for services rendered and expenses incurred on a monthly basis. The statements are payable upon receipt. We reserve the right to charge interest at the rate of 18 percent per annum (1 1/2 percent per month) on all statements not paid within 20 days after their date."

Because Galaxy Partnership had no assets or means of earning income until the casino project became a reality, the retainer letter required that a guaranty of payment be provided. The guaranty, signed by the same person as the retainer letter, but in his capacity as president of Galaxy's parent corporation, Southwest Florida Enterprises, Inc., provided, "The undersigned, for valuable consideration and the willingness of ... DeWitt, Ross & Stevens, S.C. to represent [Galaxy] Partnership, all of which inures to my benefit, hereby personally guaranties the timely and full payment of all statements for services rendered and disbursements/expenses incurred on behalf of [Galaxy] Partnership. In the event of a failure of [Galaxy] Partnership to pay the monthly statements as they fall due, the undersigned agrees that the law firms may, in the first instance, look to the undersigned for payment without having to exercise or exhaust any remedies against [Galaxy] Partnership."

In the fall of 1996, Galaxy began to fall behind in its payments to DeWitt. On Nov. 24, 1997, when the outstanding balance was over $129,000, DeWitt wrote Galaxy and demanded that the amount owed be paid in full by Dec. 1, 1997, or DeWitt would charge interest at 18 percent on the balance.

Shortly thereafter, Galaxy made a payment of $50,000. Although the monthly statements did not include an interest charge, a separate letter with an attached invoice showed an interest charge of $7,863.40 for 1997.

Over the next two years, DeWitt repeatedly asked for payment of the balance, and sporadic payments were made. When payments were made, DeWitt first applied the payments to the accrued interest and then applied any remaining amount to the outstanding principal.

Ultimately, DeWitt sent a final bill for $352,172.59 as of July 31, 2000, including $69,209.44 in interest. No payment was made, and DeWitt sued. In its answer to the complaint, Galaxy admitted owing principal, but denied owing the interest.

Galaxy moved for a protective order, requesting that depositions be delayed until it had the opportunity to review discovery materials. In response, DeWitt moved to compel discovery. Dane County Circuit Court Judge Maryann Sumi decided the motions, and imposed costs of $100 on Galaxy.

Southwest was later added as a party, and filed for substitution of judge. Judge Sumi denied the motion as untimely, a decision affirmed by the chief judge for the district.

On July 8, 2001, Dewitt offered to settle its claims for payment of $370,000 within 15 days of acceptance of the offer. The defendants declined the offer.

On motion for summary judgment, the court concluded that DeWitt could apply payments first against accrued interest if it chose to do so, and that Southwest's obligation under the guaranty included liability for interest payments. However, the circuit court ruled that DeWitt could not recover interest on the unpaid balance prior to Nov. 24, 1997, the date DeWitt informed the defendants that it would begin assessing interest. Accordingly, the...