Business Litigation: In Wisconsin, Corporations, LLCs and other Entities Must Be Represented by a Licensed Attorney or May Be Subject to Default Judgment

From time to time I’m contacted by corporations, LLCs, or other “entities” that have been sued, and the plaintiff has filed a motion for default because an owner or representative of the entity filed an answer on behalf of the entity instead of retaining a licensed attorney to represent the entity. Unfortunately, the plaintiff has a valid argument, and the lawsuit becomes more complicated for the attorneys to defend after the deadline for answering has expired.

In Wisconsin (and in most other jurisdictions), entities generally must be represented by a licensed attorney when appearing in court. Wisconsin Stats., § 757.30(2) provides that “[e]very person who appears as agent, representative or lawyer, for or on behalf of any other person, or any firm, partnership, association or corporation in any action or proceeding in or before any court of record … shall be deemed to be practicing law within the meaning of this section.” The practice of law includes defending against and filing lawsuits on behalf of another. The penalty for violating the statute is that the person “shall be fined not less than $50 nor more than $500 or imprisoned not more than one year in the county jail or both, and in addition may be punished as for a contempt.” The rationale behind this rule is that entities are generally considered separate “persons” under the law, distinct from shareholders, members, officers, and other corporate representatives. Such persons would be representing another “person if they were to act as the representative of the entity, itself, in court.

Although it is perhaps rare for prosecutors to bring charges of unlicensed practice of law when a corporate representative unwittingly files an answer, the entity may suffer more costly consequences by having a default judgment entered against it. Wisconsin appellate courts have repeatedly confirmed that an answer filed in a Circuit Court action on behalf of an entity by a nonlawyer is “not a legally valid answer.” In such instance, the plaintiff may be entitled to default judgment being entered against the defendant who failed to timely file a valid answer.

Even if the unwary entity engages an attorney to defend the entity after a motion for default judgment is filed, the plaintiff still may be entitled to a default judgment. Attorneys can try to defeat the motion, or seek relief from the default judgment; however, such relief is not entitled as a matter of right. Even if the attorney succeeds in reviving the entity’s defenses, the entity will have needlessly expended time and money, and increased the risk of an adverse outcome, which could be avoided by timely engaging an attorney to review the lawsuit and represent the entity’s interests.

Complicating the entity’s considerations for defending lawsuits, Wisconsin law does allow entities to be represented in small claims court by certain nonlawyers. If a lawsuit has been filed pursuant to the Small Claims Actions Statute (Wis. Stats., ch. 799), “a person is considered to be acting in his, her, or its own proper person if the appearance is by a member, as defined in [Wis. Stat. §] 183.0102 (15), agent, or authorized employee of the person, or by an agent of the member or an authorized employee of the agent. An assignee of any cause of action under this chapter shall not appear by a full-time authorized employee, unless the employee is an attorney regularly authorized to practice in the courts of this state.” Wis. Stat. § 799.06(2). Thus, entities who occasionally find themselves in small claims court, and handle such claims by non-attorney representatives, may forget that if a lawsuit is filed in Wisconsin Circuit Court (or elsewhere) they need to engage a licensed attorney.

Always seek competent licensed legal counsel in addressing a lawsuit that has been filed against an entity. At minimum, corporate representatives must carefully review pleadings if they believe that the subject suit may be a small claims matter that can be handled internally. The attempt to save a few dollars by not consulting legal counsel can lead to bigger headaches down the road.