Vol. 78, No. 4, April 2005

Supreme Court Digest

by Prof. Daniel D. Blinka &
Prof. Thomas J. Hammer

Administrative Law Civil Procedure Commercial Law

Criminal Procedure Insurance Torts

Administrative Law

Hearsay - Substantial Evidence

Gehin v. Wisconsin Group Ins. Bd., 2005 WI 16 (filed 23 Feb. 2005)

The Wisconsin Group Insurance Board terminated Gehin's income continuation insurance benefits. The circuit court reversed the board, but the court of appeals in turn reversed the trial court.

On certiorari review, the supreme court, in an opinion written by Chief Justice Abrahamson, reversed the court of appeals. The case presented a single, difficult issue: "Does uncorroborated written hearsay evidence alone (that is controverted by in-person testimony) constitute substantial evidence to support [the board's] factual findings, which in turn form the basis for its conclusion of law, ... that the claimant's benefits should be terminated ...?" (¶ 3). At an evidentiary hearing, the claimant, Gehin, offered expert medical testimony to the effect that she was unable to engage in substantial gainful activity, yet the board rejected her claim based on three doctors' written medical reports that were not accompanied by testimony (see ¶ 29). The written medical reports constituted hearsay evidence (see ¶ 30), and the conclusions they contained about Gehin's ability to work full time were uncorroborated and contradicted by live testimony (see ¶ 45).

The court first noted that "[t]he sufficiency of the evidence on certiorari review is identical to the substantial evidence test used for the review of administrative determinations under chapter 227 of the statutes" (¶ 6). The court said that although the three medical reports were admissible at the hearing (see ¶ 50), the substantial evidence requirement has long precluded findings based on "uncorroborated hearsay alone" (¶ 55). Although this "legal residuum rule" has been contested and criticized, the supreme court held that recent federal authority was "not applicable to the present case"(¶ 66), because "the reliability and probative force of the written medical reports in the present case are suspect" (¶ 70). (The majority opinion closely considered this authority and parsed the three medical reports in detail.)

The court saw "no reason to deviate in the instant case from the long-standing rule in Wisconsin and consistently followed for 65 years in subsequent cases that uncorroborated hearsay alone does not constitute substantial evidence in administrative hearings. The rule balances competing concerns about administrative expediency and fundamental fairness" (¶ 81) (citations omitted). The supreme court expressly considered and rejected three reasons offered by the court of appeals for departing from the legal residuum rule: 1) the opposing party's ability to subpoena the experts, which, the court said, was "more theoretical than real" (¶ 84); 2) the admissibility, which the court held was not clear-cut, of the reports under a hearsay exception (see ¶ 87); and 3) the internal consistency among the three reports, which the court called a "bootstrap" that would lead to the "evisceration of the requirement"(¶ 92).

Justice Butler concurred and wrote separately to address several points raised by the dissenters, especially the concern that parties may rely on hearsay evidence only at their peril. Justices Wilcox and Prosser filed separate dissents in which each joined the other. In his lengthy dissent, Justice Wilcox disagreed with the majority's application of the legal residuum rule to "uncorroborated" hearsay. In Justice Prosser's separate dissent, he wrote "Section I laments the majority's decision to take Wisconsin out of the mainstream of administrative law and predicts some of the consequences that will flow from the decision. Section II challenges the majority's interpretation of a key piece of evidence in the record. Section III outlines the majority's disturbing disregard of the waiver issue and the standard procedures of the Wisconsin Group Insurance Board"(¶ 156). Justice Roggensack, also dissenting (and joined by Justices Prosser and Wilcox), wrote separately because she "would not reach the question of whether uncorroborated hearsay constitutes substantial evidence as the hearsay evidence here was corroborated and consti tuted `substantial evidence' under § 227.57(6)" (¶ 210).

Top of page

Civil Procedure

Amended Pleadings - Costs and Attorney Fees - Patients' Rights

Hess v. Fernandez, 2005 WI 19 (filed 25 Feb. 2005)

A jury awarded the plaintiffs approximately $870,000 in damages in a medical malpractice case. After the verdict, the plaintiffs moved to amend the pleadings to recover costs and reasonable attorney fees under Wis. Stat. section 51.61(7)(a). The circuit court granted the motion, even though the complaint had not stated a section 51.61 claim, and awarded the plaintiffs more than $900,000 in reasonable actual attorney fees plus costs of nearly $300,000. The court of appeals certified the appeal to the supreme court.

In a decision authored by Justice Crooks, the supreme court reversed. The supreme court held that the circuit court abused its discretion when it permitted the amendment of the pleadings to state a section 51.61 claim. The court analyzed Wis. Stat. section 802.09 and held that the defense did not expressly consent to try the unpleaded issues. It also held, as a matter of law, that the defense had not impliedly consented to try the issues. "[I]mplied consent exists where there is no objection to the introduction of evidence on the unpleaded issue and where the party not objecting is aware that the evidence goes to the unpleaded issue"(¶ 21). "The circuit court erred when it failed to analyze the implied consent issue in terms of actual notice. It found that the issue was `fully aired,' at least as to the violation of the standard of care, simply because it concluded a commonality of proof between the pleaded and unpleaded claims. The circuit court, despite finding implied consent without considering actual notice, pointed out matters that clearly lead to a determination of no actual notice: `[T]here was no specific prayer for relief under sec. 51.61(7), no discussion of which the court was aware of an award under that section until the filing of plaintiff's motion Number 1, and no request for instruction or inclusion of a specific verdict question as to sec. 51.61(7)'" (¶ 22).

The court held that the circuit court also failed to balance properly such factors as undue delay, the moving party's motives, and any resulting prejudice (see ¶ 28). Specifically, the supreme court looked to federal courts, which have "expanded the interpretation of `interests of justice' beyond prejudice ... and held that among the adequate reasons for denying leave to amend under such circumstances are `undue delay, bad faith or dilatory motive on the part of the movant....'" (¶ 29). On the record before it, the court considered the "significant" delay and the movant's "dilatory motive" (see ¶¶ 29, 30). The court said that it was obvious that the defendants had "relied on the fact that there was a contingent fee agreement involved here" (¶ 33).

Finally, the supreme court held that the Wisconsin Patients Compensation Fund (now called the Injured Patients and Families Compensation Fund) is not a "person `who violates the right in question'" and thus cannot be held responsible under Wis. Stat. section 51.61. In reaching this holding, the supreme court clarified a 1996 court of appeals decision.

Chief Justice Abrahamson dissented on the grounds that the circuit court properly exercised its discretion and that the plaintiffs' position was supported "on all fours" by case law (¶ 52).

Top of page

Commercial Law

Warranty - Damages

Mayberry v. Volkswagen of Am. Inc., 2005 WI 13 (filed 16 Feb. 2005)

The plaintiff brought this breach of warranty action against Volkswagen (VW) for a defective car. The circuit court granted summary judgment in favor of the defendant on the ground that the plaintiff had suffered no damages because she traded in the car for more than its fair market value. The court of appeals reversed.

The supreme court, in an opinion written by Justice Wilcox, affirmed the court of appeals. The appeal raised an issue of "first impression," namely, "whether the `special circumstances' clause in Wis. Stat. § 402.714(2) (2001-02) requires damages in a breach of warranty action to be calculated based on the difference between the fair market value of the defective product at resale and the price the consumer actually obtained, such that a consumer's claim may be barred if she receives more than the fair market value for the defective product upon resale" (¶ 2).

The core of VW's argument was that special circumstances are present when an automobile purchaser uses the vehicle for an extended period of time, the manufacturer makes numerous repairs free of charge under its warranty, and the consumer later resells the vehicle for more than its fair market value. Under these circumstances, argued VW, "damages should be calculated based on the actual value and fair market value of the vehicle at the time of resale" (¶ 24). The court rejected this argument as well as the assertion that the plaintiff stood to gain a "windfall." The plaintiff's claim, in essence, was that "she paid too much for the vehicle given its defective condition," not that it was valueless (¶ 35). The supreme court therefore held that pursuant to Wis. Stat. section 402.714(2), the appropriate method for measuring damages in this case is the difference between the warranted value of the vehicle and its actual value at the time and place of acceptance.

The supreme court also held that the plaintiff established a prima facie case that survived the summary judgment motion. "The standard measure of damages under § 402.714(2) requires evidence of two values: (1) the value of the product as warranted at the time and place of acceptance and (2) the actual value of the vehicle with defects at the time and place of acceptance. As to the first value, courts generally hold that the contract price is relevant but not conclusive evidence of the value of the goods as warranted at the time and place of acceptance" (¶ 39). As to the second value, the plaintiff could herself testify to the car's value because she was its owner (see ¶ 42), although the price she received on the trade-in could be used to impeach her opinion.

Justice Wilcox, joined by Justices Prosser and Roggensack, concurred. They "wholeheartedly agree[d]" that the "special circumstances" clause of section 402.714(2) did not completely bar the plaintiff's claim but argued that the provision could be used "to adjust" damages "to reflect any damages mitigated by the plaintiff. ... [W]hile the difference between the warranted value and actual value at the time and place of acceptance is the `starting point' for calculating damages, this figure may be adjusted upwards or downwards in appropriate circumstances to reflect the actual amount of plaintiff's damages under the `special circumstances' clause of § 402.714(2)" (¶ 49).

Top of page

Criminal Procedure

Parole - Revocation of Parole While Still in Physical Custody

State ex rel. Riesch v. Schwarz, 2005 WI 11 (filed 15 Feb. 2005)

The petitioner was sentenced to prison under Wisconsin's old indeterminate sentencing system. He was held in prison until his mandatory release date, when he was transferred to a county jail because of his refusal to cooperate with his social worker in arranging a suitable residence plan for his release on parole. His refusal to cooperate was the first of the petitioner's alleged parole violations. The petitioner's parole agent immediately lodged a parole hold against him, and the petitioner's parole later was revoked by an administrative law judge (ALJ). The Division of Hearings and Appeals (DHA) affirmed the ALJ, and the circuit court denied the petitioner's certiorari challenge to the decision. The court of appeals affirmed the circuit court.

In a unanimous decision authored by Justice Bradley, the supreme court affirmed the court of appeals. The issue before the court was whether a person can have the status of a parolee and be subject to parole revocation proceedings even though the person has not been released from physical custody. The court concluded that the petitioner had attained the status of a parolee after reaching his mandatory release date, despite the fact that he was not released from physical custody. Said the court, "where inmates violate [the rules and conditions of release] immediately and simultaneously with their scheduled mandatory release, the [Department of Corrections] should be able to maintain continuous custody, even though the person's status changes from a prisoner serving a sentence to a parolee detained on a parole hold" (¶ 30). Accordingly, the court held that the DHA did not act outside its jurisdiction or contrary to law by revoking the petitioner's parole.

Victims' Rights - Interpretation of Victims' Rights Amendment to Wisconsin Constitution

Schilling v. Wisconsin Crime Victims Rights Bd., 2005 WI 17 (filed 23 Feb. 2005)

Daniel Marinko was convicted of the 1999 murder of Jennifer Marinko. At the sentencing hearing the prosecutor, Patrick Schilling, played part of the tape of the 911 telephone call that the victim's son had made to the police after discovering his mother's body. While Schilling made sure that the victim's children would not be present at the sentencing hearing, he did not inform other family members that he was going to play the tape or otherwise give them an opportunity to leave the courtroom before he played it. Schilling turned off the tape before it had finished playing, because he recognized that it was having a dramatic effect on the family members.

Five of the victim's survivors filed a complaint against Schilling with the Crime Victims Rights Board. After an evidentiary hearing, the board found that the tape of the 911 call was "`highly upsetting'" and that "`Schilling knew of the tape's powerful emotional content ... [which] was the reason for its presentation at the sentencing hearing'" (¶ 5). The board further found that "`Schilling intended to create an emotional event at the sentencing hearing for the purpose of influencing the sentencing decision, which, unfortunately, was at the expense of [the victim's] family'"(Id.). Relying on article I, section 9m of the Wisconsin Constitution and Wis. Stat. section 950.01, the board found that the complainants had met their burden of proving by clear and convincing evidence that Schilling failed to treat them with fairness, dignity, respect, courtesy, and sensitivity when he played the 911 tape at the sentencing hearing. Citing its authority under Wis. Stat. section 950.09(2)(a), the board ordered a private reprimand of Schilling.

Schilling sought judicial review of the board's decision. The circuit court reversed the board, which then appealed to the court of appeals. The supreme court granted the court of appeals' certification. In a unanimous decision authored by Justice Roggensack, the supreme court affirmed the circuit court.

The issue before the supreme court was whether the first sentence of article I, section 9m of the Wisconsin Constitution, which reads, "This state shall treat crime victims, as defined by law, with fairness, dignity and respect for their privacy," creates a "right" that the board may enforce under section 950.09(2)(a) or whether it is only descriptive of policies to be furthered by the state. [Editors' Note: In article I, section 9m the introductory sentence quoted above is followed by a list of enumerated rights of crime victims.]

The supreme court held that the first sentence of article I, section 9m is a statement of purpose that describes the policies to be promoted by the state and that it does not create an enforceable, self-executing right. "In sum, based on our examination of the plain meaning of Article I, Section 9m of the Wisconsin Constitution, which is affirmed by the history of and the legislature's earliest interpretation of that amendment, we conclude that the first sentence of Article I, Section 9m of the Wisconsin Constitution does not provide a self-executing right that the Board is empowered to enforce via private reprimand pursuant to Wis. Stat. § 950.09(2)(a)" (¶ 26).

Top of page

Insurance

Damages - "Made-whole" Doctrine - Wrongful Death

Petta v. ABC Ins. Co., 2005 WI 18 (filed 24 Feb. 2005)

The surviving adult children of a woman killed in a car accident brought a wrongful death action against the person who allegedly caused the accident and other defendants. The mother was single at the time of her death. Her insurer, Travco, paid about $14,000 for funeral costs, medical expenses, and vehicle damages. Travco notified all parties of its subrogation claim. The children eventually settled with all defendants other than Travco for $280,000 and moved for a Rimes hearing and an order extinguishing Travco's subrogation claim on the ground that they had not been "made whole" by the settlement (as stipulated by Travco). The circuit court granted the order because the children had not been made whole and had further agreed to indemnify the tortfeasors. The court of appeals reversed, holding, in part, that Rimes applied only to situations in which there is an insurer-insured relationship (see ¶ 10).

The supreme court, in an opinion authored by Justice Butler, reversed the court of appeals. The supreme court held that equity requires that Rimes be extended to wrongful death claims (see ¶ 15). The accident that caused the mother's death "clearly created a cause of action for property damage in favor of her estate," and her adult children "were allowed to `waive and satisfy' that cause of action `in connection with or as part of' their wrongful death settlement" (¶ 21). Specifically, the children were entitled to recover funeral and medical expenses under Wis. Stat. section 895.04(5) even though they had not paid them (see ¶ 24). However, regardless of their right to sue and recover, the children had no "ownership" interest in such expenses unless they paid them (see ¶ 26). "But concluding that [the children] have no ownership interest in any recovery for these claims does not answer whether Travco can invade [their] lump-sum settlement to recoup the payments it made. Travco has a subrogated interest in those claims. As such, if Travco is entitled to recovery from the settlement, that recovery must stem from subrogation" (¶ 26).

The Rimes "made-whole doctrine established a rule of priority, such that `only where an injured party has received an award by judgment or otherwise which pays all of his elements of damages, including those for which he has already been indemnified by an insurer, is there any occasion for subrogation'" (¶ 28). Compelling reasons supported the extension of Rimes to wrongful death claims. "First, the Rimes doctrine is essentially one of priority, as it determines who gets paid first among competing claims. In this case, wrongful death plaintiffs' claims must take priority. If the made-whole doctrine was inapplicable to wrongful death plaintiffs, the wrongful death statute's purpose of compensating wrongful death beneficiaries for the loss of relational interest between the beneficiaries and the deceased would be impinged" (¶ 31). Here Travco stipulated that the lump sum settlement was inadequate; "it would be contrary to the wrongful death statute's purpose to subject [the children] to further loss by forcing them to pay out funds to another from a settlement that by itself is inadequate" (¶ 33).

Second, the court held that there was "no conceptual difference between a personal injury case involving a subrogated insurer, as in Rimes, and a wrongful death case involving a subrogated insurer" (¶ 33). Third, equity depends on a "particular set of facts" and "does not lend itself to the application of black letter rules" (¶ 34). Here "the equitable balance still tips in the injured person's favor" and against the insurer who accepted the risk, even though the injured party did not pay the premium (¶ 34). Finally, "this state's policy of encouraging settlements would suffer in wrongful death actions" if Rimes were inapplicable (¶ 36).

The court also addressed the "concern" that its holding would "harm" multiple plaintiff litigation. "Our conclusion today addresses only the extension of Rimes to wrongful death actions that involve a subrogated insurer. To whatever extent that our reasoning can be construed as applying to multiple plaintiff litigation, we come full circle from where this part of the discussion began: subrogation and its antisubrogation counterpart are fundamentally equitable concepts. Thus, equity is the bulwark against the horribles that Travco and the court of appeals fear. Outside of situations where a person has a competing claim with a subrogated insurer, the equities will vary dramatically" (¶ 38).

Justice Wilcox filed a concurring opinion, joined by Justice Roggensack, that "restate[d] some basic rules of subrogation ... to address the court of appeals' concern over the application of the made-whole doctrine" to multiple plaintiff cases (¶ 40).

Top of page

Torts

Medical Malpractice - Damages

Pierce v. Physicians Ins. Co., 2005 WI 14 (filed 17 Feb. 2005)

This case addressed a "narrow issue": "whether a mother who suffers the stillbirth of her infant as a result of medical malpractice has a personal injury claim involving negligent infliction of emotional distress, which includes the distress arising from the injuries and stillbirth of her daughter, in addition to her derivative claim for wrongful death of the infant" (¶ 1). The supreme court held that in these unusual circumstances, "the mother may recover as a parent, for the wrongful death of the stillborn infant; and as a patient, for her personal injuries including negligent infliction of emotional distress" (Id.).

In a decision authored by Justice Crooks, the supreme court stressed that this case presented the "unique situation where the patient [the mother] was also the parent of the patient [the stillborn infant]" (¶ 12). The issue was the mother's direct claim for emotional distress. In reversing the court of appeals, the supreme court distinguished "bystander" cases involving parents who alleged emotional distress as a result of witnessing the death of a child or the incident that caused a child's death (see ¶ 13). "It is difficult to imagine that [the mother] was anything other than a participant, directly involved in the tortious activity that resulted in the stillbirth of Brianna. Accordingly, she can maintain a direct claim for injuries that resulted from that activity. Wisconsin Stat. § 655.007 contemplates such a result, namely, that a patient who has suffered medical malpractice can bring a direct claim. The fact that the same patient may also have a derivative claim for wrongful death is unusual, and likely to arise only in the unique circumstances presented in cases like this where the patient is also a victim/participant in the events at issue" (¶ 15). It would have been "incongruous" to "deny recovery to the injured mother because of a stillbirth merely because there is recovery via a wrongful death claim. The wrongful death claim does not and cannot compensate the mother for the pain and anguish that she suffered associated with the stillbirth of her child, resulting from conceded medical negligence" (¶ 23).

The supreme court then briefly addressed two other issues. First, it held that the circuit court erred by "segregating" the mother's "own injuries" from those "arising from the injuries and stillbirth of her daughter" (¶ 25). Simply put, such a distinction could not be rationally made (see ¶ 27). Second, the parties' stipulation concerning the dismissal of various claims did not waive the mother's claim for negligent infliction of emotional distress.

Justice Prosser, joined by Justice Wilcox, concurred and distinguished this case from Maurin v. Hall, 2004 WI 100.

Top of page

Wisconsin Lawyer