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Business Law

Estate of Matteson v. Matteson, 2007 WI App 23 (filed 10 Jan. 2007) (ordered published 28 Feb. 2007)

Two brothers, R and J, formed a partnership. In 2001 J left the partnership, thereby dissolving it. R continued the business as a limited liability company. The brothers were unable to agree on the value of J's interest. Following J's death, three and one-half years of litigation ensued. The circuit court apportioned the profits and expenses based on evidence adduced at trial.

The court of appeals, in an opinion written by Judge Brown, affirmed in part and reversed in part. The court's decision builds on Lange v. Bartlett, 121 Wis. 2d 599 (Ct. App. 1984), but "address[ed] in more detail the calculation of the outgoing partner's profit share and the continuing partner's labor compensation" (¶ 1). The court reviewed the possible ways of dissolving partnerships, including mutual settlements and forced liquidations.

A "third possibility is that the outgoing partner allows the other partner to continue the business, but the partners cannot agree on a payout for the outgoing partner. The outgoing partner still has the right to sue for windup, but the ultimate settlement of accounts is different than if the business had been terminated. An outgoing partner in this case is entitled to his or her share of the value of the business at the date of dissolution, plus, at the outgoing partner's election, either interest on that amount or a share of the business' profits from the date of dissolution until the final settlement of accounts" (¶ 6).

There is a two-fold justification for the rule that allows the outgoing partner profits or interest: "First, it compensates the outgoing partner for the business's use of his or her assets between dissolution and pay out. Second, it serves as a `species of compulsion;' giving the continuing partner an incentive for a quick windup" (¶ 7). An overly broad construction of the rule, however, may be unfair to the continuing partner. Thus, Lange provided that "`the better reasoned view is that one who continues a partnership business after dissolution and contributes substantial labor and management services is entitled to compensation for that effort'" (¶ 8). "Thus, just as the profits/interest entitlement prevents the continuing partner from getting free use of the outgoing partner's property, the compensation we described in Lange prevents the outgoing partner from squeezing free labor out of the continuing partner" (¶ 9).

The court held that Lange, not Wis. Stat. section 178.15(6), controls determination of R's compensation, which had been erroneously restricted to only his labor and expenses involved in "winding up" the business. Instead, R was entitled to reasonable compensation for running the business after J left the business. "This may include compensation for his efforts to conclude the affairs of the partnership, but is not limited to it. On remand, the [circuit] court may take additional evidence on this point, or may rely on the already voluminous record. We stress that the [circuit] court, sitting in equity, has wide discretion to craft a fair resolution of this case. We remand only because its decision on this issue was based upon an incorrect reading of the law. If the circuit court finds that [R] has unduly `run up the tab' for his efforts, as the Estate claims, it may adjust his compensation accordingly" (¶ 14).

Nonetheless, "whatever figure the circuit court ultimately reaches must be deducted from the profits of the partnership before those profits are divided; that is, the bill for [R's] services should be allocated between [R] and the Estate on a 45%/55% basis. As the Estate notes, this is not what the court did with [R's] compensation in the judgment here appealed. Instead, it first divided the profits and then deducted the entire amount from the Estate's share, effectively making the Estate pay for all of [R's] labor" (¶ 15). The court said that Lange did not compel this result (see ¶ 16).

The court of appeals then considered and rejected the remaining claims of error. First, the circuit court correctly presumed that after accounting for R's labor, it could split the profits 55%/45%, which was how R and J divided the profits before the partnership's dissolution. Second, the judge properly ordered R to deposit with the court "the judgment amount plus 12% interest for one year," which comported "with the objectives of the postjudgment interest statute" (¶ 24).

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Criminal Law

State v. Wille, 2007 WI App 27 (filed 31 Jan. 2007) (ordered published 28 Feb. 2007)

A minor died of injuries sustained in a car accident following a party for which Wille supplied the alcohol. A jury convicted Wille of procuring beer for a minor, resulting in death. See Wis. Stat. § 125.075(1).

The court of appeals, in a decision authored by Judge Deininger, affirmed. First, the court held that the statute applies to defendants who procure alcohol beverages for a group of people that the defendant knew or should have known included underage persons (see ¶ 11). Put differently, the state need not prove that the defendant had direct contact with, or specific knowledge of, the victim. "We conclude it would be equally absurd or unreasonable to interpret Wis. Stat. § 125.075(1) as requiring a personal interaction between the defendant and the victim, or as requiring that the defendant have knowledge that a particular underage person would consume the alcohol procured by the defendant. If we were to adopt Wille's proffered interpretation, a defendant who procures alcohol beverages and provides them to a single minor in a face-to-face transaction could be prosecuted under the statute, but a defendant who arguably engages in more blameworthy conduct by procuring alcohol beverages for dozens of minors could not be prosecuted, even though the risk of a tragic result is far greater in the second scenario" (¶ 14).

Second, there was sufficient evidence to support the conviction, including proof that the victim consumed beer provided by the defendant (see ¶¶ 16-20).

Third, the trial judge adequately instructed the jury on causation (that is, the victim's drinking had to be "a substantial factor" in his death). Nor did the judge err by refusing to add language to the effect that the victim's death must have been a "natural and probable consequence" of the defendant's conduct (see ¶ 27).

The court of appeals then considered a series of alleged evidentiary errors. The court held that any error in admitting the coroner's opinion testimony about the victim's toxicology results, including negative drug screen results, did not affect the defendant's "substantial right." Although no chain of custody was established, the victim's blood alcohol level was not an element of the offense, as the victim was a minor. Other proof showed that he had driven away from the party "in a highly intoxicated state" (see ¶ 31). Finally, the court held that the state did not violate the discovery statutes by calling an investigator who had not been named as a witness. Indeed, the state had no intention of calling the investigator in its case-in-chief. The defendant "surprised" the state at trial by insinuating that the victim had drugs in his pocket. The investigator contradicted these allegations (see ¶¶ 34-40).

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State v. Quintana, 2007 WI App 29 (filed 17 Jan. 2007) (ordered published 28 Feb. 2007)

The defendant was charged with multiple offenses, including mayhem. He allegedly entered the bedroom of his ex-wife and struck her forehead with the claw end of a hammer approximately three times. She suffered a skull fracture and a scalp laceration running from above her eyebrow to behind her ear. As a result of the skull fracture, small pieces of bone tore the brain lining and spinal fluid leaked into the wound. The woman also sustained an intracranial injury with air and blood in the brain, an injury that "carries a potential for dying from it" (¶ 2), and she suffers from recurrent headaches and memory deficits. The circuit court dismissed the mayhem charge after concluding that it did not apply to injuries to the forehead. In a decision authored by Judge Hoover, the court of appeals reversed.

The crime of mayhem is defined by Wis. Stat. section 940.21 as follows: "Whoever, with intent to disable or disfigure another, cuts or mutilates the tongue, eye, ear, nose, lip, limb or other bodily member of another is guilty of a Class C felony." After an extended statutory analysis, the appellate court concluded that the forehead constitutes an "other bodily member" for purposes of the mayhem statute (see ¶¶ 16-17).

The court also rejected the defendant's claim that the "violent crimes in a school zone" penalty enhancer, which was appended to the mayhem charge as well as to a charge of aggravated battery, was unconstitutional as applied to him. He raised both due process and equal protection challenges to this enhancer, which provides for increased penalties for the commission of certain violent crimes in a "school zone," the latter being defined as including areas "within 1,000 feet of the premises of a school." Wis. Stat. § 939.632. The defendant argued that the 1,000-foot classification is arbitrary and irrational under both equal protection and due process. He stressed that, at the time of the alleged crimes, he was inside a residence, in the early morning hours, on a holiday weekend, and it was therefore highly unlikely children would be nearby (see ¶ 22).

The appellate court concluded that "it is evident that through the school zone enhancer, the legislature meant to create a zone where, regardless of time of day or calendar date, the public can consider children safe and protected. The enhancer serves to deter crimes with the most serious adverse impacts on the atmosphere surrounding schools" (¶ 26). It found that there are "logical, rational, reasonable bases for a penalty enhancer meant to deter violent crime near schools. One thousand feet is a practical, uniform boundary for enforcement purposes. Wisconsin Stat. § 939.632 is constitutional as applied [to the defendant] ...." (¶ 29).

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Criminal Procedure

State v. Gee, 2007 WI App 32 (filed 30 Jan. 2007) (ordered published 28 Feb. 2007)

A circuit court judge imposed on the defendant two bifurcated sentences consisting of terms of initial confinement and extended supervision. After the defendant was released from prison to extended supervision, he violated the terms of the extended supervision, which then was revoked. He was returned to court for a reconfinement hearing, which was presided over by a different circuit judge. The latter judge imposed the maximum reconfinement term available under the law, and the defendant responded with a motion seeking a new reconfinement hearing. The postconviction motion was denied by the circuit court. On appeal the defendant argued inter alia that the judge who presided over the reconfinement hearing failed to give deference to the reconfinement recommendation of either the Department of Corrections (the department) or the administrative law judge (ALJ) and erroneously exercised his discretion because he failed to review the presentence investigation report presented at the time of sentencing and the original sentencing judge's explanation for the sentences.

In a decision authored by Judge Curley, the court of appeals reversed. Said the court, "[t]his case is controlled by the recent supreme court decision in State v. Brown, 2006 WI 131, ___ Wis. 2d ___, 725 N.W.2d 262 [summarized in the February 2007 Wisconsin Lawyer and the subject of an article in the April 2007 Wisconsin Lawyer], which set forth factors that should be considered at a reconfinement hearing. The supreme court determined that trial courts are required to give `reasoned explanations for reconfinement decisions.' Id., ¶29. While the supreme court rejected [the defendant's] argument that the sentencing court must give deference to the Department's or ALJ's recommendation, the case does hold, by implication, that the trial court must consider the original sentencing transcript when making its reconfinement decision. See id., ¶38. Consequently, we conclude that the trial court, based on the limited information before it, set forth a reasoned explanation [for its reconfinement decision]. However, we reverse and remand for a new reconfinement hearing, directing the trial court to consider the sentencing transcript along with any other relevant factors as listed in Brown that apply in this case when determining the appropriate period of reconfinement" (¶ 2).

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State v. Yanick, 2007 WI App 30 (filed 25 Jan. 2007) (ordered published 28 Feb. 2007)

The defendant was convicted of fifth offense operating while intoxicated (OWI) and was sentenced to five years in prison. The sentence was stayed and he was placed on probation for five years, with a condition of probation being that he serve six months in jail (conditional jail time). Shortly after starting the conditional jail time, the defendant was convicted of and sentenced to prison for felony escape. After his release from prison he was arrested for a new offense and his OWI probation was revoked. He then began serving the imposed and stayed five-year OWI prison term.

The question on appeal was whether the defendant is entitled to sentence credit against his five-year OWI prison term for the six months of conditional jail time he already served for that offense. This issue arose because the conditional time overlapped with the time the defendant spent in prison serving the unrelated prison sentence for escape. [It was undisputed that, "if [the defendant's] escape sentence is taken out of the mix, he would be entitled to sentence credit against his OWI sentence for time spent serving his OWI conditional jail time. The sentence credit statute, Wis. Stat. § 973.155 (2003-04), requires that credit be given for time spent in jail as a condition of probation against a sentence imposed for the crime for which the defendant was on probation serving the jail time" (¶ 5).]

In a decision authored by Judge Lundsten, the court of appeals concluded that "when a defendant has served conditional jail time, and his or her probation is later revoked and the defendant commences serving an imposed and stayed sentence, the defendant is entitled to sentence credit for days spent in custody while in conditional jail time status, even if that custody is concurrent with service of an unrelated prison sentence" (¶ 24).

In a footnote the court observed that "[n]othing in this opinion precludes a circuit court from modifying the conditions of probation to remove conditional jail time when a defendant has been sentenced to prison. In general, conditions of probation may be modified, `for cause,' at any time prior to the expiration of probation. Wis. Stat. § 973.09(3)(a). We do not address whether the imposition of [the defendant's] escape prison sentence was sufficient cause to support modifying his probation to eliminate the remainder of his conditional jail time" (¶ 23 n.10).

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State v. Brady, 2007 WI App 33 (filed 17 Jan. 2007) (ordered published 28 Feb. 2007)

While executing a search warrant, police officers waited one minute at the defendant's door and then entered without announcing their identity or stating that they possessed a warrant. The defendant was not present but a roommate was sleeping on the couch. The officers seized weapons, and the defendant was charged with being a felon in possession of a firearm. The defendant made a motion to suppress the evidence on the ground that it resulted from an unlawful no-knock entry, but the circuit court denied the motion.

The court of appeals, in an opinion written by Judge Hoover, affirmed. "The announcement rule `requires the police to do three things before forcibly entering a home to execute a search warrant: 1) announce their identity; 2) announce their purpose; and 3) wait for either the occupants to refuse their admittance or [] allow the occupants time to open the door.' The rule thus fulfills three purposes: protecting the safety of police and others; preventing the physical destruction of property; and protecting the limited privacy interests of the occupants of the premises to be searched" (¶ 9).

The defendant's absence from the home meant that neither his nor the officers' safety was imperiled by the entry; thus, the "safety consideration was not violated" (¶ 13). Nor was any property destroyed when the officers "jimmied" the lock. Finally, the defendant's privacy right was not violated by the unannounced entry. "Brady was not home, so there was not even a miniscule chance the deputies would infringe upon his dignity. Police would not, for example, break in and find Brady in an embarrassing or compromising situation. The intrusion upon the sanctity of the home - the primary violation of which Brady complains - was authorized by the search warrant, the issuance of which Brady has not challenged" (¶ 15).

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Family Law

Wood v. Propeck, 2007 WI App 24 (filed 25 Jan. 2007) (ordered published 28 Feb. 2007)

The parties in this litigation entered into a marital settlement agreement, the terms of which were incorporated into the divorce judgment. One provision of the parties' agreement was the following: "Neither party shall request a change in the amount of child support payments for a period of at least seven years from the date of the judgment entered herein, except as occasioned by catastrophic circumstances, specifically understood and agreed as being significantly greater than a substantial change in circumstances" (¶ 3).

In a decision authored by Judge Deininger, the court of appeals concluded that this agreement is against public policy and cannot be used to estop one of the parties from seeking a modification of child support. Said the court, "[b]ecause the present agreement would ... thwart the legislative directive that child support be subject to modification upon a showing of a `substantial change in circumstances,' Wis. Stat. § 767.32(1)(a), we conclude that, like the agreement in Ondrasek [v. Tenneson, 158 Wis. 2d 690, 462 N.W.2d 915 (Ct. App. 1990)], the present agreement is contrary to public policy...." (¶ 11). "Put another way, the provision at issue, if it were enforced, would prevent a court from considering whether a modification in child support should be ordered to ensure the children's best interests are protected when circumstances substantially change from those at the time of the divorce. The provision thus contravenes the legislative directive and is precisely what we said in Ondrasek that divorcing parties may not agree to" (¶ 13).

The court further found that the "catastrophic circumstances" language of the agreement did not rescue the provision, finding that this standard "does not protect the best interests of the children because it potentially deprives them of a change in child support upon a substantial change in circumstances, which is when the legislature has directed that a modification may be requested" (¶ 14). Nor did the applicability of the support modification limitation to both parties save it. "We conclude that precluding both parties, instead of just one of them, from seeking a modification in support when circumstances change substantially does not result in an agreement that is consistent with the public policy reflected in Wis. Stat. § 767.32(1)(a)" (¶ 15). The court further indicated that it would not overlook a violation of public policy simply because it is of limited duration (in this case seven years) (see ¶ 16).

The appellate court concluded its opinion by making explicit what was perhaps only implicit from the discussion in Ondrasek: "any provision in a marital settlement agreement entered into by divorcing parties that purports to limit in any way a child support payee's ability to seek a support modification in the best interests of the children upon a substantial change in circumstances is against public policy; it thus cannot provide a basis to estop the payee from seeking a modification under Wis. Stat. § 767.32(1)(a). Divorcing parties must look to means other than child support to resolve the financial issues between them upon dissolution of their marriage" (¶ 21)

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Insurance

Liebovich v. Minnesota Ins. Co., 2007 WI App 28 (filed 24 Jan. 2007) (ordered published 28 Feb. 2007)

Liebovich purchased an "innovative," expensive insurance policy directed at "high net worth individuals" that broadly covered "offenses," as well as the more traditional categories of "accidents" and "occurrences"(¶ 1). The policy, issued by AIG, also covered incidents of "wrongful entry or eviction." When two neighbors sued Liebovich for violating set-back restrictions on a house he built on a lake, AIG refused to defend him and denied coverage. A court later ordered Liebovich to pay the neighbors about $10,000 in damages plus costs. He then sued AIG for bad faith and for breaching its duty to defend him. The circuit court granted summary judgment to AIG.

In a decision authored by Judge Brown, the court of appeals affirmed in part and reversed in part. The court said that an insurer that believes its policy does not indemnify against a claim generally has three options. First, it may seek a judicial resolution of the coverage issues before the underlying claim is tried. Second, it may defend its insured under a reservation of rights. Third, "[t]he insurer may, on the other hand, simply refuse to assist and leave the insured to his or her own defense. If the insurer is correct that it owes no duty to defend, then it suffers no negative consequences of this action. However, the insurer should be very wary of taking this route, because if it is later found that the insurer did have a duty to defend, the breach of that duty estops the insurer from contesting coverage in the underlying action. This means that it must pay, in addition to the insured's cost to defend the underlying action, any damages awarded in that action. The insurer must also pay the insured's attorney fees in successfully establishing coverage" (¶ 4).

The court of appeals held that the complaint raised a colorable issue of coverage under the policy's "wrongful entry or eviction" language. "[I]t is at least fairly debatable that Liebovich's action of putting his home in a location that his neighbors had the right to keep it out of constituted a `wrongful entry' into his neighbors' interests in the land. The complaint also alleges that this wrong by Liebovich has `aggrieved' his neighbors and interfered with their interests in property. This satisfies the requirement that the wrongful entry cause a `personal injury,' since that term includes `mental harm.' We therefore hold that the complaint alleged a personal injury under the policy" (¶ 11). Moreover, this conduct apparently fell within the broad policy language that extended to offenses (which is more expansive than the term accident), which is "boiler plate language existing in most standard policies" (¶ 12).

The court also was satisfied that Liebovich's claim was not barred by the intentional conduct exclusion. "Here, it is a reasonable inference that when Liebovich's neighbors accuse him of `willful disregard' of their rights, they mean that he refused to conform his conduct to what they thought was legal and illegal; not that he knew he was building an illegal house and just did not care" (¶ 16).

Finally, the court also upheld the dismissal of Liebovich's bad faith claim against AIG. "We have held that, since it was debatable whether the policy covered Liebovich for the acts alleged in the complaint, AIG owed a duty to defend him - at least until coverage was decided - and that violating that duty means that AIG may no longer contest coverage. But this same analysis precludes a bad faith action by Liebovich against AIG. To have a valid bad faith claim, Liebovich had to convince us that coverage by AIG was not even debatable. The short answer is: coverage was debatable - which defeats AIG's claim that there was no duty to defend and also defeats Liebovich's claim that coverage was self-evident" (¶ 18).

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Motor Vehicle Law

State v. Kliss, 2007 WI App 13 (filed 6 Dec. 2006) (ordered published 31 Jan. 2007)

The defendant was arrested for first offense operating while intoxicated (OWI). He also apparently was arrested on a marijuana possession charge (see ¶ 14). At the police station an officer read the Miranda warnings to the defendant, who said "no" when asked if he wished to answer questions. The officer then advised the defendant about his rights and responsibilities under the implied consent law by reading to him the "Informing the Accused" form. The defendant asked the officer how this would affect his Illinois driver's license. The officer responded that he did not know how it would affect the Illinois license. The officer then asked the defendant if he would submit to an evidentiary chemical test of his breath and the defendant responded "no." The officer recorded this as a refusal. The municipal court dismissed the refusal prosecution. On appeal the circuit court held that the defendant unlawfully refused to submit to chemical testing. In a decision authored by Judge Snyder, the court of appeals affirmed the circuit court.

The essence of the defendant's argument on appeal was that reading of the Miranda warnings before reading of the Informing the Accused form is misleading and objectively affects the accused's ability to make the choice about chemical testing (see ¶ 12). The problem arises because whereas the Miranda advisory informs the defendant about the right to consult with counsel before questioning, the supreme court has held that the desire to consult with an attorney before deciding whether to submit to an evidentiary chemical test under the implied consent law is not a valid reason to refuse the test. State v. Neitzel, 95 Wis. 2d 191, 205, 289 N.W.2d 828 (1980).

Two cases in particular informed the appellate court's analysis of the problem presented by the defendant. "In State v. Reitter, 227 Wis. 2d 213, 595 N.W.2d 646 (1999), the issue before the court was `whether the implied consent statute imposes an affirmative duty upon a police officer to inform a defendant that there is no right to counsel in the implied consent setting, and whether a defendant's request to consult with an attorney constitutes a statutory refusal to submit to a chemical test.' Id. at 223. The Reitter court held that no affirmative duty to advise defendants existed. Id. at 242-43" (¶ 9). In State v. Verkler, 2003 WI App 37, 260 Wis. 2d 391, 659 N.W.2d 137, the court of appeals expressly relied on the Reitter holding to conclude that "[i]f the officer explicitly assures or implicitly suggests that a custodial defendant has a right to consult counsel, that officer may not thereafter pull the rug out from under the defendant if he or she thereafter reasonably relies on this assurance or suggestion" (¶ 10).

In the current decision the appellate court concluded that "[t]he reading of Miranda does not, in and of itself, lead us to conclude that the officer explicitly assured or implicitly suggested that a defendant has a right to consult counsel or to stand silent in the face of the implied consent warnings. Furthermore, we will not presume reliance on the Miranda warnings. Rather, we apply the two-part Reitter test to the facts on a case-by-case basis. The court must determine whether, under the facts of the case, the Miranda warning mislead the defendant to believe the right to remain silent and to have an attorney apply in the implied consent context. If so, the court must then determine whether the defendant invoked the Miranda rights when faced with the decision whether to submit to an evidentiary chemical test. Only where both factors are present will a refusal be deemed lawful" (¶ 17).

In this case the circuit court "engaged in an objective assessment as to whether [the defendant's] statements or conduct could be perceived as reliance on his right to remain silent or to obtain legal counsel with regard to the evidentiary chemical test. The record supports the circuit court's conclusion that there was no such reliance. While [the officer] read the Informing the Accused form, [the defendant] asked him how his Illinois driving privileges would be affected. Such a question would have been more appropriately addressed to legal counsel had [the defendant] believed he had a right to an attorney at that point. Also, as the circuit court noted, [the defendant] gave an unequivocal `no' when asked to submit to the test" (¶ 16).

The court of appeals noted that the defendant's position would have been more persuasive had there not been a drug charge accompanying the OWI charge. "The discovery of marijuana provides the explanation for the Miranda reading here. If OWI had been the only concern, [the defendant] would have a stronger argument that the Miranda warning pertained to [the officer's] request for the chemical test" (¶ 14).

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Open Records Law

WIREdata Inc. v. Village of Sussex, 2007 WI App 22 (filed 3 Jan. 2007) (ordered published 28 Feb. 2007)

WIREdata Inc. is a wholly owned subsidiary of Multiple Listing Service Inc. It sought to obtain data regarding specific properties in various municipalities for purposes of making the information available to real estate brokers. Under the aegis of the open records law it sought the property assessment records in the format created and maintained in a computer database by the various municipalities' independent contractor assessors. The municipalities refused to provide the documents in the format requested by WIREdata, which then filed open records actions against the municipalities and the assessors. The circuit courts made various holdings concerning the open records requests (see ¶¶ 21, 25, 30).

In a lengthy decision authored by Judge Anderson the court of appeals held that "the open records law allows WIREdata the opportunity to access that database in order to examine and copy the property assessment records. Therefore, the municipalities committed open records law violations when they denied WIREdata such access and instead provided it with a `PDF,' or portable document file" (¶ 1).

The court further held that "the open records law contemplates holding the municipalities, but not their independent contractors, responsible for the open records law violations. The municipalities are the statutory authorities obligated to uphold the letter and spirit of the open records law and they cannot evade their duties by shifting the creation and maintenance of their assessment rec-ords to their independent contractors" (¶ 2). The statute specifically provides that "[e]ach authority shall make available for inspection and copying under s. 19.35(1) any record produced or collected under a contract entered into by the authority with a person other than an authority to the same extent as if the record were maintained by the authority." Wis. Stat. § 19.36(3) (emphasis added). The court rejected WIREdata's position that the municipalities and their independent contractor assessors all should be held responsible for failing to properly respond to WIREdata's open records request (see ¶ 48).

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