'99 Significant Court Decisions

Other significant decisions

In his annual feature, the author highlights what he believes are significant 1999 Wisconsin Supreme Court and Court of Appeals decisions.

by Daniel W. Hildebrand

Torts

In State Farm Mut. Ins. Co. v. Ford Motor Co.¹ the Wisconsin Supreme Court held that the economic loss doctrine applied to consumer transactions. The consumer purchased a used Ford Bronco truck "as is" from a Ford dealership and purchased an extended service warranty. After the warranty expired, the consumer approached his parked vehicle to find that a fire had occurred even though it was still locked and the windows were rolled up. His insurer, State Farm, determined that the fire was caused by a defective ignition switch and paid the consumer $11,600, which it determined to be the fair market value of the vehicle.

Several months later, the consumer received a recall notice from Ford indicating that a short circuit in the ignition switch of Bronco trucks could cause overheating, smoke and, possibly, fire. State Farm then initiated a subrogation action against Ford to recover the money it had paid to its insured. Ford raised the economic loss doctrine as an affirmative defense, asserting that the doctrine bars State Farm's tort claims of negligence and strict liability.

The court held that the damage to the vehicle constituted "economic loss" in that no property other than the vehicle was damaged and no personal injuries occurred. Economic loss is the diminution in the value of the product because of its inferior quality or because it does not work for the purposes for which it was manufactured and sold. Such economic losses associated with a defective product that does not meet a purchaser's expectations must be addressed through the law of contracts and warranties and not through tort law. Policy justifications supporting the application of the economic loss doctrine are that it maintains the historical distinction between tort and contract law, protects parties' freedom to allocate economic risk by contract, and encourages the party best situated to assess the risk of economic loss, enabling the purchaser in this case to assume, allocate, or insure against that risk.

Under contract law, recovery is limited to the parties to the contract. Products liability law was designed to govern the problem of physical injuries resulting from a defective product; it was not designed to undermine contract law or warranty provisions. If a plaintiff could recover tort damages for purely economic loss, the manufacturer would be liable even though it did not agree that the product would perform as plaintiff wished or expected it to do. Society's interest in tort law in protecting purchasers from physical injury does not justify requiring the consuming public to pay more for products so that a manufacturer can insure against the possibility that some of the products will not meet the expectations of some of its customers.

The policy of maintaining the distinction between tort and contract law applies to consumer transactions. In this case, the consumer purchased the truck "as is" and also purchased an extended warranty which had expired. If the consumer or his insurer were allowed to recover tort damages for purely economic loss, the contract would be rendered meaningless. Ford would be liable even though it did not agree that the Bronco would perform as the consumer expected and even though the warranty had expired.

Chief Justice Abrahamson and Justice Bradley dissented. They emphasized that the economic loss doctrine should not preclude a strict liability claim when the parties are of unequal bargaining power, the product is a necessity, no alternative source for the product is readily available, and the purchaser cannot reasonably insure against consequential damages. They argued that the consumer in this case should be able to proceed to trial under the doctrine of strict product liability for the injury to the defective product itself. The allegation was that this allegedly defective product posed an unreasonable risk of harm to person and property. Strict liability is grounded on policies of safety and risk spreading to advance on the theory that manufacturers will use greater care if they are liable for defective products. Safety concerns are not reduced when the injury is only to the product itself.2

Attorney Fees

In Jandrt v. Jerome Foods Inc.³ the supreme court upheld a substantial award in attorney fees and costs against a law firm that brought a class action alleging a toxic tort. The complaint alleged, upon information and belief, that plaintiffs' birth defects were caused by the exposure of their mothers during pregnancy to certain chemicals present and used at defendant's turkey processing plant where the mothers worked. The causation allegation was made upon information and belief because, among other things, the law firm was advised by a consultant that it would need discovery from the defendant concerning the specific chemicals used and the levels of exposure before conclusively determining causation.

The firm filed the action within one week of a significant change in Wisconsin's law of joint and several liability that potentially would have a significant impact upon plaintiffs' recovery should their lawsuit be successful. Nine months after the action was filed, the law firm offered to voluntarily dismiss the action. The firm and its clients concluded that the causal connection between the chemicals used at the plant and the plaintiffs' birth defects could only be demonstrated through epidemiological studies and chose not to commence such an undertaking. Defendant then filed a motion seeking sanctions. The trial court held that the commencement and continuation of the action was frivolous because the firm failed to make a reasonable inquiry into the facts underlying the allegation of causation prior to and following filing. The trial court awarded defendant a total of $716,000 in attorney fees and costs.

After reviewing the evidence, the supreme court concluded that the law firm did not file a frivolous action. Giving the firm the benefit of the doubt, the court determined that the action was not commenced frivolously in light of the pending need to file an order to avoid application of the new statute changing the joint and several liability rules. However, the court concluded that the action was frivolously continued.

In signing a pleading, motion, or other paper, the signing attorney warrants that it was not interposed for any improper purpose, that to the best of his or her knowledge the paper is well grounded in fact, and that the signer has conducted a reasonable inquiry and that the papers warranted by existing law or a good faith argument for a change in it. The analysis must be made from the perspective of the attorney and with a view of the circumstances that existed when the paper was signed.

The element of causation within the plaintiffs' negligence claims required factual support. Attorneys do not have the unfettered right to rely either on the investigation of a referring attorney or on client statements for the factual basis of a claim. Here, the information from the referring attorney was skeletal and insufficient to support a claim. The client's statement that her doctor had attributed cause to the chemicals, while objectively reasonable, should have prompted the firm to contact the doctor prior to filing to determine whether he did opine as to the causation of the birth defects.

Finally, the court rejected the firm's argument that the circuit court erred by, in effect, requiring that an expert opinion be retained prior to filing. The circuit court thoroughly explained its decision as one requiring expert opinion precisely because the firm had no other objective evidence of causation. The law firm never engaged in comprehensively reviewing the medical records, identifying the risk factors present in the mothers, and obtaining any evaluation through consultation with medical and scientific efforts of the scientific invalidity of an associate's elimination analysis. The firm could have made document requests under OSHA. As such, the "safe harbor" does not relieve an attorney from establishing the factual basis for a claim when that basis could be established by means other than discovery. The essential element of plaintiffs' allegation requiring a factual basis was causation.

The costs for continuing a frivolous action should be determined from the date that the firm served its second request for documents, approximately six weeks after filing the complaint. After that date, the firm made no further investigation into causation. Meanwhile, the defendant continued to accumulate substantial fees in responding to the document request. The court upheld the amount of fees and costs awarded, except that it remanded to the circuit court to subtract those fees and costs that were incurred after the action was filed and prior to the law firm's service of the second document requests.

Justice Bradley, joined by Chief Justice Abrahamson, dissented. They argued that there was nothing to show what happened to transform a meritorious case when filed to a frivolous claim only six weeks thereafter. They concluded that independent review of the facts demonstrated that the suit was not frivolous. In addition, the dissent argued that the defendant implicitly agreed that the action was not frivolous by expending nearly $1 million to defend. It is incongruous for defendant to assert that it is reasonable to spend that amount of money defending the action while at the same time claiming that the action has no merit.⁴ (Editor's Note: Please see "The Effect of Jandrt on Satellite Litigation" in the May Wisconsin Lawyer.

Evidence

In Burnett v. Alt⁵ a treating physician objected to answering questions calling for his expert opinion. He maintained his refusal to answer the questions. The trial court sanctioned the witness and his attorney. The supreme court held that the witness was substantially justified in refusing to answer questions calling for expert opinions when he had not been engaged as an expert, and reversed the order imposing sanctions.

A question asks for expert testimony if it requires scientific, technical, or other specialized knowledge that is not within the range of ordinary training or intelligence. Expert testimony calls upon persons of exceptional experience and qualifications to give their opinion. The question that the treating physician refused to answer, "No matter what the cause, a patient with a history of term pregnancy and a gush of blood, that's abnormal?" called for an expert opinion because whether a history of term pregnancy is normal or abnormal can be answered only in the meaningful and relevant way of a trained physician.

Having a right to refuse to provide testimony is a privilege. To determine whether an expert has a legal privilege to refuse to provide an expert opinion, there must be a statutory, rule, or constitutional provision that expressly or implicitly provides for a testimonial privilege for experts. Although there is no such express provision, section 907.06(1) of the Wisconsin Statutes provides that a judge may appoint any expert witness agreed upon by the parties, and may appoint a witness of the judge's own selection, but an expert witness shall not be appointed by the judge "unless the expert witness consents to act." If a court cannot compel an expert witness to testify, it logically follows that a litigant should not be able to compel an expert to testify. A witness's privilege to refuse to provide expert testimony is inherent in Wis. Stat. section 907.06(1). Any other result would be inconsistent and fly in the face of logic.

Justice Bradley and Chief Justice Abrahamson dissented. The majority's discovery of an evidentiary privilege for experts is previously unheard of in this state. The majority ignores the requirement for express legal authority to create such an evidentiary privilege. Wis. Stat. section 907.06(1) is a slender reed upon which to place such great weight in creating a privilege for expert witnesses. The statute says nothing about a court compelling an expert to testify and absolutely nothing about a party compelling an expert to testify. Furthermore, in practice, the distinction between "transaction" testimony and "expert" testimony is not always clear. These two types of testimony will inevitably spill into the other and in the process create an inseparable mixture. To unmix this mixture will prove to be a difficult and inexact task. Here, the expert testimony was requested of a treating physician. Even the jurisdictions that have adopted an absolute privilege for experts have overwhelming done so in cases where the expert was wholly unrelated to the litigation.

In Milwaukee Teachers' Educ. Ass'n v. Bd. of Sch. Directors⁶ the supreme court held that a public employee was entitled to de novo judicial review in all cases in which a record custodian decides to disclose information from a public employee's personnel file implicating privacy and/or reputational interests.

In a previous case,⁷ the court held that where a person had been the subject of a criminal investigation and where the requested records were in the custody of the district attorney, the district attorney's decision to release the records was subject to de novo review by the circuit court. This de novo review is implicit in the open records law and is available when the public records custodian is not a district attorney. There is an important public interest in protecting persons' privacy and reputations. The key to determining the status of records under the open records law is the nature of the records, not their location. Records containing personal information about a school district employee implicate the same concerns of protection of privacy and reputation whether those records are in the hands of a school district or a district attorney.

In this case, the newspaper sought the names and school assignments of persons discharged due to misdemeanor convictions. Release of this information clearly would impact the privacy and reputations of the plaintiffs. Two of the plaintiffs had only a single misdemeanor conviction stemming from college incidents. Several of the convictions preceded the plaintiffs' termination by more than 10 years. Most of the plaintiffs had achieved satisfactory employment reviews. Disclosure of the names and school assignments would permit plaintiffs to be identified by family members, persons in the community, coworkers, supervisors, and students. Such disclosure could harm plaintiffs' personal relationships, tarnish their reputations, and undermine their authority with students. The court remanded the case to the circuit court to conduct a de novo review of the decision to release the records, performing the balancing test required by law.

Chief Justice Abrahamson and Justice Bradley dissented. This case involves records containing information about a government employee whose salary is paid with tax dollars. Government employees are accountable to the public. The conduct of government employees in their official duties is subject to public scrutiny. Although the privacy and reputational interests of employees is important, there must be a balance between privacy and open government. When a records' custodian makes the balance, the employee is not entitled to judicial review. A district attorney serving as record custodian is distinguishable. Extending the notice and judicial review processes to all custodians contravenes the language, spirit, and purpose of the open records law. Providing such review brushes aside the practical argument that providing judicial review will result in impermissible delays. In this case, more than two years have passed since the records custodian decided to release the public records. No final decision will be made until after the circuit court conducts its balancing test on remand.

Justice Prosser also dissented without opinion.

In State v. Sprosty⁸ the supreme court considered the issue of whether or not supervised release of the defendant, who had been committed under the sexual predator law, Wis. Stat. Chapter 980, could be avoided because of inadequate resources in the community. Although Sprosty needed to continue to participate in sex offender and substance abuse treatment programs, he could benefit from such treatment on an outpatient basis while living in the community under close supervision. The circuit court initially ordered supervised release but then denied supervised release because of inadequate resources.

Daniel W. Hildebrand is a member of DeWitt, Ross & Stevens S.C., Madison. He is a former president of the Dane County Bar Association and of the State Bar of Wisconsin.

Although the circuit court may consider the availability of facilities to house or to treat a sexual predator in its discretion under Wis. Stat. section 980.08(4), such consideration must be in keeping with the purpose of providing the least restrictive means to accomplish the treatment of the person while also protecting the public. This does not mean that the circuit court can or should consider whether the available facilities are willing to undertake the person's supervision before ordering supervised release. The petition must be granted unless the state proves by clear and convincing evidence that the person is still a sexually violent person and that it is still substantially probable that the person will engage in acts of sexual violence if not confined in a secure mental health unit or facility. Under Wis. Stat. section 980.08(5), the circuit court has the authority to order a county department or the Department of Health and Family Services to create whatever programs or facilities are necessary to accommodate an order for supervised release. The language of the statute is clear and unambiguous, using the word "shall," which is equivalent to mandatory. Wisconsin sexual predator law survived constitutional challenge, in part, because the nature and duration of Chapter 980 commitments are to be reasonably related to the purposes of those commitments. The case was remanded to the circuit court to designate and order the development of a plan that provides for Sprosty's supervised release and treatment in the community.

Endnotes

¹ State Farm Mut. Ins. Co. v. Ford Motor Co., 225 Wis. 2d 305, 592 N.W.2d 201 (1999).

² See also, General Cas. Co. v. Ford Motor Co., 225 Wis. 2d 353, 592 N.W.2d 198 (1999).

³ Jandrt v. Jerome Foods Inc., 227 Wis. 2d 531, 597 N.W.2d 744 (1999).

⁴ See also Jandrt v. Jerome Foods Inc., 230 Wis. 2d 246, 248, 604 N.W.2d 574 (1999) (Chief Justice Abrahamson and Justice Bradley dissenting from denial of motion for reconsideration).

⁵ Burnett v. Alt, 224 Wis. 2d 72, 589 N.W.2d 21 (1999).

⁶ Milwaukee Teachers Educ. Ass'n v. Bd. of Sch. Directors, 227 Wis. 2d 779, 596 N.W.2d 403 (1999).

⁷ Woznicki v. Erickson, 202 Wis. 2d 178, 549 N.W.2d 699 (1996).

⁸ State v. Sprosty, 227 Wis. 2d 316, 592 N.W.2d 692 (1999).

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