1998 Significant Court Decisions

Highlights of the 1998 Wisconsin Supreme Court and Court of Appeals decisions.

By Daniel W. Hildebrand

fter reviewing the Wisconsin Supreme Court and Court of Appeals decisions issued in 1998, the author has highlighted leading cases that are of public interest or that significantly impact Wisconsin lawyers and their practice of law.

Constitutional Law

Jackson v. Benson,¹ a highly publicized "school choice" case, upheld the constitutionality of the Amended Milwaukee Parental Choice Program (MPCP). The Amended MPCP made direct payments to parents who sent their children to sectarian schools. The parent was required to endorse the check for use of the private school.

The court upheld this "school choice" program. The court held that the program did not violate the establishment clause of the First Amendment because it had a secular purpose, did not have the primary effect of advancing religion, and will not lead to excessive entanglement between the state and participating sectarian schools. The purpose of the program is to provide low-income parents with an opportunity to have their children educated outside the embattled Milwaukee public school system. Providing educational opportunities for children of poor families is unquestionably a state concern. The program does not have the primary effect of advancing religion. Indeed, state programs that are wholly neutral offer educational assistance without reference to religion. Amended MPCP provides a religious neutral benefit to eligible pupils and parents who participate - that is, the opportunity to choose educational opportunities parents deem best for their children.

Finally, the program does not involve excessive entanglement between the state and religion. Under the program, the state need not and is not given the authority to impose any comprehensive, discriminating, and continuing state surveillance over participating sectarian private schools. Although participating schools are subject to performance, reporting, and auditing requirements, as well as to applicable nondiscrimination, health, and safety obligations, enforcement of these minimal standards does not create an excessive entanglement. This oversight already exists in that the Superintendent of Public Instruction currently monitors the quality of education at all sectarian private schools.

The court also upheld Amended MPCP under the "benefits clause" of article I, section 18 of the Wisconsin Constitution, which provides "nor shall any money be drawn from the treasury for the benefit of religious societies or religious or theological seminaries." This is Wisconsin's equivalent of the establishment clause. Both clauses are intended and operate to serve the same dual purpose of prohibiting the establishment of religion and protecting the free exercise of religion. Unlike the Wisconsin Court of Appeals, which focused on whether sectarian private schools were "religious seminaries" under article I, section 18, the issue is whether the aid provided by Amended MPCP is for the benefit of religious institutions. The question is not whether some benefit accrues to a religious institution, but whether the principal or primary effect of the program advances religion. In this context, public funds may be placed at the disposal of third parties as long as the program on its face is neutral between sectarian and nonsectarian alternatives, and the transmission of funds is guided by the independent decisions of third parties. Amended MPCP does not require a single student to attend class at a sectarian private school. A qualifying student only attends a sectarian private school under the program if a student's parent so chooses.

In Flynn v. Department of Administration² the court upheld the validity of 1993 Wis. Act 16, section 9253 (the Act), which caused the lapse of $2,898,000 to the general fund of unexpended program revenues designated for court automation. These funds were derived from court filing fees and court automation fees previously provided by the Wisconsin Legislature. Plaintiffs challenged executive and legislative action in lapsing these funds as violating public policy grounded in the constitution, statutes, common law, public expectations, and the separation of powers doctrine.

Although noting that it emphatically disagreed with the public policy underlying the Act, the court refused to hold the Act unconstitutional. Article VII, sections 2 and 5 of the Wisconsin Constitution do not prohibit the Legislature from enacting legislation to reallocate previously appropriated funds. These provisions empower the Legislature, not the judiciary, to make policy decisions regarding taxing and spending. Cases that require appropriated funds be spent as appropriated are applicable to refusals of the executive branch to spend money that the Legislature appropriated. In this case, the Legislature changed the appropriation. It is the Legislature's role to determine whether to reallocate limited resources. Each legislative session may reassess the needs of the public and provide for the allocation of scarce public resources.

The Act did not violate the separation of powers doctrine. The Act involved "shared powers" of the Legislature and the judiciary. Although the judiciary has superintending power as broad and as necessary to ensure the due administration of justice, the judiciary is not vested with constitutional superintending authority over the legislative budget process or determinations. Under the shared powers doctrine, the statute cannot be held unconstitutional unless it unduly burdens or substantially interferes with the judiciary. Since unconstitutionality must be proven beyond a reasonable doubt, the fact that the Act had an adverse impact upon the courts is not, by itself, proof of an undue burden or substantial interference.

Attorney Fees

Gorton v. Hostak, Henzl & Bichler S.C.³ concerned the interpretation of a contingency fee agreement and a statutory award of reasonable attorney fees under Wis. Stat. section 100.18. The law firm contended that it was entitled to recover the statutory award of reasonable attorney fees in addition to the contingent fees based upon damages recovered in the underlying action. The contingent fee contract provided that the law firm was entitled to 40 percent of the gross amount of any recovery obtained after a lawsuit that involves an appeal. Gorton recovered $200,000 in damages. In addition, the court awarded $307,000 in reasonable attorney fees, making the total judgment $507,000. The law firm argued it was entitled to 40 percent of $200,000 plus $307,000 awarded for reasonable attorney fees, for a total of $387,000. The court disagreed, holding that the entire judgment of $507,000 belonged to Gorton, and the law firm was entitled to 40 percent of that judgment, or $202,800.

Wis. Stat. section 100.18 provides that any person suffering pecuniary loss shall recover such pecuniary loss, together with costs, including reasonable attorney fees. Under the statute, an award of reasonable attorney fees belongs to the client and not the attorney who represents the client. The terms of the contingent fee contract provided that the law firm would recover 40 percent of the gross amount recovered. Therefore, the firm was not entitled to recover the attorney fees awarded by the court but only 40 percent of those fees. The attorney who drafted the contract had the responsibility of drafting an unambiguous contract.

GAL Immunity

Paige K.B. v. Molepske⁴ held that there was an absolute privilege for a guardian ad litem (GAL) in child custody cases. The GAL was appointed to represent the best interests of three children during divorce and custody proceedings. During those proceedings, it was alleged that the father had sexually abused the children. Three psychologists were appointed to examine the children. The GAL petitioned the court for psychological testing based upon allegations by both parents of alcoholism, drug abuse, and abuse of the children. The GAL recommended that the court give custody of the children to their mother. Notwithstanding that recommendation, the court awarded the parents joint custody, granting the father primary physical placement. In doing so, the court found the testimony of one psychologist, who found no evidence of sexual abuse, more credible than the testimony of another psychologist, who thought there probably had been abuse.

After the divorce, the children were placed in a foster home under a CHIPS petition alleging that the father had sexually abused them. He was formally charged and convicted of sexually assaulting the children. The court then transferred physical custody to the mother. The children claimed that the GAL was negligent.
Wisconsin courts have recognized an absolute quasi-judicial immunity for those persons who perform functions that are intimately related to the judicial process. This immunity has been applied previously to witnesses, appointed pathologists, and a court-appointed psychologist. Wisconsin courts apply a functional analysis to determine whether such absolute immunity attaches to a particular defendant. Immunity is justified and defined by the functions it protects and serves, not by the person to whom it attaches. A GAL appointed by a circuit court to represent a child's best interests is a nonjudicial officer who performs acts intimately related to the judicial process. The GAL essentially functions as an agent or arm of the court, charged with the same standard that must ultimately govern the court's decision - that is, the best interests of the child.

Plaintiffs argued that unless GALs are held civilly liable, there will be no effective remedy available to the parties injured by negligent acts and omissions of GALs. In rejecting this argument, the court reasoned that GALs must be allowed to independently consider the facts of the case and advocate the child's best interests free from the threat of harassment or retaliatory litigation. Should immunity not be provided, there likely would be a decline in the number of attorneys willing to serve as GALs in child custody proceedings. In addition, fear of liability could warp the judgment of those GALs who are appointed toward appeasement of disappointed parents or children and away from protecting the child's best interests.

Economic Loss Doctrine

In Daanen & Janssen Inc. v. Cedarapids Inc.⁵ the court extended the economic loss doctrine to protect a manufacturer who was not in privity with the end user of a product. Cedarapids manufactured a component part to rock crushers called a "pit man." It manufactured and sold new crushing equipment and spare parts to distributors that then resell the products to quarry owners.

Daanen, a quarry owner, purchased from one of the distributors a pit man that failed. In the Distributor Agreement, Cedarapids provided a standard express warranty providing that it applied to the distributor's customers. Daanen was unaware of this warranty, and the distributor did not pass the warranty to Daanen. In addition, Daanen did not request or receive from the distributor a warranty on the replacement pit man. The invoice from the distributor stated that the distributor disclaimed all warranty and liability. After Daanen installed the replacement part in two of its crushers, the machines began to break down. These breakdowns eventually were attributed to manufacture and design problems in the pit man. Daanen claimed that Cedarapids was negligent and sold a defective product that caused more than $400,000 in damages. There was no allegation that the defective pit man caused personal injury or damage to property other than to the pit man itself.

The economic loss doctrine is a judicially created doctrine providing that a commercial purchaser of a product cannot recover from a manufacturer under tort theories of negligence or strict products liability where the damages are solely "economic" in nature. Application of economic loss doctrine to tort actions between commercial parties is based on three policies, none of which is affected by the presence or absence of privity between the parties:

1. to maintain the fundamental distinction between tort and contract law;
2. to protect commercial parties' freedom to allocate economic risk by contract; and
3. to encourage the party best suited to assess the risk of economic loss, the commercial purchaser, to assume, allocate, or insure against that risk.

If, as here, only economic losses are caused to a commercial party, the policy arguments for imposing tort liability are considerably diminished. A manufacturer in a commercial relationship has no duty under either negligence or strict liability theories to prevent a product from injuring itself. Contract law is better suited for enforcing duties in the commercial arena because it permits the parties to specify the terms of their bargain and to protect themselves from commercial risk. The absence of privity of contract does not alter this conclusion.

The economic loss doctrine serves to protect commercial parties' freedom to contract. In situations where commercial parties have allocated their respective risks through contract, the economic loss doctrine teaches it is more appropriate to enforce that bargain than to allow an end run around the bargain through tort law. If manufacturers are held liable to remote commercial purchasers under tort theories for frustrated economic expectations, all manufacturers would effectively be prevented from negotiating their liability through the bargaining process. Commercial parties, presumably of equal bargaining power, are generally free to set the terms of their own agreement, including warranties, disclaimers, and limitations of remedies. Subject to requirements of good faith and unconscionability, a manufacturer can negotiate with its distributors and purchasers to disclaim or limit liability for economic losses.

When Daanen purchased the pit man from the distributor, it could have requested an express warranty that could have been enforced in a suit for breach of warranty. Daanen chose not to or failed to do so. The court assumed that the lack of a seller's or manufacturer's warranty was reflected in the purchase price. If Daanen were permitted to bypass its agreement and recover the economic losses in tort, the net effect would be to render the contract between Daanen and its distributor and the contract between Cedarapids and its distributor nullities, emasculating the law of contracts in the process.

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.

Resisting Unlawful Arrest

In State v. Hobson⁶ the court abolished prospectively the common law right to forcibly resist an unlawful arrest. The circuit court had previously determined that Beloit police officers lacked probable cause to arrest the mother of a 5-year-old boy after she refused to allow the officers to speak to her son about a stolen bicycle. When the officers decided to arrest the mother for obstruction, the mother resisted and struck one of the officers. This resulted in her arrest for an additional charge of battery to a police officer. On appeal, the state sought to abrogate the privilege to resist an unlawful arrest and to reverse the order dismissing the battery charge.

As early as the 17th Century, English common law recognized the right to forcibly resist an unlawful arrest. This right was based on recognition that action by an official exceeding lawful authority constituted a trespass and a provocation and could be resisted by physical force. Wisconsin courts, while mentioning the right to forcibly resist an unlawful arrest, have not had the opportunity to apply it to circumstances presented in this case.

The court concluded that public policy is best served by abrogating the common law privilege to use physical force to resist an unlawful arrest rather than continuing to recognize it. Case law in other states demonstrates a trend toward abrogation of this right. Legal and societal circumstances have changed dramatically since the inception of that right. In its early development, physical resistance was the only effective response to the problem of unlawful arrest. In those years, private citizens made most arrests, bail for felonies usually was unattainable, and years might pass before royal judges arrived for a jail delivery. Jail conditions were such that a prisoner had an excellent chance of dying of disease before trial. The common law right to forcibly resist unlawful arrest developed out of necessity in response to those circumstances.

Not only is forcible resistance now a substantially less effective response to an unlawful arrest, there are many safeguards and opportunities for redress. Individuals no longer languish for years in disease-ridden jails. Bail is available. Individuals are not detained indefinitely on dubious charges. Prompt arraignment and determination of probable cause are mandated. Violent self-help is anti-social and unacceptably dangerous. In the absence of unreasonable force, there should be no right to forcibly resist an unlawful arrest. When persons resist arrest, they endanger themselves, the arresting officers, and bystanders.

Chief Justice Abrahamson, concurring, argued that the privilege should be retained. Two justices would admit a very narrow exception to abrogation, allowing resistance if the individual reasonably believed that serious and substantial mental or physical health concerns of the individual or a member of his or her family are threatened in a way not susceptible of later cure in the courtroom.

Endnotes

¹ Jackson v. Benson, 218 Wis. 2d 835, 578 N.W.2d 602 (1998).

² Flynn v. Dep't of Admin., 216 Wis. 2d 521, 576 N.W.2d 245 (1998).

³ Gorton v. Hostak, Henzl & Bichler S.C., 217 Wis. 2d 493, 577 N.W.2d 617 (1998).

⁴ Paige K.B. v. Molepske, 219 Wis. 2d 418, 580 N.W.2d 289 (1998).

⁵ Daanen & Janssen Inv. v. Cedarapids Inc., 216 Wis. 2d 395, 573 N.W.2d 842 (1998).

⁶ State v. Hobson, 218 Wis. 2d 350, 577 N.W.2d 825 (1998).

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