Supreme Court Digest

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

| Civil Procedure | Insurance | Taxation |

Frivolous Actions - Wis. Stat. § 814.025

Juneau County v. Courthouse Employees Local 1312, No. 96-2816 (filed 4 Nov. 1998)

Juneau County commenced a declaratory judgment action pursuant to Wis. Stat. section 806.04, seeking a declaration that the interest arbitration provisions of Wis. Stat. section 111.70(4)(cm)6.a apply only to school district professional employees (not to other county or other municipal employees) and thus do not require Juneau County to participate in binding interest arbitration with the various union respondents in this case because none of their members are school district professional employees. The unions responded that the binding interest arbitration provisions of the statute apply to all county and municipal employees and that certain amendments to the statute enacted in 1993 and 1995 merely limit the circumstances under which binding interest arbitration is available to school district professional employees.

Juneau County moved for judgment on the pleadings, but the circuit court concluded that the statute was ambiguous and ordered the county and the unions to supplement the pleadings with materials relating to the intention of the legislature when it amended the statute. The county did not submit additional materials but the unions did. Following their unsuccessful attempt to get the county to voluntarily dismiss the action, the unions moved for summary judgment, seeking attorney fees and costs on the ground that the county's action was frivolous.

The circuit court granted the motion, concluding that commencing the declaratory judgment action was not frivolous but that continuing the action became frivolous after the unions submitted evidence of legislative intent and offered not to seek attorney fees or costs if the county would voluntarily dismiss the action with prejudice. The court of appeals affirmed that part of the judgment holding that the commencement of the action was not frivolous and reversed that part of the judgment holding that continuation of the action was frivolous.

The only issue before the supreme court was whether the commencement or continuation of the declaratory judgment action by the county or its attorneys was frivolous. This required the court to decide whether the action was commenced or continued "without any reasonable basis in law or equity." See Wis. Stat. § 814.025(3)(b). In a unanimous decision authored by Chief Justice Abrahamson, the court held that neither the commencement nor continuation of the action was frivolous.

A claim is frivolous when a party or attorney knew or should have known that the claim lacked any reasonable basis in law and equity. A court uses an objective standard to determine whether an action is frivolous. The standard is whether the attorney knew or should have known that the position was frivolous as determined by what a reasonable attorney would have known or should have known under the same or similar circumstances. Doubts about frivolousness should be resolved in favor of the litigant or attorney because it is only when no reasonable basis exists for a claim or defense that frivolousness exists.

After examining the various extrinsic aids for statutory interpretation that the unions submitted, the supreme court concluded that this case was a close one. However, considering all the factors and resolving doubts about frivolousness in favor of the county, the court concluded that the county's position that a judicial determination was needed was not an unreasonable conclusion. Although persuasive, the extrinsic aids did not conclusively tie the legislative intent to the statutory language at issue in this case and, on final analysis, the court could not conclude that no reasonable basis existed for Juneau County's action.

[Note: The circuit court agreed with the unions regarding the scope of the interest arbitration statute at issue in this case. That part of the judgment was never appealed.]

Uninsured Motorist Coverage - Uninsured Owners -
Wis. Stat. § 632.32

Hull v. State Farm Mut. Auto. Ins. Co., No. 97-0659 (filed 15 Dec. 1998)

Hull's husband was killed while working at a car auction when he was struck by a truck with poor brakes. The truck was driven by Borth, who was employed by the auction company, Badger State, which in turn was insured by Milwaukee Mutual. The truck's owner had consigned it to Badger State for auction. The owner had no insurance covering the truck or its operation. The Hulls were insured under two State Farm policies that carried uninsured motorist (UM) coverage. Hull sued State Farm, claiming that she was entitled to UM benefits under both policies: the owner had no insurance and had negligently maintained the truck. State Farm countered that the truck did not fit within the policies' definition of "uninsured motor vehicle" because its use at the auction was covered by Milwaukee Mutual. The circuit court ruled that the truck was insured and thus Hull was not entitled to UM coverage. The court of appeals affirmed.

The supreme court, in an opinion written by Justice Crooks, reversed. First, Hull was entitled to UM coverage under the plain meaning of the policies. The court held that under the policies the word "or" in the phrase "ownership, maintenance or use" should be interpreted disjunctively. In short a vehicle is "uninsured" in three situations: "(1) when its ownership is uninsured; (2) when its maintenance is uninsured; (3) when its use is uninsured."

Second, Hull also was entitled to UM coverage under section 632.32(4) of the Wisconsin Statutes which requires "UM coverage whenever either the owner or the operator of a motor vehicle is allegedly negligent and is not covered by liability insurance." In this case, Hull had alleged that the owner's negligent maintenance of the truck contributed to her husband's death. The supreme court also overruled Hemerley v. American Family Mut. Ins. Co., 127 Wis. 2d 304, 379 N.W.2d 860 (Ct. App. 1985). The Hemerley "definition of 'uninsured motor vehicle' in situations like the current one, in which there is more than one alleged tortfeasor, would contravene the purpose underlying sec. 632.32(4)." The multiple tortfeasors in this case were the owner and the driver, Borth. The court held that the statute "requires UM coverage whenever either the owner or the operator of a motor vehicle is allegedly negligent and is not covered by liability insurance."

Franchise Tax - "Nondiscriminatory" Tax

American Family Mut. Ins. Co. v. Wisconsin Dep't of Revenue, No. 97-1105

American Standard Ins. Co. of Wisconsin v. Wisconsin Dep't of Revenue, No. 97-1106 (filed 16 Dec. 1998)

American Family Mutual Insurance Company and its wholly owned subsidiary American Standard Insurance Company of Wisconsin are both subject to the Wisconsin franchise tax. This tax is imposed on an insurer for the privilege of exercising its franchise or doing business in this state in a corporate capacity.

The sole issue before the supreme court was whether the state franchise tax is a "nondiscriminatory franchise tax" within the meaning of 31 U.S.C. section 3124(a)(1) (1991). The significance of the resolution of this issue for the insurance companies is: if the franchise tax is a "nondiscriminatory franchise tax," interest income from federal obligations may be included in the calculation of their franchise tax obligations.

A state franchise tax is discriminatory within the meaning of the statute cited above if the calculation of the tax includes interest income from federal obligations but not from state obligations. State franchise taxes that are calculated by including income from both state and federal obligations have been upheld by the courts. In a unanimous decision authored by Chief Justice Abrahamson, the supreme court applied these standards and concluded that the Wisconsin franchise tax is a "nondiscriminatory franchise tax."

Prof. Daniel D. Blinka and Prof. Thomas J. Hammer invite comments and questions about the digests. They can be reached at the Marquette University Law School, 1103 W. Wisconsin Ave., Milwaukee, WI 53233, (414) 288-7090.