Court of Appeals Digest

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

This column summarizes selected published opinions of the Wisconsin Court of Appeals. 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.

Civil procedure

Class Actions - "Notice of Claim" Requirements - Jury Trial Right

Markweise v. Peck Foods Corp. and the City of Milwaukee, No. 94-2285 (filed 23 July 1996) (ordered published 21 Nov. 1996)

This is an interlocutory appeal by the City of Milwaukee and General Chemical Corporation from an order entered by the trial court certifying as a class under Rule 803.08 of the Wisconsin Statutes all persons who claim or who may claim before these cases are concluded to have been injured by the cryptosporidium infestation of some of Milwaukee's drinking water in 1993. The city contended that the certification order's inclusion of those claimants and potential claimants who have not complied with the "notice of claims" statute (Wis. Stat. 893.80) was improper. In a decision authored by Judge Fine, the court of appeals agreed.

Section 62.25(1) of the Wisconsin Statutes provides that "no action may be brought or maintained against a city upon a claim or cause of action unless the claimant complies with [the notice of claims statute]." The court of appeals concluded that the class action procedure authorized by Rule 803.08 does not "trump" this notice requirement. Notices purporting to comply with the notice statute were filed by the class on behalf of named persons, who were alleged to have suffered damages as a result of the cryptosporidium infestation, and "other persons similarly situated." The reference to persons as of yet unidentified does not satisfy the "written notice of the circumstances of the claim" requirement of the notice of claims statute. See Hicks v. Milwaukee County, 71 Wis. 2d 401, 238 N.W.2d 509 (1976) (notice presenting "multiple claims" must "identify the claimants and show that the claims are being made by their authority").

The appellate court also rejected the plaintiffs' argument that, even if the notices that were filed on behalf of the unknown members of the class did not satisfy the requirements of the notice statute, the city had "actual notice" within the meaning of the statute's savings clause. The term "actual notice" as used in the statute is "the equivalent of actual knowledge." Thus, the provision requires that the government entity not only have knowledge about events for which it may be liable but also the identity and type of damage alleged to have been suffered by a potential claimant. In this case there was nothing in the record indicating that the city was aware of all those who have been swept into the Rule 803.08 class, and the city cannot investigate and evaluate the claims of those yet unknown. Moreover, there is nothing in the record to support a determination that those prosecuting the class action have shown that the failure to give the requisite notice has not been prejudicial to the city.

At oral argument in this case, one of the defendants (General Chemical) contended that the certification threatened to deprive the defendants of their right to a jury trial as guaranteed by Article I, section 5 of the Wisconsin Constitution. The appellate court concluded that substantial issues involving the defendants' right to a jury trial under the Wisconsin Constitution were neither briefed by the parties nor considered by the trial court. Accordingly, it remanded to the trial court for an evaluation of if and how the jury-trial right found in the Wisconsin Constitution affects certification under Rule 803.08.

Judge Schudson filed a concurring opinion.

Default Judgments - Reopening Judgments - One-year Limit

Miro Tool & Mfg. Inc. v. Midland Machinery Inc., No. 95-2785 (filed 23 Oct. 1996) (ordered published 21 Nov. 1996)

The trial court granted Midland Machinery's motion allowing it to reopen a default judgment previously awarded to Miro Tool & Mfg. The court of appeals, in an opinion written by Judge Nettesheim, reversed.

Midland brought its motion to reopen beyond the one-year limitation set forth in section 806.07 of the Wisconsin Statutes. The court found no authority allowing a trial court to extend the time limit imposed by section 806.07(2) "when the grounds for relief are mistake, inadvertence, surprise or excusable neglect." The "hard facts" revealed that Midland permitted a default judgment to be taken against it and then waited for more than a year before taking remedial action. The court concluded that "the one-year maximum time limit set out in sec. 806.07(2), Stats., cannot be tolled or extended under any circumstances for purposes of relief under sec. 806.07(1)(a), Stats."

Judge Anderson concurred in an opinion that "lament[s] the untimely demise of common courtesy in the legal profession."

Claim Preclusion - Privity - Issue Preclusion

Amber F. v. Richard B., No. 95-2656 (filed 17 Oct. 1996) (ordered published 21 Nov. 1996)

Amber brought a paternity action against Richard, who she alleged was her father. Richard argued that Amber's action was precluded because in 1984 Amber's mother brought a paternity action against him that resulted in a unanimous verdict that he was not the father. The trial court ruled that Amber's action was not precluded because of her mother's unsuccessful litigation.

The court of appeals, in an opinion written by Judge Roggensack, affirmed in an opinion that rejected Richard's arguments sounding in both claim and issue preclusion. Claim preclusion (formerly "res judicata") "establishes that a final judgment between parties is conclusive for all subsequent actions between those same parties, as to all matters which were, or which could have been, litigated in the proceeding from which the judgment arose." It also applies to a party's privies. Privity requires an "absolute identity of interests" between the party to the earlier action and the putative privy. While Amber and her mother shared an interest in child support, Amber had other potential benefits at stake, including inheritance rights, survivor benefits, life insurance, and so on. Thus, Amber was not in privity with her mother.

Issue preclusion (formerly "collateral estoppel") applies only where the parties actually litigated an issue necessary to the outcome of the first action; thus, it is inapplicable to judgments based on no contest pleas. Issue preclusion does not require identity of parties; it may be applied offensively or defensively against one who was a party to the earlier action, provided it is not "fundamentally unfair" to bind the party. The "five-part fundamental fairness test" inquires into whether the party had a "fair opportunity procedurally, substantively and evidentially to pursue the claim before a second litigation will be precluded." Since Amber was not a party to the 1985 action, she had no opportunity to obtain a meaningful review of that judgment. Moreover, statutory changes since then have created evidentiary presumptions that strengthen her case against Richard. Finally, due process considerations favor allowing Amber an opportunity to demonstrate Richard's fatherhood. All of these factors outweigh the inconvenience in time and money for Richard in defending a second action.

Personal Jurisdiction - Suits Against Partnerships

CH2M Hill Inc. v. Black and Veatch, No. 95-2619 (filed 12 Nov. 1996) (ordered published 19 Dec. 1996)

This appeal presented an issue of first impression in Wisconsin general partnership law: Whether service of process on some of the partners in a general partnership composed of a large number of general partners is sufficient to properly commence a civil action against the partnership that will be binding on the partnership assets and on the partners served.

Resolving this issue involves the interpretation and construction of section 801.11(6) of the Wisconsin Statutes, which provides: "A summons shall be served individually upon each general partner known to the plaintiff by service in any manner prescribed in sub. (1), (2) or (5) where the claim sued upon arises out of or relates to partnership activities within this state sufficient to subject a defendant to personal jurisdiction under s. 801.05(2) to (10). A judgment rendered under such circumstances is a binding adjudication individually against each partner so served and is a binding adjudication against the partnership as to its assets anywhere."

The defendant partnership contended that unless the plaintiff obtained service upon every known general partner, there was a fundamental defect in the commencement of the action preventing the court from having jurisdiction over any of the general partners - served or unserved. The circuit court denied the partnership's motion to dismiss, concluding that the statute quoted above permitted personal jurisdiction over served partners when fewer than all known partners were served.

The court of appeals, in a decision authored by Judge Wedemeyer, affirmed. The appellate court concluded that service of a summons and complaint on some partners in a general partnership is sufficient to commence a civil action that will be binding on the partnership assets and on the partners who are served. The court reached this conclusion by construing the provisions of the first sentence of the statute quoted above as being directory only. It found that the partnership's concern about due process is sufficiently addressed in the second sentence of the statute which insulates nonserved partners and their personal assets from direct action.

The partnership also claimed that the plaintiff was required to exercise due diligence to ascertain the names of the general partners and was required to serve each one within 60 days after filing the summons and complaint. The plaintiff responded that the statute does not require that all known partners or those that could be known with reasonable diligence be served in order to acquire personal jurisdiction over the partners who are actually served and over the partnership assets. The court of appeals noted that there is no express requirement for due diligence in the statute providing for service of process on partners and partnerships. Even if, arguendo, a reasonable diligence requirement could be read into the statute, the court found that in this case the record showed that the trial court considered the issue and reached a positive result.

Judge Fine filed a concurring opinion.

Constitutional law

Transportation of Hazardous Materials - Hazardous Materials Fees Imposed Between 1993 and 1995 Held Unconstitutional

American Trucking Associations Inc. v. State, No. 95-1714 (filed 17 Oct. 1996) (ordered published 21 Nov. 1996)

By section 166.20(7g)(a) of the Wisconsin Statutes, the Wisconsin Legislature required the State Emergency Response Board (board) to establish, by rule, registration fees to be paid annually to the Department of Transportation by persons required to file hazardous materials transportation registration statements with the Federal Department of Transportation under 49 U.S.C. Appendix sec. 1805(c). The board established such fees effective July 1, 1993.

A registration fee was imposed upon any person who "offers or transports in commerce": 1) radioactive material; 2) explosive material; 3) material extremely toxic by inhalation; 4) hazardous material in a bulk package; and 5) bulk packaging of hazardous material requiring placarding under 49 C.F.R. sec. 172.500. For each activity engaged in, the transporter or offeror paid a fee of $400. Fees were imposed on a per company, rather than a per vehicle, basis. The fees generated were used to partially fund the cost of state and local response to emergencies resulting from the accidental release of hazardous materials.

The court of appeals, in a decision authored by Judge Sundby, held that the Hazardous Materials Transportation Registration Fee imposed by the State Emergency Response Board from July 1, 1993 to June 30, 1995, on persons offering or transporting hazardous materials in commerce, violated the Commerce Clause of the U.S. Constitution.

Corporations

Breach of Fiduciary Duty -
Duty Owed by Persons Other Than Corporate Officers

Modern Materials Inc. v. Advanced Tooling Specialists Inc., No. 95-3525 (filed 13 Nov. 1996) (ordered published 19 Dec. 1996)

Defendant Harbor joined Modern Materials in 1988. He began his employment as an hourly employee but was later promoted to plant manager, with additional responsibilities for training personnel and the day-to-day operations in the plant. While there was testimony that he had the authority to hire and fire personnel, Harbor never did so. Further, though there was evidence he had the authority to purchase equipment, he never exercised that authority either.

In 1993 Harbor and another Modern Materials employee began exploring the possibility of establishing their own tooling company. An accountant was retained to put together a business plan for the proposed company and apparently some effort was made to secure financing for the new business. Modern Materials subsequently terminated Harbor and filed a complaint which alleged, among other things, that Harbor breached a fiduciary duty to Modern Materials. The circuit court granted summary judgment to the defendant, and the court of appeals, in a decision authored by Judge Snyder, affirmed.

It is well established that a corporate officer or director is under a fiduciary duty of loyalty, good faith and fair dealing in the conduct of corporate business. An officer or director is precluded from exploiting his or her position for personal gain when the benefit or gain properly belongs to the corporation.

In order to show that an individual breached a fiduciary duty, the first element which must be established is that the defendant is an officer and therefore a fiduciary duty is owed. An officer is "a person charged with important functions of management such as a president, vice president, treasurer, etc." See CSFM Corp. v. Elbert & McKee Co., 870 F. Supp. 819 (N.D. Ill. 1994). Among the facts the court may consider are 1) the individual's managerial duties; 2) whether the position occupied is one of authority; and 3) whether the individual possesses superior knowledge and influence over another and is in a position of trust. CSFM, supra.

As outlined in CSFM, the initial inquiry must focus on whether the individual is a corporate officer of the company. If there remains a question as to the individual's position within the organization, the controlling question is whether the employee is vested with policy-making authority or has the ability to make decisions that bind the company.

In this case the court of appeals concluded that an independent review of the record reveals that defendant Harbor was not titled a "corporate officer" at Modern Materials, nor did his responsibilities and authority rise to such a level. Based upon that conclusion, he did not have a fiduciary duty to Modern Materials.

Criminal law

Issuance of Worthless Checks (IOWC) -
Unit of Prosecution - Guilty Plea Waiver Rule

State v. Hubbard, No. 96-0865-CR (filed 27 Nov. 1996) (ordered published 19 Dec. 1996)

Section 943.24(2) of the Wisconsin Statutes provides that "whoever issues any single check or other order for the payment of more than $1,000 or whoever within a 15-day period issues more than one check or other order amounting in the aggregate to more than $1,000 which, at the time of issuance, the person intends shall not be paid is guilty of a Class E felony."

Following a plea of no contest, the defendant was convicted of six felony counts of violating this statute. The evidence showed that over a six-day period he issued 57 worthless checks, each for less than $1,000, but amounting in the aggregate to more than $6,000. The information charged six felony counts under the statute quoted above. Each count identified a different group of checks totaling more than $1,000 written during the six-day period. No individual check was included in more than one count.

On appeal the defendant claimed (as he did in the circuit court) that the six felony IOWC charges were multiplicitous and thus violative of the Double Jeopardy Clause, arguing that the Legislature intended that any number of worthless checks issued within a 15-day period, regardless of their aggregate value so long as it exceeds $1,000, constitutes but one felony.

The court of appeals, in a decision authored by Judge Deininger, disagreed and affirmed the convictions. Multiplicity, said the court, is the charging of a single criminal offense in more than one count. The defendant argued that the Legislature intended under section 943.24(2) to create but one felony offense for issuing any number of under-$1,000 checks within a 15-day period, regardless of their aggregate value so long as it exceeds $1,000. He contended that the 15-day time period defines the unit of prosecution.

The court of appeals concluded that the Legislature intended the allowable unit of felony prosecution under section 943.24(2) to be a group of checks having a total value of more than $1,000. Using this approach, the court affirmed the six convictions because each of the six counts identified a different group of checks totaling more than $1,000 written within 15 days.

Another issue considered by the court was whether the defendant waived his double jeopardy attack by pleading no contest to the charges. Ordinarily, a plea of guilty or no contest waives all nonjurisdictional defenses and defenses occurring prior to the plea, including claims of constitutional error. However, the Wisconsin Supreme Court has held that double jeopardy is an exception to the guilty plea waiver rule. Absent an express waiver of the double jeopardy claim, the defendant was entitled to have the merits of the double jeopardy claim reviewed on appeal, regardless of the fact that his convictions arose as a result of no contest pleas.

Criminal procedure

Prosecutorial Misconduct -
Baseless Charges Against a Defense Attorney

State v. Lettice, No. 96-0140 (filed 1 Oct. 1996) (ordered published 21 Nov. 1996)

The defendant was convicted by a jury for sexually abusing his young daughter. The trial court granted a new trial based upon prosecutorial misconduct. The court of appeals, in an opinion written by Judge Cane, affirmed.

Just three days before the start of the defendant's sexual assault trial, the prosecutor criminally charged the defense attorney with publicly disclosing confidential medical records, contrary to section 146.82 of the Wisconsin Statutes. The alleged "offense" occurred when defense counsel filed a motion under the rape shield law that incorporated a one-page report written by a psychologist. Two days after the jury trial ended in conviction, the trial judge dismissed the charge against the defense attorney based upon the prosecutor's motion to dismiss. Later, the trial judge granted a defense motion to grant a new trial in the interest of justice on the sexual assault charges.

In affirming, the court of appeals found no abuse of discretion in the grant of a new trial. The trial court found that the charges against the defense lawyer were unsupported by probable cause and had been filed to either disqualify defense counsel or delay the sexual assault trial. Moreover, the prosecutor's misconduct had a "profoundly negative impact" on defense counsel's ability to represent his client.

Judgment of Conviction - Placement
of Parole Recommendations in Judgment

State v. Whiteside, No. 95-3458-CR (filed 29 Oct. 1996) (ordered published 21 Nov. 1996)

The defendant pleaded no contest to several serious felonies. On appeal he contended that the judgment of conviction was improper because the trial court placed its recommendation that he not be granted parole in the judgment of conviction.

In an opinion authored by Judge Curley, the court of appeals affirmed. The court concluded that when a trial judge makes a parole recommendation on the record at sentencing, there is no harm in duplicating this recommendation in the judgment of conviction. Every sentencing transcript is prepared and sent to the receiving correctional institution and it contains any parole recommendation the trial court chooses to make on the record during sentencing.

The appellate court also rejected the defendant's argument that the trial court may only make a parole recommendation when, pursuant to statute, it is notified by correctional authorities that a decision on parole is imminent. The appellate court concluded that there is little to be gained by restricting the sentencing court's parole recommendation to the time period immediately preceding a decision on parole. It is doubtful that the sentencing court will obtain any additional information about a defendant between the time of sentencing and the receipt of a notice of parole. Said the court of appeals, permitting the judge to make a recommendation on parole contemporaneously with sentencing and placing it in the judgment of conviction will ensure that accurate information is used by the paroling authorities. For all of these reasons, the court of appeals concluded that placing a parole recommendation in the defendant's judgment of conviction was proper.

Bail Pending Appeal - Indigent Appellants

State v. Taylor, No. 96-0857-CR (filed 23 Oct. 1996) (ordered published 21 Nov. 1996)

The defendant, an indigent convicted misdemeanant, appealed from the trial court's order imposing cash bail as a condition of his release pending appeal. Relying on State v. Lipke, 186 Wis. 2d 358, 521 N.W.2d 444 (Ct. App. 1994), the defendant argued that a trial court may not impose cash bail against an indigent misdemeanant appellant.

The court of appeals disagreed. In a decision authored by Judge Nettesheim, the court concluded that cash bail is not prohibited as a matter of law against an indigent convicted misdemeanant who takes an appeal. The court construed Lipke to mean that where there is no risk that an indigent defendant will not appear for further proceedings, the imposition of cash bail as a condition of release is inappropriate.

Criminal procedure/Criminal law

Threats to Communicate Derogatory Information -
Victim Allocution at Sentencing

State v. Voss, Nos. 95-1183-CR and 95-1184-CR (filed 23 Oct. 1996) (ordered published 21 Nov. 1996)

Section 943.31 of the Wisconsin Statutes provides that "whoever threatens to communicate to anyone information, whether true or false, that would injure the reputation of the threatened person or another unless the threatened person transfers property to a person known not to be entitled to it is guilty of a Class E felony."

Among the issues on appeal was whether this statute requires proof of specific intent as part of its element structure. In a decision authored by Judge Brown, the court concluded that the statute is neither a specific intent statute nor a strict liability statute. Rather, it includes the element that the accused made the threat while knowing he or she was not entitled to the property demanded. This oftentimes is referred to by scholars and courts alike as "general intent," that is, voluntarily doing the prohibited act and having the capacity to understand that the act was wrong.

The defense also argued on appeal that the state had violated its plea bargain in this case. The negotiation called for the state being able to recommend a specific prison term. At sentencing, the prosecutor informed the trial court that the victims wanted to address the court. There was no objection by defense counsel. On appeal the defendant claimed that the state violated the plea agreement by presenting the victims to the court.

The court of appeals rejected the defendant's position for three reasons. First, the state had every right to put before the court any information supporting its argument for a specific prison sentence. A statement from the victims about how the crime affected their lives is relevant to one of the considerations that a judge must consider at sentencing - the gravity of the offense.

Second, even though the state has the right to present victims, the record supports the state's assertion that, in this case, the prosecutor did not "present" the statements of the crime victims. He only informed the court that two of the victims wished to be heard. To that end, section 950.04(2m) of the Wisconsin Statutes allows victims "to have the court provided with information pertaining to the economic, physical and psychological effect of the crime upon the victim of a felony and have the information considered by the court." While the defendant contended that this information was already provided in the presentence report, the court concluded that this statute in no way limits the manner in which the court may be provided with the information. The law does not proscribe victims from allocuting at sentencing.

Third, even if there were no statute, Art. I, section 9m of the Wisconsin Constitution must be read to allow victims the right to speak at sentencing. That section specifically grants the "opportunity to make a statement to the court at disposition." So, even apart from what the prosecutor does or does not present at sentencing, victims have independent constitutional access to the court at the dispositional stage.

Insurance

Payment - Accord and Satisfaction - Mistake

Tower Ins. Co. Inc. v. Carpenter, No. 95-2932 (filed 2 Oct. 1996) (ordered published 21 Nov. 1996)

Carpenter's wife was killed in a car accident. The at-fault driver's insurer, American Family, tendered its $100,000 limits for bodily injury. Carpenter's lawyer notified Carpenter's insurer, Tower Insurance Company, that the claims would exceed the $100,000 tender by American Family. Following a discussion among its employees, Tower paid Carpenter its $50,000 UIM coverage limits. Later, Tower learned that it might not have been liable under UIM coverage because American Family's $100,000 limit exceeded the $50,000 UIM provided by Tower. Carpenter refused, however, to return the payment. Tower then began this action. The trial judge ruled that Carpenter did not have to return the $50,000 because it represented a "settlement" between the insured and the insurer.

The court of appeals, in a decision written by Judge Snyder, affirmed. While the court agreed with "Tower's belated assessment" that its UIM coverage did not apply, Carpenter was permitted to retain the payment. In reaching this determination, the court applied the doctrine of "accord and satisfaction." Based upon the record, the trial judge properly determined that by accepting Tower's offer of $50,000, Carpenter decided to forego a potential $100,000 claim. Thus, Tower received consideration. Finally, the court held that accord and satisfaction is not defeated by a party's claim of mistake of fact. In short, Tower may have made a "bad bargain" but Carpenter was not obligated to return the money.

Offers to Settle - Penalty Interest - Insurer's Limits

Nelson v. McLaughlin, No. 95-3391 (filed 15 Oct. 1996) (ordered published 21 Nov. 1996)

Nelson's vehicle rear-ended one driven by McLaughlin, who carried $100,000 in liability insurance with Mutual Service. The defense conceded liability but contested damages. Nelson offered to settle the entire suit for Mutual Service's $100,000 policy limits, but the insurer rejected the offer. A jury awarded more than $500,000 in damages. Granting judgment on the verdict, the trial judge also imposed 12 percent penalty interest on Mutual Service on the entire amount of damages.

The court of appeals, in a decision written by Judge LaRocque, affirmed in part and reversed in part. First, the court held that sufficient evidence supported the jury's damage award. The factual dispute involved a preexisting condition and involved well-settled law. The second issue involved the penalty interest assessment against the insurer. There was no dispute that Nelson's pretrial offer complied with Rule 807.01(3). There also was no dispute that Nelson was entitled to penalty interest on the entire verdict award. But the court held that Mutual Service was only responsible for the 12 percent interest on its $100,000 limits. A contrary construction of Rule 807.01 might tend to force settlements rather than "encourage" them.

Family Exclusion Clause - Direct and Indirect Claims

Rabas v. Claim Management Services Inc., No. 95-1085 (filed 16 Oct. 1996) (ordered published 21 Nov. 1996)

While accompanying her daughter Diane to a clinic, Dorothy was severely injured when she tripped over a hose. Dorothy died the next day. Her spouse filed an action against the clinic, the clinic's insurer, Aetna Casualty & Surety Company, and others. Aetna filed a separate contribution against Diane, who lived with her parents, and their homeowner's insurer, Kossuth Mut. Ins. Co. Aetna alleged that Diane was contributorily negligent in her mother's injuries. The trial court granted summary judgment to Kossuth because the family exclusion clause precluded coverage for Diane's alleged negligence in any claim that her father might have. The court also assessed costs against Aetna.

The court of appeals, in a decision written by Judge Anderson, affirmed. Family exclusion clauses are valid in Wisconsin, whether they involve a direct suit against an insured family member or an indirect action, such as a contribution claim by a third party. The court applied the recent decision in Whirlpool Corp. v. Ziebert, 197 Wis. 2d 144 (1995), concluding that Diane's liability is identical, whether there is a direct claim against her by her father or whether the claim is indirectly lodged by Aetna in contribution. The court refused to limit Whirlpool to policy language that expressly applies to both direct and indirect claims. To do so would exalt form over substance.

Judge Brown dissented, arguing for the more restrictive reading of Whirlpool.

Attorney Fees - Failure to Prosecute - Coverage Actions

Economy Preferred Ins. Co. v. Solner, No. 95-1763 (filed 14 Nov. 1996)(ordered published 19 Dec. 1996)

An insurer brought an action to establish that it did not have coverage of its insured's possible liability in another pending case. The trial judge dismissed the insurer's case on its own motion because of its failure to prosecute. The judge refused, however, to grant the insured's motion for attorney fees based on Elliott v. Donahue, 169 Wis. 2d 310 (1992). Elliott held that supplemental relief under section 806.04(8) of the Wisconsin Statutes includes attorney fees where the insured prevails on the coverage issue. The trial judge ruled that Elliott did not apply where the insured failed to successfully establish coverage.

The court of appeals, in an opinion written by Judge Sundby, reversed. (Judge Vergeront dissented.) The court held "that where an insurer denies coverage and forces its insured to incur attorney fees and costs of litigation to defend the insurer's declaratory judgment action, it cannot avoid exercise of the trial court's discretion under section 806.04(8), Stats., by failing to prosecute." A dismissal under section 805.03 of the Wisconsin Statutes is on the merits. Although the insurer did provide a defense, while reserving its rights under the policy, "the most efficient and least costly procedure is to resolve any issue as to coverage before litigating the liability question." In short, the court warned insurers to "clear the coverage decks" before facing liability issues. In this case, the insured "was forced to endure almost four years of uncertainty as to his possible ruinous liability." The insurer's "ace-in-the-hole" strategy was not in the best interest of the parties or the civil justice system.

Examining the record, the court concluded that equity supported the insured's claim for attorney fees and costs in defending the action and appearing on the dismissal motion.

Settlements - Assignments - Election of Remedies

Scheideler v. Smith & Associates Inc., No. 96-0319 (filed 14 Nov. 1996)(ordered published 19 Dec. 1996)

The Scheideler family had underinsured motorist (UIM) coverage under their policy with General Casualty Company, but their agent, Smith, mistakenly deleted that coverage. When the family was later involved in an accident, General Casualty denied UIM coverage. The Scheidelers sued Smith and General Casualty. Later, General Casualty and the Scheidelers entered into a "partial" settlement. General Casualty paid them $200,000 in exchange for a dismissal of all claims against it "except a bad faith claim, a covenant not to sue except on the bad faith claim, and an assignment to General Casualty of the Scheidelers' claims against the Smith Agency." The $200,000 reflected the maximum UIM coverage that had been mistakenly deleted by Smith.

The trial judge ruled that the assignment left General Casualty with no claims against Smith. The court of appeals, in an opinion written by Judge Vergeront, affirmed the grant of summary judgment to Smith.

The court canvassed the claims for relief available to an insured when an agent makes a mistake such as the one by Smith. The claims include reformation of the policy to correct the mistake, a negligence action or a breach of contract for failing to obtain the requested coverage. Applying Appleton Chinese Foods v. Murken Ins. Inc., 185 Wis. 2d 791 (Ct. App. 1994), the court held that "the Scheidelers' receipt in their settlement with General Casualty of the maximum amount they were entitled to recover constitutes an election of remedies that bars them from pursuing their claims against the Smith Agency." Thus, the Scheidelers as well as their assignee, General Casualty, were precluded from recovering anything further from Smith because this would constitute a double recovery. Put another way, the settlement constituted an election of remedies that could not be resurrected simply by assigning them to General Casualty. Nor did "equity" dictate a different result. General Casualty conceded that it would have provided the UIM coverage had Smith not mistakenly deleted it. (Smith did not challenge the trial court's determination that it was liable to General Casualty for the lost premiums.)

Municipal law

Zoning - Cellular Phone Towers -
Federal Telecommunications Act of 1996

Westel-Milwaukee Company Inc. v. Walworth County, No. 95-2097 (filed 4 Sept. 1996) (ordered published 21 Nov. 1996)

Cellular One wants to build a telecommunications tower in Walworth County. In March 1994 it applied for a conditional use permit and the county held appropriate hearings. Ultimately, the county denied the permit. On certiorari review, the circuit court affirmed.

In a decision authored by Judge Brown, the court of appeals reversed. Before reaching the merits of Cellular One's complaint, the court considered the Federal Communications Act of 1996 (Act) and how its provisions directed at the "preservation of local zoning authority" affect this case. The federal law was signed after the parties filed this appeal.

The federal statute contains provisions that limit the power of local authorities to make zoning decisions involving the placement of cellular phone towers and related equipment. The Act's provisions relating to local zoning set out five rules. Aside from these rules, however, the Act places no other limits on the authority of a state or local government or instrumentality thereof over decisions regarding the placement, construction and modification of personal wireless service facilities.

The first set of zoning provisions prohibits local authorities from using the zoning process to "unreasonably discriminate" against competing service providers. A related provision prohibits local authorities from enforcing their zoning laws in a manner that has the "effect" of banishing wireless service from a local area. Said the court, Congress's command that local authorities "shall not" discriminate indicates that it wants local decisionmakers to consider how their zoning decisions affect the marketplace for communication services.

A second set of provisions relating to local zoning requires local authorities to make a decision on such matters within a "reasonable period of time." In these provisions Congress has tried to stop local authorities from keeping wireless providers tied up in the hearing process.

Third, the Act requires local authorities to support their decisions with "substantial evidence" and written findings.

Fourth, the Act contains a provision directed at the health concerns associated with the radio emissions from wireless transmitters. It plainly prohibits a local authority from considering the possible effects of these emissions in their decision-making. As long as the proposed facility meets Federal Communications Commission standards, the local authority may not consider any claim that authorizing a wireless communication facility might cause local health problems.

Finally, the Act contains a jurisdictional provision allowing wireless providers to seek judicial or administrative relief should a local authority not comply with the four previously described standards.

Given the circumstances of this particular case, the court of appeals concluded that the most appropriate remedy is to remand the entire matter to Walworth County with directions that it evaluate Cellular One's application in light of the recently passed Telecommunications Act. The court concluded that the new law should apply to Cellular One's application and it directed Walworth County to reconsider that application.

Circuit Court "Transcript Review"
of Municipal Court Convictions - Nature of Review

City of Middleton v. Hennen, No. 95-3054

Village of McFarland v. Vanderzanden, No. 95-3055

City of Madison v. Sharratt, No. 95-3399 (filed 7 Nov. 1996) (ordered published 19 Dec. 1996)

The defendants in these cases were each convicted of traffic violations in municipal court. They then sought circuit court "transcript review" under the provisions of section 800.14(5) of the Wisconsin Statutes. The circuit court affirmed the convictions in written decisions without holding hearings or requesting briefs from the parties.

The defendants claimed on appeal that a violation of their due process "right to be heard" occurred because they did not have the opportunity to brief or argue their appeals in the circuit court. The court of appeals, in a decision authored by Judge Deininger, concluded that section 800.14 does not require the circuit court to hold a hearing or request briefs when conducting a municipal court "transcript review" and that the statute, when considered as a whole, affords municipal court litigants a meaningful appeal.

A party adversely affected by a municipal court judgment has the option of trying the case anew with either a circuit judge or jury. If neither of these options is requested, an appeal of the municipal court conviction is based upon a review of the transcript of the municipal court proceedings. If the latter course is pursued, the statute does not require the circuit court to hold a hearing or request briefs though, as indicated by the court of appeals in footnote, the statute does not preclude a circuit court from calling for briefs or from holding a hearing. However, defendants are neither statutorily nor constitutionally entitled to brief or orally argue before the circuit court when pursuing a "transcript review" appeal from a municipal court judgment.

Property

Mortgage Foreclosures - Redemptions - Foreclosure Sales - 10-Day Provision

GMAC Mortgage Corp. v. Gisvold, No. 96-1663 (filed 12 Nov. 1996)(ordered published 19 Dec. 1996)

The mortgage holder, GMAC, began a foreclosure action against the Gisvolds. The intervenors were the highest bidders at the foreclosure sale, who also made the required 10 percent deposit. The Gisvolds, however, later paid the balance due on their mortgage in an effort to redeem the property. They argued that their redemption was timely because the intervenors had failed to pay the balance of the purchase price within the 10-day period mandated by section 846.17 of the Wisconsin Statutes. The trial judge denied the attempted redemption and allowed the intervenors to complete their purchase.

The court of appeals, in an opinion written by Judge Myse, reversed. The court was mindful that the Gisvolds "were attempting to manipulate the system by abusing the automatic stay provision of the bankruptcy code." It also was disturbed that the court's holding "appears to reward their efforts," but section 846.17 plainly requires that the successful bidders pay the balance of the purchase price within 10 days. Judges have no discretion, under any circumstances, to grant exceptions. Absent a timely payment, the trial court can only order that a new sale be held. Nor did it matter that the intervenors had no notice of the dismissal of the Gisvold's bankruptcy claim: "The burden fell on the intervenors to keep apprised of the matters concerning their intended purchase."

Social welfare law

AFDC - Dependent Children-
Effect of Receipt of Unemployment Compensation Benefits

Buening v. Wisconsin Department of Health and Social Services, No. 94-0891 (filed 30 Sept. 1996) (ordered published 29 Oct. 1996)

Prior to March 1, 1993, Tracy Buening and her daughter Azeria constituted an assistance unit [an "assistance unit" is a group of individuals whose income, resources and needs are considered as a unit for the purposes of determining eligibility for AFDC benefits and the amount of payment] and received $440 monthly AFDC benefits. Tracy's partner, Bradley Smith, and their 2-year-old child, Caitlin, live with Buening and her daughter. Smith has lived with Buening since 1987. Smith is not Azeria's natural or adoptive father. Nor is he her stepfather because he and Buening have not married. Azeria is eligible for AFDC benefits because she is a "dependent child" as defined in the U.S. Code by reason of the continued absence of her natural father from the home.

Until Dec. 19, 1992, Smith was fully employed and earned approximately $1,500 per month. He was laid off and in January 1993 began to draw monthly unemployment compensation of approximately $652. The Dane County Department of Human Services (DCHS) determined that upon Smith's unemployment, Caitlin became a "dependent child" who had been deprived of parental support or care by reason of the unemployment of the parent who is the principal earner. DCHS added both Smith and Caitlin to Buening's "filing unit" and concluded that federal law required that it deduct Smith's monthly unemployment compensation from the budgetary requirement for four persons of $617 per month, as computed under section 49.19(11)(a) of the Wisconsin Statutes. Because Smith's unemployment compensation exceeded this assistance standard, DCHS terminated Buening's and Azeria's AFDC grant, effective March 1, 1993. The Department of Health and Social Services affirmed and the circuit court reversed the department's decision.

The court of appeals affirmed. In a decision authored by Judge Sundby, the court concluded that where the principal earner had no duty to support the members of the existing "assistance unit" and the state agency did not determine that his unemployment compensation was available to the members of the assistance unit, federal law does not require that the child of the unemployed principal earner and the principal earner be included in the existing assistance unit. Put another way, the Dane County Department of Human Services incorrectly added Caitlin and her father to Tracy Buening's assistance unit and, accordingly, the court of appeals affirmed the circuit judge's order reversing the decision of the Department of Health and Social Services.

Taxation

Real Estate Taxes - Challenging Assessments
By De Novo Circuit Court Action

S.C. Johnson & Son Inc. v. Town of Caledonia, No. 95-2700 (filed 23 Oct. 1996) (ordered published 19 Dec. 1996)

The issue on appeal in this case was whether a property owner may challenge a real estate property tax assessment by commencing a de novo action in the circuit court pursuant to section 74.37(3)(d) of the Wisconsin Statutes, rather than by pursuing certiorari review pursuant to section 70.47(13). In a decision authored by Judge Nettesheim, the court of appeals concluded that section 74.37(3)(d) allows for a trial de novo as a means of judicial review when a taxpayer claims that an excessive tax has been imposed. The court was not unmindful of the anomalies that a de novo procedure presents when compared to the more usual form of certiorari review that is used in cases like this. However, the court indicated that it was not its function to rewrite the statutes where the correct interpretation is clearly indicated by the language of the relevant statute, its legislative history, and relevant case law. [Note: Section 74.37(6) bars a de novo action in counties with a population exceeding 500,000; thus, Milwaukee County taxpayers are limited to certiorari review of property tax assessments.]

The appellate court also rejected arguments that allowing de novo review of tax assessments violates the uniformity clause of the Wisconsin Constitution and the tenets of equal protection.

Torts

Defamation - Lawyer Advertising

Liberty Mutual Fire Ins. Co. v. Kevin O'Keefe and Parke O'Flaherty Ltd., No. 96-0487 (filed 17 Oct. 1996) (ordered published 21 Nov. 1996)

An insurer, Liberty Mutual, brought a defamation action against a law firm that had run an ad in a local newspaper. The law firm represented a client in a bad faith claim against the insurer. The ad briefly described the bad faith lawsuit and stated, in part: "If anyone has any information regarding Liberty Mutual Fire Insurance Company's delay or failure to pay claims or losses, please contact the undersigned." The insurer brought suit for defamation after the lawyer refused to retract the ad; the trial judge granted summary judgment dismissing the defamation claim.

The court of appeals, in a decision written by Judge Dykman, affirmed. The court looked to the "plain and popular" meaning of the ad's words. The court observed that the ad involved a "familiar" situation: "An attorney is advertising for witnesses, or perhaps clients. The need for witnesses in a fire loss claim against an insurance company is not an unusual situation. Insurance companies are often sued. The word 'if' dilutes Liberty's suggestion that a reader would naturally understand the 'delay or failure' statement to accuse Liberty of habitually treating its policyholders unfairly." In short, people understand that insurers refuse to pay for a variety of reasons and that lawyers commonly sue insurance companies, winning some cases and losing others. The court observed, however, that the lawyer could have perhaps avoided the lawsuit altogether by asking for "any information that Liberty Mutual has ever delayed or failed to pay claims or losses."

Needlestick Cases - Fear of AIDS - Proof of Contaminated Source

Babich v. Waukesha Memorial Hosp. Inc., No. 95-2516 (filed 30 Oct. 1996) (ordered published 21 Nov. 1996)

The plaintiff was hospitalized for an asthma attack. She was poked by a hypodermic needle left in her bedding. Although plaintiff feared that she might contract AIDS if the needle was contaminated with HIV, all of her subsequent HIV tests have been negative. Moreover, she conceded that she did not have any specific knowledge that the needle had been in contact with an HIV-positive patient or that the hospital was treating anyone who was HIV positive. The trial court dismissed plaintiff's complaint against the hospital.

The court of appeals, in a decision written by Judge Brown, affirmed. The court reviewed the competing case law from other states governing "needlestick" cases. For public policy reasons, the court held that the "proof of contaminated source" rules governs such cases in Wisconsin. In essence, the court was convinced that the plaintiff's injury was out of proportion to the hospital's culpability. Moreover, allowing such claims would unreasonably burden future defendants and expose courts to "AIDS phobia" claims.

Offers to Settle - Subrogated Claims

Staehler v. Beuthin, No. 95-3295 (filed 27 Nov. 1996)(ordered published 19 Dec. 1996)

The plaintiff and the defendant were involved in an automobile collision. The jury found that the plaintiff was 50 percent causally negligent, awarded her less than $3,000 in medical expenses, and gave her nothing for pain and suffering. The trial judge later entered judgment on the verdict but determined that the defendant's insurer had made a valid offer to settle under section 807.01(1) of the Wisconsin Statutes. When factoring in statutory costs, the judgment awarded the defendant about $2,000 plus twelve percent interest. The plaintiff appealed.

The court of appeals, in an opinion written by Judge Anderson, affirmed. First, the court rejected plaintiff's attacks against the verdict as to both liability and damages. This discussion involved the application of well-settled law to the particular facts. The second major issue concerned the validity of the offer to settle. The defendant insurer offered $25,000 plus statutory costs with the condition that the plaintiff "indemnify or otherwise satisfy any existing related subrogated claims." The court held that the offer permitted the plaintiff to "fully and fairly evaluate the offer from his or her own perspective." The offer required the plaintiff to satisfy her own claim and that of Blue Cross, the only existing subrogee, out of the $25,000. The plaintiff was "well aware" of the subrogee's expenses and costs. The court distinguished this case from others that involved multiple parties. First, the offer was limited to any "existing related subrogated claims, not the claim of any subrogated person who might not be in the case." (Emphasis original.) Second, the plaintiff and Blue Cross were not adverse to each other. Thus, the plaintiff could easily value Blue Cross's subrogated claim.

UCC

Financing Statement - Perfecting Security Interest
in Crops-Sufficiency of Legal Description

Smith and Spidahl Enterprises Inc. v. Lee,No. 96-0882 (filed 27 Nov. 1996) (ordered published 19 Dec. 1996)

The plaintiff loaned the defendant a substantial sum of money for the latter's 1994 farming operations. To secure the loan, the plaintiff prepared and had the defendant execute a security agreement and a financing statement in favor of the plaintiff. As it turned out, the description of the land in the financing statement identified the wrong section, town and range on which the defendant's crops were grown. The trial court held that the financing statement was thus insufficient to perfect the plaintiff's security interest in the crops.

The court of appeals, in a decision authored by Judge Vergeront, agreed with the circuit court. Perfecting a security interest in crops requires compliance with several provisions of the Uniform Commercial Code. Among them is section 409.302(1) of the Wisconsin Statutes, which requires the filing of a financing statement to perfect all security interests except certain ones not applicable in this case. Section 409.402 provides that when the financing statement covers crops growing or to be grown, it also must contain a description of the real estate concerned. A financing statement substantially complying with these requirements is effective even though it contains minor errors if not seriously misleading.

In this case the court concluded that the error in the description of the property was not "minor," and that it was seriously misleading. A person checking the filed financing statement would conclude that the only crops the plaintiff intended to secure were those in the sections, township and range described in the statement. The court concluded, as did the circuit judge, that the description was insufficient to reasonably identify the land where the 1994 crops were going and therefore did not meet the requirements of section 409.402.

The plaintiff contended that, even if the financing statement was insufficient to perfect its security interest, equity dictated a finding that its security interest was superior to that of another creditor. The court was not persuaded. One purpose of the UCC filing requirements is to provide uniformity and stability in the marketplace. Fashioning equitable solutions to mitigate the hardship of those requirements on particular creditors undermines that purpose. The benefit to particular creditors from relaxing the filing requirements would not, in the court's view, justify the uncertainty and inconsistency that would result from such an approach.

Because the plaintiff's financing statement did not meet the requirements of the UCC, its security interest in the 1994 crops was not perfected and the trial court correctly decided that the plaintiff's unperfected security interest was junior to a perfected security interest of another creditor.