Each year Wisconsin’s two U.S. District Courts and the U.S. Court of Appeals for the Seventh Circuit render decisions interpreting Wisconsin statutes and Wisconsin common law, in many cases under federal diversity jurisdiction.

Although federal court interpretations of Wisconsin law are persuasive and not binding on Wisconsin courts,¹ these interpretations still affect how Wisconsin law develops and is argued, including in cases pending in Wisconsin state appellate and circuit courts.

This article reviews 10 significant Wisconsin federal court decisions from 2017 interpreting Wisconsin law in the areas of tort, corporate, and insurance law and cases involving certain Wisconsin statutes.

Wisconsin Tort Law

Product Liability. Each of Wisconsin’s federal district courts decided cases relating to Wisconsin’s product liability law in 2017.

In a Western District of Wisconsin case, Below v. Yokohama Tire Corp.,² a single-vehicle accident occurred when one of the vehicle’s tire treads detached. The tire was mounted on a rim too narrow for its size. The tire manufacturer warned consumers against mounting tires on rims not approved for the size of the tire. The plaintiffs’ suit against the tire manufacturer (removed to federal court under diversity jurisdiction) alleged the manufacturer had a duty to warn that 1) if the tire is mounted on a rim that is too narrow, then the tire should be inflated to a lower pressure; and 2) the tire did not fit most, if any, original-equipment wheels.³

Judge William Conley of the Western District of Wisconsin interpreted Wisconsin law on a manufacturer’s duty to warn about dangers it knows or should know are associated with its products.⁴ In response to the defendants’ summary-judgment motion, the plaintiff cited Wisconsin authority that inflating the tire to a pressure too high for the narrower-than-approved rim constituted a “hidden danger” requiring a further warning.⁵ The court distinguished that precedent because the tire maker had warned against the specific misuse the plaintiffs alleged caused the injuries, installing the tire on too narrow of a wheel.⁶

The court also found that under this theory, the plaintiffs could not prove causation, as they could not demonstrate that whoever installed the tire would have followed a warning to inflate the tire differently, or that the plaintiff himself ever checked whether the tire was installed on a wheel of proper width such that inflating the tire less would have avoided the injury.

Another of the plaintiffs’ theories on duty to warn did survive summary judgment. The plaintiffs also alleged that the sticker attached to the tire should have warned that the tire would not fit the original-equipment wheel rims for commercially available light pickup trucks, such as the plaintiffs’, because a reasonable individual would not check the lengthy owner’s guide for each tire installation.⁷

The Eastern District of Wisconsin court considered the 2011 codification of Wisconsin’s product liability law in a diversity case against the manufacturer of a component of an artificial hip system in Janusz v. Symmetry Medical Inc.⁸ Three plaintiffs alleged that portions of their artificial hips broke and they required additional surgeries. As part of the defendant manufacturer’s summary-judgment motion, Magistrate Judge William Duffin reviewed Wisconsin’s product liability statute, including its defenses,⁹ and based on the statute’s legislative findings and intent, concluded that Wisconsin’s codification of product liability law does not supersede Wisconsin common law.¹⁰

That conclusion took on importance regarding the defense of contract specification, under which a manufacturer of a product made to design specifications is not liable unless the specifications are defective and dangerous and likely to cause injury. After a detailed review of cases from outside Wisconsin and in other areas of tort law, the court concluded that “if presented with the question of whether the contract specification defense applies to a claim of strict liability under Wisconsin law, the Wisconsin Supreme Court would hold that it does not.”¹¹

The defendant also argued that a manufacturer of a component part cannot be liable under Wisconsin law for injuries resulting from the defective design of the final product into which the component part is integrated.¹² The court noted that Wisconsin codified the common-law requirement that a manufacturer is strictly liable only if the product reached the user or consumer without substantial change in the condition in which it was sold.¹³ Because the alleged defect was in the defendant’s manufactured component, which was not modified or changed but incorporated into something larger and then put to its intended use, the court denied the defendant’s summary-judgment motion on this point.¹⁴

Defamation. Wisconsin law on defamation was considered in Amoroso v. Schuh.¹⁵ A memorandum circulated among the board of directors of an insurance company that purported to advise on potential issues arising under different scenarios, each involving an unnamed “Director X.” The scenarios included the unnamed director using “unfortunate terminology,” contacting an outside lawyer to discuss his concerns about pay to a vendor, and emailing other directors about his dissents at board meetings.¹⁶

The director believed the criticism was defamatory and he sued the other directors. The defendants moved to dismiss, arguing that the statements in the memo were incapable of defamatory meaning, that they were subject to the “common-interest” privilege, and that the director had not alleged an injury recognized under defamation law.¹⁷

Judge Conley for the Western District court considered the elements of a Wisconsin-law defamation claim that does not involve a public figure.¹⁸ The court agreed with the plaintiff that the statement did not need to explicitly name him to be defamatory because his identity was ascertainable from the memo, and that the scenarios in the memo were capable of harming his reputation.¹⁹

The court concluded that while on a full record the plaintiff may have difficulty overcoming the common-interest privilege – which protects common property, business, or professional interests and is extended to officers of a corporation – his pleading survived the defendants’ motion.²⁰ The complained-of statements also were arguably severe enough not only to result in the plaintiff losing his position on the board but also to cause reputational harm, thus constituting a cognizable injury.²¹ Accordingly, the court denied the defendant’s motion to dismiss the case.

Wisconsin Corporate Law

Chief Judge Griesbach of the Eastern District of Wisconsin interpreted the doctrine of corporate-successor liability in Wisconsin in McGraw v. Superior Aviation Ltd., an airplane-crash case before the federal court under diversity jurisdiction.²²

Superior Aviation Ltd. inspected and performed maintenance and repairs on the plaintiffs’ airplane. On the day of the accident, after approximately five hours of flight, the plane lost power and the plaintiffs were forced to land near Crivitz. The plaintiffs alleged that they suffered injuries and that Superior caused the incident by failing to reasonably and adequately maintain the aircraft.

A few days before Superior worked on the plaintiffs’ plane, Kubick Aviation Services Inc. entered into an asset-purchase agreement and purchased nearly all of Superior’s assets. Under the agreement’s express terms, Kubick purchased only Superior’s assets, not its liabilities, and Kubick “shall not be obligated for any liabilities” incurred by Superior during the operation of Superior’s business.

Although the agreement specified that Michigan law controlled, the plaintiffs were not a party to that deal, so the court afforded that choice-of-law provision less weight. The parties did not identify any outcome-determinative conflicts between Michigan and Wisconsin law, and the two states have substantially similar law on the doctrine of successor liability, so Chief Judge Griesbach applied Wisconsin substantive law, although he also discussed the relevant Michigan law when useful.²³

The court noted the general rule that a corporation that purchases only the assets of another does not succeed to the liabilities of the selling corporation.²⁴ The court also noted the recognized exceptions to the general rule, including “when the purchaser corporation is merely a continuation of the seller corporation.” The mere-continuation exception requires “a common identity of the officers, directors and shareholders in the selling and purchasing corporation.”²⁵

The plaintiffs argued that Kubick’s actions – purchasing nearly all of Superior’s assets and its customer lists, sending a letter to Superior’s customers (including the plaintiffs) soliciting their future business, and retaining a majority of Superior’s employees (even Superior’s president) – subjected Kubick to successor liability.

But the court found that Kubick was not a mere continuation of Superior. While Kubick hired Superior’s president, the position was part time and required by the Federal Aviation Administration. Further, the president was not an officer at Kubick, and Superior and Kubick had no common officers, directors, or stockholders. Before the sale Kubick never owned any Superior stock, nor did the court find the transaction anything other than arm’s length.²⁶ Accordingly, the court granted Kubick’s motion for summary judgment.

Wisconsin Insurance Law

In Baires v. State Farm Mutual Automobile Insurance Co.,²⁷ a case arising from a vehicle accident and before the federal court under diversity jurisdiction, the Eastern District court interpreted Wisconsin’s insurance-bad-faith law.

The plaintiffs incurred severe injuries in an accident in which the other driver was underinsured. After the other driver’s insurer paid its limits, the plaintiffs turned to their insurer, because their policy included underinsured-motorist benefits. The plaintiffs alleged in their suit that their insurer refused in bad faith to pay as required under the underinsured-motorist provision.²⁸

Judge J.P. Stadtmueller reviewed Wisconsin bad-faith law, including the standard that if an insured’s claim is “fairly debatable” either in fact or law, then a reasonable basis existed for denying the claim and the insurer did not deny the claim in bad faith.²⁹ The court considered each part of the plaintiffs’ claim under that standard.

On the plaintiffs’ allegation regarding a physician’s opinion from an independent medical examination, the court considered whether that opinion was so obviously wrong that the insurer could not have reasonably relied on it to deny coverage.³⁰ The court did not so conclude, nor did it find in the record that State Farm failed to adequately investigate and address the plaintiffs’ injuries.³¹

The plaintiffs also alleged that the insurer delayed in many ways when handling the plaintiffs’ claims, including for one month in responding to a demand letter and arranging the independent medical exam, for four months in securing the report of that exam, for two months in communicating the denial of the plaintiffs’ claim, and for two months in exercising settlement authority.³² Those delays were not long enough to permit an inference of bad faith, according to the court, which contrasted the insurer’s conduct with Wisconsin authority involving more egregious actions.³³

The plaintiffs also contended that the insurer’s employees recognized the extent of the damages the plaintiffs sustained and willfully ignored them when handling the claim.³⁴ The plaintiffs referenced the claim-file notes of various insurance company employees, but the court noted Wisconsin authority that the reflections of an insurer’s employees on the claim and the best strategic approach to it are not admissions of liability binding the insurer.³⁵

The plaintiffs also asserted that the insurer acted in bad faith in its settlement offers. The parties offered different arguments on the topic. The plaintiffs argued that the insurer has an affirmative duty to settle claims, the violation of which can give rise to a bad-faith claim. The insurer disagreed, arguing that while its business practice was to advance an offer when an impasse occurred, it was not contractually obligated to do so. The insurer argued that without showing that the insurer’s actions were a breach of the policy, the plaintiffs cannot make a bad-faith claim based on the insurer’s failure to advance a compromise offer.³⁶

The court ruled for the insurer on this point, relying on Wisconsin Supreme Court authority that “some breach of contract by an insurer is a fundamental prerequisite for a first-party bad faith claim against the insurer by the insured.”³⁷ The plaintiffs had pointed to no provision in the policy that required such an offer, and the court did not find the insurer’s internal procedure a sufficient basis to support a bad-faith claim.³⁸

The court recognized Wisconsin law that failure to pay a clearly valid claim (or portion of a claim) can constitute bad faith. Because the insurer contested whether it owed the plaintiffs anything at all, the court concluded that the insurer’s settlement offer did not represent an admission that the claim (or portion of it) was clearly valid; rather, it was a strategic decision to avoid potential future liability. Therefore, the court concluded that the insurer’s compromise offer did not represent the undisputed portion of the plaintiffs’ claim that the insurer should have paid to avoid an accusation of bad faith.³⁹

Wisconsin Statutes

Wisconsin’s federal courts sitting in diversity often interpret Wisconsin statutes, four of which are discussed below.

Wisconsin Personal Jurisdiction Law. In two breach-of-contract cases in 2017, Wisconsin’s federal district courts interpreted and applied Wisconsin’s long-arm statute and the factors to evaluate whether an assertion of personal jurisdiction violates due process.⁴⁰

In Healthfuse LLC v. CDH-Delnor Health System,⁴¹ the plaintiff claimed the defendant failed to pay for internet computer services performed in Wisconsin. Because the case arose out of the defendant’s alleged failure to pay amounts the plaintiff claimed to have earned for services performed for the defendant by the plaintiff in Wisconsin, Wisconsin’s long-arm statute was satisfied.⁴²

In deciding whether the exercise of jurisdiction comports with due process, Judge Pamela Pepper of the Eastern District of Wisconsin analyzed familiar U.S. Supreme Court personal-jurisdiction precedent, as well as Seventh Circuit authority that telephone and mail contacts alone are not enough to satisfy jurisdictional requirements.⁴³ Because the plaintiff solicited the defendant’s business, the defendant never physically entered Wisconsin, and the parties agreed that Illinois law would govern their contractual relationship, the court found that it could not exercise personal jurisdiction over the defendant, and it dismissed the case without prejudice.⁴⁴

In KAJ Foods LLC v. Berkshire Refrigerated Warehousing LLC,⁴⁵ Judge Conley ruled that Wisconsin’s long-arm statute was satisfied because the defendant promised the plaintiff or the plaintiff’s customers that it would ship products to Wisconsin, it delivered products within the state, and the plaintiff’s claims arose out of these specific deliveries.⁴⁶

Judge Conley then considered whether due-process protections permitted the exercise of jurisdiction over the plaintiff’s suit. The defendant’s making arrangements for shipment into Wisconsin and frequent contacts with the plaintiff in Wisconsin met the “purposeful availment” prong.⁴⁷ The court also found that the relationship between the defendant’s contacts with Wisconsin and the plaintiff’s claims meant that the claims “arose out of or relate to” those contacts.⁴⁸

Further, the court found that asserting jurisdiction over the defendant did not “offend traditional notions of fair play and substantial justice” because Wisconsin has an interest in proper shipment of the products (perishable foods) shipped in this case, and the case would not burden the defendant, which is located in northern Illinois.⁴⁹ Therefore, the court denied the defendant’s motion to dismiss for lack of personal jurisdiction.

Wisconsin Fair Dealership Law. The U.S. Court of Appeals for the Seventh Circuit considered the Wisconsin Fair Dealership Law (WFDL) in Winebow Inc. v. Capitol-Husting Co.⁵⁰

A wine supplier, Winebow, imports wines to wholesalers. Winebow granted two wholesale distributors the exclusive right to sell and distribute its products in certain regions of Wisconsin. Winebow wanted to end its ties to those distributors. Although Winebow had no express agreement with either distributor, they nevertheless invoked the WFDL, arguing that the law bars Winebow from terminating them as distributors.

At issue was whether a wine distributor is an “intoxicating-liquor” dealer under the WFDL. If the WFDL does not apply to wine distributors, then Winebow is free to cease doing business with the plaintiff distributors. If wine dealerships are covered, however, then Winebow could sever its relationship with the plaintiff distributors only upon a showing of good cause.⁵¹ Magistrate Judge David Jones concluded that wine dealerships do not fall within the intoxicating-liquor dealerships protected by the WFDL, so he granted Winebow’s motion for judgment on the pleadings, and the distributors appealed.

The Seventh Circuit applied Wisconsin precedent regarding statutory interpretation. First, the court concluded that the plain language of the statute did not resolve whether wine distributorships fall within the category of intoxicating-liquor dealerships.⁵²

Because the appeals court found the term “intoxicating liquor” ambiguous, Chief Judge Diane Wood looked at the “legislative history, scope, context, and subject matter” to ascertain the statute’s meaning. The court closely examined Wisconsin statutes concerning intoxicating-liquor dealerships, including their legislative history, down to the line-item vetoes and signing statements accompanying those vetoes of Gov. Tommy Thompson, who signed the legislation at issue.⁵³

Even after this scrutiny, the Seventh Circuit could not decide “with any confidence” whether the law as written included wine distributorships.⁵⁴ Accordingly, the federal appeals court certified to the Wisconsin Supreme Court the question whether the definition of a “dealership” under the WFDL includes wine distributorships.⁵⁵

Wisconsin Consumer Act. While in school, Dannel Riel took out several student loans, which eventually went into default. Navient Solutions Inc. took over servicing of the loans from the original servicer, student loan corporation Sallie Mae. Navient began calling Riel’s home. Riel retained counsel to handle Navient’s repeated calls, giving Navient his lawyer’s contact information. However, Navient continued to call Riel, his wife (who used the home phone for her work), and Riel’s parents.

Riel and his wife sued Navient, Riel v. Navient Solutions Inc.,⁵⁶ under the Wisconsin Consumer Act, alleging that Navient’s conduct was unconscionable⁵⁷ and that Navient engaged in illegal collection actions.⁵⁸

Judge Stadtmueller for the Eastern District of Wisconsin concluded that the plaintiffs’ first claim relied on plain statutory language that conferred no independent right of action to the plaintiffs. The Wisconsin statute at issue is subject to a limit on its scope that by its plain text does not permit consumers such as the plaintiffs to enforce the statute’s prohibition on unconscionability via a civil lawsuit.⁵⁹

Navient argued that the plaintiffs’ second claim was expressly preempted by federal statutes that override the Wisconsin Consumer Act. The court reviewed federal law on conflict preemption and distinguished between an alleged violation for contacting a represented customer, which federal law preempted, and claims that were not preempted, including challenges to the frequency of Navient’s phone calls, the calls to Riel’s mother, Navient’s disclosure of information about the debts to her, and Navient’s practice of using multiple phone numbers.⁶⁰ So the court granted in part and denied in part the defendant’s motion to dismiss the plaintiffs’ claims.

Wisconsin Uniform Fraudulent Transfer Act. Finally, whether several transfers of funds should be undone as fraudulent was the dispute in Seah Chee Wei v. Rocky Point International Inc.,⁶¹ in which Judge Stadtmueller interpreted Wisconsin’s fraudulent-transfer statutes.⁶²

The plaintiff, Seah, was the liquidator of a company, Traxair, which wished to purchase an oil rig in the Indian Ocean. The plaintiff liquidator alleged that several million dollars of Traxair’s funds were illegally transferred to several Texas entities before ending up in the possession of the defendant company, Rocky Point International LLC, which used the money to renovate a lake house in Pewaukee, Wis.

Seah asked the court to undo the allegedly fraudulent transfers, and Rocky Point argued that all the transactions were legitimate.⁶³ In considering the case the court reviewed the various agreements implicated in the case; the monetary transfers; and another suit in Singapore between some of the parties, which also alleged fraudulent transfers.⁶⁴

The plaintiff liquidator’s claims relied on the common element that, to come under the fraudulent-transfer statute, the debtor must have made the transfer in question without receiving “reasonably equivalent value” in exchange.⁶⁵ While that phrase is not expressly defined in those statutes, the Eastern District of Wisconsin court has previously interpreted that phrase by referring to other definitions in the Uniform Fraudulent Transfer Act and the plain meaning of those words.⁶⁶

The plaintiff, pointing to financial records, argued that the transfers – a commission payment, reinvestment of that commission, and a cash-pooling agreement – did not involve the immediate exchange of consideration but simply forwarded the funds from one entity to the next without anything in return. The defendant responded that while the transfers did not result in immediate receipt of value, they were justified by previous contractual arrangements, which Rocky Point described.⁶⁷

The court reviewed in detail the testimonial and documentary evidence presented by the parties and found disputes of material fact as to whether the various transfers were justified.⁶⁸ Viewing the facts and inferences in the light most favorable to the defendant, the court denied the plaintiff’s motion for partial summary judgment asking that the transfers be deemed constructively fraudulent and therefore avoidable.⁶⁹

Endnotes

¹ Lexington Ins. Co. v. Rugg & Knopp Inc., 165 F.3d 1087, 1092-93 (7th Cir. 1999).

² Below v. Yokohama Tire Corp., No. 15-cv-529-wmc, 2017 WL 570985 (W.D. Wis. Feb. 13, 2017) (unpublished).

³ Id. at *1.

⁴ Id. at *2.

⁵ Tanner v. Shoupe, 228 Wis. 2d 357, 596 N.W.2d 805 (Ct. App. 1999).

⁶ Below, 2017 WL 570985 at *3.

⁷ Id. at *4. The jury rendered a defense verdict in the case.

⁸ Janusz v. Symmetry Med. Inc., No. 15-CV-294, 2017 WL 2539148 (E.D. Wis. June 9, 2017) (unpublished).

⁹ Wis. Stat. § 895.047.

¹⁰ Janusz, 2017 WL 2539148 at *4.

¹¹ Id. at *8.

¹² Id.

¹³ Id. at *9.

¹⁴ Id. at *10.

¹⁵ Amoroso v. Schuh, No. 15-cv-119-wmc, 2017 WL 4358020 (W.D. Wis. Sept. 30, 2017) (unpublished).

¹⁶ Id. at *1-*3.

¹⁷ Id. at *3.

¹⁸ Id. at *4.

¹⁹ Id. at *4-*5.

²⁰ Id. at *6.

²¹ Id.

²² McGraw v. Superior Aviation Ltd., No. 15-C-1424, 2017 WL 25469 (E.D. Wis. Jan. 3, 2017) (unpublished).

²³ Id. at *2.

²⁴ Id. at *3 (citing Fish v. Amsted Ind. Inc., 126 Wis. 2d 293, 298, 376 N.W.2d 820 (1985)).

²⁵ Leannais v. Cincinnati Inc. 565 F.2d 437, 439-40 (7th Cir. 1977) (applying Wisconsin law).

²⁶ McGraw, 2017 WL 25469 at *4.

²⁷ Baires v. State Farm Mut. Auto. Ins. Co., 231 F. Supp. 3d 299 (E.D. Wis. 2017).

²⁸ Id. at 301.

²⁹ Id. at 307-08 (citing Anderson v. Continental Ins. Co., 85 Wis. 2d 675, 271 N.W.2d 368 (1978), and Mills v. Regent Ins. Co., 152 Wis. 2d 566, 449 N.W.2d 294 (Ct. App. 1989)).

³⁰ Id. at 308-09 (citing Tripalin v. American Fam. Mut. Ins. Co., No. 2015AP1330, 2016 WL 1370129 at * 3 (Wis. Ct. App. Apr. 7, 2016)).

³¹ Id. at 309.

³² Id.

³³ Id. at 310 (citing Danner v. Auto-Owners Ins., 2001 WI 90, 245 Wis. 2d 49, 629 N.W.2d 159).

³⁴ Id. at 310.

³⁵ Id. (citing Davis v. Allstate Ins. Co., 101 Wis. 2d 1, 303 N.W.2d 596 (1981)).

³⁶ Id. at 311.

³⁷ Id. (citing Brethorst v. Allstate Prop. & Cas. Ins. Co., 2011 WI 41, 334 Wis. 2d 23, 798 N.W.2d 467).

³⁸ Id. at 311-13.

³⁹ Id. at 312-13.

⁴⁰ Wis. Stat. § 801.05.

⁴¹ Healthfuse LLC v. CDH-Delnore Health Sys., No. 16-cv-560-pp, 2017 WL 927624 (E.D. Wis. Mar. 8, 2017) (unpublished).

⁴² Id. at *4.

⁴³ Id. at *6 (citing Lakeside Bridge & Steel Co. v. Mountain State Const. Co., 597 F.2d 596, 604 (7th Cir. 1979)).

⁴⁴ Id. at *6-*7.

⁴⁵ KAJ Foods LLC v. Berkshire Refrigerated Warehousing LLC, No. 16-cv-672, wmc, 2017 WL 2602328 (W.D. Wis. June 15, 2017) (unpublished).

⁴⁶ Id. at *2-*3.

⁴⁷ Id. at *3.

⁴⁸ Id. at *4.

⁴⁹ Id. (quoting International Shoe Co. v. Washington, 326 U.S. 310, 326 (1945) (internal quotation marks omitted)).

⁵⁰ Winebow Inc. v. Capitol-Husting Co., 867F.3d 862 (7th Cir. 2017).

⁵¹ Id. at 867.

⁵² Id. at 868.

⁵³ Wis. Stat. § 135.066(2).

⁵⁴ Winebow, 867 F.3d at 869.

⁵⁵ Id. at 870-71.

⁵⁶ Riel v. Navient Solutions Inc., No. 16-CV-1191-JPS, 2017 WL 168900, at *1-*2 (E.D. Wis. Jan. 17, 2017) (unpublished).

⁵⁷ Wis. Stat. § 425.107.

⁵⁸ Wis. Stat. § 427.104.

⁵⁹ Riel, 2017 WL 168900 at *2-*4.

⁶⁰ Id. at *4-*6.

⁶¹ Seah Chee Wei v. Rocky Pt. Int’l LLC, No. 16-CV-1282-JPS, 2017 WL 3916874 (E.D. Wis. Sept. 6, 2017) (unpublished).

⁶² Wis. Stat. §§ 242.01-.11.

⁶³ Seah Chee Wei, 2017 WL 3916874 at *1.

⁶⁴ Id. at *2-*4.

⁶⁵ Wis. Stat. §§ 242.05(1), 242.04(1)(b), 242.08(2).

⁶⁶ Seah Chee Wei, 2017 WL 3916874 at *6 (citing Executive Ctr. III LLC v. Meieran, 823 F. Supp. 2d 883, 888 (E.D. Wis. 2011)).

⁶⁷ Id. at *7.

⁶⁸ Id. at *7-*8.

⁶⁹ Id. at *8.