Commercial Law

Fraudulent Transfers – Bankruptcy Actions

Official Comm. of Unsecured Creds. of Great Lakes Quick Lube LP v. Theisen, 2018 WI App 70 (filed 30 Oct. 2018) (ordered published 28 Nov. 2018)

HOLDING: A committee of unsecured creditors in a bankruptcy action timely filed this claim challenging alleged fraudulent transfers from buyers to sellers.

SUMMARY: In 2004 the sellers sold their interest in a lube oil business they had run for many years. As part of the deal, the buyers issued various promissory notes to the sellers. The notes were paid in full in late 2009, but in 2012 the buyers filed a bankruptcy petition. The bankruptcy court authorized a committee of unsecured creditors to pursue avoidance actions, such as this one, on behalf of those creditors. Those creditors alleged that the 2009 payments were fraudulent transfers. The circuit court dismissed the claims on grounds that they were time barred. See Wis. Stat. § 893.425.

The court of appeals reversed in an opinion authored by Judge Brennan. First, the circuit court “misconstrued the statute of limitations test to be one based on discovery of the transfer, as opposed to discovery of the fraudulent nature of the transfer” (¶ 4). This conclusion followed from the plain language of Wis. Stat. section 893.425.

Second, for summary-judgment purposes, the sellers failed to produce evidence that each creditor reasonably could have discovered the fraudulent nature of the transactions by April 2011, in which event the statute would have run on all claims before the bankruptcy petition’s filing (see ¶ 20). Much of the court’s fact-intensive analysis is controlled by bankruptcy law, particularly the “triggering creditor” doctrine’s impact on standing (¶ 27).

Criminal Procedure

Juvenile Waivers to Adult Court – Successive Prosecutions

State v. Hinkle, 2018 WI App 67 (filed 31 Oct. 2018) (ordered published 28 Nov. 2018)

HOLDING: The Fond du Lac County adult criminal court had exclusive original jurisdiction over a juvenile defendant because juvenile court jurisdiction over him had already been waived in a pending prosecution in Milwaukee County.

SUMMARY: In July 2015 defendant Hinkle, who was 16 years old at the time, stole a car in Milwaukee and drove it to Fond du Lac. Once there, Hinkle led police on a high-speed chase after they tried to arrest him. Hinkle’s vehicle hit other cars and eventually crashed and Hinkle was arrested. Delinquency petitions against Hinkle were filed in Milwaukee County and Fond du Lac County, along with petitions seeking waiver into adult criminal court.

On Oct. 28, 2015, the juvenile court in Milwaukee County, after a hearing, waived its jurisdiction over Hinkle per Wis. Stat. section 938.18, sending the matter to adult criminal court, where he was prosecuted for multiple felonies. On Nov. 18 and 19, 2015, the juvenile court in Fond du Lac County concluded that, under Wis. Stat. section 938.183(1)(b), the Milwaukee County court’s waiver gave jurisdiction over Hinkle to the Fond du Lac County adult criminal court.

After pleading no contest to various offenses that had been included in the Fond du Lac County delinquency petition, Hinkle sought to withdraw his pleas in Fond du Lac County, arguing that the adult criminal court lacked jurisdiction over him. The circuit court denied the motion.

In a majority opinion authored by Chief Judge Neubauer, the court of appeals affirmed. “[A]n adult criminal court has exclusive original jurisdiction over a juvenile when the following apply: (1) the juvenile is presently alleged to have committed a criminal violation, (2) a juvenile court has waived its jurisdiction over the juvenile for a previous violation, and (3) either that previous violation resulted in a conviction or the criminal proceedings remain pending” (¶ 21) (internal quotations omitted). See Wis. Stat. § 938.183(1).

Applying this statute to the facts of this case, the appellate court concluded that Hinkle was a juvenile over whom the Fond du Lac County adult criminal court had exclusive original jurisdiction. A criminal complaint had been filed against Hinkle in Milwaukee County following his waiver into adult court there. When Fond du Lac County later made its jurisdictional decision, “(1) Hinkle was a juvenile presently alleged to have committed a criminal violation, (2) a juvenile court had waived its jurisdiction over Hinkle for previous criminal violations, and (3) the criminal proceedings on those violations were pending” (¶ 22). The court rejected Hinkle’s argument that Wis. Stat. section 938.183 did not apply because different counties were involved in the proceedings against him (see ¶ 18).

Judge Reilly filed a dissenting opinion.

Insurance

Medical Expenses – Group Health Plans – Auto Insurance Policies

Security Health Plan of Wis. v. American Standard Ins. Co. of Wis., 2018 WI App 68 (filed 25 Oct. 2018) (ordered published 28 Nov. 2018)

HOLDING: A group health plan that paid for medical expenses incurred in auto accidents could not recover its payments from the auto liability insurers.

SUMMARY: This litigation involved 42 persons injured in car accidents who incurred medical expenses. Security Health, a group health insurer, paid most of the medical expenses for the 42 persons; it sued their automobile insurer, American Family, to recover those medical expenses. The circuit court granted a declaratory judgment in favor of Security Health, awarding it about $165,000.

The court of appeals reversed in an opinion authored by Judge Fitzpatrick. The parties agreed that the issue is controlled by Wis. Admin. Code section INS 3.40 (Dec 2017) and Wis. Stat. section 632.32(4), provisions that allocate responsibilities between “primary” and “secondary” insurers (¶¶ 11, 13). It was undisputed that the coverage provided by Security Health was a “plan” as defined by section INS 3.40. The crucial question, though, was whether American Family’s medical expense coverage was also a “plan” under that rule (see ¶ 14).

The court held it was not, despite several arguments to the contrary by Security Health. In reaching this conclusion, the court discussed the meaning of the terms “required,” “coverage,” “policy,” and “reject” as used in section INS 3.40 and Wis. Stat. section 632.32(4). Using these definitions to analyze the statute, the court held that the medical payment coverage provided by American Family was not “required” within the meaning of the statute, essentially because the insured can reject it (see ¶¶ 37, 48). The court also rebuffed several alternative arguments proffered by Security Health relating to “no-fault” coverages.

Judge Kloppenburg concurred, but disagreed with the majority analysis in section II of the opinion, which concluded that medical payment coverage is not required because an insured can reject it (see ¶ 68). She agreed that “the medical expense coverage is not an individual automobile ‘no-fault’ contract under § INS 3.40(6)(f)” (¶ 67).

Torts

Negligence – Recreational Immunity

Lang v. Lions Club Inc., 2018 WI App 69 (filed 23 Oct. 2018) (ordered published 28 Nov. 2018)

HOLDING: The circuit court erroneously granted summary judgment to defendant Fryed on the basis of recreational immunity.

SUMMARY: Antoinette Lang was injured when she tripped over electrical cords at a Lions Club outdoor festival featuring food and music. The Langs sued Fryed, the LLC that provided the sound engineering services to a band at the event, for negligently placing the cords. The Langs sued other entities as well, including the Lions Club, which had obtained the permit for the use of the grounds and ran the event. The Lions Club had no contract with Fryed; it contracted only with the bands.

The circuit court granted the Lions Club’s motion for summary judgment on the grounds that the recreational immunity statute (Wis. Stat. section 895.52) barred the Langs’ negligence claim against that defendant. The issue before the court of appeals was whether Fryed is also entitled to immunity under the recreational immunity statute either as an “agent” of the Lions Club or as an “occupier” of the property. The circuit court granted summary judgment to Fryed. In a majority opinion authored by Judge Brennan, the court of appeals reversed.

“In 1983, the Wisconsin legislature enacted Wis. Stat. § 895.52, which dramatically expanded liability protection for landowners who open their private property for public recreational use. The recreational immunity statute provides that ‘no owner and no officer, employee or agent of an owner is liable for … any injury to … a person engaging in a recreational activity on the owner’s property.’ The policy behind the statute is to encourage property owners to open their lands for recreational activities by removing a property user’s potential cause of action against a property owner’s alleged negligence” (¶¶ 15-16) (internal quotations and citations omitted).

The statute defines an owner as “a person … that owns, leases or occupies property.” In this case it was not disputed that Lang was engaging in a recreational activity within the meaning of the statute. Nor was it disputed that the Lions Club was properly granted summary judgment as an “owner” (see ¶ 15 n.5).

The appellate court concluded that Fryed was not an “agent” for purposes of the recreational immunity statute “because an agent is subject to reasonably precise control by the principal. This requires reasonably precise specifications from the principal to the agent, and absent reasonably precise specifications there could be neither control nor the right to control the conduct that caused the injury” (¶ 4) (internal quotations and citations omitted).

In this case there was no evidence that Fryed was following the owner’s (that is, the Lions Club’s) specific directions when it placed the cords in a pedestrian area, which was the injury-causing conduct. Because there was no evidence of the requisite “reasonably precise specifications,” the owner in this case neither controlled nor had the right to control the details of Fryed’s work, and there is no dispute that the owner left the means and methods for conducting the setup, including any safety precautions, to Fryed (id.).

The appellate court also concluded that Fryed was not an “occupier” of the property because its presence on the property exhibited no degree of permanence, as opposed to mere use.

“In his capacity as principal of Fryed, Steven Fry was present on the property on Saturday, August 4, 2012, and Sunday, August 5, 2012, only to set up and take down sound equipment for performances. Focusing on the purpose of the statute, our supreme court has, as part of its analysis of a party’s eligibility for immunity, given consideration to whether granting immunity to a party as an ‘occupier’ would ‘further the policy which underlies the statute.’ In considering this, the court asks whether the ‘property was already open for public recreational purposes’ and whether, regardless of a party’s immunity, the owner of the property is ‘protected and would therefore not be discouraged from opening its land to the public’” (¶ 5).

“Fryed had no ‘effect on whether [the owner’s] property would be open to the public for recreational purposes,’ and had no role in opening the land to the public. Other entities opened the land, and the public would have had access to the land regardless of what contractor set up the sound equipment” (id.) (internal citations omitted).

Accordingly, the appellate court reversed the circuit court’s order granting summary judgment to Fryed on the basis of recreational immunity.