Contracts

Frustration of Purpose – Liquidated Damages

Convenience Store Leasing & Mgmt. v. Annapurna Marketing, 2019 WI App 40 (filed 24 July 2019) (ordered published 28 Aug. 2019)

HOLDING: Frustration of a contract’s purpose was not established; the case was remanded for a determination of proper damages.

SUMMARY: The parties entered into a land contract and a fuel supply agreement (FSA) related to the purchase of a long-shuttered gas station. The FSA required the buyer, AP Marketing, to purchase its fuel through the seller, Bulk Petroleum (Bulk). The FSA contained various provisions relating to fuel prices, minimum monthly purchases, and stipulated damages.

The deal unraveled when the fuel supplier designated by Bulk demanded changes to the gas station, all related to branding, that the buyers thought were too costly. The buyers “walked away” from the deal, and Bulk sued AP Marketing and its personal guarantors. As to the FSA claim, the court conducted a bench trial, finding that the contract’s performance was excused by “frustration of purpose” and that the stipulated damages provision was an unenforceable penalty.

The court of appeals reversed in an opinion, authored by Judge Hagedorn, that reviews the controlling law on frustration of purpose and concluded that the buyers failed to meet their burden. Specifically, the buyers “fail to explain how paying for an updated façade and bathroom modifications frustrated the purpose, much less to the requisite level of severity” (¶ 22). The buyers also failed to prove that a “basic assumption” of the FSA was that “no modifications” would be demanded. By agreeing to “branding” conditions required by a fuel supplier, it was “highly likely, if not inevitable, that some modifications to the station would be required” (¶ 23).

The court remanded the case for a determination of whether AP Marketing did in fact breach the FSA and the reasonableness of the stipulated damages provision in light of the “guidance” on that issue provided by the court of appeals. The court of appeals explained the distinction between “liquidated damages” and “penalty clause.”

Criminal Law

Multiple Charges – Dismissal on Basis of Absurdity

State v. Matthews, 2019 WI App 44 (filed 24 July 2019) (ordered published 28 Aug. 2019)

HOLDING: It was error for the circuit court to dismiss the six felonies charged against the defendant on the basis of absurdity.

SUMMARY: A, who was 17 1/2 years old, began a friendship with the defendant Matthews, her 28-year-old supervisor. Within one month, the relationship started to become sexual, culminating in an act of sexual intercourse (digital penetration). The state charged Matthews with misdemeanor sexual intercourse with a child (Wis. Stat. § 948.09) based on his touching of A’s vaginal area. The state also charged Matthews with six felonies.

Specifically, because the conduct between A and Matthews occurred inside a residence rather than outside in plain view, the state charged Matthews with two counts of child enticement (Wis. Stat. § 948.07(3)), because he allegedly “cause[d]” A “to go into a building” with the intent to expose intimate parts. One of these counts occurred at the time of the sexual intercourse. Because A and Matthews had removed clothing on several occasions, the state also charged Matthews with four counts of “exposing intimate parts” (Wis. Stat. § 948.10(1)), with two of those counts occurring at the time of the intercourse.

The defendant moved to dismiss the counts on several grounds. Among other things he argued that it would be absurd to penalize him for the felony crime of exposing intimate parts, which would be practically necessary for the misdemeanor intercourse to occur. He also complained about the arbitrariness of the enticement charges (relying as they did on the sexual activities occurring inside a house, rather than outside). “At bottom, Matthews is arguing that the district attorney’s decision to charge under the three statutes together have worked an absurdity, in light of the legislature’s decision to provide for a Class A misdemeanor for intercourse with a child over sixteen” (¶ 16).

The circuit court dismissed the six felony counts. It found that the decision to charge the felonies, which would expose the defendant to more than 70 years in prison, was absurd and not what the legislature could have intended (see ¶ 1).

In a decision authored by Chief Judge Neubauer, the court of appeals reversed. Noting the broad charging discretion given to prosecutors and the presence of the necessary elements of each of the crimes charged against the defendant, the appellate court concluded that it was within the discretion of the district attorney to charge them (see ¶ 18). The felony offenses charged in this case each require proof of a fact that the others do not, and each offense is intended to target and deter different conduct and protect different societal interests (see ¶¶ 19-20). The classifications of felonies and misdemeanors and their punishments are within the purview of the legislature (see ¶ 21).

“Here, the legislature chose to change the crime of nonmarital intercourse with a child older than sixteen from a felony to a misdemeanor. But the legislature also left enticement of a child (which means a child of any age) as a felony, and left exposure of intimate parts as a felony (but there are circumstances that can make it a misdemeanor). The legislature did not amend these statutes to differentiate penalties on the basis of the child’s age. In effect, the legislature left it to the district attorney’s discretion what, when, and whether to charge in cases involving acts such as those allegedly committed here with a child older than sixteen” (¶ 23).

“Given that the legislature left these statutes intact, we cannot conclude that the district attorney’s charges rise to the level of absurdity found in case law – which underscores that the doctrine is applicable only when it is clear that the legislature could not have intended the plain language to lead to such absurd results” (¶ 24).

Accordingly, the court of appeals held that it was error for the circuit court to dismiss the six felonies charged against the defendant on the basis of absurdity (see ¶ 27).

Evidence

Rape Shield – DNA – Other Acts

State v. Gutierrez, 2019 WI App 41 (filed 3 July 2019) (ordered published 28 Aug. 2019)

HOLDINGS: The defendant is entitled to a new trial based on the circuit court’s erroneous exclusion of DNA evidence favorable to the defense; other acts evidence was admissible.

SUMMARY: The defendant was convicted of sexual assault-related offenses against a minor. At trial, the state presented evidence that while the defendant’s DNA was not found on the victim, such evidence may be destroyed through “showering, cleansing, wiping, and washing” (¶ 6). The circuit court, however, excluded evidence that the DNA from “other persons” was found on the victim’s underwear and near her mouth.

The court of appeals reversed in an opinion authored by Judge Reilly. The exclusion of evidence that the DNA of “other persons” was found on the victim was both an erroneous exercise of discretion and a violation of the defendant’s right to present a defense (¶ 8). The jury was thereby misled into thinking that “the underwear and mouth swabs contained no DNA evidence.” Evidence that DNA from others was found directly countered the state’s argument that the defendant’s DNA had been washed off; it did not violate the “rape shield” statute (¶¶ 9-10).

For purposes of remand, the court also addressed the admissibility of other acts evidence regarding an assault by the defendant when the victim was just six years old. Applying the three-step analysis required by the case law [see State v. Sullivan, 216 Wis. 2d 768, 576 N.W.2d 30 (1998)], the circuit court properly admitted the evidence, especially in light of the “greater latitude” standard for admitting other acts evidence in child sexual assault cases (¶¶ 14-15).

Judge Hagedorn dissented. Although “sympathetic” to the defense argument, he contended that the defendant was not entitled to a new trial based on the standard of review (¶ 16).

Medical Assistance

Eligibility for Medical Assistance – Unearned Income – Payments from Testamentary Trust

Tarrant v. Wisconsin Dep’t of Health Servs., 2019 WI App 45 (filed 31 July 2019) (ordered published 28 Aug. 2019)

HOLDING:The Department of Health Services (DHS) correctly treated the petitioner’s monthly trust payments as unearned income to be considered for purposes of determining her eligibility for medical assistance.

SUMMARY: As a result of her father’s death, and during the time relevant to this case, petitioner Tarrant received $4,500 per month from a testamentary trust created by her father’s will. The trust authorized the trustees to pay Tarrant “reasonable sums” for her “comfort and well-being” and provided that “this provision shall be construed liberally” (¶ 8). In January 2017, Tarrant applied to renew government-provided medical assistance, that is, Medicaid, Medicare Premium Assistance, and BadgerCare Plus. The DHS treated the monthly trust payments as unearned income, which when combined with her other income, made her ineligible for medical assistance benefits. As a result, her applications were denied.

Tarrant appealed the DHS’s decision. An administrative law judge agreed with the DHS that the monthly payments constituted unearned income for purposes of determining medical assistance eligibility and that these payments made her ineligible for medical assistance benefits. Tarrant petitioned for review by the circuit court, which reversed the DHS’s decision. In an opinion authored by Judge Gundrum, the court of appeals reversed the decision of the circuit court.

Eligibility for medical assistance is determined based on an individual’s “income and resources” (¶ 6). “‘[I]ncome’ includes earned or unearned income that would be included in determining eligibility … for the aged … under 42 U.S.C. [§§] 1381 to 1385 [2016]” [id. quoting Wis. Stat. § 49.47(4)(c)]. After reviewing a number of federal and state statutes, as well as the Medicaid Eligibility Handbook, the appellate court concluded that “the Department appropriately treated Tarrant’s monthly trust payments as unearned income to be considered for purposes of determining her eligibility for medical assistance” (¶ 15).

Municipal Law

Counties – Ordinances Establishing Uniform Addressing Systems

Vilas Cty. v. Bowler, 2019 WI App 43 (filed 30 July 2019) (ordered published 28 Aug. 2019)

HOLDING: The circuit court correctly granted summary judgment to the county in its action to enforce a county ordinance establishing a uniform addressing system within the county.

SUMMARY: The circuit court granted summary judgment to Vilas County against the Bowlers to enforce a county ordinance establishing a uniform addressing system within the county. The Bowlers own a parcel of property on which is located their permanent residence and nine cabins that are rented on a short-term, seasonal basis as a resort business. They objected to the county naming the private road on their property and assigning addresses to their rental cabins. In an opinion authored by Judge Hruz, the court of appeals affirmed the grant of summary judgment to the county.

The Bowlers argued that the county lacked authority under the ordinance to name the private road serving their residence and the rental structures. They contended that the road does not satisfy the ordinance’s definition of a “private road” and does not satisfy the ordinance’s requirement that the road serve three or more “residences or lots.” The appellate court concluded that “the road is a ‘private road’ within the ordinance definition because it is a road located on private property that leads to the ten structures on the Bowlers’ property, each of which is a ‘primary’ or ‘principal’ structure under the ordinance because it is used for human habitation. We also conclude the buildings satisfy the ordinance’s requirement that the road serve three or more ‘residences,’ which include all of the Bowlers’ cabins” (¶ 2).

With respect to the latter, the court found the term “residences” as used in the ordinance is not limited to structures intended for a degree of permanent occupancy by the same individuals. “Rather, the term refers generally to structures that are intended or used for human habitation – regardless of the duration of any such habitation by any particular human” (¶ 30).

The Bowlers also challenged the county’s authority under the ordinance to assign addresses to their rental cabins. They argued that these buildings are not “principal” or “primary” structures and, therefore, are not subject to the county’s addressing requirement. The court disagreed. “Consistent with our conclusion regarding the County’s authority to name the Bowlers’ private road, we reject this argument and hold that each of the ten structures at issue (the Bowlers’ residence and their nine rental cabins) is a ‘primary’ or ‘principal’ structure to which the County may assign an address” (¶ 3).

Finally, the court rejected the Bowlers’ argument that the addressing ordinance is invalid because the county is applying it beyond the scope of Wis. Stat. § 59.54(4), which authorizes the county to adopt a rural naming and numbering system (see ¶ 4).

Conditional Use Permits – Cell Towers

Eco-Site LLC v. Town of Cedarburg, 2019 WI App 42 (filed 24 July 2019) (ordered published 28 Aug. 2019)

HOLDINGS: The town of Cedarburg proceeded on a correct theory of law when it determined that a proposed cell tower would be incompatible with the uses, values, and enjoyment of other property in the area, and its decision was supported by substantial evidence.

SUMMARY: Plaintiffs applied to the town of Cedarburg for a conditional use permit (CUP) to erect a 120-foot metal monopole wireless communication tower and supporting 5,600-square-foot structure on property known as Akerlund Acres. Owned by the Akerlunds and located in an area currently zoned as an A-1 agricultural district, the land is surrounded by property zoned as residential. The town board denied the application for the CUP. The circuit court upheld the town’s denial. In a majority opinion authored by Chief Judge Neubauer, the court of appeals affirmed.

The plaintiffs asserted that the town proceeded on an incorrect theory of law in two different ways: 1) It misapplied its own zoning ordinances in determining that the tower would be incompatible with the adjacent land, and 2) it based its decision to deny the CUP solely on aesthetic concerns (a basis prohibited by Wis. Stat. § 66.0404(4)(g)). The appellate court rejected both arguments.

The court first considered the compatibility issue. The town denied the application because the tower was not “[c]ompatible with adjacent land” and it would substantially impair or diminish the “uses, values and enjoyment of other Town property in the neighborhood.” See Town of Cedarburg, Wis., Code § 320-51A(2).

The appellate court saw no error by the town in denying the application on this basis. “The Town zoned the area agricultural and the neighboring area residential, all in an effort to keep this area rustic, rural, and populated. This intended use and lifestyle are clearly at odds with, and would be thwarted by, the introduction of a 120-foot tall telecommunications tower with its substantial related structure and fencing. The Town proceeded on a correct theory of law by relying on the applicable ordinance and applying it properly” (¶ 16).

The plaintiffs also argued that the town’s denial of the CUP not only on the basis of incompatibility, but also on the bases of lost property values and the detrimental effect on public health and safety and general welfare, equated to a denial based on aesthetic concerns, which as noted above is prohibited by statute if it is the sole reason. Again, the appellate court disagreed.

“There can be no doubt that there were comments [in the Town Board’s letter explaining denial of the CUP] on the aesthetic impact – that the tower would be a visual blight and unattractive. However, the incompatibility conclusion is far more than a denial based on aesthetic, or visual, ‘concerns.’ The visual impact of the tower is different than the broader impact of the tower on the uses and the lifestyle for which the neighborhood is zoned. The visual impact of the tower is also different than the economic impact on the property values – a concrete impact on the neighbors’ pocketbooks and the Town’s property tax revenue. The impacts of these different ‘concerns’ are not one and the same. An unsightly tower could certainly be placed in a location that would be compatible with the neighborhood uses and values due to the particular site, and vice versa, as the Town determined here” (¶ 21).

“In sum … the zoning ordinance for CUPs has six requirements and at least one of them is missing (the compatibility requirement), such that the Town’s denial of the application was justified. Because the incompatibility standard is a valid basis to deny the application, it simply does not matter that aesthetic comments were made” (¶ 22).

Lastly, the court concluded that the denial of the CUP was supported by substantial evidence.

Judge Reilly filed a concurring opinion.

Property

Trademarks – Naming Rights – Sale

Ritter v. Farrow, 2019 WI App 46 (filed 30 July 2019) (ordered published 28 Aug. 2019)

HOLDING: The sellers’ earlier conduct in converting their resort into a condominium and creating a condominium association meant that the association, not the sellers, owned the resort’s trade name; thus, the sellers could not have sold the trade name in a later transaction.

SUMMARY: This much-litigated case centers on various transactions involving Bibs Resort. The Ritters purchased the resort property in 1986 and 12 years later converted the resort into condominiums under the name “Bibs Resort Condominium.” As required by statute, they created an association of condo owners called Bibs Resort Condominium Inc. (the association). In 2006, the Ritters sold their property management business called “Bibs Resort” and several condominium units to the Farrows. Litigation ensued over the Ritters’ continued use of the name Bibs Resort. The court of appeals reversed a verdict in favor of the Farrows because the trial judge did not join the association in the lawsuit.

On remand, the circuit court granted summary judgment in favor of the Ritters: Because the association owned the trade name “Bibs Resort” at the time of condo conversion, the Ritters could not have sold it to the Farrows in 2006.

The court of appeals affirmed in an opinion authored by Judge Seidl. Put succinctly, “[b]ecause the Ritters did not own the name ‘Bibs Resort’ in 2006, they could not have sold the name to the Farrows as part of the 2006 transaction” (¶ 5). The opinion summarizes state and federal trademark law, including the principle that trademark rights can be transferred among parties like any property right. This extends to implied agreements to transfer ownership. Transfers must include the goodwill connected to the trademark (see ¶ 22).

“First, by converting their resort to a condominium, the Ritters necessarily transferred control of their property – including control of its marketing, advertising, and general renting authority – to the Association” (¶ 25). Until 2006, the Ritters could unilaterally make such decisions on behalf of the association because they were supermajority owners (see ¶ 27). Second, Ms. Ritter “averred” that they did not sell the trademark rights to the Farrows in 2006 because those rights were owned by the association; no evidence in the record contradicted her statement (¶ 28). Third, the Ritters’ decision to name the association “Bibs Resort Condominium” was consistent with the intent to transfer the goodwill attached to the trademark (see ¶ 31).

The court of appeals rejected attacks based on the “sloppiness” of the transaction and confusion as to “singularity of source” (¶ 35). See paragraph 38 for a succinct statement of the holdings.

Torts

Economic Loss Doctrine – Other Property

Secura Ins. v. Super Prods. LLC, 2019 WI App 47 (filed 31 July 2019) (ordered published 28 Aug. 2019)

HOLDING: The economic loss doctrine precluded recovery for damages by a defective product.

SUMMARY: A company purchased an excavator called a Mud Dog from Super Products. The Mud Dog caught fire, causing damage to the Mud Dog and various property stored near the Mud Dog. The purchaser’s insurer, Secura Insurance, paid the claim and sued Super Products. The circuit court agreed with Secura that although damages to the product and clean-up costs are ordinarily subject to the economic loss doctrine, when there is negligence and damage to other property, “the economic loss doctrine permits a negligence claim seeking recovery for both, despite the parties’ contractual remedies” (¶ 9).

The court of appeals reversed in an opinion authored by Chief Judge Neubauer. The opinion discusses the law governing damage to “other property” and the “disappointed expectations” limitation that governs the “other property” exception (¶¶ 16-17). The negligent damage to the Mud Dog was barred by the economic loss doctrine as were the expenses incurred to clean up after the fire.

Secura had “misconstrue[d]” broad statements in the case law in arguing that the “other property” exception “swallows up the economic loss doctrine’s preclusion of tort claims seeking recovery for damage to the product itself” (¶ 21). None of these cases “adopted Secura’s argument that a consequence of physical harm to other property is recovery in tort for the damage to, or loss in value of, the defective product itself” (¶ 30). The law remains “well-established: only recovery for harm to property other than the product itself is available” (id.).