Vol. 76, No. 5, May 2003

Supreme Court Digest

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

Appellate Procedure/ Prisoner Litigation

Contracts Commercial Law

Appellate Procedure/Prisoner Litigation

Petitions for Review to the Supreme Court - 30-day Time Limit for Filing Petition for Review - Limited Retroactivity of State ex rel. Nichols v. Litscher

State ex rel. Brown v. Bradley, 2003 WI 14 (filed 6 March 2003)

Wis. Stat. section 808.10 provides that a petition for review of a decision of the court of appeals shall be filed in the supreme court within 30 days of the date of the decision of the court of appeals. In State ex rel. Nichols v. Litscher, 2001 WI 119, the supreme court concluded that the 30-day deadline for receipt of a petition for review is tolled on the date that a pro se prisoner delivers a correctly addressed petition to the proper prison authorities for mailing.

The question before the supreme court in this case was whether the tolling rule adopted in Nichols should be applied retroactively. In a majority decision authored by Justice Bradley, the supreme court held that the tolling rule adopted in Nichols is a civil procedural rule with limited retroactive application. "It applies retroactively to cases on direct review or not yet final when Nichols was decided and to pro se prisoners who had raised the issue in habeas petitions that were still pending before this court" (¶ 2).

The supreme court had denied a petition for review in this case before it decided Nichols, and therefore the petitioner is not entitled to relief under the tolling rule. However, the supreme court determined that denying relief to the petitioner would be unjust, because the court denied his habeas corpus petition while nearly simultaneously granting Nichols' petition that raised virtually the same claim.

Justice Sykes filed a dissenting opinion.

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Commercial Law

Banks - Forged Endorsements - Power of Attorney

Schmitz v. Firstar Bank Milwaukee, 2003 WI 21 (filed 25 March 2003)

This case involves a bank's liability for claims of negligence or conversion arising from a situation in which forged checks were deposited in an account and the monies were later withdrawn. In 1992 Schmitz opened an investment account with Georgetown Financial, a company solely owned and mostly operated by O'Hearn. Schmitz also executed two limited powers of attorney (described in more detail below). In 1994 the state revoked O'Hearn's securities license. Unaware of O'Hearn's troubles, Schmitz opened an investment account with Putnam Investments through Georgetown Financial in 1995.

Mutual funds were sold from the Putnam account in 1996 and 1998. On both occasions, Putnam sent checks payable to Schmitz "c/o Georgetown Financial," which O'Hearn deposited in a Firstar Bank account. One check bore no endorsement by Schmitz whatsoever and the other included a "forged" signature. The money disappeared, and O'Hearn was convicted of fraud. Schmitz sued Firstar Bank because it accepted deposit of both improperly endorsed checks that named him as the payee. The circuit court granted summary judgment in favor of Firstar Bank, on the ground that the two 1992 powers of attorney authorized O'Hearn to deposit the checks. The court of appeals affirmed.

The supreme court, in a decision authored by Chief Justice Abrahamson, reversed. "The only issue properly before this court," she wrote, was "whether the two limited powers of attorney authorize Georgetown Financial to endorse the two Putnam checks on behalf of the plaintiff-
payee" (¶7).

After carefully reviewing the language of both 1992 power of attorney documents, the supreme court summarized its conclusion: "In short, the clear implication is that both of these limited powers of attorney grant Georgetown Financial authority over only those insurance policies and other investments (stocks, bonds, CDs, annuities, savings accounts, and other securities) specifically listed on the limited powers of attorney. Since neither limited power of attorney in the record lists a Putnam account, it is equally clear that Georgetown Financial did not have the authority to endorse either of the checks at issue in this case on behalf of the plaintiff-payee" (¶30).

The remaining issues in the lawsuit thus involved Firstar's liability to Schmitz for the converted funds, but the parties' failure to adequately brief or argue these issues precluded the court from deciding them. "While it appears clear that accepting a check when the payee's endorsement is missing is not in accordance with the reasonable commercial standards of banking and that the acceptance by a depository bank of such a check for deposit is commercially unreasonable
as a matter of law, there is far less case law addressing who constitutes the payee when a check is made out to an individual in the care of an investment company" (¶35).

As to the forged endorsement, Schmitz conceded that whether the bank was negligent was a question of fact that precluded summary judgment. (The bank apparently built its defense entirely on the defunct powers of attorney assertion.)

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Contracts

Indemnity Agreements - Settlements

Deminsky v. Arlington Plastics Mach., 2003 WI 15 (filed 6 March 2003)

Deminsky was severely injured while working on a grinding machine owned by his employer, Image Plastics Inc. Deminsky later learned that Image had purchased the machine from Arlington Plastics Machinery Inc., and that the terms of the sale included a provision under which Image agreed to indemnify Arlington. Deminsky later settled his claim against Arlington for about $1.4 million. In turn, Arlington assigned its indemnification rights to Deminsky, who then sued Image.

On motions for summary judgment, the trial court ordered Image to pay Deminsky the full amount of the stipulated judgment entered against Arlington. The court of appeals upheld the validity of the indemnification agreement but reversed on the ground that Image could not be bound by the stipulation between Deminsky and Arlington.

The supreme court, in an opinion written by Justice Wilcox, modified and affirmed the court of appeals' decision. Since the parties agreed as to the terms of the sales contract, the first issue before the court was whether the provision was valid and enforceable (¶16). The court rejected Image's argument that the agreement impermissibly shifted Arlington's nondelegable duty to produce a safe product. "The agreement here expressly obligates Image to indemnify Arlington, even for liability created

by Arlington's own negligence or defects with the machine. Indemnity provisions merely shift the financial burden of potential liability. Arlington did not attempt to substitute Image as the party responsible for producing a safe product" (¶22). Obviously the indemnification agreement would have been worthless to Arlington if Image had been unable to pay damages (¶23).

Nor was the indemnity provision "unconscionable" on the ground that Image lacked notice of its terms. Closely examining the form and its provisions, the court observed that the document consisted of one page, front and back: "This was not an onerous form" (¶29). Image's contention that the provision constituted an impermissible adhesion contract also failed. Image admitted that it bought the machine from Arlington because the seller was "closer and cheaper than others" (¶31).

The second issue was "the extent to which the settlement agreement reached by Deminsky and Arlington may be binding upon Image" (¶33). Since Image had rejected Arlington's tender of defense, Image was not entitled to "a full trial on liability and damages" (¶47). Image was, however, entitled to a limited hearing on the reasonableness of the settlement agreement, because "Image had no opportunity to dispute or approve the settlement agreement reached and was unaware negotiations were even proceeding" (¶47). "Reasonableness" embraces issues such as whether the indemnitee faced any potential liability or whether "the settling parties were involved in fraud or collusion" (¶47). Finally, the court held that issue preclusion was not applicable because the action had not been "actually litigated" (¶49).

Chief Justice Abrahamson concurred, agreeing with both the majority's legal analysis and its remedy, yet also concluding that the circuit court had been provided insufficient guidance for conducting the reasonableness hearing. She especially addressed the higher burden of proof regarding fraud and collusion.

Justices Sykes and Bradley also concurred, but disagreed with the conclusion that the judgment may be enforceable against Image and with the limitations placed on the scope and nature of the reasonableness hearing.

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