Vol. 84, No. 11, November 2011
Each year, the U.S. Court of Appeals for the Seventh Circuit and Wisconsin’s two U.S. district courts issue decisions interpreting Wisconsin common law and Wisconsin statutes, in most cases under federal diversity jurisdiction. Although federal court interpretations of Wisconsin law are only of persuasive value to, and not binding on, Wisconsin state courts, these interpretations do affect how Wisconsin law develops and is argued, including in cases pending in Wisconsin state circuit and appellate courts.
This article reviews eight significant 2010 and 2011 Wisconsin federal court decisions interpreting Wisconsin law. These decisions encompass Wisconsin common law claims and interpretations of Wisconsin statutes.
Wisconsin Contract Law
• Economic Loss Doctrine. In Schreiber Foods Inc. v. Wang,1 the Seventh Circuit interpreted two exceptions to the economic loss doctrine that are recognized in Wisconsin, one for fraud in the inducement and the other for contracts for provision of services.
A seller of dairy products alleged that a buyer had fraudulently represented that a third party had agreed to buy the seller’s product. The district court ruled that even if the seller had been defrauded, the economic loss doctrine barred the seller’s lawsuit. The Seventh Circuit recognized that under Wisconsin’s very narrow “fraud in the inducement” exception to the economic loss rule, the fraud must be “extraneous” to the contract, rather than “interwoven” with it, to be actionable as a tort.2 The distinction is whether the fraud is of a type that “would [be] expect[ed] … to be dealt with in the contract.”3 The court of appeals ruled that the seller had failed to take steps to protect itself against the risk of nonpayment, which “was so salient a risk that one would expect it to have been dealt with in the contract.”4
The seller also attempted to invoke the exception that the economic loss doctrine in Wisconsin applies only to the sale of goods and not to the sale of services. Citing the Wisconsin Supreme Court’s interpretation that this exception applies only if the contract is predominantly one for services,5 both the district court and the appeals court in Schreiber Foods concluded that this was a contract for the sale of goods, with any provision of services incidental to the transaction. Because imposing tort liability would not “correct an unjustifiable information asymmetry,” the economic loss doctrine did apply in these circumstances.6
• Wisconsin Quasi-Contractual Remedies. A medical instrument manufacturer fired a commissioned salesman who did not reach his sales quota. The salesman sued the manufacturer for unpaid wages under Wisconsin’s wage-claim statute7 and also asserted equitable claims of quantum meruit and unjust enrichment. The manufacturer removed the case to federal court and moved for summary judgment, arguing that equitable contract remedies were not available because the salesman had an express contract governing compensation. The salesman withdrew the statutory wage claim, and the presiding magistrate judge granted summary judgment to the manufacturer on the equitable-contract claims.
On appeal, the Seventh Circuit in Carroll v. Stryker Corp. agreed with the magistrate judge that the salesman could not invoke the quasi-contractual theories of quantum meruit and unjust enrichment because the parties had an enforceable written contract for the payment of commissions.8 Relying on its 2009 decision in Lindquist Ford Inc. v. Middleton Motors Inc.,9 the court of appeals concluded that although the salesman was an at-will employee, his compensation was the subject of an express contract to which the parties had agreed to be bound. Once the salesman began working for the manufacturer and the manufacturer began paying the salesman pursuant to the compensation plan, he was precluded from recovery under Wisconsin’s common law quasi-contractual doctrines.10
Wisconsin Tort Law
• Risk Contribution Theory of Liability. In June 2010, Judge Rudolph T. Randa of the U.S. District Court for the Eastern District of Wisconsin ruled in Gibson v. American Cyanamid Co.11 that tort liability under the risk contribution theory, recognized by the Wisconsin Supreme Court in 2005 in Thomas v. Mallet12 and applied in that case to lead-paint-pigment manufacturers, breaches the constitutional bar on retroactive liability and thus violates substantive due process.
In April 2011, Judge Lynn Adelman of the same court reached the opposite conclusion in Burton v. American Cyanamid Co.13 In Burton, a minor brought an action in state court alleging negligence and strict liability against manufacturers of lead-carbonate pigment and seeking damages for injuries he allegedly incurred when he ingested the pigment, a component of paint that coated the walls of his home. The manufacturers removed the case to federal court under diversity jurisdiction and moved for summary judgment, contending that to allow the plaintiff to use the risk contribution theory to prove his case would violate their constitutional rights.14
Judge Adelman found nothing arbitrary or irrational about the risk contribution theory or its application to a lead-pigment claim and thus concluded that due process had not been violated.15 He defended the Thomas decision, finding that to the extent it modifies the traditional burden of proof, it is not unique.16 He also concluded that the risk contribution theory does not impose retroactive liability or render innocent conduct tortious, but that it modifies the manner in which a plaintiff may prove his or her case.17
Judge Adelman determined that even if the U.S. Supreme Court’s decision in Eastern Enterprises v. Apfel18 was binding precedent, as Judge Randa had concluded in Gibson, it would not govern Burton,19 because in Apfel a majority of the U.S. Supreme Court concluded that the company had not played a part in causing the problem that the legislation was attempting to solve, whereas in Thomas a majority of the Wisconsin Supreme Court concluded that the lead-pigment manufacturers were the principal cause of the problem.20
The Gibson case is on appeal to the Seventh Circuit,21 and the Burton case has been stayed pending the outcome of that appeal.22
• “Actual Innocence” and Tort Liability. The attorney for a criminal defendant charged with operating a motor vehicle while intoxicated exchanged emails and had telephone conversations with a Colorado doctor who the attorney wanted to retain as a toxicology expert witness. The doctor completed his blood testing the day before the criminal trial started, too late for him to appear and testify. The court denied a motion to adjourn the trial, the defense did not present any toxicology evidence, and the defendant, Alswager, was convicted. Alswager then sued the doctor in tort and contract for the allegedly tardy work and brought the case in federal court under diversity jurisdiction.23
In Alswager v. Rocky Mountain Instrumental Laboratories Inc., the district court declined to extend Wisconsin’s “actual innocence” rule – which requires a criminal defendant to prove actual innocence before pursuing a legal malpractice claim against his or her defense attorney – to a vendor like the doctor expert witness, limiting that rule to the context of legal malpractice. The district court stated that it “is not the role of this court to create new Wisconsin common law, but rather to predict how the Wisconsin Supreme Court would decide the matter.”24 The district court also interpreted Wisconsin law on tort liability with regard to negligent performance of contract obligations and concluded that the doctor had demonstrated he did not owe Alswager a duty outside of their oral contract.25
Wisconsin Statutory Interpretation
• Wisconsin Consumer Act. In Parent v. Citibank (South Dakota) N.A., a married couple sued Citibank and Home Depot in federal court under diversity jurisdiction alleging violations of the Wisconsin Consumer Act (WCA)26 in their credit card billings.27 The couple had formed a limited liability company that constructed log cabins. A customer bought a log cabin kit on speculation and asked the couple to construct it. A dispute then arose between the customer and the couple, and at the customer’s request, the credit card company transferred two balances to the couple’s accounts as “misapplied sales.”
The parties disagreed as to whether the transactions that resulted in the misapplied sales were consumer or business transactions. The WCA applies to “consumer transactions” and “consumer credit transactions”28 but not to business transactions.29
Interpreting the statutory language of the WCA and applying its provisions to these facts, the Eastern District court concluded that the disaffected customer was not a party to the original transaction, which consisted of the couple acquiring credit. The couple applied for a credit card intended for personal use and issued in their personal names, which was a consumer transaction. The purpose of the misapplied sales – either business or personal – was not important to that statutory analysis. That the specific charge at issue may have had a nonpersonal purpose did not matter because the couple was not a party to that transaction. But the couple was a party to the transaction that occurred when the defendants transferred the misapplied sales charge to their account without their consent. Accordingly, these WCA claims survived a motion to dismiss.
That same analysis precluded the couple’s claim that the defendants violated a different Wisconsin statute that prevents sellers from billing consumers for goods that the consumer did not authorize.30 Because that statute applies to “consumer goods or services,” and the charge here – a business investment by the disaffected customer – was not related to a personal, family, or household purpose, the court dismissed that claim.31
• Wisconsin Statutory Misrepresentation. The Eastern District court interpreted the Wisconsin Deceptive Trade Practices Act in another diversity jurisdiction case.32 Wisconsin Statute section 100.18 makes actionable a representation to the public with the intent to induce an obligation when the representation is untrue, deceptive, or misleading and caused the plaintiff a pecuniary loss.33
A developer of ceiling and wall insulation systems for large nonresidential metal buildings sued a publisher of manuals that provide technical information such as energy efficiency standards and guidelines. The developer alleged that the publisher placed before the public an inaccurate, incomplete, deceptive, and misleading standard that did not include certain factors and values, which resulted in the developer losing sales and market share.34
While the developer argued that Wis. Stat. section 100.18 could encompass a statement or representation relating to the use of “anything,” the Eastern District court, in a decision written by Magistrate Judge William Callahan, interpreted the statute more narrowly, and literally, as having to relate to the purchase, sale, hire, use, or lease of real estate, merchandise, securities, service, or employment or to the terms or conditions thereof. The court concluded that the developer had not provided any link between what the statute listed as commercial transactions and the allegedly false statements in the energy efficiency guidelines.35
The district court also cited several recent decisions by the Western District court holding that Wis. Stat. section 100.18 does not provide a cause of action for alleged misrepresentations made to nonparties, including a decision in which the Western District held that one competitor could not sue another competitor under section 100.18 for such alleged misrepresentations.36
• Wisconsin Statutory Misappropriation. A woman named Beverly Stayart searched her own name on the Internet search engines Yahoo! and Google. The searches returned the phrase “bev stayart levitra.” Unhappy with her name being associated with an erectile dysfunction medication, she sued Yahoo! twice and Google once, claiming those companies wrongfully used her name for advertising purposes.
The Eastern District found that Stayart lacked standing to sue Yahoo! for trademark infringement under the Lanham Act because she had no commercial interest in her own name, and the Seventh Circuit affirmed.37
Stayart then sued Google, under diversity jurisdiction, alleging that her name was used for purposes of advertising or trade38 in violation of Wisconsin’s right-of-privacy statute.39 The Eastern District court found Stayart’s allegations insufficient to survive Google’s motion to dismiss. The district court found that she had failed to allege facts suggesting that her name has commercial value or that Google derives any pecuniary benefit as a result of the connection of her name on the Internet with that medication.40 In fact, she alleged no facts that suggested that Google used her name for any purpose whatsoever. Because all that Stayart’s allegations established was that Google enables Internet users to access publicly available materials connected to her name, which is not unlawful, the court granted Google’s motion to dismiss.41
Michael B. Brennan, Northwestern 1989, is a trial and appellate lawyer with Gass Weber Mullins LLC in Milwaukee. He can be reached at email@example.com.
• Wisconsin Fair Dealership Law. A decision by the Girl Scouts of the U.S.A. (the national organization) to merge a local Girl Scout council into a larger regional council resulted in decisions from the Eastern District and the Seventh Circuit interpreting the Wisconsin Fair Dealership Law (WFDL).42
The Girl Scouts of Manitou Council challenged the merger in federal court under diversity jurisdiction, arguing that the council was a “dealer” under the WFDL, and that the national organization violated the WFDL by “substantially changing the competitive circumstances” of their agreement without good cause by changing boundaries.
The national organization responded that good cause existed for the merger – it was more efficient to have 100 such councils than 300 – and that applying the WFDL to the national organization would violate its First Amendment right to freedom of expressive association.
After the Seventh Circuit reversed the district court’s decision to deny a preliminary injunction against the merger, the district court ruled that the national organization had violated the WFDL because it had not met its burden to prove “an objectively ascertainable need for change.” The court also determined, however, that applying the WFDL to prevent the national organization reorganizing would impermissibly burden the national organization’s ability to advocate its viewpoints in violation of its First Amendment associational rights.43
The Seventh Circuit reversed the district court’s ruling. 44
First, the Seventh Circuit found no evidence in the lower court record to support the conclusion that the First Amendment had been violated. The original stated reason for reducing the number of councils was to increase each surviving council’s resources to market Girl Scout cookies, exploit economies of scale, and raise funds more effectively. On appeal, the national organization changed course, emphasizing the goal of increasing racial and ethnic diversity of the Girl Scouts, but the record revealed no evidence to support that argument.45
Second, the court of appeals disagreed with the national organization and again concluded that the merger would violate the WFDL. It declined to read into Wisconsin law an exception to the WFDL for nonprofit enterprises, given the national organization’s originally stated business reasons for decreasing the number of councils.46 The court also noted that while “no crisp test” has emerged from Wisconsin courts’ interpretation of the WFDL statutory requirement that “the need for change sought by a grantor must be objectively ascertainable,”47 the national organization had failed to prove that business reasons necessitated eliminating the Manitou Council, especially because the national organization pitched its “good cause for merger” argument in terms of its expressive activity, which the court previously rejected for lack of evidence.48
1 Schreiber Foods Inc. v. Wang, 651 F.3d 678 (7th Cir. 2011).
2 Id. at 682 (citing, inter alia, Kaloti Enters. Inc. v. Kellogg Sales Co., 2005 WI 111, 283 Wis. 2d 555, 699 N.W.2d 205).
3 Id. at (citing Kaloti, 2005 WI 111, ¶ 45, 283 Wis. 2d 555).
4 Id. at 683.
5 Linden v. Cascade Stone Co., 2005 WI 113, 283 Wis. 2d 606, 699 N.W.2d 189.
6 Schreiber Foods, 651 F.3d at 684.
7 Wis. Stat. § 109.03.
8 Carroll v. Stryker Corp., No. 09-4111, 2011 WL 3890455 (7th Cir. Sept. 6, 2011).
9 Lindquist Ford Inc. v. Middleton Motors Inc., 557 F.2d 469, 476 (7th Cir. 2009), discussed at Michael B. Brennan, Recent Significant Wisconsin Federal Court Decisions, 82 Wis. Law. 17-18 (Sept. 2009).
10 Carroll, 2011 WL 3890455 at *7.
11 Gibson v. American Cyanamid Co., 719 F. Supp. 2d 1031 (E.D. Wis. 2010). Subsequent decisions by Judge Randa in Gibson are found at 2010 WL 3062145 (E.D. Wis. Aug. 2, 2010) (plaintiff’s motion for reconsideration denied), and 750 F. Supp. 2d 998 (E.D. Wis. Nov. 15, 2010) (granting remaining motions for summary judgment and dismissing the case).
12 Thomas v. Mallet, 2005 WI 129, 285 Wis. 2d 236, 701 N.W.2d 523.
13 Burton v. American Cyanamid Co., 775 F. Supp. 2d 1093 (E.D. Wis. 2011).
14 Id. at 1095.
15 Id. at 1096-97.
17 Id. at 1098.
18 Eastern Enters. v. Apfel, 524 U.S. 498 (1998).
19 Burton, 775 F. Supp. 2d at 1099.
21 Gibson v. American Cyanamid Co., Seventh Circuit Case No. 10-3814.
22 Burton, 775 F. Supp. 2d at 1100.
23 Alswager v. Rocky Mountain Instrumental Labs. Inc., No. 09-C-52, 2011 WI 1113371 (E.D. Wis. Mar. 24, 2011).
24 Id. at *4.
25 Id. at *6 (citing Greenburg v. Stewart Title Guar. Co., 171 Wis. 2d 485, 495-96, 492 N.W.2d 147 (1992)).
26 Wis. Stat. chs. 421, 427.
27 Parent v. Citibank (South Dakota) N.A., No. 09-C-951, 2010 WL 2425943 (E.D. Wis. June 11, 2010).
28 Wis. Stat. § 421.201(1).
29 Parent, 2010 WL 2425943 at *3.
30 Wis. Stat. § 100.195.
31 Parent, 2010 WL 2425943 at *8.
32 Thermal Design Inc. v. American Society of Heating, Refrigerating & Air-Conditioning Engineers Inc., 775 F. Supp. 2d 1082 (E.D. Wis. 2011).
33 Wis. Stat. § 100.18(1). See also Brennan, supra note 9, at 19, 70 (discussing meaning of “to the public” as analyzed by the district court in Uniek Inc. v. Dollar General Corp., 474 F. Supp. 2d 1034 (W.D. Wis. 2007)).
34 Thermal Design, 775 F. Supp. 2d at 1084-86.
35 Id. at 1088.
36 Id. at 1089 (citing Riddell Inc. v. Schutt Sports Inc., 724 F. Supp. 2d 963, 980 (W.D. Wis. 2010) (holding that one competitor could not sue another competitor under Wis. Stat. section 100.18 for misrepresentation made to nonparties); Grice Eng’g Inc. v. JG Innovations Inc., 691 F. Supp. 2d 915, 922-23 (W.D. Wis. 2010) (same); Spacesaver Corp. v. Marvel Group Inc., 621 F. Supp. 2d 659, 663-64 (W.D. Wis. 2009)).
37 Stayart v. Yahoo! Inc., 623 F.3d 436 (7th Cir. 2010).
38 Stayart v. Google Inc., No. 10-C-336, 2011 WL 855316 (E.D. Wis. March 8, 2011).
39 Wis. Stat. § 995.50.
40 Stayart v. Google, 2011 WL 855316 at * 2.
41 Id. In Stayart’s second suit against Yahoo!, the Eastern District court dismissed the case because Stayart had failed to satisfy the amount-in-controversy requirement of 28 U.S.C. § 1332. The court later denied Stayart’s motion to reconsider this ruling. See Stayart v. Yahoo! Inc., No. 10C0043, 2011 WL 3625242 (E.D. Wis. Aug. 17, 2011).
42 Girl Scouts of Manitou Council Inc. v. Girl Scouts of the U.S.A., 700 F. Supp. 2d 1055 (E.D. Wis. 2010). See Michael B. Brennan, Top 7 Recent Wisconsin Federal Court Decisions, 83 Wis. Law. 60 (Oct. 2010).
43 Girl Scouts, 700 F. Supp. 2d at 1088.
44 Girl Scouts of Manitou Council Inc. v. Girl Scouts of the U.S.A., 646 F.3d 983, 989 (7th Cir. 2011).
45 Id. at 985-86.
46 Id. at 989 (citing its previous opinion at 549 F.3d at 1092-94).
47 Wis. Stat. § 135.02(4)(a); Ziegler Co. v. Rexnord Inc., 147 Wis. 2d 308, 320, 433 N.W.2d 8 (1988).
48 Girl Scouts, 646 F.3d at 990.