Vol. 77, No. 4, April 2004

Court of Appeals Digest

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

Business Entities Civil Procedure Criminal Procedure Evidence Family Law

Insurance Municipal Law Worker's Compensation Torts

Business Entities

LLCs - Conflict of Interest - Voting Rights

Gottsacker v. Monnier, 2004 WI App 25 (filed 14 Jan. 2004) (ordered published 25 Feb. 2004)

Paul, Julie, and Gregory formed "New Jersey LLC" for the purpose of investing in real estate. The three agreed to operate under the Wisconsin Limited Liability Company Law, Wis. Stat. chapter 183, which recognizes that limited liability companies (LLCs) share some features with corporations but are also different (¶ 11). Gregory later alleged that Paul and Julie "had a material conflict of interest and derived an improper personal profit from the transfer of property," after they voted to transfer property from New Jersey LLC to a new LLC (¶ 12). The trial court agreed that Paul and Julie's conflict of interest barred the transfer.

The court of appeals, in an opinion written by Judge Snyder, affirmed. First, "Paul and Julie did advance their private interests by transferring the property to their new company" (¶ 14). (Both Paul and Julie acquired larger ownership interests as a result of the transfer.) Second, as fiduciaries of New Jersey LLC, Paul and Julie should not have taken a position "antagonistic" to the LLC, yet they did in fact do so. "Their transaction took the sole remaining asset from New Jersey LLC without determining the fair market value and without notice to the sole remaining LLC member, Gregory. Because this transaction pitted Paul and Julie's personal interest against their fiduciary duties to New Jersey LLC, we conclude that a conflict of interest did exist" (¶ 15).

The next issue was whether the conflict precluded Paul and Julie from voting to transfer the property from the old LLC to their new LLC. "Wisconsin Stat. §183.0402 provides the standard to apply when determining who is 'precluded from voting' under Wis. Stat. §183.0404(3). The plain language of this subsection does not prevent a member who has a material conflict of interest from dealing with matters of the LLC. The statute does, however, prohibit that member from dealing unfairly with the LLC or its members. . . . We hold that a member with a conflict of interest must vote his or her ownership interest fairly, considering the interests of the LLC and the relationship with the other members" (¶ 19). The record showed that Gregory, the only LLC member without a conflict, "was unaware of the transfer before it occurred and did not vote on the transfer" (¶20). Moreover, the transferred property was the only property owned by New Jersey LLC.

In short, the facts demonstrated "unfair dealings in two respects." First, it was not an arm's length transaction (¶ 21). Second, the "sale" made it "impracticable for the New Jersey LLC to carry on with its intended business" (¶ 22). "In the absence of either an operating agreement provision on dissolution procedures, a judicial dissolution, or dissociation of a member from the LLC, dissolution requires the written consent of all members. Wis. Stat. §183.0901(2). Paul and Julie's failure to obtain Gregory's consent for the sale of the sole company asset, without which the purpose of New Jersey LLC was compromised, further establishes unfair dealing with the LLC and Gregory, contrary to Wis. Stat. §183.0402(1)(a)" (¶ 23).

Finally, the trial court properly ordered the return of the property to New Jersey LLC. The remedy will not inevitably lead to "deadlock," because "the transaction can be accomplished if fairness is demonstrated through an arm's length transaction" (¶ 26). Nonetheless, Paul and Julie "of course" run the risk that they will be outbid by a third party if the property is placed on the market.

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Civil Procedure

Default Judgment - Late Answer - Excusable Neglect

Williams Corners Investors LLC v. Areawide Cellular LLC, 2004 WI App 27 (filed 14 Jan. 2004) (ordered published 25 Feb. 2004)

Plaintiff Williams Corners Investors filed a complaint alleging that the defendant, Alpha Communications Inc., had breached a lease or leases and had made various misrepresentations. The plaintiff moved for a default judgment after Alpha failed to timely answer the complaint. The trial court granted the motion.

The court of appeals, in an opinion written by Judge Anderson, affirmed. The record demonstrated that the circuit court properly found that excusable neglect had not been established. Alpha admitted that service occurred on October 15, but it offered no explanation for its untimely answer (made on December 4), other than the fact that a knowledgeable assistant missed several days' work because of a family death. "Alpha provides no reason as to why within the forty-five day response period from October 15 to November 29, Alpha neither moved for additional time to plead nor filed the answer or any other responsive pleading. Additionally, Alpha does not tell us why no one was assigned to fill in for the absent assistant normally charged with receiving legal process. From the record, it appears that Alpha's failure to answer in a timely manner amounted to nothing more than carelessness and inattentiveness on the part of the parties involved, and thus does not constitute excusable neglect" (¶ 16).

Nor was the court impressed by the contention that Alpha should have been "granted leniency because it had promptly remedied its tardiness by filing an answer only five days late" (¶ 17). Finally, the trial court did not err by failing to consider "the interests of justice." "The principal case on excusable neglect . . . teaches that: 'If the motion is made after the expiration of the specified time, an order enlarging the time for performing an act must be based on a finding of excusable neglect; when the circuit court determines that there is no excusable neglect, the motion must be denied'" (¶ 19).

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Criminal Procedure

Postconviction Counsel - Motion to Withdraw from Representation

State ex rel. Ford v. Holm, 2004 WI App 22 (filed 29 Jan. 2004) (ordered published 25 Feb. 2004)

This case presented a question that has surfaced with some frequency in motion and writ practice before the court of appeals: Must an attorney appointed to represent an indigent defendant in postconviction proceedings move for court permission to withdraw from representation after the attorney concludes that the defendant has agreed to have the attorney "close the file" without filing a postconviction motion, appeal, or no-merit report? A closely related second question is whether appointed postconviction counsel renders ineffective assistance by failing to obtain court permission to withdraw or otherwise seek a judicial determination that the defendant has knowingly waived either the right to appeal or the right to counsel.

In a decision authored by Judge Deininger, the court of appeals answered both of these questions in the negative. Further, the court concluded that it would be inappropriate for it to require withdrawal motions to be filed in every case such as this, given the supreme court's "express declination" to do so in State ex rel. Flores v. State, 183 Wis. 2d 587, 516 N.W.2d 362 (1994).

The court's lengthy opinion includes a review of postconviction procedures. In that segment the court observed that, "after appointed postconviction counsel has reviewed the transcripts and record, he or she must confer with the defendant regarding the defendant's right to appeal, the potential merit or lack thereof in pursuing either a postconviction motion or appeal, and if applicable, the availability of the 'no-merit option'" (¶ 4).

If appointed counsel concludes that an appeal or a motion for postconviction relief "would be frivolous and without any arguable merit," the defendant must choose from among three options after counsel has explained the section 809.32 no-merit procedure: (1) have the attorney file a no-merit report; (2) have the attorney close the file without an appeal; or (3) have the attorney close the file and proceed without an attorney or with another attorney retained at the defendant's expense. Counsel must also inform the defendant that a no-merit report will be filed if the defendant either requests a no-merit report or does not consent to have the attorney close the file without further representation by the attorney.

In this case the court concluded that the defendant's postconviction counsel did not render ineffective assistance by "closing the file" without first either obtaining court permission to withdraw or seeking a contemporaneous judicial determination that his client had knowingly waived either the right to appeal or the right to counsel.

The court next considered whether the record before it was sufficient to determine whether counsel nonetheless performed deficiently by wrongly concluding that the defendant had knowingly and intelligently waived the right to counsel or the right to an appeal. A knowing and intelligent waiver of postconviction counsel requires a showing that the defendant was aware 1) of the rights discussed in Flores("to an appeal, to the assistance of counsel for the appeal, and to opt for a no-merit report"), 2) of "the dangers and disadvantages of proceeding pro se," and 3) that if appointed counsel withdraws from representation, successor counsel would not be appointed to represent the defendant in postconviction proceedings. See State v. Thornton, 2002 WI App 294. When the waiver of the right to appeal is at issue, a defendant must be shown to have known of that right and of his or her options, and "it must be apparent that the defendant 'either suggested, acquiesced in or concurred in or with the decision'" to forego an appeal, postconviction motion or the no-merit option. Flores, 183 Wis. 2d at 617.

In this case the record was insufficient to permit the appellate court to determine whether the defendant knowingly waived either the right to counsel or to an appeal. Accordingly, it remanded the case to the circuit court for evidentiary proceedings on the question of waiver.

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Evidence

Offer to Take Polygraph Examination - Admissibility

State v. Pfaff, 2004 WI App 31 (filed 28 Jan. 2004) (ordered published 25 Feb. 2004)

The defendant was convicted of homicide by the intoxicated use of a vehicle. Among the issues on appeal was the defendant's claim that the trial judge erred by excluding from evidence his offer to take a polygraph examination.

In a decision authored by Judge Nettesheim, the court of appeals affirmed. It began its analysis by noting that, while a polygraph test is inadmissible in Wisconsin, an offer to take a polygraph test is relevant to an assessment of the offeror's credibility and may be admissible for that purpose. See State v. Hoffman, 106 Wis. 2d 185, 316 N.W.2d 143 (Ct. App. 1982). An offer to take a polygraph is relevant to the state of mind of the person making the offer - so long as that person believes that the test or analysis is possible, accurate, and admissible. A defendant's offer is admissible because it may reflect a consciousness of innocence.

The critical question in this case was whether the defendant's agreement to submit to a polygraph test at the request of his attorney constituted an "offer" to take the test within the meaning of the preceding discussion. The court of appeals concluded that an agreement to submit to a polygraph at the suggestion or request of another is not an offer within the meaning of Hoffman. Said the court, "We see no reason to create an exception to this rule where, as here, the request or suggestion for the polygraph test comes from the defendant's attorney. When the offer to take a polygraph test originates with the defendant and is accompanied by the defendant's belief that the test result or analysis is 'possible, accurate, and admissible,' it is probative as 'consciousness of [the defendant's] innocence.' The converse does not hold when the offer to take the test is the result of an attorney's suggestion or direction. Any competent defense attorney practicing in Wisconsin well knows that polygraph test results are inadmissible in this state, and presumably the attorney would share that knowledge with the client when suggesting the test" (¶ 29) (citations omitted).

Accordingly, the court held that "when the defense attorney plants the seed for the idea of offering to take a polygraph test, the probative value of such an offer as 'consciousness of innocence' is diminished to a level where it no longer assists on the question of guilt or innocence. Instead, it takes the jury into the realm of speculation and likely confusion" (¶ 30). The agreement to submit to a polygraph test at the request of the defendant's attorney was not an "offer" to take a polygraph test within the meaning of the established case law. The trial judge thus committed no error in excluding that evidence.

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Family Law

TPR Proceedings - Release of Juvenile Parent's Juvenile Record to Child's Guardian ad Litem - In Camera Review Required

Courtney F. v. Ramiro M.C., 2004 WI App 36 (filed 21 Jan. 2004) (ordered published 25 Feb. 2004)

This case involved the involuntary termination of the parental rights of a juvenile (Ramiro M.C.) to his alleged child. The issue before the court of appeals was whether the juvenile court erred by releasing Ramiro's juvenile and Department of Health and Human Services records to his child's guardian ad litem (GAL) for use in the termination of parental rights (TPR) proceeding without first conducting an in camera review of those records to determine their relevance.

In a decision authored by Judge Nettesheim, the court of appeals concluded that a request for discovery of a juvenile record pursuant to Wis. Stat. section 48.396(2)(a) or 938.396(2)(a) or a request for inspection of an agency record pursuant to section 48.78(2)(a) or 938.78(2)(a) requires the juvenile court to conduct an in camera review of the juvenile records to determine whether they are relevant to the stated purpose of the discovery or inspection. In this case, the judge had an important gatekeeper role to perform when confronted with the GAL's discovery request. "That role was to determine whether any of Ramiro's juvenile court or agency records were relevant to the GAL's discovery requests in the TPR proceeding" (¶ 24).

Although not an issue in this case, the appellate court also concluded that the juvenile court must furnish notice of such a discovery request to the juvenile and provide an opportunity to be heard.

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Insurance

UIM - "Garage Operations"

Crandall v. Society Ins., 2004 WI App 34 (filed 27 Jan. 2004) (ordered published 25 Feb. 2004)

Crandall owned an auto body shop that was protected by underinsured motorist (UIM) coverage that applied to autos that were "licensed or principally garaged, or 'garage operations' conducted in Wisconsin." His daughter was injured while a passenger in a car driven by her boyfriend. The daughter sought additional coverage under this UIM policy, but the insurer denied the claim. The parties agreed that the accident did not occur in a covered auto nor "while anyone was engaged in garage operations." Rather the Crandalls contended that the UIM coverage attached simply because "Jack's garage operations are located in Wisconsin" (¶ 4). The circuit court granted summary judgment in favor of the insurer.

The court of appeals, in an opinion authored by Judge Peterson, affirmed. The court held "that the policy language is unambiguous and requires that the accident occur while the insured is in the course of garage operations. We find support for our conclusion in the policy's use of the word 'for.' The policy states that the UIM coverage is 'For ... "'garage operations'" conducted in Wisconsin.' Thus, the policy affords coverage when an accident occurs when an insured is participating in garage operations. [The daughter]'s accident did not involve garage operations" (¶ 8). Moreover, the policy covered "Crandall's business, not him as an individual" (¶ 9). Indeed, the Crandalls' argument rendered meaningless the language regarding covered autos. The court rejected a series of arguments that attacked the reasonableness of the insurer's construction of the policy.

Pollution Exclusion - "Bacterial Outbreaks" - Contaminants

Landshire Fast Foods v. Employers Mut. Cas. Co., 2004 WI App 29 (filed 28 Jan. 2004) (ordered published 25 Feb. 2004)

Landshire prepared food for sale to businesses and institutions, including the Navy. When a naval training facility discovered dangerous bacteria in some of Landshire's products, it returned all of the food and refused to accept any additional products. Federal and state agencies also began closely monitoring Landshire's production. Landshire investigated the cause of the outbreak and submitted a "corrective action plan." It also filed a claim for loss of income, loss of product, and other related expenses to its commercial property insurance carrier, Employers Mutual, which denied the claims. In a declaratory judgment action filed by Landshire, the circuit court found that none of its claims were compensable under the policy.

The court of appeals, in an opinion written by Judge Snyder, affirmed. The policy contained a "pollution" exclusion, which defined "pollutants as 'any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste'" (¶ 13). The "dispositive issue" was whether the term "contaminant" was ambiguous (that is, did the term carry more than one reasonable interpretation). The court held "that the term 'contaminants' in Employers' pollution exclusion, when given its plain meaning, incorporates bacteria such as Listeria monocytogenes. [It] decline[d] Landshire's request to apply the rule of ejusdem generis or otherwise rewrite the policy because . . . the language of Employers' insurance policy is unambiguous" (¶ 17). In particular, Landshire's contention that "contaminant" included only "inorganic matter" was itself unreasonable (¶ 16).

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Municipal Law

Repairs of Town Bridges - County's Share of Costs

Town of Grand Chute v. Outagamie County, 2004 WI App 35 (filed 13 Jan. 2004) (ordered published 25 Feb. 2004)

When a town votes to construct or repair a bridge and has raised its portion of the cost, it can file a bridge aid petition seeking funding assistance from the county. The governing statute essentially obligates the county to pay for one-half the cost of constructing or repairing the town's bridge. "The county shall pay the cost in excess of $750 up to $1500. The town and county shall each pay one-half of the cost of construction or repair above $1500. . . ." Wis. Stat. § 81.38(2) (emphasis added).

One issue in this case was whether the terms "cost" and "cost of construction or repair" as used in the statute have different meanings. In a decision authored by Judge Hoover, the court of appeals concluded that the term "cost" is merely shorthand for "cost of construction or repair" and that the statutory use of the word "cost" is not intended to somehow limit the meaning of "cost of construction or repair." In this case the county contended that engineering, permit, and easement acquisition costs are not subject to the statutory sharing arrangement because, in its view, these items are not costs of construction or repair. The appellate court concluded that each of these is a cost required for construction and thus subject to sharing.

The county also argued that all project costs must be listed with specificity in the bridge aid application, and that the county is only required to pay for one-half the amount listed in the petition and has no obligation to pay additional money if the cost of a project exceeds the estimate. The appellate court declined to hold that the town must itemize project costs with perfect precision. It did hold that the county is obligated to pay its half of the cost of construction or repair of a bridge even if the final cost exceeds the amount the town requested in the petition.

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Torts

Medical Malpractice - Monitoring Medication - Statute of Limitation

Wiegert v. Goldberg, 2004 WI App 28 (filed 14 Jan. 2004) (ordered published 25 Feb. 2004)

A patient was prescribed medication. She then experienced various "behavioral problems," which ultimately resulted in her commitment to a medical facility until June 18, 1998. A hospital psychiatrist told her that her bizarre behavior was probably caused by the medication. On June 14, 2001, the patient and her husband sued the prescribing doctor for medical malpractice. The trial court granted the doctor's motion for summary judgment and dismissed the case on the ground that the "last negligent act" occurred on May 12, 1998, the date of the patient's "final visit" to the doctor.

The court of appeals, in an opinion written by Judge Snyder, affirmed. The plaintiffs argued that since the doctor prescribed 90 days' worth of a medication that had dangerous side effects, the doctor's professional responsibility to monitor the patient continued during that time (¶ 11). The court, however, rebuffed the attempt to "recast" the question of duty from one of law to one of fact for a jury. Whether the doctor had a legal duty to monitor the patient on June 18, 1998 presented a question of law (¶ 12).

The court held that the plaintiffs' arguments led to an unreasonable result that was unsupported by case law. "If physicians have a constant and ongoing duty to monitor patients through the end of a prescription drug regimen, how could we determine when a breach has occurred? Must physicians monitor patients weekly? Must they monitor daily? Will a phone call or email message suffice, or must there be an office visit? How will a physician's duty to monitor vary depending upon the drug prescribed? Some prescriptions provide refills for a six-month or one-year term. What is a physician's duty to monitor over a long-term prescription period? We decline the [the plaintiffs'] invitation to impose such vague and undefined duty on physicians" (¶ 20).

Governmental Immunity - State Highways - County Maintenance

Grinnell Mut. Reinsurance Co. v. State Farm Mut. Auto. Ins. Co., 2004 WI App 32 (filed 29 Jan. 2004) (ordered published 25 Feb. 2004)

Beard was injured in an accident that occurred on a state-owned highway, which the county maintained under a contract with the state. Shortly before the accident, a county road crew had applied an "anti-icing agent" to the highway. Beard and her insurer alleged that the county had negligently applied the anti-icing agent and thus had caused the accident. The circuit court refused to grant the county's motion for summary judgment, which asserted
that the county's act was a discretionary one for which it was immune from suit under Wis. Stat. section 893.80(4). The opposing parties contended that Wis. Stat. section 81.15 provided an exception to immunity. The court ruled that there was a "jury question whether
the condition of the highway as a
result of the anti-icing agent was an 'insufficiency' within the meaning of
§ 81.15" (¶ 5).

The court of appeals, in an opinion authored by Judge Vergeront, reversed. "The parties agree[d] there are no factual disputes on the question whether Wis. Stat. § 81.15 applies to a county that maintains the state highway where the accident occurred under a contract with the state" (¶ 8). The primary question was the county's liability in the wake of Morris v. Juneau County, 219 Wis. 2d 543 (1998). The court of appeals "acknowledge[d]" that certain passages in Morris "are ambiguous when read in isolation," but the court said that it was "satisfied that [the passages] do not constitute an implicit decision that a county may be liable under Wis. Stat. § 81.15 even if its obligation to maintain a highway derives from a contract with the state rather than with the municipalities specifically listed in the statute" (¶ 14).

In deciding for itself whether section 81.15 applies to a county under contract with the state to maintain a state highway, the court found its answer in a 1957 case, which held that "a county's agreement with the state to maintain a state highway did not constitute being bound 'by law' within the meaning of Wis. Stat. § 81.15"
(¶ 16). Neither case law nor statutory changes since 1957 undermined this determination. Thus, "because we conclude that Dane County is neither 'by law' nor 'by agreement with any town, city or village' bound to repair State Highway 12, Dane County has immunity under Wis. Stat. § 893.80(4) for the acts alleged in the complaint"
(¶ 23).

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Worker's Compensation

Law Enforcement Officers Responding to Request for Assistance From Another Jurisdiction - Liability of Requesting Jurisdiction

Milwaukee County v. Juneau County, 2004 WI App 23 (filed 22 Jan. 2004) (ordered published 25 Feb. 2004)

Law enforcement officers pursued a murder suspect from Sauk County into Juneau County. Juneau County officers established a command post to coordinate search efforts by law enforcement personnel from multiple jurisdictions. At the request of Juneau County officers, the Sauk County sheriff used his agency to contact Milwaukee County officials and request the use of a helicopter to assist in the search. A helicopter staffed by two Milwaukee County deputies was sent to Juneau County and participated in the search. During its return trip to Milwaukee County, the helicopter crashed, killing both Milwaukee County deputies aboard.

Milwaukee County made worker's compensation payments to the families of the deceased officers and then sought reimbursement from Sauk and Juneau counties. The circuit court concluded that Juneau County, not Sauk County, was required to reimburse Milwaukee County. It also held that Juneau County's worker's compensation insurance policy did not provide coverage.

In a decision authored by Judge Lundsten, the court of appeals affirmed in part and reversed in part. The court concluded that the circuit judge properly dismissed Sauk County from the lawsuit and properly entered judgment in favor of Milwaukee County against Juneau County.

Wis. Stat. section 66.0513 sets forth a worker's compensation scheme for law enforcement personnel who are called upon to perform duties outside of the territorial limits of the municipality where they are regularly employed. Applying this statute, the appellate court concluded that Juneau County was obligated to reimburse Milwaukee County because it was Juneau County that requested the assistance from Milwaukee County, even though that request was relayed through the Sauk County sheriff. The court further concluded that, although the statute speaks in terms of one agency "commanding" the services of another, the term "commanded" encompasses services that are ordered as well as those that are requested.

Finally, on the coverage issue, the court examined whether Juneau County's liability falls within the scope of its worker's compensation policy and held that it did.

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