Vol. 78, No. 6, June 2005

Court of Appeals Digest

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

Civil Procedure Commercial Law Criminal Procedure

Family Law Insurance Juvenile Law

Civil Procedure

Amended Complaint - "Relate Back" - Statue of Limitation

Dakin v. Marciniak, 2005 WI App 67 (filed 8 March 2005) (ordered published 29 April 2005)

The plaintiff, Dakin, was injured in April 2000 due to the alleged negligence of Pease, who was operating his car in a Copp's Food Center parking lot. Three weeks before the statute of limitation expired in April 2003, Dakin sued Pease and others. On Nov. 24, 2003, Dakin amended the complaint to name Roundy's, the successor in interest to Copp's, on the ground that because Pease was employed by Roundy's at the time of the accident, Roundy's therefore was liable under the doctrine of respondeat superior. Roundy's made a motion to dismiss on the ground that the statute of limitation had expired. The circuit court denied the motion.

The court of appeals, in an opinion authored by Chief Judge Cane, reversed. The court of appeals held that the circuit court erroneously concluded that the amended complaint related back to the original complaint, which had been filed before the statute of limitation expired. "To relate back, an amended pleading must satisfy four conditions. See Wis. Stat. §802.09. First, the new pleading must arise out of the conduct set forth in the original pleading. Second, the party to be added must have received notice so it will not be prejudiced in maintaining its defense. Third, the party to be added must know or should have known that, but for a mistake concerning identity, the action would have been brought against it. Finally, conditions two and three must be fulfilled within the prescribed limitations period" (¶ 6).

This case was distinguishable from others that had permitted claims that related back. "As Dakin indicates, an employer with the requisite amount of control over the conduct of an employee may be held vicariously liable for that employee's negligent actions even when the employer had no actual knowledge of the negligent behavior. But the fact that constructive notice can sometimes create vicarious liability does not mean that such notice is adequate for the purposes of ameliorating the effects of statutes of limitations. In Wisconsin, `[t]he limitation of actions is a right as well as a remedy, extinguishing the right on one side and creating a right on the other ... which enjoys constitutional protection.' Statutes of limitations thus implicate vital interests and are not designed to be easily avoided" (¶ 10). Moreover, such constructive notice "would still have to occur before the statute of limitations expired"(¶ 12).

The court was also unpersuaded that the discovery rule somehow spared the claim against Roundy's. "Dakin argues that she did not know, and could not with reasonable diligence have learned, that Roundy's was also potentially liable as Pease's employer. Dakin admits, however, she knew she was hurt in April 2000. There is also no dispute she knew that Pease, Marciniak, and Langlade were responsible for her injuries. Dakin thus had knowledge both of injury and cause in April 2000" (¶ 16). Nor did Pease's failure to notify Roundy's of the accident change this result: "Dakin simply did nothing that might have produced more information and we conclude that, in this case, doing nothing was not an exercise of reasonable diligence" (¶ 18).

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Commercial Law

Secured Consumer Credit Transactions - Arbitration

Wisconsin Auto Title Loans Inc. v. Jones, 2005 WI App 86 (filed 24 March 2005) (ordered published 29 April 2005)

Acting pursuant to Wis. Stat. section 425.205 (part of the Wisconsin Consumer Act (WCA)), the plaintiff filed a replevin action against the defendant seeking recovery of the defendant's automobile, which secured a loan agreement, promissory note, and security agreement. The defendant answered and counterclaimed, alleging that the plaintiff's loan and collection practices violated his common law contract rights and various WCA provisions. The plaintiff moved to compel arbitration of the issues raised in the counterclaims pursuant to the loan agreement's arbitration clause, the Federal Arbitration Act, and Wis. Stat. section 788.03. The circuit court concluded on the basis of common law contract principles and the WCA that the arbitration provision was unconscionable because it was one-sided and a product of the parties' unequal bargaining power.

In a decision authored by Judge Higginbotham, the court of appeals affirmed. The court first addressed the plaintiff's argument that the Federal Arbitration Act preempts the WCA because the WCA, according to the plaintiff, prohibits arbitration in secured consumer credit transactions. The court of appeals noted that the U.S. Supreme Court has interpreted the Federal Arbitration Act as mandating the enforcement of all arbitration agreements involving commerce, unless the agreement is revocable on contractual grounds (see ¶ 9). Under 9 U.S.C. § 2, "a written provision in any ... contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of said contract. . . shall be valid, irrevocable, and unenforceable, save upon grounds as exist at law or in equity for the revocation of any contract."

Accordingly, in determining whether the parties have made a valid arbitration agreement, state law may be applied if that state law governs issues concerning the validity, revocability, and enforceability of contracts generally; the Federal Arbitration Act preempts "state laws applicable only to arbitration provisions." See Doctor's Assocs. Inc. v. Casarotto, 517 U.S. 681, 687 (1996). Thus, "the usual defenses to a contract such as fraud, unconscionability, duress and lack of consideration may be applied to invalidate an arbitration agreement, so long as the law under which the provision is invalidated is not applicable solely to arbitration agreements. Where an arbitration agreement is found to be unconscionable pursuant to general state law principles, then it may be invalidated without offending the Federal Arbitration Act" (¶ 10) (citations omitted).

The appellate court then considered (and quoted at length) the arbitration clause in the loan agreement in this case. The court ultimately concluded that the clause was both procedurally and substantively unconscionable.

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Criminal Procedure

Sentence Modification – Defendant's Substantial Assistance to Law Enforcement After Sentencing

State v. Doe, 2005 WI App 68 (filed 22 March 2005) (ordered published 29 April 2005)

The critical question before the court of appeals in this case was whether a defendant's substantial and important assistance to law enforcement after sentencing may constitute a new factor that the trial court can take into consideration when deciding whether modification of the sentence is warranted. The circuit court ruled that such assistance did not constitute a new factor permitting sentence modification because, according to the court, "a new factor must be something which existed at the time of sentencing but [was] not known to the trial court" (¶ 4). In a decision authored by Judge Curley, the court of appeals reversed.

A circuit court has discretion to modify a sentence if a defendant presents a new factor. A "new factor" is a "fact or set of facts highly relevant to the imposition of sentence, but not known to the trial judge at the time of original sentencing, either because it was not then in existence or because, even though it was then in existence, it was unknowingly overlooked by all of the parties" (¶ 5, quoting Rosado v. State, 70 Wis. 2d 280, 288, 234 N.W.2d 69 (1975)). Rosado thus clearly provides that a new factor may be something that comes into existence after sentencing has taken place.

The court of appeals noted that "[r]emarkably, there are no published cases in Wisconsin touching on whether post-sentencing substantial assistance to law enforcement is a new factor" (¶ 8). It concluded that "sentence modification should be available to those already sentenced who possess and can provide valuable information to law enforcement to assist in ferreting out and curtailing crime" (¶ 10) and that a rule permitting the trial court, in appropriate cases, to modify a sentence after substantial assistance has been given to authorities would promote sound public policy. Permitting trial courts to modify sentences for this reason would also address some of the concerns about sentencing discretion that have been expressed by the Wisconsin Supreme Court in light of Wisconsin's migration to a truth-in-sentencing system.

The court of appeals looked to the federal sentencing guidelines, which allow sentence reductions for substantial assistance given to authorities before sentencing, and found that the considerations enumerated therein are helpful in determining whether post-sentencing assistance constitutes a new factor for purposes of sentence modification as well. U.S. Sentencing Guidelines Manual § 5K1.1 provides that the appropriate sentence reduction shall be determined by the court for reasons that may include, but are not limited to, consideration of the following: 1) the court's evaluation of the significance and usefulness of the defendant's assistance, taking into consideration the government's evaluation of the assistance rendered; 2) the truthfulness, completeness, and reliability of any information or testimony provided by the defendant; 3) the nature and extent of the defendant's assistance; 4) any injury suffered by or any danger or risk of injury to the defendant or his or her family resulting from his or her assistance; and 5) the timeliness of the defendant's assistance (see ¶ 9).

The court of appeals adopted these factors from the federal sentencing guidelines for use in assessing whether post-sentencing assistance constitutes a new factor for sentence modification purposes.

Restitution Determinations Made Outside Statutory Time Limits - Standards for Reviewing Lawfulness of Such Orders

State v. Ziegler, 2005 WI App 69 (filed 30 March 2005) (ordered published 29 April 2005)

The defendant was convicted in 1989 of being a party to an arson. The trial court imposed and stayed a prison sentence and imposed a term of eight years' probation to be served consecutive to a prison sentence in another case. The court ordered restitution as a condition of probation in an amount "to be determined."

More than nine years later, in February 1999, the Department of Corrections filed a request for restitution determination. The circuit court amended the judgment to require the defendant to pay the victim restitution of more than $100,000. In 2000 the defendant filed a motion to vacate the portion of the amended judgment ordering restitution; the court granted the motion. However, in July 2003, when the defendant was about to be released from prison, the state requested that the circuit court conduct additional restitution hearings. The court did so and, despite a dispute about the amount of the victim's loss, set restitution at $95,000 and amended the judgment of conviction to reflect that amount.

In a decision authored by Judge Anderson, the court of appeals reversed. Wis. Stat. section 973.20 requires courts to order full or partial restitution to any victim of a crime unless the court finds substantial reason not to do so and states the reason on the record. A sentence that fails to provide for restitution is unlawful and subject to amendment. When, as in this case, a trial court orders restitution but does not determine the amount of restitution at sentencing, the court may use one of four alternative procedures set forth in section 973.20(13)(c) to finalize the amount due. Each of the options includes a time frame for finalizing the restitution order. In this case the parties agreed that the trial court failed to comply with any of the four alternative procedures and that restitution was not established during the period provided for in the statute.

In State v. Perry, 181 Wis.2d 43, 510 N.W.2d 722 (Ct. App. 1993), the court held that the statute establishing restitution determination periods is directory (i.e., not mandatory) and that a court may impose restitution after the statutory deadline has expired as long as 1) valid reasons exist for the delay and 2) the defendant has not been prejudiced by the delay. In this case the court held "that the two-pronged Perry test is akin to a balancing test; in each case the court must balance the length and reasons for the delay against the injury, harm or prejudice to the defendant resulting from the delay" (¶ 18).

Applying this test to the facts before it, the court concluded that there were no demonstrable valid reasons for delaying the restitution determination hearing for 14 years and that such delay inherently prejudiced the defendant. With respect to prejudice, the court noted that, by the time the judge held the restitution hearing, much of the documentation concerning the victim's damages had been lost or destroyed and that the passage of so many years made it far more difficult for the defendant to dispute any of the claimed damages. Further, as time passed, the defendant acquired a legitimate expectation in the finality of the judgment against him: He had served his prison sentence, he was out on parole, and the court had determined in 2000 that it no longer had authority to impose restitution. For these reasons the appellate court vacated the restitution portion of the amended judgment of conviction.

Plea Negotiations - Agreement Silent on Issue of Consecutive versus Concurrent Sentences

State v. Bowers, 2005 WI App 72 (filed 9 March 2005) (ordered published 29 April 2005)

The defendant was charged with operating a motor vehicle while intoxicated (OWI) (sixth offense) and other offenses. The parties struck a plea agreement whereby the defendant would plead no contest to the OWI charge and the other charges would be dismissed. The state agreed to recommend a disposition of two years' initial confinement followed by three years of extended supervision. The agreement was silent as to whether the sentence would be concurrent with or consecutive to another sentence the defendant was serving.

At the sentencing hearing the state recommended that the sentence in the present case run consecutively to the sentence that the defendant was serving in another case. In a post-conviction motion the defendant argued, among other things, that the state breached the plea agreement by recommending a consecutive sentence. The circuit court denied the motion.

In a majority decision authored by Judge Anderson, the court of appeals affirmed. It agreed with the state that the state was free to recommend consecutive sentences, because the plea agreement contained no provision requiring the state to either remain silent on the issue or recommend concurrent sentences. The state honored its commitments as recited in the plea agreement and "should be held only to those promises it actually made to the defendant" (¶ 16). In this case the agreement was silent regarding the issue of concurrent versus consecutive sentences, and the record does not reflect that the defendant bargained for a promise from the state to refrain from asking for consecutive sentences. Therefore, when the state made its recommendation, it did not violate the plea agreement.

Judge Brown filed an opinion concurring in part and dissenting in part. In Judge Brown's view the recommendation for consecutive sentences was a breach of the plea agreement. "If it were up to me, the state would not be able to recommend consecutive terms unless bargained for" (¶ 27).

Family Law

Divorce - Maintenance - Impact of Financial Benefit Derived From Cohabitation With Third Party

Woodard v. Woodard, 2005 WI App 65 (filed 31 March 2005) (ordered published 29 April 2005)

The parties were married in 1994, and the husband filed for divorce in 2003. At trial the parties contested maintenance and child support. With regard to the wife's financial situation, the circuit court heard testimony from her about financial benefits she was receiving from her companion. The wife and her companion, a member of the military, lived together, apparently while the divorce was pending, before he began a tour of duty in Afghanistan. At the time of trial, the companion was still in Afghanistan and his military pay was being deposited into a joint bank account he shared with the wife. She used money from the account to pay rent and other bills. The circuit court disregarded evidence of the benefit the wife received from her companion's income and awarded maintenance to her.

The husband appealed the award of maintenance. The question before the court of appeals was whether the circuit court, in making its maintenance decision, was justified in disregarding evidence of financial benefit the wife was receiving from a recently commenced cohabitation relationship. In a decision authored by Judge Lundsten, the court of appeals reversed.

The court of appeals said that the general rule is that a court should consider the parties' financial circumstances as they exist at the time the court makes or modifies a maintenance award (see ¶ 6). In this case the wife's testimony showed that during at least part of the pendency of the divorce and up to and including the time of trial, she benefited from her companion's income. The circuit court disregarded this benefit because, in the court's view, the relationship was a recently commenced, nonmarital relationship that could terminate at any time. The court of appeals said that the circuit court's reasoning was subject to two interpretations: either the court made a legal conclusion about recently commenced cohabitation relationships in general or it made a factual finding regarding the wife's particular relationship. In either event, said the court of appeals, the circuit court erred.

The court of appeals said that if the circuit court made a legal conclusion about recently commenced cohabitation relationships in general, it erred for two reasons (see ¶ 8). First, the general rule is that maintenance decisions should be based on the parties' financial circumstances at the time the maintenance determination is made and, in this case, the wife was receiving a financial benefit from her cohabitation relationship at the time of the divorce trial (see ¶ 9). (The court of appeals noted that if, on remand, maintenance is ordered at a lower level or held open and the situation with the companion changes, the change may provide a basis for the wife to seek a modification.) Second, a financial benefit flowing from cohabitation is an appro-priate maintenance consideration (see ¶ 10).

If the circuit court's conclusion was based on a factual finding regarding the wife's particular relationship, the appellate court concluded that such a finding was clearly erroneous. The circuit judge's decision might reflect an implicit factual finding that the relationship was likely to end in the near future. The court of appeals said that if this factual finding were supported by evidence in the record, it might be an appropriate basis for exercising discretion to disregard the financial benefit of the relationship if the expected duration was so short that the financial benefit to the wife would be insignificant. The problem in this case was that the record did not support such a finding and the finding was therefore clearly erroneous (see ¶ 12).

Finally, the wife argued that the circuit court could properly disregard any financial benefit she derived from her companion because he was overseas and therefore she was not actually cohabiting with him at the time of trial. "This argument misses the gist of cohabitation cases. Although `cohabitation' is useful shorthand because it is a common situation in which a maintenance recipient obtains an ongoing financial benefit from another person, the real issue in such cases is not the physical presence of the other person, but the ongoing financial benefit, if any, derived from the relationship" (¶ 15).

Insurance

Fuel Oil - "Property Damage" - Pollution Exclusion

State Farm Fire & Casualty Co. v. Acuity, 2005 WI App 77 (filed 15 March 2005) (ordered published 29 April 2005)

While attempting to remove two oil tanks and the oil they contained, an excavator, Krause, caused oil to spill onto property belonging to the Kagens (the homeowners). Krause's insurer, Acuity, filed this declaratory judgment action, the goal of which was to determine if Krause's policy covered this kind of damage. The circuit court ruled that Acuity's business liability policy did not cover the homeowners' claims against Krause.

The court of appeals, in an opinion written by Chief Judge Cane, affirmed. The court agreed with Krause that "loss of use" of the family home, which was not physically damaged, fell within the policy's definition of property damage. Nonetheless, the policy's pollution exclusion precluded coverage. Under the pertinent clauses, "neither bodily injury nor property damage are covered if they `arise[] out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants' at any premises on which the insured is `working directly' when the operation involved is testing, monitoring, cleaning up, removing or otherwise treating or responding to the effects of pollutants. Although the parties disagree whether the pollution exclusion unambiguously excludes smells or odors as pollutants, they agree that fuel oil is a pollutant as defined by the policy. It is also clear that the oil `escaped' or `seeped' or was `discharged' or `dispersed' from the [Kagens'] tanks while Krause was attempting to remove the oil tanks" (¶¶ 11-12).

The court distinguished cases cited by Krause, concluding: "Here, where the pollutant is fuel oil, an unambiguous pollutant, the substance's toxicity and pollutant character would not be separated by a reasonable person from its smell. Similarly, a fuel oil escape that occurs while an insured is attempting to remove tanks containing the oil is not like the ordinary event of the drain backing up or the extraordinary event of an arson fire because it falls squarely within the activities a reasonable person would associate with contamination and pollution" (¶ 17).

Notice of Cancellation - Timeliness

Schmitz v. Balboa, 2005 WI App 76 (filed 9 March 2005) (ordered published 29 April 2005)

Fire Insurance Exchange (FIE) sent notice of cancellation of an insurance policy to the insured on Dec. 4, 2001. The insured's home was destroyed by fire on Dec. 17, 2001. After the insured was informed that he did not have a valid policy with FIE, he filed suit alleging breach of contract and other claims. The circuit court granted summary judgment to FIE, finding that the policy was no longer in effect at the time of the fire. The homeowner appealed.

The court of appeals, in an opinion written by Judge Nettesheim, affirmed. "Wisconsin Stat. §631.36 governs the termination of an insurance policy by an insurer. At issue in this case is subsec. (2)(c), which addresses the midterm cancellation of new policies that have been in effect less than sixty days at the time the notice of cancellation is mailed or delivered. Subsection (2)(c) provides that `[n]o cancellation under this paragraph is effective until at least 10 days after the 1st class mailing or delivery of a written notice to the policyholder.' The purpose of the notice provisions in §631.36 is to protect insureds from unwittingly being left without coverage" (¶ 11).

The court held that section 631.36(2)(c) "clearly contemplates two separate and distinct forms of notifying an insured of cancellation - either by postal mailing or by a form of personal delivery other than mailing" (¶ 3). Schmitz unsuccessfully argued that "his receipt of the mailing is the controlling date from which to measure the statutory ten days" (¶ 13). To accept this construction, however, would mean that "`delivery' equates with receipt of a mailed cancellation notice" and thereby renders the "term `mailing' meaningless" (¶ 16). On this record, FIE established that it had timely informed Schmitz of its cancellation by mail.

Exclusions - "Professional Services"

Eddy v. B.S.T.V. Inc., 2005 WI App 78 (filed 8 March 2005) (ordered published 29 April 2005)

The Eddys purchased a house using the services of Realty Executives. When the Eddys learned that the house was contaminated by mold, they sued Realty Executives. Two insurers asked for a declaratory judgment that, pursuant to a professional services exclusion clause, they owed no coverage to Realty Executives in connection with the Eddys' lawsuit.

The circuit court granted summary judgment in favor of the insurers, and the court of appeals, in an opinion written by Judge Fine, affirmed. "The core of the Eddys' complaint against Realty Executives and Kirchoff is that they sold the Eddys a home that they knew or should have known was infested with mold contamination. Both Realty Executives and Kirchoff are in the home-selling business. They are `real estate agents' as that phrase is used in all the policies. Thus, their sale to the Eddys of the contaminated home was in the course of their `rendering ... professional services" as real estate agents'" (¶ 8).

Nor did the claims that were pleaded somehow remove Realty Executives from the scope of the professional services exclusion by "posit[ing] a duty that extends beyond their rendering professional services as real estate agents" (¶ 9). Case law concededly holds that the term "professional services" does not embrace "all forms of a professional's conduct simply because a person is a professional. ... `there must be a causal relationship between the alleged harm and the complained-of professional act of service.' This case presents the obverse: Realty Executives and Kirchoff are being sued precisely because of what they did or did not do qua real-estate professionals. Accordingly, the policy exclusions apply" (¶ 14).

Juvenile Law

Delinquency Proceedings - Judicial Substitution

State ex. rel. Mateo D.O. v. Winnebago County Circuit Court, 2005 WI App 85 (filed 9 March 2005) (ordered published 29 April 2005)

The underlying action in this case was a juvenile delinquency proceeding under Wis. Stat. section 938.12. The juvenile's attorney filed a timely request for judicial substitution, which the circuit judge denied because the request was signed only by counsel. The juvenile then moved the chief judge of the judicial district to review the denial of the substitution request. The chief judge refused to act on the motion, on the ground that he lacked authority to review a request for substitution in a juvenile matter.

In a decision authored by Judge Brown, the court of appeals concluded that a substitution request in a juvenile proceeding is adequate if it is signed by the juvenile's attorney. Said the court, "When a juvenile chooses to be represented by counsel, he or she delegates the exercise of certain tactical decisions to counsel and a personal affirmation of the exercise of the right to judicial substitution is not necessary" (¶ 14).

The court further concluded that under Wis. Stat. section 801.01(2), the chief judge of the judicial district has authority to review and rule on substitution requests in juvenile proceedings.

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