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    2006 Significant Court Decisions

    In his annual feature, the author highlights what he believes are the most significant Wisconsin Supreme Court and Court of Appeals decisions from 2006.

    Daniel W. Hildebrand

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 80, No. 6, June 2007

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    Administrative Law

    The supreme court analyzed, and some justices questioned, the standard of review for questions of law decided by administrative agencies in Racine Harley-Davidson Inc. v. State1 and Hilton v. Department of Natural Resources.2

    • In Racine Harley-Davidson, the court explained the applicability of three alternative levels of deference given to agency interpretations of statutes: 1) great weight deference, 2) due weight deference, and 3) no deference. These levels of deference take into account the comparative institutional qualifications and capabilities of the court and the administrative agency. The levels of deference are in accord with Wis. Stat. section 227.57(10), which provides that when a court reviews an agency's decision, the court shall accord due weight to the experience, technical competence, and specialized knowledge of the agency involved, as well as discretionary authority conferred on the agency. Application of the great weight deference standard depends on whether the agency is charged with the duty of administering the statute, whether the agency's interpretation is one of long standing, and whether the agency employed its expertise or specialized knowledge in forming the interpretation.

     

    Dan 
HildebrandDaniel W. Hildebrand, U.W. 1964, is a shareholder of DeWitt Ross & Stevens S.C., Madison. He is a former president of the Dane County Bar Association and the State Bar of Wisconsin. He is a member of the American Law Institute and the American Academy of Appellate Lawyers and has a substantial appellate practice.

    Due weight deference applies when the agency has some experience in the area but has not developed the expertise that necessarily places it in a better position than the court to make judgments regarding the interpretation of the statute. The agency's interpretation is entitled to no deference when the issue is one of first impression, the agency has no experience in deciding the legal issue presented, or the agency's interpretation has been so inconsistent as to provide no real guidance.

    In Racine Harley­-Davidson, the supreme court held that even if the court applied the due weight deference standard to the decision of the Division of Hearings and Appeals, the court would adopt an interpretation of the statute contrary to that of the division because, the court believed, another interpretation was more reasonable. Justice Prosser, concurring, stated that the majority opinion provides a valuable analysis of the standard of review but he also referred to his concurring opinion in Hilton, which was written with the hope of generating discussion.

    • In Hilton v. Department of Natural Resources, the court held that the Wisconsin Department of Natural Resources' decision to require reduction in the size of a pier was entitled to great weight deference and its factual findings should be evaluated using the substantial evidence test. Justice Prosser's concurring opinion is interesting. He characterized the case as epitomizing the growth of agency power, the decline of judicial power, and the tenuous state of property rights. He argued that the application of the great weight deference standard is sometimes at odds with the role of the supreme court as the state's preeminent law-developing court and is contrary to the fundamental notion that it is the province and duty of the judiciary to decide substantive legal issues and not to avoid deciding them by use of judicially-created avoidance doctrines. Justice Prosser also said that application of the great weight standard results in rubber stamping the agency's decision unless the agency's legal interpretation is plainly wrong, and as a result, many litigants have lost their right to a decision by an independent judiciary. He cited cases showing that judicial deference to administrative decisions is greater than it used to be, in contrast to cases in which the court appeared to reserve the ultimate authority to interpret the law to itself. Justice Prosser argued that agencies lack the same degree of political accountability as elected office holders but often are given substantial latitude to make law and then turn to the courts for enforcement. Broadly worded statutes make it difficult for a court to conclude that an agency's interpretation is erroneous or lacks a rationale basis. Justices Wilcox and Roggensack joined in the concurring opinion.

    Construction Law

    Hoida Inc. v. M&I Midstate Bank3 involved a subcontractor's negligence claims against a bank and a title company for disbursing construction loan funds on a building project gone awry. The bank had agreed with the owner to loan $1,320,000 secured by real estate mortgages. Employees of the general contractor and the owner misappropriated $650,000 of construction funds. The architect's signature was forged on some of the draw requests that the bank paid through the title company.

    Hoida, a subcontractor, alleged that the bank and the title company were negligent, because they allegedly breached a duty of care by failing to perform certain tasks that they were obligated to perform in connection with the construction loan. The supreme court reiterated the four elements of a negligence action: 1) existence of a duty of care on the part of the defendant, 2) breach of that duty, 3) a causal connection between the breach and the plaintiff's injury, and 4) damage resulting from the breach. Even if all elements of a claim are proven, the court may preclude liability based on public policy factors.

    The supreme court held that the bank and the title company did not have a duty of care toward the subcontractor. Hoida had no contractual or other special relationship with the bank and the title company. Here, the business relationship was between the owner of the project, on the one hand, and the bank and the title company, on the other, to make and administer a construction mortgage loan. The bank and the title company fully performed their agreements. Neither could have reasonably foreseen that employees of the general contractor and the owner would act together to forge the architect's signature on payment forms and convert proceeds of the loan to their own use. The court said that even if there were no duty under the circumstances, public policy would preclude liability. The court reasoned that development of a new lender-liability claim by imposing on a lender affirmative obligations that it had not undertaken by contract or voluntarily assumed would result in giving subcontractors priority for payment over construction lenders when a third party acts in a way that could cause loss for both. Such a common law claim would contravene the legislative choice that construction lenders are to be paid first.

    Justice Butler and Justice Bradley dissented. They argued that the majority's limitation of liability based on duty contradicts Wisconsin's historical rejection of the no duty, no liability approach. The no duty approach to limiting liability is plainly incorrect under Wisconsin law. Also, public policy analysis should not be undertaken until after a case is submitted to the jury.

    Arbitration

    Borst v. Allstate Insurance Co.4 is an important case involving "presumed impartiality" among all arbitrators. Agreements to arbitrate commonly allow each party to appoint one arbitrator, and the two arbitrators then agree to appoint a third arbitrator. The court adopted a presumption of impartiality among all arbitrators, whether the arbitrators are named by the parties or not. This presumption may be rebutted, and an arbitrator may act as a nonneutral when the parties contract for nonneutral arbitrators or the arbitration rules otherwise provide for nonneutral arbitrators.

    In this case, Allstate's named arbitrator served as Allstate's attorney on an on-going basis. The supreme court said that evident partiality cannot be avoided simply by a full disclosure and a declaration of impartiality. The relationship between Allstate and its attorney demonstrated evident partiality such that the arbitration award must be vacated.

    The court also held that a party may challenge an arbitrator before the arbitration, or cause an arbitration award to be vacated under Wis. Stat. section 788.10(1)(b), when a reasonable person would have serious doubts about the arbitrator's impartiality. The attorney's disclosure of the relationship did not cure the evident partiality. Under the agreement to arbitrate and the presumption of neutrality, the parties had agreed that the entire panel was to be neutral. After reviewing conflicting authority from other states, the supreme court held that circuit courts have the authority to remove a nonneutral arbitrator before the arbitration. The court also held that arbitrators should continue to disclose relevant relationships. A failure to object to the selection of an arbitrator based on information disclosed before the arbitration may act as a forfeiture of any subsequent post-arbitration challenge based on the disclosed information.

    Torts

    • In Burbank Grease Services LLC v. Sokolowski,5 the supreme court held that the Uniform Trade Secret Act (UTSA), Wis. Stat. section 134.90, preempts common law claims involving misuse of confidential information only for information that fits within the statutory definition of trade secret. The defendant was a territory manager for the plaintiff, which was engaged in the business of collecting and processing grease. The plaintiff distributed a code of conduct in regard to confidential information that required all trade managers not to disclose any confidential or privileged information to any person within the company who does not have the need to know or to any outside individual or organization except as required in the ordinary course of business. The defendant left his job with the plaintiff and took with him a customer list containing about 2,000 names, phone numbers, and addresses and spreadsheets showing the amount of grease collected from each customer, market rates, and the amount of collections and revenues per customer for certain drivers. The defendant knew that the plaintiff considered all of this information to be confidential.

    The plaintiff's complaint alleged that the defendant misappropriated trade secrets in violation of Wis. Stat. section 134.90, breached his duty of loyalty, intentionally interfered with the plaintiff's business relationship, and committed computer crimes.

    The supreme court held that Wis. Stat. section 134.90(6)(a) provides that the UTSA displaces conflicting tort law and provides the exclusive remedy for civil claims based on misappropriation of a statutorily defined trade secret. Subsection (b) provides that subsection (a) does not affect any civil remedy not based on misappropriation of a trade secret. Therefore, any civil tort claim not grounded in a trade secret, as defined by the statute, remains available.

    Justice Bradley and Chief Justice Abrahamson dissented. They argued that the court should have followed precedent from other states, given that the UTSA contains a legislative directive that it be construed to further uniform interpretation among the states. The court of appeals determined that if common law claims for unauthorized use of confidential information that did not meet the statutory definition of a trade secret were permitted, the uniformity and clarity that motivated the creation and passage of the UTSA would be undermined. The dissenting justices said that the majority did not endeavor to explain how uniformity could be achieved if trade secret law across jurisdictions would continue to depend on varying common law rules regarding misappropriation of economically valuable secret information.

    Endnotes

    1Racine Harley-Davidson Inc. v. State, 2006 WI 86, 292 Wis. 2d 549, 717 N.W.2d 184.

    2Hilton v. Department of Natural Resources, 2006 WI 84, 293 Wis. 2d 1, 717 N.W.2d 166.

    3 Hoida Inc. v. M&I Midstate Bank, 2006 WI 69, 291 Wis. 2d 283, 717 N.W.2d 17.

    4Borst v. Allstate Ins. Co., 2006 WI 70, 291 Wis. 2d 361, 717 N.W.2d 42.

    5Burbank Grease Servs. LLC v. Sokolowski, 2006 WI 103, 294 Wis. 2d 274, 717 N.W.2d 781.

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