Vol. 80, No. 9, September 2007
Securities Fraud - Meaning of "Security" - Promissory Note Issued to Single Investor
State v. McGuire, 2007 WI App 139 (filed 2 May 2007) (ordered published 27 June 2007)
This case dealt with the issue of whether a promissory note issued to a sole investor is a "security" within the meaning of Wis. Stat. section 551.02(13). Without revealing pertinent information regarding his financial and criminal history (a bankruptcy and a felony theft conviction), the defendant obtained $140,000 in loans from the victim (with whom he had developed a romantic relationship) to support the defendant's automobile racing venture. He gave the victim a promissory note in that amount promising to repay the money over a period of four years. When the defendant stopped making payments, the victim filed a complaint with the Wisconsin Department of Financial Institutions. Ultimately the defendant was convicted of fraud in connection with the sale of securities, contrary to Wis. Stat. section 551.41(2). From that conviction he took this appeal.
In a majority decision authored by Judge Nettesheim, the court of appeals affirmed. "While this scenario may be at the periphery of what the legislature intended when it enacted Wis. Stat. ch. 551, we hold that it nonetheless falls within that remedial statute's broad scope" (¶ 1). "On its face, Wis. Stat. § 551.02(13)(a) states that a promissory note is a security because `[s]ecurity means any … note.' Id. But this language is not as absolute as it facially appears. In Reves v. Ernst & Young, 494 U.S. 56, 63 (1990), the United States Supreme Court held that the phrase `any note' should not be interpreted to mean literally `any note,' but `must be understood against the backdrop of what Congress was attempting to accomplish in enacting the securities acts.' Reves, 494 U.S. at 63 (addressing the analogous section of the Securities Exchange Act of 1934). In that light, the Supreme Court held that the statutory language establishes a presumption that every note is a security. Id. at 67. However, this presumption may be rebutted by showing that the note falls within or closely resembles the `family' of instruments deemed not to be securities" (¶ 10). "`Family resemblance' is determined by examining four factors: (1) the motivations of a reasonable seller and buyer; (2) the note's `plan of distribution'; (3) the reasonable expectations of the investing public; and (4) whether other risk-reducing factors exist, making unnecessary the application of the securities laws to protect the public"(¶ 11).
Applying these factors the appellate court concluded that the note in question was indeed a security. Significant to its conclusion were the following facts: 1) the defendant's motivation was to raise money for his racing venture and the lender's motive was to make a profit (see ¶ 18), 2) a reasonable investor would have considered the transaction with its higher-than-commercial interest rate to be an investment (see ¶ 20), and 3) there was no evidence that the note was covered by any other regulatory scheme to protect the investor (see ¶ 21). "We conclude that [the defendant's] note qualifies as a `security' within the meaning of Wis. Stat. § 551.02 and thus his conduct qualified for prosecution pursuant to Wis. Stat. § 551.41" (¶ 24). (The court noted that under Reves it had the authority to expand on the list of judicially created nonsecurities but it chose not to do so in this case (see ¶¶ 25-26).)
Judge Snyder filed an opinion concurring in part and dissenting in part.
Top of page
Search and Seizure - Hot Pursuit Into Home to Arrest for Misdemeanor Obstructing Charge
State v. Sanders, 2007 WI App 174 (filed 6 June 2007) (ordered published 25 July 2007)
The defendant argued that police officers violated his Fourth Amendment rights when they pursued him into his residence to arrest him for the misdemeanor offense of obstructing an officer. The obstructing charge was premised on the defendant's conduct when the officers attempted to detain him in the back yard of his home. The defendant disregarded the officers' orders and ran into his residence. The officers followed and took the defendant into custody inside the home. The state argued among other things that the entry was justified under the hot pursuit doctrine. The defendant did not dispute the existence of probable cause for an obstructing charge; his challenge was to the entry of the home.
In a majority decision authored by Judge Anderson, the court of appeals held that "the misdemeanor crime of obstructing an officer will not support a warrantless entry of a home under the hot pursuit doctrine" (¶ 1). "This court has expressed a reluctance to find exigent circumstances when the underlying offense for which there is probable cause to arrest is relatively minor. [State v.] Kryzaniak, 241 Wis. 2d 358, ¶ 21. Our reticence stems from Welsh v. Wisconsin, 466 U.S. 740 (1984), in which the United States Supreme Court recognized that warrantless home invasions can only occur with the most serious of crimes" (¶ 17). "[M]ost courts addressing this issue have disallowed warrantless home arrests for nonfelonious crimes" (¶ 20).
Judge Brown filed a concurring opinion.
Truth-in-Sentencing - Reconfinement Hearings Following Revocation of Extended Supervision - No Authority for Court to Authorize Challenge Incarceration or Extended Release Program Participation at Reconfinement Hearing
State v. Hall, 2007 WI App 168 (filed 26 June 2007) (ordered published 25 July 2007)
The defendant pleaded guilty to a controlled substance felony and was placed on probation for 36 months, with a stayed prison sentence of 60 months, consisting of 24 months of initial confinement and 36 months of extended supervision. The circuit court concluded that he was not eligible for the Challenge Incarceration Program (CIP). The defendant's probation was thereafter revoked and he served his initial period of confinement. After he completed his initial period of confinement, the Department of Corrections released him to extended supervision. As a result of subsequent felonious conduct, the defendant's extended supervision was revoked and he was returned to the circuit court for a reconfinement hearing. The reconfinement court ordered the defendant's return to prison but made no ruling as to whether the defendant would be eligible to participate in the CIP or the Earned Release Program (ERP) while serving his reconfinement term. (These programs, if successfully completed, result in release from prison and transfer to extended supervision.)
The defendant filed a motion to modify the order for reconfinement after revocation of his extended supervision. The reconfinement court denied his motion, concluding that it did not have the statutory authority to make an eligibility determination for either the CIP or the ERP as part of its order for reconfinement. The defendant appealed and the court of appeals, in a decision authored by Judge Wedemeyer, affirmed.
Wis. Stat. section 302.113(9)(am), which governs reconfinement proceedings, makes no mention of the court making a CIP or ERP eligibility determination. This may be contrasted with the language of the statute controlling the original sentencing determination, according to which the court shall decide as part of the exercise of sentencing discretion whether the defendant is eligible for these programs. See Wis. Stat. § 973.01(3g), (3m). Said the court of appeals, "[i]t is only reasonable then to assume that if the legislature wanted the court to revisit the application of CIP and ERP at a reconfinement hearing, it would have expressly provided for that exercise of discretion within § 302.113(9)(am). Thus, it is reasonable to conclude that such specific powers of discretion do not exist" (¶ 14). "From our examination of these statutory provisions, we find no ambiguity in the relevant language and conclude that the provisions of Wis. Stat. §§ 973.01(3g), 973.01(3m) and 302.113(9)(am) express a clear intent to restrict the sentencing discretion of the reconfinement court at a reconfinement hearing; it has no authority to consider eligibility for the CIP or the ERP in a reconfinement hearing" (¶ 17).
Sentencing - Conditions of Extended Supervision - Validity of Order Requiring Contribution to Organization Without Determining Defendant's Ability to Pay
State v. Galvan, 2007 WI App 173 (filed 20 June 2007) (ordered published 25 July 2007)
As part of the defendant's bifurcated sentence for homicide by intoxicated use of a vehicle, the trial court ordered him to pay $4,000 to Mothers Against Drunk Driving (MADD) at the rate of $1,000 during each of the four years of his extended supervision, which will follow a lengthy prison term. The defendant challenged the order by postconviction motion, asserting that the court failed to determine his ability to pay pursuant to Wis. Stat. section 973.06(1)(f)1. This statute governs the taxing of costs, fees, and surcharges, which include contributions to private nonprofit organizations that have as their primary purpose the prevention of crime. It requires that the court make a determination that the person has the financial ability to pay the contribution surcharge. (The same is true when a contribution surcharge is imposed as a condition of probation under Wis. Stat. section 973.09(1x).)
The circuit court denied the defendant's motion, ruling that the contribution was imposed - not as a surcharge under section 973.06(1)(f)1 - but instead as a condition of the defendant's extended supervision pursuant to section 973.01(5) and (8), which do not expressly require an ability-to-pay determination. The defendant appealed and the court of appeals, in a decision authored by Judge Nettesheim, affirmed the circuit court order.
"Wis. Stat. § 973.01(5) does not expressly require a sentencing court to make an ability-to-pay determination when the court orders a contribution payment as a condition of extended supervision" (¶ 5). The statute grants a court "broad, undefined discretion" in imposing conditions of extended supervision as long as the conditions are reasonable and appropriate (¶ 8). The appellate court declined to curtail this discretion by imposing the "ability to pay" requirements of section 973.06(1). "To superimpose the ability-to-pay requirements of Wis. Stat. § 973.06 relating to the taxing of costs, fees and surcharges on the extended supervision provisions of Wis. Stat. § 973.01(5) would obligate a sentencing court to speculate about the defendant's earning potential and property status years hence. The trial court here found it `very significant' that the condition to make the contribution to MADD becomes effective only after Galvan serves his eleven-year prison term because it gave Galvan over a decade to obtain job skills, enhance his education, increase his earning capacity, and address any drug or alcohol problems. The court also noted the possibility that a person could inherit a sum of money in the interim. We endorse these comments" (¶ 15).
The court noted that the defendant is not without a remedy should he find himself actually, rather than hypothetically, unable to fulfill the contribution condition of extended supervision. "Wisconsin Stat. § 302.113(7m)(a) and (e)1. expressly permit an inmate to petition the sentencing court to modify any [extended supervision] conditions it set within a year of the scheduled date of release to extended supervision" (¶ 18).
Ineffective Assistance - Verdicts - NGI Defense
State v. Wery, 2007 WI App 169 (filed 13 June 2007) (ordered published 25 July 2007)
The defendant pleaded not guilty and not guilty by reason of mental disease or defect (NGI) to homicide charges. The jury unanimously convicted her in Phase I. After the jury began deliberations in Phase II, the foreperson informed the judge that one of the jurors now disagreed with the guilty verdict. The defendant contended that her trial counsel was ineffective for not asking the court to order the jury to return to Phase I deliberations, to declare a mistrial, or to question the wavering juror.
The court of appeals, in an opinion written by Judge Anderson, affirmed the circuit court. "Wery's counsel's failure to object did not constitute deficient performance. Deficient performance is limited to situations where the law or duty is clear such that reasonable counsel should know enough to raise the issue…. Wery's counsel was presented with a highly unusual set of facts and was without any case law providing guidance on how to handle postverdict juror dissent in a bifurcated trial. Indeed, the court and the parties acknowledged the absence of controlling law in their discussion of the issue. While it may have been ideal for her counsel to argue that the court should question the juror, order the jury to return to deliberations or declare a mistrial, her counsel was not required to object and argue an unsettled point of law" (¶ 17). Wery also failed to persuade the court "that the traditional rules barring impeachment of a jury verdict in instances of juror remorse do not apply in a bifurcated setting" (¶ 18). Finally, the court refused to exercise its power to grant a discretionary reversal. "Although the jury had difficulty reaching a unanimous guilty verdict, the fact remains that the jury did so and the court formally accepted it. It was not until after hearing evidence in Phase II concerning Wery's alleged mental illnesses, history as a victim of domestic abuse and childhood issues that the juror vocalized her dissent from the final verdict" (¶ 23).
Top of page
Riders - Unconscionable
Aul v. Golden Rule Ins. Co., 2007 WI App 165 (filed 13 June 2007) (ordered published 25 July 2007)
The Auls took out a group health insurance policy with Golden Rule that included a rider excluding coverage for losses the wife might incur because of any breast disease or disorder. The Auls "reluctantly acquiesced" to the rider, which Golden Rule demanded because the wife was being medically followed for a breast cyst at that time. Several years later she developed breast cancer and Golden Rule promptly denied coverage because of the rider. The circuit court ruled that the rider was valid; it did not involve a preexisting condition and was not unconscionable.
In a majority decision authored by Judge Nettesheim, the court of appeals affirmed. First, it rejected the Auls' breach of contract claim. "We think it clear that the Auls fully apprehended the rider's scope. Their completed application constituted an offer for insurance to Golden Rule. Golden Rule did not outright reject it, but counteroffered with the ridered policy. The rider does not mention cysts but instead unambiguously states that by its attachment the parties understood and agreed that it amended the policy to exclude coverage for any loss resulting from any breast disease or disorder. The Auls objected to the rider even before receiving their certificate of insurance, and knew that it applied for some indefinite period, perhaps for life. The parties negotiated personally and through third parties. After weighing their options, including the possibility of a review in six months, the Auls accepted Golden Rule's counteroffer and began paying premiums" (¶ 19). A federal case presented a similar outcome. "The Auls knew about the comprehensive rider even before receiving the certificate of insurance. They knew it was for some indefinite period, perhaps for life. They knew they could pursue its removal, but were not guaranteed of that outcome. They knew they did not have to accept it and informed Golden Rule that they would have to weigh whether or not to take the policy in view of the rider" (¶ 22).
The majority also rejected the contention that the rider was unconscionable. "The Auls understandably were torn between attractively priced health care and accepting a broad rider. With the lower-cost insurance, the Auls gambled that they would not need the disqualified coverage. An insurer collects premiums in a gamble that its insureds will remain healthy. To void the rider because the Auls tragically lost their gamble makes no sense. Under the dissent's view of the law, an insurer which reasonably investigates a suspect health condition and then reasonably includes a rider it believes necessary under its underwriting criteria is nonetheless held to provide coverage simply because another prospective insurer might raise the same question. That turns standard insurance industry practice on its head" (¶ 34). Lastly, the court rejected the Auls' arguments sounding in bad faith.
Judge Anderson dissented on the ground that the rider was unconscionable because the Auls lacked a "meaningful, alternate source of health insurance" when they agreed to the rider.
Top of page
Easements - Deeds
Smiljanic v. Niedermeyer, 2007 WI App 182 (filed 7 June 2007) (ordered published 25 July 2007)
"This appeal concerns a dispute over the effect of a recorded affidavit of the sellers' broker that averred the sellers had intended to convey an easement not reflected in the recorded deed. The circuit court concluded that the affidavit, recorded in 1955, was not a valid means of conveying the easement or correcting the deed" (¶ 1).
The court of appeals affirmed in an opinion authored by Judge Vergeront. "[T]here was and is no statutory authority for accomplishing a correction of the description of the property conveyed by the deed by simply recording the broker's affidavit and that Wis. Stat. § 847.07 and its predecessor establish the proper procedure for seeking the correction. We also conclude that Wis. Stat. § 706.09(1)(i) does not make the affidavit a valid means of either conveying the easement or correcting the deed. Finally, for the reasons we explain below, we reject Smiljanic's argument that the court was obligated to grant him relief under § 847.07"(¶ 2).
Top of page
Derivative Claim - Unborn Child
Brusa v. Mercy Health Sys. Inc., 2007 WI App 166 (filed 6 June 2007) (ordered published 25 July 2007)
Brusa died of cancer four months after his child, Joseph (the plaintiff) was born. The circuit court granted summary judgment in favor of the defendants, who were sued for negligently failing to diagnose the father's cancer.
The court of appeals, in an opinion written by Judge Snyder, reversed because the record revealed a disputed issue of material fact. "The crux of the dispute is the right of a child to pursue a derivative medical malpractice claim for the death of the parent. The right to bring a derivative claim for medical malpractice is determined by the claimant's status at the time of the victim's injury…. Whether Joseph can maintain his claim depends on his status, more specifically whether he was conceived, at the time of Brusa's alleged injury" (¶ 8). Brusa's date of injury was not proved in the record. "An injurious change may have occurred shortly after Brusa first consulted with Dr. Fasano, it may have occurred four weeks later when Brusa was to have had a colonoscopy, it may have occurred at some later date, or it may be that Brusa's cancer was untreatable even before he first consulted Dr. Fasano. Even if we accept Dr. Fasano's concession of negligence, which was offered only for the sake of argument on appeal, this question remains: When did Dr. Fasano's misdiagnosis cause Brusa `greater harm' than existed on December 27, 2002? Where a genuine issue of material fact exists, summary judgment should not be granted" (¶ 14).
Top of page