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    Court of Appeals Digest

    This column summarizes selected published opinions of the Wisconsin Court of Appeals. Prof. Daniel D. Blinka and Prof. Thomas J. Hammer invite comments and questions about the digests. They can be reached at the Marquette University Law School, 1103 W. Wisconsin Ave., Milwaukee, WI 53233, (414) 288-7090.
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    Vol. 82, No. 11, November 2009

    Civil Procedure

    Attorney Fees – Bad Faith – Interest

    Stewart v. Farmers Ins. Co., 2009 WI App 130 (filed 25 Aug. 2009) (ordered published 29 Sept. 2009)

    The plaintiffs (the Stewarts) suffered personal and property damage when a Menards truck crashed into their home. They sued Menards and the driver, and they also sued their own homeowner’s insurance carrier, Farmers Insurance, for bad faith based on Farmers’ offer of $800 to settle personal property claims. Through settlement and arbitration the Stewarts resolved all claims except the bad faith claim. Eventually, Farmers made an offer of judgment to the Stewarts “for $5000, plus taxable costs, in exchange for a general release of all claims that they may have against them” (¶ 7). The Stewarts accepted the offer and then filed a notice of taxation and bill of costs for about $46,000, which included actual attorney fees, filing fees, and so on, that covered the claims against Menards and the arbitration. The circuit judge rejected the proffer and awarded only $7,000 in costs and fees.

    The court of appeals affirmed in an opinion authored by Judge Curley. The Stewarts asserted that they were entitled to actual attorney fees based on their settlement of the bad faith claim and also to interest under several statutes. The court of appeals rejected both contentions. The court said that when the Stewarts accepted the $5,000 to settle the bad faith claim, this amount included their attorney fees as compensatory damages under the case law. If they thought the amount inadequate, the Stewarts should have rejected the offer or expressly reserved their rights to litigate their actual attorney fees (see ¶ 15).

    Nor were the Stewarts entitled to interest on the amounts awarded in arbitration based on Wis. Stat. section 628.46 or 814.04(4). “[T]he stipulation the Stewarts entered into with Farmers regarding the arbitration provided that the $57,000 settlement with Menards would be subtracted from the total of the Stewarts’ damages so that Farmers was only responsible for paying the difference between the award and the settlement. [The arbitrator awarded a total of $36,686.50.] Based on the stipulation, because the amount awarded at arbitration was less than the Stewarts’ $57,000 settlement with Menards, Farmers was absolved of any obligation to pay the Stewarts on their property or personal injury claims. Consequently, the Stewarts do not have a valid claim for interest pursuant to Wis. Stat. § 628.46. The fact that the parties ultimately stipulated to a judgment on the bad faith claim does not alter this conclusion” (¶ 22). For the same reason the Stewarts were not entitled to interest under section 814.04(4): “Interest on a zero recovery is zero” (¶ 24).

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    Commercial Law

    Uniform Commercial Code – Unwaivable Provisions

    Kraenzler v. Brace, 2009 WI App 131 (filed 5 Aug. 2009) (ordered published 29 Sept. 2009)

    The Braces loaned money to Kraenzler to fund a business venture involving vintage cars. The loan’s terms were written into a security agreement, which included various penalties. Kraenzler failed to make timely payments, triggering penalties. “These additional penalties resulted in Kraenzler having to pay almost 250% interest on the $14,103.78 six-month loan” (¶ 3). Brace later seized stamping dies that served as collateral and sold them to a third party. After discovering this, Kraenzler sued Brace for violating his rights as a debtor in default under Wis. Stat. section 409.602, which requires a commercially reasonable sale of collateral, among other things. Brace counterclaimed for breach of contract. The circuit court granted summary judgment to Brace, finding that the parties had “varied” Wis. Stat. chapter 409 by the terms of their agreement.

    The court of appeals reversed in an opinion written by Chief Judge Brown. “The issue on appeal centers on a conflict between U.C.C. provisions and the specific terms of the security agreement which provided that the ownership of the collateral, the stamping dies, transferred to Brace upon default” (¶ 10). Brace relied on Wis. Stat. section 401.102(3), which allows parties to “opt out” of Uniform Commercial Code (U.C.C.) provisions by varying the terms of their contract (see ¶ 11). Kraenzler relied on the “exception to the exception” in that same section (“except as otherwise provided in chs. 401 to 411”), contending that Wis. Stat. section 409.602 sets forth unwaivable rights (see ¶ 12).

    Since Wis. Stat. section 401.102(3) is silent as to which U.C.C. provisions “qualify as exceptions to the exception,” the court turned to Wis. Stat. section 409.602, which provides that “[e]xcept as otherwise provided in s. 409.624, to the extent that they give rights to a debtor or obligor and impose duties on a secured party, the debtor or obligor may not waive or vary the rules stated in the following listed sections” (emphasis added). Said the court, “Once again, we are faced with an unambiguous rule. Section 409.602 is clearly an exception to the exception, and provides that Kraenzler cannot waive the rights listed within the statute. These include the right to: (a) require that the secured party may use the collateral only in the manner and extent agreed to by the debtor, subsec. (1); (b) request an accounting from the secured party regarding the collateral and any surplus from the sale of the collateral, subsec. (2); (c) require that the secured party proceed in a commercially reasonable manner when enforcing the obligation against the debtor, subsecs. (3) and (4); (d) application of the proceeds from the collateral to the debtor’s obligation under the loan, subsec. (5); (e) receive timely notice upon disposition of the collateral by the secured party, subsec. (7); (f) a calculation and explanation of the surplus or deficiency on disposition of the collateral, subsecs. (8) and (9); (g) redeem the collateral, subsec. (11); and (h) remedies under Wis. Stat. §§ 409.625 and 409.626 when the secured party fails to comply with ch. 409, subsec. (13). Sec. 409.602(1)–(5), (7)-(9), (11), (13). While the rights listed above can never be waived, the debtor is entitled to waive select rights, but only after the default occurs. Sec. 409.602(12). This includes the right to consent to the acceptance of the collateral, in full, after default. Sec. 409.602(10)” (¶ 14).

    The court found further support for this conclusion in a Wisconsin case (National Operating L.P. v. Mutual Life Ins. Co., 2001 WI 87, 244 Wis. 2d 839, 630 N.W.2d 116), and it distinguished several cases from other jurisdictions.

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    Criminal Law

    Child Pornography – Wis. Stat. section 948.12(1m) – Child Engaged in “Sexually Explicit Conduct”

    State v. Lala, 2009 WI App 137 (filed 5 Aug. 2009) (ordered published 29 Sept. 2009)

    This case concerns Wis. Stat. section 948.12(1m), which prohibits possession of depictions of a child engaged in sexually explicit conduct, defined by Wis. Stat. section
    948.01(7)(e) as actual or simulated “lewd exhibition of intimate parts.” The term intimate parts is further defined by Wis. Stat. section 939.22(19) to mean, among other things, the “vagina or pubic mound of a human being.” At issue in this appeal is what constitutes lewd exhibition and thus sexually explicit conduct within the meaning of Wis. Stat. section 948.12(1m).

    In a decision authored by Judge Neubauer, the court of appeals affirmed a circuit court decision (rendered after a bench trial) that the photographs possessed by the defendant and sent by him as attachments to an email depicted a prepubescent girl engaged in sexually explicit conduct. Although the child in the pictures was partially clothed in a shirt and jean jumper, her legs were positioned in a suggestive manner that exposed her genital area. The defendant argued that nudity is required to establish that the photographs were sexually explicit and that, because the child was wearing nylons, she was not completely unclothed.

    The appellate court concluded that if the girl was wearing nylons at all (a matter of dispute in this case), they certainly did not provide a full opaque covering and they left her intimate parts visible. Said the court, “The child’s legs are positioned in such a sexually suggestive manner as to allow an unnatural and unusual emphasis on the child’s genitalia, rendering the photographs both lewd and sexually explicit. The statute defines possession of child pornography as an offense against children. The harm caused to the psychological, physical, and mental health of a child who is displayed as a sex object with her skirt lifted and genitalia fully visible through nude nylons is as much an offense as if she were fully unclothed. Requiring the latter as a matter of law in order to prove that the conduct is sexually explicit, despite the see-through nature of the alleged nylons, would defy common sense and construe the statute in an unreasonable manner” (¶ 15).

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    Criminal Procedure

    Vehicle Stops – Equipment Violations – Protective Search of Vehicle

    State v. Bailey, 2009 WI App 140 (filed 11 Aug. 2009) (ordered published 29 Sept. 2009)

    A city of Milwaukee motorcycle officer stopped the defendant for operating a vehicle with unlawfully tinted windows. A subsequent search of the vehicle resulted in the recovery of more than 40 grams of cocaine. The defendant challenged the stop and the search, but the circuit court denied the motions. The defendant thereafter entered guilty pleas to a drug charge and a bail-jumping charge and then appealed. In a decision authored by Judge Brennan, the court of appeals affirmed.

    The court first considered whether the stop of the defendant’s vehicle was lawful. The defendant argued that Milwaukee police officers lack authority to stop vehicles for allegedly violating Administrative Code equipment provisions. The appellate court disagreed. Excessive tinting of vehicle windows is prohibited by Wisconsin Administrative Code section Trans 305.32. Milwaukee’s city ordinances incorporate this section of the Wisconsin Administrative Code. Thus, the defendant “was in fact stopped for violating a Milwaukee ordinance that incorporated a Wisconsin Administrative Code provision” (¶ 16). Subsections (a) and (b) of Wis. Stat. section 349.02(2) expressly allow a police officer to stop a vehicle for violation of a statute or ordinance enacted under that chapter. Accordingly, the officer had authority to stop the defendant for the window-tint ordinance violation (see ¶ 18).

    The court also rejected the defendant’s argument that under Wis. Stat. section 110.075, only a Wisconsin State Patrol or Department of Transportation officer may enforce equipment violations. “While it is clear that Wis. Stat. §§ 110.07 and 110.075 authorize the ‘traffic officers’ of the state patrol and DOT to make stops and inspections and perhaps arrests for equipment violations, nothing in these statutes limits local law enforcements officers’ powers to do so. A City of Milwaukee police officer is a ‘traffic officer’ under Wis. Stat. § 340.01(70), and because § 110.075 provides that ‘any traffic officer’ can stop and inspect vehicles for violations of ch. 110 or rules issued pursuant to ch. 110, and because Wis. Stat. § 349.02(2) permits a police officer to enforce a city ordinance violation upon reasonable basis to believe a violation has occurred, [the officer in the present case] had authority for the stop of [the defendant] for an ordinance violation” (¶ 21).

    The court next considered the validity of the search of the defendant’s vehicle during the course of the stop, which, according to the officer’s testimony, occurred in a high-crime area. After the defendant had been pulled over for the window-tint violation, a backup officer saw him kick something under the driver’s seat three to five times. After the defendant had exited the vehicle, the backup officer walked to the front passenger side and saw a white plastic bag, the size of a baseball, under the driver’s seat. The backup officer testified that based on his 11 years of experience, he was not satisfied with the defendant’s explanation that the bag contained “candy”; he thought it was a gun or something hiding a gun. He testified that he had seen this type of scenario 20 to 50 times before and had recovered weapons 10 to 20 of those times. The officer retrieved the bag from the vehicle. It was bigger than he thought and opaque. He felt a larger hard object, about three to five inches wide and three inches high, and thought it was a gun. He reached into the bag and found a scale and some small rocks of cocaine (see ¶¶ 30-31).

    On these facts the court concluded that the officer had reasonable suspicion to justify a protective search of the vehicle (see Michigan v. Long, 463 U.S. 1032 (1983)) (see ¶ 50). “The repeated kicks, unlikely ‘candy’ explanation, the visible opaque plastic bag, and [the backup officer’s] experience with guns in similar situations all established a reasonable basis to believe a protective search was necessary for the officers’ safety” (¶ 40). The court also took particular note of the fact that “[i]n the circumstances present here, [the defendant] would be returning to his vehicle. It was not unreasonable for the officer to make sure that he would not be returning to a vehicle that housed a gun that [the defendant] could then turn on the officers” (¶ 48).

    Lastly, the court concluded that this case was not governed by the recent U.S. Supreme Court decision in Arizona v. Gant, 129 S. Ct. 1710 (2009), which dealt with the search of a vehicle incident to arrest. The search in the present case did not fall into that category (see ¶ 44).

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    Insurance

    Subrogation – Unnecessary Treatment

    Konkel v. Acuity, 2009 WI App 132 (filed 11 Aug. 2009) (ordered published 29 Sept. 2009)

    Konkel was injured in a car accident and later was operated on by a surgeon, Ahuja. The tortfeasor’s insurer, Acuity, contended that the surgery was unnecessary although Konkel herself was satisfied. Acuity brought a third-party complaint against Ahuja claiming it should not have to pay for medically unnecessary procedures. The circuit court granted summary judgment in favor of Ahuja.

    The court of appeals affirmed in an opinion written by Judge Curley. Acuity pursued only a subrogation claim, which the court addressed even though Acuity had not yet paid Konkel (see ¶ 10). At issue were the implications of Hanson v. American Family Mutual Insurance Co., 2006 WI 97, 294 Wis. 2d 149, in which the court held that an alleged tortfeasor must pay for damages related to a plaintiff’s unnecessary surgery provided the plaintiff exercised ordinary care in selecting the surgeon (see ¶ 2). Here the court of appeals concluded that Hanson did not “lend any guidance on the resolution of the issues at hand and, in the absence of such guiding principles, cannot be said to support Acuity’s position” (¶ 15). The court held that “Wis. Stat. ch. 655 extinguished Acuity’s subrogation claim” (¶ 12). Acuity effectively asserted a medical negligence claim against Ahuja, which in turn implicated chapter 655. The court pointedly refused to permit Acuity to “have it both ways”: “it wants to stand in Konkel’s shoes and yet not be bound by the exclusive procedure that would govern any claim against Dr. Ahuja that she could assert” (¶ 19). Under chapter 655 neither Acuity nor the tortfeasor had standing to bring a malpractice claim as a “patient” or a “representative” (¶ 21). Finally, the court of appeals rejected Acuity’s contention that this outcome violated equitable principles, the equal protection right, or public policy.

    Judge Fine concurred in the holding that chapter 655 precluded Acuity’s claim that it was entitled to reimbursement for Konkel’s pain and suffering but disagreed with the conclusion that chapter 655 precluded it from recovering “unreasonable charges billed” by Ahuja (see ¶ 35).

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    Municipal Law

    Extraterritorial Zoning – De Facto Rezoning

    State ex rel. Village of Newburg v. Town of Trenton, 2009 WI App 139 (filed 26 Aug. 2009) (ordered published 29 Sept. 2009)

    This case concerns extraterritorial zoning. By way of introduction the court explained that “[t]he Wisconsin legislature generally requires an incorporated municipality to act within its own territorial boundaries. But our legislature has recognized that a municipality may need to act outside its boundaries to plan for its future expansion and physical development. So the legislature allows a municipality to temporarily enact a moratorium that prohibits unincorporated towns from changing the zoning of land next to the municipality’s boundaries. The moratorium gives the municipality time to work with each unincorporated town affected to prepare and adopt a comprehensive plan on how the land in that unincorporated town should be used. This power is called extraterritorial zoning. See Wis. Stat. § 62.23(7a)” (¶ 1).

    The village of Newburg had an extraterritorial zoning moratorium in place that prohibited zoning changes on land within one and one-half miles of its boundaries for two years. The village brought this declaratory judgment action asserting that the town of Trenton violated the moratorium by approving a development with land uses that the town’s zoning ordinances allegedly prohibit without rezoning. The circuit court agreed with the town’s conclusion that it properly followed its ordinances. Accordingly, it granted summary judgment to the town.

    In a decision authored by Chief Judge Brown, the court of appeals reversed. “This case presents another instance where a Town seeks to escape the confining restrictions integral to the extraterritorial zoning moratorium by aiming to define its action as something other than a zoning change. Here, the Town gave the green light for a commercial building to exist where it is not permitted because [according to the Town] the commercial building was part of an otherwise residential condominium plan, and thus it was a condominium issue and not a zoning issue. But a use is a use. This intended commercial use did not comport with the Town’s zoning restrictions. So we conclude that what the Town did was de facto rezoning. Just because the Town did not formally rezone, this sleight of the hand did not tell the whole story. The legislature put the extraterritorial zoning ordinance in the books for a reason and we cannot allow unincorporated localities to seek an end [run] around the law” (¶ 18).

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    Real Property

    Easements – Transferability

    Borek Cranberry Marsh Inc. v. Jackson County, 2009 WI App 129 (filed 27 Aug. 2009) (ordered published 29 Sept. 2009)

    Borek Cranberry Marsh Inc. filed suit seeking a declaratory judgment recognizing its interest in an easement providing the right to remove sand from adjacent property owned by Jackson County. The issue on appeal was whether the sand-removal right granted by the county to a previous owner of Borek’s land was personal to the previous owner or was transferable to subsequent owners like Borek.

    The deed from Jackson County to a prior owner of the property in question granted a water flowage easement to the prior owner and to the owner’s “heirs and assigns.” It also granted to the prior owner (without the “heirs and assigns” language) a right to remove sand from the county’s adjacent property to be used for the purpose of cranberry culture on the grantee’s land.

    The circuit court granted summary judgment in favor of Jackson County. It held that the right of sand removal was personal to the prior owner and was not transferable to Borek. In a decision authored by Judge Higginbotham, the court of appeals reversed.

    An easement is an interest in land possessed by another. An easement that is not transferable to another is said to be personal to the grantee. In determining whether the easement in this case was transferable or personal, the appellate court looked first to the language of the deed itself (see ¶ 8). “When construing a deed, we presume that all conveyances are transferable. Wis. Stat. § 706.10(3). A conveyance is transferable ‘unless a different intent shall appear expressly or by necessary implication in the terms of such conveyance.’ Id.” (id.).

    In this case the court concluded that the deed lacks an express declaration that the sand removal right is personal to the prior owner. “Thus, for the sand removal right to be personal to [the prior owner], an intent to create a personal right must arise by necessary implication from the words of the deed. We conclude that the deed does not give rise to such a necessary implication” (¶ 12). Accordingly, the deed created a sand removal right that is transferable (see ¶ 14). In reaching this conclusion the court noted that the phrase heirs and assigns is no longer necessary to convey a property interest that is transferable to one’s heirs (see ¶ 13). See Wis. Stat. § 706.10(3).

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    Torts

    Safe Place – Summary Judgment

    Gulbrandsen v. H & D Inc., 2009 WI App 138 (filed 26 Aug. 2009) (ordered published 29 Sept. 2009)

    While walking in a restaurant’s parking lot, Gulbrandsen tripped over a sidewalk crack and was injured. She sued the owner, Sunset, alleging both common law negligence and a safe-place-statute violation. The circuit court granted summary judgment in favor of Sunset, finding that the crack was too minimal for liability to be imposed.

    The court of appeals reversed in an opinion written by Judge Neubauer. The safe-place-statute claim required the plaintiff (Judith) to prove “that (1) there was an unsafe condition associated with the structure, (2) the unsafe condition caused Judith’s injury, and (3) Sunset had either actual or constructive notice of the unsafe condition before Judith’s injury” (¶ 7). The court rejected Sunset’s contention that a “one-half to five-eighths inch change in elevation” is not an unsafe condition as a matter of law (see ¶ 8). Case law establishes no such “height requirement” (¶ 10). The plaintiffs’ summary judgment materials raised an issue of fact as to an unsafe condition as well as constructive notice. Several photos depicted the crack as filled with dirt and debris. Although Sunset denied knowledge of the crack, “the photo reflects that it is readily visible and runs the entire length of the sidewalk” (¶ 15). For similar reasons, the court of appeals held that the circuit court erred in dismissing the common law negligence claim.

    Counterclaim – Statute of Limitation

    Donaldson v. West Bend Mut. Ins. Co., 2009 WI App 134 (filed 4 Aug. 2009) (ordered published 29 Sept. 2009)

    In October 2004, while riding a bike, Berg collided with Donaldson, a pedestrian. Donaldson sued Berg in September 2007; Berg counterclaimed against Donaldson in December 2007. The circuit court dismissed Berg’s counterclaim as untimely because it was filed beyond the three-year statute of limitation in Wis. Stat. section 893.54.

    The court of appeals reversed in an opinion authored by Judge Kessler. First, the court held that section 893.54, the three-year statute of limitation, was indeed applicable to Berg’s counterclaim even though it references only “actions.” To hold otherwise would render superfluous the last two sentences in Wis. Stat. section 893.14, which limits the use of a right of action as a defense or counterclaim. Second, Wis. Stat. section 893.14 tolled the statute of limitation as to Berg’s counterclaim when Donaldson filed her action. Donaldson countered that section 893.14 only tolls a statute of limitation “[u]nless otherwise specifically prescribed by law,” a condition met by section 893.54 (the three-year statute of limitation). In rejecting this argument, the court examined legislative history, case law, and commentary from other jurisdictions concerning counterclaims.

    Defamation – Retaliation – Attorney Fees

    Schaul v. Kordell, 2009 WI App 135 (filed 22 July 2009) (ordered published 29 Sept. 2009)

    An elderly man, HV, was being cared for in a nursing home. HV’s power of attorney was held by Schaul. A former neighbor of HV, Kordell, notified authorities that Schaul had placed HV’s money into Schaul’s children’s accounts. Schaul sued Kordell for defamation. Kordell denied the defamation claim and counterclaimed under Wis. Stat. section 46.90(4)(b), alleging that Schaul had filed a retaliatory claim in violation of the statute that protects reporters of elder abuse. The circuit court granted summary judgment in Kordell’s favor, dismissing Schaul’s defamation claim. The judge also found that Kordell acted in good faith. A trial was held on the counterclaim, which was limited to one issue: attorney fees. The judge awarded Kordell about $43,000 in attorney fees.

    The court of appeals affirmed in part and reversed in part in an opinion written by Judge Neubauer. First, Schaul’s defamation complaint was properly dismissed on summary judgment because he “simply failed” to raise a disputed issue of material fact (see ¶ 11). “[N]ot only did Schaul fail to identify any defamatory statements in his summary judgment submissions, but the statements he did raise were made in the context of Wis. Stat. § 46.90(4)(a)1. and (c), which protect those persons who report elder abuse in good faith. Schaul’s defamation claim therefore failed to satisfy the third element of defamation – that the false statement is made during unprivileged communication” (¶ 13).

    The circuit court erred, however, in granting summary judgment to Kordell on the retaliation counterclaim. “Significantly, neither party had moved for a summary judgment liability determination on Kordell’s retaliation claim under Wis. Stat. § 46.90(4)(b)1.c. The trial court’s memorandum decision narrowing the issue for trial to attorney fees made no finding as to liability for retaliation, presumably reasoning that [a prior] finding of ‘good faith’ was sufficient to establish retaliation. A finding of retaliation must be made before addressing Kordell’s damages” (¶ 16).

    Finally, the circuit court erred by granting attorney fees to Kordell. A retaliation claim under Wis. Stat. section 46.90(4)(b)2.c. “does not fall under an exception to the American rule,” which makes each litigant responsible for his or her own attorney fees (¶ 21). The court distinguished “bad faith” cases that arose under common law, unlike the statutory retaliation claim at issue here. “We further observe that the legislature’s knowledge of this general rule regarding attorney fees is evidenced in another provision of Wis. Stat. § 46.90. Pursuant to §
    46.90(6)(c)3., an individual who incurs damages as a result of a violation of the confidentiality provisions in § 46.90(6) may, in an action to enjoin or compel compliance, ‘seek damages’ and ‘may recover costs and reasonable actual attorney fees as may be incurred in the action, if he or she prevails.’ However, neither provision relating to retaliation, § 46.90(4)(b)2.c. or 46.90(4)(b)1.c., provides for the recovery of attorney fees”
    (¶ 23). The court of appeals noted that the legislature could have enacted a fee-shifting statute but did not (see ¶ 24).

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