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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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    Wisconsin LawyerWisconsin Lawyer
    Vol. 82, No. 12, December 2009

    Commercial Law

    Performance Bond – Warranties

    Milwaukee Bd. of Sch. Directors v. BITEC Inc., 2009 WI App 155 (filed 9 Sept. 2009) (ordered published 28 Oct. 2009)

    A school board contracted with Specialty Associates Inc. (SAI) to replace a roof on a school. The contract required a performance bond, which Atlantic Mutual provided. SAI finished the roof in December 2002 and issued a five-year limited warranty. The school board made its final payment in February 2003. Problems with the roof developed in 2005. The school board sued BITEC, which had supplied the roofing material, and also sued Atlantic Mutual, because SAI had gone bankrupt. The circuit court dismissed Atlantic Mutual on summary judgment, ruling that it was not a party to SAI’s five-year warranty.

    In an opinion written by Judge Curley, the court of appeals reversed the summary judgment ruling and held that Atlantic Mutual was obligated by SAI’s five-year limited warranty. Wisconsin law provides that “a surety’s obligation is derived from its principal and the liability of the surety is measured by the liability of the principal” (¶ 9). The court of appeals said that the performance bond incorporated the underlying construction contract, and that “the bond becomes void when SAI has faithfully performed all of the terms of the contract and has indemnified MBSD for all costs suffered due to any failure on the part of SAI to fully perform the contract” (¶ 10). The court agreed with the school board that under the contract’s language, “Atlantic Mutual’s liability under the bond necessarily encompasses warranty work and other contractual responsibility on the part of SAI with respect to post-
    completion obligations” (¶ 11).

    Moreover, the contract’s “specifications for the project made clear that SAI was required to provide a five-year warranty on its workmanship related to the roofing and a manufacturer’s twelve-year warranty on materials” (¶ 12). “Although Wisconsin case law is limited on the issue before us – a surety’s liability for post-completion guarantees on its principal’s work – case law from outside jurisdictions and treatises are insightful. Our research reveals that where a contractor fails to perform its obligations under the contract in compliance with the contract terms and where the bond is ‘conditioned upon the contractor’s faithful performance of all of its obligations under the contract, a majority of courts have held the performance bond surety liable for latent defects in its principal’s work, whether those defects are discovered before or after the applicable warranty period, if any, has run’” (¶ 14).

    The court also addressed the far-reaching ramifications of its holding, observing that the logical extension of this rule would, for example, make Atlantic Mutual a party to an even longer warranty (12 years) issued by the supplier, BITEC. The court said the parties are free to allocate such risks when working out the contracts’ terms (see ¶ 15). In sum, Atlantic Mutual “agreed to bond SAI’s performance of work that was to be completed ‘well, truly and faithfully,’ which pursuant to the contract terms was to last for five years. This allegedly was not done here. Furthermore, the five-year limited term roof warranty is not a separate contract. It was not signed by MBSD, its terms were not negotiated, and there was no separate consideration for it” (¶ 17).

    Mortgages – Lien Priorities

    Lowell Mgmt. Servs. Inc. v. Geneva Nat’l PQC LLC, 2009 WI App 149 (filed 9 Sept. 2009) (ordered published 28 Oct. 2009)

    This case involved a lien priority dispute between a general contractor (Lowell) and Security Bank, which recorded a mortgage after construction began on a condominium complex. After the investors defaulted, Lowell brought this action to foreclose on its construction lien. Security Bank intervened, claiming priority. The circuit court found that Security Bank’s mortgage had priority over the construction lien.

    The court of appeals affirmed in an opinion authored by Judge Anderson. “Under Wis. Stat. § 779.01(4) (2007-08), a construction lien has priority if visible construction started before a mortgage was recorded” (¶ 2). There is, however, an exception for “[a]ny mortgage executed to a state or national bank or to a state or federally chartered credit union.” Wis. Stat. § 706.11(1)(d). The court rejected Lowell’s contention that the exception was narrowly limited to “a state or national bank” that is “chartered in the State of Wisconsin.” “To hold otherwise would discourage banks chartered in states other than Wisconsin from lending money to investors hoping to invest in Wisconsin projects and likely trigger the cost of capital for Wisconsin projects to rise. We will not read this sort of restriction into the statute” (¶ 8). Finally, the court rebuffed Lowell’s contention that the bank had failed to provide adequate descriptive evidence, as required by Wis. Stat. section 846.10(1); the appeal concerned only priority between the lien holders, and the descriptive statement would be inserted into the judgment later.

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    Criminal Procedure

    Reconfinement Hearings – Recommendation of DOC Not Binding on Prosecutor

    State v. Washington, 2009 WI App 148 (filed 2 Sept. 2009) (ordered published 28 Oct. 2009)

    The Department of Corrections (DOC) initiated the process for revoking the defendant’s extended supervision, which had been imposed as part of a bifurcated sentence. The defendant contended that he waived his final revocation hearing in reliance on an agreement with the DOC regarding a recommended term of reincarceration and that the prosecutor breached the agreement by not following the DOC recommendation at the reconfinement hearing.

    In a decision authored by Judge Snyder, the court of appeals concluded that “[t]o accept [the defendant’s] argument that the prosecutor is bound by a reconfinement recommendation from the DOC, we would have to accept that the district attorney’s office is bound by the internal operating procedures of the DOC. That premise is incorrect…. A DOC recommendation is not binding on the prosecutor at a reconfinement hearing. Consequently, [the defendant’s] argument that he had an agreement with the prosecutor for a specific recommendation fails, and his argument that the prosecutor breached any such agreement must likewise fail” (¶ 10). “When extended supervision is revoked and the DOC submits a recommended term of reincarceration for consideration at the reconfinement hearing, neither the prosecutor nor the circuit court is bound by that recommendation. The State is free to make an independent recommended term of reincarceration” (¶ 19).

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    Insurance

    Intentional Acts – Duty to Defend

    James Cape & Sons Co. v. Streu Constr. Co., 2009 WI App 154 (filed 9 Sept. 2009) (ordered filed 28 Oct. 2009)

    James Cape & Sons Co. (Cape) was a road construction contractor that went bankrupt after it came to light that one of its employees, Beaudoin, had conspired with other contractors to fix bids. Cape sued the other contractors for negligence. This case involved whether Zurich American Insurance Co. had a duty to defend those other contractors. The circuit court ruled that Zurich’s policy provided coverage for the negligent acts of the insureds’ employees. (Editors’ Note: See the court’s related decision in 2009 WI App 144, summarized later in this digest, which addresses the individual tort liability of Beaudoin and his coconspirators.)

    The court of appeals reversed in a decision authored by Judge Snyder. The court held that Cape’s complaint alleged only intentional criminal acts committed by the insureds, which are not covered by Zurich’s policy. “Cape’s four negligence-based causes of action against Streu derive from supervision and retention of the same individuals convicted of the felonious bid-fixing conspiracy. Essentially, Cape alleges that John and Ernest Streu, along with James and Michael Maples, as principals and officers of the two corporate defendants, were negligent in retaining and in failing to supervise themselves. Each cause of action expressly incorporates by reference all of the intentional criminal acts engaged in by the Streus, the Maples, and their corporations” (¶ 12). “All of the amended complaint’s one hundred thirty-one allegations supporting Cape’s claims describe undisputedly intentional criminal behavior. The complaint fails to pre-sent any reasonable view of the facts that would trigger Zurich’s duty to defend the insureds under a theory of negligence” (¶ 17).

    UM Coverage – Hit-and-Run

    Tomson v. American Family Mut. Ins. Co., 2009 WI App 150 (filed 1 Sept. 2009) (ordered published 28 Oct. 2009)

    Tomson, a semi-truck driver, was injured when a truck struck a dual-wheel assembly that was sitting on the highway after being left there by another, unidentified, truck and propelled the wheel assembly into Tomson’s truck. Tomson sought damages under the uninsured motorist (UM) coverage of his American Family policy. “Thus, this case involves a situation where a plaintiff driver seeks uninsured-motorist coverage because: (1) he is injured by a motor-vehicle part left on a highway (2) by an unknown motor vehicle when (3) that part is then hit by a known motor vehicle, and, as result, (4) that part strikes the plaintiff’s motor vehicle” (¶ 3). The circuit court found no coverage and granted summary judgment in favor of the insurer.

    The court of appeals reversed in an opinion written by Judge Fine that construed Theis v. Midwest Security Insurance Co., 2000 WI 15, 232 Wis. 2d 749, 606 N.W.2d 162, and other hit-and-run coverage cases. Theis “requires that the uninsured motorist clauses of an insurance policy provide coverage when a detached piece of an unidentified motor vehicle is propelled into the insured’s motor vehicle by an unidentified motor vehicle” (¶ 8). This case, however, raised a subtly different issue: “whether § 632.32(4) similarly requires coverage when a detached piece of an unidentified motor vehicle is propelled into the insured’s motor vehicle by an identified motor vehicle” (id.). The court held that it did. 

    There are three requirements for mandatory coverage under section 632.32(4)(a)2.b. The plaintiff here satisfied all three. First, there was an unidentified motor vehicle, namely “the truck that dropped the 400-pound-dual-wheel assembly” (¶ 14). Second, there was a “hit,” namely physical contact by something that came from the unidentified truck. There was no requirement that the wheel assembly had to be “moving” when the second truck hit it. “Significantly, and also contrary to the reading of the statute by the circuit court here, there need not be first a ‘hit’ and then a ‘run’; under one of the two possible scenarios in Theis, the truck that left the leaf spring in the road ‘ran’ before there was any hit (the propelling of the leaf spring into Theis’s truck by the passing unidentified truck) – all that is required is that there be both a ‘hit’ and a ‘run’ (namely, a hit resulting from something done by the unidentified vehicle) in any sequence” (¶ 16). “The third requirement for mandatory coverage is also present: as in Theis, where the truck that dropped the leaf spring was unidentified, the truck that dropped the wheel assembly in this case is also unidentified” (¶ 17). Coverage, then, comported with the statute’s primary purpose. Thus, it was unnecessary for the court to discuss whether the policy’s language also provided coverage; the statute sufficed.

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    Motor Vehicle Law

    OWI – Counting Prior Offenses – Illinois “Zero-tolerance” Suspensions

    State v. Carter, 2009 WI App 156 (filed 30 Sept. 2009) (ordered published 28 Oct. 2009)

    The defendant pleaded guilty to operating while intoxicated (OWI), which was charged as a fourth offense. The issue on appeal was whether his two prior Illinois zero-tolerance suspensions count as prior convictions under Wis. Stat. section 343.307 (the counting statute) for sentencing enhancement purposes under the OWI law.

    Section 343.307(1)(d) describes the kind of out-of-state convictions that count as prior offenses: “Convictions under the law of another jurisdiction that prohibits a person from refusing chemical testing or using a motor vehicle while intoxicated or under the influence of a controlled substance or controlled substance analog, or a combination thereof; with an excess or specified range of alcohol concentration; while under the influence of any drug to a degree that renders the person incapable of safely driving; or while having a detectable amount of a restricted controlled substance in his or her blood, as those or substantially similar terms are used in that jurisdiction’s laws.” Section 343.307(1)(e) provides for the counting of suspensions or revocations under another jurisdiction’s law for refusals to submit to chemical testing.

    The defendant contended that his zero-tolerance suspensions under Illinois law do not count as prior convictions under section 343.307(1)(d). Under Illinois law, a zero-tolerance summary suspension may be imposed if a driver under age 21 has been arrested for any traffic violation, provided there is probable cause to believe the driver consumed some amount of alcohol and either refused testing or submitted to testing and the test revealed a blood-alcohol concentration higher than zero (see ¶ 7). The Illinois Supreme Court has characterized a zero-tolerance suspension under Illinois law as “administrative” (see ¶ 9). The defendant argued that his summary license suspension, which did not result in a conviction or result from a refusal, cannot be counted under section 343.307 and used for penalty enhancement purposes in his present OWI prosecution.

    In a decision authored by Judge Neubauer, the court of appeals agreed with the defendant. It concluded that “an out-of-state ‘zero tolerance’ suspension is not a conviction within the meaning of Wis. Stat. § 343.307(1)(d). The State has otherwise failed to establish that the ‘zero tolerance’ suspension resulted from a refusal so as to fall under § 343.307(1)(e)” (¶ 14).

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    Municipal Law

    Zoning – Nonconforming Uses

    Town of Cross Plains v. Kitt’s “Field of Dreams” Korner Inc., 2009 WI App 142 (filed 24 Sept. 2009) (ordered published 28 Oct. 2009)

    This case involved the law of nonconforming uses: uses that are lawful before the enactment of a zoning ordinance but do not comply with the requirements of the new ordinance. Protection of such uses arises out of the concern that the retroactive application of zoning ordinances would render their constitutionality questionable (see ¶ 18). According to Wis. Stat. section 59.69(10)(a), “[a]n ordinance enacted under this section may not prohibit the continuance of the lawful use of any building, premises, structure, or fixture for any trade or industry for which such building, premises, structure, or fixture is used at the time that the ordinances take effect.”

    In this case the owners of a tavern began making investments and incurring liabilities to establish an adult entertainment bar on the premises when they were aware that this use was about to be prohibited by a change in the relevant zoning ordinance. “They nonetheless proceeded, with the goal of creating, before the effective date of the ordinance amendment, a use that would constitute a lawful nonconforming use” (¶ 42). The circuit court concluded that the owners’ use of the premises for adult entertainment from Feb. 11, 2005, until the effective date of the ordinance amendment (Feb. 23, 2005) did not create a vested interest in an ongoing adult entertainment business and therefore did not constitute the use necessary for a lawful nonconforming use (see ¶ 11).

    In a decision authored by Judge Vergeront, the court of appeals affirmed. The first issue before the court was what, if anything, in addition to a use actually occurring on the effective date of the ordinance amendment, is required to constitute a vested interest. The court concluded that “for a use to be protected as a nonconforming use under Wis. Stat. § 59.69(10)(a), the business owner must have a vested interest in the continuance of that use, meaning that, were the continuance of the use to be prohibited, substantial rights would be adversely affected. In the context of § 59.69(10)(a) – relating to trade and industry – this will ordinarily mean that there has been a substantial investment in the use or that there will be a substantial financial loss if the use is discontinued” (¶ 49). “The determination whether there is a vested interest in a use is made on a case-by-case basis. More specifically, the determination whether there has been a substantial investment in a use or will be a substantial financial loss if the use is discontinued is based on the particular circumstances of the business owner. If, ultimately, the determination is that the investment or the potential loss is not substantial, we see no unfairness in not protecting that continued use” (¶ 32).

    The appellate court also concluded that, to acquire a vested interest in a use, “the business owner must reasonably rely on the then-existing ordinance when making expenditures and incurring liabilities. In the circumstances of this case, we conclude that, because the owners knew of the pending ordinance amendment before they made expenditures and incurred liabilities to establish the use, they did not reasonably rely on the then-existing ordinance” (¶ 50).

    Accordingly, the court held that the owners did not have a vested interest in use of the premises for adult entertainment, and they did not have a nonconforming use entitled to protection under section 59.69(10)(a) (see ¶ 3).

    Property Development – Towns – Annexation Waivers

    Town of Waukesha v. 164 of Waukesha Ltd. P’ship, 2009 WI App 147 (filed 16 Sept. 2009) (ordered published 28 Oct. 2009)

    During negotiations with the town of Waukesha regarding a proposed commercial development on a certain parcel of land within the town, 164 of Waukesha Limited Partnership (the developer) entered into an agreement to waive its right to petition for annexation of the property to the city of Waukesha. When the developer subsequently petitioned for annexation, the town sued for breach of contract. The circuit court granted summary judgment to the town.

    On appeal, the developer challenged the town’s authority to enter into a contract such as the annexation waiver described above, which limits a property owner’s statutory right to petition for annexation. It further argued that, even if the town did have such authority, the annexation waiver here was not supported by consideration and is therefore unenforceable. In a decision authored by Judge Snyder, the court of appeals agreed with the town’s position and affirmed the circuit court’s order.

    The appellate court concluded that “there is nothing to prevent the Town from entering into a collateral agreement such as an annexation waiver with a developer. Under Wis. Stat. § 60.01(2)(c), the Town has the authority to enter into agreements that are necessary to the exercise of its corporate powers. Furthermore, a town board, exercising village powers, has the authority to act for its own commercial benefit. See Wis. Stat. §§ 60.22(3), 60.10(2)(c), and 61.34” (¶ 15). “According to the undisputed facts, the Town previously experienced a substantial loss of anticipated tax revenue when the Town cooperated with a developer who subsequently petitioned for annexation of its property to the city. In its brief, the Wisconsin Towns Association [WTA] points out, ‘In addition to losing territory and tax base, [when an annexation occurs] towns often lose infrastructure.’ Thus, the Town’s pursuit of the annexation waiver was based on actual past experience and the resolve to use its corporate powers to protect its economic interests. We are persuaded that the Town had the authority, in the exercise of its corporate power, to seek an annexation waiver to protect the interests of the Town” (¶ 16).

    With regard to consideration, the town contended that there were several examples of consideration in this case. These included the provision of waivers from strict code enforcement of the town’s zoning and land division codes, modification of the town’s zoning code so as to enhance the property’s development, and the active assistance and participation of town officials when discussing the property’s development with potential purchasers. The WTA suggested that consideration for an annexation waiver could be “municipal support and cooperation in the development process [and/or] a willingness to contract away the right to exercise some proprietary function” (¶ 23). The court of appeals agreed that “these are examples of adequate consideration for a freely and voluntarily negotiated annexation waiver. Because the Town’s accommodations were a benefit to the Developer as well as a burden on the Town, the annexation waiver is supported by consideration” (¶ id.).  

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    Real Property

    Easements – Exclusive Use

    Garrett v. O’Dowd, 2009 WI App 146 (filed 9 Sept. 2009) (ordered published 28 Oct. 2009)

    The Scheys divided some property into what are now the O’Dowd and the Murphy parcels. The O’Dowd and the Murphy parcels are adjacent to one another, but only the O’Dowd parcel includes frontage along Big Lake in Vilas County. The Scheys executed a written and recorded easement agreement that gave the Murphy parcel access to Big Lake. The agreement provides, in relevant part, that “in the event the grantees make all of the payments as required by [the land contract agreement dividing the parcels], the grantors hereby convey to the grantees a permanent easement across the [portion of the O’Dowd parcel that is subject to the easement]” (¶ 3).

    Murphy filed suit claiming that O’Dowd had intentionally interfered with the use of the lakefront easement. The circuit court concluded that the easement agreement was ambiguous. It then consulted extrinsic evidence to clarify the ambiguity and ultimately concluded that the lake easement entitled Murphy to the exclusive use of the entire easement parcel (see ¶ 4).

    In a decision authored by Judge Brunner, the court of appeals reversed. Said the court, “In light of long-settled property principles and the widespread reluctance of courts to find an exclusive easement in the absence of unambiguous language, we conclude that an express easement must contain an affirmative statement of exclusivity in order to convey the right to exclude the fee owner” (¶ 6).

    The court found that “[t]he Easement Agreement in this case does not even hint at exclusivity. It merely states that ‘the grantors hereby convey to the grantees a permanent easement across the property.’ No words in the grant suggest that the Scheys intended to impose such an extraordinary burden upon the O’Dowds’ property. The Easement Agreement does obligate Murphy to maintain and pay taxes upon the easement, but it contains no language identifying Murphy as the beneficiary of an exclusive interest. Without a more definite statement as to exclusivity, indeed any statement as to exclusivity, it was error for the trial court to read ambiguity into the instrument” (¶ 11).

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    Torts

    Respondeat Superior – In Pari Delicto

    James Cape & Sons Co. v. Streu Constr. Co., 2009 WI App 144 (filed 9 Sept. 2009) (ordered published 28 Oct. 2009)

    Beaudoin was an employee of a road contractor, James Cape & Sons Co. (Cape). Beaudoin colluded with employees of two other road contractors in a bid-sharing scheme. The conspiracy was eventually discovered and prosecuted, but Cape went bankrupt despite an immunity letter from prosecutors stating that Cape had not colluded. Cape sued Beaudoin and his conspirators for damages. The circuit court dismissed Cape’s claims on the ground that Beaudoin had allegedly intended that at least some benefits of the conspiracy would accrue to Cape. (Editors’ Note: See the court’s related decision in 2009 WI App 154, summarized above, which addresses insurance coverage issues.)

    The court of appeals reversed in a decision authored by Chief Judge Brown. “Here, we have an employer suing its former employee and persons and companies that colluded with that former employee. All of the cases Beaudoin, Streu and Vinton cite involve an innocent third party suing an employee and/or that employee’s employer. None are suits between an employer and employee. And none are suits between an employer and persons colluding with an employee. So we are unconvinced that the cases cited by the defendants on intent control this case or that respondeat superior even applies. This is especially so here since it is generally assumed that when an employee’s negligence or misconduct results in physical injury to another person or damage to the employer, an employee is liable for that injury or damage” (¶ 12).

    “As to Beaudoin, the issue was settled long ago in Zulkee v. Wing, 20 Wis. 429, [*408] (1866), in which our supreme court held that respondeat superior applies ‘only as between the master or principal and third persons’; the doctrine has no application in a suit between an employer and employee” (¶ 1). “Holding otherwise would mean that employees could disregard their employer’s business model in favor of a model wholly to the employees’ own liking. What a world it would be if employees were allowed, without recourse, to decide for themselves the means and methods an employer uses to earn the revenue projected in its plans. It is for the employer to decide the question of how it is going to make money to survive and grow. An employee cannot take unilateral ownership of that question. Allowing anarchy to control employer-employee relationships is not a policy the courts have endorsed. And we do not do so now” (¶ 15).

    The same held for Beaudoin’s conspirators. “As third parties they claim to be able to invoke respondeat superior as a defense. But, as we alluded to earlier, their core argument is that, even though they are hardly innocent parties, they should be able to ‘piggy back’ their defense on the shoulders of an employee who purportedly wanted to ‘help’ his employer by rigging up a different business model than the employer had in mind. We are having none of it. If it does not work for the employee, it cannot work for the employee’s co-conspirators either” (¶ 17).

    Immunity – Open and Obvious Danger

    Heuser v. Community Ins. Corp., 2009 WI App 151 (filed 30 Sept. 2009) (ordered published 28 Oct. 2009)

    A student, Andrew, cut himself while using a scalpel to dissect a flower during an 8th-grade science class; he was the third student that day to so injure himself. Andrew sued the school district, which asserted immunity. Andrew claimed that the known-and-compelling-danger exception obviated immunity; the school district replied that the exception was inapplicable because the conduct fell within the teacher’s discretion. The circuit court ruled in Andrew’s favor, finding the exception did not apply.

    The court of appeals affirmed in an opinion written by Chief Judge Brown. First, the court of appeals held that the circuit court properly concluded that the school district was negligent. “No one, not Andrew or the trial court, faults the teacher for failing to precisely predict that a student might encounter a scalpel cover which was stuck. No one is asking that the teacher be a clairvoyant. Rather, the fault lies in the teacher doing nothing in the face of personal knowledge that using the scalpels raised a safety issue. The teacher could have exercised her discretion in any number of ways. She could have taken her own advice and used scissors. She could have gone from table to table and done the dissecting for the students. She could have closely supervised each student. She could have instructed them from A to Z, starting with how to take off the cover and ending with how to put the cover back on, which is what the trial court was alluding to in its decision. Anything. Anything. But she did nothing” (¶ 17).

    Second, the school district did not have immunity in light of the negligent conduct. “Here, it is self-evident that another student could get hurt from the flower dissection lab unless the activity was changed from the way it had heretofore been conceived. It was not changed. And under those circumstances, the teacher had the same ministerial duty as the teacher in Voss [ex rel. Harrison v. Elkhorn Area Sch. Dist., 2006 WI App 234, 297 Wis. 2d 389, 724 N.W.2d 420]: to ‘stop the activity the way it was presently conceived.’ Had the teacher performed one of the two precautionary measures she identified (limiting scalpel use or using scissors instead), this accident may never have occurred. Or if the teacher had carefully instructed from A to Z, or decided to closely supervise the students while the dissections were made, the accident may still have occurred, but then we would have a situation like Lodl [v. Progressive N. Ins. Co., 2002 WI 71, 253 Wis. 2d 323, 646 N.W.2d 314], where the teacher would have made the discretionary choice to do ‘something.’ But again, the teacher here did nothing. She did not follow through with any of her recommendations or make some other choice. And that is why the duty here is ministerial. That is why ‘the buck stops here.’ We affirm” (¶ 34) (citations omitted).

    Negligent Supervision – Computer Access

    Maypark v. Securitas Security Servs. USA Inc., 2009 WI App 145 (filed 1 Sept. 2009) (ordered published 28 Oct. 2009)

    Schmidt worked for Securitas Services USA, a company that provided security services to Polaris Industries. In his capacity as security manager, Schmidt had access to employee photographs on a computer owned by Polaris. “At some point, Schmidt copied the photographs of approximately thirty female employees to a flash drive. He printed the photographs at home, ejaculated on them, and posted pictures of the adulterated photos on adult websites he created on Yahoo!” (¶ 4). When Polaris learned of Schmidt’s misconduct, the photographs were removed from Yahoo!. Schmidt acknowledged posting the images on the Web sites, and Securitas fired him. Polaris employees whose pictures had been displayed sued Securitas for severe emotional distress caused by Securitas’s negligent training and supervision of Schmidt. A circuit court awarded damages to the plaintiffs.

    The court of appeals reversed in an opinion written by Judge Hoover. “We conclude Securitas was, as a matter of law, not negligent under the circumstances of this case. Securitas provided Schmidt with training concerning both sexual harassment and employee theft. The guard shack computer was owned, maintained, and monitored by Polaris. Katy Pawlik, Schmidt’s supervisor, testified that before Schmidt’s acts were discovered, Polaris informed her it could track internet usage by the guards and used a filter that would block inappropriate websites. Polaris never notified Pawlik of any concerns about the volume or nature of internet use. It was not reasonably foreseeable that Securitas’s conduct would probably result in harm to some person or something. There is nothing inherently dangerous about permitting employees to access the internet at work. Further, there is no evidence, nor did the trial court explicitly find, that Schmidt ever used the work computer to transmit images, adulterated or otherwise” (¶ 15).  

    Nor did it matter that Securitas did not monitor Schmidt’s access to the employee photos, as “it was not reasonably foreseeable that unsupervised access to photographs would result in harm. Further, as Securitas notes, Schmidt was required as part of his duties to copy and transfer the photos to the guard shack computer for making badges. Thus, there would have been nothing to alert Polaris or Securitas that something was amiss” (¶ 16). In addition to concluding that there was no negligence as a matter of law, the court also ruled that public concerns precluded liability (for example, allowing recovery here would have no sensible or just stopping point).

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