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    Supreme Court Digest

    This column summarizes selected published opinions of the Wisconsin Supreme Court (except those involving lawyer or judicial discipline, which are digested elsewhere in the magazine). 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.

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

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    Vol. 83, No. 6, June 2010

    Civil Procedure

    Breach of Contract for Computer Consulting Services – Summary Judgment – Expert Witnesses 

    Racine County v. Oracular Milwaukee Inc., 2010 WI 25 (filed 2 April 2010)

    Racine County filed a breach of contract action against the defendant (Oracular) for its alleged breach of a consulting service agreement that related to the upgrade of several software systems. The two major breaches asserted involved a failure to fulfill the contract on a timely basis and a failure to provide training for county employees who would be using the software.

    The circuit court granted summary judgment to Oracular on the ground that Racine County’s failure to name an expert witness was deficient as a matter of law. According to the circuit court, the consulting service agreement was effectively a contract for professional services, for which the basis of liability is a claim of negligence, and Racine County was therefore required to present expert testimony to demonstrate that Oracular’s performance fell below the standard of care in the computer consulting industry.

    In a published decision, the court of appeals reversed the circuit court. See 2009 WI App 58. The court of appeals concluded that Racine County was not required to present expert testimony because Oracular’s alleged breaches of the agreement were within the realm of the average juror’s ordinary experience. Contrary to the circuit court, the court of appeals held that for purposes of this case, computer consultants are not professionals and therefore are not subject to professional standards of care. Instead, the court concluded that the consulting agreement between Racine County and Oracular was a simple contract for services.

    In a unanimous decision authored by Justice Ziegler, the supreme court affirmed the court of appeals (although on different grounds). It concluded that “to survive summary judgment, Racine County was not required to name an expert witness. As a preliminary point, Racine County alleged breach of contract, not negligence. There is no allegation that Oracular’s performance failed to meet the standards of the computer consulting industry – whatever those may or may not be. Accordingly, the issue is not whether Racine County is required to present expert testimony in order to demonstrate that Oracular’s performance fell below the industry standard of care. Instead, the issue is whether in order to survive summary judgment, Racine County was required to name an expert witness when the complaint alleged that Oracular breached the parties’ Agreement” (¶ 29).

    The supreme court held that Racine County was not required to name an expert witness to survive summary judgment. “As alleged, Racine County’s breach of contract claim does not present issues so unusually complex as to require expert testimony as a matter of law. In so concluding, we do not close the door to the possibility that expert testimony may later assist the trier of fact in evaluating the breach of contract claim. Rather, we decide that based upon the pleadings and affidavits, Racine County was not required to name an expert witness in order to proceed” (¶ 5). The court further held that the breach of contract claim presents numerous genuine issues of material fact that preclude summary judgment at this time (see ¶ 34).

    [Editors’ Note: The court of appeals held in this case that computer consultants are not professionals and therefore are not subject to professional standards of care. The supreme court did not reach this issue “because that in itself has no bearing on whether expert testimony is required” (¶ 5 n.2).]

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    Probate

    Taxes – Payable-on-death Accounts

    Estate of Sheppard v. Schleis, 2010 WI 32 (filed 4 May 2010)

    James Sheppard established two payable-on-death (P.O.D.) accounts that designated his goddaughter, Jessica, as recipient. Jessica, a minor, received more than $3 million after Sheppard’s death. Sheppard’s estate was worth $12 million. This litigation involved the estate’s efforts to obligate Jessica to pay a portion of the federal and Wisconsin estate taxes attributable to the P.O.D. accounts. The circuit court ruled that Jessica was not responsible for any of the taxes.

    The case reached the supreme court on petition for bypass. The supreme court affirmed the circuit court, in an opinion written by Chief Justice Abrahamson. “The first issue is whether the Internal Revenue Code provides the Estate a right to recover a portion of federal estate taxes from the recipient of a P.O.D. account” (¶ 16). The key factor was whether, for purposes of 16 U.S.C. § 2036, Sheppard effected a “transfer” during his life by creating the P.O.D. accounts (see ¶ 23). Section 2036 applies only “to a transfer with a retained life estate. The P.O.D. account does not constitute such a transfer. During his or her lifetime the depositor is the owner of the P.O.D. account and controls the income, the principal, and the right to decide who gets the property at the depositor’s death. With a P.O.D. account the depositor remains the owner during his or her life, transfers nothing during his or her life, and retains total interest in the property during his or her life. The depositor continues to control the principal and the income and could close the account or change the recipient at any time without even notifying the recipient of a change or the existence of the account. The depositor did not transfer any ownership rights or any rights to income during his life” (¶ 25).

    In summary, the court held “that creation of the P.O.D. accounts did not fall within the meaning of a transfer under 26 U.S.C. § 2036, and therefore the estate does not have a right to recover under 26 U.S.C. § 2207B. Because §§ 2207B and 2036 do not apply, the general rule of 26 U.S.C. § 2002 applies: the residual estate pays the federal estate taxes on the P.O.D. accounts. The P.O.D. accounts are therefore not required to pay any portion of the federal estate taxes” (¶ 35).

    Second, case law firmly establishes that the recipient of a P.O.D. account is not required to reimburse an estate for a portion of the Wisconsin estate taxes attributable to the P.O.D. account when a decedent dies with no will (see ¶ 36).

    Third, no statute or common law rule provides a remedy of “limited equitable apportionment.” “Wisconsin does not have an apportionment statute. Wisconsin case law declines to recognize an equitable apportionment rule. The precedent is clear: In the absence of a statute or a decedent’s written directions, in Wisconsin the burden of the federal and state estate taxes attributable to probate and nonprobate assets falls on the residue of the estate” (¶ 52). The supreme court said that any change in law and policy should come from the legislature.

    Finally, the court held that a written agreement regarding tax withholdings, signed by Jessica’s parents, did not shift tax liability from the estate to Jessica, because Jessica was not a party to the agreement and her guardian ad litem later disavowed it. “The Estate claims the result is unjust and unfair and imposes an undue burden on James Sheppard’s heirs who take through the probate estate. Federal and state law have determined where the tax liabilities fall. There is no equitable basis to impose a constructive trust as a matter of law. James Sheppard could have directed a different result but he did not” (¶ 60).

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    Taxation

    Sales Tax – Sales of Admissions to Symphony Concerts

    Milwaukee Symphony Orchestra Inc. v. Wisconsin Dep’t of Revenue, 2010 WI 33 (filed 5 May 2010)

    The question posed in this case is whether Milwaukee Symphony Orchestra (MSO) concerts are “entertainment events or places” under Wis. Stat. section 77.52(2)(a)2., which imposes a sales tax on “the sale of admissions to amusement, athletic, entertainment or recreational events or places.” The MSO is a full-time, professional symphony orchestra that performs 100 to 150 concerts per year. It has been incorporated as a nonprofit corporation and is exempt from federal income tax under I.R.C. § 501(c)(3) as an organization operated exclusively for educational purposes. MSO’s articles of incorporation state an educational purpose. Throughout this litigation, MSO has contended that its concerts are “educational” and therefore not “entertainment” subject to the sales tax.

    The Wisconsin Tax Appeals Commission held that the sales of admissions to MSO concerts are subject to the sales tax under section 77.52(2)(a)2. because the concerts are primarily entertainment events. The circuit court reversed. In a published decision, the court of appeals reversed the circuit court, after giving the commission’s interpretation and application of the statute due weight deference and concluding it had reasonably interpreted and applied the sales tax law. See 2009 WI App 69.

    In a majority decision authored by Chief Justice Abrahamson, the supreme court affirmed the court of appeals. It too gave due weight deference to the commission’s interpretation and application of the sales tax law (see ¶ 6). It found that “the Commission articulated a sensible approach to the difficult question of how an adjudicative body should elucidate the ‘primary purpose’ of an event as potentially multi-faceted as a symphony orchestra performance. The Commission explained that
    ‘[t]he better approach is to look not only at the motivation or purpose of the sponsor … but also at the nature of the event itself and the audience’s motivation in attending, and its reaction to, the event. Of course, these three considerations will invariably overlap, and one piece of evidence, such as advertising, may provide insight into all three considerations’” (¶ 62).

    Said the court, “[w]hether sales of admissions to the Milwaukee Symphony Orchestra concerts are subject to sales tax under Wis. Stat.
    § 77.52(2)(a)2. depends on the ‘primary purpose’ of the event to which admission is charged. The determination of primary purpose is a holistic one, which looks to the motivation, mission, or purpose of the sponsoring organization, as well as any evidence of the motivation and reaction of those paying admission and ultimately the nature of the place or event itself. No formulaic inquiry is possible. The inquiry is akin to what may be described in other areas of law as assessing the ‘totality of the circumstances’” (¶ 81).

    The court further concluded that the commission reached a reasonable conclusion about the taxability of admissions to MSO concerts on the basis of the extensive evidence that was presented in this case. To summarize this evidence, the supreme court turned to the following language from the court of appeals’ decision in this case: “The commission recognized that learning and an aesthetic experience was a component of attending the concert for many, that the music was artistically excellent, and that [the Milwaukee Symphony Orchestra’s] current mission statement and certain activities were directed at educating the public on music so as to develop greater appreciation of it. However, there was also much evidence that [the Milwaukee Symphony Orchestra] and the attendees viewed the concerts as a form of entertainment and the commission was reasonably persuaded that this was the primary characteristic of the event – from the audiences’ standpoint, from the marketing and advertising of [the Milwaukee Symphony Orchestra], and from the nature of the concerts themselves…” (¶ 83).

    Justice Roggensack, joined by Justice Gableman, filed an opinion concurring in part and dissenting in part. While Justice Roggensack agreed that the MSO’s classical and pops concerts are taxable, she concluded that its youth concerts “are not primarily entertainment events, but rather, they are educational events, wherein the sale of admission tickets are not taxable under § 77.52(2)(a)2.” (¶ 159).

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