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    Wisconsin Lawyer
    March 01, 2013

    Court of Appeals Digest

    In this column, Prof. Daniel Blinka and Prof. Thomas Hammer summarize select published opinions of the Wisconsin Court of Appeals. Full-text decisions are available online.

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

    Arbitration

    Alternative Dispute Resolution Agreement – Unavailable Arbitrator – Enforceability

    Riley v. Extendicare Health Facilities Inc., 2013 WI App 9 (filed 27 Dec. 2012) (ordered published 30 Jan. 2013)

    Holding: An arbitration agreement clause that designated an arbitration forum that could no longer be used was integral to the original agreement and thereby rendered both the clause and the entire agreement unenforceable.

    Summary: A dispute arose after Carl Riley’s death concerning the care he had received while in a nursing home. After Carl was admitted to the nursing home, Judy Riley, his legal representative and guardian, signed an alternative dispute resolution (ADR) agreement providing that any dispute would be subject to binding arbitration to be conducted by the National Arbitration Forum (NAF) and in accordance with the NAF’s rules and procedures. Meanwhile, under a cloud of alleged wrongdoing that surfaced in unrelated litigation, the NAF agreed it would not participate in any consumer arbitrations. This case, like others across the nation, concerns the legal status of such NAF arbitration clauses. The circuit court ruled that the parties’ designation of an exclusive arbitration forum that is no longer available rendered the ADR agreement unenforceable.

    Daniel D. BlinkaProf. Daniel D. Blinka, U.W. 1978, is a professor of law at Marquette University Law School, Milwaukee.


    Thomas J. HammerProf. Thomas J. Hammer, Marquette 1975, is a law professor and Director of Clinical Education at Marquette University Law School, Milwaukee.

    The court of appeals affirmed in an opinion authored by Judge Kloppenburg. “The Wisconsin Arbitration Act allows for judicial appointment of an arbitrator when the arbitrator specifically named in the agreement is no longer available” (¶ 15). The difference, though, is that other cases did not involve “designated specific governing rules, which themselves governed both the selection of the arbitrator and the arbitration process” (¶ 17). Applying the “integral-versus-ancillary test” (¶ 19), the court held the clause was unenforceable.

    “These two clauses – the arbitrator designation clause and the clause mandating use of the NAF rules – indicate that the parties intended to arbitrate exclusively before NAF, and work together to make selection of NAF integral to the ADR Agreement” (¶ 25). Wisconsin contract law does not permit courts to “rewrite an ADR agreement” (¶ 29). After “careful review” of the contractual language and the case law, the court found the clause both integral and unenforceable (see ¶ 44). The court also rebuffed Extendicare’s argument that the clause was severable.

    Creditor-Debtor Law

    Supplementary Proceeding – After-Acquired Property

    Attorney’s Title Guaranty Fund v. Town Bank, 3013 WI App 6 (filed 5 Dec. 2012) (ordered published 30 Jan. 2013)

    Holding: A creditor’s lien was valid and superior against other creditors at the time the creditor served the debtor with the summons to appear; the lien extended to personal property acquired by the debtor after the supplementary proceeding.

    Summary: In February 2006, Town Bank obtained a docketed judgment against Brophy for $1.6 million. In March 2006, a supplementary proceeding was held; although Brophy was served with the order, neither the order nor the proof of service was filed with the clerk of court. In later dealings, Brophy received loans from Heartland. He eventually sued his lawyer for malpractice and filed for bankruptcy. After Brophy’s bankruptcy action was dismissed in 2009, he settled the legal malpractice claim. The proceeds were placed in escrow with Attorney’s Title Guaranty Fund. This action concerns the contest for those funds between Town Bank and Heartland. Town Bank asserted it had an enforceable lien against Brophy’s personal property; Heartland contended that it was an unenforceable “secret lien.” The circuit court ruled in favor of Town Bank.

    The court of appeals affirmed in an opinion written by Judge Gundrum. First, Town Bank perfected its lien on personal property. Although the order and the return were not filed with the clerk of court, Wis. Stat. section 816.035(1) “clearly placed that responsibility only upon the supplementary commissioner, not Town Bank” (¶ 11). Case law established that the creditor’s lien is valid and superior against other creditors at the time the creditor serves the debtor with the summons to appear (see ¶ 12).

    Second, the lien attached to personal property obtained after the supplementary proceeding. “The plain language of Wis. Stat. § 816.08 – any nonexempt property may be applied toward satisfaction of a judgment – does not limit a judgment creditor to only that property owned by the debtor at the time of the supplementary proceeding. Accordingly, we hold that a creditor’s lien may attach to any property of the judgment debtor, including property acquired subsequent to a supplementary proceeding” (id.).

    Criminal Procedure

    Search and Seizure – Search Incident to Arrest – Grab Area

    State v. Sanders, 2013 WI App 4 (filed 18 Dec. 2012) (ordered published 30 Jan. 2013)

    Holding: A gun found in a room adjacent to the place of arrest was within the grab area that could be searched incident to arrest of the defendant.

    Summary: Acting on an informant’s tip that Sanders was armed, police officers approached him while he was standing outside a residence with another man. When the police officers identified themselves and ordered the men to put their hands in the air, Sanders ran into the residence. As he did so, the officers saw him adjust something at his waistband. This action caused the officers to think, based on their training and experience, that Sanders was carrying a weapon. After pursuing Sanders into the house, the officers encountered him near the door of a bedroom and noticed that the bedcoverings of the bed in that room were rumpled in a manner that suggested to the officers, again based on their experience, that an object might have been recently hidden there. After placing Sanders under arrest, one of the officers searched the bed and recovered a gun.

    In a prosecution for possession of a weapon by a felon, Sanders moved to suppress the evidence, claiming the gun was found as a result of an illegal search. The circuit court denied the motion, and a jury convicted Sanders. In a majority decision authored by Judge Curley, the court of appeals affirmed.

    In Chimel v. California, 395 U.S. 752 (1969), the U.S. Supreme Court held that it is reasonable for an arresting officer to search the person arrested to remove any weapons that the latter might seek to use to resist arrest or effect escape, and that it is also entirely reasonable for the arresting officer to search for and seize any evidence on the arrestee’s person to prevent its concealment or destruction. “Chimel explains that the police may also search the area within the arrestee’s ‘immediate control’ incident to arrest in order to prevent the destruction of evidence of the crime and protect officers’ safety” (¶ 3).

    In this case, the court of appeals concluded that “the rumpled bedcovers on the nearby bed suggested that the gun reported in the tip was likely hidden there. The police did not conduct a general search of the house or the room where they located Sanders; instead, they searched only the bed because they reasonably inferred from the rumpled bedding that Sanders had just stashed a weapon. Given the circumscribed nature of the scope of the police search and the timeframe – just seconds after entering the house and seeing Sanders and the disturbed bedding – this search was reasonable as incident to Sanders’ arrest” (¶ 5). The court also concluded there was sufficient evidence to sustain the conviction.

    Judge Kessler filed a dissenting opinion. She wrote that “Sanders was arrested in the hall. He was taken by officers to the kitchen, seated at a table, and handcuffed. One or more officers remained with him. The gun was discovered under a mattress in a bedroom six to eight feet from the kitchen. A bed, in a bedroom six to eight feet from the kitchen, is not ‘within the immediate control’ of a handcuffed and guarded arrestee in the kitchen. In these circumstances, the bedroom is clearly not an ‘area into which [Sanders] might reach in order to grab a weapon’” (¶¶ 11-12). 

    Stop and Frisk – Grounds for Seizure of the Person

    State v. Pugh, 2013 WI App 12 (filed 27 Dec. 2012) (ordered published 30 Jan. 2013)

    Holding: The police lacked reasonable grounds under the stop-and-frisk law to seize the defendant.

    Summary: Police officers observed Pugh late at night standing near some cars at the rear of a vacant and boarded-up apartment building in Milwaukee. This property was adjacent to another at which the officers had conducted numerous drug-dealing investigations. The officers asked Pugh what he was doing there, and Pugh replied that one of the parked cars belonged to him. The officers told Pugh that signs indicated that parking was not allowed in that location but did not issue him a citation.

    Apparently finished with the parking matter, the officers asked Pugh if he had any information about the nearby drug house, and Pugh replied that he did not know anything about it. Pugh then started to back away; when doing so, the “right side” of his body turned “further away from [the officers]”(¶ 12). An officer testified that this action (which he called “blading”) was a concern to the officer because “when an individual is concealing a firearm, it creates a bulge, and individuals will commonly turn that side of their body away to keep that bulge out of view from law enforcement” (¶ 6). One of the officers grabbed Pugh and asked him if he had anything illegal on his person; Pugh replied that he had a gun in his pocket.

    Pugh was charged with unlawfully possessing a firearm as a convicted felon. The circuit court denied Pugh’s motion to suppress evidence of the gun he was carrying when the police officers stopped and seized him. In a decision authored by Judge Fine, the court of appeals reversed.

    The appellate court focused on the moment when the officers first physically grabbed the defendant. It concluded that this initial seizure was unlawful and that all subsequent evidentiary fruits of the seizure must accordingly be suppressed (see ¶ 13). Although the police may detain a person on reasonable suspicion that unlawful activity may be afoot (see Terry v. Ohio, 392 U.S. 1 (1968)), in this situation there was nothing that objectively indicated that criminal activity was afoot in regard to any connection the defendant might have had with the nearby drug house (see ¶ 12). Once the officers finished discussing the parking matter with the defendant, he was free to walk away.

    Without more, “backing away from a police officer is not sufficient objective evidence supporting a reasonable suspicion that criminal activity is afoot or that he was a threat. Further, an individual’s presence in an area of expected criminal activity, standing alone, is not enough to support a reasonable, particularized suspicion that the person is committing a crime. That leaves Pugh not keeping the front surface of his body parallel to a line extending from one officer to the other – that is, turning his body, or, to use Officer Keller’s word, ‘blading’ – as he backed away from them. But how does a person walk away from another (as Pugh had the right to do) without turning his or her body to some degree? Calling a movement that would accompany any walking away ‘blading’ adds nothing to the calculus except a false patina of objectivity” (¶ 12) (citations and internal quotations omitted). Accordingly, the officer violated Pugh’s Fourth Amendment rights when he grabbed Pugh’s arm.

    Domestic Relations

    “Marriage” Amendment to the Wisconsin Constitution – Constitutionality of “Domestic Partnership” Law

    Appling v. Doyle, 2013 WI App 3 (filed 20 Dec. 2012) (ordered published 30 Jan. 2013)

    Holding: Wisconsin’s domestic partnership law does not violate the “marriage” amendment to the Wisconsin Constitution.

    Summary: The Wisconsin Constitution’s marriage amendment, which was ratified by voters in 2006, declares that the only marriage recognized in Wisconsin is a marriage “between one man and one woman.” The amendment prohibits same-sex couples from entering into a “legal status identical or substantially similar to that of marriage.” Wis. Const. art. XIII, § 13.

    In 2009, the Wisconsin legislature passed a domestic partnership law. See Wis. Stat. ch. 770. This law creates a domestic partnership “legal status” that carries with it some of the same rights and obligations accorded to marriage. In this action, the plaintiffs challenged the constitutionality of the domestic partnership law. They contended that the domestic partnership law violates the marriage amendment because the partnership law creates a legal status that is “substantially similar to that of marriage.” The circuit court held that it did not. In a decision authored by Judge Lundsten, the court of appeals affirmed.

    To succeed on this challenge, the plaintiffs had the burden of showing that the domestic partnership law is unconstitutional beyond a reasonable doubt. To meet this burden they had to demonstrate, by reference to the language of the marriage amendment and other voter-intent evidence, that voters intended to prohibit the particular type of domestic partnership created by the legislature.

    The court of appeals held the plaintiffs failed to meet this heavy burden. Of special significance to this decision is the meaning to be accorded to the term legal status as it is used in the constitutional amendment. The court found that “[b]oth plain meaning and the historical context of passage favor interpreting ‘legal status’ as referring to eligibility, formation, and termination requirements and attending rights and obligations” of marriages and domestic partnerships (¶ 75).

    Applying this definition, the court concluded that “there is little reason to think informed voters believed that the marriage amendment language would prohibit the domestic partnerships at issue here. The same-sex domestic partnerships created by the legislature are substantially different than marriages because, among other differences, domestic partnerships carry with them substantially fewer rights and obligations than those enjoyed by and imposed on married couples” (¶ 5). In its analysis the appellate court furnished a lengthy list of significant rights and obligations that attend marriages but not domestic partnerships (see ¶ 88).

    Insurance

    Initial Coverage – Asbestos Exclusion

    Phillips v. Parmelee, 2013 WI App 5 (filed 11 Dec. 2012) (ordered published 30 Jan. 2013)

    Holding: A business owner’s insurance policy provided an initial grant of coverage but the asbestos exclusion precluded recovery and eliminated the insurer’s duty to defend.

    Summary: Parmelee sold Phillips an apartment building that was covered by an American Family Insurance Co. business owner’s policy. Phillips sued Parmelee because of asbestos-related contamination. American Family later intervened. The circuit court granted American Family’s declaratory judgment motion on grounds that the policy did not provide coverage and also that the insurer had no duty to defend.

    The court of appeals affirmed in an opinion authored by Judge Curley. It agreed with the circuit court that although there was an initial grant of coverage, the asbestos exclusion applied thereafter. The initial grant of coverage stemmed from allegations that there was an “occurrence” (that is, the “possibility of an accident”) and “property damage” (¶¶ 12-13). The term “property damage” extends to the loss of use of property that is not physically injured (see ¶ 15).

    Nonetheless, the asbestos exclusion extinguished both coverage and the insurer’s duty to defend. Nor was the language ambiguous. “[A] reasonable person reading the exclusion would not believe that the property damage had to arise out of the ‘exposure to’ or ‘the use of asbestos’ and not to ‘accidental dispersal or mere presence.’ This is so because of the comprehensive language used in the exclusion. Also, given the wording in the exclusion, a reasonable insured would not think that the exclusion only covers asbestos in its friable state. Indeed, the reasonable insured would, in all likelihood, not know what ‘friable asbestos’ is. We agree with American Family that ‘the policy language is clear that if any part of any loss is caused in any way by asbestos, the policy provides no coverage’” (¶ 22). Other jurisdictions have taken the same approach (see ¶ 24).

    Finally, the court rejected the contention that the complaint alleged damages not related to asbestos, including the buyer’s argument that the negligent failure to disclose asbestos is not covered by the exclusion (see ¶ 26)

    Jurisdiction

    Suits Against the State of Wisconsin – Sovereign Immunity

    Hoops Enters., III LLC v. Super Western Inc., 2013 WI App 7 (filed 12 Dec. 2012) (ordered published 30 Jan. 2013)

    Holding: Sovereign immunity blocks suits against the state for claims brought under Wis. Stat. sections 32.10, 32.18, and 88.87.

    Summary: Hoops Enterprises, III LLC (Hoops) filed a lawsuit seeking relief because of damage allegedly caused by roadwork overseen by the Department of Transportation (DOT). The defendant state of Wisconsin moved to dismiss on grounds of sovereign immunity. The circuit court denied the state’s motion, concluding that Wis. Stat. sections 88.87 and 32.18 authorized the claims asserted by Hoops against the state. In a decision authored by Judge Reilly, the court of appeals reversed.

    A motion to dismiss on sovereign-immunity grounds is a challenge to the court’s personal jurisdiction. “The State cannot be sued without its consent, and the legislature directs the manner in which suits may be brought against the State. Any legislative consent to suit against the State must be clear and express. The State is a separate legal entity from its agencies. A statute authorizing recovery from State agencies requires action against those named agencies and not the unnamed State” (¶ 7) (citations and internal quotations omitted).

    Applying these principles, the court of appeals concluded that the statutes relied on by Hoops do not clearly and expressly constitute consent by the state to be sued (see ¶ 1). (Wisconsin Statutes section 88.87 addresses duties placed on the DOT to not obstruct natural drainage when constructing highways, and section 32.18 deals with eminent domain when the DOT causes a change of the grade of a road that damages adjoining land. Another statute relied on by Hoops, Wis. Stat. section 32.10, authorizes inverse-condemnation proceedings by a landowner whose property has been occupied by a person possessing the power of condemnation; case law dictates that claims under this statute be brought against the agency that condemned the property – not the state.)

    Hoops argued that the state is a proper party and that service on the state was appropriate because the DOT is a state agency. Said the court, “Hoops’ argument would require this court to ignore settled law providing that the State must clearly and expressly consent to suit and that suits under the applicable statutes must be brought against the DOT instead of the State. The State was not a proper party for claims against the DOT as the two are distinct legal entities. Further, service on the State of a summons and complaint that named the State and not the DOT as a party does not constitute service on the DOT necessary to establish personal jurisdiction over the DOT” (¶ 11) (internal citations omitted). The court further concluded that the statutes Hoops relied on do not authorize negligence claims against the state (see ¶ 12). 

    Real Property

    Foreclosure – Note

    PNC Bank N.A. v. Bierbrauer, 2013 WI App 11 (filed 20 Nov. 2012) (ordered published 30 Jan. 2013)

    Holding: In a foreclosure action, a bank currently holding a mortgage and note was lawfully entitled to enforce the note.

    Summary: PNC Bank brought this foreclosure action, alleging that the debtors were in default. PNC attached certified copies of the note and mortgage to its complaint; both listed another bank as the “lender.” When PNC moved for summary judgment, it included an affidavit of a “document control officer,” averring that PNC currently held the note and mortgage and that the debtors were in default. The circuit court granted summary judgment to PNC.

    The court of appeals affirmed in an opinion written by Reserve Judge Cane. PNC offered adequate proof, including personal knowledge by the records custodian, that it currently held the note and was entitled to enforce it (see ¶ 10). Because the debtors did not submit any affidavits or evidence in opposition to PNC’s motion, there was nothing to rebut PNC’s assertions (see ¶ 11). Other documents established the note and mortgage’s transfer from one bank to another; PNC acquired it when the note was endorsed in blank by another bank. According to Wis. Stat. section 403.205(2), an instrument endorsed in blank “becomes payable to the holder,” here PNC (¶ 12).

    Torts

    Economic Loss Doctrine – “Other Property”

    State Farm Fire & Cas. Co. v. Hague Quality Water Int’l, 2013 WI App 10 (filed 12 Dec. 2012) (ordered published 30 Jan. 2013)

    Holding: The economic loss doctrine did not preclude recovery for damage to drywall and flooring caused by a defective water softener.

    Summary: Krueger purchased from Menards a water softener made by Hague. A limited warranty provided that Hague would repair or replace the unit in the event of a defect but eschewed responsibility for any “incidental” or “secondary” damages. Two years later, the water softener failed, causing $45,000 in water damages to the drywall, flooring, and woodwork of Krueger’s home. State Farm paid the claim under a homeowner’s policy and then sued Hague and its insurer, “alleging solely tort claims for the defective water softener” (¶ 2). The circuit court dismissed the complaint on grounds that the economic loss doctrine precluded recovery.

    The court of appeals reversed in an opinion written by Judge Reilly. Case law construing the economic loss doctrine requires the court to engage in a multistep process when deciding whether the doctrine applies. The integrated-system test asks whether the property damaged was part of an “integrated system with the defective product itself” (¶ 7). The record clearly showed that the water softener had “no functional link to the drywall, flooring, and woodwork”; hence, it was not part of an integrated system (¶ 12).

    The disappointed-expectations test focuses “on the expected function of the product and whether the purchaser should have foreseen that the product could cause the damage at issue” (¶ 7). Here the failure of the water softener had nothing to do with the purpose for which it was purchased. “The drywall, flooring, and woodwork were not damaged by a failure of the water softener to soften water but by a defect independent of the water softener’s function of softening water” (¶ 16).

    Nor was this damage reasonably foreseeable. “The purpose of buying a water softener is to soften one’s water. Tort recovery is not precluded in this action as the water softener was not expected, nor intended, to interact with the drywall, flooring, and woodwork of Krueger’s home” (¶ 18). 

    Punitive Damages – Causal Negligence – Special Verdict

    Hansen v. Texas Roadhouse Inc., 2013 WI App 2 (filed 5 Dec. 2012) (ordered published 30 Jan. 2013)

    Holding: Because the jury found that the employer was not causally negligent in its supervision, an award of punitive and emotional-distress compensatory damages against the employer was unsupported by the evidence despite the employee’s intentional misconduct.

    Summary: An employee of Texas Roadhouse intentionally placed a human hair in food that Hansen ordered at the restaurant. Hansen sued the restaurant. Although the jury did not find Texas Roadhouse causally negligent in its supervision of the employee, the circuit court nonetheless upheld the jury’s award of punitive damages and emotional-distress compensatory damages.

    The court of appeals reversed in a majority opinion, written by Judge Neubauer, holding that the plaintiff was not entitled to punitive damages and emotional-distress damages. The jury rejected both negligent supervision and vicarious liability under a respondeat superior theory because the wayward employee had acted outside the scope of his employment (see ¶ 14). In postverdict proceedings, however, the circuit court had upheld the damages on grounds of an implied finding of causal negligence. The court of appeals construed this as an invocation of Wis. Stat. section 805.12(2), which deals with waiver when an essential fact is omitted from a special verdict.

    The court of appeals held that section 805.12 was inapplicable for three reasons. First, the jury answered “no” when asked if negligent supervision by Texas Roadhouse was a cause of the employee’s misconduct. The court here discussed and rejected the plaintiff’s alternative wording of this special verdict question (see ¶ 19).

    Second, section 805.12 does not reach an implied theory of liability. “Texas Roadhouse’s negligence, independent of its supervision of Kropp’s conduct, was not submitted to the jury. The deficiency in the verdict is that it lacks an entire cause of action.… The trial court cannot submit the case on one theory and resort to Wis. Stat. § 805.12(2) to dispose of it on another theory” (¶ 22).

    Third, the plaintiff waived submission of a general negligence claim to the jury under Wis. Stat. section 805.13(3). The burden was on the plaintiff to ensure the accuracy of the special verdict; it was not on the defendant to object to other possible claims. “Hansen provides no authority to support his contention that a defendant has an obligation to ensure that the plaintiff pursues an alternate theory of liability on a special verdict, much less authority that precludes a defendant from challenging on appeal the trial court’s addition of one” (¶ 25).

    The majority opinion also rejected the plaintiff’s cross-appeals. It held that the trial judge properly granted summary judgment dismissing the negligent-hiring claim and properly precluded the jury from hearing evidence about the former employee’s alleged criminal background. Specifically, there was insufficient evidence linking any alleged negligent hiring to the employee’s misconduct (see ¶ 34).

    Judge Reilly dissented on grounds that the circuit court’s “cause” question was flawed. Moreover, the plaintiff had properly objected and had offered a correct alternative question, which the judge had rejected.


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