Court of Appeals Digest

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

| Civil Procedure | Corporations | Criminal Law | Criminal Procedure |
| Employment Law | Insurance | Public Records Law | Torts |

Discovery - Attorney-client Privilege - "At Issue" Exception -
"Duty to Cooperate" Exception - Work Product

State v. Hydrite Chemical Co., No. 96-1780 (filed 7 May 1998) (ordered published 24 June 1998)

The state sued Hydrite Chemical Co. for allegedly contaminating groundwater and other property. Hydrite filed a third-party action against various insurers alleging that they had a duty to defend and indemnify Hydrite. The insurers sought the production of documents that Hydrite asserted were protected by the attorney-client privilege and the work product doctrine. Hydrite later filed them with the trial judge for an in camera review. The trial judge ordered Hydrite to disclose 55 documents under the "duty to cooperate" and "at issue" exceptions to the privilege. Although two other documents were work product, the insurers had demonstrated "substantial need" and "undue hardship" that justified their disclosure.

Judge Dykman, writing for the court of appeals, reversed in part and affirmed in part. As to the work product documents, the insurers sought notes made by Hydrite's attorney of an interview with two deceased employees. The notes reflected no "mental impressions" by counsel "other than the fact that the attorney decided which facts were important enough to write down and which ones were not." Moreover, Hydrite began its investigation in the 1980s but the insurers did not begin theirs until 1991; thus, the notes were highly probative. Although the insurers pierced the work product protections, the court of appeals remanded the case for a determination of whether these same two documents also were shielded by the attorney-client privilege.

The court next addressed the "at issue" and "duty to cooperate" exceptions as to the 55 other documents. Initially, the court addressed the scope of the "at issue" exception. It adopted a "restrictive view" of the "at issue" doctrine in which "the attorney-client privilege is waived when the privilege holder attempts to prove a claim or defense by disclosing or describing an attorney-client communication." It rejected a more "expansive view" in which the privilege is waived "when the privilege holder places a claim or defense at issue and the document in question has a direct bearing on the claim or defense, regardless of whether the privilege holder intends to use the document to prove the claim or defense." Based on the record, the court concluded that the insurers failed to meet their burden of showing that the "at issue" exception overrode the attorney-client privilege. As to the work product doctrine, however, the court held that section 804.01(2) of the Wisconsin Statutes is consistent with the "expansive view" of the "at issue" exception. In short, the restrictive view applies to assertions of the attorney-client privilege but the work product doctrine incorporates the "expansive view."

Next, the court assessed whether a "duty to cooperate" pierced the attorney-client privilege and the work product doctrine. The court agreed that "the standard cooperation clause was intended to facilitate cooperation in the defense of an underlying suit, not to benefit insurers in a coverage dispute." A "broadly worded clause" of the type used in these policies did not effect a waiver of either the attorney-client privilege or the work product doctrine.

Finally, the court rejected the "common interest" exception. Under section 905.03(4)(e) of the Wisconsin Statutes, "the common interest exception to the attorney-client privilege does not apply when the attorney was not retained or consulted in common by two or more clients." Here it did not apply because Hydrite's lawyers were not retained or consulted in common by the insurers.

Breach of Fiduciary Duty by Directors and Majority Shareholders -
Suits by Minority Shareholders in Nonstatutory Close Corporation -
Dissolution of Corporation for "Oppressive" Conduct

Jorgensen v. Water Works Inc., No. 97-1729 (filed 23 April 1998) (ordered published 29 May 1998)

A critical issue confronted by the court of appeals in this case was whether the minority shareholders in a nonstatutory close corporation have a direct action for breach of fiduciary duty by the directors and majority shareholders that results in an injury primarily to the minority shareholders as individuals. In a decision authored by Judge Vergeront, the court concluded that Wisconsin has recognized such a cause of action and that enactment of the statutory close corporations statute did not alter that common law.

The court further concluded that its decision was not inconsistent with its holding in Read v. Read, 205 Wis. 2d 558, 556 N.W.2d 768 (Ct. App. 1996), where it rejected an argument that the enactment of the statute expanded the rights at common law for those close corporations not electing statutory status. In this case the claim the plaintiffs wished to assert as a direct action was recognized at common law before the enactment of the close corporations statute.

The court also addressed the meaning of Wis. Stat. section 180.1430(2)(b), which provides that the circuit court may dissolve a corporation in a proceeding by a shareholder if it is established that the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent. Specifically, the court focused on the meaning of the term "oppressive." The term is not defined in the statutes and the court accordingly looked for guidance to other jurisdictions that have construed statutes providing for judicial dissolution on the grounds of oppressive conduct.

The court found that the definition of "oppressive conduct" generally employed for the purpose of such a statute is: "burdensome, harsh and wrongful conduct; a lack of probity and fair dealing in the affairs of the company to the prejudice of some of its members; or a visual departure from the standards of fair dealing, and a violation of fair play on which every shareholder who entrusts his money to a company is entitled to rely." The court of appeals adopted this definition, adding the following observations. The definition is intended to be broad and flexible, rather than narrow. In the context of a close corporation, oppressive conduct of those in control is closely related to breach of the fiduciary duty owed to minority stockholders. In footnote the court noted that the broad "burdensome, harsh and wrongful conduct" definition it adopted includes consideration of the frustration of the reasonable expectations of shareholders, when that is appropriate.

Finally, and also in footnote, the court observed that the statute provides that a court may dissolve a corporation in an action by a shareholder if statutorily specified grounds are established. It indicated that its decision in this case should not be read as requiring the court to grant dissolution if the plaintiffs successfully establish oppressive conduct.

Injury by Negligent Use of Dangerous Weapon -
Wis. Stat. section 940.24 - Dogs as "Weapons"

State v. Bodoh, No. 97-0495-CR (filed 13 May 1998) (ordered published 24 June 1998)

The defendant was charged and convicted after his two Rottweilers escaped from a fenced enclosure in his yard and attacked a 14-year-old boy on a bicycle while the defendant was out of town. The boy was transported to the hospital by ambulance and received more than 300 stitches to close all of the wounds inflicted by the attack.

The defendant's conviction was for violating Wis. Stat. section 940.24, which codifies as a Class E felony the causation of bodily harm to another by the negligent operation or handling of a dangerous weapon, explosives, or fire. Pursuant to section 939.22(10), a "dangerous weapon" includes "any device or instrumentality which, in the manner it is used or intended to be used, is calculated or likely to produce death or great bodily harm."

In an opinion authored by Judge Brown, the court of appeals affirmed the conviction. The court concluded that there was sufficient evidence from which a jury could find that the defendant used the dogs as guard dogs and, therefore, intended them to be dangerous weapons. As such, the law imposed a duty upon him to handle the dogs so as not to create a substantial and unreasonable risk of death or great bodily harm to another.

In challenging the conviction the defendant argued that it was improper to charge him with a violation of section 940.24 where his dogs escaped from a contained area during his absence and injured a person. The appellate court, however, concluded that physical or temporary proximity is not a prerequisite to the statutory requirement that the defendant's criminally negligent "handling" of a dangerous weapon caused the injury. Rather, once it is determined that a person intends a dog to be a dangerous weapon, the person has the responsibility to properly supervise the weapon. If the owner exhibits a high degree of negligence in supervising the weapon, and the weapon injures someone as a result of that negligence, there is exposure to criminal liability. Under this scenario, an owner of a dog intended to be used as a dangerous weapon does not necessarily have to be present when the harm occurs and does not have to actively manipulate the dog in such a manner as to create an unreasonable risk of harm to another person in order to incur criminal liability.

In order for liability to attach, there must be evidence that the dog was used or intended to be used by the owner as a dangerous weapon. Once that intent is expressed, there is a duty to operate or handle that dangerous weapon so as to avoid criminal liability. But, said the court, a dog does not become a dangerous weapon unless the owner intends the dog to be used as such. The court, however, issued a disclaimer as part of its opinion. Responding to what it perceived as a possible argument by the prosecution, the court rejected the proposition that if a dog has attacked or bitten others or has attempted to bite others, and the owner is aware of this, then the owner must treat the dog "as though" it were a dangerous weapon even if the owner does not intend the dog to be so.

Judge Snyder filed a dissenting opinion.

Sexual Predators - "Treatability"

State v. Seibert, No. 97-2554 (filed 27 May 1998) (ordered published 24 June 1998)

The court of appeals, in an opinion written by Judge Cane, addressed several issues arising out of the commitment of a sexual predator. The court held that under section 980.08(4) of the Wisconsin Statutes, the "treatability" of an offender is not an issue. Rather, the state must prove that the person is a "sexually violent person" who will engage in acts of sexual violence to a substantial probability unless secured and cared for in an institution. The court of appeals refused to distinguish state supreme court precedent on the basis of a commitment versus postcommitment procedural posture. The court also rejected arguments tied to respondent's "right" to treatment.

Withdrawal of Guilty Plea -
Insufficiency of Plea - Proof Burdens

State v. Nichelson, No. 97-3136-CR (filed 19 May 1998) (ordered published 24 June 1998)

The defendant was convicted of sexual assault following the entry of a no contest plea. He subsequently moved to withdraw that plea, which motion was rejected by the circuit court. On appeal he argued that the circuit court erred by finding that he understood the nature and elements of the sexual assault offense when he entered his plea. In a decision authored by Judge Myse, the court of appeals agreed because, among other things, the state failed to establish by clear and convincing evidence that the defendant understood the information critical to the entry of a plea.

A two-step process is used to determine whether a defendant voluntarily, knowingly, and intelligently entered a plea. First, the court must determine whether the defendant has made a prima facie showing that his plea was accepted without conformance with statutory or other mandatory duties imposed by the Wisconsin Supreme Court and whether he has properly alleged that he in fact did not know or understand the information provided at the plea hearing. If the defendant makes this initial showing, the burden then shifts to the state, which must demonstrate by clear and convincing evidence that the defendant's plea was voluntarily, knowingly, and intelligently entered.

The court concluded that the defendant met his burden in this case and the appellate opinion has significance because of its treatment of the state's attempt to meet its burden.

The court concluded that the state can only meet its burden by providing affirmative evidence that the defendant's plea was voluntarily, knowingly, and intelligently entered. Where the defendant takes the stand and testifies in such a way as to demonstrate that he or she knew and understood the charge, the state can properly rely upon that testimony. However, the court did not agree that a defendant's denial, no matter how incredible, can establish that he or she both knew and understood the constitutional rights being waived. Said the court, it would have been absurd to place the burden of proof on the state and then allow it to establish its case without presenting any affirmative evidence of the defendant's then-existing mental state.

Deputy Sheriffs - Appeals of Disciplinary Actions -
Circuit Court Review Final

Rock County Public Safety and Justice Committee v. Rock County Sheriff, No. 97-1621 (filed 14 May 1998) (ordered published 24 June 1998)

The Public Safety and Justice Committee of the Rock County Board of Supervisors demoted a deputy sheriff from detective to deputy and suspended him for 10 days without pay. The officer appealed that determination to the circuit court pursuant to Wis. Stat. section 59.26(8)(b)6. The circuit court sustained the 10-day suspension, but reversed the demotion.

The committee appealed to the court of appeals. The appellate court, in a decision authored by Judge Dykman, dismissed the appeal because it concluded that the court of appeals lacked jurisdiction to review the circuit court's order. Pursuant to the provisions of the statute cited above, the circuit court's decision to sustain the suspension and to reverse the demotion are final and conclusive decisions that are not subject to further appeal.

Wisconsin Fair Employment Act -
Accommodating Criminal Convictions

Knight v. Labor and Industry Review Commission, No. 97-1606 (filed 13 May 1998) (ordered published 24 June 1998)

Knight applied for a position as a district agent with Prudential Insurance Company of America. At the time he was licensed through the state Office of the Commissioner of Insurance to sell life, casualty, property, accident, and health insurance and was working for a competitor of Prudential. He did not, however, have a securities license.

Under federal law, financial companies that sell securities registered with the Securities and Exchange Commission (SEC) are required to be members of the National Association of Securities Dealers (NASD). In addition, NASD requires that all employees who participate in a company's registered securities business must be individually registered with NASD. There are certain statutory disqualifiers defined by federal law that impede individual registration with NASD. One such disqualifier is a felony conviction within 10 years prior to the NASD application. An alternative registration process for NASD registration is available for those who are statutorily disqualified. It is a somewhat complex and expensive process which, if successful, results in the employer incurring substantial additional supervisory obligations.

Knight had a felony conviction when he applied to Prudential, which was a member of NASD. Prudential had a policy of requiring all of its district agents to become personally registered with NASD because they sold securities. Prudential decided not to proceed with Knight's application based upon a company policy of rejecting applicants who were subject to statutory disqualification on the basis of a felony conviction record.

Knight filed a complaint with the Wisconsin Department of Industry, Labor and Human Relations alleging that Prudential had discriminated against him on the basis of his conviction record and that this was a violation of the Wisconsin Fair Employment Act (WFEA). An administrative law judge (ALJ) concluded that Prudential had not discriminated against Knight and further found that under WFEA, an employer is not required to accommodate a prospective applicant's conviction record. LIRC affirmed the decision of the ALJ as did the circuit court.

In a decision authored by Judge Snyder, the court of appeals affirmed. In order to establish a prima facie case of employment discrimination under WFEA, a complainant must prove, among other things, that he or she was qualified for the position. While it is true that Prudential can take steps on Knight's behalf to overcome the statutory disqualification through the alternative registration process, the availability of that process did not make Knight "qualified" for the position.

Knight further argued that WFEA imposes a duty upon employers to take affirmative steps to accommodate individuals with felony convictions. More specifically, he asserted that Prudential was required to pursue the alternative registration process on his behalf as part of the "hiring process." The appellate court was not persuaded. Said the court, there is nothing in the language of WFEA which states that employers must take affirmative steps to accommodate individuals convicted of felonies. As a result, LIRC correctly found that no such accommodation was required, regardless of whether Knight believes that such an accommodation would further the purpose and spirit of WFEA. Prudential has never submitted an alternative registration application on behalf of a job applicant and the law did not require it to do so in this case.

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