Wisconsin Lawyer
Vol. 75, No. 11, November 2002

Court of Appeals Digest

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

Insurance Juvenile Law Motor Vehicle Law

Municipal Law Property Torts

Insurance

Ambiguous Policies - Limits

Folkman v. Quamme, 2002 WI App 237 (filed 29 Aug. 2002) (ordered published 25 Sept. 2002)

Seventeen-year-old Keith was driving the family car when it collided with another vehicle, seriously injuring his mother and brother. Keith's parents sponsored his driver's license. The parents' car was insured under a policy issued to his mother as the named insured. The declaration page provided that there was a "split limit" of liability for bodily injury - $25,000 for each person and $50,000 for each accident. Keith's parents and injured brother sued Keith and the insurer, which asserted that its liability limit was $50,000. The injured parties contended that the insurer's liability was actually $125,000: $50,000 for Keith's liability to his mother, $25,000 for the mother's liability to her injured son, and $50,000 for the father's sponsor liability. The circuit court held that the limit was $50,000.

The court of appeals, in an opinion written by Judge Vergeront, reversed on the ground that the policy was ambiguous. Summarizing its close textual analysis of the policy, the court concluded that various policy statements "can be reasonably read to provide that the per person and per accident limits for the bodily injury on the declaration page apply to each insured liable in one accident . . .; or they can be reasonably read to apply regardless of the number of insureds, as the [insurer] contends. Since the former construction is more favorable to the insured, that is the one we adopt."(¶17)

CGL Policies - Exclusions - Contractual Liabilities

American Family Mut. Ins. Co. v. The Pleasant Co., 2002 WI App 229 (filed 29 Aug. 2002) (ordered published 25 Sept. 2002)

American Family issued a comprehensive general liability (CGL) policy to the Renschler Company for the design and construction of a building. Anticipating poor soil conditions, Renschler in turn contracted with Lawson because of his expertise with such problems. Nonetheless, the building settled significantly and considerable damage resulted. The owner alleged breach of contract and negligence by Renschler based on Lawson's alleged substandard performance. American Family sought a declaratory judgment that the CGL policy did not provide coverage and that it had no duty to defend in the arbitration proceeding. The trial court ruled, however, that American Family had coverage.

The court of appeals affirmed in part and reversed in part in an opinion written by Judge Vergeront. The "dispositive issue" was "whether the exclusion for 'liability assumed in a contract' in policies issued to [Renschler] preclude[d] coverage for the claims of breach of contract and negligence" (¶1). The issue was controlled by Nelson v. Motor Tech, Inc., 158 Wis.2d 647, 462 N.W.2d 903 (Ct. App. 1990), which construed "the same exclusion in the context of deciding essentially the same issue: whether this exclusion applies when the insurer has entered into a contract to perform services and is sued for breach of contract and for negligence in the manner in which the services were performed" (¶13). Nelson held that the exclusion resulted in no coverage by the insurer (¶11).

The court observed, however, that Nelson is arguably inconsistent with Meyer v. United States Fire Insurance Co., 218 Wis. 2d 499, 582 N.W.2d 40 (Ct. App. 1998), which somehow failed to "mention" Nelson. Since the court of appeals lacks authority to overrule, modify, or withdraw language from prior cases, the only option was to follow Nelson, the earlier decision (¶18). Only the supreme court has the power to decide whether Meyer or Nelson correctly points the way. In sum, Renschler's liability for Lawson's alleged mistakes arose only through the contract, which was explicitly excluded from coverage by the policy.

Juvenile Law

Court-ordered Deferred Prosecution - District Attorney Consent Not Required - Limitations on Prosecutorial Termination of Court-ordered Deferred Prosecution

State v. Lindsey A.F., 2002 WI App 223 (filed 15 Aug. 2002) (ordered published 25 Sept. 2002)

This case arose under the Wisconsin Juvenile Justice Code. According to the code, once a delinquency petition has been filed, a juvenile may move under Wis. Stat. section 938.21(7) for a court-ordered consent decree or for dismissal and deferred prosecution. On this appeal the state argued that the circuit court's authority to dismiss and refer for deferred prosecution is dependent on the consent of the district attorney. In a decision authored by Judge Lundsten, the court of appeals disagreed.

The appellate court held that a circuit court order under section 938.21(7) dismissing a delinquency petition and referring the matter for deferred prosecution does not require district attorney consent. The court further held that a district attorney may not override a dismiss-and-refer order by filing a new delinquency petition with the same charges and facts.

The state contended that such a holding would leave unresolved issues because, once a case has been referred back to the intake worker for deferred prosecution, there is no framework for oversight. The court disagreed. If a juvenile, a parent, or a guardian fails to cooperate, nothing prevents an intake worker from asking the district attorney to move the court for reconsideration of its dismissal order. Further, the statutes provide a mechanism for returning the matter to the district attorney when a juvenile violates a deferred prosecution agreement or when a juvenile, a juvenile's parent, a guardian, or a legal custodian terminates an agreement. See Wis. Stat. § 938.245(4), (7).

Motor Vehicle Law

Chapter 345 Traffic Forfeiture Proceedings - Summary Judgment Not Available

State v. Schneck, 2002 WI App 239 (filed 21 Aug. 2002) (ordered published 25 Sept. 2002)

The defendant was issued a uniform traffic citation for knowingly transporting alcohol in a motor vehicle as an underage person. The matter was prosecuted as a traffic forfeiture action in the circuit court pursuant to Wis. Stat. chapter 345. The defendant pleaded not guilty and then filed a motion for summary judgment. The circuit court issued a decision holding that summary judgment was not available in a chapter 345 prosecution.

In a decision authored by Judge Nettesheim, the court of appeals affirmed. In traffic proceedings the citation is statutorily deemed to be adequate process to give the appropriate court jurisdiction over the person. The citation functions as the complaint. However, there is nothing in the chapter 345 procedural statutes governing traffic forfeiture actions that requires or contemplates the kind of responsive pleading (like an answer in ordinary civil practice) that would enable a trial court to determine if a material issue of fact or law has been joined. A trial court cannot perform even the rudimentary steps of summary judgment methodology in traffic forfeiture proceedings because the defendant's response to a traffic citation (a plea of guilty, no contest, or not guilty or a motion to dismiss based on certain statutorily identified defenses) is not the equivalent of an answer in a conventional civil action.

In this case the defendant had entered a plea of not guilty. This plea creates material factual issues for the trier of fact to decide. Summary judgment is available only when no material issues of fact exist and a party is entitled to judgment as a matter of law.

OWI Sentencing Guidelines - Disparity Among Judicial Districts

State v. Smart, 2002 WI App 240 (filed 27 Aug. 2002) (ordered published 25 Sept. 2002)

The defendant was convicted of OWI as a third offender. The court sentenced him using the sentencing guidelines in effect in the judicial district where the offense occurred. Among the issues on appeal was the defendant's contention that Wisconsin's OWI sentencing scheme, which allows each judicial district to establish presumptive guidelines, violates due process and equal protection because it allows for different sentences for similarly situated offenders based solely on the judicial district where they were convicted.

In a decision authored by Chief Judge Cane, the court of appeals affirmed. The court began its analysis by noting that a statute that creates a classification like the one at issue in this case does not violate equal protection if it is rationally related to a valid legislative objective. The statute authorizing the state's judicial districts to adopt OWI sentencing guidelines does create different classes of people, by making people convicted of OWI in one judicial district subject to potentially different sentencing standards than those in other districts. While the court agreed that the current statute may not be the best way to reduce drunk driving sentencing disparity, a rational basis inquiry does not require perfection. "Our only question is whether the statute bears some relationship to advancing that goal. It does. By mandating the creation of guidelines within judicial districts, the statute attempts to reduce sentencing disparity within those districts. While statewide guidelines would perhaps be more equitable, there is no requirement that the legislature choose the wisest or most effective means of reducing disparity" (¶ 7). For the same reasons, the court rejected the defendant's due process challenge to the guideline system.

Municipal Law

Police and Fire Commission Disciplinary Hearings - Presence of Mayor's Liaison During Deliberations

State ex rel. Heil v. Green Bay Police & Fire Comm'n, 2002 WI App 228 (filed 2 July 2002) (ordered published 25 Sept. 2002)

The Green Bay police chief brought numerous charges against an officer before the Police and Fire Commission (the commission). The city of Green Bay maintains a liaison position between the commission and the common council. The liaison appointed by the mayor was present throughout most of the hearings at issue in this case and sat in on the commission's deliberations. He participated fully except that he did not vote or sign the decision. After the hearings and deliberations, the commission discharged the officer.

The officer had two ways to appeal the commission's decision. One is a statutory appeal, under Wis. Stat. section 62.13(5)(i), in which the circuit court determines whether there was just cause to sustain the charges against the accused. A disciplined officer may also file a writ of certiorari for review of legal defects in the administrative record for which there is no statutory judicial review. These are discrete procedures, and both may be utilized. In this instance the officer pursued both avenues of review.

A critical issue on certiorari review involved the presence of the liaison at the disciplinary hearings and during the deliberations of the commission. In a decision authored by Judge Hoover, the court of appeals concluded that the mere presence of the liaison was enough to taint the entire proceedings, including the record and decision. The charges were brought by the police chief, who is supervised by the mayor. Thus, the prosecuting official's superior appointed his own representative to the panel and thereby tainted the appearance of the commission's independence. Although the liaison did not vote, he participated as a "resource" in the deliberations and his mere presence, sitting as a non-voting panel member, gave a sufficient appearance of impropriety to taint the entire proceedings. Accordingly, said the court, a full rehearing of the disciplinary matter is appropriate.

Property

Mortgage - "Lost" Note

Mitchell Bank v. Schanke, 2002 WI App 225 (filed 28 Aug. 2002) (ordered published 25 Sept. 2002)

Mitchell Bank held a land mortgage that was recorded in 1987. The mortgage referenced a specific $50,000 note. The bank, however, was not able to produce the note. The bank also claimed that the mortgage was intended to secure other debts besides the $50,000 loan. The trial court declared the bank's mortgage lien invalid, releasing and striking the mortgage from the record because no note existed.

The court of appeals affirmed. In an opinion written by Judge Snyder, the court separately analyzed the missing note and the mortgage's "dragnet" clause. First, the bank's foreclosure action required that it prove the note's terms and a default of those terms. The mortgage secured only the note, which evidenced the alleged indebtedness. The bank's concession that it could not produce the note or otherwise prove its terms was fatal to the foreclosure claim.

Second, the mortgage's dragnet clause did not secure the bank's interest in other indebtedness. Such clauses are looked upon with disfavor; moreover, "if the amount of debt is not both stated in the mortgage and identifiable from the mortgage documents, the mortgage is not enforceable" (¶27). Here the "amount of the past due debt [was] not stated anywhere in the Mortgage," nor was the amount of "debt identifiable from the Mortgage documents because there [were] no documents attached to the Mortgage" (¶28).

Power of Attorney - Self-dealing - Gifts - Parol Evidence

Praefke v. American Enter. Life Ins. Co., 2002 WI App 235 (filed 14 Aug. 2002) (ordered published 25 Sept. 2002)

Praefke was named attorney-in-fact for her friend, Betty, under a durable power of attorney executed in 1996. Although a year later Betty was diagnosed with dementia, no question arose concerning her competency in 1996. Before Betty's death, Praefke made herself the sole beneficiary on a $75,000 annuity contract owned by Betty. Praefke also made gifts to herself and others from Betty's property. Following Betty's death, Praefke claimed the proceeds of the annuity accounts, but the insurer refused to disburse them absent a court order or its equivalent. Praefke sued the insurer. The trial court granted summary judgment to the insurer and the former annuity beneficiary on the ground that Praefke had violated her fiduciary duty to Betty by self-dealing.

The court of appeals, in an opinion written by Judge Brown, affirmed. The power of attorney did not explicitly grant Praefke the power to make gifts. Prior cases establish "that unless the power of attorney specifically allows the agent to gift property to himself or herself, or contains an 'unlimited or unbridled' gifting power, the agent lacks authority to make gratuitous transfers" (¶10). The rule was amply supported by the potential for fraud, particularly in situations in which the principal (here Betty) later becomes incapacitated.

Praefke contended, however, that Betty had orally authorized her to make gifts. Although case law nationwide is divided on this point, the court of appeals chose to follow precedent that "stands unequivocally for the proposition that an oral authorization will not permit an attorney-in-fact to make gifts of the principal's assets" (¶17). Such a rule also is amply justified by the interests of justice, particularly the "dangerous power" that inheres in a durable gifting power that "survives the principal's personal ability to monitor its exercise" (¶18)

Leases - Liquidated Damages - Reasonableness

Westhaven Assocs. Ltd. v. C.C. of Madison, 2002 WI App 230 (filed 29 Aug. 2002) (ordered published 25 Sept. 2002)

In 1997, Cost Cutters entered a 10-year lease for space at a shopping mall and, just two years later, closed its store without the mall's approval. The mall filed this action for damages based on Cost Cutters' breach. The trial court ruled that the mall was entitled to recover attorney fees as a result of the breach but also ruled that the lease's "failure to do business" provisions were unreasonable and therefore unenforceable. Both sides appealed.

The court of appeals, in an opinion written by Judge Lundsten, reversed and remanded the case. The court held that the lease language limited the recovery of attorney fees to those incurred for legal services provided in the mall's efforts to relet the space; the lease did not permit recovery of attorney fees incurred in pursuing rent deficiencies or stipulated damages (¶15).

The court also held that the stipulated damages provision was reasonable and therefore the mall was entitled to its stipulated damages. More precisely, the court looked at three facets of the "failure to do business" provisions. First, the court examined whether the parties intended the provision to provide liquidated damages or to provide a penalty. The lease's provisions, "taken together, [were] at least somewhat tailored to the space leased by Cost Cutters."

However, since the parties' arguments about the first factor were not "particularly helpful," the court turned to two additional factors: 1) whether the damages could be estimated at the time of contracting; and 2) whether the provision was a reasonable forecast of the harm caused by the breach. Cost Cutters failed to show that the "failure to do business" fees unreasonably estimated the mall's damages. Indeed, Cost Cutters conceded that the provisions "are common in leases with other shopping malls" (¶30). Finally, Cost Cutters failed to demonstrate that the provisions were an unreasonable forecast of the actual harm. "When a mall has a low occupancy rate, it does not follow that the mall suffers no harm when a significant tenant vacates" (¶ 33).

Unrecorded Leases - Constructive Notice - Frivolous Defenses

Hoey Outdoor Advertising Inc. v. Ricci, 2002 WI App 231 (filed 9 April 2002) (ordered published 25 Sept. 2002)

In 1999 Ricci purchased land on which sat a billboard. The billboard's owner, Hoey, had leased the right to use the land for 10 years from the land's former owner. The lease was never recorded. Ricci demanded that the billboard be removed, but Hoey refused to do so. Hoey's attorney argued that the unrecorded lease was enforceable against Ricci, who obviously had constructive notice of the lease. Ricci later used his truck to pull the billboard down. Hoey filed suit alleging breach of contract and intentional interference with a contractual relationship. The trial court found for Hoey on the intentional interference claim, holding that the lease was enforceable against Ricci because he had constructive notice. The court awarded compensatory damages and also awarded costs and attorney fees on the ground that Ricci's defense was frivolous.

The court of appeals, in an opinion written by Chief Judge Cane, affirmed in part and reversed in part. Under Wis. Stat. section 706.09, Ricci had affirmative notice of the lease. "Both the billboard and its location were open and obvious. The sign is immobile and was not moved at any time during Ricci's ownership. The only information that was not openly available to [a] passerby was the boundaries of the realty to which the billboard was affixed. Yet Ricci, as the purchaser, had that information. The fact that he chose not to survey the property or investigate the precise location of his boundaries does not negate his affirmative notice under Wis. Stat. § 706.09(2)(a)" (¶17).

The court also upheld the finding that Ricci offered frivolous defenses to Hoey's claims for declaratory judgment and intentional interference, especially in light of Ricci's failure to determine whether the billboard was on his property when he tore it down and his continued assertion at trial that he was still unaware of this fact.

Ricci prevailed in his defense of the breach of contract and punitive damages claims. The court remanded for a determination of the costs and attorney fees solely attributable to the claims found frivolous.

Torts

Economic Loss Doctrine - Warranties - Misrepresentations

Selzer v. Brunsell Bros. Ltd., 2002 WI App 232 (filed 29 Aug. 2002) (ordered published 25 Sept. 2002)

A homeowner sued a window manufacturer for damages related to decay of the windows installed in his new home. The circuit court granted summary judgment to the manufacturer.

The court of appeals, in an opinion written by Judge Deininger, affirmed in a decision that addresses several different theories of liability. First, although the homeowner established the elements of an express warranty claim - 1) an affirmation of fact, 2) inducement to the buyer, and 3) reliance thereon by the buyer - the

court found that it was not timely. The windows were delivered no later than 1990, and the lawsuit was not filed until 2000. By statute, warranty claims must be commenced within six years after they accrue (the date of delivery) unless the claims fall within the "future performance" exception. In the latter event, the claims would not have accrued until the homeowner discovered the window rot, in 1997. In construing the future performance exception, the court adopted a "stringent standard" under which the warranty must explicitly guarantee "a product for a particular number of years, or for a less precise, but still determinable period of time" (¶19). "Vague statements concerning product longevity" do not suffice (¶22). In this case, the manufacturer's catalog simply stated that "all exterior wood is deep-treated to permanently protect against rot and decay," an assertion that failed to meet the stringent standard (¶23). The court also held that the future performance exception is not applicable to implied warranty claims.

Second, the trial court properly dismissed the homeowner's false advertising claim. Such actions must be brought within three years after the occurrence of the alleged unlawful act. Here the claim accrued in 1988 when the manufacturer gave the architect the catalog that contained the allegedly false representation.

Third, the homeowner's strict responsibility and negligent misrepresentation claims were barred by the economic loss doctrine. The homeowner expected the windows to resist rot, which they failed to do. Yet he did not show any harm beyond his disappointed expectations, which are not compensable in tort (these are contract damages). Nor did the "other property" exception apply. "Had the windows resisted rot but spontaneously shattered, spewing shards of glass into an adjacent Picasso, [the homeowner] might well argue that the defective windows damaged his painting in an entirely unanticipated manner, going well beyond a failure to perform as expected and entitling him to pursue a tort remedy" (¶37). Moreover, the "integrated system" rule also precluded the other property exception because the court could not "discern a meaningful analytical difference between a window in a house, a gear in a printing press, a generator connected to a turbine, or a drive system in a helicopter," all examples drawn from prior case law. (See ¶ 39.)

Negligence - Landlords

Alvarado v. Sersch, 2002 WI App 227 (filed 29 Aug. 2002) (ordered published 25 Sept. 2002)

Alvarado worked for a company that cleaned apartments at the end of the renters' lease periods. While cleaning up an apartment, she found a high explosive firework that was the equivalent of a quarter stick of dynamite. Thinking it was just a harmless "candle," Alvarado lit the firework for the sole purpose of reigniting the pilot light on a gas stove. The firework exploded, blowing off most of her hand. According to the record, Alvarado had had no prior experience with any type of fireworks or explosives. She sued the company that owned the apartment and the management company whose duty it was to "thoroughly" inspect the apartments before the cleaning crews entered. The trial court dismissed the complaint against the owner and the management company on the grounds that they owed Alvarado no duty of care.

The court of appeals, in an opinion written by Judge Lundsten, affirmed, although the court used a policy analysis to support its reasoning instead of the approach used by the lower court. Two policies militated against liability. First, the remoteness of the injury from the alleged negligence precluded liability. There was no evidence, for example, that "vacating tenants in general leave behind hazardous materials with any regularity" (¶32). The court found "unworkable" the suggestion that the owner or management company should always search for hazardous substances or provide cleaning crews with specialized training (¶33). Second, "in retrospect," it was too "highly extraordinary that the negligence should have resulted in the harm." Although Alvarado's injury was "tragic," the defendants could not be faulted for failing to anticipate and remove such a hazard (¶34).

Finally, the court said that its opinion was "case specific" and should not be read to mean that "landlords have no obligation to assure that apartments are hazard-free prior to the time new tenants take occupancy. Neither [does the court] suggest that landlords never have an obligation to search for hazardous materials" (¶35).

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