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Vol. 73, No. 8, August 2000

Supreme Court Digest

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

Note: Each case summarized in the Supreme Court Digest includes its new public domain citation.

| Civil Procedure | Corporations |
| Criminal Law | Criminal Procedure |
| Debtor-creditor Law | Employment Law |
| Family Law | Insurance | Labor Law |
| Municipal Law | Torts | Zoning |

Docketing Judgments - Actions Against County Clerk for Failure to Docket at Proper Time - Statute of Limitations

South Milwaukee Savings Bank v. Barrett, 2000 WI 48 (filed 9 June 2000)

Wis. Stat. section 806.10(3) provides that a clerk of circuit court who neglects to docket a judgment "at the proper time" shall be liable in damages to an injured party. A judgment is "docketed" when the clerk places the information about the judgment in the judgment docket. This is to be distinguished from "entry" of a judgment that occurs when the judgment is filed in the office of the clerk of court.

In this case, the supreme court considered the statute of limitations for a claim brought under section 806.10(3). In a unanimous decision authored by Chief Justice Abrahamson, the court concluded that the six-year statute of limitations under section 893.93(1)(a) applies in these types of actions.

The court also considered what the statute means when it refers to a clerk of circuit court neglecting to docket a judgment "at the proper time." The court concluded that to neglect to docket a judgment "at the proper time" means to neglect to docket the judgment immediately upon entry of the judgment. This is particularly significant in a race-notice jurisdiction like Wisconsin, where prompt docketing of judgments is needed to establish the proper priority of claims.

In this case, the clerk neglected to docket a judgment at the proper time when the judgment was entered at approximately 3:30 p.m. on one day but was not docketed until 9 a.m. on the following day.

Mergers - Valuation of Dissenters' Shares - Minority Discounts - Unfair Dealing

HMO-W Inc. v. SSM Health Care System, 2000 WI 46 (filed 7 June 2000)

Wisconsin law allows a minority shareholder to dissent from a fundamental corporate action, such as a merger, and to receive the fair value of those minority shares. See Wis. Stat. §180.1302(1). If the shareholder expresses dissatisfaction with the payment of shares offered by the corporate entity and complies with appropriate procedures, a corporation may institute a special proceeding and petition the court to make a binding determination as to the fair value of the shares.

The first issue considered by the supreme court in this decision was whether a minority discount may apply in determining the fair value of a dissenter's shares. A "minority discount" addresses the lack of control over a business entity on the theory that noncontrolling shares of stock are not worth their proportionate share of the firm's value because they lack voting power to control corporate actions. In a unanimous decision authored by Justice Bradley, the supreme court concluded that minority discounts may not be applied to determine the fair value of dissenters' shares in an appraisal proceeding. Application of a minority discount in determining the fair value of dissenters' shares frustrates the equitable purpose of protecting minority shareholders.

The court also considered whether a fair value determination of a dissenter's shares may include consideration of unfair dealing in the valuation of those shares. In this appraisal action this issue was raised as an affirmative defense; the minority shareholders did not plead breach of fiduciary duty nor did they seek damages based on such a breach. The supreme court concluded that a court determining the fair value of shares subject to appraisal must consider "all relevant factors." These factors may include evidence of unfair dealing affecting the value of a dissenter's shares.

Justice Bablitch did not participate in this decision.

Special Litigation Committees - Independence

Einhorn v. Culea, 2000 WI 65 (filed 22 June 2000)

The circuit court dismissed the derivative shareholder action brought by Einhorn, a minority shareholder and member of the board of directors of Northern Labs. The circuit court ruled that the threshold for determining whether a member of the special litigation committee is independent within the meaning of Wis. Stat. section180.0744 (1997-98) is "extremely low" and found that the special litigation committee was independent. The court of appeals affirmed the circuit court's judgment, "concluding that the circuit court's assessment of whether each member of the special litigation committee was independent was based on facts supported by the record and was not clearly erroneous."

The supreme court, in a decision written by Chief Justice Abrahamson, reversed. The issue raised in the case "was the proper interpretation and application of the standard set forth in Wis. Stat. §180.0744 of whether a member of a special litigation committee is independent." Thus, the issue on appeal was not the likelihood that the derivative action would succeed, but whether the derivative action should be dismissed on the basis of the decision of the special litigation committee. The supreme court held that both lower courts erred "in declaring that the threshold established by the legislature in §180.0744 in determining whether a member of a special litigation committee is independent is 'extremely low.'"

Addressing an issue of first impression, the court also held that "in deciding whether members of the special litigation committee are independent, the circuit court should determine whether, considering the totality of the circumstances, a reasonable person in the position of the member of the special litigation committee can base his or her decision on the merits of the issue rather than on extraneous considerations or influences. In other words, the test is whether a member of the committee has a relationship with an individual defendant or the corporation that would reasonably be expected to affect the member's judgment with respect to the litigation at issue." The case was remanded for further proceedings not inconsistent with the court's opinion.

Exposing Minors to Harmful Materials Over the Internet - Constitutionality of Wis. Stat. section 948.11(2)

State v. Weidner, 2000 WI 52 (filed 16 June 2000)

Wis. Stat. section 948.11(2)(a) provides that "whoever, with knowledge of the nature of the material, sells, rents, exhibits, transfers or loans to a child any harmful material [including representations of sexually explicit conduct], with or without monetary consideration, is guilty of a Class E felony." The statute does not require the state to prove that the defendant knew the age of the person receiving the harmful material. Rather, it codifies an affirmative defense that places upon the defendant the burden of proving that the defendant had reasonable cause to believe that the child had attained the age of 18 years and the child exhibited to the defendant a draft card, driver's license, birth certificate, or other official or apparently official document purporting to establish that the child had attained the age of 18 years.

In this case, the defendant used Internet technology to send sexually explicit pictures to a minor. Though only 16 at the time, the child who received these transmissions via a chatroom informed the defendant that she was 17. All interaction between the two occurred over the Internet and did not involve any face-to-face contact.

The defendant was charged with several counts of violating section 948.11(2). The circuit court dismissed the prosecution, reasoning that because the statute shifts to the defendant the burden of proving knowledge of the victim's age and the Internet does not provide the requisite face-to-face contact to ascertain whether the victim is a minor, the statute is unconstitutional.

In a unanimous decision authored by Justice Bradley, the supreme court concluded that because the state does not bear the burden of proving that the defendant knew the age of the minor, section 948.11(2) is unconstitutional in the context of the Internet and other situations that do not involve face-to-face contact. The statute essentially sets forth a strict liability offense that deprives an individual of the opportunity to prove lack of knowledge. Persons employing the Internet lack the means to reasonably ascertain the age of the persons with whom they are corresponding. There is an absence of both face-to-face contact and a satisfactory degree of reliability. Thus, the statute renders it virtually impossible for defendants as Internet users to meet the burden of proving the affirmative defense described above. Although the court's analysis centered exclusively on the Internet, it indicated that its holding would apply equally to mail, fax, and other situations devoid of face-to-face contact. The court further concluded that the statute could not be salvaged by judicial construction.

Videotaping Nudity - Constitutionality

State v. Stevenson, 2000 WI 71 (filed 28 June 2000)

Stevenson was convicted of two counts of making videotapes of a nude person without her consent, contrary to Wis. Stat. section 944.205(2)(a). The person depicted was Stevenson's ex-girlfriend. He made the tapes by "peeping" through her windows from various perches.

The supreme court reversed because the videotape statute was unconstitutionally overbroad. Writing for the court, Justice Bradley observed that "Stevenson's conduct of surreptitiously videotaping his former girlfriend in the nude is abhorrent and that such conduct is given no protection under the First Amendment." Yet overbreadth analysis focuses on the statute, not the defendant's conduct. The state conceded that the statute was overbroad on its face because it "improperly prohibits all visual expression of nudity without explicit consent, including political satire and newsworthy images" (¶ 21). It even includes reproductions of famous artworks. The court was unable to construe the statute in such a way as to save its constitutionality. To save it meant adding two elements that would significantly alter the Legislature's original creation - a "rewrite."

Justice Wilcox, joined by Justice Crooks, dissented on the ground that a limiting construction was feasible.

Six-Person Juries in Misdemeanor Cases - Unconstitutional Statute - Waiver of Objection

State v. Huebner, 2000 WI 59 (filed 20 June 2000)

Wis. Stat. section 756.096(3)(am) (1995-96) provided that a jury in misdemeanor cases shall consist of six persons. In State v. Hansford, 219 Wis. 2d 226, 580 N.W.2d 171 (1998), the supreme court held this statute unconstitutional as violating the jury trial guarantee of article I, section 7 of the Wisconsin Constitution. [Note: This statute has been repealed and reenacted in substantially the same language at Wis. Stat. section 756.06(2)(am) (1997-98).]

At the time of the defendant's trial, the Hansford appeal was pending before the supreme court. Nevertheless, the defendant did not object to the use of a six-person jury in his misdemeanor trial, and he was subsequently convicted.

The issue before the supreme court in this case was whether a defendant who did not object to the use of a six-person jury at his misdemeanor trial, as authorized by the statute cited above, may obtain a new trial in reliance on the decision in Hansford holding section 756.096(3)(am) unconstitutional. Writing for three justices of the court, Justice Wilcox concluded that the defendant is not entitled to a new trial. It is a fundamental principle of appellate review that issues must be preserved at the circuit court. Issues not preserved at that level, even alleged constitutional errors, generally will not be considered on appeal. The defendant forfeited his right to a 12-person jury when he failed to object to the use of a six-person jury at his misdemeanor trial.

The court also declined to exercise its discretionary power to reverse the defendant's conviction. The defendant did not establish that a miscarriage of justice occurred in his case or that the real controversy was not tried. [Note: An earlier claim by the defendant that he had received ineffective assistance of counsel was abandoned and, on appeal, he asserted that trial counsel's assistance was neither incompetent nor deficient.]

Justice Prosser filed a concurring opinion in which he joined in the judgment to affirm the defendant's conviction but wrote separately to argue that the statute authorizing six-person juries in misdemeanor cases is constitutional and that the Hansford decision should be overruled.

Chief Justice Abrahamson filed a dissenting opinion that was joined by Justices Bradley and Sykes.

Search and Seizure - Warrantless Entry of Home - Hot Pursuit - Exigent Circumstances - Attenuation Analysis

State v. Richter, 2000 WI 58 (filed 20 June 2000)

A sheriff's deputy responded to an early-morning dispatch of a burglary in progress at a trailer park. The victim flagged down the deputy as he arrived on the scene and told him that someone had broken into her mobile home, and that she had seen the intruder flee her trailer and enter another trailer across the street. At that second trailer the deputy observed signs of forced entry - a window screen was knocked out and lying on the ground. The deputy shined his flashlight into the open window and attracted the attention of two people who were sleeping on the floor. They opened the door and identified a third person, who was sleeping on the couch, as the owner of the trailer. The deputy entered the trailer, woke the owner, told him what had happened, and asked his permission to search the trailer for the burglary suspect. Permission was granted and, during the search, the deputy observed marijuana in plain view, which the owner admitted was his.

The owner of the second trailer was charged with several drug offenses and he moved to suppress the physical evidence and his statements, claiming they were the product of an illegal entry of his trailer. The circuit court granted the motion and the court of appeals affirmed.

In a majority opinion authored by Justice Sykes, the supreme court reversed. It concluded that the entry was justified by exigent circumstances - specifically, the deputy's "hot pursuit" of the burglary suspect and his need to protect the safety of those inside the trailer.

The exigent circumstance of "hot pursuit" is established where there is an immediate and continuous pursuit of a suspect from the scene of a crime. The warrantless entry of the defendant's trailer was justified by this exigent circumstance. The supreme court rejected the implication in the court of appeals' decision in this case that hot pursuit as a justification for a warrantless home entry requires that the officer himself personally observe the crime or the fleeing suspect. The supreme court did not believe there is such a prerequisite. The exigency of an officer's pursuit of a suspect may be just as great when the officer is told of the crime and the whereabouts of a suspect by an eyewitness just after its commission as when he observes it himself. To allow a warrantless entry when an officer personally observes a crime and pursues the suspect, but disallow it when he immediately responds to an eyewitness report and pursues the suspect would, said the court, be arbitrary.

The court also concluded that the warrantless entry was justified by the exigency of a threat to the safety of the suspect or others. The deputy reasonably believed that the intruder he was pursuing posed a threat to the safety of the occupants of the second trailer. It was the middle of the night. A stranger had just broken into the first trailer, but was discovered and therefore abandoned whatever crime he intended to commit in the first trailer, fleeing into the trailer across the street. There were obvious signs of forced entry there and it was reasonable to infer that the suspect did not belong in the second trailer. There were people sleeping inside that trailer at the time the intruder entered, creating a situation fraught with potential for physical harm if something was not done immediately to apprehend the suspect. [In hindsight, there apparently was no threat to those inside the second trailer, because the "intruder," in fact, was a resident there. But hindsight does not apply to the exigency analysis; a court only considers the circumstances known to the officer at the time entry was made.]

Accordingly, the court concluded that the warrantless entry of the defendant's trailer was justified based on the exigent circumstances of hot pursuit and threat to safety and was therefore reasonable under the Fourth Amendment.

The court also concluded that, even if the entry had been contrary to the Fourth Amendment, the defendant's consent to enter was sufficiently attenuated from the entry to purge any taint of illegality.

Chief Justice Abrahamson filed a dissenting opinion that was joined by Justice Bradley.

Judgment Liens - Homestead Exemption

Rumage v. Gullberg, 2000 WI 53 (filed 16 June 2000)

Under Wisconsin law, a debtor can shelter up to $40,000 of homestead equity from the lien of a judgment creditor. When the debtor's homestead equity is at or below the statutory maximum, it is "fully exempt." The issue before the supreme court in this case was whether a properly docketed judgment constitutes a valid lien against fully exempt homestead property at the time the property is sold.

The judgment-creditor argued that a docketed judgment is a lien on homestead property owned by a judgment debtor; it is only the value of the homestead up to the statutory maximum of $40,000 that is exempt from a creditor's claim. He maintained that a judgment lien can be removed from the homestead's chain of title only through some judicial process such as a levy of execution or a declaratory judgment. A private sale cannot extinguish a judgment lien and the docketed judgment remains a lien on the property.

The defendants contended that if the debtor's equity in the homestead property at the time of sale is at or below the $40,000 exempted by statute, then the homestead is fully exempt and the judgment lien does not attach. As a result, a fully exempt homestead can be transferred in a private sale unencumbered by the judgment lien.

In a unanimous decision authored by Justice Bablitch, the supreme court concluded that a judgment lien is not a valid lien against fully exempt homestead property. If the debtor has less than $40,000 in equity, then the homestead is fully exempt. The debtor possesses no equity interest upon which the judgment can be a lien. As a result, there is no lien, and accordingly, a debtor-seller can give clear title to the purchaser of fully exempt homestead property.

If the debtor's equity in the homestead exceeds the amount sheltered by statute, there is surplus equity and the homestead is "partially exempt." The supreme court concluded that when a homestead is partially exempt, a docketed judgment is a lien upon the debtor's equity in excess of the amount sheltered by the statute. When the partially exempt property is sold, this defect must be corrected in order for the seller to give clear title.

Family Leave - Paid Sick Time - ERISA - Preemption

Aurora Medical Group v. Dept. of Workforce Development, 2000 WI 70 (filed 27 June 2000)

A nurse requested family leave to adopt a child. Her employer granted the leave but denied her additional request to substitute paid sick time for unpaid family leave on the ground that she was not ill. She was permitted to apply vacation and holiday/personal time toward the leave. The nurse filed a complaint with the Department of Workforce Development (DWD). An administrative law judge (ALJ) ordered the employer to credit the nurse with about 30 hours in vacation time that she used instead of her paid sick time. The circuit court affirmed the ALJ. The court of appeals also affirmed.

The supreme court, in a decision written by Justice Crooks, affirmed the court of appeals. The court held that the employer failed to show that section 514(a) of ERISA preempts Wisconsin's Family and Medical Leave Act's (FMLA) "substitution provision." More precisely, the employer "failed to carry its burden of overcoming the presumption against preemption." First, the employer "failed to establish that the substitution provision 'relates to' employment benefit plans under section 514(a) of ERISA." Second, it also failed to "show a clear and manifest purpose by the Congress to pre-empt the Wisconsin FMLA substitution provision." To the contrary, it appears that Congress intended to protect more generous state-granted family leave rights. Third, the employer failed "to show how ERISA preemption of state-provided family leave rights would not result in impairment of the federal FMLA in contravention of section 514(d) of ERISA." (¶ 37)

Divorce - Property Division - Power of Courts to Construe Their Judgments

Washington v. Washington, 2000 WI 47 (filed 7 June 2000)

The husband in this divorce action is a federal employee who anticipated retirement approximately 21 years from the date of the divorce judgment. His federal pension plan was valued at $50,000 at the time of divorce. Desiring to maintain an equal property division of all property, the circuit court awarded the wife $24,000 of the pension and awarded the husband $26,000. The judgment made no mention of interest or appreciation on either party's lump-sum share of the pension or when or how payment of the federal pension was to be made. The wife will not get her share under the divorce judgment until payments are made to her ex-husband when he retires.

The parties disagree as to the correct construction of the circuit court's division of the federal pension. The husband maintains that at the time of his retirement his ex-wife would receive her specified lump-sum share of the pension and that he alone would receive any and all appreciation and interest that accumulated on both spouses' shares. The wife argues that she should receive appreciation and interest on her lump-sum share of the pension and that her ex-husband should receive appreciation and interest on his lump-sum share of the pension.

The wife filed a motion asking the circuit court to amend the divorce judgment to award her appreciation and interest on her lump-sum share of the pension. The circuit court denied the motion, believing that Wis. Stat. section 767.32(1)(a) prohibits modifying or revising the provisions of a judgment of divorce with respect to the final division of property. The court of appeals affirmed. In a unanimous decision authored by Chief Justice Abrahamson, the supreme court reversed the court of appeals.

The issue before the supreme court was whether a circuit court may construe its judgment and allocate appreciation and interest on a lump-sum share of a pension awarded to a spouse (but not payable immediately) when the final division of property in the divorce judgment is silent about any such allocation. The supreme court concluded that a circuit judge may construe the final division of property in a divorce judgment and allocate appreciation and interest on a pension when the divorce judgment is silent about the allocation of appreciation and interest on a lump-sum share awarded to a spouse but not payable immediately. The silence about appreciation and interest makes the judgment ambiguous. A circuit court's construction of the ambiguous final division of the pension under these circumstances does not violate the statute cited above. Although a circuit court may not revise or modify the final division of property, it has the power to effectuate its orders and do justice. A divorce judgment that is clear on its face is not open to construction. However, if it is ambiguous, construction is allowed.

The judgment described above was held to be ambiguous about the allocation of appreciation and interest on the pension between the date of the divorce and the distribution of the pension. Accordingly, the supreme court concluded that the circuit judge should determine the allocation on remand.

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