Vol. 77, No. 4, April 2004

Supreme Court Digest

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

Contracts Criminal Procedure Municipal Law

Elder Law Family Law

Contracts

Mortgages - Consideration - "Dragnet Clause" - Marital Property

Mitchell Bank v. Schanke, 2004 WI 13 (filed 27 Feb. 2004)

The "extremely complicated and somewhat incomplete" facts of this appeal concern the validity of a bank's mortgage on land that secured a preexisting debt. The debtor's wife owned an undivided one-half interest in the disputed property. In 2002 another creditor filed a declaratory judgment action that sought to invalidate the bank's mortgage on the land. The bank then began a foreclosure action on the same property. The actions were consolidated. The circuit court invalidated the bank's mortgage for lack of consideration. The court of appeals affirmed, also holding that the bank had failed to provide the underlying debt in the mortgage and that the mortgage's "dragnet clause" was unenforceable.

The supreme court, in an opinion written by Justice Wilcox, reversed. First, the court held that there was consideration for the mortgage, because it was an executed contract signed under seal. "Under Wisconsin law, when an executed contract is signed under seal, the seal is conclusive proof of consideration, and consideration may not be impeached absent a factual showing of fraud" (¶ 24). No proof of fraud was offered.

Second, the lower courts erred in determining that the bank had failed to prove the underlying debt. The issue was complicated by the bank's inability to produce the note that purportedly accompanied the mortgage as well as the mortgage's dragnet clause, which purportedly secured all outstanding antecedent debt (¶ 38). The court held that "a legally enforceable dragnet clause can by itself validate a mortgage when there is proof of the underlying antecedent debt secured by the dragnet clause and the mortgage clearly indicates that the parties intended for the mortgage to secure antecedent debt" (¶ 40). The missing note was merely one way of evidencing a debt (¶ 43). The parties intended the mortgage "to secure antecedent debt through the dragnet clause, the [b]ank proved the existence of the antecedent debt [through extrinsic evidence, for example, the bank's ledgers, checks, and FDIC 'write-offs,' see ¶ 49], and the dragnet clause" was valid under Wisconsin law (¶ 44).

Third, the court addressed dragnet clauses generally and then upheld the validity of the clause in this mortgage. Specifically, the court held "that a dragnet clause securing antecedent debt is enforceable in Wisconsin if the mortgage clearly states that it secures antecedent debt and the relation between the debt and the security for the debt is not wholly unclear" (¶ 51). The court then took up the level of detail that must be recited in such mortgage clauses. Reconciling prior cases, the court held that "it is sufficient if the amount of the debt is specifically stated on the face of the mortgage, but [prior case law] cannot be read for the proposition that it is necessary for the amount of debt to be specifically stated on the face of the mortgage in order for a dragnet clause to be enforceable" (¶ 64). A contrary ruling, noted the court, would also place in jeopardy the many "RESAs" [real estate security agreements] that rely on such a construction, although the "better practice" may be "to specifically list the specific amount of debt secured in a mortgage via a dragnet clause" (¶ 68).

Finally, the court took up the question of marital property. Construing Wis. Stat. section 766.55 (1985-86), the court held that the husband's debts "are presumed to have been incurred in the interest of the marriage," especially absent the wife's testimony to the contrary. As such, the debts are "properly considered existing joint indebtedness," which fell within the dragnet clause (¶ 79).

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Criminal Procedure

Search and Seizure - Terry Frisks - Totality of the Circumstances - Officer's Subjective Beliefs

State v. Kyles, 2004 WI 15 (filed 2 March 2004)

The circuit court granted the defendant's motion to suppress evidence (marijuana) that was seized during a protective frisk for weapons during a routine traffic stop. The court of appeals affirmed, concluding that the totality of the circumstances was not sufficient to create reasonable suspicion to justify the protective search for weapons. In a majority decision authored by Chief Justice Abrahamson, the supreme court affirmed the court
of appeals.

The supreme court concluded that the totality of the circumstances present at the time of the frisk was not sufficient to create reasonable suspicion to justify a protective search for weapons. The court considered the essential facts surrounding the frisk individually and in combination. The defendant was the passenger in a vehicle that was stopped for a traffic violation at about 8:45 on a cold December evening on a city street in what was described as a "pretty active" crime area. The defendant was wearing a large, fluffy coat that could be used to hide a weapon. The defendant exited the vehicle at the direction of the officer and, at least twice during a four-to-eight second interval, he inserted his hands into and removed his hands from his coat pockets after being directed by the officer to remove his hands from his pockets. The defendant appeared nervous but the officer testified that he "didn't feel any particular threat before searching" the defendant. In their totality, these facts were held insufficient to create the reasonable suspicion necessary to support a protective frisk for weapons.

In the course of the lengthy opinion, the majority addressed a number of additional issues relative to frisking suspects for weapons and subsequent litigation about the validity of those frisks. One of those issues was the role of the officer's subjective beliefs about the dangerousness of the detained person. The reasonableness of a protective search for weapons is measured using an objective standard: would a reasonably prudent person in the circumstances be warranted in the belief that his or her safety and that of others was in danger because the individual might be armed with a weapon? In determining whether a frisk was reasonable, a court may look to any fact in the record, as long as it was known to the officer at the time he or she conducted the frisk and is otherwise supported by the officer's testimony at the suppression hearing.

The court concluded that an officer's belief that his or her safety or that of others is in danger because the individual may be armed is not a prerequisite to a valid frisk. Because an objective standard is applied to determine the existence of reasonable suspicion, a frisk can be valid even when the officer does not actually feel threatened by the person frisked or when the record is silent about the officer's subjective fear that the individual may be armed and dangerous.

The state argued that under no circumstances may an officer be questioned regarding his or her subjective belief about whether his or her safety or that of other persons was in danger at the time the frisk was conducted. The court rejected this position, concluding that officers may be so questioned because they may draw reasonable inferences from the facts in light of their experiences. "A court may therefore consider an officer's belief that his or her safety or that of others was or was not in danger in determining whether the objective standard of reasonable suspicion was met" (¶ 4).

The court also addressed the matter of the defendant's failure to obey the direction of the officer to keep his hands in the officer's sight. This type of behavior is a significant factor to consider in determining the reasonableness of an officer's suspicion that the individual being frisked might be armed and dangerous. However, the court declined to hold, as the state urged, that the requirement of specific and articulable facts providing reasonable suspicion is automatically satisfied when a person fails to comply with an officer's order to keep his or her hands out of his or her pockets. Said the majority, "circuit courts are aptly positioned to decide on a case-by-case basis, evaluating the totality of the circumstances, whether an officer had reasonable suspicion to justify a protective search in a particular case" (¶ 5).

Justice Wilcox filed a dissenting opinion that was joined by Justice Crooks. Justice Crooks filed a dissenting opinion that was joined by Justice Wilcox. Justice Roggensack did not participate in the case.

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Elder Law

Medical Assistance - Reimbursement

Keup v. Department of Health & Family Servs., 2004 WI 16 (filed 4 March 2004)

Keup, a nursing home resident, filed a circuit court action that pleaded a claim under 42 U.S.C. section 1983. Keup also sought review of a Department of Health and Family Services (DHFS) order that the DHFS lacked jurisdiction to determine whether she was entitled to recoup the full amount paid by her as a private pay patient at a medical assistance provider's nursing home facility. The circuit court granted the DHFS motion for summary judgment.

The court of appeals certified two questions to the supreme court. The first question was "whether, after the State has retroactively compensated a medical assistance provider for nursing home services provided to a private pay patient and the provider has reimbursed the patient in the amount of the medical assistance, the patient has a federally protected right to reimbursement from the provider for the amount originally paid by the patient in excess of the medical assistance reimbursement" (¶ 3). The second question was whether the DHFS has "jurisdiction under Wis. Stat. § 49.45 (5)(a) (1999-2000), to grant a private pay patient's request for full reimbursement from a medical assistance provider" (¶ 3).

The supreme court, in an opinion written by Justice Crooks, affirmed. The court held "that a private pay patient does not have a federally protected right to reimbursement from the provider for the amount originally paid by the patient in excess of the medical assistance reimbursement. At the time of admittance, Keup was neither a medical assistance applicant nor a recipient. Pursuant to 42 U.S.C. § 1396r(c)(4)(B)(i) and 42 C.F.R. § 483.12(c)(2) (1999), medical assistance providers may charge private pay patients any rate they deem appropriate, provided that the patient has notice as to the amount of the charge. We conclude that Wis. Stat. § 49.49(3m), Wis. Admin. Code § HFS 104.01(11) (Apr. 1999), and the Medical Assistance Provider Handbook, Section VI, page A6-002 (Handbook) appropriately require medical assistance providers to refund only the amount paid by the medical assistance program on behalf of retroactively eligible persons" (¶ 4) (notes omitted). "Persons who are neither medical assistance applicants nor recipients under 42 C.F.R. § 400.203 at the time of their admission to a medical assistance provider are private pay patients" (¶ 32).

The court also held that the DHFS lacked "jurisdiction to hear Keup's claim under Wis. Stat. § 49.45(5)(a) because none of the statutory bases for jurisdiction were met" (¶ 39). In particular, she was not denied medical assistance benefits. Nor did the agency have jurisdiction under Wis. Admin. Code section HFS 104.01(5)(a)1. Keup contracted with the nursing home itself, not DHFS, to enter the facility, and the nursing home itself, not DHFS, retained the portion of Keup's payment that was not reimbursed by the state (¶ 40).

Chief Justice Abrahamson, joined by Justice Bradley, dissented. The majority took the "wrong path" because it followed the erroneous lead of the certified question, which had assumed the "very question presented" in this case, namely, whether the compensation was "retroactive" (¶ 44). The dissent concluded that the majority opinion "ignores the relevant federal and state laws defining the period of eligibility for retroactive benefits" (¶ 47).

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Family Law

Divorce - Division of Property - Revision of Arbitration Award

Franke v. Franke, 2004 WI 8 (filed 6 Feb. 2004)

This case was before the supreme court on certification from the court of appeals. It arose out of a lengthy divorce proceeding that culminated in the parties' agreement to have all disputes in their divorce resolved by binding arbitration. After the arbitrator issued a final award, the circuit court confirmed it and ordered that a divorce judgment be entered in conformity with the award. The award determined property division, child support, each party's liability for certain income taxes, and the sum the husband was to contribute toward the wife's attorney fees.

The wife subsequently moved to open the divorce judgment to revise certain portions of it. The circuit court entered orders opening the divorce judgment under Wis. Stat. section 806.07 (a statute dealing with relief from judgments) and modifying judgment provisions relating to property division and child support. The circuit court also awarded an increase in the amount the husband was to contribute toward his ex-wife's attorney fees but refused to change the provision in the divorce judgment setting each party's share of certain income tax liability.

Two questions of law were considered by the court in its majority decision, which was authored by Chief Justice Abrahamson. The first question was whether a circuit court may open the property division provisions of a divorce judgment under Wis. Stat. section 806.07 even though the divorce judgment incorporated an arbitration award that had been confirmed by the circuit court. After considering sections 806.07 (governing the opening of judgments), 767.255(3)(L) (imposing responsibilities on a circuit court in determining property division in a divorce judgment), and rule 802.12(3)(c) (governing binding arbitration in certain family law actions), the supreme court held that a circuit court may relieve a party from property division provisions of a divorce judgment under section 806.07 even though the divorce judgment incorporates a confirmed arbitration award.

"[W]e conclude that a circuit court must treat a divorce judgment incorporating a confirmed arbitral award on property division in a similar fashion to, but not in exactly the same way as, its treatment of other divorce judgments under § 767.255(3)(L) over which the circuit court may exercise its jurisdiction as necessary. Circuit courts must give greater deference to an arbiter's award of a property division under Rule 802.13(3)(c) than they would to other types of agreements between parties" (¶ 47).

The court hastened to state what it characterized as the "narrow scope" of its holding. "We limit our holding to property divisions in divorce judgments incorporating a confirmed arbitral award. We do not determine whether Wis. Stat. § 806.07 vests power in circuit courts to open all final judgments incorporating arbitral awards. Divorce judgments are different. A circuit court is statutorily required to perform an independent, substantive review of the parties' agreement before incorporating it in the divorce judgment" (¶ 50).

A second legal issue presented by this case was the following: When Wis. Stat. section 806.07 is used to relieve a party from property division provisions of a divorce judgment, is the relevant date of valuation of assets the date of the closing of the arbitration record or the date of the divorce? Responding to this question, the court "[was] satisfied that the general rule that property is to be valued at the date of divorce, coupled with the requirement that courts deviate from the general rule when special circumstances so require, provides a workable and flexible standard for circuit courts to apply in cases involving an arbitral award" (¶ 65).

The remainder of this lengthy opinion dealt with whether various orders of the circuit court represented erroneous exercises of discretion.

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Municipal Law

Zoning Enforcement Actions - Equitable Powers of Court - Relationship of Certiorari Review and Enforcement Action

Town of Delafield v. Winkelman, 2004 WI 17 (filed 5 March 2004)

The defendants own a lot in the town of Delafield containing two houses, both of which are legal but nonconforming structures. The defendants used one house for their residence and the other as rental property. In 1991 they obtained a building permit for interior remodeling of the two structures. The town issued a stop-work order after it discovered that the remodeling involved work on a legal nonconforming structure. The defendants applied for a variance, which the zoning board granted but conditioned on removal of the rental residence from the property within three years. On certiorari review the circuit court upheld the board's decision. The defendants did not appeal.

The town subsequently brought the present action, seeking forfeitures along with an order directing the defendants to remove the rental residence. The circuit court granted summary judg-ment to the town. The court of appeals reversed. In a majority decision authored by Justice Bradley, the supreme court affirmed the court of appeals.

The first question before the court was whether the circuit court had subject matter jurisdiction to consider the town's enforcement action. The defendants argued that the jurisdiction of the town's ordinance did not extend to them because their property is actually controlled by the Waukesha County Shoreland Code. The supreme court rejected this argument. Wisconsin circuit courts are courts of general jurisdiction and have subject matter jurisdiction of all matters, civil and criminal, not excepted in the constitution or prohibited by law. This includes the authority to hear zoning enforcement actions arising from either town or county ordinances.

Next, the justices addressed the issue of whether the circuit court had the power to consider the defendants' equitable arguments in the context of the enforcement proceeding. [In the earlier certiorari proceeding the defendants claimed that the zoning board's action was unreasonable because financing was contingent upon rental income from the second residence.] The court held that "when a governmental body exercises its authority pursuant to either Wis. Stat. §§ 59.69(11) or [as in this case] 62.23(8) and seeks injunctive relief, the circuit court retains the power to deny the relief sought and the property owners can defend themselves in equity" (¶ 28). Accordingly, the supreme court concluded that the circuit court erred in concluding that it had no such power.

Lastly, the court considered whether the power to consider equitable arguments may be exercised in this case. The town argued that, because the defendants already had an opportunity to present their equitable arguments before the court in the certiorari action, they should be precluded from doing so in the enforcement action. The supreme court disagreed. The doctrine of claim preclusion does not apply; though there may be some overlap in the arguments presented in the certiorari action and in the enforcement action, the claims themselves in these actions are distinct.

Nor does issue preclusion apply. Certiorari review is limited in scope and the traditional criteria by which certiorari courts review a board's decision do not involve consideration of equitable arguments, whereas the circuit court in an enforcement action for injunctive relief can consider all equitable issues. Accordingly, the circuit court may properly exercise its power to consider the defendant's equitable arguments in this case.

Justice Prosser dissented.

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