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    Supreme Court Digest

    This column summarizes selected published opinions of the Wisconsin Supreme Court (except those involving lawyer or judicial discipline, which are digested elsewhere in the magazine). Prof. Daniel D. Blinka and Prof. Thomas J. Hammer invite comments and questions about the digests.

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

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    Wisconsin LawyerWisconsin Lawyer
    Vol. 81, No. 7, July 2008

    Supreme Court Digest

    This column summarizes selected published opinions of the Wisconsin Supreme Court (except those involving lawyer or judicial discipline, which are digested elsewhere in the magazine). Prof. Daniel D. Blinka and Prof. Thomas J. Hammer invite comments and questions about the digests. They can be reached at the Marquette University Law School, 1103 W. Wisconsin Ave., Milwaukee, WI 53233, (414) 288-7090.

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

    Business Organizations

    Dissolutions - Partnerships

    Matteson v. Matteson, 2008 WI 48 (filed 29 May 2008)

    Robert and James Matteson were partners in an electronics business. In 2001 James sent Robert a letter notifying him that the partnership was dissolved, subject only to a "winding up" or other possible conditions. After they failed to agree on the value of James's interests, James demanded a winding up; he died a short time later. His estate brought this action seeking monetary relief and a winding up. The circuit court awarded James's estate about $120,000 after applying the continuation statute, Wis. Stat. section 178.37, not the winding-up statutes, Wis. Stat. sections 178.32-.33. The court of appeals affirmed in part and reversed in part.

    The supreme court, in an opinion written by Justice Butler, affirmed in part and reversed in part the court of appeals. The court was troubled by the case's "problematic procedural posture" (¶ 26) in which the parties and the circuit court treated the matter as a hybrid winding-up/continuation of the business. Absent objection by either party, the supreme court treated the matter as a continuation case (see ¶¶ 35-36). When continuation is elected over a winding-up, "the exiting partner is also entitled to an election of either interest on that value, or in lieu of that interest, postdissolution profits attributable to the use of his share in the partnership" (¶ 37). The court assumed that James's estate elected the second option. The court held that "the burden of proof is on the [e]state, representing the retiring partner, to determine the amount of profits attributable to the use of James' right in the property, and to establish that the calculations employed by both the circuit court and the court of appeals to ascertain those profits attributable were flawed" (¶ 39). In so placing the burden of proof, the court followed the "path taken by other UPA [Uniform Partnership Act] states" (¶ 52). It also looked to foreign UPA cases in determining the appropriate calculation, which must necessarily be fact-specific.

    On remand the "accounting of profits attributable" should take into consideration "(1) the gross profits of the business from May 31, 2001, through the date of final accounting; (2) the net profit, calculated by subtracting, for example, deductions for borrowed funds and reasonable labor costs and expenditures (including health insurance, pension payments, and reasonable compensation to Robert or others working for the business, both for their efforts in maintaining the business and in their efforts related to this lawsuit); and (3) in what amount those net profits following dissolution are attributable to James' dissolution date $68,641 right in the business, as opposed to profits generated by Robert's or others' efforts or capital. This accounting on remand should trace the profits to their source, and provide a clear record of such tracing, and must reflect an actual accounting, not a flat 55/45 division" (¶ 64). "Good will" is to be treated like any other asset (see ¶ 65). Finally, the supreme court held that the circuit court properly conditioned a stay of execution of judgment on Robert's deposit of the amount of the judgment plus 12 percent interest for one year.

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    Civil Procedure

    Frivolous Actions - Defamation

    Donohoo v. Action Wis., 2008 WI 56 (filed 5 June 2008)

    The plaintiff sued Action Wisconsin, a group that advocates gay and lesbian rights, for defamation based on a press release criticizing him and other persons for their attacks on homosexuality. The circuit court ruled that the action was frivolous when commenced because of the plaintiff's failure to conduct a reasonable inquiry regarding whether actual malice could be established; for the same reason, the lawsuit was frivolously continued. The court assessed attorney fees against the plaintiff's counsel, James Donohoo. The court of appeals reversed, concluding that the lawsuit was not frivolous.

    The supreme court, in a decision authored by Justice Bradley, reversed the court of appeals. It held that the circuit court properly found that the lawsuit was frivolous when commenced and as continued. The majority opinion presents a fact-intensive analysis of defamation's "actual malice" element in the context of Action Wisconsin's broadsides. The supreme court rejected Action Wisconsin's contention that the court of appeals had somehow sua sponte reversed the circuit court's grant of summary judgment, which had not been appealed. Rather, the court of appeals referenced the summary judgment determination in the context of its ruling on the frivolous action issue. Finally, it should be noted that the supreme court discussed frivolous sanctions law under the old standards, Wis. Stat. sections 802.05 and 814.025 (2003-04), which have been replaced by current section 802.05, which incorporates the "safe harbor" feature of the corresponding federal rule. See ¶¶ 4 n.2, 35 n.7.

    Justice Roggensack, joined by Justice Prosser and Justice Ziegler, dissented. The dissenters concluded that Donohoo's defamation claim was reasonable when commenced and as maintained.

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    Criminal Law

    Mayhem - Meaning of Other Bodily Member - Constitutionality of "Violent Crime in School Zone" Penalty Enhancer

    State v. Quintana, 2008 WI 33 (filed 1 May 2008)

    Wisconsin's mayhem statute provides that "[w]hoever, with intent to disable or disfigure another, cuts or mutilates the tongue, eye, ear, nose, lip, limb or other bodily member of another is guilty of a Class C felony." Wis. Stat. § 940.21. The principal issue before the court was whether the phrase "other bodily member" as used in the mayhem statute includes the forehead. The circuit court concluded that it does not; in a published decision the court of appeals disagreed and reversed. See 2007 WI App 29.

    In a unanimous decision authored by Justice Ziegler, the supreme court affirmed the court of appeals. The supreme court concluded that "the forehead qualifies as an 'other bodily member' under Wis. Stat. § 940.21, Mayhem. Wisconsin's mayhem statute seeks to punish those who intentionally disable or disfigure another person's bodily member. The manner in which the legislature used the phrase, `other bodily member,' requires that we give that phrase a broad construction. If `other bodily member' were to be narrowly construed, the construction would produce absurd results, and the purpose of the statute would easily be defeated. Because the legislature intended the phrase `other bodily member' to be construed broadly rather than narrowly, the phrase 'other bodily member' in the mayhem statute encompasses all bodily parts, including a person's forehead. The application of the mayhem statute is limited by the need to prove that a person specifically intended to disable or disfigure" (¶ 90).

    The court also considered the constitutionality of the "violent crime in a school zone" penalty enhancer, which is codified at Wis. Stat. section 939.632. This statute increases the maximum penalty when a violent crime (as defined by the statute) is committed on the premises of a school, within 1,000 feet from the premises of a school, or in various other statutorily described locations. In this case the defendant was charged with violently attacking his ex-wife in a private home at 4 a.m. Given the proximity of the home to school premises, the prosecutor charged the enhancer. The defendant claimed the statute is unconstitutional as applied to him. He argued that, under the equal protection and due process clauses of the state and federal constitutions, the statute creates an irrational and arbitrary classification, and he questioned "whether school zone laws ever have or ever will protect a single child" (¶ 75).

    The supreme court concluded that the defendant "has not met his burden of proof to show that the penalty enhancer is unconstitutional as applied to him. The legislature has determined that safety zones around our schools serve the public interest. An increased penalty for those who commit violent crimes within 1,000 feet of `school premises' is a reasonable approach by the legislature to accomplish this legislative goal. [The defendant] has failed to show that the penalty enhancer is unconstitutional beyond a reasonable doubt" (id.).

    The defendant argued that because the statute has no time-of-day limitation or requirement that children actually be present, the public safety goal of the legislation is not achieved. The supreme court disagreed. "[T]he legislature has concluded that a safety zone around schools is desirable, and those advantages do not disappear when the school day is over. It is unreasonable to believe that once the day is over, children cease to benefit from a safety zone around their school. Furthermore, requiring children to be present when the crime is committed is unworkable and would frustrate the purpose of the statute" (¶¶ 85-86). The court also found that whether the violent crime took place on the street or in a home within 1,000 feet of school premises "is irrelevant to our analysis" (¶ 87). "The penalty enhancers would certainly be worthless if violent crime in the home was not punished the same as outside the home. There is simply no way to restrain the impact of violent crime to the four walls of the home. The goals of the statute would be crippled if such a distinction were drawn. A reasonable method to deter violent crime near schools is to clearly punish more severely, without variation, violent crime that occurs near schools. We cannot expect to achieve safety zones around our schools if the homes around our schools are filled with violence" (id.).

    Theft by Contractor - Wis. Stat. Section 779.02(5)

    State v. Keyes, 2008 WI 54 (filed 3 June 2008)

    This case involves the theft by contractor statute, which is part of the state's construction lien law. See Wis. Stat. § 779.02(5). The statute "safeguards against misappropriation of construction project funds by creating trust funds for the benefit of owners, subcontractors, and suppliers. The trust fund is to pay claims due or to become due for labor and materials used for the improvements ... The statute prohibits the use of the money in the trust fund for any purpose other than paying claims until such time as the claims have been paid in full. In case of deficiency, the claims are to be paid proportionately. Violation of the payment provisions constitutes theft by contractor..." (¶ 21). (Editors' Note: Wis. Stat. section 779.02(5) was modified by 2005 Wisconsin Act 204 and now provides that the trust fund is for claims due or to become due or owing "for labor, services, materials, plans, and specifications used for the improvements." The change did not affect the court's analysis in this case, which arose before the statute's amendment (see ¶ 21 n.3).)

    Defendants Angela and Matthew Keyes (doing business as Keyes to Design, Inc.) entered into a contract to serve as general contractors for the construction of a new home. The courts assumed without deciding that Angela was also acting as a subcontractor on the project. The charges the defendants face under the theft-by-contractor statute stemmed from payments they received on the project. The ultimate legal question in this case was whether the statute was violated when the defendants allegedly paid themselves in full while third-party subcontractors remained unpaid because of a deficiency. The circuit court found probable cause at a felony preliminary hearing to believe that the defendants violated the statute, and it bound them over for trial. The court of appeals affirmed (2007 WI App 163), and the supreme court, in an opinion authored by Justice Bradley, unanimously affirmed the court of appeals.

    This was a deficiency case, and the unpaid subcontractors were not compensated proportionally to Angela. Said the supreme court, "[T]he Keyes[es] ignore the proportionality requirement when they claim that so long as money goes toward the project, payments do not violate the statute. While the Keyes[es] are correct that money cannot be used for purposes outside of the project, that does not end contractors' responsibilities under the statute. Using the money to pay themselves in full while other subcontractors have not been paid proportionally constitutes using money for a non-statutory purpose. The Keyes[es]' actions therefore conflict with the language of § 779.02(5). Assuming that Angela had a claim to the payments she received, taking full payment when third-party subcontractors remained unpaid violates the proportionality requirement of the statute" (¶¶ 27-28). (Although agreeing with the court of appeals that the circuit court's finding of probable cause was based on a proper interpretation of the statute, the supreme court disagreed with the court of appeals "to the extent that its decision implies that contractors or subcontractors may not receive profit on a project until the project ends" (¶ 3).)

    Analyzing the evidence adduced at the preliminary hearing, the supreme court concluded its opinion by finding there was sufficient evidence to support the defendants' bindover for trial for violating the theft-by-contractor statute.

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    Criminal Procedure

    Documentary Subpoena - Wis. Stat. Section 968.135 - Suppression as Remedy for Failure to Comply with Statute

    State v. Popenhagen, 2008 WI 55 (filed 4 June 2008)

    This case concerns criminal procedure code provisions relating to subpoenas for documentary evidence. Wis. Stat. section 968.135 provides in pertinent part as follows: "Subpoena for documents. Upon the request of the attorney general or a district attorney and upon a showing of probable cause under s. 968.12, a court shall issue a subpoena requiring the production of documents, as specified in s. 968.13(2). The documents shall be returnable to the court which issued the subpoena. Motions to the court, including, but not limited to, motions to quash or limit the subpoena, shall be addressed to the court which issued the subpoena. Any person who unlawfully refuses to produce the documents may be compelled to do so as provided in ch. 785. This section does not limit or affect any other subpoena authority provided by law."

    The defendant was under investigation for unlawfully obtaining money from a grocery store where she worked. The district attorney used the subpoena process to obtain the defendant's bank records, and the police obtained certain incriminating statements from the defendant after they confronted her with those records. The subpoenas did not comply with the requirements of section 968.135 because they were not accompanied by a showing of probable cause nor did the issuing judges record a finding of probable cause.

    The circuit court granted the defendant's motion to suppress the records on constitutional and statutory (section 968.135) grounds, and it suppressed her incriminating statements using a "fruit of the poisonous tree" analysis. In a published decision the court of appeals reversed. A majority of that court held that the defendant had no right to privacy in her bank documents under either the U.S. or the Wisconsin Constitution, and that suppression is not a proper remedy when evidence is obtained in violation of section 968.135. See 2007 WI App 16. In a majority decision authored by Chief Justice Abrahamson, the supreme court reversed the court of appeals.

    Although the defendant presented both constitutional and statutory arguments in support of suppression, the supreme court decided the appeal solely on statutory grounds. The precise question before the court was whether suppression is a remedy for a violation of the documentary subpoena statute. In this case the suppression question concerned both the bank records and the incriminating statements given by the defendant after she was confronted with those records.

    The court held that the defendant had standing to bring the motion to suppress. "In requiring a showing of probable cause and a court order, Wis. Stat. § 968.135 protects the interests of persons whose documents are sought in addition to protecting the interests of the person on whom a subpoena is served" (¶ 25). It further concluded that, even though section 968.135 does not provide for suppression as a remedy, "suppression of both the bank documents and the defendant's incriminating statements in the present case is an appropriate remedy when the bank documents were obtained in violation of Wis. Stat. § 968.135 and when the incriminating statements were obtained by law enforcement officers confronting the defendant with the unlawfully obtained bank documents" (¶ 4). Said the majority, "[U]nless the documents were suppressed as evidence in the present case, the safeguards established by Wis. Stat. § 968.135 for the issuance of subpoenas would be rendered meaningless" (¶ 71). The same rationale was applied to suppression of the statements: "Unless the incriminating statements were suppressed as evidence in the present case, the safeguards established by Wis. Stat. § 968.135 for the issuance of subpoenas would be rendered meaningless" (¶ 96).

    Justice Prosser filed a concurring opinion. Justice Ziegler filed an opinion concurring in part and dissenting in part. Justice Roggensack filed a dissenting opinion.

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    Declaratory Judgment

    Ripeness of Declaratory Judgment Suits - Standard of Review When Action Determined To Be Unripe on Summary Judgment

    Olson v. Town of Cottage Grove, 2008 WI 51 (filed 30 May 2008)

    The circuit court dismissed a declaratory judgment action brought by the plaintiff, a real estate developer, challenging on statutory and constitutional grounds the validity of a town ordinance (an amendment to the town's land division and planning code to include a transfer of development rights program, which is described at length in the supreme court's opinion). The plaintiff needed to comply with this ordinance to receive the final rezoning approval necessary to proceed with residential development on his property. The circuit court granted summary judgment dismissing the action after determining that the suit was not ripe and therefore not justiciable. In an unpublished decision the court of appeals reversed. In a majority opinion authored by Justice Prosser, the supreme court affirmed the court of appeals.

    A crucial issue before the supreme court was identifying the appropriate standard of review to be employed when a circuit court has granted summary judgment in a declaratory judgment suit on the basis that the suit is not ripe. "[The circuit court concluded] that it lacked jurisdiction to grant or deny declaratory relief because [the plaintiff's] suit was not ripe, and it subsequently held that the Town was entitled to summary judgment as a matter of law. For this reason, we [the supreme court] review the circuit court's grant of summary judgment de novo, premised upon the court's legal conclusion that [the plaintiff's] case was not ripe. We do not review for an erroneous exercise of discretion" (¶ 32).

    With respect to the issue of ripeness, the court began its analysis with the proposition that "[a] court must be presented with a justiciable controversy before it may exercise its jurisdiction over a claim for declaratory judgment. This is so because the purpose of the [Uniform Declaratory Judgments] Act is to allow courts to anticipate and resolve identifiable, certain disputes between adverse parties. `The underlying philosophy of the Uniform Declaratory Judgments Act is to enable controversies of a justiciable nature to be brought before the courts for settlement and determination prior to the time that a wrong has been threatened or committed.' Therefore, before one may seek declaratory relief pursuant to the Act, he must demonstrate that his cause of action is properly before the court - namely, that it is justiciable" (¶ 28) (citations omitted).

    A controversy is justiciable when the following four factors are present: "(1) A controversy in which a claim of right is asserted against one who has an interest in contesting it. (2) The controversy must be between persons whose interests are adverse. (3) The party seeking declaratory relief must have a legal interest in the controversy - that is to say, a legally protectible interest. (4) The issue involved in the controversy must be ripe for judicial determination. If all four factors are satisfied, the controversy is `justiciable,' and it is proper for a court to entertain an action for declaratory judgment" (¶ 29) (citations omitted).

    Only the ripeness factor was at issue in this case and, after an extended analysis of the record, the supreme court concluded that the suit was indeed ripe. "[The plaintiff's] final rezoning approval was expressly conditioned upon compliance with § 15.15 [of Cottage Grove's Land Division and Planning Code], so that his cause of action challenging [this] ordinance was timely and ripe for adjudication" (¶ 64). In a footnote the court observed that the plaintiff's suit encompassed both facial and as-applied challenges to the ordinance in question. That fact did not substantially affect its analysis nor alter its conclusion. "As an as-applied challenge, Olson's suit is ripe, in part, because the `government entity charged with implementing the [ordinance] has reached a final decision regarding the application of the [ordinance] to the property at issue.' The Town conditioned Olson's final plat approval upon compliance with the ordinance, and Olson was left with no administrative option to challenge this decision. As a facial challenge, Olson's suit is ripe because it challenges the very enactment of the ordinance and its application to all Town landowners. Such challenges to ordinances are generally ripe the moment the challenged ordinance is passed" (¶ 44 n.9) (citations omitted).

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

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    Family Law

    Divorce - Property Division - Marital Property - Transmutation of Individual Property

    Steinmann v. Steinmann, 2008 WI 43 (filed 23 May 2008)

    Rose and Tony Steinmann were married in 1994 and divorced in 2004. It was the second marriage for both. After they married, the couple entered into a limited marital property classification agreement, which classified various assets and income as "marital property," "survivorship marital property," "individual property of Rose M. Steinmann," or "individual property of Tony K. Steinmann." The agreement specified that it would be binding on the issue of property division in the event of divorce; it was silent on the issue of maintenance should the marriage dissolve.

    Among the issues on appeal was whether the circuit court erroneously exercised its discretion when it equally divided between Rose and Tony a substantial amount of property (for example, homes, lake properties, and boat slips) that was jointly titled in their names. Rose contended that the agreement exempts from division those of her assets that can be traced to their classification as individual property. She argued that the application of tracing principles to her case would reveal that the property at issue remained her individual property despite being jointly titled because it was purchased with her individual assets. As such, she contended that the circuit court's award of assets to Tony based on the assets' joint titles rather than how they were purchased violated the terms and intent of the agreement. The court of appeals affirmed the circuit court, and the supreme court, in a decision authored by Justice Butler, affirmed the court of appeals.

    Tracing and transmutation principles have particular relevance for determining the current status of gifted or inherited property (see ¶ 34). However, the court rejected limiting the use of these principles to gifted or inherited property. It concluded that "tracing and transmutation principles may be employed outside the context of gifted and inherited property" (¶ 39) but found that the application of these principles in the present case does not affect the ultimate determination regarding equitable property distribution. The court held that Rose has not established that, even if the circuit court had applied tracing principles, it would have found that the properties in question were purchased solely with Rose's individual assets, rendering them individual property. Even if Rose could trace her assets to their separate property identity under the agreement, "there is no question that Tony has nonetheless established that that separate property was transmuted to marital property by the deeds conveying joint title" (¶ 46). Said the court, "Rose provides no authority for her argument that the joint titling of her individual property to Tony should not be honored as valid for purposes of reclassifying it as marital property" (¶ 49). "Consequently, in cases such as this one in which property is jointly titled, the property does not retain its character as separate property but instead becomes part of the marital estate" (¶ 52).

    The supreme court also considered and rejected Rose's claims that the circuit court's property division was based on a flawed double-counting of assets and failed to allocate debts related to unpaid taxes on assets from a lawsuit settlement. It also rejected her challenge to the circuit court's award of maintenance to Tony. In the analysis of the latter the court indicated that "[p]arties with marital property agreements are not, as a matter of law, exempt from maintenance awards. Unless the Agreement contains a waiver of maintenance rights as described in § 767.26(8), a court may conclude that a maintenance award is appropriate. Rose had the opportunity upon drafting the Agreement to include such a maintenance exemption provision; for whatever reason, she did not do so" (¶ 82).

    Justice Ziegler did not participate in this decision.

    Termination of Parental Rights - Stipulations - Jury Trial

    Walworth County Dep't of Health & Human Servs. v. Andrea L. O., 2008 WI 46 (filed 28 May 2008)

    A circuit court terminated the parental rights of a mother, Andrea, who then appealed on the ground that she had been denied her right to trial by jury. Andrea had stipulated to one element of the termination of parental rights (TPR) claim, namely, that the child had been adjudicated as a child in need of protection or services and then had been placed outside the home for six months or longer pursuant to court order. The court of appeals certified the case to the supreme court.

    In an opinion by Justice Bradley, the supreme court affirmed the circuit court, observing that the facts of the case failed to present the certified question regarding whether the circuit judge should have predicated the stipulation on a personal colloquy with Andrea to determine whether the decision was knowing and voluntary. The jury had decided this element of the TPR claim despite the stipulation. Nor did the evidence reveal any reasonable factual dispute over this "paper" element. Yet for purposes of providing guidance to lower courts, the supreme court discussed prior cases on the assumption that the stipulation constituted a withdrawal of the demand for a jury trial (see ¶ 28). It held that "neither cases involving statutory rights to a jury trial, criminal cases involving stipulations, nor due process support Andrea's argument that the circuit court erred in failing to personally engage her in a colloquy to determine that the withdrawal was knowing and voluntary. Rather, we determine that the circuit court did not err in failing to engage in a personal colloquy. Andrea agreed to the stipulation in open court. It was to a single, undisputed, paper element where another element was the focus of the controversy at issue, and there was ample uncontroverted evidence to support the stipulated element" (¶ 54).

    The supreme court also offered the following guidance. "[W]hile we do not require it, we urge that circuit courts in TPR proceedings consider personally engaging the parent in a colloquy explaining that a stipulation to an element withdraws that element from the jury's consideration and determining that the withdrawal of that element from the jury is knowing and voluntary. Although no personal colloquy is required here because Andrea received a jury trial, we have not addressed whether it would be required in other contexts" (¶ 55).

    In a concurring opinion, Justice Prosser underscored the abundant constitutional and doctrinal issues that have surfaced in the case law on TPR actions, problems that have arisen in part, he asserted, because of the "court's repeated refusal to apply the statutes" (¶ 68).

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    Made-whole - Subrogation - Indemnification Agreements

    Muller v. Society Ins., 2008 WI 50 (filed 30 May 2008)

    The Mullers' store burned down because of negligence by an electrical contractor. Their total loss was $700,000. The Mullers' property insurer, Society, paid them the policy limits of $400,000. The Mullers eventually settled their claim with the contractor's liability carrier, United, for about $120,000, which was paid from a policy with limits of $1 million. The Mullers' settlement agreement did not include an agreement to indemnify United against Society's subrogation claim. Society later settled its subrogation claim for about $200,000. The circuit court held a Rimes made-whole hearing, in which it was determined that the Mullers had not been made whole; the judge ordered that the difference was to be paid from Society's settlement with United. The court of appeals reversed, holding that Society was entitled to retain the entire $200,000 settlement.

    The supreme court, in an opinion written by Justice Prosser, affirmed the court of appeals. "The question presented is whether an insurer may retain in full a subrogation settlement with a tortfeasor and a tortfeasor's insurer after its insureds have settled with the tortfeasor and the tortfeasor's insurer for an amount less than necessary to make the insureds `whole,' even though the tortfeasor's insurance policy limits were sufficient to cover all claims, including those of both the insureds and the insurer" (¶ 2). The supreme court held "that the made whole doctrine is not implicated in this case. Specifically, the doctrine does not apply when an insurer has fully satisfied its obligations under an insurance contract, given its insureds the opportunity to settle their claim with the tortfeasor and the tortfeasor's insurer, the pool of settlement funds available to the insureds exceeds the total claims of both the insureds and the insurer, and the insureds settle their claim, even though the insureds' settlement, together with the insurer's policy payments, does not satisfy the insureds' total claim. In these circumstances, the inequitable prospect of an insurer competing with its insureds for an inadequate pool of funds is not present, and the equities favor the insurer" (¶ 4).

    The majority closely examined the Garrity and Rimes line of cases regarding the made-whole doctrine, from which the court drew "several lessons." "First, the made whole doctrine is not applicable in all situations, and thus the test of `wholeness' stated in Rimes is not the sole criterion for determining whether an insurer may pursue its subrogation interest. Second, the made whole doctrine, as stated in Garrity and Rimes, does not apply when the inequitable prospect of an insurer competing with its own insured for limited settlement funds is absent. Third, the existence of an indemnification agreement between the plaintiff and tortfeasor indirectly creates a limited pool of settlement funds between the plaintiff and his insurer. Finally, subrogation rests on several equitable principles including, but not limited to: (1) ensuring that the plaintiff is fully compensated for loss; (2) preventing unjust enrichment; and (3) ensuring that the wrongdoer is held responsible for his conduct and not allowed to go scot-free by failing to respond to damages while another, the plaintiff's insurer, is required to do so" (¶ 60).

    The court also addressed the effect of indemnification agreements, observing that the cases had set "no conditions on an insured's agreement to a settlement that effectively extinguishes the rights of the subrogee insurer. This means that to date we have not explicitly addressed a situation where an insured has voluntarily signed an indemnification agreement with the tortfeasor without being made whole, even though there were ample funds available to satisfy the claim. This contingency is disturbing because it could permit the tortfeasor to escape full liability while it extinguished the contractual rights of the subrogee without the subrogee's consent, or, possibly, even the subrogee's knowledge" (¶ 75). In this case, the court was concerned that plaintiffs "expected to skim off the first $170,000, or at least [$60,000], of any settlement made by their insurer." This position was both "speculative" and "inequitable" (¶¶ 84-85).

    Chief Justice Abrahamson, joined by Justice Bradley and Justice Butler, dissented. The dissenting justices criticized the majority for relying on an incorrect premise of law - "that the made whole doctrine does not apply when the tortfeasor's policy limits are, as in the present case, greater than the total damages the victim suffers" (¶ 124) - and an incorrect premise of fact, namely, "that the tortfeasor's liability insurance company would have been prepared to pay much more than the $310,000 it actually paid to settle the Mullers' and Society Insurance's claims" (¶ 125).

    ERISA - Termination - Arbitrary and Capricious

    Summers v. Touchpoint Health Plan Inc., 2008 WI 45 (filed 28 May 2008)

    Touchpoint, a health care insurer, terminated benefits relating to a young child's brain cancer treatments. In litigation following the denial, the circuit court upheld Touchpoint's decision, but the court of appeals reversed.

    In a decision authored by Justice Crooks, the supreme court affirmed the court of appeals. First, Touchpoint's decision and its termination letter denying benefits were arbitrary and capricious; thus, they violated ERISA despite the discretion reposed in Touchpoint to determine benefits (see ¶ 17). Touchpoint's letter was defective "because it did not provide a sufficient explanation of the reasons for Touchpoint's termination of benefits. As a result, the plaintiffs were not provided with the opportunity for a full and fair review of the termination, which is required" by federal regulations (¶ 21). The letter was devoid of "specific reasons" for and an adequate explanation of the decision. The court's opinion discusses in some details the letter's particular deficiencies. Moreover, Touchpoint's decision itself was arbitrary. The insurer's rationale was inconsistent and varying. "Another reason why we are satisfied that Touchpoint's decision was arbitrary and capricious remains the fact that Touchpoint's external review agency, while upholding Touchpoint's termination of benefits decision, actually recommended the approval of the requested treatment finding that the treatment was the standard of care and also was medically necessary" (¶ 36).

    Second, the court addressed the proper remedy for Touchpoint's ERISA-based failings. "We hold that the appropriate remedy for Touchpoint's arbitrary and capricious termination actions is the reinstatement of benefits forward from the date that the benefits were terminated. We hold that this is a termination of benefits case, because surgery had occurred and some follow-up care already had commenced, which had been paid for by Touchpoint. We are, therefore, satisfied that the appropriate remedy is a return to the status quo prior to the arbitrary and capricious termination actions. In this case, that remedy encompasses Touchpoint paying Parker's health care providers for the services they have given to Parker forward from the date that the benefits were terminated" (¶ 44).

    Chief Justice Abrahamson and Justice Prosser did not participate. Justice Roggensack, joined by Justice Ziegler, dissented on the ground that the majority's opinion contravened governing federal law, particularly as to what constitutes arbitrary and capricious decision-making by an insurer.

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    Real Estate Law

    Real Estate Sales - Defective Conditions - Elements of Wis. Stat. Section 100.18 Misrepresentation Claim

    Novell v. Migliaccio, 2008 WI 44 (filed 28 May 2008)

    This case concerns Wis. Stat. section 100.18(1), which prohibits making false representations with the intent to sell real estate. A person suffering pecuniary loss because of a violation of this statute may recover damages under section 100.18(11)(b)2.

    The circuit court concluded that reasonable reliance is an element of a misrepresentation claim brought under section 100.18, and it granted summary judgment in favor of the defendants after concluding that the plaintiff was not justified in relying on the defendants' misrepresentations about the conditions of the home he purchased from the defendants. In an unpublished decision the court of appeals reversed. In an opinion authored by Justice Bradley, the supreme court affirmed the court of appeals.

    The supreme court identified the three elements of a section 100.18 cause of action: "(1) the defendant made a representation to the public with the intent to induce an obligation, (2) the representation was `untrue, deceptive or misleading,' and (3) the representation materially induced (caused) a pecuniary loss to the plaintiff" (¶ 49). Turning to the issue of reasonable reliance in a statutory misrepresentation claim, the court held as follows: "Based on the plain language of § 100.18, the statutory purpose of protecting the public by deterring sellers from making false representations, and the cases interpreting the statute, we determine that reasonable reliance is not an element of a § 100.18 cause of action. Rather, the reasonableness of a plaintiff's reliance may be relevant in considering the third element of such a claim, that is whether a representation materially induced (caused) the plaintiff to sustain a pecuniary loss" (¶ 53).

    The court further held that "the circuit court erred in granting summary judgment because there remained genuine issues of material fact as to whether the reliance on the representation was unreasonable, that is whether the representation here was a material inducement causing the plaintiff's loss" (¶ 3).

    Justice Ziegler filed a concurring opinion.

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    Joint and Several Liability - Concerted Activities

    Richards v. Badger Mut. Ins. Co., 2008 WI 52 (filed 3 June 2008)

    Pratchet bought beer for two minors, Zimmerlee and Schrimpf, who drank much of the beer at a party. Zimmerlee drove while intoxicated, and his car collided with Richards' car, resulting in Richards' death. Schrimpf was a passenger in Zimmerlee's car. The victim's family settled with Zimmerlee and pursued a claim against Schrimpf. The parties stipulated to the following apportionment of causal negligence: Zimmerlee, 72 percent; Schrimpf, 14 percent; and Pratchet, 14 percent. The stipulation rested on Zimmerlee's clear causal negligence in the victim's death and the fact that the beer was a substantial factor in the accident; it was also undisputed that Schrimpf and Pratchet were alcohol "providers," as defined by the statutes. The prime issue at trial was whether the three tortfeasors acted pursuant to a common scheme or plan within the meaning of Wis. Stat. section 895.045(2). The parties agreed to total damages and possible payouts by Schrimpf and his insurer, depending on the resolution of that issue. The trial judge ruled that the three tortfeasors acted under a "common scheme or plan," a conclusion that invoked joint and several liability under section 895.045(2). The court of appeals disagreed and reversed.

    The supreme court, in an opinion written by Justice Roggensack, affirmed the court of appeals. The majority reviewed the history and text of section 895.045(2), which retains the common law rule of joint and several liability in situations in which a "common scheme or plan" was present (¶ 27). Case law and treatises further established that the statute codified "the concerted action theory of liability" (¶ 46). "Concerted action liability is a separate theory of liability that does not apply to all who are proved to be causally negligent" (¶ 49).

    Instead, concerted action requires three factual predicates. "First, there must be an explicit or tacit agreement among the parties to act in accordance with a mutually agreed upon scheme or plan. Parallel action, without more, is insufficient to show a common scheme or plan. Second, there must be mutual acts committed in furtherance of that common scheme or plan that are tortious acts. Third, the tortious acts that are undertaken to accomplish the common scheme or plan must be the acts that result in damages" (¶ 50). As applied to the facts, the court reached the following conclusions: "(1) Zimmerlee, Schrimpf, and Pratchet acted in accordance with a common scheme or plan to procure alcohol, but since the action undertaken to accomplish that common scheme or plan was not the act that resulted in Richards' damages, Wis. Stat. § 895.045(2) is inapplicable and therefore Schrimpf is not jointly and severally liable; and (2) the action that did result in Richards' damages was Zimmerlee's drinking until he was intoxicated and his subsequent decision to drive while intoxicated, but since this action was not taken in accordance with a common scheme or plan, § 895.045(2) is again inapplicable and therefore Schrimpf is not jointly and severally liable in that context as well" (¶ 54).

    Chief Justice Abrahamson dissented, joined by Justice Bradley and Justice Butler. "Under these circumstances, the plain language of Wis. Stat. § 895.045(2) permits only one result: It provides that Schrimpf and Pratchet shall be jointly and severally liable for `all' damages resulting from their common scheme or plan to procure alcohol for the underage driver. No one disputes that 28 percent of the plaintiff's damages resulted from Schrimpf and Pratchet's procurement of alcohol for the underage driver. Wisconsin Stat. § 895.045(2) thus requires, about as clearly as any statute could, that Schrimpf and Pratchet be jointly and severally liable for 28 percent of the plaintiff's total damages" (¶ 64).

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