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    Wisconsin Lawyer
    February 01, 2013

    Court of Appeals Digest

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


    Pre-Litigation Advice – Unauthorized Sanctions – Writ of Prohibition

    State ex rel. Godfrey & Kahn v. Circuit Ct. of Milwaukee Cnty., 2012 WI App 120 (filed 10 Oct. 2012) (ordered published 28 Nov. 2012)

    Holding: The circuit court lacked inherent authority to sanction lawyers for alleged pre-trial litigation legal advice.

    Summary: Stone, an executive, was fired by his employer, Midwest. Stone sued Midwest, arguing that he was terminated in violation of his employment contract. A law firm, Godfrey & Kahn (G&K), represented Midwest before and at trial. A jury ruled in favor of Stone, awarding more than $400,000 in damages. This appeal involves sanctions imposed on G&K for its purported misconduct: the judge ordered the law firm to pay Stone's costs and legal bills.

    The court of appeals, in an opinion written by Judge Brennan, granted G&K's request for a writ of prohibition preventing the trial judge from signing and entering a judgment against G&K for the sanctions. First, the record showed that the trial judge imposed the sanction based on G&K's pre-litigation legal advice, not based on the firm's conduct at trial (see ¶ 32), and that the sanctions were not imposed during the trial (see ¶ 38).

    "In sum, when issuing the sanction, the trial court made no mention of Godfrey & Kahn's behavior during trial or the firm's trial strategy. Rather, the record shows that the trial court focused exclusively on, what it believed to be, Godfrey & Kahn's legal advice prior to the August 4 Board meeting as the basis for the sanction" (¶ 39).

    Second, the court of appeals said that the circuit court lacked "inherent authority" to sanction lawyers for conduct "that supposedly occurred before the court's jurisdiction was invoked and which did not impede the court's ability to function or fairly administer justice" (¶ 41). No cases or other authority recognized a power to sanction for conduct occurring before the court's jurisdiction was invoked (see ¶ 45).

    Third, a supervisory writ of prohibition was appropriate, especially considering that the circuit court acted without authority in sanctioning the firm and also placed G&K in an "ethical bind" (¶ 52) because of the privileged nature of the information involved. Moreover, the writ was needed because G&K had no effective appellate remedy (for example, the circuit court entered no written order).  

    Fee-Shifting Statutes – Settlements without Attorneys' Knowledge

    Betz v. Diamond Jim's Auto Sales, 2012 WI App 131 (filed 16 Oct. 2012) (ordered published 28 Nov. 2012)

    Holding: A settlement between the parties made without their lawyers' knowledge was void on public policy grounds because it defeated the purpose of a fee-shifting statute.

    Summary: Betz bought a used car from Diamond Jim's, a car dealer. When the car developed problems, Betz sued Diamond Jim's. Both parties retained lawyers, who represented them in court. Later Betz settled with Diamond Jim's without the knowledge of his or Diamond Jim's counsel. "[D]ismayed," Betz's lawyers "sought a rainbow of relief" from the circuit court, focusing especially on a fee-shifting statute, Wis. Stat. section 100.18 (¶ 6). The circuit court upheld the validity of the parties' settlement.

    Relying on public policy grounds, the court of appeals reversed in an opinion authored by Judge Fine. Although some modern authority seemingly gives clients wide latitude to settle between themselves, venerable Wisconsin case law from 1882 is "less clear": "there are circumstances when a party's negotiation with a represented party but without the presence or consent of the represented party's lawyer voids the agreement they reach" (¶ 11).

    The court emphasized that the general rule is far from "hard and fast, … especially when the settlement is between close relatives and there is no indication of sharp practice" (id.). What is clear is that public-policy interests control the validity of any contract, including settlements. "The public-policy considerations here are obvious; as we have seen, the legislature created fee-shifting statutes to help persons who might not otherwise get legal redress. To permit one side to go behind the backs of the other side's lawyers in order to get a settlement that removed the fee-shifting incentives that prompted the lawyers to take the case, would nullify the legislative fee-shifting scheme" (¶ 12). In sum, the circuit court erred when it upheld the settlement agreement.  

    Business Associations

    Corporations – Breach of Fiduciary Duty – 50-Percent Shareholder

    Estate of Sheppard v. Specht, 2012 WI App 124 (filed 17 Oct. 2012) (ordered published 28 Nov. 2012)

    Holding: A breach of fiduciary duty was not established when an agreement between shareholders to sell stock was too speculative, and a 50-percent shareholder does not owe fiduciary duty to another 50-percent shareholder.

    Summary: This case involved a dispute between a 50-percent shareholder in two closely held corporations and the estate of the other 50-percent shareholder. The shareholders were negotiating the sale of their shares to a third party when one of the shareholders died. Negotiations between the surviving shareholder and the potential buyer broke off. The estate sued the surviving shareholder for breach of his alleged fiduciary duty as a 50-percent shareholder and as a director. The estate claimed that the shareholders had agreed to sell if a buyer met a certain price and the third party had met the price, and that the surviving shareholder reneged by refusing to sell. The circuit court granted summary judgment in favor of the surviving shareholder.

    In a decision authored by Chief Judge Brown, the court of appeals affirmed. It held that "the alleged agreement between the two shareholders to sell the stock for a specific price was too vague and uncertain to be enforceable. With the premise of a valid agreement between the two shareholders gone, there can be no claim for breach of a fiduciary duty, either as director or shareholder, for failure to sell at the supposedly agreed price. Furthermore, in Wisconsin, a fifty-percent shareholder does not owe a fiduciary duty to the other fifty-percent shareholder" (¶ 1).

    With respect to the latter proposition, the court noted that although Wisconsin law does impose a fiduciary duty from a majority shareholder to a minority shareholder, "this duty has not been extended to a nonminority shareholder" (¶ 7). Lastly, the appellate court concluded that the estate's claimed damages were too speculative to support its cause of action (see ¶ 14). 

    Civil Procedure

    Summons / Complaint / Affidavit – Authentication – Technical Error

    State v. Schmitt, 2012 WI App 121 (filed 3 Oct. 2012) (ordered published 28 Nov. 2012)

    Holding: The clerk's failure to authenticate an affidavit along with the summons and complaint was only a technical error, not a fundamental error resulting in lack of jurisdiction.

    Summary: The circuit court granted a judgment forfeiting Schmitt's car to the state based on drug-law violations. The state filed a forfeiture summons, complaint, and affidavit pursuant to Wis. Stat. section 961.555(2). Although the summons and complaint were properly authenticated, the clerk did not stamp the affidavit. The circuit court denied the defendant's motion to dismiss, which alleged lack of jurisdiction based on this error.

    The court of appeals affirmed in an opinion written by Chief Judge Brown. Case law establishes that the summons, complaint, and affidavit "must each be authenticated as a condition precedent to jurisdiction over the forfeiture action" (¶ 3). Errors in the commencement of an action are either fundamental or technical (see ¶ 6). Here, the defect was technical.

    "We are confident that, in this case, the clerk's incomplete stamping was 'beyond the control' of the State. To repeat, the record shows that the summons, complaint and affidavit were presented to the clerk at the same time as one document. The clerk failed to authenticate the affidavit. As discussed in American Family [v. Royal Ins., 167 Wis. 2d 524, 481 N.W.2d 629 (1992)], this clerical error falls outside the rule that the complainant must show there was no defect in the commencement of the suit" (¶ 10). The defect was technical and Schmitt was in no way prejudiced (see ¶ 13).

    "Our decision does not in any way weaken the authentication requirement in Wis. Stat. § 961.555(2)(a). Failure to comply with the authentication of the forfeiture summons, complaint and affidavit can constitute fundamental error. But where, as here, the State presents all three items, stapled together as one document, to the clerk for authentication, and the clerk errs in failing to separately authenticate the affidavit, such defect is technical, not fundamental, and will only deprive the court of jurisdiction if prejudice is shown" (¶ 16).  

    Criminal Law

    First-Degree Sexual Assault of a Child Under Age 12 – Probation Not a Sentencing Option

    State v. Lalicata, 2012 WI App 138 (filed 21 Nov. 2012) (ordered published 19 Dec. 2012)

    HOLDING: Probation is not a sentencing option for the crime of first-degree sexual assault of a child under 12 years old.

    SYNOPSIS: The defendant was convicted of first-degree sexual assault of a child under the age of 12 years, contrary to Wis. Stat. section 948.02(1)(b). The court imposed a 25-year term of initial confinement, concluding that it was required to do so under Wis. Stat. section 939.616(1r). (Section 939.616 is entitled "Mandatory Minimum Sentence for Child Sex Offenses.") On appeal, the defendant argued that he was eligible for a stayed sentence and probation under the general probation statute, Wis. Stat. section 973.09(1)(a).

    Section 973.09(1)(a) provides that a court "may withhold sentence or impose sentence and stay its execution, and in either case place the person on probation," except that probation is not available if the sentence is a life sentence or "if probation is prohibited for a particular offense by statute." Section 939.616(1r) provides that for the crime of which the defendant was convicted the minimum term of confinement in prison "shall be at least 25 years"; the statute, however, does not explicitly prohibit a probationary disposition. Thus, the issue before the court of appeals was whether the legislature has "prohibited" probation for first-degree sexual assault of a child under the age of 12 years.

    In a decision authored by Chief Judge Brown, the court of appeals affirmed. Reading a series of minimum sentencing statutes (Wis. Stat. sections 939.616 through 939.619) as a whole, the court of appeals was convinced that "by labeling Wis. Stat. § 939.616 a 'mandatory minimum sentence' statute and stating that 'the court shall impose a bifurcated sentence' and that '[t]he term of confinement in prison portion of the bifurcated sentence shall be at least 25 years,' § 939.616(1r), the legislature has clearly prohibited probation. This is the ordinary interpretation of such language" (¶ 14).

    "We conclude … that § 939.616(1r) unambiguously prohibits probation, within the meaning of § 973.09, when it directs that the court 'shall' impose a term of confinement of at least twenty-five years" for the crime of first-degree sexual assault of a child under the age of 12 years (id.). 

    Stalking – Statute Not Facially Overbroad

    State v. Hemmingway, 2012 WI App 133 (filed 7 Nov. 2012) (ordered published 19 Dec. 2012)

    HOLDING: The stalking statute is not a facially overbroad regulation of protected speech.

    SYNOPSIS: Hemmingway was charged with stalking under Wis. Stat. section 940.32(2m)(a) based on allegedly sending intimidating text messages and email messages and making intimidating phone calls to his ex-wife, Rebecca.

    "According to the complaint, Hemmingway's attempts to communicate with Rebecca threatened and upset her. The complaint detailed some of the communications, including Hemmingway allegedly telling Rebecca that he would 'blow his brains out' and make a mess of her kitchen and that 'God forgives you for everything, even murder.' Hemmingway told Rebecca, as alleged in the complaint, 'that he would love to see someone holding a gun to her and for her to be begging for her life.' The complaint says that he told her the only way she could feel his pain would be if both her sons died at the same time. Rebecca stated that she believed Hemmingway had a firearm and that during a 2008 domestic abuse incident he had told her, 'I have not killed anyone in a long time. I don't know who's going to be first, you or me.' Rebecca indicated that Hemmingway's actions had caused her to suffer serious emotional distress and that she 'fears bodily injury and death either to herself or to a member of her family.' Rebecca's 'significant fear of harm or death' was compounded by her knowledge of Hemmingway's past violent crimes, including aggravated battery and negligent use of a dangerous weapon" (¶ 2).

    Hemmingway moved to dismiss, asserting that all the alleged communications from him to Rebecca were, among other things, protected under the First and Fourteenth Amendments. He challenged the stalking statute as a facially overbroad regulation of protected speech. (The court of appeals noted that a challenge like this may be made even by a party whose conduct is clearly unprotected if the statute infringes on a substantial amount of speech or expressive conduct protected by the First Amendment (see ¶ 11)). The circuit court agreed with Hemmingway that the statute is overly broad and dismissed the complaint. In a decision authored by Judge Neubauer, the court of appeals reversed.

    To obtain a conviction under the stalking statute, "the State must prove that Hemmingway intentionally engaged in a course of conduct directed at his ex-wife that he knows (or should know) will instill fear in her, does instill fear in her, and would instill such fear in a reasonable person under similar circumstances" (¶ 9).

    The appellate court concluded that this statute is not overbroad under the First Amendment. "Although a stalker might use language in committing the crime, the core of the statute is the stalker's intent to engage in conduct that he or she knows or should know will cause fear in the victim and does cause the victim's actual distress or fear. Because the language used by Hemmingway in stalking Rebecca was merely evidence of his crime and not prohibited in and of itself, we reverse the circuit court's dismissal of the complaint and remand for further proceedings consistent with this opinion" (¶ 18).  

    Criminal Procedure

    Guilty Plea – Minor Error Concerning Maximum Extended-Supervision Term for the Crime of Conviction

    State v. Lichty, 2012 WI App 126 (filed 24 Oct. 2012) (ordered published 28 Nov. 2012)

    Holding: A minor error during plea negotiation concerning the maximum extended-supervision term the defendant faced did not constitute a manifest injustice warranting plea withdrawal.

    Summary: Pursuant to a plea negotiation the defendant entered no-contest pleas to two counts of burglary. Burglary is a Class F felony for which the maximum term of initial confinement is 7.5 years and the maximum term of extended supervision is five years (for an overall maximum term of imprisonment of 12.5 years). As part of the negotiation, the prosecutor agreed to recommend six years of confinement and six years of extended supervision on each count to run concurrently. At no time during the plea hearing did anyone notice that the prosecutor was recommending more extended-supervision time than is authorized for a Class F felony.

    At the sentencing hearing, the prosecutor acknowledged the error and amended the state's recommendation to five years of extended supervision. The circuit court sentenced the defendant to six years of confinement and five years of extended supervision on each count with the sentences to run consecutively. The defendant then moved to withdraw his pleas, contending withdrawal was necessary to correct the manifest injustice caused by the mistake concerning the maximum term. The circuit court denied the motion.

    In a decision authored by Chief Judge Brown, the court of appeals affirmed. It held that "when a good-faith legal error is made at the plea hearing regarding the maximum periods of initial confinement and extended supervision permitted by Wisconsin law, and when that error was corrected at the sentencing hearing, to the defendant's benefit, there is no manifest injustice" (¶ 1). The court noted that, before entering his pleas, the defendant executed a guilty plea questionnaire/waiver of rights form, which correctly stated that the overall maximum term of imprisonment for burglary is 12.5 years (see ¶ 14). 

    Probation Search – Preliminary Breath Test Conducted at Probation Officer's Request

    State v. Devries, 2012 WI App 119 (filed 24 Oct. 2012) (ordered published 28 Nov. 2012)

    Holding: A preliminary breath test conducted by a police officer at the request of a probation agent was a probation search, not a police search, and because reasonable grounds existed for the search, evidence resulting from it was not subject to suppression.

    Summary: The defendant, Devries, met with her probation agent at the probation office. After detecting the odor of alcohol emanating from Devries, the agent requested that a law enforcement officer come to the probation office to administer a preliminary breath test (PBT) to her. In response, Officer Person arrived at the probation office, where the agent informed Person that "[t]hey wanted to get a PBT because they detected an odor of alcohol" related to Devries. Person administered the PBT to Devries in the office, and the result indicated a blood alcohol concentration (BAC) of 0.128 percent.

    Person showed the PBT result to the agent, who then placed a probation hold on Devries and informed Person that Devries had driven to the probation office. Person had not been aware Devries had driven and, before being informed of this, had not been investigating her for possible intoxicated driving. Devries was later arrested for and convicted of sixth-offense operating while intoxicated (OWI).

    On appeal, Devries argued that the PBT requested by the probation agent but administered by the police officer was an unlawful police search because the officer lacked probable cause to conduct the search. Therefore, Devries contended, the test result and all fruits derived from it should have been suppressed. She conceded, however, that if the administration of the PBT was a probation search (rather than a police search), it was lawful inasmuch as the probation agent had the reasonable grounds necessary to justify a probation search.

    In a decision authored by Judge Gundrum, the court of appeals concluded that administration of the PBT was a probation search (see ¶ 3). "[T]he PBT was administered for no independent police purpose, but was instead a limited search executed at the request and on behalf of the probation agent, during a probation meeting in the probation office, and for probation purposes" (¶ 7).

    "It was not until after Person administered the PBT to Devries that he was informed Devries had driven to the office, giving Person for the first time reason to suspect Devries may have committed a law violation and prompting his subsequent police investigation for OWI. Thus, not only did Devries's agent initiate the search, but, as the State points out, there is no evidence the officer had any purpose for his initial involvement other than to assist the agent in conducting the probation investigation" (¶ 5). 

    Guilty Plea Procedures – Party-to-a-Crime Liability

    State v. Brown, 2012 WI App 139 (filed 20 Nov. 2012) (ordered published 19 Dec. 2012)

    HOLDING: When a defendant allegedly directly committed a crime, it is not necessary to explain party-to-a-crime liability at the guilty plea hearing, even if the defendant is charged as a party to the crime.

    SYNOPSIS: The defendant entered a guilty plea to a charge of robbery of a hotel clerk. He was charged with being a party to that crime under Wis. Stat. section 939.05. Pursuant to this statute, one can be a "party" by directly committing the crime, aiding and abetting the crime, or being a conspirator in the commission of the crime. The criminal complaint alleged facts showing that the defendant directly committed the robbery while his co-actor remained near the door. At the guilty plea hearing, the defendant acknowledged the facts in the complaint as establishing a factual basis for his plea. During the plea hearing, the circuit court explained the elements of the crime of robbery but did not explain party-to-a-crime liability to the defendant. 

    The defendant sought to withdraw his plea, claiming the plea colloquy was defective because it did not include an explanation of party liability. The circuit court denied the motion. In a decision authored by Judge Curley, the court of appeals affirmed.

    The court of appeals held that "because the elements of direct liability for the … robbery were in fact explained, and because [the defendant] admitted the facts demonstrating his direct liability – including that he threatened the hotel clerk with a knife, demanded money, and took approximately $170 from the cash drawer – it was not necessary in this circumstance for the trial court to additionally explain the concept of party to a crime liability" (¶ 13). "We therefore conclude that, because an explanation of party to a crime liability in this particular circumstance would have been superfluous, the trial court did not err by failing to explain party to a crime liability during Brown's plea hearing, and did not err in denying [the defendant's] postconviction motion without an evidentiary hearing" (¶ 15).

    The appellate court did note that "our decision does not apply to all situations in which a defendant pleads guilty as party to a crime, but instead rests on the fact that [the defendant in this case] directly committed the crime to which he pled guilty" (¶ 14).  

    Horizontal Gaze Nystagmus (HGN) Test – Self-Incrimination

    State v. Schmidt, 2012 WI App 137 (filed 14 Nov. 2012) (ordered published 19 Dec. 2013)

    HOLDING: Compelling the defendant to submit to an HGN test at trial in the event he testified did not violate his right against self-incrimination.

    SYNOPSIS: Schmidt (the defendant) was arrested for driving while intoxicated after he drove to a jail to pick up his daughter, who had been arrested earlier for driving while intoxicated. At the defendant's trial, a deputy testified that the defendant had failed an HGN test administered to him at the jail, and that this failure indicated he was impaired (as did his blood alcohol concentration of 0.13). On cross-examination, the defendant's attorney raised the issue of whether diabetes might affect the outcome of an HGN test.

    Following an exchange between the prosecutor and the defendant's attorney, the trial judge ruled that if the defendant testified and the state could show that he was "sober at the time of trial," the court would permit the state to conduct an HGN test on the defendant outside the jury's presence and then would permit the giving of testimony about its outcome.

    The defendant did testify, the state did administer an HGN test to the sober defendant outside the jury's presence, and the deputy testified that although the defendant was "unsteady" on the walk-and-turn test, the defendant exhibited zero of the six indicia of impairment on the HGN test. The jury convicted him.

    The court of appeals affirmed in an opinion authored by Judge Neubauer. First, administration of the HGN test did not violate the defendant's right against self-incrimination. The test was "classic physical evidence" that did not compel him "to disclose his perceptions or thoughts or convey any statement. The test was not testimonial" (¶ 9).

    Second, administration of the HGN test and presentation of testimony concerning its results did not deprive the defendant of a fair trial. The defense put his performance of the HGN test at issue by suggesting that diabetes could affect the results. The defendant then chose to testify and provided the "necessary foundation for admission of the test results" (¶ 10). 

    Joinder – Ineffective Assistance of Counsel

    State v. Prescott, 2012 WI App 136 (filed 14 Nov. 2012) (ordered published 19 Dec. 2013)

    HOLDING: The defendant showed no substantial prejudice in a situation in which multiple charges arising out of the same act were properly joined at trial.

    SYNOPSIS: Prescott fired a gun into a residence, injuring a 12-year-old girl. A jury convicted him of two offenses: causing reckless injury by use of a dangerous weapon, and being a felon in possession of a firearm. On appeal, Prescott contended that the charges should not have been joined and that his lawyer's failure to object constituted ineffective assistance of counsel.

    The court of appeals affirmed in an opinion written by Judge Kessler. First, the charges were properly joined under Wis. Stat. section 971.12(1). The charges were based on the same "act or transaction," namely, the shooting in question, and the joinder did not substantially prejudice Prescott, even though it surely showed "some prejudice" (¶ 18). The only reference to the prior conviction was made during a terse stipulation. The jury was instructed to consider each charge separately (see ¶ 19). The record revealed overwhelming evidence of Prescott's guilt on the reckless injury charge, entirely apart from the felony conviction (see ¶ 20).  

    Employment Law

    Civil Actions – Timeliness

    Hoague v. Kraft Foods Global Inc., 2012 WI App 130 (filed 25 Oct. 2012) (ordered published 28 Nov. 2012)

    Holding: The 60-day limitation period in which to file civil actions under Wis. Stat. section 103.10(13)(b) runs consecutively from end of the 30-day judicial review period, not from the date of the agency's order.

    Summary: The Wisconsin Department of Workforce Development Equal Rights Division issued a decision that Kraft had violated Hoague's rights under the state's family and medical leave act. Neither Kraft nor Hoague sought a rehearing or judicial review. On the 88th day following the order's issuance, Hoague filed a civil action against Kraft. The circuit court dismissed the action on grounds that it was not filed within the 60-day limitation period set forth in Wis. Stat. section 103.10(13)(b).

    The court of appeals reversed in an opinion authored by Judge Kloppenburg. "In this case, a situation in which the employer did not seek judicial review of the agency's order in favor of the employee, we must interpret whether the sixty-day limitation period commenced upon expiration of the thirty-day judicial review period, or, instead, on the date of the agency's order. Applying established canons of statutory interpretation, we conclude below that the statute is ambiguous and the more reasonable interpretation is that the legislature intended that the sixty-day limitation period runs consecutively to the thirty-day time period for seeking judicial review and not concurrently with it" (¶ 7).

    "In sum, interpreting the sixty-day limitation period beginning with the end of the thirty-day judicial review period is the more reasonable interpretation of the limitation period language because it provides prevailing employees, in all scenarios, the full sixty-day period to act with knowledge that the judicial proceeding is complete, and to determine whether there is a reasonable basis to file suit and to do so. This interpretation more reasonably reflects the practicalities of the two-stage process created by the legislature" (¶ 20).


    Dead Man's Statute – "Interest"

    Rutter v. Copper, 2012 WI App 128 (filed 4 Oct. 2012) (ordered published 28 Nov. 2012)

    Holding: The dead man's statute precluded testimony by an interested witness regarding a communication with a deceased person.

    Summary: The Rutters own two parcels of land that abut the Mississippi River. To get from one parcel to the other, they would cross over land owned by the Towers. When the Towers placed cables on their property to block the Rutters' route, the Rutters filed this claim seeking a declaratory judgment that they possess a prescriptive easement on this corner of the Towers' land.

    At trial, the court excluded, under the dead man's statute, one witness's testimony that she had granted permissive use of that route to the Rutters' predecessor in interest, who had since died. The court then ruled that the Rutters possessed the prescriptive easement, also finding that there had been no evidence establishing permissive use.

    The court of appeals affirmed in an opinion written by Judge Kloppenburg. The opinion duly sets forth the case law condemning the dead man's statute and urging its narrow application. Nonetheless, the court of appeals held that the trial judge properly excluded the questioned testimony. First, the witness had an "interest" in the property; specifically, "she retains a life interest and resides on the property" even after transferring the property in fee simple to her son (¶ 16).

    Second, the witness's testimony involved a "communication" with the deceased. "So here, Beulah Tower's [the witness's] testimony about informing Hutson [the deceased] that what he was already doing (crossing her property) was with her permission, was an effort to communicate something and is therefore barred by Wis. Stat. § 885.16" (¶ 20). Third, the court declined to address an undeveloped argument to the effect that the dead man's statute should not deprive parties of "their defense of permissiveness" (¶ 22). 


    Commercial General Liability Policy – Occurrence

    Pamperin Rentals v. R.G. Hendricks & Sons Constr. Inc., 2012 WI App 125 (filed 10 Oct. 2012) (ordered published 28 Nov. 2012)

    Holding: There was no insurable occurrence within the meaning of the commercial general liability (CGL) policy.

    Summary: Pamperin Rentals hired Hendricks to perform services in connection with the construction of several service stations. When problems with the concrete appeared, Pamperin sued Hendricks for defects in the concrete and its workmanship. Hendricks' insurer, Pekin, provided a defense subject to its reservation of rights on coverage. The circuit court later granted summary judgment dismissing Pekin on grounds that there was no insurable occurrence under the policy. Although the concrete was defective, the alleged business interruption and physical damage to asphalt would not occur until the defective concrete was repaired or replaced.

    The court of appeals affirmed in an opinion written by Judge Hoover. Because Pekin provided an initial defense subject to a final coverage determination, the court directly proceeded to the coverage issue (see ¶ 5). Construing the CGL policy, the court held there was no insurable "occurrence" because there had been no "property damage" (¶ 7).

    Nor did the policy's "structure and language" support Hendricks' contention that a separate premium had created "products-completed operations coverage" (¶¶ 8-9). "The fact that the insured pays a separate (substantially discounted) premium for the (apparently diminished) risk of liability associated with products or work for which it has relinquished control does not dictate that the risk magically becomes a separate coverage grant with its own insuring agreement and set of exclusions. Rather, the products–completed operations hazard is plainly a component of Coverage A., which insures for bodily injury and property damage liability" (¶ 12). Finally, Hendricks conceded that Pekin provided more than a token defense and Hendricks was not prejudiced.  

    Bad Faith – Pleading

    Ullerich v. Sentry Ins., 2012 WI App 127 (filed 23 Oct. 2012) (ordered published 28 Nov. 2012)

    Holding: The plaintiff's first-party bad-faith claim failed because it did not allege facts showing that his insurance contract claim was not fairly debatable.

    Summary: Ullerich was a passenger in a car, driven by an uninsured driver (Goergen), that collided with another vehicle. Several weeks later, Ullerich complained of shoulder pain. He filed a claim with his uninsured motorist (UM) carrier, Sentry, which offered him nearly $23,000 to settle despite raising questions about the cause of the shoulder injury (the accident or snow shoveling?) and the cause of the accident itself (the other driver?). Ullerich sued the driver of his vehicle as well as Sentry for bad faith and breach of contract. In a bifurcated proceeding, a jury found that the drivers had been equally liable and awarded $87,000 in damages for the accident. The circuit court later dismissed the bad-faith and breach-of-contract claims against Sentry.

    Prof. Daniel D. BlinkaProf. Daniel D. Blinka, U.W. 1978, is a professor of law at Marquette University Law School, Milwaukee.

    Prof. Thomas J. HammerProf. Thomas J. Hammer, Marquette 1975, is a law professor and Director of Clinical Education at Marquette University Law School, Milwaukee.

    The court of appeals affirmed in an opinion authored by Judge Brennan. "This case addresses what an insured must plead in order to proceed with discovery and survive summary judgment in a first-party bad faith and breach of contract action against an insurer. Louis Ullerich filed bad faith and breach of contract claims against his insurer, Sentry Insurance, for refusing to pay him $250,000, the policy limit set forth in the uninsured motorist ('UM') endorsement" (¶ 1).

    Construing case law, the court held that "the insured claiming bad faith must plead a separate breach of contract (not an issue here) and 'satisf[y] the court that the insured has established such a breach or will be able to prove such a breach in the future. Stated differently, an insured must plead, in part, that she was entitled to payment under the insurance contract and allege facts to show that her claim under the contract was not fairly debatable. To go forward in discovery, these allegations must withstand the insurer's rebuttal'" (¶ 20). Absent such a preliminary showing, the insurer is entitled to summary judgment (see id.).

    The court explicitly rejected the argument that this requirement applies only to cases in which the insured pleads only bad faith and not breach of contract (see ¶ 21).

    The court affirmed the dismissal of the claim against Sentry based on the record. "Here, the allegations in Ullerich's complaint do not stand up to rebuttal. The undisputed facts show that his UM claim was fairly debatable because: (1) it was reasonable for Sentry to conclude that Ullerich's shoulder injury was not caused by the motor vehicle accident but rather by recurrent snow shoveling; and (2) it was reasonable to question the extent of Goergen's liability for the accident"(¶ 24). 

    Notice of Claims – Cooperation

    Ansul Inc. v. Employers Ins. Co. of Wausau, 2012 WI App 135 (filed 27 Nov. 2013) (ordered published 19 Dec. 2013)

    HOLDING: Summary judgment for an excess insurer was appropriate, because the insured failed to provide timely notice of potential liability and failed to cooperate with the insurer, as provided by the policy.

    SYNOPSIS: Ansul Inc. caused severe environmental damage by contaminating groundwater with arsenic. From 1969 to 1980, Lloyd's & London Market Insurance Companies (Lloyd's) provided excess coverage to Ansul through nine policies with varying dates. The Wisconsin Department of Natural Resources (DNR) and later the U.S. Environmental Protection Agency (EPA) ordered Ansul to conduct remediation measures from the 1970s to the 1990s. Only in 1997 did Ansul notify Lloyd's of the contamination and the government-ordered remediation. In 2004 Ansul brought this action against Lloyd's and other insurers. The circuit court granted summary judgment in favor of Lloyd's, finding that Ansul had failed to give timely notice of the claim and had also failed to provide the assistance and cooperation required by the policies.

    The court of appeals affirmed in an opinion written by Judge Mangerson. First, Ansul failed to provide timely notice of its potential liability. "[B]y 1991 at the latest, Ansul should have known its liability for the contamination at the Menominee River site was likely to reach the $16 million attachment point for policy UKL1311. Nonetheless, it waited six years to notify Lloyd's of the claim, well after its other insurers had been notified. This constitutes unreasonable delay" (¶ 20).

    Ansul's employees were "unable to explain why Ansul did not notify the insurer sooner," which further showed the "undisputedly intentional nature of the omission" (¶ 23). Moreover, Ansul failed to overcome the presumption of prejudice that follows an unreasonable delay, the court also noting that potentially relevant evidence had already been lost (see ¶ 28).

    Second, Ansul breached the policies by not "assisting and cooperating" as required. "Tellingly, Ansul does not claim it has not breached the cooperation clauses. This is a wise concession. By providing notice in the form of a lawsuit, Ansul immediately set itself at odds with Lloyd's. In adopting an adversarial position from the outset, Ansul deprived Lloyd's of the 'opportunity to associate with the Assured or the Assured's underlying insurers, or both, in the defense of any claim, suit or proceeding.' Ansul engaged in years of negotiation and cooperation with the DNR and EPA without ever permitting Lloyd's to investigate the extent of Ansul's liability. The lengthy delay in notice becomes all the more prejudicial because once the insured brings a coverage suit, the duty of cooperation may be circumscribed by the adversary process" (¶ 32).

    The court flatly rejected Ansul's contention that Lloyd's had not suffered prejudice, observing that "no witness testified Lloyd's would have handled Ansul's claim the same way had it provided timely notice without immediately commencing litigation" (¶ 34).  

    Municipal Law

    Liquor Licenses – Revocation Initiated by Citizen Complaint – Oath Required

    Park 6 LLC v. City of Racine, 2012 WI App 123 (filed 10 Oct. 2012) (ordered published 28 Nov. 2012)

    Holding: Proceedings to revoke a liquor license that are initiated by an unsworn citizen complaint are fundamentally flawed.

    Summary: Section 125.12(2) of the Wisconsin Statutes allows any resident of a municipality to file a "sworn written complaint" alleging grounds for revocation or suspension of a liquor license. In this case, the Racine Public Safety and Licensing Committee held a hearing on a citizen complaint about a licensed establishment known as Park 6; the committee recommended that the liquor license in question be revoked. Thereafter, the Racine Common Council revoked the license. The problem in the case was that the citizen complaint that initiated these proceedings was not sworn. On that basis, the circuit court vacated the decision to revoke the liquor license.

    In a decision authored by Chief Judge Brown, the court of appeals affirmed. It concluded that the defect in the proceedings (the lack of a sworn complaint) was a fundamental error that deprived the licensing committee of jurisdiction over the matter (see ¶ 1). Said the court, "An oath or swearing requirement is important. The solemnity imposed by an oath requires the actor to stop and consider the allegations he or she is making. Under Wis. Stat. § 125.12(2), requiring a complainant to swear to his or her allegations prevents baseless harassment of legitimate businesses. An oath requirement is not a meaningless legal trapping. In the § 125.12(2) context, the sworn complaint initiates the review process, in which the licensee is brought under the microscope, enduring the stress of having to defend his or her business. What happens after, the entire procedure and due process hearing, cannot make up for a faulty start. To deem the lack of oath inconsequential or allow the testimony at the hearing to cure a defective complaint would render the swearing requirement meaningless" (¶ 11).

    Sexually Violent Persons


    State v. Schulpius, 2012 WI App 134 (filed 27 Nov. 2012) (ordered published 19 Dec. 2013)

    HOLDING: An expert's opinion that is not based on some new fact, new professional knowledge, or new research is not sufficient for a new discharge hearing under Wis. Stat. section 980.09(2).

    SYNOPSIS: In 1996, Schulpius was committed as a sexually violent person under the provisions of Wis. Stat. chapter 980, a set of civil statutes. In early 2010, following a jury trial, a court denied his petition for discharge. Later in 2010, Schulpius filed another petition, which a court denied without a hearing. Schulpius appealed.

    The court of appeals affirmed in an opinion written by Judge Brennan. It concluded that Schulpius failed to meet the criteria justifying a hearing under Wis. Stat. section 980.09(2). "Given the plain language of Wis. Stat. § 980.09(2) and the relevant case law, we hold that, when determining whether to hold a hearing on a petition for discharge, the circuit court must determine whether the petitioner has set forth new evidence, not considered by a prior trier of fact, from which a reasonable trier of fact could conclude that the petitioner does not meet the criteria for commitment as a sexually violent person. An expert's opinion that is not based on some new fact, new professional knowledge, or new research is not sufficient for a new discharge hearing under § 980.09(2). This result is the only reasonable one. Permitting a new discharge hearing on evidence already determined insufficient by a prior trier of fact violates essential principles of judicial administration and efficiency" (¶ 35).

    Under this standard, Schulpius did not merit a new hearing. Although one expert had changed his opinion, it was not based on "any new fact …, new professional knowledge, or new research." Rather, the expert had recalculated a score on a particular test (¶ 40).

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