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    Wisconsin Lawyer
    December 01, 2014

    Top 10 Recent Wisconsin Federal Court Decisions

    Federal court interpretations of Wisconsin law are of persuasive value to, but not binding on, Wisconsin courts. Yet, they affect how Wisconsin law is argued and develops. Here is a look at 10 significant Wisconsin federal court decisions interpreting Wisconsin law in 2014.

    Michael B. Brennan

    Wisconsin state capitol foggy

    Photo by Richard Hurd

    Each year Wisconsin’s two U.S. district courts and the U.S. Court of Appeals for the Seventh Circuit render decisions interpreting Wisconsin common law and Wisconsin statutes, in many cases under federal diversity jurisdiction.

    Of course, federal court interpretations of Wisconsin law are persuasive authority, but they are not binding on Wisconsin courts.1 These interpretations, however, still affect how Wisconsin law develops and is argued, including in cases pending in Wisconsin state trial and appellate courts.

    This article reviews 10 recent significant Wisconsin federal court decisions (nine from 2014, one from 2013) interpreting Wisconsin law. These decisions encompass Wisconsin common-law claims and interpretations of Wisconsin statutes.

    Wisconsin Tort Law

    Risk Contribution Theory of Liability. In Gibson v. American Cyanamid Co.,2 the U.S. Court of Appeals for the Seventh Circuit reversed a 2010 decision by the U.S. District Court for the Eastern District of Wisconsin that liability under the “risk contribution” theory, recognized by the Wisconsin Supreme Court in 2005 in Thomas v. Mallet3 and applied in that case to lead-paint-pigment manufacturers, would breach the constitutional bar on retroactive liability and thus violate substantive due process.

    The federal appeals court first considered that during the appeal’s pendency, the Wisconsin Legislature had enacted a statute, Wis. Stat. section 895.046, to extinguish risk contribution theory, including for cases such as Gibson that were already pending at the time of the statute’s enactment. The Seventh Circuit concluded it had to address the statute to avoid, if possible, opining on federal constitutional issues.4

    The federal appeals court agreed with the Milwaukee County Circuit Court, which had struck down the statute on the ground that it violated Wisconsin’s constitutional guarantee of due process by attempting to extinguish a vested right in negligence and strict liability causes of action.5 Although the statute enjoyed a presumption of constitutionality, the Seventh Circuit agreed that retroactive application, under Wisconsin Supreme Court precedent, would violate the Wisconsin Constitution’s due-process guarantee.6

    In the Seventh Circuit’s decision on the merits in Gibson, the court considered a U.S. Supreme Court decision, Eastern Enterprises v. Apfel,7 which applied a substantive-due-process analysis to strike down the 1992 federal Coal Act. The Seventh Circuit read Apfel differently than did the district court, concluding that a majority of the U.S. Supreme Court had not agreed on one rationale in that case. The Seventh Circuit reasoned that to constitute a holding, a rule of decision must be the narrowest grounds adopted by the justices who concurred in the judgment, not the grounds relied on by a single justice in the majority combined with reasoning from justices in dissenting opinions.8

    The Seventh Circuit thus concluded Apfel was not binding precedent for the Gibson case.9 In the absence of a controlling rule, a state law need only be rational and nonarbitrary to satisfy the right to substantive due process.10 Accordingly, in light of the deference that the U.S. Constitution grants to the development of state common law, the appeals court determined that the risk contribution theory of liability survived substantive-due-process scrutiny. The court also rejected other arguments that the theory violates the Takings and Interstate Commerce Clauses of the U.S. Constitution.11

    Wisconsin Contract Law

    The plaintiff and the defendant, both insurers, disputed sales commissions in Don-Rick Inc. v. QBE Americas.12 Don-Rick was an agent of QBE, sold QBE policies, and became eligible to participate in a bonus commission program. QBE terminated Don-Rick as an agent, and QBE refused Don-Rick commissions allegedly payable under the program. Don-Rick sued for these commissions in this diversity case, removed to federal court. QBE moved to dismiss, asserting QBE was not obliged to pay Don-Rick because, QBE argued, the bonus program was not a contract.

    U.S. Magistrate Judge Crocker decided the case under Wisconsin contract law, including whether the commission program was enforceable as a unilateral contract. QBE contended it never made an enforceable promise to Don-Rick because the document describing the program states it is separate from the agency agreement, “is not a contract[,] and it has no legally binding rights or obligations.”13 Don-Rick dismissed this language as nonbinding, and cited Wisconsin’s “procuring cause” doctrine, which provides that sales commissions are due and payable according to the terms in effect when the commission is earned.14

    The Western District court reviewed similar cases and concluded that even if QBE had promised Don-Rick that QBE would pay a bonus commission, the promise would be an unenforceable illusory contract because QBE had total discretion to cancel the program, and any payments associated with the program, until such payments were actually made. Don-Rick’s performance under the “agreement” could not change that result. Based on some subsequent statements QBE made to Don-Rick, however, the district court denied a motion to dismiss claims of promissory estoppel and unjust enrichment.15

    In Principle Solutions LLC v. Feeding B.V.,an international-diversity jurisdiction case applying Wisconsin contract and commercial law, a Dutch business (Feeding B.V.) entered into contracts with a Wisconsin business (Principle Solutions).16 Feeding B.V. shipped product, which Principle Solutions then brokered as commodities and ingredients for the pet food industry. The parties’ contracts were negotiated orally and via email.

    After the contracts were partially fulfilled, disputes arose. Principle Solutions sued for breach of contract alleging inferior product, and Feeding B.V. counterclaimed arguing that Principle Solutions failed to purchase the remaining amounts of product under the contracts.

    Although the parties agreed that a contract was formed, they disagreed as to its terms. Wisconsin contract law applied, and because the parties were merchants and the contract was for the sale of goods in excess of $500, Wisconsin’s version of the Uniform Commercial Code (UCC) also applied.

    On cross-motions for summary judgment in the Eastern District court, Judge Randa applied a plain-meaning interpretation of the words of the emails exchanged, and concluded that they did not support Principle Solutions’ contention that the contract was for a shorter duration. Thus, Principle Solutions was responsible for purchasing all product it ordered from Feeding B.V.17 Principle Solutions’ failure to object to the contract within 10 days after its confirmation, as required by the UCC (Wis. Stat. section 402.207), buttressed this conclusion.

    The district court also agreed with Feeding B.V. that Principle Solutions waived its right to pursue a breach-of-contract claim based on product quality.18 Principle Solutions had used the product and paid the invoices, so Principle Solutions did not seasonably reject the product, as required by the terms and conditions of the parties’ contract and the UCC.19

    Wisconsin Statutes – Misrepresentation

    Wisconsin Statutes section 100.18, which prohibits fraudulent representations in certain business transactions, is a common claim in commercial cases in federal court based on diversity jurisdiction. Three notable cases decided this year by Wisconsin federal courts involve this statute, called the Wisconsin Deceptive Trade Practices Act.

    Michael B. BrennanMichael B. Brennan, Northwestern 1989, is a trial and appellate lawyer with Gass Weber Mullins LLC, Milwaukee.

    In Thermal Design Inc. v. American Society of Heating, Refrigerating & Air Conditioning Engineers Inc. (“ASHRAE”),20 the U.S. Court of Appeals for the Seventh Circuit considered a section 100.18 claim of an insulation manufacturer against a standards-setting organization. Thermal Design manufactures “liner systems” for nonresidential metal buildings. ASHRAE publishes Standard 90.1 for such buildings, describing how they should be constructed to increase energy efficiency. Standard 90.1 is influential in the commercial building industry and has been incorporated into federal and state law.21

    Thermal Design sued ASHRAE alleging federal causes of action (under the Lanham Act and the Sherman Antitrust Act), unfair competition, and violation of Wis. Stat. section 100.18. Thermal Designs argued that ASHRAE published faulty performance factors under Standard 90.1 to induce consumers to purchase from competitors of Thermal Design. After allowing Thermal Design to amend its complaint numerous times, and following discovery, the district court dismissed Thermal Designs’ claims on cross-motions for summary judgment, and Thermal Designs appealed.22

    Thermal Designs alleged ASHRAE violated Wis. Stat. section 100.18 by two of its six members intentionally skewing Standard 90.1 to benefit a system in competition with Thermal Designs’ system. But the Seventh Circuit noted Wisconsin case law that section 100.18 applies by its terms to commercial transactions.23 ASHRAE is not in the business of selling insulation systems and does not benefit from Standard 90.1, and ASHRAE’s actions were not part of a commercial transaction. Therefore, the federal appeals court concluded that Thermal Designs’ Wisconsin Deceptive Trade Practices Act claim “must fail.” “Nothing in the act supports such a broad understanding” such that a standards-setting organization could be held liable by a manufacturer showing lost sales as a result of allegedly inaccurate technical data being incorporated into a standard.24

    In Hackel v. National Feeds Inc.,25 the plaintiff brought statutory misrepresentation claims under Wis. Stat. section 100.18, and the defendant argued that the economic loss doctrine barred the claims. The Western District court cited Wisconsin Supreme Court case law that distinguished between a common-law misrepresentation claim, which the economic loss doctrine may preclude, and a statutory misrepresentation claim under section 100.18, which the economic loss doctrine does not preclude.26 In response to the defendant’s citation of other authority that had recognized an exception to common-law misrepresentation claims, the district court cited more recent case law that reaffirmed that the economic loss doctrine still leaves statutory remedies available in situations in which misrepresentation occurred.27

    A Wisconsin federal court interpreted Wis. Stat. section 100.18 in the construction law context in Haley v. Kolbe & Kolbe Millwork Co.,28 a proposed class action about defective windows. Among various claims, the plaintiffs asserted violation of section 100.18, but the defendant window manufacturer creatively filed a motion to stay proceedings based on the plaintiffs’ failure to comply with a Wisconsin statute, Wis. Stat. section 895.07(2), under which a contractor must have notice and an opportunity to cure a construction defect.

    Writing for the Western District court, Judge Crabb assumed that a case brought under Wisconsin law must be stayed if the plaintiffs failed to comply with the notice and opportunity to cure requirement.29 The plaintiffs argued the defendant unreasonably delayed raising the statute, and that Wisconsin’s version of laches applied,30 as the defendants did not assert the statute until after the parties had exchanged initial disclosures and discovery had begun.

    The Western District court considered but rejected the defendants’ arguments that the delay in raising the notice and right to cure statute was reasonable. First, the fact that the plaintiffs’ original complaint included no Wisconsin residents was of no effect because nothing in the statute limits its application to Wisconsin residents. Second, that the plaintiffs’ complaint included only one Wisconsin claim was not persuasive because the plaintiffs sued a Wisconsin company in a Wisconsin federal court on behalf of Wisconsin property owners.31 Third, the defendant manufacturer did not suggest that the plaintiffs’ Wis. Stat. section 100.18 claim was exempt from the requirements of the notice and right to cure statute. Accordingly, the district court denied the defendant’s motion to stay the case for noncompliance with that statute.32

    Wisconsin Worker’s Compensation Act

    In Zillges v. Kenney Bank & Trust,33 the U.S. District Court for the Eastern District of Wisconsin ruled on the scope of Wisconsin’s Worker’s Compensation Act (WCA).

    Nicholas Zillges sued his former employer, Kenney Bank & Trust, and several affiliated companies and individuals. Zillges alleged the defendants conspired to injure him, terminated him for complaining internally and to regulators about certain violations by the bank, failed to pay him certain compensation, and defamed him. Zillges did not dispute that his conspiracy claim arose out of his bank employment and therefore could not lie against the bank or the individual officers or directors. The defendants conceded that the WCA did not preclude Zillges from pursuing his conspiracy claim against affiliated companies and certain individuals.34

    The primary issue, the court decided, was whether Zillges was precluded from pursuing his conspiracy claim against two bank directors. The Eastern District court interpreted the WCA’s “dual-persona” doctrine, which provides that
    “[a]n employer may become a third person, vulnerable to tort suit by an employee, if and only if he possesses a second persona so completely independent from and unrelated to his status as employer that by established standards the law recognizes it as a separate legal person.”35

    Zillges argued that the two directors had dual personas because they were officers or directors of the bank as well as of an affiliated company. Judge Adelman reviewed two Wisconsin Court of Appeals decisions that found the dual-persona test satisfied, and agreed that Zillges had plausibly alleged that the individuals participated in a conspiracy against Zillges in their personas with the affiliated company, rather than in their “bank” personas.36 Therefore, the court denied the defendants’ partial motion to dismiss the complaint under the WCA.

    Wisconsin Consumer Act

    In Gonzales v. Kohn Law Firm S.C.,37 the Eastern District court considered a complaint against a law firm for allegedly violating the Wisconsin Consumer Act.

     The law firm’s client obtained a credit card judgment against the plaintiff’s brother. The plaintiff was not a defendant or a judgment debtor in the underlying Milwaukee County case, nor was she a signatory to the credit card account.38 When the law firm attempted to collect the brother’s debt by garnishing the plaintiff’s wages, the plaintiff sued, alleging federal question claims and violation of the Wisconsin Consumer Act, Wis. Stat. chapters 421–427.

    The district court considered whether the Wisconsin Consumer Act permits punitive damages for noncustomers who are “injured persons,” an issue of first impression.39 The plaintiff cited the plain language of the Wisconsin Consumer Act that “recoveries … shall not in themselves preclude the award of punitive damages in appropriate cases.”40 The law firm argued that if the Wisconsin Legislature had intended for noncustomers to be awarded punitive damages, it would have said so expressly. The law firm also noted that the title of the subchapter in which the “plain language” quoted above appears is “Customer’s Remedies.”41 The plaintiff argued, however, that the law firm’s interpretation would lead to absurd results, because other sections of the same subchapter allow recovery by noncustomers.

    U.S. Magistrate Judge Joseph relied on the plain language of the Act to conclude that noncustomers can, in appropriate cases, receive punitive damages.42 The district court found it meaningful that the legislature used the term “customer” in the first sentence of the applicable statute, but did not do so in the second sentence, which authorizes punitive damages in appropriate cases.43 The district court also agreed with the plaintiff that the subchapter’s title did not control given that the subchapter contains remedies for customers and noncustomers.44

    Wisconsin Personal Jurisdiction Law

    In another case with allegations under the Wisconsin Consumer Act, the Western District of Wisconsin interpreted and applied Wisconsin personal jurisdiction law in Fabio v. Diversified Consultants Inc.45 The plaintiff, an over-the-road truck driver who lives in Minnesota but travels through western Wisconsin, received 180 different calls with a “608” area code from the defendant company, based in Florida, in the company’s effort to collect on a cell phone bill unpaid by the plaintiff’s relative. The defendant contended it maintains no place of business in, does not advertise in, and does not hold assets within the Western District of Wisconsin, and argued that no communications with Fabio occurred within the Western District.46

    On the defendant’s motion to dismiss, Judge Conley, writing for the Western District court, interpreted Wisconsin’s long-arm statute, Wis. Stat. section 801.05. He noted the breadth of Wisconsin’s statute, under which constitutional and statutory inquiries “tend to merge into one question: whether jurisdiction complies with federal due process requirements.”47

     The district court concluded that in addition to purposeful minimum contacts – the defendant placing calls to the plaintiff from a Wisconsin phone number – the plaintiff had shown that his claims arose out of or related to those contacts, because the calls formed the basis of the plaintiff’s claims.48

    The defendant argued that none of the allegedly unlawful communications were received in Wisconsin, and that its primary place of business was in Florida. Although the plaintiff did receive some of the calls while in Wisconsin, the district court found the defendant’s argument beside the point because the plaintiff sufficiently alleged that the calls originated in Wisconsin. “As such, defendant opened itself to claims arising out of and relating to those calls, and knew or should have known plaintiff might bring his claims in the district where the calls originated.”49

    The district court also rejected the defendant’s argument the case did not involve the citizens, laws, or public policy of Wisconsin, reasoning that Wisconsin has an interest in monitoring debt collection companies that use the state as a base for collection efforts. “Even if the absence of Wisconsin citizens weakens that interest, [the defendant]’s argument still falls short of a ‘compelling case’ for finding that exercising personal jurisdiction would be unfair.”50 The defendant had registered to do business in Wisconsin, appointed an agent for service of process in Wisconsin, and maintained a phone number in Wisconsin, so for the reasons listed the plaintiff’s case survived the defendant’s personal-jurisdiction challenge.51

    Wisconsin Claim Preclusion/Civil Procedure

    In Legg v. Bou-Matic LLC, a diversity action, Carl Legg and Genesis Group LLC, citizens of Idaho, sued defendant Bou-Matic LLC, a designer, manufacturer, and supplier of dairy farm equipment, and a citizen of Nevada, alleging Bou-Matic breached dealership agreements between the parties.52

    Bou-Matic had alleged that beginning in 2008, Genesis Group began to fail and accrued a large debt owed to Bou-Matic. After terminating its dealership relationship with Genesis Group, Bou-Matic filed suit in Dane County Circuit Court against the plaintiffs, claiming unpaid debts on goods purchased, inventory, and other accounts receivable. After motion practice, the state court held that Legg was personally liable for all of Genesis Group’s corporate debt, and Bou-Matic obtained a judgment against Legg and Genesis Group.

    After losing in state court, Legg and Genesis Group sued Bou-Matic in the U.S. District Court for the Western District of Wisconsin. Bou-Matic moved for summary judgment, arguing that the plaintiffs’ complaint was barred by claim preclusion and the common-law compulsory counterclaim rule.53

    First, the Western District court applied the requirements of claim preclusion under Wisconsin law, and concluded that there was an identity of parties and an identity of claims between the actions, and there had been a final judgment on the merits. In deciding there was an identity of claims, the district court applied the “transactional approach[,] [which] views claims under a pragmatic standard that focuses on whether the two causes of action arise out of the same common set of material facts.”54

    Even though the district court concluded that all the elements of claim preclusion had been satisfied, Legg and Genesis Group argued that their federal action was not barred unless their success would nullify the state court judgment or impair the rights established in that case. Bou-Matic argued that allowing Legg and Genesis Group to proceed with the federal suit would reconfigure the debts under the dealership agreements, impairing Bou-Matic’s previously determined rights. The plaintiffs responded that the state court judgment would remain valid and could be used to offset any indebtedness in the federal case.55

    U.S. Magistrate Judge Crocker then applied Wisconsin’s common-law compulsory counterclaim rule.56 The district court found that both the state and the federal lawsuits involved the amount of money Legg and Genesis Group owed Bou-Matic pursuant to the dealership agreements. Accordingly, “The parties’ competing claims for money owed pursuant to their agreements are two sides of one coin. … Plaintiffs do not get a do-over because they made a mistake in the first action.”57

    Endnotes

    1 LexingtonIns. Co. v. Rugg & Knopp Inc., 165 F.3d 1087, 1092-93 (7th Cir. 1999).

    2 Gibson v. American Cyanamid Co.,760 F.3d 600 (7th Cir. 2014), rev’g 750 F. Supp. 2d 998 (E.D. Wis. 2010).

    3 Thomas v. Mallett,2005 WI 129, 285 Wis. 2d 236, 701 N.W.2d 523. After the Wisconsin Supreme Court remanded Thomas for a jury trial, the jury decided that Thomas had failed to prove that his injuries were caused by white-lead-carbonate pigment, so the jury did not end up applying the risk contribution theory. No. 2008AP886, 2010 WL 5117278 (Wis. Ct. App. Dec. 16, 2010) (unpublished limited precedent opinion).

    4 RAR Inc. v. Turner Diesel Ltd., 107 F.3d 1272, 1276 (7th Cir. 1997).

    5 Clark v. American Cyanamid Co., No. 06CV12653, 2014 WL 1257118 (Milw. Cnty. Cir. Ct. March 25, 2014).

    6 Gibson, 760F.3d at 610.

    7 524 U.S. 498 (1998).

    8 Gibson, 760 F.3d at 620.

    9 Id. at 615-21.

    10 Useryv. Turner Elkhorn Mining Co., 428 U.S. 1, 15 (1976).

    11 Gibson, 760 F.3d at 604-05, 625-27.

    12 995 F. Supp. 2d 863 (W.D. Wis. 2014).

    13 Id. at 868.

    14 Id. at 870-71 (citing Loth v. City of Milwaukee, 2008 WI 129, ¶ 45, 315 Wis. 2d 35, 758 N.W.2d 766).

    15 Id. at 870-71, 872-74.

    16 PrincipleSolutions LLC v. Feeding B.V., No. 13-C-223, 2014 WL 4954465 (E.D. Wis. Sept. 30, 2014).

    17 Id. at *5.

    18 Id. at *6-*7.

    19 Id. (citing Wis. Stat. § 402.605).

    20 755 F.3d 832 (7th Cir. 2014).

    21 Id. at 835.

    22 Id. at 835-36.

    23 Id. at 837 (citing K&S Tool & Die Corp. v. Perfection Mach. Sales Inc., 2006 WI App 146, 295 Wis. 2d 298, 720 N.W.2d 507, and Slane v. Emoto, 582 F. Supp. 2d 1067, 1083 (W.D. Wis. 2008)).

    24 Id.

    25 No. 12-CV-642-WMC, 2014 WL 108552 (W.D. Wis. Jan. 10, 2014).

    26 Id. at *1 (citing Kailin v. Armstrong, 2002 WI App 70, ¶¶ 42-43, 252 Wis. 2d 676, 643 N.W.2d 132).

    27 Id. at *2 (defendant cited Kaloti Enterprises Inc. v. Kellogg Sales Co., 2005 WI 111, 283 Wis. 2d 555, 699 N.W.2d 205; district court cited Below v. Norton, 2008 WI 77, ¶ 42, 310 Wis. 2d 713, 751 N.W.2d 351).

    28 No. 14-CV-99-BBC, 2014 WL 3700211 (W.D. Wis. July 24, 2014).

    29 Id. at *1.

    30 Id. at *1.

    31 Id. at *2.

    32 Id. at *3.

    33 2014 WL 2515403 (E.D. Wis. 2014).

    34 Id. at *2.

    35 Henningv. General Motors Assembly Div., 143 Wis. 2d 1, 15, 419 N.W.2d 551 (1998) (internal quotations omitted).

    36 Zillges, 2014 WL 2515403 at *3.

    37 No. 13-CV-168, 2014 WL 201151 (E.D. Wis. Jan. 17, 2014).

    38 Id. at *1.

    39 Id. at *4 & n.1.

    40 Id. at *4 (quoting Wis. Stat. § 425.301(1)).

    41 Id. at *4.

    42 Id. at *6.

    43 Wisconsin Statutes section 425.301(1) provides in full: “The remedies provided by this subchapter shall be liberally administered to the end that the customer as the aggrieved party shall be put in at least as good a position as if the creditor had fully complied with chs. 421 to 427. Recoveries under chs. 421 to 427 shall not in themselves preclude the award of punitive damages in appropriate cases.”

    44 Gonzales, 2014 WL 201151 at *8.

    45 No. 13-CV-00524-WMC, 2014 WL 713104 (W.D. Wis. Feb. 25, 2014).

    46 Id. at *1.

    47 Id. at *2.

    48 Id. at *4.

    49 Id.

    50 Id. at *5.

    51 Id.

    52 Leggv. Bou-Matic LLC, No. 12-CV-70-SLC, 2013 WL 123680 (W.D. Wis. Jan. 8, 2013).

    53 Id. at *2.

    54 Id. at *2-*4 (quoting Menard Inc. v. Liteway Lighting Products, 2005 WI 98, ¶ 33, 282 Wis. 2d 582, 698 N.W.2d 738).

    55 Id. at *4.

    56 Found at A.B.C.G. Enters. Inc. v. First Bank S.E. N.A., 184 Wis. 2d 465, 476, 515 N.W.2d 904 (1994).

    57 Legg, 2013 WL 123680 at *5.




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