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    Wisconsin Lawyer
    December 01, 2015

    Top 8 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 eight significant Wisconsin federal court decisions interpreting Wisconsin law in 2014 and 2015.

    Michael B. Brennan

    Wisconsin State Capitol at nightEach year, the U.S. Court of Appeals for the Seventh Circuit and Wisconsin’s two U.S. District Courts render decisions interpreting Wisconsin common law and Wisconsin statutes, often under federal diversity jurisdiction. While federal court interpretations of Wisconsin law are of persuasive value to, rather than binding on, Wisconsin courts, these interpretations affect how Wisconsin law develops.

    This article reviews eight significant 2014 and 2015 Wisconsin federal court decisions interpreting Wisconsin law. These decisions encompass Wisconsin common-law claims and interpretations of Wisconsin statutes.

    Wisconsin Tort Law

    Res Ipsa Loquitor

    This doctrine of Wisconsin tort law was considered by Judge Pamela Pepper of the U.S. District Court for the Eastern District of Wisconsin in Johnson v. Mylan Inc.1

    A deceased individual’s estate brought a product liability action against the manufacturer of a transdermal fentanyl patch used for pain relief. After discovery and motions, the court dismissed several of the plaintiffs’ claims, leaving only design- and manufacturing-defect claims. After the court granted the defendants’ motion to exclude the plaintiffs’ expert witness for lack of “method, test, or scientific process” to arrive at his opinion, the plaintiffs proceeded under the doctrine of res ipsa loquitor.

    Wisconsin law characterizes res ipsa loquitor as a rule of circumstantial evidence that allows a fact-finder to infer negligence (or in this case, product defect) in certain fact situations, and Judge Pepper considered Wisconsin cases applying the doctrine in different circumstances.2

    The medical examiner had found the patient’s cause of death as “fentanyl toxicity” based on a toxicology analysis that showed a certain postmortem fentanyl concentration. The parties had also agreed on certain facts, including that fentanyl may redistribute in the body postmortem, and that an elevated postmortem fentanyl level cannot be used to infer a defect in a transdermal drug-delivery system.

    The plaintiffs argued, based on the medical examiner’s conclusion and the fact that the defendant’s expert witness could not determine whether and to what extent postmortem fentanyl redistribution occurred, that a jury could find negligence via the doctrine of res ipsa loquitor. To the plaintiffs, this was circumstantial evidence that created a jury issue as to whether the patient’s postmortem fentanyl levels were caused by a defect in the patch or postmortem redistribution.

    The Eastern District Court disagreed. Because the parties had agreed that the level of fentanyl did not indicate the level in the patient’s blood at the time of death, that fact could not be used to infer the patch was defective. Judge Pepper reasoned, “If this case were to proceed to trial, the plaintiffs would ask a jury to make the same inference, which would amount to speculation about matters beyond a layperson’s common knowledge.”3

    Judge Pepper also considered whether the plaintiffs could establish that the fentanyl patch was defective without expert testimony. She concluded the plaintiffs could not use the res ipsa loquitor theory without expert testimony because the issues in dispute were not within a lay jury’s common knowledge and general experience.4 Accordingly, the court granted the defendants’ summary judgment motion and dismissed the plaintiffs’ remaining product liability claims.

    Defamation

    In 2014 and 2015, both U.S. district courts in Wisconsin considered the law of defamation in Wisconsin.

    In Verfuerth v. Orion Energy Systems Inc.,5 a former employee made a series of claims arising out of the termination of his employment with a company. Among these was defamation based on a termination letter, referring to “acts of dishonesty,” that was circulated to the company’s board, company executives, and outside counsel.

    Chief Judge William Griesbach of the Eastern District Court considered Wisconsin law on the common-interest privilege, which protects statements made in furtherance of common property, business, or professional interests, and whether the privilege precluded the employee’s claim.6 The court concluded that the plaintiff’s pleading on information and belief that the letter was circulated to outside parties was insufficient.7

    The plaintiff also argued that even if the letter had not been circulated outside the company, the defendant former employer forfeited the common-interest privilege by abusing it. The plaintiff argued the company’s statement that he was fired “for cause” was abusive because it was a ploy to deprive him of benefits under his employment contracts. The court also reviewed Wisconsin law on that topic, and concluded that because the plaintiff was fired for cause, as a true statement it was not a ground for a defamation claim.8

    Chief Judge Griesbach also considered whether or not Wisconsin has recognized a tort claim for “economic duress.”9 Perceiving some confusion in Wisconsin law, he noted that economic duress had been addressed by the Wisconsin Supreme Court as a defense to a contract, not as an independent claim.10

    In Wesbrook v. Ulrich,11 a former employee of a research clinic foundation sued his former colleagues, alleging they defamed him in a series of writings that concerned his management style. Chief Judge William Conley of the Western District Court considered the sufficiency of the former employee’s defamation allegations under Wisconsin law.12

    As to two defendants, the court found the plaintiff’s allegations to be vague and conclusory and therefore dismissed them. But as to two other defendants, the court declined to dismiss the plaintiff’s defamation claim. First, the common-interest privilege did not preclude the claim at the motion-to-dismiss stage because under Wisconsin law, a plaintiff need not anticipate the common-interest privilege in his or her complaint by proffering evidence of abuse.

    Second, the court recited and applied Wisconsin law as to whether a statement is capable of a defamatory meaning, and after construing the allegations in a light most favorable to the plaintiff and assuming all allegations of fact to be true, found that the plaintiff had sufficiently pleaded that alleged statements by the latter two defendants were defamatory in nature.13

    Wisconsin Contract Law

    Rescission was at issue in CMFG Life Insurance Co. v. RBS Securities Inc.14 A purchaser of residential mortgage-backed securities sued the seller, alleging that the seller materially misrepresented that the underlying mortgages complied with underwriting guidelines. The district court granted summary judgment for the seller. Because the Wisconsin Supreme Court has not ruled on whether Wisconsin’s contract statute of limitation applies to claims for rescission, the U.S. Court of Appeals for the Seventh Circuit predicted how Wisconsin’s high court would decide the question.

    The Seventh Circuit considered Wisconsin precedent, including a number of older cases, that drew a distinction between an action on contract and an action to rescind a contract.15 Based on that distinction, the federal appellate court determined that the Wisconsin Supreme Court would hold that rescission is not an “action upon a contract” as used in Wisconsin’s six-year statute of limitation.16

    The Seventh Circuit also concluded that while rescission is invoked in a contractual setting, as a remedy it is not “upon” the contract.”17 “Claims for rescission do not ‘stand upon’ the rights and obligations established by the contract; they seek to put the contract ‘out of existence.’”18 Accordingly, the court of appeals reversed the district court’s grant of summary judgment on a statute-of-limitation defense.

    The alternative to applying Wisconsin’s contract statute of limitations was that no limitation period applied. While Wisconsin has a “catch-all” statute of limitations, Wisconsin does not have an equivalent limitations period for equitable remedies such as rescission.19 Therefore, the Seventh Circuit concluded that the rescission claim was not time-barred.

    The Seventh Circuit also considered the case’s facts under Wisconsin law on representations in the securities context. The court concluded that the seller’s allegedly false due-diligence representations were not “non-actionable puffery” under Wisconsin law.20 Both parties understood the representations to have definite meanings that conveyed specific facts about the securitization process and underlying loans, and the representations were offered as corroborating evidence of testimony by the purchaser’s trader.21

    Wisconsin Insurance Law

    Wisconsin’s federal courts have recently faced insurance issues under Wisconsin law arising from allegations of infringement of copyrighted architectural plans. In one such case, Design Basics LLC v. J & V Roberts Investments Inc.,22 the Eastern District of Wisconsin was faced with interpreting an insurance policy’s “prior publication” exclusion, which bars coverage if wrongful behavior began before the effective date of the policy.

    Although the parties agreed Wisconsin law applied, Wisconsin courts have not interpreted and applied such an exclusion. Accordingly, Judge J.P. Stadtmueller relied on the plain language of the policy exclusion and, guided by two Seventh Circuit decisions, concluded that an insurer had no duty to defend or indemnify defendants if the first publication of the allegedly infringing material occurred before the insurer’s policy period.23

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

    In Gronik v. Balthasar,24 another Wisconsin insurance law issue arose: whether an insurer was entitled to a set-off based on the insured’s settlement of a related case. Judge Lynn Adelman of the Eastern District Court considered Wisconsin law on a set-off, which is “an equitable counterclaim against a plaintiff used to reduce a defendant’s damages by an amount plaintiff already owes defendant arising from an independent transaction or claim.”25 The court found that the insurer’s claim for such a reduction based on amounts the plaintiff collected from another defendant did not meet this definition. The court also found no other type of relief in Wisconsin resembling what the insurer requested.

    Judge Adelman noted that the insurer admitted that its counterclaim, whether a set-off or something else, was equitable in nature. But under Wisconsin law, equitable remedies are not available when the parties have entered into a contract.26

    Even if the court looked past the lack of authority for such a claim, based on Wisconsin law the court found that allowing the insurer to reduce its damages by the amount the plaintiffs recovered from the other defendants for the same losses would not be equitable because the plaintiffs paid a premium for certain coverage that entitled them to certain benefits.27

    Wisconsin Statutory Interpretation

    Wisconsin Mediation Privilege

    In Doe v. Archdiocese of Milwaukee,28 the U.S. Court of Appeals for the Seventh Circuit considered the admissibility of communications during a mediation. After participating in a prepetition voluntary mediation program, a victim settled his sexual abuse claim against the Archdiocese. After the Archdiocese filed for bankruptcy under Chapter 11, the victim filed a proof of claim seeking to recover for the same sexual abuse.

    The Archdiocese objected and moved for summary judgment based on the previous settlement agreement. The claimant opposed the motion, contending that the agreement was fraudulently induced and arguing that had he known certain information later revealed in the bankruptcy, including the amount other sexual abuse victims had received, he would not have settled.

    Initially, the bankruptcy court ruled that the earlier mediation and the bankruptcy action were “distinct disputes,” that communications made during the mediation were necessary to prevent manifest injustice, and thus that they were admissible pursuant to an exception to Wisconsin’s privilege against the admissibility of such communications.29

    After the Archdiocese subpoenaed the mediator, the mediator filed a motion to quash the subpoena. The bankruptcy court reconsidered its earlier ruling and held that the bankruptcy proceeding and mediation were not distinct disputes, and therefore that the communications were not admissible. The bankruptcy court granted the Archdiocese summary judgment on the fraudulent-inducement claim.

    The Seventh Circuit first noted that although this was a federal court proceeding, state law, here the Wisconsin statutory mediation privilege, provides the rule of decision.30 Because the Seventh Circuit was interpreting a Wisconsin state statute, the court applied Wisconsin’s principles of statutory construction.31 At issue was whether the prepetition voluntary mediation and the bankruptcy proceeding were “distinct disputes.” No other state’s mediation-privilege statute has such a threshold requirement.

    Turning to the statutory language, the Seventh Circuit relied on dictionary definitions of the term “dispute,” such as “controversy” or “conflict.”32 Because the subject matter in each proceeding is the Archdiocese’s responsibility for Doe’s abuse, the court found the disputes not to be distinct. The appeals court also found this interpretation to be consistent with the Wisconsin Legislature’s express purpose in enacting the mediation privilege: to “encourage the candor and cooperating of disputing parties, to the end that disputes may be quickly, fairly, and voluntarily settled.”33

    Wisconsin’s Consumer Act and Privacy Law

    In McDonough v. WESTconsin Credit Union, 34 borrowers in three proposed class actions sued a credit union, alleging that its use of Social Security and driver’s license numbers in complaints filed against those borrowers violated inter alia Wisconsin’s Consumer Act35 and Wisconsin’s privacy law.36 The defendants moved for judgment on the pleadings, arguing that the statute of limitation for the borrowers’ claims had expired.

    First, Judge Barbara Crabb of the Western District Court determined the applicable statute of limitation for these claims. While Wisconsin’s Consumer Act contains multiple limitation periods,37 to apply a six-year limit would render a portion of the Act superfluous, so she decided on a limit to file suit of one year from the date of the last alleged violation.38 The court declined the borrowers’ request to apply a catch-all six-year limitation period to their privacy claims, and instead, because the claims sounded in tort, applied the three-year limitation period in Wisconsin for an intentional tort.39

    Second, Judge Crabb considered the scope of Wisconsin’s “continuing violation theory,” which she had earlier ruled “applies to claims premised on a continuing course of related acts that cause injury to the plaintiff, as opposed to several separate, discrete events that would be actionable by themselves.”40 She concluded that because the defendants’ conduct did not involve a series of related acts but the borrowers’ alleged injuries flowed from a single discrete act – the filing of pleadings that included plaintiffs’ personal information – the continuing violation theory did not apply.41

    Based on these rulings, the court granted the defendants’ motion to dismiss, although the plaintiffs’ claims under a federal law, the Driver’s Privacy Protection Act,42 proceeded.

    Endnotes

    1 No. 12-CV-772-PP, 2015 WL 3466090 (E.D. Wis. June 1, 2015).

    2 Id. at *3-*4.

    3 Id. at *6.

    4 Id.

    5 65 F. Supp. 3d 640 (E.D. Wis. 2014).

    6 Id. at 646-47.

    7 Id. at 647-48.

    8 Id. at 648-49.

    9 Id. at 650.

    10 Id.

    11 90 F. Supp. 3d 803 (W.D. Wis. 2015).

    12 Id. Chief Judge Conley noted that although he applied Wisconsin law, Federal Rule of Civil Procedure 8 governs the pleading standards, so no heightened pleading standard was required for this defamation claim, as it would be in Wisconsin state court. Wis. Stat. § 802.03(6).

    13 90 F. Supp. 3d at 809-13.

    14 799 F.3d 729 (7th Cir. 2015).

    15 Id. at 736.

    16 Id.

    17 Id. 736-37 (citing Restatement (Third) of Restitution and Unjust Enrichment § 54 cmt. b).

    18 Id. at 737 (quoting Beers v. Atlas Assur. Co., 231 Wis. 361, 285 N.W. 794 (1939)).

    19 799 F.3d at 738.

    20 Id. at 745-46 (citing United Concrete & Constr. Inc. v. Red-D-Mix Concrete Inc., 2013 WI 7, 349 Wis. 2d 587, 836 N.W.2d 807).

    21 Id. at 746-47.

    22 No. 14-CV-1083-JPS, 2015 WL 5315680 (E.D. Wis. Sept. 11, 2015).

    23 Id. at *16-*17.

    24 Nos. 10–cv–0954, 11–cv–0697, 2015 WL 4647938 (E.D. Wis. Aug. 6, 2015).

    25 Id. at *1 (citing O’Brien v. Freiley, 130 Wis. 2d 174, 180 n.4, 387 N.W.2d 85 (Ct. App. 1986)).

    26 Id. at *2 (citing Meyer v. The Laser Vision Inst. LLC, 2006 WI App 70, 290 Wis. 2d 764, 780-81, 714 N.W.2d 223).

    27 Id. at *2.

    28 772 F.3d 437 (7th Cir. 2014).

    29 Wisconsin Statutes section 904.085(4)(e), which provides as follows: “In an action or proceeding distinct from the dispute whose settlement is attempted through mediation, the court may admit evidence otherwise barred by this section if, after an in camera hearing, it determines that admission is necessary to prevent a manifest injustice of sufficient magnitude to outweigh the importance of protecting the principle of confidentiality in mediation proceedings generally.”

    30 Doe, 772 F.3d at 440 (citing Fed. R. Evid. 501, Fed. R. Bankr. P. 9017).

    31 Id. at 440-41.

    32 Id. at 441.

    33 Wis. Stat. § 904.085(1).

    34 Nos. 14–cv–705–bbc, 14–cv–873–bbc, 15–cv–29–bbc, 2015 WL 1285884 (W.D. Wis. March 20, 2015)

    35 Wis. Stat. §§ 421.101-427.105.

    36 Wis. Stat. § 995.50.

    37 Wis. Stat. § 425.307(1).

    38 2015 WL 1285884, at *3.

    39 Id. at *3-*4 (citing Wis. Stat. § 893.57).

    40 Id. at *4 (quoting Beal v. Wyndham Vacation Resorts Inc., 956 F. Supp. 2d 962, 974 (W.D. Wis. 2013)). The Beal case is discussed in a previous review of Wisconsin federal court decisions at 86 Wis. Law. 27 (Dec. 2013).

    41 Id. at *5-*6.

    42 18 U.S.C. §§ 2721-2725.


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