Adjustment Service Company – Disgorgement
Morgan Drexen Inc. v. Wisconsin Dep’t of Fin Inst., 2015 WI App 27 (filed 25 Feb. 2015) (ordered published 25 March 2015)
HOLDING: A hearing examiner properly found that the petitioner was an unlicensed debt-adjustment company in ordering the disgorgement of $4 million in fees.
SUMMARY: The Wisconsin Department of Financial Institutions brought an action against Morgan Drexen Inc. for providing unlicensed debt-adjustment services. Morgan Drexen collected more than $8 million from debtors, settling for less than $4 million with creditors while paying itself $4.2 million in fees. The hearing examiner found that Morgan Drexen provided unlicensed debt-adjustment services, ordered it to disgorge the $4.2 million in fees, and assessed a $1.89 million forfeiture. The circuit court affirmed.
Prof. Daniel D. Blinka, U.W. 1978, is a professor of law at Marquette University Law School, Milwaukee.
Prof. 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 Reilly. The court applied a great-weight-deference standard to the administrative findings. First, acknowledging that Wis. Stat. section 218.02(1)(a) is “not a model of clarity,” the court upheld the hearing examiner’s finding that Morgan Drexen’s activities were regulated by the rule. It refused to restrict the statute’s reach to several types of “Depression-era business practices” because the statute’s purpose is to “‘protect debtors from oppressive or deceptive practices’ and to ‘prevent evasions of this section’” (¶ 8).
Second, Morgan Drexen’s activities constituted “prorating” within the statute’s meaning. Case law holds that “prorating occurs when one ‘negotiates a reduction or extended payment on behalf of the debtor for the debtor’s outstanding debt with that creditor,’” which is what happened here (¶ 11). Third, the statute does not require that Morgan Drexen own the underlying debt that it is settling (see ¶ 12). Finally, ordering disgorgement of the fees was a proper exercise of discretion (see ¶ 16).
Guilty Pleas – Mutual Misunderstanding About Plea Agreement
State v. Fortes, 2015 WI App 25 (filed 24 Feb. 2015) (ordered published 25 March 2015)
HOLDING: There was a mutual misunderstanding between the state and the defendant about a plea agreement and thus there was no agreement; moreover, the defendant waived any right to seek plea withdrawal when he elected to move forward with sentencing, knowing that the state would (contrary to his expectations) be making a specific sentencing recommendation.
SUMMARY: Defendant Fortes entered guilty pleas to multiple felonies. At the guilty-plea hearing, neither the state nor defense counsel told the court that they had reached a plea agreement, and the written guilty-plea questionnaire and waiver-of-rights form did not indicate that any plea agreement had been made. The circuit court did not specifically inquire whether there was a plea agreement, but it asked Fortes a series of questions about the pleas he was entering. The circuit court asked Fortes if anybody “made any promises or threats to you to plead,” and Fortes replied, “No.” The court ordered a presentence investigation.
At the sentencing hearing, the prosecutor made a specific recommendation with respect to incarceration and extended supervision. The defense attorney interrupted the prosecutor to state that he thought there was an agreement between the parties that the state would make no recommendation but leave sentencing up to the court. The prosecutor responded that the state believed that both sides were free to argue for whatever they wanted as a sentence. In additional dialog involving the court, defense counsel, and the defendant, defense counsel agreed there was no issue as to any breach of the plea agreement and that the defendant was willing to proceed to sentencing and to let the state make its recommendation. The judge ultimately sentenced the defendant in accord with the state’s recommendation.
On postconviction motion, the defendant sought resentencing before a different judge together with specific performance of the plea agreement. The circuit court held a hearing and concluded that there was a mutual misunderstanding between the parties about the plea agreement and thus there was no plea agreement. It denied postconviction relief.
In a decision authored by Judge Kessler, the court of appeals affirmed. It concluded that the circuit court’s finding that there was a mutual misunderstanding about a plea agreement – and therefore no plea agreement – was not clearly erroneous (see ¶ 22).
The court also concluded that “even if we accept Fortes’s assertion that the trial court, the State, and trial counsel erred at the plea hearing when they failed to accurately state the plea agreement and ascertain Fortes’s understanding of that agreement, Fortes waived his right to pursue that issue when he elected to proceed with sentencing instead of seeking plea withdrawal or an opportunity to determine the plea agreement. While a defendant may generally be able to wait until after sentencing to decide whether to allege a deficiency in the plea colloquy, we are not convinced that proposition applies where a concern about the defendant’s understanding of the plea has been raised prior to sentencing and the defendant specifically elects to proceed with sentencing” (¶ 23).
“Indeed, our supreme court has recognized that a defendant can waive his right to object if he persists in a plea strategy after the basis for the claim of error is known to the defendant. Here, Fortes explicitly elected to proceed with the sentencing, despite knowing that he had a different understanding of the plea agreement than the State and that the State intended to recommend a specific sentence. In doing so, Fortes waived his right to subsequently seek plea withdrawal based on his misunderstanding of the plea agreement, the trial court’s plea colloquy, or the State’s decision to recommend a specific sentence” (id.) (internal quotations and citations omitted).
The court also considered and rejected the defendant’s claim that he had been denied the effective assistance of counsel (see ¶¶ 28-30).
Drafting and Promulgating Administrative Rules – 2011 Act 21 Unconstitutional as Applied to Wisconsin’s State Superintendent of Public Instruction
Coyne v. Walker, 2015 WI App 21 (filed 19 Feb. 2015) (ordered published 25 March 2015)
HOLDING: The provisions of 2011 Wisconsin Act 21 (Act 21) relating to drafting and promulgating administrative rules are unconstitutional as applied to Wisconsin’s state superintendent of public instruction.
SUMMARY: Act 21 made several changes to the processes for administrative rulemaking. Among other things, it added a procedural requirement that all state agencies, as well as the Wisconsin state superintendent of public instruction (SPI), submit proposed scope statements to the governor for approval. Under Act 21, rulemaking cannot proceed further until the governor approves the scope statement. Additionally, Act 21 directs that if the governor approves the scope statement and a rule is drafted, the governor must also approve the draft version of the rule before the proposed rule may be submitted to the legislature for review.
The plaintiffs (as taxpayers, public school teachers, and parents) filed an action for declaratory judgment, asking the circuit court to declare Act 21 unconstitutional as it applies to the SPI. The defendants, Gov. Walker and Secretary of Administration Huebsch, challenged the plaintiffs’ standing in a motion to dismiss, which the circuit court denied. Thereafter, both parties moved the circuit court for summary judgment. The circuit court granted summary judgment in favor of the plaintiffs, concluding that parts of Act 21 are unconstitutional as applied to the SPI.
In a decision authored by Judge Sherman, the court of appeals affirmed. First, it held that the plaintiffs had standing as taxpayers to seek declaratory relief in this case; the court thus had no reason to address whether they had standing as teachers and parents (see ¶ 8). Moving to the principal issue in the case, the court concluded that Act 21 is unconstitutional as applied to the SPI inasmuch as it unconstitutionally interferes with the SPI’s supervisory power over public instruction in this state under article X, section 1 of the Wisconsin Constitution by assigning power to the governor that is not subservient to the SPI (see ¶ 20).
Said the court, “[t]he practical effect of Act 21, with respect to administrative rules proposed by the SPI, is to give the Governor the ability to halt the process of drafting and promulgating administrative rules affecting education at two key stages in the process. The Governor can halt rulemaking earlier on, when a scope statement is prepared, and later just prior to the rule being submitted to the legislature for approval. Thus, Act 21 gives the Governor the power to decide that there will be no rule or rule change on a particular subject, irrespective of the judgment of the SPI. Similarly, the Governor may use his approval authority to leverage changes to proposed rules, again irrespective of the SPI’s judgment” (¶ 28).
Public Employees – Retirement Health Plan Changes
Monreal v. City of New Berlin, 2015 WI App 24 (filed 4 Feb. 2015) (ordered published 25 March 2015)
HOLDING: Under the terms of a collective bargaining agreement, the plaintiff (a former city of New Berlin police officer now on duty-related disability retirement) has a vested right to participate in a health insurance plan offered by the city for the rest of his life, but the agreement to reimburse for deductibles expired when the collective bargaining agreement in effect at the time of his retirement expired.
SUMMARY: This case involved a claim for certain health benefits by plaintiff Monreal, a former city of New Berlin police officer who is a duty-related disability retiree. When Monreal retired, a health plan in place pursuant to a collective bargaining agreement (CBA) between the city and its police association called for, among other things, the city reimbursing members of the association for all deductibles incurred. The health plan in effect at that time ran from Jan. 1, 2009, through Dec. 31, 2011. After that CBA expired, the city provided its officers with a high-deductible health plan.
In the circuit court, Monreal contended, and the circuit court agreed, that one of the promises on retirement was a vested right to have his deductibles reimbursed for the rest of his life – “as if the CBA referred to above was frozen in time for Monreal” (¶ 1). In a decision authored by Chief Judge Brown, the court of appeals reversed. Looking to the language of the CBA, the appellate court concluded that “Monreal has a vested right to participate in a health plan offered by the City for the rest of his life, but the agreement to reimburse for deductibles lasted only until the end of the CBA in effect when Monreal retired” (id.).
Whistleblowers – Retaliation – “Information”
Wisconsin Dep’t of Justice v. Wisconsin Dep’t of Workforce Development, 2015 WI App 22 (filed 5 Feb. 2015) (ordered published 25 March 2015)
HOLDING: A state employee did not disclose “information” within the meaning of Wis. Stat. section 230.83, which protects “whistleblowers” from retaliatory actions.
SUMMARY: Schigur was promoted to the position of public integrity director within the Department of Justice (DOJ); the job carried a two-year probationary period. While still a probationary employee, she expressed “concern” in emails over the attorney general’s decision to attend the 2008 Republican National Convention, for which the DOJ would provide security. Several months later she received a negative performance evaluation, after which she was returned to her former position in the DOJ.
Schigur complained to the Equal Rights Division (ERD) that the termination of her public integrity director position was in retaliation for her “whistleblower” emails. The ERD ruled in Schigur’s favor and awarded her damages. On review the circuit court reversed, concluding that Schigur had disclosed no protected “information” within the meaning of Wis. Stat. section 230.83.
The court of appeals affirmed in an opinion authored by Judge Sherman. Despite Schigur’s contention that the DOJ had forfeited its argument, the court exercised its discretion to reach the merits (see ¶ 21). The DOJ contended that Schigur’s “concerns” were not information as defined in the statute (see ¶ 24). Relying on case law that examined other whistleblower statues, the court held that Wis. Stat. section 230.81(1) “‘does not cover employee statements that merely voice opinions or offer criticism’” (¶ 27). Here Schigur did not disclose information; rather, she “expressed her opinion that providing security to the Attorney General might be a violation of law” (¶ 30).
“Made-Whole” – Settlements
Employers Mutual Cas. Co. v. Kujawa, 2015 WI App 26 (filed 10 Feb. 2015) (ordered published 25 March 2015)
HOLDING: An insured was not “made whole” by his settlement with the tortfeasor’s insurance company for an amount less than the policy limits.
SUMMARY: Kujawa was injured when the driver of another vehicle (the tortfeasor) struck his vehicle from the rear. The tortfeasor had $2 million in coverage issued by Travelers/St. Paul Fire and Marine Insurance Co. Kujawa and Travelers settled for $10,000. Kujawa’s insurer, Employers Mutual Casualty Co., sued for $767 it had paid for medical expenses. In a made-whole hearing, the court ruled that Kujawa’s claim was actually worth more than $15,000 but that he had reasonably settled for less to get on with his life and business. Thus, Kujawa has not been made whole, and Employers was not entitled to the $767.
The court of appeals affirmed in an opinion authored by Reserve Judge Cane that thoroughly canvasses the made-whole doctrine. First, according to the court of appeals, the circuit court properly conducted a Rimes hearing [Rimes v. State Farm Mut. Auto. Ins. Co., 106 Wis. 2d 263, 316 N.W.2d 348 (1982)] even though it came about as a result of Employer’s declaratory judgment action – not Kujawa’s request (see ¶ 7).
Second, Muller v. Society Insurance, 2008 WI 50, 309 Wis. 2d 410, 750 N.W.2d 1, is not controlling. “Kujawa’s settlement required an indemnification agreement”: “So even though Travelers had a $2 million policy, which could have easily covered Kujawa’s $15,000-$20,000 claimplusthe $767 subrogation interest, thesettlementreduced the available pool to $10,000. As a result, Kujawa and Employers were competing for a limited amount of money. Under these circumstances, the made whole doctrine applies” (¶ 9).
Finally, the court of appeals disagreed with Employer’s argument that this holding would allow insureds to “intentionally extinguish subrogation rights.” Here the circuit court found Kujawa’s reasons for settling credible and in good faith. “If we were to accept Employers’ position, we would be opening the door to subrogation interests controlling whether an injured party settles or goes to trial and that is a slippery slope we do not want to go down. The injured insured should not be forced to go to trial so that its insurer, who accepted premiums to accept the risk of loss, can recover all the amounts it paid under the policy. Wisconsin public policy favors settlements because they encourage ‘the efficient resolution of disputes’” (¶ 11) (internal quotations omitted).
Zoning – Short-term Rentals
Heef Realty & Invs. LLP v. Cedarburg Bd. of Appeals, 2015 WI App 23 (filed 4 Feb. 2015) (ordered published 25 March 2015)
HOLDING: An ordinance did not clearly and unambiguously preclude short-term home rentals in an area zoned for single-family residences.
SUMMARY: Two homeowners received citations for violating zoning ordinances when they rented out their homes on a short-term basis. The Cedarburg Board of Appeals denied their appeals, but on certiorari review the circuit court ruled that the board erred when it determined that the short-term rental was not a permitted use.
The court of appeals affirmed in an opinion authored by Judge Neubauer. Although municipalities have broad zoning powers, ordinances in derogation of common law are construed in favor of the free use of private property (see ¶ 7). Cities cannot “impose time/occupancy restrictions or requirements that are not in the zoning scheme” (¶ 10). Case law holds that courts “must look at the language of the ordinance, which is about the use of the property, not the duration of that use” (¶ 11) What mattered here was the “residential use, not the duration of the use” (¶ 12).
“If the [c]ity is going to draw a line requiring a certain time period of occupancy in order for property to be considered a dwelling or residence, then it needs to do so by enacting clear and unambiguous law” (¶ 13). The ordinance here failed to do so.