Vol. 76, No. 11, November 2003

Court of Appeals Digest

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

Attorneys Civil Procedure Criminal Procedure

Employment Law Juvenile Law Torts

Attorneys

Fee Agreements - Guarantors - Offers to Settle - Substitution of Judges - Interest - Costs

DeWitt Ross & Stevens S.C. v. Galaxy Gaming, 2003 WI App 190 (publication ordered 24 Sept. 2004)

A law firm brought suit to recover legal fees and associated costs incurred in representing a client. The underlying litigation involved a lawsuit against a city following the federal government's refusal to approve a gaming casino. The law firm's titular client, a partnership, had no assets or means of earning income without the casino, so the retainer letter required a guaranty of payment by two other entities with substantial interests in the partnership. The fee agreement provided for monthly statements of services that were payable on receipt and reserved the law firm's right to charge interest at the rate of 18 percent per year (1.5 percent per month) on all statements not paid within 20 days after their date. Litigation activity increased in the fall of 1996 and by November 1997 the client owed an outstanding balance of nearly $130,000. The law firm demanded that it be paid in full by Dec. 1, 1997, or it would assess 18 percent interest on the balance (¶7). Although "sporadic" payments were made, the final bill in July 2000 listed a total balance of more than $350,000, including almost $70,000 in interest (¶9). When payment was not made, the law firm sued under the fee agreement and the guaranty. Ultimately, the circuit court entered judgment against the defendant client and guarantors. Additional details appear in the discussion of the issues, below.

The court of appeals, in a decision written by Judge Lundsten, affirmed in part and reversed in part. The first issue concerned whether the guarantors were liable for the interest charges assessed against the client because the guaranty itself did not mention "interest" (instead it referred to payment for "services rendered and disbursements/expenses incurred...") (¶15). The court held that the retainer letter and the guaranty were to be read in tandem: "the retainer letter conditions approval of representation on execution of the guaranty, thus requiring that the retainer letter and guaranty be read together" (¶17). The term "interest" was not encompassed within the terms "disbursement" or "expense." Nonetheless, the guarantors promised "timely and full payment," which included interest - "a measure of the time value of money" (¶19).

Second, the law firm properly applied payments to accrued interest and then subtracted the remainder from principal. Absent an express agreement to the contrary, this comported with a "longstanding rule" that partial payments may first be applied to discharge interest (¶21). The court declined to impose a contrary rule just because this was a fee agreement.

Third, the law firm tendered a valid settlement offer under Wis. Stat. section 807.01(3) even though it contained a payment deadline (¶28). As long as the offer permits the party at least 10 days to respond, as this one did, a deadline does not vitiate the settlement offer under the statute unless the offer itself is "unreasonable." Although a court may consider the deadline as a factor in its reasonableness analysis, the client and guarantors in this case simply argued that such deadlines were per se invalid, not that the offer itself was "unreasonable."

Fourth, the trial court properly denied the defendants' request for substitution of judge. The client's motion for a protective order, the law firm's motion to compel, and the hearings on these motions constituted a "preliminary contested matter" for purposes of Wis. Stat. section 801.58(1) (¶37). Moreover, the guarantors and the client were sufficiently "united in interest" to be considered a single party (¶39).

The court of appeals next turned to issues raised by the law firm in its cross-appeal. First, the trial court erred when it "concluded that, under the terms of the retainer letter, interest only began to accrue as of December 1, 1997, the date by which" the law firm informed the client "that it would invoke the retainer letter's interest provision" if it did not receive payment in full (¶45). "It is undisputed that the terms of the retainer letter required payment upon receipt of the monthly statements, and specified that interest would accrue if payment was not received within twenty days of receipt. Under the general rule set forth in [case law], the interest due on late payments had begun to run before December 1, 1997, because 'the creditor is entitled to interest from the time payment was due by the terms of the contract.' When [the law firm] opted to invoke the interest charge on overdue accounts, it acted within the bounds of the retainer letter and [case law] in seeking interest going back to January 1, 1997." (¶48)

Second, the trial court erred by not allowing the law firm to recover the cost incurred in preparing a transcript of a videotape deposition. A transcript was necessary for purposes of summary judgment; it was not prepared solely for the convenience of counsel (¶54).

Third, the court addressed whether the law firm was entitled to 12 percent interest under Wis. Stat. section 807.01(4) in addition to the 18 percent it received under the retainer agreement. In rejecting this argument, the court of appeals relied on several cases that did not present a "stacking" claim, as here. Questions about the "legal underpinnings" of those cases are reserved for the supreme court (¶62).

Fourth, and related, the court considered "the question of which interest rate should apply after the date of the settlement offer - the contract rate of 18% or the statutory rate of 12%." Prior cases held that "only Wis. Stat. § 807.01(4) interest would accrue after the date of the settlement offer. Utilizing that approach in this case would entail applying the 18% contract interest until the date of the settlement offer and then applying 12% interest thereafter. However, allowing § 807.01(4) interest to supplant a higher contract rate of interest as of the date of an offer to settle would undermine the chief purpose of the offer-of-settlement statute - the creation of proper incentives on parties to make and to accept reasonable settlement offers before trial. If the effect of a settlement offer were to reduce the amount of interest to which an offeror is thereafter entitled upon a successful outcome at trial, a potential offeror would be ill-advised to make such an offer. And if he or she were foolish enough to make it, the offeree would face a diminished incentive to accept it because the offeree will have obtained a discount in the interest rate that would otherwise apply from that point until judgment. Applying the 12% rate in §807.01(4) over the 18% contract rate would thus present an absurd construction of the statute. Therefore, we conclude that the 18% contract rate should apply rather than the 12% rate in § 807.01(4)." (¶63)

The court declined, however, to apply "the 18% contract rate past the date of judgment because when the question is whether a contract interest rate may apply postjudgment, the 'merger doctrine' provides that statutory interest controls over contract interest in 'the absence of an express agreement otherwise.' Therefore, because the contract is silent about the application of interest postjudgment, we conclude that the 12% interest rate contained in Wis. Stat. § 815.05(8) controls from 'the date of the entry of the judgment until it is paid.'" (¶64)

Judge Dykman dissented and would have allowed the law firm to "stack" the statutory interest rate under § 807.01(4) and the contract rate.

Civil Procedure

Statute of Limitation - Statute of Repose

Wenke v. Gehl Co., 2003 WI App 189 (publication ordered 24 Sept. 2003)

While Wenke was working on his Iowa farm in 1997, his right arm was torn off while he was operating a hay baler manufactured by the Gehl Co. The baler was first sold by Gehl to another Iowa resident in 1981. Wenke sued Gehl, which moved for summary judgment on the ground that Iowa's 15-year statute of repose barred the claim. Eventually, the circuit court granted Gehl's motion based on Wisconsin's "borrowing statute." The primary issue on appeal concerned which of two cases controlled: Landis v. Physicians Insurance Co., 2001 WI 86, or Leverence v. United States Fidelity & Guaranty, 158 Wis. 2d 64 (Ct. App. 1990). In June 2002 the court of appeals had certified the following question to the supreme court: Whether Leverence, which distinguished between statutes of limitation and statutes of repose, had been functionally overruled by Landis. Accepting the certification, an equally divided supreme court nonetheless vacated the certification and remanded the matter.

The court of appeals, in a decision written by Judge Snyder, affirmed the circuit court and held that Landis functionally overrules Leverence. In the context of a medical malpractice action, the Landis court "held that the tolling provisions of [Wis. Stat. section 655.44(4)] apply to both statutes of limitations and statutes of repose, concluding that the term 'statute of repose' is largely a judicial label for a particular type of limitations on actions" (¶15). Closely analyzing Landis, the court of appeals concluded that "it logically follows that the term 'statute of limitations' includes statutes of repose and that the phrase 'foreign period of limitation' in § 893.07 borrows from other jurisdictions both statutes of limitations and statutes of repose. Consequently, we must conclude under § 893.07, the fifteen-year period of repose is borrowed from Iowa's statutes." (¶20)

Scheduling Orders - Summary Judgment - No Contest Plea

Kustelski v. Taylor, 2003 WI App 194 (publication ordered 24 Sept. 2003)

While driving a vintage "hot rod," DK collided with RT's car. DK's car was allegedly traveling well in excess of the posted speed limit and RT, according to a witness, "reeked" of alcohol. DK pleaded no contest to a felony endangering charge and was placed on probation. DK later brought this action for negligence and abuse of process against RT. The latter claim arose out of RT's complaint to police and prosecutors that resulted in DK's conviction. The scheduling order required that all dispositional motions be filed on or before May 31. RT filed her motion for partial summary judgment on the abuse of process claim on May 30 but did not provide mail service until June 3. Despite the late filing, the circuit court considered and granted the motion dismissing the abuse of process claim. At the same time, the trial judge "sua sponte" suggested that summary disposition might also be appropriate on the negligence claim. At a status conference two weeks later the judge dismissed that claim as well, finding that no reasonable jury could find RT to be more causally negligent than DK. The ruling was predicated on DK's no contest plea in the criminal case.

The court of appeals, in an opinion authored by Judge Schudson, affirmed in part and reversed in part. First, the circuit court properly considered the tardy summary judgment motion. The local court rule places such decisions squarely within the judge's discretion. In this case, the motion was timely filed, it was received just a few days late, and RT offered a reasonable explanation (¶16). Second, and related, summary judgment had been properly granted on the abuse of process claim. RT's contacts with the criminal court judge and the district attorney were proper and fell within the purpose of the criminal justice system (¶25). Third, the circuit court erred in its sua sponte summary dismissal of the negligence claim based on the criminal no contest plea. Such use of the no contest plea is flatly foreclosed by Wis. Stat. section 904.10 (¶19).

Criminal Procedure

Sentence Modification - Penalty Changes Under New Truth-In-Sentencing Laws Not a "New Factor" Warranting Sentencing Modification

State v. Torres, 2003 WI App 199 (publication ordered 24 Sept. 2003)

The defendant was convicted of operating a motor vehicle without the owner's consent for an offense that was committed in 2000. When the crime occurred this offense was a Class E felony with a maximum imprisonment term of five years. As a result of the second wave of Truth-In-Sentencing legislation that took effect on Feb. 1, 2003, the crime involved in this case was reclassified as a Class I felony, punishable by a maximum term of imprisonment of 3.5 years. In October 2002 the defendant asked the trial court for sentence modification in a Wis. Stat. section 809.30 post-conviction motion, calling the pending change of the crime's classification a "new factor" warranting modification of his sentence. The trial court denied the motion.

In a decision authored by Judge Hoover, the court of appeals affirmed. It concluded that "a change in the classification of a crime, which would result in a shorter sentence if the defendant were convicted under the new classification, is not a 'new factor' under our traditional model for sentence modification. This is because as part of 2001 Wis. Act 109, the law created Wis. Stat. § 973.195, which provides the procedure for judicial review of a sentence when the law relating to sentencing changes" (¶ 7).

According to the court, section 973.195 reflects the legislature's intent to create a separate and specific statutory procedure for requesting a sentence reduction that should be used in place of section 809.30 whenever "a change in law or procedure relating to sentencing ... effective after the inmate was sentenced that would have resulted in a shorter term of confinement" is the basis for the modification. The defendant's October 2002 filing of a section 809.30 motion based on the pending February 2003 change cannot be used to defeat the purpose of section 973.195. "If [the defendant] wanted to avail himself of the 2003 sentence change as a basis for his sentence change, he was required to follow the § 973.195 procedure, which he could not do until February 1 [2003]" (¶ 9).

In a footnote the court observed that when there are other grounds for requesting modification or when there are other new factors separate from the section 973.195 grounds, a defendant is not precluded from filing a section 809.30 motion in addition to a section 973.195 petition. See ¶ 9 n. 2.

The court also concluded that, under State v. Hegwood, 113 Wis. 2d 544, 335 N.W.2d 399 (1983), a reduction in the maximum penalty for the crime of conviction does not constitute a new factor and is therefore not a proper basis for modifying a sentence.

Lastly, the appellate court observed that the trial court assumed for argument's sake that the change in penalty was, in fact, a new factor but still decided not to modify the sentence because the defendant presented no evidence that would change the court's mind on the sentence that was previously imposed. The appellate court concluded that the trial court did not erroneously exercise its discretion in so finding.

Plea Negotiations - Alleged Breach of Plea Agreement by Prosecutor - Absence of Defendant at Resentencing

State v. Stenseth, 2003 WI App 198 (publication ordered 24 Sept. 2003)

In this case the state entered into a plea negotiation according to which it agreed to recommend confinement and extended supervision terms of specified lengths. The defendant pleaded guilty pursuant to the negotiation and the court ordered a presentence investigation report. The report recommended a confinement term that was substantially longer than that which the state agreed to recommend.

At the sentencing hearing the defense presented two witnesses. The state did not call any. Instead, the prosecutor referred to information in the presentence report to support the recommendation that the defendant be sentenced to prison rather than straight probation. When defense counsel objected that the state's comments were an endorsement of the report's sentence recommendation, the court inquired of the state if it was adhering to the plea agreement's sentence recommendation. The prosecutor stated that it was. Ultimately, the court imposed a confinement term that was greater than that recommended by the prosecutor.

In a decision authored by Judge Peterson, the court of appeals concluded that the state did not breach the plea agreement. At no time did the state argue for anything other than the agreed-upon sentence. Nor did it mention that the presentence report recommended a longer sentence. The state properly used the presentence report in support of the plea agreement's sentence recommendation.

Another issue in this case concerned resentencing. The court originally imposed a seven-year initial term of confinement. However, the maximum period of initial confinement for the crime of conviction was five years. The court conducted a telephone conference with the attorneys, agreed that the original sentence was illegal, and then amended the sentence to the maximum allowed by law. The defendant argued that the modification amounted to a resentencing and that he had a right to be present.

The state conceded that the modification amounted to a resentencing and that the defendant had a right to be present. However, it argued that this was harmless error, and the court of appeals agreed. The defendant had already had a full sentencing hearing, he had had the opportunity to present witnesses and to exercise his right of allocution, and his attorney had made a sentencing argument on his behalf. With regard to the resentencing, the defendant did not indicate any additional witnesses he would have called, any new information he would have presented, or any further arguments he would have made. In short, said the court, "[the defendant] did not suggest any contribution he would have made at the resentencing or any way in which he was prejudiced" (¶ 20). Accordingly, the error in conducting the proceeding without the defendant present was harmless.

Ineffective Assistance - Jury Waivers - "Guilty Appearance"

State v. Silva, 2003 WI App 191 (publication ordered 24 Sept. 2003)

Following a bench trial, the defendant was found guilty of the first-degree sexual assault of a family member. The court of appeals, in a decision written by Judge Curley, affirmed. The opinion addresses a string of alleged errors.

First, the court agreed that defendant's trial counsel was "deficient" because he had no knowledge of the so-called Wallerman rule, which permitted defendants to block the prosecution's use of "other act" evidence by stipulating to the pertinent issue. Despite trial counsel's deficiency, the error was not prejudicial. Later case law had substantially overruled Wallerman and it was exceedingly unlikely that the prosecutor would have stipulated to the intent element. The court also refused to find trial counsel deficient because in a brief closing argument he had "commented favorably" on the victim's credibility (¶15) and had conceded that defendant was "technically guilty" (¶19). This "strategy emphasized the idea that the matter was overcharged" (¶19).

Second, the defendant validly waived his right to trial by jury despite his lawyer's ignorance of Wallerman. He elected a bench trial based on concerns that a jury might sympathize with the young victim, "and not because of his concern over the admission of evidence regarding his prior conduct" (¶25). Indeed, the state did not file a motion seeking the use of the other act evidence until after the waiver. Third, the trial court properly admitted the other act evidence under the three-part Sullivan test (all the acts involved assaults on other young girls, including other family members).

Fourth, the court upheld the use of a unique form of proof: evidence of the defendant's "guilty" demeanor at a prayer service. In particular, the defendant's own brother testified without objection that the defendant "turned dirty yellow to me and nervous" when confronted with the victim's accusations (¶29). Later, the same brother testified that at a "prayer service" that addressed "sinning again," the defendant sat down during a discussion while others remained standing. The court held that "[t]his behavior is consistent with the conduct of a person who has recently committed a crime and is admissible as such" (¶30).

Judge Fine concurred and wrote to respond to Judge Schudson's dissent.

Employment Law

Unemployment Compensation - Termination of Municipal Employee for Failure to Comply with Residency Requirement of Collective Bargaining Agreement

Klatt v. Labor & Industry Review Comm'n, 2003 WI App 197 (publication ordered 24 Sept. 2003)

Klatt was employed by the city of Waukesha Police Department. The collective bargaining agreement between the city and Klatt's union contained a residency requirement. During the course of her employment Klatt became engaged to a Racine County deputy sheriff whose department also had a residency requirement. Due to the conflicting residency requirements of Racine County and the city of Waukesha, Klatt and her future husband would not be able to comply with each agency's residency requirement and live together as a married couple in one household. The husband's request for an exemption from his employer's residency requirement was denied.

Klatt sought an exemption from the Waukesha residency requirement, which was denied. When Klatt subsequently moved out of Waukesha County to a residence in Racine County, she was terminated from employment. She thereafter sought unemployment compensation and the Labor and Industry Review Commission (LIRC) concluded that, because she voluntarily terminated her employment without good cause attributable to her employer, she was not eligible for unemployment compensation. The circuit court affirmed the LIRC.

In a decision authored by Judge Brown, the court of appeals affirmed the circuit court. It held that Klatt's conduct of moving to Racine County in violation of the residency requirements of the collective bargaining agreement between her employer and her union was inconsistent with the continuation of the employer-employee relationship and that she voluntarily terminated her employment. The general rule is that an employee who voluntarily terminates his or her employment with an employing unit is ineligible for unemployment compensation benefits. Klatt's failure to adhere to the terms of the residency requirement amounted to conduct inconsistent with the continuation of her employment relationship.

One exception to the general rule stated above is that an employee may receive benefits if he or she voluntarily terminates employment with good cause attributable to the employing unit. This has been interpreted as meaning some act or omission by the employer justifying the employee's quitting; it involves some fault on the part of the employer and must be both real and substantial. In this case the court failed to see how Klatt's termination was due to an act or omission on the part of the city that could be characterized as "fault." Instead, the city was simply seeking to enforce a provision of the collective bargaining agreement that the union had agreed to in the bargaining process.

Lastly, the court rejected Klatt's alternative argument that she has a "meritorious justification" for failing to comply with the residency requirement, that being her constitutional right to marriage and family. The court concluded that this amounted to a constitutional attack on the residency requirement itself, at least as it has been applied to her. However, the law is that state or local regulations are not unconstitutional deprivations of the right of family association unless they regulate the family directly. The collateral consequences of regulations not directed at the family do not bring the constitutional rights of family into play. Here, the residency requirement did not directly interfere with Klatt's right to marry nor did it dictate whom she may marry. Said the court, "the fact that Klatt may not live with an individual who has a conflicting residency requirement is an incidental and unintended consequence of a requirement contained in a negotiated collective bargaining agreement" (¶ 23).

Juvenile Law

Delinquency - Stay of Sex Offender Registration Requirement Not Authorized

State v. Daniel T., 2003 WI App 200 (publication ordered 24 Sept. 2003)

A delinquency petition was filed against the juvenile alleging that he had engaged in one count of sexual intercourse with a person under age 13 and one count of burglary. He eventually admitted the sexual assault and the burglary charge was dismissed. At the dispositional hearing the court ordered the juvenile placed in the Northwest Child and Adolescent Center for one year. As a condition of the placement, the juvenile was to register with the state as a sex offender pursuant to Wis. Stat. section 301.45. However, the trial court stayed the registration for 90 days, pending determination of the registration statute's applicability. When the latter issue was resolved contrary to the juvenile, the court lifted the stay on registration. In so doing, it rejected the juvenile's request that the stay be continued.

The juvenile appealed, contending that the trial court erred when it concluded that it had no authority to stay sex offender registration. In a decision authored by Judge Hoover, the court of appeals held that trial courts lack the authority to stay sex offender registration under section 301.45. In so holding, the appellate court rejected the defendant's argument that the lower court could continue the stay based upon section 938.34(16), which allows for a stay of a dispositional order. The mandatory registration statute is more specific and no part of it allows registration to be superceded by a judicial stay.

The court also spoke briefly to the more general issue of whether a judge may stay a condition of a dispositional order. In a footnote the court stated its disagreement with the proposition that a part or single condition of a dispositional order can be stayed. Wis. Stat. section 938.34(16) allows a stay of "the execution of the dispositional order...." It does not say that a stay of a section of the dispositional order or that a stay of conditions of the order is allowed. See ¶ 10 n. 4. In this case, if a stay were issued, the most it could do would be to stay the juvenile's placement at Northwest Child and Adolescent Center. Even then, the juvenile would have to fulfill the registration condition to keep the full disposition in abeyance.

Torts

Products Liability - Sophisticated User Defense - Restatements

Haase v. Badger Mining Corp., 2003 WI App 192 (publication ordered 24 Sept. 2003)

Plaintiff Haase developed silicosis when exposed to harmful silica sand particles while working at a Neenah foundry. She brought this action against the supplier of the silica sand, alleging that the supplier failed to provide the foundry and workers with adequate information about the risks of exposure. The case went to trial and at the close of the plaintiff's case-in-chief, the trial court granted judgment in favor of the defendant because there was no credible evidence that supported the plaintiff's claims.

The court of appeals, in a decision written by Judge Brown, affirmed in an opinion that adopts and applies the rationale of Bergfeld v. Unimin Corp., 319 F.3d 350 (8th Cir. 2003), a case that "mirrors" this one. First, addressing the negligence claim, the court held that Bergfeld and the sophisticated user defense are "good law" in Wisconsin. Adopted from the Restatement (Second) of Torts, the "sophisticated user doctrine" imposes "no duty to warn if the user knows or should know of the potential danger, especially when the user is a professional who should be aware of the characteristics of the product" (¶19).

Sound policy supported the sophisticated user defense. "First, it places the duty to warn on the party arguably in the best position to ensure workplace safety, the purchaser-employer. Second, the burden falls upon the party in the best position to know of the product's potential uses - thereby enabling that party to communicate safety information to the ultimate user based upon the specific use to which the product will be put. For the foregoing reasons, we adopt Bergfeld and its discussion of the sophisticated user defense." (¶21) Moreover, the record amply supported the finding that the foundry in question was a sophisticated user (¶24).

The court then turned to the strict product liability claim and found that the trial court properly applied Restatement (Third) of Torts § 5 (1998). Section 5 recognizes in essence "that a raw material such as sand is inherently safe in its design and is not an unreasonably dangerous product" (¶29). The court of appeals refused to interpret Green v. Smith & Nephew, 2001 WI 109, as an "outright rejection" of the Restatement (Third) of Torts simply because Green held that § 2(b)'s "foreseeability" element conflicted with Wisconsin law (¶30).

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