Vol. 78, No. 6, June 2005

2004 significant court decisions

Sidebars:

• Other Significant Cases

by Daniel W. Hildebrand

Attorneys

In Harold Sampson Children's Trust v. Linda Gale Sampson 1979 Trust,¹ the Wisconsin Supreme Court considered whether a lawyer's voluntary production of privileged documents in response to opposing counsel's discovery request constitutes a waiver of the attorney-client privilege when the lawyer does not recognize that the documents are subject to the privilege and the documents are produced without the consent or knowledge of the client. The Wisconsin Court of Appeals had concluded that the lawyer's disclosure waived the attorney-client privilege.² The supreme court reversed the court of appeals, holding that only the client can waive the attorney-client privilege.

The rule³ governing attorney-client privilege explicitly provides that the privilege belongs to the client and that the client may refuse to disclose or may prevent any other person from disclosing confidential communications. However, the rule also provides that the attorney-client privilege is waived when the holder of the privileged documents "voluntarily discloses or consents to disclosure."⁴ In Sampson, the attorney examined the documents, determined that the documents were not privileged, and then disclosed them. This disclosure was voluntary, not inadvertent, within the meaning of the rule.

The court disagreed that the lawyer's waiver in Sampson promoted the quality of legal representation and fostered the functioning of the judicial system by holding counsel to a reasonable standard of care regarding the voluntary release of privileged documents. Allowing an attorney to waive the privilege in cases like this would place too heavy a burden on the attorney-client relationship. The documents at issue in Sampson remain protected by the privilege because the client did not waive the privilege. All of the privileged documents and copies thereof must be returned and cannot be used for the purpose of any discovery deposition or shared with experts.

In State v. McDowell,⁵ the supreme court discussed the important issue of how criminal defense attorneys should deal with the prospect of client perjury. Specifically, the court addressed under what circumstances counsel's knowledge of the perjury is sufficient to trigger a requirement that a client testify in unaided narrative rather than in the usual question and answer format. Defense counsel may not substitute narrative testimony for the traditional question and answer format unless counsel knows that the client intends to testify falsely. Absent the most extraordinary circumstances, such knowledge must be based on the client's expressed admission to the attorney of an intent to testify untruthfully. Further, the attorney must advise the client, opposing counsel, and the circuit court of the change of questioning style before using the narrative format.

The bright line rule provides that, absent the most extraordinary circumstances, a criminal defense attorney cannot be held to know that a client is going to testify falsely unless the client admits the intent to do so. This rule is justified to avoid compromising the attorney's duty to the client. Without such an approach, counsel would lack guidance. The state's proffered "firm factual basis" standard is really no standard at all, because it tells lawyers virtually nothing about when they should compromise their role as an advocate. Thus, a high standard is necessary to protect the client's Sixth Amendment right to zealous and loyal advocacy. The court interpreted the ethical rule that counsel may refuse to offer evidence that the lawyer reasonably believes to be false as applying "to circumstances beyond the borders surrounding the questions involving a criminal defendant's stated intention to testify falsely."⁶ Moreover, counsel's first duty should be to attempt to dissuade the client from testifying falsely, for ethical, legal, moral, and practical reasons.⁷

Torts

In Insurance Co. of North America v. Cease Electric Inc.,⁸ the supreme court held that the economic loss doctrine does not apply to contracts for services. The plaintiff allegedly sustained losses due to the failure of a barn ventilation system. The defendant, a contract electrician, asserted that it was retained to manufacture a product, but the court construed the contract as one for services and not for a product. A particular piece of equipment was used to create the ventilation system in the barn. All the defendant was required to do was to properly wire the control to ventilation fans and a power source. One reason why the economic loss doctrine applies to products is that provisions of the Uniform Commercial Code (UCC) allow purchasers of defective products to recover costs and lost profits, thereby placing them in the same position as if the product had functioned properly. The UCC also protects manufacturers by enabling them to restrict liability by disclaiming warranties or limiting remedies. Because the UCC does not apply to service contracts, the economic loss doctrine will not be extended to contracts that provide for services. In reaching this result, the court was mindful of the ramifications that would accompany a decision to extend the economic loss doctrine to agreements to perform services. Wisconsin courts hold that claims for professional malpractice lie in both tort and contract with respect to architects, attorneys, and engineers. If exceptions were made, the court would then have to decide for each profession whether an exception should be made.

Franchises

In Central Corp. v. Research Products Corp.,⁹ the supreme court reversed the decisions of the circuit court and court of appeals granting summary judgment to the grantor of a franchise in a case brought under the Wisconsin Fair Dealership Law (WFDL).¹⁰ The WFDL defines a dealership as consisting of 1) a contract or agreement, 2) which grants the right to sell or distribute goods or services or which grants the right to use a trade name or logo, and 3) a community of interest in the business of offering or selling or distributing goods or services.¹¹ The most vexing element is the "community of interest," as the court's discussion in Ziegler illustrates.¹² In Ziegler, the supreme court rejected a rigid test that would exclusively rely on percentages of sales or profits to determine whether a community of interest exists and instead set forth two guideposts that, if satisfied, would lead to the conclusion that the parties shared a community of interest. Those guideposts are 1) whether the parties share a continuing financial interest, and 2) whether the parties share an interdependence concerning the degree to which the dealer and the grantor cooperate, coordinate their activities, and share common goals in their business relationship. When construed together, these guideposts must reveal an interest in a business relationship great enough to threaten the dealer's financial health if the grantor exercised its power to terminate. These requirements are intended to distinguish the typical vendor-vendee relationship from a dealership under the WFDL.

In Central, genuine issues of material fact resulted in disputed or competing inferences in regard to Central's contention that the parties shared a community of interest. These included the 20-year business relationship, the extent of the financial investment in a warehouse, disputes over the extent of the sales territory, the requirement that spare parts be on hand to serve the customers, and the fact that Research's products did not comprise a large percentage of Central's gross revenues or profits. These facts are not alone dispositive. When there are genuine issues of material fact or reasonable alternative inferences drawn from undisputed material facts, the determination of whether there is a community of interest must be made by a trier of fact based on an examination of all of the facets of the business relationship.

Procedure

In Village of Trempealeau v. Mikrut,¹³ the supreme court, citing the Wisconsin Constitution,¹⁴ held that circuit courts have subject matter jurisdiction over "all matters civil and criminal," and, accordingly, a circuit court is never without subject matter jurisdiction. The court also stated that a circuit court's ability to exercise subject matter jurisdiction in a specific case may be affected by noncompliance with statutory requirements pertaining to the invocation of that jurisdiction. The failure to comply with these statutory conditions does not negate subject matter jurisdiction but may, under certain circumstances, affect the circuit court's competency to proceed to judgment in the particular case. A judgment rendered under these circumstances may be erroneous or invalid because of the circuit court's loss of competency but is not void for lack of subject matter jurisdiction.

The issue in Mikrut was whether a challenge to the circuit court's competency may be waived if the challenge is not first raised in the original court of jurisdiction. The court noted that Wisconsin case law has not been consistent on whether and under what circumstances the issue of competency may be deemed waived. The court held that because competency does not equate to subject matter jurisdiction, a challenge to the circuit court's competency is waived if not raised in the circuit court. The waiver rule is a rule of judicial administration, and therefore, a reviewing court has inherent authority to disregard a waiver and address the merits of an unpreserved argument. In addition, under extraordinary circumstances, appellate review may be allowed, and there may be an avenue for obtaining collateral relief from judgment on a waived argument if adequate grounds for relief can be established.

Mikrut concerned citations for violations of village ordinances. After the case was tried and appealed, Mikrut moved to vacate the judgment, arguing for the first time that the village did not follow statutory mandates in issuing some of the citations. Mikrut contended that the citations were illegal because the village did not adopt a bond schedule for the particular ordinances, the citations were for ordinance violations that had a direct statutory counterpart, and the village lacked authority to issue uniform traffic citations for ordinances of the type charged against Mikrut. The circuit court denied the motion to vacate, concluding that Mikrut had waived raising the issue of the court's competency. The supreme court also concluded that a statutory provision allowing the court to vacate a judgment "for any other reasons justifying relief"¹⁵ allows relief in an extraordinary case but that this statute should be used sparingly because finality is important.

Endnotes

¹2004 WI 57, 271 Wis. 2d 610, 679 N.W.2d 794.

²Harold Sampson Children's Trust v. Linda Gale Sampson 1979 Trust, 2003 WI App 141, 265 Wis. 2d 803, 667 N.W.2d 831.

³Wis. Stat. § (Rule) 905.03(2).

⁴Wis. Stat. § (Rule) 905.11.

⁵2004 WI 70, 272 Wis. 2d 488, 681 N.W.2d 500.

⁶ Id. ¶ 44; see SCR 20:3.3(c).

⁷Nix v. Whiteside, 475 U.S. 157 (1986).

⁸2004 WI 139, 276 Wis. 2d 361, 688 N.W.2d 462.

⁹2004 WI 76, 272 Wis. 2d 561, 681 N.W.2d 178.

¹⁰Wis. Stat. ch. 135.

¹¹Wis. Stat. § 135.02(3)(a).

¹²Ziegler Co. v. Rexnord, 139 Wis. 2d 593, 407 N.W.2d 873 (1987).

¹³2004 WI 79, 273 Wis. 2d 76, 681 N.W.2d 190.

¹⁴Wis. Const. art. VII, § 8.

¹⁵Wis. Stat. § 806.07(1)(h).

Wisconsin Lawyer