Wisconsin Lawyer
Vol. 79, No. 8, August 2006

Supreme Court Digest

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

Alternative Dispute Resolution Civil Procedure Contracts Criminal Law Criminal Procedure Family Law

Guardianship Insurance Municipal Law Property Sexually Violent Persons Torts

Alternative Dispute Resolution

Arbitration - Impartiality - Discovery

Borst v. Allstate Ins. Co., 2006 WI 70 (filed 13 June 2006)

Following an auto accident in which the plaintiff was injured, the plaintiff's claims were submitted to arbitration. Allstate, an insurer, selected as its arbitrator an attorney, Hill, who regularly represents its interests in other cases. The plaintiff vigorously challenged Hill's partiality, but the full arbitration panel made an award that was confirmed by the circuit court. The parties agreed that the entire panel was to be neutral (see ¶ 25).

The court of appeals certified the following questions to the supreme court: "(1) Is there a presumption of impartiality among all arbitrators which may be `sidestepped' only by explicit agreement of all parties by which they may select arbitrators who in effect are their advocates? (2) Under Wis. Stat. § 788.10(1)(b) (2003-04), can `evident partiality,' due to a relationship between an arbitrator and a party be avoided by full disclosure at the outset and a declaration of impartiality? (3) Other than the deposition procedure outlined in Wis. Stat. § 788.07, is the nature and extent of discovery during the arbitration process governed by contract, the arbitrators' inherent authority, or a combination of the two?"(¶ 2)

The supreme court, in a decision authored by Justice Wilcox, reversed the circuit court and held as follows: "(1) We adopt a presumption of impartiality among all arbitrators, whether named by the parties or not. This presumption may be rebutted, and an arbitrator may act as a non-neutral when the parties contract for non-neutral arbitrators or the arbitration rules otherwise provide for non-neutral arbitrators; (2) Evident partiality cannot be avoided simply by a full disclosure and a declaration of impartiality. In challenges to an arbitrator based on evident partiality where the disputed relationship is fully disclosed, circuit courts must remove an arbitrator prior to the arbitration, or vacate an arbitration award under Wis. Stat. § 788.10(1)(b) when a reasonable person would have serious doubts about the impartiality of the arbitrator; and (3) Arbitrators have no inherent authority to dictate the scope of discovery, and absent an express agreement, the parties are limited to the procedure for depositions, as described in Wis. Stat. § 788.07" (¶ 3).

In explaining its holding, the court "reiterate[d] that arbitrators should continue to disclose relevant relationships in accordance with our case law and [that] such disclosure puts the burden on the opposing party to object. A failure to initially object to the selection of an arbitrator, based on the information disclosed prior to the arbitration, may act as a forfeiture of any subsequent post-arbitration challenge on the disclosed information. Post-arbitration challenges, of course, are permissible under Wis. Stat. § 788.10(1)(b) based on the circumstances of the arbitration itself or on information discovered post-arbitration" (¶ 36).

The record disclosed that Hill's involvement with Allstate demonstrated "evident partiality." "We hold that there was evident partiality on the part of Hills, such that vacation of the arbitration award is mandated. That is, based on evidence that is clear, plain, and apparent, a reasonable person would have serious doubts about the impartiality of Hills, on a neutral arbitration panel. In this case, the fact that Hills had a substantial, ongoing attorney/client relationship with Allstate leads us to conclude, as a matter of law, that Hills demonstrated evident partiality such that the arbitration award must be vacated" (¶ 44; see also ¶ 49).

As to the third holding, limiting discovery in arbitration, the court agreed with the the amicus brief submitted by the Alternative Dispute Resolution (ADR) Section of the State Bar of Wisconsin "that parties would be well-served to either: (1) explicitly address the scope of discovery and the procedures to resolve disputes regarding discovery; or (2) reference a set of established ADR provider rules that specify how discovery should be handled" (¶ 56).

Civil Procedure

Mediation - Settlements - Equitable Estoppel

Affordable Erecting Inc. v. Neosho Trompler Inc., 2006 WI 67 (filed 9 June 2006)

A moving company, Affordable, contracted to move Neosho's equipment to a new location. Neosho refused to pay Affordable's $18,000 invoice because equipment was damaged in the move. In 2001 Affordable sued Neosho and others. At the court-ordered mediation, Affordable was represented only by its attorney. Attorneys for all the parties signed an agreement resolving the dispute, although Affordable's attorney explicitly noted that the settlement was contingent on the client's consenting by noon the following day. Two days later the court was notified that a settlement had been reached, and checks were issued in accordance with the proposed settlement, although Affordable had not signed the settlement. About three weeks after the "deadline" for the owner's consent, Affordable's owner told the company's attorney that she agreed to the settlement. Although this information was conveyed to the other parties, the owner changed her mind several weeks later and refused to settle. The judge, however, dismissed the 2001 action for lack of prosecution.

In 2004, Affordable, acting through different counsel, filed a new action that made the same claim. The judge dismissed the 2004 action on the ground that both parties had entered into a valid and enforceable settlement under Wis. Stat. section 807.05. The court of appeals affirmed the dismissal, but it relied on equitable estoppel, not on section 807.05.

The supreme court, in an opinion written by Justice Butler, affirmed on the equitable estoppel theory. The court first held that there had been no settlement for purposes of section 807.05. "In this case, because the settlement was not made in court and on the record, Wis. Stat. § 807.05 unambiguously requires the settlement to be memorialized in writing and subscribed by each party or its attorney" (¶ 23). "Neither the untimely oral assurances by Affordable's attorney to the other parties, nor its attorney's call notifying the court that a settlement had been reached, satisfy the contingency set forth in the May 21, 2003, agreement. Furthermore, Affordable's subsequent conduct fails to satisfy the statutory requirements that a settlement must be `subscribed' by the party or the party's counsel" (¶ 30).

The court then discussed the applicability of equitable estoppel, which carries four elements: "(1) action or non-action; (2) on the part of one against whom estoppel is asserted; (3) which induces reasonable reliance thereon by the other, either in action or non-action; (4) which is to the relying party's detriment" (¶ 33). Only the last two elements were disputed. The court said that Affordable's "actions and non-actions" created only one reasonable inference: it had accepted the settlement. Affordable knew that other parties relied on this perception, but Affordable "made no attempt to clarify its position" (¶ 40). Moreover, Neosha relied on Affordable's apparent agreement to its detriment, particularly by foregoing a suit for full restitution for losses and not objecting when the court dismissed the first action without prejudice (which permitted the filing of this action).

Contracts

Indefinite Contracts - Illusory Contracts

Metropolitan Ventures LLC v. GEA Assocs., 2006 WI 71 (filed 14 June 2006)

Metropolitan Ventures is a business engaged in real estate investment and development. GEA is a limited partnership that was established to preserve and renovate the German English Academy Building, located in Milwaukee. Metropolitan and GEA entered into a Limited Partnership Purchase Agreement (LPPA), whereby Metropolitan agreed to purchase all of the general partnership interests and certain limited partnership interests of GEA. Under the LPPA, Metropolitan was required to obtain unconditional financing equal to 85 percent of the purchase price "on terms satisfactory to Buyer ...." GEA was required to deliver to Metropolitan assignments of at least 66 2/3 percent of the outstanding units owned by the limited partners. GEA agreed to "use its reasonable best efforts to obtain Assignment Agreements from all the limited partners" by recommending that each limited partner participate in the sale and requesting that the limited partners execute assignments of their partnership interests. GEA was further obligated to use its best efforts to ensure that the partnership did not "[s]ell or dispose of any asset ... of the partnership" (see ¶¶ 5-6).

Metropolitan subsequently sent a letter to GEA confirming that all of Metropolitan's contingencies had been met and indicating that it was ready to close the transaction. It inquired regarding GEA's progress on securing the required two-thirds assignments from GEA's limited partners. GEA ultimately responded that the LPPA was terminated because it had been unable to secure the required assignments. (In fact, GEA had entered into a secondary agreement with a third party on more favorable financial terms, which would become effective if the LPPA were terminated. Metropolitan claimed that GEA's managing partner actively dissuaded GEA's limited partners from agreeing to sell GEA to Metropolitan.)

GEA filed a declaratory judgment action in which it asked the circuit court to hold that it had properly and validly terminated the LPPA. Metropolitan responded with a suit of its own (which was consolidated with GEA's action) seeking damages based on the actions of GEA and its representatives. GEA filed a motion for summary judgment, asserting that no contract existed due to the lack of sufficient definiteness in the financing contingency provision. The circuit court adopted GEA's "no contract" theory, finding the contract indefinite and unenforceable, and it dismissed Metropolitan's remaining claims against GEA. The court of appeals reversed. See 2004 WI App 189. In a majority decision authored by Justice Butler, the supreme court affirmed the court of appeals.

With regard to the financing contingency, GEA argued that it was both indefinite and illusory and therefore unenforceable. The court first considered the indefiniteness argument. "A financing clause is sufficiently definite if it establishes that the parties agreed to the terms of financing. Certainty of contract terms and definiteness require mutual assent by way of a meeting of the minds. This court has concluded that there need not be a literal meeting of the minds because `mutual assent is judged by an objective standard.' The question is whether there is sufficient evidence to ascertain the intent of the parties; this court examines both the wording of the contract as well as the surrounding circumstances in an attempt to discern the parties' intent.... In order to hold a contract void for indefiniteness, the `[i]ndefiniteness must reach the point where construction becomes futile.' Yet, even if the parties' written agreement is expressed in `terms so vague and indefinite as to be incapable of interpretation with a reasonable degree of certainty,' the parties' subsequent conduct and practical interpretation can cure this defect by evincing the parties' intent in entering the contract. Therefore, a contract that fails to sufficiently address the financing contingency is not void for indefiniteness if the parties' subsequent actions clarify the parties' intent at the time they entered into the contract. However, in order for the subsequent action to remove any indefiniteness, the action must include `some interpretative conduct by both parties, consisting either of the rendition of some performance by each one or by the willing acceptance by one of them of such a performance rendered by the other'" (¶¶ 24-26) (citations omitted).

GEA contended that the contingency is vague and indefinite because the requirement that the financing terms be "satisfactory to the Buyer" fails to include any information regarding the terms of the financing that Metropolitan had in mind. Said the court, "[w]e agree that the parties failed to specify financing terms in the written contract. The critical question in determining the enforceability of the LPPA, therefore, becomes whether there exists sufficient evidence of subsequent conduct in the record upon which this court can ascertain whether the parties mutually agreed to acceptable financing terms at the time the LPPA was formed" (¶ 29). The court concluded that subsequent acts of both Metropolitan and GEA provided sufficient evidence of the parties' intent, rendering the contract enforceable.

Important in this regard was correspondence between the parties indicating that the parties developed a cooperative relationship in attempting to ensure that the sale came to fruition. "In short, the correspondence among the parties and between GEA and its limited partners clearly demonstrates that both parties at the time they entered into the contract intended to form a binding contract for the sale and purchase of the GEA partnership. Prior to [receiving the secondary] offer [from a third party], both [GEA and Metropolitan] clearly treated the LPPA as a certain, definite, and enforceable contract. Neither party expressed any signs of confusion regarding the financing contingency. The parties would have proceeded without any objection to the financing contingency had GEA not received a better offer from [the third party]. The closing did not fail because of the contingency. Consequently, we conclude that the parties' subsequent conduct evinces the parties' intent to enter into the LPPA, rendering the contract definite and, therefore, enforceable" (¶ 31).

GEA also argued that the financing contingency clause was illusory for two reasons. First, the clause gave Metropolitan sole discretion to approve the financing, allowing Metropolitan full control over determining whether the contingency has been met. Second, the clause gave Metropolitan exclusive authority to waive the contingency, allowing Metropolitan to unilaterally create a binding contract in a situation in which, according to GEA, no valid contract existed in the first place.

The supreme court concluded that the financing clause did not render the LPPA illusory. "A contract is illusory when the contract is `conditional on some fact or event that is wholly under the promisor's control and his [or her] bringing it about is left wholly to his [or her] own will and discretion....' While the financing clause at issue does not specify a particular term or rate of financing, it does set forth the percentage of the purchase price to be financed along with a practicable method in which the sale price would be determined. We agree that because of the fluidity involved in the sale of the business, financing terms could vary greatly over the 30 days specified in the contract, so that inserting a particular term or rate of financing would be speculative. Here, the subsequent actions of both parties rendered the financing clause definite. Neither Metropolitan nor GEA had complete control over determining whether the financing contingency had been met: both parties came to the conclusion that Metropolitan had obtained sufficient financing. As such, we find that the financing contingency was not illusory" (¶ 33) (citations omitted).

Having determined that the LPPA was an enforceable contract, the supreme court concluded that GEA and its managing partner owed Metropolitan a duty of good faith arising out of the contractual relationship. "The contract's requirement that GEA use its `best efforts' explicitly imposes a duty of good faith on GEA to preserve the business for the sale to Metropolitan and to obtain the limited partners' consent to the sale" (¶ 37). The court concluded that "genuine issues of material fact exist concerning GEA's good faith dealings with Metropolitan and its `best efforts' to ensure that it did not dispose of its assets or otherwise violate the terms and conditions of the LPPA prior to closing" (¶ 45). Accordingly, the supreme court remanded this matter to the circuit court to resolve these issues.

Chief Justice Abrahamson filed an opinion concurring in part, which was joined by Justice Roggensack. Justice Wilcox did not participate in this case.

Criminal Law

Exposing Child to Harmful Materials - Wis. Stat. section 948.11 - Sufficiency of Evidence When Pornographic Video Not Shown to Jury

State v. Booker, 2006 WI 79 (filed 29 June 2006)

The defendant was convicted of violating a statute that prohibits exposing a child to harmful materials. See Wis. Stat. § 948.11. At trial three girls, ages 12, 13, and 14, described an incident in which the defendant showed them numerous segments of a videotape containing multiple episodes of sexually explicit conduct (including sexual intercourse and fellatio). In their testimony the girls described the conduct on the video, as did the detective on the case. The video was entered into evidence but was not reviewed by the jury. The defendant appealed, and the court of appeals reversed. See 2005 WI App 182. In a majority decision authored by Justice Roggensack, the supreme court reversed the court of appeals.

The question on appeal was whether the evidence presented at trial sufficiently fulfills the test set out in State v. Thiel, 183 Wis. 2d 505, 515 N.W.2d 847 (1994), such that a reasonable jury could find beyond a reasonable doubt that the video was "harmful material" as defined in Wis. Stat. section 948.11. "Under Thiel, a jury is required to consider contemporary community standards regarding what appeals to the prurient interests of children and whether material is patently offensive to the adult community's standards of what is appropriate for children. The jury also had to consider whether the material had some other serious value for children, in this case for 12- to 14-year-old children" (¶ 16).

The court concluded that, when the evidence in this case is considered most favorably to the state, a reasonable trier of fact, acting reasonably, could have found guilt beyond a reasonable doubt, based on the testimony presented. "First, the jury could conclude that the video excerpts, as described, predominantly appeal to the prurient interests of children. `Prurient' is defined as `arousing inordinate or unusual sexual desire.' Black's Law Dictionary 1263 (8th ed. 2004). The portions of the video that [the defendant] showed to the girls were consistently described as scene upon scene of sexual acts [as described above]" (¶ 25).

"Second, the jury could conclude that the video is patently offensive to prevailing standards in the adult community with regard to what is suitable for children. Motion pictures that depict explicit sexual material harmful to minors may not be shown at outdoor theaters if the screen is visible from a public street, sidewalk, thoroughfare or other public place or from private property where it can be observed by minors. Wis. Stat. § 134.46(2). Videos with the type of content described by the witnesses are not available for rental to minor children in Wisconsin. Videos showing explicit sexual acts are commonly rated and restricted so that minor children will not be exposed to them. A jury could make a reasonable determination based on the testimony presented at trial that the video [the defendant] showed the girls is considered by Wisconsin adults as unsuitable for children" (¶ 26).

"Third, the jury could conclude that the video excerpts lacked serious literary, artistic, political, scientific or educational value for 12- to 14-year-olds because nothing was shown except episodes with men and women engaging in sexual acts. There was no evidence that the video had merit for children of these ages, for any reason. And, for the same reasons that the other parts of the `harmful material' element can be met by the evidence presented, a reasonable trier of fact could conclude from the testimony that the video was absolutely void of serious literary, artistic, political, scientific or educational value for children" (¶ 27).

In a footnote the court noted that although the original writings rule (Wis. Stat. § 910.10) was mentioned in oral argument, it was not referenced in either party's briefs, and the court was provided with no argument or citation to authority in regard to its application. "Therefore, we do not address § 910.02 further" (¶ 9 n.2). In another footnote, the court indicated that its opinion "does not address whether the video would contravene the adult obscenity statute, Wis. Stat. § 944.21" (¶ 31 n.10).

Chief Justice Abrahamson filed a concurring opinion.

Criminal Procedure

Jurors - Bias

State v. Smith, 2006 WI 74 (filed 27 June 2006)

A jury convicted Smith of operating a motor vehicle while intoxicated, second offense. The court of appeals affirmed the conviction.

The supreme court, in a decision authored by Justice Wilcox, affirmed the court of appeals. The court rejected Smith's contention that he was denied the right to a fair and impartial jury when the trial court refused to strike a prospective juror (the juror) for cause despite the fact she was employed as an administrative assistant in the district attorney's office that was prosecuting him. Smith claimed that the juror should have been disqualified as objectively biased because of her employment status. The court held that the trial judge reasonably concluded that the juror was not objectively biased. More important, the court said that such determinations are best left to the case-by-case discretion of the circuit court and should not be controlled by rules of per se exclusion (see ¶ 17).

"We fully recognize there may be situations where an employee of the Milwaukee County District Attorney will be objectively biased. Indeed, `we caution and encourage the circuit courts to strike prospective jurors for cause when the circuit courts reasonably suspect that juror bias exists.' However, permitting an administrative assistant to serve on a jury who works at a different office in a different city than the prosecuting office and who otherwise knows nothing about the case, the defendant, and does not even recognize the prosecutor is not such an `extreme situation' that we must conclude the circuit court erred in refusing to strike [the juror] for cause" (¶ 28).

Chief Justice Abrahamson dissented and was joined in her dissent by Justices Prosser and Butler. The dissenting justices found error in the fact that the prospective juror and the prosecutor shared the "same ultimate superior, the Milwaukee County District Attorney"(¶ 49).

Postconviction Practice - Challenging a Sentence Imposed at Resentencing Proceeding

State v. Walker, 2006 WI 82 (filed 30 June 2006)

The defendant's probation was revoked, and he was returned to circuit court for sentencing. The court imposed a sentence of 12 years (the revocation sentence). The defendant then sought postconviction relief, alleging ineffective assistance of counsel because his attorney failed to contradict certain inaccurate sentencing information. The parties stipulated to resentencing. The court accepted the stipulation, vacated the sentence, and held another sentencing hearing at which it considered the additional sentencing information. It then resentenced the defendant to an identical 12-year term (the resentence).

The defendant appealed the resentence directly to the court of appeals, claiming the circuit court erroneously exercised its discretion by imposing a sentence of the same length as the revocation sentence despite receiving new information. The court of appeals summarily dismissed the appeal because the defendant did not, as required by Wis. Stat. (Rule) § 809.30 (2003-04), file a postconviction motion to give the circuit court an opportunity to reconsider the sentence imposed at resentencing.

This case presented the question whether a defendant must file a postconviction motion with the circuit court before appealing a sentence imposed at resentencing, when the sentence turns out to be identical to the court's previous sentence. In a unanimous decision authored by Justice Prosser, the court concluded that "when a defendant seeks modification of the sentence imposed at resentencing, Wis. Stat. (Rule) § 809.30(2) and Wis. Stat. § 973.19 require the defendant to file a postconviction motion with the circuit court before taking an appeal. These rules on sentence modification apply even though the sentence imposed at resentencing is identical to a previous sentence. The rules apply regardless of whether a defendant challenges the original sentence, a sentence after revocation, or the sentence imposed at resentencing" (¶ 37).

Given the unusual procedural history of this case and the defendant's good faith efforts to comply with Wis. Stat. (Rule) section 809.30, the court determined there was good cause to enlarge the time within which the defendant can file his notice of intent to pursue postconviction relief and his postconviction motion with the circuit court.

Family Law

Modification of Physical Placement - "Maximizing" Amount of Time Child Spends with Each Parent

Landwehr v. Landwehr, 2006 WI 64 (filed 6 June 2006)

This case involved a father's request to substantially modify an existing placement order, which awarded primary physical placement of the parties' children to the mother, that had been in effect for at least two years. For any such placement order to be substantially modified, "the moving party must show that there has been `a substantial change of circumstances since the entry of the last order affecting legal custody or the last order substantially affecting physical placement,' and the circuit court must take into account whether the current or future custodial conditions and physical placement are in the child's best interest. Wis. Stat. § 767.325(1)(b)1.a and b." (¶ 12). "In this analysis there exists a rebuttable presumption that the status quo is in the best interest of the child. Wis. Stat. § 767.325(1)(b)2." (id.).

"When the initial order granted greater placement with one parent as compared to the other - as the circuit court ordered in this case - continuing the current allocation of decision-making authority under a legal custody order and continuing the child's physical placement with the parent with whom the child resides for the greater period of time is therefore presumed to be in the best interest of the child" (id.) (citations omitted). "If the circuit court determines that a change in placement may be appropriate, Wis. Stat. § 767.325(5m) further directs the circuit court to `make its [modification] determination in a manner consistent with s. 767.24,' specifically taking into account the 16 factors considered during the court's initial placement determination. Wis. Stat. § 767.325(5m)" (¶ 13).

In this case the father petitioned to have the original placement order modified to award equal placement of the children. He relied on the provisions of section 767.24(4)(a)2., which instructs courts to "maximize" the amount of time a child may spend with each parent. The father argued that when both parents are available, willing, and able to accommodate equal placement and when the parents live near each other, this statute mandates equal placement, because a child's time with his or her parents cannot otherwise be "maximized."

In several published decisions the court of appeals has concluded that this statute does not require equal placement. In a majority opinion authored by Justice Butler, the supreme court agreed with these decisions. "Our analysis of the plain meaning of Wis. Stat. §§ 767.325 and 767.24(4)(a)2., supported by the statute's legislative history, reveals that the legislature did not intend the term `maximizing' to mean equal placement or equal time" (¶ 11).

The court held that "Wis. Stat. § 767.24(4)(a)2. does not require a court to grant each parent equal placement if the court determines that the placement should be modified. We conclude, therefore, that in making modification determinations, the Wisconsin Statutes direct the circuit court to maximize the amount of time a child spends with his or her parents within an overall placement schedule, taking into account the best interests of the child, the presumption of the status quo under Wis. Stat. § 767.325(1) and (2), the general factors listed in Wis. Stat. § 767.24, and the particular factors listed under § 767.24(5)(am) when relevant to the child" (¶ 3).

Chief Justice Abrahamson and Justice Bradley filed separate concurring opinions.

Guardianship

Minors - Parental Objection

Robin K. v. Lamanda M., 2006 WI 68 (filed 13 June 2006)

Robin filed a petition requesting guardianship, under Wis. Stat. chapter 880, of a 3-year-old boy. She alleged that the boy had lived with her for more than two years and that his parents, who had little contact with him, were unable to provide for his care. She alleged that the guardianship was necessary to obtain essential services, including medical treatment, for the boy. "At issue in this case is the proper standard a circuit court must impose in considering a guardianship petition involving a minor when a parent objects" (¶ 2). The circuit court denied the petition, and the court of appeals affirmed the circuit court.

In a decision authored by Justice Butler, the supreme court affirmed the court of appeals. "[W]e conclude that in evaluating a petition for a permanent guardianship on behalf of a minor filed by a nonparent when a parent objects, a court must first determine whether the party bringing the guardianship petition has shown that the child is in need of a guardian because there exist extraordinary circumstances requiring medical aid or the prevention of harm. Absent a showing of such extraordinary circumstances or need for a guardian, the court cannot appoint a guardian" (¶ 21). The party seeking a guardianship must establish the requisite extraordinary circumstances by clear and convincing evidence (see ¶ 17). Although the circuit court had found some evidence of neglect, the record fell far short of demonstrating the extraordinary circumstances required by statute.

Justice Prosser concurred but wrote a separate opinion in which he stated that the majority opinion advances a "one-size-fits-all standard" that is ill-suited to the "complex realities that demand the appointment of a guardian" (¶ 24).

Insurance

UIM - Reducing Clause

Welin v. American Family Ins. Co., 2006 WI 81 (filed 30 June 2006)

The plaintiff and a passenger in her car were injured in a car accident. The tortfeasor had $300,000 in liability coverage, from which his insurer paid $250,000 to the plaintiff and the remaining $50,000 to the passenger. The plaintiff had $300,000 in underinsured motorist (UIM) coverage with American Family, which denied her claim for $50,000. Even though the UIM policy did not cover the passenger, the circuit court denied the plaintiff's claim for the UIM balance. The circuit court held that the plaintiff was not an underinsured within the meaning of the policy, because her UIM coverage equaled the tortfeasor's liability coverage ($300,000). The court of appeals affirmed.

The supreme court, in an opinion written by Chief Justice Abrahamson, reversed. "The issue presented is whether a UIM insurance policy's definition of an underinsured motor vehicle as a motor vehicle that is insured with bodily injury liability limits less than the limits of liability of the UIM policy without regard for the amount the injured person actually receives from the tortfeasor's insurer is a reducing clause prohibited by Wis. Stat. § 632.32(4m) and (5)(i)" (¶ 5). "The tortfeasor's vehicle in the present case became underinsured because the tortfeasor's insurer made payments to injured persons other than the plaintiff. The tortfeasor's insurance company's payment to the plaintiff was less than the plaintiff's UIM limits. To put the plaintiff in the same position she would have been in had the tortfeasor's liability limits as to her been the same as the UIM limits she purchased, she must receive $50,000 from American Family to bring her recovery to $300,000" (¶ 34).

The court has "explained numerous times that the insured's purpose in purchasing a UIM policy is to purchase a predetermined, fixed level of UIM recovery that is arrived at by combining payment from all sources" (¶ 49). "We conclude that when a tortfeasor injures more than one person in a single occurrence and the injured persons are not insured under the same UIM policy, a definition of an underinsured motor vehicle that compares the injured person's UIM limits to the limits of a tortfeasor's liability policy without regard to the amount the injured person actually receives from the tortfeasor's insurer is invalid under Wis. Stat. § 632.32(4m) and (5)(i). The definition contravenes the purpose of UIM coverage under Wis. Stat. § 632.32(4m) and functions as an impermissible reducing clause when a tortfeasor injures more than one person in a single occurrence and the injured persons are not insured under the same UIM policy" (¶ 61). The court explicitly distinguished cases "that involved only one injured person and [in which] the injured person was paid the full amount of the tortfeasor's liability policy" (¶ 62).

Municipal Law

Special Assessments - Police Power - Reasonableness Test

Steinbach v. Green Lake Sanitary Dist., 2006 WI 63 (filed 6 June 2006)

The petitioners in this case are the owners of residential condominiums in the Sunrise Point Resort and Yacht Club Condominium, an 18-unit development on a single lot on Big Green Lake. The respondent, the Green Lake Sanitary District, adopted a resolution to extend sanitary sewer service to additional lands in the district, including the land on which the petitioners' condominiums are located, through the exercise of its special assessment powers under Wis. Stat. section 60.77(5)(f). The district levied against each affected property an assessment that had two components: an "availability assessment" of $4,730 to cover the costs of making the sewer available to each lot in the expansion plan (which costs included installation of a four-inch lateral pipe stubbed from the sewer main to the property line), and a "connection assessment" of $5,930 to cover the costs of the infrastructure necessary for transportation of sewage to the treatment plant.

The petitioners requested circuit court review of the special assessments, contending inter alia that they were unfair, arbitrary, and capricious and in violation of Wis. Stat. section 66.0703. The circuit court left the connection assessment intact (a holding that was not appealed). The court determined, however, that the availability assessment was erroneous because, among other things, the district assessed each of the 18 condominium owners the full $4,730 assessment amount even though it installed only one stub to the petitioners' property for purposes of connecting all 18 units to the sewer main. The court ordered the district to reduce the availability charge against each condominium unit to 1/18th of the $4,730, thus distributing the charge among the 18 petitioners whose single lot had been provided one four-inch stub. The district appealed, and the court of appeals reversed. In a majority decision authored by Justice Roggensack, the supreme court reversed the court of appeals.

The court began its analysis by observing that special assessments may be based on the taxing power or on the police power. If an assessment is made under the taxing power, the municipality must show that the amount charged to the property does not exceed the value of the benefits received. An assessment made under the police power, in contrast, is not limited to the value of the benefits received by the property owner. When the police power is used, the assessment must be made on a reasonable basis (see ¶ 13). In this situation, the district employed the police power. Thus, the issue before the court was whether the special assessment levied against the petitioners was reasonable.

The supreme court concluded that the sewer system benefited the petitioners' property. However, it found that the availability charge levied by the district lacked a reasonable basis for three reasons. "First, there is no nexus between the charge to an owner of a parcel of record who shares access to the sewer main through one four-inch stub and the District's cost to provide that access. Second, other lots that have multiple habitable units and were provided access to the sewer main through one four-inch stub to the lot were charged only one availability charge. Yet the Petitioners' lot was assessed an availability charge 18 times higher for the same, single four-inch stub. Third, there is no showing that each condominium owner received a greater benefit than was provided to other properties that were affected by the sewer extension" (¶ 26).

"An assessment is unreasonable if it has an `entirely disproportionate distribution' on a group of property owners that can be avoided by the municipality's use of another assessment methodology. We conclude that is what occurred here. This assessment was unreasonable because the assessment charge required the Petitioners to bear a disproportionate amount of the costs of the sewer as compared with the benefit they received" (¶ 30) (citation omitted).

Chief Justice Abrahamson filed a concurring opinion that was joined by Justice Bradley.

Property

First Am. Title Ins. Co. v. Dahlmann, 2006 WI 65 (filed 7 June 2006)

In 1999 Dahlmann purchased a hotel that abuts Frances Street in Madison. The hotel and its underground parking garage were built in 1960. From the time of its initial construction, the parking garage encroached on the land, owned by the city of Madison, beneath Frances Street. Although the encroachment is not recorded in any record maintained by the city, the original building plans depict the encroachment. The city discovered the encroachment in March 2002 when it was repairing a sidewalk adjacent to the hotel. The city then sought to collect a $3,980 annual fee from Dahlmann, pursuant to a city ordinance, for the privilege of encroaching under Frances Street. The city suggested that it would require Dahlmann to remove the encroachment if he did not pay the fee.

Dahlmann requested that First American Title Insurance, from which he had purchased a title insurance policy, provide a defense and indemnification. First American filed suit, seeking a declaratory judgment that its policy did not afford Dahlmann coverage for the encroachment. The circuit court granted the declaratory judgment motion. The court said that the policy (which made no reference to the encroachment) did not afford coverage because it only covered the land specified in the legal description that was included in the policy. The court of appeals affirmed this decision. In a unanimous decision authored by Justice Crooks, the supreme court reversed the court of appeals.

The issue before the supreme court was whether the encroachment of the hotel's parking garage onto property owned by the city is covered under First American's policy as an "encumbrance on the title." The parties disputed the correct interpretation of the policy, and in particular, the significance of the deletion of the survey and encroachment exceptions from the standard form title commitment. This deletion occurred as a result of negotiations that occurred before the title policy was issued. In issuing the title policy, First American relied on a 1994 survey, which did not depict the encroachment under Frances Street, and on an affidavit from the landowner who sold the hotel to Dahlmann. The affidavit stated that no changes had been made to the hotel to affect the structure's size or location since the 1994 survey was conducted. First American agreed to omit two exceptions, which were included in the standard form title commitment: 1) "Any discrepancies or conflicts in boundary lines, any shortages in area, or any encroachment or overlapping of improvements" (the encroachment exception); and 2) "Any facts, rights, interests or claims which are not shown by the public record but which could be ascertained by an accurate survey of the land" (the survey exception). As a result of the policy amendments, Dahlmann paid an additional premium.

Dahlmann argued that coverage for the hotel's encroachment onto city land under Frances Street exists under the title insurance policy, because the encroachment constitutes an encumbrance on the title. He argued that it does not matter whether a structure encroaches on the insured property or a structure on the insured property encroaches on adjacent land - if the encroachment is substantial, the result is an encumbrance on the title of the insured property, and the title insurance policy insures him against any damage or loss caused by such an encumbrance on his title. Dahlmann further contended that deletion of the survey and encroachment exceptions demonstrates the parties' intent to insure against an encroachment such as the one at issue in this case. First American claimed that the loss for which Dahlmann seeks compensation does not fall within the policy's coverage because the encroachment is beyond the boundary of the property as described in the policy.

The supreme court held that "a substantial encroachment, created by an improvement onto adjacent land, constitutes an encumbrance on the title of the insured property for the purpose of the title insurance contract at issue in this case. We further hold that such a substantial encroachment, and thus an encumbrance, is covered under the terms of the title insurance policy at issue. However, the issue of whether the encroachment here is `substantial,' so as to constitute an encumbrance on the title of the insured property, for purposes of the title insurance contract, presents a question for the trier of fact to resolve. We, therefore, remand the case to the circuit court for such a determination" (¶ 42).

The supreme court said that the circuit court, when making the determination of whether the encroachment is substantial and thus an encumbrance on title, should consider four factors articulated in In re Meehan, 30 Wis. 2d 428, 141 N.W.2d 218 (1966) (a suit in which the buyer sued the seller for breach of warranty against encumbrances). The factors are 1) the character or extent of the encroachment, 2) the cost or possibility of its removal, 3) the length of time the encroachments had continued, and 4) municipal acquiescence, or the like (see ¶ 17). The supreme court noted that Meehan is silent on whether each of the factors deserves equal weight, or if the factors are to be applied in an equitable manner, weighing the totality of circumstances. It concluded that a court should apply the Meehan factors using a totality of the circumstances approach (see ¶ 19).

Condemnation Proceedings - Failure of Condemnor to Negotiate in Good Faith - Award of Litigation Expenses

The Warehouse II LLC v. Wisconsin Dep't of Transp., 2006 WI 62 (filed 6 June 2006)

The question before the supreme court in this case was whether Wis. Stat. section 32.28(3)(b) entitles a successful condemnee to litigation expenses when the basis for the circuit court ruling in its favor is that the condemnor failed to negotiate in good faith before issuing the jurisdictional offer.

The Wisconsin Department of Transportation (DOT) commenced condemnation proceedings against property owned by Warehouse. After the DOT issued its jurisdictional offer to purchase, Warehouse challenged the condemnation under Wis. Stat. section 32.05(5), asserting that because the DOT had failed to negotiate in good faith before issuing the jurisdictional offer, it lacked the right to condemn Warehouse's property. The circuit court held an evidentiary hearing, ruled that the DOT had not negotiated in good faith, and concluded that the DOT's jurisdictional offer to purchase was invalid and all subsequent DOT actions were null and void. It awarded Warehouse litigation expenses pursuant to Wis. Stat. section 32.28(3)(b). However, in subsequent circuit court proceedings, the court accepted the DOT's contention that the circumstances of the case did not fall under section 32.28(3)(b) and held that no litigation expenses were due. Warehouse appealed, and the court of appeals affirmed. In a majority opinion authored by Justice Roggensack, the supreme court reversed the court of appeals.

Wis. Stat. section 32.05(2a) requires that a condemnor negotiate with the property owner in good faith before issuing a jurisdictional offer to purchase (see ¶ 5). It was not contested for purposes of this appeal that the DOT did not do so. In earlier cases the supreme court had concluded that a party's failure to negotiate before issuing the jurisdictional offer is "a jurisdictional defect." See, e.g., Herro v. Natural Resources Bd., 53 Wis. 2d 157, 192 N.W.2d 104 (1971).

Wis. Stat. section 32.28(3)(b) provides that litigation expenses shall be awarded to the condemnee when a property owner prevails in proving either that the condemnor does not have "the right to condemn" or that "there is no necessity for its taking." Whether Warehouse had proven that the DOT did not have the "right to condemn" was at issue in this case. The supreme court held that "Wis. Stat. § 32.28(3)(b) applies when the condemnor's jurisdictional offer to purchase was not made after good faith negotiations, thereby causing a jurisdictional defect in the jurisdictional offer to purchase. This jurisdictional defect causes the condemnor to lack the statutory right to condemn" (¶ 34).

"[W]e conclude that good faith negotiation prior to issuing a jurisdictional offer to purchase is not merely a technical obligation, but rather, it is a fundamental, statutory requirement necessary to validly commence condemnation and confer jurisdiction on the condemnation commission and the courts. Therefore, because it is uncontested that the DOT did not negotiate in good faith prior to issuing the jurisdictional offer, the DOT did not commence a statutorily sufficient condemnation. As condemnation is purely a statutory procedure, the DOT lacked the right under the statutes to condemn Warehouse's property. Accordingly, Warehouse is entitled to litigation expenses pursuant to Wis. Stat. § 32.28(3)(b), as set out in § 32.28(1). Therefore, we reverse the decision of the court of appeals and remand to the circuit court to determine reasonable litigation expenses" (¶ 35).

Chief Justice Abrahamson filed a dissenting opinion that was joined by Justice Bradley.

Partial Takings - Valuation

Spiegelberg v. State, 2006 WI 75 (filed 27 June 2006)

Spiegelberg owned 150 acres of property (five contiguous tax parcels), most of which she used as a farm. The Department of Transportation (DOT) condemned about 11 acres from three of the five parcels. In determining the property's value, the DOT valued the farm as a single entity, subtracting the "after" value from the "before" value. In this manner the DOT set the damages at about $19,000. Spiegelberg's appraiser used a comparable sales method by which he valued each separate parcel and determined the value to be $84,000. The circuit court accepted Spiegelberg's approach.

The DOT appealed, and the court of appeals certified to the supreme court the following question: "when a partial taking affects multiple contiguous tax parcels that have common ownership, [is] the property ... to be valued based on: (1) the fair market value of the combined acreage as a single property or (2) the sum of the fair market values of each individual tax parcel[?]" The supreme court, in an opinion authored by Justice Roggensack, concluded that "Wis. Stat. § 32.09(6) (2003-04), which determines the method by which just compensation is to be determined for a partial taking, permits a flexible approach such that the individual characteristics of each property may be considered, according to each property's highest and best use, in order that the property owner receives just compensation for the taking. Because valuing the tax parcels separately produced a value consistent with the most advantageous use of this property, the circuit court correctly chose the method of appraisal employed by Bernice Spiegelberg's appraiser. Therefore, we affirm the judgment and order of the circuit court that awarded $84,200 to the property owner" (¶ 1).

The court construed the pertinent statutes and concluded the following: "(1) `fair market value' relates to the price a willing buyer would pay to a willing seller; (2) the requirement to consider the `whole property' does not require that an individual assessment always treat contiguous, commonly owned tax parcels separately or as a single unit, but requires that no portion of the property be left out of an assessment; (3) the requirement of Wis. Stat. § 32.09(2) that a property's `most advantageous use but only such use as actually affects the present market value' be considered as a part of a valuation is linked to the determination of the `fair market value' required by § 32.09(6); and (4) how to apply the language of § 32.09(6) to arrive at just compensation depends upon considerations related to each property's individual characteristics" (¶ 30).

"Because Wis. Stat. § 32.09(6) does not specify whether contiguous, commonly-owned tax parcels should be separately appraised or appraised as a collective unit, we conclude that when the property's `highest and best' use that affects its present market value is most appropriately appraised by considering the contiguous tax parcels separately, that is the appropriate appraisal method. Conversely, when, according to the above-addressed rules, the `highest and best use' is more adequately represented through an appraisal of the property as a single unit, that approach is the one that is appropriate. Which method is required by § 32.09(6) will depend on the unique qualities of the specific property affected by the taking and its `fair market value.' The ascertainment of the property's `fair market value' depends upon the common law definition of `highest and best use,' which we have determined is synonymous with the `most advantageous use' set out in § 32.09(2)" (¶ 31).

Justice Bradley, joined by Chief Justice Abrahamson, dissented. Although the dissenting justices agreed with the majority's "flexible approach" to valuation, they said that the record was too sparse to permit its application in this case.

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Sexually Violent Persons

State v. Mark, 2006 WI 78 (filed 29 June 2006)

Mark was committed as a sexually violent person pursuant to Wis. Stat. chapter 980. On appeal, Mark challenged the admission at the commitment hearing of four statements he made to his parole officer as well as the circuit court's exclusion of evidence regarding his probation conditions. The court of appeals held that only two of the four statements were compelled, incriminating, and testimonial. It also affirmed the exclusion of evidence concerning Mark's probation conditions.

The supreme court, in an opinion written by Justice Crooks, affirmed the court of appeals and remanded the case for further proceedings. It held that "in order for a statement to be properly excluded under the Fifth Amendment privilege against self-incrimination, as applied to the states through the Fourteenth Amendment's due process clause, it must be testimonial, compelled, and incriminating. We further determine that while an individual has a prepetition or prearrest right against self-incrimination, that right is ordinarily not self-executing and must be invoked. Therefore, we withdraw any language to the contrary in State v. Zanelli (Zanelli I), 212 Wis. 2d 358, 569 N.W.2d 301 (Ct. App. 1997). Finally, we conclude that the conditions of Mark's probation are irrelevant to the determination of whether or not he is a sexually violent person pursuant to Wis. Stat. § 980.01(7) and were therefore properly excluded by the circuit court" (¶ 2). The case was remanded for a determination of whether several of Mark's statements to his agent were unconstitutionally compelled.

Justice Roggensack, joined by Justice Bradley, concurred on the ground that only one of the statements at issue was incriminating. They said that the written statement on Mark's parole form was subject to limited immunity and therefore was not incriminating.

Justice Butler concurred in part and dissented in part. He "conclude[d] that statements made to a parole agent would be admissible in a civil ch. 980 proceeding, and that a proper application of the Fifth Amendment privilege in such a proceeding would result in the exclusion of testimonial, compelled, incriminating statements at a subsequent criminal proceeding only. I would thus admit all four statements in the ch. 980 proceeding against Mark, but bar their admission in subsequent criminal proceedings. I would also adhere to the definition of `incriminating' set forth previously by the United States Supreme Court" (¶ 52).

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Torts

Negligence - Lender's Liability to Third Parties Who Suffer Losses

Hoida Inc. v. M&I Midstate Bank, 2006 WI 69 (filed 13 June 2006)

Hoida is a subcontractor that incurred losses on a building project gone awry when the general contractor and the owner of the property fraudulently misappropriated approximately $650,000 of the project's construction loan proceeds. Defendants M&I Midstate Bank and McDonald Title Co. were the lending bank and the disbursing agent, respectively, on the project. Hoida claimed that it was a third-party beneficiary of the owner's loan agreement with M&I. Hoida also claimed that the defendants were negligent because they did not identify the subcontractors and materialmen who worked on the project, did not verify that the progress on the work was sufficient to justify the release of loan funds, and did not secure lien waivers from Hoida, which Hoida alleges would have prevented its losses. The defendants denied Hoida's claims. They also made a prima facie showing that they did not breach the duty of ordinary care under the circumstances by not undertaking the tasks Hoida identified, and that the lack of lien waivers was not a cause-in-fact of Hoida's damage. The defendants also contended that public policy precludes Hoida's claim (see ¶ 1).

The circuit court granted summary judgment dismissing the plaintiff's claims. The court of appeals affirmed. See 2004 WI App 191. In a majority decision authored by Justice Roggensack, the supreme court affirmed the court of appeals.

The supreme court quickly dealt with the breach of contract claim that was brought by the plaintiff as a third-party beneficiary. "In order to state a claim based on third-party beneficiary status, the complaint must allege facts sufficient to show that the agreement that was breached was entered into primarily and directly for plaintiff's benefit or the complaint must have attached a copy of the agreement that demonstrates that purpose. Hoida did neither. Therefore, its attempted breach of contract claim fails to state a claim for relief" (¶ 19) (citation omitted).

With respect to the negligence claim, the court noted that "[t]he specific question of a lender's liability to a third party who suffers losses, where the lender and the third party are not in privity of contract and the lender has no fiduciary duty to the third party, is a question of first impression in Wisconsin" (¶ 21). The court analyzed the traditional elements of negligence and first considered the "duty" element, noting that it involves two aspects: the existence of a duty of ordinary care and an assessment of what ordinary care requires under the circumstances (see ¶ 27). Accordingly, the court examined what a reasonable lender and its agent who were in the position of the defendants would be obligated to do in similar circumstances.

The court concluded that "M&I and McDonald Title's duty of ordinary care under the circumstances with regard to Hoida did not require either of them to identify Hoida as a subcontractor on the project, to verify that progress on the project was sufficient to justify the release of the amount of funds that the general contractor and the owner requested, or to secure lien waivers from Hoida. We further conclude that M&I exercised ordinary care under the circumstances this case presents when it retained McDonald Title to act as its disbursing agent and instructed it to secure completed Application and Certification for Payment forms for all disbursements. These forms contained the signature of Villager, who was the owner/borrower in regard to the project, the signature of the architect and the signature of the general contractor" (¶¶ 44-45).

Once a court has established what is required by the duty of ordinary care under the circumstances, the court can then ascertain the second element of actionable negligence, whether a breach of that duty has occurred. "Hoida's claim of a breach is based entirely on the theory that the defendants' duty of ordinary care under the circumstances required them to undertake certain tasks that we have concluded ordinary care under the circumstances did not require. It then follows that no breach occurred and therefore the defendants were not negligent, as a matter of law. In the future, when attempting to plead lender liability based on negligently failing to undertake certain tasks, a plaintiff must allege why the duty of ordinary care of the lender or disbursing agent includes the obligation to affirmatively undertake the tasks that plaintiff claims the lender or disbursing agent reasonably failed to perform under the circumstances" (¶ 46).

The court also concluded that "the negligence claim Hoida seeks to establish against M&I is barred by the legislative determination of priority as between a lender and a subcontractor set out in Wis. Stat. § 779.01(4) and Wis. Stat. § 706.11" (¶ 51). "We agree with the court of appeals that if this court were to develop a new lender liability claim by imposing affirmative obligations on a lender that it has not undertaken by contract or voluntarily assumed, the result would be to give subcontractors and material suppliers payment priority over construction lenders when a third party acts in a way that could cause loss for both. However, the legislature has enacted statutes that evince the public policy of Wisconsin to pay construction lenders first. Wis. Stat. § 779.01(4) and Wis. Stat. § 706.11. We cannot establish a common law claim that would contravene that legislative choice. If a new claim is to be established for those in Hoida's position, it is for the legislature to do so, not this court" (¶ 48).

Finally, the court noted that even if McDonald Title were negligent in its distribution of the loan proceeds, the court would conclude that Hoida's claim against McDonald Title was precluded by judicial public policy (see ¶ 41). "[P]ermitting recovery would place too unreasonable a burden on McDonald Title, who acted solely at the direction of M&I" (¶ 43).

Justice Bradley filed a dissenting opinion that was joined by Justice Butler. Chief Justice Abrahamson did not participate in this case.

Statute of Repose - Safe Place

Mair v. Trollhaugen Ski Resort, 2006 WI 61 (filed 6 June 2006)

Mair was injured when she slipped and fell while walking in a shower room while wearing ski boots. The bathroom was constructed in 1976. The circuit court ruled that the 10-year statute of repose in Wis. Stat. section 893.89 (2003-04) barred the plaintiff's claim under the safe place statute, Wis. Stat. section 101.11, and therefore granted summary judgment in favor of the defendant. The court of appeals affirmed.

In an opinion authored by Justice Wilcox, the supreme court affirmed the court of appeals. The court held that Mair's safe place claim was barred by section 893.89, the builder's statute of repose, because she proved only that a structural defect, not an unsafe condition, caused her injury.

First, the court delineated the distinction between structural defects and unsafe conditions for purposes of the safe place statute. "Because the design and placement of the floor drain and the condition of the surrounding floor have nothing to do with a failure to repair or maintain the property, they can be classified only as structural defects rather than unsafe conditions associated with the structure" (¶ 25). Although Mair alleged that such factors as the bathroom lighting also contributed to her fall, she did not present sufficient evidence to "escape summary judgment" (¶ 26).

Second, the court analyzed the interplay of the safe place statute, section 101.11, and the builder's statute of repose, section 893.89, which "begins to run when the improvement is substantially completed and prohibits a cause of action from accruing after the ten-year exposure period ends.... It is a statute of repose rather than a statute of limitation because it `provides that a cause of action must be commenced within a specified amount of time after the defendant's action which allegedly led to injury, regardless of whether the plaintiff has discovered the injury or wrongdoing.' Causes of action within the scope of the statute include `any deficiency or defect in the design, land surveying, planning, supervision or observation of construction of, the construction of, or the furnishing of materials for, the improvement to real property'" (¶ 27) (emphasis added).

Unsafe conditions brought about by lapses in maintenance are, however, excepted. "Under the safe place statute, a failure to `maintain' correlates to an unsafe condition associated with the structure, and thus allegations of such defects do not fall under the purview of the builder's statute of repose. Thus, from a plain reading of the statute, we can conclude that § 893.89 bars safe place claims resulting from injuries caused by structural defects, but not by unsafe conditions associated with the structure, beginning ten years after a structure is substantially completed"(¶ 29).

"Application of Wis. Stat. § 893.89 to safe place claims based on a structural defect is consistent with the intent of the legislature in passing revised versions of the statute of repose. The previous versions of the statute were declared unconstitutional, in large part, because they did not include protection for owners and occupiers. After the first two versions of the statute were struck down, the legislature was forced to choose between forgoing the statute of repose altogether or including owners and occupiers within its scope. By asking this court to apply the statute of repose as if the revisions had not been made, Mair is asking the court to ignore its own previous decisions regarding the statute's constitutionality and the decision of the legislature that it was preferable as a matter of public policy to limit causes of action against owners and occupiers than to discard the statute of repose for members of the construction industry" (¶ 34).

Fiduciaries - Breach - Statute of Limitation

Zastrow v. Journal Communications Inc., 2006 WI 72 (filed 20 June 2006)

The plaintiff shareholders sued the defendant trustees for breach of fiduciary duty. The suit had its origins in a corporate restructuring that occurred when the plaintiffs' employer, Perry Printing, was essentially sold by its owner, Journal Communications. At the time of closing in 1995, all employees were terminated by Perry and rehired by the buyer. The former employees held stock in the Journal's employee stock trust, which was governed by an agreement (the JESTA). Under the JESTA the former employees had to offer to sell back their trust-units immediately, unless they retired, in which case they had 10 years to accomplish the sale. None of the former employees retired, even though some were eligible. The trustees accorded them periods ranging in length from one year to five years to sell back the trust units, depending on the employees' years of service.

In 2000 the former employees who sold at the time of the restructuring brought this suit, in which they claimed that they should have been given 10 years to sell back the units. The defendants claimed that the suit was barred by the two-year statute of limitation for intentional torts. The circuit court instead applied a six-year statute of limitation. The court of appeals reversed, concluding that the complaint alleged intentional torts governed by the two-year statute of limitation.

The supreme court, in an opinion written by Justice Roggensack, affirmed the court of appeals. "Plaintiffs argue that the defendants' conduct contravened their duties as fiduciaries because they acted in their own self-interest due to their ability to purchase some of the Trust-units plaintiffs sold. They assert, and the circuit court found, that telling the plaintiffs they had to sell back their Trust-units over a one to five year period, while not telling them that the JESTA provided for a ten-year sell-back opportunity if they retired, was not done in good faith. At the same time, plaintiffs assert that these actions constitute negligent breaches of fiduciary duty, are not intentional acts, and therefore their claims come under the six-year statute of limitations in either Wis. Stat. §§ 893.52 or 893.53" (¶ 17).

The majority examined the nature of the fiduciary duty, and concluded that "we are persuaded that there is a distinct difference between a claim for the breach of the fiduciary duty of loyalty and a claim for the breach of the duty of ordinary care, i.e., a negligence claim. That difference arises from the conscious assumption of the role of fiduciary, on which the law imposes an obligation of absolute loyalty in all matters relating to the object of the duty, e.g., the beneficiaries of a trust. A fiduciary agrees to assume a position of authority in regard to the affairs of another in which position the fiduciary may have access to confidential information or to property of the object of the fiduciary's obligation. Therefore, if a trustee does not make a full disclosure of material facts to a beneficiary, that conduct is a breach of the trustee's duty of loyalty. The law concludes this breach is intentional. Beloit Liquidating, 270 Wis. 2d 356, ¶ 40. Similarly, if a trustee personally profits from his role as a trustee, that conduct is a breach of the trustee's duty of loyalty, and the law concludes it is intentional" (¶ 35).

"Good faith," said the court, "is encompassed within what we have more succinctly referred to as the duty of loyalty that arises when a fiduciary role is accepted" (¶ 36). A breach of a fiduciary duty of loyalty is an intentional tort "because the fiduciary consciously agreed to be committed to the interests of those to whom the fiduciary assumed that special role" (¶ 37). The record here clearly disclosed an intentional tort that was subject to the two-year statute of limitation (see ¶¶ 41-42).

Chief Justice Abrahamson concurred and was joined by Justice Bradley and, in part, by Justice Crooks. The issue, according to the Chief Justice, was "only what statute of limitations applies to the claim for breach of fiduciary duty presented in the instant case" (¶ 47). The concurring justices concluded that "in the interest of stare decisis ..., Beloit Liquidating controls the outcome of the instant case and creates a uniform, predictable rule that the statute of limitations applicable in all claims of any breach of fiduciary duty is the two-year statute" (¶ 54). The concurring justices also objected to the majority's creation of "a new body of fiduciary law for trustees that is inconsistent with prior case law" and established authority (¶ 58).

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