Vol. 77, No. 4, April
2004
Supreme Court Digest
This column summarizes all decisions of the Wisconsin Supreme Court
(except those involving lawyer or judicial discipline, which are
digested elsewhere in the magazine). Profs. Daniel D. Blinka and Thomas
J. Hammer invite comments and questions about the digests. They can be
reached at Marquette University Law School, 1103 W. Wisconsin Ave.,
Milwaukee, WI 53233, (414) 288-7090.
by Prof. Daniel D. Blinka &
Prof. Thomas J. Hammer
Contracts
Mortgages - Consideration - "Dragnet Clause" - Marital Property
Mitchell Bank v.
Schanke, 2004 WI 13 (filed 27 Feb. 2004)
The "extremely complicated and somewhat incomplete" facts of this
appeal concern the validity of a bank's mortgage on land that secured a
preexisting debt. The debtor's wife owned an undivided one-half interest
in the disputed property. In 2002 another creditor filed a declaratory
judgment action that sought to invalidate the bank's mortgage on the
land. The bank then began a foreclosure action on the same property. The
actions were consolidated. The circuit court invalidated the bank's
mortgage for lack of consideration. The court of appeals affirmed, also
holding that the bank had failed to provide the underlying debt in the
mortgage and that the mortgage's "dragnet clause" was unenforceable.
The supreme court, in an opinion written by Justice Wilcox, reversed.
First, the court held that there was consideration for the mortgage,
because it was an executed contract signed under seal. "Under Wisconsin
law, when an executed contract is signed under seal, the seal is
conclusive proof of consideration, and consideration may not be
impeached absent a factual showing of fraud" (¶ 24). No proof of
fraud was offered.
Second, the lower courts erred in determining that the bank had
failed to prove the underlying debt. The issue was complicated by the
bank's inability to produce the note that purportedly accompanied the
mortgage as well as the mortgage's dragnet clause, which purportedly
secured all outstanding antecedent debt (¶ 38). The court held that
"a legally enforceable dragnet clause can by itself validate a mortgage
when there is proof of the underlying antecedent debt secured by the
dragnet clause and the mortgage clearly indicates that the parties
intended for the mortgage to secure antecedent debt" (¶ 40). The
missing note was merely one way of evidencing a debt (¶ 43). The
parties intended the mortgage "to secure antecedent debt through the
dragnet clause, the [b]ank proved the existence of the antecedent debt
[through extrinsic evidence, for example, the bank's ledgers, checks,
and FDIC 'write-offs,' see ¶ 49], and the dragnet clause" was valid
under Wisconsin law (¶ 44).
Third, the court addressed dragnet clauses generally and then upheld
the validity of the clause in this mortgage. Specifically, the court
held "that a dragnet clause securing antecedent debt is enforceable in
Wisconsin if the mortgage clearly states that it secures antecedent debt
and the relation between the debt and the security for the debt is not
wholly unclear" (¶ 51). The court then took up the level of detail
that must be recited in such mortgage clauses. Reconciling prior cases,
the court held that "it is sufficient if the amount of the debt
is specifically stated on the face of the mortgage, but [prior case law]
cannot be read for the proposition that it is necessary for the
amount of debt to be specifically stated on the face of the mortgage in
order for a dragnet clause to be enforceable" (¶ 64). A contrary
ruling, noted the court, would also place in jeopardy the many "RESAs"
[real estate security agreements] that rely on such a construction,
although the "better practice" may be "to specifically list the specific
amount of debt secured in a mortgage via a dragnet clause" (¶
68).
Finally, the court took up the question of marital property.
Construing Wis. Stat. section 766.55 (1985-86), the court held that the
husband's debts "are presumed to have been incurred in the interest of
the marriage," especially absent the wife's testimony to the contrary.
As such, the debts are "properly considered existing joint
indebtedness," which fell within the dragnet clause (¶ 79).
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Criminal Procedure
Search and Seizure - Terry Frisks - Totality of the
Circumstances - Officer's Subjective Beliefs
State v. Kyles, 2004
WI 15 (filed 2 March 2004)
The circuit court granted the defendant's motion to suppress evidence
(marijuana) that was seized during a protective frisk for weapons during
a routine traffic stop. The court of appeals affirmed, concluding that
the totality of the circumstances was not sufficient to create
reasonable suspicion to justify the protective search for weapons. In a
majority decision authored by Chief Justice Abrahamson, the supreme
court affirmed the court
of appeals.
The supreme court concluded that the totality of the circumstances
present at the time of the frisk was not sufficient to create reasonable
suspicion to justify a protective search for weapons. The court
considered the essential facts surrounding the frisk individually and in
combination. The defendant was the passenger in a vehicle that was
stopped for a traffic violation at about 8:45 on a cold December evening
on a city street in what was described as a "pretty active" crime area.
The defendant was wearing a large, fluffy coat that could be used to
hide a weapon. The defendant exited the vehicle at the direction of the
officer and, at least twice during a four-to-eight second interval, he
inserted his hands into and removed his hands from his coat pockets
after being directed by the officer to remove his hands from his
pockets. The defendant appeared nervous but the officer testified that
he "didn't feel any particular threat before searching" the defendant.
In their totality, these facts were held insufficient to create the
reasonable suspicion necessary to support a protective frisk for
weapons.
In the course of the lengthy opinion, the majority addressed a number
of additional issues relative to frisking suspects for weapons and
subsequent litigation about the validity of those frisks. One of those
issues was the role of the officer's subjective beliefs about the
dangerousness of the detained person. The reasonableness of a protective
search for weapons is measured using an objective standard: would a
reasonably prudent person in the circumstances be warranted in the
belief that his or her safety and that of others was in danger because
the individual might be armed with a weapon? In determining whether a
frisk was reasonable, a court may look to any fact in the record, as
long as it was known to the officer at the time he or she conducted the
frisk and is otherwise supported by the officer's testimony at the
suppression hearing.
The court concluded that an officer's belief that his or her safety
or that of others is in danger because the individual may be armed is
not a prerequisite to a valid frisk. Because an objective standard is
applied to determine the existence of reasonable suspicion, a frisk can
be valid even when the officer does not actually feel threatened by the
person frisked or when the record is silent about the officer's
subjective fear that the individual may be armed and dangerous.
The state argued that under no circumstances may an officer be
questioned regarding his or her subjective belief about whether his or
her safety or that of other persons was in danger at the time the frisk
was conducted. The court rejected this position, concluding that
officers may be so questioned because they may draw reasonable
inferences from the facts in light of their experiences. "A court may
therefore consider an officer's belief that his or her safety or that of
others was or was not in danger in determining whether the objective
standard of reasonable suspicion was met" (¶ 4).
The court also addressed the matter of the defendant's failure to
obey the direction of the officer to keep his hands in the officer's
sight. This type of behavior is a significant factor to consider in
determining the reasonableness of an officer's suspicion that the
individual being frisked might be armed and dangerous. However, the
court declined to hold, as the state urged, that the requirement of
specific and articulable facts providing reasonable suspicion is
automatically satisfied when a person fails to comply with an officer's
order to keep his or her hands out of his or her pockets. Said the
majority, "circuit courts are aptly positioned to decide on a
case-by-case basis, evaluating the totality of the circumstances,
whether an officer had reasonable suspicion to justify a protective
search in a particular case" (¶ 5).
Justice Wilcox filed a dissenting opinion that was joined by Justice
Crooks. Justice Crooks filed a dissenting opinion that was joined by
Justice Wilcox. Justice Roggensack did not participate in the case.
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Elder Law
Medical Assistance - Reimbursement
Keup v. Department of Health
& Family Servs.,
2004 WI 16 (filed 4 March 2004)
Keup, a nursing home resident, filed a circuit court action that
pleaded a claim under 42 U.S.C. section 1983. Keup also sought review of
a Department of Health and Family Services (DHFS) order that the DHFS
lacked jurisdiction to determine whether she was entitled to recoup the
full amount paid by her as a private pay patient at a medical assistance
provider's nursing home facility. The circuit court granted the DHFS
motion for summary judgment.
The court of appeals certified two questions to the supreme court.
The first question was "whether, after the State has retroactively
compensated a medical assistance provider for nursing home services
provided to a private pay patient and the provider has reimbursed the
patient in the amount of the medical assistance, the patient has a
federally protected right to reimbursement from the provider for the
amount originally paid by the patient in excess of the medical
assistance reimbursement" (¶ 3). The second question was whether
the DHFS has "jurisdiction under Wis. Stat. § 49.45 (5)(a)
(1999-2000), to grant a private pay patient's request for full
reimbursement from a medical assistance provider" (¶ 3).
The supreme court, in an opinion written by Justice Crooks, affirmed.
The court held "that a private pay patient does not have a federally
protected right to reimbursement from the provider for the amount
originally paid by the patient in excess of the medical assistance
reimbursement. At the time of admittance, Keup was neither a medical
assistance applicant nor a recipient. Pursuant to 42 U.S.C. §
1396r(c)(4)(B)(i) and 42 C.F.R. § 483.12(c)(2) (1999), medical
assistance providers may charge private pay patients any rate they deem
appropriate, provided that the patient has notice as to the amount of
the charge. We conclude that Wis. Stat. § 49.49(3m), Wis. Admin.
Code § HFS 104.01(11) (Apr. 1999), and the Medical Assistance
Provider Handbook, Section VI, page A6-002 (Handbook) appropriately
require medical assistance providers to refund only the amount paid by
the medical assistance program on behalf of retroactively eligible
persons" (¶ 4) (notes omitted). "Persons who are neither medical
assistance applicants nor recipients under 42 C.F.R. § 400.203 at
the time of their admission to a medical assistance provider are private
pay patients" (¶ 32).
The court also held that the DHFS lacked "jurisdiction to hear Keup's
claim under Wis. Stat. § 49.45(5)(a) because none of the statutory
bases for jurisdiction were met" (¶ 39). In particular, she was not
denied medical assistance benefits. Nor did the agency have jurisdiction
under Wis. Admin. Code section HFS 104.01(5)(a)1. Keup contracted with
the nursing home itself, not DHFS, to enter the facility, and the
nursing home itself, not DHFS, retained the portion of Keup's payment
that was not reimbursed by the state (¶ 40).
Chief Justice Abrahamson, joined by Justice Bradley, dissented. The
majority took the "wrong path" because it followed the erroneous lead of
the certified question, which had assumed the "very question presented"
in this case, namely, whether the compensation was "retroactive" (¶
44). The dissent concluded that the majority opinion "ignores the
relevant federal and state laws defining the period of eligibility for
retroactive benefits" (¶ 47).
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Family Law
Divorce - Division of Property - Revision of Arbitration Award
Franke v. Franke,
2004 WI 8 (filed 6 Feb. 2004)
This case was before the supreme court on certification from the
court of appeals. It arose out of a lengthy divorce proceeding that
culminated in the parties' agreement to have all disputes in their
divorce resolved by binding arbitration. After the arbitrator issued a
final award, the circuit court confirmed it and ordered that a divorce
judgment be entered in conformity with the award. The award determined
property division, child support, each party's liability for certain
income taxes, and the sum the husband was to contribute toward the
wife's attorney fees.
The wife subsequently moved to open the divorce judgment to revise
certain portions of it. The circuit court entered orders opening the
divorce judgment under Wis. Stat. section 806.07 (a statute dealing with
relief from judgments) and modifying judgment provisions relating to
property division and child support. The circuit court also awarded an
increase in the amount the husband was to contribute toward his
ex-wife's attorney fees but refused to change the provision in the
divorce judgment setting each party's share of certain income tax
liability.
Two questions of law were considered by the court in its majority
decision, which was authored by Chief Justice Abrahamson. The first
question was whether a circuit court may open the property division
provisions of a divorce judgment under Wis. Stat. section 806.07 even
though the divorce judgment incorporated an arbitration award that had
been confirmed by the circuit court. After considering sections 806.07
(governing the opening of judgments), 767.255(3)(L) (imposing
responsibilities on a circuit court in determining property division in
a divorce judgment), and rule 802.12(3)(c) (governing binding
arbitration in certain family law actions), the supreme court held that
a circuit court may relieve a party from property division provisions of
a divorce judgment under section 806.07 even though the divorce judgment
incorporates a confirmed arbitration award.
"[W]e conclude that a circuit court must treat a divorce judgment
incorporating a confirmed arbitral award on property division in a
similar fashion to, but not in exactly the same way as, its treatment of
other divorce judgments under § 767.255(3)(L) over which the
circuit court may exercise its jurisdiction as necessary. Circuit courts
must give greater deference to an arbiter's award of a property division
under Rule 802.13(3)(c) than they would to other types of agreements
between parties" (¶ 47).
The court hastened to state what it characterized as the "narrow
scope" of its holding. "We limit our holding to property divisions in
divorce judgments incorporating a confirmed arbitral award. We do not
determine whether Wis. Stat. § 806.07 vests power in circuit courts
to open all final judgments incorporating arbitral awards. Divorce
judgments are different. A circuit court is statutorily required to
perform an independent, substantive review of the parties' agreement
before incorporating it in the divorce judgment" (¶ 50).
A second legal issue presented by this case was the following: When
Wis. Stat. section 806.07 is used to relieve a party from property
division provisions of a divorce judgment, is the relevant date of
valuation of assets the date of the closing of the arbitration record or
the date of the divorce? Responding to this question, the court "[was]
satisfied that the general rule that property is to be valued at the
date of divorce, coupled with the requirement that courts deviate from
the general rule when special circumstances so require, provides a
workable and flexible standard for circuit courts to apply in cases
involving an arbitral award" (¶ 65).
The remainder of this lengthy opinion dealt with whether various
orders of the circuit court represented erroneous exercises of
discretion.
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Municipal Law
Zoning Enforcement Actions - Equitable Powers of Court -
Relationship of Certiorari Review and Enforcement Action
Town of Delafield v.
Winkelman, 2004 WI 17 (filed 5 March 2004)
The defendants own a lot in the town of Delafield containing two
houses, both of which are legal but nonconforming structures. The
defendants used one house for their residence and the other as rental
property. In 1991 they obtained a building permit for interior
remodeling of the two structures. The town issued a stop-work order
after it discovered that the remodeling involved work on a legal
nonconforming structure. The defendants applied for a variance, which
the zoning board granted but conditioned on removal of the rental
residence from the property within three years. On certiorari review the
circuit court upheld the board's decision. The defendants did not
appeal.
The town subsequently brought the present action, seeking forfeitures
along with an order directing the defendants to remove the rental
residence. The circuit court granted summary judg-ment to the town. The
court of appeals reversed. In a majority decision authored by Justice
Bradley, the supreme court affirmed the court of appeals.
The first question before the court was whether the circuit court had
subject matter jurisdiction to consider the town's enforcement action.
The defendants argued that the jurisdiction of the town's ordinance did
not extend to them because their property is actually controlled by the
Waukesha County Shoreland Code. The supreme court rejected this
argument. Wisconsin circuit courts are courts of general jurisdiction
and have subject matter jurisdiction of all matters, civil and criminal,
not excepted in the constitution or prohibited by law. This includes the
authority to hear zoning enforcement actions arising from either town or
county ordinances.
Next, the justices addressed the issue of whether the circuit court
had the power to consider the defendants' equitable arguments in the
context of the enforcement proceeding. [In the earlier certiorari
proceeding the defendants claimed that the zoning board's action was
unreasonable because financing was contingent upon rental income from
the second residence.] The court held that "when a governmental body
exercises its authority pursuant to either Wis. Stat. §§
59.69(11) or [as in this case] 62.23(8) and seeks injunctive relief, the
circuit court retains the power to deny the relief sought and the
property owners can defend themselves in equity" (¶ 28).
Accordingly, the supreme court concluded that the circuit court erred in
concluding that it had no such power.
Lastly, the court considered whether the power to consider equitable
arguments may be exercised in this case. The town argued that, because
the defendants already had an opportunity to present their equitable
arguments before the court in the certiorari action, they should be
precluded from doing so in the enforcement action. The supreme court
disagreed. The doctrine of claim preclusion does not apply; though there
may be some overlap in the arguments presented in the certiorari action
and in the enforcement action, the claims themselves in these actions
are distinct.
Nor does issue preclusion apply. Certiorari review is limited in
scope and the traditional criteria by which certiorari courts review a
board's decision do not involve consideration of equitable arguments,
whereas the circuit court in an enforcement action for injunctive relief
can consider all equitable issues. Accordingly, the circuit court may
properly exercise its power to consider the defendant's equitable
arguments in this case.
Justice Prosser dissented.
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Wisconsin Lawyer