Author: Hamilton

Convenience Store Leasing & Management v. Annapurna Marketing (Frustration of Purpose)

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In Convenience Store Leasing & Management v. Annapurna Marketing (2017AP1505), the Court of Appeals District II held defendants could not prove frustration of purpose excused breach of their fuel supply agreement with the plaintiff.

After purchasing a gas station, plaintiff Bulk Petroleum Corp. entered into a fuel supply agreement with defendants Annapurna (AP) Marketing. The agreement required AP Marketing to purchase a certain amount of fuel from Bulk. Bulk was required to select a “Branded Supplier,” in this case major brand fuel marketer U.S. Oil/Exxon Mobil, to supply fuel to the station. U.S. Oil required AP Marketing to make several cosmetic changes to the building.

AP Marketing ultimately decided that U.S. Oil’s branding requirements were too costly and walked away from the fuel supply agreement. Bulk filed the instant action for breach of contract. AP Marketing argued its breach of the contract was excused by frustration of purpose.

The appeals court held that Bulk’s claim that AP Marketing did not comply with the fuel supply agreement was not excused by frustration of purpose.  U.S. Oil’s costly branding requirements did not frustrate the principal purpose of the contract. The principal purpose of the contract was to supply fuel, and lower profits due to branding requirements do not frustrate that purpose. Furthermore, there was no basic assumption under the fuel supply agreement that such branding upgrades would not be required. In fact, the contract specifically referenced that AP Marketing may have to make cosmetic changes as required by the selected Branded Supplier. Because AP Marketing could not meet the principal purpose and basic assumption elements of the frustration of purpose doctrine, the court reinstated Bulk’s claim that AP Marketing breached the fuel supply agreement.  

Eco-Site, LLC v. Town of Cedarburg (Conditional Use Permit for Cell Tower)

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In Eco-Site, LLC v. Town of Cedarburg (2018AP580), the Court of Appeals District II upheld a town’s denial of a conditional use permit for a cell tower.

Eco-Site and T-Mobile applied to the Town of Cedarburg for a conditional use permit to place a cell tower on a horse farm in the town. The desired location for the tower was zoned as agricultural, and the surrounding area was zoned as residential. The town board denied the conditional use permit for reasons including: the tower would reduce value of the surrounding properties, was incompatible with the “rural and rustic” adjacent land, and would be detrimental to public welfare because of its effect on the “beautiful and scenic area.”

Eco-Site sought judicial review of the permit denial, arguing that the town’s decision was not in accordance with its zoning ordinances and violated statutory requirements that towns not prohibit cell towers solely because of aesthetic concerns.

The court found that the town properly applied its zoning ordinances. Cedarburg’s conditional use ordinances require that the use will not be detrimental to public welfare and will be compatible with adjacent land. The court agreed with the town that the cell tower would be incompatible with the agricultural and residential uses of the adjacent land. The tower would be detrimental to public welfare because it would diminish property values.

The court also found that the town did not violate state law prohibiting towns from denying cell towers solely for aesthetic reasons. Though the board’s comments on the application contained many aesthetic complaints, the court held that the aesthetic impact was distinct from the economic impact of lower property values from the cell tower. The law (Wis. Stat. 66.0404(5)(g)) only prohibits denial based solely on aesthetic concerns. Because the town based its decision on the economic impact and incompatibility with the town’s ordinances, the town’s decision was valid.

In a concurring opinion, Judge Reilly agreed with the town’s permit denial but with different reasoning than the court. The concurring opinion argues that Eco-Site lacked evidence it needed a new tower at that specific site. Eco-Site explained that the new tower would accommodate more carriers. However, the concurring opinion found no evidence the town needed a new tower and additional carriers to meet its communications needs.

Garfield Baptist Church v. City of Pewaukee (Municipal Fees)

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In Garfield Baptist Church v. City of Pewaukee (2018AP673), the Court of Appeals District II held that entities must challenge municipal sewerage and storm water fees with the Public Service Commission (PSC), not in circuit court. Furthermore, the burden of proving that municipal fees do not bear a “reasonable relationship” to the services provided should be on the challenger, not the defendant municipality.

Garfield Baptist Church alleged that the City of Pewaukee’s storm water management fees were unreasonable and inequitable. The court of appeals rejected the church’s means of challenging the city fees. Wis. Stat. § 66.0821(5) allows users to file complaints regarding unreasonable and unjust sewerage and storm water rates with PSC. PSC decisions, like other agency decisions, are then subject to judicial review under Wis. Stat. Ch. 227. The appeals court found that under that statute the church should have first filed a complaint with PSC about the city’s imposed fees.

The court of appeals also determined that the circuit court erred in imposing the burden of proof on the city to establish that its fees bore a “reasonable relationship” to the service provided, as required under Wis. Stat. § 66.0628(2). According to the court, common law generally places the burden of proof in municipal fee cases on the party challenging the fee (in this case the church). Additionally, § 66.0628(4) allows parties challenging municipal fees to appeal to the tax appeals commission and places the burden of proof of “reasonable relationship” on the city. The court found that by stating that the burden of proof is on the city in tax appeals commission cases, the law implies that the burden of proof is on the challenger in cases not before the tax appeals commission. Therefore, the burden of proof should be on the church to establish that the fees imposed by the city did not bear a reasonable relationship to the sewerage and storm water services provided.

In a concurring opinion, Judge Reilly agreed that the church did not properly challenge the city fees. However, the concurring opinion would have required the church to appeal to the tax appeals commission under § 66.0628(4), not PSC. According to the concurring opinion, PSC should handle challenges to rates, whereas the tax appeals commission should handle challenges to fees.

Papa v. DHS (Administrative Rules)

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In Papa v. DHS (2016AP2082/2017AP634), the court held that a challenge to a Wisconsin Department of Health Services (DHS) policy failed because the policy was not an administrative rule with the force of law.

Medicaid-certified nurse Kathleen Papa and Professional Homecare Providers, Inc. (PHP) filed the instant claim against DHS regarding Topic #66 in DHS’s Medicaid Provider Handbook. Topic #66 states that Medicaid providers must “meet all applicable program requirements” for reimbursement. If providers fail to meet all requirements, DHS can recoup payments from the providers.

Papa and PHP argued that Topic #66 was an illegal unpromulgated administrative rule and that the policy exceeded DHS’s explicit statutory authority under Wis. Stat. Ch. 227. The court held that Topic #66 is not an unpromulgated administrative rule because it does not have the “force of law” (Wis. Stat. § 227.01(13)). According to the court, Topic #66 simply summarizes existing law found elsewhere. Furthermore, PHP failed to show that DHS was enforcing Topic #66 like a rule. In recouping payments, DHS was not enforcing Topic #66 but was enforcing other statutes and rules referred to in the Topic.

Because the court found Topic #66 was not an administrative rule, Papa and PHP could not obtain a declaratory judgement via Wis. Stat. Ch. 227 judicial review of administrative rule proceedings.

In a dissent, Judge Reilly agreed that Topic #66 is not an administrative rule. However, the dissent argued Papa and PHP should be entitled to relief based on that fact. Under Topic #66, DHS was enforcing a requirement and recouped payments without legal right by statutes or properly promulgated administrative rules, in violation of 2011 Act 21 requirements in Wis. Stat. Ch. 227.

Tarrant v. DHS (Medicaid Eligibility)

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In Tarrant v. DHS (2018AP1299), the Court of Appeals District II held that testamentary trusts are countable unearned income for determining Medicaid eligibility.

The state Department of Health Services (DHS) denied Christine Tarrant’s application to renew medical assistance because her monthly payments from a testamentary trust combined with other income exceeded Medicaid eligibility limits. Tarrant appealed DHS’s decision, arguing that testamentary trusts are not “unearned income” countable toward determining Medicaid eligibility.

The court agreed with DHS and ruled against Tarrant. Federal law and state guidance in the Medicaid Eligibility Handbook do not specifically include testamentary trusts as countable unearned income, but the lists of countable unearned income sources are not exclusive. The regulations do include trusts as sources of unearned income, and the court rejected Tarrant’s argument that testamentary trusts should not be included because this particular type of trust is not specifically named. Under the court’s decision testamentary trusts are countable unearned income for DHS in determining Medicaid eligibility.

Secura Insurance v. Super Products, LLC (Economic Loss Doctrine)

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In Secura Insurance v. Super Products, LLC (2018AP1600), the Court of Appeals District II held that the economic loss doctrine bars recovery for damage to contracted property, even if there was injury to other property.

Wisconsin Utility Exposure purchased an excavator from Super Products. The excavator caused a fire that damaged the excavator itself and a variety of other items. Secura, Wisconsin Utility Exposure’s insurer, paid for the damages to its insured then filed the instant negligence lawsuit against Super Products. Super Products sought to dismiss the claims under the economic loss doctrine.

The economic loss doctrine typically bars lawsuits seeking to recover solely economic losses arising from the nonperformance of a contract, in this case the defective purchased product. Damages to “other property,” in this case the variety of other items damaged in the fire, are exempt from the economic loss doctrine and can be recovered. Secura argued the economic loss doctrine did not apply because the damage to the other property allows for recovery for the defective product.

The court rejected Secura’s reading of previous case law and held that the economic loss doctrine barred Secura’s claims for recovery of damages to the excavator. Secura could recover damages for injury to the other property, but that exempt claim did not open damages to the contracted property for recovery.

WCJC and Industry Partners Submit Comments on DHS PFAS Standards

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Wisconsin Civil Justice Council, as part of the Water Quality Coalition, recently submitted a letter and comments to the Wisconsin Department of Health Services (DHS) regarding their strict recommended groundwater standards for two PFAS chemicals, PFOA and PFOS. If promulgated as an enforceable rule, the standards would be costly to Wisconsin industry and would open up the state for frivolous lawsuits.

PFOA and PFOS are the most extensively produced and studied of a class of chemicals referred to as PFAS (per- and polyfluoroalkyl substance), which are found in many everyday products, including nonstick pans, cleaning products, paints, and firefighting foam. Existing best available science does not establish adverse health effects to humans from PFOA and PFOS exposure at current levels.

DHS, along with the Department of Natural Resources (DNR) and Department of Trade, Agriculture & Consumer Protection, announced in June a recommended groundwater standard of 20 parts per trillion (ppt) combined for PFOA and PFOS. The recommendation of 20 ppt is significantly below the federal Environmental Protection Agency’s (EPA) health advisory standard of 70 ppt. EPA also recently released a draft interim guideline for groundwater standards of 70 ppt.

Wisconsin law requires DHS to use EPA values for health standards if they are available, unless there is scientifically valid technical information that was not considered when the federal value was established (Wis. Stat. § 160.13(2)(b)). However, other studies show little effect on human health from PFOA and PFOS, even at much higher exposure levels than 20 ppt. Out of 19 other states regulating PFAS, only Vermont has set a standard as strict as the one proposed by Wisconsin’s DHS. New Jersey has an interim recommendation of 10 ppt.

DHS also recommends that the preventive action limit for PFOA and PFOS be set at 10 percent of the enforcement standard in accordance with Wis. Stat. § 160.15(1)(c). At 2 ppt, the preventive action limit would be the most strict regulation on PFOA and PFOS in the world. Preventive action limits are initial regulatory limits used to inform DNR about potential groundwater contamination and minimize the level of substances “to the extent technically and economically feasible” to prevent further contamination.

Costs imposed on the regulated community by these recommended standards could be significant. With no evidence of adverse human health effects resulting from PFOA and PFOS exposure, the recommended standards would not provide public health protections and instead would impose significant, unnecessary costs on Wisconsin businesses.

DHS held a comment period on the guidance documents related to these recommendations for just one day earlier this month. Under the Ch. 227.112 guidance documents requirements created in the 2018 extraordinary session legislation, comment periods must be 21 days, unless the governor approves a shorter period. In this case, the governor approved just a one day comment period on the PFOA and PFOS standards.

The DHS recommendations now must go through the DNR rulemaking process, with more opportunities for public input, before they are enforceable. DNR has not yet released a scope statement to begin promulgating the rules.

 

Wisconsin Redistricting Case Dismissed Following U.S. Supreme Court Decision

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The U.S. Supreme Court recently held in Rucho v. Common Cause that partisan gerrymandering claims are nonjusticiable political questions. As a result, plaintiffs and defendants agreed to dismiss the redistricting case Gill v. Whitford, which challenged Wisconsin’s state legislative district maps.

The 5-4 Supreme Court decision dismissed the plaintiffs’ arguments that redistricting maps in North Carolina and Maryland violated the First Amendment, the Equal Protection Clause, the Elections Clause, and Article I § 2 of the U.S. Constitution. The Court held that the Constitution does not prohibit partisan intent in redistricting. Furthermore, the court could not determine any judicially enforceable limits on partisan motivation in districting maps and instead left the option for reforms to redistricting processes to Congress and state legislatures.

In 2018, after the Supreme Court initially ruled they lacked standing, Wisconsin plaintiffs in Gill refiled their federal redistricting case against the 2010 map drawn by Assembly Republicans. The plaintiffs, all Democratic voters from Wisconsin, argued similarly to the Rucho plaintiffs that the map violated their rights to association and equal protection because it unfairly diminished their chances to achieve a majority and resultant legislative outcomes.

While the Supreme Court’s initial Gill decision addressed standing, the Rucho decision addressed whether the merits of partisan gerrymandering claims are justiciable questions. After the Rucho court declared partisan gerrymandering claims nonjusticiable, the Wisconsin plaintiffs and defendants in the Gill both agreed to dismiss the refiled case without deciding the merits.

As a result of the Rucho decision, any reforms to redistricting processes in Wisconsin must come from the legislature. Wisconsin Democrats have introduced a bill that would authorize the nonpartisan Legislative Reference Bureau to draw redistricting maps. However, the bill is unlikely to move in the Republican-controlled Legislature.

Wisconsin Supreme Court Rules DPI and Superintendent Must Comply With Act 21 and REINS Act

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In one of the more important cases of the 2018-19 term, the Wisconsin Supreme Court ruled on June 25 in Koschkee v. Taylor that the Department of Public Instruction and Superintendent of Public Instruction must comply with rulemaking requirements in the 2017 Regulations from the Executive In Need of Scrutiny Act (REINS Act) and 2011 Act 21.  The decision overturned the 2016 case Coyne v. Walker. Background on the case.

In the Koschkee v. Taylor decision, a 4-2 Wisconsin Supreme Court held that Act 21 and the REINS Act, specifically, provisions requiring Department of Administration and gubernatorial review of administrative rules, apply to rulemaking by the Department of Public Instruction and Superintendent of Public Instruction.  Wis. Const. Art. X § 1 provides the Superintendent constitutional authority to supervise public instruction. However, when the Superintendent promulgates rules via the Department, it is exercising legislative power delegated to it by the legislature, not its constitutional supervisory power. Therefore, giving the governor and Department of Administration the authority to review the Superintendent and Department of Public Instruction’s rulemaking does not interfere with the Superintendent’s constitutional supervisory authority.

The Koschkee decision overturns Coyne, which challenged Act 21 as unconstitutional as applied to the Department of Public Instruction and the Superintendent. While a majority agreed Act 21 was unconstitutional, there was no majority opinion written by the Wisconsin Supreme Court in Coyne.

In a concurring opinion in Koschkee, Justice R. Bradley criticizes the portion of the decision stating that administrative rulemaking is necessary to address the complexity of government. Justice Bradley expresses separation of powers concerns with state and federal courts allowing legislatures to defer their authority to a nonelected “fourth branch” of government. The concurring opinion suggests the court take a closer look at delegation of legislative power to agencies if an appropriate case arises.

Justice Kelly’s concurring opinion disagrees with the same paragraph of the court’s decision (paragraph 17) related to the administrative state but does not elaborate on his reasoning.

In a dissent, Justice Walsh Bradley (joined by Justice Dallet) argue the court should have applied stare decisis and kept the Coyne decision intact. As Justice Abrahamson argued in Coyne, Act 21 unconstitutionally gives the governor superiority over the Superintendent’s constitutional supervisory powers.

 

Enbridge Energy Co., Inc. v. Dane County (Conditional Use Permit)

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In Enbridge Energy Co., Inc. v. Dane County (2019 WI 78), the Wisconsin Supreme Court held that counties may not include unenforceable permit conditions on conditional use permits.

Dane County issued Enbridge Energy a conditional use permit to expand the volume of oil pumped through a local Enbridge pipeline. The permit contained conditions requiring Enbridge to maintain two liability insurance policies. Shortly after Dane County issued the permit, the legislature passed in the 2015-16 state budget (2015 Act 55) a provision precluding counties from requiring pipeline operators to obtain insurance if the operators already carry general liability insurance including coverage for sudden and accidental pollution liability. After the law change, Dane County retained the previous insurance conditions in Enbridge’s permit, but added language indicating that the new state law made the conditions unenforceable.

Enbridge filed the instant lawsuit asking the court to remove the unenforceable insurance conditions. Additionally, several Dane County property owners filed a lawsuit asserting that Enbridge was not in compliance with the new state law insurance requirements, so they could enforce the conditions.

The Supreme Court determined that Enbridge did have the requisite insurance coverage, both comprehensive general liability and sudden and accidental pollution liability, to comply with the Act 55 requirements. Therefore, Act 55 applies and precludes Dane County and the landowners from enforcing additional insurance conditions. The Supreme Court then concluded that the circuit court properly struck the unlawful conditions from the permit, as courts can modify conditional use permits under Wis. Stat. § 59.694(10). The decision allows Enbridge to proceed with its pipeline activity without the unlawful permit conditions and without having to start over in the conditional use permit process.

In a dissent, Justice Ann Walsh Bradley argued that Enbridge did not carry the statutorily required sudden and accidental pollution liability insurance. Therefore, Act 55 preemption provisions did not apply, and Dane County could enforce the additional insurance conditions. The dissent argued Enbridge did not show it carried the proper insurance. Under a definition of “sudden” used in a previous case, the policy must cover both “abrupt and immediate” and “unexpected and unintended” pollution events. According to the dissent, the policy covered “abrupt and immediate” but not “unexpected and unintended” events. Without the requisite insurance, Dane County could enforce the additional permit conditions without state law preemption under Act 55.

Justice Abrahamson and Dallet did not participate in the case.