Category: Courts of Appeals

Village of Mishicot v. Arseneau (Fourteenth Amendment – Selective Prosecution)

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In Village of Mishicot v. Arseneau (2019AP541), the Court of Appeals District II found that the village did not violate its resident’s Fourteenth Amendment rights by selectively prosecuting her for violation of a floodplain ordinance.

Defendant Jodi Arseneau wanted to repair and expand a storage shed on her property, but the state Department of Natural Resources (DNR) and a village ordinance prohibited such structures in the floodway where Arseneau’s property was located. Arseneau started construction on the shed anyway.

The village sent Arseneau a letter notifying her of her violation of the village’s floodplain ordinance and ordering her to stop construction. Soon after, DNR sent a letter to the village ordering the village to enforce the floodplain ordinance. If the village did not submit a sufficient enforcement plan, the letter stated, DNR would inform the Federal Emergency Management Agency, which could affect the village’s status in the National Flood Insurance Program (NFIP).

Subsequently, Arseneau was cited for violation of the ordinance. The circuit court found that the village violated Arseneau’s Fourteenth Amendment’s  Equal Protection Clause by selectively prosecuting her case. The circuit court agreed with Arseneau that the village did not cite other residents with similar storage units in the floodplain. The village appealed.

To succeed in a selective prosecution claim, the defendant must show the prosecution had a discriminatory effect and a discriminatory purpose. The appeals court found the prosecution against Arseneau did not have a discriminatory effect because she and the other residents who were not prosecuted were not similarly situated. Other residents had worked with the village after receiving initial warnings, and Arseneau’s case was unique in that the village received notice from DNR that nonenforcement could affect the village’s NFIP status. The court also found that Arseneau failed to prove her prosecution had a discriminatory purpose. Therefore, the village’s citation was upheld.  

Link v. Link (Fair Value & Corporate Misappropriation)

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In Link v. Link (2018AP1715), the Court of Appeals District III addressed fair value and corporate misappropriation claims among the owners of Link Snacks and various related entities, which sell and distribute meat products.

Jack, Troy, and Jay Link together owned various related entities including Link Snacks, Link Global, and its subsidiary Link Canada. When Jay and Troy acquired their shares of Link Snacks, they entered into a Buy-Sell Agreement, which gave Link Snacks the option to redeem their shares at fair market value if their employment was terminated. After a dispute and initial litigation in 2005, a court ordered the execution of the Buy-Sell Agreement, forcing Jay to return his Link Snack shares at fair market value. As a result of the 2005 litigation, the parties also dissolved the jointly-owned company Link Global.

Jay later filed the instant fair value claim and corporate misappropriation claims against Jack, Troy, and Link Snacks chief financial officer John Hermeier.

 

Fair Value

Jay alleged that the defendants had breached their fiduciary duty and that he should receive “fair value” for his Link Snacks shares as damages, instead of “fair market value” as stated in the Buy-Sell Agreement. (“Fair value” is the corporation’s net worth over the total number of shares. “Fair market value” reduces fair value by adjusting for lack of control and lack of marketability.)

The defendants argued Jay’s fair value claim was barred by claim preclusion. The court acknowledged that Jay’s claim meets the three requirements of claim preclusion. (The court found an identity of parties, final judgment, and identity of causes of action between the 2005 litigation and the instant case.) However, an exception to claim preclusion applied because Jay’s fair value claim had not been ripe for adjudication in the 2005 litigation. The fair value claim was contingent on the outcome of the sale of Jay’s Link Snacks shares, which had not yet occurred at the time of the 2005 litigation.

Furthermore, the two-year statute of limitations on the intentional tort of breach of fiduciary duty (Wis. Stat. § 893.57) did not bar Jay’s fair value claim because the fair value claim accrued when Jay sold his Link Snacks shares in 2009. The court rejected the defendants’ argument that the claim accrued in 2005 when Jay was allegedly forced out of Link Snacks.

 

Corporate Misappropriation

Jay’s corporate misappropriation claims alleged that the defendants had intentionally devalued Link Global’s subsidiary Link Canada in order to decrease the value of Jay’s share in Link Global. The court dismissed these claims, finding that Jay did not have standing to pursue the claims on his own behalf or on behalf of Link Global.

Since the injuries from the defendants’ alleged improper devaluation of Link Canada were primary to Link Canada, Jay would have had to file a derivative action on behalf of Link Canada. Shareholders may file derivative actions on behalf a corporation when the claim belongs to the corporation. In this case, Jay did not have standing as an individual because the claim belonged to Link Canada.  

The court further found that Jay could not bring corporate misappropriation claims as a derivative action on behalf of Link Global. Again, the court found the primary injury of the devaluation of Link Canada was to Link Canada itself. Link Global did not have standing to sue for injuries on behalf of its subsidiary Link Canada, so the court dismissed Jay’s derivative claim in addition to his individual claim.

 

 

DOR v. Microsoft Corp. (Franchise Tax on Software)

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In DOR v. Microsoft Corp. (2018AP2024), the Court of Appeals District IV held that Microsoft’s royalties from software sales to manufacturers outside of Wisconsin, whose products are used in Wisconsin, should not be used in calculating Microsoft’s Wisconsin tax liability.

Microsoft sells its software to manufacturers like Dell and HP, who manufacture computers containing the Microsoft software. Microsoft enters into license agreements with these manufacturers. When the manufacturers sell the computers with Microsoft software to end-use consumers, the consumer using the computer must enter into an end-user agreement with the manufacturer. Though Microsoft dictates the end-use agreement, it is not a party to the end-use agreement between the manufacturer and consumer.

Microsoft contended that its royalties from selling software to manufacturers not located in Wisconsin should not be included in its Wisconsin tax liability. The Wisconsin Department of Revenue argued those royalties should be included in Microsoft’s tax liability because the end-use consumers of the software on the computers were located in Wisconsin.

Wis. Stat. § 71.25(9)(df) states that software sales are included in a corporation’s Wisconsin tax liability if the “licensee uses the computer software at a location in this state.” The issue before the court was whether the Wisconsin end-use consumers were “licensees” for the purposes of that statute.

The court found that Wisconsin end-use consumers are not “licensees” of Microsoft, so Microsoft’s sales to out-of-state manufacturers whose consumers were located in Wisconsin should not be used to calculate Microsoft’s Wisconsin tax liability. According to the court, the manufacturers were licensees of Microsoft, and by entering into the end-use agreements consumers were sublicensees of Microsoft. However, the court distinguished “licensees” from “sublicensees” for the purposes of § 71.25(9)(df). The court found no direct relationship between Microsoft and the Wisconsin end users. Furthermore, the manufacturers were not agents of Microsoft in entering into the end-use agreements with consumers. Finally, consumers’ use of the software in Wisconsin does not satisfy the § 71.25(9)(df) requirement that there be a “licensee” in the state for the software sales to count toward Microsoft’s tax liability.

Anderson v. Town of Newbold (Shoreline Zoning & Subdivision Authority)

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In Anderson v. Town of Newbold (2018AP547), the Court of Appeals District III held that towns may enact shoreland frontage requirements under their subdivision authority, even though state law prohibits towns from enacting those requirements under their zoning authority.

Wisconsin law prohibits towns from enacting shoreland zoning ordinances (Wis. Stat. § 59.692). However, towns do have authority to enact subdivision regulations under Wis. Stat. § 236.45. The issue before the court in this case was whether the Town of Newbold could enforce a Shoreland Ordinance establishing minimum shoreland frontage requirements.

Plaintiff Michael Anderson argued the Shoreland Ordinance was in actuality an illegal zoning ordinance and thus unenforceable by the town. However, the court found that the town could enforce the ordinance because it enacted the ordinance via subdivision authority procedures under Ch. 236, not as a zoning ordinance.

The court noted the tension its decision creates with the Legislature’s intent in § 59.692 to prohibit towns from regulating shoreland. However, the court said it could not ignore explicit language in Ch. 236 allowing towns to enact subdivision regulations as the town did in this case. The court left it to the Legislature to resolve any conflict between § 59.692 and Ch. 236.

Polk Properties, LLC v. Grota Appraisals, LLC (Claim Preclusion in Property Assessment)

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In Polk Properties, LLC v. Grota Appraisals, LLC (2018AP2296-FT), the Court of Appeals District II held that claim preclusion barred the plaintiff’s negligence and misrepresentation claims against an assessor, after the Supreme Court had previously upheld the assessment challenge in a separate action.

In 2018, the Wisconsin Supreme Court upheld the Village of Slinger’s reclassification of a Polk property from agricultural to residential (Thoma v. Village of Slinger). Prior to the Supreme Court decision, Polk filed this lawsuit against the assessor, claiming negligence and misrepresentation. After the Supreme Court decision, the assessor argued this lawsuit was barred by claim preclusion.

The appeals court agreed that claim preclusion barred Polk’s negligence and representation claims against the assessor. The case met each of the three elements of claim preclusion:

  1. Identity of parties. While the assessor was not named in the first lawsuit, the assessor and the village shared a common legal interest in the validity of the residential assessment of Polk’s property.
  2. Identity of actions. Both cases arose from the same facts. In both cases, Polk sought recovery for the same increased tax amount between the current residential and previous agricultural assessments.
  3. Final judgment. The Supreme Court decision in Thoma was a final judgment on the validity of the village’s assessment. Since the Supreme Court did not base its Thoma decision on misrepresentations by the assessor, the final judgment in Thoma is valid and unaffected by the instant case.

The Court of Appeals District II also held recently in a separate case that Polk’s agricultural use of a residentially zoned property was not a legal nonconforming use, so the village was entitled to recover daily forfeitures and the value of residential taxes on the land. 

Sinkler v. American Family Insurance Co. (Cost of Collection)

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In Sinkler v. American Family Insurance Co. (2019AP88), the Court of Appeals District III upheld an award of $0 in attorney’s fees to a worker’s compensation insurer and declined to adopt a rule dividing costs of collection on a pro rata basis – in proportion to their recoveries – between the employee’s and the insurer’s attorneys in third-party liability actions.

Plaintiff Brian Sinkler was injured in a work-related automobile accident and received worker’s compensation benefits from EMCASO Insurance Co. (EMC). Sinkler also hired law firm Habush Habush & Rottier to pursue a third-party liability claim against the other driver in the accident. Sinkler entered into a contingency fee agreement with Habush in which the firm would receive one-third of the recovery from the case.

Named as a defendant in Sinkler’s case, EMC hired attorneys from the Ron Harmeyer Law Office and also entered into a contingency fee arrangement with the firm.

Sinkler settled with the other driver’s insurer, but EMC and Sinkler disputed the distribution of the settlement proceeds.

Wis. Stat. § 102.29(1)(b) provides a formula for dividing third-party liability claim proceeds like Sinkler’s settlement. First, the parties deduct amounts for loss of consortium claims – in this case, 30 percent of the recovery was awarded to Sinkler’s wife. The remaining proceeds go to:

  1. Cost of collection
  2. The injured person (one-third of proceeds remaining after step one)
  3. The worker’s compensation insurer (reimbursement for all benefits paid)
  4. The injured person (any proceeds remaining after steps one through three)

Regarding cost of collection, the Sinklers argued that one-third of all the proceeds remaining after the loss of consortium claim, plus costs, should go to their attorney Habush. EMC argued that one-third of all the proceeds remaining should be distributed between Habush and EMC’s attorney Harmeyer on a pro rata basis based on their clients’ recoveries.

The appeals court upheld the circuit court’s decision in favor of the Sinklers, awarding no portion of the reasonable cost of collection to EMC’s attorney. The court found Habush’s attorney fees were reasonable because contingency fee arrangements are typical for plaintiffs in third-party liability actions, Habush had extensive experience in these types of actions, and Habush “aggressively pursued” the case on behalf of the Sinklers. In contrast, EMC’s attorney Harmeyer’s participation in the settlement negotiations was minimal and the Harmeyer attorneys had less expertise. Additionally, the court found worker’s compensation insurer EMC’s contingency fee arrangement with Harmeyer “non-customary” and thus found Harmeyer’s attorney fees were unreasonable.

The court declined to adopt a rule dividing the cost of collection on a pro rata basis between the injured employee and worker’s compensation insurer in third-party liability actions, when both parties hire lawyers on a contingency fee basis. According to the court, the statutes and previous case law grant courts wide discretion in dividing the cost of collection, and pro rata distribution would be unreasonable.

 

 

Varsity Tutors LLC v. LIRC (Worker Classification)

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In Varsity Tutors LLC v. LIRC (2018AP1951), the Court of Appeals District I held that a worker was an independent contractor, not an employee, of an online business connecting tutors and students.

Varsity Tutors hosts online profiles of contracted tutors and allows students to browse and select tutors. Once students have selected and been accepted by a tutor, the tutor is responsible for organizing dates and locations, procuring materials, and arranging their own transportation. Varsity does not require a minimum number of tutoring hours, nor does it train or assess tutors using its platform.

Holland Galante entered into a contract with Varsity Tutors to tutor students as a side job. Two years after beginning tutoring via Varsity, Galante applied for unemployment benefits. The Department of Workforce Development determined she was an employee of Varsity for the purposes of unemployment benefits, and the Labor & Industry Review Commission (LIRC) affirmed.

The court found that Galante was not eligible for unemployment benefits because she was an independent contractor, not an employee, of Varsity. Wis. Stat. § 108.02(12)(bm) provides that a worker is not an employee if 1) the worker’s services are performed without control or direction of the employer and 2) the worker meets six or more conditions for classification as an independent contractor. LIRC agreed with Varsity that Galante’s tutoring was performed without Varsity’s control or direction. The court overturned LIRC’s decision finding that Galante did not meet six of the classification conditions. The court found that

  1. Galante advertised and held herself out as being in the tutoring business by creating a profile on Varsity’s website. (§ 108.02(12)(bm)2.a.)
  2. Galante tutored in locations of her own choice, using her own equipment. (§ 108.02(12)(bm)2.b.)
  3. Galante incurred the main expenses to her tutoring services because she provided her own training, curriculum, transportation, etc. (§ 108.02(12)(bm)2.d.)
  4. Galante was obligated to redo unsatisfactory work for no additional compensation or would be subject to a monetary penalty for unsatisfactory work. (§ 108.02(12)(bm)2.e.)
  5. Galante’s tutoring services did not directly relate to Varsity’s business of connecting students and tutors via its website. Varsity was not itself in the business of tutoring. (§ 108.02(12)(bm)2.f.)
  6. Galante had recurring business liabilities, such as Varsity’s requirement that she obtain automobile insurance. (§ 108.02(12)(bm)2.h.)

Because Galante’s work met six of the classification conditions, the court found she was not an “employee” of Varsity eligible for unemployment benefits.

McCormick v. Auto Club Insurance Association (Doctrine of Accord and Satisfaction)

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In McCormick v. Auto Club Insurance Association (2018AP753), the Court of Appeals District I held that the doctrine of accord and satisfaction applied when the plaintiff cashed a check that the defendant insurer intended to settle the claim.

After David McCormick was injured in an automobile accident with an uninsured driver, McCormick sought his full uninsured motorist coverage policy limit of $300,000 from his insurer Auto Club Insurance Association (AAA). AAA disputed McCormick’s $300,000 claim, and instead offered a settlement of $20,000. In a letter, AAA included a check for $20,000 and a release form. McCormick cashed the check but did not sign the release form.

McCormick filed the instant lawsuit seeking the full policy limit plus damages for loss of companionship on behalf of his son. AAA pled the affirmative defense that the doctrine of accord and satisfaction barred McCormick’s claim because he cashed the $20,000 check.

The court agreed that the doctrine of accord and satisfaction barred McCormick’s claim. The accord and satisfaction doctrine requires a dispute, offer, acceptance, and consideration in order to bar future claims. In this case, the plaintiff and defendant disagreed over whether AAA had presented an offer to McCormick. The court found the $20,000 check that McCormick cashed constituted an offer because the language of the attached letter and notes on the check and check stub provided “reasonable notice” that the check was an offer to settle McCormick’s claims.

The court also found that McCormick’s failure to sign the release did not prevent the application of the defense of accord and satisfaction. McCormick’s cashing the check was enough to constitute accord and satisfaction, a separate defense than the defense of release.

 

 

Harwood v. Wheaton Franciscan Services, Inc. (Class Action Certification)

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In Harwood v. Wheaton Franciscan Services, Inc. (2018AP1836), the Court of Appeals District I affirmed class action certification in a lawsuit against a medical provider related to medical record fees.

Plaintiff Elizabeth Harwood filed the lawsuit against Wheaton Franciscan, alleging Wheaton Franciscan illegally charged her attorney fees for copies of her health records. Harwood sought to certify a class including all Wheaton Franciscan patients in Wisconsin (or persons authorized to obtain their medical records) whom Wheaton Franciscan charged retrieval or certification fees in violation of Wis. Stat. § 146.83(3f)(b)4.-5. That statute allows health care providers to charge such fees only to persons other than the patient or person authorized by the patient.

The trial court certified the class, and Wheaton Franciscan appealed. The appeals court rejected Wheaton Franciscan’s argument that the trial court did not apply a rigorous analysis of the specific facts of the case as required by federal class action law. The trial court properly found that Harwood’s proposed class met the four prerequisites of Wisconsin’s class action law (§ 803.08):

  1. Numerosity. Harwood presented 44 invoices wherein Wheaton had charged patients or their authorized representatives retrieval or certification fees. The numerosity requirement was met because it would be impracticable to bring all the invoiced patients before the court.
  2. Commonality. All members of the proposed class suffered a common injury of allegedly unlawful charges for medical records.
  3. Typicality. Harwood’s claim was typical of the claims of the rest of the proposed class. The court dismissed Wheaton’s argument that there was not enough evidence to determine typicality.
  4. Adequacy. Harwood acting as class representative would adequately protect the interests of the class. Her claim was substantially similar and her interests were not adverse to the rest of the class’s interests.

The trial court further found – and the appeals court upheld – that the shared claims of the class members and Harwood were predominant to any individual claims. Class action was the superior means of addressing the controversy because addressing the individual claims, each of which was only $28, would be impracticable (§ 803.08(2)(c)).

Finally, the appeals court found that federal case law did not require additional discovery to certify the class. Therefore, Harwood’s class action lawsuit against Wheaton Franciscan could proceed.

Beedle v. Wisconsin Mutual Insurance Co. (Insurance Policy Business Exclusion)

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In Beedle v. Wisconsin Mutual Insurance Co. (2018AP2147), the Court of Appeals District IV held that an insurance policy’s business exclusion applied when the insured was engaging in a side job, barring coverage for an injury caused by the insured’s negligence on the job.

Plaintiff Jacob Beedle was injured while helping the insured construct a pole barn. Beedle filed this lawsuit against the insured and his insurer IMT Insurance Co., alleging the insured’s negligence caused Beedle’s injury. The insured’s homeowner’s policy included an exclusion for losses from business, defining business as “a trade, profession, or occupation engaged in on a full-time, part-time, or occasional basis.”

The insured was primarily employed by a company that constructs pole barns, but the project where Beedle was injured was a side job outside of the insured’s primary employment. The issue in this case was whether the side job constituted “business” under the IMT policy, barring coverage for Beedle’s injuries.

The court found that the insured’s work on the side job was unambiguously a “trade” that he engaged in on an “occasional basis.” Using the “continuity-profit motive” test established in Bertler v. Employer Ins. of Wausau (1978), the court found that the side job was a continuation of the insured’s primary employment constructing pole barns. The court found the insured had a profit motive because he was ultimately paid $3,000 for work on the side job. By meeting both the continuity and profit motive standards, the side job would have fallen under the policy’s business exclusion according to Bertler.

The court rejected Beedle’s argument that the side job would not fall under the business exclusion because it was not the insured’s primary employment. Therefore, the policy’s business exclusion applied, barring coverage for Beedle’s injuries.