Category: Wisconsin Supreme Court

Town of Wilson v. City of Sheboygan (Annexation)

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In Town of Wilson v. City of Sheboygan (2020 WI 16), the Wisconsin Supreme Court upheld the approval of Kohler Co.’s annexation of land from the Town of Wilson to the City of Sheboygan for the purpose of developing a golf course.

 

Facts & Decision

The Town argued that the City, in adopting the annexation ordinance, failed to meet statutory requirements on contiguity, abused its powers of annexation, and failed to meet signature and population certification requirements.

The Supreme Court held that the city met all statutory requirements for annexation and did not abuse its powers of annexation.

Contiguity. The court agreed with the Department of Administration’s (DOA) determination that the annexed territory was contiguous to the City.

 Rule of reason. The judicial doctrine of the “rule of reason” determines whether municipalities have abused their powers of annexation. The court found that the City satisfied the rule of reason because:

  • The City did not act arbitrarily. When property owners initiate an annexation (as Kohler facilitated the property owners to do here), courts typically do not charge the municipality with arbitrariness unless the municipality is the “real controlling influence” in selecting the boundaries of the annexation or the annexation has an “exceptional” shape. Here, the City was not the real controlling influence behind the annexation petition and the boundaries of the proposed annexation were not an exceptional shape.
  • There was a reasonable need for the annexation. The City needed the annexed territory for additional housing and economic development. Kohler needed the annexation for approval of its golf course and for sufficient water resources.
  • The City did not abuse its discretion because it conducted a thorough analysis of the annexation petition.

Signature requirements. Wisconsin law (Wis. Stat. § 66.0217(3)(a)1.) requires owners of one-half of the real property in assessed value within the annexed territory to sign the annexation petition. The town argued that the City should have included non-assessed state and city-owned property in the count to determine the signature requirement. However, the court rejected the Town’s argument because the law specifically states the signature requirements are determined by amount of assessed property. The petition here met the signature requirement according to the assessed value determination.

Population certification requirements. The court found that DOA had certified the petition’s population count by accepting the petition for public interest review. DOA did not have to engage in a formal process to certify the population count.

 

Concurring Opinions

In a concurring opinion, Justice R. Bradley (joined by Justice Kelly) agreed that the petition met statutory signature and population certification requirements, allowing the annexation to move forward. However, the concurring opinion would have overturned precedent (Town of Mount Pleasant v. City of Racine) and abolished the “rule of reason” because the judicially created rule is not based in statute.

In a second concurring opinion, Justice Hagedorn agreed with the points made by Justice Bradley. However, because the parties in this case did not ask the court to revisit the rule of reason, the concurring opinion recommended the court wait for a more opportune case to decide on the rule of reason.

Choinsky v. Employers Insurance Co. of Wausau (Duty to Defend)

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In Choinsky v. Employers Insurance Co. of Wausau (2020 WI 13), a 5-1 Wisconsin Supreme Court held that insurers did not breach their duty to defend when they did not immediately accept the defense of their insured. Insurers may initially deny a tendered claim, then follow a judicially preferred method of determining coverage to avoid breaching duty to defend.

 

Facts

The underlying issue in this case involved a group of retired teachers who filed a lawsuit against their school district for breach of contract following the enactment of 2011 Act 10. The district tendered its defense to its insurers, Employers Insurance Company of Wausau and Wausau Business Insurance Company.

The insurers determined there was no coverage and, according to the coverage dispute procedure recommended by Wisconsin courts, moved to 1) intervene, 2) bifurcate the coverage issue from the underlying merits of the case, and 3) stay the merits case until the resolution of the coverage issue. The court agreed to bifurcate the issues but denied the motion to stay, citing the need for urgency in resolving the underlying employee benefits issue. The insurers agreed to meanwhile provide defense to the school district on the merits case – including retroactive fees – until the court decided the coverage issue.

The school district argued the insurers breached their duty to defend by not immediately providing the school district a defense.  

 

Decision

The Supreme Court held that the insurers did not breach their duty to defend because, upon finding there was a coverage dispute with the insured, the insurers properly sought bifurcation of the coverage dispute and stay of the liability proceedings. Bifurcation and stay are one of four judicially preferred methods to litigate a coverage dispute between insurer and insured.

When the circuit court denied the motion to stay, the insurers properly followed another judicially preferred method by defending the insured in the liability lawsuit under a reservation of rights until the coverage dispute was resolved. Because the insurers followed the judicially preferred methods, they did not breach their duty to defend and did not owe attorney fees to the school district for the coverage dispute.

 

Dissent

In a dissent, Justice Kelly argued that the insurers did have a duty to defend until the coverage dispute was resolved, notwithstanding a request to bifurcate and stay.

The dissent argued that the court improperly introduced a new concept of “retroactive defense” wherein an insurer can initially refuse coverage without consequence because it can always pay for the defense retroactively if a court later decides coverage is due. The “retroactive defense” concept adopted by the court allows insurers to initially breach their duty to defend and forces the insured to defend itself in coverage and liability trials simultaneously, contrary to the intent of the judicially preferred methods for coverage disputes.

Here, according to the dissent, the insurers did breach their duty to defend by not providing a defense to the school district until the coverage dispute was resolved. The insurers had a duty to defend the school district until coverage was resolved, regardless of whether the insurers sought and the circuit court approved a motion to bifurcate and stay the liability proceedings.

Mueller v. TL90108, LLC (Wrongful Detention)

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In Mueller v. TL90108, LLC (2020 WI 7), the Wisconsin Supreme Court unanimously determined that plaintiffs may file a wrongful detention claim against a possessor of previously converted property. The statute of repose for wrongful detention begins when the new possessor takes control of the vehicle, not necessarily when a demand for return of the property is made.

In 2017, the owners of a valuable classic car that was stolen in 2001 filed this complaint to recover the car against TL90108, which had bought the stolen car. TL argued that the plaintiffs’ claims were barred by the six-year statute of repose under Wis. Stat. §§ 893.35 and 893.51, which TL said began in 2001, when the car was first stolen.

The Supreme Court found that the plaintiffs’ claims were not barred because the cause of action took place not when the vehicle was stolen but when TL obtained possession of the vehicle in 2015. According to the court, the statute of repose in §§ 893.35 and 893.51 can begin again when the current possessor wrongfully detains property that had been wrongfully taken beyond the statute of repose.

Veritas Steel, LLC v. Lunda Construction Co. (Successor Liability)

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In Veritas Steel, LLC v. Lunda Construction Co. (2019 WI 3), the Wisconsin Supreme Court declined to expand the “de facto merger” and “mere continuation” exceptions to the general rule against successor liability.

Construction contractor Lunda had secured a $16 million judgment against steel fabricator PDM Bridge, LLC. PDM also owed other lenders approximately $76 million. Those lenders used a series of transactions to acquire PDM’s assets, which were ultimately obtained by the entity Veritas. PDM could not satisfy Lunda’s $16 million judgment, and Lunda sought the instant successor liability claim against Veritas.

The rule against successor liability generally provides that a successor corporation purchasing another corporation does not become liable for the seller corporation’s assets. There are several exceptions to the rule against successor liability in Wisconsin case law, including

  • The “de facto merger” exception, when the transaction is essentially a consolidation or merger of the purchaser and seller. The key element to prove a “de facto merger” exception is the transfer of ownership from the purchaser to seller via stock or equity in the purchaser corporation, instead of cash.
  • The “mere continuation” exception, when the purchaser corporation is a continuation of the seller corporation. The key element to prove a “mere continuation” exception is a when officers, directors and stockholders in the seller and purchaser corporations are largely the same.

Both the “de facto merger” and “mere continuation” exceptions require a successor liability claim to demonstrate an identity of ownership, based on the key elements described above, between the purchaser and seller corporation.

Lunda argued that previous case law Fish v. Amsted Indus. Inc. (1985) expanded the “de facto merger” and “mere continuation” exceptions, allowing successor liability claims to demonstrate an “identity of management and control” instead of identity of actual ownership. However, the Supreme Court declined to expand its reading of Fish, maintaining that successor liability claims must show an identity of ownership to establish the “de facto merger” and “mere continuation” exceptions to the general rule against successor liability.

The Supreme Court dismissed Lunda’s claims, upholding the general rule against successor liability because Lunda had not demonstrated an identity of ownership between PDM and Lunda. Since Lunda had not established an actual transfer of stock or equity between PDM and Veritas, the “de facto merger” exception did not apply. Since there was no common identity of officers, directors and stockholders between PDM and Veritas, the “mere continuation” exception did not apply.

 

Concurring Opinion

In a concurring opinion, Chief Justice Roggensack agreed with the dismissal of Lunda’s claims but would have examined the case in a different context. The concurring opinion focused on whether PDM’s assets were lawfully removed from Lunda’s reach by the serious of transactions that ultimately ended with Veritas. The concurring opinion concluded that the assets were lawfully removed under the strict foreclosure process laid out in Wis. Stat. § 409.620. Therefore, Lunda’s claims were properly dismissed.

Hinrichs v. Dow Chemical Co. (Fraudulent Representation)

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In Hinrichs v. Dow Chemical Co. (2020 WI 2), the Wisconsin Supreme Court dismissed misrepresentation claims on the basis of the economic loss doctrine, but ruled the plaintiff might be considered “the public” for the purposes of bringing a statutory fraudulent representation claim. The court further found that heightened pleading standards for fraud claims do not apply to claims made under Wisconsin’s fraudulent representation statute (Wis. Stat. § 100.18).

The opinion was written by Justice Walsh Bradley, joined by Chief Justice Roggensack, Justice Ziegler, and Justice Dallet. Justice R. Bradley wrote a concurring opinion joining the justices’ decision on the common law claims but dissenting from the decision on the § 100.18 claim. (Justices Kelly and Hagedorn did not participate.)

 

Facts

Chris Hinrichs developed acrylic skylight panels for vehicles and owned Autovation Limited, which manufactured, distributed, and installed the panels. Autovation used a Dow Chemical adhesive to install the panels. When Hinrichs discovered some of the panels were cracking, an agent from Dow issued him a report stating that the adhesives were properly functioning. However, Hinrichs later discovered that the adhesives in the panels were in fact failing, damaging his products and significantly affecting his sales. Hinrichs and Autovation filed the common law claims against Dow for negligent misrepresentation, intentional misrepresentation, and strict responsibility misrepresentation, and a statutory claim of violation of the fraudulent representation statute § 100.18.

 

Common Law Claims

The court barred Hinrichs’s common law misrepresentation claims based on the economic loss doctrine, which provides that plaintiffs cannot sue to recover solely economic losses from the nonperformance of a contract.

The court ruled the “fraud in inducement” exception to the economic loss doctrine did not apply because the alleged misrepresentation was not extraneous to the contract. The “other property” exception to the economic loss doctrine did not apply because the damaged panels and the adhesive the parties contracted for were parts of an integrated system.

Under the economic loss doctrine, Hinrichs and Dow had the opportunity to address these circumstances in their contract and, since they declined to do so, Hinrichs was not entitled to damages for economic loss.

 

Fraudulent Representation Claim

In addition to the above common law misrepresentation claims, Hinrichs brought a claim against Dow for violation of § 100.18, which states that companies cannot make advertisements to the public containing untrue, deceptive, or misleading assertions. The court allowed Hinrichs’s statutory claims to proceed for the following reasons.

The court found first that the economic loss doctrine does not apply to statutory claims made under § 100.18. The economic loss doctrine is a common law restriction, and § 100.18 creates a specific statutory cause of action. The Legislature chose to provide a remedy for false advertising outside of common law, so the common law policy of the economic loss doctrine cannot apply to the statutory claim.

The court then affirmed previous case law stating that one person (in this case Hinrichs) can be “the public” for the purposes of bringing a fraudulent misrepresentation claim under § 100.18. On the grounds of stare decisis, the court upheld State v. Automatic Merchandisers (1974), which held that one person can be “the public” for purposes of bringing a § 100.18 claim, unless the plaintiff and the defendant have a “particular relationship.” The court found that Hinrichs alone could be “the public” but remanded to the circuit court the question of whether Hinrichs had a “particular relationship” with Dow that would bar his claim.  

Finally, the court held that the heightened pleading standards for fraud claims in § 802.03(2) do not apply to § 100.18 claims. Thus Hinrichs’s complaint met the general pleading standards and can proceed.

 

Concurring Opinion

In a concurring opinion, Justice R. Bradley argued that Hinrichs should not be considered “the public” for the purposes of § 100.18. According to the concurring opinion, the plain meaning of “the public” in the fraudulent representation statute is people in the general community, not businesses in a commercial relationship like Hinrichs and Dow.

The concurring opinion argued that the court misconstrued Automatic Merchandisers. In that case, the business accused of fraudulent representation had made advertisements to the public in a newspaper then made fraudulent claims to individual respondents to the ads. The court found that a single individual who responded to the public ads could be considered “the public” for purposes of bringing a § 100.18 claim. The concurring opinion argued Hinrichs differed from Automatic Merchandisers because Dow never broadcast fraudulent claims to the general public. Instead, the alleged fraudulent claims occurred in an individual email to Hinrichs.

The concurring opinion argued the court’s decision that Hinrichs could bring a § 100.18 claim reads “the public” completely out of the statute, eliminating any parameters around who can bring such claims. According to the concurring opinion, the court’s “particular relationship” test to determine whether an individual is “the public” has no foundation in statutory text and only creates more ambiguity in the statute.

Thus the concurring opinion would have decided, based on the plain meaning of the statute, that Hinrichs was not a member of “the public” under § 100.18, barring his statutory claim. 

Oral Argument Preview: Correa v. Woodman’s Food Market (Personal Injury)

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On Jan. 21, the Wisconsin Supreme Court will hear oral arguments in Correa v. Woodman’s Food Market, which will address the standards of proof for establishing constructive notice of a hazard and the determinations a jury may make from video surveillance in premises liability cases. 

 

Facts & Lower Court Decisions

In this case, plaintiff Jose Correa slipped and fell on an unidentified substance in a Woodman’s store and subsequently filed negligence and safe-place-statute (Wis. Stat. § 101.11(1)) claims against Woodman’s. A trial court found Woodman’s negligent and awarded Correa nearly $170,000 in damages. Woodman’s appealed, arguing Correa’s evidence that Woodman’s had constructive notice of the spill was speculative.

The Court of Appeals found that Correa could not prove the spill by which he was injured existed for a long enough time period to establish the store was negligent. Video footage before the accident did not show a spill happening and could not identify any substance on the floor of the store. Because Correa lacked sufficient evidence, the appeals court ruled in favor of the store. 

 

Issues Presented at Supreme Court

When the Supreme Court hears oral arguments this month, justices will revisit the court’s position in Kochanski v. Speedway SuperAmerica (2014 WI 72).  Kochanski similarly dealt with whether juries can draw reasonable inferences from existing video surveillance in premises liability cases. In Correa, the Supreme Court will review whether the Court of Appeals improperly expanded the Kochanski holding and will generally revisit its position on the role of video surveillance in constructive notice in premises liability claims.

Supreme Court Accepts Agency Rulemaking Case Papa v. DHS

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The Wisconsin Supreme Court recently accepted five new cases, including one that will again address agency rulemaking, following the court’s recent decision in Lamar Central Outdoor. The newly accepted case, Papa v. DHS, will determine whether a Wisconsin Department of Health Services (DHS) policy in DHS’s Medicaid Provider Handbook has the “force of law” (Wis. Stat. § 227.01(13)) and should be promulgated as an administrative rule and subject to judicial review.

Medicaid-certified nurse Kathleen Papa and Professional Homecare Providers, Inc. (PHP) filed this lawsuit 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 Supreme Court will review the Court of Appeals finding that Topic #66 was not an administrative rule, and thus Papa and PHP could not obtain a declaratory judgement via Wis. Stat. Ch. 227 judicial review of administrative rule proceedings. Additionally, the Supreme Court will review whether Topic #66 – if not a rule – is a guidance document also subject to judicial review under Ch. 227.

Lamar Central Outdoor, LLC v. Division of Hearings & Appeals (Rulemaking Requirements)

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In the Wisconsin Supreme Court’s first decision affecting the business community in the 2019-20 term, the court issued an important opinion on agency rulemaking in Lamar Central Outdoor, LLC v. Division of Hearings & Appeals (2019 WI 109). The Supreme Court held that the Department of Transportation (DOT) was required to promulgate a rule when it changed its interpretation of statutes regarding nonconforming billboards.

The billboard in this case was erected on a state highway in 1991. When the highway became an interstate in 1996, the sign was deemed legal but nonconforming according to state law. Lamar acquired the legal, nonconforming billboard in 1999. In 2012, Lamar sought a permit from DOT to remove vegetation obstructing the sign. From the photographs in Lamar’s permit application, DOT recognized that the sign had been enlarged by extensions in violation of Wis. Admin. Code § TRANS 201.10(2)(e). Although Lamar had removed the extensions, DOT determined that the previous existence of illegal enlargements to the billboard caused it to lose its legal, nonconforming status. DOT ordered Lamar to remove the sign, and Lamar appealed.

The Supreme Court decided the case in favor of Lamar on the grounds that rulemaking requirements in Wis. Stat. Ch. 227 require DOT to promulgate a rule before it changed its interpretation of the billboard nonconforming use statutes.

DOT argued that under Wis. Stat. § 84.30(11), it could order Lamar to remove the billboard because it temporarily exceeded its legal size. However, DOT had previously granted legal, nonconforming sign owners 60 days to cure violations, as Lamar did here. Lamar argued that, according to Ch. 227 rulemaking requirements, DOT could not change its interpretation of whether § 84.30(11) allows legal, nonconforming sign owners a right to cure without promulgating an administrative rule. Under Ch. 227, DOT must promulgate as a rule “each interpretation of a statute which it specifically adopts to govern its enforcement or administration of that statute” (§ 227.10(1)).

The court agreed with Lamar that Ch. 227 required DOT to promulgate a rule before it interpreted § 84.30(11) as not allowing legal, nonconforming sign owners a right to cure. The court rejected DOT’s arguments as follows:

  1. DOT argued its order for Lamar to remove the sign was a contested case decision exempt from rulemaking under § 227.10(1). (“An interpretation of a statute made in the decision of a contested case…does not render it a rule or constitute specific adoption of a rule and is not required to be promulgated as a rule.”) The court said that though § 227.10(1) does not require DOT to promulgate rules for every contested case applying its interpretation of a statute, DOT must promulgate rules specifying a new interpretation of a statute before it can apply the new interpretation in a contested case. Here, the court ruled, DOT could not create a new interpretation of § 84.30(11) via the Lamar contested case before it promulgated a rule specifying its new interpretation of the statute to not allow a right to cure.
  2. DOT argued § 84.30(11) is clear and unambiguous, so its interpretation that Lamar had no right to cure the violation was simply conforming to statutory requirements. According to DOT, an agency conforming to unambiguous statutory requirements does not require new rulemaking under a 1976 case, Schoolway Transportation Co. v. DMV. However, Schoolway held that rulemaking is required for agencies changing their interpretation of ambiguous statutes. Here, the court found § 84.30(11) was ambiguous as to whether Lamar had a right to cure its billboard violation, so rulemaking was required for DOT to change its interpretation of the statute.

Thus, the court unanimously decided in Lamar to require rulemaking when agencies change their interpretation of an ambiguous statute. This case could set the stage for other rulemaking cases to come in the 2019-20 term. 

 

Supreme Court Candidates Debate at Forum

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On Nov. 19, all three candidates running in the spring Wisconsin Supreme Court election met for the first forum of the campaign. The winner of the spring election will serve a ten-year term beginning in 2020. Two candidates – Dane County Circuit Court Judge Jill Karofsky and Marquette University Law School professor Ed Fallone – are challenging incumbent Justice Daniel Kelly for the seat. Read more about the candidates.

Voters will narrow the race from three to two candidates in a primary on Feb. 18, 2020. The general election will be held on April 2, 2020. After this spring, the next Supreme Court election will not be until Chief Justice Roggensack is up for reelection in 2023. With Justice Brian Hagedorn sworn in in August, the Wisconsin Supreme Court currently sits at a 5-2 conservative majority.

At the November forum, candidates discussed their judicial philosophy. Fallone rejected broad judicial theories in general, arguing that “the law can’t be reduced to abstract principles.” Kelly said his judicial philosophy centers around the Constitution and the limited authority of the judicial branch, highlighting his use of rigorous logic to come to judicial conclusions. Karofsky touted her experience in the courtroom every day as a circuit court judge and said her judicial philosophy is treating everyone fairly and respectfully in the courtroom.

Candidates also discussed recusal rules, when justices should overrule precedent, individual rights at the state and federal level, impartiality, and how public opinion should influence judicial decision making.  

Watch the full Supreme Court candidate forum here.

Chief Justice Highlights Business Court in 2019 State of the Judiciary

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On Nov. 6, Wisconsin Supreme Court Chief Justice Patience Roggensack delivered the 2019 State of the Judiciary address. The Chief Justice’s remarks highlighted several initiatives in the 2019-21 state budget and the success of Wisconsin’s Commercial Docket (a.k.a. Business Court) Pilot project that began in July 2017.

The Chief Justice gave examples of the success of the Commercial Docket Pilot Project in Waukesha and the 8th Judicial Administrative District, noting that cases typically taking 36 months have been reduced to 12 months in the commercial docket. In one case, a Green Bay hotel in receivership avoided collapse by using the efficient decision making of the Business Court.

However, Chief Justice Roggensack said the commercial docket is currently underutilized. The court hopes to raise awareness among lawyers that they may choose a commercial docket as the venue for business-related cases. The Commercial Docket was also highlighted in last year’s State of the Judiciary.

Regarding the state budget, the Chief Justice noted the court’s success in working with the governor and legislature on budget initiatives to improve the courts, including public defender pay, increased ADA positions, funding for circuit courts, and judicial salaries.