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Supreme Court Oral Arguments – November 2019

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The Wisconsin Supreme Court held oral arguments on Monday, Nov. 4 and will also hold oral arguments on Monday, Nov. 25. Cases of note include:

 

Mueller v. TL90108, LLC (Wrongful Taking and Detention) – Nov. 4

In this case, the Supreme Court will determine what constitutes the “cause of action” in a wrongful taking and wrongful detention case and thus triggers the six-year statute of repose under Wis. Stat. §§ 893.35 and 893.51.

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, which TL said began in 2001, when the car was first stolen.

The Court of Appeals found that the plaintiffs’ claims were not barred because the cause of action took place not when the wrongful taking occurred but when the wrongful detention occurred, i.e. when the plaintiffs demanded return of the car and TL refused.

The Supreme Court will decide whether 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.

 

Lang v. Lions Club of Cudahy Wisconsin, Inc. (Recreational Immunity) – Nov. 4

In this case, the Supreme Court will decide whether a sound engineer setting up cords at a musical performance was the “agent” of the event organizer, making the sound engineer immune from liability under Wisconsin’s recreational immunity statute (Wis. Stat. § 895.52).  

At an event run by the Lions Club, plaintiff Antoinette Lang tripped over an electrical cord placed by sound engineer Fryed Audio, LLC. Fryed’s principal and a member of the band using the cords, Steve Fryed, positioned the cord prior to the event. While a separate case ruled the Lions Club was entitled to recreational immunity, the appeals court said Fryed was not an “agent” or “occupier” immune under the statute (Wis. Stat. § 895.52). Read more about the case.

 

DSG Evergreen Family Limited Partnership v. Town of Perry (Eminent Domain) – Nov. 4

The Supreme Court will determine whether plaintiffs have a private right of action and whether claim preclusion applies in eminent domain cases where the town promised but did not uphold certain construction standards after compensation proceedings.

The land taken by the Town of Perry in this case included a road, and the condemnation petition required the town to replace the road at a different location. DSG argued that the new road did not meet the “same construction standards” as the former road, violating the petition.

The appeals court held that DSG had no private right of action requiring the town to comply with certain construction standards under Wis. Stat. § 82.50(1) in completing the new road. Furthermore, DSG had no private right of action under the town’s ordinances.

The appeals court further held that claim preclusion applied because DSG failed to bring up its road construction standards argument in previous proceedings regarding just compensation for the eminent domain condemnation of its property. Read more about the case.

 

Emer’s Camper Corral, LLC v. Alderman (Negligent Procurement) – Nov. 25

The Supreme Court will review this issue of first impression: whether plaintiffs claiming negligent procurement by an insurance agent must establish that they could have obtained a non-injurious policy but for their agent’s alleged negligence.

In this case, the appeals court held that Camper Corral failed to produce evidence that it could have otherwise obtained a desired policy, so its agent Alderman did not cause Camper Corral’s damages. With no Wisconsin precedent to rely on, the appeals court looked to a Minnesota decision that requires plaintiffs to show they would have been able to obtain the desired policy terms absent the agent’s negligence. Camper Corral did not produce evidence to prove it could have obtained the desired hail damage policy, so its negligence claim failed. Read more about the case.

 

Supreme Court Accepts New Cases

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The Wisconsin Supreme Court recently accepted several new cases, including Wisconsin Institute for Law & Liberty’s challenge to the governor’s partial veto power on appropriations bills.

 

Correa v. Woodman’s Food Market – Personal Injury

This case 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. The court of appeals found that plaintiff 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. Read more about the case.

 

Bartlett v. Evers – Governor’s Veto

This case filed by Wisconsin Institute for Law & Liberty will review the constitutionality of Gov. Tony Evers’s partial vetoes in the 2019-21 Wisconsin state budget. The court will review whether the governor can strike “essential, integral, and interdependent parts” of a state budget passed by the Legislature.  

The vetoes challenged in the lawsuit:

  • Removed the use of Volkswagen settlement funds for a $3 million school bus replacement grant program. As a result of this partial veto, Gov. Evers directed the Department of Administration to allocate up to $10 million of the settlement funds to a grant program for electric vehicle charging stations.
  • Gave the Department of Transportation $75 million in flexible funding for local transportation projects.
  • Deleted provisions setting light-truck registration fees for all trucks under 10,000 lbs at $100 and instead re-instated a scale of fees based on weight.
  • Changed the definition of “vapor product” for the purpose of the new excise tax on vapor fluids. The veto message stated this would clarify to what products the new tax applies.

 

Town of Delafield v. Central Transport Kriewaldt – Federal Preemption of Weight Limits

This case will review whether federal transportation law preempts a town’s seasonal weight restriction on certain roads.

Delafield posted signs identifying a seasonal weight restriction prohibiting vehicles over six tons from driving on designated town roads. A Central Transport delivery truck over six tons was subsequently issued a citation for driving on one of the designated roads while making a delivery to a Delafield resident.

Federal law (U.S. Code Title 49 s. 31114(a) and Title 23 s. 658.19) requires towns provide “reasonable access” between the interstate and terminals. Central Transport argued that the federal transportation law preempts the town’s weight limit because it did not allow Central Transport reasonable access between the interstate and the place of delivery in the town. Read more about the case.

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.

 

 

Supreme Court Holds Oral Arguments in Second Extraordinary Session Challenge

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On Oct. 21, the Wisconsin Supreme Court held oral arguments in the second challenge in state courts to the laws passed in the 2018 extraordinary session (2017 Acts 368, 369, and 370).

The plaintiffs, Service Employees International Union, Wisconsin Federation of Nurses and Health Professionals, American Federation of Teachers-Wisconsin, and Milwaukee Area Service and Hospitality Workers, allege that the laws passed in the 2018 extraordinary session are an unconstitutional violation of the separation of powers doctrine. The Wisconsin Supreme Court will review whether provisions, including increased legislative oversight of rulemaking, attorney general lawsuits, and agency appropriations, interfere with the governor’s and attorney general’s constitutional power and whether committee oversight without opportunity for a gubernatorial veto violates constitutional separation of powers.

At oral arguments, Justices asked questions regarding whether the attorney general’s authority lies in the executive or legislative branch of state government. Plaintiffs argued the attorney general is a part of the executive branch described in Wis. Const. Art. V § 4, which enforces the law.  The defendant Legislature argued Art. VI § 3 allows the Legislature to determine the powers and duties of the attorney general.

Justice Kelly noted that, if the attorney general was part of the executive branch, the attorney general would, potentially, be subordinate to the governor. In reality, the attorney general can take different positions and act outside the governor’s purview.

Chief Justice Roggensack pointed out a federal statute similar to Act 369 provisions requiring Legislative oversight of settlement agreements. The Chief Justice and others did note that the Legislature may be able to remove some but not all of the attorney general’s powers.

A significant portion of the argument also focused on bicameralism. Plaintiffs argued the provision of Act 369 allowing the Joint Committee for Review of Administrative (JCRAR) rules to suspend rules multiple times subverts the Wisconsin’s Constitution because JCRAR can stop rules, which have the force of law, without votes in both chambers of the Legislature.

This case is one of several challenging the 2018 extraordinary session laws. Read more about the extraordinary session litigation.

 

Brown v. Muskego Norway School District Group Health Plan (Worker’s Compensation)

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In Brown v. Muskego Norway School District Group Health Plan (2018AP1799), the Court of Appeals District II held that the plaintiff was in the course of his employment when he was injured in a motorcycle accident; therefore, his health plan excluded coverage because he was eligible for worker’s compensation.

Plaintiff William Brown was injured in a motorcycle accident that occurred while he was travelling on the main route between a plant in Juneau and his primary office in West Bend. Brown’s employer provided worker’s compensation benefits, but Brown declined the benefits, hoping instead to use coverage under his health insurance plan.

The health insurance plan included a provision excluding coverage for injuries arising out of employment if worker’s compensation benefits are available. The language of the plan specifically stated that the exclusion applies whether or not the policyholder obtains the available worker’s compensation benefits.

The issue before the court was whether Brown was eligible for benefits under the worker’s compensation statute Wis. Stat. § 102.03(1)(f), which provides for benefits for employees injured while travelling. The statute provides a presumption of coverage unless the employee is “engaged in a deviation for a private or personal purpose.” Brown claimed his motorcycle ride was a personal deviation, so the exemption applied. However, the court found § 102.03(1)(f) was applicable to Brown’s accident because testimony suggested he had left on a lunch break and was ultimately to return to his primary office that day. Since Brown was eligible for worker’s compensation, the coverage exclusion under his health insurance policy applied.

 

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.