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Freund v. Nasonville Dairy, Inc. (Receivership Proceedings – Voidable Preference)

Posted on by Hamilton

In Freund v. Nasonville Dairy, Inc. (2018AP1215), the Court of Appeals District III held that, in receivership proceedings, a preference is voidable under Wis. Stat. § 128.07(2) if an ordinarily prudent business person would have reasonable cause to believe 1) the transferor is insolvent and 2) the transfer would enable the recipient to obtain a greater percentage of debt than other creditors of the same class.

Wisconsin’s creditors’ action law (Wis. Stat. Ch. 128) encourages equal distribution of assets when an entity cannot fully pay its creditors. When an insolvent debtor obtains a court-appointed receiver to manage its assets, the receiver may recover certain preferential payments made by the debtor. A payment is preferential if it allows a creditor to obtain a greater percentage of its debt than any other creditor of the same class (§ 128.07(1)(a)). Section 128.07(2) deems preferential payments voidable if the payment was made within four months of the appointment of the receiver and the recipient has reasonable cause to believe the payment would effect a preference.

The issue in this case was whether § 128.07(2) requires the receiver to prove not only 1) that the recipient had knowledge the debtor was insolvent, but also 2) that the recipient had reasonable cause to believe they would obtain a greater share of their debt than other creditors of the same class. The court held that the statute does require proof of both elements to determine a payment voidable and recoverable by the receiver.

In this case, the court ordered Nasonville Dairy to return a voidable preferential payment to Liberty Milk Marketing Cooperative’s receiver. The court found that Nasonville 1) knew Liberty Milk was insolvent because Nasonville had been engaging in unusual business loan transactions with Liberty Milk that were increasing in size and frequency; and 2) had reasonable cause to believe that Nasonville would obtain a greater share of their debt than other creditors of the same class because Nasonville knew Liberty Milk was using the loaned funds to attempt to keep up with payments to its producers. Because the preferential payment to Nasonville met both elements of § 128.07(2), the payment was voidable, and the court ordered the payment returned to Liberty Milk’s receiver.

 

 

Wisconsin & Milwaukee Hotel, LLC v. City of Milwaukee (Property Tax Assessment)

Posted on by Hamilton

In Wisconsin & Milwaukee Hotel, LLC v. City of Milwaukee (2018AP1744), the Court of Appeals District I upheld property tax assessments of a downtown Milwaukee hotel.

Wisconsin & Milwaukee Hotel (WMH) owns and operates the Milwaukee Marriott Downtown. The city assessor valued the property at $24 million in 2014 and $37 million in 2015. WMH challenged both assessments, arguing the method of valuation violated both the Wisconsin Property Assessment Manual and the state constitution’s Uniformity Clause.

The court found that the assessor did not violate the law when she used an income-based method for valuing the hotel. Wisconsin statutes and the assessment manual lay out three tiers of methods for property assessment: 1) recent sales of the property, 2) comparison to sales of similar property, and 3) analysis of income generated by the property. The court agreed with the assessor that there were no recent sales and no similar sales to compare with the Marriott because other hotels sold differed in age, space, location, amenities, and other features. The assessor’s use of the income approach to value a hotel was consistent with the assessment manual.

The court further found that the assessments did not violate the Uniformity Clause (Wis. Const. Art. VIII § 1), which provides “the rule of taxation shall be uniform.” WMH contended that the Marriott’s tax burden as assessed was significantly higher than other similarly located hotels of the same class. The court held WMH failed to establish a uniformity violation because it did not provide evidence of what it believed would be a fair market value. 

Because WMH did not overcome the presumption of correctness in favor of the assessor, the court upheld the property tax assessments.

 

 

Paul R. Ponfil Trust v. Charmoli Holdings, LLC (Settlement Agreement)

Posted on by Hamilton

In Paul R. Ponfil Trust v. Charmoli Holdings, LLC (2018AP1321), the Court of Appeals District II held that a settlement agreement was unenforceable because it lacked agreement on material terms.

During the course of this action, the Trust and Charmoli signed a “Mediation Settlement Agreement,” which included five paragraphs of terms related to their joint ownership of a quarry. The fifth paragraph was an agreement between the parties to sign a separate substantive agreement on liability and indemnity.

However, after many subsequent communications between Trust and Charmoli, the parties were unable to reach an agreement on liability and indemnity. The Trust filed a motion to compel enforcement of the Mediation Settlement Agreement without the separate substantive agreement.

The court held that the Mediation Settlement Agreement was not enforceable because the parties had not reached an agreement on the material terms of paragraph five, related to liability and indemnity. The court cannot enforce settlement agreements under Wis. Stat. § 807.05 if the agreements contain indefinite terms that were never agreed to in writing.

In a dissent, Judge Reilly argued that the Mediation Settlement Agreement was enforceable because the parties expressly agreed it settled the case. The dissent states that paragraph five of the Mediation Settlement Agreement was not a material term but a “clean-up paragraph” to execute details of the agreement. Therefore, the Mediation Settlement Agreement was enforceable even without a separate substantive agreement.

Legislature Files Lawsuit Against AG to Enforce Extraordinary Session Laws

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Republican legislative leadership have filed a petition for original action in the Wisconsin Supreme Court, seeking to enforce sections of the 2018 extraordinary legislation that provide legislative oversight to attorney general settlements.

The Legislature’s petition and memo in support state that Attorney General Josh Kaul reads the 2017 Act 369 settlement review provisions as not applicable to settlements involving pre-lawsuit negotiations and decisions not to file timely notices of appeal, unless the decisions result from settlement agreements. The petition asks the Supreme Court to determine whether, under Act 369, the attorney general must get approval from the Joint Finance Committee and deposit any settlement funds into the general fund for these types of cases. 

The lawsuit comes after the Supreme Court affirmed in League of Women Voters v. Evers the constitutionality of the legislature meeting in extraordinary session to pass the legislation in December 2018. Another pending case at the Supreme Court, SEIU v. Vos, will decide whether the legislation itself is constitutional. In June, the Supreme Court reinstated the laws after a Dane County Circuit Court had issued a temporary injunction.

Read more about litigation related to the 2018 extraordinary session.

 

Employment Cause of Action Bills Introduced in Wisconsin Legislature

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This session, Wisconsin lawmakers have introduced several bills that would create new legal causes of action against employers and could be costly to Wisconsin businesses if enacted. Read below for descriptions and the status of each of the bills.

 

SB 40/AB 40 – Wage Claims

Sen. Bob Wirch (D-Somers) and Rep. Tod Ohnstad (D-Kenosha) have introduced legislation changing employee unpaid wage claim procedures. The bill allows employees to file wage claims with the Department of Workforce Development (DWD) or in circuit court not only on their own behalf, but also on behalf of any similarly situated workers. Additionally, the bill increases the statute of limitations for wage claims from two to four years.

The bill would significantly increase the punitive costs for employers who are found to owe employees wages. The bill would double the amount employers could be liable to pay in excess of the unpaid wages, up to 200 percent, plus attorney fees. DWD or a circuit court may also require the employer to pay 2 percent interest per month on the amount of wages due. DWD or a circuit court can also order the employer to pay a surcharge up to $1,000 that would go not to the employee but to DWD.

Also under the bill, employers with outstanding wage claims would not be eligible to renew their licenses.

Finally, the bill would require employers to provide a disclosure statement of terms of employment to all employees. If an employer fails to provide or comply with the written terms of employment, the employer would owe all damages, plus $50 per day, and attorney fees.

The bill has been referred to the Senate Committee on Labor & Regulatory Reform and the Assembly Committee on Labor & Integrated Employment. No public hearings have been held.

 

AB 116 – Abusive Work Environments

Rep. Sondy Pope (D-Mt. Horeb) has introduced legislation that would create a new cause of action outside of worker’s compensation for abusive work environments.

The bill provides an exception to the exclusive remedy of worker’s compensation when employees allege they have been subjected to an abusive work environment. Employees alleging injury from an abusive work environment may file an action in circuit court. Circuit courts may award prevailing employees relief from the employer including medical expenses, back pay, front pay, compensation for pain and suffering, compensation for emotional distress, punitive damages, and attorney fees.

Under the bill, “abusive conduct” means “conduct, including acts or omissions, by an employer or employee, that a reasonable person would find to be abusive based on the severity, nature, and frequency of the conduct.” “Abusive work environment” means “a work environment in which an employer or one or more of its employees, acting with intent to cause pain or distress to an employee, subjects that employee to abusive conduct that causes physical harm or psychological harm to that employee.”

The bill has been referred to the Assembly Committee on Labor & Integrated Employment. No public hearing has been held.

 

AB 265 – Employee Rights

Rep. Gary Hebl (D-Sun Prairie) has introduced legislation giving employees certain rights and causes of action against their employers. The bill includes:

  • Giving employees the right to request and receive work schedule changes. An employer must have a “bona fide reason” to deny requested schedule changes.
  • Requiring employers to notify service industry employees of schedule changes two weeks in advance.
  • If an employer cuts an employee’s shift after they report to work, requiring the employer to still pay some or all of the wages the employee would have earned.
  • Requiring employers to compensate employees one hour’s pay for on-call shifts.
  • Requiring employers to compensate employees one hour’s pay for working a split shift.

Employee complaints about violations of any of these requirements would be handled by DWD as employment discrimination claims. Employees could also bring actions in circuit court, regardless of whether they have filed an action with DWD. Employers would be liable for compensatory damages, attorney fees, liquidated damages up to 100 percent of compensatory damages, and/or forfeitures up to $1,000 per violation.

The bill has been referred to the Assembly Committee on Labor & Integrated Employment. No public hearing has been held.

 

SB 308/AB 319 – Gender-related Discrimination

Sen. Tim Carpenter (D-Milwaukee) and Rep. Mark Spreitzer (D-Beloit) have introduced legislation that would add gender identity or gender expression as a prohibited basis for employment discrimination under Wisconsin’s Fair Employment Law (Wis. Stat. Ch. 111 Subchapter II). Penalties for employment discrimination under current law include, back pay, reinstatement and/or compensation. Under current law, employees may file complaints with DWD, which are subject to judicial review. (LRB 286, discussed below seeks to change this employment discrimination complaint process and allow initial complaints in circuit court.)

The bill has been referred to the Senate Committee on Government Operations, Technology & Consumer Protection and the Assembly Committee on State Affairs. No public hearings have been held.

 

LRB 286 – Employment Discrimination

Last week, Sen. Dave Hansen (D-Green Bay) circulated a bill that would allow employees alleging employment discrimination to bring circuit court actions outside of the DWD administrative complaint process. As damages, a court may, like DWD, order back pay, reinstatement, and/or compensation. Additionally under the bill, defendants are required to pay punitive damages – including future economic losses for pain and suffering, emotional distress, mental anguish, loss of enjoyment of life, and other noneconomic damages – up to $300,000 depending on the size of the employer.

The bill is currently circulating for cosponsorship.

 

LRB 2692 – Employee Compensation

Sen. Hansen has also circulated a bill that prohibits employers from asking prospective employees about their prior compensation. Employers would also generally be prohibited from using information about prior compensation in the hiring decision making process. Employees would be able to file complaints about violations to DWD or in circuit court, with penalties identical to those in LRB 286.

The bill is currently circulating for cosponsorship.

 

Outside of the Legislature, Gov. Tony Evers has also created a Joint Enforcement Task Force on Worker Misclassification. Evers announced members of the task force on July 26.

Qui Tam Proposal Circulating in Wisconsin Legislature

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A proposal is currently circulating in the Wisconsin Legislature that would restore a private individual’s ability to bring a qui tam claim on behalf of the government against a person who makes a false claim for Medicaid. WCJC helped repeal Wisconsin’s previous qui tam law in 2015 and will work hard to ensure that it is not enacted back into law.

 

Background on Qui Tam

Qui tam is a Latin term describing a legal action to collect a penalty through supplied information from the public. Under this legal doctrine, a private party called a “relator” may bring a whistleblower lawsuit against a party on the government’s behalf. The relator must first present the information to the government, which can decide to either pursue the case, or deny involvement and allow the plaintiff to bring the case on behalf of the state using a private plaintiff attorney.

In 2007, the Wisconsin Legislature enacted the previous qui tam law. In 2015, the law was repealed by the Legislature during the budget bill process.

 

Legislative Proposal

Rep. Lisa Subeck (D-Madison) is currently circulating a new proposal (LRB 957) to reinstate the previous qui tam law. The bill would allow private individuals to bring claims on their own behalf and on behalf of the state against persons making false claims for Medical Assistance. Under the bill, plaintiffs and their attorneys could seek up to 30 percent of all of the damages, along with attorney’s fees and costs.

There is little evidence qui tam laws accomplish the ostensible goal of detecting and recovering damages for Medicaid fraud. Instead, according to, the U.S. Chamber Institute for Legal Reform, in many instances the states with qui tam statutes may actually recover less from the average Medicaid fraud settlement than those states without, due to the state’s obligation to pay out a share of the settlement to the private party.

Restoring qui tam lawsuits in Wisconsin would simply provide an incentive for plaintiff attorneys to file costly lawsuits against medical providers, pharmaceutical companies, and any other business contracting with the state.

It’s also important to note that Wisconsin already has a law – Wis. Stat. § 49.49 – that grants the attorney general the authority to prosecute Medicaid fraud and recover damages on behalf of the state. All damages recovered under this law go to the State of Wisconsin and need not be paid out to a private party or plaintiff attorneys.

Earlier this session, Gov. Tony Evers proposed in his state budget recommendations reinstating the qui tam law, not just for alleged Medicaid fraud, but for all state agencies. WCJC actively lobbied against the qui tam provision and were successful in convincing the Joint Finance Committee to remove the provision. WCJC met with key committee members and submitted a memo explaining why the law is unnecessary and would only benefit plaintiff attorneys.

WCJC plans to similarly oppose the newly circulated bill.

Justice Brian Hagedorn Sworn Into Wisconsin Supreme Court

Posted on by Hamilton

Newly elected Justice Brian Hagedorn was sworn into the Wisconsin Supreme Court on Aug. 1, 2019, with his public investiture and swearing in ceremony held at the state capitol this week. Hagedorn, replacing retired Justice Shirley Abrahamson, will serve a 10 year term on the court.

Justice Hagedorn’s swearing in shifts the court from a 4-3 to 5-2 conservative majority. The next Supreme Court election will occur in April 2020, with current Justice Daniel Kelly running for reelection. (Read more about the 2020 candidates.)

 

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

Posted on by Hamilton

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)

Posted on by Hamilton

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.