Wisconsin Supreme Court Reaffirms Bright-Line Building Permit Rule

Published by James I. Statz, Vanessa D. Wishart on | Permalink

In McKee Family I, LLC and JD McCormick Company, LLC v. City of Fitchburg, 2017 WI 34, No. 2014AP1914 (April 12, 2017), the Wisconsin Supreme Court affirmed the bright-line building permit rule, under which a property owner cannot claim vested rights absent submission of an application for a building permit that conforms to the zoning or building code requirements in effect at the time of application.

A McKee entity owned property in the City of Fitchburg, including two undeveloped lots. Those lots were zoned as residential-medium (R-M) zoning classification. McKee applied for and received approval to rezone the land as planned development district (PDD) zoning, which would allow mixed-used development of a higher density than under the R-M classification. Fitchburg enacted an ordinance rezoning this land to a PDD classification and at the same time approved McKee’s general implementation plan for developing the property. As approved, the plan provided for development of a senior living community.

In 2008, McKee entered into negotiations to sell JD McCormick Company, LLC the two undeveloped lots. The sale was contingent on McCormick’s ability to obtain approval from Fitchburg to build 128 apartment units on the undeveloped lots. McCormick prepared a PDD-specific implementation plan for the 128-unit apartment complex on the two undeveloped lots.

After McCormick submitted the plan, Fitchburg rezoned the two lots from PDD to R-M classification. This rezoning limited McCormick to developing 28 dwelling units, as compared to a maximum of 132 dwelling units under the PDD zoning classification. McKee and McCormick (which was eventually dismissed for lack of standing) filed a lawsuit seeking declaratory judgment, damages, and injunctive relief, all on the theory that City’s the rezoning was unlawful.

The circuit court granted summary judgment in favor of Fitchburg. McKee appealed, asserting on appeal that: it had a vested right in the PDD zoning classification; the PDD classification created a contract that gives rise to expectations on which developers may rely; and to the extent the reclassification was unlawful, the rezoning ordinance constituted a taking. The court of appeals determined that McKee did not have a vested right and affirmed the circuit court’s grant of summary judgment to Fitchburg.

On review before the Wisconsin Supreme Court, McKee relied upon the same arguments raised before the court of appeals. With respect to the vested rights argument, McKee argued that the court should depart from the well-established rule in Wisconsin that rights vest only once a developer has applied for a building permit and instead evaluate vested rights on a case-by-case basis. McKee asserted that in this case, it had obtained vested rights based on the substantial expenditures incurred in preparation for development under the PDD zoning plans submitted to Fitchburg.

Relying on Lake Bluff Housing Partners v. City of South Milwaukee, 197 Wis. 2d 157, 540 N.W.2d 189 (1995), the court rejected McKee’s argument and reaffirmed the bright-line building permit rule. The court noted that such a rule “creates predictability for land owners, purchasers, developers, municipalities and the courts.”

The court further opined that, even if it were to determine that a rule based on substantial expenditures should apply in this case, McKee’s claim would still fail because McKee had not introduced sufficient evidence to support that claim. McKee had failed to present evidence that it made expenditures in reliance on the PDD zoning or submitted an application for a building permit.

The court also opined that the planned development district zoning classification did not create contractual expectations upon which McKee could rely. The court explained that there is a strong presumption that legislative enactments do not create contractual or vested rights, and that presumption cannot be overcome without a clear indication that a legislative body intends to bind itself contractually. McKee failed to make such a showing.

This case highlights the necessity for developers that wish to develop land under existing zoning classifications to submit a completed building permit application before zoning law changes under their feet.

U.S. Supreme Court Reaffirms Capacious Scope of Federal Fair Housing Act

Published by Jeffrey A. Mandell, Matthew Dregne on | Permalink

The Supreme Court of the United States recently decided Bank of America Corp. v. City of Miami, Nos. 15-1111 & 15-1112, slip op. (U.S. May 1, 2017). The Court remanded the case for further proceedings, and it remains far from clear whether the City can prevail in the end. But the case illustrates the striking breadth of the federal Fair Housing Act (“FHA”). Any municipality, or anyone who deals with housing in any respect, should pay heed.

In the underlying litigation, the City of Miami alleged a pattern in which both Bank of America and Wells Fargo “intentionally issued riskier mortgages on less favorable terms to African-American and Latino customers than they issued to similarly situated white, non-Latino customers.” Id. at 3. The City further alleged that the banks’ practices “(1) adversely impacted the racial composition of the City, (2) impaired the City's goals to assure racial integration and desegregation, (3) frustrated the City's longstanding and active interest in promoting fair housing and securing the benefits of an integrated community, and (4) disproportionately caused foreclosures and vacancies in minority communities in Miami.” Id. (internal quotation marks and citations omitted). The result, the City asserted, was decreased property values in minority neighborhoods, “(a) reducing property tax revenues to the City, and (b) forcing the City to spend more on municipal services that it provided and still must provide to remedy blight and unsafe and dangerous conditions which exist at properties that were foreclosed as a result of the Banks’ illegal lending practices.” Id. (internal quotation marks and citations omitted).

The trial court dismissed the City’s complaints, holding that the City’s theory is not within the scope of the FHA and that the harms the City cites are too remote from the banks’ actions to allow recovery. On appeal, the U.S. Court of Appeals for the Eleventh Circuit reversed, deeming that the City had properly alleged claims that, if proven, would entitle it to damages. The Supreme Court agreed with the appellate court that the FHA does reach the City’s claims, but it also required further proceedings to determine whether the banks’ alleged actions caused the damages the City tries to pin on them.

The key holding for our purposes is about the FHA’s scope, or its “zone of interest.” As the Court explained: “The statute allows any ‘aggrieved person’ to file a civil action seeking damages for a violation of the statute.” Id. (internal quotation marks omitted). And it “defines ‘aggrieved person’ as any person who either claims to have been injured by a discriminatory housing practice or believes that such an injury is about to occur.” Id. at 6 (internal quotation marks omitted). The Court acknowledged the banks’ argument that such a capacious definition would mean “restaurants, plumbers, utility companies, or any other participant in the local economy could sue the Banks to recover business they lost when people had to give up their homes and leave the neighborhood as a result of the Banks’ discriminatory lending practices.” Id. at 8. Yet this argument did not cause the Court to blink.

Instead, the Court emphasized that it has long construed the FHA broadly, including prior holdings “that the Act allows suits by white tenants claiming that they were deprived benefits from interracial associations when discriminatory rental practices kept minorities out of their apartment complex; a village alleging that it lost tax revenue and had the racial balance of its community undermined by racial-steering practices, and a nonprofit organization that spent money to combat housing discrimination.” Id. at 6 (citing Trafficante v. Metropolitan Life Ins. Co., 409 U.S. 205, 209-12 (1972); Gladstone, Realtors v. Village of Bellwood, 441 U.S. 91, 110–11 (1979); Havens Realty Corp. v. Coleman, 455 U.S. 363, 379 (1982)). Further, the Court noted, Congress amended the FHA subsequent to some of these decisions and did not change the statutory definition of “aggrieved person.” See id. at 7. Thus, the Court concluded, “[p]rinciples of stare decisis compel our adherence to those precedents” and “principles of statutory interpretation require us to respect Congress’ decision to ratify those precedents when it reenacted the relevant statutory text.” Id. at 8.

Dissenting from the Court’s broad reading of the FHA, Justice Thomas (joined by Justices Kennedy and Alito) criticized the breadth of the Court’s statutory construction: “Miami's complaints do not allege that any defendant discriminated against it within the meaning of the FHA. Neither is Miami attempting to bring a lawsuit on behalf of its residents against whom petitioners allegedly discriminated. Rather, Miami’s theory is that, between 2004 and 2012, petitioners’ allegedly discriminatory mortgage-lending practices led to defaulted loans, which led to foreclosures, which led to vacant houses, which led to decreased property values, which led to reduced property taxes and urban blight.” Id. at 10 (Thomas, J., dissenting in part and concurring in part). But the majority’s capacious interpretation is the law.

To be sure, the Court’s cautions against allowing recovery for remote harms may, as it plays out in the lower courts, prove a significant restriction on the use of the FHA. It is too soon to predict exactly how that aspect of the opinion will play out, however.

The Bank of America decision has two important takeaways. First, the FHA is not limited to obvious cases of housing discrimination by landlords; it captures a broad range of actions by a broad range of actors, including municipalities, banks, and others. Second, claims under the FHA are not limited to plaintiffs who were the direct victims of housing discrimination; a wide swath of plaintiffs—including individuals, municipalities, and businesses—have legal standing to seek redress under the FHA.

Court of Appeals Reaffirms Parties Cannot Recover Lost Profits for Unlawful Activity

Published by Susan Allen on | Permalink

The Wisconsin Court of Appeals recently decided 200 Broadway LLC v. City of Milwaukee, Case No. 2016AP273 (May 2, 2017). The decision is interesting both for its central holding that a party is not entitled to damages for lost profits from an unlawful business, and because the appellate court relied heavily on nineteenth century precedent. 

200 Broadway owns property in the Third Ward neighborhood of Milwaukee. The property is near the Henry W. Maier Festival Park, which hosts Milwaukee’s Summerfest and other festivals.  Milwaukee ordinances require a special use permit for the property to be used for parking. 

After catching wind that the owner intended to use the property for parking during Summerfest, a Milwaukee Police Department Captain and Assistant City Attorney visited the property to investigate.  They advised employees that the property could not be used for parking because there had been an order prohibiting that use.  The Assistant City Attorney also advised the property owner that, without a permit on file, use of the property for parking could subject the owner to citations at a rate of $1267/vehicle parked. 

Initially, the owner abstained from using the property for parking.  After the first few days of Summerfest, the City agreed to rescind its objections to the parking.  The owner used the property for parking for the remainder of Summerfest, but filed suit against the City claiming lost profits of more than $10,000 for the days the City would not allow parking space rental on the property.

The trial court granted summary judgment in favor of the City.  In doing so, it accepted the City’s argument that a party cannot recover lost profits it claims it would have realized from an unlawful activity.  The court of appeals affirmed. 

The City’s argument rested upon a case from the nineteenth century, Raynor v. Blatz Brewing Co., 100 Wis. 414, 76 N.W. 343 (1898).  Raynor clearly provides that a party cannot base a claim for lost profits on its inability to engage in unlawful activity.  The court found no contradictory authority and no reason to disregard Raynor as precedent based simply on its age, as 200 Broadway urged. 

The court explained that the prohibition on recovery of lost profits for “unlawful conduct” is not limited only to activities that violate criminal statutes, but also those that run afoul of municipal ordinances and regulations.  The court also found no genuine issue of material fact regarding 200 Broadway's claim that the City selectively enforced the parking ordinance, pointing out that the City never actually enforced the parking ordinance against plaintiff.

The clear reasoning of this case provides municipalities with some security that enforcing an ordinance provision will not result in an adverse judgment for a regulated individual’s or entity’s lost profits.  It also reinforces the concept that precedent is precedent, even when it was decided in a different century.

Wisconsin Supreme Court Enforces Contractual Pre-Litigation Jury Waiver

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The Wisconsin Supreme Court issued a decision in Parsons v. Associated Banc-Corp., 2017 WI 37, upholding the enforceability of a contractual pre-litigation jury waiver.  The court also found that although the motion to strike plaintiff’s jury demand was filed almost three years after the litigation commenced, it was not untimely.  The majority decision is written by Justice Ziegler, and Justice Kelly did not participate.  As has been the case in recent Supreme Court decisions, there is a spirited dissent, in this case drafted by Justice Ann Walsh Bradley and joined by Justice Abrahamson.

The majority provides little discussion of the facts in the case, labeling them “largely unimportant” to the legal issues to be decided.  However, according to the limited facts discussed, the parties were involved in a real estate project wherein the plaintiffs, Taft Parsons, Jr. and Carol Parsons, were planning to develop their own homes and others on their block in the City of Milwaukee into row-houses.  In May 2004, Taft Parsons signed a Promissory Note to Associated Bank for a loan to finance the project, which included a jury waiver provision.  The project ultimately collapsed and the Parsons filed suit against Associated Bank in May 2011.  The Parsons eventually whittled down their claims, focusing on allegations of racketeering and negligent hiring, training and supervision.  The complaint and amended complaint both included a demand for a 12-person jury, and the Parsons paid the jury fee to the circuit court in January 2013.  Over a year later, Associated Bank filed a motion to strike the jury demand, citing the jury-waiver provision in the Promissory Note.  The Parsons countered that the motion to strike was untimely, that Associated had waived its right to object to the jury demand.  They also argued that Carol Parsons had not signed the jury waiver and therefore, did not waive her right to a jury and that the provision should not be enforced because Taft Parsons had no ability to negotiate the term out of Associated Bank’s standard promissory note agreement.

The circuit court granted the bank’s motion to strike.  It held the jury waiver was enforceable for two principal reasons: first, the clause was adequately conspicuous (in bold, capital letters set off from the rest of the agreement) and, second, Taft Parsons was an “intelligent business man who undoubtedly has experience reviewing paperwork and entering into contracts.”  Id., ¶ 11. The court rejected the Parsons’ untimeliness argument on the grounds that they provided no legal authority in support and found the language of the waiver sufficiently broad to encompass Carol Parsons, even though she had not signed the contract.

The court of appeals granted the Parsons’ petition for review of a non-final order and ultimately reversed the circuit court decision.  The court of appeals agreed that a party may waive his or her right to a jury trial.  However, it explained that Associated Bank bore the burden of proving Parsons “understood the scope of and the specific nature of the rights given up by the waiver.”  Id., ¶ 14.  Based on an affidavit filed by Taft Parsons, the court of appeals determined the waiver was not knowingly and voluntarily made.  Although unnecessary to its disposition of the case, the court of appeals also determined the waiver was invalid as procedurally and substantively unconscionable, because it believed that issue might arise on remand.  Finally, the court of appeals determined the circuit court had erred in allowing the motion to strike on the grounds that the motion was untimely, the right to object had been waived under Wis. Stat. § 805.01(3), and Associated Bank was equitably estopped from raising the issue.

The Wisconsin Supreme Court accepted Associated Bank’s petition for review, and reversed the court of appeals decision.  The court explained that a party’s right to waive a civil jury trial is “settled law,” which can be based on statutory authority or, as here, on common law by contract.  Id., ¶ 21.  Applying the general tenets of contract law, the court found the jury waiver unambiguous and concluded that there was no need for additional evidence that the waiver was made knowingly and voluntarily.  The court found the court of appeals’ determination on unconscionability was erroneous given the limited record before it.  Finally, the court rejected the Parsons’ arguments with respect to the timeliness of the motion to strike on the grounds that there was no statutory directive on the issue and that any reliance on a jury demand by the Parsons was unreasonable because Taft had signed the jury waiver.

Focusing on the constitutional nature of the right, the dissent argued that any waiver of a jury trial must be entered into knowingly and voluntarily.  It spent a great deal of time discussing the facts of the case, including many—such as the criminal conviction of one bank employee—that occurred well after the jury-waiver provision was signed.  The dissent relied on these facts to find that Parsons’ waiver was not knowingly and voluntarily made.  Finally, the dissent argued that the motion to strike should be barred by equitable estoppel.

The majority’s opinion is in line with the well-established Wisconsin case law allowing parties freedom of contract, which some may have questioned after the court of appeals’ decision in this case.  Ultimately, the golden rule of contract law remains eternal—make sure you read (and understand) everything you sign!  The case also serves as yet another example of one court with members following two glaringly different approaches to the law.

Wisconsin Court of Appeals Clarifies when a Plaintiff’s Claim Accrues for Limitations Purposes

Published by Jeffrey A. Mandell on | Permalink

To bring a lawsuit, a plaintiff must file suit in a timely manner. Different kinds of claims face different time limits—limitation periods, in legalese. These limitation periods generally measure time from when the plaintiff’s cause of action first accrues. But that in itself is not very helpful. The Wisconsin Court of Appeals in Bleecker v. Cahill, No. 2016AP1231 (Wis. Ct. App. March 15, 2017), clarified when an action “accrues” and thereby starts the limitation clock ticking.

Facts and procedural history

Lee Bleecker sued his attorney, Terence Cahill, for legal malpractice in connection with a lease agreement Cahill reviewed and Bleecker then signed in 2003. Under Wis. Stat. § 893.53, legal malpractice claims must be filed within six years. The issue before the Court of Appeals was whether Bleecker’s malpractice claim was timely filed, which in turn depended on when the claim accrued. If Bleecker’s claim accrued when the lease was signed, his claim was barred as untimely; alternatively, if it did not accrue until Bleecker learned that the lease did not accomplish what he anticipated, his claim could proceed.

In 2003, Bleecker agreed to lease property to Aurora Medical Group, Inc. and authorized Aurora to build a clinic on the land. Id., ¶2. The lease ran for ten years and gave Aurora the option to extend for three subsequent five-year periods. The parties agreed that Bleecker would finance the construction costs, which Aurora would reimburse in monthly payments to Bleecker for the first fifteen years of the lease or until an “earlier date on which the Lease terminates.” Id., ¶3. After Cahill reviewed the lease, Bleecker signed it without reading the document. Id.

According to Bleecker, Cahill advised him that the lease ensured he would recover from Aurora all of the money he laid out for construction. Id., ¶2. According to Cahill, he informed Bleecker that Aurora’s payments could stop if the lease terminated after the initial ten-year term. Id., ¶2. Aurora chose not to extend the lease after the initial ten-year period expired, and, once the lease ended, it stopped making monthly construction payments to Bleecker. Id., ¶4.

In June 2014, Bleecker sued Cahill for legal malpractice. Id. The circuit court held Bleecker’s suit untimely. In the court’s view, Bleecker’s legal malpractice claim accrued when he signed the lease, with the result that the time for his suit expired in 2009. Id., ¶5. On appeal, Bleecker argued that his claim did not accrue until 2013, when Aurora terminated the lease and its obligation to make construction payments ended. Id. Under Wisconsin law, a claim accrues when it is “capable of present enforcement,” which occurs when “the plaintiff has suffered actual damage.” Id., ¶8 (quoting Hennekens v. Hoerl, 160 Wis. 2d 144, 152, 465 N.W.2d 812 (1991)). The Court of Appeals thus had to determine when Bleecker suffered actual damage.

Prior case law

The appellate court looked primarily to Meracle v. Children’s Service Society of Wisconsin, 143 Wis. 2d 476, 421 N.W.2d 856 (Ct. App. 1988), aff’d, 149 Wis. 2d 19, 437 N.W.2d 532 (1989). In that case, the Meracles engaged an adoption agency to adopt “a normal, healthy child.” Id. at 478. Before the adoption was finalized, the agency disclosed that the child’s biological paternal grandmother had died from Huntington’s disease. Id. The agency also told the potential adoptive parents that the child’s biological father had tested negative for the inherited disorder. Id. A few months after the adoption, the adoptive parents learned that there was no test at that time to determine if someone has the genetic mutation that causes Huntington’s disease and therefore that the agency’s representation about their child’s biological father testing negative could not be truthful. Id. at 479. Almost four years after the adoption, the child developed Huntington’s. Id.

The question the Meracle case presented to the court of appeals was when the parents’ claim accrued—at the time the parents learned there was no genetic test and therefore that their child was at risk for the disease, or years later when the child actually developed the disease. Id. at 482. The court determined the parent’s claim did not accrue until the child developed the disease. Id. The court explained that the parent’s injury was not the diagnosis itself, but rather the medical expenses and other damages the disease imposed on their family. Id. at 482-83. The parents could not have sued to recover these damages prior to the diagnosis, because their fear that the child might develop the disease would not have been a sufficient basis to justify redress of these damages. Id.

The court of appeals also looked to General Accident Insurance Company v. Schoendorf & Sorgi, 195 Wis. 2d 784, 537 N.W.2d 33 (Ct. App. 1995), aff’d, 202 Wis. 2d 98, 549 N.W.2d 429 (1996). In that case, which also involved the limitation period for legal malpractice, the court of appeals held that a claim had not accrued when “the damage was inchoate.” Schoendorf, 195 Wis. 2d at 798 n.9. The Supreme Court affirmed, reiterating a prior ruling that “actual damage is not the mere possibility of future harm.” Schoendorf, 202 Wis. 2d at 112 (internal quotation marks and citation omitted).

The Bleecker decision

Applying these precedents, the Bleecker court held that Cahill’s allegedly defective legal advice about the lease did not, on its own, inflict actual damage. Bleecker, ¶14. Rather, Bleecker first suffered actual damage when Aurora notified him that it was terminating the lease and therefore had no obligation to make further repayment for construction costs. Id., ¶15. Only when Bleecker received that notification did it become “reasonably certain” that financial loss would “occur in the future.” Id. Bleecker had no presently enforceable claim in 2003 when he signed the lease, because had Aurora exercised its option to extend the lease, Bleecker would not have suffered harm. Id., ¶17. Because Bleecker was first harmed in 2013, that is when his claim accrued, and it was timely filed in 2014, well within the applicable six-year limitation period. Id.

The court’s decision in Bleecker clarifies that, for purposes of a statute of limitation, a claim does not accrue when it is merely a possibility, or even a likelihood; a claim accrues when the plaintiff suffers actual damage. Actual damage for Bleecker occurred when Aurora acted to Bleecker’s detriment. The court’s decision should assists plaintiffs in determining when they will run out of time to assert their claims.

One final note: Generally, in tort actions (including legal malpractice), there is an exception to applicable limitation periods—the discovery rule—which provides that a claim does not accrue until the earlier of the date on which the plaintiff’s injury is discovered or with reasonable diligence should have been discovered. See, e.g., Hansen v. A.H. Robins, Inc., 113 Wis. 2d 550, 560, 335 N.W.2d 578 (1983). The circuit court in Bleecker did not apply the discovery rule because it determined Bleecker had not acted with reasonable diligence when he signed the lease without reading it. Bleecker, n.2. The court of appeals did not reach this issue, concluding that Bleecker’s claim was timely without resort to the discovery rule. Id. By loosening the strictures of accrual, Bleecker may lessen reliance on the discovery rule.

Law clerk Olivia Pietrantoni assisted in researching and writing this post.

Seventh Circuit: Self-Serving Statements Best Served with a Side of Factual Support

Published by Meg Vergeront, Kyle Engelke on | Permalink

Whitaker v. Wisconsin Department of Health Services, 849 F.3d 681 (7th Cir. 2017), recently served up a refresher on the role of self-serving affidavits in summary judgment proceedings. In Whitaker, the plaintiff alleged that she was fired by a state agency as a result of intentional discrimination based upon her disability. Whitaker suffered from chronic back pain and was granted repeated and consecutive leaves over the course of several months. After the third consecutive request for leave, her employer granted another leave, provided a date to return to work, and informed the plaintiff her leave was otherwise exhausted for the year. After Whitaker failed to return to work on the designated date, the agency fired her.

Whitaker brought suit under the federal Rehabilitation Act, claiming she was illegally terminated due to her disability. The Wisconsin Department of Health Services sought summary judgment on multiple, independent grounds. The district court granted summary judgment for the agency, finding that Whitaker failed to provide evidence that she could perform the essential functions of her position, a pre-requisite of a valid claim.

On appeal, the Seventh Circuit affirmed.  The court explained that while Whitaker was disabled within the meaning of the statute, regular attendance was an “essential function” of her employment and she failed to provide evidence regarding the effectiveness of her course of treatment or the medical likelihood of her recovery. Because the medical notes provided by Whitaker stated nothing other than “medical leave,” Whitaker needed to rely upon her own affidavit to survive summary judgment on this issue.

Here, the Seventh Circuit reiterated that “self-serving” statements like a party affidavit can and will be used as “perfectly admissible evidence through which a party tries to present its side of the story at summary judgment.” Id. at 686. Thus, Whitaker’s affidavit declaring she would have been able to return to work if only granted additional leave before her termination could have been a “legitimate method” to challenge summary judgment. Id. at 685. However, the Seventh Circuit found Whitaker’s affidavit failed to provide a sufficient evidentiary foundation for this statement—namely, evidence that medication improved her condition, or the medical likelihood that she would be able to return to work on a regular basis.

The take-away?  Self-serving assertions on the ultimate issue in a case can be acceptable, but must include an evidentiary basis for those assertions.

Wisconsin Supreme Court holds that courts cannot privatize determinations of legal rights

Published by Jeffrey A. Mandell on | Permalink

Private parties can agree to resolve their disputes through arbitration. When they do so, courts enforce those agreements, and the merits of the parties’ disputes are not addressed within the judicial branch. Instead, the parties pay arbitrators to consider evidence, hear argument, and issue binding decisions. But what happens if the court, rather than the parties, wants to divert a dispute to a different decisionmaker? The Wisconsin Constitution places limits on what courts can outsource and to what degree a judge can defer to a private decisionmaker’s determinations. A majority of the Wisconsin Supreme Court expounded on those limits in State of Wisconsin ex rel. Universal Processing Services of Wisconsin, LLC v. Circuit Court of Milwaukee County, 2017 WI 26.

Facts and procedural history

The case began as a commercial dispute. Universal Processing Services (which the court refers to as Newtek) filed suit against a former contract employee, Samuel Hicks, for misappropriation of trade secrets and other related claims. Hicks filed several counterclaims. The parties engaged in extensive discovery, which itself created new disputes. Several months into the litigation, the trial court granted each side additional time for discovery while declaring that its docket was too full “‘to expend a lot of time dealing with [the parties’] discovery bickering.’” Id., ¶14. The trial court thereby appointed a retired judge (now in private practice) to resolve “‘discovery disputes, etcetera.’” Id. The court explained that this step should incentivize the parties to be reasonable, as they would be paying hourly for time the retired judge spent resolving their disputes. See id.

Wisconsin law authorizes judges to appoint referees to assist in complicated cases, though such outsourcing “shall be the exception and not the rule.” Wis. Stat. § 805.06(2). (While the trial court in this case used the term special master, which is also the term used in federal courts, the Wisconsin Statutes, and the Supreme Court’s opinion in this case use the term referee.) The court order appointing a referee and delineating the referee’s powers in the particular case is called an order of reference. In this case, the Supreme Court assessed the constitutionality of the order of reference.

The case did not reach the Supreme Court in a typical way. After discovery, the referee issued a partial summary judgment ruling and limited the evidence to be presented at trial. Over Newtek’s objections, the circuit court largely affirmed that ruling. Newtek then petitioned the court of appeals for immediate appellate review. Newtek’s petition focused on the substance of the partial summary judgment ruling and related evidentiary holdings, not on the legality of the order of reference. The court of appeals declined to hear an immediate appeal. Newtek did not appeal that denial. Instead, Newtek asked the Supreme Court to issue a supervisory writ vacating the referee’s appointment. This atypical procedure led three Justices to conclude that the constitutional issues were not properly presented to the Supreme Court. See 2017 WI 26, ¶¶112-16 (Ziegler, J., concurring in part, dissenting in part); ¶¶117-42 (R. Bradley, J., joined by Kelly, J., concurring in part, dissenting in part). Additionally, because the court found certain aspects of the order of reference unconstitutional but deemed others acceptable, the case has an odd outcome where Newtek’s petition for a supervisory writ is denied, even though Newtek got much of the relief it sought.

The Supreme Court’s constitutional analysis

While the opinion devotes significant space to the procedural history, this post is focused on the substance of the court’s constitutional analysis. For those purposes, the Supreme Court focused on three provisions in the order of reference:

  1. The provision that “All motions filed, whether discovery or dispositive, shall initially be heard and decided by the [referee].”
  1. The allowance that the referee could certify specific issues for decision by the trial court, but that the trial court could decline to decide the issues and send them back to the referee.
  1. The limited availability of judicial review for the referee’s decisions. Individual rulings to which a party raised prompt objections were reviewable by the trial court under a deferential abuse-of-discretion standard. All other rulings would be reviewable on appeal after final judgment to the same extent as if rendered by the trial court.

Id., ¶20.

The Supreme Court assessed these provisions in light of Article VII, Section 2 of the Wisconsin Constitution. That provision “vests the ‘judicial power’ of this state in a unified court system.” Id., ¶56. The Wisconsin Constitution does not define “judicial power,” but the Supreme Court has described it as the “ultimate adjudicative authority of courts to finally decide rights and responsibilities as between individuals.” State v. Williams, 2012 WI 59, ¶36, 341 Wis. 2d 191, 814 N.W.2d 460.

Here, the issue was whether the order of reference exceeded the scope of what may be permissibly delegated to a referee. Nineteenth-century Wisconsin case law suggests that “the power to refer [is] not limitless.” 2017 WI 26, ¶64. And the court cited federal cases discussing the scope of a referee’s abilities and highlighting that the referee serves as a judicial aid. Id., ¶69. The court should not delegate “‘the core function of making dispositive rulings, including findings of fact and conclusions of law on issues of liability.’” Id., ¶71 (quoting In re Bituminous Coal Operators’ Ass’n, 949 F.2d 1165, 1166 (D.C. Cir. 1991)).

Wisconsin courts have not, before now, clearly delineated the parameters of how referees may aid judges. Id., ¶ 75. The Supreme Court adopted the federal standard that courts cannot delegate core judicial powers--for example the power to decide dispositive motions and conduct trials. Id., ¶76. Under this standard, it followed that the order of reference exceeded constitutional limits when it delegated the authority to hear and decide all motions. This delegation—compounded by the certification provision that allowed the circuit court to refuse to resolve issues in the first instance—and reduced the trial judge’s responsibilities to something more akin to a reviewing court. Id., ¶77. “A referee may share judicial labor, but the Order of Reference may not allow a referee to assume the place of the judge.” Id., ¶82.

The Supreme Court next considered how closely a circuit court must review the referee’s determinations. The order of reference in this case provided for a deferential, abuse-of-discretion review. Such a standard contemplates affirmance even if the court may not necessarily have reached the same conclusion. See id., ¶86. It is unlike de novo review, in which “the reviewing court reaches whatever decision it would reach independently of the decision of the prior decision maker.” Id., ¶85. Agreeing to apply only such surface review “gives the appearance of an abdication of the circuit court’s responsibility to exercise independent judgment.” Id., ¶86. While the Wisconsin Constitution permits the legislature to grant the circuit court appellate jurisdiction over referee rulings, the legislature has not done so. Id., ¶87. The court therefore held application of abuse-of-discretion review was unconstitutional here.

Takeaways from this decision

The Court’s decision makes clear that circuit courts may not delegate their fundamental, or “core,” functions to referees. Private parties may choose to arbitrate their disputes outside of the judicial branch if they so desire. But circuit courts may not compel privatization of the judicial function, because the Wisconsin Constitution entitles parties to litigate their claims before a court. This is why the Supreme Court cautions trial judges to utilize referees sparingly and only as support, rather than as stand-ins.

Finally, it’s notable that the Supreme Court’s decision cut across the Court’s ideological divisions. Justice Abrahamson wrote the majority opinion. She was joined not only by Justice A.W. Bradley, but also by Chief Justice Roggensack and Justice Gableman. This is highly unusual. Last term, for example, Justices Abrahamson and A.W. Bradley agreed in every case decided, while Justice Abrahamson agreed with the Chief Justice in only 12 percent of non-unanimous cases and with Justice Gableman in 25 percent of those cases. See Alan Ball, Wisconsin Supreme Court Statistics, 2015-2016, SCOWstats (July 22, 2016). Even in a separate opinion concurring in part and dissenting in part, Justices R. Bradley and Kelly “agree with the majority’s conclusion that the Reference impermissibly delegated the circuit court’s constitutionally vested judicial power to the referee.” 2017 WI 26, ¶118. Only Justice Ziegler does not endorse the majority’s constitutional analysis; she offers no opinion on the constitutional issues at all, focusing only on procedural flaws in the presentation of the case. See id., ¶115 (Ziegler, J., concurring in part and dissenting in part). Defending the judiciary’s constitutional role seems to be the rare issue that transcends the current schisms on the Court.

Law clerk Olivia Pietrantoni assisted in researching and writing this post.

In Which the Wisconsin Court of Appeals Fails to Distinguish Between a Dog and a Horse

Published by Jeffrey A. Mandell on | Permalink

In July 2011, Jerome Drexler died riding his motorcycle. He crashed into a horse on Highway 97 in Marathon County. The horse (whose post-crash condition the court of appeals does not report), along with three others also running loose that day, belonged to Edward Schwartz. Under an oral agreement, Schwartz and his horses were residing on property owned by James Weiland. To pay off a debt he owed to Weiland, Schwartz was installing a new roof on Weiland’s house. As part of the deal, Schwartz got to live in the house and pasture his horses on Weiland’s land while he did the work. 

Drexler’s widow filed suit against Weiland, alleging common law negligence. (Schwartz apparently could not be located and was not part of the suit.) The circuit court held that Weiland bore no liability because he was not the horse’s keeper. The court of appeals recently affirmed, rejecting Mrs. Drexler’s argument that Weiland could be legally responsible for not repairing the fence around his property, from which the horses escaped. Drexler v. McMillan Warner Mut. Ins. Co., No. 2015AP2047 (Wis. Ct. App. Feb. 22, 2017).

The case is fascinating because the courts ruled primarily as a matter of public policy, extending case law developed around liability for injuries caused by dogs, which are household pets, to this incident involving a horse.

Both the courts and Weiland relied primarily on Smaxwell v. Bayard, in which the Wisconsin Supreme Court determined that landowners and landlords cannot be held liable for injuries caused by dogs on their premises unless they own the dogs. 2004 WI 101, ¶2, 274 Wis. 2d 278, 682 N.W.2d 923. The Smaxwell decision was motivated by several distinct public policy concerns:

  • “[A] landlord should not become the insurer for the acts of his tenant simply by virtue of owning the premises.” Id., ¶46 (citing Gonzales v. Wilkinson, 68 Wis. 2d 154, 158, 227 N.W.2d 907 (1975))

  • “[A]llowing recovery against landowners or landlords who are neither the owners nor keepers of dogs—that is, landowners or landlords who do not have control over or custody of dogs—causing injury to someone on or around their property would simply have no sensible or just stopping point.” Id., ¶47

  • “[E]xposing landowners to such liability would essentially force them to fence in their property.” Id., ¶48

  • “Charging [] landlords with constructive knowledge of the propensities and behavioral history of each tenant’s dog and exposing them to liability would have drastic results.” Id., ¶52

  • Under “Wis. Stat. § 174.02, which imposes strict liability for injuries caused by a dog[,] … liability is limited to owners.” Id., ¶51 (emphasis added)

These concerns address situations involving dogs kept in residential areas. It is far from obvious that they translate with full force to the keeping of other animals in rural areas. Nor is it clear that any of them maps onto the specific facts of the Drexler case in any sensible way.

Moreover, Smaxwell also set forth clear principles governing landlord liability. Reiterating a prior decision, the Court made clear that Wisconsin law has “abolish[ed] the general cloak of immunity enjoyed by landlords” at common law. Smaxwell, 2004 WI 101, ¶17. Thus, “‘a landlord is under a duty to exercise ordinary care in the maintenance of the premises.’” Id., ¶19 (quoting Pagelsdorf v. Safeco Ins. Co. of Am., 91 Wis. 2d 734, 741, 284 N.W.2d 55 (1979)). Moreover, the Court explained, the Pagelsdorf decision “specifically concerned a landlord’s duty to maintain the physical premises and keep it free from defects.” Id., ¶36 (citing Pagelsdorf).

Mrs. Drexler’s argument—that Weiland was negligent in allowing an existing fence on his property to fall into disrepair, thereby leading to the escape of his tenant’s horses—seems to fall squarely within the duty Pagelsdorf imposes upon landlords. Unlike the concern in Smaxwell that imposing liability would force all landowners to erect fences, here, Weiland already had a fence. The alleged negligence was failing to maintain the fence he chose to have, not in failing to have a fence at all.

Nonetheless, the court of appeals held Mrs. Drexler’s negligence claim failed as a matter of law. Disputed factual questions—about the condition of the fence and about whether Schwartz had agreed to maintain the fence while he occupied the property—were not material and did not require a jury trial. Drexler, slip op. at n.3. Instead, the court of appeals explained “‘Smaxwell explicitly forecloses landlord liability on a broad basis … unless the landlord … qualif[ies] as an owner or keeper of the dog.’” Id. ¶8 (citing Ladewig ex rel. Grischke v. Tremmel, 2011 WI App 111, ¶25, 336 Wis. 2d 216, 802 N.W.2d 511).

Mrs. Drexler did not argue that Smaxwell’s reasoning is limited to cases involving dogs. Id. ¶ 7. Though this potential argument seems reasonable—and maybe even intuitive—the court of appeals brushed it away in a terse footnote. See id. n.5. According to the court, Smaxwell cannot be limited to dogs because precedent requires a specific jury instruction must be given in all common law negligence cases seeking to impose liability on an owner or keeper of an animal for injuries caused by that animal. Id. (citing Ollhoff v. Peck, 177 Wis. 2d 719, 503 N.W.2d 323 (Ct. App. 1993)). This is a non sequitur: nothing in that pattern jury instruction—which is itself not binding law, see Ollhoff, 177 Wis. 2d at 724—precludes the possibility of the jury finding negligence by others, in addition to or instead of an animal’s owner or keeper.

The Drexler court too readily assumed that Smaxwell’s applicability extends beyond dogs. Smaxwell’s public policy reasoning is far less compelling when applied to horses. And Drexler’s ruling is inconsistent with Pagelsdorf, which the Smaxwell court discussed at some length, in approving terms. It is disappointing that the court of appeals did not use the Drexler case to fully explore the extent to which Smaxwell should apply to cases beyond those involving household pets. Perhaps Mrs. Drexler will petition for review and the Wisconsin Supreme Court will have the opportunity to consider this issue.

Law clerk Olivia Pietrantoni assisted in researching and writing this post.

Wisconsin Supreme Court Decision Leaves Certified Questions Unanswered

Published by Susan Allen on | Permalink

In State v. Howes, 2017 WI 18, the Wisconsin Supreme Court analyzed a warrantless blood draw in an OWI in light of, Missouri v. McNeely, 133 S. Ct. 1552 (2013), in which the U.S. Supreme Court addressed the constitutionality of warrantless blood draws to prevent dissipation in alcohol concentration.  Howes, however, may not provide Wisconsinites all of the guidance that many anticipated.

The defendant, David Howes, was involved in a motorcycle versus deer crash.  By the time a deputy responded, emergency personnel were already treating an unconscious Howes.  The deputy could not find any witnesses, but a bystander reported that Howes smelled of intoxicants.  Howes was hospitalized.  On his way to the hospital, the deputy checked Howes’ record and found out that Howes had three prior OWI/PAC. This meant that Howes was subject not to the general 0.08% limit on blood alcohol concentration while driving but, as a repeat offender, to a stricter 0.02% limit.  The deputy also spoke with the EMTs who treated Howes, one of whom reported smelling intoxicants emanating from Howes.  The deputy arrested Howes, then unconscious, for operating a motor vehicle with a prohibited alcohol concentration based on the smell reported by others, the 0.02% threshold and the crash itself.  While Howes was still unconscious the deputy read him the Informing the Accused form and asked if he would submit to a blood test. Receiving no response and without first seeking a warrant, the deputy instructed the hospital staff to draw a blood sample.  The results showed Howes’ blood alcohol concentration was 0.11%. 

In his trial for OWI (4th offense) and operating with a prohibited alcohol concentration, Howes moved to suppress the results of the blood draw.  The circuit court granted the motion.  The court found the deputy had probable cause to arrest Howes.  However, the court held Wisconsin’s implied consent law was unconstitutional as it related to a blood draw of an unconscious person without a warrant or exigent circumstances.

The State appealed and the court of appeals certified the case to the Wisconsin Supreme Court.  The court of appeals certified a single issue: whether the portions of Wisconsin’s implied consent law that allow for warrantless blood draws from unconscious suspects violate the Fourth Amendment to the Constitution.

The lead opinion, authored by Chief Justice Roggensack, reversed the decision by the trial court, but on grounds that appear to diverge from the reasoning of the trial court and the issue certified by the court of appeals.  First, the court found the deputy had probable cause to arrest Howes for the same reasons outlined by the trial court.  The court focused its analysis on exigent circumstances sufficient to justify a warrantless blood draw.  Citing extensively to Schmerber v. California, 384 U.S. 757 (1966), and McNeely, the court found there were exigent circumstances, stating "Under the totality of the circumstances presented herein, which included a seriously injured, unconscious person, who was being subjected to medical treatments for his injuries and who had 0.02 percent as his PAC threshold, a reasonable officer could have concluded that further delay in drawing Howes’ blood would have led to the destruction of evidence through the dissipation and dilution of alcohol in Howes’ bloodstream."  Howes, ¶ 51.  The court remanded the case for further proceedings.

The majority concluded that exigent circumstances existed at the time due to the possible dissipation or destruction of evidence (alcohol) in Howes’ blood had the deputy waited to obtain a warrant. This was not the question presented in the circuit court, nor was it the question certified by the Court of Appeals.

Justice Gableman, joined by Justice Ziegler, concurred.  While Justices Gabelman and Ziegler agreed with the majority’s mandate, Justice Gableman focused on the question certified by the court of appeals – “whether provisions in Wisconsin’s implied consent law authorizing a warrantless blood draw from an unconscious driver based on the driver’s implied consent are unconstitutional under the Fourth Amendment to the United States Constitution.”  Id. ¶ 52.  Noting that McNeely was not relevant to this consideration, he found Howes did not prove beyond a reasonable doubt that the portions of the implied consent law applicable to unconscious drivers, namely the portions that indicate a driver consents unless he or she expressly revokes consent, are unconstitutional.  The concurrence concluded the presumption established by the implied consent law that an unconscious driver does not withdraw consent was not per se unreasonable and in such a circumstance, there was no need for a warrant because the unconscious driver has voluntarily consented to the blood draw.

The dissent, authored by Justice Abrahamson and joined by Justice Walsh Bradley in full and Justice Kelly in part, held the portions of the implied consent law authorizing warrantless blood draws on unconscious individuals to be unconstitutional.  Harshly criticizing the lead opinion’s focus on exigent circumstances, the dissent explained “because unconscious drivers have not freely and voluntarily consented to the warrantless blood draw under the Fourth Amendment . . . the warrantless blood test in the instant case should be suppressed.”  Id. ¶ 136.  More specifically, the dissent evaluated the issue in the context of searches incident to arrest, arguing that if the U.S. Supreme Court will not establish blood draws as a per se rules that warrantless blood draws are authorized under the search incident to arrest exception, then warrantless blood draws cannot be allowed based solely on statutorily imputed implied consent.

Ultimately, the split decision does not provide direct authority on the issue of the constitutionality of the implied consent law.  Instead, this decision suggests that officers must continue to evaluate the totality of the circumstances and with an eye toward the issues relevant to exigent circumstances.  The only clear-cut instruction at this point may be to obtain a warrant whenever possible.

Only Wisconsin Case Before U.S. Supreme Court this Term Should Not Be Decided

Published by Jeffrey A. Mandell on | Permalink

There is only one Wisconsin case at the U.S. Supreme Court this Term. Murr v. Wisconsin (No. 15-214) will be heard on March 20—but the Court should not decide it.

As this blog has previously detailed, the Murr case involves a dispute about how land-use regulations adopted to protect the Lower St. Croix River apply to a riverside property in northwestern Wisconsin. The Wisconsin state courts uniformly turned aside the Murr family’s claims that the regulations as applied by St. Croix County unconstitutionally reduced the value of their land. In January 2016, the U.S. Supreme Court granted the Murrs’ petition to review the case.

There is no shortage of intriguing storylines intertwined in the Murr case. Among them:

  • The dispute is over the balance between private property rights and government regulation, which is always a hot-button issue. Whether the conflict here has constitutional dimensions and how to determine that are both contentious questions. In addition to numerous organizations that have chosen sides, nine states have filed a brief supporting Wisconsin’s position, and nine other states filed in support of the Murrs.
  • The case has dragged on, even by the standards of extensive litigation. St. Croix County denied the Murrs’ request for a zoning variance in 2006. Once the case wended through the courts and the Supreme Court accepted review, it then left the case in limbo, so that it is hearing the case almost a year later than anticipated—all without explanation.
  • The case will be heard by a short-handed, eight-member Supreme Court on the same day that the Senate Judicial Committee will convene hearings on the nomination of Judge Neil Gorsuch to fill the Court’s vacancy. If that’s not enough inside baseball, the Murr argument will also mark the debut of Wisconsin Solicitor General Misha Tseytlin before the Supreme Court.

But one of the most interesting aspects of the case is that there are several reasons that the Supreme Court should not decide the dispute at all. There’s no need to reach the constitutional question, and courts generally avoid making new constitutional law unless doing so is necessary. The Murrs’ case was dismissed in 2013 because it was not filed within the time limits prescribed by Wisconsin law. St. Croix County also argued at that stage that the Murrs had not taken all of the steps required before filing suit.

Either argument, if correct, would dispose of this case without a controversial constitutional ruling. Neither argument was fully explored in the Wisconsin appellate courts. As it has done before, the Supreme Court should send the case back to the state courts for resolution of these antecedent issues and should consider the constitutional question only if necessitated by the lower courts determining that the other issues don’t end the case.

We made this argument in an amicus brief (available here), filed on behalf of three membership organizations that, among them, represent every level of local government in the state of Wisconsin. The brief urges the Court to follow its own precedent, to allow this case to be resolved on the narrowest possible grounds, and to avoid wading into a complex constitutional conflict unless absolutely necessary. In light of the fact that Murr will be decided by a shorthanded Court comprised of Justices who could easily split evenly on the constitutional issues in the case, the option of sending the case back to the Wisconsin courts may be particularly welcome.

Check back with the Stafford Rosenbaum Appellate Practice Blog for coverage of additional developments in Wisconsin v. Murr.

For media inquiries please contact attorney Jeff Mandell at (608) 210-6303 or jmandell@staffordlaw.com

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