U.S. Supreme Court Decides Wisconsin Takings Case, Adopts Complex Test, and Approves Merger Clauses

Published by Jeffrey A. Mandell on | Permalink

The U.S. Supreme Court decided a major regulatory takings case last week, ending a Wisconsin land-use battle that lasted more than a dozen years. See Murr v. Wisconsin, No. 15-214 (U.S. June 23, 2017). It is not common for a case to jump from an unpublished, non-precedential opinion in a state intermediate court of appeals to the nation’s highest court. Even less often does a local case provide an opportunity to resolve a long-standing doctrinal puzzle that has stymied courts and litigants for decades. Murr v. Wisconsin was notable, and the Supreme Court’s decision is both interesting and instructive. In particular, the Court’s express endorsement of a zoning provision commonly used in Wisconsin and across the country should set municipal regulators’ minds at ease.

The facts of the Murr case

I have written about the case in detail, summarized the parties’ arguments, and shared my assessment of the oral argument. (Full disclosure: Stafford Rosenbaum submitted an amicus brief on behalf of the Wisconsin Counties Association, the Wisconsin Towns Association, and the League of Wisconsin Municipalities, urging the Supreme Court not to reach the constitutional issue at the heart of the case. The views in this post are my own; they go beyond the arguments expressed in the amicus brief and do not necessarily reflect the opinions of my clients.)

The essential facts are these: The Murrs who litigated this case were the second generation to own the property in question. Their parents purchased two lots along the Lower St. Croix River, in northwestern Wisconsin, more than fifty years ago. They built a small cabin on one lot and transferred ownership to their family business. A couple of years later, they purchased the adjacent lot, which they kept in their own names and never built on. In the 1990s, the parents transferred the land to their children, bringing the two adjacent lots into common ownership for the first time.

This mattered a great deal because, in the intervening years, the federal, state, and local governments all adopted laws to protect the river’s scenic beauty. The regulations limited development to those lots with at least one acre of land, excluding the river’s floodplain and the slope of the bluffs that tower above the river. Neither of the Murrs’ lots, though approximately 1.25 acres each, had enough buildable space to meet the development requirements on its own. The regulations addressed this fairly common issue through two complementary provisions. The first grandfathered in any property owners who had purchased their land prior to the regulations; they could still build, even if their lots lacked one acre of buildable space. The second merged adjacent lots without sufficient buildable space if those lots came under common ownership.

Here, when the two adjacent lots passed to the second generation, they came under common ownership and therefore merged as a matter of law. When the Murrs later sought a zoning variance to sell the empty lot and use the proceeds to improve the cabin on the other lot, the County said no. The Murrs alleged that the state and county regulations amounted to an uncompensated taking of their property in violation of the U.S. Constitution. The Murrs’ takings claim was rejected by the trial court, the state appellate court, and ultimately the U.S. Supreme Court.

The applicable legal framework

The Constitution provides that private property cannot “be taken for public use, without just compensation.” U.S. Const., amend. V. The framers and early courts were focused on physical appropriations of property for public use (to build a road, for example). But for almost a century courts have recognized that regulations restricting an owner’s use of property can amount to a compensable taking. How and when regulations impose enough of a burden to require compensation has been a vexing question. In response, the Supreme Court has provided two tests. Where a regulation deprives the owner of all economically beneficial use of the property, that is a taking. See Lucas v. South Carolina Coastal Comm’n, 505 U.S. 1003 (1992). Even where a regulation is less invasive, it can still require compensation, based on a balancing of several factors, including the economic impact of the regulation, the character of the regulation, and the extent to which the regulation interferes with reasonable investment-backed expectations for the property. See Penn Central Transp. Co. v. New York City, 438 U.S. 104 (1978).

Under either test, however, there is a predicate question: How do courts define the relevant property against which to measure the effects of the regulation at issue? The Murrs complained that the merger provision deprived them of the right to use or sell the vacant lot adjacent to their cabin. When a court considers that alleged deprivation, does it measure the loss against only the vacant lot (in which case it could be seen as a near-total taking) or against the Murrs’ combined riverside properties (in which case it appears to be a smaller loss)? As legal commentators have long discussed, in many cases “the answer to this question may be outcome determinative.” Murr, slip op. at 9.

The prospect that the Murr case would answer this question drew significant interest. The case presented the Court with multiple options:

  • The Murrs argued that the right answer begins and (largely) ends with the lot lines on the property rolls. They conceded that evidence of how the property is actually used might be sufficient to overcome the lot lines in certain instances.

  • The State of Wisconsin argued that the answer is found in the application of state law, including but not limited to the lot lines and, importantly in this case, also including the merger provision.

  • St. Croix County, for its part, argued that multiple factors are relevant, beginning with state property law, but also including the physical characteristics of the property and the economic impact the regulation has on the property.

  • Finally, the federal government, appearing as an amicus curiae (friend of the court), offered an alternative multi-factor balancing test, placing no special weight on state law and instead looking to achieve fairness and justice.

The Murrs obviously argued that their proposed test would favor their taking claim. All of the various governmental entities argued that there was no taking in this case.

The majority opinion

The Court fully adopted St. Croix County’s approach, holding that “the question of the proper parcel in regulatory takings cases cannot be solved by any simple test,” such that “courts must consider a number of factors.” Id. at 11, 20. “These include the treatment of the land under state and local law; the physical characteristics of the land; and the prospective value of the regulated land.” Id. at 11. In doing so, the Court incorporated the factors both the Murrs and the State had offered as bright-line tests, explaining that “courts should give substantial weight to the treatment of the land, in particular how it is bounded or divided, under state and local law,” but also insisted that those factors were, on their own, insufficient. Id. at 12-15.

Notably, the Court also gave a full-throated endorsement to the merger provision that the Murrs challenged, calling it “a legitimate exercise of government power.” Id. The Court rooted its approval in both tradition and efficacy. After noting that merger provisions “originated nearly a century ago” and are now widely used, the Court praised those provisions as a way of “balancing the legitimate goals of regulation with the reasonable expectations of landowners.” Id. at 15-16. The St. Croix County zoning provisions at issue “represent a classic way of doing this: by implementing a merger provision, which combines contiguous substandard lots under common ownership, alongside a grandfather clause, which preserves adjacent substandard lots that are in separate ownership.” Id. While one criticism of balancing tests is that they lack certainty, here the Court clearly mapped one way in which zoning ordinances can strike a judicially sanctioned balance between limiting development and protecting existing property rights.

The dissenting opinions

Chief Justice Roberts wrote the primary dissent, joined by Justices Thomas and Alito. (Justice Gorsuch did not participate in the case, which was argued before he joined the Court.) The Roberts dissent adopted the State of Wisconsin’s approach. Chief Justice Roberts did not argue the Murrs should win their suit, but he eschewed the multi-factor test adopted by the majority.

Chief Justice Roberts identified two primary rationales for his position. First, because “[t]he question of who owns what is pretty important,” it follows that “[t]he rules must provide a readily ascertainable definition of the land to which a particular bundle of rights attaches that does not vary depending upon the purpose at issue.” Slip op. at 6 (Roberts, C.J., dissenting). On this basis, the dissent decried “[t]he majority’s new, malleable definition of private property” for the takings inquiry. Id. at 2.

Second, Chief Justice Roberts asserted that the majority’s balancing test improperly advantages the government in every takings dispute. Because one factor relevant to defining the property is “the reasonableness of the regulation as applied to the claimant[,] … the government’s regulatory interests will come into play not once, but twice—first when identifying the relevant parcel, and again when determining whether the regulation has placed too great a public burden on that property.” Id. at 9-10. (This is true only for regulations assessed under Penn Central; any per se taking under Lucas will not be subject to the second analysis.)

Ultimately, the Roberts dissent argued, the majority decision “knocks the definition of ‘private property’ loose from its foundation on stable state law rules and throws it into the maelstrom of multiple factors that come into play at the second step of the takings analysis. The result: The majority’s new framework compromises the Takings Clause as a barrier between individuals and the press of the public interest.” Id. at 12.

Justice Thomas also wrote his own separate dissent. He affirmed his agreement with Chief Justice Roberts’s application of the Court’s regulatory takings precedent, but he reiterated his belief that the Court should reexamine the past century’s regulatory takings jurisprudence to see if it can be rooted in the original meaning of the Constitution.

Takeaways

The balancing test adopted in Murr will not make takings litigation any simpler or more predictable. It amplifies the subjectivity—and thus the variability—of the takings analysis. In different courts, that may redound to the benefit of the government or to the benefit of the property owner. However, the Murr decision is a clear victory for municipal governments, environmentalists, and other proponents of regulation inasmuch as the Court rejected efforts to rewrite the takings analysis in ways that would more frequently require compensation to property owners. The decision also provides a modest degree of clarity by expressly endorsing merger provisions for adjacent, substandard lots that share an owner. That alone marks Murr as a big win for municipal governments in Wisconsin and across the country that utilize this common tool.

Wisconsin Court of Appeals deems restrictive covenant unenforceable as to short-term rentals

Published by Laura E. Callan, Eileen M. Kelley on | Permalink

Consider the following facts: a couple owns a single-family waterfront residence on a private dead-end road. The lots on the road are subject to the following restrictive covenant (among others): “there shall be no commercial activity allowed on any of said lots.” They begin renting out the residence on a short-term basis, advertising the property as “Lake Point Lodge.” A listing for the Lake Point Lodge on the vacation rental website vrbo.com specifies it is available for minimum stays of two to seven nights, for a maximum of fifteen overnight guests. In one year alone, the couple rented the residence to over 170 people and received over $55,000.00 in rent. But the neighbors are not happy and sue the couple for injunctive relief, complaining that the short-term rental of the property violates the prohibition on commercial activity in the restrictive covenant. Does the restrictive covenant effectively prohibit short-term rentals?

No, according to the Wisconsin Court of Appeals in Forshee v. Neuschwander, No. 2016AP1608 (Wis. Ct. App. June 13, 2017) (recommended for publication). The decision reaffirms the long-standing rule that in order to be enforceable, property restrictions must be expressed in clear and unambiguous terms and that when the meaning of language in a restrictive covenant is doubtful, all doubt should be resolved in favor of the property owner’s free use.

The Court’s analysis focused on the term “commercial activity” and whether the covenant was susceptible to more than one reasonable interpretation. Because the term “commercial activity” was not defined in the restrictive covenant, the Court considered dictionary definitions to discern the ordinary meaning. Applying the dictionary definitions, the Court held that the restrictive covenant prohibits property owners from “engaging in activity on their lot that is concerned with the activity of buying and selling, or activity by which they make or intend to profit.”

The Court then concluded that reasonable minds could differ as to whether short-term rentals of property met this standard. On the one hand, the Court noted, the couple made money (and presumably a profit) by renting their home to others on a short-term basis. By selling the right to use the home, the couple engaged in the activity of buying and selling. On the other hand, the Court observed, the actual use of the property by short-term tenants was residential in character. Additionally, the Court found it significant that there was no evidence that the actual “activity” on the lot was anything other than residential: there was no evidence that any actual exchange of money occurred “on” the lot or any goods were purchased or sold “on” the property, quoting the covenant. Based on these considerations, the Court concluded that short-term rentals did not constitute commercial activity “on” the property.

Because reasonable minds could differ as to whether the restrictive covenant prohibits short-term rentals, the Court held the covenant was ambiguous. The Court then analyzed whether, despite the ambiguity, the intent of the restriction could be clearly ascertained to render the covenant enforceable. The Court rejected the contention that the intent was to ensure a quiet neighborhood where people would know their neighbors, finding that the other restrictive covenants did not support this intent. One covenant prohibited the erection of any dwelling with fewer than 1,000 square feet of living space and another limited subdivision of existing lots. The Court found that none of the restriction had any effect on whether lot owners know their neighbors.

Supported by cases from North Carolina and Oregon, the Court concluded that the covenant was ambiguous with respect to whether short-term rentals were prohibited. Because the restriction was ambiguous, it could not be enforced against the couple to prevent them from renting out their property on a short-term basis.

Forshee provides instructive guidance for drafting restrictive covenants. If you are looking to protect land, Stafford Rosenbaum LLP’s Real Estate Team can assist in drafting enforceable restrictive covenants and in evaluating the enforcement of such covenants if and when they are violated.

Court of Appeals counts small-claims time limit tightly, though statutes suggest looser approach

Published by Jeffrey A. Mandell, Laura Skilton Verhoff on | Permalink

How do small-claims parties count time? It seems like a small question that should have a simple answer, but in practice it has proven a vexing one. In Team Property Management, LLC v. Reiss, No. 2016AP2163 (Wis. Ct. App. May 24, 2017) (unpublished), the Wisconsin Court of Appeals determined that the ten-day window after a commissioner issues an oral ruling in a small-claims action for a party to request a trial rather than have the ruling mature into a judgment does not exclude weekends and holidays. While this opinion accords with another recent appellate decision, it appears to be at odds with the plain text of the Wisconsin Statutes and other related authority.

Team Property began as a small-claims action in which a circuit court commissioner ruled that Reiss owed $6,879.50 to Team Property Management. Fourteen calendar days later, Reiss requested a circuit court trial. The circuit court granted that request, and after a trial, determined that Reiss owed a smaller amount of $5,250.50. Team Property Management appealed, arguing that Reiss’s request for a trial was untimely and therefore that the judgment should reflect the initial, higher award determined by the commissioner.

Small-claims procedures are set out in chapter 799 of the Wisconsin Statutes. Section 799.207(2) gives a party ten days from the date of a commissioner’s oral decision (or fifteen days from the date of a written decision) to request a trial. But the statute does not specify how to calculate the passage of time. The question in Team Property was thus whether the ten-day window excluded weekends and holidays, as is the default civil procedure rule, or whether small-claims proceedings have a different counting mechanism.

Under Wis. Stat. § 801.15(1)(b),  “[w]hen the period of time prescribed or allowed is less than 11 days, Saturdays, Sundays and holidays shall be excluded in the computation.”  This general counting rule appears to be incorporated into small-claims procedure by Wis. Stat. § 799.04(1), which explicitly allows the general provisions of Wisconsin civil procedure to fill the gaps where Chapter 799 is silent: “except as otherwise provided in this chapter, the general rules of practice and procedure in chapters 750 to 758 and 801 to 847 shall apply to actions and proceedings under this chapter.”

The interaction between sections 799.04(1) and 801.15(1) notwithstanding, the Team Property court concluded that weekend days should have been counted in calculating Reiss’s deadline for requesting a trial. Team Property, ¶3. On this basis, the court held that Reiss’s trial request, filed on the tenth business day—but the fourteenth calendar day—after the commissioner’s oral ruling was not timely and should not have been honored. Id. In reaching this determination, the Court of Appeals relied on Hoeller v. Kula, 2015 WI App 68 (unpublished). In that case, which also concerned a request for a trial after a small-claims ruling, the court declared—without any consideration of section 799.04(1)—that section 801.15(1)(b)’s exclusion of weekends and holidays “does not apply to calculations of time under § 799.207(2).” Hoeller, ¶7.

The Team Property decision does acknowledge that the small-claims chapter incorporates chapters 801-847 unless a “different procedure is prescribed by statute or rule,” but it sidesteps that incorporation by observing that chapter 799 “is the exclusive procedure to be used in actions where the amount claimed is $10,000 or less.” ¶3. Based on that exclusivity, the court held that section 801(1)(b) does not apply to chapter 799: “Wisconsin Stat. § 799.207(2)(b) prescribes the procedure to be exclusively applied in this case.” Id.

This conclusion fails to recognize that the statutes it considers do not conflict. Chapter 799 specifies the time period in which a party may request a trial, but it is silent regarding how the end of that period should be calculated. By contrast, section 801.15 directs how periods of time are to be calculated but says nothing about what those periods of time are. Thus, with respect to calculating the end of a given time period, no “different procedure prescribed by statute or rule” is “otherwise provided” in chapter 799.

Further, additional persuasive authority suggests that both Team Property and Hoeller reached the wrong conclusion. The Wisconsin Judicial Benchbook—published by Wisconsin Supreme Court’s Office of Judicial Education—advises judges that the time to demand a trial after an oral ruling in a small-claims action runs “10 days from date of oral decision, (Saturdays, Sundays, and holidays excluded in the computation).” Wis. Office of Judicial Educ., Wisconsin Judicial Benchbook, Vol. II § 41.33 (5th ed. 2016). The Benchbook cites both section 799.207 and section 801.15(1)(b). Additionally, a federal court has concluded that the counting methodology of section 801.15(1)(b) applies to time periods established in chapter 799. See DKCLM, Ltd. v. Eagle Movers, Inc., No. 11-C-933, 2014 WL 4954460, at *5 (E.D. Wis. Sept. 30, 2014).

On a more practical note, courts are closed on weekends and city holidays. With the Court of Appeals’ recent ruling, an order issued on, say, November 22 of this year (the Wednesday before Thanksgiving) would have until December 2 to request de novo review. However, the court is closed November 23 (Thanksgiving), November 24 (“Thanksgiving Holiday”), November 25 (Saturday), November 26 (Sunday), and December 2 (Saturday). So, to be absolutely safe, the party would have only until December 1 to request a jury trial. That equates to five actual working days—only half the time afforded by statute.

While the statutory basis for the rulings in Hoeller and Team Property is questionable, practitioners and litigants should take note. Until a Wisconsin appellate court says otherwise, the short clock on requests for a trial after a small-claims ruling will continue to tick on weekends and holidays.

Law clerk Charles Ureña assisted in researching and writing this post.

Supreme Court Resolves Scope of Church Plan Exemption Under ERISA

Published by Paul W. Schwarzenbart on | Permalink

By an unanimous (8-0) decision issued June 5, 2017, the United States Supreme Court broadly construed the “church plan” exemption from the Employee Retirement Income Security Act of 1974 (“ERISA”), to include benefit plans established by church-affiliated organizations. Advocate Health Care Network v. Stapleton, Nos. 16–74, 16–86, 16–25, ___ U.S. ___ (2017), 2017 WL 2407476 (U.S. 2017). In doing so, the Court reversed decisions of three United States Circuit Courts of Appeals and resolved any uncertainty as to how the exemption applies to plans established by church-affiliated organizations such as, in these three cases, hospitals.

The Court noted that the three federal agencies responsible for administering ERISA, the Internal Revenue Service, Department of Labor, and Pension Benefit Guaranty Corporation, have long read ERISA to exempt plans like the hospitals in the three cases. Citing IRS General Counsel Memorandum No. 39007 (Nov. 2, 1982), as an example, the Court noted that this “interpretation has appeared in hundreds of private letter rulings and opinion letters issued since 1982, including several provided to the hospitals here.” Slip Op. at 4. The court described the three cases before it, all filed as employee class actions alleging that the employers’ plans were required to comply with ERISA, as “part of a recent wave of litigation challenging the agencies’ view.” Id.

The Court agreed with the agencies’ long-held view that an exempt “church plan,” as defined by Subsection (33)(A) of ERISA, 29 U.S.C. § 1002(33), included benefit plans established by church-affiliated organizations. The Court found Congressional intent for that view in a 1980 amendment to ERISA, codified 29 U.S.C. § 1002(33)(C)(i), and providing that “[a] plan established and maintained . . . by a church … includes a plan maintained by [a principal-purpose] organization.” Slip Op. at 6. The Court rejected the employees’ argument that the statute still exempted plans if “maintained” by a church-affiliated organization, but did not change the requirement under Subsection 33(A) that the plan be “established” by a church.

It should be noted that the outcome in these cases, reversing Stapleton v. Advocate Health Care Network, No. 15-1368, 2016 WL 1055784 (7th Cir. Mar. 17, 2016), Kaplan v. St. Peter’s Healthcare System, 810 F.3d 175 (3d Cir. 2015), and Rollins v. Dignity Health, 830 F.3d 900 (9th Cir. 2016), turns solely on statutory construction. The Court did not address any constitutional issues, although such issues had been presented by the hospitals in each of the cases in the lower court proceedings. The Court’s decision also leaves open and expresses no view as to whether the hospitals have the necessary association with a church and, even if they do, whether their internal benefits committees qualify as “principal-purpose organizations” covered by the exemption within the Court’s holding. Slip Op. at 5, n.2. The scope of the Court’s holding is best described in the succinct statement preceding its mandate: “Under the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a ‘church plan,’ regardless of who established it.” Slip Op. at 15. Concurring, Justice Sotomayor expressed some reservations as to Congressional intent based on legislative history, but wholly agreed with the Court’s conclusions in construing the statutory language.

Because it does not reach constitutional issues, the Court’s decision in Advocate Health should not be viewed as indicative of the Roberts Court’s views as to asserted conflicts between the Free Exercise Clause of the First Amendment and regulation of economic activity at the federal level.

New Standard for Designating Attorney Who Drafts Will To Serve as Estate’s Personal Representative

Published by Laura Skilton Verhoff, Eileen M. Kelley on | Permalink

The Wisconsin Court of Appeals recently limited the circumstances under which an attorney might serve as personal representative of an estate. In In Re the Estate of Ann H. McMaster Dewey, No. 2016AP865, 2017 WL 1497548 (Wis. Ct. App. Apr. 26, 2017), a decedent nominated her estate planning attorney, Robert Wilmot, as her successor personal representative. Upon the decedent’s death, her first-choice personal representative declined to serve in that role. Wilmot filed an application for informal administration and sought to be appointed as personal representative.

The decedent’s children objected, arguing that Wilmot was an unsuitable personal representative and therefore that his nomination should be disallowed under Wis. Stat. § 856.23(1)(e)’s catchall provision, “for good cause shown.” The trial court found Wilmot unsuitable and appointed the decedent’s daughter to serve as personal representative. Wilmot appealed.

In affirming the trial court’s determination that Wilmot was unsuitable, the Court focused on the lack of personal relationship between Wilmot and the decedent. The Court noted that before their initial estate planning consultation, Wilmot did not have knowledge of the decedent’s finances or her children.

Interestingly, the Court of Appeals also wrote that the Will was “silent” as to the decedent’s intent as to her choice of personal representative. The Court characterized the section of the Will naming Wilmot as personal representative as a mere recitation. The Court’s analysis is likely premised upon existing cases in which a testator included specific language confirming the intent to name the drafting attorney as personal representative. But, the Court’s language raises an interesting question: How can a Will that expressly nominates a personal representative—indeed, a first choice and a successor—be said to be silent as to the decedent’s intention in nominating a personal representative? Must the Will include a rationale for any term that the testator wants enforced? Is a Will that does not explain the decedent’s intent in distributing the assets “silent” as to the dispositive provisions? What more does a decedent need to do to ensure that his or her intent will be executed as expressed on any issue in a Will, other than execute the Will as required by Wisconsin law?

The Court ultimately concluded that Wilmot’s nomination as successor personal representative might have been valid if the Will had contained language specifically stating that the nomination was intentional and did not result from Wilmot’s solicitation and there was evidence of a more significant relationship between Wilmot and the decedent prior to Wilmot’s drafting of the Will. The Court’s decision neither found nor implied any wrongdoing on Wilmot’s part, but it essentially held that he, as the testator’s lawyer, bore the burden of preventing even the appearance that he solicited further work for himself. According to the Court, he could have prevented that appearance by having the testator put in her Will that there was no solicitation.

The practical effect of this decision is unclear. While the Court seeks to prevent solicitation on the part of nefarious drafting attorneys, this ruling may not achieve that result. After all, the ruling basically requires an additional legal disclaimer to make effective a Will provision that is not all that uncommon. And many clients express their testamentary wishes to their lawyers but then trust that the legal documents properly reflect those wishes. A client who executes a Will without reading or agreeing to the nominated personal representative is not likely to raise concerns about additional legalese in the Will confirming that choice.

Following this case, it appears that a drafting attorney’s nomination to serve as personal representative will survive a challenge only where the attorney and decedent had more than the typical attorney-client relationship and the Will itself contains a clear expression that the attorney did not solicit the nomination.

Wisconsin Court of Appeals Rejects Novel Argument Against Enforcing Personal Guarantee

Published by Jeffrey A. Mandell, Anthony Menting on | Permalink

In Bank Mutual v. Sherman, No. 2015AP2357 (Ct. App. May 17, 2017) (per curiam), the Wisconsin Court of Appeals held that an ex-husband continued to be liable for a commercial debt he guaranteed years earlier, for his then-wife. The court was not persuaded by the ex-husband’s novel argument that after the couple’s divorce and her subsequent remarriage, his ex-wife became a new legal entity thereby relieving him of his liability as a personal guarantor.

In 2005, Daniel Bohringer personally guaranteed credit that Bank Mutual extended to his then-wife, Carol. Id., ¶2. The guarantee was broad, reaching “credit previously granted, credit contemporaneously granted, and credit granted in the future.” Id. Carol and Daniel divorced roughly five years later. Id., ¶3. Their property division awarded Daniel the couple’s business, Sammy’s Taste of Chicago, and awarded Carol the commercial building that housed the business. Id. Daniel also received the couple’s farm in Lancaster, Wisconsin. Id.

After the divorce, Carol incurred further debt obligations with Bank Mutual. Daniel did not receive notice of the notes Carol entered into, nor did he give consent. Id., ¶4. When Carol later defaulted on the note, Bank Mutual foreclosed on and sold the commercial property. Id. When sale of the building resulted in a deficiency of more than $50,000, the bank executed on Daniel’s farm in Lancaster to collect. Id.

Daniel moved to stay execution on his farm. He argued that his farm was exempt as his homestead under Wis. Stat. § 815.20(1). Id., ¶5. He also argued that he was not liable as a guarantor. The circuit court ruled in the bank’s favor on both grounds. Id.

On appeal, Daniel argued that the guarantee is unenforceable because his wife became a “different legal entity” once they divorced and she remarried. Id., ¶7. Daniel cited no authority for this novel theory. Id., ¶8. The court of appeals rejected this argument in one fell swoop, holding that the contract’s language keeps Daniel on the hook for the debt regardless of the divorce and remarriage. Id., ¶9. Additionally, the court noted that Daniel had expressly waived notice of future loans subject to the guaranty, such that extending the guaranty to Carol’s post-divorce loans did not violate either her or the bank’s duty of good faith and fair dealing. Id., ¶11.

After determining that the guaranty remains enforceable, the court of appeals affirmed the circuit court’s holding that Daniel’s farm was not exempt from execution. Id., ¶13. The court found record support for the circuit court’s conclusion that the farm was not Daniel’s homestead as defined in Wis. Stat. § 990.01(14). The circuit court relied on factors including that:

  •  Daniel neither receives mail nor has any utility services at the farm;
  •  Daniel keeps his clothes in an Oconomowoc apartment;
  •  Daniel notified both the Department of Motor Vehicles and the local election board that his apartment in Oconomowoc was his residence;
  •  Daniel’s tax filings identify the Oconomowoc apartment as his residence; and
  •  Daniel receives the property tax bill for the farm at his Oconomowoc address.

Based on these findings, the court held that the circuit court did not err in “restat[ing] its previous finding that Bohringer’s Oconomowoc apartment is where he makes his home because he has equipped the apartment as his home, with all of the comforts and conveniences, and he treats the apartment like his home.” Id., ¶16.

Bank Mutual v. Sherman reaffirms that courts enforce clear contract language. That clear language led the court to dismiss Daniel’s argument that his divorce and his ex-wife’s subsequent remarriage vitiated his obligations as a guarantor. This decision highlights that personal guaranty agreements are written broadly, and leave little room, if any, to discharge the obligations therein. Business lawyers should be aware that courts will enforce the broad language sometimes contained in personal guarantees. Family lawyers may want to consider the existence of any personal guarantees relating to property being apportioned in a divorce proceeding.

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

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

Published by Susan Allen on | Permalink

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.

Next Page