Discharged Police Officer Has No Constitutional Entitlement to Pay During Pendency of His Appeal

Published by Paul W. Schwarzenbart, Holly J. Wilson on | Permalink

As we reported in November 2016, the Wisconsin Court of Appeals upheld a decision by the Milwaukee City Board of Fire and Police Commissioners (“Board”) to terminate the employment of Milwaukee Police Department (“MPD”) Officer Daniel Vidmar for falsifying a document to take possession of an unclaimed dirt bike from MPD inventory. While Officer Vidmar did not seek Wisconsin Supreme Court review of that decision, the court of appeals’ decision ended only one of Officer Vidmar’s legal challenges arising out his termination.

In a parallel federal case asserting due process and state law wage claims, the U.S. Court of Appeals for the Seventh Circuit recently slammed the door on another of Vidmar’s related challenges to his termination. Milwaukee Police Ass’n v. Flynn, No. 16-3743, 2017 WL 2962017 (7th Cir. July 12, 2017). The federal claims advanced by Vidmar and other discharged officers alleged they were denied due process when the City of Milwaukee terminated their pay and benefits upon discharge, even though they had not yet exhausted their right to challenge their terminations by appeals to the Board.

The Seventh Circuit concluded that the discharged officers had no entitlement to pay during the pendency of their appeals. As the court framed its holding, under Wisconsin law the former officers had no “property interest” in their employment once they were discharged for cause. 2017 WL 2962017 at *7. The court rejected the officers’ assertion that the chief’s “authority is limited to suspending a member’s police powers pending a trial before the Board,” concluding that the argument was “directly contradicted by the language of the statute.” Id. at *4. Instead, the court construed the statute to provide that the chief’s decision to terminate the officers was a final employment action, subject to the officers’ right to appeal the decision to the Board. As the court described it, the statute clearly provides that the officers’ property interest in their employment “is lost at the first juncture,” that is, with the chief’s decision to terminate for cause, while the discharged officer had the “opportunity to reclaim his property interest in employment on appeal after a trial.” Id. at *5.

Although not cited by the court, Wis. Stat. § 62.50(22) would have entitled the discharged officers to back pay if they had successfully challenged their discharge. This access to back pay plainly factors into the court’s statement about the officers’ opportunity to “reclaim” their property interests. Additionally, as the court noted, under Wis. Stat. § 62.50(18) an officer suspended for a period of time without pay is entitled to continue to be paid until exhaustion of the appeal. However, this provision does not apply to discharged officers.

The Seventh Circuit’s decision addresses Wis. Stat. § 62.50, which applies only to the City of Milwaukee Board. However, the statutory language of Wis. Stat. § 62.13, which governs all other municipal Boards of Police and Fire Commissioners, appears indistinguishable. Wis. Stat. § 62.13(5)(h), just like Wis. Stat. § 62.50(18), provides that an officer may not be deprived of compensation while suspended pending disposition of charges but does not address discharged officers. The latter are entitled to have all lost pay restored only if the charges are not sustained. Wis. Stat. § 62.13(5)(e). Therefore, the Seventh Circuit’s decision should not be viewed as peculiar to the City of Milwaukee.

Notably, the Seventh Circuit decision does not mark the end of Vidmar’s collateral attacks on his discharge. Presently pending before the Wisconsin Court of Appeals is Milwaukee Police Association v. City of Milwaukee, No. 2016AP1573, an appeal by Vidmar and his collective bargaining unit from a judgment dismissing their challenge to the Board’s compliance with political affiliation and training requirements set by Wis. Stat. § 62.50(1)(h) and Milwaukee City Ordinance § 314. Among other things, in that matter Vidmar seeks judgment declaring that his discharge was “unlawful” because the City’s appointment of Board members did not meet these requirements. So the Vidmar discharge matter has not yet officially reached the end of the road.

If you have any questions about the PFC disciplinary process, contact a member of Stafford Rosenbaum LLP’s Government Law Team members.

Court of Appeals Issues Decision in O’Donnell Park Parking Structure Litigation

Published by Susan Allen, Gregory M. Jacobs on | Permalink

On July 11, the Wisconsin Court of Appeals addressed a couple of notable legal issues in litigation arising out of the O’Donnell Park Parking Structure panel collapse.  Wosinski et al. v. Advance Cast Stone Co. et al., Nos. 2014AP1961, 2213, 2274, 2660, 2015AP1212 (Ct. App. 2017).  Steven and Amy Wosinski, their son Eric, and their son’s friend, Jared Kellner, were on their way to Summerfest in June 2010 when a decorative concrete panel fell from the side of the parking structure.  Jared was killed, Amy suffered severe ankle trauma that resulted in a partial leg amputation, Eric’s leg was fractured, and Steven incurred significant emotional distress from witnessing the event.  The Kellner estate and the Wolinskis subsequently filed wrongful death and personal injury lawsuits against a number of parties, including Advance Cast Stone Company (“ACS”), the entity responsible for installing the decorative concrete panels when the garage was built in the late 1980’s.

ACS’s Statute of Repose Defense

Prior to trial, ACS moved for summary judgment on the ground that the accident occurred well beyond Wisconsin’s 10-year statute of repose for improvements to real property (Wis. Stat. § 893.89).  The trial court denied the motion.  It found that there was a material issue of fact as to whether ACS concealed or misrepresented the defective and deficient manner in which the concrete panel was installed and, therefore, fell within an exception to the repose statute for parties who commit fraud, concealment, or misrepresentation (Wis. Stat. § 893.89(4)(a)).  As a result, the court allowed all of the plaintiffs’ causes of action against ACS to proceed, even those based on allegations of ACS’s negligent installation of the panel rather than the subsequent concealment and misrepresentation of those negligent installation activities.

At trial, the jury determined that ACS had used a negligent installation method that was not safe for the size of the concrete panel per the building codes in effect at the time and, therefore, was liable for 88% of the plaintiffs’ compensatory damages.  The jury also concluded that ACS’s failure to follow the building design plan by employing this suspect and defective installation method, combined with its subsequent concealment and misrepresentation of its negligent installation activities, demonstrated a “heightened state of mind” that goes beyond ordinary negligence, justifying an award of punitive damages.  The trial court denied ACS’s statute-of-repose defense based on the jury’s finding that ACS had concealed and misrepresented its defective installation of the concrete panel.  ACS appealed.

The Court of Appeals affirmed.  Specifically, the court highlighted (1) the jury’s findings that the final As-Built drawings filed with Milwaukee County reflected a design inconsistent with the method actually employed by ACS, and (2) ACS employee testimony that the company chose not to document the construction design changes in writing, despite being contractually obligated to submit written change orders to the County for approval and to maintain accurate As-Built drawings in the public file.  These facts were sufficient to prove that ACS’s conduct fell squarely within the exception to the statute of repose for parties who engage in concealment and misrepresentations, and the Court of Appeals affirmed that the exception operates to preserve all causes of action against the offending party, even those based on allegations independent of the fraud, concealment, or misrepresentations that triggered the exception.

Wosinski serves as an important warning to parties engaging in reckless or nefarious conduct that they likely will not be afforded the same time-limitation defenses as parties that, at worst, have acted negligently.  Here, for example, ACS ended up with a judgment of over $10 million in damages arising from its negligent installation of the concrete panel, though liability for those claims very well may have been barred by the statute of repose had ACS not subsequently concealed and misrepresented its construction method.

ACS’s Insurance Coverage Claim Against Liberty

Concurrent with the plaintiffs’ wrongful death and personal injury claims, ACS also was engaged in a dispute with Liberty, its liability insurance carrier, regarding defense and indemnification coverage for the plaintiffs’ claims.  Liberty had agreed to defend ACS under a reservation of rights, asserting its position that the negligence claims were barred by the statute of repose and that the allegations of fraud, concealment, and misrepresentation not subject to the repose statute would otherwise fall under the policies’ intentional acts exclusion.

Interestingly, Liberty did not file a pre-trial declaratory judgment motion seeking a ruling on its defense obligations or a motion to bifurcate the coverage issues from the liability issues.  Liberty did, however, assert its coverage position in its pre-trial report by proposing special verdict questions to be presented to the jury regarding the fraud, concealment, and misrepresentation allegations pending against ACS.  The plaintiffs and ACS both objected to Liberty’s proposed jury questions and moved to bifurcate all coverage issues from the liability trial.  The trial court granted the motion to bifurcate, holding that Liberty was not permitted to participate at trial because its strategy would jeopardize ACS’s defense, particularly with regard to punitive damages.

After trial, Liberty filed a number of post-verdict motions, including a request for a declaration that it owed no duty to indemnify in light of the jury’s findings regarding ACS’s concealment and misrepresentations.  The trial judge denied Liberty’s motions, finding not only that there was indemnification coverage as a matter of law for the damages arising from ACS’s negligent installation activities, but also that Liberty’s pre-trial conduct amounted to a breach of both the duty to defend and the duty of good faith and fair dealing it owed to ACS.  The trial court concluded that Liberty was liable for all damages that naturally flowed from its bad-faith conduct and was therefore obligated to pay the full compensatory and punitive damages award against ACS—in excess of $39 million—despite the $10 million coverage limit on ACS’s policies with Liberty.  Liberty appealed.

The Court of Appeals affirmed the trial court’s holding that coverage was triggered under the Liberty policies based on the jury’s conclusion that ACS had negligently installed of the concrete panel.  However, the Court of Appeals reversed the lower court’s ruling that Liberty’s decisions not to seek bifurcation and to assert its coverage positions at trial had breached the defense obligations it owed to ACS.  The Court held that the focal point of the duty of defend is whether or not the insurer has provided the insured a defense at all, and that Liberty’s decision to provide a defense under a reservation of rights was an acceptable approach under Wisconsin law.  The Court went on to explain that an insurer’s duty of good faith and fair dealing is separate and distinct from its defense obligations, and that the lower court overstepped its authority in holding that Liberty’s litigation strategy had been employed in bad faith because ACS had not filed a bad-faith tort claim against Liberty.  The Court vacated the order obligating Liberty to pay the full $39+ million damages amount and remanded for determination of what amount of the damages award fell within the $10 million in coverage afforded by the Liberty policies.

This holding demonstrates the imperative for a party to properly plead its claims and, if necessary, amend its causes of actions as litigation progresses.  Had ACS properly placed Liberty’s litigation conduct before the court by amending its claims to add a bad-faith claim, this proceeding may have resulted in the Court of Appeals affirming the trial court decision requiring Liberty to pay all $39+ million in damages.  Instead, ACS now faces the potential of having to pay a substantial portion of the verdict out of its own pocket, as well as having to invest additional time and resources into litigating Liberty’s alleged bad faith conduct in future proceedings.

Wisconsin Court of Appeals Upholds Municipal Snowplowing Against Public Purpose Doctrine Challenge

Published by Jeffrey A. Mandell, Vanessa D. Wishart on | Permalink

The Town of Argonne is a small community in northern Wisconsin, near Michigan’s upper peninsula. For more than 60 years, the Town has removed snow from residents’ private driveways upon request. The Town handled snow removal pursuant to contracts, funding the work through fees paid for the service and not through tax revenues. The Town’s road-crew employees performed the contracted snow removal work, which brought in more fee revenue than the work cost to perform. The Town did not provide snow removal services for private roads or parking lots. In 2014, the Town adopted a resolution enunciating this longstanding policy. Id.

In 2015, three local residents engaged in the business of snow plowing brought a declaratory judgment action seeking to invalidate the Town’s resolution. The plaintiffs alleged that the Town’s snow plowing work served no public purpose because private companies were available to do such work. Generally speaking, no local government may legislate on a matter that does not serve a public purpose. See Town of Beloit v. County of Rock, 2003 WI 8, ¶21, 259 Wis. 2d 37, 657 N.W.2d 344. Both the plaintiffs and the Town moved for summary judgment.

The circuit court granted the plaintiffs’ motion. The court acknowledged that Wis. Stat. § 86.105 specifically authorizes municipalities to contract for snow removal from private driveways. And it recognized that the Town did not rely on tax revenue for removing snow from private driveways. Nonetheless, the court agreed with plaintiffs’ argument that, because private entities were available to provide snow plowing services, the Town’s contracts to do so served no public purpose and were therefore not authorized by law.

The court of appeals disagreed. The court explained that under the public purpose doctrine, public funds can be expended only for public purposes. Samz v. Town of Argonne, No. 2015AP267 (Wis. Ct. App. April 11, 2017) (per curiam), ¶7. A court is not to overrule the determination of what constitutes a public purpose unless that determination is “‘manifestly arbitrary or unreasonable.’” Id. (quoted source omitted). The court concluded that the Town’s determination that there was a public purpose in contracting for snow removal from private driveways was neither arbitrary nor unreasonable, citing numerous examples of how such plowing benefited the public. Id., ¶8. The court also distinguished the Town’s resolution from actions invalidated in prior court decisions, because, in this case, the Town did not rely on taxpayer funding to conduct the challenged service. Id., ¶¶9-10.

Importantly, the court explicitly rejected the plaintiffs’ argument that no public benefit can exist where a private entity could provide the same services the municipality is undertaking. Id., ¶12. The court cited prior case law rejecting this broad proposition, and explained that such a holding would put courts in the unworkable position of determining whether there were sufficient private services available to obviate a public purpose. Id., ¶¶12-14. While this case was decided per curiam—without one judge acknowledging authorship of the opinion—and therefore lacks precedential value under Wis. Stat. § 809.23(3), the decision pulls together a number of prior decisions and clearly asserts that the public purpose doctrine is not defeated any time a municipality engages in services that a private entity could alternatively provide.

Wisconsin Supreme Court Decision Raises Fair Dealership Law Questions Beyond Municipal Liability

Published by James Egle, Jeffrey A. Mandell on | Permalink

The primary issue in Benson v. City of Madison, 2017 WI 65, is clearly the question of whether the Wisconsin Fair Dealership Law (“WFDL”) reaches contractual relationships involving municipalities. As discussed here, this is an issue of first impression, and the Court’s holding has broad implications.

There are, however, additional aspects of the decision worth consideration. Three in particular bear mention.

First, the Wisconsin Supreme Court had not heard a WFDL case in a while. In the interim, the composition of the Court changed substantially, and that turnover yielded a majority oriented toward a more free-market paradigm. Some commentators have wondered how the WFDL would be applied by the current Court. Benson suggests that in many respects not much has changed. The Benson majority, joined by all five Justices perceived as more conservative, follows settled law granting the WFDL a broad construction. (Indeed, by holding that municipalities are covered by the WFDL, the majority significantly expands the law’s scope.) And it firmly forecloses arguments that a party can contract around the WFDL, nullifying a contractual provision that the City of Madison cited as exculpatory. See 2017 WI 65, ¶48.

Second, the Court shed a little light on the doctrinal Gordian knot at the heart of most WFDL litigation. The vast majority of WFDL cases turn on the question of whether the parties’ relationship constitutes a “community of interest.” This has always been a vague standard. Three decades ago, the Court identified two “guideposts” for this inquiry: “continuing financial interest” and “interdependence.” Ziegler Co. v. Rexnord, Inc., 139 Wis. 2d 593, 604-05, 407 N.W.2d 873 (1987). The Ziegler Court also identified ten, non-exclusive facets of a relationship that might shed light on one or both guideposts. See id. at 606. Lower courts have been somewhat vexed by applying the various facets—and others that might seem relevant in individual cases—to the guideposts. Benson provides some wiggle room, noting that the Ziegler facets need not all be measured in every case, because “it is more accurate to say that some or all ‘may’ be considered; the factors are meant to be a helpful aid in addressing the overriding community of interest question, not an unwieldy burden.” Benson, 2017 WI 65, n.15.

Third, the Court’s newest Justice, Dan Kelly, wrote a separate concurring opinion to, in his words, address “one persnickety point.” Id., ¶64 (Kelly, J., concurring). But his point is not a minor one: he disagrees with the majority about what goods and services should be considered the subject of the contract that binds the parties in a dealership. Justice Kelly believes that only those goods and services that belong to the grantor (here, the City of Madison) can be considered part of the dealership, while the majority opinion cites both those and additional goods and services provided wholly by the dealer (here, the golf pros). See id., ¶¶65-66.  The fact that Justice Kelly raised this issue and that none of the other five Justices in the majority joined his concurrence can be read to suggest that a majority of the Court—at least four Justices—disagree with his reading of the statute and believe that a dealer can bring its own goods and services into a dealership relationship. That issue was not decisive here, but it could loom large in a future dispute about application of the WFDL (and in calculating damages due to the golf pros on remand).

Wisconsin Supreme Court Holds Municipalities Are Subject to Wisconsin Fair Dealership Law

Published by Richard Yde, Holly J. Wilson on | Permalink

In a shocking decision that will increase the cost of local governance and limit the ability of local governments to control their own affairs, the Wisconsin Supreme Court held last week that the Wisconsin Fair Dealership Law (“WFDL”) applies to municipalities. Benson v. City of Madison, 2017 WI 65. The remainder of this post discusses the municipal law implications of the decision; a companion post addresses additional aspects of the decision of interest to those who rely upon or follow the evolution of the WFDL.

The City of Madison owns four municipal golf courses. Beginning in 1977, the City contracted with golf pros, to operate, manage and provide services at the City-owned courses. Under the contracts, the golf pros were each responsible for one course, at which they collected green fees, hired and managed attendants, supervised golfing, operated the clubhouse and pro shop, sold concessions, and gave lessons; City employees handled all physical maintenance of the golf courses. On October 8, 2012 (less than 90 days before the most recent contracts’ expiration date of December 31, 2012), the City informed the golf pros that it would not be renewing their contracts.

The golf pros filed a lawsuit against the City. The lawsuit alleged that the City failed to comply with the WFDL in ending its contractual relationships with them and sought damages. Briefly, the WFDL, adopted in 1974, governs “dealerships,” which are specially defined contracts entered into between “grantors” and “dealers.” Wis. Stat. §§ 135.02-135.025. The WFDL prohibits grantors from terminating dealership contracts without good cause, Wis. Stat. § 135.03, and requires 90 days’ notice prior to termination, Wis. Stat. § 135.04. If a grantor violates the WFDL, a dealer may bring an action against such grantor for damages. Wis. Stat. § 135.06.

The circuit court dismissed the golf pros’ lawsuit on summary judgment, concluding that the relationships between the golf pros and the City did not constitute “dealerships” protected by the WFDL, Wis. Stat. § 135.02(3). When the golf pros appealed, the court of appeals affirmed. The golf pros appealed again, and the Wisconsin Supreme Court agreed to review the case.

The Wisconsin Supreme Court reversed, answering two principal questions in the affirmative: first, whether the WFDL applies to the City at all; and second, whether the relationships between the golf pros and the City are “dealerships” under the WFDL.

First, the Court determined that the WFDL applies to the City. To determine this issue, the Court started with the defined terms of the statute. The WFDL defines “dealer” as “a person who is a grantee of a dealership situated in this state,” Wis. Stat. § 135.02(2), and “dealership” as “[a] contract… between 2 or more persons, by which a person is granted the right to sell or distribute goods or services, or use a trade name, trademark, service mark, logotype, advertising or other commercial symbol, in which there is a community of interest in the business of offering, selling or distributing goods or services at wholesale, retail, by [contract],” Wis. Stat. § 135.02(3)(a). Because the terms dealer and dealership require a “person” to be a party to the contract, the Court then turned to the first issue—whether the City is a “person” under the WFDL. Again, the Court looked to the definitions in the WFDL and found that the WFDL’s definition of “person” included “corporation or other entity.” Wis. Stat. § 135.02(6). The Court concluded that because the City is a municipal corporation, it falls within the category of “corporation” and therefore qualifies as a person subject to the WFDL.

Second, the Court held that the contractual relationships between the golf pros and the City are “dealerships” under the WFDL. The Court found that all three statutory elements for a dealership were satisfied: (1) a contract between two or more persons existed; (2) the contract granted the golf pros the right to sell or distribute a City service (here, access to the golf courses); and (3) the golf pros’ business of selling the City’s services created a “community of interest.”

In dissent, Justices Shirley Abrahamson and Ann Walsh Bradley argued that the Fair Dealership Law should not apply because the City is not a “person” under the WFDL. Notably, the dissent emphasized that the majority’s analysis “neglects to address the relationship of the Dealership Law, municipal constitutional and statutory home rule, and other statutes governing governmental entities.” 2017 WI 65, ¶136.

The majority’s analysis failed to consider the City’s home-rule authority at all. This case continues the trend in Wisconsin cases of ignoring entirely, or limiting the extent of, municipal home rule. As the dissent notes, this decision has far-reaching consequences.

Contracts municipalities thought were terminable at will or on a specific date now may not be terminable without giving 90 days notice and having good cause. Lacking the funds to continue a contractual relationship does not fall within the WFDL’s definition of good cause. Thus, if a municipality does not have sufficient funds to renew a contract, it may face the choice of either cutting essential services or getting sued by its golf pros or other contractors for violation of the WFDL.

In considering future contracts, municipalities will need to assess whether their contractual relationships might be considered dealerships and if there is a way to avoid that status. The municipality may decide not to provide certain services rather than take the chance of being bound under the WFDL.

Until or unless the law is changed in light of this decision, the Benson case will certainly give municipalities pause when considering privatizing municipal functions.

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.

Previous Page   Next Page