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

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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

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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

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

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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

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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.

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

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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

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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

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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

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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.

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

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

Facts and procedural history

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

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

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

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

Prior case law

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

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

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

The Bleecker decision

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

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

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

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

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