Court of Appeals Denies Nonprofit Medical Clinics from Claiming Property Tax Exemption

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The Wisconsin Court of Appeals recently held that a hospital owned by a non-profit entity failed to demonstrate that three medical clinics it also owns are not used as “doctor’s offices,” and therefore are not exempt under Wisconsin’s nonprofit hospital property tax exemption.  Mile Bluff Medical Center, Inc. v. Village of Necedah, City of New Lisbon and City of Elroy, No. No. 2017AP751, 2018 WL 1040203 (Wis. Ct. App. Feb. 22, 2018) (slip opinion) (unpublished.)  Mile Bluff is the most recent decision in a line of cases addressing whether medical clinics owned by a nonprofit hospitals qualify for the exemption.

Mile Bluff is a non-profit entity that owns a hospital in Mauston and the three medical clinics at issue in this case.  Mile Bluff sought an exemption from property taxation for the clinics under Wis. Stat. § 70.11(4m)(a).  Under § 70.11(4m)(a), real property owned and used exclusively for the purposes of a non-profit hospital of 10 beds or more devoted primarily to the diagnosis, treatment or care of the sick, injured or disabled is eligible for the exemption provided, among other things, that the property is not used as a doctor’s office. 

In concluding that the Mile Bluff medical clinics are used as doctor’s offices, and therefore not exempt from property taxation, the court considered seven factors previously articulated by other courts as relevant in determining whether a facility is a doctor’s office.  The seven factors the Court analyzed include whether the:

  1. physicians at the clinics owned or lease the facility or equipment;

  2. physicians at the clinics received “variable compensation,” that is, compensation based on their “productivity”;

  3. physicians at the clinics employed or supervised non-physician staff, or received extra compensation for such duties;

  4.  clinics and hospital generated separate billing statements or use separate billing software;

  5.  physicians at the clinics had office space in the clinics;

  6.  clinics provided services of the type that had been formerly performed inpatient at the hospital; and

  7. clinics were open during regular business hours during which time the physicians generally saw patients by appointment.

The Court sided with Mile Bluff on the first factor and assumed, without analysis, that the second factor also supported Mile Bluff’s position. The Court found that the fourth factor did not favor either of the parties.  The Court sided with the municipalities with respect to a majority of the factors—the third, fifth, sixth and seventh factors.  The Court further concluded that the clinics lacked typical hospital amenities, like a gift shop, and did not offer urgent care services, making the clinics more like doctor’s offices. 

The Court also rejected Mile Bluff’s argument that the fact that the clinics were “rural health clinics” and are required by federal and state law to have a certain level of integration with the non-profit hospital that owns them should be considered in determining whether the clinics were hospitals or doctor’s offices. The Court found that this status did not result in any significant change in the nature or manner of patient services, a critical element in determining whether a clinic is a doctor’s office, and therefore was not enough to tip the scales in favor of Mile Bluff’s argument.

Based on these findings, the Court held that the clinics were in fact doctor’s offices and therefore not exempt under the non-profit hospital exemption. 

The case makes clear that there is no bright line test for whether, on balance, property owned by a non-profit is a doctor’s office.  Assessors should carefully weigh the particular facts of each case against the guidelines relied upon by the Court. 

If you have questions on this case or on other property taxation related matters, contact Meg Vergeront at (608) 259-2663.

The NLRB Creates a New Standard for Evaluating Workplace Rules’ Effect on the Right to Unionize

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In The Boeing Company and Society of Professional Engineering Employees in Aerospace, IFPTE Local 2001 the National Labor Relations Board (NLRB) articulated a new standard for determining whether employers’ rules and handbook provisions violate the National Labor Relations Act’s (NLRA) prohibition on rules that interfere with employees’ right to join labor organizations and bargain collectively. Cases 19-CA-09032, 19-CA-090948, and 19-CA-095926. The NLRB believes that this new standard will be easier to apply on a case-by-case basis, and will invalidate fewer “common-sense rules and requirements that most people would reasonably expect every employer to maintain.”


In The Boeing Company, Boeing had a policy that banned the use of “devices to capture images or video” without a valid business need and camera permit (No-Camera Rule). The No-Camera Rule prohibited only the use of the camera–not the entire device–therefore employees were allowed to use cellphones and laptops on company property. The question before the Board was whether the No-Camera Rule violated the NLRA’s prohibition against employers interfering with employees’ right to unionize.

Section 7 of the NLRA guarantees employees the right to self-organize and join labor organizations. Section 8(a)(1) makes it an unfair labor practice for an employer to interfere with that right. Under prior law, if a rule did not explicitly interfere with employees’ right to unionize, the NLRB would consider whether: (1) employees would reasonably construe the language to prohibit Section 7 activity; (2) the rule was promulgated in response to union activity; or (3) the rule has been applied to restrict the exercise of Section 7 rights. Lutheran Heritage Village-Livonia, Case 7-CA-44877 (emphasis added). The administrative judge held that Boeing’s No- Camera Rule was unlawful because it failed prong (1) of the test; that is, employees would “reasonably construe” the rule to prohibit Section 7 activity.

NLRB Decision

The NLRB overruled the “reasonably construe” standard iterated in Lutheran Heritage and held that, under its new test, the No-Camera Rule was lawful. The NLRB listed many reasons why the test was insufficient. Among those reasons, was that the “reasonably construe” test “entails a single-minded consideration” in that it does not consider justifications for having the employer’s rule in place. The NLRB noted that the test created confusion for employers because outcomes were unpredictable, and that the test was based on the false premises that employees are best served by not having employment policies.

Under the NLRB’s new test, the first question is whether the rule would potentially interfere with the exercise of NLRA rights. If not, then the rule is lawful. If yes, then the NLRB considers (1) the nature and extent of the potential impact on NLRA rights, and (2) legitimate justifications associated with the rule. Then the NLRB will classify the rules it evaluates under this new standard into one of the three categories. Category 1 includes rules that are lawful because they don’t interfere with NLRA rights or the potential adverse impact on rights is outweighed by the rule’s justification. Category 2 includes rules that warrant individualized scrutiny in each case as to whether the rule would prohibit or interfere with NLRA rights, and if so, whether any adverse impact is outweighed by justifications. Finally, Category 3 includes rules that the NLRB designates as unlawful because they violate NLRA-protected conduct and are not properly justified.

As for Boeing, the NLRB determined that the No-Camera Rule fell under Category 1 because it only had a slight adverse impact on Section 7 activity and Boeing had legitimate justifications for the rule. Boeing has highly sensitive and classified information because it manufactures military aircrafts for the federal government.


The NLRB’s ruling affects union and non-union workplaces because non-union workplaces must also comply with the provisions in the NLRA prohibiting interference or restraint on collective bargaining and self-organizing. Therefore the ruling has a widespread impact. The new test is more employer friendly in that it gives weight to the reasoning behind implementing a workplace rule or policy.  Additionally, the categorization scheme should provide employers with more guidance in creating lawful work policies.

The case is available at:

Seventh Circuit Holds Pharmaceutical Product Liability Claims Preempted By Federal Law

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The Seventh Circuit Court of Appeals held on January 19, 2018, that federal law preempts thousands of product liability claims, brought under the laws of various states, concerning Depo-T (a testosterone drug). Guilbeau v. Pfizer Inc., No. 17-2056 (7th Cir.). The case illuminates the intersection of tort law, federal regulation, and intellectual property.

Generally, a new drug must undergo a rigorous “new drug application” (NDA) process before the Food and Drug Administration will approve them for public use. The NDA process includes a laborious review to determine a drug’s safety and efficacy. If approved, a drug that has gone through the NDA process is considered a brand name drug and any drug made thereafter of the same composition will be considered a generic drug. The distinction between brand name and generic drugs implicates intellectual property rights, pricing, and obligations with respect to labeling.

If a second drug is considered to be the same as or bioequivalent to a drug approved through the NDA process, that second drug may be reviewed by the FDA under the “abbreviated new drug application” (ANDA) process. A drug approved through the ANDA process is generally considered a generic drug. However, in certain circumstances, a drug approved through the ANDA process is deemed to be the reference-listed drug (that is, the first drug of that physical composition to be approved by the FDA), and is therefore considered a brand name drug.

This case fell into those unusual circumstances. In 1953, Delatestryl (a testosterone replacement drug) was approved as a new drug by the Food and Drug Administration after NDA review. Then, in 1979, Depo-T was found to be the same as Delatestryl and was approved through the ANDA process. However, because Depo-T was slightly different in physical composition to Delatestryl, the FDA deemed it a separate reference-listed drug. Depo-T therefore became the brand-name drug for any later generic versions using its particular formulation.

In 2014, more than a thousand plaintiffs filed suit in several states, alleging that, after taking Depo-T as prescribed, they suffered heart attacks or strokes. The plaintiffs sued Pfizer, Inc. (the drug’s manufacturer), under the theory that the company failed to warn physicians and patients of the drug’s potentially fatal side effects. After those cases were consolidated and the district court concluded that the plaintiffs’ state-law claims were preempted by federal law, the plaintiffs appealed.

The Seventh Circuit held that Depo-T’s classification as a brand name drug was less important than its regulatory approval under the ANDA process. The plaintiffs argued that, because Depo-T is a reference-listed drug, Pfizer had a duty to warn prescribers and patients of any dangers and should, therefore, have updated its labels explaining the risks of heart attack and stroke as those risks were discovered. The court disagreed. Because Depo-T was approved under an ANDA, it was to be treated legally as if it were a generic drug.

Generic drugs are obligated to use a label that matches the one used by the corresponding brand name drug and cannot make changes absent FDA approval. As a result, manufacturers of generic drugs cannot be sued on the theory that their labels fail to contain information not included on the label of the corresponding brand name drug.

The Seventh Circuit cited the Supreme Court’s decision in Pliva, Inc. v. Mensing, 564 U.S. 604 (2011), which held that when federal drug regulations that apply to generic drugs conflict with state law claims, like failure to warn of adverse side effects, the state law is preempted. In other words, because Depo-T’s was approved through the ANDA process and its label conforms with what the FDA required, the state-law failure to warn state law claims against Pfizer are preempted by federal law. The court noted that the unusual fact of Depo-T being a reference listed drug while also having the legal status of a generic does not change the outcome here.

Laura Lamansky is a law student at the University of Wisconsin and a law clerk working under supervision. She will be a full-time lawyer at Stafford Rosenbaum beginning later this year.

Top 10 Municipal Law Developments of 2017

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Stafford Rosenbaum’s Government Law and Government Relations teams continuously stay apprised of the latest developments in Wisconsin municipal law. Below, in no particular order, are the top 10 municipal law developments of 2017.

  1. 2017 Wisconsin Act 67 made broad changes to conditional use permits and preemption of clauses that merge substandard lots. For more information regarding this Act and its implications, read our blog post here. Additionally, the Act was partially a response to the U.S. Supreme Court’s decision in Murr v. Wisconsin, which we covered extensively with blog posts and a series of videos.

  2. In McKee Family I, LLC v. City of Fitchburg, 2017 WI 34, 374 Wis. 2d 487, 893 N.W.2d 12, the Supreme Court affirmed the bright-line limitations on the building permit exception to the general prohibition on vested rights in land use. McKee reaffirmed the common-law principle that 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. We posted about this decision in May.  After the McKee case was filed but years before it was decided, the legislature engrafted a vested-rights provision onto Wis. Stat. § 66.10015. Under that provision, local governments are prohibited from applying new changes or conditions to permit-approval processes after a property owner has submitted an application for a development-related permit. We do not yet know how courts will interpret the new statute and how much it will change established common-law principles.

  3. In Benson v. City of Madison, 2017 WI 65, 376 Wis. 2d 35, 897 N.W.2d 16, the Supreme Court held that the Wisconsin Fair Dealership Law applies to municipalities. Though the WFDL is the subject of extensive litigation, this was an unexpected resolution. We posted about this decision in June, addressing both its municipal aspects and its business aspects.

  4. In Melchert v. Pro Elec. Contractors, 2017 WI 30, 374 Wis. 2d 439, 892 N.W.2d 710, the Supreme Court held that a private contractor was entitled to governmental immunity for damage done while carrying out the government’s specifications. The private contractor severed a sewer lateral line while working on a government construction project. Neighboring property owners then sued to recover damages from the resulting flood. The Court held the contractor immune because its work complied with the Wisconsin Department of Transportation’s reasonably precise specifications for the project.

  5. In Wilmet v. Liberty Mut. Ins. Co., 2017 WI App 16, 374 Wis. 2d 413, 893 N.W.2d 251, the Court of Appeals held the supervision of a child engaged in recreational activity falls within the immunity granted for recreational activities by Wis. Stat. § 895.52. We posted about this decision in March.

  6. In City of Oshkosh v. Kubiak, 2017 WI App 20, 374 Wis. 2d 337, 893 N.W.2d 271, the Court of Appeals held that the use of the term “organizer” in a municipal special events permitting ordinance was not unconstitutionally vague. The ordinance required that the “organizer” of an event apply for a permit and pay the City’s costs. The ordinance did not define the term “organizer.” After a college pub crawl proceeded without a permit, the City sued the students who planned the event. The court held that the ordinance was not unconstitutionally vague because it did not invite guesswork in application and enforcement.

  7. In Wisconsin Carry Inc. v. City of Madison, 2017 WI 19, 373 Wis. 2d 348, 891 N.W.2d 803, the Supreme Court held that Wisconsin’s concealed-carry statute preempts the City of Madison’s rule restricting a licensee’s right to carry concealed weapons on City’s buses so long as the licensee complies with the statute’s requirements. The concealed-carry statute states that no political subdivision may adopt an ordinance or resolution that regulates the possession, bearing, or transportation of any firearm in a manner more stringent than state law. The Court held that the concealed-carry statute applies to all legislative activity by local governments, including Madison’s rule against guns on public buses.

  8. In Voces De La Frontera Inc. v. Clarke, 2017 WI 16, 373 Wis. 2d 348, 891 N.W.2d 803, the Supreme Court held that I-247 immigration detainer forms issued by U.S. Immigration and Customs Enforcement (ICE) are exempt from disclosure under Wisconsin’s public records law. Wisconsin public records law prevents disclosure of any record that is exempted by federal law. The Court found that certain federal regulations prohibited the disclosure of the forms.

  9. In Bank of America Corp. v. City of Miami, Fla., ocal governments have standing to sue banks under the Fair Housing Act for economic harm caused to them by discriminatory lending practices, but in order to prove causation, local governments must show “some direct relation between the injury asserted and the injurious conduct alleged.” We posted about this decision in May.

  10. In AllEnergy Corp. v. Trempealeau Cty. Env’t & Land Use Comm., 2017 WI 52, 375 Wis. 2d 329, 895 N.W.2d 368, the Supreme Court held that: 1) a county committee did not exceed its jurisdiction when acting on a conditional use permit application by considering public health, safety and general welfare matters; 2) public testimony and opinion provided substantial evidence for a conditional use permit application denial; and 3) a conditional use permit applicant is not entitled to the permit whenever it meets the specific conditions set forth in the ordinance and any additional conditions imposed by the permitting authority. AllEnergy applied for a conditional use permit for a 265-acre silica sand mine shortly before the County imposed a temporary moratorium on new non-metallic mining activities. The County denied the permit, and AllEnergy filed suit.


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In a recent decision, the Wisconsin Court of Appeals addressed the insurance implications of a car accident made unusual because at least two of the deceased workers were employees of temporary help agencies. See Ehr et al. v. West Bend Mutual Insurance Co. et al., Case No. 2017AP142 (Wis. Ct. App. January 9, 2018) [decision].  In so doing, the Court clarified that worker’s compensation laws—and particularly the exclusive-remedy provision that prevents injured employees from bringing tort suits against their employers—apply differently to temporary workers than to permanent employees.

The accident involved a vehicle owned by the temporary employer and occurred during work-related activities, which unfortunately resulted in the death of three individuals, at least two of which were temporary employees.  It’s the last of these circumstances that complicated matters.

One of the temporary employee’s estate and two surviving minor children filed a wrongful death action in Milwaukee County Circuit Court against Alpine Insulation, the temporary employer, and Alpine’s automobile liability insurer, West Bend Mutual Insurance Company. That suit sought damages for pain and suffering as well as the minor children’s loss of society, companionship, and support.  Id., ¶¶ 3-5.

After answering the complaint, Alpine and West Bend moved for summary judgment on the ground that the plaintiffs’ claims were barred by Section 102.29(6)(b)1 of the Wisconsin Worker’s Compensation statute, which states:

“[n]o employee of a temporary help agency who makes a claim for compensation may make a claim or maintain an action in tort against . . . any employer that compensates the temporary help agency for the employee’s services.”

According to Alpine and West Bend, the plaintiffs’ wrongful death tort claim was barred under this statute because the deceased had been employed by a temporary help agency and Alpine had compensated that agency for the deceased’s services.  As a result, the defendants argued that under Section 102.29(6)(b)1 the plaintiffs could not bring tort claims against Alpine as the deceased’s temporary employer.  The circuit court agreed and therefore granted summary judgment in favor of the defendants. Ehr slip op. ¶ 6.

The Wisconsin Court of Appeals reversed.  The Court noted that, by holding that Wis. Stat. 102.29(6)(b)1 completely bars tort claims a temporary employee may otherwise bring against its temporary employer under all circumstances, the circuit court ignored the qualifying phrase “who makes a claim for compensation.”  The Court held that the plain meaning of the statute governs, such that a temporary employee injured during the scope of his or her temporary employment may seek relief in either of two ways: (1) by making a worker’s compensation claim against his or her permanent employer (the temporary help agency) and be subject to the exclusive remedy provision or, alternatively, (2) by pursuing a third-party claim against his or her temporary employer and foregoing any claim under the worker’s compensation statute.  Id. ¶¶ 14-18.

The Court further rejected Alpine and West Bend’s argument that such an interpretation would unfairly place temporary employees in a more advantageous position than permanent employees.  The Court explained that the exclusive-remedy provision only limits permanent employees’ claims against their employers, and that such employees are free to pursue tort claims against third parties.  The exclusive-remedy provision, the Court continued, places the same limitation on temporary employees vis a vis their permanent employers (the temporary help agency).  The legislature’s adoption of Wis. Stat. § 102.29(6)(b)1 was a reasonable recognition of a “middle ground” for claims by a temporary employee against his or her temporary employer; rather than treat such entities as a truly independent third party and allow a temporary employee to pursue those tort claims in addition to a worker’s compensation claim against the temporary help agency, the temporary employee may only choose one avenue of recovery.  Id. ¶¶ 21-25.

An interesting factual wrinkle that was not explored in this decision is that the driver of the Alpine-owned vehicle was also a temporary Alpine employee, but had been hired through a different temporary help agency than the employee whose estate brought this lawsuit.  One wonders if the plaintiffs could have avoided any potential worker’s compensation statutory complications altogether by filing a claim against only West Bend under the theory that, as the insurer of the Alpine vehicle, West Bend was obligated to provide coverage for any liability arising from the negligent operation of that vehicle.  Additionally, given that the temporary workers were employed by different temporary help agencies, the plaintiffs presumably could have brought suit directly against the driver and possibly his personal auto liability insurer without implicating any potential worker’s compensation statutory limitations.

In any event, in light of the Ehr decision, Wisconsin employers should factor in their increased liability exposure when deciding whether to seek help on a temporary basis.  While it may be cost-effective to avoid taking on additional permanent employees in other areas of their business, the Ehr decision makes clear that businesses employing temporary workers are exposing themselves to additional liability exposure should a temporary employee be injured on the job.  At a minimum, Wisconsin businesses should ensure that all of their liability insurance provides adequate coverage for any potential tort claims brought by a temporary employee.

WI Supreme Court Concludes Non-Compete Statute Applies to Non-Solicitation of Employees Agreement

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In Manitowoc Co. v. Lanning, 2018 WI 6, decided January 19, 2018, a 5-2 majority of the Wisconsin Supreme Court concluded that a non-solicitation of employees agreement (“NSE”) can be subject to scrutiny under Wis. Stat. § 103.465. Under the statute, enacted in 1957, any covenant by an employee “not to compete” with a former employer upon termination of employment is void in toto if the agreement imposes an unreasonable restraint in any respect. However, the divided opinions strongly suggest that the court is narrowing its view of the statute’s scope.

The lead opinion, authored by Justice Shirley Abrahamson and joined in by Justice Anne Walsh Bradley, trod a familiar path in non-compete cases. It frames two issues for review. One, was the NSE a “covenant … not to compete”? Two, if so, was any part of the NSE unreasonably broad, resulting in the entire covenant being void.

The lead opinion has little difficulty answering both questions in the affirmative. In doing so, it cites past precedents applying the statute to many restrictions other than an express agreement by an employee to refrain from future employment with a competitor. The lead opinion quotes Tatge v. Chambers & Owen, Inc., 219 Wis. 2d 99, 112, 579 N.W.2d 217 (1998), for the proposition that “it would be an exercise in semantics to overlook § 103.465 merely because [a provision] of the agreement is not labeled a ‘covenant not to compete,’” adding that the statute “has been applied to agreements viewed as restraints of trade.” 2018 WI 6, ¶ 5.

While the concurring opinion, authored by Justice Rebecca Grassl Bradley, and joined in by Justices Michael Gableman and Daniel Kelly, agreed that the NSE at issue in the case was subject to the statute, it strongly disagrees with the lead opinion’s analysis. The concurring opinion first criticizes the lead opinion for unduly relying on the court’s own case law interpreting the statute and failing to undertake a “textual analysis” of the statute. 2018 WI 6, ¶ 65.The concurring opinion states that in “abandoning this process, the lead opinion risks reading into Wis. Stat. § 103.465 imagined words derived from the court’s perception of the legislature's unspoken policies and purpose.” Id., ¶ 66.

What “imagined words”? Specifically, the concurring opinion focuses on the lead opinion’s reference to the NSE as a “restraint of trade” and its focus on the impact of the NSE on parties other than the employee and the employer. 2018 WI 6, ¶¶ 75, 76. This latter flaw, according to the concurring opinion, led the court to err in Heyde Cos., Inc. v. Dove Healthcare, LLC, 2002 WI 131, 258 Wis. 2d 28, 654 N.W.2d 830, by applying the statute to invalidate a “no hire” agreement between two employers, an agreement to which no employee was a party. The concurring opinion states flatly that Heyde “should be overruled as unsound in principle because its analysis is patently wrong,” and it then devotes significant analysis to explaining exactly why. Id., ¶¶ 78-81.

But despite its disagreement with the lead opinion’s view of the statute and its reliance on precedents applying the statute expansively, the concurring opinion reaches the same result in this case. It agrees the NSE was a “covenant … not to compete” because it restrained the employee, Lanning, from “engag[ing] in a particular form of competition,” i.e., “soliciting, inducing, or encouraging any Manitowoc employee from accepting employment with any Manitowoc competitor, thereby limiting Lanning in performing certain work—namely, recruitment for his new employer, a competitor of Manitowoc’s.” 2018 WI 6, ¶ 72. It rejects the analysis of the dissenting opinion, authored by Chief Justice Patience Roggensack and joined in by Justice Annette Kingsland Ziegler, as “internally contradictory,” in that it concluded the NSE was not a covenant not to compete under a strict reading of the statute, while at the same time stating that “the former employer will become a less effective competitor” due to the NSE not being enforceable.” Id., ¶ 74.

Once the lead and concurring opinions arrive at the conclusion that the NSE was subject to the statute, the outcome is clear. This NSE was afflicted by sins familiar to any attorney who has tried to enforce such agreements within the scope of the statute. It prohibited Lanning from soliciting “any” employee in any position with the company without regard to geographical location or personal familiarity with Lanning. 2018 WI 6, ¶¶ 46, 47, 56, 62. The lead opinion explicitly rejected Manitowoc’s argument that the statute should be applied on a “sliding scale” basis, with lesser scrutiny being given to an NSE because it was “less onerous” than a traditional not compete.” Id., ¶¶ 51-54. The concurring opinion made no reference to this argument, and presumably rejected it as contrary to its textual analysis of the statute.

So what can be drawn from this decision? Three thoughts:

First, an NSE can be treated as a non-compete subject to Wis. Stat. § 103.465, although the concurring opinion cautioned that “not every NSE provision necessarily falls under the purview of that statute.” 2018 WI 6, ¶ 65. The concurring opinion, however, makes no suggestions as to what circumstances might lead to the conclusion that a particular NSE is beyond the statute’s reach.

Second, given that the dissent joined with the concurrence in criticizing the lead opinion’s description of the statute as directed to “restraints of trade,” it appears there is a strong majority support on the court to overrule the Heyde Cos. case and it is likely only a matter of time before the court expressly does so.

Third, again, with the concurrence and the dissent in agreement that attention must focus on the text of the statute rather than expansive past precedents, it is reasonable to assume that, in future cases, employers will argue that Lanning favors a narrower, more textually focused application of the statute.

Court Determines Defendant’s Breach of Contract Constituted a “Wrongful Act”

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The Wisconsin Court of Appeals issued a decision that clarifies an exception to the general rule that attorneys’ fees are not recoverable damages. Talmer Bank & Trust v. Jacobsen, No. 2017AP752-FT (Wis. Ct. App. Jan. 10, 2018). The court held that a litigant may recover attorneys’ fees if he or she is forced into litigation with a third party because of another party’s breach of contract.


The Gomezes entered into a land contract with the Jacobsens. The underling land was owned by the Jacobsens, subject to a mortgage. Pursuant to the contract, the Gomezes made monthly payments to the Jacobsens, and in turn the Jacobsens were supposed to continue making mortgage payments. Unbeknownst to the Gomezes, the Jacobsens missed fifteen consecutive monthly mortgage payments. Eventually the mortgage holder initiated a foreclosure action against both the Gomezes and the Jacobsens. The Gomezes reached a settlement with the bank that allowed them to stay on the property. The Gomezes then filed a cross-claim arguing that the Jacobsens must pay their attorneys’ fees that they incurred in defending the foreclosure action.

Generally in the United States, litigants may not recover attorneys’ fees as damages, but there are exceptions to this rule. The Gomezes invoked the “third-party litigation exception,” which states that a party may recover attorneys’ fees if another party’s wrongful act forces the individual into litigation. It was uncontested that the Jacobsens’ breach of the land contract forced the Gomezes into litigation with the bank, therefore the sole question before the circuit court was whether the Jacobsens’ breach constituted a wrongful act. The circuit court held that a breach could not constitute a wrongful act, and therefore the Jacobsens were not required to pay the Gomezes’ attorneys’ fees.

Court of Appeals’ Decision

On appeal, the Jacobsens argued that their breach of contract did not constitute a wrongful act because a wrongful act is limited to fraud, breach of a fiduciary duty, or “something similar.” The court of appeals rejected this argument. “Our supreme court has unequivocally declared that ‘a breach of contract as well as tort may be a basis for allowing [a] plaintiff to recover reasonable third-party litigation expenses.” ¶ 10 (quoting City of Cedarburg Light & Water Comm’n  v. Glens Falls Ins. Co., 42 Wis.2d 120, 166 N.W.2d 165 (1969)). The court explained that attorneys’ fees are recoverable when such fees are rightly considered part of the damages flowing from the defendant’s breach of contract.

The court’s decision makes clear that when a party’s breach of contract forces someone else into litigation with a third party, such breach is a wrongful action, which permits the individual to recover his or her attorneys’ fees from the breaching party.

Court Distinguishes Employers Ability to Recoup Draws on Commission

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The Sixth Circuit Court of Appeals recently issued a decision holding that hhgregg Inc.’s practice of paying at least minimum wage to commissioned employees when earned commissions fell short of minimum wage during a given pay period, and then later deducting that amount if the employee made more than minimum wage in the future, did not violate the Fair Labor Standards Act (FLSA). Stein v. HHGregg, Inc., 873 F.3d 523 (6th Cir. 2017). The Sixth Circuit’s jurisdiction extends to Tennessee, Kentucky, Michigan, and Ohio. Wisconsin businesses are not directly affected by the outcome of this case, but the circuit’s decision is informative.


Hhgregg’s retail employees are paid on commission. If the employees do not sell enough products to meet minimum-wage requirements in a given week, then hhgregg advances a “draw” to the employees to bring their wages up to minimum wage. If an employee later makes more than minimum-wage in a work week, then hhgregg will deduct the amount of previous draws from the employee’s paycheck. Current and former employees sued hhgregg claiming that the recoupment of draw advances from later paychecks violated the FLSA. Specifically, the plaintiffs argued that hhgregg’s policy violated the requirement that minimum wage be paid “finally and unconditionally or ‘free and clear.’” 29 C.F.R. § 531.35. That is, the employees claimed that this scheme resulted in an unlawful “kick back” of wages.

The Court’s Decision

The court concluded that recouping draws from later paychecks does not constitute an unlawful kick-back. The court explained that the regulations prohibit employers from demanding that employees return wages already delivered. However, the court held that hhgregg’s practice did not violate the anti-kick back FLSA regulations because hhgregg employees keep all draws received from the company in the paycheck in which the draw is received. If and when the employee makes more than minimum wage, hhgregg deducts draws from wages before they are delivered to the employee. Therefore, hhgregg was not receiving a kick-back from delivered wages, and thus did not violate the regulations.

Employer Take-Away

Stein v. Hhgregg provides helpful insight for Wisconsin employers who have commissioned employees. Wisconsin employers may wish to review their policies in light of this decision and consult with legal counsel.

Wisconsin Supreme Court Upholds Dismissal of Claims by John Menard’s Former Fiancée

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The Wisconsin Supreme Court issued its last decision of 2017 in Sands v. Menard, 2017 WI 110, which involved a Watts v. Watts-type unjust enrichment claim by Debra Sands, the former fiancée of president and CEO of Menard, Inc., John Menard, Jr.  In a 5-2 decision authored by Chief Justice Roggensack, the court upheld the court of appeals’ decision dismissing Sands’ claims.  Our discussion of the court of appeals decision is available here.

Sands, an attorney and businesswoman, claimed that from 1998 through 2006, she and Menard participated in a joint enterprise intended to further grow and develop Menard’s business for their joint benefit.  Asserting that she provided both business and personal contributions to Menard throughout the course of their relationship that resulted in financial gain to his business, Sands sought a portion of Menard’s “net worth or assets, ownership interests in the Menard companies, or any part of the increased value in the Menard Companies.” Id. at ¶ 16.

The court spent an extensive portion of the majority decision discussing Watts and its progeny, highlighting the fact that the Watts Court evaluated the standard factors for an unjust enrichment claim:  (1) whether a benefit was conferred on the defendant by the plaintiff; (2) whether the defendant knew and/or appreciated the benefit; and (3) whether it would be inequitable for the defendant to retain the benefit under the circumstances.  While Watts involved cohabitating parties, the court noted that it is the joint enterprise, not the romantic relationship, that provides a basis for the unjust enrichment claim. 

The court then distinguished Watts from the facts before it, noting that Menard had already established his highly successful business before meeting Sands, both Sands and Menard were educated and involved in business, and both had sufficient financial resources.  Further, Sands did not allege that she and Menard comingled any funds, purchased any real estate or personal property jointly or that she had obligated herself on any of Menard’s business or personal debt.  Thus, the court concluded that Sands and Menard did not engage in a joint enterprise.  Despite making this determination, the court went on to evaluate the unjust enrichment factors, further concluding that Sands could not state a claim under this analysis.  Most notably, in evaluating whether it would be inequitable for Menard to accept or retain any benefits conferred by Sands, the court determined Sands could not demonstrate that any benefits she conferred upon Menard during the relationship were not offset by the benefits she received given that she lived a luxurious lifestyle during the relationship.

While not necessary for the disposition of this case, the court nonetheless addressed the additional issue of whether Supreme Court Rule 20:1.8(a) served as an absolute bar to Sands’ unjust enrichment claim.  Unlike the court of appeals, the majority determined that Supreme Court Rule 20:1.8(a), which governs Wisconsin lawyers’ involvement in business transactions with clients and financial conflicts of interest, did not create an absolute bar to Sands’ claims.  Citing the preamble to the Supreme Court Rules, the court explained that the rules assist the courts in determining whether lawyers have met the standards of care applicable in each case.  The court explained that Rule 20:1.8(a) was not determinative on the viability of Sands’ unjust enrichment claim because Sands was not engaged in “the practice of law in Wisconsin” during the time period at issue.

After fully evaluating the unjust enrichment claims, the court also upheld the court of appeals’ decision to dismiss Menard’s, Inc.’s counterclaim against Sands for breach of fiduciary duty.  The purported claim arose from the closing of a 2005 transaction in which Sands was involved; however, the claim was not asserted until after Sands sued Menard years later.  The court determined that Menard – a very experienced businessman – knew or should have known that he needed to investigate Sands’ role in the transaction sooner, and thus, the statute of limitations barred his claim.  Finally, the court upheld the dismissal of claims by Sands against Menard Trustees on the grounds that Watts does not support an unjust enrichment claim against a third party, because such a claim would lack the necessary joint enterprise.

Justice Abrahamson concurred in part and dissented in part, and was joined by Justice Ann Walsh Bradley.  The dissent opined that Sands did state an adequate claim for unjust enrichment such that the claim should proceed, taking particular issue with the majority’s comparison of the facts in Watts and its progeny to the facts in this case.

This case highlights the importance of clear agreements between business partners and cohabitating partners to avoid confusion and potential litigation.  Even the most experienced business people and attorneys can become involved in litigation when the parties’ relationship terms are unclear.

Appeals Court Limits Pro Rata Insurance Policy Distributions To Post-Trial Liability Determinations

Published by SR Administrator on

In Lovelien et al. v. Austin Mutual Insurance Company et al., No. 2016AP1679 (Wis. Ct. App. Dec. 27, 2017), the Wisconsin Court of Appeals addressed an issue that often arises when multiple claimants allege damages against an insured and the total damages claims exceed the coverage limits of the relevant insurance policy: does Wisconsin law impose any restrictions or other obligations on how an insurer elects to distribute the available funds among the claimants through pre-verdict settlements?

In Lovelien, Austin Mutual had issued a $500,000 liability policy to an insured who was facing claims from multiple parties in excess of that amount arising from a multi-fatality automobile accident.  After failing to reach a global settlement, Austin Mutual settled with all but two of the claimants for $245,000.  Austin Mutual then deposited the remaining $255,000 with the court clerk and the court distributed those limited funds equitably between the remaining two claimants.  Lovelien, slip op. at ¶¶ 5-6.  The two remaining claimants appealed, arguing that Austin Mutual’s settlement and release with the other claimants violated Wisconsin’s “direct action” statute.  Id. ¶ 12. 

Wisconsin’s direct action statute states the following:

Any bond or policy of insurance covering liability to others for negligence makes the insurer liable, up to the amounts stated in the bond or policy, to the persons entitled to recover against the insured for the death of any person or for injury to persons or property, irrespective of whether the liability is presently established or is contingent and to become fixed or certain by final judgment against the insured. 

Wis. Stat. § 632.24.

According to the appellants, Austin Mutual’s partial settlement and release violated the clear intent of this statute by making payments to certain claimants without a determination of each claimant’s equitable pro rata share of the $500,000 policy limit based on the amount of damages each claimant suffered.  Lovelien, slip. op. at ¶ 12.

Writing for a unanimous Court of Appeals, Judge Seidl rejected the appellants’ argument.  Noting that courts are bound by unambiguous statutory language, Judge Seidl explained that the direct action statute merely creates an avenue for a claimant to recover directly from an insurer without having to first establish an insured’s liability.  While the statute does limit an insurer’s exposure to the relevant policy limit, it otherwise is silent as to how an insurer must distribute those funds among the claimants.  To accept the appellants’ argument, the Court held, would be tantamount to impermissibly inserting additional requirements into the statute.  Id. ¶¶ 14-19.

The Court further held that the appellants’ position was unsupported by the Wisconsin case law they cited, as those cases all addressed factually distinguishable post-verdict pro rata distributions where the respective liability of the insured to each claimant had already been established.  Placing the same pro rata burden on an insurer prior to trial would curtail both the insurers’ and claimants’ rights to settle, reasoned the Court, as it arguably would require every multi-claimant dispute to proceed to trial.  Moreover, to the extent that allowing an insurer to enter into potentially inequitable (non pro rata) partial settlements prior to trial creates valid public policy concerns, the Court concluded that it is up to the legislature to determine what public policy best serves the people of Wisconsin.  Id. ¶¶ 20-22.

Having been recommended by the Court for publication as binding Wisconsin precedent, the Lovelien decision raises a number of questions and concerns for those injured by Wisconsin insureds.  Under circumstances where an insured’s policy limits are well below the total amount of damages incurred by multiple injured parties, is an insurer free to simply pick and choose which party or parties get rewarded with the available funds?  May an insurer pay the full policy amount to one claimant and leave the other victims wholly uncompensated?  May an insurer use the threat of paying the available policy limits to other claimants as a sword during settlement negotiations to create leverage? Under the rationale applied by the Court here, the answer to all of these questions now appears to be “yes” in Wisconsin.

In the wake of Lovelien, therefore, parties involved in multi-victim accidents in Wisconsin should attempt to identify as early as possible whether any potentially responsible party may be underinsured and, if discovered, alter their settlement negotiation strategy accordingly.  Under such circumstances, failing to engage in prompt settlement discussions with Wisconsin insurer(s) could result in the policy limits being distributed to other claimants, leaving a party to have to pursue an insured directly to seek redress.

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