Monday, November 07, 2005

This Week's Supreme Court Oral Arguments

The following is a list of synopses for cases set to be heard by the Supreme Court this week. The synopses come from the court.

9:45 a.m.

03AP2108 Hoida, Inc. v. M&I Midstate Bank

This is a review of a decision of the Wisconsin Court of Appeals, District IV (headquartered in Madison), which affirmed a ruling of the Portage County Circuit Court, Judge Lewis Murach presiding.

This case arises from a construction project involving four eight-unit apartment buildings. The project landed in the court system after one of the developers was indicted and the bank foreclosed. The court proceedings have yielded a question that the Supreme Court now is expected to address: Is giving lenders and title companies immunity from subcontractor negligence claims good public policy?

Here is the background: In October 1996, a Brookfield-based developer called The Villager at Nashotah borrowed $1.32 million from M&I Bank to build four apartment buildings in Plover, a small community south of Stevens Point. The loan agreement specified that M&I “shall not be responsible for any aspect of the construction … or the procurement of lien waivers.”

The Villager hired Packard Construction as the general contractor and Packer hired Hoida, Inc., a lumber company, as a subcontractor to provide prefabricated wall sections and roof trusses.

During the course of the project, M&I and McDonald Title approved requests from The Villager to draw from the loan. Contrary to accepted practice, these draws were permitted without obtaining lien waivers. Eventually, when promised lien waivers did not materialize and progress on the project slowed, the bank and title company cut The Villager off, indicating that no money would be disbursed until the lien waivers were received. Shortly after, it came to light that Packard and Michael Imperl, a principal of The Villager, had misappropriated or diverted between $600,000 and $700,000 of the money they had received. Imperl was subsequently indicted on multiple counts of bank fraud.

In July 1997, Hoida filed a construction lien against the project. M&I foreclosed on the property and eventually obtained a judgment that allowed it to recover its losses. Hoida also obtained a judgment but remains unpaid. Wisconsin law provides priority status to lenders over subcontractors in situations such as this. Hoida estimates that it is owed just under $550,000.

In May 2001, Hoida sued M&I and McDonald Title, alleging that the defendants were negligent in disbursing the money without obtaining lien waivers. The circuit court concluded that the bank and the title company owed no duty to the subcontractor and dismissed the claim.

Hoida appealed, and the Court of Appeals affirmed the lower court but disagreed with the finding that the defendants did not have a duty to Hoida. The Court of Appeals said that the defendants had, in fact, been negligent, but declined to enter a judgment against them for public policy reasons.

Whether a plaintiff who has proven his/her case will be permitted to collect is a public policy decision that the courts must weigh. A court may decline to issue a judgment in favor of a plaintiff if the injury is too remote from the negligence, if the injury is out of proportion to the defendant’s culpability, if allowing recovery would open the door to fraudulent claims, and so on.

Now, Hoida has come to the Supreme Court where it alleges that the Court of Appeals action in this case represents the first time in Wisconsin and in the nation that public policy factors have been applied to insulate lenders and disbursing agents from subcontractor negligence claims.

The bank and the title company, on the other hand, argue that permitting Hoida to recover would place an unreasonable burden on construction lenders and would force disbursing agents to guarantee payment to each and every subcontractor and materials supplier involved in every construction project.

The Supreme Court will decide if giving lenders and title companies immunity from subcontractor negligence claims is good public policy.

10:45 a.m.

03AP2628 Racine Harley-Davidson, Inc. v. State of Wisconsin Division of Hearings and Appeals

This is a review of a decision of the Wisconsin Court of Appeals, District II (headquartered in Waukesha), which reversed a ruling of the Racine County Circuit Court, Judge Charles H. Constantine presiding. The circuit court had reversed a decision of the state Division of Hearings and Appeals.

This case, which the Wisconsin Automobile and Truck Dealers Association notes will affect every car and truck dealer in the state, began with a decision by Harley-Davidson Motor Company to redraw the boundaries of one of its dealer territories, sparking a legal battle. The Supreme Court is expected to clarify the standard of review that the courts use to review an agency’s interpretation of a statute and to decide what is encompassed by the phrase “motor vehicle dealer agreement” in the state statutes.

Here is the background: In 1992, Harley-Davidson Motor Company (Harley) and Racine Harley-Davidson Inc. (Racine Harley) entered into a dealer agreement. Initially, Racine Harley’s territory was defined to include all of Racine County, but in 1994 Harley began using ZIP codes to assign territories and Racine Harley signed a modified agreement reflecting that change. While the contract referenced dealership territories, the actual ZIP code list was a separate document.

In 2001, Harley notified Racine Harley that it was transferring the Burlington ZIP code from the dealer’s assigned territory and to a dealer in Kenosha County. Racine filed a complaint with the Division of Hearings and Appeals (DHA) alleging that the change violated the dealer agreement. Harley moved for summary judgment, asking DHA to dismiss the complaint, and DHA granted Harley’s motion.

Racine Harley sought review by the Racine County Circuit Court, which reversed the DHA, determining that the ZIP code list was, in fact, part of the motor vehicle dealer agreement. The judge said:

It is disingenuous to argue the list is not part of the dealership agreement. The dealership agreement only makes sense if there is a reference to the agreement. The assigned territory is a significant and substantial aspect of the relationship between the parties….

Harley appealed and the Court of Appeals reversed the circuit court after concluding that it must give great weight deference to the DHA decision. The appellate court explained that judicial review of legal conclusions made by a state agency begins with a decision about what, if any, deference the agency decision is due. The highest deference, great weight deference, is given where the Legislature has assigned to the agency the duty of administering the statute and the agency has specialized knowledge. The middle level, due weight deference, is given when the agency has some experience in an area but has not developed expertise that places it in a better position than a court to make judgments about the interpretation of a statute. The final level is no deference at all: the court conducts a de novo hearing either because the issue has not arisen in the past or the agency has no special expertise.

Now in the Supreme Court, Racine Harley argues that the Court of Appeals decision will result in every DHA ruling in every dispute between a manufacturer and a dealer in Wisconsin receiving great weight deference. Racine Harley notes that, following this same reasoning, all decisions by the Tax Commission on questions related to the sales tax and all decisions of the Personnel Commission related to the Wisconsin Fair Employment Act might also be accorded great weight deference by the courts.

For its part, Harley argues that no matter the standard used in review, its contract with Racine Harley permitted it to change the dealer’s territory and the DHA conclusion was correct.

1:30 p.m.

03AP3521 Earl J. Teschendorf v. State Farm Insurance Companies

This is a review of a decision of the Wisconsin Court of Appeals, District I (headquartered in Milwaukee), which reversed an order of the Milwaukee County Circuit Court, Judge Jeffrey A. Kremers presiding.

This case involves a fatal car crash that took place in the course of the victims’ employment. An insurance dispute brought the case into the courts, and the Supreme Court now is expected to decide whether the insurers acted lawfully when they reduced their payments to the family by the amount of worker’s compensation that was paid into the state treasury.

Here is the background: Scott Shira was 33 when he died in a car crash in Woodbury, Minn., while in the course of his employment for Layne Christensen Co., an outfit that drills wells. The crash was caused by an uninsured motorist (UM). Shira was unmarried and had no children. His parents, Bernard and Maria Shira, brought this case. The other plaintiffs are Earl and Linda Teschendorf. Earl was Shira’s passenger and was injured in the accident.

Under Wisconsin’s worker’s compensation law[1], when a person dies in the course of his/her employment and does not have dependents, worker’s compensation benefits are paid to the State of Wisconsin Work Injury Supplemental Benefit Fund. Shira’s benefits amounted to about $160,000 and were mostly paid to the state treasury.

Another state law[2] permits insurance companies to reduce their UM coverage limits by the amount paid under the worker’s compensation law. The insurance policy that covered Shira had a UM limit of $150,000. When American Family Insurance Co. applied the reducing clause, Shira’s parents received nothing.

The Shiras sued, arguing that the reduction was unlawful because the worker’s compensation went into the state treasury rather than to the family. The circuit court ruled in favor of American Family and the Shiras appealed.

The Court of Appeals reversed in a split decision. The majority concluded that the Legislature’s intent in authorizing reducing clauses was to permit insurers to reduce UM payments by the amounts that the insured/heirs/estate actually have received. The dissent, however, argued that the language of the statute is not ambiguous and that the question of whether the family or the state treasury has received the worker’s compensation payout is immaterial.

Now in the Supreme Court, American Family argues that there is no logical reason that the Shiras, who were not dependent upon their son for support, should be able to circumvent the law that limits recovery. The Shiras, on the other hand, argue that there is no logical reason that coverage limits should be reduced when those seeking UM benefits have not collected anything.

The Supreme Court will decide whether and how insurance reducing clauses are to apply in cases where the worker’s compensation money is paid not to the family but to the state treasury.

9:45 a.m.

03AP3353 Jim Hilton v. Dept. of Natural Resources

This is a review of summary decision by the Wisconsin Court of Appeals, which reversed a decision of the Green Lake County Circuit Court, Judge W.M. McMonigal presiding. The circuit court had modified the order of an administrative law judge.

This case involves a homeowners’ association that owns a 77-foot stretch of lakeshore property with a pier where association members keep their boats. Acting on a complaint, the state Department of Natural Resources (DNR) ordered the association to shorten the pier and remove most of the boat slips. The matter landed in court. The Supreme Court is expected to decide if the administrative law judge (ALJ) correctly balanced the interests of the homeowners against the interests of the public, and whether the removal of boat slips constituted an illegal “taking” without due process.

Here is the background: Nelson Page owned land on Green Lake that included a stretch of lakeshore. He subdivided the land several times over the years beginning in 1958, selling off lots to people to build cottages on the back lot and selling shares in the common pier off the riparian (lakefront) property. Over time, the number of boat slips along the pier grew. In 1966, there were six; in the mid-1970s, there were 11; and, by 1990, there were 22.

Under DNR guidelines, a lot with 77 feet of shoreline would be permitted just two or three boat slips. Although the DNR knew about the pier, it took – in the words of the ALJ who initially handled this case – a “wink and nod approach” to the matter until it received a complaint. After the complaint, the DNR took action to reduce the size of the pier substantially, ordering the association to get rid of all but six of the 22 boat slips. The association sought a hearing and the ALJ concluded that the historic use of the pier was for 11 slips because the pier had 11 slips in 1976 when it had been in use for 10 years. The methodology underlying this conclusion is largely the subject of this appeal.

After the ALJ issued his decision, the homeowners’ association sought review in the circuit court. The circuit court concluded that the ALJ’s 11-slip ruling was “arbitrary and not based on sufficient evidence in the record.” The court ruled that 17 slips would be allowed to remain, because that was the number on the pier in 1993 when the municipality where the property is located passed an ordinance that barred the future proliferation of multi-slip piers but allowed piers currently in use to continue at their 1993 capacities.

The DNR appealed the circuit court decision to the Court of Appeals, which reversed the lower court and reinstated the ALJ’s determination. The Court of Appeals concluded that the ALJ’s choice of 1976 as a benchmark for determining the historic use of the pier was appropriate and reasonable.

Now the association has brought the matter to the Supreme Court, which will clarify how decisions on historic use of a property are to be made, determine if the circuit court gave proper deference to the ALJ’s finding, and decide whether this reduction in the size of the pier amounts to an illegal taking of private land by the government.


10:45 a.m.

04AP377 Julie M. Lassa v. Todd Rongstad

This is a certification from the Wisconsin Court of Appeals, District IV (headquartered in Madison). The Court of Appeals may certify cases that cannot be decided by applying current Wisconsin law. The Wisconsin Supreme Court, as the state's preeminent law-developing court, often accepts such certifications from the Court of Appeals. The case began in Dane County Circuit Court, Judge Maryann Sumi presiding.

This case originated as a defamation action filed by a public official against the publishers of an ‘attack ad’ that appeared shortly before an election. The Supreme Court is expected to clarify when the identity of anonymous speakers must be disclosed in a defamation proceeding.

Here is the background: Julie M. Lassa, who is now a state senator, served in the state Assembly from 1998-2002 and was elected in an April 2003 special election to the state Senate. Shortly before that election, a flier produced by an organization called The Alliance for Working Wisconsin – a tax exempt group that says its mission is to educate the public via direct communications on public policy issues related to business, taxes, and families – was mailed to voters in the district. The flier criticized Lassa for her supposed connections to Chuck Chvala, former Senate majority leader.

Lassa sued Todd Rongstad, whose company had worked on the mailer. During the discovery phase of the case, Lassa attempted to learn the identities of the people behind The Alliance but Rongstad refused to divulge them. The circuit court ordered Rongstad to supply this information but Rongstad did not comply. The court sanctioned Rongstad and entered an order for default judgment against him, but before final judgment was entered Ronstad and Lassa reached a stipulated settlement that dismissed the defamation claim, set the amount of sanctions to be levied against Rongstad, and reserved Rongstad’s right to appeal the imposition of the sanctions.

This case is Rongstad’s appeal. He first went to the Court of Appeals, which noted that the case raises an issue that has not previously been decided in Wisconsin: when the identities of anonymous speakers must be disclosed in the context of a defamation action by a public official. The Court of Appeals certified the case to the Supreme Court.

In the Supreme Court, Rongstad argues that the First Amendment protects the identities of the members of the Association. He cites federal cases that establish that groups engaged in political expression need not reveal the names of their members to the government as such disclosure might serve to restrain the freedom of association.

Lassa, on the other hand, argues that the constitutional privilege against disclosure is not absolute. She says that group members cannot be permitted to hide behind the privilege when they have acted wrongfully.

The Supreme Court will clarify the circumstances under which an anonymous speaker may be required to identify him/herself in a defamation action.

1:30 p.m.

03AP2180 State v. John R. Maloney

This is the second time this case has come before the Wisconsin Supreme Court. This is a review of a decision of the Wisconsin Court of Appeals, District III (headquartered in Wausau), which affirmed an order of the Brown County Circuit Court, Judge Peter Naze presiding.

This case stems from the February 1998 death of Sandra Maloney and the subsequent murder conviction of her estranged husband, Green Bay Police Officer John R. Maloney. The Supreme Court is expected to decide if Maloney will receive a new trial.

The Supreme Court first heard this case last April. Its review focused on the actions of the man who prosecuted the case, former Winnebago County District Attorney Joe Paulus, who was convicted of taking bribes in 22 cases between 1998 and 2000 and sent to federal prison. The Court was expected to decide whether Paulus violated the lawyers’ code of ethics in his investigation and, if so, whether the evidence obtained as a result of that violation should have been suppressed. The Court also examined Maloney’s allegation that his defense team, Attorneys Gerald Boyle and Bridget Boyle-Saxton, were ineffective at his trial.

After the oral argument, the Court concluded that it had additional questions that would require further briefing by the attorneys and another oral argument. The questions, which are expected to be the focus of today’s oral argument, are:

1. Whether the Supreme Court has the authority to remand this case to the circuit court for
consideration of a motion for postconviction relief in the interest of justice; and

2. If so, whether the Supreme Court should act upon that authority and send the case back to the circuit court.

Here is the background: On Feb. 11, 1998, Sandra Maloney’s mother entered Sandra’s home and discovered her badly burned body. Fire investigators initially concluded that she had died as a result of the fire, and that the fire had been accidental; the autopsy, however, revealed signs of strangulation, and John Maloney became the prime suspect.

During the investigation, Maloney’s girlfriend, Tracy Hellenbrand, a former criminal investigator, agreed to wear a wire that allowed for the secret video- and audio-taping of her conversations with Maloney. At Maloney’s trial, Paulus – who served as a special prosecutor because the Brown County District Attorney’s Office had worked with Maloney in Maloney’s role as a police officer – showed the jury several hours of videotape and called Hellenbrand to the witness stand to testify that Maloney had confessed the murder to her. Boyle built Maloney’s defense around the theory that Hellenbrand had killed Sandra Maloney. The jury convicted Maloney and he appealed.

In the Court of Appeals, Maloney argued that Boyle had provided an inadequate defense by failing to object to the videotapes on the grounds that Paulus, in directing Hellenbrand’s participation in the secret videotaping, violated the Rules of Professional Conduct for Attorneys, which state, in part:

In representing a client, a lawyer shall not communicate about the subject of the representation with a party the lawyer knows to be represented by another lawyer in the matter, unless the lawyer has the consent of the other lawyer or is authorized to do so.

The Court of Appeals concluded that there had been no ethics violation and that, even if there had, suppression of evidence would not be the remedy for this type of violation. The Court of Appeals further found that Boyle’s defense of Maloney, while ultimately unsuccessful, was not ineffective.

In the first round of arguments in the Supreme Court, Maloney renewed his argument that Paulus “egregiously violated his ethical constraints in obtaining evidence” and that the videotapes should be suppressed. He further argued that Boyle, in repeatedly asking the State’s lead investigator at trial whether he thought Maloney was lying, and repeatedly receiving affirmative responses, did him undue harm.

The Supreme Court will decide whether to order a new trial in the interest of justice.

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