Author: Hamilton

Veritas Steel, LLC v. Lunda Construction Co. (Successor Liability)

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In Veritas Steel, LLC v. Lunda Construction Co. (2019 WI 3), the Wisconsin Supreme Court declined to expand the “de facto merger” and “mere continuation” exceptions to the general rule against successor liability.

Construction contractor Lunda had secured a $16 million judgment against steel fabricator PDM Bridge, LLC. PDM also owed other lenders approximately $76 million. Those lenders used a series of transactions to acquire PDM’s assets, which were ultimately obtained by the entity Veritas. PDM could not satisfy Lunda’s $16 million judgment, and Lunda sought the instant successor liability claim against Veritas.

The rule against successor liability generally provides that a successor corporation purchasing another corporation does not become liable for the seller corporation’s assets. There are several exceptions to the rule against successor liability in Wisconsin case law, including

  • The “de facto merger” exception, when the transaction is essentially a consolidation or merger of the purchaser and seller. The key element to prove a “de facto merger” exception is the transfer of ownership from the purchaser to seller via stock or equity in the purchaser corporation, instead of cash.
  • The “mere continuation” exception, when the purchaser corporation is a continuation of the seller corporation. The key element to prove a “mere continuation” exception is a when officers, directors and stockholders in the seller and purchaser corporations are largely the same.

Both the “de facto merger” and “mere continuation” exceptions require a successor liability claim to demonstrate an identity of ownership, based on the key elements described above, between the purchaser and seller corporation.

Lunda argued that previous case law Fish v. Amsted Indus. Inc. (1985) expanded the “de facto merger” and “mere continuation” exceptions, allowing successor liability claims to demonstrate an “identity of management and control” instead of identity of actual ownership. However, the Supreme Court declined to expand its reading of Fish, maintaining that successor liability claims must show an identity of ownership to establish the “de facto merger” and “mere continuation” exceptions to the general rule against successor liability.

The Supreme Court dismissed Lunda’s claims, upholding the general rule against successor liability because Lunda had not demonstrated an identity of ownership between PDM and Lunda. Since Lunda had not established an actual transfer of stock or equity between PDM and Veritas, the “de facto merger” exception did not apply. Since there was no common identity of officers, directors and stockholders between PDM and Veritas, the “mere continuation” exception did not apply.

 

Concurring Opinion

In a concurring opinion, Chief Justice Roggensack agreed with the dismissal of Lunda’s claims but would have examined the case in a different context. The concurring opinion focused on whether PDM’s assets were lawfully removed from Lunda’s reach by the serious of transactions that ultimately ended with Veritas. The concurring opinion concluded that the assets were lawfully removed under the strict foreclosure process laid out in Wis. Stat. § 409.620. Therefore, Lunda’s claims were properly dismissed.

Hinrichs v. Dow Chemical Co. (Fraudulent Representation)

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In Hinrichs v. Dow Chemical Co. (2020 WI 2), the Wisconsin Supreme Court dismissed misrepresentation claims on the basis of the economic loss doctrine, but ruled the plaintiff might be considered “the public” for the purposes of bringing a statutory fraudulent representation claim. The court further found that heightened pleading standards for fraud claims do not apply to claims made under Wisconsin’s fraudulent representation statute (Wis. Stat. § 100.18).

The opinion was written by Justice Walsh Bradley, joined by Chief Justice Roggensack, Justice Ziegler, and Justice Dallet. Justice R. Bradley wrote a concurring opinion joining the justices’ decision on the common law claims but dissenting from the decision on the § 100.18 claim. (Justices Kelly and Hagedorn did not participate.)

 

Facts

Chris Hinrichs developed acrylic skylight panels for vehicles and owned Autovation Limited, which manufactured, distributed, and installed the panels. Autovation used a Dow Chemical adhesive to install the panels. When Hinrichs discovered some of the panels were cracking, an agent from Dow issued him a report stating that the adhesives were properly functioning. However, Hinrichs later discovered that the adhesives in the panels were in fact failing, damaging his products and significantly affecting his sales. Hinrichs and Autovation filed the common law claims against Dow for negligent misrepresentation, intentional misrepresentation, and strict responsibility misrepresentation, and a statutory claim of violation of the fraudulent representation statute § 100.18.

 

Common Law Claims

The court barred Hinrichs’s common law misrepresentation claims based on the economic loss doctrine, which provides that plaintiffs cannot sue to recover solely economic losses from the nonperformance of a contract.

The court ruled the “fraud in inducement” exception to the economic loss doctrine did not apply because the alleged misrepresentation was not extraneous to the contract. The “other property” exception to the economic loss doctrine did not apply because the damaged panels and the adhesive the parties contracted for were parts of an integrated system.

Under the economic loss doctrine, Hinrichs and Dow had the opportunity to address these circumstances in their contract and, since they declined to do so, Hinrichs was not entitled to damages for economic loss.

 

Fraudulent Representation Claim

In addition to the above common law misrepresentation claims, Hinrichs brought a claim against Dow for violation of § 100.18, which states that companies cannot make advertisements to the public containing untrue, deceptive, or misleading assertions. The court allowed Hinrichs’s statutory claims to proceed for the following reasons.

The court found first that the economic loss doctrine does not apply to statutory claims made under § 100.18. The economic loss doctrine is a common law restriction, and § 100.18 creates a specific statutory cause of action. The Legislature chose to provide a remedy for false advertising outside of common law, so the common law policy of the economic loss doctrine cannot apply to the statutory claim.

The court then affirmed previous case law stating that one person (in this case Hinrichs) can be “the public” for the purposes of bringing a fraudulent misrepresentation claim under § 100.18. On the grounds of stare decisis, the court upheld State v. Automatic Merchandisers (1974), which held that one person can be “the public” for purposes of bringing a § 100.18 claim, unless the plaintiff and the defendant have a “particular relationship.” The court found that Hinrichs alone could be “the public” but remanded to the circuit court the question of whether Hinrichs had a “particular relationship” with Dow that would bar his claim.  

Finally, the court held that the heightened pleading standards for fraud claims in § 802.03(2) do not apply to § 100.18 claims. Thus Hinrichs’s complaint met the general pleading standards and can proceed.

 

Concurring Opinion

In a concurring opinion, Justice R. Bradley argued that Hinrichs should not be considered “the public” for the purposes of § 100.18. According to the concurring opinion, the plain meaning of “the public” in the fraudulent representation statute is people in the general community, not businesses in a commercial relationship like Hinrichs and Dow.

The concurring opinion argued that the court misconstrued Automatic Merchandisers. In that case, the business accused of fraudulent representation had made advertisements to the public in a newspaper then made fraudulent claims to individual respondents to the ads. The court found that a single individual who responded to the public ads could be considered “the public” for purposes of bringing a § 100.18 claim. The concurring opinion argued Hinrichs differed from Automatic Merchandisers because Dow never broadcast fraudulent claims to the general public. Instead, the alleged fraudulent claims occurred in an individual email to Hinrichs.

The concurring opinion argued the court’s decision that Hinrichs could bring a § 100.18 claim reads “the public” completely out of the statute, eliminating any parameters around who can bring such claims. According to the concurring opinion, the court’s “particular relationship” test to determine whether an individual is “the public” has no foundation in statutory text and only creates more ambiguity in the statute.

Thus the concurring opinion would have decided, based on the plain meaning of the statute, that Hinrichs was not a member of “the public” under § 100.18, barring his statutory claim. 

Kiewiz v. My Custom Shop, Inc. (Warranty)

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In Kiewiz v. My Custom Shop, Inc. (2018AP2008), the Court of Appeals District II dismissed the plaintiff’s claims of misrepresentation and breach of warranty against the dealer from whom he purchased a truck.

After test driving the truck, plaintiff Kiewiz bought the truck from My Custom Shop for $3,800. My Custom Shop told Kiewiz it would repair parts of the truck it had installed based on the part manufacturer’s warranty. But the written purchase contract and the buyer’s guide My Custom Shop provided to Kiewiz clearly stated that the sale of the truck was “as is” and disclaimed any warranty.

Kiewiz experienced several issues with the truck and eventually asked My Custom Shop for a full refund. My Custom Shop refused, and Kiewiz filed the instant claims for misrepresentation, fraudulent practices, breach of implied warranty, and violation of the federal Magnuson-Moss Warranty Act. The appeals court dismissed all of Kiewiz’s claims.

On misrepresentation (Wis. Stat. § 100.18), the court found that My Custom Shop had performed reasonable inspections and made no misrepresentations in the buyer’s guide. Furthermore, Kiewiz failed to show that any of My Custom Shop’s representations led him to purchase the truck and thus caused him to incur a loss.

On fraudulent practices (Wis. Stat. § 218.0163), the court again found that My Custom Shop had taken reasonable care when inspecting the vehicle, so Kiewiz could not prove fraud.

On breach of implied warranty (Wis. Stat. § 402.314), the court found that the buyer’s guide and purchase contract clearly stated that the sale was “as is,” thus precluding any implied warranty.

On the federal claim, the court found My Custom Shop did not violate the prohibition against dealers disclaiming warranties and service contracts. The federal law prohibition applies to written warranties, and My Custom Shop provided no written warranty to Kiewiz.

For these reasons, Kiewiz’s claims were dismissed.

Verkler v. YRC, Inc. (Civil Negligence)

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In Verkler v. YRC, Inc. (2018AP1531), the Court of Appeals District I ruled against Allstate Property & Casualty Insurance Co. in a civil negligence action brought after a car accident.

Allstate’s insured Victoria Southern crashed into a truck in YRC, Inc.’s driveway. Southern initially told law enforcement that she had been lost and was looking for an address but blacked out and could not remember the events prior to her accident. However, Southern reversed her testimony at trial, stating she no longer believed she blacked out before the accident. The YRC truck driver told law enforcement and testified at trial that Southern had caused the accident when she made a U-turn into the driveway.

In the civil trial that followed, a jury found that Southern was negligent. Allstate appealed the verdict and argued the circuit court erred in denying its request for a jury instruction on the emergency doctrine.

The emergency doctrine excuses drivers from negligence in an emergency they did not cause if they react to the emergency in a way that an ordinarily prudent person would. At trial, Allstate asked the court to give the jury an instruction on the emergency doctrine but the court declined. The court of appeals upheld the trial court’s denial of Allstate’s request. The court agreed that the emergency doctrine did not apply in this case because there was no evidence of an emergency, as Southern could not clearly recall the accident.

The appeals court also found credible evidence supported the jury’s verdict that Southern was negligent. There was evidence for the jury to find that Southern breached her duty of care by failing to see the truck with its lights on in the YRC driveway, causing the accident to occur in the driveway, making a U-turn in the driveway, and looking for addresses when she was lost instead of focusing on the road.

Parsons v. Associated Banc-Corp (WOCCA and Negligent Training & Supervision)

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In Parsons v. Associated Banc-Corp (2018AP2329), the Court of Appeals District I upheld the dismissal of plaintiffs’ claims against their bank for violation of the Wisconsin Organized Crime Control Act (WOCCA) and for negligent training and supervision.

The Parsons filed this case regarding a home equity loan and construction loan they obtained through the bank. The trial court dismissed the Parsons claims and the appeals court affirmed.

The appeals court declined to overturn what the Parsons argued were several procedural errors by the trial court. On the WOCCA claim, the appeals court agreed with the trial court that the Parsons had not established that the bank’s loan officer had engaged in a pattern of racketeering; therefore, the bank had no liability under WOCCA. On the negligent training and supervision claim, the court found that the bank did not have a duty of care to the Parsons under the loan contract, so the bank was not liable for the loan officer’s actions. Finally, the court held that the trial court was not required to determine damages when the Parsons failed to establish the bank’s liability.

Stroede v. Society Insurance (Duty of Care to Trespassers)

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*This case is recommended for publication.

 

In Stroede v. Society Insurance (2018AP1880/2018AP2371), the Court of Appeals District I found the defendant immune from liability for a trespasser’s injury because the defendant was a “lawful occupant” on the premises where the incident occurred.

Plaintiff David Stroede sustained head injuries when, after becoming too intoxicated, he was escorted out of Railroad Station Bar by employee Jacob Tetting. Stroede filed this negligence claim against Tetting and his insurer West Bend Mutual and Railroad and its insurer Society Insurance.

Wis. Stat. § 895.529 provides that a “possessor of real property” does not have a duty of care to trespassers unless the possessor acts “willfully, wantonly, or recklessly.” The circuit court agreed with the defendants’ arguments that Stroede was a trespasser at the time of the incident since Railroad staff had ordered him out of the bar. At issue on appeal was:

  1. Whether Stroede had adequately stated a claim of wanton, willful or reckless conduct, allowing his claims against Tetting to proceed even though he was trespassing.
  2. Whether Tetting was an “other lawful occupant” under the definition of “possessor of real property” in § 895.529, granting him immunity from liability for Stroede’s injuries.

First, the appeals court found that Stroede did not allege a claim of wanton, willful or reckless conduct. Instead, Stroede’s claim alleged negligence and did not demonstrate that Tetting intentionally caused him harm. The appeals court found the circuit court properly denied Stroede’s motion to amend his complaint to include a claim of wanton, willful or reckless conduct.

Second, the appeals court found that Tetting was an “other lawful occupant” of Railroad premises at the time of the incident. The court concluded occupancy in the context of § 895.529 to mean “lawful presence,” and Tetting was lawfully present at Railroad when he removed Stroede. Since Tetting was a “lawful occupant,” he had no duty of care to trespasser Stroede under § 895.529.

Under the court of appeals decision, neither Tetting nor Railroad was liable for Stroede’s injuries.

 

Fankhauser v. Hestad (Damages Award)

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In Fankhauser v. Hestad (2019AP110), the Court of Appeals District III upheld a $500,000 damages award against a garbage collector who was driving on a customer’s bridge when it collapsed.

Curtis Hestad, an employee of Allied Waste Services, drove an Allied vehicle onto the Fankhausers’ property. The Fankhausers had instructed Allied to use the west entrance to their property when collecting their garbage, instead of the east entrance. Access from the east entrance required crossing a bridge on the Fankhausers’ property. When Hestad drove to pick up the Fankhausers’ trash for the first time, his GPS took him to the east entrance, and he crossed the bridge. The bridge collapsed under the weight of Hestad’s truck.

The Fankhausers sued Hestad and Allied for negligence, and a jury awarded them $500,000 in damages. Hestad and Allied filed counterclaims for negligence and violation of the safe place statute, but the circuit court dismissed the counterclaims. Hestad and Allied appealed both the jury award and the dismissal of their counterclaims.

The appeals court upheld the dismissal of Hestad and Allied’s counterclaims, finding that Hestad was a trespasser on the Fankhausers’ property when the bridge collapsed. Wisconsin case law has established that landowners are not liable to trespassers, nor does the safe place statute protect trespassers. The court found Hestad to be a trespasser because the Fankhausers had specifically instructed Allied – and Allied had instructed Hestad – to use the west entrance to their property. Since Hestad did not have permission to enter via the east entrance, the court considered him a trespasser and dismissed the negligence and safe place statute claims.

The appeals court also upheld the jury award of $500,000 to the Fankhausers. The appeals court found:

  • The circuit court property denied the defendants’ motion for a directed verdict because there was sufficient evidence for the jury to determine the precollapse value of the bridge.
  • The $500,000 award was not excessive because there was credible evidence to support the award (i.e. replacement cost, lost property value without a replacement, the Fankhausers’ loss of privacy and loss of recreational and access uses of the bridge).
  • The circuit court properly denied cross-examination questions the defendants asked the Fankhausers about their maintenance of the bridge. The court determined that such questions would have confused the jury, since the Fankhausers’ negligence in bridge maintenance was not at issue.
  • The Fankhausers’ expert on replacement cost used reliable principles and methods.
  • The circuit court did not need to include separate questions on the special verdict for different categories of damages.

For these reasons, the appeals court affirmed the circuit court’s dismissal of Hestad and Allied’s counterclaims and upheld the jury award of $500,000 to the Fankhausers.

 

 

ATRA Releases 2019-20 Judicial Hellholes Report

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The American Tort Reform Association recently released its 2019-20 Judicial Hellholes report. The annual report highlights some of the worst-ranking civil justice climates in the country.

Topping the report this year are Philadelphia, California and New York City. Wisconsin neighbors Illinois and Minnesota also made the top ten list, at #5 and #9, respectively.

The report also takes a closer look at three civil justice topics growing across the country: the expansion of public nuisance law and locality litigation, increased employment liability and reduction of arbitration, and growth of privacy and security litigation.

Wisconsin was lauded in last year’s Judicial Hellholes report for positive civil justice reforms, including 2017 Wisconsin Act 235 and the Wisconsin Supreme Court’s Mayo decision. Act 235 – authored by Republican Sens. Tom Tiffany (Hazelhurst) & Dave Craig (Big Bend) and Reps. Mark Born (Beaver Dam) & John Nygren (Marinette) – included landmark reforms to Wisconsin’s rules of procedure regarding discovery and class actions, as well as a nationally recognized, groundbreaking requirement that litigation funding deals be disclosed in civil cases.

ILR Names Top 10 Most Ridiculous Lawsuits of 2019

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The U.S. Chamber Institute for Legal Reform recently released its list of Most Ridiculous Lawsuits of 2019. Number one this year was a lawsuit against Blistex, alleging that the packaging of their lip balm prevented the plaintiff from accessing the lip balm left at the bottom of the tube. Also making the top ten this year were silly lawsuits over food labels, the TV show Dexter, the video game Fortnite, and an online review of an animal hospital.

Read the full list.   

Oral Argument Preview: Correa v. Woodman’s Food Market (Personal Injury)

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On Jan. 21, the Wisconsin Supreme Court will hear oral arguments in Correa v. Woodman’s Food Market, which will address the standards of proof for establishing constructive notice of a hazard and the determinations a jury may make from video surveillance in premises liability cases. 

 

Facts & Lower Court Decisions

In this case, plaintiff Jose Correa slipped and fell on an unidentified substance in a Woodman’s store and subsequently filed negligence and safe-place-statute (Wis. Stat. § 101.11(1)) claims against Woodman’s. A trial court found Woodman’s negligent and awarded Correa nearly $170,000 in damages. Woodman’s appealed, arguing Correa’s evidence that Woodman’s had constructive notice of the spill was speculative.

The Court of Appeals found that Correa could not prove the spill by which he was injured existed for a long enough time period to establish the store was negligent. Video footage before the accident did not show a spill happening and could not identify any substance on the floor of the store. Because Correa lacked sufficient evidence, the appeals court ruled in favor of the store. 

 

Issues Presented at Supreme Court

When the Supreme Court hears oral arguments this month, justices will revisit the court’s position in Kochanski v. Speedway SuperAmerica (2014 WI 72).  Kochanski similarly dealt with whether juries can draw reasonable inferences from existing video surveillance in premises liability cases. In Correa, the Supreme Court will review whether the Court of Appeals improperly expanded the Kochanski holding and will generally revisit its position on the role of video surveillance in constructive notice in premises liability claims.