author: SNYDER, J.

text:
    Mitchell Bank, Plaintiff-Appellant, v. Thomas G. Schanke, Alfred G. Waltke, Marilyn M. Waltke, State of Wisconsin Department of Revenue and Internal Revenue Service, Defendants-Respondents, United States, Defendant. [Case No. 01-1590.] Thomas G. Schanke, Plaintiff-Respondent, v. Mitchell Street State Bank, n/k/a Mitchell Bank, Defendant-Appellant.† [Case No. 01-1591.]
    Court of Appeals

      Nos. 01-1590, 01-1591.

      Submitted on briefs January 10, 2002.

      Decided August 28, 2002.

    2002 WI App 225
    (Also reported in 652 N.W.2d 636.)

      On behalf of the plaintiff-appellant and defendant-appellant, the cause was submitted on the briefs of Hugh R. Braun and Jeffrey L. Janik of Godfrey, Braun & Frazier, LLP, Milwaukee.
    On behalf of the defendant-respondent and plaintiff-respondent Thomas G. Schanke, the cause was submitted on the brief of Joseph J. Welcenbach of Welcenbach & Widmann, Milwaukee.
    Before Brown, Anderson and Snyder, JJ.

       Petition to review granted 1-14-03.

   SNYDER, J.

¶ 1. Mitchell Street State Bank, now known as Mitchell Bank, appeals from a judgment and an order dismissing its foreclosure complaint against Thomas G. Schanke, Alfred G. and Marilyn M. Waltke (the Waltkes), the state Department of Revenue and the Internal Revenue Service and from a judgment in favor of Schanke invalidating Mitchell Bank's mortgage lien on certain Genesee, Wisconsin property. Mitchell Bank argues that foreclosure of the mortgage in question is not barred simply because the note referenced in said mortgage is lost. We disagree and affirm both judgments and the order of the trial court.

PROCEDURAL BACKGROUND

¶ 2. Schanke filed a declaratory judgment action on March 7, 2000, requesting that a Mitchell Bank mortgage dated May 7, 1987, and recorded June 2, 1987, be declared invalid; he argued that Mitchell Bank was unable to produce the note attached to and referenced in the mortgage. On August 9, 2000, Mitchell Bank responded to Schanke's declaratory judgment action by filing a mortgage foreclosure action. The matters were consolidated before the trial court. Thereafter, the trial court granted Schanke's request for declaratory relief by declaring the mortgage lien invalid and releasing and striking the mortgage from the record, finding that there was no note in existence. Correspondingly, the trial court dismissed Mitchell Bank's foreclosure complaint with prejudice. Mitchell Bank appeals.

FACTS

¶ 3. The historical financial facts surrounding the Mitchell Bank mortgage transaction, while undisputed, are substantial and complex.

The Mortgage

¶ 4. On May 7, 1987, the Waltkes executed a real estate mortgage (Mortgage) providing Mitchell Bank with a security interest in the Waltkes thirty-four acres of non-homestead real estate located in Genesee, Wisconsin (Genesee property). The Mortgage referenced a specific note (Note) issued for $50,000 by the Waltkes dated May 7, 1987. The Mortgage, in paragraph four, also referenced all past, present and future debts. Mitchell Bank recorded the Mortgage on June 2, 1987.

Past Debts

¶ 5. It is undisputed that Mitchell Bank is unable to produce the May 7, 1987 Note referenced in the Mortgage. Nor does Mitchell Bank contend that future financial obligations were made to it by the Waltkes after May 7,1987, the date of the Mortgage and missing Note. However, Mitchell Bank contends that the Mortgage covered not only the $50,000 May 7, 1987 Note, but that it secured all obligations of the Waltkes to Mitchell Bank and any obligation of others that the Waltkes had guaranteed by virtue of paragraph four.

¶ 6. As of March 28, 2001, Mitchell Bank calculated the Waltkes' unpaid past debts secured by paragraph four of the Mortgage to be $67,000 in principal and $124,781.10 in interest, totaling $191,781.10. The calculation included debts representing three separate financial transactions between Mitchell Bank and the Waltkes.

¶ 7. First, on May 29, 1986, the Waltkes executed a continuing guarantee agreement with Mitchell Bank guaranteeing payment of a $15,000 business note in connection with a loan from Mitchell Bank to Miracle Shield International, Inc., one of the Waltkes' business interests. Repayment was due on May 29,1988. According to Mitchell Bank's calculation, a balance of $5,000 remains on the Miracle Shield note and the Waltkes' guarantee as a past debt secured by the Mortgage.

¶ 8. Second, on June 4, 1986, the Waltkes executed a continuing guarantee agreement guaranteeing payment of a $25,000 business note to Mitchell Bank on a loan to Gary Butler, one of the Waltkes' business associates. The original note had a repayment due date of July 4, 1986. On July 4, 1986, the Waltkes guaranteed a renewal of the Butler business note to Mitchell Bank with a repayment date of August 4, 1986. On August 4, 1986, the Waltkes again guaranteed a renewal of the Butler business note for $25,000 with a due date of November 3, 1986. On November 3, 1986, the Waltkes again executed a guarantee of repayment of the Butler note to Mitchell Bank in the amount of $25,000 with a due date of February 2, 1987. According to Mitchell Bank, that balance was a past debt at the time of the Mortgage and remained unpaid as of March 28, 2001.

¶ 9. Finally, on September 4, 1986, the Waltkes executed a business note to Mitchell Bank representing a $50,000 loan to the Waltkes that included a security interest in a Champlain printing press. Repayment was due December 3, 1986. On March 3, 1987, the Waltkes executed a renewal note to Mitchell Bank referencing this loaiywith a repayment date of June 1, 1987. Mitchell Bank contends that a balance of $37,000 plus interest of $75,041.43 remains on this loan as secured under the Mortgage as a past debt.

Schanke Involvement

¶ 10. On March 10, 1986, the Waltkes issued a promissory note to Schanke for $20,000. On April 9, 1987, Schanke sued the Waltkes on the note and on May 19, 1987, obtained judgment for over $20,000. Schanke executed on the judgment; the Waltkes' Genesee property was later seized and sold at a sheriffs sale on June 13, 1988. Schanke was the only bidder and purchased the Waltkes' non-homestead, mortgaged Genesee property for $20,000.

¶ 11. On October 6,1992, Schanke obtained judgments against Marilyn Waltke in the amounts of $2,530.13 and $333.00 and docketed judgment liens against the Genesee property. On May 2, 1994, a title report was issued for the Genesee property listing Schanke and Marilyn Waltke as the latest grantees and referencing several outstanding tax liens against the Waltkes.

¶ 12. On March 7, 2000, Schanke filed this declaratory judgment action against Mitchell Bank to have the May 7,1987 Mortgage invalidated and to clear the Mitchell Bank lien from the title to the Genesee property.

The Waltkes' Bankruptcy

¶ 13. On December 21,1988, the Waltkes filed for Chapter 11 bankruptcy listing Mitchell Bank as a secured creditor in the amount of $50,000. The bankruptcy petition did not characterize the debt or reference the collateral secured. The petition does not list the thirty-four acre Genesee property as an asset. Mitchell Bank is listed on the creditor roster with an unknown outstanding balance owed, and under "Creditors Holding Security," Schanke is listed as a co-owner of property in Waukesha county in foreclosure. The bankruptcy record does not disclose a claim by Mitchell Bank in the bankruptcy proceeding. On March 28, 1989, the Waltkes received their bankruptcy discharge.

The Mitchell Bank Write Off

¶ 14. On November 29, 1988, Mitchell Bank board chairman Howard Schneider sent a memo to the Federal Deposit Insurance Corporation characterizing the following loan guarantees as "legal bad debts": Alfred Waltke, $50,000; Miracle Shield, $12,000; Universal Graphics, $12,000; and Gary Butler, $25,000. Schneider's letter references the printing press as security for the Miracle Shield guarantee but does not mention the May 7, 1987 Mortgage as a security interest.

¶ 15. Mitchell Bank took no other action on the Mortgage until Schanke filed his action to clear title on the Genesee property. On August 9, 2000, Mitchell Bank filed its action for foreclosure on the Genesee property.

ISSUE

¶ 16. Mitchell Bank contends that the Mortgage is a valid security instrument and supports foreclosure on the Genesee property as security for the Waltkes' antecedent unpaid obligations. Schanke responds that the Mortgage is invalid because Mitchell Bank cannot produce the specific Note referenced in the Mortgage. We agree that the Mortgage is invalid.

.STANDARD OF REVIEW

¶ 17. We must separate the factual findings of the trial court from the conclusions of law and apply the appropriate standard of review to each. See DOR v. Exxon Corp., 90 Wis. 2d 700, 713, 281 N.W.2d 94 (1979), aff'd, 447 U.S. 207 (1980). Findings of fact shall not be set aside unless clearly erroneous. Wis. Stat. § 805.17(2) (1999-2000). We review questions of law de novo, benefiting from the trial court's analysis. Lomax v. Fiedler, 204 Wis. 2d 196, 206, 554 N.W.2d 841 (Ct. App. 1996).

¶ 18. The trial court found that the May 7, 1987 Mortgage referenced a specific Note in the amount of $50,000 dated May 7, 1987, that no future debt was secured by the Mortgage and that it is plausible the Note was destroyed by a flood at the bank. The trial court found that the Mortgage was only intended to secure the $50,000 Note and because Mitchell Bank could not produce the Note, "the Mortgage be released as a matter of law as there is no consideration granted for the Mortgage of May 7th, 1987 . . . without a concurrent note ...." The trial court further found that the other obligations which Mitchell Bank claims the Mortgage was to secure were "never intended by the parties to secure the Mortgage and the Mortgage itself references again only the specific Note dated May 7th, 1987" and that "because [Mitchell] Bank is unable to show any Note dated May 7th, 1987 this Mortgage ceases to exist as a matter of law .. .

¶ 19. The trial court dismissed Mitchell Bank's reliance on the Mortgage dragnet clause by concluding that the Badger State Agri-Credit v. Lubahn, 122 Wis. 2d 718, 365 N.W.2d 616 (Ct. App. 1985), general proposition of validity is "generally disfavored and [is] in fact to be carefully scrutinized by the court." The trial court again referred to the above earlier findings and that "the specific [Mortgage] language that prevails here again is the language to the reference of a May 7th, 1987 Note" and that the dragnet clause in the Mortgage does not apply "as this Mortgage was never intended by the parties to secure other obligations as evidenced by the plain reading in the four corners of the Complaint itself."

¶ 20. Mitchell Bank concedes that the May 7, 1987 Note referenced in the Mortgage cannot be produced. However, it contends that the Mortgage itself has been produced in evidence and the Mortgage contains a valid "dragnet" provision that extends the mortgage security interest to debts other than that referenced in the missing Note. The Mortgage recites consideration in the amount of $50,000 "evidenced by [the Waltkes'] notes(s) [sic] dated May 7, 1987" and provides further that the

Mortgage is also given to secure any extensions(s) [sic] and/or renewal(s), of the note(s) and the payment of any and all other sums advanced hereunder or secured by this Mortgage as further described and permitted in Paragraph 4 below, for any reason, and to secure performance of the covenants, conditions and agree-. ments contained herein or in any note or other evidence of any of the Obligations (as hereinafter defined) secured by this Mortgage.

¶ 21. Paragraph four, the Mortgage dragnet provision, incorporates "without limitation, all of the debts, notes, guaranties, obligations and liabilities of whatever nature or amount (and any extension, renewals or modifications thereof) arising out of credit or other financial accommodation previously granted." Mitchell Bank introduced ledger evidence of ascertainable, underlying prior debts existing antecedent to the Mortgage and Note dated May 7, 1987, that remain unpaid by the Waltkes and that fall under the dragnet clause.

¶ 22. We construe there to be an issue with two separate parts of the Mortgage: the $50,000 Note and the dragnet clause of paragraph four that extends the mortgage security interest to debts other than the one referenced in the missing Note. We will address each segment of the Mortgage separately to demonstrate why the Mortgage is invalid.

Missing Note

¶ 23. The determination as to whether the underlying debt of the mortgage is sufficiently identifiable is one of fact which shall not be set aside on appeal unless clearly erroneous. Id. at 723. The burden of specifically proving the indebtedness secured by the mortgage is upon the mortgagee. Id. at 723-24.

¶ 24. Mitchell Bank concedes that it cannot produce the May 7, 1987 Note. The Mortgage does not set forth any of the conditions of the Note, the rate of interest, the amount and time of payments, or the maturity date. Mitchell Bank's one witness, Mitchell Bank chief financial officer James Croke, testified that he knows nothing personally about any of the events of this Mortgage. The individuals who handled the transaction are no longer with the bank. The notary who witnessed the Mortgage is no longer with the bank. Croke testified that the Waltkes did not get $50,000 on May 7,1987. He further testified that he does not know if there was a Note or not but that it was possible that if there was a Note, it was destroyed in a flood.

¶ 25. A note evidences indebtedness; a mortgage simply secures this indebtedness. Bank of Sun Prairie v. Marshall Dev. Co., 2001 WI App 64, ¶ 12, 242 Wis. 2d 355, 626 N.W.2d 319, review denied, 2001 WI 88, 246 Wis. 2d 167, 630 N.W.2d 220 (Wis. May 8, 2001) (No. 00-1076); see also Witter v. Neeves, 78 Wis. 547, 548, 47 N.W. 938 (1891). While Mitchell Bank has evidence of security for the debt, it has not produced any evidence of the actual debt. There can be no mortgage without a debt. Bank of Sun Prairie, 2001 WI App 64 at ¶ 18; see also Doyon & Rayne Lumber Co. v. Nichols, 196 Wis. 387, 390, 220 N.W 181 (1928).

¶ 26. The Mortgage secured the Note; in order to obtain a judgment of foreclosure, Mitchell Bank was required to prove the terms of the Note and the default of those terms. See Frick v. Howard, 23 Wis. 2d 86, 96, 126 N.W.2d 619 (1964). It has not.

Dragnet Clause

¶ 27. Whether a mortgage containing a dragnet clause is enforceable is a question of law which we decide independently. Badger State, 122 Wis. 2d at 723. Dragnet clauses are looked upon with disfavor and are carefully scrutinized. Id. If the amount of debt is stated in the mortgage and is identifiable from the mortgage documents, then the mortgage is enforceable. Id. at 721. The obvious corollary to this axiom is that if the amount of debt is not both stated in the mortgage and identifiable from the mortgage documents, the mortgage is not enforceable.

¶ 28. Here, the amount of past due debt is not stated anywhere in the Mortgage. Nor is the amount of debt identifiable from the Mortgage documents because there are no documents attached to the Mortgage. Thus, the dragnet clause of the Mortgage is unenforceable.

CONCLUSION

¶ 29. The Mortgage is invalid because the Note cannot be produced and Mitchell Bank cannot establish the indebtedness secured by the Mortgage. Furthermore, the dragnet clause of the Mortgage is invalid because the amount of debt is not stated in the Mortgage and is not identifiable from the Mortgage documents. The Mortgage is therefore unenforceable. We affirm the judgment and order dismissing Mitchell Bank's foreclosure complaint and the judgment in favor of Schanke invalidating Mitchell Bank's mortgage lien on the Genesee property.

By the Court. — Judgments and order affirmed.

       The parties stipulated to trial on the foreclosure action as incorporating all disputed issues. We consolidated the matters for appeal.

       The Mortgage referenced a Note dated May 14, 1987. However, that date was scratched out and the date of May 7, 1987, was substituted. The Waltkes' initials appear beside the date change.

       In summary, Mitchell Bank calculates the Waltkes unpaid past debts secured by the May 7, 1987 Mortgage as follows:

       A fourth financial transaction involved the Waltkes' guarantee of a $50,000 loan from Mitchell Bank to Universal Graphics on November 3,1986. Mitchell Bank concedes that the Universal Graphics obligation has been satisfied.

       Schanke makes other arguments against the validity of the Mortgage, including the doctrine of laches and estoppel and allegations of a fraudulent transfer. Because we have already determined that the Mortgage is invalid, we need not address these arguments.


source: Caselaw Access Project

author: ROGGENSACK J.

license: Public Domain

text:
    State of Wisconsin, Plaintiff-Respondent, v. Gwyn J. Johnson, Defendant-Appellant.
    Court of Appeals

      No. 01-1092-CR.

      Submitted on briefs February 12, 2002.—

      Decided August 29, 2002.

    2002 WI App 224
    (Also reported in 652 N.W.2d 642.)

      On behalf of the defendant-appellant, the cause was submitted on the briefs of Ralph A. Kalal of Kalal & Associates of Madison.

      On behalf of the plaintiff-respondent, the cause was submitted on the brief of James E. Doyle, attorney general, and Edwin J. Hughes, assistant attorney general.
    Before Dykman, Roggensack and Deininger, JJ.
   ROGGENSACK J.

¶ 1. Gwyn J. Johnson was convicted after a court trial of two counts of offering or selling unregistered securities, contrary to Wis. Stat. § 551.21(1) (1999-2000), two counts of making material misrepresentation in connection with the offer or sale of a security, contrary to Wis. Stat. § 551.41(2) and one count of violating an Order of Prohibition, contrary to Wis. Stat. § 551.58(1). He appeals his convictions, contending that he did not offer to sell or sell a security because no written documents were produced that evidence the transactions and because there was no horizontal commonality. He also maintains that none of the factual representations he made, or failed to make, were material. Because we conclude that the evidence was sufficient to prove that Johnson did offer to sell securities, during which he made material misrepresentations, conduct which violated an Order of Prohibition, we affirm all five convictions.

BACKGROUND

¶ 2. This case centers on loans of substantial sums of money made by Lowell Stuessy because of Johnson's solicitations. Johnson solicited the loans for a business, American Ranger Manufacturing, Inc., that had as its sole product, a large, earth-moving machine called the American Ranger. The American Ranger was designed to clear brush and trees from land in a sufficiently large swath to facilitate the installation of pipelines and power lines. While several prototypes were built, American Ranger Manufacturing never produced the American Ranger for commercial sales.

¶ 3. Between January of 1990 and May of 1996, Stuessy loaned Johnson at least $270,000. The loans were made after Johnson represented that they would be at least doubled when repaid. Johnson also represented that there were orders for the American Ranger, and he promised he would soon be closing on commercial loans from which he would repay Stuessy. However, there were no sales of the American Ranger and commercial financing was never secured.

¶ 4. Based largely on Stuessy's testimony, Johnson was convicted of five counts of securities fraud. Two convictions were for offering or selling unregistered securities to Stuessy in the period between March 1992 and December 1993 and in the period between January 1996 and May 1996, contrary to Wis. Stat. § 551.21(1). Two convictions were for misrepresentations Johnson made in connection with the offer or sale of securities to Stuessy in the period between March 1992 and December 1993 and in the period between March 1991 and September 1991, contrary to Wis. Stat. § 551.41(2). The fifth conviction involved the violation of a 1995 Office of the Commissioner of Securities' Order of Prohibition, contrary to Wis. Stat. § 551.58(1).

¶ 5. One transaction that occurred in 1991 was a loan of $45,000 by Stuessy to American Ranger Manufacturing in order to assist Johnson in obtaining a $3,000,000 loan from First Bank, N.A. of Milwaukee to produce American Rangers. In return, Stuessy received a promissory note for $80,000, due and payable when the First Bank loan closed. If the loan did not close, the $45,000 was to be returned. There was no loan closing, but Stuessy's $45,000 was not returned. Stuessy's investment for the First Bank financing was similar to many other investments that Stuessy made in American Ranger Manufacturing, in that it was always represented that he would be repaid at least double the money he loaned and that a commercial business loan or significant sales of the American Ranger were just around the corner.

¶ 6. On November 18, 1992, Johnson wrote to Stuessy offering to sell him $12,500 in debentures in American Ranger Manufacturing as a return for his investment of $5,000. Stuessy made the $5,000 investment, but the debentures were never issued. During 1996, Stuessy regularly loaned money to Johnson for American Ranger Manufacturing. He did so knowing there were financial difficulties, but Johnson continually represented that additional financing from a commercial source was at last at hand. No trial exhibit memorializes the 1996 solicitations to loan money, but it is undisputed that the requests were made orally and that Stuessy made the loans.

¶ 7. During the course of all his solicitations, Johnson omitted many facts that the State contends were material misrepresentations. For example, Johnson did not relate that he was convicted of wire fraud in 1979; that American Ranger Manufacturing had suffered eight years of consecutive losses totaling over $1.5 million during the period of time from 1984 through 1991; or that Johnson was subject to an Order of Prohibition by the Office of the Wisconsin Commissioner of Securities that arose out of his past solicitations of money for American Ranger Manufacturing. Johnson also did not relate that there existed a substantial federal tax liability against American Ranger Manufacturing, assessed in 1993, or that he had transferred intangible assets relating to manufacturing rights and sales for the American Ranger out of American Ranger Manufacturing into American R/W, Inc.

¶ 8. On appeal, Johnson makes three arguments focused on the sufficiency of the evidence: (1) there can be no violation of securities law if all of the representations are made orally and there is no written security prepared; (2) horizontal commonality is required before a transaction involves a security; and (3) because Stuessy was expecting at least a 100% profit on his investments, none of the representations or omissions could have been material to his decision to go through with the loans.

DISCUSSION

Standard of Review.

¶ 9. We will reverse a conviction based on insufficient evidence only if the evidence presented is such that its probative value and force is, as a matter of law, such that no trier of fact acting reasonably could have found guilt beyond a reasonable doubt. State v. Poellinger, 153 Wis. 2d 493, 501, 451 N.W.2d 752, 755 (1990). However, questions of statutory interpretation, such as the meaning of "security" within ch. 551, are questions of law that we review de novo. State v. Sveum, 2002 WI App 105, ¶ 5,254 Wis. 2d 868, 648 N.W.2d 496.

Violations of Wis. Stat. § 551.21(1).

¶ 10. Wisconsin Stat. § 551.21(1) is violated by either offering or selling unregistered securities that are not exempt from registration. It is undisputed that what occurred here did not involve an exemption to the requirement of registration. See Wis. Stat. § 551.22. Instead, Johnson contends there was no violation because there is no such thing as an "oral security" and the transactions lacked horizontal commonality. We will address each argument in turn.

¶ 11. The term, security, is broadly defined in the Wisconsin Statutes as:

[A]ny stock; treasury stock; note; bond; debenture; evidence of indebtedness; share of beneficial interest in a business trust; certificate of interest or participation in any profit sharing agreement; collateral trust certificate; pre-organization subscription; transferable share; investment contract; commodity futures contract; voting trust certificate; certificate of deposit for a security; limited partnership interest; certificate of interest or participation in an oil, gas or mining title or lease or in payments out of production under such a title or lease; or, in general, any interest or instrument commonly known as or having the incidents of a security or offered in the manner in which securities are offered; or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of or option, warrant or right to subscribe to or purchase or sell, any of the foregoing.

Wis. Stat. § 551.02(13)(a). Johnson contends that while there were loans, there were no notes issued to memorialize the terms of the loans on which the two convictions for offering or selling unregistered securities were based. Therefore, no security was involved. However, by its plain terms, Wis. Stat. § 551.21(1) is violated through an offer to sell an unregistered security, even if no sale actually occurs. Therefore, the issuance of a promissory note, debenture or other evidence of indebtedness containing the terms agreed upon when the loan was made is not a necessary element of a violation of § 551.21(1). However, because solicitation to sell a note, debenture or evidence of indebtedness are the terms used in § 551.02(13)(a) which most reasonably fit what Johnson's oral representations promised, we will apply the analysis appropriate to determining whether a note, debenture or other evidence of indebtedness is a security, to Johnson's solicitation.

¶ 12. Reves v. Ernst & Young, 494 U.S. 56 (1990), provides a detailed analysis of the test to use in determining whether a note is a security under federal law. Reves is instructive because it rejects the test developed in SEC v. W.J. Howey Co., 328 U.S. 293 (1946), to determine whether the instrument at issue is a security. Reves, 494 U.S. at 64. It did so, in part, because, unlike the investment contracts that were at issue in Howey where the buyer expected a return by participation in the profits of the enterprise, the return expected on a note might not be derived from profits. A lender often expects an investment to appreciate even if the enterprise has no profits. See id. Therefore, a note might not be deemed a security under the Howey test, but it would still be within the class of instruments that Congress sought to regulate through the Securities Exchange Act. Id.

¶ 13. Instead of the Howey test, Reves adopted the "family resemblance test" as the framework for analyzing whether a note is a security. Id. at 65. In so doing, the Court began with the language used in the statute. Id. It concluded that the language chosen established a rebuttable presumption that all notes are securities because "notes" are listed within the definition of a security in the statute. The Court then analyzed that presumption in light of four factors which could rebut the presumption. First, it examined the transaction to determine the motivation that caused the borrower and the lender to enter into it. Second, it examined the "plan of distribution" of the note to determine whether it is commonly traded for speculation or investment. Third, it examined the reasonable expectations of the investing public. And fourth, it examined whether there was another regulatory scheme or some other factor that significantly reduced the risk of the instrument, thereby causing the application of the securities laws to be unnecessary to protect the public. Id. at 66-67.

¶ 14. In concluding that the demand notes issued by the farmers co-op were securities, the Court in Reves found most persuasive that, "the Co-Op sold the notes in an effort to raise capital for its general business operations, and purchasers bought them in order to earn a profit in the form of interest." Id. at 67-68. The Court concluded that this showing of interest and the fact that the interest paid was higher than would have been paid normally by commercial banks and savings and loans, contributed to showing that the notes were investments in a business enterprise rather than purely commercial or consumer transactions. Id. at 68.

¶ 15. In State v. Mueller, 201 Wis. 2d 121, 549 N.W.2d 455 (Ct. App. 1996), we adopted the family resemblance framework set out in Reves for use in Wisconsin to determine whether the note under consideration was a security within the meaning of Wis. Stat. § 551.02(13)(a). Mueller, 201 Wis. 2d at 146-48, 549 N.W.2d at 465-66. The type of analysis applied to a particular instrument differs depending on the nature of the transaction. For example, in Fore Way Express, Inc. v. Bast, 178 Wis. 2d 693, 705, 505 N.W.2d 408, 413 (Ct. App. 1993), we adopted the economic realities test to determine whether a particular profit sharing agreement was a security. Because the transactions at issue here are most similar to offering to sell a debt instrument than to other types of transactions that may involve a security, we adopt the family resemblance framework for debt instruments, such as debentures and promises to repay loans made at above market rates, in addition to notes and apply it to the facts of this case.

a. The 1992 solicitation.

¶ 16. For the conviction that arose out of Johnson's 1992 offer to sell Stuessy $12,500 of debentures for $5,000, there is a statutory presumption that the debentures are securities because debentures are listed within the broad class of items included within the definition of a security in Wis. Stat. § 551.02(13)(a). In applying the family resemblance test to that presumption, we note that the debentures were offered to raise capital for American Ranger Manufacturing, not as part of a commercial transaction. The debentures were an investment opportunity for which Stuessy paid $5,000 expecting at least a $12,500 return. Others, in addition to Stuessy, made loans with the expectation of a return significantly higher than the market rate of interest. And finally, there were no risk-reducing factors that would cut against applying the prohibition of Wis. Stat. § 551.21(l)(a) to this transaction.

¶ 17. Johnson also argues that there was no horizontal commonality, so the loans could not have been made to purchase a security. Howey required a showing of commonality to prove that the investment contract satisfied the requirement of "a common enterprise." Howey, 328 U.S. at 301. However, as pointed out earlier, we have adopted the United States Supreme Court's implementation of the family resemblance test when analyzing debt instruments. The Supreme Court established the family resemblance test after rejecting the Howey test, for which commonality is an element. Because we have determined that the family resemblance test is the appropriate analysis for a debt instrument under Wisconsin statutes, proof of horizontal commonality is not required in order to have the solicitation to loan money involve a security within the meaning of ch. 551. Accordingly, we conclude that the evidence of Johnson's offer to sell the debentures was sufficient to prove Johnson violated § 551.21(1)(a) because he offered to sell an unregistered security when he offered to sell the debentures.

b. The 1996 solicitations.

¶ 18. For the conviction that arose out of the loans Stuessy made in 1996, we again consider the evidence in the record of how the loans were made. Stuessy continued to send Johnson money based on Johnson's requests. Although, he had no recollection of the specific purpose to which the money would be applied, except to raise capital for American Ranger Manufacturing, Stuessy said he thought that his loans would enable American Ranger Manufacturing to produce American Rangers for sale so that his investment would prove profitable.

¶ 19. The record shows that during 1996 Johnson faxed letters to Stuessy that he had sent to and received from Carl Nunez suggesting that sales of significant numbers of American Rangers were just around the corner and that the long sought return on Stuessy's investments would soon be available through Dupont Financial Services. While the State does not identify a place in the record where it is shown that others made loans in 1996, and we could find none, we do not deem that part of the Reves-Mueller analysis essential because the loans solicited in 1996 were not discrete transactions. Rather, they were part of a pattern of Johnson's solicitations that had been ongoing with Stuessy and others for years. And finally, as with Stuessy's earlier investments, there were no risk-reducing factors that would make the application of Wis. Stat. § 551.21(1) unnecessary. Accordingly, we conclude that the evidence is sufficient to prove Johnson violated § 551.21(1) by his offers to sell a right to receive a significant return on the loans Stuessy made in 1996.

Violations of Wis. Stat. § 551.41(2).

¶ 20. Johnson was also convicted of making material misrepresentations regarding the loans he solicited in the period between March 1992 and December 1993 and in the period between March 1991 and September 1991. Johnson asserts that because the return Stuessy was promised was so high, sometimes as much as three to one, none of the representations could have been material. He focuses on cases that conclude that a representation is material only if it would have influenced the investor's decision to invest. He cites State v. McCrossen, 129 Wis. 2d 277, 385 N.W.2d 161 (1986) and State v. Woodington, 31 Wis. 2d 151, 142 N.W.2d 810 (1966).

¶ 21. The standard for determining whether a representation is material is an objective standard, wherein the fact finder assesses whether the omitted or misrepresented fact would have made a difference to a reasonable investor's decision to invest. See Ollerman v. O'Rourke Co., 94 Wis. 2d 17, 42, 288 N.W.2d 95, 107 (1980); TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 445 (1976).

¶ 22. Here, Johnson repeatedly represented that Stuessy would be repaid two to three times the principal amount of his loans. Johnson sent Stuessy letters he wrote to others and letters he received from others that appeared to show that commercial financing and sales for the American Ranger were soon to be available to pay Stuessy all that was promised. Additionally, Johnson never disclosed the back taxes owed to the Internal Revenue Service and the Wisconsin Department of Revenue. He also kept silent about his past fraud conviction and the Order of Prohibition by the Office of the Wisconsin Commissioner of Securities. We conclude that the circuit court, as the fact finder, could have found that these false statements and omissions would have been material to a reasonable investor in deciding whether to invest in American Ranger Manufacturing.

¶ 23. In regard to Johnson's arguments, he cites McCrossen, a case involving a drunk driving conviction that has nothing to do with whether representations are material. McCrossen, 129 Wis. 2d at 279-80, 385 N.W.2d at 162. Johnson also cites Woodington, which supports his conviction because it explains that an investor has a right to reasonably accurate information, and it is up to the investor then to determine whether he wishes to invest in light of that information. Woodington, 31 Wis. 2d at 175, 142 N.W.2d at 822. Accordingly, we conclude that the evidence is sufficient to prove that Johnson repeatedly violated Wis. Stat. § 551.41(2) by his false statements of material facts and by his omission of material facts.

Violation of Wis. Stat. § 551.58(1).

¶ 24. On December 29, 1995, the Office of the Commissioner of Securities issued an Order of Prohibition which directed Johnson to refrain from offering or selling a security of any type unless it was registered under ch. 551. Johnson did not contest the order. The State asserts that the violations of Wis. Stat. § 551.21(1) in 1996, already discussed above, prove a violation of Wis. Stat. § 551.58(1) because of the Order of Prohibition was then in effect. Johnson does not contend that if what he offered to sell or sold in 1996 was a security, then the Order of Prohibition was not violated. Therefore, because we have concluded that his solicitations of loans from Stuessy in 1996 violated § 551.21(1), we affirm his conviction for violating § 551.58(1) without addressing this issue further.

CONCLUSION

¶ 25. Because we conclude that the evidence was sufficient to prove that Johnson did offer to sell securities, during which he made material misrepresentations, conduct which violated the Order of Prohibition, we affirm all five convictions.

By the Court. — Judgment affirmed.

       All references to the Wisconsin Statutes are to the 1999-2000 version unless otherwise noted. The statutes Johnson violated have been amended since his conviction, but the amendments do not bear upon the disposition of this case.

       This transaction is often referred to as the "Turnbull loan" or "Turnbull transaction."

       Trial exhibit 53 contains the 1991 promissory note signed on behalf of American Ranger Manufacturing, Inc. by Johnson, as CEO, and Daniel A. Abandroth, as president.

       According to trial exhibit 58, Johnson represented that, "at the time of closing on the offering I will have $12,500 in debentures issued to you that can be cash (sic) at once or held for yrs and will mature for $120,000.00 with the Public Placement. We need $2,500.00 of the $5,000 today the Bal by the 24th. Plus I am going to have a block of stock Issued to you in the Public offering."

       Horizontal commonality is the pooling of interests, not only between the seller and each individual buyer, but also among all those who buy an investment contract in the same venture. See Wals v. Fox Hills Dev. Corp., 24 F.3d 1016, 1018 (7th Cir. 1994).

       A promissory note was issued for the loan made in 1991. However, that loan was not used as a basis for a violation of Wis. Stat. § 551.21(1).

       Earning a "profit" in Howey meant either capital appreciation or participation in earnings, neither of which is a factor when the instrument is a note unless the interest rate on the note is tied to the earnings of the enterprise. See Reves, 494 U.S. at 68 n.4.

       The Court gives as examples of notes that are not securities, a consumer financing note, a note behind a home mortgage, a short-term note secured by a lien on a small business or its assets, etc. Reves, 494 U.S. at 65.


author: LUNDSTEN, J.

text:
    Dora O. Alvarado and Lenny Gonzales, Jessica Gonzales, Billy Gonzales, Roberto Gonzales, by their Guardian ad Litem, Donald J. Murphy, Plaintiffs-Appellants, Partners Mutual Insurance, Subrogated Party-Plaintiff, v. Peter Sersch d/b/a D.P. Painters and Hastings Mutual Insurance, Defendants-Intervenors, Oakbrook Corporation, ABC Unidentified Insurance Company, Meriter Retirement Services, Inc., and OHIC Insurance Company, Defendants-Respondents.
    Court of Appeals

      No. 01-1715.

      Submitted on briefs March 14, 2002.

    Decided August 29, 2002.

    2002 WI App 227
    (Also reported in 652 N.W.2d 109.)

      On behalf of the plaintiffs-appellants, the cause was submitted on the briefs of Donald J. Murphy of Murphy Vaughan & Pressentin LLC, Monona, and Daniel W. Hildebrand of DeWitt Ross & Stevens S.C., Madison.
    On behalf of the defendants-respondents Oakbrook Corporation, Meriter Retirement Services, Inc., and OHIC Insurance Company, the cause was submitted on the brief of John A. Nelson and Timothy W. Feeley of von Briesen, Purtell & Roper, S.C., Milwaukee.
    Before Vergeront, PJ., Deininger and Lundsten, JJ.

       Petition to review granted 12-11-02.

   LUNDSTEN, J.

¶ 1. Dora Alvarado, Lenny Gonzales, Jessica Gonzales, Billy Gonzales, and Roberto Gonzales appeal a judgment and an order of the circuit court granting summary judgment in favor of defendants Meriter Retirement Services, Inc. and Oak-brook Corporation. Dora Alvarado worked for a cleaning company employed by Oakbrook, an apartment management company. While cleaning an empty apartment owned by Meriter and managed by Oakbrook, Dora Alvarado found and lit an explosive stick, thinking it was a candle. The explosion severely injured Alvarado's right hand. She and her children sued Mer-iter and Oakbrook claiming, among other things, common law negligence. The circuit court granted summary judgment against the plaintiffs based on the court's conclusion that Meriter and Oakbrook did not owe Alvarado a duty of care. While we employ a different analysis than the circuit court, we nonetheless affirm.

Background

¶ 2. The pleadings, affidavits, and depositions on file reveal the following when viewed in a light most favorable to the nonmoving party. Meriter owns a multi-unit residential rental property located at 325 West Main Street in the City of Madison. Oakbrook manages twenty-four properties for Meriter, including the West Main Street property.

¶ 3. Many of the apartments managed by Oak-brook are occupied by University of Wisconsin students. Leases on these apartments generally run from August 15 of one year to August 14 of the next. Each year a high number of the apartments "turn over" during August. As apartments are vacated, an Oakbrook employee walks through the apartments to inspect them for damage and to determine whether any cleaning or repairs are necessary.

¶ 4. In August of 1998, Oakbrook employee Larry Keleher was responsible for overseeing 240 rental units. Between 150 and 175 of these units turned over between August 12 and August 15 of 1998. Oakbrook's "Operating Handbook" instructs employees to inspect apartments "thoroughly" and inspect all areas on a checklist. The checklist includes cabinets. Oakbrook does not have a hazardous materials policy and conducts no safety training for either its employees or its painting or cleaning contractors. Oakbrook's manual does, however, generally advise employees to be safety conscious. Its manual states: "Staff should put safety first at all times. Staff should use common sense to not engage in work which endangers the safety and health of themselves and others." Under the job description for various positions, including "property manager," the manual states: "Continually inspect property and improvements for curb appeal, protection of property value, and potential safety hazards."

¶ 5. On August 12, 1998, Keleher conducted a move-out inspection of apartment 303 at Meriter's West Main Street property. There is no evidence of complaints relating to the vacating tenant. During his inspection, Keleher did not see a firework device located in a wall-mounted cabinet in the kitchen. Keleher does not remember whether he opened any of the cabinets during his inspection.

¶ 6. The next day, August 13, three painters from D.E Painters entered apartment 303 to paint at Oakbrook's request. While in the kitchen, one of the painters found in the kitchen cabinet what turned out to be an M-250 firework, an explosive device equivalent to one-quarter of a stick of dynamite. The firework was about four inches tall and about an inch in diameter with a wick in the top. Statements regarding its color varied, but there was general agreement that it was white with either red and blue, or red or blue, stripes. At least one of the painters believed that the firework was a candle. Another painter, who had previously seen an M-80 firework, recognized the object to be a firework explosive device. The painters removed the firework from the cabinet, but left it in the apartment and did not notify Oakbrook.

¶ 7. The day after the painters left, August 14, Alvarado and her supervisor, Ron Boehm, employees of a janitorial service employed by Oakbrook, entered and began cleaning apartment 303. Boehm noticed the firework device on the windowsill and said to Alvarado something to the effect: "That's a strange looking candle." Boehm described the device as a wax candle with a red, white, and blue exterior.

¶ 8. Alvarado similarly believed the firework was a candle and decided she could use it to relight the pilot light on a gas stove in the apartment. Alvarado knew that when she cleaned the top of the stove with a vacuum, the Vacuum would extinguish the pilot light. She had no matches and decided to light the "candle" from the pilot light, vacuum the oven, and then relight the pilot light with the candle. Alvarado lit the device and it exploded, blowing off most of her right hand. Prior to the accident, Alvarado had no experience with any firework-type device.

¶ 9. During his eleven prior years of employment with Oakbrook, Keleher had not discovered or heard of anyone discovering fireworks in a property managed by Oakbrook, but he did know that hazardous and flammable materials had been found in an occupied apartment in 1996. There is no evidence that any abandoned firework had ever been discovered in a Meriter-owned or Oakbrook-managed apartment. Neither party presented evidence of the frequency with which hazardous materials are left behind by vacating tenants.

¶ 10. Alvarado filed suit against D.E Painters, its insurer Hastings Mutual Insurance (hereafter D.E Painters), and Oakbrook. Alvarado asserted claims of negligence, negligence per se, and violation of the Safe Place Statute. Alvarado's children, Lenny Gonzales, Jessica Gonzales, Billy Gonzales, and Roberto Gonzales, asserted a claim for loss of society and companionship.

¶ 11. Meriter, Oakbrook, and D.E Painters filed motions for summary judgment. The circuit court granted the motions as to Alvarado's claims of negligence per se and violation of the Safe Place Statute. Alvarado does not object on appeal to that part of the court's ruling. The circuit court denied D.E Painters' motion for summary judgment regarding common law negligence and this ruling is also not at issue. However, Alvarado does contest the circuit court ruling granting summary judgment in favor of Meriter and Oakbrook with respect to Alvarado's claim of common law negligence. The circuit court concluded that neither Meriter nor Oakbrook had a duty to inspect apartment 303 for explosive devices and, therefore, did not, as a matter of law, violate any duty to exercise reasonable care. Alvarado appeals this part of the court's ruling.

Discussion

¶ 12. Alvarado argues that the circuit court erred when it granted Meriter's and Oakbrook's motions for summary judgment. We review summary judgment decisions de novo, applying the same methodology as the circuit court. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315-17, 401 N.W.2d 816 (1987). That methodology is well established and need not be repeated here. See, e.g., Lambrecht v. Estate of Kaczmarczyk, 2001 WI 25, ¶¶ 20-24, 241 Wis. 2d 804, 623 N.W.2d 751.

¶ 13. Meriter and Oakbrook argue that they did not owe Alvarado a "duty of care" because they neither knew nor should have known of the presence of the firework. In other words, they argue the presence of the firework in the kitchen cabinet was not foreseeable. Alvarado counters that it is foreseeable that tenants, especially student tenants, may leave behind hazardous items and, therefore, Oakbrook had a duty to inspect the apartment for hazardous materials, before allowing others, such as painters, cleaners, or new tenants, to work in or occupy an apartment. Meriter and Oakbrook argue, in the alternative, that public policy considerations should preclude liability.

¶ 14. In light of Wisconsin case law, it is understandable that the parties put forth "duty of care" arguments and treat these arguments as an analysis distinct from the legal question of whether public policy should preclude liability. However, recent pronouncements of the supreme court clarify that there is ¡no longer a threshold legal "duty of care" question for\v courts to resolve. Rather, it is now clear that fwhat C Wisconsin courts have previously done under the Suibric "duty of care" is make public policy decisions, and now clear that "duty of care" issues ought to be resolve^ in the context of public policy analysis.

Historical Treatment of "Duty of Care"

¶ 15. Wisconsin cases routinely define common law negligence as being comprised of the following four elements: (1) a duty of care on the part of the defendant; (2) a breach of that duty; (3) a causal connection between the conduct and the injury; and (4) an actual loss or damage as a result of the injury. E.g., Miller v. Wal-Mart Stores, Inc., 219 Wis. 2d 250, 259-60, 580 N.W.2d 233 (1998). The first element, "duty of care," has been treated as a threshold question of law. E.g., Schicker v. Leick, 40 Wis. 2d 295, 299, 162 N.W.2d 66 (1968). In this context, "duty of care" has been defined in terms of foreseeability:

The duty of any person is the obligation of due care to refrain from any act which will cause foreseeable harm to others even though the nature of that harm and the identity of the harmed person or harmed interest is unknown at the time of the act.

A.E. Inv. Corp. v. Link Builders, Inc., 62 Wis. 2d 479, 483, 214 N.W.2d 764 (1974); see also Rockweit v. Senecal, 197 Wis. 2d 409, 419-20, 541 N.W.2d 742 (1995); Rolph v. EBI Cos., 159 Wis. 2d 518, 532, 464 N.W.2d 667 (1991).

¶ 16. We suspect this approach has caused confusion partly because the legal question of "duty" addresses the same foreseeability issue we ask fact finders to address in negligence trials. The Wisconsin pattern jury instruction on negligence defines "ordinary care" in terms of whether a person does, or fails to do, something that a reasonable person would recognize as creating an unreasonable risk. Stated differently, the fact finder is asked to determine whether a reasonable person would foresee an unreasonable risk. See Rockweit, 197 Wis. 2d at 423 ("Negligence is to be determined by ascertaining whether the defendant's exercise of care foreseeably created ap unreasonable risk of harm to others."). ^

¶ 17. This overlap between '(duty of care" and the negligence question put to fact finders has led to the observation that .the " '[duty of care] question is closely related to the question of whether á defendant is not negligent as a matter of law, i.e., based op the facts presented, no properly instructed, reasonable jury could find the defendant failed to exercise ordinary care.'" Id. at 419 (quoting Olson v. Ratzel, 89 Wis. 2d 227, 251-52, 278 N.W.2d 238 (Ct. App. 1979)). The Rockweit court further observed that negligence is a question for the jury, and should be decided by the court as a matter of law before trial only in rare cases. Rockweit, 197 Wis. 2d at 419.

¶ 18. More to the point here, the "duty of care" question overlaps with Wisconsin's "public policy" considerations.

¶ 19. As with "duty of care," the question of whether public policy precludes liability is á question of law. Morgan v. Pennsylvania Gen. Ins. Co., 87 Wis. 2d 723, 737, 275 N.W.2d 660 (1979). The public policy considerations that might preclude liability include: (1) the injury is too remote from the negligence; (2) the injury is too wholly out of proportion to the tortfeasor's culpability; (3) in retrospect, it appears too highly extraordinary that the negligence should have brought about the harm; (4) allowing recovery would place too unreasonable a burden on the tortfeasor; (5) allowing recovery would be too likely to open the way for fraudulent claims; and (6) allowing recovery would enter a field that has no sensible or just stopping point. Rockweit, 197 Wis. 2d at 426.

¶ 20. Public policy considerations one and three in the above list encompass the issue of foreseeability. And, as explained above, foreseeability by a reasonable person is the essence of "duty of care." This overlap is exemplified by Steffen v. Luecht, 2000 WI App 56, ¶¶ 37-40, 233 Wis. 2d 475, 608 N.W.2d 713. In Steffen, we stated: "When making a public policy determination ... [w]e look to whether the challenged conduct would ordinarily result in consequences of such drastic proportion." Id. at ¶ 40. We held, as a matter of public policy, that a landlord could not be held liable for the death of a tenant following a dispute over a $75 plumbing bill. Id. at ¶¶ 38-41. The tenant died eight days after vacating the apartment because of the dispute. Id. at ¶¶ 3-12. Without directly addressing whether the landlord was negligent, we held that the first four public policy considerations precluded liability in the wrongful death action because there was no showing that the landlord knew of the tenant's health problems and there wa/nothing to indicate he threatened her in any fashion. Id. at ¶ 38. We observed that landlord-tenant disputes are common, and the landlord pursued eviction believing he was right. Id. at ¶ 39. We cr" concluded that even if a trial ultimately proved the landlord improperly pursued eviction, "we cannot say that [the landlord] is fairly charged with apprehending that [the tenant's] death was within the realm of expectant possible harm." Id.

¶ 21. Steffen is noteworthy because this court could have addressed foreseeability in terms of "duty of care," but we chose instead to address it in the context of a public policy analysis. Moreover, we did so without presuming negligence on the part of the landlord. It is often repeated that even when the elements of a negligence claim have been established, a court may nonetheless preclude liability based on "public policy." E.g., Miller, 219 Wis. 2d at 264. However, we discern from Steffen that at least two public policy considerations (one and three) can sometimes be assessed without negligence as a presumed starting point.

¶ 22. Perhaps recognizing the potential for confusion and the redundancy of analyzing "duty of care" apart from public policy considerations, the supreme court has recently clarified in two decisions that "duty of care" should no longer be a distinct threshold legal inquiry, but instead a part of "public policy" analysis. We now turn our attention to those recent decisions: Stehlik v. Rhoads, 2002 WI 73, 253 Wis. 2d 477, 645 N.W.2d 889, and Gritzner v. Michael R., 2000 WI 68, 235 Wis. 2d 781, 611 N.W.2d 906.

Stehlik and Gritzner

¶ 23. In Stehlik, the supreme court addressed a negligence claim and was asked to resolve whether the owner of an all-terrain vehicle had a "duty" to "require a competent adult to take precautions for his or her own safety, such as wearing a helmet [while using the all-terrain vehicle]." Stehlik, 2002 WI 73 at ¶ 52. The court declined to answer the question, explaining: "[I]n Wisconsin, common law limitations on liability are determined not by reference to the absence of a duty, but as a matter of public policy" because "[a]ll members of society are 'held, at the very least, to a standard of ordinary care in all activities.'" Id. (citations omitted). Accordingly, the supreme court went on to analyze the parties' arguments in terms of public policy considerations. Id. at ¶¶ 53-57.

¶ 24. Stehlik relied on Gritzner, 2000 WI 68, which makes the same point in a less direct manner: "Of course, even when a duty of care exists and the other elements of negligence have been established, public policy considerations may preclude liability. However, Wisconsin courts address public policy concerns directly, rather than asking whether the defendant owed a 'duty' to the particular victim." Gritzner, 2000 WI 68 at ¶ 24. While this statement in Gritzner might be read in isolation as distinguishing "duty to the particular victim" from "duty of care" more generally, the supporting footnote clarifies that the court is talking about the "duty of care" generally:

As the defendant notes, some Wisconsin cases have examined liability limitations in terms of duty. See Estate of Becker v. Olson, 218 Wis. 2d 12, 579 N.W.2d 810 (Ct. App. 1998); Zelco v. Integrity Mut. Ins. Co., 190 Wis. 2d 74, 527 N.W.2d 357 (Ct. App. 1994); Erickson v. Prudential Property and Cas. Ins. Co., 166 Wis. 2d 82, 479 N.W.2d 552 (Ct. App. 1991). This formulation of the analysis is incorrect under Wisconsin law. In Wisconsin, everyone has a duty to act with reasonable care. Liability for breach of that duty is limited on public policy grounds. See Rockweit v. Senecal, 197 Wis. 2d 409, 425, 541 N.W.2d 742 (1995) (explaining that although some cases have denied liability on the basis that an actor had no "duty" to the injured party, the decision to deny liability is essentially one of public policy and not duty or causation). See also Bowen v. Lumbermens Mut. Cas. Co., 183 Wis. 2d 627, 644-45, 517 N.W.2d 432 (1994) (explaining that in deciding whether to impose liability for negligence, Wisconsin courts use a public policy formulation rather than a foreseeability or duty formulation) (citing Klassa v. Milwaukee Gas Light Co., 273 Wis. 176, 183, 77 N.W.2d 397 (1956)); Schuster v. Altenberg, 144 Wis. 2d 223, 266, 424 N.W.2d 159 (1988) (Steinmetz, J., concurring) (noting that Wisconsin has a distinct approach to negligence under which liability is limited through policy considerations after the elements of duty and causation have been established); Klassa, 273 Wis. [] at 183 ("Whenever a court holds that a certain act does not constitute negligence because there was no duty owed by the actor to the injured party, although the act complained of caused the injury, such court is making a policy determination.").

Id. at ¶ 24 n.4.

¶ 25. What may not have been clear before has now been clarified in Stehlik and Gritzner. The same substantive legal question frequently analyzed in the past under the label "duty of care" should now be analyzed under the public policy framework. This does not represent a substantive change in the law. Parties may still make the same substantive arguments they have always made. Now, however, those arguments should be made in the context of public policy considerations. Accordingly, we will address the parties' dispute in that context.

Public Policy Considerations

¶ 26. Meriter and Oakbrook argue that public policy considerations preclude the imposition of liability. As previously noted, public policy considerations that may preclude liability include: (1) the injury is too remote from the negligence; (2) the injury is too wholly out of proportion to the tortfeasor's culpability; (3) in retrospect, it appears too highly extraordinary that the negligence should have resulted in the harm; (4) allowing recovery would place too unreasonable a burden on the tortfeasor; (5) allowing recovery would be too likely to open the way for fraudulent claims; and (6) allowing recovery would enter a field that has no sensible or just stopping point. Gritzner, 2000 WI 68 at ¶ 27. Meriter and Oakbrook assert that all of these considerations support summary judgment in their favor.

¶ 27. Alvarado contends there are factual disputes that preclude summary judgment. However, after carefully reviewing Alvarado's brief, we find that she alleges only one factual dispute. Alvarado asserts that the circuit court improperly determined an issue of fact when it "held that the purpose of Keleher's inspection was to determine if any amounts should be withheld from the vacating tenant's security deposit and to identify what repair work and painting and cleaning was required before the next tenant took possession." Alvarado argues that this finding is contrary to the instructions in Oakbrook's own "Operating Handbook" and argues that it is "for the jury to determine the purpose and adequacy of the inspection." However, we conclude there is no underlying factual dispute.

¶ 28. There is no dispute that Oakbrook's "move-out inspection" policy focuses on wear and tear, property damage, and refurbishing an apartment for new tenants. There is no mention of safety issues in this part of Oakbrook's manual. There is no dispute that other sections of Oakbrook's manual generally advise employees to be safety conscious. Finally, there is no dispute that when Keleher inspected apartment 303, he failed to inspect the wall-mounted kitchen cabinet with sufficient care to discover the firework device. Apart from the general advisement in Oakbrook's manual regarding safety, Alvarado has not offered any evidence that Oakbrook's purpose when inspecting apartments includes detecting hazardous materials. Thus, we fail to discern a relevant factual dispute. To the extent Alvarado argues that a jury should have been allowed to decide whether Oakbrook should have had a policy directing its apartment inspectors to look for hazardous materials, she is not raising a factual dispute.

¶ 29. Although Meriter and Oakbrook assert that all of the public policy considerations listed in paragraph 26 above support summary judgment in their favor, we need only address considerations one (remoteness) and three (a result too highly extraordinary) to resolve this matter. As explained earlier in this opinion, both of these considerations encompass foreseeability.

¶ 30. Meriter and Oakbrook argue that it was not foreseeable that a cleaning person would be harmed if Oakbrook failed to specifically inspect apartments for hazardous materials. Meriter and Oakbrook point out that there is no allegation or offer to prove that landlords or property managers regularly find hazardous materials in vacated apartments. Meriter and Oak-brook also argue it was not reasonably foreseeable that a vacating tenant would leave behind fireworks. Alvarado counters that it is foreseeable that tenants, especially student tenants, will leave behind hazardous materials. Indeed, Alvarado is prepared to present evidence that, two years before the accident in this case, Oakbrook employees found toxic and noxious chemicals in an occupied apartment. Alvarado contends that because it was foreseeable that vacating tenants might leave behind hazardous materials, Oakbrook was negligent in failing to inspect apartment 303 for hazardous materials and in failing to instruct its painting contractor, D.E Painters, on what to do if its employees discovered a dangerous object.

¶ 31. We acknowledge it is "usually better practice to submit the issues of negligence and causation to the jury before balancing various policy factors against a plaintiffs right to recover." Olson, 89 Wis. 2d at 253-54. However, the factual issues in this case are not so complex as to prevent a fair and complete evaluation of relevant policy considerations. See id.

¶ 32. In this case, there was no indication that the vacating tenant was a problem tenant. There is also no evidence that vacating tenants in general leave behind hazardous materials with any regularity. Oakbrook's prior experience with toxic chemicals did not involve a hazard left behind by a vacating tenant, but rather a hazard created by a current tenant who was apparently manufacturing illegal drugs. Moreover, hazardous materials would not typically pose a danger to employees of a cleaning company employed by Oakbrook because the nature of the hazard would be as apparent to the cleaning crew as it would be to Oakbrook's apartment inspector or to an employee of D.E Painters.

¶ 33. Alvarado's reliance on Oakbrook's prior experience with toxic chemicals in an occupied apartment highlights a problem with Alvarado's assertion that a reasonable landlord would foresee unreasonable risk and always inspect for hazardous materials before allowing a contractor to enter an apartment to perform work. Absent knowledge or at least some sort of notice of a hazard or problem tenant, must Oakbrook either (1) inspect first, or (2) provide hazardous materials training to every plumber or electrician it hires because such contractors might encounter hazardous materials when working in occupied or unoccupied student apartments? Certainly not. Accordingly, we reject the unworkable suggestion that Oakbrook should have always either searched an apartment for hazardous materials or provided hazardous materials training to contractor employees before permitting a contractor in an apartment.

¶ 34. Finally, we observe that this casé involves a very unusual hazard: an explosive firework that, to someone unfamiliar with such devices, might appear to be a candle. The harm to Alvarado is tragic, but it is, under any reasonable view, a highly extraordinary result of Oakbrook's failure to anticipate and remove the hazard. Similar to our conclusion in Steffen, we conclude here that we cannot say that Meriter and Oakbrook are fairly charged with apprehending that Alvarado's injury was "within the realm of expectant possible harm." Steffen, 2000 WI App 56 at ¶ 39. As a matter of public policy, liability is precluded because the harm to Alvarado was too remote from the alleged omission on the part of Oakbrook and it was too highly extraordinary that Oakbrook's omission would result in the harm.

¶ 35. At the same time, we stress that our holding is case-specific. This case involves a highly unusual cause of an injury to a cleaning person employed by a contractor. We do not hold that landlords have no obligation to assure that apartments are hazard-free prior to the time new tenants take occupancy. Neither do we suggest that landlords never have an obligation to search for hazardous materials. To take one of many possible examples, it might be that a landlord could be found negligent and held liable for failing to inspect for hazards if the landlord knew a vacating tenant was involved in the reckless use of firearms. Given this knowledge, the landlord might properly be held liable for permitting new tenants with children to take occupancy without a thorough inspection.

¶ 36. Because we affirm the circuit court, we need not address Meriter's and Oakbrook's alternative argument that Alvarado's negligence exceeded that of any of the defendants as a matter of law. We also need not address Meriter's argument that the circuit court properly granted summary judgment in favor of Meriter on the ground that Meriter, as distinguished from Oak-brook, did not do or fail to do anything that would provide a basis for a finding of negligence.

By the Court. — Judgment and order affirmed.

       Summary judgment was also in favor of defendant OHIC Insurance Company, Meriter's liability insurer. The parties do not separately discuss OHIC as a defendant, and we follow their lead.

       WISCONSIN JI — Civil 1005 reads, in pertinent part:
      A person is negligent when [he or she] fails to exercise ordinary care. Ordinary care is the care which a reasonable person would use in similar circumstances. A person is not using ordinary care and is négligent, if the person, without intending to do harm, does something (or fails to do something) that a reasonable person would recognize as creating an unreasonable risk of injury or damage to a person or property.

       Unlike the circuit court, we- consider this evidence for purposes of summary judgment. Accordingly, we need not address Alvarado's complaint that the circuit court erroneously "excluded" this evidence.


author: VERGERONT, EJ.

text:
    American Family Mutual Insurance Company, Plaintiff-Appellant-Cross-Respondent, v. The Pleasant Company, Defendant-Respondent-Cross-Appellant, The Renschler Company, Inc., Defendant-Third-Party Plaintiff-Respondent-Cross-Appellant, v. Western American Insurance Company, The Ohio Casualty Insurance Company, Regent Insurance Company and General Casualty Company of Wisconsin, Third-Party Defendants-Respondents-Cross-Respondents.
    Court of Appeals

      No. 01-1871.

      Submitted on briefs June 12, 2002.

    Decided August 29, 2002.

    2002 WI App 229
    (Also reported in 652 N.W.2d 123.)

      On behalf of the plaintiff-appellant-cross-respondent, the cause was submitted on the briefs of Wayne M. Yankala and Michael R. Vescio of Mingo & Yankala, S.C., Milwaukee.
    On behalf of the defendant-respondent-cross appellant, the cause was submitted on the briefs of Daniel W. Hildebrand and William E. McCardell of Dewitt Ross & Stevens S.C., Madison.
    On behalf of the defendant-third-party plaintiff-respondent-cross-appellant, the cause was submitted on the briefs of Robert J. Kay and Robert A. Mich, Jr. of Kay & Andersen, S.C., Madison.
    On behalf of the third-party defendants-respondents-cross-respondents General Casualty Company of Wisconsin and Regent Insurance Company, the cause was submitted on the brief of Robert F. Johnson and Lee Anne N. Conta of Cook & Franke S.C., Milwaukee; and on behalf of the third-party defendants-respondents-cross-respondents Western American Insurance Company and The Ohio Casualty Insurance Company, the cause was submitted on the brief of Michael D. Lawrynk of Gabert, Williams, Konz & Lawrynk, LLP, Appleton.
    Before Vergeront, EJ., Dykman and Deininger, JJ.

       Petition to review granted 11-12-02.

   VERGERONT, EJ.

¶ 1. The dispositive issue on this appeal and cross-appeal is whether the exclusion for "liability assumed in a contract" in policies issued to The Renschler Company precludes coverage for the claims of breach of contract and negligence asserted against Renschler by The Pleasant Company. We conclude this exclusion does preclude coverage of these claims. Accordingly, we reverse the circuit court's order granting summary judgment in favor of Pleasant and Renschler with respect to American Family Insurance Company's Comprehensive General Liability (CGL) policies issued in the years 1994-97, and we remand with instructions to enter summary judgment in favor of American Family Mutual Insurance Company on these policies. In addition, because of this exclusion, we affirm the order granting summary judgment in favor of American Family with respect to its excess liability policies for these years, and we affirm the order granting summary judgment in favor of Ohio Casualty Insurance, Western American Insurance Company, General Casualty Insurance Company, and Regent Insurance Company. Since all these policies contain the exclusion, we do not address other issues raised on the appeal and cross-appeal.

BACKGROUND

¶ 2. Pleasant entered into a contract with Ren-schler for the design and construction of a building. Renschler subcontracted with Clifton Lawson, a soils engineer, to analyze the soil conditions at the site. Lawson reported that the soil conditions were poor and recommended "surcharging" — preparing the site by placing heavy fill on it to compress the soil. Lawson worked with Renschler's project superintendent in carrying out the surcharging. The building was substantially completed in August 1994. Subsequently, there was significant settlement of the building, which caused serious physical damage to the building.

¶ 3. The contract between Pleasant and Ren-schler provided for arbitration of disputes. Accordingly, Pleasant filed a demand for arbitration asserting two claims against Renschler: breach of contract and negligence. As grounds for the contract claim, Pleasant alleged that Lawson's negligence caused excessive settlement of the building, which resulted in damage to the building, and, by reason of the excessive settlement, Renschler breached its contract with Pleasant. As grounds for the negligence claim, Pleasant alleged that Renschler had a non-delegable common law duty of care to Pleasant in performing its contract, and Renschler was liable for the negligence of Lawson, its subcontractor.

¶ 4. After Pleasant filed the demand for arbitration, American Family filed this action seeking a declaratory ruling that the CGL and excess liability policies it had issued to Renschler did not provide coverage for Pleasant's claims against Renschler, and it therefore did not have a duty to defend in the arbitration. Renschler joined four additional insurers: Ohio Casualty Insurance Company and West American Insurance Company, which issued CGL and excess liability policies respectively for March 31, 1997 through March 31, 1999, and General Casualty Insurance Company and Regent Insurance Company, which issued CGL and umbrella liability policies, respectively, thereafter. The parties, the court, and the arbitration panel agreed to stay the arbitration until the cross-motions for summary judgment on the coverage issues were resolved.

¶ 5. With respect to American Family's CGL policies for the years 1994-95, 1995-96, and 1996-97, the court concluded that none of the exclusions on which American Family relied were applicable and that coverage was not precluded under either the economic loss doctrine or the loss-in-progress doctrine (also called the known loss doctrine). However, the court concluded there was no coverage under American Family's excess policies for these years because of the professional services exclusion. With respect to the other four insurers, the court concluded there was no coverage under their policies because of the loss-in-progress doctrine: the court decided it was undisputed that in February 1997 — before any of their policies were issued — it was obvious to Renschler that the settlement problem was so serious that remediation was necessary.

DISCUSSION

¶ 6. In reviewing the grant or denial of summary judgment, we apply the same methodology as the circuit court, and our review is de novo. Green Spring Farms v. Kersten, 136 Wis. 2d 304, 315, 401 N.W.2d 816 (1987). If there are no disputed issues of fact, as in this case, we decide which party is entitled to judgment as a matter of law. Id.

¶ 7. Whether an insurer has a duty to defend is determined by comparing the allegations of the complaint — in this case, the arbitration demand — to the terms of the policy. If, assuming the allegations are proved true, the insurer would be obligated to pay the resulting judgment under the terms of the policy, then the insurer has a duty to defend the insured. Atlantic Mut. Ins. Co. v. Badger Med. Supply Co., 191 Wis. 2d 229, 236, 528 N.W.2d 486 (Ct. App. 1995). The interpretation of an insurance contract is a question of law. Id.

¶ 8. On appeal, American Family renews the arguments it made in the circuit court for no coverage and no duty to defend under its CGL policies. We address only the exclusion relating to the assumption of liability in a contract, because it is dispositive.

2. Exclusions

This insurance does not apply to:

b. "Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:
(1) Assumed in a contract or agreement that is an "insured contract," provided that "bodily injury" or "property damage" occurs subsequent to the execution of the contract or agreement; or
(2) That the insured would have in the absence of the contract or agreement.

(Footnote added.)

¶ 9. The circuit court concluded that this exclusion applied only to indemnity and "hold harmless" agreements, after deciding that cases from other jurisdictions to this effect were persuasive. American Family contends the circuit court erred in not applying the Wisconsin case on point, Nelson v. Motor Tech, Inc., 158 Wis. 2d 647, 462 N.W.2d 903 (Ct. App 1990).

¶ 10. Nelson addressed an exclusion with identical language, including the second exception to the exclusion "for liability an insured would have in the absence of the contract or agreement." Id. at 650. There, the insured, an auction company, was sued as a third-party defendant by the owner of an automobile who had placed the automobile with the auction company to auction for a specified reserve price. The auction company sold the automobile for significantly less due to a misreading of the reserve price by an employee, and the owner refused to deliver the automobile to the purchaser. When the purchaser sued the owner for specific performance, the owner impleaded the auction company, asserting claims of breach of contract and negligence. After setting forth the exclusion and the second exception, we stated: "The above provision clearly excludes coverage for incidents involving purely contractual liabilities. The policy covers incidents only if there is liability independent of the contract." Id.

¶ 11. We then considered whether there was a common law duty to sell a product for more than the reserve price in the absence of a duty created by a contract, and we concluded there was not. Id. at 650-51 In reaching this conclusion, we relied on the line of Wisconsin cases establishing that

in order to proceed in a tort action when the parties' relationship is defined by a contract, there must be a duty in common law independent from any duty created by the contract. In applying this test, the existence of a contract is ignored when determining whether the alleged misconduct is actionable in tort.

Id. at 653 (citation omitted). We decided that any liability the auction company had was entirely grounded in a claim for breach of contract. Id. Therefore, we held there was no coverage under the policy, and the insurer had been properly dismissed. Id. at 654.

¶ 12. Renschler argues that Nelson is distinguishable because "it involved third party liability which is not present in this case." According to Renschler, the auction company's liability was to indemnify the owner for its liability to the purchasers, and therefore it was "in the nature of a 'hold harmless' agreement." This is not an accurate reading of Nelson. There is nothing in the case that describes the contract between the auction company and the owner of the automobile as an indemnity or "hold harmless" agreement. Rather, the owner of the automobile was suing the auction company for breach of its contract because the auction company sold the automobile for significantly less than the specified reserve price. Id.yat 649. This is not an agreement to indemnify or hold harmless. The fact that the owner sued the auction company as a third-party defendant, after itself being sued by the purchaser, has no bearing on the nature of the contract between the auction company and the owner of the automobile.

¶ 13. In short, we see no meaningful basis on which to distinguish Nelson from this case. Nelson construes the same exclusion in the context of deciding essentially the same issue: whether this exclusion applies when the insured has entered into a contract to perform services and is sued for breach of contract and for negligence in the manner in which the services were performed.

¶ 14. Renschler and Pleasant argue, however, that Meyer v. United States Fire Insurance Co., 218 Wis. 2d 499, 582 N.W.2d 40 (Ct. App. 1998), which we decided after Nelson, modifies Nelson and supports the circuit court's construction of the exclusion as applying only to indemnification and "hold harmless" contracts.

¶ 15. In Meyer, we considered whether an employer's commercial umbrella policy provided coverage for an employee's injury caused by a co-employee. The policy excluded coverage for bodily injury to an employee arising out of employment with the insured, but also provided: "We will pay on behalf of the 'Insured' those sums in excess of the 'Retained Limit' which the 'Insured' by reason of liability imposed by law, or assumed by the 'Insured' under contract prior to the 'Occurrence,' shall become legally obligated to pay as damages for [bodily injury]." Id. at 504-05. The issue was whether the insured employer "assumed .. . under contract" liability for the injury of the employee by having a motor vehicle liability policy with another insurer, where the employer's motor vehicle liability insurance contained an endorsement that deleted the exclusion for co-employee liability. (Had that exclusion not been deleted, the employer's liability would have been circumscribed by the worker's compensation statute, making worker's compensation the exclusive remedy against the employer. Id. at 502 n.l.)

¶ 16. We concluded in Meyer that the employer had not "assumed [liability] under contract" and therefore there was no coverage. Meyer, 218 Wis. 2d at 507. In reaching this conclusion, we adopted the construction of a Seventh Circuit case, Dreis & Krump Manufacturing Co. v. Phoenix Insurance Co., 548 F.2d 681, 684 (7th Cir. 1977), which held that "liability assumed [by the insured] under any written contract" means a "specific written agreement between the insured and a third party whereby the insured agrees to 'indemnify' the third party." Meyer at 505. We reasoned that this construction "complemented] the development of the law [regarding waiver of statutory liability]," because Wisconsin cases outside the worker's compensation context had held that the mere purchase of an insurance policy with coverage in excess of statutory limitations of recovery was not a waiver of those limitations. Id. at 506 (citing Stanhope v. Brown County, 90 Wis. 2d 823, 852, 280 N.W.2d 711, 723 (1979)). Applying this reasoning to the facts before us, we stated:

[The employer's] contract of [umbrella] insurance ... specifically excluded coverage for" '[b]odily injury' to an employee ... in the course of employment." Even more to the point, however, [the employer] never contracted with [the injured employee] or any other employee to pay any amount greater than the statutory limits afforded by the Worker's Compensation Act. Applying the reasoning of Dreis & Krump, under the plain language of the [umbrella] policy, a third-party contract assuming liability would be required in order for the [umbrella] coverage to be triggered under this provision.
A contract of insurance is not a promise to indemnify a third person. Rather, it is an agreement between the insured and the insurer to cover the acts of the insured against the claims of third parties. Including a fellow employee liability exclusion in one insurance contract cannot be construed to create a contractual obligation by another insurer to assume this same liability.

Id. at 506-507. We did not mention Nelson in Meyer.

¶ 17. The issue we decided in Meyer — whether an employer's purchase of an insurance policy that deletes a co-employee exclusion is a contract to assume liability to an employee within the meaning of the coverage provisions of an employer's excess policy — bears little relation to the issue we decided in Nelson and to the issue presented in this case. Similarly, much of our reasoning in Meyer is wholly inapplicable both to Nelson and to this case, grounded as it was in the worker's compensation context. Therefore, the result and much of the reasoning in Meyer do not conflict with Nelson. However, our construction in Meyer of the coverage language "liability . .. assumed by the 'Insured' under contract" to mean a contract "between the insured and a third party whereby the insured agrees to indemnify the third party" arguably conflicts with our construction of the similarly worded exclusion in Nelson.

¶ 18. This court does not have the authority to overrule, modify, or withdraw language from our prior decisions; only the supreme court may do so. Cook v. Cook, 208 Wis. 2d 166, 189, 560 N.W.2d 246 (1997). Therefore, to the extent our construction of the coverage language in Meyer conflicts with our construction of the similarly worded exclusion in Nelson, we conclude we must follow Nelson, not Meyer. The circuit court, Pleasant, and Renschler may be correct that the cases from other jurisdictions are more persuasive than Nelson, but those arguments must be addressed to the supreme court.

¶ 19. Following Nelson, we conclude that, because of the exclusion, American Family's CGL policies do not provide coverage for any damages for which Renschler may be obligated to Pleasant, unless, in the absence of their contract, Renschler would be liable to Pleasant for Lawson's negligence. Pleasant contends Renschler would be, because, under Brooks v. Hayes, 133 Wis. 2d 228, 236, 395 N.W.2d 167 (1986), a general contractor may be liable in tort for a subcontractor's negligence. However, Pleasant's analysis of Brooks overlooks the fact that the contract there was the source of the general contractor's duty as described by the court. In order to fully explain this point, we lay out Brooks in some detail.

¶ 20. In Brooks, the court began by summarizing the issue and its holding in this way:

The issue ... is whether a general contractor who hires an independent contractor to perform services under the general contractor's agreement with a landowner [to build a residence] is liable to the landowners for damage to their property caused by the independent contractor's negligent construction. We hold that a general contractor who has a contractual duty of due care in performing the construction contract may be liable to the owner for damages when an independent contractor... negligently performs under the construction contract and causes property damage to the owner.

Id. at 231 (footnote omitted). This statement of the issue and holding do not distinguish between a breach of contract claim against the general contractor and a tort claim, but, as Pleasant points out, the court discusses both in the course of its decision.

¶ 21. The court first addressed the general contractor's assertion that he was not liable under the contract for the independent contractor's negligent performance because he had delegated performance of the masonry work to the independent contractor. The landowner contended that although the contract was silent regarding the standard of care required, the contract implicitly imposed a duty to perform with due care. The court observed that, for purposes of the appeal, the general contractor did not dispute that construction of the contract, and the court stated its own agreement. Id. at 234-35. The court found support for the landowner's position in Colton v. Foulkes, 259 Wis. 142, 47 N.W.2d 901 (1951), which stated that "accompanying every contract is a common-law duty to perform with care, skill, reasonable expediency and faithfulness the thing they agreed to be done, and a negligent failure to observe any of these conditions is a tort, as well as a breach of contract." Brooks, 133 Wis. 2d at 235 (citing Colton, 259 Wis. at 146). The court then concluded that the delegation of some contractual obligations to an independent contractor did not relieve the general contractor of liability under its contract for the independent contractor's negligent performance. Id. at 235-37.

¶ 22. The court in Brooks next considered the general contractor's assertion that the action was really a tort action, and, under tort law, he was not responsible for the torts of an independent contractor (the "independent contractor tort rule"). Id. at 247. The court rejected this argument because there is an exception to the independent contractor tort rule for a non-delegable duty, and the court decided that the contract precluded the general contractor from delegating its duty of care under the contract for purposes of tort liability, as well as for purposes of liability for breach of contract. Id. The court's conclusion was that "the duty in this case is a non-delegable contractual duty under the independent contractor tort rule." Id. at 248.

¶ 23. At the end of its decision, the court again summarized its holding:

We hold that [the general contractor] could hire subcontractors to perform the construction contract but that [the delegation] of the performance part of the contract to an independent contractor did not itself relieve [the general contractor] of liability to the plaintiff-owners for property damage resulting from the breach of contract by the independent contractor's negligence. Furthermore we conclude that the plaintiff-owners have, in the alternative, a tort claim under the facts of this case.

Id. at 249-50 (emphasis added).

¶ 24. Pleasant relies on the emphasized sentence in support of its argument that the exception to the exclusion — "the insured [has liability] in the absence of the contract" — applies in this case. However, the tort claim the court in Brooks refers to is expressly based on the general contractor's "contractual duty." Id. at 248. There is no mention in the case of a duty the general contractor had that existed independently of the contract and made the general contractor liable for the negligence of a subcontractor.

¶ 25. Because neither Pleasant nor Renschler has provided us with authority for Renschler's liability for Lawson's negligence that would exist in the absence of the contract between Pleasant and Renschler, we con-elude the second exception to the exclusion does not apply, and the exclusion precludes coverage for any damages resulting from Lawson's negligence. Since both claims in the arbitration demand are based wholly on Lawson's negligence, the exclusion precludes coverage for any of the resulting damages.

¶ 26. Our conclusion on this issue makes it unnecessary to decide Renschler's and Pleasant's cross-appeal of the circuit court's ruling that there is no coverage under American Family's excess liability policies due to the exclusion for professional services. These policies also contain the same exclusion for assumption of liability in a contract that American Family's CGL policies do. We therefore conclude there is no coverage under American Family's excess policies because of this exclusion, and we do not address the professional services exclusion. See Haessly v. Germantown Mut. Ins. Co., 213 Wis. 2d 108, 116, 569 N.W.2d 804 (Ct. App. 1997) (we may affirm the circuit court if it reaches the correct result, even though we do so for a different reason).

¶ 27. The same is true regarding Renschler's challenge to the circuit court's ruling that there is no coverage under the policies of Ohio Casualty, West American, General Casualty, and Regent due to the loss-in-progress doctrine. Since each of these policies contains the same exclusion as do the American Family CGL policies for assumption of liability in a contract, we affirm the conclusion of no coverage under these policies without addressing the loss-in-progress doctrine.

¶ 28. In conclusion, American Family is entitled to summary judgment in its favor declaring that there is no coverage under any of its policies issued in 1994 and thereafter because of the exclusion for assumption of liability in a contract, and it therefore has no duty to defend or to indemnify under these policies. Ohio Casualty, West American, General Casualty, and Regent are also entitled to summary judgment in their favor declaring they have no duty to defend or to indemnify under their policies because of this same exclusion. Therefore, we affirm in part, reverse in part, and remand with directions to enter judgment accordingly.

By the Court. — Judgment and order affirmed in part; reversed in part and cause remanded with directions.

       The court also concluded there was no coverage under American Family's CGL and excess policies for 1993-94 because they had expired before construction began and no occurrence, as defined in the policies, took place during the term of this policy. This ruling is not at issue on the appeal and cross-appeal.

       We granted leave to American Family to appeal the circuit court's decision that its CGL polices provided coverage.

       "An insured contract" is defined in the policy and does not include Renschler's contract with Pleasant. We therefore do not address this exception to the exclusion.

       In Nelson, the court did not discuss the first exception to the exclusion, so the reader does not know if that was the same as the "insured contract" exception in American Family's policy; id. at 650. However, that exception, as we have noted above, is not applicable in this case.

       Renschler also attempts to distinguish Nelson on the ground that we did not in that case consider whether the auction company's conduct constituted an "occurrence," and, had we done so, we "undoubtedly would have concluded that the misreading of the reserve price was not an 'occurrence.1" We do not understand this argument. A case is not less authoritative in construing one exclusion because another exclusion the case did not construe might also have resulted in no coverage.

       American Family responds to Pleasant's reliance on Brooks by asserting that Landwehr v. Citizens Trust Co., 110 Wis. 2d 716, 329 N.W.2d 411 (1983), decided after Colton and before Brooks, and numerous cases decided after Brooks's significantly limit Brooks as authority for Pleasant's position. We agree that aspects of Brooks's analysis are difficult to reconcile with Landwehr, 110 Wis. 2d at 723 (limiting Colton by explaining that while a contract may furnish the occasion for the tort, it does not furnish the underlying duty for the tort; "there must be a duty existing independently of the performance of the contract for a cause of action in tort to exist"). It is also true that Greenberg v. Stewart Title Guaranty Co., 171 Wis. 2d 485, 494-95, 492 N.W.2d 147 (1992), rejects an argument based on Brooks and reaffirms Landwehr's limitation on Colton, thus raising a question on the extent to which Brooks remains good law. Finally, this court has on many occasions relied on Landwehr, or cases relying on Landwehr, in rejecting the proposition that a contracting party has a tort action against the other party for deficient performance of the contract. See, e.g., Madison Newspapers, Inc. v. Pinkerton's Inc., 200 Wis. 2d 468, 474, 545 N.W.2d 843 (Ct. App. 1996); Atkinson v. Everbrite, Inc., 224 Wis. 2d 724, 592 N.W.2d 299 (Ct. App. 1999). However, it is not necessary to resolve the arguable conflict between Brooks and other cases in order to resolve the issue in this case concerning the application of the exclusion for assuming liability in a contract.