author: VERGERONT, J.

text:
    Wisconsin Chiropractic Association, Plaintiff-Respondent, v. State of Wisconsin Chiropractic Examining Board, Defendant, Dale Strama, Defendant-Appellant.
    Court of Appeals

      No. 03-0933.

      Submitted on briefs October 14, 2003.

      Decided January 29, 2004.

    2004 WI App 30
    (Also reported in 676 N.W.2d 580.)

      On behalf of the defendant-appellant, the cause was submitted on the briefs of Jon P. Axelrod and Bradley C. Fulton, DeWitt Ross & Stevens S.C., Madison.
    On behalf of the plaintiff-respondent, the cause was submitted on the brief of Marie A. Stanton, Hurley, Burish & Milliken. S.C., Madison.
    Before Deininger, PJ., Dykman and Vergeront, JJ.
   VERGERONT, J.

¶ 1. Dale Strama is seeking the attorney fees he incurred in defending against the Wisconsin Chiropractic Association's complaint, which the Association voluntarily dismissed and which Strama asserts was frivolous. The trial court denied his motion seeking fees under Wis. Stat. §§ 802.05(1) and 814.025(3)(a) and (b) (2001-02) and denied his motion for reconsideration and for an evidentiary hearing. We conclude the court applied incorrect legal standards and that an evidentiary hearing is required to resolve factual disputes. We therefore reverse and remand for an evidentiary hearing consistent with this decision.

BACKGROUND

¶ 2. Strama is a chiropractor licensed to practice in the State of Wisconsin and a shareholder in the chiropractic group, Allied Health of Wisconsin, S.C. (Allied Health). At the time relevant to this action, he was serving on the State of Wisconsin Chiropractic Examining Board, having been appointed in 1993, and he had been elected chair of the Board.

¶ 3. On July 19, 2002, the Association filed a complaint against Strama and the Board concerning the Board's approval of continuing education (CE) credits for programs sponsored or co-sponsored by Allied Health. The complaint alleged that Allied Health did not qualify as a sponsor of CE programs under the Wisconsin Administrative Code. In the "claim" section of the complaint, the Association alleged that Strama financially benefited from CE approval for Allied Health programs, Strama was "a public official subject to the standards of conduct and conflict of interest rules in §§ 19.45 and 19.46 Stats," and "approval of Allied Health sponsored or co-sponsored seminars, without recusal of Board member Strama, constituted a violation of ethical standards of conduct for public officials, §§ 19.45(2), (5) and 19.46(l)(a), (b) Stats." The complaint sought a declaratory judgment against the Board and Strama declaring that it was the duty of Board members, including Strama, to recuse themselves from participating in the consideration and approval of applications for CE credit when the member had an ownership interest or received other benefits from the sponsor. The complaint also sought a mandamus against the Board revoking approval of CE credit for all programs sponsored or co-sponsored by Allied Health.

¶ 4. On August 14, 2002, Strama moved to dismiss the complaint against him on the ground that it was false, frivolous, and had been filed in bad faith and for the purpose of harassing or maliciously injuring him; and he requested attorney fees under Wis. Stat. § 814.025.

¶ 5. In his affidavit accompanying the motion, Strama averred that he had never voted as a Board member on any matter concerning Allied Health nor was he consulted on any. He also averred that on the date the Association filed its complaint, it issued a news release to its members about the lawsuit, and that the Association induced the International Chiropractic Association (ICA) to include a portion of the news release in a mailing to all ICA members. Two other affidavits Strama filed explained that the Board had delegated to a member, not Strama, the responsibility for approving credits, and more recently staff at the Department of Regulation and Licensing (DRL) had taken on a greater role, subject to the designated member's oversight. Both affidavits supported Strama's averment that he had no involvement in approving credits for programs sponsored or co-sponsored by Allied Health.

¶ 6. The Association opposed dismissal in a brief filed on September 17, 2002. The Association asserted its legal theory was that, even though CE credit approval was delegated to a Board member other than Strama, that Board member was an agent of the Board, which included Strama, and Strama's conflict was therefore imputed to that Board member. The Association also submitted an affidavit averring that Strama had participated in a discussion of how organizations can become approved sponsors for CE programs, which specifically mentioned Allied Health; according to the Association this was evidence that Strama was influencing the Board delegate responsible for approving CE credit. Finally, the Association asserted that it needed time to conduct depositions of the Board members to learn of Strama's involvement.

¶ 7. Nine days later the Association filed a motion for voluntary dismissal of the complaint against Strama, stating that "after further investigation and discovery [the Association believed] it [would] not meet its burden of proof against [Strama]." Based on a stipulation between the Association and Strama, the court entered an order dismissing the complaint against him with prejudice, leaving the issue of attorney fees for the court to resolve if the parties could not reach an agreement within a specified time.

¶ 8. The Board also moved to dismiss on the ground the complaint did not state a claim for relief against it. In October 2002, the Association and the Board stipulated to dismissal of the complaint against the Board, with prejudice and without costs, fees, or interest.

¶ 9. Because Strama and the Association were unable to resolve the issue of attorney fees, they filed briefs on the issue, with Strama requesting fees under both Wis. Stat. §§ 814.025 and 802.05. The court issued a written decision denying fees under both statutes. The court stated that the Association's agency legal theory, although "later shown to be incorrect," was not frivolous. The court observed that under this legal theory it was irrelevant whether Strama voted on the CE credit approvals for Allied Health. Nonetheless, the court found, the Association had made an effort before filing the complaint to find out if Strama had voted on these approvals. The court relied on deposition testimony of Russell Leonard, executive director of the Association, in which he stated that he had asked John Schweitzer, a DRL attorney, whether Strama had approved or voted on approval of programs sponsored or co-sponsored by Allied Health, and Schweitzer said he was not certain. The court also relied on Leonard's affidavit averring that he had had several conversations with Strama on the subject of Strama's involvement in approval of Allied Health CE programs in which Strama had "acted defensively" and at one point said he intended to "break up the monopoly" that the Association had on continuing education. The court acknowledged that Strama's affidavit denied having made the statements Leonard attributed to him, but in the court's view it was "not now engaged in determining facts" and was required to "take Leonard's affidavit at face value for purposes of a frivolousness inquiry." The court determined that, based on "the resistant responses of Strama and the Board to Leonard's inquiries," it was reasonable for the Association to conclude it would have to file suit to determine whether its suspicions were true.

¶ 10. The court also determined that the Association did not act unreasonably in not voluntarily dismissing the complaint before September 26, 2002, for the following reasons: Strama did not file his motion to dismiss and submissions until August 14; the hearing was set for October 2; the Association promptly undertook written discovery; it had not had the opportunity sooner to take depositions of the Board members; and the Association contended that, without an answer from Strama, it did not know what issues were joined.

¶ 11. With respect to Strama's contention that the Association filed the complaint for the purpose of injuring him, the court found the only evidence of this was Strama's averments concerning the Association's news release and inducing ICA to send a portion to all its members. However, the court stated, according to Leonard, ICA picked up and published the information on its own. The court again acknowledged that Strama had submitted an affidavit disputing this, but, the court stated, it could not decide to believe Strama rather than Leonard "in the context of this inquiry."

¶ 12. After the court issued this decision, Strama moved for reconsideration and an evidentiary hearing, asserting that the court had resolved factual disputes against him in its decision. The court denied the motion without an explanation.

APPLICABLE LAW AND STANDARD OF REVIEW

¶ 13. Pursuant to Wis. Stat. § 802.05(1), a person who signs a pleading makes three warranties:

First, the person who signs a pleading, motion or other paper certifies that the paper was not interposed for any improper purpose. Second, the signer warrants that to his or her best "knowledge, information and belief formed after reasonable inquiry" the paper is "well grounded in fact." Third, the signer also certifies that he or she has conducted a reasonable inquiry and that the paper is warranted by existing law or a good faith argument for a change in it.

Jandrt v. Jerome Foods, Inc., 227 Wis. 2d 531, 548, 597 N.W.2d 744 (1999) (citation omitted). If the circuit court finds that any one of the three requirements set forth under the statute has been disregarded, it may impose an appropriate sanction on the person signing the pleading or on a represented party or both. Id.; see also § 802.05(1)(a).

¶ 14. In deciding whether an attorney signing a pleading made a reasonable inquiry into the facts and law of a case, the court uses an objective standard, asking what a reasonable attorney should have done under the circumstances that existed at the time of the challenged filing. Jandrt, 227 Wis. 2d at 549-51. Applying this objective standard, a court should consider these factors in determining whether an attorney made a reasonable inquiry to the facts:

whether the signer of the documents had sufficient time for investigation; the extent to which the attorney had to rely on his or her client for the factual foundation underlying the pleading, motion, or other paper; whether the case was accepted from another attorney; the complexity of the facts and the attorney's ability to do a sufficient pre-filing investigation; and whether discovery would have been beneficial to the development of the underlying facts.

Id. at 550.

¶ 15. An attorney may rely upon his or her client for the factual basis for a claim when the client's statements are objectively reasonable, but this does not mean that an attorney always acts reasonably in accepting a client's statements. Id. at 556. Whether it is reasonable to rely on one's client depends in part upon whether there is another means to verify what the client says without discovery. See id. at 556-57. A party and attorney may not rely on formal discovery after the filing of a suit to establish the factual basis for the cause of action when the required factual basis could be established without formal discovery. Id. at 568. In addition, in deciding whether to rely on one's client for the factual foundation of a claim, an attorney must carefully question the client and determine if the client's knowledge is direct or hearsay and is plausible; the attorney may not accept the client's version of the facts on faith alone. Id. at 556. Allegations by a client of serious misconduct of another may require a more serious investigation. See Belich v. Szymaszek, 224 Wis. 2d 419, 432, 592 N.W.2d 254 (Ct. App. 1999). While the investigation need not be to the point of certainty to be reasonable and need not involve steps that are not cost-justified or are unlikely to produce results, the signer must explore readily available avenues of factual inquiry rather than simply taking a client's word. Id. at 432-33.

¶ 16. When we review the grant or denial of attorney fees under Wis. Stat. § 802.05(1), our standard of review varies depending on the issue presented. The first warranty — that the pleading is not used for an improper purpose — requires factual findings, and we accept factual findings made by the trial court unless they are clearly erroneous. Wis. Stat. § 805.17(2); see also Stern v. Thompson & Coates, Ltd., 185 Wis. 2d 220, 236, 517 N.W.2d 658 (1994). With respect to the second and third warranties, we uphold factual findings made on what prefiling investigation was done unless they are clearly erroneous. Jandrt, 227 Wis. 2d at 548. However, the issue of what investigation should have been done is committed to the trial court's discretion, and we therefore affirm if the court examined the relevant facts, applied the correct legal standard, and, using a demonstrated process, reached a conclusion that a reasonable judge could reach. Id. at 548-49. With respect to the third warranty, the issue of whether a legal theory is justified by existing law or a good faith argument for a change in the law presents a question of law, and our review on this issue is therefore de novo. State ex rel. Robinson v. Town of Bristol, 2003 WI App 97, ¶ 29, 264 Wis. 2d 318, 667 N.W.2d 14.

¶ 17. Wisconsin Stat. § 814.025, like Wis. Stat. § 802.05, authorizes a court to sanction a party or attorney for commencing a frivolous action, but only § 814.025 also authorizes the imposition of sanctions for continuing a frivolous action. Jandrt, 227 Wis. 2d at 547. Section 814.025(3)(b) is similar to the second and third warranties under § 802.05 in that it defines as frivolous an action that is commenced or continued when the "party or the party's attorney knew, or should have known, that the action . . . was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law." This definition includes the situation in which the party or attorney knows or reasonably should know that the facts necessary to meet the requirements of the allegations are not present. Stern, 185 Wis. 2d at 244.

¶ 18. The inquiry under Wis. Stat. § 814.025(3)(b) is an objective one, focusing on what a reasonable attorney or party should have known. Id. at 241. Even though a party may have conducted a reasonable inquiry into the law or facts before filing an action given the time limits or other constraints, under § 814.025 there is a continuing obligation to ensure the action is well-grounded in fact and law. Jandrt, 227 Wis. 2d at 563. Once a party or attorney knows or should know that a claim is not supported by fact or law, it must dismiss or risk sanctions. Id.

¶ 19. Wisconsin Stat. § 814.025(3)(a) in some respects parallels the first warranty under Wis. Stat. § 802.05(1). This subsection defines as frivolous an "action . . . commenced, used or continued in bad faith, solely for purposes of harassing or maliciously injuring another," and the inquiry is a subjective one — what was in the person's mind and what were the motivations. Stern, 185 Wis. 2d at 235-36.

¶ 20. As under Wis. Stat. § 802.05(1), under Wis. Stat. § 814.025(2) fees may be assessed fully against the party, fully against the party's attorney, or may be apportioned between them. Section 814.025(2). Also as under § 802.05(1), we affirm the trial court's findings of fact under § 814.025(3)(a) and (b) if they are not clearly erroneous, but whether the facts as found fulfill the statutory standards presents a question of law, which we review de novo. Stern, 185 Wis. 2d at 236.

¶ 21. When there are disputed issues of fact necessary to a determination on sanctions under Wis. Stat. § 802.05(1) or frivolousness under Wis. Stat. § 814.025, the trial court must hold an evidentiary hearing to resolve them. See Kelly v. Clark, 192 Wis. 2d 633, 653-54, 531 N.W.2d 455 (Ct. App. 1995).

¶ 22. The legislature intended Wis. Stat. §§ 802.05 and 814.025 to work together to deter the filing of frivolous claims. Belich, 224 Wis. 2d at 428. However, to the extent § 802.05 is applicable and differs from § 814.025, we apply § 802.05. Section 814.025(4). In this case, Strama relies on § 802.05 for sanctions for filing the complaint and § 814.025 for continuing the action. We frame our analysis accordingly and do not consider whether the result would be different if we were to apply § 814.025 to the filing of the complaint.

DISCUSSION

I. Filing the Complaint

A. Wis. Stat. § 802.05(1) — Well-Grounded in Fact

¶ 23. Strama contends he is entitled to attorney fees under Wis. Stat. § 802.05(1) because the Association and its counsel did not conduct a reasonable inquiry into the facts before filing the complaint, and the complaint was not well-grounded in fact. Strama's position is that the complaint plainly alleged that Strama violated Wis. Stat. §§ 19.45(2) and (5) and 19.46(1)(a) and (b) by not recusing himself from consideration of approval of Allied Health's CE programs, but neither the Association nor its counsel made a reasonable prefiling investigation into whether Strama was actually involved in the approval of Allied Health CE programs. Strama contends the trial court did not consider the requisite factors that militated against a reasonable prefiling investigation — the lack of any deadline for filing the complaint and the lack of complexity in the relevant facts — and did not mention evidence that shows that Strama's lack of involvement could have been ascertained without the need for discovery and without the need to rely on Leonard for the factual foundation. According to Strama, this evidence is not disputed, and we should determine as a matter of law that neither the Association nor its attorney conducted an adequate prefiling investigation into the facts. Alternatively, he argues, if there are factual disputes, the trial court erred in not holding an eviden-tiary hearing and we should remand for that purpose.

¶ 24. The Association responds that the trial court correctly decided that it was irrelevant whether Strama was involved in the CE approval process because the Association's legal theory was based on the agency relationship to the Board of the individuals to whom the Board delegated the approval function. According to the Association, no evidentiary hearing was needed because the facts making the complaint well-grounded under this legal theory are not disputed: Allied Health was not listed as an approved sponsor for CE programs in the Wisconsin Administrative Code; Strama had a financial interest in Allied Health; and beginning in 1999, the Board approved Allied Health to sponsor CE programs.

¶ 25. We agree with Strama that the trial court applied incorrect legal standards. First, whether Strama was involved in approving CE programs sponsored by Allied Health is relevant to whether the complaint is well-grounded in fact. The trial court did not analyze the legal theory underlying the complaint but, rather, the agency legal theory that the Association presented in its brief opposing Strama's motion to dismiss, after being presented with evidence that Strama was not involved in approving CE programs sponsored by Allied Health. However, the proper inquiry under Wis. Stat. § 802.05(1) must focus on the factual allegations and the legal theory in the complaint. We conclude the only reasonable reading of the complaint against Strama is that he violated Wis. Stat. §§ 19.45(2) and (5) and 19.46(l)(a) and (b) by participating in approving CE credits for programs sponsored or co-sponsored by Allied Health because he benefited financially from those approvals. In order to prevail on this legal theory, the Association had to prove that Strama was involved in approving those CE programs. Thus, we hold as a matter of law that whether the Association or its attorney conducted a reasonable inquiry into the facts before filing the complaint requires consideration of what inquiry they made concerning Strama's involvement in the approval of CE programs sponsored by Allied Health.

¶ 26. Second, the trial court applied an incorrect legal standard when it considered, apparently as an alternative ground for its decision, the prefiling inquiry the Association made into Strama's participation in CE approvals for Allied Health programs. Although the court correctly recognized there were factual disputes on what Strama told Leonard about Strama's conflict of interest, the court believed it had to accept Leonard's version of the facts. The court did not cite to any authority for this proposition, and the Association does not provide any. It may be the trial court had in mind the valid point that, if a party or its attorney makes a reasonable prefiling inquiry into the facts, but it later turns out that what that person was told was not accurate, the inquiry is not on that basis unreasonable. However, the relevant dispute here is over what Strama said to Leonard, not over whether what Strama said was accurate. If Strama did not make the statements that Leonard attributed to him, then those statements logically could not have been the basis for the Association's decision to file the complaint.

¶ 27. The Association appears to contend that it was not necessary for the trial court to determine what Strama told Leonard because only Leonard's statements to the Association's counsel are relevant in determining whether counsel made a reasonable inquiry into the facts. This position appears to assume that what Leonard told counsel is undisputed, but the Association refers us to no evidence of what Leonard told counsel about his conversations with Strama. The Association's position also assumes it may not be sanctioned under Wis. Stat. § 802.05 because it did not sign the complaint. However, § 802.05(1) allows fees to be assessed against a "the person who signed the pleading ... or on a represented party, or on both." Section 802.05(1)(a). See also Paulson v. Allstate Ins. Co., 2002 WI App 168, ¶ 16, 256 Wis. 2d 892, 649 N.W.2d 645.

¶ 28. In addition to assuming Leonard's versions of his conversations with Strama to be true, the trial court apparently accepted Leonard's testimony of his conversation with Schweitzer without considering Schweitzer's affidavit. Schweitzer's affidavit does not appear consistent with Leonard's testimony that, when he asked Schweitzer whether Strama had voted on matters involving Allied Health, Schweitzer answered that he was uncertain. See supra note 8 for a summary of Schweitzer's affidavit. At the least, Schweitzer's affidavit raises the question whether, even if Schweitzer told Leonard he was uncertain, it was reasonable for Leonard and counsel to make no further inquiry.

¶ 29. We also agree with Strama that the trial court erroneously exercised its discretion in not considering all the evidence and factors relevant to whether the Association or its counsel made a reasonable investigation into the facts. After accepting Leonard's version of his conversations with Strama and with Schweitzer, the court concluded the Association had acted reasonably in deciding it had to file suit to "get to the bottom of its suspicions." The Association agrees with Strama that there was no need to file the complaint by any particular time and that the factual foundation for the complaint was not complex, and presumably the trial court was of the same view. Nonetheless, the court did not mention in its analysis the evidence indicating that a reasonable effort would have yielded — from sources other than Strama and Leonard — the information that Strama was not involved in approving CE programs for Allied Health. See supra note 8.

¶ 30. However, we do not agree with Strama that we can determine as a matter of law that there was not a reasonable prefiling factual investigation. As we have already indicated, there are factual disputes concerning Leonard's conversations with Strama and with Schweitzer. In addition, some of the evidence Strama points to as supporting his position is susceptible to more than one reasonable inference, and the choice among competing reasonable inferences is for the trial court to make, not this court. See Stern, 185 Wis. 2d at 237. Finally, the reasonableness of the prefiling factual inquiry is committed to the trial court's discretion. Jandrt, 227 Wis. 2d at 548-49. Accordingly, we conclude it is necessary to remand for an evidentiary hearing at which the trial court can take testimony, resolve all relevant factual disputes, and decide in the proper exercise of its discretion whether the there was a reasonable prefiling inquiry into Strama's involvement in the CE approval process for Allied Health programs.

B. Wis. Stat. §802.05(1) — Not Used for Any Improper Purpose

¶ 31. Strama contends the trial court erred in determining the Association did not use the complaint for an improper purpose because the court did not consider all the relevant evidence, and, alternatively, the court erred in resolving factual disputes without an evidentiary hearing.

¶ 32. The Association responds that the trial court's determination that the complaint was not used for an improper purpose is correct on an alternative ground: there is no evidence that the Association's counsel intended to injure or harass Strama by filing the complaint, and counsel, not the Association, signed the complaint. However, as we have already stated, Wis. Stat. § 802.05(1) expressly authorizes sanctions against a represented client who has not signed the pleading. In addition, the signature of the signing attorney is a "certificate that... the pleading ... is not used for any improper purpose." Section 802.05(l)(a). This language does not require that the signing attorney personally have the improper purpose. Thus, lack of evidence that a signing attorney was or should have been aware the client was using the complaint for an improper purpose does not as a matter of law result in the conclusion that the complaint was not used for an improper purpose, although it is relevant to the question of whom to sanction.

¶ 33. We conclude there are factual disputes on the question whether the complaint was used for an improper purpose that require an evidentiary hearing. First, the trial court erroneously viewed it as necessary to accept the Association's version of the facts on how the ICA came to republish the Association's news release to its members. Second, while the court mentioned the fact of the Association's news release, it did not explain why it did not consider this as evidence that the Association intended to injure Strama. The Association argues in its brief that the release did not mention Strama by name. However, it is certainly a reasonable inference that Association members would know that Strama was chairman of the Board and would understand this sentence in context to refer to Strama and to charge him with unethical conduct: "The ethics laws prohibit a member of the examining board from using their position on the board to benefit an organization of which they are a member." The Association apparently sent this release to all its members on the day it filed the complaint, before it had undertaken any discovery to learn whether Strama had in fact been involved in approving CE seminars for Allied Health. If, as the Association contends and the trial court concluded, the Association reasonably believed it was necessary to file suit to get accurate information about Strama's role in approving CE seminars, this question arises: why did the Association send this release before getting accurate information? One reasonable inference is that the Association filed the complaint against Strama not to obtain accurate information about his role but to injure his reputation. We do not, however, agree with Strama that this is the only reasonable inference, which is why an evidentiary hearing is necessary.

¶ 34. The Association objects to consideration of its news release as evidence of its purpose because, it asserts, Wis. Stat. § 802.05 does not authorize sanctions for misconduct unrelated to signing pleadings. The Association relies on Christian v. Mattell, Inc., 286 F.3d 1118 (9th Cir. 2002). In that case, the court, applying the counterpart federal rule, reversed and remanded because it appeared the trial court may have sanctioned the attorney for conduct in discovery and hearings, which was outside the scope of the federal rule. Id. at 1130-31. However, Strama is not asking the court to sanction the Association for its news release, but, rather, to consider the news release as evidence that the Association filed the complaint against Strama to injure his reputation.

II. Continuing the Action

A. Wis. Stat. § 814.025(3)(b) — No Reasonable Basis in Law or Equity

¶ 35. Strama contends the court erred in deciding that the Association and its counsel acted reasonably in maintaining its claim against Strama until September 26, 2002, when it voluntarily moved for dismissal. His position is that the Association did not have a reasonable basis for continuing the action after he filed the motion to dismiss on August 14, 2002, with his and two other affidavits averring he had no involvement in approving any CE programs. Instead of dismissing the complaint against him then, Strama points out, the Association took the following actions before dismissal: filed a motion to require the defendants to answer, to extend time for briefing Strama's motion, and to hold a scheduling conference, to which Strama and the Board objected in a brief; submitted written discovery requests; deposed a Board member, Beverly Sleight, and the two persons who filed affidavits in support of Strama's motion to dismiss; and filed a brief opposing Strama's motion to dismiss in which it raised the agency legal theory.

¶ 36. The trial court's conclusion that the Association and its counsel acted reasonably in continuing the action until September 26, 2002, is based in large measure on its determination that they acted reasonably in filing the action to conduct discovery to determine Strama's involvement in CE program approvals. Because we have held the trial court erroneously exercised its discretion in arriving at that determination, we conclude its determination on the reasonableness of continuing the action to conduct discovery must be reversed as well. At the evidentiary hearing on remand, the trial court should consider Strama's claim for fees under Wis. Stat. § 814.025(3)(b) in light of the factual findings and discretionary decision the court makes regarding the prefiling factual investigation required by Wis. Stat. § 802.05(1).

¶ 37. In evaluating on remand Strama's claim that the action was continued in violation of Wis. Stat. § 814.025(3)(b), the trial court will need to address the Association's agency legal theory. As the trial court correctly noted, the factual underpinning for this theory does not depend upon Strama's involvement in approving CE programs sponsored by Allied Health. Rather, according to this theory, Strama's membership on the Board, in and of itself, creates a conflict of interest even if the approval process is conducted by staff or other board members. In other words, as we understand this theory, the Board always has a conflict of interest on any decision it makes if a member has a conflict of interest on the subject of the decision, even if that member has no role in the decision. Thus, as we understand the Association's position, even if the Association and its counsel should have reasonably known from Strama's motion to dismiss and accompanying affidavits that there was no factual basis for a legal theory that depended on his personal involvement, there was a factual basis for continuing the suit based on the agency legal theory.

¶ 38. The trial court stated that the Association "legitimately" believed that Strama's membership on the Board in itself constituted a conflict of interest with respect to the approval of CE seminars sponsored by Allied, but did not discuss the legal theory further, other than to state that the fact that it was "later shown to be incorrect" does not make it frivolous. It is true that a legal theory does not violate Wis. Stat. § 814.025(3)(b) solely because a court decides it is not correct. See Stern, 185 Wis. 2d at 243. However, the trial court did not analyze this theory to determine its correctness as a matter of law. Nor did the trial court explain why, even if incorrect, the Association and its counsel could have reasonably believed this theory had a reasonable basis in law for a claim against Strama (as distinct from the Board) or "could be supported by a good faith argument for an extension, modification or reversal of existing law." Section 814.025(3)(b). Neither of the parties have briefed the merits or the frivolousness of this legal theory on appeal. We therefore conclude the appropriate course is for the trial court on remand to decide whether this legal theory is frivolous within the meaning of Wis. Stat. § 814.025(3)(b) in the context of deciding whether the Association and counsel acted reasonably in continuing the action after Strama filed his motion to dismiss.

B. Wis. Stat. § 814.025(3)(a) — Bad Faith

¶ 39. Strama contends the undisputed facts show that the Association continued this action in bad faith. He points to the same procedural facts he relies on under Wis. Stat. § 814.025(3)(b) and to what he characterizes as the Association "changing" its legal theory to one not dependent on Strama's personal involvement, instead of dismissing the action after receipt of Strama's motion.

¶ 40. The trial court did not separately discuss whether the action was continued in violation of Wis. Stat. § 814.025(3)(a), although it is evident from the arguments presented and the whole of the court's opinion that the court decided it was not. Because that decision apparently depends at least in part on a factual and legal analysis that we have already held contains errors, we conclude we must reverse and remand for a determination whether Strama is entitled to attorney fees under § 814.025(3)(a).

¶ 41. We do not agree with Strama that we can decide this issue as a matter of law. Although the procedural facts are undisputed, they may allow for competing reasonable inferences depending on the findings of fact, the discretionary determinations, and the conclusion on the agency legal theory that the court makes under the other statutory sections. A resolution under Wis. Stat. § 814.025(3)(b) requires findings on the state of mind of Leonard and, perhaps, others connected with the Association, and this requires drawing inferences from what the person said and did in view of surrounding circumstances. Stern, 185 Wis. 2d at 236-37. The fact that a party or attorney may have continued an action in violation of para. (3)(b) does not necessarily mean the party violated para. (3)(a). Id. at 239. In addition, we observe that under this paragraph the bad faith must be "solely for purposes of harassing or maliciously injuring another." Section 814.025(3)(a) (emphasis added). Fact finding is necessary to determine not only whether the Association continued the action for one of these purposes, but also whether that was the sole purpose.

CONCLUSION

¶ 42. We reverse the trial court decision and order denying Strama's motion for attorney fees under Wis. Stat. §§ 802.05(1) and 814.025(3)(a) and (b) and remand for an evidentiary hearing consistent with this opinion.

By the Court. — Order reversed and cause remanded with directions.

       All references to the Wisconsin Statutes are to the 2001-02 version unless otherwise noted.

       Wisconsin Stat. § 19.45(2) and (5) provide as follows:
      (2) No state public official may use his or her public position or office to obtain financial gain or anything of substantial value for the private benefit of himself or herself or his or her immediate family, or for an organization with which he or she is associated ....
      (5) No state public official may use or attempt to use the public position held by the public official to influence or gain unlawful benefits, advantages or privileges personally or for others.
      Wisconsin Stat. § 19.46(l)(a) and (b) provide as follows:
      Conflict of interest prohibited; exception. (1) Except in accordance with the board's advice under sub. (2) and except as otherwise provided in sub. (3), no state public official may:
      (a) Take any official action substantially affecting a matter in which the official, a member of his or her immediate family, or an organization with which the official is associated has a substantial financial interest.

        (b) Use his or her office or position in a way that produces or assists in the production of a substantial benefit, direct or indirect, for the official, one or more members of the official's immediate family either separately or together, or an organization with which the official is associated.

       We understand the court's statement that Strama "reacted defensively" to be the court's characterization of Leonard's averments of what Strama said to him: that Leonard himself had a conflict of interest because Leonard potentially received compensation on an indirect basis from the Association for the CE programs it conducted and he, Strama, had no conflict that was greater than Leonard's.

       Strama had added to his motion an order that provided a place for the court to check either that it was or was not granting the motion, and the court used this form for the order denying the motion.

       WisConsin Stat. § 802.05(1) provides:
      (l)(a) Every pleading, motion or other paper of a party represented by an attorney shall contain the name ... of the attorney ... and shall be subscribed with the handwritten signature of at least one attorney of record in the individual's name .... The signature of an attorney or party constitutes a certificate that the attorney or party has read the pleading, motion or other paper; that to the best of the attorney's or party's knowledge, information and belief, formed after reasonable inquiry, the pleading, motion or other paper is well-grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law; and that the pleading, motion or other paper is not used for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.... If the court determines that an attorney or party failed to read or make the determinations required under this subsection before signing any petition, motion or other paper, the court may, upon motion or upon its own initiative, impose an appropriate sanction on the person who signed the pleading, motion or other paper, or on a represented party, or on both. The sanction may include an order to pay to the other party the amount of reasonable expenses incurred by that party because of the filing of the pleading, motion or other paper, including reasonable attorney fees.

       Wisconsin Stat. § 814.025 provides in relevant part:
      Costs upon frivolous claims and counterclaims. (1) If an action or special proceeding commenced or continued by a plaintiff or a counterclaim, defense or cross complaint commenced, used or continued by a defendant is found, at any time during the proceedings or upon judgment, to be frivolous by the court, the court shall award to the successful party costs determined under s. 814.04 and reasonable attorney fees.

        (3) In order to find an action ... to be frivolous under sub. (1), the court must find one or more of the following:
      (a) The action, special proceeding, counterclaim, defense or cross complaint was commenced, used or continued in bad faith, solely for purposes of harassing or maliciously injuring another.
      ft)) The party or the party's attorney knew, or should have known, that the action ... was without any reasonable basis in law or equity and could not be supported by a good faith argument for an extension, modification or reversal of existing law.

       We observe that Wis. Stat. § 814.025(3)(a) contains the word "solely" while Wis. Stat. § 802.05(1) does not.

       According to Strama, this evidence includes the following. Meredith Bakke, a member of the Board from 1982 through 1995 and chair from 1987 to 1995, averred that Leonard asked her in the summer of 2002 about the Board's practice in approving continuing education programs during her tenure, and she told him that this function had been delegated to individual Board members, Breitbach, and then Greenwald; Leonard did not ask her if Strama was involved in the review and approval process, but if he had she would have said he was not. Leonard deposed that Association representatives personally attend many of the Board meetings and the Board minutes are routinely sent to his office. There is evidence the minutes from July 19, 2001, show that the Board moved to give responsibility for program approval to the DRL exams specialist, who was to bring any course he had questions or concerns about to the Board. Leonard acknowledged in his deposition that he had informally requested documents from the Board before and he understood that an agency's records were public, and if an agency were reluctant to volunteer information, its records could be requested under the public records law. Leonard also acknowledged that Strama had never told him he had personally approved a program sponsored or co-sponsored by Allied Health. John Schweitzer, counsel for the Board, averred that, since becoming legal counsel in January 1999, he had regularly attended Board meetings and could not recall that Strama ever voted on any matter involving Allied Health, ever advocated for the interest of Allied Health before the Board or involved himself in approving any CE seminars. Schweitzer also averred that the Board maintained all documents relating to the approval of CE seminars and all minutes of its meetings; had the Association made a telephone call to him or to other Board personnel or served a public records law request, the Board would have produced all the documents, responded that Strama was not involved in CE approvals, and explained the CE approval procedure.

       We recognize that the complaint alleges in addition that, without regard to Strama's involvement, the Board violated its own regulation by approving seminars sponsored by Allied Health because that entity did not qualify as a sponsor under the regulation. However, each claim must be well-grounded in fact. See Jandrt v. Jerome Foods, Inc., 227 Wis. 2d 531, 552, 597 N.W.2d 744 (1999).

       We observe that in the context of Wis. Stat. § 814.025(3)(a), we have affirmed sanctions against an attorney when the trial court found the attorney was aware or should have been aware that the client was commencing and continuing certain claims for the sole purpose of harassment and intimidation. Elmakias v. Wayda, 228 Wis. 2d 312, 321-23, 596 N.W.2d 869 (Ct. App. 1999). We do not understand Strama to be arguing that there is evidence from which a reasonable fact finder could infer that the Association's counsel was aware or should have been aware that the Association was using the complaint for an improper purpose.

       The first paragraph of the release reads:
      Today, the WCA filed a lawsuit against the Chiropractic Examining Board over the hoard's failure to properly enforce the ethics laws of the state. The ethics laws prohibit a member of the examining board from using their position on the hoard to benefit an organization of which they are a member. Specifically, the Examining Board has approved continuing education programs that benefit Allied Health of Wisconsin even though the chairman of the Examining Board is a member of Allied. The lawsuit asks that the Examining Board properly enforce the ethics rules and that CE hours not be allowed for CE programs that have been improperly approved.

       Whether an inference is reasonable is a question of law, as is whether there is more than one reasonable inference, and therefore these are determinations for this court to make de novo. See Stern v. Thompson & Coates, Ltd., 185 Wis. 2d 220, 237, 517 N.W.2d 658 (1994). However, which inference to draw when more than one is reasonable is for the trial court to decide. See id.

       Strama also argues the trial court did not consider the evidence that Leonard received 35% of all the profits of the CE programs sponsored by the Association when deciding whether the complaint against Strama was used for an improper purpose. However, in his brief in the trial court, Strama did not offer that testimony as evidence of an improper purpose, but as evidence undermining Leonard's credibility. We therefore cannot conclude the trial court erred in not considering evidence of Leonard's financial interest in deciding whether the complaint was used for an improper purpose. However, on remand Strama will have the opportunity to ask the trial court to consider that evidence for that purpose.

       We agree with the Association that the manner in which Strama addresses this agency legal theory on appeal is confusing. We therefore do not fault the Association for not addressing the merits of this theory in its responsive brief other than asking us to affirm the trial court's conclusion that there was a reasonable basis in law for this theory.

       Strama requests attorney fees for this appeal under Wis. Stat. § 809.25(1) and (3). Section 809.25(1) authorizes this court to allow costs on appeal, with costs defined in § 809.25(l)(b). That definition does not include attorney fees. Section 809.25(3) authorizes this court to award attorney fees to the successful party when an appeal or cross-appeal is frivolous. This section has no application here, where Strama himself is the appellant and has obtained a reversal and remand. Strama also relies on Riley v. Isaacson, 156 Wis. 2d 249, 456 N.W.2d 619 (Ct. App. 1990). In Riley, we held that, if on appeal from a trial court's determination that a claim was frivolous we conclude the trial court was correct, then the appeal is per se frivolous. Id. at 262. Again, this has no application to Strama's appeal or to the Association's response.


source: Caselaw Access Project

license: Public Domain

text:
    Grinnell Mutual Reinsurance Company, Plaintiff-Respondent, Anne Beard, Involuntary-Plaintiff-Respondent, v. State Farm Mutual Automobile Insurance Company, Defendant-Respondent, Dane County, Defendant-Appellant.
    Court of Appeals

      No. 03-1415.

      Submitted on briefs November 11, 2003.

      Decided January 29, 2004.

    2004 WI App 32
    (Also reported in 676 N.W.2d 573.)

      On behalf of the defendant-appellant, the cause was submitted on the briefs of John M. Moore and Sheila M. Sullivan, Bell, Gierhart & Moore, S.C., Madison.
    On behalf of the defendant-respondent, the cause was submitted on the brief of Brad A. Markvart, 'Winner,; Wixson & Pernitz, Madison.

      On behalf of the plaintiff-respondent, the cause was submitted on the brief of John R. Shull, Jr., Terwilliger, Wakeen, Piehler & Conway, S.C., Wausau.
    Before Deininger, EJ., Vergeront and Higgin-botham, JJ.
   VERGERONT, J.

¶ 1. The dispositive issue on this appeal is whether Wis. Stat. § 81.15 (2001-02), which addresses governmental liability for highway defects, applies to a county that has a contract with the state to maintain a state highway. We conclude the statutory language "a highway which any county by law or by agreement with any town, city or village is bound to keep in repair," § 81.15, does not apply in this case, where Dane County was obligated by contract with the state to maintain the state highway that was allegedly defective. Because § 81.15 does not apply to Dane County in this case and because § 81.15 is an exception to the general immunity for discretionary acts under Wis. Stat. § 893.80(4), the trial court erred in denying Dane County's motion for summary judgment on the ground of immunity under § 893.80(4). Therefore, we reverse the trial court's order denying Dane County's motion for summary judgment and remand with directions to grant summary judgment in Dane County's favor and dismiss the complaint against it.

BACKGROUND

¶ 2. Anne Beard was injured in an accident that occurred on Highway 12 in Dane County. It is undisputed that Highway 12 is a state-owned highway, which Dane County maintains under a contract with the state. It is also undisputed that shortly before the accident occurred on December 7, 2001, the Dane County highway maintenance crew applied an anti-icing agent, magnesium chloride, to the area on the highway where the accident occurred.

¶ 3. Beard and her insurer, Grinnell Mutual Reinsurance Company, sued Dane County as well as the other driver's insurer, State Farm Mutual Automobile Insurance Company. The complaint alleged that Dane County was negligent in applying the deicing agent because that caused the highway to become slick and unsafe and contributed to the cause of the accident. State Farm cross-claimed against Dane County making these same allegations of negligence.

¶ 4. Dane County moved for summary judgment dismissing both the complaint and the cross-claim. The County asserted that the decision to apply the deicing agent was a discretionary one, and therefore it was immune from suit under Wis. Stat. § 893.80(4). The plaintiffs and State Farm both opposed the motion, asserting that Morris v. Juneau County, 219 Wis. 2d 543, 579 N.W.2d 690 (1998), established that Wis. Stat. § 81.15 was an exception to immunity under § 893.80(4). The relevant portion of § 81.15 states:

Damages caused by highway defects; liability of town and county.... If the damages happen by reason of the insufficiency or want of repairs of a highway which any county by law or by agreement with any town, city or village is bound to keep in repair, or which occupies any land owned and controlled by the county, the county is liable for the damages and the claim for damages shall be against the county.

In reply, the County contended that § 81.15 plainly did not apply because the County's agreement to maintain Highway 12 was with the state, not a town, city, or village, and, the County asserted, Morris did not hold otherwise.

¶ 5. The trial court concluded that Morris held Wis. Stat. § 81.15 was an exception to immunity under Wis. Stat. § 893.80(4), and that under Morris § 81.15 applies in this case. The court also concluded that it was a jury question whether the condition of the highway as a result of the use of the anti-icing agent was an "insufficiency" within the meaning of § 81.15.

¶ 6. On this appeal Dane County challenges both the trial court's determination that Wis. Stat. § 81.15 applies to a county under contract with the state to maintain a state highway and its conclusion that there was a jury question whether the condition of the highway as a result .of the use of the anti-icing agent was an "insufficiency" within the meaning of § 81.15. Our conclusion on the first issue makes it unnecessary to address the second.

DISCUSSION

¶ 7. We review the grant of summary judgment de novo, applying the same analysis as did the trial court. Strasser v. Transtech Mobile Fleet Serv., Inc., 2000 WI 87, ¶¶ 28, 30, 236 Wis. 2d 435, 613 N.W.2d 142. Summary judgment is proper when there are no disputed issues of fact and the moving party is entitled to judgment as a matter of law. Wis. Stat. § 802.08(2).

¶ 8. The parties agree there are no factual disputes on the question whether Wis. Stat. § 81.15 applies to a county that maintains the state highway where the accident occurred under a contract with the state. The issue is one of statutory construction, a question of law, which we review de novo. Morris, 219 Wis. 2d at 550.

¶ 9. In construing a statute, our goal is to ascertain the intent of the legislature. State v. Setagord, 211 Wis. 2d 397, 406, 565 N.W.2d 506 (1997). We begin with the language of the statute and if it clearly sets forth the legislature's intent, we apply that language to the facts. Id. The County contends that Wis. Stat. § 81.15 plainly does not apply to the situations when a county has an agreement with the state to maintain a state-owned highway, because in this situation the county is neither bound "by law [nor] by agreement with any town, city or village ... to keep [that highway] in repair." State Farm and Grinnell argue, and the trial court agreed, that the supreme court in Morris resolved this issue against Dane County. Of course, if Morris did decide this issue, then we are obligated to follow it, regardless of what arguments Dane County might present. Cook v. Cook, 208 Wis. 2d 166, 189, 560 N.W.2d 246 (1997). We therefore turn first to a discussion of Morris.

¶ 10. In Morris, the accident occurred on a state highway. 219 Wis. 2d at 546. The injured party sued Juneau County, alleging the driver lost control of her car due to a drop-off between the blacktop and the aggregate gravel shoulder, and Juneau County was liable because it had failed to maintain or repair the highway. Id. at 546-47. As the supreme court explained the proceedings below, Juneau County asserted it was immune from suit because the claim was based on discretionary acts, and the trial court agreed the county was immune from suit under Wis. Stat. § 893.80(4). Id. at 547-48. This court reversed, holding that if Wis. Stat. § 81.15 is otherwise applicable, Juneau County was liable under § 81.15 for insufficiency or want of repairs of a highway regardless of whether the acts were discretionary under § 893.80(4). Id. at 548-49. The supreme court accepted Juneau County's petition for review. Id. at 549. The supreme court identified the issue before it as: "whether governmental immunity under Wis. Stat. § 893.80(4) applies to an actionable claim under Wis. Stat. § 81.15." Id. The court expressed its holding as: "We hold that if a plaintiff states an actionable claim under § 81.15, the governmental immunity provisions of § 893.80(4) do not apply. Therefore, because the [plaintiffs] stated an actionable claim under § 81.15, we need not determine whether the County's duties were discretionary or ministerial under § 893.80(4)." Id.

¶ 11. In arriving at that conclusion, the court made the following analysis. Wisconsin Stat. § 81.15 was enacted as a legislative exception to the then-existing common law rule of governmental immunity. Id. at 553. When Holytz v. Milwaukee, 17 Wis. 2d 26, 115 N.W.2d 618 (1962), abrogated that common law immunity, the legislature responded by providing legislatively for governmental immunity in the predecessor to Wis. Stat. § 893.80. Morris, 219 Wis. 2d at 553. However, the legislature never repealed § 81.15 and instead made various modifications to it over the years. Id. at 554-56. This demonstrates the legislature's intent that § 81.15 is an exception to the general grant of immunity in § 893.80(4). Id. at 556.

¶ 12. State Farm concedes that the supreme court in Morris did not expressly decide that Wis. Stat. § 81.15 applies to a county that is under a contract to repair a state highway. However, State Farm argues, the supreme court implicitly did so. State Farm and Grinnell, as did the trial court, rely on language in Morris that, when read in isolation, suggests that under § 81.15 any county is liable for the failure to maintain or repair any highway. For example, in contrasting the specific nature of § 81.15 with the more general nature of Wis. Stat. § 893.80(4), the supreme court stated: "Wisconsin Stat. § 81.15 specifically applies to damages caused by the insufficiency or want of repairs of any highway. Wisconsin Stat. § 893.80(4) generally grants immunity for the intentional acts of its officers, officials, agents or employees or for the exercise of discretionary functions." Id. at 557. However, we do not read the first quoted sentence as a conclusion that § 81.15 applies to the insufficiency or want of repair of any highway, but a shorthand method of describing § 81.15 as compared to § 893.80(4).

¶ 13. Similarly, in rejecting Juneau County's argument that Wis. Stat. § 81.15 does not provide any rights or remedies (which was relevant to Juneau County's argument based on § 893.80(5)), the supreme court quoted from § 81.15 using an ellipsis. Id. at 558. It then later used that shorthand version of the statute without quotes in the context of explaining its conclusion on the argument made by Juneau County: "Accordingly, we must conclude from the above that § 81.15 does create rights or remedies — the right to recover damages from a county negligent in its insufficiency or want of repairs of any highway." Id.

¶ 14. We acknowledge that the phrasing in the Morris passages relied on by respondents and the trial court are ambiguous when read in isolation. However, when we read them in context, we are satisfied they do not constitute an implicit decision that a county may be liable under Wis. Stat. § 81.15 even if its obligation to maintain a highway derives from a contract with the state rather than with the municipalities specifically listed in the statute. First, there is no mention in the body of the opinion of the statutory language the supreme court is said to be implicitly construing. Indeed, when the court quotes from § 81.15 in the text of its opinion, it places an ellipsis after "county" and before "is bound," id. at 551, presumably because the intervening language is not important to its discussion of the statute's relationship to Wis. Stat. § 893.80(4). And, as we have indicated above, the court uses this shorthand reference to the statute throughout the decision. Second, the facts as the supreme court relates them do not include an explanation of the source of Juneau County's obligation to maintain or repair the state highway, an indication this fact is not important to its decision. Third, nowhere in the decision is there an indication that Juneau County was taking the position that § 81.15 did not apply to it because it was under contract with the state to maintain a state highway. Fourth, nowhere in the decision does the court discuss its prior decisions that have addressed this issue.

¶ 15. We conclude the supreme court in Morris did not decide the issue whether Wis. Stat. § 81.15 applies to a county under contract with the state to maintain a state highway. We therefore take up that issue for decision.

¶ 16. The language at issue is "a highway which any county by law or by agreement with any town, city or village is bound to keep in repair." Plainly, a county's agreement with the state to maintain a state highway is not an "agreement with any town, city or village." Therefore the question becomes whether such an agreement with the state constitutes being "by law. . . bound" to keep the state highway in repair. The supreme court addressed this issue in Firemen's Insurance Co. v. Washburn County, 2 Wis. 2d 214, 220-23, 85 N.W.2d 840 (1957), and decided to abide by prior case law holding that a county's agreement with the state to maintain a state highway did not constitute being bound "by law" within the meaning of Wis. Stat. § 81.15.

¶ 17. In Firemen's Insurance Co., the accident occurred on a highway that was part of the state trunk county highway system, and Washburn County had entered into an agreement with the state to maintain and repair that highway. Id. at 216. The complaint alleged that Washburn County was negligent in failing to properly maintain and repair the highway. Id. The court framed the issue as: "Is a county, which contracts with the state highway commission pursuant to the provisions of sec. 84.07, Stats., to maintain and repair a state trunk highway, liable for its negligence in failing to property maintain and repair such highway?" Id. at 217 (footnote omitted). At the time of this decision, Wis. Stat. § 84.07, as it does today, required the state to maintain the state highway system at state expense but authorized the state agency to contract with a county to maintain the state trunk highways. Compare Firemen's Ins. Co., 2 Wis. 2d at 217 n.1, with § 84.07 (2001-02).

¶ 18. In resolving this issue, the court in Firemen's Insurance Co. discussed the history of Wis. Stat. § 81.15 in relation to the history of legislation imposing responsibility for the maintenance and repair of state highways, as well as the relevant case law. It is important for an understanding of this history to remember that, at the time Firemen's Insurance Co. was decided and prior thereto, the common law rule was governmental immunity; therefore the scope of § 81.15 determined whether liability could be imposed on a governmental entity for a highway defect. Firemen's Ins. Co., 2 Wis. 2d at 223.

¶ 19. As the court in Firemen's Insurance Co. explained, originally the duty of maintaining and repairing highways was placed on the town, and the first version of the predecessor to Wis. Stat. § 81.15 imposed liability on towns. Id. at 218 (citing § 103, ch. 16, R.S. 1849). This statute was subsequently amended to add that" 'in counties where the system of county highways is in force, the county shall be liable for injuries sustained on roads that have been adopted by the counties.1" Id. at 219 (quoting Laws of 1872, ch. 46, § 2). After a state trunk highway system was created, the legislature imposed on each county the obligation to maintain all of the state trunk system lying within its boundary, and the predecessor to § 81.15 was correspondingly amended to state that "[c]laims for damages which may be due to the insufficiency or lack of repair of the trunk system shall be against the county." Id. (quoting Laws of 1917, ch. 175, § 1317(5)). Then in 1931, the legislature shifted the duty of maintaining state highways from the counties to the state, with the state agency authorized to enter into contracts with the counties to maintain those highways. Id. at 220 (citing Laws of 1931, ch. 22, § 3). At the time of that amendment, § 81.15 (1931) provided that a county was liable for damages for "insufficiency or want of repairs of [a] . . . road which any county shall have adopted as a county road or is by law bound to keep in repair." However, the legislature did not make any amendments in § 81.15 to correspond to the changes in Wis. Stat. § 84.07. Firemen's Ins. Co., 2 Wis. 2d at 220. This, then, was the setting for the dispute over a county's liability in Larsen v. Kewaunee County, 209 Wis. 204, 244 N.W. 578 (1932).

¶ 20. In Larsen the county had entered into an agreement with the state, under the then-recent amendments to Wis. Stat. § 84.07, to maintain the state highway where the accident occurred. Id. at 205. The court rejected the plaintiffs argument that the county was "by law bound" to keep the highway in repair, reasoning that being bound by contract was not the same as being bound by law, and pointing out that it was the duty of the state under the new statutory law to maintain the state highways. Id. at 208. Larsen was followed in Crowley v. Clark County, 219 Wis. 76, 81, 261 N.W. 221 (1935), with that court pointing out that the legislature did not amend Wis. Stat. § 81.15 after Larsen to make a county liable when it had an agreement with the state to maintain a state highway. Following Crowley, the legislature amended § 81.15 to add the language it contains today — " 'by agreement with any town, city or village.'" Firemen's Ins. Co., 2 Wis. 2d at 222 (quoting Laws of 1939, ch. 373, § 1).

¶ 21. After reviewing this history, the court in Firemen's Insurance Co. declined the plaintiffs request to overrule Larsen. Id. at 223. The court reasoned that the legislature knew of the Larsen and Crowley decisions when it added the language "by agreement with any town, city or village" and nonetheless did not include reference to the state. Id. Therefore, the court concluded, the legislature did not wish to overrule Larsen and Crowley. Id.

¶ 22. The relevant provisions of Wis. Stat. §§ 81.15 and 84.07 have not been changed since Firemen's Insurance Co. was decided, and we are aware of no case that has modified or overruled that court's construction of § 81.15. Of course, for a short time after the abrogation of common law governmental immunity in Holytz, § 81.15 ceased to define the scope of a county's liability for highway defects, because the general common law principles of negligence did that. Dunwiddie v. Rock County, 28 Wis. 2d 568, 574, 137 N.W.2d 388 (1965). Thus, "in the absence of governmental immunity, either of legislative or judicial origin, a county undertaking ... to keep a state trunk highway in repair would be liable for its failure to do so." Id. at 572. However, with the legislature's enactment in 1963 of governmental immunity for discretionary acts, § 81.15, as a legislative exception to that immunity, once again came to define the scope of a county's liability for highway defects. See Morris, 219 Wis. 2d at 553, 556-57. Under Firemen's Insurance Co., that scope does not include a county that is under a contract with the state to maintain a state highway.

¶ 23. Both respondents acknowledge that if Wis. Stat. § 81.15 does not authorize suit against Dane County, then the County is immune because County personnel were engaged in discretionary acts. Therefore, because we conclude that Dane County is neither "by law" nor "by agreement with any town, city or village" bound to repair State Highway 12, Dane County has immunity under Wis. Stat. § 893.80(4) for the acts alleged in the complaint.

¶ 24. In summary, Dane County is entitled to summary judgment dismissing the complaint on the ground that it has immunity for discretionary acts under Wis. Stat. § 893.80(4). We reverse the order denying the motion for summary judgment and remand for the court to enter an order consistent with this opinion.

By the Court. — Order reversed and cause remanded with directions.

       All references to the Wisconsin Statutes are to the 2001-02 version unless otherwise noted.

       Wisconsin Stat. § 893.80(4) provides:
      (4) No suit may be brought against any volunteer fire company organized under ch. 213, political corporation, governmental subdivision or any agency thereof for the intentional torts of its officers, officials, agents or employees nor may any suit be brought against such corporation, subdivision or agency or volunteer fire company or against its officers, officials, agents or employees for acts done in the exercise of legislative, quasi-legislative, judicial or quasi-judicial functions.
      Acts "done in the exercise of legislative, quasi-legislative, judicial or quasi-judicial functions" as used in this statute are referred to as discretionary acts. Morris v. Juneau County, 219 Wis. 2d 543, 553-54, 579 N.W2d 690 (1998).

       Wisconsin Stat. § 81.15 provides in full:
      Damages caused by highway defects; liability of town and comity. If damages happen to any person or his or her property hy reason of the insufficiency or want of repairs of any highway which any town, city or village is bound to keep in repair, the person sustaining the damages has a right to recover the damages from the town, city or village. If the damages happen by reason of the insufficiency or want of repairs of a highway which any county by law or by agreement with any town, city or village is bound to keep in repair, or which occupies any land owned and controlled by the county, the county is hable for the damages and the claim for damages shall be against the county. If the damages happen by reason of the insufficiency or want of repairs of a bridge erected or maintained at the expense of 2 or more towns the action shall be brought against ah the towns hable for the repairs of the bridge and upon recovery of judgment the damages and costs shah be paid by the towns in the proportion in which they are hable for the repairs; and the court may direct the judgment to be collected from each town for its proportion only. The amount recoverable by any person for any damages so sustained shah not exceed $50,000. The procedures under s. 893.80 shah apply to the commencement of actions brought under this section. No action may he maintained to recover damages for injuries sustained by reason of an accumulation of snow or ice upon any bridge or highway, unless the accumulation existed for 3 weeks.

       A second issue in Morris concerning Wis. Stat. § 81.15 is not relevant to this appeal: whether the term "highway" includes the shoulder adjacent to the paved portion of the highway. 219 Wis. 2d at 549.

       Wisconsin Stat. § 893.80(5) provides:
      (5) Except as provided in this subsection, the provisions and limitations of this section shall be exclusive and shall apply to all claims against a volunteer fire company organized under ch. 213, political corporation, governmental subdivision or agency or against any officer, official, agent or employee thereof for acts done in an official capacity or the course of his or her agency or employment. When rights or remedies are provided by any other statute against any political corporation, governmental subdivision or agency or any officer, official, agent or employee thereof for injury, damage or death, such statute shall apply and the limitations in sub. (3) shall be inapplicable.

       "First the language of Wis. Stat. § 81.15 does provide rights or remedies for parties injured 'by reason of the insufficiency or want of repairs of any highway ....'§ 81.15." Morris, 219 Wis. 2d at 558.

       Yet another example is the supreme court's conclusion: "In sum, we conclude that if a plaintiffs injuries occurred by reason of insufficiency or want of repairs of any highway, that is, the plaintiff states an actionable claim under Wis. Stat. § 81.15, a governmental entity is not afforded immunity under Wis. Stat. § 893.80(4)." Id. at 559. This sentence contains even broader language because it specifies no governmental entity and could therefore arguably apply to the state, which Wis. Stat. § 81.15 clearly does not do.

       State Farm points to Juneau County's brief filed in the supreme court in Morris as support for its argument that the supreme court considered and rejected the argument that Wis. Stat. § 81.15 did not apply to state-owned highways a county is obligated to maintain by contract. State Farm has included in its appendix page 28 from Juneau County's brief in which Juneau County argues that § 81.15 never did apply to a county that contracted with the state to maintain a state highway, relying on Firemen's Insurance Co. v. Washburn County, 2 Wis. 2d 214, 220-21, 85 N.W.2d 840 (1957). However, we are not willing to infer from this page of Juneau County's brief that the supreme court decided to reject this argument in an opinion that does not even refer to the argument.


author: Gordon, J. Currie, C. J.

text:
    Platke, Respondent, v. John Hancock Mutual Life Insurance Company, Appellant.

      February 5

    March 2, 1965.

      For the appellant there were briefs by Quarles, Herriott & Clemons, attorneys, and L. C. Hammond, Jr., and John S. Holbrook, Jr., of counsel, all of Milwaukee, and oral argument by Mr. Hammond.

    For the respondent there was a brief by Frisch, Dudek & Banholser, attorneys, and Robert A. Slattery of counsel, all of Milwaukee, and oral argument by Mr. Slattery.

       Motion for rehearing denied, with costs, on April 27, 1965.

   Gordon, J.

The underlying purpose of the legislature in enacting sec. 209.07, Stats., can be learned from declarations of the Iowa supreme court. This is true because our statute, adopted in 1911, was derived from the Iowa statute, enacted in 1897. In Weimer v. Economic Asso. (1899), 108 Iowa 451, 453, 79 N. W. 123, that court set out the purposes of the statute:

“The very evident purpose of the statute is to prevent the defeat of recovery on any policy where the company has, by its skilled agent, examined and passed upon the fitness of the applicant for insurance. The estoppel is directed to inquiry as to the condition of health, and it is quite immaterial what representations have been made or warranties given. The company, having investigated, and for itself ascertained and declared the condition of the assured to be such as required by its rules and regulations, will not be permitted to interpose as a defense the physical infirmities of the deceased, of which it knew, or might have known, as the result of its examination ; and the fraud or deceit referred to is that of procuring the report or certificate of the physician, and not the policy,

Our own decisions have made it clear that if sec. 209.07, Stats., applies, it takes precedence over sec. 209.06; thus, an insurance company which has had its medical examiner conduct the kind of examination contemplated by the statute will be estopped unless the applicant procured the favorable report of the medical examiner by fraud or deceit. This was the conclusion reached in Frozena v. Metropolitan Life Ins. Co. (1933), 211 Wis. 373, 376, 247 N. W. 333:

“There seems to be no escape from the conclusion that where a medical examination is had and a report made that the applicant is a fit subject for insurance, an estoppel arises against the company in the absence of fraud or deceit practiced by the insured upon the medical examiner in order to induce a favorable report, and that the provisions of sec. 209.06 avoiding the policy where an innocent misrepresentation increases the risk, must be limited to situations where there has been no certificate of health or recommendation of the risk by the examiner.”

The jury in the instant case determined that Wallace Platke made a false representation relative to his not having consulted or been treated by a doctor during the previous five years but that such representation was not made with an intent to deceive. The appellant contends that his misrepresentation should be held by this court as disclosing an intent to deceive as a matter of law. If the appellant is correct in that position and such deception induced the doctor’s favorable report, then, in such event, sec. 209.07, Stats., would not apply, and the insurer would be entitled to prevail on its defense under sec. 209.06. We will examine the question as to whether there was deceit as a matter of law after first resolving the question whether the medical report constituted a certificate of health or a declaration that the applicant was a fit subject for insurance under sec. 209.07.

Effect of the Medical Examiner's Report.

In order to qualify as a certificate of health or a declaration of fitness, the report of the medical examiner need not be couched in those precise terms. That this is true is demonstrated by Gibson v. Prudential Ins. Co. (1956), 274 Wis. 277, 80 N. W. (2d) 233, and the Frozena Case, supra. In the Gibson Case, at page 287, the court made this amply clear in stating the following:

“In the case at bar we are obliged to conclude that the statements of the medical examiner that the applicant’s condition of hydrocele ‘should not affect insurable risk’ and that ‘in his opinion the risk was not questionable because of any factor, such as the presence or history of . . . physical defect, etc.,’ amounted to a declaration that the applicant was a fit subject for insurance. We are unable to perceive substantial distinction in the purpose and effect of the question here compared to one which may have inquired: ‘In your opinion is the applicant a fit subject for insurance because of the presence or history of a physical defect, etc. ?’ ”

This same point was brought out in the Frozena Case, as discussed in Jespersen v. Metropolitan Life Ins. Co. (1947), 251 Wis. 1, 4, 27 N. W. (2d) 775, where the court said:

“In the Frozena Case, supra, the medical examiner was asked to characterize the risk as ‘first class, average, doubtful or poor’ and he characterized it as ‘first class.’ This amounted to a declaration that the applicant was a fit subject for insurance and brought sec. 209.07 into operation.”

Based on the foregoing, it becomes clear that no special verbiage is required to constitute the certificate or declaration contemplated in sec. 209.07, Stats., and we must determine whether the medical report, consisting of the two pages of Exhibit 3, is such a certificate or declaration under the statute. The trial court made the following determination with reference to question 20 appearing-in the medical examiner’s report:

“This question was phrased so that the insurance company, when reading the medical examiner’s answer, would know the medical examiner, in effect, declared the applicant a fit subject for insurance.”

The appellant, on the other hand, relies upon the Jespersen Case, supra. In that case, at page 4, the court observed that “. . . sec. 209.07 does not apply where a medical examiner merely enters his findings with respect to the physical examination and forwards them to the company without comment.” The court went on to note the following (p. 4) :

“The medical examiner simply certified height, weight, measurements, pulse, and blood pressure and that he had found no evidence of impairment of the heart, brain, stomach, lungs, etc. These answers were all in response to specific questions required to be answered by the medical examiner and there is nowhere in the record, so far as we can discover, a certification of health or declaration that the applicant is a fit subject for insurance.”

Our examination of the second page of Exhibit 3, considered in its entirety, persuades us that the trial court was correct in deciding that the report constituted a “declaration of fitness for insurance.” The medical report consists of two pages. On the first page, the physician records the applicant’s answers to numerous questions, most of which relate to the applicant’s medical history. On the second page of the report, however, the doctor is asked questions which are significantly different from those on the first page.

Unlike the first page, the second page of the report is not to be signed by the applicant. While a few of the questions contained on the second page call merely for the recitation of measurements, the answers to other questions thereon must necessarily involve the doctor’s professional appraisal. For example, in question 14, the doctor is asked to evaluate the applicant’s “general appearance” and “apparent age.” Question 16 reads as follows:

“Do you find evidence of past or present disease or abnormality of the following ?
“(a) Eyes, Ears, Nose, Throat. Measure markedly impaired vision, corrected and uncorrected. State if hearing aid used.
“(b) Skin: Thyroid or other Endocrine Glands.
“(c) Lungs or Pleurae.
“(d) Abdominal Organs (including Hernia).
“(e) Musculoskeletal System. (Any deformity?)
“(f) Vascular System. (Any Varicose Veins?)
“(g) Nervous System. (Any tremor or abnormal reflexes?)”

Question 20 reads as follows:

“In your opinion is there anything detrimental in the habits, surroundings or occupation of the proposed insured?”

The responses to the foregoing questions appearing on page 2 of the medical report reflect the doctor’s evaluation as to the applicant’s health. For the purposes of sec. 209.07, Stats., the medical examiner, in effect, gave an opinion as to the applicant’s fitness for insurance.

The foregoing conclusion is directed by the statement of this court in Ludwig v. John Hancock Mut. Life Ins. Co. (1956), 271 Wis. 549, 74 N. W. (2d) 201. In that case, two of the questions which were asked of the examining physician were as follows:

“In your opinion, is there anything detrimental to the risk in the habits, occupation or surroundings of the proposed insured ?”
“Do you have any other information which might affect the company’s decision ?”

It is apparent that the first question recited above from the Ludwig Case is substantially the same as question 20 in the case at bar; the court in that case said, at page 554:

“The record indicates that the insured was examined by a medical examiner of the defendant on July 24, 1953, and that the examiner in effect declared the applicant a fit subject for insurance.”

The appellant seeks to avoid the impact of the Ludwig Case on the ground that the portion quoted immediately above was only obiter dicta. The applicability of sec. 209.07, Stats., in relation to the questions contained on the medical report was raised in the respondent’s brief in the Ludwig Case and was pertinent to the court’s decision. In our opinion, the trial court was correct in regarding the Ludwig Case as controlling in the case at bar.

Was There Deceit as a Matter of Law?

The jury found that Wallace Platke’s false representation was not made with an intent to deceive. We believe that the record discloses two grounds upon which to support this finding.

There is an ambiguity contained in the applicant’s responses to questions 9 (a) and 9 (b). In response to question 9 (a), the applicant stated that he had not consulted a physician during the previous five years; but in question 9 (b), he stated that he had been treated in a hospital during the past five years. Even if the disclosure in 9 (b) is deemed to be erroneous, the jury was entitled to interpret this disclosure in the applicant’s favor. When the issue was whether there was an intent to deceive, the jury may have considered whether a man would disclose a recent hospitalization at the same time that he allegedly was attempting to conceal his recent medical treatment.

A second basis upon which the jury could have determined that there was an absence of an intent to deceive the medical examiner results from the testimony of Dr. Halser that Wallaee Platke “did not appear to be very bright.” Dr. Halser further testified that Wallace Platke “didn’t have insight into what was wanted of him” or needed by him in the way of treatment. The jury may have interpreted Dr. Halser’s characterization of the applicant as justifying a conclusion that he was not likely to have entertained the deceitful intentions which the appellant ascribes to him.

By the Court. — Judgment affirmed.

Currie, C. J.

(dissenting). I respectfully dissent from the holding of the majority that the instant medical examiner’s report constituted a certificate of health or a declaration of fitness within the meaning of sec. 209.07, Stats.

Most medical reports of life insurance companies consist of two parts, the first of which consists of questions which the medical examiner puts to the applicant and is signed by the applicant; the second consists of the questions asked of, and answered by, the medical examiner based on his examination of applicant. Typical of these latter types of questions are the subdivisions of question 16 quoted in the majority opinion. The court’s opinion comes perilously close to holding that all of these medical examiner reports in which the physician certifies to the findings made by him of his physical examination of the applicant constitute a certificate of health or declaration of fitness. I cannot conceive how questions asked of the medical examiner, that merely require his statement of his findings made upon examination of applicant, constitute a certificate of health or declaration of fitness within the meaning of sec. 209.07, Stats. The only question in Part II of the instant medical examiner’s report which varies from this pattern is question 20 which inquires of the medical examiner as to his opinion regarding “habits, surroundings, or occupation of the proposed insured.” The opinion requested does not relate to the general fitness of the applicant so as to constitute a certificate of health. Rather, it is restricted to the habits, surroundings, or occupation of the applicant. I can perceive of no significant difference between the form in which question 20 is worded and a question which merely asks, “Have you any information with respect to anything detrimental in the habits, surroundings, or occupation of the proposed Insured ?”

It seems to me that the test to be applied as to whether a medical examiner’s report comes within the provisions of sec. 209.07, Stats., is: Do the statements of the medical examiner in his report go beyond merely stating his objective findings, so as to express an opinion as to general health or fitness for insurance? The mere fact that one statement may express an opinion with respect to one element of the whole, such as does question 20, should be held to be insufficient to constitute an expression of opinion as to the total health or fitness of the applicant for insurance.

The writer is the only present member of the court who participated in the decision of Ludwig v. John Hancock Mut. Life Ins. Co. (1956), 271 Wis. 549, 74 N. W. (2d) 201. In concurring in that sentence of the opinion which reads (at p. 554), “The record indicates that the insured was examined by a medical examiner of the defendant on July 24, 1953, and that the examiner in effect declared the applicant a fit subject for insurance,” I must confess I was remiss in not going back and again reviewing the briefs when I joined in the opinion. However, an examination of the briefs affords a partial excuse for this failure on my part.

The appellant insurance company’s brief stated four questions involved on appeal, none of which referred to sec. 209.07, Stats., or raised any issue with respect thereto. The respondent’s brief did make the assertion that the medical report constituted a declaration of fitness and estopped appellant from contesting the policy. Then appellant came back with a reply brief which took the position that secs. 209.06 and 209.07 were entirely beside the point on the issues of coverage raised by appellant based on events which occurred after the medical examiner’s report. Appellant did not challenge respondent’s assertion that the medical examiner’s report constituted a declaration of fitness.

Thus because of the position taken by the insurance company in the Ludwig Case we had no contest of the issue whether the medical examiner’s report constituted a declaration of fitness within the meaning of sec. 209.07, Stats. Therefore, I do not consider that the Ludwig Case is one that this court should consider controls the result here. Perhaps it is poetic justice that this particular insurance company should now be impaled by the Ludwig Case decision, but I feel the precedent we are setting for future cases by the instant decision is a bad one.

I am authorized to state that Mr. Justice Hallows joins in this dissenting opinion.