author: DYKMAN, J.

text:
    In the Matter of the Liquidation of American Eagle Insurance Company: American Eagle Insurance Company, Petitioner, v. Wisconsin Insurance Security Fund, Business Flying Enterprises, Estate of Allen M. Gelin, Lucas Lindner and the Estate of and Val R. Lindner, Respondents. Wisconsin Reinsurance Corporation, Plaintiff-Appellant, v. Wisconsin Insurance Security Fund, Defendant-Respondent. Wisconsin Reinsurance Corporation, Plaintiff-Appellant, v. Wisconsin Insurance Security Fund, Defendant-Respondent.
    Court of Appeals

      No. 2004AP274.

      Oral argument September 23, 2004.

      Decided July 21, 2005.

    2005 WI App 177

      (Also reported in 704 N.W.2d 44.)

      On behalf of the plaintiff-appellant, the cause was orally argued and submitted on the briefs of Arnold P Anderson of Mohr & Anderson, LLC, Madison.
    On behalf of the defendant-respondent, the cause was orally argued and submitted on the brief of Stephen P. Lucke of Dorsey & Whitney LLP, Minneapolis, Minnesota.
    Before Dykman, Vergeront and Lundsten, JJ.

       Petition for review denied 10-14-05.

   DYKMAN, J.

¶ 1. Wisconsin Reinsurance Corporation (Reinsurance Corp.), a reinsurer of town mutual insurance companies, appeals from a judgment affirming a $15,047 assessment of Reinsurance Corp. by the Wisconsin Insurance Security Fund (Fund) and dismissing an action alleging procedural infirmities. Reinsurance Corp. contends that the Fund exceeded its statutory grant of authority by its assessment. The Fund asserts that Wis. Stat. § 646.31(2)(a)l. (2001-02) permits town mutuals to submit claims to the Fund, and consequently subjects the insurers of town mutuals to assessment under Wis. Stat. § 646.51(3)(am)2. While the statutory text reasonably supports either of these interpretations, we conclude that the legislative history of the statute shows the intent to permit the Fund to assess reinsurers of town mutuals such as Reinsurance Corp. Finally, we conclude that Reinsurance Corp. waived most of its objections to the Fund's procedures, and we reject on the merits those procedural objections it has not waived. We therefore affirm the circuit court's judgment.

BACKGROUND

¶ 2. In 1997, American Eagle Insurance Company became insolvent and was under a liquidation order. As directed by Wis. Stat. § 646.51, the Wisconsin Insurance Security Fund identified the solvent insurers of policyholders who could file claims on the Fund as a result of the American Eagle liquidation. The Fund interpreted Wis. Stat. § 646.31(2)(a), under which a claim may be filed by "a ceding assessable domestic insurer that is organized under ch. 612 [the town mutual insurance chapter]," as permitting town mutu-als to file claims on the Fund for risks they "cede," or reinsure, with another party. The Fund then assessed insurers with whom town mutuals had insured or reinsured certain risks. The Fund determined that Reinsurance Corp. was among these, and found its portion of the American Eagle assessment to be $15,047.

¶ 3. Reinsurance Corp. filed an administrative appeal with the Fund challenging the assessment. Reinsurance Corp. submitted interrogatories, requested documents pertaining to the assessment of Reinsurance Corp. and sought a hearing before the Fund, measures Reinsurance Corp. claimed it was entitled to under Chapter 227, the Wisconsin Administrative Procedure Act. The Fund responded that it was not a state agency subject to Chapter 227 procedures, but that it would conduct the appeal in a fair and equitable manner consistent with the procedures of Chapter 646. It averred that it would attempt to comply with Reinsurance Corp.'s discovery requests, but that a hearing was not necessary because the appeal concerned only issues of law. The Fund asked Reinsurance Corp. to submit a brief outlining its legal arguments against the assessment.

¶ 4. Reinsurance Corp. then sought a declaratory judgment in circuit court (Case No. 2001-CV-3496, hereinafter the "procedures case") ordering the Fund to comply with its procedural demands. The court stayed this action to permit the Fund to make a determination on the merits of the appeal. The Fund then appointed an examiner, who held a hearing and made certain factual findings, and concluded that the Fund had statutory authority to assess Reinsurance Corp. Reinsurance Corp. ultimately appealed this decision in a second circuit court action (Case No. 2002-CV-2571, hereinafter the "merits case").

¶ 5. The merits case and the procedures case were consolidated before the American Eagle liquidation court. Reinsurance Corp. subsequently filed a motion to set aside the assessment, and a separate motion to remand to take testimony to remedy alleged procedural errors by the Fund. The Fund moved for summary judgment on the procedures case.

¶ 6. The court affirmed the Fund's June 2002 decision, which included the Fund's interpretation of its statutory authority to assess Reinsurance Corp. and its findings of fact. The court granted summary judgment to the Fund on the procedures case, concluding that Reinsurance Corp. had waived some procedural objections and, regardless, the Fund's procedures were sufficient. Reinsurance Corp. appeals.

¶ 7. More facts about the complicated procedural history of this appeal will be set out in our discussion of Reinsurance Corp.'s procedural complaints, beginning at ¶ 37. For present purposes, we turn now to the circuit court's decision in the merits case affirming the Fund's rejection of Reinsurance Corp.'s administrative appeal.

THE MERITS

Standard of Review

¶ 8. When reviewing an administrative appeal of an agency determination, we review the decision of the agency and not that of the circuit court. Clean Wisconsin, Inc. v. Public Service Comm'n of Wisconsin, 2005 WI93, ¶ 36, 282 Wis. 2d 250, 700 N.W.2d 768. Here, the Fund's determination rejected Reinsurance Corp.'s administrative appeal, upholding the agency's construction of a provision of Chapter 646 of the Wisconsin statutes as authorizing the assessment of a town mutual reinsurance company. Generally, statutory interpretation presents a question of law, which we review de novo. State v. Lombard, 2004 WI 95, ¶ 17, 273 Wis. 2d 538, 684 N.W.2d 103.

¶ 9. However, the Fund contends that we must apply a more deferential standard of review because it is charged with administering Chapter 646 of the Wisconsin Statutes. Reinsurance Corp. responds that because the provisions under review concern the scope of the Fund's power, the Fund's interpretation is not entitled to deference, citing Capoun Revocable Trust v. Ansari, 2000 WI App 83, 234 Wis. 2d 335, 610 N.W.2d 129.

¶ 10. A reviewing court is not bound by an agency's interpretation of a statute. However,

[c]ourts will give varying degrees of deference to an agency's interpretation of a statute when they have concluded that the legislature charged the agency with the duty of administering the statute; that the agency's interpretation is of longstanding; that the agency's interpretation entails its expertise, technical competence and specialized knowledge; and that through interpretation and application of the statute, the agency can provide uniformity and consistency in the field of its specialized knowledge.

Matter of Midland Ins. Co., 195 Wis. 2d 835, 846, 537 N.W.2d 51 (Ct. App. 1995) (citing Lisney v. LIRC, 171 Wis. 2d 499, 505, 493 N.W.2d 14 (1992)). In Midland, we construed Wis. Stat. § 646.31(6)(a) (1991-92), a section prohibiting recovery from the Fund for indemnified losses. There, we considered whether under § 646.31(6)(a) claimants could recover from the Fund all amounts not actually collected from indemnifiers, or if claimants could only recover those amounts not covered by the policies of the indemnifiers, regardless of how much the claimant actually collected under those policies. Midland, 195 Wis. 2d at 846-847. Having concluded that the Fund did not have prior experience with the specific issue in that case, we applied a de novo review. Id.

¶ 11. Likewise, here the Fund acknowledges that this is the first time that it has construed Wis. Stat. § 646.31(2)(a) as authorizing the assessment of reinsurance companies of town mutuals. Therefore, given the Fund's lack of experience with this specific issue, we will review its interpretation of the statute de novo.

The Wisconsin Insurance Security Fund

¶ 12. The Wisconsin Insurance Security Fund was created in 1969 by the legislature to help to pay the claims of insureds when an insurer doing business in Wisconsin becomes insolvent. A purpose of the Fund is "[t]o maintain public confidence in the promises of insurers by providing a mechanism for protecting insureds from excessive delay and loss in the event of liquidation of insurers and by assessing the cost of such protection among insurers." Wis. Stat. § 646.01(2)(a).

¶ 13. The Fund generates revenue by assessing solvent insurers, which are divided by Chapter 646 into five different categories of insurers — life, annuities, disability, health maintenance organization, and "all other kinds of insurance subject to this chapter." The Fund maintains a separate account for each of these five categories. Wis. Stat. § 646.11(2). When an insurance company goes into liquidation, the Fund must assess all solvent insurers in the same account as the insolvent insurer under Wis. Stat. § 646.51(lm). Thus, the Fund is structured such that if a category of policyholders is able to file a claim on the Fund, their insurers are subject to assessment.

¶ 14. When the liquidation of American Eagle commenced, the Fund assessed all solvent insurers in the account reserved for "all other kinds of insurance." The Fund determined that reinsurers of town mutuals were properly included in this account, and it therefore assessed Reinsurance Corp.

Text of Wis. Stat. § 646.31(2) (a) and related statutes

¶ 15. "[Statutory interpretation begins with the language of the statute. If the meaning of the statute is plain, we ordinarily stop the inquiry." State ex rel. Kalal v. Circuit Court, 2004 WI 58, ¶ 45, 271 Wis. 2d 633, 681 N.W.2d 110 (citation omitted). "If this process of analysis yields a plain, clear statutory meaning, then there is no ambiguity, and the statute is applied according to this ascertainment of its meaning." Id., ¶ 46 (citation omitted). Context and statutory structure are important to statutory meaning, and may be ascertained from the statutory text. Id., ¶ 46, ¶ 48. A statute is ambiguous only if it "reasonably gives rise to different meanings," i.e., "if it is capable of being understood by reasonably well-informed persons in two or more senses." Id., ¶ 47. We may not consult extrinsic sources, such as legislative history, to ascertain meaning unless the statute is ambiguous. Id., ¶ 46.

¶ 16. The Fund contends that Wis. Stat. § 646.31(2)(a) provides it with the authority to assess reinsurers of town mutuals. This statute states in relevant part:

(2) Classes of claims to be paid. No claim may be paid under this chapter unless the claim is in one of the following classes:
(a) Residents. 1. The claim of a policyholder, including a ceding assessable domestic insurer that is organized under ch. 612 [the town mutual insurance chapter] and a domestic insurer that is a bona fide policyholder of the insurer in liquidation ....

The Fund asserts that to "cede" with regard to insurance means to "reinsure," citing Franklin Mut. Ins. Co. v. Meeme Town Mut. Fire Ins. Co., 68 Wis. 2d 179, 181, 228 N.W.2d 165 (1975). In Franklin Mut. Ins., the supreme court adopted a definition of reinsurance from a leading treatise, which stated:

"Reinsurance, to an insurance lawyer, means one thing only — the ceding by one insurance company to another of all or a portion of its risks for a stipulated portion of the premium, in which the liability of the reinsurer is solely to the reinsured, which is the ceding company, and in which contract the ceding company retains all contact with the original insured, and handles all matters prior to and subsequent to loss."

Id. (quoting 13 Appleman, Insurance Law and Practice, Sec. 7681, pp. 433, 434 (emphasis added)).

¶ 17. Therefore, the Fund asserts, "ceding" in Wis. Stat. § 646.31(2)(a) means "reinsuring," and risks that are ceded by insurers organized under Chapter 612 (town mutuals) are covered by the Fund. Under this view, town mutuals stand as "policyholders" in relation to their reinsurers. Because town mutuals may make claims under Wis. Stat. § 646.31(2)(a), the Fund must assess the solvent reinsurers of town mutuals whenever an insurance company in the reinsurers' account category goes into liquidation.

¶ 18. Reinsurance Corp. characterizes "ceding," as well as "assessable" and "domestic," as merely descriptive of an "insurer organized under ch. 612." Reinsurance Corp. notes that town mutuals must cede certain risks under Wis. Stat. § 612.33(2), and Wis. Admin. Code § Ins 13.09(4)(a) requires town mutuals to cede all risks for which § 612.33(2) does not require reinsurance. However, as the Fund asserted at oral argument, neither Chapter 612 nor the administrative code require reinsurance for the entire amounts of these risks.

¶ 19. We conclude that the Fund's interpretation of Wis. Stat. § 646.31(2)(a) is reasonable. Its interpretation of "ceding" is consistent with a cardinal rule of statutory interpretation; it "giv[es] reasonable effect to every word [of the statute], in order to avoid surplus-age." Kalal, 271 Wis. 2d 633, ¶ 46. Reinsurance Corp.'s interpretation diminishes the effect of the word "ceding" by treating it as an unnecessary modifier of "an insurer .. . organized under ch. 612."

¶ 20. However, Reinsurance Corp. offers its own interpretation of Wis. Stat. § 646.31(2)(a) that we conclude is also reasonable. First, Reinsurance Corp. contends that the purpose of Wis. Stat. § 646.31(2)(a) was to close a loophole that would have otherwise prevented town mutuals from recovering as policyholders on insurance plans covering damage to the mutuals' property and personal injury claims for accidents on that property. Wisconsin Stat. § 646.01(1)(a)2.b. provides that Chapter 646 does not apply to "[assessable mutuals, including town mutuals." Reinsurance Corp. argues that this provision would have prevented a town mutual from filing a claim for damage to the mutual's property if its insurer went into liquidation. Reinsurance Corp. asserts that § 646.31(2)(a) closes this loophole, permitting a town mutual to make a liability or property damage claim as a policyholder on the Fund.

¶ 21. Second, Reinsurance Corp. observes that reinsurance is excluded from regulation by the Fund by Wis. Stat. § 600.01(l)(b)l., which states: "Unless otherwise expressly provided, chs. 600 to 646 do not apply to . .. reinsurance." Reinsurance Corp. contends that the use of "ceding" in Wis. Stat. § 646.31(2)(a) is not a specific, express reference to reinsurance necessary to overcome the exclusion of reinsurance from Chapter 646. The Fund counters that because the meaning of "ceding" in the insurance context is well established, its use in § 646.31(2) (a) is an express exception to § 600.01(l)(b)l.

¶ 22. Third, Reinsurance Corp. contends that the legislature limited the scope of the Fund's authority to "direct insurance" in Wis. Stat. § 646.01(l)(a):

646.01 Scope and purpose.
(1) Scope.
(a) General. This chapter applies to:
1. All kinds and lines of direct insurance ....

Direct insurance is not defined by statute or Wisconsin case law. Reinsurance Corp. observes that courts from other jurisdictions have defined direct insurance to the exclusion of reinsurance. See Arizona Life & Disability Ins. Guaranty Fund v. Honeywell, Inc., 945 P.2d 805, 816 (Ariz. 1997) ("We agree that the legislature inserted the term 'direct' to bar coverage for reinsurance contracts."); Iowa Contractor's Workers Compensation Group v. Iowa Insurance Guaranty Association, 437 N.W.2d 909, 913-14 (Iowa 1989). It also notes that the original Wis. Stat. § 646.01(1)(a) (1969-70), like the present version, did not specifically address reinsurance, but the committee comments to the law state that "[t]he exception for reinsurance recognizes that rein-surers are peculiarly able to protect themselves." Committee comment, Laws of 1969, ch. 144, § 26. The committee's conclusion that this section excluded reinsurance from Chapter 646 apparently followed from an interpretation of the phrase "all kinds and lines of direct insurance," supporting Reinsurance Corp.'s view that "direct insurance" here excludes reinsurance.

¶ 23. Fourth, Reinsurance Corp. notes that the assessment statute, Wis. Stat. § 646.51(3)(a) (1999-2000), provides for assessment based on a percentage of premiums received for "direct insurance," and refers to "direct business" and "insurers":

(3) Calculation, (a) General. 1. In this section, "premiums" means gross premiums and other considerations received for direct insurance and annuities, including considerations for a plan established under ss. 185.981 to 185.985, less return premiums and other considerations, dividends and experience credits paid or credited to policyholders on the direct business. The term "premiums" does not include any amounts received for any contracts or for the portions of any contracts for which coverage is excluded under s. 646.01(l)(b).
. . . assessments shall be calculated as a percentage of premiums written in this state by each insurer in the classes protected by the account, for the year preceding the year of entry of the order of liquidation.

¶ 24. Finally, Reinsurance Corp. adds that the assessment statute does not provide a method of calculating assessments of reinsurance companies, only assessments of "insurers" based on a percentage of annual premiums written in the state. Reinsurance Corp. contends that because Wis. Stat. § 646.31(2)(a) states that a claim must be made by a "policyholder of the insurer in liquidation," and not (in Reinsurance Corp.'s words) "a contract holder of a reinsurer in liquidation," the statute does not apply to reinsurers.

¶ 25. Together, these arguments lead to a reasonable conclusion that Wis. Stat. § 646.31(2) does not authorize the assessment of a reinsurance company of a town mutual. Because Reinsurance Corp. and the Fund each offer reasonable interpretations of Wis. Stat. § 646.31(2)(a), the statute is ambiguous. We therefore turn now to extrinsic sources to ascertain the statute's meaning.

Legislative History of Wis. Stat. § 646.31 (2) (a)

¶ 26. Wisconsin Stat. § 646.31 was created by the legislature in 1979 as a part of a package of revisions to Chapter 646 and Chapter 645, the insurance liquidation statute. Laws of 1979, ch. 109, sec. 14. A preliminary note to the legislation explains that the law's purpose was to remedy

clear defects in [Chapter 646].... [The chapter] was enacted in the absence of experience in the working of such [insurance security] funds .... It is time, now, to begin to develop a statute based on the fairly extensive experience of the past few years ... with careful reflection on the problems to be dealt with, in contemporary context.

¶ 27. As a part of this revision, Wis. Stat. § 646.31 established conditions of eligibility for claimants and classes of claims to be paid. The former § 646.31(2)(a) (1981-82) provided the following:

(2) Classes of claims to be paid. No claim may be paid under this chapter unless the claim is in one of the following classes:
(a) Residents. The claim of a policyholder, including a ceding domestic insurer which is not subject to this chapter, or an insured under a policy or annuity who at the time of the insured event or of the liquidation order was a resident of this state ....

A brief comment to § 646.31(2) explains that "[paragraph (a) is extended to include some ceding insurers such as a town or municipal mutual reinsuring with a commercial insurer." Laws of 1979, ch. 109, sec 14.

¶ 28. Wisconsin Act 325 (1987) also significantly revised Chapter 646. It modified the "residents" class of claimants in Wis. Stat. § 646.31(2)(a) to include "[t]he claim of a policyholder, including a ceding assessable domestic insurer which is organized under ch. 612 and a domestic insurer which is a bona fide policyholder of the insurer in liquidation .. .1987 Wis. Act 325, sec. 15. (statutory additions emphasized). The Legislative Reference Bureau (LRB) analysis to the bill signed into law as 1987 Wis. Act 325 explains that this language "[c]larifies the right of town mutuals to recover as policyholders under certain reinsurance arrangements." LRB analysis, 1987 SB 214. The relevant language of § 646.31(2)(a) has remained unchanged since the 1988 revision.

¶ 29. The Fund contends that the 1979 comment and 1987 LRB analysis clarify that under Wis. Stat. § 646.31(2) (a) a town mutual ceding certain risks with a reinsurer may make a claim with the Fund for these risks if the reinsurer goes into liquidation. We agree. The 1979 comment explains that § 646.31(2)(a) "include[s] some ceding insurers such as a town ... mutual reinsuring with a commercial insurer." This comment clarifies that "ceding" is synonymous with "reinsuring," and that the purpose of "ceding" is not merely descriptive. Rather, it defines a type of insurance relationship out of which a claim on the Fund by a town mutual may arise.

¶ 30. The 1987 LRB analysis provides additional evidence of legislative intent. It explains that the 1987 amendments "[c]larify" that a purpose of Wis. Stat. § 646.31(2)(a) from its inception was to permit town mutuals "to recover as policyholders under certain reinsurance relationships." LRB analysis, 1987 SB 214 (emphasis added). Reinsurance Corp. counters that this analysis expresses legislative intent "to allow town mutuals, as policyholders, to make claims against the Fund if the insurer of a town mutual goes into liquidation, not as a party to a reinsurance contract." Reinsurance Corp. insists that a party to a reinsurance contract cannot be a policyholder, but rather is a party to a reinsurance contract, and therefore the analysis must refer to insurers of town mutuals and not to reinsurers. However, this view does not account for the legislative history's reference to "certain reinsurance relationships."

¶ 31. We therefore determine that the legislative history to Wis. Stat. § 646.31(2)(a) demonstrates that the legislature intended to permit town mutuals to recover as policyholders of their reinsurers under § 646.31(2)(a). Accordingly, under the assessment scheme of Chapter 646, we conclude that the Fund has the authority to assess reinsurance companies of town mutuals — an authority it must exercise to ensure the Fund's solvency. See generally Wis. Stat. § 646.51.

Additional Reinsurance Corp. arguments against assessment

¶ 32. Reinsurance Corp. also contends that: (1) Wis. Stat. § 646.31(l)(b) exempts town mutuals from assessment under § 646.31; (2) assessment of town mutual reinsurers amounts to assessment of town mutuals, which is prohibited by Wis. Stat. § 646.01(l)(a)2.b.; and (3) the Fund's assessment is contrary to Article I, Section 10 of the U.S. Constitution. We consider these arguments in turn, and reject each for the reasons discussed below.

¶ 33. Wisconsin Stat. § 646.31(l)(b) provides:

Eligible claims. (1) Conditions of eligibility. A claim is not eligible for payment from the fund unless it is an unpaid claim for a loss insured under the policy or annuity and all of the following conditions are met:
(b) Assessability of insurer. The claim arises out of business not exempt from assessment under s. 646.01(1).

As discussed supra, § 646.01(1) exempts various categories of insurance from the chapter, including town mutuals. Section 646.01(l)(a)2.b. Reinsurance Corp. contends that any claim on the Fund by a town mutual resulting from the liquidation of Reinsurance Corp. will "arise out of the business" of town mutuals because the amounts sought by a town mutual from Reinsurance Corp. result from claims made on the town mutual by its individual policyholders. We find this argument unpersuasive. Wisconsin Stat. § 646.31(2)(a) authorizes the assessment of reinsurers of town mutuals, not town mutuals themselves. The "business" of a town mutual is to provide insurance coverage to group members, not to file claims with the mutual's reinsurer. Therefore, the claim in this case would not directly "arise out of business not exempt" from assessment.

¶ 34. Reinsurance Corp. next contends that assessment of a town mutual's reinsurer is tantamount to the assessment of a town mutual, which is prohibited. See above, Wis. Stat. §§ 646.01(1) (a)2.b. and 646.31(l)(b). Reinsurance Corp. asserts that because it is a mutual company and eighty percent of its members are town mutuals, these members will shoulder most of the Fund's assessment. We reject this as a basis on which to prohibit assessment of town mutual reinsur-ers. Reinsurance Corp.'s ownership structure is irrelevant to whether the Fund has the statutory authority to assess Reinsurance Corp. and other reinsurers of town mutuals. And what percentage ownership of a reinsurance company by a town mutual would make assessment of a reinsurer a de facto assessment of a town mutual? Seventy-five percent? Sixty percent? Would the Fund be required to inquire as to the present ownership of a reinsurance company before making an assessment? Reinsurance Corp. does not address these questions.

¶ 35. Finally, Reinsurance Corp. argues that the Fund's assessment is contrary to the contracts clause of the U.S. Constitution, which prohibits states from "pass[ing] any ... law impairing the obligation of contracts ...." U.S. Const. Art. I, Sec. 10. Reinsurance Corp.'s contracts with town mutuals provide that Reinsurance Corp. "shall not be subject to any ... liability for assessment" and is not liable for any assessment by an "insolvency fund." Reinsurance Corp. asserts that the Fund's assessment unconstitutionally interferes with these contract provisions. This argument also fails.

¶ 36. To demonstrate impairment of contract, a plaintiff must show that a change in the law after the contract was formed impaired the contract, harming the plaintiff in a substantial manner. See Energy Reserves Group, Inc. v. Kansas Power and Light Co., 459 U.S. 400, 411, 103 S. Ct. 697 (1983). Because the contracts clause protects against impairment caused by legislative action and not executive or judicial action, see New Orleans Water-Works Co. v. Louisiana Sugar Refining Co., 125 U.S. 18, 30, 8 S. Ct. 741 (1888), Barrows v. Jackson, 346 U.S. 249, 260, 73 S. Ct. 1031 (1953), passage of Wis. Stat. § 646.31(2)(a) in 1979 and not the Fund's recent interpretation of the statute is the event that triggers the contract cause. Reinsurance Corp. offers no evidence that its contracts with the town mutuals were entered into before 1979.

¶ 37. Even if some of these contracts were entered into before 1979, their terms may not interfere with the power of the state to impose regulations that promote the public good. "[T]he interdiction of statutes impairing the obligation of contracts does not prevent the State from exercising such powers as are vested in it... for the general good of the public, though contracts previously entered into between individuals may thereby be affected." Allied Structural Steel Co. v. Spannaus, 438 U.S. 234, 241, 98 S. Ct. 2716 (1978) (citation omitted). The benefits to the general public of protecting town mutuals, and consequently their policyholders, from reinsurer insolvency are obvious, and outweigh the potential costs to the contracting parties.

PROCEDURAL OBJECTIONS

¶ 38. To address the procedural objections Reinsurance Corp. raises, we must first set out the procedural history of the case in greater detail. Upon filing its administrative appeal challenging the assessment, Reinsurance Corp. requested that the Fund appoint an independent examiner, permit discovery and hold a public hearing, all of which Reinsurance Corp. asserted it was entitled to receive under Chapter 227. It also moved the Fund to preclude participation in the appeal by an attorney with the firm of LaFollette, Godfrey & Kahn (LGK) who had been retained by Reinsurance Corp., and had also been retained by the Fund in the American Eagle assessments.

¶ 39. By a letter dated December 11, 2001, the Fund responded to Reinsurance Corp.'s appeal, explaining that: (1) the Fund was not a state agency subject to the requirements of Chapter 227; (2) its assessment appeal procedures were set forth in Chapter 646, and that such proceedings were timely and fair; (3) the Fund had no plans to appoint an outside examiner or hold a hearing because the appeal only raised issues of law; (4) it would attempt to respond to requests for information sought by Reinsurance Corp.; and (5) the Fund had ceased all communication with the LGK attorney. The Fund requested that Reinsurance Corp. submit a brief setting forth its legal position, and assured Reinsurance Corp. that it would conduct its proceedings in a fair and equitable manner.

¶ 40. On December 18, 2001, Reinsurance Corp. filed an action, the procedures case, seeking a judgment declaring it entitled to a process governed by Chapter 227, the appointment of an impartial examiner to decide the administrative appeal, discovery and a hearing. The circuit court stayed the proceedings without prejudice to permit the Fund to decide the case on the merits. The stay ordered:

[T]he above litigation will be stayed. The Plaintiff shall file a brief in support of its appeal, and notify the Court when the brief has been filed with the Defendant. Defendant will respond to any brief that Plaintiff files in support of its appeal within thirty (30) days, which response will decide the merits of the appeal.

¶ 41. Reinsurance Corp. filed the requested brief, which raised certain factual questions not previously asserted. These included the potential impact of the assessment on the finances of town mutuals, and whether there was evidence that town mutuals needed Fund coverage. Consequently, the Fund scheduled a hearing to make factual findings and appointed a hearing examiner, Kurt Forney. Reinsurance Corp. objected by letter to the Fund that the hearing would violate the stay, hut said nothing to the court about the matter. The Fund held the hearing in June 2002, approved Forney's recommended findings of fact, and determined that Reinsurance Corp. was subject to assessment. Reinsurance Corp. did not attend the hearing.

¶ 42. Reinsurance Corp. then filed a motion to "strike" the Fund's decision and to "declare [Reinsurance Corp.'s procedural] rights." The circuit court denied the motion, concluding: "I deny the plaintiffs motion to enforce any rights, [b]ecause I don't see that there have been rights violated. Quite the opposite."

¶ 43. As already explained, Reinsurance Corp. initiated a second action, the merits case, in circuit court challenging the Fund's decision. The procedures case and the merits case were then consolidated before the liquidation court. In the procedures case, Reinsurance Corp. filed a motion to "remand or take testimony," claiming that: (1) the Fund's hearing violated the circuit court's stay; (2) the hearing examiner was biased; (3) the Fund withheld information about its rules of procedure, and restating its earlier procedural objections. The court denied Reinsurance Corp.'s motion and granted the Fund's motion for summary judgment on the procedures case. Because whether the procedures afforded to Reinsurance Corp. provided Reinsurance Corp. with a fair opportunity to make its case is a question of law, we apply a de novo standard of review regarding Reinsurance Corp.'s procedural complaints. See Tateoka v. City of Waukesha Bd. of Zoning Appeals, 220 Wis. 2d 656, 668-69, 583 N.W.2d 871 (Ct. App. 1998).

¶ 44. "The fundamental requirement of procedural due process is the opportunity to be heard at a meaningful time and in a meaningful manner." Bunker v. Labor and Industry Review Comm'n, 2002 WI App 216, ¶ 19, 257 Wis. 2d 255, 650 N.W.2d 864 (citations omitted). We conclude that the Fund's procedures met this requirement. Additionally, each of Reinsurance Corp.'s specific procedural complaints has either been waived, lacks merit, or fails because Reinsurance Corp. has not shown how the alleged error prejudiced its case.

¶ 45. In the administrative proceeding, the Fund provided Reinsurance Corp. with the following: a detailed response to Reinsurance Corp.'s administrative appeal outlining the Fund's procedures; a chance to present Reinsurance Corp.'s legal position in a summary judgment-style brief; an offer to respond to Reinsurance Corp.'s requests for information; appointment of an outside hearing examiner; and a public hearing. These procedures provided Reinsurance Corp. with a fair opportunity to make its case. See Capoun Revocable Trust v. Ansari, 2000 WI App 83, ¶ 17, 234 Wis. 2d 335, 610 N.W.2d 129 ("Due process is flexible and requires only such procedural protections as the particular situation demands.") (citations omitted).

¶ 46. As to Reinsurance Corp.'s specific procedural objections, we conclude that by failing to attend the hearing before the Fund, Reinsurance Corp. waived its right to complain that the examiner was biased, or that the hearing violated the stay. A hearing before the Fund was one of the remedies Reinsurance Corp. requested in its motion for declaratory judgment. Regardless, if Reinsurance Corp. objected to this hearing and believed it to be a violation of the court's stay, Reinsurance Corp. should have asked the circuit court to rule on the hearing's propriety beforehand and/or attended while reserving its objections. What is clear to us is that it cannot now challenge the fairness of a hearing in which it did not participate. See Herlache v. Blackhawk Collision Repair, Inc., 215 Wis. 2d 99, 102, 572 N.W.2d 121 (Ct. App. 1997) ("A litigant who fails to attend a hearing cannot be heard to complain about the [tribunal's] order that results from that hearing."). Moreover, by not taking advantage of the Fund's offers to provide Reinsurance Corp. information, Reinsurance Corp. also waived its discovery complaint.

¶ 47. Reinsurance Corp.'s allegation that the Fund improperly withheld information about its procedures lacks merit. In its December 11, 2001 letter, the Fund explained the procedure it would apply in the appeal. After the administrative process resumed following the circuit court's stay, the Fund provided Reinsurance Corp. with a copy of its rules. Thus, we conclude that the information the Fund provided Reinsurance Corp. regarding its procedures was timely and sufficient to meet the requirements of due process. See State v. Hays, 173 Wis. 2d 439, 446, 496 N.W.2d 645 (Ct. App. 1992).

¶ 48. Finally, we conclude that the alleged conflict of interest involving the law firm of LaFollette, Godfrey and Kahn, S.C. (LGK) does not warrant reversal of the Fund's decision or a remand for further proceedings. We do not take such allegations lightly. See Gieseke v. State Dept. of Transp., Div. of Highways, 145 Wis. 2d 206, 209, 426 N.W.2d 79 (Ct. App. 1988) ("A . . . court must intervene where the professional misconduct of an attorney affects the substantial rights of the parties."). But here, both the Fund and LGK recognized a potential conflict prior to the litigation. Reinsurance Corp. does not dispute that LGK ceased to represent the Fund after LGK perceived this conflict. Reinsurance Corp. also does not explain how it may have been prejudiced by LGK's representation of the Fund. See R.U.R.A.L. v. Public Service Commission, 2000 WI 129, ¶¶ 47-48, 239 Wis. 2d 660, 619 N.W.2d 888 (a party challenging an agency decision must prove not only that the agency erred, but that the error impaired the fairness of the proceedings or the correctness of the action).

¶ 49. Because we conclude that all of Reinsurance Corp.'s specific complaints were either waived or lack merit, we need not address the issue of whether the Fund is a state agency subject to the requirements of Chapter 227. See State v. Robertson, 2003 WI App 84, ¶ 32, 263 Wis. 2d 349, 661 N.W.2d 105 ("Courts act only to determine actual controversies — not to announce principles of law or to render purely advisory opinions.").

By the Court. — Judgment affirmed.

       This appeal concerns two Dane County Circuit Court cases, Nos. 2001-CV-3496 and 2002-CV-2571. These cases were consolidated before the liquidation court in the American Eagle Insurance Company liquidation, Case No. 1998-CV-135. American Eagle Insurance Company, Business Flying Enterprises, Estate of Allen M. Gelin, Lucas Lindner, and the Estate of Val R. Lindner were not parties to this appeal.

       Wisconsin Stat. § 646.31(2) (2001-02) stated, in pertinent part:
      (2) Classes of claims to be paid. No claim may be paid under this chapter unless the claim is in one of the following classes:
      (a) Residents. 1. The claim of a policyholder, including a ceding assessable domestic insurer which is organized under ch. 612 and a domestic insurer that is a bona fide policy holder of the insurer in liquidation, who at the time of the insured event or of the liquidation order is a resident of this state ....
      Unless otherwise noted, the relevant portions of the statutes discussed in this opinion have remained unchanged in substance since July 17, 2001, the date of the Fund's assessment of Reinsurance Corp. A 2003 revision to Wis. Stat. § 646.31(2)(a)l. replaced "which" with "that" following "ceding assessable domestic insurer," and deleted "who at the time of the insured event or of the liquidation order." 2003 Wis. Act 261, Sec. 83. Because these changes are not relevant to the issues in this case, hereafter we omit any reference to a statutory date for Wis. Stat. § 646.31(2)(a).

       All references to the Wisconsin Statutes are to the 2003-04 version unless otherwise noted.

       The Fund refers to the two actions as the "merits case" and the "procedures case," respectively, and we adopt these labels to sort out the complex procedural posture of this appeal.

       Though we refer to the Fund as an "agency" for the sake of convenience, we decline to address the question of whether the Fund is a state agency within the meaning of Wis. Stat. § 227.01(1) (" 'Agency' means a board, commission, committee, department or officer in the state government, except the governor, a district attorney or a military or judicial officer."). As we discuss later, this question is not properly before us today.

       Wisconsin Admin. Code § Ins 13.09(4)(a) provides:

        Aggregate excess of loss reinsurance. Every town mutual shall obtain and continuously maintain unlimited aggregate excess of loss reinsurance for all risks covered by property and nonproperty insurance that is not otherwise ceded under another reinsurance contract. The aggregate excess of loss reinsurance shall provide a maximum attachment point expressed as a percentage of net premiums written, which is based on the relationship of the town mutual's prior year-end surplus to prior year-end gross premiums written....

       Wisconsin Stat. § 646.01(l)(a) (1969-70) provided:
      (1) Scope. This chapter applies to:
      (a) All kinds and lines of direct insurance, except variable annuities and variable value life insurance contracts.
      (b) All insurers authorized to do business in this state except:
      1. Fraternals.
      2. Assessable mutuals, including town mutuals.
      3. Issuers of gift annuities under ch. 615.
      4. Service insurance corporations under ch. 613.
      5. State insurance funds.
      6. Municipal mutuals under s. 611.23.
      7. Insurers and motor clubs under ch. 616.

       The Fund counters that the essential quality of "direct insurance" is that it is "uninterrupted by the presence of another insurer." Iowa Contractor's Workers Compensation Group, 437 N.W.2d 909, 913-14 (Iowa 1989). It concludes that because no other insurer stands between a town mutual and its reinsurer, the relationship is direct. For the purposes of this opinion, we need not precisely define "direct insurance" as it is used in Wis. Stat. § 646.01(l)(a)l. We note only that Reinsurance Corp.'s proposed definition is reasonable and contributes to the reasonableness of Reinsurance Corp.'s contention that Wis. Stat. § 646.31(2)(a) does not authorize the assessment of reinsurers of town mutuals. Moreover, even if we were to adopt Reinsurance Corp.'s definition of "direct insurance" this would not affect our conclusion that the Fund's interpretation of § 646.31(2) (a) is also reasonable, and that the statute is therefore ambiguous.

       We consider the version of Wis. Stat. § 646.51 in effect at the time of the assessment. Portions of § 646.51 have since been renumbered by 2003 Wisconsin Act 261. The provisions of § 646.51(3)(a) (1999-2000) relevant to this discussion remain unchanged and are now contained in §§ 646.51(lc)(c) and 646.51(3)(am) (2003-04).

       Reinsurance Corp. also argues that because the assessment statute does not use the term "ceding" or "reinsuring" the legislature did not authorize the Fund to assess reinsurers. On this point, we disagree. To determine which insurers to assess, the Fund first determines which insureds may file claims on the Fund under the claim statute, Wis. Stat. § 646.31. The Fund then assesses all insurers of the same category as those who were insurers to those insureds eligible to file claims under Wis. Stat. § 646.51(1) (2001-02) (renumbered § 646.51(lm) (2003-04)). Therefore, the fact that the assessment statute does not reference reinsurers of town mutuals is not surprising, because the categories of insurers to be assessed are determined by the claim statute and not the assessment statute.

       An LRB note to a 2003 change to Wis. Stat. § 646.31(2)(a) also confirms this purpose. LRB analysis, 2003 Wisconsin Act 261. As discussed in footnote 2 supra, this change did not affect the substance of the provision. Because this version of the statute was not in effect at the time of the assessment, the legislative history accompanying this change has no bearing on our analysis of § 646.31(2)(a) (2001-02). However, we observe the 2003 LRB analysis confirms our interpretation of the statute by stating that the change "clarifies" the statute's existing purpose to permit town mutuals to file claims on the Fund relating to reinsurance. The analysis provides: "the bill clarifies that, although reinsurance is generally not covered under the fund, reinsurance ceded by an assessable town mutual. . . [is] covered." Id.

       Though we conclude that Reinsurance Corp. waived its right to challenge the impartiality of the hearing examiner, we note also that Reinsurance Corp.'s argument on the merits is weak. Reinsurance Corp. argues that Kent Forney cannot be an impartial examiner in this case because he has served as the executive director of the Iowa Insurance Guaranty Fund, Iowa's counterpart to the Wisconsin Insurance Security Fund. Under Chapter 227, which Reinsurance Corp. contends applies to the Fund, an agency may appoint an official or employee of the agency to conduct the hearing. Wis. Stat. § 227.46(1). If a Fund employee may by statute serve as an examiner, Forney's affiliation with a security fund in another state cannot be a basis for disqualification.

       For example, Reinsurance Corp. failed to respond to the Fund's invitation to identify what additional information it was seeking in a June 3, 2002 letter.


source: Caselaw Access Project

author: DEININGER, EJ.

license: Public Domain

text:
    State of Wisconsin, Plaintiff-Respondent, v. Jeannie M. P., Defendant-Appellant.
    Court of Appeals

      No. 2004AP1445-CR.

      Submitted, on briefs December 16, 2004.

      Decided June 23, 2005.

    2005 WI App 183
    (Also reported in 703 N.W.2d 694.)

      On behalf of the defendant-appellant, the cause was submitted on the briefs of Michael Yovovich, assistant state public defender of Madison.

      On behalf of the plaintiff-respondent, the cause was submitted on the brief of Peggy A. Lautenschlager, attorney general, and Jeffrey J. Kassel, assistant attorney general.
    Before Deininger, EJ., Dykman and Higginbotham, JJ.
   DEININGER, EJ.

¶ 1. Jeannie E appeals a judgment convicting her of third degree sexual assault. She also appeals an order that denied her postconviction motion for a new trial on the grounds of ineffective assistance of counsel. The defendant contends her trial counsel's performance was deficient in the following regards: (1) he failed to adequately prepare defense witnesses before trial and to call other witnesses having information helpful to the defense; (2) he failed to investigate and present evidence relating to the disputatious divorce pending between the defendant and the alleged victim; (3) he failed to adequately cross-examine a key State witness regarding her animosity toward the defendant and possible motivation to lie. The defendant further contends that the cumulative effect of counsel's deficiencies prejudiced her defense by undermining confidence in the outcome of the trial.

¶ 2. We conclude that trial counsel provided ineffective representation by failing to adduce evidence at trial tending to show that both the alleged victim and the State's principal corroborating witness had motives to lie about the charged incident, and that this failure was prejudicial to the defendant. We therefore reverse the appealed judgment and order, and we remand for further proceedings on the sexual assault charge.

BACKGROUND

¶ 3. The State charged the defendant with burglary and third degree sexual assault based on the following evidence. The defendant's estranged husband, John, claimed that while he and his girlfriend were asleep, the defendant broke into their home and entered the couple's bedroom, where she partially disrobed and mounted John, who was sleeping naked on top of the sheets. John testified that he awoke to find the defendant engaging him in intercourse and ordered her to get off of him. John's girlfriend, Susan, testified that she woke up as this was occurring and observed the defendant doing what John described. John escorted the defendant from the home and called the police a short time later to report the defendant's actions.

¶ 4. A jury acquitted the defendant of burglary but found her guilty of third degree sexual assault. She filed a postconviction motion for a new trial on the grounds that her trial counsel had rendered ineffective assistance, citing the deficiencies we discuss below. After an extensive Machner hearing, the trial court denied the defendant's motion for postconviction relief.

¶ 5. The court concluded that, although the defendant's trial counsel was "relatively new," "over his head in some regards" and "overly confident," his strategic choices were reasonable. Having concluded counsel did not perform in a constitutionally deficient manner, the trial court was not required to, and did not, expressly address prejudice. The court said this, however:

So while I think that it is a case where [defense counsel]'s inexperience did show at times his overall performance did not amount to ineffective assistance^] and even if he did[,] I have no way of knowing based upon this really bizarre series of facts that any other strategy would have either been acceptable or would have resulted in any different jury verdict....

The defendant appeals her conviction and the denial of postconviction relief. We present further details of the trial and postconviction proceedings in the analysis that follows.

ANALYSIS

¶ 6. In order to demonstrate ineffective assistance of counsel, the defendant must prove that her trial counsel's performance was deficient, and that the deficient performance prejudiced her defense. Strickland v. Washington, 466 U.S. 668, 687 (1984). The issues of deficient performance and prejudice constitute mixed questions of law and fact. See State v. Sanchez, 201 Wis. 2d 219, 236, 548 N.W.2d 69 (1996). We will not upset findings of fact unless they are clearly erroneous, but whether counsel's performance was deficient or prejudicial are legal questions we decide de novo. See id. at 236-37.

A. Deficient Performance

¶ 7. A lawyer's performance is not deficient unless he or she "made errors so serious that counsel was not functioning as the 'counsel' guaranteed the defendant by the Sixth Amendment." Strickland, 466 U.S. at 687. The constitutional standard is breached if defense counsel's conduct falls below "an objective standard of reasonableness." Id. at 688. Although our review of counsel's performance will be highly deferential to counsel's decisions and actions, we will declare performance deficient if counsel's acts or omissions fall "outside the wide range of professionally competent assistance." Id. at 689-90.

¶ 8. We agree with the trial court's conclusions that several of the defendant's asserted deficiencies in her trial counsel's performance were not acts or omissions that could be said to fall below the constitutional standard for effective representation. For example, the defendant complains that defense counsel did not prepare her adequately to testify at trial and permitted her to begin her testimony with a lengthy "narrative" description of her version of what occurred on the night in question. Counsel explained at the Machner hearing that he began his examination of the defendant with an open-ended question in order to allow her to tell her story without it appearing to jurors that she was being led or coached by her attorney. He then followed up with specific questions to fill in certain details. The trial court concluded that counsel neither intended to distance himself from the defendant's testimony nor was that the effect produced. As for the issue regarding preparation, counsel testified that he met with the defendant sixteen times prior to trial and spent some nine hours ascertaining her version of events. The trial court concluded that it could not find counsel deficient in his pre-trial preparation of the defendant to testify, nor can we.

¶ 9. We also agree with the trial court's assessment of trial counsel's failure to pursue and present information regarding a number of complaints made to a social services agency regarding the defendant's parenting of her children and a "tip" made to law enforcement that resulted in the defendant's home being searched for evidence of drug trafficking. The defendant believed her husband or his girlfriend Susan were behind these allegedly false reports. Nothing in the record, however, confirms the defendant's suspicions. Even if defense counsel could have succeeded in establishing that one or both of the principal State witnesses were in fact the sources for the reports in question, pursuing the matter at trial might well have backfired on the defense. The door would then arguably have been open for the State to show that the allegations of child abuse or neglect, or of possession of controlled substances, by the defendant were not entirely baseless. We concur with the trial court's assessment that evidence of the allegedly false reports were probably inadmissible at trial, and, even if admitted, the evidence would not have constituted a "free shot" against the State's witnesses:

There is a whole can of worms which could have been exposed as a result of trying to get into these other things; and while it may appear in [the defendantl's mind that this is a pattern of conduct which would give [John] an incentive to fabricate, there is certainly a solid strategic reason not to go into it for all of the other things that could be brought up.

¶ 10. Finally, we also agree with the trial court that an overall defense strategy of trying to "keep it simple" by persuading the jury that John's and Susan's version of events bordered on the preposterous and should not be believed was an objectively reasonable strategy. The strategy, as implemented, involved the defendant testifying that she went to John's residence on the night in question, that she agreed to have sexual intercourse with him in return for his agreement to stop "all of the fighting and arguing regarding the children," and that Susan caught them engaged in the consensual act. Because jurors would thus hear competing versions of what had transpired, we conclude that it became incumbent on counsel to present evidence to the jury tending to show that the State's two key witnesses should not be believed.

¶ 11. Put another way, if, as the trial court concluded, defense counsel recognized this case to be a "he-said-she-said" case, counsel should also have recognized the potential impact of the additional "she said" supporting John's account. To implement the chosen defense strategy, counsel should have pursued and presented evidence of reasons that both John and Susan might be lying, if such evidence existed. We conclude from the record of the postconviction proceedings that such impeachment evidence did exist and that counsel was or should have been aware of its existence. Counsel failed, however, to investigate and present the impeaching evidence, either through his cross-examination of the State's witnesses or in the presentation of the defense case. We conclude that, although counsel's overall strategy was reasonable, his implementation of it was not, and that counsel's omissions thus constituted deficient performance.

¶ 12. There is no dispute that John, the alleged victim of the sexual assault, and his girlfriend Susan, the third eyewitness to the events in question, were the State's key witnesses. The defendant took the stand in her own defense and contradicted John's and Susan's accounts of what transpired when the defendant went to their residence that evening. The outcome of the trial plainly hinged on whose testimony the jury would find more credible, as the State itself succinctly argued in its closing. Any information that would serve to undermine the credibility of the alleged victim and his girlfriend was thus essential to an effective defense. The defendant established at the postconviction hearing the existence of facts that, had they been presented at trial, might have prompted jurors to question John's and Susan's credibility. We conclude that trial counsel's failure to adequately investigate and present those facts constituted deficient performance. See State v. Thiel, 2003 WI 111, ¶¶ 46, 50, 264 Wis. 2d 571, 665 N.W.2d 305 (concluding that "it was objectively unreasonable for [defendant]'s counsel not to pursue further evidence to impeach" the alleged victim).

¶ 13. Trial counsel knew that John and the defendant were undergoing a bitter divorce at the time of the alleged sexual assault. Counsel was also aware that John was seeking custody or placement of their two children. The defendant testified at the postconviction hearing that she told her counsel about the problems she was having with John in the divorce relating to placement and child support. Counsel acknowledged at the Machner hearing that he spoke with the defendant's divorce attorney but testified that he did not request any documents or other information relating to the divorce.

¶ 14. Although counsel mentioned the divorce proceedings and the child custody dispute briefly in both his opening statement and closing argument, counsel made no effort to admit evidence of the acrimony between John and the defendant over disputed divorce issues during either the defense case or his cross-examination of John. Counsel testified at the Machner hearing that he avoided getting into details of the parties' contentious divorce because he feared it would detract from the defendant's claim that she and John had engaged in consensual intercourse. He said that he feared such evidence would raise a question in jurors minds, "Why would parties who hate each other have sex?" We note, however, that the defendant's testimony was not that she had sex with John out of any feelings of love or admiration for him, but in return for his concessions or agreement to lessen the hostilities in the divorce proceedings. Essential to her account, therefore, was some showing that such hostilities arising from the divorce in fact existed.

¶ 15. We conclude, as tried counsel had also apparently concluded at the time of trial, that evidence of John's possible motive for fabricating a sexual assault would have supported, not detracted from, the defendant's version of what occurred. John potentially had much to gain from the defendant's conviction for sexual assault, as it would enhance his ability to obtain custody or primary placement of his children, and thereby possibly also relieve him of the obligation to pay the defendant child support. Evidence that John was seeking to have things "his way" in the divorce may also have permitted the defense to argue that John was a controlling person who would stoop to using the divorce issues as leverage to persuade the defendant to submit to his sexual requests. The State was able to argue that John would not make up a sexual assault accusation knowing that he would be subjected to the embarrassment of undergoing a medical examination and of giving public testimony regarding the assault. John's possible motive to provide false testimony against the defendant, however, remained, at best, understated, and, at worst, excluded from the jury's attention.

¶ 16. Perhaps an even more glaring omission was trial counsel's failure to make any effort whatsoever to impeach Susan's testimony corroborating John's account. It is unusual for the State to have the benefit of a third-party eyewitness to an alleged sexual assault. For all jurors knew, Susan and the defendant were relative strangers, and Susan would thus have had no reason to lie about what happened between John and the defendant, save perhaps feelings of jealousy or revenge for the defendant's engaging in sexual relations with her boyfriend. The State discounted the "jealous girlfriend" motive, arguing in closing that, had Susan come upon John having consensual intercourse with the defendant, as the defendant claimed, Susan would not have joined with John in fabricating a sexual assault but would have terminated her relationship with him.

¶ 17. We cannot know, of course, whether jurors accepted the State's proffered rationale for why Susan should be believed, but we do know that they were provided no information whatsoever regarding the confrontations and "bad blood" between Susan and the defendant. As with John's demands and actions in the pending divorce, counsel knew or should have known of the intense animosity between Susan and the defendant and of a threat by Susan to make the defendant's life a "living hell." We conclude that counsel's failure to pursue and present this impeaching evidence was also objectively unreasonable and thus constituted deficient performance.

¶ 18. The defendant testified at the postconviction hearing that she told her counsel about her antagonistic relationship with Susan and the animosity Susan had expressed toward her. She explained that, during a time she was briefly dating Susan's ex-husband, she babysat for Susan's children. Susan's alleged lack of reliability in picking up the children at agreed-upon times led to a conflict between the two women. The defendant told Susan she was no longer welcome at the defendant's home. A witness at the postconviction hearing, who was Susan's boyfriend at the relevant time, testified that Susan told him, soon after this falling out, that she was going to make the defendant's life "a living hell" and she intended to help John get placement of his children. The defendant also introduced a police report at the postconviction hearing showing that the defendant had called the police to complain about Susan's coming to her residence, which resulted in the police contacting Susan about the complaint.

¶ 19. Counsel did not question Susan during cross-examination regarding her adverse relationship with the defendant, her statements that she intended to take revenge against the defendant, her having been contacted by police regarding the defendant's complaint, or any of the past confrontations between the two. The defense cross-examination of Susan consumes less than one page of transcript and consisted entirely of questions that permitted Susan to repeat that she was sleeping next to John and heard or saw nothing until she awoke to find the defendant astride John. Counsel also had Susan fix her and John's bed time as between "11 and 11:30" and the time of the incident as "between 1 and 1:30." That was the sum total of Susan's cross-examination. Trial counsel testified at the post-conviction hearing that, if he had known about the testimony Susan's former boyfriend gave at the hearing regarding Susan's threats to harm the defendant, he would have "pursued" the information. As we discuss below, however, counsel also acknowledged that he was aware of his client's acrimonious relationship with Susan but failed to pursue it further.

¶ 20. The State contends that, although defense counsel's choice of strategy seems questionable in hindsight, we cannot conclude on that basis alone that trial counsel was ineffective. The State argues that trial counsel's decision to present a consent defense based on the defendant's testimony and the implausibility of the alleged victim's account was reasonable, as was counsel's decision to forgo testimony or cross-examination regarding the contentious divorce action pending between the defendant and her accuser, given the possibility that pursuing these matters might have undermined the consent defense.

¶ 21. We accept the State's contention that the "[rjeview of counsel's performance gives great deference to the attorney and every effort is made to avoid determinations of ineffectiveness based on hindsight .... [T]he burden is placed on the defendant to overcome a strong presumption that counsel acted reasonably within professional norms." State v. Johnson, 153 Wis. 2d 121, 127, 449 N.W.2d 845 (1990). We also have no quarrel with the State's assertion that it was not unreasonable for counsel to present a "consent defense" by offering his client's competing version of events. We conclude, however, that the defendant met her burden to show that counsel unreasonably failed to implement the defense strategy by not pursuing and presenting available evidence to impeach John's and Susan's credibility.

¶ 22. As we have explained, presenting evidence regarding the divorce issues would have complemented the consent defense by supporting the defendant's testimony regarding why she went to John's residence and why she agreed to sexual relations with him, and by providing an answer to the question of why John would make up an assault allegation. As we have also noted (see footnote 4), counsel’s opening statement and closing argument support these rationales for presenting evidence regarding the disputed divorce issues. Moreover, a purported strategy of not wanting jurors to believe there was animosity between John and the defendant over divorce issues in no way explains why counsel would not want to establish that animosity existed between Susan and the defendant.

¶ 23. The State, relying on our decision in State v. Nielsen, 2001 WI App 192, ¶ 23, 247 Wis. 2d 466, 634 N.W.2d 325, also contends that we cannot deem counsel deficient for failing to discover information that the defendant failed to share with him. We do not doubt that the defendant presented the information regarding the disputed divorce issues and the defendant's past rancorous dealings with Susan with more detail and precision at the postconviction hearing than she communicated to counsel prior to trial. This does not mean, however, that counsel was unaware of the potential existence of the information such that he may be absolved for failing to pursue and obtain it.

¶ 24. The defendant testified at the postconviction hearing that she discussed these matters with her attorney and told him she wanted to testify regarding them, but that counsel told her the divorce disputes with John and her acrimonious relationship with Susan were "not important" to the defense of the criminal charges. Counsel testified, generally, that he did not recall the specifics of what the defendant had told him about these matters. Counsel did admit, however, that the defendant told him that her divorce from John was "not an amicable splitting" and that John was attempting to get custody of the children. Counsel also acknowledged that, although his client gave him the name and phone number of her divorce attorney, whom he called, he did not attempt to obtain any records from the divorce case. Similarly, although counsel denied recalling whether the defendant told him about Susan's specific threats against her, as made to Susan's then-boyfriend, he admitted that he was aware that the two women "didn't like each other" and that the defendant had told him "about certain instances" involving Susan. He gave no explanation or rationale for not pursuing this information or for not cross-examining Susan regarding her attitude about the defendant or their past confrontations.

¶ 25. In sum, we conclude that the defendant has made a sufficient showing that her trial counsel was made aware of the existence of evidence that could be used to impeach the credibility of the State's two key witnesses. We also conclude that counsel's failure to investigate facts that were readily available to him, and his failure to employ those facts at trial to undermine the credibility of the State's two key witnesses by showing their motives to fabricate the assault allegation, constituted representation that fell below an objective standard of reasonableness. As in Thiel, 264 Wis. 2d 571, ¶ 46, "[t]he credibility of the complaining witness was paramount to this case," as was the credibility of his girlfriend. And, like the supreme court in Thiel, we conclude that, "[u]nder the specific facts of this case,... it was objectively unreasonable for... counsel not to pursue further evidence to impeach" the alleged victim and his girlfriend. See id., ¶ 50.

B. Prejudice

¶ 26. Although the defendant has persuaded us that her trial counsel's performance was deficient, this alone does not entitle her to relief. Strickland, 466 U.S. at 687. She must also demonstrate that her counsel's errors "were so serious as to deprive [her] of a fair trial, a triad whose result is reliable." Id. The defendant "must show that there is a reasonable probability that, but for counsel's unprofessional errors, the result of the proceeding would have been different." Id. at 694. A reasonable probability is "a probability sufficient to undermine confidence in the outcome." Id. In assessing prejudice, we cannot consider the deficiency in isolation, rather, we must take into account the totality of the evidence before the trier of fact. Id. at 695.

¶ 27. Based on our review of the present record, we conclude that trial counsel's failure to investigate and present at trial facts that would cast doubt on the credibility of the State's principal witnesses undermines our confidence in the verdict. That is, although jurors may have reached a guilty verdict on the sexual assault charge even after hearing about John's desire to gain custody or placement of the children in the divorce proceeding, and about Susan's past confrontations with the defendant and her stated desire to make the defendant's life "a living hell," there is at least a reasonable probability the jury would have acquitted the defendant on both charges she faced instead of just on the burglary charge. Certainty on our part of a different outcome is not required. See State v. Smith, 207 Wis. 2d 258, 275, 558 N.W.2d 379 (1997) ("The defendant need only demonstrate to the court that the outcome is suspect, but need not establish that the final result of the proceeding would have been different.").

¶ 28. Only three persons know for sure what happened between the defendant and John on the night in question, and the third supported John's version of events. John's account of being asleep next to Susan and first becoming aware of the defendant's presence when he awoke to find her astride him, engaging him in intercourse, while admittedly not an impossible scenario, was, at a minimum, a highly unusual happening, and one with which jurors might well be skeptical. We conclude that counsel's sole reliance on such skepticism to undermine John's and Susan's credibility, when other evidence could have been marshaled for impeachment purposes, was not only objectively unreasonable but also prejudicial to the defendant. Had jurors heard the additional evidence regarding the relationships and past dealings among the three principals, they might have concluded that John and Susan's version of events was not beyond reasonable doubt.

¶ 29. The State asserts that, even if trial counsel had presented evidence casting greater doubt on John's and Susan's veracity, there was sufficient other evidence before the jury to gamer a conviction. The State first points to the rebuttal testimony it presented from Susan's seven-year-old daughter. The girl testified that she saw the defendant enter John and Susan's bedroom after hearing the defendant enter the home. A police officer who interviewed Susan's daughter testified that the young girl told her that the defendant had identified herself and told her to go back to sleep. The child also told police that she identified the defendant by the distinctive perfume she wore. The State emphasized the girl's testimony in its closing argument, contending that the defense's theory of a conspiracy between John and Susan to frame the defendant for an assault would have needed to include the seven-year-old daughter as a participant, which the State argued was simply not plausible.

¶ 30. Although the girl's testimony casts doubt on some aspects of the defendant's account (e.g., that she met John outside on the deck and the two of them went to the bedroom together), it does not rule out the defendant's claim of consensual sex. The girl's testimony placed the defendant in John's home at some point on the night in question, and arguably in his bedroom as well. However, the defendant acknowledged on the stand that she had gone to John's residence and engaged in sexual intercourse with him in his bedroom. The girl's testimony and her statements to police, even if believed in their entirety by the jury, does not establish that the defendant committed a sexual assault on the night in question.

¶ 31. The State next argues that the testimony of Susan's ex-husband severely damaged the defendant's credibility as a witness. Susan's ex-husband testified that the defendant asked him to lie on the stand by testifying that Susan confided to him that John and she had conceived the plan to lure the defendant into having sex with John and have Susan walk in on the couple. According to Susan's ex-husband (who had briefly dated the defendant after separating from Susan), the defendant promised, in exchange for this testimony, to return various of his possessions that still remained at her home. This witness also said that he initially agreed to testify in that fashion because he felt pity for the defendant's situation, but changed his mind after discussing the matter with his mother and a police officer. The State cited this testimony in its closing, arguing to jurors that any conspiracy to frame the defendant would have had to include the ex-husband as well, which rendered a possible conspiracy between John and Susan improbable because such a conspiracy would be far-flung and unwieldy.

¶ 32. We, of course, do not know how significant a role the ex-husband's testimony played in the jury's decision making. He testified to having nine criminal convictions, and he admitted to having lied to the defendant and to her counsel regarding his intended testimony. If jurors believed the essence of his testimony at trial, however, it certainly undermined the defendant's credibility, and, as the State posited, may have tended to show her "consciousness of guilt." Again, however, nothing in the ex-husband's testimony is inconsistent with the defendant's account of a consensual sexual encounter with the alleged victim. It could both be true that (1) the incident occurred in the manner the defendant testified, and (2) she, wrongly, sought to procure a witness to bolster her chances of having her account accepted by the jury.

¶ 33. Finally the State argues that evidence of two phone messages that the defendant acknowledged leaving for John on the night of the incident, and her statement to a police officer that she "should have stabbed" John after learning she would be charged for sexually assaulting him, also casts doubt on the defendant's version of events, thereby bolstering John's account. To be sure, the evidence the State cites was not favorable to the defendant, but it is, again, not inconsistent with her innocence. Her warning John in a phone message of "the games she could play," and her statement that she should have stabbed him, are not incompatible with her claim that she submitted to John's offer of concessions in the divorce in return for sex, but soon thereafter came to suspect that John and Susan had duped her and concocted a sexual assault accusation.

¶ 34. In summary, all of the evidence the State cites was, at best, circumstantial and tended to undermine the defendant's credibility. If anything, the cited evidence underscores the detriment to the defendant of her counsel's failure to present jurors with evidence establishing John's and Susan's possible motives for fabricating an assault. The State acknowledged in its closing argument (see footnote 3) that the entire case came down to a credibility contest between the defendant on one side and John and Susan on the other. In order to acquit the defendant of the sexual assault, however, jurors did not have to accept all of the defendant's testimony, they only needed to arrive at a reasonable doubt regarding John's and Susan's testimony. Crucial evidence tending to undermine the credibility of the two key State witnesses was never presented to the jury.

¶ 35. We are thus satisfied that trial counsel's failure to investigate and present evidence of the defendant's divorce-related disputes with John, and of the adversarial relationship and past dealings between the defendant and Susan, constituted deficiencies in representation that prejudiced the defendant. As with our conclusion regarding counsel's performance in this case, the supreme court's discussion in Thiel supports our conclusion regarding the prejudicial effect of these failures:

[T]he proper inquiry for assessing prejudice is not the totality of counsel's performance, but rather the effect of counsel's acts or omissions on the reliability of the trial's outcome. The key question... is whether the evidence that was omitted or not made fully available to the jury due to the deficiencies in counsel's performance undermined confidence in the outcome of the case, given the totality of the evidence that was adduced at his trial. We conclude that it has.

Thiel, 264 Wis. 2d 571, ¶ 80 (citation omitted). Accordingly, we conclude that the defendant is entitled to a new trial on the charge of third degree sexual assault.

CONCLUSION

¶ 36. For the reasons discussed above we reverse the appealed order and judgment of conviction. We remand to the circuit court for further proceedings on the charge of third degree sexual assault.

By the Court. — Judgment and order reversed and cause remanded.

        State v. Machner, 92 Wis. 2d 797, 285 N.W.2d 905 (Ct. App. 1979).

       The trial court concluded that the defendant's testimony "wasn't a narrative. [The defendant] was asked a question and she answered it."

       The prosecutor told jurors:
      This is a case of somebody lying; and your job then, when going back there to render a verdict, is to figure this out, which side is more credible, which side. Is it John .. . who is telling the truth? Is it Susan ... who is telling the truth? Is it [the defendant] who is telling the truth? That's what you have to sort out, and for that then you look at other things and other circumstances, look at other evidence that was brought in.

       In his opening statement at trial, defense counsel told jurors: "These two individuals are in the process of getting a divorce and there are conflicting ideas about where the children should stay. [John] wants the children. He wants custody. He wants placement and he wants perhaps even to glean child support from her ultimately." The attorney made these statements in the context of explaining the defendant's asserted reasons for her visit to John's residence — that he invited her over to discuss the divorce issues. Later in his opening, counsel ascribed several possible motives for John to fabricate his story: "to save himself from being caught cheating, to further his relationship with his girlfriend, perhaps opportunistically seeing a way to wrestle control of the children away...." Likewise, in his closing argument, counsel again told jurors that one reason John might "say all of this happened" was "the fact that they are part of a contested divorce and it is a nasty divorce like they said and the nasty part of it is the custody of the children."
      These remarks by counsel at trial show that: (1) counsel was aware of the contested divorce issues at the time of trial; (2) he did not then believe that informing jurors of the contested issues in the divorce was incompatible with his client's defense; and (3) he believed that the pending divorce provided a context that supported his client's version of the events on the evening in question. As we have noted, however, counsel solicited no testimony from either John or the defendant, nor did he present any other evidence, to confirm counsel's description of the contested issues in the divorce and John's possible motive to he. Jurors were instructed that the "[rjemarks of the attorneys are not evidence. If the remarks suggested certain facts not in evidence, disregard the suggestion." See, e.g., Wis JI — CRBunal 157.

       Counsel's cross-examination of John consisted of less than three transcript pages and focused on the time he went to bed, his and Susan's positioning on the queen-size bed and the location of the doors to his residence. Counsel also elicited John's denial to having telephoned the defendant on the night in question and then terminated his cross-examination.

       The State contends that jurors acquitted the defendant of burglary because they likely concluded it had not proven she intended to commit the assault at the time she entered John's dwelling, not because they had doubts about the veracity of John's and Susan's testimony. That may well be so, but the question before us is whether, if jurors had been given additional reasons to disbelieve John’s and Susan's testimony, there is a reasonable probability that they would have acquitted the defendant on the sexual assault charge as well. We conclude that such a reasonable probability exists.