Wisconsin Business and Commercial Litigation

Is a surety liable for post-completion guarantees on its principal’s work?  If the bond contains language like the language in Milwaukee Board of School Directors v. Bitec (Sept. 9, 2009), the answer is yes.  In a much-needed piece of good news for anyone remotely connected with Milwaukee’s school system, the District 1 Court of Appeals concluded that Atlantic Mutual’s surety bond covered warranty obligations arising from its principal’s (Specialty Associates) construction contract with the MBSD.

A roof system installed by Specialty Associates failed within the five-year warranty established in its construction contract with the MBSD.  Among other things, Atlantic Mutual argued that the surety bond’s one-year limitation trumped the warranty, precluding liability.  The court disagreed:

“The rule in Wisconsin is that a surety’s obligation is derived from its principal and the liability of the surety is measured by the liability of the principal.” Waukesha Concrete Prods. Co. v. Capitol Indem. Corp., 127 Wis. 2d 332, 339, 379 N.W.2d 333 (Ct. App. 1985); see also Riley Constr. Co. v. Schillmoeller & Krofl Co., 70 Wis. 2d 900, 905, 236 N.W.2d 195 (1975) (“Because the surety’s obligation is derived from that of the principal debtor, the liability of the surety is ordinarily measured by the liability of the principal. If the principal is not liable to the claimant, then the surety is not liable either.”). “The bond issued by the surety and the contract which it secures should be construed together.” Waukesha Concrete, 127 Wis. 2d at 339.

The court also pointed to the plain terms of the bond language, which voided the bond only after Specialty Associates “faithfully performed all of the terms of the contract and has indemnified MBSD for all costs suffered due to any failure on the part of [Specialty Associates] to fully perform the contract.”  Because the five-year warranty was part of the contract, it was covered by the bond.

For those of you who work with surety bonds or construction, this case is a must read.

If you’ve read my blog over the past several weeks, you’ve seen a few mentions of the recent impact of computer useage and the internet on the law.  I’ve also discussed social networking problems that can arise for both employers and employees.  Similar problems can, and do, arise in the courtroom, along with impacting ethical rules and the nature of advocacy.

Mike Downey, a partner in my firm’s St. Louis office, appeared yesterday on NPR’s Talk of the Nation, to discuss how social networking technologies tend to transform the courtroom and legal experience and how lawyers and judges need to be aware of the special problems they pose.  You can find the audiocast and transcript here. 

Perhaps the most interesting piece is a caller at the end who served as a juror in a medical malpractice trial, and had one of the expert witnesses identified as a good match by the dating site she used.

Because of the prevalence of the cell phones and computers, and each new generation’s complete familiarity and comfort with the devices and instant sharing, communication, and research, preventing occurrences like those discussed in the NPR program will be like trying to hold back a rising tide (see or hear the comments from caller Nathan). 

If you work in courtrooms, or if you get to see them more than you’d like, it’s good to be aware of the complete change in socialization that is under way right now (and has been for some time), and how it may and will impact the next trial.

In Cape & Sons v. Streu Construction (Sept. 9, 2009), the District II Court of Appeals addressed a creative twist on employer liability for employee actions.  Cape sued Beaudoin, one of Cape’s employees, and two other companies that colluded with Beaudoin in a bid-rigging scheme that allocated bids to each of the three companies in turn.  The defendants argued that the doctrine of respondeat superior (which imputes an employee’s actions within the scope of its employment to its employer) applied to constructively make Cape & Sons part of the bid-rigging process, thereby preventing liability (although the scheme was one of the reasons that Cape & Sons eventually sought bankruptcy protection).

To reverse the trial court’s conclusion that the doctrine applied and prevented Cape & Sons from recovering, the appellate court dusted off an 1866 case (Zulkee v. Wing, 20 Wis. 429) in which the Supreme Court concluded that respondeat superior applies “only as between the master or principal and third persons,” and was not applicable in a suit between an employer and employee. 

Cape & Sons victory was not the only September 9 setback for the corporate defendants, who also lost the coverage fight with their insurance companies, leaving payments of about $1.15 million on the table.  This second decision is an important lesson for plaintiffs that the language of the complaint is crucial to triggering coverage for defense and/or indemnity purposes.

As most of you know, if you’ve read my previous postings (see June 12, 2009), the City of Milwaukee passed, through so-called direct legislation, an ordinance requiring employers to provide paid sick leave for all workers.  The legislation was later found unconstitutional because, among other things, the phrasing of the issue on the ballot was overly vague. 

Proponents of the legislation appealed the ruling.  Last week, the City of Milwaukee announced that it was not joining in the appeal.  Naturally, the private groups supporting the legislation and the appeal (in all other instances known as special interest groups) argue that by not joining the appeal, the City is turning its back on all those who voted in favor of the legislation.

This argument ignores the finding of the court that the phrasing of the issue on the ballot left the voters without a real understanding of what they were voting on.   However illogical, the argument is typical of that used to support this and similar issues that require business owners (including stockholders) to subsidize services provided to the community at large.

This article in the Wisconsin Law Journal discusses the issues in greater detail.

In Maypark v. Securitas Security Services USA, Inc. (Sep. 1, 2009), the District III court of appeals was presented with a unique (to be charitable) fact pattern.  Security Manager Schmidt, employed by Securitas, which was the security services subcontrator for Polaris, was responsible for creating photo ID badges for Polaris employees.  One lonely night, Schmidt copied the photographs of about thirty female Polaris employees, took them home, printed them out, ejaculated on them, and posted pictures of the sullied photos on a number of websites. 

Upon learning of the website contents, Polaris notified Securitas, which immediately terminated Schmidt’s employment.  Schmidt removed the offending photos from the websites.  Nevertheless, at a trial brought by ten of the women in the pictures, Securitas was found liable for negligent training and supervision.

District III confessed some confusion arising from recent Supreme Court precedent:

However, given recent guidance from our supreme court, it is unclear how we are to set forth our analysis.  Depending on the cases we review, we should either (1) evaluate whether Securitas had a duty under the circumstances of this case, see Hocking v. City of Dodgeville, 2009 WI 70, PP10-13 . . . , or (2) consider whether Securitas’s actions constituted a breach of the duty of ordinary care, see Behrendt v. Gulf Underwriters Insurance Co, 2009 WI 71, PP15-31 . . . .

Ultimately, the court determined that its confusion didn’t really prevent a reasoned conclusion.

We conclude it does not matter which approach we employ because, in the end, they are one and the same.  A conclusion of no negligence under the first approach requires that we determine the defendant was not required to act, while under the second it requires that we determine there was no breach for failing to act because the defendant was not required to act.  . . .  Without explicitly employing either approach in this case, we simply conclude Securitas was not negligent, as a matter of law.

The court ended up relying on another negligent supervision case to determine that Schmidt’s acts were, in something of a judicial understatement, not reasonably foreseeable.  Maypark should bring some comfort to employers who fret about the seemingly endless limits of their liability for the acts of employees.

Judge Terence Evans, in July, announced a move to senior status, which opens up a vacancy on the Seventh Circuit.  The Wisconsin senators activated the nominating commission in early August. 

Application materials were made available beginning Tuesday, September 1, 2009, and must be returned no later than 4:00 p.m. on Monday, September 28, 2009:  here are the Commission’s application (see link halfway down the page) and instructions.