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NOTICE This opinion is subject to further editing and
modification. The final version will
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No.
94-2042
STATE OF WISCONSIN : IN SUPREME COURT
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General Accident Insurance Company of America and Quarles
& Brady, a partnership, Plaintiffs-Appellants-Cross
Respondents-Petitioners, v. Schoendorf & Sorgi and Northwestern National Casualty
Company, Defendants-Respondents-Cross
Appellants-Cross Petitioners. |
FILED JUN 21, 1996 Marilyn L. Graves Clerk
of Supreme Court Madison,
WI |
Thomas J. Rhoda and Fremont Indemnity Company,
Defendants-Third
Party Plaintiffs-Respondents-Cross Appellants-Cross Petitioners,
v.
Thomas J. Schoendorf, Michael L. Sorgi, Joseph F. Schoendorf,
Jr. and John A. Lynch,
Third
Party Defendants-Cross Appellants-Cross Petitioners.
REVIEW of a decision of the Court of
Appeals. Affirmed and remanded.
ROLAND
B. DAY, C.J. Petitioners General Accident Insurance Company of
America and Quarles & Brady (collectively, "Quarles & Brady")
seek review of a court of appeals decision[1]
affirming the non-final orders of the circuit court of Milwaukee County, Arlene
D. Connors, Judge. The circuit court
had dismissed Quarles & Brady's contribution claim and granted in part a motion
in limine excluding certain evidence relating to tax assessments at issue in
Quarles & Brady's claim for equitable subrogation. Cross-Petitioners, the Schoendorf &
Sorgi firm and others (collectively, "Schoendorf") seek review of the
circuit court's denial of their motion for summary judgment dismissing Quarles
& Brady's equitable subrogation claim because the claim was allegedly
barred by the applicable statute of limitations, which was also affirmed by the
court of appeals. We conclude that the
court of appeals correctly affirmed the circuit court on all issues, although
we affirm the circuit court's ruling on the statute of limitations issue on a
different rationale.
In
1975, Westridge Orthopedics, Ltd., retained Schoendorf & Sorgi's predecessor
law firm and Thomas J. Rhoda, an accountant, to establish a pension and profit‑sharing
plan ("the plan") that would qualify under the Internal Revenue
Code. In late 1980, Westridge hired
Quarles & Brady to review the plan.[2] Quarles & Brady determined that the plan
did not comply with the applicable law.
Although Westridge asked Quarles & Brady to bring the plan into
compliance, Quarles & Brady did not do so.[3]
The
Internal Revenue Service ("IRS") audited Westridge's plan in 1984,
and, on March 29, 1985, formally notified Westridge that the plan had been
disqualified for the period beginning January 1, 1975, and ending December 31,
1983. Quarles & Brady pursued an
administrative appeal of the disqualification; this appeal was
unsuccessful. The IRS subsequently
imposed tax assessments against Westridge's plan for the tax years 1979 to
1983.[4] The IRS specified the assessment for each
tax year in its notice.
Quarles
& Brady and its malpractice carrier, General Accident Insurance Company of
America, in 1989 and 1990 settled any malpractice claims Westridge could have
asserted against Quarles & Brady, the Schoendorf firm, and Rhoda. On January 28, 1991, Quarles & Brady
brought an action seeking contribution from Rhoda, the Schoendorf firm, and
their insurers.[5] Quarles & Brady alleged that the
Schoendorf firm and Rhoda were negligent in drafting the plan and in not
submitting it to the Internal Revenue Service for approval. Rhoda and the Schoendorf firm sought summary
judgment dismissing Quarles & Brady's contribution claim, arguing that
Quarles & Brady was a successive tortfeasor and thus had no right to
contribution. Rhoda and the Schoendorf
firm also argued that any claim that Quarles & Brady might have had for
equitable subrogation against them was barred by the statute of limitations.
The
circuit court granted summary judgment to Rhoda and the Schoendorf firm on the
contribution matter, but denied the motion on the statute of limitations
issue. Rhoda and the Schoendorf firm
then sought an order in limine to exclude from the trial any evidence relating
to tax assessments against Westridge for the years 1980 through 1983. The circuit court granted the motion in part,
ruling that Quarles & Brady was solely responsible for the assessments for
the years 1981 through 1983, but that the evidence was unclear as to who was
responsible for the assessments for 1980.
The court of appeals granted the parties leave to appeal the circuit
court's orders, and affirmed the circuit court on all issues.
We
first review the circuit court's grant of summary judgment dismissing Quarles
& Brady's contribution claim. Our
review is de novo. Green Spring
Farms v. Kersten, 136 Wis. 2d 304, 315, 401 N.W.2d 816 (1987). The circuit court concluded that the parties
were successive tortfeasors because their conduct was separated by five years
and because their conduct had produced discrete, apportionable harm. The harm was apportionable because of the
specified yearly tax assessments imposed against the plan. We conclude, as did the court of appeals,
that the circuit court correctly dismissed Quarles & Brady's contribution
claim, because an action for contribution cannot lie when the parties are
successive tortfeasors.
The
three prerequisites to a contribution claim are "1. Both parties must be
joint negligent wrongdoers; 2. they
must have common liability because of such negligence to the same person; 3. one such party must have borne an unequal
proportion of the common burden." Farmers
Mut. Auto. Ins. Co. v. Milwaukee Auto. Ins. Co., 8 Wis. 2d 512, 515,
99 N.W.2d 746 (1959); see also Giese v. Montgomery Ward, 111
Wis. 2d 392, 404, 331 N.W.2d 585 (1983).
"[T]o recover on the basis of contribution, nonintentional
negligent tort‑feasors must have a common liability to a third person at
the time of the accident created by their concurring negligence." Farmers Mut., 8 Wis. at 519. Thus, as the court of appeals in this case
reasoned, "successive tortfeasors—those whose negligent acts produce
discrete, albeit overlapping or otherwise related, injuries—may not assert
claims of contribution against one another." Schoendorf, 195 Wis. 2d at 792 (citing, inter alia, Fisher
v. Milwaukee Elec. Ry. & Light Co., 173 Wis. 57, 60, 180 N.W. 269
(1920)).
Quarles
& Brady argues that the harm in this case is indivisible, and that the
Schoendorf firm's negligent drafting could be a cause of all the assessments
leveled against the plan. This
argument, however, ignores the circuit court's finding, which we conclude is
supported by the record, that Quarles & Brady was solely responsible for
the assessments made against the plan for and after 1981. There would have been no such assessments,
therefore, if Quarles & Brady had followed through on its client's request
to correct the plan. Furthermore, the
Schoendorf firm was no longer retained after Westridge retained Quarles &
Brady; the Schoendorf firm thus did not have the ability to correct the plan. The
situation presented in this case is in this respect dissimilar to more common
tort situations, such as a physical injury caused by one party which is then
aggravated by a second party (malpractice by a treating doctor, for example),
or a physical injury caused by the combined negligence of two or more parties (a
multiple-car accident, for example). In
these cases, liability is joint. See
Butzow v. Wausau Memorial Hosp., 51 Wis. 2d 281, 285-87, 187 N.W.2d
349 (1971); Restatement (Second) of Torts § 879 (1979).[6] In the present case, however, the only harm
takes the form of yearly assessments.
The circuit court's conclusion that Quarles & Brady was responsible
for assessments occurring after its failure to correct the plan, coupled with
the fact that Schoendorf was no longer in a position to correct its negligence,
creates a plain division of liability, falling first on Schoendorf, then on
Quarles & Brady.[7] The fact that the assessments are continuous
(i.e., they were imposed on a yearly basis over a consecutive series of years)
does not mean they are indivisible, or that they spring from one cause. Rather, they are best characterized as
resulting from successive torts. Unlike
the damages suffered in more typical tort cases (such as the injuries to the
plaintiff in Butzow, 51 Wis. 2d at 283, consisting of a broken hip
suffered in a fall and the later aggravation of this injury), the damages in
this case do not combine to form an indivisible harm. For this reason, we find much of the precedent[8]
on which the parties ask us to rely inapplicable because the cases do not
involve a divisible harm springing from the actions of successive
tortfeasors. However, Butzow and
Fisher remain valid for the general proposition that an earlier
tortfeasor may be liable for damages inflicted by a successive tortfeasor.
We
further note, as did the court of appeals below, that "[t]he right of
contribution is founded upon principles of equity and natural
justice." Schoendorf, 195
Wis. 2d at 794 (quoting Wait v. Pierce, 191 Wis. 202, 225, 210 N.W.
822 (1926)). The facts stated above
lead us to conclude that Quarles & Brady's inaction produced a harm
separate from Schoendorf's negligence.
They are thus successive tortfeasors, and because successive tortfeasors
may not be joined in a contribution action, Quarles & Brady's contribution
claim must fail. See Fisher,
173 Wis. at 60.[9]
To
summarize our analysis of this issue, this case is admittedly unusual in that
the IRS has provided specific figures allowing us to apportion the harm with
rare precision. We should not alter our
analysis, however, merely because the present situation is neatly apportionable
while the vast majority of cases are not.
We conclude, therefore, that the circuit court correctly granted summary
judgment dismissing Quarles & Brady's contribution claim.
Although
Quarles & Brady cannot seek contribution, it may still recover any portion
of the settlement paid to Westridge that is attributable to Schoendorf's
negligence. The recovery of such
compensation is possible through legal subrogation. See Fisher, 173 Wis. 57, 62. Subrogation is derived "from the
equitable doctrine of preventing unjust enrichment and placing the loss
ultimately on the wrongdoers," Employers Health Ins. v. General
Casualty Co., 161 Wis. 2d 937, 956, 469 N.W.2d 172 (1991) (citations
omitted), and "permits those who pay a claim that `in equity should have
been satisfied by another' to recover that payment from the person or entity
primarily liable," Schoendorf, 195 Wis. 2d at 795 (quoting Interstate
Fire & Casualty Co. v. City of Milwaukee, 45 Wis. 2d 331, 334, 173
N.W.2d 187 (1970)). The circuit court
in this case ruled after a motion in limine that Quarles & Brady could not
introduce evidence at trial of its settlement payments for the years 1981 through
1983.
Quarles
& Brady also seeks review of this ruling.
A trial court's discretionary decision to admit or exclude evidence will
be upheld if the decision has "a reasonable basis" and was made
"in accordance with accepted legal standards and in accordance with the
facts of record." State v.
Pharr, 115 Wis. 2d 334, 342, 340 N.W.2d 498 (1983) (citation omitted);
see also Franz v. Brennan, 150 Wis. 2d 1, 6, 440 N.W.2d 562
(1989). Our conclusion on this issue is
compelled by our previous analysis in this case. We have already noted that the circuit court's conclusion that
Quarles & Brady was solely responsible for the assessments for the years
1981 through 1983 is supported by the record.
Quarles & Brady admitted its responsibility for these assessments in
a letter to its insurer,[10]
and the assessments for and after 1981 would not have been levied if Quarles
& Brady had followed up on its client's request to correct the plan. Because Quarles & Brady cannot recover
the portion of the settlement attributable to these assessments from
Schoendorf, the circuit court acted within its discretion in ruling that
evidence of such assessments would be irrelevant. We therefore affirm on this issue.
The
next issue is raised by Schoendorf's cross petition. Schoendorf seeks review of that portion of the court of appeals'
decision which affirmed the circuit court's denial of Schoendorf's motion for
summary judgment seeking dismissal of Quarles & Brady's claim because it
was allegedly filed after the running of the applicable statute of
limitations. The court of appeals,
ruling on a basis not briefed by the parties, held that an action for
subrogation, like an action for contribution, accrues when payment is
made. Schoendorf, 195
Wis. 2d at 797. The court of
appeals also held that Wis. Stat. § 893.92 (1993-94)[11]
should be the applicable statute of limitations in a subrogation action. The court of appeals noted that its result
would be the same under the parties' analysis, which reasoned that an action
for subrogation would be subject to the statute of limitations for the
underlying tort. Schoendorf, 195
Wis. 2d at 798-800 n.9.
We conclude that the parties' analysis is
correct. As this court has previously
observed, subrogation "contemplates full substitution and places the party
subrogated in the shoes of the [plaintiff]." Heifetz v. Johnson, 61 Wis. 2d 111, 120, 211 N.W.2d
834 (1973) (citation omitted).
"The original right of the plaintiff measures the extent of the
subrogated party's right." American
Standard Ins. Co. v. Cleveland, 124 Wis. 2d 258, 262, 369 N.W.2d 168
(Ct. App. 1985) (citing Garrity v. Rural Mut. Ins. Co., 77 Wis. 2d
537, 541, 253 N.W.2d 512 (1977)). Thus,
in Heifetz, this court held that the statute of limitations for
subrogation claims is the statute of limitations on the underlying tort,
because the running of that statute of limitations extinguishes the rights of
the original plaintiff. Heifetz,
61 Wis. 2d at 115, 124. The
statute of limitations in the present case, therefore, is that of the
underlying tort, legal malpractice. The
court of appeals thus erred in concluding that the cause of action in this case
accrued when payment is made, a standard applicable to contribution
actions. The court of appeals also
erred in applying Wis. Stat. § 893.92, the statute of limitations for
contribution actions, to the present case; the correct statute of limitations
is the six-year statute of limitations applicable to legal malpractice
actions. See Wis. Stat.
§ 893.53 (1993-94)[12];
Hennekens v. Hoerl, 160 Wis. 2d 144, 148 n.2, 465 N.W.2d 812
(1991). That portion of the court of
appeals opinion which held that an action for subrogation accrues when payment
is made and Wis. Stat. § 893.92 is the statute of limitations applicable
to a subrogation action is hereby overruled.
The next question is whether the claim in
the present matter was timely filed.
This in turn requires a determination of when Westridge's (and hence
Quarles & Brady's) cause of action accrued. A claim for relief accrues
when "there exists a claim capable of present enforcement, a suable party
against whom it may be enforced, and a party who has a present right to enforce
it." Barry v. Minahan, 127
Wis. 570, 573, 107 N.W. 488 (1906). A
tort claim is not "capable of present enforcement" until the
plaintiff has suffered actual damage.
Actual damage is harm that has already occurred or is reasonably certain
to occur in the future. Actual damage
is not the mere possibility of future harm.
Meracle v. Children's Serv. Soc., 149 Wis. 2d 19, 26‑27,
437 N.W.2d 532 (1989).
Hennekens, 160
Wis. 2d at 152‑53 (footnotes omitted). Schoendorf notes that Hennekens also states that actual
damage can occur even without a "contemporaneous monetary loss" when
a plaintiff has sustained "injury to a legal interest or loss of a legal
right." Id. at 153-54. Schoendorf argues that Westridge suffered
actual damage in 1975, when it received a defective plan. However, a claim for relief does not accrue
until the potential plaintiff knows of or should have through an exercise of
reasonable diligence discovered the injury.
See id. at 160.
Schoendorf therefore argues that Westridge learned it had suffered
actual damage in 1980, when it was informed that the plan required
amendment. Schoendorf also argues that
Westridge would have suffered actual damage in the form of the attorney's fees
Quarles & Brady would have charged to amend the plan, had the work been
performed.
We
first note that this argument requires us to accept a convoluted interpretation
of Schoendorf's alleged negligence. As
noted previously in this opinion, Schoendorf denies any negligence in crafting
the plan; yet for purposes of determining the accrual of Westridge's cause of
action, Schoendorf asks that we conclude that Westridge suffered actual damage
upon its receipt of Schoendorf's negligently-drafted plan. Schoendorf wishes to "have it both
ways." We need not take such a
complicated position, however, because we conclude, as did the court of appeals
under its alternative holding in this case, that any damage was "inchoate
until the plan could no longer be brought into compliance for the assessment
years." Schoendorf, 195
Wis. 2d at 799 n.9. Thus,
Westridge did not suffer actual damage until it was notified by the IRS in
March of 1985 that its plan was disqualified; before that time, Westridge knew
only that assessments against the plan were a possibility, and, as stated in Hennekens,
"[a]ctual damage is not the mere possibility of future harm." Hennekens, 160 Wis. 2d at 153.[13] Quarles & Brady's complaint, filed in
January of 1991, was within the six-year statute of limitations. Thus, we affirm the court of appeals
decision affirming the circuit court's denial of Schoendorf's motion for
summary judgment.
By
the Court.—The decision of the court of appeals is affirmed and the
cause remanded for further proceedings not inconsistent with this opinion.
SUPREME COURT OF WISCONSIN
Case No.: 94-2042
Complete Title
of Case: General Accident Insurance Company of
America, and Quarles & Brady, a
partnership,
Plaintiffs‑Appellants‑
Cross Respondents‑Petitioners,
v.
Schoendorf & Sorgi and Northwestern
National Casualty Company,
Defendants‑Respondents‑
Cross Appellants‑
Cross Petitioners,
Thomas J. Rhoda and Fremont Indemnity
Company,
Defendants‑Third Party Plaintiffs‑
Respondents‑Cross Appellants‑
Cross Petitioners,
v.
Thomas J. Schoendorf, Michael L. Sorgi,
Joseph F. Schoendorf, Jr., and John A.
Lynch,
Third Party Defendants‑
Cross Appellants‑
Cross Petitioners.
____________________________________
REVIEW
OF A DECISION OF THE COURT OF APPEALS
Reported
at: 195 Wis. 2d 784, 537 N.W.2d 33
(Ct.
App. 1995)
PUBLISHED
Opinion Filed: June 21, 1996
Submitted on Briefs:
Oral Argument: May 29, 1996
Source of APPEAL
COURT: Circuit
COUNTY: Milwaukee
JUDGE: ARLENE D. CONNORS
JUSTICES:
Concurred:
Dissented:
Not Participating:
ATTORNEYS: For the plaintiffs-appellants-cross
respondents-petitioners there were briefs by Terry E. Johnson, Peter F.
Mullaney and Peterson, Johnson & Murray, S.C., Milwaukee and
oral argument by Peter F. Mullaney.
For all the cross petitioners there were
briefs by Jeffrey J. Liotta, Sheila M. Gavin and Hinshaw &
Culbertson, Milwaukee and Robert F. Johnson and Cook &
Franke, S.C., Milwaukee and oral argument by Jeffrey J. Liotta.
[1] General Accident Ins. Co. v. Schoendorf
& Sorgi, 195 Wis. 2d 784, 537 N.W.2d 33 (Ct. App. 1995)
[hereinafter Schoendorf].
[2] Westridge did not continue to retain the
Schoendorf firm in this matter, and thus Quarles & Brady and the Schoendorf
firm were never jointly retained.
[3] In a letter to its liability carrier,
Quarles & Brady stated that the task of preparing the necessary documents
was forgotten. Quarles & Brady also
stated that it had notified its clients of its error and had advised them that
it would accept responsibility for the error.
The letter specified that Quarles & Brady believed it was
responsible for damages resulting from the assessment of additional tax
liabilities against the plan for the years 1981, 1982, and 1983.
[4] The IRS did not impose assessments for the
years before 1979 because the statute of limitations had run on those
years.
[5] Although Quarles & Brady's complaint
sought contribution, the circuit court also treated the claim as founded in
equitable subrogation.
"Subrogation is an equitable doctrine . . . which is available when
someone other than a mere volunteer pays a debt or demand which should have
been satisfied by another." Perkins
v. Worzala, 31 Wis. 2d 634, 637, 143 N.W.2d 516 (1966).
[6] As this Restatement section and its comments
make clear, in the first situation the parties are jointly liable only for the
aggravation, while in the second situation the parties are liable for the
entire harm. Nothing in our decision
today alters these black-letter rules of joint liability.
[7] The precise point at which the assessments
should be divided is not at issue in this opinion, in which our review is
limited to the circuit court's non-final orders. However, we note that Schoendorf denies all allegations of
negligence, and furthermore has argued that none of the assessments would have
occurred if Quarles & Brady had amended the plan in 1980 (due to an
"amnesty" program then in effect), so there may ultimately be a
determination that all of the assessments were caused by Quarles &
Brady. These determinations will be
made on remand. For purposes of this
discussion, we assume only the possibility of negligence on the part of
Schoendorf.
[8] Quarles & Brady relies on Brown v.
LaChance, 165 Wis. 2d 52, 477 N.W.2d 296 (Ct. App. 1991) and Grosskopf
Oil, Inc. v. Winter, 156 Wis. 2d 575, 457 N.W.2d 514 (Ct. App.
1990). The court of appeals in its
opinion also distinguished these cases.
See Schoendorf, 195 Wis. 2d at 794 n.5.
[9] For similar reasons, we reject Quarles &
Brady's argument that finding it solely liable for the assessments imposed
after it agreed to correct the plan is effectively an application of the
"last clear chance" doctrine, a doctrine not recognized in this
state, see Wilmet v. Chicago & Northwestern Ry. Co., 233 Wis.
335, 346, 289 N.W. 815 (1940). Because
we conclude there was no common liability in this case, we are not relieving
Schoendorf of liability for the portion of the harm caused by Quarles &
Brady; rather, we are concluding that the harm caused by Quarles & Brady
was distinct and Schoendorf was never liable for it. Quarles & Brady was a successive tortfeasor in this case, not
a joint tortfeasor whose actions relieved another of liability. This case does not involve the "last
clear chance" doctrine.
[10] In its briefs before this court, Quarles
& Brady argues that its letter to its insurer is not an admission of sole
responsibility, but simply a notice of claim and possible damages as required
by its insurance policy. Our review,
however, is not of this letter, but of the circuit court's conclusion that
Quarles & Brady bore responsibility for the 1981-1983 assessments. As already stated, we find the circuit
court's conclusion to be supported by the record as a whole, including the
facts stated in this opinion.
Action for contribution. An action for contribution based on tort, if
the right of contribution does not arise out of a prior judgment allocating the
comparative negligence between the parties, shall be commenced within one year
after the cause of action accrues or be barred.
893.53 Action for injury to character or other
rights. An action to recover damages
for an injury to the character or rights of another, not arising on contract,
shall be commenced within 6 years after the cause of action accrues, except
where a different period is expressly prescribed, or be barred.
[13] The court of appeals, see 195
Wis. 2d at 799-800 n.9, thus correctly analogized the present situation to
that of Meracle, 149 Wis. 2d 19.
In Meracle, this court held that a couple who had learned their
adopted child was at risk for Huntington's disease did not suffer actual damage
(under the theory that they had been promised a healthy child by the adoption
agency) until the child actually developed the disease, and not when they had
learned of the risk. Id. at
22-30. Likewise, the court of appeals
correctly distinguished two cases cited by Schoendorf, Denzer v. Rouse,
48 Wis. 2d 528, 180 N.W.2d 521 (1970), and Boehm v. Wheeler, 65
Wis. 2d 668, 223 N.W.2d 536 (1974), because these cases are "not only
contrary to the line of precedent running through Hennekens, but would
have the unfortunate result of compelling the premature filing of lawsuits at
the first faint scent of potential injury." Schoendorf, 195 Wis. 2d at 800 n.9.