Beane v. City of Sturgeon Bay, 82-1325

• Decision Date: 01 June 1983
• Docket Number: No. 82-1325,82-1325
• Citation: 112 Wis.2d 609,334 N.W.2d 235
• Parties: Thomas W. BEANE and John J. Ditewig, Plaintiffs-Appellants, v. CITY OF STURGEON BAY, Defendant-Respondent.
• Court: Wisconsin Supreme Court

Page 235

334 N.W.2d 235

112 Wis.2d 609

Thomas W. BEANE and John J. Ditewig, Plaintiffs-Appellants, v. CITY OF STURGEON BAY, Defendant-Respondent.

No. 82-1325.

Supreme Court of Wisconsin.

Argued March 29, 1983.

Decided June 1, 1983.

Suzanne Havens, Sturgeon Bay, argued, for plaintiffs-appellants; Albert H. Beaver, Sturgeon Bay, on brief.

Chester C. Stauffacher, City Atty., Sturgeon Bay, for defendant-respondent.

Richard V. Graylow and Lawton & Cates, Madison, amicus curiae, for District Council No. 40, AFSCME, AFL-CIO.

Burt P. Natkins, Legal Counsel, Madison, amicus curiae, for the League of Wisconsin Municipalities.

STEINMETZ, Justice.

The issue presented is whether as a matter of law the City of Sturgeon Bay complied with its statutory responsibility under sec. 895.46(1)(a), Stats., ¹ to provide legal counsel to defend plaintiffs-police officers when they were sued civilly in federal court. A second issue is whether equitable estoppel is available to the plaintiffs under the circumstances of this case.

On January 14, 1982, plaintiffs filed a four-count amended complaint against defendant-City of Sturgeon Bay seeking indemnification for legal expenses incurred in the defense of a civil rights action. In the amended complaint, the first count set forth a theory of recovery labeled statutory duty alleging defendant's obligation to pay the legal expenses pursuant to sec. 895.46(1)(a), Stats. The other counts were of public policy, unjust enrichment and implied contract. The trial court granted the city's motion for summary judgment dismissing the plaintiffs' cause of action to recover the attorney fees.

On October 3, 1979, the plaintiffs, while on duty as police officers and employees of the City of Sturgeon Bay Police Department, arrested Robert Vogel. One month later, Vogel commenced an action in the United States District Court for the Eastern District of Wisconsin against the plaintiffs, John J. Ditewig and Thomas W. Beane, individually and in their official capacity, for their actions arising out of the arrest. He sought monetary damages in the amount of $1 million alleging assault, battery, false arrest, conspiracy and violations of civil rights.

Four days after being served with Vogel's complaint, the plaintiffs gave notice to their department head, Howard A. Larson, Chief of Sturgeon Bay Police Department, of the commencement of the action. Shortly thereafter, the officers met with the city's mayor, Dan Nielson, and its city attorney, Sven Kirkegaard, and requested that the city provide legal counsel to represent them. At the meeting, the city attorney informed the plaintiffs that the defense of the above action would be tendered to the city's insurer, Employers of Wausau. He further told them that the insurer might provide legal representation for those causes of action covered by the defendant's insurance policy. Regarding the causes of action not covered by the policy, he informed them that neither the insurer nor the city would provide legal representation. The city attorney also explained to the plaintiffs that for the causes of action covered by insurance, the plaintiffs would be personally liable for the amounts deductible in the policy and for the amount of any judgment recovered in excess of the policy limit. Furthermore, the city attorney informed the plaintiffs that if it was determined in the above action that they had acted outside the scope of their employment as police officers, the insurer would not provide indemnification for any judgment amount. Finally, the city attorney told the plaintiffs that the allegations of the federal action were so serious that the city might have to take a position adverse to the plaintiffs. For all of these reasons, the city attorney advised the police officers to retain private counsel.

In reliance on the representations of the city attorney, the plaintiffs retained Attorney Albert H. Beaver of Sturgeon Bay to represent them and notified the city that they had done so. The city then tendered the defense of the Vogel action to its insurer which in turn retained Attorney Rodney Charnholm to represent the two officers.

On March 13, 1980, all of Vogel's claims against the plaintiffs in federal court were dismissed, except the claim of violation of constitutional rights. That claim went to trial and both Attorneys Beaver and Charnholm defended the plaintiffs through the conclusion of a jury trial. On August 6, 1981, a verdict of not guilty was returned and a judgment dismissing the action was entered.

The record demonstrates that the attorneys cooperated with each other and coordinated the defense together. Charnholm's deposition shows that both his firm and Beaver's firm appeared as counsel of record and collaborated while preparing for trial and during the trial itself. However, the record offers no details concerning how the attorneys coordinated their efforts.

After the trial's conclusion, Attorney Beaver asked the city to pay him a total of $50,000 for representing the plaintiffs pursuant to sec. 895.46(1)(a), Stats. The city refused to pay claiming that it was under no obligation to indemnify the plaintiffs, since the plaintiffs did in fact receive legal counsel from the city through the services of Attorney Charnholm.

The trial court found there were no issues of fact "with respect to whether or not the City had provided legal counsel to the defendant employes within the meaning of Sec. 895.46(1), W.S." In arriving at the conclusion concerning the application of sec. 895.46(1), Stats., the trial court held:

"The court is of the opinion that under this circumstance, the City should be willing to pay for the cost of additional counsel. Unfortunately, the statute imposes an obligation on the city to pay reasonable attorney fees and costs only if it does not provide legal counsel to the defendant officers.

"It is undisputed that the City did furnish and provide legal counsel to the plaintiff officers."

The plaintiffs appealed and we accepted this case on a petition to bypass.

Sec. 895.46(1), Stats., was initially created by Laws of 1943, ch. 377, to require the state or political subdivision to pay judgments as to damages and costs against public officials acting in an official capacity and in good faith. Since then, the statute has been amended numerous times. Ch. 603 of the Laws of 1965 amended the statute to provide for payment of attorney fees and costs of defense in addition to judgments. In 1975, the statute was amended by ch. 81 of the Laws of 1975 to provide that the state or political subdivision shall pay judgments "in excess of any insurance applicable to such officer or employe." Additional changes in the statute, which have occurred over the past 40 years, have consistently demonstrated a "legislative intention to broaden the protection afforded a public officer or employee." Schroeder v Schoessow, 108 Wis.2d 49, 66, 321 N.W.2d 131 (1982).

Under sec. 895.46(1), Stats., for a political subdivision to be liable for attorney fees and costs, it must first be determined whether that subdivision would have been absolutely liable had a judgment been rendered against the public employee. Absolute liability is imposed on the public employer if the employee is proceeded against in his or her official capacity or as an individual because of acts committed while carrying out his or her duties and the employee is found to have acted within the scope of employment. Thuermer v. Village of Mishicot, 95 Wis.2d 267, 271-73, 290 N.W.2d 689 (1980). In many instances, the determinative issue in attorney fees litigation is whether the employee was acting within the scope of employment. ²

When a public officer or employee is proceeded against in a civil action, the employing governmental unit has two options regarding the provision of legal representation under the statute. First, the public employer may provide counsel itself. This option recognizes that the governmental unit should have the opportunity to supply counsel where an adverse result would involve the payment of a judgment out of public funds. Bablitch & Bablitch v. Lincoln County, 82 Wis.2d 574, 581, 263 N.W.2d 218 (1978). Under this alternative the indemnification requirement does not come into play and the political subdivision pays for counsel regardless of whether the employee is ultimately found to have acted within the scope of employment.

The second option is for the governmental unit to refuse to provide legal counsel. Under this alternative, the public employer must then reimburse the employee for legal fees regardless of the outcome of the litigation, unless a finder of fact decides that the employee was not acting within the scope of employment. A public employer may choose this option if it believes that the employee may have been acting outside the scope of employment.

This court is concerned about the potential problems that could arise when the governmental unit makes its decision regarding legal representation. An employer may base its decision whether to provide counsel on its assessment of whether the employee was acting within the scope of employment. It appears reasonable that when the employer believes that the employee was not acting within the scope of employment, representation will not likely be provided, since an adverse judgment combined with a finding that the employee acted outside the scope of employment, would not involve the payment of a judgment out of public funds. It is also reasonable that when the employer believes that the employee was acting within the scope of employment, counsel will be provided. The dilemma facing the governmental unit is that at the time the decision to provide counsel or not is made, the employer does not know whether the employee will later be found to have acted within the scope of employment.

If a political subdivision decides to provide counsel, the employer and the employee will be united in interest by...