State ex rel. Universal Processing Servs. of Wis., LLC v. Circuit Court of Milwaukee Cnty.

• Decision Date: 29 March 2017
• Docket Number: Case No.: 2016AP923-W
• Citation: 892 N.W.2d 267,374 Wis.2d 26
• Parties: STATE of Wisconsin EX REL. UNIVERSAL PROCESSING SERVICES OF WISCONSIN, LLC, Petitioner, v. CIRCUIT COURT OF MILWAUKEE COUNTY and the Honorable John J. DiMotto, presiding, Samuel B. Hicks and Merchant Card Services, Inc. Respondents.
• Court: Wisconsin Supreme Court

374 Wis.2d 26

892 N.W.2d 267

STATE of Wisconsin EX REL. UNIVERSAL PROCESSING SERVICES OF WISCONSIN, LLC, Petitioner,

v.CIRCUIT COURT OF MILWAUKEE COUNTY and the Honorable John J. DiMotto, presiding, Samuel B. Hicks and Merchant Card Services, Inc. Respondents.

Case No.: 2016AP923-W

Supreme Court of Wisconsin.

Oral Argument: November 1, 2016

Opinion Filed: March 29, 2017

For the petitioners, there was a brief by Ryan M. Billings, Robert L. Gegios, Melinda A. Bialzik and Kohner, Mann & Kailas, S.C., Milwaukee, and oral argument by Ryan M. Billings.

For the respondent the cause was argued by David C. Rice, assistant attorney general, with whom on the brief(s) was Brad D. Schimel, attorney general.

For the respondent, there was a brief by Joan M. Huffman, Paul R. Erickson and Gutglasas, Erickson, Bonville & Larson, S.C., Milwaukee, and oral argument by Joan M. Huffman.

SHIRLEY S. ABRAHAMSON, J.

Universal Processing Services of Wisconsin, LLC d/b/a Newtek, the plaintiff-petitioner, petitions this court, pursuant to Wis. Stat. § (Rule) 809.71 (2015-16),¹ for a supervisory writ. Newtek asks the court to exercise its constitutional authority to vacate an order of the Circuit Court for Milwaukee County, John J. DiMotto, Judge, appointing retired Judge Michael Skwierawski as the referee and to vacate unlawful orders of the referee issued pursuant to the reference. Samuel Hicks and his Idaho company, Merchant Card Services, are the defendants-respondents. The Circuit Court for Milwaukee County and the Honorable John J. DiMotto, presiding, are also named as respondents. The respondents oppose the petition.

¶2 Newtek argues that the circuit court's order appointing the referee expanded the role of referee into the role of de facto circuit court judge in violation of the Wisconsin Constitution and Wis. Stat. § (Rule) 805.06, a rule adopted by this court.² Newtek does not challenge the constitutionality of Wis. Stat. § (Rule) 805.06, governing references to a referee.³

¶3 The dispute underlying this petition arises from a lawsuit initiated by Universal Processing Services of Wisconsin, LLC d/b/a Newtek (Newtek), a bankcard processing services company, the plaintiff-petitioner, against one of its independent sales agents, Samuel Hicks, and his Idaho company, Merchant Card Services (collectively, Hicks), the defendants-respondents.

¶4 The following issues are presented:

1. Is Newtek's petition for a supervisory writ properly before this court?

2. Has Newtek waived or forfeited its objection to the Order of Reference, is it estopped from challenging the Order, or has it impliedly consented to the Order?

3. Does the circuit court's Order of Reference contravene Article VII, Section 2 of the Wisconsin Constitution vesting judicial power of this state in a unified court system?

4. Does the circuit court's Order of Reference, including the provision that the circuit court's review of the referee's "rulings" shall be based only on the referee's "erroneous exercise of discretion," contravene the Wisconsin Constitution and the Wisconsin statutes and rules regarding circuit court and appellate court authority and practice?

5. Does the circuit court's Order of Reference contravene the parties' right to "obtain justice freely, and without being obliged to purchase it," guaranteed by Article I, Section 9 of the Wisconsin Constitution, or to due process of law, guaranteed by Article I, Section 1 of the Wisconsin Constitution, or Newtek's right to a jury trial, guaranteed by Article I, Section 5 of the Wisconsin Constitution ?

6. Should the orders of the referee to date be vacated and should the parties be allowed to request substitution of the judge on remand?

¶5 For the reasons set forth, we conclude as follows:

1. Newtek's petition for a supervisory writ does not meet the requirements set forth in Wis. Stat. § (Rule) 809.71. The petition was not first filed in the court of appeals and Newtek has failed to show that it was impractical to file the petition in the court of appeals. We do, however, exercise our constitutional superintending authority under Article VII, Section 3(2) of the Wisconsin Constitution to determine the validity of the Order of Reference. A declaration of rights is an appropriate vehicle for an exercise of the superintending authority over circuit courts constitutionally granted to this court.⁴See Part II, ¶¶36-50.

2. Regardless of whether Newtek has waived or forfeited its right to challenge the Order of Reference, is estopped from challenging the Order, or has impliedly consented to the reference, this court may resolve the issue of the validity of the Order of Reference under its constitutional superintending authority. See Part III, ¶¶51-55.

3. The Order of Reference impermissibly delegated to the referee judicial power constitutionally vested in Wisconsin's unified court system. Accordingly, the Order does not survive Newtek's constitutional challenge. See Part IV, ¶¶56-82.

4. The circuit court's Order of Reference, including the provision that the circuit court's review of the referee's "rulings" shall be based only on the referee's "erroneous exercise of discretion," contravenes the constitution and statutes or rules regarding circuit court and appellate court authority and practice. It infringes on the legislature's authority to define a circuit court's appellate jurisdiction. See Part V, ¶¶83-88.

5. We do not decide the instant case on the basis of Article I, Section 9 of the Wisconsin Constitution, the due process clause of Article I, Section 1 of the Wisconsin Constitution, or the right to jury trial of Article I, Section 5 of the Wisconsin Constitution, but we note that reference to a referee is the exception, not the rule; that there are constitutional limits on the powers of a referee; and that a reference can jeopardize a litigant's access to the justice system, due process, and right to a jury trial. The Wisconsin Constitution requires the state to provide a judicial system for the resolution of disputes. Access to state courts for conflict resolution is thus implicit in the state constitution. We express our concern that the use of referees increases the costs of litigation and may cause delay and, in certain cases, may deprive litigants of access to courts. See Part VI, ¶¶89-103.

6. To the extent the parties have agreed to abide by an order or ruling of the referee relating to discovery, that ruling or order shall stand. To the extent either party has objected to an order or ruling of the referee relating to discovery, that ruling or order shall be vacated. Any ruling or order of the referee on any dispositive motion is vacated. Either party may request substitution of the judge under Wis. Stat. §§ 801.58(1) and (7). See Part VII, ¶¶104-110.

¶6 We begin in Part I by setting forth the procedural facts relating to the appointment of the referee and the Order of Reference.

I

¶7 On August 27, 2014, after nearly a decade of successful collaboration between Newtek and Hicks, Newtek terminated Hicks' contract. On September 16, 2014, Newtek brought an action against Hicks in the Circuit Court for Milwaukee County, John J. DiMotto, Judge, alleging breach of contract, tortious interference with contract, breach of fiduciary duty, and misappropriation of confidential information and trade secrets. Newtek demanded a jury trial.

¶8 The contract included restrictive covenants. The enforceability of these restrictive covenants is central to the underlying dispute. Hicks filed an answer to the complaint, asserting affirmative defenses and counterclaims and seeking nearly $17 million in damages.

¶9 Because the contract provided for injunctive relief, Newtek promptly sought and received an ex parte temporary restraining order from a duty judge just a few days after filing the complaint. The circuit court (Judge DiMotto) affirmed and reaffirmed the temporary restraining order.

¶10 Over the course of the next several months, the parties began extensive discovery. The parties periodically appeared before the circuit court for scheduling conferences and motion hearings.

¶11 In early 2015, Newtek moved to amend the scheduling order to extend the deadlines for naming experts and providing expert reports. Hicks opposed the extension and filed a motion to compel discovery.

¶12 On February 17, 2015, the circuit court held a hearing on Newtek's motion to amend the scheduling order and decided to appoint a referee to the case. At the hearing, Newtek described the case as a "classic big case" with numerous issues and production of a substantial number of documents in discovery (50,000 thus far):

[W]hen we appeared before you in November [everyone] was overly optimistic in terms of what could be accomplished. In particular, overly optimistic in where we slotted the expert disclosures in relation to what ... this litigation has spawned by way of discovery. We're approaching just on our side nearly 40,000 pages of production, about which the other side is still complaining. The other side has produced ... in the order of 10,000 [pages], about which we're complaining....

We have the classic big case with lots of issues now. We have more than one case in the sense that we have filed a complaint with numerous causes of action but there is a counter complaint. The counterclaims have been filed by the other side, and discovery is occurring with regard to both of those pleadings....

And so we are doing our best to produce without coming to the court.... And it has been a production that has gotten to the point of something like a thousand pages ... that we are producing per day. That's what the average is since this began.

¶13 The circuit court granted Newtek's request for extension in part and also gave Hicks an extension. The circuit court expressed frustration with the already cumbersome discovery, especially the attorneys' conduct, stating:

Well you know, the one thing that I put a real high value on are [sic] attorneys being reasonable. Quite frankly, it seems to

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