Jace T. McDonald v. State of Wisconsin Department of Financial Institutions

COURT OF APPEALS
DECISION NOTICE
DATED AND FILED This opinion is subject to further editing. If
published, the official version will appear in
the bound volume of the Official Reports.
May 20, 2021
A party may file with the Supreme Court a
Sheila T. Reiff petition to review an adverse decision by the
Clerk of Court of Appeals Court of Appeals. See WIS. STAT. § 808.10
and RULE 809.62.

Appeal No. 2020AP216 Cir. Ct. No. 2016CV124

STATE OF WISCONSIN IN COURT OF APPEALS
DISTRICT IV

JACE T. MCDONALD,

PETITIONER-RESPONDENT,

V.

STATE OF WISCONSIN DEPARTMENT OF FINANCIAL INSTITUTIONS,

RESPONDENT-APPELLANT.

APPEAL from an order of the circuit court for Ashland County:
KELLY J. McKNIGHT, Judge. Reversed and cause remanded with directions.

Before Fitzpatrick, P.J., Blanchard, and Nashold, JJ.

Per curiam opinions may not be cited in any court of this state as precedent

or authority, except for the limited purposes specified in WIS. STAT. RULE 809.23(3).
No. 2020AP216

¶1 PER CURIAM. The Department of Financial Institutions appeals a
circuit court order remanding this case to the department to make additional
findings of fact to support its decision in an enforcement action against Jace
McDonald. We conclude that the department’s existing findings are sufficient for
judicial review. We further conclude that it would be more appropriate for the
circuit court to undertake judicial review than for this court to do so. We also
explain why we reject the appellant department’s argument that respondent
McDonald’s lack of response in his brief on appeal to any point made in the
department’s opening brief is a basis to affirm the agency’s decision. Consistent
with these conclusions, we reverse and remand to the circuit court with directions
to proceed with the judicial review.

I. Adequacy Of The Agency’s Record

¶2 McDonald sought judicial review of the department’s decision, and
is the respondent on appeal. The nature of the department’s decision is largely
immaterial to our discussion here. It is enough to say that the department’s
hearing examiner imposed a default judgment against McDonald as a sanction for
failing to provide discovery.

¶3 The circuit court concluded that the department’s decision failed to
include sufficient findings of fact as required by WIS. STAT. § 227.47(1) (2019-
20).1 The court ruled that the department’s decision did not “contain Findings of
Fact justifying or even relating to the hearing examiner’s decision to default the
petitioner in this case and deny him a hearing.” On this basis, the circuit court

1
All references to the Wisconsin Statutes are to the 2019-20 version unless otherwise
noted.

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concluded that the insufficient decision rendered the record inadequate for
purposes of judicial review. The court set aside the agency’s decision and
remanded under WIS. STAT. § 227.57(7), which it interpreted as allowing the court
to remand for further examination and action within the agency’s responsibility
when the agency’s action depends on facts determined without a hearing,
including when the court considers the record to be inadequate. It relied in part on
R.W. Docks & Slips v. DNR, 145 Wis. 2d 854, 860, 429 N.W.2d 86 (Ct. App.
1988) (under § 227.57(7), if the circuit court “is unable to rule that the facts
compel a particular action as a matter of law, it may remand,” including when the
record is “inadequate for proper review”).

¶4 On appeal, the appellant department cites the familiar principle that
we review the decision of the agency, rather than that of the circuit court.
Applying that principle, the department’s opening brief does not directly address
the circuit court’s conclusion that the department’s decision lacked sufficient
findings for judicial review. Instead, the department primarily argues that the
department’s decision was supported by substantial evidence and was otherwise
lawful.

¶5 In response, McDonald argues in part that the findings are not
sufficient, and therefore we should affirm the circuit court’s remand to the
department. In the department’s reply, it argues that the findings are sufficient.

¶6 Because adequacy of the agency’s record is a threshold question that
precedes any review of the agency’s decision, we start with that issue. We
conclude that the findings in the decision, although not detailed, are sufficient for
judicial review.

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¶7 The applicable statute provides: “The findings of fact shall consist
of a concise and separate statement of the ultimate conclusions upon each material
issue of fact without recital of evidence.” WIS. STAT. § 227.47(1). A wide
theoretical continuum exists for what might be considered a “material issue of
fact” that requires its own “concise and separate statement.” If each “material
issue of fact” refers to a fine granular level of fact, § 227.47(1) might be
interpreted to require dozens or even hundreds of separate findings of historical
fact in the typical case. However, that interpretation would not comport with
common sense and in any case McDonald does not explain how any provision in
ch. 227 or any other authority suggests that this kind of granularity is required.

¶8 For purposes of the default judgment ordered as a sanction, the
examiner found that McDonald “continually failed to provide documents and
abide by the discovery schedules that parties stipulated to before this hearing
examiner.” The decision stated: “[N]ow it appears that at least one of the named
Respondents (Mr. McDonald) [admits that he] destroyed documents pertinent to
the discovery request while the action has been pending.” The examiner further
stated: “Based on the findings, I must agree with the division [within the
department] that Respondents [including McDonald] have acted in bad faith based
on repeated violations of orders and misconduct in their failure to provide
materials as requested by the division.”

¶9 We do not interpret WIS. STAT. § 227.47(1) to have required the
department here to make a separate finding on each historical fact showing that
McDonald failed to provide documents or abide by schedules, that he destroyed
documents, or that he acted in bad faith. Even without such specific historical
findings, each of the above findings is clear enough in its ultimate conclusion to be

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reviewable for support by substantial evidence, in the form of historical
information in the record.

¶10 To obtain more context and guidance for a review of these findings,
it may be necessary for a court to refer to the filings of the parties that preceded
the examiner’s decision. A reviewing court can reasonably expect that the parties’
arguments to the court will direct its attention to such material and, if they do not,
the court may conclude that the party’s argument is unsupported. However, we
are satisfied that these findings, when taken in context, are sufficient to permit
judicial review, and thus the record is adequate.

II. Failure Of Respondent’s Brief To Address Parts Of Appellant’s Brief

¶11 We next turn to the first part of the parties’ dispute about the merits
of the agency’s decision. As we described earlier, the department’s opening brief
focuses on establishing that its findings were based on substantial evidence, and
that it properly exercised discretion and applied a correct standard of law by
imposing the default sanction based on those facts. As respondent, McDonald
argues that the agency committed error in certain ways.

¶12 In reply, the department argues that we should affirm the agency’s
decision because McDonald does not respond to some of the department’s opening
arguments on appeal. In other words, the department argues that we should
conclude that McDonald has conceded the arguments due to briefing
insufficiencies, and that we should grant relief to the department without any court
actually conducting a review of the department’s decision. We disagree, for the
following reason.

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¶13 Normally in appeals it is the appellant who sets the agenda for what
must be decided by the reviewing court, as would ordinarily be the case if a party
challenging an administrative action lost in the circuit court and brought an appeal
in this court. That agenda would be that party’s arguments as to why the agency
committed error. Here, however, the department is the appellant, yet as the
agency it has no burden to establish in a judicial review that it did everything
correctly. Instead, the burden is on the respondent McDonald, as the party
opposing the agency’s decision, to point to specific error by the agency. See City
of La Crosse v. DNR, 120 Wis. 2d 168, 178, 353 N.W.2d 68 (Ct. App. 1984)
(“The burden in a ch. 227 review proceeding is on the party seeking to overturn
the agency’s action, not on the agency to justify its action.”).

¶14 Because of that posture, the opening brief by the agency here is
necessarily a limited effort to anticipate and pre-emptively address those topics
that it believes the respondent may point to as agency error. We say “limited
effort” because, as a practical matter, it would be impossible for an agency to
negate individually every conceivable error that it may have committed. The
range of potential errors is simply too large and unknowable. In arguing that it did
nothing wrong, the agency would have to prove a very large set of negative points.

¶15 For these reasons, in an appeal such as this one, an appellant
agency’s choice of topics to anticipate does not control the appeal or the
respondent’s choice of topics. The respondent is not bound to address the
appellant’s arguments, but is instead free to argue only those points on which the
respondent believes agency error occurred. Because it is the respondent’s burden
to show agency error, the respondent must have this freedom, and cannot
reasonably be penalized for disregarding the appellant agency’s choice of topics to
discuss.

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¶16 Here, McDonald’s brief makes certain claims of agency error. To
the extent that he does not address other aspects of the agency’s decision, a court
may treat that silence as a concession of correctness as to those aspects. But that
effect occurs only because it is McDonald’s burden to show agency error, not
because the agency addressed those aspects in its opening brief.

¶17 Accordingly, we reject the department’s argument that McDonald’s
lack of response to any point made in the department’s opening brief is a basis to
affirm the agency’s decision. Instead, as to the merits, our focus would be on
McDonald’s claims of agency error, not on the topics addressed by the appellant,
except to the extent that they join issue with those raised by McDonald.

III. Remand To Circuit Court For Judicial Review To Continue

¶18 We next consider whether to conduct the judicial review of the
decision ourselves, or instead to remand to the circuit court to continue the review
there. The interest of judicial economy suggests that we should conduct the
review here. However, based in the unusual circumstances here, we conclude that
in this appeal it is more appropriate to remand to the circuit court for that purpose.

¶19 As we will explain further, we reach this conclusion based on an
unusual interaction of: a circuit court disposition that remanded to the agency
without addressing the merits of the agency’s decision; the posture on appeal, in
which the agency files the first brief, even though the respondent has the burden to
show agency error; and, the operation of the rule setting forth when a respondent
must file a cross-appeal. In short, the interaction of these elements produces a
situation in which, despite the fact that we do not review the circuit court decision
on appeal of a judicial review of administrative action, the cross-appeal rule that
controls the scope of issues on appeal continues to apply with reference to the

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circuit court order appealed from, rather than to the underlying agency’s decision
that we would be reviewing.

¶20 As to the claims of agency error that McDonald makes in his brief as
respondent, the department addresses those in its reply brief. The department
asserts that McDonald’s claims of agency error are “irrelevant” to this appeal
because McDonald did not cross-appeal. In other words, McDonald had to file a
cross-appeal before he could argue on appeal that the agency’s decision should be
set aside on its substantive merits, without there first being a circuit court remand
to the agency to make additional findings. We agree with this argument.

¶21 The cross-appeal rule provides: “A respondent who seeks a
modification of the judgment or order appealed from or of another judgment or
order entered in the same action or proceeding shall file a notice of cross-appeal.”
WIS. STAT. RULE 809.10(2)(b). Under this rule, failure to file a notice of cross-
appeal precludes us from considering a respondent’s request for modification of
the judgment or order that is distinct from any modification requested by the
appellant. See Borntreger v. Smith, 2012 WI App 35, ¶20, 340 Wis. 2d 474, 811
N.W.2d 447; State v. Huff, 123 Wis. 2d 397, 408-09, 367 N.W.2d 226 (Ct. App.
1985).

¶22 Normally, when a circuit court conducts a judicial review and sets
aside an agency’s decision due to error, a cross-appeal will not be necessary for
the respondent to argue that the agency committed error. That is because in
making that argument the respondent is seeking only to affirm the circuit court
decision, not modify it.

¶23 But the situation is different here. The circuit court set aside the
agency’s decision and ordered a remand for further proceedings. McDonald’s

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brief concludes by asking us to affirm the circuit court decision for a remand, “and
further this Court should overturn the default order entered by the agency hearing
examiner.” However, the circuit court remand order did not overturn the default
order. If we were to grant McDonald that relief, after agreeing with his claims of
agency error, it would be a modification of the circuit court order that was
appealed from. And, therefore, we are precluded from granting that relief in the
absence of a cross-appeal.

¶24 McDonald asserts that, because of the lack of a circuit court ruling
on the merits of the default judgment, he could not cross-appeal to have the merits
reviewed in this court. However, that is not correct. Appeals are not limited to
only those issues that were decided by the circuit court. For example, a
respondent is permitted to argue in favor of grounds for affirmance that were not
relied on by the circuit court, meaning that the court was “‘right, although for the
wrong reason,’” see Auric v. Continental Casualty Co., 111 Wis. 2d 507, 515-16,
331 N.W.2d 325 (1983) (quoted source omitted), and this court regularly affirms
circuit court decisions on grounds different from those relied on by the circuit
court.

¶25 Based on this discussion, it can now be seen that the combined effect
of the department’s briefing is to put McDonald in a kind of Catch-22 or “heads I
win, tails you lose” position. The department first argues that it committed no
error in its decision, and then it argues that McDonald is precluded from
responding that the agency did commit error, because he did not cross-appeal.
These arguments together create a situation in which McDonald was required to
cross-appeal merely to respond to the appellant’s opening argument, which is not
ordinarily the case.

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¶26 If we were to review the merits of the agency’s decision, in a
situation in which we are unable to grant relief to the respondent if we agree that
error occurred, it would be a one-sided argument in which only the appellant could
obtain relief. This would essentially impose a forfeiture on the respondent’s right
to judicial review because the respondent failed to anticipate, within the limited
time for filing a cross-appeal, and before seeing the appellant’s brief, that a cross-
appeal would be necessary to prevent this situation from occurring.

¶27 The department here is certainly permitted to expand its argument on
appeal beyond the scope of what was decided by the circuit court, and to ask us to
address the merits and affirm the agency’s decision. However, the department has
not suggested that we are required to address the merits of the agency’s decision,
when the circuit court did not reach the merits, and when a remand by this court
will enable the judicial review to continue before the circuit court. Therefore, in
this unusual situation, and to prevent what we regard as an unfair posture for the
respondent, we decline to review the merits of the agency’s decision.

¶28 For all these reasons, we reverse the circuit court order remanding
the case to the department, and we remand to the circuit court with directions to
proceed with the judicial review based on the record transmitted by the
department.

By the Court.—Order reversed and cause remanded with directions.

This opinion will not be published. See WIS. STAT.
RULE 809.23(1)(b)5.

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