# Petition for Writ of Certiorari — Employers Insurance Company of Wausau v. Johnson Controls, Inc. > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386001_1125%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 2004 - **Citation:** 541 U.S. 1027 ## Text Supreme Court, US. FilLe DB 031199FEB 17 2004 pa ESE THE Cet IN THE Supreme Court of the United States E;MPLOYERS INSURANCE COMPANY OF WAUSAU, Petitioner, JOHNSON CONTROLS, INC., et al., Respondents. ON PETITION FOR A WRIT OF CERTIORARI TO THE SUPREME COURT OF WISCONSIN PETITION FOR A WRIT OF CERTIORARI SCOTT J. RYSKOSKI SETH P. WAXMAN GREENBERG TRAURIG LLP Counsel of Record 13155 Noel Road PAUL R.Q. WOLFSON 600 Three Galleria Tower REBECCA J.K. GELFOND Dallas, TX 75249 WILMER CUTLER (972) 419-1250 PICKERING LLP 2445 M Street, N.W. PATRICK J. BOLEY Washington, D.C. 20037 LARSON KING LLP (202) 663-6000 2800 Wells Fargo Place 30 East 7th Street St. Paul, MN 55101 (651) 312-6500 QUESTION PRESENTED Whether an appellate court departs from fundamental principles of due process when it swa sponte decides an is- sue—overruling its prior precedent—when that issue was not among the matters presented to the court for review, the issue was neither briefed nor argued by the parties, and the court gave the parties neither notice that it intended to resolve the issue nor opportunity to be heard on the matter before the court’s decision. (i) ii PARTIES TO THE PROCEEDING Petitioner, which was a defendant in the trial court and respondent in the Wisconsin Supreme Court, is Employers Insurance Company of Wausau, formerly known as Employ- ers Insurance of Wausau A Mutual Company. Respondent Johnson Controls, Inc., was plaintiff in the trial court and petitioner in the Wisconsin Supreme Court. In addition, the following parties were defendants in the trial court: Affiliated FM Insurance Company, AIU Insur- ance Company, Allstate Insurance Compeny (as successor to Northbrook Excess and Surplus Insurance Company), American Employers’ Insurance Company, American Home Assurance Company, American Motorists Insurance Com- pany, Central National Insurance Company of Omaha, Em- pluyers Mutual Casualty Company, Employers Reinsurance Corporation, Federal Insurance Company, First State In- surance Company, Granite State Insurance Company, High- lands Insurance Company, Landmark Insurance Company, London Market (certain underwriters at Lloyd’s London and London Market Insurance Companies), National Union Fire Insurance Company of Pittsburgh, PA, Northbrook Excess and Surplus Insurance Company (as predecessor to Allstate Insurance Company), Puritan Insurance Company (i/n/a Manhattan Fire and Marine Insurance Company), Stonewall Insurance Company, Transamerica Premier Insurance Company, Travelers Indemnity Company, United National Insurance Company, Zurich Insurance Company, Interna- tional Insurance Company, Westchester Fire Insurance Company, Allianz Underwriters Insurance Company, American Centennial Insurance Company, American Insur- ance Company, Associated International Insurance Com- pany, California Union Insurance Company, Continental In- surance Company, Fireman’s Fund Insurance Company, Harbor Insurance Company, North Star Reinsurance Cor- poration, and Republic Insurance Company. iii CORPORATE DISCLOSURE STATEMENT All of the stock in petitioner is owned by Liberty Mu- tual Group Ine. TABLE OF CONTENTS Page SELF Bias a CUE RR Fe OP ssrscsrnsicosidestonsitcinliaitecssanaibenniinanen i PARTIES TO THE PROCEEDING............ccccccccccossscscosesesesess ii CORPORATE DISCLOSURE STATEMENT .............c0000. ill SR I Rr REE iit ssceeeeanesoenaadine es vii SDE SOT PTR scitninccsieiiniitisoianniicenaiiiimgac Taare 1 PIES IT cntccinscnnieeaninteiaiaielncmantiee aiid nase l CONSTITUTIONAL PROVISION INVOLVED ................ 2 EEF ROUEPRIET ESS PION caicssscarchhadnsintidiaaicmeaaiiedaamciaoumiaciaaaa maaan 2 STATEMENT OF THE CASI .....ceccscsesccsessssssosesorsessesnscosssees 4 1. The Insurance-Coverage Background of RG IN sis iicccciostonnsatindetaimealaaia menos 4 2. Proceedings in this Case in the Wisconsin IR svimirnssscstinsdaneiatidemndematia aah alli Ee 7 3. The Wisconsin Supreme Court’s Decision..........-+. 10 REASONS FOR GRANTING THE PETITION................. 13 I. THE WISCONSIN SUPREME COURT’S SUA SPONTE RESOLUTION OF A MATTER NOT BEFORE IT, WITHOUT GIVING THE PARTIES NOTICE OR AN OPPORTUNITY TO BE HEARD ON THAT MATTER, DENIED PETITIONER DUE FE IOIF viiciciticiokotctnanitandeeahiniia dita te eian mera apa 13 A. Petitioner Was Denied Its Basic Rights To Notice And An Opportunity To Be Heard............. 13 B. The Denial Of Any Hearing On The “Suit” Issue Prejudiced Petitioner.............c.cccsccssossssosocesees 15 (v) vi TABLE OF CONTENTS—Continued Ii, THE WISCONSIN SUPREME COURT’S SUA SPONTE RULING IN THIS CASE IS CONTRARY TO UNIVERSALLY HELD UNDERSTANDINGS OF HOW COURTS SHOULD DECIDE CASES. ...........006. III. THIS COURT CAN MAKE CLEAR’ THAT APPELLATE COURTS MUST ADHERE TO THE FUNDAMENTAL REQUIREMENTS OF DUE PROCESS WITHOUT UNDULY ENCROACHING ON THE BROAD DISCRETION OF COURTS IN POTOTACATING CARED cecsvatesrsinscvtiiagissitanannneinantiie SF APTI TT ivarisisisninissinonicnimnunnmiinaaamintas APPENDIX A: Decision of the Supreme Court of Wisconsin, reported at 665 N.W.2d 257..........cseeeees APPENDIX B: Decision of the Wisconsin Court of Appeals, reported at 640 N.W.2d 205 ........eeeeeeeeeees APPENDIX C: Unreported decision of the Wis- consin Court of Appeals, filed October 13, 1998......... APPENDIX D: Unreported decision of the Wis- consin Circuit Court, filed February 24, 1995............ APPENDIX E: Judgment of the Wisconsin Circuit Cami’, T00k Bae BD BE a wecccncssiscasesnssvopnsenevnnnsuiiannintie APPENDIX F: Order for Judgment of the Wiscon- sin Circuit Court, dated March 18, 2001 .................0 APPENDIX G: Proposed Order (signed) of the Wisconsin Circuit Court, filed July 19, 2000.............. APPENDIX H: Order of the Supreme Court of Wisconsin denying Motion for Reconsideration, SE TCI TG, DOGS ssiesecnsiinsicrnsinsaoonessncsnnsisiitinnsaeininn APPENDIX I: Miscellaneous pleading excerpts............. Page vii TABLE OF AUTHORITIES CASES Page(s) Allen v. Hardy, 478 U.S. 255 (1986)......ccccccccccssscessesescecescecees 28 Arcadia, Ohio v. Ohio Power Co., 498 U.S. 73 (1990) ......0. 28 _ Azar v. Prudential Insurance Co. of America, 68 P.3d 909 (N.M. Ct. App. 2008)...........c.cccccscsesssessssssesers 24 Baker v. Director, U.S. Parole Commission, A Fae FEO CA, Cie, BOD) sscsscsscsnccnenesesecesrnsensnessansensivn 24 Batson v. Kentucky, 476 U.S. 79 (1986).......c.cccscccsssecessesescesees 27 Bazrowz v. Scott, 136 F.3d 1053 (5th Cir. 1998) ..........cccc00. 22 Bell v. Burson, 402 U.S. 535 (1971)......cccccccsccoscocssesceccessosesees 14 Bendet v. Sandoz Pharmaceuticals Corp., 308 F.3d re ee Ss ND shoes bvedincessinieses Sh iaicoatsgaestnisbecenssnsntcnneniulae 21 Boyle v. O'Bannon, 458 A.2d 183 (Pa. 1983) .......cccscsseseseseees 24 Brandon v. District of Columbia Board of Parole, Tame Be CRA, COR, TO i cseincncsccsmssesoseicconsensncensovene 23 Brinkerhoff-Faris Trust & Savings Co. v. Hill, Pe ae Pe A vincinsihensccnicatiahie ahanna aeinesibinieaasainitca 12, 15 Brown v. Triple “D” Drilling Co., 585 P.2d 987 SIs SAP UIT ssesniasidsirbieniinienaeasioadaa patina ted paella teal 24 Capital Cities Cable, Inc. v. Crisp, 464 U.S. 813 CIT ciianscscstinsashirbeiaritehinihiiniesihebuiiliahatdanch aliagtiichdementasielbus 27 Carducci v. Regan, 714 F.2d 171 (D.C. Cir. 1983)... 20 Castro v. United States, 124 S. Ct. 786 (2003) ...........0.00. 15, 20 City of Edgerton v. General Casualty Company, SLT N.W 2 465 (Wis. 19B4) ..cccccescconssascsecssnrssresncsienees 6, 18 City of Kenosha, Wisconsin v. Bruno, 412 U.S. 507 Frans cniiniiebesinapilieedabneinsanaleeisagsTinamiantciala ia siciaalMe donee City of New Orleans v. Dukes, 427 U.S. 297 (1976) ...........0-. 27 Cleveland Board of Education v. Loudermill, Fe Seis ee IE vnrrisinachnssirtesdsishanitandambdeicnanbanianancsaniins 14 Clorox Co. Puerto Rico v. Proctor & Gamble Commercial Co., 228 F.3d 24 (1st Cir. STE aisisntiinsisipuaiiiaialiamamamuiablauieiic aes 20, 21, 22, 23, 24 Colorado v. Connelly, 474 U.S. 1050 (1986).......ccccccsescesesees 27 Cox Broadcasting Corp. v. Cohn, 420 U.S. 469 Vili TABLE OF AUTHORITIES—Continued Page(s) Creel v. District Attorney for Medina County, Tews, GIB BD. WG SB CTO. TODD poerecacoscececccesccsccosscervoonces 24 Doe v. St. Joseph’s Hospital, 788 F.2d 411 (7th Cir. MITTEN sisniiniasstacsinstcueipscadilbanbiddeuesitssnadaeatsoaitaguaiemmaniatinasialainnaie 22 Employment Division v. Smith, 494 U.S. 872 (1990)........... 28 English v. Cowell, 10 F.3d 434 (7th Cir. 1993) ......ccccccseseseees 21 Epic Metals Corp. v. Samari Lake East Condomin- ium Ass’n, Inc., 547 So. 2d 198 (Fla. Dist. Ct. PRE, TO e vinineiccmaitshisdasalassauiicsentpicanapaeasiiideaddasbibtoienaecistes 24 Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938) oo... eeeeeeeees 28 Foster-Gardner, Inc. v. National Union Fire In- surance Corp., 959 P.2d 265 (Cal. 1998)..........sscssceseeeseee 16 Franklin v. Oregon State Welfare Division, GUS. F 2a FSET THER Civ. 1GB1) serscscivesssnesensscvensecnessennscenseeves 21 Fuentes v. Shevin, 407 U 3S. GT (1987S) .ccsccscccosconsesssossscevsesseesees 14 General Casualty Co. v. Hills, 561 N.W.2d 718 EOP Tieiesicsninsscninesvnucancanapaicthenatannddealabesaanicaeadenisanmatamaniaaiies 6 Gladden v. Kansas City, 411 S.W.2d 228 (Mo. 1967)............ 25 Goldberg v. Kelly, 397 U.S. 254 (1970)..........sscsscscsssssssercerceees 14 (oben ©. Lages, 459 UB, GE CIT vsssccnessscncsincscisesnicinctinenssennces 19 Grannis v. Ordean, 234 U.S. 385 (1914) oc. ecccccssccssscccsesees 13 Grissom v. Grissom, 886 S.W.2d 47 (Mo. Ct. App. EE Hiciessicsiacin ese diucseaa slicamaddeanidderssabaiuicaanataaa nina abausageteseias 24 Grotelueschen v. American Family Mutual Insur- ance Co., 492 N.W.2d 131 (Wis. 1992) ........cccoccscccsscsssceees 18 Harleysville Mutual Insurance Co. v. Sussex County, Delaware, 831 F. Supp. 1111 (D. Del. 1992), aff'd, 46 F.3d 1116 (8d Cir. 1994) (Table)............. 16 Heim v. California Federal Bank, 828 A.2d 129 (Conn. App. Ct.), cert. denied, 832 A.2d 70 A Ht eaectsccetincsatvniiernsinadc aeenain nasanbasankapuinnsanes 24 Hispanics for Fair & Equitable Reapportionment Vv. Griffin, 968 F.2d 24 (Sd Cir. 1902) ncccccsecsessssvoressesecesses 21 Holzer v. Jochim, 557 N.W. 2d 57 (N.D. 1996) ............. cess 24 Hubbard v. United States, 514 U.S. 695 (1995) .........cceeeeeees 27 ix TABLE OF AUTHORITIES—Continued Page(s) Huminski v. Lavoie, 787 A.2d 489 (Vt. 2001) .....cccccsecceseseeees 25 In re M.B., 514 A.2d 599 (Pa. Super. Ct. 1986), affd, a Re UF EE iy cect cssinniledieiseesinbsiciasaciasacashataiibiiicads 25 Jefferson Fourteenth Assocs. v. Wometco de Puerto Rico, Inc., 695 F.2d 524 (11th Cir. 1983)...............00. 20, 22 Juidice v. Vail, 480 U.S. 327 (1977).......c.cccccosscscsscscccecsosssosseeee 7 Klier v. Sordoni Skanska Construction Co., 766 A.2d 761 (N.J. Super. Ct. App. Div. 2001)............... 24 Kolstad v. American Dental Ass’n, 527 U.S. 526 Carer ssi sicsntosctiisidsbuciinimedianiniabaiaianiasedshbtiaiepialieiatcamiicensaetoania’ 28 Lachance v. Erickson, 522 U.S. 262 (1998) .......ccccccccsscsseesesees 13 Lankford v. Idaho, 500 U.S. 110 (1991) wees 15, 20 Lapham-Hickey Steel Corp. v. Protection Mutual Insurance Co., 655 N.E.2d 842 (Ill. 1995)... 5,16 Link v. Wabash R.R. Co., 370 U.S. 626 (1962)..........ccccccccesee. 25 Lopez v. Smith, 203 F.3d 1122 (9th Cir. 2000) cee 22 Mannesman Demag Corp. v. M/V Concert Express, See EE Rd COUR CP. BI) sesasinasconscssencrsssosonsnseenenentancssiouns 21 Mapp v. Ohio, 367 U.S. 643 (1961).......cccccccccssssssesssscceseseseseees 27 Mathews v. Eldridge, 424 U.S. 319 (1976) ........ccccccsseccsseseeeee 26 McKinney v. Oklahoma Department of Human Services, 925 F.2d 363 (10th Cir. 1991).............ccccceesees 20 Michelin Tire Co. v. Wages, 423 U.S. 276 (1976)... 29 Michigan Millers Mutual Insurance Co. v. Bron- son Plating Co., 519 N.W.2d 864 (Mich. 1994)................ 6 Minnesota Mining & Manufacturing Co. v. Travel- ers Indemnity Co., 457 N.W.2d 175 (Minn. FPO ciischmaiuensadueniadiniinmees iesinekaipspisaceledlieiiaapainchdsbaaiceindnicti 5 Mowry v. Badger State Mutual Casualty Co., BD FETE Ue 088 COD, RIOD sisiceninnnisntanssciinnesinsniucsasinsevanion 18 Mullane v. Central Hanover Bank & Trust Co., SRE Eas SU CR cececticsensitinibcalienciedinsctepaniacinten 13, 14, 28 Murphy v. Lancaster, 960 F.2d 746 (8th Cir. 1992)........ 20, 24 Myung Chun v. North American Mortgage Co., 285 A.D.2d 42 (N.Y. App. Div. 2001)... cccecsccescseseeee 24 TABLE OF AUTHORITIES—Continued Page(s) Neitzke v. Williams, 490 U.S. 319 (1989) ..............cccccccccesseees 21 Nelson v. Adams USA, Inc., 529 U.S. 460 (2000) ..... 13, 15, 19 New Castle County v. Hartford Accident & Indem- nity Co., 933 F.2d 1162 (3d Cir. 1991) .........c.cccccscccsssescess 16 Newhouse v. Citizens Security Mutual Insurance COL, GPR FRWe ae B CHP R, FIG) crcsncensrsacestscesinsasasdoscevsesiconnes 18 Osborn v. Emporium Videos, 848 P.2d 237 (Wyo. DT Tae \iithcstiltinsnndeivoaasdnsaeenbsdksithniaiiiitcgpeiaeioasetbliilindidhinuieiipaitahanscuaieensintions 25 Otis Elevator Co. v. George Washington Hotel Tg EE Be re Ce es BG inv sivncnveccenstocnieveceanssersivcs 21 Outboard Marine Corp. v. Liberty Mutual Insur- ance Co., 607 N.E.2d 1204 (Ill. 1992) 0.0.0... eens 5, 16 Patterson v. McLean Credit Union, 485 U.S. 617 [TE icetnveciecsieciediiinenusicateiisaaibieaniesiaiiialabeibeigiiescneionmimevndiniiiia 27 Payne v. Tennessee, 498 U.S. 1080 (1991)..........ccccscsssersseeees 27 People v. Kitchen, 727 N.E.2d 189 (Ill. 2000)..........cescesesseeee 24 Polk County v. Dodson, 454 U.S. 312 (1981) uu... eeesssssseseeeees 20 Professional Rental, Inc. v. Shelby Insurance Co., 599 N.E.2d 423 (Ohio Ct. App. 1991)...........ccscessersesseseees 16 R. Wilson Plumbing & Heating, Inc. v. Wademan, 588 A.2d 444 (N.J. Super. Ct. App. Div. 1991)............... 25 Razzoli v. Federai Bureau of Prisons, 230 F.3d 371 ie Sa PD visa ciocutvestnan het acanianidiideeaceeipbnlomsaaahadseninbicniuiens 22 Richards v. Jefferson County, Alabama, 517 US. FE CRE lich isisesovcn sibnapinn senteibovnsnasdiaactaviakiemaniielientainiginibanligiipiciis 15 Ricketts v. Midwest National Bank, 874 F.2d 1177 RES eID saislvscisginseniisi rsnleicenstcnapbdaldassiccsenbabioetegaatiinialainianen 23 Rubins v. Plummer, 813 P.2d 778 (Colo. Ct. App. IFPI vickinisici slap sucsioeaesiecasedepiecandeeinanihanicuiiieddades tnleantadbieaaniatiinteniiils 24 SCSC Corp. v. Allied Mutual Insurance Co., SD PE Ne Ak A CRONE, BO rnssccrenitnacerisevihigiersisiicenesonniviens 5 Sanborn Plastics Corp. v. St. Paul Fire & Marine Insurance Co., 616 N.E.2d 988 (Ohio Ct. App. aD nussetasicslanwansisiihlannahinbdindiuaabiceuaadeunetebenlapaladetiinantiiisiiadiiiiaptie 16 Shipley v. Shipley, 509 N.W.2d 49 (N.D. 1998) .......ccsecseseees 25 xi TABLE OF AUTHORITIES—Continued Page(s) Sniadach v. Family Finance Corp., 395 US. 337 CRIP v i iccossichenpnciesipainteoninasihiahsiisdlesanesstnduidacesonehectiaialtebsosoiiaiibe 14 Snider v. Melindez, 199 F.3d 108 (2d Cir. 1999).............. 20, 23 Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 760 F.2d 1347 (2d Cir. 1985), affd, sci a he th ec, a ERO ENT OM 21 State ex rel. McLeod v. Brown, 294 S.E.2d 781 (S.C. Ip EaD ssieiicbiisheudadessaieienicitcdaparelsahialiscoesibaiavamthagiialatiaambldasoasbed 25 State ex rel. Schatz v. McCaughtry, 664 N.W.2d 596 Sa AE Aaahiin ksisuessichnnstiociscepeaiiahecldakestacunseasavmmedocamsieiaeas 25 Steel Co. v. Citizens for a Better Environment, et WE I sitsisstosilehsduieaogtsthseiscahem ceadasheniacatdawsiad 27 Stewart Title Guaranty Co. v. Cadle Co., 74 F.3d i | Te en ea eee Ae >. 20 Storer Communications of Jefferson County, Inc. v. Oldham County Board of Education, 850 S.W.2d 340 (Ky. Ct. App. 1998).......ccsccsscccccsssees 24 Surat v. Nu-Med Pembroke, Inc., 632 So. 2d 1136 OF BRE hy Bi FI csahiseseapesecconticnsaniesasictpsicvnriennvainn 24 Teague v. Lane, 489 U.S. 288 (1989)......cccccccccssccsssssessesssceseees 28 Terpstra v. Soiltest, Inc., 218 N.W.2d 129 (Wis. SF Ul cstv spies sehibisipeetaonahedniaibdatheetdasstieh dean asceniinitbedidbenits 25 Tingler v. Marshall, 716 F.2d 1109 (6th Cir. 1983)... 20, 22, 23 United States Development Corp. v. Peoples Fed- eral Savings & Loan Ass’n, 873 F.2d 731 (4th SAN Re Sivcnonescvestaviceen sali aninece eiaciisaiinepacedaelagiaaalasectagniiblonioibeile 21 United States National Bank of Oregon v. Inde- pendent Insurance Agents of American, Inc., CITE TL NR RL ee 27 United States v. Burke, 504 U.S. 229 (1992) wc eeeeeeseeeeess 20 United States v. Feola, 420 U.S. 671 (1975) ....cccccescsscessceeeess 20 Yashon v. Gregory, 737 F.2d 547 (6th Cir. 1984)... eee 21 STATUTES cc SAINI. CUI, FEF cacciiniicnssinvnicesehotinsnnnondnaenicometcilatcoans 2 TABLE OF AUTHORITIES—Continued \ Page(s) EER a | | ee Onn ne spahabredcevesmiuceosonenscavas 2,12 FA A ee Is cits srcsasiscinninbiacnsenibaicebaileaieiinamicsl 22 ROS Sa | 9 ee er re eT 22 Ee RE ec OE sitsceasntcectesisnetsinisnieainsoesicleaniieclanitenipiiianseiaataiion 22 Comprehensive Environmental Response, Com- pensation, and Liability Act, 42 U.S.C. §§ 9601- SeIT aT weciiesissnscsieesbuecisiaectacictelindndileninantiethegeienancaiaalissibinndsibaaianinaialaies 4 A Or ee i itesincs bs scsessanoneinncinitinnniasiansnniidciniansingducadaaiaiaidiaae 5 6 I iiss siacisnssaeniveinenhncseteiinnitieieibieetbilemanaminaaiad 5 RE UE ee ED cvivncssieestiinsinesitabcseieitaiideiainbinesiddbtidasiaiil 5 EF a ids ssicisensinenectneesieiisicissbnbalaalibiiauidicdtipeiitiappiasamanih 5 Fg, ie IU seiderisstcsticaineeiacinicenen ciaetaetaubeiiesedeeindaaienauabamaal 9, 25 Pe ce ae aiiiisstianiita acini kipetaiinaaedniaiial 17 Sots Ae ec III Oda i stinecdisacosasicoecnipalias Geena cciadehnnstiniehasaaiaiaaaaiagsbiamnaaal 1 MISCELLANEOUS Crook, D. Seott, Affirming the Untested: Affirming A Trial Court Based On Issues Raised Sua sponte, Utah Bar d., Oct. 2001, at 10 cvconneccsccrecserevecssnsosons 3 Milani, Adam A. & Smith, Michael R., Playing God: A Critical Look At Sua Sponte Decisions By Appellate Courts, 69 Tenn. L. Rev. 245 (2002).............0 3 Miller, Barry A., Sua Sponte Appellate Rulings: When Courts Deprive Litigants Of An Oppor- tunity To Be Heard, 39 San Diego L. Rev. 1253 CTIOEE )..x:sxisinsstiininreniicentiesietadidesabeneanaentaniainmtiaiammaieaaniaial 3 Ostrager, Barry R. & Newman, Thomas R., Hand- book on Insurance Coverage Disputes (11th ed. IOI) snscnsessinnshannsneisicunsdtiiniinloniniiduniiilimaiaaiieammimeimanelnd 16 Russ, Lee R., Couch on Insurance (3d ed. 2000) .............000000 5 Stern, Robert L. et al., Supreme Court Practice BRD 0, TIED csersiexssneseitiacaisnictalidhemiaianianiiianeaieaaasaimemsndbaaa 12 xiii TABLE OF AUTHORITIES—Continued Page(s) Wisconsin Department of Natural Resources Remediation and Redevelopment Program, Contaminated Land Database, at http://www. dnr.state.wi.us/org/aw/rr/brrts/index.htm (last I ccc sascsssecescesscescossesceceess 17 IN THE Supreme Court of the United States E;MPLOYERS INSURANCE COMPANY OF WAUSAU, Petitioner, v. JOHNSON CONTROLS, INC., et al., Respondents. ON PETITION FOR A WRIT OF CERTIORARI TO THE SUPREME COURT OF WISCONSIN PETITION FOR A WRIT OF CERTIORARI Petitioner Employers Insurance Company of Wausau respectfully petitions for a writ of certiorari to review the judgment of the Supreme Court of Wisconsin in this case. OPINIONS BELOW The decision of the Supreme Court of Wisconsin (App. la-77a) is reported at 665 N.W.2d 257. The decision of the Wisconsin Court of Appeals (App. 79a-91a) is reported at 640 N.W.2d 205. The orders and judgment of the Circuit Court for Milwaukee County (App. 117a-14la) are unreported. Prior decisions of the Circuit Court (App. 109a-116a) and the Court of Appeals (App. 93a-108a) are unreported. JURISDICTION The judgment of the Supreme Court of Wisconsin was entered on July 11, 2003. A timely motion for reconsidera- tion (the equivalent of a petition for rehearing under this Court’s Rule 13.3) was denied on September 18, 2003. App. 147a. On December 9, 2003, Justice Stevens extended the 2 time for filing a petition for a writ of certiorari to and includ- ing January 16, 2004. On January 12, 2004, Justice Stevens further extended the time for filing a petition for a writ of certiorari to and including February 15, 2004 (the Sunday before Presidents Day, a federal holiday). This Court has jurisdiction pursuant to 28 U.S.C. § 1257(a). CONSTITUTIONAL PROVISION INVOLVED The Due Process Clause of the Fourteenth Amendment to the United States Constitution provides: “No state shall ... deprive any person of life, liberty, or property, without due process of law.” U.S. Const. amend. XIV, § 1. INTRODUCTION This case presents questions about an appellate court’s authority to decide, swa sponte, issues that were never briefed to that court and were not relevant to the subject matter of the appeal, without permitting the litigants notice or an opportunity to be heard. After submission of briefs and oral argument in this case, the Wisconsin Supreme Court decided a significant issue of insurance coverage that was never raised in the policyholder’s petition for review to the court or briefs on the merits, never identified by the court as an issue of concern to the parties, and never ad- dressed by any lower court. Moreover, in deciding that is- sue, the court overruled one of its prior holdings, without advising the parties that the issue was open to reexamina- tion or providing an opportunity to address the stare decisis concerns raised by doing so. The Wisconsin Supreme Court’s decision—made with- out giving petitioner notice or an opportunity to be heard— will likely cost petitioner tens of millions of dollars. If a de- partment of motor vehicles had acted in such a manner when revoking a person’s driver’s license, the courts would have found a plain denial of due process. Appellate courts, how- ever, are bound by the Due Process Clause no less than state licensing agencies. When an appellate court contemplates reaching out to decide an issue not before it that involves \ 3 millions of dollars and implicates broad public policy issues, in a context where the reliance interests underlying stare decisis are very substantial, the Due Process Clause de- mands that the court first give the parties an opportunity to be heard. Undoubtedly there are circumstances in which an appel- late court may examine, swa sponte, issues necessary to the proper resolution of claims that the parties have put before it. At some point, however, swa sponte judicial decisionmak- ing can breach the banks of the adversary system that is the foundation of the American judicial system. That point was reached in this case, when the Wisconsin Supreme Court reached out to decide a matter that had neither been pre- sented for the court’s review nor adjudicated by any lower court. si There is reason to believe that the kind of surprise judi- cial decisionmaking engaged in by the Wisconsin Supreme Court in this case may be on the rise in appellate courts. Another petition currently before this Court seeks review of a similar action by the Federal Circuit, which has frequently adjudicated complex issues of patent claim construction saa sponte on appeal without giving the parties notice or an op- portunity to be heard on the question. See Turn-Key-Tech LLC v. National Film Lab., Inc., No. 03-1138 (petition for cert. filed Feb. 3, 2004). Commentators have also criticized the practice of swa sponte decisionmaking by appellate courts, noting that it conflicts with basic norms of our adver- sary system of justice and reduces the public’s confidence in the judicial system.’ ' See Adam A. Milani & Michael R. Smith, Playing God: A Critical Look At Sua Sponte Decisions By Appellate Courts, 69 Tenn. L. Rev. 245 (2002); Barry A. Miller, Sua Sponte Appellate Rulings: When Courts De- prive Litigants Of An Opportunity To Be Heard, 39 San Diego L. Rev. 1253 (2002); D. Scott Crook, Affirming the Untested: Affirming A Trial Court Based On Issues Raised Sua Sponte, Utah Bar J., Oct. 2001, at 10. 4 Although several decisions of this Court make clear that the Wisconsin Supreme Court’s swa sponte action in this case cannot stand, this Court has never directly addressed the limits on an appellate court’s authority to decide signifi- cant, unappealed issues without giving the parties either no- tice or an opportunity to defend their interests. This case presents a vehicle for the Court to clarify reasonable consti- tutional limits on the power of appellate courts to decide is- sues swa sponte. Without correction by this Court, the abuses of swa sponte decisionmaking will persist unchecked, destined to remain the subject of dissenting opinions. STATEMENT OF THE CASE 1. The Insurance-Coverage Background of this Dispute Respondent Johnson Controls, Ine. (“JCI”) manufac- tured and sold automotive lead acid batteries and industrial controls. As a result of the release of pollutants into the en- vironment during JCI’s manufacturing processes and waste disposal activities, numerous governmental and _private- party claims have been made against it under the Compre- hensive Environmental Response, Compensation, and _ Li- ability Act (“CERCLA”), 42 U.S.C. §§ 9601-9675, and re- lated state statutes. This case arises out of a dispute be- tween JCI and its insurers over insurance coverage for those environmental claims. : In November 1989, JCI filed this suit against petitioner ~Employers Insurance Company of Wausau (“Wausau”) and more than 30 of JCI’s other insurance carriers in Milwaukee County Circuit Court. JCI’s lawsuit concerns two distinct obligations of an insurer under a standard general liability insurance policy. First, the indemnity obligation requires the insurer to “pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage to which this policy applies, caused by an occurrence.” Second, under the insurer’s sepa- rate defense obligation, the insurer has “the right and duty to defend any suit against the insured seeking damages on 5 account of such ... property damage.” App. 15a (emphasis added).” In the context of environmental claims, these two obli- gations have, in turn, generated two separate legal issues. The first issue, under the indemnity obligation, is whether the insured’s liability under CERCLA for costs of assessing and remediating property contaminated by hazardous sub- stances constitutes “damages.” The second issue, under the defense obligation, is whether a letter to the insured from a governmental agency, such as the Environmental Protection Agency (“EPA”), identifying the insured as a “potentially responsible party” (“PRP”) under CERCLA constitutes a “suit” against the insured, even though no formal judicial proceedings are instituted.’ The resolution of both issues may expose the insurer to substantial financial obligation, but the exposure in connection with the defense of “suit” is- sue may be much greater, because, unlike the indemnity ob- ligation, the defense obligation is typically not limited by any policy limits.’ * An insurer’s duty to defend a lawsuit against its insured is separate and distinct from its duty to indemnify its insured. See 14 Lee R.- Russ, Couch on Insurance § 200:3 (3d ed. 2000). “Under CERCLA, the federal government has two alternative means for cleaning up contaminated property: EPA may clean up the property and then seek recovery of response costs from other parties, or EPA may seek an administrative or judicial order compelling another party to undertake (and pay for) response actions. See 42 U.S.C. §§ 9604, 9607(a). In either event, the EPA typically seeks to identify and notify any PRPs before selecting a response action, in order to achieve a negoti- ated disposition. See 42 U.S.C. §§ 9613(k)(2)(D), 9622(e). * Several State supreme courts have addressed the “suit” issue and the “damages” issue in separate cases, reflecting the fact they are inde- pendent legal issues. Compare Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 655 N.E.2d 842 (Ill. 1995) (addressing the “suit” issue), with Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204 (Il. 1992) (addressing the “damages” issue); and compare Minnesota Min ing & Mfg. Co. v. Travelers Indem. Co., 457 N.W.2d 175 (Minn. 1990) (“dam- ages” issue), with SCSC Corp. v. Allied Mut. Ins. Co., 536 N.W.2d 305 6 The Wisconsin Supreme Court addressed both the “suit” and “damages” issues in City of Edgerton v. General Casualty Co., 517 N.W.2d 463 (Wis. 1994), while this case was still pending in the circuit court. First, Edgerton held that a PRP letter to a policyholder does not constitute a “suit” triggering the insurer’s defense obligation, because “the primary attribute of a ‘suit’ is that parties to an action are involved in actual court proceedings, initiated by the fil- ing of a complaint.” Jd. at 474-475. Second, Edgerton held that CERCLA response costs do not constitute “damages” within the insurer’s indemnity obligation. Response costs under CERCLA, the court reasoned, are not designed to compensate for past wrongs, but are instead in the nature of equitable relief, intended to prevent future contamination by means of injunctive action. Jd. at 478. The Wisconsin Supreme Court again addressed the “damages” issue in General Casualty Co. v. Hills, 561 N.W.2d 718 (1997). Hills held that a private party’s lawsuit against an insured seeking environmental response costs did seek “damages,” where (unlike Edgerton) the insured had not previously received a governmental directive or order under CERCLA directing it to address the contamination. Id. at 724-725. Chief Justice Abrahamson, in a concurring opinion, characterized the court’s distinction of the facts of Hills from those in Edgerton as “debatable.” Jd. at 726. Over the next five years, the Wisconsin appellate courts endeavored to apply the “damages” holdings of Edgerton and Hills to environmental coverage claims in various fac- tual scenarios. Eventually, the Wisconsin Court of Appeals, in this case, synthesized the “damages” case law by estab- lishing four categories of underlying environmental claims. Three of the categories under this framework were consid- ered claims for “damages”; the remaining category (denomi- (Minn. 1995) (“suit” issue); see also Michigan Millers Mut. Ins. Co. v. Bronson Plating Co., 519 N.W.2d 864 (Mich. 1994) (“suit” issue), overruled in part by Wilkie v. Auto-Owners Ins. Co., 664 N.W.2d 776 (Mich. 2003). 7 nated by the court of appeals as “Category 2”) was not. App. 82a-84a. The court commented that, although the distinc- tions among the categories were based on a logical applica- tion of Edgerton and Hills, they might seem “arbitrary .. . to some.” App. 87a-88a. By contrast, there is no indication that the Wisconsin courts had any difficulty applying Edgerton’s bright-line rule on the “suit” issue: a complaint filed in court commences a “suit,” but a PRP letter does not. Nor, before this case, did the Wisconsin Supreme Court suggest that it might be will- ing to reconsider its “suit” ruling. 2. Proceedings in this Case in the Wisconsin Courts Shortly after Edgerton was decided, Wausau moved for summary judgment in this case against JCI. The circuit court held that the underlying claims against JCI did not constitute “damages” and therefore concluded that Wausau was entitled to summary judgment. App. 114a-115a. The circuit court did not address the “suit” issue at all, because its ruling on the “damages” issue disposed of all claims.’ Consistent with the circuit court’s judgment, JCI’s ap- peal to the Wisconsin Court of Appeals did not raise the “suit” issue. JCI’s appellate brief identified three issues, each pertaining only to the “damages” issue. In disposing of JCI’s appeal, the court of appeals focused only on the “dam- ” Under the insurance policy at issue, an insurer has a duty to defend a “suit” only if the suit is one “seeking damages.” App. 15a. Thus, if (as the Wisconsin Supreme Court held in Edgerton), environmental response costs are by definition not “damages,” then any action against the insured demanding response costs, whether by way of PRP letter or lawsuit, by definition cannot be a suit “seeking damages,” regardless of the meaning of “suit.” On the other hand, even if environmental response costs are considered damages, it does not follow that any action against the insured demanding response costs is a “suit seeking damages” within an insurer’s defense obligation. A complaint filed in court seeking recovery of re- sponse costs would be a “suit ... seeking damages,” but a PRP letter would not, because, while it might seek “damages,” it would not be a “suit.” 8 ages” issue and announced the four-category “damages” framework discussed above. As it was unclear to the court of appeals whether the circuit court’s rulings with respect to the multiple insurer-defendants were in accord with the “damages” framework it had announced, the court of appeals vacated the circuit court’s judgments and remanded for en- try of a single global judgment. App. 97a, 108a. On remand, the circuit court entered a global judgment, ruling that all of JCI’s claims fell into a category other than Category 2 and thus were not claims for “damages.” Once again, the circuit court did not address the “suit” issue. App. 123a-14la. JCI again appealed to the Wisconsin Court of Appeals. JCI’s brief raised only one issue for appeal: whether the circuit court had properly applied the four- category “damages” framework to JCI’s claims. Again, JCI’s brief made no mention of the “suit” issue, as it had not been addressed by the circuit court. The court of appeals reaffirmed its four-category “damages” analysis and also upheld the circuit court’s application of that framework to each underlying claim. App. 82a-84a, 91a. JCI then filed a petition for review in the Wisconsin Su- preme Court. As with each of its prior appellate filings, none of the four issues presented in the petition raised the “suit” issue. The first three issues challenged the four- category framework and its application by the circuit court. The fourth question presented was: “Should [Edgerton] be overruled in light of the ‘arbitrary’ and ‘debatable’ distinc- tions it has produced and the discrediting of authorities upon which it relied?” App. 149a-150a. This fourth question was necessarily limited to Edgerton’s ruling on the “damages” issue, because only that holding had ever been identified as having produced “arbitrary” and “debatable” distinctions. See supra, pp. 6-7 (discussing Chief Justice Abrahamson’s 9 concurrence on “damages” in Hills and court of appeals’ four-category “damages” framework).” Consistent with its petition for review, JCI’s brief on the merits also did not argue that the “suit” issue should be addressed.’ JCI’s reply brief further confirmed JCI’s under- standing that the “damages” question was the only issue presented. The reply briefs summary of the issues referred only to “damages” (App. 156a), and, in response to insurer arguments that stare decisis supported leaving Edgerton’s holding on “damages” intact, the reply brief asserted that Edgerton’s “damages” holding was mere dicta and thus “ripe for reversal,” but suggested that Edgerton’s “suit” holding could be left in place (App. 157a & n.2). * The body of JCI’s petition also made clear that JCI was not asking the Wisconsin Supreme Court to reconsider its “suit” holding in Edgerton. First, the heading of the argument section of the petition that corresponds to the fourth issue presented asserted that “Edgerton’s ‘Damages’ Dictum Should be Overruled Because Wisconsin Now Stands Virtually Alone in Finding that CERCLA Response Costs are Not ‘Damages’ and Because the Cases it Relied Upon are No Longer Good Law.” Second, the conclu- sion of that argument section asserted that “Edgerton’s rationale is flawed, as the eight years of “arbitrary” and “debatable” distinctions it has produced amply demonstrates,” and asked that “Edgerton’s ‘damages’ dictum should be overruled.” Finally, nowhere in the text of the petition did JCI argue that Edgerton’s “suit” holding should be overruled. App. 152a. If a petition for review is granted by the Wisconsin Supreme Court, the petitioning party “cannot raise or argue issues not set forth in the petition unless ordered otherwise by the supreme court.” Wis. Stat. § 809.62(6). Accordingly, JCI’s Statement of Issues in its merits brief set forth two questions, both of which concerned only the “damages” issue: (1) “Should the ‘damages’ dictum in [Edgerton] be overruled in light of its inconsistencies with prior Wisconsin law, the ‘arbitrary’ and ‘debatable’ distinctions it has produced, and the contrary decisions in the overwhelm- ing majority of other jurisdictions?” and (2) “in applying its four-category ‘damages’ framework, did the court of appeals err ...?” App. 154a. JCI further asserted in its brief that “{i]f Edgerton is overruled, Johnson Con- trols is entitled to judgment on liability for cleanup costs at each” of the sites (App. 154a-155a), but did not argue that, if Edgerton were overruled, it would also be entitled to costs of defending “suits.” 10 At oral argument, JCI also gave no indication that it sought consideration of the “suit” issue.” Nor did the court direct by way of additional orders or suggest at oral argu- ment that the parties should address the “suit” issue.” 3. The Wisconsin Supreme Court’s Decision In its decision, the Wisconsin Supreme Court overruled Edgerton on “damages,” as JCI had requested. App. 34a. * From the outset of the argument, JCI’s counsel made clear that the “damages” issue was the only question presented. In describing the policy language at issue, he discussed only the indemnity obligation. In describ- ing the relief sought, he stated that JCI only sought recovery of costs paid to cleanup property “and the question arises ... are those damages.” JCI’s counsel made passing reference to case law from other states pur- portedly discussing the adversarial characteristics of PRP letters. How- ever, of the three cases he mentioned, one did not decide the “suit” issue, one was cited in JCI’s petition specifically for its “damages” holding, and the third—vaguely referred to as “(t]he Indiana case, Travelers Indem- nity”—was not cited in JCI’s petition or merits briefs. In any event, JCI’s counsel stated that these cases concerned the insurer’s defense obligation, and “[t}hat’s separate from the duty to indemnify,” and “[iJn this case, you don’t even have to get to the duty to defend.” A recording of the oral argument is available at http://www. wicourts.gov/supreme/Wisconsin_Supreme_Court_Oral_ Arguments.html. ” Counsel for another insurer defendant, Travelers Indemnity Com- pany, mentioned the “suit” issue in passing at oral argument. That men- tion, however, was insufficient to put the parties on notice that the “suit” issue might be considered by the court, and Wausau had no opportunity to respond because counsel for Travelers argued after counsel for Wausau. Travelers had also referred to both the “suit” and “damages” holdings of Edgerton in its merits brief. That brief’s discussion of the “suit” issue, however, was not framed as a response to any argument by JCI that the “suit” holding of Edgerton should be overruled, as JCI had made no such argument in its opening brief. Indeed, in its reply brief, filed after Travel- ers’ brief, JCI never argued that the “suit” holding of Edgerton should be overruled. Moreover, Travelers’ short mention of the “suit” issue could not be sufficient to put Wausau on notice that the court might address the issue, because Wausau had already filed its merits brief, and had no op- portunity to reply to Travelers’ brief. \ GDA BBR iis nese arse nete aiid Contato v 11 Then, for no apparent reason other than that (according to the court) “(t]he Edgerton court’s definition of ‘suit’ gives us pause,” the court also proceeded, swa sponte, to reconsider and overrule Edgerton’s holding on the “suit” issue. App. 34a-4la. Nowhere in the court’s ensuing discussion of the “suit” issue is there any reference to any argument made by the parties on that issue—for there had been no such argument. Moreover, despite reiterating the court’s scrupulous adher- ence to stare decisis and the need to set forth a “sufficient justification” when departing from precedent, the decision did not explain why it was appropriate to depart from stare decisis and reverse Edgerton’s “suit” holding. Rather, the entirety of the court’s lengthy discussion of stare decisis is limited to reasons justifying overturning Edgerton’s “dam- ages” holding. App. 41a-58a."° Two justices dissented. App. 63a-77a. Those justices would have given stare decisis effect to Edgerton. They pointed out that stare decisis “concerns are particularly strong where substantial reliance in the affected business community occurs,” and observed that, on both the “dam- ages” and “suit” issues, Edgerton had “become part of the basic framework of the insurance industry.” App. 67a. On the “suit” issue in particular, the dissenters criticized the court’s new rule as dissolving the previously clear line de- marcating the institution of formal judicial proceedings, and argued that the new rule “fails to adequately rationalize un- der what circumstances a PRP letter will trigger a duty to defend.” App. 75a. Wausau filed a motion for reconsideration arguing that the court’s swa sponte reversal on the “suit” issue violated si Having determined that Edgerton should be disapproved in toto, the court remanded the case for further proceedings. The court noted that the insurers had raised defenses to coverage. App. 59a-60a. The court did not, however, identify any defenses to be decided on remand that might relate to whether a PRP letter is a “suit.” 12 its right to due process under the Fourteenth Amendment because it had had neither notice nor an opportunity to be heard on the issue. Wausau pointed out that the court had overlooked substantial reliance interests, principles of con- tract interpretation, and insurance policy arguments sup- porting adherence to prior law on the “suit” issue, and that the reversal could cost Wausau tens of millions of dollars. By a 3-2 vote, the court denied Wausau’s motion in a one- sentence order. In so ruling, the court effectively foreclosed any opportunity to correct the due process violation created by its decision." "' This Court has jurisdiction under 28 U.S.C. § 1257(a), even though the Wisconsin Supreme Court did not expressly address petitioner’s due process argument when it denied reconsideration, and even though that court remanded the case to the lower state courts for further proceedings. First, as in the very similar case of Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281 U.S. 673, 677-678 (1930), in which this Court ruled that a state supreme court’s surprise decision violated the petitioner’s due proc- ess rights as a litigant, Wausau properly presented its due process objec- tion to the Wisconsin Supreme Court at the earliest possible opportunity, in a motion for reconsideration. Second, the denial of reconsideration amounts to a final judgment on the federal question of whether Wausau was denied due process by that court’s decision on the “suit” issue. No further proceedings in state court can affect the fact that the Wisconsin Supreme Court failed to give Wausau notice or an opportunity to be heard before resolving the “suit” issue against Wausau. This is therefore a case in which “the federal issue will be unaffected and undiluted by the later proceedings; hence for all practical purposes the ruling on the federal is- sue is final.” Robert L. Stern et al., Supreme Court Practice 153 (8th ed. 2002). Moreover, if this Court reverses the Wisconsin Supreme Court, Edgerton’s ruling that PRP ietters are not “suits” would once again be the law in Wisconsin, and JCI will have no cause of action against Wausau based on a duty to defend in situations where JCI had merely received a PRP letter. This is therefore a case “where reversal of the state court on the federal issue would be preclusive of any further litigation on the rele- vant cause of action.” Cor Broadcasting Corp. v. Cohn, 420 U.S. 469, 482- 483 (1975). 13 REASONS FOR GRANTING THE PETITION I. THE WISCONSIN SUPREME COURT’S SUA SPONTE RESOLUTION OF A MATTER NOT BEFORE IT, WITHOUT GIVING THE PARTIES NOTICE OR AN OPPORTUNITY TO BE HEARD ON THAT MATTER, DENIED PETITIONER DUE PROCESS A. Petitioner Was Denied Its Basic Rights To Notice And An Opportunity To Be Heard Many controversies have raged about the cryptic and abstract words of the Due Process Clause but there can be no doubt that at a minimum they re- quire that deprivation of life, liberty or property by adjudication be preceded by notice and opportunity for hearing appropriate to the nature of the case. Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950). These fundamental due process requirements are deeply entrenched in the American system of justice. This Court established long ago that the basic prerequisites of due process guaranteed under our Constitution are the in- tertwined rights of a party to notice and an opportunity to be heard. See, e.g., Lachance v. Erickson, 522 U.S. 262, 266 (1998) (“The core of due process is the right to notice and a meaningful opportunity to be heard.”); Grannis v. Ordean, 234 U.S. 385, 394 (1914). “An elementary and fundamental requirement of due process ... is notice reasonably calcu- lated, under all the circumstances, to apprise interested par- ties of the pendency of the action and afford them an oppor- tunity to present their objections,” Mullane, 339 U.S. at 314, and the basic right of the opportunity to be heard includes the right to respond, Nelson v. Adams USA, Inc., 529 U.S. 460, 468 (2000). These elemental due process guarantees were disre- garded when the Wisconsin Supreme Court swa sponte de- cided the “suit” issue and reversed the decade-old precedent of Edgerton. Wausau had no notice that the Wisconsin 14 Supreme Court would raise and decide the “suit” issue. The issue was not decided by either the circuit court or the court of appeals. JCI’s petition for review concerned only the “damages” issue and did not mention the “suit” issue. JCI’s brief to the Wisconsin Supreme Court did not discuss the “suit” issue. No justice of the Wisconsin Supreme Court raised the “suit” issue at oral argument. In short, Wausau had no notice, much less “notice reasonably calculated under all the circumstances, to apprise” Wausau that the “suit” is- sue was under consideration and “afford [it] an opportunity to present [its] objections.” Mullane, 339 U.S. at 314. Asa result, Wausau was deprived of an opportunity to be heard by way of briefing or oral argument before the Wisconsin Supreme Court raised the issue, departed from stare decisis, and overturned existing precedent. This Court has had little trouble in finding due process violations in similar peremp- tory actions by government entities.” The Wisconsin Supreme Court’s action stands in stark contrast to this Court’s teachings in other cases involving litigants’ fundamental due process rights of notice and an opportunity to be heard. For example, this Court has held that a party is deprived of its due process rights when a state supreme court unilaterally reverses existing law— without notice and an opportunity to be heard—leaving the party effectively foreclosed from pursuing an administrative 7 See Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 582, 542-545 (1985) (notice and opportunity to respond required before termination of public employee); Fuentes v. Shevin, 407 U.S. 67, 96 (1972) (state pre- judgment replevin statutes violated due process to the extent they did not allow an opportunity to be heard before household goods were seized); Bell v. Burson, 402 U.S. 535, 542 (1971) (state must provide prior hearing before depriving an individual of driver’s license and vehicle registration); Goldberg v. Kelly, 397 U.S. 254, 260-266 (1970) (due process requires that welfare recipients receive an evidentiary hearing before termination of welfare benefits); Sniadach v. Family Fin. Corp., 395 US. 337, 341-342 (1969) (state prejudgment wage garnishment procedure that deprived individual of wages until resolution of the underlying litigation without prior notice or an opportunity to be heard violated due process). 15 remedy in which to seek a lowering of tax valuations. Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281 U.S. 673, 678 (1930). The Court has also held that the Due Process Clause is violated when a party is bound under the doctrine of res judicata to the rulings in another case as to which it was not a party and had not received any notice. Richards v. Jefferson County, Ala., 517 U.S. 793, 799 (1996). Similarly, in Lankford v. Idaho, 500 U.S. 110 (1991), the Court ruled that a capital defendant was denied due process when a trial judge sentenced him to death, even though the prosecution had given no notice to the defendant that it was seeking the death penalty. As the Court explained in Lankford, “(notice of issues to be resolved by the adversary process is a fundamental characteristic of fair procedure.” Id. at 126. The Court also recently held in Nelson, supra, that “the proceedings did not ... comport with due process” where an amended judgment was entered, without notice or an opportunity to be heard, imposing liability on a corporate officer not previously a party to the proceedings. 529 U.S. at 466." There is no doubt that the unilateral actions of the Wisconsin Supreme Court in this case violated the minimum due process requirements of prior notice and hearing and would, as in Nelson, be “questioned even in systems, real and imaginary, less concerned than ours with the right to due process.” Jd. at 468. B. The Denial Of Any Hearing On The “Suit” Issue Prejudiced Petitioner There can be no doubt that Wausau was deeply preju- diced by the Wisconsin Supreme Court’s surprise decision. By taking up the issue unilaterally, the Supreme Court of Wisconsin deprived Wausau of the opportunity to marshal ® See also Castro v. United States, 124 S. Ct. 786 (2003) (holding that a district court may not recharacterize pro se litigant’s motion for new trial as a motion under 28 U.S.C. § 2255 without first warning the litigant of the consequences of such recharacterization). 16 the significant legal, policy, and reliance-based arguments against that court’s reversal on the “suit” issue. The argu- ments in favor of adherence to stare decisis on the “suit” is- sue are weighty—far more weighty than the Supreme Court of Wisconsin likely understood, given the absence of briefing on the issue. Moreover, the arguments favoring stare de- cisis on the “suit” issue are different and stronger than they were on the “damages” issue. Thus, if the court below had asked for briefing on both issues, it would likely have recog- nized that, even if Edgerton’s holding on the “damages” is- sue might have been disapproved, its holding on the “suit” issue should have been reaffirmed. * (1) Unlike the “damages” issue, no changes or develop- ments in the law have occurred on whether a PRP letter is a “suit.” Many other courts around the country have reached the same result as that reached in Edgerton: a PRP letter is not a “suit.” Indeed, some courts expressly cited Edgerton for that holding and relied on its rationale in reaching the same conclusion. See, e.g., Foster-Gardner, Inc. v. Nat’l Un- ion Fire Ins. Co., 959 P.2d 265, 280 (Cal. 1998); Lapham- Hickey Steel Corp. v. Protection Mut. Ins. Co., 655 N.E.2d * Courts in several jurisdictions holding that CERCLA response costs are “damages” have found that a PRP letter is not a “suit.” Com- pare Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 655 N.E.2d 842, 846-848 (Ill. 1995) (PRP letter not “suit”), with Outboard Marine Corp. v. Liberty Mut. Ins. Co., 607 N.E.2d 1204, 1212-1216 (Ill. 1992) (CERCLA response costs are “damages”); compare Professional Rental, Inc. v. Shelby Ins. Co., 599 N.E.2d 423, 430-431 (Ohio Ct. App. 1991) (PRP letter not “suit”), with Sanborn Plastics Corp. v. St. Paul Fire & Marine Ins. Co., 616 N.E.2d 988, 997-998 (Ohio Ct. App. 1993) (CERCLA re- sponse costs are “damages”); compare Harleysville Mut. Ins. Co. v. Sus- sex County, Del., 831 F. Supp. 1111, 1130-1132 (D. Del. 1993) (PRP letter not “suit” under Delaware law), affd, 46 F.3d 1116 (3d Cir. 1994) (Table), with New Castle County v. Hartford Accident & Indem. Co., 933 F.2d 1162, 1184-1191 (3d Cir. 1991) (CERCLA response costs are “damages” under Delaware law). ” See Barry R. Ostrager & Thomas R. Newman, Handbook on In- surance Coverage Disputes § 10.04{¢}[2] (11th ed. 2002) (citing cases). 17 842, 847 (Ill. 1995). Nor has there been any showing that Edgerton’s holding on the “suit” issue has somehow been detrimental to coherence and consistency in the law. Unlike the “damages” ruling—which the Wisconsin Supreme Court found had led to uncertain application in the lower Wisconsin courts—the court reported no difficulties in the lower courts’ application of the “suit” ruling. (2) Wausau would have alerted the court to the impor- tant reliance interests implicated by a reversal of Edgerton on the “suit” issue. Policyholders may well assert entitle- ment for all past “defense costs” allegedly incurred for PRP letters within the six years preceding the decision in this case.” The volume of such claims could be massive. The Wisconsin Department of Natural Resources’ list of con- taminated sites contains more than 23,000 open sites.’ This number only begins to reflect the actual number of claims that might emerge from a site, considering that numerous parties may receive PRP letters at any one site. In light of this information, Wausau estimates the court’s swa sponte decision on the “suit” issue could cost the company tens of millions of dollars. The impact on the insurance industry will be many times greater. (3) Wausau would have pointed out that reversal of Edgerton’s “suit” holding could have sweeping consequences that were apparently not foreseen by the court. Construing a PRP letter as a “suit” places insurers in an extraordinary dilemma. Under Wisconsin’s unique duty to defend case law, an insurer may be estopped from raising its coverage defenses if it fails either to provide its insured with a “free defense” of a “suit,” or to intervene in the underlying action and attempt to obtain a stay of the underlying proceedings "The Wisconsin Statutes provide for a six-year statute of limita- tions on breach of contract claims. See Wis. Stat. § 893.43. " See Wisconsin Department of Natural Resources Remediation and Redevelopment Program, Contaminated Land Database, at http://www. dnr.state.wi.us/org/aw/rr/brrts/index.htm (last modified Nov. 18, 2003). 18 pending a declaratory judgment on coverage.” Insurers and policyholders may disagree, however, on whether certain costs are properly considered costs of defense (which usually have no policy limit) or indemnity costs. The scope of these disagreements is likely to be greatly magnified if PRP let- ters are considered “suits.” For example, insurers and poli- cyholders may disagree on how the (very substantial) costs of investigating the extent of contamination at a site in re- sponse to a PRP letter should be classified. Even if an in- surer takes a reasonable position that certain costs under- taken in response to a PRP letter are not properly classified as defense costs and loses that argument, under Wisconsin law it may lose its right to assert any coverage defenses or limits. The court’s decision on the “suit” issue also may have inadvertently eroded several well-established principles of contract construction under Wisconsin law. For example, the Edgerton decision, applying the venerable principle that unambiguous language in contracts should be controlling, stressed that the term “suit” has a plain and unambiguous meaning. 517 N.W.2d at 475. In the decision below, how- ever, the court focused not on the plain meaning of the in- surance contract, but on the insured’s reasonable expecta- tions. App. 38a-39a. This difference in focus from language to expectations might be taken to presage a dramatic shift in Wisconsin contract law. In addition, the court’s decision seems to disregard the fundamental principle of insurance contract construction that all terms must be given meaning and not rendered mere surplusage. See Grotelueschen v. Am. Family Mut. Ins. Co., 492 N.W.2d 131, 136 (Wis. 1992). The court suggested that the insurer’s duty to defend must be interpreted broadly to mirror the insured’s obligation to provide notice of an “occurrence, claim, or suit.” App. 36a- 39a. But “claims” and “suits” are not treated identically in a See Newhouse v. Citizens Sec. Mut. Ins. Co., 501 N.W.2d 1 (Wis. 1993); Mowry v. Badger State Mut. Cas. Co., 8385 N.W.2d 171 (Wis. 1986). i9 insurance contracts, as evidenced by the fact that Wausau has the right, but not the obligation, to settle a “claim” against a policyholder, whereas it has the duty to defend against a “suit.” The Wisconsin Supreme Court did not hear any of these substantial arguments, however, because the court took it upon itself to decide the issue without hearing from the par- ties. Moreover, the mere fact that Wausau had the opportu- nity to file a motion for reconsideration after the court issued its decision was insufficient to protect its due process inter- ests. The Wisconsin Supreme Court has complete and unre- viewable discretion under state law to decide whether to en- tertain a motion for reconsideration, and it may deny such a motion for any reason, or, as in this case, for no reason at all. The mere possibility that a litigant may plead to a decision- maker that it should exercise its uncabined discretion to change its mind is obviously insufficient to establish the nec- essary notice and an opportunity to be heard before adverse action is taken by the state. The proper time for the Wis- consin Supreme Court to hear the important arguments against overruling Edgerton on the “suit” issue was before, not after, it made its decision. Cf. Nelson, 529 U.S. at 466 (noting that even an appeal of right may be insufficient for due process when a litigant has been denied notice and a hearing by the trial court); Goss v. Lopez, 419 U.S. 565, 581 n.10 (1975) (possibility of postdeprivation judicial review of school suspension order insufficient to ensure due process). II. THE WISCONSIN SUPREME COURT’S SUA SPONTE RULING IN THIS CASE IS CONTRARY TO UNIVERSALLY HELD UNDERSTANDINGS OF How Courts SHOULD DECIDE CASES The Wisconsin Supreme Court’s sua sponte disposition of the “suit” issue in this case is far out of line with the established way in which courts in this country customarily do business. Surprise swa sponte judicial decisionmaking is 20 fundamentally at odds with our adversary system of jus- tice.” “The system assumes that adversarial testing will ul- timately advance the public interest in truth and fairness.” Polk County v. Dodson, 454 U.S. 312, 318 (1981). The ad- versary system of justice not only protects basic guarantees of fair treatment for the parties; it also focuses the parties’ attention on issues and prevents courts from lapsing into error. As this Court stated in Lankford, “[i]f notice is not given, and the adversary process is not permitted to function properly, there is an increased chance of error, and with that, the possibility of an incorrect result.” 500 U.S. at 127 (citation omitted). Virtually every federal court of appeals has held that courts should not dispose of parties’ claims without affording them notice and an opportunity to be heard on the questien. For example, numerous courts of appeals have held that, as a general matter, district courts may not swa sponte dismiss a complaint that sets forth an arguable claim for failure to state a claim without first affording litigants notice and an opportunity to defend the claim.” As expressed by Judge 4 As Justice Scalia has observed, “(t]he rule that points not argued will not be considered is more than just a prudential rule of convenience; its observance, at least in the vast majority of cases, distinguishes our adversary system of justice from the inquisitorial one.” United States v. Burke, 504 U.S. 229, 246 (1992) (Scalia, J., concurring); accord Castro, 124 S. Ct. at 794 (Scalia, J., concurring in part and concurring in the judg- ment); Carducci v. Regan, 714 F.2d 171, 177 (D.C. Cir. 1988) (Scalia, J.); see also United States v. Feola, 420 U.S. 671, 697 (1975) (Stewart, J., dis- senting) (describing the refusal to consider points neither briefed nor ar- gued as “the most basic principle of our adversary system of justice”). *” See Clorox Co. Puerto Rico v. Proctor & Gamble Commercial Co., 228 F.3d 24, 30 (1st Cir. 2000); Snider v. Melindez, 199 F.3d 108, 113 (2d Cir. 1999); Stewart Title Guar. Co. v. Cadle Co., 74 F.3d 835, 836-837 (7th Cir. 1996); Murphy v. Lancaster, 960 F.2d 746, 748 (8th Cir. 1992) (per curiam); McKinney v. Okla. Dep’t of Human Servs., 925 F.2d 363, 365 (10th Cir. 1991); Tingler v. Marshall, 716 F.2d 1109, 1112 (6th Cir. 1983), superseded in part by statute as recognized by Benson v. O'Brian, 179 F.3d 1014, 1015-1016 (6th Cir. 1999); Jefferson Fourteenth Assocs. v. Wometco de Puerto Rico, Inc., 695 F.2d 524, 526 (11th Cir. 1983) (“The ) 21 Friendly, “the district court has no authority to dismiss a complaint for failure to state a claim upon which relief can be granted without giving the plaintiff an opportunity to be heard.” Square D Co. v. Niagara Frontier Tariff Bureau, Inc., 760 F.2d 1347, 1365 (2d Cir. 1985), affd on other grounds, 476 U.S. 409 (1986). This Court has also noted this practice and its underpinnings, explaining that “(t]his adver- sarial process ... crystallizes the pertinent issues.” Neitzke v. Williams, 490 U.S. 319, 329-330 (1989). Similarly, the courts of appeals consistently require that the parties have notice and an opportunity to present their case before a district court may enter summary judgment or convert a motion to dismiss into a motion for summary judgment.” Thus, for example, recognizing that “[t]he op- portunity to respond is deeply imbedded in our concept of fair play and substantial justice,” the Seventh Circuit has stated that “it is rudimentary that a court cannot swa sponte enter summary judgment or dismiss a complaint without notifying the parties of its intentions and allowing them an opportunity to cure the defect in the complaint or to re- spond.” English v. Cowell, 10 F.3d 434, 437 (7th Cir. 1993). Several courts of appeals have explicitly grounded their practice of requiring notice and an opportunity to respond rule... emerges... that courts exercise their inherent power to dismiss a suit that lacks merit only when the party who brought the case has been given notice and an opportunity to respond.”); Franklin v. Oregon, State Welfare Div., 662 F.2d 1337, 1340-1341 (9th Cir. 1981). Bendet v. Sandoz Pharms. Corp., 308 F.3d 907, 912 (8th Cir. 2002); Clorox, 228 F.3d at 31 (in converting motions to dismiss into motions for summary judgment courts should “guard against allowing such a conver- sion where it would come as a ‘surprise’ or be ‘unfair’ to the party against whom judgment is rendered”); Mannesman Demag Corp. v. M/V Concert Express, 225 F.3d 587, 595 (5th Cir. 2000); Otis Elevator Co. v. George Washington Hotei Corp., 27 F.3d 903, 910 (3d Cir. 1994); English v. Cow- ell, 10 F.3d 434, 437 (7th Cir. 1993); Hispanics for Fair & Equitable Reap- portionment v. Griffin, 958 F.2d 24, 25 (2d Cir. 1992); United States Dev. Corp. v. Peoples Fed. Sav. & Loan Ass’n, 873 F.2d 731, 736 (4th Cir. 1989); Yashon v. Gregory, 737 F.2d 547, 552 (6th Cir. 1984). 22 before allowing a swa sponte dismissal on “basic fairness,” Clorox Co. Puerto Rico v. Proctor & Gamble Commercial Co., 228 F.3d 24, 32 (1st Cir. 2000). The courts of appeals have recognized that failure to provide notice before sua sponte dismissal of a claim is “unfair to the litigants,” Tin- gler v. Marshall, 716 F.2d 1109, 1111 (6th Cir. 1983), swper- seded in part by statute as recognized by Benson v. O’Brian, 179 F.3d 1014, 1015-1016 (6th Cir. 1999), because it can “prejudice plaintiffs by depriving them of an opportunity to amend their complaint or to argue against the dismissal,” Doe v. St. Joseph’s Hosp., 788 F.2d 411, 415 (7th Cir. 1986), overruled on other grounds by Alexander v. Rush N. Shore Med. Ctr., 101 F.3d 487 (7th Cir. 1996); see also Jefferson Fourteenth Assocs. v. Wometco de Puerto Rico, Inc., 695 F.2d 524, 526-527 (11th Cir. 1983) (district court’s saa sponte dismissal of a complaint without prior notice deprives a plaintiff of “its due process rights”).~ ” Various provisions of the federal Prison Litigation Reform Act permit, and in some cases require, courts to review certain prisoner and in forma pauperis complaints swa sponte and to dismiss those that are frivo- lous or fail to state a claim. See 28 U.S.C. §§ 1915(e)(2)(B)(ii), 1915A(b)(1); 42 U.S.C. § 1997e(c)(1). Even in applying these provisions, several courts of appeals require district courts to exercise great caution in dismissing complaints swa sponte. See, e.g., Razzoli v. Fed. Bureau of Prisons, 230 F.3d 371, 377 (D.C. Cir. 2000) (holding that § 1915A(b)(1) does not alter the court’s “long-standing rule that a swa sponte dismissal for failure to state a claim without leave to amend is reversible error unless the claim- ant cannot possibly win relief”) (internal quotation marks and citation omitted); Lopez v. Smith, 203 F.3d 1122, 1126-1130 (9th Cir. 2000) (en banc) (holding that under § 1915(e)(2), the district court should grant leave to amend even if no request to amend was made unless it determines that the pleading could not possibly be cured by the allegation of other facts); Bazrowsz v. Scott, 136 F.3d 1053, 1054 (5th Cir. 1998) (per curiam) (noting that it is error for district court to dismiss pursuant to § 1997e unless it provides notice and an opportunity to amend the complaint). Moreover, there is no indication that courts would dismiss a case under these provi- sions where, as here, the legal issue is complex and the court’s disposition of the case would require overruling precedent. 23 Although in this case, the “suit” issue was decided on appeal rather than by a trial court, the circumstances in which the sua sponte action arises are analogous. Both in- stances involve the courts’ swa sponte disposition of a legal question that was never addressed by the parties. Indeed, because the Wisconsin Supreme Court is a state court of last resort from which Wausau has no appeal by right, its action is even more inconsistent with fundamental fairness than a federal court’s swa sponte dismissal of a complaint for failure to state a claim, which may be appealed to a court of appeals exercising de novo review. The Wisconsin Supreme Court’s action also contravenes the “sound prudential reasons,” Clorox, 228 F.3d at 32, un- derlying the courts of appeals’ practice. The courts of ap- peals have recognized that providing the parties with an op- portunity to address issues raised swa sponte by the court protects against erroneous judgments, see Snider v. Melindez, 199 F.3d 108, 113 (2d Cir. 1999), particularly when the issue before the court is complex and contested, see Clo- rox, 228 F.3d at 32. As explained by the Second Circuit, providing notice and an opportunity to be heard “plays an important role in establishing the fairness and reliability of the order” as “[i]t avoids the risk that the court may over- look valid answers to its perception of defects in the plain- tiff's case.” Snider, 199 F.3d at 118. Several courts of ap- peals have also explained that “saa sponte dismissals are not in accordance with our traditional adversarial system of jus- tice because they cast the district court in the role of a ‘pro- ponent rather than an independent entity.” Tingler, 716 F.2d at 1111 (citation omitted); accord Ricketts v. Midwest Nat'l Bank, 874 F.2d 1177, 1184 (7th Cir. 1989); Brandon v. D.C. Bd. of Parole, 734 F.2d 56, 59 (D.C. Cir. 1984). There are very limited exceptions to the court of ap- peals’ rule requiring prior notice and an opportunity to be heard before a court may dispose of a party’s claim, but those exceptions—themselves designed to ensure that jus- tice is done to parties—are inapplicable here. In particular, some courts of appeals have permitted the swa sponte dis- 24 missal of claims without prior notice where the claims are frivolous, patently without merit, or incapable of being cured by amendment.” That exception, which protects parties against the burden of defending against baseless claims that may be made for illegitimate purposes, plainly has no appli- cation to this case. Under no circumstances could Wausau’s position on the “suit” issue be considered frivolous; it was supported by the holding in Edgerton, as well as numerous other state court decisions. State appellate courts also have recognized that it is “arbitrary and unreasonable” for a court to take actions that would dispose of a party’s claims without giving the party notice and an opportunity to be heard. See Holzer v. Jochim, 557 N.W. 2d 57, 59 (N.D. 1996). Numerous state courts have held that it violates due process for a court to act, swa sponte and without notice to the parties, to dismiss a claim, to rein- state a cause of action that had been dismissed for lack of prosecution, or to impose sanctions on an attorney. * See, e.g., Clorox, 228 F.3d at 30-31 (recognizing exceptions for frivolous claims or claims whose defects could not be cured by amend- ment); Murphy, 960 F.2d at 748 (swa sponte dismissal is authorized only when it is “patently obvious” that plaintiff cannot prevail); Baker v. Direc- tor, U.S. Parole Comm’n, 916 F.2d 725, 727 (D.C. Cir. 1990) (holding that sua sponte dismissal was appropriate when its was “patently obvious” that claimant could not prevail). ** See Heim v. California Fed. Bank, 828 A.2d 129, 1388 (Conn. App. Ct.), cert. denied, 832 A.2d 70 (Conn. 2003); Surat v. Nu-Med Pembroke, Inc., 682 So. 2d 1136, 1137-1138 (Fla. Dist. Ct. App. 1994); People v. Kitchen, 727 N.E.2d 189, 194-195 (Ill. 2000); Brown v. Triple “D” Drilling Co., 585 P.2d 987, 990 (Kan. 1978); Storer Communications of Jefferson County, Inc. v. Oldham County Bd. of Educ., 850 S.W.2d 340, 341-342 (Ky. Ct. App. 1993); Grissom v. Grissom, 886 S.W.2d 47, 57-58 (Mo. Ct. App. 1994); Klier v. Sordoni Skanska Constr. Co., 766 A.2d 761, 765-766 (N.J. Super. Ct. App. Div. 2001); Azar v. Prudential Ins. Co. of Am., 68 P.3d 909, 933-934 (N.M Ct. App. 2003); Myung Chun v. N. Am. Mortgage Co., 285 A.D.2d 42, 45 (N.Y. App. Div. 2001); Boyle v. O’Bannon, 458 A.2d 183, 184-186 (Pa. 1983); Creel v. District Attorney for Medina County, Tex., 818 S.W.2d 45, 46 (Tex. 1991); see also Rubins v. Plummer, 813 P.2d 778, 789 (Colo. Ct. App. 1990); Epic Metals Corp. v. Samari Lake East 25 | By contrast, no decision of which we are aware defends a judicial practice of ruling against a party, such as Wausau, that has a position with a reasonable basis in fact and law, without allowing that party to be heard beforehand.” Yet as this case and as the pending petition in Turn-Key demon- strate, courts do not always live up to the principles they espouse. Moreover, this case well demonstrates why sur- prise decisionmaking by courts should be curtailed. Without notice or an opportunity to address the “suit” issue, Wausau was precluded from raising its substantial arguments as to why Edgerton’s holding on the “suit” issue should not have Condo. Ass’n, 547 So. 2d 198, 199 (Fla. Dist. Ct. App. 1989); Gladden v. Kansas City, 411 S.W.2d 228, 229-230 (Mo. 1967); R. Wilson Plumbing & Heating, Inc. v. Wademan, 588 A.2d 444, 444-446 (N.J. Super. Ct. App. Div. 1991); Shipley v. Shipley, 509 N.W.2d 49, 55 (N.D. 1993); In re M.B., 514 A.2d 599, 600-601 (Pa. Super. Ct. 1986), aff'd, 5388 A.2d 495 (Pa. 1988) (per curiam); State ex rel. McLeod v. Brown, 294 S.E.2d 781, 782 (S.C. 1982); Huminski v. Lavoie, 787 A.2d 489, 492-493 (Vt. 2001); Osborn v. Emporium Videos, 848 P.2d 237, 241-242 (Wyo. 1993). ” Under very limited circumstances, some courts have approved swa sponte decisions under the theory that the parties had constructive notice of the court’s action based on a background uniform practice or statute. E.g., Link v. Wabash R.R. Co., 370 U.S. 626, 632 (1962) (upholding dis- missal without advance notice or hearing for failure to prosecute where party should have been aware of the consequences of his own conduct); State ex rel. Schatz v. McCaughtry, 664 N.W.2d 596, 604 (Wis. 2003) (up- holding review procedure under Wisconsin’s Prisoner Litigation Reform Act permitting a trial court to dismiss a pleading for failure to state a claim without providing the prisoner prior notice or an opportunity be | heard, in part, because the statute itself puts the prisoner on constructive | notice). Under no circumstances, however, does this case fall under this | exception. Here, both the existing background practice and statutory constraints on review by the Wisconsin Supreme Court suggested that the court would not consider the “suit” issue. The established practice of the Wisconsin Supreme Court, like this Court, is not to consider issues that were neither raised nor decided in the lower courts. See, e.g., Terp- stra v. Soiltest, Inc., 218 N.W.2d 129, 133 (Wis. 1974). Moreover, by stat- ute, JCI was precluded from “rais[ing] or argu[ing] issues not set forth in the petition unless ordered otherwise by the supreme court.” Wis. Stat. § 809.62(6). Thus, by all indications to Wausau, the state supreme court was not going to consider or decide the “suit” issue. 26 been overruled. Without the benefit of argument from the parties on this complicated issue that has divided state courts, the Wisconsin Supreme Court may well have reached an incorrect result in this case. Thus, as this case shows, not only fairness of process for litigants but also basic need for better justice dictate that such surprise action by courts should be disapproved. Ill. THis COURT CAN MAKE CLEAR THAT APPELLATE CourRTs Must ADHERE TO THE FUNDAMENTAL REQUIREMENTS OF DUE PROCESS WITHOUT UNDULY ENCROACHING ON THE BROAD DISCRETION OF COURTS IN ADJUDICATING CASES The due process principle advocated here is an emi- nently reasonable one: an appellate court should not reach out to decide a claim that no party has presented to it for resolution where there are substantial arguments on both sides without, at a minimum, permitting the parties to be heard on the matter first. This rule would not impose any undue restrictions on the workings of appellate courts. We do not suggest, for example, that an appellate court must, as a matter of due process, afford oral argument to parties on any particular issue, or indeed at all. When the question at issue is a purely legal one, the opportunity to submit written briefs may well be sufficient to protect the parties’ due proc- ess rights and to inform the court’s decisionmaking.” Nor do we suggest that courts are inhibited as a matter of due proc- ess from raising issues for the parties to address. Although, as a matter of practice, appellate courts customarily confine themselves to the questions presented by the parties for re- view, due process does not bind courts to adopt any of the particular legal theories advanced by the parties, and courts have authority to discern and provide the correct legal rule ° Cf Mathews v. Eldridge, 424 U.S. 319, 344-346 (1976) (concluding that decisionmaking on paper record was sufficient to satisfy due process). 27 that governs the controversy. In addition, courts have a well-settled obligation to examine their subject matter ju- risdiction to entertain a case, even when that jurisdiction is not contested by the parties—a principle that is perhaps as fundamental to our constitutional system as the guarantees of due process.” But while the scope of permissible judicial discretion in disposing of cases is broad, there is a line that may not be crossed, and that line was not respected in this case. The problem in this case is not just that the Wisconsin Supreme Court decided to reexamine one of its precedents without directing briefs from the parties on that question. An appel- late court is not obligated to decide an issue put to it by the parties based on a line of decisions that, the court concludes on reexamination, is unsound.” Nor is an appellate court *" United States Nat'l Bank of Oregon v. Independent Ins. Agents of Am., 508 U.S. 439, 445-447 (1993) (upholding court of appeals’ exercise of its discretion to examine validity of statute, after requesting supplemental briefing from parties); see also Payne v. Tennessee, 498 U.S. 1080 (1991) (requesting that parties brief whether Booth v. Maryland, 482 U.S. 496 (1987), should be overruled); Patterson v. McLean Credit Union, 485 U.S. 617 (1988) (requesting that parties brief whether Runyon v. McCrary, 427 U.S. 160 (1976), should be overruled); Colorado v. Connelly, 474 U.S. 1050 (1986) (requesting parties to address validity of waiver of Miranda rights); Capital Cities Cable, Inc. v. Crisp, 464 U.S. 813 (1983) (requesting that parties brief preemption question). * See Steel Co. v. Citizens for a Better Env’t, 523 U.S. 88, 94 (1998) (courts’ resolution of cases outside their subject matter jurisdiction “of- fends fundamental principles of separation of powers”); see also Juidice v. Vail, 430 U.S. 327, 331 (1977) (examining parties’ standing sua sponte); City of Kenosha, Wis. v. Bruno, 412 U.S. 507 (1973) (concluding sua sponte that federal question jurisdiction was lacking), overruled in part by Monell v. Dep't of Social Servs. of New York, 436 U.S. 658 (1978). ‘9 Thus, on numerous occasions, this Court has overruled its own de- cisions without expressly directing briefing from the parties on that par- ticular question, when it has concluded that the governing precedent was unsound. See, e.g., Hubbard v. United States, 514 U.S. 695 (1995); Batson v. Kentucky, 476 U.S. 79 (1986); City of New Orleans v. Dukes, 427 U.S. 297 (1976); Michelin Tire Co. v. Wages, 423 U.S. 276 (1976); Mapp v. Ohio, 28 obligated to disregard important threshold legal issues that might prevent it from adjudicating the merits of a contro- versy put to it by the parties, even if those threshold issues are not raised by the parties.” Rather, the problem in this case is that the Wisconsin Supreme Court adjudicated, with- out notice, a matter that was entirely separate and distinct from any issue that JCI had submitted to that court for re- view or that JCI and Wausau had briefed and argued to that court. As this Court has stated on many occasions, due process is a flexible principle, not a mathematical formula. See, e.g., Mullane, 339 U.S. at 314. The Court need not and should not establish a code of procedure for appellate courts to fol- low in adjudicating cases. But as this case and as the pend- ing petition in Turn-Key, supra, demonstrate, there is rea- son for concern that some appellate courts are not scrupu- lously observing the basic due process obligations of notice and an opportunity to be heard. Review by this Court is warranted to make clear that appellate courts must provide litigants with these fundamental requirements of fair proce- dure. CONCLUSION The petition for a writ of certiorari should be granted. 367 U.S. 643 (1961); Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938). Simi- larly, the Court has on occasion reformulated the legal standard governing a particular controversy, even when the parties had submitted the case for the Court’s decision under a different legal standard. See Kolstad v. American Dental Ass’n, 527 U.S. 526 (1999); Employment Div. v. Smith, 494 U.S. 872 (1990). ” See, e.g., Arcadia, Ohio v. Ohio Power Co., 498 U.S. 73 (1990); Teague v. Lane, 489 U.S. 288 (1989); Allen v. Hardy, 478 U.S. 255 (1986) (per curiam). ‘hi 29 Respectfully submitted, SCOTT J. RYSKOSKI SETH P. WAXMAN GREENBERG TRAURIG LLP Counsel of Record 13155 Noel Road PAUL R.Q. WOLFSON 600 Three Galleria Tower REBECCA J.K. GELFOND Dallas, TX 75249 WILMER CUTLER (972) 419-1250 ~ PICKERING LLP 2445 M Street, N.W. PATRICK J. BOLEY Washington, D.C. 20037 LARSON KING LLP (202) 663-6000 2800 Wells Fargo Place 30 East 7th Street St. Paul, MN 55101 (651) 312-6500 FEBRUARY 2004 la APPENDIX A 2003 WI 108 NOTICE This opinion is subject to further editing and modification. The fi- nal version will appear in the bound volume of the official re- ports. [STAMP: FILED JUL 11, 2003 Cornelia G. Clark ~ Clerk of Supreme Court] No. 01-1198 (L.C. No. 89 CV 16174) STATE OF WISCONSIN _ : IN SUPREME COURT JOHNSON CONTROLS, INC. PLAINTIFF-APPELLANT-PETITIONER, V. EMPLOYERS INSURANCE OF WAUSAU, A MUTUAL COMPANY (F/N/A EMPLOYERS MUTUAL LIABILITY INSURANCE COMPANY OF WISCONSIN), AFFILIATED FM INSURANCE COMPANY, AIU INSURANCE COMPANY, ALLSTATE INSURANCE COMPANY (AS SUCCESSOR TO NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY), AMERICAN EMPLOYERS’ INSURANCE COMPANY, AMERICAN HOME ASSURANCE COMPANY, AMERICAN MOTORISTS INSURANCE COMPANY, CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, EMPLOYERS MUTUAL CASUALTY COMPANY, 2a EMPLOYERS REINSURANCE CORPORATION, FEDERAL INSURANCE COMPANY, FIRST STATE INSURANCE COMPANY, GRANITE STATE INSURANCE COMPANY, HIGHLANDS INSURANCE COMPANY, LANDMARK INSURANCE COMPANY, LONDON MARKET (CERTAIN UNDERWRITERS AT LLOYD’S LONDON AND LONDON MARKET INSURANCE COMPANIES), NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY (AS PREDECESSOR TO ALLSTATE INSURANCE COMPANY), PURITAN INSURANCE COMPANY (F/N/A MANHATTAN FIRE AND MARINE INSURANCE COMPANY), STONEWALL INSURANCE COMPANY, TRANSAMERICA PREMIER INSURANCE COMPANY, TRAVELERS INDEMNITY COMPANY, UNITED NATIONAL INSURANCE COMPANY, ZURICH INSURANCE COMPANY, INTERNATIONAL [2] INSURANCE COMPANY, AND WESTCHESTER FIRE INSURANCE COMPANY, DEFENDANTS-RESPONDENTS, ALLIANZ UNDERWRITERS INSURANCE COMPANY, AMERICAN CENTENNIAL INSURANCE COMPANY, AMERICAN INSURANCE COMPANY, ASSOCIATED INTERNATIONAL INSURANCE COMPANY, CALIFORNIA UNION INSURANCE COMPANY, CONTINENTAL INSURANCE COMPANY, FIREMAN’S FUND INSURANCE COMPANY, HARBOR INSURANCE COMPANY, NORTH STAR REINSURANCE CORPORATION, AND REPUBLIC INSURANCE COMPANY, DEFENDANTS. REVIEW of a decision of the Court of Appeals. Re- versed and cause remanded. 3a {1 DAVID T.PROSSER,J. In 1980 Congress adopted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), popularly known as “Superfund,” to promote the cleanup of hazardous waste. The Act empowered the federal government, through the Environmental Protection Agency (EPA), to identify hazardous waste sites and pursue remedial activi- ties. As part of the remedial process, the government was authorized to clean up properties and seek compensation from responsible parties or to require polluters and other [3] responsible parties to perform the cleanup themselves. 42 U.S.C. §§ 9601-9675 (2000).’ {2 CERCLA outlines a range of remedial procedures, beginning with requests to furnish information or docu- ments, and ending with stringent enforcement actions to im- pose fines for noncompliance with orders or costs to recover the government’s own expenditures. 42 U.S.C. §§ 9606, 9607.’ For responsible parties, there is strict liability. q3 Nine years ago, this court considered its first case dealing with the insurance issues raised by CERCLA. In City of Edgerton v. General Casualty Co. of Wisconsin, 184 Wis. 2d 750, 517 N.W.2d 463 (1994), cert. denied, 514 U.S. 1017 (1995), we were asked to interpret key terms in the standard Comprehensive General Liability (CGL) policy in relation to CERCLA environmental damage claims.’ A di- ' All subsequent references to the United States Code are to the 2000 volumes unless otherwise indicated. ? Following the implementation of CERCLA, state legislatures en- acted similar legislation that would apply to hazardous waste identified under the federal program as well as other substances that other states saw the need to control. See City of Edgerton v. Gen. Cas. Co. of Wis., 184 Wis. 2d 750, 756 n.2, 517 N.W.2d 463 (1994) (citing Howell A. Burkhalter, Comment, Liability for CERCLA Cleanup Costs—Are Insurers the Vic- tims of Judicial Activism?, 26 Wake Forest L. Rev. 221, 222 n.8 (1991)). For purposes of simplicity, some references to CERCLA in this opinion are intended to include similar state legislative enactments. > The provision at issue in the Edgerton case reads in part: ay 4a vided court decided that the [4] issuance of letters by the EPA or the Wisconsin Department of Natural Resources (DNR), which either requested or directed an insured to participate in the environmental cleanup of contaminated property, did not constitute a “suit” sufficient to trigger the insurer’s duty to defend. Jd. at 771. We also held that cleanup and remediation costs under CERCLA did not con- stitute “sums that the insured may become legally obligated to pay as damages” within the indemnification provisions of CGL policies. Id. at 782. 44 Today the problems created by the Edgerton deci- sion have become so obvious and so acute that they cannot be ignored. The court is convinced that we did not correctly analyze the term “damages” in the standard CGL policy in relation to environmental cleanup costs under CERCLA. We relied too heavily on a previous decision of this court in- volving very different [5] facts and laws. We also created an unworkable interpretation of the insurer’s duty to defend in the specialized context of CERCLA letters and orders. The process of restoring consistency and coherence to the law must begin by overruling the Edgerton decision. 45 We hold that an insured’s costs of restoring and remediating damaged property, whether the costs are based on remediation efforts by a third party (including the gov- The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of B. property damage to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages‘on account of such... property damage, even if any of the allegations of the suit are groundless, false, or fraudulent, and may make such investiga- tion and settlement of any claim or suit as it deems expedient . . Edgerton, 184 Wis. 2d at 769. 5a | ernment) or are incurred directly by the insured, are cov- ered damages under applicable CGL policies, provided that other policy exclusions do not apply. We also conclude that receipt of a potentially responsible party (PRP) letter* from the EPA or an equivalent state agency, in the CERCLA context, marks the beginning of adversarial administrative legal proceedings that seek to impose liability upon an in- sured. A PRP letter significantly affects legal interests of the insured. Therefore, a reasonable insured would expect this letter to trigger its CGL insurer’s duty to defend. I [6] 16 This case involves a CGL policy coverage dispute between Johnson Controls, Inc., the plaintiff-insured, and more than 30 of its general liability insurance carriers (the insurers). The case has a long history. It began almost three years before this court decided School District of Shorewood v. Wausau Insurance Cos., 170 Wis. 2d 347, 488 N.W.2d 82 (1992), and it has been buffeted ever since by a succession of contentious, inconsistent appellate decisions. {7 In November 1989 Johnson Controls brought suit in the Milwaukee County Circuit Court against its liability in- surers seeking a declaratory judgment and coverage for ‘A potentially responsible party letter (PRP letter) is a letter is- sued by the EPA notifying the recipient that the EPA considers it to be a potentially responsible party for contamination at a given site. 42 U.S.C. § 9622(e). Under CERCLA, potentially responsible parties (PRPs) are expected to conduct cleanup or pay for the cleanup performed by others. See Prof Rental v. Shelby Ins., 599 N.E.2d 423, 430-31 (Ohio Ct. App. 1991). The EPA identifies the PRPs at each site, negotiates with PRPs to do the cleanup, and recovers from PRPs the cleanup costs spent by the EPA. 42 U.S.C. 8§ 9606, 9607, 9622. * Johnson Controls is a Milwaukee-based manufacturer of products and services that manage the use of energy, control, comfort, and that protect life and property in commercial buildings. In 1978 Johnson Con- trols acquired Globe Union, Inc. (Globe Union), a manufacturer of automo- tive batteries, and the two companies eventually merged as Johnson Con- trols, Inc. For purposes of this opinion, references to “Johnson Controls” also include Globe Union, unless otherwise indicated. / 6a various costs relating to the environmental cleanup of 21 property sites. These sites are located in 16 different states where Johnson [7] Controls and/or Globe Union faced liability under CERCLA.° Most of the sites are lead smelt- ing plants to which Johnson Controls and/or Globe Union delivered spent lead acid batteries and plant scrap for recy- cling. Some are contaminated landfills. Three of the 21 sites were owned and operated by Johnson Controls.’ At 2 of the 21 sites, the coverage issues became moot because Johnson Controls ultimately incurred no costs or liability. [8] 78 For 8 sites, Johnson Controls is seeking coverage for cleanup costs that it incurred in complying with a pre- suit demand from a federal agency, a state agency, or a non- government third-party to remediate the sites in accord ® CERCLA, the Comprehensive Environmental Response, Com- pensation and Liability Act, Pub. L. No. 96-510, 94 Stat. 2767 (1980), em- powers the executive branch of the federal government to identify and administer the cleanup of hazardous waste sites. 42 U.S.C. § 9604(a)(1). Response actions may include both removal and cleanup of spilled sub- stances, along with other remedial actions. 42 U.S.C. § 9601(23)-(25). CERCLA established the Superfund as a source of expeditious payment for response actions, although ultimately the liability for response costs is placed on specified classes of responsible parties, which include: past and present owners and operators of the sites; waste generators or other per- sons who arranged for disposal, treatment or transport of hazardous sub- stances; and transporters of hazardous substances. 42 U.S.C. 88 9611(a)(1), 9607(a). Responsible parties may be required to perform the cleanup under the mandate of a federal injunction, or the EPA will per- form the cleanup itself and then sue responsible parties for reimburse- ment of costs it incurred. 42 U.S.C. §§ 9606(a), 9607(a)(A)-(B). Congress amended CERCLA in 1986 in the Superfund Amendments and Reauthorization Act (SARA), Pub. L. No. 99-499, 100 Stat. 1613 (1986). This amendment served to strengthen the original legislation. Of note, SARA created a statutory right of contribution for responsible par- ties, allowing them to seek reimbursement of response costs from other parties responsible for contaminating the site. See 42 U.S.C. § 9613(f)(1). Unless otherwise specified, references to CERCLA in this opinion refer to the statute as amended and codified at 42 U.S.C. §§ 9601-9675 (2000). 7 TCI-Atlanta, JCI-Owosso, and JCI-Goshen. Ta with CERCLA. These include the 8 sites that Johnson Controls owned. {9 For the remaining 11 sites, Johnson Controls was ei- ther sued or settled prior to suit for part of the costs of cleanup performed by another party. In some of these cases, the party seeking reimbursement for cleanup was a govern- ment agency. In the others, one or more private parties sought a contribution from Johnson Controls for contamina- tion cleanup. Johnson Controls claims that in 6 of these 11 cases, its first awareness of any environmental problem was a lawsuit or demand from a government agency for money to pay costs for cleanup activities that had already been per- formed by other parties.’ [9] 110 Johnson Controls avers that in every instance it promptly notified its applicable CGL insurer or insurers of the CERCLA liability claims being made. In every instance the insurers refused to defend Johnson Controls or to in- demnify it for any cleanup costs flowing from CERCLA or CERCLA-type claims. The insurers justified their refusal on grounds that the CGL policies did not cover the costs im- posed under CERCLA. 411 The Johnson Controls CGL policies were issued at various times between the years of 1954 and 1985, and they are either primary, excess, or umbrella comprehensive gen- eral liability policies. These policies provide that: * These 8 sites are: National Steel & Tube Distributors, Lakeland Disposal, JCI-Atlanta, National Smelting & Refining (N L-Atlanta), Maxey Flats, JCI-Owosso, USS Lead Refinery Inc., and JCI-Goshen. ” These sites, according to Johnson Controls, are: Bennington Land- fill, NL Pedricktown, NL-Granite City, Auto Ion, Union Scrap Iron & Metal Company, Inc., and Delaware Sand & Gravel. The latter 2 sites, according to Johnson Controls, involved suits by the government for past cleanup costs already incurred, without any previous government direc- tive having been issued to JCI. At the remaining 5 sites, Johnson Con- trols claims that a private party suit followed some prior directive from the government requesting that Johnson Controls remediate the site. These sites are: Bay Drums, Keefe Environmental Services, Inc., Hunt’s Disposal, NL-Portland (Gould), and Tonolli. 8a The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily [or personal] injury or property damage to which the policy applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such, bodily injury or _ property damage... .'” 412 Johnson Controls’ complaint asserted that this lan- guage required its insurers to reimburse Johnson Controls for its costs in complying with its liabilities at the 21 sites, and it sought a declaratory judgment to that effect. {13 The complexity of the case led to an extended pe- riod of discovery. On May 20, 1992, before the case could go to trial, this court decided Shorewood, by a 4-3 vote, in a manner [10] that would have helped Johnson Controls. See Sch. Dist. of Shorewood v. Wausau Ins. Cos., 168 Wis. 2d 390, 484 N.W.2d 314 (1992) (Shorewood I). Three months later, after a motion for reconsideration, the court withdrew its mandated opinion and a new 6-1 majority issued an opin- ion with a contrary analysis and an opposite result. Sch. Dist. of Shorewood v. Wausau Ins. Cos., 170 Wis. 2d 347, 488 N.W.2d 82 (1992) (Shorewood). {14 In November 1992 the court of appeals issued a unanimous decision in City of Edgerton v. General Casualty Co. of Wisconsin, 172 Wis. 2d 518, 493 N.W.2d 768 (Ct. App. 1992). This decision distinguished the Shorewood case and was helpful by implication to Johnson Controls. Nineteen months later, as the present case was awaiting trial, this court reversed and [11] issued its own Edgerton opinion. '© Although there is some minor deviation from this language in some of the policies at issue, for purposes of this appeal we view the lan- guage in the contested policies as substantively similar to the language presented. 9a City of Edgerton v. Gen. Cas. Co. of. Wis., 184 Wis. 2d 750, 517 N.W.2d 463 (1994)." [12] 415 In Edgerton, we concluded that standard CGL policies do not provide indemnification coverage for an in- sured who cleans up an environmentally contaminated site, regardless of whether or not the insured owns the property, when the remediation is done pursuant to a government di- rective or request under CERCLA. Id. at 782-86. This hold- '! Edgerton involved the owner of a landijill site, Edgerton Sand and Gravel, Inc. (ES&G), and the City of Edgerton, the latter of which leased the site for use as the city landfill from 1968 to 1984. City of Edgerton v. Gen. Cas. Co. of Wis., 184 Wis. 2d 750, 758-59, 517 N.W.2d 463 (1994). By 1978 the DNR had informed ES&G by letter that it suspected groundwa- ter contamination at the site, and the DNR recommended that the landfill be closed and capped. Jd. at 759. In 1984 volatile organic compounds were detected in the groundwater underneath and in the vicinity of the site. Id. ES&G closed the landfill in 1984 and, during the next year, the site was capped. Jd. Though the site was closed, groundwater contamination re- mained, which compelled the DNR to recommend the landfill for place- ment on the EPA’s list of contaminated sites for priority cleanup. Jd. In June 1989 the EPA notified both ES&G and the City by certified letter that the EPA was investigating the site and the circumstances surround- ing the presence of hazardous substances in and around the landfill. Jd. at 750-60. The EPA then requested that the insureds respond to the DNR’s request for information regarding the disposal of hazardous substances at the landfill from 1950 to 1984. Id. at 760. In July 1989 the insureds forwarded the letters received from the EPA to their primary insurance carrier, General Casualty. Jd. Each in- sured separately requested defense coverage, with ES&G specifically requesting that General Casualty pay any costs that it may have incurred regarding the site. Jd. In February 1990 the DNR sent certified letters to both insureds, giving each 30 days to propose a plan for remediation of the site. Jd. The DNR also indicated that failure to respond would result in the listing of the site on CERCLA’s National Priorities List or the tak- ing of immediate state action. Jd. at 760-62. In response, ES&G notified its excess insurer of its receipt of the EPA information request letter and the DNR enforcement letter, requesting coverage of defense costs as well as any liability resulting from EPA or DNR claims. /d. at 762. The insur- ers denied liability coverage and refused to provide a defense for both the City and ES&G, prompting the insureds to seek a declaratory judgment - defining the obligations of the insurance companies under their policies. Id. 10a ing was based on a conclusion that environmental response costs under CERCLA” constitute equitable relief, not legal damages, under the policy, and, thus, the insurer had no duty to indemnify its insured for these expenditures. Id. at 782. The majority also held that neither a potentially re- sponsible party (PRP) letter nor a comparable notification letter from a state agency constituted a “suit” triggering the insurers’ duty to defend. Jd. at 771, 775. The court con- cluded that the primary attribute of a suit—that the parties are involved in “actual court proceedings”—was not present where an insured merely receives notification of potential liability from the EPA or the DNR. Id. at 775. 416 Following the Edgerton decision, the insurers in this case moved for summary judgment, arguing that Edger- ton established that no liability insurance coverage is pro- vided for any insured who cleans up contaminated property pursuant to a government directive or request under CERCLA or similar state laws. On February 24, 1995, the Circuit Court for Milwaukee [13] County, George A. Burns, Jr., Judge, granted summary judgment to the insurers and the case was dismissed as to all sites. Johnson Controls then appealed the various judgments and orders.” 417 Before the appeal was heard, this court clecided an- other case bearing on legal issues at play in both Edgerton and the Johnson Controls appeal. In General Casualty Co. of Wisconsin v. Hills, 209 Wis. 2d 167, 561 N.W.2d 718 (1997), the insured, a service station owner, sought liability insurance coverage for a claim brought against him by a waste oil recycler seeking recovery of environmental re- '2 CERCLA defines “response costs” to include the costs of remov- ing hazardous substances from the environment and the costs of other remedial work. See 42 U.S.C. § 9601(25). '5- At this time, one of Johnson Controls’ insurers filed a cross-appeal to address the circuit court’s dismissal of its counterclaim against Johnson Controls. The court of appeals ultimately reversed this decision. Johnson Controls, Inc. v. Employers Ins. of Wausau, Nos. 95-1796 & 95-2591, un- published slip op. at 15-16 (Wis. Ct. App. Oct. 13, 1998). lla sponse costs associated with a contaminated recycling site. Id. at 171-172. The EPA had placed the recycling site on the National Priorities List'* and the United States had brought suit against the recycler and other defendants, but not against the service station owner. Jd. No government agency had ever notified the insured service station owner of potential liability under CERCLA or requested that he develop a remediation plan or incur remediation and [14] response costs. /d. at 180. This court held that, so long as there was no request or directive by the government, the insured was covered under his CGL policy for compensatory, monetary relief sought by third parties for losses they incurred due to the insured’s alleged past contamination of the property. Id. at 185. 418 After Hills was decided in April 1997, the court of appeals addressed Johnson Controls’ appeal. In an unpublished decision dated October 13, 1998, the court of appeals attempted to apply the holdings of Edgerton and Hills in assessing whether response and remediation costs incurred by Johnson Controls qualified as “damages” under Johnson Controls’ CGL policies. Johnson Controls, Inc. v. Employers Ins. of Wausau, Nos. 95-1796 & 95-2591, unpublished slip op. (Wis. Ct. App. Oct. 13, 1998) (Johnson Controls I). The court developed four categories to determine whether the varic:s sites would or would not be covered. {19 The first category « asists of Edgerton-type sites. These involve situations where the insured is responsible for cleaning up the contamination at a site pursuant to a government directive under CERCLA, or a. sstate counterpart, and the insured performs the cleanup. Citing Edgerton and Amcast Industrial Corp. v. Affiliated FM '* The National Priorities List is a list of polluted sites compiled by the EPA, as required by CERCLA. 42 U.S.C. § 9605. A site’s placement on the list makes it eligible to be cleaned up through CERCLA-related means. See Blasland, Bouck & Lee, Inc. v. City of N. Miami, 283 F.3d ~ 1286, 1289 n.1 (11th Cir. 2002) (citing 42 U.S.C. § 9605). 12a Insurance Co., 221 Wis. 2d 145, 584 N.W.2d 218 (Ct. App. 1998), the court said that the costs of this type of remediation are not “damages” and, therefore, no insurance coverage is required in connection with the remediation of these sites. [15] 920 The second category consists of situations governed by Hills. An insured is responsible for at least part of the contamination of a site that it does not own. The insured is not contacted by the government in any manner regarding cleanup of the property. Instead, a government agency has directed others responsible for the contamination to remediate the site and they, in turn, file suit against the insured to recover the cleanup costs attributable to the insured. Pursuant to the Hills holding, CGL coverage is given to an insured for remediation at these sites. Id. 421 The court of appeals then devised two new categories that it said were the logical extensions of the Edgerton and Hills decisions. Johnson Control I, Nos. 95- 1796 & 95-2591, unpublished slip op. at 7-10. 422 The third category consists of situations in which the insured is at least partially responsible for contaminating a site that it does not own. It is then directed by a governmental entity to remediate the site, but fails to do so. The insured in category three, like the insured in Regent Insurance Co. v. City of Manitowoc, 205 Wis. 2d 450, 463, 556 N.W.2d 405 (Ct. App. 1996), is swed by the government to recover [16] money that the government spent to remediate the site. According to the court of appeals’ 'S Regent Insurance Co. v. City of Manitowoc, 205 Wis. 2d 450, 556 N.W.2d 405 (Ct. App. 1996), held that where the government sues “an insured to recover incurred cleanup costs under § 107(a)(4)(A) of [CER- CLA]... or to impose a plan for remediation, that action is not a ‘suit for damages’ but is, rather, a suit for ‘equitable monetary relief.” Id. at 463. Johnson Controls argued before the court of appeals that our decision in Hills overruled Regent. The court of appeals disagreed, noting that the vitality of Regent was reaffirmed post-Hills by Hydrite Chemical Co. v. Aetna Casualty & Surety Co., 220 Wis. 2d 26, 39 n.5, 582 N.W.2d 423 (Ct. App. 1998). . <= —i“<(<;72S ; ;SC:<‘( ts” 13a analysis, the recovery sought by the government remains equitable in nature and, therefore, no insurance coverage is obtained in the situations encompassed by category three. Johnson Control I, Nos. 95-1796 & 95-2591, unpublished slip op. at 11. 423 A fourth category consists of situations similar to category three, except that the insured is sued by the site’s owner or by other third parties who are also responsible for the contaminat.on, any of whom cleaned up the site at the government’s direction. The government is not involved in the suit against the insured. As with categories one and three, the court of appeals concluded that there is no insurance coverage for sites in this category. Id. {24 The court of appeals indicated that categories three and four are subsumed under the rationale of Edgerton, since neither the government nor the third party in these cost recovery actions is seeking “legal damages” for injury to [17] property caused-by an insured. The rationale for non-recovery was later explained as follows: Rather, the government and property owners forced by the government to clean up contamination allegedly caused by Johnson Controls are seeking what Edgerton noted was “equitable monetary relief,” that is, recompense for monies spent in complying with the nation’s’ environmental- protection laws—money that would have been spent by Johnson Controls if it had complied with the government’s cleanup directives. Johnson Controls v. Employers Ins. of Wausau, 2002 WI App 30, 49, 250 Wis. 2d 319, 640 N.W.2d 205 (Johnson Controls II), (citing Edgerton, 184 Wis. 2d at 784). 725 Having articulated the preceding categories, the court of appeals remanded the matter for the entry of a global judgment, instructing the circuit court to break down its decision into subparts reciting: “(1) the property involved; (2) the insurance company or companies and the relevant dates of their policies that relate to the property; and (3) the result required by this opinion.” Johnson a ceseemenemesngrerererennemeseasmmmmmmmmmmammmmmmmmmmaiil l4a Controls I, Nos. 95-1796 & 95-2591, unpublished slip op. at 12. 426 On remand, the Milwaukee County Circuit Court, Michael P. Sullivan, Judge, determined that all 21 sites at issue fell into categories one, three, or four, meaning that the costs incurred by Johnson Controls at these sites were not “legal damages” entitled to insurance coverage under its CGL policies. Johnson Controls appealed once again. After concluding that the circuit court’s findings of fact were not clearly erroneous, the court of appeals affirmed the circuit court’s finding that no [18] coverage was afforded to Johnson Controls. Johnson Controls II, 250 Wis. 2d 319, 426. Johnson Controls petitioned this court for review, which we granted. Il 427 The core of this matter is the continuing vitality of Edgerton. While Johnson Controls maintains that, even if Edgerton is upheld, the insurers must provide coverage in situations governed by categories three and four of the Johnson Controls I schema, it nonetheless launches an overt assault on Edgerton’s holdings. Johnson Controls asks this court to overrule Edgerton because the decision was a misapplication of Wisconsin law, it created an arbitrary and unworkable system for resolving issues that arise in the context of insurance coverage for environmental damage, and the legal rationales for the decision have completely eroded. Conversely, the insurers beseech this court to uphold its precedent, adhere to the rationale of Edgerton, and, upon doing so, recognize that categories three and four must necessarily be denied consonant with Edgerton. 428 In determining whether Edgerton should survive, we engage in two levels of analysis. First, we must assess whether the conclusions of Edgerton were incorrect as a matter of law. If we determine that the opinion was fundamentally wrong, then we must grapple with Edgerton’s standing as controlling legal precedent in Wisconsin. In other words, even if this court determines conclusively that 15a Edgerton misapplied principles of Wisconsin insurance law and misconstrued the nature of the [19] relief sought in CERCLA cost recovery actions, we still must decide whether these errors require the court to overrule its recent precedent and deviate from the doctrine of stare decisis. Ill {29 Johnson Controls seeks coverage under its various CGL policies. With regard to the insurers’ duty to indemnify, the policies provide: “The [insurer] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of. . . property damage to which the policy applies, caused by an occurrence.” As for the insurers’ duty to defend, the policies provide that the insurer “shall have the right and duty to defend any suit against the insured seeking damages on account of such... property damage.” All policies at issue have language either identical or substantially similar to the preceding terms. {30 The interpretation of words or clauses in an insurance contract is a question of law that we review de novo. See Just v. Land Reclamation, Ltd., 155 Wis. 2d 737, 744, 456 N.W.2d 570 (1990). As we explained in Hills, the method by which Wisconsin courts determine whether an insurance contract requires coverage of a particular claim is familiar: In general, the interpretation of an insurance contract is controlled by principles of contract construction. See, e.g., Kuhn v. Allstate Ins. Co., 193 Wis. 2d 50, 60, 532 N.W.2d 124 (1995); Maas [v. Ziegler], 172 Wis. 2d [70], 79, 492 N.W.2d 621 [(1992)]. The primary objective in interpreting a contract is to ascertain and carry out the intentions of the parties. See, e.g., Maas, 172 Wis. 2d at 79; Kremers-Urban Co. v. American Employers Ins. Co., 119 [20] Wis. 2d 722, 735, 351 N.W.2d 156 (1984). “Of primary importance is that the language of an insurance policy should be interpreted to 16a mean what a reasonable person in the position of the insured would have understood the words to mean.” Sprangers, 182 Wis. 2d at 536; accord, e.g., Kuhn, 193 Wis. 2d at 60; Kremers-Urban Co., 119 Wis. 2d at 735. Hills, 209 Wis. 2d at 175. These principles guide our interpretation of the policy language at issue in this case. A. Are CERCLA Response Costs Damages? 431 We first address whether CERCLA response costs are “sums which the insured shall become legally obligated to pay as damages.” To answer this question, we must comprehend the nature of environmental response costs as understood by a reasonable insured faced with CERCLA liability.’® 432 The insurers contend that, when the government seeks cleanup costs under the authority of CERCLA (or similar state regulation), the government is seeking relief in the form of (a) restitution through a cost-recovery action,"’ or (b) injunction [21] through administrative order." 16 As we stated in Hills, the focus of our analysis in this case is on interpretation of the insurance policies and not on environmental law. General Casualty Co. of Wisconsin v. Hills, 209 Wis. 2d 167, 175, 561 N.W.2d 718 (1997). The parties and amici curiae have extensively argued, in varying forms, how competing interpretations of the CGL policy will impact on the efficient and effective remediation of pollution. While we are sensitive to these issues, these discussions are not probative of whether coverage obtains under Johnson Controls’ policies. 17 42 U.S.C. § 9607(a)(4)(A). '§ Section 107(a)(4) of CERCLA, codified as 42 U.S.C. § 9607(a)(4), establishes the right of a cost recovery action of parties against other par- ties responsible for contamination at a site remediated under CERCLA. It provides that all responsible parties shall be liable for— (A) all costs of removal or remedial action incurred by the United States Government or a State or an Indian tribe not in- consistent with the national contingency plan; 17a Because the insurers argue that both forms of relief are “equitable,” that is, not legal damages,” coverage is excluded. [22] 433 Johnson Controls takes the opposite position. It contends that response costs are “damages” from the perspective of an ordinary insured because the law imposes costs on the insured to remediate property that the insured ‘previously damaged. These response costs should thus be covered. 434 When this issue was first addressed in Edgerton, a majority of the court concluded that CERCLA response costs do not constitute “damages” under standard CGL policies. Edgerton, 184 Wis. 2d at 782. The Edgerton majority looked primarily to School District of Shorewood, (B) any other necessary costs of response incurred by any other person consistent with the national contingency plan; (C) damages for injury to, destruction of, or loss of natu- ral resources, including the reasonable costs of assessing such injury, destruction, or loss resulting from such a release[.] 42 U.S.C. § 9607(a)(4). In the alternative, the government can seek, under certain circumstances, a court order to require responsible parties to per- form remedial actions through a Unilateral Administrative Order. This authority is granted under Section 106 of CERCLA, which provides in part: In addition to any other action taken by a State or local government, when the President determines that there may be an imminent and substantial endangerment to the public health or welfare or the environment because of an actual or threat- ened release of a hazardous substance from a facility, he may require the Attorney General of the United States to secure such relief as may be necessary to abate such danger or threat, and the district court of the United States in the district in which the threat occurs shall have jurisdiction to grant such re- lief as the public interest and the equities of the case may re- quire. The President may also, after notice to the affected State, take other action under this section [22] including, but not limited to, issuing such orders as may be necessary to pro- tect public health and welfare and the environment. 42 U.S.C. § 9606(a). 18a 170 Wis. 2d at 347, for guidance in interpreting the “as damages” language in the insureds’ CGL policies. 435 In Shorewood, two school districts sought liability insurance coverage under their CGL policies for their costs in defending an action for declaratory and injunctive relief and their costs in complying with the terms of subsequent settlement to correct alleged practices of illegal segregation and racial discrimination in education. Jd. at 356-62." The court noted that: [23] The apparent goal of the plaintiffs in the underlying action was the desegregation of the Milwaukee area school system. The amended complaint sought only declaratory and injunctive relief whose purpose was “to eliminate the remaining vestiges of segregation in the school districts and schools in the Milwaukee metropolitan area.” The amended complaint did not seek to presently compensate the victims of past discrimination. Therefore, no “damages” were sought in the underlying action. Id. at 371. 436 The Shorewood court recognized that the types of costs being sought were largely to indemnify the school district for future public expenditures. To explain why such costs did not fall within our traditional concept of “damages,” the court concluded that the term “damages,” when used in CGL insurance policies, unambiguously means “legal damages”—that is, “legal compensation for past wrongs or injuries’—which are generally pecuniary in nature. Jd. at 368. Then the court added: “The term ‘damages’ does not encompass the cost of complying with an injunctive decree.” Id. '9 Asin this case and in Edgerton, the policies at issue in Shorewood qualified the insurer’s duty of indemnification to only those sums which the insured is “legally obligated to pay as damages.” Sch. Mist. of Shore- wood v. Wausau Ins. Cos., 170 Wis. 2d 347, 358 n.1, 488 N.W.2d 82 (1992). 19a {37 This last sentence was critical. Citing Black’s Law Dictionary, Professor Dan Dobbs’ Handbook on the Law of Remedies (1973), Pure Milk Products Cooperative v. National Farmers Organization (Pure Milk ID, 90 Wis. 2d 781, 280 N.W.2d 691 (1979), and Milliken v. Bradley (Milliken II), 483 U.S. 267 (1977), the court hammered the distinction between compensation for past wrongs and injunctive relief that looks to the future. An injunction looks to the future conduct of the parties and is preventive in nature. Damages, on the other hand, are remedial in nature, not preventive. The remedy of injunction in only available if the plaintiff can establish that a continuing or [24] anticipated injurious act is not adequately compensable in damages. Shorewood, 170 Wis. 2d at 370 (citing Pure Milk II, 90 Wis. 2d at 800). 738 In retrospect, the rationale for the Shorewood decision was too broadly stated, and we reject its overly restrictive definition of damages. 139 Succeeding courts should have noticed that the Shorewood court’s key sentence—“The term ‘damages’ does not encompass the cost of complying with an injunctive decree”—was inconsistent with the language of authorities quoted in the opinion. 740 For instance, Shorewood cited Dobbs, Handbook on the Law of Remedies, for the proposition that judicial remedies fall into four major categories: damage remedies, restitutionary remedies, coercive remedies (such as injunctions that are backed by the court’s contempt power), and declaratory remedies. Shorewood, 170 Wis. 2d at 368 (citing Dobbs, supra, § 1.1 at 1 (1973)). The court then summarized the law: “This classification scheme is based on the nature and purpose of the relief awarded. ... A classification based on the form of the action, as either equitable or legal, is irrelevant.” Id. at 369 (emphasis added). The substance of Dobbs’ 1973 treatise is that if the purpose of a remedy is to compensate a party for some loss, 20a the purpose of the remedy overshadows the form of the action. [25] 941 We note that Justice Abrahamson cited the same Dobbs treatise and the exact same page in the original Shorewood opinion, writing that “Although the main purpose of ‘damages’ at law is generally viewed as compensatory, the dama [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386001_1125%3A1. Public record. Not legal advice.