75 Op. Att'y Gen. 182 (1986)
 
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OPINION NO. OAG 36-86,

Wisconsin Attorney General Opinions

8 October 1986

Historic Sites Foundation, Inc.;
Historical Society, State;
Public Purpose Doctrine;

It was constitutional for the Legislature to
extend indemnity and other liability
protections to the corporation and its agents
and employes who manage and operate a
state-owned circus museum.

TIM CULLEN, Chairperson
Senate Organization Committee

You have requested, on behalf of the Senate
Organization Committee, my opinion
on the following question:

Does the inclusion of officers, directors,
employees and agents of the Historic Sites
Foundation, Inc., within the state's risk
management program as provided by 1985
Wisconsin Acts 29 and 66, creating Wisconsin
Statute section 895.46(1)(e), violate any
constitutional provision?

BACKGROUND

It is necessary to understand the
relationship between the State Historical
Society (Society), the Historic Sites
Foundation, Inc. (Foundation), and the Circus
World Museum (Museum) at Baraboo, Wisconsin.

The Society is a state agency.

OAG 11-85.

It is empowered to

     enter into a lease agreement with the

     Foundation for the purpose of operating

     the Museum, located at Baraboo,
     Wisconsin.
 

Section 44.16(1), Stats., created by 1985
Wisconsin Act 29, Section 755.

The Society acquired the Museum
by gift in 1959.

The Society owns the Museum entirely,
including all real and personal property.

The Museum provides live demonstrations
for public viewing.

These include demonstrations on circus animal
training; loading wagons on circus trains in
the manner done from 1872 to 1956;

a 55-minute big top performance with acts
chosen for historic merit, including acts
of elephants, horses, dogs, and
clowns and aerial artists;

a high wire walk; a clown show
of the 1820-1830 vintage;

a recreation of an 1830 circus street parade;

an elephant playtime swim in
the Baraboo River;

tiger feeding and lecture; and a unique
instruments concert with instruments
dating back to the 1920's.

A library of circus history
adjoins these grounds.

 
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In concluding that the Museum is not subject
to a sales tax on admission charges, the
Wisconsin Tax Appeals Commission said
the Museum's primary objective is

    "the collection, preservation and
     dissemination of the history of
     the Wisconsin circus heritage."
 

Historic Sites Foundation, Inc. v. Wisconsin
Department of Revenue, No. S-10066 (Jan. 21,
1986) (decision slip op. at 17).

The Society is charged with the duty to
promote the collection, advancement, and
dissemination of knowledge of the history of
Wisconsin and the West.

Section 44.02(15), Stats.

    "The purpose of the [Society's] owning
     the Museum site is to let people know
     one aspect of the rich history and
     heritage of Wisconsin."
 

Historic Sites Foundation, Inc., at 17-18.

The Museum
           "is a fun way to learn
            about circus history."
Id. at 20.

The Foundation is a private corporation
created in 1960 under chapter 181, Stats.,
to operate the Museum.

The articles of incorporation provide
that the Foundation is organized

    "exclusively for educational,
     scientific and literary purposes
     . . . all for the benefit of"

the Society.

In fact, its sole function consists
in operating the Museum.

It has twelve directors: an appointee of the
Governor, subject to senate confirmation, see
Section 44.16(2), Stats., as created by 1985
Wisconsin Act 29; the Mayor of Baraboo; the
chair of the Sauk County Board; two curators
of the Society; and a legislator.

The remainder are appointed by
the Society's Board of Curators.

The lease and management agreement recites
that the Society retains the Foundation
as the "manager, operator and promoter"
of the Museum.

The Society leases all its Museum property,
real and personal, to the Foundation.

The Foundation's duties include:

Gathering, collecting and properly displaying
printed manuscript materials and artifacts;
establishing, maintaining and operating a
circus museum and library; sponsoring or
conducting research in circus history and
publishing the results; encouraging in every
possible way an appreciation of the role of
the circus in American life through a
combination of activities which educate,
inform and entertain the public both on the
property of the Museum and elsewhere as the
Foundation shall determine.

Lease, paragraph 2. Section 44.16(1),
provides that the lease between the Society
and the Foundation

    "shall not include any provision for the
     payment of a percentage of gross
     admissions income at Circus
     World Museum to the
     historical society."

 
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By the terms of the lease, the Foundation
must insure the Society's property; the
Foundation supplies the Society with minutes
of meetings of its directors and committees,
as well as financial statements; and all
Foundation publications and stationery
must clearly identify the Museum
as the property, of the Society.

Further, the Society must approve all
long-range Foundation planning, all additions
of real property and all accessions.

Any property acquired by the Foundation
must be transferred to the Society.

State procedures must be followed
in selling personal property.

All general purpose state funding must
be used to reduce admission fees.

The Foundation's board must comply with the
open meetings law, and its corporate records
are open to inspection the same as with any
state agency.

The Foundation must follow state affirmative
action and equal opportunity policies, and
the directors and employes must comport
themselves under the ethical standards
applicable to state officials and employes.

On dissolution, the articles of incorporation
require distribution of the Foundation's
assets to the Society.

The legislation I am asked to opine on, 1985
Wisconsin Act 29 as amended by 1985 Wisconsin
Act 66 ("Act"), has the effect of giving the
Foundation and its directors, officers,
employes, and agents the same liability
protections as are enjoyed by state
officers, employes and agents.

The consequence is that no action may be
brought against them unless, within 120 days
of the event complained of, notice is given
to the attorney general as required by
section 893.82; no compensatory damages in
excess of $250,000 may be recovered against
any one defendant; no punitive damages may be
recovered; the attorney general will provide
legal representation; and the state will
indemnify the defendant for judgments
and costs rendered.

More specifically yet, the Act extends this
treatment to the individuals and to

     any nonprofit corporation operating
     a museum under a lease agreement with

the Society.

The Foundation is treated as a department
of state for purposes of requesting
representation by the attorney general.

See Section 165.25(8), Stats., as created.

PUBLIC PURPOSE

The first issue is whether the Act furthers
a statewide public purpose.

Although the public purpose doctrine is not
found in the state constitution in express
terms, the rule that public funds must be
expended only for a public purpose is a
well-established constitutional tenet.

Wisconsin Solid Waste Recycling
Authority v. Earl,
70 Wis.2d 464, 478,
235 N.W.2d 648 (1975).

Additionally, state funds may be spent only
if the purpose is of statewide concern.

 
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State ex rel. La Follette v. Reuter,
33 Wis.2d 384, 397,
147 N.W.2d 304 (1967).

It is for the Legislature in the first
instance  to determine what constitutes
a public purpose.

The court will sustain the Legislature's
determination if any public purpose
rationally can be conceived.

The challenger's burden is to show there
can be no benefit to the public
from the expenditure.

Hopper v. Madison,
79 Wis.2d 120, 128-30,
256 N.W.2d 139 (1977).

The public purpose depends essentially
on what the people want and expect.

It is a fluid concept; yesterday's
hope is today's entitlement.

State ex rel. Warren v. Reuter,
44 Wis.2d 201, 213,
170 N.W.2d 790 (1969).

Unquestionably the state itself could operate
the Museum by state employes rather
than through the Foundation.

The public purpose is the Museum's
contribution to the state's
historic appreciation.

Indeed, the Society already directly
operates other museums.

The entitlement of its employes and agents to
the state's liability protections cannot
seriously be questioned under the public
purpose doctrine: Whether seen as an
employment fringe benefit or an
incentive to render service,
the public purpose of the
indemnity program is clear.

The fact of the Foundation's private,
corporate nature is of no consequence for
purposes of the public purpose doctrine.

The state may use a private corporate
entity to discharge a public purpose,
at least so long as the entity
remains under state control.

See

State ex rel. Wisconsin Dev.
Authority v. Dammann,
228 Wis. 147, 176,
277 N.W. 278, 280 N.W. 698 (1938).

Since the public purpose is served by
indemnifying private individuals who are
state employes when carrying out the state
objective of historic circus appreciation,
the public purpose is equally served by
extending the same benefit to nonstate
employes to do the same thing.

But the Act, standing alone, does not
freeze the extant Society controls
over the Foundation.

For example, requiring the Foundation to
report to the Society, and to adhere to
public records and open meetings law,
is established by the lease agreement,
not by statute.

The Act does not prevent the Foundation
from changing its bylaws to staff the
board of directors with private,
wholly nonpublic officials.

The Act does not confine Foundation
activities to serving the
state's public purpose.

Nothing in the Act prevents the Society and
the Foundation from deleting the requirement
of Society approval over the Foundation's
long-term planning.

 
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And the Foundation is empowered to certify
that an individual's conduct grew out of
his/her duties and to request the attorney
general to provide legal representation.

Section 165.25(8), Stats., as created.

Although the Act, standing alone, has these
deficits, other related legislation can be
construed as imposing controls to assure
public accountability and a public purpose.

And the courts will so construe them if
necessary to sustain the Act's validity.

See

Joncas v. Krueger,
61 Wis.2d 529, 535-36,
213 N.W.2d 1 (1973).

First, the Society's only statutory power in
this area is to deal with the Foundation "for
the purpose of operating the Museum."
 

Section 44.16(1), Stats., as created.

That power implicitly is limited to the
public purpose of the state's Museum.

While there necessarily is discretion as to
the precise terms that may be negotiated with
the Foundation, any terms that depart from
the public purpose of the Museum would be
invalid under section 44.16(1).

Therefore, reasoning in pari materia,
the Act contemplates only the kind of
agreement the Society is authorized
to make under section 44.16(1).

In any event, the Act is operative only to
the extent the Society has dealt with the
Foundation in terms that comply with
section 44.16(1) and the public
purpose doctrine.[1]

Second, the Foundation does not have final
authority over the decision whether the
individual's conduct grew out of duties
entitling him or her to legal representation
by the attorney general.

The attorney general, a popularly elected
constitutional officer, may contest the
individual's entitlement in court.

Section 895.46(1)(a), Stats. In other words,
if in a particular case a defendant's conduct
is outside the Society's statutory and public
purpose limitations, so as to prevent
extending the benefits of state
representation and indemnity protection,
the attorney general may so contend
before a court even if the Foundation asserts
otherwise.

I believe this mechanism suffices as an
additional procedural safeguard against
diverting public resources for
a nonpublic purpose.

 
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In my opinion, the Act, as construed and
limited above, does not offend the public
purpose doctrine, but the importance of
maintaining ultimate Society control over
programming and Foundation accountability to
assure that the public purpose of the Museum
is preserved, both in theory and in practice,
cannot be over emphasized.

EXTENDING CREDIT

A second possible ground of attack on the Act
rests on the constitutional provision that
the credit of the state shall never be
given, or loaned, or in aid of any
individual, association or corporation.

Wisconsin Constituton
Article VIII, Section 3.

This provision applies only if the state acts
"as a surety or guarantor of the collateral
obligation of another party."

State ex rel. Thomson v. Giessel,
271 Wis. 15, 29,
72 N.W.2d 577 (1955).

It does not apply if the state

     incur[s] liability directly or only to
     such other parties as, for example,
     where the state lawfully employs
     someone to perform an authorized
     service for the state.

Dammann, 228 Wis. at 197.

The state's liability program
is one of indemnity.

See Fiala v. Voight,
93 Wis.2d 337, 348,
286 N.W.2d 824 (1980).

The defendant controls whether the indemnity
is paid, not the plaintiff: it is not paid
if the defendant fails to give notice of
the action or if the defendant fails
to cooperate in the defense.

Section 895.46(1)(a), Stats.

The very distinction between an indemnity and
a guarantee or suretyship turns on the fact
that the indemnity obligation goes to the
judgment debtor, not the third-party
creditor.

See

41 Am. Jur. 2d Indemnity
Sections 1, 4 (1968);

38 Am. Jur. 2d Guaranty
Sections 2, 15 (1968).

An indemnity program operates

    "solely for the benefit of the insured."

8 Appleman, Insurance Law and Practice,

Section 4831 at 416 (1981).

The indemnity obligation arises after
judgment is rendered; it gives the
plaintiff no right of action against
the state or the indemnitee.

See

Cords v. Ehly,
62 Wis.2d 31, 37-38,
214 N.W.2d 432 (1974).

Accord,

Duckworth v. Franzen,
780 F.2d 645, 650-51 (7th Cir. 1985)

 
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plaintiff's suit is not one against the state
for purposes of the eleventh amendment even

     "if the state chooses to pick up
      the tab for its errant officers."

But see

Miller v. Smith,
100 Wis.2d 609, 623,
302 N.W.2d 468 n. 16 (1981)

(declining to decide whether the indemnity
obligation extends only to the judgment
debtor).

Here, the indemnity obligation is extended
directly to someone (the Foundation, its
employes, etc.) that the state has "lawfully
employ[ed] . . . to perform an authorized
service for the state."

Dammann, 228 Wis. at 197. Therefore, there is
no more an extension of credit in this case
than in indemnifying any other state agent
who incurs a judgment for conduct in the
scope of his/her agency, e.g., when causing
injury to another by negligently driving
a car while on state business.

EQUAL PROTECTION

A third possible line of attack rests on
equal protection grounds. This attack
would have two components.

First, the challenge would be from the
perspective of the plaintiff whose rights
of recovery are limited procedurally and
substantively when suing persons protected
by the state's indemnity program.

The second challenge would assert there is
nothing special about the Foundation to
distinguish it from other entities which
also have a close nexus with the state in
discharging various public purpose functions,
e.g., authorities, foundations, and other
chapter 181 corporations, like the Wisconsin
Higher Education Corporation.

See OAG 32-85.

The equal protection challenge is tested
by the "rational basis" criterion.

As stated in

Yotvat v. Roth,
95 Wis.2d 357, 363-64,
290 N.W.2d 524 (Ct.App. 1980):

All legislative acts are presumed
to be constitutional.

A heavy burden is placed upon the party
challenging a statute's constitutionality.

All doubts must be resolved in favor
of the constitutionality of a statute.

Stanhope v. Brown County,
90 Wis.2d 823, 837,
280 N.W.2d 711 (1979).

The appropriate test for review of the
classifications of governmental and
non-governmental tortfeasors and of their
victims is whether a rational basis exists
for the differentiation.

Stanhope,
90 Wis.2d 823, 837;

Binder v. Madison,
72 Wis.2d 613, 622,
241 N.W.2d 613 (1976).

Stanhope,
90 Wis.2d 823, 837-38,
280 N.W.2d 711, 717,

applies the "rational basis"
test as described in

McGowan v. Maryland,
366 U.S 420, 425-26 (1961):

The Fourteenth Amendment permits the
States a wide scope of discretion in
enacting laws which affect some groups
of citizens differently than others.

 
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The constitutional safeguard is offended
only if the classification rests on
grounds wholly irrelevant to the
achievement of the State's objective.

State legislatures are presumed to have
acted within their constitutional power
despite the fact that, in practice,
their laws result in some inequality.

A statutory discrimination will not
be set aside if any state of
facts reasonably may be
conceived to justify it.

 
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The supreme court earlier had upheld the
notice requirement, i.e., plaintiffs'
pre-suit duty of filing notice
with the governmental unit.

The court reasoned it was rationally related
to the objective of preserving public
property in a safe condition.

The public tortfeasor may conduct a
timely investigation of public property,
to determine liability and prevent
future accidents.

 
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The nature of much public property is
such  as to make it difficult to
maintain, and impossible to maintain in
completely safe condition at all times.

Binder v. Madison,
72 Wis.2d 613, 623,
241 N.W.2d 613 (1976).

The notice requirement also enables an
investigation of the claim while fresh.

Ibrahim v. Samore,
118 Wis.2d 720, 726-27,
348 N.W.2d 554 (1984).

As to liability limits, in upholding
a $25,000 municipal liability
cap the court said:

It is the legislature's function to
evaluate the risks, the extent of
exposure to liability, the need to
compensate citizens for injury, the
availability of and cost of insurance,
and the financial condition of the
governmental units.

Sambs v. City of Brookfield,
97 Wis.2d 356, 377,
293 N.W.2d 504 (1980).

Additionally, the court has sustained
tortfeasor classifications designed
to enable the government to provide
those services which it believes
benefits the citizen[s],

Stanhope v. Brown County,
90 Wis.2d 823, 842,
280 N.W.2d 711 (1979),

and for its own protection in paying
the cost of the judgment.

See

Ibrahim,
118 Wis.2d at 727;

Doe v. Ellis,
103 Wis.2d 581, 589-90,
309 N.W.2d 375 (Ct.App. 1981);

Binder,
72 Wis.2d at 623.

In sustaining these classifications, the
courts also have looked to the historic
differential between public and private
tortfeasors.

See

Stanhope,
90 Wis.2d at 838-44,

and

Sambs,
97 Wis.2d at 372.

But for the private nature of the Foundation,
the equal protection issue would easily be
resolved vis-a-vis the tort victim.

The individuals protected are those who
manage the state's own property in
discharging the state's mission of historic
circus enrichment.

The notice requirement serves to assure safe
property, to enable a prompt investigation of
accidents, and to ultimately protect the
indemnity fund.

Providing the indemnity induces people to
this public service without fear
of personal loss.

The alternative of state-purchased liability
insurance rationally could be seen as
needlessly expensive or, because of its
rising costs, prohibitive to the integrity of
the historic circus appreciation program.

The fact of the private nature of the
Foundation should make no difference.

The public purpose remains the same; the
property remains the state's; the mission
remains the state's; and the risk that
liability insurance costs might defeat
the best use of this property for the
maximum obtainment of historic circus
enrichment also remains the state's risk.

To be sure, the Legislature could have chosen
to appropriate funds directly to the Society
to purchase liability insurance as part
of the consideration flowing to the
Foundation for its services.

But the court has rejected
this basis of attack.

The availability of liability insurance
. .  is not by itself a basis for
holding the challenged classification
invalid, however.

The "rational basis"  test for equal
protection does not require that the
legislature choose the best or wisest means
to achieve its goals.

Stanhope,
90 Wis.2d at 843.

And the rising costs of private liability
insurance makes all the more reasonable the
choice of bringing the Museum operatives
directly within the state's own risk
management program.

Moreover, there is nothing novel about
establishing different procedures and
tort liability rules within the private
sector itself.

Medical malpractice is a prime example.

See

Chapter 655, Stats.; 1985 Wisconsin
Act 340 ($1 million liability cap).

Worker's compensation abrogated certain
private sector tort liability altogether
in favor of an alternate remedial scheme,
and it was sustained over equal protection
objections.

Borgnis v. Falk Co.,
147 Wis. 327,
133 N.W. 209 (1911).

Sometimes the law grants a limited class of
private entities a qualified tort immunity,
but for certain torts only.

See

New York Times Company v. Sullivan,
376 U.S. 254 (1964).

And sometimes the law grants private actors
absolute tort immunity. See Section 895.48,
Stats. (good samaritan law).

As to tort law classifications involving the
private sector, if the court can

conceive any facts on which the
legislation could reasonably be
based, it must hold the legislation
constitutional.

State ex rel. Strykowski v. Wilkie,
81 Wis.2d 491, 506,
261 N.W.2d 434 (1978).

Therefore, the rational basis test is not
limited to tort classifications based on the
private versus public sector distinction.

In my opinion, therefore, the Act does
not deny equal protection to
the injured plaintiff.

The private nature of the Foundation and the
theoretic availability of liability
insurance, even if they raised public
purpose concerns, do not create equal
protection infirmities.

What counts is the rationality of
successfully achieving a state program of
historic circus enrichment by attracting
qualified personnel to serve under separate
tort procedures and rules, especially when
raced with the alternative of high liability
insurance costs.

These considerations also dispose of the
second prong of the equal protection attack,
that nothing distinguishes the Foundation
from other similar entities serving state
government.

The Legislature rationally might have found
that the Foundation uniquely serves the state
in a high risk, high cost liability area and
that the jeopardy to citizen historic circus
appreciation is unacceptable as a matter of
policy, either because of necessary
pass-through of insurance costs to ticket
purchasers, or the feared reduction of
programs, or the anticipated loss of quality
from cut backs in other areas.

The rational basis test applies even to
classifications among different
governmental units.

The Legislature may address itself to only
that phase of a problem that appears
most acute . . . . . . even if the
net result resembles a crazy quilt
more than a carefully balanced
sculpture.

Sambs, 97 Wis.2d at 378 n. 13.

For the foregoing reasons I believe
the Act is constitutional.

BCL:CDH

FOOTNOTE SECTION:

[1]

Obviously neither the Foundation nor the
Society should agree to any modification to
the present relationship, including
amendments to the Foundation's bylaws without
the approval of the attorney general.

To do so imperils indemnity of judgments.

Of course, neither my approval of the
modification nor this opinion on the
validity or the Act binds the courts.

A court declaration of invalidity
would instate the peril.

While the Legislature thereafter might
hold individuals harmless as a matter
of discretion, the affected individuals
should understand such result is a
matter or grace, not right.

 
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