Federal Appeals Court Upholds Settlement of Sex Abuse Claim Against Milwaukee Archdiocese, Despite False Information Given to Victim

Federal case law summary by Attorney Richard Clem: WI fraudulent inducement, contract law.

In re: Archdiocese of Milwaukee v. John Doe, Claimant A-49. WI fraudulent inducement, contract law

John Doe alleged that Father David Hanser, the pastor of St. John Vianney Catholic Parish in Brookfield, Wisconsin, sexually abused him in the late 1970's when he was seven years old. In 2007, Doe participated in a mediation program conducted by the Archdiocese of Milwaukee. As a result of this process, Doe settled the case for $100,000.

When the Archdiocese filed for Chapter 11 bankruptcy, Doe filed a claim based upon the same incident, and the Archdiocese moved to disallow it, based upon the earlier settlement. Doe claimed that the settlement agreement should not be honored because during the mediation process, a representative of the Archdioces had fraudulently induced him to settle by giving misleading information about when it first learned of Father Hanser's abuse.

The Bankruptcy court disallowed the claim, and the U.S. District Court affirmed. Doe then appealed to the Seventh Circuit Court of Appeals.

During the mediation, Doe had asked the Archdiocese's representative when it first received a complaint about Hanser. This representative said that the first report arose in the mid- to late-1980's. He also asked whether the Archdiocese had received reports from other victims when Hanser served at St. John Vianney, and she replied that there were none. Doe then settled the case for $100,000 and signed a release.

Four years later, it came to light that the Archdiocese knew of allegations that Hanser had sexually abused a child in the 1970's and that he had sexually abused three other children whil assigned to St. John Vianney. This new information contradicted what the Archdiocese had told Doe during the mediation.

Based upon this information, Doe argued that the settlement agreement should be set aside due to fraudulent incudement. He later testified that both of those answers were important to him because he was still a faithful practicing Catholic and believed that the Archdiocese had his best interests at heart. He believed that the representative who gave him this information was telling the truth.

The issue in the case was wheter Doe had relied on these false statements when settling the case. The Court of Appeals first noted that a settlement agreement is a contract, and is covered by general contract law. A contract that is induced by fraud is voidable. This case was governed by Wisconsin law, and the Court of Appeals noted that the Wisconsin Supreme Court has never addressed this exact issue. However, it did note that the Wisconsin high court has consistently followed section 164(1) of the Restatement (Second) of Contracts in cases involving recission for fraud. The question in this case was whether Doe was actually induced to rely on the false statements. Under the Restatement, Doe had to prove that the two statements "substantially contributed" to his decision to settle the case.

The Court of Appeals held that he had not met his burden of proof. In particular, the court pointed to the state of the law at the time of the settlement. At that time, even though the Wisconsin Courts later reversed the position, the claim appeared to be barred by the statute of limitations. The Court was sympathetic to the fact that the mediation was undoubtedly an extremely difficult and emotionally wrenching situation for Doe. However, it held that he had not established sufficient evidence to show his actual reliance on the two statements.

For that reason, the Court of Appeals agreed with the lower courts and upheld the settlement agreement, disallowing the bankruptcy claim.

No. 12-3689 (7th Cir. Feb. 25, 2014).

Please see the original opinion for the court's exact language.


Richard P. Clem is an attorney and continuing legal education (CLE) provider in Minnesota. He has been in private practice in the Twin Cities for 25 years. He has a J.D., cum laude, from Hamline University School of Law in St. Paul and a B.A. in History from the University of Minnesota. His reported cases include: Asociacion Nacional de Pescadores a Pequena Escala o Artesanales de Colombia v. Dow Quimica de Colombia, 988 F.2d 559, rehearing denied, 5 F.3d 530 (5th Cir. 1993), cert. denied, 510 U.S. 1041 (1994); LaMott v. Apple Valley Health Care Center, 465 N.W.2d 585 (Minn. Ct. App. 1991); Abo el Ela v. State, 468 N.W.2d 580 (Minn. Ct. App. 1991).

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