Author: Hamilton

WCJC Files Amicus Brief Urging Appeals Court to Stay Copycat Shareholder Litigation

Posted on by Hamilton

The Wisconsin Civil Justice Council and Metropolitan Milwaukee Chamber of Commerce have filed an amicus brief in Yandoli v. REV Group, Inc. arguing the court should stay state court proceedings in a securities class action lawsuit when an identical class action case is ongoing in federal court.

Plaintiffs filed actions against REV Group, a Milwaukee manufacturer, when its stock price dropped after its initial public offering. Plaintiffs in three federal lawsuits and the instant state case claim REV Group violated Sections 11 and 15 of the federal 1933 Act. The federal litigation consists of not only the same claims but also the same defendants, factual allegations, alleged class, and relief sought. Wisconsin courts typically stay proceedings when a class action involving federal laws is filed in federal court. However, the state circuit court in this case denied the defendants’ motion to stay because the named plaintiff differs from the named plaintiff in the federal litigation.

The WCJC brief asks the Court of Appeals District II to overturn the circuit court’s decision and stay the state case while the federal case is pending. The brief argues that:

  1. The circuit court’s decision not to stay the state level proceedings will harm Wisconsin businesses by allowing for meritless duplicative securities litigation. If permitted to stand, the holding will encourage a parade of opportunistic plaintiff attorneys to file duplicative lawsuits, forcing Wisconsin businesses to defend identical lawsuits in different venues.
  2. Allowing such “copycat” shareholder litigation to proceed in Wisconsin will significantly increase costs and harm Wisconsin’s business climate. Costs of defending these lawsuits will be borne by shareholders, employees, and consumers in Wisconsin. Furthermore, the “litigation tax” companies must consider in an unfavorable business climate would disincentivize growth and investment in the Wisconsin economy.
  3. The circuit court’s decision contravenes the purpose of the Commercial Court Pilot Project to increase efficiency and predictability in business litigation in Wisconsin. If the lower court’s decision is allowed to stand, it would open the Business Court (in which this case was filed) to numerous lawsuits that were never intended when the pilot rule was put into place by the Wisconsin Supreme Court. Allowing this type of litigation to proceed in the Business Court undermines the success of the project, which was expanded statewide beginning April 1, 2019.

 

Abusive Work Environments Cause of Action Legislation Introduced

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Rep. Sondy Pope (D-Mt. Horeb) has introduced legislation (AB 116) that would create a new cause of action outside of worker’s compensation for abusive work environments.

The bill provides an exception to the exclusive remedy of worker’s compensation when employees allege they have been subjected to an abusive work environment. Employees alleging injury from an abusive work environment may file an action in circuit court. Circuit courts may award prevailing employees relief from the employer including medical expenses, back pay, front pay, compensation for pain and suffering, compensation for emotional distress, punitive damages, and attorney fees.

Under the bill, “abusive conduct” means “conduct, including acts or omissions, by an employer or employee, that a reasonable person would find to be abusive based on the severity, nature, and frequency of the conduct.” “Abusive work environment” means “a work environment in which an employer or one or more of its employees, acting with intent to cause pain or distress to an employee, subjects that employee to abusive conduct that causes physical harm or psychological harm to that employee.”

AB 116 has been referred to the Assembly Committee on Labor & Integrated Employment. In addition to Pope, the bill has 18 Democratic cosponsors – 13 assembly representatives and five senators.

Smith v. Goshaw (Property Manager Negligence)

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In Smith v. Goshaw (2017AP2008), the Court of Appeals District III held that the defendant was entitled to a new trial because the jury received instructions that erroneously elevated the standard of care landlords must exercise for upkeep of properties.

Plaintiff Nevin Smith was injured when a fire escape collapsed while he was standing on it. Smith filed the instant negligence action against his landlord Dale Goshaw. At trial, the circuit court accepted Smith’s request to modify the jury instructions for the standard of care for property owners. Generally, the jury instructions require a property owner to exercise ordinary care to avoid an unreasonable risk of harm. The modified jury instructions said, “Every building and all parts thereof shall be kept in good repair.”

Goshaw argued that the modified instructions elevated the standard of care from ordinary negligence to strict liability and thus misled the jury to find him negligent. The appeals court agreed with Goshaw, According to the court, the standard of ordinary care requires an analysis of the “totality of the circumstances,” including whether the property owner should have known about the repairs needed. Modifying the jury instructions to require all parts of buildings to be kept in good repair heightened the ordinary care standard to an absolute duty and misled the jury from taking into account the totality of the circumstances.

Because the modified instructions prejudiced the jury to find Goshaw negligent for repairs he might not have known about – a strict liability instead of ordinary negligence standard – the court awarded Goshaw a new trial with proper instructions.

 

Marx v. Morris (LLCs)

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In Marx v. Morris (2019 WI 34), the Wisconsin Supreme Court decided that members of a limited liability company (LLC) have standing to assert a claim against another member of the LLC as individuals, not on behalf of the LLC. Furthermore, Wisconsin’s LLC law does not pre-empt common law claims.

Plaintiffs Daniel Marx and Michael Murray and defendant Richard Morris all owned LLCs that were members of North Star, LLC. Morris and Murray brought claims against Marx, a manager of North Star, alleging that Morris violated the duty of LLC members and managers to deal fairly in matters in which they have a conflict of interest (Wis. Stat. § 183.0402(1)). Marx and Morris also alleged several common law claims. The plaintiffs brought all the claims as individuals and individual LLCs, not on behalf of North Star.

Morris argued that the court should treat the LLC similar to a corporation, under which structure individual shareholders must bring claims of injury on behalf of the corporation. However, the court held that, since Wisconsin’s LLC statutes (Wis. Stat. Ch. 183) do not specifically prohibit actions brought by individual members against individual members for injuries to the LLC, LLC members can bring individual claims. The court declined to apply corporate principles of derivative standing to LLCs because the structure of LLCs (and specifically North Star’s structure) results in more individual financial harm than the structure of a corporation would. Because the plaintiffs did suffer individual injuries and Wisconsin law does not specifically prohibit bringing individual actions against LLC members, the court ruled the plaintiffs’ claims do have standing.

Morris also argued that the plaintiffs’ common law claims should be displaced by Wis. Stat. § 183.1302(2), which provides that “unless displaced by particular provisions of this chapter, the principles of law and equity supplement this chapter.” The court rejected Morris’s argument, stating that Ch. 183 does not specifically displace the plaintiffs’ common law claims. The court followed other states that have interpreted these types of provisions broadly to allow common law claims unless statutes unambiguously prevent them.

Justice Daniel Kelly (joined by Justices Abrahamson and Kelly) wrote a partial dissent, arguing that Wis. Stat. § 183.035 does provide that members of an LLC do not have the authority to sue on behalf of the LLC, except in limited circumstances. The dissent states that the cause of action here belongs to North Star, not the individual members, because using the “primary injury rule” the individual members did not suffer an injury distinct from other members. Therefore, the claims must be brought by North Star as a whole.

 

Furthermore, the dissent argues the majority shouldn’t have focused on whether Ch. 183 displaces the common law claims. Instead, Justice Kelly focuses on whether LLC members owe each other a fiduciary duty. The dissent argues that LLC members do not owe each other a fiduciary duty because LLCs do not create a dependence between members in the same way partnerships do – LLCs place obligations and liabilities on the LLC entity. Since there is no fiduciary duty, the plaintiffs’ claims do not stand.

Extraordinary Session Litigation Update

Posted on by Hamilton

Several ongoing cases seeking to void the 2018 extraordinary session legislation are moving through Wisconsin and federal courts. This article provides background on each of the cases and updates on where each of the cases are in the legal process.

League of Women Voters v. Evers

Status

6/21/19: In a 4-3 decision the Wisconsin Supreme Court ruled the Legislature’s 2018 extraordinary session was constitutional, upholding 2017 Acts 368, 369, and 370 and the confirmation of 82 appointments.  

5/15/19: The Wisconsin Supreme Court held oral arguments in League of Women Voters v. Evers. 

4/30/19: In a 4-3 decision, the Wisconsin Supreme Court restored the 82 appointments that Gov. Tony Evers had rescinded under the initial circuit court injunction.

4/15/19: The Wisconsin Supreme Court accepted the League of Women Voters’s petition to bypass the Court of Appeals. The Supreme Court will hold oral arguments on May 15.

4/15/19: Gov. Tony Evers filed a brief in opposition to the Legislature’s motion for emergency temporary relief.

4/10/19: The Legislature has filed a motion asking the Wisconsin Supreme Court to take original jurisdiction over the case or, alternatively, to immediately reinstate the rescinded appointments.

4/9/19: The appeals court denied the Legislature’s motion to enforce the stay, arguing Gov. Tony Evers’s withdrawal of the appointments was valid because the governor had the authority to rescind the appointments while the temporary injunction was in place.

4/3/19: The plaintiff League of Women Voters petitioned the Wisconsin Supreme Court to bypass the Court of Appeals, arguing the case presents novel questions of state constitutional law, and only the Supreme Court can provide a definitive resolution.

4/1/19: Due to the disagreement between Gov. Tony Evers’s administration and the defendant legislature as to whether the appointees who had been rescinded are now reinstated, the legislature filed an expedited motion to enforce the court of appeals stay after the administration prevented appointees from returning to work the day after the court issued the stay.

3/27/19: The Court of Appeals District III has issued a stay of the temporary injunction issued by a Dane County circuit court. The Dane County judge had ordered the injunction of 82 appointments confirmed in the extraordinary session and the extraordinary session laws in their entirety. The appeals court order reasons that the Dane County circuit court failed to evaluate the irreparable harm that could result from enjoining the legislation if it is later found valid. The order stays the temporary injunction and establishes an expedited appeal process with all briefs due by the end of April.

Background

The plaintiffs argue that the extraordinary session was not convened in accordance with the Wisconsin Constitution, which authorizes the legislature to meet only as provided by law or when convened by the governor (Wis. Const. Art. IV, § 11).

The Legislature intervened as a defendant and argues that convening an extraordinary session does not violate the Wisconsin Constitution because the rules for the 2017-18 session prescribed in 2017 Senate Joint Resolution 1 specifically state that any days not reserved for scheduled floorperiods are available for the legislature to convene an extraordinary session. Therefore, the Legislature met as provided by law under the Constitution and Wis. Stat. § 13.02(3).

SEIU v. Vos

Status

10/21/19: The Wisconsin Supreme Court held oral arguments in SIEU v. Vos.

6/11/19: The Wisconsin Supreme Court granted the defendant Legislature’s motion for temporary relief pending appeal by staying the temporary injunction issued by the Dane County Circuit Court. However, the Supreme Court left in place the injunction on Act 369 provisions that would have rescinded improperly promulgated guidance documents on July 1, 2019. Additionally, the Supreme Court stayed proceedings on the case in the lower court, cancelling the trial on guidance document provisions of Act 369 set to begin in Dane County on June 12. Read more. 

4/19/19: The Wisconsin Supreme Court assumed jurisdiction of this case, several weeks after a second Dane County judge issued a temporary injunction preventing enforcement of some extraordinary session legislation provisions requiring legislative approval for the attorney general to discontinue or settle cases, requiring transparency for agency guidance documents, and allowing for more legislative oversight of agency rulemaking, while leaving in place other portions of the laws. The defendant legislature had also appealed this injunction, but the court of appeals had not provided a ruling before the Supreme Court assumed the case.

Whereas the League of Women Voters order enjoined the extraordinary session laws in their entirety, the SEIU circuit court order found the plaintiffs did not establish sufficiently that a court would find other provisions unconstitutional. Specifically, the SEIU circuit court judge left in place provisions

  • Allowing the legislature to intervene and use outside counsel in certain cases.
  • Allowing the Wisconsin Economic Development Corporation to designate an unlimited number of enterprise zones, but requiring approval of the Joint Finance Committee on any new zone.
  • Requiring legislative oversight of agencies applying for federal waivers and seeking to reallocate funds.

Background

The plaintiffs, Service Employees International Union, Wisconsin Federation of Nurses and Health Professionals, American Federation of Teachers-Wisconsin, and Milwaukee Area Service and Hospitality Workers, allege that the extraordinary session laws are an unconstitutional violation of the separation of powers doctrine.

According to the plaintiffs, Article V of the Wisconsin Constitution gives the governor the exclusive power to execute laws. Furthermore, Article V guarantees that one branch may not interfere with another branch’s powers. The plaintiffs allege that extraordinary session provisions, including increased legislative oversight of rulemaking, attorney general lawsuits, and agency appropriations, interfere with the governor’s and attorney general’s constitutional powers. Furthermore, committee oversight without opportunity for a governor veto violates constitutional separation of powers.

The defendant legislature argues that the Wisconsin Constitution explicitly allows the legislature to prescribe the powers of the attorney general. Furthermore, Wisconsin case law has interpreted the Constitution as a fluid rather than rigid political design of separate branches of government.

Democratic Party of Wisconsin v. Vos

Status

The Democratic Party of Wisconsin (DPW) has filed a complaint in the U.S. District Court Western District of Wisconsin seeking to declare the extraordinary session legislation in violation of the U.S. Constitution. Parties are continuing to brief the case, and oral arguments will be held on April 26.

Background

The complaint alleges that the legislation violates the plaintiffs’ First and Fourteenth amendment rights, as well as the Guarantee Clause.

The U.S. Constitution Art. 4 § 4 guarantees states a republican form of government. DPW’s complaint alleges that the Republican legislature violated the Guarantee Clause by removing powers from the incoming Democratic administration to the legislature.

DPW also claims that the extraordinary session violated the plaintiffs’ First Amendment rights to free association and free speech because the state legislature retaliated against Democratic candidates based on their political viewpoints by limiting their ability to enact their policy preferences via the newly elected Democratic Gov. Tony Evers and Attorney General Josh Kaul.

Finally, DPW argues the legislation violates the Fourteenth Amendment’s Equal Protection Clause because it dilutes the power of Democratic votes.

Judge Brian Hagedorn Wins Wisconsin Supreme Court Race

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In the only statewide race in the Wisconsin 2019 spring elections on April 2, Court of Appeals Judge Brian Hagedorn beat Court of Appeals Chief Judge Lisa Neubauer for an open seat on the Wisconsin Supreme Court. Hagedorn won by close to 6,000 votes, and Judge Neubauer has officially conceded, declining to call for a recount.

Conservative Hagedorn will replace liberal Justice Shirley Abrahamson, who has been on the court since 1976. Hagedorn’s win puts the court at a 5-2 conservative-liberal balance. The next Supreme Court race will be in 2020 for conservative Justice Daniel Kelly’s seat.

Wisconsin Supreme Court Considers Whether DPI and Superintendent Violated REINS Act

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The Wisconsin Supreme Court heard arguments on April 10 in one of the more important cases of the term, Koschkee v. Evers. The case presents important state constitutional issues centered on whether the Department of Public Instruction and Superintendent of Public Instruction violated the 2017 Regulations from the Need of Scrutiny Act (REINS Act). The case also will be closely watched to see whether the Supreme Court revisits and overturns its previous decision, Coyne v. Walker.

 

Background

In 2017, the Wisconsin Legislature passed comprehensive regulatory reform legislation that was signed into law by Gov. Scott Walker as Act 57. Known as the REINS Act, the law mandates that before a state agency may begin to work on drafting an administrative rule, the agency must first submit what is known as a “statement of scope” with the Department of Administration to determine whether the agency has explicit statutory authority to promulgate the rule. The agency must also submit the statement of scope to the governor for approval. The statement of scope provides a summary of the proposed administrative rule as well as the agency’s statutory legal authority to issue the rule. The REINS Act left in place previous law that requires, after the rule goes through the rulemaking process, final approval from the governor before it can go into effect.

After Act 57 went into effect, the Department of Public Instruction sent statements of scope to the Legislative Reference Bureau to be published in the Wisconsin Administrative Register without first submitting the statements of scope with the Department of Administration and governor as required by the law. In each statement of scope, the Department of Public Instruction stated that it was not required to submit the statements of scope to the Department of Administration and governor based on a previous court decision, Coyne v. Walker, which addressed a similar law enacted in 2011.

 

2016 Decision – Coyne v. Walker

In 2011, the Wisconsin Legislature enacted a comprehensive regulatory reform bill that was signed into law as Act 21. Similar to the REINS Act, Act 21 provided that state agencies could not begin to work on an administrative rule until the statement of scope was first submitted to the governor’s office for his or her approval. Act 21 also put in place the requirement that the final rule must be approved by the governor before it may go into effect.

Act 21 was challenged as unconstitutional as applied to the Department of Public Instruction and the Superintendent of Public Instruction. A fractured Wisconsin Supreme Court held that Act 21 was unconstitutional as applied to Department of Public Instruction and Superintendent. While a majority agreed Act 21 was unconstitutional, there was no majority opinion written by the Wisconsin Supreme Court in Coyne. Instead, a number of separate opinions written by former Justices Michael Gableman and David Prosser, and current Justices Shirley Abrahamson and Ann Walsh Bradley, declared Act 21 unconstitutional as applied to the Department and the Superintendent. No one of the opinions is controlling.

Chief Justice Patience Roggensack, joined by Justices Annette Ziegler and Rebecca Bradley, wrote a dissenting opinion arguing that Act 21 is constitutional and that the Department of Instruction and Superintendent had to abide by the rulemaking provisions in Act 21.

 

Koschkee v. Evers Preview

The Wisconsin Institute for Law Liberty filed a lawsuit directly with the Wisconsin Supreme Court in which it alleged that the Department of Public Instruction and former Superintendent of Public Instruction Tony Evers, now Gov. Evers, violated Act 57 by failing to submit the statements of scope with the Department of Administration and the governor. The Supreme Court accepted the case and set oral arguments for Wednesday, April 11.

What is different this time as compared to the Coyne case is the makeup of the Wisconsin Supreme Court. As previously noted, Justices Gableman and Prosser were part of the plurality opinion in Coyne that held that Act 21 was unconstitutional as it applied to the Department of Public Instruction and the Superintendent. Justice Prosser was replaced by Justice Daniel Kelly, while Justice Gableman was replaced by Justice Rebecca Dallet.

Assuming that Chief Justice Roggensack and Justices Ziegler and Rebecca Bradley rely on their previous Coyne opinion – in which they held Act 21’s requirement that any statements of scope by the Department of Public Instruction must be approved by the governor before it begins the rulemaking process – only one more justice is needed to join them to overrule the plurality decision in Coyne.

Therefore, it is safe to say that the attorneys from both sides will be directing their arguments at the two newest justices, Daniel Kelly and Rebecca Dallet. A decision by the court is expected some time this spring or summer.

 

 

Appeals Court Issues Stay of Injunction on Extraordinary Session Laws

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The Court of Appeals District III has issued a stay of the temporary injunction in League of Women Voters v. Evers, one of the cases challenging the constitutionality of the 2018 extraordinary session laws. The stay comes after a Dane County circuit court judge ordered the injunction of 82 appointments confirmed in the extraordinary session and the extraordinary session laws in their entirety.

The appeals court order reasons that the Dane County circuit court failed to evaluate the irreparable harm that could result from enjoining the legislation if it is later found valid. The order stays the temporary injunction and establishes an expedited appeal process with all briefs due by the end of April.

Read more about the League of Women Voters case.

Despite the appeals court order reinstating the extraordinary session laws in League of Women Voters, some parts of the extraordinary session laws are still unenforceable after a second Dane County judge issued a temporary injunction in a separate case, SEIU v. Vos. The SEIU injunction prevents enforcement of provisions requiring legislative approval for the attorney general to discontinue or settle cases, requiring transparency for agency guidance documents, and allowing for more legislative oversight of agency rulemaking, while leaving in place other portions of the laws. The defendant Legislature also plans to appeal this injunction, but there has yet to be an appeals court ruling on a stay.

Read more about the SEIU case.

D.C. Climate Change Litigation to Allow for Third Party Litigation Financing

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Earlier in March, the Washington, D.C. Office of the Attorney General announced it is seeking outside counsel for a climate change investigation – and would allow attorneys to engage in third party litigation funding in the process.

D.C. Attorney General Karl Racine tweeted on March 15 a solicitation for outside legal counsel for climate change litigation, specifically an investigation into ExxonMobil for potential violations of D.C.’s Consumer Protection Procedures Act. (Note that D.C. already has a full-time lawyer working on climate change, hired through a grant program funded by Bloomberg Philanthropies and the New York University School of Law’s State Energy and Environmental Impact Center.) Lawyers hired for this climate change project would work on contingency fee arrangements for up to $25 million. Additionally, the contract includes provisions allowing for attorneys to engage in third party litigation funding to pay for up-front litigation costs. If the attorneys prevail in litigation, third party investors would receive a portion of D.C.’s award.

This type of third party litigation financing allowed by the D.C. solicitation leads to questionable claims, prolonged settlements, and the skirting of ethics rules as investors unrelated to the underlying issues of the case seek to maximize monetary awards. Third party litigation financing disadvantages defendants unaware their opposition is being funded by an unnamed third party and plaintiffs who lose control over decision making in their own litigation. Furthermore, in this case where the D.C. government is the plaintiff, third party involvement would reduce the amount of any awards dedicated to programs benefitting taxpayers.

Wisconsin led the nation on litigation funding transparency by passing 2017 Act 235 last session. The legislation provided that that, unless stipulated or ordered by the court, a party shall provide to the other parties any agreement under which any person, other than an attorney permitted to charge a contingent fee for representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgement, or otherwise. Read more about Act 235 here.

Meanwhile, the U.S. Chamber Institute for Legal Reform (ILR) is calling for third party litigation funding transparency at the federal level. ILR also recently issued reports detailing concerns about the growth of public nuisance lawsuits seeking to hold individual businesses accountable for the global issue of climate change, similar to the D.C. investigation.

Second Dane County Judge Orders Injunction of Extraordinary Session Legislation

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Following an injunction ordered by Dane County Judge Richard Niess in the League of Women Voters v. Knudson case against the 2018 Extraordinary Session laws, a second Dane County judge enjoined provisions of the laws this week in SEIU v. Vos.

Judge Frank Remington’s order partially grants the plaintiffs’ motion for temporary injunction. The order prevents enforcement of provisions of the extraordinary session

  • Requiring legislative approval for the attorney general to discontinue or settle cases.
  • Requiring transparency for agency guidance documents.
  • Allowing the legislature’s Joint Committee on Administrative Rules to suspend a rule multiple times.

Whereas the League of Women Voters order enjoined the extraordinary session laws in their entirety, the SEIU order found the plaintiffs did not establish sufficiently that a court would find other provisions unconstitutional. Specifically, the SEIU judge left in place provisions

  • Allowing the legislature to intervene and use outside counsel in certain cases.
  • Allowing the Wisconsin Economic Development Corporation to designate an unlimited number of enterprise zones, but requiring approval of the Joint Finance Committee on any new zone.
  • Requiring legislative oversight of agencies applying for federal waivers and seeking to reallocate funds.

The Legislature plans to appeal the order and has already appealed to the Court of Appeals District III for a stay in League of Women Voters.