Author: Hamilton

Budget Bill Seeks to Reinsert Anti-Business Qui Tam Law

Posted on by Hamilton

In his proposed 2019-21 state budget, Gov. Tony Evers seeks to reinstate a law repealed in 2015, known as “qui tam,” which allows private individuals to bring lawsuits on the government’s behalf. Evers’s proposal goes even further than Wisconsin’s previous qui tam law by applying the law not only to Medicaid fraud and but to all state agencies. The Wisconsin Civil Justice Council helped repeal the law in 2015 and will work hard to ensure that it is not enacted back into law.

 

Background of Qui Tam in Wisconsin

Qui tam is a Latin term describing a legal action to collect a penalty through supplied information from the public. Under this legal doctrine, a private party called a “relator” may bring a whistleblower lawsuit against a party on the government’s behalf. The relator must first present the information to the government, which can decide to either pursue the case, or deny involvement and allow the plaintiff to bring the case on behalf of the state using a private plaintiff attorney.

In 2007, the Wisconsin Legislature enacted the previous qui tam law, which applied only to Medicaid fraud cases. In 2015, the law was repealed by the Legislature during the budget bill process.

 

Qui Tam Law Reintroduced by Gov. Evers

On February 28, Gov. Tony Evers introduced the 2019-21 budget bill which not only reintroduces the previous qui tam law for Medicaid fraud, but also would expand to the law to all state agencies. This means that if any private party contracting with the state is alleged to have committed a “false claim” with the state of Wisconsin, a relator can bring a claim on behalf of the state against the business.

The problem with the qui tam law is that it provides incentives for private parties to sue. Under the proposed budget bill language, the relator can receive up to 30 percent of the total alleged damages to the state, as well as the ability to recoup his or her attorney’s fees and costs.

Moreover, the business providing the service to the state can be liable for up to three times the damages the state sustained, “or could have sustained,” whichever is higher.

 

State Qui Tam Laws Profit Plaintiff Attorneys and Do Little to Prevent Fraud

Not surprisingly, the main proponents of qui tam laws are plaintiff attorneys who profit off of suing businesses and medical providers on behalf of the state.

The U.S. Chamber Institute for Legal Reform in 2018 published a paper, “The Great Myths of State False Claims Acts,” which explains that there is little evidence that these statutes accomplish the ostensible goal of detecting and recovering damages for Medicaid fraud. Instead, in many instances the states with qui tam statutes may actually recover less from the average Medicaid fraud settlement than those states without, due to the state’s obligation to pay out a share of the settlement to the private party.

At the federal level, the U.S. Department of Justice (U.S. DOJ) is seeking to curb meritless qui tam law suits encouraged by the Federal False Claims Act. Noting record increases in qui tam actions, in 2018 the U.S. DOJ issued a memo providing a general framework for its attorneys on when to dismiss qui tam actions in which the government chooses not to intervene. With the federal trend away from supporting qui tam actions, Wisconsin should not resurrect these ineffective and often meritless actions at the state level.

It’s also important to note that Wisconsin already has a law – Wis. Stat. § 49.49 – that grants the Attorney General the authority to prosecute Medicaid fraud and recover damages on behalf of the state. All damages recovered under this law go to the State of Wisconsin and need not be paid out to a private party or plaintiff attorneys.

 

Conclusion

The Wisconsin Civil Justice Council was instrumental in getting the previous qui tam law repealed in 2015, and will work hard to make sure the law is not enacted back into law.

 

Gov. Evers Budget Would Restore Qui Tam, Reverse Extraordinary Session

Posted on by Hamilton

In his 2019-21 state budget address, Gov. Tony Evers proposed several reforms related to Wisconsin civil procedure. Most notably, the governor is seeking to restore private individuals’ ability to bring qui tam claims by reviving the False Claims Act. WCJC supported the repeal of the False Claims Act in the 2015-16 state budget. Read about the budget proposal’s qui tam provisions and other notable budget provisions below.

 

Qui tam

 Qui tam claims are claims initiated by private individuals on their own behalf and on behalf of the state. Prior to the 2015-16 budget repeal, Wisconsin’s False Claims Act allowed private individuals to bring qui tam claims against persons who make false claims for Medical Assistance. Evers’s proposal goes even further than Wisconsin’s previous qui tam law by applying the law not only to Medicaid fraud and but to all state agencies. The Wisconsin Civil Justice Council helped repeal the law in 2015 and will work hard to ensure that it is not enacted back into law. Read more about the budget’s qui tam provision.

 

Extraordinary session

Evers is proposing the repeal of parts of the 2018 extraordinary session legislation. Evers suggests a full repeal of Act 370 which gives the legislature oversight of agency waiver requests, allows Joint Finance Committee oversight of Medicaid program changes, and codifies Medicaid work requirements and substance abuse screening for FoodShare.

Evers also proposes repealing provisions of Act 369 including:

  • The requirement that the legislature approve settlements by the attorney general.
  • The requirement that the attorney general deposit all settlement funds into the general fund.
  • The ability of the legislature to intervene in lawsuits involving the state.
  • The ability of the legislature to obtain outside legal counsel.
  • The definition and public transparency requirements for agency guidance documents.
  • The requirement that agencies cite statutes supporting any interpretation of law they publicly provide.

 

Settlement funds

In addition to eliminating the current requirement that all settlement funds go to the general fund, Evers proposes new appropriations for settlement funds in DOJ. These new appropriations include:

  • An appropriation to administer and remit payments received by DOJ that are owed to relators (i.e. in qui tam actions).
  • An appropriation to administer settlement funds where the terms of the settlement specify how the funds should be used.
  • An appropriation to administer settlement funds where the terms of the settlement do not specify how the funds should be used. This appropriation may be used in DOJ at the attorney general’s discretion.
  • A requirement that DOJ submit semiannual reports to the Joint Finance Committee on how settlement funds are spent.

 

Judicial Council

Evers’s budget proposal does not restore funding or position authority to the Judicial Council. Former Gov. Scott Walker defunded the Judicial Council in the 2017-19 state budget after the Supreme Court sent an orderto DOA that it will no longer transfer funds to DOA in support of the Judicial Council. While the Judicial Council lacks funding, the statute (Wis. Stat. § 20.670) creating the Judicial Council remains in place.

The Judicial Council’s proposed budget details performance measures and results from 2017 continuing into 2021. The Judicial Council’s goals for 2019, 2020, and 2021 include:

  • Drafting and filing a Supreme Court petition to update rules regarding duty to preserve evidence in civil case.
  • Reviewing ways to incorporate Federal Rules of Evidence into Wisconsin’s rules.
  • Review modifications to the Rules of Civil Procedure created by 2017 Act 235 to update the act with Federal Rules of Civil Procedure. WCJC supported Act 235 in the 2017-18 session.

DPW Files Extraordinary Session Challenge

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The Democratic Party of Wisconsin (DPW) has filed a complaint seeking to declare the 2018 extraordinary session legislation in violation of the U.S. Constitution. The complaint, one of several challenges to the extraordinary session, 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.

The complaint is the first federal challenge to the extraordinary session legislation. Other challenges in state courts argue that the extraordinary session was not convened in accordance with the Wisconsin Constitution (League of Women Voters v. Knudson) and that the legislation violates the state Constitution’s separation of powers principles (Service Employees International Union v. Vos).

Evers Supports Unions in Act 369 Challenge

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Gov. Tony Evers has filed a motion asking the Dane County Circuit Court to grant a temporary injunction on several provisions of the 2018 extraordinary session legislation. The plaintiffs in this challenge include a coalition of labor unions and state Sen. Janet Bewley (D-Mason). Evers, who is a defendant in the lawsuit, argues that the plaintiffs are likely to succeed in their claims that provisions of 2017 Act 369 and 2017 Act 370 are unconstitutional. Note that Evers is also seeking to repeal the legislation in his 2019-21 budget proposal.

Evers’s brief claims that those provisions violate constitutional separation of powers principles by interfering with the governor’s authority to interpret the law and to prosecute cases on behalf of the state via the attorney general. The brief further argues the increased legislative oversight of agency decisions creates an unconstitutional “legislative veto” and violates constitutional bicameralism and quorum requirements.

Specifically, Evers’s brief supports the plaintiffs’ challenge of Act 370 provisions that require legislature approval of agency requests to the federal government and Act 369 provisions that

  • Create a definition and public transparency requirements for agency guidance documents.
  • Require the Department of Administration to send notice to the Joint Committee on Legislative Organization (JCLO) of any proposed changes to security at the capitol. JCLO then holds a 14-day passive review period on the proposed changes.
  • Require a Joint Finance Committee (JFC) 14-day passive review period for any new enterprise zone proposed by the Wisconsin Economic Development Corporation.
  • Allow the legislature to intervene in an action challenging the constitutionality or validity of a statute.
  • Shift the authority to approve the attorney general’s compromising or discontinuing an action from the governor to JFC.
  • Require JCLO authority for the attorney general to submit to JFC a settlement plan that acknowledges the unconstitutionality of a statute.
  • Give JCLO the authority to acquire office space for legislative offices or legislative service agencies.
  • Allow the Joint Committee for Review of Administrative Rules to suspend a rule multiple times.

In addition to what the plaintiffs are challenging, Evers suggests the court place an injunction on Act 369 sections that

  • Require agencies to cite statutes supporting any interpretation of law they publicly provide.
  • Allow JCLO to intervene in cases involving the state and in other matters.

Note that Evers does not challenge the Act 369 provision codifying the recent Supreme Court decision in Tetra Tech v. DOR that eliminated the practice of courts’ deference to agency interpretations of law.

This case is one of several challenges to the extraordinary session legislation enacted in December 2018. Another lawsuit from the League of Women Voters, Disability Rights of Wisconsin, and Black Leaders for Organizing Communities argues 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 Democratic Party of Wisconsin recently filed another challenge alleging that the legislation violates the U.S. Constitution.

 

Connecticut Court Dismisses Local Governments’ Lawsuit Against Opioid Manufacturers

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In January 2019, a Connecticut state court dismissed one of many lawsuits against opioid manufacturers because the local governments did not have standing to sue. Specifically, the court held the cities were indirectly harmed by the opioid epidemic, and therefore did not have standing to sue.

Local governments, with the aid of contingency fee private attorneys, have brought numerous lawsuits like the Connecticut case against drug manufacturers throughout the country, including in Wisconsin. To date, there are roughly 1,000 lawsuits against opioid manufacturers filed by local governments. A recent report from the American Tort Reform Association outlined the rise in recent years of private plaintiff attorneys bringing these types of lawsuits against businesses on behalf of local governments.

Citing a 1992 U.S. Supreme Court decision, Holmes v. Securities Investor Protection Corp., the Connecticut court held that it must consider three factors to determine whether plaintiffs have direct enough cause to sue:

  • How indirect is the injury;
  • How complicated is it to decide who gets what money;
  • Whether directly injured parties could sue instead.

The court then analyzed the local governments’ lawsuit against the many drug companies and determined that they had not met the three factors.

First, the court determined that alleged injury to the local governments caused by opioid addiction was too attenuated and any injury to the local governments was too indirect.

Second, the court held that deciding who should get the money would require the court to engage in “rank speculation,” and noted that each city is completely different in terms of how the opioid epidemic has affected their respective services.

Third, the court held that there are clearly other directly injured parties, those who became addicted to prescription drugs who could, and have, sued the drug companies. The court said the lawsuit by the cities is not about the victims, but instead is about obtaining money for local government services.

Based on these factors, the court dismissed the lawsuit brought by the local governments. The court decision is City of New Haven v. Purdue Pharma, L.P., et al.

Financial Exploitation Cause of Action Legislation Introduced

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Sen. Bob Wirch (D-Racine) has introduced legislation (SB 41) that would create a new civil cause of action for financial exploitation of a vulnerable person. The bill awards prevailing plaintiffs treble damages (economic and noneconomic), attorney fees, and fees for services of any guardian ad litem incurred because of the litigation.

The bill allows the injured vulnerable person, the person’s guardian, or a representative of the person’s estate to bring an action for financial exploitation. SB 41 defines “vulnerable person” as an elderly, financially incapable, or incapacitated person, or a person with a disability who is susceptible to coercion because of his or her impairment.

According to Wirch’s cosponsorship memo, the bill is modeled after an Oregon law. Only three other states (Arizona, California, and Florida) have adopted similar laws.

SB 41 has been referred to the Senate Judiciary Committee. In addition to Wirch, the bill has 12 Democratic cosponsors – three senators and nine assembly representatives.

West Bend Mutual Insurance Co. v. Ixthus Medical Supply, Inc. (Duty to Defend)

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In West Bend Mutual Insurance Co. v. Ixthus Medical Supply, Inc. (2019 WI 19), a 6-0 Wisconsin Supreme Court held that the insurer had a duty to defend in an advertising injury case.

Health care manufacturing company Abbott filed a suit against Ixthus, claiming that Ixthus wrongfully diverted test strips intended for international markets to domestic markets. Ixthus subsequently tendered its defense to its insurer West Bend. West Bend denied Ixthus’s defense, arguing there was no duty to defend because the policy also contained exclusions for knowing violations and criminal acts. West Bend also argued there was no connection between Ixthus’s covered advertising activity and the injury to Abbott. Instead, West Bend claimed Abbott’s complaint alleged only wrongful importation and distribution against Ixthus.

In an opinion authored by Justice Rebecca Bradley, the court ruled against West Bend. First, the decision stated that Abbott’s complaint did allege a causal connection between Abbott’s injury and Ixthus’s covered advertising activity. Since the complaint includes Ixthus in the defendants who allegedly advertised, West Bend has a duty to defend, even if later proceedings might prove Ixthus was not one of the defendants who actually advertised.

Next, the court analyzed whether the knowing violation and criminal acts exclusions of the policy applied. The court found that neither exclusion applied because the complaint contained at least one allegation that would not require intent and at least one allegation that would not require a criminal charge for the plaintiff Abbott to prevail. Since there is at least one claim in the complaint that is potentially eligible for coverage under the policy, West Bend has a duty to defend.

 

CityDeck Landing LLC v. Circuit Court for Brown County (Arbitration)

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In CityDeck Landing LLC v. Circuit Court for Brown County (2019 WI 15), the Wisconsin Supreme Court held that circuit courts may not stay private arbitration, even when there is an ongoing insurance coverage dispute connected to the arbitration parties. The 4-2 decision, authored by Justice R. Bradley (joined by Chief Justice Roggensack, Justice Kelly and Justice Ziegler, with Justice Dallet not participating), allows CityDeck Landing to proceed in private arbitration with its contractors.

 

Facts

The underlying issue in this case began when a dispute arose between CityDeck and its contractor. CityDeck and the contractor had contracted to use private arbitration. Several of the subcontractors joined the arbitration, and one subcontractor tendered its defense to its insurer Society Insurance. The main contractor claimed it was an additional insured under the Society policy. In turn, Society filed a lawsuit seeking a determination on coverage in the CityDeck arbitration and asked the circuit court to stay the arbitration until the resolution of the coverage dispute. The circuit court agreed to stay the arbitration. CityDeck asked the Supreme Court to vacate the stay.

 

Opinion

The Supreme Court opinion undertakes a historical analysis of the development of the four factors it uses in issuing supervisory writs, such as CityDeck requested in this case. Then, the opinion applies the four factors to the CityDeck case, finding that it meets the criteria for a supervisory writ, and vacates the circuit court order to stay arbitration.

The court found the CityDeck meets the criteria for a supervisory writ because:

  1. The circuit court had a plain duty to comply with the Wisconsin Arbitration Act (Wis. Stat. § 788.01), which holds arbitration agreements as “valid, irrevocable, and enforceable.” Even though Wisconsin courts typically recommend the bifurcation and stay of liability cases and coverage disputes, circuit courts do not have the authority to stay arbitration.
  2. CityDeck could not receive an adequate remedy through the ordinary appeal process because continuing to stay the arbitration on appeal would be a non-reparable and non-compensable damage. Furthermore, an appeal would subject CityDeck to even more litigation, which the parties intended to contract out of via arbitration.
  3. Grave hardship or irreparable harm would have resulted if the Supreme Court did not issue the writ because CityDeck had been denied its right to arbitration and would be forced into public proceedings when it contracted to resolve the matter privately.
  4. CityDeck filed for the writ promptly and speedily.

 

Dissent

 In a dissent, Justice Walsh Bradley (joined by Justice Abrahamson) argued that the majority opinion too broadly expands the hardships and harms eligible for a supervisory writ under factor number three above. The dissent states that CityDeck does not meet the grave hardship and irreparable harm criterium because a delay in arbitration is not a grave hardship, and any harm caused could be reparable by a monetary award. According to the dissent, applying the supervisory writ criteria in the broad way the majority does here would make the criteria applicable to almost any request for a writ.

Choinsky v. Germantown School District (Duty to Defend)

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In an opinion authored by Chief Judge Lisa Neubauer and joined by Judge Brian Hagedorn (both Wisconsin Supreme Court candidates), the Court of Appeals District II held in Choinsky v. Germantown School District (2018AP116) that insurers did not breach their duty to defend when they did not immediately accept the defense of their insured. Furthermore, the insurers did not owe unpaid fees beyond what was agreed upon between the insurers and the attorneys.

 

Facts

The underlying issue in this case involved a group of retired teachers who filed a lawsuit against their school district for breach of contract following the enactment of 2011 Act 10. The district tendered its defense to its insurers, Employers Insurance Company of Wausau and Wausau Business Insurance Company.

The insurers determined there was no coverage and, according to the coverage dispute procedure recommended by Wisconsin courts, moved to 1) intervene, 2) bifurcate the coverage issue from the underlying merits of the case, and 3) stay the merits case until the resolution of the coverage issue. The court agreed to bifurcate the issues but denied the motion to stay, citing the need for urgency in resolving the underlying employee benefits issue. The insurers agreed to meanwhile provide defense to the district on the merits case – including retroactive fees – until the court decided the coverage issue.

Before the court decided on the insurers’ motion to intervene, the school district moved to dismiss the teachers’ merits case. There was relatively little other activity on the merits case between when the district filed its motion to dismiss and when the court issued its decision to bifurcate but not stay the merits case.

 

Attorney Fees in Establishing Coverage

The district contended that, because the insurers did not immediately accept its defense and instead waited until the court decision on the bifurcation and stay, the insurers owed the district attorney fees for the coverage dispute. Elliot v. Donahue required an insurer to pay attorney fees for establishing coverage when the insurers denied defense to an insured and moved to bifurcate but not stay the merits proceedings. In the instant case, the appeals court ruled that Elliot did not apply here because the insurers timely and properly followed the court-approved coverage issue procedures. Even though there was no stay granted, the insurer properly filed the motion to stay and timely decided to defend the district when the stay was denied. The court furthermore ruled that waiting to defend until the circuit court decided on the coverage dispute was not a breach of the insurers’ duty to defend.

 

Unpaid Fees on the Merits Case

The district also contended that the insurers failed to reimburse the district fully for attorney fees in the merits case. The insurers had made deductions to invoices, citing the attorneys’ violations of guidelines the attorneys and insurers had agreed upon when they worked together in previous cases. The attorneys did not dispute the insurers’ deductions. The district claimed reimbursing them for the deducted amount instead of the full invoice amount was a breach of contract and requested reimbursement of $50,000 in unpaid fees. The court rejected the district’s argument, stating that there was no evidence the unpaid fees were reasonable and owing, since the attorneys and insurers had agreed upon them.

Faude v. WERC (Wrongful Termination)

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In Faude v. WERC (2017AP842), the Court of Appeals District III held that an employer did not wrongfully terminate an employee because of her union-related activity.

Rebecca Faude was a certified nursing assistant at Clark County Health Care Center. Faude also served as a union steward who negotiated with management on employees’ behalf. Clark County placed Faude on administrative leave and ultimately terminated her after she engaged in misconduct during shift change meetings and vocally criticized several of her superiors at Clark County. Faude filed the instant complaint, arguing that Clark County wrongfully terminated her because of her aggressive advocacy as a union steward.

The appeals court found that there was substantial evidence to support the Wisconsin Employment Review Commission’s decision that Clark County did not wrongfully terminate Faude. The court reasoned that evidence showed Faude engaged in workplace misconduct. Furthermore, she had advocated as a union steward for over three years without being terminated, so the union work would not have been the cause for termination.