Author: Hamilton

Institute for Legal Reform Issues Reports on Rise of Public Nuisance Lawsuits

Posted on by Hamilton

The U.S. Chamber Institute for Legal Reform (ILR) recently issued two reports analyzing the rise of public nuisance lawsuits by municipalities. The papers address the history, issues, and potential solutions to the rise of these types of lawsuits, which seek to hold private businesses liable for broad issues including lead paint, contaminants such as PFAS and PCBs, opioids, and even the global issue of climate change. Plaintiffs are using an ever-broader “public nuisance” theory to support their claims.

The first ILR report, Mitigating Municipality Litigation, focuses on opioid, climate change, and data privacy lawsuits. First, the report analyzes how municipal lawsuits have increased in recent decades. The report points to the “big tobacco” settlements of the late 1990s as an example of the ineffectiveness of municipal lawsuits. Municipalities are incentivized by the prospect of large settlements like the tobacco settlement and what are perceived as low risk contingency fee arrangements with private plaintiff attorneys. However, settlement money does often not actually go to recovering legitimate municipal costs or helping actual injured victims.

The report describes further issues with these types of lawsuits. With thousands of local entities able to sue individually, municipal litigation deprives defendants of certainty and finality and can prolong settlements, increasing costs and delaying implementation of remediation programs.

Furthermore, municipalities who use outside plaintiff attorneys reduce public accountability. As the report states, contingency fee arrangements with outside counsel “reward aggressive, duplicative litigation that forces large, rapid settlements” to the benefit of plaintiff attorneys, not municipalities, victims, or defendants.

Finally, the report discusses several ways states can disincentivize municipalities from filing these types of lawsuits and gives examples of states with statutes already in place. Solutions include:

  • Restrict municipalities’ authority to sue. The report notes that a now repealed Wisconsin statute once prevented municipalities from bringing public nuisance lawsuits.
  • Require attorney general approval of municipal lawsuits.
  • Codify the municipal cost recovery rule.
  • Restrict municipalities’ ability to hire outside counsel, cap contingency fees, and impose other transparency requirements.
  • Ban municipalities from filing lawsuits against certain industries.
  • Enter into state level settlements that waive municipal claims.
  • Narrow the definition of a “public nuisance” claim and limit other causes of action.
  • Shorten the time period in which municipalities may file complaints. The report highlights Wisconsin’s statute of repose in its products liability act.
  • Bar recovery when the plaintiff also contributes to the nuisance.
  • Require plaintiffs to prove specific damages.
  • Restrict courts from hearing certain types of claims.

 

The second ILR report, The Misuse of Public Nuisance Actions, analyzes how public nuisance theory has expanded beyond its traditional scope and argues legislatures, not courts, should decide how to remediate large public crises like global warming, the opioid crisis, and lead paint.

First, the report overviews the history of the public nuisance tort and discusses cases that have created precedent for public nuisance claims by municipalities. The discussion notes a Wisconsin court of appeals lead paint decision City of Milwaukee v. NL Industries. The appeals court in this case ruled against lead paint manufacturers and in favor of the city’s public nuisance argument, holding that evidence attributing paint to specific manufacturers was unnecessary because use of the paint and advertising for the paint in the city was a community-wide public health nuisance.

The report then discusses emerging public nuisance litigation in the areas of mortgage lending, PCBs, and opioid manufacturing and how municipalities are circumventing traditional limitations on the public nuisance tort to give standing to their claims.

Overall, the report argues that municipal public nuisance lawsuits are an inappropriate venue to create public policy. Instead of courts, the legislature and agencies should determine public policy solutions to widespread issues like environmental contamination and the opioid crisis.

 

The American Tort Reform Association also issued a report on public nuisance lawsuits earlier this year.

Peter Ogden Family Trust of 2008 v. Board of Review for the Town of Delafield (Property Tax Assessment)

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In Peter Ogden Family Trust of 2008 v. Board of Review for the Town of Delafield (2019 WI 23), the Wisconsin Supreme Court held that property owners do not need a business purpose in order for their land to be assessed as agricultural.

The Ogdens owned two lots that were originally assessed as agricultural. The Ogdens grew Christmas trees, apples, and hay on the two lots. In 2016, an assessor reclassified their property as residential, resulting in an over $800,000 increase in taxes owed by the Ogdens. The Ogdens appealed to the Delafield Board of Review.

The assessor argued that the Ogdens were using a “loophole” in agricultural assessment because they were not harvesting the trees, apples, and hay for commercial purposes. According to the assessor, the Ogdens did not appear to be generating an income from their agricultural activities, and the law prevents property from being assessed as agricultural unless it has a legitimate business purpose.

The court disagreed with the assessor’s argument, finding that there is no language in statute or rule requiring a business purpose for agricultural assessment. Wis. Stat. s. 70.32(2)(c)1g. defines “agricultural land” as land with a primarily “agricultural use” as defined by the Department of Revenue (DOR). The DOR definition of “agricultural use” includes growing Christmas trees, apples, and hay. Neither statute nor DOR rules require any business purpose in growing these crops.

Since the assessor had misinterpreted the law, the court ordered the Ogden’s land to be reclassified as agricultural. A dissent from Justices Dallet and Walsh Bradley agreed that a business purpose was not required for agricultural assessment, but argued that the court should have remanded to the Delafield Board for further proceedings instead of ordering the reassessment of the land.

Supreme Court Oral Arguments – March 2019

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The Wisconsin Supreme Court held oral arguments this month on several notable cases, addressing issues including UIM coverage, subrogation waivers, and conditional use permits.

Cases of interest include:

 

Ann Cattau v. National Insurance Services of Wisconsin (negligence and breach of fiduciary duty) – March 18

The plaintiffs, former teachers and school administrators, claim negligence, breach of fiduciary duty, and misrepresentation against MidAmerica and NIS, which administered their retirement plans. The plans were noncompliant with federal law, and the plaintiffs ultimately owed several years of tax dollars back to the Internal Revenue Service. The plaintiffs claim they relied on MidAmerica and NIS as experts to administer a qualifying plan, and MidAmerica and NIS misrepresented the plan as federally compliant. The issues before the Supreme Court are whether the plaintiffs stated an adequate claim against defendants MidAmerica and NIS and whether the plaintiffs should be able to amend their complaint for a second time.

 

John Teske v. Wilson Mutual Insurance Co. (claim preclusion and UIM coverage) – March 18

The Supreme Court will decide whether previous litigation related to underinsured motorist (UIM) coverage precludes the instant tort claim alleging negligence by the driver insured by Wilson. The appeals court ruled the causes of action of the UIM action and the tort action differed, so claim preclusion should not apply. Wilson appealed to the Supreme Court, seeking to dismiss the tort action.

 

Rural Mutual Insurance Co. v. Lester Buildings, LLC (contractor subrogation waiver) – March 20

Jim Herman, Inc. and Lester Building entered into a contract to build a barn. The contract contained a subrogation waiver requiring both parties to waive all rights against each other and their subcontractors. Lester then contracted with a concrete provider in the building process. When a storm caused half of the barn to collapse due to improper installation of the concrete, Herman’s insurer Rural Mutual alleged breach of contract and negligence against Lester. Lester argued the claims were barred because of the subrogation wavier. Issues before the court include whether contractors may use such subrogation waivers to limit tort liability despite Wis. Stat. § 895.447, which provides that any provision to limit tort liability in a construction contract is against public policy and void.

 

Enbridge Energy Co., Inc. v. Dane County (conditional use permit) – March 26

Dane County issued Enbridge Energy a conditional use permit to expand the volume of oil pumped through a local Enbridge pipeline. The permit contained conditions requiring Enbridge to maintain two liability insurance policies. Shortly after Dane County issued the permit, the legislature passed in the 2015-16 state budget a provision precluding counties from requiring pipeline operators to obtain insurance if they already carry general liability insurance including coverage for sudden and accidental pollution liability. After the law change, Dane County retained the previous insurance conditions in Enbridge’s permit, but added language indicating that the new state law made the conditions unenforceable.

Enbridge filed the instant lawsuit asking the court to remove the unenforceable insurance conditions. Additionally, several Dane County property owners filed a lawsuit asserting that Enbridge was not in compliance with the new state law insurance requirements, so Dane County could enforce the conditions. The Supreme Court will address issues including whether counties can include unenforceable insurance permit conditions and whether property owners can bring citizen suits to enforce such conditions.

Budget Bill Seeks to Reinsert Anti-Business Qui Tam Law

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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

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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.