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U.S. Chamber Releases Research on Third Party Litigation Financing

Posted on by Hamilton

Recent research from the U.S. Chamber Institute for Legal Reform (ILR) looks at how the third party litigation financing industry has over the last decade grown exponentially, fueling abusive litigation. According to the ILR paper, third party litigation financing is now at least a $10 billion industry. These investors in lawsuits encourage filing of frivolous cases and often drive up the cost of litigation and settlements, as well as presenting a variety of ethics issues.

The ILR policy paper recommends several approaches lawmakers can take to address third party litigation financing, including some that have already been enacted in Wisconsin.

Wisconsin was the first state to enact third party litigation financing transparency requirements in 2017 Act 235, authored by Sens. Tom Tiffany (R-Minocqua) & David Craig (R-Big Bend) and Reps. Mark Born (R-Beaver Dam) & John Nygren (R-Marinette). Former Wisconsin Gov. Scott Walker signed the historic legislation into law just over two years ago. The law provides that, unless stipulated or otherwise 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.

Other policies recommended by ILR to address third party litigation financing include banning fee sharing arrangements between lawyers and non-lawyers and banning third party litigation financing in class actions.

Wisconsin Supreme Court Oral Arguments – March & April

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Due to COVID-19 concerns, the Wisconsin Supreme Court has canceled its oral arguments for most of March and April. New dates for oral arguments will be set at a later date, unless all parties stipulate to the court proceeding with a decision without oral arguments. As of right now, oral arguments are still on for April 20. Below are the cases of note that were scheduled to be heard.

 

April 20 – Veto Authority Cases

Still on the schedule as of right now are oral arguments on April 20 in two cases challenging the veto authority of the governor. Bartlett v. Evers challenges vetoes by Gov. Tony Evers in the 2019-21 state budget, and Wisconsin Small Business United, Inc. v. Brennan challenges vetoes by Gov. Scott Walker in the 2017-29 state budget.

 

April 1 (Canceled) – Federal Preemption of Weight Limits

On April 1, the court had been scheduled to hear Town of Delafield v. Central Transport Kriewaldt. The case will decide whether federal transportation law preempts the town’s seasonal weight restriction on certain roads. Federal law (U.S. Code Title 49 s. 31114(a) and Title 23 s. 658.19) requires towns provide “reasonable access” between the interstate and terminals. The court will determine whether Delafield’s seasonal weight limits provided reasonable access.

 

March 30 (Canceled) – Gambling Statutes

On March 30, the court had been scheduled to hear Quick Charge Kiosk, LLC v. Josh Kaul. The court will determine whether gaming and cell phone charging machines operated by Quick Charge violate certain Wisconsin gambling statutes.

The Quick Charge machines allow customers who insert a dollar in the machine to receive one minute of charging time and 100 credits to play the video chance game. After the charging time expires, customers can no longer play the game but can redeem their remaining credits for cash at the same rate for which they paid for the credits ($1 for 100 credits).

Some municipalities attempted to remove the Quick Charge machines because they believed the machines were illegal gambling devices. In this case, Quick Charge filed an action seeking a declaratory judgment that the machines are in compliance with Wisconsin’s gambling statutes. The state Department of Justice moved for summary judgment, asking the court to declare the machines unlawful.

The Supreme Court will examine whether or not the gambling statutes apply to this specific type of machine and to promotions run by Quick Charge.

 

March 18 (Canceled) – Administrative Rulemaking & Guidance Documents

On March 18, the court had been scheduled to hear Papa v. Department of Health Services. In this case, the court will determine whether a Wisconsin Department of Health Services (DHS) policy in DHS’s Medicaid Provider Handbook has the “force of law” (Wis. Stat. § 227.01(13)) and should be promulgated as an administrative rule and subject to judicial review.

Medicaid-certified nurse Kathleen Papa and Professional Homecare Providers, Inc. (PHP) filed this lawsuit against DHS regarding Topic #66 in DHS’s Medicaid Provider Handbook. Topic #66 states that Medicaid providers must “meet all applicable program requirements” for reimbursement. If providers fail to meet all requirements, DHS can recoup payments from the providers. Papa and PHP argued that Topic #66 was an illegal unpromulgated administrative rule and that the policy exceeded DHS’s explicit statutory authority under Wis. Stat. Ch. 227.

The Supreme Court will review the Court of Appeals finding that Topic #66 was not an administrative rule, and thus Papa and PHP could not obtain a declaratory judgement via Wis. Stat. Ch. 227 judicial review of administrative rule proceedings. Additionally, the Supreme Court will review whether Topic #66 – if not a rule – is a guidance document also subject to judicial review under Ch. 227.

Wisconsin Supreme Court Accepts New Veto Authority Case

Posted on by Hamilton

The Wisconsin Supreme Court recently accepted a new case, Wisconsin Small Business United, Inc. v. Brennan (2019AP2054), which will decide whether the governor’s partial veto authority allows him to change dates in a piece of legislation.

Petitioners challenge the constitutional validity of two vetoes by Gov. Scott Walker in the 2017-19 budget bill. In that budget, the Governor used his partial veto authority to delay the effective date of a program by 60 years and extend another program by 1,000 years.

The court will decide whether Art. V § 10 of the Wisconsin Constitution allows governors to change dates in appropriations legislation. The constitution provides that governors may partially veto numbers in appropriations and may veto entire words but may not create a new word by vetoing individual letters. At issue is whether the governor can veto individual numbers in dates in appropriations legislation.

Also on the Supreme Court’s docket is a case challenging vetoes by Gov. Tony Evers in the 2019-21 state budget, Bartlett v. Evers. The cases are both scheduled for oral argument on April 20.

 

Piper v. Jones Dairy Farm (Donning & Doffing Compensation)

Posted on by Hamilton

In Piper v. Jones Dairy Farm (2020 WI 28), the Wisconsin Supreme Court determined that employees’ donning and doffing activities are compensable under state law and such compensation cannot be precluded by collective bargaining agreement.

 

Facts

Plaintiffs are employees of Jones Dairy Farm seeking compensation for time spent putting on and removing safety shoe covers, frocks, hairnets, etc. before and after their shifts. Compensation for donning and doffing was not included in multiple collective bargaining agreements between the employees’ union and Jones Dairy.

Jones Diary argued the employees had bargained away their rights to donning and doffing compensation in their collective bargaining agreements. According to Jones Dairy, the employees during multiple negotiations had withdrawn proposals for donning and doffing compensation in exchange for higher base wages.

Alternatively, Jones Dairy argued the time spent donning and doffing was de mininmis or that the equitable defenses of promissory estoppel, waiver, laches, and unjust enrichment bar the plaintiffs’ claims.

 

Decision

A 4-3 court held that compensation for donning and doffing cannot be bargained away in a collective bargaining agreement. The law does not exempt employers from compensating employees for all hours worked, and donning and doffing is included in “hours worked” under Wis. Admin. Code § DWD 272.12. Wisconsin statute does not specifically allow employers to modify donning and doffing through collective bargaining, whereas federal law does. The federal law does not preempt state law because there is no Wisconsin statutory equivalent to the federal provisions. Furthermore, § DWD 274.05, which allows exemptions from certain wage requirements if both management and labor seek a waiver from DWD, does not apply to § DWD 272.12 requirements.

On Jones Dairy’s alternative arguments, the court found that the aggregate time employees spent donning and doffing was not de minimis. The court also found that Wis. Stat. § 109.03(5), which provides a private right of action in state court for employee wage claims, does not bar Jones Dairy’s equitable defenses. The Supreme Court remanded the case to the circuit court to reconsider the equitable defenses argued by Jones Dairy.  

Justice Dallet wrote the decision, joined by Justices Walsh Bradley, Kelly and Hagedorn.

 

Dissents

In a dissent, Justice Ziegler (joined by Chief Justice Roggensack) argued that donning and doffing compensation is subject to collective bargaining. According to the dissent, donning and doffing compensation requirements can be waived under § DWD 274.05. Chapter 274 incorporates § 272.12, which governs the compensability of donning and doffing.

Although Jones Dairy and the employees did not apply for a waiver under § DWD 274.05, the statute and previous case law allow wage requirements to be waived without a formal request to DWD if it is agreed upon in collective bargaining and other factors are met (i.e. waiving requirements is not dangerous to the life, health, safety or welfare of the employees). In this case, the dissent found there was an issue of material fact as to whether donning and doffing compensation was bargained away, so the dissent would have remanded to circuit court to rule whether Jones Dairy and the employees’ agreement met the conditions to waive donning and doffing wage requirements.

The dissent further argued that the de minimis doctrine does apply in Wisconsin and criticized the court for failing to adopt a standard to determine what is de minimis. Additionally, the dissent would have provided guidance to the circuit court on Jones Dairy’s equitable defenses.

In a second dissent, Justice R. Bradley agreed with the court that donning and doffing compensation cannot be bargained away but would have found the time spent donning and doffing de minimis. The dissent would have adopted the de minimis doctrine for wage claims under Wisconsin law and used the federal standard for determining when wages owed are de minimis.

Lang v. Lions Club of Cudahy Wisconsin, Inc. (Recreational Immunity)

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In Lang v. Lions Club of Cudahy Wisconsin, Inc. (2020 WI 25), the Wisconsin Supreme Court held that recreational immunity applied to a sound engineer who set up cords that injured a woman at a music performance because the sound engineer was an agent of the festival owner.

 

Facts

At an event run by the Lions Club, plaintiff Antoinette Lang tripped over an electrical cord placed by sound engineer Fryed Audio, LLC. Fryed’s principal and a member of the band using the cords, Steve Fry, positioned the cord prior to the event. Freyed Audio, LLC was the lead member of Rhythm Method, LLC, with whom the Lions Club contracted to provide music for the festival.

A separate case ruled the Lion’s Club was entitled to recreational immunity as “owner” of the event under Wis. Stat. § 895.52(2). The question before the Wisconsin Supreme Court was whether Fryed Audio was also entitled to immunity as an “agent” of the Lions Club.

 

Decision

 The court held that Fryed was an agent of the Lion’s Club entitled to recreational immunity because the Lion’s Club had the right to control Fryed’s conduct in setting up the music equipment that allegedly caused Lang’s injury.

The court rejected Lang’s argument that the Lion’s Club did not have the right to control Fryed’s conduct because the Lion’s Club lacked expertise to perform and control such a complicated task. The injury-causing conduct in this case – placing the cords – was not so complicated that the Lion’s Club could not have controlled the conduct. Furthermore, placing the cords did not require the Lion’s Club to provide Fryed with “reasonably precise specifications” in order for Fryed to be determined an agent. (The court noted that this case differed from Westmas v. Creekside Tree Service, Inc. (2018), where reasonably precise specifications would have been required for the tree-trimming service to be considered an agent of the immune owner because the injury-causing conduct was too complicated for the property owner to have control over.)

Since Fryed was the subagent of Rhythm Method, LLC, which was acting as the Lion’s Club’s agent in setting up the music for the festival, the court determined Fryed was an agent entitled to recreational immunity.

Chief Justice Roggensack wrote the lead opinion for the court, joined by Justice Ziegler.

 

Concurring Opinion

In a concurring opinion, Justice R. Bradley (joined by Justice Kelly) agreed that Fryed was an agent entitled to recreational immunity but disagreed with the court’s reasoning related to Westmas. The concurring opinion would have overturned Westmas and simply relied on whether the Lion’s Club had a right to control Fryed’s actions, instead of on whether the Lion’s Club had the expertise to do so. The concurring opinion argued that a principal’s lack of expertise or precise specifications, as the court said in its Westmas analysis, does not equate to lack of control. Therefore, the court should have eliminated the “reasonably precise specifications” and expertise analysis and found Fryed an agent simply based on the Lion’s Club’s ability to control Fryed’s actions.

 

Dissents

In a dissent, Justice Dallet (joined by Justice Walsh Bradley) would have determined that Fryed was not an agent of the Lion’s Club entitled to recreational immunity. According to the dissent, the contract between the Lion’s Club and Rhythm Method did not establish the Lion’s Club’s right to control Rhythm Method and its subagent Fryed; instead, the contract left control of setting up the music equipment up to Rhythm Method.

The dissent argued it does not matter if the task is simple or complex. Since the Lion’s Club did not give “reasonably precise specifications” to Rhythm Method, Westmas dictates that Fryed was not an agent of the Lion’s Club. The dissent also would not have provided immunity to Fryed because it was a subagent, not an agent, of the Lion’s Club.

Overall, the dissent argued that, under the court’s decision, recreational immunity would be too broad, applying to anyone associated with the event.

In a second dissent, Justice Hagedorn would also have determined Fryed was not an agent of the Lion’s Club entitled to recreational immunity. The dissent would have determined that Fryed was acting as an independent contractor of the Lion’s Club, not in a master-servant relationship where the agent’s physical conduct is controlled by the principal. As an independent contractor, Fryed was not acting within the scope of agency when it allegedly negligently placed the cords causing injury. The Lion’s Club did not have the right to control how Fryed set up the music equipment. Therefore, Fryed was not an agent entitled to recreational immunity.

DSG Evergreen Family Limited Partnership v. Town of Perry (Eminent Domain)

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In DSG Evergreen Family Limited Partnership v. Town of Perry (2020 WI 23), a unanimous Wisconsin Supreme Court held that claim preclusion did not apply, but the plaintiff had no private right of action against the town, barring this eminent domain case.

The Town of Perry took property from DSG in an eminent domain action. The land taken included a road, and the condemnation petition required the town to replace the road with the same standards as the former road – the statutory standards for construction of town roads in Wis. Stat. § 82.50(1). DSG argued that the new road did not meet the statutory standards, so the town violated the petition.

At issue before the Supreme Court was whether claim preclusion barred DSG’s lawsuit and whether DSG had a private right of action to hold the town accountable for failing to meet the statutory standards.

The court found that claim preclusion did not bar DSG’s claims against the town. The previous two cases litigated between DSG and the town were limited by statute to only certain issues regarding eminent domain procedure. DSG in the previous cases would not have been able to bring its instant claims about the town’s failure to construct the road to appropriate standards. Because there was no identity of the causes of action between the previous cases and the instant case, claim preclusion did not apply.

However, the court did bar DSG’s claims on the grounds that DSG had no private right of action either to 1) request a declaration that the town must improve the road to the statutory standards or 2) seek damages from the town via a private cause of action so DSG could improve the road itself. The court could not award DSG a declaration of rights because § 82.50 gives the town discretion as to if and how it meets the construction standards. The town can petition to the Department of Administration for exceptions to some of the statutory standards. Thus, the request for declaration of rights was not ripe for judicial review. The court further found that § 82.50 does not create a private cause of action against a municipality, so DSG could not seek damages.

Town of Wilson v. City of Sheboygan (Annexation)

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In Town of Wilson v. City of Sheboygan (2020 WI 16), the Wisconsin Supreme Court upheld the approval of Kohler Co.’s annexation of land from the Town of Wilson to the City of Sheboygan for the purpose of developing a golf course.

 

Facts & Decision

The Town argued that the City, in adopting the annexation ordinance, failed to meet statutory requirements on contiguity, abused its powers of annexation, and failed to meet signature and population certification requirements.

The Supreme Court held that the city met all statutory requirements for annexation and did not abuse its powers of annexation.

Contiguity. The court agreed with the Department of Administration’s (DOA) determination that the annexed territory was contiguous to the City.

 Rule of reason. The judicial doctrine of the “rule of reason” determines whether municipalities have abused their powers of annexation. The court found that the City satisfied the rule of reason because:

  • The City did not act arbitrarily. When property owners initiate an annexation (as Kohler facilitated the property owners to do here), courts typically do not charge the municipality with arbitrariness unless the municipality is the “real controlling influence” in selecting the boundaries of the annexation or the annexation has an “exceptional” shape. Here, the City was not the real controlling influence behind the annexation petition and the boundaries of the proposed annexation were not an exceptional shape.
  • There was a reasonable need for the annexation. The City needed the annexed territory for additional housing and economic development. Kohler needed the annexation for approval of its golf course and for sufficient water resources.
  • The City did not abuse its discretion because it conducted a thorough analysis of the annexation petition.

Signature requirements. Wisconsin law (Wis. Stat. § 66.0217(3)(a)1.) requires owners of one-half of the real property in assessed value within the annexed territory to sign the annexation petition. The town argued that the City should have included non-assessed state and city-owned property in the count to determine the signature requirement. However, the court rejected the Town’s argument because the law specifically states the signature requirements are determined by amount of assessed property. The petition here met the signature requirement according to the assessed value determination.

Population certification requirements. The court found that DOA had certified the petition’s population count by accepting the petition for public interest review. DOA did not have to engage in a formal process to certify the population count.

 

Concurring Opinions

In a concurring opinion, Justice R. Bradley (joined by Justice Kelly) agreed that the petition met statutory signature and population certification requirements, allowing the annexation to move forward. However, the concurring opinion would have overturned precedent (Town of Mount Pleasant v. City of Racine) and abolished the “rule of reason” because the judicially created rule is not based in statute.

In a second concurring opinion, Justice Hagedorn agreed with the points made by Justice Bradley. However, because the parties in this case did not ask the court to revisit the rule of reason, the concurring opinion recommended the court wait for a more opportune case to decide on the rule of reason.

Choinsky v. Employers Insurance Co. of Wausau (Duty to Defend)

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In Choinsky v. Employers Insurance Co. of Wausau (2020 WI 13), a 5-1 Wisconsin Supreme Court held that insurers did not breach their duty to defend when they did not immediately accept the defense of their insured. Insurers may initially deny a tendered claim, then follow a judicially preferred method of determining coverage to avoid breaching duty to defend.

 

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 school district on the merits case – including retroactive fees – until the court decided the coverage issue.

The school district argued the insurers breached their duty to defend by not immediately providing the school district a defense.  

 

Decision

The Supreme Court held that the insurers did not breach their duty to defend because, upon finding there was a coverage dispute with the insured, the insurers properly sought bifurcation of the coverage dispute and stay of the liability proceedings. Bifurcation and stay are one of four judicially preferred methods to litigate a coverage dispute between insurer and insured.

When the circuit court denied the motion to stay, the insurers properly followed another judicially preferred method by defending the insured in the liability lawsuit under a reservation of rights until the coverage dispute was resolved. Because the insurers followed the judicially preferred methods, they did not breach their duty to defend and did not owe attorney fees to the school district for the coverage dispute.

 

Dissent

In a dissent, Justice Kelly argued that the insurers did have a duty to defend until the coverage dispute was resolved, notwithstanding a request to bifurcate and stay.

The dissent argued that the court improperly introduced a new concept of “retroactive defense” wherein an insurer can initially refuse coverage without consequence because it can always pay for the defense retroactively if a court later decides coverage is due. The “retroactive defense” concept adopted by the court allows insurers to initially breach their duty to defend and forces the insured to defend itself in coverage and liability trials simultaneously, contrary to the intent of the judicially preferred methods for coverage disputes.

Here, according to the dissent, the insurers did breach their duty to defend by not providing a defense to the school district until the coverage dispute was resolved. The insurers had a duty to defend the school district until coverage was resolved, regardless of whether the insurers sought and the circuit court approved a motion to bifurcate and stay the liability proceedings.

Kasal v. Stryker Corp. (Attorney Fees in Worker’s Compensation)

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In Kasal v. Stryker Corp. (2019AP1017), the Court of Appeals District I held that an insurer was not entitled to attorney fees in a third-party liability worker’s compensation case because the insured’s policy precluded recovery of attorney fees.

Aurora hospital employee Mary Kasal was injured by a piece of equipment at work. Kasal subsequently filed a third-party liability worker’s compensation claim against Stryker Corp., which manufactured the equipment. Aurora and its insurer Sentry Insurance joined the claim, as allowed under Wis. Stat. § 102.29. When Kasal reached a settlement with Stryker, Sentry objected to the settlement, seeking attorney fees, which were not included in its payment under the proposed settlement. The circuit court approved the settlement without attorney fees for Sentry. Sentry appealed.

The Court of Appeals agreed that Sentry was not entitled to attorney fees. A provision in the Aurora policy with Sentry allows Sentry to recover payments from anyone liable for the injury (i.e. Stryker). Because the policy is silent on whether Sentry may recover attorney fees from a third party liable for the injury, the court found that Sentry was not entitled to attorney fees in the settlement. The court determined that the policy provisions superseded Wis. Stat. § 102.29(1)(c), which typically requires attorney fees for third-party liability worker’s compensation lawsuits.

 

Central United Methodist Church v. City of Milwaukee (Tax Exemption)

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In Central United Methodist Church v. City of Milwaukee (2019AP778), the Court of Appeals District I held that a Milwaukee church accepting donations for use of its parking lot used its property exclusively for benevolent purposes; therefore, the church was entitled to a property tax exemption under Wis. Stat. § 70.11(4).

Central United, a non-profit church located near the Rave/Eagles Club concert venue in Milwaukee, began accepting donations from concert-goers who wished to park in its lot. Several years after Central United began offering concert parking, the City of Milwaukee changed the parking lot’s tax assessment classification from “exempt” to “local mercantile.” Central United filed this lawsuit seeking a declaration that the parking lot was exempt and seeking recovery of taxes paid based on the reclassification.

The court found that the church’s parking lot was exempt under Wis. Stat. § 70.11(4), which exempts benevolent associations from property tax payments. According to the court, donations from concert-goers for parking spaces in the church lot were incidental to the benevolent purpose of the church. The church used profits from the voluntary parking lot donations as it used donations from any other source – to support its primary benevolent functions. Furthermore, the church had only begun using volunteers to collect parking lot donations after unauthorized neighbors not associated with the church had attempted to use the parking lot to make a profit. Because the use of the parking lot to accept donations was incidental to the benevolent purpose of the church, the court ruled against the city and found the church exempt from paying property taxes under Wis. Stat. § 70.11(4).