High Court on track to adopt Rule 11

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At its administrative conference on Dec. 19, the Wisconsin Supreme Court tentatively approved a petition to adopt Rule 11 of the Federal Rules of Civil Procedure, and repeal the current state statutes governing frivolous actions, secs. 802.05 and 814.025.

However, the vote is not final, pending further study on whether the provision is consistent with other statutes, and whether other states that have adopted the rule have done so verbatim or made any changes to it.

Broad Support

The petition, #03-06, has broad support in the legal community. The petition was brought by four organizations: American Board of Trial Advocates (ABOTA); Civil Trial Counsel of Wisconsin (CTCW); Wisconsin Academy of Trial Lawyers (WATL): and the Litigation Section of the State Bar of Wisconsin.

The membership of ABOTA and WATL consist of plaintiff’s attorneys, CTCW consists of defense attorneys, and the Litigation Section alternates leadership between the two groups each year.

Two significant changes would result from adoption of Rule 11.

First, an award of costs and attorney fees would no longer be mandatory upon a finding of frivolousness, but would be within the discretion of the trial court. According to the joint petition, this would change the focus of sanctions from compensation to deterrence, and discourage use of the threat of a frivolous pleading motion as a litigation tactic.

Second, parties would have a 21-day “safe harbor” that would permit them to withdraw a frivolous pleading, and avoid a Rule 11 sanction. This change would require that a party seeking sanctions act promptly when the basis for such a request becomes known. Delay in filing a motion “should lead a court to deny or significantly limit compensatory costs and attorney fees incurred during the delay.”

The joint petitioners cited several other advantages from adopting Rule 11: Wisconsin attorneys and judges could look to applicable decisions of federal courts for guidance; Rule 11 recognizes that there are times when a certain amount of discovery may be required to develop evidentiary facts, and provides that an allegation of fact will not be found frivolous if it is alleged as requiring such discovery; and Rule 11 excepts discovery disputes from its application.

Lynn R. Laufenberg, a shareholder in Laufenberg & Hoefle, S.C., in Milwaukee, and president of WATL, presented the petition to the court.

Justice David T. Prosser Jr. questioned Laufenberg at the hearing about the effect the proposed Rule would have had in the Supreme Court’s decision in Jandrt v. Jerome Foods, Inc., 227 Wis.2d 531, 597 N.W.2d 744 (1999), in which the court upheld a very large sanction against a law firm for continuing a frivolous action.

Laufenberg declined to say how it would have affected the result, but said that it would have changed the approach. Laufenberg noted, however, that the claim for sanctions in Jandrt was not raised until after the claim had been voluntarily dismissed by the plaintiff, and that, in the interim, the defendant had incurred millions in expenses in an action the defendant already believed frivolous.

Prosser also questioned whether the changes would remove all the teeth from the current law, by permitting judges to fashion a sanction that is only a slap on the wrist, rather than requiring a mandatory award of all costs incurred.

Laufenberg suggested that the current rule, by imposing an all-or-nothing approach, in which a finding of frivolousness requires the award of all attorney fees and expenses incurred, may have the effect in some cases of dissuading judges from making a finding of frivolousness in the first place, because the effect may be so draconian.

The only attorney to speak against the proposal was Nicholas C. Zales, of Zales Law Office in Milwaukee. Zales gave five reasons for opposing the petition: “the relinquishment of state sovereignty over Wisconsin lawyers”; “undue burden and expense” from having to be familiar with a larger body of case law; the &#1
47;unconscionable” exemption of discovery from fee awards; the change from mandatory to discretionary awards is “wrong and may lead to mischief:” and Wisconsin law already provides a “safe harbor” for new or unique claims.

Mark B. Hazelbaker, of the Madison firm Hazelbaker & Russell LLP, discounted some of those arguments, however, pointing out that the proposed rule still permits discovery costs to be awarded as part of a sanction if appropriate, as did Laufenberg. Hazelbaker also noted that, in his career, he had always given opposing counsel the opportunity to withdraw a frivolous pleading before filing a motion for sanctions, even though Wisconsin does not have a safe harbor requirement, and found it a beneficial procedure.

Bernard T. McCartan, an attorney for American Family Mutual Ins. Co., and President-Elect of CTCW, also spoke in favor of the proposal, emphasizing the advantages to sanctions based on deterrence, rather than compensation.

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McCartan argued that compensation based on opposing counsel’s expenses could be either too severe or too lenient, in any given case, but that a discretionary, deterrence-based system of sanctions permits courts to always fashion a sanction that is appropriate.

Justice Prosser, noting that almost all the persons who provided the initial push for adoption of Rule 11 were involved in the Jandrt case, asked McCartan, “Is it often that CTCW rubberstamps a proposal hammered out by the braintrust at WATL?” McCartan replied that, in this case, it was appropriate.

Chief Justice Shirley S. Abrahamson, in moving to adopt the petition, noted the following advantages: a procedure with notice and opportunity for a hearing; the discretionary, rather than mandatory, rule; the safe harbor; and that discovery abuses are already covered by the rules that govern discovery.

Opposing the rule, Justice Patience D. Roggensack argued that a better approach may be merely to substitute the discretionary term “may” for the mandatory “shall,” and adding a “safe harbor” provision to the old rule, and suggested adopting Rule 11 may be equivalent to using a shotgun to a problem better handled with a rifle.

Ultimately, the court voted 4-3 in favor of adopting Rule 11 in principle, with Abrahamson, and Justices N. Patrick Crooks, Ann Walsh Bradley, and Diane S. Sykes, supporting the rule change. Justices Prosser, Roggensack, and Jon Wilcox opposed the change.

As noted, the court will reconsider the petition after examining whether it would conflict with any other Wisconsin statutes or rules.

David Ziemer can be reached by email.