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Frivolous lawsuit bill moves forward

ImageA bill designed to toughen the civil justice system’s treatment of frivolous lawsuits is winding through the Wisconsin Legislature and may very well end up on Gov. Jim Doyle’s desk in just a few weeks.

While some characterize the bill as unnecessary, politically motivated and merely the latest skirmish in a recent separation-of-powers battle between the Wisconsin Supreme Court and the state’s lawmakers, others say it is a much-needed measure designed to protect the public, and that the current law is too lawyer-friendly.

Catherine A. LaFleur, a member of Halling & Cayo S.C. in Milwaukee and chair of the Litigation Section of the State Bar of Wisconsin, says the bill in question, Assembly Bill 855, would essentially undo the years of work put in by Litigation Section members, and representatives of the Wisconsin Academy of Trial Lawyers, the Civil Trial Counsel of Wisconsin and the American Board of Trial Advocates.

That’s the problem, says the proponent of the proposed legislation, Rep. Mark Gundrum (R-New Berlin): The current law is written more for the protection of lawyers rather than victimized parties in frivolous lawsuits.

High Court “Repeals” and “Recreates” the Law

Previously, Wisconsin had two frivolous action statutes, Secs. 802.05 and 814.025, explains LaFleur. In practice, parties were alleging actions under both sections, and courts generally had a hard time choosing between them. The difference between them is that 802.05 seems to have been more about technical errors, with its reading and signing requirement, whereas 814.025 was geared more toward curbing “bad actors” — those who file lawsuits solely for harassment purposes.

The previously mentioned coalition of attorney groups petitioned for a rules change, which ultimately resulted in the Wisconsin Supreme Court issuing, by a 4-3 vote, Order 03-06, which “repealed” sec. 814.025 and “recreated” sec. 802.05.

“CTCW and WATL rarely agree on proposed legislation. In fact, I can’t think of anytime in my 18-year career that have I seen these two entities get together, on anything, except this.”

Catherine A. LaFleur,
Halling & Cayo S.C.

The majority’s new sec. 802.05 adopted the Federal Rule of Civil Procedure 11, as amended in 1993. The law retained provisions that allow courts discretion to make awards of costs and fees, among other sanctions, after making findings of frivolousness, but it exempted discovery from the rule.

It also gave Wisconsin practitioners for the first time a “safe harbor,” as it is called in notes to the federal rules. Specifically, a motion for sanctions must be served on a party but not filed with court until the passage of 21 days, to give the party an opportunity to withdraw an allegation or contention so that it would not be subject to sanctions, if the party discovers during that time that it does not have the evidence to support that allegation.

Another new aspect of the law was it empowered courts to assess penalties against parties to be paid to the court.

In her dissent, Roggensack questioned whether the court had the authority to repeal a law dealing with substantive rights, and she stated that the new law does not adequately protect the public.

The Legislative Response

Gundrum (R-New Berlin) couldn’t agree more. He and other legislators introduced AB 855 last December.

“The current law protects attorneys because people are less likely to move for a finding of frivolousness when that’s going to cost them even more, and even if they succeed, they’re not going to be reimbursed.”

Rep. Mark Gundrum
(R-New Berlin)

Under his bill, courts would be mandated to make awards of actual costs and attorney fees when they make findings of frivolousness. The law would apply to discovery proceedings once again. The bill also eliminates provisions in the current law that would allow judges to assess penalties into the court when frivolousness findings are made.

In addition, the bill was amended in late January to include a safe harbor provision, with the slightly different twist that courts may still make findings of frivolousness when claims are withdrawn within 21 days, but should take that withdrawal into consideration as a mitigating factor.

Further, under the bill, if an appellate court affirms a trial court decision that an action was frivolous, the appellate court must remand the case to the lower court for it to award damages for the costs incurred in responding to the appeal. (Text of the most recent version of the bill is available at www.legis.state.wi.us/2005 /data/AB855-ASA1.pdf.)

The bill passed in the Assembly on Jan. 24 by a 61-36 vote and was sent to the Committee on Judiciary, Corrections and Policy. In an executive session on Feb. 14, it was passed by that committee on Feb. 21 with a 3-2 vote, and is now headed for the full Senate for a vote.

AB 855: Pros and Cons

In expressing the frustration of the Litigation Section leadership with the bill, LaFleur stresses that the current law was supported by a diverse group of lawyers who represent clients with extremely divergent viewpoints. “CTCW and WATL rarely agree on proposed legislation. In fact, I can’t think of anytime in my 18-year career that have I seen these two entities get together, on anything, except this,” she states.

A chronology of frivolous action in Wisconsin

1976: The Legislature passes sec. 802.05, patterning it upon the original version of Rule 11 of the Federal Rules of Civil Procedure.

1978: The Legislature passes sec. 814.025.

1993: FRCP 11 undergoes substantial revisions.

1999: In Jandrt v. Jerome Foods Inc., 227 Wis. 2d 531 (1999), the Wisconsin Supreme Court affirms a lower court order awarding costs and fees under sec. 814.025 for continuing a frivolous lawsuit in the amount of $716,081. The court observes that circuit courts have used essentially the same guidelines in the determination of frivolousness under both sections. The case is widely criticized by the plaintiffs’ bar and causes a fair amount of commentary among defense lawyers as well.

July 2003: A petition is filed with the Wisconsin Supreme Court by the Civil Trial Counsel of Wisconsin, the Wisconsin Academy of Trial Lawyers, the American Board of Trial Advocates and the Litigation Section of the State Bar of Wisconsin to revise the state statutes regarding frivolous actions to bring them in accordance with revised Federal Rule 11.

June 2005: After public hearings and open administrative sessions, in which the justices tinkered with the proposal, the state’s current law for frivolous actions was put forth in Order 03-06 by a 4-3 vote, to take effect July 1. The order repeals sec. 814.025 and recreates sec. 802.05.
Among the highlights of the new law are:

d1) The addition of a 21-day "safe harbor," in which a party may withdraw or appropriately correct a challenged paper, claim, defense, contention, allegation or denial without fear of a motion for sanctions;

d2) The addition that courts may order the party in violation of the law to pay a penalty to the court;

d3) A provision deleting discovery from the statute’s protections; and

d4) The retention of provisions allowing courts to use their discretion when ordering sanctions.

The majority notes that the two separate statutes had created confusion. Its new sec. 802.05 adopted the Federal Rule of Civil Procedure 11, as amended in 1993.

The order states, "In adopting the 1993 amendments FRCP 11, the court does not intend to deprive a party wronged by frivolous conduct of a right to recovery; rather, the court intends to provide Wisconsin courts with additional tools to deal with frivolous filing of pleadings and other papers. Judges and practitioners will now be able to look to applicable decisions of federal courts since 1993 for guidance in the interpretation and application of the mandates of FRCP 11 in Wisconsin."

In Justice David T. Prosser Jr.’s dissent, he writes that under Wis. Stat. 751.12(1), the Legislature empowered the high court to make rules regarding pleading, practice and procedure, but that such rules cannot modify a litigant’s substantive rights.

"The overriding issue presented in this petition is whether Wis. Stat. sec. 814.025 embodies ‘substantive’ rights for litigants, because if it does, this court has no authority to ‘repeal’ it and replace it with a revised rule," Prosser reasons.

Justice Patience Drake Roggensack agrees that the rule affects substantive rights and therefore the court was overstepping its bounds. But also, in her 11-page dissent, she argues that the court could have created a safe harbor provision without striking 814.025 in its entirety and recreating 802.05. She additionally questions whether the changes adequately protect the public.

"Lawyers are accustomed to presenting their issues in a persuasive fashion, and when members of both the plaintiff’s bar and the defense bar joined in the request, a majority of the court listened. But who listens to the public? Who looks out for the public — the ‘little guy’ who can be so easily overwhelmed by the judicial process?

Who makes certain that the public knows that a hearing is being held where the court is being asked to eliminate substantive rights that the legislature created to benefit the public?"

December 2005: Assembly Bill 855 is introduced, which would essentially reinstate the former sec. 802.05, except that it makes an award of costs and fees mandatory, rather than discretionary, when a frivolousness finding is made; the new law would apply to discovery; and the provisions regarding penalties to the court are deleted.

January 2006: AB 855 is amended to bring back the 21-day "safe harbor," albeit in a slightly different form, so that judges may still order sanctions when pleadings have been withdrawn or corrected in that time, but they should take that into consideration as a mitigating factor.

The bill passes in the Assembly.

February 2006: AB 855 passes in the Committee on the Judiciary, Corrections and Policy, and is headed for the Senate for a vote.

– Jane Pribek

While he is not anti-trial lawyer as a general proposition, Gundrum maintains that the current sec. 802.05 is too protective of attorneys at the public’s expense.

For starters, the current law gives judges discretion; his bill does not — and it applies to discovery, the source of much of the cost of fighting frivolous lawsuits, he says.

In addition, “The court’s rule now no longer really has frivolous findings to be held for the party who is a victim of the frivolous claim, so he or she is made whole.

Rather, the policy is that any funds should go to the court. The court — not the victim, who
might have spent tens of thousands of dollars, and they get no reimbursement, or restitution,” he says. “The current law protects attorneys because people are less likely to move for a finding of frivolousness when that’s going to cost them even more, and even if they succeed, they’re not going to be reimbursed.”

LaFleur counters that the black-letter of the current law gives judges discretion to allow parties to be made whole with orders of costs and fees.

Further, to the best of her knowledge, judges are not using the new law as a new funding source for the court system. Rather, the intent of giving courts the power to assess penalties was really to make courts and taxpayers whole, such as the court incurs unusual costs, for services such as court reporters or interpreters.

LaFleur sees other motivations behind AB 855.

“My understanding of why the legislature is taking this up right now, is because they’re angry the Supreme Court did this. They feel this is an abrogation of their duties — that they are the only law-making body, and there’s a big issue about whether this is a procedural or substantive law,” she says.

Lawmakers don’t like what the court did, Gundrum concedes.

“It’s ridiculously offensive to have the Supreme Court actually ‘repealing’ acts of the Legislature. They don’t have the authority to do that on substantive statutes. And they tried to say it was procedural. That’s ridiculous, too. Because if I have to spend tens of thousands of dollars defending myself against a frivolous lawsuit, that’s pretty darn substantive.”

Whether the law is procedural or substantive is not the central issue, says LaFleur. Her concern is that the law might be scrapped for the wrong reasons. Reasons like politics. Some have suggested — although she is not necessarily subscribing to the notion — that Republican lawmakers are intentionally putting forth proposed laws, such as this, for Gov. Doyle to veto, as a political ploy for the next gubernatorial race, so that they can claim he is out of step with the Legislature and the will of the citizens.

Gundrum denies that politics guided his decision to author the bill. “I guarantee you that the average citizen has no idea what the court did to this rule last year. Yet it’s going to affect them if they’re a defendant in a frivolous lawsuit. This flew so far under the radar screen that most attorneys didn’t even know it was happening. So I don’t see how political points are scored, when most people aren’t even aware of the situation.”

There is no “situation,” responds LaFleur. There simply is no evidence that frivolous lawsuits are a problem in Wisconsin. Frivolous cases do exist, but they are rare.

The current law needs a little more time for it to work, she contends, and it is tough enough for those rare cases.

“Everybody who is in the trenches doing this understands that the current law is better,” she says. “There are just a few people on the fringe, for whatever reason — maybe they want to be able to get more in costs and fees, or they don’t like how the Supreme Court enacted this. But they need to take a step back from their personal positions and just consider, ‘Might this be good?’ The law has only been in effect for a few months. Can we just let it run for two or three years and see what happens? Because if it was a mistake, we’ll know it then.”

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