Frivolous lawsuit rule is retroactive

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Attorneys need to be aware that the 2005 rule governing frivolous lawsuits relates to lawsuits filed before the rule took effect.

Rule 802.05 applies retroactively to suits already pending on July 1, 2005, the statute’s effective date, a divided Wisconsin Court of Appeals held on Sept. 20.

Scott Oil Co., Inc., and Trinity Petroleum, Inc., had a contractual agreement under which Trinity would transport Scott Oil’s petroleum products. Scott Oil terminated the contract and Trinity sued for breach of contract. On April 5, 2005, Scott Oil moved for summary judgment. The court granted the motion on July 5.

After the grant of summary judgment, Scott Oil moved for attorney fees on the grounds that Trinity’s action was frivolous, pursuant to rules 802.05 and 814.025.

Waukesha County Circuit Court Judge James R. Kieffer denied the motion, because the Supreme Court had repealed the two statutes and recreated Rule 802.05, effective July 1.

The court stated that it considered the plaintiff’s action frivolous, but held that sanctions could not be imposed, because Scott Oil failed to comply with the 21-day “safe harbor” provision of the new rule.

The safe harbor provision requires a party to give prior notice to the offending party, and only if the purportedly frivolous pleading is not withdrawn within 21 days may the party move the court for sanctions.

The statute’s other significant change was to make the award of sanctions discretionary, rather than mandatory, if frivolousness is found.

Scott Oil appealed, but the court of appeals affirmed in a decision written by Judge Neal P. Nettesheim, and joined by Judge Harry G. Snyder. Judge Daniel P. Anderson dissented.

The majority concluded that resolution of the issue turns on whether the new statute is procedural or substantive. Finding the statute procedural, and therefore retroactive, the court held that the failure to comply with the safe harbor provision precludes imposition of sanctions.

Retroactivity

First, the court noted that Rule 802.05 is a court-enacted rule rather than a legislatively enacted statute. Also, it was adopted from the federal civil procedure code and analogously situated in Wisconsin’s civil procedure code.

In addition, in the Supreme Court’s explanatory comments, the court stated that it was acting pursuant to its rule-making authority under sec. 751.12 to regulate, simplify and harmonize the rules of pleading, practice and procedure.

The court further noted that punishment for filing a frivolous action is part of a court’s responsibility to secure the judicial system’s effective operation, and that the purpose of sanctions is to deter, rather than compensate. As such, the court concluded the rule is procedural.

Finally, the court noted the dissents of Justices David T. Prosser, Patience Drake Roggensack and Jon P. Wilcox, when the new rule was adopted. The dissents opined that the mandatory attorney fee aspect of the repealed sec. 814.025 embodied substantive rights for litigants.

Based on the dissents, the court of appeals concluded, “A fair deduction from these statements is that the matter was fully debated and that the majority deems the rule procedural. Retroactive application of procedural rules is presumed (cite omitted).”

Safe Harbor

Applying the new rule retroactively, the court
then concluded that sanctions could not be imposed, because the safe harbor provision was not complied with.

The safe harbor provision, sec. 802.05(3)(a)1, provides that a motion for sanctions “shall not be filed with or presented to the court unless, within 21 days after service of the motion or such other period as the court may prescribe, the challenged [pleading] is not withdrawn or appropriately corrected.”

Finding the language unequivocal, the court wrote, “The timing may not have favored Scott Oil, but we conclude the mandates of the new rule apply.” Noting that attorneys had three months notice between adoption of the new rule and its effective date, the court concluded, “Given the widespread publicity to and input from the Wisconsin bar, we concur that Scott Oil’s attorneys should have been on notice that change was afoot and proceeded accordingly.”

The court found that Scott Oil had two options available to it to preserve its rights: filing a motion for sanctions under the old law before July 1, 2005; or on or after July 1, serving Trinity with a motion prior to the summary judgment hearing.

Accordingly, the court affirmed the denial of sanctions.

The Dissent

Judge Anderson wrote a dissent, agreeing that the new rule is retroactive, but disagreeing with retroactive application in this case.

Anderson noted that, in Mosing v. Hagen, 33 Wis. 2d 636, 642, 148 N.W.2d 93 (1967), the Supreme Court, explaining retroactive application of procedural rules and its exceptions, wrote, “We do not perceive that its [retroactive] application affects any substantive rights nor that it imposes an unreasonable burden upon the plaintiff as to its procedural requirements (emphasis added by Judge Anderson).”

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Anderson concluded, “I take away from Mosing another qualification to the retroactive application of a procedural statute: a statute will not be applied retroactively if to do so imposes an unreasonable burden upon a party.”

Because the new rule became effective only five days before the hearing on Scott Oil’s successful motion for summary judgment, Anderson concluded that retroactive application in this case would place an unreasonable burden on Scott Oil.

For support, Anderson cited the Seventh Circuit’s decision in Land v. Chicago Truck Drivers, Helpers and Warehouse Workers Union (Indep.) Health and Welfare Fund, 25 F.3d 509, 515 (7th Cir. 1994).

In Land, the new federal Rule 11 became effective while the appeal was pending. Rule 11 stated that it was to be applied retroactively “insofar as just and practicable.” Pursuant to this language, the Seventh Circuit held that Rule 11 would not be applied retroactively to that case.

Anderson acknowledged that Wiscon-sin’s new rule did not contain similar language, but found no difference between the “just and practicable” standard from Rule 11 and the “unreasonable burden” standard in Mosing.

“For this reason,” he wrote, “I adopt the Seventh Circuit’s reasoning and conclude, under the facts of this case, it would impose unreasonable burden on the administration of the judicial system and Scott Oil to judge the conduct of the parties by standards that were not in effect when the conduct occurred.”

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