Frivolousness rule is retroactive

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Rule 802.05 applies retroactively to suits already pending on July 1, 2005, the rule’s effective date, the Wisconsin Supreme Court held last week, but only if its application would not pose an unreasonable burden.

The holding reverses a published decision of the court of appeals, which held the rule retroactive to all cases, Trinity Petroleum, Inc. v. Scott Oil Co, Inc., 2006 WI App 219, 266 Wis.2d 666, 724 N.W.2d 259.

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Waukesha County Circuit Court Judge James R. Kieffer denied the motion, because the Supreme Court had repealed the two statutes and recreated Rule 802.05, effective July 1.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requires a party to give prior notice to the offending party; only if the purportedly frivolous pleading is not withdrawn within 21 days, may the party move the court for sanctions.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 a divided court of appeals affirmed, holding that because the rule change is procedural, it is retroactive. A dissent by Judge Daniel P. Anderson agreed that the rule is retroactive, but concluded that, under the circumstances of this case, it should not be retroactive.

The Supreme Court granted review and reversed, in a July 5 decision by Chief Justice Shirley S. Abrahamson. The majority agreed that the change was procedural, and thus retroactive generally, but remanded to the circuit court to determine whether retroactive application in this case would place an unreasonable burden on Scott Oil.

Justice Patience Drake Roggensack dissented, in an opinion joined by Justices David T. Prosser and Jon P. Wilcox.

Writing for the majority, Abrahamson noted that Supreme Court Order 03-06, which recreated the new Rule 802.05 does not state whether it is retroactive or not.

However, in adopting the rule, the court deliberated whether it was procedural or substantive, and concluded that it was procedural. Thus, it is presumed to be retroactive.

In addition, the rule is part of the state rules of civil procedure, which are designed to be procedural, rather than substantive.

The court further concluded that the former sec. 814.025 did not create a substantive, vested right to costs and attorney fees on a finding of frivolousness.

Finally, the rule is patterned after Rule 11 of the federal rules of civil procedure “a well-known rule of procedure.” Accord-ingly, the court held the rule is procedural, and thus, ordinarily retroactive.

However, the court disagreed with the circuit court and the majority opinion at the court of appeals that that is the end of the matter.

Instead, the court applied Mosing v. Hagen, 33 Wis. 2d 636, 148 N.W.2d 93 (1967), which holds that a rule adopted by the court applies retroactively unless it affected a vested or contractual right, or imposed an unreasonable burden upon the party attempting to comply with the procedural requirements.

For the reasons above, the court concluded that retroactive application did not affect any vested substantive right, and there was no question that it did not affect any contractual right.

Thus, the court looked only at whether it would impose an unreasonable burden.

For guidance, the court looked to federal courts that considered retroactive application after Rule 11 was adopted — applying the rule retroactively where “just and practicable.”

The court concluded that the two standards are “essentially the same.”

Among the federal decisions the court relied on was Land v. Chicago Truck Drivers, Helpers & Warehouse Workers Union, 25 F.3d 509, 516 (7th Cir. 1994).

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The Seventh Circuit declined to apply Rule 11 retroactively, because the old rule was still in effect when the case was filed, and when the defendant moved for sanctions.

Agreeing with the reasoning of the federal courts, and reaffirming Mosing, the Supreme Court remanded the case to the circuit court to determine whether the new Rule 802.05 should apply to the case at bar.

Justice Roggensack dissented, for the same reason that she and the other two dissenters dissented from the initial adoption of the new Rule 802.05 — that the former sec. 814.025 did create a substantive right to attorney fees and costs in frivolous actions.

Roggensack wrote, “Scott’s right to make a claim under Wis. Stat. Sec. 814.025 arose at the time of Trinity’s conduct of allegedly filing and continuing a frivolous lawsuit. This occurred before July 1, 2005.

There was no discussion at the rule-making hearing prior to the ‘repeal’ of sec. 814.025 that the court intended to cut off rights of action that had accrued before July 1, 2005.”

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David Ziemer can be reached by email.