Author: Hamilton

Supreme Court Accepts Agency Rulemaking Case Papa v. DHS

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The Wisconsin Supreme Court recently accepted five new cases, including one that will again address agency rulemaking, following the court’s recent decision in Lamar Central Outdoor. The newly accepted case, Papa v. DHS, 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.

Lamar Central Outdoor, LLC v. Division of Hearings & Appeals (Rulemaking Requirements)

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In the Wisconsin Supreme Court’s first decision affecting the business community in the 2019-20 term, the court issued an important opinion on agency rulemaking in Lamar Central Outdoor, LLC v. Division of Hearings & Appeals (2019 WI 109). The Supreme Court held that the Department of Transportation (DOT) was required to promulgate a rule when it changed its interpretation of statutes regarding nonconforming billboards.

The billboard in this case was erected on a state highway in 1991. When the highway became an interstate in 1996, the sign was deemed legal but nonconforming according to state law. Lamar acquired the legal, nonconforming billboard in 1999. In 2012, Lamar sought a permit from DOT to remove vegetation obstructing the sign. From the photographs in Lamar’s permit application, DOT recognized that the sign had been enlarged by extensions in violation of Wis. Admin. Code § TRANS 201.10(2)(e). Although Lamar had removed the extensions, DOT determined that the previous existence of illegal enlargements to the billboard caused it to lose its legal, nonconforming status. DOT ordered Lamar to remove the sign, and Lamar appealed.

The Supreme Court decided the case in favor of Lamar on the grounds that rulemaking requirements in Wis. Stat. Ch. 227 require DOT to promulgate a rule before it changed its interpretation of the billboard nonconforming use statutes.

DOT argued that under Wis. Stat. § 84.30(11), it could order Lamar to remove the billboard because it temporarily exceeded its legal size. However, DOT had previously granted legal, nonconforming sign owners 60 days to cure violations, as Lamar did here. Lamar argued that, according to Ch. 227 rulemaking requirements, DOT could not change its interpretation of whether § 84.30(11) allows legal, nonconforming sign owners a right to cure without promulgating an administrative rule. Under Ch. 227, DOT must promulgate as a rule “each interpretation of a statute which it specifically adopts to govern its enforcement or administration of that statute” (§ 227.10(1)).

The court agreed with Lamar that Ch. 227 required DOT to promulgate a rule before it interpreted § 84.30(11) as not allowing legal, nonconforming sign owners a right to cure. The court rejected DOT’s arguments as follows:

  1. DOT argued its order for Lamar to remove the sign was a contested case decision exempt from rulemaking under § 227.10(1). (“An interpretation of a statute made in the decision of a contested case…does not render it a rule or constitute specific adoption of a rule and is not required to be promulgated as a rule.”) The court said that though § 227.10(1) does not require DOT to promulgate rules for every contested case applying its interpretation of a statute, DOT must promulgate rules specifying a new interpretation of a statute before it can apply the new interpretation in a contested case. Here, the court ruled, DOT could not create a new interpretation of § 84.30(11) via the Lamar contested case before it promulgated a rule specifying its new interpretation of the statute to not allow a right to cure.
  2. DOT argued § 84.30(11) is clear and unambiguous, so its interpretation that Lamar had no right to cure the violation was simply conforming to statutory requirements. According to DOT, an agency conforming to unambiguous statutory requirements does not require new rulemaking under a 1976 case, Schoolway Transportation Co. v. DMV. However, Schoolway held that rulemaking is required for agencies changing their interpretation of ambiguous statutes. Here, the court found § 84.30(11) was ambiguous as to whether Lamar had a right to cure its billboard violation, so rulemaking was required for DOT to change its interpretation of the statute.

Thus, the court unanimously decided in Lamar to require rulemaking when agencies change their interpretation of an ambiguous statute. This case could set the stage for other rulemaking cases to come in the 2019-20 term. 

 

Western National Mutual Insurance Co. v. Advanced Disposal Services Solid Waste Midwest, LLC (Jury Verdict on Damages)

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In Western National Mutual Insurance Co. v. Advanced Disposal Services Solid Waste Midwest, LLC (2018AP2213), the Court of Appeals District IV upheld a jury’s award of $25,000 in damages to American Wood Recycling for a trailer damaged by American Disposal.

American Wood alleged that American Disposal negligently overloaded one of American Wood’s trailers, which resulted in a $50,289 invoice for the total cost of repairs. At trial, the jury found that $25,000 would fully compensate American Wood for damage to its trailer. American Wood appealed that verdict.

The court of appeals upheld the jury verdict, finding that there was evidence to support the jury’s damages award. At trial, American Wood and American Disposal disputed how much of the repairs were pre-existing damage and what were new damages due to American Disposal’s negligent overloading. Although the total cost of both pre-existing and new damages repairs was $50,289, the court found sufficient evidence to support the jury’s finding that $25,000 was sufficient for repairs of the new damage from American Disposal’s negligent overloading.  

William Sesing Construction, Inc. v. American Bank (Liability for Embezzlement)

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In William Sesing Construction, Inc. v. American Bank (2018AP1126), the Court of Appeals District II held that American Bank did not breach its contract nor was it negligent when a Sesing employee embezzled funds from an American Bank account.

Sesing hired Denise Heffner as its bookkeeper. In 2013, Sesing discovered that Heffner was embezzling money by writing to herself blank checks that had been signed by authorized Sesing signatories. Sesing also alleged that Heffner transferred funds without authorization from the Sesing money market account to its checking account, both held by American Bank. Sesing filed this lawsuit against American Bank, claiming breach of contract and negligence and seeking to recoup funds transferred by Heffner from the money market to the checking account.  

Citing the 2019 Wisconsin Supreme Court decision in Koss Corp. v. Park Bank, American Bank argued that Heffner was a fiduciary under Wisconsin’s Uniform Fiduciaries Act (UFA) (Wis. Stat. § 112.01), and Sesing failed to show that American Bank acted in bad faith according to the UFA. Sesing disputed whether Heffner was a fiduciary, but the court found that American Bank was not negligent regardless of the UFA’s applicability.

Instead, the court found that Sesing failed to provide evidence that American Bank breached any of its duties when it permitted Heffner to transfer funds between the two Sesing accounts. The court found that American Bank acted in accordance with the agreed upon security protocols regarding transfers. American Bank could not have known Heffner was impersonating an authorized Sesing employee when she made the unauthorized transfers. American Bank also provided monthly statements to Sesing, which could have alerted Sesing to any irregular activity.

Finally, the court found American Bank could not be negligent because Heffner’s transfers of funds from the money market to the checking account were not the proximate cause of Sesing’s loss. When the money was transferred to the checking account, it was still in Sesing’s control. Heffner’s removal of money from the checking account, not the transfer of funds between accounts, led to Sesing’s losses.

Payette v. Marx (Prejudgment Interest)

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*Case recommended for publication.

 

In Payette v. Marx (2018AP627), the Court of Appeals District III held that insurers do not owe prejudgment damages under Wis. Stat. § 628.46 when a third party demands general damages and the insurer is not certain it actually owes the demanded sum.

Defendant David Marx struck and killed plaintiff Payette while Payette was biking on a county highway. Marx had a $500,000 automobile insurance policy with SECURA and $1 million in additional coverage with 1st Auto.

Payette’s estate estimated damages related to the accident at $3.5 million to $5 million and sent 1st Auto a demand package seeking the full $1 million policy limit. The demand package listed:

  • $7,806.42 in medical and funeral expenses,
  • $1,988,779 in future damages, and
  • an unspecified amount of damages for Payette’s conscious pain and suffering.

When 1st Auto declined to comply with the demand package, the Estate filed this lawsuit against 1st Auto. The jury awarded the Estate a total of $672,806.42 in damages. SECURA had already paid the Estate its $500,000 policy limit, leaving 1st Auto owing $172,806.42.

Before the appeals court in this case was the question of whether 1st Auto owed prejudgment interest on that amount under § 628.46. Section 628.46 requires insurers to pay interest on overdue insurance claims. (Note that this case occurred before 2017 Act 235 decreased the interest rate on overdue claims from 12 percent to 7 percent.)  Previous case law (Kontowicz v. American Standard Insurance Co., 2006 WI 48) holds that prejudgment interest is due when:

  1. There is no question of the insured’s liability.
  2. There is a sum certain amount of damages.
  3. Written notice is provided to the insurer.

At issue here was the second condition.

1st Auto argued that the Estate’s demands for damages for conscious pain and suffering and pecuniary losses of Payette’s children were general damages that were not sum certain. The court agreed with 1st Auto that those general damages requested by the Estate did not satisfy the sum certain condition. Therefore, the Estate was not entitled to § 628.46 prejudgment damages.

The court declined to go as far as to say that general damages can never satisfy the sum certain condition, but in this case Payette’s conscious pain and suffering was unknown and Payette’s children needed to prove their pecuniary loss before it was owed by 1st Auto.

Overall, the court found that third parties are not entitled to § 628.46 prejudgment damages when an insurer is overdue on a claim of general damages that the insurer is not certain it actually owes.

The Wisconsin Insurance Alliance and Wisconsin Association for Justice filed amicus briefs in this case.

Wargaski v. NCI Group, Inc. (Warranty Forum Selection Clause)

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In Wargaski v. NCI Group, Inc. (2018AP2014), the Court of Appeals District III found that a warranty’s forum selection clause applied, barring the Wisconsin lawsuit.

Robert Wargaski alleged breach of warranty when NCI Group, Inc. rejected his warranty claim for faded paint on roofing panels Wargaski had purchased. The warranty contained a forum selection clause designating Texas as the venue for any disagreements over the warranty.

NCI sought to dismiss Wargaski’s lawsuit, arguing the case had been filed in the wrong jurisdiction according to the forum selection clause. Wargaski argued the warranty’s forum selection clause was unenforceable because it was procedurally and substantially unconscionable.

The court sided with NCI and dismissed Wargaski’s lawsuit. The forum selection clause was not procedurally unconscionable because the warranty had been conveyed to Wargaski when it was placed in the box of roofing panels he purchased, in accordance with 16 C.F.R. § 700.11(b). The forum selection clause was not substantially unconscionable because NCI’s principal place of business is Texas. The court found that general federal law allowing warranty suits to be filed in “any court of competent jurisdiction in any State” (15 U.S.C. § 2310(d)(1)(A)) did not preclude the more specific forum selection clause in the warranty.

Federal Appeals Court Rules on ACA Individual Mandate

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The federal Fifth Circuit Court of Appeals ruled on Dec. 18, 2019, that the Affordable Care Act’s (ACA) individual mandate is unconstitutional. However, the court remanded the case back to the federal district court in Texas to decide how much of the rest of the ACA is unconstitutional.

In December 2018, the district court ruled the entirety of the ACA unconstitutional because it found the unconstitutional individual mandate was “essential” to the ACA. Congress set the tax penalty at zero dollars, yet left in place the ACA’s individual mandate in the federal tax reform bill in December 2017. 18 other states, led by Texas, argued that the remaining mandate, without an active tax penalty, violates the Commerce Clause of the U.S. Constitution, and Congress does not have the constitutional authority to compel citizens to purchase health insurance. (Wisconsin initially led the lawsuit, but Attorney General Josh Kaul removed the state from the lawsuit earlier this year.)

While the appeals court agreed with the district court that the individual mandate is unconstitutional, it declined to strike down the entirety of the law. Instead, the court directed the district court to determine which other specific ACA provisions are “inseverable from the individual mandate.” The appeals court ruling was 2-1, with judges appointed by President George W. Bush and President Donald Trump in favor, and a judge appointed by President Jimmy Carter dissenting.

It is expected that the case will ultimately be appealed to the U.S. Supreme Court, but likely not until after 2020.

PFAS Update: AG Holds Listening Session in Marinette, Foam Bill Passes Committee

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The Wisconsin Legislature and state agencies are continuing to address PFAS chemicals. Recently, Wisconsin Attorney General Josh Kaul held a listening session on PFAS in Marinette. Meanwhile, an Assembly Committee has passed a bill to address PFAS in firefighting foams.

PFAS (per- and polyfluoroalkyl substances) are man-made chemicals found in many everyday products, including nonstick pans, cleaning products, paints, and firefighting foam. The most extensively studied PFAS compounds are PFOA and PFOS, which have been phased out of domestic manufacturing over the past decade. Competing studies debate whether or not these chemicals have negative health effects and, if they do, at what level they are harmful.

 

AG Listening Session

AG Kaul travelled to Marinette for two public listening sessions on Dec. 18.

In the Marinette area, Tyco and parent company Johnson Controls International began investigating PFAS in groundwater from its PFAS-containing firefighting foams in 2017. The Wisconsin Department of Natural Resources (DNR) referred Tyco to the Department of Justice (DOJ) for civil prosecution in June 2019, alleging Johnson Controls failed to report the contamination when it first detected PFAS in 2013.

Johnson Controls/Tyco are currently working with DNR on developing a full remediation plan, but the company has already set aside $140 million to address the contamination, installed treatment systems, began removing PFAS in groundwater, and provided bottled water and treatment systems to affected residents.

At the listening session on Dec. 18, Kaul said he couldn’t comment on the ongoing Tyco investigation but noted that DOJ takes environmental cases like these very seriously. The AG focused the listening session on hearing from the public how PFAS contamination in the area has impacted them.

 

Wisconsin Legislation

The Assembly Committee on Environment voted on Dec. 11 to recommend passage of AB 323, which would prohibit the use of firefighting foams that contain intentionally added PFAS in training, unless the testing facility has appropriate containment and treatment measures. DNR would determine containment and treatment measures by rule. The Assembly Committee on Environment held a public hearing on the bill on Sept. 3.

The Senate Committee on Natural Resources & Energy has also scheduled an executive session to vote on the bill on Jan. 8. 

Authored by Rep. John Nygren (R-Marinette) & Sen. Rob Cowles (R-Green Bay), the bill passed the committee on a bipartisan 8-1 vote. Rep. Gary Hebl (D-Sun Prairie) voted no, arguing the legislation does not go far enough to address PFAS.

Supporters of the bill include American Chemistry Council, American Petroleum Institute, Wisconsin Manufacturers & Commerce, Wisconsin Paper Council, and Wisconsin Rural Water Association.

Meanwhile, Wisconsin Democrats have introduced a separate bill that would circumvent rulemaking processes and require DNR to establish and enforce PFAS standards by rule for drinking water, groundwater, surface water, air, solid waste, beds of navigable waters, and soil and sediment if DNR deems it harmful to human health or the environment. SB 302/AB 321, also known as the “CLEAR Act,” has not yet received a hearing.

Looking ahead, Assembly Speaker Robin Vos (R-Rochester) told the Wheeler Report in December that bills from the Speaker’s Task Force on Water Quality will be announced in January. This bill package could include measures to address PFAS chemicals.

Continue reading about PFAS regulation in Wisconsin.

 

Supreme Court Candidates Debate at Forum

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On Nov. 19, all three candidates running in the spring Wisconsin Supreme Court election met for the first forum of the campaign. The winner of the spring election will serve a ten-year term beginning in 2020. Two candidates – Dane County Circuit Court Judge Jill Karofsky and Marquette University Law School professor Ed Fallone – are challenging incumbent Justice Daniel Kelly for the seat. Read more about the candidates.

Voters will narrow the race from three to two candidates in a primary on Feb. 18, 2020. The general election will be held on April 2, 2020. After this spring, the next Supreme Court election will not be until Chief Justice Roggensack is up for reelection in 2023. With Justice Brian Hagedorn sworn in in August, the Wisconsin Supreme Court currently sits at a 5-2 conservative majority.

At the November forum, candidates discussed their judicial philosophy. Fallone rejected broad judicial theories in general, arguing that “the law can’t be reduced to abstract principles.” Kelly said his judicial philosophy centers around the Constitution and the limited authority of the judicial branch, highlighting his use of rigorous logic to come to judicial conclusions. Karofsky touted her experience in the courtroom every day as a circuit court judge and said her judicial philosophy is treating everyone fairly and respectfully in the courtroom.

Candidates also discussed recusal rules, when justices should overrule precedent, individual rights at the state and federal level, impartiality, and how public opinion should influence judicial decision making.  

Watch the full Supreme Court candidate forum here.

WCJC Submits Comments on PFAS Scope Statements

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The Wisconsin Department of Natural Resources (DNR) held a preliminary public comment period in November seeking feedback on three scope statements that would regulate PFAS chemicals at the state level. Scope statements are the first step in the Wisconsin rulemaking process.

 

PFAS Background

PFAS (per- and polyfluoroalkyl substances) are man-made chemicals found in many everyday products, including nonstick pans, cleaning products, paints, and firefighting foam. The most extensively studied PFAS compounds are PFOA and PFOS, which have been phased out of domestic manufacturing over the past decade. Competing studies debate whether or not these chemicals have negative health effects and, if they do, at what level they are harmful.

Gov. Tony Evers approved the three scope statements on PFAS in August. The scope statements would:

  1. Adopt groundwater standards. (SS 090-19). Under this scope statement, DNR would likely promulgate the Department of Health Services’s (DHS) recommended standards of 20 ppt combined for PFOA and PFOS and a 2 ppt preventive action limit. This rule would apply to all regulated facilities that may impact groundwater.
  2. Adopt surface water quality standards for PFAS. (SS 091-19). Under the scope statement, DNR could also change Wisconsin Pollution Discharge Elimination System (WPDES) permit implementation procedures related to PFAS chemicals, including additional monitoring and new effluent limitations. Currently, DNR can address PFAS discharges in WPDES permits on a case-by-case basis. The proposed rule would set a uniform standard and procedures.
  3. Adopt maximum contaminant levels (MCLs) for drinking water. (SS 089-19). MCLs for drinking water would mostly affect municipal water systems.

 

Public Hearing & Comments

DNR held a public hearing on Nov. 12 to address all three scope statements. Testifying in support of the scope statements were Clean Wisconsin, Wisconsin Conservation Voters, and an individual from De Pere, Wis.

MEG Wastewater, an organization of owners and operators of wastewater facilities in Wisconsin, provided comments in support of the advisory committee to DNR as the department continues with the rulemaking process. MEG noted their support for regulations based on credible science. MEG is part of the Municipal Water Coalition, an alliance of groups representing both municipal water and wastewater utilities.

Also providing comments was Scott Manley, Executive Vice President of Wisconsin Manufacturers & Commerce, on behalf of the Water Quality Coalition, a coalition of industries, job creators, and taxpayers in the state, as well as scientists and legal scholars, which supports balanced, science-based environmental standards to regulate PFAS. WCJC is a participating member of the Water Quality Coalition.

The Water Quality Coalition recommended that DNR narrow the scope statements to regulate PFOA and PFOS only. As drafted, the scope statements provide DNR broad discretion to regulate any of the over 4,000 PFAS compounds in a single rulemaking process. Not all of these PFAS compounds are health hazards, and some are even federally approved for use by the Food & Drug Administration.

According to the Water Quality Coalition, the scope statements lack the required detail and specificity to comply with the administrative rulemaking requirements in Ch. 227. Furthermore, proposed rules seeking to regulate such a wide variety of compounds would make it unworkable for the public and Legislature to provide meaningful feedback on the practical application of the regulations.

WCJC individually provided written testimony outlining the liability issues associated with setting too strict of standards for such a broad array of chemicals. If DNR regulates under the scope statements as written, Wisconsin businesses, utilities, hospitals, and farmers could face millions of dollars in cleanup costs, legal enforcement action by state agencies, and lawsuits by plaintiff attorneys for the existence of potentially thousands of chemicals that have not yet been shown by federal or state agencies to cause negative human health effects. Setting any enforcement standards creates legal evidence of a significant public health threat, giving plaintiff attorneys the opportunity to successfully sue industry based on these standards without proving any actual occurrence of illness. Read WCJC’s full written comments.

Read all written comments here.

 

Next Steps

After the comment period, the DNR Board can approve the scope statements. DNR plans to ask the board for approval in January 2020. Once the board approves the scope statements, DNR can begin work on drafting the rules and economic impact analyses before sending the rule to the Legislature for review. At the Nov. 12 hearing, DNR estimated rules would be finalized and enforceable by 2022.

There will be multiple opportunities for public comment during the rulemaking process. WCJC and the Water Quality Coalition intend to continue advocating for balanced, science-based regulation of PFAS chemicals in Wisconsin.