Author: Hamilton

Daniel v. Armslist, LLC (Communications Decency Act Liability)

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In Daniel v. Armslist, LLC (2019 WI 47), the Wisconsin Supreme Court held that the federal Communications Decency Act (CDA) prohibited liability claims against a website for publishing a third-party seller’s advertisement.

The underlying claim is against Armslist.com, which connects arms buyers and sellers with each other. Radcliffe Haughton, who had been legally prohibited from firearm ownership, obtained a firearm via an ad posted on Armslist by a third-party seller and used the gun to kill four people. Yasmeen Daniel, the daughter of one of the victims, filed several state tort claims against Armslist. Armslist argued the CDA blocks Daniel’s claims.

The CDA states (§230(c)(1)) three criteria for a third-party host website like Armslist to be immune from claims against its content:

  1. The defendant is an “interactive computer service” that passively displays third-party sellers’ information.
  2. The claim is based on content provided by someone other than the defendant. The defendant must have “materially contributed” to the content in order for the claim to proceed.
  3. The claim would treat the defendant as a “publisher or speaker of” the content.

It was undisputed that Armslist is an interactive computer service, so the Supreme Court’s decision was based on the second and third criteria.

On the second criterion, Daniel argued the design and operation of Armslist meant it helped develop the content of the advertisement in question. However, the court determined Armslist is a “neutral tool” that can be used both for legal and illegal transactions. The CDA does hold interactive computer services liable for providing such neutral tools, even if the defendant knows the tools may be used illegally, and does not require services to implement proactive cautionary measures against illegal use. Since Armslist did not create the firearm advertisement at issue here, and instead just provided a neutral tool for third-party user transactions, it did not materially contribute to the content, barring Daniel’s claims.

On the third criterion, Daniel argued Armslist wasn’t a publisher or speaker of the content, but facilitated and encouraged illegal firearm sales. However, the court determined that Daniel’s claims all require the court to treat Armslist as a publisher or speaker. “Facilitating” the illegal sale is just a restatement of “publishing” the third-party advertisement.

Because Armslist is an interactive computer service that did not develop the content of the firearms advertisement at issue here, and because all the plaintiff’s claims require the court to treat Armslist as a publisher, the CDA blocks the plaintiff’s claims.

Justice Walsh Bradley’s dissent argues that the court misunderstands the complaint. According to the dissent, Daniel’s claim seeks to hold Armslist liable for the overall structure of its website, specifically a search function that allows users to filter out licensed dealers. Whereas Armslist would not be liable for the third-party firearm advertisement under the CDA, the dissent argues Armslist is a liable content provider with respect to the “content” of its site’s general structure.

Cattau v. National Insurance Services of Wisconsin, Inc. (Pleading Standard)

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In Cattau v. National Insurance Services of Wisconsin, Inc. (2019 WI 46), a unanimous Wisconsin Supreme Court held that Data Key Partners v. Permira Advisers, LLC did not heighten the pleading standard in Wisconsin. However, the court was divided as to whether plaintiffs in this case stated a claim upon which relief could be granted.

The plaintiffs, former teachers and school administrators, claimed negligence, breach of fiduciary duty, and misrepresentation against MidAmerica and National Insurance Services (NIS), which administered their retirement plans. The plans were noncompliant with federal law, and the plaintiffs ultimately owed several years of tax dollars back to the Internal Revenue Service. The plaintiffs claim they relied on MidAmerica and NIS as experts to administer a qualifying plan, and MidAmerica and NIS misrepresented the plan as federally compliant.

While the Supreme Court reversed the appeals court reasoning that Data Key created a new pleading standard, it was evenly divided on whether the plaintiffs stated an adequate claim against MidAmerica and NIS. With Justice Shirley Abrahamson not participating, the 3-3 court affirmed the court of appeals decision that plaintiffs failed to state a claim.

Legislature to Intervene in Act 21 Cases

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The Legislature’s Joint Committee on Legislative Organization has voted to intervene in two cases addressing the application of 2011 Act 21. The 2011 legislation clarified that agencies may not enforce requirements unless explicitly permitted by statute or properly promulgated rule. The two cases, both titled Clean Wisconsin, Inc. v. DNR, would clarify the general scope of Act 21 in environmental cases.

One case (appeal no. 2018AP59) will decide whether Act 21 precludes the Department of Natural Resources (DNR) from considering cumulative environmental impacts in issuing high capacity well permits under Wis. Stat. § 281.34. DNR argues that Act 21 prevents the agency from considering environmental impacts not specifically noted in the statutes. DNR’s argument relies on a May 2016 formal opinion from former Attorney General Brad Schimel.

Clean Wisconsin argues that the 2011 Supreme Court decision Lake Beulah Management District v. DNR still holds. Lake Beulah broadly held that DNR has the authority to preserve waters of the state under the constitutional and statutory public trust doctrines. Since the Supreme Court decided Lake Beulah after the enactment of Act 21 but declined to address the Act’s bearing on the case, a decision in the Clean Wisconsin case would clarify DNR’s authority on high capacity well permits.

The second case (consolidated appeal nos. 2016AP1688 and 2016AP2502) will decide whether DNR has the authority to impose off-site groundwater monitoring requirements and an animal maximum for CAFO wastewater permits. In this case, Clean Wisconsin argues that a Wisconsin Pollution Discharge Elimination System permit allowing the expansion of Kinnard Farms CAFO in Kewaunee County should have included these restrictions. DNR argues Act 21 prohibits DNR from imposing the permit conditions because the statutes do not grant the agency explicit authority.

The Supreme Court accepted both Clean Wisconsin appeals on April 9 and stated it will hear oral arguments on the cases on the same date (not yet scheduled). Several business groups are participating as amici curiae and intervenors in the cases.

Previously, the Department of Justice (DOJ) sided with DNR in both cases. However, Attorney General Josh Kaul has filed two motions seeking to change DOJ’s position on the cases.

Rabitoy v. Billington (Safe Place Statute & Negligent Supervision)

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In Rabitoy v. Billington (2018AP270), the Court of Appeals District III held that a property owner was not liable for injuries sustained when an employee on his property misused equipment outside the scope of his employment.

Defendant Robert Billington employed Richard Klobucher, who lived on Billington’s property, for odd jobs on the property including repairing Billington’s vehicles. Although Billington expressly prohibited using his property for work on third-party vehicles, Klobucher decided to use Billington’s truck hoist to repair a truck belonging to his friend, plaintiff Timothy Rabitoy. During the repair work, the truck rolled off the hoist and injured Rabitoy. Rabitoy filed the instant lawsuit against Billington and Klobucher, claiming violation of Wisconsin’s safe place statutes, vicarious liability, and negligent hiring, training and supervision.

The appeals court dismissed all of Rabitoy’s claims. The Safe Place Act (Wis. Stat. § 101.11) did not apply because Rabitoy failed to introduce evidence that there was any unsafe condition. Instead, Rabitoy’s claims focused on Klobucher’s negligence in using the property equipment. Furthermore, there was no evidence Billington had notice of an unsafe condition on the property.

Finally, the court dismissed Rabitoy’s vicarious liability and negligent supervision claims because Klobucher was acting outside the scope of his employment. There was no issue of material fact as to whether Klobucher was acting in his capacity as Billington’s employee because Billington had expressly prohibited work on third-party vehicles.

Supreme Court Accepts Clean Wisconsin v. DNR Appeal

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The Wisconsin Supreme Court has agreed to hear the appeal in Clean Wisconsin v. DNR, which will decide whether 2011 Act 21 precludes DNR from considering cumulative environmental impacts in issuing high capacity well permits under Wis. Stat. § 281.34. The Court of Appeals District II had submitted in January a certification for the Supreme Court to take up the case.

DNR argues that Act 21, which clarified that agencies may not enforce requirements unless explicitly permitted by statute or properly promulgated rule, prevents the agency from considering environmental impacts not specifically noted in the statutes. DNR’s argument relies on a May 2016 formal opinion from former Attorney General Brad Schimel.

Clean Wisconsin argues that the 2011 Supreme Court decision Lake Beulah Management District v. DNR still holds. Lake Beulah broadly held that DNR has the authority to preserve waters of the state under the constitutional and statutory public trust doctrines. Since the Supreme Court decided Lake Beulah after the enactment of Act 21 but declined to address the Act’s bearing on the case, a decision in the Clean Wisconsin case would clarify DNR’s authority on high capacity well permits and the general scope of Act 21 in environmental cases.

 

Assembly Committee Passes Bill Allowing DAs to Engage in Private Civil Suits

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Last week, the Assembly Judiciary Committee voted 8-1 to recommend passage of AB 25, which would allow district attorneys to engage in the private practice of law for certain civil purposes.

Current Wisconsin law explicitly prohibits a full-time district attorney, deputy district attorney, or assistant district attorney from engaging in the private practice of law. AB 25 would reverse current law to allow district attorneys to provide pro bono legal services, defined as including legal services for individuals of “limited means, or for a charitable, religious, civic, community, governmental, or educational organization.”

While AB 25 may be well intentioned, WCJC opposes the bill because it poses several unintended consequences. First, if an attorney is a full-time employee paid by Wisconsin taxpayers, their first and foremost obligation is to work for the taxpayers. Second, allowing a governmental attorney the opportunity to moonlight as a private attorney, even in a pro bono capacity, creates a host of potential conflicts of interest. AB 25 could also lead to situations where district attorneys provide pro bono legal services for interest groups as a means to influence public policy while being subsidized by Wisconsin taxpayers.

The League of Women Voters has also expressed concerns with AB 25, including that the legislation could create the perception of favoritism in Wisconsin’s justice system.

The legislation is supported by the State Bar of Wisconsin. The Wisconsin District Attorneys Association has not taken a position on the bill.

SB 29, the Senate companion to AB 25 is currently in the Senate Committee on Judiciary. No public hearing or vote has been held.

 

 

WCJC Files Amicus Brief Urging Appeals Court to Stay Copycat Shareholder Litigation

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The Wisconsin Civil Justice Council and Metropolitan Milwaukee Chamber of Commerce have filed an amicus brief in Yandoli v. REV Group, Inc. arguing the court should stay state court proceedings in a securities class action lawsuit when an identical class action case is ongoing in federal court.

Plaintiffs filed actions against REV Group, a Milwaukee manufacturer, when its stock price dropped after its initial public offering. Plaintiffs in three federal lawsuits and the instant state case claim REV Group violated Sections 11 and 15 of the federal 1933 Act. The federal litigation consists of not only the same claims but also the same defendants, factual allegations, alleged class, and relief sought. Wisconsin courts typically stay proceedings when a class action involving federal laws is filed in federal court. However, the state circuit court in this case denied the defendants’ motion to stay because the named plaintiff differs from the named plaintiff in the federal litigation.

The WCJC brief asks the Court of Appeals District II to overturn the circuit court’s decision and stay the state case while the federal case is pending. The brief argues that:

  1. The circuit court’s decision not to stay the state level proceedings will harm Wisconsin businesses by allowing for meritless duplicative securities litigation. If permitted to stand, the holding will encourage a parade of opportunistic plaintiff attorneys to file duplicative lawsuits, forcing Wisconsin businesses to defend identical lawsuits in different venues.
  2. Allowing such “copycat” shareholder litigation to proceed in Wisconsin will significantly increase costs and harm Wisconsin’s business climate. Costs of defending these lawsuits will be borne by shareholders, employees, and consumers in Wisconsin. Furthermore, the “litigation tax” companies must consider in an unfavorable business climate would disincentivize growth and investment in the Wisconsin economy.
  3. The circuit court’s decision contravenes the purpose of the Commercial Court Pilot Project to increase efficiency and predictability in business litigation in Wisconsin. If the lower court’s decision is allowed to stand, it would open the Business Court (in which this case was filed) to numerous lawsuits that were never intended when the pilot rule was put into place by the Wisconsin Supreme Court. Allowing this type of litigation to proceed in the Business Court undermines the success of the project, which was expanded statewide beginning April 1, 2019.

 

Abusive Work Environments Cause of Action Legislation Introduced

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Rep. Sondy Pope (D-Mt. Horeb) has introduced legislation (AB 116) that would create a new cause of action outside of worker’s compensation for abusive work environments.

The bill provides an exception to the exclusive remedy of worker’s compensation when employees allege they have been subjected to an abusive work environment. Employees alleging injury from an abusive work environment may file an action in circuit court. Circuit courts may award prevailing employees relief from the employer including medical expenses, back pay, front pay, compensation for pain and suffering, compensation for emotional distress, punitive damages, and attorney fees.

Under the bill, “abusive conduct” means “conduct, including acts or omissions, by an employer or employee, that a reasonable person would find to be abusive based on the severity, nature, and frequency of the conduct.” “Abusive work environment” means “a work environment in which an employer or one or more of its employees, acting with intent to cause pain or distress to an employee, subjects that employee to abusive conduct that causes physical harm or psychological harm to that employee.”

AB 116 has been referred to the Assembly Committee on Labor & Integrated Employment. In addition to Pope, the bill has 18 Democratic cosponsors – 13 assembly representatives and five senators.

Smith v. Goshaw (Property Manager Negligence)

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In Smith v. Goshaw (2017AP2008), the Court of Appeals District III held that the defendant was entitled to a new trial because the jury received instructions that erroneously elevated the standard of care landlords must exercise for upkeep of properties.

Plaintiff Nevin Smith was injured when a fire escape collapsed while he was standing on it. Smith filed the instant negligence action against his landlord Dale Goshaw. At trial, the circuit court accepted Smith’s request to modify the jury instructions for the standard of care for property owners. Generally, the jury instructions require a property owner to exercise ordinary care to avoid an unreasonable risk of harm. The modified jury instructions said, “Every building and all parts thereof shall be kept in good repair.”

Goshaw argued that the modified instructions elevated the standard of care from ordinary negligence to strict liability and thus misled the jury to find him negligent. The appeals court agreed with Goshaw, According to the court, the standard of ordinary care requires an analysis of the “totality of the circumstances,” including whether the property owner should have known about the repairs needed. Modifying the jury instructions to require all parts of buildings to be kept in good repair heightened the ordinary care standard to an absolute duty and misled the jury from taking into account the totality of the circumstances.

Because the modified instructions prejudiced the jury to find Goshaw negligent for repairs he might not have known about – a strict liability instead of ordinary negligence standard – the court awarded Goshaw a new trial with proper instructions.

 

Marx v. Morris (LLCs)

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In Marx v. Morris (2019 WI 34), the Wisconsin Supreme Court decided that members of a limited liability company (LLC) have standing to assert a claim against another member of the LLC as individuals, not on behalf of the LLC. Furthermore, Wisconsin’s LLC law does not pre-empt common law claims.

Plaintiffs Daniel Marx and Michael Murray and defendant Richard Morris all owned LLCs that were members of North Star, LLC. Morris and Murray brought claims against Marx, a manager of North Star, alleging that Morris violated the duty of LLC members and managers to deal fairly in matters in which they have a conflict of interest (Wis. Stat. § 183.0402(1)). Marx and Morris also alleged several common law claims. The plaintiffs brought all the claims as individuals and individual LLCs, not on behalf of North Star.

Morris argued that the court should treat the LLC similar to a corporation, under which structure individual shareholders must bring claims of injury on behalf of the corporation. However, the court held that, since Wisconsin’s LLC statutes (Wis. Stat. Ch. 183) do not specifically prohibit actions brought by individual members against individual members for injuries to the LLC, LLC members can bring individual claims. The court declined to apply corporate principles of derivative standing to LLCs because the structure of LLCs (and specifically North Star’s structure) results in more individual financial harm than the structure of a corporation would. Because the plaintiffs did suffer individual injuries and Wisconsin law does not specifically prohibit bringing individual actions against LLC members, the court ruled the plaintiffs’ claims do have standing.

Morris also argued that the plaintiffs’ common law claims should be displaced by Wis. Stat. § 183.1302(2), which provides that “unless displaced by particular provisions of this chapter, the principles of law and equity supplement this chapter.” The court rejected Morris’s argument, stating that Ch. 183 does not specifically displace the plaintiffs’ common law claims. The court followed other states that have interpreted these types of provisions broadly to allow common law claims unless statutes unambiguously prevent them.

Justice Daniel Kelly (joined by Justices Abrahamson and Kelly) wrote a partial dissent, arguing that Wis. Stat. § 183.035 does provide that members of an LLC do not have the authority to sue on behalf of the LLC, except in limited circumstances. The dissent states that the cause of action here belongs to North Star, not the individual members, because using the “primary injury rule” the individual members did not suffer an injury distinct from other members. Therefore, the claims must be brought by North Star as a whole.

 

Furthermore, the dissent argues the majority shouldn’t have focused on whether Ch. 183 displaces the common law claims. Instead, Justice Kelly focuses on whether LLC members owe each other a fiduciary duty. The dissent argues that LLC members do not owe each other a fiduciary duty because LLCs do not create a dependence between members in the same way partnerships do – LLCs place obligations and liabilities on the LLC entity. Since there is no fiduciary duty, the plaintiffs’ claims do not stand.