Author: Hamilton

Supreme Court November Oral Arguments

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The Supreme Court will hear oral arguments in six cases next week, marking the beginning of the November calendar.

On Monday, Nov. 5, the court will hear arguments in two cases of note:

  • Yacht Club at Sister Bay Condo Association, Inc. v. Village of Sister Bay will determine whether each nuisance-causing event at a town venue is a new “event” triggering a new 120-day notice period for filing a claim against the town.
  • Peter Ogden Family Trust of 2008 v. Board of Review for the Town of Delafield will review the standards for assessing land as agricultural versus residential for property tax purposes.

On Wednesday, Nov. 7, the court will hear three more cases, including Daniel Marx v. Richard Morris. In this case, the court will decide whether 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, the court will decide whether Wisconsin’s LLC law pre-empts common law claims.

1st District Court of Appeals Decision: Official Committee on Unsecured Creditors of Great Lakes Quick Lube LP v. John Theisen (Fraudulent Transfer Statute of Limitations)

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In Official Committee on Unsecured Creditors of Great Lakes Quick Lube LP v. John Theisen (2018AP333), the Court of Appeals District I held that the fraudulent transfer statute of limitations begins when plaintiffs could reasonably have discovered the fraudulent nature of the transfer, rather than when the transfer itself occurred.

The instant state case arises from a federal bankruptcy case between the plaintiff creditors of Great Lakes Quick Lube and the debtors who sold their oil change businesses to Great Lakes Quick Lube. The creditors alleged fraudulent transfer against the sellers, but the sellers argued the claims were barred under the one-year statute of limitations for fraudulent transfer in Wis. Stat. § 893.425.

The court sided with the creditors in this case, holding that plaintiffs must file fraudulent transfer actions within one year after the fraudulent transfer could reasonably been discovered. The court rejected the sellers’ reading of the statute that the clock begins one year after the transfer itself. The decision cited cases in other states that ruled similarly on the Uniform Fraudulent Transfer Act.

Since the plaintiffs in this case could not reasonably have discovered the fraudulent nature of the debtors’ transfer more than one year before the date the instant action was initiated, the court dismissed the debtors’ motion for summary judgement and remanded the case to circuit court for further proceedings.

3rd District Court of Appeals Decision: Kmart Corp. v. Herzog Roofing, Inc. (Economic Loss Doctrine)

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In Kmart Corp. v. Herzog Roofing, Inc.(2017AP1041), the Court of Appeals District III ruled that the economic loss doctrine barred Kmart’s negligence claim for property damages.

Herzog and Kmart entered into a contract by which Herzog would provide materials and install a rubber roofing system on an Eau Claire Kmart store. Ten years later, the roof collapsed, and Kmart filed a negligence claim against Herzog.

The court ruled the economic loss doctrine barred the negligence claim. In the decision, the court defines the economic loss doctrine as “generally barring contracting parties from pursuing tort claims…for economic losses arising from the parties’ contractual relationship.” Under the doctrine, the claim is barred if it meets two requirements:

  1. The contract is predominantly for the sale of a product. Here, the court determined that the contract was predominantly for the sale of the roofing materials, not the service of installing them, so the economic loss doctrine applies.
  2. The plaintiff is seeking solely economic damages, not including damages to other property than the contracted product. Here, the court determined that the roof was an integral part of the damaged building. Furthermore, Kmart should have foreseen that the roof’s failure would have caused damages to the building and should have protected against that loss in the contract. Therefore, the damaged building was not “other property” that would prevent application of the economic loss doctrine.

4th District Court of Appeals Decision: Stelpflug v. Rural Mutual Insurance Co. (Inception of Covered Loss)

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In Stelpflug v. Rural Mutual Insurance Co. (2018AP34), the Court of Appeals District IV held that, when a barn burned down due to damages from a tornado a year earlier, the “inception of the loss” was the date of the barn fire, not the date of the tornado.

A tornado damaged the Stelpflugs’ barn in 2015. Rural Mutual covered damages from the tornado. Almost a year later, a fire started in the barn because the barn’s wiring had been pulled free by the tornado. When Rural Mutual stopped making payments to the Stelpflugs for the fire damages, the Stelpflugs filed the instant lawsuit. Rural Mutual argued the claim was barred by the statute of limitations in Wis. Stat. § 631.83(1)(a) because the “inception of the loss” was the tornado that led to the exposed wiring.

The court agreed with the Stelpflugs that the “inception of the loss” was the fire because the losses from the fire were separate and distinct from the losses from the tornado. The court cited several previous cases stating that the “inception of the loss” is not the causation of the loss, but the date on which the loss occurred. In this case, the loss occurred on the date of the fire, so the Stelpflugs did file a timely claim.

4th District Court of Appeals Decision: Security Health Plan v. American Family (Primary Coverage)

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In Security Health Plan v. American Family (2017AP1914), the Court of Appeals District IV concluded that American Family’s automobile insurance policies’ medical expense coverage was not a “plan” under Wis. Admin. Code § INS 3.40. Therefore, American Family did not owe Security reimbursement for medical expenses of 42 claimants insured by both entities.

Wis. Admin. Code § INS 3.40 states that, if an insured holds two “plans” with medical expenses coverage, the primary plan would pay the insured’s medical expenses first; the secondary plan would pay after the primary plan limits are exhausted. The issue before the court was whether the medical expense coverage in the American Family policies constituted a “plan” invoking this coordination of coverage.

The court held that the American Family medical expense coverage was not a “plan” as defined in the insurance administrative code because the medical expense coverage is not “required by law” (Wis. Admin. Code § INS Appendix A, II(C)(ii)). While Wis. Stat. § 632.32(4)(a)(2) requires automobile policies to include medical expense coverage, an exception in the subsequent § 632.32(4)(bc) allows insureds to reject that coverage. Therefore, medical expenses coverage is not required by law.

Another definition of “plan” in the insurance administrative code states that, for traditional automobile insurance contracts like American Family’s, only group medical benefits contracts are included as “plans” (Wis. Admin. Code § INS 3.40(6)(f)). The court rejected Security’s argument that American Family’s medical benefits coverage policies were “‘no-fault’ contracts” included in the definition.

Because American Family’s medical expense coverage is not a “plan,” the court ruled American Family was excluded from the coordination of coverage requirements in Wis. Admin. Code § INS 3.40 and did not owe reimbursement to Security for the claimants’ medical expenses.

Wisconsin Tort Costs Fair Well in U.S. Chamber Study

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At its annual summit in October, the U.S. Chamber Institute for Legal Reform released a comprehensive study on how the tort system imposes costs on society. The study shows Wisconsin’s costs and compensation in its tort system fair well in comparison to other states.

The study showed Wisconsin has the fourth lowest tort costs per household at $2,464, almost $1,000 below the national average. In comparison, New York has the highest costs per household of any state at $6,066, more than double Wisconsin’s costs. Wisconsin’s tort costs make up 1.8 percent of the state’s gross domestic product (GDP), substantially below the national average of 2.3 percent. The highest of any state, Florida’s tort costs make up 3.6 percent of its GDP, again more than double Wisconsin’s numbers.

Wisconsin has enacted several significant legal reforms in the last few years to reduce tort costs, including the passage of 2017 Act 235. Act 235 included groundbreaking litigation funding transparency provisions, along with several other common-sense reforms to address the high transactional cost of litigation.

Despite the progress made by Wisconsin reforms, tort costs still impose significant costs for both businesses and individuals. The study estimated total tort costs and compensation paid in the U.S. at $429 billion. The study overall evaluated the tort system as inefficient, with 43 percent of costs covering litigation, insurance, and risk transfer expenses, rather than covering plaintiffs’ compensation. Furthermore, the costs estimated in the study do not include immeasurable costs such as disincentive for innovation and development that leads to lower employment and general harm to states’ economies.

1st District Court of Appeals Decision: Lang v. Lions Club of Cudahy Wisconsin, Inc. (Recreational Immunity)

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In Lang v. Lions Club of Cudahy Wisconsin, Inc. (2017AP2510), the Court of Appeals District 1 held that recreational immunity did not apply to a sound engineer who set up cords that injured a woman at a music performance.

At an event run by the Lions Club, plaintiff Antoinette Lang tripped over an electrical cord placed by sound engineer Fryed Audio, LLC. Fryed’s principal and a member of the band using the cords, Steve Fryed, positioned the cord prior to the event.

While a separate case ruled the Lions Club was entitled to recreational immunity, the court said Fryed was not an “agent” or “occupier” immune under the statute (Wis. Stat. § 895.52). The appeals court relied on two recent Supreme Court cases, Westmas v. Creekside and Roberts v. T.H.E. Insurance Co., deeming contractors are not property owners entitled to recreational immunity. Fryed was not an “agent” because he was not following specific instructions from the Lions Club. Furthermore, Fryed was not an “occupier” because his presence on the festival property was not permanent and his potential immunity would not affect whether the property would be open to the public in keeping with the intent of Wis. Stat. § 895.52.

Judge Brash wrote a dissent in the case arguing that Fryed actually was an “agent” because the Lions Club had ample opportunity to offer specific cord set-up instructions when it performed a safety check on the grounds. If both the Lions Club and the band are entitled to recreational immunity, Brash argued Fryed as an agent of the two entities should also be immune from liability.

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

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Wisconsin Civil Justice Council (WCJC) has filed an amicus brief in Yandoli v. REV Group, Inc. arguing the Waukesha County Circuit Court erred by denying the defendants’ motion to stay the court proceeding in a securities class action lawsuit when an identical class action case was filed first 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 court in this case denied the defendants’ motion to stay.

The WCJC brief asks the Court of Appeals District II to grant leave for the defendants to appeal the circuit court’s decision not to 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.

US DOJ Files Statement of Interest Against Asbestos Trust Fraud

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The U.S. Department of Justice (DOJ) has filed a statement of interest in a recent asbestos trust proposal, stating the United States may object to asbestos trust plans that lack transparency and do not contain safeguards against fraud. The statement says the United States has an interest in preserving funds for legitimate asbestos claimants and ensuring proper reimbursement to the federal government for claimants’ asbestos-related Medicare costs. Nineteen state attorneys general, including Wisconsin’s Attorney General Brad Schimel, had written to DOJ last year regarding potential abuse in asbestos trusts.

Reports and cases in recent years have found evidence of fraud and mismanagement in asbestos trusts established under 11 U.S.C. § 524(g). While the asbestos trusts process was created as a streamlined solution to problems with asbestos liability litigation, reports have found illegitimate plaintiffs and opportunistic attorneys withholding evidence of exposure and filing inconsistent claims against multiple defendants, among other fraudulent activity. Abuse has also been reported in the mismanagement of the trusts, whose “trust advisory committees” often consist of asbestos claimants’ plaintiff attorneys.

The DOJ statement of interest in In re Kaiser Gypsum Co. argues the asbestos trust plans in the case are missing safeguards to prevent abuse and to educate claimants about their obligation to reimburse Medicare for asbestos-related health care covered before the trust payment. The statement of interest says plans should also include transparency provisions allowing the United States to monitor claims, payments, and trust governance; protections against excessive administrative costs and attorney fees; and adequate defenses against non-meritorious claims.

U.S. Associate Attorney General Jesse Panuccio said the statement of interest is “just one action the Department will take to increase the transparency and accountability of asbestos trusts.”

Wisconsin has been a leader in combatting asbestos trust fraud and requiring transparency. In 2014, the Wisconsin Legislature enacted into law 2013 Wisconsin Act 154, which created various requirements for plaintiff attorneys to produce information regarding claims the plaintiff has made or anticipates making against an asbestos trust.

 

Second to Last MU Poll Before Election Shows AG Schimel Ahead

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On Oct. 10, 2018, Marquette University Law School (MU) released its second to last poll before the Nov. 6 election. In the state attorney general race, incumbent Republican Attorney General Brad Schimel maintained his lead over Democrat opponent Josh Kaul at 45 percent to 41 percent. Schimel’s lead narrowed slightly from his six point lead in the previous poll.

The October results showed voters have a favorable view of Schimel, with 32 percent viewing him as favorable and 22 percent viewing him as unfavorable. Meanwhile, a majority of voters have not heard enough to form an opinion about Kaul, with 67 percent still saying they have not heard enough (compared to 69 percent in the previous poll). 37 percent said they have not heard enough about Schimel (compared to 44 percent in the previous poll).

Read about MU poll results for other Wisconsin races.