What Will Follow from Wholesale Changes to Wisconsin’s Class-Action Statute?

Published by Jeffrey A. Mandell on

On July 1, 2018, for the first time in more than a century, major changes to Wisconsin’s class-action statute took effect. See Supreme Court Order No. 17-03, 2017 WI 108. As a result, Wis. Stat. § 803.08 now mirrors, nearly identically, Federal Rule of Civil Procedure 23, which governs class-action suits in federal courts. The harmonization of § 803.08 with Rule 23 expands the breadth of guidance and precedent available in Wisconsin class actions, as lawyers and judges can now refer to extensive federal case law interpreting and applying Rule 23. While the effect this change will have on the volume, variety, and outcome of class actions in Wisconsin remains to be seen, several questions are foreseeable.

Will this change increase the number of class-action lawsuits in Wisconsin courts?

State-court class actions have been relatively rare in Wisconsin. So few occur annually that the Wisconsin Court system does not track class actions as a category in its yearly “Civil Disposition Summary.” Among the reasons for this scarcity may be the fact that, prior to July 1, Wisconsin’s previous class-action statute provided very little guidance (and therefore very little predictability) for potential litigants, making federal court or other jurisdictions preferable venues. Now that Wisconsin class-action law parallels federal law, Wisconsin state courts may become a more appealing venue. (Note, however, that Congress relaxed removal rules for class actions, see 28 U.S.C. §§ 1332(d) & 1446, so that, even if more class-action plaintiffs choose to file in Wisconsin state courts, defendants will often have the option to move those cases to federal court.)

There are also some unique features of Wisconsin law that may make litigating class actions here more attractive to plaintiffs and defendants alike. For example, consider the opportunity for appellate review early in the class-action process. The crucial moment in many class-action suits is the trial court’s decision whether to certify a class. Where certification is granted, the defendant often faces enormous potential liability, which is why a certification order sometimes constitute a “death knell” for defendants, forcing them to settle rather than risk an adverse judgment after a full trial on the merits. See Balser et al., Interlocutory Appeal of Class Certification Decisions under Rule 23(f): An Untapped Resource, Bloomberg BNA (Mar. 16, 2017). And where certification is denied, the named plaintiff must decide whether to settle or proceed alone, which often means continuing in extensive, expensive litigation though the potential damages for their individual injury do not justify the costs of the process.

In federal court, litigants do not have an appeal as of right from the trial court’s critical decision of whether to certify a class. Instead, the party aggrieved by that decision must convince a federal appeals court to accept a discretionary appeal under Rule 23(f). By contrast, Wis. Stat. § 803.08(11) now grants litigants an appeal as of right from a class certification order. The chance to appeal class certification before proceeding to final judgment could be a substantial boon for whichever party loses on that issue in the trial court. It may be enough to encourage class-action plaintiffs to file in Wisconsin state court and to make class-action defendants sued in Wisconsin state court think twice before opting for removal to federal court.

Another feature of Wisconsin law that could attract more class-action suits is Wisconsin’s comparatively lenient standing requirements. In federal courts, standing is a constitutionally mandated jurisdictional prerequisite. But Wisconsin state courts view standing more leniently. In Wisconsin, standing is a prudential doctrine, “aimed at ensuring that issues and arguments presented will be carefully developed and zealously argued.” McConkey v. Van Hollen, 2010 WI 57, ¶¶15-16, 326 Wis. 2d 1, 783 N.W.2d 855. The greater flexibility Wisconsin law affords state courts to allow suits to proceed may be particularly advantageous for class-action plaintiffs, who frequently face arguments that the named plaintiff has not suffered a concrete and particularized injury sufficient to trigger federal jurisdiction. Additionally, it remains an unresolved question whether federal standing doctrine requires that all absent class members have standing or if the named plaintiff’s proof of standing is sufficient. Wisconsin’s more pragmatic approach to standing allows state-court plaintiffs to sidestep this thorny question.

How will Wisconsin courts address some of the open questions under federal class-action law?

While functionally adopting Rule 23 will likely bring improved clarity to Wisconsin’s class-action law in many respects, Wisconsin may be adopting some of Rule 23’s unresolved questions as well. To the extent that the language now incorporated into § 803.08 has led to disagreements among federal courts, Wisconsin courts will now face those same bedeviling questions.

One such question, which has divided federal appellate courts, concerns whether Rule 23 has an ‘implicit’ requirement that the members of a proposed class be “ascertainable.” See, e.g., In re Petrobas Securities, 862 F.3d 250, 264 (2d Cir. 2017), petition for cert. filed (No. 17-664). Traditionally, “a class is ascertainable if it is clearly defined by ‘objective criteria.’” Andrew J. Ennis and Catherine A. Zollicker, The Heightened Standard of Ascertainability in Class Actions, ABA Section of Litigation (Mar. 13, 2018). Most circuits, including the Seventh Circuit, adhere to this traditional rule. Id. However, the Third Circuit has held that “a class action plaintiff must also ‘demonstrate his purposed method for ascertaining class members is reliable and administratively feasible.’” Id. (quoting Carrera v. Bayer Corp., 727 F.3d 300, 308 (3d Cir. 2013)). The U.S. Supreme Court has thus far declined several requests to address this issue.

Another involves the propriety of side-deals with individual objectors to a class-action settlement. Because the outcome of a class-action suit is binding upon all members of the class, when the named plaintiff and the defendant negotiate a settlement, the terms are submitted for the court’s review and all absent (that is, unnamed) class members have the opportunity to lodge objections to the settlement. Fed. R. Civ. P. 23(e)(5). Sometimes an absent class member files such an objection for the sole purpose of gaining an individual benefit in the form of a separate settlement payment in exchange for dismissing their objection. At least one litigant has characterized this practice as “objector blackmail.” See Pearson v. Target Corp., 893 F.3d 980, 982 (7th Cir. 2018).

This issue is a particularly interesting example because the U.S. Supreme Court has adopted an amendment to Rule 23 to address this by requiring court approval of any payment provided in connection with dismissing an objection to settlement. Unless Congress takes action to stop it, this proposed amendment will take effect on December 1, 2018. However, Wis. Stat. § 803.08 mirrors Rule 23’s text prior to the proposed amendment. Absent a further change to section 803.08, the settlement issue will remain one for the Wisconsin courts to handle in state-court class actions.

Conclusion

The first wholesale changes to Wisconsin’s class-action statute in a century might have unintended consequences. While changes to harmonize Wisconsin class-action law with federal class-action law mean that Wisconsin lawyers and judges have greater guidance on class-action procedures, they also bring to Wisconsin several thorny questions as yet unresolved by federal courts. And some differences between Wisconsin law and federal law could lead to an increased incidence of class-action litigation in Wisconsin state courts.

Law Clerk Collin Weyers assisted with researching and writing this post.

Filed Under: Wisconsin Supreme Court

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