U.S. Supreme Court Reiterates That Not All Procedural Time Limits Are Jurisdictional

Published by Jeffrey A. Mandell, Meg Vergeront on | Permalink

The U.S. Supreme Court’s first decision of the current term involves a suit alleging age and sex discrimination in the workplace. But the Court addressed only an important, though technical, issue about deadlines for appellate filings. Hamer v. Neighborhood Housing Services of Chicago, No. 16-658, was argued on October 10. The Supreme Court quickly turned around a unanimous decision on November 8, 2017, authored by Justice Ruth Bader Ginsburg.

Charlaine Hamer brought a federal lawsuit for employment discrimination. The trial court granted summary judgment in favor of the defendants. Under 28 U.S.C. 2107(a) and Federal Rule of Appellate Procedure 4(a)(1)(A), Ms. Hamer had 30 days from the entry of judgment to notice an appeal. But a few days before the 30-day deadline, Ms. Hamer’s attorneys sought both to withdraw from the case due to strategic differences with the client and requested a 60-day extension of the appeal deadline so that Ms. Hamer could find new counsel for her appeal. The trial court granted both motions. Represented by new counsel, Ms. Hamer filed her appeal shortly before the extended deadline.

The U.S. Court of Appeals for the Seventh Circuit, however, questioned whether it had jurisdiction over Ms. Hamer’s appeal and asked the parties to brief that issue. As the appellate court noted, Federal Rule of Appellate Procedure 4(a)(5)(C) limits extensions of time for noticing an appeal to no more than 30 days after the initial deadline. Federal statute—28 U.S.C. 2107(c)—also addresses extensions, but it does not set an outer limit for their length. Here, the district court had granted Ms. Hamer a 60-day extension.

The difference between the statutory text (which does not limit the length of an extension) and Rule 4(a)(5)(C) (which does) has divided appellate courts. Two circuits had deemed the limitation in Rule 4(a)(5)(C) a mandatory claims-processing rule, which means it must be followed but can be waived or forfeited such that there are circumstances where an appeal could be timely even if filed during an extension longer than the Rule countenances. Three circuits had deemed the limitation jurisdictional, which means they considered it an absolute bar to proceeding with an appeal filed after the outside limit of the rule, regardless of circumstances. In Ms. Hamer’s case, the Seventh Circuit joined the jurisdictional side of this split.

The Supreme Court clarified that the 30-day limitation on extensions in Rule 4(a)(5)(C) is a mandatory claims-processing rule, not a jurisdictional limit. The Court reiterated that limits prescribed by congressionally enacted statutes mark jurisdictional boundaries, whereas those prescribed by judicially crafted rules present mandatory claims-processing rules. Here, because the statute governing the timing of appeals—28 U.S.C. 2107—does not itself limit the length of a potential extension, the 30-day restriction in Rule 4(a)(5)(C) is not jurisdictional.

While 28 U.S.C. 2107 had, prior to 1991, limited extensions of the deadline to notice an appeal to 30 days, the Supreme Court refused to speculate that Congress’s deletion of that limit was inadvertent. See Hamer, slip op. at 7-8. And though a prior Supreme Court decision had stated that “the taking of an appeal within the prescribed time is ‘mandatory and jurisdictional,’” Bowles v. Russell, 551 U.S. 205, 207 (2009) (quoting Griggs v. Provident Consumer Discount Co., 459 U.S. 56, 61 (1982) (per curiam)), the Hamer Court explained that the word “jurisdictional” is now more carefully and precisely used. See Hamer, slip op. at 9-10.

What’s next? Ms. Hamer’s case goes back to the Seventh Circuit. And future appellate litigants and their attorneys should proceed cautiously, recognizing that the rule allowing an extension of up to thirty days to notice an appeal is a mandatory claims-processing rule, not a jurisdictional limitation.

Law clerk Laura Lamansky assisted with researching and writing this blog post.

Stafford Rosenbaum files Supreme Court brief on behalf of International Center for Law & Economics

Published by Jeffrey A. Mandell on | Permalink

Courts generally defer to agency expertise when reviewing administrative rules that regulate conduct in areas where Congress has delegated authority to specialized executive-branch actors. An entire body of law—administrative law—governs agency actions and judicial review of those actions. And at the federal level, courts grant agencies varying degrees of deference, depending on what kind of function the agency is performing, how much authority Congress delegated, and the process by which the agency adopts or enforces policies.

Should courts be more skeptical when an agency changes a policy position, especially if the agency is reversing prior policy without a corresponding change to the governing statute? Daniel Berninger v. Federal Communications Commission, No. 17-498 (U.S.), raises these questions. And this week Stafford Rosenbaum was honored to serve as counsel of record for the International Center for Law & Economics (“ICLE”) in filing an amicus curiae brief urging the U.S. Supreme Court to hear the case and to answer these questions.

ICLE’s amicus brief highlights new academic research suggesting that systematic problems undermine judicial review of agency changes in policy. The brief also points out that judicial review is complicated by conflicting signals from the Supreme Court about the degree of deference that courts should accord agencies in reviewing reversals of prior policy. And the brief argues that the specific policy change at issue in this case lacks a sufficient basis but was affirmed by the court below as the result of a review that was, but should not have been, “particularly deferential.”

In 2015, the Federal Communications Commission (“FCC”) issued the Open Internet Order (“OIO”), which required Internet Service Providers to abide by a series of regulations popularly referred to as net neutrality. To support these regulations, the FCC interpreted the Communications Act of 1934 to grant it authority to heavily regulate broadband internet service. This interpretation reversed a long-standing agency understanding of the statute as permitting only limited regulation of broadband service.

The FCC ostensibly based the OIO on factual and legal analysis. However, ICLE argues, the OIO is actually based on questionable factual reinterpretations and misunderstanding of statutory interpretation adopted more in order to support radical changes in FCC policy than for their descriptive accuracy. When a variety of interested parties challenged the OIO, the U.S. Court of Appeals for the D.C. Circuit affirmed the regulations. In doing so, the court afforded substantial deference to the FCC—so much that the D.C. Circuit never addressed the reasonableness of the FCC’s decisionmaking process in reversing prior policy.

ICLE’s amicus brief argues that the D.C. Circuit’s decision “is both in tension with [the Supreme] Court’s precedents and, more, raises exceptionally important and previously unaddressed questions about th[e] Court’s precedents on judicial review of agency changes of policy.” Without further guidance from the Supreme Court, the brief argues, “there is every reason to believe” the FCC will again reverse its position on broadband regulation, such that “the process will become an endless feedback loop—in the case of this regulation and others—at great cost not only to regulated entities and their consumers, but also to the integrity of the regulatory process.”

The ramifications of the Supreme Court accepting this case would be twofold. First, administrative agencies would gain guidance for their decisionmaking processes in considering changes to existing policies. Second, lower courts would gain clarity on agency deference issues, making judicial review more uniform and appropriate where agencies reverse prior policy positions.

ICLE’s brief is available [here]. The Supreme Court’s decision whether to hear the case will likely be issued early next year. Check back for updates as this case develops.

Stafford Rosenbaum collaborated with Geoffrey A. Manne, Executive Director of ICLE, and Justin (Gus) Hurwitz, Assistant Professor of Law and Co-Director of the Space, Cyber, and Telecom Law Program at the University of Nebraska College of Law, in preparing the ICLE amicus brief. Law clerk Laura Lamansky assisted with the preparation of the brief and with writing this blog post.

U.S. District Court Enjoins Proposed Overtime Regulations

Published by Meg Vergeront, Olivia M. Pietrantoni on | Permalink

In Nevada v. United States Department of Labor, the United States District Court for the Eastern District of Texas determined that the U.S. Department of Labor (DOL) overstepped its administrative authority in issuing Fair Labor Standards Act (FLSA) regulations relating to overtime pay. 218 F. Supp.3d 520 (E.D. Tex. 2017). DOL wrote the regulations in response to President Obama’s instruction to the Secretary of Labor to “modernize and streamline the existing overtime regulations….” The court’s decision is good news for employers:  the regulations, if fully implemented, would have dramatically increased the number of employees eligible for overtime pay. 

FLSA Background

The FLSA requires employers to pay employees one and one-half times the employee’s regular rate of pay for all hours worked above forty in a given work week. However, employers do not have to pay overtime to employees who hold positions that fall within a regulatory exemption.  With respect to the executive, administrative and professional exemption, prior to the regulation at issue in this case, positions were considered exempt only if an employee in the position performs specified duties and is paid a salary of at least $455 per week, or $23,660 annually. 

At Obama’s prompting, the DOL revised the federal overtime regulations.  Had they gone into effect, they would have drastically raised the threshold salary amount to $913 per week, or $47,476 annually.  These figures would be updated automatically every three years. 

The Court’s Decision

Twenty-one states and fifty-five business groups sued the DOL seeking to invalidate the final rule. The plaintiffs argued that the overtime regulations exceeded the scope of DOL’s delegated authority.  The court considered whether the DOL’s interpretation was based on a permissible construction of FLSA.  The court analyzed the statutory text, and the plain meaning of the words “executive,” “administrative,” “professional,” and “capacity.”  Based on this analysis, the court determined that Congress intended the exemption to apply to employees who perform “executive, administrative, or professional capacity” duties.

The court found that the final rule will “effectively eliminate the duties test…” and is thereby a “salary-level only test,” which does not align with Congress’s intent.  The court explained that a lower minimum salary-level “screen[s] out the obviously nonexempt employees, making an analysis of duties in such cases unnecessary.”  A higher minimum salary-level “makes an employee’s duties…irrelevant if the employee’s salary falls below the new minimum.”  The court believed this ignored Congress’s intention to consider employees’ duties. Based on this determination, the court held that the DOL’s final overtime rule was unlawful.

Effect of the Court’s Ruling

The court’s decision enjoins the DOL from implementing the Obama-era rule.  Furthermore, the Trump administration did not advocate for the increased salary test on appeal of the lower court’s decision.  Therefore, regardless of the outcome on appeal, the Obama-era overtime rule will not go into effect, at least not during the current administration.  On July 26, 2017, the DOL published a Request for Information to gather public comments to aid in revising the rule.

Wisconsin Supreme Court Sets Tight Standard of Proof for Conspiracy to Misappropriate Trade Secrets

Published by Jeffrey A. Mandell, Meg Vergeront, Gregory M. Jacobs on | Permalink

The Wisconsin Supreme Court recently clarified the evidentiary requirements for establishing a conspiracy to misappropriate trade secrets under Wis. Stat. § 134.90.  See North Highland Inc. v. Jefferson Machine & Tooling Inc. et al., 2017 WI 75, 898 N.W.2d 74 (2017).  In a narrow 4-3 decision written by Justice Ann Walsh Bradley, the Court concluded that such a claim may proceed to trial only if there is evidence establishing the defendant had direct knowledge of the misappropriation.

North Highland Inc. is a small manufacturing company that served as a vendor for Bay Plastics, a distributor of customized plastic parts.  Dwain Trewyn worked as a business generator for North Highland.  His duties included submitting bids for potential projects.  When Frederick Wells, Bay Plastics’ owner, decided to form his own manufacturing company, Jefferson Machine & Tool Inc., he approached Trewyn about joining the new venture.  Trewyn became a 25% owner of Jefferson, even as he continued to work at North Highland.

A dispute arose when Jefferson and North Highland submitted competing bids to manufacture stainless steel trolley assemblies for Tyson Foods Inc.  Trewyn submitted North Highland’s confidential bid for the project. Then, he submitted a slightly lower bid on behalf of Jefferson. Tyson awarded the contract to Jefferson, until North Highland threatened to sue and the deal fell apart.

North Highland sued Trewyn, Wells, Jefferson, and Bay Plastics, alleging, among other theories, that Wells and Trewyn had conspired to misappropriate North Highland’s trade secrets (namely, the amount of the Tyson bid).  After Trewyn filed for bankruptcy and settled North Highland’s claims against him, the circuit court granted Wells’ summary judgment motion and dismissed the claims against Wells.

On appeal, the Court of Appeals affirmed the dismissal of the claims against Wells. The court concluded that (1) North Highland had failed to set forth any facts establishing that Trewyn and Wells conspired to misappropriate North Highland’s trade secrets, and (2) North Highland had not established that the amount of its bid qualified as a trade secret under Wis. Stat. § 134.90(1)(c).  At North Highland’s request, the Wisconsin Supreme Court agreed to review the case.

Writing for the majority, Justice Ann Walsh Bradley affirmed the dismissal.  Like the lower courts, the Supreme Court determined that the evidentiary record did not support the allegation that Wells had conspired with Trewyn to misappropriate North Highland trade secrets allegedly protected by statute.  Id. ¶ 39.  While it was undisputed that Trewyn had formulated the Tyson bids for both North Highland and Jefferson, the Court was unwilling to permit a jury to say that meant that Wells himself must have known the amount of North Highland’s bid.  Id. ¶ 41.  The Court cited repeated deposition testimony from both Wells and Trewyn that (1) Wells was not aware Trewyn had submitted a Tyson bid on North Highland’s behalf, (2) Wells was not involved in formulating Jefferson’s bid, and (3) Wells had not created Jefferson to compete against North Highland.  Id. ¶¶ 11-15, 30-33.

In the face of this “unrebutted” deposition testimony, the Court concluded that “[t]here are simply no facts or reasonable inferences derived from the facts to support such an allegation [of trade secret misappropriation against Wells].”  Id. ¶ 42.  Having found no evidence of misappropriation, the Court had no need to decide whether the amount of a confidential project bid qualifies as a “trade secret” under Wis. Stat. §134.90(1)(c).

In a detailed dissent, Chief Justice Roggensack noted that § 134.90(2) extends liability to anyone who “knows or had reason to know” about misappropriation, such that circumstantial evidence of an actor’s knowledge should be enough to prove a violation.  Id. ¶¶ 109-110 & n.38.  Applying this standard, the dissent referenced additional deposition testimony from Wells that (1) Wells worked with Trewyn to develop Jefferson’s bid, (2) Wells knew Trewyn continued to work at North Highland during the Tyson bidding process, (3) Wells recognized that North Highland and Jefferson were competitors, and (4) Wells was aware that Trewyn’s employment contract with North Highland did not contain  a non-compete provision.  Id. ¶¶ 56-61, 109.  Given this additional testimony, the dissent argued that the evidentiary record presented factual issues appropriate for a jury to resolve.

In the wake of North Highland, entities considering suit against former employees and/or competitors for violations of Wis. Stat. § 134.90 should evaluate what admissible evidence ties their competitors’ conduct to the alleged misappropriation.  The majority was unwilling to allow North Highland to extend liability beyond its own employee (Trewyn), who clearly was the primary actor, despite Wells’ presumed awareness of Trewyn’s business conflicts.  Accordingly, before undertaking expensive litigation under Wisconsin trade-secrets law, companies should be prepared to establish a clear, strong, direct link between their targeted defendants and the alleged misappropriation.

Management Policies Generally Will Not Abrogate Employment-At-Will

Published by Meg Vergeront on | Permalink

The Wisconsin Court of Appeals recently reversed a circuit court decision that awarded a physician-employee $2.2 million against his employer, Dean Health Systems (Dean). Bukstein, M.D. v. Dean Health Systems, Inc., No. 2016AP920 (Wis. Ct. App. July 20, 2017) (recommended for publication). The dispute revolved around whether Bukstein was an employee at-will who Dean could terminate for any reason, with or without cause, without being subject to a breach-of-employment contract claim.

Background

Bukstein initially signed an employment agreement with Dean that confirmed that Buckstein was an at-will employee.  After an investigation into allegations of inappropriate touching of patients, Dean fired Buckstein “without cause,” pursuant to the at-will provision in the initial agreement.  Bukstein sued, arguing that one of Dean’s management policies modified his at-will employment status, and afforded him greater employment protection from termination. Buckstein argued that the policy “‘change[d] the employment relationship by creating a ‘contract separate from or supplemental to the [employment agreement].’”  The decision did not identify relevant content of the policy at issue.    

Court’s Decision

The court of appeals rejected Bukstein’s argument in one fell swoop, stating that “[t]he problem with Bukstein’s reliance on the [management] policy is that, under controlling case law, the policy does not modify Dean’s right to terminate Bukstein under the at-will provision in the employment contract.”  The court explained that a policy such as the one in this case “does not modify or take precedence over an at-will employment agreement” unless the “only when” rule applies.

The “only when” rule provides that policies “alter an established at-will employment relationship ‘only when’ the policy ‘contains express provisions from which it can reasonably be inferred that the parties intended to bind each other to a different employment relationship’ than the established at-will relationship.’” The court stated that Bukstein failed to point to any language in Dean’s management policy that could support a reasonable inference that the parties intended to change their at-will employment relationship.  Therefore, the court held that Dean did not breach its contract with Bukstein when it relied on the at-will provision in the employment agreement to terminate Bukstein “without cause.”

Employer Take-Away

Employers that issue policies governing the employment relationship, such as policies setting the duration of employment or conditions upon which it may terminate employees, should carefully examine the policy language to determine whether that language could trigger the “only when” rule. A decision from the Wisconsin Supreme Court, Ferraro v. Koelsch, 124 Wis.2d 154, 163-65, 368 N.W.2d 666 (1985), gives a few examples of the kinds of polices that might trigger the “only when” rule.  Such policies include those that (1) govern employees in exchange for “continued employment,” (2) establish a layoff procedure based on seniority, and (3) provide that “discharge [will] only be for ‘just cause.’”

Associate Olivia Pietrantoni assisted in researching and writing this post.

Seventh Circuit Clarifies Applicability of Economic Loss Doctrine to Liability Insurance Coverage

Published by Bruce Huibregtse, Gregory M. Jacobs on | Permalink

The Seventh Circuit recently clarified the potential impact of Wisconsin’s Economic Loss Doctrine on the availability of liability insurance coverage for commercial insureds facing defective product claims.  See Haley et al. v. Kolbe & Kolbe Millwork Co. et al., Nos. 16-3563 & 16-3648 (7th Cir. 2017).  In holding that coverage was available for the defective residential windows claims at issue in this case, the Seventh Circuit concluded that Wisconsin common law requires a case-by-case analysis to determine liability insurance coverage for underlying claims subject to the Economic Loss Doctrine, thus rejecting the more broad proposition that any claim subject to the doctrine is per se not covered.

The Economic Loss Doctrine is a common law rule that has been adopted by the Wisconsin courts to allocate monetary risks arising from the purchase of commercial goods between buyers and sellers.  The rule eliminates a purchaser’s access to tort-based causes of actions to recover purely economic losses from the manufacturer of a defective product.  Injuries to people or third-party property continue to be redressable in tort, but purely economic claims (i.e., loss of economic value of the product itself and/or consequential monetary loss arising from the product’s failure to function as expected) can be compensated only under contract law. 

Wisconsin courts also have expanded the Economic Loss Doctrine by adopting the integrated-system rule. Under that rule, when a defective product has been incorporated with other products to function cohesively as an “integrated system,” the Economic Loss Doctrine applies to preclude tort-based claims for damage to any other component of that system.  See, e.g., Wausau Tile, Inc. v. County Concrete Corp., 226 Wis. 2d 235, 249-53 (1999).

In March 2016, the Wisconsin Supreme Court applied the Economic Loss Doctrine and the correlating integrated-system rule to hold that no liability insurance coverage was available for defective product claims brought against a pharmaceutical supplement supplier.  See Wis. Pharmacal Co. v. Neb. Cultures of Cal., Inc., 367 Wis. 2d 221 (2016).  In that case, Pharmacal was sued for producing defective daily supplement tablets; the tablets as a whole were alleged to be defective because they contained an incorrect probiotic bacterial species. Pharmacal had obtained that probiotic species from a downstream supplier and combined it with other ingredients when formulating the defective tablets.

Pharmacal’s liability insurance policies included standard coverage for damage to other property, but excluded coverage for damage to Pharmacal’s own property.  The Pharmacal Court, citing the Economic Loss Doctrine and the integrated-system rule, concluded that no coverage was available.  The Court reasoned that, although only one ingredient used in the supplement tablets was defective, the ingredients were combined into an inseparable integrated system.  As a result, damage to any component of the tablets was considered damage to Pharmacal’s own property.

Based on the Pharmacal decision, Kolbe & Kolbe Millwork’s insurers argued that they had no obligation to defend the defective windows claims at issue. They started from the proposition that in prior decisions Wisconsin courts have applied the Economic Loss Doctrine to defective windows claims, holding that windows form an integrated system with the other structural components of a house.  They then argued that, just as Pharmacal’s insurer had no duty to cover damage to an integrated system, they had no duty to cover the alleged damages to any component of the plaintiffs’ homes.

The Seventh Circuit rejected the broad proposition that Pharmacal required an integrated system analysis under all circumstances.  In doing so, the Court noted that whether insurance coverage exists depends instead on the nature of the underlying plaintiff’s alleged loss.  In contrast to the claims at issue in Pharmacal, where the plaintiff sought to replace the supplement tablets entirely because the defective ingredient was indistinguishable from the non-defective ingredients, here the class-action plaintiff homeowners were seeking repairs to identifiable components of the houses other than the defective windows themselves.  The Seventh Circuit accordingly concluded that the resulting damage to the drywall, wood framing, and brick surrounding the defective windows constituted damage to “other property” under the policy language, thus triggering the insurers’ coverage obligations notwithstanding that the claims were subject to Wisconsin’s Economic Loss Doctrine.

Assuming the Seventh Circuit has interpreted the Pharmacal decision correctly, Kolbe & Kolbe Millwork serves as a significant clarification regarding the impact of the Economic Loss Doctrine on liability insurance coverage under Wisconsin law.  As a result, commercial insureds facing product defect claims alleging damages to distinguishable components of integrated systems should be able to assert the Economic Loss Doctrine as an absolute defense to any tort-based causes of action without in turn eliminating their liability insurers’ obligation to defend the litigation.

From a practical standpoint, it is also noteworthy that in this case the Western District of Wisconsin federal court denied the insurers’ request to stay the underlying product defect lawsuit when they intervened to litigate the related insurance coverage issues for the matter.  As a result, the insurers were forced to continue to pay to defend Kolbe & Kolbe Millwork in the ongoing defective windows litigation while simultaneously seeking a ruling that they were not obligated to do so under their liability insurance policies.

Going forward, therefore, insurers may be better off litigating any defense coverage disputes for underlying product defect claims in Wisconsin state courts, where it is standard practice for courts to stay the underlying litigation pending resolution of an insured’s defense obligations and where an insurer may have more success in arguing that the Seventh Circuit inappropriately narrowed the Wisconsin Supreme Court’s holding in Pharmacal.

The Not-So-Scenic Pit: Court Reaffirms Limited Local Control Over Certain Solid Waste Facilities

Published by Paul Kent, Vanessa D. Wishart on | Permalink

The issue of local control is once again front and center in a recent Wisconsin Court of Appeals decision, Scenic Pit LLC v. Village of Richfield, No. 2015AP2291 (June 28, 2017) (recommended for publication).

Scenic Pit LLC sought to open a clean fill solid waste facility in the Village of Richfield. Such facilities accept disposal of only certain low hazard wastes. The Village took the position that Scenic needed to obtain several local approvals, including for rezoning the property, for a conditional use permit, and for a construction storm water and erosion control permit. Id., ¶4. Scenic applied for construction permits from the Village, but it did not attempt to acquire the storm water and erosion control permit or the rezoning of the property. Id., ¶4. The Village denied Scenic’s application for construction permits. Id.

Scenic also applied for and obtained a Wisconsin Pollution Discharge Elimination System (WPDES) general permit from the Wisconsin Department of Natural Resources (DNR) for construction site storm water runoff and erosion control. Id.

When the Village denied the construction permits, Scenic sued seeking a declaratory judgment that it was not required to comply with local approvals and an injunction ending the Village’s interference with its proposed plan. Id., ¶5. Both Scenic and the Village moved for summary judgment. Id.

The circuit court granted summary judgment to the Village, on the ground that under the authority of Willow Creek Ranch, LLC v. Town of Shelby, 2000 WI 56, 235 Wis. 2d 409, 611 N.W.2d 693, Scenic was required to comply with all local ordinances unless “‘state and local interests are diametrically opposed,’” which the court found they were not. Id.

On appeal, Scenic argued that the DNR had exempted clean fill facilities from needing to obtain the kind of local approvals the Village was requiring. The court of appeals agreed with Scenic. The court explained that the legislature has designated the regulation of solid waste facilities as a matter of statewide concern. Id., ¶8. While a municipality may regulate matters of statewide concern, it may only do so as long as local ordinances do not conflict with state law. Id.

The court relied heavily on DeRosso Landfill Co. v. City of Oak Creek, 200 Wis. 2d 642, 547 N.W.2d 770 (Wis. 1996), which it explained was directly on point. The DeRosso court had previously determined that the statutory and regulatory scheme allowed DNR to exempt low hazard waste facilities from local requirements that applied to most other waste facilities and that this scheme amounted to an express withdrawal of municipal power to require local approvals. Id., ¶11. 

The Village attempted to distinguish DeRosso on the ground that the precedent does not apply to local zoning. That, the Village argued, placed its dispute with Scenic beyond the scope of DeRosso decision. Id., ¶14-19. The court disagreed, explaining that the precedent on which the Village was relying, Willow Creek Ranch, LLC v. Town of Shelby, 2000 WI 56, 235 Wis. 2d 409, 611 N.W.2d 693, was inapposite and simply did not address the issue raised here, nor did it conflict with the rationale in DeRosso. Id., ¶¶14-19.

After holding that DeRosso controlled and that any local approvals required to construct Scenic’s facility were preempted, the court went on to examine whether the Village’s zoning ordinance and construction storm water and erosion control regulations were local approvals. Id., ¶19. The court concluded that they were, based on the very broad definition of “local approval” found at Wis. Stat. § 289.33(3)(d). Id., ¶29.

The takeaway from this case is that municipalities have limited control over the siting of certain solid waste facilities such as low-hazard clean fill facilities. However, the court was careful to point out that DNR regulations still control siting of such facilities. As the court explained, “[l]eaving the regulation of clean fill facilities to DNR may or may not be good policy, but it is what the legislature and DNR have done through statute and administrative rule (as interpreted by the supreme court.)” Id., ¶24.

WI Courts Continue To Limit Criminal Expungement, Even as Legislature Considers Expanding Scope

Published by Jeffrey A. Mandell, Erika Bierma on | Permalink

In May, Representatives Steffer (R-Howard) and Hoyke (D-Milwaukee) introduced 2017 AB 331 in the Wisconsin Assembly. The proposed legislation would change current Wisconsin law to make expungement available to those previously convicted of a crime or who were ineligible for expungement at the time their case was resolved, and it would expand the number of defendants who can seek expungement. However, this legislative proposal is at odds with the current trend in Wisconsin courts interpreting existing expunction law.

Wisconsin’s current expungement statute, Wis. Stat. § 973.015, allows courts, at the time of sentencing, to order a defendant’s conviction to be expunged after “successful completion” of a sentence, if the defendant is under age twenty-five at the time of conviction and the offense has a maximum period of imprisonment of six years or less. This statute gives the court a chance to “shield youthful offenders from some of the harsh consequences of criminal convictions.” State v. Matasek, 2014 WI 27, ¶42.

The combination of Wisconsin’s Open Records Law and the availability of court records online through the Consolidated Court Automation Program (CCAP) means that anyone with Internet access—read: nearly everyone—can easily obtain criminal history and case history from any Wisconsin court. Without expungement, convictions (whether of the original charge or a lesser, amended charge), charges that do not lead to convictions, and dismissed charges are all viewable by prospective employers, admissions officers, landlords, in-laws, etc. This access has practical consequences. For example, the American Bar Association has identified 38,000 statutes that impose collateral consequences for those with criminal convictions—of those, nearly half negatively impact employment opportunities. State v. Ozuna, 2017 WI 64, ¶ 39 (A.W. Bradley, J., dissenting).

While the purpose and scope of Wis. Stat. § 973.015 seem straightforward at first glance, the law contains ambiguities that courts have interpreted to limit access to expungement. Recent court cases have featured debates over what “expunge” and “successful completion” mean within the statutory context. The judicial trend has been to answer these questions in favor of narrowing the availability and scope of expungement under Wisconsin law.

The committee notes to Wis. Stat. § 973.015 define “expunge” as “to strike or obliterate from the record all references to the defendant’s name and identity.” Comm. Note to Wis. Stat. § 973.015(3) (citing 67 Atty. Gen. 301). But recent decisions have limited the efficacy of expungement in practice. Yes, the criminal record is sealed, with access barred absent a court order—but the police and some other governmental entities can still view the arrest. The court records still exist despite being removed from CCAP and can still be accessed by some individuals. Additionally, the record is still accessible in the Wisconsin Department of Justice’s Crime Information Bureau (CIB) database and the Criminal Justice Information Services Division of the federal Department of Justice’s National Crime Information Center (NCIC) database.

Moreover, under State v. Leitner, 2002 WI 77, courts can use information from judicial records, Department of Corrections files, and police reports relating to a prior, expunged conviction to formulate the sentence for a subsequent conviction, even though the record of the earlier conviction was “obliterate[d].” The Leitner Court clarified that, while § 973.015 bars formal consideration of a prior, expunged conviction, it does not otherwise “shield a misdemeanant from all of the future consequences of the facts underlying a[n expunged] record of a conviction,” so long as “those facts are not obtained from expunged court records.” Leitner, 2002 WI 77,38.

In one recent decision, the Supreme Court expanded even further the acceptable use at sentencing of underlying facts from an expunged record. In State v. Allen, 2017 WI 7 (Feb. 9, 2017), the criminal background check contained in the Pre-Sentence Investigation Report detailed the incident behind the defendant’s ostensibly obliterated record: “This incident involved a fight with another boy at high school and he was charged because the other boy lost a tooth in the fight.” Id., ¶10. Although the report acknowledged that the record was “officially expunged,” the circuit court sentenced more harshly based on the fact of prior offense, noting that Allen “had an opportunity to learn something from that [occasion].” Id., ¶12. The Supreme Court affirmed the circuit court, holding that, even where a record is expunged, many (if not all) of the incriminatory details are still available for a sentencing court’s review and may factor into the court’s subsequent sentencing decision.

In another recent decision, the Wisconsin Supreme Court further limited the availability of expungement. State v. Ozuna, 2017 WI 64, addressed another ambiguity in Wis. Stat. § 973.015: where expungement automatically occurs upon the successful completion of a probation sentence, who decides what “successful” means? Under the terms of his plea agreement, Ozuna’s convictions for criminal damage to property and disorderly conduct were to be expunged once he successfully completed probation. At the end of Ozuna’s probation, the DOC filed a “Verification of Satisfaction of Probation Conditions for Expungement” with the circuit court, indicating that Ozuna had “successfully completed” his term of probation. Notwithstanding the DOC’s determination, the circuit court disregarded the DOC form and denied Ozuna’s expungement. The circuit court based its decision on Ozuna’s receipt of an underage drinking citation—in violation of a no-alcohol probation rule.

The question on appeal was narrow: had Ozuna successfully completed probation, entitling him to expungement? Ozuna’s brief to the Supreme Court pointed out that, “upon successful completion of the sentence the detaining or probationary authority shall issue a certificate of discharge which shall be forwarded to the court of record and which shall have the effect of expunging the record.” Under the statute, he argued, the expungement process is ‘self-executing’ once the probation officer determines the sentence is complete.

Ozuna relied on State v. Hemp, 2014 WI 129, and State v. Matasek, 2014 WI 27. Under Hemp, a probation officer was given discretion to determine whether or not probation had been successfully completed. Moreover, once the officer determined the sentence was completed, expungement would be automatic, or self-executing. Under Matasek, the decision of expungement should be made at the sentencing stage, rather than after completion of the sentence. In other words, the circuit court’s role is before the sentence is served, and the probation officer’s role is after. In response, the State claimed that Ozuna had not successfully completed his probation sentence, differenting him from the defendants in Hemp and Matasek, who had done so.

The Supreme Court sided with the State. Its reasoning was simple. The statute says a record can be expunged “upon successful completion” of the sentence—here, probation. Successfully completing his probation required Ozuna to follow all of its requirements. Because Ozuna did not follow the no-drinking conditions of his probation, he did not successfully complete his probation. It did not matter that the DOC indicated otherwise. Nor did it matter that expungement is typically self-executing. What controlled the outcome of the case was that “Ozuna did not meet the criteria for expungement, because he did not satisfy the conditions of his probation.” 2017 WI 64, ¶19.

While the courts have consistently limited expungement, the legislature continues to consider changes in the opposite direction. A series of failed legislative efforts last session would have expanded the expungement statute. AB 1005 would have allowed defendants to petition for expungement of records related to a criminal prosecution after either acquittal or dismissal of charges. AB 1004 would have required expungement of records related to a criminal prosecution where the defendant was found not guilty or the conviction was reversed on appeal. And AB 1008 would have allowed courts to consider expungement after a defendant served their sentence, rather than only at the sentencing hearing.

In light of these failed measures, the prospects for 2017 AB 331 remain unclear. Unlike last session’s proposals, AB 331 has bipartisan sponsorship, but that does not mean it will gain sufficient support to become law. In the meantime, while the expungement statute appears straightforward, defendants should be cautious, bearing in mind judicially imposed limitations.

Law clerk Charles Ureña assisted in researching and writing this post.

Discharged Police Officer Has No Constitutional Entitlement to Pay During Pendency of His Appeal

Published by Paul W. Schwarzenbart, Holly J. Wilson on | Permalink

As we reported in November 2016, the Wisconsin Court of Appeals upheld a decision by the Milwaukee City Board of Fire and Police Commissioners (“Board”) to terminate the employment of Milwaukee Police Department (“MPD”) Officer Daniel Vidmar for falsifying a document to take possession of an unclaimed dirt bike from MPD inventory. While Officer Vidmar did not seek Wisconsin Supreme Court review of that decision, the court of appeals’ decision ended only one of Officer Vidmar’s legal challenges arising out his termination.

In a parallel federal case asserting due process and state law wage claims, the U.S. Court of Appeals for the Seventh Circuit recently slammed the door on another of Vidmar’s related challenges to his termination. Milwaukee Police Ass’n v. Flynn, No. 16-3743, 2017 WL 2962017 (7th Cir. July 12, 2017). The federal claims advanced by Vidmar and other discharged officers alleged they were denied due process when the City of Milwaukee terminated their pay and benefits upon discharge, even though they had not yet exhausted their right to challenge their terminations by appeals to the Board.

The Seventh Circuit concluded that the discharged officers had no entitlement to pay during the pendency of their appeals. As the court framed its holding, under Wisconsin law the former officers had no “property interest” in their employment once they were discharged for cause. 2017 WL 2962017 at *7. The court rejected the officers’ assertion that the chief’s “authority is limited to suspending a member’s police powers pending a trial before the Board,” concluding that the argument was “directly contradicted by the language of the statute.” Id. at *4. Instead, the court construed the statute to provide that the chief’s decision to terminate the officers was a final employment action, subject to the officers’ right to appeal the decision to the Board. As the court described it, the statute clearly provides that the officers’ property interest in their employment “is lost at the first juncture,” that is, with the chief’s decision to terminate for cause, while the discharged officer had the “opportunity to reclaim his property interest in employment on appeal after a trial.” Id. at *5.

Although not cited by the court, Wis. Stat. § 62.50(22) would have entitled the discharged officers to back pay if they had successfully challenged their discharge. This access to back pay plainly factors into the court’s statement about the officers’ opportunity to “reclaim” their property interests. Additionally, as the court noted, under Wis. Stat. § 62.50(18) an officer suspended for a period of time without pay is entitled to continue to be paid until exhaustion of the appeal. However, this provision does not apply to discharged officers.

The Seventh Circuit’s decision addresses Wis. Stat. § 62.50, which applies only to the City of Milwaukee Board. However, the statutory language of Wis. Stat. § 62.13, which governs all other municipal Boards of Police and Fire Commissioners, appears indistinguishable. Wis. Stat. § 62.13(5)(h), just like Wis. Stat. § 62.50(18), provides that an officer may not be deprived of compensation while suspended pending disposition of charges but does not address discharged officers. The latter are entitled to have all lost pay restored only if the charges are not sustained. Wis. Stat. § 62.13(5)(e). Therefore, the Seventh Circuit’s decision should not be viewed as peculiar to the City of Milwaukee.

Notably, the Seventh Circuit decision does not mark the end of Vidmar’s collateral attacks on his discharge. Presently pending before the Wisconsin Court of Appeals is Milwaukee Police Association v. City of Milwaukee, No. 2016AP1573, an appeal by Vidmar and his collective bargaining unit from a judgment dismissing their challenge to the Board’s compliance with political affiliation and training requirements set by Wis. Stat. § 62.50(1)(h) and Milwaukee City Ordinance § 314. Among other things, in that matter Vidmar seeks judgment declaring that his discharge was “unlawful” because the City’s appointment of Board members did not meet these requirements. So the Vidmar discharge matter has not yet officially reached the end of the road.

If you have any questions about the PFC disciplinary process, contact a member of Stafford Rosenbaum LLP’s Government Law Team members.

Court of Appeals Issues Decision in O’Donnell Park Parking Structure Litigation

Published by Susan Allen, Gregory M. Jacobs on | Permalink

On July 11, the Wisconsin Court of Appeals addressed a couple of notable legal issues in litigation arising out of the O’Donnell Park Parking Structure panel collapse.  Wosinski et al. v. Advance Cast Stone Co. et al., Nos. 2014AP1961, 2213, 2274, 2660, 2015AP1212 (Ct. App. 2017).  Steven and Amy Wosinski, their son Eric, and their son’s friend, Jared Kellner, were on their way to Summerfest in June 2010 when a decorative concrete panel fell from the side of the parking structure.  Jared was killed, Amy suffered severe ankle trauma that resulted in a partial leg amputation, Eric’s leg was fractured, and Steven incurred significant emotional distress from witnessing the event.  The Kellner estate and the Wolinskis subsequently filed wrongful death and personal injury lawsuits against a number of parties, including Advance Cast Stone Company (“ACS”), the entity responsible for installing the decorative concrete panels when the garage was built in the late 1980’s.

ACS’s Statute of Repose Defense

Prior to trial, ACS moved for summary judgment on the ground that the accident occurred well beyond Wisconsin’s 10-year statute of repose for improvements to real property (Wis. Stat. § 893.89).  The trial court denied the motion.  It found that there was a material issue of fact as to whether ACS concealed or misrepresented the defective and deficient manner in which the concrete panel was installed and, therefore, fell within an exception to the repose statute for parties who commit fraud, concealment, or misrepresentation (Wis. Stat. § 893.89(4)(a)).  As a result, the court allowed all of the plaintiffs’ causes of action against ACS to proceed, even those based on allegations of ACS’s negligent installation of the panel rather than the subsequent concealment and misrepresentation of those negligent installation activities.

At trial, the jury determined that ACS had used a negligent installation method that was not safe for the size of the concrete panel per the building codes in effect at the time and, therefore, was liable for 88% of the plaintiffs’ compensatory damages.  The jury also concluded that ACS’s failure to follow the building design plan by employing this suspect and defective installation method, combined with its subsequent concealment and misrepresentation of its negligent installation activities, demonstrated a “heightened state of mind” that goes beyond ordinary negligence, justifying an award of punitive damages.  The trial court denied ACS’s statute-of-repose defense based on the jury’s finding that ACS had concealed and misrepresented its defective installation of the concrete panel.  ACS appealed.

The Court of Appeals affirmed.  Specifically, the court highlighted (1) the jury’s findings that the final As-Built drawings filed with Milwaukee County reflected a design inconsistent with the method actually employed by ACS, and (2) ACS employee testimony that the company chose not to document the construction design changes in writing, despite being contractually obligated to submit written change orders to the County for approval and to maintain accurate As-Built drawings in the public file.  These facts were sufficient to prove that ACS’s conduct fell squarely within the exception to the statute of repose for parties who engage in concealment and misrepresentations, and the Court of Appeals affirmed that the exception operates to preserve all causes of action against the offending party, even those based on allegations independent of the fraud, concealment, or misrepresentations that triggered the exception.

Wosinski serves as an important warning to parties engaging in reckless or nefarious conduct that they likely will not be afforded the same time-limitation defenses as parties that, at worst, have acted negligently.  Here, for example, ACS ended up with a judgment of over $10 million in damages arising from its negligent installation of the concrete panel, though liability for those claims very well may have been barred by the statute of repose had ACS not subsequently concealed and misrepresented its construction method.

ACS’s Insurance Coverage Claim Against Liberty

Concurrent with the plaintiffs’ wrongful death and personal injury claims, ACS also was engaged in a dispute with Liberty, its liability insurance carrier, regarding defense and indemnification coverage for the plaintiffs’ claims.  Liberty had agreed to defend ACS under a reservation of rights, asserting its position that the negligence claims were barred by the statute of repose and that the allegations of fraud, concealment, and misrepresentation not subject to the repose statute would otherwise fall under the policies’ intentional acts exclusion.

Interestingly, Liberty did not file a pre-trial declaratory judgment motion seeking a ruling on its defense obligations or a motion to bifurcate the coverage issues from the liability issues.  Liberty did, however, assert its coverage position in its pre-trial report by proposing special verdict questions to be presented to the jury regarding the fraud, concealment, and misrepresentation allegations pending against ACS.  The plaintiffs and ACS both objected to Liberty’s proposed jury questions and moved to bifurcate all coverage issues from the liability trial.  The trial court granted the motion to bifurcate, holding that Liberty was not permitted to participate at trial because its strategy would jeopardize ACS’s defense, particularly with regard to punitive damages.

After trial, Liberty filed a number of post-verdict motions, including a request for a declaration that it owed no duty to indemnify in light of the jury’s findings regarding ACS’s concealment and misrepresentations.  The trial judge denied Liberty’s motions, finding not only that there was indemnification coverage as a matter of law for the damages arising from ACS’s negligent installation activities, but also that Liberty’s pre-trial conduct amounted to a breach of both the duty to defend and the duty of good faith and fair dealing it owed to ACS.  The trial court concluded that Liberty was liable for all damages that naturally flowed from its bad-faith conduct and was therefore obligated to pay the full compensatory and punitive damages award against ACS—in excess of $39 million—despite the $10 million coverage limit on ACS’s policies with Liberty.  Liberty appealed.

The Court of Appeals affirmed the trial court’s holding that coverage was triggered under the Liberty policies based on the jury’s conclusion that ACS had negligently installed of the concrete panel.  However, the Court of Appeals reversed the lower court’s ruling that Liberty’s decisions not to seek bifurcation and to assert its coverage positions at trial had breached the defense obligations it owed to ACS.  The Court held that the focal point of the duty of defend is whether or not the insurer has provided the insured a defense at all, and that Liberty’s decision to provide a defense under a reservation of rights was an acceptable approach under Wisconsin law.  The Court went on to explain that an insurer’s duty of good faith and fair dealing is separate and distinct from its defense obligations, and that the lower court overstepped its authority in holding that Liberty’s litigation strategy had been employed in bad faith because ACS had not filed a bad-faith tort claim against Liberty.  The Court vacated the order obligating Liberty to pay the full $39+ million damages amount and remanded for determination of what amount of the damages award fell within the $10 million in coverage afforded by the Liberty policies.

This holding demonstrates the imperative for a party to properly plead its claims and, if necessary, amend its causes of actions as litigation progresses.  Had ACS properly placed Liberty’s litigation conduct before the court by amending its claims to add a bad-faith claim, this proceeding may have resulted in the Court of Appeals affirming the trial court decision requiring Liberty to pay all $39+ million in damages.  Instead, ACS now faces the potential of having to pay a substantial portion of the verdict out of its own pocket, as well as having to invest additional time and resources into litigating Liberty’s alleged bad faith conduct in future proceedings.

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