Seventh Circuit Reaffirms Stringent Standards for Municipal Liability in Civil Rights Actions

Published by Susan Allen, Kurt M. Simatic, Elizabeth C. Stephens on | Permalink

Since the United States Supreme Court’s seminal decision in Monell v. New York Department of Social Services, a municipality can be only found liable for civil rights claims brought under 42 U.S.C § 1983 if a plaintiff can show that a policy or custom of the municipality caused the violation of his or her constitutional rights. In a recent case involving a Wisconsin county jail, the U.S. Court of Appeals for the Seventh Circuit affirmed the rigorous standard articulated by Monell and reaffirmed the limited applicability of “single-incident” violations where liability is found absent an established pattern or practice of the violation. 

Plaintiffs are two female former county jail inmates who both alleged that a male corrections officer committed repeated acts of sexual assault against them and subsequently encouraged them to conceal the assaults from other corrections officers and inmates. County officials were unaware of the assaults until one of the women reported them to investigators in a neighboring county after her release, prompting an internal investigation by the county in which the assaults had allegedly occurred. When county officials confronted the corrections officer with the assault allegations, he immediately resigned and was eventually sentenced to 30 years in prison for the assaults. 

Plaintiffs filed a civil rights lawsuit against both the corrections officer and the county alleging violations under the Fourth and Eighth Amendments of the U.S. Constitution. In support of their claims, plaintiffs asserted that (1) the jail’s sexual assault policies and training were inadequate; (2) county officials tolerated sexually offensive comments by corrections officers; (3) threats of sexual assault against inmates were not taken seriously by county officials; and (4) county officials declined to implement all of the provisions of the federal Prison Rape Eliminate Act (“PREA”). For these reasons, they argued, the county was deliberately indifferent to the risk of sexual assault of inmates by corrections officers and therefore liable for the corrections officer’s acts under Monell as well as under a single-incident liability theory.

The jury found in plaintiffs’ favor on all claims and awarded each plaintiff $2,000,000 in compensatory damages against both defendants, as well as $3,750,000 in punitive damages against the corrections officer.  The county moved for both judgment as a matter of law and a new trial, arguing that plaintiffs’ offer of proof was insufficient bordering on deceptive. The Court denied the county’s request. The county appealed. 

In a 3-1 decision, the Court of Appeals panel reversed, holding that plaintiffs failed to meet its burden of proof on any of the three Monell factors: (1) the existence of an express or implied unconstitutional custom or policy; (2) policymakers’ deliberate indifference to a known or obvious risk; and (3) evidence that the custom or policy caused the constitutional violation. 

First, the Court concluded that plaintiffs failed to produce any evidence at trial to support their argument that the county’s written policies against sexual assault were inadequate at preventing or detecting sexual assault. The Court held that in order to prove liability under this theory, plaintiffs were required to show actual culpability by the county (i.e. adherence to policies that the county knew or should have known failed to prevent sexual assaults against inmates). Having failed to produce any evidence of a history of sexual assaults by corrections officers against inmates or show the county’s decision not to adopt all of provisions of PREA constituted a custom or policy that led to the constitutional violations, the Court disposed of the argument.

Second the Court rejected plaintiffs’ argument that the county’s implicit policies (i.e., custom or practice) condoned and encouraged sexual misconduct.  The Court held that a jail captain’s participation in “tier talk,” a term described as “not necessarily flattering talk,” inappropriate remarks by jail officials over a twelve year period, and the county’s investigation into a single allegation of inappropriate touching of an inmate by a corrections officer were insufficient proof of a “widespread” unconstitutional policy or practice. The Court found that the alleged “tier talk” and other remarks were not necessarily sexually explicit and the inappropriate touching (putting an arm around an inmate’s waist and patting her backside) did not rise to the same degree of the “repeated and coercive sexual abuse” perpetrated by the corrections officer in this case.  Slip op. at 24. 

Third, the Court rejected plaintiffs’ argument that the county failed to adequately train its employees to prevent inmate sexual assault. The Court found that these were little more than conclusory allegations, that there was no widespread pattern of comparable behavior and, most significantly, that the offending corrections officer admitted at trial that his conduct was contrary to all of the training he received, jail policy, and Wisconsin law.

Finally, the Court also rejected plaintiffs’ attempt to shoehorn their failure-to-train claim into a single-incident liability exception to Monell’s “policy or custom” requirement. Although the U.S. Supreme Court has left open the possibility that “in limited circumstances, a local government’s decision not to train certain employees about their legal duty to avoid violating citizens’ rights may rise to the level of an official government policy for purposes of § 1983,” slip op. at 36 (quoting Connick v. Thompson, 563 U.S. 51, 61 (2011)), the circumstances that would give rise to the exception is exceedingly narrow and requires that policymakers are negligently unaware of their obligation to safeguard citizens’ constitutional rights. The Court found that was not the case here. The county had implemented official policies prohibiting corrections officers from having any sexual contact with inmates and regularly conducted state-certified training to corrections officers to protect inmates from sexual assault.  

Judge Scudder dissented from the panel opinion. He, too, recognized the “demanding standard for municipal liability,” slip op. at 50 (Scudder, J., dissenting in part), but concluded that in light of all of the evidence at trial, a reasonable jury could have found that the county acted with deliberate indifference to the need for more training for and monitoring of jail staff. The dissent seems to raise broader concerns that the majority’s forceful rejection of the sufficiency of the evidence presented at trial may act as a disincentive for municipal entities to take more aggressive measures to prevent sexual abuse of inmates housed in their jails.

Importantly, both the majority and dissenting opinions affirmed that the high evidentiary threshold plaintiffs must meet to prove municipal liability remains intact. 

On July 24, 2019, plaintiffs filed a motion petitioning the court for rehearing and rehearing en banc. In support of their motion, plaintiffs argue for a lower evidentiary standard in Monell claims and challenge the sufficiency of the county’s official policies and training designed to prevent inmate sexual assault. This case is generating substantial interest among high-profile civil rights organizations. On the same day plaintiffs filed their motion for rehearing, the ACLU and other prisoners’ rights organizations filed a brief amici curiae in support of plaintiffs’ position.

In light of the substantial and growing interest of civil rights organizations in this case and others like it, municipalities should take special note of one key aspect implicit in the majority’s holding: Although the Monell standard remains a rigorous one, a municipality may be required to have affirmative policies in place to avoid liability. This is evident in the majority’s rejection of plaintiffs’ argument that the county was deliberately indifferent to the sexual abuse of inmates based in large part on the county’s adoption and implementation of state-approved policies and training as well officials’ reasonable responses to prior allegations of sexual misconduct.

Municipalities may thus be well-advised to review their policies and practices in light of this decision and, where deficient, modify them. For assistance with conducting a compliance review and update of sexual assault policies, contact Kurt Simatic or Liz Stephens at (608) 256-0226.

Right to Appeal an Order on a Motion to Compel Arbitration: Wisconsin Supreme Court Makes It Final

Published by Laura E. Callan, Jeffrey A. Mandell on | Permalink

Buried in many modern contracts (from standard construction industry contracts to employment agreements, and from consumer contracts to mortgages and leases) are agreements to arbitrate any existing or future disputes. These arbitration provisions may appear innocuous, but, when a subsequent dispute develops between the contracting parties and one party prefers to be in court, a dispute-within-the-dispute arises. The party wishing to arbitrate must ask the court for an order mandating that the parties resolve their dispute in arbitration. In considering a request for such an order, the court must determine whether the arbitration provision is valid and, if so, whether it applies to the parties’ dispute. The court then rules on whether to compel arbitration.

As in most litigation, the party that loses the fight over whether to proceed in court or arbitration may wish to appeal. In Wisconsin, most appeals fall into one of two categories: appeals as of right and permissive appeals. “A final judgment or final order … may be appealed as a matter of right … unless otherwise expressly provided by law” under Wis. Stat. § 808.03(1). This provision encompasses “a judgment, order or disposition that disposes of the entire matter in litigation as to one or more of the parties, whether rendered in an action or special proceeding.” Id. “A judgment or order not appealable as of right” cannot be appealed before final judgment, unless the party wishing to appeal asks permission from the appellate court and the request for leave to appeal is granted. Wis. Stat. § 808.03(2). Notably, the time allowed for requesting leave (14 days, per Wis. Stat. § 809.50) is shorter than the time for initiating an appeal as of right (generally 45 or 90 days, per Wis. Stat. § 808.04).

Whether an order on a motion to compel arbitration is immediately appealable as of right under § 808.03(1) was unclear until the Wisconsin Supreme Court’s recent decision in L.G. v. Aurora Residential Alternatives, Inc. In that case, the Court held that if a circuit court denies a motion to compel arbitration, the party wishing to arbitrate has an immediate opportunity to appeal.

L.G., a mentally disabled resident of one of Aurora’s facilities, accused an Aurora employee of sexually assaulting her. After the employee was convicted of fourth-degree sexual assault, L.G. filed suit against Aurora, seeking monetary damages. Aurora responded with a motion to compel arbitration (and to stay the lawsuit pending the outcome of the arbitration), relying on an arbitration agreement L.G. had signed. The circuit court denied Aurora’s motion.

When Aurora appealed, L.G. moved to dismiss the appeal for lack of jurisdiction, arguing that the underlying order was non-final and that Aurora therefore needed to seek permission to appeal. By the time Aurora filed its appeal, the 14-day window for seeking permission had closed, so the entire question was whether the circuit court’s order declining to mandate arbitration was a final order appealable as of right. 

The court of appeal granted L.G.’s motion to dismiss the appeal. It held that, because the order denying arbitration does not dispose of the entire lawsuit, it is not a final order appealable as of right under § 808.03(1). In the court of appeals’ view, Aurora’s only avenue to appeal the circuit court’s arbitration order was § 808.03(2), which requires a request for permission to appeal within 14 days of the order. Since Aurora had not made a timely request for permission to appeal, the court of appeals dismissed Aurora’s appeal for lack of jurisdiction.

The Wisconsin Supreme Court reversed. Writing for the Court (which was unanimous, with two Justices not participating), Justice Daniel Kelly explained that a motion to compel arbitration and an accompanying request to stay litigation is a “special proceeding” within § 808.03(1). The Court held that the text of the Wisconsin Arbitration Act (Wis. Stat. Ch. 788) makes clear that the proceedings on whether the parties agreed to arbitrate a dispute are distinct from the merits of the dispute itself. When the circuit court issues an order resolving arbitrability, its order disposes of the entire special proceeding. Accordingly, even though the order denying Aurora’s arbitration request meant that the merits of L.G.’s case remained to be litigated before the circuit court, the order was nonetheless final for purposes of appeal under § 808.03(1).

Parties to modern contracts should take note of the Aurora decision. Under the Court’s holding, a party need not bear the expense and ordeal of a full trial (or a complete arbitration) before it has the right to appeal the circuit court’s ruling on a motion to compel arbitration. For parties who value mandatory arbitration, care should be taken to include a provision specifying that disputes will be governed by Wisconsin law and heard only in Wisconsin courts so that any arbitration dispute can be immediately appealed under Aurora.

What the U.S. Supreme Court’s Bethune-Hill Decision Means for Legislative Intervenors in Wisconsin

Published by Jeffrey A. Mandell on | Permalink

Earlier this week, the U.S. Supreme Court decided in Virginia House of Delegates v. Bethune-Hill, No. 18-281 (U.S. June 17, 2019), that one chamber of the Virginia legislature lacked legal standing to appeal a federal court order requiring that some legislative districts be withdrawn. Virginia’s Attorney General had defended the districts in the trial court, but ultimately decided not to pursue the argument on appeal. When the House of Delegates, which had intervened in the redistricting dispute, sought to prosecute the appeal itself, the Supreme Court dismissed the appeal.

The case is of more than passing interest here in Wisconsin, where our Legislature has recently increased its legal authority to intervene in litigation. What, if anything, does this new decision from the U.S. Supreme Court portend for cases in which the Wisconsin Legislature might seek to participate? The answer in any given case will likely turn on the particular circumstances, but this week’s decision suggests the new intervention laws might not give the Wisconsin Legislature as much leverage in federal-court litigation as might have been imagined.

To begin, a little background. In December 2018, new Wisconsin laws expanded the Legislature’s authority to intervene in litigation. (Litigation challenging these laws, both procedurally and substantively, is pending at the Wisconsin Supreme Court; this blog post assumes for the sake of argument that the intervention provisions are valid.) Under a new provision of law, any time

a party to an action challenges in state or federal court the constitutionality of a statute, facially or as applied, challenges a statute as violating or preempted by federal law, or otherwise challenges the construction or validity of a statute, as part of a claim or an affirmative defense, the assembly, the senate, and the legislature may intervene … at any time in the action as a matter of right.

Wis. Stat. § 803.09(2m); accord Wis. Stat. § 13.365. In the case of such intervention, “the assembly shall represent the assembly, the senate shall represent the senate, and the joint committee on legislative organization shall represent the legislature.” Wis. Stat. § 13.90(2). Additionally, with respect to appeals, “[t]he joint committee on legislative organization may intervene as permitted under s. 803.09(2m) at any time.” Wis. Stat. § 165.25(1).

In short, since last December the law purports to let either house of the Wisconsin Legislature, or both houses acting as the Legislature, insert itself into any litigation involving the validity, enforceability, or proper interpretation of a state statute. Such intervention is accomplished on behalf of the legislative organ that intervenes—that is, the assembly, the senate, or the legislature represents itself, not the State of Wisconsin—and, at least with respect to appeals, legislative intervention neither “deprives [n]or relieves the attorney general or the department of justice of any authority or duty under this chapter.” Wis. Stat. § 165.25(1). 

With this background, we can compare Wisconsin’s intervention statutes with the Virginia framework that informed the Bethune-Hill decision. In Bethune-Hill, the majority opinion (written by Justice Ruth Bader Ginsburg for an ideologically heterodox coalition including Justices Thomas, Sotomayor, Kagan, and Gorsuch) considered two possible bases for the House of Delegates to pursue the appeal. First, “if the State had designated the House to represent its interests, and if the House had in fact carried out that mission, [then] the House could stand in for the State.” Slip op. at 4. Second, if the redistricting order caused sufficient harm to the House itself, that could confer legal standing for the House to appeal. See id. at 7. Only the first of these arguments is relevant for present purposes. (There is a dissenting opinion in Bethune-Hill, but it addresses only the second argument and is therefore not relevant to the discussion below.)

The majority notes that, under Virginia law, “[a]uthority and responsibility for representing the State’s interests in civil litigation … rest exclusively with the State’s Attorney General. Id. at 4 (citing Va. Code Ann. § 2.2-507(A)). It notes that the State “could have authorized the House to litigate on the State’s behalf, either generally or in a defined class of cases. Some States have done just that.” Id. at 5 (internal citation omitted). So, where in this scale does Wisconsin fall?

Arguably, Wisconsin is more like Virginia than those “other States” that have authorized legislative intervenors to represent the State’s sovereign interest. Wisconsin’s intervention statutes specify that, when one or more legislative organs intervenes, “the assembly shall represent the assembly, the senate shall represent the senate, and the joint committee on legislative organization shall represent the legislature.” Wis. Stat. § 13.90(2). None of the legislative entities authorized to intervene is empowered by law to represent the State. Moreover, at least for purposes of appeal, Wisconsin, like Virginia, appears to have “chosen to speak as a sovereign entity with a single voice.” Bethune-Hill, slip op. at 5. The Attorney General represents the State as a sovereign entity, and legislative intervention neither “deprives [n]or relieves the attorney general or the department of justice of any authority or duty under this chapter.” Wis. Stat. § 165.25(1).

One might argue that, under Wisconsin precedent, an intervenor’s “status after intervention is the same as all the other participants in the proceeding.” Zellner v. Herrick, 2009 WI 80, ¶22, 319 Wis. 2d 532, 770 N.W.2d 305 (quoting Kohler Co. v. Sogen Int’l Fund, Inc., 2000 WI App 60, ¶11, 233 Wis. 2d 592, 608 N.W.2d 746). If Wisconsin law authorizes the assembly, the senate, or the legislature to intervene, why should that organ not have every right afforded the original parties to the case? There is some power to that argument, but Bethune-Hill rejected the idea that state-court precedent authorizing a legislative intervenor to participate in an appeal would suffice to meet the jurisdictional prerequisites for a legislative intervenor to prosecute an appeal in federal court. See slip op. at 5-6 (discussing Vesiland v. Virginia State Bd. of Elections, 295 Va. 427, 813 S.E.2d 739 (2018)).

Where does this leave legislative intervention in Wisconsin? It depends on whether the case is proceeding in state or federal court. In a state-court proceeding—where, in contrast to federal court, standing requirements are both less stringent and not jurisdictional in nature—a legislative intervenor may well be able to argue that it has the same procedural rights as an original party, including the right to appeal an adverse ruling, even if the Attorney General or some other State actor opts not to appeal. (What happens if and when both houses of the Legislature intervene and advocate opposing positions is a question that perhaps a court will need to determine at some point in the future.)

In federal court, however, legislative intervenors may find that Bethune-Hill poses a greater obstacle. As the Bethune-Hill majority explains, “intervenor status alone is insufficient to establish standing to appeal” in federal court. Slip op. at 10. Wisconsin’s intervention laws do not appear to give legislative intervenors a strong basis to argue that, as a general matter, they have legal authority to represent the State. There may be specific suits in which legislative actors have stronger claims to appeal, either because they were named parties from the outset or because they have clearer legal authority to speak for the State on the issue under dispute.

Notably, would-be legislative intervenors may run into problems in federal court even before they wish to appeal. Intervention in federal court is governed by federal law, not state statute. See 28 U.S.C. § 2403(b); Fed. R. Civ. P. 24. Though Wis. Stat. § 803.09(2m) purports to authorize the assembly, senate, or legislature to intervene “in state or federal court   … at any time … as a matter of right,” federal courts may not open their doors on that basis alone. Indeed, the Legislature has already been denied intervention in one federal case. See Planned Parenthood of Wis., Inc. v. Kaul, No. 19-cv-038-wmc (W.D. Wis. Apr. 22, 2019). The Wisconsin Legislature may find that federal courts look askance at its efforts to intervene, just as the Bethune-Hill Court did at the Virginia House’s effort to appeal.

Use It Or Lose It:  SCOTUS Ruling Means Employer Defense To Discrimination Claims Can Be Waived

Published by Meg Vergeront on | Permalink

On June 3, 2019, the U.S. Supreme Court unanimously held that failure of an employee to file a discrimination claim with the EEOC prior to bringing a discrimination lawsuit does not deprive a court of jurisdiction over the suit.  That means that an employer can waive the defense to a discrimination claim based on failure to timely file with the EEOC.  Consequently, employers should raise the defense as early as possible in the litigation. 

Title VII of the Civil Rights Act of 1964—a federal anti-discrimination law—requires employees to file discrimination and retaliation claims with the Equal Employment Opportunity Commission (EEOC) before filing a lawsuit against their employers regarding those claims.  Title VII further requires that such claims be filed within a specified period of time.  So, what happens if an employee fails to follow the rules?  The federal appellate courts split on the issue.  Some ruled that it was jurisdictional and so could be raised at any time in the litigation.  Other courts held that the rule was merely procedural and so could be waived if not raised early in the litigation.

In Fort Bend County v. Davis, the Supreme Court settled the split.  It held that the failure-to-file defense was not jurisdictional.  That is, the failure to file a claim with the EEOC did not deprive a court of constitutional authority to hear the claim.  Rather, the requirement that an employee filed a claim with the EEOC before proceeding to court is a claims-processing rule.  This distinction is significant because jurisdictional defenses can be raised at any time in the litigation and cannot be waived.  Failure to follow a claims-processing rule—a non-jurisdictional failure—can be waived if not timely raised.  The bottom line?  Employers need to raise the failure-to-file defense at the earliest possible point in the litigation, either in a motion to dismiss or in an answer.  Otherwise, the defense may be deemed waived. 

Supreme Court Finds Unexpected Difference between Corporations and Limited Liability Companies

Published by Olivia M. Pietrantoni, Kurt M. Simatic, Jeffrey A. Mandell on | Permalink

In Marx v. Morris, 2019 WI 34, the Wisconsin Supreme Court interpreted the Wisconsin LLC Act in an unexpected way. Specifically, Marx held that LLC members may bring suit in their capacity as members, instead of on behalf of the LLC, against other members, even when the harm alleged is primarily to the LLC. This deviates from corporate law principles, which require that, if the primary harm is to the corporation, shareholders must bring a derivative action on behalf of the corporation and cannot sue in their own capacities.

Background

Marx arose out of the operations of North Star Sand, LLC. North Star was a Wisconsin LLC with six members. Each member was itself an LLC, and each of the member LLCs was controlled by a different individual. Among other assets, North Star had a wholly owned subsidiary, Westar Proppants, LLC. Dispute arose when one of North Star’s members sought to purchase Westar.

During a meeting to conduct North Star’s business, Morris (who controlled R.L. Co., LLC, a member of North Star) offered to purchase Westar for $70,000. (He made this offer on behalf of DSJ Holdings, LLC, another entity in which he had a partial ownership interest.) A majority of North Star’s members voted not to accept the offer. 2019 WI 34, ¶13.

After the vote, Morris became “very aggressive.” Id., ¶14. He then made a new motion to sell Westar to DSJ. Murray (who controlled R&R Management Funds, LLC, another member of North Star) objected on the bases that a vote had already occurred, that there was insufficient notice of this motion, and that Morris had a conflict of interests. Nonetheless, when the members voted on Morris’s motion, it passed. Id. DSJ subsequently sold Westar to another entity for a “substantial sum.” Id., ¶15.

Two members of North Star—Fracsand, LLC (whose sole member is Marx) and R&R Management Funds, LLC (whose sole member is Murray)—filed suit, alleging that R.L. Co., LLC (who sole member is Morris), “willfully failed to deal fairly with them while having a material conflict of interest … in violation of Wis. Stat. § 183.0402(1).” Id., ¶2. In addition to the various LLC parties, Marx and Murray participated as plaintiffs in their individual capacities, and Morris was named as a defendant in his individual capacity.

Marx, Murray, and their LLCs alleged several claims against Morris and his LLC, including violation of § 183.0402 (“Duties of Managers and Members”). Morris moved for summary judgment on all claims, asserting that Marx and Murray’s claims properly belonged to North Star (which was not a plaintiff) and that the Wisconsin LLC Act displaced any common-law duties of LLC members (as well as claims arising from alleged breaches of such duties).

The circuit court denied Morris’s summary judgment motion. The court of appeals certified the case to the Wisconsin Supreme Court, which affirmed the circuit court’s ruling.

The Court’s Decision

In a majority opinion authored by Chief Justice Roggensack, the Supreme Court rejected Morris’s argument that members of an LLC lack standing to sue in their own capacity and that the only permissible plaintiff here was North Star. The Supreme Court reviewed general principles of LLCs and how they differ from corporations, specifically noting that LLCs may elect to be taxed as partnerships, such that income, gain, loss, and deductions pass through to the individual members. See 2019 WI 34, ¶¶22-34. Based on that review, the Court concluded that an injury to an LLC is not the same as an injury to a corporation where the LLC has adopted partnership-like treatment in its Operating Agreement. Accordingly, the corporate standing principle that individual shareholders cannot directly sue a corporation’s director or officers when the primary injury is to the corporation is inapplicable. “injuries to [an LLC] and to its members are not mutually exclusive because financial injury to [the LLC] flows through to its members just as injury would if [the LLC] were a partnership rather than an LLC.” Id., ¶43. The court further explained that nothing in ch. 183 (the portion of the Wisconsin Statutes governing LLCs) requires claims against LLC members to be brought in the LLC’s name. Id., ¶¶45-46.

The Court also held that ch. 183 did not preclude the plaintiffs’ common-law claims. Wis. Stat. § 183.1302(2) states “unless displaced by particular provisions of this chapter, the principles of law and equity supplement this chapter.” The Court held that a statutory displacement under ch. 183 must be specific and that the LLC Act does not “constitute[] the entirety of an LLC member’s or manager’s obligations to other members and to the LLC.” 2019 WI 34, ¶53. Because Morris did not develop arguments for displacement of each claim, the common-law claims survived summary judgment. Id.

Separate Opinion

Justice Kelly wrote a separate opinion concurring in part and dissenting in part. See id., ¶¶69-110. Both Justice Abrahamson and Justice Grassl Bradley joined that opinion.

The separate opinion argued that Marx and Murray should not have been able to bring any claims in their individual capacities because they are not members of the LLC. Id., ¶¶71-80. Furthermore, it contended the LLCs they control (which are members of North Star) lacked standing in this instance because Wis. Stat. § 183.0305 provides that members may bring suit by or against the LLC only if:

  1. The object of the proceeding is to enforce a member’s right against or liability to the limited liability company, or
  2. The action is brought by the member under Wis. Stat. § 183.1101, which requires a majority vote of disinterested members. 

Justice Kelly would have held that the first point is not at issue in this case, and the second point does not permit the members to bring suit because there was no majority vote by disinterested members.

The separate opinion further concluded that the majority’s reliance on “differential treatment of LLCs and corporations in matters of taxation and distribution of profits” is misplaced.  Id., ¶¶80-89.  Any differences are “largely a matter of choice,” and should not serve as a basis for members to be able to sue an LLC in their personal capacities and not on behalf of the LLC.  Id., ¶84.

Analysis

This case breaks new ground in Wisconsin law by holding that members of an LLC may pursue claims directly against other members of the LLC, even when the alleged harm is primarily to the LLC. This is noteworthy not only because it deviates from corporate-law principles, but also because it provides an avenue around Wis. Stat. §183.1101’s requirement that an action on behalf of a LLC must be authorized by a majority vote of disinterested members. The separate opinion warns that “immediate, real-life problems” will result from this sea change in Wisconsin LLC law.  2019 WI 34, ¶86 (Kelly, J., concurring in part and dissenting in part). Only time, and further actions in the circuit courts, will tell. 

Noncompliance with Notice-of-Claim Statute Is Affirmative Defense, Must Be Pleaded

Published by Kyle P. Olsen, Jeffrey A. Mandell on | Permalink

Wis. Stat. § 893.80(1d) requires a potential claimant to provide notice, including “an itemized statement of the relief sought,” to a government entity within 120 days of the event giving rise to a potential suit. In Maple Grove Country Club Inc. v. Maple Grove Estates Sanitary District, 2019 WI 43, the Wisconsin Supreme Court recently held that a government entity waives a defense of noncompliance with this statute if it fails to affirmatively raise the issue in a responsive pleading.

This matter began in 1990, when a country club constructed a sewer treatment plant to serve the club and a nearby subdivision. In 1998, the local sanitary district adopted an ordinance that required the district to lease or purchase the plant from the club. In 1999, the club and the district agreed to a five-year lease, which was renewed for another five years in 2004. In 2009, the parties did not renew the lease, but the district continued to occupy and use the facility.

In July 2011, the club filed a notice of claim with the district, but without itemizing damages as required by Wis. Stat. § 893.80(1d). The club filed suit in 2014. The district raised six affirmative defenses in its answer, but none mentioned the insufficiency of the notice under section 893.80(1d).

Both sides moved for summary judgment. Only then did the district allege, for the first time, that the club failed to comply with the notice-of-claim statute. The club responded that, because noncompliance was an affirmative defense, the sanitary district waived the issue by failing to raise it in its answer. The district insisted that noncompliance was not an affirmative defense, but a jurisdictional prerequisite that could not be waived and was available to be raised at any point during litigation.

The circuit court dismissed the club’s case on the basis of the “untimely and incomplete” notice of claim. The court of appeals affirmed, relying upon Lentz v. Young, 195 Wis. 2d 457, 536 N.W.2d 451 (Ct. App. 1995). In so doing, however, the court of appeals expressed reservations about Lentz, especially its claim that “a defendant may raise an affirmative defense by motion.” Those reservations proved well-founded.

Last month, the Wisconsin Supreme Court reversed in a 6-0 decision.

First, the court found that noncompliance with Wis. Stat. § 893.80(1d) is an affirmative defense, not a jurisdictional defect. While Mannino v. Davenport, 99 Wis. 2d 602, 29 N.W.2d 823 (1981), deemed noncompliance with Wis. Stat. § 893.82(3) jurisdictional, the Supreme Court distinguished the two statutory provisions. Section 893.82(3) requires strict compliance, whereas 893.80(1d) includes a carve-out for when the government has actual notice and suffered no prejudice from a defective claim document. The Court bolstered its conclusion with cases describing compliance with Wis. Stat. § 893.80(1d) as a condition for governmental liability (not for stating a cause of action), and characterizing noncompliance as a defense. See Rabe v. Outagamie Cty., 72 Wis. 2d 492, 241 N.W.2d 428 (1976); Weiss v. City of Milwaukee, 79 Wis. 2d 213, 255 N.W.2d 496 (1977).

Second, the Court determined that an affirmative defense based on section 893.80(1d) must be raised in a responsive pleading, not in a separate motion. The plain language of Wis. Stat. § 802.02(3) requires all affirmative defenses to be raised in a responsive pleading. By comparison to section 802.06(2)(a), which contains an exhaustive list of ten defenses (not including noncompliance with the notice of claim statute) that can be raised by motion, the Court reasoned that the government must raise noncompliance in a responsive pleading, rather than a motion. In light of its conclusion, the Court also overruled Lentz.

Moving forward, government entities must consider all possible affirmative defenses upon receipt of a notice of claim. Especially if Wis. Stat. § 893.80(1d) applies, the “kitchen-sink” defense may be the safest option.

State Can Raise New Argument in Civil Forfeiture Action, Even After Dismissing Criminal Charges

Published by Kyle P. Olsen, Susan Allen on | Permalink

Some civil and criminal cases rely on indistinguishable facts. However, a recent Wisconsin Court of Appeals decision – Wisconsin v. Scott, et. al., 2017AP1345 – demonstrated that the parties need not make indistinguishable arguments in each case.

In 2016, police seized drugs, money and vehicles pursuant to a search warrant for the Scotts’ property. However, it was determined that there was not sufficient probable cause to support the search warrant. The evidence from the search was therefore suppressed, and the State voluntarily dismissed the criminal charges against the Scotts.

Despite dismissal of the criminal charges, the State proceeded with the civil forfeiture action, seeking retention of the seized cash and vehicles. See Wis. Stat. § 961.55. The Scotts moved for summary judgment, arguing that, under One 1958 Plymouth Sedan v. Pennsylvania, 380 U.S. 693 (1965), the exclusionary rule extends to this civil forfeiture action because it is of a “quasi-criminal nature”. The State argued that Plymouth Sedan should not apply to this action.

The State also sought an evidentiary hearing on an argument not made in the criminal case: whether the good-faith exception to the exclusionary rule would permit introduction of the cash and vehicles. The State relied on State v. Eason, where the supreme court found that the exclusionary rule might not apply when police objectively and reasonably rely on a search warrant, because then the rule would not fulfill its purpose (deterring unreasonable police actions). 2001 WI 98, ¶ 27, 245 Wis. 2d 206, 629 N.W.2d 625. The Scotts did not rebut the merits of the good-faith exception, but instead argued the State should be foreclosed from making this argument in the civil proceeding because it had not been raised in the criminal case.

The Circuit Court granted summary judgment to the Scotts. It agreed that, with the search evidence suppressed under Plymouth Sedan, the State could not prove criminal conduct, and the civil forfeiture action could not proceed.

The Wisconsin Court of Appeals, District IV reversed. It agreed that Plymouth Sedan applied, so the exclusionary rule would typically end this sort of civil forfeiture action based on a lack of proof of criminal conduct. However, the court held that the State should have been allowed to contest the applicability of Plymouth Sedan with the good-faith exception argument. The Court of Appeals asserted that the State deserved this opportunity even if it had not argued for the exception at the accompanying criminal proceedings.

The Court of Appeals reached this decision for two reasons. First, the Scotts did not argue against the good-faith exception on appeal; instead, they simply repeated that the State had not raised this argument in the criminal cases. The Court of Appeals considered this a concession by the Scotts that the State should have the opportunity to make this argument. Further, the Circuit Court had not addressed either the applicability or merit of this argument, so the Court of Appeals lacked the evidence to determine either. As a result, the Court of Appeals remanded for further proceedings on the good-faith exception.

The State still may not end up with the cash and vehicles. But this case is an important reminder that – absent issue or claim preclusion – parties can be strategic about which claims to pursue, and arguments to make, in civil versus criminal cases.

Seventh Circuit Reminds That Failure to Timely Plead an Affirmative Defense Can Be Fatal

Published by Jeffrey A. Mandell, Kurt M. Simatic on | Permalink

The Seventh Circuit’s recent decision in Reed v. Columbia St. Mary’s Hospital contains a noteworthy discussion of timeliness requirements for pleading affirmative defenses.

Reed, a troubled individual with several disabilities, went to Columbia St. Mary’s Hospital in Milwaukee, seeking help warding off suicidal thoughts. What happened during her four-day stay is disputed. But Reed later filed suit, alleging that the hospital discriminated against her in violation of the Americans with Disabilities Act, the Rehabilitation Act, and state law. The hospital denied Reed’s allegations and filed affirmative defenses to her complaints. However, the hospital did not claim a religious exemption from the ADA in its responsive pleadings. 

Title III of the ADA prohibits “public accommodations,” including hospitals, from discriminating against individuals with disabilities. However, Title III exempts “religious organizations” and “entities controlled by religious organizations, including places of worship.” 42 U.S.C. § 12187. This religious exemption is an affirmative defense, because it assumes that, even if the plaintiff can prove her claim, the exemption may still defeat liability. 

After the parties conducted discovery, the hospital moved for summary judgment. Only then, for the first time, did it assert that the religious exemption shielded it from liability on Reed’s ADA claim. The district court granted summary judgment for the hospital on the federal claims and declined to exercise supplemental jurisdiction over the state claim. In so doing, the district court accepted the hospital’s late assertion of the ADA religious exemption. The district court reasoned that (1) the exemption is not expressly listed in Federal Rule of Civil Procedure 8(c), so it was not clear that failure to assert the defense in the answer constituted waiver, and (2) Reed had adequate notice of the hospital’s possible reliance on the defense based on a specific exchange between the hospital’s counsel and a witness during a deposition.

The Seventh Circuit reversed the district court’s decision. It began by confirming that even an affirmative defense not listed in Rule 8(c) must still be pleaded if the defendant bears the burden of proof on an issue under state law or if (as here) “the defense does not controvert the plaintiff’s proof.” Reed, slip op. at 7. This requirement exists “to avoid surprise and undue prejudice to the plaintiff by providing her notice and the opportunity to demonstrate why the defense should not prevail.” Id. 

Having set forth a clear “rule,” the court explains it should not be rigidly applied. Instead, courts should enforce forfeiture for failure to assert an affirmative defense in an answer “only if the plaintiff is harmed by the defendant’s delay in asserting [the defense].” Id. at 8. Thus, courts have discretion to allow amendments that add affirmative defenses not initially pleaded. For example, a defendant may uncover a possible defense to liability during discovery. In such a case, if the defendant promptly alerts the parties and the court of his intent to pursue the defense, it would be reasonable for the court to permit it. However, courts should also consider whether the belated assertion would cause unreasonable delay or make the litigation more costly.

Applying these principles, the Seventh Circuit deemed the district court’s decision to let the hospital assert the religious exemption for the first time at the summary judgment stage was not only unreasonable but also an abuse of discretion. First, the hospital knew, from the outset of litigation, all of the facts relevant to the exemption; therefore, the affirmative defense needed to be pleaded in the initial answer. Second, the Seventh Circuit dismissed the district court’s conclusion that Reed had notice of the defense based on an exchange at a deposition; according to the appellate court, this truncated exchange with a witness did not compare to “a lawyer’s statement that the party intends to assert a defense.” Id. at 13. Finally, the Seventh Circuit determined that the delay was prejudicial. Because the defense was first asserted after discovery had closed, both parties (particularly Reed) had spent time and money investigating what they reasonably expected the issues to be; allowing the religious exemption to be invoked as a “last-minute defense” would raise new factual and legal issues, increasing the cost of litigation and prejudicing Reed, who had no reasonable notice that the defense would be raised. Id. at 16.

The Seventh Circuit suggested that the outcome may have been different had the hospital offered some explanation for the delay in asserting the defense and/or the prejudice to Reed been minimal. However, this decision demonstrates that the belt-and-suspenders approach is best: defendants should plead all possible affirmative defenses in their answers, promptly seek to amend those answers when any additional defenses reveal themselves in the course of litigation, and be prepared to explain any delay in asserting those defenses.

Wisconsin Supreme Court Weighs in on Defense Costs Dispute Between Liability Insurers

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

Last month, the Wisconsin Supreme Court confronted several insurance coverage issues that can arise when allegations against an insured trigger the defense obligations of multiple liability insurers.  See Steadfast Ins. Co. v. Greenwich Ins. Co., 2019 WI 6.

At issue was defense coverage for lawsuits filed against the Milwaukee Metropolitan Sewerage District (“MMSD”) following the historic June 2008 rainfall that resulted in raw sewage backing up into thousands of Milwaukee-area residences.  The main theory of liability against MMSD was that the sewerage system had been negligently repaired, maintained, and/or operated prior to and during the rainfall.  MMSD had outsourced those responsibilities to United Water Services Milwaukee, LLC (“United Water”) from 1998 through February 2008 and subsequently to Veolia Water Milwaukee, LLC (“Veolia”) from March 2008 leading up to the June 2008 heavy rainfalls.

MMSD’s operating agreements with United Water and Veolia required each entity to maintain liability insurance that named MMSD as an additional insured.  United Water had a $20 million policy from Greenwich Insurance Company (“Greenwich”) and Veolia had a $30 million policy from Steadfast Insurance Company (“Steadfast”).

MMSD faced a myriad of lawsuits seeking to recover for property damages related to the rainfall. The lawsuits alleged MMSD negligence during the respective time periods when United Water and Veolia operated the sewerage system. MMSD tendered defense of the lawsuits to both insurers and also opted to retain its own counsel.  While Steadfast agreed to pay for MMSD’s defense, Greenwich denied its defense obligations on the grounds that an “other insurance” provision rendered the Greenwich policy excess to the Steadfast policy.

MMSD ultimately resolved the lawsuits without agreeing to any liability payments to the underlying claimants.  In the process of settling for no liability, however, it incurred $1.55 million in defense fees.  Steadfast reimbursed MMSD the full $1.55 million and then exercised its contractual subrogation rights, which allowed it to “stand in the shoes” of MMSD and sue Greenwich for breaching the insurer’s defense obligations under its policy with MMSD.

The circuit court found that Greenwich had breached its defense obligations to MMSD and consequently granted Steadfast judgment against Greenwich for recovery of the full $1.55 million paid in defense fees and an additional $325,000 in attorney’s fees incurred bringing the lawsuit. The court of appeals affirmed.  The Supreme Court granted Greenwich’s petition for review and issued a decision addressing the following interesting coverage issues.

Interpretation of “Other Insurance” Policy Provisions

Greenwich ultimamely denied its obligation to defend MMSD by invoking what is commonly referred to as an “other insurance” provision in its policy.  Such provisions exist to resolve disputes among insurance companies regarding which insurer must pay first when multiple policies are triggered.  In a nutshell, Greenwich believed that its “other insurance” provision rendered its coverage excess over the Steadfast policy; on that basis, Greenwich argued it was obligated to provide MMSD a defense only after MMSD exhausted the full limits of its coverage from Steadfast.

In rejecting this position, the Supreme Court held that “other insurance” provisions apply only when multiple policies are concurrent—that is, they insure the same risk, and the same interest, for the benefit of the same insured, during the same period.  Slip Op. at ¶ 26 (citing Plastics Eng’g Co. v. Liberty Mut. Ins. Co., 2009 WI 13).  The Court concluded that the Steadfast and Greenwich policies were successive, not concurrent.  Id. ¶ 27.  Because the policies insured different risks at different points in time, both insurers’ defense obligations were triggered by the lawsuits against MMSD notwithstanding any particular “other insurance” policy language.  The Court therefore affirmed the lower courts’ decision that Greenwich had breached its defense obligations to MMSD.

Justice Rebecca Grassl Bradley was the only dissenter on this point, noting that the majority erred by issuing a blanket conclusion regarding “other insurance” provisions rather than examining the particular policy language at issue in the Steadfast and Greenwich policies.  Slip Op. at ¶ 89 (R.G. Bradley, J., concurring in part, dissenting in part).  Upon examining the respective provisions, Justice Bradley concluded that they operated to designate the Greenwich policy as excess of the Steadfast policy, thus relieving Greenwich of its defense obligations.  Id. at ¶¶ 90-105.

Allocation of Defense Costs

Having concluded that Steadfast’s claim against Greenwich was pursuant to the subrogation rights it acquired from MMSD under its policy rather than a traditional contribution claim (see Slip. Op. at ¶¶ 32-38), the Court then addressed whether Greenwich was entitled to an allocation of defense costs between itself and Steadfast.  The Court found that allowing Steadfast to recover from Greenwich 100% of the defense costs incurred would amount to an unjustified windfall because Steadfast indisputably was also an insurer with a contractual duty to defend MMSD.  Id. at ¶¶ 39-41.  Rather, in the Court’s eyes, an allocation was necessary to prevent Steadfast, as the subrogee, from being placed in a better position than MMSD would have been as the subrogor.  Id.

Noting that allocation of defense costs among multiple insurers was an open question under Wisconsin law, the Court examined various methodologies used in other jurisdictions and concluded that a pro rata allocation based on the insurers’ respective policy limits was the most equitable method.  Id. at ¶¶ 42-45.  The Court therefore held that Steadfast was entitled to reimbursement of 40% of the defense costs from Greenwich (amounting to $620,000), as the Greenwich policy had insured 40% of the $50 million worth of coverage in place (with Steadfast insuring the remaining 60%).  Id.

In a concurring separate opinion, Justices Ann Walsh Bradley and Rebecca Frank Dallet issued a strong argument against granting Greenwich any allocation under the circumstances.  The two Justices noted that, under settled Wisconsin law, insurers that breach their defense obligations face severe financial consequences (often times greater than what they would have paid had they defended).  Slip. Op. at ¶¶ 66-67 (A.W. Bradley, J., concurring in part, dissenting in part).  The two Justices further reasoned that allowing breaching insurers to offset these consequences at the expense of non-breaching insurers contravenes those principles, incentivizing a “proliferation of a game of chicken between insurers” in which the loser faces minimal adverse financial consequences.  Id. at ¶¶ 68-71.  The two Justices argued that the only logical way to deter insurers from breaching their defense obligations under these circumstances would be to allow the non-breaching insurer to recover 100% of the costs incurred in defending the insured.  Id. at ¶¶ 73-75.

Recovery of Attorney’s Fees

The final issue addressed by the Court was whether Steadfast was entitled to recover its legal costs in pursuing its subrogated breach of contract claim against Greenwich.  Interestingly, after allocating MMSD’s defense costs to prevent Steadfast from receiving a windfall, the Court held that Steadfast was entitled to recover its attorney’s fees from Greenwich.  The Court noted that MMSD undoubtedly would have been entitled to recover its legal fees from Greenwich as a breaching insurer under settled Wisconsin law, and that Steadfast had acquired all of MMSD’s “rights of recovery” through the Steadfast policy’s subrogation provision.  Slip. Op. at ¶¶ 51-52.  The Court ultimately “decline[d] to create an exception to this longstanding rule by excluding attorney fees from the bundle of contractual subrogation rights.”  Id. at ¶ 51.

Justices Ann Walsh Bradley, Rebecca Frank Dallet, and Rebecca Grassl Bradley all dissented from the majority’s holding as inconsistent with previous Wisconsin decisions holding that exceptions to the “American Rule” (under which each party pays its own attorney) should be limited and narrow.  The justices asserted that Elliott, the precedent entitling an insured to its attorney’s fees when an insurer breaches its defense coverage obligations, has appropriately been limited to its particular factual circumstances by subsequent cases refusing to allow one insurer to recover legal fees from another.  Slip Op. at ¶¶ 77-85 (A.W. Bradley, J., concurring in part, dissenting in part).  According to the dissenters, there was no legitimate reason to deviate from the American Rule under these circumstances.

Conclusions

Taken in full, both the majority and the partial concurrences likely leave most readers puzzled by their inconsistencies.  Steadfast brought a contractual subrogation claim against Greenwich, asserting the rights of MMSD as Greenwich’s insured. The most logical approach would seem to be treating the dispute no differently than if MMSD itself had brought the breach of coverage claim against Greenwich.

Instead, both the majority and concurrence pick and choose when to view Steadfast as “standing in the shoes” of MMSD and when to ignore that context.  The majority recognizes this principle with respect to the recovery of attorney’s fees, but finds that a different result is warranted on how much of MMSD’s defense costs are recoverable.  The concurrence is similarly inconsistent in the opposite way; it argues that the insurer should be allowed to stand in the insured’s shoes to recover 100% of the defense costs but cannot recover any of its own attorney’s fees from the coverage suit because of its status as a subrogated insurer.  This leaves insurers with little guidance as to what precise “rights to recovery” they acquire from an insured via contractual subrogation.

The most settled takeaway appears to be that Wisconsin law limits the circumstances under which “other insurance” provisions may be invoked by insurers.  Six of the seven justices agree that such provisions apply only when policies are truly “concurrent,” insuring the same risk and interest, for the benefit of the same entity, during the same coverage period.  Going forward, insurers should be especially cautious when seeking to rely on such provisions to avoid any coverage responsibilities, regardless of how straightforward and unambiguous they deem the particular policy language.

A potentially more complicated issue in the wake of this decision is an insured’s ability to recover its defense costs where allegations of liability trigger coverage under multiple successive policies issued by more than one insurer.  The Supreme Court previously had decided that Wisconsin was an “all sums” jurisdiction, meaning that an insurer must provide a full defense and indemnify its insured for all sums up to the policy limits, even if the time periods implicated by the relevant allegations exceed the coverage period.  See Plenco, 2009 WI 13, ¶¶ 60-61.  Applying this standard to the multiple insurer context, an insured would be entitled to choose which insurer to provide it a full defense and that insurer would be obligated to do so regardless of the presence of other potentially applicable coverage.

In Plenco, however, there were not multiple insurers.  Because the Court here adopted a pro rata allocation of defense costs in the context of contractual subrogation claim (where the insurer stood in the shoes of the insured rather than in a traditional insurer v. insurer contribution claim), one could envision insurers interpreting this decision to abrogate the “all sums” Plenco decision under circumstances involving policies issued by multiple insurers.  That interpretation would oblige insureds to pursue each and every liability insurer to receive a fully funded defense under such circumstances.  Given that none of the justices cited Plenco with regard to the allocation issue, they likely intended to limit application of the pro rata defense cost allocation only to disputes between insurers (either through subrogation or contribution) after an insured has received a complete defense. Nonetheless, insurers and insureds will want to follow how this issue plays out in the lower courts.

Finally, it is worth noting that only four of the seven current justices concluded that an insurer should be able to recover its attorney’s fees when bringing a contractual subrogation claim against a fellow insurer for reimbursement of defense costs.  This holding certainly seems vulnerable to be narrowed or even overturned as the composition of the Supreme Court changes.

 

 

 

 

 

Stafford Helps Municipalities Preserve “Discretionary” Immunity in Wisconsin Supreme Court

Published by Kyle Engelke, Ted Waskowski on | Permalink

Last month, in a decision with far-ranging consequences, the Wisconsin Supreme Court rejected a call to abrogate the existing “discretionary” immunity standard applied to tort claims made against municipal actors.  Representing the League of Wisconsin Municipalities, the Wisconsin Towns Association, and the Wisconsin Counties Association as amici curiae (friends of the court), we filed a brief and participated in oral argument.

In Engelhardt v. City of New Berlin, 2019 WI 2, 385 Wis. 2d 86, 921 N.W.2d 714, the Court held that the City of New Berlin was not protected by governmental immunity because the known-and-present-danger exception applied.  However, as urged by Stafford, the Court preserved the discretionary immunity standard for tort claims against municipal actors.  As explained below, because only a narrow, 4-3 majority of the Wisconsin Supreme Court favored preserving the “discretionary” immunity standard, further challenges to that long-established standard are foreseeable.

Background on Governmental Immunity

Stafford Rosenbaum frequently defends municipal parties against tort claims. Immunity is often a key issue in such cases. Wis. Stat. § 893.80 provides immunity to a municipal actor “for acts done in the exercise of its legislative, quasi-legislative, judicial or quasi-judicial functions.”  Recognizing the separation of powers pitfalls implicated by permitting individual parties to use the courts to intrude and review the policy decisions of elected bodies (e.g., Town and Village boards, City councils, etc.), the Court has long interpreted Wis. Stat. § 893.80 to provide immunity for the “discretionary” decisions of municipal actors. 

However, there are two main exceptions to immunity – one for ministerial duties and another for known and present dangers.  Duties are ministerial for the purposes of governmental immunity when a duty is “absolute, certain and imperative, involving merely the performance of a specific task” imposed by law.  This exception to immunity applies when statutes, ordinances, or policies obligate the municipality to take a specific action.  Where there is no discretion, there is no immunity.  For example, the Court held that where regulations require railings on a stadium’s camera stand, there is no discretion to place the railings, and therefore no immunity from claims to recover damages caused by the failure to install such railings.

The second exception, the known-and-present-danger exception, applies only “where the danger is so severe and so immediate” that a response is demanded.  Once again, because there is no discretion, there is no immunity.  However, application of this judicially created exception is narrow and very fact-specific.  For example, the seminal case involves a fall, arguably caused by a park ranger’s failure to give warning that a path passed within inches of a partially concealed 90-foot drop. 

Case Background for the Engelhardt decision

The Engelhardt case arose when Lily Engelhardt, age eight, drowned during a summer camp field trip to a swimming pool.  Lily’s mother had informed the camp supervisor that Lily could not swim; however, no other camp staff were informed of this fact.  Lily’s mother granted permission for Lily to attend the field trip after assurances that Lily would be given a swim test upon arrival at the pool.  If Lily did not pass the swim test, the camp supervisor promised to keep her in the shallow, splash pad area. 

However, when the nearly 80 campers arrived at the pool, Lily was not tested before she entered the water.  Although campers like Lily were instructed to see a camp staff member for a swim test, no one was directly supervising Lily. As camp staff completed ushering campers through the locker rooms, Lily was discovered drowned in the pool by lifeguards who were unable to revive her.

Lily’s parents brought suit against the City (which ran the summer camp program) for wrongful death.  The City moved for summary judgment, arguing that the suit was barred by governmental immunity.  After the circuit court denied the City’s motion, the Court of Appeals reversed. The appellate court held that the City had not breached any alleged “ministerial duty” and that the facts of the case did not constitute a known and present danger. 

Majority Opinion

The Wisconsin Supreme Court reversed. It denied the City’s invocation of immunity because the “obvious dangers” under the circumstances met the standard for the “narrow” known-and-present danger exception. 

The portion of the decision with broader impact is the majority’s rejection of the plaintiffs’ request that the Court eliminate the “discretionary” immunity standard.  The majority, written by Justice Shirley Abrahamson, highlighted the seminal 1976 decision in Lister v. Board of Regents. There, the Court applied the discretionary standard based on the “public policy considerations” of protecting the public purse and a preference for “political rather than judicial redress for the actions of public officers.” 

The Engelhardt majority also highlighted the fact that the Legislature has acquiesced for decades in the discretionary-immunity standard; this acquiescence includes, but is not limited to, the 1977 repeal and recreation of the immunity statute.  Because this revision was after the Lister decision applying the discretionary standard, the Engelhardt majority found that the Legislature’s inaction expressed implicit approval of that standard.  In other words, the majority reasoned that if the Legislature thought the Court was wrong to interpret the statute as applying to “discretionary” decisions in 1976, then the Legislature would have addressed that issue when it repealed and recreated the immunity statute in 1977. 

Finally, the majority noted that just two years ago, in Melchert v. Pro Elec. Contractors, the Court rejected the interpretation proposed by the Engelhardts (which was reflected in the dissent written by Justice Rebecca Bradley and joined by Justice Daniel Kelly). 

Concurrence

The three Justices (Rebecca Dallet, Rebecca Bradley, and Daniel Kelly) who did not join the majority filed a separate opinion. That opinion, while technically a concurrence, agreed with nothing in the majority except the end-result that the City was not entitled to immunity.  In her first opinion on the Court, Justice Dallet argued that the majority “expanded” the “narrow” exception for known and present dangers to accommodate the facts of this case. She explained that the exception typically applied only where the potential danger was high and imminent and the act required to prevent the danger was clear. By comparison, Justice Dallet reasoned that, if camp staff had seen Lily walking along the edge of the deep end of the pool, then the exception may have applied.  Because Lily’s presence at the pool facility did not on its own create a compelling danger, she concluded that the exception should not apply.

Instead of invoking the known-and-present-danger exception, the concurrence would have rejected immunity outright. To reach that outcome, the concurring Justices recommended eliminating the existing “discretionary” immunity standard.  In proposing abrogation of this standard, Justice Dallet referred to the “plain language” of statute and harkened back to the Court’s 1962 seminal decision in Holytz v. City of Milwaukee, which abrogated common-law immunity.  One year later in 1963, the Legislature enacted the predecessor to today’s Wis. Stat. § 893.80 which re-instated immunity based upon language in the Holytz decision.  In light of the relationship between Holytz and the re-instated statutory immunity, the concurrence emphasized Holytz’s assertion that, “so far as governmental responsibility for torts is concerned, the rule is liability – the exception is immunity.”

Justice Dallet went on to catalogue what she called the judicial chaos created by the discretionary standard, which, she asserted, seemed “almost random at times.”  The three-justice concurrence declared there was “no time like the present” to eliminate the existing “discretionary” immunity standard.  In its place, Justice Dallet proposed an interpretation that provides immunity “only for agents or employees of a governmental entity who are engaged in an act that, in some sense or degree, resembles making laws or exercising judgments related to government business.” 

Applying this proposed standard, the concurrence reasons that the “promulgation” of the City’s camp guidelines would receive immunity for the content of the guidelines, but the City would not be immune “from suit for its camp staff negligently failing to supervise Lily in accordance with the guidelines.”  Justice Dallet’s opinion highlighted that the camp guidelines provided clear instructions to “know where the kids in your care are at all times” and “under no circumstances should kids be left alone.”  Because the City allegedly failed to meet these guidelines, she concluded that no immunity should apply.

Analysis

The weakness of the majority’s opinion is that (as charged by the concurrence) it arguably expands the “narrow” known-and-present-danger exception.  In other words, Lily’s mere presence at the pool cannot create a known and compelling danger, at least as that exception had been applied previously.  Nonetheless, the facts of Lily’s drowning are tragic.  Perhaps, as footnoted by the concurrence, a modest expansion of the “known danger” exception would serve former Justice Crooks’ wish to strike a better “balance between too much immunity . . . and too much liability.”  Such a re-balancing could help to address the constant refrain to Holytz declaring that “liability is the rule, immunity the exception” and the repeated calls to eliminate the existing “discretionary” immunity standard.    

By comparison, the concurrence fails to mention any of the legislature’s acquiescence to the “discretionary” standard or its acting in reliance upon it – an argument emphasized by the majority.  After all, the governmental immunity applicable today is statutory, while the immunity abrogated by Holytz was judicially created.  Even in Holytz, which abrogated immunity and is relied upon by the concurrence, the court painstakingly distinguished its ability to abrogate immunity in 1962 because the doctrine was judicially created – which is entirely different from the present-day review of statutory immunity enacted by the Legislature.  The concurrence offers no explanation on how to rectify this distinction in order to alter now the longstanding application of statutory immunity.  Instead, the concurrence would simply overrule the Court’s precedent on the “discretionary” immunity standard.

It is also hard to see how the proposed alternative standard offers any more clarity than the standard the concurrence wants to abandon.  The proposed standard applies only where the municipal actor is “engaged in an act that, in some sense or degree, resembles making laws or exercising judgment related to government business.”  How this standard differs from the existing discretionary standard is entirely unclear.  To be fair, the proposed standard would apply to the promulgation of policies, but, if it did not extend to “acts done in the exercise of” such policies, it would directly contradict the statutory language (which the concurrence claims to be reliant upon).  Even more to the point, it would create a legal fiction to grant immunity to the decision to enact a policy yet deny immunity from the results of those policies being acted upon. 

Applying this newly proposed standard, Justice Dallet concludes that, because the camp staff negligently failed to supervise Lily according to camp guidelines, there would be no immunity.  There is a view of the facts that support such a conclusion in this case.  However, how this conclusion differs from the existing ministerial-duty standard is once again unclear.  If the three-justice concurrence concluded that the camp staff failed to comply with guidelines imposed upon them, then this constitutes a breach of a ‘ministerial duty’ and there is no “discretion” under the existing immunity standard.  In other words, the concurrence need not create a whole new standard just to reach the same result.  The concurrence could have simply applied the “ministerial-duty” exception under the existing discretionary immunity standard.  The concurrence does not explain why it did not.

Conclusion

For municipal clients, setting aside the fact-specific application of the known-and-present-danger exception in Engelhardt, the main takeaway from the decision is that Justice Dallet joined Justices Rebecca Bradley and Daniel Kelly in seeking to eliminate the existing discretionary-immunity standard.  Justice Abrahamson wrote the majority opinion preserving the standard; however, with an April judicial election to replace her on the bench (and Justice Kelly’s seat being up for election in April 2020), her following words appear likely prescient:

It is unwise for a court to frequently call into question existing and long-standing law.  Doing so gives the impression that the decision to overturn prior cases is ‘undertaken merely because the composition of the court has changed.’

            In light of the sharp disagreements on the court regarding the interpretation and application of Wis. Stat. § 893.80, the existing discretionary immunity standard for municipal actors is likely to remain a flashpoint for the Wisconsin Supreme Court in the coming years.

Stafford Rosenbaum attorneys (left to right) Ted Waskowski and Kyle Engelke in front of the Wisconsin Supreme Court Hearing Room in the East Wing of the State Capitol building in Madison, WI.

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