Scabby the Rat is Deflated

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Scabby the Rat is the nickname unions have given to the large, rat-shaped inflatables used by unions when demonstrating at worksites to let the public know that they have a labor dispute with the employer.  In the past, courts have held that the use of Scabby at worksites is a form of speech protected by the First Amendment.  Does that mean unions can locate Scabby wherever they want at a worksite?  A recent decision by the United States Court of Appeals for the Seventh Circuit tells us not necessarily.  Construction and General Laborer’s Union No. 330 v. Town of Grand Chute.

In the case, a union used Scabby to show its displeasure with a Toyota car dealership in Grand Chute, Wisconsin. The dealership had used a masonry contractor that the union alleged did not pay standard area wages and benefits to its employees.  The union anchored Scabby using tethers staked into the ground in a public right-of-way.  The Town, however, had a sign ordinance that prohibited all private signs on public right-of-ways, and so its code enforcement officer ordered the union to remove Scabby.  The union sued, claiming that the Town violated its First Amendment rights.

Generally speaking, most speech is protected from content-based government regulation under the First Amendment.  However, a government can restrict speech in a public forum without running afoul of the First Amendment if the restriction is content neutral, is narrowly tailored to serve a significant governmental interest and leaves open ample alternative ways to communicate a message.  In an earlier decision in the case, the court applied this standard and held that the sign ordinance did not violate the First Amendment because it banned all private signs on public right-of-ways, regardless of content, and was enacted to further public safety—a significant governmental interest—by protecting visibility. 

The issue in this second trip to the Seventh Circuit was whether the Town selectively enforced the ordinance by not uniformly policing all types of speech prohibited under its provisions.  Selective enforcement by the Town would have violated the First Amendment.  The court determined that the evidence showed uniform enforcement.  Therefore, it held that the order to remove Scabby from the public right-of-way did not violate the union’s First Amendment rights.

This case illustrates why municipalities should not only carefully craft, but also ensure uniform enforcement of, sign ordinances.  Given the potential First Amendment pitfalls in regulating signs through local ordinances, municipalities should consider consulting with legal counsel in drafting and implementing them. 

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

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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.

Seventh Circuit Throws Ice Cold Water on Attempt to Undo Adverse State Court Decision

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In a relatively short opinion, EOR Energy LLC v. Illinois Environmental Protection Agency, the Seventh Circuit categorically rejected a defendant’s attempt to undo a series of adverse decisions from the Illinois state courts. Although it could be classified as a civil procedure “no-brainer,” litigants would be well served to remember, in this era of constantly evolving state administrative rules and prosecutions, that do-overs in the federal courts are the rare exception rather than the rule.

The Illinois Environmental Protection Agency (“IEPA”) charged EOR and another company with violating state law for transporting hazardous waste acid, storing the waste, and then injecting the waste into EOR’s industrial wells. IEPA prosecuted the claims before the Illinois Pollution Control Board (the “Board”). Although the IEPA originally prevailed (unopposed) on summary judgment, EOR filed a motion for reconsideration and argued, for the first time, that the Board lacked jurisdiction. Specifically, EOR asserted that it was not injecting “waste” into its wells because the acid was being used to treat the wells. Because the acid was not “waste,” reasoned EOR, the Illinois Department of Natural Resources, not the Board, had exclusive jurisdiction. The Board rejected EOR’s argument and denied the motion for reconsideration.

EOR appealed to the Appellate Court of Illinois. Interpreting Illinois’s statutory scheme, the appellate court concluded that the acid was indeed a “waste,” giving the Board exclusive jurisdiction over the matter. The Supreme Court of Illinois and the United States Supreme Court both declined EOR’s requests for further appellate review.

Undeterred, EOR filed a new lawsuit in federal district court, seeking a declaratory judgment under the federal Resource Conservation and Recovery Act and the Safe Drinking Water Act. EOR’s federal “hook” appeared to be that it was seeking a declaration of its rights under these acts; it envisioned a declaration stating that it was allowed to continue injecting acid into the wells without fear of IEPA prosecution.

The district court dismissed EOR’s complaint for failure to state a claim. First, the district court ruled that the federal government’s approval of Illinois’s hazardous waste program superseded the application of federal regulations and ensured that the IEPA (rather than the federal government and instead of the Board) had regulatory jurisdiction. Then, the district court took judicial notice of the adverse Illinois state court decisions (which EOR conveniently omitted from their federal complaint) and concluded that the Eleventh Amendment, issue preclusion, and the Rooker-Feldman doctrine preluded relief for EOR in the federal courts.

EOR appealed to the Seventh Circuit, which affirmed the district court. The Seventh Circuit did not mince words in condemning EOR’s tactics: “We emphatically reject this undisguised attempt to execute an end-run around the state court’s decision.” Slip op. at 5. The Seventh Circuit cited multiple rationales. The state court’s decision was final. Federal courts must respect state-court judgments. And, to the extent that EOR wanted the federal courts to set aside the adverse state-court decision, the Rooker-Feldman doctrine barred that outcome. Rather, if EOR believed that the Illinois courts were wrong, its relief lay with the Illinois Supreme Court and the United States Supreme Court. Those courts’ denial of EOR’s petitions for review “was the end of the line” for EOR, such that “it may not come to the federal courthouse for Round Two.” Slip op. at 6. The court could have stopped there, but it went on to cite claim preclusion and the Eleventh Amendment as additional bars to EOR’s efforts.

One could speculate that a hazardous-waste-dumping oil company may have had a better chance in front of the Seventh Circuit if the panel had not included the only two Democratic appointees left on the circuit (Chief Judge Wood and Judge Hamilton). However, given the strong, unequivocal language that the panel used, it is doubtful that EOR would have prevailed in front of any panel combination. Therefore, although this case originated in Illinois, all litigants in the Seventh Circuit should be on notice that this court of appeals is clearly asserting that it will not abide any attempted end-runs around final judgments issued in state-court enforcement actions.

Seventh Circuit Limits Job Seekers’ Age Claim Rights Under Federal Law

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The federal Age Discrimination in Employment Act (ADEA) prohibits two kinds of discrimination: discrimination based on the status of being 40 years or older (disparate treatment) and discrimination based on application of a practice, criteria or classification which, while age-neutral on its face, disproportionately affects individuals who are 40+ years old (disparate impact). It is clear that both applicants and employees can bring disparate treatment claims under the ADEA. It is also now clear that, at least for employers located in the U.S. Court of Appeals for the Seventh Circuit (which includes Wisconsin, Indiana and Illinois), only employees—not applicants—can bring disparate impact claims. Kleber v. CareFusion Corporation[JM1] , No. 17-1206 (7th Cir. Jan. 23, 2019) (en banc).

In Kleber, defendant CareFusion sought applicants for an in-house counsel position who had between three and seven years of experience. Plaintiff Dale Kleber, who was 58 and had more than seven years of experience, applied for the job. When he lost out to a 29-year-old applicant, he brought a disparate impact claim under the ADEA, alleging that the selection criteria disproportionately affected individuals 40+ years old.  A panel of the Seventh Circuit agreed with Kleber, holding that the ADEA did permit disparate impact claims by applicants. The full Seventh Circuit then reheard the case and a majority ruled that, to the contrary, the statute does not permit such claims. The court rested its conclusion on the plain language of the statute. Its holding is consistent with that of the only other circuit to address the issue. See Villarreal v. R.J. Reynolds Tobacco Co., 839 F.3d 958 (11th Cir. 2016).

The court’s ruling in Kleber is useful to employers facing a disparate impact claim brought in federal court by a job applicant. It does not, however, give employers free reign in designing criteria, classification and standards for job applicants. Many states, such as Wisconsin, do permit applicants who are 40+ years old to bring disparate impact age bias claims under state law. Employers should check the laws in their state(s) when developing hiring criteria.


Two Strikes and You’re Out: 7th Circuit Addresses Federal and State Rules on Voluntary Dismissal

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Earlier this week, in Dvorak v. Granite Creek GP Flexcap I, LLC, No. 18-1892, 2018 WL 5801244 (7th Cir. Nov. 6, 2018), the Seventh Circuit addressed the interaction between federal and state rules governing voluntary dismissals of actions. Both Federal Rule of Civil Procedure 41(a) and its corresponding Illinois statute provide a “two strikes” rule: a plaintiff may dismiss an action once without prejudice, but refiling and dismissing again serves as an adjudication on the merits that bars plaintiff from filing any future action based on the same claim.

Dvorak presented a twist: What if a plaintiff files and dismisses a federal suit, then refiles and dismisses in state court, and then files again in federal court? The Seventh Circuit’s ultimate holding—the plaintiff’s third suit was barred and properly dismissed—provides an important lesson for litigants and litigators alike. 

All three suits Dvorak filed arose from an allegedly “mishandled … capital call for a limited partnership.” Dvorak first filed in federal court on the basis of diversity jurisdiction. But he and at least one other partner were both Florida citizens, destroying diversity as a basis for federal jurisdiction. So, he dismissed his initial federal suit with the consent of the defendants and refiled in Illinois state court. In this second suit, the state court dismissed one claim on the merits. Rather than litigate the remaining claims in the state court, Dvorak dismissed the rest of his suit and refiled those claims in the federal court where he had started. This new, third suit omitted the partnership and the claim dismissed by the state court.

The defendants moved to dismiss the third suit on the ground that Dvorak had refiled twice, even though under Illinois law his prior dismissals both counted as strikes. In response, Dvorak argued that his first dismissal did not count as a strike under Illinois law because it was entered with the consent of all parties. The district court rejected Dvorak’s argument, and dismissed the third suit with prejudice. Dvorak appealed.

The Seventh Circuit affirmed the district court’s dismissal order, in an opinion authored by Judge Frank Easterbrook and issued only eight days after oral argument. As an initial matter, the court had to characterize the dismissal of the first federal suit, as that characterization would affect the treatment of the second, state-court dismissal. Looking to the text of Rule 41(a), the court concluded that, regardless of whether Dvorak dismissed unilaterally or by stipulation of the parties, “both situations [are] voluntary dismissals by the plaintiff.” Slip op. at 5. A stipulated dismissal “is not less a voluntary dismissal by the plaintiff just because other parties agree that the suit should end.” Id. The court then held that, under Illinois precedent, the stipulated dismissal in the first federal suit was also voluntary for purposes of the state dismissal statute, 735 Ill. Comp. Stat. 5/13-217. 

Applying the Illinois two-strikes rule, the Seventh Circuit reasoned that, if the dismissal of Dvorak’s first federal suit was one strike and dismissal of the unadjudicated claims in state court was the second strike, then the refiled suit in federal court (Dvorak’s third suit overall) was barred by § 5/13-217. The court was unmoved by Dvorak’s argument that his third suit included two defendants who had not been named parties to the first suit, because the Illinois statute “applies with respect to all persons who could have been named in the initial suits, whether or not they were, provided that the new suit arises from the same transaction (or, equivalently, the same core of operative facts).” Slip op. at 6.

The outcome would be the same if the state suit had been filed and dismissed in Wisconsin, which also has a “two-strikes” statute. Wis. Stat. § 805.04. Section one of that statute explicitly states that

“(u)nless otherwise stated in the notice of dismissal or stipulation, the dismissal is not on the merits, except that a notice of dismissal operates as an adjudication on the merits when filed by a plaintiff who has once dismissed in any court an action based on or including the same claim.”

(emphases added). As the second emphasized phrase demonstrates, Wisconsin clearly addresses the issue of forum. The Wisconsin statute expressly counts prior dismissals “in any court.” Note, however, that the first clause expressly encompasses both dismissals and stipulations, but that the exception references only notices of dismissals only. Does the statutory text leave room to argue that a stipulated dismissal does not count as a strike under the Wisconsin statute? Possibly, but such an argument would now need to overcome Dvorak’s interpretation of Rule 41(a). 

Seventh Circuit Predicts That Wisconsin Will Adopt Learned Intermediary Doctrine

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The Seventh Circuit recently addressed an open issue under Wisconsin products liability law—do manufacturers of prescription drugs or medical devices satisfy their duty to warn of product risks by informing prescribing physicians (rather than the patients themselves) of those risks?  In In re: Zimmer, NextGen Knee Implant Products Liability Litigation, No. 16-3957 (7th Cir. Mar. 8, 2018), the federal appeals court predicted that the Wisconsin Supreme Court likely would answer “yes” to that question by adopting the “learned intermediary doctrine.”

At issue in this case was a knee implant manufactured by Zimmer NexGen Flex, an entity that has been subject to numerous complaints from patients alleging that their implants are subject to premature loosening.  The claimant in this particular case, Theodore Joas, is a patient who had knee-replacement surgery in Eau Claire in 2008 and filed suit against Zimmer after beginning to feel pain in his new knee in 2011.

Due to the number of similar claims against Zimmer, all litigation involving the Zimmer knee implants, including Mr. Joas’ lawsuit, were transferred to a multidistrict proceeding pending in the Northern District of Illinois.  The judge in the multidistrict proceeding subsequently selected Mr. Joas’ suit as a bellwether—a test case—and scheduled his claim to move forward.

Prior to trial, Zimmer moved for summary judgment on all of Mr. Joas’ claims.  Zimmer argued that the testimony of Joas’ only medical expert must be excluded as unreliable. The doctor’s report applied a differential etiology method that identified the most likely cause of Joas’ injury by eliminating other potential causes. But the medical expert could not affirmatively prove a specific cause for the loosening. The judge excluded the doctor’s opinion under the Daubert standard as lacking any discernable basis for concluding which potential causes were reasonable.  The judge then granted Zimmer’s summary judgment motion, holding that, absent expert medical testimony, the factual record did not support Joas’ causation theories.  Slip. op. at pp. 3-4.

Rather than challenge the Daubert ruling, Joas argued on appeal that, even without his own medical expert's testimony, he could win by proving that Zimmer failed to adequately warn both himself and his doctor of the risks associated with the knee implants. Joas supported his positions with testimony from one of Zimmer’s experts, who opined that it would take two bags of cement to properly bond the knee implant to a patient’s shinbone.  Because his doctor used only one bag, Joas theorized that Zimmer failed to satisfy its duty to warn that two bags of cement were needed to properly bond the implant.  Id. p. 4.

The Seventh Circuit rejected this argument on a number of grounds.  With respect to Zimmer’s duty to warn Joas directly, the Seventh Circuit noted that this was an issue of first impression under Wisconsin law.  The Court noted, however, that the overwhelming majority of courts from other jurisdictions facing this issue have adopted the “learned intermediary doctrine,” which states that medical device manufacturers satisfy their duty to warn of product risks by informing the prescribing physicians of those risks.  The Court predicted that Wisconsin would follow suit. It reasoned that the doctrine recognizes the practical reality that patients cannot obtain such devices without physician intervention and that patients reasonably rely on their physicians to warn them of the risks associated with medical procedures.  Id. pp. 5-8.

The Court also noted that Joas’ argument suffered from a lack of evidence to establish causation.  A warning directly to Joas would not have changed the outcome given that it was his physician (rather than Joas himself) who selected to use the Zimmer brand of knee implant for his procedure.  Any warning directed towards Joas’ surgeon similarly would have failed to make a difference, as the surgeon testified that he performed the surgical cementing technique based on his medical fellowship and residency training and that he did not review Zimmer’s device instructions.  While Joas argued for a “heeding presumption” that would allow for a factfinder to presume that a proper warning would have been read and followed by a medical professional, he cited no Wisconsin authority in support of this argument. The Court determined that such a presumption likely would not be adopted by Wisconsin courts.  Id. pp. 8-13.

While the Seventh Circuit’s decision is not a binding statement of Wisconsin law, Wisconsin courts will likely follow its well-reasoned analysis adopting and applying the “learned intermediary doctrine” to insulate medical device and pharmaceutical manufacturers from claims that they have a duty to warn patients directly.  Patients should also view In re: Zimmer, NextGen Knee Implant Products Liability Litigation as a warning that direct causal evidence likely will be needed to prevail on any liability claims against manufacturers of medical products


Seventh Circuit Holds Pharmaceutical Product Liability Claims Preempted By Federal Law

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The Seventh Circuit Court of Appeals held on January 19, 2018, that federal law preempts thousands of product liability claims, brought under the laws of various states, concerning Depo-T (a testosterone drug). Guilbeau v. Pfizer Inc., No. 17-2056 (7th Cir.). The case illuminates the intersection of tort law, federal regulation, and intellectual property.

Generally, a new drug must undergo a rigorous “new drug application” (NDA) process before the Food and Drug Administration will approve them for public use. The NDA process includes a laborious review to determine a drug’s safety and efficacy. If approved, a drug that has gone through the NDA process is considered a brand name drug and any drug made thereafter of the same composition will be considered a generic drug. The distinction between brand name and generic drugs implicates intellectual property rights, pricing, and obligations with respect to labeling.

If a second drug is considered to be the same as or bioequivalent to a drug approved through the NDA process, that second drug may be reviewed by the FDA under the “abbreviated new drug application” (ANDA) process. A drug approved through the ANDA process is generally considered a generic drug. However, in certain circumstances, a drug approved through the ANDA process is deemed to be the reference-listed drug (that is, the first drug of that physical composition to be approved by the FDA), and is therefore considered a brand name drug.

This case fell into those unusual circumstances. In 1953, Delatestryl (a testosterone replacement drug) was approved as a new drug by the Food and Drug Administration after NDA review. Then, in 1979, Depo-T was found to be the same as Delatestryl and was approved through the ANDA process. However, because Depo-T was slightly different in physical composition to Delatestryl, the FDA deemed it a separate reference-listed drug. Depo-T therefore became the brand-name drug for any later generic versions using its particular formulation.

In 2014, more than a thousand plaintiffs filed suit in several states, alleging that, after taking Depo-T as prescribed, they suffered heart attacks or strokes. The plaintiffs sued Pfizer, Inc. (the drug’s manufacturer), under the theory that the company failed to warn physicians and patients of the drug’s potentially fatal side effects. After those cases were consolidated and the district court concluded that the plaintiffs’ state-law claims were preempted by federal law, the plaintiffs appealed.

The Seventh Circuit held that Depo-T’s classification as a brand name drug was less important than its regulatory approval under the ANDA process. The plaintiffs argued that, because Depo-T is a reference-listed drug, Pfizer had a duty to warn prescribers and patients of any dangers and should, therefore, have updated its labels explaining the risks of heart attack and stroke as those risks were discovered. The court disagreed. Because Depo-T was approved under an ANDA, it was to be treated legally as if it were a generic drug.

Generic drugs are obligated to use a label that matches the one used by the corresponding brand name drug and cannot make changes absent FDA approval. As a result, manufacturers of generic drugs cannot be sued on the theory that their labels fail to contain information not included on the label of the corresponding brand name drug.

The Seventh Circuit cited the Supreme Court’s decision in Pliva, Inc. v. Mensing, 564 U.S. 604 (2011), which held that when federal drug regulations that apply to generic drugs conflict with state law claims, like failure to warn of adverse side effects, the state law is preempted. In other words, because Depo-T’s was approved through the ANDA process and its label conforms with what the FDA required, the state-law failure to warn state law claims against Pfizer are preempted by federal law. The court noted that the unusual fact of Depo-T being a reference listed drug while also having the legal status of a generic does not change the outcome here.

Laura Lamansky is a law student at the University of Wisconsin and a law clerk working under supervision. She will be a full-time lawyer at Stafford Rosenbaum beginning later this year.

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

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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.

Multi-Month Medical Leave Not A Reasonable Accommodation Under the ADA

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The Court of Appeals for the Seventh Circuit recently held in Severson v. Heartland Woodcraft, Inc., 2017 U.S. App. LEXIS 181197*, 872 F.3d 476 (7th Cir. 2017) that a leave for medical purposes of two months or more is not a reasonable accommodation under the federal Americans with Disabilities Act (ADA).  In so doing, however, the Court left open the possibility that shorter or intermittent leaves might be, under appropriate circumstances.    

In Severson, the plaintiff took the full 12-week allotment of medical leave under the federal Family and Medical Leave Act (FMLA) due to back pain.  During his leave, he scheduled back surgery for day his FMLA leave expired.  Severson told the employer that he would not be able to work for two-to-three months after the surgery and requested non-FMLA medical leave for the recovery time.  The employer denied the request, given that Severson would be unable to perform any part of his job for several months.    

The court held that the employer’s decision did not violate the ADA.  The ADA, the court explained, is an anti-discrimination statute, not a medical-leave entitlement.  Id. at *3.  According to the court, the ADA is designed to prevent discrimination against a “qualified” individual, defined as a person who, “with or without reasonable accommodation, can perform the essential functions of the employment position.”  Id.  Thus, protection under the ADA is “expressly limited to those measures that will enable the employee to work.  An employee who needs long-term medical leave cannot work and thus is not a ‘qualified individual’ under the ADA.”  Id. (citing Byrne v. Avon Prods., Inc., 328 F.3d 379, 381 (7th Cir. 2003)).  Based on these considerations, the court determined that Severson was not a qualified individual under the ADA because the requested accommodation—a leave of two-to-three months—would not allow him to perform the essential duties of his job and thus was not reasonable.   

Employer Takeaway

Severson provides definitive guidance to employers in the Seventh Circuit with respect to employee requests for medical leave for two or more months, but only if the leave is not mandated by a medical leave statute like the federal FMLA or any state law counterparts.  While Severson also suggests that even a leave of more than a couple of weeks may not be a reasonable accommodation, employers should still proceed with caution in responding to requests for leave of less than two months because the reasonableness of the leave will turn on the particular circumstances of each request.  Employers also should keep in mind that Severson does not permit employers to deny extended leave mandated by another statute.  In such cases, of course, employers must provide the leave whether or not it would be considered a reasonable accommodation under the ADA. 

For additional guidance or questions related to employers’ responsibilities under the ADA, contact Meg Vergeront at (608) 256-0226.    

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

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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.

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