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.

Wisconsin’s Public Records Law requires officials to provide “the greatest possible information” in response to public records requests. Wis. Stat. § 19.31. In Lueders v. Krug, the Wisconsin Court of Appeals, District II, clarified that this mandate requires officials to provide electronic copies of materials if electronic copies are requested.

In June 2016, Bill Lueders emailed State Representative Scott Krug to request copies of all citizen correspondence relating to specified bills and key terms. Krug made paper copies of the responsive emails, which Lueders personally inspected. In July, Lueders again emailed Krug to revise his request, clarifying that he wished “to receive the records in electronic form.” Krug refused, arguing that the paper copies were sufficient, and citing Wis. Stat. § 19.35(1)(b):

If a requester appears personally to request a copy of a record that permits copying, the authority having custody of the record may, at its option, permit the requester to copy the record or provide the requester with a copy substantially as readable as the original.

Lueders filed a mandamus action to require Krug to release the documents in electronic form. The circuit court granted mandamus relief to Lueders. The court of appeals affirmed.

The court of appeals first concluded that Krug misinterpreted the applicable statute. Section 19.35(1)(b) only applies when a requester appears in person and makes a request. Here, Lueders made both of his requests by email. Further, the Legislature amended this section in the 1990s; previously, the section applied to all public records requests. This change demonstrated to the court of appeals that the Legislature intentionally distinguished between in-person and other public records requests.

The court of appeals next explained why paper copies were not an adequate substitute for electronic copies. As in State ex rel. Milwaukee Police Ass’n v. Jones—where an amended request for a digital copy of an audio recording was not satisfied by having previously provided an analog copy—electronic copies contain substantially more and different information compared to paper copies. For example, metadata (i.e., data about other data) can “show when documents were created and who created them[; …] a paper printout from electronic records, unlike an electronic copy, results in a loss of some information.” Lueders at ¶ 12.

Ultimately, Krug was left arguing that the paper copies were “good enough” in response to a request for electronic copies. The court disagreed, and ordered release of electronic copies.

Moving forward, public records custodians should carefully review all records requests, and provide answers in the desired format (when this would not require them to create additional documents, i.e., create a record). Officials should also understand what metadata is, and what it can reveal to public records requesters.

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.

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.

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. 

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. 

The Wisconsin Supreme Court recently decided that Wisconsin law does not require employers to pay employees for the time spent driving company vehicles between their homes and job sites.  Kieninger v. Crown Equipment Corp.  Federal law has a similar rule, but it is subject to more limitations than the Wisconsin rule.  Under federal law, employees are not entitled to pay for the time spent driving company vehicles between their homes and job sites if the travel is within the normal commuting area for the employer’s business and the employer and employee agree to such a set up.  Where state and federal wage and hour law apply, the law that is most favorable to the employee must be followed.  In this case, the federal law is more favorable to employees and therefore controls on this issue. 

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.

The federal Fair Labor Standards Act (FLSA) requires employers to pay non-exempt employees overtime pay at 1½ times their “regular rate of pay” for hours worked over 40 in a workweek.  In calculating the regular rate of pay, employers must count all “remuneration for employment,” unless expressly excluded by the FSLA or DOL’s regulations implementing the FLSA.  Most of the regular rate of pay regulations have been in place for 50 years and have not kept up with benefits offered in the modern work place.  Therefore, the DOL has issued a proposed rule that would exclude the following benefits from the regular rate of pay:

• The cost of providing wellness programs, onsite specialist treatment, gym access and fitness classes;
• Employee discounts on retail goods and services;
• Payments for accrued but unpaid leave;
• Reimbursed expenses;
• Pay for off-duty meal periods, except if there is an agreement or course of conduct that establish that the employer and employee have treated the time as hours worked;
• Contributions to benefits plans that provide accident, unemployment and legal services benefits;
• Tuition programs, e.g., reimbursement programs or repayment of student loan debt.

The proposed rule would also clarify whether and when other forms of compensation must be included in the regular rate of pay.  The forms of compensation include holiday and weekend work premiums, discretionary bonuses, reporting time pay and call back pay.  The proposed rule also clarifies when penalties imposed on employers for violating “predicative scheduling laws” enacted by state and local governments may be excluded from the regular rate of pay. 

One of the goals of the proposed rule is to encourage employers to provide benefits without concern about whether the benefits will affect how much they have to pay in overtime.  The hope is that this will positively affect morale, compensation and employee retention. 

DOL will issue the final rule after a 60-day period for notice and comment.  Comments must be submitted by May 28, 2019. 

The U.S. Supreme Court has announced that it will hear three cases addressing whether discrimination on the basis of sexual orientation and transgendered status constitutes discrimination “because of sex” and therefore prohibited under Title VII. 

The Court agreed to hear two of the cases together to resolve a split in the U.S. Circuit Courts as to whether discrimination based on sexual orientation is prohibited by Title VII.  In one case, Zarda v. Altitude Express, Inc., 883 F.3d 100 (2nd Cir. 2018), the Second Circuit held that such discrimination is prohibited; in the other, Bostock v. Clayton County, 723 F. App’x 964 (11^th Cir. 2018), the Eleventh Circuit held that is it not.  The third case will decide whether discrimination based on gender identity is prohibited by Title VII.

The cases have been set for argument during next year’s term.  The Court will likely issue a decision by early summer, 2020.