Frivolous
lawsuit rule is retroactive
New Rule
802.05 applies to suits that were pending
By
David Ziemer
david.ziemer@wislawjournal.com
Sept.
27, 2006
|
What
the court held
Case:
Trinity Petroleum, Inc., v. Scott Oil Co., Inc., No. 2005AP2837
Issue:
Is Sec. 802.05 retroactive to cases already pending on July
1, 2005?
Is there an exception to the safe harbor requirement, where
judgment was granted less than 21 days after July 1, 2005?
Holding:
Yes. The rule is procedural, and thus presumptively retroactive.
No.
The rule contains no counterpart to the provision in federal
Rule 11 that the rule be retroactive only insofar as it
is just and practicable.
|
Attorneys
need to be aware that the 2005 rule governing frivolous lawsuits
relates to lawsuits filed before the rule took effect.
Rule
802.05 applies retroactively to suits already pending on July
1, 2005, the statute’s effective date, a divided Wisconsin
Court of Appeals held on Sept. 20.
Scott
Oil Co., Inc., and Trinity Petroleum, Inc., had a contractual
agreement under which Trinity would transport Scott Oil’s
petroleum products. Scott Oil terminated the contract and Trinity
sued for breach of contract. On April 5, 2005, Scott Oil moved
for summary judgment. The court granted the motion on July 5.
After
the grant of summary judgment, Scott Oil moved for attorney fees
on the grounds that Trinity’s action was frivolous, pursuant
to rules 802.05 and 814.025.
Waukesha
County Circuit Court Judge James R. Kieffer denied the motion,
because the Supreme Court had repealed the two statutes and recreated
Rule 802.05, effective July 1.
The
court stated that it considered the plaintiff’s action frivolous,
but held that sanctions could not be imposed, because Scott Oil
failed to comply with the 21-day “safe harbor” provision
of the new rule.
The
safe harbor provision requires a party to give prior notice to
the offending party, and only if the purportedly frivolous pleading
is not withdrawn within 21 days may the party move the court for
sanctions.
The
statute’s other significant change was to make the award
of sanctions discretionary, rather than mandatory, if frivolousness
is found.
Scott
Oil appealed, but the court of appeals affirmed in a decision
written by Judge Neal P. Nettesheim, and joined by Judge Harry
G. Snyder. Judge Daniel P. Anderson dissented.
The
majority concluded that resolution of the issue turns on whether
the new statute is procedural or substantive. Finding the statute
procedural, and therefore retroactive, the court held that the
failure to comply with the safe harbor provision precludes imposition
of sanctions.
Retroactivity
First,
the court noted that Rule 802.05 is a court-enacted rule rather
than a legislatively enacted statute. Also, it was adopted from
the federal civil procedure code and analogously situated in Wisconsin’s
civil procedure code.
In
addition, in the Supreme Court’s explanatory comments, the
court stated that it was acting pursuant to its rule-making authority
under sec. 751.12 to regulate, simplify and harmonize the rules
of pleading, practice and procedure.
The
court further noted that punishment for filing a frivolous action
is part of a court’s responsibility to secure the judicial
system’s effective operation, and that the purpose of sanctions
is to deter, rather than compensate. As such, the court concluded
the rule is procedural.
Finally,
the court noted the dissents of Justices David T. Prosser, Patience
Drake Roggensack and Jon P. Wilcox, when the new rule was adopted.
The dissents opined that the mandatory attorney fee aspect of
the repealed sec. 814.025 embodied substantive rights for litigants.
Based
on the dissents, the court of appeals concluded, “A fair
deduction from these statements is that the matter was fully debated
and that the majority deems the rule procedural. Retroactive application
of procedural rules is presumed (cite omitted).”
Safe
Harbor
Applying
the new rule retroactively, the court then concluded that sanctions
could not be imposed, because the safe harbor provision was not
complied with.
The
safe harbor provision, sec. 802.05(3)(a)1, provides that a motion
for sanctions “shall not be filed with or presented to the
court unless, within 21 days after service of the motion or such
other period as the court may prescribe, the challenged [pleading]
is not withdrawn or appropriately corrected.”
Finding
the language unequivocal, the court wrote, “The timing may
not have favored Scott Oil, but we conclude the mandates of the
new rule apply.” Noting that attorneys had three months notice
between adoption of the new rule and its effective date, the court
concluded, “Given the widespread publicity to and input from
the Wisconsin bar, we concur that Scott Oil’s attorneys should
have been on notice that change was afoot and proceeded accordingly.”
The
court found that Scott Oil had two options available to it to
preserve its rights: filing a motion for sanctions under the old
law before July 1, 2005; or on or after July 1, serving Trinity
with a motion prior to the summary judgment hearing.
Accordingly,
the court affirmed the denial of sanctions.
The
Dissent
Judge
Anderson wrote a dissent, agreeing that the new rule is retroactive,
but disagreeing with retroactive application in this case.
Anderson
noted that, in Mosing v. Hagen, 33 Wis. 2d 636, 642, 148 N.W.2d
93 (1967), the Supreme Court, explaining retroactive application
of procedural rules and its exceptions, wrote, “We do not
perceive that its [retroactive] application affects any substantive
rights nor that it imposes an unreasonable burden upon the plaintiff
as to its procedural requirements (emphasis added by Judge Anderson).”
Anderson
concluded, “I take away from Mosing another qualification
to the retroactive application of a procedural statute: a statute
will not be applied retroactively if to do so imposes an unreasonable
burden upon a party.”
Because
the new rule became effective only five days before the hearing
on Scott Oil’s successful motion for summary judgment, Anderson
concluded that retroactive application in this case would place
an unreasonable burden on Scott Oil.
For
support, Anderson cited the Seventh Circuit’s decision in
Land v. Chicago Truck Drivers, Helpers and Warehouse Workers Union
(Indep.) Health and Welfare Fund, 25 F.3d 509, 515 (7th Cir. 1994).
In
Land, the new federal Rule 11 became effective while the appeal
was pending. Rule 11 stated that it was to be applied retroactively
“insofar as just and practicable.” Pursuant to this
language, the Seventh Circuit held that Rule 11 would not be applied
retroactively to that case.
Anderson
acknowledged that Wiscon-sin’s new rule did not contain similar
language, but found no difference between the “just and practicable”
standard from Rule 11 and the “unreasonable burden”
standard in Mosing.
“For
this reason,” he wrote, “I adopt the Seventh Circuit’s
reasoning and conclude, under the facts of this case, it would
impose unreasonable burden on the administration of the judicial
system and Scott Oil to judge the conduct of the parties by standards
that were not in effect when the conduct occurred.”
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