Motions for Sanctions Under the New Wis. Stat. § 802.05: Exploring Some Lingering Questions
By now this audience of Wisconsin practitioners is likely aware that the laws relative to sanctions for frivolous filings changed in July of 2005. Specifically, the Supreme Court amended the necessary procedures a party must follow when moving the court. While the new statutes and relevant case law provide guidance, questions remain about the steps necessary to provide the opposing party requisite notice, as well as whether the new statute applies retroactively to current cases still on the circuit level or working their way through the appellate courts.
What are the precise steps necessary to move the court for a finding of frivolousness and accompanying sanctions? Have you provided sufficient notice to the opposing party under the new statute that you intend to move for sanctions? At your procedural stage, are you still able to move for sanctions on a frivolous action or specific filing? Will the new rules apply retroactively if the frivolous action was commenced before the new changes? Will the new statute apply to a motion for sanctions filed before the changes, but decided after? As discussed below, the answers to some of these questions are clearer than others.
Statutory Changes and Current Requirements
On March 31, 2005, the Wisconsin Supreme Court issued Order 03-06, changing the rules governing sanctions for frivolous pleadings. The order mandated that effective July 1, 2005, Wis. Stat. §§ 802.05 and 814.025 (2003-04) were repealed and a new version of § 802.05 was adopted.
The bases for the revision are set forth plainly in the comments of the annotated statute, wherein sections from the Supreme Court’s order are provided. In sum, the legislature patterned the original version of the statute governing frivolousness and sanctions, § 802.05 (1976), after the then existing Federal Rule of Civil Procedure 11. Subsequently, § 814.025 (1978) was adopted, entitling moving parties to costs upon frivolous claims and counterclaims, and setting forth the guidelines for determining frivolousness. See § 814.025(3)(a)-(b)(1978)(repealed by S. Ct. Order 03-06, July 1, 2005). In noting that Wisconsin circuit courts used essentially the same guidelines in the determination of frivolousness under the old §§ 802.05 and 814.25, the Court cited to the controversial, often discussed Jandrt v. Jerome Foods, 227 Wis. 2d 531, 549, 597 N.W.2d 744 (1999).
However, with FRCP 11 having undergone substantial revision, most recently in 1993, the Court chose to adopt the current version of FRCP 11. In so doing, the intent was “to simplify and harmonize the rules of pleading, practice and procedure, and to promote the speedy determination of litigation on the merits. In adopting the 1993 amendments to FRCP 11, the court does not intend to deprive a party wronged by frivolous conduct of a right to recovery; rather, the court intends to provide Wisconsin courts with additional tools to deal with frivolous filing of pleadings and other papers.” See S. Ct. Order 03-06.
Arguably the most notable substantive revision, or addition, is § 802.05(2)(c) which states:
(2) Representations to Court. By presenting to the court, whether by signing, filing, submitting, or later advocating a pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, all of the following:
(c) The allegations and other factual contentions stated in the paper have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery.
Id. (Emphasis added.)
Whether this addition, along with the other amendments, provides adequate means to satisfy the Court’s professed ends, and the extent to which these changes re-define “frivolous,” are debated issues. For now, those issues go beyond the scope of this article. Rather, the focus is to help inform on the procedural ramifications of the 2005 changes.
There are two procedural modifications of note in the new rules. The primary procedural change to § 802.05 is the addition of the 21 day “safe harbor” provision governing motions for sanctions set forth in § 802.05(3)(a). The section provides in relevant part:
(a) How initiated. 1. “By motion.” A motion for sanctions under this rule shall be made separately from other motions or requests and shall describe the specific conduct alleged to violate sub. (2). The motion shall be served as provided in s. 801.14, but 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 paper, claim, defense, contention, allegation, or denial is not withdrawn or appropriately corrected.
Id. (Emphasis added.)
Plainly stated, the statute requires that the moving party supply the opposing party with a draft of the motion 21 days prior to filing with the Court. Additionally, the motion must be made separately from any other filing. If a party has alleged frivolousness as an affirmative defense in a pleading, or moved the court on this issue via an adjunct to some other motion, that party is not in compliance with statute.
The second procedural (though debatably substantive) change is that “sanctions” are no longer mandatory upon a circuit court’s finding of frivolousness. Under the repealed § 814.025 (2003-04), sanctions in the form of costs and reasonable attorney’s fees were mandatory upon a circuit court’s finding of frivolousness. The new changes make it possible (though somewhat illogical and improbable) that the Court may find that a filing was frivolous, but not impose sanctions.
Does the New Statute Apply Retroactively?
The present time frame being approximately three years from the change, a persistent question regarding the notice issue is whether the statute will apply retroactively to a motion or filing which predated the July 1, 2005 changes. For those many actions the new changes fell in the midst of litigation, and many of those cases are unresolved or currently appealed. Will the new statute apply retroactively to your filing, or contemplated filing? Unfortunately, the text of the Court’s Order and the new statute are silent about prospective or retroactive application to conduct occurring prior to the effective date of the rule. Therefore, we must look to the courts for guidelines to help evaluate options and potential outcomes.
Trinity Petroleum, Inc. v. Scott Oil Co., 2007 WI 88, 735 N.W.2d 1 (2007) is the seminal case on the retroactive application of the new rules. Because it is the only appellate decision on the issue, it deserves thorough attention. In Trinity Petroleum, two parties entered into written contract, the terms of which required that the plaintiff would transport the defendant’s petroleum products. According to contractual provisions, the defendant could terminate the contract if the plaintiff failed to perform to the “customer’s satisfaction.” Id. ¶ 10, 735 N.W.2d 1. On February 6, 2004, the defendant formally notified the plaintiff that it had received several complaints from its customers about the plaintiff’s service in delivering its products and was terminating the contract. Id. ¶ 11, 735 N.W.2d 1. On April 6, 2004, the plaintiff filed suit against the defendant, alleging breach of contract. In its responsive pleadings, the defendant did not raise the issue of frivolousness, but later contended that at subsequent stages of the proceeding it alerted the plaintiff of its belief that the claim was frivolous. Id. ¶ 12, 735 N.W.2d 1.
On April 5, 2005, the defendant moved for summary judgment against the plaintiff but the hearing occurred on July 5, 2005 (after the Supreme Court’s order issued on July 1, 2005), in order to accommodate the receipt of transcripts from a deposition taken on May 27, 2005. Id. ¶ 14, 735 N.W.2d 1. The motion was granted. Id. ¶ 16, 735 N.W.2d 1. The defendant then filed a written motion for sanctions (costs and reasonable attorney’s fees) based upon the former §§ 802.05 and 814.025 (2003-04), and did not mention Supreme Court Order 03-06. The circuit court concluded that newly adopted § 802.05 applied, the defendant had to comply with the “safe harbor” notice provision, it had not complied and obviously could not comply with the “safe harbor” notice provision, and denied the motion for sanctions. Id. ¶ 18, 735 N.W.2d 1. The court of appeals affirmed the order, holding that the new § 802.05 was a procedural rule with retroactive application and that sanctions could not be granted because the defendant had not complied and could not comply with its “safe harbor” notice provisions. Id. ¶ 19, 735 N.W.2d 1. Prophetically, the dissent agreed with the majority that new rule was a procedural rule, but did not agree it should have been applied retroactively under the particular facts of the case because retroactive application would have imposed an unreasonable burden upon the party who had to comply with the procedural requirements. Id. ¶ 19, 735 N.W.2d 1.
The Supreme Court reversed and remanded, directing the circuit court to determine whether compliance with the new statute imposed an unreasonable burden under the circumstances of the case, and whether sanctions were warranted. Id. ¶¶ 7-8, 735 N.W.2d 1. The Court agreed that § 802.05 was procedural, not substantive. This determination was paramount because in Wisconsin there is a presumption of retroactive application for a procedural rule even in cases where the disputed conduct occurred prior to the new rule’s effective date, but a motion was made after that date. Id. ¶ 52, 735 N.W.2d 1.
The Court also noted, however, that retroactive application of procedural rules is not an absolute rule. Exceptions include when retroactive application diminishes a contract, disturbs vested rights, or imposes an unreasonable burden on the party charged with complying with the new rule’s requirements. Id. ¶ 52, 735 N.W.2d 1. The Court also provided tools for determining when these three exceptions apply.
Because it is a relatively straightforward, seldom arising issue, little time was spent analyzing whether and when a contractual right is disturbed by a retroactive application of the new statute. Id. ¶ 61, 735 N.W.2d 1. The Court dealt with the “vested right” exception as part of the procedural/substantive analysis; it had already clarified that a litigant does not have a vested right in a particular remedy or in rules of procedure that relate to a remedy. Id., 735 N.W.2d 1. Therefore, retroactive application of the statute does not disturb a vested right.
Whether the retroactive application of the statute imposed an “unreasonable burden” is the issue which drew the most attention, and presumably is the question which most practitioners now face. The “unreasonable burden” standard was created by, and analyzed under, Mosing v. Hagen, 33 Wis. 2d 636, 148 N.W.2d 93 (1967). The Mosing Court concluded that a new statute requiring that service of summons was invalid if the summons was not filed with the clerk of the circuit court within one year of service, did not impose an unreasonable burden on the party charged with complying with the procedural requirements. Its primary rationale was that the Court, as it did with the new § 802.05, had given notice of the statute and delayed the effective date of the statute. Id. The Court held that, despite the change, the party in that instance which served the summons was aware of the new requirement and could have complied with it. Id.
Guided by Mosing, and acknowledging the new governance of Federal Rule 11, the Trinity Petroleum Court interestingly summarized three federal cases to illustrate the approaches taken by federal courts in determining whether the retroactive application of Rule 11 would be “just and practicable,” which the Court deemed synonymous with not imposing an unreasonable burden. Trinity Petroleum., at ¶ 68, 735 N.W.2d 1.
In Ware v. United States, 154 F.R.D. 291 (M.D.Fla.1994), as in Trinity Petroleum, the conduct at issue occurred prior to the effective date of the amended version of Rule 11, but the motion for sanctions was filed after the effective date of the amendment. The Ware court concluded that retroactive application of the amendment in that instance would not be “just and practicable” under the circumstances of the case “[b]ecause [the] case has been ongoing for several years, and has a complex procedural history...” Id. at 292-93 (M.D.Fla.1994).
In Kraemer Export Corp. v. Peg Perego U.S.A., Inc., 1994 U.S. Dist. LEXIS 3071, at 21 (S.D.N.Y. Mar. 17, 1994), the motion for sanctions was filed before the effective date of the amended Rule 11, but was not heard by the federal district court until after the effective date. Somewhat predictably, the district court found it just and appropriate to apply the version in effect at the time the motions were filed (the unamended version of Rule 11) because counsel were familiar with the language and standards of the unamended rule, and tailored their arguments accordingly. Id.
In Land v. Chicago Truck Drivers, Helpers & Warehouse Workers Union, 25 F.3d 509, 516 (7th Cir.1994), the motion for sanctions was filed and heard by the district court before the effective date of amended Rule 11, but the decision of the district court regarding sanctions came on appeal after the effective date of the amendments. The appellate court held that former Rule 11 should be applied and that to rule otherwise would not be just and practicable. The court explained that at the time the plaintiff filed the action and the time the defendant moved for sanctions the unamended Rule 11 was in effect, and both parties were operating under the standards and procedures set forth in that rule. Id.
In Trinity Petroleum, each side provided several arguments supporting its position on whether compliance with the new rules was reasonable. The defendant argued that retroactive application of new rule imposed an unreasonable burden because the defendant could no longer, under any circumstances, comply with the actual “safe harbor” provisions, and also that it complied with the substance of the “safe harbor” notice provisions by providing notice throughout the litigation that it believed the plaintiff’s lawsuit was frivolous. The defendant also argued that because the plaintiff’s frivolous conduct occurred before the effective date of the new rule, application of the new rule would allow the plaintiff an unjust, technical escape from its frivolous conduct. Trinity Petroleum., at ¶¶ 85-87, 735 N.W.2d 1. The plaintiff responded by arguing that retroactive application did not impose an unreasonable burden on the defendant because it actually was adopted on March 31, 2005, months before it became effective, thereby putting the defendant on notice. The plaintiff further contended that the defendant had numerous opportunities to bring a motion for sanctions if it believed the action was frivolous, and did not have to wait until after summary judgment was granted and the new rule went into effect. Id. at ¶¶ 89-91, 735 N.W.2d 1.
After reciting the standards for determination and the arguments of both parties, the Supreme Court provided us with no further guidance on this issue. It simply remanded to the circuit court to determine whether it would impose an unreasonable burden to apply the new Wis. Stat. § 802.05, if so whether the action was frivolous, and still yet, what sanctions would be appropriate. Id. at ¶¶ 89-91, 735 N.W.2d 1.
In other words, we were left with no direct, controlling authority to use when discerning whether applying the new Wis. Stat. § 802.05 creates an “unreasonable burden.” There is, however, at least one, unpublished appellate case, which provides some insight as to how the courts will use Trinity Petroleum to determine the retroactive application of the new statute.
In Cooper v. American Family Mut. Ins. Co., 2006AP2394 (Ct. App. 2008), the plaintiff made a claim under a homeowner’s policy issued by American Family for personal property allegedly stolen. Id. ¶ 2. After American Family declined to pay on the claim due to suspicious circumstances, the plaintiff filed an action on December 22, 2003, and an amended complaint on April 8, 2004. American Family asserted in its affirmative defenses that Cooper’s claim was “frivolous as that term is used in § 814.025, Stats.” and asked for costs and fees in the “Wherefore” clause. Id.
While the matter was in pretrial discovery, the July 1, 2005 Order (03-06) was issued by the Supreme Court. On March 1, 2006, in a case brilliantly tried by my boss, Attorney Mike Crooks, a jury found that the alleged burglary did not occur, and American Family subsequently filed a post-judgment motion for sanctions against Cooper under the old §§ 814.025 and 802.05. Id. ¶ 3-4. The circuit court granted the motion, concluding that the new § 802.05 did not have retroactive application and, that even if it did, no harm was caused by the failure to comply with the safe harbor provision. The trial court only awarded fees and costs after it became clear through discovery the action was frivolous. The plaintiff appealed, and American Family cross-appealed. It sought more costs than were awarded by the circuit court by challenging the date beyond which the trial court had ruled that maintaining the action was deemed as frivolous. Id.
Citing Trinity Petroleum, the court of appeals concluded that § 802.05 was a procedural statute and had a presumption of retroactivity, subject to the previously noted exceptions. Id. ¶ 5. The issue, therefore, was whether retroactive application imposed an unreasonable burden upon American Family. Id. ¶ 7.
The court of appeals concluded that American Family did not demonstrate that retroactive application of the new statute would impose an unreasonable burden, and reversed the circuit court. Id. ¶ 8. In so doing, the court of appeals noted that while it requested relief in the “Wherefore” clause, American Family did not file a motion under the prior statutes, despite numerous opportunities. Id. It also highlighted that American Family would have been aware that the new statute was effective July 1, 2005, but it did not file a motion until the jury concluded there was no burglary almost eight months later. Id.
Despite American Family’s sensible argument to the contrary, the appellate court ruled that American Family did not comply with the 21-day “safe harbor” provision. This was based upon two major propositions, the first being that, as decided in Trinity Petroleum, Inc. v. Scott Oil Co., Inc., 296 Wis. 2d 666, 724 N.W.2d 259 (Ct. App. 2006), reversed on other grounds at 735 N.W.2d 1, postjudgment sanctions do not comply with the “safe harbor” provision. Cooper at ¶10. Additionally, despite the alleged notice provided by American Family’s affirmative defense and prayer for relief, the court reiterated that “warnings are not motions.” Id. ¶11(citing Trinity Petroleum, 296 Wis. 2d 666, ¶ 33). The court of appeals also noted that American Family failed to comply with the provision of the new § 802.05(3)(a)1 which mandates that a motion for sanctions be served separately from any other motion or request. Cooper at ¶12.
Conclusions And Presumptions
Despite the limited case law interpreting the new § 802.05, a few conclusions and presumptions do appear available as we move forward:
- Under the new § 802.05, it is clear that anything short of presenting the motion for sanctions to the opposing party 21 days in advance of filing the motion with the court does not satisfy the “safe harbor” notice requirement of § 802.05(3)(a)2.
- After providing the 21 day notice to the opposing party, a motion for sanctions must be served entirely separately from any other motion or request, pursuant to § 802.05(3)(a)1. For instance, setting forth an affirmative defense of frivolousness in a pleading, making a prayer for relief which includes costs or sanctions, or simply notifying the opposing party of your beliefs or intentions, are insufficient forms of notice that sanctions will be sought. None of the foregoing satisfy the statutory requirements, because “warnings are not motions.”
- Motions for sanctions cannot be filed postjudgment. Trinity Petroleum, Inc. v. Scott Oil Co., Inc., 296 Wis. 2d 666, 724 N.W.2d 259 (Ct. App. 2006), reversed on other grounds at 735 N.W.2d 1. The rationale is that after a judgment, there is nothing left for the opposing party to withdraw.
- Because the new § 802.05 has been deemed by the courts as procedural, it has a presumption of retroactive application. See Trinity Petroleum, Inc. v. Scott Oil Co., 2007 WI 88, 735 N.W.2d 1 (2007). This is not absolute, however. Presumption can be rebutted with exceptions, including when retroactive application diminishes a contract, disturbs vested rights, or imposes an unreasonable burden on the party charged with complying with the new rule’s requirements. Id. ¶ 52, 735 N.W.2d 1. The most difficult to discern is whether retroactive application imposes an unreasonable burden. Trinity Petroleum and Mosing v. Hagen, 33 Wis. 2d 636, 148 N.W.2d 93 (1967) provide guidance on this standard, as does federal case law dealing with this specific issue under FRCP 11.
- If an allegedly frivolous action was filed prior to July 1, 2005 rule change, and the motions for sanctions is filed before judgment but after July 1, 2005, predicting whether the new § 802.05 will apply is very difficult. The court’s analysis will be factually and procedurally specific to your case. With scarce precedent available, Ware v. United States, 154 F.R.D. 291 (M.D.Fla.1994), cited by Trinity Petroleum, may serve as the basis for the court to decide that retroactive application indeed would impose an unreasonable burden.
- If the motion for sanctions was filed prior to the July 1, 2005 rule change, but has not been heard or was not heard until after the effective date, Kraemer Export Corp. v. Peg Perego U.S.A., Inc., 1994 U.S. Dist. LEXIS 3071, at 21 (S.D.N.Y. Mar. 17, 1994), cited by Trinity Petroleum, suggests that retroactive application would impose an unreasonable burden.
- If the motion for sanctions was filed prior to the July 1, 2005 rule change, and was ruled upon prior to the effective date but is now somewhere in the appellate process, Land v. Chicago Truck Drivers, Helpers & Warehouse Workers Union, 25 F.3d 509, 516 (7th Cir.1994), cited by Trinity Petroleum, suggests that retroactive application would impose an unreasonable burden.
- As articulated by Supreme Court Order 03-06, the new § 802.05 is patterned after FRCP 11. Accordingly, the federal rule, its annotations, and federal precedent interpreting the rule, shall all be useful when interpreting § 802.05, and obviously, persuasive authority for our courts.
Hopefully, this article has helped to clarify some lingering issues surrounding the new Wis. Stat. § 802.05, its requirements, its retroactive application, and the minimal case law on point. Assuming many will consider this work to border on frivolous, please provide 21 days of notice before contacting my editor and friend, Kevin Ferguson.