President’s Column: A Call to Action

WDC Journal Edition: Winter 2009
By: Catherine M. Rottier, President, Wisconsin Defense Counsel

It’s time to do something about Wisconsin’s draconian default judgment rules. If we are really concerned about the maintenance of an equitable system of civil litigation, as our mission statement proclaims, then we should be leading the charge on this important issue of civil justice. Other organizations, including the State Bar Litigation Section, business groups, and even the plaintiffs’ bar association itself, may have an interest in helping us fix what has gone seriously wrong with respect to default judgments in this state.

Here is the problem. Numerous Wisconsin cases echo the sentiment that the law views default judgments with disfavor and prefers, whenever reasonably possible, to afford litigants a day in court and a trial on the issues.[1] While that sentiment sounds good, it frequently does not carry the day. Ever since the decision in Hedtcke v. Sentry Insurance Co.,[2] was issued 27 years ago, trial courts have felt constrained to grant default judgments unless the defaulting party can prove that its failure to file a timely answer was due to “excusable neglect.”

The standard for what constitutes excusable neglect has gotten even more difficult to meet. For example, in a recent unpublished appellate opinion[3], the court upheld a default judgment because, even though the service stamp on the summons and complaint was obscured, and even though the defendant company recorded the wrong date of service based on that stamp, it was not excusable to rely on the presumed date of service in calculating the answer deadline. A default judgment was therefore entered and affirmed for a five-day delay in getting the answer filed. Similarly, in Dugenske v. Dugenske, the court upheld a trial court’s conclusion that misplacing the complaint during an attorney’s wholesale move from one office location to another was so inexcusable that default judgment was warranted.[4]

Recent headlines provide another stunning example of the punitive character of Wisconsin’s default judgment rules. In a lawsuit currently pending in Jefferson County[5], a default judgment had been entered against defendant PepsiCo, Inc. According to published reports, the default judgment was in the staggering amount of $1.26 billion. On November 6, 2009, that result was reconsidered and, thankfully, reversed. Nonetheless, the fact that Wisconsin law might permit such an out-sized punishment for a clerical error should focus everyone’s attention on this problem.

Two other recent default judgment cases are worth noting. The first is Estate of Otto v. Physicians Ins. Co.,[6] a medical malpractice case in which a defendant insurer, added to the lawsuit by an amended complaint, was found in default and liable for all damages, even though the individual insured defendants had timely answered and were vigorously contesting plaintiff’s claims. The failure to file a timely separate answer on behalf of the newly-added defendant was enough to cause all liability to fall to that defendant.

The second case is Holliday v. Arch Insurance Company.[7] Here, a default judgment was entered against an excess insurer that tried to establish excusable neglect by citing a clerical error resulting in the misrouting of the second amended complaint and consequentially, a delay in filing an answer. Neither the trial court nor the appellate court was moved by Arch’s clerical problems. And the fact that Arch had a meritorious defense was of no concern. The court specifically noted that the existence of a meritorious defense has no bearing on whether the neglect was excusable and is insufficient by itself to entitle a defaulting party to relief from judgment.[8]

As these cases prove, Wisconsin law is singularly unforgiving when it comes to a defendant who fails to file a timely answer to a complaint or an amended complaint. The effect of a clerical mistake can be a multi-million dollar judgment. If you are the defense attorney whose office made the mistake, the result can be a multi-million dollar legal malpractice claim. If you are a defendant with a meritorious defense filing a responsive pleading one day late, you may be completely out of luck, despite abundant case law stating that Wisconsin law prefers to give litigants their day in court.

The harshness of the default judgment rules, which bring the hammer down only on defendants and never on plaintiffs,[9] should be contrasted with Wisconsin’s approach to bad behavior in other contexts. On the one hand, a clerical error becomes the justification for a multi-million dollar default judgment. On the other hand, if a litigant files a frivolous pleading, you cannot even bring the matter to the court’s attention until after you have given the opposing party or its attorney a 21-day safe harbor notice.[10] You cannot bring the motion at all if the problem is cured during the safe harbor period. Even if the motion finds its way into court, the court’s ability to issue sanctions is very limited -- nothing even close to a substantial default judgment.

As another example, consider the usual scenario that plays out with motions to compel discovery. Most trial courts in Wisconsin require the parties to confer and consult in an effort to resolve the discovery controversy before bringing a motion to compel. When collegial efforts fail, many courts are still reluctant to issue monetary sanctions, even modest ones, for discovery violations. If counsel are expected to consult and confer to resolve discovery disputes, then why is there no requirement for consultation or notice with respect to the much more serious sanction of a default judgment?

It does not have to be this way. A simple statutory change could maintain the availability of default judgment for plaintiffs, expand that availability to defendants who file counterclaims and cross claims, and condition the availability of a default judgment on proof of the defaulting party’s failure to respond to a ten-day notice of right to cure default.

In making this sort of statutory change, the Wisconsin legislature could borrow from the experience of our neighboring states. For example, in Iowa, a party seeking entry of a default judgment must certify that written notice of intent to file for default was sent by ordinary mail to the last known address of the party claimed to be in default at least ten days before the application is filed. If the party in default is known to be represented by counsel, the notice goes to the attorney.[11] The Iowa legislature has even created a form that can be used for the ten-day notice.[12]

There may be those who believe that parties in default do not deserve the ten-day reprieve provided by an Iowa-style notice. To satisfy those concerns, the Wisconsin legislature could consider including a penalty provision, such as requiring any party taking advantage of the notice period to file not only a responsive pleading, but also to pay $200 to the party put to the trouble of preparing and mailing the right-to-cure-default notice.

Perhaps a monetary sanction of this kind sounds better in theory than it would play out in practice. The point here is not to predetermine the legislative details, but rather to start the conversation in hopes of achieving a more equitable system for default judgments in this state.

Please add your voices to this conversation. Contact your legislators to advise them of our concerns. If you see problems with the Iowa procedure mentioned in this column, suggest a better alternative. Whatever else you do, please get involved in fixing what is so clearly wrong with Wisconsin’s default judgment rules.

[1] Dugenske v. Dugenske, 80 Wis. 2d 64, 68, 257 N.W.2d 865 (1977).

[2] 109 Wis. 2d 461, 326 N.W.2d 727 (1982).

[3]Community Bank & Trust v. Fogel, 2009 Wisc. App. LEXIS 833, __ Wis. 2d __, __N.W.2d __, No.2009 AP 1554-FT, (October 28, 2009) (unpublished).

[4] 80 Wis. 2d at 69.

[5] Case No. 2009-CV-391

[6] 2008 WI 78, 311 Wis. 2d 84, 751 N.W.2d 805.

[7] 2008 WI App. 160, 314 Wis. 2d 506, 758 N.W.2d 224.

[8] Id. ¶ 12.

[9] For further discussion of the unilateral nature of the current default judgment remedy, see the article by Andrew Hebl in this issue of the Journal.

[10] See Wis. Stat. § 802.05(3).

[11] See Iowa R. Civ. P. 1.972 (2009).

[12] See Iowa R. Civ. P. 1.1901, Form 10.