Wisconsin Business and Commercial Litigation

In Radley v. Ives (Oct. 20, 2011), the Wisconsin Court of Appeals wrestled with the costs statute, Wis. Stat. 814.01.  In this medical malpractice case, William Radley was hospitalized following a heart attack.  While his discharging physician recommended daily anticoagulant tests, a ThedaCare physican at the Veterans Home where Radley moved determined daily anticoagulant testing was unnecessary.  Radley died of excessive blood loss two days after the first anticoagulant test was performed. 

ThedaCare stipulated that its negligence in monitoring Radely’s anticoagulants were a substantial factor in causing his death, and that, because it was responsible for about $10,000 in funeral expenses, the court could answer the funeral expenses question on the jury verdict.  A trial was held regarding pre-death pain and suffering caused by ThedaCare, in which the jury awarded no damages. 

Following the trial, the plaintiff submitted a bill of costs pursuant to Wis. Stat. 814.01(1).  Over ThedaCare’s objections, the trial court awarded costs to the plaintiff.  The appellate court agreed with the trial court, reasoning:

 Based upon the plain language of Wis. Stat. § 814.01(1) and Hartwig’s interpretation of “recovery” in an early version of the statute, we conclude that a plaintiff obtains a “recovery” and is entitled to statutory expenses under § 814.01(1) when litigation results in a court judgment awarding a recovery. A prevailing plaintiff for purposes of § 814.01(1) is a plaintiff who is awarded a recovery in a judgment, not, as ThedaCare incorrectly suggests, a plaintiff who obtains a recovery as a result of a recovery dispute resolved by a trial.

The lesson here is that when settling and permitting a judgment to be taken, be aware that the rule in Wisconsin is that costs will be awarded unless the parties agree differently. 

Dr. Tom photo courtesy aue04117’s photostream via this license.

Many of you will remember the 2000 Milwaukee e. coli outbreak that occurred at a local Sizzler restaurant.  After defending Sizzler, the franchisor of the restaurant, in the Kriefall e. coli poisoning case, my firm was also retained to represent Sizzler in the appeal of a jury verdict finding that Excel, the company supplying meat to Sizzler and its franchisees, was the cause of the outbreak.  The jury also found that Sizzler had suffered approximately $7.161 million in lost profits, expenses, and lost franchise royalties as a result of Excel’s provision of contaminated meat.  The basis for liability was Excel’s breach of the implied warranty of merchantability under the Wisconsin Uniform Commercial Code (the trial court previously dismissed, on summary judgment, the express warranty claim). 

Excel appealed the verdict, and Sizzler cross appealed.  Sizzler sought to reverse, among other things, the trial court’s decision preventing Sizzler from recovering a $1.5 million advance payment (made in exchange for a $2 million credit against any eventual judgment) made to the Kriefalls, the parents of the child who died as a result of e. coli poisoning.  The District 1 Court of Appeals, in a decision written by Judge Fine, upheld the verdict and reversed the trial court’s advance pay decision, awarding Sizzler another $1.5 million. 

I’ve been working on this case since 2005, when I joined my current firm.  Congrats to my partner Russ Klingaman, and to trial counsel Fred Gordon from San Diego, California, who succesfully tried the case and argued before the court of appeals. 

At issue in the court’s decision is the reading of a contract provision which said “This Guaranty shall not render Seller liable for any incidental or consequential damages of whatsoever nature. . . .”  Excel argued that the exclusion should extend to limit consequential damages arising from breaches of all warranties.  Sizzler, on the other hand, contended that the language of the contract applied the exclusion only to the express warranty, and not to any other warranties.  The appellate court (as did the trial court) agreed with Sizzler:

As the trial court recognized, the phrase in the Continuing Guaranty excluding the right of Sizzler USA Franchise to recover consequential damages is hardly ambiguous and encompasses only the express warranties undertaken by the Continuing Guaranty: “This Guaranty shall not render Seller liable for any incidental or consequential damages of whatsoever nature.” (Emphasis added.) Stated another way, incidental and consequential damages are excluded from those damages that might be recovered if the express warranties in the Continuing Guaranty were breached. Excel argues that the Continuing Guaranty’s consequential-damages exclusion should apply to the implied warranties under the Uniform Commercial Code because, as Excel writes in its main appellate brief, the exclusion represents the parties’ “bargained for allocation of risk.” (Capitalization omitted.) The parties specifically limited their “allocation of risk” in connection with consequential damages, however, to the express warranties agreed-to in the Continuing Guaranty.

The court’s decision is much more detailed and both well-reasoned and well-written.  For those of you whose practice includes the UCC, it’s a must read, particularly the court’s reasoning relating to damages limitations and its analysis of the intersections between UCC 2-719 and 2-316.

The case law, although there is not much of it, indicates that offers of judgment inclusive of costs are acceptable.

When an offer-of-settlement provision is implicated, as it is here, costs are added to any settlement, unless the terms of the settlement provide otherwise. Alberte v. Anew Health Care Serv., Inc., 2004 WI App 146, ¶6, 275 Wis.2d 571, 685 N.W.2d 614.  That case cites Marek v. Chesny, 473 U.S. 1, 6, 105 S.Ct. 3012, 87 L.Ed.2d 1 (1985), for the proposition that cost-inclusive offers are legitimate within the bounds of the statute:

If an offer recites that costs are included or specifies an amount for costs, and the plaintiff accepts the offer, the judgment will necessarily include costs; if the offer does not state that costs are included and an amount for costs is not specified, the court will be obliged by the terms of the Rule to include in its judgment an additional amount which in its discretion, it determines to be sufficient to cover the costs. In either case, however, the offer has allowed judgment to be entered against the defendant both for damages caused by the challenged conduct and for costs.

The Marek case analyzes the federal counterpart to Wis. Stat. §807.01, Fed. R. Civ. P. 68.

FRCP 68 is the Federal Rules’ equivalent of Wis. Stat. § 807.01(1), and is descended from the same New York statute from which 807.01 traces its lineage.  DeWitt Ross & Stevens, S.C. v. Galaxy Gaming and Racing Limited Partnership, 2004 WI 92, ¶35, 273 Wis.2d 577, 682 N.W.2d 839; see, e.g., Duello v. Board of Regents of University of Wisconsin System, 220 Wis.2d 554, 570, 583 N.W.2d 863 (Ct. App. 1998)(noting the similarity between FRCP 68 and Wis. Stat. §807.01 and finding it appropriate for Wisconsin courts to apply the state rule to federal claims); Donaldson v. West Bend Mut. Ins. Co., 2009 WI App 134, n. 9, 773 N.W.2d 470 (“When a state statute mirrors federal law, we may look to federal cases for guidance in interpreting the state statute.”)

I feel somewhat guilty that between the holidays and a recent crush of work, I’ve been unable to meaningfully post something for a while.  So here’s a pretty lengthy discussion of offers of judgment and plaintiffs who seek to have a court construe the offer before the plaintiff decides to accept or reject it.

Like many defense lawyers, I occasionally make offers of judgment under Wis. Stat. 807.01. The upside, while minor, is that the costs that are awarded to the prevailing party is shifted by the making (and subsequent rejection) of the offer. Also like many defense lawyers, my offers typically include a total amount offered for judgment. That is, judgment is offered in a given amount, including whatever potential costs are outstanding at the time. I might make an offer of judgment “in the total amount of Fifty Thousand and 00/00 Dollars ($50,000.00). Such amount includes all costs and fees.”

The plain language of the offer (in the total amount of Fifty Thousand,” “Such amount includes all costs and fees) specifically includes costs in the total amount of the offered judgment. A cost-inclusive offer makes sense, in that it sets the potential liability for the offering defendants at a specific number, rather than leaving an open-ended addition (costs) that the offering defendants have no way of accurately estimating before making the offer.  More in my next post on authority regarding the enforceability of cost-inclusive offers of judgment.

Plaintiffs, on the other hand, are fully capable of determining what their costs are, and can make a reasoned judgment to accept or reject the offer. Hadrian v. State Farm Mut. Auto. Ins. Co., 2008 WI App 188, ¶8, 315 Wis.2d 529, 763 N.W.2d 215 (party to whom offer is made must be able “to fully and fairly evaluate the offer from his or her own independent perspective.”)

Recently, I had a plaintiff ask the court to “construe” the offer (although the plaintiff had not yet accepted or rejected the offer), arguing that because the language of the statute contains the phrase “with costs,” that the offer does not comply with the statute. Attorneys are free to hold that opinion, and ignore or reject the offer for costs.  If their interpretation is accurate, they will suffer no ill effects, regardless of whether they recover more or less than the offer.  

Some plaintiffs may argue, despite their ability to understand the terms of the offer and simply ignore or reject the offer, that an offer specifically including the costs in the total amount offered, should be transformed by the court into an offer they believe comports with the language of the statute (that is, fifty thousand plus whatever accrued costs are at the time of the offer). 

There are multiple problems with this approach. First, it demands that the require the defendants to offer more to settle the matter than they intended to offer, or did offer. If the defendants intended to offer to settle the matter for $50,000 plus whatever unknown costs the plaintiffs have incurred, the defendants could make that offer. Second, I’ve never seen any authority that the court has the ability to unilaterally alter the terms of an unaccepted offer of judgment.

In fact, it is likely this issue, unless the plaintiff has either accepted or rejected the offer, is not ripe for consideration.  Among other reasons, the offer remains susceptible to revocation. until it’s accepted or time runs out.  See, e.g., Sonnenburg v. Grohskopf, 144 Wis.2d 62, 65-66, 422 N.W.2d 925 (Ct. App. 1988)(offers under Wis. Stat. §807.01(3) revocable at any time prior to acceptance); See, e.g., DeWitt Ross & Stevens, S.C. v. Galaxy Gaming and Racing Limited Partnership, 2004 WI 92, ¶39, 273 Wis.2d 577, 682 N.W.2d 839 (“If Wis. Stat. § 807.01 is to fulfill its purpose, litigants must have clear guidance about the proper scope of a valid offer.  A clear rule will help parties draft valid offers and assess their potential exposure to costs and prejudgment interest. Moreover, it will expedite dispute settlement by minimizing the need for post-trial litigation about rejected settlement offers. We further note that Wis. Stat. § 807.01(1) and 807.01(3) provides: “If notice of acceptance is not given, the offer cannot be given as evidence nor mentioned on the trial . . . .” A clear rule is therefore uniquely appropriate here because the parties may not obtain a ruling on the validity of the offer during trial.)

Plaintiffs who seek a court determination of the viability of the offer (or, for whatever reason, a judicial re-writing) of the offer before they make their decision to accept or reject the offer, oppose the goals of the statute.  If plaintiffs wish to reject a cost-inclusive offer, and recover less than the offer, they are free to argue to the court at that time that the offer does not comport with the statute. On the other hand, if the plaintiffs wish to accept the offer as it’s been presented, they can also do that, and then argue to the court that it should enter costs in addition, despite the language of the offer document.  

If a court accepts a motion ceeking a “construction” of the offer before the offer is accepted or rejected, the court removes the risk of rejecting the offer from the plaintiffs. This action opposes the purpose of the statute, which is to encourage settlement by increasing the downside of losing at trial.

Recently, I was reminded of the reasons that outside litigation counsel are an important addition to the legal services provided for an organization.  Like in-house counsel become adept at the many facets of contract and transactional practice, litigators, by virtue of experience, repetition, and volume, learn to identify potential problems in the litigation process and avoid them.  This is one reason, among others, that I believe litigation counsel should be the only contact with the opposing party until the litigation is completely concluded.

Even the negotiation of settlements can create problems for those who do not hammer out such agreements on a recurring basis.  In-house counsel (for those you who are reading this, I except you from this rank speculation) can forget that plaintiffs’ lawyers, unless you include in the original discussion something as simple as confidentiality, may demand additional compensation for adding a confidentiality provision later on.  Neglecting to negotiate this in the originally-agreed upon settlement package can needlessly increase the cost of the settlement.

You shouldn’t hire someone that you don’t trust to handle litigation.  Litigators expect, and we desire, that the client will have the final say on all matters important to a lawsuit, and particularly settlement terms.  But we also expect, and can serve you best, if you leave the communication with opposing parties entirely to us.