Lawmakers, judges, and lawyers have all struggled with finding the appropriate balance between the concept of liberal discovery, designed to ensure that each party can secure the best facts to support its positions, and the rising cost of litigation, much of which is spent on discovery, especially of electronic information.
With the chief stated aim of making litigation in Wisconsin courts less expensive, in 2018 the Wisconsin Legislature established new rules that dramatically alter Wisconsin civil procedure. The rules, enacted in 2017 Wis. Act 235 (the Act),1 will undoubtedly affect the balance between the pursuit of a case’s merits in discovery and the expense of that pursuit. The Act also reduces the statutory limitations or repose periods for several causes of action, addresses third-party litigation funding, and reduces the interest rate on overdue insurance payments, among other revisions to Wisconsin law. All civil litigants in Wisconsin courts need to be aware of these important changes.
The Act’s Unusual History
Normally, the Wisconsin Supreme Court proposes new rules of civil procedure, through a deliberative process that includes the Wisconsin Judicial Council, which is a body of judges, legislators, lawyers, and academics that studies and advises the supreme court concerning rule changes and civil practice. After receiving advice from the Judicial Council, the supreme court is required to hold a public hearing before changes are approved and to delay implementation to give lawyers and judges time to absorb the new changes.
In a significant departure from standard practice, the legislature exercised its powers under Wis. Stat. section 751.12 to implement the changes directly, without consulting or involving the Wisconsin Supreme Court or the Judicial Council. While the Act was supported by several local and national business and advocacy groups, legal groups objected to the legislature’s decision to make sweeping changes to Wisconsin procedural law without using the traditional rule-making process.
New Discovery Rules
The Act addresses several unrelated subject areas, but most of its provisions amend the Wisconsin Rules of Civil Procedure. Many of the changes mirror the 2015 amendments to the Federal Rules of Civil Procedure (the Federal Rules).
New Proportionality Standard. Most importantly, the Act adopts the proportionality standard from the 2015 Federal Rules amendments. Under the Federal Rules and now Wisconsin law, parties may obtain discovery regarding nonprivileged matters that are relevant to any party’s claims or defenses and proportional to the needs of the case, considering:
The importance of the issues at stake in the action;
The amount in controversy;
The parties’ relative access to relevant information;
The parties’ resources;
The importance of the discovery in resolving the issues; and
Whether the burden or expense of the proposed discovery outweighs its likely benefit.2
Although the material or information sought must be both relevant and proportional, it need not be admissible in evidence to be discoverable.3
Ryan M. Billings, Harvard 2004, is a shareholder at Kohner, Mann & Kailas S.C., in Milwaukee, focusing his practice on complex litigation and alternative dispute resolution for business clients in numerous areas, including class actions, securities, antitrust, trade secret, and restrictive covenant law.
Robert L. Gegios, U.W. 1981, is a shareholder at Kohner, Mann & Kailas S.C., focusing his practice in business, commercial and complex litigation, as well as counseling in a wide range of areas that includes antitrust and trade regulation.
Melinda A. Bialzik, Harvard 1999, is a shareholder at Kohner, Mann & Kailas S.C., focusing on commercial litigation.
Adopting a proportionality standard as part of the scope of discovery4 was one of the key aspects of the 2015 amendments to the Federal Rules, which grew out of the Duke Conference, a gathering of judges, lawyers, and professors in 2010 to consider revisions to the Federal Rules. Participants noted that the costs of discovery in civil litigation are often out of proportion to the issues at stake, resulting in meritorious cases not being filed, being settled prematurely, or being pursued in alternative dispute vehicles such as arbitration.5
Although many participants expressed concern that the concept of proportionality would ultimately favor defendants, the Advisory Committee on the Federal Rules ultimately concluded that, with careful specification of the factors to be considered when evaluating proportionality, the rule changes would, on balance, lower the cost of litigation and improve federal practice.6 Wisconsin courts will have the benefit of the early federal experience in interpreting this new standard.
Other Changes Adopting the 2015 Federal Rules Amendments. The Act also follows the 2015 Federal Rules amendments by including provisions making explicit that: 1) it is the obligation of both the court and the parties to ensure the just, speedy, and inexpensive determination of actions;7 2) a court in response to a motion for a protective order may allocate expenses for producing the discovery in question;8 3) objections to document requests must be stated with specificity; and 4) copies of the requested documents must either be produced with the written responses to document requests or at a reasonable time thereafter that is specified in the written responses.9
Notable 2015 Federal Rules Amendments Not Adopted. Significantly, the Act does not adopt the 2015 amendments to Federal Rule 37, which changed the potential penalties for failing to preserve electronically stored information (ESI) and the procedure and required showings for challenging a party’s failure to preserve ESI.10
The Act also does not include the 2015 changes to Federal Rule 16, governing initial scheduling conferences and encouraging federal judges to have “sustained, active, hands-on judicial case management.”11 Proponents of the 2015 Federal Rules amendments argued that the discovery changes would work in tandem, with early, active case management facilitating productive discussions between court and counsel about proportionate discovery, helping shape the course of litigation.12 It is unclear how well Wisconsin’s limited adoption of the 2015 Federal Rules will work without the active case management the federal courts employ.
Changes that Adopt Pre-2015 Federal Rules. The Act also adopts language from certain pre-2015 amendments to the Federal Rules, including allowing the parties to stipulate to the sequence and timing of discovery methods, providing a general cap (unless stipulated or otherwise ordered) on the number of depositions in a case to 10 per side (with each deposition limited to seven hours), and limiting the number of interrogatories each party may serve to 25.13 However, the Act breaks from the Federal Rules in providing that the number of depositions and interrogatories must also be a “reasonable number,” imposing an additional restriction on the number of depositions and interrogatories.14
Like the pre-2015 Federal Rules, the Act also now makes explicit that the failure to produce copies of documents in response to a document request is sanctionable. Previously, only failing to make or agree to make documents available for inspection was expressly sanctionable under Wis. Stat. section 804.12. Given that production of copies is far more common than inspection, the Act clarifies that a failure to produce is also sanctionable.15
While the Act was supported by several local and national business and advocacy groups, legal groups objected to the legislature’s decision to make sweeping changes to Wisconsin procedural law without using the traditional rule-making process.
Automatic Stay of Discovery After Pleadings Motions. The Act provides that the filing of a motion to dismiss, for judgment on the pleadings, or for a more definite statement automatically stays all discovery until the sooner of 180 days after filing of the motion or the date the motion is decided.16 A party may move the court on good cause for particular discovery during this stay.17 This stay is a mandatory restriction on discovery not found in the current Federal Rules.
Limiting Cumulative or Duplicate Discovery and Cost-benefit Considerations. The Act further provides that the court, on motion, “shall” limit the frequency or extent of discovery if any of the following are true: 1) the discovery is cumulative or duplicative; 2) it can be obtained from another source that is more convenient, less burdensome, or less expensive; 3) the burden or expense of the proposed discovery outweighs the likely benefit; or 4) the burden or expense of the proposed discovery is not proportional to the needs of the case (listing a set of factors relevant to proportionality that is comparable, but not identical, to the proportionality factors outlining the scope of discovery).18
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This language is similar to the language of Federal Rule 26 (and even closer to the pre-2015 version of that Rule), but with significant differences. Federal Rule 26 provides that the court must limit discovery if it is unreasonably cumulative or duplicative. The Act removes the word “unreasonably,” raising the possible interpretation that any cumulative or duplicative discovery is prohibited, even if there are compelling reasons, such as credibility determinations, for seeking overlapping evidence on some issues.
More importantly, the Act provides that the court “shall” limit discovery if the burden or expense of providing the discovery outweighs its likely benefit, or if the discovery is not proportional to the needs of the case. Under Federal Rule 26, likely benefit is considered in conjunction with the other proportionality factors, not as a separate test. Thus, unlike the Federal Rules, the Act requires a court to perform an independent weighing of cost versus benefit, divorced from all other issues. If the discovery sought does not pass this test, the court “shall” limit it.
The Federal Rules have never imposed that additional test, and it may be difficult for the requesting party to establish, standing alone, that the likely benefit of evidence it has never seen will outweigh its costs. To that extent, this test may skew in favor of limiting discovery, to the prejudice of any party needing additional evidence to support its claims or defenses.
The Act provides that the court “shall” limit discovery if the burden or expense of providing the discovery outweighs its likely benefit, or if the discovery is not proportional to the needs of the case.
Moreover, in the 2015 amendments to the Federal Rules, “likely benefit” is the last of the proportionality factors (which are listed in order of importance).19 By making likely benefit versus cost and expense an independent test for whether material or information is discoverable, the Act imposes a new restrictive standard not found in the Federal Rules.
The new language also creates a curious asymmetry in the Wisconsin Rules of Civil Procedure. To be within the scope of discovery, the material or information sought must be proportional to the needs of the case, with “likely benefit” being only one of many other factors to consider in evaluating proportionality.20 However, if a discovery request is challenged by motion, the court “shall” limit the discovery if the burden or expense outweighs likely benefit, irrespective of any other proportionality factor (such as importance of the issues, relative access to information, amount in controversy, etc.).21
The legislative history does not explain why the Act creates this discrepancy, or why the Act does not simply (like the current Federal Rules) cite to the proportionality standard defined earlier in establishing the scope of discovery.22 Courts will have to resolve these and other uncertainties created by inconsistencies in the Act’s language.
New Restrictions on Scope of Document Requests. Also breaking with the Federal Rules, the Act provides that document requests shall be limited, unless modified by stipulation or court order, to a reasonable time period, not to extend more than five years before accrual of the cause of action.23 With a limited carve-out for health care, vocational, educational, or similar records, the five-year period is now a general hard cap for discovery.24
The Making of Civil Rules
Like Congress in the federal Rules Enabling Act, the Wisconsin Legislature has delegated to the Wisconsin Supreme Court the power to promulgate rules to regulate pleading, practice and procedure in state courts.41 Such rules may not abridge, enlarge, or modify the substantive rights of any litigant. Before a rule is implemented, the supreme court is required to provide notice of and hold public hearings. It also receives advice and assistance from the Judicial Council, a body of judges, legislators, lawyers, and academics created by Wisconsin law to observe, study, and make recommendations to the supreme court concerning procedures and operation of Wisconsin courts.42 Once enacted, the rules become part of the Wisconsin Statutes – the official compilation of Wisconsin laws. Most statutes in Wis. Stat. chapters 799-809 were promulgated by the supreme court.
The legislature has reserved the right to enact, modify, or repeal any rule relating to judicial procedure. Here, the legislature chose to enact the new rules directly, without involving the supreme court or Judicial Council or employing the hearing procedure required for rule-making through the supreme court.
New Limitations on Electronic Discovery
Perhaps most notably, the Act provides that, absent a showing of substantial need and good cause, ESI is not discoverable if it:
Cannot be retrieved without substantial additional programming or transferring it to another form before search or retrieval;
Is backup data that is substantially duplicative of more accessible data;
Is legacy data from obsolete systems; or
Is data that is not available in the ordinary course to the producing party and is not reasonably accessible because of burden or cost.25
The Act specifies that the initial burden of showing that the ESI is not reasonably accessible is on the producing party. If that burden is met, the court may order the discovery to be produced only if the requesting party shows both good cause and that the discovery meets the standards outlined above to withstand a motion for a protective order.26
This language has some similarity to the current Federal Rule 26, which relieves a party of the obligation of providing ESI, absent good cause, if it is not reasonably accessible because of undue burden or cost.27 However, the Act’s rule requires good cause and substantial need, and on motion, requires showing both good cause and that the discovery passes the new standards outlined above for surviving a motion for a protective order (including the stand-alone likely-benefit-versus-cost test).28 In addition, the Act’s list of particular ESI that is not discoverable (legacy, backup data, and so on) has no counterpart in the Federal Rules and may place evidence admissible on a showing of good cause in the federal courts outside the reach of discovery in Wisconsin state courts.
The original bill also provided that, absent a court order on good cause and substantial need, a party need not even preserve these kinds of ESI. However, Sen. Van Wanggaard, chair of the Senate Judiciary Committee, successfully introduced an amendment to remove it from the final bill. Thus, while parties’ preservation obligations are unchanged by this provision, their production burdens have been significantly altered. Courts will have to grapple with the ESI production rules under the Act, which are significantly different from their counterpart in the Federal Rules. As nearly all parties use ESI, and electronic evidence has played an increasingly dominant role, especially in business litigation, this change could prove highly significant.
Key Changes in Act 235
The changes summarized below are the most significant ones made by 2017 Wis. Act 235:
Provides for an automatic discovery stay when a motion to dismiss, for judgment on the pleadings, or for a more definite statement is filed.
Requires discovery to be proportional to the needs of the case, and imposes new standards for limiting cumulative, costly, or disproportional discovery.
Limits electronic discovery of data or information that is difficult or expensive to access.
Restricts the number per side of depositions and interrogatories, and bars discovery of most records dating more than five years before accrual of the cause of action.
Requires that parties responding to document requests either produce the documents with the responses or specify in the responses a reasonable time when they will be produced.
Mandates disclosure of third-party litigation funding.
Allows automatic appeals of class certification decisions.
Shortens the statute of limitation for statutory claims, fraud, and injury to character to three years, and the period to bring injury claims related to construction to seven years after completion.
Amendment to Statutes of Limitation and Repose Periods
The Act also shortens the statutes of limitation and repose for many causes of action. It reduces the limitations period from six years to three for 1) all statutory claims (unless otherwise specified in the statute); 2) fraud; 3) injury to the character or rights of another person; and 4) certain claims by franchised motor vehicle dealers.29
In addition, the Act shortens the period for bringing an action for injury suffered due to improvement to real property from 10 years to seven. Similarly, while Wisconsin law previously provided that injury suffered between the eighth and 10th years after construction extended the time to bring a claim by three years, now the injury must be suffered in years five to seven after completion to trigger that extension.30
Third-party Litigation Funding and Other Changes
Through a provision that has garnered national attention,31 the Act mandates disclosure (without any request) of any agreement under which any person or entity (other than an attorney under a contingent fee agreement) has a right to receive compensation that is contingent on and sourced from any proceeds of the action (through settlement, judgment, or otherwise). This part of the Act, championed by the U.S. Institute for Legal Reform (ILR) (an affiliate of the U.S. Chamber of Commerce), is designed to expose third-party litigation funding. According to the ILR, hedge funds have been investing in lawsuits on a worldwide basis, creating a $100 billion industry, and raising concerns that litigation will increase in volume or longevity because of financial speculation.32
The Act’s list of particular ESI that is not discoverable (legacy, backup data, and so on) has no counterpart in the Federal Rules, and may place evidence admissible on a showing of good cause in the federal courts outside the reach of discovery in Wisconsin state courts.
Wisconsin has become the first state in the United States to pass legislation on this issue. Interestingly, national supporters of regulating third-party litigation funding chose Wisconsin to be first, not because Wisconsin has any documented or reported problems with third-party litigation funding, but because they perceived a willingness on the part of Wisconsin lawmakers to pass such legislation.33 The ILR has been trying for some time to gain support for amendment to the Federal Rules to address third-party litigation funding,34 but the Act is its first legislative success on this issue. Time will tell whether this becomes a broader trend.
The Act also makes several other changes to Wisconsin law. They include appeals as of right of class certification decisions (and staying all proceedings except settlement during such appeals),35 reducing the interest rate on overdue payments by insurers from 12 to 7.5 percent,36 and restricting the Secretary of Revenue’s power to retain third parties on a contingent basis to audit records under the Uniform Unclaimed Property Act.37
The effective date for most provisions in the Act is April 5, 2018, with certain exceptions. The third-party audit rules first apply to contracts or agreements entered into, renewed or modified after April 5, 2018.38 The class action changes take effect on July 1, 2018, to dovetail with the Wisconsin Supreme Court’s recent amendments to class action procedure.39 The discovery rules (except for the change to the scope of discovery to incorporate the proportionality standard, which has an effective date of April 5)40 first apply to actions filed on or after July 1, 2018.
The Act brings sweeping changes to Wisconsin civil litigation, most notably to the Rules of Civil Procedure. Lawyers should develop familiarity with the new proportionality standard and the developing body of federal cases interpreting that standard. Courts should expect to see motions concerning whether ESI is reasonably available, and objections to discovery based on whether the likely benefit of discovery sought exceeds its cost and expense. Whether the Act successfully lowers litigation costs, or instead adversely affects meritorious claims, remains to be seen, but there is every expectation that litigants and courts will face a myriad of uncertainties and challenges as they litigate under the new rules.
Meet Our Contributors
What has been your oddest experience in a legal context?
Two equally unsettling (and now fondly remembered) experiences stand out:
Our client terminated a distributor in Texas, leading to huge lawsuits both in Wisconsin and Texas. In our first encounters with the multimillionaire owner in his small Texas oil town, he photographed us, told us he knew the hotel rooms in which we were staying, proceeded (in LBJ fashion) to show us his scar from recent open-heart surgery, and (as was his practice) filled up a Coke bottle with spit from his chewing tobacco. His counsel later threw a rulebook at me when I made a record in deposition that the owner was not sufficiently prepared to testify as designee for his corporations!
In another bet-the-company case involving two international competitors with Dutch ties, we traveled to a tiny Netherlands town to inspect evidence at the opposition’s headquarters. We strongly suspected our conference room was bugged, and we were concerned our movements were being monitored around the area, including at our hotel. (We believed we had been followed before when in the Netherlands, and, in true American fashion, had once even tried to approach a person we thought was watching us before he sped away.)
We decided to sneak out of the headquarters, return to our hotel, check out, and rush off. We ended up far away in a centuries-old university town filled with one-lane streets. We mistakenly traveled down one of those busy streets the wrong way, thus effectively eluding (if we had not already) any tail. We then stopped at a small, out-of-the-way hotel long ago used to house military officers and pronounced our thrilling, suspenseful effort a success!
Robert L. Gegios, Kohner, Mann & Kailas S.C., Milwaukee.
What do you know now about practicing law that you wish you’d known when you were just starting out?
That nobody knows everything. What I’ve found after many years of practice is that you never stop learning. There is always something new to consider and a novel way to look at a situation. For instance, there have been statutes that I have read a hundred times, but when reading them again in the context of a particular matter, I saw something different, a new take on a word or phrase that could significantly change interpretation. The day I lose the willingness or flexibility to change my outlook or add nuance to “settled” issues, I’ll know it’s time to retire.
That said, if I had the opportunity to tell this to a younger version of myself, I wouldn’t do so. The belief that more seasoned attorneys knew more than I did fueled me to over-prepare, to approach cases with the mindset that we started the game down 20 points and needed to catch up, and to do everything in my power to ensure that when I stood up in court, I knew more about my case than anybody else in the room. Although I’m far past those days, the discipline I developed in my early career still helps me be a better lawyer. I’d like to make it easier for younger me, as the first few years of practicing law can be daunting, but I know that the struggle back then made me the attorney I am today.
Ryan M. Billings, Kohner, Mann & Kailas S.C., Milwaukee.
What’s the most important advice you can give a new lawyer?
Your reputation as an ethical and professional lawyer is more important than any single motion, case, or client. It is easy, especially as a new attorney, to be caught up in wanting to win and get a great result for your client and your firm. Don’t ever let that drive entice you to cut corners, bend ethical rules, or behave rudely or inappropriately. Remember, you didn’t create the facts and you can’t control the outcome, you can only advocate for your client based on the facts that exist.
You have a long career ahead of you, and as important as every matter feels in the moment, nothing is as important long term as being trusted in the legal community. You want to walk into every court room and every negotiation with the credibility that comes with honesty and professionalism, and once that is lost, it can be very difficult to regain.
Melinda A. Bialzik, Kohner, Mann & Kailas S.C., Milwaukee.
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1 https://docs.legis.wisconsin.gov/2017/related/acts/235. The Act’s legislative history can be found at http://docs.legis.wisconsin.gov/2017/proposals/reg/asm/bill/ab773.
2 Wis. Stat. § 804.01(2)(a) (adopting the 2015 amendments to Fed. R. Civ. P. 26(b)(1)).
4 The concept of proportionality was first introduced in 1983 amendments to the Federal Rules and has existed since then in separate provisions of the Federal Rules. Wisconsin, however, has not previously included this standard in its civil rules.
5 See Proposed Amendments to the Federal Rules of Civil Procedure, Memorandum to Standing Committee on Rules of Practice and Procedure from Advisory Committee on Federal Rules of Civil Procedure (June 14, 2014), at B-5.
6 Wis. Stat. § 804.01 (adopting 2015 amendments to Fed. R. Civ. P. 1).
7 Wis. Stat. § 804.01(3) (adopting 2015 amendments to Fed. R. Civ. P. 26(c)(1)(B)).
8 Wis. Stat. § 804.09(2)(b)1. (adopting 2015 amendments to Fed. R. Civ. P. 34(b)(2)(B)).
9 See Fed. R. Civ. P. 37(e).
10 See Proposed Amendments, supra note 5, at B-2 to B-3.
11 Id., at B-5 to B-6.
12 Id. at B-14.
13 Wis. Stat. §§ 804.045 (adopting language from Fed. R. Civ. P. 30(a)(2)(i)), 804.08(1)(am) (adopting language from Fed. R. Civ. P. 33(a)(1)).
14 See id. As the State Bar of Wisconsin’s Litigation Section pointed out, the restriction to 25 interrogatories has less significance in the Federal Rules, because they require significant mandatory initial disclosures, which provide much of the information that would otherwise be sought through interrogatories. Wisconsin has no such mandatory initial disclosures. Moreover, the local rules of certain counties (for example, Milwaukee) already limit the number of interrogatories to 25 but provide that interrogatories seeking the identity of witnesses or documents do not count toward the total. The Act does not adopt this exception.
15 Wis. Stat. § 804.12(1)(a) (adopting language from Fed. R. Civ. P. 37(a)(3)(B)(iv)).
16 Wis. Stat. § 802.06(1)(b).
18 Wis. Stat. § 804.01(2)(am).
19 See Proposed Amendments, supra note 5, at B-8.
20 Wis. Stat. § 804.01(2)(a).
21 Wis. Stat. § 804.01(2)(am)(2).
22 Another uncertainty is the fact that the 2015 federal amendments added “the parties’ relative access to information” as a proportionality factor, to address the fact that in many cases, one side holds a greater amount of relevant information and documents than the other. See Proposed Amendments, supra note 5, at B-8. The Act adopts the pre-2015 proportionality standards from the Federal Rules (which did not include this factor) in the section addressing motions to limit discovery. Yet, in defining the scope of discovery, the Act includes “the parties’ relative access to information” as a factor to consider in evaluating proportionality. Compare Wis. Stat. § 804.01(2)(a) with Wis. Stat. § 804.01(2)(am)2.
23 Wis. Stat. § 804.09(2)(a)3.
25 Wis. Stat. § 804.01(2)(e)1g.
26 Wis. Stat. § 804.01(2)(e)1g.(d).
27 Fed. R. Civ. P. 26(b)(2)(B).
28 It is not clear why the Act does not repeat the requirement of substantial need when specifying the showing the requesting party must make on a motion to compel or for a protective order, once the producing party demonstrates that the discovery is not reasonably accessible.
29 Wis. Stat. §§ 218.0125(7), 218.0126, 893.93(1)(cm), (1m)(intro.), (a)-(b), 895.53.
30 Wis. Stat. §§ 893.891(1), (3)(b).
31 See, e.g., Ben Hancock, Litigation Funding Deals Must Be Disclosed Under Groundbreaking Wisconsin Law, Nat’l L.J. (April 4, 2018).
32 See, e.g., Third Party Litigation Funding.
33 See Ben Hancock, What’s Next: A Groundbreaking Lit Funding Transparency Law, and More Pressure on Big Tech Over Privacy, Law.Com (April 10, 2018).
34 See, e.g., John Freund, US Chamber Pushes for ‘Transparency’ in Litigation Funding, Litigation Fin. J. (Nov. 7, 2017).
35 Wis. Stat. § 803.08(11)(a)-(b). This too is a break from the Federal Rules, which provide for permissive appeal, and no automatic stay. See also Michael D. Leffel, Elizabeth A.N. Haas & Aaron R. Wegrzyn, A Primer: Wisconsin’s New Class Action Statute, 91 Wis. Law. 32 (April 2018) (discussing the Wisconsin Supreme Court’s recent changes to the class certification rules).
36 Wis. Stat. § 628.46(1).
37 Wis. Stat. § 177.30(6)-(7).
38 2017 Wis. Act 235, § 33(1).
39 Id. § 34(1).
40 Id. § 33(2). Why this one provision of the changes is singled out for immediate application is not explained, and it is not clear whether courts will apply this standard to pending cases.
41 Wis. Stat. § 751.12.
42 Wis. Stat. § 758.13.