Tag: Wisconsin

Wisconsin Judge Rules that the WDNR Lacks Authority to Regulate PFAS

On April 12, 2022, a Wisconsin judge ruled in the case of Wisconsin Manufacturers & Commerce, Inc. and Leather Rich, Inc. v. WDNR, (Waukesha County Case 2021CV000342) that the WDNR lacks the authority to regulate PFAS chemicals because the Wisconsin Legislature has not established regulatory standards for them. According to the lawsuit, Leather Rich, Inc. entered into a voluntary WDNR environmental cleanup program in 2019, and the following year WDNR indicated that the businesses enrolled in the program were required to test for emerging contaminants, including PFAS. The plaintiffs in the case argued that because the WDNR had created a list of emerging contaminants without any legislative oversight or opportunity for public comment, and had not adopted regulatory standards through administrative rulemaking, the WDNR lacked the authority to require such testing. The judge’s ruling would require the WDNR to wait until legislators have established standards for PFAS through adoption of regulatory limits in state law or through administrative rules. It is estimated that the adoption of standards for PFAS could require 1-2 years. An attorney for the WDNR indicated that the WDNR plans to appeal the decision and file a motion to place the judge’s order on hold.

The WDNR has historically taken the position that the agency has authority under Wisconsin’s “Hazardous Substance Spill Act” (“Spill Act” – Wis. Stats. 292.11) to regulate PFAS even in the absence of established standards, as the Spill Act gives the WDNR broad authority to require testing and remediation of such chemicals. In late February, the WDNR’s Natural Resources Board (NRB)—the entity that sets policy for the WDNR—took steps toward the adoption of statewide standards for two of the most common PFAS compounds, which included an approval to adopt a drinking water standard of 70 parts per trillion (ppt) for two of the most common PFAS compounds; perfluorooctanoic acid (PFOA) and polyfluorooctane sulfonate (PFOS).

PFAS is an acronym for per- and polyfluorolalkyl substances, which are chemicals that were widely used from the 1960s to the early 2000s in the manufacture of a variety of consumer products, such as stain resistant carpets, non-stick cookware (e.g., Teflon), firefighting foam, food packaging (e.g., microwave popcorn bags/pizza boxes), water resistant clothing (e.g., pre-2000 GoreTex), water resistant repellent (e.g., Scotchgard) and dental floss. While the use of PFAS compounds has largely been phased out in the U.S., these compounds are still used in the manufacturing of many products worldwide. These substances, known as “forever chemicals,” have received considerable attention by federal and state environmental regulatory agencies because of their resistance to chemical breakdown due to the chemical bond between carbon and fluorine atoms in the PFAS compounds, which is one of the strongest in nature. Because of this, humans can still be exposed to PFAS long after the chemicals were released into the environment.

The WDNR has identified approximately 90 sites throughout Wisconsin with PFAS contamination, including municipalities such as Madison, Marinette, Peshtigo and Wausau with PFAS-contaminated groundwater.

©2022 von Briesen & Roper, s.c
For more articles about state lawsuits, visit the NLR Litigation section.

Madison Takes ‘Pot’shot at Wisconsin, Joins Growing List of Municipalities to Decriminalize Cannabis

In November 2020, the Common Council for the City of Madison, Wisconsin, passed ordinances decriminalizing the possession and use of small amounts of cannabis or cannabis derivatives within city limits. With those ordinances, which became effective on Friday, December 4, 2020, Madison joins a number of other Wisconsin municipalities that have decriminalized the possession and use of marijuana in some form or fashion. One alderman called the decriminalization long overdue, adding that it was “preposterous and outrageous” that the Wisconsin State Legislature had not moved to legalize and regulate cannabis as have many other states across the country.

According to the “drafter’s analysis” of Section 23.20 of the Madison General Ordinances as amended, an individual 18 years of age or older may possess or consume up to 28 grams of medically prescribed cannabis or cannabis derivatives if he or she “has a prescription for said possession.” The ordinance allows an individual to “consume cannabis or cannabis derivatives on private property with the permission of a person who is lawfully on the property or on public property with the permission of the owner, landlord or tenant.”

The ordinance does not apply to state-owned property, nor does it permit marijuana smoking where cigarette smoking is prohibited by Wisconsin’s ban on indoor smoking.

Unlike some of the marijuana legislation across the country, Madison’s decriminalization rules do not contain specific employment protections. As such, employers can still prohibit employees from possessing, using, and being under the influence of marijuana at worksites in Madison. Further, the possession and use of marijuana is still prohibited by federal law. Thus, although off-duty possession and use of marijuana may be legal at the local level in Madison, it does not entitle the individual to protection from employment discrimination under Wisconsin’s lawful products statute.

Nevertheless, it is possible for issues related to marijuana use to trigger employment law protections. Under the Wisconsin Fair Employment Act (WFEA), for example, individuals convicted of crimes, including drug-related offenses, cannot be excluded from employment on that basis unless the facts and circumstances of their crimes substantially relate to the jobs for which they are employed (or are applying). Further, the WFEA and the Americans with Disabilities Act distinguish between current use of illegal drugs, which is generally not protected, and drug addiction, which is a disability for which discrimination is prohibited and reasonable accommodation can be required.

Madison’s ordinances became effective on the same day that the United States House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019 (H.R. 3884), a historic, but largely symbolic, bill to decriminalize marijuana at the federal level. While the U.S. Senate is not expected to follow suit, the House’s passage of H.R. 3884 is further indication that public sentiment regarding marijuana is changing. Indeed, during the November 2020 election, all six state ballot initiatives to legalize marijuana passed—four for recreational use (Arizona, Montana, New Jersey, and South Dakota), and two for medical use (Mississippi and South Dakota).

Employers may want to monitor these developments at the federal, state, and local levels, and adjust their policies and procedures accordingly.

© 2020, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more articles on cannabis, visit the National Law Review Biotech, Food, Drug section.

WEDC Small Business Grant Programs

Wisconsin Gov. Evers announced a new $75 million grant program for small businesses that will provide $2,500 grants to assist with the costs of business interruption, health and safety improvements, salaries, rent, mortgages, or inventory. The grants will be available to businesses impacted by COVID-19 with 20 or fewer full-time employees who have not already received COVID-19 assistance from the Wisconsin Economic Development Corporation (WEDC).

The grant program will be administered by the WEDC as part of its its “We’re All In” initiative, and will begin taking applications in June. Grant recipients will also commit to using safety protocols for their customers and employees. WEDC will provide additional guidance on the program later this month. The grant program is primarily funded by the federal government through the Coronavirus Aid, Relief, and Economic Security Act (CARES Act).

WEDC has also created the Ethnic Minority Emergency Grant (EMEG) initiative to award grants of $2,000 to ethnic-minority owned businesses with five or fewer full-time employees in the retail, service, or hospitality sectors. Eligible businesses must not have received funds through WEDC’s Small Business 20/20 program, the CARES Act, or the Paycheck Protection Program (PPP). The business must also have started before 2020, and will need to provide proof of being in business as of February 29, 2020.

The EMEG initiative will accept applications from May 18-24, 2020. A total of $2 million will be available to 1,000 Wisconsin micro-businesses. If the applications received exceed the funds available, companies that meet the program criterial will be selected at random. For more information on this program and a link to the application page, please see WEDC’s Minority Business Development page.

©2020 von Briesen & Roper, s.c

For more on small business loans amid the COVID-19 pandemic, see the National Law Review Coronavirus News section.

Wisconsin Supreme Court: “Retroactive Defense” Can Satisfy An Insurer’s Duty to Defend

The Wisconsin Supreme Court has issued numerous decisions over the past few years regarding an insurer’s duty to defend its insured under liability insurance. On February 13, 2020, the Court added Choinsky v. Germantown School District, Case No. 2018AP116, 2020 WI 13, where it clarified one of the four recognized procedures for insurance carriers to contest coverage while avoiding a breach of the duty to defend.  The four procedures are: (1) defend under a reservation of rights; (2) defend under a reservation of rights but seek a declaratory judgment on coverage; (3) enter into a nonwaiver agreement with the insured where the insurer preserves its right to contest coverage; and (4) file a motion to bifurcate and stay the liability determination until coverage is determined.  Choinsky addressed a wrinkle to option 4, where the insurer files the appropriate motions but the circuit court denies the stay.

In Choinsky, retirees of the Germantown School District brought a class action in 2013 after a District decision caused them to lose their long term care benefit.  The retirees alleged breach of contract, breach of implied contract, breach of the duty of good faith and fair dealing, and promissory estoppel.  The District tendered the defense to its insurer, which the insurer denied a week later.  Then, following option 4, the insurer promptly moved to intervene in the pending suit, to bifurcate the coverage and liability issues, and to stay a liability determination until coverage was decided.  Almost three months later, the circuit court granted the motion to intervene and bifurcate, but denied the motion to stay.  The insurer then agreed to retroactively defend from the date of tender until coverage was resolved.  As a result, the District had to defend itself on both coverage and liability for approximately five months and was later reimbursed only for its attorney fees on the liability defense.

After two motions by the insurer for summary judgment were denied, coverage was tried to a jury in April 2016.  The jury found that the District decision makers had acted negligently, and the circuit court accordingly determined that there was a duty to defend.  After the liability trial resulted in a jury verdict in favor of the District, the District moved again for attorney fees it incurred in proving coverage pursuant to Elliott v. Donahue, 169 Wis. 2d 310, 485 N.W.2d 403 (1992), and Newhouse v. Citizens Security Mutual Insurance Co., 176 Wis. 2d 824, 501 N.W.2d 1 (1993).  The circuit court denied that motion, reasoning that since the insurer had followed a judicially-sanctioned approach to the coverage determination, it could not be held liable for breach of contract.  The Court of Appeals affirmed.

The District argued to the Supreme Court that its insurer should be on the hook for the fees the District expended in proving coverage because the insurer initially refused to defend and cannot cure that choice by agreeing to defend six months later.  It further argued that there was a breach since the insurer didn’t start paying defense fees for almost one year after tender.  The Supreme Court held that the insurer had taken “timely” action when it responded to the tender within one week and when the insurer sought to intervene in the liability case.  The Court said that the time it took the circuit court to decide the motion for stay and then the denial of a stay caused the problem, and urged circuit courts to give these issues priority on their dockets.

The Court also concluded that any damage to the District for the insurer’s initial coverage denial was remedied by the insurer reimbursing for attorney fees retroactive to the date of tender, stating that in the situation presented “the insurer must defend its insured under a reservation of rights so that the insured does not have to pay to defend itself on liability and coverage at the same time.  Additionally, the insurer must reimburse its insured for reasonable attorney fees expended on a liability defense, retroactive to the date of tender.” 2020 WI 13, ¶ 19.

In his dissent, Justice Kelly criticized the majority: “I don’t agree, however, that an insurer can buy its way out of its breach of [the duty to defend] by reimbursing its insured for defense costs.” 2020 WI 13, ¶ 47.  He noted that the District did not receive a defense for over 5 months, and he called the retroactive payments a new concept that will incentivize insurers to refuse the duty defend between tender and resolution of coverage issues.  In doing so, the insurer “risks nothing doing so because, in the worst case, it simply pays for the defense it refused to provide.” 2020 WI 13, ¶ 56.

All coverage matters are fact-specific, and time will tell how prophetic Justice Kelly’s warning turns out to be.  The insurer in Choinsky acted in a timely fashion by responding within weeks of tender.  If an insurer takes a longer time to respond, a court might come to a different conclusion.  And while the Supreme Court again “encouraged” all circuit courts to decide motions to bifurcate and stay expeditiously, that is not always possible.  Some motions can, for one reason or another, take longer than in Choinsky and some types of claims really can’t be stayed. Environmental cases, for example, can be triggered by a “responsible party” letter from the Environmental Protection Agency or the Wisconsin Department of Natural Resources.  Johnson Controls, Inc. v. Employers Ins. of Wausau, 2003 WI 108, ¶ 92, 264 Wis. 2d 60, 665 N.W.2d 257.  It is difficult to imagine how an environmental investigation could be stayed while coverage is decided.

For now, under Choinsky it appears acceptable that an insured may be forced to defend itself on two fronts for five months– however there is no set rule and, as a result, could that mean that 10 or even 12 months is acceptable?  What if a dispute then arises over the reasonableness of fees and that dispute lasts a year and there is no payment for 24 months?  There is room to test the limits, but Choinsky suggests a safe harbor for insurers of at least a few months if insurers file “timely” bifurcation and stay motions.  Insureds should be aware of Choinsky and push to minimize the time they subject to simultaneously defending coverage and liability.

© 2020 Davis|Kuelthau, s.c. All Rights Reserved

2020 Vision: Protecting Your Hospital’s Tax-Exempt Status

The manner in which medical services are being provided to patients is rapidly changing. Procedures that used to be performed in hospitals and required overnight stays are now being performed at outpatient clinics. Similarly, technological advances have decentralized hospital administration and the way in which treatment is provided. This should not come as a surprise to anyone that has any level of familiarity with the health care system, which includes just about anyone who goes to a doctor on a regular basis.

It should also come as no surprise that the law often lags behind technological advances and is often in a state of playing “catch up.” This trend is readily apparent when it comes to the property tax exemption for Wisconsin hospitals. The good news is that the courts are now taking the advances in hospital care into account when affirming eligibility for property tax exemption, particularly as to clinics and outpatient facilities. That said, hospitals must be vigilant in obtaining and maintaining their exemption.

This Legal Update offers guidance for Wisconsin nonprofit hospitals that may be filing tax exemption applications for calendar year 2020. Later in this Legal Update, we briefly discuss recent developments at the federal level involving hospital exemptions under § 501(c)(3) of the Internal Revenue Code.

Property Tax Exemption for Nonprofit Hospitals

In Wisconsin, all property is subject to taxation unless it is explicitly deemed exempt by statute. The Wisconsin Statutes provide that the following type of property is exempt:

(4m) NONPROFIT HOSPITALS. (a) Real property owned and used and personal property used exclusively for the purposes of any hospital of 10 beds or more devoted primarily to the diagnosis, treatment or care of the sick, injured, or disabled…. This exemption does not apply to property used … as a doctor’s office.

(Wis. Stat. § 70.11(4m)). The legislative intent behind this exemption is to encourage not-for-profit hospitals to provide care for the sick.

Applications for property tax exemption must be filed by March 1. This includes exemption applications for newly constructed property as well as for existing and previously non-exempt property whose use has changed in a way that now makes it eligible for exemption. The property owner bears the burden of proving that the property is exempt and the Wisconsin courts interpret the statutory exemptions narrowly. Hospitals should start analyzing and preparing their exemption applications well in advance of the filing deadline.

All real property is assessed based on its “fair market value” as of January 1 of each year. The Wisconsin Property Assessment Manual (“WPAM”) makes it clear that in the case of partially completed improvements, the assessor must value the improvements as they exist on the assessment date. Accordingly, hospitals with facilities currently under construction need to document the state of building as of January 1, 2020. Key documentation may include photographs and time-lapse construction progress videos. Assessors typically conduct an on-site inspection when there have been significant construction changes, and may also request additional documentation such as construction contracts and blueprints.

Assessors frequently utilize the cost approach when valuing new construction. One way to assess value for an under-construction project is to look at construction draws. This method has the appeal of simplicity but does not always produce accurate results. For example, if there have been construction draws of $12 million as of January 1 on a $30 million dollar project, an assessor might be inclined to give the property a fair market value of $12 million as of that date. It is entirely possible, however, that $1 million of that work was done on grading, soil stabilization, or other site development work that adds no value to the building from a “fair market value” perspective. Accordingly, the owner should be armed with knowledge of the actual condition of the building, including statements from the project manager, showing the value of what is “in the ground” as of the assessment date.

While it is important that new exemption applications document value as of January 1, the most important piece of the application involves documentation of exempt use. Recent litigation has focused on whether outpatient clinics or satellite hospital facilities are being used as a “doctor’s office,” which may disqualify the facility from exemption. The Wisconsin courts have identified the following list of factors that must be considered and evaluated when determining whether real property is used as an exempt hospital or as a doctor’s office:

  1. Do physicians own or lease the facility or equipment or are they hospital owned?
  2. Do physicians at the facility receive “variable compensation,” that is, compensation based on their productivity?
  3. Do physicians at the facility employ or supervise non-physician staff, or receive extra compensation for such duties?
  4. Does the facility and hospital generate separate billing statements or use separate billing software?
  5. Do the physicians in the facility have office space in the facility?
  6. Does the facility provide care on an outpatient, as opposed to inpatient, basis?
  7. Is the facility only open during regular business hours during which time the physicians generally see patients by appointment or is there 24/7 urgent care?

It should also be noted that the exemption for a nonprofit hospital is not an all-or-nothing proposition—partial exemptions are permitted. For example, in a seminal case interpreting the breadth of the nonprofit hospital exemption, Covenant Healthcare System, Inc. v. City of Wauwatosa, the Wisconsin Supreme Court upheld Covenant Healthcare System’s application for an exemption for 3 out of 5 floors in an outpatient clinic. The other floors did not fall within the criteria for the hospital exemption because they were doctors’ offices, among other reasons.

Another use-related issue involves the exempt status of vacant space in newly constructed hospital facilities. The WPAM acknowledges that “hospitals often construct oversize additions to anticipate technological and industrial changes and to reduce the unit cost of construction.” Assessors will generally treat this space as exempt so long as it meets the following conditions:

  • The hospital is exempt.
  • The space is attached to an existing hospital.
  • The projected use of the space is declared in the board minutes, in the general building plans, and in the blueprints and is consistent with exempt hospital use.
  • The building specifications and actual construction-to-date include features appropriate for hospital space.
  • The owner annually declares by affidavit that the space will be used as hospital space that would normally be exempt.

Hospitals intending to seek exemption for vacant space in new construction should ensure that they have appropriate documentation for these elements as of January 1.

Wisconsin law states that property tax exemption claims are strictly construed in favor of taxability. Given today’s climate of tight budgets, assessors are understandably conservative in their exemption determinations as they try to protect their tax base. Vigilance and thorough preparation are the keys to obtaining exemption under § 70.11(4m). Hospitals that are planning to file an exemption application by March 1 of this coming year, particularly for property that might have been taxable in the past as a physician clinic, should begin preparing their exemption applications no later than January 1 with an eye on these requirements.

Finally, note that owners of property exempt under sec. 70.11, Wis. Stats., are required to file a Tax Exemption Report form with the municipal clerk in each even-numbered year. Reports are due March 31, 2020.

Federal Tax Exemption under IRC § 501(c)(3)

Hospitals claiming exemption under IRC § 501(c)(3) have been under the microscope for the past several years; judging from events in 2019, that pattern will continue in 2020.

Senator Charles Grassley (R-Iowa) is back at the helm of the Senate Finance Committee and is once again pushing for increased transparency and oversight, including hospital adherence to community benefit requirements. In February 2019, Senator Grassley asked that IRS Commissioner Charles Rettig provide a briefing on the scope of IRS audits of tax-exempt hospitals on matters including charity care, financial assistance, and billing and collection policies. Senator Grassley called into question hospital compliance with the standards set by Congress and made it clear that he expects IRS enforcement to include all of the tools in its toolbox, including denial of exempt status. He specifically asked for details on how many hospitals have been found to be out of compliance with § 501(c)(3) requirements and how the IRS is dealing with noncompliant hospitals. In October of this year, Senator Grassley wrote to the University of Virginia Health System regarding a news report that the System’s financial assistance and debt-collection practices did not comply with its obligations as a tax-exempt entity, as well as regarding possible issues on overcharging.

Nonprofit hospitals and health systems can expect increasing scrutiny on Schedule H of Form 990. Past analyses of Schedule H reporting have found inaccuracies and inconsistencies in reporting of community benefits and financial assistance policies, including how financial assistance policies are publicized – these areas should receive particular attention when preparing 990 forms in the coming year. Form 990 is due on the 15th day of the 5th month following the end of the organization’s taxable year. Hospitals and health systems with September 30 fiscal years will need to file their 990 forms by February 15, while organizations on a calendar year have a due date of May 15.

Conclusion

Nonprofit hospitals remain under attack regarding their tax-exempt status. It is extremely important—now more than ever—for administrators to have a familiarity with the law and the criteria necessary to maintain their exemptions into the future. Proper planning heading into 2020 is an important key to that success.

©2019 von Briesen & Roper, s.c

For more on hospital administration, please see the National Law Review Health Law & Managed Care page.

Dane County Judge: Wisconsin’s “Right to Work” law unconstitutional

wisconsin supreme courtIn a decision issued April 8, 2016, Dane County Circuit Court Judge William Foust ruled that Wisconsin’s “Right to Work” law violates the Wisconsin Constitution because it takes union property without just compensation (i.e., it is an unlawful taking).

According to the Wisconsin Manufacturers & Commerce (WMC), which played a leading role in seeking and attaining passage of the law, Judge Foust’s decision “is an act of blatant judicial activism that will not withstand appellate review.” Wisconsin Attorney General Brad Schimel also issued a statement expressing disappointment in the ruling and stating that he is “confident the law will be upheld on appeal.”

Judge Foust ruled that the law unconstitutionally takes union property by forcing a union to represent workers who are not members of the union and do not pay dues to the union. Judge Foust found the State’s argument that “neither federal law nor state law requires a union or other entity to become an exclusive bargaining representative” to be “disingenuous.” According to Judge Foust, the unions have no choice in representing all employees because, by law, their existence depends upon being the exclusive bargaining agent for any particular bargaining unit.

A copy of Judge Foust’s order is available here.

Article by: Rufino Gaytán of Godfrey & Kahn S.C.
Copyright © 2016 Godfrey & Kahn S.C.

Breaking news: Continued employment is lawful consideration in Wisconsin

On April 30th,  the Wisconsin Supreme Court ruled that continued at-will employment constitutes lawful consideration to support an otherwise reasonably drafted restrictive covenant agreement signed by a current employee. No additional monetary payments or other consideration is necessary. As employers in Wisconsin are aware, this is an issue that previously was wrought with uncertainty. A copy of the Court’s decision is available here.

This case was successfully argued by Godfrey & Kahn, S.C. and represents a big win for employers.

In the underlying case, Runzheimer International v. Friedlen, the Circuit Court held that an employer’s offer of continued employment to support a noncompete agreement with an employee was “illusory” and thus invalidated the agreement. Recognizing that this issue has not been squarely addressed in Wisconsin and citing potentially conflicting case law, the Court of Appeals certified the case to the Supreme Court on the narrow issue of whether “consideration in addition to continued employment [is] required to support a covenant not to compete entered into by an existing at-will employee.”

Currently the states are split as to whether continued employment alone will support a restrictive covenant. The Court pointed out that the states that do not find continued employment to form sufficient consideration are in the “distinct minority.” In siding with the majority, the Court held that an employer’s promise to continue to employ an at-will employee is lawful consideration in Wisconsin. In reaching its decision, the Court emphasized that:

(1) An employer’s promise of continued at-will employment will create lawful consideration only when employer is truly exercising forbearance with respect to its right to terminate employment. In other words, employers must be prepared to then and there terminate a current employee who refuses to sign a restrictive covenant agreement; and

(2) Employers may not misrepresent their intention to continue to employ the employee. An agreement signed by an employee who is terminated by the employer shortly thereafter could constitute a breach and make the agreement unenforceable. The Court emphasized that employees are protected by traditional contract formation principals such as fraudulent inducement and the covenant of good faith and fair dealing.

In making these points, the Court clarified and explained past precedent. The Court stated that it was of no consequence that the duration of the continued employment was not specified in the agreement. The Court emphasized that with respect to contract formation, the consideration analysis is limited to the existence of “lawful consideration,” not its adequacy. On these and other points, the Court provided additional analysis and guidance that is helpful to employers and will be covered in a client alert coming shortly.

While this is not a green light to require all current employees to sign a noncompete, employers now have certainty that, in particular circumstances, otherwise reasonably drafted restrictive covenant agreements signed by current employees will not be invalidated solely on the basis of consideration.

Originally posted in the All in a Day’s Work Blog April 30, 2015 By Rebeca M. López and Margaret R. Kurlinski

Copyright © 2015 Godfrey & Kahn S.C.

Zombie Properties May Haunt Lenders in Wisconsin Foreclosures

von Briesen & Roper, S.C.

A recent Wisconsin Supreme Court case holds that a foreclosure court can require a foreclosing lender to sell an abandoned or “zombie” property at a sheriff’s sale within a court-determined reasonable time after the expiration of the 5-week redemption period applicable in such cases.

In The Bank of New York v. Carson, the lender foreclosed on Carson’s residence in the City of Milwaukee. More than 16 months after the judgment of foreclosure was entered, the lender still had not sold the property through a sheriff’s sale. Carson filed a motion to amend the judgment to include a specific finding under § 846.102(2) that the property was abandoned, and asked that the lender be ordered to sell the property promptly after the expiration of 5 weeks from entry of the amended judgment. The circuit court concluded that it lacked authority to compel a lender to sell an abandoned property and denied the motion.

Carson appealed and the Court of Appeals agreed with Carson, reversing the circuit court and determining that the plain language of the statute “directs the court to ensure that an abandoned property is sold without delay, and it logically follows that if a party to a foreclosure moves the court to order a sale, the court may use its contempt authority to do so.” The lender then appealed to the Wisconsin Supreme Court, arguing that the use of the word “shall” in the statute was “permissive” and not mandatory, and that instead the lender had 5 years to conclude a sheriff’s sale based on a different statute.

The Supreme Court affirmed the Court of Appeals, holding that the trial court has authority to order a lender to sell an abandoned property after expiration of the redemption period because § 846.102(1) states that:

the sale of such mortgaged premises shall be made upon the expiration of 5 weeks from the date when such judgment is entered.

Carson also holds that the trial court can require a lender to sell the abandoned property within a “reasonable” time after the expiration of the redemption period, but does not provide any criteria for determining what a reasonable time is. The decision discussed the challenges posed by abandoned properties and reasoned that the legislature intended a prompt sale of abandoned properties to address such problems.

Carson contrasts with another recent Court of Appeals case not involving an abandoned property, but also involving whether a foreclosing lender can be required to sell a foreclosed property upon the expiration of the applicable redemption period. In the consolidated case of Bank of America, N.A. v. Prissel and Bank of America, N.A. v. Gerlach (“Gerlach”) the lender elected to waive its right to a deficiency judgment thereby shortening the residential redemption period from 12 to 6 months. The lender did not promptly proceed with sheriff’s sales and the borrowers then moved to vacate the foreclosure judgments on the grounds that since the lender did not publish notice of the sales prior to the expiration of the redemption period, valid sales could not be conducted without such publication and therefore the foreclosure judgments could not be satisfied. This argument was based on subsection (2) of § 846.101 which provides that:

the sale of such mortgaged premises shall be made upon the expiration of 6 months from the date when such judgment is entered.

and that

[n]otice of the time and place of sale shall be given… within such 6-month period…

The Gerlach court affirmed the circuit court’s decision denying the motions, holding that the use of the word “shall” in § 846.101(2) is “directory” and not mandatory. In other words, the statute allowed for the publication of the sale notice prior to the expiration of the redemption period to ensure that a sale can occur immediately upon the expiration of the period, but did not require such publication. A lender’s decision not to so publish is not fatal to its ability to publish and direct the sheriff to conduct a sale at a later date.

The Gerlach court noted that the borrowers were in no worse a position due to the lender’s decision not to sell the properties. The Gerlach decision also opined that in a hypothetical situation a borrower would benefit from a lender’s decision against immediately publishing a sale notice (a prerequisite to a Sheriff’s sale) by continuing to occupy a home without having to pay the mortgage and knowing (in these cases) there was no liability for any deficiency. Such extra time would also afford the borrower an opportunity to redeem or work out a loan modification with the lender.

Are Carson and Gerlach Contradictory?

Carson and Gerlach both involved appellate court interpretation of the word “shall” in the applicable statute governing the deficiency election and applicable redemption period, and each addressed the issue of whether a lender can be compelled to sell a property after the redemption period. However, the cases are differentiated by the nature of the property being foreclosed; Carson involved an abandoned home and Gerlach did not. In fact, theCarson decision (from the Supreme Court, and decided after Gerlach) was careful to limit its holding to abandoned homes. Therefore, the holdings are not contradictory.

Practical Implications of the Decisions

Although Carson permits a circuit court to require a lender to sell an abandoned property within a reasonable time after the redemption period expires, the case does not require the lender to buy the property. Foreclosing lenders are often the first and only bidders for their collateral at sheriffs’ sales, but there is no law requiring the lender to bid. However, if the lender does not bid, anybody else (including the owner) could attend the sale and win the bidding for the property with a very small bid. If that did not happen and there are no bids at the sale, further court involvement may be necessary to address the limbo status of the unsold abandoned property. This would lead to further delay in the ultimate disposition of the zombie property, which Carson was trying to avoid.

Other takeaways for lenders from Carson are:

  1. Lenders should recognize before starting a foreclosure if they may be dealing with an abandoned property. The statutory criteria that will evidence abandonment include:

    • Boarded, closed, or damaged windows or doors.

    • Missing, unhinged, or continuously unlocked doors.

    • Terminated utility accounts.

    • Accumulation of trash or debris.

    • Reports to law enforcement officials of trespassing, vandalism, or other illegal acts.

    • Conditions that make the premises unsafe or unsanitary.

  2. If some or all of those factors are present in the lender’s pre-foreclosure due diligence, an early informed decision should be made as to whether the lender really wants to own the property through foreclosure.

  3. Some municipalities (notably the City of Milwaukee) have ordinances that put registration and maintenance obligations on the lender after just starting a foreclosure action, which should also be considered prior to filing.

  4. Lenders should consider just suing the borrower on the note and not foreclosing on the property if there is a risk that it is abandoned and the lender does not want to own the property or let it be sold at a sheriff’s sale for a minimal amount. More money judgments against borrowers who abandon their properties may be an unintended consequence of Carson because in a foreclosure on residential property, the deficiency is usually waived.

  5. If the facts permit, lenders should seek a finding in the foreclosure judgment (a final judgment for purposes of appeal) that the property is not abandoned, thereby increasing the procedural burden on the borrower to seek a different finding post-judgment.

Carson should encourage lenders to make an earlier decision as to whether they really want to own an abandoned property at the end of the foreclosure process. If not, then the lender still has the option to just sue on the note.

Gerlach confirms the current practice as to properties that are not abandoned, so its impact may be minimal. Borrowers frequently lack creditworthiness for post-foreclosure refinancing or modification of their mortgage loans, and therefore there is generally little incentive for lenders to delay a sheriff’s sale of unabandoned foreclosed property after the expiration of the redemption period to allow additional time for such negotiations. As a result, the perceived benefit of additional time being afforded to borrowers by not compelling a sale at the conclusion of the redemption period (which is the holding in Gerlach) may be limited.

U.S. Supreme Court Declines to Hear Wisconsin’s Same-Sex Marriage Case: How Does This Affect the Administration of an Employer’s Employee Benefits?

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On Monday, October 6, 2014, the U.S. Supreme Court denied certiorari in Wolfe v. Walker. As employers will recall, in June 2014, U.S. District Court Judge Crabb found that Wisconsin’s 2006 constitutional amendment barring recognition of same-sex marriages violated the equal protection clause of the U.S. Constitution. In September 2014, the Seventh Circuit affirmed that decision. The Supreme Court’s action means that Judge Crabb’s decision stands.

What Is the Effect of the Supreme Court’s Ruling? Hereafter, Wisconsin and its respective governmental subdivisions must issue same-sex marriage licenses and must recognize same-sex marriages, whether formed in Wisconsin or in other jurisdictions. Moreover, the ruling affects employer-provided employee benefits.

Eligibility for Health Plan Coverage. The ruling has different implications depending upon the type of health plan at issue. For ERISA plans, there is some uncertainty regarding how this will play out moving forward because of ERISA preemption. Following the 2013 U.S. Supreme Court decision in United States v. Windsor, the Department of Labor announced in guidance that it would interpret the terms “spouse” and “marriage” to include same-sex marriages valid in the state of celebration. However, since it appears that neither Windsor nor Wolf nor the DOL guidance addresses private discrimination or imposes an obligation on employers to provide same-sex benefits, ERISA may still preempt a state discrimination law.

There is an additional nuance under state insurance laws. The Department of Health and Human Services (HHS) has mandated that health insurance issuers providing policies that cover spouses ensure that same-sex spouse coverage is also available to consumers. The guidance HHS provided, however, does not mandate that employers obtaining that coverage actually offer the benefit. It is unclear how this will play out under state insurance law (which applies to insured ERISA plans) and further guidance from the state is required.

For plans that are not subject to ERISA, the preemption argument disappears. Thus, such non-ERISA plans failing to offer such coverage may now violate Wisconsin’s Fair Employment Act, which prohibits discrimination on the basis of sexual orientation and marital status. Even so, those plans that are exempt from ERISA because they constitute “church plans” may be able to assert a religious exemption from discrimination rules.

Employers contemplating providing only opposite-sex spousal benefits should be in close contact with their legal counsel regarding the risks associated with such a decision. Further, it will be very important to ensure that “spouse” is defined with precision in the plan materials.

Imputed Income. Previously, the Wisconsin Tax Code treated employer-provided coverage for same-sex spouses of employees as taxable income and Wisconsin employers were required to treat such coverage as imputed income for Wisconsin withholding purposes. Now that Judge Crabb’s decision has been permitted to stand, Wisconsin employers must stop imputing income for state tax purposes to employees who receive coverage for same-sex spouses (and certain dependents). Employers will also need to pay attention to how the Wisconsin Department of Revenue addresses the taxation of income that was previously imputed; that is, how employees and employers might recover excess amounts withheld by the state government based upon imputed income in prior months and years.

Note, nothing has changed as it relates to domestic partners benefits – employees are still subject to imputed income where the employee obtains coverage on behalf of his or her domestic partner.

Family and Medical Leave. As we advised in a June client alert, family and medical leave under the state law is largely unaffected by this decision because domestic partner coverage was already contemplated by the state law and same-sex spouses were deemed domestic partners for such purposes.

On a federal level, this decision accelerates the effective date of proposed regulations issued earlier this year by the U.S. Department of Labor in response to Windsor. Earlier this year, the Department of Labor issued proposed regulations to change the FMLA’s definition of spouse from an individual who is recognized as a spouse under the state law in the place of the employee’s residence to an individual who is considered legally married to the employee based upon the laws of the state of celebration. These regulations are not yet finalized. Nevertheless, the Supreme Court’s decision means that even under the current regulations Wisconsin same-sex married couples will be considered spouses for purposes of FMLA administration.

What should employers do now?

  • Account for those same-sex couples who may have been married in a state that permitted same-sex marriage or who are newly married in Wisconsin;

  • Determine if modification of benefit plan materials may be necessary;

  • Determine the appropriateness of a special enrollment opportunity to couples married in other jurisdictions prior to the Supreme Court’s ruling who would not otherwise be eligible for a HIPAA special enrollment opportunity based upon the date of the wedding; and

  • Determine if modification of FMLA policy/forms is warranted based upon the changes.

© MICHAEL BEST & FRIEDRICH LLP
ARTICLE BY

Charles P. Stevens
OF
Michael Best & Friedrich LLP

Madison, WI Resolution Targets “Ban the Box” Legislation For City Contractors and Vendors

Proskauer Law firm

The Common Council of Madison, Wisconsin passed a resolution that prohibits the city (i) from asking questions concerning an applicant’s criminal history on the city’s initial employment applications (i.e., “banning the box”), and (ii) from conducting a criminal background check before making a conditional offer of employment to the applicant.  The resolution provides exceptions for the city’s police department and commissioned fire personnel.

While the resolution does not extend these prohibitions to city contractors and vendors at the present time, it does instruct the city to “introduce an ordinance [within the next six months] prohibiting City vendors and contractors from asking applicants about their arrest and conviction history until after a conditional offer of employment has been made.”

Given the national momentum behind the “ban the box” movement, Madison contractors and vendors should monitor the proposed ordinance as it makes its way through the Council.  To date, about a dozen cities—including Compton (CA), Richmond (CA), Hartford (CT), New Haven (CT), Indianapolis (IN), Louisville (KY), Boston (MA), Cambridge (MA), Worcester, (MA), Detroit (MI), Atlantic City (NJ), New York City (NY), and Pittsburgh (PA)—have required vendors and contractors to ban the box on their employment applications.  The State of Delaware has “encouraged” the same. Stay tuned to see if Madison is next.

ARTICLE BY

Katharine H Parker
Daniel L. Saperstein
 
OF
Proskauer Rose LLP