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April 26, 2018

Wisconsin Adopts Proportionality and Mandatory Disclosure of Third-Party Litigation Financing

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Wisconsin is adopting proportionality and requiring mandatory disclosure of third-party litigation financing agreements. These and other significant rule changes are intended to reduce the burden of civil litigation within the state. Effective July 1, 20181 the “Civil Litigation Reform Bill” was signed by Wisconsin Governor Scott Walker on April 4, 2018. Also known as 2017 Wisconsin Act 235, the Act promises to bring much needed relief from the onerous burdens of discovery in Wisconsin state courts.

Proportionality and Limitations on Discovery of ESI

The Act adopts the proportionality rule equivalent to amended Federal Rule of Civil Procedure 26(b)(1). The Wisconsin amendment, like the federal rule, narrows the “scope” of discovery to nonprivileged information that “is relevant to any party's claim or defense 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

Like the federal rules, the Act eliminates the provision stating it was not grounds for objection if the information sought “appears reasonably calculated to lead to the discovery of admissible evidence.” 

The 2015 Federal Amendments represented more than just another incremental tweak to the rules. They were, in the words of United States Supreme Court Chief Justice Roberts, “a major stride toward a better federal court system,” and a call to arms for courts and litigants to “step up to the challenge of making real change.” Hon. John Roberts, 2015 Year-End Report on the Federal Judiciary (Year-End Report) at 9. In particular, the elevation of proportionality to a guiding principle equal to relevance under 26(b)(1) was meant to require litigants and courts to take this concept to heart in fashioning and settling disputes over discovery.  

Wisconsin carries that ball forward here with even deeper changes. Another significant amendment changes Wisconsin’s rule equivalent of Federal Rule 26(b)(2)(B) Specific Limitations on Electronically Stored Information. This unique amendment adds new language providing that a party is not required to provide discovery, absent a showing of substantial need and good cause, any of the following categories of ESI:

    • Data that cannot be retrieved without substantial additional programming or without transforming it into another form before search and retrieval can be achieved.
    • Backup data that are substantially duplicative of data that are more accessible elsewhere.
    • Legacy data remaining from obsolete systems that are unintelligible on successor systems.
    • Any other data that are not available to the producing party in the ordinary course of business and that the party identifies as not reasonably accessible because of undue burden or cost.3 

New Limits on Written Discovery and Depositions

For the first time in Wisconsin, the Act limits written discovery to twenty-five interrogatories.4 It also places a time scope on requests for production to “a reasonable time period not to exceed five years prior to the accrual of the cause of action.”5 The Act adds new section 804.045, limiting a party to 10 depositions, none of which may exceed seven hours.6

We will monitor cases involving products manufactured more than 5 years before injury to understand how the courts utilize the “reasonable time period” clause. The parties are likely to stipulate to a case specific time scope relevant to the design and manufacture of the product, but this clause should give manufacturers grounds to insist that the agreed upon scope be no greater than five years.

Mandatory Disclosure of Third-Party Litigation Financing

Another key amendment to the statutes makes Wisconsin the first state to require parties to provide notice of third-party litigation financing. The Act adds section “bg” to § 804.01(2):

(bg) Third party agreements. Except as otherwise stipulated or ordered by the court, a party shall, without awaiting a discovery request, provide to the other parties any agreement under which any person, other than an attorney permitted to charge a contingent fee representing a party, has a right to receive compensation that is contingent on and sourced from any proceeds of the civil action, by settlement, judgment, or otherwise.7

This is particularly timely given the April 14, 2018 The New York Times article "How Profiteers Lure Women Into Often-Unneeded Surgery" and the March 21, 2018, The Wall Street Journal article "Lawsuit Funding, Long Hidden in the Shadows, Faces Calls for More Sunlight." The federal judiciary’s Advisory Committee on Civil Rules MDL/TPLF Subcommittee is studying whether to draft a nationwide rule mandating disclosure of third-party funding agreements, which is now required by local rules in a quarter of Federal District Courts and half of the Circuit Courts. For additional information on the status of the Subcommittee’s work, see information provided by the Lawyers for Civil Justice here.

A common argument supporting mandatory disclosure draws an analogy to Federal Rule 7.1’s requirement of corporate disclosure statements. Mandatory disclosure of litigation funders would enable judges to evaluate their own potential financial interests in the litigation. Disclosure of agreements with third-party litigation funders would also provide product liability defendants the opportunity to discover the funder’s potential involvement in medical care and treatment of the plaintiff. Recent reports of unnecessary surgeries funded by third-parties designed to increase medical damages highlights the impropriety and ethical implications of undisclosed third-party financing. Such a disclosure also would provide notice of potential liens that may complicate settlements.   

1. The Act will become effective for non-class actions that are filed on or after July 1, 2018, and available for currently pending and future class actions starting on July 1, 2018.
2. See amended Wis. Stat. §§ 804.01(2)(a) and (am).
3. Wis. Stat. § 804.01(2)(e)(1g).
4. Wis. Stat. § 804.08(1)(am).
5. Wis. Stat. § 804.09(2)(a)(3).
6. Wis. Stat. § 804.045.
7. Wis. Stat. § 804.01(2)(bg).