By David Ambrosh
On December 7, 2011, Wisconsin Governor Scott Walker signed into law 2011 Wisconsin Act 92 (“the Act”) which caps the amount of attorney fees that can be awarded in certain cases. Specifically, the Act requires judges to presume attorney fees should be no greater than three times the compensatory damages awarded. Judges can award more if they feel it is warranted, but the presumption would have to be overcome. Among the types of cases that are affected by the new law are cases that fall under the Wisconsin Consumer Act (“the WCA”).
Introduction of the Act through the legislative process came on the heels of a notorious consumer case which centered around $5,000 in car repairs that the customer alleged to have never approved.[1] After years of litigation, the two sides reached a settlement calling for the auto dealer to pay $12,500 in damages, and $151,250 in legal fees. If the Act had been in place at the onset of that litigation, a judge would have had to presume that the most that could have been awarded in attorney fees would have been $15,000 because $5,000 in damages was sought. Instead, the consumer attorney recovered twelve times the amount of damages.
Awarding attorney fees to customers who prevail in actions arising from consumer actions is nothing new. Since its inception in 1971, the WCA has allowed prevailing customers to recover “reasonable” attorney fees. Wisconsin courts have consistently held that there must be a WCA violation in order for a customer to have “prevailed.” In River Bank of DeSoto v. Fisher[2], the Wisconsin Supreme Court, citing to Suburban State Bank v. Squires[3], held that “[i]f a violation is found to have occurred, attorney’s fees under Wis. Stat. § 425.308 shall be awarded...” whereas “[i]f no Act violation is found, attorney’s fees shall not be awarded.”
In the case of Community Credit Plan, Inc. v. Johnson[4], the court established a two-part test that must be satisfied in order for a customer to be entitled to an award of attorney fees: (1) there must be a finding that the creditor violated the WCA, and (2) the consumer must have obtained a significant benefit in the litigation. The case of Footville State Bank v. Harvell[5] provided further guidance, wherein the court held that a prevailing party should not get fees for proving minor violations of the Act, but only if they have prevailed on a significant issue. Specifically, the court held that “to be a prevailing party under the WCA ... [i]t is implicit in the definition...that the consumer who succeeds on some but not all issues recovers attorney's fees only as to the successfully litigated issues.” Id.
As previously discussed, Wisconsin courts have shown over the years that they have been up to the task of distinguishing those cases in which fees are warranted versus those in which fees are not warranted. 2011 Wisconsin Act 92 does nothing to change the manner in which courts assess whether fees are warranted. Instead, the Act places a presumptive cap on attorney fee awards that otherwise did not exist. The Act presumptively caps attorney fees, where allowed, at three times the compensatory damages awarded. The Act further provides that when compensatory damages are not awarded but injunctive or declaratory relief, recission or modification, or specific performance is ordered, reasonable attorney fees shall be determined according to factors including but not limited to: time and labor required by the attorney, novelty of the issues involved, skill requisite, customary fee, etc. The Act should serve to encourage early settlements, and at the same time deter fee-padding. In addition, the Act should serve to better align attorney fee awards with the amount of damages at issue.
[1] Kaskin v. John Lynch Chevrolet-Pontiac Sales, Inc., 318 Wis. 2d 802 (Ct. App. 2009).
[2] 206 Wis.2d 63 (1996).
[3] 145 Wis.2d 445 (Ct. App. 1988).
[4] 221 Wis.2d 766 (Ct. App. 1998), aff’d 228 Wis.2d 30 (1999).
[5] 146 Wis.2d 524 (Ct. App. 1988).
Posted:
2/9/2012 4:54:00 PM by
Tom Connor | with
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By Kevin T. White
Associate Attorney
Recently, Governor Scott Walker signed into law a bill modifying the way interest accrues on civil money judgments in Wisconsin. Specifically, all judgments used to accrue interest at 12% per annum. However, Wis. Stat. §815.05(8) now states:
Every…judgment for the recovery of money shall direct the collection of interest at an annual rate equal to 1 percent plus the prime rate in effect on the day judgment is entered, as reported by the federal reserve board in federal reserve statistical release H.15.
Because the prime rate changes, the rate of interest on January 1st of a given year applies to judgments entered on or before June 30th, and the rate of interest on July 1st applies to judgments entered after June 30th. As the prime rate is currently 3.25%, all judgments entered from December 2nd, 2011 to January 1st, 2012 will now accrue interest at 4.25%.
It is important to note that once the rate for a given judgment is set, it will not change. If a judgment is entered today, the interest will be 4.25% until it is satisfied, discharged or expires—even if the prime rate later increases.
Ostensibly, the laws primary effect, at least in the short-term, is that creditors will lose a substantial amount of annual interest on money judgments.[1] Of course, it is possible under the new law for an interest rate to be higher than the previous 12%. However, the prime rate has not reached 11% since February 24th, 1989[2]; given the current economic and inflationary pressures around the globe, it is unlikely it will return to 11% for quite some time.
The concern of creditor’s rights attorneys is this law will create a disincentive for debtors to pay judgments quickly. Timothy Fenner, a partner at Axley Brynelson LLP’s business and litigation practice group, says “at 12 percent, people were pretty motivated to pay the judgment. Now, you may have to do some chasing given the lower rate of interest.”[3] Thus, in addition to losing the interest itself, creditors may expend more costs on supplemental examinations, garnishments and other forms of execution.
As well as higher expenses to collect the judgment, debtors may be less likely to settle while suit is ending. Specifically, Wis. Stat. §807.01(4) allows creditors to make an offer of settlement before trial. Previously, if the debtor declined and the judgment was higher than the amount offered to settle, the creditor would be entitled to the 12% interest rate from the date of the settlement offer instead of the date of judgment. However, with the lower interest rate, there is less incentive for a debtor to settle and he or she may just continue with the litigation.
In addition to the monetary loss, the law creates administrative burdens. Specifically, creditors will now be required to track interest rates for debtors at multiple rates, sometimes even for the same case. For example:
Judgment is entered against the debtor and begins accruing interest at 4.25%. The following year, the creditor files a wage garnishment in an attempt to satisfy the judgment, but the employer fails to respond and judgment is entered against the employer as provided for in Wis. Stat. § 812.41. If the prime rate has changed, the creditor will now be forced to track judgment interest at two different rates.
Finally, it appears that consumer attorneys also have concerns with the new law. Leonard Leverson, co-chair of the Bankruptcy, Insolvency & Creditors Rights Section of the Wisconsin Bar has said that “a flat, lower rate, perhaps 6%-8%, would be sufficient to compensate judgment creditors for the delay in payment, while still providing an incentive for judgment debtors to pay up.”[4]
Because it will be several years before the full results of this law are known, creditors should be vigilant in monitoring their collection rates and expenditures.
[1] Because the current rate is 4.25%, creditors are losing 7.75% interest on all judgments entered from December 2nd, 2011 to January 1st, 2012.
[2]http://www.wsjprimerate.us/wall_street_journal_prime_rate_history.htm
[3]Quoting, Judgment Interest: Bill reducing interest rates on court judgments awaits final signature, http://www.wisbar.org/AM/Template.cfm?Section=Search&CONTENTID=107078&TEMPLATE=/cm/contentdisplay.cfm
[4] Ibid.
Posted:
12/14/2011 3:53:39 PM by
Tom Connor | with
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In May 2010, then-Governor Doyle signed 2009 Wisconsin Act 405 into law, effectively regulating “payday loans” for the first time in Wisconsin. The law did not take effect until January 1, 2011. The statute, Wisconsin Statutes § 138.14, defines what a payday loan is, who may operate payday loan business entities, maximum loan amounts, disclosure requirements, and so on. One thing the statute does not regulate, however, is a maximum interest rate for which the creditor may charge. At subsection 10, the statute reads:
(10) Interest, penalties, and fees. (a) Interest. 1. Except as provided in sub. (12)(b), this section imposes no limit on the interest that a licensee may charge before the maturity date of a payday loan.
As a result, in 2011 Assembly Bill 150 was introduced by a number of state representatives to amend the payday loan statute and create a cap on interest rates before the maturity date of the loan at 36%. That bill has stalled in the legislative process, but may resurface at some point down the road. The driving force behind much of this proposed legislation is the debate of whether some interest rates are grossly high and unfair to consumers, or “unconscionable.” The Wisconsin Supreme Court will soon frame the future of this debate, and the constraints within which the legislature will have to work, when it rules in Payday Loan Store of Wisconsin v. Jesica Mount.[1]
This pending case, which began in circuit court, and was certified to the Wisconsin Supreme Court by the Wisconsin Court of Appeals, will consider the issue of whether an annual interest rate in excess of 1000% per year for a short-term loan is per se unconscionable under the Wisconsin Consumer Act (WCA).[2] Before the Wisconsin Supreme Court will be able to determine whether a 1000% interest rate is unconscionable, however, it will have to determine if a court even has the ability to make that decision, or if it is a question better left to the legislature.
The pending case arose after Jesica Mount entered into a number of loan agreements with Payday Loan Store of Wisconsin, Inc. (PLS) for various loans between 2008 and 2009. In July of 2009, she took out a $500 loan, promising to repay $610. Mount failed to make the payments when due and defaulted on the loan. As a result, PLS sued Mount seeking a money judgment on the defaulted loan. Mount answered the complaint and filed a counterclaim asserting, among other things, that the interest rate charged by PLS was unconscionable under the WCA. Mount filed a summary judgment motion. The court granted Mount’s motion, dismissed PLS’s claim, and awarded damages in the amount of $4,001.00, plus attorneys’ fees of $6,610.50, for a total judgment of $10,611.50. The court ruled that the charges added to the loan were unconscionable under the WCA. PLS then filed for appeal and the Wisconsin Court of Appeals certified the case to the Wisconsin Supreme Court stating, “A decision in this case will have statewide impact on consumer credit transactions and provide guidance to lower courts faced with disputes over those transactions.”
The Court of Appeals certification was heavily focused on the issue of “unconscionability.” The WCA addresses unconscionability, stating that in regard to consumer credit transactions, the court may consider a number of factors to determine unconscionability. While these factors describe conditions under which a consumer transaction may be unconscionable, none of the factors specifically address the issue of interest rates, nor does it set specific limits on interest rates. Historically, determining what is “unconscionable” has been difficult for Wisconsin courts as recognized in Bank One Milwaukee, N.A. v. Harris.[3] The Wisconsin Court of Appeals simply noted, “We know unconscionability when we see it,” but was unable to define it. Now, the Wisconsin Supreme Court will determine if there is a specific interest rate at which they “see it.”
One argument that the Court of Appeals did not address or consider in its decision to certify the Mount case to the Wisconsin Supreme Court, though, is the specific statutory language regulating inconsistencies between the payday loan statute and the WCA. Wisconsin Statute § 138.14(13) specifically states that all payday loans shall be governed by chapters 421 to 426 of the Wisconsin Statutes, but where those chapters are inconsistent with section 138, section 138 shall govern. Since a determination by a court regarding the unconscionability of a payday loan interest rate would be in direct conflict with section 138.14(10), it would seem that courts do not have the discretion to make that ruling. The legislature has clearly intended not to limit interest rates on payday loans.
The Wisconsin Supreme Court may soon decide all of these issues, or it may choose to decide only a few of them. One thing that is certain, though, is that the impending ruling in Mount is one that may shape the course of not only payday loan cases in the future, but the entire payday loan industry in Wisconsin. Payday loan companies must be prepared for the possibility of major changes in Wisconsin if the Wisconsin Supreme Court finds that certain interest rates are per se unconscionable.
[1] Payday Loan Store of Wisconsin v. Jesica Mount, 2010AP2298.
[3] Bank One v. Harris, 209 Wis. 2d 412, 563 N.W.2d 543 (Ct. App. 1997).
Posted:
11/16/2011 4:46:41 PM by
Tom Connor | with
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Under the principle of accord and satisfaction, a debt is deemed to be discharged if a debtor tenders a check to a creditor clearly offered as payment in full for a known disputed claim, and that check is cashed by the creditor. The purpose behind this general rule is to protect the good faith expectations of a debtor who makes payment to a creditor on the condition that it will be accepted as payment in full for the debt owed. In addition, this rule of law is thought to promote the resolution of disputes between creditors and debtors informally and without litigation. Accordingly, accord and satisfaction constitutes a defense to a legal claim for money after a debtor has tendered a check as full payment.
Creditors should be aware of this legal principle in the event a debtor makes payment in an amount less than the full amount owed with the intent to satisfy the entire debt. For example, suppose a creditor sends a bill to a debtor stating that the amount due to the creditor is $10,000.00. The debtor sends a letter to the creditor disputing the amount due, along with a check to the creditor in the amount of $7,000.00 marked as "payment in full." The creditor cashes the check. Under the general rule described above, the payment of $7,000.00 has satisfied the full amount due, and the total debt is discharged.
The Wisconsin Statutes provide important requirements for accord and satisfaction by use of an instrument. Under Wisconsin Statute § 403.311, the debtor must prove that three conditions have been met in order to assert accord and satisfaction as a defense to a legal claim by the creditor. First, the debtor must have tendered the check to the creditor in good faith, meaning that the debtor is not trying to "sneak one past" the creditor and instead sincerely intends to make the creditor aware of the attempt to settle the matter for a lesser amount. Second, the amount of the claim or debt must have been subject to a known bona fide dispute. And third, the creditor must have accepted payment of the instrument; that is cashed the check.
Returning to the previous example, the statute’s "good faith" and "known bona fide dispute" conditions appear to have been met by the letter that accompanied the debtor’s payment, assuming the debtor had a colorable basis for the dispute. Therefore, the creditor’s receipt and acceptance of the payment with that knowledge meets the third requirement of the statute and an accord and satisfaction appears to have occurred.
Fortunately, the statutes provide another safeguard for creditors. Even if the debtor meets all three of the requirements above, the creditor still has the ability to tender repayment of the check to avoid discharge of the entire debt. Under §403.311(3), a debt is not discharged if the creditor tenders repayment within 90 days after the intended full payment was made by the debtor. Therefore, even if a debtor attempts to make full payment in good faith, for a debt that is subject to a known bona fide dispute, and the creditor has accepted payment, the creditor still has the ability to avoid discharge of the debt by tendering repayment of the debt within 90 days. In the example above, the debt will not be discharged if the creditor tenders repayment of the $7,000.00 within 90 days of cashing the check.
It is important for creditors to be aware of both the general principle of accord and satisfaction and the Wisconsin statutory law described above, in the event a debtor attempts to make full payment on a debt in an amount less than that which is due. Creditors, especially large creditors, often receive a significant number of payments from debtors in any given time period. Nonetheless, all creditors should be on the lookout for tender of payment by debtors intended as payment in full when processing payments. If a creditor does cash such a check from a debtor, the creditor also needs to be aware safeguards provided under the statutes, including the provision allowing the creditor to tender repayment within 90 days to avoid discharge of a debt.
Posted:
10/26/2011 8:24:44 AM by
Tom Connor | with
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Our staff at Kohn Law Firm has a long standing commitment to support its community. Various charity fund raisers are held throughout the year in the firm. We support the American Heart Association’s Wear Red day in February, usually with an award to wear jeans to work with a donation.
In September, the firm supported the Walk to Cure Diabetes through donations to the Juvenile Diabetes Research Foundation International. In walking through the firm, there are tack boards with multiple years of their “shoe” receipt hanging as a reminder of our long standing commitment there. Employees also earned a jeans day in October supporting Special Olympics during a “Toss the Boss” rappelling event held at what will be our new office space. All funds donated by employees were matched by the firm. (And we opted to toss our new building manager over the edge this year instead of any firm boss.)
We have pitted departments and teams against each other for a Pennies War to support UNICEF, marking the second year this charity has been supported. We’ll see employees in costume on Halloween, and a few will have some bragging rights.
The holiday season brings out additional generosity from our staff. The Hunger Task Force has been supported by Kohn Law Firm for many years during the holiday season. The firm will again match all monetary donations received from employees who are buying up to four days to wear jeans in December.
KLF is FIT FRIENDLY!
“On behalf of the American Heart Association, I would like to congratulate your organization on achieving Fit Friendly Company recognition for July 2011. This is a huge accomplishment which reflects the hard work and commitment you have to improving your employees’ health.
Thank you again for all you are doing to help your employee’s lead healthier lives, free from cardiovascular diseases and stroke.
Warm Regards,
Kevin D. Harker Executive Vice President, Midwest Affiliate”
Posted:
10/18/2011 10:08:36 AM by
Tom Connor | with
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