Dec. 30, 2024 – Attorney General Josh Kaul violated two provisions of controversial 2017 Act 369, the Wisconsin Court of Appeals, District II decided 2-1 in another case implicating separation of powers between the legislative and executive branches.

The Legislature passed and outgoing Gov. Scott Walker signed Act 369 shortly after the November 2018 election changed the balance of power in Madison, requiring the attorney general to “deposit all settlement funds into the general fund.” Prior to that, the legislature required consultation only over funds “not committed under the terms of the settlement.”

In Wisconsin State Legislature v. Kaul, No. 2022AP431 (Dec. 18, 2024), a three-judge panel ruled that Kaul violated Act 369 by failing to deposit settlement funds into the general fund.

Kaul had argued that the statute’s plain language did not prohibit DOJ from depositing settlement funds into other accounts over which the DOJ controls.

The panel also ruled that when the DOJ files a civil action simultaneously with a stipulated consent decree, that constitutes a “prosecution” subject to JFC approval under Wis. Stat. section 165.08(1), and Kaul violated the statute by failing to obtain JFC approval of stipulated consent decrees filed in circuit court.

The panel’s decision is the second recent ruling involving DOJ settlement funds.

In Kaul v. Wisconsin State Legislature, 2022AP790 (Dec. 2, 2024), the District II Court of Appeals upheld Wis. Stat. section 165.08(1), which requires attorney general consultation with JFC in making settlements. The panel, the same judges that decided the most recent case by a 2-1 vote, also voted 2-1 in this case, with the same judge in dissent.

Two Alleged Statutory Violations

The Legislature sued Kaul and Department of Administration Secretary Kathy Koltin Bluemenfeld for failing to properly deposit settlement funds into the general fund.

Before Act 369, Wis. Stat. section 165.10 required the attorney general only to submit to JFC a proposed plan for spending settlement funds, described in Wis. Stat. section 20.455(3)(g) as funds from “gifts, grants and proceeds.”

Act 369 changed section 165.10, which now requires the attorney general to “deposit all settlement funds into the general fund.”

The general fund includes, under section 20.906(1), all money paid into the treasury, which “shall be credited to the general purpose revenues of the general fund unless otherwise specifically provided by law.”

Kaul continued to deposit settlement funds into either the “gifts, grants, and proceeds” account under section 20.455(3)(g) or into the “cost-recovery” fund established under section 20.455(1)(gh) in cases involving civil enforcement of certain statutes.

According to the majority, settlements can recover as much as “hundreds of thousands of dollars.” The Attorney General controls the funds.

Another change from Act 369 amended Wis. Stat. section 165.08(1), requiring the attorney general to submit a proposed plan to JFC for committee approval of any compromise or discontinuance of a civil action prosecuted by DOJ.

In cases in which the DOJ submitted a complaint simultaneously with a proposed consent decree, the attorney general did not submit a plan to JFC, claiming “no civil actions were being prosecuted or compromised.”

Kaul failed to provide any settlement plan to JFC, which in the earlier Kaul case the court of appeals concluded was a constitutionally acceptable requirement.

Where Does the Money Go?

The majority decision, written by Judge Maria S. Lazar and Joined by Judge Shelley A. Grogan, found the amended Wis. Stat. section 165.10 “short and precise.” Other relevant statutes ruled out alternative accounts.

The general fund, defined in Wis. Stat. section 25.20, describes that fund as “[a]ll moneys in the state treasury not specifically designated in any statute as belonging to any other funds,” the majority emphasized.

All money paid into the treasury is to be “credited to general purpose revenues of the general fund,” absent exceptions under Wis. Stat. section 20.906(1).

“The newly amended Wis. Stat. § 165.10 states that the settlement funds shall be deposited in the general fund—not in a ‘gifts, grants, and proceeds’ account or any other specified account,” Judge Lazar explained for the majority.

“That leads inexorably to the conclusion that the Attorney General is operating contrary to law when settlement funds are deposited anywhere other than in the general purpose revenue fund.”

But the dissent said that the “unless otherwise specified by law” provision of Wis. Stat. section 20.906(1) points precisely to the funds established in Wis. Stat. sections 20.455(1)(gh) and (3)(g) – the funds Kaul used to deposit settlement funds.

The general fund, defined in Wis. Stat. section 20.001(2)(a)-(c), includes three types of revenue, the dissent explained.

The general fund includes general purpose revenues that the legislature appropriates and program revenues that are “paid into the general fund and are credited by law to an appropriation to finance a specified program or state agency.”

Wis. Stat. section 20.455 codifies the DOJ’s program-revenue appropriations, the dissent said.

“Wisconsin Stat. § 165.10 directs the attorney general to deposit settlement funds into the general fund. Wisconsin Stat. § 20.906(1) provides that those funds will be credited to the general purpose revenues unless another law provides a different crediting direction. Wis. Stat. §§ 20.455(1)(gh) and (3)(g) are laws that provide such direction,” the dissent summarized.

What Is Prosecuting an Action?

In failing to submit a settlement plan to the JFC, Kaul argued that no prosecution occurred when the DOJ filed a civil lawsuit and “simultaneously accompanied” the filing with “a proposed consent decree.” The results came from only “pre-suit negotiations.”

The Legislature disagreed. Once the DOJ files a complaint, the prosecution is “the request for a judicial order,” which the court resolves by its “consent decree order.”

Wisconsin has two kinds of actions, criminal and civil. Using dictionary definitions, the majority explained that a civil action is “[a]n action brought to enforce, redress, or protect a private or civil right; a noncriminal litigation.”

In Wisconsin, civil actions begin with a summons and complaint, which are necessary to start the consent decree process.

To prosecute, according to standard definitions, the majority explained, means “[t]o commence and carry out (a legal action).”

If a party fails to move forward in litigation in a timely manner the circuit court may dismiss the case. A court must review a proposed consent decree to determine court jurisdiction and validity, the majority said. “[C]ourts are not rubber stamps.”

“By filing a civil complaint to start a civil action in a court of law and then resolving that civil action based upon a judicially-approved consent decree,” the majority explained, “the Attorney General has clearly conducted, carried on, and engaged in a civil action.

“He has, as the circuit court correctly held, plainly ‘prosecuted and then, by filing the proposed consent decree, compromised that civil action,” requiring compliance with Wis. Stat. 165.08(1).”

Kaul claimed that “the statutory approval process would add unacceptable time to the prosecution,” but that hasn’t happened.

The parties conceded that the JFC “has acted with alacrity and has promptly considered Attorney General expenditure plans and just as promptly provided approval.”

The dissent reminded that in its dissent in Kaul, it concluded Wis. Stat. section 165.08(1) was unconstitutional when applied to certain civil actions, and on those grounds, it would have dismissed this issue as moot.