Sept. 30, 2009 – Failure to contemporaneously object to a violation of the court’s scheduling order does not forfeit the right to raise the issue subsequently, the Wisconsin Court of Appeals held.

In Lee v. GEICO Indemnity Co., 2008AP3125, the court of appeals also clarified its holding in Gray v. Eggert, 2001 WI App 246, to state that sanctions may be imposed for violating a court order without an accompanying showing of bad faith.

Court-ordered mediation

Valarie Lee filed a personal injury lawsuit arising out of an automobile collision with Ceree King, who was insured by GEICO. Pursuant to Wis. Stat. section 802.12, the trial court’s scheduling order directed the parties to appear in person for mediation. A corporate entity such as GEICO was instructed to send a representative, other than an attorney, with “full authority” to negotiate in the matter.

The final two lines of the scheduling order stated, “Failure to comply with any term of this order shall be considered cause for imposing sanctions which may include the dismissal of claims and defenses.”

At the mediation session, Lee and her attorney met with GEICO’s counsel who had phone contact with a company representative authorized to settle the case. Neither the mediator nor Lee’s counsel objected to the nonappearance of the GEICO representative and the mediation proceeded, but produced no agreement.

Prior to trial, Lee filed a motion for sanctions based on GEICO’s violation of the scheduling order’s requirement that a corporate representative personally appear at the mediation. Lee sought reimbursement for her actual expenses and attorney fees associated with the mediation and the wages lost when she missed work to attend the session.

GEICO responded that the trial court lacked the authority to grant Lee’s motion, which it characterized as merely an effort to punish a party for failing to settle. Additionally, GEICO argued that its conduct at the mediation was not egregious or in bad faith – elements it argued are preconditions for a sanction under Gray.

After a hearing, the trial court found that GEICO violated the scheduling order, thus undermining the court and showing disrespect to Lee and her counsel. As a sanction, the court ordered GEICO to pay $500, the amount the company attempted to save by participating in the mediation by phone. The court permitted GEICO an opportunity to present evidence of a lower amount and the sanction eventually became $311 for roundtrip airfare and $84.70 for ground transportation. The court imposed an additional $300 for statutory motion costs for a total sanction of $695.70.

GEICO filed its “motions after verdict” following the jury’s decision in Lee’s favor. The motion asked the court to vacate the earlier order for sanctions or offset the $695.70 against the jury’s verdict. The court denied the motion, finding it to be simply a motion for reconsideration without any newly discovered evidence or demonstrated manifest error of law or fact. The court then ordered GEICO to pay Lee $900 for the actual attorney fees related to responding to the motions after verdict.

Sanctions for violated court order

  In an opinion authored by Judge Kitty Brennan, the court of appeals noted that GEICO did not dispute it had ignored the court’s direction to send a representative to the mediation.

The court of appeals then rejected GEICO’s contention that the statutes do not authorize the sanctions, citing Wis. Stat. sections 802.10(7) and   805.03. Common law also gives the circuit court inherent powers to sanction parties for failure to comply with its orders, the court of appeals said, citing Schultz v. Sykes, 2001 WI App 255, and Chambers v. NASCO, 501 U.S. 32 (1991).

Contrary to GEICO’s reading of Gray, the circuit court was not required to find bad faith to impose sanctions, the court of appeals continued.

“In Gray, the trial court dismissed the case and ordered a $5,000.00 judgment for the plaintiff as a sanction for the defendant’s failure to mediate in good faith,” the court of appeals recounted. “We reversed, concluding that although dismissal and a $5,000.00 judgment may be permissible sanctions in some cases, as where a party acts with egregious conduct and in bad faith in not complying with some pretrial orders, in Gray there was neither a violation of a pretrial order nor any bad faith.”

In this case, the sanctions arise from GEICO’s violation of the court’s scheduling order, not for failure to settle, the court of appeals said. “We concluded in Gray that ‘Wisconsin Stat. § 805.03 provides a trial court with the discretionary authority to strike the answer and responsive pleadings of a defendant and enter judgment for the plaintiff as a sanction for the defendant’s failure to comply with any order of the court,” the court of appeals wrote. “Gray does not require a finding of bad faith where the sanction is imposed for violating of a court order.”

The court of appeals also noted that GEICO ignored the express warnings of sanctions contained in the scheduling order and it failed to take simple measures to protect itself. “GEICO could have asked the trial court for permission to appear by phone. It did not. It could have sought a stipulation from Lee’s counsel and the mediator for a representative to appear by phone, but it did not,” the court wrote.

GEICO argued that its behavior, while a violation of the scheduling order, was still reasonable because its “standard procedure” was to have a representative appear by phone and the expense of sending a representative to Wisconsin would be counter-productive to reaching a settlement.

“Even if true, none of these excuses, after the fact, justify violating the trial court’s order, particularly where GEICO never offers any explanation for why it did not ask the trial court for relief from the physical appearance order based on these reasons before the mediation occurred,” the court wrote.

Failure to contemporaneously object

The court of appeals discounted the significance of a failure to object to GEICO’s noncompliance on the day of the mediation.

“Not objecting to GEICO’s representative’s absence on the day of the mediation (when nothing could be done about it) is not the same as stipulating to the representative’s nonappearance,” the court of appeals said. “The scheduling order presented GEICO with two options, attendance or stipulation. The order does not provide for a unilateral decision not to attend.”

In dissent, Judge Joan Kessler argued that “Lee forfeited her right to seek sanctions against GEICO when she knowingly participated in the mediation without offering any objection to having GEICO’s representative appear by telephone.”

“There is no showing that rescheduling here was impossible,” Kessler reasoned. “Lee’s objection at the time would have allowed GEICO to cure its failure to appear personally, while preserving Lee’s ability to seek appropriate sanctions. Although better practice would have been for GEICO to have obtained, in advance, either Lee’s agreement to the telephone appearance or the trial court’s approval to appear by telephone, it was unfair for Lee to remain silent in the face of a curable violation of the scheduling order and complain only when the efforts at settlement were unsuccessful.”

Sanctions for filing motions after verdict

The court of appeals faulted the trial court for sanctioning GEICO regarding its post-trial motion to vacate the earlier sanctions order or offset the sanctions against the jury verdict. Accordingly, the court of appeals struck the $900 amount from the sanctions.

“[S]anctions such as awards of attorney fees are permissible if the statutes allow them or under a trial court’s inherent powers, if there is misconduct,” the court wrote. “Here, no statute authorizes sanctions for bringing a motion for reconsideration, and the trial court made no finding of misconduct nor does the record reveal misconduct... [T]rial courts may not sanction a party in the absence of egregious conduct, bad faith or a violation of a court order.”