Illinois Supreme Court Agrees to Clarify Scope of Automatic Public Employee Grievance Procedure

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Are all disciplinary actions against public employees, up to and including termination, subject to a rebuttable presumption of arbitrability absent an express carve-out in the parties’ collective bargaining agreement?  In the closing days of the May term, the Illinois Supreme Court agreed to address that question, allowing a petition for leave to appeal in Village of Bartonville v. Lopez, a decision from the Third District of the Appellate Court.

Bartonville began in mid-2014 when the police chief of the plaintiff village filed a complaint with the Village’s Board of Fire and Police Commissioners seeking to terminate a police officer.  According to the complaint, the officer had drawn his firearm during a traffic stop and pointed it at a motorist without proper grounds for doing so.

The Village’s police officers were represented by a union, which had entered into a collective bargaining agreement with the Village.  The parties’ CBA described the grievance procedure as “the sole and exclusive procedure for resolving any grievance or dispute which was or could have been raised by an Officer covered by this Agreement or the Union.”  A separate article of the CBA dealt with discipline, and neither expressly included nor expressly excluded disciplinary actions from the scope of the grievance procedure.

Just before the Board heard the chief’s termination complaint, the defendant officer filed a complaint in court seeking a declaratory judgment and injunctive relief, arguing that the Board had no jurisdiction to proceed and the matter must be arbitrated.  Before the trial court could rule, the Board met to address the complaint.  The officer’s attorney challenged the Board’s jurisdiction, but when that challenge was rejected, the officer fully participated in the hearing on the merits.  The Board ultimately ruled that the officer should be terminated.  The union then filed a grievance with the police department challenging the Board’s decision.

Not long after that, the Village filed another complaint, seeking a declaratory judgment and permanent stay of arbitration under the CBA.  The defendants, including the officer, responded by filing a motion to compel arbitration.  The Village answered with a motion for summary judgment, arguing that arbitration was barred by the Municipal Code, the Administrative Review Law and res judicata.  The court granted the Village’s motion for summary judgment, and the defendants appealed.

A divided Appellate Court reversed.  On appeal, the defendants argued that the trial court had believed that arbitration was not required unless the CBA expressly included disciplinary matters within the scope of the grievance procedure.  The correct standard, they argued, was that all matters were presumptively included unless expressly excluded.  The defendants further argued that even if the Municipal Code and Administrative Review Law arguably seemed to exclude arbitration of discipline, they conflicted with the Illinois Public Labor Relations Act, 5 ILCS 315/1, which establishes a presumption of arbitrability unless the parties expressly agree otherwise.

According to the Appellate Court, because arbitration is a “uniquely suitable procedure for settling labor disputes,” the arbitration provisions of collective bargaining agreements must be given a broader construction than similar provisions in routine commercial contracts.  Because the Labor Relations Act reverses the usual presumption against arbitrability, in cases where the parties’ intent is unclear, the matter should be referred to an arbitrator for the threshold determination of what the parties intended.

The Court concluded that the parties’ CBA was unclear on whether or not discipline was subject to the grievance procedure – on the one hand, the actual grievance provision didn’t expressly exclude discipline, but on the other hand, disciplinary matters were addressed in a separate article of the agreement.  Therefore, the Court reversed the trial court with instructions that the court should send the matter to arbitration for a determination of the scope of the grievance procedure.

Presiding Justice O’Brien specially concurred, arguing that the fact that the grievance article didn’t expressly exclude discipline was dispositive, so there was no need for a threshold determination of the scope of arbitration.

Justice McDade dissented, arguing that even though the majority’s arbitration analysis was correct – the ambiguity of the CBA triggered a presumption of arbitration – the officer had waived his right to arbitrate by participating on the merits before the Board, and now res judicata barred arbitration.

We expect Village of Bartonville to be decided this winter.

Image courtesy of Flickr by Ewe Neon (no changes).

Illinois Supreme Court Agrees to Clarify Scope of State Open Meetings Act

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In the closing days of the May term, the Illinois Supreme Court agreed to clarify exactly what government officials may and may not do in closed sessions.  The Court allowed a petition for leave to appeal in Board of Education of Springfield School District No. 186 v. The Attorney General of Illinois, a decision from the Fourth District.

Board began in late 2012 when the superintendent of the defendant school board sent the Board a letter inquiring about terminating his contract.  The Board and the superintendent reached an agreement on the terms of his contractual release.  The superintendent signed and dated the agreement, and during a closed meeting of the Board a few days later, the seven members of the Board signed the agreement, but did not date their signatures.

Nearly a month later, the Board posted the entire agreement on its website, four days prior to a scheduled March 5, 2013 meeting.  An agenda item reflected that the Board would be voting on “the . . . Agreement” with the outgoing superintendent, but offered no further explanation.  During the public meeting, the Board’s president called up the question of the agreement, and the Board approved it 6-1.

A few months later, allegations were brought to the attention of the Attorney General that the Board’s procedures had violated the Open Meetings Act (5 ILCS 120/1).  The Board filed a complaint for administrative review.  The Circuit Court concluded that the Attorney General had erred by concluding that the Board’s “final action” in terms of the Act occurred when the members signed the agreement, as opposed to when (during a public meeting) they voted on it.  The court remanded the matter to the Board for a response to the AG’s second claim – that the Board had also violated the Act by failing to adequately explain in the public notice what it was doing.  Following remand, the Attorney General issued a second opinion concluding that the Board’s public explanation of what it intended to do did indeed violate the Act.  The matter then returned to the Circuit Court, which reversed the Attorney General’s administrative opinion.

The Fourth District unanimously affirmed.  The Court began by noting that although the Act permits closed meetings to discuss “appointment, employment, compensation, discipline, or dismissal of specific employees,” the Act bars the taking of “final action” at a closed meeting.  Any “final action” must be “preceded by a public recital of the nature of the matter being considered and other information that will inform the public of the business being conducted.”  (5 ILCS 120/2(e).)

The court rejected the Attorney General’s claim that the Board had taken “final action” within the meaning of the Act when the Board members signed the agreement, citing several earlier cases holding that so long as a final and binding vote is taken in public session, signing a document is not “final action.”  Nor was the Board’s explanation of its intentions insufficient to inform the public “of the nature of the matter being considered,” according to the Court.  The Court noted that the AG had not explained what further information the Board, in its view, should have provided, and found that the AG’s argument imposed a greater burden on public entities than the plain language of the statute requires.

We expect Board of Education to be decided this winter.

Image courtesy of Flickr by Archangel12 (no changes).

 

Illinois Supreme Court Strikes Down Property Tax Exemption for Aviation Firm

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Various kinds of tax breaks have become a commonplace tool for city, county and state governments to use in competing to lure new businesses into their jurisdiction, or persuade businesses already there to stay or expand. Last week, the Illinois Supreme Court addressed one of those tools, holding in Moline School District No. 40 Board of Education v. Quinn that a property tax exemption for an aviation firm in Moline County violated the special legislation clause of the Illinois constitution. Our detailed summary of the underlying facts and lower court decisions in Moline School District is here.

The business involved in Moline School District is what’s known in the aviation industry as a fixed based operator, or FBO. FBOs operate at airports, providing support services to general aviation aircraft such as fueling, hangaring, maintenance and repair, aircraft rental and facilities for conferences and flight planning. There are many FBOs in Illinois, a state with nineteen other airport authorities in addition to the one involved in Moline School District.

The FBO involved in Moline School District has three separate operations in the Midwest – Des Moines, Minneapolis and the Quad City International Airport in Moline. Even though the FBO doesn’t own the real estate and improvements it uses at the Quad City Airport, Illinois levies property taxes on its leasehold interest. A few years ago, the FBO decided it wanted to expand, either in Moline or Des Moines. But there was an important difference between the two sites – Iowa did not levy property taxes on the company’s leasehold interest in Des Moines.

As a result, the local Chamber of Commerce asked a state legislator to support legislation to exempt the company’s leasehold interest at the Quad City Airport from property taxes. While the bill was making its way through the legislature, there was an attempt to add a second airport to its provisions, but that amendment failed. The bill was ultimately enacted and signed into law by the Governor.

The plaintiff school district received about $150,000 a year as a direct result of the FBO’s property tax bill. The District filed suit, challenging the property tax exemption as a violation of: (1) the special legislation clause; (2) due process and equal protection; (3) the property tax clause requiring uniform valuation; and (4) the constitutional limitation on property which can be exempted from property taxation. The FBO intervened in the action, and the parties filed cross motions for summary judgment. The Circuit Court rejected each of the School District’s constitutional challenges and granted the FBO’s motion for summary judgment. The Appellate Court reversed, holding that the statute was unconstitutional special legislation.

In an opinion by Justice Karmeier, the Supreme Court agreed with the Appellate Court. The special legislation clause provides that the General Assembly “shall pass no special or local law when a general law is or can be made applicable.” The courts have interpreted the clause as meaning that the legislature cannot confer special benefits or privileges on one person or group and deny the same benefits to others similarly situated. This does not, however, prevent the legislature from addressing a situation where a person or entity is uniquely situated. Assessing a special legislation challenge involves two steps: first, does the legislation discriminate, and second, is the discrimination arbitrary (which is usually assessed under the rational basis test).

The majority concluded that the tax exemption clearly met the first test for special legislation – it exempted FBOS at Quad City International Airport from property taxation – and there was only one. So the case came down to whether or not the exemption was rationally related to a legitimate state interest.

The majority held that the exemption failed the rational basis test. The problem was that there was no requirement in the legislation that the FBO actually use the money saved by the tax exemption for expansion in Illinois. As the Court pointed out, there was nothing to stop the FBO from using the savings to expand in Iowa. If the FBO took the tax exemption and ultimately didn’t expand in Rock Island County, the citizens of the county not only wouldn’t achieve the hoped-for economic benefits, they would be affirmatively injured by the lost revenue.

The FBO argued that its circumstances are unique, but the majority rejected the claim, pointing out that there were other FBOs in the state operating near states with more favorable tax circumstances. Nor was Rock Island uniquely situated, according to the Court. The majority found no evidence of economic needs there which didn’t equally exist in many other parts of the state. Ultimately, the majority concluded that it saw nothing which would justify distinguishing FBOs operating at the Quad City Airport from FBOs at other Illinois airports or, for that matter, from other Illinois businesses operating near more tax-friendly jurisdictions.

Justice Theis dissented, writing that the majority had “paid only lip service” to the duty to uphold legislation when reasonably possible to do so. Justice Theis argued that in fact, the School District had failed to satisfy either of the two prongs on the special legislation test: that the legislation discriminated, or that the classification was arbitrary. The FBO at issue had provided evidence with its cross-motion for summary judgment which “indicated that the company was arguably in a unique situation.” The FBO offered testimony that Rock Island County was the only county in Illinois with a major airport bordering Iowa, which does not tax FBO leaseholds. The School District, in contrast, “seemed to assert that FBOs” at the Quad City Airport “are similar to other FBOs in Illinois simply because there are other FBOs in Illinois.” The trial court had been persuaded by the FBO’s “stronger and more supported argument” that the FBO was in a unique position, but the Appellate Court, according to Justice Theis, had “ignored that evidence.”

Justice Theis criticized the majority’s reasoning that there are other FBOs conducting business near state borders, arguing that the majority had disregarded the limitations on judicial notice, and had also turned the presumption in favor of constitutionality on its head by disregarding the School District’s failure to present any evidence about those other FBOs’ circumstances. The FBO offered an economic impact summary from the Chamber of Commerce concluding that the property tax exemption would put Illinois and Iowa on an equal footing for an expansion project. Justice Theis concluded that the tax exemption had been based upon a reasonable judgment about the economic impact of the project and the needs of Rock Island County – a judgment which the legislature was certainly free to make.

Image courtesy of Flickr by Rennett Stowe (no changes).

Illinois Supreme Court Agrees to Decide Whether Date on a Business Letter is Sufficient Notice of Service

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Is the date on a business letter sufficient notice of service of an administrative decision to start the clock ticking on a party’s deadline to file for administrative review?  The Illinois Supreme Court has agreed to decide that question, granting leave to appeal in Grimm v. Calica, a decision of the Second District Appellate Court.

In the summer of 2013, an Administrative Law Judge of the Department of Children and Family Services recommended that the Department not expunge an “indicated” child-abuse finding against the plaintiff.  Nine days later, the Department sent the plaintiff’s attorney its decision accepting the ALJ’s recommendation.  The decision was in the form of a business letter.  It apparently contained no formal certificate of service; it simply contained a heading with the words “certified mail,” below that the date, and then the address of plaintiff’s attorney.

The plaintiff filed a complaint for administrative review thirty-six days after the date on the letter.  Under Illinois law, a circuit court is vested with jurisdiction to consider a complaint for administrative review only if the plaintiff files within thirty-five days.  The court denied the defendant’s motion to dismiss on timeliness grounds and subsequently reversed the Department’s decision on the merits.

The Second District affirmed that decision.  Due process prevented strict enforcement of the thirty-five day filing limit, the Court noted, when the agency had failed to fairly inform the potential plaintiff of its decision.  The plaintiff argued that the notice she received was too confusing and misleading to satisfy due process requirements.  The defendant responded that the date of mailing was clearly reflected in the heading of the letter, and further, the plaintiff could have determined the date of mailing by simply calling the Department.

The Court sided with the plaintiff, holding that the notice was “unnecessarily confusing.”  The date, the Court found, was in the traditional position for the date of a business letter.  There was nothing about it which clearly indicated that the date of the letter was also the date of mailing.  True, business letters are typically mailed within a day or two of the date on the letter, but after all, if the Department’s decision had been mailed even one day after the date on the letter, the plaintiff’s complaint was timely.  As for the option of calling the Department to determine service, the Court found “the idea of a service date that is known only to the one doing the serving to be troublingly counterintuitive.”

Ultimately, the administrative review process was one “in which a potential administrative-review plaintiff can afford few missteps,” the Court wrote.  Given that the Department could have removed all possible confusion “by a change as simple as stating the mailing date and stating that the mailing date was the service date,” the Court declined to strictly enforce the filing deadline on due process grounds.

The defendant did not challenge the Circuit Court’s decision on the merits holding that the underlying decision not to expunge was not supported by the evidence.  Since the complaint was timely, the decision of the Circuit Court was affirmed.

We expect Grimm to be decided this winter.

Image courtesy of Flickr by Mark Morgan (no changes)

Illinois Supreme Court to Clarify Powers of Cook County Inspector General

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Can the Cook County Board of Commissioners authorize the County Inspector General to issue subpoenas for documents directly to the County’s elected officials, and compel those officials to cooperate with an IG investigation? The Illinois Supreme Court has agreed to decide that issue in Blanchard v. Berrios, an appeal from the First District, Division Two of the Appellate Court. Blanchard turns on the scope of Cook County’s home rule authority under Illinois law, and particularly upon the intersection between investigating fraud and misconduct – certainly an area of local concern – and tax assessments, which is perhaps not a local area.

The Inspector General’s office was created by the Board of Commissioners to investigate fraud, corruption and misconduct among the County’s elected officials. In late 2013, the IG’s office issued a subpoena to the Cook County Assessor calling for production of all documents relating to homeowners exemptions granted for two specific addresses between 2005 and 2012. The assessor objected, the IG filed suit, and the parties filed cross-motions for summary judgment. The trial court entered an order finding for the IG and ordering the Assessor to turn over the documents.

On appeal, the Assessor argued that the Board could validly assign new duties to elected officials (here, the elected officials’ duty to cooperate with the IG’s investigation) only to the extent permitted by its home rule authority. Although the Supreme Court had held in Chicago Bar Association v. County of Cook that tax assessment didn’t “pertain to the county’s local government and affairs” so as to fall within home rule authority, the First District concluded that the challenged ordinance didn’t relate to assessment – it related to corruption. The courts have suggested that a similar ordinance in Chicago was valid, and courts in other states have held that home rule units have the power to investigate corruption in public officials, the court noted.

The Assessor also claimed that the Board lacked the power to authorize the IG to issue subpoenas. But home rule authority extends to anything of local concern absent a specific and express limitation imposed by the legislature, and the Assessor was unable to point to any statute denying home rule entities the power to delegate their subpoena power.

Finally, the Assessor argued that the ordinance unconstitutionally infringed on the State’s Attorney’s power to convene grand juries and prosecute crimes. The Court summarily rejected that argument, pointing out that nothing in the ordinance authorized the IG to do either one; rather, he or she was simply given the power to notify the appropriate law enforcement authority if evidence of criminal activity was found.

We expect a decision in Blanchard this winter.

Image courtesy of Flickr by Daniel X. O’Neil (no changes).

Florida High Court to Determine Whether a Florida State Court Can Enforce Another State Court’s Order Allowing Grandparent Visitation

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The Florida Supreme Court will review the Fifth District’s decision in LeDoux-Nottingham v. Downs, 163 So. 3d 560 (Fla. 5th DCA 2015), which involves whether the Full Faith & Credit Clause trumps Florida’s overriding public policy of a guaranteed fundamental right of privacy in child-rearing autonomy. See SC15-1037.

After the funeral of her ex-husband in Colorado, Ruth LeDoux-Nottingham immediately moved to Florida with her two minor children. During this time, the grandparents filed suit in Colorado, seeking visitation with the children. LeDoux-Nottingham then asked a Florida court to determine that the grandparents had no legal time-sharing rights. By then, the Colorado court held that having grandparent visitation was in the minor children’s best interest.

Shortly after, LeDoux-Nottingham amended her Florida petition. According to Article I, section 23 of the Florida Constitution, “every natural person has the right to be let alone and free from governmental intrusion into the person’s private life.” LeDoux-Nottingham relied on this section and presented a public policy argument, claiming that “under Florida law, enforcement of grandparent visitation [was] unconstitutional and against public policy” because it violated child-rearing autonomy guaranteed to parents under the Florida Constitution. After a trial, the Florida court entered final judgment in favor of the grandparents, enforcing the Colorado order.

LeDoux-Nottingham appealed to the Fifth District. The Fifth District affirmed the trial court’s decision and rejected her public policy argument because it was similar to one the Fifth District rejected sixteen years ago in Bellow v. Bellow, 736 So. 2d 759 (Fla. 5th DCA 1999) (holding that another state’s decree was still entitled to full faith and credit despite it potentially violating public policy in the forum state). The court reasoned: “Since the Colorado order was a final judgment and emanated from a ‘child custody proceeding’ within the meaning of section 61.503(4) of the Florida Statutes (2013), it became enforceable pursuant to the Full Faith and Credit Clause.” The Fifth District also relied on Baker v. General Motors Corp., 522 U.S. 222 (1998), where the Supreme Court expressly made “clear that public policy of one state [had] no effect on whether the state must give full faith and credit to judgments.”

Oral argument took place on June 7, 2016. This article will be updated once the supreme court decides the case.

Image Courtesy of Flickr by chedderfish

Illinois Supreme Court Delivers Mixed Verdict for Retirees Challenging CBA

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Last month, the Illinois Supreme Court added to its rapidly increasing jurisprudence on the state constitution’s pension protection clause, delivering a mixed verdict for transit authority retirees, affirming in part and reversing in part in Matthews v. Chicago Transit Authority. Our detailed summary of the underlying facts and lower court holdings is here. Our report on the oral argument is here.

The individual plaintiffs in Matthews are five current and retired employees of the Chicago Transit Authority, each of whom began working for the CTA before 2001. Before May 1980, the CTA contributed up to $40 per month for each retiree’s health care premium. At that time, an arbitration panel ordered the CTA Retirement Plan to increase its contribution to $60 per month through the end of 1980, and to $75 per month thereafter. In 2007, another arbitration panel directed that a Retiree Health Care Trust be established. The panel directed that retired employees should contribute up to 45% of the total amount expended under the Plan for their health care, and that the trustees have the discretion to increase or decrease contribution and benefit levels. The panel also directed that current employees contribute to their health care costs through a payroll tax equal to 3% of their compensation. On or about February 2009, the Health Trust Board instituted a “plan redesign” requiring retirees hired before September 5, 2001 to pay 45% of the total cost of their health care benefits.

The plaintiffs sued the CTA, the Retirement Plan for CTA Employees, the Plan’s Trustees, and various other entities, asserting claims for breach of contract, promissory estoppel, breach of fiduciary duty and declaratory relief. One plaintiff sought to represent a class – referred to in the opinion as Class I – who began working before September 5, 2001 and retired before January 1, 2007. The remaining plaintiffs sought to represent a class which began working before September 5, 2001, but retired after January 1, 2007 (Class II).

The circuit court dismissed the complaint for failure to state a claim. The Appellate Court affirmed in part and reversed in part, holding that CTA retirees had a vested right to receive retiree health care benefits. The Appellate Court further held that retired CTA employees were entitled to pursue their claims for promissory estoppel.

In an opinion by Justice Freeman, the Supreme Court affirmed in part and reversed in part. Before the Court, the defendants argued that all plaintiffs lacked standing because they were represented by the Transit Unions during the collective bargaining process. The Court agreed that the CTA recognizes the transit union as the sole and exclusive collective bargaining agent for the employees. Ordinarily, a member of the union may file suit to challenge an arbitration award only if the union breached its duty of fair representation – an allegation not made by the complaint. Since the Class II plaintiffs who retired post-2007 were indisputably represented by the union during the negotiations which led to the arbitration award, the Class II plaintiffs lacked standing.

The plaintiff seeking to represent Class I, however, was another matter. He was retired by the time of the negotiations ending in the arbitration award. Unions may represent the interests of retirees in collective bargaining if retirees agree to it. Since there was no indication in the complaint that the plaintiff seeking to represent Class I had agreed to have the union represent him post-retirement, that plaintiff had standing to proceed.

The Court turned next to the Class I representative plaintiff’s argument that the 2004 CBA created vested rights to paid health care benefits. The Appellate Court agreed. The Supreme Court reversed in this regard, holding that the Pension Protection Clause of the state Constitution does not transform a nonvested right to retirement benefits into one that is vested. “[S]ection 5 of article XIII does not establish any ‘vesting rules,’” the Court wrote. “Rather, it simply protects the actual contract that governs the retirement system membership.”

The plaintiff seeking to represent Class I argued that the union lacked the authority to agree to a diminishment of retiree health care benefits because a union cannot agree to waive its members’ constitutionally protected rights. The Court disagreed, finding that “a union can waive statutory and economic rights on behalf of its members.” The plaintiff further argued that pension rights couldn’t be the subject of collective bargaining because they were individual statutory rights. The Court disagreed, finding that the argument was “inconsistent with the overall purpose of collective bargaining.”

The Court explained that although contractual obligations generally cease upon the termination of a particular CBA, exceptions could be made pursuant to the parties’ mutual intent. Pointing to the language in Section 20.12(a) of the Retirement Plan Agreement stating that “This benefit terminates when the retiree attains age 65,” the Court concluded that the parties had indeed intended that benefits survive the CBA. Ultimately, because the plaintiff seeking to represent Class I had retired before the 2004 CBA expired, and was not a member of the bargaining unit at the time of the 2007 arbitration, he had an enforceable, vested right to continued health care benefits which was protected by the Pension Protection Clause of the state Constitution.

The Court concluded by briefly rejecting the Class I plaintiff’s claim for promissory estoppel, noting that the plaintiff had not pointed to any particular statement through which the Transit Authority had promised to continue paying benefits, and any such statement by an individual employee would be ultra vires without Board approval anyway.

In sum, the Court held that the Class I plaintiff could proceed with his claims for breach of contract and violation of the Pension Protection Clause, but not with his claim for promissory estoppel. Dismissal of the Class II plaintiffs was affirmed.

Justice Theis specially concurred with the judgment, declining to join only the majority’s discussion of whether or not the Class I plaintiffs’ claims were “vested.” Justice Karmeier also specially concurred, both joining in Justice Theis’ concurrence and adding the additional comment that the majority should not have discussed the authority of unions to waive their members’ constitutionally protected, statutory or economic rights in a collective bargaining agreement.

Image courtesy of Flickr by Toshiyuki Imai (no changes).

Illinois Supreme Court Holds Voluntary Dismissal Without Prejudice Not Accorded Res Judicata Effect

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During the recently concluded May term, the Illinois Supreme Court resolved a civil procedure issue with potential implications across a broad spectrum of cases: when a party exercises its right to voluntarily dismiss its own action without prejudice and subsequently refile, is the dismissal accorded res judicata effect?  In Richter v. Prairie Farms Dairy, Inc., a unanimous Illinois Supreme Court held that the answer was “no.”  Our detailed discussion of the underlying facts and lower court holdings in Richter is here.  Our report on the oral argument is here.

Richter began in 1980 when the plaintiffs, partners in the business of dairy farming, became members of the defendant agricultural cooperative.  In mid-2005, the defendant became aware that plaintiffs had temporarily ceased milk production.  Defendant notified plaintiffs that it was terminating their membership in the cooperative (and the parties’ agreement).  The following year, the plaintiff filed a three-count complaint, purporting to allege claims for shareholder remedies, under the Illinois Consumer Fraud and Deceptive Business Practices Act (815 ILCS 505/1) and for common law fraud.  On plaintiffs’ motion, the circuit court dismissed the second and third claims with leave to amend, but denied the motion as to the first claim.  The plaintiffs subsequently filed a motion seeking to extend their time to file an amended complaint, but ultimately never filed one.  Instead, the case proceeded on the one remaining claim.  However, after a series of extensions of various deadlines, the plaintiffs voluntarily dismissed their action without prejudice in late 2012.

A year later, plaintiffs refiled their complaint.  This time, they purported to allege four claims: shareholder remedies; misrepresentation; common-law fraud and breach of fiduciary duty.  After a change of venue, the new circuit court presiding over the action dismissed on grounds of res judicata and the statute of limitations.  The Appellate Court reversed, holding that res judicata was not applicable.

In an opinion by Justice Freeman, the Supreme Court affirmed the Appellate Court.  The Court noted that res judicata had three elements under Illinois law: (1) a final judgment on the merits rendered by a court of competent jurisdiction; (2) an identity of cause of action; and (3) an identity of parties or their privies.  Although the parties agreed that the second and third elements were satisfied, the Court held that the first was not.  An order dismissing with leave to amend is not final because it doesn’t terminate the litigation between the parties.

The defendant argued that the dismissal was transformed into one on the merits for purposes of res judicata when the Court’s deadline for filing an amended complaint passed without any action by the plaintiff.  Indeed, the defendant argued that there was no procedural vehicle available to it to finalize the litigation once the deadline to amend had passed. The problem with that argument, the Court found, was that past case law made it clear that courts retain the discretion to allow parties to amend their complaints even after the deadlines had passed.  Therefore, the action remained in non-final state unless and until the defendant filed a motion seeking final dismissal.  The defendant relied on Smith v. Central Illinois Regional Airport, arguing that Smith had held that a dismissal becomes final automatically once the Court’s deadline passed, but the Court found that defendant was relying upon a single line of out-of-context dicta which contradicted a good many previous holdings to the contrary.

The defendant argued that unless the dismissal was accorded res judicata effect, the plaintiffs faced no consequences for ignoring the trial court’s deadline to amend.  But, the Court noted, the circuit court was free to impose whatever consequences it saw fit once the deadline had passed upon a proper motion by the defendant.  Since no follow-up motion had been filed, the initial dismissal was never final.

The Court concluded by briefly rejecting the defendant’s two subsidiary arguments.  The defendant argued that the plaintiffs’ refiling violated the rule against claim splitting, but the Court found that this was merely a variation on the res judicata argument, and no claim splitting problem arose.  The defendant argued that the refiled action was barred by the statute of limitations, but the Court held that the action was saved by the limitations saving clause of the voluntary dismissal statute, 735 ILCS 5/13-217.

Image courtesy of Flickr by Marielle den Hoedt (no changes).

Illinois Supreme Court Holds Implied Warranty of Habitability Can Be Waived Forever By First Owner

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The Illinois Supreme Court first adopted the doctrine that newly constructed homes come with an implied warranty of habitability in 1979 in Petersen v. Hubschman Construction Co.  Three years later, the Court held that the implied warranty could pass to the second owner of the house where the first owner hadn’t made a valid and enforceable waiver of it.  That left a question open: could the second owner claim a breach of the implied warranty when the first owner had made a valid and enforceable waiver of it?  In the closing days of its May term, a unanimous Illinois Supreme Court handed the Illinois home construction industry a big win, holding in Fattah v. Bim that a first owner’s valid and enforceable waiver of the implied warranty is fully enforceable against the second owner.  Our detailed summary of the facts and underlying court decisions in Fattah is here.

Fattah began in 2007 when the defendants’ construction company built a house.  In the real estate sales contract, the first owner agreed to “knowingly, voluntarily, fully and forever” waive the implied warranty of habitability in exchange for a one year express warranty from the contractor.  Three years after the house was built, the original owner sold it to the plaintiff.  That sales contract provided that the plaintiff was buying the house “as is,” and stated that the plaintiff had been advised to seek legal advice as to the risks involved in such a purchase.

In February 2011, part of the retaining wall around the rear patio of the house gave way, and a portion of the patio collapsed.  The plaintiff sued the defendants, alleging a claim under the implied warranty of habitability.  The circuit court found for defendant following a bench trial, holding that the first owner’s waiver of the implied warranty was fully enforceable against the plaintiff, but the Appellate Court reversed.

In an opinion by Justice Burke, the Supreme Court unanimously reversed the Appellate Court.  The Court particularly noted that other courts have most frequently held that the implied warranty of habitability can extend to the second owner when doing so doesn’t alter the builder’s expectations as to its potential liabilities.  But here, the second owner wasn’t trying to recover under a claim that the first owner could have made (if he had still owned the house).  All the parties agreed that the first owner’s waiver was enforceable.  As a result, the plaintiff was attempting to significantly alter the defendant’s potential liabilities.

The Court emphasized that doing so would sweep away the financial certainty the builder thought he had acquired by substituting a one-year warranty for the implied warranty.  Since the builder has no way of knowing when the house might be sold, he must assume that potential liabilities could spring back to life at any moment.  If the Court agreed with the plaintiff, it concluded that builders would simply stop entering into agreements to waive the implied warranty.  Besides, the rule advocated by the plaintiff was subject to abuse, the Court noted.  What if a husband and wife purchased a house in the wife’s name, and the wife entered into an enforceable waiver of the implied warranty of habitability.  The wife would then be able to transfer the house to her husband’s name the next day and revive the warranty.  A second buyer is in a much stronger position according to the Court than a first buyer is to negotiate for a warranty, to inquire whether the implied warranty was waived, or to get a reduction in the price to reflect the risk of latent defects.  The Court held that under Illinois law, most second buyers could take advantage of the implied warranty of habitability because they were treated as stepping into the shoes of the first buyer.  But with that benefit came the flipside of any limitations on the first buyer’s potential recovery – here, the complete waiver of the implied warranty.

Image courtesy of Flickr by Laurent Henschen (no changes).

Illinois Supreme Court Dismisses the FutureGen Appeal on Grounds of Mootness

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Late in 2014, the Illinois Supreme Court agreed to clarify the dimensions of the Illinois Commerce Commission’s authority, allowing a petition for leave to appeal in the FutureGen case – Commonwealth Edison Co. v. Illinois Commerce CommissionThe problem was, only a few months after the Court granted review, the Department of Energy suspended all funding for the FutureGen project.  Eleven months after the funding terminated, the FutureGen Alliance Board ceased all project development efforts.  In the final days of its May term, the Illinois Supreme Court dismissed Commonwealth Edison on grounds of mootness.  Our detailed summary of the facts and underlying court decisions in Commonwealth Edison is here.  Our report on the oral argument is here.

FutureGen was created to research and develop near-zero emissions coal technology.  The proposed clean coal electric generating facility, dubbed FutureGen 2.0, was scheduled to begin operating in 2017.  The Illinois Commerce Commission issued an order finding that it could force both public utility companies and private owned and competitively operated Area Retail Electric Suppliers (“ARES”) to purchase all of FutureGen’s output for twenty years.  The petitioners filed suit, arguing that the Commission lacked the authority to require the ARES to enter into sourcing agreements.  The Appellate Court affirmed the order of the Commission, and the Supreme Court allowed the petitioners’ petition for leave to appeal.

Following the Energy Department’s suspension of funding, the Court directed the parties to brief the issue of mootness.  All parties filed briefs agreeing that the appeal was moot, but the petitioners asked the Court to decide the issues anyway under the public interest exception to the mootness doctrine.

In a unanimous decision by Justice Kilbride, the Court declined to do so.  The Court noted that public interest was a very limited exception to the mootness doctrine requiring finding three facts: (1) the question is of a public nature; (2) an authoritative determination of the question is desirable for the future guidance of public officers; and (3) the question is likely to recur.  But none of the three prerequisites were present here, according to the Court.

Any public nature of the question presented had ceased to exist once the FutureGen project was terminated.  The second factor, the need for an authoritative determination, depends to a considerable extent on whether the law is in disarray or conflicting precedent exists.  But the parties agreed that the issue presented was one of first impression.  The petitioners insisted that “nothing . . . prevents another retrofitted clean coal facility” from proposing similar sourcing agreements, but the Court found that the FutureGen project was relatively unique, and the relevant statute had only limited application to retrofitted clean coal facilities.  So there was no reason to imagine that the issue would necessarily ever recur.

The Court concluded its opinion by using its supervisory authority to vacate the Appellate Court opinion (without expressing any opinion on its correctness).  The petitioners asked the Court to also vacate the Commission’s order, but the Court held that there was no need to do so, since the Commission’s orders were nonprecedential, and therefore would not necessarily control a new case.

Image courtesy of Flickr by Alexander G (no changes).

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