The Appellate Strategist

The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

Illinois Supreme Court Declines to Recognize Self-Critical Analysis Privilege

Posted in Illinois

5646757752_5a4ea2ea2d_zThe self-critical analysis privilege – the notion that organizations should be able to take a candid look at their own procedures and performance without fear of being forced to disclose the results in discovery – has been lurking around the periphery of civil litigation for forty-four years, since Bredice v. Doctors Hospital, Inc. in 1970. In that time, the privilege has spawned a lot of commentary without being unequivocally adopted in too many jurisdictions.

In the closing days of the March term, the Illinois Supreme Court declined an invitation to recognize the privilege in Harris v. One Hope United, Inc. Our summary of the underlying facts and lower court opinions is here. Our report on the oral argument is here.

Harris began when the Illinois Department of Children and Family Services received a complaint about alleged neglect of a seven-month old child. DCFS assigned the matter to the defendants to monitor the child and her family. DCFS ordered that the child live with her aunt for a time, but ultimately, the child was returned to her mother. Not long after, the child was drowned when her mother left her unattended while bathing her.

The Cook County Public Guardian, acting as administrator of the child’s estate, sued the defendant for wrongful death, alleging that the child should not have been returned to her mother. During discovery, the executive director of the defendant disclosed that the defendant maintained a continuous quality review department to assess the quality of the defendant’s care, identify “gaps in service delivery” and evaluate whether outcomes were successful or not. The plaintiff moved to compel production of the program report, but the defendant refused, invoking the self-critical analysis privilege. The circuit court granted the motion to compel and – on appeal from an order of friendly contempt – the Appellate Court affirmed.

In an opinion by Justice Karmeier, a unanimous Court affirmed. According to the Ninth Circuit, “if such a privilege exists,” the privilege has four elements: (1) the information must result from a self-critical analysis; (2) the public must have a strong interest in preserving the free flow of the type of information sought; (3) the information must be of a type whose free flow would be curtailed if discovery were allowed; and (4) the document was prepared in expectation of confidentiality, and has in fact been kept confidential.

The Court found that recognition of a new common-law privilege involved a decision that a privilege promotes sufficiently important interests to outweigh the need for probative evidence. That was a judgment best left in nearly all cases to the legislature, the Court said. Even in the extremely rare occasions where it might be justified for the Court to act on its own, previous legislative enactments should be carefully considered.

That inquiry was decisive here, the Court found. The defendant relied upon the Medical Studies Act (735 ILCS 5/8-2101) in arguing for recognition of the privilege, but in fact, the Act cut the other way. Given the structure of the Act, the legislature could easily have recognized a self-critical analysis privilege – but it chose not to do so. Nor did the Child Death Review Act (20 ILCS 515/5(3)), also relied upon by the defendant, support finding a privilege. That Act prioritized full and complete disclosure of the circumstances of any child death case, and that interest counseled against recognizing a privilege. Taken together, the Court held that the two Acts were persuasive evidence that the legislature preferred not to recognize a self-critical analysis privilege under such circumstances. Accordingly, the Court affirmed the judgments of the Circuit and Appellate Courts ordering disclosure. The Court also affirmed the Appellate Court’s decision to vacate the contempt finding against the defendant on the grounds that the defendant had acted in good faith.

Image courtesy of Flickr by Woody Hibbard.

Illinois Supreme Court Holds Accountant is Holder of Privilege, No Testamentary Exception

Posted in Illinois

3997723224_8c9acd37af_o(1)Late in the March term, the Illinois Supreme Court handed down its opinion in Brunton v. Kruger, an opinion with potentially significant implications for Illinois accountants. Brunton posed three related questions about the statutory accountant’s privilege (225 ILCS 450/27): who holds it – the accountant or the client; is there an exception for will contests; and how can it be waived? Our detailed summary of the facts and lower court holdings in Brunton is here. Our report on the oral argument is here.

Brunton began when an elderly couple consulted an accounting firm for assistance in estate planning. Ultimately, trust documents and two “pour-over” wills were produced. The underlying action is a will contest brought by the couple’s daughter, who is not a beneficiary of the trusts, against one of their sons, who serves as trustee, and the other son. Both the daughter and the two Estates issued subpoenas to the accountants, seeking production of their file. The accountant provided the information to the Estates, but refused to provide it to the daughter, invoking the accountant’s privilege. The circuit court initially agreed that the estate planning documents were privileged. The daughter then issued deposition subpoenas, again seeking the estate planning documents. The accountants moved to quash the subpoena, but this time, the court held that the privilege had been waived by producing the materials to the Estates.

The Appellate Court affirmed on different grounds, holding that the client, not the accountant, is the holder of the privilege, and the privilege is subject to the same testamentary exception as applies to the attorney-client privilege, making the estate planning documents producible in the will contest.

In an opinion by Chief Justice Garman, the Supreme Court affirmed the Appellate Court, but on substantially different grounds. The court began with the daughter’s argument that the privilege is limited to acts of the accountant in his or her confidential capacity as a licensed or registered CPA. (225 ILCS 450/8.05(a).) The court disagreed, noting that the plain language of the statute provides that accountancy activities “includ[e]” the enumerated acts, such as auditing financial statements – language which suggests that the list is not exhaustive.

The Court then turned to the question of who held the privilege. The defendant argued that it had been settled for many years that the accountant holds the privilege, but the Supreme Court disagreed, finding that the issue was one of first impression. The Court concluded that because Section 27 states that the accountant “shall not be required by any court” to divulge privileged information, the statute unambiguously confers the privilege on the accountant rather than the client. Nevertheless, the Court made it clear that if the client is still living, the client retains the right to voluntarily produce information which would be subject to the privilege in the accountant’s hands.

The Court next turned to the issue of whether the privilege is subject to a testamentary exception. The Court began by noting that the language of the statute itself includes only one exception, for investigations undertaken pursuant to the CPA Act. The Court acknowledged the argument urged by the Estates (and accepted by the Appellate Court) that the search for truth justifies a testamentary exception, but ultimately concluded that carving out such an exception was a job for the legislature, since the privilege was statutory in nature.

The Court finally turned to the question of how the privilege can be waived, and whether the accountants had waived it by producing the materials to the Estates. But first, the Court made an important point about the nature of appellate preservation.

The accountant argued before the Supreme Court that disclosure to the Estates didn’t constitute waiver because the Estates had a common interest with the accountant. The daughter argued that the accountant had forfeited the argument by not raising it at the Circuit Court. The Supreme Court disagreed, pointing out that the accountant had disputed waiver at every stop in the litigation. Not making that argument in terms of common interest didn’t matter: “We require parties to preserve issues or claims for appeal; we do not require them to limit their arguments here to the same arguments that were made below.”

The problem with the accountants’ argument, the Court wrote, was that they misinterpreted the nature of the common interest doctrine. The common interest doctrine wasn’t intended to protect the privilege or defeat a claim of waiver; rather, it was intended to defeat a claim of privilege where the parties on both sides of a lawsuit had a common interest in the materials. Therefore, the doctrine actually favored disclosure to the daughter in these circumstances, since both sides had the same interest in the contents of the accountants’ papers.

Ultimately, the issue was simple, the Court concluded. The accountant had produced the documents to one side in the litigation and was declining to produce to the other side with the same interest. True, the accountant had produced in response to a subpoena, but the accountant “does not assert that the disclosure was involuntary,” according to the Court. Therefore, the initial disclosure waived the privilege, and the documents were properly ordered produced.

Image courtesy of Flickr by Jane.

Illinois Supreme Court Declines to Apply Environmental Injunction Statute Retroactively

Posted in Illinois

5128837221_6c3bac5401_z(1)In July 2004, the Illinois legislature amended the state Environmental Protection Act to authorize the Attorney General to seek “an injunction, prohibitory or mandatory, to restrain violations . . . or to require such other actions as may be necessary to address violations of this Act.” The following year, the Supreme Court held in People ex rel. Ryan v. Agpro, Inc. that the pre-amendment version of the statute permitted only prohibitory injunctions restraining future violations.

So did the 2004 amendment apply retroactively to authorize courts to order cleanups of violations from before its effective date? The Illinois Supreme Court unanimously answered that question earlier this month with its opinion in People ex rel. Madigan v. J.T. Einoder, Inc.: No. Our detailed summary of the facts and lower court holdings in Einoder is here. Our report on the oral argument is here.

The property at issue in Einoder was purchased by the husband defendant in 1993 and placed in a land trust. The property was developed into a construction and demolition resource recovery facility and landfill using leased equipment and operators provided by a closely held corporation, 90% owned by the wife defendant. The site began accepting general construction and demolition debris and clean construction and demolition debris in 1995. In the years that followed, the site was inspected various times, and on multiple occasions, violation citations were issued by the state Environmental Protection Agency.

The Attorney General filed a seven-count complaint in 2000. Five years later, the State filed an amended complaint, adding the individual defendants as parties. A bench trial followed, and the court entered judgment for the State, imposing fines against the corporate and individual defendants. In addition to the fines, the State requested a mandatory injunction requiring the removal of the defendant’s above-grade waste pile, which was at that point a 90-foot grass-covered hill composed of 99.99% clean construction and demolition debris. The trial court granted the injunction. A majority of the Appellate Court affirmed, with one dissenter arguing that the 2004 amendments would not be applied retroactively to authorize a mandatory injunction.

In an opinion by Justice Burke, a unanimous Illinois Supreme Court reversed the Appellate Court with respect to the injunction issue. The Court noted that Illinois follows the approach set forth by the United States Supreme Court in Landgraf v. USI Film Products in determining whether an amended statute can be applied retroactively. The first step of Landgraf is simple: if the legislature has indicated that the amendment is intended to apply retroactively, absent a due process bar, that intent is given effect. If the legislature hasn’t expressed a view, then in the second step of the analysis, the court determines whether applying the amendment in the case at bar would amount to a retroactive application. An application is retroactive if it would impair rights a party possessed when she acted, increase a party’s liability for past conduct, or impose new duties with respect to transactions already completed.

In Illinois, the Court observed, Landgraf analysis is made considerably simpler by Section 4 of the Statute on Statutes (5 ILCS 70/4). Section 4 provides a simple black-letter rule: procedural changes apply retroactively, substantive changes don’t.

Nothing in the 2004 amendments themselves gave any indication as to whether the legislature intended a retroactive application or not. So the Court passed to the second step of the analysis: was authorizing mandatory injunctions substantive or procedural? That was an easy one, the Court found – the threat of a mandatory injunction imposed a substantial new liability on the defendants’ past conduct. Therefore, it was a substantive change in the law and could not be applied retroactively pursuant to Section 4 of the Statute on Statutes.

The Court concluded by briefly affirming the Appellate Court as to the wife defendant’s personal liability, noting that the defendant had personally signed numerous contracts authorizing dumping even after she was aware that the landfill had been cited for violating the Act, and after participating in discussions about violation notices.

Image courtesy of Flickr by Elliott Brown.

Illinois Supreme Court Holds Circuit Court Clerk Had No Duty to Confirm Accuracy of Jail Credits

Posted in Illinois

3656135868_4ff95e611a_zWhen a defendant is convicted of a criminal offense and sentenced to prison time, the Unified Code of Corrections requires the Circuit Court clerk to transmit to the Department of Corrections the total time the defendant served prior to entry of final judgment so that the the defendant’s credits for “time served” can be calculated. The clerk gets that total number of days from the sheriff. (730 ILCS 5/5-4-1(e)(4)). What happens if the total the Department receives is wrong, and as a result the prisoner is detained longer than he should have been? Does the prisoner have a cause of action against the clerk? That was the question posed by Cowper v. Nyberg, decided last week by the Illinois Supreme Court. Our detailed summary on the facts and underlying court opinions in Cowper is here. Our report on the oral argument is here.

The plaintiff pleaded guilty on criminal charges in 2011 and was sentenced to 27 months imprisonment. The judgment entered in the criminal case said he was entitled to 275 days’ credit for time served. Three weeks after the judgment was entered, the plaintiff filed a motion to recalculate his time served. Four months later, the defendant was released by the Department of Corrections. A month after that, the State finally responded to the plaintiff’s motion, conceding that his time served credits had been incorrectly calculated. The circuit court entered an order asking the State to prepare an amended mittimus, and an amended judgment was entered.

In early 2012, the plaintiff filed a two-count complaint, naming the sheriff and the Circuit Court clerk as defendants. Plaintiff’s theory was because the incorrect number of days had been transmitted to the Department of Corrections, he was overdetained by 137 days. The defendants moved to dismiss, and the trial court granted the motion. With respect to the clerk, the court held that the statute merely required the clerk to transmit whatever data was received from the sheriff – there was no duty to independently verify the numbers. As for the sheriff, the court held that Section 5/5-4-1(e)(4) didn’t create an express or implied right of action. The Fifth District Appellate Court reversed, holding that the Code did, in fact, create an implied right of action.

In an opinion by Justice Thomas, the Court affirmed in part and reversed in part. The defendants raised two issues: (1) the plaintiff pled no breach, since the clerk was merely required to transmit whatever number he received from the sheriff, not to independently verify its accuracy; and (2) Section 5/5-4-1(e)(4) did not create an express right of action. The Court found that the second issue wasn’t before the Court. The Appellate Court had gotten off on the wrong track, the Court found, by looking for an implied right of action – the plaintiff hadn’t pled one. The plaintiff’s claims were simple common-law negligence. Only the duty purportedly came from the statute.

The Court agreed that court clerks could be held liable in negligence for breaches of purely ministerial duties. Indeed, the Court wrote, the defendants didn’t seem to seriously question that proposition. The plaintiff’s problem was his allegations about the nature of the clerk’s ministerial duty. The complaint alleged that the clerk had a statutory duty to transmit the accurate number of days’ credit, regardless of what the clerk got from the sheriff. But that’s not what the statute says – the clerk is merely required to pass along the number received from the sheriff. So the complaint was properly dismissed with respect to the clerk, but the Court concluded that dismissal should be without prejudice. The Court thus reversed the Appellate Court’s order reversing the dismissal with respect to the clerk.

The sheriff, however, was a different matter. The Court agreed that the statute imposed a ministerial duty on the sheriff to calculate the accurate amount of time served credits, and that the complaint had adequately pled breach of that duty. So the Court affirmed the Appellate Court’s decision reversing with respect to the sheriff.

Image courtesy of Flickr by Sean Hobson.

Illinois Supreme Court Holds Custody Order Not Void Despite Custody Act Non-Compliance

Posted in Illinois

179525190_5ba1b98e70_zThe Uniform Child-Custody Jurisdiction and Enforcement Act (UCCJEA) includes various provisions for determining where a custody and parentage dispute should be litigated when multiple states are involved. But what happens when the Circuit Court enters a custody order even though the UCCJEA appears to say the dispute belonged somewhere else? Last week, the Illinois Supreme Court answered that question in McCormick v. Robertson: the resulting judgment might be subject to challenge on appeal, but it was not subject to challenge four years later on grounds of voidness. Our report on the oral argument in McCormick is here.

In McCormick, the parties had a brief relationship, which resulted in the birth of a child in 2009. In early 2010, the father filed a claim in Champaign County – his home jurisdiction at the time – pursuant to the Illinois Parentage Act, seeking an order establishing parentage and awarding joint custody. The parties ultimately presented a joint agreement to the court, which it approved.

Following entry of the judgment, the father entered the Marine Corps, ultimately serving tours in Okinawa, Japan and Afghanistan. In November 2012, the mother moved to Las Vegas with her parents, taking the child with her. The father responded by returning to court in Champaign County and moving for an order to show cause why the mother shouldn’t be held in contempt for moving the child, which the father argued effectively precluded him from visiting. After the court declined to enter an OSC, the father moved for sole custody. The mother responded with her own action in Nevada, arguing that the Champaign County order had been entered despite the court lacking “jurisdiction” under the UCCJEA, and was therefore void. At the same time, the mother filed a motion in Champaign County asking the court to vacate its now four-year-old custody order on grounds of voidness. The Circuit Court agreed and vacated the order, but the Appellate Court reversed.

Although the matter was still in some doubt at the time of the argument, the result in McCormick became pretty much a foregone conclusion in late February with the Court’s decision in LVNV Funding. There, the Court held that failure to comply with statutory prerequisites could never deprive a trial court of subject matter jurisdiction, since the subject matter jurisdiction of Illinois courts flows solely from the state constitution. But the only way that the 2010 custody order in McCormick could validly have been set aside four years after it was entered is if it was void.

The Court unanimously affirmed in an opinion by Justice Karmeier. The Court explained that whether a case presented a justiciable matter was decided case-by-case. The standards are quite similar to federal law – the issues have to be definite and concrete, not moot or premature, and not calling for an opinion on an abstract proposition of law. Compliance with statutory prerequisites involves “an altogether different set of values,” the Court wrote. Non-compliance could certainly render a decision subject to reversal on appeal, but because the subject matter jurisdiction of the courts is entirely outside of the legislature’s control in Illinois, non-compliance does not make a judgment void.

The 2010 litigation had involved both a parentage determination and a custody issue, the Court pointed out. The UCCJEA had nothing to say about parentage determinations, so there was no possible argument for why that part of the judgment should be void. Since the custody issue was clearly justiciable, that part of the judgment wasn’t void either. Since the 2010 order wasn’t void, there was no basis for vacating it in 2014, and the Supreme Court affirmed the Appellate Court’s judgment.

Image courtesy of Flickr by Ken Lund.

Florida High Court Rules that Exculpatory Clauses Need Not Reference Negligence to Bar Negligence Claims

Posted in Florida

8471515526_dcca9ba4b1_zOn February 12, 2015, the Florida Supreme Court affirmed the Fifth District Court of Appeal’s decision in Sanislo v. Give Kids the World, Inc., 98 So. 3d 759 (Fla. 5th DCA 2012) and held that an exculpatory clause was effective to bar a negligence action, despite the absence of express language in the clause releasing the defendant for its own negligence.  The Court reviewed the case based on certified conflict with decisions of the First, Second, Third, and Fourth District Courts of Appeal.

Give Kids the World, Inc. (“GKTW”) is a non-profit organization that provides free vacations to seriously ill children and their families at its resort.  Stacy and Eric Sanislo are the parents of a young girl with a serious illness who wished to participate in GKTW’s program.  The Sanislos executed a liability release in connection with a “wish request” that benefitted their daughter.  The release provided, in pertinent part:

By my/our signature(s) set forth below, and in consideration of Give Kids the World, Inc. granting said wish, I/we hereby release Give Kids the World, Inc. and all of its agents, officers, directors, servants and employees from any liability whatsoever in connection with the preparation, execution, and fulfillment of said wish, on behalf of ourselves, the above named wish child and all other participants. The scope of the release shall include, but not be limited to, damages or losses or injuries encountered in connection with transportation, food, lodging, medical concerns (physical and emotional), entertainment, photographs and physical injury of any kind . . . .

I/we further agree to hold harmless and to release Give Kids the World, Inc. from any and all claims and causes of action of every kind arising from any and all physical or emotional injuries and/or damages which may happen to me/us, or damage to or theft of our personal belongings, jewelry or other personal property which may occur while staying at the Give Kids the World Village.

During the family’s stay at the resort, Mrs. Sanislo was injured.  The Sanislos sued GKTW, alleging that Mrs. Sanislo’s injuries were caused by GKTW’s negligence.  GKTW moved for summary judgment, raising its affirmative defense of the release.  The Sanislos also filed a motion for partial summary judgment on GKTW’s affirmative defense of the release.  The trial court granted the Sanislos’ motion and denied GKTW’s motion.  Following a jury verdict, judgment was entered in favor of the Sanislos.

On appeal, GKTW argued that the lower court erred by denying its motion for summary judgment because the release was unambiguous and did not contravene public policy. The Fifth District reversed the trial court’s denial of summary judgment, holding that the exculpatory clause barred the negligence action, despite the lack of a specific reference to “negligence” or “negligent acts.”  The Fifth District reasoned that exculpatory clauses are effective if the wording of the exculpatory clause is clear and understandable so that an ordinary and knowledgeable person would know what he or she is contracting away.

The Florida Supreme Court began its analysis by stating that while the Fifth District reaffirmed its position that exculpatory clauses are not unenforceable to bar negligence actions simply because they do not contain express language referring to the release of the defendant for negligence, the First, Second, Third, and Fourth Districts, relying on the decision in University Plaza Shopping Center, Inc. v. Stewart, 272 So.2d 507 (Fla. 1973), regarding indemnity agreements, have held the opposite.

The Florida Supreme Court has held that an indemnity agreement only indemnifies the indemnitee for his or her own negligence if the agreement contains a specific provision protecting the indemnitee from liability caused by his or her own negligence.  The Court, however, stated that the principles underlying its opinions regarding indemnity agreements are not applicable to exculpatory clauses.  Generally, indemnification provides a party the right to claim reimbursement for his or her actual damage, loss, or liability from the responsible party.  Indemnification serves the purpose of holding the indemnified party harmless by shifting the entire loss or damage incurred by the indemnified party – who is without active negligence or fault and has been obligated to pay because of some vicarious, constructive, or technical liability – to the responsible party who should bear the cost because it was that party’s wrongdoing for which the indemnified party is held liable.  These contracts are typically negotiated at arms length between sophisticated business entities and can be viewed as an effort to allocate the risk of liability.  Thus, it would not be apparent that a party has agreed to indemnify a party for liability incurred due to that party’s own negligent conduct based on general language in an indemnification agreement.

An exculpatory clause, on the other hand, shifts the risk of injury and deprives one of the contracting parties of his right to recover damages suffered due to the negligent act of the other contracting party.  Although indemnification agreements can sometimes produce the same result as an exculpatory provision by shifting responsibility for the payment of damages back to the injured party, Florida courts recognize a distinction between the two.

Because indemnification agreements allocate the risk of liability for injuries to an unknown third party, specificity is required so that the indemnitor is well aware that it is accepting liability for both its negligence and the negligence of the indemnitee.  Exculpatory clauses, however, primarily release a party from liability for his own negligence, and not vicarious liability. Accordingly, the Court held that University Plaza did not control in this case.

The Court noted that many other states have expressly rejected the requirement that an exculpatory clause contain an explicit provision releasing a party from liability for his or her own negligence.  While it may be better practice to expressly refer to “negligence” or “negligence acts” in an exculpatory clause, the Court found persuasive the reasoning employed by these courts that looked at the parties’ intent in interpreting the contract.  Thus, the Court stated it was reluctant to hold that all exculpatory clauses that are devoid of the terms “negligence” or “negligent acts” are ineffective to bar a negligence action, despite otherwise clear and unambiguous language indicating an intent to be relieved from liability in such circumstances.

The Court stressed that its holding was not intended to render general language in a release of liability per se effective to bar negligence actions, as exculpatory contracts are disfavored in the law and are only enforceable where the language unambiguously demonstrates a clear and understandable intention to be relieved from liability so that an ordinary and knowledgeable person will know what she or he is contracting away.

With its decision, the Court stated that it was rejecting the Sanislos’ invitation to extend University Plaza to exculpatory clauses. Accordingly, it approved the lower court’s decision and disapproved the decisions of the First, Second, Third, and Fourth Districts.

Justice Lewis wrote a dissenting opinion in which he stated that he disagreed with the decision of the majority that an explicit warning regarding what the signing party is contracting away is required for a valid indemnity agreement, but not for combined releases, indemnification, and hold harmless agreements, such as the document in the instant case, as exculpatory clauses that protect a party from his or her own negligence are disfavored.

Image courtesy of Flickr by Matt Spence.

Chief Justice Invites New Governor, Legislature to Rare Evening Oral Argument

Posted in Illinois

23852572_acdda6d0ed_zThis evening will bring an event likely not seen in Illinois in more than a century – an evening session of the Illinois Supreme Court.

Last Friday, the Court announced that People v. Richardson, one of the three cases docketed to be argued on the morning of March 17, would be rescheduled for a special evening session.

The Chief Justice invited new Governor Bruce V. Rauner and the entire Illinois Legislature to attend the session. The argument “affords a window into how our constitutional system operates and the balance among the executive, legislative, and judicial branches,” the Chief Justice said. In a letter to the Governor, legislative leaders and the members of the General Assembly, the Chief Justice explained that attorneys from the offices of the Attorney General and the State Appellate Defender would be participating in the argument. “Thus,” the Chief Justice wrote, the political leaders “will have the opportunity not only to see the Court at work, but also to observe these valuable public employees performing their vital functions on behalf of the people of the State of Illinois.”

The Chief Justice’s invitation comes while the Court has under submission an appeal from the Circuit Court order striking down SB-1, the Illinois public pension reform bill enacted by the General Assembly and signed into law by then-Governor Pat Quinn in 2013.

Image courtesy of Flickr by Dan Hodgett.

Illinois Supreme Court Clarifies Voidness Doctrine, Strikes Constitutional Finding in Collection Agency Dispute

Posted in Illinois

8231671430_e83d55aa51_z(1)In the closing days of February, the Illinois Supreme Court handed down its decision in LVNV Funding, Inc. v. Trice, a direct appeal from the Cook County Circuit Court. LVNV is noteworthy because it clears away ambiguous language in certain cases describing a lack of statutory prerequisites to an action as depriving the court of jurisdiction, thereby clarifying the issue of when a judgment is void versus voidable. In the process, the Court made the Circuit Court’s determination that parts of the Collection Agency Act were unconstitutional unnecessary, and accordingly vacated them. Our report on the oral argument in LVNV is here.

The Act mandates that no “collection agency” may operate in the state without registering pursuant to the Act. (225 ILCS 425/4) Section 14a of the Act permits the Department of Financial and Professional Regulation to enjoin the activities of an unlicensed collection agency. (225 ILCS 425/14a.)

LVNV began when the defendant allegedly paid for plumbing work with a credit card. When the defendant allegedly failed to pay the full amount due, the credit card company sold the debt to the plaintiff. The plaintiff sued the defendant to collect, and got a judgment. Sometime later, now represented by an attorney, the defendant appeared and filed a petition to vacate the judgment under Section 2-1401 of the Code of Civil Procedure (735 ILCS 5/2-1401). The defendant’s argument was simple: the plaintiff was a debt collection agency, suing him was a debt collection activity, and the defendant wasn’t registered, making the judgment – at least in the defendant’s view – void. The Circuit Court disagreed and denied the motion to vacate, but the Appellate Court reversed. The Appellate Court held that if the plaintiff was unlicensed at the time it filed the suit, the resulting judgment would be void. The Court remanded the matter back to the trial court for a hearing on whether the plaintiff was unlicensed when the suit was filed, but made it clear that the defendant was free to challenge the constitutionality of the Act on remand too.

And that’s exactly what the defendant did. The Circuit Court agreed, striking down the statute on grounds of due process, equal protection and vagueness.

The Supreme Court rejected the trial court’s constitutional holding not on its own merits, but by reaching back to the Appellate Court’s holding. The original judgment entered by the Circuit Court wasn’t void, the Court held, so the Section 2-1401 petition should never have been granted in the first place. Void or voidable was ultimately a question of jurisdiction, the Court explained. But it had been settled in Illinois since at least 1964 that with the exception of administrative actions, the Circuit Courts’ jurisdiction doesn’t come from statutes – it comes entirely from the constitution. Therefore, the failure to satisfy a statutory prerequisite never deprives the court of jurisdiction.

Since the failure of the plaintiff to register as a collection agency was merely a failure to satisfy a statutory prerequisite, the resulting judgment was voidable at most, not void. Therefore, although the defendant might have prevailed in a direct appeal, his Section 2-1401 petition should have been denied. And it followed from that, pursuant to the doctrine of constitutional avoidance, that the Circuit Court should never have decided the constitutional issues.

Justice Thomas Kilbride dissented. Justice Kilbride pointed out that the case was before the Court pursuant to Supreme Court Rule 302(a) solely because the trial court had invalidated a law on constitutional grounds – that was the only issue before the Court. Since the Court had previously denied a petition for leave to appeal from the Appellate Court’s holding regarding voidness, Justice Kilbride would have proceeded to the constitutional issues. After all, if the statute was constitutional, he wrote, the Court was assisting the plaintiff in enforcing a judgment based on a lawsuit that violated the law at the time it was instituted.

Image courtesy of Flickr by Stock

Illinois Supreme Court Likely Poised to Strike Down Pension Reform Act

Posted in Illinois, Pension Reform Litigation

9684675705_4dda20b9d4_zThis afternoon, the Illinois Supreme Court heard oral argument on the biggest case on its civil docket, In re Pension Reform Litigation. In re Pension Reform Litigation involves the question of whether SB-1, the pension reform act adopted by the Illinois General Assembly in 2013, violates the Illinois Constitution’s Pension Protection Clause. The Clause provides: “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

To review the argument, click here.  For a guide to our previous posts on the pension debate, see here.

Solicitor General Carolyn Shapiro argued the case for the State. She began with the State’s “parade of horribles” for the plaintiffs’ position, arguing that if the pension clause is absolute, then the State will be unable to respond to prolonged inflation, a collapse in the bond rating or a catastrophic epidemic. She argued that the plaintiffs’ position that pensions were absolutely immune from reductions raised serious constitutional problems, and shouldn’t be adopted without explicit and unmistakable language. As the State did in its brief, she argued that the words “diminish or impair” refer back to the contractual relationship – not the benefits themselves. “Diminish or impair” essentially mean the same thing, counsel argued, while the plaintiffs’ construction of the clause elevates that language and renders the first half of the clause meaningless.

As I’ve discussed in earlier posts analyzing its briefs, this argument from the State is problematic. The State has struggled throughout the briefing to explain what meaning should be ascribed to the “diminish or impair” language in its construction. The notion that the words refer to the contractual relationship doesn’t get the State there – simply saying something is “a contract” in the State’s view imports limited protection, and the “diminish or impair” language adds nothing more. So what does the clause mean? And the State gets itself into even greater difficulty with the second half of the clause, insisting that the words “diminish” and “impair” are a redundant rhetorical flourish.

Justice Thomas asked whether, if the Court agreed with the State and allowed it to invoke police powers in response to a funding emergency arguably created by the State, it wouldn’t be giving the State a license to avoid its obligations whenever it wanted to – couldn’t the legislature simply refuse to fund pensions and then claim an emergency? Counsel answered that the State couldn’t invoke the police power whenever it felt like it, but a serious fiscal crisis was enough. Justice Thomas asked how the pension funds would have weathered the recession if they had been fully funded. Counsel responded that while the funds might have survived in better shape, the recession was an unforeseeable event. Justice Thomas suggested that one could argue how unforeseeable recessions are, but isn’t it true that the State left the funds vulnerable to recession? Counsel argued that the pension reform bill did not address the portion of the debt created by underfunding.

Justice Thomas pointed out the inconsistency in the State’s push for a remand. The State had asked for an accelerated schedule, insisting that it needed an answer by May 31, but now the State was seeking a remand for more fact-finding, which would certainly preclude an answer by that date. Counsel agreed that a remand couldn’t be completed by May 31, but suggested that if the Court affirms, holding that no benefit cuts are permissible, the legislature needs to know that as soon as possible.

The State’s argument concluded with a flurry of questions which suggested that at least two Justices had serious qualms about the State’s position. Chief Justice Garman asked counsel whether the legislature had revised or avoided any other contracts in response to the alleged crisis, or whether that was even relevant. Counsel answered yes, the State pays its bills more slowly – but ultimately, that’s a question for remand. When counsel transitioned back into an argument about the changes made by the Act in response to the fiscal emergency, Justice Thomas asked whether there was any problem with the substantial income tax reduction at the beginning of the year in the midst of the supposed dire fiscal situation. Once again, counsel argued that the question was for remand, but the ability to simply raise taxes didn’t inevitably defeat a police powers argument.

Counsel returned to the State’s argument about the Constitutional Convention, which we’ve discussed here, here, and here. Counsel argued that the pension clause was the result of concern over the effects of home rule. Justice Thomas asked what the Court should do, then, with the clear evidence in the Constitutional debates that the delegates intended that there be no benefit cuts in trying times – wasn’t reducing future benefits problematic then? Counsel concluded by once again arguing that if the delegates to the Constitutional Convention intended that the clause be absolute in its protection for employee pensions, then the clause violated the Federal constitution.

Counsel for the union plaintiffs followed. He argued that the pension protection clause was clear and unambiguous, with no stated exception. The clause is a stand-alone provision, not part of the contract clause. The drafters of the clause anticipated exactly the situation the State faces today, counsel argued. In response, they wanted to achieve two things – first, clearly mandate a binding contractual relationship, where benefits could not be considered gratuities. Second, they wanted to ensure that pension benefits were guaranteed. The resulting clause was plain and clear in its meaning, as the Court has recognized numerous times. Counsel argued that the clause was intended to indirectly force full funding of the pensions by making it abundantly clear that the obligations were real. Chief Justice Garman asked whether the police power ever could impair the pension rights, and counsel responded certainly not under these circumstances. The doomsday scenarios posited by the State don’t apply here, counsel argued – surely a simple invocation of fiscal problems isn’t enough to ignore a constitutional command.

The Chief Justice asked whether a remand was necessary then to address the reasonableness of the State’s response to the emergency. Counsel answered no. None of the contracts clause cases the plaintiffs cite involve overriding a constitutional provision. In Kanerva v. Weems, even the dissenter (Justice Burke) agreed that if the monies involved there were a pension benefit, they could not be diminished. Counsel briefly turned in closing to the State’s federalism argument. Counsel argued that the State was mistaken that the police power could never be withdrawn in a state constitution. The police power does not trump affirmative commands of a state constitution, counsel argued, and the State had not cited a single case to the contrary.

Counsel for the State Universities Annuitants Association was next. He argued that it was clear that pension clause was not subject to the police power. Counsel offered his own answer to the Chief Justice’s question about whether the police power ever applies to pensions, arguing that the Constitution tells us when there are exceptions. Counsel cited the Court’s statement in Kanerva that the pension reform clause should not be rewritten to include exceptions not written by the delegates or adopted by the people. Counsel concluded by wondering, if the State could avoid any financial arrangement by invoking a simple fiscal emergency, what would that say for the viability of any other state contract?

When the Solicitor General rose for rebuttal, Justice Karmeier asked a question about the State’s federalism argument. He said that his understanding was that all government power flows from the people, and that power is assigned through the constitution. If the people had adopted a constitution, with a pension protection clause with different language than the contract clause – and with a right to bear arms which explicitly noted an exception for police powers – wasn’t that all there was to say about sovereign power? Counsel responded that the U.S. Supreme Court has said that even the people themselves cannot permanently give up police powers. Counsel briefly touched on the constitutional debates, arguing that the pension protection clause had wound up in a separate place from the contract clause because the concern over home rule which she said had led to its adoption had arisen after the bill of rights was adopted.

Counsel pointed to the plaintiffs’ argument about the absolute language of the pension protection clause, but noted that the contract clause is written in absolute language too – and yet, 150 years of case law says its meaning isn’t absolute. Justice Thomas repeated his question from the Solicitor General’s lead-off argument: the State says allowing a police power exception wouldn’t amount to licensing the avoidance of contracts, but isn’t that exactly what the Court would be doing by allowing the State to avoid a constitutional command because of an emergency the State created? Counsel answered that the State’s power regarding pensions was the same as its power to modify contracts. Justice Thomas asked what the import of the State’s argument was – that a ruling in its favor wouldn’t license the State to modify any contract. Counsel said the State couldn’t modify contracts at will. Justice Thomas asked if the reason is a state-created emergency, why doesn’t that amount to a license to modify the obligation at will? Counsel answered that the situation was created by a combination of the severe recession and inflation. Chief Justice Garman asked whether counsel could cite any case allowing modifications to a contract through the police power outside of purely regulatory situations? Counsel cited the Chief to several teachers’ unions cases from the State’s brief. Counsel concluded by arguing that there is no dispute that the State has a fiscal emergency on its hands – the only dispute is whether the Act is a proper response to it. Counsel urged the Court to remand for consideration of that question.

Based on the intense and almost exclusively skeptical questioning of the State (twenty questions for the State, two for the plaintiffs), affirmance of the Circuit Court’s order striking down the Pension Reform Act seems likely.

The decision should come down on or before May 31.

Image courtesy of Flickr by Patrick Feller.

The Pension Case: The State’s Reply Brief

Posted in Illinois, Pension Reform Litigation

11746064545_4e2d19511c_z(1)In their reply brief in the Public Pension Reform Act appeal, the State immediately zeroes in on what it perceives as the central difficulty of the plaintiffs’ position: the trial court’s conclusion that the Pension Protection Clause had no exceptions at all. Plaintiffs’ “super-contract approach,” the State writes, “would deny the State the ability to protect the public health, safety, and welfare if doing so required even a penny’s reduction in pension benefits.”

The pension clause provides as follows:

Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.

According to the State, the plaintiffs’ position results in a Clause at war with itself – the very nature of a “contractual relationship” – at least, a contract with the State – is irreconcilable with a relationship “the benefits of which shall not be diminished or impaired.” According to the State, the plaintiffs’ position “negates the plain meaning of ‘contractual relationship’ and results in an internally inconsistent Pension Clause.”

The State offers no explanation, however, of how the “diminished or impaired” language adds additional meaning to the “contractual relationship” part of the clause. Nor does the State attempt to reconcile its argument with the position it took in its opening brief: that the two halves of the Clause were entirely consistent because it was the benefits of the contractual relationship which could not be diminished or impaired – and sovereign entities always have the right to unilaterally modify their contracts.

The plaintiffs argue that the words “diminished” and “impaired” must mean different things – otherwise, one of the two words is surplusage. But no problem, the State claims; the “canon against constitutional surplusage provides only that “the presence of surplusage . . . is not to be presumed in . . . constitutional construction’ and ‘each word, clause or sentence must, if possible, be given some reasonable meaning.’” (Emphasis in the original.) Since in the State’s view it is impossible to ascribe differing meanings to the two words, it is permissible to consider the phrase redundant, like “cease or desist.”

The State claims that the Constitutional Convention debates support its interpretation (see here, here and here for our take on the debates). The State argues that the delegates’ supposed “focus” on merely establishing a distinction between treating pensions as contractual rights and as gratuities “undermine[d] Plaintiffs’ reliance on various delegates’ statements” about the meaning of the Clause. Although the State does not quote either Sponsor Kinney’s statement, (“If a police officer accepted employment under a provision where he was entitled to retire at two-thirds of his salary after thirty years of service, that could not subsequently be changed to say he was entitled to only one-third of his salary after thirty years of service, or perhaps entitled to nothing”), or Sponsor Green’s statement, (“you say when you employ these people, ‘now, if you do this, when you reach sixty-five, you will receive $287 a month,’ that is, in fact, what you will get”), the State insists that “it would not even have occurred to the delegates” that their comments could be construed as absolutely barring reductions in benefits.

The State next turns to the case law relating to the Pension Protection Clause. According to the State, the Supreme Court could not have concluded that “the Pension Clause is absolute” in Felt v. Board of Trustees of Judges’ Retirement System, since if it had, the Court would have held that the Pension Protection Clause “is unconstitutional.” Nor did the Arizona Supreme Court’s decision in Fields v. Elected Officials Retirement Plan, in which the Court held that the Arizona Constitution’s Pension Protection Clause absolutely barred reductions in pension benefits, support the plaintiffs’ argument, since the Arizona Constitution’s clause provided that pension benefits are a “contractual relationship” subject to the constitution’s Contract Clause “and” benefits “shall not be diminished or impaired.” According to the State, the Arizona framers’ decision to provide in an independent clause that benefits may not be diminished or impaired is sufficient grounds for giving that clause independent meaning.

The State next turns to its argument that if the Pension Protection Clause absolutely bars any reduction in benefits, it violates the Federal constitution. The plaintiffs argued that the reserved powers doctrine does not extend to the State unilaterally modifying its economic commitments, but the State disagrees. “’Ensuring the financial integrity of the [government] is a significant public purpose,’” according to the State.

The State concludes by challenging the plaintiffs’ argument that the Pension Reform Act is not severable. The State relies upon the Act’s “explicit and carefully drawn severability provision,” dismissing the plaintiffs’ argument as being reliant on “a comment by a single Senator.”

The oral argument in In re: Pension Reform Litigation will be held at 2:30 p.m. on Wednesday, March 11, 2015. We’ll be back before the argument over at Illinois Supreme Court Review with a preview, focusing on the Court’s history over the past fifteen years with comparable cases.

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