The Appellate Strategist

The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

Florida Appellate Court Blocks Discovery of Communications Between Insured and Insurer-Retained Defense Counsel in Third-Party Bad Faith Action

Posted in Florida

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On September 5, 2014, the Fifth District Court of Appeal issued its en banc decision in Boozer v. Stalley, 146 So. 3d 139 (Fla. 5th DCA 2014), holding that in a third-party bad faith action, the attorney-client privilege precludes discovery of confidential communications between the insured and counsel retained by the insurer to represent the insured, receding from its holding in Dunn v. National Security Fire & Casualty Co., 631 So. 2d 1103 (Fla. 5th DCA 1993).  The court also certified the following question to the Florida Supreme Court:

DO THE DECISIONS IN ALLSTATE INDEMNITY CO. V. RUIZ, 899 So. 2d 1121 (Fla. 2005), AND GENOVESE V. PROVIDENT LIFE & ACCIDENT INSURANCE CO., 74 So. 3d 1064 (Fla. 2011), SHIELD ATTORNEY-CLIENT PRIVILEGED COMMUNICATIONS FROM DISCOVERY IN THIRD-PARTY BAD FAITH LITIGATION? 

Underlying Proceedings

Benjamin Hintz was injured in a motor vehicle accident involving Emily Boozer, who was covered under two Allstate insurance policies.  Hintz’s guardian, Stalley, sued Boozer and Allstate and recovered a judgment against Boozer in excess of the Allstate policy limits.  Allstate paid its policy limits, leaving the remainder of the judgment unsatisfied.  The guardian then filed a bad faith action against Allstate and sought to depose Boozer’s attorney and subpoena his files.  Boozer moved for a protective order, asserting the attorney-client privilege.  The trial court denied the motion.

Boozer’s attorney appeared for his scheduled deposition and answered general questions, but refused to answer any questions or produce any documents related to his representation of Boozer.  The deposition was adjourned and Boozer filed a petition for writ of certiorari, arguing that the trial court improperly denied her motion for protective order.  Stalley argued that in the context of third-party bad faith litigation, he stood in Boozer’s shoes and could obtain discovery of any materials that would be available to her, including those that would otherwise be protected by the attorney-client privilege.

The Fifth District’s Analysis

The court began its analysis by explaining that the issue before it was first considered in Boston Old Colony Insurance Co. v. Gutierrez, 325 So. 2d 416 (Fla. 3d DCA 1976), where the Third District held that a defense attorney retained by an insurer could be deposed in a subsequent bad faith case and had to produce his files:  “As a third-party beneficiary of the insurance policy, Gutierrez stands in the same posture as that of Brown, the insured.  Just as Brown would be entitled to discovery, including deposition and production of files by the attorneys, since both he (Brown) and Boston Old Colony were their clients, Gutierrez has the same right of discovery in furtherance of the preparation of his case.” 

In Dunn, the Fifth District considered a similar issue, when the plaintiff in a third-party bad faith claim sought the insurer’s claim and litigation file.  The court rejected the insurer’s claim of work product and attorney-client privilege, stating, “In bad faith suits against insurance companies for failure to settle within the policy limits, all materials in the insurance company’s claim file up to the date the judgment in the underlying suit are obtainable, and should be produced when sought by discovery.” 

The court noted that these decisions and others supported Stalley’s argument below.  However, the court noted that several more recent decisions required it to re-think Dunn.

For example, in Allstate Indemnity Co. v. Ruiz, 899 So. 2d 1121 (Fla. 2005), the Florida Supreme Court held that in first-party bad faith actions pursuant to Section 624.155, Florida Statutes, work product materials were discoverable.  In Westbend Mutual Insurance Co. v. Higgins, 9 So. 3d 655 (Fla. 5th DCA 2009), the Fifth District held that in the context of a first-party bad faith proceeding, Ruiz did not extend to materials protected by the attorney-client privilege stating, “Nothing in Ruiz suggests that the attorney-client privilege available to any contracting party, including insurers, somehow evaporates uniquely for insureds upon the filing of a bad faith claim.”  In Genovese v. Provident Life & Accident Insurance Co., 74 So. 3d 1064 (Fla. 2011), the Florida Supreme Court determined that the attorney-client communications were not discoverable a first-party bad faith case.  In Progressive v. Scoma, 975 So. 2d 461 (Fla. 2d DCA 2007), the Second District held that communications between the insurer and its counsel were protected by the attorney-client privilege in a third-party bad faith action.  Lastly, in Maharaj v. Geico Casualty Co., 289 F.R.D. 666 (S.D. Fla. 2013), the court stated, “The court is cognizant of the fact that the express language of Genovese limits its holding to the first-party bad faith context, but the court sees no reason why the legal analysis utilized in Genovese regarding the application of the attorney-client privilege to the insurer’s claims file would not be equally relevant in a third-party bad faith case.”

Conclusion

The court found that Maharaj is a logical extension of the Florida Supreme Court’s holdings in Ruiz and Genovese and the Second DCA‘s holding in Scoma.  Thus, it stated that it should adopt the holdings of Scoma and Maharaj and recede from Dunn to the extent it allows the unqualified discovery of attorney-client protected material.  “The fact that Stalley may stand in Boozer’s shoes, or have an independent right to bring a bad faith action under Section 627.155, does not mean that Boozer gave up her statutory attorney-client privilege . . . .”

The court quashed the trial court order denying the motion for protective order and certified the above-referenced questions to the Florida Supreme Court.

Image courtesy of Flickr by  Ivory Elephant Photography

Florida High Court Declares That Contract Legality Is Not Reviewable On A Motion to Vacate An Arbitral Award

Posted in Florida
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On November 6, 2014, the Florida Supreme Court resolved a conflict among the Fourth and Fifth District Courts of Appeal by holding that a court is not required to determine whether a contract is legal before enforcing an arbitral award based on the contract.  See Visiting Nurse Ass’n of Fla., Inc. v. Jupiter Med. Ctr., Inc., No. SC11-2468.  To view the supreme court’s opinion click here

Visiting Nurse Association (VNA) and Jupiter Medical Center (“hospital”) arbitrated a contractual dispute stemming from VNA’s purchase of the hospital’s own home health care agency.  The dispute centered around the hospital’s obligation upon a patient’s discharge to notify the patient of available home health agencies, including the hospital’s relationship with VNA if the patient expressed no preference, and the hospital’s agreement to provide VNA with office space in the hospital.  The arbitration panel found that the hospital breached the contract and awarded VNA damages.  The hospital moved to vacate the award, alleging that the panel’s construction of the contract violated state and federal law.  Specifically, the hospital argued that the panel construed the purchase agreement as an unlawful agreement to make, influence and steer future patient referrals to VNA in exchange for compensation in violation of state and federal laws.  The panel denied the motion and enforced the award.

On appeal, the Fourth District reversed the denial of the motion to vacate and remanded for the trial court to consider the legality of the contract because “a Florida court cannot enforce an illegal contract” and must make that determination before enforcing an award based on it.  VNA then sought review in the Florida Supreme Court.

The supreme court framed the conflict issue as “whether the illegality of a contract is subject to review on a motion to vacate.”  The Court examined this issue under both the Federal Arbitration Act (FAA) and the Florida Arbitration Code (FAC).  The Court found that under FAA case law “the issue of the contract’s validity is considered by the arbitrator . . . unless the challenge is to the arbitration clause itself.” 

The Court’s analysis of the FAC was guided by section 682.13(1), Florida Statutes which enumerates when a court “shall” vacate an arbitral award.  Because that statute does not include the term “illegality” or require a court to vacate an arbitrator’s “illegal construction of the underlying contract,” the Court found that a court may not vacate an arbitral award based on illegality. 

As a consequence of its resolution of the conflict issue, the Court also found that the arbitrators did not exceed their powers under both the FAA and the FAC by interpreting the purchase agreement in a manner that would violate state and federal laws.

The Court therefore quashed the Fourth District’s decision and held that a court is not required to determine whether a contract is legal before enforcing an arbitral award based on the contract. Stated another way, the illegality of a contract is not subject to court review on a motion to vacate an arbitration award.

 

Image courtesy of Flickr by Juhan Sonin.

Illinois Supreme Court Debates Self-Critical Analysis Privilege

Posted in Illinois

3769037680_44652f2a55_zLast week, the Illinois Supreme Court heard argument in a case being closely watched by the civil defense bar: Harris v. One Hope United, Inc.  Harris poses a simple question: does Illinois recognize the self-critical analysis privilege?  Our detailed summary of the facts and lower court rulings in Harris is here.

As a general rule, courts require three elements for proof of the self-critical analysis privilege: (1) the information sought comes from a critical self-analysis undertaken by the party seeking protection; (2) the public has a strong interest in preserving the free flow of the type of information sought; and (3) the information is of a type whose flow would be curtailed if discovery were allowed.

The defendant in Harris is a private contractor which provides services to troubled families working with the state Department of Child and Family Services.  DCFS received a complaint in late 2009 alleging neglect and abuse of a small child.  DCFS assigned the matter to the defendant, which commenced an investigation.  Two months later, the child was hospitalized, and upon release, was sent to live with her aunt.  The child was soon returned to her mother, and not long after, was accidentally drowned.

The plaintiff – the Public Guardian of Cook County – sued the defendant and others for wrongful death.  The plaintiff alleged that the defendant was negligent in permitting the child to be returned to her mother.  During a deposition, the executive director of the defendant disclosed the existence of a “continuous quality review department” which investigates cases and prepares reports about past cases.  The defendant refused to produce the report, the plaintiff moved to compel production, the defendant opposed, and the trial court compelled production.  On appeal following entry of a “friendly contempt,” the Appellate Court affirmed.

Counsel for the defendant began.  Counsel argued that she was not asking the Court to rule on all aspects of self-critical analysis.  Rather, the appellant was limiting her argument to a single type of report – the peer review analysis.  The trial judge was supportive of the privilege claim, counsel argued, but felt constrained by the lack of law on the subject.  Similarly, the First District was sympathetic, but said it had no power to find a privilege with no law available on the subject.  Counsel argued that the analysis begins with Rule 501, which allows the Court to determine privileges based on the common law.  Justice Thomas noted that the legislature has already enacted a type of self-critical analysis privilege in the Medical Studies Act, and counsel responded that the privilege applied only to hospitals, physicians and certain qualifying parties.  Justice Thomas asked whether the Court would simply be legislating if it were to add to the privilege the legislature created.  Counsel answered that the statute was limited in scope.  The DCFS has sovereign immunity.  The appellant was doing exactly what the DCFS did, with none of the protections.  Counsel argued that the Court should look at the four-part test for finding a privilege.  This is not about the search for truth, counsel argued; the plaintiff already has all the witnesses available.  Counsel argued that the appellee wanted a smoking gun – something in which a witness said “we made a mistake.”  The appellant’s quality control reports are made with an expectation of confidentiality.  Counsel argued that denial of the privilege involves a slippery slope.  Justice Theis asked counsel to address the Child Death Review Team Act – given the existence of the Act, wasn’t an investigation inevitable?  Counsel answered that only the DCFS was subject to the privilege in the Act.  Justice Theis pointed out that the statute seemed to cover everyone involved in the mandated investigations.  Counsel agreed that the DCFS’s report was privileged by statute.  Justice Theis asked whether there would be an investigation under the Act regardless of whether the privilege was extended.  Counsel answered that the police and the DCFS all investigated the incident.  The appellant was seeking to privilege the internal investigation.  The appellant’s participation in the DCFS’s investigation was not privileged.  Justice Theis suggested that counsel was argued that without the privilege, nobody would investigate the incident.  Counsel responded that the appellant investigates incidents quickly in order to promote safety and learn from incidents.  But there were no facts in the reports that plaintiff doesn’t already have, and no witnesses the plaintiff doesn’t already have available.  Justice Thomas asked whether creating new privileges was a matter for the legislature.  Counsel responded that although there might be a need for a complete legislative look at these types of privileges, the appellant was not in a position to lobby for the legislative fix.  Nevertheless, the Court had the power to grant a common law privilege.  Chief Justice Garman asked whether the privilege would be limited to discussions after the accident, and counsel said yes.  Justice Freeman suggested that it was unclear whether the appellant had returned the child to its mother.  Counsel responded that the DCFS was responsible for either withdrawing the child or returning it to the home; the appellant merely oversaw the mother’s activities and tried to help her keep the family intact.  Justice Freeman asked whether the court had ordered the return of the child.  Counsel said no, the DCFS had placed the child with its mother, and the case worker had visited each week to look for signs of problems.  Justice Thomas asked why the plaintiff shouldn’t have the right to impeach witnesses who went on the stand and claimed that there was nothing more the defendant could have done.  Counsel answered that plaintiffs could depose witnesses, they just couldn’t examine them based on the investigative report, because its value outweighed the loss of any evidence.

Counsel for the plaintiff followed.  Counsel argued that the privilege doesn’t exist at common law or in the statutes.  The decisions of the Court, counsel argued, are clear that creating new privileges is the business of the legislature.  Rule 501 merely gives the Court the right to administer privileges which exist, not to create new ones.  Justice Karmeier asked whether it was true that absent the defendant’s self-critical analysis, there would be no possibly damaging opinions for the plaintiff to discovery.  Counsel agreed that was true.  Justice Karmeier asked if the Court should be concerned about that as a matter of public policy.  Counsel answered that it was not an issue since the privilege doesn’t exist.  Justice Karmeier asked, if the plaintiff has all the facts, which he would need these opinions.  Counsel responded that the public policy of the state is that full investigation is imperative with respect to the deaths of children.  Justice Karmeier asked, if the Court agrees with him that there is no privilege, whether there can be any limitations placed on the use of the report.  Counsel answered that that would be up to the trial court.  What the case is really about, according to counsel, is full disclosure with respect to the death of an eight-month old girl.  Counsel argued that any contradictions in the report would be critical evidence regarding finding out what really happened.  Justice Karmeier suggested that production was appropriate for finding out what really happened, but said that his concern is about post-remedial measures – why would that kind of information be admissible?  Counsel responded that the lower court could have blocked disclosure of parts of the report, had it chosen to do so, by relying on the privilege for remedial measures.  Justice Karmeier asked if counsel’s suggestion that the report couldn’t be used with respect to remedial measures was the same as saying there was a privilege.  Counsel said no, a privilege is far more encompassing, and with much more of a chilling effect.  Justice Karmeier asked if the only thing in the report aside from facts plaintiff has already is remedial measures, is that admissible?  Counsel answered that’s up to the trial court.  Chief Justice Garman asked whether a finding of no privilege would discourage these kinds of self-critical analyses.  Counsel answered that given the public policy favoring full disclosure, there is no legitimate expectation of non-disclosure in these investigations.  The Chief Justice pointed out that the DCFS’s investigation would be shielded from disclosure, and counsel agreed.  The Chief Justice agreed that the DCFS had not, in fact, undertaken this investigation, but for many years, they had.  It was a new circumstance that a subcontractor would pursue these investigations.  Did counsel nevertheless believe no privilege existed?  Counsel said yes, the trend around the country is moving away from any recognition of the self-critical analysis privilege based on the proposition that truth-seeking is paramount.  Justice Karmeier asked whether the Court should take into consideration how its decision would affect services to children, and counsel said yes.  Justice Karmeier asked whether the Court had the power to create a privilege which the legislature to date had not, and counsel answered that earlier precedent for that proposition was quite limited.  Justice Karmeier suggested that counsel’s argument suggests that there might be cases where it is important.  Counsel answered that there are cases in which there might arguably be a basis for finding a privilege, but not on the facts at bar.

In rebuttal, counsel for the defendant argued that more cases were being published recognizing the privilege than rejecting it, but the Court should focus solely on Illinois.  The defendant’s case workers don’t know anything about admissibility, counsel argued – they’re just asked to be critical and honest, and that’s all that’s necessary for the privilege to attach.  Counsel argued that the persons involved in the investigation couldn’t give opinions on the stand anyway, and they aren’t fact witnesses either, but there would nevertheless be a very real chilling effect if everything in the report became admissible in court.  The case wasn’t about whether the truth would come out, counsel argued; the plaintiff has the DCFS records and all the fact witnesses.  Justice Thomas asked whether, if the Court finds for the defendant, the decision would stand for the proposition that groups without the wherewithal to get relief from the legislature can come to the Court.  Counsel responded that the Court has always had its door open with regard to fashioning common-law privileges, but if the Court concluded that there was insufficient basis in the record to find a privilege as a matter of law, it should remand the case with guidance for the trial court.

We expect Harris to be decided in three to six months.

Image courtesy of Flickr by Stephen Dann.

Illinois Supreme Court Debates Scope of Accountant-Client Privilege in Will Contests

Posted in Illinois

15175613578_5b2705e2a3_zLast week, the Illinois Supreme Court heard oral argument in Brunton v. Kruger.  Brunton involves the scope of the accountant-client privilege – specifically, what happens to that privilege after the client dies, and how the privilege can be waived.  Our detailed summary of the facts and lower court opinions in Bruton is here.

An accounting firm assisted a couple with estate planning.  As part of that process, both spouses of an elderly couple executed a will and trust.  The wife’s will was admitted to probate, and provided that most of her property would be distributed through a Trust.  The Trust provided that one son would get the entirety of the family farm, and everything else would be distributed to the three sons equally.  The testator’s daughter filed a will challenge, alleging undue influence by one of the sons.  The sons, who were defending the will, subpoenaed all the estate documents from the accountants.  The accountants provided the documents.  Not long after, the daughter subpoenaed the estate planning documents from the accountants too.  The accountants refused to produce the documents to the daughter, asserting the accountant-client privilege.  When the daughter moved to compel production, the trial court held that the sons had waived the accountant-client privilege.  Counsel for the accountants declined to produce the documents, inviting a finding of friendly contempt in order to render the production order appealable.  The Appellate Court affirmed the order of production, holding that (1) by analogy to the attorney-client privilege, any privilege was automatically waived in a will contest; and (2) the privilege was held by the estate, and had been waived by the sons’ subpoena.  The Court vacated the finding of contempt, finding that counsel had declined to produce the documents in good faith in order to facilitate an appeal.

Counsel for the appellant (the attorney in the lower court for the accountants) began by arguing that the Court should affirm the vacating of the contempt order regardless of whatever else the Court decided.  Counsel argued that the statute was clear and unambiguous.  Both the respondents and the Appellate Court had likened the accountant-client privilege to a common law privilege.  But the case involves a statutory privilege with no exceptions, counsel argued.  The issue couldn’t be determined by conjecture as to what the legislature meant, but rather by construction of the actual language used.  Because the accountant-client privilege is statutory, counsel argued that it could only be expanded or contracted by the legislature.  Justice Theis whether an accountant could waive the privilege without the consent of the client, and counsel said that the accountant was the holder of privilege, and could choose to waive it.  Justice Theis asked whether that meant that a client who came to the accountant with confidential information had no control over it.  Counsel answered that clients gave information to their accountants with the understanding that it would be held in confidence pursuant to the privilege.  Unless the accountant chose not to hold it in confidence, Justice Theis noted.  Counsel answered that whether to maintain the privilege was up to the accountant as the holder.  Justice Thomas asked whether the executors could waive the privilege.  Counsel responded no – production to the attorney for the estate was not a waiver, since the estate was not adverse to the accountants’ deceased clients.  Chief Justice Garman asked whether counsel would argue that there was no testamentary exception, despite the parallel between an attorney’s role in estate planning and the role of an accountant.   Counsel said that was correct.  Although the First District had commented that it was unclear what the accountant’s interest in secrecy might be, the Court also noted that it was not the Court’s purpose to rewrite the statute.  In fact, counsel argued, the statute was clear and unambiguous, and didn’t have an exception.  There was no basis for finding that the accountants had waived the privilege, either expressly or by implication.  Counsel concluded by asking the Court to affirm the vacation of the contempt finding, but to otherwise reverse, holding that the accountants held the privilege and had not waived.

Counsel for the executors followed, arguing that the Court should affirm the lower court and order production.  Counsel argued that the client of the accountant holds the privilege.  Full disclosure by individuals is promoted by finding that the privilege is held by the clients, not the accountant, counsel argued.  Justice Thomas asked whether there was any significance to the fact that it’s called the accountant privilege.  Counsel answered that it’s not called that in the statute.  After death, counsel argued, when there is a dispute about the validity of the will, the scales tip in favor of disclosure.  Alternatively, counsel argued, even if the accountants hold the privilege, it was waived when they chose to respond to the executors’ subpoena.  Justice Karmeier noted that there had been a comment in the argument suggesting that the executors could have directly disclosed certain documents.  Were there other documents at issue?  Counsel answered yes.  Justice Karmeier asked whether the executors could have disclosed those documents to the daughter.  Counsel answered that the daughter had subpoenaed documents from the executors, and that subpoena was still pending.  Justice Karmeier asked whether the executors had an obligation not to disclose those documents.  Counsel answered that if the Court holds that the privilege belongs to the accountants, the executors’ disclosure would be over their privilege.

Counsel for the daughter challenging the will was next, and argued that the subpoena had nothing to do with certified financial statements.  Justice Thomas asked whether the statute made any exception for testamentary disputes.  Counsel agreed that was so, but argued that the statute doesn’t apply to estate planning activities.  In addition to testamentary intent, the subpoena involved issues of who was in attendance during certain conversations.  The Chief Justice asked whether the privilege belonged to both the accountant and the client.  Counsel answered that it belonged only to the client.  Justice Thomas asked whether the evidence being sought was obtained by the accountant in a confidential capacity.  Justice Thomas asked whether the statute would have been the place to provide a testamentary intent exception if the legislature had intended that there by one – would the Court be revising the statute to exclude such evidence?  Counsel said no, that the specific purpose of the statute was to protect the ability to certify financial statements.  There was no such dispute here.  The privilege was waived both expressly and impliedly, counsel argued.  Because the accountants were not a beneficiary of the estate, they had no common interest with anyone, and production affected a waiver.

Counsel for the accountants concluded with rebuttal.  Counsel argued that the proposition that estate planning was not within the scope of the Act was a nonstarter.  The legislature simply didn’t add a testamentary exception, and that was the bottom line, regardless of whether one considered that result unwise, unjust or absurd.  Opposing counsel had argued for harmonizing Illinois law with other states, but counsel argued that that wasn’t possible – there were sixteen different state statutes, and some expressly gave the privilege to the client.  Counsel argued that the Court should uphold the statute as written, and not worry about sixteen other states with sixteen different laws.  Counsel argued that there has been no waiver, either express or implied.  Counsel closed by asking that the Court reverse in all respects, with the exception of the Appellate Court’s vacation of the contempt order itself.

We expect Brunton to be decided in three to four months.

Image courtesy of Flickr by Sean.

Illinois Supreme Court Debates Scope of Tort Duty for Insurance Agents

Posted in Illinois

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Last week, the Illinois Supreme Court began hearing arguments from its civil docket with Skaperdas v. Country Casualty Insurance Company.  Skaperdas poses a major question for the insurance industry: does a “captive” insurance agent who only represents a single insurer owe customers a tort duty of care in obtaining insurance?  Our detailed summary of the facts and lower court opinions in Skaperdas is here.

In early 2008, shortly after the plaintiff’s girlfriend had had an accident driving one of his vehicles, the plaintiff allegedly had a conversation with his insurance agent and told the agent to add both his girlfriend and her son to his policy.  For whatever reason, something went wrong; the declarations page identified the driver as a “female, 30-64,” but the policy listed only the plaintiff as a named insured.

Not long after, the girlfriend’s son was seriously injured in a bicycle accident.  When the negligent driver turned out to be underinsured, the plaintiff and his girlfriend sought benefits from the plaintiff’s policy. The claim was denied on the grounds that neither the girlfriend nor her son was named insureds.

The plaintiff sued the insurance agent for negligence, and sought a declaration of insurance coverage with respect to the defendant insurer.  Both defendants moved to dismiss, arguing that since the defendant was an “agent,” not a “broker,” he owed the plaintiffs no duty of care under the Insurance Placement Liability Act.  (735 ILCS 5/2-2201(a).)  The Fourth District reversed, holding that there was no difference between agents and brokers under the statute for purposes of assigning tort duties.

Counsel for the insurance agent began the argument, arguing that a captive agent owed no duty to his or her customer.  Counsel argued that the Appellate Court had misapplied Section 2-2201, expanding liability and contradicting agency law, the common law and legislative intent.  Counsel argued that no case other than Country Mutual Insurance Co. v. Carr, an earlier decision of the Fourth District (vacated by settlement) which the Fourth District followed in Skaperdas, had ever held that Section 2-2201 imposes any tort duty on a captive agent.  The Appellate Court disregarded the rule that the legislature is presumed to act in view of the common law, which at the time Section 2-2201 was enacted, had long drawn a distinction between captive agents and independent brokers.  The principal of a captive agent is the insurer, not the insured.  Section 2-2201 can and should have been interpreted consistently with the common law to keep in place the long-standing distinction between captive agents and brokers. Justice Theis asked when the legislature first used the term “insurance producer.”  Counsel responded that the legislature had used the term in the Act, but had not defined it until 2001 – therefore, one must assume the legislature was informed by the common law in using the term. Justice Theis asked when the term was placed in the statute, and counsel answered 1997.  Justice Theis asked whether one could argue that the legislature knew exactly what it was doing when it amended the Insurance Code.  Counsel responded that there was nothing in the Insurance Code that showed an intent to change the common law.  The question was what was the legislative intent in 1997, when it inserted the relevant language.  Justice Thomas asked whether plaintiff had any cause of action available as a result of the agent’s apparent mistake.  Counsel responded that plaintiffs were pursuing claims for breach of contract and declaratory judgment.  Justice Thomas asked whether there was a breach of fiduciary duty claim, and counsel answered no.  Nevertheless, plaintiffs were not left without a remedy.  Counsel argued that clear and convincing evidence of intent was necessary to support a finding that the common law had been changed to expand liability.  The intent of the statute was remedy breaches of fiduciary duty – but captive agents don’t have fiduciary duties.  Counsel also pointed out that Section 2-2201 had been proposed by the independent agents association, which would have no reason to seek expanded liability.  Justice Karmeier asked whether the Court would have to conclude that the statute was ambiguous to reach any of these points, and counsel said yes.  Justice Karmeier asked whether the Court could look at the Insurance Code together with the relevant provisions of the CCP and conclude that the statute is clear.  Counsel answered that that would amount to going outside the plain language of the statute, and the Court would have to first find ambiguity.  Counsel argued that the Fourth District’s holding would encourage insureds not to confirm their own coverage, and when something went wrong, to pursue their agents.  Counsel argued that under the Appellate Court’s holding, it might even be possible for a captive agent to be sued for failing to offer coverage from other companies.  Justice Theis noted that that wasn’t the plaintiffs’ theory.  Counsel agreed, but argued that it was the inevitable outcome of the Fourth District’s holding.

Counsel for the insurer followed, adopting the arguments made by counsel for the agent.  Counsel argued that nothing in the statute suggested liability for the insurer, but because of respondeat superior, that was the result of finding liability for the agent.  Counsel argued that the Fourth District’s construction of the statute disadvantages captive agents, since a broker could not render the insurer liable under respondeat superior.

Counsel for the plaintiffs followed.  Counsel argued that the “absurd results” discussed by appellants weren’t what the plaintiffs were alleging.  Without a negligence cause of action, counsel argued that the plaintiffs would have no recourse against the agent for his error. Chief Justice Garman asked whether the case was a statutory interpretation matter.  Counsel agreed that it was based on the question of who was an “insurance producer” under the Insurance Code.  The Chief Justice asked whether the statute was ambiguous, and counsel said it was not.  Counsel said plaintiffs were merely arguing for a standard of ordinary care – simply give the plaintiff what he asked for.  Justice Thomas asked whether counsel was suggesting that the parade of horribles urged by defendants was impossible, and counsel said yes.  The first step in statutory construction is the plain language of the statute, and Section 2-2201 merely refers to insurance producers, making no distinction between agents and brokers.  Practically speaking, counsel argued, the public interacts with both types of insurance representatives in similar ways. The Chief Justice asked whether the legislature intended in 1997 to abrogate the common law distinction between agents and brokers, and counsel answered yes.

Counsel for the agent concluded in rebuttal, arguing that the parade of horribles is inevitable if Section 2-2201 is interpreted to create an ordinary duty of care in placing coverage.  Counsel argued that the insured is obliged under the law to seek an explanation if he doesn’t understand the scope of his coverage.  The legislature’s action in 1997 could not be interpreted using a definition the legislature didn’t adopt until 2001, according to counsel.  Justice Theis asked whether there was a statute before 1997, and counsel said there was no statute specific to insurance placement liability.  Justice Thomas asked whether any negligent conduct by a captive agent is absolved, and counsel answered that the agent is responsible only if he or she fails to submit the application.  Justice Thomas asked whether a breach of contract action would cover the agent’s alleged failure to include the additional insureds, and counsel said no.  Nevertheless, the plaintiffs’ claim for breach of contract against the insurer continues.  Thus, plaintiffs are not left without a remedy.  Counsel pointed out that interpreting Section 2-2201 to create a tort duty would create an inherent conflict of interest between a captive agent and his insurer, if the agent is to have a tort duty to the insured or prospective insured.  Thus, the Appellate Court’s decision will require a comprehensive overhaul of the industry.  Justice Thomas asked whether such conflicts exist between insurers and brokers, and counsel said yes.  Justice Thomas pointed out that the only difference was that an agent could only deal with a single insurer.  Counsel responded that the difference was that customers went to brokers because they’re independent, and can source insurance from any number of insurers. If the insured goes to a captive agent, the insured knows the agent is only going to offer what his or her company has.

We expect Skaperdas to be decided in four to six months.

Image courtesy of Flickr by Alan Cleaver.

A Different Kind of Blog – Decision Analytics Comes to Appellate Law

Posted in Announcements

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Academics in various disciplines have been developing sophisticated tools for analyzing the dynamics of group decision making for many years.  The leading figures in this research have been mostly law and politics professors, along with a number of economists, and their methods have included data analytics, game theory, organization theory and behavioral economics, to name just a few.

Although these tools have become increasingly common in the business world, they’re not especially well known in the appellate bar.  And that’s odd, because much of this research speaks directly to the essence of what we do as appellate lawyers.  All litigators are in the business of persuading judges.  But trial lawyers, with few exceptions, are tasked with persuading one decision maker at a time.  Appellate lawyers face a different challenge – persuading a majority of a panel – typically anywhere from three to seven, or once in a great while nine or more judges.  Understanding both the preferences of the decision makers, and what internal and external influences might constrain them from acting on those preferences, is a key concern.

Today, we at Sedgwick announce the founding of our second appellate blog, the Illinois Supreme Court ReviewWe founded ISCR to bring the power of data analytics, and ultimately other academic tools for studying group decision making, to the rigorous study of the decision making of the Illinois Supreme Court.

The Review will be a different kind of blog.  For the past several years, authorities on the future of social media have been predicting that it’s only a matter of time before the rigorous scholarship that has been published in law reviews for generations begins to transition to blogs.  We think that evolution is inevitable, and we hope to contribute to it with the empirical research we’ll be posting at the Review.

So while the conversation about last week’s appellate arguments or yesterday’s new opinions continues here, over at the Review we’ll take a longer-term view, seeking new insights into the Court’s decision making in civil litigation based upon the entire span of what one might call the Court’s recent history, from 2000 to today.  Our analysis will rest on a foundation of an enormous data library, encompassing dozens of data points from each of the more than six hundred civil decisions the Court has handed down during our period of study.

Image courtesy of Flickr by Anne Swoboda.

Illinois Supreme Court Debates Starting Point for Appeals Clock

Posted in Illinois

 

Can an oral order apparently disposing of all post-trial motions start the appeals clock running when the trial court is still considering a post-trial motion for setoff (and may be planning to enter a written order on the post-trial motions)? That’s the question that the Illinois Supreme Court debated in the closing days of its November term in Williams v. BNSF Railway Company. Our detailed report on the underlying facts and lower court opinions in Williams is here.

Williams arises under the Federal Employers’ Liability Act. Following a jury trial, the plaintiff was awarded judgment. In April 2012, the trial court issued an oral ruling denying all post-trial motions. Although the court suggested that a written order would be forthcoming, none was ever entered. This left only a motion for setoff pending. The defendant filed an emergency motion for leave to file supplemental authority the following month. During a June 1 hearing, the Court again stated that the post-trial motions had already been denied, but ultimately agreed to consider the new authority; a few days later, it reiterated its previous rulings and issued a written order. The order said it was “final and appealable.” The defendant filed its notice of appeal on June 29. The Appellate Court granted the plaintiff’s motion to dismiss defendant’s appeal from the judgment.

Counsel for the defendant began the argument. Counsel argued that Supreme Court Rule 272 exists to remove all doubt as to when the appealable judgment was entered. If the Appellate Court had applied Rule 272 as written, the case wouldn’t be before the Court, counsel argued. Justice Theis asked what the Court should do with the trial judge’s comment in the oral ruling that the court would issue an order in ten days or so. Counsel responded that Rule 272 covers two scenarios. First is when the court indicates that a written signed order will be forthcoming – then the appealable judgment is entered when the signed order is filed. Justice Theis asked whether there was a signed order, and counsel said yes, on June 6. Viewing the record in its entirety, counsel argued, the judge intended the June 6 order to definitively dispose of all post-trial motions. Counsel argued that an oral pronouncement, standing alone, does not start the appeal time running. In this case, that’s all that occurred before the June 6 written order. Therefore, applying Rule 272, the notice of appeal is timely. Counsel argued that appellees insist that Rule 272 only applies to final judgment, not post-trial motions. No case holds that Rule 272 doesn’t apply to post-trial motions, counsel stated, and such a construction would make no sense. Counsel argued that the plaintiff’s entire argument rests on the proposition that Rule 272 only uses the word “judgment,” not “Judgment or order.” The only way to accomplish the purpose of Rule 272 – to eliminate all doubt about the time to appeal – is to apply is across the board to everything. When counsel turned briefly to the plaintiff’s alternative argument that the notice of appeal was premature, Justice Theis noted that there is some discussion of Rule 304(a) – was there a Rule 304(a) finding in the June 6 order? Counsel responded that the June 6 written order disposed of everything left in front of the court. Counsel noted that on June 1, the trial court had directed the parties to return on June 6 and the court would give the parties a record “you can take up.” Counsel closed by noting that if the Court reaches the merits (as opposed to merely disposing of the issue of timeliness of the appeal), defendants ask that the Court reach the interpretation of an indemnity contract. Justice Thomas asked whether there is any reason why the Court shouldn’t ship the substantive issues back to the Appellate Court, if it reverses on timeliness. Counsel answered that judicial economy would dictate disposing of everything. Justice Thomas asked whether plaintiffs believe there are fact disputes involved in the merits issues. Counsel said yes, although the defendants disagree.

Counsel for the plaintiff followed, arguing that the appeal was properly dismissed for lack of jurisdiction. Counsel argued that Rule 272 does not govern the disposal of post-judgment motions given that its plain language refers to “judgments.” Moreover, even if Rule 272 does govern the situation, defendant’s failure to include the docket sheet in the record on appeal prevents the proper application of the rule. The only court action in the case subject to Rule 272, counsel argued, was the judgment entered the same day as the jury verdict. Justice Thomas asked whether the defendant could have appealed the April 18 oral order prior to the written order on June 6, and counsel said yes. The only remaining issue following that order was a collateral issue not impacting the accuracy of the judgment. Counsel argued that it was incumbent on the defendant to appeal from the oral ruling. An oral ruling is entered the moment it is pronounced on the record, according to counsel. Rule 272 modifies that common law rule only for final judgments. Justice Thomas asked whether the plaintiff has any evidence that the oral order was entered of record. Counsel responded that no notation by the clerk was necessary; the common law rule was that the order was entered the moment it was announced. Justice Thomas asked why the plaintiff opposed the defendant’s motion to supplement the record with copies of the law record for the period of the oral order. Counsel answered that it was too little too late. If Rule 272 applies, then it becomes necessary to examine the court’s docket sheet, but defendant failed to include that in the record on appeal. It was well within the Appellate Court’s discretion, counsel argued, to deny a motion to add to the record after the Appellate Court had already decided the case. Justice Thomas asked whether, if the Court disagreed about Rule 272 applying to post-judgment motions, there was any way to avoid the conclusion that the June 6 order was entry of record for purposes of the Rule. Counsel responded that if the defendant was correct that only a written record is sufficient to satisfy the Rule, then the June 6 written order applies to only a couple of orders. Therefore, if the defendant is right, then the appeal still hasn’t been perfected. But plaintiff argues that the defendant’s failure to include the docket sheet in the record precludes application of the Rule. Justice Thomas noted that opposing counsel had seemed to indicate that some strategy was involved in the entry of the orders, and asked whether there was any gamesmanship involved. Counsel answered no – since the oral announcement of the post-trial orders was not subject to Rule 272, it was effective at the moment of announcement.

Counsel for the third-party defendant followed. He argued that the Appellate Court was correct in dismissing, both on grounds of untimeliness and for failure to provide a sufficient record. The April oral ruling was a final decision under Rule 272 based on the record the defendant provided, counsel argued. All that the defendant provided in the record was the April transcript, the June written order, and two June transcripts, and there was no basis for finding appellate jurisdiction based on that, according to counsel. Justice Theis asked what impact the trial court’s statement in the April transcript that it would enter a written order later should have. Counsel answered that it had no impact. Justice Theis asked what should have happened next after the trial court indicated it would enter a written order and didn’t? Counsel answered that the Appellate Court, based on the record before it, was entitled to presume that that’s what happened. Justice Thomas asked how the Appellate Court could reasonably assume that an order was entered when in fact it wasn’t. How could the defendant provide proof that something didn’t happen? Counsel answered that the defendant’s obligation was to provide the law record to the Appellate Court. In its absence, the Appellate Court was entitled to presume that the record was complete and correct. Justice Theis asked what the appeal date would have been if the written order had been timely entered. Counsel responded that the record would reflect a written order ten days after the oral announcement. Justice Thomas pointed out that both plaintiff and the third-party defendant had failed to offer evidence that the April oral order was entered of record, and in fact, it wasn’t. Counsel agreed that was correct. Justice Thomas pointed out that the plaintiff and third-party defendant opposed supplementing the record with copies of the law record. So where doe0s fairness enter into this? Counsel answered that it was the defendant’s obligation to get it right. Justice Thomas asked whether there was something wrong with presuming that an order was entered when everyone knows it wasn’t. Counsel answered that the order was entered at the moment it was orally announced. Justice Thomas explained that he meant the written order. Counsel answered that the bottom line was it was the defendant’s obligation to provide a record to show jurisdiction.

Counsel for the defendant argued in rebuttal that the appellees’ arguments were very similar to what led to the creation of Rule 272. Justice Thomas asked counsel to address the argument that defendant failed to provide an adequate record. Counsel responded that the rules provide that the record on appeal consists of the entire common law record. So that’s what the Circuit Court prepared and submitted. The law record is not typically included by the clerk. The appellees initially moved to dismiss in the wake of the filing of the notice of appeal, but that motion was denied; the appeal was ultimately dismissed by the merits panel. Counsel argued that appellees had taken the position before the Appellate Court that Rule 272 applies to both judgments and post-trial orders, and that accordingly the notice of appeal might be premature (since there had never been a written order with respect to a number of post-trial challenges). Justice Thomas pointed out that that argument rested on the fact that there was no written order following the April hearing. Counsel agreed, and argued that the defendant had provided the record of everything that happened. If the plaintiff and third-party defendant choose to rely on the April oral ruling to foreclose the appeal, they were obliged to provide a sufficient record to show that it had been entered in the record, as required by Rule 272. Justice Kilbride asked whether the declarations in the record memorializing the April oral ruling had any consequence. Counsel pointed out that those declarations were made on June 1, less than thirty days before the notice of appeal was filed. Counsel argued that the Court should decline to hold that filing a transcript satisfies Rule 272, since a party would be unable to tell when judgment had been filed from the court docket sheet. But if those declarations triggered Rule 272, then the notice of appeal was timely filed.

We expect Williams to be decided in four to six months.

Image courtesy of Flickr by Alexander Boden.

 

Illinois Supreme Court Debates “Rules of the Road” Orders in Custody Disputes

Posted in Illinois

 

It’s become commonplace in domestic relations cases with custody issues, in Cook County and certain other jurisdictions, for the trial court, early in the proceedings, to enter a kind of “rules of the road” order specifying what the parents can and can’t do with the children. The centerpiece of these orders is usually that neither parent can disparage the other to the children, but they typically contain anywhere from five to ten subparts.

But what procedural hurdles does the trial court have to go through before entering such an order? That’s the issue the Illinois Supreme Court debated during its November term in In re Marriage of Eckersall, an appeal from a decision of the First District, Division 3.

Eckersall began in 2013 when the husband filed for divorce and joint custody of three daughters. The wife filed a counter-petition and also sought joint custody, but specifically sought sole custody if the parties couldn’t agree on a joint arrangement. The parties agreed to the appointment of counsel to represent the interests of the children. The children’s attorney submitted a “rules of the road” order, including a non-disparagement clause and seven other categories of conduct that the parents would be barred from engaging in while in the presence of the children. The husband’s attorney asked for minor changes in the draft order, but the wife’s attorney objected to the order from start to finish on the grounds that it infringed on the wife’s right to communicate with and parent her children. The trial court entered the order, and shortly thereafter, the wife filed a notice of appeal, contending that the order was appealable as an injunction.

The Appellate Court disagreed and dismissed the appeal. The order did not purport to adjudicate any substantive issues, the Court noted; it merely controlled the parties’ conduct during the litigation, and automatically dissolved upon entry of a final judgment. The Court concluded that the points on which the wife rested her argument – that the trial court had proceeded without a motion, a supporting affidavit and an order setting forth reasons – actually compelled the conclusion that the result was not an injunction, since trial judges are presumed to follow the law. Nor was the order intended to maintain the status quo, in the Court’s view. Justice Mason dissented, arguing that the order was both substantively an injunction (and therefore appealable) and procedurally defective.

Counsel for the wife began the Supreme Court hearing, arguing that the practical meaning of the Appellate Court’s action was that any trial court could restrict parental rights without the slightest appellate review. Justice Theis asked why the Court should decide the issues presented, given that they were moot (final judgment in the underlying divorce had been entered while the appeal worked its way through the system). Counsel responded that the Court should invoke the public interest exception to mootness. Justice Theis asked what the public interest was if one judge entered a particular order in a single case. Counsel answered that similar orders are entered nearly every day, as a matter of course, without underlying justification. Justice Thomas noted that this was the first time such orders had ever been challenged, so doesn’t it cut against the public interest argument that they’re so common? Counsel responded that there was little time to challenge such orders, since they are in effect only until final judgment. Justice Thomas asked whether that fact too cuts against review – if the order is temporary, its effect is limited. Counsel answered that a divorce case can be the hardest time of all for children, and not having parents available to answer the children’s questions is wrong. Chief Justice Garman asked whether the court must wait until the children have suffered actual harm before entering an order. Counsel answered no, but there must be at least an articulable threat. The Chief Justice asked how that restriction intersected with the courts’ obligation to protect the children. Counsel answered that the courts’ obligations must be balanced against the duty to respect the parents’ rights. The result is that the court must have a hearing and tailor the order to the facts of the case. Justice Karmeier asked whether, if the Court agrees with the wife, any temporary custody order would be immediately appealable. Counsel said no, that some temporary custody orders are not coercive. Justice Karmeier asked what if the order imposed additional terms and conditions on the parents’ interactions with their children. Counsel answered that if there are restrictions in the order, that part of the order is appealable. Chief Justice Garman asked whether there was any restriction a trial court could impose on parties’ conduct that wouldn’t be an injunction. Counsel answered that certain directives, such as setting times that children should be dropped off and picked up, are just declaring the parties’ rights and obligations. The Chief Justice asked what about an order not to disparage the other party. Counsel responded that such an order is an injunction. Chief Justice Garman asked whether there was an attempt to raise the wife’s objections with the Court. Counsel answered that both sides had provided versions of an order they’d agree to, but the wife objected to being barred from answering her children’s questions about the divorce. The Chief Justice asked whether that was in the record, and counsel said no, the court had entered the child representative’s order with one modification suggested by the father.

Counsel for the children spoke next. He argued that no one was denying that the order entered was in the children’s best interest. It was critical to consider the injury that would occur every day if similar orders were barred. The threshold issue, counsel argued, was whether the order was an injunction. In fact, the order was clearly permissible under the Marriage and Dissolution of Marriage Act. Counsel argued that injunctions are an extraordinary remedy, while the language of the order here shows that it was the furthest thing from extraordinary. The order entered was not final, and if any inequity had been found, it could easily have been corrected. Counsel argued that similar orders are entered every day in divorce cases involving children, and they are not intended as injunctions. Counsel argued that there is already an avenue for appeal of such orders by permission under Supreme Court Rule 306(a)(5), and nothing more is needed. Counsel urged the Court, if it felt that something about the order had gone too far, to provide guidance, but not to label the order an injunction.

Counsel for the husband followed, arguing that the appeal was moot. A final judgment for dissolution had been entered before the petition for leave to appeal was ever filed, and the temporary order at issue was no longer in effect. The public interest exception doesn’t apply, counsel argued, for two reasons. First, it applies only to a limited group of people. Second, although it has been in use for years, this case was the first challenge to the order, showing that there was no significant need for the Court’s guidance. Counsel concluded by agreeing with the children’s representative that the order was clearly in the best interests of the children.

Counsel for the wife concluded in rebuttal. He agreed that certain provisions were in the children’s best interests, but for others – such as the bar on answering the children’s questions – that proposition was very much in dispute. Counsel argued that there was no basis for construing only orders based on actual wrongdoing as injunctions. Counsel noted that Rule 306(a)(5) allowed permissive appeal only where an order dealt both with care and custody of the children – there was no grounds for appealing the order at issue. Counsel disputed the notion that the order applied only to a limited class of persons – this order potentially applied to any parent with children. Counsel concluded by noting that a similar order had been challenged in another case which went to the Second District and was ultimately vacated.

We expect Eckersall to be decided in four to six months.

Image courtesy of Flickr by Tori Rector.

 

Illinois Supreme Court Debates Retroactive Application of Landfill Cleanup Statute

Posted in Illinois

 

In 2004, the Illinois legislature amended the Illinois Environmental Protection Act to authorize mandatory injunctions to require cleanups of landfills. But could the courts use the statute to order cleanups of older landfills in cases that were already pending at the time of the amendment? That’s the question the Illinois Supreme Court debated during its November term, hearing oral argument in People ex rel. Madigan v. J. T. Einoder, Inc. Our detailed summary of the facts and lower court opinions in Einoder is here.

Einoder involved a landfill site held in a land trust for the benefit of one of the corporate defendants, which was wholly owned by the defendant husband. The second corporate defendant – 90% owned by the defendant wife – leased equipment and operators to the first corporation for use at the site.

The Attorney General filed suit in 2000 after several citations over the previous five years, alleging open dumping, unpermitted waste disposal operations, development and operation of a solid waste management site without a permit, and various other violations. In a bifurcated trial, the Court first found for the State on most major claims, and later, issued a permanent injunction requiring the defendants to remove the above-grade waste pile, as well as imposing substantial fines. The Appellate Court affirmed, holding that the legislature intended that the 2004 amendments, adopted four years after the case was filed, should apply retroactively.

Counsel for the defendants began. He explained that the case involved two principal issues: (1) the individual liability of a corporate officer for the corporation’s violations of the Environmental Protection Act; and (2) whether the 2004 amendments to the Act imposed a new liability for past actions. Prior to 2004, no mandatory injunctive relief was possible for improper deposit of non-hazardous material (which this was). Counsel argued that the statutory amendment did not clearly indicate any intent to apply retroactively. When the law is silent on retroactive application, Illinois law requires that the court turn to Section 4 of the Statute on Statutes, which requires the court to determine whether the change was substantive or procedural. Counsel argued that Judge Mason had followed the proper framework in dissent, concluding that the amendment could not be applied retroactively. Counsel commended the Court to Justice Stevens’ opinion in Landgraf v. USI Film Products, which he described as a scholarly discussion of why statutes should ordinarily not apply retroactively. If the statute changes the substantive burden on one of the parties, then retroactive application if barred. Counsel argued for a broad definition of what constitutes a “substantive” change – anything which makes a substantial difference to the consequences of a party’s action qualifies. A “procedural” change, in contrast, is limited to the machinery of litigating the suit. A change of penalty is not merely procedural. Justice Burke asked counsel how the fact that the mandatory injunction – which the State insists is a purely procedural change – might cost the defendants as much as $130 million factors in. Counsel argued that analytically, that was relevant to the third step. First, we ask whether the legislature indicated that the statute applied retroactively. If not, we then ask whether the statutory change is substantive or procedural. Even if procedural, then we ask whether the change should nevertheless not be applied retroactively. If the additional burden is significant, even if the change might technically be called procedural, it is unreasonable and unfair to apply retroactively. Counsel argued that this case involved a hill of clean construction debris, all of it non-hazardous. Justice Burke asked whether it was true that there was testimony from the mayor and city officials about removing the hill. Counsel said yes, the mayor had testified that the hill and the landfill shouldn’t be removed because the town wanted to put energy-generating windmills there. Counsel argued that removing the hill of debris would take 48,000 truckloads at a cost of anywhere from $8 to $130 million, depending on the witness. If the defendants are required to peel away the top layer of vegetation on the hill, counsel argued, the result would be an environmental disaster. Chief Justice Garman asked whether a mandatory injunction was always substantive, or it depended on the facts. Counsel argued that it was tempting to say that just one truckload wasn’t a big deal, but 48,000 truckloads were indisputably a substantive change. The Chief Justice said so in this case it’s a substantive change. Counsel responded that the injunction here made a difference between fines only and a massively burdensome multi-million dollar injunction. Counsel then turned briefly to the remedial issue. He pointed out that Landgraf involved an amendment to remedies. The Supreme Court nevertheless held that the change couldn’t apply retroactively. Counsel closed by asking that the Court apply a three-factor definition holding that a statute cannot apply retroactively when it impairs rights a party possessed when he or she acted, imposes new duties, or increases a party’s liability for past acts.

Counsel for the Attorney General followed. Counsel argued that defendants disputed the particulars of the scope of the injunction and its cost, but in fact, that wasn’t the issue. According to counsel, before the lower courts the defendants had assumed that the new statute would apply retroactively, and merely argued that their liability under it should be capped, while before the Supreme Court, they have relied solely on the retroactivity issue. Counsel argued that since the defendants purportedly didn’t challenge the constitutionality of retroactive application, the question became one purely of legislative intent. Even if the legislature hadn’t indicated its intent, counsel argued, the change was procedural. Counsel argued that the legislature indicated its intent that the statute apply retroactively in various ways, including by instructing courts to construe the statute liberally, and by saying it intended to “restore” and “protect” the quality of the environment, while ensuring that violators would bear the costs of cleanup. Justice Thomas pointed out that counsel’s argument – and the Appellate Court’s below – relied on existing provisions of the Act, but the Supreme Court had earlier indicated that only the intent of the amendment was relevant. If the amendment was silent, the analysis continued with the substantive vs. procedural issue. Counsel responded that the real issue was whether the legislature indicated the temporal reach of the statute. The plaintiff was looking at the amended language, counsel argued, but reading it in conjunction with the rest of the Act. Justice Thomas asked counsel if he was saying that the amendatory Act encompasses the Act prior to the amendment, and counsel explained that the amendments had to be read in concert with what they were amending. Justice Thomas commented that it was a little hard to get one’s arms around, the analysis looks to the Act in conjunction with the rest of the Act in order to divine legislative intent, but then looks at the amendment only to classify it as retroactive or prospective. Counsel responded that even if the analysis reached that second step, the amendment merely added a new remedy. Justice Burke asked whether the new section wasn’t more permissive – it uses the word “may,” at the request of the Agency. Counsel agreed. Justice Burke suggested that this was a fairly fact-intensive case, with a landfill that stopped being used prior to the amendment, a remedy that was highly detrimental to the defendant and the Mayor and City Council arguing against the Attorney General’s preferred position. Counsel responded that the Mayor’s opposition to the remedy of removal was irrelevant to retroactivity. Justice Kilbride asked what the scope of the Department’s authority was before the 2004 amendment. Counsel responded that the first case ever questioning the Department’s authority to seek a mandatory injunction was in 2004, so when this case was filed, the State believed a mandatory injunction was possible. Counsel attempted to distinguish Landgraf, arguing that it was about the quintessentially backwards-looking nature of compensatory damages. Mandatory injunctive relief, counsel argued, is forward-looking. Justice Karmeier asked counsel whether he thought the Court would have to overrule prior precedent if it disagreed with the State, and counsel said yes.

When defendant’s counsel rose for rebuttal, Justice Karmeier repeated the question he’d closed the plaintiff’s presentation with: would the Court have to overrule prior precedent to find for you? Counsel responded no, but the Court would have to repudiate most of its leading cases on retroactivity to find for plaintiff. Counsel stated that it was undisputed that the amendment itself does not address the issue of retroactivity. Counsel argued that if it’s permissible to refer to a thirty-year old statutory preamble for the analysis, one might as well discard all of retroactivity analysis, since there will always be something to rely on. The bottom line, counsel argued, is that if a statutory amendment imposes a substantive burden on a party, it can’t apply retroactively. Counsel briefly continued with the issues relating to the defendant wife. Counsel argued that under the cases, if a party doesn’t have active participation in the events at issue, you don’t have personal liability. According to counsel, the wife defendant didn’t do anything approaching enough to justify personal liability under the cases. Justice Thomas suggested that the State would argue that the wife had played a substantial role in decision making. Counsel responded that the contracts said that the price to be charged each truck was determined by the person on site. The wife signed those in a purely ministerial capacity as president of the company.

We expect Einoder to be decided in four to six months.

Image courtesy of Flickr by Mace Ojala.

 

Illinois Supreme Court Debates Whether Treasurer Needs Appellate Bond

Posted in Illinois

 

Although Illinois courts are generally presumed to have subject matter jurisdiction, that rule doesn’t apply when it comes time to review a decision of the Workers’ Compensation Commission. In order to initiate judicial review of a workers comp decision, strict compliance with the steps set forth in the Act are required. One of those steps is to file an appeal bond with the clerk. (820 ILCS 305/19(f)(2).)

But does that rule apply to the Illinois State Treasurer when suing as ex officio custodian of the Injured Workers’ Benefit Fund?

Ordinarily, the purpose of an appellate bond is to protect the prevailing party’s right to the judgment in case the losing party dissipates assets while the appeal is pending (as well as to partially compensate the prevailing party for loss of use of the money). But is there really any risk that the State is going to run out of money?

The Illinois Supreme Court considered these issues during its November term, hearing oral argument in Illinois State Treasurer v. The Illinois Workers’ Compensation Commission. Our detailed summary of the underlying facts and lower court opinions in State Treasurer is here.

The claimant in State Treasurer is a home healthcare provider who fell on the stairs at a patient’s home. Because her employer had no workers’ compensation insurance, the claimant added the Injured Workers’ Benefit Fund as a co-respondent. The arbitrator awarded benefits. The State Treasurer appealed the ruling to the Commission, which affirmed, then to the Circuit Court, which affirmed again, and finally to the Appellate Court. The Appellate Court initially reversed. The plaintiff sought rehearing, arguing for the first time that the Circuit Court (and by extension, the Appellate Court) lacked jurisdiction to hear the appeal. This was so, plaintiff argued, because the Treasurer had failed to file an appellate bond. The Appellate Court agreed, dismissed the appeal and vacated the Circuit Court’s judgment.

Counsel for the Treasurer began the argument. Counsel argued that the Treasurer must defend the Fund against workers’ comp claims in order to hold the employee to its proof. The Treasurer’s role is important because the Fund doesn’t become involved unless the employer is insolvent, or has insufficient funds to have a real stake in the defense. Counsel argued that since the legislature doesn’t guarantee full payment of an award when no appeal is involved, there is no reason to assume the legislature would have been worried about guaranteeing full payment in case of appeal. Counsel argued that the Appellate Court was wrong for three reasons: (1) the state is immune from costs, including bonds, absent affirmative language in the statute – which the Workers Comp Act doesn’t have; (2) Section 19(f)(2) indicates that a bond requirement applies only when an award for payment of money has been entered – and the Treasurer is not immediately liable for any judgment; and (3) the consequences of applying the bond requirement to the Treasurer would be absurd.

Counsel argued that the State’s sovereign immunity could not be overridden by generally applicable language in the Act. Justice Thomas asked how the Court should get past the language of the Act, which appears to unambiguously provide that the Treasurer isn’t exempt. Counsel answered that the plain language of the statute supported the Treasurer’s view, since the bond requirement is only applicable against a party against whom an award is entered. Since the amount payable by the Fund isn’t determined until the end of a fiscal year, the statute doesn’t apply. Chief Justice Garman asked whether the statute was plain or ambiguous. Counsel answered that the language of the Act was plain. The Act provides that no amount is due from the Fund at the time of the award. Various factors determine whether the Fund will be liable for the entire award, including how many claims the Fund has received and how much money remains. Besides, counsel argued, it was clear that government entities appearing before the Commission as employers were exempt from the bond requirement, and it made no sense to exempt government entities which are directly liable while not exempting the Fund, whose liability is only derivative. Counsel argued that the practical consequences of imposing the bond requirement would be absurd as well. Imposing the bond requirement against the Treasurer would upset the legislative scheme by reducing the money available from the Fund for paying awards. Moreover, counsel argued, the bond could never be triggered, since no matter how little money is left in the Fund at the end of the year, a pro rata distribution is made. Justice Karmeier asked whether the bond would be triggered if the legislature zeroed out the Fund. Counsel answered no, since the Act bars relying on any other source of funding. If there is no money in the Fund, the Fund distributes nothing, and the Act is satisfied. Counsel acknowledged that the legislature has diverted money from the Fund in the past, but that was during periods when considerable excess money was in the Fund. It was unlikely that the legislature would divert funds again in the future.

Counsel for the employee followed. He argued that the language of the Act was plain, so there was no need for construction. Justice Thomas asked whether counsel thought there was legislative oversight in this case. Counsel responded that the Fund had been created in 2005, but although the legislature had carved out an exception for Commission employees, it had not exempted the Fund from the bond requirement. Justice Thomas asked whether that would be a matter for the legislature to amend later, if the Court agrees with the employee. Counsel responded that the legislature could amend the statute. Justice Burke asked whether there was language in Section 19(f)(2) supporting a distinction between awards which are presently payable by the Fund and a mere contingent right to later distributions. Counsel said no – the amount of the bond isn’t based on the award, it’s capped at $75,000. Counsel argued that there are many reasons why the employee needed a bond. The legislature might shut down the Fund, or comprehensively reform the system. Counsel argued that failure to carry workers compensation insurance is a criminal act, so every injured employee in this situation is a crime victim. Chief Justice Garman asked whether the Treasurer should take the bond premium out of the Fund, and if not, where the money should come from. Counsel answered that the Treasurer has to pay for the transcript in order to perfect the appeal – if they can pay for that, there must be funds somewhere to pay for the bond premium. Moreover, Supreme Court Rule 305(i) requires the Treasurer to file a bond when an appeal is not taken for the benefit of the general public, and the premiums for those bonds are getting paid from somewhere. The Chief Justice asked what role the Treasurer has other than to hold the Fund and pay it out as required by awards. Counsel answered that the Treasurer is a party to the case. The Treasurer is not analogous to a co-signer – they are jointly and severally liable for the award. Justice Karmeier asked how counsel responded to the Attorney General’s argument that the bond could never be triggered. Counsel answered that if the Fund were entirely closed down, the employee would have the right to proceed against the bond. Justice Karmeier asked whether, in that event, the employee would be better off if all the money in the Fund were diverted. Counsel acknowledged that in some years, Fund payment has been less than 100%. Justice Karmeier asked whether the result – that an employee can get 100% of the award from the bond if the Fund is entirely zeroed out – conflicts with the language in the Act saying that an employee gets a pro rata award if the Fund is depleted. Counsel answered that even if the employee proceeded against the bond, a court would still have to determine the amount owed. Justice Kilbride asked whether the Commission entered an award against both the employer and the Fund. Counsel responded yes.

In rebuttal, counsel for the Attorney General explained that the award was against the Fund only to the extent appropriate under Section 4(d) of the Act. Nothing in the award suggests that the Fund is liable in the same way as the employer. Counsel argued that the joinder provision referenced by opposing counsel merely means that the Treasurer can participate in the case – it doesn’t make the Treasurer fully liable for the award. Counsel argued that there was no basis for opposing counsel’s claim that the employee could proceed against the bond if the Fund were zeroed out.

We expect State Treasurer to be decided in four to six months.

Image courtesy of Flickr by Marko Kudjerski.