The Appellate Strategist

The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

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.

Image courtesy of Flickr by

Illinois Supreme Court Holds Innocent Misrepresentation on Malpractice Renewal Grounds for Rescission

Posted in Illinois

12616526435_a0e1d4824b_zA law firm partner innocently repeats a misrepresentation by one of his or her partners on a renewal form for the firm’s malpractice insurance. Can the misrepresentation be grounds for completely rescinding the policy? On February 20, a divided Illinois Supreme Court held that the answer was “yes,” reversing an Appellate Court judgment in Illinois State Bar Association Mutual Insurance Co. v. Law Office of Tuzzolino & Terpinas. Our detailed description of the facts and lower court rulings is here. Our report on the oral argument is here.

Tuzzolino arose from litigation over a limited liability corporation which owned a Chicago nightclub. One of the partners in a two-partner law firm represented an investor in the litigation, but allegedly made various errors in handling the case, resulting in a lower-than-expected settlement. The partner convinced his client to try to recover his losses by suing the lawyer who handled the LLC’s bankruptcy for malpractice, but that action was dismissed as time-barred. Client and lawyer had a confrontation, and the partner allegedly offered a substantial sum to settle any possible malpractice claim.

Less than three months later, the firm’s malpractice coverage came up for renewal. The other partner checked the “no” box in response to the form’s question about whether there were any known circumstances which might result in a malpractice claim. About a month after submitting the form, the innocent partner learned of the dispute for the first time when he received a lien letter from an attorney representing the former client. He reported the claim to the malpractice carrier, but a little less than a year later, the insurer sued to rescind the policy – with respect to the firm and both partners.

The insurer successfully moved for summary judgment at the trial court. On appeal, the First District reversed in part, holding that the policy had been properly rescinded as to the allegedly guilty party, but that the innocent insured doctrine operated to preserve coverage with respect to the innocent partner.

The Supreme Court reversed. The issue turned, according to the Court, on Section 154 of the Insurance Code (215 ILCS 5/154), which provides a two-prong test for evaluating claims for rescission based on misrepresentation: (1) the statement must be false; and (2) it must be made with “actual intent to deceive or materially affects either the acceptance of the risk or the hazard assumed by the company.”

The innocent partner didn’t really dispute that the misrepresentation “materially affect[ed] . . . the acceptance of the risk.” Instead, he focused on public policy issues: the possibility that not only the client originally involved in the dispute but other clients of the firm would be left with impaired recoveries, or no recovery at all, in the event of further disputes, simply because the partner who participated in the nightclub litigation failed to inform his partner of what was going on. The innocent partner relied on the innocent insured doctrine, which provides that a breach by one of multiple insured does not necessary eliminate coverage for other insureds not involved in the breach. But there was a material difference between the primary innocent insured case, Economy Fire & Casualty Co. v. Warren, and Tuzzolino, the majority wrote – Economy Fire involved the possible application of a policy exclusion, not an issue of whether the entire policy should be rescinded. The innocent insured’s conduct is relevant to determining the duty to defend an innocent insured pursuant to a policy that was indisputably in effect, the Court wrote – but rescission was a recognized remedy for even innocent misrepresentations in the making of an insurance policy.

Having held that rescission was a permissible remedy pursuant to Section 154 of the Code, the Court then turned to the Appellate Court’s holding that the policy was severable to preserve the innocent partner’s coverage. The Court acknowledged that a severability clause in the policy created a separate agreement with each insured, but the clause also made the statements in the application part of each policy. Thus, the Court held that there was no basis for splitting the policy off from the application, even with respect to to the innocent partner.

Justice Kilbride dissented. He argued that courts have long taken into account a policyholder’s reasonable expectations, as well as the coverage intended by the policy, in determining the scope of coverage. Particularly given that there was nothing in the application or policy expressly imputing the alleged wrongdoing of the partner involved in the nightclub litigation to the innocent partner, Justice Kilbride argued that the innocent insured doctrine should have been applied to preserve the innocent insured’s coverage. Justice Kilbride was also disturbed by the increased exposure of other clients of the firm brought about by the total rescission of the policy.

Image courtesy of Flickr by Brett Jordan.

Illinois Supreme Court Agrees to Decide Fiduciary Duty Claim Against Former Counsel

Posted in Illinois

5716366573_c629bd389e_z(1)In a few weeks’ time over at Appellate Strategist’s sister blog, the Illinois Supreme Court Review, we’ll address the question of just how rare it is to get an unpublished decision – what we in Illinois call a Rule 23 order – accepted for review by the Illinois Supreme Court. As we wrap up our review of the January term, we address a Rule 23 order newly added to the Court’s civil docket – Stevens v. McGuireWoods LLP. Stevens, which arises from Division 4 of the First District, poses a number of related questions regarding issue preclusion in the context of a claim against a law firm.

The plaintiffs in Stevens are former minority shareholders of a corporation. They hired a law firm to bring individual and derivative claims against the corporation’s managers as well as the majority shareholder for misappropriation of trademarks and other intellectual property. The plaintiffs successfully moved to disqualify another law firm from representing the managers in the ongoing litigation.

In the summer of 2008, the trial court dismissed all claims against the managers, and three of nine claims against the owner. The plaintiffs retained new counsel, and later filed two rounds of amended complaints. The second amended complaint purported to state claims “individually and on behalf of” the corporation against the disqualified law firm. The law firm, the managers and the owner/majority shareholder all filed separate motions to dismiss.

The trial court granted the motion to dismiss against the law firm, holding that all counts were time barred. The court nevertheless went on to consider the merits of the claims, holding that the plaintiffs could not bring five of their claims against the firm in an individual capacity, and that plaintiffs had failed to adequately allege derivative claims with respect to several claims. With respect to the claim for conversion, the court held that plaintiff had failed to adequately allege that it had any right to the property at issue, or that the firm had aided or abetted in the alleged conversion. The court therefore dismissed a total of six claims without prejudice. (In other orders, the court dismissed the complaint against the managers in their entirety, and dismissed several counts against the owner/majority shareholder. The case against the owner/majority shareholder was settled a few months later).

In late 2011, the plaintiffs sued their own counsel for breach of fiduciary duty, alleging that counsel had failed to sue the other law firm in a timely manner. According to plaintiffs, the case had been settled for less than it was worth because of the loss of the claims against the opposing law firm.

After limited discovery, the parties filed cross-motions for summary judgment. The law firm defendant argued that the plaintiff’s claims amounted to a collateral attack on the original trial court orders holding that the clients lacked standing to sue the opposing law firm. The trial court granted the defendants’ motion for summary judgment, holding that the plaintiffs’ new claim was barred by collateral estoppel.

The Appellate Court affirmed in part and reversed in part. The court concluded that the lower court in the original action had ruled that any individual claims against the opposing law firm were barred. It didn’t – and indeed, could not have – ruled that derivative claims against the opposing firm were barred. The lower court had dismissed the derivative claims against the opposing firm, but it had done so without prejudice. And besides, the trial court had never dismissed count II for usurpation of corporate opportunities at all. Therefore, although collateral estoppel certainly barred the plaintiffs’ claim against their former counsel with respect to the individual claims, it certainly didn’t with respect to the derivative claims.

The defendant argued that the plaintiffs lacked standing to bring any claim against it arising out of the derivative claims, since the law firm represented the corporation with respect to those claims. The Appellate Court disagreed. The defendant represented the individual plaintiff shareholders, the court found. Just because the law firm advised it to bring derivative as well as individual claims didn’t make the firm the corporation’s attorney.

We expect Stevens to be decided in eight to twelve months.

Image courtesy of Flickr by Mr.TinDC.