Announcing the California Supreme Court Review

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Early last year, we founded the Illinois Supreme Court Review to bring rigorous, law-review style empirical research founded on data analytic techniques to the study of appellate decision making.  Today, we expand our focus with the California Supreme Court Review, a new blog devoted to sharing insights culled from tens of thousands of pages of opinions about the California Supreme Court, the Justices and their decision-making process and the parties and issues which come before the Court – all based upon a unique database of dozens of data points taken from every one of the 1,600+ decisions handed down by the Court from 2000 to 2015.

Here at Appellate Strategist, the conversation about the latest decisions, oral arguments and issues in appellate law across the country (including Illinois and California) will continue.  And for a longer-term view devoted to the California Supreme Court, using techniques proven in sixty years of empirical academic research into judicial decision making, join us at the California Supreme Court Review.

Image courtesy of Flickr by Jorgen Kesseler (no changes).

Illinois Supreme Court Holds State’s Contractual Obligations Are Implicitly Conditional on Appropriations

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A state employee union enters into a contract with the State calling for certain wage increases. Ultimately, the legislature refuses to fully fund the increases, and they aren’t paid. Is the State in breach of contract, or are its contractual obligations implicitly conditional on the legislature appropriating the money?

In a ruling with significant potential implications for Illinois’ long-running financial crisis, the Illinois Supreme Court recently held in State of Illinois v. American Federation of State, County and Municipal Employees that the State’s financial obligations were by definition conditioned on legislative appropriations. Our detailed summary of the underlying facts and lower court rulings in AFSCME is here. Our report on the oral argument is here.

In 2008, the State agreed to a four-year collective bargaining agreement with AFSCME, which represents most state employees. AFSCME agreed to defer the wage increases mandated by the contract in 2009 and 2010 as a concession to the recession’s impact on the State.

In early 2011, then-Governor Quinn proposed a budget which included sufficient funds to pay the raises required for the year. When the budget was ultimately approved, it was estimated that there was insufficient money to finance the increases at 14 agencies. AFSCME sought arbitration of the dispute, and the arbitrator ordered the increases paid.

The State filed a complaint in Circuit Court seeking to vacate the award, together with an emergency motion for stay. The trial court granted the stay. In the weeks that followed, the legislature made supplemental appropriations, and several agencies experienced enough attrition to pay the increases to remaining employees, but employees in six agencies remained without the mandated increases. The trial court held that the State’s contractual obligations were conditional on appropriations. The Appellate Court reversed.

In an opinion by Justice Theis for a six-Justice majority, the Supreme Court reversed. The State argued that the arbitrator’s award didn’t draw its essence from the CBA because the arbitrator refused to give any effect to the parties’ agreement that the provisions of the CBA “cannot supersede law.” The Court rejected the State’s view, concluding that the arbitrator’s award was guided by contract principles and not his own views of fairness and justice.

The State’s second argument was that the arbitration award violated public policy. Specifically, the Court pointed to Article 8, Section 2(b) of the state Constitution: “The General Assembly by law shall make appropriations for all expenditures of public funds by the State.” The Court acknowledged that the State has provided that public employees have “full freedom of association, self-organization, and designation of representatives of their choosing” for purposes of collective bargaining (5 ILCS 315/2), but pointed out that that broad statement was tempered by Section 21 of the Act, which provided that employers and employees could negotiate multi-year collective bargaining agreements “subject to the appropriation power of the employer.” (5 ILCS 315/21.)

AFSCME argued that if all collective bargaining agreements are conditional on appropriations, the right to collective bargaining is meaningless. The Court pointed out, however, that a number of collective bargaining agreements over the years have made wage increases expressly contingent upon legislative appropriations. The Appellate Court had held that a contingency for legislative appropriations must be made express in order for the making the State’s obligation contingent not to violate the contracts clause of the state constitution. The Supreme Court majority disagreed, pointing out that statutes and laws in existence at the time of the contract are read into the contract as a matter of law.

Justice Kilbride dissented in part, arguing that the majority’s opinion arguably suggested that the State could avoid contracts with vendors simply by the legislature refusing to make a necessary appropriation. Justice Kilbride wrote that he would hold that “the state employees’ contractual rights to raises continue under the contract clause of the Illinois Constitution . . . even if that obligation cannot immediately be enforced because of lack of appropriations.” In its concluding paragraph, the majority responded to the dissent’s concern, writing that “we disagree with the dissent that our decision creates uncertainty as to the State’s obligations, generally, under its contracts. We reiterate that this case involves a particular contract: a multiyear collective bargaining agreement. Whether other state contracts with different provisions and different controlling law could also be subject to legitlative appropriation without offending the contracts clause is not before us.”

Despite the majority’s comment, some observers have speculated since the opinion was filed that the Court’s emphasis on the exclusivity of the appropriations power casts doubt upon the State’s ability to pay its employees, given that the relevant appropriations for 2016 have not been enacted by the legislature.

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

California Limits Ability to Skirt Privilege Using Public Records Request

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In Ardon v. City of Los Angeles, the unanimous California Supreme Court narrowly interpreted a statutory waiver included in the California Public Records Act to exclude “inadvertent” disclosures.  In responding to a public records request, a governmental agency can withhold documents under several exemptions, including that the documents are privileged under the Evidence Code, if it can show that the exemption applies. See, Gov. Code, §§ 6254-6254.30.  However, Gov. Code § 6254.5 provides that any actual production of a document in response to a public records request waives most exemptions that might otherwise apply.

Responding to discovery requests in a class action, the City provided a privilege log, which the trial court later upheld to bar production of the listed documents.  A few years later, plaintiff’s counsel filed a request for related documents under the Public Records Act.  Among the 53 documents provided, two were on the prior privilege log as protected by the attorney-client privilege.  Plaintiff advised opposing counsel of this, but refused the City’s demand to return the documents as inadvertently produced, citing § 6254.5.  Finding a statutory waiver under § 6254.5, the trial court denied the City’s motion to compel return of the documents, and the Court of Appeal affirmed.

The Supreme Court found the statute ambiguous on whether it applied to an inadvertent disclosure, as opposed to “a voluntary and knowing disclosure.”  The Court then considered the legislative history of the Public Records Act, the well-established importance of the attorney-client privilege, and cases holding that an inadvertent disclosure did not constitute a wavier under Evidence Code § 912.  The Court concluded that an inadvertent disclosure was also not a waiver under § 6254.5.

However, this left open the question of whether this was an inadvertent disclosure.  The cases under Evidence Code § 912 largely addressed facts in which counsel inadvertently violated a client’s privilege by accidentally producing privileged documents, often as part of a large production.  In this case, a designated City employee allegedly produced these documents on purpose as part of a production of 53 documents.  Given the ongoing litigation and previous privilege log, the Court expressed skepticism that this disclosure was not inadvertent, but did not decide the issue given the lack of any findings below on this point.  In doing so, the Court warned public agencies that this holding was not an invitation to revisit previous public records productions and that this holding only applied “to truly inadvertent disclosures.”  The lower courts will need to sort out what that might mean in this context.

Image courtesy of pixabay.com

Florida Supreme Court to Decide If the Disclosure of an Attorney’s Referral of a Client to a Doctor is Privileged or Discoverable

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On May 15, 2015, in Worley v. Central Florida Young Men’s Christian Ass’n, 163 So. 3d 1240 (Fla. 5th DCA 2015), Florida’s Fifth District Court of Appeal held that information regarding a law firm’s referral of its client to a physician was discoverable. Briefing of this case in the Florida Supreme Court was completed on February 10, 2016 and a decision is pending. You can view the Fifth District’s opinion here. You can view the Supreme Court docket here.

After Heather Worley fell in a YMCA parking lot, she treated at a local hospital emergency room and was told to see a specialist for some of her injuries. After she retained the law firm of Morgan & Morgan, she treated with various health care providers. Morgan & Morgan, on behalf of Worley, sued the YMCA for damages.

During discovery, Morgan & Morgan opposed the YMCA’s attempts to learn how Worley became a patient of the health care providers, citing the attorney-client privilege. Over Worley’s objection, the trial court ordered Worley to produce: 1) complete copies of all documents reflecting agreements regarding the billing for patients or any referral of a client by any attorney employed by or affiliated with Morgan & Morgan to any of the subject providers, and vice versa; and 2) the names of all cases where a client was referred by an attorney employed by or affiliated with Morgan & Morgan to any of the subject providers, and vice versa. Although not in its written order, the trial court stated that if the subject providers did not have the requested information, then Morgan & Morgan was to produce it.

Worley petitioned the Fifth District for a writ of certiorari, arguing that the trial court’s order: 1) required production of information protected by attorney-client privilege; (2) required her to produce documents that did not exist; (3) required Morgan & Morgan, a nonparty, to produce the information; (4) required Worley or Morgan & Morgan to engage in an unduly and financially burdensome production; (5) required Morgan & Morgan to incur all of the costs associated with the production of the ordered discovery; and (6) expanded the scope of bias-related discovery that is otherwise permitted.

The Fifth District held that with regard to Worley’s first argument that the information regarding a law firm’s referral of its client to a physician is protected by the attorney-client privilege, the financial relationship between a law firm and a treating physician is not privileged and is relevant to show potential bias. However, before this information is discoverable, the district court noted that there must be some evidence of a referral relationship. In this case, the district court found that such evidence existed, and the YMCA exhausted all avenues to learn how Worley was referred to the subject providers before it asked Worley.

The court also stated that the limited discovery sought by the YMCA concerned only the existence of a referral relationship between Morgan & Morgan and the subject providers, unlike discovery seeking detailed financial and business records that could reveal confidential information protected by the doctor-patient relationship. Such information is relevant, not privileged.

As for Worley’s remaining arguments, the district court stated that Worley did not make the prima facie showing of irreparable harm or of a departure from the essential requirements of law for the writ to issue. As to Worley’s second argument that she had to produce nonexistent documents, the district court said that it interpreted the trial order as meaning if any documents existed, Worley was to produce them. As to the third argument that the trial order required a non-party to produce the information, the court stated that a law firm may be the primary source of discovery, when a doctor has no records or provides nebulous testimony about past referrals. As to Worley’s fourth and fifth arguments concerning the costs to comply with the trial order, the court stated that nothing prevented Worley from seeking reasonable compensation for those costs. As to Worley’s last argument, the court said that the trial order did not require production of any records regarding money exchanged between Morgan & Morgan and the subject providers. Rather, the trial order required Worley to produce information regarding the referral relationship which, in general, defense attorneys are entitled to seek.

The court denied Worley’s petition, but certified conflict with the Second District’s decision in Burt v. Government Employees Insurance Co., which held that the disclosure of a referral of a client by an attorney to a healthcare provider is always protected by the attorney-client privilege.

Image courtesy of Flickr by Mark Morgan (no changes).

Illinois Supreme Court Unanimously Strikes Down Chicago Pension Reform Act

14114471388_f4b64191b8_zThis morning, the Illinois Supreme Court issued its much-anticipated opinion in Jones v. Municipal Employees’ Annuity and Benefit Fund of Chicago, unanimously striking down Public Act 98-641, the pension reform bill for the City of Chicago. For a detailed summary of the underlying facts and court rulings, see here and here. For our report on the oral argument in Jones, see here. And for the Supreme Court’s most recent two decisions on pension reform, see here (the state reform act) and here.

Jones revolves around two of the four pension systems created to serve employees of the City of Chicago – the Municipal Employees, Officers and Officials Annuity and Benefit Fund (“MEABF”) and the Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund (“LABF”). Prior to the passage of Public Act 98-641, annuity payments under both funds were subject to 3% automatic annual increases, compounded annually. Employees contributed 8.5% of their salary, and the rest of the funding came from contributions from the City and investment returns on the funds’ assets.

Like the state pensions, the City pensions have long been seriously underfunded. As early as 1949, the Illinois Public Employees Pension Laws Commission noted the funds’ “large unfunded accrued liabilities.” As a result of the years-long underfunding, the Illinois Constitutional Convention of 1970 adopted the pension protection clause, which states: “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.” The Convention’s apparent hope was that by providing that benefits could not under any circumstances be reduced, state and local government authorities would be forced to adequately fund the pensions.

Nevertheless, underfunding continued, with the City’s contribution levels at a fixed multiple of employee contributions, notwithstanding the magnitude of the funds’ liabilities. Currently, the MEABF and LABF are projected to become insolvent in 10 and 13 years, respectively.

Public Act 98-641 addressed the crisis in several steps. First, it required the City to make sufficient contributions to the funds to bring them both to 90% funding by 2055. If the City fails to make the required contributions, the funds have the right to certify the delinquent amounts to the State Comptroller, who is directed to deduct the missing funds from state grants due to the City. The Act gradually increases employees’ contributions, in steps of 0.5% per year, to 11% of salary, until the City achieves 90% funding, at which point employee contributions step back down to 9.75%. The previously guaranteed 3% annual increases are changed to the lesser of 3%, or half the annual unadjusted percentage increase in the Consumer Price Index. Increases are no longer compounded, and are eliminated completely in certain years.

Two lawsuits were filed, arguing that Public Act 98-641 violated the pension protection clause. The Circuit Court of Cook County agreed, striking down the statute in its entirety, and the direct appeal came to the Supreme Court.

In an opinion by Justice Mary Jane Theis for five members of the Court (Justices Burke and Freeman recused themselves), the Supreme Court affirmed the Circuit Court. The Court has little trouble concluding that the provisions of Public Act 98-641 “have the same impact” as the reforms unanimously struck down last year in In re Pension Reform Litigation. “Accordingly,” the Court held, “based on the plain language of the Act, these annuity reducing provisions contravene the pension protection clause’s absolute prohibition against diminishment of pension benefits, and exceed the General Assembly’s authority.”

The Court then turned to the two defenses offered by the City: (1) read as a whole, the Act offers members a net benefit by insuring that they would actually receive their benefits, as opposed to paper promises from bankrupt funds; and (2) the Act was a bargained-for exchange supported by consideration.

The “net benefit” argument failed at the outset, the Court found, because the provisions of the Act regarding funding methods weren’t a “benefit” under the constitution which could be netted out against payments. The Court has consistently held for forty years that the pension protection clause has nothing at all to say about legislative funding choices. Besides, any funding reforms adopted by this legislature could be altered or repealed entirely by some future legislature.

The City argued that without fundamental reform, City employees would be left with at best a theoretical right to benefits for which only the bankrupt funds were liable – a worthless promise. But it wasn’t a worthless promise, the Court found. City employees had an absolute right to the full amount of their benefits, not just whatever monies happened to remain in the funds when they went bankrupt: “Thus, the General Assembly and the City have been on notice since the ratification of the 1970 Constitution that the benefits of membership must be paid in full, and that they must be paid without diminishing or impairing them.” Although the Court never expressly says so, this passage suggests that there might be extreme circumstances someday in which the Court might be willing to order funding to enforce the employees’ “legally enforceable right.”

Nor could Public Act 98-641 be defended as a “bargained-for exchange” for consideration. The City argued that the Act had been the result of years-long negotiations with 31 City unions, and 28 of 31 had ultimately supported the deal. It was true, the Court commented, that City employees could “knowingly and voluntarily” agreed to modify their pension benefits in exchange for valid consideration. But the problem was, nobody was arguing that the discussions between the City and the unions were a collective bargaining process. Instead, the Court found, they amounted to nothing more than “legislative advocacy on behalf of any interest group.” Therefore, the Court left for another day the question of whether a Union could validly change its members’ pension rights through a majority-vote adoption of a new collective-bargaining agreement with a government employer.

Since Public Act 98-641 contains a broad non-severability clause, providing that if anything in the Act were struck down, the entire Act had to fall, the Court held that the pension reform act was void and unenforceable in its entirety.

Image courtesy of Flickr by Thomas’s Pics (no changes).

Florida High Court Reaffirms “Four-Corners Rule” for Determining the Sufficiency of a Complaint

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This post updates the blog post dated May 13, 2015.

On March 17, 2016, the Florida Supreme Court decided Santiago v. Mauna Loa Investments, LLC, No. SC13-2194 (review granted May 22, 2014), by quashing the Third District’s decision which improperly considered documents outside the complaint in determining the complaint’s sufficiency to state a cause of action. The opinion can be found here.

Anamaria Santiago leased commercial space from Mauna Loa Investments, LLC. Santiago tripped and fell on the property in 2008 and sued Mauna Loa two years later in 2010 (“Mauna complaint”). Santiago alleged that Mauna owned, maintained and/or controlled the property at the time of her fall. Mauna’s counsel never filed a responsive pleading and the trial court entered a default against Mauna. Mauna moved to set aside the default arguing that it did not own the property on the date of Santiago’s injury. In support of its argument, Mauna noted that in 2011 Santiago sued Iberia, NV, LLC seeking damages for the same injury (“Iberia complaint”). In that suit, Santiago alleged that at the time of the accident, Iberia and Antonio Martinez-Marmol owned the property and that the property was conveyed to Mauna three months after the accident. Shortly after the Iberia suit was filed, the trial court consolidated the Iberia case with the Mauna case. After a jury trial on damages, the trial court entered a final judgment against Mauna for over $1 million.

Mauna appealed to the Third District. The Third District vacated the default and the final judgment and dismissed the complaint for failure to state a claim upon which relief may be granted. The Court rested its conclusions on two rules of law. First, a default judgment cannot be entered against a defendant when the complaint fails to state a cause of action. And second, a motion to set aside a default requires no showing of excusable neglect when the motion demonstrates that the allegations in the complaint do not entitle the plaintiff to relief. The facts demonstrated that Santiago had no viable claim against Mauna because the special warranty deed attached to the Iberia complaint established that Mauna did not own the property on the date of Santiago’s injury. Santiago also admitted that Iberia owned, controlled and maintained the property at that time. To view the district court decision, which is reported at 122 So. 3d 520 (Fla. 3d DCA 2013), click here.

The Florida Supreme Court accepted review because the district court’s decision conflicted with other Florida decisions. The supreme court reaffirmed the longstanding limitations on determining the sufficiency of a complaint. Specifically, when a court determines the sufficiency of a complaint to state a cause of action, its review is limited to an examination only of the complaint and its attachments (known as the “four-corners rule”). The Court found that the district court erred by considering documents attached to the Iberia complaint to dismiss the Mauna complaint. The Court did not find the fact that the two cases were consolidated justified the district court’s ruling either. It therefore concluded that the district court erred in holding that the Mauna Loa complaint failed to state a cause of action.

The Court also concluded that the trial court did not abuse its discretion in determining that Mauna Loa failed to establish excusable neglect.

Image Courtesy of Flickr by GotCredit (no changes).

Florida Supreme Court to Examine Whether Relation-Back Doctrine Applies to New Causes of Action

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The Florida Supreme Court will review two district court cases that apply the relation-back doctrine (when an amended pleading relates back to an original pleading) and decide whether the doctrine applies to new causes of action. See Palm Bch. Cnty. Sch. Bd. v. Doe, No. SC13-1834; Kopel v. Kopel, SC13-992. The doctrine can be found in Florida Rule of Civil Procedure 1.190(c) which states: “When the claim or defense asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading, the amendment shall relate back to the date of the original pleading.” A plaintiff usually invokes the doctrine to avoid a statute of limitations defense to an amended complaint.

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In this teacher sexual abuse case, the district court had to decide whether a Title IX claim (sexual discrimination by federally-funded schools) related back to the filing of the original complaint. The plaintiffs filed their original complaint against their children’s teacher and the Palm Beach County School Board in 2006 alleging sexual molestation against the teacher and negligence against the school board. Almost five years later, plaintiffs amended their complaint to add a claim for violation of Title IX. The school board moved to dismiss the Title IX claim on statute of limitations grounds. Plaintiffs argued that the Title IX claim related back to the original complaint, but the trial court disagreed and dismissed the claim.

On appeal, the school board argued that the Title IX claims did not relate back because they state a new cause of action. See Doe v. Sinrod, 117 So. 3d 786 (Fla. 4th DCA 2013). The Fourth District acknowledged that amendments generally do not relate back if they raise a new cause of action, but noted that a new cause of action “can relate back to the original pleading so long as the new claim is not based on different facts, such that the defendant would not have ‘fair notice of the general factual situation.’” The Fourth District found that the Title IX claim did relate back to the negligence claims because “[b]oth claims arose from the same conduct and resulted in the same injury.”

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This case involved a financial dispute between two brothers, Leon and Enrique Kopel, and Enrique’s son, Bernardo, stemming from joint investments they made in Florida real estate. Leon sued on two promissory notes, a loan and for unjust enrichment after certain of his demands to Enrique and Bernardo were not met. At trial, for the first time and over defendants’ objection, Leon claimed that various settlement conversations between him and Enrique were not actually settlement negotiations but rather independent oral agreements. After a mistrial, Leon amended his complaint by abandoning his claim on the two promissory notes, keeping his unjust enrichment claim, but adding a new claim for breach of the oral promise raised during trial. The trial court denied the defendants’ motion challenging the new claim as barred by the applicable four-year statute of limitations.

On appeal, the Third District reversed on this issue, finding that this new claim did not relate back and was barred by the applicable statute of limitations. See Kopel v. Kopel, 117 So. 3d 1147 (Fla. 3d DCA 2013). The Third District enforced its rule that “when a cause of action set forth in an amended pleading in a pending litigation is new, different, and distinct from that originally set up, there is no relation back.”

The supreme court has declined to hold oral argument in both cases. This article will be updated once the supreme court decides the cases.

Image Courtesy of Flickr by Mark Goebel (no changes).

Illinois Supreme Court Debates Whether Res Judicata Applies Following Voluntary Dismissal on Remaining Claims

4705298204_11ff96590c_zOne or more claims are dismissed on the merits. Subsequently, the plaintiff takes a voluntary dismissal without prejudice on the remaining claims. Does res judicata bar any attempt by the plaintiff to later reinstate the dismissed claims? The Illinois Supreme Court debated that question during its January term, hearing oral argument in Richter v. Prairie Farms Dairy, Inc., a case from the Fourth District. Based upon its questioning of the plaintiffs, the Court appeared skeptical of the idea that a plaintiff can deprive a ruling on the merits of res judicata effect by disregarding an offer of time to replead and instead taking a voluntary dismissal. Our detailed summary of the facts and underlying court decisions in Richter is here.

Richter began in 2005, when the defendant terminated the plaintiff farmers’ membership in an agricultural cooperative intended to market their milk. The plaintiffs filed a three-count complaint against the cooperative, seeking shareholder remedies and damages for statutory and common-law fraud. The trial court granted defendant’s motion to dismiss the fraud claims with leave to replead. However, the plaintiff never took the Court up on its offer, proceeding solely on the shareholder claims. After five years of litigation on those claims, when the Court denied the plaintiffs’ request for a continuance, they took a voluntary dismissal without prejudice. A year later, the plaintiffs refiled both the shareholder and fraud claims. The defendants moved to dismiss based on res judicata, the trial court granted the motion, and the Fourth District Appellate Court reversed.

Counsel for the defendant began the argument, explaining that the issue before the Court was whether the refiled claims were barred by either res judicata or the statute of limitations. Justice Theis asked what the record reflected about the first lawsuit. Counsel answered that the Appellate Court had declined to apply res judicata based on its view that the defendant had lacked diligence in the first case. Justice Theis asked whether the record reflected what had happened in the first case for the five years of litigation following the first dismissal. Counsel answered that the time had been taken with discovery on the shareholder remedies claims. Justice Theis asked why that had taken five years. Counsel explained that the plaintiff had been unable to provide documentation at times, and the parties were involved in investigating the claims. Justice Theis asked whether the plaintiff had complied with court orders regarding discovery, and counsel said no. Justice Theis asked what the defense had done to pursue its claim. Counsel answered that the sole reason for the voluntary dismissal in 2013 was because the defendant had opposed the plaintiffs’ request for yet another delay. Chief Justice Garman asked whether the defendant had pursued any consequences for the alleged delay. Counsel said that there was no provision for a dismissal on such grounds. Justice Burke asked whether there was a difference between an involuntary dismissal with leave to amend for a short time after and dismissal without prejudice. Counsel said yes, and suggested that plaintiffs wanted to add the words “without prejudice” to any dismissal giving plaintiffs a brief window to replead. However, there should be some consequence for failing to pursue a claim in the time allowed by the trial court. Justice Theis asked whether the trial judge had enforced any deadlines in the case management order, and counsel said after several years, yes. Defendants brought a number of motions seeking definitive dates for one step or another, seeking to move the case along, and ultimately, the Court had agreed.

When counsel for the plaintiff began, Justice Thomas asked what the difference was between dismissal with leave to replead and dismissal without prejudice. Counsel said none. Judge Thomas asked counsel whether the trial judge would have any recourse if a dismissal permitted repleading in sixty days, but the plaintiff tried to file an amended complaint in 75 days. Counsel answered that a judge would have discretion as to whether to permit the amendment. Rather, the plaintiff’s res judicata argument was because there had simply never been a final order or judgment on the merits. Justice Thomas asked what the Court should do with Smith v. Central Illinois Regional Airport, which seemed to indicate that a dismissal with a short time to replead became dismissal with prejudice once the time runs. Counsel answered that the Court had said in Smith that the lower court could also give additional time. Prejudice did not arise automatically. Justice Thomas suggested that if the trial court granted a further sixty days, and plaintiff still didn’t appear, and finally, 180 days after the original dismissal, there hadn’t been either an amendment or a motion for extension – didn’t Smith mean that the dismissal was now with prejudice? Counsel answered no, defendant had to file a motion to make the original dismissal a final order. Justice Thomas asked whether plaintiffs wanted Smith overruled, and counsel answered that Smith should be followed. Justice Theis asked counsel whether he was arguing that the burden was on the defendant to bring to the court’s attention the plaintiff’s disregarding its time limitation. Counsel said that in order to invoke the harsh result of res judicata, that was correct. Justice Thomas asked whether plaintiff was saying that the dismissal was without prejudice essentially forever absent action by the defendant, and counsel said yes. Justice Thomas pointed out that Smith said that dismissals were “considered” to be with prejudice – it didn’t seem to presuppose another motion. Counsel said that Smith, read as a whole, was not that strict. Justice Karmeier asked whether a plaintiff could file an amended complaint after the time period given by the Court without seeking leave, and counsel answered no. Justice Karmeier asked whether it was relevant that the parties had done five years’ worth of discovery after the dismissal as if only one count was left in the case. Counsel said that many deadlines were extended during that period, and besides, none of the discovery would have been different if all claims had remained. Justice Theis asked whether any new facts were pled in the second complaint – comparing the two they seemed almost exactly the same. Counsel conceded that they were similar. Chief Justice Garman asked whether plaintiff’s view as that res judicata could only apply if the plaintiff affirmatively stated that it was standing on the complaint. Counsel agreed that that made a final order – there was nothing like that in the first case. Justice Theis pointed out that the dismissal was on the grounds that the dispute was contractual rather that fraud, so it seemed to be a substantive finding. Counsel argued that the gist of the motion to dismiss was failure to plead fraud with specificity. Justice Thomas asked whether there was something odd about a rule of law allowing the plaintiff time to replead after a dismissal, the plaintiff not taking advantage of that offer, and yet the defendant has to come back to Court and say “this time we really mean it.” Counsel said it was not an onerous burden when it came to res judicata. Justice Thomas asked whether the court was cutting off the plaintiff’s rights, or the plaintiff had done so. Counsel answered by once again suggesting that the decisive fact was there had never been a final order. Counsel concluded by briefly arguing that the statute of limitations defense failed because the cases involved similar theories, and therefore related back for purposes of the statute of limitations.

Counsel for the defendants concluded in rebuttal by noting that the plaintiffs had affirmatively asked for time to replead – and then failed to take advantage of it. The plaintiffs’ burden-shifting argument should never be allowed, according to counsel. Counsel noted that plaintiffs had said the only way to trigger finality should be for plaintiffs to affirmatively state that they were standing on the complaint – but why would they ever do that if they can remain silent for years and then start over? Counsel also denied that the scope of discovery would have been the same if the fraud claims had remained in the case. Counsel argued that the plaintiffs should have known from Smith that their voluntary dismissal would make the merits order final, and if they wanted to avoid the harshness of res judicata, they shouldn’t have ignored the Court’s order.

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

Image courtesy of Flickr by Kate Sheets (no changes).

Illinois Supreme Court Debates Health Insurance Coverage for Police Pension Recipients

7973557354_d65b6e553bSection 10 of the Public Safety Employee Benefits Act provides that under certain circumstances, police officers receiving a line-of-duty disability pension are entitled to receive fully paid health insurance coverage for themselves and their families. Section 10 has been a recurring interest of the Illinois Supreme Court over the past few years, see here and here. During its January term, the Court heard oral argument in Vaughn v. City of Carbondale, which poses yet another Section 10 question: was an officer reaching for his squad car radio to respond to a dispatcher call responding to what he reasonably believed was an emergency? Our detailed summary of the facts and underlying court decisions in Vaughn is here.

Vaughn arises from an incident in 2005. The plaintiff was talking to a motorist who had asked for directions when he heard a dispatcher calling on his radio. He walked back to his car, and when he reached inside to retrieve the radio, struck the top of his head, causing a sharp pain in his arm. Nearly two years later, the officer applied for a line-of-duty disability pension. The Pension Board rejected his application, but the Circuit Court reversed and the Appellate Court affirmed.

In 2012, the plaintiff requested the Section health insurance benefits. The City initially began paying the benefits, but later that year, instructed the officer to submit to a physical examination. Following that physical, the Board terminated his pension on the grounds that he was fit to return to work. While that decision was on appeal, the officer filed a complaint seeking a permanent injunction against the termination of his health insurance coverage. The Circuit Court declined to enter the injunction, but the Fifth District reversed.

Counsel for the defendant began the argument at the Supreme Court. He explained that the Section 10 benefit was narrowly defined and available only when the officer (1) has suffered catastrophic injury (2) in one of four situations (response to fresh pursuit, response to what he or she reasonably believed to be an emergency, as a result of an unlawful act of another, or during investigation of a criminal act). Justice Burke asked whether the Pension Board held a hearing, and counsel responded that proceedings were in progress – an initial hearing finding the officer fit had been overturned for lack of due notice. As a result, the plaintiff is still receiving his pension. Counsel told the Court that the facts are simple and stipulated. The defendant argued that when the officer walked back to his car to respond to the radio dispatcher, he was not responding to an emergency. But the Fifth District concluded that officers must treat all radio calls as emergencies until they know differently. Counsel argued that this is irreconcilable with the Supreme Court’s Gaffney decision, which defined an emergency as an unforeseen circumstance, putting persons or property at risk and requiring an urgent response. Justice Thomas asked whether the Fifth District had held the plaintiff was entitled to a permanent injunction. Counsel said yes. Justice Thomas asked whether the Court had remanded for entry of the injunction, or for an injunction hearing. Counsel responded that the Court expected that an injunction would be entered. Justice Thomas asked whether the defendant was arguing that the plaintiff was never entitled to Section 10 benefits, and even if he was, the benefits could be stopped once he was no longer disabled. Counsel answered that if the plaintiff is fit to return, he no longer satisfies the first prerequisite under Section 10 – a catastrophic injury. Counsel argued that given that the Fifth District found that it didn’t matter that the plaintiff’s call ultimately turned out not to be an emergency, the Court had effectively established a fifth grounds for Section 10 benefits – answering a dispatcher call. According to counsel, the Fifth District’s ruling meant that if an officer fell on a station staircase walking from the second to the first floor after being summoned by a captain, that would trigger the benefit.

Counsel for the plaintiff argued next, explaining the procedural history and noting that the Pension Board has once again demanded that the plaintiff submit to a physical. Justice Theis noted that the statute doesn’t distinguish between temporary and permanent disability, and asked whether it presupposed that an employer could seek reevaluation. Counsel said yes, and noted that the plaintiff had been provided with Section 10 benefits initially without objection by the City. Justice Thomas asked whether that was enough to trigger estoppel. Counsel said yes. There was no other reason to pay him unless the City was admitting that Section 10 was satisfied. Once Section 10 was triggered, the insurance premium benefits could be reduced, but barring fraud in the inception – not present here – the benefits could never be termination. Justice Thomas asked what plaintiff’s detrimental reliance was for establishing estoppel. Counsel answered that plaintiff had stopped his personal health insurance, and for a time had been uninsured. Justice Thomas asked how that was possible under federal law. Counsel said that it was his understanding that the plaintiff would have been entitled to coverage under federal law. Justice Theis asked if it was determined that the plaintiff was no longer disabled, would he still be entitled to health insurance benefits? Counsel said yes. Justice Theis pointed out that the pension itself could be stopped if the plaintiff were no longer disabled, and asked again whether plaintiff was arguing that health insurance benefits would nevertheless continue forever. Counsel said that was correct, and if there was something wrong with that conclusion, it was an argument for the legislature – the statute had no provision for stopping the payments. Chief Justice Garman asked whether there could ever be an injury fielding a dispatcher’s call which was not covered. Counsel said yes, if the officer knew when he reached for the radio that it wasn’t an emergency. The Chief Justice asked whether the Appellate Court’s finding of an emergency was one of fact or law. Counsel said it didn’t matter – every call was an emergency until the officer knew differently. Justice Thomas asked whether that mean nearly all calls qualified. Counsel agreed. Justice Thomas asked why, if that was right, the statute didn’t simply say an “officer’s response to any call”? Counsel answered that it was nevertheless true that all calls were treated as emergencies until the circumstances were known. Justice Thomas asked whether Section 10’s reference to an “officer’s response to what is reasonably believed to be an emergency” was an objective standard. Under the plaintiff’s position, why would “reasonable belief” matter? Counsel once again reiterated that all calls were an emergency until the officer knew differently.

In rebuttal, counsel for the defendant argued that the Fifth District’s holding – that all calls are an emergency until the officer knows differently – is just not what the statute says, or how the Supreme Court ruled in Gaffney. When the plaintiff is legally able to return to work, the employer is entitled to terminate health insurance benefits. According to counsel, plaintiff had no detriment sufficient for estoppel, given that he could get health insurance – he just didn’t want to pay a premium. Counsel concluded by arguing that the plaintiff’s affidavit amounted to an admission that he didn’t believe the call to be an emergency – if he had, he would have responded via the radio on his vest instead of returning to the car.

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

Image courtesy of Flickr by Jack Snell (no changes).

California Supreme Court Holds Plaintiffs Entitled to Costs as of Right After Settlement

3443323233_0e0a3371c3_zLast week, a divided California Supreme Court handed down its decision in DeSaulles v. Community Hospital of the Monterey Peninsula, holding that as long as a settlement agreement involves a payment of money from defendants to plaintiff – no matter how small in relation to the plaintiff’s demand – the plaintiff is a “prevailing party” under Section 1032(a)(4) of the Code of Civil Procedure and entitled to an award of costs as a matter of law.

The Court emphasized that its conclusion was a default rule only, and the parties were free to provide in their settlement agreement for a different allocation of costs. But in the wake of DeSaulles, parties who neglect to make such an express allocation may be in for an unfortunate surprise – a cost bill, which in some kinds of litigation can be substantial.

Plaintiff in DeSaulles worked for defendant for a little over a year as a patient business services registrar. In 2007, the plaintiff filed suit, purporting to allege claims for (1) failure to accommodate her physical disability; (2) retaliation under FEHA; (3) breach of implicit conditions of employment contract; (4) breach of the covenant of good faith and fair dealing; (5) & (6) negligent and intentional infliction of emotional distress; and (7) wrongful termination. Following the defendant’s motions for summary judgment or adjudication and motion in limine, the trial court held that the plaintiff would be barred from offering any evidence on any claim other than the third and fourth causes of action. Subsequently, the parties placed a settlement on the record, pursuant to which the defendant paid the plaintiff $23,500 in connection with the third and fourth claims, and the remaining claims were dismissed with prejudice. The court subsequently entered a judgment providing that the “plaintiff recover nothing from defendant.” The judgment was affirmed on appeal.

Following remand, both parties filed cost bills, claiming to be the prevailing party (the parties’ settlement agreement said nothing about costs). The trial court granted the defendant’s request for costs and denied the plaintiff’s. The Court of Appeal reversed, holding that the plaintiff was the prevailing party as a matter of law, since the litigation had ended with a payment – albeit a small one – from defendant to plaintiff.

In an opinion by Justice Goodwin Liu, the Supreme Court affirmed the Court of Appeal. The majority began by assessing whether a defendant could be considered the prevailing party following a settlement due to Section 1032’s reference to a “prevailing party” including “a defendant in whose favor a dismissal is entered.” The majority held it could not. The rationale for allowing a defendant costs, according to the Court, is to compensate the defendant for preparing for a trial on unmeritious claims when the plaintiff dismisses on the courthouse steps. That rationale did not apply when the plaintiff receives a cash payment (even a nuisance one). In contrast, the Court concluded that a settling plaintiff was a “prevailing party” on the grounds that a settlement payment constituted a “net monetary recovery” under the statute. This was so, the Court held, in part in order to prevent defendants from avoiding a cost award by settling on the eve of trial.

The majority conceded that “defendants may settle cases with little merit in order to be spared the expense of trial. However, the rule is that a partial recovery, as long as it is a net monetary recovery, entitles a plaintiff to costs.” The Court not only encouraged parties to specifically make an express provision for costs, but noted that courts are free to exercise their discretion to adjust a cost award under Section 664.6 of the Code where “parties . . . overlook the issue of costs in their settlement agreements.” But of course, the corollary of the trial courts having such discretion is always the risk that the court will refuse to make such adjustments.

Justice Kruger dissented, joined by Justice Werdegar. The dissenters agreed that a settling plaintiff was a “prevailing party” under Section 1032, but concluded that settling defendants were too, given the statutory reference to a “defendant in whose favor a dismissal is entered.” Since both sides in a settlement couldn’t be entitled to an award of costs as of right, it necessarily followed that trial judges were free to allocate costs as they see fit when the parties failed to expressly allocate them in the settlement agreement.

Image courtesy of Flickr by Anthony Easton (no changes).

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