Florida Supreme Court Strikes Down Red Light Ordinances as Preempted by State Law

On June 12, 2014, the Florida Supreme Court decided two cases that involved whether municipal ordinances imposing penalties for red light violations detected by devices using cameras were invalid because they were preempted by state law. See Mason v. City of Aventura, No. SC12-644; City of Orlando v. Udowychenko, No. SC12-1471. At issue in the cases was the operation of ordinances prior to July 1, 2010, the effective date of the Mark Wandall Traffic Safety Act, which authorized the use of the red light traffic infraction detectors by local governments and the Florida Department of Highway Safety and Motor Vehicles.

In both cases, plaintiffs challenged the validity of the municipal ordinances in order to set aside fines imposed per the ordinances, arguing that section 316.008(1)(w), Florida Statutes (2008), which specifically grants “local authorities [authority for] regulating, restricting, or monitoring traffic by security devices or personnel on public streets and highways.” In City of Aventura v. Mason, 89 So. 3d 233 (Fla. 3d DCA 2011), the Third District held that Aventura’s ordinance was a valid exercise of municipal power under section 316.008(1)(w). In City of Orlando v. Udowychenko, 98 So. 3d 589 (Fla. 5th DCA 2012), the Fifth District held that Orlando’s ordinance was invalid because it was expressly and impliedly preempted by state law. The Fifth District ruled that the imposition of penalties for running a red light other than those specifically provided for by state statute does not fall under section 316.008(1)(w)’s authority. The Fifth District certified conflict with the Third District’s decision. 

The Court explained that while a municipality is given broad authority to enact ordinances, such ordinances must yield to state statutes. Preemption of local ordinances by state law may be accomplished by either express or implied preemption. Chapter 316, Florida Statutes (2008), regulates traffic throughout the state and contains two broad preemption provisions. Section 316.002 provides, “It is unlawful for any local authority to pass or to attempt to enforce any ordinance in conflict with the provisions of this chapter.” Section 316.007 provides, “No local authority shall enact or enforce any ordinance on a matter covered by this chapter unless expressly authorized.”

Section 316.075 contains rules governing the conduct of drivers and pedestrians relating to traffic control signal devices. One rule is that “vehicular traffic facing a steady red signal shall stop before entering . . . .” Any violation of the rules contained in section 316.075 “is a non-criminal traffic infraction, punishable pursuant to Chapter 318.” Chapter 318, Florida Statutes (2008), sets forth the rules governing the handling of traffic infractions, including the issue of penalties. Chapter 318 also contains a preemption provision regarding fines which states, “Notwithstanding any general or special law, or municipal or county ordinance, additional fees, fines, surcharges, or costs other than the court costs and surcharges assessed under s. 318.18(11)(13) and (18) may not be added to the civil traffic penalties assessed in this Chapter.”

Each of the ordinances at issue in the underlying cases handles red light violations in an entirely different manner than the system established under Chapters 316 and 318. Chapter 316 provides that local ordinances on “a matter covered by” the chapter are preempted, unless an ordinance is “expressly authorized” by the statute. The subject ordinances – in providing for the punishment of red light violations – relate to matters “covered by” Chapter 316. Thus, the ordinances can be sustained as a valid exercise of municipal authority only if they are expressly authorized by statute. 

The Court held, contrary to the arguments advanced by the municipalities, that section 316.008(1)(w)’s grant of authority for “regulating, restricting, or monitoring traffic by security devices” does not explicitly provide authority for local governments to adopt measures for the punishment of conduct that is already subject to punishment under Chapters 316 and 318. Thus, the Court held, the Orlando and Aventura ordinances are expressly preempted by state law. 

The Court quashed the decision of the Third District in City of Aventura and approved the decision of the Fifth District in City of Orlando. Justice Pariente wrote a dissenting opinion, in which Justice Quince concurred.

Image courtesy of Flickr by Heather.

When Numbers Lie: The Limits of Statistical Methodology in California Class Action Management

Courts that oversee class actions can use class sampling and other statistical methods to manage litigation involving large numbers of plaintiffs and the vast amount of data associated with them. In California, however, those methods must be reliable, and cannot strip defendants of the right to litigate affirmative defenses.

The California Supreme Court recently announced its decision in Duran v. U.S. Bank National Association, 2014 WL 2219042, finding that the trial court had abused its discretion in managing a class action employee misclassification case. The Court criticized various aspects of the trial court’s plan, but focused significant attention on the faulty statistical methods utilized by the trial court to assess both liability and damages. Additionally, the Supreme Court found that the trial court’s plan prevented U.S. Bank (“USB”) from litigating its affirmative defenses.   In a 43-page opinion that will likely have implications in class action case management beyond the employment context, the Supreme Court held that “[a] trial plan that relies on statistical sampling must be developed with expert input and must afford the defendant an opportunity to impeach the model or otherwise show its liability is reduced.”


In Duran, USB business banking officers (BBOs) sued their employer, asserting that they had been misclassified as exempt employees who were not entitled to overtime. USB had classified them as outside sales employees exempt under California Labor Code Section 1170, which requires such employees to spend more than 50% of their workday in sales outside of the office. The trial court certified a class of 260 BBOs.

After certification, USB proposed dividing the class members into groups and appointing special masters to conduct individual hearings on liability and damages. Plaintiffs, on the other hand, proposed using a class-wide survey and random sampling.  Rejecting both USB’s and Plaintiffs’ proposal, the trial court devised its own plan to select a random group of 20 class members plus the 2 class representatives (the “Random Witness Group” or “RWG”) who would testify at trial and determine both liability and damages for USB, and to then extrapolate those outcomes to the class as a whole.

USB objected repeatedly to the trial court’s management of the case, and unsuccessfully moved to decertify the class due to the predomination of individual issues. Once trial began on liability, the trial court refused to accept any evidence related to the classification of any class member not in the RWG. On the issue of liability, USB sought to offer evidence that some class members worked outside the office more than 50% of the time, and therefore had been properly classified. Because those class members were not in the RWG, however, the court refused to allow USB to present any of that evidence.

In criticizing the trial court’s approach, the Supreme Court focused first on the certification and trial management plan. Not only does the trial court have to consider the predominance of common issues, it also must “conclude that litigation of individual issues, including those arising from affirmative defenses can be managed fairly and efficiently.” If a class is certified and then proves unmanageable, the trial court has a duty to decertify. 

The Supreme Court also criticized the trial court for “rigidly adhering to its flawed trial plan and excluding relevant evidence central to the defense.” By using a small statistical sampling to determine liability – an individual issue driven by the number of hours spent in the office – not just damages, it glossed over the potential that USB was not liable to some of the BBOs. In short, the trial court “did not manage individual issues.  It ignored them.”

As to the flawed trial plan, the Supreme Court highlighted several rulings that compromised the randomness of the RWG. First, while 20 of the class members were chosen by the court, the RWG also included the two named plaintiffs, who had been selected by class counsel. In fact, the named plaintiffs had been substituted several times, based on friendliness to the class’s position. The Supreme Court noted that the inclusion of the 2 named plaintiffs was the opposite of random, and skewed the sample in favor of the plaintiffs. Additionally, there was no explanation by the trial court of whether or how it had determined that twenty plaintiffs was an appropriate sample size for the RWG.

The Court also pointed out that, after the RWG was selected, the Plaintiffs amended the complaint. This in turn led the trial court to allow an additional opt-out opportunity for class members who no longer wanted to be a part of the class under the amended complaint.   In the RWG, 4 out of 20 opted out (20%), while only 5 of the remaining 250 members opted out (2%).  Such a large discrepancy in opt-out rates was “very unlikely to be attributable to random chance,” according to USB’s expert. When USB investigated the RWG class opt-outs, some of the RWG members who had opted out said that class counsel had encouraged them to do so, further calling the randomness of the sample into question.

As for the use of statistical sampling, the Supreme Court noted that “the court’s attempt to implement random sampling was beset by numerous problems.”  While not going so far as to say that sampling is never permissible, the Supreme Court laid out how the trial court failed to use sampling properly and protect parties’ rights. Specifically, the sample size was too small, not random, and had intolerably large margins of error – for example, 43.3% as to estimated overtime.

The Duran opinion makes clear that – whatever the methods used by courts to make class actions manageable – individual issues must be fairly managed, and, when a court utilizes statistical sampling, the sample “must be representative and the results obtained must be sufficiently reliable to satisfy concerns of fundamental fairness.” This focus on the fairness and reliability of class action management methods raises parallels to the United States Supreme Court’s Daubert opinion’s focus on the relevance and reliability of expert testimony. Just as Daubert seeks to avoid undue intrusion into the parties’ rights to call whichever scientific expert they see fit while ensuring that the resulting testimony is still scientific, so Duran seeks to avoid unnecessarily limiting trial court’s discretion to manage unwieldy litigation, while ensuring that the methods employed are still fundamentally fair. And while Daubert and Duran apply to plaintiff and defense equally, the nature of the two sides approaches to litigation suggest that Duran will evolve into authority widely perceived as defense-friendly.

Image courtesy of Flickr by LendingMemo.com.

Illinois Supreme Court Debates Automatic Revocation of Certain Health Professionals' Licenses

Our reports on the oral arguments of the May term of the Illinois Supreme Court conclude this morning with Consiglio v. Department of Financial and Professional Regulation. Consiglio involves a constitutional challenge to amendments the General Assembly enacted in 2011 to the Department of Professional Regulation Act. The amendments provide that a health care worker’s license is automatically revoked without a hearing when the individual: (1) is convicted of a criminal act automatically requiring registration as a sex offender; (2) is convicted of a criminal battery against any patient committed in the course of care or treatment; (3) has been convicted of a forcible felony; or (4) is required as part of a criminal sentence to register as a sex offender. Our detailed discussion of the facts and lower court decisions in Consiglio is here.

The plaintiffs are three general physicians and one chiropractic physician. They filed separate actions in Cook County challenging the statute. All four complaints were dismissed for failure to state a claim. On appeal, the plaintiffs argued that the statute: (1) offended substantive and procedural due process; (2) constituted double jeopardy; (3) violated the ex post facto clause; (4) offended the separation of powers clause by abridging the Department’s discretion and the judiciary’s power of review; (5) violated the contracts clause; (6) violated the proportionate penalties clause; (7) was barred by res judicata as a result of the Department’s previous disciplinary orders in their various cases; and (8) unfairly deprived them of vested limitations and repose defenses. Division One of the First District rejected each of the plaintiffs’ challenges, affirming the judgments of dismissal.

Counsel for three separate plaintiffs/appellants argued before the Supreme Court. The first counsel began by arguing that the statute requires the Department to revoke the same license as that involved in the disciplinary actions based upon the same conduct. But the judicial decree in those previous actions vested the plaintiffs’ rights to be free of further punishment. Justice Burke asked whether one wasn’t civil and the other criminal. Counsel responded that both the disciplinary and the revocation proceedings were administrative. Justice Burke asked whether counsel’s client was convicted of a criminal offense. Counsel responded that it was a misdemeanor. Justice Burke asked whether there was a conflict between Section 21/05-165 of the Professional Regulation Act, requiring permanent revocation for certain offenses, and Section 22A-20 of the Medical Practice Act, which gives discretionary power to the Department to decide whether or not to revoke a license for sexual misconduct. Counsel responded that the Medical Practice Act gave the Department substantial discretion in dealing with his client. They exercised it, he relied on it, served a substantial suspension, paid a substantial fine, and his rights are now vested. Justice Burke asked what the vested right was. Counsel responded that the vested right was confirmed by Allied Bridge & Construction Co. v. McKibbin, a 1942 case from the Illinois Supreme Court. Justice Burke suggested that the Allied Bridge decision stood for the proposition that no vested right was involved in professional licensing because the license was subject to ongoing regulation and legislation. Counsel responded that the rule of Allied Bridge has nothing to do with licensing. Justice Burke asked whether Allied Bridge involved an issue subject to ongoing regulation, just as here. Counsel agreed, but argued that the opinion also says that a right derived from a judicial decree is vested. Justice Burke asked whether it was vested forever, and counsel said yes. Justice Burke asked whether that meant a doctor was no longer subject to regulation. Counsel answered that the doctor was protected against further penalties for past events. That right has been adjudicated. Justice Thomas asked why the statute couldn’t be seen as a new eligibility requirement. Counsel responded that was one thing in relation to those who did not yet have a conviction, but as to his client, a new eligibility requirement couldn’t effectively relitigate the past case. Justice Thomas asked whether there was anything the state can do to prevent sex offenders from practicing medicine. Counsel responded that his client is not a sex offender; he was convicted of simple misdemeanor battery. The State has taken action, counsel continued – they held a hearing and put him on probation, and the matter is closed as to those criminal convictions. Justice Burke asked what about the present perfect tense of the statute “has been” convicted? Counsel responded that the statute affected a vested right, previously adjudicated. The act is punitive in nature and cannot be applied retroactively.

Counsel for the second plaintiff/appellant followed. Counsel explained that her client had been convicted in relation to a 1999 incident. The new statute effectively revived a dead, time-barred claim, in violation of fundamental due process. Justice Burke asked whether the plaintiffs’ licenses were revoked under the Medical Practice Act or the Professional Regulation Law. Counsel answered that the Appellate Court had recognized that the action was time-barred under the Medical Practice Act, but had proceeded anyway by illogical reasoning. Justice Burke asked whether counsel agreed that time bar defenses don’t apply to proceedings under the Professional Regulation Law. Counsel disagreed – the time bar defense applies because of her client’s vested right. The mere fact that the legislature created a separate statute without a limitations period has no bearing on whether the statute of limitations applies. The legislature can prescribe additional requirements for professional licensure, but not if they interfere with a vested right. Justice Thomas noted the Appellate Court’s point that the statute couldn’t be being applied retroactively since that would mean that plaintiffs had practiced medicine without a license. Counsel explained that there is a fatal flaw in defendants’ argument that they are promoting a prospective application of the statute based on antecedent events. The Court has said that a statute is being applied retroactively if one of three things are true: (1) the law attaches new legal consequences to events before the enactment; (2) it impairs vested rights acquired under existing law; or (3) it impairs rights the party possessed before he acted. Justice Theis asked what the vested right is. Counsel answered that the vested right was not in retaining the license, but rather in the right to claim a time defense against further impairments based upon the past events. Justice Theis asked whether that was a property right, and counsel said yes. Justice Thomas asked again whether there was anything the State can do to prevent all convicted sex offenders from practicing medicine in Illinois. Counsel answered that the legislature is free to restrict sex offenders’ licenses going forward. Justice Thomas suggested that counsel was saying no, there’s nothing they can do to bar all convicted sex offenders. Counsel answered that the legislature cannot interfere with a vested right. Justice Thomas asked whether counsel disputed that that’s exactly what the legislature intended to do. Counsel responded that the legislature probably would have preferred the statute to apply to everyone, but that’s not on the face of the statute. Justice Burke argued that the Court had said in Rios v. Jones that the State has a compelling interest in licensing. Counsel answered that Rios didn’t deal with a vested property right. Justice Thomas asked whether counsel had said that the statute doesn’t plainly apply to every sex offender. Counsel said that was correct; a conviction was the triggering event which provided the Department of Professional Regulation with the authority to revoke the license. But the statute says nothing about retroactivity. Justice Thomas pointed out that the statute doesn’t say “on or after the effective date,” and counsel agreed.

Counsel for the third and final plaintiff/appellant followed. Counsel argued that the statute deprives his client of procedural due process by mandating permanent revocation without a hearing for battery of a patient during the course of treatment. But there is no such crime as battery of a patient during the course of treatment; whether the victim is a patient is a question of fact, and whether the crime occurred during the course of treatment is a question of fact. And the law is clear that the State cannot unilaterally decide questions of fact. Justice Burke asked whether any of the three statutory exceptions to revocation – (1) the charges have been dropped; (2) the licensee was not convicted; or (3) the conviction has been vacated, overturned or reversed - applied to counsel’s client, and counsel agreed that they had not. Justice Burke pointed out that those are the only statutory exceptions to revocation and counsel said that was exactly his point – so the statute was facially unconstitutional. Justice Burke asked whether there was a due process hearing at the trial. Counsel agreed that there was, but pointed out that the factual questions in the statute – was the victim a patient, and did the battery occur in the course of treatment – were not issues in that proceeding. Therefore, pursuant to Connecticut v. Doe and Goss v. Lopez, the State could not decide the unresolved questions of fact unilaterally without violating due process. Justice Thomas asked whether plaintiff’s argument fails if the Court doesn’t consider the right to practice medicine a vested right. Counsel argued that the plaintiffs certainly do have a vested right. Justice Thomas asked whether it has to be a vested right for procedural due process to apply. Counsel answered that the people affected by the statute weren’t only doctors. Justice Thomas asked whether the risk of erroneous revocation was low since it was based on a criminal conviction, and whether that entered into the analysis. Counsel disputed whether the risk of erroneous deprivation was low, and once again argued that the State can’t unilaterally decide questions of fact. If the statute mandated revocation for anyone convicted of battery, that might be a different case. There was no such crime as being convicted of battery of a patient in the course of treatment, so the State was deciding factual questions on its own.

Counsel for the State rose next. Counsel argued that the plaintiffs’ theory that the statute operated retroactively operated from a mistaken premise. In fact, she argued, the statute merely creates new eligibility requirements for holding any of the affected licenses from the date the statute became effective forward. The error stems from confusion over the standards set forth in Landsgraf v. USI Film Products, counsel argued. The statute doesn’t need language expressly making it retroactive since it doesn’t operate that way. Retroactivity is attaching new consequences to completed events. The statute neither impacted the plaintiffs’ convictions nor increased their sentences. Nor does it retroactively cancel their licenses, making them liable for unauthorized practice of medicine. Rather, it draws upon an antecedent event to change the forward-looking criteria for eligibility. Justice Burke noted that plaintiffs argue they have a vested right to keep their licenses after the convictions were adjudicated and disciplinary penalties fully served. Counsel responded that they have no vested right to be free of new eligibility requirements for all time. The Chief Justice asked about Allied Bridge. Counsel answered that Allied Bridge is really a separation of powers case, holding that a legislature cannot undo a court’s judgment. That’s not what’s happening here, counsel suggested. Justice Theis noted that the statute is automatically triggered and the license is revoked without a hearing based upon a conviction for battery of a patient during the course of treatment – how are those facts proved up? Counsel answered that the Department has regulations to carry out the statutory mandate. A notice is sent to the doctor, and he or she has 20 days to respond with documentation showing that they fit under a statutory exception. Justice Theis asked whether there was a hearing giving an opportunity to debate the facts. Counsel answered that there is a paper hearing, and if the doctor disagrees with the Department’s final decision, he or she can seek court intervention. Justice Theis asked whether, within the regulations themselves, there was an opportunity for a hearing, or any burden on the state to show that the victim was a patient, or the battery occurred in the context of patient care. Counsel again said that there is a paper hearing which can address those issues. Short of that, the doctor would need to go to court. Justice Theis asked whether, if the Department rejected a doctor’s showing, administrative review was the proper avenue to seek further review. Counsel answered that review is by petition for writ of certiorari. Justice Kilbride asked if there is any form of administrative review within the agency, and counsel said there is not. Justice Kilbride asked whether counsel’s term “paper hearing” referred merely to a review of the papers submitted – was there any face to face proceeding? Counsel responded no. Counsel then turned to the issue of ex post facto. Counsel argued that the statute neither operated retroactively, nor was license regulation a punishment. Justice Theis asked counsel to address the plaintiffs’ argument about having a vested right in the time bar defense, and counsel answered that while plaintiffs might have a vested right to be free of further discipline in connection with their incidents, they had none to be free of new licensure eligibility requirements.

Counsel for the second plaintiff led off rebuttal arguments. She stated that plaintiffs were not arguing that there is a vested right to be free of license requirements. The defendants conceded that there is a vested right to the time bar defense. Counsel argued that previous case law on prospective statutes based on antecedent events had not involved any vested rights. Counsel concluded by repeating the three factors that make a statute retroactive: (1) it attaches new legal consequences to an Act; (2) it impairs a vested right; or (3) it impairs rights the party had when he or she acted. The plaintiffs had a right – which the defendants conceded, according to counsel - to be free of further discipline once their disciplinary period had been completed. Fundamental principles of finality and predictability would be substantially impaired if the Court affirmed.

Counsel for the first plaintiff offered rebuttal next. He said that the defendants were talking about eligibility requirements, but in fact, the Department was revoking licenses, an inherently disciplinary act. Calling the action an eligibility requirement doesn’t affect the application of Allied Bridge, counsel argued. Counsel concluded by insisting that the “paper hearing” referred to by counsel for the State simply doesn’t exist.

Counsel for the third plaintiff briefly concluded the argument. He argued that defendants were saying that the State could resolve the facts on its own. But in fact, if there were factual disputes which needed to be decided to apply the statute, under Goss v. Lopez it was a due process violation for the State to decide them unilaterally.

We expect Consiglio to be decided in four to five months. 

Image courtesy of Flickr by umjanedoan.

Illinois Supreme Court Debates Constitutionality of Red-Light Ordinance

Our reports on the oral arguments of the Illinois Supreme Court’s May term continue with Keating v. City of Chicago. Keating poses an important question for Illinois motorists: are municipal red light ordinances constitutional? Our detailed summary of the facts and lower court holdings in Keating is here.

Chicago has had a red light ordinance since July 2003. By 2006, questions had arisen as to whether such ordinances were permitted by Illinois law regarding the powers of county and local governments. As a result, the state legislature passed an enabling act, specifically authorizing red light camera programs in Cook, DuPage, Kane, Lake, Madison, McHenry, St. Clair and Will Counties. Although the 2003 ordinance has stayed in place in the years since, Chicago did not reenact its ordinance following the enabling act.

Most of the plaintiffs in Keating are registered vehicle owners who received red light violation citations from the City of Chicago. Plaintiffs’ challenge to the ordinance is built around two principal arguments: (1) that the City lacked home rule authority to enact the ordinance; and (2) that the enabling act was unconstitutional special legislation. The Circuit Court granted the City’s motion to dismiss, holding that two plaintiffs lacked standing, that the enabling act was not special legislation, and that the voluntary payment doctrine barred all claims since the plaintiffs had paid their fines.

On appeal, the plaintiffs focused on four arguments: (1) the enabling act is unconstitutional; (2) the ordinance was void in excess of home rule authority and the enabling act did not and could not legalize it; (3) even if the enabling act might otherwise have legalized the ordinance, the City failed to reenact it; and (4) the voluntary payment doctrine did not apply.

The home rule argument turns on an interesting question: does the red light ordinance relate to “the movement of vehicles,” or constitute an automated device “for the purpose of recording [a vehicle’s] speed”? If so, the ordinance is likely invalid, with or without the enabling act. Or does it merely “regulat[e] traffic by means of . . . traffic control signals,” which is within local authorities’ powers? The Appellate Court held that the ordinance did not relate to “the movement of vehicles,” and was therefore within the City’s home rule authority. The Court further held that limiting the ordinance to the most populous counties with the heaviest traffic was a reasonable limitation, meaning that the enabling act was not unconstitutional special legislation. Finally, the Court held that in view of the significant penalties attending non-payment, the plaintiffs’ payment of the fines did not waive their claim.

Counsel for the plaintiffs began with the initial issue: did the City of Chicago have the authority to enact its red light ordinance. Justice Thomas asked what was wrong with the argument that the ordinance is a supplement to, rather than an alternative to, the statewide Vehicle Code provisions. Counsel answered that it destroyed uniformity of enforcement in several ways, including by ticketing the owner rather than the driver, and by providing for administrative enforcement. Calling a red light camera’s photo a representation of a static moment in time doesn’t mean it doesn’t relate to the movement of the vehicle, counsel argued. The most frequent violation is failing to stop before entering the intersection – it’s not a violation by the owner. Counsel argued that it’s the lack of uniformity that makes the ordinance invalid. Justice Karmeier asked whether counsel objected to the concept of the owner paying rather than the alleged violator. Counsel answered that while the plaintiffs weren’t raising it as a separate issue, the plaintiffs think it’s indicative of a lack of uniformity.

Counsel then turned to the second issue, the enabling act. Counsel argued that the enabling act is both plainly local and creates a closed-end class of these eight counties. Justice Thomas asked whether anything in the legislative history suggested that the statute was designed to cover high traffic jurisdictions. Counsel answered that the legislative history cut in plaintiffs’ favor. In fact, the eight counties covered aren’t the most populous districts. The enabling act had been introduced twice as a general law, it didn’t pass, and then the legislature limited it to eight counties. Chief Justice Garman asked how the statute closes the class. Counsel answered that nobody else can become a covered county. The Chief asked about the argument that the eight counties were the highest traffic areas, and counsel answered that there was no rational connection between the small and large towns in the covered counties. Further, there were other areas with bigger problems which did not fall in the covered counties. Justice Theis cited to an earlier challenge to a fuel tax statute singling out three counties. Counsel answered that the case was distinguishable – the operation of that statute was at the town level, while the enabling act operated at the municipal level. Justice Theis asked why that mattered. Counsel explained that a statute had to be rational and non-local in order to be valid. The Court has refused in two different cases to approve statutes that classify by county but operate at the municipal level. Justice Karmeier asked whether the classification was rational because the eight counties were contiguous to large areas. Counsel answered that the plaintiffs have cited municipalities that are closer to Chicago, but not covered. There was no rational explanation for the division in the statute for a bill operating at the municipal level.

Counsel then briefly turned to the third issue, the proposition that even if the enabling act is constitutional, it couldn’t retroactively validate the 2003 Chicago ordinance. Counsel pointed out that while the enabling act said cities “may enact” a red-light ordinance, Chicago had never reenacted its three year old ordinance. Justice Thomas asked whether all plaintiffs were issued their tickets after the enabling act, and counsel agreed that was so. Justice Kilbride asked about the defendant’s claim that the ordinance had been reenacted. Counsel answered that the statute had been amended three times after the enabling act, but two had been purely cosmetic, and none had fully reenacted the ordinance.

Counsel for the City was up next. Rational basis was the proper standard of review for the enabling act, counsel argued; indeed, the Court would have to overrule a considerable body of precedent to apply anything else. Counsel insisted that there was a clear rational basis for the statute – these locations are different from the rest of the state. The legislature could have rationally concluded that these eight counties are where the risk of red light violations is greatest. Justice Thomas asked whether it was of any consequence that Winnebago County was omitted. Counsel argued that Winnebago County was reasonably distinguishable – it was not a Chicago collar county, nor was it close to St. Louis or Chicago. Counsel argued that Winnebago County may have an equilibrium between law enforcement resources and red light violations. Justice Theis noted that although counsel’s argument focused on county location and population, the plaintiff’s argument was that the law was operating at the municipality level – and some of the affected municipalities were very small. Counsel answered that even the small towns were differently situated because they were located in areas where municipalities were closely packed and heavily trafficked. The Chief Justice asked how it impacted the analysis that the ordinance is aimed at vehicle owners rather than drivers. Counsel answered that the ordinance was complementary to traditional enforcement, rather that substituting for enforcement through first-hand observation. Indeed, the statute cannot be applied when a police officer is present to observe the violation. Justice Karmeier asked whether an officer present to see a violation could simply ignore it and let the camera do its job. Counsel answered that the ordinance merely provides a defense if an officer is present – it doesn’t say that the officer does or doesn’t have to write the ticket. Counsel then turned to the issue of preemption. Preemption is an on-off switch, counsel argued. There was no express intent to preempt in the enabling act. According to counsel, the statute contains exemptions for local ordinances conflicting with the Vehicle Code. Since the ordinance doesn’t apply if an officer is present, there is no conflict and no preemption. Even if the ordinance was preempted when it was originally enacted in 2003, when the legislature passed the enabling act three years later, the ordinance sprang back to life.

In rebuttal, counsel for the plaintiffs argued that the Court has held that an invalid local statute or ordinance cannot be retroactively validated by a subsequent statute. Counsel for the City claims that the general assembly knew that home rule municipalities already had authority to enact red light ordinances, and that’s why the enabling act has a limited class of counties to which it applies. But if the power is inherent in home rule, why bother passing the enabling act at all?

Although there are high-profile exceptions – most recently with Kanerva last week – the Illinois Supreme Court tends to be somewhat skeptical of constitutional challenges. Nevertheless, the questioning pattern in Keating did not clearly signal the Court’s inclinations about the plaintiffs’ various constitutional challenges to the red-light ordinance.

We expect Keating to be decided in the mid-to-late fall.

Image courtesy of Flickr by Karoly Lorentey.

Illinois Supreme Court Debates Effect of Failure to Register as Debt Collector

Our reports on the oral arguments during the May term of the Illinois Supreme Court continue with a direct appeal pursuant to Supreme Court Rule 302 – LVNV Funding v. Trice.

LVNV began when the defendant used a credit card to pay for plumbing services. When the defendant failed to pay the credit card issuer the full amount of the charge, the issuer sold its interest in the account to the plaintiff, who sued the defendant to collect the debt.  The matter went to trial with the defendant appearing pro se, and judgment for the plaintiff was entered. After trial, the defendant hired counsel. The new attorney moved to vacate the judgment on the grounds that the plaintiff had never registered as a collection agency under state law, making the judgment void (the plaintiff had gotten its license after filing the suit, but before entry of judgment). The plaintiff responded that the trial court had jurisdiction over the parties and the subject matter, and that was all that was needed to make the judgment not void.

The case went up on appeal for the first time in 2011. The Third Division of the First District found that both buying the debt from the issuer and suing the defendant would be criminal acts if the plaintiff was not licensed, the Court held. The Court remanded for the sole purpose of determining when the plaintiff had become licensed. Instead, the Circuit Court entered an order on remand striking down the licensing statute on constitutional grounds. As a result, the second appeal came directly to the Supreme Court.

Counsel for the defendant began the oral argument. Counsel argued three points: (1) the statutory licensing law prohibits anyone from operating in the state without a license, and imposes criminal and civil penalties for violators; (2) the legislature has declared a strong public policy regarding the business of debt collection, finding that the business affects the public welfare and should be regulated for the protection of debtors; and (3) previous precedent recognizes a distinction between failure to license as a business and the unlicensed practice of law with respect to the appropriate remedy. Justice Burke asked whether the Act expressly states that judgments are void if the plaintiff is unlicensed, and counsel answered that that result was mandated by the Court’s nullity rule. Justice Burke asked whether the defendant gets a windfall if the judgment is unenforceable. Counsel answered that the legislature has made the judgment that a party cannot sue without a license. Unlicensed debt collection is contrary to the public welfare, and since the plaintiff was unlicensed at the time it sued the defendant, the voidness rule applied.

Counsel for the State, which had intervened to argue the constitutionality of the licensing statute, followed. Counsel argued that the case was somewhat unusual, in that not even the defendant was defending the Circuit Court’s holding on the grounds the Court relied upon. There can be no equal protection violation where a statute doesn’t distinguish between similarly situated parties, counsel argued. Nor was the statute arbitrary or irrational simply because the conduct prohibited was unlikely to lead to physical injury or death given the long tradition of financial crimes. The plaintiff had argued that the statute was void for vagueness in that it was impossible to know what was and what was not “debt collection.” Counsel for the State disagreed. Counsel pointed out that there is a distinction between ordinary statutory ambiguity and constitutional vagueness. Ambiguity exists when multiple reasonable readings exist, but it only rises to the level of a constitutional problem when a statute is entirely incapable of intelligent interpretation. The dormant commerce clause argument failed, since the statute doesn’t treat in-state and out-of-state commerce differently.

This leaves only the rational basis argument, according to counsel. The FTC has documented abuses in the debt collection industry, including specifically in litigation, counsel argued. Most lawsuits end in default judgments, and some collectors play the odds, hoping enough people won’t bother to defend their suits that they’ll come out ahead. Since nobody was defending the Circuit Court’s judgment, counsel suggested that the Court summarily vacate the decision and remand the case for resolution of the defendant’s remaining arguments. This was appropriate, counsel argued, because otherwise the defendant would be in effect bootstrapping a Rule 308 appeal through Rule 302, getting a number of non-constitutional issues before the Court through a non-substantial constitutional appeal. Counsel disputed the defendant’s argument that the ethical rules governing attorneys were a sufficient check on litigation abuse, arguing that there is evidence to the contrary. Nevertheless, counsel argued, it was not necessary that the legislature’s action be narrowly tailored to the problem in this constitutional context.

Counsel for the plaintiff followed. Counsel argued that the case should have ended at the Appellate Court since only subject matter and personal jurisdiction defects make a judgment entirely void – not failure to license. The nullity rule applying to corporations is an exception to that principle, but since an attorney filed the complaint, the nullity rule was inapplicable. Counsel argued that all four factors cited in previous Supreme Court cases regarding the nullity rule favor the plaintiff here – the lawsuit was filed without knowledge of the licensing requirement and the plaintiff acted diligently in correcting the mistake. Justice Thomas asked whether the Court should assess the constitutional argument and remand the rest. Counsel answered that the lower court had already ruled on nullity, so there was nothing to remand. The plaintiff merely buys debt and hires attorneys to file lawsuits, counsel argued; it was not a traditional collection agency. Justice Theis suggested that since a lawyer is acting on behalf of the client, the argument is that it’s the plaintiff contacting and suing the debtor. Counsel answered that before 2008, only a debt buyer “with recourse” was subject to the Act. In 2008, the legislature removed the words “with recourse,” but still, nothing in the Act suggests that filing a lawsuit necessarily is debt collection. Justice Karmeier asked counsel whether he was defending the constitutionality rulings of the trial court, and counsel said yes, in part. Justice Karmeier asked whether counsel’s non-constitutional issues still needed to be litigated. Counsel argued that the State hadn’t specified where it proposed to remand the matter to. Everything the plaintiff briefed was argued and decided in either the Circuit or Appellate Court. Justice Kilbride asked whether the trial court had decided the non-constitutional issues, and counsel answered that the court’s view was if you file a lawsuit, you’re a debt collector. Justice Kilbride explained that he was trying to determine whether the decision below complied with Supreme Court Rule 18, requiring that a case be decided if possible on non-constitutional grounds before reaching the constitutional issues. Counsel answered that the trial court had concluded that it was stuck with the Appellate Court holding, and the plaintiff clearly was a debt collector. Justice Thomas asked why the Court shouldn’t hold the statute constitutional under the rational basis test. Counsel argued that the statute was unconstitutional because there was no reasonable way for a party to know when it was violating the law. Here, the Department had advised the plaintiff that it didn’t need to register, and that the 2013 amendment to the statute had been needed because the law was unclear. Federal District Court judges have adopted the plaintiff’s position about the meaning of the statute, counsel argued. Counsel concluded by suggesting that the Court should merely hold that the judgment was not void, and that was the end of the case.

Counsel for the defendant began rebuttal arguments by arguing that the plaintiff had conceded that the constitutional holdings below were wrong. Justice Thomas asked how public welfare is promoted by counsel’s interpretation. Counsel answered that maintaining the regulatory system over the industry was very important; debt buyers wanted to be out from under the statute merely by hiring counsel, but that wasn’t the intent of the legislature. Chief Justice Garman asked whether any violations of the law had been shown beyond the lack of a license. Counsel answered that at the outset of the lawsuit, there had been a dispute as to whether the defendant actually owed the debt.

Counsel for the State ended the argument, arguing that the easiest resolution was to vacate the judgment and remand the case. The plaintiff has not defended the Circuit Court’s reasoning, counsel argued; it was offering a “better” version of the Court’s rational basis argument. Counsel once again suggested that the best approach to mandatory jurisdiction Rule 302 cases is to dispose of an insubstantial constitutional argument and remand the rest to ensure that Rule 302 doesn’t become a vehicle for a lot of other issues to come up. Counsel asked whether there was a problem with the rulings on the issues the Court would be sending back. Counsel responded that the application of the statute hasn’t been passed on. Justice Thomas pointed out that counsel for the State was at odds with everyone else in the case urging the Court to resolve all issues. Counsel answered that he understood the impulse to seek complete resolution, but the case now presents nine different issues. Counsel argued again that it was more appropriate to send the non-constitutional issues back. Justice Karmeier asked whether, if the Court merely decided constitutionality and remanded the rest, the case goes back to the trial court in the same posture it was in following the first appeal. Counsel said yes – the Circuit Court would be able to consider the issue of whether the statute applied.

We expect LVNV Funding to be decided in four to five months.

Image courtesy of Flickr by Jason Taellious

Illinois Supreme Court Seems Skeptical of Expansive Interpretation of Distraction Exception to Open-and-Obvious

Our reports on the oral arguments during the May term of the Illinois Supreme Court continue with Bruns v. City of Centralia. Bruns poses a question with the potential to blow a significant hole in the open-and-obvious peril doctrine of tort law: does the doctrine apply when a reasonable property owner can reasonably expect visitors to the property to be looking somewhere else? Our detailed summary of the facts and lower court decisions in Bruns is here.

The eighty year old plaintiff in Bruns tripped over a raised section of sidewalk in front of the entrance to her eye clinic, severely injuring her shoulder and arm. The three-inch high defect in the sidewalk was well known at the time of the accident; the Clinic had reported the situation to the City, even offering to have the tree removed at its own expense. But the City’s tree committee had refused permission for the tree to be removed, citing the tree’s historic significance. The plaintiff had been aware of the sidewalk defect from previous visits to the Clinic, but at the time of the accident, her attention was focused on the Clinic steps and entrance, not the sidewalk.

The trial court found that the defendant owed the plaintiff no duty of care as a matter of law, applying the open-and-obvious-peril rule. The court held that given that the City neither created, contributed to nor was otherwise responsible for the Clinic door and steps, the distraction exception didn’t apply.

The Appellate Court reversed. The distraction exception applied where there was reason to expect that a plaintiff’s attention may be distracted, the court held. Under such circumstances, the property owner’s duty is reinstated. The important issue, the Court held, was the likelihood that the plaintiff’s attention would be distracted, not whether the defendant had foreseen the precise nature of the distraction. It was not necessary for a defendant to foresee the precise nature of the distraction; all that was needed was for it to be reasonable that a plaintiff would be distracted and fail to notice the open-and-obvious risk. Taking all factors into account, there was sufficient grounds to find a duty of care. Therefore, the Appellate Court held, the matter should have been sent to the jury.

Counsel for the City began by reminding the Court that all parties agreed that this was an open and obvious condition. The question turned on the distraction exception found in Comment f of Section 343(A) of the Restatement. Counsel argued that the Appellate Court’s holding means that a plaintiff is not required to show that she was required or caused to look elsewhere – merely that she was, in fact, distracted. If a plaintiff is merely required to say that he or she was, as a matter of fact, distracted at the time of a fall, the exception swallows the rule. But the Fifth District didn’t stop there, according to counsel for the City; circumstances in which the plaintiff would be distracted, whether or not they actually occurred, would trigger the exception. Justice Theis suggested that the usual analytical framework for duty would be reasonable foreseeability, magnitude of injury, magnitude of burden and the consequences of placing that burden – how do these ideas work together in this context? Counsel responded that the open and obvious exception affected the first two factors in the analysis. Where a risk is open and obvious, the likelihood of injury is slight, and foreseeability is less. Justice Theis asked whether the distraction issue was grounded in one or more of these four elements. Counsel responded that the Restatement recognizes that there may be circumstances when a plaintiff’s attention may be distracted. That affects whether a risk is open and obvious. Justice Theis asked whether foreseeability was the keystone of the open and obvious distraction. Counsel agreed that it was. Foreseeability is not 20-20, counsel argued; it’s not everything that could occur. Once the Appellate Court went beyond the routine to hypotheticals, the distraction exception would become universal, and there would be nothing left of open-and-obvious. Justice Kilbride asked what the defendant was asking the court to decide beyond the duty or the exception. Counsel answered that there should be guidelines presented to the Appellate Court to harmonize precedent and ensure uniformity of decision. Because of the uncertainty in the applicable standards, the Appellate Court strayed into hypotheticals where it doesn’t matter what actually happened to the plaintiff – a landowner can be held liable because of what might have happened. Chief Justice Garman asked whether the fact that there had been prior complaints about the sidewalk had any place in the analysis. Counsel said no, because it doesn’t change the fact that the risk was still open and obvious, and thus could be seen, recognized and avoided. While notice is arguably relevant to determining breach, it is not for purposes of duty.

Justice Thomas asked counsel for the plaintiff about the Appellate Court’s heavy reliance on Harris v. Old Kent Bank from the Fifth District, which didn’t seem to relate to the open and obvious exception. Counsel argued that Harris was important for its recognition that people can be doing things which will make even a minimal issue into a distraction. Justice Thomas suggested that Harris was distinguishable – here, the plaintiff was arriving, not leaving, where she might be reading papers. She wasn’t having trouble with her eyes which made it difficult to see the sidewalk defect. Counsel answered that she was looking at the door and the steps – no less reasonable conduct than that in Harris. Justice Thomas asked if the door of the clinic qualified, what would not qualify as a distraction. Counsel responded that while that was a valid concern as a general matter, the plaintiff’s conduct was both reasonable and foreseeable. This was a “unique” condition, counsel argued – everyone who has seen it has said it’s hazardous. Chief Justice Garman asked whether counsel was arguing that prior notice made the doorway more foreseeable as a distraction. Counsel answered that what constitutes a foreseeable distraction considerably overlaps with foreseeability. The Chief Justice asked whether finding for the plaintiff would make all of downtown Chicago into a big distraction.  Counsel suggested that in a busy downtown area, with a public sidewalk in front of a department store, it wasn’t a good policy to suggest that the city could simply ignore a defect on the grounds that it was an open and obvious hazard. The Chief Justice remarked that there are miles of sidewalks. Counsel answered that not all were in front of store windows; some were in places where one would not reasonably expect distracted pedestrians. Justice Karmeier returned to Justice Thomas’ question – under plaintiff’s standard, what isn’t a distraction? Counsel responded that here, the plaintiff’s distraction was fully foreseeable; perhaps a sidewalk in a park or along a roadway would present a different case. Justice Thomas suggested that there are open and obvious hazard cases in which the foreseeability of harm is even greater than it was here, and that counsel’s example of a sudden strike for a low-flying bird would have a better chance of defeating open-and-obvious than a clinic door. Counsel suggested that there is always an element of the self-created in any distraction case. The question is whether the plaintiff is behaving reasonably. Justice Burke asked whether, in any city of any size, a broad ruling for plaintiff might result in cities blocking sidewalks, since a city can’t keep up with maintenance of miles and miles of sidewalks. Counsel pointed out that there were specific complaints here, and even if the dismissal is reversed, plaintiff still has to get past the jury. Justice Thomas asked whether counsel would agree that if there is no showing of distraction here, the peril is open and obvious regardless of foreseeability. Counsel agreed. Justice Thomas suggested that plaintiff was arguing for a decision based on whether the defendant could foresee this particular distraction. Counsel agreed that was so, and pointed out that that was the Appellate Court’s opinion. Justice Thomas suggested that the question was whether it was reasonable for the plaintiff to be distracted – what the defendant knew or didn’t know didn’t matter. Counsel suggested that the two concepts were a distinction without a difference, and that it was impossible to say that it’s unreasonable for plaintiff to have been looking forward while she was walking. Justice Theis suggested that historically, the open and obvious exception comes from obvious perils such as bonfires and water where it can reasonably be anticipated that a reasonable person won’t approach. Was counsel suggesting that no matter how extreme a hazard is, a landowner must consider the possibility that a potential plaintiff might be looking somewhere else? Counsel argued that that point was for the jury.

Counsel for the City began rebuttal by arguing that the plaintiff had been to the site nine times before, and had always seen the defect. This case had never been about eyesight problems, and Harris had nothing to do with open and obvious. Justice Thomas asked how the Court should define a valid distraction. Counsel answered that the law doesn’t require the landowner to be aware of everything, and the issue should turn on whether the plaintiff was required to focus her attention somewhere else. Here, the plaintiff saw the building, saw the condition and had plenty of time to chart a course and avoid injury. Justice Thomas asked counsel whether he believed that the issue was whether distraction was foreseeable. Counsel answered that the distraction exception doesn’t lend itself to hard-and-fast rules. Justice Thomas asked whether there’s any place in the analysis for how reasonable it was for plaintiff to be distracted. Counsel answered no – the reasonableness of plaintiff’s actions go to contributory negligence, while the question of distraction goes to the defendant’s reason to foresee distractions. Justice Thomas asked whether it would be a different case if the plaintiff had been distraught, with other things on her mind. Counsel answered that there was a similar case from the Appellate Court, and there, the Court said if subjective actual distraction was enough, the exception would swallow the rule. The bottom line, counsel argued, was if property owners must foresee plaintiffs’ negligence, the open and obvious doctrine has been destroyed.

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

Image courtesy of Flickr by Daniel Olnes.

Sharply Divided Illinois Supreme Court Narrows Circuit Court Jurisdiction Over Pension Board Decisions

In its second significant decision on public employee pensions of the morning, the Illinois Supreme Court has reversed the Appellate Court in The People ex rel. Madigan v. BurgeIn an opinion by Justice Anne M. Burke, joined by Justices Thomas, Karmeier and Theis, the Court holds that the Circuit Courts lack jurisdiction to hear most independent lawsuits by the Attorney General challenging decisions of the Retirement Board awarding benefits – such decisions can only be reviewed, if at all, through the traditional channels of the Administrative Review Act.

The retiree in question in Burge was a Chicago police officer from 1970 to 1993. When he retired, he was awarded retirement benefits by the Board. Several years later, a federal civil rights suit was filed alleging that plaintiff had been tortured and abused by officers under the retiree’s command, and that the retiree had known about and participated in those practices. In response to interrogatories in that lawsuit, the retiree denied any knowledge of, or participation in, the torture or abuse of any persons in the custody of the Chicago Police Deaprtment.

The retiree was indicted in 2008, charged with perjury and obstruction of justice for allegedly lying in his responses to those interrogatories (keep in mind that all this is happening long after retirement – both the interrogatory answers and the indictment). In 2010, he was convicted on all three counts and sentenced to four and a half years imprisonment. That prosecution was the only criminal activity of which the retiree has ever been convicted.

Section 5-227 of the Pension Code provides that pension benefits may not be paid to anyone “convicted of any felony relating to or arising out of or in connection with his service as a policeman.” In 2011, the Retirement Board held a hearing to determine whether the retiree’s conviction disqualified him from continuing to receive benefits from the system. The four Trustees appointed by the mayor of Chicago all voted yes, that the retiree was now disqualified. The four Trustees appointed by the police officer participants in the Pension Fund all voted no. Because terminating benefits requires a majority vote of the Board, the motion to terminate benefits was declared defeated.

A week later, the Attorney General filed suit in the Circuit Court, naming the retiree, the Board and all its individual Trustees as defendants, seeking an injunction to prohibit further pension payments to the retiree and requiring that all payments made since his conviction be refunded. The defendants filed motions to dismiss, alleging that the Circuit Court lacked subject matter jurisdiction over what amounted to a collateral attack on a routine benefits decision of the Board. The Circuit Court agreed and dismissed. The Appellate Court reversed, holding that the Circuit Court had concurrent jurisdiction over the Attorney General’s claims pursuant to Section 1-115 of the Pension Code, which authorizes the Attorney General to sue to “enjoin any act or practice which violates any provision of this Code.” 40 ILCS 5/1-115.

The Supreme Court reversed the Appellate Court. The majority notes that Section 5-189 of the Pension Code expressly confers “exclusive original jurisdiction” on the Retirement Board “in all matters relating to of affecting the fund, including . . . all claims for annuities, pensions, benefits or refunds.” That grant of authority includes deciding proposals to “increase, reduce, or suspend” any pension. 

The Attorney General argued that Section 1-115 was a sweeping grant of concurrent jurisdiction over any decision to award benefits, so long as the award violated some clause of the Pension Code. The majority disagreed, finding that the Attorney General’s construction would potentially create two tracks of Circuit Court proceedings, one via administrative review, with the Circuit Court required to give deference to the Board’s findings, and one an independent suit under Section 1-115. Such a system would inject “tremendous instability . . . into the Fund.” The majority acknowledged that “[p]reventing significant violations of the Pension Code” were “important goals,” but found that authorizing collateral attacks against any Board decision wasn’t necessary to achieve that goal, since acts in excess of jurisdiction and breaches of the Trustees’ fidicuciary duties could be challenged in separate suits. In addition, the Department of Insurance has general responsibility for examining and investigating pension funds created under the Code. But no such issue was involved in the case, the majority found. The Attorney General’s challenge to the Board’s action was merely an allegation that the Board had erred in failing to terminate benefits on the particular facts involved here – an “individualized error.”

Chief Justice Garman dissented at length, joined by Justice Thomas Kilbride. There were several problems with the majority analysis, the Chief Justice argued. First of all, read literally, Section 5-189 would give the Board exclusive original jurisdiction over its own breaches of fiduciary duty. Second, the majority ignored the breadth of the Trustees’ fiduciary duties. In addition to loyalty, the Trustees have duties to diversify (with limited exceptions), to exercise “care, skill, prudence and diligence,” and to administer in accordance with the Code.  So if the retiree’s felony conviction related to, arose out of, or was in connection with his service as a policeman, continuing to pay him benefits was a breach of the Trustees’ fiduciary duty to administer the Fund pursuant to the Code.

Even more disturbing, the Chief Justice argues, the majority’s sweeping construction of the Board’s original and exclusive jurisdiction would seem to place decisions awarding retirement benefits beyond any court review. There was no basis for believing that another system participant could intervene in a retiree’s benefit proceeding. Appeal under the Administrative Review Act was limited to parties of record aggrieved by the decision. Therefore, “[n]o party would have both incentive and ability to challenge the Board’ s error. So long as the Board awards benefits, its errors will now go unchallenged” – even if the Board chose to openly defy a decision of the Supreme Court itself.

The Chief Justice concludes that the apparent conflict between the Board’s jurisdiction and the grant of standing to the Attorney General in Section 1-115 should be resolved by looking to Federal caselaw interpreting the similar provisions of ERISA. Thus, the Attorney General would have standing to challenge benefits determinations which amount to a breach of fiduciary duty. Ordinary benefits decisions would not be subject to collateral attack.   A collateral attack on a benefits award would face a “high bar to survive a motion for dismissal or summary judgment,” but given that the Attorney General’s allegations, if proven, would amount to a breach of the Trustees’ fiduciary duty, the Attorney General had successfully surmounted that bar.

Justice Charles E. Freeman filed a separate dissent, agreeing with the Attorney General’s position that Section 1-115 grants the circuit courts concurrent jurisdiction over all benefits decisions by the Retirement Board. Like the Chief Justice and Justice Kilbride, Justice Freeman concluded that without such jurisdiction, Board decisions awarding retirement benefits would be entirely immune from any form of judicial review.

Burge will likely be overshadowed by Kanerva in reporting and commentary about today’s pension clause decisions. Nevertheless, with further legislative action on pensions quite possible, it will be interesting to see whether the Legislature returns to Section 1-115 to plug the gap identified by three members of the Court, where controversial benefits awards might entirely escape judicial review.

Image courtesy of Flickr by Anne Hornyak.

Illinois Supreme Court Adopts Broad Construction of Constitutional Pension Clause

The Illinois Supreme Court has issued its much-anticipated opinion in Kanerva v. Weems. Kanerva represents the Court’s first opportunity to address the state Constitution’s Pension Protection Clause since the Illinois General Assembly enacted pension reform eight months ago. In the wake of the 6-1 decision, the task facing defenders of reform likely has gotten significantly more difficult. Our discussion of the underlying facts and Circuit Court holding in Kanerva is here. Our (nearly) live-blogging on the oral argument is here.

The Pension Protection Clause, adopted in 1970 and approved by the voters, provides that:

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.

Prior to the amendments at issue in Kanerva, employees and annuitants had 50% of their health insurance premiums paid for by the State pursuant to the State Employees’ Insurance Benefits Act. The Act was in force at the time the 1970 constitution was adopted. Two years later, the Act was repealed and replaced by the Group Insurance Act, which added a program of group life and group health insurance. Initially, the Group Insurance Act provided that the State would pay the full cost of life and health insurance for eligible annuitants. In 1992, that was amended to authorize the Director to require contributions of up to $12.50 a month, and three years after that, the cap was removed. The 1992 amendment also provided for a reduction for retirees to offset Medicare, but the provision was prospective only. The legislature made further changes in 1997 and 1998 – again, prospective only. In 2002, the General Assembly adopted an early retirement incentive program, by which an employee could establish creditable service and age enhancements, thus accelerating the time when the employee could qualify for service-based contributions from the State towards health insurance.

The amendments at issue in Kanerva were enacted ten years after the early retirement incentive program, in 2012. The 2012 Act repealed the statutory provisions requiring the State to pay the premiums in full for pre-1998 annuitants, retirees and survivors and to make specified contributions to new annuitants, retirees and survivors. In place of those provisions, the legislature established a system by which the Director of the Department of Central Management Services would determine the amount the State would contribute for benefits annually. The statute imposes no caps on the amount the Director may require annuitants, retirees or survivors to pay for their health insurance – in theory, the Director could decide that former employees must pay the entire premium.

Four lawsuits were filed, challenging the 2012 amendments under various constitutional provisions. Plaintiffs argued that by changing the provisions for handling of retirees’ health insurance, the statute had impaired a “benefit” of their membership in the state retirement system. The defendants moved to dismiss and the Circuit Court granted the motion. The Supreme Court granted a motion for direct review pursuant to Rule 302(b) and directed that the appeals in all four cases – by then consolidated – be transferred to it.

The Supreme Court reversed in an opinion by Justice Charles E. Freeman. The majority’s rationale is ultimately quite simple (indeed, the tangled history discussed above amounts to more than half of the majority opinion). Health insurance premium subsidies were part of government employees’ employment package in 1970, when the Constitution was enacted. Eligibility for those benefits “is limited to, conditioned on, and flows directly from membership in” one of the State’s pension systems. Given the broad language of the Pension Protection Clause, that’s all you need to know – the premium subsidies are a “benefit” of membership which can’t be impaired.

No principle of statutory construction supported a different view, the Court noted. If the Constitutional Convention had intended to protect only the core retirement benefits, they would have said so, given that the premium subsidies were being paid in 1970 too. The defendants pointed to the debates at the constitutional convention in support of their narrow construction of the clause, but the majority said it didn’t matter – since the language of the clause was perfectly clear, there was no need to look at the debates. And even if one did review the debates, the Court continued, they didn’t help the State for the same reason the language of the clause itself didn’t – premium subsidies were a well-known benefit of membership in 1970, and yet no one suggested that they were carved out of the Clause.

The Illinois Pension Protection Clause is similar to clauses in various other state constitutions around the country (ultimately, its roots can be traced to the New York Constitution). One of those similar clauses is in Hawaii. The majority notes that only four years ago, the Hawaii Supreme Court faced the same question presented in Kanerva with respect to their Pension Protection Clause, and had little trouble finding that the Clause protected reductions in premium subsidies (Everson v. State.)

Given its holding that the Pension Protection Clause protects premium subsidies, the majority declined to reach any of the plaintiffs’ other claims. The Court then remands the matter to the Circuit Court.

Justice Anne M. Burke dissented. The Pension Clause protects “pension and retirement rights,” Justice Burke argued. Subsidized health insurance premiums are simply not “pension benefits.” Justice Burke criticizes the majority’s reasoning, characterizing the holding as “’something’ qualifies as a constitutionally protected benefit if it ‘results from,’ is ‘conditioned on,’ ‘flows directly from,’ or is ‘attendant to’ membership in one of the State’s pension or retirement systems.” But no such qualifiers are in the Clause, Justice Burke argues. By the majority’s language, if the city of Springfield enacted an ordinance giving an honorary plaque to each retiree upon retirement, that benefit would “flow from” membership in the system and could never be terminated. Justice Burke argues that nothing in the convention debates or the Court’s previous cases supports reading the clause so broadly.

Justice Burke concludes by expressing concern with the majority’s disposition of the case. The majority merely holds that premium subsidies are protected by the Pension Protection Clause, she argues. It still remains to be seen whether the 2012 amendments “impaired” that benefit in violation of the Clause. According to Justice Burke, the defendants might still prevail with respect to the Pension Clause claim. What then of the other claims? Has their dismissal been affirmed by the Court, or can the plaintiffs pursue them below?

Turning to my own take on the decision, although it’s true that the majority never expressly finds that the 2012 amendments impaired the premium subsidy benefit, the defendants may find persuading the Circuit Court that it was not a considerable challenge. Although a number of legal arguments have been published in recent years arguing for a narrow interpretation of what “impaired” means in terms of the Clause, the best chance for reform proponents to successfully defend the 2012 amendments has probably always been a narrow interpretation of what constitutes a “benefit” of membership. Today, the door on that argument was decisively slammed shut. Kanerva is likely to cast a long shadow on the continuing litigation relating to the 2013 pension reform act.

Image courtesy of Flickr by 401kCalculator.

Big Day Tomorrow - Two Public Pension Opinions Coming From the Illinois Supreme Court

The Illinois Supreme Court has announced that opinions in two cases addressing public employee pensions, Kanerva v. Weems and People ex rel. Madigan v. Burge, will be filed tomorrow morning at 9:00 a.m.  With the Governor having signed a comprehensive state pension reform act only eight months ago, the opinions - Kanerva in particular - might provide a first look at how the Court will approach claims that pension reform violates the Pension Clause of the state constitution.

The issues presented are:

Kanerva: Do the 2012 amendments to the State Employee Insurance Act, 5 ILCS 375/1, violate (1) the Pension Protection Clause, Ill. Const. Art. XIII, Section 5; (2) the Contracts Impairment Clause, Ill. Const. Art. I, Section 16; (3) separation of powers; or (4) the State Lawsuit Immunity Act, 745 ILCS 5/1?

Burge: May the Attorney General challenge the actions of the Police Pension Board through a separate lawsuit in the Circuit Court, or are the Board's actions subject to review only by routine administrative review?

Our summary of the facts and underlying court opinions in Kanerva is here. Our report on the oral argument is here. Our preview of Burge is here, and our report on that oral argument is here.

As of tomorrow, Kanerva will have been pending for 288 days since oral argument. Burge has been pending for 162 days. In 2013, the average days from argument to decision for unanimous decisions was 103.7 days. Non-unanimous decisions averaged 185.79 days under submission.

We’ll be back tomorrow afternoon with our first thoughts on the decisions.

Image courtesy of Flickr by Simon Cunningham.

Illinois Supreme Court Debates Damages Measures for Malpractice in Securities Cases

Our reports on the oral arguments from the May term of the Illinois Supreme Court continue with Goldfine v. Barack, Ferrazzano, Kirschbaum and Perlman. Goldfine poses a number of issues about legal malpractice actions arising under the Illinois Securities Law. Based on the number and tenor of the Court’s questions, several Justices seemed troubled by the breadth of the First District’s decision. Our discussion of the underlying facts and lower court holdings in Goldfine is here.

The plaintiffs in Goldfine made twelve separate purchases between 1987 and 1990 of a certain company’s stock. In the spring of 1991, the company filed for bankruptcy and the stock became worthless. The plaintiff retained the defendants to identify possible claims and negotiate a settlement, while preserving the claims for possible litigation once the plaintiffs found a contingency-fee lawyer to bring the suit.

The plaintiffs’ theory was that at the time they retained the defendant firm, they had a viable claim for rescission under the Illinois Securities Law. But to preserve that claim, they had to serve a notice of rescission within six months of learning of their right to the remedy – and they didn’t. So when the claim was finally filed in 1992, it was dismissed as time barred.

The plaintiffs filed their malpractice claims in 1994. Once the underlying merits litigation over the stock purchases was finally concluded, the malpractice case proceeded to a bench trial. The court held that the final eleven stock purchases had violated the Illinois Securities Law. The court calculated damages as follows: total price, minus a prorated share of the plaintiff’s $3.2 million settlement in its suit over the stock purchases (although the Securities Law claim was lost, various other claims were preserved), plus 10% interest on each stock purchase as of the day of purchase. Finally, the court awarded a further 40% as attorneys’ fees and costs.

The Appellate Court reversed the judgment in part. The Court held that there was no basis under the statute (815 ILCS 5/13(A)) for reducing the value of each stock purchase by a prorated share of the plaintiff’s recovery from other sources before calculating interest. The court also rejected the defendants’ claim that the award of attorneys fees and costs was punitive in nature, and thus violated the bar on awarding punitive damages in malpractice actions.

Justice Robert E. Gordon dissented in part, pointing out that by refusing to allow an offset for the plaintiffs’ 2007 merits settlement, the Court was in effect holding that the $3.2 million merits settlement continued to bear interest from the defendants for seven years after the plaintiffs received it.

Counsel for the defendants began by pointing that damages in the action are $1.3 million, but the plaintiff nevertheless is seeking another $18-21 million in statutory interest and fees. Counsel argued that the interest and fees provisions upon which plaintiff relies are clearly tied to a violator’s ability to stop interest and fees from accruing by rescinding a transaction and returning the purchase price. Since an attorney representing the buyer can’t do that, the interest and fees provisions necessarily don’t apply to calculating damages against the attorney. Because the attorney has no ability to rescind and stop the interest and fees from increasing, such an award was necessarily punitive as against counsel. Justice Thomas asked how the defendant addressed the fact that interest runs from the date of the purchase, not the date of the judgment, and is based on the amount of the investment – suggesting that it’s compenatory? Counsel answered that the provisions were compensatory with respect to an actual violator of the Securities Law, but not as to an attorney. Statutes in derogation of the common law must be interpreted strictly, counsel argued, and applying that rule here required finding that the interest and fees clauses of the Law don’t apply. Justice Burke asked whether such awards were needed to make defendants whole. Counsel responded that the Court has often held that plaintiffs have been made whole without an award of interest and fees. Such cases take time to litigate, counsel argued – Goldfine itself is 22 years old. If one applies the interest and fees provisions to a lawyer, interest awards will far exceed actual damages, and counsel can’t do anything about it, since he or she can’t rescind the purchase. Chief Justice Garman asked whether any interest award at all was permitted against the lawyer. Counsel answered that none was available under the Securities Law. Although no other source of interest was available in this case, in a given case interest awards might be available pursuant to a written agreement or on equitable grounds. The Chief Justice repeated Justice Burke’s question, asking about the need to make the plaintiff whole. Counsel once again argued that the Court has repeatedly affirmed verdicts without interest or fees. Applying that concept out of context against a lawyer transforms interest and fees into quasi-punitive damages. Counsel pointed out that both the state and Chicago Bar Associations filed amicus briefs in the case supporting the defendant and worrying about the impact of an affirmance on malpractice premiums and attorneys’ willingness to take similar cases. Justice Thomas asked whether the defendant’s position was that the plaintiff was merely entitled to the interest it could have received from the securities defendant back in 1991. Counsel answered that even if the Act applied, the plaintiffs never made an adequate showing that they would have achieved a judgment or a settlement under the Securities Law. Thus, the malpractice claim failed for failure of proof. Even if the claim were upheld, interest would only accrue on the plaintiffs’ actual damages from the alleged malpractice – the $1.2 million not recovered in the merits settlement.  Justice Burke asked whether Justice Gordon’s dissent was based on equity or the language of the statute. Counsel answered that the dissent was based on the settled rule that statutes shouldn’t be interpreted to reach absurd results – such as awarding interest on the $3.2 million settlement for the seven years since it was received.

Counsel for the plaintiff began by noting that the plaintiffs had lost $5 million in all. The Securities Law is remedial in nature, intending to make a wronged party whole. Justice Thomas noted that plaintiffs were seeking more than twenty years’ worth of interest – was that what plaintiffs would have recovered if the Securities Law claim had been properly preserved? Counsel answered that plaintiffs would have received interest calculated from the day the broker purchased the stock until it paid the judgment. Counsel argued that the notion of recovering from the broker was “illusory,” since wealthy parties generally appeal. Justice Thomas asked counsel how he addressed the argument that the statute shouldn’t apply because the defendants were unable to prevent the ongoing accumulation of interest. Counsel responded that the argument was ridiculous – the defendants could have settled. Justice Burke asked whether there was any legal support for the view that attorneys fees and costs are not available in a legal malpractice case. Counsel answered that there was none. The defendants didn’t seek to intervene in the underlying case, counsel argued – with a single exception. They tried to intervene, counsel argued, in settlement negotiations merely in order to listen to the discussions. Justice Theis asked counsel why interest shouldn’t accrue post-2007 only against the unpaid portion of the $5 million loss. Counsel responded that the defendants had insisted that the $3.2 million settlement had nothing to do with malpractice damages, and now they want an offset for it. The statute is not ambiguous, counsel argued. Would the plaintiffs receive interest on money they had for seven years – yes, but that’s what the statute says. Justice Theis asked why the interest doesn’t stop running in 2007, at the time of the merits settlement. Counsel responded again that that’s not what the statute says. The defendants were responsible for the lengthy wait, counsel argued – they insisted that the malpractice case should wait until the merits case concluded. Justice Kilbride asked whether the order staying the malpractice case was agreed, or did the plaintiffs oppose it. Counsel answered that the plaintiffs had moved to transfer the malpractice case from the Law Division to the Commercial Calendar, and the defendants’ price for agreeing to that was that the case be stayed until the merits case was finished. Justice Theis asked whether the details of the negotiations were in the record, and counsel responded that the order reflects that it was by agreement, and the result of negotiation.

Counsel for the defendants argued that the defendants was sought a stay in 1996 on the grounds that the case wasn’t ripe until the merits case was over. Counsel addressed Justice Burke’s question about whether there was authority rejecting awards of fees and costs in malpractice actions, saying that there was: Tri-G, Inc. v. Burke, Bosselman & WeaverIn response to Justice Theis’ earlier question about interest ending in 2007, counsel pointed out that the statute is entirely silent about attorneys – suggesting that it was never intended to apply. Turning to Justice Thomas’ earlier question, counsel pointed out again that the statute expressly links interest and fees to the right to rescind. Counsel denied that the defendants had any realistic opportunity to settle, since actual damages hadn’t been determined until 2007. Counsel briefly addressed the amicus brief filed by the State, pointing out that it says nothing about lawyers. Counsel suggested that the State’s concern is solely that interest and fees might become discretionary with respect to wrongdoers themselves, as opposed to tortfeasors-once-removed such as attorneys. Counsel concluded by asking that the judgment should be modified to $1.3 million – the portion of the actual losses not recovered in the 2007 settlement – and affirmed.

Image courtesy of Flickr by 401kCalculator.

Florida's High Court Limits Role of Senior Judges Serving as Mediators


On June 19, 2014, the Florida Supreme Court amended the Code of Judicial Conduct and six rules of procedure relating to senior judges who also serve as mediators.  To view the opinion click here. 

Senior judges were first authorized to perform dual service when a new Code of Judicial Conduct was adopted in 1994.  In its opinion, the Court described its ongoing concern that senior judges who serve as private mediators could potentially be seen as violating the Code, particularly as it relates to impropriety, exploitation of judicial position, and the impermissible lending of the prestige of judicial office to advance the private interests of others.  In view of this, the Court previously published for comment amendments to the Code and rules that would have prohibited dual service.

Responding to significant opposition to the proposed prohibition, the Court decided to allow senior judges to continue to serve as mediators. To address its concerns, however, the Court chose to add two new provisions to the Code and rules:

                       Senior judges are now prohibited from serving as a mediator in any case in a judicial circuit where they preside as a judge.

                       The mediation firm affiliated with the judge is required to follow the same prohibitions on advertising and promotion that are imposed on the judge.

The Court characterized these amendments as two additional safeguards to further alleviate the concern that dual service inappropriately creates an advantage in generating mediation business.  

These changes will become effective on October 1, 2014.


Illinois Supreme Court Debates Public Construction Bond Act

Our reports on the oral arguments from the May term of the Illinois Supreme Court continue with Lake County Grading Company, LLC v. The Village of Antioch. Lake County – which comes to the Court from the Second District – poses the question of whether subcontractors can look to local governments for payment when the general contractor on a public works project goes bankrupt. Our detailed look at the facts and lower court holdings in Lake County is here.

Lake County revolves around building projects in two residential subdivisions. The general contractor provided surety bonds based on the cost of the improvements, as required by the Public Construction Bond Act:

[Any political subdivision of the State] . . . in making contracts for public work of any kind costing over $50,000 to be performed for . . . any political subdivision thereof, shall require every contractor for the work to furnish, supply and deliver a bond to . . . the political subdivision thereof entering into the contract, as the case may be, with good and sufficient sureties. The amount of the bond shall be fixed . . . and the bond, among other conditions, shall be conditioned for the completion of the contract, for the payment of material used in the work and for all labor performed in the work, whether by subcontractor or otherwise .l . .

Each such bond is deemed to contain the following provisions whether such provisions are inserted in such bond or not:  "The principal and sureties on this bond agree that all the . . . terms, conditions and agreements of the contract or contracts entered into between the principal and . . . any political subdivision . . . will be performed and fulfilled and to pay all persons, firms and corporations having contracts with the principal or with subcontractors, all just claims due them under the provisions of such contracts for labor performed or materials furnished in the performance of the contract on account of which this bond is given, when such claims are not satisfied out of the contract price of the contract on account of which this bond is given . . .


The GC provided the Village with bonds, but they were performance bonds only: they said nothing about payment.

Even after the GC stopped work on the project (ultimately it declared bankruptcy), the subcontractor delayed sending out lien notices, hoping to protect its working relationship with the GC. More than 180 days after its last completed work, it finally got the liens filed. Sometime later, it sued the Village. Lake County came to the Court on two counts of the sub’s complaint – for third party beneficiary breach of contract, based on the Village’s failure to require payment bonds from the GC.

One of the central questions in Lake County turns on whether the language above automatically incorporates a payment obligation into bonds provided pursuant to the Act whether or not it’s stated.  If so, then the sub had a remedy under the Act, and since it waited more than 180 days to file its lien, its claim against the Village is barred. The Second District affirmed judgment for the sub on different grounds, holding that language in the basic contract between the GC and the Village empowering the GC to hire subcontractors was sufficient to make the sub a third-party beneficiary of the contract with standing to sue for breach.

Counsel for the Village began the argument, noting that the Court has not addressed the Act in fifty years. Counsel pointed out that although lower courts had suggested that the Act requires a payment bond, but in fact the statute never uses the term. Nevertheless, the terms of the Act are automatically read into any bond obtained pursuant to the Act. Justice Burke asked whether the plaintiff was suing to enforce the Bond Act. Counsel responded that the cause of action was based on the Act. Justice Burke asked whether there was evidence in the agreement between the GC and the Village that the sub was an intended third party beneficiary. Counsel said no, the Appellate Court had relied on a fragment of one sentence to find such an intent. In fact, the contract merely says that the GC can retain subs without competitive bidding – it says nothing about who pays. Justice Burke asked why a subcontractors term would be in the contract at all if there weren’t some sort of agreement that subcontractors would be involved. Counsel answered that nevertheless, there was no provision in the contract for the public entity which owned the property to assure payment to subcontractors. Moreover, even if the sub was a third-party beneficiary of the contract, any claim for breach was barred by failure of notice. Justice Karmeier asked whether the subcontractor could proceed against the bond, or against the Village. Counsel answered the bond only. He argued that the plaintiff had failed to comply with the conditions precedent for making a claim under the bond – specifically, making a claim within 180 days of stopping work. Having failed to do so, all rights under the Act were lost.

Justice Thomas asked whether the Village’s position was that since a payment provision was incorporated into the bond, there was no separate action under the contract. Counsel agreed that was so; the Village had satisfied its only obligations by requiring the bond. Chief Justice Garman pointed out that there is a provision in the Bond Act stating that remedies under the Act are cumulative – what impact did that have? Counsel argued that there were no other remedies against the Village for the plaintiff to rely upon – the Village’s only obligation was to require the bond from the GC, and a payment guarantee was written into that bond by operation of law. Justice Karmeier pointed out that the Appellate Court had found that the statute of limitations for a third party beneficiary claim was four years, not 180 days. Counsel again asserted that the Court had focused on part of one sentence – taken in context, the contract does not support a finding that any sub was a third party beneficiary of the contract with the GC. Justice Karmeier asked whether the Village’s position was that the plaintiff was not a third party beneficiary, but even if they were, the bond protected the Village from the suit. Counsel agreed that it was, and the plaintiff’s claim on the bond was barred by its delay.

Counsel for the subcontractor followed. The 1500 unit single family development was not a traditional public works project, counsel noted. There was no public bidding or money involved; financial bonds were created to pay for the project. Justice Thomas asked why a payment obligation wasn’t written into the bond by operation of law through the Act. Counsel responded that it simply was not; the Act says nothing about payment.   Justice Theis pointed out that the Act requires a bond of fixed amount. If either of the two conditions set forth in the statute aren’t expressed in the bond, they’re automatically incorporated. Why didn’t that mean that a payment obligation was there? Counsel answered that the Act requires that the bond be conditioned on two things: one, protecting the taxpayer (a performance guarantee), and two, protecting the sub. But it says nothing about payment. Justice Theis again asked why that language wasn’t incorporated automatically. Counsel explained that a bond would only qualify as “each such bond” under the statute if it had a provision for payment.   Justice Thomas noted that the Act states that “such bond shall be conditioned on completion of the work.” Didn’t “completion of the work” sound like performance? Counsel agreed that it did, but that wasn’t a payment guarantee. Justice Thomas asked if a bond spelled out a performance requirement, why did the Act need a further provision saying that provisions not in the bond are incorporated – why wasn’t payment part and parcel of a performance bond? Counsel answered that there was no basis for concluding that the legislature had intended to create a payment bond with a performance bond. Justice Thomas followed up on counsel’s argument, asking why, if a bond expressly stating “you have to pay,” it would be necessary to further state that anything omitted is automatically incorporated? Why wouldn’t payment be incorporated from an express requirement of performance? Counsel answered that the reason was to cover any shortcomings of performance or payment bonds – but it was still necessary for the bond to expressly require payment. Chief Justice Garman asked whether counsel was arguing that the legislature contemplated multiple bonds for each project. Counsel answered no – two separate bonds could be written, or both obligations could be covered in one – but the payment obligation had to be express. Justice Theis pointed out that the surety who issued the bond had agreed that the bond was sufficient for performance and payment. Counsel disagreed; the bond must expressly be conditioned on payment to trigger the statute. Justice Theis asked if counsel was arguing that even a surety issuing a performance bond hasn’t guaranteed payment. Counsel agreed that was so. Justice Karmeier concluded by asking whether, if the Court disagrees with counsel’s interpretation of the bond and the Act, the subcontractor has any other avenue of the recovery. Counsel answered no.

In rebuttal, counsel for the Village argued that the key language was the first sentence of Section 550/1 of the Act. The Act only deals with contracts for public works. Once those bonds are issued, performance and payment guarantees are incorporated automatically. The Village fully complied with its obligations by obtaining the bond. The sub had 180 days to pursue payment under the bond. They deliberately chose not to do so, and their rights were now forfeited.

We expect Lake County to be decided in four to six months.

Image courtesy of Flickr by Salim Virji

Illinois Supreme Court Holds Wrongful Death Attorney Owes Duty to Decedent's Beneficiaries

A unanimous Illinois Supreme Court added a new complication for plaintiffs’ counsel handling wrongful death cases late last week, unanimously holding in In re Estate of Perry C. Powell that an attorney representing the decedent in a wrongful death action owes a duty of due care akin to the duty owed his direct client – the representative of the estate – to the decedent’s beneficiaries.

The plaintiff in Estate of Powell was adjudicated a disabled adult in 1997. Two years later, his father died as a result of complications following surgery. The plaintiff’s mother retained the defendants to pursue a wrongful death action. Not long after that, the mother was appointed special administratrix of the plaintiff’s estate.

The wrongful death action was settled in two phases in 2005. The first settlement amounted to about $15,000, and was distributed equally between the mother, the plaintiff and the plaintiff’s sister. The sister waived her rights in the second settlement, and as a result, the mother and the plaintiff each received about $118,000. In both cases, the mother placed both her own and the plaintiff’s shares in a joint account. In neither case did the settlement order provide that the plaintiff’s portion was to be administered and distributed under the supervision of the probate court, nor was a guardian of his estate appointed to receive the money. The plaintiffs alleged that the one of the defendants advised that it would be “too much trouble” to go to the probate court to distribute the settlement, and thereafter whenever the plaintiff needed to withdraw funds.

About three years later, the sister became concerned about her brother. She asked the probate court to remove her mother as guardian, and the court did so, appointing the public guardian to supervise the plaintiff’s estate at the same time. It was later discovered that only $26,000 remained in the joint account. The mother has allegedly never provided any accounting of how the money was spent.

The public guardian filed suit on behalf of the disabled son against the wrongful death counsel, alleging that had the attorneys handled the settlements through the Probate Court as purportedly required, he would still have access to the money. The Circuit Court dismissed on the grounds that the defendants owed no duty to the son, but the Appellate Court reversed with respect to the second, larger settlement.

In an opinion by Justice Freeman, the Supreme Court affirmed. The Court noted that although attorneys traditionally owe a duty of care solely to their clients, the law has long recognized an exception where a third party is an intended beneficiary of the relationship between the client and the attorney. That question depends on whether the attorney is acting at the direction of the client to benefit or influence the third party.

Beneficiaries of a wrongful death decedent easily fit that test, the Court found. The personal representative in such an action is merely a “nominal party,” filing suit essentially as a statutory trustee on behalf of the surviving spouse and next of kin, the real parties in interest – who are barred from bringing suit themselves. Since the underlying purpose of a wrongful death action is to compensate the decedent’s beneficiaries for their loss, the Court concluded, the attorney representing the plaintiff in the action owed a duty of due care to the beneficiaries.

One of the major themes at oral argument in Powellwas the risk that extending the attorney’s duty to the beneficiaries might open up the possibility of conflicts among heirs. The Court declined to address the issue, noting that nobody had alleged a specific conflict in the case at hand.

The Court then applied its holding to the plaintiff’s allegations. Since the Probate Act does not require recoveries less than $5,000 to have court supervision, the Court concluded that the plaintiffs could not establish that any negligence by counsel had harmed the plaintiff with respect to the first settlement. However, the second, larger settlement did require the Probate Court’s supervision. Therefore, the Court concluded that the plaintiffs had stated a claim for legal malpractice with respect to that claim. Accordingly, the Court affirmed the Appellate Court in all respects.

Image courtesy of Flickr by Alexander Cunningham.

Illinois Supreme Court Holds Custodial Parent May Be Ordered to Pay Child Support

In child custody cases where the parent awarded primary custody of the children has significantly greater resources than the non-custodial parent, can a court order the custodial parent to pay child support to the non-custodial parent? Late last week in In re Marriage of Turk, a unanimous Illinois Supreme Court held that the answer is “yes.”

The parents in Turk divorced in 2005. According to the judgment, while the parties had joint custody of their two children, the children would reside with the mother. The father was required to pay maintenance and child support for 42 months, as well as to provide medical insurance and cover half of their out-of-pocket medical and dental costs.

Five years later, the court granted temporary physical custody of the children to the father, limiting the mother’s visitation, and made a one-time reduction in child support. Shortly after, the father petitioned to end his child support obligation entirely, but that petition ultimately was resolved in an agreed order providing that the father should continue to pay a monthly sum in child support.

Intermittent litigation continued between the parents for the next two years. In 2012, the Circuit Court entered an agreed order awarding the father sole physical custody of the two children. The order provided limited visitation with the older son and nearly equal time with the younger son. In a separate order, the Court ordered the father to pay the mother continuing child support as well as covering out-of-pocket medical and dental expenses. The court based its order on a finding that the father’s income substantially exceeded the mother’s.

The father appealed, arguing that the Circuit Court lacked any authority under the Marriage and Dissolution of Marriage Act to order a custodial parent to pay child support to a non-custodial parent. The Appellate Court disagreed, but ultimately reversed and remanded for recalculation of the amount of the child support payment.

In an opinion by Justice Karmeier, the Supreme Court affirmed the Appellate Court in most respects. The Court concluded that Section 505(a) of the Act conferred authority on court to “order either or both parents owing a duty of support to a child of the marriage to pay an amount reasonable and necessary for the support of the child.” 750 ILCS 5/505(a). The Court noted in support of its conclusion the statutory factors by which a court judges when it should deviate from the statutory formula for calculating support, noting that nothing in the factors made the simple assignment of custody dispositive. At oral argument, counsel for the father emphasized that many sections following Section 505 refer expressly to non-custodial parents, but the Court concluded that these provisions were merely intended to address the “heightened difficulties in insuring that noncustodial parents fulfill their child support obligations.”

The Court pointed out that an absolute rule barring an award of child support to a non-custodial parent might frustrate the aims of the statute in cases where the non-custodial parent had substantially less income. The statute is intended to protect the right of children to be supported by their parents in a way commensurate with their income. But where resources were seriously imbalanced, a noncustodial parent might well be unable to provide for a child during visitation periods at anything approaching the same level without an award of support.

The Court reversed only with respect to one relatively small part of the award – the allocation of 100% of the children’s out-of-pocket medical and dental expenses to the father. The Court concluded that such amounts could not be addressed in the abstract, but had to be allocated pursuant to the same formula, accounting for the parents’ income, as the children’s other needs.

Justice Theis specially concurred, with Justice Thomas joining her opinion. Justice Theis concluded that although nothing in the statute barred an award of support to a non-custodial parent, the Circuit Court had erred by simply applying the child support guidelines to the income of the wealthier parent in order to calculate the amount due. Such a procedure ignored the statutory command that support is a duty of both parents, regardless of income. Justice Theis concluded that the Circuit Court should have first determined, using the guidelines, the appropriate amount of support which the non-custodial mother should have paid to the father. Then, the Court should consider whether a deviation downward was appropriate, keeping the best interests of the children as the foremost consideration, with the Court free to conclude that the father should more appropriately pay the mother.

Image courtesy of Flickr by Rusty Clark.

The Iskanian Decision: California Supreme Court Partly Retreats on Arbitration

Yesterday, the California Supreme Court at least partially retreated from a long-standing reluctance to enforce many business arbitration agreements. In an opinion by Justice Goodwin Liu, a 6-1 court affirmed in most respects the decision of the Court of Appeal in Iskanian v. CLS Transportation Los Angeles LLC, including on the crucial point of class action waivers. The Court reversed only with respect to the enforceability of complete waivers of statutory actions under the Private Attorneys General Act (“PAGA”). Our pre-argument previews of Iskanian, reviewing the voluminous briefing by the parties and amici as well as the facts and lower court decisions, are here, here, here, here and here.

The plaintiff in Iskanian worked as a driver for the defendant for nearly a year and a half in 2004 and 2005. Halfway through his employment, he signed an agreement providing that “any and all claims” arising out of his employment were to be submitted binding arbitration before a neutral arbitrator. The arbitration provisions themselves were quite reasonable, providing for discovery, a written reward and judicial review of the award. The employer agreed to pay all costs unique to arbitration. Finally, the agreement included a blanket waiver of class and representative actions, regardless of the forum.

A year after leaving his employment, the plaintiff filed a class action complaint against the defendant in court, alleging failure to pay overtime, provide meal and rest breaks, reimburse business expenses, and various other alleged violations of the Labor Code. The defendant promptly moved to compel arbitration, and the trial court granted the motion.

But while the defendant’s petition was pending before the Court of Appeal, the Supreme Court handed down Gentry v. Superior Court, which held that class action waivers in employment contracts were in most cases unenforceable. The Court of Appeal directed the superior court to reconsider its ruling in light of Gentry, and the defendant acknowledged that it couldn’t prevail under the Gentry test by dropping its motion to compel arbitration.

Four years later, the United States Supreme Court issued AT&T Mobility LLC v. Concepcion, holding that the California Supreme Court’s Discover Bank rule, which invalidated many class action waivers in consumer contracts, was preempted by the Federal Arbitration Act. The defendant immediately renewed its motion to compel arbitration. The plaintiff insisted that Gentry survived Concepcion, but the trial court granted the motion to compel, and the Court of Appeal affirmed.

The majority opinion begins by determining the central question of whether Gentry survived Concepcion. The answer, the Court found, was no. The plaintiff had argued that Gentry was materially different from Discover Bank in that Discover Bank had barred almost all class action waivers, whether or not they disadvantaged consumers, while Gentry mandated a case-by-case approach. The majority held that it didn’t matter, noting the Supreme Court’s holding in Concepcion that states can’t require a procedure that interferes with the basic attributes of arbitration, even if it seems desirable for other reasons. The court noted, however, that it was not receding from dicta in its 2013 decision in Sonic-Calabas, which noted that states were free to hold employee arbitration provisions unconscionable where they failed to provide for certain procedural protections.

The majority then turned to the plaintiff’s claim that requiring class action waivers as a condition of employment violated the National Labor Relations Act, which protects collective action by employees. The National Labor Relations Board had so held in 2012 in D.R. Horton, but the Fifth Circuit rejected the Board’s holding the following year. The California Supreme Court rejected Horton as well.

The Board had held that class action waivers were permissible under the FAA’s savings clause, which allows defenses which are equally applicable to litigation and arbitration contracts. The Court disagreed, noting that the Supreme Court had clearly said in Concepcion that class action waivers interfere with fundamental attributes of arbitration and are therefore inconsistent with the FAA, even where they do not discriminate against arbitration contracts on their face. Nor was the Court impressed by the argument that the NLRA was enacted after the FAA, so it should prevail in any conflict between the statutes. The NLRA was enacted many years before the advent of modern class action practice, the majority pointed out, so it was difficult to argue that it had much to say about a civil procedure that largely hadn’t been invented yet.

Next the Court turned to a portion of the opinion which many observers will likely overlook, but which is likely to have considerable import in a variety of cases moving forward. The plaintiff had argued that the defendant had waived its right to arbitration by litigating for roughly four years between Gentry and Concepcion. The defendant responded that any petition for arbitration was futile in the wake of Gentry, but the plaintiff responded that futility had never been adopted as part of California’s standard for waiver. However, “futility as grounds for delaying arbitration is implicit in the general waiver principles we have endorsed,” the majority found. Even though a scattered few motions to compel arbitration had succeeded after Gentry, the Court found that a party could potentially avoid waiver where a motion was “highly unlikely to succeed.”

Finally, the Court addressed the PAGA issue. PAGA had been enacted, the Court found, in response to a governmental problem: too few tax resources chasing too many Labor Code violations. Even though only “aggrieved employees” could bring representative PAGA actions, the Court found that the State – which receives three quarters of any recovery and is bound by any judgment – is the real party in interest. As such, the Court analogized PAGA actions to the classic qui tam cause of action. Against that background, the Court held that the right to bring a PAGA action could not be waived, given that at least two provisions of California law expressly bar waiving the advantage of laws intended to protect the public interest.

Nor was a ban on PAGA waivers preempted by the FAA, the majority found. This was so, according to the Court, because a PAGA claim was not a dispute between an employer and an employee arising out of their contractual relationship – it was a dispute between the employer and the State arising out of alleged Labor Code violations. Nothing in the FAA suggested that Congress intended to foreclose qui tam actions, a cause of action reaching back to the dawn of the republic, long before the FAA.

The majority opinion concludes with the question of what comes next. The plaintiff wanted to litigate everything in court, the defendant wanted to arbitrate all individual claims and bar PAGA claims altogether. Neither had gotten everything they wanted. There was no real basis in the agreement to decide whether the parties would prefer to litigate or arbitrate the PAGA claim. So the majority punted the remaining issues back to the Court of Appeal, and ultimately in all likelihood the trial court: (1) Can the parties agree on a PAGA forum; (2) Should the claims be bifurcated; (3) If so, should the arbitration be stayed pending litigation of the PAGA claim in court; (4) Are the plaintiff’s PAGA claims time-barred, or did the defendant waive that claim?

The concurring opinion by Justice Ming Chin, joined by retiring Justice Marvin Baxter, is of interest as well. Justice Chin concurs with the majority’s result in all respects, but disputes the reasoning in a couple of ways. First – having dissented in Sonic-Calabasas - he disputes the view that its unconscionability standard can be reconciled with U.S. Supreme Court law on arbitration. Second, although he agrees that the PAGA waiver cannot stand, he disputes most aspects of the majority’s reasoning. Justice Chin rejects the notion that a PAGA claim isn’t a dispute between employer and employee. He describes as “novel” the theory that PAGA claims are actually disputes between the employer and the State, and suggests a far simpler reason for striking the PAGA waiver. The waiver was invalid, he writes, because it purported to give up the right to pursue a PAGA claim anywhere. The United States Supreme Court has noted that global waivers of statutory rights may still be invalidated without running afoul of the FAA. Nor does Justice Chin entirely agree with the idea that the FAA has no impact at all on quasi-qui tam actions.

Justice Kathryn Werdegar wrote a lone dissent. Although she agreed that the plaintiff’s PAGA waiver was unenforceable, she argued that the class action waiver was unlawful as well. Justice Werdegar analogized waivers of class actions in employment contracts to nineteenth century style “yellow dog contracts” barring collective action by employees. Such contracts had been illegal for “eight decades,” Justice Werdegar wrote, and there was no basis for holding that the FAA had changed that: since class action waivers were banned across the board, regardless of the type of contract they appeared in, they fit within the FAA’s savings clause authorizing defenses which “exist at law or in equity for the revocation of any contract.”

The lessons of Iskanian seem relatively clear. Employers have a powerful new tool to persuade lower courts, some of which have been resistant to arbitration even while Iskanian was pending, to enforce arbitration agreements even where they include class action waivers. Although an agreement to waive PAGA rights in all forums will not be enforced, it seems that an agreement to arbitrate PAGA claims would be upheld by the Court. And finally, although preserving a party’s rights early and often is nearly always the best course (and waiver disputes are always highly fact-driven), California appears to have adopted the common-sense view that parties may not necessarily be obligated to bring a motion with virtually no chance of prevailing simply in order to preserve the defense.

Image courtesy of Flickr by Alden Jewell.