Florida Supreme Court Strikes Down Wrongful Death Non-Economic Damages Cap for Med Mal Cases

 

On March 13, 2014, the Florida Supreme Court, in a 5-2 ruling, issued its long-awaited opinion following review of the Eleventh Circuit Court of Appeal’s decision in Estate of McCall v. United States, 642 F.3d 944 (11th Cir. 2011), and answered the following rephrased certified question in the affirmative:

Does the statutory cap on wrongful death noneconomic damages, Fla. Stat. §766.118, violate the right to equal protection under Article I, Section 2 of the Florida Constitution?

 

The Supreme Court did not address three additional questions certified by the Eleventh Circuit.

 

To read the Court’s opinion, click here. 

 

Background and Earlier Court Proceedings

Hours after giving birth, Michele McCall went into shock and cardiac arrest as a result of severe blood loss.  She never regained consciousness and was removed from life support. The Estate of Michele McCall, Mrs. McCall’s parents, and the father of Mrs. McCall’s son sued the United States under the Federal Tort Claims Act, as Mrs. McCall’s care took place at a military hospital.  The United States District Court for the Northern District of Florida found the United States liable and determined that the plaintiffs’ economic damages totaled $980,462.40 and that their non-economic damages totaled $2,000,000.00.  However, the district court limited the plaintiffs’ total recovery of non-economic damages to $1,000,000.00 pursuant to Florida Statutes §766.118(2) (2005), which imposes a cap on wrongful death non-economic damages in medical malpractice cases. 

 

§766.118(2) provides:

 

(2) Limitation on noneconomic damages for negligence of practitioners.--

 

(a) With respect to a cause of action for personal injury or wrongful death arising from medical negligence of practitioners, regardless of the number of such practitioner defendants, noneconomic damages shall not exceed $500,000 per claimant. No practitioner shall be liable for more than $500,000 in noneconomic damages, regardless of the number of claimants.

 

(b) Notwithstanding paragraph (a), if the negligence resulted in a permanent vegetative state or death, the total noneconomic damages recoverable from all practitioners, regardless of the number of claimants, under this paragraph shall not exceed $1 million. In cases that do not involve death or permanent vegetative state, the patient injured by medical negligence may recover noneconomic damages not to exceed $1 million if:

 

1. The trial court determines that a manifest injustice would occur unless increased noneconomic damages are awarded, based on a finding that because of the special circumstances of the case, the noneconomic harm sustained by the injured patient was particularly severe; and

 

2. The trier of fact determines that the defendant's negligence caused a catastrophic injury to the patient.

 

(c) The total noneconomic damages recoverable by all claimants from all practitioner defendants under this subsection shall not exceed $1 million in the aggregate.

 

On appeal to the Eleventh Circuit, the plaintiffs argued that the statutory cap violates the Equal Protection Clause and constitutes an unlawful taking.  They also asserted that the cap violates numerous provisions of the Florida Constitution.  The Eleventh Circuit held that §766.118 does not constitute a taking in violation of the Florida Constitution and that it does not violate either the Equal Protection Clause or the Takings Clause of the U.S. Constitution.  However, the court certified to the Florida Supreme Court four questions regarding the remaining challenges to the statutory cap under the Florida Constitution.

 

Supreme Court Proceedings

The Florida Supreme Court found that §766.118 violates the Equal Protection Clause of the Florida Constitution, which provides that all natural persons are equal before the law, because the cap on wrongful death non-economic damages imposes unfair, illogical burdens on injured parties when medical negligence gives rise to multiple claims.  Claimants in cases involving multiple claims do not receive the same rights or full compensation as compared to claimants in cases involving one claim.  In this case, three separate non-economic damage determinations were assessed by the district court.  The damages suffered by Mrs. McCall’s parents were determined to be $750,000.00 each and the damages suffered by Mrs. McCall’s surviving son were determined to be $500,000.00.  Applying the caps, the federal court reduced these amounts so that each claimant would receive only half of his or her respective damages.  However, if Mrs. McCall had been only survived by her son, he would have recovered the full amount of his non-economic damages:  $500,000.00.  Thus, the cap limited the recovery of a surviving child simply because others also suffered losses. 

 

The Court stated that in addition to causing discrimination between classes of claimants, the caps also violate Florida’s Equal Protection Clause because they bear no rational relationship to a legitimate state objective.  In analyzing this issue, the Court analyzed at length the Florida Legislature’s justification for the caps – the alleged medical malpractice insurance crisis in Florida – and found that there was no support for such a conclusion.  Moreover, even if there were such a crisis, there was no evidence that the statutory caps alleviated the crisis.  Finally, even if there were a crisis when §766.118 was enacted, no rational basis existed to justify the continued use of the caps. 

 

Conclusion

 

In sum, the Court held that the caps on wrongful death non-economic damages set forth in §766.118 violate the Equal Protection Clause of the Florida Constitution.  As the Court made clear, however, “The legal analyses for personal injury damages and wrongful death damages are not the same.  The present case is exclusively related to wrongful death, and our analysis is limited accordingly.”  As such, the Court’s opinion is not applicable to the caps in place when a medical malpractice claimant does not die.

 

 

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Florida High Court Liberally Construes Self-Insured Retention Endorsement

 

             On February 6, 2014, the Florida Supreme Court took a liberal view of self-insured retentions (SIRs) and held that an insured can apply indemnification payments from a third party to satisfy its SIR under a general liability policy.  See Intervest Constr. of Jax, Inc. v. Gen. Fid. Ins. Co., 39 Fla. L. Weekly S75, 2014 WL 463309 (Fla. Feb. 6, 2014) (to read the slip opinion click here).  The Court decided the case on two certified questions from the Eleventh Circuit Court of Appeals. 

            General Fidelity issued a general liability insurance policy to a homebuilder with an SIR of $1 million.  The SIR endorsement stated that General Fidelity would provide coverage only after the insured had exhausted the $1 million SIR.  The homebuilder contracted with a third-party to, among other things, install attic stairs in a house under construction.  The contract between the homebuilder and the subcontractor contained an indemnification provision requiring the subcontractor to indemnify the homebuilder for any damages resulting from the subcontractor’s negligence.

            After the house was built, the homeowner fell while using the attic stairs and sued only the homebuilder for her injuries.  The homebuilder sought indemnification from the subcontractor.  Following mediation the parties and their insurers agreed to settle the homeowner’s claim for $1.6 million with the subcontractor’s insurer paying the homebuilder $1 million to settle the homebuilder’s indemnification claim against the subcontractor; the homebuilder would then pay the $1 million to the homeowner.  A dispute then arose as to whether the homebuilder or its insurer was responsible for paying the $600,000 settlement balance.

            The homebuilder argued that the $1 million contribution from the subcontractor’s insurer satisfied its SIR obligation and that General Fidelity was required to pay the remaining $600,000.  General Fidelity, on the other hand, argued that the $1 million payment to settle the indemnity claim did not reduce the SIR because the payment originated from the subcontractor, not its insured.  Thus, General Fidelity maintained that the terms of the policy required its insured—the homebuilder—to pay the additional $600,000 to settle the homeowner’s claim.

            The Court adopted the position advanced by General Fidelity.  While the SIR endorsement required that the payment be “made by the insured,” the Court looked to other policies’ SIR provisions that contained more restrictive language.  These other policies specify that the SIR must be paid from the insured’s “own account” or make clear that payments from additional insureds or insurers could not satisfy the SIR.  Because the General Fidelity policy did not employ this more restrictive language, the Court took a more expansive view of General Fidelity’s SIR endorsement.

            The second prong of the dispute centered around whether the transfer of rights provision in the General Fidelity policy gave General Fidelity priority over its insured to the $1 million that the subcontractor’s insurer paid.  If it did, then the homebuilder could not claim the $1 million as satisfying the SIR.  The majority found that the provision did not give General Fidelity priority over its insured.  The majority rested it conclusion on the fact that the provision “does not address the priority of reimbursement nor does the clause provide that it abrogates the ‘made whole doctrine.’”

            Justices Polston and Canady dissented.  They believed the majority had “rewritten” the SIR provision “to allow satisfaction of the self-insured retention limit in a manner other than the manner specifically provided for in the policy.”  They also characterized the majority’s reasoning as creating a “legal fiction” that “effectively reads the phrase ‘by you’ out of [the SIR endorsement].”

            To view the history of this case in the Florida Supreme Court, please click here. 

            Image courtesy of Flickr by Alan Cleaver.

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Illinois Supreme Court Agrees to Decide Complex Landfill Dispute

Can the Illinois state courts order mandatory cleanups of older landfills? The Illinois Supreme Court agreed to decide that issue late last month, allowing a petition for leave to appeal in People ex rel. Madigan v. J. T. Einoder, Inc.

Einoder involves a husband and wife and two corporations which they control. The landfill site was held in a land trust for the benefit of one of the corporate defendants, which was wholly owned by the husband. The other corporate defendant - owned 90% by the wife and 10% by the husband - leased equipment and operators to the first corporation for use at the site.

In 1995, two years after the site was purchased, the state Environmental Protection Agency received anonymous reports of open dumping there. An inspector visited and issued a citation for dumping without a permit. Additional citations were issued in 1996 and 1997. The Agency conducted a multi-hour inspection in 1998, and subsequently, another citation was issued for alleged dumping and disposal of waste without a permit.

The Agency initially threatened suit in 1998, but agreed to dig test pits first to determine the content of material at the site. After sporadic inspections in 1999 and 2000 revealed an increasing amount of "clean" construction and demolition debris ("CCDD") above the grade of the surrounding land, the Attorney General filed suit in 2000, alleging open dumping, unpermitted waste disposal operations, development and operation of a solid waste management site without a permit, and various other violations.

Following a bench trial, the Circuit Court found for the State on all counts relating to waste disposal and operation of a waste disposal site without a permit, but directed a verdict for the defendants on various more minor charges. The court then proceeded to the remedies portion of the bifurcated trial, and ultimately issued a permanent injunction requiring the defendants to remove the above-grade waste pile and undertake groundwater testing. The court also imposed substantial fines against both corporations and both individuals.

The Appellate Court affirmed the trial court. The court began by rejecting the defendants' claim that the trial court lacked jurisdiction over the agency's complaint because the agency had not properly notified the defendants of its intent to sue the individuals in their individual capacities. The court found that the notice requirements were not jurisdictional, and given the extensive contact between the agency and the defendants leading up to the suit, the defendants could not show prejudice.

The Circuit Court's finding that defendants had operated a waste disposal site without a permit depended on a finding that defendants' CCDD didn't constitute "waste." The statute provided that CCDD was exempt from permit requirements (to the degree Federal law didn't provide differently) only when "used as fill materials below grade." The defendants attempted to avoid this language by pointing to three excerpts of testimony, but the Appellate Court concluded that two statements had been taken out of context, and the third snippet of testimony from the bench trial was contrary not only to the plain language of the statute, but even to the remainder of that witness' testimony. The defendants challenged the finding of personal liability against the wife, but the Appellate Court found sufficient evidence to support the court's finding that the wife had been involved in the operations.

The court then turned to what is likely to be the central issue before the Supreme Court: the availability of mandatory injunctive relief. The parties agreed that the pre-2004 form of the Environmental Protection Act didn't authorize such relief, while the post-2004 form of the Act did authorize it. So the question was whether the 2004 amendments applied retroactively - a simple question of statutory construction. Although Section 42(e) of the Act, the provision directly at issue, didn't indicate a temporal reach, the Court concluded that several other clauses of the 2004 Act suggested that the legislature intended the statute to apply retroactively: the Act was intended to "restore, protect and enhance" Illinois' environment, and to require that "adverse effects" be mediated by "those who cause them." In so holding, the court followed the decision of the Second District in State Oil Co. v. People.

The Court concluded by upholding the fines assessed against the corporate and individual defendants. Sufficient evidence supported the view that the defendants had derived economic benefit from their violations, the Court found, and the defendants' continued operations for five years after receiving their initial violation notices suggested that severe penalties were needed. Justice Mary Anne Mason dissented solely from the portion of the opinion holding that the 2004 Act applied retroactively.

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

Image courtesy of Flickr by Ell Brown.

Illinois Supreme Court to Decide If Innocent Insured Doctrine Applies to Renewal Application

The concept behind the innocent insured doctrine is simple: where there are multiple insureds on an insurance policy, a breach by one does not necessarily eliminate coverage for those not personally involved in the breach. But what if the breach occurs in conjunction with a renewal application? That's the question the Illinois Supreme Court agreed to decide late last month in Illinois State Bar Association Mutual Insurance Co. v. Law Office of Tuzzolino & Terpinas.

The case began when a former client filed a malpractice suit against one of the partners. The attorney persuaded the former client to drop the suit and instead retain the attorney to sue the attorney who handled a related bankruptcy. That suit was dismissed, however. When the client discovered the dismissal, the attorney made an offer to settle the malpractice claim, but the offer was rejected.

Not long after, the same partner filed a renewal form with the firm's malpractice insurance carrier. In response to a question on the form, "[h]as any member of the firm become aware of a past or present circumstance[s] which may give rise to a claim that has not been reported," the attorney answered "no." The attorney signed the form, but the second partner was not required to do so.

A month after completion of the renewal form, the second partner received a lien letter from the attorney hired to represent the first partner in the impending malpractice claims. The second partner forwarded the information to the insurer. He alleges that this was the first time he was aware of any potential claims arising out of his partner's representation of the client.

The insurer filed suit seeking rescission of the policy with respect to both partners and the firm, arguing that the first partner's failure to disclose the potential claim voided the policy ab initio. The second partner counterclaimed for a declaratory judgment that he was covered by the policy in connection with the client's suit.

The plaintiff moved for summary judgment on all counts against all defendants.   The trial court granted the motion, finding that the insurance contract was indivisible, and could not be rescinded with respect to one partner only. The court accordingly held that the insurer had no obligation to defend the firm or the innocent partner. The innocent partner and the firm appealed.

The Appellate Court reversed.

The attorney argued that the innocent insured clause contained in the policy preserved coverage. The court pointed out, however, that the attorney was ignoring the distinction between a misrepresentation during the life of the policy and one in the application process. Therefore, the question was not whether the language of the policy covered the innocent partner, but rather whether the common law innocent insured doctrine permitted the policy to remain in place as to him.

The common law innocent insured doctrine applies when two or more insureds maintain a policy and one commits an act that would normally void the policy but a "reasonable person would not understand that the wrongdoing of [the] coinsured would prevent recovery." The doctrine is often applied, for example, where one of multiple owners sets fire to a property without his or her co-owner's knowledge.

The Appellate Court rejected the insurer's claim that the first partner's misrepresentation rendered the policy void ab initio. In fact, the Court held, the policy was voidable, not void. For that reason, the Court chose to follow Economy Fire & Casualty Co. v. WarrenIn Warren, a husband and wife co-owned a house destroyed by fire. The couple settled their claim with their homeowner's policy insurer. When it became known that the wife has set the fire, the insurer tried to rescind the settlement agreement on grounds of fraud. The Court applied the innocent insured doctrine to hold that the husband - who claimed to have no knowledge of his wife's actions - was entitled to retain half of the settlement.

The Court further held that Section 154 of the Insurance Code (215 ILCS 5/154) - which provides that no misrepresentation or false warranty in an insurance application can defeat coverage unless material or made with an intent to deceive - supported application of the common law innocent insured doctrine.

Finally, the Court held that public policy favored application of the doctrine, since allowing rescission would mean that the innocent party had no coverage not only in connection with the plaintiff's claim, but in connection with any claim during the policy period.

We expect Tuzzolino & Terpinas to be decided in six to eight months.

Image courtesy of Flickr by Alan Cleaver.

The Future is Here - Is the Internet a Place?

The California Supreme Court has certified a question for review posed by the Ninth Circuit – Is the internet a “place of public accommodation” as described in the California Disabled Persons Act (“DPA”), Civil Code §§ 54, et seq.? The DPA provides at § 54.1(a)(1) that “[i]ndividuals with disabilities shall be entitled to full and equal access, as other members of the general public, to accommodations, advantages, facilities . . . and privileges of . . . places of public accommodation . . . and other places to which the general public is invited.” Finding no resolution in existing California law, the Ninth Circuit asked for guidance on the question of whether DPA’s reference to “places of public accommodation” includes web sites, which, at best, are “non-physical places.”

In Greater Los Angeles Agency on Deafness (GLAD) v. Cable News Network (CNN), GLAD filed a class action suit against CNN for failing to provide closed captioning with all of its online videos, and thereby limiting access to those materials by hearing impaired viewers. GLAD alleged violations of DPA and the California Unruh Civil Rights Act, Cal. Civ. Code §§ 51 et seq. (“Unruh Act”) and sought declaratory and injunctive relief. CNN removed the matter to federal court and filed an unsuccessful motion to strike under California’s anti-SLAPP statute. The district court found that the provision of closed captioning did not raise a free speech issue for CNN and it did not address the merits. In a published opinion, the Ninth Circuit reversed, finding that forcing CNN to add closed captioning to its news content arose from its freedom of expression because it would necessarily change how CNN presented the news. The court then struck the Unruh Act claim, finding that GLAD had not shown it would probably satisfy the intentional discrimination requirement.

Turning to the DPA claim, the Ninth Circuit concluded that GLAD had demonstrated a probability of success regarding the constitutional and preemption defenses raised by CNN. However, to address the merits of the DPA claim, the court first needed to determine whether the DPA even applied to a “virtual location” on the internet. While the internet was certainly not considered when the DPA was originally passed in 1968, it is also true that, as presently used, internet websites often operate as “non-physical places,” such as stores, classrooms, gaming halls and public forums. Since lower California courts, state and federal, are divided on this issue, the Ninth Circuit certified the question for the California Supreme Court. The increasing importance of the internet for commerce and public discourse demonstrate the potential significance of this ruling, and allow a prediction of multiple amicus briefs.

Image courtesy of Flickr by LearnerWeb.

Waiting for Iskanian, Part 5: The Parties' Briefs on the Merits

With tomorrow’s oral argument before the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, LLC, our series of previews concludes with a look at the parties’ merits briefs. To read all the briefs in Iskanian, check out the National Chamber Litigation Center’s page on the case here.

The argument in plaintiff’s opening brief begins with a quotation from Armendariz: “California law, like federal law, favors enforcement of valid arbitration agreements.” Plaintiff describes Gentry as no more than a “limited qualification” to that proposition.

The plaintiff's centerpiece argument boils down to three propositions: (1) arbitration clauses are solely about forum selection and do not affect any substantive rights under federal or state law; (2) the right to file a PAGA suit seeking recovery on behalf of the State and one's fellow employees is a substantive right which cannot be waived; and (3) therefore, the FAA has nothing to say about the enforceability of the plaintiff's agreement not to file a class or representative claim.

Plaintiff's argument is based on a couple of dubious propositions: that whatever importance California state law places on an unrelated cause of action is relevant to FAA preemption, and that the right to bring a collective claim is somehow not only substantive (as opposed to procedural) but also unwaivable.

Like the plaintiff’s amici we considered here, the plaintiff relies heavily upon the U.S. Supreme Court’s decision in Mitsubishi as supporting the “effective vindication” theory. The plaintiff argues that the theory is “fully applicable” to state-law rights, citing Armendariz and Little v. Auto Stiegler from the California Supreme Court, as well as Preston v. Ferrer – a case which enforced an arbitration agreement – from the United States Supreme Court.

According to plaintiff, the FAA merely requires that arbitration clauses - which are nothing more than specialized forum selection clauses - be enforced; it affects no substantive rights at all. Since the FAA does not require the waiver of any substantive rights, it cannot preempt state law protecting such rights. Since Concepcion does not disturb “the Supreme Court’s repeated holdings” that the FAA does not require enforcement of agreements preventing effective vindication of statutory rights, Concepcion has no impact on Gentry. Given that, plaintiff argues, the agreement's ban on representative actions could not be enforced against him. Plaintiff acknowledges the Appellate Court's view that he could pursue an individual PAGA claim, but insists that there is no such thing.

Plaintiff also argues that any ban on representative actions by employees violates federal labor law, relying heavily on the NLRB’s opinion in D.R. Horton. (Like the amicus briefs, the merits briefs were filed before the Fifth Circuit reversed in D.R. Horton.) Finally, plaintiff argues that the defendant’ s pursuit of the litigation between Gentry and Concepcion waived any right to arbitrate, both because “futility” is not a basis for opposing waiver under California law, and because a pre-Concepcion motion to compel arbitration wouldn’t have been futile even under federal law.

According to the appellee's brief, the plaintiff’s brief rests on the “misguided premise” that the FAA treats waiver of representative claims in employment cases differently than it does such waivers in consumer cases.

The federal cases plaintiff cites for his claim that the effective vindication theory is well established at the federal level are “irrelevant,” the defendant argues – each involved a federalstatutory right, not a state statute. Not only that – those cases hold that an arbitration agreement can’t be invalidated on the grounds that arbitration would somehow be a less desirable forum, since that conclusion embodies the kind of judicial skepticism of arbitration that the FAA was intended to end.

Gentry is no longer good law, the defendant argues; its test “derives its meaning from the fact that an agreement to arbitrate is at issue,” and besides, there’s no principled distinction between Gentry and Discover Bank.

Nor did Iskanian’s decision to bring a PAGA claim impact the enforceability of the party's arbitration agreement. First, PAGA is an unconstitutional delegation of governmental power; second, the plaintiff's claim is time-barred; and third, the opportunity to bring a PAGA claim on behalf of the State and fellow employees is neither mandatory, nor a substantive right.

The defendant next turns to the labor law issue, attacking D.R. Horton on multiple grounds. The “unambiguous” Federal right to pursue class or collective action doesn’t exist, defendant argues. “Concerted” activity means being engaged with other employees; a class or representative action was thus “the antithesis” of concerted action. Although the NLRB’s interpretations of federal labor law are traditionally given deference in the courts, the defendant argues that the courts owed no deference at all to the NLRB’s interpretation of the FAA.

The defendant concludes by attacking the plaintiff’s waiver claim. Defendant litigated when it was forced to by Gentry and immediately moved to compel when Concepcion was handed down, according to the defendant; there was no conduct inconsistent with an intent to arbitrate. Besides, plaintiff could show no prejudice from the delay, since merely being required to litigate isn’t enough under California law.

The plaintiff replies that the defendant "misunderstands Mr. Iskanian's argument." Conducting a class action is not a substantive right, plaintiff argues, but "the availability of class actions is sometimes essential to the vindication of substantive rights." Concepcion didn't settle the issue, he claims, since if it did, "the Court's decision to receive full briefing and argument" in Italian Colors "would be inexplicable." According to the plaintiff, the defendant's constitutional and statute of limitations challenges to the PAGA claims are not properly before the Court.

As for defendant's remark that plaintiff remained free to bring an individual PAGA claim, plaintiff responds that "all PAGA claims are representative claims."  Even if the parties' agreement permitted such an action, the plaintiff argues, it still bars "a substantial portion of the recovery PAGA authorizes" - penalties for the State or other employees.

The plaintiff closes its reply by again arguing that the agreement violates federal labor law, and that defendant has waived its right to arbitrate anyway. The plaintiff notes that even reversal of D.R. Horton by the Fifth Circuit (which has now happened) wouldn't settle the labor law issue, since the losing party would seek Supreme Court review, and the NLRB doesn't follow adverse opinions in cases not involving the same parties anyway.

Iskanian will be argued tomorrow morning at 9:00 A.M. West Coast time in the Third Floor Courtroom of the Ronald Reagan State Office Building, 300 South Spring Street, North Tower, Los Angeles.

Image courtesy of Flickr by Sam Howzit.

Illinois Supreme Court to Decide Whether Self-Critical Analysis Privilege Exists in Illinois

We continue our previews of the civil cases accepted for review in the closing days of the Illinois Supreme Court’s March term with Harris v. One Hope United, Inc. In Harris, the First District declined to recognize the existence of a self-critical analysis privilege in Illinois, calling the recognition of new common law privileges “a matter best left to the legislature.”

The self-critical analysis privilege is a relatively recent innovation in the common law, as privileges go. The privilege seems to have been first recognized by the federal district court in Washington, D.C. in a 1970 medical malpractice case, Bredice v. Doctors Hospital, Inc. Since that time, a few jurisdictions have adopted narrow versions of the privilege. As a general rule, courts require proponents of the privilege to prove at least three elements: (1) the information sought comes from a critical self-analysis undertaken by the party seeking protection; (2) the public has a strong interest in preserving the free flow of the type of information sought; and (3) the information must be of the type whose flow would be curtailed if discovery were allowed. Some courts have added a fourth element: the document was prepared with the expectation that it be kept confidential, and it has in fact been kept confidential.

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

The plaintiff – the Public Guardian of Cook County - filed a wrongful death suit against the defendant and various others. The plaintiff alleged that the defendant was negligent in permitting the child to be returned to her mother, given the mother’s history and failure to complete parenting classes.

During a deposition, the executive director of the defendant testified that the defendant maintains a “continuous quality review department” which investigates cases and prepares reports. The reports evaluate the quality of the defendant’s services, identify “gaps in service delivery” and assess outcomes. The defendant refused to produce the report, the plaintiff moved to compel production, and the defendant opposed, citing the self-critical analysis privilege.

The trial court found that the privilege did not apply. At defendant’s request, the trial court held defendant in “friendly contempt” and fined defendant $1 per day pending production of the report. The defendant then appealed the contempt order.

The Appellate Court began by observing that nothing in the Illinois Rules of Evidence suggests the existence of a self-critical analysis privilege. Nor do any court rules support such a privilege claim. The court observed that what case law there was in Illinois on self-critical analysis had consistently refused to recognize the privilege.

The defendant argued that the privilege arises from the “intersect[ion]” of statute, public policy, discovery rules and evidence. Recognizing the privilege would further the purposes of legislation like the Child Death Review Team Act (20 ILCS 515/1), defendant suggested, but the Court concluded that the Act actually favors disclosure of the circumstances of an accidental death in hopes of preventing future tragedies. Defendant pointed out that the Medical Studies Act (735 ILCS 5/8-2101) specifically allows withholding of internal quality control documents by hospitals, but the Court declined to apply the Act by analogy to the defendant’s situation.

Although the court affirmed the order compelling production of the report, it recognized that the defendant had shown “no disdain” for the trial court, and had merely refused to comply “in good faith to secure appellate interpretation of this rather novel issue.” Accordingly, the court vacated the contempt finding.

Given the stakes, we should see multiple amicus curiae briefs before the Supreme Court. The case is likely to be argued in the fall, with a decision near the end of the year.

Image courtesy of Flickr by j3net.

Illinois Supreme Court to Clarify Mailing Standards for Notice of Appeal

The Illinois Supreme Court has decided a number of cases in recent years involving choices between form and substance or strict and substantial compliance. In most (but not all) cases, a majority of the Justices have sided with substantial compliance and proceeded to the merits. The Court took one more such case as the March term wound down. Huber v. American Accounting Association, a decision from the Fourth District, poses a question of considerable interest to appellate lawyers: what proof of timely filing is required when a notice of appeal is mailed before the due date, but not received by the clerk until after?

The defendant association incorporated in 1935. In 1996, the State dissolved the Association for failure to file an annual report. Six years later, the Association incorporated again, but the new entity appears to have been a shell; the Association deposited all dues paid by members into the 1935 Association's account, and no assets were merged. In June 2011, the Association sought to voluntarily dissolve the 2002 entity and reinstate the 1935 entity. Both requests were granted.

Two months later, the plaintiff petitioned to dissolve the 1935 entity and vacate the dissolution of the 2002 entity, and then to judicially dissolve the 2002 Association for misconduct. The Association moved to dismiss, arguing (1) that there was no jurisdiction over the long-dissolved 2002 entity; (2) the plaintiff had no standing, having never been a member of the 2002 Association; (3) plaintiff was not entitled to any relief against the 1935 Association, having alleged no misconduct by the earlier entity; and (4) plaintiff failed to make the necessary showings for a preliminary injunction. The trial court granted the motion to dismiss.

The plaintiff appealed, but the defendant raised a preliminary issue: whether the plaintiff had timely filed a Notice of Appeal sufficient to give the Appellate Court jurisdiction over the appeal.

The judgment in Huber was filed on March 6. Rule 303(a) provides that a notice of appeal has to be filed within 30 days of the entry of the judgment or final order appealed from.

But Illinois also has a mailbox rule of sorts. According to Rule 373:

If received after the due date, the time of mailing, or the time of delivery to a third-party commercial carrier for delivery to the clerk within three business days, shall be deemed the time of filing. Proof of mailing or delivery to a third-party commercial carrier shall be as provided in Rule 12(b)(3).

Rule 12(b)(3) provides that proof of service consists of a “certificate of the attorney, or affidavit of a person other than the attorney, who deposited the document in the mail or delivered the document to a third-party commercial carrier, stating the time and place of mailing or delivery, the complete address which appeared on the envelope or package, and the fact that proper postage or the delivery charge was prepaid.”

The clerk received the plaintiff’s Notice of Appeal on April 9, thirty-four days after judgment. The envelope in which the NOA arrived clearly showed a postmark date of April 3 – twenty-seven days after entry of judgment, three days before the deadline.

What the NOA didn’t have, however, was either of the required proofs from Rule 12(b)(3) – an attorney’s certificate or a non-attorney affidavit.

So: is a NOA clearly mailed before the deadline nevertheless untimely because it didn’t prove mailing in the proper way?

The Appellate Court districts are split on the issue. The Second District held in People v. Hansen that a clearly legible postmark was good enough, notwithstanding the lack of an appropriate proof of service. The First (People v. Tlatenchi) and Fourth (People v. Smith and People v. Blalock)Districts have held that an attorney certificate or affidavit is necessary in every case.

The Huber Court sided with the Fourth District, following Blalock. Because the plaintiff didn't comply with Rule 12(b)(3), the limited mailbox rule in Rule 373 didn’t apply. "[P]roof of a postmarked envelope contained within the record does not correct this defect," the Court wrote, "nor does it serve as a substitute for the omitted affidavit." The plaintiff's notice of appeal was accordingly untimely, and the appeal was dismissed.

We expect a decision in Huber in eight to twelve months.

Image courtesy of Flickr by WallyGrom.

Waiting for Iskanian, Part 4: Friends of the Defendant

 As we await Thursday's oral argument before the California Supreme Court in Iskanian v. CLS Transportation Los Angeles, our series of preview posts continues. This time in Part 4, we take a look at the seven amicus curiae briefs filed in support of the defendant. To read all the briefs in Iskanian, check out the National Chamber Litigation Center’s page on the case here.

Not surprisingly given the recent cases, reading the defense amici is a much different experience than reviewing the briefs filed in support of the plaintiff. The plaintiff-side briefs tend to be somewhat defensive in tone, focused on limiting Discover Bank and Concepcion, differentiating Gentry or suggesting reasons why perhaps the ultimate decision in Iskanian could wind up much ado about little (a Supreme Court decision founded on waiver). The defense amici, on the other hand, are by and large on the offensive, trying to broaden the battlefield and bring as much previous law as possible into question in the wake of Concepcion.

We begin with the brief of the Pacific Legal Foundation. The PLF's Free Enterprise project "defends the freedom of contract, including the right of parties to agree by contract to the process for resolving disputes that might arise between them." While other parts of Gentry might survive, the passages setting "categorical, per se requirements specific to arbitration clauses" necessarily had to fall in the wake of Concepcion, the PLF argues. Indeed, Armendariz itself was on "particularly shaky ground" according to the PLF. Nor was Gentry a mere distant cousin of the departed rule of Discover Bank, amicus argued: "Iskanian's effort to distance Gentry from Discover Bank could succeed only with the exercise of willful blindness." The PLF challenged the United Policyholders’ assertion that arbitration clauses were occasionally upheld between Gentry and Concepcion, writing that its Westlaw search had revealed eight decisions during those years striking arbitration clauses against only one where a clause survived. The California courts have "express[ed] their distrust and disapproval of arbitration" in a series of cases since 1984, the PLF writes, "only to have the United States Supreme Court step in to reverse." The time has come for California courts "to make their peace with the Supremacy Clause."

Amicus the Association of Corporate Counsel focused its brief on the practical effects of decisions giving effect to the FAA's national policy in favor of arbitration. In-house counsel use arbitration as a "basic tool to resolve disputes" quickly and inexpensively, amicus argued. Empirical studies confirm the efficiencies of arbitration. According to one study, arbitrations tend to close about 33 percent faster than litigation in employment discrimination cases; another study found that arbitration cases wrap up twice as fast as litigation. Yet another study of employment cases - this time excluding discrimination cases from the database - concluded that arbitration cases ended three times as fast as courtroom litigation. Studies reflect similarly enormous savings in fees and costs expended by litigants. Reversal would "severely burden in-house counsel and their companies," amicus wrote. At minimum, it would likely be necessary to review contracts applying in California. Worse yet, other jurisdictions might be tempted to follow suit in looking for ways around the imperative of the FAA.

Amici The National Retail Federation and Rent-A-Center, Inc. took aim at the central issue in Iskanian – the fate of Gentry in the wake of Concepcion. Concepcion’s commands are “clear and far-reaching,” the NRF amici write. Gentry cannot be reconciled with Concepcion for several reasons. First, Gentry repeatedly invokes Discover Bank. Second, as other amici have pointed out, the Gentry rule necessarily involves imposing class arbitration on a party which never agreed to it, directly contrary to Concepcion. The NRF amici end their brief by reviewing the ultimate fate at the U.S. Supreme Court of recent cases in which state courts relied on public policy to refuse to enforce arbitration clauses: in each case, the state court's decision was reversed.

Amici the California Chamber of Commerce and the Civil Justice Association of California make similar arguments that Gentry cannot survive Concepcion. According to amici, post-Concepcion decisions from the Supreme Court and the Ninth Circuit such as CompuCredit Corp. v. Greenwood, Marmet Health Care Center, Inc. v. Brown, Kilgore v. KeyBank, N.A. and Coneff v. AT&T Corp. confirm that Concepcion is meant to be read broadly.

Amicus the Employers Group is “the nation’s oldest and largest human resources management association, representing nearly 5,000 companies.” The Employers Group challenges one of the central premises argued by the plaintiff and several plaintiff’s amici – the notion that PAGA is a public-benefit statute. “Civil penalties paid by an employer under the PAGA do not inure to the benefit of the public,” amicus writes; at most, they benefit other aggrieved parties. In that sense, Iskanian’s situation was similar to Kilgore v. KeyBank, N.A., where the Ninth Circuit declined to apply California’s Broughton/Cruz rule – which holds that claims for broad injunctive relief benefiting the general public cannot be arbitrated – on the grounds that the relief sought there did not benefit the general public. (And in case you’re wondering, a number of courts have held in the last few years that Concepcion dooms Broughton/Cruz too.)

According to amicus, the theme plaintiff and his amici return to again and again – that Discover Bank was about unconscionability while Gentry was about unwaivable statutory rights – is a “distinction without a difference,” since both derive from the same public policy rationale. Not only can Gentry not survive, amicus concludes – Iskanian would be a good opportunity for the Court to revisit Armendariz and Ralphs Grocery too.

Finally, the Employers Group offers an interesting response to the plaintiff’s-side argument that PAGA suits must by definition be representative actions. By taking that position, amicus argues, the plaintiff is restricting the scope and flexibility of the statute, since if the plaintiff were correct, the Labor Commissioner cannot seek PAGA penalties on behalf of a single employee.

Amici the Retail Litigation Center, Inc. and the California Retailers Association offer details on the progeny of California’s major arbitration decisions. Armendariz, for example, has spawned 25 published Court of Appeal opinions, at least 6 published opinions from the Ninth Circuit and many more unpublished Court of Appeal opinions and trial court orders. Even after Concepcion, several California courts have refused to enforce arbitration clauses; amici point to cases such as Ajamian v. CantoC02E, L.P., where the Court of Appeal “dismissed Concepcion in a footnote,” and Franco v. Arakelian Enterprises, Inc., where the court asserted that Gentry remained viable because most wage-and-hour claims involve too little money to justify the expense of arbitration. (Not surprisingly in the wake of Italian Colors, the California Supreme Court has issued a grant-and-hold in Franco, awaiting Iskanian.)

Amici turn then to the plaintiff’s “effective vindication” theory. The notion that “unwaivable rights” are enough to overcome the FAA was rejected more than twenty years ago in Gilmer v. Interstate/Johnson Lane Corp. Amici point out that the construction advocated by the plaintiff’s side necessarily creates two separate proceedings out of a single dispute – wage and hour claims in arbitration, and the purportedly non-arbitrable PAGA claims in court. The amici conclude by arguing that the United States Supreme Court has repeatedly rejected the notion – still heard today – that arbitration is somehow an inferior forum for certain types of claims.

Amicus the California New Car Dealers Association points out that while the United States Supreme Court has occasionally discussed “effective vindication” – always in dicta – in relation to federal statutory rights, it has never actually refused to enforce an arbitration clause based upon the “effective vindication” theory. Amicus argues that it was the California Supreme Court in Broughton that applied the theory with respect to state-law rights, disregarding the theoretical basis for it – the need to reconcile conflicting Congressional mandates. Broughton led straight to Armendariz,and then to Discover Bank, Gentry and the original decision in Sonic-Calabasas. Each of these decisions drew dissents arguing that the Court was straying further from the FAA and the U.S. Supreme Court’s guidance, with Justice Chin writing in Broughton, Cruz and Sonic-Calabasas, and Justice Baxter writing in Gentry. According to the amicus, the dissenters have now been vindicated by Concepcion, which rejected the public policy rationale which lies at the foundation of both Discover Bank and Gentry. The New Car Dealers’ brief concludes by pointing out that due process-based protections in the text of the FAA requiring that parties be granted notice and an opportunity to present relevant and material evidence and argument before neutral arbitrators obviate any need for states to superimpose additional limits on arbitration in pursuit of their own public policies.

Join us back here soon for the conclusion of our five part series: Waiting for Iskanian, Part 5: The Parties’ Briefs.

Image courtesy of Flickr by J. Saper.

Waiting for Iskanian, Part 3 - Friends of the Plaintiff

As we await Thursday's oral argument before the California Supreme Court in Iskanian v. CLS Transportation of Los Angeles, in Part 3 of our series of posts, we'll take a look at the amici curiae supporting plaintiffs. To read all the briefs in Iskanian, both merits and amici, check out the National Chamber Litigation Center’s page on the case here.

The California Rural Legal Assistance Foundation describes itself as a "non-profit legal services provider that represents low income families in rural California and engages in regulatory and legislative advocacy to promote the interests of low wage workers." The CRLAF’s brief argues that the FAA compels enforcement of arbitration clauses only insofar as they relate to claims arising from the employment contract itself. While Iskanian has asserted a number of different causes of action arising from his employment, the CRLAF argues, his claim under the Private Attorney General Act is not one of them. The PAGA claim is the result of a delegation by the State of California of its sovereign power to enforce the Labor Code and collect civil penalties for violations.  Since the FAA is limited to claims arising under the contract, PAGA claims cannot be forced into arbitration. Besides, Civil Code § 3513 specifically bars waiver of laws established for a public reason.

The argument under Section 3513 is interesting, but it seems to me ultimately doesn't hold water. Substantive rights are (in at least some cases) unwaivable. For example, it’s unlikely that a court would enforce an employment contract calling for payment of less than the minimum wage. But there's a material difference between such a substantive claim for relief and a right to sue. Of course a right to sue is waivable: one waives it by not suing. Why, then, shouldn't an employee be free to trade away for value that which he or she can surrender for nothing?

The Sandquist amicus brief was sponsored by the named plaintiff in a pending class action under the Fair Employment and Housing Act, as well as a group of nonprofit public interest associations -- the AARP, which advocates primarily for older workers and senior citizens; Equal Rights Advocates, which is "dedicated to protecting and expanding economic justice and equal opportunities for women and girls"; and the Impact Fund, which funds, trains and acts as co-counsel to public interest litigators.

The Sandquist brief focuses on the impact of authorizing class waivers on FEHA enforcement. Class waivers would mean "not only that plaintiffs . . . will be unable to vindicate their own FEHA rights, but also that they cannot fulfill the role entrusted to them under the statute" of acting as private attorneys general, amici argue.

The plaintiffs' amicus briefs were filed several months before Italian Colors squarely took on the effective vindication theory, so understandably, many place significant emphasis on Mitsubishi and what other support arguably existed for the theory. The Sandquist amici quote Judge Richard Posner's comment in Carnegie v. Household Int'l, Inc.: "The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30." According to the Sandquist group, the effective vindication theory sweeps even more broadly than merely outlawing straightforward waivers of substantive statutory rights. To be permissible, "arbitration must be structured in a manner that enables the parties to 'effectively' vindicate their statutory rights." Far from being workarounds from the pro-arbitration mandate of the FAA, Armendariz and Gentry were examples of the California Supreme Court "following the U.S. Supreme Court's lead," the Sandquist amici argue.

There's less than meets the eye to Concepcion, the Sandquist amici insistBecause the arbitration provisions in Concepcion were "highly favorable to consumers," the agreement probably would have been enforceable under the effective vindication theory. After all, the amici argue, the question presented in Concepcion specifically acknowledged that class arbitration was not necessary to effective vindication there.

Nor were Discover Bank and Gentry closely related, the brief continues. First, Discover Bank is about unconscionability; Gentry is about effective vindication. Second, Discover Bank adopted a blanket rule barring class waivers in consumer cases, while Gentry requires a fact-specific balancing test.

Like the Sandquist amici, the Consumer Attorneys of California focuses on trying to limit Concepcion and Discover Bank and preserve Gentry. Discover Bank, the CAOC argues, created a categorical ban on class action waivers in consumer contracts, while Gentry revolved around procedural unconscionability. Moreover, Gentry involved a challenge to an entire agreement to arbitrate, where Concepcion only addressed a class arbitration waiver clause. The mere fact that Concepcion eliminated the Discover Bank rule does not mean that "generally applicable state law unconscionability defenses" are preempted "across the board." Rather, the Supreme Court was intending to mandate a "case-by-case approach" to unconscionability and other state-law defenses. The California unconscionability doctrine "has numerous variables giving rise to near infinite variations . . . that were neither discussed nor mentioned in Concepcion," the CAOC claims; accordingly, "Concepcion is limited to the facts in that one case."

The United Policyholders amicus brief addresses a different topic: the Court of Appeal's finding that the defendants in Iskanian hadn't waived any right to arbitrate. UP argues that whether or not an arbitration clause has been waived is an issue of California law, regardless of whether the contract falls within the purview of the FAA (this raises the interesting question of whether a state's waiver law could be preempted by the FAA if it were interpreted in such a way as to become an obstacle to the accomplishment of Congress' purposes). The Court of Appeal erred at the outset, UP argues, by declining to find waiver based on "futility," since California doesn't recognize futility as a defense to waiver. Indeed, even if federal law applied to the waiver question, the UP argues, the Court of Appeal got it wrong, since Federal waiver law allegedly limits futility to situations where a new case has created a right which didn’t exist previously. Since certain courts had enforced arbitration clauses before Concepcion, the defendants' motion to compel arbitration in Iskanian wouldn't have been futile. A separate amicus brief filed by the California Association of Public Insurance Adjusters raises similar arguments.

Finally, the Service Employees International Union and the California Employment Lawyers Association filed a brief in support of the plaintiff. The SEIU/CELA brief focuses on yet another aspect of the case: the D.R. Horton decision and the supposed conflict between a class waiver in employment law and the National Labor Relations Act. According to the amici, the proposition that "the filing and pursuit of employment claims on a joint, class, representative, or other concerted action basis constitutes protected 'concerted' activity under federal labor law" is "unassailable." (We'll see about that once we reach the respondent's brief.) Citing D.R. Horton, they argue that the right to engage in collective action must include "collective legal action" - presumably regardless of what agreements individual employees enter into. The "CLS Policy/Agreement by its express terms prohibits its employees from engaging in concerted legal action," the amici write. "That prohibition violates federal labor law. End of story." Concepcion was distinguishable, the amici write, because "[n]o federal statutory rights were at issue." 

Even if a conflict existed between the FAA's preference for arbitration and the purported right to engage in concerted legal activity, the amici argue, the FAA would have to give way since "the Section 7 right is far more central to national labor policy than any preference for 'streamlined' arbitration is to the FAA."

Of course, the legal landscape has continued to develop since the SEIU/CELA brief was filed. First, the Supreme Court handed down Italian Colors, where "federal statutory rights" were squarely at issue, and most recently, the Fifth Circuit reversed the NLRB's decision in D.R. Horton.

Join us back here shortly for Waiting for Iskanian, Part 4: Friends of the Defendant.

Image courtesy of Flickr by Steve Slater.

Waiting for Iskanian, Part 2: Italian Colors, Sonic-Calabasas and Iskanian

One would have thought in the wake of Concepcion that Gentry was doomed: Concepcion expressly killed off Discover Bank; Gentry was expressly described by the Court itself as a gloss on Discover Bank; therefore, Concepcion must overturn Gentry.

In the wake of the Concepcion defeat, the plaintiffs' bar made a strategic retreat, insisting that Gentry was based on an entirely different theory, entirely unrelated to Discover Bank and therefore not affected by Concepcion: the "effective vindication of statutory rights" theory. That theory goes like this: if the practical effect of an arbitration clause is to make it impossible for a plaintiff to "effectively vindicate" (whatever that means) his or her non-waivable statutory rights, then out it goes.

And then American Express Company v. Italian Colors Restaurant came along.

The plaintiffs in Italian Colors were merchants who entered into agreements with the defendant to accept the defendant's charge and credit cards. The agreement included a clause both requiring arbitration and barring all class proceedings. The plaintiffs brought a putative class action under the federal antitrust laws, alleging that the defendant had used its monopoly power in the market for charge cards to both force merchants to accept its credit cards (an allegedly illegal tie) and to charge merchants rates 30% higher than its competitors.

The defendants moved to compel arbitration. Opposing the motion, the plaintiffs offered a declaration from an economist opining that an expert study and analysis sufficient to prove the claim would cost anywhere from several hundred thousand to a million dollars. Which was a bit of a problem, since the maximum per-plaintiff recovery would be just short of $40,000. Nevertheless, the district court granted the motion to compel arbitration. The Second Circuit reversed. The Supreme Court reversed and remanded for reconsideration in light of Stolt-Nielsen S.A. v. Animal Feeds Int'l Corp., but the Second Circuit reversed again after considering both Stolt-Nielsen and Concepcion.

The plaintiffs' pitch before the United States Supreme Court was very simple: enforcing the class action waiver as written means no antitrust suit - nobody spends several hundred thousand dollars to recover $40K. Thus, as briefed and argued, Italian Colors provided about as square a test of the "effective vindication" theory as can be imagined.

One problem, the Supreme Court held: "the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim." The majority seemed to doubt whether there is any such thing as the "effective vindication" theory in the first place, describing its genesis as "dictum in Mitsubishi Motors." But even assuming such an exception exists, it was far more limited than the plaintiffs believed. Certainly it would cover an arbitration clause saying "nobody brings an antitrust claim." Prohibitive filing fees, sure: a clause requiring a ten million dollar per-claim filing fee would fall. But merely making it not worth the expense to prove a statutory remedy wasn't the same thing as "the elimination of the right to pursue that remedy," the majority wrote. In a footnote on the final page of their opinion, the majority wrote what one would have expected to be the epitaph of the "effective vindication" theory: "the FAA does . . . favor the absence of litigation when that is the consequence of a class-action waiver."

Only a few months after Italian Colors, the California Supreme Court got its first major chance to address the new landscape in Sonic-Calabasas A, Inc. v. Moreno.

The plaintiff in Sonic-Calabasas is a former employee of an automobile dealership. As part of his employment, he signed an agreement providing that all disputes arising out of the employment would be settled by binding arbitration pursuant to the FAA and the California Arbitration Act. After leaving his employment, the plaintiff filed an administrative wage claim with the Labor Commissioner, seeking vacation pay. The filing of such a claim is the first step in California towards what's known as a Berman hearing - a highly informal administrative proceeding designed for more-or-less speedy employee wage claims. The employer moved to compel arbitration of all disputes, arguing that the arbitration clause waived the Berman hearing. The Superior Court denied the petition to compel arbitration, but the Court of Appeal reversed, holding that a Berman waiver was enforceable.

The California Supreme Court granted review and reversed, holding that Berman waivers are per se unconscionable and unenforceable in California. The United States Supreme Court vacated and shipped the case back to California for reconsideration in light of Concepcion.

On remand, the state Supreme Court retreated slightly from its earlier holding in an opinion written by Justice Liu and joined by Justices Kennard, Werdegar and Corrigan, and Chief Justice Cantil-Sakauye. A Berman waiver did not by definition doom an arbitration clause, but the trial courts were still free to refuse to enforce an arbitration clause if "it is otherwise unreasonably one-sided in favor of the employer." Although the Court's majority swept away the per se rule, the Court suggested that a Berman waiver might still cast a long shadow over the unconscionability hearing: "waiver of these protections in the context of an agreement that does not provide an employee with an accessible and affordable arbitral forum for resolving wage disputes may support a finding of unconscionability." Although unconscionability has usually been stated in terms of contracts that "shock the judicial conscience," the court majority seemed to suggest a more malleable standard: "Unconscionability doctrine is instead concerned with whether the agreement is unreasonably favorable to one party, considering in context 'its commercial setting, purpose, and effect.'" The unconscionability inquiry it was mandating was "not preempted by the FAA," the majority held, expressing confidence that trial courts could make the necessary determinations fast enough not to rob arbitration of its primary virtue: speedy resolution.

The Court majority summarized its holding in language reminiscent of the "effective vindication" theory:

[W]here, as here, a particular class has been legislatively afforded specific protections in order to mitigate the risks and costs of pursuing certain types of claims, and to the extent those protections do not interfere with fundamental attributes of arbitration, an arbitration agreement requiring a party to forgo those protections may properly be understood not only to substitute one dispute resolution forum for another, but also to compel the loss of a benefit.

Justice Chin, joined by Justice Baxter, vigorously dissented from the majority's opinion:

[W]e should reject Moreno's unconscionability claim . . . I also disagree with the majority's advisory opinion regarding the unconscionability principles the trial court should apply on remand. In my view, those principles are both contrary to state law and invalid under - and thus preempted by - the FAA.

Which finally brings us to IskanianThe plaintiff was employed for a little over a year as a driver for the defendant. He signed an agreement providing that "any and all claims" arising out of his employment would be submitted to binding arbitration. The arbitration clause provided for reasonable discovery, a written award and judicial review. Costs unique to arbitration were paid by the employer. Class procedures - either class actions in court or class arbitration - was barred.

After leaving his employment, the plaintiff filed a putative class complaint, alleging that the defendant had failed to pay overtime, provide meal and rest breaks, reimburse business expenses, provide accurate and complete wage statements, and pay final wages in a timely manner. The trial court initially granted the employer's motion to compel arbitration, but then Gentry came down, and the Second District issued a writ of mandate directing the trial court to reconsider in light of the new decision. Apparently concluding that the result post-Gentry was a foregone conclusion, the employer withdrew its motion to compel arbitration. Not long after, the plaintiff filed a consolidated first amended complaint, purporting to state claims under the Labor Code, for unfair competition, and claims in a representative capacity under the Labor Code Private Attorneys General Act ("PAGA") of 2004.

After discovery, the plaintiff moved to certify a class. The employer opposed, but the motion was granted in the fall of 2009. In April 2011, with trial imminent, the United States Supreme Court handed down Concepcion. The employer promptly renewed its motion to compel arbitration and dismiss the class claims. The trial court granted the motion in both respects.

The Second District affirmed, holding that Concepcion had necessarily overruled not only Discover Bank, but Gentry to boot. This was so for three reasons: if Gentry was applied, as the plaintiff wanted, the case would be decided under class arbitration, even though the employer had never agreed to it. Such a situation was clearly barred by Concepcion. Second, the Gentry rule was irreconcilable with the fundamental lesson of the FAA -- that arbitration agreements must be enforced according to their terms. Third, the premise that the plaintiff brought the class action to "vindicate statutory rights" was necessarily irrelevant after Concepcion.

Next, the Court turned to D.R. Horton, a decision of the National Labor Relations Board handed down while briefing in Iskanian was under way. There, the NLRB held that class waivers were a per se violation of the National Labor Relations Act, which protects employees' right to engage in concerted actions. Although courts usually defer to the NLRB's interpretation of its governing statute, the Iskanian court noted that D.R. Horton was also an interpretation of the FAA itself. The Court of Appeal concluded that Concepcion trumped D.R. Horton, and refused to follow the NLRB.

The Court of Appeal next addressed the plaintiff's argument that his PAGA claims were a non-waivable statutory right to proceed in a judicial class action. Division Five of the Second District had held that Concepcion was inapplicable to PAGA actions under California state law in Brown v. Ralphs Grocery Co. in 2011, but the Iskanian court refused to follow suit: "the United States Supreme Court has spoken on the issue, and we are required to follow its binding authority." Only an express finding by Congress that a Federal claim had to proceed in court was sufficient to override the FAA, the Court held.

The Court concluded by briefly addressing the plaintiff's claim that by withdrawing its motion to compel arbitration post-Gentry, and not raising the issue again until Concepcion, the defendant had waived any right to arbitration. The Court of Appeal disagreed, holding that since any motion to compel arbitration would have, according to all parties, been doomed to failure in the years between Gentry and Concepcion, the defendant's conduct had not been inconsistent with an intent to arbitrate.

Next time in Waiting for Iskanian, Part 3, we'll consider the amicus briefs filed at the Supreme Court for the plaintiff's side.

Image courtesy of Flickr by Richard-G.

Waiting for Iskanian, Part 1 -- Gentry, Discover Bank and Concepcion

On Thursday, the California Supreme Court will hear arguments in the highly-anticipated Iskanian v. CLS Transportation Los Angeles, LLC. Iskanian has produced several inches worth of paper from a host of interested parties in the past few months, and in these final days before the argument, we'll be taking a look at the briefing. But first, let's review the legal background for this latest skirmish in the arbitration wars.

The story begins with a deceptively simple statute, the Federal Arbitration Act. The FAA was enacted in 1925 as a response to generations of judicial hostility to contracts to arbitrate. Section 2 of the Act, provides:

A written provision . . . to settle by arbitration a controversy thereafter arising out of such contract or transaction . . . shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.

The FAA wasn't an especially hot topic for many years after its enactment. In fact, it took until 1984 in Southland Corp. v. Keating for it to be finally settled that the FAA applied to contracts arising under state law, as long as they addressed interstate commerce. Even then, Justice O'Connor and then-Justice Rehnquist dissented, arguing that the Act applies only to federal-law contracts - a view which Justice Thomas continues to hold today. But even after Southland Corp., enforcement in the states still continued to vary from one jurisdiction to another.

Which brings us to Gentry v. Superior Court, a 2007 decision from the California Supreme Court and the center of the Iskanian debate. Gentry was a putative class action filed by a salaried customer service manager alleging that the defendant had misclassified certain employees as "exempt managerial/executive" rather than "non-exempt non-managerial," meaning that they didn't get paid for overtime. The problem was that when the plaintiff started work, he'd been given a package incorporating various options for resolving employment disputes. One was an arbitration provision which barred class arbitration, as well as incorporating various limitations on damages and attorney's fees. The packet stated that if the employee didn't opt out of the arbitration clause in thirty days, he or she was bound. The plaintiff didn't opt out. The employer successfully moved to compel arbitration at the trial court, and the Court of Appeal refused to get involved.

Gentry reached the California Supreme Court for the first time while it was considering another arbitration case called Discover Bank v. Superior CourtThe Court entered a grant-and-hold in Gentry, awaiting Discover Bank. The Court ultimately held in Discover Bank that "at least under some circumstances, the law in California is that class action waivers in consumer contracts of adhesion are unenforceable." Once Discover Bank was finished, the Court tossed Gentry back in the Court of Appeal's lap for reconsideration in light of the new decision. Nope, the Court of Appeal said - the petition is still denied. So the second time around, the Supreme Court granted full plenary review in Gentry.

Admittedly, Gentry is an employment law case while Discover Bank is a consumer-law case - a distinction we'll be hearing much more of in a few days when we discuss the plaintiff's side briefing in Iskanian. But the second review grant in Gentry was - to quote the Court itself- "to clarify our holding in Discover Bank."

The Gentry Court reversed the lower court's order compelling arbitration. The statutory right to overtime pay could not be waived, the Court wrote. A few years before in Armendariz v. Foundation Health Psychcare Services, Inc., the Court had held that such rights could only be subject to compelled arbitration - regardless of what the parties had agreed to - only if the arbitration contained certain safeguards: (1) no limit on the damages normally available; (2) sufficient discovery; (3) a written decision and judicial review; and (4) the employer to pay all costs unique to arbitration. The basis of Armendariz was that an employee couldn't be forced to arbitrate - regardless of the parties' contract - when the arbitration amounted to a de facto waiver of statutory rights that couldn't be waived.

Discover Bank hadn't been intended to suggest that class action waivers would be stricken only in consumer cases involving minimal damages, the court wrote. Class actions "play an important function in enforcing overtime laws," the Court said. The enforceability of a class action waiver depended on the court's weighing of four factors: (1) the modest size of the potential recovery; (2) the potential for retaliation against members of the putative class; (3) whether absent class members are ill informed about their rights; and (4) other real world obstacles to the "vindication" of class members' rights through individualized arbitration. Class arbitration waivers couldn't "be used to weaken or undermine the private enforcement of overtime pay legislation by placing formidable practical obstacles in the way of employees' prosecution of those claims," the Court found.

Justice Moreno wrote the majority opinion on behalf of himself, Justices Kennard and Werdegar and Chief Justice George. Justice Baxter dissented, joined by Justices Chin and Corrigan: "I cannot join the majority's continuing effort to limit and restrict the terms of private arbitration agreements, which enjoy special protection under both state and federal law."

In the years following the double-whammy of Discover Bank and Gentry, the vast majority of class action waivers, and often arbitration clauses themselves, were disregarded by California courts, notwithstanding the FAA. The rationale was that clauses were being denied enforcement pursuant to the general contract defense of unconscionability, and the FAA specifically preserves such general defenses. The answer to that, of course, is that when unconscionability inflicts fatal wounds on far more arbitration clauses than general contracts, something has gone astray in terms of the FAA's nationwide policy in favor of arbitration.

Which brings us to AT&T Mobility LLC v. ConcepcionThe defendant gave away what it advertised as free phones as part of a promotion. When the defendant charged customers a nominal sum as sales tax based on the retail price of the phones, the plaintiffs filed a putative class action alleging false advertising and fraud. The defendant moved to compel arbitration, pointing out that its contract with the plaintiffs included a blanket arbitration clause and a class action waiver. The district court denied the motion to compel arbitration, finding the waiver unconscionable under Discover Bank, and the Ninth Circuit agreed.

The Supreme Court reversed. Granted, the savings clause of the FAA Section 2 preserved "generally applicable contract defenses" - but that didn't mean that Congress intended to "preserve state-law rules that stand as an obstacle to the accomplishment of the FAA's objectives." Requiring that parties engage in classwide arbitration, regardless of the terms of their agreement, "interferes with fundamental attributes of arbitration and thus creates a scheme inconsistent with the FAA," the Court held; class arbitration was "slower, more costly, and more likely to generate procedural morass than final judgment." Class arbitration required far greater formality, and considerably increased risks to defendants. Although the Discover Bank rule didn't require classwide arbitration, it allowed any party to a consumer contract to demand it after the fact. The rule was therefore preempted by the FAA.

Join us back here soon for Part 2 of the legal backdrop - Italian Colors, Sonic-Calabasas and the Court of Appeal's decision in Iskanian.

Image courtesy of Flickr by Craig Cloutier.

California Supreme Court to Tackle Labor and Insurance Issues

The California Supreme Court has five civil cases scheduled for its April calendar, each addressing important questions of labor and insurance law.  

  • Independent Contractors or Employees – Class Actions: In Ayala v. Antelope Valley Newspapers, Inc., S206874, the court will address the determination of whether and when common issues dominate in a class action in which the putative class members – in this case, newspaper home delivery carriers – are claiming that they were improperly classified as independent contractors when they should be employees.  The trial court denied certification on all claims, while the Court of Appeal approved certification on the issue of classification, but agreed that the wage and hour claims lacked commonality. In two other Court of Appeal cases which addressed this issue, one also found that the classification issue should not be certified as a class, while the other approved certification.  (Sotelo and Bradley, respectively).
  • Federal Arbitration Law v. California Labor Law:  The matter of Iskanian v. CLS Transportation Los Angeles, LLC, S204032, addresses the continuing dispute over the impact of the U.S. Supreme Court’s decision in AT&T Mobility LLC v. Concepcion on California law.  In Concepcion, the U.S. Supreme Court empowered waivers of class arbitrations in most consumer contracts, which has resulted in a series of responses by California courts, as previously discussed by Sedgwick partner Kirk Jenkins here.  The issue in Iskanian is whether Concepcion implicitly overruled the court’s decision in Gentry, which held that a class arbitration waiver in an employment contract is not enforceable if the prohibition of class relief would undermine the vindication of the employees’ unwaivable statutory rights and would pose a serious obstacle to the enforcement of the state's overtime laws.
  • What Rights Do Undocumented Workers Have?  In Salas v. Sierra Chemical Co., S196568, the trial court dismissed claims under the Fair Employment and Housing Act in light of after-acquired evidence and unclean hands, based on plaintiff’s use of false documentation to obtain this employment.  The court initially granted review to address whether California statutes preserving access to state protections and remedies regardless of immigration status barred such a ruling.  The court then requested supplemental briefing on the issue of whether federal preemption precluded an undocumented worker from obtaining, as a remedy for a violation of “state labor and employment laws,” an award of compensatory remedies, including back pay.   
  • Can an Advertisement That Does Not Name or Refer to a Product be Disparaging?  On the grounds that the advertisement at issue neither named nor disparaged the underlying plaintiff’s product, the trial court granted summary judgment for the insurer in the related coverage dispute, which was affirmed on appeal in Hartford Casualty Ins. Co. v. Swift Distribution, Inc., S207172.  The court granted review on the issue of whether the pleading allegations were sufficient to constitute disparagement, perhaps by implication, to support a duty to defend.
  • Who Owns a Life Insurance Policy?  The court granted review over In re Marriage of Valli S193990 to determine the ownership of a life insurance policy.  The Court of Appeal concluding that the insurance policy on the husband’s life was the wife’s separate property upon dissolution of the marriage, even though the policy was purchased during the marriage and the premiums prior to the couple’s separation were paid with community funds, because the policy listed the wife as the owner.

The Supreme Court files its opinion within 90 days of oral argument, which here take place on April 2 and 3, 2014.  So, we should have decisions on these issues by or before July 2014.  For more details on Labor (compensation cases or other) or Insurance cases currently pending before the California Supreme Court, follow the links to see our summaries.

Image courtesy of Flickr by Ken Lund

Illinois Supreme Court Defines "Good Samaritan" in Medical Malpractice Case

 

Nearly every state has some variation on a "Good Samaritan" law. In Illinois, the statute says that any licensed medical professional "who, in good faith, provides emergency care without fee to a person, shall not, as a result of his or her acts or omissions, except willful or wanton misconduct on the part of the person, in providing the care, be liable for civil damages." 745 ILCS 49/25.

So what does "without fee" mean? The patient didn't get a bill -- or the doctor wasn't paid at all?

The Illinois Supreme Court answered that interesting question on Thursday morning, unanimously holding in Home Star Bank and Financial Services v. Emergency Care and Health Organization, Ltd. that an emergency room physician who responded to a Code Blue emergency elsewhere in the hospital was not entitled to immunity under the Illinois Good Samaritan Act.

Home Star began nearly thirteen years ago, when a patient was admitted first to the hospital emergency room, and later transferred to the intensive care unit. Three days after he was admitted, the patient began having labored breathing and trouble swallowing. A "Code Blue" was called in the early morning hours, and the defendant physician, who was working in the emergency room at the time, responded and attempted to intubate the patient. The patient suffered severe and permanent brain injuries, and the plaintiffs sued the physician and his employer physicians group for malpractice.

The physician moved for summary judgment, arguing that the Good Samaritan law applied, since the patient was not billed for the physician's services. The plaintiff opposed summary judgment, arguing that whether or not the patient was billed, the doctor didn't respond to the Code Blue as a volunteer - he was doing his job.

The evidence was all over the place. According to the independent contractor agreement between the doctor and the physicians group, he "may render service to any patient" in "dire emergencies," when no emergency room patient required immediate assistance. The hospital's "Clinical Operations" policy stated that ER physicians "respond[ ] to all Code Blues in the hospital." The nursing supervisor testified that in her experience, the emergency room physician typically responded to Code Blues at night. The defendant physician agreed that the ER physician on duty "would be expected to respond to a Code Blue." The CEO of the physicians group, on the other hand, testified that responding to Code Blues was not "an inherent prescribed part of [the physician's] work," and that he would respond "in the matter a good samaritan would respond to that dire emergency." The nurse anesthetist who assisted at the patient's Code Blue testified that in her experience, the emergency room physician was "usually there first" at nighttime Code Blues. The patient's laryngologist testified that his understanding was that an in-house ER physician would respond to Code Blues. The CEO of the hospital testified that it had been hospital policy for many years that the ER physician would respond to Code Blues, but that she didn't believe there was anything specific about it in the hospital's agreement with the defendant physicians group.

The trial court granted summary judgment on the grounds that the patient had never been billed for the physician's services. The Appellate Court reversed, finding after a review of the legislative history and relevant cases that the statute was not intended to immunize doctors who responded to a scene because they were paid to do so.

In an opinion by Justice Robert R. Thomas, the Supreme Court unanimously affirmed the Appellate Court.

The Court began by reviewing the history of Illinois' Good Samaritan law and its predecessors. The law had originally been enacted in 1965, and was quite narrow in scope, applying only to medical professionals providing emergency care without fee "at the scene of a motor vehicle accident or in case of nuclear attack." In 1969, the legislature broadened the statute to include any accident by striking the words "motor vehicle." Four years later, the legislature struck all reference to accidents and nuclear attacks and added a limitation that for immunity to apply, the medical professional couldn't have had "prior notice of the illness or injury." In 1998, the legislature struck the "prior notice" limitation.

The Supreme Court has never construed the statute, but the Appellate Court has addressed it several times. Early cases tended to hold that a physician could claim immunity as long as the patient wasn't charged. In these early cases, the courts tended not to look into reasons why the patient wasn't charged. In Estate of Heanue v. Edgcomb, for the first time the Appellate Court held that immunity applied only when a decision not to bill was made in good faith (the court believed that the phrase "good faith" in the statute modified both "provides emergency care" and "without fee").

The same year as Heanue, the federal district court addressed the statute in Henslee v. Provena Hospitals. Henslee was a diversity case, so it required the district court to make an Erie prediction of how the Supreme Court would address the matter. The court concluded that the Illinois courts had strayed far from the legislature's intent in enacting the statute. "Without fee" was sufficiently ambiguous, the court found, to encompass either situations where the patient didn't get billed or the doctor didn't get paid. The court ultimately opted for a broader definition of the term "without fee" for several reasons: denying paid physicians immunity was more consistent with the legislature's intent of encouraging volunteerism, was more consistent with modern medical billing practices, and finally, that excluding paid physicians prevented defendants from engineering immunity by simply deciding not to send the patient a bill.

But four years later, another federal district court addressed the issue in Rodas v. SwedishAmerican Health System Corp. and squarely disagreed with Henslee. Then, just to make things even more confusing, the Seventh Circuit reversed the district court's judgment in Rodas.

The Court sided with the district court in Henslee. "Without fee" was sufficiently ambiguous to encompass either meaning, the Court found -- "didn't bill" or "wasn't paid."

So the court turned to various aids to construction. Dictionary definitions of the term "good samaritan" suggested that a doctor had to be a volunteer, but weren't conclusive.        

But the legislative history seemed clear. The statute itself said that the law was intended to protect citizens "who volunteer their time and talents to help others." The court quoted a state Senator's comment that the Act was intended to protect medical professionals acting "on the spot, not in his doctor's office or in the hospital on the operating table." A state representative stated that the law was intended to encourage "good samaritans to do the right thing on the streets of Illinois." Another stated that the law "only covers services that are rendered without compensation." The court also cited with approval to a California decision, Colby v. Schwartz, where the court found that physicians responding to emergencies at a hospital because they served on the hospital's emergency call surgical panel were not protected by California's good samaritan law. Such physicians did not need the protection of the law, the court found, since they were acting within the scope of their jobs.

The closing pages of Home Star showed yet again that questions at oral argument often the Court's reflect serious concerns -- and may well be coming from the author of the opinion. During the oral argument, Justice Thomas asked whether the defendant's construction of the statute, where immunity turned on whether or not the patient was billed, might result in the poor having less access to the tort system: the wealthy would always get billed, but the poor often would not - thus triggering immunity - because the hospital or physicians group had no hope of payment. Justice Thomas' opinion raises the same point again as public policy grounds for rejecting the defendant's narrow construction of "without fee."

In the end, the Court concluded that a broad construction of "without fee" best effectuated the legislature's intent of extending immunity to true volunteers, but no further. Accordingly, the Court affirmed the Appellate Court's judgment denying statutory immunity to the defendants.

Image courtesy of Flickr by Ewan Munro.

 

Illinois Supreme Court Hands Down Significant Decision on Effect of Personal Jurisdiction Waiver

Maintaining and asserting objections to personal jurisdiction has been one of the more difficult issues in the law of most jurisdictions for years. Thursday morning, the Illinois Supreme Court clarified an issue of jurisdictional law which has divided the Appellate Courts with its unanimous decision in BAC Home Loans Servicing, LP v. Mitchell.

In Illinois, preserving objections to the court's jurisdiction over your person is governed by Section 2-301 of the Code of Civil Procedure, 735 ILCS 5/2-301. The statute says that if you want to challenge personal jurisdiction, before doing anything else (other than a motion for extension of time to answer), you have to file "a motion to dismiss the entire proceeding or any cause of action involving in the proceeding" or "a motion to quash service of process." If the party messes it up:

That party waives all objections to the court's jurisdiction over the party's person.

So here's the issue: what does "all" mean? Are orders entered before the defendant appeared now validated, or does the waiver only operate as to future orders?

The Supreme Court held that the waiver is prospective only.

The plaintiff filed a complaint in foreclosure in 2009. According to the special process server's affidavit, the summons and complaint was served by substituted service by leaving it with defendant's daughter at the residence. The suit continued, and in the summer of 2010, the court entered an order of default and a judgment of foreclosure and sale. A judicial sale was held in September 2010, and the court entered an order confirming the sale in September 2011.

In October 2011, the defendant finally appeared, moving to vacate the order confirming the sale. The defendant said she'd never been served with the complaint. Later, she withdrew that motion and moved to quash the order of sale, or in the alternative, for relief from the judgment under Section 2-1401 of the Code of Civil Procedure. Once again, the motion was based squarely on faulty service.

Opposing the motion, the plaintiff once again attached the affidavit of service, claiming that the summons and complaint had been left with the defendant's daughter.   One problem, the defendant responded: she didn't have a daughter and didn't know anybody by the name listed in the affidavit of service.

The circuit court refused to quash the sale. On appeal, the plaintiff acknowledged that the service was faulty, but argued that the defendant had validated the sale by filing a motion to vacate the sale, rather than one to dismiss the action or quash service, as required by Section 5/2-301. The Appellate Court agreed and affirmed.

In an opinion by Justice Kilbride, the Supreme Court reversed.

The Supreme Court had dealt with the waiver issue once before. In In re Marriage of Verdung, the court held that submission to the jurisdiction of the court operates prospectively only. An appearance is "not to be considered as giving the court original jurisdiction to enter the judgment," the Court held; "doing so deprives the defendant of his day in court."

But Verdung had been decided under an earlier version of Section 2-301. At the time, the statute had merely provided that anything other than a motion to dismiss or quash was "a general appearance." The legislature added the language providing that "all" objections to jurisdiction were waived in 2000. The plaintiff argued that the amendment had effectively overruled Verdung.

As recently as 2010, the Fifth District had held that the amendment merely codified the prospective-only rule of Verdung. The language of the statute wasn't definitive one way or the other, the Court found.  Since the statute was ambiguous, the Court turned to the legislative history. The Court quoted a prominent state Senator as describing the 2000 amendment as "a cleanup. It is designed to prevent an unknowing waiver." The Court observed that there was no indication in the record that the legislature intended to overturn then-existing law in 2000, and interpreting the amendment to change the law would mean that the 2000 amendment - intended to help parties avoid unknowing waiver - actually had the effect of making the law more harsh. Therefore, the Court reaffirmed Verdung and held that when a party fails to preserve personal jurisdiction objections in either of the ways set forth in Section 2-301, the waiver operates prospectively only.

Since that necessarily meant that the orders entered before the defendant's appearance were entered without personal jurisdiction, the Court vacated them all, reversing the judgment.

The Court concluded with an unusual step: an invitation to the legislature to get involved. The legislature had amended Section 2-301 in 2000 in order to make preserving personal jurisdiction objections easier. The defendant had waived her personal jurisdiction objections despite being represented by counsel. If that were possible, "it is almost certain that pro se defendants will have difficulty in preserving their objections to personal jurisdiction under the amended section 2-301(a)."

It will be interesting to see whether the legislature responds to the unanimous invitation of the Illinois Supreme Court to try again with Section 2-301.

Image courtesy of Flickr by umjanedoan.

Illinois Supreme Court Holds Custody Evaluator's Fees Not Court Costs Under Dismissal Statutes

On Thursday, the Illinois Supreme Court handed down its decision in In re Marriage of Tiballi, answering a question of potential importance to domestic relations practitioners: are the fees of a court-appointed psychologist "costs" which must be fully paid when one party decides to drop a custody dispute? A unanimous court found that the answer was "no."

Tiballi began when the parties divorced in 2005. The judgment of dissolution awarded the parties joint legal custody of their daughter, but placed residential custody with the mother. In 2010, the father petitioned for modification of custody, asking that he be named residential custodian. In the petition, the father alleged that the mother had been verbally and physically abusive towards the daughter, who had expressed a desire to live with the father. In her response, the mother demanded sanctions under Supreme Court Rule 137, alleging that the father had charged her with abuse knowing that the allegations were false.

Shortly thereafter, a guardian ad litem was appointed on the father's motion. Several months after that, the court appointed a psychologist to act as custody evaluator pursuant to Section 604(b) of the Marriage Act. In the order of appointment, the court ordered that the parties split the cost of the evaluation "without prejudice to ultimate allocation."

After a six month investigation, the evaluator filed his report. The evaluator concluded that there was no evidence of the alleged abuse. He further concluded that it would be in the child's best interest for the father's parenting time to be increased.

Not long after the report was filed, the mother filed a motion to dismiss the petition to modify custody. The motion stated that counsel for the father had advised counsel for the mother that he was dropping the petition. The motion was granted.

A month later, the father filed a motion to vacate, arguing that the order dismissing the action did not conform with the parties' agreement. The court amended the order of dismissal to specify that dismissal was without prejudice.

The mother then filed a petition for costs, seeking to have both the costs of the evaluator and the guardian ad litem's fees entirely assessed against the father. The trial court granted the motion in part, granting recovery of the evaluator's fees, but not the guardian's fees. The Appellate Court affirmed.

In an opinion by Justice Robert R. Thomas, the Supreme Court reversed.

Because both the trial and the Appellate Court had viewed the mother's motion as a "voluntary" dismissal, the case had turned on Section 2-1009(a) of the Code of Civil Procedure, 735 ILCS 5/2-1009(a), which provides that a matter may be voluntarily dismissed upon payment of "costs." However, the Court agreed with the dissenter from the Appellate Court that it was difficult to see how a motion by a litigation opponent could be a "voluntary" dismissal, even if it supposedly was triggered by the father's decision not to proceed.   Instead, the Court concluded that the dismissal was more in the nature of one for want of prosecution. The distinction made no difference in Tiballi though, since the failure-to-prosecute statute required assessment of "costs" too.

So the Court arrived at the central question: were the evaluator's fees "court costs"? Citing the narrow definition of court costs adopted in Vicencio v. Lincoln-Way Builders, Inc.: "charges or fees taxed by the court, such as filing fees, jury fees, courthouse fees and reporter fees," the Court held that they were not. For one thing, court fees are nearly always set by statute, and for another, court fees are paid to the court, where the evaluator's fees are paid directly to the evaluator.

Besides, the Marriage Act specifically spoke to the fees of the evaluator, providing that the court should allocate the fees "between the parties based upon the financial ability of each party and any other criteria the court considers appropriate." 750 ILCS 5/604(b). The allocation provision of Section 604(b) was determinative, the Court found.

The Court accordingly held that a party dismissing his or her custody petition "for non-abusive reasons" was not required to bear the full cost of any court-appointed custody evaluators. The Court remanded the matter to the Circuit Court for allocation of the evaluator's fees under Section 604(b).

Image courtesy of Flickr by Clyde Robinson.

The Perils of Small Errors: California Supreme Court Publishes Lower Court's Foreclosure Opinion

 

In its second noteworthy action during Wednesday's conference, the California Supreme Court granted a request to publish an August 2013 opinion from the Appellate Division of the Santa Clara County Superior Court in The Bank of New York Mellon v. Preciado. Preciado carries noteworthy lessons about the perils of small errors in foreclosure cases.

Certain property in Alviso, California was owned and occupied until 2011 by the appellants. In the summer of 2011, the property was acquired by the respondent bank at a trustee's sale pursuant to foreclosure. The bank served a written notice to quit, and 90 days later, filed two unlawful detainer complaints against appellants.

The actions were tried, and judgment was entered for the bank, awarding possession, rent and damages. But when the sheriff tried to execute the writ, he discovered that the property was actually in Alviso; the complaints - and therefore the writ - said it was in San Jose. The bank went back to court seeking an ex parte order to amend the judgment, which the trial court granted. The appellants appealed.

On appeal, the appellants argued that they were never properly served with the notices to quit. C.C.P. Section 1162 provides three methods of service: (1) personal delivery; (2) either leaving a copy with a person of suitable age and discretion at home or business, or mailing to the residence if the tenant is absent from both the home and business; or (3) if the home or business can't be ascertained, or no person of suitable age and discretion can be found, then by posting conspicuously at the property, and mailing to the defendant's attention at the property. Strict compliance is required.

At trial, the resident denied ever receiving the notice to quit. The bank responded with the declaration of its registered process server, who said that "after due and diligent effort," he had posted a copy of the notices at the address, and mailed them to the owner's post office box address. The trial court accepted that showing and entered judgment.

Not so fast, the Appellate Division said. Although substituted service was fine without a showing of reasonable diligence, it does require showing that personal service was attempted, and neither the resident nor a person of suitable age or discretion could be found. There was no such showing in the process server's declaration. Since strict compliance was required, the judgment for possession had to be reversed.

But that wasn't the only problem. In order to perfect its title, the bank was required to show strict compliance with Civil Code Section 2924. That requires proof of all elements of a valid sale.

Under a deed of trust, power to sell the property rests in the trustee. Well, the Deed of Trust in Preciado identified one entity as the Trustee. The Trustee's Deed of Sale identified another entity entirely as "acting as Trustee." Since there was no evidence that one entity had substituted for the other as trustee, the sale was faulty and the judgment had to be reversed.

The lesson of Preciado seems clear: at least in foreclosure cases, any error could be fatal.

 

Image courtesy of Flickr by Jeff Turner.

California Supreme Court To Consider Causation in Workers Comp for Medication-Related Injuries

In Wednesday’s conference, the California Supreme Court agreed to review South Coast Framing v. Workers’ Compensation Appeals Board, an unpublished decision from Division One of the Fourth District. South Coast Framing poses an interesting question: how does the legal standard for causation in a workers’ comp matter apply when an injured worker apparently dies as a result of interactions among the drugs he’s taking following his injuries?

The decedent in South Coast Framing was seriously injured in 2008 when he fell from a roof. His workers’ compensation physician prescribed various pain medications. The decedent was also taking anxiety and sleep medications. Several months after the original accident, the decedent died from the combined effects of two or more of his medications and associated early pneumonia. The decedent’s widow and minor children filed a claim for death benefits, alleging that the decedent’s death was the result of the injury and industrially prescribed medications.

The petitioners’ retained medical expert reviewed various medical records and concluded that the decedent had died as a result of the interaction of all his medications – both the prescribed pain meds and his sleep and anxiety medications. However, the parties’ agreed medical examiner reviewed the medical file, including autopsy and toxicology reports, and concluded that death was the result solely of the sleep and anxiety medications which were unrelated to the injury – the level of the pain medications in the bloodstream was not high enough to trigger any dangerous interaction.

In his deposition, the agreed medical examiner was pressed hard in regard to the pain medications. Ultimately, he commented that “it’s possible” that one of the pain medications might have been “additive” or “an incremental contributor,” but the anxiety and sleep meds had “carried the day.” He declined to quantify any possible contribution from the pain medications, commenting that it would be “throwing a dart at a dartboard kind of stuff . . . just pulling numbers out of the sky.” The examiner also commented that the decedent’s medical records didn’t reveal whether the decedent’s sleep medications had anything to do with pain from his back injury.

The Workers’ Compensation Judge found that the decedent’s death resulted from the medications prescribed as a result of his injury, and that the petitioners were therefore entitled to death benefits. The Judge relied heavily on the examiner’s comments that one of the medications could be part of the “causation pie” and that another represented additional “crumbs” of that pie. In her report to the Workers’ Compensation Board, the Judge concluded that the causal connection between employment and injury is enough if the employment is a contributing cause to the injury; it need not be the sole cause. The Board adopted the Judge’s report.

The Court of Appeal reversed. In order to be a covered injury, the Court held, an applicant has the burden of demonstrating a “reasonable probability of industrial causation” by a preponderance of the evidence. In reaching its conclusion, the Board must consider a physician’s report or testimony as a whole, rather than overly emphasizing snippets of testimony. Considered as a whole, the physician’s report must be based upon reasonable medical probability in order to adequately support an award.

The Board believed that the examiner had changed his opinion from his written report to his deposition testimony. On the contrary, the Court held, the examiner had testified that he stood by his original report. Even if his remark that “it’s possible” that one of the pain medications contributed to the decedent’s death constituted a change of opinion, the new opinion was based on “surmise, speculation, conjecture and guess.” Although a medical examiner was not required to opine as to a precise percentage of causation, a “reasonable probability of industrial causation” was required. “[T]hrowing a dart at a dartboard kind of stuff” wasn’t good enough to satisfy that standard. The Court also found that the record did not establish a reasonable probability that the decedent’s sleeping issues were the result of his injury, since his medical record reflected the decedent was not reporting pain during the times he had trouble sleeping. The unanimous Court reversed the Board’s order and remanded the matter with instructions to deny the claim.

We expect South Coast Framing to be decided in late 2013 or early 2014.

Image courtesy of Flickr by Paul Holloway.

Party Hosts (and Their Insurers) Beware - An Entry Fee to Cover Costs May Expose You to Liability

Trying to have a party on a budget, albeit an underage party with alcohol, the host required a cover charge to help cover the costs of the party. Both the trial court and the Court of Appeal agreed that this was not a sale of alcohol, making the social host immune from liability for the actions of the drinkers. However, in Ennabe v. Manosa, the California Supreme Court reversed both lower courts; holding instead that a host charging an entrance fee which entitles guests to alcoholic is a sale. As a result, this falls into an exception to the general immunity and the host is potentially liable for selling alcohol to an obviously intoxicated minor. This is true whether or not she required a liquor license, since she would still qualify as “any other person” who sells alcohol. (Bus. & Prof. Code §25602.1.) While the Court initially stated that it was only reversing summary judgment based on a question of fact on the existence of a sale, the opinion is not so limited.

In this case, Manosa was hosting a mostly underage party at an empty rental house and charged an entrance fee to any unknown guest to help pay for drinks. The money collected was later used to buy more drinks. One underage guest, Garcia, arrived intoxicated, paid an entrance fee, and reportedly drank more at the party. Ennabe was a friend of Manosa, and so apparently did not pay, but was also intoxicated. Garcia became obnoxious and was asked to leave, and an altercation between Ennabe and Garcia’s friends on their way out ended when Garcia struck Ennabe with his car, killing him. Defendant won a summary judgment and the Court of Appeal affirmed. (See, our blog entry when the Supreme Court initially granted review here.)

After a detailed history of alcohol related immunities in California, the Court followed the definition in the Alcohol Beverage Control Act that any transaction involving any consideration for alcohol constitutes a sale, regardless of the intent behind the fee. As such, the Court found that this exception to immunity extends to a private person who, for whatever reason, charges a fee for drinks, even if only as a cover charge, regardless of whether the host is part of any commercial enterprise or has any intention to profit. The Court expressed confidence that this holding would not interfere with the wide variety of social and commercial settings in which alcohol is provided (gallery openings, political fundraisers, etc.). In any case, it found no reason to be concerned about extending liability to anyone selling alcohol to an intoxicated minor.

While not addressed in this opinion, there is an underlying coverage issue which may ultimately need to be addressed. It is interesting to note that Manosa’s parents were unaware that she was throwing this party. It is also unknown whether the applicable premises policy terms assumed that the immunity provisions for social hosts would apply. An exclusion regarding commercial or business activities may provide little protection to the insurer, given the apparent evidence that this was not a commercial enterprise, but merely an attempt to defray party costs. Presumably, this opinion will inspire premises insurers to review their policy terms to confirm that this opinion does not create unexpected exposure. 

Image courtesy of Flickr by Carl Malamud
 

Illinois Supreme Court Reaffirms Forcible Entry Remedy, Reversing in Spanish Court Two Condominium

One of the two most anxiously awaited cases on the Illinois Supreme Court’s civil docket was handed down this morning, and it was a big win for Illinois condominium associations: a sharply divided Court reversed the controversial decision of the Appellate Court’s Second District in Spanish Court Two Condominium Association v. Carlson. Our detailed summary of the facts and underlying court decisions in Spanish Court is here. Our report on the oral argument is here. (If you’re wondering, the other major pending decision is  Kanerva v. Weems, which relates to public employee pensions).

Illinois is apparently unique among the states in allowing condominium boards to file actions under the state Forcible Entry Act. In contrast to landlords’ actions against renters, a judgment against a condo owner under the Act doesn’t transfer title to the unit. The board gains a bare right to possession, along with the right to rent the unit if they choose to do so and apply the proceeds to the owner’s unpaid assessments.

Spanish Court Two began in early 2010 when the plaintiff association sued the defendant under the Forcible Entry Act. The plaintiff alleged that the defendant had failed to pay monthly assessments for the past six months. The plaintiff sought possession of the defendant’s unit and a monetary award.

The defendant filed a combined answer, affirmative defenses and counterclaim. She admitted that she had stopped paying the assessments, but denied that they were owed; according to the defendant, the plaintiff’s failure to repair damage to the roof and certain brickwork directly above her unit had led to water damage to the unit itself. The defendant also alleged that the plaintiff had failed to make certain repairs inside the unit. Based on these factual allegations, defendant pled two affirmative defenses: (1) that the plaintiff was estopped from seeking the assessments because of its breach of the duty to maintain and repair; and (2) that the cost of repairing the damage to her unit should be deducted from any award of the past-due assessments. Defendant’s counterclaim was based on the same allegations.

Section 9-106 of the Forcible Entry Act, 735 ILCS 5/9-106, provides that matters which are “not germane to the distinctive purpose of the proceedings” may not be raised by a defendant “by joinder, counterclaim or otherwise.”  The plaintiff moved to strike the defendant’s defenses and counterclaim, citing Section 9-106, the Circuit Court granted the motion, and the defendant appealed. The Appellate Court reversed and remanded for partial reinstatement of the defendant’s affirmative defenses.

In an opinion for a four-Justice majority by Justice Mary Jane Theis, the Supreme Court reversed the Appellate Court. Although historically, the “distinctive purpose” of forcible entry proceedings has been to regain possession of the property, that purpose has expanded slightly in Illinois. Courts are permitted to enter judgments for unpaid rent in actions against tenants, and when condominiums were added to the statute, the legislature decided to permit money judgments for unpaid assessments. Nevertheless, the majority wrote, the issue of what was and was not “germane” remained closely tied to the central issue: possession.

The plaintiff’s action had been brought solely on the grounds that the defendant had failed to pay assessments. Therefore, the court found, whether or not she actually owed those assessments was clearly germane to the question of whether possession should be handed over to the condo board. But that wasn’t the end of the matter. The core issue was whether the defendant’s defense – that the board’s alleged failure to perform its duty to maintain the common areas excused the defendant’s duty to pay assessments – was legally sound.

The Appellate Court had reached its result by analogizing the relationship between the condominium board and a resident to the one between a landlord and a tenant. Here, the Supreme Court majority parted company with the Appellate Court. The relationship between landlord and tenant is primarily contractual, the Court wrote. The relationship between board and owner, on the other hand, is almost entirely a creature of the Condominium Act, which flatly provides that “it shall be the duty of each unit owner . . . to pay his proportionate share of the common expenses.” 765 ILCS 605/9. That duty exists independent of the governing documents of any particular association. The statute says nothing even suggesting that the duty to pay is contingent on the board’s performance of its duty to repair and maintain the common elements. An owner’s duties can’t be assigned, delegated, transferred, surrendered or avoided, and the Board may foreclose if the owner fails to pay.

The majority concluded:

These provisions, when read together, demonstrate that a unit owner’s liability for unpaid assessments is not contingent on the association’s performance . . . a unit owner’s claim that its obligation to pay assessments was nullified by the association’s failure to repair and maintain the common elements is contrary to the Condominium Act and is not a viable defense.

Besides, the majority concluded, allowing such disputes into the unique proceeding for forcible entry would transform what the legislature intended to be a speedy and relatively inexpensive remedy into a lengthy and expensive mess by injecting “a myriad of fact-based inquiries.” Not only would the court have to assess the adequacy of a board’s repair efforts, it would have to determine whether any unmade repairs were “material” – whatever that might mean in this context – and whether any breaches were a partial or complete defense to payment.

Allowing each condominium owner to set him- or herself up as an independent judge of the Board’s performance by withholding payments threatened the “financial stability” of Illinois condominium associations, the majority wrote. The condominium form of ownership is dependent on the timely compliance of all owners with assessments, and without it, the association may be faced with a choice between default on its obligations or curtailing services.

Justice Charles E. Freeman dissented, joined by Justices Anne M. Burke and Thomas L. Kilbride. The dissenters argued that the relationship between condominium board and owner was governed both by statute and contract, making the analogy to landlord-tenant law drawn by the Second District a better fit. The dissenters argued that the conflict with the Condominium Act relied upon by the majority was an illusion; the Act didn’t say anything at all about the situation where a board failed to repair and maintain common elements. Nor was the argument that allowing the defense would make forcible entry proceedings lengthy, expensive and unduly complex persuasive – as the dissenters pointed out, a landlord’s breach of duty is a germane defense in a forcible entry action against a tenant, and such proceedings still got adjudicated. Allowing the defense by an owner shouldn’t make much difference one way or the other.

The dissenters dismissed the potential threat to the financial stability of Illinois condominium associations from allowing a nullification defense. Only material breaches would have any effect on the obligation to pay, the dissenters pointed out. Moreover, withholding payment put the owner at “utmost peril” – the threat of eviction – and was therefore a powerful incentive to pay up. While condominium ownership only works if all owners cooperate, the dissenters argued that it also only works where the association board fulfills its obligations. The dissent concludes by inviting the legislature to get involved in the dispute by clarifying what defenses are and are not germane in the unique summary proceeding for forcible entry.

Image courtesy of Flickr by Toshihiro Oimatsu.

Spanish Court Two Condominium and Three Other Civil Opinions on Thursday

The Illinois Supreme Court has announced that it expects to file opinions in four civil cases on Thursday morning, March 20. Among the new opinions will be one of the two most anxiously awaited cases on the court’s advisement docket – Spanish Court Two Condominium Association. The cases, with their issues presented and links to our earlier reports on each, are:

  • Spanish Court Two Condominium Association v. Carlson, No. 115342 -- May a condominium owner refuse to pay monthly and/or special assessments, in whole or in part, on the grounds that the condominium board failed to maintain and repair the common elements of the condominium property? Our detailed summary of the facts and underlying court decisions in Spanish Court is here. Our report on the oral argument is hereSpanish Court Two Condominium will have been under submission for 184 days when it comes down on Thursday.
     
  • Home Star Bank & Financial Services v. Emergency Care & Health Organization, Ltd., No. 115526 -- Does a physician paid by his physician group to provide emergency care in a hospital qualify for immunity under the Good Samaritan Act when he responds to a Code Blue in another part of the hospital? Our detailed summary of the facts and underlying court decisions in Home Star Bank is here. Our report on the oral argument is hereHome Star will have been under submission for 57 days when it comes down.  
     
  • BAC Home Loans Servicing, LP v. Mitchell, No. 116311 -- Does waiver of a personal jurisdiction objection operate retrospectively, validating everything that has gone before, or only prospectively? Our detailed summary of the facts and underlying court decisions in BAC Home Loans is here. Our report on the oral argument is hereBAC Home Loans will have been under submission for 56 days was it comes down.
     
  • In re Marriage of Tiballi, No. 116319 -- When a parent voluntarily dismisses a petition to change custody, can he or she be hit with the fees of a court-appointed child psychologist as costs? Our detailed summary of the facts and underlying court decisions in Tiballi is here. Our report on the oral argument is hereTiballi will have been under submission for 56 days when it comes down.

In 2013, the Court handed down its unanimous civil decisions an average of 103.7 days after oral argument. Cases in which the Court was divided were handed down an average of 185.8 days after argument.

Image courtesy of Flickr by joenevill.

Coming Soon - The Jurisdictional Implications of Social Media Posts

In the second significant order to come off the civil side of the California Supreme Court’s docket in the wake of Wednesday’s conference, the Court entered a “grant-and-transfer” order in Burdick v. Superior Court (Sanderson), granting the petition for review and shipping the case back to the Fourth Appellate District, Division Three. Ordinarily, G&T orders don’t attract all that much attention on the order list, but Burdick is significant as a potential signal of issues likely to reach the Court in the next year or two. According to the Court’s docket, its order instructed the Court of Appeal to “vacate its order denying mandate and to issue an order to show cause why the relief sought in the petition should not be granted in light of Walden v. Fiore.” The Court’s order was unanimous.

Burdick is a defamation claim brought by California residents against a competitor as a result of a Facebook post. The defendant challenged personal jurisdiction for lack of minimum contacts with California, but the trial court refused to quash service.

Although some G&T orders involve the straightforward application of new and controlling authority from either the state or federal Supreme Courts, Burdick is worthy of attention because Walden isn’t a social media case. So whatever the Court of Appeal decides, it will be breaking new ground. It’s worth reviewing Walden in some detail to understand its possible application to the social media questions involved in Burdick.

Walden arose when the respondents were searched by DEA agents at an airport in San Juan, Puerto Rico. When the agents found $97,000 in cash on the respondents, the respondents explained that they were professional gamblers – the money was their “bank” and winnings. The agents released the respondents to fly to Atlanta, but notified a DEA task force waiting at the Atlanta airport that the respondents were coming. As the respondents waited for a connecting flight from Atlanta to Las Vegas, the petitioner – a police officer working as a deputized agent of the DEA -- approached, briefly questioned them, and ultimately seized the cash.

On two occasions in the month that followed, the petitioner received documentation from the respondents’ attorney regarding the legitimacy of the money. Nevertheless, the petitioner helped draft an affidavit in support of an action for forfeiture of the funds. According to the respondents, the affidavit misrepresented the parties’ encounter at the airport and omitted exculpatory information. In any event, no forfeiture complaint was ever filed, and the money was returned seven months after it was taken. The respondents filed a Bivens suit against the petitioner in Nevada, alleging that the search, seizure and affidavit violated their Fourth Amendment rights.

The district court tossed the case for lack of personal jurisdiction in Nevada, but a divided panel of the Ninth Circuit reversed.

The Supreme Court unanimously reversed the Ninth Circuit. Like many plaintiffs, the plaintiffs in Walden pointed to the petitioner’s interactions with them as the petitioner’s “minimum contacts” with the forum. But “minimum contacts” analysis “looks to the defendant’s contacts with the forum State itself,” the Court pointed out, “not the defendant’s contacts with persons who reside there . . . the plaintiff cannot be the only link between the defendant and the forum . . . a defendant’s relationship with a plaintiff or third party, standing alone, is an insufficient basis for jurisdiction.”

The Walden Court addressed the landmark personal jurisdiction case Calder v. Jones in some detail. In Calder, the tabloid defendant, based in Florida, wrote an allegedly libelous story about a California resident. The Supreme Court ultimately upheld jurisdiction. But that was because of the defendant’s contacts with the forum, not merely with the California-based plaintiff, the Walden court noted: the defendant had reached out to “California sources” for the article; the article related to alleged activities in California; any reputational injury and damages had been suffered in California.

There was nothing analogous in Walden, the Court found. The petitioner officer had never traveled to, conducted activities within, contacted anyone in, or sent anything or anyone to Nevada. The mere fact that he had allegedly directed activities towards individuals he knew resided there wasn’t enough. Nor was the fact that the respondents happened to be in Nevada when they wanted to use the seized money and thereby suffered their damages enough. No minimum contacts – no jurisdiction.

One footnote in Walden stands out in view of the California Supreme Court’s action in Burdick. The Walden respondents argued that if the Court failed to find minimum contacts, it might be impossible for plaintiffs to act against persons committing frauds through the internet. “[T]his case does not present the very different questions whether and how a defendant’s virtual ‘presence’ and conduct translate into ‘contacts’ with a particular State. To the contrary, there is no question where the conduct giving rise to this litigation took place . . . We leave questions about virtual contacts for another day.”

For the Fourth District – and perhaps within the next year or two, for the California Supreme Court – that day will soon come.

The California Supreme Court’s order in Burdick probably shouldn’t be read to indicate that the Court has already decided that Walden necessarily means that there can never be jurisdiction over a non-resident defendant in an internet tort case. But it does show that the Court views Walden as a useful framework for addressing those issues. And given the Walden Court’s emphasis on contacts with the state, not merely the plaintiff – and its specific comment that jurisdiction can’t rest merely on the plaintiff’s injuries suffered in the forum – plaintiffs in such internet cases will face significant barriers to establishing personal jurisdiction in their home forums.

Image courtesy of Flickr by Joel Kramer.

California Supreme Court Agrees to Decide Potentially High-Stakes Employment Issue

 

 

During its Wednesday conference, the California Supreme Court agreed to answer an issue certified for its decision by the Ninth Circuit: what standard should an employer use to determine whether employees are entitled a "suitable seats" during their working hours pursuant to California law?

The question arises from two consolidated cases, Kilby v. CVS Pharmacy, Inc. and Henderson v. JPMorgan Chase Bank NA. The plaintiff in Kilby was employed as a clerk/cashier. She spent about ninety percent of her time operating the cash register, scanning and bagging merchandise and processing customer payments. The rest of her time, she performed tasks requiring that she move around the store - gathering shopping carts and restocking display cases. The plaintiff was told during her training that her job would require standing for long periods; the defendant's view was that standing while operating a cash register promoted excellent customer service.

Henderson poses the same question in a slightly different context. The plaintiff, a former teller, spent most of her time accepting deposits, cashing checks, and handling withdrawals. A small fraction of her time was spent doing various other things that required moving around the bank branch: escorting customers to safe deposit boxes, working the drive-up teller window and checking ATMs.

The issue turns on two orders of the California Industrial Welfare Commission. California Wage Order 4-2001 governs "professional, technical, clerical, mechanical and similar occupations." Wage Order 7-2001 governs non-executive employees in "the merchantile industry." Section 14 of the two orders is identical:

(A) All working employees shall be provided with suitable seats when the nature of the work reasonably permits the use of seats.

(B) When employees are not engaged in the active duties of their employment and the nature of the work requires standing, an adequate number of suitable seats shall be placed in reasonable proximity to the work area and employees shall be permitted to use such seats when it does not interfere with the performance of their duties.

So what does "nature of the work" mean? Neither Wage Order says. Nor do they define "reasonably permits" or "suitable seats."

The plaintiffs argue that the "nature of the work" refers to each discrete task an employee performs: if the job can reasonably be done seated, the employer has to provide a suitable seat. The defendants take what the Ninth Circuit called a "holistic" approach, taking into account the entire range of an employee's duties, the layout of the workplace, the employer's philosophy about the employee's job (i.e., the defendant in Kilby's view that standing cashiers perform better), and any other relevant factors. Both district courts adopted the holistic approach and found for the defendants.

The question potentially makes an enormous difference to California employers. According to the Ninth Circuit, if the Supreme Court adopts the task-by-task approach, "thousands of California's employees" might argue that they are entitled to seats. And the financial stakes are huge: "If, at the time of the alleged violation, the person employs one or more employees, the civil penalty is one hundred dollars ($100) for each aggrieved employee per pay period for the initial violation and two hundred dollars ($200) for each aggrieved employee per pay period for each subsequent violation." So we should expect to see many amicus briefs from both sides of the issue before the Supreme Court.

The California Supreme Court generally decides certified questions more quickly than other cases, so we expect Kilby to be decided in the next eight to twelve months.

Image courtesy of Flickr by Wu_135.

 

What's Pending on the Illinois Supreme Court's Advisement Docket?

As we near the opening of the March docket, it's time to take a look at the civil cases that are argued and pending for decision before the Illinois Supreme Court. The Court is quite up-to-date on its docket at the moment, with only seven civil cases pending - five from the January argument docket, and the two giants of the docket, Spanish Court and Kanerva, which were argued in 2013. In 2013, unanimous decisions came down an average of 103.7 days after oral argument, while cases with dissenters took much longer - 185.8 days after argument. The pending cases are:

  • Spanish Court Two Condominium Association v. Carlson, No. 115342 -- May a condominium owner refuse to pay monthly and/or special assessments, in whole or in part, on the grounds that the condominium board failed to maintain and repair the common elements of the condominium property? Our detailed summary of the facts and underlying court decisions in Spanish Court is here. Our report on the oral argument is hereSpanish Court has been pending for 165 days.
     
  • Kanerva v. Weems, No. 115811 -- 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? Our detailed summary of the facts and underlying court decisions in Kanerva is here. Our report on the oral argument is hereKanerva has been pending for 164 days.
     
  • Home Star Bank & Financial Services v. Emergency Care & Health Organization, Ltd., No. 115526 -- Does a physician paid by his physician group to provide emergency care in a hospital qualify for immunity under the Good Samaritan Act when he responds to a Code Blue in another part of the hospital? Our detailed summary of the facts and underlying court decisions in Home Star Bank is here. Our report on the oral argument is hereHome Star has been pending for 38 days.  
     
  • People ex rel. Madigan v. Burge, Nos. 115635 & 115645 -- 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 detailed summary of the facts and underlying court decisions in Burge is here. Our report on the oral argument is hereBurge has been pending for 38 days.
     
  • Nelson v. County of Kendall, No. 116303 -- Is the office of the State's Attorney a "public body" subject to the state Freedom of Information Act? Our detailed summary of the facts and underlying court decisions in Nelson is here. Our report on the oral argument is hereNelson has been pending for 37 days.
     
  • BAC Home Loans Servicing, LP v. Mitchell, No. 116311 -- Does waiver of a personal jurisdiction objection operate retrospectively, validating everything that has gone before, or only prospectively? Our detailed summary of the facts and underlying court decisions in BAC Home Loans is here. Our report on the oral argument is hereBAC Home Loans has been pending for 37 days.
     
  • In re Marriage of Tiballi, No. 116319 -- When a parent voluntarily dismisses a petition to change custody, can he or she be hit with the fees of a court-appointed child psychologist as costs? Our detailed summary of the facts and underlying court decisions in Tiballi is here. Our report on the oral argument is hereTiballi has been pending for 37 days.

Illinois Supreme Court's March Docket Announced

The Illinois Supreme Court has published its docket for the March term in Chicago. The civil cases on the Court's docket include:

Tuesday, March 18, 2014 - 9:30 a.m.

  • The Estate of Perry C. Powell v. John C. Wunsch, No. 115997 & 116009 -- Does the lawyer who brings a wrongful death action owe a duty of care to the next of kin, or only to the estate? Our detailed summary of the facts and underlying court decisions is here.
     
  • WISAM 1, Inc. v. Illinois Liquor Control Commission, No. 116173 -- (1) Was the plaintiff denied due process when the liquor control commissioner admitted transcripts into evidence and immediately granted the City's motion for a directed finding that plaintiff had violated Section 3-28 of the ordinances of the city of Peoria, justifying summary revocation of the plaintiff's liquor license? (2) Were the transcripts inadmissible, and without them, was there sufficient evidence to support the finding that the plaintiff had violated Section 3-28? Our detailed summary of the facts and underlying court decisions is here.

Wednesday, March 19, 2014 - 9:30 a.m.

  • In re Marriage of Turk, No. 116730 -- When a parent voluntarily dismisses a petition to change custody, can he or she be hit with the fees of a court-appointed child psychologist as costs? Our detailed summary of the facts and underlying court decisions is here.

The Illinois Supreme Court - A Flipboard Magazine

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Could an Insurer's Dec Action Waive the Right to Participate in Settlement in Illinois?

[This post appeared earlier on the Sedgwick Insurance Law Blog.]

An insurer offers its insured a defense under a reservation of rights and files a complaint seeking a declaratory judgment determining coverage. This is not an uncommon sequence of events, either in Illinois or anywhere else. But does the insured then have the right to settle the case on its own, without the insurer’s consent?

Until recently, the answer under Illinois law has been clear: No. But in a decision published in the last days of January, the Appellate Court for the Fourth District cast doubt on that conclusion.

Standard Mutual Insurance Company v. Lay was one of the Illinois Supreme Court’s major decisions of last year. Our coverage of the decision is here. Our report on the oral argument before the Supreme Court is here.

The defendant was a small real estate agency in Girard, Illinois. The defendant hired a fax broadcaster to send a “blast fax” advertising a particular listing to thousands of fax machines. The broadcaster claimed that each potential recipient had consented to receiving the faxes, and the defendant trusted the broadcaster’s word. The problem was apparently it wasn’t true.

Enter the Telephone Consumer Protection Act of 1991, 47 U.S.C. § 227. The statute imposes a penalty of $500 for each unsolicited fax sent, which is trebled for willful violations. So the defendant was hit with a putative class action complaint, alleging willful violations of the TCPA, conversion and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2.

The defendant tendered to its insurer, which accepted under a reservation of rights. The insurer offered the defendant a defense (while noting its potential coverage defenses and the arguable conflict of interest). The defendant signed the waiver of the conflict proferred by the insurer and accepted the attorney.

In mid-July 2009, the putative class action was removed to Federal court. Not long after, the owner of the defendant real estate agency died, and his widow received letters of office. In late October, at the widow’s behest, a new lawyer wrote to the lawyer hired by the insurer, explaining in great detail the conflict between the insurer and the insured (which the insured had waived) and asking the lawyer to withdraw. The lawyer hired by the insurer never withdrew, but a few weeks later, the new attorney and the insured signed a settlement agreement.

In 2010, the settlement agreement was filed and ultimately approved. It provided for a payment of $1,739,000: $500 per fax for each and every one of alleged 3,478 recipients. Given that a finding of willful conduct – the necessary prerequisite to trebling – would have vitiated insurance coverage, this “settlement” amounted to the insured voluntarily paying 100 cents on the dollar on the case. In return, the class representative agreed not to execute on any of the defendant’s assets, and seek to recover solely from the insurer (the covenant not to execute remained valid whether or not the insurer’s policy was adjudicated to cover the policy).

In mid-2011, the trial court granted the insurer summary judgment in the declaratory judgment action, finding that TCPA damages were in the nature of punitive damages and thus uninsurable. The Supreme Court allowed a petition for leave to appeal and reversed on that point. The Court remanded back to the Fourth District for consideration of the remaining issues – including whether the insured had breached the policy by settling without the insurer’s consent.

The Fourth District originally issued its opinion reversing the Circuit Court in late November 2013, but later granted a motion for publication. The published opinion appeared January 25, 2013.

The court found that all three policies at issue covered the defendant’s “settlement.” One expressly related to the real estate business. The two remaining policies related to rental premises or vacant lots owned by the insured, but neither included “designated premises” limitations.

The insurer argued that the settlement was excluded from coverage by the professional services exclusion, but the Appellate Court disagreed. The real estate agency was not a professional advertiser, the court pointed out. The court specifically held that the TCPA damages were covered by both the property damage coverage and the advertising injury coverage.

But the most important part of the ruling came in two paragraphs on the final page of the opinion. The court noted that where an insurer had provided an attorney pursuant to a reservation of rights, noting the potential conflict of interest, “the insured is entitled to assume control of the defense.” At that point, the court held, the insurer lost the right to prevent the insured from unilaterally settling: “When an insurer surrenders control of the defense, it also surrenders its right to control the settlement of the action and to rely on a policy provision requiring consent to settle.” The court cited Myoda Computer Center v. American Family Mutual Insurance Co. in support of its holding. The insured’s liability was “clear,” the court commented, the settlement amount “was supported by simple math,” and “[a]bsent the settlement, the result would have been the same.” Therefore, the court held, the insurer was liable for the full amount.

The insurer has petitioned the Supreme Court for leave to appeal the case once again. A copy of the insurer’s petition is here. There, the insurer pointed out the grave implications of the Appellate Court’s holding approving of the insured’s behavior: “The Appellate Court’s decision sanctions an insured rolling over on its insurer anytime a defending insurer reserves its rights and files a declaratory judgment action.” The Appellate Court had simply gotten the law wrong, the insurer argues. Myoda involved an entirely different situation, where the insurer had allowed the insured to choose its own counsel from the outset, merely reimbursing costs. The insurer had been told of a prospective settlement and flatly refused to participate – something which never happened in Standard Mutual. The insurer argued that pursuant to long-settled Illinois law, absent a breach of the duty to defend, an insurer has every right to insist on the right to approve of and participate in settlement.

The insurer offers this powerful argument for the potential for abuse of TCPA litigation inherent in the Fourth District’s decision:

[T]arget a defendant, ensure that it carries insurance coverage, offer the defendant a deal where it can walk away unscathed and in the process obviate the need for any proof that offending faxes were ever received, and cash in on the defendant’s insurance policies. This game of ‘gotcha’ prejudices insurers which seek to honor their obligations while at the same time exercising their right to walk into court and seek a judicial declaration of their coverage.

The Fourth District’s holding on remand in Standard Mutual is a significant potential threat to insurers operating in Illinois. The insurer in Standard Mutual appears to have done everything right pursuant to a policy which expressly barred settlement without its consent: it provided (and paid for) counsel, carefully noted and reserved its coverage defenses and explained the potential conflict of interest, and offered the insured the opportunity to waive the conflict – which it did. The insurer then exercised its clear right to seek a judicial determination of coverage. As a result, the insurer was held liable for a 100-cents-on-the-dollar “settlement” entered into unilaterally by the insured.

The Supreme Court should allow this new petition for leave to appeal in Standard Mutual Insurance Co. v. Lay and hold that insurers do not authorize collusive settlements by their insured simply by virtue of proceeding pursuant to their rights under the policy.

Illinois Supreme Court Debates Jurisdiction Over Pension Dispute

The Illinois Supreme Court seemed conflicted during an extremely active oral argument in late January in the high-profile pension case People ex rel. Madigan v. Burge. Burge poses the following issue: can the Attorney General challenge the actions of the Police Pension Board by simply filing suit in the Circuit Court, as opposed to pursuing administrative review in the Appellate Court? Based upon the argument, it appears that whether or not the Court sides with the Attorney General will depend upon whether the Court finds a limiting principle in the Attorney General's broad claim of standing. Our detailed summary of the facts and lower court holdings in Burge is here. The video of the argument is here.

Burge arises from a notorious case a few years ago. A Chicago police officer was widely believed to have sanctioned and participated in the abuse and torture of arrestees in order to extract confessions. The officer was convicted of two counts of obstruction of justice and one of perjury and sentenced to 54 months in prison.

Section 5-227 of the Pension Code says that pension benefits can't be paid to anyone "convicted of any felony related to or arising out of or in connection with his service as a policeman." The Board of Trustees of the Retirement Board of the Policemen's Annuity and Benefit Fund held an evidentiary hearing to determine whether the statute barred further pension payments to the imprisoned officer. At the conclusion of the hearing, the Board split 4-4: the four city-appointed trustees voting to terminate, the four trustees elected by the police officer participants in the pension fund voting to continue payments. Without a majority of the Board voting to discontinue, the motion to discontinue payments failed.

Rather than seeking administrative review of the decision, the Attorney General sued the Board, seeking an injunction to halt the payments. The Attorney General cited section 1-115(b) of the Pension Code, arguing that the statute authorized the Attorney General to seek an injunction to halt any practice which violates the Pension Code. The Pension Board and the officer both moved to dismiss, and the Circuit Court granted the motion. The First District, Division Six of the Appellate Court reversed.

Counsel for the officer argued that the Attorney General was using the statute to collaterally attack a decision by the Board which was subject only to administrative review. Counsel argued that the legislature granted original and exclusive jurisdiction to the Board to make all decisions regarding benefits. Police officers are entitled to expect that the Board and their elected representatives make all decisions regarding their pensions, counsel argued. Because the statute limits judicial review, officers should expect that the Board's decisions are not subject to collateral attack. Justice Burke asked whether Section 1-115(b) was meant to address situations where the Board was acting ultra vires. Counsel said yes. Justice Burke pointed out that the legislature had in fact provided an opportunity to challenge the Board. Counsel argued that such actions were permitted only when the Board's conduct was outside the Code. Justice Burke asked if that wasn't what the Attorney General was alleging. Counsel answered no, and that the Attorney General's claim that the Board's action violated the Code made no sense. Section 1-115(b) creates a private right of action, counsel argued, but it's limited to violations of the Code. Justice Kilbride suggested that that was what the Attorney General was alleging. Counsel answered that the issue was what was the purported violation of the Code. Justice Kilbride pointed out that the Attorney General was arguing that the court had concurrent jurisdiction. So why didn't the AG's right to file apply here? Counsel once again argued that there was no Code violation for the Attorney General to pursue. Justice Burke suggested that the Board has authority to discontinue pension benefits. Counsel responded that Section 1-115(b) doesn't give the Circuit Court authority over that issue. Justice Burke asked whether that was what was decided here, whether the pension should be discontinued. Counsel answered that the Board had clearly acted within its authority. Justice Burke asked what the Attorney General alleged as the Code violation. Counsel answered that the Appellate Court had found that the tie vote was the violation because the Court recognized that the Attorney General hadn't alleged any violation. Justice Thomas asked whether, once the 4-4 vote had occurred, anyone had sought administrative review. Counsel answered that nobody had sought to intervene in the underlying case.

Counsel for the Board followed. The issue was whether the Attorney General has the right to initiate a civil proceeding to challenge a discretionary decision of an administrative agency, counsel argued. The Administrative Review law contains language specifically barring all other kinds of review where the statute applied.  Because the Board had the burden of proof, when four members voted against stopping payments, the motion failed. Chief Justice Garman asked whether there was a method to challenge an erroneous interpretation of state law by the Board - the annuitant wouldn't challenge it, and the Board wouldn't because they made the mistake. Counsel answered that a void act could be challenged any place at any time. Chief Justice Garman wondered whether the statute applied to a mistaken act. Counsel responded that the Attorney General might not like the Board's action, the newspapers didn't like it, but an unpopular decision isn't necessarily a void one. The Chief Justice wondered whether an act had to be ultra vires to authorize an action by the AG. Counsel responded that what was necessary was something beyond the authority given the Board by the legislature.

Once counsel for the Attorney General took the podium, Justice Thomas began by asking what "act or practice" the Attorney General was challenging. Counsel argued that the AG wasn't seeking review of the Board's decision. Justice Thomas wondered whether, if the AG's action was permissible, either the AG or any individual could challenge any Board decision. Counsel responded that the statute was based on years of experience with ERISA. The critical distinction, counsel argued, was between appellate and original jurisdiction. The Circuit Courts have original jurisdiction to decide the ultimate merits - whether an act or practice violates the Code. Justice Burke asked whether, if the Circuit Court could hear this action, anyone could go directly to the Circuit, bypassing administrative review. Counsel responded that a claimant seeking benefits could not obtain them through Section 1-115(b). Justice Burke asked what violation of the Code the Attorney General was alleging. Counsel responded that the violation was payment of benefits barred by Section 2-227 of the Pension Code. Justice Burke responded that those benefits were paid fifteen years before - the Board merely refused to stop benefits. Counsel answered that once the felony conviction was entered, the language of the statute was clear - further payments were barred. Characterizing the action as one for administrative review was misdirection.  Justice Burke asked whether the Pension Board had the authority to decide whether benefits should continue, or the Court did. Counsel responded that the Board and the court had concurrent jurisdiction over the issue. Justice Burke asked whether the Attorney General had the authority to intervene at the Pension Board. Counsel answered yes, but the statute creates a separate vehicle to go straight to the Circuit Court. Justice Burke asked whether the Attorney General had ever gone to court before. Counsel answered no, but this was an important first case for the courts to declare that the Code means what it says. When counsel again argued that the Attorney General had the right to file a separate action, Chief Justice Garman suggested that the Attorney General's action seemed arguably like waiting till the Board acted, and when the AG didn't like it, she sought to end-run the process. Counsel answered that this was inherent in concurrent jurisdiction. The Chief Justice asked whether the Attorney General could have intervened at the Board. Counsel answered that the AG didn't have the resources to monitor thousands of pension cases and intervene at the Board whenever a barred payment was made. The Chief Justice asked whether the Attorney General was acting as the Appellate Court to overrule the Board. Counsel responded that the AG had standing to seek an adjudication by the Court as to whether there had been a violation. Counsel argued that the suit could have been brought the day after the officer's convictions. Justice Theis asked what the Attorney General's case would look like - was she asking the Court to decide whether these felonies arose out of the officer's service? Counsel said yes, and Justice Theis suggested that the AG was relitigating the issue determined by the Board. Counsel responded that the Attorney General's complaint wasn't a disagreement with the Board, but rather arguing that paying the pension violated the Code. Justice Burke asked what new evidence would be presented on remand. Counsel answered that the Attorney General wasn't a party below. The right to intervene and then seek administrative review doesn't preclude concurrent review. Justice Theis asked whether anyone had standing to seek administrative review of the Board's 4-4 decision -- the Board members who lost? The City? Counsel answered that no one had standing to appeal. The statutory mechanism showed the wisdom of the legislature, counsel argued; there was a non-adversarial process with public money at stake, and nobody available to seek review unless the Attorney General could file a separate action. Justice Theis suggested that at least one case from the Fifth District suggested that the City might have had arguable standing to appeal. Counsel answered that the Attorney General doesn't agree with the decision cited by Justice Theis, which conflicted with the Supreme Court's precedent, up to and including Roxana School DistrictJustice Theis asked whether there was case law saying that members of the Board couldn't bring administrative review.   Counsel answered that he hadn't seen a situation where a board member had standing to object to a decision of his or her own agency. Chief Justice Garman asked whether the Attorney General could bring an action based on any error of the Board. Counsel responded that he could imagine incorrect decisions that wouldn't violate the Code.

Counsel for the officer began his rebuttal by arguing that the statutory bar on benefits doesn't automatically apply after a conviction. The legislature gave exclusive jurisdiction to the Pension Board over that decision, and authorized limited review pursuant to the Administrative Review law. Counsel concluded by arguing that if a payment was the Code violation, either the Attorney General or anyone else could challenge a Board action in court at any time.

Counsel for the Board pointed out that the thirty-five day filing deadline under the Administrative Review law is jurisdictional. In contrast, Section 1-115(b) has no time limit. So if the Attorney General is correct, there could be challenges to administrative actions years after a board decision. Justice Karmeier asked whether the Attorney General could have intervened before the Board. Counsel answered that the Attorney General could have spoken at the Board. Justice Karmeier asked whether that would give the AG standing to appeal, and counsel said yes. Justice Thomas posed a hypothetical - assume that the Attorney General had no right to intervene. If so, who would challenge a Board error in favor of an annuitant? Counsel answered that the Attorney General could challenge the failure to allow intervention. Justice Burke asked whether the appeal would be over denial of intervention, or the merits of the decision not to stop benefits. Counsel answered that the AG could challenge the denial of intervention, and if she prevailed, the Board would make an appropriate ruling. Justice Karmeier suggested that if the Board denied intervention, the Attorney General would have to file a separate action, since the AG would not be a party with standing to seek review. Counsel argued that the Attorney General could challenge denial of intervention. Justice Thomas again asked whether, if there was no intervention possible and the annuitant prevailed, anyone would or could seek review. Counsel answered that an erroneous decision was different from a void decision which could be challenged in the Circuit Court.

We expect Madigan to be decided within four to six months.

Illinois Supreme Court Upholds Employee Classification Act

Yesterday in Bartlow v. Costigan, a unanimous Illinois Supreme Court took a pass, for the most part, on deciding constitutional challenges to provisions of the Employee Classification Act which were amended by the legislature while the appeal was pending. The Court rejected a void-for-vagueness challenge to the section of the statute which was unchanged. Our detailed summary of the facts and underlying court decisions in Bartlow is here. Our report on the oral argument is here. Watch a video of the argument here.

The state legislature concluded that construction contractors were evading various protections extended to workers under the state labor laws, including minimum wage, overtime, workers' comp and unemployment insurance, by improperly classifying their employees as independent contractors. In 2008, the Department of Labor received a complaint that the plaintiff was misclassifying employees as independent contractors. The Department sent the plaintiffs a notice of investigation and request for documents. The plaintiff provided several hundred documents, and in early 2010, the Department issued a "preliminary determination" that ten individuals had been misclassified. The Department calculated a potential penalty of nearly $1.7 million.

Only a few weeks later, the Department sent the plaintiff a notice of a second investigation, requesting more information. The plaintiff responded by filing suit, challenging the constitutionality of the Act (due process, special legislation, equal protection and bill of attainder) and seeking declaratory and injunctive relief. The circuit court denied plaintiff's request for a temporary restraining order, but on interlocutory appeal, the Appellate Court reversed. On remand, the circuit court entered an order granting defendants' motion for summary judgment, rejecting each of the plaintiffs' constitutional challenges. The Appellate Court affirmed.

In an opinion by Justice Kilbride, a unanimous Supreme Court vacated in part and affirmed in part. The statute had been substantively amended while the appeal was pending, the Court noted. The Department was now required to provide notice and conduct formal administrative hearings within the meaning of the Administrative Review Law - it was the lack of such procedures that formed the core of plaintiff's constitutional challenge. Following oral argument, the court directed the parties to file supplemental briefing on whether the amended statute applied to their case. The plaintiffs argued that it did not, but the Court disagreed. The case had not proceeded to any final determination of a violation of the Act, and no penalties had been assessed, the Court pointed out. Therefore, the Department's ability to enforce the Act depended on following the procedural steps set out in the Act. Since the new, amended statute applied to plaintiffs' case, the court held that the bulk of plaintiffs' constitutional challenges were moot. Because the Court concluded that it was unable to pass one way or the other on the plaintiffs' constitutional challenges to the superseded parts of the Act, the court vacated that portion of the Appellate Court's opinion.

But Section 10, which set forth the statutory exemptions, had not been significantly amended. Therefore, plaintiffs' challenge to Section 10 was not moot. Section 10(b) sets forth factual criteria which, if a particular individual qualifies, exempt that individual from the Act. In section 10(c), the Act deems "legitimate" and exempt from the Act any sole proprietorship or partnership satisfying certain criteria. The court held that the provisions of Section 10 "provide[d] a person of ordinary intelligence a reasonable opportunity to understand what conduct the Act prohibits," and therefore rejected the plaintiffs' void-for-vagueness challenge. In rejecting the plaintiffs' constitutional challenge, the Court noted that the plaintiffs' strenuous claims that their subcontractors satisfied the elements of Section 10 implicitly amounted to a concession that plaintiffs understood what Section 10 meant. The Court held that plaintiffs' remaining constitutional claims were forfeited for failure to adequately brief them before the Court.

Argument Report: Illinois Supreme Court Debates the Scope of the Good Samaritan Act

Our reports on the oral arguments of the recent term of the Illinois Supreme Court continue with Home Star Bank & Financial Services v. Emergency Care & Health Organization, Ltd. Home Star poses the question of whether physicians who are paid by their physician groups to work in a hospital emergency room can qualify for tort immunity under the Good Samaritan Act. Our detailed summary of the facts and lower court decisions in Home Star is here. Check out the video of the Home Star argument here.

The defendant physician was employed in the emergency room of a hospital.   He responded to a "Code Blue" for a patient being cared for on another floor, complications ensued and the patient suffered permanent brain injury. The guardians of the patient filed suit against the physician and his group, alleging negligence. The defendant moved for summary judgment, arguing that the physician and his employer were immune from liability under the Good Samaritan Act, which provides that any physician "who, in good faith, provides emergency care without fee to a person, shall not, as a result of his or her acts or omissions" be liable for negligence "except willful or wanton misconduct." The plaintiffs pointed out that the defendant was compensated on an hourly basis for his services, but the Circuit Court granted summary judgment, noting that neither the patient nor his insurer had ever been billed. The Appellate Court reversed, holding that a physician was outside the scope of the Act if he or she was paid by anyone for the services provided.

Counsel for the physician began by arguing that reversal was justified based upon the plain language of the Act, and on Estate of Heanue - which the Appellate Court had declined to follow - and its progeny. Counsel argued that the statute provided an express exemption for "emergency care," and it was undisputed that the defendant was engaged in providing emergency care. Justice Theis pointed out that Section 2 of the Act suggests that the legislative purpose was to protect volunteers. Counsel responded that that language was in what several holdings described as the preamble. Justice Theis asked what Section 2 was labeled in the statute itself, and counsel agreed that it was described as the legislative purpose. Chief Justice Garman asked whether the defendant was a volunteer when he rendered the services at issue. Counsel responded no; he was an emergency room doctor being compensated by his physician group. Nevertheless, counsel argued that "volunteer" was not the important concept. The question was whether or not the defendant had provided services to the plaintiff without a fee. Estate of Heanue was on all fours, counsel argued - the patient had not paid any fee, and that was that. Justice Thomas pointed out that defendant believed the issue was whether the patient had been billed, not whether the physician was compensated. Why was this the better interpretation? Counsel argued that it was instructive to look at other parts of the statute, which deliberately chose between the words "without fee" and "without compensation" for different situations. The correct interpretation of the statute depended on the words used and the context, counsel argued. Justice Thomas asked whether the defendant was free to ignore Code Blues from outside the emergency room. Counsel answered that if the defendant was busy in the emergency room, he had no contractual duty to respond. Counsel argued that the statute had once said that the existence of a preexisting duty between the doctor and patient was critical, but the legislature had deliberately removed that language. Justice Theis asked whether counsel was arguing that a preexisting relationship between the doctor and patient was irrelevant to the application of the Act. Counsel answered that a preexisting duty was relevant to the issue of whether the defendant had sent the patient a bill, and why he had not (if no bill was sent). Here, no bill was sent because the defendant's physician group never billed for responding to Code Blues outside of the emergency room. Justice Burke asked whether that was because defendant would be compensated anyway, but counsel answered that it made no difference for defendant's compensation whether he attended one Code or many, or attended one patient or many in the ER. Chief Justice Garman asked whether the matter finally came down to good faith. Counsel agreed that it did; the Act applies if the defendant is a physician, the care was on an emergency basis, and the physician had a good faith basis for not billing the patient. The Chief Justice asked whether, if exactly the same events had happened in the ER, the outcome would be the same. Counsel answered that it came down to whether the patient was billed. Justice Thomas pointed out that some have argued that defendant's construction of the statute meant that the poor often would have no right of action, while the wealthy would have a claim, since hospitals would often not send a bill because they had no hope of payment. Counsel argued that this was a theoretical argument which had not been an issue in the eight years since Heanue.

Counsel for the plaintiff argued that the legislature had never intended to immunize doctors working inside a hospital, and certainly not ones who were not volunteers. Justice Karmeier asked whether the doctor was "paid for services" within the meaning of the statute merely because he had a contract. Counsel agreed. Justice Karmeier asked counsel whether the defendant could disregard a Code Blue. Counsel responded that defendant had admitted that where he had no higher priority in the ER, responding to a Code was part of his job. Justice Karmeier asked whether the result would be different if the defendant's contract expressly carved out responding to codes. Counsel responded that if it had not been part of defendant's job to respond to the Code Blue, that would probably change things. Justice Karmeier posited a doctor paid to travel among hospitals treating patients who encounters and treats a patient on the street while between locations. Counsel answered that he didn't know what the proper result was, but it was a different factual situation. Justice Karmeier asked whether plaintiff maintained that the defendant could not be a Good Samaritan because he was paid, or whether the scope of his duties was what mattered. Counsel answered that both were true. Counsel closed by describing a situation where a defendant had decided not to bill a patient because of a bad result, and under defendant's formulation of the statute, defendant would be immunized - this was the most absurd result imaginable, counsel argued.

In rebuttal, counsel for the defendant argued that plaintiff's position meant that the Legislature didn't know the difference between "without fee" and "without compensation." The legislature didn't use the different terms randomly, counsel argued; "without fee" was used in emergency care given without prior notice of the need, where "without compensation" described situations of broader immunity (like free clinics). Justice Thomas suggested that certain sections of the Act appeared to use "without fee" and "without compensation" interchangeably. Counsel argued that the defendant would be compensated for his time regardless of whether he attended the Code Blue or not. Justice Thomas suggested a hypothetical - an emergency occurred in the hallway outside of an ER, and the physician happened to roll the patient into the ER to use some sort of apparatus. Would the Act apply? Counsel answered that if care took place in the ER, the defendant's physician group would bill the patient, and the Act wouldn't apply. Counsel concluded by arguing that if the Act was intended only to apply to "volunteers," it would be far shorter. The legislature had chosen its terms carefully throughout. The Court may disagree with the public policy choices the legislature had made, counsel argued, but those choices were for the legislature to make.

We expect Home Star Bank to be decided in the next four to six months.

Illinois Supreme Court Handing Down Bartlow and Evanston Insurance on Friday Morning

The Illinois Supreme Court has announced that it will file opinions in two civil cases on Friday morning at 10 a.m. The cases and issues presented are:

Evanston Insurance Co. v. Riseborough, No. 114271 - Does the statute of repose for actions against attorneys “arising out of an act or omission in the performance of professional services” apply only to actions for professional negligence brought by a former client of the attorney? Our detailed summary of the underlying facts and lower court opinions is here.

Bartlow v. Costigan, No. 115152 -- Are the administrative fines imposed by the Illinois Department of Labor under the Employee Classification Act unconstitutional? Our detailed summary of the underlying facts and lower court opinions is here. Our report on the oral argument is here.

Evanston was argued May 16 of last year, meaning that the case has been under submission 281 days. Bartlow was argued September 17, and has been under submission for 157 days. Last year, the median days under submission for non-unanimous decisions was 185.79 days, and for unanimous decisions, 103.7 days.

What the Pension Reform Decision in Arizona May Mean for Illinois

Today the Arizona Supreme Court has handed down its much-anticipated decision in Fields v. The Elected Officials’ Retirement Plan. In Fields, the Court unanimously struck down a pension reform package enacted by the legislature in 2011, finding that the statute violated the Pension Clause of the Arizona Constitution. The decision will be much debated in Illinois, where the legislature’s 2013 pension reform package is now the subject of at least three different lawsuits.

Arizona is one of a small number of states which expressly protects public pensions as a matter of state constitutional law:

Membership in a public retirement system is a contractual relationship . . . and public retirement system benefits shall not be diminished or impaired.

The Arizona legislature established the Elected Officials’ Retirement Plan in 1985. The Plan is funded by employer and employee contributions and investment proceeds, as well as certain court fees. When the Plan was first created, post-retirement benefit increases were awarded ad hoc – there was no automatic formula. In 1990, the legislature enacted ARS 38-818, creating a statutory mechanism for calculating automatic yearly benefit increases. Section 38-818 isn’t a cost-of-living formula, strictly speaking – benefit increases are based upon how well the Plan’s investments did the previous year, subject to a yearly cap.

Section 38-818 provided that retirees were “entitled to receive a permanent increase in the base benefit” each year, as calculated by the formula. But the statute had a sunset provision set for 1994. When 1994 rolled around, the legislature allowed the increase formula to lapse, but in 1996, the legislature amended the statute by striking the sunset clause entirely. The legislature reduced the cap on yearly increases in 1996, but restored the cap to its original 4% per year in 1998. Later that year, the voters adopted the Arizona Pension Clause.

Beginning in 2000, the Arizona Plan’s funding ratio (assets divided by liabilities) started to decline. In the ten years that followed, the funding ratio dropped from 141.7% to 66.7%. Nevertheless, the statute provided retirees with a 4% benefit increase each year through 2011.

In 2011, the Arizona legislature adopted pension reform. The statute did two things.

First, the statute substantially changed the Plan’s reserve fund. Until 2011, in a year when there was money left over from investment returns after retirees were paid the maximum increase, the excess was placed in the reserve fund to finance increases in years where investments didn’t do well enough to fund additional benefits. The 2011 statute prohibited the transfer of $31 million in excess earnings to the reserve fund. As a result, retirees received only a 2.47% increase in 2011, and none at all in 2012 and 2013.

Second, the 2011 statute changed the formula for calculating future yearly increases, beginning in July 2013. The minimum rate of return necessary to trigger any increase was raised from 9% to 10.5%, and future increases were tied to the Plan’s funding ratio.

The plaintiffs filed a putative class complaint, alleging that the pension reform package violated the state Pension Clause. When the trial court agreed, the Arizona Supreme Court agreed to hear an appeal immediately, bypassing the Court of Appeals.

The Supreme Court affirmed the trial court. The question, the Court wrote, was whether the formula established by Section 38-818 for calculating yearly increases was itself a “benefit” within the meaning of the Pension Clause. The plaintiffs argued that it was, but the State and the Plan argued that retirees had only the right to receive benefits in an amount determined by the most recent formula, whatever it might be.

The Court found that the history of the state pension statutes settled the question of what the voters had in mind when they adopted the Pension Clause. Eight years before the Clause was approved, the legislature had enacted the original version of Section 38-818 providing that retirees were “entitled to receive [a] permanent benefit increase in their base benefit.” When the legislature struck the sunset provision, that phrase in quotes was left: retirees were “entitled” to receive a yearly increase, apparently in perpetuity, and that’s how the statute still read when the Pension Clause was adopted. Given that, the Court unanimously concluded that voters would have regarded the formula for calculating yearly increases as falling within the scope of the “benefits” protected by the constitution.

The Court pointed out that its holding was consistent with its earlier cases. In Yeazell v. Copins, the Court had held that an employee was entitled to have his or her pension calculated pursuant to the pension formula which existed when the employee was hired, not pursuant to any less favorable formula which might be adopted after the employee was on the job. The Court also noted that courts in New York and Illinois – two states with similar pension clauses – had likewise held that benefit formulas were constitutionally protected once a public employee was hired.

Given that the increase formula was a pension “benefit,” this only left the question of whether the 2011 amendments diminished or impaired those benefits. The Court had little trouble concluding that they had. First, by preventing the transfer of excess funds to the reserve fund, the statute had reduced 2011 benefit increases and eliminated 2012 and 2013 hikes. Second, by changing the formula for calculating future increases, the statute ensured that increases after 2013 would be significantly smaller, if indeed retirees received increases at all.

As I noted at the outset, pension reform was adopted in Illinois in 2013. The Illinois Pension Clause is virtually indistinguishable from the Arizona Clause:

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

Evidence that the Illinois Constitutional Convention intended to protect formulas for calculating benefit increases from diminishment is quite strong, and the Illinois courts have so held, almost without exception. Nearly all of the arguments raised in the Arizona case have been debated in recent years in Illinois as the legislature wrestled with pension reform. Given the striking similarities in the law of the two states, the unanimous decision of the Arizona Supreme Court may cast a long shadow as litigation in Illinois moves forward.

Illinois Supreme Court to Decide Scope of State Whistleblower Act

Our previews of the newest additions to the Illinois Supreme Court's civil docket conclude with State of Illinois ex rel. Pusateri v. The Peoples Gas Light and Coke CompanyAn unpublished decision from the Fourth Division of the First District, Pusateri involves two major issues relating to the scope of the state Whistleblower Act: (1) does a plaintiff state a claim under the Act by alleging that the defendant included falsified information in a utility rate case; and (2) did a 2009 safety audit before the Illinois Commerce Commission publicly disclose the alleged fraud, requiring plaintiff to prove he was the original source of the information in order to establish jurisdiction.

Plaintiff filed a sealed complaint under the Whistleblower Reward and Protection Act in 2009. In the spring of 2011, the state notified the court that it was declining to intervene in the proceedings. The court ordered the plaintiff to conduct the action on the state’s behalf, unsealed the complaint and ordered service on the defendant.

Before launching into the facts of Pusateri, we should spend a moment with Section 3 of the Act – the part that’s at issue in Pusateri – since “whistleblower” is something of a misnomer. Section 3 is more in the nature of a classic common-law qui tam action: a private citizen sues on behalf of the government, alleging that somebody gave the government a fraudulent bill or claim for payment. In the vast majority of cases, this involves straightforward allegations of fraud by the government’s vendors – an allegation that a bill for goods or services provided to the government was somehow based on fraud. The penalties written into the statute are stiff – a civil penalty and treble damages.

Pusateri involves something quite different, however – a utility’s rate case before the Illinois Commerce Commission. The defendant is required to file a written report with the ICC whenever it takes more than an hour to respond to a report of a gas leak. The plaintiff was a former management-level employee of the defendant. He alleged that following his promotion to management, he was ordered to falsify the ICC reports, changing response times exceeding an hour to something less than an hour. The court noted that the complaint was short on details, including nothing about how many members of management supposedly participated in the alleged practice; whether every report was allegedly altered or only some were; whether it was allegedly done routinely or only when the utility was getting lots of reports; or whether there was some sort of threshold that triggered alteration – such as changing every report from an incident where the response time exceeded two hours.

Anyhow, the plaintiff alleged that the defendant turned over these response time reports to the ICC as part of a rate case, arguing that its safety record was one basis for granting the requested rate increase. The rate increase was granted, and utility bills were subsequently sent to the State and others using the new higher rates. And that’s where the qui tam claim arose, according to the plaintiff – the utility bills to the State were the supposedly fraudulent claim for payment.

The defendant moved to dismiss on two grounds: (1) failure to state a claim – purportedly false support for a rate case didn’t transform the subsequent utility bills into a false claim sufficient to support a Whistleblower Act claim; and (2) the plaintiff’s allegations had been publicly disclosed before filing, and the plaintiff wasn’t the original source of the information, meaning that the trial court didn’t have jurisdiction. The trial court dismissed on the first grounds, holding that plaintiff’s theory didn’t state a claim.

The defendant’s principal argument on appeal was that safety records aren’t one of the factors set out in the Administrative Code for the ICC to consider in rate cases, so there was no causative connection between the alleged fraud and the defendant’s bills. In reversing the trial court, the First District held that while true, that didn’t change the fact that the defendant had submitted the data, and the ICC had considered it as part of the case – nothing in the Administrative Code suggested that the enumerated factors were an exclusive list. Given that the case arose on a motion to dismiss – meaning that the plaintiff’s allegations had to be assumed true on review – that was enough to state a claim under the Whistleblower Act.

The defendant’s alternative argument was based on Section 4(e) of the Act, 740 ILCS 175/4(e). According to that section, no court has jurisdiction over a Whistleblower Act claim based on publicly disclosed information unless it’s brought by either the Attorney General, or by the private individual who was the original source of the information. The “original source” is defined as the person with “direct and independent knowledge of the information” who voluntarily provided the information to the State before suing.

The defendant argued that the ICC had conducted a safety audit, including its gas leak response time reports, in February 2009.  This constituted a public disclosure of the alleged fraud, the defendant argued, and since the plaintiff was not the original source of the allegations, he was allegedly out of luck.

The Appellate Court disagreed. According to the Court, the ICC had found the defendant’s reports inadequate to explain slow response times, and that the Commission had requested additional reports, leading to the defendant instituting a new reporting system. But the alleged falsification of the reports was another matter entirely, the Court concluded – nothing in the audit suggested that the ICC was aware of those allegations. Since the allegations had never been publicly disclosed, there was no need to consider whether or not the plaintiff was the original source. Justice Stuart E. Palmer dissented, arguing that allegedly false information in a rate case didn’t make the ensuing utility bills into a false claim within the meaning of the Whistleblower Act.

We expect Pusateri to be decided in approximately eight months.

Illinois Supreme Court to Decide Whether Insurance Agents Owe a Duty of Care

Our previews of the civil cases which the Illinois Supreme Court agreed to review in the closing days of the January term continue with Skaperdas v. Country Casualty Insurance Company, a decision from the Fourth District. Skaperdas poses a question of considerable potential importance to the insurance industry: does an insurance agent owe customers a duty of care in obtaining insurance?

Skaperdas arises from a bicycle accident. In early February 2008, plaintiff's girlfriend was in an accident driving one of his vehicles. The plaintiff's insurer covered the loss on the condition that the insurer would henceforth list the girlfriend as an additional driver on the policy. Shortly thereafter, the plaintiff allegedly had a conversation with his insurance agent, telling the agent to add both the girlfriend and her son to the policy. Effective February 2009, the plaintiff purchased a policy. The policy listed only the plaintiff as a named insured, but on the declarations page identified the driver as a "female, 30-64."

A few months later, the girlfriend's son was seriously injured in a bicycle accident. Plaintiff and his girlfriend settled for the negligent driver's policy limits, but then made a claim for underinsured motorist benefits under the plaintiff's February 2009 policy. The defendant denied the claim on the grounds that neither the girlfriend nor her son were named insureds on the policy.

Plaintiff sued the defendants, alleging negligence against the insurance agent in obtaining the required policy, and seeking a declaration of insurance coverage with respect to the insurer. The defendants moved to dismiss, with the agent arguing that since he was an "agent," not a "broker," he owed the plaintiffs no duty of care in obtaining the requested insurance. The trial court granted both motions to dismiss.

The case turned on the proper interpretation of 735 ILCS 5/2-2201(a) of the Insurance Placement Liability Act:

An insurance producer, registered firm, and limited insurance representative shall exercise ordinary care and skill in renewing, procuring, binding, or placing the coverage requested by the insured or proposed insured.

The question was whether an "agent" was an "insurance producer." The Fourth District had first addressed the question in 2006 in Country Mutual Insurance Co. v. CarrIn Carr, the court had held that an insurance "producer" is defined by the Insurance Code as "a person required to be licensed under the laws of this State to sell, solicit, or negotiate insurance." 215 ILCS 5/500-10. The court held that there was no basis for distinguishing between agents and brokers under the statute, so agents owed the same duty brokers did.

Carr had been vacated by the Supreme Court in order to facilitate the parties' settlement. But that didn't mean that the Supreme Court disagreed with the holding, the Skaperdas court pointed out. The Fourth District held that its views hadn't changed in the seven years since Carr, reaffirming its construction of Section 2-2201. Finding that the agent/broker distinction was irrelevant for purposes of liability, the Appellate Court reversed.

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

Illinois Supreme Court to Decide Whether Improper Venue in an Administrative Review Case Deprives the Circuit Court of Jurisdiction

Our previews of the new review grants from the Illinois Supreme Court’s January term continue with Slepicka v. State of Illinois, a case from the Fourth District of the Appellate Court. Slepicka poses a question of general importance for administrative law: what’s the proper venue for a petition for administrative review?

The plaintiff in Slepicka resides in a nursing home located in Cook County. In January 2012, the defendant served plaintiff with a notice of involuntary transfer or discharge on grounds of nonpayment. Plaintiff exercised her right to demand a hearing from the Department of Public Health. An administrative law judge from the Department held both a prehearing conference and an administrative hearing at the nursing home. Several months later, the ALJ issued a written decision recommending approval of the transfer/discharge. The assistant director of the Department confirmed the ALJ’s decision. The plaintiff filed a complaint seeking administrative review, but filed it in Sangamon County – where Department is – rather than in Cook County. The defendant moved to dismiss or in the alternative to transfer the matter to Cook County. The Circuit Court denied the motion, but ultimately upheld the Department’s decision. The Fourth District reversed.

The Administrative Review Law applies to any agency whose enabling Act expressly adopts the Law. The Nursing Home Care Act clearly does so, so decisions such as the one at issue in Slepicka are reviewed pursuant to the Administrative Review Law. The Illinois courts have long held that in order for a court to obtain subject matter jurisdiction over an agency action, the procedures set forth in the Administrative Review Law must be strictly followed.

So it sounds on the face of it as if filing in the wrong venue might deprive the court of jurisdiction. The problem is, that theory runs smack into Sections 2-104(a) and 2-106(b) of the Code of Civil Procedure, which expressly say that “no action” can be dismissed for improper venue when there’s a proper one available. The Fourth District held that because the Administrative Review Law doesn’t expressly state that improper venue is a fatal defect – where the Code of Civil Procedure expressly says it isn’t – the CCP prevails, and improper venue is grounds for transfer, not dismissal.

So was the venue in Slepicka improper? The statute says that a petition for judicial review may be filed in any of three places: (1) where “any part of the hearing or proceeding culminating in the decision of the administrative agency” was held; (2) where any part of the subject matter involved is situated; or (3) where any part of the transaction which gave rise to the proceedings is located. 735 ILCS 5/3-104.

The plaintiff argued that Sangamon County was a proper venue under (1) – the decision being reviewed came from the Assistant Director, and the Assistant Director’s decision had been issued from Springfield. The problem with that, the Appellate Court held, was that the statute didn’t say venue lies where the final decision is issued. It says venue lies where “any part of the hearing or proceeding culminating in the decision” was held. The only hearings in the case – the prehearing conference and the administrative hearing itself – were in Cook County. So the only permissible venue was Cook County. Accordingly, the Fourth District reversed and remanded with instructions that the matter be transferred to Cook County.

We expect Slepicka to be decided in six to eight months.

The Perils of Incomplete Service

Our previews of the newest additions to the Illinois Supreme Court’s civil docket continue with Bettis v. Marsaglia, an election law case from the Fourth District. Bettis poses the question of whether a plaintiff’s failure to name the Electoral Board as a party defendant and separately serve the Board with her petition for review in the Circuit Court deprives the Circuit Court of jurisdiction.

The plaintiff in Bettis tried to put a proposition on the ballot regarding the School District’s issuance of certain working cash bonds. Objections were filed, alleging that the plaintiff’s petitions were unnumbered and improperly bound. The Electoral Board sustained the objections, and the plaintiff sought to file a petition for judicial review in the Circuit Court.

The plaintiff’s petition named only two individuals – the objectors – as parties. Although the certificate of service reflected service on all members of the Electoral Board, it didn’t reflect separate service on the Board as an entity. The defendants moved to dismiss, arguing that these two defects deprived the Circuit Court of subject matter jurisdiction. The Circuit Court agreed and tossed the case.

On appeal, the defendants argued that since the election the plaintiff was aiming for had already come and gone, the appeal was moot. The Appellate Court agreed that the appeal was technically moot, but opted to decide it anyway under the public interest exception, concluding that the appeal presented issues of public concern which had divided the Appellate Court and which were likely to recur. Therefore, the court addressed the merits.

The subject matter jurisdiction issues depended on the proper construction of Section 10-10.1(a) of the Election Code (10 ILCS 5/10-10.1(a)). According to the statute, a party seeking judicial review of a decision of the Electoral Board must “file a petition with the clerk of the court” located in the “county in which the hearing of the electoral board was held.” In addition, the party must “serve a copy of the petition upon the electoral board and other parties to the proceeding by registered or certified mail within 5 days after service.”

The Court rejected defendants’ claim that the plaintiff’s failure to name the Board and its members as defendants was fatal to the Circuit Court’s jurisdiction. The statute said nothing at all about the caption on the petition, the Court pointed out. In doing so, the Court distinguished Russ v. Hoffman and Bill v. Education Officers Electoral Board of Community Consolidated School District No. 181, both of which involved not only a faulty caption, but also failure to serve the individual Board members.

The defendants’ second argument – that the plaintiff’s failure to separately serve the Board was fatal – met with more success, however. The districts of the Appellate Court have split on the question of whether the Board must be separately served, or whether service on the Board members was sufficient, the Court noted. The Fourth District opted to follow the First District, holding that the statute unambiguously required service on the Board, not just its members, and that failure to effect such service deprived the Circuit Court of jurisdiction.

To date, the decisions holding that the requirements of Section 10-10.1(a) are jurisdictional come from the Appellate Court. It will be interesting to see whether or not that view is challenged at the Supreme Court, or the debate focuses exclusively on the question of whether service on Board members is sufficient. In any event, we expect Bettis to be decided in six to eight months.

Amendments to Florida Rules of Civil Procedure Effective January 1, 2014

The Florida Supreme Court has adopted various amendments to the rules of civil procedure that became effective on January 1, 2014.  To see all of the redlined changes and to read the decision of the Court adopting these changes, please click here.  The significant changes are highlighted below.

Deadline Changes

            The amendments made noteworthy changes to the deadlines for certain post-trial motions.

 

Motion

 

 

Rule

 

Old Rule

 

New Rule

 

Service of motion for judgment in accordance with motion for directed verdict

 

1.480(b)

 

10 days after return of verdict

 

15 days

 

Service of a motion for new trial or for rehearing

 

1.530(b)

 

10 days after return of verdict in a jury action or the date of filing of the judgment in a non-jury action

 

15 days

 

Order of rehearing or new trial on court’s initiative

 

1.530(d)

 

10 days after entry of judgment or within the time of ruling on a timely motion for rehearing or a new trial may by the party

 

15 days

Substantive Rule Changes

Rule 1.431 (Trial Jury) – The Court added paragraph (i) which addresses communications between the judge or courtroom personnel and the jury.  It specifies what communications must be on the record, what communications may be off the record, how jurors should be instructed regarding the limitations on communications, and when courtroom personnel should notify the court of juror communications.

Rule 1.442 (Proposals for Settlement) – A proposal no longer has to “identify the claim or claims the proposal is attempting to resolve.”  Instead, the proposal must “state that the proposal resolves all damages that would otherwise be awarded in a final judgment in the action in which the proposal is served.”  Subdivision (F) still requires offerors to “state whether the proposal includes attorneys’ fees and whether attorneys’ fees are part of the legal claim.”

Rule 1.451 (Taking Testimony) – This is a new rule that allows the parties to agree, or one or more parties to request, that the court authorize presentation of witness testimony by contemporaneous video or audio communications equipment.  It states the general rule that a witness must be physically present when testifying at a hearing or trial unless otherwise provided by law or rule.

Rule 1.490 (Magistrates) – This rule was amended to:  require that the notice or order setting a hearing before a magistrate state if electronic recording or a court reporter will be used; allow the magistrate to examine “all witnesses produced by the parties”;  require the magistrate to include certain bolded language in his report; require the filing (not service) of exceptions within 10 days from time of service of the report; specifies that cross-exceptions must be filed within 5 days after service of the exceptions; and require the party filing exceptions to provide to the court a record sufficient to support the exceptions.

Form Changes

            The Court also amended the subpoena forms to require a person with a disability to notify the appropriate person of any needed assistance at least 7 days before the person’s scheduled appearance or immediately upon receipt of the subpoena if the time before the scheduled appearance is less than 7 days.  This change affects:  Rules 1.910 (Subpoena for Trial); 1.911 (Subpoena Duces Tecum for trial); 1.912 (Subpoena for Deposition); 1.913 (Subpoena Duces Tecum for Deposition); 1.922 (Subpoena Duces Tecum without Deposition); and 1.982 (Contempt Notice).

           

 

Florida Supreme Court Clarifies the Scope of Discovery of Records of Adverse Medical Incidents and Reaffirms Buster

On January 30, 2014, the Florida Supreme Court concluded its review of Cedars Healthcare Group, Ltd. v. Ampuero-Martinez, 88 So. 3d 190 (Fla. 3d DCA 2000), (Case Nos. SC11-2208 and SC11-2336), by quashing the Third District’s decision and remanding the case for reconsideration by the Third District pursuant to Florida Hospital Waterman, Inc. v. Buster, 984 So. 2d 478 (Fla. 2008).

Background

The right to discovery of records of adverse medical incidents was created by the passage of Amendment 7 to the Florida Constitution in November 2004.  The Florida Legislature enacted § 381.028 in 2005 to clarify the operation and effect of the amendment.  The amendment and statute engendered a firestorm of litigation over their constitutionality, scope and enforcement and resulted in numerous district court and Florida Supreme Court decisions that tried to calm the storm.

District Court Proceedings

The Third District granted and denied in part a petition for writ of certiorari filed by a defendant-medical center requesting the court to quash the trial court’s order requiring production of documents requested by the plaintiff in a request for production.  Though the medical center raised numerous grounds in its petition, the Third District granted the petition solely on the ground that the request to produce asked for records of adverse medical incidents involving patients other than the plaintiff, without limiting the production of those records to the same or substantially similar condition, treatment, or diagnosis as the plaintiff as required by section 381.028(7)(a), Florida Statutes.  Section 381.028(7)(a) provides that “the adverse medical incident records to which a patient is granted access are those of the facility or provider of which he or she is a patient and which pertain to any adverse medical incident affecting the patient or any other patient which involves the same or substantially similar condition, treatment, or diagnosis as that of the patient requesting access.”

The Third District held that by not limiting the request as required by section 381.028(7)(a), the trial court departed from the essential requirements of the law.  The Third District quashed the portion of the trial court’s order requiring the medical center to produce records of adverse medical incidents that were not limited to the same or substantially similar condition, treatment, or diagnosis of the plaintiff.

Supreme Court Decision

Though the case settled after the parties completed briefing, the supreme court retained jurisdiction and decided the case without oral argument.

The supreme court stated that in Buster, decided three years prior to the Third District’s decision below, it declared subsection 7(a) of section 381.028 invalid, as it “unconstitutionally impinge[d] upon the rights granted pursuant to amendment 7 . . . .”  Holding that the Third District’s reliance on subsection (7)(a) impermissibly conflicts with Buster, the supreme court quashed the Third District’s decision and remanded the case for reconsideration by the district court pursuant to Buster.

 

 

Illinois Supreme Court Debates Whether State FOIA Applies to State's Attorney's Offices

Based upon the oral argument during the recently-concluded January term, it is not clear what the Illinois Supreme Court is likely to decide in Nelson v. The Office of the Kendall County State's Attorney. Nelson raises a deceptively simple issue: are the States' Attorneys' offices subject to the state Freedom of Information Act? Our detailed summary of the facts and lower court decisions in Nelson is here. The video of the argument is available here.

The plaintiff filed separate complaints against the County and the office of the State's Attorney, seeking injunctions requiring disclosure of certain emails which he had demanded in FOIA requests. Both actions were dismissed; according to the Circuit Court, the County couldn't be required to turn over the State's Attorney's records, and the State's Attorney wasn't subject to FOIA in the first place.

Here's how Illinois' FOIA works. Every "public body" is required to make public records available on request for inspection, subject to numerous exceptions. If the person asking gets turned down, he or she can go to the Attorney General's office, or sue in circuit court. A decision from the AG's Public Access Counselor goes straight to the Appellate Court for review as a final administrative decision. The Circuit Court, on the other hand, reviews the matter de novo. A "public body" is defined as "all legislative, executive, administrative or advisory bodies" of the state. Therefore, "judicial bodies" are not subject to the Act.

In affirming the Circuit Court, the Second District made it clear it wasn't deciding whether the State's Attorney was in fact part of the judicial branch of government. Rather, it was merely deciding whether the State's Attorney was subject to FOIA. The answer to that was no, the Court held, largely based on the fact that the state constitution creates the office in the judicial article. The court cited the State's Attorneys Appellate Prosecutor Act, 725 ILCS 210/3, for the proposition that the legislature intends the term "judicial body" to mean something broader than "judicial power."

Before the Supreme Court, counsel for the plaintiff argued that the issue at hand was simply whether the State's Attorney was subject to the FOIA. The State's Attorney was a member of the Executive Branch, counsel argued. Justice Thomas asked whether the Appellate Court had based its analysis on the proposition that the State's Attorney office is judicial, or something different. Counsel answered that the Court had held that inclusion of the office in the judicial article of the constitution was determinative. Justice Thomas asked whether it was more of a public policy analysis, as opposed to a finding about the legislature's intent. Counsel responded that the Appellate Court had first looked at the constitution, and then at the State's Attorneys Appellate Prosecutor's Act. Justice Theis noted that the Appellate Prosecutors' Act described the office as a "judicial agency of state government," and asked counsel what that meant. Counsel responded that the statute didn't mean much for the meaning of an FOIA passed 27 years earlier. Justice Theis asked why the legislature would have chosen such language given the cases holding that the State's Attorney is an executive branch agency. Counsel responded that if the legislature had intended to decide the scope of FOIA, it would have said that the State's Attorney is not subject to FOIA. Counsel also noted the Open Meetings Act, which provides that information gathered by a State's Attorney in investigating a possible violation is not subject to FOIA. Why would the legislature have included such a provision if the State's Attorney's office were exempt from FOIA, counsel asked. Chief Justice Garman asked whether the statue was ambiguous. Counsel  argued that the State's Attorney's office was unambiguously included in the statute. The Chief Justice asked whether it was appropriate to consider whether the emails at issue related to court proceedings. Counsel answered that the statutory exemptions addressed the relevance of that. Justice Karmeier asked whether counsel was suggesting that the matter be resolved on the basis of public policy, or whether it was just a question of whether the State's Attorney is or is not part of the judiciary. Counsel answered that policy has to play a part as the statute is analyzed. Justice Thomas suggested that the Appellate Court's decision had been based on policy - essentially, a holding that the court would not extend FOIA to State's Attorneys unless the legislature made it clear that State's Attorneys were covered. Counsel agreed that that was certainly the inference. Justice Thomas noted that counsel saw the policy argument going the other way. Counsel answered that if the Court doesn't overturn the Appellate Court's holding, the result would be a State's Attorney's office immune to public scrutiny.

Counsel for the State's Attorney's office began by arguing that the placement of the State's Attorney in the judicial article of the state constitution was dispositive. Justice Thomas asked whether that was so even in light of the Court's case law holding that the State's Attorney's office is executive in nature. Counsel answered that the State's Attorney certainly performed executive functions, but the nature of the office's functions was not the test. Counsel argued that the Judicial Inquiry Board, for example, was executive in its functions, but the Attorney General had nevertheless opined that the Board was exempt from FOIA because of its placement in the constitution. Justice Theis pointed out that previous decisions of the Appellate Court had suggested that the FOIA was ambiguous. Counsel responded that the statute used the term "judicial body" rather than "judiciary," and argued again that the placement of the State's Attorney's office in the judicial article of the constitution was dispositive. Justice Theis pointed out that counsel argued that the court shouldn't go beyond the four corners of the statute, but counsel nevertheless wanted the court to look to the constitution. For purposes of understanding what a judicial body is, counsel answered, the court should look beyond the statute. Justice Theis asked whether the court should look at the legislative history. Counsel responded that the opinion of a single representative should not carry much weight. Justice Burke asked whether FOIA should be applied liberally in favor of disclosure. Counsel answered that the prior question was whether the statute applied in the first place -- for example, while there might be instances in which there are public policy arguments for disclosure of judiciary records, it made no difference since the judiciary simply isn't subject to the FOIA. Justice Thomas asked, since the statute applies to all executive, legislative, and so on, what the court should do with its cases saying the State's Attorney's office is executive. Counsel answered that "executive branch," "executive body" and "executive function" all meant different things. Because of how the legislature defined a "public body," it was not a conflict to say that State's Attorney's offices were judicial bodies serving almost exclusively executive functions. It was up to the legislature, counsel argued, to change that. Chief Justice Garman asked whether the court needed to consider what if any judicial role the State's Attorney played. Counsel again argued that the office's placement in the constitution was dispositive.

Counsel for the County briefly followed, arguing for a rule that public bodies need not disclose records they are not the primary source for. Counsel argued that the statute was clear, and what was needed was a strong statement from the court to deter unnecessary litigation.

In rebuttal, counsel for the plaintiff argued that the State's Attorney's placement in the judicial article of the constitution was only a matter of salaries and selection; it added nothing to the argument. Counsel argued that there are statutes addressing the concerns raised by the County.

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

Illinois Supreme Court to Address Distraction Exception to Open-and-Obvious Peril Rule

We begin our previews of the civil cases which the Illinois Supreme Court agreed to review at the conclusion of its January term with Bruns v. The City of Centralia, Illinois. Bruns - which arises from the Fifth District - offers the Court an opportunity to discuss the breadth of the so-called "distraction" exception to the rule that no one is liable for open-and-obvious perils.

On a clear day in the late winter of 2012, the eighty-year-old plaintiff in Bruns approached her Eye Clinic for a scheduled appointment. She tripped over a raised section of sidewalk that was part of the path used to access the front entrance to the Clinic, severely injuring her shoulder and arm.

The raised portion of the sidewalk where plaintiff fell had been well known. Over time, the root system of a large tree near the sidewalk had caused a portion of the sidewalk to crack and heave, ultimately raising the cracked sidewalk about three inches above the adjacent slabs. The Clinic had reported the situation to the city (which owned the sidewalk), 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 on grounds of its historic significance.

The plaintiff was being treated for various issues, including blurry and reduced vision. She was aware of the sidewalk defect from previous visits to the Clinic. Nevertheless, at the time of the accident, her attention was focused on the Clinic steps and entrance, not the sidewalk.

The trial court concluded that the sidewalk defect was open and obvious, and defendant accordingly owed plaintiff no duty of care. The court held that the "distraction exception" to the open-and-obvious didn't apply under the circumstances -- given that the City neither created, nor contributed to or was otherwise responsible for the distraction of the Clinic door and steps -- and entered summary judgment in favor of the City.

The Appellate Court reversed. Both sides agreed, the Court wrote, that the peril of the sidewalk was open and obvious as a matter of law. However, the open-and-obvious rule was subject to a "distraction" exception. "The exception applied when there is reason to expect that a plaintiff's attention may be distracted from the open and obvious condition to the extent that he or she will forget the hazard that has already been discovered," the court wrote. Under such circumstances, a property owner's duty is reinstated.

The issue in applying the distraction exception was not who created the distraction, the Court found, but rather the likelihood that an individual's attention would be distracted by it. "It is certainly reasonable," the Court held, "to foresee that an elderly patron of an eye clinic might have his or her attention focused on the pathway forward to the door and steps of the clinic as opposed to the path immediately underfoot." It was "not necessary," the Court wrote, "for a defendant to foresee the precise nature of the distraction." The City had knowledge of the condition of the sidewalk, and other options -- aside from the removal of the tree - existed for mitigating the peril, such as routing the sidewalk around the tree. Accordingly, the Court found, the burden on the City was not significant. Taking all this into account, there was sufficient grounds to conclude that the City had a duty of care, and the negligence claim should have been sent to the jury, the Court held.

Given the Supreme Court's recent cases, it is not especially surprising that the Court would allow the petition for leave to appeal in Bruns. The Court has debated the breadth of the open-and-obvious rule, and occasionally the distraction exception, in recent cases, most recently in Moore v. Chicago Park District. Expect the defendant in Bruns to argue that the distraction exception should either be tightly limited -- perhaps to distractions caused by the defendant - -or abolished entirely. In any case, the defendant is likely to argue that if the mere existence of a set of steps and a door constitutes a "distraction" sufficient to send a case to the jury, then there effectively is nothing left of the open-and-obvious rule under Illinois law. Appellate Strategist will be carefully following the progress of Bruns in the coming months.

We expect Bruns to be decided in six to eight months.

Argument Report: Does Voluntarily Dismissing a Custody Petition Mean You Get Hit With The Psychologist's Fees?

In our detailed summary of the underlying facts and lower court opinions in In re Marriage of Tiballi, we wrote that the question presented was whether a parent who voluntarily dismisses a custody petition can be hit with the full amount of the fees of a court-appointed child psychologist. Based upon the lively oral argument before the Illinois Supreme Court in the January term, it appears that the Court may hold that the prerequisite for that issue is missing because Tiballi doesn't involve a voluntary dismissal. All told, the court asked the parties 57 questions in slightly less than 40 minutes.

The parties divorced in 2005. In 2010, the father petitioned for a change in their child's residential custodian. The court appointed a psychologist, as authorized by the Illinois Marriage and Dissolution of Marriage Act, to submit a recommendation on custody. Not long after, the mother moved to dismiss, claiming that the father had decided he didn't want to proceed. After an order of dismissal was entered, the mother moved to amend the order to permit her to seek an award of costs. She then filed a petition for an award of slightly less than $5,000 -- her share of the psychologist's costs (the original order of appointment had provided that the fees would be split). The trial court granted the petition. The Second District affirmed, holding that the psychologist's fees qualified as "costs" under 735 ILCS 5/2-1009, which provides that a plaintiff may voluntarily dismiss an action "upon payment of costs." The court found that the fees were analogous to court costs because the court retained the expert, not the parties, and the psychologist's fees were not subject to negotiation by the parties. Justice Kathryn E. Zenoff dismissed, concluding that the case hadn't been "voluntarily dismissed" in the first place, so Section 1009 was irrelevant.

Counsel for the father began by arguing that the issue was whether costs of an expert can be taxed upon voluntary dismissal. Justice Theis asked how this case could be characterized as a voluntary dismissal. Counsel responded that once the psychologist's report was completed, counsel for the father had told counsel for the mother that he would voluntarily dismiss. Justice Theis asked whether the exchange was in the record, and counsel answered that the order assessing costs was entered pursuant to Section 1009, the voluntary dismissal statute. Justice Theis asked whether it was a voluntary dismissal where a motion to dismiss was filed, the court entered it, and the plaintiff later objected to the dismissal. Counsel answered that both parties agreed that the case involved a voluntary dismissal. Justice Thomas asked whether, in fact, the court had the authority -- and indeed, the responsibility, to allocate fees. Yes, counsel answered, but that's not what the trial court did here. Justice Thomas asked whether the cause should be remanded for the court to consider allocation of the psychologist's fees pursuant to the standards set forth in Section 604(b) of the Marriage and Dissolution of Marriage Act. Counsel answered that the court's action had foreclosed the parties' right to a hearing under Section 604(b) determining reasonableness and allocation of the fees. Justice Thomas asked whether the father was okay with a remand for allocation under Section 604(b). Counsel answered yes, that the trial court's action had greatly expanded taxable costs to a voluntarily dismissing litigants. Counsel argued that there were three bases for reversal: (1) the ruling was directly contrary to Illinois law; (2) the ruling was a strong deterrent for litigants to voluntarily dismiss; and (3) there were too many distinctions between routine costs and these fees to lump them together as taxable to a voluntarily dismissing litigant. Justice Freeman asked what the distinction was between court costs and litigation costs. Counsel responded that the Second District's opinion laid out several: court costs are fixed and mandatory; litigation costs are not imposed by court. No judgment or court order is needed to impose court costs. Justice Freeman asked how the fact that the psychologist's report was never used factored in. Counsel responded that the fees were analogous to a Supreme Court case distinguished by the Appellate Court below, Galowich v. Beech Aircraft Corp., which permitted the recovery of only a limited share of expenses for depositions necessarily used at trial. Justice Kilbride asked how the evaluation came about. Counsel responded that a guardian ad litem was appointed, and the guardian suggested a 604(b) custody evaluation. The court then appointed the examiner on its own motion. Justice Kilbride asked whether it mattered that the court had decided to make the appointment, rather than a litigant requesting the appointment. Counsel responded that by definition the examiner is appointed by the court. Justice Theis pointed out that it was several steps down the road to dismissal that the parties first spoke in terms of voluntary dismissal. Counsel argued that the father's only recourse, once the examiner's report came back, was to voluntarily dismiss, since it was clear he would not prevail. Justice Theis pointed out that the father didn't file a motion to voluntarily dismiss. Counsel responded that the motion to dismiss from the mother had been the result of the telephone conversation in which counsel for the father made it clear he was dropping the petition. Chief Justice Garman noted that in her experience, a litigant wishing to voluntarily dismiss brings a motion reciting that the party had already tendered payment of costs to the other side. Counsel responded that the father didn't know what the costs were until the mother brought her motion, so he had no chance to tender costs. The Chief asked whether the mother brought up the matter of the psychologist's fees or the court did. Counsel answered that the mother had brought a motion for reimbursement of costs under Section 2-1009, the voluntary dismissal statute. The mother did not ask for a Section 604(b) hearing on allocation and reasonableness. Justice Burke suggested that this case was different from deposition fees under Galowich. Counsel answered that certainly there was a distinction between deposition fees and this examiner's fees, but Galowich offered guidance. Justice Theis pointed out that Section 604(b) says that the court may seek the advice of professionals relating to custody. Counsel answered that further down, the statute provides for a hearing on reasonableness and allocation of fees. Justice Theis asked whether, when the court began considering fees under the voluntary dismissal statute, counsel had objected and demanded a Section 604(b) hearing. Counsel responded that trial counsel had done so.

Before counsel for the mother began, Justice Thomas asked why the court shouldn't remand for allocation under Section 604(b). Counsel answered that the case posed an important issue, and was a good vehicle to resolve the issue. Justice Thomas asked how the court could allow a determination under Section 2-1009 to stand if it found there was no voluntary dismissal in the first place. He noted that the guardian had recommended a custody evaluation. Counsel answered that the guardian had advised the court that the custody issues were unlikely to be resolved without an evaluation. Justice Thomas noted that the original order of appointment had provided that costs should be shared without prejudice to ultimate allocation. But then, dismissal had been entered less than twenty-four hours after a motion was filed, without objection by either side. So why should the court not reverse and remand for a Section 604(b) allocation? Counsel responded that the parties had a trial date, and that counsel for the father had informed her that he wasn't going to trial. She had been authorized to let the court know immediately. Justice Theis asked whether any of that was in the record. Counsel responded that it was in the briefs. Justice Theis pointed out that the order of dismissal had been entered in response to the mother's motion, and asked how one party could "voluntarily" dismiss another's action. Counsel responded that she had moved in order to take the case out of limbo. The father had sought to modify or vacate the order of dismissal so that he could be heard. The court had entertained that motion, and the result was to modify the dismissal to be without prejudice. At that point, the parties had started to talk in terms of voluntary dismissal, and the mother had become entitled to costs under Section 2-1009. Justice Karmeier pointed out that the matter didn't belong under Section 2-1009 if the court found that it wasn't a voluntary dismissal. Counsel responded that it was a voluntary dismissal. Justice Karmeier suggested that the words "without prejudice" didn't make it voluntary, and the parties' concern seemed to be just with whether or not dismissal was with prejudice. Counsel responded that the idea of with or without prejudice means little in custody law, where a court always looks to the best interests of the child. Justice Thomas noted that counsel had said the mother would prevail in an allocation, but the issue was too important not to answer now. Was the issue whether psychologist's fees could be allocated in a nonsuit? Counsel agreed it was. Then didn't counsel see the problem if the court didn't think it was a nonsuit? Counsel responded that both sides had presented the matter as a voluntary nonsuit below. Justice Thomas suggested that the court had an obligation to send the case back if the costs were decided under the wrong statute. Counsel argued that the case presented an important issue for counsel in the area. Justice Burke asked whether the lower court's ruling would open up a lot of items to be called costs and taxed to a dismissing plaintiff. Counsel disagreed, arguing that the amount involved here was non-negotiable. Justice Burke asked how the psychologist's fees were distinguished from guardian ad litem fees. Counsel responded that in her view, the guardian's fees should have been awarded as well.

We expect Tiballi to be decided in 3-4 months.

Argument Report: Does Waiver of Personal Jurisdiction Apply to Orders Entered Before Service?

In the recently concluded January term of the Illinois Supreme Court, the court heard arguments in five civil cases. Our reports begin with BAC Home Loans Servicing, LP v. Mitchell. In BAC, an apparently skeptical Court heard arguments on whether a party's waiver of his or her objection to personal jurisdiction could be limited to events happening after the waiver, as opposed to validating the entire history of a case, including events happening before the new party appeared. Our detailed summary of the facts and underlying court rulings in BAC is here.  The video of the oral argument is here.

The plaintiff filed its complaint in foreclosure in late 2009. Plaintiff's motion for judgment of default was granted in 2010, and a judicial sale was held in September 2010. The plaintiff moved for an order approving the sale, which was granted in September 2011.

On October 23, 2011, the defendant finally appeared, moving to vacate approval of the sale, claiming to have never been served. That motion was withdrawn. Defendant moved to quash the approval order, or in the alternative, for relief under 735 ILCS 5/2-1401 and 735 ILCS 5/15-1508. In April 2012, the plaintiff opposed, claiming to have completed substitute service on the defendant's daughter.

Only one problem, according to the defendant: she didn't have a daughter. No matter, the Circuit Court held: the defendant had waived her objections to jurisdiction by filing her initial motion to vacate the previous year.

On appeal, the plaintiff argued that defendant's first motion had waived any and all challenges to jurisdiction by failing to move to dismiss the action or quash service. Thus, plaintiff claimed, the defendant had failed to comply with the requirements of Section 2-301(a) of the Code of Civil Procedure or Section 15-1505.6 of the Mortgage Foreclosure Act for challenging personal jurisdiction Defendant responded that even if she had made a waiver - which she denied - it was only prospective and could not justify the foreclosure order already entered. The Appellate Court disagreed, holding that certain amendments to the Code of Civil Procedure enacted in 2000 had provided that "all objections to the court's jurisdiction over the party's person" were waived by an appearance. The defendant's waiver of personal jurisdiction therefore operated both prospectively and retroactively, the court held.

Counsel for the defendant opened the argument at the Supreme Court. According to counsel, the case presented two questions: (1) did the defendant waive any objections to the court's personal jurisdiction; and (2) if so, how broadly did the waiver operate? It was uncontested, counsel argued, that plaintiff had never properly achieved service.  Chief Justice Garman asked whether the issue of waiver had been raised by the defendant's PLA. Counsel responded that it was, arguing that the defendant's initial motion had only been withdrawn because the trial court had directed that it be. Justice Theis asked whether the court's direction to withdraw the motion was in the record, and counsel responded that it was not. Justice Thomas asked whether it was time for In re Marriage of Verdung, heavily relied on by defendant, to be reexamined in light of subsequent amendments to Section 2-301 of the Code of Civil Procedure and Section 1505 of the Mortgage Foreclosure Law? Counsel answered that Verdung remained good law. Justice Thomas asked whether the amendments to both statutes removed the prospective limitation on waivers of personal jurisdiction. Counsel responded that they did not, and argued that it would violate due process to hold that submission to jurisdiction subjected the defendant to all prior orders. Justice Freeman asked whether due process rights could be forfeited. Counsel answered no, particularly when the defendant had done nothing wrong. Justice Burke asked whether there was any evidence that Section 2-1301 motions should apply waivers both prospectively and retroactively. Counsel responded that the real purpose of the amendments to the statute was simply to eliminate the distinction between general and special appearances. Justice Thomas pointed out that three years had passed from the default to approval of the foreclosure sale, and asked whether holding that waiver was only prospective would reset the clock in the litigation. Counsel challenged whether proceeds had in fact taken three years. Even if it had, the amount of time passing was irrelevant, counsel argued. Service was mandatory. Plaintiff did not even claim that defendant had ever been validly served. Chief Justice Garman noted that defendant had made a general appearance, and counsel answered that the defendant had simultaneously moved to vacate on grounds of lack of jurisdiction. The Chief Justice asked counsel whether the defendant had then moved to quash the order for possession of the deed. Counsel responded that defendant had never done anything but attack personal jurisdiction. Counsel urged the Court to clear the pending conflict of authority by reaffirming Verdung.

Counsel for the plaintiff began by arguing that the sole issue was the proper interpretation of the clear language of 735 ILCS 5/2-301(a)(5): "If the objecting party files a responsive pleading or motion . . . prior to the filing of a motion in compliance with subsection (a), that party waives all objections to the court's jurisdiction over the party's person." Verdung is twenty-five years old, counsel argued, and has been clearly overruled by subsequent statutes eliminating any limitation on the breadth of the waiver of personal jurisdiction. Justice Theis asked whether counsel was arguing that defendant's having filed a motion to vacate in her first appearance doomed the defendant's argument. Counsel responded that the issue of whether defendant had waived objections to personal jurisdiction was not properly before the court. Justice Theis asked counsel to comment on the fact that the defendant had raised her objections to personal jurisdiction over and over. Counsel responded that defendant had not asked that service be quashed in any of four post-judgment motions. Justice Burke asked counsel how the legislature had indicated that waiver was both prospective and retroactive. Counsel responded that the statute provided for waiver of "all" objections. Justice Burke asked counsel whether the global waiver created any due process concerns. Counsel responded that Section 2-301 had taken care of those concerns by providing a clear road map of what a defendant needed to do to object to jurisdiction, while still honoring finality.

On rebuttal, counsel for the defendant argued that everyone knows litigants sometimes enter appearances without ever actually being served. If the Court affirmed, such litigants would be required to examine the entire history of the litigation or risk being stuck with burdensome orders entered before the litigant appeared. Justice Kilbride asked counsel the basis for defendant's first motion. Counsel answered that defendant's original motion was based on a single argument: faulty service.   Justice Burke asked whether defendant was a pro se at the time, and counsel answered no. Justice Thomas asked whether defendant's motions varied from the steps required by the statutory amendments. Counsel responded that Section 2-1401 specifically permitted a motion to vacate orders entered without jurisdiction. Justice Thomas noted that Section 2-1401 was for new actions, but counsel argued that it covered defendant's post-judgment motions. Justice Thomas asked whether Section 2-1401 required service on the plaintiff. Counsel responded that plaintiff had waived service. Justice Kilbride concluded by asking what the practical difference was between the steps defendant actually took and a motion to quash. Counsel responded "absolutely none."

We BAC Home Loans to be decided in four to six months.

What We Can Learn From Illinois' Kilbride Court

Note: The following post was originally posted on Law360.com on October 31, 2013.

On Friday, Oct. 25, Chief Justice Thomas L. Kilbride ended a three-year term as chief justice of the Illinois Supreme Court, resuming his seat as an associate justice. The following Monday marked the installation of new Chief Justice Rita B. Garman, the 119th chief justice in the state's history and the second woman to hold the post.

Chief Justice Kilbride amassed a record of important achievements outside the courtroom during his tenure. Early in his term, the court announced the end of printed official reporters in Illinois, eliminating an enormous expense for bound volumes and substituting a public domain citation system.

In early 2012, the chief justice spearheaded a pilot program for electronic filing of documents in the Illinois Supreme Court. Later that year, the chief announced new statewide standards for e-filing in civil cases in the state's trial courts. When fully phased in, electronic filing promises to save Illinois taxpayers millions — Cook County spent nearly $16 million on storage of paper documents in 2011 alone.

When the chief justice took office, Illinois was one of only 14 states where cameras in courtrooms were either barred outright or allowed under such restrictive terms that they were hardly used. In January 2012, Chief Justice Kilbride announced a pilot program allowing circuit courts to apply for permission to allow news cameras and electronic news recording.

The court also pioneered additional steps to help the disadvantaged navigate the justice system, amending the Code of Judicial Conduct to permit judges to assist self-represented litigants in being fairly heard and creating a model-language access plan for courts across the state designed to allow litigants and witnesses with limited English proficiency to be fully engaged in the judicial process.

The Kilbride court began in October 2010, when Chief Justice Kilbride succeeded Chief Justice Thomas R. Fitzgerald, and Justice Mary Jane Theis joined the court, taking the retiring chief justice’s seat. The court decided 104 civil cases (disregarding attorney discipline, juvenile and commitment matters). Eighty-five of these cases were appeals from final judgments and orders fully resolving an entire suit or a discrete claim within a larger suit.

The court decided 26 tort cases, 15 cases predominantly involving civil-procedure issues, nine in domestic relations, eight in employment law, seven in constitutional law and six each in government and tax law. Interestingly, given the amount of attention arbitration has gotten in recent years in state supreme courts around the country implementing the United States Supreme Court’s AT&T Mobility v. Concepcion decision, the Illinois Supreme Court has decided only two arbitration cases since October 2010.

Not surprisingly, a dissent before the appellate court helps in getting review; 30.6 percent of the court’s cases during the Kilbride era had a dissenter at the appellate court. A divided appellate court will often mean a divided supreme court — 40.5 percent of the Kilbride court’s nonunanimous decisions had drawn a dissent at the appellate court.

This court has been somewhat more contentious than other recent Illinois Supreme Courts, particularly over the past two years. After deciding 76.3 percent of its cases unanimously in 2011, the court has decided just over half that way in 2012 (53.8 percent) and 2013 (54.2 percent). During its three-year term, the Kilbride court decided 62.5 percent of its civil cases unanimously. It would be easy to write off the year-to-year changes as being explained by accidents of the court’s docket, but that explanation only goes so far; after all, unlike the appellate courts, the Supreme Court chooses its own cases.

Unanimity rates have typically been higher earlier in the past decade than they were under the Kilbride court. With the exception of 2006 under Chief Justice Robert R. Thomas, the court has decided more than 70 percent of its civil cases unanimously in most years. Overall, 75.3 percent of civil cases were decided unanimously under Chief Justice Fitzgerald (2008-2010), 72.3 percent under Chief Justice Thomas (2005-2008) and 72.1 percent under Chief Justice McMorrow (2002-2005).

To give a bit of context, only 37.5 percent of the 7,183 cases resolved by the United States Supreme Court between 1946 and 2009 were decided unanimously. Just over 22 percent of civil cases drew either two or three dissenters during the Kilbride era — comparable to the Fitzgerald court (19.4 percent) but somewhat more than the Thomas (13.4 percent) or McMorrow courts (14.7 percent).

Reversal rates are perhaps the most frequently cited statistic for appellate courts of last resort. During the past decade, the reversal rate at the United States Supreme Court for decisions of the Ninth Circuit has become something of a political football. So how have the appellate courts fared before the Kilbride court?

The Kilbride court reversed 61.8 percent of the civil judgments it reviewed — slightly lower than the Fitzgerald Court (67.5 percent) but more than either the Thomas (50.7 percent) or the McMorrow Courts (56.5 percent). Nearly half of the Kilbride court’s civil docket — 48.1 percent — came from Chicago’s First District Appellate Court. Four of the six divisions of the First District were reversed more than 60 percent of the time.

Reversal rates elsewhere in the state are, for the most part, similar. Sixty-three percent of civil cases from the Second District, the northernmost district in the state, have been reversed. Moving southwards, 60 percent of the Third District’s decisions have been reversed. Eighty percent of civil decisions from the Fifth District — the southernmost district in the state and considered by some to be inclined to pro-plaintiff decisions — have been reversed.

The one exception to this trend is the Fourth District, which is centered in the state capital Springfield and produces many cases involving the government. Only 41.7 percent of the Fourth District’s decisions have been reversed.

To better understand each district’s standing with the court, let’s take a look at the average number of votes to affirm the decisions of each district. Five of the six divisions of the First District have fared relatively poorly; decisions from Divisions Four, Five and Six have earned an average of fewer than three votes before the Supreme Court, and decisions from Divisions One and Two have averaged fewer than two. Other districts have done better; decisions from the Third District receive an average of 3.1 votes and those from the Fourth District 3.67.

Second only to reversal rates in most analysis of appellate courts comes speculation about voting blocs and “swing votes.” Given the number of unanimous opinions, merely calculating the percentage of cases in which each justice votes with the majority tells us relatively little; six of the seven justices have voted with the court in 90 percent or more of civil cases (Chief Justice Kilbride is the lone exception, voting with the majority in “only” 78.8 percent of civil cases).

But when we limit our sample to nonunanimous decisions, interesting patterns begin to emerge. New Chief Justice Garman and Justices Burke, Thomas and Theis have each voted with the majority in at least 80 percent of nonunanimous cases. Excluding cases involving only one dissenter reveals that Chief Justice Garman and Justice Theis have been in the majority in at least three-quarters of the 23 cases in which either two or three justices have dissented (78.3 percent and 77.3 percent, respectively).

Most often in the minority of closely divided courts are Justice Charles E. Freeman, who votes with the majority in such cases 65.2 percent of the time, and Chief Justice Kilbride, who does so in exactly half of all two- and three-dissenter civil cases. Not surprisingly, these two justices are also the court’s most frequent dissenters in civil cases, with Justice Freeman filing 10 complete or partial dissents and Chief Justice Kilbride filing 14.

The other justices dissent much less often, with Justice Thomas filing six, Chief Justice Garman five, Justice Burke four and Justices Karmeier and Theis three apiece. Justices Thomas and Burke spoke for the court most frequently during the Kilbride era, with Justice Thomas filing 18 majority opinions and Justice Burke 17.

To further study the Kilbride court’s dynamics, we turn to the justice-by-justice agreement rates: In what percentage of civil cases did each possible pair of justices vote the same way? The data reveals a central group consisting of Chief Justice Garman and Justices Thomas and Karmeier — not coincidentally, the three Republicans on the court — with Justices Burke and Theis serving as swing votes.

Across the entire database of civil decisions, Chief Justice Garman agreed with Justice Thomas in 94.1 percent of all cases and Justice Karmeier in 88.2 percent. Justices Thomas and Karmeier agreed in 91.9 percent of all civil cases.

Turning to our proposed swing voters, Justice Burke agreed with Chief Justice Garman, Justice Thomas and Justice Karmeier 86.4 percent, 86.0 percent and 87.1 percent of the time, respectively. Justice Theis agreed with the three justices in 90.9 percent (Chief Justice Garman), 88.5 percent (Justice Thomas) and 87.6 percent (Justice Karmeier) of all civil cases.

We turn next to agreement rates in nonunanimous decisions. The new chief justice voted with Justice Thomas in 83.8 percent of all nonunanimous cases and with Justice Karmeier 70 percent of the time. Justices Thomas and Karmeier vote together in 78.4 percent of all nonunanimous civil cases.

Justice Burke voted with Chief Justice Garman in 65 percent of all nonunanimous civil cases, with Justice Thomas in 62.2 percent and with Justice Karmeier in 67.5 percent of nonunanimous civil cases. As for Justice Theis, she voted with Chief Justice Garman in 74.4 percent of nonunanimous civil cases, with Justice Thomas in 68.6 percent and with Justice Karmeier in 68.4 percent.

The court’s more liberal wing is somewhat less cohesive. Justice Burke agrees with Justice Freeman in 85 percent of all nonunanimous cases, but has voted with outgoing Chief Justice Kilbride in only 28.2 percent of such cases. Justice Freeman and Chief Justice Kilbride agreed in only 30.8 percent of all nonunanimous civil cases. Although other pairings score closer to the more conservative members — Justices Burke and Theis agreed in 65.8 percent of all civil nonunanimous decisions, and Justices Freeman and Theis agreed at exactly the same rate, 65.8 percent — in a court divided 4-3 between a moderate and a more liberal wing, a switch of even one vote from one wing to the other can change the result.

The Kilbride court’s 26 six tort cases — the single biggest block of cases on its civil docket — tend to confirm our conclusions. The reversal rate for these cases is almost the same as for the docket as a whole — 61.5 percent.

However, when one divides the data into plaintiff- and defense-oriented appellate court decisions, we learn that the court reversed 72.2 percent of all plaintiff-oriented tort decisions and only 28.6 percent of all defense-oriented ones. The unanimity rate was somewhat less for the tort docket than for the remainder of the court’s caseload — 53.8 percent of the Kilbride court’s tort cases were decided unanimously.

Agreement rates in tort cases are consistent with our results for the rest of the court’s docket. Although the sample of nonunanimous tort decisions is quite small — 12 cases in three years — Chief Justice Garman and Justice Thomas agreed 81.8 percent of the time. The new Chief Justice voted with Justice Karmeier 83.3 percent of the time. Justices Thomas and Karmeier voted together 90.9 percent of the time. Justice Burke agreed with Chief Justice Garman in 75 percent of the nonunanimous tort cases, with Justice Thomas in 100 percent and with Justice Karmeier 83.3 percent of the time. Justice Theis’ agreement rates with Chief Justice Garman, Justice Thomas and Justice Karmeier were similar (75 percent, 81.8 percent and 91.7 percent, respectively).

On the other hand, Justice Burke agreed with Chief Justice Kilbride in only 25 percent of nonunanimous tort cases. Justice Freeman and Chief Justice Kilbride agreed in only 16.7 percent of such cases. Justices Freeman and Theis agreed 50 percent of the time.

With a working moderate majority and no change in the court's personnel, it seems unlikely that the installation of Chief Justice Garman will have a significant impact on the ideological leanings of the court's decisions. For now, the lesson remains the same: In difficult cases, defense counsel wishing to assemble a majority should begin with the chief justice and Justices Thomas and Karmeier, with either Justice Burke or Justice Theis as a deciding fourth vote.

Florida Appellate Court Construes Term "Legal Relationship" in Med-Mal Presuit Screening Rule

On January 3, 2014, Florida’s Second District Court of Appeal held, in a case of first impression, that a medical malpractice plaintiff’s direct notice to a medical provider of its intent to sue would also operate as notice to a physician who was an independent contractor of the medical provider.  To read the full opinion click here. 

In Young v. Naples Community Hospital, Inc., No. 2D12-3679, 2014 WL 26040 (Fla. 2d DCA Jan. 3, 2014), the plaintiffs, Mr. and Mrs. Young, brought a medical malpractice action against Naples Community Hospital, Naples Radiologists, the local provider of the hospital’s radiological services, Nighthawk Radiology Services, the company that provided nighttime radiological services for Naples Radiologists, and Jason Grennan, M.D., an independent contractor with Nighthawk.  Mrs. Young went to the hospital complaining of severe abdominal pain.  She underwent a CT scan that was read by Dr. Grennan as “unremarkable.”  After her admission to the hospital, Mrs. Young underwent additional testing which revealed a blood clot that required immediate surgery.  She was discharged on April 12, 2006, following complications in the recovery process. 

The plaintiffs alleged that the initial misreading of Mrs. Young’s CT scan by Dr. Grennan was the cause of her complications and that the contractual relationships between all of the defendants resulted in the CT scan going to Dr. Grennan for review.  On April 1, 2008, the plaintiffs gave notice of their intent to initiate a lawsuit to Naples Radiologists and on June 17, 2008, gave their notice of intent to initiate a lawsuit to Nighthawk and Dr. Grennan.  On August 28, 2008, the plaintiffs sued all defendants, who moved for summary judgment on the ground that the plaintiffs failed to serve their notices of intent within the two-year statute of limitations.  The trial court denied the motions of the hospital and Naples Radiologists, but granted the joint motion of Nighthawk and Dr. Grennan.  In its order, the trial court determined that the plaintiffs were required to file their notice of intent by May 8, 2008 and that the plaintiffs’ June 17, 2008 notice to Nighthawk and Dr. Grennan was untimely.

On appeal, the plaintiffs argued that their notice to Naples Radiologists on April 1, 2008 constituted timely notice to Nighthawk and Dr. Grennan, as Nighthawk and Dr. Grennan were in a “legal relationship” with Naples Radiologists per Florida Rule of Civil Procedure 1.650.  That rule provides that “notice of intent to initiate litigation sent  . . . to . . . any prospective defendant shall operate as notice to the person and any other prospective defendant who bears a legal relationship to the prospective defendant receiving the notice.” The Second District disagreed with the position of Nighthawk and Dr. Grennan that the term “legal relationship” refers only to employees or servants.  The court noted that there is no definition of “legal relationship” in the rule. The court also noted that in their answer to the plaintiffs’ complaint, Nighthawk and Dr. Grennan admitted that Nighthawk had a contractual relationship with Naples Radiologists and that Dr. Grennan was an independent contractor for Nighthawk. The Second District held that these are business relationships defined by the law of contracts that bestow legal rights and legal obligations upon the parties to the relationships.  As such, timely notice to Naples Radiologists was notice to Nighthawk and Dr. Grennan, rendering summary judgment improper as a matter of law.

Illinois Supreme Court Holds Five-Year Statute Applies to Fraud Claims Against Architects

On Friday afternoon, in an opinion by Justice Robert R. Thomas, a unanimous Illinois Supreme Court held that fraud-based claims against architects are subject to a five-year statute of limitations. In Gillespie Community Unit School District No. 7 v. Wight & Company, the Court rejected the plaintiff school district's argument that such claims were subject to no statute of limitations at all. Our detailed summary of the facts and lower court decisions in Gillespie is here. Our report on the oral argument is here. You can watch the video of the argument here.

Gillespie arose from the plaintiff's construction of a new elementary school. In 1998, the plaintiff entered into a contract with the defendant to perform certain services prior to actually designing and building the new school. Everyone knew that the area had been extensively mined during the first half of the twentieth century, so one of those preliminary services was assessing the likelihood that the ground under a new building site might subside as a result of a long-ago underground coal mining operation.

The defendant retained an engineering firm. In early 1999, the engineers sent the defendant a letter recording various subsidence events and concluding that although "[n]o one can predict" subsidence, it could be "intuitively concluded" that there was a "relatively high risk of subsidence" in the area where the school district was considering building. The engineers followed up with a Foundation Engineering Report a month later which commented that there had been incidents of subsidence in the area, but didn't include the conclusion that there was a "relatively high risk of subsidence" at the proposed building site. The defendant forwarded the report to the plaintiff, but not the earlier letter.

The school district decided to go ahead, and retained the defendant as architect. The parties' agreement provided that the statute of limitations on any actions arising out of the project should begin running on the date of substantial completion for acts or omissions before that date, or the date of issuance of the final certificate of payment for later acts. The completed school was occupied in 2002. In early 2009, a coal mine subsided beneath the building, causing extensive damage. The building was condemned.

The school district sued the defendant, among others, alleging professional negligence, breach of implied warranty and - pursuant to an amended complaint - fraudulent misrepresentation by concealment of a material fact: the 1999 engineer's letter. The defendant architects moved to dismiss, arguing that all claims were time-barred, but the motion was denied. But they repeated the same arguments in a later motion for summary judgment, and this time, the motion was granted. The Appellate Court affirmed.

The plaintiff chose to bring only one issue before the Supreme Court: its challenge to the Appellate Court's holding that its fraudulent misrepresentation claim was subject to a five-year statute of limitations.

Before the Supreme Court, the case revolved around two statutes. First, we have 735 ILCS 5/13-214, the general statute of limitations and repose governing claims arising from construction projects. Section 13-214 provides that nearly all such claims are subject to a four-year statute of limitations and a ten-year statute of repose. But in subsection (e), the statute says:

The limitations of this Section shall not apply to causes of action arising out of fraudulent misrepresentations or to fraudulent concealment of causes of action.

Then we have the catch-all statute, 735 ILCS 5/13-205, which provides that "all civil actions not otherwise provided for" are subject to a five-year statute.

The Supreme Court had held long ago in Rozny v. Marnul that Section 5/13-205 applied to actions for fraud and deceit, as well as tortious misrepresentation. But the plaintiff argued that Rozny was before Section 5/13-214 was enacted.  The plaintiff's theory was that the words "shall not apply" in Section 5/13-214(e) meant that claims for fraudulent misrepresentation and fraudulent concealment were subject to no statute of limitations at all, meaning that section 5/13-205 didn't apply any more. The Appellate Court disagreed, and on Friday morning, so did the Supreme Court.

The problem, the Court said, was the words "the limitations of this Section" in subsection (e). "This section" was section 5/13-214 - meaning that the four year statute of limitations and the ten-year statute of repose didn't apply. It didn't mean that no statute at all applied. Because section 5/13-214 didn't apply to the plaintiff's fraudulent concealment claim, section 5/13-205 did, and the claim was barred under Rozny.

The Court pointed out that the legislature was well aware, when it wanted to provide that no statute of limitations applied to an action, of how to accomplish that, citing criminal statutes providing that certain claims may be brought "at any time." But section 5/13-214 contained no such language.

Perhaps the most interesting part of the Gillespie decision is the final two pages. The Court emphasized the fact that the plaintiff was not challenging the application of the accrual clause in the parties' contract to its fraudulent concealment claim, although it had challenged accrual before the trial court. Thus, the Court said, it was "expressing no opinion concerning the extent to which accrual provisions" such as the one found in the contract "may or may not be enforceable with regard to fraud-based claims."

Illinois Supreme Court to Hear Arguments in Five Civil Cases This Week

The civil portion of the Illinois Supreme Court’s argument docket for the January term begins tomorrow morning at 9:30 a.m. in the Court’s temporary courtroom on the 18th floor of the Michael A. Bilandic Building, 160 N. LaSalle Street, Chicago. The cases, with questions presented, are:

Call Wednesday, January 22, 2014:

  • Home Star Bank and Financial Services v. Emergency Care and Health Organization, No. 115526 – Does the Good Samaritan Act, 745 ILCS 49/25, immunize a physician from liability for alleged negligence when he is paid by a physician group to provide emergency services to patients in a hospital? For more details and a link to the Appellate Court opinion, see here.
     
  • People ex rel. Madigan v. Burge, Nos. 115635, 115645 -- 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? For more details and a link to the Appellate Court opinion, see here.

Call Thursday, January 23, 2014:

  • Nelson v. County of Kendall, No. 116303 – Is the office of the State's Attorney a "public body" subject to the state Freedom of Information Act? For more details, see here, and for a link to the Appellate Court opinion, see here.
     
  • BAC Home Loans Servicing, LP v. Mitchell, No. 116311 – Does waiver of a personal jurisdiction objection operate retrospectively, validating everything that has gone before, or only prospectively? For more details and a link to the Appellate Court opinion, see here.
     
  • In re Marriage of Tiballi, No. 116319 -- When a parent voluntarily dismisses a petition to change custody, can he or she be hit with the fees of a court-appointed child psychologist as costs? For more details, see here, and for a link to the Appellate Court opinion, see here.

Florida Supreme Court Compels Legislator Depositions in Redistricting Case

On December 13, 2013, the Florida Supreme Court decided that Florida legislators and legislative staff members can be forced to give deposition testimony and produce documents relating to legislation establishing new congressional districts.  See Fla. House of Representatives v. League of Women Voters of Fla.; Romo v. Fla. House of Representatives, Nos. SC13-949 & SC13-951.  For a summary of the proceedings leading up to the Florida Supreme Court’s decision, please click here.  To read the Court’s opinion, click here.

In a 5-2 opinion the Florida high court held that the legislative privilege is founded on the constitutional principle of separation of powers, but declared that the privilege is not absolute when there is a competing interest of effectuating the explicit constitutional mandate that prohibits partisan political gerrymandering and improper discriminatory intent in redistricting.  The Court concluded that “there is no unbending right for legislators and legislative staff members to hide behind a broad assertion of privilege to prevent the discovery of relevant evidence necessary to vindicate” the prohibition against political gerrymandering and improper discriminatory intent.  The Court rejected the Legislature’s argument that requiring the testimony of individual legislators and legislative staff members will have a “chilling effect” on the reapportionment process.  Instead, the Court found that “this type of ‘chilling effect’ was the precise purpose of the constitutional amendment outlawing partisan political gerrymandering and improper discriminatory intent.”

Justice Charles Canady, who authored a strong dissent joined by Chief Justice Ricky Polston, considered the majority’s decision “unprecedented.” He characterized the majority’s approach as “the exercise of unfettered judicial discretion,” and “the nadir of judicial restraint.”  He believed the majority’s view “works a radical change in the relationship between the judicial branch and the legislative branch by thrusting judicial officers into the internal workings of the legislative process.”

No parties filed a post-decision motion and the decision is now final.

Illinois Supreme Court Holds Temporarily Relocated Union Pipefitter Not Entitled to Workers' Comp

This morning, a six-justice majority of the Illinois Supreme Court has reversed the Fourth District of the Appellate Court, holding in The Venture-Newberg-Perini, Stone & Webster v. The Illinois Workers’ Compensation Commission that temporarily relocating for a distant job did not transform an employee’s commute into part of his or her employment for purposes of eligibility for workers’ compensation.

The claimant in Venture-Newberg was a pipefitter residing in Springfield. Over the two years preceding the accident, the claimant had worked short-term jobs for the plaintiff on four different occasions at three different plants. In March 2006, the plaintiff found itself unable to fill the available positions at a plant in Cordova, Illinois from locally based union workers, and posted the job at other union halls, including the claimant’s hall in Springfield. Claimant bid for and was awarded the position, which involved working 12 hours a day, seven days a week in Cordova – 200 miles from Springfield.

As a result, the claimant arranged for short-term lodging within an hour’s drive of the plant. On the second day of work, the claimant was seriously injured commuting to work when the pickup truck in which he was riding skidded on a patch of ice.

The general rule in workers’ compensation law is that injuries occurring while the employee is commuting to or from work do not arise out of and in the course of employment and are therefore not compensable. While there are limited exceptions, the arbitrator decided that none of them applied, and denied the claimant’s application for workers’ compensation benefits. The Workers’ Compensation Commission reversed, finding that the claimant’s course or method of travel was determined by the demands and exigencies of his job. The Circuit Court reversed the Commission on administrative review. The Appellate Court then reversed the Circuit Court, holding that the claimant qualified as a “traveling employee,” and his injuries were sustained in the course of his employment.

In an opinion by Chief Justice Rita B. Garman, the Court reversed the Appellate Court. A “traveling employee,” the Court wrote, was one “whose duties require[d] them to travel away from their employer’s premises.” Injuries arising from three types of acts by a traveling employee were compensable: (1) acts the employer instructs the employee to perform; (2) acts which the employee has a common law or statutory duty to perform; and (3) acts which the employee might be reasonably expected to perform incident to his or her assigned duties. The claimant argued that the third category applied to his commute from his temporary housing.

The majority disagreed. The claimant was neither a permanent employee of the plaintiff, nor even working for the company on a long-term exclusive basis. Nothing required him to travel out of his union’s territory to accept the job. The claimant was hired to work at the Cordova location, not directed by the employer to travel away from his ordinary work site to another location. The employer didn’t assist the claimant with his housing plans, nor did it reimburse him for travel expenses. For all these reasons, the majority concluded that the claimant was not a “traveling employee.” The majority also pointed to what it perceived as an anomalous result of the claimant’s argument – that employees hired from more distant union halls would be covered by workers’ compensation for their commutes, while employees living nearby would not.

The majority rejected the Appellate Court’s conclusion that the claimant’s lodging was decided by the demands and exigencies of his job as well. His decision to stay close to the work site was a personal one, the majority found. He had not been required to take the job, and was not required by the company to relocate. Nor was there any evidence in the record that the company had required him to be within an hour of the plant at all times, or even suggested it.

Justice Thomas L. Kilbride dissented. The record was conflicting on whether or not the company expected or required the claimant to stay nearby, Justice Kilbride wrote. Therefore, under the manifest weight of the evidence standard, the Commission’s decision should have been upheld. Justice Kilbride pointed out that the plaintiff employer was not located in Cordova – it was based in Wilmington, Illinois. Therefore, “[t]here can be no question” that the claimant “had to travel away from his employer’s premises.” Further, the plaintiff and the plant owner had agreed to hire from outside the local area – union tradesmen who would necessarily be required to temporarily relocate for the job. “By definition” that made the claimant a traveling employee, Justice Kilbride wrote. Since the claimant’s conduct in commuting from his temporary housing to the plant was entirely reasonable, his injuries arose during the course of his employment, making them compensable.

Illinois Supreme Court Sides With Pension Fund in Firefighters' Dispute

In the final announced opinion day of 2013, the Supreme Court has filed its opinion in Hooker v. The Retirement Board of the Firemen’s Annuity and Benefit Fund of Chicago, holding that the plaintiffs – widows of two deceased firefighters – are not entitled to the inclusion of “duty availability pay” in their survivors’ annuities. Our detailed summary of the facts and underlying opinions in Hooker is here. Our report on the oral argument is here.

Following the deaths of their husbands, plaintiffs were granted widow’s pensions by the defendant. Plaintiffs filed a complaint in Cook County Circuit Court, arguing that they were entitled to the annuity awarded to the widow of a firefighter who died in the line of duty. Relying upon intervening new authority from the Appellate Court, the Circuit Court entered an agreed order upholding the plaintiffs’ position. The Board awarded the annuities retroactive to the date of the new authority – 2004. Plaintiffs then amended their complaint to raise three claims: (1) they were entitled to the annuity retroactive to the date of their husbands’ deaths, (2) class certification of all widows similarly situated, and (3) when their annuities were calculated, “duty availability pay” – DAP – should have been included, even though the decedents never received it.

The Circuit Court permitted the amendment, but stayed proceedings while the dispute over the starting date for the annuities was resolved. In 2007, the court directed the Board to pay the annuities retroactive to the date of the decedents’ deaths. The Board appealed and the appellate court affirmed. Following that, the Circuit Court dismissed Count I of the plaintiffs’ amended complaint as moot. Since plaintiffs no longer had an individual claim, the Court dismissed Count II, the putative class claim, as well. As for Count III, the Circuit Court denied the plaintiffs’ motion for summary judgment and granted the Board’s cross-motion, holding that the plaintiffs were not entitled to have DAP included in calculating their annuities. The Appellate Court reversed.

In an opinion by Justice Anne M. Burke, the Supreme Court reversed the Appellate Court. Hooker turns on harmonizing two sections of the Pension Code. First, we have Section 6-140, which describes the annuities plaintiffs were entitled to receive:

The annuity for the widow of a fireman whose death results from the performance of an act or acts of duty shall be an amount equal to 50% of the current annual salary attached to the classified position to which the fireman was certified at the time of his death and 75% thereof after December 31, 1972.

Note the words “current annual salary.” What this means is that the survivors’ annuity is not necessarily tied to the salary the firefighter was actually receiving at any time during his or her career.

Next, we have Section 6-111(i) of the Code, a 2004 amendment by the legislature defining the term “salary” to include DAP (which had been created in the early 1990s as part of a collective bargaining agreement):

[T]he salary of a fireman, as calculated for any purpose under this Article, shall include any duty availability pay received by the fireman . . . and references in this Article to the salary attached to or appropriated for the permanent assigned position or classified career service rank, grade, or position of the fireman shall be deemed to include that duty availability pay.

The plaintiffs argued that by virtue of the term “deemed” in the final clause of Section 6-111(i), DAP must be included in salary calculations regardless of whether or not the firefighter ever received it. But according to the majority, the correct interpretation of the clause was that the final reference to “that duty availability pay” was a reference back to “any duty availability pay received by the fireman.” Therefore, if the firefighter never received DAP, it was excluded from “salary” for purposes of the annuity. By concluding that the final clause clarified that “salary” should always include DAP, the majority concluded that the Appellate Court had improperly added the words “even if it was not received by the fireman” to the statute. (As for the italics I’ve added to Section 6-111(i) – we’ll get to that in a minute in discussing the dissent).

The majority concluded that any other result would lead to anomalous results.  “Salary” would always be paid “so long as there are firefighters,” the majority wrote. But at least in theory, DAP could be eliminated whenever the parties negotiated a new collective bargaining agreement. Therefore, if DAP was included in the calculation, the possibility existed that survivors would be receiving annuities based on DAP, even though their partners never received it, while current firefighters would not be receiving DAP at all.

Justice Mary Jane Theis dissented, joined by Justice Thomas L. Kilbride. Justice Theis concluded that the “current annual salary” under Section 6-140 for calculating annuities “was flexible, increasing with the changes in [firefighters’] salaries as provided for under the applicable budget appropriations.” Justice Theis then turned to Section 6-111(i), the Pension Code’s definition of “salary.” Justice Theis argued that the words “as calculated for any purpose under this Article” were the crucial passage of Section 6-111(i), noting that the majority “inexplicably omits this critical language” from its quotation of the statute. According to the dissent, the majority’s conclusion that the plaintiffs’ annuity was based only on categories of pay actually received by their decedents effectively read this clause out of Section 6-111(i), as well as rendering the reference to “current annual salary” in Section 6-140 meaningless.

Three New Civil Decisions Coming From Illinois Supreme Court Tomorrow Morning

The Illinois Supreme Court has announced that it expects to file opinions tomorrow morning at 10:00 a.m. Central time in three civil cases. They are:

Hooker v. Retirement Board of the Firemen’s Annuity and Benefit Fund of Chicago, No. 114811 – Do survivors' pensions under the state Pension Act increase when the salary for decedent's position increases, regardless of whether the decedent ever actually received that salary? Our detailed summary of the facts and underlying opinions in Hooker is here. Our report on the oral argument is here.

American Access Casualty Co. v. Reyes, No. 115601 – Is a clause of an automobile insurance policy excluding all liability coverage for the sole named insured and titleholder on the insured vehicle void as against public policy? See also here.

The Venture-Newberg Perini Stone and Webster v. Illinois Workers’ Compensation Commission, No. 115728 – When is a union pipefitter who accepts a short-term job too far from home to commute a “traveling employee” entitled to workers’ compensation benefits for injuries received while traveling to work? Our detailed summary of the facts and underlying opinions in Venture-Newberg is here. Our report on the oral argument is here.

The marquee case on tomorrow’s list is Hooker. As the first government pension case to be handed down since the Illinois General Assembly enacted pension reform, court watchers will be reading the opinion closely for any hints about the Court’s views on that future battle.

Tomorrow will be 99 days since the oral argument in Hooker, and 92 since the arguments in American Access Casualty and Venture-Newberg. This year to date, the mean time between argument and decision in cases decided unanimously is 119.62 days. The mean time between argument and decision for non-unanimous cases is 210.73 days.

Illinois Supreme Court to Decide Whether Courts Can Award Child Support From Custodial to Non-Custodial Parents

Our previews of the newly allowed petitions for leave to appeal from the closing days of the November term continue with In re Marriage of Turk, which poses a potentially ground-breaking question of domestic relations law: can a court order a custodial parent to pay child support to the non-custodial parent?

The mother in Turk filed for divorce in 2004. Not long after, she filed petitions for maintenance and child support, together with financial data and estimated “children’s expenses.” In mid-2005, the trial court entered judgment of dissolution, incorporating the parties’ settlement and joint parenting agreement. Pursuant to the agreement, the father agreed to pay maintenance and support for 42 months. At the end of that period, any further child support would be calculated pursuant to the Illinois Marriage and Dissolution of Marriage Act. The court further ordered that the father would be responsible for providing medical insurance for the children, with the parents jointly sharing any non-covered medical expenses.

Beginning a few months before the end of the 42-month period, the parties made a series of motions and petitions, including emergency petitions to terminate or restrict visitation. An independent custody evaluator was appointed pursuant to the Act, 750 ILCS 5/604(b). Finally in 2011, the father petitioned to have his child support obligations terminated and sought child support from the mother on the grounds that he was now custodial parent for both children. The mother opposed the petitions.

The trial court entered an order granting in part and denying in part the father’s motion to terminate child support. The court found that the parties shared approximately equal parenting time with respect to the younger child, and that while the father earned a significant salary, the mother’s income and assets were minimal. Based on these findings, the court ordered the father to pay child support to the mother, as well as making the father solely responsible for any medical and dental expenses not covered by insurance.

Division Five of the First District of the Appellate Court reversed, albeit on limited grounds. The Appellate Court began by considering whether the Marriage and Dissolution of Marriage Act, 750 ILCS 5/505, gave a trial court discretion to award child support from a custodial to the non-custodial parent. Pointing to varying terms in the statute for the party ordered to pay support, as well as language referring to support orders directed at "either or both parents," the Court held that the language of the statute was not conclusive either way. The Court found that earlier Illinois precedent fell on both sides of the question, with Shoff v. Shoff holding that a custodial parent could not be ordered to pay support, and In re Marriage of Cesaretti holding that the custodial parent could be ordered to pay. The Court found that other jurisdictions had taken a range of approaches to the problem too. The Court concluded that the best interests of the children favored a flexible approach to child support orders. In view of each of these conclusions, the Court held that the trial court had discretion to order payments of child support by the custodial parent given the particular circumstances in the case at hand -- nearly equal parenting time, and a large disparity in resources between the parents.

The father also argued that the trial court abused its discretion in ordering him to pay child support and non-covered medical expenses. The Appellate Court found that under the circumstances, the trial court had not abused its discretion by ordering the father to pay support, but the court nevertheless reversed the award for recalculation. The court held that the trial court had assessed the parties' liability without up-to-date information regarding the parties' child care expenses after the switch in custody. The Appellate Court directed the trial court to consider updated expense data, as well as to "clearly explain the basis for any support awarded."

We expect Turk to be decided in the fall or winter of 2014.

Illinois Supreme Court to Review Timing of Government Appeal From Administrative Orders

In the closing days of the recently concluded November term, the Illinois Supreme Court allowed petitions for leave to appeal from three new civil cases. Our first-look previews of those cases begin today with People ex rel. Madigan v. Illinois Commerce Commission. Madigan is an interesting grant for the Court. On the face of the Appellate Court’s order, it would appear to be a relatively simple question of filing deadlines and appellate jurisdiction. Whether or not the Court will travel beyond those issues to the utility rate-making question below remains to be seen.

Madigan arises from a decision of the Illinois Commerce Commission, the administrative entity which supervises utilities in Illinois, to allow the respondent water company to impose a 1.25% reconciliation surcharge on its customers. The Commission also declined to require the utility to adopt a unit sewer rate for low-volume customers. The Attorney General attempted to appeal both aspects of the Commission’s decision.

And that is where the Attorney General ran into problems. Illinois Supreme Court Rule 335 provides that an appellant must file a petition for review from a final administrative decision within thirty days of an appealable final order in order to vest the Appellate Court with jurisdiction. The Public Utilities Act – 220 ILCS 5/10-201(a) -- provides for a thirty-five day filing deadline for petitions for review, but the Fifth District Appellate Court struck down section 10-201 twenty-seven years ago in Consumers Gas Co. v. Illinois Commerce Commission.

The Commission issued its order in Madigan on July 31, 2012, and denied the Attorney General’s petition for rehearing on September 11, 2012. The Attorney General didn’t file a notice of appeal and petition for review until October 16, 2012 – thirty-five days after the order had become final and appealable. So the Appellate Court held that the petition was untimely and dismissed the appeal for lack of jurisdiction.

Before closing, the Appellate Court issued a stern warning for careless practitioners. Like most appellate rules, the Illinois Supreme Court Rules, which govern appellate practice throughout the state, require a number of different elements in an Opening Brief, including an explanation of the reviewing court’s jurisdiction. According to the Appellate Court in Madigan, none of the three parties before it had complied with that requirement: “the parties’ failure to identify or even address the threshold issue of jurisdiction has resulted in the unnecessary expenditure of a significant amount of judicial resources while resolving this case, which could have been easily avoided had the parties complied with the clear mandate of Rule 341(h)(4)(ii).”

We expect Madigan to be decided in the late spring or early fall of 2014.

Illinois Supreme Court Debates Limitations and Repose for Architects and Contractors

November was a relatively light month for the Illinois Supreme Court on the civil docket, with only one civil case on for argument. Today, we report on the oral argument in Gillespie Community Unit School Dist. No. 7 v. Wight & Co. In Gillespie, most of the Justices seemed somewhat skeptical of plaintiff's claim that no statute of limitations governed its fraud-based claims against an architecture firm arising from a school construction project.

Gillespie begins in 1998, when the school district decided it needed a new elementary school. The problem was that the district encompassed an area of Macoupin County that was coal mined more or less continuously from the early 1900s into the 1950s. So everyone was concerned about the possibility of ground subsidence resulting from the underground mines.

The plaintiff entered into an agreement with the defendant to perform various services in connection with the building project. One was to determine just how much mining had been done in the area – and more importantly, where – and assess the likelihood that subsidence might wind up seriously damaging the school if it was built. The defendant hired an engineering firm to take on the mining and subsidence issues.

The building was completed in the fall of 2002. In the spring of 2009, a coal mine subsided beneath the building, causing extensive damage; the building was subsequently condemned, a total loss. When the plaintiff school district sued the defendant architects, the defendant moved for summary judgment on grounds that the action was time barred. The Circuit Court agreed, and the Fourth District affirmed.

Gillespie turns on the intersection of two statutes. First, we have 735 ILCS 5/13-214, a comprehensive statute of limitations and repose for actions arising from the “design, planning, supervision, observation or management of construction, or construction of an improvement to real property.” Section 13-214 provides that any such action must be brought within 4 years of “the time the person bringing an action . . . knew or should reasonably have known of such act or omission,” as well as providing a 10 year statute of repose. But, the statute provides in subsection (e) that the “limitations of this Section shall not apply to causes of action arising out of fraudulent misrepresentations or to fraudulent concealment of causes of action.”

And from there, we turn to 735 ILCS 5/13-205, which provides that “actions or unwritten contracts . . . or to recover damages for an injury done to property . . . and all civil actions not otherwise provided for, shall be commenced within 5 years next after the cause of action accrued.”

By the time Gillespie reached the Supreme Court, the only issue left revolved around the plaintiff’s claim for fraudulent misrepresentation of concealed facts. The fraud claim arose from an engineer’s report which the defendant might – or might not – have received from the subcontractor predicting a “relatively high risk of subsidence” in the construction area, and then failed to pass along to the school. It seems the fraud-based claim wouldn’t fall under 735 ILCS 5/13-214; it would be excluded by Section 214(e). So does that mean it falls under Section 205 as a “civil action[ ] not otherwise provided for”? The appellant school district said no, since the five year statute would have been fatal to its claim. The defendant said yes.

The plaintiff school district began the arguments, insisting that the case presented a “clear and narrow” question of statutory construction. After counsel described the initial engineer’s report which the defendant might or might not have received from the engineers (it was actually produced by the subcontractor, not by the defendant), counsel referred to a second, subsequent report. Justice Theis asked what the second report said, and counsel explained that the second report disclosed that the proposed site had been mined, but concluded that it was difficult to estimate what the chances of subsidence were. Justice Thomas asked counsel whether the plaintiff’s position was that although section 214(e) exempted fraud claims from the general statute of limitation and repose for construction, section 205 was not triggered, meaning that there was no statute of limitations at all for such claims? Counsel agreed that it was. Justice Thomas asked whether counsel was aware of any causes of action, with the exception of a limited number of criminal charges, that carried no limitations? Counsel argued that the legislature had made the determination that there should be no statute of limitation with respect to fraud-based claims arising from construction. Justice Thomas asked whether the words in subsection 214(e) “of this section” have any meaning. Counsel responded that the language showed that such claims were not subject to section 205 as actions “not otherwise provided for.” They were provided for by the statute, and then exempted. Chief Justice Garman asked counsel why the legislature would give special treatment to construction-based fraud claims over other types of fraud claims? Counsel argued that the legislature was aware of cases providing that contract provisions accelerating statutes of limitations were enforceable, and the statutory scheme was its response. Justice Thomas suggested that fraud actions are “not otherwise provided for” once they are carved out of subsection 214(e). Counsel responded that although section 205 might have applied before section 214 was adopted in 1979, but that changed when the legislature adopted a comprehensive scheme for managing actions arising from construction projects. Counsel argued that his construction – the view that the legislature’s scheme “provided for” fraud claims, making section 205 inapplicable – was logical, while the alternative was not. Justice Thomas asked why it was illogical that the legislature would provide for an extra year for claims sounding in fraud, and counsel responded that there was no reason for the extra year. Counsel claimed that the defendant’s construction would also lead to unfair results by letting wrongdoers enter into construction contracts, intending fraud, knowing that they will be absolved from liability in five years. Justice Freeman asked counsel to address his argument that defendants would have laches available, even in the absence of a statute of limitations. Counsel responded that where a hypothetical plaintiff sat on its rights and triggered real prejudice to the defendant’s ability to defend itself, laches would be a viable defense, but that the defense had not raised the defense here. Counsel concluded by pointing out that under the construction of the statute adopted by the Circuit Court and affirmed by the Appellate Court, the plaintiff’s action had been barred before it was discovered, even though it had been filed five months after the incident.

Counsel for the defendant began by addressing the second report. Counsel argued that its only obligation was to share information with the Capital Development Board, and there was no allegation that the defendant had failed to do that. The second report had concluded that the risk of subsidence was unquantifiable due to multiple unknown variables. Counsel argued that the court was being asked to hold that in 1979, when the legislature provided a comprehensive system of limitations and repose for construction-related claims, it intended to remove the pre-existing statute of limitations for claims sounding in fraud. Counsel claimed that there were two reasons for applying section 205 and its five-year statute to fraud-based actions: first, actions sounding in fraud were not subject to any statute of repose, and second, as the Supreme Court held in Rozny v. Marnul in 1969, “civil actions not otherwise provided for” encompassed actions for fraud and deceit. Justice Burke pointed out that Rozny predated Section 214 by ten years, but counsel responded that Rozny had set the stage for the new statute. Chief Justice Garman concluded by asking whether the case included any public policy considerations, and counsel argued that there were not, beyond the general principle that the heavily negotiated contract between the parties – which specifically provided when causes of action arising out of the project accrued – should be enforced.

In rebuttal, counsel for the plaintiff argued that it was undisputed at the trial court that if the school district had had the first engineering report, it would have proceeded differently. Counsel insisted that the interpretation of the statute suggested by the defendant was inconsistent with its language.

We expect Gillespie to be decided in approximately three to four months.

Florida High Court To Examine Exculpatory Clauses That Do Not Specifically Reference Negligence

On November 5, 2013, the Florida Supreme Court heard oral argument in a case examining whether a release clearly and unambiguously releases the defendant from liability for a plaintiff’s physical injuries when the release does not expressly reference the defendant’s negligence.  See Sanislo v. Give Kids The World, Inc., 98 So. 3d 759 (Fla. 5th DCA 2012) (No. SC12-2409).

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

I/we hereby release Give Kids the World, Inc. . . . from any liability whatsoever in connection with the preparation, execution, and fulfillment of said wish . . . .  The scope of the release shall include, but not be limited to, damages or losses or injuries encountered in connection with . . . physical injury of any kind . . . .

I/we further agree to hold harmless and to release Give Kids the World, Inc. from any and all claims and causes of action of every kind arising from any and all physical or emotional injuries and/or damages which may happen to me/us . . . .

During the family’s stay at the resort, Mrs. Sanislo was injured.  The Sanislos sued GKTW, alleging that Mrs. Sanislo’s injuries were caused by GKTW’s negligence.  GKTW moved for summary judgment based on the release.  The trial court denied the motion and, following a jury verdict, entered judgment in favor of the Sanislos.  GKTW appealed, arguing that it was entitled to summary judgment because of the release.

While exculpatory clauses are disfavored under the law, unambiguous exculpatory contracts are enforceable unless they contravene public policy.  The Sanislos argued that the release was not clear and unambiguous because it applied to liability arising “in connection with the preparation, execution, and fulfillment of said wish” and that the nature and scope of the wish was not clear or defined.  The Fifth District stated that it has expressly “rejected the need for express language referring to release of the defendant for negligence or negligent acts in order to render a release effective to bar a negligence action.”  The Fifth District therefore held that the wish, which was requested by the Sanislos, clearly encompassed events at the resort related to their stay and that the Sanislos’ interpretation of the clause was not likely the interpretation that an “ordinary and knowledgeable person” would give it.  Thus, the release was sufficiently clear to make the Sanislos aware of the breadth of the scope of the release and what rights they were contracting away.  The court stated that the ability to predict each and every potential injury is not required to uphold an exculpatory provision within a release.

The Fifth District also considered the parties’ relative bargaining power in determining the enforceability of the release.  Florida courts have refused to find an inequality of bargaining power in recreational settings.  GKTW also argued that the bargaining power of the parties was not unequal, because the Sanislos voluntarily participated in the program.  The Sanislos disagreed and argued that they were given a contract and GKTW gave them no choice but to sign the release in order to participate in the program.  The Fifth District held that the bargaining power of the parties was not unequal; the Sanislos were provided with the release and they made a decision to waive certain rights in order to participate in the program.  The Fifth District reversed the trial court and certified conflict with the First, Second, Third, and Fourth District Courts of Appeal.

The author will update this article after the Florida Supreme Court has ruled.

 

 

 

 

Illinois Supreme Court Narrowly Construes Exemption from Prevailing Wage Act

In its sixth and final unanimous civil decision of the morning, the Illinois Supreme Court adopted a narrow construction of the exemption for public utilities provided under the Prevailing Wage Act. Reversing a decision of the Fourth District in The People of the State of Illinois ex rel. Illinois Department of Labor v. E.R.H. Enterprises, Inc., the Court held that a contractor who is largely responsible for the water facility and infrastructure in the Village of Bement (and various other towns around Illinois) is not an exempt “public utility” under the Act. Our detailed summary of the facts and lower court rulings in E.R.H. Enterprises is here. Our report on the oral argument is here.

The defendant has a five-year contract with the Village to perform certain duties in connection with the Village water system. Although the contract recognizes that the Village is responsible for the maintenance and operation of the facility and infrastructure, it states that the defendant “has agreed to fulfill all requirements set forth under the applicable laws and regulations for the operation of such facility.” For example, the defendant maintains the storm and sanitary sewer system, as well as repairing smaller water main breaks. The Village is responsible for “repairs of a greater magnitude” to the system, as well as the “maintenance, repair, upkeep and expense” of its water tower. The Village purchases parts and materials for water taps, but the defendant installs them. The defendant maintains fire hydrants, but the Village is responsible for replacing them when necessary.

In 2008, the Department of Labor sent a subpoena to the defendant’s attorney, seeking certain employment records related to the defendant’s repair of water main leaks on the Village’s behalf. The subpoena stated that the Department was attempting to determine whether the defendant was in compliance with the Prevailing Wage Act. Several months later, the Department filed its complaint seeking an order enforcing the subpoena. The defendant answered the complaint, taking the position that it was a “public utility company” under the Act, and therefore exempt from the requirement to pay prevailing wages. The circuit court entered an order in August 2010 holding that the defendant was not a public utility and the subpoena was therefore enforceable. In response to the defendant’s motion for reconsideration, the court entered an amended order in February 2011. The defendant moved once again for reconsideration, and the circuit court responded with a lengthy memorandum, addressing the defendant’s objections and further explaining its conclusions. The Appellate Court reversed, finding that the defendant was indeed a public utility and therefore exempt from the Act.

In an opinion by Justice Lloyd A. Karmeier, the Supreme Court reversed the Appellate Court. The Court began by noting a curious point: that there was no good evidence as to exactly why “public utilities” had been exempted from the Prevailing Wage Act in the first place. The Court noted that since the Act offers no definition of a public utility, the Appellate Court had imported the definition found in the Utilities Act. But the broad definition in that statute had a very specific purpose – to designate “a wide range of persons and entities” that would be subject to the regulatory jurisdiction of the Illinois Commerce Commission. Since it wasn’t clear why the exemption from the Prevailing Wage Act had been enacted, it was equally unclear whether it was appropriate to borrow the definition in the Utilities Act in construing its breadth.

Instead, the Court turned to Black’s Law Dictionary. The Court found Black’s definition of a “public utility” significant for two reasons: first, it specified that “most” utilities are subject to government regulation, and second, the Dictionary states that typically, the “utility” owns the facilities providing the public service. Neither of these conditions applied to the defendant, the Court found.

The Court noted that whatever the reason, public utilities had been exempt from the Prevailing Wage Act ever since it was enacted. In the original version of the Act, the exemption applied to work “done directly by any public utility company pursuant to order of the commerce commission or other public authority.” The italicized language had been removed in 1961, and the Court speculated that perhaps the legislature had concluded that any work done by a public utility, whether pursuant to a direct order by the commerce commission, would eventually be scrutinized by regulators as a result of a rate case.

The Court adopted the totality of the factors listed by the circuit court to conclude that the defendant is a contractor, not a public utility: (1) the Village retained ownership of the water facility and infrastructure; (2) the Village had been recognized by the Illinois Environmental Protection Agency for its compliance with the Fluoridation Act; (3) the Village has not contracted all of its responsibilities to the defendant; (4) the defendant does not directly charge the public for its services; and (5) the defendant is not directly regulated by any government agency. Since the public utility exemption did not apply, the Court held that the circuit court had properly enforced the subpoena.

Illinois Supreme Court: Withholding Notice Invalid Without Strict Compliance With Statute

This morning, a unanimous Illinois Supreme Court handed down its opinion in Schultz v. Performance Lighting, Inc. Schultz presented a question relating to domestic relations and child support cases: is a notice to withhold salary under the Income Withholding for Support Act invalid if it substantially – but not strictly – complies with the requirements of the Act? In an opinion by Justice Robert R. Thomas, the Court held that strict compliance was required for the notice to be effective.

The plaintiff and her former husband divorced in 2009. An order was entered requiring the ex-husband to pay $600 every two weeks in child support. The plaintiff served a notice to withhold income on the former husband’s employer as well as the ex-husband’s attorney, but the notice failed to comply with the Act in two respects: it included neither the ex-husband’s Social Security number nor the date on which the obligation terminated (plaintiff’s service only on the ex-husband’s attorney was insufficient as well).

The ex-husband left the defendant’s employ seven months after the notice to withhold was filed. Nevertheless, the plaintiff waited another eighteen months – almost exactly two years after the notice to withhold was filed – to sue the defendant. Plaintiff alleged that defendant had knowingly failed to pay the State Disbursement Unit the support due and sought an award of the statutory penalty of $100 per day for each day the payments were delinquent. The defendant moved to dismiss, arguing that the omissions from the plaintiff’s notice to withhold rendered the notice ineffective. The circuit court agreed and granted the motion, and the Appellate Court affirmed.

The Supreme Court affirmed as well. A requirement of strict compliance was clear on the face of the statute, the Court found. The Act provided that the “income withholding notice shall: . . . (9) include the Social Security number of the obligor; and (10) include the date that withholding for current support terminates . . . and (11) contain the signature of the obligee . . . except that the failure to contain the signature of the obligee . . . shall not affect the validity of the income withholding notice.” The Court drew two conclusions from this language. First, the use of the word “shall” generally indicates a mandatory duty. Second, the legislature’s provision that omitting the obligee’s signature is not a fatal defect necessarily implied that omitting the other requirements was fatal.

The immunity clause of the Act further supported the Court’s view, the Court found. Section 35(c) of the Act provides that a payor who complies with a withholding notice “that is regular on its face” is immune from liability for its conduct. Since a notice which is missing some of the required information was not, in the Court’s view, “regular on its face,” what is the recipient of such a notice to do, if errors don’t render the notice invalid? If a faulty notice is binding, then the employer must choose between disregarding it and incurring the statutory penalty, or complying with it and risking liability to the ex-spouse (or any other aggrieved party). Such a patently unjust result was to be avoided, the Court concluded.

Although the proper interpretation of the Act was clear, the Court commented that it found the conduct of both sides in the dispute troubling. The defendant had apparently received the notice to withhold and never bothered to simply telephone the plaintiff’s attorney and make it clear that it regarded the notice as invalid (although the Court conceded that the statute as it existed at the time imposed no duty to do so). Nor did the plaintiff follow up on the matter when it became clear that the defendant wasn’t paying, instead “wait[ing] silently for nearly two years before filing the instant complaint.”

The Court concluded by noting that the statute has been significantly reformed since the events at issue. Effective in 2012, an obligee is required to notify the employer in writing when a payment is not received. The employer is then required to either explain its non-payment or make the payment with interest within a limited time. If the employer fails to do that, the statutory penalties – which are now capped – begin to accrue. The Court found that it was unnecessary to determine whether the 2012 amendments applied retroactively since the plaintiff had never given the employer written notice of its non-receipt of the payments, the essential prerequisite to triggering penalties.

Illinois Supreme Court Limits Foreclosure Challenges Once Motion to Confirm Filed

This morning, the Illinois Supreme Court filed its opinion in Wells Fargo Bank, N.A. v. McCluskey, holding that once a motion to confirm a judicial sale in a foreclosure action has been filed, the generous grounds set forth in the Code of Civil Procedure for setting aside a default no longer apply, and the Foreclosure Act governs. Our detailed summary of the facts and lower court opinions in Wells Fargo is here.

Plaintiff initiated foreclosure proceedings pursuant to the Foreclosure Law on defendant’s residential mortgage in 2010. The defendant was served with process, but failed to appear. Three months after the complaint was filed, the circuit court entered the defendant’s default and a judgment of foreclosure. The defendant finally appeared seven months later, on the date set for the judicial sale, moving to stay the sale and vacate the default. The plaintiff agreed to put off the sale for 75 days to give defendant time to try to negotiate a loan modification agreement. When those negotiations were unsuccessful, the judicial sale went forward, with the plaintiff buying the property. Two weeks after that, the defendant moved once again to set aside the default. Defendant’s second motion was made pursuant to Section 2-1301(e) of the Code of Civil Procedure, and purported to set forth various asserted defenses to foreclosure. The circuit court denied the motion to vacate, holding that the defendant had waived any objections to the default by withdrawing her original motion to vacate in return for a delay in the sale. The court confirmed the sale, and the defendant appealed.  The Appellate Court reversed, holding that a foreclosure defendant could get a foreclosure judgment vacated pursuant to the general provisions of Section 2-1301 merely by showing a compelling excuse for her lack of diligence and some potentially meritorious defense.

In an opinion by Justice Mary Jane Theis, the Supreme Court unanimously reversed. The case turned on the relationship between the general provisions of Section 2-1301, which applied to civil actions in general, and the specific provisions of Section 15-1508(b) of the Foreclosure Law, which provided that a defendant may oppose an order confirming a foreclosure sale only on certain enumerated grounds, including lack of proper notice, unconscionable sale terms and a fraudulently conducted sale.

Once a motion to confirm a judicial sale has been filed, the balance of interests between the parties has shifted, the Court noted. Although Section 15-1508(b) permitted a court to refuse to confirm a sale because “justice was not done,” that power did not extend to protecting a defendant against his or her own negligence in failing to timely appear and defend the suit. Allowing the borrower to unravel everything at the eleventh hour – long after receiving notice and “ample statutory opportunity to respond to the allegations” would be “inconsistent with the need to establish stability” in the process, the Court held. Besides, the Foreclosure Law expressly provided time limitations for the right of redemption and reinstatement – time limitations which would be rendered relatively meaningless if the defendant was allowed to take advantage of Section 2-1301. Therefore, the Court held that until a motion to confirm the sale is filed, a defendant could proceed under Section 2-1301. But once the motion is filed, the more restrictive provisions of Section 15-1508(b) of the Foreclosure Law kick in.

Since the defendant’s Section 2-1301 was filed before the motion to confirm the sale was, the Court held that the defendant could proceed under the looser standard. Nevertheless, the Court held that the defendant’s motion to vacate was properly denied. Defendant was properly served and had notice of the default, judgment of foreclosure and sale. Still, the defendant waited ten months to appear and raise her purported defenses. The defendant’s lack of diligence was not excusable, the Court found, and confirmation of the sale was correctly entered.

Illinois Supreme Court Restricts Appeals of Pollution Control Device Certifications

In yet another unanimous decision handed down this morning, the Illinois Supreme Court has streamlined procedures to certify pollution control facilities by barring certain third party appeals. Our detailed summary of the facts and lower court opinion in The Board of Education of Roxana Community School District No. 1 v. The Pollution Control Board is here. Our report on the oral argument is here.

Board of Education arises from twenty-eight separate applications to the Illinois Environmental Protection Agency to have certain systems, methods, devices and facilities created in conjunction with major renovations to a Madison County oil refinery certified as “pollution control facilities” entitled to special treatment under the Property Tax Code. 35 ILCS 200/11-5, 11-15, 11-20. In August 2011, the  IEPA recommended to the Pollution Control Board that it approve two of the requests, and the Board did so. The plaintiff Board of Educationthen filed petitions to intervene in the two proceedings where applications had been granted. The Pollution Control Board denied intervention. The Board of Education then filed petitions to intervene in the remaining twenty-six cases. The Pollution Control Board refused to reconsider the first two rulings, denied the Board of Education’s petitions to intervene in the remaining cases, and granted the remaining petitions for certification. The Board of Education appealed the Board’s decision directly to the Appellate Court pursuant to Section 41 of the Illinois Environmental Protection Act. 415 ILCS 5/41.

The Appellate Court dismissed the appeal, holding that appeals from the Pollution Control Board’s decision were governed by Section 11-60 of the Property Tax Code (35 ILCS 200/11-60), rather than Section 41 of the IEPA. Section 11-60 specifically provides for appeals to the circuit court from decisions relating to pollution control certificates, and restricts standing to appeal to applicants for, or aggrieved holders of, pollution control facility certificates. Section 11-60 governed for two reasons, the Appellate Court found: (1) upholding the Board of Education’s theory would mean that simultaneous appeals could be taken to the Appellate Court and the circuit court by different parties; and (2) the specific trumps the general as a matter of statutory construction.

In an opinion by Justice Lloyd A. Karmeier, the Court affirmed, although for somewhat different reasons than those invoked by the Appellate Court. It was not necessary to resolve a conflict between the IEPA and the Property Tax Code, the Court held; the Board of Education had no standing to appeal even under the IEPA. Section 41 of the IEPA granted standing to appeal to any “party to a Board hearing, any person who filed a complaint on which a hearing was denied, and person who has been denied a variance or permit under [the] Act, any party adversely affected by a final order or determination of the Board, and any person who participated in the public comment process . . .” The Board of Education was “adversely affected” by the orders, but it wasn’t a party, the Court held – its petitions to intervene had all been denied. Nor was it a “person who filed a complaint on which a hearing was denied” – petitions to intervene didn’t amount to “complaints.” The Court also viewed the possibility of simultaneous dual track appeals, by applicants in the circuit court and by objectors in the Appellate Court, as a sufficiently absurd proposition to reject the Board of Education’s interpretation of the IEPA. Besides, the Court pointed out, the Board of Education had no right to intervene to begin with. Certification proceedings involved highly technical determinations, and there was no provision in the statute for anybody other than the entity seeking certification and the state regulators to be involved. The Court conceded that “legitimate concerns” might arise from restricting participation in that fashion, but commented that this was a matter for the General Assembly, not the Court.

Illinois Supreme Court Limits Insurance Guaranty Fund's Liability in Dram Shop Act Cases

This morning, a unanimous Illinois Supreme Court handed the Illinois Insurance Guaranty Fund a win, reversing the Appellate Court’s decision in Rogers v. Imeri. Rogers posed the question of how the Fund’s offset for prior settlements is calculated – and therefore, what is the Fund’s maximum possible liability – in a Dramshop Act case. Our detailed summary of the facts and lower court opinions in Rogers is here. Our report on the oral argument is here.

Rogers arises from a drunk driving accident which resulted in the death of the plaintiffs’ 18-year old son. The plaintiffs received settlements totaling a bit over $106,000 from the driver’s insurer, and from their own insurer pursuant to their underinsured driver coverage. They then sued the owner of the bar where the second driver was drinking pursuant to the Dramshop Act.

The Insurance Guaranty Fund is a nonprofit entity created by statute. Its function is to step in whenever an insurer declares bankruptcy and is unable to satisfy its policy obligations, protecting both policy-holders and third party claimants under the policies. Under Section 537.2 of the Insurance Code, the Fund is “obligated to the extent of the covered claims.” Section 546 of the Code provides that the “Fund’s obligation under Section 537.2 shall be reduced by the amount recovered or recoverable, whichever is greater, under such other insurance policy.” Under the Dramshop Act, 235 ILCS 5/6-21, liability is capped at $130,338.51.

Rogers involves reconciling the Insurance Code and the Dramshop Act. Everyone agreed that the Fund was entitled to an offset for the $106,000 in settlements. But was the offset deducted from the jury verdict – likely considerably more than $130,338.51 – with the resulting figure reduced to the cap? If so, the Fund’s liability was likely to be equal to the total liability cap. Or was the offset deducted from the cap initially, meaning that the Fund’s maximum exposure was about $24,000? The Appellate Court had held that the deduction should be taken from the jury verdict.

In an opinion by Justice Mary Jane Theis, the Supreme Court reversed. A “covered claim” for purposes of the Insurance Code was the maximum amount for which the insured could be liable, the Court wrote. Therefore, the Fund’s maximum liability was $130,338.51, the Dramshop Act cap. The clause of the Dramshop Act requiring that the jury determine damages without reference to the cap – the basis for the plaintiffs’ argument that the offset should be deducted from the jury’s verdict – was entirely irrelevant, the Court held. Under the Insurance Code, the Fund’s liability could not be increased by a jury verdict, it could only be decreased by the availability of other insurance. Therefore, the offset should be deducted from the Dramshop Act cap, making the Fund’s maximum liability in the case about $24,000.

Illinois Supreme Court Adopts Totality of Circumstances Test for Sales Tax Situs

This morning, the Illinois Supreme Court handed down its highly anticipated decision in Hartney Fuel Oil Co. v. Hamer. Hartney Fuel Oil raises an important question of Illinois business and tax law: how does one determine which local jurisdiction is entitled to collect sales tax on a transaction? Our detailed summary of the facts and lower court decisions is here. Our report on the oral argument is here.

The taxpayer in Hartney Fuel Oil is a retailer of fuel oil. The taxpayer’s home office throughout the relevant years was in Forest View, which is part of Cook County – a high-tax jurisdiction. From the Forest View office, the company set fuel prices, cultivated customer relationships and handled billing and accounting.

But for many years, the taxpayer has maintained a separate location as its sales office. No one at the sales office was directly employed by the company; it contracted with another company to borrow the services of a clerk. The sales office was moved from time to time over the years, ultimately winding up in Mark, Illinois, which is located in comparatively low-tax Putnam County (indeed, both Mark and Putnam County gave the taxpayer a partial rebate of taxes payable on its sales).

Both short-term and long-term contracts were closed by the taxpayer in the Mark office. Daily orders would be directed by telephone to the sales office. Anyone who called Forest View instead would be told to call the Mark office. The clerk in Mark was armed with a list of customers pre-approved for credit purchases, and had the authority to accept (or reject) an order on the spot, binding the taxpayer. Long-term contracts were sent by customers to Mark, and if the president of the company had not yet signed, he would travel to Mark to do so.

The Department of Revenue audited the taxpayer’s sales activities from 2005 through mid-2007, ultimately concluding that sales tax liability had been triggered in Forest View, not Mark. The Department presented the taxpayer with a bill for over $23 million. The taxpayer paid under protest and sued for a refund. Both the circuit court and the Appellate Court sided with the taxpayer, holding that the location where orders were accepted conclusively established the situs of sales tax liability.

The Court began by addressing the three statutes at issue: the Home Rule County Retailers’ Occupation Tax Law, the Home Rule Municipal Retailers’ Occupation Tax Act, and the Regional Transportation Authority Act. All three statutes authorized a tax “upon all persons engaged in the business of selling tangible personal property” at retail within the jurisdiction. The Court pointed out that it had long ago defined the Retailers’ Occupation Tax act as a tax on the occupation of retail selling, not one on the sale itself. Where the occupation – as opposed to the sale – took place depended on “the composite of many activities extending from the preparation for, and the obtaining of, orders for goods to the final consummation of the sale by the passing of title and payment of the purchase price.” Therefore, simply placing a clerk in a low-tax jurisdiction to accept orders, while keeping the remainder of one’s business pursuits in another county, was not sufficient to transfer tax liability under the statute, which depended on a fact-intensive, totality of the circumstances test. This made sense, the Court pointed out, since the purpose of local sales taxes is to reduce at least somewhat the tax burden on real property by transferring part of that burden to retail businesses in proportion to their use of local governmental services.

But that wasn’t the end of the inquiry, the Court found. Next, it turned to the Department’s regulation implementing the sales tax statutes – 86 Illinois Administrative Code 220.115.

The Department pointed to Section 220.115(b) of the regulation, arguing that by providing that “enough of the selling activity must occur within the home rule county to justify concluding that the seller is engaged in business” within that county, the regulation had adopted the totality-of-the-circumstances test imposed by the statute. The taxpayer, on the other hand, pointed to subsection (c) of the statute: “the seller’s acceptance of the purchase order . . . is the most important single factor in the occupation of selling. If the purchaser order is accepted at the seller’s place of business within the county or by someone who is working out of the place of business . . . or if a purchase order that is an acceptance of the seller’s complete and unconditional offer to sell is received by the seller’s place of business within the home rule county or by someone working out of that place of business, the seller incurs Home Rule County Retailers’ Occupation Tax liability in that home rule county.” The Department responded that construing subsection (c) as conclusively setting the sales tax situs as the place of acceptance rendered subsection (b) meaningless.

The Court concluded that neither side was entirely right. Instead, the Court concluded that subsection (b) described a threshold inquiry: was enough going on in a particular jurisdiction to qualify as the business of selling for purposes of the sales tax? Subsection (c) dealt with a slightly different question: when multiple jurisdictions met the threshold test, which jurisdiction prevails? So applying that construction to the facts at hand, the regulations seemed to fix sales tax liability in Mark. But since a regulation can’t narrow or broaden the scope of taxation under a statute approved by the legislature, the Court struck down the regulation.

But that didn’t mean that the taxpayer owed the tax bill. According to the Taxpayers’ Bill of Rights Act, the Department must return to the taxpayer taxes and penalties assessed on the basis of erroneous written information or advance the taxpayer receives from the Department. 20 ILCS 2520/4(c).  Although moving the sales office to Mark wasn’t good enough to change the tax situs strictly as a matter of the statutes, the taxpayer had acted in accordance with the Department’s erroneous regulations. So the taxpayer was entitled to a refund of the taxes and penalties.

So where does all this leave us? First and foremost, the Department of Revenue now faces the complex job of rewriting the sales tax regulations. Since the statutes have been definitively interpreted to tax the occupation of selling, not a particular sale – a question decided by the totality of the circumstances – avoiding a high-tax jurisdiction is likely to require far more extensive changes than simply opening a rental office with a telephone. So although the taxpayer ultimately won the refund in Hartney Fuel Oil, the decision qualifies as a win for Cook County. 

Illinois Supreme Court to Hand Down Decisions in Six Civil Cases Tomorrow Morning

The Illinois Supreme Court has announced that it will hand down decisions tomorrow morning in six civil cases argued during the September term of the Court (exactly half the docket from that term). The cases are:

  • People ex rel. The Department of Labor v. E.R.H. Enterprises, No. 115106 - How is a “public utility” defined for purposes of the exception to the Prevailing Wage Act set forth in 820 ILCS 130/2? Our detailed summary of the facts and lower court rulings in E.R.H. Enterprises is here. Our report on the oral argument is here.
  • Hartney Fuel Oil Company v. Board of Trustees of the Village of Forest View, Nos. 115130 et al. – When a business' operations span multiple counties, where does a retail sale tax place for purposes of the local portion of the state sales tax? Our detailed summary of the facts and lower court rulings in Hartney Fuel Oil is here. Our report on the oral argument is here.
  • Wells Fargo Bank, N.A. v. McCluskey, No. 115469 – (1) May a motion pursuant to Section 2-1301(e) of the Code of Civil Procedure to vacate a default in a foreclosure suit be made after the sheriff’s sale has already occurred? (2) Did defendant waive her right to make a renewed motion to set aside the default by withdrawing her first motion in return for agreement to temporarily postpone the sale? Our detailed summary of the facts and lower court rulings in Wells Fargo is here.
  • The Board of Education of Roxana Community Unit School District No. 1 v. The Pollution Control Board, No. 115473 – May a party challenging the certification of a system as a pollution control facility appeal directly to the Appellate Court pursuant to the Environmental Protection Act, 415 ILCS 5/41(a), after its challenge is rejected by the Illinois Pollution Control Board? Our detailed summary of the facts and lower court rulings in Board of Education is here. Our report on the oral argument is here.
  • Schultz v. Performance Lighting, Inc., No. 115738 – Must a withholding notice under the Illinois Income Withholding for Support Act strictly comply with the statutory requirements in order to be effective, or is substantial compliance sufficient? Our detailed summary of the facts and lower court rulings in Schultz is here. Our report on the oral argument is here.
  • Rogers v. Imeri, No. 115860 – How is the maximum possible liability exposure of the Illinois Insurance Guaranty Fund calculated in a tort case where the recovery cap under the Dramshop Act applies and other defendants have settled? Our detailed summary of the facts and lower court rulings in Rogers is here. Our report on the oral argument is here.

So far this year, the median time elapsed between oral argument and decision for the Court’s unanimous civil decisions has been 94 days. For non-unanimous decisions, the median time is 149 days. Tomorrow will mark 71 (E.R.H. Enterprises and Hartney Fuel Oil), 65 (Wells Fargo and Board of Education) and 64 (Schultz and Rogers) days since the oral arguments in the six cases above.

Illinois Supreme Court to Decide Whether Interest and Fees are Available on Legal Malpractice Claim

Our previews of the latest additions to the Illinois Supreme Court’s civil docket continue with Goldfine v. Barack, Ferrazzano, Kirschbaum and Perlman, a case from the First District Appellate Court. Goldfine poses a number of questions about malpractice actions arising from lawsuits under the Illinois Securities Law, most prominently: are interest and attorneys’ fees available as damages?

The plaintiffs made twelve separate purchases between 1987 and 1990 of a certain company’s stock from a broker who was also a close personal friend. In the spring of 1991, the company filed for bankruptcy and the stock became worthless. The plaintiff retained the defendant law firm to identify possible claims, negotiate a settlement and – if no settlement was possible – preserve the claims until plaintiffs could find a contingency-fee lawyer to bring the suit.

Plaintiffs’ theory was that at the time they retained the defendant firm, they had a viable claim against the defendants for rescission under the Illinois Securities Law. The problem was, to bring such a claim, the purchaser has to serve a notice of rescission within six months of learning of his or her right to the remedy. The defendants did not do so. Thus, when plaintiffs hired new counsel in 1992 who filed the Securities Law claim, it was dismissed as time-barred. The plaintiffs filed their malpractice claims two years later. The plaintiffs’ merits claim arising from the stock purchases themselves was settled in 2007 for $3.2 million.

The malpractice claim proceeded to a bench trial. Ultimately, the court held that the final eleven stock purchases had violated the Illinois Securities Law. The trial court awarded damages based on the following formula – total price paid, minus the $3.2 million settlement, plus 10% interest, beginning on each stock purchase on the day it was made. After further arguments and motion practice, the court awarded attorneys’ fees and costs, calculating the fee at 40% of the award. Plaintiffs appealed, challenging both the calculation of damages and the attorneys’ fees award; defendants cross-appealed, contending that the fee-shifting and interest awards were punitive and therefore impermissible in a legal malpractice action, and that the plaintiffs had failed to prove they would have prevailed on their securities claim.

The Appellate Court affirmed in part and reversed in part. The damages issues turn on the interpretation of section 13(A) of the Securities Law, 815 ILCS 5/13(A). The majority chose to follow the decision in Kugler v. Southmark Realty Partners III, which held that interest should be calculated on the full amount paid for the stock, rather than offsetting the payment with any settlements first. The Court held that there was no basis in the statute for the trial court’s decision to reduce the value of each stock purchase by a proportionate share of the ultimate settlement before calculating interest. Therefore, the judgment was reversed with respect to this element of compensatory damages.

The Court then turned to the issue of punitive damages. According to Section 2-1115 of the Code of Civil Procedure, 735 ILCS 5/2-1115, punitive damages are not available in an action for medical or legal malpractice. According to the majority, the statutory interest, fees and costs award did not amount to punitive damages. There was no provision in the Securities Law for a punitive damages award, the Court pointed out; interest, fees and costs were all elements intended to fully compensate the plaintiffs. Nevertheless, the Court declined to assume that the trial court would have found a 40% contingent fee to be reasonable with respect to the recalculated – and much larger – damages award, so the Court remanded the attorneys’ fees award for reconsideration.

Finally, the Appellate Court addressed defendants’ cross-appeal. The majority held that the trial court’s conclusion that plaintiff had reasonably relied on the securities representative’s representations was not against the manifest weight of the evidence. The court also rejected defendants’ argument that the plaintiffs had merely sought the reduced settlement value of their claim as damages, rather than the full value of the claim.

Justice Robert E. Gordon dissented in part, arguing that the Securities Law does not allow interest to be charged against the portion of the securities purchase price which the plaintiffs had already recovered.

We expect Goldfine to be decided in six to eight months.

Illinois Supreme Court to Decide Whether Waiver of Personal Jurisdiction Operates Retroactively

Our previews of the latest additions to the Illinois Supreme Court's civil docket continue with BAC Home Loans Servicing, LP v. Mitchell. BAC Home Loans presents the following question: does waiver of a personal jurisdiction objection operate retroactively, validating everything which has already happened in the proceeding, or only prospectively?

The plaintiff in BAC filed a complaint of foreclosure in late 2009. In April 2010, the defendant having neither answered the complaint nor moved for relief, the plaintiff filed a motion for an order of default. Two months later, the plaintiff filed a second motion for order of default, as well as a motion for a judgment of foreclosure and sale and for the appointment of a selling officer. A few days after that, all the plaintiffs' pending motions were granted. A judicial sale was held in September 2010. The plaintiff moved for an order approving the sale in August 2011. The motion was granted a month later.

On October 23, 2011, counsel for defendant entered an appearance and filed a motion to vacate approval of the sale, stating that "[t]o the best of her knowledge," defendant had never been served, had never received notice of the motion for default, had been told by plaintiff that her loan modification had been completed and approved, and had never received notice of the approval order. That motion was withdrawn a few weeks later. Next, the defendant filed a "motion to quash" the approval order, or in the alternative, for relief under 735 ILCS 5/2-1401 and 735 ILCS 5/15-1508. That motion was "stricken without prejudice" in early December 2011, but was re-filed the next day.

In April 2012, the plaintiff responded to the motion to quash, attaching an affidavit of service claiming that the defendant had been served by substitute service on her daughter, whom the affidavit named. The defendant responded to plaintiff's opposition with an affidavit of her own, stating that she had no daughter and knew no one by the name stated in the affidavit of service. The Circuit Court entered an order denying the plaintiff's motion to quash on the grounds that she had voluntarily submitted to the court's jurisdiction by filing her initial motion to vacate in October 2011.

On appeal, the defendant argued that the Appellate Court lacked jurisdiction to hear the appeal. Defendant had filed her initial motion to vacate within thirty days of the judgment of foreclosure and sale, but she then withdrew the motion. Each of defendant's motions that followed were filed more than thirty days after the entry of the final and appealable judgment, so none had extended the window to appeal from the judgment, according to defendant. The Appellate Court disagreed, noting that the defendant's third post-judgment motion had sought alternative relief under Section 2-1401 of the Code of Civil Procedure, thus triggering appellate jurisdiction under Supreme Court Rule 304(b)(3). The 2-1401 motion was not untimely because it challenged the underlying order as void, meaning that no time limit applied. Therefore, the Appellate Court proceeded to the merits.

On appeal, plaintiff did not contest that service on the defendant's "daughter" was improper. Nevertheless, plaintiff insisted that by failing to challenge personal jurisdiction with her first post-judgment motion, defendant had waived any challenge to the court's jurisdiction (the defendant' s first motion had denied service, but merely asked that the order approving the sale be vacated, rather than that the entire proceeding be dismissed or service of process quashed). Thus, the defendant failed to comply with the requirements of Section 2-301(a) of the Code of Civil Procedure or Section 15-1505.6 of the Illinois Mortgage Foreclosure Law for challenging personal jurisdiction, waiving her challenge.

Defendant responded that even if her first post-judgment motion waived the question of jurisdiction, it did so only prospectively, validating only steps the court might take after the defendant's appearance; it could not retroactively validate earlier orders and judgments. The defendant cited C.T.A.S.S.&U. Federal Credit Union v. Johnson, which held that a waiver of jurisdiction operates only prospectively. The Appellate Court disagreed, holding that certain amendments to the Code of Civil Procedure enacted in 2000 had provided that "all objections to the court's jurisdiction over the party's person" were waived by an appearance. The Court followed Eastern Savings Bank, FSB v. Flores, holding that plaintiff's waiver operated both prospectively and retroactively, thus validating the court's orders and judgment.

We expect BAC to be decided within six to eight months.

Illinois Supreme Court to Decide Whether Child Psychologist's Fees Taxable as Costs in Custody Battle

Our previews of the latest additions to the Illinois Supreme Court's civil docket continue with In re Marriage of Tiballi. Tiballi poses the following issue: when a parent voluntarily dismisses a petition to change custody, can he or she be hit with the fees of a court-appointed child psychologist as costs?

The parties in Tiballi divorced in 2005. Five years later, the father petitioned for a change in their child's residential custodian. The court appointed a psychologist to speak to the parents and the child, as authorized by the Illinois Marriage and Dissolution of Marriage Act; the psychologist ultimately submitted a report recommending that the child stay with its mother. Not long after, the mother filed a motion to dismiss, claiming that the father had decided not to proceed with his petition. The court's order originally said nothing about costs, but later, the wife successfully moved to amend the order to permit her to seek an award of costs. She then filed a petition for an award of slightly less than $5,000, representing her share of the psychologist's costs. The trial court granted the petition.

The Second District affirmed. The case turned on the interpretation of Section 2-1009(a) of the Code of Civil Procedure, which permits a plaintiff to voluntarily dismiss an action "upon payment of costs." (735 ILCS 5/2-1009). The court distinguished "costs" from "litigation expenses" -- the difference being that court costs are mandatory and nonnegotiable, the price of having your case heard. The fees of a psychologist in a custody proceeding were not within the control of the parties, the court found; whether or not to retain him or her was up to the court, and the parties had no say in negotiating the psychologist's fees. Thus, the court found that the psychologist's fees were analogous to court costs. The court distinguished an earlier Supreme Court case, Galowich v. Beech Aircraft Corp., which permitted the recovery of only a limited share of expenses for depositions necessarily used at trial, distinguishing deposition expenses, a tool for trial preparation, from the trial court's decision as to whether or not to retain a psychologist to advise it.

Justice Kathryn E. Zenoff dissented. The majority had erred at the outset, Justice Zenoff argued -- the wife had moved to have the custody challenge dismissed, and how could a litigation opponent "voluntarily dismiss" her adversary's proceeding? So Section 2-1009(a) had nothing to do with the issue. But even if it were a voluntary dismissal, Justice Zenoff rejected equating the psychologist's fees with costs for a long list of reasons: (1) court costs are paid directly to the clerk of the court; (2) no judgment or court order is required to incur liability for court costs; (3) court costs are fixed and -- unlike the psychologist's fees - not subject to review for reasonableness; (4) court costs are not subject to allocation between parties based on ability to pay; (5) court costs are incurred regardless of the type of litigation involved; and (6) court costs have nothing to do with specific merits-based or policy-based issues. Since, in Justice Zenoff's view, the psychologist's fees were not "costs," the judgment should have been reversed.

We expect Tiballi to be decided within six to eight months.

Illinois Supreme Court to Hear Due Process Challenge to Liquor License Revocation

Our previews of the latest additions to the Illinois Supreme Court's civil docket continue with WISAM 1, d/b/a Sheridan Liquors v. Illinois Liquor Control Commission, an unpublished decision from the Third District Appellate Court. WISAM involves a due process challenge to the revocation of the plaintiff's liquor license.

First, a bit of background. Federal law requires that any time a financial institution is involved in any way in a deposit, withdrawal, exchange of currency or other payment or transfer involving more than $10,000, a "currency transaction report" must be filed. Deliberately arranging your transactions to keep under the $10,000 limit -- a process called "structuring" or "smurfing" -- is a serious criminal offense.

Section 3-28 of the ordinances of the city of Peoria provides that no "officer, associate, member, representative, agent or employee" of a liquor licensee shall violate any ordinance of the city or law of the state or of the United States "in or about the licensed premises."

The plaintiff in WISAM received a notice of hearing re revocation of its liquor license, alleging that the plaintiff had violated Section 3-28. At the hearing, the City's attorney introduced a copy of a federal indictment of one of the plaintiff's managers, along with copies of the transcripts from his federal criminal trial. According to the indictment, the manager had engaged in structuring, making significant withdrawals below $10,000 in connection with the plaintiff's check-cashing business. The plaintiff objected to admission of the transcripts on hearsay grounds, but not to the stipulation or indictment.

After opening statements (and before the plaintiff had introduced any evidence), the city's attorney moved for a directed finding, which was granted on the grounds that the manager's activities amounted to a violation of Section 3-28. The plaintiff was allowed to make an offer of proof to make a record for appeal, and showed that the money had been handled as it was because the plaintiff's insurance coverage was limited to $10,000 cash on hand. During the penalty phase, the plaintiff's president reaffirmed this point, testifying that the cash transactions were handled as they were for insurance reasons and safety. The Local Liquor Control Commission revoked the plaintiff's license. The Illinois Liquor Control Commission affirmed, holding that the finding of a violation of Section 3-28 was supported by substantial evidence, and the plaintiff was not denied due process. The plaintiff then appealed to the Third District.

On appeal, the plaintiff raised two arguments: (1) the plaintiff was denied due process when the liquor control commissioner admitted the transcripts into evidence and immediately granted the City's motion for a directed finding; and (2) the transcripts were hearsay, and absent the transcripts there was insufficient evidence to support the finding of a violation of Section 3-28.

Although the Appellate Court took a dim view of the procedure below -- cutting off any defense at all by the plaintiff to immediately enter a directed finding -- the Court found no prejudice arising from the due process violation. The court pointed to the testimony of plaintiff's president, who conceded that the plaintiff deliberately kept its withdrawals below $10,000 because of its insurance limits. The court concluded that the Commission had permissibly concluded that the true purpose behind the pattern of the plaintiff's transactions was as set forth in the indictment and stipulation. Concluding that there was sufficient evidence to support the finding of a violation of Section 3-28, the Court affirmed.

Justice Mary McDade dissented, pointing out that nothing in the indictment alleged that the manager had carried out the charged transactions "in or about the licensed premises," as required to find a violation of Section 3-28. Therefore, the indictment had no probative value. Nor was the testimony of the plaintiff's president sufficient to support the revocation; his testimony that the transactions were kept below $10,000 for insurance reasons was corroborated by insurance documents. Therefore, Justice McDade argued, it was necessary to determine whether the transcripts were inadmissible hearsay. Given that there was no showing that the convicted manager was unavailable at the time of the hearing, Justice McDade concluded that the transcripts were indeed hearsay, and the Commission’s finding should therefore have been reversed.

We expect WISAM to be decided within six to eight months.

Florida High Court Reinstates $1.2 million Judgment Against Law Firm of Prospective Client

 

             On October 24, 2013, the Florida Supreme Court reinstated a $1.2 million final judgment awarded to a prospective client of a personal injury law firm who sat in a chair that collapsed during a consultation at the firm.  See Friedrich v. Fetterman & Assocs., P.A., No. SC11-2188, 2013 WL 5745617 (Fla. Oct. 24, 2013) (to read the slip opinion, click here).  The issue in the case centered around whether plaintiff’s expert’s testimony was legally sufficient to establish causation.  In finding that it was legally sufficient, the supreme court quashed the Fourth District Court of Appeal’s decision vacating the judgment.

            The facts are straightforward.  Following a car accident, Robert Friedrich met with an attorney at the personal injury firm of Fetterman & Associates, P.A. regarding possible legal representation.  The conference room chair Friedrich was sitting on collapsed, causing Friedrich injuries.  Friedrich in turn sued Fetterman for negligently failing to warn him of the chair’s dangerous condition. 

            At trial, it was undisputed that the chair had a defect that was not visible to the naked eye and that none of the chairs in the conference room had any prior problems.  Plaintiff’s expert testified that he inspects his own chairs every six months by performing a “flex test.”  He also testified that it was possible to inspect a chair today, find no problem, and have it fail tomorrow.  As for the chair in question, he testified that a hands-on inspection of it before the accident would have found the defect.  Fetterman’s expert, on the other hand, testified that the best test for a chair is to sit on it and that a reasonable inspection, including a flex test, would not have revealed the defect in the subject chair.

            The trial court denied Fetterman’s multiple motions for a directed verdict and the jury returned a verdict in favor of Friedrich.  On appeal, the Fourth District reversed the trial court and ordered that a directed verdict be entered in favor of Fetterman.  The supreme court quashed the Fourth District’s decision, concluding that it “impermissibly reweighed the evidence and substituted its own evaluation of the evidence in place of that of the jury.”  The Court concluded that there was sufficient proof to support the jury’s finding that the defendant’s negligence “probably caused” the plaintiff’s injury.

            Chief Justice Polston dissented with an opinion and Justice Canady concurred in the dissent.  As a threshold issue, Justice Polston believed that there was no basis for the Court to exercise conflict jurisdiction over the case.  He next stated that the majority failed to mention two critical aspects of the testimony of plaintiff’s expert that he believed supported the directed verdict:  (1) he testified that he had no opinion as to how quickly the failure in the chair occurred and that the weakened condition could have manifested in seconds, minutes, hours, days, or weeks before the accident; and (2) he conceded that the defect may not have been detectable by an inspection until just before the collapse and offered “no time frame concerning how long before the accident such testing would have been effective.”

            The Court’s decision will not be final until the time to file a motion for rehearing expires or until the Court decides any filed motions for hearing.  To check on the current status of this case, please click here. 

Illinois Supreme Court to Decide Whether FOIA Covers State's Attorney's Office

Our previews of the latest additions to the Illinois Supreme Court’s civil docket continue this morning with Nelson v. The Office of the Kendall County State’s Attorney, a case from the Second District Appellate Court. Nelson is the second case on last term’s civil grants list relating to the state Freedom of Information Act. The case presents the issue of whether the office of the State’s Attorney is a “public body” subject to FOIA.

The plaintiff filed separate actions against Kendall County and the office of the Kendall County State’s Attorney, seeking injunctions requiring the defendants to turn over emails that he contended were responsive to records requests he had submitted to both entities. Both actions were dismissed, with the Circuit Court holding that the County could not be compelled to turn over the State’s Attorney’s records, and the State’s Attorney wasn’t a “public body” within the meaning of FOIA. The plaintiff only challenged the second of those holdings on appeal.

The Illinois FOIA requires every “public body” to make public records available for inspection on request (subject to many exceptions). A requestor who gets turned down has a choice of either putting the matter before the Attorney General’s public access counselor or filing an action in circuit court. A decision from the public access counselor may be reviewed by the appellate courts in the same way as a final administrative decision. The circuit court, on the other hand, considers the applicability of FOIA de novo and may order the public body to turn over the records.

A “public body” is defined as “all legislative, executive, administrative or advisory bodies” of the state. You’ll note what’s missing from that definition: any mention of “judicial” bodies. In Copley Press, Inc. v. Administrative Office of the Courts, the Appellate Court held that FOIA meant what it said – and didn’t say – and that accordingly, judicial entities were not subject to the Act.

The Second District was very careful to circumscribe the issue before it. It was not deciding whether or not the State’s Attorney was in fact a member of the judicial branch of government, the court insisted. Rather, the court was deciding the narrower question of whether or not the State’s Attorney was subject to FOIA. The decisive factor in answering that question, the court held, was the structure of the state constitution. Every constitution in the state’s history that has provided for State’s Attorneys at all has created the office in the judicial article of the constitution, the court pointed out. The court also noted that in another context, the legislature has described the State’s Attorneys Appellate Prosecutor as “a judicial agency of state government.” 725 ILCS 210/3. From this, the court concluded that the term “judicial” is broader than the term “judicial power,” which is limited to the courts themselves. Under the circumstances, the court declined to infer that the legislature intended to extend FOIA to State’s Attorneys’ offices and affirmed the judgments of dismissal.

Before the Appellate Court, the plaintiff attempted without success to broaden the scope of the debate by arguing that the issue presented turns not on a mere issue of statutory construction, but on the more fundamental question of the nature of the State’s Attorney’s office. In support of that argument, the plaintiff pointed to several separation-of-powers cases and even to the Separation of Powers clause of the state constitution. Now that the plaintiff’s petition for leave to appeal has been allowed by the Supreme Court, it will be interesting to see whether the case is ultimately decided on this broader grounds, or the Court sticks with the narrower question framed by the Appellate Court.

We expect Nelson to be decided in six to eight months.

Illinois Supreme Court to Decide If Municipal Red Light Camera Ordinances are Constitutional

Our previews of the latest additions to the civil docket of the Illinois Supreme Court continue today with Keating v. City of ChicagoKeating presents an issue bound to catch the attention of motorists in Illinois’ larger cities: are municipal red-light ordinances constitutional?

Chicago has had a red light ordinance since July 2003. The ordinances work on a simple idea. Rather than relying on patrol officers happening to catch red light violators in the act, automated cameras are set up at busy intersections, fitted with sensors to detect vehicles in the intersection. When the cameras detect a violation, the registered owner of the vehicle is sent copies of the photos and instructions as to how to contest liability or pay the fine.

By 2006, questions had arisen as to whether red light ordinances were legal. 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 County.

Most of the plaintiffs in Keating are registered vehicle owners who received red light violation citations from the City of Chicago. Plaintiffs paid their fines, although at least some of them contested liability. They then filed suit alleging that (1) the City lacked home rule authority to enact the red light ordinance; and (2) the 2006 enabling act was unconstitutional special legislation. The plaintiffs sought a declaratory judgment striking down the ordinance, an injunction stopping the City’s collection of fines and an order requiring restitution to all past violators. 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 anyway since the plaintiffs had paid their fines.

On appeal, the plaintiffs raised four related arguments: (1) the enabling act is unconstitutional; (2) the City’s red light camera ordinance was void from its inception and the enabling act did not and could not legalize it; (3) the ordinance remained void since the City never reenacted it following the enabling act; and (4) the voluntary payment doctrine did not apply to bar their claims.

The First District began by affirming dismissal for lack of standing with respect to two plaintiffs. One had received citations in other jurisdictions, and alleged that she reasonably feared receiving more in Chicago. The other had not received a citation, but alleged that she had paid half the fine assessed against her husband.

Plaintiffs’ challenge to the ordinance itself was based on the proposition that the ordinance exceeded the home rule authority of the City of Chicago. Prior to 1970, the balance of power in Illinois was weighted heavily towards the state and away from local governments. The constitution adopted that year significantly changed that relationship, shifting considerable powers to so-called “home rule units.” Now, such local governments may do anything that the legislature has not expressly barred.

Local governments are permitted to adopt ordinances relating to traffic issues generally, so long as nothing in the ordinances is inconsistent with the state Vehicle Code. One of the few exceptions to this general idea is that home rule authorities may not enact anything governing “the movement of vehicles.” The Code provides that automated devices “for the purpose of recording [a vehicle’s] speed” are the exclusive province of the State. 625 ILCS 5/11-208.6(c). On the other hand, Section 11-208.2 of the Code permits local authorities to adopt ordinances “regulating traffic by means of police officers or traffic control signals.” (625 ILCS 5/11-208.) Because red light ordinances have been previously construed as not relating to “the movement of vehicles,” the court held that adoption of the ordinance was within the City’s home rule authority, and the enabling act was therefore unnecessary.

The court then turned to the plaintiffs’ claim that the 2006 enabling act was unconstitutional special legislation. The court pointed out that a legislative act applicable only to particular parts of the state could survive a special legislation challenge only where it was based upon a rational distinction between the affected areas and the rest of the state. Here, although the statute doesn’t specifically explain why only eight counties were authorized to enact red light ordinances, the legislative history of the 2006 act does: because red light cameras cost between ninety and one hundred thousand dollars apiece, the authority was granted only to the most populous counties with the most traffic. Given that rational basis, the statute was not unconstitutional special legislation.

Finally, the court turned to the voluntary payment doctrine. The doctrine has deep roots in the common law: anyone who voluntarily pays a debt claimed by another as a matter of right, with knowledge of the facts which allegedly negate that claim of right, cannot later challenge the creditor’s claim to payment. The doctrine does not ordinarily apply when payment is made under duress. After reviewing the law on duress in detail, the court concluded that because accused violators were subject to significant penalties for non-payment, including collection proceedings with possible liability for attorneys’ fees and immobilization of their vehicles, the plaintiffs had paid under duress and the voluntary payment doctrine did not bar their claims. However, because the plaintiffs’ complaints failed to state a claim on the merits, the Appellate Court affirmed the judgments.

We expect Keating to be decided in the next six to eight months.

Illinois Supreme Court to Decide Constitutional Challenge to Medical Licensing Law

Our previews of the newest additions to the civil docket of the Illinois Supreme Court continues this morning with Consiglio v. Department of Financial and Professional Regulation. Consiglio involves a lengthy list of constitutional challenges to amendments the legislature enacted in 2011 to the Department of Professional Regulation Act (20 ILCS 2105/2105-165). According to the new statute, 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.

The plaintiffs are three general physicians and one chiropractic physician. Subsequent to being licensed, each was convicted of a battery or abuse against a patient in the course of care or treatment. They filed separate actions in Cook County, seeking a judicial declaration that the Act applied only prospectively to convictions after its effective date and injunctive relief barring revocation of their licenses for convictions occurring before the effective date.   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 flowing from previous orders of the Department; and (8) unfairly deprived them of vested limitations and repose defenses.

One by one, Division One of the First District rejected the plaintiffs’ challenges. First, the court found that the plaintiffs conflated two separate issues – whether the Act applied to convictions predating its enactment (which it clearly did) and whether the Act applied retroactively in the constitutional sense (which the court concluded it did not).

The court rejected the plaintiffs’ due process claims. Although the plaintiffs’ licenses were obviously a property interest, since the Act’s remedies only applied upon conviction, the risk of erroneous deprivation was low. On the other hand, the governmental interest at stake was quite high. The court pointed out that the plaintiffs had a post-deprivation challenge available to them – a written appeal disputing the existence of the triggering conviction. Additional procedures would merely add burden without giving much offsetting benefit, the court found.

The court rejected plaintiffs’ double jeopardy argument, finding that the Act did not impose punishment in the constitutional sense. The revocation of a privilege was not generally considered punishment, the court pointed out. The court commented that if the immediate threat to patients were the only purpose, it might agree that the statutory remedy was excessive, but the Act served a further important purpose of protecting public health and maintaining the honesty and integrity of the medical profession. As such, the Act constituted a civil penalty without punitive effect.  The plaintiffs’ ex post facto and proportionate penalties challenges failed as well because the Act was not punitive.

The Appellate Court dismissed the plaintiffs’ separation of powers arguments too. The plaintiffs argued that because the Act provided that no hearing was necessary, the statute interfered with judicial review. The court disagreed, pointing out that no hearing was required for due process. Nor did the statute constitute an attempt to legislatively overturn the Department’s previous decisions regarding plaintiffs’ licenses, since the legislature always retains the right to change the law. The court found that the statute passed muster under the contracts clause because the remedies set forth in the Act were reasonable and necessary to serve an important public purpose. The court rejected the plaintiffs’ res judicata challenge, holding that even assuming that Department orders qualified for res judicata effect, the legislature was free to alter the underlying statute at any time.

Finally, the court rejected the plaintiffs’ argument that they had been unfairly deprived of vested statute of limitations defenses pursuant to 225 ILCS 60/22(A) of the Act. The court found as a matter of statutory construction that the statute of limitations applied only to violations of the Medical Practice Act. The legislature intended that no statute of limitations should apply to actions for automatic revocation.

We expect Consiglio to be decided in six to eight months.

Illinois Supreme Court to Decide If Wrongful Death Plaintiff's Lawyer Owes Duty to Next of Kin

Our previews of the newest additions to the Illinois Supreme Court's civil docket continue with Estate of Powell v. John C. Wunsch, P.C., a case from the Third Division of the First District which poses this question: does the lawyer who brings a wrongful death action owe a duty of care to the next of kin, or only to the estate?

The plaintiff in Estate of Powell was adjudicated disabled by the circuit court in 1997. His parents were appointed to serve as co-guardians of his person, but not as guardians of his estate. The plaintiff's father died two years later, and his mother retained the defendants to bring a wrongful death action. Nearly two years later, the mother successfully petitioned to have herself appointed as special administratrix of the father's estate. The petition named the mother, the plaintiff and his sister as the father's next of kin.

In January 2005, the mother petitioned for approval of an initial settlement for $15,000 with certain defendants. The circuit court approved the settlement, with each of the three next of kin receiving $5,000. The remainder of the defendants settled in November of that year for $350,000. The second settlement was approved, with the mother and the plaintiff splitting the funds (the sister had waived her rights to any of the second settlement proceeds).

Three years later, the plaintiff's sister became concerned about the plaintiff's well-being. Believing that their mother was no longer capable of caring for the plaintiff, she petitioned to have the mother removed as guardian, or in the alternative, for an order appointing the sister as co-guardian. The petition also claimed that the plaintiff's half of the settlement funds were deposited in a joint bank account, and were not being expended towards his care. In the summer of 2009, the probate court entered orders removing the mother, making the sister plenary guardian of the plaintiff's person, and appointing the public guardian as guardian of the plaintiff's estate.

The public guardian filed Estate of Powell, a malpractice claim against the lawyers who handled the wrongful death claim. The theory was that the lawyers had breached a duty to the plaintiff by failing to ensure that his share of the two settlements was distributed through the probate court pursuant to section 2.1 of the Wrongful Death Act (740 ILCS 180/2.1), and accordingly plaintiff had lost access to those funds. The defendants successfully moved to dismiss on the grounds that they owed the plaintiff no duty, since he was not their client.

The Appellate Court reversed in part. A duty of care, the Court wrote, could arise in two situations: (1) the plaintiff had an attorney-client relationship with the defendants; or (2) he was an intended beneficiary of such a relationship. The Court concluded that the Wrongful Death Act established that all next of kin are the intended beneficiaries of a wrongful death action, which is brought "for the exclusive benefit of the surviving spouse and next of kin of such a deceased person." 740 ILCS 180/2. The Act requires that the action be brought in the name of the decedent's personal representative, but the courts have recognized for many years that the claims are in fact those of the individual beneficiaries - here, the plaintiff, his sister and mother. Accordingly, the defendants owed the plaintiff a duty of care.

The Court turned next to the proximate cause element of the cause of action. The court noted that the Probate Act requires that a guardian be appointed, and funds be distributed under the Court's supervision, for any settlement in excess of $5,000. The first settlement did not exceed $5,000, so the Probate Act didn't apply, and the plaintiff's cause of action failed. But the second settlement did exceed the statutory threshold. Therefore, the Court held, that complaint sufficiently pled three negligent omissions with respect to the second of the two wrongful death settlements: (1) failing to petition the probate court to appoint a guardian of the plaintiff's estate to receive his share; (2) failing to notify the court that the plaintiff's mother was receiving control of his share without probate authority; and (3) failing to protect the plaintiff's interest when they knew he would be unable to do so himself.

We expect Estate of Powell to be decided in the next six to eight months.

Illinois Supreme Court Agrees to Consider Flexible Utility Rate-Making Technique

Our previews of the newest additions to the Illinois Supreme Court's civil docket continue with People ex rel. Madigan v. Illinois Commerce CommissionMadigan poses a question involving the jurisdiction of the Illinois Commerce Commission, which is responsible for regulating public utilities operating in the state: are volume-balancing-adjustment ("VBA") riders to approved rate schedules for natural gas permissible?

Here's why the issue is important to public utilities and their customers. Utility rate-making relies to a considerable degree on forecasting the future: what are loads likely to be, what the weather should be like, population changes as people move in and out of the service area, energy efficiency, the effect of rising (or falling) gas prices on demand; all kinds of factors go into the mix. Inevitably, those forecasts are going to turn out to be incorrect. But the Commerce Commission approves a certain level of reasonable revenue for the utility, and when the assumptions that go into that calculus turn out to be off, things start to go wrong. At the micro level, for one example, it's possible that customers might wind up "overpaying" when weather is colder than normal, and "underpaying" when weather is warmer than normal. At the macro level, utilities can miss their approved revenue recovery targets and wind up having to pursue more rate cases. VBA riders make both of those effects less likely by adjusting rates either up or down depending on whether the utility would otherwise overrecover or underrecover its target revenue. It does this by giving customers a credit when revenues are higher than expected, and applying a surcharge when revenues are lower than expected.

Nationwide, we have quite a bit of experience with various kinds of revenue decoupling; more than half the states either have some form of it or are considering it, and California first adopted it thirty-five years ago. Revenue decoupling offers a number of benefits, as recognized by the ICC, including reduced volatility in utility revenues and customers' bills, greater equity because decoupling is based on actual revenues rather than estimates, and encouraging conservation measures by removing the direct link between increased sales and increased revenues.

A group of utilities asked the Commission to approve VBAs in 2007. After an evidentiary hearing, the Commission authorized Rider VBA as a four-year pilot program in 2008. The Attorney General appealed the Commission's decision, but while that appeal was still pending, the Commission approved Rider VBA on a permanent basis in January 2012 (over the Attorney General's objections).

Madigan is the appeal by the Attorney General and the Citizens' Utility Board from that ruling. Before the Second District Appellate Court, the parties' disputes began with the most fundamental issue of all: the standard of review. In Illinois (as in most states), the actions of the Commission are in almost every case given deferential review by the courts. The AG and the CUB argued that the deferential standard shouldn't apply since the Commission had "departed from past practice" and made an error of law. The court disagreed, holding that the Commission's findings of fact were presumptively true and its orders presumed reasonable on appeal.

The appellants challenged the Rider VBA on two grounds: (1) it was impermissible retroactive ratemaking; and (2) it violated the prohibition against single-issue ratemaking. Retroactive ratemaking is what it sounds like: providing refunds to customers when rates are too high and imposing surcharges when they're too low. Single-issue ratemaking occurs when a rate is set based on a change to only one component of costs without considering whether changes to other costs might have offset the increase.

The Appellate Court held that the Rider VBA was not retroactive ratemaking. The VBA was not a modification enacted to correct an "error" -- a determination that rates were too high or too low. VBA is a ratemaking methodology designed to ensure that the utilities maintain the approved level of revenue taking into account actual experience (as opposed to forecasts) with demand. As such, the VBA is not retroactive ratemaking, the Court found.

Nor did the Rider VBA amount to single-issue ratemaking, the Court concluded. In so holding, the Court distinguished its earlier decision in Commonwealth Edison Co. v. Illinois Commerce Commission, where the Court had held that riders are permissible only based on a showing of exceptional circumstances. ComEd had arisen in the context of traditional ratemaking, the Court found; revenue decoupling was a different approach. The Rider VBA didn't provide for recovery of any specific cost, nor did it isolate any particular cost. Far from causing rates to fluctuate based on a single strand of the revenue requirement, as the appellants argued, revenue decoupling eliminated the link between sales and revenue, according to the Court. "We conclude that the revenue decoupling mechanism known as Rider VBA was approved by the Commission to guarantee that the Utilities recoup the costs for the infrastructure in which they prudently invested," the Court wrote, "not to ensure profits but to satisfy the distribution needs of their customers." For that reason, the Court affirmed the Commission's order approving the Rider VBA.

We expect Madigan to be decided in the next six to eight months.

Illinois Supreme Court to Decide If FOIA Requires Equal Treatment of Citizens and Media

Our previews of the newest additions to the Illinois Supreme Court's docket continue with Garlick v. Madigan, a unpublished decision from Division One of the First District which poses this interesting question: is a government entity required to treat a private citizen and a media outlet the same for purposes of requests under the state Freedom of Information Act?

More than two years ago, the plaintiff in Garlick sent the defendant a FOIA request, asking for data relating to the operations of the Attorney General's Public Access Coordinator (PAC) - an official tasked with overseeing the rest of the state government's compliance with FOIA. The plaintiff's request said he wasn't interested in the names of the requesting parties, but did say that he wanted the information in a specific electronic format. The AG declined to generate the information in the requested format, but agreed to turn over an existing report.

A month later, the Chicago Tribune asked for data on the AG's PAC. In the Tribune's online story, the data was available for direct download. The data included the identities of the requesting parties - the information the plaintiff had said he wasn't interested in.

The plaintiff contacted the AG, asking for an explanation of the redactions. The Attorney General responded that in the case of the Trib, the office had concluded that the public interest outweighed the value of keeping the requestors' identities private.   The plaintiff then wrote the PAC, demanding the information again, with no redactions. The AG wrote back, stating that its earlier response hadn't violated the Act. The plaintiff filed another FOIA request, demanding all the AG's correspondence with the Trib. The information was turned over, and disclosed that the AG had worked with the Trib to provide the information in the paper's preferred format. So the plaintiff sued, seeking the unredacted information, civil penalties and costs. The trial court dismissed.

On appeal, the plaintiff raised four arguments. The Appellate Court rejected each one.

First, the plaintiff argued that the AG's failure to provide the information in the preferred format was itself a FOIA violation. The Appellate Court disagreed, holding that a public entity is entitled to provide information in the form in which it exists in the office's records. Next, the plaintiff argued that treating the Tribune differently violated FOIA, and that permitting less disclosure to a private actor harmed the public policy interests that animated FOIA. The Appellate Court disagreed, holding that the parties were not similarly situated for equal protection purposes, and that the treatment of the Trib was entirely irrelevant to the issue of whether or not the AG had violated FOIA in its interaction with the plaintiff. Finally, the Court rejected the plaintiff's argument that the AG's redactions from the record had violated FOIA, pointing out that the plaintiff had expressly stated in the request that he didn't care about redactions.

We expect Garlick to be decided in six to eight months.

Illinois Supreme Court to Decide Who Pays When the General Contractor Goes Bust

Today, as we await the start of the Court’s November term, we begin our first look previews at the most recent additions to the Court’s civil docket. First up is Lake County Grading Company, LLC v. The Village of Antioch, a case out of the Second District which poses a potentially important question for cash-strapped local governments: when the general contractor on a public improvement goes bankrupt, who pays the subcontractors?

The general contractor in Lake County signed two agreements to make public improvements in two residential subdivisions. The GC hired the plaintiff as a subcontractor to perform grading work. There’s no dispute that the subcontractor performed all the work in compliance with the contract, but was never paid in full.

The contract (not to mention the Public Construction Bond Act) required that the GC provide surety bonds based on the cost of the improvements, which the GC did. The problem was that the bonds which the GC obtained and the defendant accepted were performance bonds only. They didn’t guarantee payment to the subs, even though the Public Construction Bond Act specifically requires it. Before the job was completed, the GC stopped work and ultimately declared bankruptcy.

The sub delayed sending out lien notices because it wanted to protect its working relationship with the GC. Ultimately – more than 180 days after last performing work (I’ll explain why that’s important momentarily) – it filed notices of lien claims on the work. Plaintiff then filed a five-count complaint against the defendant village. Three of the counts were dismissed – two for lien claims for public funds and one for unjust enrichment. Lake County turns on the remaining two claims, for third party beneficiary breach of contract, based on the defendant’s failure to require a bond from the GC guaranteeing payment, not just performance. The trial court granted summary judgment for the plaintiff.

On appeal, the defendant argued that the sub wasn’t entitled to payment from anybody. The argument went like this: the Bond Act incorporated a payment guarantee into the performance bond provided by the GC, which the sub should have sued on, but since the sub had waited more than 180 days from its last work to begin proceedings, it was out of luck.

The Second District affirmed judgment for the subcontractor. The fatal flaw in the defendant’s argument, the Court held, was that it implicitly assumed that the sub’s only remedy was via the Bond Act. Not so, the Court noted – section 2 of the Bond Act expressly states that the remedies under the Act are cumulative of any other remedies available in statutory, regulatory or common law. The sub’s argument was that it was a third-party beneficiary of the construction contract between the bankrupt GC and the defendant.

Third party beneficiary status in Illinois turns on whether the language of the contract reflects an intent to directly benefit the individual. The language must expressly identify the third party by name, or at least describe the class to which it belongs. The Court held that the provision in the general contract empowering the GC to hire subcontractors was sufficient to qualify. Given that the payment bond requirement of Section 1 of the Bond Act is automatically read into the construction contract as a matter of law, the Court held that the defendant had breached the contract when it failed to require a payment bond from the general contractor. Since the sub wasn’t suing on the bond, the statute of limitations contained in the Bond Act didn’t apply.   Any other ruling, the Court found, would essentially shift the burden of ensuring that the GC obtained a payment bond from the government entity itself to the insurer who wrote the bond. The Court declined to follow Shaw Industries, Inc. v. Community College District No. 515, a 2000 case from the Second Division of the First District which had refused to allow a subcontractor to sue as a third-party beneficiary under a construction contract in order to get around the statute of limitations in the Bond Act.

We expect Lake County to be decided by the Court within six to eight months.

Florida High Court to Examine Retroactive Application of Noneconomic Damages Cap in Med Mal Cases

            

            On October 15, 2013, the Florida Supreme Court accepted review of a case to decide whether the retroactive application of the cap on noneconomic damages for certain medical malpractice cases found in section 766.118, Florida Statutes is constitutional.  See Weingrad v Miles, 29 So. 3d 406 (Fla. 3d DCA 2010).

            In the trial court, the jury found in favor of the plaintiffs and awarded them $1.5 million in noneconomic damages:  $1.45 million for the patient’s pain and suffering and $50,000 for her husband’s consortium claim.  The trial court denied the defendant-doctor’s motion to limit the judgment pursuant to the statutory cap.  The applicable statutory cap would have limited the plaintiffs’ total recovery to $500,000.  See § 766.118(2)(a), Fla. Stat.

            On appeal, the Third District reached the opposite conclusion.  It first found that the statute at issue was substantive in nature and that the legislature expressed clear legislative intent for retroactive application.  On the third prong of the analysis—whether plaintiffs had vested rights that were impaired—the district court found that they “had at most a ‘mere expectation’ or a prospect that they might recover damages of an indeterminate amount at an unspecified date in the future.”  The court based this conclusion on the fact that plaintiffs did not file their notice of intent, file their complaint, or obtain a judgment before the enactment of the statute.

            The parties are presently briefing the issues in the supreme court.  The author will update this article once the supreme court decides the case.  To check on the status of this case, please click here. 

            The supreme court is also reviewing in a different case whether the statutory cap on noneconomic damages is unconstitutional on other grounds.  See Estate of McCall v. United States, No. SC11-1148 (review granted June 14, 2011). That case is awaiting a decision. 

Florida High Court to Examine Proximate Cause in Negligent Security Case

 

On August 2, 2013, the Florida Supreme Court accepted review of a case to examine the issue of proximate cause in a negligent security case. See Sanders v. ERP Operating Ltd. Partnership, 96 So. 3d 929 (Fla. 4th DCA 2012) (No.SC12-2416).Two young adults moved into an apartment complex marketed as a “gated community.” Water surrounded approximately 70% of the complex and a fence surrounded the remainder. The complex had a policy of providing reasonable lighting, locks, and peepholes. The apartments contained alarm systems, which the residents could activate.  

A year after they moved in, the victims were shot to death by unknown assailants inside their apartment.  While there was no sign of forced entry, cash and other valuables were stolen from the apartment.

The plaintiff, as personal representative of the decedents’ estates, filed a complaint alleging that the complex owner’s negligence was a proximate cause of the deaths. The complaint alleged that the complex owner did not maintain the premises in a reasonably safe condition by failing to: (1) maintain the front gate; (2) have adequate security; (3) prevent dangerous persons from gaining access to the premises; and (4) protect and warn residents of dangerous condition and criminal acts. The complex owner had a manual recommending notice to residents when a “significant crime” occurred on the property, especially a violent crime or forced-entry burglary.  The owner did not notify the residents of 20 criminal incidents that occurred in the 3 years before the decedents’ murders.  Three years before the murders, there was an armed robbery and assault on the property after the perpetrators broke the entrance gate and followed residents onto the property. The gate was broken for about 2 months before the murders.

The owner’s expert, a security consultant, testified that the murders were not foreseeable because the 20 prior crimes were not violent crimes or predictive of future homicides.  The expert opined that the existing security measures were more than reasonable and that there was no sign of forced entry and that he believed that the door was opened to the person that committed the murders.

The plaintiff’s expert, a criminology expert, testified that most of the prior crimes at the complex were opportunistic and that the murders also occurred in the course of an opportunistic crime (i.e., a home invasion).  The expert conceded, however, that there had not been a murder, shooting, or rape at the complex previously and that there was no way of knowing precisely how the murders took place.

The defendant moved for a directed verdict arguing that the plaintiff had not established proximate cause.  The trial court denied the motion.  The jury found the defendant 40% comparatively negligent and awarded damages of $4.5 million.  The defendant moved for a new trial and a judgment notwithstanding the verdict, which the trial court denied.

In negligence actions, Florida courts follow the “more likely than not” standard of causation and require proof that the negligence “probably” caused the plaintiff’s injuries. In this case, although there was evidence to support a breach of duty to provide adequate security, the plaintiff could not establish that the breach was the proximate cause of the murders.  The victims were murdered inside their apartment, there was no sign of a forced entry, and the plaintiff’s expert acknowledged that it was unknown what happened on the night of the murders.  Without proof of how the assailants gained entry into the apartment, the appellate court concluded that the plaintiff could not prove causation.  As such, the appellate court reversed and remanded the matter to the trial court.

The parties concluded their briefing on October 7, 2013.  Because the Florida Supreme Court dispensed with oral argument, it should release its decision in the next 3 to 6 months. I will update this article after the Florida Supreme Court has ruled.

 

 

California Confirms Preemption by FAA Over State Rule Barring Employee Waiver - Mostly

In Sonic-Calabasas A, Inc. v. Moreno (Sonic II), the California Supreme Court addressed an employee’s waiver of access to an administrative hearing, in this case a Berman hearing, in an arbitration agreement imposed as a condition of employment. The unanimous court concluded that a categorical rule prohibiting such waivers is preempted by the Federal Arbitration Act (FAA) in light of the U.S. Supreme Court’s ruling in AT&T Mobility LLC v. Concepcion (Concepcion). A divided court (5-2) further held that state courts can still invalidate such an arbitration agreement on a case-by-case basis by finding that is unconscionable, so long as waiver of the Berman hearing is not the sole basis and the finding does not “interfere with the fundamental attributes of arbitration.” Such a finding could be based on the benefits received by the employee under the arbitration agreement in comparison to those which were waived, in light of the totality of circumstances.

Sonic I. As a former employee of Sonic-Calabasas A, Inc., Moreno filed a claim with the Labor Commissioner for unpaid vacation time totaling nearly $28,000. Under California law, Labor Code §§ 98, et seq., this triggers an administrative process referred to as a Berman hearing procedure. This provides an expedited process for employee wage claims and provides additional protections to employees, such as potential access to representation by the Labor Commissioner in pursuing the claim. Any party can appeal the result, but the employer must post a bond to cover any adverse judgment, which otherwise becomes enforceable. Also, if the employer’s appeal is unsuccessful, the employee can recover all costs and fees, but the employer can only recover costs and fees if it obtains a judgment of zero on appeal.

In Sonic I, a bare majority of the California Supreme Court (4-3) held categorically that waiver of the Berman hearing procedure as a condition of employment was a violation of public policy. In addition, the court held that such a waiver was unconscionable and therefore unenforceable in any case. In doing so, the court did not invalidate the arbitration agreement, only the waiver of the statutory right to a Berman hearing. Should either party appeal the administrative ruling, that appeal could be submitted to arbitration. In that way, the employee would still have the significant protections provided by the Berman hearing procedure, and the employer could still compel arbitration for an ultimate resolution. The court explained that the FAA did not preempt this approach because any waiver of the Berman hearing was invalidated, whether or not it was part of an arbitration agreement.

Concepcion and Sonic II. Shortly after Sonic I, the U.S. Supreme Court issued its decision in Concepcion, which addressed Discover Bank, an earlier decision by the California Supreme Court. Discover Bank had invalidated a waiver of class actions and the corresponding arbitration agreement as unconscionable in a consumer protection context. Concepcion abrogated Discover Bank, holding that the FAA preempted any state law rule or holding which was aimed at destroying arbitration or which demanded procedures incompatible with arbitration. This includes any rule which is generally applicable to contracts, such as unconscionability, but which is applied in a fashion which disfavors arbitration. Conception held that requiring the availability of class actions, whether judicial or some sort of class arbitration, would sacrifice the principle advantages of arbitration – lower costs, informality which results in greater efficiency and speed, and the ability to choose the adjudicator.

The U.S. Supreme Court granted certiorari, vacated Sonic I, and remanded for further consideration in light of Concepcion. Following Concepcion, a unanimous California Supreme Court reversed its decision in Sonic I, holding that any general rule against waiving a Berman hearing, whether based on public policy or unconscionability, was preempted by the FAA since it would categorically favor Berman hearings over arbitration and add a significant delay to the arbitration process, thus infringing on one of its fundamental attributes.

Sonic II’s Unconscionability Doctrine. A divided court (5-2) noted that Concepcion only bars the application of unconscionability if it interferes with the “fundamental attributes of arbitration,” leaving open any other application of the doctrine. While acknowledging that states cannot categorically prefer one form of dispute resolution (e.g. Berman hearings) over arbitration, the court concluded this does not prevent a case specific evaluation from finding that an arbitration agreement which includes such a waiver is unconscionable. Sonic II discusses several previous California holdings finding unconscionability on grounds not preempted by the FAA, such as an arbitration process in which a full recovery is not even theoretically possible, up-front costs that deter employees, or unfairly one-sided provisions. As such, while the waiver of an administrative process, in itself, cannot support unconscionability, that waiver could be part of a larger evaluation to determine whether the arbitration agreement was unconscionable.
Such an evaluation should address the adequacy of the arbitration process provided, both as described in the contract and as implemented, in comparison to the Berman protections that were waived. The Berman hearing procedures provide a speedy, informal and affordable means of resolving a wage claim. Thus, the waiver of such protections in favor of an arbitration process which does not provide the same type of protections may be unconscionable and unreasonably one-sided, as well as contrary to the goals of the FAA. Importantly, the court acknowledged that there are many different means to reach these goals, and that the arbitration procedures need not mirror the Berman procedures. Of course, such an evaluation should consider the totality of circumstances (e.g., contract of adhesion?). Since the record did not address these issues, the court remanded to the trial court for further proceedings.

Concur and Dissent. Justice Corrigan concurred, but wrote separately to complain that the majority failed to articulate a clear standard for assessing the unconscionability of an arbitration agreement, and instead seemed to provide multiple formulations. She agreed with Justice Chin on the standard – terms which are so one sided that they shock the conscience.
Justices Chin and Baxter dissented from the new unconscionability doctrine primary on grounds that Moreno forfeited the argument by failing to raise it below, and that he could not show unconscionability in any case. The dissent also disagreed with the majority‘s “advisory opinion” regarding the unconscionability doctrine, which it argued was contrary to state law and preempted by the FAA.

The Next Step.  Sonic II is hardly the last word from the California Supreme court on the issue of FAA preemption. The court has two such cases already fully briefed. In Sanchez, the issue is whether the FAA, a’ la Concepcion, preempts state law rules which invalidate as unconscionable mandatory arbitration provisions in a consumer contract. In Iskanian, the court granted review to address whether Concepcion implicitly overruled Gentry, with respect to contractual class action waivers in the context of non-waivable labor law rights and whether Concepcion permits arbitration agreements to override the statutory right to bring representative claims under state law. Between them, Sanchez and Iskanian have twelve grant and holds cases waiting for a decision, indicating the broad interest in these rulings. For more details on ADR cases pending before the California Supreme Court, see our summary here.
 

Illinois Supreme Court Holds Guaranty Fund's Indemnity Payments Not Limited By Statutory Cap

In Illinois (as in every other state), when an insurance company becomes insolvent and an order of liquidation is entered, the Illinois Insurance Guaranty Fund steps in and pays claims that the insolvent carrier could not pay. The Fund’s liability is capped at $300,000, but that cap isn’t applicable to “workers compensation claims.” Skokie Castings, Inc. v. Illinois Insurance Guaranty Fund presented an interesting variation on that rule. What happens when the insolvent carrier is the excess insurer, and the Fund’s liability is for contractual indemnity to the employer, rather than making direct payments to the injured employee? On Friday morning, a divided Illinois Supreme Court held that the result was the same – the claim was still one for workers’ compensation, and the statutory cap didn’t apply.

In Skokie Castings, the employer had chosen to partially self-insure against its workers compensation exposure, carrying excess coverage only in case of major losses. According to the excess policy, the insurer was obligated to indemnify the employer for any sums paid above a $200,000 threshold.

One of the employer’s employees was seriously injured in 1985; she was ultimately declared permanently disabled by the Commission and awarded lifetime workers’ comp benefits. The employer paid up to the $200,000 self-insured threshold, at which point the insurer began paying under the policy. It did so until it became insolvent, went into receivership and was liquidated. The Fund then took over, but once it had paid about $250,000 on the claim, it notified the employer that it believed that the liability was subject to the $300,000 statutory cap set on Fund obligations by Section 537.2 of the Illinois Insurance Code (215 ILCS 5/537.2).

When the Fund reached the $300,000 cap and refused to make further payments, the employer filed suit, seeking a declaratory judgment that the statutory cap was inapplicable and that the Fund had improperly terminated payments. The Circuit Court entered summary judgment in the employer’s favor, finding that the Fund’s liability to the employer was a “workers’ compensation claim,” making the cap inapplicable. The Appellate Court affirmed.

The Supreme Court agreed. Writing for a five-Justice majority, Justice Lloyd A. Karmeier found that it was “indisputable” that the covered claims at issue “arose out of and were within the coverage of policies which had been purchased to help insure” the employer “against liability for workers’ compensation awards.” The claim at issue was therefore a “workers’ compensation claim” under the statute, and was exempt from the statutory cap.

The Fund had argued on appeal that a “workers’ compensation claim” was limited to a claim for benefits brought directly by an injured employee. The Court disagreed. A workers’ compensation claim did not arise under an insurance policy, the Court pointed out, but rather under the Workers’ Compensation Act; it was made to the Workers’ Compensation Commission, not the employer or the employer’s insurer. Since the Fund’s obligations only extended to covered claims arising under insurance policies issued by insolvent insurers, the term “workers compensation claim” in the statute could not refer to claims for benefits directly made by workers. Nor did it matter, the majority found, that the policy at issue was for excess only, or that the excess carrier might be reimbursing the employer, rather than paying the employee.

The majority was unconcerned that potentially unlimited liability in similar situations might “place an undue burden on the Fund’s resources.” The majority pointed out that an insurer’s maximum assessment for any given year was subject to a 2% cap. If the Fund’s obligations for a given year could not be satisfied out of the total funds available through assessments, payment was simply delayed until enough money became available.

Chief Justice Kilbride dissented. The Chief Justice agreed with the majority’s initial steps: the case involved two distinct claims, the employee’s statutory claim for benefits filed with the Commission, and the employer’s contract-based claim, first against its excess carrier, and later against the Fund. Only the latter could possibly be a “covered claim” within the meaning of the statute. Therefore, the issue was the nature of that contractual claim by the employer against the Fund.

That claim, the Chief Justice found, was clearly one for indemnity only. The policy required that the employer submit a periodic statement to the excess insurer showing payments actually made by the employer, and the insurer would then reimburse the employer for those payments. The excess insurer never took on the obligation to pay the employee’s workers’ compensation claim, so the Fund didn’t have that obligation either. Therefore, the “covered claim” at issue wasn’t a workers’ compensation claim, and the statutory cap applied.

The Chief Justice disputed the majority’s view that any burden on the Fund was unimportant as well.   First, the Chief predicted that the majority’s holding would likely increase demand for cheaper excess-only workers’ compensation coverage, placing a greater potential burden on the Fund’s resources. Second, the Fund would be required to increase annual assessments, a cost increase which would be passed along to insureds in the form of higher premiums. Once the Fund’s obligations reached the 2% limit on annual assessments, payments on policy obligations would have to be stretched out (a fact the majority acknowledged). But if the Fund’s payments were “workers’ compensation,” such delays were contrary to the legislative purpose of securing prompt compensation for workers’ injuries, the Chief Justice noted.

Justice Robert R. Thomas filed a separate dissent. According to Justice Thomas, the purpose of exempting workers compensation claims from the statutory cap for Fund obligations was to ensure that injured workers receive all of the benefits to which they are entitled. “I simply cannot see how that public policy purpose is implicated in this case,” Justice Thomas wrote. Like the Chief Justice, Justice Thomas concluded that the key point in resolving the case was that the excess carrier’s liability – inherited by the Fund – was one to indemnify the employer, not to directly pay the employee. If the employer simply stopped making the payments, it would have no claim against the insolvent insurer or the Fund, since the policy was limited to payments actually made.

Illinois Supreme Court Strikes Down Amendment to Illinois Public Labor Relations Act

As I mentioned earlier this week in discussing Performance Marketing, the Illinois Supreme Court has been a somewhat cool audience over the past ten years for constitutional claims. That’s why it was mildly surprising late last week to see the Court strike down two statutes in a single morning. The first, of course, was Performance Marketing, in which the Click-Through Act fell to a challenge under the Supremacy Clause. The second was The Board of Education of Peoria School District No. 150 v. Peoria Federation of Support Staff, in which a six-Justice majority, led by Justice Lloyd A. Karmeier, voided the 2010 amendments to the Illinois Public Labor Relations Act (“IPLRA”). Our detailed summary of the facts and lower court rulings is here. Our report on the oral argument is here.

The defendant union had been first certified to represent the 26 full-time and part-time security officers employed by the plaintiff in 1989 by the Illinois Educational Labor Relations Board (“IELRB”), which administers the Illinois Educational Labor Relations Act (“IELRA”). But then came the 2010 amendments to the IPLRA, which removed “peace officers” employed by a “school district” in “its own police department in existence on the effective date of this amendatory Act” from the IELRA and placed them within the IPLRA. Why does it matter? Under the IELRA, the officers would have the right to strike. Under the IPLRA, the Board would not have the right to impose its final offer unilaterally, and labor disputes would go directly to interest arbitration. Since the officers’ union was so small – too small to have that much leverage in a strike – the union purportedly wanted interest arbitration rather than a right to strike.

But here’s the problem: on the day the 2010 amendments became effective, only one school district in Illinois employed its own police officers – the plaintiff. And since the statute appeared to open and close the affected class all on a single day, it seemed that the plaintiff was the only entity which would ever be subject to the Act. And the Illinois Constitution bans “special legislation” any time a “general law is or can be made applicable.”

The plaintiff school district sued the officers’ union, the IELRB and the Labor Relations Board (“ILRB”), which administers the IPLRA, seeking declarations that (1) the 2010 amendments were unconstitutional special legislation; and (2) the IELRA governed any labor disputes with the union, not the IPLRA. The Circuit Court granted the motion to dismiss filed by the two defendant Boards, holding that the amendments were not unconstitutional. The Appellate Court unanimously reversed, holding that the plaintiffs had made out a sufficient case that the amendments were unconstitutional to withstand a motion to dismiss (but not going the rest of the way and actually voiding the amendments).

The Supreme Court unanimously affirmed the Appellate Court and voided the 2010 amendments. The fatal problem, the Court held, was that even though there was nothing unique about the statute’s description of entities subject to its provisions – a school district employing its own security officers – the statute nevertheless closed the affected class on the date it became effective. School districts might opt to employ their own security officers in the future, and it was irrational not to extend the benefits of interest arbitration to them, the Court found. Since a “general law” could have been enacted, the 2010 amendments were necessarily void.

Chief Justice Kilbride added a short special concurrence, emphasizing that nothing about the Court’s opinion should be read as relaxing the Court’s holdings in a line of earlier authorities that the two boards have exclusive jurisdiction to hear disputes within their respective statutory schemes, subject to review only at the Appellate Court, not in the trial courts.

Illinois Supreme Court Bars Action Against Deceased Defendant

On Friday morning, the Illinois Supreme Court pointed out a trap for the unwary in an unexpected place - what happens if a complaint is filed, but unbeknownst to the plaintiff, the defendant had died several months earlier? In Relf v. Shatayeva, Justice Lloyd A. Karmeier, writing for a six-Justice majority, reversed the Appellate Court's judgment and held that the action was barred by plaintiff's failure to substitute the decedent's personal representative before the expiration of the statutory period. Our detailed discussion of the underlying facts and lower court rulings is here. Our report on the oral argument is here.

In February 2010 - just before the expiration of the two-year statute of limitations - the plaintiff sued the defendant for injuries sustained in an automobile accident. One problem -- the defendant had died twenty-two months earlier - an event which was published in the Chicago Tribune. Not surprisingly, the sheriff failed to effectuate service on the decedent. The plaintiff had a special process server appointed, who quickly informed the plaintiff that the defendant was no longer living.

The plaintiff took no immediate action in response to this news. Seven days later, the circuit court dismissed the action for lack of diligence in attempting to effectuate service. The plaintiff then waited five months before ultimately asking the trial court to take notice of the decedent's death, reinstate the action, appoint a "special administrator" -- the plaintiff's counsel's secretary -- to defend the case, and grant plaintiff leave to file an amended complaint. In support of the motion, plaintiff alleged that she had not been aware of the defendant's passing until informed of it by the special process server, and she was unaware of any personal representative having been appointed for the estate. In fact, the decedent's son had been granted letters of office as administrator of the estate long before -- only five months after decedent passed away. Nevertheless, the court granted each of plaintiff's motions.

The special administrator moved to dismiss the action for failure to serve the complaint until the statute of limitations had run. The motion was denied, but after the plaintiff amended her complaint, defendant moved to dismiss the action as untimely. The defendant argued that although the action was filed just within the two year statute of limitations, it had been directed against the decedent, not his representative; that filing was void. As for the subsequent amendment naming the special administrator, the defendant argued that plaintiff had failed to comply with the requirements of Section 13-209 of the Code of Civil Procedure governing how to proceed against a deceased defendant.

Section 13-209 provides three options for such cases. If an estate had been opened and a personal representative appointed -- subsection (a) of 13-209 -- the plaintiff had six months after the decedent's death to sue the personal representative. Then there was subsection (b) -- if no petition had been filed for letters of office for a personal representative, the court could appoint a special representative after notice to the party's heirs and legatees and without opening an estate. Finally, there was subsection (c) -- if the plaintiff was unaware of the decedent's passing, he or she could proceed against the personal representative so long as four conditions were satisfied: (1) the plaintiff substituted the personal representative with reasonable diligence; (2) the plaintiff served the personal representative with reasonable diligence; (3) if process is served more than six months after letters of office were issued, the estate's liability is limited to any insurance coverage; and (4) plaintiff's amended complaint was filed within 2 years of the end of the statute of limitations.

The circuit court granted defendant's motion to dismiss. The Appellate Court reversed and remanded, holding that subsection (c), not (b), governed since plaintiff was unaware of the decedent's death when the action was filed.

The Supreme Court majority reversed the judgment and reinstated the order of dismissal. The majority held that because the defendant had died by the time the initial complaint was filed, the plaintiff's original complaint had not tolled the statute of limitations; thus, section 13-209 was implicated. Subsections (a) and (b) were out, since the plaintiff clearly wasn't aware of the defendant's death when the action was filed. So subsection (c) governed.

The majority pointed out that although why the plaintiff had been unaware of the defendant's death was unclear, it didn't matter; the mere fact that the plaintiff didn't know was enough. So the only remaining question was whether plaintiff's counsel's secretary was his "personal representative." The majority held that she was not. The majority concluded that where petitions for letter of office have been filed, the resulting representative was consistently referred to in the statutes as either the "representative" or "personal representative" of the decedent. Plaintiff argued that "personal representatives" and "special representatives" were interchangeable, but the majority held that plaintiff's theory was incompatible with section 13-209, which limited "special representatives" to individuals as to whom no petition for letters of office had been filed.

Therefore, under the plain language of the statute, plaintiff was obligated to substitute in the decedent's personal representative immediately upon learning of his death. Since she did not, the action was barred. Plaintiff argued that the defendant had not been prejudiced by the appointment of a special administrator, but the majority pointed out that it was impossible to know that, since neither the representative, heirs or legatees had ever been informed of the litigation. The majority pointed out that there was one final problem with the defendant's appointment: under Section 27-5 of the Probate Act, a special administrator could not be appointed based upon the recommendation of any person adverse to the special administrator. Since the special administrator had been appointed based upon the recommendation of the plaintiff's counsel, she was by definition improperly appointed.

Chief Justice Thomas L. Kilbride dissented. The Chief Justice agreed with the majority that subsection (c) of section 13-209 was applicable. However, the Chief Justice argued that plaintiff had moved diligently to substitute a representative and to serve her. Plaintiff's mistake in misnaming the appointed representative a "special representative" rather than a "personal representative" shouldn't be fatal to the action, the Chief Justice argued. Finally, the Chief Justice concluded that the decedent's estate had not been prejudiced by the plaintiff's conduct.

Illinois Supreme Court Holds Internet Sales Tax Preempted by Federal Statute

On Friday morning, the Illinois Supreme Court handed down its opinion in one of its most high-profile pending cases. The Court held in Performance Marketing Association, Inc. v. Hamer that the federal Internet Tax Freedom Act (ITFA) preempted the Illinois "Click-Through" Act, also known as the "Amazon tax" – becoming (according to lone dissenter Justice Lloyd A. Karmeier) the first court of review in the country to do so. Our detailed summary of the underlying facts and Circuit Court holding in Performance Marketing is here. Our report on the oral argument is here.

Here's how the Amazon tax works: many smaller websites display links allowing visitors to click and be taken directly to the website of a national retailer to buy books, music, or almost anything else. Typically, the small website owner is paid a commission according to how many visitors reach the national retailer’s website through his or her site. The business is called “performance marketing” – it happens in catalogs, magazines, newspapers, television and radio too, but these days, internet is the most high-profile form. Illinois’ Act imposes no new taxes; rather, it defines any out-of-state merchant with a contractual relationship with an Illinois-based performance marketer as an Illinois merchant, obligated to collect use taxes on online sales, as long as the performance marketer’s link generates $10,000 a year in sales.

After the Illinois statute was enacted, the Performance Marketing Association filed suit in Cook County Circuit Court.  The PMA alleged that the Act violated the dormant Commerce Clause by burdening interstate commerce and attempting to regulate commerce without a substantial nexus to the state. The PMA further claimed that the statute was preempted by the ITFA, which bars state statutes for a limiting time from singling out electronic commerce for special burdens. The Circuit Court granted PMA’s motion for summary judgment, holding that the statute was both a Commerce Clause violation and preempted. The appeal was directly to the Supreme Court.

Normally, one would have expected the plaintiff to have an uphill battle before the Court; over the past decade, the Illinois Supreme Court has been at least moderately hostile to constitutional claims (for any readers who aren’t lawyers – statutory preemption is technically a constitutional claim, since the reason a Federal statute trumps a state statute under the right conditions is the Federal Supremacy Clause). But it didn’t turn out that way; the Supreme Court affirmed the judgment, with Justice Anne M. Burke writing for the six-Justice majority.

The ITFA defines as a prohibited discriminatory tax any tax which impacts electronic merchants differently than similarly situated merchants in non-electronic goods, the Court noted. The plaintiff claimed that the Act was preempted because it was aimed solely at online performance marketers; there were no similar burdens placed on print or broadcast performance marketers. The defendant countered that Illinois law already placed comparable burdens on offline performance marketing, citing 35 ILCS 105/2(3), the definition section of the Use Tax Act.

The Court disagreed. Section 2(3) applies to performance marketers using advertising “which is disseminated primarily to consumers located in this State and only secondarily to bordering jurisdictions.” No burdens were placed on performance marketers whose ads were disseminated in Illinois as part of national or international distribution. But online performance marketers – whose ads are by definition visible worldwide – were required to collect use tax if they entered into contracts with Illinois-based advertisers. Thus, the Act had a differential impact on electronic commerce.

The defendant pointed to section 150.80(c)(2) of title 86 of the Administrative Code (86 Ill. Adm. Code 150.801(c)(2)), which requires out-of-state retailers with a relationship with an in-state representative soliciting or taking orders to collect use tax. Online performance marketing, defendant argued, is not pure advertising, but rather “active” solicitation of orders. Thus, the Act merely placed electronic performance marketers on the same basis as offline marketers. But once again, the Court disagreed. The online advertiser didn’t receive or transmit customer orders, process payments, deliver purchased products or provide customer services, the Court pointed out. Nor did it know the identity of internet users who click on the link, and after the user passes through the link to the retailer’s website, the referring advertiser has no further connection to the user. The Court concluded that this was not solicitation within the meaning of the regulation.

Ultimately, the matter was simple, the majority found. An electronic performance marketer with $10,000 in sales through the link was burdened, but a similarly situated print advertiser with the same volume of sales was not. Therefore, the Illinois Act was preempted by the ITFA. For that reason, the majority declined to address the Commerce Clause challenge.

Justice Lloyd A. Karmeier dissented. The Illinois Act was hardly unique, Justice Karmeier pointed out; Illinois’ statute was merely the local version of a bill enacted in at least half a dozen other states and modeled on a New York statute (which has recently been upheld against an ITFA challenge). Justice Karmeier had two procedural objections to the majority’s opinion. First, he pointed out that the case was before the Court under Supreme Court Rule 302 because the lower court had invalidated a statute; had preemption been the sole basis for the lower court’s ruling, the appeal would have been to the Appellate Court. Because the majority resolved the case on preemption grounds, declining to address the Commerce Clause challenge, Justice Karmeier argued that the opinion ultimately accomplished little. The Federal Act will expire, barring renewal, next November 1st. Since a preemption ruling merely suspends the operation of a law, rather than voiding it for all time, if the Federal Act is allowed to expire, the Illinois Act will immediately spring back to life, and the Commerce Clause challenge will begin all over again. Justice Karmeier argued that the Court should have addressed the constitutional challenge and held that because the Act only burdened businesses with a substantial nexus to Illinois, it was valid pursuant to the Commerce Clause. Justice Karmeier also concluded that the Act avoided preemption, arguing that it merely made it clear that the same obligation to collect use taxes imposed on offline entities with a substantial nexus to Illinois applied to similarly situated internet businesses.

Illinois Supreme Court Holds Board Can't Declare Enhanced Pension Forfeited

Although the question presented in Prazen v. Shoop was limited to the field of public pensions, the case presented interesting aspects of fiduciary law and statutory construction as well. The question in Prazen was whether the Illinois Municipal Retirement Fund – a board with fiduciary duties under the Pension Code – had the authority to declare a portion of the plaintiff’s pension, his “early retirement incentives” (ERI), forfeited on the grounds that the corporation he created to take over his position was a mere “guise” for evading the return-to-work provisions of the statute. In an opinion by Justice Robert R. Thomas for a five-Justice majority, the Illinois Supreme Court held Friday morning that the Fund board had no such authority. Our detailed summary of the underlying facts and administrative and lower court rulings in Prazen is here. Our report on the oral argument is here.

Three years before his retirement, plaintiff – superintendent of the city’s electric department – formed a business in partnership with the then-mayor of his city to redevelop real estate. He intended to perform the necessary electrical upgrades and modifications through his as-yet-unincorporated business, Electrical Consultants, Inc. (“ECL”).

Two weeks before plaintiff’s 1998 retirement from the electric department, he incorporated ECL. A few days later – and still ten days before his retirement – ECL entered into a contract with the City. The contract provided that on January 1, 1999 – the day after plaintiff’s retirement – ECL would take over management and supervision of the electric department. The agreement was signed by plaintiff’s business partner, the Mayor, on behalf of the city. The agreement provided that the annual fee to ECL would be around $7,000 more than plaintiff’s final salary at the time of his retirement. The initial three-year contract was extended by one-year riders eight times following its initial execution.

The potential problem here is Section 7-141.1(g) of the Pension Code: “An annuitant who has received any age enhancement or creditable service under this Section and thereafter accepts employment with or enters into a personal services contract with an employer under this Article thereby forfeits that age enhancement and creditable service . . .”

Plaintiff repeatedly sought assurances from the Illinois Municipal Retirement Fund Board that his contract with the city didn’t imperil any part of his pension. His first letter was dated more than two months before ECL was incorporated and he retired. In that letter, an IMRF representative allegedly told him that he could contract with the city as an independent contractor, or the city could contract with a corporation like ECL, even though ECL employed the plaintiff. Four years later, the IMRF Board supposedly told plaintiff’s attorney that everything in the 1998 letter still applied. In late 2002, an IMRF representative allegedly said that a retiree receiving ERI benefits could work for a corporation contracting with the city as long as the corporation wasn’t just a guise to avoid the pension regulations. The representative suggested that if ECL worked for some member of the public rather than just the city, everything should be fine.

But in late 2010 – about eighteen months after plaintiff had finally terminated ECL’s contract with the city and completely retired – the IMRF suddenly changed its mind, informing plaintiff that his contract with the city had violated Section 7.141.1(g) after all. The IMRF benefit review committee confirmed the decision, holding that ECL was a “guise” to evade the return-to-work provisions of the statute and ordering the plaintiff to repay his ERI benefits. The IMRF Board of Trustees affirmed the committee determination, pointing to several facts, including the timing of ECL’s creation and dissolution, the timing of the agreement with the city, the de minimis nature of the work ECL did for anyone other than the city, the fact that plaintiff, his wife and daughter were the only employees of ECL, and the fact that plaintiff was the only employee qualified to do what the contract required. The Circuit Court affirmed. But the Appellate Court (Fourth District) reversed, holding that the Board of Trustees had no authority to forfeit plaintiff’s ERI benefits on such a basis.

The Supreme Court agreed with the Appellate Court. Before the Court, the Board argued that “employment with” and “personal services contract with” in Section 7.141(g) were ambiguous – even though the Board never held that plaintiff had run afoul of either of these limitations. The Supreme Court majority found both terms sufficiently clear. The majority concluded that plaintiff had not accepted employment with the city following his retirement, since he was an employee of ERI. The Court also found that the contract was not a personal services contract, since it was between two corporations, and did not identify any individual as being material to its performance. The Court also pointed out that even though only plaintiff was qualified to perform the necessary services among ERI employees, nothing in the contract required that plaintiff be the one carrying out ERI’s functions. In the alternative, the Board argued that its general authority to make “administrative decisions on participation and coverage” under the Fund was a sufficient basis for its decision, but the majority found that the Board’s power could not be stretched so far as to permit the Board to create a third, unenumerated grounds for forfeiture which the legislature had never mentioned. Since the Court found no evidence that the legislature intended to bar arrangements such as the one plaintiff entered into with the city, the plaintiff’s contractual relationship could not be grounds for forfeiture.

Justice Charles E. Freeman dissented, with Justice Anne B. Burke joining. Justice Freeman summed up his position succinctly: “[U]nder the majority’s decision the Board, a fiduciary, had no authority to perform its fiduciary function.” Justice Freeman pointed out that the city had paid ECL slightly over one million dollars during the life of the contract, while the plaintiff continued to receive his enhanced ERI pension. “[T]he Board determined that plaintiff committed a fraud against the IMRF,” Justice Freeman wrote. Given that the Board had fiduciary responsibilities under 40 ILCS 5/1-109 of the Pension Code, the Board necessarily had the authority to respond appropriately under such circumstances, Justice Freeman concluded.

The Questions Log With One Term Left in 2013

With only one term left in 2013, it's time to take another look at the Illinois Supreme Court questions log.

In its first four terms, the Court has heard argument in twenty-eight civil cases. Questioning continues to vary widely from case to case, from a low of eight questions in DeHart v. DeHart and Russell v. SNFA to highs of 49 in Board of Education of Peoria School Dist. No. 150 v. Peoria Federation of Support Staff and 35 in Performance Marketing Association v. Hamer (which is due to be decided tomorrow). So far, the distinction for the heaviest single session belongs to the appellant in Performance Marketing, who fielded 26 questions in opening statement. After having become progressively more active in each term until the summer break this year, the Court fell back to its second lowest figure this year in terms of average questions-per-argument during the September term.

As of the end of the September term, here's how the questions log stands. The numbers in parentheses show how many times that Justice has been the first questioner during each phase of the arguments.

Justices

Burke

Garman

Freeman

Kilbride

Thomas

Karmeier

Theis

Appellant

43(3)

44(5)

49(9)

19

84(10)

38(1)

43(3)

Appellee

32(3)

38(3)

10(1)

16(1)

71(11)

36(6)

32(1)

Rebuttal

1(1)

3(2)

5(3)

2

28(6)

10(3)

21(3)

Total

76 (7)

85 (10)

64 (13)

37 (1)

183 (27)

84 (10)

96 (7)

Argument Report: Illinois Supreme Court Debates Status of Water Facility Contractor

When does an independent contractor become a public utility? That's the question the Illinois Supreme Court debated during the September term in People ex rel. Department of Labor v. E.R.H. Enterprises, Inc. Based upon the heavy questioning of both sides, the Justices of the Court appear to be conflicted.

The Labor Department issued defendants a subpoena for product of certain employment records in 2008. The subpoena stated that the Department was investigating whether the defendant's repair work on certain water mains for the Village of Bement had been done in compliance with the Prevailing Wage Act. Several months later, the Department filed a complaint seeking to have defendant held in civil contempt for failing to comply with the subpoena. The defendant defended on the grounds that it was a public utility and therefore exempt from the Prevailing Wage Act.   The trial court twice rejected the company's position, holding that defendant was not a public utility. However, the Appellate Court reversed, holding that defendant satisfied the definition of a public utility from the Public Utilities Act, which it imported into the Prevailing Wage Act.

Counsel for the Illinois Department of Labor began by sketching the factual background of the case. Justice Freeman asked whether defendant was obligated to provide water services to the residents. Counsel responded that defendant was obligated to assist the village in providing water services. Justice Freeman asked whether that would indicate that defendant was operating the facility for public use. Counsel responded that it would not pursuant to the Court's own precedent in Mississippi River Fuel Corp. v. Illinois Commerce Commission, where the Court defined public use as occurring where the company held itself out as the one providing the service. Defendant can walk away from its contract with the village in five years, counsel argued; a public utility can't do that. Counsel argued that under Public Utilities Code Section 3-105, if a facility is municipally owned, it could not be a public utility, even if it was operated by a lessee or agent.   Part of the purpose of the Public Utilities Act is to get records and reports from the company, counsel argued. One doesn't have that need when a municipality like the village owned the facility. Justice Burke asked whether defendant provided water to every resident, and counsel responded that the Department would say that the defendant helps the village do so. Justice Garman stated that the Prevailing Wage Act doesn't apply to public utilities, and counsel confirmed that. Justice Garman pointed out that the Act doesn't expressly incorporate the definition of a "utility" from the Public Utilities Act, and wondered why the Court should do so. Counsel argued that the legislature had adopted the Prevailing Wage Act in 1941 against a backdrop of the Public Utilities Act, which was enacted years earlier. Justice Burke asked whether the Court should look to the conduct of the parties - wasn't the welfare of the entire community dependent on the conduct of the defendant in providing the water? Surely the village was intimately involved, working hand-in-hand with the defendant, then? Counsel conceded that there was a significant public benefit from the services defendant provides. The statute requires more, however; under Mississippi River Fuel Co., the company has to be holding itself out to the public as the entity providing the service. Justice Karmeier suggested that if the Court didn't look to the Public Utilities Act, why shouldn't it look to Black's Law Dictionary for the definition of a utility, as the Appellate Court did? Counsel responded that the statutory exception which excluded a government-owned facility was a long-standing one, forming the law of the period which the legislature would have legislated against. It makes sense, counsel argued, to exclude public utilities if rates were subject to regulation by the Illinois Commerce Commission because otherwise, two agencies would be pulling in opposite direction. Here, the defendant is not regulated by the ICC. Justice Karmeier asked whether, if the village was doing exactly what the defendant was doing, the village would be subject to the statute. Counsel responded that government entities are never subject to the statute. Justice Karmeier clarified that counsel meant government entities were exempt whether they were technically public utilities or not, and counsel explained that government had once been classified as regulated utilities, but the Court struck that statute down in the early 1960s.

Counsel for the defendant began by pointing out that his client operates water and sewer systems for twenty different municipalities. Justice Thomas asked why the public utilities exception to the Prevailing Wage Act would be meant to apply to one who provides services not to the public, but to municipalities. Counsel responded that Bement was a small village; there was nobody else to operate the plant. The defendant didn't assist the village in providing service; the defendant itself provides the service. If they don't, service just doesn't happen. Counsel argued that if the Prevailing Wage Act is applied to companies like the defendant, older, smaller cities may not be able to pay their contractors to run their systems anymore. Justice Karmeier wondered why Section 3-105(b) doesn't take the defendant out of the definition of a public utility. Counsel responded that to accept the Department's argument, one must shift from talking about companies in subsection (a) to talking about pipes, a plant and a delivery system in subsection (b). Justice Thomas asked whether the concept of the defendant being a public utility is based on the job it's performing at a particular time -- if the defendant walks away in five years at the end of its contract, is it no longer a public utility? Is the defendant a public utility for one facility and not another? Counsel responded that the defendant's relationships tend to be long term; its business relationship with the village was lasted approximately twenty-six years. Justice Thomas asked whether the defendant is barred from work that would clearly not be that of a public utility. Counsel responded that defendant was not; from time to time, it did public works, and it bid and paid prevailing wages when it did. Justice Thomas proposed a hypothetical: what about a company that spent 90% of its time doing public works and ten percent as a public utility - was it still a public utility? Counsel said yes; the status went with what the defendant's expertise and primary function is.  Justice Thomas asked if the defendant were filling out an application and it asked are you a public utility, would the company say "sometimes"? Counsel suggested that the defendant would say "primarily." Justice Garman asked whether, if the system was operated entirely by the village, it would qualify as a public utility. Counsel repeated that in that case, the system would be exempt from the Prevailing Wage Act pursuant to the Court's former decisions.

In rebuttal, counsel for the Department argued that if the village owned the system, it would not be a public utility. The legislature made the decision to apply a different rule on these facts in order to protect the defendant's workers, counsel argued. Justice Garman asked whether the issue was one of statutory interpretation, and equitable considerations didn't inform the decision. Counsel responded that it was primarily a statutory question, and the policy issues had already been taken into account by the legislature. The fact that the Illinois Commerce Commission had no contact with the defendant and didn't regulate it was significant, counsel argued.

 

Argument Report: Illinois Supreme Court Debates Chicago Firefighters' Pensions

Although Kanerva v. Weems was the marquee case on public pensions for the September term of the Illinois Supreme Court, it wasn't the only such case on the docket. But if the oral argument is any indication, the retirees in Hooker v. Retirement Fund of the Firemen's Annuity and Benefit Fund of Chicago seem poised to prevail, unlike the plaintiffs in Kanerva. Hooker poses a simple question: in a defined benefit pension plan for Chicago firefighters' survivors, is the survivor's pension set for all time according to the salary the firefighter was receiving at the time of his or her death?

Hooker involves two decedents: one died in 1998, the other two years later. Both decedents' widows were awarded the widow's minimum annuity. Both women filed complaints and won judgments awarding line of duty benefits. In 2004, the General Assembly amended the Pension Act to require an award of Duty Availability Pay (DAP) for some pension and annuity calculations. Both widows amended their administrative complaints, arguing that they should have been awarded DAP in the calculation of their pensions - even though neither firefighter had ever received DAP in his salary. Plaintiffs sought leave to bring the DAP claim as a class action.

On remand after the line-of-duty issues had been settled, the Board declined to include DAP in its pension calculation for either survivor. The Circuit Court granted the Board summary judgment on administrative review, refusing to certify a class. The Appellate Court reversed the Circuit Court, holding that under Section 6-140 of the Pension Code, 40 ILCS 5/6-140(a), the amount of a widow's annuity depends on the current annual salary attached to the decedent's position, whether or not the firefighter ever actually received that salary. Accordingly, the Board was required to include DAP in the pension calculation. The Appellate Court reversed the denial of the motion to certify a class as well.

The Supreme Court seemed openly skeptical of the Board's position on appeal. Counsel for the Board began, arguing that the case involved a straightforward issue of statutory interpretation. The Board interpreted the plain language of the 2004 legislative amendments to the code to impose two mandatory requirements for enhanced annuity payments for DAP. First, the husband must have actually received DAP. Second, the corresponding employee contribution must have been paid to the Fund. The decedents in Hooker neither earned nor made contributions on DAP. Justice Thomas asked whether, if the Court ruled for the widows, the Court would then contribute the DAP amounts. Counsel responded that the contributions were actually due from the annuitants, not the City. Further, the City believed that its own contribution obligations were capped by the statute. Justice Thomas asked whether inclusion of DAP benefits had ever been discussed in negotiating the collective bargaining agreement. Counsel responded that all parties had known that DAP was not pensionable. Justice Theis asked whether DAP was pensionable for a firefighter today who received it in his or her salary. Counsel said it was. Justice Theis pointed out that counsel had not addressed Kozak v. Retirement Board of Firemen’s Annuity & Benefit Fund, 95 Ill. 2d 211 (1983). Thirty years ago, Justice Theis said, the Court had held that "current annual salary" in Section 6140 meant the salary of a currently employed firefighter, not the salary at the time of death. At that time, the Court held that the widow's annuity was not tied to the firefighter's salary at the time of death. Counsel responded that the Kozak court had been clear that permitting unfunded benefits was anathema to a defined benefit plan. Justice Theis asked counsel whether he was advocating the overruling of Kozak. Counsel answered that Kozak was law, and that was why the distinction between DAP and salary was so critical. Justice Theis asked why the statute said any references to salary shall be deemed to include DAP - surely that language seems to indicate that the legislature was talking about Section 6140. Counsel argued that the legislative intent was that DAP could now be included to exempt rank employees as pensionable, and that the legislature did not intend to exempt Section 6140 widows from the requirement that any DAP for which the employee contribution was not paid should not be included in the pension calculation. Justice Theis suggested that the statutory language referred to survivors "caught in the middle" when DAP became pensionable after a ten-year period when survivors were receiving DAP pursuant to a collective bargaining agreement, but it wasn't pensionable. Counsel argued that Justice Theis interpreted the statute too narrowly, disregarding subsection (i). Justice Thomas asked about the clause talking about the current annual salary attached to the position to which the fireman was certified at the time of his death - was that of any import? Counsel responded that the language simply set the salary schedule. If survivors are getting benefits, they must be paid for - otherwise, the Fund will go broke. Justice Theis suggested that Kozak had rejected many of the same arguments thirty years ago. Justice Burke asked counsel how he would explain the language "received by the fireman" in the statute. Counsel answered that survivors' benefits are derivative of the fireman - the firefighter must receive the DAP pay in order for it to be included. Justice Freeman asked whether the decision regarding class certification had been preserved for review. Counsel answered that it was not before the court, with the exception that if the two putative class representatives weren't entitled to the benefits, they certainly weren't adequate class representatives.

The Court had far fewer questions for counsel for the claimants. Justice Thomas asked whether the claimants' argument was, at least in part, that the contributions which had not been made should have been made? Counsel responded that in fact, the Board had asked the City to start paying this year. Justice Thomas pointed out that the City took the position that its liability is capped. Counsel agreed, but pointed out that the issue had never been extensively litigated. Justice Thomas asked what counsel's response was to the argument that unfunded benefits equal insolvency. Counsel responded that the Fund certainly did need more money, and that various entities were seeking ways to solve the problem. Counsel concluded by briefly addressing his cross-appeal regarding abatement upon the death of one of the claimants. Justice Theis pointed out that the claimants already had the same issue involved in the cross-appeal pending in the First District Appellate Court.

In rebuttal, counsel for the Board again addressed the potential conflict with Kozak. Counsel argued that surely it wasn't that law that Section 6140 survivors who got the enhanced pension would not be required to make contributions, but others must. Justice Theis pointed out that counsel made an argument that DAP was not really a pension; it was in the nature of workers comp. Counsel responded that there was no support for that; it wasn't a distinction that made a difference. Justice Theis pointed out that one was taxable, one was not. Counsel responded that he didn't believe the two were treated differently. Counsel concluded by urging the court to reject the cross-appeal.

We expect Hooker to be decided within two to four months.

Illinois Supreme Court Reaffirms Disgorgement of Advance Payment Retainers Under the Dissolution of Marriage Act

This morning, a unanimous Illinois Supreme Court strongly reaffirmed the "leveling the playing field" rules of the Marriage and Dissolution of Marriage Act in In re Marriage of EarlywineThe Act provides that a court can order disgorgement of one party's attorneys fees in order to enable the other party to pay his or her attorney. A unanimous Court held that courts were free to order disgorgement of an advance payment retainer paid by one party to his or her atttorney in order to facilitate an interim attorneys' fees award to the other party.

The ex-husband filed a petition for dissolution of marriage in August 2010. Not long after, the ex-wife filed a petition for an award of interim attorney's fees, asking that the Court order disgorgement of fees previously paid to the ex-husband's attorney in order to finance the award. In response, ex-husband showed that his parents had paid his legal bills; the money had not come from marital assets. Both parties claimed to be unable to pay their attorneys themselves. Following a hearing, the trial court ordered disgorgement by the ex-husband of a portion of the fees paid by his parents. The ex-husband sought reconsideration, attaching an a copy of his agreement with his counsel providing that counsel would be paid via an advance payment retainer, which would become the attorney's property immediately upon payment. The agreement identified the "special purpose" for the advance payment retainer as avoiding the possibility of a fee allocation order requiring that funds be returned to the client's ex-wife. The ex-husband filed an affidavit stating that his mother, her fiancé, his father and his father's wife had paid all of the attorney's fees on his behalf. The trial court denied reconsideration.

The trial court entered an order of "friendly contempt" in order to enable the ex-husband's attorney to seek appellate review of the disgorgement order. On appeal, the Appellate Court affirmed the order of disgorgement, but the Court vacated the contempt finding on the grounds that the petitioner had refused to comply with the disgorgement order in good faith in order to seek review of unresolved questions of law.

The Supreme Court unanimously affirmed. The appellant attorney argued that the advance payment retainer was not subject to disgorgement because it became his property upon payment. The appellant argued that the "leveling the playing field" rules of the Marriage Act, pursuant to which the two parties are to be put on approximately equal footing as far as legal representation, make it difficult for a client to secure legal representation. Therefore, parties should be able to use an advance payment retainer to shelter attorneys fees from the opposite party.

The Court found that the legislature had enacted Section 501(c-1) of the Act - the leveling the playing field rules - in order to equalize litigation resources where it was shown that one party could pay and the other could not. Prior to the amendments, the Court wrote, divorce cases frequently involved attempts by one party to block access by the other side to litigation funds. Holding that advance payment retainers were effective to shield funds from such orders, the Court found, would "strip the statute of its power." If the Court were to accept counsel's argument, an economically advantaged spouse could "stockpil[e] funds in an advance payment retainer held by his or her attorney." The Court held that nothing in the statute distinguished between marital and nonmarital property, so it made no difference that the advance payment retainer was allegedly financed by the ex-husband's family, as opposed to by his own funds. Finally, the Court rejected the petitioner's argument that the disgorgement order violated his First Amendment right of access to the courts and right to retain counsel, finding that counsel lacked standing to make the argument.

California Supreme Court Rejects Erosion of One Final Judgment Rule: "Final Means Final"

On October 3, 2013, the California Supreme Court handed down its opinion in Kurwa v. Kislinger, S201619, confirming that under settled California practice, as codified in Code of Civil Procedure section 904.1(a), to be appealable a judgment must dispose of all causes of action pending between the parties. The Court rejected arguments submitted by the California Academy of Appellate Lawyers, as amicus curiae, that permitting appeals under the circumstances presented would “allow parties as much autonomy and choice as possible,” thereby facilitating efficiency both at the trial and appellate levels.

Plaintiff and defendant were doctors who formed a corporation to serve patients of a health maintenance organization (“HMO”). Later, plaintiff’s license was suspended, and defendant notified the HMO that their corporation was ended and that defendant’s medical corporation would treat the HMO’s patients going forward. The HMO terminated its contract with the parties’ corporation and signed a new one with defendant’s corporation. 

Litigation ensued, with plaintiff alleging breach of fiduciary and defamation claims (among others), and defendant cross-complaining for defamation. On pretrial motions, the trial court held that the parties’ formation of a corporation relieved them of further fiduciary duties to one another. Since the ruling foreclosed prosecution of the fiduciary duty and related claims, those were dismissed with prejudice, as well as other counts he abandoned. But (and it is a big “but”), the parties agreed to dismiss the reciprocal defamation claims without prejudice together with a waiver of the limitations period, allowing them to test the fiduciary duty issue on appeal before disposing of the temporarily dormant defamation claims.

No can do, notwithstanding any claimed efficiency. In Morehart v. County of Santa Barbara, the Court expressly disapproved of a similar tactic, ruling that the parties’ desire to segregate claims—some for review and others not—was directly contrary to the one judgment rule. Instead, if parties who lacked a single final judgment were so inclined to seek appellate review, the proper procedural vehicle was a petition for a writ of mandate. (Note, the Court did not address the reality that such petitions are granted as frequently as Democrats and Republicans agree on fiscal issues.) The Court endorsed a considerable line of intermediate appellate authority, starting with Don Jose’s Restaurant, Inc v. Truck Ins. Exchange, holding that reservation of some issues from review will not be countenanced under settled California practice.

The unspoken driver of the opinion, for a Court that issues relatively few opinions a year, may well be the additional burden on appellate courts if such a policy were permitted. “We are busy enough without these cases being brought up for another level of scrutiny.”

Argument Report: Who Gets to Appeal Certification as a Pollution Control Facility?

A major taxpayer files 28 separate applications seeking certification of various systems, methods, devices and facilities as "pollution control facilities" within the meaning of the Property Tax Code. If the applications are granted, around $1.2 billion will allegedly disappear from the School Board's tax base. When the Pollution Control Board denies the School Board's motions for leave to intervene in the certification proceeding, does the School Board have standing to appeal? That's the question in The Board of Education of Roxana Community Unit School District No. 1 v. The Pollution Control Board, et al. Board of Education, which was argued a few weeks ago at the Illinois Supreme Court. Our detailed summary of the underlying facts and lower court decisions is here. Our report on the oral argument is here.

In October 2010, the taxpayer submitted 28 separate applications to the Illinois Environmental Protection Agency for certification of certain improvements as pollution control facilities. In August 2011, the EPA recommended approval of two of the requests. The following month, the Pollution Control Board accepted the recommendations and certified the two systems. The petitioner School Board moved for reconsideration, and a few weeks later, the Agency recommended approval of the remaining requests for certification. The Pollution Control Board denied reconsideration and denied the petitioner's motions to intervene in the remaining 26 requests for certification.

The School Board appealed to the Appellate Court pursuant to the Environmental Protection Act, 415 ILCS 5/41(a). The Board pointed to the Property Tax Code 35, ILCS 200/11-60, claiming that only applicants had standing to appeal -- not challengers. The Appellate Court dismissed the appeal for lack of jurisdiction, citing Citizens Against the Randolph Landfill (CARL) v. The Pollution Control Board for the proposition that only limited review at the Circuit Court was possible. Justice Thomas R. Appleton dissented, arguing that the School Board had standing to appeal under Section 41(a) of the Environmental Protection Act.

Counsel for the School Board began by explaining that an owner received preferential property tax treatment if it installs equipment whose primary purpose is controlling pollution from its own operations. Counsel argued that by denying intervention, the Pollution Control Board had ensured that its interpretation of the primary purpose test would go unreviewed. The Pollution Control Board had wiped $1.2 billion off the local assessment rolls within two weeks' time with no notice to the local taxing body, counsel argued; nothing in the Property Tax Code precluded intervention. Justice Thomas asked counsel if the Court agreed with him whether it should remand to the Appellate Court for resolution of all substantive issues. Counsel responded that all substantive issues were effectively before the Court. Justice Thomas pointed out that the Court took the case for the jurisdictional issue, and wondered whether the Court had a sufficient record to decide more. Counsel responded that the Court had all issues properly before it: (1) whether the Board was precluded from granting intervention; (2) the Appellate Court's jurisdiction to review the Board's decision on intervention; and (3) the Board's application of the primary purpose test. Justice Thomas asked what statutory provision applied on jurisdiction; when counsel answered Section 41(a) of the Environmental Protection Act, he pointed out that opposing counsel would argue that Section 11-60 of the Property Tax Code was more specific. Chief Justice Kilbride asked counsel why the EPA was now challenging jurisdiction on appeal. Counsel responded that the real parties in interest in cases of this type are the local taxing bodies, but the EPA doesn't want local entities weighing in such questions. Justice Thomas asked counsel why the EPA would want to keep taxing authorities out of such cases, and counsel answered that perhaps the EPA was placating the companies on such issues in order to build capital for larger enforcement actions.

Counsel for the state entities was asked by Justice Karmeier whether potential intervenors had any right of appeal. Counsel responded that intervenors had no statutory right of appeal. Justice Thomas asked what the Court should do with cases in which the Pollution Control Board had pointed disappointed litigants to the Appellate Court for appeal, rather than the Circuit Court. Counsel conceded that the Pollution Control Board had included pro forma language in a number of orders saying that if the litigants didn't like the answer, they should go to the Appellate Court, but argued that this didn't trump the specific holding that attempted intervenors didn't have any right of appeal under the Property Tax Code. Counsel argued that if taxing bodies were unhappy with that rule, their remedy was with the Legislature. Responding to a comment by counsel for the School Board, counsel argued that if the Court disagreed with respect to the Pollution Control Board's jurisdiction, the appropriate remedy was remand; it wasn't appropriate to address all the merits issues for the first time at the Supreme Court.

Counsel for the taxpayer pointed out that the Pollution Control Board certification was supposed to be a summary proceeding. When the Legislature intended taxing bodies to be a party to certification proceedings, it said so, counsel said. Counsel argued that the taxpayer's tax levy had increased from $9 million to $36 million between 2010 and 2011. Counsel concluded by arguing that the treatment of pollution control facilities by the Pollution Control Board was not unique within Illinois law, or in comparison to neighboring states.

Counsel for the School Board argued in rebuttal that the certification procedure involved a two page application, not a detailed analysis of the suitability of certification. Counsel argued that when the Pollution Control Board denied intervention under Citizens Against the Randolph Landfill, it had said it had never seen so many applications for pollution control certification filed by a single applicant in only six months. According to counsel, the Pollution Control Board said that the School Board had presented a compelling case that it was singularly affected by the certification process, and that it was unlikely that any other Board had faced a similarly grave depletion of its tax base. Counsel claimed that the Pollution Control Board had stated that if it were a legislative body creating a certification process de novo, the School Board's policy arguments might prevail, and if the Pollution Control Board had the power of an equity court, the School Board's policy arguments might prevail. Counsel argued that there was no basis for sending the case back to the Appellate Court: the Pollution Control Board had made it clear that it would grant intervention if it believed that it had the power to do so.

We expect Board of Education to be decided within two to four months.

Argument Report: Where Does a Sale Take Place for Sales Tax Purposes?

Where does a sale take place for purposes of the local portion of the state sales tax? For lots of localized businesses, it's a straightforward question. But what about businesses that operate in multiple counties -- particularly where some portion of the sales function is separated from the rest of the day to day business? That's the question presented in Hartney Fuel Oil Co. v. Hamer, which was argued during the September term at the Illinois Supreme Court. It's a potentially high-stakes question: the simpler it is to move a sales tax locus, the more incentive there will be to do so. Our detailed description of the underlying facts and lower court holdings is here. Our preview of the oral argument is here.

The plaintiff in Hartney resells fuel oil to railroads, trucking companies, gas stations and other fuel distributors. In 1995, it moved its sales operation out of Forest View in Cook County. By 2003, the sales operation had landed in Mark, in Putnam County.

The plaintiff had two kinds of sales during the relevant period. First, there were daily purchase orders. The customer was informed by fax or email of the next day's price, and responded to the sales office: what it needed, how much, where and when. The sales agent in Mark accepted the order and made the arrangements. Second, there were long-term purchase orders. A fully executed contract was mailed from the Mark sales office to the customer. Originals were stored in Mark, with copies to the customer as well as the plaintiff's accounting department in Forest View.

The Department of Revenue audited the plaintiff (not for the first time) for the period of 2005 through mid-2007. The auditors ultimately concluded that all sales occurred in Forest View rather than Mark, and the plaintiff got a bill for $23.1 million in past-due taxes. The plaintiff paid under protest and sued; the board of commissioners of Putnam County and the board of trustees from Mark joined the suit, seeking the local share of the sales taxes. The Circuit Court found for the plaintiffs. The Third District affirmed, adopting a bright-line test: where acceptance of the order occurs, sales tax liability is fixed.

Counsel for the intervenor governments led off the argument. Counsel argued that the Appellate Court erred for at least three reasons: (1) the regulations which the Appellate Court construed are incompatible with the bright-line, acceptance-is-all rule; (2) the Appellate Court's rule is also incompatible with the statute; and (3) even if mere acceptance, without more, is sufficient to fix the tax locus, on the facts before the court, the sham doctrine barred the conclusion that sales occurred in Mark. Counsel argued that the purchase order test can be easily manipulated by retailers to locate taxes in the most advantageous place. The regulations don't say that the place of acceptance is the only relevant factor, counsel argued; they merely say that it's the most important factor. Justice Garman asked whether the regulations list other factors, and counsel conceded that they did not. Justice Garman asked whether that was significant, but counsel said no. The regulations stated that in order to locate the sales tax liability, enough of the business activity must occur within the taxing jurisdiction to conclude that the seller is engaged in the business of selling with respect to that sale. Counsel argued that nobody reviewing the record could possibly say that anything was going on in Mark -- the acceptance of the sales was a sham. Justice Burke asked whether the test was different for an out-of-state seller as opposed to one that was in-state, but doing business in another county. Counsel argued that there was no single factor controlling. Justice Burke asked whether acceptance occurred by sending a fax to the Mark office, or whether acceptance involved something else. Counsel argued that the taxpayer's Mark office was nothing but a place to receive faxes and a mail box. The arrangement, counsel insisted, was nothing but a subterfuge to avoid the tax. Justice Thomas asked whether the court needed to agree that the acceptance was a sham for the appellant to win, and counsel said no. Justice Garman asked whether the employee running the Mark office had the authority to bind the plaintiff, and counsel said she did.

Counsel for the state appellants argued next. Justice Burke asked whether the state was challenging the view that acceptance had happened in Mark for purposes of the appeal. Counsel responded that the state was not challenging the factual finding, but was challenging the notion that acceptance alone was enough to fix the tax locus. Justice Thomas asked whether it was of any consequence that the Department's audit manual concluded that the place of acceptance controls for sales tax liability. Counsel responded that the manual deals with possible issues that might arise in a summary fashion, and recommends using statutes and regulations to illuminate disputes when necessary. The manual was by no means dispositive, counsel noted. Justice Garman asked whether the Appellate Court should have given deference to the Department's interpretation of the statutes and regulations. Counsel responded that if the Department's interpretation of its own regulations was reasonable, it should be deferred to; but the question was really one of law, and if the Department got it wrong, the Court would doubtless say so. Justice Garman 1pointed out that counsel was nonetheless inviting the court to ignore the audit manual, and asked him to reconcile that with any request for deference. Counsel explained that the manual is not law; rather, the manual as a whole invites auditors to rely on facts when appropriate to deviate from the manual's advice. Further, counsel argued, internal guidance from the Department couldn't change the courts' years-long construction of the term "in the business of selling." Counsel concluded by accusing the plaintiff of having taken guidance intended for good faith, bona fide retailersand taken it out of context as a way to avoid taxes. The proper standard, counsel argued, was that the sales tax locus happened where the most important selling activities took place, regardless of where acceptance was.

Counsel for the taxpayer began by emphasizing that there is nothing wrong with structuring business affairs to reduce the tax incidence on the company's customers. The taxpayer here did so in full view of the Department, counsel argued; it had hidden nothing and was embarrassed by nothing. Justice Garman asked whether the plaintiff was bound if the Mark employee accepted an offer which she shouldn't have. Counsel agreed the taxpayer was bound. Justice Thomas argued that the taxpayer had arguably received the benefits of Cook County services, and was now trying to minimize taxes. What would stop other Cook County businesses from doing the same thing? Counsel responded by arguing that the concern that Cook County's finances would collapse absent reversal was overblown; the regulations which were the basis for the court's holding had been in place for years. Justice Thomas pointed out that this would be the first major Supreme Court decision on the issue. Counsel answered that if anyone concluded that the acceptance-only rule wouldn't work, the Legislature should either change the regulation or the statute.   Justice Thomas asked whether the taxpayer relied to some extent on the concept of estoppel. Counsel agreed that it did, but argued that the Court could find for the taxpayer without reaching the issue.   The factual issue of where the acceptance was settled the question, counsel argued, and that should be the end of the matter under the regulations. Counsel concluded by arguing that his client and other taxpayers are entitled to rely on the Department's view, expressed again and again over the years, that the place of acceptance of the order is conclusive for the locus of the tax.

Leading off rebuttal, counsel for the State returned to the issue of how the State could simultaneously ask for deference and yet disavow its own audit manual. Counsel explained that while regulations go through notice and comment, manuals don't. Justice Burke asked whether the Department conceded that there was acceptance in Marks. Counsel agreed that the Department was not challenging that finding, but rather was challenging the legal significance of those established facts. Counsel disputed the taxpayer's citation to Private Letter Rulings in recent years finding that the place of acceptance, without more, fixes the locus of sales taxes. Counsel argued that the PLRs are hypothetical scenarios, not precedents citable, let alone enforceable, against the state.

We expect Hartney Fuel Oil to be decided in the next two to four months.

Illinois Supreme Court to File Opinion in Earlywine on Thursday Morning

Yesterday afternoon, the Illinois Supreme Court posted notice that it expects to issue opinions in three cases on Thursday morning at 10:00 a.m., including one civil case, In re Marriage of Earlywine. Earlywine presents an interesting issue at the intersection between the law of attorneys’ fees and domestic relations:

  • In re Marriage of Earlywine, No. 114779: Is an advance payment retainer to a spouse's retained attorney in divorce proceedings the attorney's property at the moment of payment, and therefore not subject to disgorgement for an award of interim attorney's fees pursuant to 750 ILCS 5/501(c-1), the Illinois Marriage and Dissolution of Marriage Act?

Our detailed summary of the facts and lower court opinions in Earlywine is here. Our report on the oral argument is here.

Florida Supreme Court Poised Again to Clarify the Scope of the Discovery of Records of Adverse Medical Incidents

The Florida Supreme Court has accepted review of the Third District’s decision in Ampuero-Martinez v. Cedars Healthcare Group, 88 So. 3d 190 (Fla. 3d DCA 2000), (Case Nos. SC11-2208 and SC11-2336), which will decide when the discovery of records of adverse medical incidents may extend to patients other than a plaintiff.

Background

The right to discovery of records of adverse medical incidents was created by the passage of Amendment 7 to the Florida Constitution in November 2004.  The Florida Legislature enacted § 381.028 in 2005 to clarify the operation and effect of the amendment.  The amendment and statute engendered a firestorm of litigation over their constitutionality, scope and enforcement and resulted in numerous district court and Florida Supreme Court decisions that tried to calm the storm.

Proceedings Below

On September 21, 2011, the Third District granted and denied in part a petition for writ of certiorari filed by a defendant-medical center requesting the court to quash the trial court’s order requiring production of documents requested by the plaintiff in a request for production.  Though the medical center raised numerous grounds in its petition, the Third District granted the petition solely on the ground that the request to produce asked for records of adverse medical incidents involving patients other than the plaintiff, without limiting the production of those records to the same or substantially similar condition, treatment, or diagnosis as the plaintiff as required by § 381.028(7)(a), Florida Statutes.

The Third District held that by not limiting the request as required by § 381.028(7)(a), the trial court departed from the essential requirements of the law.  Thus, the Third District quashed the portion of the trial court’s order requiring the medical center to produce records of adverse medical incidents that were not limited to the same or substantially similar condition, treatment, or diagnosis of the plaintiff.

Status

Following the completion of briefing on January 28, 2013, the case settled; however, upon motion, the Court decided to retain jurisdiction.  The supreme court will decide this case without oral argument.

Florida High Court to Examine Burden-Shifting in Medical Malpractice Cases

On June 3, 2013, the Florida Supreme Court accepted review of a medical malpractice case to address the issue of whether it is impermissible burden shifting for a defendant-doctor to argue that the plaintiff failed to present testimony from another doctor that he or she would have done anything differently than the defendant-doctor.  See Saunders v. Dickens, 103 So. 3d 871 (Fla. 4th DCA 2012) (No. SC12-2314).

Facts

The plaintiff presented to Dr. Dickens, a neurologist, with symptoms consistent with lumbar stenosis.  Dr. Dickens requested a neurosurgical consultation with Dr. Pasarin, who examined and then operated on the plaintiff’s lumbar spine.  Two months later, when the plaintiff’s condition had not improved, Dr. Pasarin ordered additional MRIs, which showed that the lumbar surgery had not been successful.  Dr. Pasarin determined that the plaintiff had cervical myelopathy and recommended cervical decompression surgery within the next month.  Although the plaintiff was cleared for surgery in November 2003, Dr. Pasarin failed to schedule him for surgery that month.  In December, the plaintiff developed a deep venous thrombosis, which prevented him from undergoing surgery.  The plaintiff was thereafter never able to have the cervical surgery and was ultimately rendered a quadriplegic.

The Trial

After the plaintiff settled with the hospital, the surgical group, and Dr. Pasarin, the case proceeded to trial against Dr. Dickens only.  The plaintiff’s surgical expert testified that had the plaintiff received a neck operation to remove the compression when he first presented to Dr. Dickens, the plaintiff would not have become a quadriplegic.  The defense presented expert testimony that Dr. Dickens met the standard of care and that the plaintiff’s problems were related to his lumbar disc disease. The defense also introduced the deposition testimony of Dr. Pasarin, who testified that nothing in Dr. Dickens’ note would have prompted him to order an MRI of the neck.  Dr. Pasarin also testified that had Dr. Dickens ordered a cervical MRI at that point, and had the findings been identical to those seen in later films, he would still not have performed neck surgery if his exam did not find upper extremity dysfunction.  Dr. Dickens moved for a directed verdict, arguing that Dr. Pasarin’s testimony made it impossible for the plaintiff to prove that Dr. Dickens’ negligence caused the plaintiff’s damages.  The trial court denied the motion, reasoning that the issue was for the jury.

During closing arguments, defense counsel argued that there was no causation, relying on Dr. Pasarin’s testimony that he would have done nothing differently if he had seen an MRI of the plaintiff’s cervical spine when he first presented to Dr. Dickens. Defense counsel argued that the plaintiff needed to prove and did not prove that “but for Dr. Dickens not doing the [neck] MRI, Dr. Pasarin would have operated on [the plaintiff’s] neck in July.”  Counsel for the plaintiff objected that this was not a correct statement of the law and argued that defense counsel was improperly shifting the burden of proof on the issue of Dr. Pasarin’s negligence, which was an affirmative defense that Dr. Dickens had the burden to prove.  The jury returned a verdict finding no negligence on Dr. Dickens’ part that was a legal cause of injury to the plaintiff. 

Appeal

The plaintiff argued on appeal that defense counsel’s closing argument was improper and warranted a new trial.  The Fourth District, however, held that defense counsel’s causation argument was not improper, based on its own precedent.  In Ewing v. Sellinger, 758 So. 2d 1196 (Fla. 4th DCA 2000), the Fourth District concluded that the plaintiffs failed to prove causation where the obstetrician’s alleged negligence would not have affected the treatment decision of a subsequent physician and thus would not have affected the patient’s outcome.

The Fourth District noted that two of its sister courts have rejected its reasoning in Ewing.  In Goolsby v. Qazi, the Fifth District stated, “We disagree with Ewing if it means that the negligent failure to diagnose a condition cannot be the cause of damages if a subsequent treater testifies that he would have shrugged off the correct diagnosis.”  In Munoz v. South Miami Hospital, Inc., the Third District stated, “What the [non-party] doctor might or might not have done had he been adequately warned is not an element plaintiff must prove as a part of her case.”

Despite the foregoing, the Fourth District held that defense counsel's closing argument on causation was proper. The Fourth District noted that unlike in Ewing, the trial court in the case before it declined to grant the defendant's motion for a directed verdict, and, instead, submitted the case to the jury, thus allowing the plaintiff to argue to the jury in closing why they should reject Dr. Dickens's causation argument.

The parties are currently in the midst of the briefing process.  Oral argument will be scheduled at a later date.

Argument Report: Illinois Supreme Court Actively Questions Both Sides in Controversial Condo Case

When the Appellate Court's decision came down, the Chicago Tribune called it a "ground-breaking decision that "has stunned the condominium community nationwide." So will the Illinois Supreme Court overturn the Second District's controversial decision in Spanish Court Two Condominium Association v. Carlson? Based on the oral argument last week, it's difficult to be certain; several members of the Court seemed at least somewhat conflicted, and the Court heavily questioned both sides. Our detailed summary of the facts and lower court decisions in Spanish Court is here. Our preview of the oral argument is here.

The defendant in Spanish Court stopped paying her monthly assessments for her condominium association in August 2009. She stopped paying special assessments around the same time. So the plaintiff condo board sued her for possession of the unit and the unpaid assessments. The defendant filed an answer, affirmative defenses and a counterclaim. Her defenses and counterclaim made virtually the same allegations - she'd stopped paying the assessments because the Board of the condo association had quit fixing the common areas, per the maintain-and-repair covenant in the condo articles.   Specifically, the plaintiff had supposedly stopped fixing the roof - thus the leaking into the plaintiff's unit - and certain brickwork above her unit.   The Circuit Court struck the defenses and counterclaim, holding that they were not "germane" to the plaintiff's action under the Forcible Entry and Detainer Act. The Appellate Court reversed in part, holding that although defendant's counterclaim had to be severed, her defenses were germane, analogizing the claim to permissible defenses by renters under the Forcible Entry Act.

Counsel for the condo board began the argument by pointing out that the Second District had conceded that it was placing itself in a "small minority" by its decision. Condominiums survive through assessments, counsel argued, and without them all the residents' investments are imperiled. Counsel predicted chaos in the condominium industry absent reversal. Justice Burke asked what remedy a condominium owner had if the board failed to meet its responsibilities, and counsel responded that the owner could sue the board members. Justice Garman asked which affirmative defenses were "germane," and counsel responded that all defenses which went to ability to pay or flaws in the underlying agreement were. Justice Thomas asked whether counsel's argument was primarily based on public policy, and counsel responded that the relevant policies were embedded in the Illinois Condominium Property Act. Counsel argued that the important issue was whether the Forcible Entry and Detainer Act would continue to be a summary proceeding designed to decide possession quickly or not. Justice Freeman asked whether it was important to get all possible claims before the courts as soon as possible, and counsel pointed out that a party always had an injunction action available if time was of the essence. Justice Freeman suggested that the alternative remedy would take significantly longer, and counsel responded that courts sometimes recognize the need for expedition, and there are tools available to achieve it. Justice Thomas suggested that the Appellate Court had apparently limited the permissible defenses to flaws which made the unit uninhabitable. Counsel responded that there had been no showing that the unit was uninhabitable. Counsel should bring the claim as one for breach-of-fiduciary-duty in a separate case, counsel argued. Justice Thomas pointed out that in fact, the Appellate Court had held that the counterclaim wasn't germane because it only sought damages, not possession. Counsel responded that the allegations were exactly the same in the counterclaim and defenses with the exception of the final paragraph seeking a remedy. Justice Karmeier observed that the Forcible Entry and Detainer Act gave counsel a powerful remedy, and asked whether the individual would have the right to present defenses if the suit was a simple one for damages. Counsel responded that if any action was outside the Affordable Care Act, then the defendants could bring any defense they chose to bring.

Counsel for the resident argued that public policy adequately answered the question presented. Justice Thomas asked whether there was a difference between a landlord/tenant relationship and the relationship between the Board and the condo residents. When counsel responded that the Board-resident relationship was solely contractual, Justice Thomas asked whether the contract was between the owner and all other owners. When counsel agreed it was not, Justice Thomas asked whether the owners' interests all rose or fell together. Counsel reiterated that the contractual relationship itself was bilateral, between the association and the owner. Justice Garman pointed out that an owner could participate in management, but counsel argued that his client was helpless to affect repairs to the common elements that might affect her unit, particularly after being shut out of the process. Justice Burke asked whether the purpose of assessments was defeated by allowing the defenses, since the owners collectively use those funds to maintain the common elements. Counsel suggested that the problem was with the particular board, not the law. He argued that if residents are not allowed to raise these issues in a Forcible Entry and Detainer Act suit, the only alternative was a two to four year court battle. When counsel stated that the leak problem had begun in 2007, Justice Thomas asked why the defendant hadn't sued then. Counsel responded that the resident had attempted to resolve the matter informally, but had been unable to do so. There was no public policy reason, counsel argued, why this situation should be treated any differently than any other contractual relationship: if a party breached, it was not entitled to enforcement. Justice Thomas asked whether the resident's position was limited to purported breaches which make the unit uninhabitable. Counsel responded that the Appellate Court had not limited the holding that much; any material breach could be raised as a defense to the action, just the same as any other contract. Justice Thomas asked whether, if the Appellate Court had tossed the defenses but severed and preserved the counterclaim, the possession action would have been stayed while the counterclaim was tried. Counsel responded that the resident would have been forced to pay while pursuing her remedy.  Justice Thomas wondered whether it was practical to slow down Forcible Entry actions with such issues, given the number of such actions there are. Counsel responded that the only issue would be breach of contract, and the proof should take no more than a day or two. Besides, if the Association obtained a finding of no breach in the Forcible Detainer Act lawsuit in connection with the resident's defenses, the separate counterclaim would be cut off, thus saving judicial resources. Counsel concluded by arguing that the Appellate Court's holding promotes performance and mutuality, and is consistent with the general Illinois law of contract.

Counsel for the Board argued in rebuttal that both the declaration and articles, and indeed, the Forcible Entry and Detainer Act remedy itself were designed for the benefit of all owners. Counsel repeated the point that the resident's proposed result would amount to withholding the funds needed for necessary repairs and other aspects of the Association's operations. Counsel argued that there was no incentive for board members not to make repairs, since they were owners too, and thus investors in the building. Counsel argued that the Forcible Entry and Detainer claim didn't divest fee simple ownership from the owner, merely possession. In closing, counsel argued that even a meritorious defense couldn't be permitted to imperil the functioning of the entire Association.

We expect a decision in Spanish Court within two to four months.

Illinois Supreme Court To Consider FOIA, Due Process, Custody Hearings and Red Light Camera Ordinances as First Chicago Term Ends

On Wednesday morning, the Illinois Supreme Court allowed petitions for review in a long list of new civil cases, setting up interesting battles in the coming months over public works projects, the state Freedom of Information Act, an assortment of constitutional issues and the City of Chicago’s Red Light Camera Ordinance. We will begin our detailed previews of each case in a few days, after our reports on the September civil oral arguments conclude. The cases and issues presented are:

  • Lake County Grading Company, LLC v. The Village of Antioch, No. 115805 – Issue Presented: Did the Public Construction Bond Act govern the claim of the plaintiff subcontractor for breach of contract against the defendant village on a third party beneficiary theory?
     
  • Garlick v. Madigan, No. 115909 – Issue Presented: May the Attorney General decline, in response to a private individual’s request for information pursuant to the Illinois Freedom of Information Act, to provide the information in a specific electronic and tabulated format, when a newspaper’s request that information be provided in a specific format was accommodated?
     
  • The Estate of Perry C. Powell v. John C. Wunsch, P.C., Nos. 115997 & 116009 – Issues Presented: (1) Did the plaintiffs state a cause of action for negligence arising from the defendants’ allegedly negligent failure to seek supervision of a wrongful death settlement by the probate court when the Wrongful Death Act only requires such supervision for settlements over $5,000? (2) Did the plaintiffs state a cause of action for negligence with respect to the defendants’ allegedly negligent failure to seek the appointment of a guardian for plaintiff in order to protect his interest in the settlement?
     
  • People ex rel. Madigan v. Illinois Commerce Commission, No. 116005 – Issue Presented: Did the Illinois Commerce Commission’s approval of a volume-balancing adjustment rider rate design violate the rules against retroactive rulemaking or single-issue rulemaking?
     
  • Consiglio v. The Department of Financial and Professional Regulation, Nos. 116023, 116163, 116190 – Issue Presented: Do the Health Care Worker Self-Referral Act’s provisions allowing permanent summary revocation of health care workers’ licenses following certain criminal convictions deprive the plaintiffs of substantive due process, violate the double jeopardy and ex post facto clauses and offend separation of powers?
     
  • Keating v. City of Chicago, No. 116054 – Issues Presented: (1) Is the red light camera ordinance enacted by the City of Chicago invalid on the grounds that it is in excess of the City’s home rule authority? (2) Was the state enabling act authorizing red light camera ordinances in certain counties unconstitutional special or local legislation?
     
  • WISAM 1, Inc. v. Illinois Liquor Control Commission, No. 116173 – Issues Presented: (1) Did the process by which the Illinois Liquor Control Commissioner revoked the plaintiff’s liquor license constitute a deprivation of due process? (2) Was the Liquor Commission’s finding that the licensee violated Section 3-28 of the ordinances of the City of Peoria – the grounds for revocation – against the manifest weight of the evidence?
     
  • Nelson v. The County of Kendall, No. 116303 – Issue Presented: Is the State’s Attorney’s Office a “public body” subject to the Illinois Freedom of Information Act?
     
  • BAC Home Loans Servicing, LP v. Mitchell, No. 116311 – Issue Presented: Did the defendant in a foreclosure case waive objections to personal jurisdiction by failing to raise those objections in compliance with Section 2-301 of the Code of Civil Procedure and Section 15-1505.6 of the Illinois Mortgage Foreclosure Law?
     
  • In re Marriage of Tiballi, No. 116319 – Issue Presented: May the fees of a psychologist appointed by the court in a child custody dispute pursuant to the Illinois Marriage and Dissolution of Marriage Act be taxed as costs upon petitioner’s voluntary dismissal of his petition to modify custody?
     
  • Goldfine v. Barack, Ferrazzano, Kirschbaum and Perlman, No. 116362 – Issues Presented: (1) Did the plaintiffs state a claim for a violation of the Illinois Securities Law and for legal malpractice arising out of the defendant’s purported failure to preserve plaintiffs’ cause of action for a securities violation? (2) If so, how are mandatory statutory damages calculated under the Securities Law?

Argument Report: Illinois Supreme Court Debates the "Traveling Employee" Exception

Last week, the Illinois Supreme Court seemed poised to reject an expansive interpretation of the "traveling employee" exception to the "going and coming" rule, which holds that employees injured during their commute to work are not entitled to workers' compensation benefits for their injuries. The argument was in Venture-Newberg Perini Stone & Webster v. Illinois Workers' Compensation Commission. Our detailed summary of the underlying facts and Commission and Appellate Court decision is here. Our preview of the argument is here.

The employer in Venture-Newberg was a contractor hired to do maintenance and repair work at a nuclear plant in Cordova, Illinois. The union local for Cordova was unable to fill all the available jobs, so the openings were posted in other union halls, including the claimant's union hall in Springfield. The claimant bid on the job and was hired. But Cordova is 200 miles from Springfield; the claimant concluded that commuting was impractical, and besides, he would be unable to be available for on-call emergencies, as he believed the employer wanted. So he found lodging about thirty miles from Cordova for the few weeks' duration of the job. The claimant was injured one morning traveling from his lodging to the plant. The Commission found that the course or method of travel was determined by the exigencies of the job rather than the personal preference, and that the claimant was essentially traveling on business, satisfying the "traveling employee" exception to the "going and coming" rule. The Circuit Court reversed, but the Appellate Court reversed the trial court.

Counsel for the employer began the argument. He argued that the claimant was not entitled to coverage for a long list of reasons: (1) he had no exclusive or continuous relationship with the company; (2) he was hired through union referrals for a series of short engagements; (3) the claimant couldn't accept the job if positions were available in his local's territory, and he was not required to accept work outside the area; (4) the employer hired the claimant through union referrals; (5) the claimant chose to live where he did, rather than being required to by the employer; (6) the employer did not pay for the claimant's travel or lodging, or make his lodging arrangements; (7) the claimant was not definitively hired until he passed background checks and drug testing; (8) the claimant was not on call when he was injured; and (9) the claimant was hired for employment at only one location and paid only from clock-in to clock-out. The facts and circumstances didn't fit any other traveling employee case, counsel argued. Justice Theis asked whether it changed the analysis that the employer had had to recruit outside its area. Counsel argued that "recruit" was a loaded term, and that the claimant hadn't been recruited more than any other local member. Justice Garman asked whether the "traveling employee" determination was a finding of fact entitled to the Court's deference, and counsel responded that in fact, it was a finding of law -- the facts were undisputed. Justice Burke pointed out that the employer had premises in Wilmington, and the Cordova plant was a job site. Counsel responded that the claimant wasn't hired in Wilmington, so the plant was irrelevant. Reviewing the traveling employee cases, counsel pointed out that the claimant had never had to travel away from a single location. Chief Justice Kilbride asked whether it was important that the claimant had been employed by the employer four different times for brief stints. Counsel argued that he was not a "traveling employee" at any location.

Counsel for the appellee argued that the Appellate Court decision did not expand the traveling employee exception. Counsel pointed out that the decision was based on two exceptions, both of which focus on the demands of the claimant's employment, not the instructions of the employer. Justice Burke suggested that both require employer control of travel, but counsel disagreed, arguing that if instructions were the crucial issue, employers would avoid the exception simply by never directing temporary employees where to live. Justice Garman asked what the difference was between the claimant and other employees coming and going to work. Counsel argued that traveling out of town was inherently different, carrying a different level of risk. Justice Garman asked whether that meant anybody who travels to work is a traveling employee, and counsel responded that it depended on the facts and circumstances. Justice Thomas asked whether a traveling employee wasn't traditionally one traveling away from an employer's premises. Counsel responded that the Cordova plant was not the employer's premises. Justice Karmeier asked whether counsel's argument meant that when a contractor hired short-term employees to work at a job site, whether in construction or anything else, they were all traveling employees. Counsel responded that it depended on the particular facts - whether the exigencies of the assignment required travel. Justice Freeman asked whether the parties' disagreement was on facts or permissible inferences, and counsel responded that there were disputes of fact. Justice Karmeier asked whether it was fair to say that there was no dispute that the employer hadn't required the claimant to stay anyplace in particular. Counsel responded that while the employer hadn't directly directed the claimant where to stay, he had testified that it was his understanding that the employer preferred its employees to be nearby. Chief Justice Kilbride asked whether the record suggested that employees were expected to be reasonably close so as to respond to on-call emergencies. Counsel agreed that the record reflected that.

On rebuttal, counsel argued that the claimant was not on call the morning of the accident, nor was there any emergency. The Commission's decision was unreasonable, counsel argued, and an unjustified expansion of the traveling employee exception.

We expect Venture-Newberg to be decided in two to four months.

Argument Report: Are Statutory Penalties Under the Employee Classification Act Constitutional?

Bartlow v. Costigan involves a constitutional challenge: can the Department of Labor return administrative fines against construction contractors under the Employee Classification Act without mandatory evidentiary hearings? During oral argument last week, the Illinois Supreme Court seemed skeptical. Our detailed summary of the underlying facts and lower court decisions is here. Our preview of the argument is here.

The plaintiffs received a notice of investigation and request for documents from the Department in the fall of 2008. In early 2010, the Department notified the plaintiffs that they had preliminarily found multiple violations of the Act, and stating that the possible fine was $1.683 million. When the plaintiffs received a second notice of investigation two weeks later, they filed a facial constitutional challenge to the Act. The trial court entered summary judgment for the Department. The Appellate Court affirmed, accepting the Department's characterization of its powers as purely investigatory, and its administrative fines as "no consequence" penalties (meaning that the target could ignore a violation notice without anything bad happening, at least right away).

Counsel for the contractor began by sketching the background facts, arguing that the Department's second complaint could have subjected the plaintiff to criminal penalties. Justice Thomas asked whether the recently enacted House Bill 2649 had replaced the statutory scheme at issue, and when it became effective. Counsel responded that the bill took effective on January 1, 2014. Justice Thomas asked whether the bill was enacted to correct procedural issues in the Act; counsel responded that not all of her client's constitutional issues had been addressed. Justice Thomas asked whether, if the Court finds that the statute applies retroactively, the Department's decision is a nullity. Counsel responded that the contractor did not concede that the newly enacted procedures even could be applied to it on remand. Justice Theis asked counsel about the contractor's vagueness challenge, and counsel responded that the contractor thought it was complying with the statute. Justice Theis noted that the contractor called the statute unambiguous in its brief, and wondered how the statute could nevertheless be vague. Counsel responded that although constitutional vagueness usually indicated two viable constructions of a statute, in this case, there was really only one. Counsel noted the argument that the purpose of the statute is to prevent employers from denying benefits to workers by improperly classifying them, and argued that the contractor had not done so. Justice Freeman asked the contractor if its equal protection/special legislation challenge had been properly preserved in its brief, and counsel answered that it had.

Counsel for the Department began by emphasizing that the Department adjudicates nothing, and that to get a penalty assessed, it must go to the Circuit Court. Justice Thomas pointed out that the Department could issue a cease-and-desist order and civil penalties, and counsel responded that "assessing" penalties didn't mean "imposing" them. Justice Thomas asked counsel whether she would agree that there was a lack of procedure involved in how the Department reached the point of bringing court proceedings. Counsel disagreed, pointing out that there were provisions for an informal hearing and submission of documents; the constitution doesn't require any hearing unless the party was being deprived of property. Justice Thomas suggested that the Appellate Court's characterization of Department penalties as "no consequence" significantly rewrote the statute. Counsel responded that the Department had no way of collecting penalties absent Circuit Court action, and might not even seek court action in the face of an unwitting violation. Justice Thomas asked whether there was a due process problem if the Department was "judge and jury" so long as they stopped short of execution. Counsel argued again that there was no due process violation absent a deprivation of property. Justice Thomas asked what the impact was if the new procedures in the statute apply retroactively. Counsel argued that there was no barrier to simply sending the plaintiffs a hearing notice and starting the newly enacted statutory process. Justice Karmeier commented that the Department could apparently debar a contractor from state contracts for multiple violations, and asked whether such action required a Circuit Court order. Counsel responded that debarment required a court finding of multiple violations. Justice Thomas asked whether there was any significance to the fact that Section 25 of the Act is called "enforcement," and counsel responded that chapter titles are given no significance in statutory construction; within the body of the statute, it explains that enforcement requires Attorney General action. Counsel concluded by briefly addressing the contractor's equal protection challenge, arguing that the contractor had waived strict scrutiny, and the statute easily passed rational basis analysis.

On rebuttal, Justice Freeman asked counsel for the contractor whether, if the Court couldn't find the contractor's position on equal protection in the briefs, the matter was waived. Counsel argued that the issue had been addressed. Counsel continued that since the new statute required action on a timeline, including a complaint 120 days after notice of a violation, if the statute applied retroactively, the contractor could not be pursued again. Counsel suggested that the Court could strike the statute as-applied, rather than facially, and Chief Justice Kilbride suggested that the Court was limited to the challenges parties actually bring. Counsel responded that as-applied issues had arisen from the Department's newly minted interpretation of the statute.

We expect Bartlow to be decided in two to four months.

Argument Report: Does the Income Withholding for Support Act Require Strict Compliance?

Our reports on the oral arguments from the September term of the Illinois Supreme Court continue with last week's argument in Schultz v. Performance Lighting, Inc. Our detailed summary of the underlying facts and lower court rulings in Schultz is here. Our preview of the oral argument is here

The plaintiff obtained a divorce in 2009 and was awarded $600 every two weeks in child support. The plaintiff's attorney served what purported to be a notice under the Income Withholding for Support Act. However, the notice didn't contain the ex-husband's Social Security number or the termination date for the support obligation. The ex-husband's employer didn't withhold under the notice, so the ex-wife sued the employer under the Act, seeking the statutory $100 per day penalty. The trial court dismissed the plaintiff's complaint, holding that strict compliance with the statute was necessary for a notice to be valid, and the Second District affirmed.

Counsel for the plaintiff argued that a mistake in a withholding notice is nearly always merely an error, but a recipient's failure to pay is nearly always purposeful. Justice Thomas asked whether the language of the statute suggested that the legislature didn't intend to penalize employers served with a faulty notice. Counsel noted that while penalties for non-payment can be harsh, the legislature has capped the total penalty. Nevertheless, counsel argued that the legislature certainly didn't intend that an omission or error in the notice not affecting the ability to pay would entirely excuse the duty to pay. Justice Thomas asked if plaintiff's position was that the errors in the notice was de minimis, and counsel argued that invalidating the notice was exalting form over substance. Justice Thomas pointed out that one of the errors in plaintiff's purported notice was the lack of a social security number. Justice Thomas asked whether plaintiff's argument was that the employer has the employee's social security number, making the omission unimportant. Counsel agreed that the omission didn't affect the employer's ability to pay. Justice Thomas posited the hypothetical of a large employer with two employees with the same name receiving a notice with no social security number. Counsel pointed out that social security numbers aren't mandatory anymore according to the statute. Justice Burke asked whether it should make a difference that the plaintiff's attorney, rather than the plaintiff herself, sent the notice, and counsel argued that the standard was the same. Justice Garman asked whether the penalty should be strictly construed in favor of the employer, and counsel responded that given that the penalty was civil, certain errors weren't fundamental. Counsel argued that payment of child support was nearly sacrosanct in Illinois law; the recipient of a notice has a duty to either abide by the notice, ask the sender for clarification, or file a declaratory judgment action. Chief Justice Kilbride asked whether the recipient of the notice had failed entirely to withhold, or had withheld the sums and simply not turned the money over. Counsel responded that the answer was not in the record.

Counsel for the defendant argued that it was undisputed that the purported notice didn't comply with the Act. Justice Karmeier asked counsel whether he agreed that because of recent statutory changes, the Social Security number was no longer crucial. Counsel responded that he did not, pointing out that there was no risk that Social Security numbers would inadvertently become part of a public court file. Justice Burke asked why employers should be permitted to disregard a notice, and whether they had a duty to obtain missing information. Counsel argued that even if the employer had the ex-husband's Social Security number, it could not have determined the missing termination date for the support obligation. Justice Garman asked whether the Court should be concerned that the purpose of the statute was to promote prompt payment, but requiring strict compliance might have the opposite effect. Counsel responded that the statute has now been amended, but even before the amendment, there was nothing keeping plaintiffs from correcting an error and filing a second notice. Therefore, a perverse effect was unlikely. Counsel pointed out that the statute provided specifically that omitting a signature didn't affect the validity of the notice, thus implying that other omissions did affect validity. Counsel argued that rules of statutory construction support the view that the statute should be strictly construed, as do subsequent amendments which have softened the impact of the statute. Chief Justice Kilbride pointed out that Federal regulations during the relevant period didn't allow employers to dispute a notice, and wondered what the authority was for the proposition that an employer could disregard the notice. Counsel responded that the defendant was not prosecuting an affirmative claim.

On rebuttal, Justice Thomas asked whether the missing child support was ever paid. Counsel responded that it was, but the record did not reveal whether or not the defendant had withheld the required sums and not turned the money over.  Counsel disputed the defendant's claim that the employer had a defense based on faulty service of the notice. Counsel argued that the exception for missing signatures was intended to differentiate the statute from other statutes for which signatures are mandatory, not to distinguish missing signatures from other flaws in the notice. Counsel agreed that requiring strict compliance would promote non-compliance with the statute.

We expect Schultz to be decided in two to four months.

Argument Report: Illinois Supreme Court Hears Dramshop Act Case

With the Illinois Supreme Court asking somewhat fewer questions than it generally does, it was unclear how the Court might decide Rogers v. Imeri, the Dramshop Act case the Court heard last week.  Our detailed summary of the underlying facts and lower court decisions in Rogers is here. Our preview of the argument is here.

Rogers arises from the death of the plaintiff's son in a drunk driving accident. The plaintiffs sued the bar which allegedly served the driver, alleging claims under the Dramshop Act. The plaintiffs received $106,550 from the driver's liability insurance policy and their own policy. While the matter was pending, the defendant's Dramshop liability insurer was declared insolvent, and the Illinois Insurance Guaranty Fund substituted in.

The parties agreed that the Fund was entitled to a $106,550 offset for settlements. So - was the offset deducted from the Dramshop Act cap, or from the jury's verdict, with the sum capped at the statutory maximum? The question turns on a conflict between the statutory liability cap of the Dramshop Act -- $130,338.51 -- and the language of the Guaranty Fund Act. The Fifth District held that the offset was taken from the jury's verdict - the same procedure which applies when the Fund is not involved in a case.

Counsel for the Guaranty Fund began by arguing that the issue presented was the import of the following language from the Act, 215 ILCS 5/546: “The Fund’s obligation . . . shall be reduced by the amount recovered or recoverable, whichever is greater” from other insurance.  Counsel pointed out that after the Fifth District’s decision in Rogers had come down, the First District, Division Five had decided the same question the opposite way in Guzman v. 7513 West Madison Street, Inc. Counsel argued that the Fifth District’s decision is contrary to the plain language of the Guaranty Fund Act, essentially directing that the trial court take a sum the Fund doesn’t owe (because of the Dramshop Act liability cap), and reducing it by another sum the Fund doesn’t owe (the setoff), to arrive at a number which would be exactly the same as if the Fund wasn’t involved in a case at all – meaning that Section 546 was given no effect. Justice Freeman asked counsel to reconcile his position with the express purpose of the statute to protect policyholders and third parties. Counsel responded that that was doubtless an aspirational goal of the statute. However, he argued that the Fund’s theory ensured that the purpose of the Dramshop Act is satisfied – the plaintiff recovers the full statutory liability cap, for the most part from the wrongdoer, with the Fund providing the rest. The Fund is protected as well by being given the reduction mandated in Section 546. Justice Freeman’s question was the only one counsel received in his initial remarks.

Counsel for the plaintiffs began with a discussion of the underlying facts. He argued that the case had nearly been settled when the Guaranty Fund substituted in. Counsel argued that Section 546 never mentions the Dramshop Act, which provides that a jury finds a victim’s damages without reference to the statutory cap. Justice Garman asked whether the issue was one of statutory construction or public policy, and counsel responded that it was largely statutory construction. Justice Theis asked what the “Fund’s obligation” under Section 546. Counsel responded that the term is never defined, and argued once again that the Fund’s position would vitiate the victim’s right to have the jury determine damages. Justice Karmeier asked counsel to respond to the Fund’s argument that the “Fund’s obligation” was capped by the Dramshop Act limit. Counsel argued that the Fund’s position was unsupported. Justice Karmeier asked whether the issue hinged on how the Court defines the “Fund’s obligation,” and counsel responded that the Fund’s obligation is determined through trial and the jury’s verdict. Counsel concluded by arguing that the Fund’s position would make trial a virtual formality, since the plaintiff could never get the full benefit of a verdict significantly above the statutory cap.

In rebuttal, counsel for the Fund argued that it was the Dramshop Act, not the Guaranty Fund Act, which capped the plaintiff’s damages. The plaintiff’s position, counsel argued, meant that the Guaranty Fund Act has no effect. Justice Thomas asked whether the Dramshop Act cap would always be the maximum exposure for the Fund, and the Fund would get the benefit of the setoff for other insurance recoveries regardless. Counsel argued that while this was true, applying the setoffs to a jury verdict which was well above the cap denied the Fund any benefit at all from Section 546.

We expect Rogers to be decided in two to four months.

First Thoughts: Live-(Nearly)-Blogging the Oral Argument in Kanerva

This morning, a seemingly skeptical Illinois Supreme Court appeared ready to side with the State in a dispute over 2012 amendments to the State Employee Group Insurance Act. Several Justices peppered the two attorneys splitting argument time for the plaintiffs with sixteen questions during their opening, many of which echoed various points made in the Circuit Court’s opinion tossing the case out of court. In comparison, counsel for the State was treated gently, receiving only five questions in all, four of them from Justice Thomas.

Counsel for the plaintiffs began by emphasizing the fact that the Pension Protection Clause doesn’t actually use the word “pension” in describing what is protected – it says “benefits.” (See the post immediately below this one for the full text of the clause.) Counsel argued that the word “benefits” has a plain and unambiguous meaning in the context of employment, as demonstrated by the fact that one regularly sees signs and advertisements speaking of jobs “with benefits” – with no further explanation of what is meant. The ordinary understanding of the term clearly includes health insurance, counsel argued. Counsel pointed out that the voters who approved the state constitution chose to protect “benefits,” not just “pensions,” and that the title of the clause is “Pension and Retirement Rights” – if the clause is limited to pensions, then the word “retirement” means nothing. Justice Freeman asked counsel whether the case was one of first impression in that it related to something which was not clearly part of a pension, and if so, whether the Court should consider that it might be expanding the scope of the Clause. Counsel reiterated that the Clause used the broader term “benefits,” not just pensions. Justice Burke asked counsel whether there was any difference between the “pension system” and the “retirement system.” Counsel responded that as a practical matter, the answer was no. Justice Burke then asked whether health insurance premiums paid on a retiree’s behalf were income. Counsel disputed the idea that the protection of the Clause is limited to forms of income, pointing out yet again that the drafters deliberately used a broad and generally understood term – “benefits.” Justice Garman pointed out that the Clause actually protects “benefits of membership” in the system, not just “benefits,” and asked counsel whether the point had any significance? Counsel responded that all “benefits” flowed to the retiree through the system, so the distinction in language had no practical impact. Justice Karmeier asked whether, under the plaintiffs’ theory, a retiree would be locked into a particular level of benefits if benefits were increased? Counsel responded that in the current political climate, he couldn’t imagine that happening, but the answer was no. Justice Garman asked whether, on counsel’s theory, the state could reduce retirees to bare-bones health insurance so long as the premiums cost the retirees nothing. Counsel responded that a definitive answer would have to await another case, but that a substantial cut in the value of the insurance likely would violate the Clause.

Co-counsel for the plaintiffs concluded the opening argument by challenging the Circuit Court’s finding that the class members lacked standing to sue the State on their union’s collective bargaining agreement in Circuit Court. He argued that third party beneficiaries of a collective bargaining agreement were permitted to sue as “parties” to the agreement under the limited exception authorizing such suits. Counsel set out the plaintiffs’ secondary constitutional argument, which is based on the proposition that the 1998 pension bill providing that 20-year retirees would receive their health care insurance free created contractual rights which were impaired in violation of the Contracts Clause of the state constitution by the 2012 amendments. Justice Freeman pointed out that the retirees’ benefit books said that the state could change the terms at any time, and asked counsel how such an equivocal representation could amount to a contractual promise. Counsel pointed out that the benefit books didn’t say that the state reserved the right to change premiums, as opposed to adjusting the exact parameters of what was and was not covered.

Counsel for the State began by emphasizing the strong presumption in the law that legislation doesn’t create enforceable contract rights, given that a contrary view would hamper the legislature’s ability to respond to changing conditions. Counsel argued that nothing in the any of the relevant acts met the high bar necessary to create contract rights.

Justice Thomas noted that retirees’ mandatory premium contributions are quite low now, but wondered whether the State’s position, if it were successful, would allow the state to drive retirees’ contributions much higher, or even abolish the health care insurance benefit for retirees entirely. Counsel responded that there were significant political constraints to stop that from happening, but there was no constitutional barrier to such a development. Justice Thomas asked whether state employees who took early retirement in reliance on the package of promised benefits had any recourse in the State’s view. Counsel responded that nothing in the early retirement statute promised that benefits would stay at their current level forever, and repeated that retirees would have no constitutional cause of action. Justice Thomas asked whether the State believed that the Hawaii decision heavily relied on by the plaintiffs, which found health care benefits protected by a similar pension clause, was simply wrong, and counsel for the State said yes. Counsel argued that the Pension Clause had to be understood in the context of its history, and the Clause arose from a desire to make it clear that all public pension systems are in the nature of voluntary contractual relationships, not a mandatory part of employment. Counsel closed by arguing that there was no special significance to the use of the word “benefits” in the Pension Protection Clause, and disputed that the 2012 amendments rose to the level of a constitutional “impairment” of a contract.

In rebuttal, counsel for the plaintiffs challenged the State’s claim that history of the retirees’ health care system has been one of constant change. Justice Thomas’ question was important, counsel argued; if the State prevailed, there would be nothing to stop the State from shifting far more of the cost of the health care system to retirees, essentially wiping out their pensions in the process. Counsel closed by arguing that the State would contend that the 2012 statute is a complete defense to any claim for breach of contract, and surely that amounted to a constitutional “impairment.”

As I’ve observed before, Kanerva is playing out in the shadow of pension battles yet to come. If the argument this morning is any indication of the Court’s inclination, it seems unlikely that the Supreme Court is about to take the kind of hard-line view of the Pension Clause that would significantly hamper the political branches in grappling with Illinois’ public pension liabilities.

Illinois Supreme Court to Debate Whether Public Retiree Health Benefits Protected By Pension Clause

Tomorrow morning, the Illinois Supreme Court will hear oral arguments in what may prove to be a precursor of larger battles yet to come in the next few years - an all-out battle over whatever public pension reform package the legislature adopts. Tomorrow, the case at hand is Kanerva v. Weems, which presents the question of whether guaranteed premium-free health care for public retirees with twenty years or more service is protected by the guarantee of the Illinois Constitution that public pensions cannot be disturbed? Our detailed summary of the facts and Circuit Court decision in Kanerva is here.

The State Employee Group Insurance Act has been amended several times during its life. Originally, the SEIGA provided that the state paid the entire cost of the insurance. In 1991, the Act was amended to provide for limited employee contributions.  In 1995, the legislature eliminated the cap on those contributions. Two years later, the legislature provided for a graduated premium payment, topping out at 20 years, when the state took over 100% of the payments.

All that changed in 2012, when the legislature amended the SEIGA to direct the Director of the Department of Central Management Services to allocate the cost of health insurance premiums between the State and its retirees. The statute provided that the Director could base his or her calculations on the actual cost of the services, adjusted for various factors.

The plaintiffs sued, alleging that the 2012 amendments rendered the SEIGA system unconstitutional on its face. Principally at issue is the Illinois Pension Protection Clause:

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

In addition to the Pension Protection Clause, the plaintiffs invoked the Impairment of Contracts clause and separation of powers (a void delegation of legislative authority), as well as suing for breach of contract.

Tomorrow the defendants are likely to argue that a "pension" is commonly understood as an annuity - a fixed sum paid from protected funds which is set at the time of retirement based on factors like the retiree's final pay and years of service. The defendants will likely argue that if that much is true, the Supreme Court should follow the lower courts by holding that the health insurance premiums - which by definition change every year as costs and medical technology change - can't be "pensions."  The plaintiffs, on the other hand, are likely to argue that the entire package of benefits guaranteed to retirees are a form of earned compensation, and accordingly, the medical benefits are, broadly speaking, a "pension." The plaintiffs will likely argue, contrary to the holding of the Circuit Court (the appeal in Kanerva went straight from the Circuit Court to the Supreme Court because of the great importance of the issues presented), that the courts have jurisdiction over the contracts claim as a violation of the state's collective bargaining problems.

We expect an opinion in Kanerva within the next two to four months.

I'll have more to say about Kanerva tomorrow afternoon once I've returned from the argument at the Bilandic Building in Chicago. I look forward to meeting readers of Appellate Strategist who attend the Court's final session of its first Chicago term.

Illinois Supreme Court to Debate Dramshop Act Recovery Cap

Tomorrow morning, the Illinois Supreme Court will hear oral arguments in Rogers v. Imeri. Rogers poses the question when the Dramshop Act recovery cap applies and other defendants have settled, how is the maximum exposure of the Illinois Insurance Guaranty Fund calculated? Our detailed summary of the facts and lower court opinions in Rogers is here.

Rogers arose from the tragic death of the plaintiffs' son in a drunk driving accident.   The plaintiffs settled with the driver of the vehicle as well as receiving a settlement under their own policy. The plaintiffs sued the establishment which allegedly served the driver, but the defendant's dramshop liability insurance carrier became insolvent while the lawsuit was pending. So the Illinois Insurance Guaranty Fund stepped in.

And that's where the dispute started. The Fund filed a motion seeking summary adjudication of the maximum exposure of the Fund. But how was the deduction calculated - subtract the settlements from the Dramshop Act cap? Or let the jury return a verdict against the defendant -- which was highly likely to be well in excess of the $130,000 statutory cap -- deduct the settlements from that much higher figure, and then reduce the recovery to the statutory cap? If the court picked the first alternative, the maximum exposure was likely to be relatively small, given that the recoveries to date had been $106,550 (making the Fund's maximum exposure about $24,000). But if the court picked the second alternative, the recovery would likely be the statutory cap, or something very close to it.

The result would have been relatively straightforward is the Guaranty Fund hadn't been involved; the routine calculation would be the second alternative - let the jury award what it wants, deduct the settlements and then cap the recovery. But the defendant in Rogers argued that a different result was required because the Fund was involved. The Circuit Court disagreed, and the Appellate Court affirmed.

Before the Supreme Court, the defendant is likely to argue that the Fund occupies a special position in Illinois law. It is not merely another insurer, but rather a recovery of last resort; such a rule is necessary, the defendant will likely argue, to protect the viability of the Fund. A claimant is required to exhaust "all coverage" before turning to the Fund for recovery, and unlike private insurers, the Fund's obligation must be reduced by the full policy limits, regardless of whether the plaintiff settles for less or does not pursue a claim.

On the other hand, the plaintiffs are likely to argue the policy implications of the defendant's preferred result. If the statutory cap is applied before any deductions for settlements, it is entirely possible that the establishment will be liable for little or nothing; the plaintiffs are likely to argue that this result is directly contrary to the Dramshop Act.

We expect a decision in Rogers within the next two to four months.

Illinois Supreme Court to Debate Strict vs. Substantial Compliance With Withholding Orders

Tomorrow morning, the Illinois Supreme Court will hear oral arguments in Schultz v. Performance Lighting, Inc., which poses an important question for domestic relations law: must a Withholding Notice under the Income Withholding for Support Act strictly comply with the requirements of the statute in order to be valid, or is substantial compliance enough? Our detailed summary of the facts and lower court opinions in Schultz is here.

The plaintiff in Schultz was awarded $600 every two weeks in child support upon her divorce. She served a notice to withhold income for support on the defendant, her ex-husband’s employer at the time. The defendant made no payments to the State Disbursement Unit on the ex-husband’s account. Ultimately, the plaintiff sued the defendant, alleging that the defendant had breached a statutory duty to pay, triggering a statutory $100 per day penalty. The Circuit Court found that the plaintiff’s notice didn’t include either the ex-husband’s social security number or the termination date of the obligation. The Court held that strict compliance with the statute was required and dismissed the complaint. The Appellate Court affirmed.

The argument in Schultz is likely to turn on conflicting interpretations of Section 20(c) of the Act. According to the Act, the notice “shall . . . include the Social Security number of the obligor,” it shall “include the date that withholding for current support terminates, which shall be the date of termination of the current support obligation set forth in the order for support,” and it shall “contain the signature of the obligor or the printed name and telephone number of the authorized representative of the public office.” 750 ILCS 28/20(c).

“Shall” is typically interpreted as being mandatory, but that doesn’t answer our question; there are cases holding that “shall” doesn’t necessarily require strict compliance. As the Appellate Court noted, there is a line of authority holding that where “shall” is coupled with a penalty or consequence of some kind, substantial compliance is required. The Appellate Court relied on the fact that non-compliance with a withholding notice triggers a per-day fine for the employer, but the plaintiff will likely point out that this doesn’t really help the analysis. A consequence for the receiver of the notice (i.e., “do this or the target gets penalized”) doesn’t support the same inference that a consequence for the maker of the notice (i.e., “do this or you get penalized”) does.

The defendant is likely to argue the same negative inference relied on by the Appellate Court: because the legislature found it appropriate to provide in the statute that omitting the signature of the obligor or the printed name and telephone number of the authorized representative of the public office doesn’t affect the validity of the notice, it follows that omitting other required data does affect the validity of the notice. The plaintiff is likely to respond by arguing that all the necessary information was either expressly included, could have been easily inferred, or could have been determined by contacting her attorney, whose contact information was included on the notice. It will be interesting to see what the Court ultimately does with Schultz; on the one hand, the Kilbride Court has shown a pragmatic streak in a number of cases, finding for substance over form, but on the other hand, in their most recent strict-vs.-substantial-compliance case, State Bank of Cherry v. CGB Enterprises, Inc., strict compliance won.

We expect Schultz to be decided in the next two to four months.

Illinois Supreme Court to Debate Limits on Workers' Comp "Traveling Employee" Exception

The Illinois Supreme Court’s first term in Chicago ends tomorrow morning with a busy docket of five civil arguments: Venture-Newberg Perini Stone and Webster v. Illinois Workers’ Compensation Commission; Schultz v. Performance Lighting, Inc.; Kanerva v. Weems; Rogers v. Imeri and American Access Casualty Co. v. Reyes. In Venture-Newberg, the Court will resolve a potentially important question for workers’ compensation law: is a short-term worker hired from a far-away union hall and staying in nearby temporary housing analogous for purposes of workers’ compensation to an employee traveling on the employer’s business? Our detailed summary of the facts and lower court opinions in Venture-Newberg is here.

A contractor was hired to perform maintenance and repair work at a nuclear plant more than 200 miles from Springfield. Because the nearby union local couldn’t fill all the jobs, openings were posted elsewhere, including at a Springfield hall. The claimant was hired, but he decided it was impractical to compute 200 miles back and forth each morning and night for the few weeks the job would last. So he found lodging about thirty miles from Cordova. He was injured early on the second day of the job while traveling from his lodging to the plant.

As a general rule, commuting injuries aren’t compensable under the Workers’ Compensation Act. The arbitrator originally decided that this case fell squarely under that rule and recommended that the claim be denied.

But the Commission reversed. Two exceptions to the general rule applied, according to the Commission. First, the Commission found that the claimant hadn’t been living where he was by his own choice; his “course or method of travel” was determined by the exigencies of the job. Second, the employee was a “traveling employee” – essentially, he was engaged in business travel. The Sangamon County Circuit Court reversed the Commission, setting aside the decision awarding benefits. The majority of the Appellate Court reversed the Circuit Court, once again reinstating the award over a dissent by Justice Hudson, with Justice Turner joining.

The employer may focus during the argument tomorrow on the testimony of the claimant and a fellow employee during the hearing. The claimant acknowledged that the employer hadn’t told him to find lodging nearby, or where to live, or what route to take into the plant, and he hadn’t been called in early on the day of the accident. A fellow employee conceded that the employer had never requested that employees find lodging nearby, but pointed out that working a 12-hour shift and then driving a 200-mile one-way commute wasn’t too practical, even for a job that would only last a few weeks. The employer may also echo Justice Hudson’s dissent, arguing that treating workers in the claimant’s position in the same way as workers traveling on business might create considerable exposure and uncertainty – would every employee hired from far away at a big job like the nuclear plant be a “traveling employee” for his or her daily commute? And if so, how far away was far enough? The Commission, on the other hand, is likely to argue the facts as well, echoing the Appellate Court’s conclusion that the employer had to not only know that short-term workers from far-off union halls would be staying somewhere nearby, but to desire that outcome.

We expect a decision in Venture-Newberg within two to four months.

Illinois Supreme Court to Debate Appeals from a Pollution Control Facility Certification Order

Tomorrow morning in Chicago, the Illinois Supreme Court will hear oral argument in The Board of Education of Roxana Community Unit School District No. 1 v. The Pollution Control Board, which presents an important question of Illinois environmental law - who can appeal from a pollution control facility certification, and where is the appeal taken? Our detailed explanation of the underlying facts and lower court rulings in Roxana is here.

The respondent in Roxana submitted twenty-eight applications for certification of certain systems, methods, devices and facilities as pollution control facilities within the meaning of the Property Tax Code. The petitioner filed petitions for leave to intervene in all twenty-eight proceedings. The stakes for the petitioner were high - if certification were granted, the Illinois Department of Revenue would supplant the District as the taxing authority. The Illinois Pollution Control Board denied intervention and granted certification. The petitioner/intervenor appealed, but the Appellate Court dismissed the appeal for lack of jurisdiction.

The oral argument in Roxana is likely to turn on a conflict between two statutes. The petitioner is likely to emphasize Section 41(a) of the Environmental Protection Act:

Any party to a Board hearing, any person who filed a complaint on which a hearing was denied, any person who has been denied a variance or permit under this Act, any party adversely affected by a final order or determination of the Board, and any person who participated in the public comment process . . . may obtain judicial review, by filing a petition for review within 35 days . . . under the provisions of the Administrative Review Law . . . 415 ILCS 5/41(a).

On the other hand, the respondent is likely to emphasize Section 11-60 of the Property Tax Code:

Any applicant or holder aggrieved by the issuance, refusal to issue, denial, revocation, modification or restriction of a pollution control certificate or a low sulfur dioxide emission coal fueled device certificate may appeal the finding and order of the Pollution Control Board, under the Administrative Review Law . . . 35 ILCS 200/11-60.

The respondent will likely echo the views of the Appellate Court, arguing that Section 41(a) is limited to appeals originating in the Circuit Courts under the Administrative Review Law, not appeals originating in the Appellate Court, and that allowing a direct appeal to the Appellate Court by an intervenor would render Section 11-60 meaningless. On the other hand, the petitioner will likely argue that Section 11-60, as the narrower statute, should operate as an exception to Section 41(a), with applicants and holders being required to seek judicial review in the Circuit Courts under Section 11-60, while all others are permitted to go straight to the Appellate Court under Section 41(a). The petitioner is likely to cite the concerns of the dissenter at the Appellate Court, who argued that the statutes should not be interpreted to deny any form of review to a local governmental entity which would lose a substantial portion of its tax base through certification.

We expect Roxana to be decided in the next two to three months.

Illinois Supreme Court to Debate Controversial Condominium Decision

Tomorrow morning in Chicago, the Illinois Supreme Court will hear oral argument in a high-profile appeal from the Second District, Spanish Court Two Condominium Association v. Carlson. Our detailed summary of the underlying facts and lower court holdings in Spanish Court is here.

Spanish Court arises from a special statutory proceeding – the Forcible Entry and Detainer Act.  The plaintiff Association sued the defendant condominium owner in early 2010 under the Act, arguing that she had stopped paying both monthly and special assessments. The Association sought possession of the defendant’s unit and a monetary award. The defendant filed affirmative defenses and a counterclaim. She admitted not having paid the assessments, but denied that they were owed. Instead, she alleged that her unit had sustained water damage as a result of the Association’s breach of their duty to maintain and repair common areas of the development – specifically, the roof and certain brickwork above her unit. The defenses and counterclaim alleged first, that the Association was estopped from seeking the assessments by its breach of the duty to maintain and repair, and second, that any judgment against the defendant should be reduced by the cost of repairing the damage to the unit.

The Circuit Court granted the plaintiff’s motion to strike the defenses and counterclaim, but the Appellate Court reversed in part. Analogizing the duty to pay assessments to Illinois law on the duty to pay rent (which also falls under the Forcible Entry and Detainer Act), the Court held that the duty to pay was not absolute. Rather, it was given in exchange for the duty to maintain and repair. If the Association breaches the duty to maintain and repair, the Court held, then the resident is permitted to suspend performance with respect to paying assessments. The Court cautioned that relatively minor problems, such as “overgrown bushes and unrepaired sidewalk cracks” would “rarely” constitute material breaches, but found that the alleged failures here were arguably material.

Before the Supreme Court, the Association seems likely to argue that since assessments are the only means available to a board to carry out its duty to maintain and repair, allowing each individual resident to suspend payments will have the perverse result of making it less likely that common areas will be kept in good repair. The Association may also argue, as it did on rehearing, that allowing such a remedy invites chaos by making each individual resident his or her own judge of the adequacy of the repair of the common areas. The Association is likely to suggest a “parade of horribles,” with residents unhappy over assessments suspending payments, and boards having to spend time and legal fees in order to get possession of units and payment of past-due assessments. The Association is also likely to emphasize the special character of the Forcible Entry and Detainer Act proceeding, which is supposed to provide a quick and relatively inexpensive way to settle the question of possession. The defendant is likely to argue that the Appellate Court correctly drew an analogy to landlord-tenant law and contend that there is no basis for treating the two areas differently. The defendant may also argue the now-or-never aspect of the problem by suggesting that if the resident is not permitted to raise these types of issues before losing possession of the unit, it will be too late.

Spanish Court has attracted considerable attention nationwide, according to the Chicago Tribune, so the Court’s ultimate decision will be closely watched. We expect a decision in two to four months.

Illinois Supreme Court to Debate Constitutionality of Labor Department Fines

Tomorrow morning in Chicago, the Illinois Supreme Court will hear oral argument in Bartlow v. Costigan. Bartlow isa facial constitutional challenge to the system of administrative fines administered by the Illinois Department of Labor in connection with allegedly misclassifying workers as independent contractors rather than employees for purposes of minimum wage, overtime, workers’ compensation and unemployment insurance. Our detailed summary of the facts and underlying court decisions in Bartlow is here.

The plaintiffs in Bartlow operate a roofing business which installs siding, windows, seamless gutters and roofs. In September 2008, the Labor Department sent the plaintiffs a “notice of investigation and request for documents,” stating that the department was investigating whether several individuals working with the plaintiffs had been misclassified. Eighteen months later, the Department sent the plaintiffs a “Notice of Preliminary Investigative Findings,” stating that a preliminary determination had been made that the plaintiffs had misclassified ten subcontractors. The notice said that the plaintiffs might be assessed a fine of $1.68 million, requested a response, and promised “a written decision informing the parties of the final determination in the matter.” When the plaintiffs were notified of a second investigation less than a month later, they sued the Department, seeking a declaratory judgment and injunctive relief, arguing that the Employee Classification Act and assorted regulations promulgated under it violated a variety of state and Federal constitutional provisions – largely on the grounds that it deprived persons of property without an opportunity for hearing. The plaintiffs lost at the trial court, and the Fifth District – with some apparent reluctance – affirmed.

The Appellate Court concluded that the Department functions solely as an investigator in connection with the Act, and accepted the Department’s view that a contractor could disregard a notice of a fine without suffering any consequences. The plaintiffs are likely to challenge that conclusion tomorrow by emphasizing the breadth and gravity of the steps available to the Department: a cease and desist order, orders to pay lost wages, salary and/or benefits, possible debarment from state contracts, and an administrative fine – here, for a considerable sum. The plaintiffs will likely argue that a party suffers a tangible deprivation when it receives a notice of such a fine from the Department, whether or not consequences can immediately flow from failing to pay. The plaintiffs also seem likely to point out the wide sweep of businesses which come under the classification of “construction” under the Act, and to emphasize the uncertainty that can be created by a Department finding.

The Department, on the other hand, is likely to argue that points which succeeded at the Appellate Court. The Department will heavily emphasize that the plaintiffs are making a facial constitutional challenge, the most difficult challenge to win: if there are any circumstances in which the statute is constitutional, the Department must prevail. The Department is also likely to point out that its finding of a violation is not considered a “final administrative determination” within the meaning of the Administrative Review Law; any finding of the Department has to be enforced through a complaint in court, where the Department has the burden of proof and its administrative findings are inadmissible. The Department will likely also point out the opportunities a contractor is given to respond in the course of an investigation, including a chance to present written information and (at the option of the Department), a fact-finding conference which the contractor’s lawyer is permitted to attend.

Bartlow should be decided within the next two to four months.

It's Official: Justice Rita B. Garman is Next Chief Justice

As expected, the Illinois Supreme Court has just announced that Justice Rita B. Garman will become Chief Justice on October 26, 2013. The incoming Chief Justice’s term will run until October 25, 2016. Justice Garman was appointed to the Supreme Court on February 1, 2001, and elected to the Court on November 5, 2002. Her official Court biography is here.

For those unfamiliar with Illinois practice, in contrast to (for example) the United States Supreme Court, our constitution provides that the Justices themselves elect one of their number to serve a single three-year term as Chief. Thus, although his tenure as Chief Justice will soon conclude, Chief Justice Thomas L. Kilbride will continue his service on the Court. Chief Justice Kilbride’s official Court biography is here.

Illinois Supreme Court Debates the Locus of Sales Tax Liability

Our previews of the Illinois Supreme Court's September docket continue with Hartney Fuel Oil Co. v. Hamer, which will be argued this morning in Chicago.

Our detailed summary of the facts and lower court rulings in Hartney Oil is here. The plaintiff in Hartney resells fuel oil to railroads, trucking companies, gas stations and other fuel distributors. About 1985, the plaintiff moved its sales operations out of Forest View, in high-tax Cook County, to Elmhurst in DuPage County. Plaintiff moved the office several additional times in the years that followed.

In 2003, plaintiff moved its sales operation to Mark in Putnam County. The company contracted with a local painting contractor to provide office space and personnel. The agreement provided that personnel of the contractor would receive, accept and process fuel purchase orders from customers.

Plaintiffs' sales were of two types: daily purchase orders and long-term purchase orders. With respect to daily orders, sales personnel in Mark typically accepted the order on the spot. Occasionally, sales personnel rejected the order in accordance with credit lists they had been provided with in advance. Accordingly, in most cases, no one from the principal office in Forest View was involved with a sale until the invoice was sent out. Long-term orders were signed by the customer and returned to the Mark office; if already signed by the plaintiff's president, the order was final at that time. Otherwise, the president of the plaintiff company travelled to Mark to sign the order.

The Department had audited the plaintiff multiple times. In the first part of 1998, an initial audit had concluded that sales occurred in Du Page County, resulting in a multi-million dollar tax levy. Later that year, the plaintiff moved its sales office to La Salle County. A further audit covering the period 1998-2001 concluded that sales occurred in La Salle County at the sales office. In the summer of 2003, yet another audit was opened. According to the Appellate Court, nobody from the Revenue Department visited the Mark office or spoke to anyone employed there during the audit, and as the audit was wrapping up, the Department destroyed the files from its previous audit investigations of the company.

The plaintiff paid the tax under protest, and then sued to recover. The plaintiff was joined by Putnam County and the trustees of the Village of Mark. The Circuit Court found for the plaintiffs, and the Appellate Court affirmed.

Look for the oral argument in Hartney Oil to focus on a debate about the language of the administrative regulations. Several different sections of the Administrative Code contain the same language:

Without attempting to anticipate every kind of fact situation that may arise in this connection, it is the Department’s opinion, in general, that the seller’s acceptance of the purchase order or other contracting action in the making of the sales contract is the most important single factor in the occupation of selling. If the purchase order is accepted at the seller’s place of business within the county or by someone who is working out of that place of business and who does not conduct the business of selling elsewhere within the meaning of subsections (g) and (h) of this Section, or if a purchase order that is an acceptance of the seller’s complete and unconditional offer to sell is received by the seller’s place of business within the home rule county or by someone working out of that place of business, the seller incurs Home Rule County Retailers’ Occupation Tax liability in that home rule county if the sale is at retail and the purchaser receives the physical possession of the property in Illinois.

The Department of Revenue will fix on the first sentence. The statement that place of acceptance is "the most important single factor" arguably means that it isn't the only factor. But then again, there's the second sentence of the paragraph, which arguably says that if the place of acceptance is at the seller's place of business, sales tax liability is fixed at that location. So which is it? The Appellate Court held that the place of acceptance was decisive. Since acceptance of both short-term and long-term purchase orders took place in Mark, according to the Court, that presumption necessarily meant that sales-tax liability was imposed in Mark. Justice Robert L. Carter dissented, arguing that the regulations imposed a totality of the circumstances test, not a bright-line place-of-acceptance one.

Because of the amount of sales tax revenue potentially at stake in the Court's holding, Hartney Oil is one of the "big Three" of the term, alongside Kanerva and Spanish Two Court Condominium. If the Court holds that simply moving a sales office is insufficient to shift sales tax liability to a less high-tax jurisdiction, such strategic transfers are likely to be far more expensive, and therefore far less common. On the other hand, if the Court holds that the plaintiff's Mark sales office was sufficient to redirect sales tax liability in Hartney Oil, such transfers may become more common.

We expect a decision in Hartney Oil in two to three months.

A Preview of the Illinois Supreme Court's September Term: Yesterday on WILL-580 AM "Focus"

Yesterday morning, I had the pleasure of joining host Jim Meadows on WILL-AM Radio 580’s hour-long discussion show “Focus” for a preview of the Illinois Supreme Court’s September term. Joining us for the discussion was Steve Beckett, a founding partner at Beckett and Webber, P.C. in Urbana and a lecturer at the University of Illinois College of Law. In a wide-ranging discussion, we talked about our experiences arguing cases before the Illinois Supreme Court, speculated about how the Court might evolve as Chief Justice Kilbride’s term as Chief comes to an end and (apparently) Justice Rita B. Garman takes over, and reviewed the possible implications for the law and the lives of Illinois citizens of several criminal and civil cases on the Court’s docket for this month.

You can learn more about yesterday's show and listen to the mp3 recording of the broadcast here

Illinois Supreme Court to Debate Exemptions From Prevailing Wage Act

Our previews of the oral arguments on the Illinois Supreme Court’s September docket continue with People ex rel. Department of Labor v. E. R. H. Enterprises, Inc. [pdf].

E.R.H. began in 2008 when the Labor Department issued the company a subpoena for production of certain employment records. The subpoena stated that the Department was investigating whether the defendant’s repair work on certain water mains for the Village of Bement had been done in compliance with the Prevailing Wage Act. Seven months after the subpoena was served, the Department filed a complaint seeking a finding of civil contempt against the defendant for failing to comply with the subpoena. The defendant appeared and answered, arguing that it was a public utility and therefore exempt from the Prevailing Wage Act. The trial court requested that each side brief the dispute. The defendant submitted a 2004 agreement with the Village detailing the defendant’s ongoing responsibilities in connection with the Village’s potable water facility and water infrastructure.

On August 25, 2010, the trial court entered an order finding that the defendant was not a public utility, and the subpoena was therefore enforceable. Defendant moved to reconsider, and the trial court entered an amended order in February 2011, reiterating its finding. The court cited seven facts in support of its determination that the defendant was not a utility: (1) the Village owned the potable water facility and infrastructure; (2) the Village was recognized for the fluoridation of the Village’s water; (3) the Village contracted out some, but not all, of its responsibilities to the defendant; (4) the Village had the duty to serve the public and treat all persons alike; (5) defendant was simply an outside contractor assisting the Village; (6) defendant did not charge the public directly; and (7) defendant was not regulated by the Illinois Commerce Commission or any other state agency. The defendant once again sought reconsideration, which was denied, and the appeal followed.

The appeal turns on the interpretation of Section 2 of the Prevailing Wage Act, which applies to “all fixed works constructed by any public body, other than work done directly by any public utility company.” 820 ILCS 130/2. The Prevailing Wage Act does not define a “public utility.” Before the Appellate Court, the defendant argued that it is a “public utility” within the meaning of Section 3-105 of the Public Utilities Act, since it is a private corporation that operates the water and sewer systems of the Village for the public use of its citizens. The Appellate Court agreed that it was reasonable to import the definition from the Public Utilities Act in construing the Prevailing Wage Act. The Court found that its conclusion was further bolstered by the common dictionary definition of a public utility. Although the defendant neither owned the physical infrastructure, nor was it the entity directly billing the public for services, the Court found that neither was a prerequisite for the defendant to be a “public utility.” Since the defendant was a public utility in the Appellate Court’s view, the Prevailing Wage Act didn’t apply to its activities, making the subpoena unenforceable. The Court accordingly reversed.

We expect a decision in E.R.H. Enterprises within the next three to four months.

Illinois Supreme Court to Debate Pensions for Firefighters' Spouses

Our previews of the oral arguments on the Illinois Supreme Court’s September docket begin with Hooker v. Retirement Fund of the Firemen’s Annuity and Benefit Fund of Chicago, which is set for argument tomorrow morning, September 11.

Our detailed summary of the facts and lower court rulings in Hooker is hereHooker involves two surviving spouses of firefighters who died in 1998 and 2000, respectively. Both were awarded the widow’s minimum annuity under 40 ILCS 5/6-141.1. In 2004, the General Assembly amended the Pension Act to require an award of Duty Availability Pay (DAP) in certain pension calculations. The widows amended their administrative complaints, arguing they should have been awarded line-of-duty benefits retroactively to the date of the decedents’ deaths, and DAP should have been included in the pension calculations. They sought leave to present the DAP issue as a class action.

Addressing the line-of-duty issues first, the Circuit Court reversed the Retirement Board and ordered an award of line-of-duty benefits. The Board again refused to include DAP in its benefit calculation on remand, pointing out that neither decedent had received DAP during his lifetime. The Circuit Court refused to certify the class and granted the Board summary judgment, but the Appellate Court reversed.

Look for the Hooker argument to play out as a debate between alternative views of two clauses of the Pension Code. The problem here is that Pension Code doesn’t adopt a single philosophy as to how to calculate firefighter’s pensions. Some provisions provide that calculations are based on what the firefighter received during his or her lifetime. Others base the calculations on what the approved salary for the firefighter’s last position is today, even if the firefighter never received that salary.

Section 6-111 of the Pension Code seems to reflect the first view: “the salary of a fireman, as calculated for any purpose under this Article, shall include any duty availability pay received by the fireman . . .”

But then there’s Section 6-140 to contend with: “The annuity for the widow of a fireman whose death results from the performance of an act or acts of duty shall be an amount equal to 50% of the current annual salary attached to the classified position to which the fireman was certified at the time of his death and 75% thereof after December 31, 1972.”

The Board will likely argue that the language of Section 6-111 of the Code is clear, and provides that if a particular firefighter never received DAP, the survivor’s pension cannot include it either. The plaintiffs may respond that this oversells the clarity of Section 6-111. The statute says that DAP received by the firefighter is included, but it doesn’t say that only DAP actually received during the firefighter’s lifetime is included. Had the legislature intended that result, the argument might go, it would have said so. And this leads to the conclusion reached by the Appellate Court: under 6-111, if a calculation requires the analyst to plug in the firefighter’s salary, only DAP actually received is included. In the calculation required by section 6-140, this is the first half of the equation. But then, the current salary attached to the decedent’s last position is plugged into the annuity calculation. All DAP would be included in that portion of the calculation, whether or not the decedent ever received it.

Which answer the Supreme Court chooses may make a significant difference. The Board had argued that no class could be certified, arguing that the need to calculate each survivor’s benefits outweighed any common questions. The Appellate Court reversed the lower court, ordering certification of a class of more than one hundred survivors who were purportedly denied DAP calculations in their survivors’ annuities.

Florida Supreme Court to Decide Whether the Florida Civil Rights Act Prohibits Pregnancy Discrimination

            The Florida Supreme Court has granted review to resolve a conflict between two of Florida’s district courts of appeal on whether the Florida Civil Rights Act (FCRA) prohibits pregnancy discrimination.  In Delva v. Continental Group, Inc., 96 So. 3d 956 (Fla. 3d DCA 2012), the Third District Court of Appeal concluded that the FCRA, which provides that it is unlawful for an employer to discriminate against an individual on the basis of sex, does not prohibit pregnancy discrimination.  The Third District certified conflict with the Fourth District Court of Appeal’s decision in Carsillo v. City of Lake Worth, 995 So. 2d 1118 (Fla. 4th DCA 2008), which held the opposite. 

            The FCRA (formerly known as the Florida Human Relations Act and the Florida Human Rights Act) was enacted five years after the Civil Rights Act of 1964 (Title VII), and is patterned after it.  In 1978, Congress enacted the Pregnancy Discrimination Act, which amended Title VII by redefining sex discrimination to include discrimination on the basis of pregnancy:  “The terms ‘because of sex’ or ‘on the basis of sex’ include, but are not limited to, because of or on the basis of pregnancy, childbirth, or related medical conditions.”  42 U.S.C § 2000e(k).  The FCRA, unlike the federal statute, has never been amended to specifically say that pregnancy discrimination is sex discrimination.  In Delva, the Third District, relying on an earlier Florida decision, O’Loughlin v. Pinchback, 579 So. 2d 788 (Fla. 1st DCA 1991), held that because Florida has not amended the Florida Civil Rights Act to add language similar to the Pregnancy Discrimination Act, the Florida legislature did not intend to include pregnancy discrimination in the FCRA.  But the Fourth District, in Carsillo, reasoned that because the FCRA was patterned after Title VII, which considers pregnancy discrimination to be sex discrimination, the FCRA does bar pregnancy discrimination.  “Congress made clear in 1978 that its intent in the original enactment of Title VII in 1964 was to prohibit discrimination based on pregnancy as sex discrimination[.]  [I]t was [therefore] unnecessary for Florida to amend its law to prohibit pregnancy discrimination.”  The Carsillo court based its decision on the principle that Florida courts have “the right and the duty, in arriving at the correct meaning of a prior statute, to consider subsequent legislation,” citing Gay v. Canada Dry Bottling Co. of Florida, 59 So. 2d 788, 790 (Fla. 1952). 

            Florida federal district courts are also divided, some following the O’Loughlin decision (on which Delva was based), but others following Carsillo based on their predictions that the Florida Supreme Court would adopt Carsillo’s reasoning.  A decision from Florida’s highest court will finally resolve this significant issue.

            The supreme court granted review of the case on May 2, 2013 and assigned it Case No. SC12-2315.  Briefing is complete, and oral argument is to be set.  For the current status of the case, click on the case number above.

Illinois Supreme Court Announces Upcoming Dates for New Opinions and PLA Orders

The Illinois Supreme Court has announced the dates on which it expects to issue opinions as well as issuing other dispositive orders during the first two months of its temporary stay at the Michael A. Bilandic Building in Chicago. The Court expects to issue opinions on Thursday September 12; Thursday September 19; Thursday October 3 and Friday, October 18. The Court will issue orders on petition for rehearing on Monday, September 23, and orders on pending petitions for leave to appeal on Wednesday September 25.

The Court will convene tomorrow at 9:30 a.m. to begin its heavy schedule of oral arguments with three criminal cases.

Monday on WILL-AM Radio: An Hour Long Discussion of the Illinois Supreme Court and its Upcoming Term

On Monday September 8th from 10 to 11 A.M. Central, I’ll have the pleasure of joining host Jim Meadows on WILL-AM Radio 580’s hour-long discussion show “Focus.” We’ll be discussing the important cases on the Illinois Supreme Court’s upcoming September docket, both civil and criminal, as well as discussing the careers of the Justices themselves. Also joining the discussion will be Steve Beckett, a founding partner at Beckett and Webber, P.C. in Urbana and a lecturer at the University of Illinois College of Law.

Read more about Monday’s show here. Click the “Listen” tab on the Focus web page to listen to the discussion by streaming audio.

Florida High Court to Tackle Duty Owed By Person Who Facilitates Attack on Third-Party

On April 23, 2013, the Florida Supreme Court accepted review of a case involving the issue of whether a person in an altercation with another person owes that other person a duty of care when he blocks his means of escape, allowing a third party to strike him from behind with a weapon.  See Reider v. Dorsey, 98 So. 3d 1223 (Fla. 3d DCA 2012) (Fla. Sup. Ct. Case No. SC12-2197).

Trial Court Proceedings

The facts of the case are unique.  Dorsey was drinking with Reider and Reider’s friend, Noordhoek, at a local bar and all were intoxicated.  While in the bar, Reider became belligerent, saying that he wanted to fight everyone.  Dorsey then insulted Reider and walked out of the bar.  Reider and Noordhoek followed him, with Reider demanding to know why Dorsey insulted him.

Dorsey’s path took him between Reider’s parked truck and an adjacent car and as Dorsey walked between the vehicles, Reider managed to trap Dorsey between them.  Noordhoek followed Dorsey between the vehicles.  After several minutes of Reider harassing Dorsey over the epithet he used, Noordhoek reached into Reider’s truck and retrieved a tomahawk, a tool which Reider used as part of his work to help him clear land.  Dorsey attempted to push Reider aside in order to escape and after the two men grappled for about fifteen seconds, Noordhoek suddenly struck Dorsey in the head with the tomahawk, rendering him unconscious.  Noordhoek and Reider fled the scene.  Dorsey regained consciousness and drove himself to the hospital. 

Dorsey sued Reider for negligence and following a jury trial, Reider moved for a judgment in accordance with a prior motion for directed verdict.  The trial court denied the motion and awarded damages to Dorsey.  Reider appealed to the Third District Court of Appeal.

                    Appellate Proceedings

The Third District reversed the entry of judgment for Reider, holding that “Reider did not owe a relevant duty of care to Dorsey when Dorsey was attacked and therefore cannot be held liable for his injuries.” 

This case turned on the three exceptions to the general rule that there is “no duty to control the conduct of a third person to prevent him or her from causing physical harm to another.”  The exceptions arise if, “at the time of the injury, the defendant is in actual or constructive control of: (1) the instrumentality; (2) the premises on which the tort was committed; or (3) the tortfeasor.” It was undisputed that Dorsey was injured by Noordhoek, not Reider.  Dorsey, however, argued that Reider could be held liable under the first and third exceptions.

The appellate court rejected the application of both exceptions.  As for the instrumentality exception, it stated that a duty of care could exist only if keeping a tool in a truck “has so frequently previously resulted in the same type of injury or harm that in the field of human experience the same type of result may be expected again.”   While many people keep tools of their trade in their vehicles, the field of human experience does not lead us to expect that an acquaintance of ours might take such an item from a vehicle in a parking lot and use it to strike another acquaintance in the back of the head.

The appellate court analogized this case to cases where a person uses another person’s gun to shoot someone and the owner of the gun is found not to owe a duty of care to the person who was shot.  A common theme runs through the cases: merely providing access to an instrument—even a potentially dangerous one and even if that access is the result of negligence—does not equate to a duty to control another person's use of that instrument.  Applying that rule to this case, the court stated that the most that could be said is that Noordhoek seized the opportunity to gain access to the tomahawk.  Reider did not affirmatively give it to him, authorize him to take it, or in fact even know he had taken it. Thus, Reider had neither the duty nor the ability to control Nordhoek's conduct.

With regard to the third exception, that Reider created a foreseeable zone of risk by blocking Dorsey’s escape, the appellate court noted that while Reider’s resistance to Dorsey's effort to escape enabled the strike, there was no record evidence that Reider colluded with Noordhoek to harm Dorsey, or that Reider knew Noordhoek had the tomahawk in his hand before the strike.The court concluded from the record that Reider's main purpose for following Dorsey out of the bar was to confront Dorsey about insulting him.  Reider therefore did not create a foreseeable zone of risk and Reider did not owe a relevant duty of care to Dorsey.

   Status Before Florida Supreme Court

The parties have completed their briefing and oral argument is scheduled for October 8, 2013 at 9:00 am.  The author will update this article after the Court decides the case.

 

Illinois Supreme Court Announces Busy Argument Docket for September in Civil Cases

This morning, the Illinois Supreme Court announced a busy oral argument docket of twelve civil cases for the September term, the Court's first term of its potentially year-long stay in Chicago. The cases are:

Wednesday, September 11

  • Hooker v. Retirement Board of the Firemen's Annuity and Benefit Fund of Chicago, No. 114811 -- Issues Presented: Do survivors' pensions under the state Pension Act increase when the salary for decedent's position increases, regardless of whether the decedent ever actually received that salary? Our detailed summary of the facts and lower court decisions is here.
     
  • Hartney Fuel Oil Co. v. Board of Trustees of the Village of Forest View, No. 115130 -- Issue Presented: When a business' operations span multiple counties, where does a retail sale tax place for purposes of the local portion of the state sales tax? Our detailed summary of the facts and lower court decisions is here.

Tuesday, September 17

  • Bartlow v. Costigan, No. 115152 -- Issue Presented: Are the administrative fines imposed by the Illinois Department of Labor under the Employee Classification Act unconstitutional? Our detailed summary of the facts and lower court decisions is here.
     
  • Gillespie Community Unit School District No. 7 v. Wight & Co., No. 115330 -- Issues Presented: Is a "statute of repose" incorporated into a contract between defendants, an architectural firm, and the plaintiffs enforceable to bar the action? Our detailed summary of the facts and lower court decisions is here.
     
  • Spanish Court Two Condominium Association v. Carlson, No. 115342 -- Issue Presented: May a condominium owner refuse to pay monthly and/or special assessments, in whole or in part, on the grounds that the condominium board failed to maintain and repair the common elements of the condominium property? Our detailed summary of the facts and lower court decisions is here.
     
  • Wells Fargo Bank, N.A. v. McCluskey, No. 115469 -- Issues Presented: (1) May a motion pursuant to Section 2-1301(e) of the Code of Civil Procedure to vacate a default in a foreclosure suit be made after the sheriff’s sale has already occurred? (2) Did defendant waive her right to make a renewed motion to set aside the default by withdrawing her first motion in return for agreement to temporarily postpone the sale? Our detailed summary of the facts and lower court decisions is here.
     
  • The Board of Education of Roxana Community Unit School District No. 1 v. The Pollution Control Board, No. 115473 -- Issue Presented: May a party challenging the certification of a system as a pollution control facility appeal directly to the Appellate Court pursuant to the Environmental Protection Act, 415 ILCS 5/41(a), after its challenge is rejected by the Illinois Pollution Control Board? Our detailed summary of the facts and lower court decisions is here.

Wednesday, September 18

  • American Access Casualty Co. v. Reyes, No. 115401 -- Issue Presented: Is a clause of an automobile insurance policy excluding all liability coverage for the sole named insured and titleholder on the insured vehicle void as against public policy?
     
  • The Venable-Newberg Perini Stone and Webster v. Illinois Workers' Compensation Commission, No. 115728 -- Issue Presented: Was a union member who traveled to reach a distant job site a "traveling employee" pursuant to workers' compensation law such that an injury occurring while traveling to work in the morning was compensable? Our detailed summary of the facts and lower court decisions is here.
     
  • Schultz v. Performance Lightning, Inc., No. 115738 -- Issue Presented: Does the Income Withholding for Support Act require strict compliance, so that any error or omission in a notice to withhold income in connection with court-ordered support payments is fatal, or is substantial compliance enough? Our detailed summary of the facts and lower court decisions is here.
     
  • Kanerva v. Weems, No. 115811 -- Issues Presented: 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? Our detailed summary of the facts and Circuit Court decision is here.
     
  • Rogers v. Imeri, No. 115860 -- Issue Presented: In a case involving the Insurance Guaranty Fund, if the jury returns a verdict in excess of the statutory maximum, is the setoff for other recoveries made from the verdict, or from the statutory maximum recovery under the Dramshop Act? Our detailed summary of the facts and lower court decisions is here.

Florida High Court Upholds Florida's Birth Injury Compensation Plan (NICA)

 

            Last term, the Florida Supreme Court upheld the constitutionality of a state plan that provides up to $100,000 to the parents or legal guardians of an infant found to have sustained a birth-related neurological injury.  See Samples v. Florida Birth-Related Neurological Injury Compensation Ass’n, 114 So. 3d 912 (Fla. 2013) (click here to view the slip opinion).  In so doing, the supreme court agreed with the lower appellate court’s decision (click here to view this decision) and answered the following certified question in the negative:  “Does the limitation in section 766.31(1)(b)1., Florida, Statutes, of a single award of $100,000 to both parents violate the Equal Protection Clause of the United States and Florida Constitutions?”

The Plan

            The Plan, regulated by §§ 766.301-.316, Florida Statutes, was enacted to stabilize and reduce malpractice insurance premiums for obstetricians. To further this goal, the Plan established a limited system of compensation irrespective of fault for certain catastrophic birth-related injuries that result in unusually high costs for custodial care and rehabilitation.  Whether claims are covered by the Plan is determined in an administrative proceeding.

The Decision

            The petitioners’ challenge to the Plan centered around its $100,000 cap of a parental award regardless of whether there was one parent or two parents involved in the claim.  The supreme court rejected all three constitutional challenges to the Plan—it found that it did not violate equal protection guarantees and the right of access to courts and found that it was not unconstitutionally vague. Specifically, the Court found the following on each challenge: 

           Equal Protection: The parental award provision does not treat similarly situated persons differently because all people within the statutory classification of “parents” are treated equally in that all “parents”—whether applying for an award singly or jointly—can receive no more than $100,000.  Limiting the parental award to $100,000 per claim—as        opposed to per parent—is rationally related to maintaining “the actuarial soundness of the Plan.”

           Vagueness:  Because the parental award provision does not require or forbid conduct, the void-for-vagueness doctrine does not apply in this context.

           Access to Courts:  The Plan’s no-fault compensation scheme provides a reasonable alternative remedy to parents’ right to access the courts for redress of their child’s neurological birth-related injury.

            Three justices dissented from the majority. Justices Perry, Pariente and Quince believed that the parental award provision violated equal protection.

Florida Supreme Court to Review Scope of Legislative Privilege in Redistricting Case

 

           One of the cases the Supreme Court of Florida will be considering this Fall concerns “legislative privilege” – specifically, whether Florida legislators or legislative staff members can be forced to give deposition testimony and produce documents relating to legislation establishing new congressional districts.  See Fla. House of Representatives v. League of Women Voters of Fla.; Romo v. Fla. House of Representatives, Nos. SC13-949 & SC13-951, accepted for review July 2, 2013, on review from 113 So. 3d 117 (Fla. 1st DCA 2013).

Proceedings in the Trial Court

           When the Florida Legislature enacted a new redistricting plan in February of 2012, various individuals and organizations filed lawsuits claiming that the plan as a whole, and a number of individual districts, violated the Florida Constitution by impermissibly favoring Republicans and incumbents and by diminishing the ability of minorities to elect representatives of their choice.  The plaintiffs sought an order declaring the plan or the challenged districts unconstitutional and enjoining future elections. 

            Because the constitutional provision alleged to be violated prohibits drawing an apportionment plan with the intent to favor a political party or an incumbent or with the intent to deny or abridge the equal opportunity of minorities to participate in the political process, the plaintiffs served a notice of taking depositions of the Senate Majority Leader and two staff members to obtain evidence of the intent underlying the plan.  The plaintiffs also requested unfiled draft reapportionment maps and related documents.  The Legislature sought a protective order to prevent the depositions and, more broadly, prohibit the deposition of any legislator or legislative staff member based on “legislative privilege,” a privilege earlier established by Florida’s First District Court of Appeal in Florida House of Representatives v. Expedia, Inc. 85 So. 3d 517 (Fla. 1st DCA 2012).

            The trial court granted the Legislature’s motion for protective order in part and denied it in part, acknowledging Expedia, but reasoning that the legislative privilege “must bend somewhat” because of the constitutional requirement that the motive or intent of legislators be considered in determining the validity of the redistricting plan.  The court distinguished between “subjective” and “objective” information and concluded that only the subjective thought processes and confidential communications of legislators and their staff warranted the full protection of legislative privilege.  The court authorized the plaintiffs to depose legislators or staff members regarding objective information or communication that did not encroach on their subjective thoughts or impressions. The court applied the same subjective/objective dichotomy to the maps and documents, but ordered an in camera review.  The Legislature petitioned the First District Court of Appeal for certiorari review of the trial court’s order.

Proceedings in the First District Court of Appeal

            The First District quashed the trial court’s order.  To view the First District’s slip opinion click here.  Relying heavily on its earlier decision in Expedia, the court determined that because Expedia held that legislative privilege broadly protects legislators and legislative staff members from being compelled to testify about any matter “that is an essential part of the legislative process” or pertains to the performance of “a legitimate legislative function,” the privilege equally protects subjective information like the legislator’s rationale or motivation for proposing or voting on a piece of legislation, and objective information like data or materials relied on by legislators and their staff in the legislative process.  The court concluded that the trial court departed from the essential requirements of law when it permitted the plaintiffs to depose legislators and legislative staff members on any matter pertaining to their activities in the reapportionment process.  The court added that the trial court’s objective/subjective dichotomy was unworkable because there was no clear demarcation between subjective and objective.  The court applied the same analysis to the plaintiffs’ request for maps and supporting documents, subject to Florida’s public records law. 

Dissenting Opinion

            Chief Judge Benton dissented on the basis that the First District had no jurisdiction “absent a demonstrated need to prevent irremediable harm.”  In his view, that harm had not been demonstrated because no one knew what questions would have been asked at the depositions, and “[t]he mere appearance for deposition of a senator and two staff persons” was not sufficient harm to justify certiorari review.  “The . . . Constitution makes plain that how and why the Legislature redistricts is a matter of paramount public concern.  Petitioners have fallen far short of demonstrating why failing to keep this quintessentially public business under wraps would work irreparable harm.”

Status

           The Florida Supreme Court designated this case as “high profile” and expedited the briefing, which was completed on August 12, 2013.  Oral argument is scheduled for September 16, 2013 at 9:00 am.  To check the current status of this case, click on the hyperlinked supreme court case number at the beginning of this article.

 

          

Illinois Supreme Court Extends Mailbox Rule to Judicial Review of Workers' Comp Commission

Last week, in a case which had attracted nationwide interest in the workers' compensation bar, a divided Illinois Supreme Court extended the mailbox rule to the process of initiating judicial review of decisions of the Workers' Compensation Commission. Justice Robert R. Thomas wrote the opinion for the five-Justice majority in Gruszeczka v. The Illinois Workers' Compensation Commission, with Justice Charles E. Freeman dissenting for himself and Justice Anne M. Burke. Our detailed preview of the facts and lower court opinions in Gruszeczka is here. Our report on the oral argument is here. Watch the video of the oral argument here.

The claimant in Gruszeczka filed a claim for benefits in connection with an injury he allegedly suffered on the job in 2004. The arbitrator denied the claim, and the Commission unanimously affirmed.

In Illinois, judicial review of a decision of the Workers' Compensation Commission is initiated by filing a request for the issuance of summons and an attorney's affidavit of payment of the probable cost of the record with the Circuit Court clerk. The governing provision of the Act provides that a proceeding for judicial review must be "commenced" within 20 days of receipt of notice of the decision. 820 ILCS 305/19(f)(1). Counsel for the worker allegedly mailed the request and counsel affidavit fourteen days after receiving notice. But for whatever reason, it wasn't received in the court clerk's office until twenty-four days after notice. So -- which act "commenced" the proceeding -- mailing or receipt? A divided six-Justice panel of the Workers' Compensation Commission Division of the Appellate Court found that the Circuit Court had no jurisdiction over the administrative appeal, holding that since the issue was governed by a statute rather than a court rule, the courts had no authority to extend the mailbox rule to "commencing" judicial review.

The Supreme Court reversed. The court began by acknowledging that the usual presumption of jurisdiction in the Circuit Courts isn't available in workers' comp -- there, the steps set forth in the statutory had to be strictly adhered to in order to vest the Circuit Court with jurisdiction over the appeal. However, unlike the Appellate Court, the Supreme Court majority found the word "commence" in the statute ambiguous. The next step after the plain language, of course, is the legislative history. There was nothing in the legislative history suggesting an intent to apply the mailbox rule; but then again, there was nothing suggesting an intent to disallow it either.

So the Court turned to the earliest decisions applying the mailbox rule and contrasted them with cases refusing to apply the rule. The court concluded that the cases were explained by a simple distinction: when an act began an entirely new proceeding, the mailbox rule never applied. When it merely continued a proceeding, the mailbox rule did apply. That rule resolved the problem at hand: judicial review of a workers' compensation decision was clearly the continuation of an ongoing proceeding, not the beginning of a new one. So - particularly given that there was no issue of lack of notice of the claim, given that it had already passed through the arbitrator and the Commission -- there was no reason the mailbox rule couldn't apply, just as it did at the first step (appeal of the arbitrator's decision to the Commission) and third step (appeal from the Circuit Court to the Appellate Court) of the process. The fact that a statute governed the issue made no difference; the majority observed that courts had made no distinction between statutes and rules in determining when the rule did and didn't apply. The majority conceded that the legislature had not expressly imposed the mailbox rule in Section 19(f)(1), but observed that the legislature hadn't disallowed its application either.

The problem with the majority's analysis, Justice Freeman wrote, was that it entirely rested on cases which did not concern the Workers' Compensation Act. Although there were no cases under the Act directly on point, Justice Freeman discussed several cases applying the former requirement that a party exhibit proof of payment of the probable cost of the record within twenty days of receiving notice in order to vest the Circuit Court with jurisdiction over the appeal. Given that the courts had dismissed several appeals where this step was not timely completed, Justice Freeman concluded that judicial review of a Commission decision is commenced when the request for issuance of summons and  attorney's affidavit is actually received and file-stamped by the clerk, and that the mailbox rule should therefore not apply.

Florida High Court to Clarify Content of Pre-Suit Expert Affidavits in Medical Malpractice Cases

Florida has established a statutory framework for the pre-suit investigation of medical malpractice cases.  See §766.201-.212, Fla. Stat.  Part of that framework requires that a claimant, prior to noticing its intent to initiate medical negligence litigation, “corroborate reasonable grounds to support the claim of medical negligence” with a “verified written medical expert opinion.”  On July 17, 2013, the Florida Supreme Court accepted review of a case that centers around the sufficiency of a plaintiff’s pre-suit expert corroborating affidavit.  See Rell v. McCulla, 101 So. 3d 878 (Fla. 2d DCA 2012) (Fla. Sup. Ct. Case No. SC12-2598).

Origin of Dispute

 

In the case, the plaintiffs, a husband and wife, filed a complaint based on injuries that the husband suffered to a tendon in his right ankle.  The plaintiffs claimed that the injuries were the result of two arthroscopic surgeries and a steroid injection performed by Dr. Rell, a podiatrist.  Following treatment with Dr. Rell, the husband sought a second opinion from Dr. Cottom, who ultimately performed two more surgeries on the husband’s ankle, stating that he suffered a “partial tear with tibialis anterior tendon as a result of previous arthroscopic debridement.”

 

The plaintiffs served a notice of intent to initiate a medical malpractice action on Dr. Rell and Coastal Orthopedics and Sports Medicine of Southwest Florida, P.A. and attached the affidavit Dr. Jeff Kopelman, which provided, in relevant part:

 

Dr. Rell injected 25% of dexamethasone phosphate into some scar buildup along the medical portal incision site. The concerns here, which would warrant further investigation, are (a) did the steroid go into the tendon and possibly weaken it and/or (b) predispose it to tearing? The evaluation of these concerns warrants further investigation....

 

In my expert opinion, based on the records provided, there are reasonable grounds that the patient's tibialis anterior tendon could have been weakened or injured by the steroid shot given by Dr. Rell. This is notwithstanding that we are dealing with a patient with previous ankle medical history, as well as five surgeries on his foot, and therefore with increases in his risks of scarring, arthritis and possible future foot problems.

 

Dr. Kopelman did not opine whether he believed that Dr. Rell’s treatment fell below the standard of care or whether the injury was outside of the foreseeable results of the procedures.

 

Dr. Rell and Coastal responded to the notice of intent with a letter to the plaintiffs, advising them that the affidavit was deficient.  Dr. Kopelman then executed an addendum to his original affidavit, which provided: 

 

To clarify and supplement my Verified Opinion dated March 4, 2001, I would state that, based on the records reviewed, there exists reasonable corroborating grounds to further investigate a claim of medical negligence against Brian Rell, DPM and the causation of damage to patient David McCulla's anterior tibialis tendon. I continue to reserve the right to modify my opinions based on additional information.

 

As with Dr. Kopelman’s original affidavit, the addendum did not include any opinion stating that there were reasonable grounds to believe that Dr. Rell’s treatment fell below the standard of care.

 

Trial Court Proceedings

 

After the plaintiffs filed their complaint, Dr. Rell and Coastal moved to dismiss, arguing that the plaintiffs failed to comply with Florida’s pre-suit notice requirements because they did not obtain a corroborating opinion from a medical expert attesting that the husband’s injuries were caused by medical negligence. The trial court denied the motion to dismiss, stating that while Dr. Kopelman’s affidavits may have been less than adequate to independently support a claim of medical negligence, the affidavits, in conjunction with the plaintiffs’ counsel’s review of the records, were sufficient to satisfy the statutory pre-suit requirements.  See §766.203(2), Fla. Stat. Dr. Rell and Coastal sought a writ of certiorari in the Second District Court of Appeal to quash the order denying the motion to dismiss.

 

Certiorari Proceeding

 

The Second District stated that the purpose of the medical expert opinion is to assure the defendant and the court that a medical expert has determined that there is justification for the plaintiff’s claim; i.e., to “corroborate that the claim is legitimate.”  The purpose is not to simply give notice of the plaintiff’s claim.  Thus, the issue was whether the plaintiffs’ expert’s affidavit sufficiently indicated that the husband had a legitimate claim for medical malpractice.  “In other words, did the corroborating affidavit sufficiently set forth that Dr. Rell was negligent in the care and treatment of [the husband] and that such negligence resulted in injury to [the husband]?”

 

The court found that while Dr. Kopelman noted in his affidavit that Dr. Cottom believed that the arthroscopic surgery performed by Dr. Rell tore the husband’s anterior tendon, Dr. Kopelman did not go so far as to opine that such action constituted medical negligence.  In addition, while Dr. Kopelman opined that there were reasonable grounds “to further investigate a claim of medical negligence” against Dr. Rell, he never provided any definitive corroboration that the plaintiffs’ claims were legitimate; that is, that Dr. Rell provided negligent care and treatment and that such negligence resulted in injury.  The court also stated that because the affidavit failed to indicate in which manner Dr. Rell deviated from the standard of care, Dr. Rell was prevented from conducting a full evaluation of the merits of the plaintiffs’ claim. Thus, the court held that the requirements of Section 766.203(2) were not met and that the trial court departed from the essential requirements of the law when it failed to grant the motion to dismiss.

 

The parties have begun the briefing process in the Florida Supreme Court, which will schedule oral argument in the future.  The author will update this article after the Court decides the case.

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Florida High Court Precludes Use of Extrinsic Evidence to Construe Ambiguous Policy Language

 

In a controversial 4-3 decision, the Florida Supreme Court in Washington National Insurance Corp. v. Ruderman, No. SC12-323, 2013 WL 3333059 (Fla. July 3, 2013), held that  ambiguous language in an insurance policy “must be construed against the insurer and in favor of coverage without resort to consideration of extrinsic evidence.”  (Emphasis added).  While the first part of the Court’s holding, which is embodied in the Latin phrase