Florida High Court Clarifies Harmless Error Standard in Civil Appeals

 

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This post updates the article posted on July 23, 2014. To view the earlier post, click here.

On November 13, 2014, the Florida Supreme Court answered the following certified question of great public importance in the negative: “In a civil appeal, shall error be held harmless where it is more likely than not that the error did not contribute to the judgment?”  See Special v. West Boca West Med. Ctr., No. SC11-2511.  To view the supreme court’s opinion click here. 

The Estate of the Susan Special sued Dr. Ivo Baux, his related corporations, and West Boca Medical Center, Inc., alleging negligence in administering her anesthesia and in responding to her cardiopulmonary arrests during her cesarean delivery.  The defendants denied the allegations, claiming that her death was a result of amniotic fluid embolus, an allergic reaction caused by a mother’s blood mixing with amniotic fluid. Sitting en banc, the Fourth District held that the trial judge had abused his discretion by disallowing the estate’s cross-examination of a defense expert who testified as to the cause of death.  The main issue, therefore, was whether the denial of the cross-examination was harmless error.

The district court receded from the more stringent, outcome-determinative “but-for” test for harmless error.  Instead, the district court adopted a new standard, holding that error is harmless when the error more likely than not did not contribute to the judgment.  Applying this newly-adopted standard, the Fourth District affirmed the judgment below, concluding that it was more likely than not that disallowing the cross-examination of the defendant’s expert did not contribute to the jury’s verdict.  To view the Fourth District’s opinion, click here (reported at 79 So. 3d 755 (Fla. 4th DCA 2011)).

The supreme court disagreed with the district court and answered the certified question in the negative.  The supreme court adopted the harmless standard used in criminal cases stated in State v. DiGuilio, 491 So. 2d 1129 (Fla. 1986).  Adapted to the civil context, this harmless error test requires the beneficiary of the error to prove that the error complained of did not contribute to the verdict. Alternatively stated, the beneficiary of the error must prove that there is no reasonable possibility that the error complained of contributed to the verdict.  This standard focuses on the effect of the error on both the trier-of-fact and the result, rather than being result-oriented and focusing on the accuracy of the result or the weight of the evidence. 

Applying this standard to the case, the Court concluded that “there is a reasonable possibility that certain errors by the trial court contributed to the verdict.”   It therefore reversed the judgment of the district court and remanded for a new trial.

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Illinois Supreme Court to Tackle Election Law and Sovereign Immunity on Thursday

The Illinois Supreme Court just announced that on Thursday morning, it will hand down decisions in two civil cases:

  • Bettis v. Marsaglia, No. 117050 – “Does 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 deprive the Circuit Court of jurisdiction over her administrative challenge?”
     
  • Leetaru v. The Board of Trustees of the University of Illinois, No. 117485 – “Does the Court of Claims have exclusive jurisdiction over a suit against the University of Illinois seeking an injunction requiring them to comply with their internal guidelines in connection with an academic investigation?”

Our detailed summary of the facts and lower court opinions in Bettis is here. Our report on the oral argument is here. Our preview of Leetaru is here. Our report on the oral argument in Leetaru is here.

As of Thursday morning, Bettis will have been on the advisement docket for 92 days, and Leetaru for 91 days. Year to date, the mean time from oral argument to decision for the Court’s unanimous civil decisions has been 97.1 days. The mean time from oral argument to decision for the Court’s non-unanimous civil decisions has been 214.2 days.

Image courtesy of Flickr by Anne Swoboda.

 

Illinois Supreme Court Agrees to Decide Whether Pension Board's Disability Finding is Preclusive in Employee Benefits Act Proceedings

In the closing days of its November term, the Illinois Supreme Court agreed to decide whether a pension board’s finding that an officer is disabled for pension purposes is preclusive of the employer’s liability for health insurance premiums under the Public Safety Employees Act. In The Village of Vernon Hills v. Heelan, the Second District held that the answer was yes.

The defendant officer was injured in the line of duty in December 2009. During the year following the incident, the officer was paid his full salary by the village pursuant to the Public Employee Disability Act. He underwent one hip replacement in April 2010. His condition worsened, and the other hip was replaced in September 2010. He did not return to work after the second surgery. In August 2011, the Board of Trustees of the Police Pension Fund held that the officer qualified for a line-of-duty disability pension.

A month after the Board’s ruling, the village filed a complaint seeking a declaratory judgment that the officer was not entitled to health insurance benefits under the Public Safety Employees Act. In its complaint, the village alleged that the officer had not suffered a catastrophic injury in response to what he reasonably believed to be an emergency, as required by the Act. (820 ILCS 320/10.)

The village acknowledged the Supreme Court’s holding in Krohe v. City of Bloomington that a catastrophic injury under the Act was the same thing as in injury sufficient to result in a line-of-duty pension. The village argued that Krohe was factually distinguishable and wrongly decided. The officer counterclaimed seeking a declaratory judgment holding that the village was obligated to provide the health care premium benefits.

The officer filed a motion in limine to bar any testimony on the issue of whether he had suffered a catastrophic injury under the Act. The court granted the motion. Subsequently, the case proceeded to a bench trial. The village conceded Section 10(b) of the Act was satisfied. In light of the Court’s in limine order, the village made an offer of proof on the issue of catastrophic injury and emergency. The officer then moved for a directed finding on the village’s claim, which the court granted. The court subsequently found for the officer on his counterclaim as well.

After entry of judgment, the officer filed a motion for sanctions against the village under Supreme Court Rule 137, arguing that the village had brought its suit solely for purposes of harassment. The court denied the motion, finding that the village had brought its suit in good faith, arguing from the outset that it was seeking to change the law.

The Appellate Court affirmed, finding that Krohe controlled. Accordingly, the Board’s finding that the officer was injured in the line of duty and therefore entitled to a line-of-duty pension necessarily amounted to a finding that he sustained a catastrophic injury in responding to an emergency within the meaning of the Act.

The village argued that the issue was actually a matter of collateral estoppel, and since it wasn’t involved in the pension proceeding, the Board’s ruling was not preclusive. The Court rejected the village’s argument, concluding that the village was making a precluded collateral attack on the Board’s decision.

The officer cross-appealed from the trial court’s denial of his Rule 137 motion. The Appellate Court affirmed the trial court, noting that the village had made it clear from the outset that it was bringing a frontal challenge to Krohe in hopes of changing the law.

Justice McLaren dissented, arguing that the “findings of an administrative agency” could not be binding “on a trial court in a separate proceeding with different parties regarding matters that the administrative agency has no statutory authority to decide.”

We expect Village of Vernon Hills to be decided within eight to ten months.

Image courtesy of Flickr by Cyro A. Silva.

Illinois Supreme Court Agrees to Decide FutureGen Clean Coal Dispute

In the closing days of its November term, the Illinois Supreme Court agreed to decide an issue of potentially enormous consequence to a major Illinois utility, agreeing to review an order of the Illinois Commerce Commission requiring a major utility to enter into sourcing agreements with FutureGen 2.0, a non-profit corporation organized to create a coal-fueled near-zero emissions electric power plant. In Commonwealth Edison Co. v. Illinois Commerce Commission, Division 2 of the First District Appellate Court affirmed an order of the Commerce Commission.

In 1997, the Illinois legislature sought to restructure the electric industry in order to promote competition and customer choice in the supply of electricity by separating the sectors of electric generation and electricity delivery. Before an Alternative Retail Electric Supplier (“ARES”) can get a certificate of service authority from the Illinois Commerce Commission, it must demonstrate that it sources some of its electricity from clean coal facility. The petitioner utility is required to supply electricity to residential and small commercial customers within its service territory who have not chosen an ARES.

The Illinois Power Agency Act provides that the Illinois Power Agency Act is tasked with procuring electricity for the petitioner utilities. The Act further provides that by 2025, one quarter of the electricity used in the State shall be generated by cost-effective clean coal facilities. In late 2013, the Agency filed a proposed procurement plan with the Commission requiring the petitioner utilities to source electricity from FutureGen. The Commission concluded that requiring all seventy ARES to enter into sourcing agreements with FutureGen would represent an unwarranted administrative burden. Accordingly, the Commission ultimately entered an order requiring only the petitioner utilities to enter into the sourcing agreements in an amount sufficient to serve both their own eligible retail customers and the retail customers of the ARES.  The utilities would recover the additional costs through a competitively neutral charge added to ARES’ customers’ bills. The utilities sought administrative appeal of the Commission’s order.

On appeal, the petitioner utilities agreed that the Act permits the Illinois Power Agency to develop a procurement plan requiring the utilities to enter into sourcing agreements with a retrofitted clean coal facility. However, they argued that the Agency’s authority was limited to the utilities’ own customers; the Agency, they insisted, had no authority to compel them to acquire electricity for the ARES customers. The Court of Appeal disagreed, holding that since the Commission had the authority to compel both the utilities and ARES separately to enter into such agreements, it followed that the Commission had the power to compel the utilities to enter into such agreements on behalf of the ARES customers.

Next, two of the petitioners argued that the Commission’s order violated the dormant commerce clause, arguing that by requiring the utilities to enter into a sourcing agreement with FutureGen, the Commission had effectively excluded from consideration out-of-state clean electric sources. The petitioners also argued that seventy percent of the utility’s rate cap for clean coal electricity was devoted to FutureGen’s output, effectively excluding others from competing in the Illinois market. The Appellate Court disagreed, holding that because neither of the petitioners expressed any interest in producing clean coal electricity or were otherwise adversely impacted by the Commission’s order, they lacked standing to make their constitutional challenge.

Justice Pucinski dissented, finding that the order exceeded the Commission’s authority.

We expect Commonwealth Edison to be decided in eight to ten months.

Image courtesy of Flickr by epsos.

Illinois Supreme Court to Consider Discovery Privileges Applicable in Medical Malpractice

In the closing days of its November term, the Illinois Supreme Court agreed to decide an issue of potential importance to the medical malpractice bar: what kinds of documents are privileged from disclosure in a negligent credentialing claim in a medical malpractice case? The question arises in a decision from the Fifth District, Klaine v. Southern Illinois Hospital Services.

The plaintiffs sued the defendant doctor for medical malpractice. They added a claim against the defendant hospital, alleging that it was negligent in agreeing to give the doctor hospital credentials. The plaintiff demanded that the hospital produce various applications for staff privileges and attached documents in discovery. When the defendants refused, the plaintiffs filed a motion to compel. The Circuit Court subsequently examined the documents in camera. The court subsequently ruled that all of the documents were privileged aside from three specific groups, designed Group Exhibits B, F and J. In order to facilitate an immediate appeal under Supreme Court Rule 304(b), the defendants declined to comply with the court’s order and requested entry of a “friendly contempt.” The circuit court agreed and entered the contempt, fining the defendant $1.

The Fifth District affirmed the Circuit Court’s order in most respects. Group Exhibit F was a set of three applications for staff privileges, dated in 2009, 2010 and 2011. The Appellate Court rejected defendant’s claim that the 2011 application was irrelevant, since it dated after the allegedly negligent treatment of the plaintiff. The defendant argued that all three applications were privileged pursuant to the Data Collection Act, 410 ILCS 517/15(h), which prohibits “[a]ny redisclosure of credentials data contrary to this Section.” Citing the Medical Studies Act, the court held that when the legislature wishes to establish a new discovery privilege, it does not explicitly. The court declined to follow the First District’s decision in TTX Co. v. Whitley, where the Court held that a similar bar on production in the Illinois Income Tax Act privileged certain documents from discovery because it didn’t contain an exception for disclosure in judicial proceedings.

In the alternative, the defendant argued that even if Group Exhibit F wasn’t fully privileged, all references to findings in a report prepared about the defendant doctor by a medical consulting company must be redacted pursuant to the Medical Studies Act, 735 ILCS 5/8-2102. The consultants were retained by the hospital to conduct external peer reviews of its physicians. The court agreed that the data was privileged as being directly related to the hospital’s internal quality control process.

Next, the defendant argued that certain data contained in the defendant doctor’s applications for staff privileges was privileged pursuant to the Health Care Quality Improvement Act, 42 USC § 1137. The Act creates the NPDB, to which medical malpractice insurance carriers, boards of medical examiners and health care entities are required to report information regarding claims, disciplinary actions and other adverse information regarding a healthcare professional. The Act includes a sweeping confidentiality provision, but also provides that nothing in the Act should be construed as preventing disclosure by any person authorized under State law to do so (42 USC § 1137(b).] The Court held that this language eliminated any privilege, and the defendant was required to produce the information.

Next, the defendant argued that various pieces of information in the files relating to the treatment of other patients was non-discoverable pursuant to HIPAA, the Health Insurance Portability and Accountability Act (42 USC § 1320(d).) The Court disagreed on two grounds: first, much of the information did not involve individually identifiable health information, and second, the Act contained explicit provisions regarding disclosure in judicial proceedings. The Court also rejected the defendant’s argument that the defendant doctor’s assessment of his own physical condition was subject to the physician-patient privilege, holding that no independent physician’s assessment was involved.

Finally, the defendant argued that documents in Group Exhibit F containing a list of procedures performed by the defendant doctor over a four year period were privileged pursuant to the Medical Studies Act, 735 ILCS 5/8-2102. The Court acknowledged that any information generated by a hospital committee involved in internal quality control during the process of peer review would be privileged under the Act. However, the Court held that the defendant hospital had not provided sufficient information in its supporting affidavits to mandate a finding of privilege. According to the Court, the record did not enable it to rule out the possibility that the histories of procedures performed by the doctor weren’t kept in the ordinary course of the defendant hospital’s business.

Although the Court affirmed the lower court’s findings in nearly all respects, the Court nevertheless held that the defendant hospital’s refusal to produce was made in good faith, and not in contempt of the lower court’s authority. Accordingly, the Court vacated the finding of contempt.

We expect Klaine to be decided in eight to ten months.

Image courtesy of Flickr by Jasleen_Kaur.

Illinois Supreme Court Agrees to Decide Limits on Self-Insured Car Rental Company's Liability for Customers' Accidents

In the closing days of its November term, the Illinois Supreme Court agreed to decide an issue of considerable importance for Illinois’ car rental industry: can a self-insured car rental company be held liable without limitation for its customers’ accidents if the customer defaults?  In Nelson v. Artley, Division Two of the First District Appellate Court held that the answer is yes.

Nelson arises from an automobile accident involving a customer of the defendant. The circuit court entered a default judgment for $600,000 against the renter-driver of one car and in favor of the plaintiff. The plaintiff then began “citation” proceedings against the rental company, attempting to collect the entire judgment.

The rental company answered that its maximum liability for any accident of one of its renters was $100,000 pursuant to the rental agreement, case law and the Illinois Vehicle Code. Since it had already paid the other two injured parties $75,000 in connection with the accident, the rental company said its maximum liability was $25,000. The defendant attached a certificate of self-insurance and a copy of its rental agreement to the answer.

The plaintiff filed a petition for a turnover order against the rental company, seeking the full $600,000 plus interest and costs. The petition alleged that the rental company had represented in its certificate of self-insurance that it retained a risk of loss for third-party liability claims of up to $2 million per occurrence. The rental company responded by once again arguing that Illinois law limited its maximum per-accident exposure to $100,000, and in any case, to the extent that the Code permitted unlimited liability, it would be preempted by Federal law. The circuit court granted plaintiff’s petition, but limited the total amount to $25,000. The Appellate Court reversed.

The Vehicle Code provides that any car rental company operating in the state must provide proof of its financial responsibility. There are three ways to do so: file a bond, an insurance policy or a certificate of self-insurance issued by the Director of the Department of Insurance. A bond must be in the amount of $100,000, and conditioned on the rental company’s payment of any judgment against it arising from its renters’ accidents. A compliant insurance company must provide that the carrier will cover any accident involving one of the company’s cars, up to $50,000 for accidents involving one person, and $100,000 for accidents involving more than one.

Although Chapter 9 doesn’t specify the requirements for proof of financial responsibility for companies choosing to self-insure, there are relevant provisions in Chapter 7 of the Code. Chapter 7 provides that the Director may issue a certificate of self-insurance if the company demonstrates the ability to pay any judgment against it arising out of an accident involving a renter, and may cancel the certificate if it fails to pay such a judgment within 30 days. The court conceded that since no judgment had been entered against the rental company as a defendant for damages, the plain language of the Code didn’t appear to make the company liable for any part of the default judgment. But that was absurd, the Court found – that would mean that a self-insurer would have no potential liability, while other rental companies would be required to bear the burden of maintaining a bond or insurance policy.

The court turned to the mandatory insurance statutes covering vehicles in general for further guidance about the meaning of the Vehicle Code. The court noted that those statutes exempt certain vehicle owners from the requirement of mandatory coverage on each vehicle – owners carrying a certificate of self-insurance. Such entities are required to pay all judgments against it. The court then concluded that if a self-insurer under the mandatory vehicle insurance statutes must pay all judgments against it, self-insuring rental companies should bear a similar risk in conjunction with their customers.   If a rental company wishes to limit its liability under the Code, the Court wrote, it could carry an insurance policy or bond instead of self-insuring. By interpreting the Code to provide that a self-insuring rental company is potentially liable for its renters’ accidents without limitation, the Court concluded that it was also vindicating the legislative purpose of protecting the public from financially irresponsible drivers of rental cars. The Court acknowledged that companies choosing to post bonds or insurance policies potentially had significantly less exposure, but argued that this was intentional on the Legislature’s part – that the Legislature’s view was that bonds and insurance policies would provide a minimum level of protection, while those companies who were financially able would provide more through self-insurance.

The Court finally turned to the rental company’s argument that if the Vehicle Code provided for unlimited liability, it was preempted by federal law. The federal Graves Amendment (49 U.S.C. § 30106(a)) provides that a rental car company cannot be liable for harm to persons or property arising from the use, operation or possession of one of its vehicle if there is no negligence or criminal wrongdoing by the rental company. The court found no conflict between its holding and the Graves Amendment, holding that the only reason that the rental company was liable for its customers’ default judgments without limitation was that it had voluntarily chosen to be self-insured, rather than proving financial responsibility through posting an insurance policy or a bond.

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

Image courtesy of Flickr by Order_242.

Illinois Supreme Court Reaffirms Narrow Scope of Retaliatory Discharge Cause of Action

 

Last week, the Illinois Supreme Court reaffirmed the principle that retaliatory discharge is a narrow exception to the general doctrine of at-will employment under Illinois law. Unanimously reversing the Fifth District of the Appellate Court in Michael v. Precision Alliance Group, LLC, the Court held that where an employer chooses to give a valid, nonpretextual reason for an employee’s dismissal and the trier of fact believes it, the plaintiff has failed to prove causation and the plaintiff’s claim fails. Our detailed report on the underlying facts and lower court opinions in Michael is here. Our report on the oral argument is here.

The defendant in Michael grows, conditions, packages and distributes soybean seeds for commercial use. In late 2002, the defendant began experiencing a problem with underweight seed bags. After finding that an outgoing load was underweight, the defendant began randomly checking bags in the warehouse. In January 2003, the plaintiffs began weighing bags on their own, without the defendant’s knowledge, and reporting the results to a recently terminated employee. The recently terminated employee allegedly turned the data over to the Illinois Department of Agriculture.

Inspectors for the Department appeared at the plan in February 2003, resulting in five stop sale orders.   After the inspectors left, production was halted for 10 days while employees weighed every bag in the warehouse. Certain bags shipped prior to the Department’s inspection were returned to the warehouse, weighed and brought up to proper weight as well. During the Department’s inspection, an assistant plan manager began investigating the source of reports to the Department.

The following month, one of the three plaintiffs was terminated. The defendant testified that the terminated plaintiff had been engaged in horseplay with a forklift, although the plaintiff denied it. Not long after, the defendant’s corporate office decided to eliminate 22 positions across 8 holding companies. The remaining two plaintiffs were among the four employees at defendant’s plant selected for termination.

Based on evidence at trial that management staff was unaware that any of the plaintiffs were involved in the reports to the Department at the time of their terminations, the trial court entered judgment for the defendant. The trial court held that although a “causal nexus” existed between the plaintiffs’ protected activity and their termination, the presumption of retaliation was overcome by the defendants’ proof of a legitimate, non-pretextual reason for the terminations. The Fifth District reversed, holding that once the trial court found a “causal nexus” between the plaintiffs’ reports and their termination, causation was proven. Requiring the plaintiffs to prove that defendants’ articulated reasons for the termination were mere pretext amounted to asking the plaintiffs to disprove the defendants’ defenses.

In an opinion by Justice Burke, the Supreme Court reversed. The claim of retaliatory discharge had three elements, the Court wrote: (1) termination; (2) in retaliation for the plaintiff’s protected activities; and (3) the discharge violates a clear mandate of public policy. The employer is not required to give an alternative reason for the employee’s discharge, and merely articulating such a reason doesn’t defeat the claim. But if the employer suggests an alternative reason and the trier of fact believes it, then by definition causation can’t be proven, and the plaintiff’s claim fails.

The Appellate Court’s error actually stemmed from the trial court’s analysis, according to the Supreme Court. The trial court had applied a multi-factor analysis very similar to the test in Federal retaliatory discharge cases, where a finding of “causal nexus” is necessary to establish a prima facie case of discrimination. But the three-part Federal test didn’t apply under Illinois state law, the Court noted – therefore, “causal nexus” wasn’t the same as causation.

The plaintiff argued in the alternative that even if the trier of fact believed the defendants’ legitimate reasons for the discharge, plaintiff could still prevail for retaliatory discharge because there can be more than one proximate cause for the adverse employment action. The Court disagreed: once the trier of fact believes the defendant’s showing of an alternative reason, plaintiff’s case fails.

Image courtesy of Flickr by Starr Environmental.

 

Illinois Supreme Court Agrees to Decide Whether a Zoo is a "Local Public Entity"

The basic Illinois statute of limitations for personal injury actions is two years. But the Local Governmental and Governmental Employees Tort Immunity Act (745 ILCS 10/1-101) provides that for actions against a “local public entity,” the limitations period is one year.

In the closing days of its November term, the Illinois Supreme Court agreed to decide O’Toole v. The Chicago Zoological Society, which poses the question: is a zoo a “local public entity”?

O’Toole arises from a slip-and-fall at the zoo, in which the plaintiff sustained severe personal injuries. The defendant moved to dismiss on the grounds that the complaint was time-barred: it was filed nearly two years after the accident, long after the one-year statute under the Tort Immunity Act would have run, if it applied. The Circuit Court granted the motion to dismiss.

The First District, Division 4 unanimously reversed. The court notes that the term “local public entity” is broadly defined by the Tort Immunity Act to include “any not-for-profit corporation organized for the purpose of conducting public business.” Cases interpreting this phrase have required that “public business” be limited to activity that benefits the whole community, without restriction. The Supreme Court has held that a corporation does not conduct public business absent proof of local government control.

The court concluded that the Zoological Society was not engaged in conducting public business.  Although the Cook County Forest Preserve District owns the land on which the defendant’s zoo sits, it does not own the zoo itself or all of the property involved in operating it. More than 90% of the defendant zoo’s trustees and governing members were not employed by the District. Less than half the defendant’s funding was derived from District funds, and the District had no right to approve the defendant’s expenditures of that half of the budget. Furthermore, the defendant’s employees were neither entitled to a State pension or workers compensation; instead, the defendant was subject to OSHA guidelines. For all these reasons, although it conceded that a successful zoo was in the public interest, the court found that the defendant was not “conducting public business” sufficiently to be governed by the one-year statute of limitations.

We expect O’Toole to be decided in eight to ten months.

Image courtesy of Flickr by Tambako the Jaguar.

Illinois Supreme Court Agrees to Decide Whether Fees Must be Deducted From Health Care Settlements Before Applying Liens

In the final days of its November term, the Illinois Supreme Court allowed a petition for leave to appeal in McVey v. M.L.K. Enterprises, LLC. McVey, a case from the Fifth District, presents the following question: must attorneys’ fees and costs be deducted from a tort settlement before a lien under the Health Care Services Lien Act is paid?

McVey arose from an accident in a bar. The plaintiff settled her lawsuit with the employer of the tortfeasor. A petition to adjudicate liens was filed pursuant to the Illinois Health Care Services Lien Act by the hospital which treated the plaintiff. The trial court awarded the hospital $2,500, declining to deduct the plaintiff’s attorneys’ fees from the settlement before calculating the lien. In doing so, the trial court found that the Fifth District’s decision in Stanton v. Rea was in conflict with the Supreme Court’s decision one year before Stanton in Wendling v. Southern Illinois Hospital Services.

The Appellate Court reversed. The only distinction between Stanton and McVey, the Court wrote, was that Stanton involved a judgment entered after a jury verdict. But the Lien Act treated jury verdicts and settlements the same way, so that wasn’t a difference that made a difference.

According to the Stanton court, lienholders are limited to 40% of a judgment, and if lienholders receive 40%, then attorneys liens are limited to 30% of the judgment. Therefore, the court concluded, the legislature intended that tort plaintiffs receive at least 30% of the judgment. For that to be possible, attorneys’ fees had to be deducted from the judgment before applying the health care liens. The Court found that Stanton required reversal in McVey.

As for the trial court’s view that Stanton was in conflict with McVey, the court pointed out that it had addressed that argument in Stanton itself, concluding that Wendling was about the common fund doctrine rather than the Act. The Court found that its original rationale was still valid. The hospital also pointed to a new section of the Act, effective January 1, 2013, which allegedly found that fees are not to be deducted from subrogation claims. The Court held that given that no subrogation was involved in McVey, the new section didn’t apply.

We expect McVey to be decided in eight to ten months.

Image courtesy of Flickr by Lydia

Illinois Supreme Court Agrees to Decide Whether Failing to Give Reasons in Order on Sanctions Motion is Reversible Error

In the closing days of its November term, the Illinois Supreme Court agreed to decide a simple issue with potential implications across a wide variety of civil litigation: is a trial court’s order granting or denying sanctions under Supreme Court Rule 137 per se reversible error when it fails to include reasons for the trial court’s action? The case is Lake Environmental, Inc. v. Arnold, and the Fifth District’s answer to the question presented was “yes.”

Lake Environmental arises from an administrative order revoking the plaintiff’s license as an asbestos contractor. During that proceeding, the Illinois Department of Public Health filed a complaint seeking civil penalties and injunctive relief. The plaintiff filed a petition for administrative review in Circuit Court of the administrative ruling of revocation. The trial court reversed the license revocation and remanded for consideration of whether the plaintiff’s license should be suspended or revoked. Subsequently, the plaintiff filed a motion for sanctions under Supreme Court Rule 137, which is (more or less) Illinois’ state-law version of Federal Rule 11. The trial court denied the motion in a one-sentence order which included no explanation.

The Appellate Court reversed. The Court chose to follow a line of decisions from the Second District holding that a trial court “must provide specific reasons for his or her ruling, regardless of whether sanctions are granted or denied.” The Court held that without an explanation for why the trial court ruled as it did, it would be unable to evaluate the court’s action, and the Court declined to infer the basis for the trial court’s order. The Court rejected scattered decisions from other Districts which the defendant argued stood for the proposition that an explanation of reasons is merely preferred practice, as opposed to being a requirement.

We expect Lake Environmental to be decided in eight to ten months.

Image courtesy of Flickr by Liz West.

Illinois Supreme Court Finds All Postal Marks are Not Created Equal

On Thursday morning, a unanimous Illinois Supreme Court affirmed in Huber v. American Accounting AssociationAs briefed, Huber presented the question of whether a postmark was sufficient proof of timely mailing to trigger Illinois’ limited mailbox rule. But in the end, in an opinion by Justice Mary Jane Theis, the Court held that the plaintiff didn’t have the prerequisite to present that question: a postmark. Our detailed summary of the facts and underlying court decisions in Huber is here Our report on the oral argument is here.

The clerk received the plaintiff’s Notice of Appeal on April 9, thirty-four days after entry of judgment. The envelope in which the Notice of Appeal arrived appeared to show a postmark date of April 3 – twenty-seven days after entry of judgment. According to Rule 373, if received after the due date, the time of mailing is deemed to be the time of filing as long as proof of mailing is made pursuant to Rule 12(b)(3). Rule 12(b)(3) provides that an attorney certificate or affidavit of a non-attorney is required to prove mailing. The Appellate Court held that because the plaintiff failed to provide proof of mailing pursuant to Rule 12(b)(3), the mailbox rule didn’t apply and the plaintiff’s Notice of Appeal was untimely.

The Supreme Court affirmed. The Court noted that as originally adopted in 1967, Rule 373 has allowed proof of mailing by a postal service postmark. As a result of illegible postmarks and delays in affixing postmarks, the reference to postmarks was deleted from the Rule in 1981, substituting the requirement of an attorney certificate or non-attorney affidavit.

The problem, the Court held, was plaintiff’s mailing envelope didn’t contain a postmark. The Court defined a postmark as an official Postal Service imprint reflecting the location and date the Postal Service assumed control of the piece, and cancelling the affixed postage. What the plaintiff called a postmark was in fact a postage label from an Automated Postal Center (APC). An APC is a self-service kiosk, generally located in post office lobbies, which enables customers to mail letter and packages, buy postage, look up zip codes and access assorted other services. But the APC label is not a “postmark,” the Court found – on its face it shows a “date of sale,” not the date on which the piece was turned over to the postal service and the postage cancelled. Thus, it doesn’t matter if Rules 373 and 12(b)(3) might permit proof of mailing by a legible postmark, since plaintiff didn’t have one – the APC label indicated that the plaintiff might have mailed his envelope on April 3, but nothing more. Since plaintiff neither provided the certificate or affidavit required by Rule 12(b)(3) or even a valid postmark, the mailbox rule didn’t apply, and his notice of appeal was untimely. Therefore, the judgment was affirmed.   

Image courtesy of Flickr by Wystan.

Illinois Supreme Court Reinstates Attorney General's Appeal from Illinois Commerce Commission Order

On Thursday morning, the Illinois Supreme Court resolved a confused issue in utilities law, holding unanimously in The People of the State of Illinois ex rel. Madigan v. Illinois Commerce Commission that the 35-day period provided by the Public Utilities Act (220 ILCS 5/10-201(a)) to appeal from orders of the Illinois Commerce Commission trumped the thirty-day period provided by Supreme Court Rule 335(i)(1) for administrative appeals. Our detailed summary of the underlying facts and lower court opinions is here. Our report on the oral argument is here.

Madigan arises from a decision of the Illinois Commerce Commission 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 appealed both aspects of the Commission’s decision.

The Attorney General filed the State’s notice of appeal thirty-five days after the Commission issued its order. As such, it was timely pursuant to Section 10-201(a) of the Public Utilities Act, but untimely if Supreme Court Rule 335 applied. The Appellate Court dismissed.

In a unanimous opinion by Justice Lloyd Karmeier, the Supreme Court reversed. The Court said that review of ICC decisions is pursuant to “special statutory jurisdiction.” An appellate court has no power with respect to an administrative decision aside from the provisions of the governing statute - strict compliance is required. Accordingly, the Attorney General’s appeal was governed by the Act, not the Court’s own rules. While it was true that the Court has concurrent constitutional authority with the General Assembly to decide on rules for administrative review, the Court’s rules govern judicial review only in the absence of express contrary directions from the legislature. That conclusion necessarily followed from the principles (and limitations) inherent in special statutory jurisdiction.

Image courtesy of Flickr by H. Michael Karshis.

Illinois Supreme Court Holds Circuit Court Lacks Jurisdiction over Whistleblower Rate Challenge

State of Illinois ex rel. Pusateri v. The Peoples Gas Light and Coke Company presented an important question for the utilities bar: do the Circuit Courts have jurisdiction to order rate refunds on the grounds that the utility allegedly used falsified information in support of its rate case? On Thursday morning, a unanimous Illinois Supreme Court answered “No.” Our detailed summary of the underlying facts and lower court opinions in Pusateri is here. Our report on the oral argument is here.

Plaintiff filed a sealed complaint under what was then called the Whistleblower Reward and Protection Act (it’s now the Illinois False Claims Act) in 2009. The plaintiff – a former management-level employee of the defendant - alleged that the defendant was required to file a written report with the Illinois Commerce Commission whenever it took more than an hour to respond to a report of a gas leak. The plaintiff claimed that he and others had been instructed to falsify the reports to bring response times down below the threshold, and that the defendant had used this exaggerated record to support a rate case (as the Supreme Court noted, the complaint was never clear as to which rate case). The plaintiff alleged that after the rate increase was approved, the invoices sent by the defendant to the State as a gas customer were fraudulent claims for payment under the Act.

The Circuit Court dismissed, holding that the ICC apparently doesn’t consult the reports in rate making. The Appellate Court reversed with one Justice dissenting, finding that the reports could indeed have been part of the basis for a rate case.

In an opinion by Chief Justice Garman, the Supreme Court unanimously reversed. The matter was ultimately a simple one, the Court held. The ICC had exclusive jurisdiction over ratemaking, which is a legislative function, not a judicial one. Even when the courts reverse a ratemaking order, the court ordinarily doesn’t mandate a new rate, and where the new rate hasn’t been stayed pending appeal, ratepayers are often not entitled to a refund. “At its heart,” the Court found, “Pusateri’s complaint alleges [the defendant] used fraudulent means to get the State (and others) to pay too much for natural gas.” That made it a request for refunds, and only one entity in the State has original jurisdiction to order such relief – the ICC.

Moreover, the complaint amounted to a prohibited collateral attack on ICC ratemaking orders. In order to give the plaintiff any relief, the trial court would have had to determine what rates would have been absent the allegedly fraudulent safety reports, and ratemaking authority is statutorily reserved to the ICC alone. The plaintiff argued that the defendant had forfeited the jurisdictional argument by failing to raise it below, but the Court held that attacks on subject matter jurisdiction can’t be waived.

Plaintiff’s interpretation of the False Claims Act would “invite the circuit court to review a Commission rate order collaterally, in the absence of any specific grant of jurisdiction and less deferentially than the manner prescribed under the Public Utilities Act,” the Court concluded.

Image courtesy of Flickr by Steven Depolo

Much Ado About Little: Deadlocked Illinois Supreme Court Punts on Red Light Camera Ordinances

 

One of the most widely anticipated cases on the Illinois Supreme Court’s civil docket ended on Thursday morning with a surprise: the Court decided not to decide, dismissing the appeal in a per curiam order.

Keating v. City of Chicago was a constitutional challenge to the validity of Chicago’s red light camera ordinance. Our detailed report on the underlying facts and lower court orders is here. Our report on the oral argument is here.

Article VI, Section 3 of the Illinois Constitution requires that the Supreme Court must have the concurrence of four Justices in order to hand down a decision in any case. The problem in Keating was that by the time of the decision, two Justices, Justice Anne Burke and Justice Lloyd Karmeier, had recused themselves, leaving a five-Justice Court. And the remaining Justices were split on the case three to two. So the Court did the only thing it could – it tossed the appeal.

Although deadlocks are relatively rare, they’re not unheard of at the Court. The most recent one on the Court’s civil docket was Vill v. Industrial Commission in 2005. There were two more in 2004, South 51 Development Corp. v. Vega and Commerce Bank v. Youth Services of Mid-Illinois.

Nevertheless, the non-result in Keating raises the question of whether Illinois should have a mechanism available to appoint pro tem Justices when one or more Justices have recused themselves. In California, Article VI, Section 6 of the state Constitution provides such a mechanism – the Chief Justice is empowered to reassign Court of Appeal Justices to the Supreme Court as pro tems. The Court maintains a list of active Court of Appeal Justices, and pro tem appointments rotate alphabetically, each Justice sitting for one case. It’s a familiar system in California; since the Governor appoints new Justices when one retires, vacancies are not especially rare (indeed, Justice Joyce Kennard retired in April and no replacement has been nominated).

So, readers – do you think Illinois should have a similar system? Should single-case vacancies be filled in some other way? Or is the current system for the best?    

Image courtesy of Flickr by R/DV/RS.

 

The Perils of Incomplete Service: The Illinois Supreme Court Debates Bettis v. Marsaglia

During its September term, the Illinois Supreme Court heard oral argument in Bettis v. Marsaglia. Bettis presents an issue of potential significance to election lawyers: is a petition for Circuit Court review from an Electoral Board decision which isn’t served on the Board itself procedurally defective? Our detailed summary of the facts and lower court rulings in Bettis Is here.

Bettis arose from a proposed ballot proposition regarding the School District’s issuance of working cash bonds. Objections were filed, alleging that the plaintiff’s petitions were unnumbered and improperly bound. The Electoral Board agreed, and the plaintiff filed a petition for review in the Circuit Court.

The plaintiffs served every individual member of the Electoral Board, plus the two objectors. The problem was, they didn’t serve the Electoral Board as a separate entity. The defendants moved to dismiss for lack of jurisdiction, and the Circuit Court agreed.

Bettis turns on 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” and “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 districts of the Appellate Court are split on whether the statute requires service on the Electoral Board as an entity, or if service on all the members is enough. In Bettis, the Fourth District followed the First District’s view that the statute requires service on the Board and affirmed dismissal.

Counsel for the plaintiff began the Supreme Court argument. He argued that the purpose of the statute is to let the board know that the party has filed a petition for review, since the board must prepare the record. Plaintiff served every member of the Board by registered mail – plus the School Board, the superintendent, the secretary of the board, the secretary of the school district and the objectors to boot. Chief Justice Garman asked whether the case was moot. Counsel pointed out that although the election was in 2013, the plaintiff had asked that it be reviewed as a recurring issue of great interest. Justice Thomas asked whether the plaintiff was asking for any particular relief beyond an opinion saying that the lower courts were wrong. Counsel said he wanted a declaration that service on the individuals was sufficient. Without that, the Board can probably proceed to issue the bonds. If the plaintiff wins at the Supreme Court, the case goes back to the trial court for review of the Electoral Board’s decision. If not, the Board can proceed with the bonds without the voters’ involvement. Justice Burke wondered why, if service on the Board wasn’t mandatory, the legislature wouldn’t have said service on the members of the Electoral Board. Counsel responded that in fact, the Electoral Board doesn’t have an address or phone number. Justice Burke asked counsel whether he was arguing that compliance with the statute was an impossibility. Counsel answered that he wouldn’t know where to mail it to. Moreover, he pointed out, the statute doesn’t refer to the board as a legal entity – it uses lower case initial letters, rather than a proper noun. Justice Theis asked whether the statute was ambiguous, and if so, why? Counsel answered that he believed the reference to the board means the members, and the Fifth District has agreed. Justice Theis suggested that the plain language says service on the Board, and once again, asked whether and how the statute was ambiguous. Counsel answered that whether or not the statute is ambiguous depends on what the reference to the board requires, and whether service on all members is enough. Justice Burke pointed out that the plaintiff was arguing that it was impossible to serve the board, and counsel again argued that the board has no address. Justice Theis asked whether the clerk receives filings for the board, and counsel responded that the superintendent was listed as the person to file petitions with to get on the ballot – which is what plaintiff did. Justice Theis asked counsel whether he was saying the entire statute was ambiguous because it doesn’t give an address for the board? Counsel explained that the Fifth District held that service on the members was sufficient because the board before it had no address, and the court believed it would be useless to serve the county clerk in the board’s stead. Chief Justice Garman pointed out that issues involving notice or service typically revolve around strict or substantial compliance. Was counsel arguing that that’s not the question in Bettis, or was the plaintiff arguing impossibility? Counsel explained that in Cook County, some agencies have fixed offices. In southern Illinois, that typically isn’t the case. The purpose of the statute is to ensure that the board has notice, and that was done – they actually prepared the record, their only function in the administrative review case.   Justice Thomas suggested that counsel was arguing issues from the cross-appeal even though he had not filed a brief in the cross-appeal – had counsel thereby waived the right to argue on those issues? Counsel answered that the plaintiff was precluded from presenting testimony, and therefore the plaintiff doesn’t have a complete record from the Board to fully present her arguments. Justice Thomas suggested that the plaintiff certainly had a right to file a reply brief to respond to the cross-appeal issues. Counsel answered that since the plaintiff had moved to strike those issues at the Appellate Court, and the Appellate Court ultimately didn’t reach them, he didn’t think it was appropriate to brief the issues. The only issue considered by the Appellate Court was adequate service.

Counsel for the Electoral Board members followed. He argued that the members were seeking finality. Counsel told the Court he was present at the trial court, and had he wanted to file the record, he would have had to first move for leave to intervene, since the Board wasn’t a named party either. Counsel argued that it simply isn’t true that the Electoral Board has no mailing address – the address is provided in the Election Code as being the regular meeting place of the school board. Justice Thomas noted that some courts have suggested that the statute requires service on both the Board and all individual members, and asked counsel to point to language in the statute requiring that. Counsel answered that the Administrative Review Law provides the procedure, and it’s fundamental that all members of the agency are parties to the order under review. Justice Thomas said that Section 10-10.1 requires service on the Electoral Board, and Section 10-9.5 defines what the Electoral Board is; it defines the Board as its several individual members. So why can’t that definition be read into Section 10-10.1, leading to the view that service on the members is service on the Board? Counsel answered that the Board is a separate entity from its members. Justice Thomas suggested that the Board here isn’t a permanent entity like the State Board of Elections is. These boards are formed temporarily to resolve disputes, and the statute spells out who serves. So if there are two reasonable interpretations of the statute, why shouldn’t the Court err on the side of ballot access? Counsel answered that the ballot access principle was about candidates seeking to get on the ballot – it had never been applied to referenda. Justice Kilbride asked whether the Administrative Review Law was applicable here. Counsel agreed it was, and Justice Kilbride asked whether the Administrative Review Law settled the issue – in Section 3-106 and 3-105, it says that service on the director or agency head is service on a board, and failure to serve is not a basis for dismissal. Justice Kilbride asked whether the chair of the board was served, and counsel said yes, and his home address. Justice Kilbride asked how the chair was referenced in the pleadings, and counsel answered by name, nothing more. Justice Burke asked whether counsel was elevating form over substance – all parties were served and had notice. Where did the statute require that all members be named in the caption? Counsel answered that the only requirement of the statute was to recognize the board as a separate entity. If service at a member’s home address is sufficient, it allows petitioners to ignore the Board’s separate existence.   Justice Burke asked whether counsel was saying the members didn’t know this was an Electoral Board case. Counsel responded that there’s a difference between notice that a lawsuit has been filed, and notice that that party is a defendant. Justice Theis asked whether the individual members of the Board appeared below, and counsel answered that they had not in the trial court, but had in the Appellate Court. Justice Theis asked who counsel represented, and counsel answered the Board and the individual members. Counsel said he wasn’t arguing that the caption of the case had to be a certain way. Justice Thomas said regarding the issue of the Board’s decision not being attached, and the petitions not numbered – did the Appellate Court address that issue? Counsel said no. Justice Thomas asked whether there is enough in the record for the Court to grant relief on that basis. Counsel argued that either issue – the failure to attach the decision (an argument the Appellate Court rejected) or the pagination issue – was an alternative grounds for affirmance. As for attaching the decision, counsel argued that it’s elementary that a complaint based on an instrument must attach that instrument. Justice Thomas asked whether the Court should allow opposing counsel to disagree with him on rebuttal. Counsel answered that he hadn’t researched the issue of failing to file a reply brief, but that was one way the Court could go. Ultimately, the case was delaying the issuance of needed school bonds, and the appellant made no attempt to expedite the case. Counsel argued that the Court should decline to apply the recurring issue of public concern doctrine and instead dismiss on grounds of mootness. Justice Thomas asked if the Court disagreed on the issues counsel has argued, what happens next. Counsel responded that the defendant should be permitted to move to dismiss for mootness at the trial court, and the motion should be granted. A petition for a referendum is valid for no other election, so there is no relief available here. Counsel concluded by arguing that the Election Code includes a mandatory requirement that petitions be numbered consecutively, and the plaintiff’s failure to do so invalidated her petition.

On rebuttal, counsel for the plaintiff argued that after the trial court, the only option available to the plaintiff was appeal. Plaintiff did appeal, and the election date passed. The plaintiff shouldn’t be penalized because the election date passed while she was exercising her rights – the mootness doctrine wasn’t designed to work that way. Justice Thomas asked if counsel had the option of moving to expedite the proceedings. Counsel answered that the defendant made a motion to expedite, and the plaintiff stipulated to it. Justice Thomas asked why the plaintiff failure to attach the decision of the Board shouldn’t be dispositive. Counsel answered that the Board had only one function – to prepare the record and give it to the trial court. Justice Thomas asked whether there was a written decision that could have been attached to the petition. Counsel once again argued that the Electoral Board is not a corporate entity – its only responsibility is to prepare the record, and the Board doesn’t have to appear or file an answer. With respect to numbering the pages of the petitions, there are cases from the Fourth and First District holding that the requirement is directory, not mandatory. Justice Theis asked whether there were decisions from the Supreme Court so holding, and counsel said only the Appellate Court. As for opposing counsel’s statement that the Board had an address, the plaintiff served every conceivable actor involved. Chief Justice Garman asked counsel what effect the passing of the election had on his case. Counsel answered that the trial court could open the way to issuing the bonds if the plaintiff lost, and if the plaintiff won, the court could return matters to square one.

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

Image courtesy of Flickr by Kristin_a.

Illinois Supreme Court Debates Constitutional Challenge to Rental Housing Support Program

During its September term, the Illinois Supreme Court heard oral arguments in Marks v. Vanderventer, a direct appeal from the Circuit Court after the court’s order finding the fee collection provisions of a “Rental Housing Support Program” unconstitutional.

Plaintiff sued the Recorder of Deeds in Lake County, seeking a declaratory judgment holding that the 55 ILCS 5/3-5018 was unconstitutional. The statute imposes a $10 fee on every recording of a real estate document - $9 goes to the Rental Housing Support Program, and $1 is retained by the county Recorder of Deeds. The plaintiffs argued that the statute established a “Fee Office” within the meaning of Article VII, Section 9 of the Illinois Constitution. When the Circuit Court held that the statute was unconstitutional, the case went straight to the Supreme Court.

Counsel for the Attorney General began the argument. He argued that the Housing Support Program itself predated the challenged amendments; what the plaintiffs were really arguing was that allowing the counties to retain $1 of each fee amounted to an improper skimming. Not so, he argued – skimming only arises when parties take money intended for another purpose. In fact, the statute creates two surcharges under a single name. Until the statute was amended, $9 went to the State (specifically the housing development authority), and $1 was retained at the county level for general revenue. Justice Burke asked whether there was a rational basis for imposing a charge for recording real estate documents to fund a housing program. Counsel responded that the legislature had found a lack of affordable quality rental housing in the state as a result of vacancies and turnover. Chief Justice Garman asked about the fact that the surcharge isn’t paid by all real estate owners, but only by those who record documents from a sale. Counsel answered that the legislature doesn’t have to be perfect in drawing the class. The rational link between recording documents – thereby showing that the party has benefited from increasing real estate values – and the fee. Justice Burke asked whether there was any proof the legislature relied on such evidence. Counsel answered that the legislature had made findings, even though it wasn’t required to. Justice Freeman pointed out that Supreme Court Rule 40 authorizes imposing a fee for each civil ceremony performed. Justice Freeman has twice opined in dissents that Rule 40 is unconstitutional. How did counsel distinguish this program? Counsel answered a legislative act is subjected to a different analysis. Marriage license fees implicate distinct constitutional concerns, and the Court has recognized that in its decisions.

Counsel for the Cook County Recorder of Deeds was next. Counsel agreed with the Attorney General’s arguments on constitutionality. Counsel wanted to talk about the lower court’s failure to dismiss pursuant to the Tort Immunity Act and the voluntary payment doctrine. In addition, the court had disregarded Illinois law on class certification, certifying a class action without notice. Justice Thomas asked whether the Recorder was endorsing the view that the Court should reach the constitutional issues. Counsel responded that in fact, the lower court never should have reached the constitutional issues; the procedural issues are dispositive. But if the Court does reach the constitutional issues, the statute is constitutional. Justice Thomas pointed out that the Court has the doctrine of constitutional avoidance, pursuant to which constitutional issues aren’t decided unless absolutely necessary – so what was the Recorder asking the Court to do? Counsel said that the Court should vacate class certification, since none of the Recorders outside Cook County had a meaningful opportunity to participate in the case. Justice Thomas asked whether counsel was asking the Court to vacate the Circuit Court’s finding that the statute was unconstitutional and remand for consideration of the non-constitutional arguments. Counsel answered that the Court should vacate and remand with instructions to dismiss pursuant to the voluntary payment doctrine. Justice Thomas suggested that it seemed somewhat contradictory to resolve the constitutional issues and remand for consideration of the non-constitutional ones. Counsel answered that the Court should dismiss on non-constitutional grounds, but if the Court reached the constitutional challenge, the statute easily passed muster. The class certification order ignored the requirements of the statute – for example, there was no notice or allowance for opt out, nor was there any discussion of the prerequisites for a class. The court failed to discuss venue, or whether the counties were similarly situated. Moreover, the voluntary payment doctrine, pursuant to which the only taxes or fees which can be challenged are those paid under compulsion, barred the whole claim. Finally, given that the plaintiffs chose to plead their action in tort, the Tort Immunity Act bars the claim. Justice Kilbride asked whether there was a single fee, or whether it’s itemized so that the party can see where the money is going? Counsel answered that the plaintiffs pled no facts on that issue. The deed involved in the case, which was first entered in the record when it was attached to the plaintiff’s opening brief, showed that the $10 fee was itemized, with $9 listed as going to the Illinois Rental Housing Fund.

Counsel for the plaintiff followed. He argued that 101 of the 102 counties in Illinois had intervened and participated – only Cook County’s Recorder of Deeds had remained on the sidelines. Everybody had been given notice and an opportunity to participate. Furthermore, the Recorder’s objection based on the voluntary payment doctrine could have been ironed out below if the Cook County Recorder had participated. Justice Thomas asked what the legislature’s rationale was for placing the burden only on persons recording real estate documents, as opposed to all real estate owners. Counsel responded that in the 2010 version of the statute, the legislature made no findings at all. But for the 2013 version, the lawyers passed along to the legislature the arguments they had made, and the legislature incorporated those findings. Chief Justice Garman asked whether the plaintiff was challenging the 2010 or 2013 version of the statute. Counsel answered that the 2013 amendments had only been effective going forward. The amendments just changed the nature of the surcharge, removing the statement that the $1 retained by the county was a fee for administering the program. But the question remained, what should be done about the people who paid that fee for three years? Counsel argued that the defendants were saying the Court was bound by the legislature’s findings, but such a rule, applied here, would leave the uniformity clause with no teeth. Counsel argued that there was no rational basis for taxing a limited group for the benefit of a different and larger one. There was no basis for putting this burden not on landowners in general, but on those choosing to register a real estate document in any given year.

The Attorney General’s rebuttal was next. Counsel argued that while there was no need for findings to survive the rational basis test, now that the legislature had made findings, they were entitled to deference. Counsel argued that the $1 was intended for the counties all along, but if the Court concludes that it amounts to improperly skimming, then the fee has to be forwarded to the State. Counsel argued that given that the $1 surcharge has been eliminated, that part of the case is moot. Justice Thomas asked counsel to comment on how the Court should handle the constitutional versus the nonconstitutional issues. The Attorney General answered that the State agrees with the Cook County Recorder. One way to avoid the constitutional issues entirely is to throw out the case based on the voluntary payment doctrine. Justice Thomas pointed out that the constitutional issue was actually raised by the intervenor, not any of the original parties, even though the case was accepted for resolution of the constitutional issue, and counsel agreed.

Counsel for the Cook County Recorder of Deeds concluded the argument. Counsel argued that the Court was free to review any issue or order before the final judgment of unconstitutionality. Yes, Cook County had notice of the suit, counsel argued, but it’s the timing that’s important. The Cook County Recorder first received notice of the suit after the class had been certified and the statute struck down – there was no opportunity to meaningfully participate. Further, even if the plaintiff now wants to recast the claim as one for restitution, not tort, counsel argued that the voluntary payment doctrine still applies. Counsel concluded by asking the Court to vacate both the class certification order and the finding of unconstitutionality.

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

Image courtesy of Flickr by Michael D. Beckwith.

Postal Meters vs. Postmarks: Illinois Supreme Court Debates Huber v. American Accounting Association

So what’s the difference between a private postal meter, a postage label purchased at a postal service kiosk, and a postmarked stamp? The Illinois Supreme Court debated these issues with much at stake in the closing days of the September term in Huber v. American Accounting Association. The question presented in Huber is what proof of timely filing means that a notice of appeal is timely filed? Our detailed summary of the facts and underlying court decisions in Huber is here.

The plaintiff’s petition to dissolve the 1935 Association, vacate the dissolution of the 2002 Association and then judicially dissolve the 2002 Association was dismissed. The plaintiff appealed, but the defendant raised a preliminary challenge: was the plaintiff’s Notice of Appeal timely filed?

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

Illinois Supreme Court Rule 373 is a modified mailbox rule: if received after the due date, the time of mailing is deemed to be the time of filing as long as proof of mailing is provided pursuant to Rule 12(b)(3). Rule 12(b)(3) provides that an attorney certificate or affidavit of a non-attorney is required to prove mailing.

The plaintiff’s Notice of Appeal didn’t include a Rule 12(b)(3) certificate or non-attorney affidavit. The Court of Appeal held that Rule 373 required strict compliance, and since the plaintiff hadn’t complied with Rule 12(b)(3), the Notice of Appeal was untimely.

The pro se plaintiff began the oral argument. Justice Theis pointed out that the envelope in which the Notice of Appeal had arrived was in the record. It has a bar code in the upper right hand corner and a notation of “date of sale,” with a note on the side reading “APC.” Justice Theis said that apparently, “APC” was a self-serve kiosk for customers to buy stamps. Justice Theis asked counsel how the postage strip from the kiosk could be called a postmark. Plaintiff responded that the postage had been issued by the post office on the date stamped on it; a customer goes to the post office, pays, gets a postmark label, puts it on the envelope and puts it in the mail. Justice Theis asked plaintiff whether he was saying that the APC strip was a postmark. Plaintiff answered that it was not a postal stamp, but it was a label issued by the postal service. Justice Theis asked whether the APC strip showed the date of sale, and plaintiff said yes. Justice Theis asked whether the APC strip told us anything about when the letter was mailed. Plaintiff answered that the envelope was mailed on the date of sale. Justice Theis pointed out that just because the APC strip was purchased on the third, why couldn’t it have been mailed on the fifth? Plaintiff answered that one could say that about any postal label. Justice Theis suggested that Rule 373 is about bringing clarity to the mailbox rule, so that a person can tell whether or not there is compliance with the date of filing requirement. Plaintiff had argued that the record showed a clear postmark, but Justice Theis wondered whether it really was. Before plaintiff could audibly answer, Justice Kilbride pointed out that he had never experienced anything other than the clerk taking the label and put it on the envelope and tossed it in the bin for processing. He wondered whether we knew of record what happened here. Plaintiff acknowledged that he didn’t have an affidavit from the post office. Justice Thomas responded that the question wasn’t an affidavit from the post office. He suggested it was possible that a person could put the kiosk sticker on an envelope and then wind up taking it home unmailed. But that’s not what typically happens. Plaintiff responded that he had never heard of the postal service accepting a piece of mail to which an APC strip had been affixed already. Justice Theis pointed out that the rule said a certificate of mailing, but there was none here. Plaintiff responded that the record reflected a postal service-issued postmark label. Chief Justice Garman asked whether the case turned on whether the postmark was legible or not. Plaintiff said it did; the rule was adopted to address cases with no postmark or an illegible postmark. Justice Burke asked whether the legibility of the postmark was an appropriate distinction, since legibility isn’t in the control of the party. Plaintiff responded that limiting the rule to postal service marks solved the problem; a private postal meter mark can be manipulated, but a postal mark can’t. The Chief Justice pointed out that if jurisdiction rose or fell on legibility, no one can count on having perfected his or her appeal. Counsel answered that if something in the record establishes the date of mailing, it establishes jurisdiction. Counsel argued that the rule required affidavits which by definition – since they swear to something the serving party hasn’t done yet – aren’t true. Justice Karmeier pointed out that the plaintiff had said at the outset that he left the affidavit in the printer – so he had done what was supposedly physically impossible. Plaintiff argued that because the affidavit swears to acts still in the future, it is by definition swearing to something physically impossible. Counsel argued that the defendant had merely argued that everyone files such affidavits – not that the affidavits are in fact true. Plaintiff argued that the rule invites manipulation, since anyone could sign the affidavit and then put the service copy on his or her desk for a time. What provides better objective evidence of mailing, plaintiff asked, a self-serving affidavit, or a legible postmark? Justice Thomas cited plaintiff’s alternative argument – that Rule 12(c) service is complete four days after mailing, so by definition, service is complete four days after mailing. Counsel answered that the notice was stamped received on the 9th – four days before that was the 5th, which was within the deadline. Thus, the stamp categorically proves that the notice of appeal was filed on the 5th. Justice Burke suggested that the stamp doesn’t prove mailing – what if the envelope doesn’t arrive? Plaintiff responded that that would mean it was mailed the 5th or earlier. Justice Thomas pointed out that some mail turns around in a day or two – it could have been mailed on the 8th. That wasn’t likely when the Notice was mailed from Miami, plaintiff answered. Justice Thomas responded that still, delivery doesn’t necessarily take four days – it could be two or three. Plaintiff answered that given that the rule says four days, one has to assume that’s right. Justice Theis asked whether a certificate of mailing would take care of all these issues. Plaintiff answered that signing an affidavit doesn’t make it true.

Counsel for the defendant followed up. Justice Thomas suggested that while the value of strict compliance was clear, there was something appealing about saying if a party has a valid postmark, why is that not better evidence of the date of filing than an affidavit which is subject to manipulation. Counsel answered that legibility and late affixing of a postmark were two reasons for removing the postmark from the rule in 1981. Admittedly, a government postmark is more reliable than a private meter postmark, but things do happen. Counsel argued that the mailbox rule is not a harsh standard, it’s a relaxing of the ordinary requirement. Counsel was not arguing for strict compliance, he said. There were several examples in the law of substantial compliance, but this case didn’t even reflect that much. Rule 12(b)(3) – a one page affidavit or a certificate of service – wasn’t a high bar. Counsel wondered why, if the plaintiff had left the affidavit in the copy machine, why hadn’t he filed a motion under Rule 303(d) to file late for cause? If counsel didn’t know about the mailbox rule, why didn’t he overnight the notice of appeal? Counsel suggested that like a private postal meter label, the kiosk label merely proves purchase of the postage, not date of mailing. Justice Kilbride asked what the notation under the address and to the left of the received mark in the record was. Counsel answered a zip code. Justice Karmeier asked whether the purchaser typically gets the envelope at a kiosk and takes it to a kiosk. Counsel agreed that was right. So we have no knowledge as to whether the envelope was mailed the same day, Justice Karmeier asked. That’s right, counsel answered. The Chief Justice asked counsel to respond to plaintiff’s argument that compliance with the affidavit requirement was impossible. Counsel responded that the affidavit was admittedly forward-looking, but it had been used in courts for years. Parties place themselves at serious risk by giving false affidavits. The difference between buying postage at the desk and at a self-serve kiosk is that when postage is bought at the desk, postal service rules bar employees from returning an envelope to the customer unmailed. Counsel concluded by again insisting that the mailbox rule is itself a relaxation of the ordinary rule. The plaintiff’s argument amounted to suggesting that the savings clause needed a savings clause. The Notice of Appeal here was four days late, so the mailbox rule was not triggered.

In rebuttal, the plaintiff explained that the affidavit wasn’t late-filed because he didn’t know it wasn’t included until the motion to dismiss. It was easy to lie in an affidavit, counsel argued again – providing an affidavit didn’t make it true. Nothing in the argument proved that the notice of appeal hadn’t been mailed on the day the mailing strip was issued – there was no way the date of purchase and date of mailing weren’t the same. Justice Thomas suggested that there was a way that the package wasn’t mailed the date of purchase. Counsel answered that that was just as possible as saying something in an affidavit and then not mailing it. Justice Theis suggested that the case was about the best evidence of mailing. The notice of appeal in the record didn’t have a cancellation date on it. Plaintiff responded that it had the date of issue by the postal service, and that’s sufficient to prove the date of mailing.

Image courtesy of Flickr by J.D. Thomas.

Illinois Supreme Court Debates Revenue Decoupling in Utility Ratemaking

During its September term, the Illinois Supreme Court debated an issue of considerable importance to the State’s utilities. People ex rel. Madigan v. Illinois Commerce Commission is a challenge brought by the Attorney General to volume-balancing-adjustment (“VBA”) riders to approved natural gas rate schedules. Our detailed summary of the underlying facts and opinions in Madigan is here.

Utility ratemaking is largely an exercise in forecasting the future – what loads are likely to be, what the weather will be like, population changes, energy efficiency and so on. When assumptions go astray – which they almost always do, at least to some degree – rates are off what they “should” be. Certain customers might wind up overpaying or underpaying what they theoretically should, and the utility can miss its approved revenue recovery targets.   The purpose of VBA riders is to adjust rates either up or down depending on whether the utility is on track to over-recover or under-recover its target revenue.

The Commission authorized Rider VBA as a four-year pilot program in 2008. While the Attorney General’s appeal from that decision was still pending, the Commission approved Rider VBA on a permanent basis in January 2012.

On appeal from that ruling, the Attorney General challenged the VBA on the grounds that it violated long-settled prohibitions on retroactive ratemaking and single-issue ratemaking. The Appellate Court held that the VBA was not retroactive ratemaking because it wasn’t based on the proposition that rates were too high; it controlled the utility’s revenue recovery. The Court further held that the VBA didn’t violate the prohibition on single-issue ratemaking, since it didn’t cause rates to move based on a single facet of the revenue recovery requirement. The Court of Appeal accordingly affirmed the order approving the Rider VBA.

Counsel for the Attorney General began the argument. He argued that the Rider VBA was impermissible not only as retroactive and single issue ratemaking, but under the basic ratemaking principles of the Public Utilities Act. Utility ratemaking had never been intended to guarantee utilities’ profits, counsel argued; it was supposed to approximate the effect of the free market. The Rider VBA, he argued, effectively moved risk from the utility to the residential and small business customers. Justice Thomas asked whether the country wasn’t moving towards riders like the VBA. Counsel answered some states have, others haven’t. In the ones that have permitted it, there are generally statutory amendments authorizing the practice. Justice Burke asked whether the idea was to give utilities an incentive to control costs and operate efficiently in the public interest. Counsel answered that the Act already has efficiency requirements. Justice Burke suggested that counsel was saying that utility rates are always subject to some sort of regulation and review even without the rider. Counsel answered that that was so, but rates are set prospectively; if revenue falls short, the utility should come back and open up a new rate case, not go back and charge consumers more for the gas they’ve already used. Justice Burke asked how the average consumer is affected by the Rider. Counsel answered that if the company doesn’t achieve its revenue goal from a particular type of customer, it imposes a monthly surcharge the following year. Justice Burke asked whether that eliminated the incentive to conserve, and counsel said no. Justice Thomas asked whether the Court should be influenced by the fact that utilities want the Rider, consumers seemed to be benefiting and environmental groups are in favor of it? Counsel argued that environmental groups often trade such Riders for a quid pro quo, but efficiency measures are already required in Illinois. Justice Theis asked whether the State’s arguments were aimed at the second phase of ratemaking – not determining a revenue requirement, but rather, designing a rate to get there. Counsel agreed. Justice Theis pointed out that many cases cited by the Attorney General actually related to the revenue requirement. Counsel answered that the plain language of the Public Utilities Act required prospective and published rates, and provide for a new rate case when revenues fall short of goals. The Court itself has said that refunds paid after rates are set are inconsistent with prospective ratemaking. Justice Theis said that was about the first prong of ratemaking, but counsel argued that there was no reasoned distinction between the two circumstances.   Free market companies don’t get to go back and retroactively increase prices, counsel argued, and the defendants shouldn’t be allowed to either – the legislature has made it clear that the companies must bear the risk of achieving or missing the approved rate of return. The risk of the company falling short of its revenue allowance is built into the ratemaking process, counsel insisted, but the Rider changes that. When counsel turned to the retroactive ratemaking issue, Chief Justice Garman asked whether the issue had been waived. Counsel answered that the point had been raised regarding approval of the pilot program and expressly rejected. Accordingly, it was futile to raise the point again. Moreover, there was no unfair surprise in raising the issue, counsel argued, and it was purely legal (and thus, non-forfeitable) anyway. Counsel concluded by once again insisting that the Rider VBA was both retroactive and single-issue ratemaking. The guiding principle of ratemaking was supposed to be that when one factor changed, perhaps there were offsets elsewhere. Isolating one element of the complex equation distorts the process.

Counsel for the Commerce Commission followed. He argued that many of the cases cited by the Attorney General related to the revenue requirement step of ratemaking, which is not at issue here. The second step involves teams of economists, armed with costs and service studies, allocating the revenue requirement out to the various classes of customers. Counsel argued that the primary reason for the Rider was the recovery of fixed costs, not the cost of gas. The Public Utilities Act doesn’t prohibit the guaranteed recovery of revenue targets, counsel argued. But the ICC decided not to go that way. The Attorney General argues that the Rider VBA violates the principle of published rates, but in fact, it is published, counsel argued. Justice Theis pointed out that one of the concerns of the statute is understandable rates. Under the Rider, a consumer who is frugal and wise and conserves gas will pay more. How does that factor in? Counsel argued that such a customer would still get the benefit of the volumetric rate and have a lower bill. Chief Justice Garman asked how a consumer would know that a surcharge was coming. Counsel responded that the surcharge is published immediately before the year in which it is collected. Justice Thomas asked whether the Attorney General had done enough to preserve its retroactive ratemaking argument. Counsel said no – the challenge to the pilot program was an entirely different case.

Counsel for the utility followed.   The Rider is published as a tariff, he said. Counsel characterized the Rider as triggering adjustments rather than surcharges. In fact, the utilities have returned $24.5 million to the customers since approval. Nor was it fair to say that the Rider guaranteed a certain profit level – even with the Rider, rates of return on equity have been consistently below the Commission-authorized rate. In fact, as a result of last winter in Illinois, but for the Rider, the utility would have earned in excess of the authorized rate of return – with it, the utility ultimately made below the authorized rate. Counsel argued that the Rider doesn’t change the setting of a revenue requirement, or guarantee any particular level of profitability. Counsel noted that the Attorney General had cited the principle of least cost from the Utility Act, but since the Rider is symmetrical, adjusting both to over- and under-recovery, it is consistent with the least cost principle. Justice Theis asked counsel to address the Attorney General’s argument that the Rider eliminates utility risk. Counsel answered that risk is factored into the approved rate of return. The Commission addresses any reduction in risk resulting from revenue decoupling in ratemaking – in fact, originally, there was a 10 basis point adjustment to the revenue requirement because of the change in risk. In its latest rate case order, the Commission decided not to apply that offset, since it found that many of the exemplar cases it was using to set rates also had revenue decoupling. Counsel argued that the charge that the Rider eliminates the incentive to conserve is simply untrue.

Counsel for the Attorney General argued in rebuttal that publishing the Rider doesn’t make the rate understandable – in fact, it promotes uncertainty. According to counsel, the Commission rejected the idea that reduced demand doesn’t affect fixed costs. Counsel conceded that the Rider doesn’t guarantee profits, but it does guarantee a revenue requirement that isn’t supposed to be guaranteed. The underlying assumption of traditional ratemaking is that when usage falls, a utility will make other changes to offset the loss. Justice Theis asked whether counsel for the company was correct in saying that risk is factored in at the revenue requirement stage of ratemaking. Counsel answered that it was not clear that approved profit had been lowered in response to the lowering of risk. Justice Karmeier asked whether risk to customers wouldn’t be higher without the Rider. Counsel answered that in fact, the Rider hasn’t decreased rates. Justice Karmeier referred to the claim that the utility has refunded $24.5 million because of the Rider, and asked whether that was a proper factor to consider. Counsel said no, the issue was legal. That refund was the result of an unusually bad winter; in other years, the Rider would result in surcharges. Counsel concluded by arguing that the Rider wasn’t aimed at any factor outside the utility’s control – even weather is forecast as part of a rate case.

Image courtesy of Flickr by Kool Cats Photography.

Illinois Supreme Court Debates Scope of Whistleblower Statute

During the September term, the Illinois Supreme Court debated an important question about the scope of the state Whistleblower Act: does a plaintiff state a claim under the statute by alleging that the defendant falsified information in its rate case? The Court is reviewing a decision of the Fourth Division of the First District, State of Illinois ex rel. Pusateri v. The Peoples Gas Light and Coke Company. Our detailed summary of Pusateri is here.

The Plaintiff sued under the Whistleblower Reward and Protection Act, which empowers plaintiffs, with the consent of the state, to sue on the State’s behalf. The typical case under the statute involves allegations of fraud by the government’s vendors.

Pusateri involves a rate case before the Illinois Commerce Commission. According to the plaintiff – a former management-level employee of the defendant – the defendant falsified reports filed with the ICC, falsely claiming overly short response times to gas leak reports. Plaintiff alleged that the purportedly falsified response reports were one basis for granting the requested rate increase. The plaintiff alleged that the resulting utility bills, reflecting the higher rates, were the false claim which formed the basis of the quasi-qui tam action. The court dismissed based on failure to state a claim.

The Appellate Court reversed. The Court held that although the defendant’s utility records weren’t one of the enumerated factors for the ICC to consider in its rate cases, the defendant had submitted the data, and the Commission had considered it. The defendant also argued that the plaintiff was not the “original source” of the information upon which the case was based, but the Appellate Court disagreed, holding that nothing in the ICC’s safety audit had suggested that the ICC was aware of the allegations which gave rise to the complaint.

Counsel for the defendant began the argument at the Supreme Court. Counsel argued that no report had been made to the State in terms of the Whistleblower Act. In fact, the case was a collateral attack on the base rate for gas set by the ICC. Counsel argued that the rate making process was legislative in nature, involving the expertise of the Commission. Contrary to the plaintiffs’ argument, safety reports have historically never been considered in the rate-making process – in forty years of ICC opinions, Commission reports have never referenced safety reports. Counsel argued that the Whistleblower Act should not be injected into the ratemaking process. According to counsel, the Supreme Court has repeatedly said that the Commission cannot approve different rates for different types of consumers. Counsel argued that allowing the claim would undermine the base rate concept over which the Commission has exclusive jurisdiction. Justice Freeman asked whether the issue of the plaintiff’s argument not being a “claim” within the meaning of the Act had been forfeited. Counsel answered no, the defendant has argued from day one that the plaintiff’s complaint is not a “claim.” Counsel noted that the plaintiff has insisted that the defendant is challenging the constitutionality of the Whistleblower Act – not so, argued counsel. The doctrine of constitutional avoidance – that a court should avoid interpreting a statute in a way that brings its constitutionality into question – requires that the statutes be harmonized. Chief Justice Garman asked whether, if the Court found for the defendant, it would be immunizing falsehoods in negotiating with the State. Counsel answered that fraud on the ICC in the course of ratemaking was already actionable. Willfully making false reports to the ICC is a class misdemeanor. There is a remedy, counsel argued – the plaintiff’s claim just isn’t it.

Justice Freeman asked counsel whether, if the Court finds that plaintiff’s argument is a “claim,” the defendant’s argument would be forfeited. Counsel answered no, it was not a claim for a variety of reasons. First, the public policy supporting that conclusion far exceeds any legislative intent. Second, even if the safety reports were a “claim,” to trigger a cause of action, it has to trigger a payment by the State. But the safety reports here didn’t trigger any payment by the State. Justice Thomas asked how a penalty for false reports would be imposed. Counsel answered that no utility would want to get into conflict with the ICC, so it was entirely plausible that the utility itself – if not the plaintiff – might report the allegation. Counsel argued that the False Claims Act was not needed as a remedy. If the plaintiff had stated a “claim” under the Act, a refund would be due to the State only. In that event, the defendant would be legally obligated to continue charging the same rate to everyone other than the State until a new rate case was finalized. Counsel argued that Circuit Courts simply don’t have the expertise to say that the approved rate would have been different but for one or more erroneous safety reports. Justice Kilbride asked whether he understood correctly that the defendant was allegedly trying to avoid generating a report. Correct, counsel answered. Justice Kilbride asked how the report, if it had been generated, would have impacted the ICC’s consideration. Counsel argued that the plaintiff’s complaint was internally contradictory – in one paragraph, plaintiff argued that defendant was fraudulently lowering the reported response time to avoid reporting, but in another, they alleged that reports falsely stating a lowered response time had been filed with the ICC.

Counsel for the plaintiffs followed. According to counsel, the defendant’s argument is really “we’re immune from the Whistleblowers Act.” Counsel argued that a fine or a criminal charge was not actually a remedy. The plaintiff’s allegations were a “claim” under the Act, counsel argued – rates were a claim for money. Chief Justice Garman asked whether plaintiff’s claim would require the trial courts to determine what the rate should have been – how would the trial court determine what rate should have been paid? Counsel responded that a plaintiff would have to establish that a payment had been excessive. Was there a mismatch between the scope of the Act and the exclusive jurisdiction of the ICC – perhaps, but the defendant’s argument amounted to saying that the Act was completely ineffective. Justice Thomas asked whether what the defendant was actually saying was that the ICC was really the best place to determine the proper rate. Counsel responded that the ICC doesn’t have the capacity to act as a trial court. Justice Burke asked whether damages could be calculated, if the case went back to the trial court, without retroactively reversing the approved rates of the ICC? Counsel answered that the plaintiff’s claim was one for disgorgement. The question was whether there was an effective remedy, or the utility was effectively immune from any sort of remedial measure. Justice Thomas asked if the allegedly false reports were part of the ratemaking process. Counsel answered that that’s a fact issue, and the ICC is not a trial court. Justice Theis asked whether there was a fact pleading issue here – was there anything in the complaint identifying the reports involved and how they were used by the ICC? Counsel explained that the complaint had been dismissed at the jurisdictional stage. The plaintiff had made a request for leave to flesh out the complaint. Justice Theis asked again if there was anything in the complaint suggesting that anyone had relied on the safety reports – in fact, the complaint was devoid of any kind of detail, wasn’t it? Counsel pointed to one paragraph saying that the reports had been submitted. Justice Theis pointed out that another paragraph of the complaint said that the reports hadn’t been submitted at all. Counsel argued that given that the issue has always revolved around jurisdiction, his client should have the opportunity to replead. Justice Thomas suggested that counsel hadn’t really answered the Chief Justice’s question about how a trial court should determine how the reports were used, and fashion a remedy as to what to do about it. Counsel answered that the court could hear from people who actually submitted the reports. The courts could review evidence that suggests that response reports were falsified, and expert testimony suggesting what effect those reports had had on the rate process. Justice Thomas asked whether as a practical matter it wouldn’t be easier to report misstatements to the ICC to fashion a remedy. Counsel said that wasn’t what the legislation said – the ICC doesn’t have jurisdiction to implement the Whisteblower Act. Justice Thomas suggested that defendant’s counsel would say that the Whistleblower Act was not an appropriate way to determine a proper utility rate. That view would undercut the historic basis of the Whistleblower Act, counsel argued – a small fine wasn’t the intended remedy under the Act. The Chief Justice suggested that counsel was alleging a fraud on the entire market. Counsel responded that the cause of action under the Act was limited. Perhaps the plaintiff could have fashioned a common law cause of action, but that would bypass a critical Act in place for 100 years.

Counsel for the defendant rose in rebuttal and argued that he could reconcile the Act with the ratemaking process so that both were alive and well. The Act defines a “claim” as a request for money or property made to the State. Had the defendant sent a bill to the State, that would fall within the definition of a “claim.” Counsel argued that ratemaking was a legislative process that ended with a rule in the nature of a law which applied to all customers equally. When a party alleges what would amount to a fraud on the market, the ICC is in the best position to fashion a remedy – that’s why the ICC has exclusive jurisdiction. The defendant’s central argument, counsel concluded, was that plaintiff’s point wasn’t a “claim” within the meaning of the Whistleblower Act.

Image courtesy of Flickr by Steven Depolo.

Illinois Supreme Court Agrees to Decide Whether Fire District Owed Tort Duty to 911 Caller

In the closing days of its September term, the Illinois Supreme Court agreed to decide a question of potentially great import for Illinois first responders: do public entities and their employees owe a tort duty of care to callers to 911 emergency lines? In Coleman v. East Joliet Fire Protection District, the Third District held that the answer was “no.”

On a summer evening in 2008, the decedent called 911. She reported that she couldn’t breathe and asked for an ambulance. The call was transferred, as per routine practice, from the county 911 operator to the local fire district dispatch center. The county operator didn’t communicate the emergency message to the fire dispatch operator; in fact, she allegedly didn’t speak to the fire dispatch operator at all.

The fire dispatcher tried to ask the decedent some questions, but received no answer. Ultimately, he hung up and tried to call back twice, receiving a busy signal both times. The dispatcher asked his partner to call the county dispatcher for more information. The call was assigned to an ambulance three minutes after being placed in the dispatch queue for a “priority 1” call. However, the paramedics in the ambulance were told nothing about the nature of the request for assistance.

When the dispatchers arrived at the house, no one answered. The paramedics asked the fire dispatcher to call the decedent again, but received no response back. The paramedics determined that they couldn’t make a forced entry without a police officer present. They called their supervisor, who instructed them to leave the scene and return to service. During the same time the paramedics were attempting to respond to the emergency call, the county was experiencing severe thunderstorms and several tornados; the fire dispatcher dispatched 17 units to respond to the tornado over the course of nine minutes.

Neighbors of the decedent attempted to reach the residence, and when they were unable to, they called 911 again. Ultimately, another ambulance was dispatched. The second ambulance received no answer at the house either, but while they were preparing to force entry, the decedent’s husband arrived home and let them in. The decedent was found unresponsive, and she was later pronounced dead at the hospital.

The plaintiff filed claims for wrongful death and survival, alleging that the county had been negligent by failing to communicate all relevant information to the fire district, and that the fire district was liable because the paramedics in the first ambulance had opted not to force entry into the house, and had informed the dispatcher that there was “no patient” at the residence. The defendants all moved for summary judgment, arguing that they owed no duty to the decedent pursuant to the public duty rule. Summary judgment was granted. The Appellate Court affirmed.

The public duty rule holds that government entities and employees owe no particularized duty of care to anyone in connection with governmental services like police and fire protection. On appeal, the plaintiff argued that the trial court misapplied the rule; the Illinois Trial Lawyers Association, on the other hand, argued that the rule doesn’t exist anymore in Illinois.

After carefully reviewing all the relevant authorities cited by the parties, the Appellate Court concluded that no Illinois Supreme Court decision has expressly abrogated the public duty rule. The plaintiff relied upon the one recognized exception to the rule, the “special duty” exception. The special duty exception requires proof of four factors: (1) the public entity is uniquely aware of the particular danger or risk to the plaintiff; (2) there are allegations of specific acts or omissions by the public entity; (3) the acts or omissions are affirmative or willful; and (4) the plaintiff was injured while under the direct and immediate control of the public entity or its employees and agents.

The Court held that plaintiff could not establish the fourth element. In order to establish a special duty, the public employee must initiate the circumstances which create the dangerous situation – say, for example, a police officer directs a member of the public to do something that puts her in danger. But here, the 911 call was initiated by the decedent, who was already in serious danger by that time.

In the alternative, the plaintiff argued that duties of care were created by the ETS Act, the EMS Act, and the defendants’ written policies, but the Court held that even if that were true, the duties ran to the public as a whole, not to the decedent. 

Finally, the Court refused to find that operating a 911 response service creates a duty of care to callers under the tort principle of a voluntary undertaking. First, such an application of the voluntary undertaking theory would violate the public duty rule. Second, the plaintiffs had a legal obligation to run a 911 response service, so any undertaking was not voluntary. 

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

Image courtesy of Flickr by Dave Seven.

Illinois Supreme Court Agrees to Decide Remedy for Unserved Notices of Violation

What happens when the City doesn’t properly serve a notice of building code violations? In the closing days of its September term, the Illinois Supreme Court agreed to decide that issue in Stone Street Partners, LLC v. City of Chicago Department of Administrative Hearings, a decision from the First District of Division One.

In 1999, a City building inspector found various building code violations in one of plaintiff’s buildings. But the City didn’t mail the notice to the plaintiff’s business address or registered agent – instead, it sent the notice to the property itself – a service method that’s authorized only if notice to the business address or registered agent fails.

Nevertheless, a person appeared at the hearing on the plaintiff’s behalf. Although most of the records of the hearing had been destroyed, it appeared that the representative had filed an appearance and presented exhibits on the plaintiff’s behalf. Nevertheless, the plaintiff was found liable and fined. In 2004, the administrative judgment was filed with the Circuit Court, and five years later, the City recorded the judgment with the Recorder of Deeds.

The plaintiff maintained it knew nothing about any of this until it obtained a copy of the judgment through a FOIA request in 2011. The plaintiff filed a motion to vacate and set aside the administrative order – which was by this time twelve years old – based on lack of notice, claiming that the person who represented the plaintiff at the 1999 hearing had no authority to do so. But the administrative hearing officer found that he had no jurisdiction to vacate the order.

So the plaintiff filed a complaint in circuit court, purporting to state claims for declaratory judgment, quiet title and slander of title. The defendant filed a motion to dismiss, which the court granted.

The Chicago Municipal Code requires that notices to corporate defendants for administrative hearings must be sent to the corporation’s registered agent. The City argued that no similar requirement applies to service of the hearing order, as opposed to the original notice of hearing. But the Court pointed out that defendant’s actual knowledge that an action is pending is not the equivalent of service of summons, or sufficient to vest the court with jurisdiction.

The court next turned to the question of whether the participation of the corporation’s purported agent in the 1999 hearing had waived any objection the plaintiff might otherwise have had to the proceedings. The court held that because the plaintiff participated through a nonattorney, no waiver resulted. The City argued that nonattorneys should be allowed to represent parties at administrative hearings. But the Appellate Court found that the City’s Administrative Rule of Practice conflicted with the Supreme Court’s authority to regulate the practice of law.

The Court rejected claims by the City and the Attorney General that requiring attorney representation in administrative hearings would have negative consequences. “If anything,” the Court wrote, “our holding will protect the rights of corporations.” The City noted Illinois Supreme Court Rule 282(b), which allows corporations to defend small claims through a nonattorney, but the Appellate Court noted that Rule 281 defined a small claim as one involving $10,000 or more – far more than was involved in the case at bar. Nor does a defendant waive objections to jurisdiction by the participation of someone not authorized to represent the party, the Court found.

Nevertheless, the Court found that the City’s first cause of action to set aside the judgment failed on the grounds that Section 108 of the Municipal Code, authorizing the motion, only addresses default judgments.

However, the Appellate Court reversed dismissal of the plaintiff’s claims for quiet title and declaratory judgment. The City argued that plaintiff’s claim was barred since it had failed to seek administrative review of the administrative order. But the plaintiff couldn’t be expected to challenge an administrative order it didn’t know about, the Court found. The Court held that plaintiff was entitled to some form of equitable relief, so it reversed dismissal of plaintiff’s second claim.

The Court affirmed dismissal of the plaintiff’s claim for slander of title. The Court held that the defendant was absolutely immune from liability pursuant to the Local Governmental and Governmental Employees Tort Immunity Act.

Justice Maureen Connors dissented. She agreed that plaintiff’s administrative appeal from the City hearing judgment and the quiet title and slander of title claims couldn’t stand. However, Justice Connors concluded that the plaintiff’s declaratory judgment claim should have failed as well. She acknowledged that the plaintiff could hardly be expected to file an administrative challenge within 35 days after service of the original administrative judgment, thus exhausting administrative remedies, given that the plaintiff didn’t know about the judgment; the problem, Justice Connors said, was the plaintiff didn’t challenge the administrative order even after it learned of it. Justice Connors argued that declaratory judgment actions are not a permissible grounds for challenging administrative judgments.

Justice Connors also rejected the majority’s view that only licensed attorneys could represent corporations at administrative hearings. Justice Connors expressed particular concern that the majority’s holding seemed to invalidate all similar administrative rules used by other agencies.

We expect Stone Street Partners to be decided in four to six months.

Image courtesy of Flickr by Elliott Brown.

Illinois Supreme Court Agrees to Decide Whether Illinois Recognizes a Claim for Wrongful Death from Suicide

 

In Turcios v. The DeBruler Company, a case from the Second District, the Illinois Supreme Court agreed to decide a simply stated question: can a plaintiff state a claim for wrongful death as a result of a suicide?

Plaintiff and her husband lived in an apartment with their three children. Plaintiff is a Honduran immigrant and does not speak English fluently. In April 2011, they signed a one-year lease on an apartment. Twenty days later, they received a notice of eviction giving them 30 days to vacate the premises. Plaintiff sought out legal advice, and was told that the lease was valid and binding. The family also contacted Catholic Charities, which contacted an agent of the defendant who told them the lease was not valid, and could be revoked at any time. Ten days after receiving the eviction notice, they received a letter stating that the building would be demolished three weeks later. The letter stated that the washers and dryers would be removed in less than two weeks, and offered the plaintiff and her husband a week of free rent.

The defendant refused to accept a rent payment from plaintiff at the beginning of the next month. A week later, the plaintiff and her husband received another notice saying the building would be demolished. At a meeting with representatives of the defendant, plaintiff and her husband were allegedly offered $2,000 to move.

Three days later, defendant allegedly allowed demolition to begin around plaintiff’s unit. Five days after demolition began, plaintiff’s husband committed suicide in the apartment.

The plaintiff and her children moved in with a friend the next day, leaving most of their belongings in the apartment.  Less than a week later, defendant allegedly contacted plaintiff and told her she had to remove all her belongings from the apartment, as demolition would begin the following day. That day, the plaintiff and her children packed their belongings, even though the stairs to their 3rd floor apartment had been mostly demolished. As they were moving, an enormous rain storm ruined most of the family’s belongings.

Plaintiffs filed a five count complaint, purporting to allege claims for intentional infliction of emotional distress, wrongful eviction, breach of contract, wrongful death and survivorship. The trial court dismissed the final two counts, holding that there is no claim for wrongful death or survivorship as a result of suicide.

The Appellate Court reversed. The usual view of the applicable law, the court wrote, was that a suicide was an intervening event which the tortfeasor cannot be expected to foresee. The court reviewed law in a variety of foreign jurisdictions and concluded that many had recognized a claim for wrongful death in connection with suicide, including at least one case in a federal court purporting to apply Illinois law, Collins v. Village of WoodridgeThe court concluded that the traditional bar on causes of action arising from suicide flowed from theories of negligence and contributory negligence, which had little place in an action alleging intentional torts and seeking punitive damages. The court concluded that the weight of authority does not support a per se bar on wrongful death claims arising from suicide. Defendant argued that Illinois tort law limited liability according to proximate cause, and suicide was always an intervening cause. But the Court held that a defendant’s negligence need only cause the plaintiff’s harm – the economic distress. It is not necessary that it be tied to all resulting and compensable damages. Accordingly, the court held that a victim’s suicide does not limit the plaintiff’s damages, so long as emotional distress is a substantial factor in causing the suicide. No per se bar existed on damages arising from a suicide.

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

Image courtesy of Flickr by Rob Deutscher.

 

Illinois Supreme Court Agrees to Decide Whether Trustee May Rescind Reverse Mortgage

 

During its September term, the Illinois Supreme Court agreed to decide an issue of importance to property and banking practitioners: is the statutory right to rescind a reverse mortgage limited to the original property owner? The Court granted leave to appeal from a decision of Division 6 of the First District, Financial Freedom Acquisition, LLC v. Standard Bank & Trust Co.

The plaintiff filed a complaint to foreclose a home mortgage following the death of the original borrower. The mortgage, which was attached to the complaint, was an adjustable rate home equity conversion mortgage – a type of reverse mortgage insured by the federal government. The mortgage was executed by the defendant as trustee, but an exculpatory clause in the mortgage provided that the defendant couldn’t have any liability for payment of the note; instead, the note would ultimately be paid by the sale of the property – either upon the death of the borrower, or should she fail to use the property as her principal residence for more than a year.

The defendant answered and counterclaimed, alleging that the plaintiff had failed to deliver disclosures required by the Truth in Lending Act, and had failed to respond to the defendant’s notice of rescission of the mortgage. The defendant sought rescission, termination of the plaintiff’s security interest, and statutory damages.

The plaintiff moved to dismiss the counterclaim. The Circuit Court granted the motion, and when the plaintiff subsequently voluntarily dismissed the foreclosure complaint, the defendant appealed.

In a split decision, the Appellate Court affirmed. The defendant sought rescission based on the Truth in Lending Act. The TILA provides that “the obligor” may rescind the transaction until midnight of the third business day following consummation of the transaction. But if the creditor doesn’t give the required disclosures – and the defendant alleged the plaintiff hadn’t – then the limitation on filing for rescission is three years. The defendant filed more than three days, but less than three years following consummation of the loan transaction.

The problem, according to the majority, was that the defendant wasn’t the “obligor,” which the Court defined as the person to whom credit is extended. Since the defendant had no possible liability on the note (pursuant to the exculpatory clause), it had no right to rescind.

Justice Robert E. Gordon dissented. Justice Gordon argued that the defendant had satisfied all three elements of the statutory test to establish a right to rescind: (1) it was acting “in the case of any consumer credit transaction”; (2) it had retained or acquired a security interest in the property; and (3) it alleged that the property was used as the principal dwelling of the person to whom credit was extended. Justice Gordon argued that since the statute referred separately to the “person to whom credit was extended” and “the obligor,” contrary to the majority’s conclusion, they must mean different things. Although the majority concluded that the consumer was the “obligor,” Justice Gordon pointed out that in a reverse mortgage, the consumer pays nothing to the bank – it is the bank that has an obligation to the consumer.

We expect Financial Freedom to be decided in six to eight months. 

Image courtesy of Flickr by Diana Parkhouse.

 

Illinois Supreme Court Debates Burdens of Proof for Wrongful Termination Cases

 

During its September term, the Illinois Supreme Court heard oral argument in a potentially important employment law case, Michael v. Precision Alliance Group, LLC. Michael poses questions about the parties’ burdens of proof in a case alleging wrongful termination. Our detailed summary of the facts and lower court opinion in Michael is here.

The defendant in Michael packages and distributes seeds for commercial agricultural use. As part of that business, the company packs soybeans into 2,000 pound bags. The company claimed that the bags were typically filled by its automated packing line with a bit more than 2,000 pounds in order to accommodate normal shrinkage. One of the plaintiffs seemed to agree, testifying that initially the packing hopper set point was between 2,007 and 2,010 pounds.

A new individual took charge of bagging in 2002. One of the plaintiffs noticed that the hopper set point had been reduced, and drivers reported that their trucks seemed lighter. The company weighed bags at random, and found several below 2,000 pounds. After the company’s spot test, the plaintiffs began secretly weighing bags themselves. A former employee reported the matter to the state Department of Agriculture. State inspectors appeared at the company’s plant, stopped production and weighed every bag in the warehouse. Roughly half were underweight. In short order, the state lifted stop-sale orders and ended the investigation without issuing any penalties, citing the company’s rapid response to the investigation.

A month after the state’s visit to the plant, one of the plaintiffs was involved in a forklift collision. The plaintiff was fired. Around the same time, management decided to eliminate four positions as a result of a drop-off in business; the two remaining plaintiffs were let go as part of that reduction in force.

The plaintiffs sued for common law retaliatory discharge. After the Appellate Court reversed an early summary judgment in the defendant’s favor, the Circuit Court conducted a bench trial. The Court ultimately entered summary judgment on behalf of the defendant, holding that while the plaintiffs had offered some evidence of unlawful motive, the defendant had shown a valid non-pretextual reason for dismissing the plaintiffs. The plaintiffs appealed a second time. The Fifth District reversed again, holding that the trial court had increased the plaintiff’s burden of proof by requiring them to prove that the defendant’s articulated reasons for dismissal were pretexts.

Counsel for the employer began by arguing that the Appellate Court’s decision conflicted with the Supreme Court’s decision in Clemons v. Mechanical Devices Company regarding the burden of proof and causation standards in a claim for retaliation. During the bench trial, the company presented substantial evidence that the company didn’t know that former coworkers were involved in the call made to the State by an ex-employee. The company showed that one plaintiff was terminated for horseplay with a forklift; as to the other two, the company presented substantial evidence that they were chosen for termination as part of a general reduction in force. Justice Burke asked whether the defendant had argued below that a finding of a legitimate reason for the termination precluded a finding of retaliatory discharge. The defendant argued that the plaintiff hadn’t challenged the finding of a legitimate reason for the terminations as against the weight of the evidence. Justice Thomas asked if the defendant was saying that the trial court had erred by reducing the plaintiff’s burden of proof, and that even if the burdens had been properly assigned, the defendant would have won at the trial court. The defendant agreed that the error was harmless. However, the Appellate Court erred in placing the burden of proof on the defendant, since under Clemons, traditional tort analysis applies in wrongful termination cases. The plaintiff must prove each element of the tort. Justice Thomas asked whether there was any need for a new determination of liability if the case were remanded. Counsel answered that the trial court’s judgment should simply be reinstated, since its finding of a legitimate motive for termination was dispositive. The trail court made it clear, according to counsel, that its finding of causal nexus between the plaintiffs’ whistle-blowing and the termination was merely part of the prima facie case; the court had not made a definitive finding that the company knew about the plaintiffs’ involvement. If the employer doesn’t know about the plaintiffs’ activities, no claim can lie for retaliatory discharge. The most troubling aspect of the Appellate Court’s judgment, counsel argued, was the finding that if there is any relationship between the protected activity and the plaintiffs’ discharge, the employer’s evidence makes no difference – the employee must prevail. In fact, counsel argued, proof of a valid business reason for the plaintiffs’ dismissal mandated judgment for the defendant.

Counsel for the plaintiff followed. She argued that the trial court had used the wrong elements in analyzing causation, and the error had changed the outcome. Once the court found a “causal nexus” between the protected activity and the plaintiffs’ termination, the case should have been over, according to the plaintiff. Justice Burke asked what authority says that causal nexus equates to causation. Counsel responded that this followed from logic and the ordinary definition of causation. Clemons used the term “causally related” and the terms are interchangeable. Chief Justice Garman asked under the plaintiffs’ theory of causal nexus being sufficient, what effect does the defense evidence of a non-retaliatory reason for termination have? Counsel answered that a finding of causal nexus precludes a finding of no proximate cause because the illegitimate cause is sufficient; it is not necessary for it to be the sole cause. The Chief Justice asked whether that was an expansion of Clemons, and counsel answered no. The issue in Clemons was whether the defendant’s alternative proof had to be something lawful. Clemons said that if an employer comes forward with a valid non-pretextual reason for discharge, and the trier of fact believes it, causation is not established. Chief Justice Garman asked whether that was what happened here. Counsel answered no, to find for the defendant, the trier of fact has to believe that the defendant’s reason motivated the discharge to the exclusion of the retaliatory reason. Justice Thomas asked whether under Clemons, the plaintiff didn’t have the burden to prove causation by demonstrating that the defendant’s suggested reasons were pretext. Counsel argued that the Court would not have abandoned traditional standards for proximate causation in that way; the standard must be that the illegitimate reason played no part in the adverse action. Justice Thomas asked how, under the plaintiff’s standard, the defendant could ever prevail? Counsel answered that the defendant prevails by demonstrating to the jury’s satisfaction that the illegitimate reason played no role at all. Justice Thomas asked how a trier of fact would ever sort out an alternative reason and an illegitimate reason with that level of precision. Counsel answered that a jury doesn’t have to believe the plaintiff’s evidence. Perhaps the report of wrongdoing was insignificant. Perhaps the defendant changed its practices and thanked the employee. But here, the court did find a causal nexus. Justice Karmeier noted that the trial court had said that the plaintiff must set out a prima facie case of retaliation. Is there a difference between proof by a preponderance and proof of a prima facie case? Counsel said not in the way the court set it out. Justice Karmeier asked if the court made a finding when it said that the employer may have known of the employees’ involvement. Counsel answered yes, given the inference that can be drawn from those circumstances. Justice Karmeier asked whether the bottom line wasn’t that the trial judge found valid non-pretextual reasons for the dismissals? Counsel said yes, but after a finding of causal nexus, such a finding doesn’t matter.

On rebuttal, counsel for the employer argued that the plaintiffs’ theory that a defendant can show a legitimate reason for an adverse employment action and still be liable is wrong. Not only has that never been the law, counsel suggested that the plaintiff hadn’t made the argument until Michael reached the Supreme Court. Counsel argued that Clemons was very clear if the trier of fact believes the employer’s tendered legitimate reason for termination, there can be no liability. The tort of wrongful termination is a narrow and limited exception to the doctrine of employment at will. Counsel concluded by arguing that the hypothetical of plaintiff’s counsel was exactly the situation here – the defendant didn’t know that the plaintiffs were involved in the report to the State agency.

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

Image courtesy of Flickr by Stirling Noyes.

 

Illinois Supreme Court Agrees to Decide How Social Security Benefits Offset in Divorce Settlement

In the closing days of its September term, the Illinois Supreme Court agreed to decide an issue of potential importance to the domestic relations bar: how are Social Security benefits treated in a property settlement during a divorce? The Court allowed a petition for leave to appeal in In re Marriage of Mueller, a Rule 23 order from the Fourth District.

The husband and wife in Mueller were each employed at the time of their divorce – she in in the insurance industry, he as a police officer. The wife has Social Security tax withheld from her pay. The husband participated in the police pension fund in lieu of Social Security.

The Social Security Act imposes a broad ban on transfer or assignment, whether in law or equity, of benefits due and payable under the Act. 42 U.S.C. § 407(a). In In re Marriage of Crook, the Illinois Supreme Court held that this meant that courts were not permitted, in a property settlement, to award one party a greater share of marital pension benefits in order to offset the fact that Social Security benefits are sheltered. But in Crook, the Court specifically declined to consider how pension benefits which were in lieu of participation in Social Security should be treated.

Mueller presents the issue which was passed over in Crook. At trial, the husband presented expert testimony valuing his pension. The expert testified that she had included an offset to compensate for the fact that the wife’s Social Security benefits were sheltered. The wife objected to the testimony, citing the bar in the Social Security Act and the Crook decision. The trial court sustained the objection and excluded the testimony. The husband later submitted a revised valuation, omitting the Social Security offset, which increased the valuation of his pension by approximately 50%. After final judgment in the property case was entered, the husband appealed.

The Appellate Court affirmed. In rejecting a direct offset, the Crook court had relied primarily on Hisquierdo v. Hisquierdo, which held that retirement benefits under the Railroad Retirement Act could not be subject to an offset in state-law domestic relations property judgments. The husband in Mueller pointed out that a number of different jurisdictions had nevertheless held that courts may offset the value of pension intended to be in lieu of Social Security in order to place the participating spouse in a similar position to the spouse participating in the Social Security program. But the Appellate Court refused to follow those decisions, holding that allowing a spouse’s Social Security benefits to be taken into account in any way in the property settlement was inconsistent with Crook.

Justice Thomas Appleton dissented. The Illinois Marriage and Dissolution of Marriage Act is predicated on achieving equity between divorcing spouses, he wrote. “To completely ignore a substantial asset earned during the marriage is at cross-purposes with that mandate.” Justice Appleton wrote that he would have reversed the property division and remanded with instructions to reserve to the wife her Social Security benefits while reserving to the husband a corresponding share of his police pension benefits.

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

Image courtesy of Flickr by LendingMemo.com.

Illinois Supreme Court Agrees to Decide Whether Party's Own Apparent Neglect Can Lose Right to Set Aside Default

In the closing days of its September term, the Illinois Supreme Court agreed to decide a question relating to the operation of Section 2-1401 of the Code of Civil Procedure: under what circumstances is the apparent lack of diligence of the party itself sufficient to justify denying the motion? In Warren County Soil & Water Conservation District v. Walters, the Third District denied a motion to set aside on the grounds that the defendant had not demonstrated adequate diligence.

The plaintiff Soil and Water Conservation District filed suit against the defendants, charging that defendants had wrongfully removed approximately 54 trees, worth just over $17,000, from plaintiff’s property. The plaintiff purported to state claims of trespass, conversation, quantum meruit, negligence, and one for violation of the Wrongful Tree Cutting Act, 740 ILCS 185/0.01, which potentially triggers treble damages.

The defendants’ retained counsel did not either file an answer or appear for the case management conference. He was ordered by the Court to file an answer a month later, but failed to do so, so the plaintiff moved for a default judgment. The defense counsel was provided with a copy of the motion for entry of default, but counsel failed to respond or appear at the next hearing. In June 2011, the trial court granted default and entered judgment against the defendants.

A month later, the defendant’s counsel filed a motion to set aside the default, but failed to notice it for hearing. The plaintiff’s counsel noticed the motion for hearing and sent defense counsel notice. Counsel failed to appear for a scheduled case management conference, or for the motion hearing the following week. Accordingly, the trial court denied the motion to set aside the judgment, entering an order with findings. Ten months later, the plaintiff’s counsel filed a citation to discovery assets, and a week after that, the trial court entered an order removing the defendants’ counsel from the case and directing the defendants to retain replacement counsel. New counsel filed a second motion to set aside the judgment, attaching an affidavit from the client testifying that the client was unaware of the default or of former counsel’s negligence.

The trial court denied the second motion to set aside. The court held that defendants had established the existence of a meritorious defense and due diligence with respect to their replacement counsel, but had not demonstrated diligence prior to the entry of default.

The Appellate Court affirmed. A party was required to show three elements in order to be entitled to an order setting aside the judgment, the Court found: (1) a meritorious defense or claim; (2) due diligence in presenting it to the trial court; and (3) due diligence in filing the motion to set aside. The Appellate Court held that the defendant was not entitled to have the judgment set aside because it had not diligently followed the progress of the case and its former counsel’s efforts in the time between the initial complaint and the first default judgment and motion to set aside. Rather, the defendant “abandoned their own interest in the lawsuit and did not fulfill their duty to monitor the quality of [counsel’s] legal representation” during a nineteen month period.

Justice William E. Holdridge dissented. Although Justice Holdridge agreed with the majority that the defendant had failed to exercise due diligence in presenting its defenses to the trial court, he argued that the trial court erroneously believed it was without discretion to relax the requirement of due diligence in the interests of justice. Because Justice Holdridge believed that the defendants’ lost defenses appeared to have merit, he concluded that the trial court should have overlooked the defendants’ lack of diligence in pursuing the case and vacated the default.

We expect Warren County Soil & Water to be decided in six to eight months.

 Image courtesy of Flickr by PlayingWithBrushes.

 

Illinois Supreme Court to Weigh Private Right of Action for Failure to Accurately Calculate Presentence Time-Served Credits

During its September term, the Illinois Supreme Court agreed to decide a novel question presented by a case arising from the Fifth District: does a prisoner have an implied right of action against the circuit clerk and county sheriff for failing to accurately calculate the credit he or she is due against a prison sentence for presentence incarceration? In Cowper v. Nyberg, the Fifth District held that the answer is yes.

The plaintiff in Cowper pled guilty to three felony counts in 2011. The court sentenced him to 27 months’ imprisonment. The judgment and sentence included a lengthy summary of the days the plaintiff had already spent in custody, for which he was to receive credit against his sentence. A month later, the plaintiff filed a motion to recalculate the credit. The State responded, saying that after investigation, it had calculated that the 275 days of credit in the original judgment was wrong. The court ordered the State to recalculate the credit, which it did, ultimately concluding that the plaintiff was entitled to an additional 191 days of credit.

But the plaintiff had already been released by the time the calculation errors were corrected.

The plaintiff filed suit against the Circuit Court clerk and the county sheriff, alleging that they had a duty under Section 5-4-1(e)(4) of the Corrections Code, 730 ILCS 5/5-4-1(e)(4), to correctly calculate the length of his credit. The plaintiff’s complaint alleged that because of the defendants’ negligence in calculating the credit, he served 137 days more than he should have. The defendants moved to dismiss, arguing that the Corrections Code doesn’t provide a private right of action, and the trial court dismissed.

The Fifth District reversed. The Code did not provide an express private right of action, the Court concluded. Therefore, it considered whether the Court should imply a cause of action in the statute. Whether or not a statute creates an implied cause of action generally depends on four factors: (1) the prospective plaintiff is a member of the class for whose benefit the legislation was enacted; (2) an implied cause of action is consistent with the underlying purpose of the legislation; (3) a plaintiff’s injury is one that the legislation was designed to prevent; and (4) an implied cause of action is necessary to provide an adequate remedy for violations of the legislation.

The defendants argued that plaintiff’s claim ran aground on the second factor. The purpose of the Corrections Code, the defendants argued, was to protect the public, not to secure inmates’ rights. The Fifth District disagreed: “The general purpose of the Code of Corrections is to rehabilitate the offender, if possible, and to restore him to useful citizenship.”

The Court next concluded that the Code placed a mandatory duty on the Sheriff and the Circuit Court Clerk to calculate and transmit the number of presentence days’ credit the inmate is entitled to. From this, the Court concluded that the plaintiff’s injury was one the legislation was designed to prevent. The defendants argued that no private right of action was needed, since the statute allows for a grievance procedure before an administrative review board, but the Court held that this was no remedy for the plaintiff, since the board could not modify a court-ordered sentence. Nor did the plaintiff’s alleged injury create the basis for a constitutional claim, since such claims are limited to a showing of deliberate indifference. The Court thus found that all four of the implied-right-of-action factors weighed in favor of recognizing such a claim for miscalculation of presentence credits.

We expect Cowper to be decided by the Supreme Court in six to eight months.

Image courtesy of Flickr by ForensicBones.

Illinois Supreme Court Agrees to Review Tobacco Verdict Again

 

Not infrequently, the law calls upon a court to decide what another court would do with a particular issue or case. In the closing days of its September term, the Illinois Supreme Court agreed to take up Price v. Philip Morris, Inc. in order to answer one of the more interesting dilemmas in that category of cases – just how far can a lower court go on a motion to set aside a judgment in trying to determine what the Illinois Supreme Court itself would have done in different circumstances?

The plaintiff filed a putative class action alleging that the defendant had violated by Illinois Consumer Fraud and Deceptive Business Practices Act – 815 ILCS 505/1 – by advertising cigarettes as “light” and “low tar.” In 2003, the court entered a judgment for plaintiffs in the startling amount of $10.1 billion. In 2005, the Illinois Supreme Court reversed that judgment, finding that the claim was barred by Section 10b(1) of the Act, which provides that the Act doesn’t apply to conduct “specifically authorized” by any federal regulatory body. The theory was that the Federal Trade Commission had specifically authorized the use of the terms “light” and “low tar” in various consent decrees entered into with other cigarette manufacturers.

In 2008 – two years after the Supreme Court’s judgment became final – the FTC filed an amicus brief in an unrelated case before the United States Supreme Court saying that it had never intended to specifically authorize the use of those terms. Shortly after that, the FTC issued a “rescission of guidance” revoking a 1966 document concerning representations manufacturers could make in advertising and packaging about tar and nicotine content.

Ten days after the rescission of guidance was issued, the plaintiffs in Price filed a petition for relief from judgment, seeking to overturn the judgment against them issued at the Illinois Supreme Court’s instruction. The trial court dismissed the petition on the grounds it was untimely, but the Fifth District Appellate Court reversed.

On remand, the trial court held that it was more likely than not, had the FTC’s new actions been available at the time of trial, that the defendant’s Section 10b(1) defense would have failed. The court then turned to the question of whether it was more likely true than not that the Illinois Supreme Court would have affirmed, had the Section 10b(1) defense been rejected. The court held that the Court would have reversed on other grounds, and denied the petition.

The Fifth District reversed once again. The court first affirmed the trial court’s determination that the plaintiffs had acted with sufficient diligence in uncovering the FTC’s new position on the issues. The defendant argued that the plaintiffs had made no attempt to involve the FTC in the litigation until their petition for rehearing in the Illinois Supreme Court, but the Appellate Court said it “defies logic” to conclude that due diligence requires that litigants in a state court proceeding seek the input of a federal agency. 

The court then addressed the question of the proper scope of review on a motion to set aside. The court found that the trial court had erred by determining what the Supreme Court would have decided in the first appeal, if it had had the input from the FTC about the Section 10b(1) issue. Rather, once the trial court held that it was more likely than not that the Section 10b(1) defense would have failed with the FTC’s input, since no other issues were decided in the original appeal, the court should have granted the petition and reinstated the verdict, despite the Supreme Court’s reversal of the judgment.

Price is certain to be one of the most high-profile cases on the Supreme Court’s civil docket during the fall and winter. We expect a decision in six to eight months.

Image courtesy of Flickr by Fried Dough.

 

Illinois Supreme Court Agrees to Return to Pension Debates

 

In the closing days of its September term, the Illinois Supreme Court agreed to return once again to what surely must be the most controversial subject at the moment in all of Illinois’ civil law: public pensions. Matthews v. Chicago Transit Authority is a putative class action raising various challenges to recent reforms to the pension plans of the Chicago Transit Authority.

The complaint in Matthews sets forth two prospective classes of plaintiffs: CTA employees hired before September 2001 who retired before January 1, 2007, and employees hired prior to September 2001 who either retired in 2007 or later, or remain active employees. The complaint focuses on the fact that, after years of fully paid health care benefits for retired CTA employees, plaintiffs are now being asked to pay for a portion of their benefits, and are no longer entitled to the same level of health care coverage as active employees. The complaint purports to allege claims for breach of contract, violation of the state Constitution’s pension clause, and breach of fiduciary duty.

Before May 1980, the CTA contributed up to $40 per month for each retiree’s health care premium. At that time, an arbitration panel ordered the CTA Retirement Plan to increase its contribution to $60 per month through the end of 1980, and to $75 per month thereafter. Pursuant to changes made a few months later to the retirement plan agreement, both union and non-union retirees received health care benefits equivalent to full-time employees, and paid nothing towards their premiums.

In 2007, another arbitration panel directed that a Retiree Health Care Trust be established. The panel directed that retired employees should contribute up to 45% of the total amount expended under the Plan for their health care, and that the trustees have the discretion to increase or decrease contribution and benefit levels, depending on the financial health of the system. The panel also directed that current employees should contribute to their health care costs through a payroll tax equal to 3% of their compensation. Not long afterwards, amendments to the Pension Code became effective which provided that retirees could not be required to pay more than 45% of the total cost of their health care premiums.

The various Pension Plan defendants moved to dismiss the complaint on several grounds: (1) the entire complaint failed because the plan agreement provided that plaintiffs do not have a vested right in free lifetime health care benefits; (2) the pension clause of the state constitution doesn’t apply to health care benefits; (3) the CTA and the unions had the right to change retiree health care benefits; (4) plaintiffs were estopped from relying on statements outside of the retirement plan agreement; and (5) complying with 2008 amendments to the Pension Code could not be a breach of fiduciary duty. The CTA filed its own motion to dismiss, arguing that it was not a proper party, given that it had not had any responsibility for retiree’s health care costs since the 1980s.

The trial court dismissed with respect to the current employee plaintiffs on standing grounds. The court dismissed the remainder of the action for failure to state a claim, holding that the relevant union-management agreements did not expressly vest retired CTA employees with fully paid health care benefits, at least after December 31, 2003, particularly since the agreements had expressly reserved the right to modify retiree benefits in collective bargaining.

The Appellate Court affirmed in part and reversed in part. First, the Court agreed with the trial court’s finding that the current employees lacked standing to bring their claims, given that they were not seeking to vindicate any rights independent of the collective bargaining process. The Appellate Court also affirmed in part the trial court’s dismissal of all claims against the CTA, holding that although the CTA had no contractual or statutory obligation to pay retiree health care benefits, the CTA’s decision to continue the payments through 2009 raised a viable claim for promissory estoppel and declaratory judgment.

The Court turned next to the question of whether the retiree’s fully paid health care premiums were a vested right. Following the decision of the Third District in Marconi v. City of Joliet, the Court held that such rights were presumptively vested. Nothing in the various agreements overcame that presumption, and the Court held that the language relied upon by the trial court, reserving the right to vary retirees’ rights in future agreements, was not enough to overcome the presumption of vesting.

The Appellate Court next turned to the plaintiff’s constitutional challenge. The Appellate Court’s decision was filed prior to the Supreme Court’s recent decision in Kanerva v. Weems. Because Kanerva was then pending, the Court reversed the trial court’s dismissal of the constitutional claims so that the trial court could reconsider in light of the Supreme Court’s Kanerva decision. Given the Supreme Court’s strong endorsement in Kanerva of the proposition that health care benefits are protected by the pension clause, the plaintiffs would seem to have a strong claim under the public pension clause.

Finally, the Appellate Court turned to the trial court’s dismissal of the breach of fiduciary duty claim. The Court concluded that the plaintiffs had adequately alleged that the Health Trust Board owed fiduciary duties to the plaintiffs when exercising its discretion to set retirees’ health care premium contribution levels.

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

Image courtesy of Flickr by CTA Web.

 

Illinois Supreme Court Debates Scope of Court Authority Over Academic Investigations

During its September term, the Illinois Supreme Court debated the scope of courts’ authority to intervene in academic investigations at the University of Illinois in order to require University officials to follow their own rules for such proceedings. Our detailed summary of the facts and lower court opinion in Leetaru v. Board of Trustees of the University of Illinois is here.

The plaintiff filed suit in Circuit Court, seeking a preliminary and permanent injunction to halt the University’s investigation of his alleged research misconduct. Although nearly all claims against the State must be brought in the Court of Claims, the plaintiff argued that the trial court could proceed because he was seeking only prospective injunctive relief to control the defendants’ future conduct. The trial court granted the plaintiff’s motion to dismiss, holding that the plaintiff’s claim was subject to the Court of Claims Act, and the Circuit Court therefore lacked jurisdiction. The Appellate Court affirmed for two reasons: (1) the plaintiff’s request for an injunction was a “present claim” within the meaning of the Court of Claims Act; and (2) even if it was not, the plaintiff was arguing that the University’s conduct was wrongful, as opposed to entirely ultra vires.

Counsel for the plaintiff began the argument before the Supreme Court. According to counsel, the plaintiff was a graduate student at the University of Illinois and on a remarkable journey towards his degree when the University began its investigation. Plaintiff consulted the University’s policies and procedures governing research conduct and found that the process had three steps: assessment, inquiry and investigation, each with particular procedural guarantees. The University’s research officer is required to take custody of all the documentary evidence, and gives access to that evidence to the accused student, but in this case, that allegedly didn’t happen. Moreover, the plaintiff alleges that the University told the inquiry team not to interview the plaintiff about the allegations, even though the procedures manual says that the student should be interviewed. Counsel argued that the Court of Claims was an ineffective remedy because – although the Supreme Court has said nothing bars the Court of Claims from granting injunctions – the Court of Claims has repeatedly said it will not do so. Counsel argued that there is a clear exception to the Court of Claims Act carved out for solely prospective injunctive relief – an exception which the Supreme Court has noted at least three times.

Justice Burke asked whether counsel was arguing that an officer acts in excess of his or her authority whenever internal regulations aren’t followed. Counsel agreed that that was so, but Justice Burke then pointed out that Section 305-1 of the Court of Claims Act appears to bar suits against the University in Circuit Court. Counsel answered that plaintiff’s claim falls in none of the categories which must, pursuant to the Act, be brought in the Court of Claims. Justice Karmeier pointed out that the Court had said in 2005 that a state officer’s action in excess of his or her authority has the effect of stripping the officer of official status – meaning that the officer’s conduct was not that of the State. Counsel agreed that that was plaintiff’s theory.   Justice Karmeier noted that plaintiff conceded that the University had the authority to conduct its investigation, and asked whether plaintiff’s argument that an investigation in violation of the University’s written procedures amounted to conduct in excess of an officer’s authority was a legitimate distinction. Counsel commented that it could be a fine line in some cases, but this was not a close case. Counsel argued that the investigating officer’s authority was proscribed by the rules set forth in the University’s written policies. Justice Thomas asked counsel whether the plaintiff could file a claim for damages in the Court of Claims, and counsel conceded that such a claim was theoretically possible. Justice Thomas noted that plaintiff did have a remedy in the Court of Claims, just not the one he wants. Counsel responded that there is no real remedy in the Court of Claims, because that court won’t require the University to follow its own procedures. Chief Justice Garman asked where the line was between the University acting within its discretion and exceeding its authority. Counsel responded that while such a line might be difficult to find in some cases, this case was an easy call.

Counsel for the University began by arguing that management of the University’s academic affairs was among its core functions, and maintaining the integrity of those affairs is a matter of the highest importance. The plaintiff’s complaint, counsel argued, was an attempt to interfere with an authorized governmental function. Counsel argued that plaintiff’s position failed to distinguish between a government official acting in a wrongful manner, and one acting in excess of his or her authority. Merely carrying out an authorized function in a wrongful way is not enough to confer jurisdiction on the Circuit Court.   Justice Karmeier asked whether government officials should abide by their own procedures. Counsel responded that they should, but if they don’t, the claim goes to the Court of Claims. Justice Karmeier asked what relief would be available there, and counsel answered that plaintiff could seek damages for reputational harm, loss of employment opportunities, etc. Justice Karmeier pointed out that none of that would get the plaintiff his procedural rights. Counsel answered that plaintiff’s theory would support a claim for damages, but not injunctive relief.   Justice Karmeier suggested that plaintiff wasn’t trying to stop the investigation – he was insisting that it be done by the rules. Counsel answered that plaintiff has sought an injunction stopping the investigation. Chief Justice Garman asked what the line was between an exercise of discretion and exceeding one’s authority. Counsel answered that the University clearly had authority to investigate research misconduct.  Justice Karmeier asked whether it mattered how the University conducted the investigation, as long as they had the authority to undertake it. Counsel agreed it did matter, but said that was an issue for the Court of Claims.

Justice Karmeier asked how counsel would respond to the Supreme Court’s earlier comment that the government’s violations of the Constitution or laws of the state could be properly restrained by the courts. He suggested that the officers’ suit exception to sovereign immunity says that violating rules of procedure amounts to acting outside the scope of authority. Counsel again argued that simply alleging that an authorized investigation is being done in a wrongful matter doesn’t create jurisdiction. Justice Thomas asked how plaintiff could have filed for damages when he hadn’t been terminated yet. Counsel answered that typically, a complaint is filed and then stayed until an investigation is complete. Justice Thomas asked whether it was fair to say that the plaintiff couldn’t have gotten the relief he sought from the Court of Claims. Counsel responded that while it is likely that plaintiff would not have gotten an injunction from the Court of Claims, injunctions are not outside the court’s authority. Chief Justice Garman asked what the future consequences of endorsing the defendant’s theory might be. Counsel answered that case law would continue to move in the same direction, and that persons seeking to interfere with authorized government functions would have to proceed in the Court of Claims.

On rebuttal, Chief Justice Garman asked the plaintiff’s counsel the same question – what are the consequences of ruling for plaintiff? Counsel answered that there would be none – plaintiff wasn’t seeking to impose financial liability. Counsel argued that wrongfully apply the rules might be within a government official’s authority, but simply ignoring them isn’t. The case is about integrity, counsel argued. An award of damages would not remedy a prospective finding by the University that the plaintiff had violated its research integrity standards. Justice Karmeier asked whether plaintiff was seeking to stop the investigation, and counsel said he was not: plaintiff merely wanted a fair shot to get the information the charges were based on and mount a defense.

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

Image courtesy of Flickr by Kevin Dooley.

Illinois Supreme Court Holds Subcontractor Should Have Proceeded Against Project Bond

Last month, a divided Supreme Court held that a subcontractor on a public works program should have timely proceeded against the project bond, and had no remedy against the Village after the general contractor went bankrupt before paying the sub’s bill. In an opinion by Justice Theis, the Court held in Lake County Grading Company, LLC v. The Village of Antioch that the Village could not be held liable for third-party breach of contract for failure to obtain a project bond from the general contractor which included an explicit guarantee of payment. Our detailed summary of the facts and lower court opinions in Lake County is here. Our report on the oral argument is here.

Lake County arises from two construction projects in residential subdivisions in Antioch. The Village entered into contracts with a general contractor. Pursuant to the Public Construction Bond Act, 30 ILCS 550/1, the Village was required to obtain “a bond to the [Village] . . . Each such bond is deemed to contain the following provisions whether such provisions are inserted in such bond or not.” The Act then goes on to describe a payment guarantee. The general contractor provided four bonds to the Village. However, none contained express payment bond language. 

The general contractor contracted with plaintiff to provide certain labor and materials. Before fully paying the plaintiff, the general contractor defaulted on its contract and declared bankruptcy. The plaintiff served notices of lien claims with respect to both projects in February 2008 – fourteen months after its last work on one subdivision and ten months after its last work on the other project.

Plaintiff ultimately filed suit against the Village. The two counts at issue in Lake County purported to state third-party breach of contract claims on the theory that the Village had failed to obtain payment bonds – as opposed to mere completion bonds – from the general contractor. On cross-motions for summary judgment, the trial court held that it could not read payment language into the bonds obtained by the general contractor. The trial court entered judgment for the subcontractor. The Appellate Court affirmed.

The Supreme Court reversed. The fundamental issue, the Court found, was whether or not the bonds filed by the general contractor were deficient within the meaning of Section 1 of the Bond Act. The Court held that the plain language of the Act required the public entity contracting for public works to mandate delivery of “a bond” – not a completion bond and a payment bond. That single bond was deemed to include a payment obligation within it whether such language was expressly set forth or not. The majority found that its interpretation of Section 1 effectuated two of the purposes of the Act – to protect subcontractors who would otherwise have no right of mechanics’ lien against a public entity, and to prevent public money from being at risk when general contractors fail to pay their subs. The Court pointed out that it would hardly be necessary for the statute to provide that a payment obligation was automatically deemed part of the bond if the public entity was required to obtain an actual payment bond. The Court noted that other state statutes required the procurement of separate payment and completion bonds, further supporting its conclusion that the legislature intended to require only one bond.

Since the bonds filed by the general contractor were automatically deemed to include payment language in them, the plaintiff’s remedy was to proceed within 180 days against one or more of the bonds. The plaintiff failed to do so, and had no remedy against the Village.

Justice Freeman dissented, joined by Justice Burke. According to Justice Freeman, the majority’s conclusion that Section 1 of the Bond Act mandated that both completion and payment were guaranteed by any bond obtained by a public entity was contrary to the plain language, the purpose and history of the statute. “I . . . agree that two, separate bonds are not required,” Justice Freeman wrote. “However, where a single bond is obtained, that bond must reflect that it secures two distinct obligation: completion . . . and payment for labor and materials . . .” Justice Freeman concluded that the “deemed to contain” language was not intended to impute a payment obligation into a completion bond, but merely to clarify ambiguous bond language. According to Justice Freeman, subcontractors should be permitted to sue public entities whenever they failed to obtain the mandatory bonds.

Image courtesy of Flickr by kalmyket.

Illinois Supreme Court Rejects Constitutional Challenge to Medical Licensing Amendments

Last month, a unanimous Illinois Supreme Court rejected assorted constitutional challenges to 2011 amendments to the Department of Professional Regulation Law governing medical licensing. In an opinion by Justice Burke, the Court affirmed the judgment of Division 1 of the First District Appellate Court in Hayashi v. The Illinois Department of Financial and Professional RegulationOur detailed summary of the facts and lower court opinions is here. Our report on the oral argument is here.

On July 21, 2011, the Illinois General Assembly amended the Professional Regulation Law to provide that certain classifications of people should have their health care licenses permanently revoked without a hearing, including persons who had been convicted of criminal battery against a patient in the course of patient care or treatment and any criminal offense which required registration under the Sex Offender Registration Act. The Department duly issued notices to each of the plaintiffs, indicating that it would revoke their licenses pursuant to the Act because each had been convicted of one of the covered offenses. The plaintiffs filed separate actions seeking an injunction and a judicial declaration that the Act could constitutionally be applied only to convictions occurring after the effective date of the Act. The Circuit Court denied the plaintiffs’ motions for preliminary injunctions and granted the defendants’ motions to dismiss for failure to state a claim. The Appellate Court affirmed.

The Supreme Court affirmed as well. The Court began by holding that the plain language of the Act demonstrated that the legislature intended the Act to apply to convictions before its effective date. The plaintiffs argued that applying the Act to them would render it impermissibly retroactive in violation of their due process rights. The Court disagreed. The test of retroactivity is found in Landgraf v. USI Film Products – a statute is applied retroactively when it impairs rights a party possessed when he or she acted, increases a party’s liability for past conduct, or imposes new duties with respect to transactions already completed. Given that the automatic revocation provision of the Act solely cancelled the plaintiffs’ licenses going forward, the Court held that the Act was not being applied retroactively, even though its application is based on antecedent facts.

Next, the plaintiffs argued that the Act deprived them of a fundamental property right in violation of the due process clause. The Court agreed that a party’s medical license was a property right within the meaning of the clause, but not that the right involved was fundamental. Instead, legislation infringing on the right to pursue a profession is subject only to rational basis analysis. Applying that test, the Court held that the penalties in the Act bore a reasonable relationship to a legitimate state purpose – regulating the medical professions for the protection of the public.

Next, the plaintiffs argued that the Act impaired their vested right of repose to be free from additional discipline based on their past acts. At the time of the plaintiffs’ acts, the Medical Practice Act provided that any disciplinary action must be commenced within three years of the Department receiving notice of misconduct. The difficulty, the Court held, was that the time bar provisions the plaintiffs relied on simply didn’t apply to the automatic revocation provisions of the 2011 amendments.

The Court next addressed the plaintiffs’ facial due process challenge to the Act. The test for procedural due process claims under Illinois law closely parallels the Federal test – the Court considers: (1) the private interest implicated; (2) the risk of an erroneous deprivation, and the value of additional safeguards; and (3) the government’s interest, including the administrative burdens of additional safeguards. The Court held that given the plaintiffs’ right to file a written objection upon notice of mandatory revocation, the risk of erroneous deprivation was not great, while the burden of retrying the plaintiffs’ cases would be considerable.

Finally, the plaintiffs argued that the revocation was barred by res judicata, since their disciplinary cases had already been concluded. The Court rejected plaintiffs’ claim on the grounds that the original disciplinary action and the mandatory revocation proceeding were not the same action for res judicata purposes.

Image courtesy of Flickr by jasleen_kaur.

Illinois Supreme Court Adopts Measure of Malpractice Damages in Securities Cases

Last month, the Illinois Supreme Court handed down its unanimous decision in a case being closely watched by the local bar associations – Goldfine v. Barack, Ferrazzano, Kirschbaum & Perlman. Goldfine involved the issue of what damages are available, and how damages are calculated, in a claim for legal malpractice arising from an underlying claim pursuant to the Illinois Securities Law. Our detailed preview of the facts and underlying decisions in Goldfine is here. Our report on the oral argument is here.

The plaintiffs in Goldfine bought certain stock between 1987 and 1990. The company issuing the stock became bankrupt in 1991, rendering the stock worthless. That year, the plaintiffs retained the defendant law firm. At the time the plaintiffs hired the defendant firm, they had a viable claim for rescission of the stock purchases. But the defendants failed to serve a mandatory notice of rescission, and the claim was lost.

The plaintiffs sued the defendants in 1994. Two years after, the parties agreed that the malpractice claim would not be tried until the plaintiffs’ underlying case against the parties involved in the stock sale was tried or otherwise resolved. That finally happened eleven years later, in 2007, when plaintiffs’ remaining claims against the sellers were resolved for $3.2 million.

So back the parties went to the malpractice claim. According to Section 13 of the Illinois Securities Law, those harmed by a violation of the statute are entitled to damages amounting to “the full amount paid, together with interest from the date of payment for the securities sold.” The trial court awarded malpractice damages as follows: it proportionally deducted the $3.2 million settlement from each of the eleven stock purchases, then calculated interest from the date of each purchase to the date of the judgment.

Both parties appealed – the plaintiffs arguing that the trial court had erred in calculating the damages and the attorneys’ fees, and the defendants on the grounds that the fee-shifting and interest provisions of the Securities Law were punitive in nature and couldn’t be applied in a malpractice action. The Appellate Court reversed in part, finding that the Securities Law provided the proper measure of damages, but that there was no basis for deducting the amount of the settlement from the purchase price before calculating interest.

In an opinion by Justice Kilbride, a unanimous Supreme Court affirmed in part and reversed in part. The Court began by rejecting the defendants’ claim that the Securities Law amounted to punitive damages. The Law wasn’t being applied to the defendants, the Court found. The measure of damages was the sum the plaintiffs would have recovered but for the defendants’ negligence, and the Securities Law merely served as the measure of that sum. The defendants also argued that post-sale interest shouldn’t be applied against them, because the purpose of the statute was to promote rescission of questionable sales, and the attorneys had no ability to rescind the sale – thus, they were left to watch damages mount, with no way of stopping the accumulation. The Court pointed out that the defendants had chosen to postpone adjudication of the malpractice claim until the underlying securities suit was finished, as opposed to settling the case early on. The Court also rejected the defendants’ claim that the damages measure in the Securities Law amounted to punitive damages with respect to attorneys, noting that to be “punitive,” a damages measure must be calculated without regard to the plaintiffs’ actual damages.

The defendants had somewhat better luck, however, with their claim that the damages award violated due process guarantees. Although the overall measure passed due process scrutiny, the lower courts had erred, the Court held, by allowing interest to continue to mount after the 2007 settlement of the underlying action, since plaintiff’s damages thereby exceeded what they could have recovered in the underlying lawsuit. The Court concluded by affirming the Appellate Court’s holding that the $3.2 million settlement should have been deducted after calculating interest on the amount paid for the securities, rather than before, as the trial court had done.

Image courtesy of Flickr by William Creswell.

Florida High Court to Decide Duties Owed by Public School Regarding Automated External Defibrillator

On October 6, 2014, the Florida Supreme Court heard oral argument in a case involving whether a public school owes a duty to maintain, make available, and use an automated external defibrillator (AED) on a student athlete who collapses during a school-sanctioned athletic competition.  See Limones v. School Board of Lee County, No. SC13-932.  The Second District Court of Appeal held that the school board’s common law duty to prevent aggravation of a student’s injury did not include making an AED available and that the school board did not have a statutory duty to make an AED available to the student.  To view the Second District’s opinion, click here.

This case arises from the collapse of a high school athlete, Abel Limones, on the field during a soccer game.  When Abel stopped breathing and had no pulse, his coach and a nurse bystander performed CPR, but Abel was not resuscitated until emergency personnel arrived and used a defibrillator.  Abel suffered severe and permanent brain damage and his parents sued the school board, alleging that it was negligent in failing to maintain an AED on or near the soccer field, failing to make it available for use, or in failing to actually use an AED on Abel.  The trial court determined the school board did not have a duty to make available, diagnose the need for, or use an AED and that, even if it did, the school board was statutorily immune from the action.

On appeal, the Second District acknowledged that Florida courts generally recognize a school’s duty to adequately supervise its students, and this duty extends to athletic events and includes utilizing appropriate post-injury efforts to protect the injury against aggravation.  The issue in this case, however, was whether reasonably prudent post-injury efforts for Abel would have required making available, diagnosing the need for, or using an AED.  The Second District noted that while Florida courts have not addressed a school district’s duties in this context, the Fourth District in L.A. Fitness v. Mayer has concluded that a business owner does not have a common law duty to provide CPR or maintain or use an AED when a business invitee collapses while exercising at the owner’s facility.

In L.A. Fitness, a health club patron suffered cardiac arrest and collapsed during a workout.  An employee of the health club, who was certified in CPR, called 911, but did not perform CPR.  The health club did not have an AED on the premises.  The Fourth District noted that courts from other jurisdictions have uniformly refused to extend a business owner’s duty from calling for medical assistance within a reasonable amount of time to providing “medical care or medical rescue services,” which includes using an AED.  The Fourth District also looked for further guidance to a Connecticut case in which the court examined the American Red Cross and the American Heart Association’s Guidelines for First Aid.  See Pacello v. Wyndam Int’l., 41 Conn. L. Rptr. 193 (Conn. Super. Ct. 2006).  Based on the absence of CPR from those guidelines, the court concluded that CPR is something more than first aid – it requires training and re-certification.  Thus, while CPR is routine for emergency medical responders, “non-medical employees certified in CPR remain laymen and should have discretion in deciding when to utilize the procedure.”  The court applied this rationale to the maintenance and use of an AED as well.

The Second District found that L.A. Fitness and the cases cited by it did not support the finding of a common law duty on behalf of the school board to make available, diagnose the need for, or use an AED on Abel.    

Abel’s parents argued that the school board undertook a duty to safeguard Abel by acquiring an AED and training personnel in its use and that it failed to safeguard Abel by not using the AED.  The court held, however, that Abel’s parents failed to establish that the school board’s action in acquiring the AED and training personnel in its use compelled the school board to ensure that the AED would be used under these circumstances. 

Abel’s parents also argued that the school board’s duty stemmed from Florida Statutes Section 1006.165, which provides that a public school that is a member of the Florida High School Athletic Association must have an operational AED on school grounds.  This statute also provides that each school must ensure that all employees and volunteers who are reasonably expected to use the device obtain appropriate training.  The Second District noted that there were no reported cases citing Section 1006.165, but that its terms are very succinct and there is no question that the school board complied with the requirements. 

The court also looked to see whether a duty existed under Florida Statutes Sections 768.13 and 768.1325.  Section 768.13, known as the “Good Samaritan Act,” provides immunity from civil liability to any person “who gratuitously and in good faith renders emergency care or treatment” under certain circumstances in emergency situations outside a hospital or doctor’s office.  While this statute requires a person who undertakes a duty to render aid to do so reasonably, it does not set forth a duty to render aid.

Section 768.1325, known as the “Cardiac Arrest Survival Act,” provides immunity from civil liability for those who use or attempt to use an AED or for “any person who acquired the device and makes it available for use.”  Like Section 768.13, Section 768.1325 does not create a legal duty to render aid through the use of an AED.  Furthermore, because neither statute clearly set forth an intent to create a private cause of action, neither statute can be construed as establishing civil liability.

Finally, the Second District rejected the arguments of Abel’s parents that the school board is not entitled to immunity under 768.1325 because it is not a “person” as contemplated by the Cardiac Arrest Survival Act.

This article will be updated once the Florida Supreme Court decides the case.

 

 Image courtesy of Flickr by Faungg.

 

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Florida High Court To Decide Whether State Insurer Is Immune From Statutory Bad Faith Claims

The Florida Supreme Court has accepted for review a First District decision holding that Florida’s state insurer of last resort, Citizens Property Insurance Corporation, is not immune from a statutory bad faith failure to settle claim.  See Citizens Prop. Ins. Corp. v. Perdido Sun Condo. Ass’n, No. SC14-185To view the First District’s opinion, click here.

After its insured property was damaged by a hurricane, Perdido Sun made a claim on its insurance policy with Citizens.  Perdido Sun was not satisfied with the amount of Citizens’ eventual payment on the claim and sued for breach of contract to recover additional money.  Perdido Sun won its breach of contract claim and then filed a second lawsuit against Citizens alleging statutory bad faith failure to settle under section 624.155(1)(b)1., Florida Statutes.  Citizens moved to dismiss, asserting its immunity from suit under section 627.351(6)(s)1., Florida Statutes.  The trial court granted the motion. 

On appeal to the First District, Perdido Sun argued that the “willful tort” exception to the immunity provision applied to its bad faith action.  Citizen argued the exception must be strictly construed and because it does not specifically reference a cause of action under section 624.155, it does not apply.  The First District found that “failing to attempt in good faith to settle claims as provided by section 624.155, Florida Statutes” is a “willful tort.”  It therefore reversed the order dismissing the complaint with prejudice.

The First District certified conflict with the Fifth District’s decision in Citizen Property Insurance Corp. v. Garfinkel, 25 So. 3d 62 (Fla. 5th DCA 2009), and certified the following question of great public importance to the Florida Supreme Court:  “Whether the immunity of Citizens Property Insurance Corporation, as provided in section 627.351(6)(s), Florida Statutes, shields the Corporation from suit under the cause of action created by section 624.155(1)(b), Florida Statutes for not attempting in good faith to settle claims?”

The supreme court held oral argument on October 7, 2014.  This article will be updated once the Court decides the case.

 Image courtesy of Flickr by Ed Hart.

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Join Us for "The Illinois Supreme Court: Preview of Coming Attractions"

Register now to join us for the first in a new series of webinars by Sedgwick’s Complex Litigation Appellate Task Force. In addition to discussing important decisions coming this fall from the Illinois Supreme Court in the fields of tort law, the law of evidence, insurance law and civil and appellate procedure, we’ll be spotlighting the importance of an appellate lawyer on the trial team, as well discussing our exhaustive empirical research on the state Supreme Court’s decision-making since 2000. To learn more and register, click here.

Image courtesy of Flickr by Teemu008.

Illinois Supreme Court Seems Likely to Reinstate Attorney General's Appeal from ICC Order

In the recently concluded September term, the Illinois Supreme Court heard one of the shortest civil arguments it has heard in many years in People ex rel. Madigan v. Illinois Commerce Commission. Madigan seems likely to result in guidance from the Court as to the interplay of the various filing deadlines which apply to challenging administrative decisions of the Illinois Commerce Commission. Our detailed summary of the facts and lower court orders in Madigan is here.

Madigan arises from the decision of the Illinois Commerce Commission allowing the respondent water company to impose a 1.25% reconciliation charge on its customers, and refusing to require a special sewer rate for low-volume customers. The Attorney General attempted to appeal both aspects of the decision.

Illinois Supreme Court Rule 335 requires that, when administrative review goes initially to the Appellate Court, review is had through a petition for review. It’s been held that Rule 335 incorporates the 30-day filing deadline of Rule 303(A). The Public Utilities Act, on the other hand – 220 ILCS 5/10-201(a) – provides for a thirty-five day filing deadline, but speaks of notices of appeal.

And that’s where things get really interesting. The Fifth District of the Appellate Court struck down Section 10-201 twenty-seven years ago in Consumers Gas Co. v. Illinois Commerce Commission. So the Appellate Court held that the matter was simple – the thirty-five day limit was a separation of powers violation, thirty days governed, so the appeal was untimely.

Counsel for the Attorney General led off in the short argument. He explained that because of the confused state of the law, the Attorney General had filed both a notice of appeal and a petition for review on the thirty-fifth day. Counsel argued that the cases holding that Rule 335 incorporated a thirty-day default time limit had been superseded by subsequent statutory amendments, increasing most statutory deadlines previously set at thirty days to thirty-five. Given that the legislature has now made it clear that thirty-five days is the default filing deadline, the earlier cases should no longer be followed. Justice Freeman asked whether the Court should overrule the earlier authority, and counsel for the Attorney General responded that the Court could reverse without doing so, but he agreed that the Court should clarify exactly what the rules are.

Counsel for the Commerce Commission concluded, urging the Court to clarify that appeals from the Commission’s decision simply required strict compliance with the provisions of the Public Utility Act, Section 10-201.

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

Image courtesy of Flickr by Dan Moyle.

Illinois Supreme Court Agrees to Unravel Procedural Tangle in Internet Posting Case

Our previews of the newest additions to the Illinois Supreme Court’s civil docket continue with Hadley v. Subscriber Doe. Hadley is a defamation case arising from an anonymous internet posting, but that issue comes wrapped in a couple of interesting procedural problems.

The plaintiff was a candidate for political office. At the end of an online newspaper article discussing the plaintiff’s fiscal positions, an anonymous reader posted a defamatory comment about the plaintiff. The plaintiff filed a defamation suit against the poster, using only his online screen-name. Then the plaintiff sent the cable company a subpoena, demanding that they disclose who the poster’s ISP address belonged to.

At the hearing on the motion to quash, the trial court noted that the whole matter would be better addressed within the context of Supreme Court Rule 224. Rule 224 allows persons who wish to engage in discovery for the sole purpose of identifying a person who might be liable to them in damages to file a verified petition for such discovery.

Based on the trial court’s instructions, the plaintiff filed an amended complaint. The first count was the defamation claim against the poster. The second count named the internet company as the respondent and asked, pursuant to Rule 224, for an order that the poster’s identity and address be disclosed.

After a hearing, the trial court entered an order granting the Rule 224 petition for disclosure on the grounds that the poster’s comment was not susceptible to an innocent construction, and could reasonably be interpreted as an assertion of fact. On reconsideration, the poster brought up a procedural problem. He asked whether the Court’s order was a standard order on a Rule 224 action, which would be immediately appealable, or an order disposing of one count of a two count complaint, in which case it would require Rule 304(a) language finding that it was a final order and appeal shouldn’t be postponed? The trial court expressed the opinion that its order was final as disposing of the Rule 224 issue, but just to make sure, the court added Rule 304(a) language.

The majority of the Court of Appeal affirmed, dealing in some detail with the issues of innocent construction and whether an anonymous post on an internet comments thread can reasonably be construed as a factual assertion. The majority then turned to the procedural issues.

First up was the question of the statute of limitations. The poster said there’s no reason to disclose his name because the plaintiff can’t possibly state a claim within the one-year statute of limitations. The defendant conceded that the plaintiff had filed his complaint within the one-year statute, but the complaint was directed only against the poster’s fictitious screen name. The poster said a complaint suing a fictitious person is a nullity, so that doesn’t satisfy the statute. The Appellate Court conceded that the issue had never been addressed in a Rule 224 case, but they turned to another recent case of the Supreme Court, in which the Court held that a suit against an alias of an actual person is not a nullity. The screen name was a fictitious name, the Court held, not a fictitious person. Since the poster had been sued within the one year statute, the statute of limitations defense failed.

Next, the court turned to the jurisdictional question. The majority concluded that even though the plaintiff’s petition had been stated in a single complaint with the defamation claim – which was still pending – it was an ordinary Rule 224 order. The only other procedural tool available to determine the identity of a missing defendant was found in 735 ILCS 5/2-402, but that wouldn’t work here, because Section 2-402 was intended to identify additional defendants when you’d already named one. Here, the poster was the only defendant.

The majority conceded that the case was a procedural tangle. Rule 224 petitions are ordinarily supposed to be brought before filing suit, and they’re the sole claim – when the petition is resolved, the case is over, and can proceed up on appeal as a final order. Here, the defamation claim was still pending before the trial court. But even if that ordinarily would render the order non-final, the Court concluded, the Rule 304(a) language took care of the problem.

Justice Birkett dissented on the procedural issue. He argued that the case couldn’t be treated as a Rule 224 petition – it hadn’t been brought as an independent, standalone action. He pointed out that the only reason a Rule 224 order was final and appealable is it usually concluded the action. But that wasn’t true here, so there was no basis for an appeal. Besides, there was no need for a Rule 224 petition in this case, according to Justice Birkett. The plaintiff could have simply subpoenaed the internet company and demanded the name and address of the account holder. “No matter how you dress it up,” Justice Birkett concluded, “this is a nonfinal discovery order, which is not appealable.” Regardless of the important issues and rights at stake, the trial court was “simply looking for a jurisdictional hook . . . to have an immediate appeal.” Justice Birkett believed that no such jurisdictional hook existed. 

Image courtesy of Flickr by Marcelo Graciolli.

Illinois Supreme Court Agrees to Decide If Accountant-Client Privilege Applies to Will Contests

In the closing days of its September term, the Illinois Supreme Court allowed a petition for leave to appeal in Brunton v. Kruger. Brunton involves the scope of the accountant-client privilege – more specifically, what happens to that privilege after the client dies, and how the privilege can be waived.

In Brunton, an accounting firm assisted a couple with estate planning. As part of that planning process, both spouses executed a will and a trust. By 2011, both of the testators had died, leaving three adult sons and one daughter. The wife’s will was admitted to probate. It bequeathed her tangible person property to her husband, who was deceased by then, and the residue of her estate was to be distributed pursuant to the Trust. The Trust said that one of the three sons would get the entirety of the family farm, and everything else would be distributed to the three sons equally. Both trusts said that the couple was “mindful” of their daughter, but they were deliberately making no provision for her because they had provided for her in other ways.

Just after probate was opened, the daughter filed a will challenge, alleging undue influence by one of the sons. The sons, who were defending the will, issued a deposition subpoena to the accountants, seeking all the estate documents. Not long after, the daughter subpoenaed the estate planning documents as well. The accountants provided the documents to the sons’ representatives, but refused to provide them to the daughter, claiming accountant-client privilege. The trial court initially agreed and refused to compel production, but after a second subpoena from the daughter, the court held that the privilege had been waived by the sons when they requested the documents, and the accountants produced them. Counsel for the accountants declined to produce the documents and appealed the trial court’s order.

Section 27 of the Illinois Public Accounting Act says that a certified public accountant cannot be compelled to produce information obtained by him or her “in his confidential capacity” as a CPA. In 2002, the Eighth Circuit construed the privilege and held that it only covered information obtained during the course of auditing a financial statement. The Appellate Court in Brunton refused to follow that decision, pointing out that the whole purpose of auditing a financial statement is so that third parties can read your work product. The Court commented that accountants do many things beyond auditing financial statements, and one of those functions is participating in estate planning. The Court believe that the legislature wouldn’t have used such broad language in describing the privilege if it was only concerned about a small fraction of the accountant’s job.

The Court held that there were two reasons to compel production of this material. First, the Court noted that the attorney-client privilege, which is construed similarly in most cases to the accountant-client privilege, is automatically waived in a will contest. The Court held that it saw no reason to construe the accountant’s privilege differently, so the materials were producible solely because the case was a will contest.

Alternatively, the Court said any privilege has been waived. The accountants argued that they held the privilege, and they hadn’t waived anything, but the Court said that the privilege exists to encourage full communication by the clients, so the privilege is held by the client. Since the sons – the people defending the estate – had already subpoenaed the estate documents themselves, the Court said that waived any privilege, and the material had to be produced to the daughter.

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

Image by Flickr courtesy of Ken Mayer.

Illinois Supreme Court Holds Improper Venue Not a Jurisdictional Defect in Administrative Review

A unanimous Illinois Supreme Court recently decided Slepicka v. The Illinois Department of Public HealthThe Court defined proper venue for an action under state law for judicial review of an administrative decision, and rejected a claim that improper venue was a jurisdictional defect necessitating dismissal. Our detailed summary of the facts and lower court opinions in Slepicka is here. Our report on the oral argument is here.

Slepicka arose from a nursing home’s notice of involuntary transfer or discharge, sent to a resident based upon nonpayment. The plaintiff exercised her right to an administrative hearing, and the hearing was conducted at the defendant nursing home in Cook County. Some time later, an administrative decision approving the transfer or discharge was issued from the Department’s office in Springfield. The plaintiff filed a complaint for administrative review in the Circuit Court for Sangamon County – where Springfield is – rather than in Cook County. The Circuit Court denied the defendant’s motion to dismiss for improper venue, but ultimately upheld the transfer/discharge order. On appeal, the Appellate Court held that Sangamon County was not a proper venue, but that the defect was not jurisdictional. The Court transferred the matter to Cook County Circuit Court for a do-over.

In an opinion by Justice Freeman, the Supreme Court affirmed in part and vacated in part. The Court noted that complaints for judicial review under the Administrative Review Law must be filed in the Circuit Court for the county where: (1) “any part of the hearing or proceeding culminating in the administrative decision was held,” (2) any part of the subject matter involved is situated, or (3) any part of the transaction which gave rise to the proceedings occurred. The second and third factor clearly pointed towards Cook County. The plaintiff argued that venue was proper in Sangamon County under the first test because “part of the hearing or proceeding” – the final decision – had been reached in Sangamon County.

The Court disagreed. Carefully parsing the language of the statute using the settled rules of statutory construction, the Court concluded that the writing and mailing of the administrative decision did not constitute “part of the hearing or proceeding.” In addition, the Court noted that acceptance of the plaintiff’s argument could easily lead to forum shopping, since venue could vest in a particular county based on purely ministerial acts such as mailing an administrative decision.

The Court then addressed the question of what impact the improper venue should have on the case. The defendant argued that because administrative review is performed pursuant to special statutory jurisdiction – and strict compliance with the statutory rules is required – improper venue was a jurisdictional defect. The Court disagreed. The Court noted Section 2-104(a) of the Code of Civil Procedure provides that improper venue is never grounds for dismissal, and nothing in the Administrative Review Law exempts proceedings under that statute from Section 2-104(a). The Court noted that it had decided nearly fifty years ago, in Merit Chevrolet, Inc. v. Department of Revenue, that administrative actions could be transferred on grounds of improper venue.

Ultimately – and not surprisingly – the Court reached a pragmatic result. Although the Sangamon County Circuit Court would have been justified in immediately transferring the matter to Cook County, that did not mean that the Court lacked jurisdiction to proceed. Since the Sangamon County court had reached a decision, appeal at the Appellate Court was a matter of right, and the Appellate Court should have reached the merits. Accordingly, the Supreme Court vacated the transfer order and remanded the matter to the Appellate Court for review of the merits of the Department’s decision.

Image courtesy of Flickr by Brad Clinesmith.

Illinois Supreme Court Rejects Expansive Interpretation of Exception to Open-and-Obvious

In the recently concluded September term, the Illinois Supreme Court reaffirmed the “open-and-obvious peril” doctrine and gave needed definition to the “distraction” exception to that rule, unanimously reversing a decision of the Fifth District in Bruns v. The City of Centralia. Our detailed summary of the facts and lower court decisions in Bruns is here. Our report on the oral argument is here.

Bruns arose from an accident in the spring of 2012. The plaintiff, just days short of her eightieth birthday, arrived at an eye clinic for her appointment. She had been to the clinic nine times before. In front of the clinic, the sidewalk had cracked and become uneven in one stretch due to the effect of the roots of a nearby tree. Three years before, the clinic had offered to remove the tree at its own expense, but the City had denied permission due to the tree’s historic significance. The plaintiff had noticed the defect in the sidewalk during each previous visit, and believed she had noticed it on the day of the accident. But she was focused on the door of the clinic, and she fell. When the plaintiff sued the City, the City moved for summary judgment, arguing that the sidewalk defect was an open-and-obvious hazard as a matter of law. The Circuit Court granted summary judgment, but the Court of Appeal reversed, holding that the “distraction” exception – which reinstates the duty of care when a land owner or occupant should expect that the invitee’s attention will be distracted, and he or she will not perceive the risk, or will forget about it – potentially applied.

The Supreme Court unanimously reversed in an opinion by Justice Theis. Reviewing previous decisions applying the distraction exception, the Court concluded that it is not enough for the plaintiff to merely show that he or she was not focused on the risk. The Court held that for the exception to apply, the plaintiff must show that a foreseeable circumstance required him or her to focus attention elsewhere, and fail to notice (or forget about) the open-and-obvious risk. The plaintiff had shown, at most, that she was focused on the clinic door, the Court commented. She had not proven that she had to do so.

The Court noted that a finding of an open-and-obvious danger was not an automatic bar to finding that the defendant owed the plaintiff a duty of care. The doctrine merely goes to the first two steps in the standard four-factor test for duty (reasonable foreseeability of injury; likelihood of injury; burden of guarding against the injury; and consequences of placing that burden on defendant). Thus, the Court suggested that in an appropriate case, a duty could be found even with respect to an open-and-obvious risk. But in Bruns, the Court found no duty as a matter of law. Even though the burden of repairing the single stretch of sidewalk would presumably not be great, the Court emphasized the miles of sidewalk the City was responsible for, and concluded that the burden was unjustifiably great, given the nature of the risk.

Image courtesy of Flickr by Kristian Bjornard.

Testing Liability: The Legacy of Brown v. Superior Court in Products Liability

Now over 25 years old, Brown v. Superior Court established a significant precedent regarding medical products liability, and products liability generally. In addition to its specific holdings, Brown has been credited with articulating the three separate theories of products liability—manufacturing defect, design defect, and failure to warn—at a time when these were often lumped into a single claim of strict products liability. The court in Brown unanimously held that:

1)  Strict products liability for defect design does not apply to prescription drugs,

2)  Strict liability for failure to warn in prescription drug cases is limited to information that was reasonably scientifically known or knowable at the time of distribution, and

3)  The market share theory applied in Sindell v. Abbott Laboratories does not apply to breach of warranty or fraud claims and a defendant is only liable for an apportionment equal to its then market share of the subject product.

In the time since Brown, its blanket restriction on design defect claims, which remains a minority rule, has been expanded in California to all implanted medical devices, such as IUDs, breast implants and artificial joints. Attempts to expand it further to selected non-prescription medical products have so far been unsuccessful, although on a case-by-case basis. Conversely, its ruling on warnings follows the national majority rule and has been applied to products claims generally. The market share theory has not seen wide application, presumably in part because of the restrictions imposed by Brown. For more details regarding the history and legacy of Brown, please see my article in the September 2014 issue of Los Angeles Lawyer, which can be found here.
 

Copyright 2014 Los Angeles Lawyer. Reprinted with permission.

Texas Supreme Court Upholds Class Representative's Authority to Dispose of Unclaimed Settlement Proceeds

A sharply divided Texas Supreme Court recently held that unclaimed class action settlement funds may be disposed of in the manner selected by the parties and are not subject to the state’s Unclaimed Property Act. In Highland Homes Ltd. v. The State of Texas, the court considered a settlement between a prominent Texas home builder and a class of subcontractors arising from a dispute over deductions in pay made by the homebuilder to cover the cost of providing adequate liability insurance coverage. The settlement required the defendant to establish a fund to pay claims. Recognizing that some class members might remain unlocated or fail to file a timely claim, the settlement provided that any settlement checks not negotiated within 90 days would be void and that these and any other unclaimed funds would be given to the Nature Conservancy. This type of cy pres settlement procedure has proven controversial recently and some court and commentators have criticized such arrangements. Nevertheless the trial court approved the settlement..

The state of Texas intervened in the case, asserting that the disposition of unclaimed settlement funds violated the Texas Unclaimed Property Act. Under the Act property not claimed within three years is presumed abandoned and is placed in the custody of the Comptroller to hold for the owner. The state argued that regardless of the terms of the settlement, any unclaimed settlement funds must be disposed of according to the statute. The court of appeals agreed with the state and ordered that the undistributed funds be held by the claims administrator for three years and then remitted to the Comptroller.

The Supreme Court reversed. In an opinion authored by Chief Justice Hecht, the five-justice majority reasoned that the Unclaimed Property Act did not apply because the funds were not really unclaimed. The class members had asserted claims and exercised ownership of the funds through the class representative. Once the class was certified the representative has the authority to dispose of any claims including the ability to direct the disposition of funds that could not be paid directly to the class members. 

Justice Devine penned a dissent on behalf of four justices. In their view the class certification rules were trumped by the Unclaimed Property Act because a procedural rule cannot enlarge or diminish any substantive rights. Once the settlement was funded, the dissent reasoned, the proceeds became the property of the individual class members and because subject to the Act.

The Highland Homes opinion upholds the ability of class representatives and defendants to strike class action settlements. If state unclaimed property statutes necessarily apply to all unclaimed settlement proceeds, parties to class litigation will have lost a considerable degree of flexibility in crafting settlements. Cy pres provisions would be difficult or impossible to enforce, as would provisions where the defendant obtains a reversion of the unclaimed funds. While fund-and-claim class action settlement arrangements are subject to some legitimate criticism, especially where the claims process is made unduly burdensome, the inability to use such an arrangement would deprive litigants of what is often a reasonable means of resolving disputes, especially in cases where the scope of actual loss by the class members is in dispute or cannot be readily ascertained. 

Image courtesy of Flickr by J.R.

Fifth Circuit Applies Punitive Damages Limitations to Statutory Civil Penalties

It’s not uncommon for state and federal regulatory schemes to provide for an award of statutory civil penalties to deter and punish certain conduct that it is difficult to monetize in a suit for damages. Frequently penalties may be assessed on a per-violation or per-day basis, permitting an astronomical award that bears little relation to the actual harm sustained by the persons for whose benefit the statute has been enacted. The Telephone Consumer Protection Act with its $500 per violation penalty for sending unsolicited fax advertisements is perhaps the best well known of these statutes but numerous others appear in the United States Code and among the state statutes.

Since these penalties are not intended primarily to compensate the victim of the unlawful practice and exist largely for the public purposes of punishing conduct deemed socially unacceptable the question arises of whether laws governing punitive damages awards constrain the courts in determining the total amount of punitive damages that may be awarded.

In Forte v. Wal-Mart Stores [pdf] four optometrists alleged that Wal-Mart had violated the Texas Optometry Act by writing into lease agreements with the optometrists a provision providing a minimum number of hours that the optometrists’ in-store offices would be opened. The optometrists conceded that they had sustained no damages but the jury awarded them nearly 4 million, amounting to a civil penalty of $1000 per day for each day the offending leases were in effect. The district court entered a remittitur reducing the civil penalty to approximately $1.4 million.

The Fifth Circuit reversed the civil penalty award under Chapter 41 of the Texas Civil Practice and Remedies Code, which governs the award of punitive damages. The court applied the Code’s definition of punitive damages which encompass any damages awarded as a penalty but not for compensatory purposes. The Optometry Act’s penalty provisions were specifically penal and nature and were not intended as compensation. The Fifth Circuit distinguished the case from a prior holding that had held Chapter 41 did not extend to civil penalties for the filing of false liens because in the prior case statutory damages provision expressly mentioned punitive damages indicating that the statutory penalty itself was no considered punitive damages by the legislature and because the statutory damages provision in the false liens case was not characterized as a penalty.

The Fifth Circuit then determined that the punitive damages cap under Chapter 41 was zero because the Chapter provided that punitive damage could only be recovered when the plaintiff received some non-nominal award of actual damages.

The result of the holding is dramatic. In effect, Chapter 41’s general provision that punitive damages may not be recovered in the absence of actual damages is permitted to trump a specific statutory provision allowing for the recovery of a civil penalty in the absence of actual damages. It will be necessary to carefully examine every Texas statute providing for a civil penalty to determine whether it is subject to Chapter 41’s zero cap.

Because Wal-Mart prevailed on its statutory argument the Fifth Circuit was not required to rule upon the interesting constitutional question of whether Due Process constrains a state’s ability to impose a civil penalty disproportionate to the actual harm caused by the unlawful activity. If Due Process limits a jury’s ability to award punitive damages to some reasonable ratio of the actual damages, it would seem that the legislature’s ability to meet out punishment through civil penalties is similarly limited.

Florida High Court to Decide If Party Must Object to a Fundamentally Inconsistent Verdict to Preserve Issue

VERDICT FORM
We, the jury, return the following verdict:
1. Did Defendants place the product 
    on the market with a design defect,
    which was a legal cause of the
    decedent’s death?
    YES _______ NO X
2.  Was there negligence on the part of
     Defendants which was a legal cause of
     decedent’s death?
     YES X NO ________

The Florida Supreme Court has accepted review of a Third District case involving whether a party waives a challenge to a fundamentally inconsistent verdict by failing to object before the jury is discharged.  See Coba v. Tricam Indus., Inc., No. SC12-2624. The Third District decided that a waiver does not occur under these circumstances.  To view the Third District’s opinion, click here.

After Robert Coba, a civil engineer, died from a falling from a ladder, his estate sued Tricam, the ladder manufacturer, and Home Depot, the seller, for strict liability and negligence.  The verdict form contained the following two interrogatories:

(1) Did Defendants, Tricam Industries and/or Home Depot, place the ladder on the market with a design defect, which was a legal cause of Roberto Coba’s death?

(2) Was there negligence on the part of Defendants, Tricam Industries and/or Home Depot, which was a legal cause of Roberto Coba’s death?

Because plaintiff’s products liability theory at trial was based on a design defect only, the jury inconsistently found that there was no design defect, but that the defendants’ negligence was the legal cause of the Coba’s death.  After the jury was discharged, defendants moved to set aside the verdict, claiming that there was insufficient evidence to sustain the jury’s negligence finding. The trial court denied the motion.

On appeal, the Third District found that the trial court erred in denying defendants’ motion to set aside the verdict in accordance with their motion for directed verdict. The court acknowledged that normally, a party would have waived their objection to a purportedly inconsistent verdict if they failed to object before the jury was discharged. The court, however, held that an exception to this rule exists where the inconsistency “is of a fundamental nature.”

The court relied on the Fourth District’s 2004 opinion in Nissan Motor Co. v. Alvarez and the Fifth District’s 1985 decision in American Catamaran Racing Ass’n v. McCollister—both factually similar cases where the jury was presented with a similar verdict form. In both decisions, the district courts considered the fact that the only evidence of negligence that had been introduced related to the alleged design defect. Because both juries found that there was no defect, the Fourth and Fifth Districts held that a concurrent finding of negligence could not be sustained. The Third District adopted the reasoning in these cases to hold that a party does not have to object to such a fundamentally inconsistent verdict.

The court also stated there was no need to remand for a new trial because the jury had already decided on the only evidence that had been presented—specifically, the alleged design defect. Because no other evidence had been introduced to support any other cause of action, the Third District held that no issue remained to be resolved.

Senior Judge Schwartz dissented in part, reasoning that defendants had waived their right to complain of an inconsistent verdict because they failed to request that the inconsistency be resolved after the verdict was returned. Judge Schwartz further explained that even if this were not the case, he believed that the appropriate remedy is to grant a new trial so that a jury—not the court—can resolve the inconsistency.

This article will be updated once the Florida Supreme Court decides the case.

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Florida High Court to Decide Whether Statute of Frauds Applies to Oral Agreement to Split Lottery Winnings

 

       

On June 20, 2014, the Florida Supreme Court accepted review of a Fifth District decision that certified the following question of great public importance:

Is an oral agreement to play the lottery and split the proceeds in the event a winning ticket is purchased unenforceable under the statute of frauds when: there is no time agreed for the complete performance of the agreement; the parties intended the agreement to extend for longer than one year and it did extend for a period of fourteen years; and it clearly appears from the surrounding circumstances and the object to be accomplished that the oral agreement would last longer than one year.

See Browning v. Poirier, No. SC13-2416. To view the Fifth District’s opinion click here.

Howard Browning and Lynn Poirier lived together as a couple between 1991 and 2009.  In 1993, the couple orally agreed that they would split the winnings of any lottery tickets purchased by either of them while they remained in a relationship. In  2007, Poirier purchased a winning ticket and received $1 million dollars less taxes. Poirier, however, refused to give Browning half of the proceeds. Browning in turn sued for breach of an oral contract and unjust enrichment, seeking half of Poirier’s winnings. Poirier moved for directed verdict on both causes of actions, claiming the statute of frauds as a defense. The trial court granted Poirier’s motion on both counts, entering final judgment in favor of Poirier.

Rehearing the case en banc, the Fifth District held that Poirier was entitled to a directed verdict on the breach of contract claim because the couple’s agreement was voided by the statute of frauds. Citing the Florida Supreme Court case of Yates v. Ball, the district court explained that an oral contract with no specified date for performance is subject to the statute of frauds if it is clear that the parties intended for it to last longer than one year.  The district court highlighted that Browning and Poirier’s lottery agreement was to extend until the couple’s relationship ended. The court stated that any suggestion that the couple had intended for their relationship—and thereby, the lottery agreement—to end within one year was belied by the evidence indicating their intention for a long-term commitment. Ultimately, the district court certified this issue to the supreme court.

The Fifth District reversed the trial court’s judgment on Browning’s claim for unjust enrichment. Because Browning testified that he had given Poirier the money to purchase the winning ticket with the implied understanding that they would share the proceeds, the district court held that a directed verdict should not have been granted in Poirer’s favor.

Judges Torpy and Griffin dissented in part.  They agreed that the directed verdict on the unjust enrichment count was error, but characterized the majority’s conclusion on the contract claim as ignoring the plain language of the statute, stating that it only considers contracts which clearly cannot—as opposed to likely will not—be performed within one year. Browning made a similar argument in his initial brief to the supreme court, contending that the qualifying rule articulated in Yates contradicts the plain language of the statute of frauds and improperly brings the subject contract within its reach.

This article will be updated once this Court decides the case.

Image courtesy of Flickr by Mark Ou.

 

     

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Florida High Court to Decide Which Test Governs Component Parts Doctrine

 

On April 8, 2014, the Florida Supreme Court heard oral arguments in an asbestos case concerning the liability of a defendant who has sold a component part to a manufacturer who then incorporates the part into its own products.  See Aubin v. Union Carbide Corp., No. SC12-2075.  On review was a decision from the Third District Court of Appeal which held that the Third Restatement of Torts’ component parts doctrine was the governing standard, expressly rejecting the Second Restatement’s test.   See Union Carbide Corp. v. Aubin, 97 So. 3d 886 (Fla. 3d DCA 2012).  To view the district court opinion click here and to view the supreme court oral argument click here.

Aubin worked as a superintendent at his father’s construction company from 1972 to 1974. During this time, he routinely handled and was exposed to joint compounds and ceiling textures. One of the ingredients in these materials was a chrysotile asbestos product mined, processed, and sold by Carbide. After contracting mesothelioma, Aubin filed suit alleging negligence and strict liability as a result of design, manufacturing, and warning defects.

The Third District held that the trial court had erred in: (1) deciding that Aubin’s claims were governed by the Second Restatement’s “consumer expectations” test as opposed to the Third Restatement “risk-utility/risk-benefit” test, (2) denying Carbide’s motion for directed verdict on the design defect claim, and (3) failing to instruct the jury that Carbide could have discharged its duty to warn end-users by adequately warning the intermediary manufacturer.

The district court disagreed that its own precedent in Kohler v. Marcotte—which adopts the Third Restatement’s component parts doctrine—was not binding because the Florida Supreme Court had previously adopted the Second (rather than the Third) Restatement.  The district court stated that absent overruling from the supreme court, the Third Restatement’s test controls in the Third District.  That test provides that a component part seller or distributor is liable when: (a) the component is defective in itself and the defect causes the harm; or (b) the seller or distributor substantially participates in the integration of the component into the design of the product; and (c) the integration of the component causes the product to be defective; and (d) the defect in  the product causes the harm.

Focusing on the first “avenue” of liability under the Third Restatement, the district court held that Aubin’s design defect claim failed because he did not establish how the design of the product caused his harm—specifically, that its design caused the product to be more dangerous than raw chrysotile asbestos is in its natural state.  

The Third District also acknowledged that there was no general rule for determining whether a manufacturer may rely on an intermediary to warn end-users, thereby discharging its own duty to warn. Citing the Third Restatement’s comments, the court stated that the inquiry was controlled by a reasonableness standard and included factors such as the gravity of the product’s risk, the likelihood that the intermediary will convey the warning, and the feasibility of warning the end-user. The court also referenced the “learned intermediary” doctrine—which considers the intermediary’s education, knowledge, expertise, and relationship with the end-user—as an informative (but not dispositive) factor. Therefore, the court affirmed the trial court’s finding that there was sufficient evidence to create a factual issue over Aubin’s claim that product had a defective warning.

After acknowledging that a manufacturer’s duty to warn may be discharged by reasonable reliance on an intermediary, the court also held that it was error for the trial court to not have incorporated this into the jury instructions.

Aubin later moved to certify direct conflict, claiming that the Third District’s decision directly conflicted with Fourth District precedent applying the Second Restatement. The court denied Aubin’s motion, explaining that the outcome of its decision would have been the same under the Second Restatement, because the pertinent tests were comparable.

 

Image courtesy of Flickr by Aaron Suggs.

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Governor Brown Taps Cuellar to Fill Latest Vacancy on California Supreme Court

 

Governor Jerry Brown has nominated Stanford law professor Mariano-Florentino Cuellar to fill the most recent vacancy on the California Supreme Court created by the impending retirement of Justice Marvin Baxter. Cuellar is “a renowned scholar who has served two presidents and made significant contributions to both political science and law,” Brown said.  “His vast knowledge and even temperament will – without question – add further luster to our highest court.”

Cuellar was born in Matamoros, Mexico. As a child he crossed the border each day to attend Catholic school in Brownsville, Texas, until he and his family relocated to California’s Imperial Valley when he was 14. After earning a bachelor’s degree from Harvard in 3 years (magna cum laude, 1993), he received a Master’s degree in political science from Stanford in 1996, followed by a law degree from Yale in 1997, and his Ph.D. in political science from Stanford in 2000. He then served as law clerk to Chief Judge Mary M. Schroeder of the United States Court of Appeals for the Ninth Circuit. 

Since the culmination of his clerkship in 2001, Cuellar has been a professor at Stanford. He is currently the Stanley Morrison Professor of Law at Stanford Law School, as well as the Director of Stanford’s Freeman Spogli Institute for International Studies, where he is also a Senior Fellow. According to his faculty biography, his work at Stanford involves “the intersection of law, public policy, and political science.” His courses deal with issues of administrative law, regulation and bureaucracy, executive power, and national security. 

Professor Cuellar’s tenure at Stanford has included governmental, as well as academic, endeavors. In fact, even before he assumed his faculty position at Stanford, he interrupted his Ph.D. program to serve as Senior Advisor to the Under Secretary (Enforcement) of the Treasury from 1997 to 1999, focusing on financial crime enforcement, terrorism financing countermeasures, immigration, and border security. In 2008 and 2009, he served as Co-Chair of the Immigration Policy Working Group for the Obama-Biden Transition Project, where he worked to formulate policies on immigration, borders, and refugees. In 2009 and 2010, he served as Special Assistant to the President for Justice and Regulatory Policy, leading the White House Domestic Policy Council’s work on criminal justice and drug policy; civil rights and liberties; immigration, borders, and refugees; public health and safety; rural development and agriculture policy; and regulatory reform. 

From 2011 to 2013, Cuellar co-chaired the National Equity and Excellence Commission, instituted by Congress to seek ways to improve the performance of public schools. He is currently an Obama appointee to the Council of the Administrative Conference of the United States, which monitors the fairness and efficiency of federal regulatory programs. He is also a board member of the American Constitution Society, often described as a progressive counterpart to the conservative Federalist Society, and the Constitution Project, a non-profit think tank that builds bipartisan consensus on constitutional and legal issues.

Beyond Stanford, Professor Cuellar is associated with the Council on Foreign Relations, the American Bar Association, the La Raza Lawyers’ Association of California, and the National Hispanic Bar Association, among others.  He is married to former Santa Clara County Superior Court Judge Lucy H. Koh, who is now a federal district court judge for the Northern District of California pursuant to an appointment by President Obama.

Because Cuellar has not served on the bench, glimpses of his prospective judicial outlook must be gleaned from his writings and his appearances in the media. A brief survey of his publications reflects an interest and expertise in national and international matters:

  • Governing Security: The Hidden Origins of American Security Agencies, Stanford: Stanford University Press, 2013.
  • “Securing” the Nation: Law, Politics, and Organization at the Federal Security Agency, 1939-1953, 76 U. Chi. L. Rev. 587 (2009) (arguing that American public law is driven by 1) how the executive branch defines national security and 2) how politicians compete to control public organizations that implement the law, and analyzing the intersection of those dynamics by investigation the history of the U.S. Federal Security Agency and drawing perspectives from separation of powers, organization theory, and the study of American political development.)
  • The Political Economies of Criminal Justice, 75 U. Chi. L. Rev. 941 (2008) (responding to the proposition that politicians increasingly govern by framing social policy choices as criminal justice problems, and concluding that “reshaping the [crime-governance connection] to achieve more defensible social goals is a subtle enterprise. Sensible changes in criminal justice could almost certainly yield an acceptable social equilibrium less dependent on incarceration.”)
  • Auditing Executive Discretion, 82 Notre Dame L. Rev. 227 (2006) (proposing an audit framework similar to “sample adjudication of class action” in lieu of the deferential or non-existent judicial review of executive decision-making and reaching 3 conclusions: “(1) Judicial review fails to constrain a broad range of discretionary executive decisions subject to mistakes or malfeasance. (2) The limitations of traditional judicial review do not imply that discretionary executive branch decisions should be immune from some form of review. (3) Arguments for broad executive discretion are often radically underdeveloped and fail to withstand scrutiny.”)
  • The International Criminal Court and the Political Economy of Antitreaty Discourse, 55 Stanford L. Rev. 1597 (May 2003) (arguing that the United States objects to the ICC on “process-oriented” grounds because a “focus on procedure sounds marginally more principled to international audiences than a brute realist assertion that American interests are best served by keeping unfettered control of military decisions.” “Yet this comes with costs: It elides the debate over the value of the brute realist position that American military power should be subject to few meaningful constraints and instead makes it look like the most important question is about the procedural shortcomings of a court that is precisely meant to address the arbitrariness in international criminal justice that critics use to assail it.”)

Cuellar’s appearances in the media have often revolved around his role in shaping the Obama Administration’s immigration policy. His appointment to President Obama’s Immigration Policy Working Group was interpreted by experts as confirmation that President Obama was committed to comprehensive immigration reform. Cuellar observed earlier this year that such reform “is more likely now than it has been in decades.” 

Cuellar’s own experience with immigration shapes his views on the subject now. He told The Stanford Daily last year that “when you grow up on the border, you realize that a legal demarcation has such a huge effect in distinguishing one country from another, for example, and the whole structure of law shapes who’s a citizen and therefore who counts in one society for another.” He recounted to Stanford Magazine being stopped by a law enforcement agent while jogging along the border in Calexico when he was 16, and being asked to provide his papers. He described the encounter as reflecting the “duality” of law enforcement, whose role is to protect, yet who can also spark fear in the community it polices. He acknowledges, though, that moving to the U.S. with a green card gave him “a clear sense that even the very imperfect country I was joining was an extraordinary place.”

Cuellar has also spoken out about “the problem of staggering education inequity.” “Our nation’s stated commitments to academic excellence,” he has written, “are often eloquent but, without more, an insufficient response to challenges at home and globally.” He has also criticized leaders who “decry but tolerate disparities in student outcomes that are not only unfair, but socially and economically dangerous.” 

Pervading his opinions on these and other topics, however, is a fundamental realism. He describes the core of all his research efforts as “trying to look at how societies and legal systems and organizations take on problems that are so difficult to solve that nobody can really expect that they’re likely to be completely solved – ever.” His conclusion: “The world is as messy and complicated as it is beautiful and full of possibility.” As a result, says Hoover Institution Senior Fellow Abraham Sofaer, Cuellar is “not an ideologue,” but is “interested in … practical solutions.” According to Sofaer, a legal adviser to the U.S. Department of State during Ronald Reagan’s and George H.W. Bush’s presidencies, he and Cuellar “could serve in the same administration.”

Justice Marvin Baxter, whose position Cuellar has been nominated to fill, is widely regarded as the court’s most conservative justice. On the other hand, Cuellar was described by Hank Greely, another law professor at Stanford, as “certainly to the left of the middle of the American political spectrum.” Greely qualified his description, however, by noting that Cuellar is “fundamentally a pragmatist.” Thus, while Cuellar’s nomination will likely pull the overall outlook of the Court leftward, its new ideological center may be more moderate than Cuellar’s bona fides might indicate. Moreover, Governor Brown’s second consecutive appointment to the state’s highest bench of an academic with no judicial experience (former U.C. Berkley law professor Goodwin Liu was the first) suggests the Court’s new makeup will include a willingness to approach issues from a fresh perspective and, at any rate, an intellectual bent.

Before Cuellar can take his place on the state’s highest bench, his nomination must be approved by California’s Commission on Judicial Appointments, and by the electorate on the upcoming November ballot.

Image courtesy of Flickr by Lauren Mitchell.

Florida High Court Poised to Clarify Harmless Error Standard in Civil Appeals

 

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On June 20, 2012, the Florida Supreme Court accepted review of a Fourth District Court of Appeal case that certified the following question of great public importance: “In a civil appeal, shall error be held harmless where it is more likely than not that the error did not contribute to the judgment?”  See Special v. West Boca West Med. Ctr., No. SC11-2511.  To view the district court opinion click here. 

The Estate of the Susan Special sued Dr. Ivo Baux, his related corporations, and West Boca Medical Center, Inc., alleging negligence in administering her anesthesia and in responding to her cardiopulmonary arrests during her cesarean delivery.  The defendants denied the allegations, claiming that her death was a result of amniotic fluid embolus, an allergic reaction caused by a mother’s blood mixing with amniotic fluid. Sitting en banc, the Fourth District held that the trial judge had abused his discretion by disallowing the estate’s cross-examination of a defense expert who testified as to the cause of death. The main issue, therefore, was whether the denial of the cross-examination was harmless error.

The district court reviewed the history of the harmless error rule under Florida law, examining two types of tests: (1) the “but-for,” “correct result” test, which focuses on whether the outcome of the trial would have been different but for the error, and (2) the “effect on the fact finder” test, which focuses on whether there is a reasonable possibility that the error influenced the trier of fact and contributed to the verdict—even if the verdict would have been the same without the error.

The Fourth District described the effect of the Florida Supreme Court’s decision in State v. DiGuilio in 1986, which “firmly established an ‘effect on the fact finder’ harmless error test for criminal cases.” The court explained that the supreme court adopted the DiGuilio test in subsequent civil cases—even though it did not explicitly declare that it was doing so—and that the burden of proving the harmlessness of an error had been placed on the party who improperly introduced the evidence and benefitted from the error.

The court explained that, absent specific guidance from the supreme court, the district courts had relied on varying standards for deciding harmless error in civil cases. The most stringent test, used primarily in the Fourth District, asks whether the result would have been different but for the error. A second test, used in the First and Third Districts, asks whether the result may have been different but for the error. The third test, used primarily in the Second District, asks whether it is reasonably probable that the appellant would have obtained a more favorable verdict without the error.

The Fourth District held that it was receding from those cases that applied the more stringent, outcome-determinative “but-for” test for harmless error. The court adopted a new standard, holding that error is harmless when the error more likely than not did not contribute to the judgment.  Applying this newly-adopted standard, the Fourth District affirmed the judgment below, concluding that it was more likely than not that disallowing the cross-examination of the defendant’s expert did not contribute to the jury’s verdict.

The parties completed their briefing on December 19, 2012.  The Court held oral argument on April 3, 2013.  To view the oral argument video click here.   This article will be updated once the Court decides the case.

 Image courtesy of Flickr by Duncan Hull.

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Heather.

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

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

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

 

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by LendingMemo.com.

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by umjanedoan.

Illinois Supreme Court Debates Constitutionality of Red-Light Ordinance

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

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Karoly Lorentey.

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Jason Taellious

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Daniel Olnes.

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

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

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Anne Hornyak.

Illinois Supreme Court Adopts Broad Construction of Constitutional Pension Clause

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

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

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by 401kCalculator.

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

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

The issues presented are:

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

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

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

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

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

Image courtesy of Flickr by Simon Cunningham.

Illinois Supreme Court Debates Damages Measures for Malpractice in Securities Cases

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by 401kCalculator.

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

 

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

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

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

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

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

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

These changes will become effective on October 1, 2014.

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Illinois Supreme Court Debates Public Construction Bond Act

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

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

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

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

 

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Salim Virji

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Alexander Cunningham.

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Rusty Clark.

The Iskanian Decision: California Supreme Court Partly Retreats on Arbitration

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Alden Jewell.

Waiting for Iskanian, Part 6 - California Supreme Court to Hand Down Its Opinion This Morning

The California Supreme Court has announced that it will hand down its much-anticipated decision in Iskanian v. CLS Transportation Los Angeles, LLC this morning. According to the Court’s Pending Issues Summary, Iskanian presents the following issues:

(1)    Did AT&T Mobility LLC v. Concepcion (2011) 563 U.S. __ [131 S. Ct. 1740, 179 L.Ed.2d 742] impliedly overrule Gentry v. Superior Court (2007) 42 Cal.4th 443 with respect to contractual class action waivers in the context of non-waivable labor law rights? (2) Does the high court’s decision permit arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (Lab. Code, § 2698 et seq.)? (3) Did defendant waive its right to compel arbitration?

The opinion will be posted by the Court at 10:00 A.M. Pacific time, 12:00 P.M. Central. For our pre-argument previews of Iskanian, see here, here, here, here and here.

We’ll be back later today with our first impressions of the decision.

Image courtesy of Flickr by Luz Adriana Villa.

Illinois Supreme Court Debates Effect of Improper Venue in Administrative Review Cases

Our reports on the civil arguments during last month’s term of the Illinois Supreme Court begin with Slepicka v. State of Illinois, a decision from the Fourth District which poses two important and closely related issues for administrative law: what is the proper venue when challenging an administrative agency’s decision, and what happens if the challenger gets it wrong? Our detailed summary of the facts and lower court rulings in Slepicka is here.

In January 2012, the defendant in Slepicka served plaintiff, a resident in its nursing home, with a notice of involuntary transfer or discharge on grounds of nonpayment. The plaintiff demanded a hearing from the Department of Public Health. An administrative law judge held both a prehearing conference and an administrative hearing at the nursing home in Cook County. 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 in Sangamon County – where the Department is – rather than in Cook County, where the prehearing conference and administrative hearing were. The defendant moved to dismiss or transfer for improper venue, but the Circuit Court denied the motion. The Circuit Court ultimately upheld the decision on the merits, but when it went up to the Fourth District, the Court reversed, holding that venue was improper, but the case should be transferred to Cook County rather than dismissed outright.

The plaintiff began by arguing that the venue provision of the Administrative Review law, 735 ILCS 5/3-104, is broadly written to encompass any county where any part of the proceeding or hearing was held. Counsel argued that when the Assistant Director retired to her office in Springfield to deliberate and write an opinion, that was part of the “proceeding” for purposes of the venue statute. Justice Burke asked whether, if venue isn’t a jurisdictional matter, the error had to be prejudicial to justify reversal. Counsel responded yes, but that the court had transferred the matter. Justice Burke asked what the prejudice was from the apparent error. Counsel answered that it was only the delay, and that one of the reasons to file in Sangamon County was to reduce delays. Chief Justice Garman asked whether counsel’s contention that the decision was written in Sangamon County was essential to his theory – if the hearing officer happened to be in another county when she mailed the decision, would venue be proper there? Counsel answered that Sangamon County is a relatively commonplace venue for administrative review cases. The Chief Justice asked whether mailing the decision is part of the process. Counsel answered yes, since the hearing officer’s office is in Sangamon County. Justice Burke pointed out that the hearing was in Palos Park, and counsel responded that the decision emanated from Springfield. Counsel concluded by arguing that his theory was consistent with the plain and ordinary meaning of the statute.

Counsel for the State followed. Counsel argued that the consequence of improper venue was not properly dismissal. Justice Thomas asked whether the State would argue that the Appellate Court should have addressed the merits after finding that venue was improper, and counsel answered yes. Counsel argued that it doesn’t serve judicial economy to allow a case to be heard to its conclusion first in the Circuit Court, then in the Appellate Court, and then have to start over again because of improper venue. The better course would be for a party to seek leave to appeal under Rule 306(a) or 308 and have the Appellate Court resolve the issue of venue then and there, while the action in the trial court is stayed. Some cases have multiple agency personnel involved, some in Chicago and others in Springfield, according to counsel – that made for an uncertain basis for venue. Retiring to an office and writing a decision is not conducting a proceeding within the meaning of the venue provision, according to counsel. Nevertheless, counsel concluded, the proper result would have been for the Appellate Court to determine venue and then proceed to the merits, resolving the case once and for all.

Counsel for the nursing home followed. Counsel argued that proper venue is jurisdictional in administrative review cases, and accordingly, the case had to be dismissed. Administrative proceedings are not subject to the Circuit Court’s original jurisdiction, counsel pointed out; several steps are set out by statute, and all must be strictly followed to confer jurisdiction. Therefore, the plaintiff’s failure to file in Cook County was fatal, since the Administrative Review law provides no remedy for improper venue. Justice Karmeier pointed out that the first sentence of Section 3-104 says that jurisdiction is vested “in the Circuit Court” – a specific Circuit Court is identified only with respect to venue. Counsel again reiterated that the statute provides no mechanism for correcting improper venue; rather, the statute specifically says that once the Circuit Court acquires jurisdiction, it must retain it. Justice Burke pointed out that the Code of Civil Procedure provides that actions are not dismissed for improper venue if a proper venue exists. Counsel answered that the Administrative Review law has no similar language. Justice Burke asked if any language in the law specifically barred transfer. Counsel responded that the closest was the requirement that the Court “shall have and retain” jurisdiction. Counsel argued that the plaintiff had made a strategic decision to file in Springfield, which it was now trying to retrospectively justify. If the location of the Department’s offices was sufficient grounds for venue, then the entire administrative review docket statewide would be heard in Sangamon County. Justice Thomas asked whether dismissal wasn’t a bit harsh, given that the statute isn’t exactly the epitome of clarity. Counsel answered that dismissal for jurisdictional faults is always a harsh remedy. Counsel again argued that filing in Springfield was a strategic decision, not a varying interpretation of the statute.

Counsel for the plaintiff argued in rebuttal that the Administrative Review law doesn’t stop at where the “hearing” took place – it refers to the “hearing or proceeding.” The statute is thus phrased about as broadly as it could be. According to counsel, if improper venue is grounds for dismissal, every proceeding would begin with skirmishes as to where the center of gravity of a proceeding was. Counsel argued that even if the venue was improper, the statute grants jurisdiction to “the Circuit Court” – not the Court of any particular county. Justice Thomas asked whether counsel was proposing in the alternative what the State had asked for – a decision on the merits even if venue was improper. Counsel answered no, that there is nothing to remand. The Court of Appeal vacated the Circuit Court decision, so if the case is moved to Cook County, it must start over.

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

Image courtesy of Flickr by Ulrich Joho.

Illinois Supreme Court to Decide If Academic Can Halt Investigation by Suing in Circuit Court

In the closing days of its May term, the Illinois Supreme Court agreed to decide whether an academic at the University of Illinois could obtain injunctive relief from the Circuit Court to halt an ongoing University investigation into plaintiff’s alleged research misconduct. The Court allowed a petition for leave to appeal in Leetaru v. Board of Trustees of the University of Illinois, a February 2014 decision of the Fourth District.

The plaintiff filed his complaint in February 2013, seeking a preliminary and permanent injunction to halt the University’s investigation of his research conduct. Plaintiff alleged that defendants’ investigation violated its policies and procedures in a variety of ways. According to the plaintiff, the court had the right to hear the case because he was seeking only prospective injunctive relief to control the defendants’ future conduct, rather than damages or enforcement of a present claim. The defendant moved to dismiss, arguing that the plaintiff’s claim was directed against the State, and accordingly, the Court of Claims had exclusive jurisdiction over the claim.

The trial court denied the plaintiff’s motion for a temporary restraining order, and the Court of Appeal affirmed. The trial court then conducted a hearing on the defendant’s motion to dismiss. The defendant argued that the plaintiff’s allegations involved conduct that occurred as early as 2010 which had been the subject of an ongoing investigation since December 2011 with respect to plaintiff’s employment, and February 2012 with respect to plaintiff’s tenure as a graduate student. The plaintiff once again responded that he was only trying to enjoin the defendants from taking future actions in excess of their delegated authority. The trial court granted defendants’ motion to dismiss, holding that plaintiff’s claim was against the State within the meaning of the Court of Claims Act, since the plaintiff was seeking to stop defendants’ conduct which had already begun. The court also expressed its concern that its ruling could result in a future award of damages against the State based on issue preclusion.

The Appellate Court affirmed. The plaintiff was “asking the trial court to stop a research misconduct investigation midstream because defendants did not follow all of their own internal rules and procedures in conducting the investigation,” the Court wrote. The Court held that “this is a ‘present claim’ against the State over which the Court of Claims has jurisdiction, rather than the circuit court.” Even if the plaintiff’s complaint was not a “present claim,” the Court wrote, the circuit court would still lack jurisdiction because the plaintiff conceded that the University had the authority to make the investigation; it was how the school conducted the investigation that the plaintiff sought to control.

In the alternative, the plaintiff pointed to the University of Illinois Act, which provides that “a claim sounding in tort must be filed in the Court of Claims.” The plaintiff argued that this language necessarily meant that all other claims could be filed in the circuit court, citing City of Chicago v. Board of Trustees of the University of Illinois from the First District. The court declined to follow City of Chicago, holding that the Immunity Act rather than the empowering legislation or the Court of Claims Act governed whether the State must be sued in the Court of Claims, and the Immunity Act makes no distinction between tort and other types of claims.

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

Image courtesy of Flickr by atphoto.bg.

Illinois Supreme Court to Decide Whether State Treasurer Needs an Appeal Bond to Challenge Workers Comp Award

Although Illinois courts are courts of general jurisdiction presumed to have subject matter jurisdiction, this presumption doesn’t apply to workers’ compensation proceedings. Pursuant to Section 19(f)(2) of the Workers’ Compensation Act (820 ILCS 305/19(f)(2)), in order to vest the circuit court with jurisdiction to review an award made by the Commission, a party must file an appeal bond with the clerk.

In the closing days of its May term, the Illinois Supreme Court agreed to decide whether this general principle applies to the Illinois State Treasurer, sued as ex officio custodian of the Injured Workers’ Benefit Fund. The Court granted leave to appeal from a decision of the Workers’ Compensation Commission Division of the First District in Illinois State Treasurer v. The Illinois Workers’ Compensation Commission.

The claimant in Illinois State Treasurer is a home healthcare provider who was injured when she fell on a flight of stairs at a patient’s home. Because her employer had no workers’ compensation insurance, the claimant added the Injured Workers Benefit Fund as a co-respondent. The Fund was established by state law to provide workers’ compensation benefits to injured employees of employers who fail to obtain insurance. It is funded by penalties and fines collected by the Commission from uninsured employers.

The arbitrator upheld the claimant’s claim and awarded benefits. The State Treasurer appealed the ruling, first to the Commission – which affirmed the arbitrator – then to the circuit court – which affirmed again, and finally to the Appellate Court. The Appellate Court initially reversed the award, but on remand, the claimant raised for the first time a challenge to the Appellate Court’s jurisdiction.

The claimant argued that the court lacked jurisdiction for two reasons. First, she argued that her claim was one against the State of Illinois, and therefore immune from judicial review pursuant to the Act. Second, the claimant pointed out that the Treasurer had failed to file an appeal bond. The Appellate Court rejected the first argument on the grounds that the State was not liable for any portion of any judgment that might be returned against the Fund, but the second argument presented a more difficult problem.

The Act expressly exempts “[e]very county, city, town, township, incorporated village, school district, body politics or municipal corporation against whom the Commission shall have rendered an award for the payment of money” from the requirement to post a bond. The Court pointed out, however, that it said nothing about the State Treasurer in his capacity as custodian of the Fund. Thus, in a sense the claimant’s two theories caught the Treasurer in a Catch-22: if the Treasurer claimed to be the State, no bond would be required, but judicial review would be barred on sovereign immunity grounds, and if the Treasurer denied being the State, judicial review would be permissible in theory, but the missing appeal bond would be a fatal problem.

The Treasurer argued that reading the Act in context showed that the bond requirement applied only against employers who have judgments awarded against them. The Court disagreed, noting that if the legislature had intended to limit the requirement to employers, it would have simply said so. Instead, the legislature used the broadest possible phrase: “the one against whom the Commission shall have rendered an award for the payment of money.” The Treasurer noted that appeal bonds are not required of State officers in other contexts, but the Court rejected that argument, noting that courts should be wary of reading implied exemptions into jurisdictional requirements based on other, unrelated statutes. The Treasurer noted the express exemption for various governmental entities, but the Court cited the maxim expressio unius – listing exemptions is an implied exclusion of other, unlisted exemptions – to conclude that the express exemptions cut against the Treasurer’s argument.

Finally, the Court found that refusing to exempt the Treasurer from the bond requirement was sound public policy. Injured workers had no recourse if the Fund was inadequate to pay awards – they are required to accept a pro rata share of the remaining monies in partial payment. Although state law expressly bars the legislature from diverting monies from the Fund into any other use, the legislature has already done just that at least twice – raising the specter of a future shortfall in the Fund. Requiring the bond, the Court wrote, will protect claimants against the possibility that such a shortfall might leave them without full compensation.

We expect Illinois State Treasurer to be decided within six to eight months.

Image courtesy of Flickr by Meshugas.

Does the Workers' Compensation Commission Have Exclusive Jurisdiction Over Claims for Referral Fees?

In the closing days of its May term, the Illinois Supreme Court allowed a petition for leave to appeal from a decision of the Appellate Court for the Second District in Ferris, Thompson and Zweig, Ltd. v. Esposito.  Ferris, Thompson poses the question of whether the Workers’ Compensation Commission has exclusive jurisdiction over a plaintiff’s claim for breach of an agreement to pay referral fees in connection with two workers’ compensation cases.

The plaintiff law firm allegedly entered into a joint representation agreement with the defendant. The plaintiff agreed to assist with initial interviews and document preparation, provide translation services as the need arose and represent the client in any third party action. The defendant agreed to represent the clients before the Workers’ Compensation Commission. When the defendant failed to pay the plaintiff following settlement of the two subject claims, the plaintiff filed suit.

The defendant moved to dismiss, arguing that the Commission had exclusive jurisdiction over “[a]ny and all disputes regarding attorney’s fees,” and the circuit court accordingly lacked subject matter jurisdiction over the complaint. The plaintiff responded that the Commission’s authority was limited to disputes regarding fees for representing clients before the Commission, while its claim was for fees solely arising from referral of the clients. The circuit court denied the motion to dismiss as well as defendant’s motion for interlocutory appeal. The court found for the plaintiff following trial, and the defendant appealed.

The Appellate Court affirmed. The issue turned on Sections 16a(A) and 16a(J) of the Workers’ Compensation Act, according to the Court. Section 16a(A) provides that: “The Commission shall have power to determine the reasonableness and fix the amount of any fee of compensation charged by any person . . . for any service performed in connection with this Act . . .” Similarly, Section 16a(J) provides that “Any and all disputes regarding attorneys’ fees, whether such disputes relate to [which attorney] is entitled to the attorneys’ fees, or a division of attorneys’ fees where the claimant or claimants are or have been represented by more than one attorney . . . shall be heard and determined by the Commission.”

The Appellate Court found that, construing the two sections together, the Commission’s jurisdiction was limited to disputes over fees for attorneys’ work representing clients before the Commission, including services such as “filing the claim, representing the claimant before the Commission, and attempting to settle the claim.” The Commission’s authority did not extend to a dispute over breach of a referral agreement, according to the Court.

We expect Ferris, Thompson to be decided within six to eight months.

Image courtesy of Flickr by Markus Daams.

Illinois Supreme Court Agrees to Decide Whether a Motion for Setoff Stops the Time to Appeal From Running

It’s one of the most fundamental rules of appellate practice: the notice of appeal has to be timely filed, or the appellate court is without jurisdiction to do anything other than dismiss the appeal. In the closing days of the May term, the Illinois Supreme Court allowed a petition for leave to appeal in Williams v. BNSF Railway Company. Williams the second case on the Court’s civil docket relating to timely filing of the notice of appeal – poses the issue of whether a posttrial motion for setoff is a sufficient challenge to the judgment to stop the appellate clock governing the due date for the notice of appeal from running.

Williams involves claims under the Federal Employers’ Liability Act, brought by an employee of the defendant railroad. Following a jury trial, the plaintiff was awarded damages for his injuries, and the jury found for the third-party defendant on the defendant’s contractual indemnity claim.

On April 18, 2012, the trial court “issued an oral ruling denying all posttrial motions.” No written ruling was ever entered. The only remaining issue following that oral ruling was a motion for a setoff against the judgment in the amount of taxes the defendant would have to pay on the lost wages awarded.

The defendant apparently did nothing further until May 31, 2012, when it filed an “emergency” motion for leave to file supplemental authority – which turned out to relate to one of the issues disposed of in the April 18 oral ruling, a request for partial remittitur based on disability payments. During the June 1 hearing on the motion for setoff, the court reiterated that posttrial motions had already been denied, but ultimately agreed to consider the new authority. Five days later, the court distinguished the new case and reiterated its earlier rulings. A written order was issued on June 6, 2012. The order stated that it was “final and appealable.” The defendant filed its notice of appeal on June 29, 2012 – less than thirty days after the June 6 written order, but 72 days after the trial court’s original oral denial of all posttrial motions.

The appellees moved to dismiss the appellant’s appeal, and the Division Three of the First District granted the motion. All posttrial motions had been denied on April 18, 2012, the Court found, reserving only the setoff. The setoff motion was not sufficient to keep the judgment open for purposes of appeal because a setoff relates to satisfaction of the judgment, not liability for it – as shown by the fact that the defendant could have pursued a request for a setoff more than thirty days after denial of its posttrial motion to vacate or modify the judgment. The defendant pointed out that the trial court had observed during the June 1 hearing that the defendant had properly brought new authority to its attention on the issue of a partial remittitur, but the Appellate Court pointed out that the defendant’s “emergency” motion had been filed more than thirty days after denial of the posttrial motions. The trial court’s observation did nothing to revest it with jurisdiction to consider the new case.

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

Image courtesy of Flickr by Dafne Cholet.

Illinois Supreme Court Rejects Due Process Challenge to Liquor License Revocation

When a liquor licensee’s former manager is convicted of conspiring to violate the federal Money Laundering Act, can the licensee be summarily stripped of its liquor license, based upon the criminal trial transcript, a stipulation of the parties, and brief arguments by counsel? In the closing days of its May term, a unanimous Illinois Supreme Court held that the answer was “yes,” rejecting the licensee’s due process challenge to revocation in WISAM 1, Inc. v. Illinois Liquor Control Commission. Our detailed summary of the underlying facts and lower court rulings in WISAM 1 is here. Our report on the oral argument is here.

The appellant in WISAM 1 operated a liquor store in Peoria pursuant to a liquor license granted by the City. The store was managed by two brothers of the president and owner of the business. In 2009, the managers were indicted on five counts of violating or conspiring to violate the Money Laundering Act through what is known as “structuring” or “smurfing” – deliberately structuring currency transactions to remain below the $10,000 threshold that triggers a bank’s automatic obligation to file a report with the Secretary of the Treasury. In 2010, one of the brothers was convicted of all five counts (the other having fled the country prior to trial).

Shortly after, the City charged the store with violating Section 3-28 of the Peoria Municipal Code, which prohibits any licensee or its agent or employee from engaging in any activity “in or about” the licensed premises that is prohibited by federal law. At the outset of the hearing, the City offered in evidence a stipulation, with the federal indictment attached. The stipulation provided that the convicted brother had been acting as a manager, employee or agent of the licensee at all dates and times set forth in the administrative charge, and that his criminal offenses were related to the financial and business operations of the store. In addition, the City offered the three volume transcript of the federal trial.

After the evidence was admitted over the licensee’s objections, both sides made what were called “opening statements.” Counsel for the store argued that the federal conviction should not be preclusive because the owner of the store had not been a defendant in that action, and he could prove a valid reason for the currency transactions (coverage limits on cash in the store). Counsel also argued that the indictment alleged that the transactions had occurred at the bank, not “in or about” the store, and was therefore insufficient to prove a violation of Section 3-28. Upon the City’s motion, the Commissioner made an initial finding of a violation of Section 3-28, but he then agreed to allow the licensee to introduce further evidence. The licensee offered various insurance policy declarations pages purporting to reflect the $10,000 coverage limits. The parties offered evidence in the subsequent penalty phase of the proceeding as well; the City offered a 2005 order finding that the store had sold liquor to a minor, while the licensee responded with the testimony of the business owner, and evidence that the store had had no subsequent violations respecting minors.

The Commissioner took the entire matter under advisement, and subsequently entered an order and findings of fact revoking the store’s liquor license. On appeal, the Illinois Liquor Control Commission affirmed the revocation. The licensee filed a complaint for administrative review in the circuit court, alleging that it had been deprived of procedural due process by the summary nature of the finding of violation, but the circuit court disagreed, and the Appellate Court affirmed.

In an opinion by Justice Mary Jane Theis, the Supreme Court affirmed the lower courts. The court began by finding that two issues raised by the licensee before the Court – the appropriateness of the penalty of revocation and the sufficiency of the evidence – had not been properly preserved for review. The sole live issue, the Court found, was the due process challenge.

The licensee’s due process challenge was in three parts: (1) the Commissioner should have allowed it to relitigate the criminal conviction; (2) the licensee was denied a meaningful opportunity to refute the City’s evidence; and (3) the Commissioner improperly admitted the transcripts of the trial.

The first point was easily disposed of, according to the Court. To allow the licensee to relitigate the facts relating to the manager’s conduct would render meaningless Section 10-3 of the Liquor Control Act, 235 ILCS 5/10-3, which holds licensees strictly liable for any violation committed by any officer, director, manager, agent or employee. The licensee could always challenge whether revocation was an appropriate penalty for the violation, but the licensee had no right to relitigate the fact of violation.

The licensee’s second point fared no better. Although the Commissioner had entered an initial finding of violation, he had then heard the licensee’s “opening statement,” which included various legal arguments and supporting authority. Thus, the licensee had had a “meaningful opportunity to test, explain, and refute the City’s evidence” by pointing out that the indictment alleged solely conduct at the bank, not “in or about” the store.

Finally, the court addressed the admission of the entire three-volume transcript from the criminal trial. The Court agreed that the Commissioner had improperly admitted the hearsay transcript without requiring the City to identify the purpose for which it sought to use the testimony, or the specific testimony it relied upon. Nevertheless, the error was not prejudicial, since sufficient evidence supported the finding of violation even without the transcript: the indictment combined with the parties’ stipulation, which provided that the manager was an agent of the licensee and had acted in relation to the business. Although the stipulation did not provide that misconduct had occurred at the store, the Court found that the Commissioner was entitled to make a reasonable inference of that fact from all the evidence in the record.

Image courtesy of Flickr by Joseph Novak.

Illinois Supreme Court Agrees to Clarify Proof Standards in Wrongful Termination Cases

In the closing days of its May term, the Illinois Supreme Court agreed to clarify a fundamental issue for the employment bar: what are the parties’ respective burdens of proof in a case for wrongful termination?

Michael v. Precision Alliance Group, LLC involves an agricultural company in the business of raising, packaging and distributing seeds for commercial agricultural use. As part of that business, the company packs soybeans into 2,000 pound bags. The packing system involved a hopper with a set point – when the set point is reached, the operator opens a gate which releases the beans into a bag, which is then weighed. The company claimed that the bags were typically filled with slightly more than the required 2,000 pounds in order to compensate for normal seed shrinkage, and one of the plaintiffs seemed to agree, testifying that the set point was normally set at between 2,007 and 2,010 pounds.

In the fall of 2002, a new individual took charge of bagging. One of the plaintiffs noticed that the set point was now several pounds less. Drivers started noticing that loaded trucks seemed lighter. The company weighed bags from designated lots; several were below 2,000 pounds, a few by as much as 20 pounds.

After the company’s spot test, the three plaintiffs began secretly weighing bags without the company’s knowledge. Many allegedly weighed light. A former employee reported the matter to the state Department of Agriculture, purportedly getting lot numbers and locations of underweight bags from the plaintiffs.

In February 2003, the state inspectors showed up at the company’s plant, issuing five stop-sale orders during the first day of inspections. The company stopped production for 10 days while employees weighed every bag in the warehouse. Roughly half were underweight. As a result of the company’s prompt response to the investigation, the State lifted the stop-sale orders and ended the investigation without issuing any penalties.

During the inspections, the assistant plant manager began investigating where the complaint might have come from. He testified that he was simply trying to figure out why the bags were underweight, but he quickly concluded that an employee or former employee had to be the source of the complaint.

One month after the state’s visit to the plant, one of the plaintiffs was involved in a forklift collision with another employee. Nobody was injured and the forklift wasn’t damaged, but the plaintiff was fired. Supposedly, employees hadn’t been fired for previous forklift incidents, and the other employee involved in this particular accident wasn’t disciplined. Around the same time, management decided to eliminate four positions, claiming that it was necessary to respond to a general slowdown in business. The two remaining plaintiffs were fired as part of that reduction in force.

The plaintiffs sued for common law retaliatory discharge. The defendant employer moved for summary judgment. The Circuit Court granted the motion, but the Appellate Court reversed. The Circuit Court later conducted a bench trial on the merits and entered judgment on behalf of the defendant, finding that although the plaintiffs had offered some evidence of an unlawful motive for termination, the defendant had articulated a valid non-pretextual reason why the plaintiffs were fired. The plaintiffs then appealed a second time, and the Fifth District reversed once again.

The trial court had properly required the plaintiff to prove the initial three elements of the tort, the court found: (1) protected activity; (2) adverse employment action by the defendants; and (3) a causal connection between the plaintiff’s protected activity and the adverse action. But the court had erred, according to the Fifth District, by requiring the plaintiff to prove that the reasons articulated by the employer for the plaintiffs’ firing were merely pretexts. “[T]he trial court erroneously increased plaintiffs’ burden,” the Court wrote, requiring them to provide not only the elements of their own charge, but to disprove the defendants’ defense too.

Before the Supreme Court, the defendants seem likely to argue that the Fifth District’s holding was both unclear and unworkable, while the Circuit Court’s holding was consistent with the federal burden-shifting test articulated by the United States Supreme Court in McDonnell-Douglas and its progeny. Federal discrimination and retaliation cases proceed in three steps: (1) the plaintiff must establish a prima facie case of discrimination or retaliation; (2) the defendant must produce a legitimate non-discriminatory reason for the adverse employment action; and (3) the plaintiff must then raise a triable dispute of fact for the proposition that the defendant’s proferred justification is a mere pretext. The Appellate Court in Michael held that assigning the third step to the plaintiff amounted to requiring the plaintiff to disprove the defendant’s defense, but the defendants are likely to argue that once the employer offers prima facie evidence sufficient to establish a legitimate reason for discharge, the defendant has proven its defense. To require the defendant to go further and negate the plaintiff’s mere allegation of pretext is to require the defendant to prove a negative – always a heavy burden in the law, and a test likely to send many cases to juries that have no place getting that far.

Image courtesy of Flickr by Thomas Quine.

Illinois Supreme Court Holds State's Attorneys Subject to State FOIA

 

In the closing days of the recently concluded May term of the Illinois Supreme Court, the Court opened up the State’s Attorneys around the state to increased public scrutiny. In an opinion by Justice Lloyd Karmeier for a unanimous Court, the Justices held in Nelson v. County of Kendall that the offices of the State’s Attorneys are subject to the Illinois Freedom of Information Act (5 ILCS 140/1). Our detailed preview of the facts and lower court holdings in Nelson is here. Our report on the oral argument is here.

The plaintiff in Nelson is – like many FOIA requesting parties – an employee of a media company. In the fall of 2010, he submitted a FOIA request to Kendall County, asking to inspect and copy all emails and attachments sent and received by two county employees. The County referred the plaintiff to the State’s Attorney, saying he had custody of the records. The plaintiff challenged that claim, asserting that the County had copies of all the documents as well, and was obligated to produce them. The County responded that it needed to consult with “another public body” with an interest in the request, and promised to get back to the plaintiff. When it failed to do so, the plaintiff put the matter before the Public Access Counselor in the Attorney General’s office. The Public Access Counselor declined to intervene, saying that the plaintiff had earlier submitted an identical request to the Kendall County State’s Attorney and received a response.

So the plaintiff sued. The County moved to dismiss, and the State’s Attorney intervened and moved to dismiss as well. While all that was going on, the plaintiff submitted a new FOIA request to the State’s Attorney, seeking the same emails from the same two employees, plus additional material involving two employees of the State’s Attorney’s office – including the State’s Attorney himself. The State’s Attorney’s office rejected this second request on the grounds that the State’s Attorney’s office was part of the judicial branch of the state government and therefore exempt from FOIA, which applies only to “legislative, executive, administrative [and] advisory bodies” of the State. Besides, the office noted, this was the plaintiff’s third request, and the State’s Attorney had already produced over 1,000 pages of material.

So the plaintiff sued again, this time naming only the State’s Attorney’s office. The State’s Attorney moved to dismiss that action as well, repeating its claim that it was part of the judicial branch, and therefore not a “public body” within the meaning of FOIA. Ultimately, the circuit dismissed both actions in separate orders, holding that (1) the documents belonged to the State’s Attorney’s office, not the County, and the County could not be compelled to produce over the State’s Attorney’s objections; and (2) the State’s Attorney was part of the judicial branch, and therefore completely exempt from FOIA.

The plaintiff appealed only with respect to the State’s Attorney’s office, challenging the view that the office was exempt from FOIA. The Second District affirmed the circuit court.

The Supreme Court reversed. The Court’s holding is simply stated: (1) a “public body” under FOIA includes all executive bodies of the State; (2) the State’s Attorney exercises executive powers and is generally considered to be part of the executive branch; so (3) the State’s Attorney is subject to FOIA.

The Court flatly rejected the notion that the State’s Attorney was part of the judicial branch. That was so, the theory went, because the method of selection, qualifications for office and compensation of the State’s Attorney are all set forth in the Judicial Article of the state constitution. The Supreme Court had earlier relied upon that fact to holds that the State’s Attorneys were not subject to the provisions in the Executive Article relating to changes in compensation, but the Court said it had never suggested that the State’s Attorney was therefore part of the judicial branch. That suggestion was impossible to reconcile with the previous eighteen sections of the Judicial Article, which vested judicial power in “a Supreme Court, an Appellate Court and Circuit Courts.”

The Appellate Court had relied in coming to the opposite conclusion on a 2010 statutory amendment designating State’s Attorneys Appellate Prosecutors as “a judicial agency of state government.” Not good enough, the Supreme Court held – first, that statute related only to the Appellate Prosecutors, and second, it was far from clear that the legislature had the power to expand the definition of the judicial branch to include a new agency anyway.

Image courtesy of Flickr by Jim Linwood.

 

Florida Appellate Court Finds Daubert Standard Applies Retrospectively and Prohibits "Pure Opinion" Testimony

 

In the first civil appellate case in Florida to address the newly adopted Daubert standard for the admissibility of expert testimony, Florida’s Third District Court of Appeal held that the standard applies retrospectively and, unlike the former Frye test, prohibits “pure opinion” testimony.  See Perez v. Bell South Telecommunications, Inc., 39 Fla. L. Weekly D865b, 2014 WL 1613654 (Fla. 3d DCA Apr. 23, 2014).  To read the full opinion click here. 

In this case, Maria Perez sued Bell South for damages stemming from the premature birth of her first son.  To establish causation, Ms. Perez offered Dr. Isidro Cardella, a board-certified obstetrician and gynecologist, who “opined in his deposition that workplace stress, exacerbated by Bell South’s alleged refusal to accommodate Ms. Perez’s medical condition, was the causal agent of the [placental] abruption and early delivery of her son with medical consequences.”  Dr. Cardella testified that there was no way of ever knowing for sure what caused Ms. Perez’s placental abruption and that his conclusions were purely his own personal opinion, not supported by any credible scientific research.  The basis of Dr. Cardella’s opinion was that Ms. Perez worked during this first pregnancy, but did not work during the pregnancy leading to the birth of her second child.

The trial court struck Dr. Cardella’s opinion as inadmissible under Frye and granted Bell South’s motion for summary judgment based on Ms. Perez’s failure to proffer admissible evidence to prove causation.  Ms. Perez appealed.  In observing that the legislature’s purpose in adopting Daubert was “to tighten the rules for admissibility of expert testimony,” the court recognized that the Daubert test applies to all expert testimony and expressly prohibits “pure opinion” testimony.  The Frye test was held not to apply to “pure opinion” testimony.  Agreeing with the First District, the court also found that the new standard “indisputably applies retrospectively” because, as a rule of evidence, it is procedural in nature.

The court succinctly stated the Daubert standard as requiring expert testimony to be based on “scientific knowledge.”  In order to qualify as “scientific knowledge,” the court said, “an inference or assertion must be derived by the scientific method.”  The court also noted that while the Frye test (i.e., general acceptance in the scientific community) is no longer a sufficient basis to admit expert testimony, it is now “simply one factor among several.”  In upholding the trial court’s ruling, the Third District stated:  “Dr. Cardella had never before related a placental abruption to workplace stress and knew of no one who had.  There is no scientific support for his opinion.  The opinion he proffers is a classic example of the common fallacy of assuming causality from temporal sequence.”

Plaintiff did not file a motion for rehearing and the decision is now final.

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What We Learned About the Illinois Supreme Court in 2013

[The following post was originally published on Law360.com on February 19, 2014.]

With the publication of "The Behavior of Federal Judges," by Lee Epstein, William M. Landes and Judge Richard A. Posner, rigorous statistical analysis of the appellate courts is beginning to move from academic publications to mainstream bar journals. Although academic analysts have focused largely on the federal appellate courts — the United States Supreme Court in particular — my focus for the past several years has been on the civil docket of the Illinois Supreme Court.

For 2013, the court decided 34 civil cases (not including attorney discipline and juvenile matters). More than 80 percent of the civil docket consists of appeals taken from final judgments and orders. The court decided four civil cases, each where the primary issue was civil procedure, domestic relations and constitutional law, as well as three cases each in insurance, wills and estates, and workers compensation. In addition, the court decided two cases each in the areas of taxation, labor law, tort and public pensions.

Not surprisingly, a dissent at the Appellate Court helps in getting the court’s attention — 29.4 percent of the civil cases involved dissents below, right in line with the court's trend in recent years. The court rarely allows petitions for leave to appeal from unpublished decisions (known in Illinois as Rule 23 orders) — only 8.8 percent of the civil docket in 2013.

The court decided 58.8 percent of its civil cases unanimously. This is similar to the court’s experience in 2012, when the unanimity rate was 52.6 percent, but significantly below the court's unanimity rate for most of the past decade. From 2003 to 2005 and 2007 to 2011, the court's unanimity rate in civil decisions fell along a narrow range, from a low of 69.8 percent in 2003 to a high of 82.1 percent in 2009. The only exception was in 2006, when the cCourt dipped to 56.5 percent.

As always, the court produced decisions much more quickly in 2013 when there was no dissent. 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 court's average lag time on nonunanimous decisions has been relatively static since 2011, but the average lag time on unanimous decisions has been cut by more than three weeks in that time.

The court reversed in 55.9 percent of its civil decisions in 2013. With the exception of 2012 (78.4 percent) and 2009 (75.7 percent), the court’s reversal rate has narrowly fluctuated around the 50 percent mark since 2003. Since 2003, the court has reversed in 57.99 percent of its civil cases.

Every year at the end of the United States Supreme Court’s term, the legal press reports on the rise and fall of reversal rates for the federal circuit courts. The problem with overemphasizing this statistic is that in any single year, an intermediate court’s reversal rate is based on a small number of cases. This is particularly true for my work on the state Supreme Court’s civil docket, so rather than focusing on year-to-year ups and downs, I look for sustained deviations from the norm over time.

The single biggest part of the court’s civil docket comes from Chicago’s First District, which comprises between 30 and 40 percent of the case load each year. Reversal rates in four of the six divisions of the First District (the Second, Third, Fifth and Sixth) were down in 2013 from 2012. Since 2003, four of the six divisions’ reversal rates are clustered between 50 and 60 percent. The Third Division is a bit higher (61.8 percent), and the Fourth a little lower (44.4 percent).

Both the Second and Third Districts saw lower reversal rates in 2013 — 60 percent for the Second, 50 percent for the Third, but in both cases, the courts were reverting to form. Since 2003, 61 percent of the Second District’s civil decisions reviewed by the court have been reversed, while 52.5 percent of the Third District’s decisions have been.

Last year, I noted that Springfield’s Fourth District had shown the lowest reversal rate in the state — only 25 percent. This was part of a three-year swing in the numbers, with only 30 percent of the court’s decisions reversed between 2010 and the end of 2012. But in 2013, the Fourth reverted to its long-term pattern as the Supreme Court reversed in six of 10 civil cases. Since 2003, the reversal rate for the Fourth District is 53.1 percent.

Many observers consider the Fifth Appellate District to be the most pro-plaintiff appellate court in the state. The Supreme Court’s response has been relatively consistent: In seven of the 11 years since 2003, the Fifth’s reversal rate has been 67 percent or more, and 2013 was no exception. The Fifth District leads the state for the entire period with a 75.9 percent reversal rate.

Justices Anne B. Burke and Lloyd A. Karmeier wrote for the court’s majority most often this past year, with seven majority opinions apiece in civil cases. Justice Robert R. Thomas added six, Chief Justice Rita B. Garman wrote five and Justice Mary Jane Theis four.

Collectively, written dissents were down 20 percent in 2013 over 2012. Justices Thomas L. Kilbride and Charles E. Freeman, who wrote the fewest majority opinions in civil cases, wrote the most dissents — five and three, respectively. Justices Burke and Thomas filed two dissents apiece, with the other justices dissenting only once each in civil cases.

In order to study individual justices’ voting patterns, I next considered how often each justice votes when the court is divided. Chief Justice Garman and Justice Mary Jane Theis each voted with the majority in 92.9 percent of the court's nonunanimous civil decisions last year. Justice Thomas voted with the majority in 84.6 percent of such cases in 2013, almost identical to his percentage in 2012 (83.3 percent). Justice Karmeier voted with the majority in 78.6 percent of the court’s nonunanimous civil decisions, only slightly down from 2012 number. Only Justice Freeman’s percentage was slightly increased, voting with the majority in divided cases 78.6 percent of the time in 2013, up from 63 percent a year earlier. Justice Kilbride voted with the majority in 46.2 percent of nonunanimous cases.

The court’s center is even more sharply defined when we limit the database to two and three-dissenter decisions. In such decisions, the chief justice was in the majority every time. Justice Theis joined the majority decision in 85.7 percent of such cases, with Justices Thomas and Karmeier voting with the majority 71.4 percent of the time. Most often in the minority were Justice Freeman, voting with the majority in 57.1 percent of closely divided cases; Justice Kilbride, with the majority half the time; and finally, Justice Burke, who voted with the majority in 42.9 percent of closely divided cases.

I turned next to agreement rates between pairs of justices. For 2013, Chief Justice Garman and Justice Theis voted together in 85.7 percent of nonunanimous civil cases. The chief voted with Justice Thomas in 84.6 percent of such cases, and with Justice Karmeier 71.4 percent of the time. Similarly, Justice Theis voted with Justice Thomas in 76.9 percent of such cases and with Justice Karmeier 71.4 percent of the time. Justices Thomas and Karmeier voted together in 76.9 percent of nonunanimous civil cases.

On the other hand, Justice Burke voted with Chief Justice Garman and Justices Karmeier and Theis in 57.1 percent of such cases. Justice Burke voted with Justice Thomas 46.2 percent of the time. Similarly, Justice Kilbride voted with the chief justice in 38.5 percent of nonunanimous civil cases, with Justice Thomas in 58.3 percent, and with Justice Theis in 53.8 percent of such cases. Because Justice Freeman voted with the majority in each of the court’s seven one-dissenter cases, his agreement rates are a bit higher — 85.7 percent with Justice Burke, 71.4 percent with Chief Justice Garman, 61.5 percent with Justice Thomas, 57.1 percent with Justice Karmeier and 71.4 percent with Justice Theis.

When appellate specialists get together, we frequently debate whether or not an experienced appellate attorney should be able to predict the outcome of a case or even the vote at the conclusion of an oral argument. To study whether this question can be approached objectively, I added data on questioning patterns to my study.

The court asked 848 questions during arguments of civil cases decided during 2013: 417 to appellants during their opening remarks, 316 to appellees and 115 to appellants during rebuttal. Justice Thomas asked 222 questions. Justice Theis was second with 171. Justice Burke was third with 126 questions. After Justice Burke came Chief Justice Garman with 109 questions, Justice Karmeier with 101, Justice Freeman with 61 and Justice Kilbride with 58 questions. Appellants were asked an average of 15.4 questions per argument, appellees 9.3.

There are a lot of theories among appellate lawyers about questions from the court. Some lawyers insist the justices sometimes ask questions to play devil's advocate, or to attempt to persuade another justice. There is no evidence to support either of these theories in the court's 2013 civil arguments. Rather, the court's questions tend to indicate that the inquiring justice may be having difficulty with that side's argument. Losing appellants average 17.7 questions per argument to 13.6 for winners. Similarly, losing appellees average 10.6 questions per argument, while winners average 7.9 per argument.

In nonunanimous affirmances, appellants averaged 20.0 questions to 15.6 for appellants in unanimous cases. Appellees received an average of 8.9 questions in nonunanimous decisions to 7.0 in unanimous decisions. But in nonunanimous reversals, the difference was far smaller: Appellants received 14.4 questions in nonunanimous cases, compared to 13.2 in unanimous decisions. Appellees received an average of 9.3 questions in nonunanimous cases, but more in unanimous decisions: an average of 11.1 questions.

In order to account for the effect of complex cases on the data, I next asked whether the difference between total questions asked each side in a particular case might suggest a probable winner.

The answer is yes, at least in 2013. Appellees received more questions than their opponents in eight civil cases; they lost seven of eight. Appellants received more questions in 24 cases, winning 11 (the sides received an equal number of questions in two cases). The more an appellant's total questions exceeded the appellee's, the more likely the court would ultimately affirm. Losing appellants averaged 9.8 questions more than their opponents, while winning appellants averaged only 3.06 questions more than their adversaries.

Each of the seven justices averages more questions to appellants than appellees. For some justices, such as Chief Justice Garman (1.8/1.4), Justice Kilbride (1.0/0.8) and Justice Karmeier (1.7/1.4), the difference was small, but Justices Burke (2.5/1.5), Freeman (1.4/0.5), Thomas (4.2/2.7) and Theis (3.5/1.3) tended to ask appellants significantly more questions on average.

Dividing the data into unanimous and nonunanimous decisions does not make a consistent difference in the justices' patterns. Justices Burke (1.8/3.1), Kilbride (0.7/1.5), Thomas (3.7/4.8) and Karmeier (1.1/2.4) averaged more questions to appellants when the court wound up divided, but Justices Freeman (1.6/1.1) and Theis (4.3/3.1) averaged fewer. Chief Justice Garman (0.3/4.8), Freeman (0.4/0.6) and Karmeier (1.0/1.8) averaged more questions to appellees in cases decided unanimously, but Justices Burke (2.1/0.9), Kilbride (0.9/0.5) and Thomas (3.0/2.5) averaged fewer.

However, several Justices’ questioning patterns might be suggestive of how they will ultimately vote. Five of the seven justices — Burke (2.4/2.2), Kilbride (1.3/0.8), Thomas (6.4/2.4), Karmeier (2.4/1.0) and Theis (4.4/3.0) — asked more questions of appellants they ultimately voted against than of appellants they voted for. Three justices — Chief Justice Garman and Justices Kilbride and Thomas — asked more questions of appellees they voted against than of appellees they voted for.

This past year suggests three lessons for counsel appearing before the Illinois Supreme Court: (1) for most issues, the court has a centrist voting bloc of Chief Justice Garman and Justices Thomas, Karmeier and Theis; (2) the court does not grant review predominantly to reverse, like some appellate courts with discretionary dockets; and (3) answer every question carefully — there’s a good chance those are the justices you must persuade to prevail.

Image courtesy of Flickr by anneh632.

 

Florida Supreme Court Decides that Florida Civil Rights Act Prohibits Pregnancy Discrimination

             On April 17, 2014, the Florida Supreme Court resolved a certified conflict between two of Florida’s district courts of appeal, to hold that the Florida Civil Rights Act (FCRA) prohibits pregnancy discrimination. To read the full opinion click here.  In so doing, the supreme court quashed the Third District’s decision in Delva v. Continental Group, Inc., 96 So. 3d 956 (Fla. 3d DCA 2012), and approved the Fourth District’s decision in Carsillo v. City of Lake Worth, 995 So. 2d 1118 (Fla. 4th DCA 2008).    

            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. 

            The supreme court found that the FCRA phrase making it an “unlawful employment practice for an employer . . . to discriminate . . . because of . . . sex” includes discrimination based on pregnancy, which is a natural condition and primary characteristic unique to the female sex.  The court also concluded that this construction of the FCRA is consistent with the FCRA’s legislative intent, which “shall be liberally construed.”  The Court rejected the Third District’s reasoning in Delva that “ascribed legal significance to the Florida Legislature’s failure to amend the FCRA” after Title VII was amended to specifically include discrimination based on pregnancy.

            Chief Justice Polston, who dissented, took a more literal reading of the statute, believing that “the plain meaning of the [FCRA] does not encompass pregnancy discrimination.”  The word “sex,” he reasoned, “does not refer to whether one is pregnant or not pregnant even though that status is biologically confined to one gender.”

 

Image courtesy of Flickr by Joe Goldberg .

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Florida High Court Declares that Person Who Facilitates Attack on Third-Party Owes Duty of Care to Third-Party

On March 27, 2014, the Florida Supreme Court reversed the Third District Court of Appeal’s decision in Reider v. Dorsey, 98 So. 3d 1223 (Fla. 3d DCA 2012), and ruled that 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.  The supreme court’s review was premised on conflict with its decision in McCain v. Florida Power Corp., 593 So. 2d 500 (Fla. 1992), the seminal case in Florida on “duty” in negligence cases. 

 

To read the opinion, click here.

 

Background & Earlier Court Proceedings

 

Dorsey was drinking with Reider and Reider’s friend, Noordhoek, at a local bar and all were intoxicated over the legal limit.  While in the bar, Reider became belligerent, saying that he wanted to fight everyone.  Dorsey called Reider a vulgar name and walked out of the bar.  Reider and Noordhoek followed him, with Reider demanding to know why Dorsey called him the vulgar name.

 

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 temporarily 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 filed a motion 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 the order. 

 

On appeal, Dorsey argued that Reider created a foreseeable zone of risk because (1) he failed to lock the doors of his truck before he went into the bar or at the time he accosted Dorsey in the parking lot; and (2) he thwarted Dorsey's efforts to escape after Noordhoek retrieved the tomahawk from Reider's vehicle.   The Third District Court of Appeal disagreed and held that Reider did not owe a duty of care to Dorsey, as 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.”  The court further held 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. 

 

Supreme Court Proceedings

 

The supreme court noted that it recognized in McCain that a duty of care arises from four potential sources, including the general facts of the case.  Whether a common law duty flows from the general facts of the case depends upon an evaluation and application of the concept of foreseeability of harm.  When a person’s conduct is such that it creates a “foreseeable zone of risk” posing a general threat of harm to others, a legal duty will ordinarily be recognized to ensure the conduct is carried out reasonably.

 

The supreme court stated that it cautioned in McCain that it is important to note the difference between the type of foreseeability required to establish duty as opposed to that which is required to establish proximate causation – establishing the existence of duty is primarily a legal question and requires demonstrating that the activity at issue created a general zone of foreseeable danger of harm to others.  Establishing proximate cause requires a factual showing that the dangerous activity foreseeably caused the specific harm suffered. 

 

The supreme court found that Reider’s conduct in blocking Dorsey’s escape from the situation created a foreseeable zone of risk posing a general threat of harm to others, thus establishing a legal duty on the part of Reider.  The supreme court then analyzed whether this duty of care extended to the misconduct of Noordhoek, a third party, and held that it did, as the facts of this case met the exception to the general rule that a party has no legal duty to prevent the misconduct of third persons.  In particular, Reider was present and had the ability to control access to his truck where the tomahawk was located.  Furthermore, Reider not only provided access to the tomahawk, but he blocked Dorsey’s escape and was present when the tomahawk was used to injure Dorsey.  Finally, and significantly, Reider was in a position to retake control of the tomahawk and prevent an injury, as Dorsey testified that when Noordhoek took the tomahawk out of Reider’s truck, Dorsey asked Reider, “Bobby, what is this?”  Ten or fifteen seconds passed before Dorsey was then struck.  In this amount of time, Reider had the opportunity to prevent the injury.

 

The district court thus misapplied the supreme court’s precedent in McCain when it concluded that the evidence failed to demonstrate that Reider owed a legal duty of care to Dorsey under the facts of the case.  The McCain decision does not require that there be evidence that the defendant colluded with the third party to cause harm or knew exactly what form the harm might take – only that his conduct created a general zone of foreseeable danger of harm.  The supreme court quashed the district court’s decision and remanded the case for reinstatement of the trial court’s judgments.

 

 

Image courtesy of Flickr by Alan English.

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Argument Report: Illinois Supreme Court Appears Skeptical of Due Process Challenge to Liquor License Revocation

The Illinois Supreme Court appeared skeptical of a due process challenge to revocation of a liquor license during the recent oral argument in WISAM 1, d/b/a Sheridan Liquors v. Illinois Liquor Control Commission. Our detailed preview of the facts and underlying court opinions in WISAM 1 is here.

WISAM 1 involves a liquor store whose license was revoked by the City of Peoria pursuant to Section 3-28 of the city ordinances, which forbids any “officer, associate, member, representative, agent or employee” of a liquor licensee from violating a city ordinance, state or federal law “in or about the licensed premises.” The administrative charges were based upon the federal criminal conviction of a former manager of the plaintiff store for “structuring” currency deposits – deliberately manipulating deposits to keep them under the $10,000 limit which triggers an automatic currency transaction report. The Appellate Court affirmed the revocation, finding that although the proceedings below were somewhat dubious (the Commissioner entered a directed finding of the violation at the outset of the hearing based upon the federal trial transcript), the defendant had suffered no prejudice as a result. The court pointed to the testimony of the plaintiff’s president, who conceded that the plaintiff deliberately kept withdrawals for its check cashing business below $10,000 because of the limits on the store’s insurance. The court held that the Commission permissibly concluded that the true purpose of the withdrawal pattern was structuring.

Counsel for the defendant began the argument, explaining that before opening statements at the administrative hearing, three volumes of testimony from the federal trial were admitted pursuant to stipulation. Justice Thomas asked why the decision couldn’t be affirmed on the basis that the stipulations were sufficient to support revocation. Counsel responded that the stipulation had been misrepresented in the record, with some suggesting that the stipulation admitted that the charges in the federal indictment were true. Justice Thomas asked whether it was disputed that the former manager was convicted at his trial of offenses relating to the financial and business operations of the store. Counsel said that it was not. Justice Thomas then repeated his question – why isn’t the stipulation enough. Counsel responded that it was not sufficient because the Municipal Code required that the offense occur “in or about” the licensed premises. Justice Theis pointed out that counsel had framed the issue as one of due process in the petition for leave to appeal, not as sufficiency of the evidence. Counsel responded that sufficiency of the evidence was part of the due process violation. Justice Theis asked whether it was true that the main thrust of the defendant's argument was being denied the opportunity to be heard. Counsel agreed that the hallmark of due process was the opportunity to be heard. Justice Theis pointed out that defendant had the opportunity to present evidence, so how was defendant denied the opportunity to be heard? Counsel answered that the evidence was given in an offer of proof; the Commissioner agreed that the principal question had already been settled in favor of finding a violation. The defendant's offer of proof was never considered, defendant argued. Justice Theis questioned whether that was a due process violation; the defendant was allowed to offer exhibits. Counsel again argued that defendant was merely making an offer of proof after already having lost. Justice Theis pointed out that defendant's offer of proof was to show that the pattern of bank deposits was explained by the insurance limits - so what was the prejudice?   Counsel answered that no one ever considered the evidence. Justice Theis asked whether the evidence was presented to the federal jury and rejected. Counsel agreed that it was, albeit inartfully. The defendant merely stipulated to things which were not subject to question, according to counsel. Justice Burke asked whether the Liquor Commission had considered the defendant's offer of proof, and counsel answered that he had tried to lay out in his initial brief exactly what happened. Justice Burke asked whether defendant's position was that the Commission had not been allowed to consider defendant's evidence. Counsel answered that the Appellate Court had concluded that the evidence had been considered by the Liquor Commission. Justice Theis asked what specific statements the defendant objected to. Counsel noted one witness' comments that he had worked at the store in the 1990s and recalled the store was charging 2% for cashing checks, although the liquor license hadn't been granted until 2002. Justice Theis asked what the due process violation was, and counsel answered that the Liquor Commission used transcripts to find a violation. Justice Theis suggested that the defendant had testified that checks were being cashed at the store, and the store owner had to figure out how to structure deposits. Counsel agreed, and Justice Theis asked then what was wrong with admitting the transcript? Counsel again answered that nobody at the hearing had said that violations occurred in or about the licensed premises. Justice Thomas asked whether the fact finder could make a reasonable inference from the stipulation, and counsel answered that the stipulation never said that anything had happened at the store; even the federal prosecutors alleged that the unlawful conduct occurred solely at the bank.

Counsel for the state Liquor Commission followed, arguing that the stipulation plus the indictment was sufficient evidence for the fact finder to infer the needed facts. Justice Burke asked whether the Commission had made its decision based totally on the stipulation, thus making proof unnecessary. Counsel answered that the Commission did have a hearing; the hearing officer did make an initial finding, which the Commission agreed was premature. The defendant was permitted to offer additional information, including insurance documents and the owner's testimony. The Commission looked at all evidence that had been submitted. Justice Theis asked whether the Commission has any rules for hearings. Counsel answered that the Municipal Code governed. Justice Burke asked whether the defendant was allowed to cross-examine witnesses before the Commission. Counsel responded that the defendant could cross-examine any witness, and pointed out that if the stipulation was sufficient support for the judgment, there was no need to reach the question of whether the transcripts had been incorrectly admitted. Justice Burke asked what proof the City had without the federal transcripts, and counsel pointed to the stipulation. Justice Burke suggested that there were no live witnesses needed, and counsel argued that the owner of the liquor store had testified and acknowledged the handling of the store's money; that was enough for a reasonable inference. Justice Kilbride asked what evidence there was that the conduct had occurred in or about the premises. Counsel answered that the parties' stipulation provided that the offenses were convicted as charged in the indictment, and involved the operations of the store. Based on that, the Commission could make a reasonable inference that the two-year conspiracy of the manager must have occurred, at least in part, at the store. Justice Kilbride suggested that the stipulation didn't really concede that the offenses occurred in or about the premises. Counsel agreed, but again argued that it was a reasonable inference, further supported by the transcript.

Counsel for the City of Peoria argued next, insisting that every act of the manager was imputable to the licensee. Justice Burke asked whether the licensee was part of the federal case, and counsel answered no.   The defendant had argued that the withdrawals had been structured to stay under $10,000 for insurance reasons, counsel argued, but in fact, the limit for amounts held outside the store was only $5,000. So if insurance limits were the reason for the pattern, why wouldn't withdrawals have been half as high?

In rebuttal, counsel for the defendant argued that the Deputy Commissioner's finding had indeed been based on the federal indictment and transcripts. Justice Theis asked counsel what additional evidence he would have introduced but for the due process violation, and counsel answered that he would have cross-examined the witnesses presented in federal court. Justice Theis asked whether the heart of the defendant's case was that there needed to be a retrial of the federal claim, and counsel said essentially, yes - the defendant was not present for the federal trial, so its result was not binding upon the defendant. Counsel asked what other evidence the defendant would have presented, and counsel answered that defendant would have confronted every witness with the insurance policies. Justice Theis noted that the defendant had presented the insurance policies to the Commissioner - what else would defendant have done? Counsel again answered that the defendant would have cross-examined the witnesses. Justice Burke asked whether it was a structural error in an administrative hearing where the defendant is not permitted to present a defense, and counsel agreed that the error was fundamental. Chief Justice Garman asked whether the federal indictment and conviction had any effect on the case, and counsel answered that since the indictment said that the structuring occurred at the Bank, it actually supported the opposite of the inference needed to justify the violation finding. Justice Kilbride asked about counsel's earlier statement that the criminal verdict hadn't ripened into a judgment. Counsel answered that the sentencing hadn't occurred at the time of the hearing, but has now happened. The manager has not appealed, according to counsel; he has already completed his sentence. Justice Thomas noted that the Liquor Commission has held that licensees are strictly accountable for all violations on the premises - does that bring the employer into the mix? Counsel answered no - the question would still be whether a violation occurred on the premises.

We expect WISAM 1 to be decided in three to four months.

Image courtesy of Flickr by josephleenovak.

Argument Report: Illinois Supreme Court Likely to Find Wrongful Death Lawyer Owes Duty to Next of Kin

Based upon the especially heavy questioning directed at the appellant during the recent oral argument in Estate of Powell v. John C. Wunsch, P.C., the Illinois Supreme Court seems to be contemplating holding that counsel who brings a wrongful death action owes a duty of care not only to the administrator or administratrix of the estate, but also to the next of kin. Our detailed summary of the facts and lower court opinions in Estate of Powell is here.

The plaintiff in Estate of Powell was adjudicated disabled in 1997.  The plaintiff’s father died two years later, and his mother retained the defendants to bring a wrongful death action. The action was settled in two steps in 2005 – first, a $15,000 settlement with three defendants, split between the plaintiff, his mother and sister; and second, a $350,000 settlement which the mother and the plaintiff split equally, with the sister waiving her share. By 2008, a dispute had arisen between the plaintiff’s sister and his mother, who was plaintiff’s guardian, about whether the mother was still capable of caring for plaintiff, and whether his share of settlements was being expended towards his care. Plaintiff’s sister was substituted as his guardian in 2009. She then sued the defendants for malpractice. Plaintiff’s theory was that the defendants had failed to ensure that plaintiff’s share of the settlements was supervised by the probate court pursuant to the Wrongful Death Act, and plaintiff had accordingly lost access to the funds. The trial court dismissed, finding that the defendants owed the plaintiff no duty of care, since it was his mother who had brought the action as administratrix of the estate, not the plaintiff himself. The Court of Appeal reversed in part, finding that a duty of care was owed, and that plaintiff had stated a claim for relief pursuant to the second settlement.

Counsel for the first group of defendants began the argument, noting that the majority of jurisdictions have declined to extend an attorney’s duty of care beyond the person administering the deceased’s estate to unnamed and sometimes unknown heirs. Justice Thomas asked how the Court should get around the statute and case law stating that wrongful death actions are brought for the benefit of next of kin as the real parties in interest. Counsel responded that extending the duty to heirs carried with it considerable risk of creating conflicts between a single beneficiary’s best interest and that of the estate. Justice Karmeier asked whether there was any dispute between the heirs in the case at bar, and counsel responded that matters had never reached that point. Justice Karmeier asked whether the attorney has a duty to ensure that a recovery is properly paid out, and counsel answered no. Justice Burke suggested that the Court had previously found a fiduciary duty to next of kin in DeLuna v. BurciagaCounsel disagreed, arguing that DeLuna had merely addressed the duty to beneficiaries. Justice Thomas again pointed out that previous cases had said that next of kin are the real parties in interest, and they are statutorily prohibited from representing their own interest. Isn’t this a textbook example of attorneys being hired to represent a third party? Counsel disagreed, arguing that if an attorney is representing the administratrix, duties flow only to her. To extend those duties across the board to all possible beneficiaries creates a real risk of conflicts of interest – counsel pointed, for example, to the need to advise plaintiff’s sister about her eventual waiver of any interest in the second settlement. Justice Thomas pointed out that one could hold that the counsel for the estate owed a duty to advise beneficiaries to get their own attorneys. Counsel responded that no across-the-board duty was justified, and briefly concluded by arguing that plaintiff had failed to establish proximate causation as well.

Counsel for the second group of defendants followed. He addressed the DeLuna issue, stating that his firm had represented the defendant, and the case related to statute of repose, not duty. Counsel stated that he didn’t believe DeLuna was wrongly decided, it was simply distinguishable. Counsel then turned to Justice Thomas’ question about heirs’ status as the real party in interest, arguing that while next of kin are the intended beneficiaries of a wrongful death action, there is too much potential for conflict involved in holding that counsel owes them a duty of care. Justice Thomas asked whether there was a duty to investigate if knowledge came to the attorney’s attention suggesting a possible conflict between the estate and the next of kin. Counsel responded that there was no duty to investigate a mere possibility of a conflict. Counsel argued that the system only works if obtaining a recovery is kept separate from the issue of distributing it to next of kin. The heirs’ remedy is against a person who distributed the money wrongfully, not against the attorney.

Counsel for the plaintiff began by commenting that it was “telling” that the defendants didn’t perceive a conflict until suit was filed; at no time did they advise the plaintiff or his sister of any possible conflict. Chief Justice Garman asked counsel to describe the scope of the defendant’s duty. Counsel answered that the duty was to represent the estate in connection with the claim, and at the time of distribution, should a conflict arise, to describe the conflict to beneficiaries, and advise them to seek separate counsel. The Chief Justice asked about minors, and counsel answered that for such beneficiaries, a minor’s estate must be opened in the probate division. Chief Justice Garman asked whether in plaintiff’s view there was always a potential for conflict, and counsel said yes; the Chief then suggested that counsel will always be advising beneficiaries to seek their own attorneys. Justice Thomas asked whether the plaintiff was arguing that the defendants should have been aware that the plaintiff’s mother was wrongfully expending funds from the plaintiff’s part of the settlement. Counsel answered that if the matter had been properly handled through a probate estate, there would have been no opportunity to misappropriate anything. Justice Karmeier asked counsel how he responded to the defendant’s contention that its duties were fully satisfied once the recovery was properly paid to the guardian. Counsel responded that in the case of a disabled person, payment to a plenary guardian was not sufficient; a probate estate must be opened so that the court can supervise the settlement. Justice Karmeier asked whether another estate and another guardian was needed; counsel answered that it could be the same guardian, but the guardian would be required to post a bond. Justice Karmeier asked whether the attorney has an obligation to confirm that the guardian has a bond. Counsel answered that that’s what the probate court does. Counsel briefly concluded by arguing that proximate causation was adequately pled by the allegations that the mother would have had no opportunity to misappropriate funds if the settlement had been properly handled.

Counsel for the first defendants group began her rebuttal by explaining that defendants hadn’t addressed any conflict because, as the law then stood, there wasn’t one. Justice Theis asked how the Wrongful Death Act and the Probate Act fit together in this instance. Counsel answered that the defendant’s duty was to the administratrix. The trial judge was advised of the plaintiff’s disability. As for the interplay between the Acts, counsel answered that the only workable solution was to find that the lawyer’s duty was to the estate only. Justice Theis asked whether there was a duty to consider the Probate Act and the Rules of Court re distribution of the settlement. Counsel answered that such a duty was met here. Justice Theis asked counsel whether she was conceding that there is a duty to follow the Probate Act and the Rules of Court, and counsel agreed that defendants had a duty to follow the law. Justice Burke asked whether there was a probate action, and counsel said that there was not after the settlement. Counsel argued that the plenary guardian was responsible for the plaintiff’s needs, but Justice Burke said she did not have responsibility for the plaintiff’s money. Counsel concluded by once again arguing that there was no basis for believing that any misappropriation would have been prevented if the settlements had been distributed differently.

Counsel for the second group of defendants began by addressing Justice Theis’ earlier question about duty. He argued that there is certainly a duty, but the question is to whom. If the Local Rules or the Wrongful Death Act were not followed, then it’s the administrator who has a cause of action against the attorney. Justice Thomas asked whether there was no duty to open a probate estate because the plaintiff already had a guardian – or is there never a duty?  Counsel responded that there is a duty to the administrator, nothing more. Justice Thomas wondered whether counsel’s position was contrary to rule, but counsel responded that the rules don’t create a duty. Justice Thomas pointed out that attorneys were opening up probate estates all the time. Counsel answered that only Cook County bifurcates the process – in other places, the same judge handles everything. Justice Thomas asked whether counsel had a duty to tell an administratrix that a probate estate was needed.   Counsel answered that if so, it was only owed to the administratrix. Counsel responded that that wasn’t what was pled here. Any duty has to be uniform in all cases, otherwise attorneys don’t know how to handle potential conflicts. Justice Theis pointed out that this wasn’t just any kind of conflict, the case involved specifically a disabled adult – and there’s a statutory procedure for dealing with that sort of conflict. Counsel responded again that if there is a mistake in distributing the recovery, it’s the administratrix’s cause of action. Thus, the wrong party was suing.

We expect Estate of Powell to be decided in three to four months.

Image courtesy of Flickr by tracie7779.

Argument Report: Illinois Supreme Court Seems Undecided on Child Support for Non-Custodial Parents

Actively questioning both sides, the Justices of the Illinois Supreme Court seemed conflicted during the recent oral argument in In re Marriage of Turk. Turk poses a potentially important question of domestic relations law: when the non-custodial parent of a child has significantly fewer financial resources, can the custodial parent be ordered to pay child support? The Justices seemed sympathetic to the less affluent mother’s situation, while at the same time questioning whether the Illinois Marriage and Dissolution of Marriage Act authorizes such payments. Our detailed discussion of the facts and underlying court decisions in Turk is here.

The parents in Turk were divorced in mid-2005. Pursuant to the parties’ agreement, the father agreed to pay maintenance and child support for 42 months. At the end of that period, any further child support obligations would be calculated pursuant to the Illinois Marriage and Dissolution of Marriage Act. In 2011, the father petitioned to have his support obligations terminated and sought child support from the mother on the grounds that he was custodial parent of both children. The trial court granted in part and denied in part the motion, ordering the father to continue paying child support, despite the custodial situation. Division Five of the First District of the Appellate Court affirmed the trial court’s conclusion that a custodial parent could, in appropriate circumstances, be ordered to pay child support, but reversed and remanded for recalculation using updated expense data.

Counsel for the father began, arguing that the statute repeatedly distinguished between the custodial and non-custodial parents in describing support obligations. Justice Burke asked whether the real measure wasn’t the best interest of the child and pointed out that the record suggested that at least one child spent substantial time with the non-custodial parent. Counsel responded that it was not a split custody arrangement; one child spent no time at all with the non-custodial parent, the other split time about equally. Counsel acknowledged that the court was free to deviate from the standard statutory support percentage, but could not deviate past zero and reverse the support obligation. Chief Justice Garman asked whether it was counsel’s position that a non-custodial parent was never entitled to support, and counsel responded that that was what the statute said. Justice Theis asked counsel to describe the terms of the custody order, and counsel answered that the father had sole custody, with one child spending significant visitation time with the mother. Justice Kilbride asked whether the custody order was permanent or temporary, and counsel responded that it was permanent. Chief Justice Garman asked counsel whether he was arguing that the court had erred both in ordering payment of child support to the mother, and in not ordering payments from the mother to the father. Counsel responded yes. The Chief Justice asked whether it was proper for the court to consider the significant disparity in income, and that the non-custodial parent would need resources to allow the child to visit without a significant drop-off in lifestyle, and counsel once again argued that the court’s only option was to deviate down to zero – it could not order payments to the non-custodial parent. Justice Thomas asked what recourse a trial judge had if a destitute mother had a child fifty percent of the time - how could the mother put food on the table for visits? Counsel argued that because of the statute’s repeated references to custodial and non-custodial parents, the only option was to deviate from the statutory percentage down to zero. Justice Burke noted that the statute says both parents should pay a reasonable amount for support, but counsel answered that such language was only found in a portion of the statute addressing the situation where a non-parent had custody. The rest of the statute maintains the distinction between custodial and non-custodial parents in discussing support. Justice Karmeier asked whether the statute was ambiguous, and counsel answered no. Justice Karmeier pointed out that custody wasn’t one of the statutory factors to be used in calculating child support. Counsel answered that nevertheless, there was no authority in the statute to deviate past zero and order payment of child support to the non-custodial parent.

Counsel for the mother began by arguing that in fact, the statute provides that either or both parents can be required to pay child support. Justice Karmeier asked counsel to respond to the appellant’s point about the statute using custodial vs. non-custodial.  Counsel answered that the statute uses a variety of terms to refer to the parents. Justice Theis pointed out that Section 6 of the statute – the enforcement section – refers only to custodial and non-custodial parents. Counsel responded that not all of the enforcement section used those terms. Justice Theis asked counsel to direct her specifically to the portion of the enforcement section that uses any term other than custodial and non-custodial , and counsel cited part (b) of Section 6. The body of the text makes it clear that either or both parents can owe child support, counsel claimed. Justice Freeman pointed out that the financial disclosure forms were now seven years old, and counsel stated that while the forms were admittedly stale by the time of the hearing, neither side had objected to their use.   Justice Freeman asked whether, if the court were to agree that a non-custodial parent could be awarded child support, the proper result was a remand for reconsideration using current data. Counsel responded that although her client would be better off if the matter was calculated again using current data, a remand was not essential. Justice Thomas wondered whether affirmance would open up the domestic relations divisions to parsing through income statements rather than focusing solely on the best interests of the child. Counsel answered no, that this case represented an atypical situation.   Justice Thomas noted the argument made by counsel for the father, that the judge had discretion to deviate to zero, but no further. Counsel responded that that wasn’t what the statute says – support is a joint and several obligation. Chief Justice Garman asked whether there was any difference between support to a non-custodial parent and maintenance. Counsel answered that a maintenance payment would be considerably higher. Justice Theis asked counsel whether she would concede that most of the references in the statute refer only to custodial and non-custodial parents. Was the statute ambiguous? Counsel answered that is was not; the statute was neutrally and broadly drawn. Would affirmance amount to reading the references to custodial and non-custodial parents out of the statute, Justice Theis asked? Counsel answered that on the contrary, holding that there was no discretion to separate the support obligation from custody created superfluous language in the statute. Justice Theis pointed out that subsection (b) of the enforcement section actually talked about discovering assets of non-custodial parents. How should that be read under the mother’s position – as either parent? Counsel answered yes, noting that language just above the quoted passage referred to “parent,” not custodial or non-custodial. If the legislature had intended to tie support to custody, it would have said so.

On rebuttal, counsel for the father stated that opposing counsel was arguing equity, not law. Counsel predicted a flood of petitions from less affluent parents if the mother’s position was accepted. The statute contemplated only one result: a custodial parent receiving support. The order under review, counsel argued, was nothing more than a thinly disguised maintenance order.

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

Image courtesy of Flickr by banjo d.

California Supreme Court to Clarify What's In, What's Out in the Five-Years-to-Trial Rule

According to Section 583.310 of the California Code of Civil Procedure, "An action shall be brought to trial within five years after the action is commenced against the defendant."

On the surface, it seems like a simple rule. But as with so many things, the devil is in the details. During last week's conference, the California Supreme Court agreed to further clarify how to calculate the five-year period, granting a petition for review in Gaines v. Fidelity National Title Insurance Company.

According to Section 583.340, there are only three situations in which the five-year clock pauses – during times that (1) the jurisdiction of the court to try the action was suspended; (2) prosecution or trial of the action was stayed or enjoined; or (3) bringing the action to trial, for any other reason, was impossible, impracticable, or futile.  Once the clock runs out, dismissal is mandatory. Gaines involves the application of the second and third exclusions.

Gaines started in 2006 when two senior citizen homeowners fell behind on their mortgage. An individual defendant contacted the homeowners and identified herself as an employee of the loan holder. She explained that she had given a copy of the homeowners' refinance application to her fiance, who helped homeowners find refinancing loans. Within a few months, after a complicated series of transactions, the fiance and his business partners wound up owning the homeowners' home - which they allegedly bought for $300,000 less than it was worth - and the homeowners held only a month-to-month lease with no option to buy. Around this time, the husband homeowner died.

The surviving wife filed suit in November 2006 against the original loan holder, the loan holder's employee, her fiance and his business partners, and various others. In January 2008, the plaintiff filed a fourth amended complaint adding additional defendants. In April 2008, the plaintiff's counsel successfully obtained an order staying the action for 120 days, excepting only outstanding discovery, and directing the parties to participate in good faith in a mediation. The stay was terminated in November 2008 after the mediation failed to produce a settlement.

The new presiding judge set an August 2009 trial date. Around that time, one of the newly added defendants indicated that it didn't have title to the property after all, and the trial date was vacated. In a declaration filed in November 2009, counsel for that defendant indicated that a bankrupt entity in New York owned the relevant loan, and his client had no interest in the property or the loan.

The wife died in November 2009. Leave was granted two months later to substitute her son as the successor in interest and plaintiff, and the court set yet another trial date in 2010. At a mid-2010 status conference, with the real loan holder still in bankruptcy, the plaintiff's counsel suggested a further continuance to allow time to bifurcate proceedings, carving out the claim against the bankrupt entity and proceeding against the other defendants. Three months later at another status conference, plaintiff's counsel said they were ready to proceed to trial, but one of the defense counsel pointed out that plaintiff had made no attempt to proceed against the bankrupt entity. By February 2011, plaintiff's counsel indicated he had authorization to retain New York counsel to seek relief from the bankruptcy stay as to the missing party. In October 2011, the bankruptcy court entered an order lifting the bankruptcy stay for the missing party as to the plaintiff's claims. Plaintiff amended her complaint to name the bankrupt entity in mid-November 2011, and trial was finally set for August 2012.

In May 2012, one group of defendants moved to dismiss the action under Section 583.310 on the grounds that it had been pending five years without being brought to trial. The trial court granted the motion and - concluding that violation of the five-year statute was jurisdictional - dismissed the remaining defendants as well. A divided Court of Appeal (Second District, Division Eight) affirmed in part and reversed in part.

The trial court declined to exclude the seven-month 2008 stay from the five-year calculation. The Court of Appeal agreed. The Supreme Court had held in Bruns v. E-Commerce Exchange, Inc. that a partial stay was not enough to pause the five-year clock, the court pointed out. Since the 2008 stay in Gaines exempted already-outstanding discovery, it was a partial stay, and Bruns governed. Nor were the defendants estopped from arguing that the 2008 stay counted in the calculation just because they had agreed to it.

The Court of Appeal further held that the trial court was within its discretion to find that it was not impossible, impractical or futile to bring the case to trial during the 2008 partial stay.  The plaintiff had failed to establish a causal connection between the stay and missing the five-year deadline, the court found. Moreover, even if the causal connection existed, the court agreed with the trial court's finding that plaintiff had not been reasonably diligent at all times in prosecuting the case. Nor was the fact that certain defendants hadn't formally joined the motion to dismiss a barrier to dismissal, the Court held. As long as those defendants were named in the original complaint, they were entitled to dismissal, even on the court’s own motion.

The Court of Appeal reversed the dismissal only with respect to the bankrupt defendant. That defendant had been named for the first time in the Fourth Amended Complaint, the court pointed out. There's an additional wrinkle here for counsel to be aware of here, however. When a defendant is brought into the action by being identified as a previously sued Doe defendant, the five-year clock begins when the Doe defendant is sued, not when the defendant is finally identified.

Associate Justice Laurence D. Rubin dissented, writing that he would have reversed the trial court's judgment in its entirety. Justice Rubin's dissent is noteworthy to appellate practitioners for its initial section - a scholarly discussion of the abuse of discretion standard and its shortcomings as a guide for appellate decision-making.

We expect Gaines to be decided in eight to ten months.

Image courtesy of Flickr by Alan Cleaver.

One Step Forward, One Step Back: Court of Appeal Denies Arbitration in Imburgia

Fresh on the heels of signs during the Iskanian oral argument that the California Supreme Court might at least partially fall in line behind the rule of Concepcion (subscr. req.), we received a reminder that arbitration clauses continue to receive an uncertain reception in the Courts of Appeal. In Imburgia v. DirecTV, Inc., Division One of the Second Appellate District affirmed a trial court decision invalidating a consumer arbitration clause in its entirety. (See here for a quick sketch of the background law at the federal and California state level.)

The plaintiff in Imburgia filed a putative class action complaint alleging a laundry list of consumer claims: unjust enrichment, declaratory relief, false advertising, and violation of the Consumer Legal Remedies Act, the unfair competition law and Civil Code Section 1671(d). Plaintiff’s theory was that the defendant improperly charged early termination fees to its customers.

The parties litigated for two and a half years, but less than a month after Concepcion was handed down in 2011, the defendant petitioned to compel arbitration. The trial court denied the motion.

Two provisions of the defendant’s then-standard customer agreement were at issue. Section 9 provided that “any legal or equitable claim” relating to the Agreement or service would first be addressed informally, and then through “binding arbitration” under JAMS rules. The clause barred all class claims, both in litigation and arbitration:

Neither you nor we shall be entitled to join or consolidate claims in arbitration by or against other individuals or entities, or arbitrate any claim as a representative member of a class or in a private attorney general capacity . . . If, however, the law of your state would find this agreement to dispense with class arbitration procedures unenforceable, then this entire Section 9 is unenforceable.

Section 10 was called “Applicable Law”:

The interpretation and enforcement of this Agreement shall be governed by the rules and regulations of the Federal Communications Commission, other applicable federal laws, and the laws of the state and local area where Service is provided to you . . . Notwithstanding the foregoing, Section 9 shall be governed by the Federal Arbitration Act.

The plaintiffs’ argument on appeal went like this. Class action waivers are unenforceable under the Consumer Legal Remedies Act. The final sentence of Section 9 referring to “the law of your state” means “the law of your state disregarding any impact of the FAA.” Since California law bars class waivers in CLRA cases, “this agreement to dispense with class arbitration procedures [is] unenforceable,” and the entire arbitration clause falls.

The Court of Appeal agreed. The court based this conclusion on two general principles. First, the final sentence of Section 9 is a specific exception to the general invocation of the FAA in Section 10, and a specific contract clause always governs a more general one. Second, the clause was ambiguous as written, and ambiguities must be resolved against the drafter – here, the defendant. In so holding, the Court of Appeal declined to follow directly contrary decisions from the federal district court hearing the parallel MDL action and the Ninth Circuit.

The California Supreme Court should grant review in Imburgia and reverse. Defendants made two arguments before the Court of Appeal which seem to me to dispose of the plaintiff’s “imagine there’s no FAA” argument.

First, the plaintiffs’ arguments, adopted by the Court of Appeal, depend on the proposition that the last sentence of Section 9 and Section 10 conflict. But they don’t. The plaintiff argues that the CLRA bars class waivers. But that tells us nothing. Section 9 does not invoke California law in a vacuum. The clause asks whether “the law of your state would find this agreement . . . unenforceable.” Well, California law couldn't find the defendant's subscriber agreement unenforceable.  The agreement deals with interstate commerce and is therefore subject to the FAA.  If the Supremacy Clause means anything, it's that Concepcion is the law of every jurisdiction, including California.  The class waiver is perfectly valid under Concepcion and Concepcion preempts the CLRA.

Second, Section 10 provides that “Section 9 shall be governed by the Federal Arbitration Act.” As the federal MDL court held, the plaintiffs’ interpretation of Section 9 renders that clause completely meaningless, in violation of the most fundamental principles of contract construction. The Court of Appeal disagreed, describing Section 9 as a “narrow and specific exception to the general provision” of Section 10, which “[i]t does not render . . . meaningless,” but this seems conclusory. Before the Supreme Court, the plaintiffs are likely to have considerable difficulty explaining what practical impact the FAA clause of Section 10 can ever have if their construction of the contract is correct.

The likely petition for review in Imburgia adds another element of uncertainty to the Court’s deliberations over what to do about Iskanian. The Appellate Strategist will be following both cases closely.

Image courtesy of Flickr by Yale Law Library.

California Supreme Court Agrees to Decide Temp Disability Benefits for Police Officers

In the only civil review grant from last week’s conference, the California Supreme Court agreed to review the Third District’s decision in Larkin v. Workers’ Compensation Appeals Board. Larkin involves an issue of what temporary disability payments might be available to full-time, salaried peace officers.

The petitioner filed a claim for temporary disability payments after he sustained various injuries in the course of his employment as a police officer for the City of Marysville. The workers’ compensation judge denied the claim, the Workers Compensation Appeals Board affirmed, and the Court of Appeal affirmed the Board.

The claim turned on the meaning of Labor Code Section 4458.2, which provides:

If an active peace officer of any department as described in Section 3362 suffers injury or death while in the performance of his or her duties as a peace officer . . . then, irrespective of his or her remuneration from this or other employment or from both, his or her average weekly earnings for the purposes of determining temporary disability indemnity and permanent disability indemnity shall be taken at the maximum fixed for each, respectively, in Section 4453 . . .

Section 3362 simply deemed police officers as “employees” of the relevant government: “Each male or female member registered as an active policeman or policewoman of any regularly organized police department . . . shall . . . be deemed an employee of such county, city, town or district for the purpose of this division and shall be entitled to receive compensation from such county, city, town or district in accordance with the provisions thereof.”

The petitioner argued that he was an active peace officer, so the statute authorized temporary disability benefits at the set rate for him. But that “would be an absurd result,” the Court of Appeal found.

The Court pointed out that Section 3362 appears in an Article of the Labor Code called “Employees.” The Code offers the broadest possible definition of “employee” – “every person in the service of an employer” – and carves out limited exceptions for volunteers and independent contractors. So it was undisputed that the petitioner was an “employee” of the City. There was no need for Section 3362 to separately say so.

The Sections in the immediate neighborhood of 3362 are concerned with deeming certain persons who would not ordinarily be considered employees to be such for purposes of entitlement to workers compensation benefits. Section 3361 addresses volunteer firefighters, Section 3364 volunteer members of a sheriff’s reserve, and Sections 3365, 3366 and 3367 those who voluntarily assist law enforcement and firefighters upon request. In each section, the affected individuals are deemed employees and awarded temporary disability at the maximum rate. The idea, the Court wrote, was to encourage public service by volunteers. Without these provisions, one injured in the voluntary service of a government entity might lose his or her income for a time and have no means of support, since workers’ comp from his or her regular employer wouldn’t be available.

If Section 3362 was intended to apply only to salaried officers, volunteer peace officers would have no recourse if injured while they were working. This would “punish them for their service,” the Court wrote, and “leave such volunteers in a markedly different position than volunteers of other public safety agencies. This cannot be what the Legislature intended.”

We expect Larkin to be decided in eight to ten months.

Image courtesy of Flickr by Nic Walker.

California Supreme Court Depublishes Decision on Finality from the Register of Actions

Depublication orders usually aren’t exactly the most earthshaking thing on the California Supreme Court’s weekly conference summaries. Nevertheless, I took particular notice of one on last week’s summary: Dattani v. Lee. Dattani is worthy of note for a couple of reasons. First, the Court took the unusual step of depublishing the Court of Appeal’s opinion on its own motion – nobody had filed a depub request. Second (and more importantly), Dattani underlines one of the most important lessons in all of appellate law (see the end of this post for the takeaway).

It’s not uncommon for those of us in the defense bar to find that a common legal theory serves as the foundation for many but not all of a plaintiff’s claims. If the trial court rejects that theory pre-trial, the plaintiff faces a dilemma: go to trial with what are often sideshow claims before getting appellate review, or seek an interlocutory appeal.

Every jurisdiction has various avenues to possible interlocutory review; in California, it’s usually through a petition for writ of mandate, while in Illinois, Rules 304, 306, 307 or 308 might serve, depending on the facts. But the thing is, in most cases, review is discretionary. The appellate court can simply refuse to hear the matter – and usually, that’s exactly what happens. Interlocutory orders that are reviewable as of right are rare.

To understand the significance of Dattani, it’s necessary to briefly revisit a major decision the Supreme Court handed down last year: Kurwa v. Kislinger. In Kurwa, the plaintiff sued for breach of fiduciary duty and assorted related claims. The parties traded claims and cross-claims for defamation.

Before trial, the court held that once the parties formed a corporation, they didn’t owe each other any fiduciary duties. That was pretty much that for the fiduciary duty count and all the related stuff. But there was nothing final about the ruling: the defamation counts were still viable.

So the parties worked out a deal. The plaintiff dismissed the fiduciary duty and related claims with prejudice. Both parties dismissed their defamation claims without prejudice and swapped waivers of the statute of limitations. Then off the plaintiff went to the Court of Appeal.

Ultimately, it didn’t work. The Supreme Court pointed out that given the statute of limitations waiver, the parties were apparently planning to go right back to court regardless of what happened on appeal, so the dismissals weren’t final and appealable.

Fast forward to Dattani.

Dattani arose from a four-count complaint. In 2012, the trial court granted the defendant summary adjudication on the first count. When the defendant appeared for trial in September 2012 on the remaining claims, the plaintiff’s attorney said he was dismissing those claims to pursue an appeal.

The request for dismissal was filed on the proper Judicial Council form. The court’s register of actions for that day stated that “a dismissal of all the other causes of action” had been filed and removed the matter from the master calendar. But the section of the Judicial Council form for the clerk to note whether dismissal had been entered as requested was never filled in.

Seven months later, on April 16, 2013, the trial court filed a take-nothing judgment prepared by the plaintiffs’ counsel stating that the “remaining causes of action” had been dismissed on September 10. On May 6 – less than thirty days later – the plaintiffs filed a notice of appeal.

The defendants moved to dismiss the appeal, arguing that the plaintiff’s mere request for dismissal of all remaining claims was the equivalent of a final judgment as of the day it was filed – in September 2012, long before the notice of appeal was filed. The Court of Appeal agreed.

There’s a line of cases going back thirty years allowing plaintiffs or cross-plaintiffs to in essence manufacture finality after losing on a key point of law by voluntarily dismissing the remaining claims. The rationale is that even though voluntary dismissals aren’t generally appealable, in such cases it’s not really a voluntary act – it amounts to a request for entry of judgment on the adverse ruling of law.

The Court of Appeal concluded that Kurwa isn’t to the contrary. Sure, the Supreme Court refused to allow an appeal from a voluntary dismissal, but in the Dattani court’s view, finality hadn’t been destroyed in Kurwa by the voluntary dismissal itself – the problem was the mutual statute of limitations waivers.

Bottom line, the Dattani court held, even though no judgment was filed until seven months later, the mere filing of the notice of voluntary dismissal, coupled with the earlier loss on the pretrial order, amounted to a final and appealable judgment. Since that happened in September 2012 and the notice of appeal wasn’t filed until May 2013, the notice of appeal was untimely, and the appeal was dismissed for lack of jurisdiction.

Although the Supreme Court regularly reminds us that an order to depublish isn’t an expression of their opinion one way or the other about the Court of Appeal’s opinion, it seems clear that the Supreme Court didn’t want a published Dattani opinion knocking around in the Official Reports. Nevertheless, the takeaway seems clear. Consider the Dattani facts one more time. There was no judgment entered at the time the Court of Appeal says finality happened. The plaintiff had filed a notice of dismissal, but the section of the form reserved for the clerk to note that dismissal had actually occurred hadn’t been filled in. The only indication anywhere (apparently) that the court staff regarded the matter as concluded was the register of actions.

A timely notice of appeal is jurisdictional everyplace I’m aware of. In most jurisdictions, there’s no remedy for an untimely filing; even in places where one exists, it’s extremely limited.

So if you’re even in the same zip code as anything that seems remotely like the end of the line in a case, extraordinary caution is called for. Confirm everything, assume nothing, and check everywhere (remember that register of actions from Dattani). Finality – and the possible tolling of the time to appeal – is an intricate area of the law. Nevertheless, it’s a question counsel has to get right.

Image courtesy of Flickr by John Morgan.

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

If you're on Flipboard, consider checking out my magazine Illinois Supreme Court, featuring news and analysis on the work of the Illinois Supreme Court from many different viewpoints gathered from around the internet.

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