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 the Circuit Court.

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

Illinois Supreme Court Upholds Employee Classification Act

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What the Pension Reform Decision in Arizona May Mean for Illinois

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Illinois Supreme Court to Decide Scope of State Whistleblower Act

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

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

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

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

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

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

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

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

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

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

We expect Pusateri to be decided in approximately eight months.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Perils of Incomplete Service

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

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

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

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

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

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

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

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

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

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

Deadline Changes

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

 

Motion

 

 

Rule

 

Old Rule

 

New Rule

 

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

 

1.480(b)

 

10 days after return of verdict

 

15 days

 

Service of a motion for new trial or for rehearing

 

1.530(b)

 

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

 

15 days

 

Order of rehearing or new trial on court’s initiative

 

1.530(d)

 

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

 

15 days

Substantive Rule Changes

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

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

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

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

Form Changes

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

           

 

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

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

Background

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

District Court Proceedings

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

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

Supreme Court Decision

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

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

 

 

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

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

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

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

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

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

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

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

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

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

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

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

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

The raised portion of the sidewalk where plaintiff fell had been well known. Over time, the root system of a large tree near the sidewalk had caused a portion of the sidewalk to crack and heave, ultimately raising the cracked sidewalk about three inches above the adjacent slabs. The Clinic had reported the situation to the city (which owned the sidewalk), even offering to have the tree removed at its own expense. But the City's tree committee had refused permission for the tree to be removed on grounds of its historic significance.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What We Can Learn From Illinois' Kilbride Court

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Call Wednesday, January 22, 2014:

  • Home Star Bank and Financial Services v. Emergency Care and Health Organization, No. 115526 – Does the Good Samaritan Act, 745 ILCS 49/25, immunize a physician from liability for alleged negligence when he is paid by a physician group to provide emergency services to patients in a hospital? For more details and a link to the Appellate Court opinion, see here.
     
  • People ex rel. Madigan v. Burge, Nos. 115635, 115645 -- May the Attorney General challenge the actions of the Police Pension Board through a separate lawsuit in the Circuit Court, or are the Board's actions subject to review only by routine administrative review? For more details and a link to the Appellate Court opinion, see here.

Call Thursday, January 23, 2014:

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

Florida Supreme Court Compels Legislator Depositions in Redistricting Case

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

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

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

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

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

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

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

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

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

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

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

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

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

Illinois Supreme Court Sides With Pension Fund in Firefighters' Dispute

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

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

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

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

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

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

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

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

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

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

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

Three New Civil Decisions Coming From Illinois Supreme Court Tomorrow Morning

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Illinois Supreme Court Debates Limitations and Repose for Architects and Contractors

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

 

 

 

Illinois Supreme Court Narrowly Construes Exemption from Prevailing Wage Act

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Illinois Supreme Court Limits Foreclosure Challenges Once Motion to Confirm Filed

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

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

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

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

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

Illinois Supreme Court Restricts Appeals of Pollution Control Device Certifications

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By 2006, questions had arisen as to whether red light ordinances were legal. As a result, the state legislature passed an enabling act, specifically authorizing red light camera programs in Cook, DuPage, Kane, Lake, Madison, McHenry, St. Clair and Will County.

Most of the plaintiffs in Keating are registered vehicle owners who received red light violation citations from the City of Chicago. Plaintiffs paid their fines, although at least some of them contested liability. They then filed suit alleging that (1) the City lacked home rule authority to enact the red light ordinance; and (2) the 2006 enabling act was unconstitutional special legislation. The plaintiffs sought a declaratory judgment striking down the ordinance, an injunction stopping the City’s collection of fines and an order requiring restitution to all past violators. The Circuit Court granted the City’s motion to dismiss, holding that two plaintiffs lacked standing, that the enabling act was not special legislation, and that the voluntary payment doctrine barred all claims anyway since the plaintiffs had paid their fines.

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

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

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

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

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

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

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

Illinois Supreme Court to Decide Constitutional Challenge to Medical Licensing Law

Our previews of the newest additions to the civil docket of the Illinois Supreme Court continues this morning with Consiglio v. Department of Financial and Professional Regulation. Consiglio involves a lengthy list of constitutional challenges to amendments the legislature enacted in 2011 to the Department of Professional Regulation Act (20 ILCS 2105/2105-165). According to the new statute, a health care worker’s license is automatically revoked without a hearing when the individual: (1) is convicted of a criminal act automatically requiring registration as a sex offender; (2) is convicted of a criminal battery against any patient committed in the course of care or treatment; (3) h