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

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

Image courtesy of Flickr by Teemu008.

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Dan Moyle.

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Marcelo Graciolli.

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

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

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

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

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

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

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

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

Image by Flickr courtesy of Ken Mayer.

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

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

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

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

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

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

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

Image courtesy of Flickr by Brad Clinesmith.

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

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

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

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

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

Image courtesy of Flickr by Kristian Bjornard.

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.

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.

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.

 

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.

 

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Illinois Supreme Court to Decide Constitutional Challenge to Medical Licensing Law

Our previews of the newest additions to the civil docket of the Illinois Supreme Court continues this morning with Consiglio v. Department of Financial and Professional Regulation. Consiglio involves a lengthy list of constitutional challenges to amendments the legislature enacted in 2011 to the Department of Professional Regulation Act (20 ILCS 2105/2105-165). According to the new statute, a health care worker’s license is automatically revoked without a hearing when the individual: (1) is convicted of a criminal act automatically requiring registration as a sex offender; (2) is convicted of a criminal battery against any patient committed in the course of care or treatment; (3) has been convicted of a forcible felony; or (4) is required as part of a criminal sentence to register  as a sex offender.

The plaintiffs are three general physicians and one chiropractic physician. Subsequent to being licensed, each was convicted of a battery or abuse against a patient in the course of care or treatment. They filed separate actions in Cook County, seeking a judicial declaration that the Act applied only prospectively to convictions after its effective date and injunctive relief barring revocation of their licenses for convictions occurring before the effective date.   All four complaints were dismissed for failure to state a claim.

On appeal, the plaintiffs argued that the statute: (1) offended substantive and procedural due process; (2) constituted double jeopardy; (3) violated the ex post facto clause; (4) offended the separation of powers clause by abridging the Department’s discretion and the judiciary’s power of review; (5) violated the contracts clause; (6) violated the proportionate penalties clause; (7) was barred by res judicata flowing from previous orders of the Department; and (8) unfairly deprived them of vested limitations and repose defenses.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Illinois Supreme Court Bars Action Against Deceased Defendant

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

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

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

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

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

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

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

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

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

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

Illinois Supreme Court Holds Internet Sales Tax Preempted by Federal Statute

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Questions Log With One Term Left in 2013

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

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

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

Justices

Burke

Garman

Freeman

Kilbride

Thomas

Karmeier

Theis

Appellant

43(3)

44(5)

49(9)

19

84(10)

38(1)

43(3)

Appellee

32(3)

38(3)

10(1)

16(1)

71(11)

36(6)

32(1)

Rebuttal

1(1)

3(2)

5(3)

2

28(6)

10(3)

21(3)

Total

76 (7)

85 (10)

64 (13)

37 (1)

183 (27)

84 (10)

96 (7)

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

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

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

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

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

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

 

Argument Report: Illinois Supreme Court Debates Chicago Firefighters' Pensions

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

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

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

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

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

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

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

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

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

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

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

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

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

Argument Report: Who Gets to Appeal Certification as a Pollution Control Facility?

A major taxpayer files 28 separate applications seeking certification of various systems, methods, devices and facilities as "pollution control facilities" within the meaning of the Property Tax Code. If the applications are granted, around $1.2 billion will allegedly disappear from the School Board's tax base. When the Pollution Control Board denies the School Board's motions for leave to intervene in the certification proceeding, does the School Board have standing to appeal? That's the question in The Board of Education of Roxana Community Unit School District No. 1 v. The Pollution Control Board, et al. Board of Education, which was argued a few weeks ago at the Illinois Supreme Court. Our detailed summary of the underlying facts and lower court decisions is here. Our report on the oral argument is here.

In October 2010, the taxpayer submitted 28 separate applications to the Illinois Environmental Protection Agency for certification of certain improvements as pollution control facilities. In August 2011, the EPA recommended approval of two of the requests. The following month, the Pollution Control Board accepted the recommendations and certified the two systems. The petitioner School Board moved for reconsideration, and a few weeks later, the Agency recommended approval of the remaining requests for certification. The Pollution Control Board denied reconsideration and denied the petitioner's motions to intervene in the remaining 26 requests for certification.

The School Board appealed to the Appellate Court pursuant to the Environmental Protection Act, 415 ILCS 5/41(a). The Board pointed to the Property Tax Code 35, ILCS 200/11-60, claiming that only applicants had standing to appeal -- not challengers. The Appellate Court dismissed the appeal for lack of jurisdiction, citing Citizens Against the Randolph Landfill (CARL) v. The Pollution Control Board for the proposition that only limited review at the Circuit Court was possible. Justice Thomas R. Appleton dissented, arguing that the School Board had standing to appeal under Section 41(a) of the Environmental Protection Act.

Counsel for the School Board began by explaining that an owner received preferential property tax treatment if it installs equipment whose primary purpose is controlling pollution from its own operations. Counsel argued that by denying intervention, the Pollution Control Board had ensured that its interpretation of the primary purpose test would go unreviewed. The Pollution Control Board had wiped $1.2 billion off the local assessment rolls within two weeks' time with no notice to the local taxing body, counsel argued; nothing in the Property Tax Code precluded intervention. Justice Thomas asked counsel if the Court agreed with him whether it should remand to the Appellate Court for resolution of all substantive issues. Counsel responded that all substantive issues were effectively before the Court. Justice Thomas pointed out that the Court took the case for the jurisdictional issue, and wondered whether the Court had a sufficient record to decide more. Counsel responded that the Court had all issues properly before it: (1) whether the Board was precluded from granting intervention; (2) the Appellate Court's jurisdiction to review the Board's decision on intervention; and (3) the Board's application of the primary purpose test. Justice Thomas asked what statutory provision applied on jurisdiction; when counsel answered Section 41(a) of the Environmental Protection Act, he pointed out that opposing counsel would argue that Section 11-60 of the Property Tax Code was more specific. Chief Justice Kilbride asked counsel why the EPA was now challenging jurisdiction on appeal. Counsel responded that the real parties in interest in cases of this type are the local taxing bodies, but the EPA doesn't want local entities weighing in such questions. Justice Thomas asked counsel why the EPA would want to keep taxing authorities out of such cases, and counsel answered that perhaps the EPA was placating the companies on such issues in order to build capital for larger enforcement actions.

Counsel for the state entities was asked by Justice Karmeier whether potential intervenors had any right of appeal. Counsel responded that intervenors had no statutory right of appeal. Justice Thomas asked what the Court should do with cases in which the Pollution Control Board had pointed disappointed litigants to the Appellate Court for appeal, rather than the Circuit Court. Counsel conceded that the Pollution Control Board had included pro forma language in a number of orders saying that if the litigants didn't like the answer, they should go to the Appellate Court, but argued that this didn't trump the specific holding that attempted intervenors didn't have any right of appeal under the Property Tax Code. Counsel argued that if taxing bodies were unhappy with that rule, their remedy was with the Legislature. Responding to a comment by counsel for the School Board, counsel argued that if the Court disagreed with respect to the Pollution Control Board's jurisdiction, the appropriate remedy was remand; it wasn't appropriate to address all the merits issues for the first time at the Supreme Court.

Counsel for the taxpayer pointed out that the Pollution Control Board certification was supposed to be a summary proceeding. When the Legislature intended taxing bodies to be a party to certification proceedings, it said so, counsel said. Counsel argued that the taxpayer's tax levy had increased from $9 million to $36 million between 2010 and 2011. Counsel concluded by arguing that the treatment of pollution control facilities by the Pollution Control Board was not unique within Illinois law, or in comparison to neighboring states.

Counsel for the School Board argued in rebuttal that the certification procedure involved a two page application, not a detailed analysis of the suitability of certification. Counsel argued that when the Pollution Control Board denied intervention under Citizens Against the Randolph Landfill, it had said it had never seen so many applications for pollution control certification filed by a single applicant in only six months. According to counsel, the Pollution Control Board said that the School Board had presented a compelling case that it was singularly affected by the certification process, and that it was unlikely that any other Board had faced a similarly grave depletion of its tax base. Counsel claimed that the Pollution Control Board had stated that if it were a legislative body creating a certification process de novo, the School Board's policy arguments might prevail, and if the Pollution Control Board had the power of an equity court, the School Board's policy arguments might prevail. Counsel argued that there was no basis for sending the case back to the Appellate Court: the Pollution Control Board had made it clear that it would grant intervention if it believed that it had the power to do so.

We expect Board of Education to be decided within two to four months.

Argument Report: Where Does a Sale Take Place for Sales Tax Purposes?

Where does a sale take place for purposes of the local portion of the state sales tax? For lots of localized businesses, it's a straightforward question. But what about businesses that operate in multiple counties -- particularly where some portion of the sales function is separated from the rest of the day to day business? That's the question presented in Hartney Fuel Oil Co. v. Hamer, which was argued during the September term at the Illinois Supreme Court. It's a potentially high-stakes question: the simpler it is to move a sales tax locus, the more incentive there will be to do so. Our detailed description of the underlying facts and lower court holdings is here. Our preview of the oral argument is here.

The plaintiff in Hartney resells fuel oil to railroads, trucking companies, gas stations and other fuel distributors. In 1995, it moved its sales operation out of Forest View in Cook County. By 2003, the sales operation had landed in Mark, in Putnam County.

The plaintiff had two kinds of sales during the relevant period. First, there were daily purchase orders. The customer was informed by fax or email of the next day's price, and responded to the sales office: what it needed, how much, where and when. The sales agent in Mark accepted the order and made the arrangements. Second, there were long-term purchase orders. A fully executed contract was mailed from the Mark sales office to the customer. Originals were stored in Mark, with copies to the customer as well as the plaintiff's accounting department in Forest View.

The Department of Revenue audited the plaintiff (not for the first time) for the period of 2005 through mid-2007. The auditors ultimately concluded that all sales occurred in Forest View rather than Mark, and the plaintiff got a bill for $23.1 million in past-due taxes. The plaintiff paid under protest and sued; the board of commissioners of Putnam County and the board of trustees from Mark joined the suit, seeking the local share of the sales taxes. The Circuit Court found for the plaintiffs. The Third District affirmed, adopting a bright-line test: where acceptance of the order occurs, sales tax liability is fixed.

Counsel for the intervenor governments led off the argument. Counsel argued that the Appellate Court erred for at least three reasons: (1) the regulations which the Appellate Court construed are incompatible with the bright-line, acceptance-is-all rule; (2) the Appellate Court's rule is also incompatible with the statute; and (3) even if mere acceptance, without more, is sufficient to fix the tax locus, on the facts before the court, the sham doctrine barred the conclusion that sales occurred in Mark. Counsel argued that the purchase order test can be easily manipulated by retailers to locate taxes in the most advantageous place. The regulations don't say that the place of acceptance is the only relevant factor, counsel argued; they merely say that it's the most important factor. Justice Garman asked whether the regulations list other factors, and counsel conceded that they did not. Justice Garman asked whether that was significant, but counsel said no. The regulations stated that in order to locate the sales tax liability, enough of the business activity must occur within the taxing jurisdiction to conclude that the seller is engaged in the business of selling with respect to that sale. Counsel argued that nobody reviewing the record could possibly say that anything was going on in Mark -- the acceptance of the sales was a sham. Justice Burke asked whether the test was different for an out-of-state seller as opposed to one that was in-state, but doing business in another county. Counsel argued that there was no single factor controlling. Justice Burke asked whether acceptance occurred by sending a fax to the Mark office, or whether acceptance involved something else. Counsel argued that the taxpayer's Mark office was nothing but a place to receive faxes and a mail box. The arrangement, counsel insisted, was nothing but a subterfuge to avoid the tax. Justice Thomas asked whether the court needed to agree that the acceptance was a sham for the appellant to win, and counsel said no. Justice Garman asked whether the employee running the Mark office had the authority to bind the plaintiff, and counsel said she did.

Counsel for the state appellants argued next. Justice Burke asked whether the state was challenging the view that acceptance had happened in Mark for purposes of the appeal. Counsel responded that the state was not challenging the factual finding, but was challenging the notion that acceptance alone was enough to fix the tax locus. Justice Thomas asked whether it was of any consequence that the Department's audit manual concluded that the place of acceptance controls for sales tax liability. Counsel responded that the manual deals with possible issues that might arise in a summary fashion, and recommends using statutes and regulations to illuminate disputes when necessary. The manual was by no means dispositive, counsel noted. Justice Garman asked whether the Appellate Court should have given deference to the Department's interpretation of the statutes and regulations. Counsel responded that if the Department's interpretation of its own regulations was reasonable, it should be deferred to; but the question was really one of law, and if the Department got it wrong, the Court would doubtless say so. Justice Garman 1pointed out that counsel was nonetheless inviting the court to ignore the audit manual, and asked him to reconcile that with any request for deference. Counsel explained that the manual is not law; rather, the manual as a whole invites auditors to rely on facts when appropriate to deviate from the manual's advice. Further, counsel argued, internal guidance from the Department couldn't change the courts' years-long construction of the term "in the business of selling." Counsel concluded by accusing the plaintiff of having taken guidance intended for good faith, bona fide retailersand taken it out of context as a way to avoid taxes. The proper standard, counsel argued, was that the sales tax locus happened where the most important selling activities took place, regardless of where acceptance was.

Counsel for the taxpayer began by emphasizing that there is nothing wrong with structuring business affairs to reduce the tax incidence on the company's customers. The taxpayer here did so in full view of the Department, counsel argued; it had hidden nothing and was embarrassed by nothing. Justice Garman asked whether the plaintiff was bound if the Mark employee accepted an offer which she shouldn't have. Counsel agreed the taxpayer was bound. Justice Thomas argued that the taxpayer had arguably received the benefits of Cook County services, and was now trying to minimize taxes. What would stop other Cook County businesses from doing the same thing? Counsel responded by arguing that the concern that Cook County's finances would collapse absent reversal was overblown; the regulations which were the basis for the court's holding had been in place for years. Justice Thomas pointed out that this would be the first major Supreme Court decision on the issue. Counsel answered that if anyone concluded that the acceptance-only rule wouldn't work, the Legislature should either change the regulation or the statute.   Justice Thomas asked whether the taxpayer relied to some extent on the concept of estoppel. Counsel agreed that it did, but argued that the Court could find for the taxpayer without reaching the issue.   The factual issue of where the acceptance was settled the question, counsel argued, and that should be the end of the matter under the regulations. Counsel concluded by arguing that his client and other taxpayers are entitled to rely on the Department's view, expressed again and again over the years, that the place of acceptance of the order is conclusive for the locus of the tax.

Leading off rebuttal, counsel for the State returned to the issue of how the State could simultaneously ask for deference and yet disavow its own audit manual. Counsel explained that while regulations go through notice and comment, manuals don't. Justice Burke asked whether the Department conceded that there was acceptance in Marks. Counsel agreed that the Department was not challenging that finding, but rather was challenging the legal significance of those established facts. Counsel disputed the taxpayer's citation to Private Letter Rulings in recent years finding that the place of acceptance, without more, fixes the locus of sales taxes. Counsel argued that the PLRs are hypothetical scenarios, not precedents citable, let alone enforceable, against the state.

We expect Hartney Fuel Oil to be decided in the next two to four months.

Illinois Supreme Court to File Opinion in Earlywine on Thursday Morning

Yesterday afternoon, the Illinois Supreme Court posted notice that it expects to issue opinions in three cases on Thursday morning at 10:00 a.m., including one civil case, In re Marriage of Earlywine. Earlywine presents an interesting issue at the intersection between the law of attorneys’ fees and domestic relations:

  • In re Marriage of Earlywine, No. 114779: Is an advance payment retainer to a spouse's retained attorney in divorce proceedings the attorney's property at the moment of payment, and therefore not subject to disgorgement for an award of interim attorney's fees pursuant to 750 ILCS 5/501(c-1), the Illinois Marriage and Dissolution of Marriage Act?

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

Argument Report: Illinois Supreme Court Actively Questions Both Sides in Controversial Condo Case

When the Appellate Court's decision came down, the Chicago Tribune called it a "ground-breaking decision that "has stunned the condominium community nationwide." So will the Illinois Supreme Court overturn the Second District's controversial decision in Spanish Court Two Condominium Association v. Carlson? Based on the oral argument last week, it's difficult to be certain; several members of the Court seemed at least somewhat conflicted, and the Court heavily questioned both sides. Our detailed summary of the facts and lower court decisions in Spanish Court is here. Our preview of the oral argument is here.

The defendant in Spanish Court stopped paying her monthly assessments for her condominium association in August 2009. She stopped paying special assessments around the same time. So the plaintiff condo board sued her for possession of the unit and the unpaid assessments. The defendant filed an answer, affirmative defenses and a counterclaim. Her defenses and counterclaim made virtually the same allegations - she'd stopped paying the assessments because the Board of the condo association had quit fixing the common areas, per the maintain-and-repair covenant in the condo articles.   Specifically, the plaintiff had supposedly stopped fixing the roof - thus the leaking into the plaintiff's unit - and certain brickwork above her unit.   The Circuit Court struck the defenses and counterclaim, holding that they were not "germane" to the plaintiff's action under the Forcible Entry and Detainer Act. The Appellate Court reversed in part, holding that although defendant's counterclaim had to be severed, her defenses were germane, analogizing the claim to permissible defenses by renters under the Forcible Entry Act.

Counsel for the condo board began the argument by pointing out that the Second District had conceded that it was placing itself in a "small minority" by its decision. Condominiums survive through assessments, counsel argued, and without them all the residents' investments are imperiled. Counsel predicted chaos in the condominium industry absent reversal. Justice Burke asked what remedy a condominium owner had if the board failed to meet its responsibilities, and counsel responded that the owner could sue the board members. Justice Garman asked which affirmative defenses were "germane," and counsel responded that all defenses which went to ability to pay or flaws in the underlying agreement were. Justice Thomas asked whether counsel's argument was primarily based on public policy, and counsel responded that the relevant policies were embedded in the Illinois Condominium Property Act. Counsel argued that the important issue was whether the Forcible Entry and Detainer Act would continue to be a summary proceeding designed to decide possession quickly or not. Justice Freeman asked whether it was important to get all possible claims before the courts as soon as possible, and counsel pointed out that a party always had an injunction action available if time was of the essence. Justice Freeman suggested that the alternative remedy would take significantly longer, and counsel responded that courts sometimes recognize the need for expedition, and there are tools available to achieve it. Justice Thomas suggested that the Appellate Court had apparently limited the permissible defenses to flaws which made the unit uninhabitable. Counsel responded that there had been no showing that the unit was uninhabitable. Counsel should bring the claim as one for breach-of-fiduciary-duty in a separate case, counsel argued. Justice Thomas pointed out that in fact, the Appellate Court had held that the counterclaim wasn't germane because it only sought damages, not possession. Counsel responded that the allegations were exactly the same in the counterclaim and defenses with the exception of the final paragraph seeking a remedy. Justice Karmeier observed that the Forcible Entry and Detainer Act gave counsel a powerful remedy, and asked whether the individual would have the right to present defenses if the suit was a simple one for damages. Counsel responded that if any action was outside the Affordable Care Act, then the defendants could bring any defense they chose to bring.

Counsel for the resident argued that public policy adequately answered the question presented. Justice Thomas asked whether there was a difference between a landlord/tenant relationship and the relationship between the Board and the condo residents. When counsel responded that the Board-resident relationship was solely contractual, Justice Thomas asked whether the contract was between the owner and all other owners. When counsel agreed it was not, Justice Thomas asked whether the owners' interests all rose or fell together. Counsel reiterated that the contractual relationship itself was bilateral, between the association and the owner. Justice Garman pointed out that an owner could participate in management, but counsel argued that his client was helpless to affect repairs to the common elements that might affect her unit, particularly after being shut out of the process. Justice Burke asked whether the purpose of assessments was defeated by allowing the defenses, since the owners collectively use those funds to maintain the common elements. Counsel suggested that the problem was with the particular board, not the law. He argued that if residents are not allowed to raise these issues in a Forcible Entry and Detainer Act suit, the only alternative was a two to four year court battle. When counsel stated that the leak problem had begun in 2007, Justice Thomas asked why the defendant hadn't sued then. Counsel responded that the resident had attempted to resolve the matter informally, but had been unable to do so. There was no public policy reason, counsel argued, why this situation should be treated any differently than any other contractual relationship: if a party breached, it was not entitled to enforcement. Justice Thomas asked whether the resident's position was limited to purported breaches which make the unit uninhabitable. Counsel responded that the Appellate Court had not limited the holding that much; any material breach could be raised as a defense to the action, just the same as any other contract. Justice Thomas asked whether, if the Appellate Court had tossed the defenses but severed and preserved the counterclaim, the possession action would have been stayed while the counterclaim was tried. Counsel responded that the resident would have been forced to pay while pursuing her remedy.  Justice Thomas wondered whether it was practical to slow down Forcible Entry actions with such issues, given the number of such actions there are. Counsel responded that the only issue would be breach of contract, and the proof should take no more than a day or two. Besides, if the Association obtained a finding of no breach in the Forcible Detainer Act lawsuit in connection with the resident's defenses, the separate counterclaim would be cut off, thus saving judicial resources. Counsel concluded by arguing that the Appellate Court's holding promotes performance and mutuality, and is consistent with the general Illinois law of contract.

Counsel for the Board argued in rebuttal that both the declaration and articles, and indeed, the Forcible Entry and Detainer Act remedy itself were designed for the benefit of all owners. Counsel repeated the point that the resident's proposed result would amount to withholding the funds needed for necessary repairs and other aspects of the Association's operations. Counsel argued that there was no incentive for board members not to make repairs, since they were owners too, and thus investors in the building. Counsel argued that the Forcible Entry and Detainer claim didn't divest fee simple ownership from the owner, merely possession. In closing, counsel argued that even a meritorious defense couldn't be permitted to imperil the functioning of the entire Association.

We expect a decision in Spanish Court within two to four months.

Illinois Supreme Court To Consider FOIA, Due Process, Custody Hearings and Red Light Camera Ordinances as First Chicago Term Ends

On Wednesday morning, the Illinois Supreme Court allowed petitions for review in a long list of new civil cases, setting up interesting battles in the coming months over public works projects, the state Freedom of Information Act, an assortment of constitutional issues and the City of Chicago’s Red Light Camera Ordinance. We will begin our detailed previews of each case in a few days, after our reports on the September civil oral arguments conclude. The cases and issues presented are:

  • Lake County Grading Company, LLC v. The Village of Antioch, No. 115805 – Issue Presented: Did the Public Construction Bond Act govern the claim of the plaintiff subcontractor for breach of contract against the defendant village on a third party beneficiary theory?
     
  • Garlick v. Madigan, No. 115909 – Issue Presented: May the Attorney General decline, in response to a private individual’s request for information pursuant to the Illinois Freedom of Information Act, to provide the information in a specific electronic and tabulated format, when a newspaper’s request that information be provided in a specific format was accommodated?
     
  • The Estate of Perry C. Powell v. John C. Wunsch, P.C., Nos. 115997 & 116009 – Issues Presented: (1) Did the plaintiffs state a cause of action for negligence arising from the defendants’ allegedly negligent failure to seek supervision of a wrongful death settlement by the probate court when the Wrongful Death Act only requires such supervision for settlements over $5,000? (2) Did the plaintiffs state a cause of action for negligence with respect to the defendants’ allegedly negligent failure to seek the appointment of a guardian for plaintiff in order to protect his interest in the settlement?
     
  • People ex rel. Madigan v. Illinois Commerce Commission, No. 116005 – Issue Presented: Did the Illinois Commerce Commission’s approval of a volume-balancing adjustment rider rate design violate the rules against retroactive rulemaking or single-issue rulemaking?
     
  • Consiglio v. The Department of Financial and Professional Regulation, Nos. 116023, 116163, 116190 – Issue Presented: Do the Health Care Worker Self-Referral Act’s provisions allowing permanent summary revocation of health care workers’ licenses following certain criminal convictions deprive the plaintiffs of substantive due process, violate the double jeopardy and ex post facto clauses and offend separation of powers?
     
  • Keating v. City of Chicago, No. 116054 – Issues Presented: (1) Is the red light camera ordinance enacted by the City of Chicago invalid on the grounds that it is in excess of the City’s home rule authority? (2) Was the state enabling act authorizing red light camera ordinances in certain counties unconstitutional special or local legislation?
     
  • WISAM 1, Inc. v. Illinois Liquor Control Commission, No. 116173 – Issues Presented: (1) Did the process by which the Illinois Liquor Control Commissioner revoked the plaintiff’s liquor license constitute a deprivation of due process? (2) Was the Liquor Commission’s finding that the licensee violated Section 3-28 of the ordinances of the City of Peoria – the grounds for revocation – against the manifest weight of the evidence?
     
  • Nelson v. The County of Kendall, No. 116303 – Issue Presented: Is the State’s Attorney’s Office a “public body” subject to the Illinois Freedom of Information Act?
     
  • BAC Home Loans Servicing, LP v. Mitchell, No. 116311 – Issue Presented: Did the defendant in a foreclosure case waive objections to personal jurisdiction by failing to raise those objections in compliance with Section 2-301 of the Code of Civil Procedure and Section 15-1505.6 of the Illinois Mortgage Foreclosure Law?
     
  • In re Marriage of Tiballi, No. 116319 – Issue Presented: May the fees of a psychologist appointed by the court in a child custody dispute pursuant to the Illinois Marriage and Dissolution of Marriage Act be taxed as costs upon petitioner’s voluntary dismissal of his petition to modify custody?
     
  • Goldfine v. Barack, Ferrazzano, Kirschbaum and Perlman, No. 116362 – Issues Presented: (1) Did the plaintiffs state a claim for a violation of the Illinois Securities Law and for legal malpractice arising out of the defendant’s purported failure to preserve plaintiffs’ cause of action for a securities violation? (2) If so, how are mandatory statutory damages calculated under the Securities Law?

Argument Report: Illinois Supreme Court Debates the "Traveling Employee" Exception

Last week, the Illinois Supreme Court seemed poised to reject an expansive interpretation of the "traveling employee" exception to the "going and coming" rule, which holds that employees injured during their commute to work are not entitled to workers' compensation benefits for their injuries. The argument was in Venture-Newberg Perini Stone & Webster v. Illinois Workers' Compensation Commission. Our detailed summary of the underlying facts and Commission and Appellate Court decision is here. Our preview of the argument is here.

The employer in Venture-Newberg was a contractor hired to do maintenance and repair work at a nuclear plant in Cordova, Illinois. The union local for Cordova was unable to fill all the available jobs, so the openings were posted in other union halls, including the claimant's union hall in Springfield. The claimant bid on the job and was hired. But Cordova is 200 miles from Springfield; the claimant concluded that commuting was impractical, and besides, he would be unable to be available for on-call emergencies, as he believed the employer wanted. So he found lodging about thirty miles from Cordova for the few weeks' duration of the job. The claimant was injured one morning traveling from his lodging to the plant. The Commission found that the course or method of travel was determined by the exigencies of the job rather than the personal preference, and that the claimant was essentially traveling on business, satisfying the "traveling employee" exception to the "going and coming" rule. The Circuit Court reversed, but the Appellate Court reversed the trial court.

Counsel for the employer began the argument. He argued that the claimant was not entitled to coverage for a long list of reasons: (1) he had no exclusive or continuous relationship with the company; (2) he was hired through union referrals for a series of short engagements; (3) the claimant couldn't accept the job if positions were available in his local's territory, and he was not required to accept work outside the area; (4) the employer hired the claimant through union referrals; (5) the claimant chose to live where he did, rather than being required to by the employer; (6) the employer did not pay for the claimant's travel or lodging, or make his lodging arrangements; (7) the claimant was not definitively hired until he passed background checks and drug testing; (8) the claimant was not on call when he was injured; and (9) the claimant was hired for employment at only one location and paid only from clock-in to clock-out. The facts and circumstances didn't fit any other traveling employee case, counsel argued. Justice Theis asked whether it changed the analysis that the employer had had to recruit outside its area. Counsel argued that "recruit" was a loaded term, and that the claimant hadn't been recruited more than any other local member. Justice Garman asked whether the "traveling employee" determination was a finding of fact entitled to the Court's deference, and counsel responded that in fact, it was a finding of law -- the facts were undisputed. Justice Burke pointed out that the employer had premises in Wilmington, and the Cordova plant was a job site. Counsel responded that the claimant wasn't hired in Wilmington, so the plant was irrelevant. Reviewing the traveling employee cases, counsel pointed out that the claimant had never had to travel away from a single location. Chief Justice Kilbride asked whether it was important that the claimant had been employed by the employer four different times for brief stints. Counsel argued that he was not a "traveling employee" at any location.

Counsel for the appellee argued that the Appellate Court decision did not expand the traveling employee exception. Counsel pointed out that the decision was based on two exceptions, both of which focus on the demands of the claimant's employment, not the instructions of the employer. Justice Burke suggested that both require employer control of travel, but counsel disagreed, arguing that if instructions were the crucial issue, employers would avoid the exception simply by never directing temporary employees where to live. Justice Garman asked what the difference was between the claimant and other employees coming and going to work. Counsel argued that traveling out of town was inherently different, carrying a different level of risk. Justice Garman asked whether that meant anybody who travels to work is a traveling employee, and counsel responded that it depended on the facts and circumstances. Justice Thomas asked whether a traveling employee wasn't traditionally one traveling away from an employer's premises. Counsel responded that the Cordova plant was not the employer's premises. Justice Karmeier asked whether counsel's argument meant that when a contractor hired short-term employees to work at a job site, whether in construction or anything else, they were all traveling employees. Counsel responded that it depended on the particular facts - whether the exigencies of the assignment required travel. Justice Freeman asked whether the parties' disagreement was on facts or permissible inferences, and counsel responded that there were disputes of fact. Justice Karmeier asked whether it was fair to say that there was no dispute that the employer hadn't required the claimant to stay anyplace in particular. Counsel responded that while the employer hadn't directly directed the claimant where to stay, he had testified that it was his understanding that the employer preferred its employees to be nearby. Chief Justice Kilbride asked whether the record suggested that employees were expected to be reasonably close so as to respond to on-call emergencies. Counsel agreed that the record reflected that.

On rebuttal, counsel argued that the claimant was not on call the morning of the accident, nor was there any emergency. The Commission's decision was unreasonable, counsel argued, and an unjustified expansion of the traveling employee exception.

We expect Venture-Newberg to be decided in two to four months.

Argument Report: Are Statutory Penalties Under the Employee Classification Act Constitutional?

Bartlow v. Costigan involves a constitutional challenge: can the Department of Labor return administrative fines against construction contractors under the Employee Classification Act without mandatory evidentiary hearings? During oral argument last week, the Illinois Supreme Court seemed skeptical. Our detailed summary of the underlying facts and lower court decisions is here. Our preview of the argument is here.

The plaintiffs received a notice of investigation and request for documents from the Department in the fall of 2008. In early 2010, the Department notified the plaintiffs that they had preliminarily found multiple violations of the Act, and stating that the possible fine was $1.683 million. When the plaintiffs received a second notice of investigation two weeks later, they filed a facial constitutional challenge to the Act. The trial court entered summary judgment for the Department. The Appellate Court affirmed, accepting the Department's characterization of its powers as purely investigatory, and its administrative fines as "no consequence" penalties (meaning that the target could ignore a violation notice without anything bad happening, at least right away).

Counsel for the contractor began by sketching the background facts, arguing that the Department's second complaint could have subjected the plaintiff to criminal penalties. Justice Thomas asked whether the recently enacted House Bill 2649 had replaced the statutory scheme at issue, and when it became effective. Counsel responded that the bill took effective on January 1, 2014. Justice Thomas asked whether the bill was enacted to correct procedural issues in the Act; counsel responded that not all of her client's constitutional issues had been addressed. Justice Thomas asked whether, if the Court finds that the statute applies retroactively, the Department's decision is a nullity. Counsel responded that the contractor did not concede that the newly enacted procedures even could be applied to it on remand. Justice Theis asked counsel about the contractor's vagueness challenge, and counsel responded that the contractor thought it was complying with the statute. Justice Theis noted that the contractor called the statute unambiguous in its brief, and wondered how the statute could nevertheless be vague. Counsel responded that although constitutional vagueness usually indicated two viable constructions of a statute, in this case, there was really only one. Counsel noted the argument that the purpose of the statute is to prevent employers from denying benefits to workers by improperly classifying them, and argued that the contractor had not done so. Justice Freeman asked the contractor if its equal protection/special legislation challenge had been properly preserved in its brief, and counsel answered that it had.

Counsel for the Department began by emphasizing that the Department adjudicates nothing, and that to get a penalty assessed, it must go to the Circuit Court. Justice Thomas pointed out that the Department could issue a cease-and-desist order and civil penalties, and counsel responded that "assessing" penalties didn't mean "imposing" them. Justice Thomas asked counsel whether she would agree that there was a lack of procedure involved in how the Department reached the point of bringing court proceedings. Counsel disagreed, pointing out that there were provisions for an informal hearing and submission of documents; the constitution doesn't require any hearing unless the party was being deprived of property. Justice Thomas suggested that the Appellate Court's characterization of Department penalties as "no consequence" significantly rewrote the statute. Counsel responded that the Department had no way of collecting penalties absent Circuit Court action, and might not even seek court action in the face of an unwitting violation. Justice Thomas asked whether there was a due process problem if the Department was "judge and jury" so long as they stopped short of execution. Counsel argued again that there was no due process violation absent a deprivation of property. Justice Thomas asked what the impact was if the new procedures in the statute apply retroactively. Counsel argued that there was no barrier to simply sending the plaintiffs a hearing notice and starting the newly enacted statutory process. Justice Karmeier commented that the Department could apparently debar a contractor from state contracts for multiple violations, and asked whether such action required a Circuit Court order. Counsel responded that debarment required a court finding of multiple violations. Justice Thomas asked whether there was any significance to the fact that Section 25 of the Act is called "enforcement," and counsel responded that chapter titles are given no significance in statutory construction; within the body of the statute, it explains that enforcement requires Attorney General action. Counsel concluded by briefly addressing the contractor's equal protection challenge, arguing that the contractor had waived strict scrutiny, and the statute easily passed rational basis analysis.

On rebuttal, Justice Freeman asked counsel for the contractor whether, if the Court couldn't find the contractor's position on equal protection in the briefs, the matter was waived. Counsel argued that the issue had been addressed. Counsel continued that since the new statute required action on a timeline, including a complaint 120 days after notice of a violation, if the statute applied retroactively, the contractor could not be pursued again. Counsel suggested that the Court could strike the statute as-applied, rather than facially, and Chief Justice Kilbride suggested that the Court was limited to the challenges parties actually bring. Counsel responded that as-applied issues had arisen from the Department's newly minted interpretation of the statute.

We expect Bartlow to be decided in two to four months.

Argument Report: Does the Income Withholding for Support Act Require Strict Compliance?

Our reports on the oral arguments from the September term of the Illinois Supreme Court continue with last week's argument in Schultz v. Performance Lighting, Inc. Our detailed summary of the underlying facts and lower court rulings in Schultz is here. Our preview of the oral argument is here

The plaintiff obtained a divorce in 2009 and was awarded $600 every two weeks in child support. The plaintiff's attorney served what purported to be a notice under the Income Withholding for Support Act. However, the notice didn't contain the ex-husband's Social Security number or the termination date for the support obligation. The ex-husband's employer didn't withhold under the notice, so the ex-wife sued the employer under the Act, seeking the statutory $100 per day penalty. The trial court dismissed the plaintiff's complaint, holding that strict compliance with the statute was necessary for a notice to be valid, and the Second District affirmed.

Counsel for the plaintiff argued that a mistake in a withholding notice is nearly always merely an error, but a recipient's failure to pay is nearly always purposeful. Justice Thomas asked whether the language of the statute suggested that the legislature didn't intend to penalize employers served with a faulty notice. Counsel noted that while penalties for non-payment can be harsh, the legislature has capped the total penalty. Nevertheless, counsel argued that the legislature certainly didn't intend that an omission or error in the notice not affecting the ability to pay would entirely excuse the duty to pay. Justice Thomas asked if plaintiff's position was that the errors in the notice was de minimis, and counsel argued that invalidating the notice was exalting form over substance. Justice Thomas pointed out that one of the errors in plaintiff's purported notice was the lack of a social security number. Justice Thomas asked whether plaintiff's argument was that the employer has the employee's social security number, making the omission unimportant. Counsel agreed that the omission didn't affect the employer's ability to pay. Justice Thomas posited the hypothetical of a large employer with two employees with the same name receiving a notice with no social security number. Counsel pointed out that social security numbers aren't mandatory anymore according to the statute. Justice Burke asked whether it should make a difference that the plaintiff's attorney, rather than the plaintiff herself, sent the notice, and counsel argued that the standard was the same. Justice Garman asked whether the penalty should be strictly construed in favor of the employer, and counsel responded that given that the penalty was civil, certain errors weren't fundamental. Counsel argued that payment of child support was nearly sacrosanct in Illinois law; the recipient of a notice has a duty to either abide by the notice, ask the sender for clarification, or file a declaratory judgment action. Chief Justice Kilbride asked whether the recipient of the notice had failed entirely to withhold, or had withheld the sums and simply not turned the money over. Counsel responded that the answer was not in the record.

Counsel for the defendant argued that it was undisputed that the purported notice didn't comply with the Act. Justice Karmeier asked counsel whether he agreed that because of recent statutory changes, the Social Security number was no longer crucial. Counsel responded that he did not, pointing out that there was no risk that Social Security numbers would inadvertently become part of a public court file. Justice Burke asked why employers should be permitted to disregard a notice, and whether they had a duty to obtain missing information. Counsel argued that even if the employer had the ex-husband's Social Security number, it could not have determined the missing termination date for the support obligation. Justice Garman asked whether the Court should be concerned that the purpose of the statute was to promote prompt payment, but requiring strict compliance might have the opposite effect. Counsel responded that the statute has now been amended, but even before the amendment, there was nothing keeping plaintiffs from correcting an error and filing a second notice. Therefore, a perverse effect was unlikely. Counsel pointed out that the statute provided specifically that omitting a signature didn't affect the validity of the notice, thus implying that other omissions did affect validity. Counsel argued that rules of statutory construction support the view that the statute should be strictly construed, as do subsequent amendments which have softened the impact of the statute. Chief Justice Kilbride pointed out that Federal regulations during the relevant period didn't allow employers to dispute a notice, and wondered what the authority was for the proposition that an employer could disregard the notice. Counsel responded that the defendant was not prosecuting an affirmative claim.

On rebuttal, Justice Thomas asked whether the missing child support was ever paid. Counsel responded that it was, but the record did not reveal whether or not the defendant had withheld the required sums and not turned the money over.  Counsel disputed the defendant's claim that the employer had a defense based on faulty service of the notice. Counsel argued that the exception for missing signatures was intended to differentiate the statute from other statutes for which signatures are mandatory, not to distinguish missing signatures from other flaws in the notice. Counsel agreed that requiring strict compliance would promote non-compliance with the statute.

We expect Schultz to be decided in two to four months.

Argument Report: Illinois Supreme Court Hears Dramshop Act Case

With the Illinois Supreme Court asking somewhat fewer questions than it generally does, it was unclear how the Court might decide Rogers v. Imeri, the Dramshop Act case the Court heard last week.  Our detailed summary of the underlying facts and lower court decisions in Rogers is here. Our preview of the argument is here.

Rogers arises from the death of the plaintiff's son in a drunk driving accident. The plaintiffs sued the bar which allegedly served the driver, alleging claims under the Dramshop Act. The plaintiffs received $106,550 from the driver's liability insurance policy and their own policy. While the matter was pending, the defendant's Dramshop liability insurer was declared insolvent, and the Illinois Insurance Guaranty Fund substituted in.

The parties agreed that the Fund was entitled to a $106,550 offset for settlements. So - was the offset deducted from the Dramshop Act cap, or from the jury's verdict, with the sum capped at the statutory maximum? The question turns on a conflict between the statutory liability cap of the Dramshop Act -- $130,338.51 -- and the language of the Guaranty Fund Act. The Fifth District held that the offset was taken from the jury's verdict - the same procedure which applies when the Fund is not involved in a case.

Counsel for the Guaranty Fund began by arguing that the issue presented was the import of the following language from the Act, 215 ILCS 5/546: “The Fund’s obligation . . . shall be reduced by the amount recovered or recoverable, whichever is greater” from other insurance.  Counsel pointed out that after the Fifth District’s decision in Rogers had come down, the First District, Division Five had decided the same question the opposite way in Guzman v. 7513 West Madison Street, Inc. Counsel argued that the Fifth District’s decision is contrary to the plain language of the Guaranty Fund Act, essentially directing that the trial court take a sum the Fund doesn’t owe (because of the Dramshop Act liability cap), and reducing it by another sum the Fund doesn’t owe (the setoff), to arrive at a number which would be exactly the same as if the Fund wasn’t involved in a case at all – meaning that Section 546 was given no effect. Justice Freeman asked counsel to reconcile his position with the express purpose of the statute to protect policyholders and third parties. Counsel responded that that was doubtless an aspirational goal of the statute. However, he argued that the Fund’s theory ensured that the purpose of the Dramshop Act is satisfied – the plaintiff recovers the full statutory liability cap, for the most part from the wrongdoer, with the Fund providing the rest. The Fund is protected as well by being given the reduction mandated in Section 546. Justice Freeman’s question was the only one counsel received in his initial remarks.

Counsel for the plaintiffs began with a discussion of the underlying facts. He argued that the case had nearly been settled when the Guaranty Fund substituted in. Counsel argued that Section 546 never mentions the Dramshop Act, which provides that a jury finds a victim’s damages without reference to the statutory cap. Justice Garman asked whether the issue was one of statutory construction or public policy, and counsel responded that it was largely statutory construction. Justice Theis asked what the “Fund’s obligation” under Section 546. Counsel responded that the term is never defined, and argued once again that the Fund’s position would vitiate the victim’s right to have the jury determine damages. Justice Karmeier asked counsel to respond to the Fund’s argument that the “Fund’s obligation” was capped by the Dramshop Act limit. Counsel argued that the Fund’s position was unsupported. Justice Karmeier asked whether the issue hinged on how the Court defines the “Fund’s obligation,” and counsel responded that the Fund’s obligation is determined through trial and the jury’s verdict. Counsel concluded by arguing that the Fund’s position would make trial a virtual formality, since the plaintiff could never get the full benefit of a verdict significantly above the statutory cap.

In rebuttal, counsel for the Fund argued that it was the Dramshop Act, not the Guaranty Fund Act, which capped the plaintiff’s damages. The plaintiff’s position, counsel argued, meant that the Guaranty Fund Act has no effect. Justice Thomas asked whether the Dramshop Act cap would always be the maximum exposure for the Fund, and the Fund would get the benefit of the setoff for other insurance recoveries regardless. Counsel argued that while this was true, applying the setoffs to a jury verdict which was well above the cap denied the Fund any benefit at all from Section 546.

We expect Rogers to be decided in two to four months.

First Thoughts: Live-(Nearly)-Blogging the Oral Argument in Kanerva

This morning, a seemingly skeptical Illinois Supreme Court appeared ready to side with the State in a dispute over 2012 amendments to the State Employee Group Insurance Act. Several Justices peppered the two attorneys splitting argument time for the plaintiffs with sixteen questions during their opening, many of which echoed various points made in the Circuit Court’s opinion tossing the case out of court. In comparison, counsel for the State was treated gently, receiving only five questions in all, four of them from Justice Thomas.

Counsel for the plaintiffs began by emphasizing the fact that the Pension Protection Clause doesn’t actually use the word “pension” in describing what is protected – it says “benefits.” (See the post immediately below this one for the full text of the clause.) Counsel argued that the word “benefits” has a plain and unambiguous meaning in the context of employment, as demonstrated by the fact that one regularly sees signs and advertisements speaking of jobs “with benefits” – with no further explanation of what is meant. The ordinary understanding of the term clearly includes health insurance, counsel argued. Counsel pointed out that the voters who approved the state constitution chose to protect “benefits,” not just “pensions,” and that the title of the clause is “Pension and Retirement Rights” – if the clause is limited to pensions, then the word “retirement” means nothing. Justice Freeman asked counsel whether the case was one of first impression in that it related to something which was not clearly part of a pension, and if so, whether the Court should consider that it might be expanding the scope of the Clause. Counsel reiterated that the Clause used the broader term “benefits,” not just pensions. Justice Burke asked counsel whether there was any difference between the “pension system” and the “retirement system.” Counsel responded that as a practical matter, the answer was no. Justice Burke then asked whether health insurance premiums paid on a retiree’s behalf were income. Counsel disputed the idea that the protection of the Clause is limited to forms of income, pointing out yet again that the drafters deliberately used a broad and generally understood term – “benefits.” Justice Garman pointed out that the Clause actually protects “benefits of membership” in the system, not just “benefits,” and asked counsel whether the point had any significance? Counsel responded that all “benefits” flowed to the retiree through the system, so the distinction in language had no practical impact. Justice Karmeier asked whether, under the plaintiffs’ theory, a retiree would be locked into a particular level of benefits if benefits were increased? Counsel responded that in the current political climate, he couldn’t imagine that happening, but the answer was no. Justice Garman asked whether, on counsel’s theory, the state could reduce retirees to bare-bones health insurance so long as the premiums cost the retirees nothing. Counsel responded that a definitive answer would have to await another case, but that a substantial cut in the value of the insurance likely would violate the Clause.

Co-counsel for the plaintiffs concluded the opening argument by challenging the Circuit Court’s finding that the class members lacked standing to sue the State on their union’s collective bargaining agreement in Circuit Court. He argued that third party beneficiaries of a collective bargaining agreement were permitted to sue as “parties” to the agreement under the limited exception authorizing such suits. Counsel set out the plaintiffs’ secondary constitutional argument, which is based on the proposition that the 1998 pension bill providing that 20-year retirees would receive their health care insurance free created contractual rights which were impaired in violation of the Contracts Clause of the state constitution by the 2012 amendments. Justice Freeman pointed out that the retirees’ benefit books said that the state could change the terms at any time, and asked counsel how such an equivocal representation could amount to a contractual promise. Counsel pointed out that the benefit books didn’t say that the state reserved the right to change premiums, as opposed to adjusting the exact parameters of what was and was not covered.

Counsel for the State began by emphasizing the strong presumption in the law that legislation doesn’t create enforceable contract rights, given that a contrary view would hamper the legislature’s ability to respond to changing conditions. Counsel argued that nothing in the any of the relevant acts met the high bar necessary to create contract rights.

Justice Thomas noted that retirees’ mandatory premium contributions are quite low now, but wondered whether the State’s position, if it were successful, would allow the state to drive retirees’ contributions much higher, or even abolish the health care insurance benefit for retirees entirely. Counsel responded that there were significant political constraints to stop that from happening, but there was no constitutional barrier to such a development. Justice Thomas asked whether state employees who took early retirement in reliance on the package of promised benefits had any recourse in the State’s view. Counsel responded that nothing in the early retirement statute promised that benefits would stay at their current level forever, and repeated that retirees would have no constitutional cause of action. Justice Thomas asked whether the State believed that the Hawaii decision heavily relied on by the plaintiffs, which found health care benefits protected by a similar pension clause, was simply wrong, and counsel for the State said yes. Counsel argued that the Pension Clause had to be understood in the context of its history, and the Clause arose from a desire to make it clear that all public pension systems are in the nature of voluntary contractual relationships, not a mandatory part of employment. Counsel closed by arguing that there was no special significance to the use of the word “benefits” in the Pension Protection Clause, and disputed that the 2012 amendments rose to the level of a constitutional “impairment” of a contract.

In rebuttal, counsel for the plaintiffs challenged the State’s claim that history of the retirees’ health care system has been one of constant change. Justice Thomas’ question was important, counsel argued; if the State prevailed, there would be nothing to stop the State from shifting far more of the cost of the health care system to retirees, essentially wiping out their pensions in the process. Counsel closed by arguing that the State would contend that the 2012 statute is a complete defense to any claim for breach of contract, and surely that amounted to a constitutional “impairment.”

As I’ve observed before, Kanerva is playing out in the shadow of pension battles yet to come. If the argument this morning is any indication of the Court’s inclination, it seems unlikely that the Supreme Court is about to take the kind of hard-line view of the Pension Clause that would significantly hamper the political branches in grappling with Illinois’ public pension liabilities.

Illinois Supreme Court to Debate Whether Public Retiree Health Benefits Protected By Pension Clause

Tomorrow morning, the Illinois Supreme Court will hear oral arguments in what may prove to be a precursor of larger battles yet to come in the next few years - an all-out battle over whatever public pension reform package the legislature adopts. Tomorrow, the case at hand is Kanerva v. Weems, which presents the question of whether guaranteed premium-free health care for public retirees with twenty years or more service is protected by the guarantee of the Illinois Constitution that public pensions cannot be disturbed? Our detailed summary of the facts and Circuit Court decision in Kanerva is here.

The State Employee Group Insurance Act has been amended several times during its life. Originally, the SEIGA provided that the state paid the entire cost of the insurance. In 1991, the Act was amended to provide for limited employee contributions.  In 1995, the legislature eliminated the cap on those contributions. Two years later, the legislature provided for a graduated premium payment, topping out at 20 years, when the state took over 100% of the payments.

All that changed in 2012, when the legislature amended the SEIGA to direct the Director of the Department of Central Management Services to allocate the cost of health insurance premiums between the State and its retirees. The statute provided that the Director could base his or her calculations on the actual cost of the services, adjusted for various factors.

The plaintiffs sued, alleging that the 2012 amendments rendered the SEIGA system unconstitutional on its face. Principally at issue is the Illinois Pension Protection Clause:

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

In addition to the Pension Protection Clause, the plaintiffs invoked the Impairment of Contracts clause and separation of powers (a void delegation of legislative authority), as well as suing for breach of contract.

Tomorrow the defendants are likely to argue that a "pension" is commonly understood as an annuity - a fixed sum paid from protected funds which is set at the time of retirement based on factors like the retiree's final pay and years of service. The defendants will likely argue that if that much is true, the Supreme Court should follow the lower courts by holding that the health insurance premiums - which by definition change every year as costs and medical technology change - can't be "pensions."  The plaintiffs, on the other hand, are likely to argue that the entire package of benefits guaranteed to retirees are a form of earned compensation, and accordingly, the medical benefits are, broadly speaking, a "pension." The plaintiffs will likely argue, contrary to the holding of the Circuit Court (the appeal in Kanerva went straight from the Circuit Court to the Supreme Court because of the great importance of the issues presented), that the courts have jurisdiction over the contracts claim as a violation of the state's collective bargaining problems.

We expect an opinion in Kanerva within the next two to four months.

I'll have more to say about Kanerva tomorrow afternoon once I've returned from the argument at the Bilandic Building in Chicago. I look forward to meeting readers of Appellate Strategist who attend the Court's final session of its first Chicago term.

Illinois Supreme Court to Debate Dramshop Act Recovery Cap

Tomorrow morning, the Illinois Supreme Court will hear oral arguments in Rogers v. Imeri. Rogers poses the question when the Dramshop Act recovery cap applies and other defendants have settled, how is the maximum exposure of the Illinois Insurance Guaranty Fund calculated? Our detailed summary of the facts and lower court opinions in Rogers is here.

Rogers arose from the tragic death of the plaintiffs' son in a drunk driving accident.   The plaintiffs settled with the driver of the vehicle as well as receiving a settlement under their own policy. The plaintiffs sued the establishment which allegedly served the driver, but the defendant's dramshop liability insurance carrier became insolvent while the lawsuit was pending. So the Illinois Insurance Guaranty Fund stepped in.

And that's where the dispute started. The Fund filed a motion seeking summary adjudication of the maximum exposure of the Fund. But how was the deduction calculated - subtract the settlements from the Dramshop Act cap? Or let the jury return a verdict against the defendant -- which was highly likely to be well in excess of the $130,000 statutory cap -- deduct the settlements from that much higher figure, and then reduce the recovery to the statutory cap? If the court picked the first alternative, the maximum exposure was likely to be relatively small, given that the recoveries to date had been $106,550 (making the Fund's maximum exposure about $24,000). But if the court picked the second alternative, the recovery would likely be the statutory cap, or something very close to it.

The result would have been relatively straightforward is the Guaranty Fund hadn't been involved; the routine calculation would be the second alternative - let the jury award what it wants, deduct the settlements and then cap the recovery. But the defendant in Rogers argued that a different result was required because the Fund was involved. The Circuit Court disagreed, and the Appellate Court affirmed.

Before the Supreme Court, the defendant is likely to argue that the Fund occupies a special position in Illinois law. It is not merely another insurer, but rather a recovery of last resort; such a rule is necessary, the defendant will likely argue, to protect the viability of the Fund. A claimant is required to exhaust "all coverage" before turning to the Fund for recovery, and unlike private insurers, the Fund's obligation must be reduced by the full policy limits, regardless of whether the plaintiff settles for less or does not pursue a claim.

On the other hand, the plaintiffs are likely to argue the policy implications of the defendant's preferred result. If the statutory cap is applied before any deductions for settlements, it is entirely possible that the establishment will be liable for little or nothing; the plaintiffs are likely to argue that this result is directly contrary to the Dramshop Act.

We expect a decision in Rogers within the next two to four months.

Illinois Supreme Court to Debate Strict vs. Substantial Compliance With Withholding Orders

Tomorrow morning, the Illinois Supreme Court will hear oral arguments in Schultz v. Performance Lighting, Inc., which poses an important question for domestic relations law: must a Withholding Notice under the Income Withholding for Support Act strictly comply with the requirements of the statute in order to be valid, or is substantial compliance enough? Our detailed summary of the facts and lower court opinions in Schultz is here.

The plaintiff in Schultz was awarded $600 every two weeks in child support upon her divorce. She served a notice to withhold income for support on the defendant, her ex-husband’s employer at the time. The defendant made no payments to the State Disbursement Unit on the ex-husband’s account. Ultimately, the plaintiff sued the defendant, alleging that the defendant had breached a statutory duty to pay, triggering a statutory $100 per day penalty. The Circuit Court found that the plaintiff’s notice didn’t include either the ex-husband’s social security number or the termination date of the obligation. The Court held that strict compliance with the statute was required and dismissed the complaint. The Appellate Court affirmed.

The argument in Schultz is likely to turn on conflicting interpretations of Section 20(c) of the Act. According to the Act, the notice “shall . . . include the Social Security number of the obligor,” it shall “include the date that withholding for current support terminates, which shall be the date of termination of the current support obligation set forth in the order for support,” and it shall “contain the signature of the obligor or the printed name and telephone number of the authorized representative of the public office.” 750 ILCS 28/20(c).

“Shall” is typically interpreted as being mandatory, but that doesn’t answer our question; there are cases holding that “shall” doesn’t necessarily require strict compliance. As the Appellate Court noted, there is a line of authority holding that where “shall” is coupled with a penalty or consequence of some kind, substantial compliance is required. The Appellate Court relied on the fact that non-compliance with a withholding notice triggers a per-day fine for the employer, but the plaintiff will likely point out that this doesn’t really help the analysis. A consequence for the receiver of the notice (i.e., “do this or the target gets penalized”) doesn’t support the same inference that a consequence for the maker of the notice (i.e., “do this or you get penalized”) does.

The defendant is likely to argue the same negative inference relied on by the Appellate Court: because the legislature found it appropriate to provide in the statute that omitting the signature of the obligor or the printed name and telephone number of the authorized representative of the public office doesn’t affect the validity of the notice, it follows that omitting other required data does affect the validity of the notice. The plaintiff is likely to respond by arguing that all the necessary information was either expressly included, could have been easily inferred, or could have been determined by contacting her attorney, whose contact information was included on the notice. It will be interesting to see what the Court ultimately does with Schultz; on the one hand, the Kilbride Court has shown a pragmatic streak in a number of cases, finding for substance over form, but on the other hand, in their most recent strict-vs.-substantial-compliance case, State Bank of Cherry v. CGB Enterprises, Inc., strict compliance won.

We expect Schultz to be decided in the next two to four months.

Illinois Supreme Court to Debate Limits on Workers' Comp "Traveling Employee" Exception

The Illinois Supreme Court’s first term in Chicago ends tomorrow morning with a busy docket of five civil arguments: Venture-Newberg Perini Stone and Webster v. Illinois Workers’ Compensation Commission; Schultz v. Performance Lighting, Inc.; Kanerva v. Weems; Rogers v. Imeri and American Access Casualty Co. v. Reyes. In Venture-Newberg, the Court will resolve a potentially important question for workers’ compensation law: is a short-term worker hired from a far-away union hall and staying in nearby temporary housing analogous for purposes of workers’ compensation to an employee traveling on the employer’s business? Our detailed summary of the facts and lower court opinions in Venture-Newberg is here.

A contractor was hired to perform maintenance and repair work at a nuclear plant more than 200 miles from Springfield. Because the nearby union local couldn’t fill all the jobs, openings were posted elsewhere, including at a Springfield hall. The claimant was hired, but he decided it was impractical to compute 200 miles back and forth each morning and night for the few weeks the job would last. So he found lodging about thirty miles from Cordova. He was injured early on the second day of the job while traveling from his lodging to the plant.

As a general rule, commuting injuries aren’t compensable under the Workers’ Compensation Act. The arbitrator originally decided that this case fell squarely under that rule and recommended that the claim be denied.

But the Commission reversed. Two exceptions to the general rule applied, according to the Commission. First, the Commission found that the claimant hadn’t been living where he was by his own choice; his “course or method of travel” was determined by the exigencies of the job. Second, the employee was a “traveling employee” – essentially, he was engaged in business travel. The Sangamon County Circuit Court reversed the Commission, setting aside the decision awarding benefits. The majority of the Appellate Court reversed the Circuit Court, once again reinstating the award over a dissent by Justice Hudson, with Justice Turner joining.

The employer may focus during the argument tomorrow on the testimony of the claimant and a fellow employee during the hearing. The claimant acknowledged that the employer hadn’t told him to find lodging nearby, or where to live, or what route to take into the plant, and he hadn’t been called in early on the day of the accident. A fellow employee conceded that the employer had never requested that employees find lodging nearby, but pointed out that working a 12-hour shift and then driving a 200-mile one-way commute wasn’t too practical, even for a job that would only last a few weeks. The employer may also echo Justice Hudson’s dissent, arguing that treating workers in the claimant’s position in the same way as workers traveling on business might create considerable exposure and uncertainty – would every employee hired from far away at a big job like the nuclear plant be a “traveling employee” for his or her daily commute? And if so, how far away was far enough? The Commission, on the other hand, is likely to argue the facts as well, echoing the Appellate Court’s conclusion that the employer had to not only know that short-term workers from far-off union halls would be staying somewhere nearby, but to desire that outcome.

We expect a decision in Venture-Newberg within two to four months.

Illinois Supreme Court to Debate Appeals from a Pollution Control Facility Certification Order

Tomorrow morning in Chicago, the Illinois Supreme Court will hear oral argument in The Board of Education of Roxana Community Unit School District No. 1 v. The Pollution Control Board, which presents an important question of Illinois environmental law - who can appeal from a pollution control facility certification, and where is the appeal taken? Our detailed explanation of the underlying facts and lower court rulings in Roxana is here.

The respondent in Roxana submitted twenty-eight applications for certification of certain systems, methods, devices and facilities as pollution control facilities within the meaning of the Property Tax Code. The petitioner filed petitions for leave to intervene in all twenty-eight proceedings. The stakes for the petitioner were high - if certification were granted, the Illinois Department of Revenue would supplant the District as the taxing authority. The Illinois Pollution Control Board denied intervention and granted certification. The petitioner/intervenor appealed, but the Appellate Court dismissed the appeal for lack of jurisdiction.

The oral argument in Roxana is likely to turn on a conflict between two statutes. The petitioner is likely to emphasize Section 41(a) of the Environmental Protection Act:

Any party to a Board hearing, any person who filed a complaint on which a hearing was denied, any person who has been denied a variance or permit under this Act, any party adversely affected by a final order or determination of the Board, and any person who participated in the public comment process . . . may obtain judicial review, by filing a petition for review within 35 days . . . under the provisions of the Administrative Review Law . . . 415 ILCS 5/41(a).

On the other hand, the respondent is likely to emphasize Section 11-60 of the Property Tax Code:

Any applicant or holder aggrieved by the issuance, refusal to issue, denial, revocation, modification or restriction of a pollution control certificate or a low sulfur dioxide emission coal fueled device certificate may appeal the finding and order of the Pollution Control Board, under the Administrative Review Law . . . 35 ILCS 200/11-60.

The respondent will likely echo the views of the Appellate Court, arguing that Section 41(a) is limited to appeals originating in the Circuit Courts under the Administrative Review Law, not appeals originating in the Appellate Court, and that allowing a direct appeal to the Appellate Court by an intervenor would render Section 11-60 meaningless. On the other hand, the petitioner will likely argue that Section 11-60, as the narrower statute, should operate as an exception to Section 41(a), with applicants and holders being required to seek judicial review in the Circuit Courts under Section 11-60, while all others are permitted to go straight to the Appellate Court under Section 41(a). The petitioner is likely to cite the concerns of the dissenter at the Appellate Court, who argued that the statutes should not be interpreted to deny any form of review to a local governmental entity which would lose a substantial portion of its tax base through certification.

We expect Roxana to be decided in the next two to three months.

Illinois Supreme Court to Debate Controversial Condominium Decision

Tomorrow morning in Chicago, the Illinois Supreme Court will hear oral argument in a high-profile appeal from the Second District, Spanish Court Two Condominium Association v. Carlson. Our detailed summary of the underlying facts and lower court holdings in Spanish Court is here.

Spanish Court arises from a special statutory proceeding – the Forcible Entry and Detainer Act.  The plaintiff Association sued the defendant condominium owner in early 2010 under the Act, arguing that she had stopped paying both monthly and special assessments. The Association sought possession of the defendant’s unit and a monetary award. The defendant filed affirmative defenses and a counterclaim. She admitted not having paid the assessments, but denied that they were owed. Instead, she alleged that her unit had sustained water damage as a result of the Association’s breach of their duty to maintain and repair common areas of the development – specifically, the roof and certain brickwork above her unit. The defenses and counterclaim alleged first, that the Association was estopped from seeking the assessments by its breach of the duty to maintain and repair, and second, that any judgment against the defendant should be reduced by the cost of repairing the damage to the unit.

The Circuit Court granted the plaintiff’s motion to strike the defenses and counterclaim, but the Appellate Court reversed in part. Analogizing the duty to pay assessments to Illinois law on the duty to pay rent (which also falls under the Forcible Entry and Detainer Act), the Court held that the duty to pay was not absolute. Rather, it was given in exchange for the duty to maintain and repair. If the Association breaches the duty to maintain and repair, the Court held, then the resident is permitted to suspend performance with respect to paying assessments. The Court cautioned that relatively minor problems, such as “overgrown bushes and unrepaired sidewalk cracks” would “rarely” constitute material breaches, but found that the alleged failures here were arguably material.

Before the Supreme Court, the Association seems likely to argue that since assessments are the only means available to a board to carry out its duty to maintain and repair, allowing each individual resident to suspend payments will have the perverse result of making it less likely that common areas will be kept in good repair. The Association may also argue, as it did on rehearing, that allowing such a remedy invites chaos by making each individual resident his or her own judge of the adequacy of the repair of the common areas. The Association is likely to suggest a “parade of horribles,” with residents unhappy over assessments suspending payments, and boards having to spend time and legal fees in order to get possession of units and payment of past-due assessments. The Association is also likely to emphasize the special character of the Forcible Entry and Detainer Act proceeding, which is supposed to provide a quick and relatively inexpensive way to settle the question of possession. The defendant is likely to argue that the Appellate Court correctly drew an analogy to landlord-tenant law and contend that there is no basis for treating the two areas differently. The defendant may also argue the now-or-never aspect of the problem by suggesting that if the resident is not permitted to raise these types of issues before losing possession of the unit, it will be too late.

Spanish Court has attracted considerable attention nationwide, according to the Chicago Tribune, so the Court’s ultimate decision will be closely watched. We expect a decision in two to four months.

Illinois Supreme Court to Debate Constitutionality of Labor Department Fines

Tomorrow morning in Chicago, the Illinois Supreme Court will hear oral argument in Bartlow v. Costigan. Bartlow isa facial constitutional challenge to the system of administrative fines administered by the Illinois Department of Labor in connection with allegedly misclassifying workers as independent contractors rather than employees for purposes of minimum wage, overtime, workers’ compensation and unemployment insurance. Our detailed summary of the facts and underlying court decisions in Bartlow is here.

The plaintiffs in Bartlow operate a roofing business which installs siding, windows, seamless gutters and roofs. In September 2008, the Labor Department sent the plaintiffs a “notice of investigation and request for documents,” stating that the department was investigating whether several individuals working with the plaintiffs had been misclassified. Eighteen months later, the Department sent the plaintiffs a “Notice of Preliminary Investigative Findings,” stating that a preliminary determination had been made that the plaintiffs had misclassified ten subcontractors. The notice said that the plaintiffs might be assessed a fine of $1.68 million, requested a response, and promised “a written decision informing the parties of the final determination in the matter.” When the plaintiffs were notified of a second investigation less than a month later, they sued the Department, seeking a declaratory judgment and injunctive relief, arguing that the Employee Classification Act and assorted regulations promulgated under it violated a variety of state and Federal constitutional provisions – largely on the grounds that it deprived persons of property without an opportunity for hearing. The plaintiffs lost at the trial court, and the Fifth District – with some apparent reluctance – affirmed.

The Appellate Court concluded that the Department functions solely as an investigator in connection with the Act, and accepted the Department’s view that a contractor could disregard a notice of a fine without suffering any consequences. The plaintiffs are likely to challenge that conclusion tomorrow by emphasizing the breadth and gravity of the steps available to the Department: a cease and desist order, orders to pay lost wages, salary and/or benefits, possible debarment from state contracts, and an administrative fine – here, for a considerable sum. The plaintiffs will likely argue that a party suffers a tangible deprivation when it receives a notice of such a fine from the Department, whether or not consequences can immediately flow from failing to pay. The plaintiffs also seem likely to point out the wide sweep of businesses which come under the classification of “construction” under the Act, and to emphasize the uncertainty that can be created by a Department finding.

The Department, on the other hand, is likely to argue that points which succeeded at the Appellate Court. The Department will heavily emphasize that the plaintiffs are making a facial constitutional challenge, the most difficult challenge to win: if there are any circumstances in which the statute is constitutional, the Department must prevail. The Department is also likely to point out that its finding of a violation is not considered a “final administrative determination” within the meaning of the Administrative Review Law; any finding of the Department has to be enforced through a complaint in court, where the Department has the burden of proof and its administrative findings are inadmissible. The Department will likely also point out the opportunities a contractor is given to respond in the course of an investigation, including a chance to present written information and (at the option of the Department), a fact-finding conference which the contractor’s lawyer is permitted to attend.

Bartlow should be decided within the next two to four months.

It's Official: Justice Rita B. Garman is Next Chief Justice

As expected, the Illinois Supreme Court has just announced that Justice Rita B. Garman will become Chief Justice on October 26, 2013. The incoming Chief Justice’s term will run until October 25, 2016. Justice Garman was appointed to the Supreme Court on February 1, 2001, and elected to the Court on November 5, 2002. Her official Court biography is here.

For those unfamiliar with Illinois practice, in contrast to (for example) the United States Supreme Court, our constitution provides that the Justices themselves elect one of their number to serve a single three-year term as Chief. Thus, although his tenure as Chief Justice will soon conclude, Chief Justice Thomas L. Kilbride will continue his service on the Court. Chief Justice Kilbride’s official Court biography is here.

Illinois Supreme Court Debates the Locus of Sales Tax Liability

Our previews of the Illinois Supreme Court's September docket continue with Hartney Fuel Oil Co. v. Hamer, which will be argued this morning in Chicago.

Our detailed summary of the facts and lower court rulings in Hartney Oil is here. The plaintiff in Hartney resells fuel oil to railroads, trucking companies, gas stations and other fuel distributors. About 1985, the plaintiff moved its sales operations out of Forest View, in high-tax Cook County, to Elmhurst in DuPage County. Plaintiff moved the office several additional times in the years that followed.

In 2003, plaintiff moved its sales operation to Mark in Putnam County. The company contracted with a local painting contractor to provide office space and personnel. The agreement provided that personnel of the contractor would receive, accept and process fuel purchase orders from customers.

Plaintiffs' sales were of two types: daily purchase orders and long-term purchase orders. With respect to daily orders, sales personnel in Mark typically accepted the order on the spot. Occasionally, sales personnel rejected the order in accordance with credit lists they had been provided with in advance. Accordingly, in most cases, no one from the principal office in Forest View was involved with a sale until the invoice was sent out. Long-term orders were signed by the customer and returned to the Mark office; if already signed by the plaintiff's president, the order was final at that time. Otherwise, the president of the plaintiff company travelled to Mark to sign the order.

The Department had audited the plaintiff multiple times. In the first part of 1998, an initial audit had concluded that sales occurred in Du Page County, resulting in a multi-million dollar tax levy. Later that year, the plaintiff moved its sales office to La Salle County. A further audit covering the period 1998-2001 concluded that sales occurred in La Salle County at the sales office. In the summer of 2003, yet another audit was opened. According to the Appellate Court, nobody from the Revenue Department visited the Mark office or spoke to anyone employed there during the audit, and as the audit was wrapping up, the Department destroyed the files from its previous audit investigations of the company.

The plaintiff paid the tax under protest, and then sued to recover. The plaintiff was joined by Putnam County and the trustees of the Village of Mark. The Circuit Court found for the plaintiffs, and the Appellate Court affirmed.

Look for the oral argument in Hartney Oil to focus on a debate about the language of the administrative regulations. Several different sections of the Administrative Code contain the same language:

Without attempting to anticipate every kind of fact situation that may arise in this connection, it is the Department’s opinion, in general, that the seller’s acceptance of the purchase order or other contracting action in the making of the sales contract is the most important single factor in the occupation of selling. If the purchase order is accepted at the seller’s place of business within the county or by someone who is working out of that place of business and who does not conduct the business of selling elsewhere within the meaning of subsections (g) and (h) of this Section, or if a purchase order that is an acceptance of the seller’s complete and unconditional offer to sell is received by the seller’s place of business within the home rule county or by someone working out of that place of business, the seller incurs Home Rule County Retailers’ Occupation Tax liability in that home rule county if the sale is at retail and the purchaser receives the physical possession of the property in Illinois.

The Department of Revenue will fix on the first sentence. The statement that place of acceptance is "the most important single factor" arguably means that it isn't the only factor. But then again, there's the second sentence of the paragraph, which arguably says that if the place of acceptance is at the seller's place of business, sales tax liability is fixed at that location. So which is it? The Appellate Court held that the place of acceptance was decisive. Since acceptance of both short-term and long-term purchase orders took place in Mark, according to the Court, that presumption necessarily meant that sales-tax liability was imposed in Mark. Justice Robert L. Carter dissented, arguing that the regulations imposed a totality of the circumstances test, not a bright-line place-of-acceptance one.

Because of the amount of sales tax revenue potentially at stake in the Court's holding, Hartney Oil is one of the "big Three" of the term, alongside Kanerva and Spanish Two Court Condominium. If the Court holds that simply moving a sales office is insufficient to shift sales tax liability to a less high-tax jurisdiction, such strategic transfers are likely to be far more expensive, and therefore far less common. On the other hand, if the Court holds that the plaintiff's Mark sales office was sufficient to redirect sales tax liability in Hartney Oil, such transfers may become more common.

We expect a decision in Hartney Oil in two to three months.

A Preview of the Illinois Supreme Court's September Term: Yesterday on WILL-580 AM "Focus"

Yesterday morning, I had the pleasure of joining host Jim Meadows on WILL-AM Radio 580’s hour-long discussion show “Focus” for a preview of the Illinois Supreme Court’s September term. Joining us for the discussion was Steve Beckett, a founding partner at Beckett and Webber, P.C. in Urbana and a lecturer at the University of Illinois College of Law. In a wide-ranging discussion, we talked about our experiences arguing cases before the Illinois Supreme Court, speculated about how the Court might evolve as Chief Justice Kilbride’s term as Chief comes to an end and (apparently) Justice Rita B. Garman takes over, and reviewed the possible implications for the law and the lives of Illinois citizens of several criminal and civil cases on the Court’s docket for this month.

You can learn more about yesterday's show and listen to the mp3 recording of the broadcast here

Illinois Supreme Court to Debate Exemptions From Prevailing Wage Act

Our previews of the oral arguments on the Illinois Supreme Court’s September docket continue with People ex rel. Department of Labor v. E. R. H. Enterprises, Inc. [pdf].

E.R.H. began in 2008 when the Labor Department issued the company a subpoena for production of certain employment records. The subpoena stated that the Department was investigating whether the defendant’s repair work on certain water mains for the Village of Bement had been done in compliance with the Prevailing Wage Act. Seven months after the subpoena was served, the Department filed a complaint seeking a finding of civil contempt against the defendant for failing to comply with the subpoena. The defendant appeared and answered, arguing that it was a public utility and therefore exempt from the Prevailing Wage Act. The trial court requested that each side brief the dispute. The defendant submitted a 2004 agreement with the Village detailing the defendant’s ongoing responsibilities in connection with the Village’s potable water facility and water infrastructure.

On August 25, 2010, the trial court entered an order finding that the defendant was not a public utility, and the subpoena was therefore enforceable. Defendant moved to reconsider, and the trial court entered an amended order in February 2011, reiterating its finding. The court cited seven facts in support of its determination that the defendant was not a utility: (1) the Village owned the potable water facility and infrastructure; (2) the Village was recognized for the fluoridation of the Village’s water; (3) the Village contracted out some, but not all, of its responsibilities to the defendant; (4) the Village had the duty to serve the public and treat all persons alike; (5) defendant was simply an outside contractor assisting the Village; (6) defendant did not charge the public directly; and (7) defendant was not regulated by the Illinois Commerce Commission or any other state agency. The defendant once again sought reconsideration, which was denied, and the appeal followed.

The appeal turns on the interpretation of Section 2 of the Prevailing Wage Act, which applies to “all fixed works constructed by any public body, other than work done directly by any public utility company.” 820 ILCS 130/2. The Prevailing Wage Act does not define a “public utility.” Before the Appellate Court, the defendant argued that it is a “public utility” within the meaning of Section 3-105 of the Public Utilities Act, since it is a private corporation that operates the water and sewer systems of the Village for the public use of its citizens. The Appellate Court agreed that it was reasonable to import the definition from the Public Utilities Act in construing the Prevailing Wage Act. The Court found that its conclusion was further bolstered by the common dictionary definition of a public utility. Although the defendant neither owned the physical infrastructure, nor was it the entity directly billing the public for services, the Court found that neither was a prerequisite for the defendant to be a “public utility.” Since the defendant was a public utility in the Appellate Court’s view, the Prevailing Wage Act didn’t apply to its activities, making the subpoena unenforceable. The Court accordingly reversed.

We expect a decision in E.R.H. Enterprises within the next three to four months.

Illinois Supreme Court to Debate Pensions for Firefighters' Spouses

Our previews of the oral arguments on the Illinois Supreme Court’s September docket begin with Hooker v. Retirement Fund of the Firemen’s Annuity and Benefit Fund of Chicago, which is set for argument tomorrow morning, September 11.

Our detailed summary of the facts and lower court rulings in Hooker is hereHooker involves two surviving spouses of firefighters who died in 1998 and 2000, respectively. Both were awarded the widow’s minimum annuity under 40 ILCS 5/6-141.1. In 2004, the General Assembly amended the Pension Act to require an award of Duty Availability Pay (DAP) in certain pension calculations. The widows amended their administrative complaints, arguing they should have been awarded line-of-duty benefits retroactively to the date of the decedents’ deaths, and DAP should have been included in the pension calculations. They sought leave to present the DAP issue as a class action.

Addressing the line-of-duty issues first, the Circuit Court reversed the Retirement Board and ordered an award of line-of-duty benefits. The Board again refused to include DAP in its benefit calculation on remand, pointing out that neither decedent had received DAP during his lifetime. The Circuit Court refused to certify the class and granted the Board summary judgment, but the Appellate Court reversed.

Look for the Hooker argument to play out as a debate between alternative views of two clauses of the Pension Code. The problem here is that Pension Code doesn’t adopt a single philosophy as to how to calculate firefighter’s pensions. Some provisions provide that calculations are based on what the firefighter received during his or her lifetime. Others base the calculations on what the approved salary for the firefighter’s last position is today, even if the firefighter never received that salary.

Section 6-111 of the Pension Code seems to reflect the first view: “the salary of a fireman, as calculated for any purpose under this Article, shall include any duty availability pay received by the fireman . . .”

But then there’s Section 6-140 to contend with: “The annuity for the widow of a fireman whose death results from the performance of an act or acts of duty shall be an amount equal to 50% of the current annual salary attached to the classified position to which the fireman was certified at the time of his death and 75% thereof after December 31, 1972.”

The Board will likely argue that the language of Section 6-111 of the Code is clear, and provides that if a particular firefighter never received DAP, the survivor’s pension cannot include it either. The plaintiffs may respond that this oversells the clarity of Section 6-111. The statute says that DAP received by the firefighter is included, but it doesn’t say that only DAP actually received during the firefighter’s lifetime is included. Had the legislature intended that result, the argument might go, it would have said so. And this leads to the conclusion reached by the Appellate Court: under 6-111, if a calculation requires the analyst to plug in the firefighter’s salary, only DAP actually received is included. In the calculation required by section 6-140, this is the first half of the equation. But then, the current salary attached to the decedent’s last position is plugged into the annuity calculation. All DAP would be included in that portion of the calculation, whether or not the decedent ever received it.

Which answer the Supreme Court chooses may make a significant difference. The Board had argued that no class could be certified, arguing that the need to calculate each survivor’s benefits outweighed any common questions. The Appellate Court reversed the lower court, ordering certification of a class of more than one hundred survivors who were purportedly denied DAP calculations in their survivors’ annuities.

Illinois Supreme Court Announces Upcoming Dates for New Opinions and PLA Orders

The Illinois Supreme Court has announced the dates on which it expects to issue opinions as well as issuing other dispositive orders during the first two months of its temporary stay at the Michael A. Bilandic Building in Chicago. The Court expects to issue opinions on Thursday September 12; Thursday September 19; Thursday October 3 and Friday, October 18. The Court will issue orders on petition for rehearing on Monday, September 23, and orders on pending petitions for leave to appeal on Wednesday September 25.

The Court will convene tomorrow at 9:30 a.m. to begin its heavy schedule of oral arguments with three criminal cases.

Monday on WILL-AM Radio: An Hour Long Discussion of the Illinois Supreme Court and its Upcoming Term

On Monday September 8th from 10 to 11 A.M. Central, I’ll have the pleasure of joining host Jim Meadows on WILL-AM Radio 580’s hour-long discussion show “Focus.” We’ll be discussing the important cases on the Illinois Supreme Court’s upcoming September docket, both civil and criminal, as well as discussing the careers of the Justices themselves. Also joining the discussion will be Steve Beckett, a founding partner at Beckett and Webber, P.C. in Urbana and a lecturer at the University of Illinois College of Law.

Read more about Monday’s show here. Click the “Listen” tab on the Focus web page to listen to the discussion by streaming audio.

Illinois Supreme Court Announces Busy Argument Docket for September in Civil Cases

This morning, the Illinois Supreme Court announced a busy oral argument docket of twelve civil cases for the September term, the Court's first term of its potentially year-long stay in Chicago. The cases are:

Wednesday, September 11

  • Hooker v. Retirement Board of the Firemen's Annuity and Benefit Fund of Chicago, No. 114811 -- Issues Presented: Do survivors' pensions under the state Pension Act increase when the salary for decedent's position increases, regardless of whether the decedent ever actually received that salary? Our detailed summary of the facts and lower court decisions is here.
     
  • Hartney Fuel Oil Co. v. Board of Trustees of the Village of Forest View, No. 115130 -- Issue Presented: When a business' operations span multiple counties, where does a retail sale tax place for purposes of the local portion of the state sales tax? Our detailed summary of the facts and lower court decisions is here.

Tuesday, September 17

  • Bartlow v. Costigan, No. 115152 -- Issue Presented: Are the administrative fines imposed by the Illinois Department of Labor under the Employee Classification Act unconstitutional? Our detailed summary of the facts and lower court decisions is here.
     
  • Gillespie Community Unit School District No. 7 v. Wight & Co., No. 115330 -- Issues Presented: Is a "statute of repose" incorporated into a contract between defendants, an architectural firm, and the plaintiffs enforceable to bar the action? Our detailed summary of the facts and lower court decisions is here.
     
  • Spanish Court Two Condominium Association v. Carlson, No. 115342 -- Issue Presented: May a condominium owner refuse to pay monthly and/or special assessments, in whole or in part, on the grounds that the condominium board failed to maintain and repair the common elements of the condominium property? Our detailed summary of the facts and lower court decisions is here.
     
  • Wells Fargo Bank, N.A. v. McCluskey, No. 115469 -- Issues Presented: (1) May a motion pursuant to Section 2-1301(e) of the Code of Civil Procedure to vacate a default in a foreclosure suit be made after the sheriff’s sale has already occurred? (2) Did defendant waive her right to make a renewed motion to set aside the default by withdrawing her first motion in return for agreement to temporarily postpone the sale? Our detailed summary of the facts and lower court decisions is here.
     
  • The Board of Education of Roxana Community Unit School District No. 1 v. The Pollution Control Board, No. 115473 -- Issue Presented: May a party challenging the certification of a system as a pollution control facility appeal directly to the Appellate Court pursuant to the Environmental Protection Act, 415 ILCS 5/41(a), after its challenge is rejected by the Illinois Pollution Control Board? Our detailed summary of the facts and lower court decisions is here.

Wednesday, September 18

  • American Access Casualty Co. v. Reyes, No. 115401 -- Issue Presented: Is a clause of an automobile insurance policy excluding all liability coverage for the sole named insured and titleholder on the insured vehicle void as against public policy?
     
  • The Venable-Newberg Perini Stone and Webster v. Illinois Workers' Compensation Commission, No. 115728 -- Issue Presented: Was a union member who traveled to reach a distant job site a "traveling employee" pursuant to workers' compensation law such that an injury occurring while traveling to work in the morning was compensable? Our detailed summary of the facts and lower court decisions is here.
     
  • Schultz v. Performance Lightning, Inc., No. 115738 -- Issue Presented: Does the Income Withholding for Support Act require strict compliance, so that any error or omission in a notice to withhold income in connection with court-ordered support payments is fatal, or is substantial compliance enough? Our detailed summary of the facts and lower court decisions is here.
     
  • Kanerva v. Weems, No. 115811 -- Issues Presented: Do the 2012 amendments to the State Employee Insurance Act, 5 ILCS 375/1, violate (1) the Pension Protection Clause, Ill. Const. Art. XIII, Section 5; (2) the Contracts Impairment Clause, Ill. Const. Art. I, Section 16; (3) separation of powers; or (4) the State Lawsuit Immunity Act, 745 ILCS 5/1? Our detailed summary of the facts and Circuit Court decision is here.
     
  • Rogers v. Imeri, No. 115860 -- Issue Presented: In a case involving the Insurance Guaranty Fund, if the jury returns a verdict in excess of the statutory maximum, is the setoff for other recoveries made from the verdict, or from the statutory maximum recovery under the Dramshop Act? Our detailed summary of the facts and lower court decisions is here.

Illinois Supreme Court Extends Mailbox Rule to Judicial Review of Workers' Comp Commission

Last week, in a case which had attracted nationwide interest in the workers' compensation bar, a divided Illinois Supreme Court extended the mailbox rule to the process of initiating judicial review of decisions of the Workers' Compensation Commission. Justice Robert R. Thomas wrote the opinion for the five-Justice majority in Gruszeczka v. The Illinois Workers' Compensation Commission, with Justice Charles E. Freeman dissenting for himself and Justice Anne M. Burke. Our detailed preview of the facts and lower court opinions in Gruszeczka is here. Our report on the oral argument is here. Watch the video of the oral argument here.

The claimant in Gruszeczka filed a claim for benefits in connection with an injury he allegedly suffered on the job in 2004. The arbitrator denied the claim, and the Commission unanimously affirmed.

In Illinois, judicial review of a decision of the Workers' Compensation Commission is initiated by filing a request for the issuance of summons and an attorney's affidavit of payment of the probable cost of the record with the Circuit Court clerk. The governing provision of the Act provides that a proceeding for judicial review must be "commenced" within 20 days of receipt of notice of the decision. 820 ILCS 305/19(f)(1). Counsel for the worker allegedly mailed the request and counsel affidavit fourteen days after receiving notice. But for whatever reason, it wasn't received in the court clerk's office until twenty-four days after notice. So -- which act "commenced" the proceeding -- mailing or receipt? A divided six-Justice panel of the Workers' Compensation Commission Division of the Appellate Court found that the Circuit Court had no jurisdiction over the administrative appeal, holding that since the issue was governed by a statute rather than a court rule, the courts had no authority to extend the mailbox rule to "commencing" judicial review.

The Supreme Court reversed. The court began by acknowledging that the usual presumption of jurisdiction in the Circuit Courts isn't available in workers' comp -- there, the steps set forth in the statutory had to be strictly adhered to in order to vest the Circuit Court with jurisdiction over the appeal. However, unlike the Appellate Court, the Supreme Court majority found the word "commence" in the statute ambiguous. The next step after the plain language, of course, is the legislative history. There was nothing in the legislative history suggesting an intent to apply the mailbox rule; but then again, there was nothing suggesting an intent to disallow it either.

So the Court turned to the earliest decisions applying the mailbox rule and contrasted them with cases refusing to apply the rule. The court concluded that the cases were explained by a simple distinction: when an act began an entirely new proceeding, the mailbox rule never applied. When it merely continued a proceeding, the mailbox rule did apply. That rule resolved the problem at hand: judicial review of a workers' compensation decision was clearly the continuation of an ongoing proceeding, not the beginning of a new one. So - particularly given that there was no issue of lack of notice of the claim, given that it had already passed through the arbitrator and the Commission -- there was no reason the mailbox rule couldn't apply, just as it did at the first step (appeal of the arbitrator's decision to the Commission) and third step (appeal from the Circuit Court to the Appellate Court) of the process. The fact that a statute governed the issue made no difference; the majority observed that courts had made no distinction between statutes and rules in determining when the rule did and didn't apply. The majority conceded that the legislature had not expressly imposed the mailbox rule in Section 19(f)(1), but observed that the legislature hadn't disallowed its application either.

The problem with the majority's analysis, Justice Freeman wrote, was that it entirely rested on cases which did not concern the Workers' Compensation Act. Although there were no cases under the Act directly on point, Justice Freeman discussed several cases applying the former requirement that a party exhibit proof of payment of the probable cost of the record within twenty days of receiving notice in order to vest the Circuit Court with jurisdiction over the appeal. Given that the courts had dismissed several appeals where this step was not timely completed, Justice Freeman concluded that judicial review of a Commission decision is commenced when the request for issuance of summons and  attorney's affidavit is actually received and file-stamped by the clerk, and that the mailbox rule should therefore not apply.

Illinois Supreme Court to Decide Constitutional Challenge to Parental Notice of Abortion Act on Thursday

The Illinois Supreme Court has announced that on Thursday morning, it will hand down its decision in Hope Clinic for Women v. Adams. Hope Clinic is a challenge to the constitutionality of the Illinois Parental Notice of Abortion Act. Because the challenge in Hope Clinic was brought solely under the Illinois constitution, the case raises interesting issues of the degree to which the state constitutional rights of privacy and gender equality are coextensive with, or perhaps broader than, Federal constitutional rights. Our detailed discussion and analysis of the facts and lower court rulings in Hope Clinic is here. Our report on the oral argument is here, and the video of the oral argument is here.

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Illinois Supreme Court: The Questions Log Halfway Through 2013

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