Illinois Supreme Court Strikes Down Chicago Tax as Applied to Out-of-City Car Rentals

1189995100_c09609e7a5The City of Chicago levies a tax on the lease or rental of personal property within the City or the privilege of using personal property leased elsewhere in the City. In 2011, the City’s director of the department of revenue issued Ruling 11, which provided that the City Department of Revenue would hold suburban car rental agencies within three miles of the city limits responsible for paying the tax with respect to many of their customers. On January 20, the Supreme Court unanimously held in Hertz Corporation v. City of Chicago that Ruling 11 was unconstitutional under the home rule provision of the Illinois Constitution.

Chicago’s personal property lease transaction tax ordinance provides that the lease or rental of the property is deemed to take place at the location where the lessee takes possession of the property. Property rented outside of the City is exempt from the tax if it is primarily used – more than 50% – outside the City. Ruling 11 provides that absent written proof to the contrary, the Department would assume that any Chicago resident (as proven by their driver’s license) renting a vehicle at a suburban location would be using the vehicle 50% or more inside the City. As for non-Chicago residents, Ruling 11 suggested the inclusion of a check-box on the rental form by which the renter would disclose whether or not he or she planned to use the vehicle more than 50% inside the City. If the box was checked “yes,” the tax would apply.

The plaintiffs filed separate suits against the City challenging Rule 11 on various federal and state constitutional grounds. The Circuit Court granted the plaintiffs’ motion for summary judgment, holding that Ruling 11 was an improper attempt to project the taxing power of the City extraterritorially.  The Appellate Court reversed, holding that Ruling 11 was taxing use inside the City, not rentals outside the City, and therefore wasn’t being applied extraterritorially even with respect to rentals occurring in the suburban locations.

In an opinion by Justice Garman, the Supreme Court unanimously reversed the Appellate Court. The Court began with the home rule provision of the Illinois Constitution, Article VII, Section 6(a). The Court has previously held under Section 6(a) that home rule units may not extend their home rule powers beyond their geographic borders unless specifically authorized to do so by the General Assembly. The plaintiffs argued that Ruling 11 operated extraterritorially in two ways: (1) it taxed rental transactions occurring beyond City borders; and (2) it taxed the entire value of the rental based on a trigger of only 50% use inside the City.

The Court pointed out that the City was relying on a number of due process cases to defend the tax ordinance, but cited no authority equating due process with the city’s home rule authority. The question in Hertz was not whether the customers’ due process rights had been violated; it was whether the City had exceeded its home rule authority by requiring the plaintiffs to collect the tax from certain of its customers. The City relied on cases where the tax was levied on sales of tangible personal property within the boundaries of the taxing jurisdiction. According to the Court, the City was trying to expand these cases, arguing that the City could reach conclusions outside of the City simply because the plaintiffs were doing business inside the City.

The lessee’s statement that he or she planned to use the vehicle inside Chicago wasn’t enough, the Court found. “A statement of one’s intent is evidence only of present intent, not of actual use.” At the time of the transaction, “the use of the leased vehicle has not taken place and may never take place within Chicago’s borders.” The City was trying to tax the use of rental vehicles in Chicago, but was in fact taxing the stated intent to use the vehicles inside the City at some future time. “Absent an actual connection to Chicago, the City’s tax under Ruling 11 amounts to a tax on transactions that take place wholly outside Chicago’s borders,” according to the Court, and the tax therefore violated the home rule article of the constitution.

Image courtesy of Flickr by Jonathan Brodsky (no changes).

Illinois Supreme Court Approves Referendum Adopting Term Limits for Village President

43951116_c896528a9b(1)In the vast majority of cases, the Illinois Supreme Court is in complete control of what cases wind up on its docket – parties file a petition for leave to appeal, and the Court allows it or doesn’t in the exercise of its “sound judicial discretion.”

But there’s one instance in which, curiously enough, the Court’s docket is in control of the intermediate Appellate Courts. If an Appellate Court decides to grant a “certificate of importance” under Rule 316, then appeal lies to the Supreme Court “as a matter of right” pursuant to the Illinois Constitution. All that’s required is for the Appellate Court to certify that the matter is of “such importance that the case should be decided” by the highest court in the state.

On December 30, the Supreme Court filed its opinion in Johnson v. Ames, a case relating to a voter referendum which appeared on the ballot in November 2016 seeking to impose term limits on the President of the Village of Broadview. Shortly after the referendum petition was filed, an objection was filed. The Village Electoral Board voted to invalidate the referendum as vague and ambiguous, finding that it was unclear whether the term limits would apply retroactively – in other words, whether an official who was already on his or her second term would be barred from running again, or whether it merely limited terms after the effective date. The referendum sponsor sought judicial review in the Circuit Court. The trial court reversed, finding that the referendum was not ambiguous, and the Appellate Court affirmed. The objector filed a petition for leave to appeal with the Supreme Court, which was denied by the Supreme Court on November 8. Six days after the PLA was denied, the Appellate Court filed a certificate of importance asking the Supreme Court to decide whether the referendum was vague. Three days later, the Supreme Court summarily affirmed the Appellate Court, promising an opinion at a later date.

The Court began by pointing out that the certificate of importance was a legal nullity, since the Appellate Court filed it after the objector had already filed a PLA in the Supreme Court, divesting the Appellate Court of jurisdiction. Nonetheless, the Supreme Court chose to exercise its supervisory authority and explain its affirmance.

The Supreme Court explained that the plain language of the referendum provided that term limits would apply to anyone who sought election in April 2017 or after who has “been previously elected” to that office for two terms. When read in its entirety, the language used was sufficiently clear to understand what the voters would be voting on, even without an express statement of the referendum’s temporal reach. Although the objector “suggests alternative variations that he asserts are clearer, a valid referendum need not be presented in optimal form,” according to the Court. “We hold that the referendum at issue in this case meets that basic standard.”

Justice Thomas added a short special concurrence. He noted that Rule 316 certificates of importance are one of the relatively few vehicles for getting a case on the Court’s docket without its agreement. But Johnson didn’t require the Court to construe the constitution or a statute, to resolve an urgent conflict between the districts of the Appellate Court, or “to correct any errant exercise of judicial power.” Rather, “it requires this court only to read and interpret a local ballot initiative that was drafted locally, applies locally, and almost certainly will never appear again in the same form on any ballot anywhere.” That, Justice Thomas argued, was “the very opposite of ‘a question of such importance that the case should be decided by the Supreme Court.'” Justice Thomas closed by urging the Appellate Courts to exercise their Rule 316 power “with the restraint, sobriety, and cautious discretion it deserves.”

Image courtesy of Flickr by Amanda Wood (no changes).

Illinois Supreme Court Holds Occupational Disease Pension Does Not Trigger Health Insurance Benefits


In 2003, the Illinois Supreme Court held that anyone who qualified for a line-of-duty pension under section 4-110 of the Illinois Pension Code qualified as having a “catastrophic injury” within the meaning of Section 10(a) of the Public Safety Employee Benefits Act, thus triggering a right to have their health insurance premiums paid.  But does an injury sufficient to trigger an occupational disease disability pension under section 4-110.1 of the Pension Code also trigger Section 10(a) as a “catastrophic injury”?  In an opinion by Justice Thomas, the Illinois Supreme Court held in Bremer v. City of Rockford that the answer was “no.”  Our detailed report on the underlying facts and lower court rulings in Bremer is here.  Our report on the oral argument is here.

Bremer began in 2004, when the plaintiff, who had served as a firefighter for the City of Rockford for twenty-eight years, was granted an occupational disease pension by the City of Rockford Firefighters’ Pension Board.  The Board found that the plaintiff was suffering from cardiomyopathy as a result of his work as a firefighter.  The City paid health insurance premiums for the plaintiff and his wife until 2008, as required by city ordinance.  When the City informed the plaintiff that it would be stopping the benefits, he applied for continuing health insurance benefits under Section 10.  The Board held that he had not suffered a catastrophic injury, and therefore denied his application.

Plaintiff filed a two-count complaint, seeking a declaratory judgment on the meaning of the term “catastrophic injury” in Section 10, as well as an award of attorney fees and costs under the Wage Actions Act.  The Circuit Court granted plaintiff’s motion for summary judgment on Count 1, ordering the plaintiff’s health insurance benefits be reinstated, but granted the defendant summary judgment on Count 2, holding that plaintiff’s benefits did not constitute wages within the meaning of the Wage Actions Act.  The court granted plaintiff leave to add a third count to his complaint seeking reimbursement for health insurance premiums the plaintiff had paid, as well as certain medical expenses incurred during the period when plaintiff’s health insurance was not in effect.  The Court dismissed the claim for reimbursement of premiums, but did enter judgment for plaintiff on a small portion of the medical expenses.

The Appellate Court reversed with respect to Count 1, holding that although the plaintiff’s injury arguably satisfied the requirement of “catastrophic injury,” there was a triable dispute of fact as to the second prong of the test: whether plaintiff had been injured responding to what he reasonably believed to be an emergency.  The Court affirmed dismissal of the claim under the Wage Actions Act, and held that the plaintiff’s claim for unpaid premiums and medical expenses was not yet ripe for adjudication.  Justice McLaren dissented.

The Supreme Court affirmed in part and vacated in part.  The Court began its analysis with the central issue: did a firefighter who qualified for an occupational disease pension per se satisfy the Section 10 test of having a “catastrophic injury”?  Reviewing the Court’s previous decisions involving Section 10, the Court noted that it had defined “catastrophic injury” by reference to the legislative history and debates as an injury resulting in an award of a line-of-duty pension.  Plaintiff argued that the requirements for an occupational disease pension were “essentially the same” as those for a line-of-duty pension, but the majority found that that was simply not so.  A line-of-duty pension results when a condition or injury results from an identifiable act or acts of duty, without any limitation requiring a minimum time in service.  On the other hand, the occupational disease pension requires that the officer have been employed in his or her job for a minimum number of years.  Given that the General Assembly has set forth different eligibility requirements for the two pensions, it cannot be that an occupational disease pension automatically triggers the Section 10(a) benefit as a catastrophic injury.  Since the plaintiff had conceded that there were no factual disputes involved in his primary claim for health premium benefits, the Court affirmed the Appellate Court and entered judgment for the defendant on that claim.  Because plaintiff’s claims under the Wage Actions Act and his third claim for unpaid premiums and medical expenses were contingent on his prevailing on the basic claim under Section 10, the Court affirmed the Appellate Court on the Wage Actions Act count, and entered summary judgment for the defendant on the remaining count.

Justice Kilbride dissented in part, arguing that although the mere awarding of an occupational disease pension did not by definition satisfy the “catastrophic injury” test, that didn’t mean that plaintiff couldn’t have proven that he also would have qualified for a line-of-duty pension.  Justice Kilbride thus concluded that all three claims should have been remanded to the trial court for further proceedings.

Image courtesy of Flickr by Jack Snell (no changes).

Illinois Supreme Court Clarifies Scope of Negligent Infliction of Emotional Distress Without Physical Impact


Courts in most jurisdictions have been cautious about the parameters of any possible cause of action for negligent infliction of emotional distress where the plaintiff has pled no physical impact.  The Illinois Supreme Court clarified the scope of that claim in one of its last decisions of 2016, affirming the Appellate Court in Schweihs v. Chase Home Finance, LLC.

Schweihs began in 1997, when the plaintiff executed a note secured by a mortgage on her home.  The mortgage contained a provision granting the mortgage lender the right, in the event of default, to enter the property to make repairs.

Plaintiff defaulted in 2007, and the lender sought and received a judgment of foreclosure.  Pursuant to the redemption period, the plaintiff had the right to possession of the home for three months after the date of the judgment.

A month after the judgment – but still within the redemption period – the vendor used by the mortgage lender to provide property inspections and preservation services received a report that the property was vacant.  The vendor placed an “initial secure” order with its contractor, which sometimes involves changing the locks on the home and turning off the utilities.  The contractor tried to execute the order five days later.  The contractor’s employees were instructed to begin by determining whether the house was occupied, and to do nothing if it was.

The employees later testified that they looked over the property, observing that the grass was uncut and the trees were overgrown.  One knocked on the front door, but received no answer.  He checked the meters and concluded that both gas and water had been shut off.  The employees spoke with a neighbor, who said the house was not occupied, although a woman would come and go on occasion, and there were no lights on in the house at night.  The employees once again knocked on the door, receiving no response.  At this point, the employees had spent 45 minutes merely trying to determine if the house was occupied.  The employees entered the back yard through a latched gate and saw boxes piled on top of each other and garbage and debris on the floor inside the house.  They reported all this to the contractor, which instructed them to proceed with the “initial secure” order.

One of the employees removed the lock to the back door and entered the home, stepping over boxes and debris.  Once inside the home, one of the employees was confronted by a woman, who ordered him out of the house.  The employee explained that he was from the mortgage company, and asked the woman to speak with him further at the front door.  He exited the house, walked to the front and knocked on the front door, but received no answer.  The two employees then did nothing further, waiting for the arrival of the police.  The plaintiff later testified that she had heard knocking when she was in the basement, but had been on the phone and did not respond.  She saw the men from a second-floor window shortly after, but thought they may have been potential buyers looking at the house, and decided to continue packing.

The plaintiff filed suit, alleging trespass, private nuisance, intentional infliction of emotional distress and negligence.  The court granted defendants’ motions for summary judgment with respect to claims for private nuisance and intentional infliction of emotional distress.  The court also granted the plaintiff leave to amend her negligence claim to allege negligent infliction of emotional distress.  The court then dismissed the negligent infliction claim, and entered a Rule 304(a) finding that there was “no just reason for delaying” an appeal.  The Appellate Court affirmed (with one dissenter), holding that since the plaintiff was a “direct victim” in terms of the case law, she could not state a claim for negligent infliction of emotional distress without evidence of physical impact.

In an opinion by Justice Freeman, the Supreme Court unanimously affirmed the Appellate Court.  The plaintiff argued that the Supreme Court had eliminated the requirement for a direct victim to plead and prove physical impact in order to state a claim for negligent infliction of emotional distress in Corgan v. Muehling. The court conceded that certain language in Pasquale v. Speed Products Engineering appeared to read Corgan that way, but the plaintiff in Corgan had indeed pled contemporaneous physical impact, making the language plaintiff was relying upon dictum.  “[A] careful reading” of the Court’s precedents demonstrated that Illinois has not, in fact, eliminated the requirement that a direct victim of the defendant’s conduct must plead and prove contemporaneous physical impact in order to state a claim for negligent infliction of emotional distress.  Since plaintiff failed to plead any physical impact, she failed to state a claim for negligent infliction.

The Court then turned to plaintiff’s claim for intentional infliction of emotional distress.  The plaintiff argued that the trial court should not have dismissed the claim because it was a triable issue of fact for the jury whether the defendants’ conduct was extreme and outrageous.  Based upon the employees’ attempt to investigate the status of the house before entering, and the plaintiff’s ignoring the knocking on her door, the Court concluded that the conduct was not extreme or outrageous as a matter of law.

Justice Garman filed a special concurrence, noting that while the impact rule continued to apply to any attempt to allege negligent infliction of emotional distress, that rule did not limit plaintiffs who sought to recover emotional distress damages for other recognized torts.

Image courtesy of Flickr by Taber Andrew Bain (no changes).

Illinois Supreme Court Overturns Dismissal of Tenured High School Teacher

7178800793_d4f2a9e75bIn early December, a unanimous Illinois Supreme Court held that a Board of Education’s decision to terminate a tenured high school teacher’s employment was “arbitrary, unreasonable, and unrelated to the requirements of service,” affirming an earlier order that she be reinstated with back pay and benefits. The Court affirmed a decision from the Fifth District in Beggs v. Board of Education of Murphysboro Community Unit School District No. 186. Our report on the underlying facts and lower court decisions in Beggs is here.

The plaintiff in Beggs began her employment at the high school as a full-time math teacher during the 1993-94 school year. Beginning in 2011, her mother’s health began to deteriorate, resulting in frequent hospitalizations. School administrators were aware of the plaintiff’s mother’s health issues. Nevertheless, they became increasingly concerned about the plaintiff’s late arrivals, failure to submit lesson plans on some occasions when she was absent, and the generally slow progress of her first hour geometry class. The Principal issued a “Letter of Concern” in late January 2012, noting plaintiff’s propensity to arrive late for work and the issues with lesson plans. She allegedly arrived late the next two days after receiving the letter. After further late arrivals, she was suspended with pay from February 10 to February 21, 2012. The Superintendant wrote the school board a letter requesting that they authorize the issuance of a notice of remedial warning. The Board did so, as well as converting her earlier suspension into one without pay. Plaintiff was given a leave of absence from February 27 to March 14, 2012, but her alleged absences continued into March after her return to work. On April 30, 2012, the Board adopted a resolution authorizing her dismissal.

Plaintiff timely requested a hearing before an impartial hearing officer. Following a full evidentiary hearing with several witnesses testifying, the hearing officer recommended that the plaintiff be reinstated with no loss of seniority and full back pay and benefits.   The Board reviewed the hearing officer’s findings of fact and recommendation, made supplemental findings, and in July 2013, made a final decision to dismiss the plaintiff notwithstanding the hearing officer’s decision.

The plaintiff filed a complaint seeking administrative review. The circuit court held that the Board had given inadequate deference to the hearing officer’s decision, and that the Board’s finding were arbitrary, unreasonable and unrelated to service. The circuit court ordered the plaintiff’s reinstatement, and the Fifth District affirmed.

In an opinion by Justice Thomas, the Supreme Court unanimously affirmed the Appellate Court. The Court began by addressing the Board’s argument that the plaintiff had failed to properly invoke the court’s jurisdiction via administrative review because she incorrectly identified the Board’s president and mailed the complaint and summons to the previous address of the Board. The Court noted that the Act specifically bars the dismissal of an action for failure to correctly name a Board president when the Board itself is properly named. Given that the Board received the papers within the thirty-five day statutory limit, the Court held that the Board had not been prejudiced by the error.

The Court then turned to the issue of the proper standard of review. The plaintiff argued that the Appellate Court had properly given deference to the hearing officer’s decision, but the Board argued that its own decision was the one entitled to deference for purposes of appellate review. The Court concluded that the Board’s view was correct. Although this “does not mean that the hearing officer does not pay a strong role in the process,” administrative review as of the Board’s decision, not the hearing officer’s.

Nevertheless, the Court concluded that the Board’s supplemental factual findings were against the manifest weight of the evidence. The Board had pointed to the plaintiff’s late arrival of March 20, but the Court noted that her lateness had been excused by the superintendant. The Board relied in part on issues with transmission of lesson plans on two days in March, but the Court found that the plans had been received at school by 8:30 a.m. both days. The Court did not find the Board’s third principal finding to be against the manifest weight of the evidence, but noted that the Board’s conclusion “appears troubling when considered in the context of other undisputed evidence.” Given that the two of the Board’s three principal findings were against the weight of the evidence and the third appeared to be an “understandable and minor breach,” the Court held that the Board’s decision to dismiss the plaintiff was clearly erroneous.

Image courtesy of Flickr by Denise Krebs (no changes).

Illinois Supreme Court Affirms Constitutionality of Cook County Inspector General’s Office

7389270480_1883240c99In 2007, the Cook County Board of Commissioners created the Office of the Inspector General. The Board tasked the IG with investigating corruption, fraud, waste and mismanagement, including by “separately elected County officials,” and instructed all county departments, employees and elected officials to cooperate in the IG’s investigations. The IG is empowered to conduct sworn interviews of county officials and may issue subpoenas for documents. Does the Ordinance run afoul of the state constitution by improperly stripping the County Assessor of some of his power? In early December, the Illinois Supreme Court unanimously held that the answer was “no,” affirming the Appellate Court in Blanchard v. Berrios.

The IG began an investigation in 2015 into the circumstances surrounding the grant of two homeowners’ exemptions to an employee of the County Assessor’s office. The IG sent the Assessor a request for documents. The Assessor refused to turn over the material, advising the IG to try a Freedom of Information Act request.

Instead, the IG sent the Assessor a subpoena, demanding the same documents plus the employee’s personnel file. The Assessor objected to the subpoena, arguing that the IG lacked the authority to issue subpoenas to elected county officials. The IG sued the Assessor, seeking an order compelling his compliance. On cross motions for summary judgment, the trial court upheld the constitutionality of the IG’s office, and the Appellate Court affirmed. In an opinion by Justice Freeman, the Supreme Court affirmed.

According to the Illinois Constitution, every county must elect a “sheriff, county clerk and treasurer,” and “may elect or appoint” a “coroner, recorder, assessor [and] auditor.” The Constitution provides that offices “other than sheriff, county clerk, treasurer, coroner, recorder, assessor and auditor may be eliminated and the terms of office and manner of selected changed by county ordinance.” According to the Counties Code, “No county board may alter the duties, powers and functions of county officers that are specifically imposed by law,” but the board “may alter any other duties, powers or functions or impose additional duties, powers and functions.” 55 ILCS 5/5-1087.

The Assessor’s theory before the Supreme Court was that by requiring the Assessor’s cooperation with the IG investigation, the ordinance didn’t merely impose additional duties; it deprived him of the power to supervise the operations of his office without interference from or regulation by the IG. The Court rejected the Assessor’s argument.

First, the Court noted that the Assessor hadn’t cited any statute or constitutional provision giving him the authority to operate and supervise his office free from oversight or control. The Assessor cited People ex rel. Walsh v. Board of Commissioners, arguing that he had a common law power to supervise his office, but the Court noted that Section 4(d) of the Constitution, giving county boards the authority to modify common law powers, had been expressly adopted to overturn the holding in Walsh.

The Assessor argued that the ordinance exceeded the County’s home rule authority. The constitutional grant of home rule authority is intended to convey the broadest possible authority on local governments; a subject is off limits only where “the state has a vital interest and a traditionally exclusive role.” The Court found that the IG ordinance was aimed at detecting corruption, fraud, waste and mismanagement, and that that goal fell well within the scope of traditional police power granted to home rule units. The Assessor argued that the regulation of exemptions for real estate taxation was a matter of statewide concern, but the Court once again found that that wasn’t what the IG ordinance was about – the ordinance was aimed at detecting problems in all county offices.

Finally, the Assessor argued that because his office is elected, it is “separate” from Cook County for purposes of the limitations on home rule authority. Not so, the Court found; the Assessor clearly wasn’t part of the State or any of its agencies. The office wasn’t part of the school district. It must therefore be part of the Cook County government. Nor did cases limiting home rule units’ authority to project their power extraterritorially limit the IG’s authority.

Image courtesy of Flickr by John Pastor (no changes).

Illinois Supreme Court to Clarify Duties of Power of Attorney Holders and Successor Agents

5599532222_5dd458c713Does a person designated as someone’s successor power of attorney owe the principal duties before the contingency built into the Power of Attorney happens? That’s one of the questions which the Illinois Supreme Court agreed to decide in the closing days of the November term, allowing a petition for leave to appeal in In re Estate of Shelton, a case from the Third District Appellate Court.

Shelton began in 2005 when the decedent executed an Ilinois Statutory Short Form Power of Attorney for Property, appointing his wife his attorney-in-fact or “agent.” The durable POA gives the wife various powers, including the authority to pledge, sell, and otherwise dispose of real or personal property without advance notice; the power to make estate transactions and gifts; the power to name or change beneficiaries or joint tenants and the power to exercise trust authority. The POA stated that if the wife became “incompetent, resign[ed] or refuse[d] to accept,” the decedent’s son, and then, his daughter, would be successor agent. The POA provided that a person was incompetent “if and while the person is a minor or an adjudicated incompetent or disabled person or the person is unable to give prompt and intelligent consideration to business matters, as certified by a licensed physician.” The same day that decedent executed his POA, his wife executed a substantively similar document appointing the decedent her agent, and first son and then daughter as his successors.

On a single day in 2011, the decedent conveyed his interest in one farm jointly owned with his wife to the son – conveying his own interest on his own behalf, and his wife’s interest as her attorney-in-fact, and conveyed a second farm to the son which he owned himself. Two years later after the decedent’s passing, his estate began proceedings to recover the first farm. According to the amended citation under the Probate Act, at the time of the conveyance, the son was attorney-in-fact since by that time the wife was incompetent within the meaning of the instrument. As attorney-in-fact, the complaint alleged, the son owed his father a fiduciary duty, making the conveyances presumptively fraudulent.

The son filed motions to dismiss, pointing out that the wife had neither been adjudicated incompetent, nor diagnosed incompetent by a licensed physician, at the time of the conveyances. Therefore, the son argued that he owed his father no fiduciary duty – he was still just the designated successor, not the actual attorney-in-fact. Following the motion to dismiss, the estate filed a “Physician’s Report” as a supplemental exhibit to its opposition brief, in which the wife’s physician opined that she had been “unable to give prompt and intelligent consideration [to] her personal affairs” for some time. The trial court denied the motion to dismiss under Rule 2-615 but granted it under Rule 2-619(a)(9) on the grounds that the wife could not be retroactively labeled as incompetent by a declaration signed several years later.

A month later, the daughter, as executor of the wife’s estate, filed a complaint against the son seeking damages for his alleged breach of fiduciary duty to the wife. The complaint alleged that the son had violated his duty as the wife’s agent by participating in the decedent’s breach when he conveyed the wife’s interest without reserving a life estate to her.

The son moved for judgment on the pleadings, or in the alternative to dismiss, arguing that he was not an agent for the wife at the relevant time, and therefore owed her no fiduciary duty. The daughter responded that as designated successor agent, the son was a fiduciary as a matter of law, since a successor agent may not observe the primary agent’s violation of his duty to the principal and do nothing to protect the principal. Following argument, the Court granted the motion to dismiss, holding that the son owed the mother no fiduciary duty. Both dismissals were appealed, and the appeals were consolidated.

The Appellate Court began by addressing the dismissal of the amended estate citation in the decedent’s estate. The daughter maintained in that case that the son had become successor agent at the time of the conveyance, given the doctor’s judgment in 2014 that the wife had been incompetent in late 2011. This raised the issue of retroactive declarations of incompetence, but there was a preceding issue – did it even matter? If the son owed the wife a fiduciary duty by virtue of having been named successor agent, regardless of whether he had succeeded at the time of the conveyance, then the issues of incompetence were unimportant.

The Appellate Court rejected the notion that the successor agent acquired a fiduciary duty from the outset. A successor agent did not acquire his or her powers immediately; the designation was contingent on future events. It is the power to act as attorney-in-fact which creates the fiduciary duty, and the successor agent didn’t have that until the successor succeeded.

So it did matter after all whether the wife had been incompetent in 2011. The Court held that the physician’s testimony three years after the fact was not sufficient to establish her incompetence retroactively. Reading the decedent’s power of attorney as a whole, the Court found that the certification of incompetence must have already happened before the initial attorney gives way to the successor. Besides, there were policy concerns involved; substantial uncertainty would be created if successors had to wonder whether they might one day learn that the primary agent’s authority had been nullified years earlier, based on an after-the-fact doctor’s certificate.

But what about the wife’s estate’s claim against the son? That was different; the wife’s estate was claiming not that the son had already been the incumbent agent, but rather that he had observed the breach of the father/decedent, and failed to protect the wife’s interests. And indeed, subsection (b) of section 2-10.3 of the Probate Act – entitled “successor agents” – provides that an agent “is not liable for the actions of another agent, including a predecessor agent, unless the agent participates in or conceals a breach of fiduciary duty committed by the other agent.” The complaint alleged that the son had known that the decedent was executing a deed wrongfully transferring the wife’s property interest in the farm, and had failed to notify the wife of the breach or take action to safeguard her interests. Therefore, the wife’s estate had stated a claim under the very narrow duty of care owed by successor agents.

Justice Carter dissented in part from the Court’s reversal in the wife’s estate case. Justice Schmidt dissented from the affirmance of the trial court’s dismissal of the amended estate citation.

We expect Shelton to be decided in the fall of 2017.

Image courtesy of Flickr by Ken Mayer (no changes).

Illinois Supreme Court Agrees to Hear Sequel to Attorneys’ Fees Dispute


Is an attorney referral agreement enforceable if it doesn’t expressly state that the attorneys are assuming “joint financial responsibility” in representing the clients?  Late in the November term, the Illinois Supreme Court agreed to decide that issue, allowing a petition for leave to appeal in Ferris, Thompson & Zweig, Ltd. v. Esposito, a decision from the Second District.

If that name sounds familiar to long-time readers of Appellate Strategist, it’s because the case has been before the Supreme Court on the merits once before.  According to the Appellate Court’s opinion, the parties’ relationship began in 2007.  Plaintiff referred a number of workers’ compensation clients to defendant in return for a portion of the attorney fees defendant received.  Each referral was evidenced by a written agreement, signed by the parties and the clients.  In 2012, defendant refused to pay plaintiff pursuant to two referral agreements, and plaintiff sued.  Defendant moved to dismiss, arguing that the Illinois Workers’ Compensation Commission, not the Circuit Court, had jurisdiction over the case.  The trial court disagreed, the Appellate Court affirmed the trial court, and the Supreme Court affirmed the Appellate Court.

While that was going on, the defendant refused to pay the plaintiff pursuant to the other ten referral agreements.  The plaintiff sued again, attaching the referral agreements to the complaint.  Defendants moved to dismiss, arguing that the agreements were unenforceable under Rule 1.5(e)(1) of the Rules of Professional Conduct because they nowhere stated that the attorneys were assuming “joint financial responsibility” for the representation.  The plaintiff responded, among other things, that Rule 1.5(e)(1) doesn’t mandate that a written referral agreement must contain such an express statement.  The trial court granted the motion to dismiss.

The Appellate Court reversed.  The relevant language from the Rule provides as follows: “A division of a fee between lawyers who are not in the same firm may be made only if (1) . . . the primary service performed by one lawyer is the referral of the client to another lawyer and each lawyer assumes joint financial responsibility for the representation; (2) the client agrees to the arrangement, including the share each lawyer will receive, and the agreement is confirmed in writing.”  The court concluded that the express language of the Rule appeared to require only that the client’s agreement to the share each lawyer would receive be expressly set forth in the agreement, not the joint financial responsibility.  Further, the last antecedent rule, which presumes that relative or qualifying words and phrases refer to the immediately preceding matter, rather than reaching back further, would also suggest that the requirement of the writing refers merely to the division of the fee.

The committee comments to the rule supported the same conclusion.  What is meant by the “joint financial responsibility” language is that the referring and the referred attorney are essentially in a one-case-only general partnership for purposes of the representation – if one of the attorneys is sued for malpractice in connection with the case, the other is liable too.  This provision does not directly concern the client, and would apply regardless of whether it’s expressly set forth anyway.  Finally, the Court considered earlier versions of Rule 1.5(e), which had always required that referral agreements be in writing, but had never required an express acknowledgement of joint financial responsibility.

We expect Ferris Thompson to be decided in the fall of 2017.

Image courtesy of Flickr by Mr. Littlehand (no changes).

May A Hospital Lien Be Enforced Against a Minor?


Illinois law provides that every health care professional and health care provider that “renders any service in the treatment, care, or maintenance of an injured person,” the care provider may assert a lien against “all claims and causes of action” of the injured person up to the amount of the care provider’s charges.

In the closing days of its November term, the Illinois Supreme Court allowed a petition for leave to appeal in Manago v. County of Cook, a decision from Division Five of the First District which poses several interesting questions for the operation of the Health Care Services Lien Act: (1) does the care provider have to intervene in the personal injury action in order to assert the lien; (2) may a hospital lien be enforced against a minor; and (3) may the lien attach to a judgment that doesn’t include an award for medical expenses?

Manago arises from an accident in August 2005 when the plaintiff – who was at the time a minor – was injured in an elevator accident.  Plaintiff sued various defendants, alleging that they had negligently failed to inspect and maintain the elevator, which was a direct and proximate cause of his injuries.  Subsequently, the plaintiff alleged in his second amended complaint that the defendants had negligently failed to ensure that persons, including the plaintiff himself, would not have access to the elevator roof.

The County mailed a notice of lien to the plaintiff’s attorney in 2009, but the County never formally intervened in the personal injury action.  The action was tried without a jury.  The plaintiff requested various categories of damages, including just under $80,000 to the plaintiff’s mother for “medical bills.”  Ultimately, the trial court declined to award anything to the plaintiff for present or future medical expenses on the grounds that plaintiff’s mother had failed to show that she had any expectation of having to pay any of the plaintiff’s expenses.

In early 2012, the minor plaintiff filed a petition to strike and extinguish the County’s lien.  After hearing argument, the court granted the motion to strike, holding that there was no case law permitting a lien holder to recover after not appearing to protect the lien at trial.

The Appellate Court began by concluding that a lien holder was not required to formally intervene in the personal injury action in order to protect its lien.  The lien holder had served notice on the plaintiff’s attorney, and the tortfeasors had notice of the lien (to the extent that they were entitled to notice) by virtue of their attorneys’ appearance at the hearing on the petition.

The Court then turned to the question of whether a lien could be enforced against a minor.  The court noted that the Act merely refers to an “injured person,” without distinguishing between minors and adults.  The plaintiff argued that as a minor, he could not incur a debt for the medical expenses.  The Appellate Court disagreed, noting that the Supreme Court has held a number of times that a minor’s estate may incur debt or other obligations by operation of law.

But there was a related problem: the Rights of Married Persons Act.  According to Section 15(a)(1) of the Act, “the expenses of the family” are chargeable to the two spouses, not to the children.  Further, it was well established, according to the court, that the relevant “expenses of the family” included the children’s medical expenses.  Accordingly, any cause of action to recover for medical expenses was that of the parent, not the child.  For that reason, the courts have held that an insurer may not enforce a subrogation lien against a minor’s recovery – the minor is not the party who owes the debt.

The Court then turned to the question of whether a lien could attach to a judgment where there was no award of medical expenses.  The Court pointed out that the phrase in the statute “all claims and causes of action of the injured person” is modified and limited by the language “for the amount of the health care professional’s or health care provider’s reasonable charges up to the date of payment of damages to the injured person.”  That language did not merely describe the amount of the lien; it also describes the nature of the claim triggering the creation of the lien.  Since the minor plaintiff’s mother did not assign her cause of action for medical expenses to him, and since the plaintiff was awarded nothing for medical expenses, there was nothing for the lien to attach to.

Justice Gordon specially concurred, arguing that the lien attached to the entire judgment, not just monies awarded for medical expenses, but concluding that the statute was contrary to public policy.  Justice Lampkin dissented, concluding that the defendant had a valid lien.

We expect Manago to be decided in the fall of 2017.

Image courtesy of Flickr by Gideon Tsang (no changes).

Illinois Supreme Court to Clarify What Constitutes a Public Utility in Dispute Over Proposed Transmission Line


May the Illinois Commerce Commission grant a certificate of public convenience and necessity, authorizing construction of new projects by an entity which not only is not a public utility, but isn’t applying to be certified as one?  That’s one of the many important questions for the utility bar which the Illinois Supreme Court agreed to decide at the close of the November term, allowing a petition for leave to appeal in Illinois Landowners Alliance v. Illinois Commerce Commission, a decision from the Third District.

The applicant in Illinois Landowners Alliance is a subsidiary of a transmission energy development company with offices in Houston, Texas.  The applicant was formed to construct and manage an electric transmission line from O’Brien County in northwest Iowa to Grundy County in northeast Illinois.  The purpose of the project is to connect wind generation facilities in Iowa, South Dakota, Nebraska and Minnesota with electricity markets.

The applicant’s application for a certificate of public necessity and convenience outlined a plan for raising the capital necessary to finance construction on a “project finance basis.”  The applicant emphasized that it wouldn’t be recovering the cost of the project through rate assessments; its rates would be regulated by the Federal Energy Regulatory Commission, and the project would supposedly pay for itself through revenues from anticipated purchase agreements with wind generators.

Numerous parties sought leave to intervene.  Two moved to dismiss, arguing that the application was inadequate on its face because the applicant owned no infrastructure for electric transmission in Illinois, and accordingly wasn’t a public utility.  The ALJ denied the motions to dismiss, holding that one didn’t already have to be a public utility to apply for a certificate; one could pursue certification and the application at the same time.  During the subsequent evidentiary hearing, witnesses for the applicant conceded that the wind generators who played a crucial part in its energy and financial simulation models don’t actually exist yet; they’re based on projections.  The applicant doesn’t currently have any transmission customers – it has to build the project first.

A federal electricity regulation and policies expert testifying for one of the intervenors opined that the financial aspects of the projects left open the possibility that the project might someday shift from “merchant” status to “cost allocation” status – meaning some future transmission costs might wind up being paid by electricity customers after all.  The commission staff economist questioned the need for the project, and suggested that if the project failed to be successful on the competitive market, the applicant might wind up looking to ratepayers to put the project back on its feet.   Nevertheless, the Commission issued a 242-page order granting the applicant a certificate of public convenience and necessity to transact business as a transmission public utility and to construct, operate and maintain the line.

The Appellate Court unanimously reversed.  The Court found that the Act defined a “public utility” as any company which “owns, controls, operates or manages, within this State, directly or indirectly, for public use, any plant, equipment or property used or to be used for or in connection with, or owns or controls any franchise, license, permit or right to engage in . . . the production, storage, or transmission . . . of heat, cold, power, electricity, water, or light.”  220 ILCS 5/3-105(a)(1).  Simply selling what public utilities usually sell doesn’t make you a public utility.  Rather, the company must (1) own, control, operate or manage utility assets within Illinois; and (2) offer those assets for public use without discrimination.

The applicant failed to satisfy the first condition – it didn’t own, control, operate or manage assets in Illinois.  Nor did it meet the second – the proposed transmission line was not for public use without discrimination.  Simply selling gas to “a limited group of industrial customers” wasn’t good enough.  Three quarters of the project’s capacity would be sold to the “anchor tenants.”  The remaining one-quarter would be sold through an “open season” bidding process approved by the FERC.  There was no requirement that an Illinois wind generator or other renewable energy generator participate in the bidding process, nor that one would prevail if it did.  Nor was any part of the renewable energy transmitted along the proposed line designated for public use.

Because the applicant wasn’t qualified to be a public utility, the Court held that the Commission had no jurisdiction to issue a certificate of public convenience and necessity.

We expect Illinois Landowners Alliance to be decided in the fall of 2017.

Image courtesy of Flickr by TumblingRun (no changes).