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

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

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

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

Bettis turns on Section 10-10.1(a) of the Election Code (10 ILCS 5/10-10.1(a)). According to the statute, a party seeking judicial review of a decision of the Electoral Board must “file a petition with the clerk of the court” and “serve a copy of the petition upon the electoral board and other parties to the proceeding by registered or certified mail within 5 days after service.” The districts of the Appellate Court are split on whether the statute requires service on the Electoral Board as an entity, or if service on all the members is enough. In Bettis, the Fourth District followed the First District’s view that the statute requires service on the Board and affirmed dismissal.

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

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

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

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

Image courtesy of Flickr by Kristin_a.

Illinois Supreme Court Debates Constitutional Challenge to Rental Housing Support Program

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Michael D. Beckwith.

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by J.D. Thomas.

Illinois Supreme Court Debates Revenue Decoupling in Utility Ratemaking

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Kool Cats Photography.

Illinois Supreme Court Debates Scope of Whistleblower Statute

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Steven Depolo.

Illinois Supreme Court Debates Burdens of Proof for Wrongful Termination Cases

 

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Stirling Noyes.

 

Illinois Supreme Court 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 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 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

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 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.

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 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.

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.

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.

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.

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.

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.

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.

Argument Report: Early Retirement Incentives for Municipal Pensions

On the final argument day of the May term, the Illinois Supreme Court heard argument in Prazen v. Shoop, one of a brace of public employee pension cases currently on the Court's docket. Our detailed preview of the facts and lower court holdings in Prazen is here. The video and audio of the argument is available here.

Prazen relates to an Early Retirement Incentive (ERI) plan adopted by a city pursuant to section 7-141.1 of the Pension Code. The plaintiff took early retirement from his position as superintendant of the city electric department, purchasing five years "age-enhancement credit" pursuant to the ERI to do so. Less than two weeks before his retirement became effective, the plaintiff incorporated a business which he has run as an unincorporated entity for some time - Electrical Consultants, Ltd. Three days after it was incorporated, ECL entered into a management and supervision agreement for the operation of the city's electric department, effective the day after his retirement. ECL continued to manage and supervise the city's electric department for an additional ten years.

But here’s the problem: under Section 7-141(g) of the Pension Code, any pensioner who receives age enhancement credit and later "accepts employment with or enters into a personal services contract" with an employer subject to the Code forfeits the increase in his or her pension. In 2010, the Illinois Municipal Retirement Fund (“IMRF”) concluded that the plaintiff had violated Section 7-141(g), not because he had "accept[ed] employment with" or "enter[ed] into a personal services contract" with his former employer, but because his corporation was a "guise" to evade the statute. The Fourth District of the Appellate Court reversed, holding that the Board of Trustees of the IMRF had the power to find one of the two factual determinations under the statute -- "employment with" or "personal services contract" and that's it.

Prazen was an active argument, with both sides facing relatively heavy questioning. It was evident that the Justices were troubled by both sides’ positions – both by the Board’s invocation of a power which was not exactly self-evident on the face of the Pension Code, and by the implications of approving what seemed to be an arguably dubious method for avoiding the language of the statute on the part of the pensioner. As a result, it’s quite difficult to predict how the Court is likely to rule; few if any Justices suggested a definite leaning.

Justice Freeman began the argument by asking counsel for the IMRF which provision of the statute was violated - "employment with" or "personal services contract." When counsel argued that the statute was vague, and that the Board had found plaintiff's arrangement was a "guise" to end-run the statute, Justice Freeman asked counsel whether the Board had the power to make such a determination. Counsel responded that the Board believed it did. Justice Thomas asked whether the Court would have to find the statute ambiguous in order to adopt the IMRF's position, and counsel argued that the statute was ambiguous: "personal services contract" is not defined in the Pension Code, and although "employee" is, "employment with" is not a defined term either. Justice Garman repeated Justice Freeman's earlier question, asking where in the statute the Board gets the authority to find violation-by-"guise." Counsel responded that the power flowed from the Board's general authority to make determinations on participation and coverage in order to carry out the intention of the Fund. The Board had looked to the legislative intent behind the statute, and concluded that if the legislature's desire that local governments be able to bring in younger, less expensive employees (or eliminate positions entirely) and reduce payroll was to be possible, the plaintiff's incorporation device could not satisfy the statute. Justice Burke asked counsel whether the Board’s finding of a “guise” rendered Section 141(g) of the Pension Code superfluous. Counsel agreed that the Appellate Court had found that, but counsel disagreed, arguing that the section has to be construed as a whole. Looking at the facts, it seemed clear, counsel argued, that the corporation had been created to evade the return to work provisions of the statute. Justice Thomas asked counsel to comment on the fact that the pensioner’s attorney had contacted the IMRF for guidance three times. Counsel pointed out that the final letter from the Board had suggested that the corporation could not simply be a guise for evading the regulations.   Justice Thomas asked counsel to respond to the argument that the statute’s plain language says what it says, and if personal corporations are to be barred, it should be amended. Counsel responded that the statute is vague and ambiguous, allowing room for the Board’s interpretation. Justice Garman asked whether there was specific legislative intent supporting the Board’s position, and counsel responded that it seemed clear from the preamble of the statute that the legislature wanted local governmental employers to have the flexibility to shed payroll through the incentive. Justice Karmeier asked whether the Board’s finding could be reversed simply because it had failed to make either of the mandated statutory findings, and counsel again responded that the Board had authority to make its findings under its general authority to administer the pension statutes.

Counsel for the pensioner began by emphasizing that the Section 141(g) permits two findings as a basis for forfeiture of the enhancement – either “employed with” or a personal services contract – and the Board had made neither. The first issue, counsel argued, was whether the IMRF had the equitable power to disregard the pensioner’s corporation. In response to a question from Justice Freeman, counsel argued that Section 17-200, the general grant of power relied upon by the Board, was just that – a general grant of power – which was trumped by the specifics in the rest of the Pension Code. Justice Freeman asked whether the crux of the case was the intent of the legislature. Counsel said no, the crux of the case was whether the Board had any power to disregard its limited authority under the statute to instead make a more general finding to justify a major forfeiture. Justice Thomas asked whether an opinion of the Court affirming the Appellate Court’s finding in favor of the pensioner would stand for the proposition that the statute could be evaded simply be self-incorporating and returning to work. Counsel responded by emphasizing that the pensioner’s corporation was not a sham; he had met every conceivable corporate formality. Justice Burke asked whether counsel would concede that the pensioner himself was the only person associated with the corporation who could perform the services called for by the contract, and counsel responded that there was nothing keeping him from hiring contractors. Justice Thomas repeated his question of whether an opinion affirming the Appellate Court would amount to an endorsement of the incorporate-and-go-back-to-work approach. Counsel responded that perhaps the statute, as written, created a political or factual absurdity, but that the flaw in the statute couldn’t be summarily remedied through judicial fiat on the back of a single pensioner. Where, counsel wondered, does one draw the line with the IMRF creating powers not expressly given? Chief Justice Kilbride pointed out that the case came before the Court under the Illinois Administrative Review Act, and asked what counsel’s argument was for the proposition that the facts the Board relied on were against the manifest weight of the evidence. Counsel responded that there was no evidence that his client had returned to the same job; in fact, he had not. If the goal was to eliminate the superintendant’s position, mission accomplished, counsel argued. He also pointed out that under the personal services contract, the city could now terminate his client with three days’ notice. In response to a question from Justice Thomas, counsel reviewed the factual circumstances of the three letters from the pensioner’s attorney to the Board. He argued that the Board’s action amounted to piercing the corporate veil, something that no court could possibly do on the record in the case. Counsel finished by again insisting that any problem with the statute had to be solved legislatively.

In a brief rebuttal, counsel for the Board argued that if the intent of the legislature is obvious from the words used, the Board had ample power to effectuate that intent. Counsel argued that the claim that the Board was piercing the corporate veil was a red herring; the Board was holding the pensioner responsible for his own acts, not for the acts of his corporation.

Prazen will likely be decided in the fall.

Argument Report: Illinois Supreme Court Debates Facial Challenge to Illinois' Click-Through Act

On the final argument day of the May term, the Illinois Supreme Court appeared troubled by the limitations of the record in Performance Marketing Association, Inc. v. Hamer. PMA involves the question of whether Illinois' "Click-Through" Tax Act -- which imposes a duty to collect sales taxes under certain circumstances on out-of-state retailers -- facially violates either the Commerce Clause or the Supremacy Clause of the U.S. Constitution. Our detailed preview of the facts and lower court holding in PMA is here. The video and audio of the argument is available here.

PMA arises from an amendment to the Illinois Use Tax Act in which the Illinois Legislature attempted to capture the millions in sales taxes it purportedly loses due to internet purchases by Illinois residents from out-of-state retailers.  Here’s how it works: everyone has seen third-party advertisements on high-traffic websites, inviting visitors to click on the ad to get more information about a product or special deal. Typically, the third-party advertiser pays the owner of the website based on the number of people who “click through” and buy something. And that’s the nexus that the “Click-Through” Act is based on – any website that has one or more contracts with such advertisers who are “located in Illinois” is defined as a “retailer maintaining a place a business in this State.” And that means that as long as the website realizes $10,000 a year in gross receipts from “click-through” commissions, the site has to charge users for state sales taxes. The Cook County Circuit Court struck down the Click-Through Act on two grounds, finding that it violated the commerce clause for lack of a specific nexus to Illinois, as well as being preempted by the Internet Tax Freedom Act. The Circuit Court's summary judgment order went directly to the Supreme Court for review.

Counsel for the state began by arguing that the statute is facially constitutional. Justice Thomas asked whether, if the Court found that the Act was preempted, it would still have to reach the commerce clause holding. Counsel responded that since preemption is a constitutional holding, the doctrine of constitutional avoidance wouldn't come into play. Justice Thomas pointed out that a bill is currently pending in Congress which is directly relevant to the issues. Counsel responded that while the pending statute might moot some of the case, it might not moot all issues. "Substantial nexus" -- the constitutional standard -- wasn't a tough standard to meet, counsel argued. The presence of in-state representatives soliciting sales on a merchant's behalf has been enough to trigger tax liability for at least half a century. Justice Theis pointed out that the statute uses the word "referral," and surely that's what the Court should be looking at and interpreting. Counsel agreed, saying that the statute anticipates the presence of an instate agent who is actively trying to maximize sales. Justice Theis asked counsel to describe the relationship between the out-of-state retailer, the referring site and the customer. Counsel responded that an in-state website solicits sales for an out-of-state retailer, offering coupons or discounts to customers. Justice Theis asked where the coupons come from, and counsel responded that the relationship essentially amounts to the in-state referring site offering to share its commission on the sale with the in-state customer. Justice Theis asked what the stipulated facts suggested that these referring websites do: how does the Court know what the universe of websites involved are. Counsel responded that this illustrates the problem with a facial challenge; there are many types of relationships, and all must be non-taxable for a facial challenge to succeed. Justice Burke asked whether, if a customer goes to a typical in-state site, the site buys the product from the retailer on her behalf, or the customer buys it herself? Counsel responded that the customer goes directly to the out-of-state retailer's site; if the retailer has an Illinois presence, it pays use tax, if it doesn't, it doesn't. Justice Theis again asked counsel to explain what the in-state referrers do so that the Court could determine whether it constitutes a nexus. Counsel pointed the Court to a newspaper article in the stipulated facts, which explains that most Illinois-based referral agents make money from commissions and advertising. Justice Thomas asked whether a finding that the Act is constitutional would eliminate the need for the use tax line on the Illinois income tax form. Counsel responded that it wouldn't necessarily. Turning to the Internet Tax Freedom Act, Justice Thomas suggested that Congress intended to put a moratorium on state use taxes on internet purchases while it sorted out the situation. Counsel disagreed, arguing that if Congress had wanted to bar such taxes, it would have simply done so. In fact, Congress merely barred taxes which discriminate against internet purchases as compared to brick-and-mortar-merchant purchases. Justice Freeman asked counsel whether a mere link on a website constituted solicitation, if the in-state referrer takes no further action seeking to stimulate sales. Counsel responded that perhaps not; the statute assumes more than that. Chief Justice Kilbride asked what the factual activity was that created a substantial taxable nexus with Illinois. Counsel responded that it was the contract with the in-state referrer, and the passing of a customer through the link to the out-of-state retailer's site.

Counsel for PMA began by arguing that the Court should find preemption and avoid the Commerce Clause issue entirely in order to wait for Congress to provide a uniform nationwide standard. Justice Burke asked whether it was necessary for the Circuit Court to resolve the Commerce Clause issue after finding preemption. Agreeing with counsel for the state, counsel responded that both were constitutional issues, so the doctrine of constitutional avoidance wouldn't counsel avoiding one or the other. Counsel then explained that under the statute, only four criteria are necessary to make a taxable event: a referral contract, a web link, commissions, and receipts of $10,000 per year by the in-state entity. Whether or not some referring sites do more, the only question before the Court was whether this is enough. No court has so found, according to counsel. Justice Theis asked whether the case merely posed the narrow statutory interpretation question of what is meant by a referral. Counsel responded that the parties did not disagree about what a referral is. Justice Theis suggested an example: a customer sees a picture, clicks on it, and is taken to an out-of-state website to make a purchase. Was that all that was needed, meaning that coupons, promotional codes, sharing commissions and benefits for the consumer were irrelevant? Counsel responded that if an in-state referrer met the four criteria of the statute, nothing more was required. Some companies may do more, but such activities are irrelevant under the statute: only the four criteria matter. Justice Theis pointed out that a "referral" under the statute could mean many things under the statute for purposes of a facial challenge. Counsel responded that a "referral" was merely a click on a link - nothing else mattered. Continuing, counsel pointed out that the Internet Tax Freedom Act provides that internet transactions can't be treated differently than physical transactions. Justice Thomas pointed out that the state was arguing that there was no discrimination against electronic transactions here. Counsel responded that he didn't know what facts such a conclusion could be based on. Counsel concluded his argument by explaining that PMA represents intermediaries in the click-through relationship: the in-state referral agent. Its members will not be taxed if the statute is upheld; they are merely the innocent victims, thousands of which have had their referral contracts cancelled by out-of-state retailers. The issue would be better left to Congress to resolve, according to counsel.

In rebuttal, Justice Thomas asked counsel for the state how the statute qualified as non-discriminatory. Counsel argued that print-based performance marketing might create a taxable event too. If there are entities which the statute could constitutionally apply to, counsel concluded, then a facial challenge must fail. Since the referral relationships effectively created an in-state sales force for out-of-state retailers, that should be enough to trigger taxation.

Argument Report: What Happens When The Plaintiff Sues a Defendant Who Has Died?

On the first argument day of the May term, the Justices of the Illinois Supreme Court actively questioned both sides in the first civil case on the docket, Relf v. Shateyeva. Relf involves an unusual question: is a complaint against a deceased defendant barred if the plaintiff doesn't name the defendant's personal representative? Our detailed preview of the facts and lower court holding in Relf is here. The video and audio of the argument is available here.

The plaintiff sued the defendant for injuries received in an automobile accident. The problem was, the defendant had died long before the complaint was filed (only three months after the accident). Relf involves a conflict between subsections (b) and (c) of 735 ILCS 5/13-209.

Subsection (b) provides that "if a person against whom an action may be brought dies before the expiration of the time limited for the commencement thereof, and the cause of action survives, and is not otherwise barred," the plaintiff may sue the defendant's personal representative within six months after the decedent's death, or "if no petition has been filed for letters of office for the deceased's estate," the court may appoint a special representative following notice to the decedent's heirs or legatees.

Subsection (c), on the other hand, provides that "if a party commences an action against a deceased person whose death is unknown to the party . . . the action may be commenced against the deceased person's personal representative" if, among other things, the plaintiff moves with reasonable diligence to substitute and serve the personal representative. If process is served more than 6 months after the issuance of letters of office, "liability of the estate is limited as to recovery to the extent the estate is protected by liability insurance."

When the plaintiff discovered the defendant had passed away, her counsel asked that a special administrator be appointed -- who turned out to be a legal assistant in plaintiff's counsel's office -- and for leave to amend her complaint to name the special administrator as defendant. The defendant responded by moving to dismiss on the grounds that the plaintiff hadn't named the decedent's personal representative, making the complaint void; the Circuit Court granted the motion, holding that the complaint was barred by Section 13-209(b). The Appellate Court (First District, Second Division) reversed, holding that since the plaintiff was unaware of the defendant's death when she filed, the action was governed by Section 13-209(c), not subsection (b).

Counsel for the defendant opened the argument. Justice Freeman asked counsel how subsections (b) and (c) of the statute should be read together. Counsel responded that subsection (b) applied when the defendant's death was known prior to filing, and (c) applied when the plaintiff was unaware that the defendant had died. Nevertheless, counsel argued, the two subsections should not be read entirely separately. Justice Burke asked counsel what the applicable procedure was to allow a plaintiff to have a personal representative appointed. Counsel responded that the Appellate Court hadn't addressed that issue. She contrasted the decision with the Third District's decision in Keller v. WalkerThere, the Appellate Court held that the statute should be read as a whole, and subsection (b) was instructive as to how a personal representative should be appointed in connection with subsection (c). Justice Garman asked counsel whether she thought the six month filing deadline in subsection (b) had any import for the case; counsel responded that subsection (b) was relevant only with respect to properly appointing a personal representative. Counsel pointed out that the decedent had had an open and active probate estate at the time the suit was filed, and there was no reason given in the record why the estate had not been located and the administrator appointed to defend the case. Justice Karmeier asked whether there is any import to the difference in language about personal representatives between the two subsections. Counsel responded by pointing out that the statute uses different terms: a "personal representative" is the deceased's appointed representative, while a "special representative" is someone not associated with the defendant. The distinction in the language is purposeful, defendant argued. Justice Theis asked what the prejudice is from naming a special representative rather than a personal representative, since if the case returned to the trial court, the only asset at risk (because of the passage of time) would be the estate's insurance policy. Counsel responded that lack of notice of the suit was the prejudice. Justice Theis asked whether the lack of notice was a jurisdictional question. Counsel again argued that the deceased's heirs have a right to know about the suit, and pointed out that the plaintiff had never asked for leave to name the personal representative who was administering the estate. Justice Karmeier noted that under the circumstances, the case fell under subsection (c). Counsel agreed that plaintiff was not aware that the defendant was deceased when she filed suit, but subsection (b) was nevertheless relevant for identifying who the suit should be filed against. Indeed, the plaintiff seemed to agree, according to the defendant, since the plaintiff's motion at the trial court for leave to appoint a special administrator stated (incorrectly) that there was no probate estate. Justice Theis asked counsel whether she thought there was something objectionable about the legal assistant to plaintiff's counsel being named special administrator. Counsel conceded that some cases have allowed the practice, but suggested that there was something inherently wrong about it with an open probate estate.

Justice Karmeier began the argument of counsel for the plaintiff by asking whether there is any difference between a personal representative and a special representative. Counsel responded that Black's Law Dictionary defines "personal representative" as including a special representative. Justice Karmeier suggested that subsection (c) covered the situation, and if so, the plaintiff would be covered by serving the personal representative of the probate estate. So why appoint a special representative? Counsel responded that plaintiff was unable to locate the estate on the Cook County computer system, so a special administrator was chosen. Justice Karmeier asked counsel whether he was suggesting that a personal representative and a special representative were the same thing; counsel said that Black's Law Dictionary supported that view. If the legislature had wanted subsections (b) and (c) read together, it would have said so. The statute defines three categories, plaintiff argued: deceased plaintiffs in subsection (a), a defendant who plaintiff knows is dead in subsection (b), and a defendant who plaintiff does not know is dead in (c). Justice Garman asked why, if plaintiff discovers an open estate after appointing a special administrator, he or she shouldn't be required to serve the personal representative of the estate? Counsel responded that nothing in the statute required it. The defendant could have moved to substitute the personal representative at any time, but chose instead to move to dismiss. Justice Karmeier asked at what point the defendants had the opportunity to substitute given that they didn't know about the lawsuit until after a special representative was appointed. Counsel responded that plaintiffs served the special administrator, who tendered the complaint to the insurance company, who they appeared in the case. The insurer could have then substituted in the personal representative at any time.  Counsel argued once again that subsections (b) and (c) should be read separately, but Justice Garman pointed out that statutes were traditionally read as a whole to achieve consistency. Counsel responded that subsection (b) involved a class of litigants not present in this case. Justice Theis asked what difference it made whether the assets of the estate were at risk. Counsel responded that when the assets of the estate are at risk, notice becomes important, but the present case was well past that point.  Justice Karmeier asked whether, if the plaintiff had found the personal representative and appointed a special representative anyway, would that matter? Counsel responded that it wouldn't have made a difference. Justice Karmeier asked whether plaintiff's view was that she could appoint a special representative and simply bypass the personal representative. Counsel responded that a personal representative included a special representative. Subsection (c) is silent as to whether a party can have a special representative appointed when a personal representative was in place. Justice Karmeier asked how counsel explained away subsection (b)(2), which provides that a special representative may be appointed when no petition for letters of office has been filed. Counsel again argued that subsection (b) (2) applies to a different class of litigants. The legislature was specific in subsection (b) because the estate's assets were at risk. The legislature was silent, counsel argued, in subsection (c) because the estate was not at risk.

As the rebuttal argument began, Justice Thomas asked counsel to respond to plaintiff's comment that there would be no action absent the estate's insurance coverage. Counsel responded that it made no difference: the family and administrator nevertheless had the right to know about the suit. Justice Thomas mentioned the comment of plaintiff's counsel that defendant had made no attempt to substitute the personal representative; counsel asked why it should be the defendant's duty to do so. Justice Theis noted defendant's view that the estate's heirs have a right to know of the suit; even if that is so, why is the failure to name the personal representative a bar to the suit? Counsel responded that under the statute, when the personal representative is not named, the claim is barred. Justice Thomas asked whether the family might not say they didn't want to be substituted in as parties. Counsel responded that that was the family's choice. Justice Thomas pointed out that even if plaintiff had moved to amend, that might not have ended the matter - defendants might have insisted on proceeding with the motion to dismiss. Justice Thomas suggested that the question was ultimately of little consequence whether the Supreme Court agreed with the trial court or the Appellate Court. Counsel once again cited Keller v. Walker, and commented that although the point was a technicality, that wasn't dispositive. Justice Karmeier asked what happens if the Court agreed with the defendant - is the lawsuit over? Counsel said yes, because the plaintiff never asked to amend. Both the legislature and the Probate Act use "personal representative" and "special representative" in different senses, counsel argued. A mere lack of exposure to the estate's assets doesn't mean there is no prejudice to the defendant.

Illinois Supreme Court: A First Look at the Questions Log for 2013

As I’ve written elsewhere, the Illinois Supreme Court tends to be what appellate attorneys call a “hot bench,” with questions potentially coming from any or all of the Justices in any given argument. With the May term having begun this morning with the argument in Relf v. Shatayeva, let’s take an early look at the question patterns for the first two terms of 2013.

In January and March, the Court heard argument in a total of eleven civil cases (only nine appellees made appearances however, slightly skewing the numbers). Not surprisingly, the level of questioning from the Justices varies widely from case to case – from a high of 34 questions in Mayfield v. Mayfield and 27 in VC&M v. Andrews, to lows of 8 each in DeHart v. DeHart and Russell v. SNFA. The same is true of individual Justices: each Justice has been active in some cases and less so in others. With only two of the eleven cases decided so far, it’s too early to attempt to draw even tentative conclusions about question patterns and decisions, but – again not surprisingly – the two cases already handed down are the ones that drew the fewest questions from the Court: DeHart and Russell.

Before presenting the data, one caution: as most appellate court watchers around the country know, counting questions in an oral argument is a somewhat subjective process. For example, when a Justice begins a question, counsel interposes a few words, and the Justice then continues or clarifies the point, is that one question or two? For that reason, another analyst’s numbers might vary slightly from those below, but the patterns should be the same. The chart below lists total questions to each party from each Justice in civil cases in the January and March terms. The numbers in parentheses show the number of times each Justice asked the first question of counsel.

Justices

Burke

Garman

Freeman

Kilbride

Thomas

Karmeier

Theis

Appellant

12 (1)

17 (2)

19 (3)

4

35 (4)

12

12 (2)

Appellee

11 (1)

14 (2)

1

7 (1)

17 (4)

2

10 (1)

Rebuttal

0

1 (1)

0

0

10

6 (2)

11 (1)

Total

23 (2)

32 (5)

20 (3)

11 (1)

62 (8)

20 (2)

33 (4)

Illinois Supreme Court Debates the Insurability of TCPA Federal Junk Fax Penalties

Earlier this month, on the final day of arguments for the March term, the Illinois Supreme Court heard oral argument in Standard Mutual Insurance Co. v. Lay. Lay presents the question of whether the penalty imposed by Federal law for sending unsolicited junk faxes is uninsurable as a matter of Illinois public policy. Our detailed preview of the facts and lower court opinions in Lay is here. The video and audio of the argument is available here.

The Federal Telephone Consumer Protection Act provides that it is unlawful to send unsolicited advertisements to a fax machine. The TCPA creates a strict liability private right of action, with damages equal to actual monetary loss to the plaintiff or $500 per fax, whichever is greater. The penalty is trebled if the violation is willful or knowing. In Lay, the defendant real estate agency hired a "fax broadcaster," allegedly based on its assurances that only persons who had agreed to receive advertisements would get its blast fax. This proved to be false, and the resulting class complaint sought trebled penalties of $1,500 for each of 3,478 faxes purportedly sent. The defendant real estate agency ultimately settled the class action for more than $1.7 million.

Meanwhile, the insurer had filed a declaratory judgment action, seeking a declaration of no coverage. Following the settlement of the underlying action, the class representative became actively involved in the dec action. The insurer and the class representative filed cross motions for summary judgment, and the Circuit Court held that the insurer had no duty to defend or indemnify. The Appellate Court affirmed, holding that TCPA penalties could not be insured as a matter of public policy in Illinois, since they were in the nature of punitive damages.

Counsel for the appellant, the class representative in the underlying action, began his presentation by arguing that the Appellate Court had framed the issue incorrectly, and had therefore never reached the heart of the issue. A proper reading of Beaver v. Country Mutual Insurance Co., counsel argued, is not that the existence of coverage depends on the nature of damages or penalties. Rather, the question of coverage turns, counsel argued, on the nature of the insured's alleged conduct. Thus, the statement that punitive damages are not insurable actually derives from the proposition that the kind of conduct for which punitive damages are imposed is not insurable. Justice Thomas pointed out that in the same section of the TCPA which provides for the penalty, Congress provided for treble damages for willful and wanton conduct. He asked whether that impacted the question of whether the TCPA penalty was punitive. Counsel responded that willful and wanton conduct was an example of the sort of bad conduct which could not be insured. Because the appropriate question, according to counsel, was the nature of the conduct rather than the nature of the penalty, analysis should turn to Illinois law of punitive damages and the TCPA to see when punitive damages and penalties are applied. The insured's conduct didn't come close to the kind of conduct which triggers a finding of no coverage under the Beaver rule, counsel insisted. Justice Thomas asked counsel to comment on the appellee's allegations of collusion between defendants and plaintiffs' class action attorneys, and its concern that allowing coverage would mean that insurers are often left "holding the bag." Counsel responded that there was no indication of such a thing in the record, and the appellee's concerns were mere argument. Justice Garman asked counsel whether he was urging a point by point, "conduct by conduct" analysis to determine whether conduct is insurable as a matter of public policy, and counsel agreed that he was. Justice Freeman asked counsel whether he relied on Valley Forge Insurance Co. v. Swiderski Electronics, and if so, for what proposition? Counsel responded that Swiderski decided that TCPA damages are potentially covered under an advertising injury policy, which according to counsel is what was involved in the case at hand. Justice Freeman asked whether Swiderski was a duty to defend, not a duty to indemnify case like Lay, and counsel agree that it was. Counsel concluded by asking the Court to reverse the Court of Appeal, and invited the Justices to consider defining the nature of conduct which triggers the rule of non-insurability.

As counsel for the insurer began his presentation, Justice Thomas asked whether, if the Court agreed that the penalties were potentially insurable, there were any issues left for the Appellate Court on remand? Counsel responded that the Court could either decide the additional issues itself, or remand to the Appellate Court. Counsel argued that there was a pending question of possible breaches by the insured of the policy. The insurer defended under a reservation of rights letter. Approximately four months after the case was filed, the attorney retained by the insurer had been fired by the insured, and a month or two after that, the insured had agreed to a $1.739 million settlement with a covenant not to execute against any of the insured's assets.   Calling the settlement a "roll-over," in a case the insurer was still defending, counsel suggested that there were questions of a breach of the cooperation clause and a voluntary payment undertaken.  Justice Thomas repeated the question asked of appellant's counsel earlier, asking what impact the reference in the statute to treble damages for willful and wanton conduct had on the analysis. Counsel responded that the first half of the statute provided for either actual damages or $500, "whichever is more," but in practice, $500 would always be far more than actual damages from a single junk fax. Justice Burke asked counsel how that damages clause could be simultaneously remedial and punitive? Counsel responded that penal punishments are intended to deter both the defendant and others from similar conduct, and that was the purpose of the TCPA penalties. Chief Justice Kilbride asked whether the insurer knew about and objected to the insured's settlement. Counsel responded that the insurer had not been aware of the settlement. Justice Burke asked whether, if there is a duty to defend a TCPA claim under Swiderski, that necessarily means there is a potential duty to indemnify - and that the Appellate Court decision therefore conflicts with Swiderski. Counsel responded that Swiderski had dealt with the duty to defend, whereas only the duty to indemnify was at issue here. Justice Garman asked what difference it makes for the analysis whether the conduct at issue is that of an agent - here, the "fax broadcaster." Counsel responded that the fax broadcaster was not the agent of the insured, and even if it was, the statute places liability on the insured as the "sender."

In rebuttal, counsel for the class representative argued that the liability involved in the case below was certainly vicarious, flowing through an agent, and that as such, it should be insurable. Counsel claimed that the insured had the right to settle under the circumstances, and insisted that the insurer had known about the settlement.

We expect Lay to be decided by the Supreme Court in the fall.

Argument Report: When You're Hit By an Ambulance on a Non-Emergency Trip

Last week, the Illinois Supreme Court heard oral argument in Wilkins v. Williams. Wilkins is a sequel of sorts to Harris v. Thompson, in which the Court considered the statutory immunity of a publicly owned ambulance involved in an accident. Wilkins poses the flip-side question: what if the ambulance is owned by a private, for-profit company? Our detailed preview of the facts and lower court opinions in Wilkins is here. The video and audio of the argument is available here.

In Wilkins, a privately owned ambulance transporting a patient on a non-emergency run struck another vehicle, injuring the driver. According to the Emergency Medical Services (EMS) Act, no “person, agency or governmental body certified, licensed or authorized pursuant to this Act” who “provides emergency or non-emergency medical services” can be “civilly liable as a result of their acts or omissions in providing such services unless such acts or omissions . . . constitute willful and wanton misconduct.” 210 ILCS 50/3.150(a). So does the EMS Act extend to non-emergency transport of patients? The Court held in Abruzzo v. City of Park Ridge only a few years ago that the statute impliedly covered transportation of patients. But even if it does apply to transportation of patients, does the immunity extend to injured third parties, as opposed to patients being treated by EMS workers?

Counsel for the defendants began by arguing that the initial question faced by the Court is whether EMS immunity applies; defendants' position is that it does. Justice Freeman asked whether the immunity provision distinguishes between patients and injured third parties. Counsel agreed that it does not. Justice Freeman asked whether the language is ambiguous, and counsel responded that it was not. Justice Thomas asked what the Court should do with the willful and wanton exception to the statute - should the plaintiffs be allowed to replead their complaint? Counsel responded that the facts would not support a willful and wanton allegation. Justice Thomas pointed out that the case had been resolved by summary judgment at the trial court level, and asked whether plaintiffs would have reason to ask for leave to replead. Counsel responded that the court had addressed the nature of the allegations and concluded that summary judgment was justified. Justice Thomas repeated that the trial court dismissed the action on immunity, and wondered again whether the plaintiff could have sought leave to replead a willful and wanton theory. Counsel responded that plaintiff had not done so. Justice Burke asked whether the Court would have to read a limitation into the immunity statute to hold that it doesn't apply; counsel answered that the Court would have to rewrite the statute to find no immunity. Counsel closed by arguing that restricting liability to willful and wanton conduct would not essentially abrogate the Motor Vehicle Code, as plaintiff claimed.

Counsel for the plaintiff began by emphasizing the requirement of the Motor Vehicle Code that all drivers drive with ordinary care. Justice Thomas asked counsel where in the EMS Act the Court should find a distinction between ambulances with and without flashing lights (i.e., on emergency or non-emergency runs). Counsel responded that the distinction was found in the cases rather than the statute. Justice Thomas commented that based on the statute, it's somewhat of an artificial distinction. Counsel responded that the applicable rule is that an ambulance must operate according to the rules of the road when not on an emergency run. Justice Burke asked why the ambulance would be on the road without a patient, and counsel answered that there was a variety of reasons, including commuting or carrying an organ donation. Justice Garman asked what the statute means when it says "in the normal course of their duties." Counsel responded that the duty at issue is the one owned to the patient; the EMS Act applies only to professional liability claims by patients. Justice Garman asked whether, if a patient is injured during transport, the patient has a cause of action. Counsel responded that the patient had no claim against the ambulance driver, but might have a claim against the other driver. Justice Garman asked whether that meant that the immunity wasn't in fact limited to professional negligence. Counsel answered that in certain scenarios, transporting a patient is life-saving, and "services" can include driving. Justice Thomas asked whether a willful and wanton exception was a consistent interpretation of the Act - it didn't leave the roads in chaos, but merely raised the burden of proof. Counsel repeated that the legislature had limited professional liability claims against EMS workers to willful and wanton conduct, but extending that rule to motor vehicle accidents was inconsistent with a variety of statutes, including the Financial Responsibility law requiring privately owned ambulances to carry insurance. Justice Thomas asked where the case rested since plaintiff didn't seek to replead. Counsel responded that there were sufficient facts to go back and replead.

In rebuttal, counsel for the defendant stated that to accept the plaintiff's position, the Court must overrule Abruzzo. No case or statute limits the immunity to professional negligence, counsel argued, and many cases have applied immunity outside the realm of professional negligence.

The Court will likely decide Wilkins in the next three to six months.

Argument Report: How Should a Workers' Compensation Settlement Be Handled in Calculating Child Support?

Last week, the Illinois Supreme Court heard oral argument in Mayfield v. Mayfield, which presents several issues regarding the proper handling of lump sum workers' compensation payments for purposes of calculating a party's child support obligation. Given that most of the Justices seemed skeptical of the appellant's position, it seems likely that the Court will not significantly alter current law on these issues. Our detailed preview of the facts and lower court opinions in Mayfield is here. The video and audio of the argument is available here.

The parties in Mayfield were divorced in 2003, and the husband was ordered to pay child support. In the years that followed, as the children’s living arrangements changed, the child support obligation was adjusted multiple times. Finally in 2011, the wife petitioned to modify child support. At the hearing on the wife’s petition, the husband disclosed that he had received a $300,000 lump-sum workers’ compensation settlement the year before. Following In re Marriage of Dodds, which held that workers’ compensation payments are income for purposes of child support, the Circuit Court ordered the husband to pay 20% of the settlement to his ex-wife, and to continue paying child support. The Appellate Court affirmed, holding that such a settlement payment was certainly "income" within the meaning of the Illinois Marriage and Dissolution of Marriage Act, and that the 20% base multiplier should be applied to the entire amount of the workers compensation award.

Counsel for the husband began by arguing that husband didn't contest that the settlement was income, but rather believed that the lower courts had erred in their application of the 20% base multiplier. Counsel argued that it was important to make it clear to lower courts that they had discretion in this area, which should be applied with attention to the factors relevant to making a fair division. Among these factors, counsel argued, were the nature and extent of the parent's injury, and its impact on the injured worker, as well as the relevant economic positions of the parties. Justice Thomas pointed out that far from living on the settlement, the husband had in fact made various other expenditures, including remodeling his house and buying a motorcycle. Counsel responded that while such issues were perhaps relevant, the husband was facing returning to work because he had been unable to establish disability. Justice Garman asked whether the husband had had his child support obligation lowered because of his injury, and counsel agreed he had. Should that be taken into account in the allocation, the Justice asked? Counsel responded that the entirety of the circumstances were relevant. Justice Freeman asked whether the husband's settlement would have been bigger if paid in monthly installments, and if so, should the 20% base multiplier be applied to that figure, rather than the lump sum. Counsel responded that he had suggested that the 20% multiplier should be applied to that monthly amount at trial. Justice Theis clarified that counsel was now agreeing that the settlement amount was income, and merely challenging the allocation, and then asked whether the allocation had been challenged at the trial court. Counsel responded that he had, and that 20% of the monthly sum would be significantly less. Justice Theis asked counsel what he wanted the Court to do: provide a checklist of factors for the exercise of discretion? Counsel suggested again that the nature and extent of the injury, whether the party was likely to work again and the age of the child were all relevant issues. Justice Theis asked counsel what the error in the Appellate Court decision was. Counsel responded that the lower courts had believed they had no discretion to vary from the 20% base multiplier.

Counsel for the former wife began by arguing that neither the statute nor Dodds made the 20% multiplier mandatory. Rather, the court must merely explain why if it chooses to deviate. Counsel argued that the husband had never argued for a deviation below, and that nothing in the trial court's opinion suggested that the judge believed he had no discretion to deviate from the multiplier. Justice Garman asked whether it factored into the issue that the settlement was for the rest of the husband's life. Counsel responded that in fact, it was for the rest of the husband's working life; it had been set up that way to allow him to seek Social Security disability. Justice Garman asked counsel whether the issue of deviating from the multiplier had been raised in the trial court. Counsel responded that the husband had merely admitted that he received the award, and disclosed how much was left, never mentioning deviation.

On rebuttal, counsel for the husband argued that he had sought deviations from the multiplier at least twice. Justice Theis asked whether the matter had been raised at the Appellate Court, and counsel responded yes. Justice Theis asked where in the trial court's order the court had said he lacked discretion, and counsel responded that the court had felt compelled to follow Dodds. Justice Theis pointed out that neither the trial court order nor the Appellate Court opinion had actually said that. Justice Thomas asked counsel whether he wanted a ruling that there must be an exercise of discretion, reviewing all the factors, even when the Appellate Court apparently believed that the trial court had acted properly. Counsel argued that the Court should remand to the trial court with instructions that the trial court should exercise its discretion to find a proper allocation.

The Court will likely decide Mayfield in the next three to six months.

Argument Report: The Constitutional Implications of Advance Payment Retainers and Divorce Claw-Back

Earlier this week, the Illinois Supreme Court heard oral arguments in Earlywine v. Earlywine. In a fascinating, albeit one-sided argument (there was no appearance for the appellee), the Justices actively debated a wide variety of issues, including the "leveling the playing field" policy in the disgorgement provisions of the Illinois Marriage and Dissolution of Marriage Act ("IDMA"), advance payment attorney retainers, and a host of United States Supreme Court decisions which may (or may not) impact whether or not disgorgement orders are constitutionally permissible under such circumstances. Although I won't hazard a prediction since there was no opportunity to see the Court's reaction to an argument for appellee, the Court was highly engaged in the proceedings, asking (by my count) nineteen questions of counsel in only seventeen minutes. Our detailed preview of the facts and lower court opinions in Earlywine is here. The video and audio of the argument is available here.

Earlywine began when the husband agreed to pay his attorney an advance payment retainer financed by his mother, her fiancé, his father and his father's wife. The wife's attorney petitioned for an award of $5,000 in interim attorney's fees pursuant to 750 ILCS 5/501(c-1), the Illinois Marriage and Dissolution of Marriage Act. The wife's attorney asked the court, if necessary, to order the husband's attorney to disgorge amounts already paid to him. The Circuit Court granted the motion. The husband's attorney moved to reconsider, arguing that as an advance payment retainer, the funds had become his property at the moment of payment. The Circuit Court denied reconsideration. The Appellate Court affirmed the order of disgorgement, holding that counsel's advance payment retainer would frustrate the "leveling the playing field" policy of IDMA.

At oral argument before the Supreme Court, counsel for the appellant characterized the case as a conflict between IDMA and Dowling v. Chicago Options Associates, Inc., in which the Supreme Court recognized advance payment retainers. Justice Burke asked counsel whether the result would be different if the husband had paid the retainer himself. Counsel responded that the Dowling rule that advance payment retainers are not subject to turnover orders would still apply; if a spouse paid fees from marital funds, the opposing spouse might have a claim for dissipation. Justice Burke asked whether the advance payment retainer was for the advantage of the client or the attorney. Counsel responded that it was intended to protect the attorney-client relationship, which is both a personal and property right, for the benefit of the client. Justice Garman asked counsel whether IDMA reflected a policy of parity between the parties. Counsel agreed it was, but argued that there was another policy at issue. Parties had a right of constitutional import to retain counsel to petition government.   Counsel argued that under Arizona Free Enterprise Club v. Bennett, leveling contending parties' playing field is not a legitimate interest under strict scrutiny review.  Justice Thomas returned to Justice Burke's question, pointing out that when a third party pays a retainer which is not subject to disgorgement, that gives one party the ability to retain an attorney when they might otherwise not be able to. Counsel responded that the issues in Arizona Free Enterprise were similar - payments from third parties to a political candidate triggered equalizing payments to his or her opponent.

Justice Thomas asked counsel what would happen when the advance payment retainer was taken from marital funds - under appellant's rule, one side would have an attorney, but the other spouse wouldn't. Counsel responded that under Arizona Free Enterprise, NAACP v. Button, United Mine Workers of America v. Illinois State Bar Association and Arizona v. Davis, the state was not permitted to burden the right to retain counsel for purposes of speech. Justice Thomas again pointed out the statutory purpose of IDMA - creating parity between the parties, and counsel responded that that was the exact conflict at issue in Arizona Free Enterprise. Chief Justice Kilbride pointed out that under Rule 1.15(c) of the Rules of Professional Conduct, an advance payment retainer must have a stated special purpose, whereas the retainer agreement at issue seemed to be intended solely to defeat the leveling the playing field rule. Counsel responded that the agreement was not about defeating the leveling the playing field rule, but rather about obtaining representation, since no counsel would take a case where the fee was certain to be clawed back pursuant to a disgorgement order. Justice Garman asked whether counsel was arguing that an advance payment retainer immune from disgorgement was constitutionally required. Counsel responded that the simple use of an advance payment retainer under Rule 1.15(c) avoided the constitutional problem.

Earlywine should be decided within three to six months.

Argument Report: Illinois Supreme Court Considers Whether Cook County Commission on Human Rights Can Award Punitive Damages

On Tuesday morning, the Illinois Supreme Court gave little concrete indication of how it will likely rule during oral argument on Crittenden v. Cook County Commission on Human Rights[pdf]. Counsel for the Commission and the plaintiff both appeared and argued, but there was no appearance for the appellees. Our detailed summary of the facts and the Commission and lower court rulings is here. The video of the Supreme Court argument is here.

Crittenden arises out of a sexual harassment claim brought by a former bartender at a Cook County bar. The bartender filed a complaint with the Cook County Commission on Human Rights with respect to her supervisor. The hearing officer recommended an award of lost wages, compensatory and punitive damages, and the Cook County Commission on Human Right adopted the hearing officer’s recommended order. The Circuit Court denied the defendants’ petition for a writ of certiorari to review the administrative decision, effectively affirming the decision. The Appellate Court (First District, Sixth Division) affirmed with respect to a variety of evidentiary challenges, but reversed the Commission’s award of punitive damages, holding that the Cook County Human Rights Ordinance didn’t authorize such an award. The Court declined to follow an earlier decision of Division One of the First District, Page v. City of Chicago, where the Court had held that the Chicago Human Rights Ordinance does permit an award of punitive damages for acts of sexual harassment and discrimination.

Counsel for the Commission began the arguments. Counsel observed that the Appellate Court’s holding was a surprise for two reasons: the earlier decision in Page, and because the facts in the record warranted punitive damages. Counsel argued that three reasons supported a finding that the ordinance authorized punitive damages: (1) the list of enforcement remedies in the ordinance is expressly made non-exclusive; (2) the language of the ordinance is otherwise very broad; and (3) the ordinance gives the Commission the authority to file with the Department of Professional Regulation whenever a licensed real estate broker violates the ordinance, suggesting an intent to facilitate punitive measures. Justice Freeman asked whether the issue was could the ordinance permissibly authorize the Commission to award punitive damages; or was the issue whether the ordinance did in fact authorize an award? Counsel responded that the question was whether the ordinance did authorize an award, and that the power to authorize such an award was clear, given the home rule statutes. Justice Thomas asked whether the ordinance could simply be changed if the Supreme Court found that it did not, as currently written, authorize punitive damages; counsel agreed that it could, but argued that it was important to vindicate the Commission’s implied powers. Counsel also pointed out that the ordinance had not been changed following Page, suggesting an intent to acquiesce in the result. Justice Karmeier noted that the ordinance speaks of fines and asked counsel why it would not have expressly authorized punitive damages. Counsel argued that the list was not exclusive. Justice Theis asked whether the language in the ordinance authorizing the hearing officer to recommend such relief “as is appropriate to make the complainant whole” didn’t suggest that only compensatory damages were permitted. Counsel argued that in fact it was a grant of discretion to the Commission. Justice Garman asked whether the fact that punitive damages are not favored in the law should make the Court reluctant to read implied authority to award them. Counsel responded that the Court had previously found some torts were sufficiently serious to warrant such awards. Justice Freeman asked whether, if the ordinance authorized an award, the case should be remanded for a determination of whether the defendants’ conduct was willful and wanton. Counsel conceded that although the hearing officer had not used those precise words, the officer had found a wanton disregard for the complainant’s rights, which was sufficient.

Counsel for the complainant briefly concluded the argument. He argued that the facts at issue – which included both verbal degradation and physical accosting – met several of the prerequisites for punitive damages. Justice Theis asked whether punitive damages were requested from the hearing officer, and counsel stated that they were. Justice Freeman asked whether the conduct of the employer and the bar patron allegedly involved in the conduct should be separated for determining whether the conduct was willful and wanton, and counsel responded that the challenged conduct of the two individuals could not be disentangled on the record.  Counsel concluded by stressing that despite the alleged outrageousness of the defendants’ conduct, the punitive damages award was modest.

We expect the Court to decide Crittenden within four months.

Argument Report: Illinois Supreme Court Gets Its First Shot at Interpreting Nicastro

In J. McIntyre Machinery, Ltd. v. Nicastro, a plurality of the United States Supreme Court held that merely placing a product into the stream of commerce with the expectation that it would wind up in the forum state was not enough to justify the exercise of personal jurisdiction over the manufacturer. Russell v. SNFA is the Illinois Supreme Court's first opportunity to apply Nicastro. Our preview of Russell is here. Watch the video of the oral argument here.

Russell arose from a 2003 helicopter crash in Illinois. The decedent's estate sued, alleging that one of the helicopter's tail rotor drive-shaft bearings had failed, fracturing the drive shaft, making the tail rotor inoperable, and leading to the crash.

The helicopter was built in Italy by Agusta, an Italian company that wasn't related to SNFA. It passed to a German company, then to Metro Aviation, a Louisiana-based company, and finally to Air Angels, the decedent's employer, which was based in Cook County. The Louisiana company had replaced several of the bearings with replacements manufactured by SNFA. The replacements were custom-made in France, sold to Agusta in Italy, sold again to Agusta Aerospace Corporation in America, and then to Metro Aviation in Louisiana. SNFA had three American customers for its aerospace bearings, but none for its helicopter bearings.

Confused yet? Well, that's the point. The trial court tossed the case for lack of jurisdiction on the grounds that SNFA's only contact with Illinois had been a single visit to an entirely different customer. The Appellate Court reversed, relying on Asahi Metal Industry Co. v. Superior Court; the defendant knew that Agusta sold its helicopter throughout the United States, and that it had an American subsidiary - since SNFA's ball bearings were custom-made, Agusta's distributors essentially were SNFA's American distribution arm.

The Supreme Court initially bounced the case back to the Appellate Court, directing the court to reconsider its decision in light of Nicastro. A few days before Christmas 2011, the Appellate Court reaffirmed its decision, holding that Nicastro made the panel even more certain that it was right.

The Appellate Court found jurisdiction under both subsection (a) -- "the commission of a tortious act within this State" and subsection (c) -- a catchall provision -- of 735 ILCS 5/2-209, the long arm statute. SNFA knew that Agusta helicopters were sold throughout the US, the Court noted. Essentially imputing Agusta's conduct to SNFA, the Court held that Agusta's five helicopters sold in Illinois during the relevant period were enough to subject SNFA to minimum contacts:

By custom-making parts for a helicopter manufacturer, defendant made itself dependent on the marketing and distribution network of the manufacturer.

Counsel for the defendant opened his argument by emphasizing his client's complete lack of a corporate, virtual or physical presence in Illinois. SNFA has no, and never has had any, U.S. customers for its helicopter bearings, counsel argued. Justice Theis pointed out that Nicastro was a plurality decision, with a four-Justice decision announcing the judgment. She asked counsel where Federal law stood in the wake of Justice Breyer's concurrence. Counsel responded that the majority of the Court had certainly rejected the New Jersey Supreme Court's standard that placing products into the stream of commerce subjected the manufacturer to jurisdiction everywhere the product might go. Instead, a majority of the Court had held that "something more" was necessary - a state-specific design or advertising, etc. Justice Burke asked whether there was some suggestion in the record of Illinois contacts between SNFA and Hamilton Sunstrand. Counsel pointed out that Hamilton Sunstrand involved sales in San Diego of aerospace bearings, not helicopter bearings. Counsel detailed the distinction for the Court between general and specific jurisdiction. Justice Freeman asked why the Court shouldn't follow Rockwell International Corp. v. Costruzioni Aeronautiche Giovanni Agusta, S.p.A., the case heavily relied upon by the lower court and cited with approval by the Supreme Court in Asahi. Counsel responded that Rockwell was not on point; it was a thirty year old decision which time has passed by. In fact, when Rockwell was decided, even Asahi was five years in the future. Justice Freeman followed up, asking whether the facts of international commerce had changed to a degree that the law should change. Counsel responded that the law had already changed in ways not supportive of a finding of personal jurisdiction.  The law had changed not only to reflect differences in international commerce, but also to reflect a requirement of some knowledge of a particular jurisdiction. The constant lodestar of the law in this area, counsel argued, was the requirement of purposeful availment. Ultimately, Rockwell didn't govern because both Asahi and Nicastro required knowledge of the specific jurisdiction.

Counsel for the plaintiff began his argument by arguing that Nicastro lacked a majority for either its judgment or reasoning, and thus, the law still stood at World Wide Volkswagen. Justice Garman asked what the defendant had done to satisfy the "something more" of Justice Breyer's concurrence in Nicastro. Counsel responded that he was not persuaded that Justice Breyer objected to the stream of commerce theory found in World Wide Volkswagen. Justice Breyer was troubled by the Nicastro facts - one product, simply one machine, being the basis of jurisdiction in New Jersey. Justice Freeman asked what the so-called "substantial" connection between SNFA and Illinois was. Counsel responded that many of defendant's facts were inconsistent with the record; for example Hamilton Sunstrand was not in fact a California corporation. SNFA had signed two purchase agreements with Hamilton Sunstrand in Rockford, Illinois, and two contracts which specifically said that Illinois law applied. Justice Garman asked whether the products sold by SNFA to Illinois entities were the same ones that failed here. Counsel responded that the distinction was irrelevant -- SNFA sold ball bearings all over the United States and in Illinois. SNFA is a worldwide operation, counsel insisted, which has heavily penetrated the market in the United States, and worked hard in Illinois to cultivate their contacts. Counsel once again suggested that Nicastro really hadn't produced much of a rule at all. Chief Justice Kilbride asked how many entities made what counsel had described as "high end ball bearings," and counsel answered that SNFA had fewer than ten competitors worldwide.

In rebuttal, counsel for the defendant suggested that plaintiff had melded general and special jurisdiction in a way that the Supreme Court's Goodyear decision specifically barred. In fact, the concepts are distinct. Counsel read several passages to the Court from Justice Breyer's concurrence in Nicastro, arguing that Justice Breyer required an interrelationship between contacts and cause which was absent on this record. Ultimately, Justice Breyer couldn't reconcile the rule of the New Jersey Supreme Court with the standard of minimum contacts and purposeful availment. Counsel pointed out that the plaintiff's argument that SNFA knew that its product was being sold throughout the United States necessarily required imputing the Agusta distribution network to SNFA. Neither a national distribution network nor "permeating the U.S. market" was enough to justify jurisdiction. From there, counsel moved to analyzing Justice Ginsburg's dissent in Nicastro; arguing that in fact, the Nicastro Court might well have been unanimous in finding no jurisdiction in SNFA -- at minimum, that Court would have had six votes for "no jurisdiction."

SNFA should be decided in the next three to five months.

Argument Report: Is the State Required to Pay The Legal Fees of an Elected Official Sued for His or Her Official Actions?

If a state elected official is sued for his or her official actions, may the Attorney General refuse to defend the official based solely on the allegations of the complaint? That's the question the Supreme Court debated earlier this month during the oral argument in McFatridge v. Madigan. Our detailed preview of McFatridge, discussing the facts and lower court rulings in detail, is here.  Watch the video of the oral argument here.

The plaintiff was the elected State's Attorney of Edgar County. Years after he successfully prosecuted two defendants for murder, the Federal district court granted both defendants' habeas petitions. The defendants sued a number of different government officials, including police officers and the defendant, alleging that they had hidden exculpatory evidence.

Plaintiff asked the Attorney General for representation repeatedly, but the Attorney General refused plaintiff's requests in 2005, 2009 and again in 2010. The plaintiff filed a petition for writ of mandamus, but the petition was denied.

McFatridge is governed by the State Employee Indemnification Act. The parties argue about how to reconcile three different provisions. According to 5 ILCS 350/2(a), if "any civil proceeding is commenced against any State employee" arising out of any act or omission within the scope of the defendant's employment, the Attorney General "shall" defend the action. The first paragraph of 5 ILCS 350/2(b) provides that the Attorney General may decline to defend the action where it "involves an actual or potential conflict of interest" or the act or omission at issue was either not within the scope of the defendant's employment, or "was intentional, willful or wanton misconduct." According to the second subparagraph of subsection (b), the state "shall pay" elected officials' court costs, litigation expenses and attorneys' fees, to the extent approved by the Attorney General as reasonable.

The Appellate Court reversed the Circuit Court, holding that the "shall pay" language of the second paragraph of subsection 2(b) denied the Attorney General any discretion about whether or not to pay any elected official's legal fees.

Justice Freeman asked counsel for the Attorney General whether the arguments raised in his briefs were different from those raised in his petition for leave to appeal - weren't such arguments forfeited? Counsel responded that the State's arguments had been the same from start to finish; the issue of the Attorney General's discretion to make the decision as to whether or not to cover the official's expenses ran throughout the case. Counsel argued that the plain language of the statute should end the inquiry. Counsel stated that his anecdotal understanding was that the Attorney General had seldom denied funding for a defense before. He argued that the plaintiff's reading of the Indemnification Act would necessarily eliminate the bar to paying for conduct outside the scope of employment, surely taking the statute outside the credible scope of the legislature's intent. Justice Freeman asked whether Tully v. Edgar controlled, but counsel for the Attorney General suggested that nothing about Tully was applicable to the case at hand. Counsel argued that the Attorney General was arguing for a facial construction of the statute which avoided reading the Act in a way which ran afoul of constitutional prohibitions on spending state money on private interests. Justice Garman asked whether the various subsections' use of the phrase "in the event that" suggested that the subsections were meant to be alternatives. Counsel responded that it did not; nothing in the successive subsections suggested that what went before was being overridden. Justice Garman asked whether the Attorney General treated allegations alone as being sufficient to forbid taking over a defense; counsel responded that the statutory term was that the Attorney General should "determine" the issue, meaning that the Attorney General had unfettered discretion.

Counsel for the plaintiff began by arguing that the Attorney General's claims of a statutory screening process were an after-the-fact cobbled-together justification. Every civil rights claim alleges constitutional violations, counsel pointed out, and the Attorney General had nevertheless denied a defense based on mere allegations. Justice Thomas asked whether any deficiency in the screening process was excused by the promise of post-trial reimbursement; counsel responded that given the financial strain to state officials of having to finance a multi-year defense themselves, after-the-fact reimbursement in no way cured the problem. Justice Karmeier asked whether it was within the purview of the Court to decide whether the Attorney General's screening was adequate on the facts. Counsel responded that the Court could consider the lack of criterion for any such screening in the statute; if screening had actually been intended by the legislature, the process would have been set out in detail.

Counsel challenged the State's claim that the Attorney General couldn't use public funds to defend willful and wanton misconduct, pointing out that the Attorney General had defended police officers who were accused of actively covering up exculpatory information. The Attorney General later settled the case on behalf of the police, using more public funds. Justice Thomas asked whether counsel was saying that the State was estopped from denying a defense. Counsel answered that the matter should be resolved based on the plain language of the statute, but in the alternative, estoppel applied. Justice Theis asked what effect the language of subsection (b), allowing the Attorney General to approve counsel and fees, had; counsel responded that the State's failure to fund a defense had been a serious problem for the plaintiff. The plaintiff had been entirely without financing for more than two years. Chief Justice Kilbride asked what the basis had been for insurers to negate coverage in declaratory judgment actions, and counsel responded that it had been the definition of the insured, rather than a strict coverage decision. Justice Karmeier suggested that subparagraph (b) of the statute appeared to cross-reference subparagraph (a), but counsel argued that the statute treated elected officials differently as a result of concerns about the effect of partisan politics, authorizing refusal to defend for non-elected, but not elected officials. Counsel argued that if the legislature had intended that the Attorney General be able to refuse coverage based on mere allegations, it could have easily said so in the second paragraph of subsection 2(b) - the only language which expressly and exclusively dealt with elected officials.

In rebuttal, counsel for the state argued that the allegations against the plaintiff were in several respects more serious than those against the police officers. Counsel argued that the speculation that a concern over partisan politics animated the statute was contrary to the Court's settled precedent, which provided that courts could not presume the bad faith of elected officials. And if the statute was constructed to insulate the decision about whether to take over an elected official's defense from partisan politics, why was the Attorney General expressly authorized to approve the official's attorney and fees?

McFatridge should be decided within three to six months.

Argument Report: Will the Mailbox Rule Be Extended to Workers' Comp Administrative Review?

The mailbox rule applies to filing an appeal from an arbitrator to the Workers Compensation Commission. Norris v. Industrial CommissionAnd it applies to filing an appeal from the Circuit Court's order on administrative review to the Appellate Court. Harrisburg-Raleigh Airport Authority v. Dept. of RevenueSo does it apply to the intermediate step - initiating an administrative review proceeding of the Commission's decision at the Circuit Court? Based on the oral argument last week before the Illinois Supreme Court in Gruszeczka v. The Illinois Workers' Compensation Commission, it appears that the Court will likely extend the mailbox rule to cover this intermediate step. Our preview of Gruszeczka is here. Watch the video of the oral argument here.

The claimant in Gruszeczka filed an application for adjustment of claim with the Commission, seeking workers' comp benefits in connection with an injury he allegedly sustained on the job in 2004. The arbitrator denied the claim, and the Commission affirmed.

Judicial review of a Commission decision is begun in Illinois by filing a request for issuance of summons and an attorney's affidavit of payment for the record with the Circuit Court clerk. The proceeding must be "commenced" within 20 days of receipt of notice of the decision. 820 ILCS 305/19(f)(1). The claimant's request and affidavit were mailed fourteen days after counsel received the decision, but file stamped by the clerk twenty-four days after receipt. So the filing was timely if the mailbox rule applied, and not if it didn't. The Circuit Court denied a motion to dismiss, but affirmed the Commission on the merits; the Workers' Compensation Commission Division of the Appellate Court reversed in part, finding that the filing was untimely and the Circuit Court therefore lacked jurisdiction.

Counsel for the claimant began by pointing out that the statute neither defines "commenced" nor says that documents have to be in the hands of the clerk on the twentieth day. Counsel argued that the courts had already applied the mailbox rule to the first step in the process - the appeal from arbitrator to Commission - and the last - from Circuit Court to Appellate Court, and it made no sense for the intermediate step to be handled differently. Justice Thomas noted that the Circuit Court action was technically a new case, but asked whether counsel argued it was akin to an appeal. Counsel responded that he didn't think it was a new case; the statute calls it a petition for review, and the standard of review is manifest weight of the evidence. Justice Thomas pointed out that the Circuit Court proceeding had a separate case number, and asked once again whether counsel's argument hinged on that not being a new action. Counsel responded that the new number was inconsequential: the case had already had five numbers in its progress to the Supreme Court. Counsel then argued that a reversal would be a matter of limited impact, not opening the floodgates to further loosening of filing standards, but Justice Karmeier wondered whether a reversal might necessarily impact other administrative review actions. Counsel conceded that it might. When Justice Karmeier asked whether the result might be different if review were initiated by a "complaint," rather than a request for issuance of summons. Counsel answered that the proceeding was an appeal regardless of what the pleading was called. Counsel insisted that having a "doughnut hole" with no mailbox rule in the middle of the progression from arbitrator to Appellate Court was irrational. Justice Karmeier asked counsel whether it was important how the Court characterized the Circuit Court decision in its opinion; counsel responded that calling the proceeding a "new action" was semantics. Justice Burke asked whether the Court should overrule Norris if it affirmed; counsel responded that an affirmance would necessarily call the previous cases into question. Only by reversing and applying the same rule to every step does everything make sense. Counsel concluded by arguing that both sides would benefit by applying the mailbox rule and giving counsel the full twenty days to prepare an appeal, given the number of steps which must be taken in a short time to initiate Circuit Court review.

Chief Justice Kilbride asked counsel for the employer to comment on opposing counsel's argument that reversal might benefit employers in future cases. Counsel agreed that a decision one way or the other would benefit both sides, but counsel said it was clear to him that the initiating documents must be in the Circuit clerk's hands in 20 days. Justice Garman asked why the legislature would be so strict in this limited instance when the mailbox rule applies in other instances. Counsel answered that there was nothing in the legislative history one way or the other, and speculated that perhaps the legislature wanted to discourage review filings at the Circuit Court. Justice Burke asked counsel whether the Circuit Court proceeding wasn't in substance an appeal from the Commission. Counsel responded that although in common parlance it might be so characterized, it was not technically an appeal. Counsel argued that an affirmance would not have to call earlier caselaw into question, and insisted that refusing to apply the mailbox rule gave parties certainty: that way, counsel could check with the clerk on the twenty-first day and know whether the case was over. Justice Thomas pointed out that the same argument could be made against application of the mailbox rule in every case. Counsel agreed that was so, but repeated his claim that refusing to apply the mailbox rule was simple and had the virtue of certainty.

In rebuttal, counsel for the employee asked again why the legislature would want to make the intermediate step in the process the hardest of all. Only one possible resolution, counsel insisted, would make sense and give workers' compensation practice predictability: reversal of the Appellate Court's decision and application of the mailbox rule to initiating the administrative review proceeding.

Argument Report: When May the Homeowners' Association Security Stop and Detain?

Our reports on the civil oral arguments of the Illinois Supreme Court's November term conclude with Poris v. Lake Holiday Property Owners Association.  Our pre-argument preview of Poris is here.  You can watch the oral argument here.

The plaintiff owns property in the Lake Holiday Development, and is a member of the defendant Association. The defendant Board of Directors has adopted various rules and regulations for the governance of its property, including speed limits. The Board has hired private security officers to enforce the speed limits, bought vehicles and equipped the vehicles with oscillating and flashing lights, radar units and audio and video recording equipment. The Board's security officers were empowered to issue citations to homeowners for violations of the rules.

The plaintiff was stopped by a security officer for speeding on Association property. He sued the Association, every member of its Board, the chief of security and the officer who stopped him, seeking a declaration that the practices of the Association's security department -- including its recording of officers' stops and its use of radar guns -- were illegal. The plaintiff also pled claims for false imprisonment, willful and wanton conduct, breach of fiduciary duty, nuisance and an accounting. The Circuit Court granted summary judgment on all counts; but the Appellate Court reversed in part, reinstating the plaintiff's challenges to the security officers' stop-and-detain and to the security department's use of oscillating lights on its vehicles, as well as plaintiff's false imprisonment claim.

Before the Supreme Court, counsel for the homeowners' association argued that the subject roads were private, and the fundamental issue at bar was one of self-governance of a private association. Justice Thomas asked whether LaSalle County police officers patrolled the private roads. Counsel responded that they did, but the enabling ordinance didn't prohibit the Lake Holiday security officers from doing so too. In response to a follow-up question from Justice Thomas, counsel explained that LaSalle officers could issue speeding citations in the development, but this was unusual, since the officers were aware of the development's security.  Justice Thomas asked whether Lake Holiday Security could issue citations to non-members, and counsel responded that if the non-members were guests of members, the member would be responsible for the citation. Justice Thomas asked whether the general public used the development's private roads, and counsel responded that very few members of the public did. Justice Garman asked whether the Association's power to enact rules was unlimited. Counsel responded that the Association could not enact rules that were violative of due process, fraudulent or arbitrary. Justice Burke asked whether Lake Holiday Security could conduct field sobriety tests and issue citations for driving while intoxicated. Counsel said no, since driving under the influence is a violation of the state code, not the Lake Holiday rules. Justice Thomas asked whether the homeowners' association security was analogous to private university police or mall security. Counsel answered that it was; in the wake of the Appellate Court's decision, private organizations around the state didn't know what they could and could not do to enforce their rules. Justice Freeman asked whether DUIs or accidents involving fatalities on Lake Holiday property were reported to the Secretary of State so that licenses could be suspended or revoked. Counsel answered that the LaSalle County sheriff would police such situations. In response to a question from Justice Theis, counsel confirmed that Association citations didn't affect driving privileges; they were issued to enforce members' private contract rights. Justice Freeman asked whether there were any consequences for members who sped repeatedly on the property, given that citations were not reported to the Secretary of State. Counsel responded that Lake Holiday Security could speak to the LaSalle County Sheriff.

Plaintiff responded that in fact, drivers from outside the development regularly passed through the "private" streets. Justice Thomas asked plaintiff how plaintiff was detained, and he responded that he had been pulled over, and his license taken. Justice Theis asked whether plaintiff had a right to be heard on the citation. Plaintiff responded that the Citation Committee had sent him to the Board of Directors - the entity which heard his appeal, which he was suing. Justice Garman asked plaintiff whether the security officer had pulled a gun on him during the stop; plaintiff responded that he had been ordered back into his vehicle and had decided to remain there, defusing the situation. Justice Thomas asked plaintiff whether he was cross-appealing the dismissal of his claims for unlawful use of radar and recording equipment. Plaintiff responded that the claims were illustrative of the Security Department's attempts to act like a police department. Justice Thomas asked plaintiff whether the citation amounted to little more than a warning, since it didn't go to the Secretary of State - don't residents want some sort of constraint on people driving through the area at high speed? Plaintiff responded that the Board had a variety of options, including the LaSalle County Sheriff, speed bumps and speed cameras.

On rebuttal, Justice Thomas asked counsel for the homeowners' association what happened when an officer stopped someone who was neither a resident nor a guest of a resident. Counsel responded that officers warned the driver that he was in violation of Association rules and trespassing. When counsel  analogized the plaintiff's false imprisonment claim to alleging false imprisonment where a development requested drivers' licenses at the access gate, Justice Freeman responded that drivers had a choice of whether to enter under such circumstances -- plaintiff had no such choice. Counsel argued that the plaintiff had agreed to the rules of the association. Justice Freeman pointed out that the relevant rules had been adopted after the plaintiff acquired his property, but counsel for the homeowners' association argued that the plaintiff could have fought the rule, run for the association board, or left. Justice Burke asked whether the association's officers were licensed to carry weapons. Counsel responded that officers could carry weapons for which they had certification, but were specifically barred from carrying guns.

We expect a decision in Poris in two to four months.

Argument Report: What Happens When a Workers' Comp Excess Insurer Goes Bankrupt?

Our reports on the civil oral arguments of the Illinois Supreme Court's November term continue with Skokie Castings, Inc. v. Illinois Insurance Guaranty Fund. Our pre-argument preview of Skokie Castings is here. Watch the oral argument here.

Skokie Castings begins with a worker's on-the-job injury. The worker's employer was self-insured with respect to workers' compensation insurance, but held an excess policy. The employer paid the retention on the worker's award, at which point the excess insurer started paying.

But then the excess insurer went into receivership. The Illinois Insurance Guaranty Fund took over when the excess insurer stopped, paying until its total outlays reached $300,000. At that point, the Fund stopped paying, arguing that its payments on the file were subject to the $300K payment ceiling under 215 ILCS 5/537.2. The plaintiff, the successor-in-interest to the worker's employer, sued the Fund, seeking a declaratory judgment that the Fund was not entitled to stop paying, and owed the employer for all obligations over $300,000.

Based on the Supreme Court's questions, it seems fairly likely that the Court will affirm the Appellate Court's holding that the Fund is liable without limit. Counsel for the Fund began by arguing that the case turned on what were "workers compensation claims" under the Insurance Guaranty Fund Act. Certainly the injured employee's claim was a workers' comp claim; but the case turned on what the employer's claim for reimbursement was. Justice Thomas asked whether counsel's position was that the New Mexico Supreme Court erred in In re Delinquency Proceedings Against Mission Insurance Co., the case principally relied upon by the Appellate Court -- or was Mission Insurance distinguishable? Counsel responded that the case was distinguishable. In Mission Insurance, the issue was whether reinsurance was covered at all, a point not in controversy in Skokie Castings. Chief Justice Kilbride asked whether the worker's employer or the worker herself received the Fund's payments. Counsel answered that the record was silent on the matter, but the Fund's understanding was that its payments had ultimately gone to the worker. Justice Burke asked why it was fair to impose the remaining liability on a self-insuring employer; counsel responded that the Self-Insurers Advisory Board took over liability once a self-insuring employer was no longer able to respond. Justice Burke asked whether the Board responded only for self-insurers without an excess policy, but counsel answered that he believed that a bankrupt excess insurer would trigger the Board's liability. Justice Thomas asked whether the fact that the Fund had stopped paying, and the employer had then paid the employee for a time, suggested that the underlying claim was for workers comp. Counsel responded that the employer was certainly paying a workers comp claim, but reimbursement by the Fund to the employer was not such a claim. Justice Karmeier asked whether, if the employer had neither primary nor excess insurance, it could have a claim for reimbursement against the Fund, and counsel responded that under such circumstances, the employer's sole remedy was the Self-Insurers Advisory Board. Chief Justice Kilbride asked why the employer's claim wasn't a "covered claim" under the statute. Counsel responded that the issue wasn't whether it was a "covered claim" -- it was. The question was whether or not it was a workers comp claim within the meaning of the statute.

The plaintiff employer opened by arguing that the mechanism of payment - direct payment to the employee or reimbursement - wasn't relevant since the legislature hadn't made it relevant. Justice Theis asked counsel to respond to the Fund's claim that the employer's only remedy was the Self-Insured Advisory Board. Counsel responded that the Board was a merely theoretical possibility if the employer had gone bankrupt - which it hadn't here. Justice Burke wondered whether reversing might encourage Illinois employers not to carry excess insurance, if making that choice could subject the employer to unlimited liability. Counsel responded that excess insurance was still probably the best risk management tool available to an employer. Justice Thomas asked whether the employer's declaratory judgment action, seeking a declaration that the Fund was liable for the employee's claim, was analogous to an insurer's dec action challenging its duty to pay for a tort claim -- surely no one would ever call that a personal injury claim? Counsel responded that there was no coverage issue here, as in a personal injury dec action. Justice Thomas pressed his question: wasn't a personal injury dec action about who was going to pay, just like this case? Counsel responded that the Fund shouldn't benefit by cutting off owed benefits. Justice Karmeier asked whether, rather than being self-insured, an employer could buy primary insurance with a high deductible? Counsel responded that there was likely no distinction in effect between primary insurance with a high deductible and an excess policy.

On rebuttal, Justice Thomas asked counsel for the Fund whether the plaintiff had a public policy argument -- equal to the Fund's argument that it was a source of funds of last resort -- that workers comp awards should be paid without limit? Counsel agreed that this was public policy, but argued that the issue was who should bear the financial burden of the award. Following up on earlier questions, counsel argued that the employer could have bought a primary policy, but premiums would have been higher, and it chose not to take that option. Justice Burke pointed out that the argument necessarily meant that if the excess insurer hadn't gone bankrupt, the employer would be paying forever, despite opting for the lower-cost policy. Counsel repeated that if the employer had paid for a primary policy, the case wouldn't be before the Court. Justice Karmeier asked what the difference was for the Fund's purposes between a primary insurer with a high deductible and an excess carrier; counsel responded that since insurers pay in proportion to premiums, both categories pay into the Fund, but primary carriers pay more.

Skokie Castings should be decided in the next two to four months.

Argument Report: Suit for Tortious Interference Barred After It's Tossed From Probate Court?

Our reports on the civil oral arguments of the Illinois Supreme Court's November term continue with Bjork v. O'Meara. Our pre-argument preview of Bjork is here. Watch the oral argument here.

Before his death, decedent begins taking steps to transfer a bank account to the plaintiff. He dies before the process is completed. The plaintiff intervenes in the will contest, but discovery shows that the bank account was never transferred, and the plaintiff loses her challenge. Later the plaintiff files a suit against the executor for tortious interference with testamentary capacity. Is the suit barred by the six-month statute of limitations on will contests?

That's the question in Bjork. Before the Circuit Court, the plaintiff insisted that she was stating a tort claim against the executor, not challenging the will. The Circuit Court dismissed anyway. The Appellate Court affirmed, holding that although the plaintiff couldn't have received complete relief in a will contest, she could have filed her claim in Probate Court in conjunction with the will proceeding.

Based upon the oral argument, the Supreme Court may reverse. The plaintiff began by making it clear that before the decedent's death, he had begun the process of transferring the bank account. Justice Garman asked whether the plaintiff had tried to prove interference with testamentary capacity in the Probate Court, or just that the account was not in the estate. Counsel responded that at the time of filing her petition to return property, plaintiff had believed that the transfer of the bank account was complete, only discovering otherwise in discovery. Justice Freeman asked whether plaintiff's allegations of fraud or undue influence would invalidate the will. Counsel responded that such allegations could invalidate the will in other cases, but the plaintiff's claim had nothing to do with the will. Justice Burke asked whether plaintiff had standing in the Probate Court after her petition was denied, and counsel responded that she did not, listing a variety of distinctions between a will contest and a suit at law for tortious interference. Justice Theis confirmed that the Probate Court had granted the executor's motion to dismiss the plaintiff, and asked whether at that point, there was nowhere for plaintiff to go but appeal. Counsel agreed that his client's only remaining choices at that point were appeal or filing the separate lawsuit. Justice Burke asked whether the plaintiff was merely seeking a personal judgment against the executor, and counsel confirmed this: plaintiff was seeking nothing from the estate. Counsel argued that affirmance of the Appellate Court's opinion would essentially allow a fiduciary to wash fraud through the Probate Act.

Counsel for the defendant faced a hotter bench than had the plaintiff. Justice Burke asked how a will contest could have worked for the plaintiff, since she had no standing. Counsel responded that plaintiff did, in fact, had standing as an interested party under the will -- plaintiff's petition for return of property from the estate was clearly an attack on the will. Justice Thomas pointed to the conflict we discussed in our pre-argument preview between Robinson v. First State Bank of Monticello and In re Estate of Ellis, asking counsel about the Ellis court's comment that Robinson was limited to situations where the plaintiff had deliberately chosen not to prosecute an available challenge in Probate Court. Counsel argued that the plaintiff had, in fact, appeared in Probate Court, so the Ellis situation didn't apply. Justice Thomas followed up, asking whether the plaintiff had had the opportunity to contest the will but had chosen not to do so.  Counsel responded that the defendant believed that the Probate Court's holding that the plaintiff lacked standing to proceed was wrong. Justice Theis asked what relief plaintiff could have gotten in Probate Court. Counsel responded that plaintiff could have filed her tortious interference claim in that Court. Justice Burke pointed out that a tortious interference claim was brought against an individual, not the estate, and wondered why such a claim didn't fall outside the Probate Act. Counsel responded that the claim was still within the jurisdiction of the Probate Court. Justice Theis sought to clarify the series of events at the Probate Court -- when did the Probate Court find that it lacked jurisdiction? Counsel responded that the court had so held on the plaintiff's motion for reconsideration after her petition was denied. Chief Justice Kilbride asked counsel whether a claim for tortious interference was directed against the estate. Counsel responded that once the Probate Court acquired jurisdiction, it had jurisdiction over all related claims, whether they were, strictly speaking, directly against the estate or not. Justice Thomas asked counsel whether he could cite authority for the proposition that plaintiff had to pursue an appeal after being dismissed at the Probate Court, and counsel cited Robinson and Ellis. Justice Garman asked whether the plaintiff could have filed a complaint in the Law Department while probate was still pending. Counsel responded that no, plaintiff was required to pursue the action in Probate Court, including through an appeal.

When the plaintiff returned to the lectern for rebuttal, the Chief Justice asked counsel what he had filed in probate. Counsel responded that he had filed a petition to return property, and later a citation to discover information. When discovery showed that the transfer of the bank account had not been completed, counsel tried to depose a bank employee; but the Probate Court had denied permission, and the tort claim followed.

Bjork should be decided in the next three to six months.

Argument Report: Debating an Arbitrator's Power to Interpret a Collective Bargaining Agreement

Our reports on the November term oral arguments at the Illinois Supreme Court begin with Griggsville Perry Community Unit School District No. 4 v. Illinois Educational Labor Relations Board. Our preview of Griggsville is here.

Griggsville-Perry arose from the firing of a noncertified paraprofessional who worked in an elementary school library. After a number of complaints about her performance, the superintendant of the school district notified the employee that she would be fired at an upcoming meeting. The employee and her union representative appeared before the board and the employee testified, but the board fired her. The union filed a grievance, and the arbitrator ordered the employee reinstated, finding that she was entitled to a statement of the specific acts and omissions that the board alleged justified her discharge. The Appellate Court reversed, noting that the collective bargaining agreement said nothing about limiting discharge to just, good or proper cause. The Court found that the arbitrator's decision was without support in either past practice of the parties or the interpretation of similar contract language in other cases.

Judging from the active questioning of both sides, the Justices of Supreme Court seem conflicted about Griggsville. Counsel for the Educational Labor Relations Board began by emphasizing the deferential standard of review - the Board reviews the decision of the arbitrator, and the Court then reviews the Board's decision for clear error. Justice Burke asked counsel whether the parties' agreement to arbitrate necessarily implies dismissal only for just cause. Counsel responded that the agreement implies a lesser standard of arbitrary and capricious. Justice Theis asked counsel how the court should define just cause, arbitrary and capricious, and exactly what the difference was. Counsel responded that "just cause" requires a "fit" between the alleged act and the penalty of dismissal. An "arbitrary and capricious" standard, on the other hand, required mere reasoned support for the penalty, rather than a close fit. Justice Theis followed up, asking whether there was a standard in between the two. Counsel responded that the intermediate standard was progressive discipline.

Counsel for the Board argued that the Board's decision could not be reversed based on a finding that the arbitrator had misinterpreted the collective bargaining agreement; if the decision was derived from the essence of the contract, the decision had to be affirmed. Justice Garman asked whether the "essence of the contract" included elements merely implied in the contract, and counsel responded that there was a "common law of the shop" which the parties knew would be used to fill in gaps in the contract. Justice Theis asked counsel to point out where the arbitrary and capricious standard was to be found in the agreement. Counsel argued that the standard was inherent in the contractual grievance procedure. Justice Theis pressed counsel, challenging the basis for his claim; counsel responded that industrial common law supported his view, but pointed out that whether or not the arbitrator correctly interpreted industrial common law was not a matter subject to judicial review. Justice Garman asked counsel whether it made a difference that the Board and the Union could not reach an agreement on a just cause standard. Counsel responded that the arbitrator could not apply at will or "just cause," because the parties couldn't reach agreement on either standard. Therefore, the applicable standard must be arbitrary and capricious. Justice Theis commented that the arbitrator had looked at both at will and just cause, and settled somewhere in the middle -- but it wasn't entirely clear what "the middle" standard meant. Counsel argued that arbitrary and capricious was not an intermediate standard, but was in fact a low bar.

Counsel for the school board attempted to refocus the discussion, arguing that the case was not about contract interpretation. Justice Thomas suggested that there was "nothing earth-shattering" about the arbitrator's award, but counsel disagreed. The arbitrator's award was contrary to what the parties had negotiated, counsel insisted; requiring a reasoned evidentiary hearing whenever employees are given a mere opportunity to be heard would represent a significant change in the law, particularly since it wasn't clear what the arbitrator's view of just cause would be in any particular case. Counsel reviewed the parties' contract negotiations in detail: first, the union had proposed progressive discipline. The board had responded with a proposal for "manifest weight of the evidence," with a right to notice and hearing. Ultimately, the parties had agreed to waive their competing proposals: leaving matters at "employment at will." Counsel argued that the union had squarely rejected an "arbitrary and capricious" standard, barring the arbitrator from imposing one. Justice Thomas asked counsel what was wrong with the Board's view that the arbitrator had merely found that the contract contained an implicit requirement that notice and hearing be meaningful. Counsel responded that the arbitrator's decision was merely just cause by another name, giving the union what it had rejected in negotiations. Justice Burke noted that a line of Federal cases holds that an agreement to arbitrate employment disputes necessarily implies just case, and asked counsel what an arbitrator was to do if employment was at will and there was no standard of review. Counsel responded that the arbitrator should confirm that an employee had received notice and union representation, and no more. Justice Theis asked whether the arbitrator's decision didn't amount to saying that there must be some kind of standard for an employee's meeting not to be meaningless? Counsel responded that the problem was that the arbitrator had failed to take into account the fact that the standard at issue had been rejected at the collective bargaining table. Justice Karmeier pointed out that the relevant provision of the collective bargaining agreement actually referred to a right to a "meeting," not a "hearing," and asked counsel whether the distinction made a difference. Counsel agreed that the agreement did not use the word "hearing" to describe the employee's rights.

In rebuttal, counsel argued that the case was not ultimately about the employee's rights under section 2.6 of the collective bargaining. Rather, according to counsel, the dispute revolved around the employee's right under section 2.1 to review materials in his or her personnel file and attach dissenting or explanatory material. According to counsel, the arbitrator had reversed the board's decision because the employee was terminated based on notes about her job performance which the employee had not seen, which the board reviewed in executive session. Justice Theis asked whether counsel's argument was ultimately procedural rather than substantive, and counsel answered that the arbitrator had never in fact reached the issue of whether just cause had been proven.

The Court should file its opinion in Griggsville within three to six months.

Argument Report: Debating the Illinois Rights of Privacy and Gender Equality

Our reports on the oral arguments of the Illinois Supreme Court's September term conclude with Hope Clinic for Women v. Adams. In Hope Clinic, the Court confronts the question of whether the Illinois constitution offers greater protection to privacy and gender equality interests than the Federal constitution. To watch the video of the argument, click here.

Our in-depth summary of the facts and lower court rulings appears here. According to the Illinois Parental Notice of Abortion Act, a physician must disclose to a parent, grandparent, step-parent living in the household or legal guardian that his or her minor or incompetent child is seeking an abortion. Plaintiffs brought a litany of challenges under the state Constitution, including due process, equal protection, privacy and gender equality.   The Circuit Court dismissed on the grounds that all four of these state guarantees are interpreted in lockstep with Federal constitutional law, and because the plaintiffs' claim would fail under Federal law, it must necessarily fail under state law. The Appellate Court reversed, finding that Illinois' privacy and gender equality rights were not interpreted identically to Federal constitutional law.

The Court was surprisingly quiet during the Hope Clinic argument, giving few clues as to what it might decide. The argument began with the cross-appeal relating to whether the State's Attorneys of Tazewell and Effingham County should have been allowed to intervene. Neither counsel for the State's Attorneys nor the State's counsel received any questions. Chief Justice Kilbride asked counsel for Hope Clinic what came next if the intervenors prevailed -- would the case return to the trial court for further hearings? Counsel responded that the case would return for the development of an additional factual record.

Even in the principal appeal, counsel for the state received no questions. Counsel argued that the essential first step of the plaintiff's action was that the state Constitution granted rights more broad than those included in the Federal constitution. However, nothing in state law supported such a conclusion, according to counsel. Counsel argued that the statute easily satisfied rational basis review for equal protection purposes. The state gender equality provision was limited to discrimination between genders, counsel claimed, which would not apply in the case at bar.

The plaintiff responded that the Supreme Court had never evaluated a parental notification statute pursuant to the Equal Protection Clause, so the issue of whether the state constitution was construed in lockstep with Federal law was not determinative. Justice Thomas asked whether the plaintiff was asking the Court to sit as a super legislature and assess the new studies released since the most recent relevant cases. Counsel responded that the Court should remand the matter in order to give the plaintiff an opportunity to put on its evidence, permitting the Circuit Court to determine whether the burden imposed by the statute was justified. Justice Garman asked whether plaintiff's evidence had been presented to the legislature. Counsel responded that it had not. Justice Thomas questioned counsel's challenge to Family Life League v. Department of Public Aid, 112 Ill.2d 449, asking whether plaintiff's position was that the case had been decided without any consideration of the purpose and legislative history of the privacy clause of the state constitution. Counsel responded that at the time the privacy clause was enacted, the drafters made it clear that their intent was to provide greater protection than the Federal constitution. Justice Thomas noted that at the time the Illinois Constitution was approved, abortion was illegal, and pointed out that Elmer Gertz, the chair of the Convention's committee on the Bill of Rights, had publicly stated that the privacy clause had nothing to do with abortion. Counsel responded that in fact, the legality of abortion had been unclear at the time, and it was clear that the delegates wanted a constitution which evolved over time. Justice Thomas pressed further, repeating his question about Delegate Gertz' views; counsel once again responded that the Convention had intended to allow for further development of their constitution. Justice Thomas asked whether, assuming arguendo that the Supreme Court had recognized a state right to abortion, that right was coextensive with the Federal right. Counsel responded that the state constitutional right to privacy was not interpreted in lockstep with the Federal right. In his rebuttal argument, counsel for the state insisted that the state Supreme Court had made it clear in its earlier cases that any protected right involved was no greater in scope than the Federal right. Counsel concluded by arguing that any remand to the Circuit Court for fact finding was incompatible with rational basis review.

 

Argument Report: How Independent Should a Government Ethics Officer Be?

Our reports on the oral arguments of the Illinois Supreme Court's September term continue with Ferguson v. Patton. Ferguson involves a potentially important issue for the growing field of government ethics law: can the ethics officer sue another official of the same government entity to enforce his or her subpoenas? To watch the video of the argument, click here.

Our in-depth summary of the facts and lower court rulings appears here. In Ferguson, the Inspector General of the City of Chicago opened an investigation of how a former City employee had been awarded a sole-source contract, in apparent violation of city rules. He sent a document request to the Corporation Counsel, but the law department claimed attorney-client and work product privileges as to several. So the IG sent the Corporation Counsel a subpoena. The Corporation Counsel objected, the IG responded, and the Corporation Counsel refused to comply.

So the IG sued the Corporation Counsel. The Circuit Court dismissed, but the Appellate Court reversed.

The case presents two questions: (1) can the IG hire a private lawyer when City ordinances provide that the Corporation Counsel is the sole lawyer for the city? and (2) can the Corporation Counsel assert privilege against the IG?

Before the Supreme Court, the City made the interesting decision to take a hard-line view; the Court seemed highly skeptical. Counsel argued that the City was a single entity; an appointed official of the City could not bypass the elected senior executive officer -- the Mayor -- to sue another appointed official. The dispute at bar, counsel insisted, was internal to the municipal corporation. Justice Theis referred counsel to the IG's ordinance, providing that the IG "shall take no action" to enforce his or her subpoena for seven days. The ordinance seemed to recognize some relationship between the IG and the Corporation Counsel, according to Justice Theis. Counsel answered that the ordinance required that the IG spend seven days trying to work out disputes, but said nothing about what happened next. Justice Theis asked what would happen after seven days. What would happen if the IG subpoenaed an officer of the Water Department, and he or she refused to cooperate? Counsel answered that no court would have jurisdiction over a lawsuit to enforce the subpoena, but the IG would have other options, such as seeking disciplinary action against an uncooperative target. In any case, even the Corporation Counsel could not sue another officer of the City, even to enforce an IG subpoena. Justice Thomas wondered whether it was problematic to ask the IG to go to the mayor if he or she was investigating the mayor's awarding of a contract. Counsel responded that the complaint didn't allege any involvement by the mayor. Nevertheless, the IG had options available short of suing. Justice Thomas followed up, pressing counsel to admit that there was something problematic about asking the mayor to enforce a subpoena in an investigation of the mayor's conduct. Counsel answered that the IG had options available if the mayor refused to cooperate, including sharing the investigation with outside law enforcement.

Counsel for the IG led off by arguing that a municipality could confer independent power to sue on whoever it wants, and in fact, in the IG ordinance, the City has conferred such power. Counsel found significance in the City's admission that the IG could acquire power to sue by referendum, since that must mean that there is nothing inherently disqualifying about suing another officer of the same municipal entity. After all, if the IG is forbidden from moving to enforce his or her subpoena for seven days, it must necessarily follow that the IG may enforce after that time; otherwise, why is the time limit necessary? Counsel also pointed out that according to a settled rule of construction, a specific provision -- here, the IG ordinance -- prevailed over general ordinances such as the Corporation Counsel's general authority. Counsel concluded by dealing with the cross-appeal on privilege, arguing that the duty to cooperate and disclose material to the IG eliminates any expectation of confidentiality necessary for the existence of the privilege. The Court had no questions at all for the IG (never a good sign for counsel for the appellant).

The City began its rebuttal by pointing out that the IG cited not a single case of one officer of a municipal entity suing another. Justice Karmeier asked whether the City could authorize capacity to sue by ordinance. Once again, the City took a hard-line view, arguing that a voter referendum would be necessary to bestow separate corporate status on the IG, thus authorizing a separate suit.

Turning to the cross-appeal, counsel argued that the privilege is critical to government work. Government officials seek legal advice nearly every day, and according to counsel, it makes no sense that the City Council would have wanted to abrogate the privilege in the IG ordinance. Justice Garman asked whether it made any difference what the purpose of the IG office was. Counsel responded that the IG was an internal watchdog. He or she has many tools at hand if a party refuses to cooperate with a subpoena, including going public with an investigation. Justice Garman asked whether a department head or other officer could shield documents from disclosure by conferring with Corporation Counsel. Counsel answered that given that the Corporation Counsel is an attorney governed by the Rules of Professional Conduct, the Corporation Counsel would be required to act to protect the City if an officer confessed wrongdoing.

Argument Report: When Should a Court Lose the Power to Decertify?

Our reports on the oral arguments of the Illinois Supreme Court's September term continue with Mashal v. City of Chicago. Mashal presents an issue of potentially enormous importance to class action practice in the Illinois state courts: when does the Circuit Court lose the power to decertify the class under Section 2-802 of the Code of Civil Procedure? To watch the video of the argument, click here.

For a detailed discussion of the facts and rulings below in Mashal, click here. The case arises from the City of Chicago's practice of issuing "fly-by" traffic citations to taxi drivers -- citations which were received by mail, rather than being personally served or placed on the vehicle. The City conceded that it issued such citations occasionally, principally when drivers either fled or became aggressive; the plaintiffs alleged that the practice was far more widespread than that. A class was certified in 2002. In 2005, partial summary judgment was entered, finding that the practice was illegal. The following year, the City obtained its own partial summary judgment, eliminating claims before 1995 on statute of limitations grounds.

According to Section 2-802, a court may amend a class certification order at any time "before a decision on the merits." The statute doesn't define what "decision on the merits" means. In 2007, the City decided to find out, moving to decertify the Mashal class on the grounds that the partial summary judgment on the legality of the practice eliminated the only common issue. The Circuit Court granted the motion to decertify, and the case rose to the Appellate Court on various certified questions. The Appellate Court held that "decision on the merits" meant something similar to the types of judgments and orders given res judicata effect -- a complete resolution of the liability claim.

Counsel for the plaintiffs argued that the need for individualized determinations didn't mean that a "decision on the merits" hadn't yet occurred, since every class action involves such determinations. Justice Thomas asked counsel to address the City's argument that the partial summary judgments were a decision on the merits. Counsel responded that if a decision resolving nothing more than the legality of the practice involved in the case became a vehicle for decertification, that exception would swallow the class action statute. Such a rule was antithetical to the underlying reason for class actions: that litigating the claims one by one was impractical. Justice Theis asked whether the Circuit Court's decision rejecting the City's affirmative defenses was a decision on the merits, and counsel responded that that order could have been appealed if Rule 304(a) language had been granted.   Justice Theis then suggested that "decision on the merits" and "final judgment" arguably sounded like the same thing, and asked counsel to explain his distinction. Counsel responded that a final judgment was a complete resolution of a claim, granting relief. A decision on the merits didn't need to be final; the order concluding that issuance of fly-by tickets violates the law was enough. Justice Thomas asked counsel whether counsel was saying that every order resolving affirmative defenses was a "decision on the merits," or only the defenses resolved in the particular order at issue. Counsel responded that the particular defenses involved in the court's order made the decision one on the merits.

Counsel for the defendant responded that the reason for setting the cutoff for decertification at the decision on the merits was to keep the option open until all possibly common issues have been decided. Justice Garman asked whether some determination of liability to a class member or members was required. Counsel responded "yes", and in the case at bar, such a determination was impossible given the need to determine whether each class member had received a "fly-by" citation. Justice Burke pointed out that the City had admitted to issuing such citations; counsel responded that the City had admitted the practice as a general matter, but the taxi driver class members had not linked themselves to the limited group who received such citations. Justice Thomas asked counsel to address plaintiffs' argument that there was no rebuttal to the proposition that the class members had received fly-by citations. Counsel answered that such affidavits were not admissible, and in fact there were many reasons to question the class members' credibility. Counsel argued that deposition testimony was needed to determine the credibility of all class members. Justice Garman wondered why issues like credibility and individual liability weren't part of ancillary proceedings. Counsel responded that under the circumstances presented, liability would have to be determined class member by class member, and this was the time to conclude, once and for all, whether class prerequisites were met.

On rebuttal, Justice Karmeier asked counsel for the plaintiffs to respond to the City's argument that plaintiffs' reading of the statute would eliminate courts' ability to reevaluate whether common issues continued to predominate. Counsel answered that it was necessary to set a cut-off point. Although not all summary judgments would bar decertification, this one -- holding that defendant's conduct was unlawful -- would. Justice Thomas asked how the Court should take into account the fact that individual plaintiffs would have to proceed with small liability cases, given that the rule announced by the Court would be used even outside the class action context. Counsel responded that the Court's ruling would be limited in impact -- even res judicata involved subtle differences that might limit the scope of the Court's decision. At any rate, counsel argued that this consideration should not affect the Court, since the legislature could step in and change any rule it didn't approve of.

Argument Report: Forum Non Conveniens and Forum Shopping

Our reports on the oral arguments of the Illinois Supreme Court's September term continue with Fennell v. Illinois Central Railroad Co. Fennell presents the issue of whether a case with no apparent connection to Illinois, filed here after an initial lawsuit was thrown out of plaintiff's first choice forum (and home state), could remain in Illinois. To watch the video of the argument, click here.

The facts and holding of the decision in Fennell are summarized here. Plaintiff alleges exposure to asbestos, diesel exhaust, sand, environmental tobacco smoke and toxic dusts, fumes and gases during his thirty-seven year employment with the defendant railroad. Plaintiff filed a putative class action in Mississippi in 2002, but the action was dismissed without prejudice on the motion of the defendant in 2006. So plaintiff sued in St. Clair, Illinois.

The defendant moved to dismiss under forum non conveniens: the plaintiff was a lifelong resident of Mississippi; he wasn't injured in Illinois; and perhaps thirteen potential witnesses, including plaintiff's family, co-workers and treating physicians, lived in Mississippi. The defendant cited the need to call its risk mitigation manager for occupational disease claims as well. He lived in Memphis, and testified that he would find it easier to come to Copiah Co., Mississippi (the alternative forum) than to St. Clair County. The plaintiff responded that defendant was represented by regional counsel in St. Clair County, evidence was located in St. Clair, and he wanted to call two defense representatives, one in Illinois and one in Memphis. The Circuit Court denied the motion to dismiss, and the Appellate Court affirmed.

Counsel for the defendant argued that documents are less important than they would otherwise be, under the circumstances, because of the ease of moving documents from one place to another. As for witnesses, counsel argued that only two witnesses lived in Illinois, while thirteen were in Mississippi, beyond the reach of the court in the event that trial occurred in Illinois. Depositions are not a substitute for live testimony, counsel argued; without the ability to call live witnesses, the defendant would be unable to quickly adapt to unexpected trial testimony. Justice Burke asked whether the defendants had business operations in Illinois, and whether that fact should have any bearing on the ultimate result. Counsel responded that the mere fact that a corporation did business in a state could never be sufficient without more to defeat a forum non conveniens motion.

Counsel for the appellee emphasized that a defendant must show exceptional circumstances in order to justify overruling the plaintiff's choice of forum. The suit had been filed in Illinois for several reasons, according to the plaintiff-- the plaintiff needed access to fragile documents located in Illinois, and the documents were located in the defendant's counsel's office, down the street from the St. Clair County courthouse. Justice Garman asked whether any part of plaintiff's alleged exposure had happened in St. Clair County, and counsel answered no. Plaintiffs' counsel argued that defendants had substantially changed their story in hopes of winning their forum non conveniens motion. Justice Garman suggested that it was hardly surprising that defendant would be uncertain of which witnesses would be called early in the case, when a forum non conveniens motion was filed. Counsel responded that the case had been in Mississippi for four years, discovery had been done and depositions taken, and defendant had substantially delayed filing its motion after re-filing in Illinois Counsel argued that the initial filing in Mississippi was not relevant, and the defendants needed, at most, two witnesses from Mississippi -- the plaintiff's treating physicians. According to counsel, the defendant had failed to meet the burden of justifying dismissal, and if the Court reversed, the Court was saying that defendants didn't have to. Chief Justice Kilbride asked whether the dismissal in Mississippi had been instigated by the defendant, and whether anything in the order of dismissal had contemplated re-filing in Illinois. Counsel responded that although the order didn't mention Illinois, it certainly contemplated re-filing somewhere.

 

Argument Report: The Perils of Waiting Too Long on Your Fees Claim

Our reports on the oral arguments of the Illinois Supreme Court's September term continue with Rodriquez v. Department of Financial and Professional Regulation. To watch the video, click here.

The facts and holding below are set forth in detail in our preview of the argument. Here's the question - when you get an administrative rule struck down, do you have to bring your claim for attorneys fees under Section 10-55(c) of the Illinois Administrative Procedure Act, 5 ILCS 100/10-55(c), in the same action as your challenge to the rule, or can it wait? In Rodriquez, the trial court held that the plaintiff was required to bring the fees claim as part of his challenge to the administrative rule; but the Appellate Court reversed, holding that the legislature had not imposed a time limit on the Section 10-55(c) action for fees.

Counsel for the State argued that the plain language of the statute makes it clear that the legislature was talking about a fees request brought as part of a single action. According to counsel, no one had ever tried to extend the statute to multiple actions. Justice Garman asked whether, if the Appellate Court strikes down a rule, the Appellate Court awards attorneys fees. Counsel responded that the court striking the rule should hear the motion for fees. The challenger should plead the claim for fees in the complaint, or he (or she) can plead the claim for thirty days after the final order striking the administrative rule. Counsel for the State pointed out that if the plaintiff's position prevailed, the State would be looking at long-tail liability for fees, given the plaintiff's apparent position that a fees request remained viable forever. Justice Burke asked whether that wasn't what the Appellate Court had found -- that the legislature had not intended to impose a time limit? Counsel responded that the language of the statute should be limited to a single action -- the case in which the administrative order was struck down. Justice Garman asked whether the State's argument was that the fees claim was a separate cause of action or a separate claim. Counsel responded that it was a separate claim, but not a separate cause of action. Chief Justice Kilbride asked whether, if the case had wound up in a final administrative action, the individual could couple a claim for fees with a complaint seeking judicial review of the final administrative action. Counsel for the State answered that that was a plausible scenario, and he thought that was what the legislature intended to happen, as opposed to declaratory judgment actions brought before the administrative rule fell. Justice Theis asked counsel to respond to the Appellate Court's reliance on Town of Libertyville v. Bank of Waukegan. Counsel for the State responded that in Libertyville, the Court retained jurisdiction to consider an award of fees in a single action. He concluded by summarizing his position: (1) the statute controls; and (2) res judicata bars the plaintiff's action.

When the plaintiff began, Justice Garman asked whether counsel could name any other examples of a cause of action with no statute of limitations. Counsel responded that the claim for fees might have a statute of limitations -- the five-year catch-all statute that might apply. Justice Theis asked whether plaintiff argued that the fees request was a claim or a cause of action. Counsel responded that the request was a cause of action. Then why shouldn't it be handled pursuant to our usual rule, Justice Theis asked -- all claims must be brought before final judgment, and if they're not, there's a res judicata bar? Counsel responded that the claim did not accrue until the rule was invalidated. Justice Theis followed up by asking when the claim accrued; counsel responded that the claim had accrued twice, once when the trial court invalidated the order, and again when the Appellate Court reinstated the court's original order and struck down the rule. Justice Thomas asked whether there was an opportunity in the second Rodriquez action to bring the attorneys fees claim. Counsel responded that there was not, since the action was not ripe until the rule had been struck down.

Counsel for the State concluded, arguing that the statute plainly intended for the fees claim to be part of a claim, not a separate cause of action. Counsel emphasized once again the various terms in the statute which appeared to refer to a single, unitary lawsuit.

 

Argument Report: Does the Doctrine of Election Apply to Trusts?

Our reports on the oral arguments of the Illinois Supreme Court's September term continue with In re Estate of Boyar.

Can you accept money from your parents' will and then challenge it in court? No; that's settled in nearly every state.

But, as counsel for the trustee in Boyar told the Court, living trusts have become a commonplace substitute for wills; that way, the decedent's "estate" can be distributed without probate. Does the doctrine of election apply to trusts?

Our preview of the argument, summarizing the facts and holding below, is here. Years before his death, the decedent set up a trust. Through several trust amendments, one provision was unchanged: the beneficiaries could remove the trustee by majority vote. Then, just before his death, the decedent amended the Trust one final time -- the Sixth Amendment -- revoking the power to remove and appointing a new trustee. The petitioner challenged the Sixth Amendment, arguing that decedent lacked the mental capacity to execute it. When the petitioner acknowledged that he had received personal property belonging to the trust as a partial distribution of his interest, the trustee moved to dismiss the challenge, citing the doctrine of election: a party may not accept benefits under an instrument and then challenge it. The Circuit Court dismissed and the Appellate Court affirmed.

Justice Garman noted that the petitioner's case presented two questions: (1) does the doctrine of election apply to trusts; and (2) if it does, did the trial court abuse its discretion in applying the doctrine here. Counsel responded that the issue was whether the doctrine of election should be applied to an entirely severable codicil to the trust. Justice Karmeier asked whether, if the petitioner were challenging the distribution, he would still argue that the doctrine of election did not apply. Counsel conceded that he was not arguing that the doctrine would never apply to any trust at any time; the question depended on the facts and circumstances. Justice Garman asked whether petitioner knew the facts of the Sixth Amendment when he accepted the distribution, and whether it made a difference. Counsel responded that one of the factors in applying the doctrine of election is whether a party knew the facts; a doctrine based on equity should be applied without hard-line, black-letter rules, with a grasp of the particular facts. Justice Karmeier asked whether it made any difference to petitioner's argument whether the petitioner knew of the terms of the Sixth Amendment when he accepted the property. Counsel answered that petitioner did not and could not have known that the items of personal property he accepted were owned by the Trust, and that the doctrine of election has never been applied to a severable amendment to a trust anyway.

When the counsel for the trustee began, Justice Karmeier asked whether it made a difference if a trust was changeable during the lifetime of the settlor. Counsel responded that a beneficiary could accept gifts during the life of the settlor, but not after. Justice Garman asked whether the petitioner knew of the facts involved in the challenge; counsel alleged that the petitioner had learned of the trustee's identity and the terms of the Sixth Amendment by a direct conversation and two letters. Justice Thomas asked why there was a conflict between accepting benefits from the trust and challenging a provision that had nothing to do with the distribution. Counsel answered that the petitioner had waived his severability claim, and argued that far from being severable, the Sixth Amendment was a critical component of an integrated document. Justice Theis noted the Appellate Court's comment that the petitioner could file a petition to remove the trustee, and wondered why the doctrine of election did not bar that remedy as well. Counsel responded that a removal petition would have to rest upon alleged misconduct in the administration of the trust. Justice Karmeier echoed Justice Thomas' earlier question, wondering what was inconsistent about accepting a distribution and challenging a severable trustee provision; counsel responded that the petitioner should be barred from challenging any provision of the instrument. Justice Karmeier wondered whether the court should look to the underlying reason for the doctrine -- preventing parties from taking inconsistent positions -- but counsel again insisted that the Sixth Amendment was part of a single integrated document.

In rebuttal, counsel for the petitioner conceded that the petitioner was aware of the existence of the trustee before accepting the distribution, but again insisted that the petitioner was unaware of the specifics, or of what property the trust owned. Justice Garman wondered whether it was essential to the petitioner's argument that he was challenging a severable provision; moments later, Justice Karmeier asked whether petitioner's argument would be the same if the separate amendment dealt with distribution. Counsel responded that in his view, each case had to be evaluated on its individual circumstances. Responding to Justice Karmeier's question, counsel agreed that he was not seeking a bright line rule that challenging a separate amendment to the trust could never be subject to the doctrine of election.

 

Argument Report: Ex Post, Ex Ante and the Right To Farm

Our reports on the oral arguments of the Illinois Supreme Court's September term continue with Toftoy v. Rosenwinkel.

Toftoy is an interesting case because it presents a textbook example of a clash between two classic forms of legal analysis. Professor Ward Farnsworth discusses the distinction at length in his classic book The Legal Analyst: the conflict between ex post and ex ante reasoning.

As Professor Farnsworth explains, ex post reasoning looks backward, asking what remedy is appropriate in connection with a completed incident. Ex ante reasoning – a form of analysis lawyers have in common with economists – analyzes what effects will result moving forward from any remedy proposed for the incident. The classic conflict between ex post and ex ante -- again, borrowing Professor Farnsworth's examples -- is whether or not to pay ransom to a hostage taker. Ex post reasoning might argue that a hostage taker should be paid ransom to save the victim's life; ex ante reasoning rejects paying ransom because it will encourage future hostage takers.

Which brings us to Toftoy and Illinois' "Right to Farm Law" - the Farm Nuisance Act, 740 ILCS 70/1. Our summary of the facts and holding below is here. The statute provides that no farm can become a private or public nuisance "because of any changed conditions in the surrounding area" so long as the farm has been in operation for a year.

Defendants bought farmland in a rural area. Across the street was a large plot containing a farm house; a tenant lived there when defendants took possession of their plot, but by the time they started a cattle operation a year later, the farm house was empty, and so it remained for years after. In 1997, plaintiffs demolished the old farmhouse; seven years later, the plaintiffs completed a new house on what was by then a small subdivided plot and moved in. Plaintiffs sued the defendants in 2007, alleging that their cattle operation was a nuisance because it was causing massive fly infestations.

Ex post versus ex ante. The plaintiffs tell a compelling story of the disruptions to their lives caused by the flies. Ex post, one might think that some remedy would be appropriate. But the argument ex ante is the same argument which has compelled many states around the country to enact Right to Farm laws in the first place: when new residential areas impinge on farm land, allowing the residents to sue the farmers in nuisance at minimum discourages investment in farming, and can wind up driving farmers out of business entirely.

The defendants moved for summary judgment, arguing that the Farm Nuisance Suit barred the suit. The trial court denied the motion, entered a declaratory judgment for plaintiffs, and the Appellate Court affirmed.

Counsel for the cattle farmers led off the arguments. Justice Thomas asked whether the case hinged on how broadly the Court interpreted the statute. Counsel responded that the broad interpretation was correct, but the defendants should prevail under either interpretation. Justice Karmeier asked whether it made a difference that there was a residence across the street when the cattle ranch began operations -- albeit a vacant one -- but counsel responded that plaintiffs were not using the property as a residence when the cattle operation began. Justice Garman asked whether the changed condition for purposes of the statute was the change in ownership, or the demolishing of the old house, or both. Counsel responded that both events amounted to a changed condition. Justice Burke asked whether the result would have been different if the former farmhouse on the property had been remodeled rather than torn down. Counsel responded that there had been no use of the property for more than a year at the time the defendants began their operation. Counsel asked the Court to remand for application of the Farm Nuisance Act and the assessment of statutory fees and costs.

Counsel for the plaintiffs pointed out that the property across the street had contained a farmhouse for nearly a century, and was still a farmhouse today. Justice Thomas posed a hypothetical: what if the plaintiffs had lived in the property for one year a century ago, and then the property had been left vacant. If the defendants began a cattle operation and the plaintiffs subsequently returned, would that be a changed condition? Counsel responded that a causal connection was necessary between the changed condition and the nuisance; if the property merely progressed from one house to another, that prerequisite was not satisfied. Counsel argued that if occupancy alone was a changed condition, owners would have to worry about losing a tenant. Justice Theis asked whether the change in title or the subdivision of the property factored in; counsel responded that the property had always been a residence. Justice Garman asked whether it would make a difference if the house across the street was vacant, and counsel responded "no." Justice Thomas stated that he was having trouble with the occupancy issue. He pointed out that no one had been in the house when defendants began the cattle operation -- why wasn't the change in condition for purposes of the statute the fact that the house was now occupied? Counsel answered that the standard proposed was a slippery slope, suggesting a hypothetical of a strip mall which became vacant for a couple of years in a recession, and then couldn't be used again because a cattle operation began across from it.

Justice Karmeier asked whether somebody who wants to start a cattle operation was required to research the property across the street to determine whether it had ever been a private residence, or else face the risk of a nuisance suit. Counsel responded that no research was necessary, since there was somebody living in the home when defendants took possession. Justice Garman wondered whether it would make any difference if the house was dilapidated or in good condition. Counsel insisted that his clients the plaintiffs were farmers as well; the property was their family farm, and the residence was a farm house. Justice Thomas suggested that plaintiffs seemed to be arguing that "condition" meant "use" for purposes of the statute; if that was so, since the legislature didn't actually say "use," shouldn't that incline the Court to a broad construction of the statute? Counsel responded that the statute should be interpreted based upon the statutory command that the nuisance occurred "because" of the changed condition.

Counsel for the defendants ended his rebuttal with another appeal to an ex ante result, arguing that an affirmance would commit the farming industry in Illinois to long-term historical uses of the property surrounding their farm properties.

Argument Report: Immunity for Court-Appointed Psychologists?

Our reports on the oral arguments of the Illinois Supreme Court's September term continue with Cooney v. Rossiter, a case about the breadth of immunity for court-appointed psychologists in child custody cases. Based on the questions at argument, the Court appeared to be searching for alternatives short of limiting the scope of such experts' immunity.

The facts and lower court ruling in Cooney are described in detail in our argument preview. In 2001, plaintiff's ex-husband filed for a change of custody. The psychological evaluator appointed to opine on the best interests of the children concluded that plaintiff ex-wife and her parents (the co-plaintiffs) suffered from Munchausen's by Proxy Syndrome, and concluded that their treatment of one child amounted to child abuse. After custody was granted to plaintiff's ex-husband, plaintiffs filed a federal class action against the defendant. The action was dismissed and the dismissal affirmed, so the plaintiffs sued in state court.  The state court dismissed based on absolute immunity and res judicata, and the Appellate Court affirmed.

Counsel for the plaintiffs argued that in order to deter deliberate misconduct by psychological evaluators, the proper rule was qualified immunity for investigation and out-of-court evaluation, and absolute immunity for in-court testimony. Justice Karmeier asked whether it was possible to raise issues such as the evaluator's unfairness and bias prior to his or her appointment. Counsel responded that his client did not know the facts until it was too late. Justice Thomas asked whether plaintiffs' charges were the subject of cross-examination at trial, and counsel responded that the trial judge relied solely on defendant's report. Justice Thomas pressed his question, asking whether requiring parties to address issues of bias and misconduct in the custody litigation would make it possible to preserve absolute immunity. Counsel answered again that defendant had not been present on the day of the hearing, and the plaintiff had received his report only that day.

Counsel argued that court-appointed evaluators would still have adequate protection if qualified immunity was instituted -- a plaintiff would still be required to plead intentional misconduct or fraud, and the trial judge would act as the gatekeeper, screening out frivolous complaints. Justice Burke asked whether plaintiff had her own expert, pointing out that there must have been adequate time between defendant's appointment and his report; counsel responded that there was no reason to anticipate anything negative in defendant's report.

During appellee's argument, Justice Karmeier asked whether it would make any difference to the Court's analysis that defendant's opinion came in via a written report rather than live testimony and cross examination. Counsel answered no; cross examination can be requested, and a party may insist on his or her objection if it is denied. Justice Freeman pointed out that none of that helps if the judge denies cross-examination, but counsel responded that this could be the subject of further litigation, post-trial motions, or an appeal. After Justice Burke noted that the trial judge – like the plaintiff -- had only seen the defendant's report the morning of the hearing, Justice Freeman continued to press, asking counsel whether the trial judge's refusal to allow live testimony in the custody action could rise to the level of an abuse of discretion. Justice Thomas asked counsel to address the plaintiffs' argument that qualified immunity was sufficient protection; counsel responded by pointing out that qualified immunity doesn't bar suits at the outset as absolute immunity does, and may not even prevent a jury trial.

The Court's search for alternative resolutions continued in plaintiffs' rebuttal argument. Justice Karmeier asked whether plaintiffs' concern about bad faith evaluators couldn't be addressed by discouraging trial judges from admitting written reports in preference to live testimony.  Justice Thomas speculated that a professional licensure action might be an available remedy against a bad-faith evaluation.

Join us back here later today for our report on the argument in Carr v. Koch.

Argument Report: Subject Matter Waiver for Business Negotiations?

A casual viewer might be forgiven after watching the oral argument last week in Center Partners, Ltd. v. Growth Head GP, LLC for being uncertain exactly what the law of Illinois was regarding the applicability of subject matter waiver to disclosures of attorney-client communications outside litigation. In a nearly hour-long debate, opposing counsel presented diametrically opposed visions. According to plaintiffs, the matter was simple: you either want secrecy or you don’t, and applying subject matter waiver outside litigation was hardly a big deal. Defendants, backed by a number of high-powered amici, argued that plaintiffs were seeking an unprecedented and dangerous extension of waiver which would divorce the doctrine from its rationale. Although predicting what an appellate court is likely to do from its questions is always a dicey business, judging from several Justices’ questions, the Court may be preparing to side with the plaintiffs.

Click here for our preview of the argument in Center Partners. The defendants bought the assets of a company which (through a series of corporate relationships too complex to review here) owned a number of shopping centers. The same day, they entered into a side deal dividing up control of the target’s assets among themselves. Everything was going fine until the plaintiffs – limited partners in the shopping center company – sued them for breach of fiduciary and contractual duties.

The problem was that the three defendants had shared attorney-client communications among themselves during the negotiations for the asset purchase. First, plaintiffs filed a motion to compel production of all of the shared communications: granted. But then, plaintiffs filed a second motion, seeking all communications regarding the same subject as the shared communications, arguing that the disclosures had worked a general subject matter waiver. The second motion was granted too, and following a “friendly contempt” order (to make the dispute appealable), the Appellate Court affirmed.

So: does subject matter waiver apply outside the context of litigation? And if so, how broad is the waiver?

The defendants argued that the Appellate Court had erred in both respects: subject matter waiver shouldn’t have been applied at all, and even if it had, the Appellate Court had applied far too broad a waiver. In response to a question from Justice Burke, counsel stated that no litigation had been ongoing at the time of the disclosures, and none had been anticipated (a view counsel for the plaintiffs disputed later). When counsel argued that waivers are applied in order to prevent the privilege from interfering with a court’s truth-seeking function, Justice Garman wondered whether that rationale might equally support a broad application of the waiver rule.

Justice Thomas asked counsel whether, even if parties are permitted to share attorney-client communications with some people while preserving the privilege, at some point the dissemination of a communication has simply gone too far? Counsel acknowledged that although the common interest privilege had not been claimed, the scope of the waiver should have been limited to the shared communications themselves. Justice Karmeier asked counsel whether it mattered for his position why attorney-client communications had been shared, and counsel responded that it did not.

During plaintiffs’ argument, several Justices continued to wonder whether the basis on which subject matter waiver rested could be logically limited to litigation only. Historically, general waivers have been imposed because otherwise a party can use protected communications as a sword, letting out only what the party wants to, and a shield – hiding additional communications which might give context to, or even contradict, the disclosed material. Justice Theis asked whether there was some suggestion in the record below of similarly misleading partial disclosures. Justice Thomas echoed the point, arguing that absent a subject matter waiver, a party would be free to selectively disclose what it chose in a negotiation, knowing that it would be available for later litigation, while keeping the rest of the story protected. In response to a question from Justice Garman, counsel argued that defendants were relying on attorney advice in the underlying dispute. Justice Burke asked why the waiver had to sweep so broadly, but counsel disputed the assertion of defendants’ counsel that the defendants had not expected litigation at the time of the disclosures.

In rebuttal, counsel for the defendants denied that defendants were relying on attorney advice below. In response to Justice Thomas’ concern that refusing to apply subject matter waiver to business negotiations might lead to an unfair partial waiver, counsel argued that the initial disclosure itself should be excluded on hearsay and relevance grounds, making a general waiver to place the initial disclosure in context unnecessary.

We expect Center Partners to be decided within the next two to four months.

Argument Report: When Is a Nonsuit a Final Claim for Res Judicata?

With this post, we begin our reports on the oral arguments for the Illinois Supreme Court's September term. In Hernandez v. Bernstein, the first civil case of the term, the Court seems likely to hold that plaintiff's two successive complaints were alternative versions of a single claim, meaning that plaintiff's voluntary dismissal without prejudice of the claim did not preclude the subsequent re-filing of the action.

The facts and lower court ruling in Hernandez are set forth in detail in our argument preview. The plaintiffs sued their former attorneys for failing to advise them of a third party products liability claim related to a workers' compensation claim. The products claim was dismissed as time barred, so the plaintiffs amended to allege that the defendants should have advised them to sue their former lawyers. Not long before trial, with a motion for summary judgment pending, the plaintiffs voluntarily dismissed their claim without prejudice. So when the plaintiffs re-filed, was their action barred by res judicata?

Defendants' counsel argued that the "single theory of recovery" analysis applied by the Appellate Court did not fit the circumstances. Rather, the first complaint involved a products liability claim which was wiped out by the trial court, and a new claim for professional negligence was pleaded. Justice Thomas asked counsel what was wrong with the plaintiffs' argument that the case was all a single claim: the law firm's negligence in not informing the plaintiffs of all potential causes of action arising from the injury? Counsel responded that the issue turned on the definition of a claim. The first action involved a set of operative facts that caused injury to the claimant. Later, a different set of operative facts arose -- failure to advise. Justice Thomas followed up by asking what was wrong with the proposition that the initial court order merely adjudicated certain facts in support of the claim -- a claim plaintiffs were given leave to amend? Counsel argued that the initial court order had finally adjudicated a separate products liability claim.

Justices Karmeier, Thomas and Theis each separately pressed counsel on whether the initial order of dismissal without prejudice was final and appealable, even though it expressly stated that dismissal was without prejudice. Counsel responded that the order was final with respect to the products claim, although it only became appealable upon plaintiffs' voluntary dismissal.

Co-counsel for defendants addressed the plaintiffs' alternative argument that res judicata was inapplicable because the plaintiffs had expressly reserved the right to file a new action, arguing that plaintiffs had forfeited the issue by failing to raise it in the trial court. Justice Thomas asked whether, given that plaintiffs were appellees in the Supreme Court, they had a right to affirmance on any theory supported by the record, but counsel pointed out that plaintiffs had been appellants at the Appellate Court.

Plaintiffs' counsel drew few questions. Justice Burke asked how the defendants could have advised plaintiffs of their purported claim for manganese exposure when their relationship with defendants ended before they discovered the claim? Counsel responded that if defendants had sent plaintiff to a physician, the claim might have been discovered earlier. In rebuttal, defendants' counsel again argued that the initial dismissal was a final order which became appealable -- and thus preclusive for res judicata purposes -- when plaintiffs voluntarily dismissed their claims.

Join us back here later today for a recap of the argument in Center Partners, Ltd. v. Growth Head GP, LLC, a case about whether subject matter waiver of attorney-client communications extends beyond litigation to business transactions.