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

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

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Dave Seven.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Elliott Brown.

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

 

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Rob Deutscher.

 

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

 

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Diana Parkhouse.

 

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

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

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

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

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

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

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

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

Image courtesy of Flickr by LendingMemo.com.

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

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

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

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

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

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

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

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

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

 Image courtesy of Flickr by PlayingWithBrushes.

 

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by ForensicBones.

Illinois Supreme Court Agrees to Review Tobacco Verdict Again

 

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Fried Dough.

 

Illinois Supreme Court Agrees to Return to Pension Debates

 

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by CTA Web.

 

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Marcelo Graciolli.

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

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

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

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

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

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

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

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

Image by Flickr courtesy of Ken Mayer.

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

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

The issues presented are:

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

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

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

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

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

Image courtesy of Flickr by Simon Cunningham.

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

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

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

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

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

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

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

Image courtesy of Flickr by atphoto.bg.

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Meshugas.

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

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

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

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

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

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

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

Image courtesy of Flickr by Markus Daams.

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

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

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

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

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

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

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

Image courtesy of Flickr by Dafne Cholet.

Illinois Supreme Court Rejects Due Process Challenge to Liquor License Revocation

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Joseph Novak.

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

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

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

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Thomas Quine.

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

 

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

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

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

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

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

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

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

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

Image courtesy of Flickr by Jim Linwood.

 

Illinois Supreme Court Agrees to Decide Complex Landfill Dispute

Can the Illinois state courts order mandatory cleanups of older landfills? The Illinois Supreme Court agreed to decide that issue late last month, allowing a petition for leave to appeal in People ex rel. Madigan v. J. T. Einoder, Inc.

Einoder involves a husband and wife and two corporations which they control. The landfill site was held in a land trust for the benefit of one of the corporate defendants, which was wholly owned by the husband. The other corporate defendant - owned 90% by the wife and 10% by the husband - leased equipment and operators to the first corporation for use at the site.

In 1995, two years after the site was purchased, the state Environmental Protection Agency received anonymous reports of open dumping there. An inspector visited and issued a citation for dumping without a permit. Additional citations were issued in 1996 and 1997. The Agency conducted a multi-hour inspection in 1998, and subsequently, another citation was issued for alleged dumping and disposal of waste without a permit.

The Agency initially threatened suit in 1998, but agreed to dig test pits first to determine the content of material at the site. After sporadic inspections in 1999 and 2000 revealed an increasing amount of "clean" construction and demolition debris ("CCDD") above the grade of the surrounding land, the Attorney General filed suit in 2000, alleging open dumping, unpermitted waste disposal operations, development and operation of a solid waste management site without a permit, and various other violations.

Following a bench trial, the Circuit Court found for the State on all counts relating to waste disposal and operation of a waste disposal site without a permit, but directed a verdict for the defendants on various more minor charges. The court then proceeded to the remedies portion of the bifurcated trial, and ultimately issued a permanent injunction requiring the defendants to remove the above-grade waste pile and undertake groundwater testing. The court also imposed substantial fines against both corporations and both individuals.

The Appellate Court affirmed the trial court. The court began by rejecting the defendants' claim that the trial court lacked jurisdiction over the agency's complaint because the agency had not properly notified the defendants of its intent to sue the individuals in their individual capacities. The court found that the notice requirements were not jurisdictional, and given the extensive contact between the agency and the defendants leading up to the suit, the defendants could not show prejudice.

The Circuit Court's finding that defendants had operated a waste disposal site without a permit depended on a finding that defendants' CCDD didn't constitute "waste." The statute provided that CCDD was exempt from permit requirements (to the degree Federal law didn't provide differently) only when "used as fill materials below grade." The defendants attempted to avoid this language by pointing to three excerpts of testimony, but the Appellate Court concluded that two statements had been taken out of context, and the third snippet of testimony from the bench trial was contrary not only to the plain language of the statute, but even to the remainder of that witness' testimony. The defendants challenged the finding of personal liability against the wife, but the Appellate Court found sufficient evidence to support the court's finding that the wife had been involved in the operations.

The court then turned to what is likely to be the central issue before the Supreme Court: the availability of mandatory injunctive relief. The parties agreed that the pre-2004 form of the Environmental Protection Act didn't authorize such relief, while the post-2004 form of the Act did authorize it. So the question was whether the 2004 amendments applied retroactively - a simple question of statutory construction. Although Section 42(e) of the Act, the provision directly at issue, didn't indicate a temporal reach, the Court concluded that several other clauses of the 2004 Act suggested that the legislature intended the statute to apply retroactively: the Act was intended to "restore, protect and enhance" Illinois' environment, and to require that "adverse effects" be mediated by "those who cause them." In so holding, the court followed the decision of the Second District in State Oil Co. v. People.

The Court concluded by upholding the fines assessed against the corporate and individual defendants. Sufficient evidence supported the view that the defendants had derived economic benefit from their violations, the Court found, and the defendants' continued operations for five years after receiving their initial violation notices suggested that severe penalties were needed. Justice Mary Anne Mason dissented solely from the portion of the opinion holding that the 2004 Act applied retroactively.

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

Image courtesy of Flickr by Ell Brown.

Illinois Supreme Court to Decide If Innocent Insured Doctrine Applies to Renewal Application

The concept behind the innocent insured doctrine is simple: where there are multiple insureds on an insurance policy, a breach by one does not necessarily eliminate coverage for those not personally involved in the breach. But what if the breach occurs in conjunction with a renewal application? That's the question the Illinois Supreme Court agreed to decide late last month in Illinois State Bar Association Mutual Insurance Co. v. Law Office of Tuzzolino & Terpinas.

The case began when a former client filed a malpractice suit against one of the partners. The attorney persuaded the former client to drop the suit and instead retain the attorney to sue the attorney who handled a related bankruptcy. That suit was dismissed, however. When the client discovered the dismissal, the attorney made an offer to settle the malpractice claim, but the offer was rejected.

Not long after, the same partner filed a renewal form with the firm's malpractice insurance carrier. In response to a question on the form, "[h]as any member of the firm become aware of a past or present circumstance[s] which may give rise to a claim that has not been reported," the attorney answered "no." The attorney signed the form, but the second partner was not required to do so.

A month after completion of the renewal form, the second partner received a lien letter from the attorney hired to represent the first partner in the impending malpractice claims. The second partner forwarded the information to the insurer. He alleges that this was the first time he was aware of any potential claims arising out of his partner's representation of the client.

The insurer filed suit seeking rescission of the policy with respect to both partners and the firm, arguing that the first partner's failure to disclose the potential claim voided the policy ab initio. The second partner counterclaimed for a declaratory judgment that he was covered by the policy in connection with the client's suit.

The plaintiff moved for summary judgment on all counts against all defendants.   The trial court granted the motion, finding that the insurance contract was indivisible, and could not be rescinded with respect to one partner only. The court accordingly held that the insurer had no obligation to defend the firm or the innocent partner. The innocent partner and the firm appealed.

The Appellate Court reversed.

The attorney argued that the innocent insured clause contained in the policy preserved coverage. The court pointed out, however, that the attorney was ignoring the distinction between a misrepresentation during the life of the policy and one in the application process. Therefore, the question was not whether the language of the policy covered the innocent partner, but rather whether the common law innocent insured doctrine permitted the policy to remain in place as to him.

The common law innocent insured doctrine applies when two or more insureds maintain a policy and one commits an act that would normally void the policy but a "reasonable person would not understand that the wrongdoing of [the] coinsured would prevent recovery." The doctrine is often applied, for example, where one of multiple owners sets fire to a property without his or her co-owner's knowledge.

The Appellate Court rejected the insurer's claim that the first partner's misrepresentation rendered the policy void ab initio. In fact, the Court held, the policy was voidable, not void. For that reason, the Court chose to follow Economy Fire & Casualty Co. v. WarrenIn Warren, a husband and wife co-owned a house destroyed by fire. The couple settled their claim with their homeowner's policy insurer. When it became known that the wife has set the fire, the insurer tried to rescind the settlement agreement on grounds of fraud. The Court applied the innocent insured doctrine to hold that the husband - who claimed to have no knowledge of his wife's actions - was entitled to retain half of the settlement.

The Court further held that Section 154 of the Insurance Code (215 ILCS 5/154) - which provides that no misrepresentation or false warranty in an insurance application can defeat coverage unless material or made with an intent to deceive - supported application of the common law innocent insured doctrine.

Finally, the Court held that public policy favored application of the doctrine, since allowing rescission would mean that the innocent party had no coverage not only in connection with the plaintiff's claim, but in connection with any claim during the policy period.

We expect Tuzzolino & Terpinas to be decided in six to eight months.

Image courtesy of Flickr by Alan Cleaver.

Illinois Supreme Court to Decide Whether Self-Critical Analysis Privilege Exists in Illinois

We continue our previews of the civil cases accepted for review in the closing days of the Illinois Supreme Court’s March term with Harris v. One Hope United, Inc. In Harris, the First District declined to recognize the existence of a self-critical analysis privilege in Illinois, calling the recognition of new common law privileges “a matter best left to the legislature.”

The self-critical analysis privilege is a relatively recent innovation in the common law, as privileges go. The privilege seems to have been first recognized by the federal district court in Washington, D.C. in a 1970 medical malpractice case, Bredice v. Doctors Hospital, Inc. Since that time, a few jurisdictions have adopted narrow versions of the privilege. As a general rule, courts require proponents of the privilege to prove at least three elements: (1) the information sought comes from a critical self-analysis undertaken by the party seeking protection; (2) the public has a strong interest in preserving the free flow of the type of information sought; and (3) the information must be of the type whose flow would be curtailed if discovery were allowed. Some courts have added a fourth element: the document was prepared with the expectation that it be kept confidential, and it has in fact been kept confidential.

The principal defendant in Harris is a private contractor which works with the state Department of Children and Family Services providing services to troubled families. DCFS received a complaint in late 2009 alleging neglect and/or abuse of a small child. The DCFS assigned the matter to the defendant, which commenced an investigation. Two months later, the child was hospitalized, and upon release, was sent to live with her aunt. The child was soon returned to her mother, however, and not long after, was accidentally drowned when her mother left her unattended.

The plaintiff – the Public Guardian of Cook County - filed a wrongful death suit against the defendant and various others. The plaintiff alleged that the defendant was negligent in permitting the child to be returned to her mother, given the mother’s history and failure to complete parenting classes.

During a deposition, the executive director of the defendant testified that the defendant maintains a “continuous quality review department” which investigates cases and prepares reports. The reports evaluate the quality of the defendant’s services, identify “gaps in service delivery” and assess outcomes. The defendant refused to produce the report, the plaintiff moved to compel production, and the defendant opposed, citing the self-critical analysis privilege.

The trial court found that the privilege did not apply. At defendant’s request, the trial court held defendant in “friendly contempt” and fined defendant $1 per day pending production of the report. The defendant then appealed the contempt order.

The Appellate Court began by observing that nothing in the Illinois Rules of Evidence suggests the existence of a self-critical analysis privilege. Nor do any court rules support such a privilege claim. The court observed that what case law there was in Illinois on self-critical analysis had consistently refused to recognize the privilege.

The defendant argued that the privilege arises from the “intersect[ion]” of statute, public policy, discovery rules and evidence. Recognizing the privilege would further the purposes of legislation like the Child Death Review Team Act (20 ILCS 515/1), defendant suggested, but the Court concluded that the Act actually favors disclosure of the circumstances of an accidental death in hopes of preventing future tragedies. Defendant pointed out that the Medical Studies Act (735 ILCS 5/8-2101) specifically allows withholding of internal quality control documents by hospitals, but the Court declined to apply the Act by analogy to the defendant’s situation.

Although the court affirmed the order compelling production of the report, it recognized that the defendant had shown “no disdain” for the trial court, and had merely refused to comply “in good faith to secure appellate interpretation of this rather novel issue.” Accordingly, the court vacated the contempt finding.

Given the stakes, we should see multiple amicus curiae briefs before the Supreme Court. The case is likely to be argued in the fall, with a decision near the end of the year.

Image courtesy of Flickr by j3net.

Illinois Supreme Court to Clarify Mailing Standards for Notice of Appeal

The Illinois Supreme Court has decided a number of cases in recent years involving choices between form and substance or strict and substantial compliance. In most (but not all) cases, a majority of the Justices have sided with substantial compliance and proceeded to the merits. The Court took one more such case as the March term wound down. Huber v. American Accounting Association, a decision from the Fourth District, poses a question of considerable interest to appellate lawyers: what proof of timely filing is required when a notice of appeal is mailed before the due date, but not received by the clerk until after?

The defendant association incorporated in 1935. In 1996, the State dissolved the Association for failure to file an annual report. Six years later, the Association incorporated again, but the new entity appears to have been a shell; the Association deposited all dues paid by members into the 1935 Association's account, and no assets were merged. In June 2011, the Association sought to voluntarily dissolve the 2002 entity and reinstate the 1935 entity. Both requests were granted.

Two months later, the plaintiff petitioned to dissolve the 1935 entity and vacate the dissolution of the 2002 entity, and then to judicially dissolve the 2002 Association for misconduct. The Association moved to dismiss, arguing (1) that there was no jurisdiction over the long-dissolved 2002 entity; (2) the plaintiff had no standing, having never been a member of the 2002 Association; (3) plaintiff was not entitled to any relief against the 1935 Association, having alleged no misconduct by the earlier entity; and (4) plaintiff failed to make the necessary showings for a preliminary injunction. The trial court granted the motion to dismiss.

The plaintiff appealed, but the defendant raised a preliminary issue: whether the plaintiff had timely filed a Notice of Appeal sufficient to give the Appellate Court jurisdiction over the appeal.

The judgment in Huber was filed on March 6. Rule 303(a) provides that a notice of appeal has to be filed within 30 days of the entry of the judgment or final order appealed from.

But Illinois also has a mailbox rule of sorts. According to Rule 373:

If received after the due date, the time of mailing, or the time of delivery to a third-party commercial carrier for delivery to the clerk within three business days, shall be deemed the time of filing. Proof of mailing or delivery to a third-party commercial carrier shall be as provided in Rule 12(b)(3).

Rule 12(b)(3) provides that proof of service consists of a “certificate of the attorney, or affidavit of a person other than the attorney, who deposited the document in the mail or delivered the document to a third-party commercial carrier, stating the time and place of mailing or delivery, the complete address which appeared on the envelope or package, and the fact that proper postage or the delivery charge was prepaid.”

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

What the NOA didn’t have, however, was either of the required proofs from Rule 12(b)(3) – an attorney’s certificate or a non-attorney affidavit.

So: is a NOA clearly mailed before the deadline nevertheless untimely because it didn’t prove mailing in the proper way?

The Appellate Court districts are split on the issue. The Second District held in People v. Hansen that a clearly legible postmark was good enough, notwithstanding the lack of an appropriate proof of service. The First (People v. Tlatenchi) and Fourth (People v. Smith and People v. Blalock)Districts have held that an attorney certificate or affidavit is necessary in every case.

The Huber Court sided with the Fourth District, following Blalock. Because the plaintiff didn't comply with Rule 12(b)(3), the limited mailbox rule in Rule 373 didn’t apply. "[P]roof of a postmarked envelope contained within the record does not correct this defect," the Court wrote, "nor does it serve as a substitute for the omitted affidavit." The plaintiff's notice of appeal was accordingly untimely, and the appeal was dismissed.

We expect a decision in Huber in eight to twelve months.

Image courtesy of Flickr by WallyGrom.

Spanish Court Two Condominium and Three Other Civil Opinions on Thursday

The Illinois Supreme Court has announced that it expects to file opinions in four civil cases on Thursday morning, March 20. Among the new opinions will be one of the two most anxiously awaited cases on the court’s advisement docket – Spanish Court Two Condominium Association. The cases, with their issues presented and links to our earlier reports on each, are:

  • Spanish Court Two Condominium Association v. Carlson, No. 115342 -- May a condominium owner refuse to pay monthly and/or special assessments, in whole or in part, on the grounds that the condominium board failed to maintain and repair the common elements of the condominium property? Our detailed summary of the facts and underlying court decisions in Spanish Court is here. Our report on the oral argument is hereSpanish Court Two Condominium will have been under submission for 184 days when it comes down on Thursday.
     
  • Home Star Bank & Financial Services v. Emergency Care & Health Organization, Ltd., No. 115526 -- Does a physician paid by his physician group to provide emergency care in a hospital qualify for immunity under the Good Samaritan Act when he responds to a Code Blue in another part of the hospital? Our detailed summary of the facts and underlying court decisions in Home Star Bank is here. Our report on the oral argument is hereHome Star will have been under submission for 57 days when it comes down.  
     
  • BAC Home Loans Servicing, LP v. Mitchell, No. 116311 -- Does waiver of a personal jurisdiction objection operate retrospectively, validating everything that has gone before, or only prospectively? Our detailed summary of the facts and underlying court decisions in BAC Home Loans is here. Our report on the oral argument is hereBAC Home Loans will have been under submission for 56 days was it comes down.
     
  • In re Marriage of Tiballi, No. 116319 -- When a parent voluntarily dismisses a petition to change custody, can he or she be hit with the fees of a court-appointed child psychologist as costs? Our detailed summary of the facts and underlying court decisions in Tiballi is here. Our report on the oral argument is hereTiballi will have been under submission for 56 days when it comes down.

In 2013, the Court handed down its unanimous civil decisions an average of 103.7 days after oral argument. Cases in which the Court was divided were handed down an average of 185.8 days after argument.

Image courtesy of Flickr by joenevill.

Illinois Supreme Court's March Docket Announced

The Illinois Supreme Court has published its docket for the March term in Chicago. The civil cases on the Court's docket include:

Tuesday, March 18, 2014 - 9:30 a.m.

  • The Estate of Perry C. Powell v. John C. Wunsch, No. 115997 & 116009 -- Does the lawyer who brings a wrongful death action owe a duty of care to the next of kin, or only to the estate? Our detailed summary of the facts and underlying court decisions is here.
     
  • WISAM 1, Inc. v. Illinois Liquor Control Commission, No. 116173 -- (1) Was the plaintiff denied due process when the liquor control commissioner admitted transcripts into evidence and immediately granted the City's motion for a directed finding that plaintiff had violated Section 3-28 of the ordinances of the city of Peoria, justifying summary revocation of the plaintiff's liquor license? (2) Were the transcripts inadmissible, and without them, was there sufficient evidence to support the finding that the plaintiff had violated Section 3-28? Our detailed summary of the facts and underlying court decisions is here.

Wednesday, March 19, 2014 - 9:30 a.m.

  • In re Marriage of Turk, No. 116730 -- When a parent voluntarily dismisses a petition to change custody, can he or she be hit with the fees of a court-appointed child psychologist as costs? Our detailed summary of the facts and underlying court decisions is here.

Could an Insurer's Dec Action Waive the Right to Participate in Settlement in Illinois?

[This post appeared earlier on the Sedgwick Insurance Law Blog.]

An insurer offers its insured a defense under a reservation of rights and files a complaint seeking a declaratory judgment determining coverage. This is not an uncommon sequence of events, either in Illinois or anywhere else. But does the insured then have the right to settle the case on its own, without the insurer’s consent?

Until recently, the answer under Illinois law has been clear: No. But in a decision published in the last days of January, the Appellate Court for the Fourth District cast doubt on that conclusion.

Standard Mutual Insurance Company v. Lay was one of the Illinois Supreme Court’s major decisions of last year. Our coverage of the decision is here. Our report on the oral argument before the Supreme Court is here.

The defendant was a small real estate agency in Girard, Illinois. The defendant hired a fax broadcaster to send a “blast fax” advertising a particular listing to thousands of fax machines. The broadcaster claimed that each potential recipient had consented to receiving the faxes, and the defendant trusted the broadcaster’s word. The problem was apparently it wasn’t true.

Enter the Telephone Consumer Protection Act of 1991, 47 U.S.C. § 227. The statute imposes a penalty of $500 for each unsolicited fax sent, which is trebled for willful violations. So the defendant was hit with a putative class action complaint, alleging willful violations of the TCPA, conversion and violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/2.

The defendant tendered to its insurer, which accepted under a reservation of rights. The insurer offered the defendant a defense (while noting its potential coverage defenses and the arguable conflict of interest). The defendant signed the waiver of the conflict proferred by the insurer and accepted the attorney.

In mid-July 2009, the putative class action was removed to Federal court. Not long after, the owner of the defendant real estate agency died, and his widow received letters of office. In late October, at the widow’s behest, a new lawyer wrote to the lawyer hired by the insurer, explaining in great detail the conflict between the insurer and the insured (which the insured had waived) and asking the lawyer to withdraw. The lawyer hired by the insurer never withdrew, but a few weeks later, the new attorney and the insured signed a settlement agreement.

In 2010, the settlement agreement was filed and ultimately approved. It provided for a payment of $1,739,000: $500 per fax for each and every one of alleged 3,478 recipients. Given that a finding of willful conduct – the necessary prerequisite to trebling – would have vitiated insurance coverage, this “settlement” amounted to the insured voluntarily paying 100 cents on the dollar on the case. In return, the class representative agreed not to execute on any of the defendant’s assets, and seek to recover solely from the insurer (the covenant not to execute remained valid whether or not the insurer’s policy was adjudicated to cover the policy).

In mid-2011, the trial court granted the insurer summary judgment in the declaratory judgment action, finding that TCPA damages were in the nature of punitive damages and thus uninsurable. The Supreme Court allowed a petition for leave to appeal and reversed on that point. The Court remanded back to the Fourth District for consideration of the remaining issues – including whether the insured had breached the policy by settling without the insurer’s consent.

The Fourth District originally issued its opinion reversing the Circuit Court in late November 2013, but later granted a motion for publication. The published opinion appeared January 25, 2013.

The court found that all three policies at issue covered the defendant’s “settlement.” One expressly related to the real estate business. The two remaining policies related to rental premises or vacant lots owned by the insured, but neither included “designated premises” limitations.

The insurer argued that the settlement was excluded from coverage by the professional services exclusion, but the Appellate Court disagreed. The real estate agency was not a professional advertiser, the court pointed out. The court specifically held that the TCPA damages were covered by both the property damage coverage and the advertising injury coverage.

But the most important part of the ruling came in two paragraphs on the final page of the opinion. The court noted that where an insurer had provided an attorney pursuant to a reservation of rights, noting the potential conflict of interest, “the insured is entitled to assume control of the defense.” At that point, the court held, the insurer lost the right to prevent the insured from unilaterally settling: “When an insurer surrenders control of the defense, it also surrenders its right to control the settlement of the action and to rely on a policy provision requiring consent to settle.” The court cited Myoda Computer Center v. American Family Mutual Insurance Co. in support of its holding. The insured’s liability was “clear,” the court commented, the settlement amount “was supported by simple math,” and “[a]bsent the settlement, the result would have been the same.” Therefore, the court held, the insurer was liable for the full amount.

The insurer has petitioned the Supreme Court for leave to appeal the case once again. A copy of the insurer’s petition is here. There, the insurer pointed out the grave implications of the Appellate Court’s holding approving of the insured’s behavior: “The Appellate Court’s decision sanctions an insured rolling over on its insurer anytime a defending insurer reserves its rights and files a declaratory judgment action.” The Appellate Court had simply gotten the law wrong, the insurer argues. Myoda involved an entirely different situation, where the insurer had allowed the insured to choose its own counsel from the outset, merely reimbursing costs. The insurer had been told of a prospective settlement and flatly refused to participate – something which never happened in Standard Mutual. The insurer argued that pursuant to long-settled Illinois law, absent a breach of the duty to defend, an insurer has every right to insist on the right to approve of and participate in settlement.

The insurer offers this powerful argument for the potential for abuse of TCPA litigation inherent in the Fourth District’s decision:

[T]arget a defendant, ensure that it carries insurance coverage, offer the defendant a deal where it can walk away unscathed and in the process obviate the need for any proof that offending faxes were ever received, and cash in on the defendant’s insurance policies. This game of ‘gotcha’ prejudices insurers which seek to honor their obligations while at the same time exercising their right to walk into court and seek a judicial declaration of their coverage.

The Fourth District’s holding on remand in Standard Mutual is a significant potential threat to insurers operating in Illinois. The insurer in Standard Mutual appears to have done everything right pursuant to a policy which expressly barred settlement without its consent: it provided (and paid for) counsel, carefully noted and reserved its coverage defenses and explained the potential conflict of interest, and offered the insured the opportunity to waive the conflict – which it did. The insurer then exercised its clear right to seek a judicial determination of coverage. As a result, the insurer was held liable for a 100-cents-on-the-dollar “settlement” entered into unilaterally by the insured.

The Supreme Court should allow this new petition for leave to appeal in Standard Mutual Insurance Co. v. Lay and hold that insurers do not authorize collusive settlements by their insured simply by virtue of proceeding pursuant to their rights under the policy.

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

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

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

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

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

Illinois Supreme Court to Decide Scope of State Whistleblower Act

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

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

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

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

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

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

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

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

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

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

We expect Pusateri to be decided in approximately eight months.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The Perils of Incomplete Service

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Call Wednesday, January 22, 2014:

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

Call Thursday, January 23, 2014:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Illinois Supreme Court to Decide Constitutional Challenge to Medical Licensing Law

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Illinois Supreme Court to Debate Dramshop Act Recovery Cap

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Illinois Supreme Court to Debate Controversial Condominium Decision

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

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

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

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

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

Illinois Supreme Court to Debate Constitutionality of Labor Department Fines

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

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

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

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

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

Illinois Supreme Court Debates the Locus of Sales Tax Liability

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Illinois Supreme Court to Debate Exemptions From Prevailing Wage Act

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

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

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

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

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

Illinois Supreme Court to Debate Pensions for Firefighters' Spouses

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Wednesday, September 11

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

Tuesday, September 17

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

Wednesday, September 18

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

Illinois Supreme Court: The Questions Log Halfway Through 2013

With the Illinois Supreme Court halfway through its oral argument schedule for 2013 – three dockets down, three to go, beginning with September in Chicago – it’s time to take another look at the questions log.

In the first three terms, the Court has heard argument in 16 civil cases. Questioning has varied widely from case to case, from lows in the January term of 8 each in DeHart v. DeHart and Russell v. SNFA to highs in the May term of 40 in Relf v. Shatayeva and 51 in Board of Education of Peoria School Dist. No. 150 v. Peoria Federation of Support Staff. Interestingly, the Court seems to be becoming more active with each passing term, averaging 14.6 questions per argument in January, 21.5 in March and 34 questions per argument in May. Nine of the sixteen cases are decided, but there’s little indication so far of a convincing correlation between how active a Justice is during the questioning and whether that Justice will wind up writing an opinion on the case. So far, in only three of the nine cases has the most active questioner written the majority opinion. In none of the remaining six decided cases has the most active Justice written a special concurrence or dissent. In the first sixteen cases of the year, five of the seven Justices have ranked as the most active questioner on the Court in at least one case.

Halfway through 2013, here’s how the question log stands.  The numbers in parentheses show how many times that Justice has been the first questioner during each phase of the arguments.

 

Burke

Garman

Freeman

Kilbride

Thomas

Karmeier

Theis

Appellant

20 (1)

23 (4)

30 (5)

11

52 (5)

25 (1)

25 (2)

Appellee

23 (2)

19 (2)

8 (1)

10 (1)

26 (5)

19 (2)

29 (1)

Rebuttal

0

2 (1)

1 (1)

1

20 (3)

10 (3)

17 (1)

Total

43 (3)

44 (7)

39 (7)

22 (1)

98 (13)

54 (6)

71 (4)

Does The Income Withholding for Support Act Require Strict Compliance?

Our preview of newly petitions for leave to appeal allowed by the Illinois Supreme Court in the closing days of the just-ended May term continues with Schultz v. Performance Lighting, Inc., a decision from the Second District.

The plaintiff in Schultz obtained a divorce in 2009. She was awarded $600 every two weeks in child support from her ex-husband. At the time, the ex-husband was working for the defendant in Schultz.

In Illinois, the Income Withholding for Support Act was enacted in order to provide custodial parents with a method to more easily collect court-ordered support payments from their former spouses. The plaintiff served a notice to withhold income for support on the defendant, personally serving the ex-husband’s attorney at the same time. Section 35 of the Act places a duty on a payor, once served with a notice, to pay over the ordered portion of the obligor’s income to the State Disbursement Unit. According to the Act:

The income withholding notice shall:

* * *

(9) include the Social Security number of the obligor; and

(10) include the date that withholding for current support terminates, which shall be the date of termination of the current support obligation set forth in the order for support; and

(11) contain the signature of the obligor or the printed name and telephone number of the authorized representative of the public office, except that the failure to contain the signature of the obligor or the [identifying information for the public office] shall not affect the validity of the income withholding notice. 750 ILCS 28/20(c)

The plaintiff’s notice contained neither the ex-husband’s Social Security number, nor the termination date for the support obligation. So: does the statute require strict compliance, such that the notice’s shortcomings should be fatal, or is substantial compliance enough?

The defendant made no payments to the State Disbursement Unit on the ex-husband’s account. Subsequently, the defendant sued her ex-husband’s employer, alleging that the defendant had breached a statutory duty to pay, triggering a statutory $100 per day penalty. The trial court held that strict compliance was required by the statute and dismissed the plaintiff’s complaint.

The Second District affirmed. Two reasons compelled a finding that strict compliance was required by the statute, according to the Court. First, the Court relied upon a line of authority holding that when a statute uses the word “shall,” and imposes a penalty or consequence for non-compliance, the duty imposed is mandatory and strict compliance is required. Although there was no penalty for failure to include the missing information in the notice, the Court noted that knowing non-compliance with a valid notice to withhold triggered an automatic penalty. Second, the Court invoked expressio unius est exclusio alterius, the ancient legal maxim teaching that an enumerated list is presumptively exclusive. Here, the statute’s statement that non-compliance with the signature requirement doesn’t invalidate the notice implies that non-compliance with the other requirements does invalidate the notice.

Schultz will likely be decided in the first half of 2014.

Illinois Supreme Court to Decide Interplay Between Dram Shop Act and Insurance Guaranty Fund Act

In the final days of the Illinois Supreme Court's recently concluded May term, the Court allowed petitions for leave to appeal in five new civil cases. Today, we begin our detailed previews of those cases, discussing the underlying facts and lower court holdings.

First up is Rogers v. Imeri from the Fifth District. The plaintiffs' son was killed in a drunk driving accident. The plaintiffs sued the bar which allegedly served the drunk driver, alleging claims under the Dramshop Act, 235 ILCS 5/6-21. The plaintiffs received $26,550 from the driver's liability insurance policy and an additional $80,000 from their own policy.

While the matter was pending, the defendant's dramshop liability insurer was declared insolvent and liquidated; as a result, the Illinois Insurance Guaranty Fund took over the defense of the litigation.

The defendant filed a motion for summary adjudication of liability arguing the following theory: maximum liability under the Dramshop Act was $130,338.51. The plaintiffs had already received $106,550. Therefore, since the Insurance Guaranty Fund was entitled to a setoff for insurance payments from other sources, the plaintiffs' maximum possible recovery was the difference between those two sums.

The Circuit Court denied the motion, but agreed to certify a question: in a case involving the Insurance Guaranty Fund, if the jury returns a verdict in excess of the statutory maximum, is the setoff for other recoveries made from the verdict, or from the statutory maximum recovery under the Dramshop Act?

The answer depends on construing two different statutes simultaneously. The Dramshop Act provides that a jury should determine damages without worrying about the statutory limit.

On the other hand, under the Insurance Guaranty Fund Act, a claimant must "exhaust all coverage provided by any other insurance policy . . . if the claim under such policy arises from the same facts, injury, or loss that gave rise to the covered claim against the Fund." 215 ILCS 5/546(a). "[T]he Fund's obligation" is reduced by the amount recovered.

As the Fifth District observed, the answer to the certified question was likely to make a significant difference when the case was ultimately tried. Given that the deceased son of the plaintiffs was only eighteen when he was killed, it seemed likely that a verdict would be in excess of the statutory cap.

The defendant's problem, according to the Fifth Defendant, was that nothing in the Insurance Guaranty Fund Act altered the way that damages are calculated in the routine case where the Fund is not involved. Therefore, the Court held, the reduction for "other insurance" recoveries in the Insurance Guaranty Fund Act should be applied to the jury's verdict, and then reduced to the statutory maximum.

Rogers will likely be decided sometime in the first half of 2014.

Argument Before Illinois Supreme Court in Performance Marketing Continued to Morning of May 22nd

An update on last week’s post on Performance Marketing Association, Inc. v. Hamer: with the posting of the Court’s docket book for the May term, we learned that the oral argument in Performance Marketing has been continued from May 16 to the 9:00 a.m. sitting on Wednesday, May 22nd.

Although it is virtually certain to go unmentioned, the oral argument in Performance Marketing will take place against the backdrop of U.S. Senate approval of the Marketplace Fairness Act of 2013, which would grant states the authority to require online and catalog retailers to collect sales taxes on sales to in-state buyers, so long as the states have simplified their sales tax laws in one of several ways, and the online merchant has gross annual receipts from nationwide online sales in excess of $1 million. According to news reports, the prospects for passage of the MFA in the House are uncertain.

Are "Click-Through" Internet Marketing Tax Laws Constitutional?

Our preview of the oral arguments at the Illinois Supreme Court during the May term concludes with Performance Marketing Association, Inc. v. Hamer. PMA will be heard by the Court during the 9:00 a.m. session on Thursday, May 16.

PMA arises from an amendment to the Illinois Use Tax Act known as the “Click-Through” Act or the “Amazon tax.” 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 Performance Marketing Association is a nonprofit trade association incorporated in Delaware. It’s the largest trade association in the country representing the “performance marketing” industry – businesses who use marketing methods similar to the internet “click-through” ad. Performance marketing has become relatively commonplace; according to the complaint, there are over 200,000 online publishers nationwide, and over 5,000 advertisers using or supporting performance marketing arrangements.

After the Illinois statute was passed, the PMA filed suit in Cook County Circuit Court.  In the complaint, PMA alleges that many internet-based businesses have responded to the Act by simply cancelling all contracts with Illinois publishers. As a result, the plaintiff alleges that Illinois-based publishers have lost millions, and many will go out of business. According to PMA, the “Click-Through” Act violates the dormant Commerce Clause by burdening interstate commerce and attempting to regulate non-Illinois commerce, as well as violating the federal Internet Tax Freedom Act, which bans all state taxes which target electronic commerce for special burdens. The complaint sought a declaratory judgment enjoining enforcement of the Act, as well as an award of costs and fees.

On May 7, 2012, the Circuit Court granted PMA’s motion for summary judgment, finding that (1) the Act failed the “substantial nexus” requirement for permissible regulations of interstate commerce, and therefore violated the Commerce Clause; and (2) because the Act burdened electronic commerce, it was preempted by the Internet Tax Freedom Act. Because the order struck down a statute on constitutional grounds, the State’s appeal bypassed the Appellate Court and went directly to the Supreme Court.

Not surprisingly, PMA has attracted considerable notice, including an amicus brief from the Multistate Tax Commission, the administrative agency for the Multistate Tax Compact. According to the Commission’s brief, the Act cannot be facially unconstitutional because it does not, by its terms, discriminate against interstate commerce. Nor does the Act violate the Internet Tax Freedom Act, according to the Commission, since the Act’s expanded definition of retailers subject to sales tax includes vendors who use any type of in-state representatives soliciting business on a commission basis, rather than singling out electronic publishing for special burdens.

We expect PMA to be decided in the fall.

Illinois Supreme Court to Hear Five Civil Cases In May

On Tuesday, the Illinois Supreme Court announced its oral argument calendar for the May term, and it includes arguments in five civil cases. The cases, with the questions presented in each, are:

Wednesday, May 15:

  • Relf v. Shatayeva, No. 114925 - Where a plaintiff files suit, unaware that defendant had died more than six months earlier, may the plaintiff substitute the defendant's personal representative, or is the action barred? Our detailed summary of the facts and Appellate Court opinion in Relf is here.

Thursday, May 16:

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

Wednesday, May 22:

  • The Board of Education of Peoria School Dist. No. 150 v. The Peoria Federation of Support Staff, Security/Policemen’s Benevolent and Protective Association Unit No. 114, No. 114853 -- (1) Are the 2010 amendments to the Public Labor Relations Act unconstitutional special legislation? (2) Are plaintiff's negotiations with its security officers governed by the Education Labor Relations Act or the Public Labor Relations Act? Our detailed summary of the facts and Appellate Court opinion in The Board of Education is here.
     
  • Prazen v. Shoop, No. 115035 – Did the Board of Trustees of the Illinois Municipal Retirement Fund exceed its powers by ordering the plaintiff's age enhancement and creditable services pension enhancements forfeited when the company he owned entered into a services contract with his former employer? Our detailed summary of the facts and Appellate Court opinion in Prazen is here.

The final case on the Court’s civil docket for this term is Performance Marketing Association, Inc. v. Hamer, No. 114496, a direct appeal from the Cook County Circuit Court of that Court’s order granting summary judgment and striking down the state internet “click-through” tax law as a violation of the Commerce Clause. We’ll have much more to say about Performance Marketing in our preview of the argument tomorrow.

Each of the Court’s sessions will begin at 9:00 a.m.

Illinois Supreme Court Intervenes in Politically Charged State Pension Battle

Earlier this month, the Illinois Supreme Court accepted a rare direct appeal, agreeing to wade into the politically charged battle over state employee pension rights. The Court ordered the consolidated appeals in Kanerva v. Weems transferred from the Appellate Court directly to the Supreme Court.

Kanerva is a consolidated case arising from four putative class actions originally filed in Sangamon, Madison and Randolph counties. All four class complaints challenge 2012 amendments to the State Employee Group Insurance Act, which instruct the Director of the Department of Central Management Services to allocate the cost of health insurance premiums between the State and its employee-retirees. The Director of CMS is directed to make that determination based on the actual cost of medical services adjusted for age, sex and geographic and demographic characteristics. 5 ILCS 375/10(a). The 2012 amendments to the Act were passed in response to Illinois' ongoing budget crisis.

The putative class representatives bring various challenges to the 2012 amendments. All argue that the amendments violate the Pension Protection Clause of the Illinois constitution, which provides that "Membership in any pension or retirement system of the State, and unit of local government or school district, or any agency thereof, shall be an enforceable contract relationship, the benefits of which shall not be diminished or impaired." Illinois Constitution, Article XIII, Section 5. Two plaintiffs argue that the law violates Article I, Section 16 of the state Constitution: "No . . . law impairing the obligations of contracts . . . shall be passed." One alleges that the statute is an unconstitutional delegation of legislative authority to the Director of CMS. One seeks an award of money damages, and three of the four seek to enjoin enforcement of the 2012 amendments.

The Sangamon County Circuit Court allowed defendants' motions to dismiss all four complaints. With respect to the Pension Protection Clause, the court held that since health benefits are not actuarially predictable (in contrast to pension benefits, which are akin to an annuity), they are not analogous to pension benefits, and not covered by the clause. The Court rejected the challenges under the Contracts Impairment Clause, holding that since it was foreseeable that the terms and conditions of the group insurance plans would change yearly, no enforceable contractual rights were vested in retirees.

The court rejected the separation of powers challenge, holding that the statute had a clear legislative purpose, identified the persons covered, provided the means for the agency to meet the purpose of the statute, and appropriately limited the agency's discretion. Finally, the Court dismissed the claims of one class plaintiff who sought damages, holding that such claims must be brought first in the state Court of Claims.

The Supreme Court seems likely to hear arguments in Kanerva before the end of 2013. A decision should be handed down three to six months after the oral argument.

How Is an Appeal from the Certification of a Pollution Control Facility Brought?

In the final days of the March term of the Illinois Supreme Court, the Court allowed a petition for leave to appeal in The Board of Education of Roxana Community Unit School District No. 1. v. The Pollution Control Board, et al. Board of Education poses the question: can the challenger to a petition for certification of a system as a pollution control facility appeal directly to the Appellate Court after losing at the Illinois Pollution Control Board?

In October 2010, the respondent submitted 28 separate applications to the Illinois Environmental Protection Agency, seeking certification of various systems, methods, devices and facilities as "pollution control facilities" as defined by the Property Tax Code. If the applications were granted, the Department of Revenue would supplant Madison County as the taxing authority. In August 2011, the Illinois Environmental Protection Agency 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 the motion for reconsideration, and denied the petitioner's motions to intervene in the remaining 26 requests for certification. The petitioner appealed the Pollution Control Board's decisions directly to the Appellate Court.

On appeal, the petitioner contended that the Appellate Court had jurisdiction over the appeal pursuant to the Environmental Protection Act, 415 ILCS 5/41(a).   The Board contended that appellate review was possible only under the Property Tax Code, 35 ILCS 200/11-60, which limited appeal rights to applicants, not challengers.

The Appellate Court dismissed the appeal for lack of jurisdiction. Reaffirming Citizen Against the Randolph Landfill (CARL) v. The Pollution Control Board, the Court held that review must begin at the Circuit Court, rather than reaching the Appellate Court in the first instance. Allowing a party adversely affected by a final order of the Board to directly appeal the matter to the Appellate Court would render Section 11-60 of the Property Tax Code - providing only limited appeal rights -- meaningless, the Court held.

Justice Thomas R. Appleton dissented, arguing that the Environmental Protection Act, 415 ILCS 5/41(a) gave the right to appeal to anyone "who filed a complaint on which a hearing was denied." The Appellate Court should "avoid attributing to the legislature an intent to deny judicial review to a local governmental entity when the Board's allegedly unjustified certification of a facility as a pollution-control facility deprives the local governmental entity of a substantial portion of its tax base," Justice Appleton argued.

Illinois Supreme Court Will File Two New Civil Opinions on Thursday Morning

This afternoon, the Illinois Supreme Court announced that it will file two opinions in civil cases on 9:00 a.m. on Thursday morning. The upcoming opinions are:

  • Ferguson v. Patton, Case No. 112488 - (1) Does Section 2-56-040 of the Chicago Municipal Code authorize the Inspector General of the City of Chicago to hire private counsel to enforce subpoenas? (2) May the Inspector General sue the Corporation Counsel of Chicago to enforce subpoenas? Our detailed preview of the facts and lower court opinions in Ferguson is here. Our report on the oral argument is here.
     
  • DeHart v. DeHart, Case No. 114137 - (1) Did plaintiff adequately allege lack of testamentary capacity based on decedent's statement in his probated will that he had no children? (2) Did plaintiff sufficiently allege undue influence on the part of defendant, who held decedent's power of attorney? (3) Could plaintiff state a viable claim for fraudulent inducement while his will contest was still pending? (4) Did plaintiff adequately allege an oral contract to adopt? (5) Shall Illinois recognize the theory of equitable adoption, and if so, did plaintiff adequately allege such a theory? Our detailed preview of the facts and lower court opinions in DeHart is here. Our report on the oral argument is here.

A Busy Day of Civil Arguments at the Illinois Supreme Court

Tomorrow will be a busy day for the Illinois Supreme Court's civil docket, with five cases being argued, beginning at 9:00 a.m. They are:

  • Wilkins v. Williams, Case No. 114310 - (1) Does the immunity conferred by the Emergency Medical Services Act, 210 ILCS 50/3.150(a), extend to the non-emergency transport of patients? (2) Does the statute bar suits in connection with injuries sustained by third parties not directly treated by the EMS workers? Our detailed preview of the facts and lower court opinions in Wilkins is here.
     
  • Standard Mutual Insurance Co. v. Lay, Case No. 114617 - Is the Federal statutory penalty imposed pursuant to the Federal Telephone Consumer Protection Act for sending unsolicited advertisements to a fax machine in the nature of punitive damages, and therefore uninsurable as a matter of Illinois law? Our detailed preview of the facts and lower court opinions in Standard Mutual Insurance is here.
     
  • Mayfield v. Mayfield, Case No. 114655 - (1) Is a lump-sum workers’ compensation settlement “net income” within the meaning of Section 505(a)(3) of the Illinois Marriage and Dissolution of Marriage Act; and (2) If so, is the 20% rule-of-thumb set forth in Section 505(a) of the Act for calculating the per-child support obligation applicable to the entire settlement? Our detailed preview of the facts and lower court opinions in Mayfield is here.
     
  • Earlywine v. Earlywine, Case No. 114779 - Is an advance payment retainer to a spouse's retained attorney in divorce proceedings the attorney's property at the moment of payment, and therefore not subject to disgorgement for an award of interim attorney's fees pursuant to 750 ILCS 5/501(c-1), the Illinois Marriage and Dissolution of Marriage Act? Our detailed preview of the facts and lower court opinions in Earlywine is here.
     
  • Crittenden v. Cook County Commission on Human Rights, Case No. 114876 - May the Cook County Commission on Human Rights award punitive damages? Our detailed preview of the facts and lower court opinions in Crittenden is here.

Illinois Supreme Court Grants Leave to Appeal Controversial Condominium Decision

May a condominium owner refuse to pay monthly and/or special assessments, in whole or in part, on the grounds that the condominium board had failed to maintain and repair the common elements of the condominium property? In the vast majority of jurisdictions around the country, the answer is simple: No. Last summer, in what the Chicago Tribune called a “ground-breaking decision” that “has stunned the condominium community nationwide,” the Appellate Court for the Second District answered the question “sometimes.” Yesterday, the Illinois Supreme Court agreed to review the decision, granting leave to appeal in Spanish Court Two Condominium Association v. Carlson [pdf].

The plaintiff in Spanish Court Two sued the defendant in early 2010 under the Forcible Entry Act. Plaintiff alleged that the defendant had stopped paying monthly assessments in August 2009. Plaintiff allegedly hadn’t paid special assessments either. The plaintiff sought possession of the defendant’s unit and a monetary award.

The defendant filed a combined answer, affirmative defenses and counterclaim. She admitted that she had stopped paying the assessments, but denied that they were owed; according to the defendant, the plaintiff’s failure to repair damage to the roof and certain brickwork directly above her unit had led to water damage to the unit itself. The defendant also alleged that the plaintiff had failed to make certain repairs inside the unit. Based on these factual allegations, defendant pled two affirmative defenses: (1) that the plaintiff was estopped from seeking the assessments because of its breach of the duty to maintain and repair; and (2) that the cost of repairing the damage to her unit should be deducted from any award of the past-due assessments. Defendant’s counterclaim was based on the same allegations.

Section 9-106 of the Forcible Entry Act, 735 ILCS 5/9-106, provides that matters which are “not germane to the distinctive purpose of the proceedings” may not be raised by a defendant. The plaintiff moved to strike the defendant’s defenses and counterclaim, citing Section 9-106, the Circuit Court granted the motion, and the defendant appealed.

The Appellate Court reversed, holding that the defendant’s defenses were potentially viable. The Court reached this conclusion by analogizing the duty to pay assessments to the obligation to pay rent: Illinois law permitted renters to defend a claim for unpaid rent by alleging that the landlord had breached the duty to maintain and repair, and by analogy, condominium owners should be permitted to raise the same defense with respect to non-payment of assessments. Plaintiff sharply challenged this conclusion, arguing that under the Condominium Act, the right of the board to collect assessments is absolute. 735 ILCS 605/18.4(d). However, the Court disagreed. Rather, the Court concluded that the Condominium Declaration and Bylaws should be seen as contracts where the parties exchanged promises: a promise to pay assessments in return for a promise to maintain and repair.  The Court cautioned that relatively minor problems, such as “overgrown bushes and unrepaired sidewalk cracks” might “rarely” constitute material breaches, but otherwise seemed to suggest no limitations to the defense. Continuing its analogy between renters and condominium owners, the Court then affirmed the severance of the defendant’s counterclaim from the Forcible Entry Act action, noting that only counterclaims for overpaid rent were considered germane in such actions involving renters.

In its petition for rehearing, the plaintiff predicted significant adverse effects from the Court’s decision, a concern echoed in the Chicago Tribune’s article on the case. Plaintiff argued that establishing a right to withhold assessments – a condominium board’s only source of income – would make it even less likely that common areas would be repaired, but the Court observed that the same concern could be applied to multiunit rentals, where the defense was established. In response to plaintiff’s prediction of “a crippling of condominium associations” as a result of the Court’s decision, the Court observed: “we question how well a condominium association is currently functioning if one of its unit owners suffers such neglect as defendant has alleged.”

Spanish Court Two is certain to be a spirited battle at the Supreme Court, with multiple amicus applications from entities within Illinois and perhaps outside the state as well. The Supreme Court will likely decide the case in late 2013. 

Are The Illinois Labor Department's Administrative Fines Unconstitutional?

Yesterday, the Illinois Supreme Court granted leave to appeal in four new civil cases. We begin our previews of these newest additions to the court’s docket with Bartlow v. Costigan [pdf], which raises a variety of constitutional challenges to the powers of the Illinois Department of Labor under the Employee Classification Act, 820 ILCS 185/1 et seq.

The state legislature enacted the Act because it suspected that construction contractors were evading various protections extended to workers under the state labor laws by improperly classifying their employees as independent contractors. An investigation begins under the Act when an interested party files a complaint (or the Department may file a complaint itself). If the Department finds cause for an investigation, it has discretion to use any method or combination of methods it chooses. Possible methods include sending a written notice to the contractor explaining the charges and giving an opportunity to present any information in writing bearing on the issues.  Before making a final decision, the Department may – but it not required to – convene a fact-finding conference, either in person or by telephone.

If the Department finds a violation, it has various options open to it: (1) issuing a cease and desist order; (2) attempting to collect wages, salary and/or benefits lost to employees by reason of the violation; or (3) assess civil penalties. The contractor may seek an “informal conference” with the Director of the Department and/or his or her chief legal counsel, but if the contractor fails to pay penalties or comply with the remedies specified in a notice of violation within 30 calendar days, the Department may turn the matter over to the Attorney General for enforcement. Even more severe penalties are possible for a second violation within five years of the first.

The plaintiffs in Bartlow received a notice of investigation and request for documents from the Department in the fall of 2008. The plaintiffs produced the materials, and a conciliator working for the Department interviewed various individuals; finally, in early 2010, the Department sent the plaintiffs notice of having preliminarily found multiple violations of the Act. A fine was set at $1.683 million. When the plaintiffs received a second notice of investigation two weeks later, they filed suit, arguing that the Act and the supporting regulations were unconstitutional on a variety of grounds: due process, special legislation, equal prohibition and bills of attainder. On cross-motions for summary judgment, the Circuit Court rejected each of the plaintiffs’ constitutional challenges.

The Fifth District of the Appellate Court affirmed. First, the plaintiffs argued that the Department was essentially exercising adjudicatory powers without being required to grant a hearing. The Department, on the other hand, claimed that its powers are purely investigatory: it has no authority to enforce any finding of violation itself, and any circuit court proceeding is de novo, with the Department having the burden of proving a violation. The Department characterized its “fines” as amounting to an offer to settle outside of court: the contractor was free to ignore the “fine” without consequence, unless and until the Department went to Court and established the violation anew. Although the Appellate Court expressed its skepticism about the Department’s argument, the Fifth Circuit held that it was compelled by the canon that statutes are held constitutional wherever reasonably possible to adopt the Department’s interpretation of its powers and reject the due process challenge.

The Appellate Court had considerably less difficulty rejecting the plaintiffs’ other constitutional challenges. The Court held that the statute gave sufficient guidance as to who could legitimately qualify as an independent contractor to allow parties to conform their conduct, and accordingly, the statute was not void for vagueness, and/or an unconstitutional delegation of legislative power. The Court rejected the plaintiffs’ equal protection and special legislation claims, applying rational basis review to find that the state had a legitimate interest in revenue lost for various employee-protection programs through misclassification, and that the legislature could have reasonably concluded that workers in the construction industry were most urgently in need of immediate protection through the statute.

The Supreme Court will likely decide Bartlow in late 2013.

Illinois Supreme Court Announces Anticipated Filing Dates for January and February

The Illinois Supreme Court has announced its anticipated filing dates for January and February. Opinions are expected on Friday, January 25; Thursday, February 7; and Friday, February 22. Decisions on petitions for rehearing are expected on Monday, January 28th and decisions on petitions for leave to appeal are expected on Wednesday, January 30.

The Court made substantial progress in December with handing down decisions on cases heard during its September term. The remaining cases awaiting decisions from that term are:

Call of the Docket for September 19

  • In re Estate of Boyar, No. 113655 – (1) Is the doctrine of election recognized with respect to trusts? (2) If so, should the doctrine be applied when the property accepted was allegedly nominal in value? For our preview of the case, see here. For our report on the oral argument, see here

Call of the Docket for September 20

  • Ferguson v. Patton, No. 112488 -- (1) Does Section 2-56-040 of the Chicago Municipal Code authorize the Inspector General of the City of Chicago to hire private counsel to enforce subpoenas? (2) May the Inspector General sue the Corporation Counsel of Chicago to enforce subpoenas? For our preview of the case, see here. For our report on the oral argument, see here.
     
  • The Hope Clinic for Women v. Adams, No. 112673 et seq. -- Did the trial court properly dismiss an action challenging the constitutionality of the Illinois Parental Notice of Abortion Act, brought solely under state law, on the grounds that the plaintiffs' equal protection and due process claims were barred by collateral estoppel, and the plaintiffs' privacy claim was barred because Federal privacy law would require dismissal, and state privacy protections were interpreted in lockstep with Federal law? For our preview of the case, see here. For our report on the oral argument, see here.

Turning to the November term, the Court has five civil cases which might be decided in either January or February. They are:

Call of the Docket for November 15

  • Griggsville-Perry Community Unit School District No. 4 v. Illinois Educational Labor Relations Board, No. 113721 et seq. – May an arbitrator apply “industrial common law” to find to find that a terminated employee had a right to a statement of specific acts or omissions allegedly justifying termination where the union contract at issue barred the arbitrator from modifying, nullifying, ignoring or adding to the terms of the contract? Our in-depth review of the facts and lower court rulings is here. Our pre-argument preview is here. Our report on the oral argument is here.

Call of the Docket for November 20

  • State Bank of Cherry v. CGB Enterprises, Inc., No. 113836 -- (1) Does the Federal Food Security Act of 1985, 7 U.S.C. § 1631(e), preempt the state UCC for purposes of security interests on crops? (2) If so, does the Act require strict or substantial compliance in order to effectively attach a security interest when crops are sold? Our pre-argument preview is here. Our report on the oral argument is here.
     
  • Skokie Castings, Inc. v. Illinois Insurance Guaranty Fund, No. 113873 -- Was a self-insuring employer's claim for reimbursement for workers compensation benefits paid a claim for workers compensation exempt from the Fund's $300,000 liability cap under 215 ILCS 5/537.2? (2) Was a self-insuring employer an "insurer" under the Act, meaning that it was obligated to continue paying benefits until it became insolvent, rather than seeking reimbursement from the Fund? Our in-depth review of the facts and lower court rulings is here. Our pre-argument preview is here. Our report on the oral argument is here.
     
  • Poris v. Lake Holiday Property Owners Association, No. 113907 – (1) May a property association authorize private security officers to stop and detain persons on its property for speeding on association-owned roads? (2) May such an association place oscillating amber lights on vehicles used by its security department? (3) Where plaintiff was ordered by a security officer to remain in his vehicle while a citation for speeding on association-owned roads was prepared, did the plaintiff adequately plead the elements of false imprisonment? Our in-depth review of the facts and lower court rulings is here. Our pre-argument preview is here. Our report on the oral argument is here.
     
  • Bjork v. O’Meara, No. 114044 – Does the six-month statute of limitations in the Probate Code, 755 ILCS 5/8-1, apply to a separate tort action for interference with testamentary expectancy which -- if successful -- would have the practical effect of invalidating the will? Our in-depth review of the facts and lower court rulings is here. Our pre-argument preview is here. Our report on the oral argument is here.

Illinois Supreme Court to Consider The Potential Perils of E-Filing a Notice of Appeal

We continue our previews of the civil cases scheduled for oral argument during the Illinois Supreme Court's January term with VC&M, Ltd. v. Andrews.

VC&M arises from a real estate dispute. The defendants were in the process of getting a divorce. They signed a contract with the plaintiff to list their residence. Plaintiff found a buyer, who put in a bid for less than the asking price. Defendants rejected the offer and declined to make a counter offer. Not long after, the wife allegedly informed one of the realtors that the defendants weren’t selling the home after all; the wife would buy out the husband’s interest and continue living there.   A few months after the listing agreement expired, the Circuit Court entered a judgment of divorce with respect to the defendants which incorporated a property settlement. The settlement agreement valued the marital home at $5 more than the rejected offer from the prospective buyer. 

The plaintiff then sued the defendants for breach of contract and account stated. The defendants moved to dismiss the complaint for failure to state a claim, and the Court dismissed.

But VC&M isn’t about real estate or contract law. Rather, it’s about a major issue facing Illinois courts, like cash-strapped judiciary systems around the country: e-filing of pleadings. Courts are turning to e-filing in part in order to eliminate the enormous costs of storing paper pleadings. For example, according to Chief Justice Thomas L. Kilbride, Cook County spent nearly $16 million in 2011 just for storage of Circuit Court documents. The Supreme Court announced statewide e-filing standards for trial courts in October 2012, and five counties have been approved to operate pilot projects.

One of those five counties is DuPage, where VC&M arose. Thirty days after the complaint was dismissed, the plaintiff e-filed a motion for reconsideration. The motion was denied the following month, and thirty days after the denial, the plaintiff e-filed a notice of appeal.

The case was technically eligible to be designated as an e-filing case, but the plaintiff hadn’t taken any of the steps necessary to designate it as an e-filing case before e-filing the all-important motion for reconsideration and notice of appeal. Neither the complaint, amended complaint or answer had been e-filed, and the parties hadn’t stipulated to e-filing. And the Local Rules appeared to bar e-filing appellate documents outright.

The Second District of the Appellate Court dismissed plaintiffs’ appeal for lack of jurisdiction, holding that plaintiffs’ failure to comply with the Local Rules regulating e-filing was fatal. First, since the case had not been appropriately designated an e-filing case, the e-filed motion for reconsideration – although technically timely – was ineffective. Since there was no timely filed motion for reconsideration, the Notice of Appeal was untimely. And since the Notice of Appeal couldn’t properly be e-filed at all, it would have been ineffective even if it had been technically timely.

VC&M will be an interesting opportunity for the Supreme Court, if it chooses, to give further guidance to the bar and the lower courts about the rules governing e-filing of pleadings. The Supreme Court will hear argument during the 9:00 a.m. session on Thursday, January 24.

Illinois Supreme Court Will Hear Five Civil Cases During January Term

The Illinois Supreme Court has posted its docket for the impending January term, and the Court will hear argument in five civil cases.

The civil portion of the Court’s docket begins during the 9:00 a.m. session on Wednesday, January 16 with McFatridge v. Madigan. McFatridge, which we previewed here,involves a dispute between a former State’s Attorney and the State over liability for the plaintiff’s attorneys fees incurred when he was sued for malicious prosecution. The question turns on the interpretation of the Illinois State Employee Indemnification Act. 5 ILCS 350/2(b)

Russell v. SNFA, which will be argued during the 9:00 a.m. session on Wednesday, January 23, raises questions of general and specific jurisdiction over a French-based manufacturer of custom-made aerospace bearings and helicopter tail-rotor bearings. Our preview of Russell is hereRussell presents the Supreme Court with its first opportunity to squarely apply J. McIntyre Machinery, Ltd. v. Nicastro, the United States Supreme Court’s landmark 2011 decision on the limits to jurisdiction over foreign-based manufacturers.

DeHart v. DeHart, which we previewed here, presents interesting issues of both wills & estates law and adoption law. The plaintiff’s challenge to the testamentary capacity is based upon the decedent’s statement in his will that he had no children. Was that sufficient grounds to take the challenge before a jury? The case also involves issues of when a jury may permissibly infer the existence of an enforceable contract to adopt, and whether Illinois should recognize the theory of adoption by equitable estoppel.

We’ll post our previews of the Court’s remaining two civil cases, VC&M, Ltd. v. Andrews and Gruszeczka v. Illinois Workers’ Compensation Commission, both of which will be argued during the 9:00 a.m. session on Thursday, January 24th, shortly.

Can the Cook County Commission on Human Rights Award Punitive Damages?

Our previews of the new civil cases granted review at the end of the Illinois Supreme Court’s November term conclude with Crittenden v. Cook County Commission on Human Rights [pdf]. Crittenden involves a question of administrative law which, depending on the breadth of the Court’s ultimate decision, could have broad implications: when can an administrative board award punitive damages?

Crittenden arises out of a sexual harassment claim. A bartender working at a Cook County bar filed a police report against her supervisor, resulting in a criminal trial at which he was acquitted. Shortly thereafter, the alleged victim filed a complaint with the Cook County Commission on Human Rights, alleging that her supervisor’s alleged conduct violated the Cook County Human Rights Ordinance. After a contentious hearing on the complaint, a hearing officer recommended that the employee receive an award of lost wages, compensatory and punitive damages. The Commission adopted the hearing officer’s recommended order.   The supervisor and the bar filed a petition for writ of certiorari with the Circuit Court, seeking administrative review of the Commission’s decision. The Court denied the writ, affirming the Commission’s decision on liability and compensatory and punitive damages.

The Appellate Court (First District, Sixth Division) affirmed the Commission in most respects. The appellants – the supervisor and the bar – argued that the Commission’s determination that the complainant was more credible that the appellants’ witnesses was against the manifest weight of the evidence. The Appellate Court rejected the argument, concluding that the appellants were essentially asking the Court to reweigh the evidence and substitute its assessment of credibility on a cold record for that of the hearing officer and Commission. The Appellate Court also found no reason to disturb the decision of the hearing officer, confirmed by the Commission, to allow the complainant to contradict her complaint with respect to the date of the principal events at issue.

The appellants also claimed that the hearing officer and Commission had erred by considering hearsay – testimony that the employee’s son had accompanied her to the bar the day after the principal events and damaged the bar in a fit of anger. The Appellate Court disagreed, pointing out that the rules of evidence didn’t apply to Commission proceedings, and any error in considering the expressive acts of the son was harmless anyway. The Court also concluded that there was sufficient evidence in the record to support the award of compensatory damages, and that the appellants hadn’t proven that the plaintiff failed to mitigate her damages.

The Court reversed the Commission’s award of punitive damages, however. According to the Court, in an action based on a statutory violation, punitive damages may be awarded either because the statute authorizes them, or the facts of the case support common law punitive damages. The Court concluded that the Cook County Human Rights Ordinance doesn’t authorize punitive damages awards, either expressly or by fair implication. Although the Ordinance states that the enumerated penalties are not an exhaustive list, the Court observed that each of the enumerated penalties is compensatory in nature, rather than a windfall like punitive damages. The Court also thought it was significant that the power to award punitive damages was expressly given in other ordinances, suggesting that if such a power had been intended, the Ordinance would say so.

The Appellate Court acknowledged that Division One of the First District had come to the opposite conclusion in Page v. City of Chicago, holding that the Chicago Human Rights Ordinance does permit an award of punitive damages for acts of sexual harassment and discrimination, but the Court declined to follow Page, noting among other things that the Page Court had failed to adequately address the limited powers of administrative agencies.

Finally, the Court refused to permit a common law award of punitive damages. As an administrative agency, the Commission had no common law authority, the Court held. Moreover, even if the Commission did have such authority, the Court pointed out that the Commission had made no findings that the supervisor’s alleged actions were committed with malice, or any of the other grounds which justify a common law award of punitive damages.

We expect the Supreme Court to decide Crittenden within four to six months.

Illinois Supreme Court to Tackle Public Employees' Right to Strike

Our previews of the new civil cases granted review at the end of the Illinois Supreme Court’s November term continue with The Board of Education of Peoria School District No. 150 v. The Peoria Federation of Support Staff, Security/Policemen’s Benevolent and Protective Association No. 114 [pdf]. Board of Education poses two questions: the constitutionality of a recent amendment to the Illinois Public Labor Relations Act relating to certain public employees’ right to strike, and the identity of the proper state administrative board to take jurisdiction over an unfair labor practice claim.

According to the complaint, the plaintiff is the only school district in Illinois which employs its own security officers (as opposed to securing its schools by coordinating with local police departments). The plaintiff’s officers have been represented by various iterations of a union since 1989. When the latest union contract expired in mid-2010, two disputes arose: one fight over the timing of the negotiations, and another over what state law governed the parties’ discussions.

The Public Labor Relations Act regulates labor relations between most public-sector employees and their employers. School districts and their employees are specifically excluded from the coverage of the Act – they fall, as a general matter, under the Educational Labor Relations Act. But by virtue of a 2010 amendment to the Public Labor Relations Act, “a school district in the employment of peace officers in its own police department in existence on the effective date of this amendatory Act of the 96th General Assembly” is brought back within the coverage of the Act.

Note two things about the language of this “exception to the exception” : first, it only affects the plaintiff in Board of Education – the only school district in the state which employs its own security officers. And second, as written it can never affect anyone else – the class is closed on the effective date of the 2010 amendment. This potentially matters a great deal, since public employees who are subject to the Public Labor Relations Act and are employed as security personnel, peace officers, or firefighters are prohibited from striking – they are required to accept interest arbitration instead.   Employees subject to the Educational Labor Relations Act are, as a general matter, allowed to strike.

The plaintiff filed a two-count complaint, seeking (1) a declaration that the 2010 amendment to the Public Labor Relations Act was unconstitutional special legislation; and (2) that its negotiations with its security officers were governed by the Education Labor Relations Act, rather than the Public Labor Relations Act. The Circuit Court dismissed the complaint for failure to state a claim, but the Appellate Court reversed.

The Illinois Constitution prohibits “special legislation” – meaning statutes which discriminate in favor of a select group on an arbitrary basis. The distinction made by the Public Labor Relations Act between security officers employed by schools and those employed by others wasn’t the problem, the Appellate Court held. The problem was the language of the statute closing the class as of the effective date of the statute. Absent that clause, the distinction might have a rational basis: for example, ensuring that police officers, no matter who employed them, could not strike. But a statutory provision which applied to only one school district and could never apply to anyone else had no apparent rational basis, in the Court’s view. Therefore, the plaintiff’s constitutional challenge to the Public Labor Relations Act was sufficiently viable to go forward.

With respect to the plaintiff’s second claim, seeking a declaration as to whether its dispute fell under the jurisdiction of the state board administering the Education Labor Relations Act or the separate board administering the Public Labor Relations Act, the state boards argued that the plaintiff’s claim failed for failure to exhaust administrative remedies. The Appellate Court rejected the argument, concluding that the plaintiff’s claim was analogous to a challenge to the board’s jurisdiction, and thus exempt from the exhaustion requirement.

We expect the Supreme Court to decide Board of Education within four to six months.

Municipal Pensions II: Do Survivors' Pensions Increase Whenever the Salary For the Position Does?

 

Our previews of the new civil cases granted review at the end of the Illinois Supreme Court’s November term continue with Hooker v. Retirement Fund of the Firemen's Annuity and Benefit Fund of Chicago, [pdf]. Hooker poses the question of whether the pensions for firefighter's survivors should be set for all time pursuant to the salary the firefighter was receiving at the time of his or her death.

Decedent #1 suffered a stroke while responding to a fire in 1985, and was awarded a duty disability benefit. After he died in 1998, his widow was awarded the widow's minimum annuity pursuant to the Pension Code. 40 ILCS 5/6-141.1. Decedent #2 was injured in 1988 while working for the fire department. He died in 2000, and his widow was awarded the widow's minimum annuity as well. Both women filed complaints for administrative review and won judgments requiring awards of line of duty benefits.

In 2004, the General Assembly amended the Pension Act to require an award of Duty Availability Pay (DAP) in salaries for some pension and annuity calculations. The widows amended their administrative complaints, arguing that (1) they should have been awarded line-of-duty benefits retroactively to the date of the decedents' deaths; and (2) they should have been awarded DAP in their pension calculations. Plaintiffs sought leave to bring the DAP claim as a class action, presenting a list of 100 widows who they alleged had the right to such benefits.

The Circuit Court permitted the plaintiffs' amendment, but stayed the class claims until the line-of-duty benefits claims were resolved. The Court reversed the Board, ordering an award of line-of-duty benefits retroactive to the date of death; the Appellate Court affirmed. On remand, the Board again refused to include DAP in its benefit calculation. The Circuit Court denied the motion to certify a class and granted the Board's motion for summary judgment.

The Appellate Court reversed. The Court held that under Section 6-140 of the Pension Code, 40 ILCS 5/6-140(a), the amount of a widow's annuity depended on the current annual salary attached to the decedent's position, whether or not the firefighter ever actually received that salary. Thus, the widow's annuity increased whenever the decedent's pay grade was increased. Accordingly, the Appellate Court held that the Board was required to include DAP in the salary calculation governing the plaintiffs' pensions.

The Appellate Court reversed the Circuit Court's denial of the motion to certify a class as well, holding that all of the factors governing certification were satisfied. Despite the limited powers of the Board, the Court held that a class complaint was a "rule[ ], regulation[ ], standard[ ], or statement[ ] of policy" within the meaning of the Appellate Court's decision in Board of Education of the City of Chicago v. Board of Trustees of the Public Schools Teachers' Pension & Retirement Fund, rather than a "decision, order or determination of any agency rendered in a particular case," and therefore, a class complaint was not outside the Board's powers pursuant to the Administrative Review Law.

The Court should decide Hooker within four to six months.

 

Illinois Supreme Court to Resolve Municipal Pension Dispute

Our previews of the new civil cases granted review at the end of the Illinois Supreme Court’s November term continue with Prazen v. Shoop [pdf], a dispute about the politically charged issue of public employee pensions.

Prazen relates to an Early Retirement Incentive (ERI) plan adopted by a city pursuant to section 7-141.1 of the Pension Code. At the end of 1998, the plaintiff retired 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 had run as an unincorporated entity for some time – Electrical Consultants, Ltd.

Three days after it was incorporated, ECL and the city entered into a management and supervision agreement for the operation of the city’s electric department, effective one day after plaintiff’s retirement. Pursuant to the agreement, ECL agreed to provide a full time person to perform its duties with the electric department. The agreement was extended a number of times, until ECL finally terminated it in early 2009. ECL was voluntarily dissolved several months later. Throughout the life of the company, ECL employed no more than three people: plaintiff, his wife and their daughter.

The potential problem here is Section 7-141.1(g) of the Pension Code:

An annuitant who has received any age enhancement or creditable service under this Section and thereafter accepts employment with or enters into a personal services contract with an employer under this Article thereby forfeits that age enhancement and creditable service . . .

In the years immediately following his 1998 retirement, the plaintiff sought assurances on three occasions from the Illinois Municipal Retirement Fund that his contract with the city didn’t imperil his pension. In 1998, an IMRF representative allegedly told the plaintiff’s lawyer that a former employee could contract with an IMRF employer as an independent contractor (which is what the contract between the City and the plaintiff’s ECL corporation was). In early 2002, IMRF representatives confirmed that everything said in 1998 still applied. In late 2002, an IMRF representative confirmed that an “early out” employee could work for a corporation – even one he owned – doing work for his former employer, so long as the corporation wasn’t merely a guise to evade the statute.

Nevertheless, in 2010, IMRF staff informed the plaintiff that his continued relationship with the city had run afoul of Section 7-141.1(g) of the Pension Code after all. The plaintiff appealed the decision to the IMRF benefit review committee. Concluding that the IMRF had the power to “make administrative decisions concerning participation and coverage and to carry out the intent of the Fund,” the committee determined that the plaintiff’s corporation was a “guise” to evade the return-to-work provisions of the statute and ordered the plaintiff to repay the portion of his pension annuity attributable to his early retirement incentive. The IMRF Board of Trustees later affirmed the staff determination and adopted the committee’s conclusions as its own. The Circuit Court affirmed.

The Appellate Court (Fourth District) reversed. The Court held the Board of Trustees had the power to order return of benefits in only two circumstances: when an employee had accepted “employment with” or entered into a “personal services contract with” his former employer. The Board made neither determination here. If the Board were permitted to expand its general power to make “administrative decisions on participation and coverage” into authority to order return of benefits under additional circumstances not specified by the statute, then Section 7.141.1(g) would be rendered superfluous, the Court found. The Board’s finding that the plaintiff’s corporation was a “guise” for evading the statute amounted to an equitable determination to pierce the corporate veil, according to the Appellate Court. If the legislature wanted to grant such power to the Board, it would have said so, in the Court’s view.

Disgorgement of an Advance Payment Retainer as Interim Fees in a Divorce Case?

In the closing days of the Illinois Supreme Court's November term, the Court allowed petitions for leave to appeal in six civil cases. Our previews of the new grants begin with In re Marriage of Earlywine [pdf]. Although Earlywine arises from a divorce, it presents an interesting intersection of domestic relations law and attorney retainers.

In conjunction with divorce proceedings, the husband entered into an attorney-client agreement with his attorney, agreeing to pay an advance payment retainer. An affidavit from the husband's mother explained that she, her fiancé, the husband's father and the husband's father's wife financed the retainer. During the dissolution proceedings, the evidence showed that the husband was working only sporadically and the wife was unemployed.

The wife's attorney filed a petition 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 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, finding that the wife was unable to pay her attorney's fees, and an interim award was appropriate. The husband's attorney moved to reconsider, attaching a copy of the attorney-client agreement and arguing that, as an advance payment retainer, the funds had become his property at the moment of payment, and therefore were not subject to disgorgement.

The Circuit Court denied reconsideration, holding that the public policy in favor of placing the parties to a divorce in substantial parity overrode any considerations about the nature of the retainer. Counsel refused to pay, asking that he be held in friendly contempt to facilitate an appeal.

The Second District of the Appellate Court affirmed. The Court began by distinguishing a true, classic or general retainer -- which is intended to ensure the attorney's availability for a specific matter, or during a specific period -- from a security retainer. A true retainer becomes the attorney's property immediately, while a security retainer continues to be the client's property until it is earned.

Ultimately, however, the Court held that the distinction didn't make a difference. Advance payment retainers -- a form of true retainer -- are to be used sparingly, and only to accomplish a specific purpose that some other form of retainer would frustrate. Permitting an advance payment retainer to defeat a claim for interim fees would frustrate the primary purpose of section 501(c-1), which is to ensure that the parties are in substantial financial parity during the divorce proceedings, the Court held.

Besides, the Appellate Court found, Section 501(c-1) specifically listed "retainers . . . previously paid" as a source for disgorgement. Given that the Legislature didn't choose to distinguish between the types of retainers, the terms of the statute should be given their broadest possible construction. The Court acknowledged in closing that the husband had borrowed the money to finance the retainer from his own family, but held that this fact should not change the result.

Earlywine will likely be decided within four to six months.

Illinois Supreme Court Adopts Rule 502: Spoiler Alert for Center Partners?

Today, the Illinois Supreme Court adopted Rule 502 of the Illinois Rules of Evidence, governing the circumstances in which disclosure of protected materials in a legal proceeding, or before a state or federal office or agency, affects a more general waiver of the attorney-client or work product privilege.

The new state Rule 502 tracks Federal Rule 502 almost word for word: (1) when disclosure happens in a state proceeding, or before a state office or agency, the scope of waiver is decided case-by-case; (2) when disclosure is inadvertent, a general waiver may be avoided by quick and reasonable mitigating steps; and (3) disclosure in a Federal proceeding, another state's proceeding, or before a Federal or other state's proceeding is waiver only if it would not qualify as waiver under either Illinois law or the law of the jurisdiction where the disclosure happened.

But here's the interesting part. The new Rule 502 became an issue in Center Partners, Ltd. v. Growth Head GP, LLC, which will settle the breadth of waiver in a non-litigation case where business partners shared their attorneys' advice with each other while negotiating a business deal. Center Partners will be released tomorrow morning. Perhaps the adoption of Rule 502 today suggests how the Court will rule in Center Partners tomorrow.

Illinois Supreme Court Grants Review in Six New Civil Cases

This morning, the Illinois Supreme Court announced that it has allowed petitions for leave to appeal in six new civil cases. They are:

  • Earlywine v. Earlywine, No. 114779 -- a case on the construction of the Marriage and Dissolution of Marriage Act arising from the Second District.
     
  • Hooker v. Retirement Board of the Firemen’s Annuity and Benefit Fund of Chicago, No. 114811 – a case on the proper calculation of annuities under the Pension Act for firefighters’ widows arising from the First District, Division Three.
     
  • The Board of Education of Peoria School District No. 150 v. The Peoria Federation of Support Staff, Security/Policemen’s Benevolent and Protective Association Unit No. 114, No. 114853 – a case involving the constitutionality of an amendment to the Illinois Public Labor Relations Act arising from the Fourth District.
     
  • Crittenden v. Cook County Commission on Human Rights, Nos. 114876 and 114911 – an administrative appeal from the decision of the Cook County Commission on Human Rights with respect to a claim for sexual harassment in violation of the Cook County Human Rights Ordinance, arising from the Sixth Division of the First District.
     
  • Relf v. Shatayeva, No. 114925 – a case involving the dismissal of a personal injury action under Section 2-619 of the Code of Civil Procedure where, unbeknownst to the plaintiff, the defendant had died before the original complaint was filed. Relf arises from the First District, Second Division.
     
  • Prazen v. Shoop, No. 115035 – a case involving the return-to-work restrictions of the Illinois Pension Code and their impact on early retirement incentives for municipal employees. Prazen arises from the Fourth District.

As we noted yesterday, the Court has announced that it expects to file four new civil opinions tomorrow morning. Once we’ve completed our analysis of those opinions, we’ll begin our detailed previews of the Court’s six new civil grants.

Remaining Civil Opinions For 2012 from the Illinois Supreme Court

With the November term in full swing and the holidays rapidly approaching, the Illinois Supreme Court has announced that the Court expects to file opinions on three remaining days in 2012: November 29, December 13 and December 28.

The Court’s civil docket is largely up to date, accounting for the usual time between argument and opinion. Every civil case on the January and March argument dockets has been decided. One remains from the May term, and we will likely see that opinion soon: 

  • Wilson v. Edward Hospital, No. 112898 – Are actual agency and apparent agency separate claims for purposes of the res judicata doctrine and the prohibition against claim-splitting set forth by the Supreme Court in Hudson v. City of Chicago, 228 Ill.2d 462 (2008) and Rein v. David A. Noyes & Co., 172 Ill.2d 325 (1996), so that summary judgment entered on the actual agency claims in plaintiffs’ initial suit bars plaintiffs’ apparent agency claims in a refiled suit, even in the face of a ruling that there is a question of fact as to the apparent agency claims?

As readers of The Appellate Strategist will recall, the Court’s September term was especially heavy in civil arguments, with thirteen cases being argued, presenting a number of challenging issues. Based on the Court’s experience in recent years, we would expect between three and six cases from the September term to be handed down in December.  The cases are:

Call of the Docket for September 13:

  • Hernandez v. Bernstein, No. 113054 -- (1) Is an action for legal malpractice based on one factual theory one claim for purposes of res judicata, or two? (2) Does a plaintiff's voluntary dismissal of the remainder of his claim render the trial court's order dismissing one of plaintiff's factual theories final for purposes of res judicata? For our preview of the case, see here. For our report on the oral argument, see here.

Call of the Docket for September 18:

  • Center Partners, Ltd. v. Growth Head GP, LLC, No. 113107 et seq. – (1) Does the doctrine of subject matter waiver for the attorney-client privilege extend from litigation to business negotiations? (2) Can documents shared among partners in a business negotiation be protected by the work product privilege? For our preview of the case, see here. For our report on the oral argument, see here.
     
  • Cooney v. Rossiter, No. 113227 – (1) Was the plaintiffs' action barred pursuant to res judicata by the earlier Federal action, even though the earlier Federal action was a class, rather than an individual claim? (2) Did a court-appointed psychological evaluator in a custody hearing have absolute immunity from suit for alleged misconduct in connection with his opinions? For our preview of the case, see here. For our report on the oral argument, see here.
     
  • Carr v. Koch, No. 113414 – Do plaintiffs have standing to challenge the Illinois education funding system as a violation of the equal protection clause of the Illinois constitution? For our preview of the case, see here. For our report on the oral argument, see here.
     
  • EMC Mortgage Corp. v. Kemp, No. 113419 – (1) Is a judgment of foreclosure final and appealable, or must an appeal await a final order approving the sale and distributing the proceeds? (2) Is an order of foreclosure immediately appealable when standing is challenged on the grounds that the order is void? For our preview of the case, see here. For our report on the oral argument, see here.
     
  • Mathis v. Mathis, No. 113496 – In a bifurcated dissolution proceeding, when a grounds judgment has been entered, and when there is a lengthy delay between the date of entry of the grounds judgment and the hearing on ancillary issues, is the appropriate date for valuation of marital property the date of dissolution or a date as close as practicable to the date of trial of the ancillary issues? For our preview of the case, see here. For our report on the oral argument, see here.

Join us after the jump for the remaining cases.

Call of the Docket for September 19:

  • Toftoy v. Rosenwinkel, No. 113569 – Does the Farm Nuisance Act, 740 ILCS 70/1, bar a nuisance suit where defendants started a cattle operation on property across from an unoccupied farmhouse, and several years later, plaintiffs demolished the farmhouse and constructed a new family home? For our preview of the case, see here. For our report on the oral argument, see here.
     
  • In re Estate of Boyar, No. 113655 – (1) Is the doctrine of election recognized with respect to trusts? (2) If so, should the doctrine be applied when the property accepted was allegedly nominal in value? For our preview of the case, see here. For our report on the oral argument, see here.
     
  • Rodriquez v. The Department of Financial and Professional Regulation, No. 113706 – Where an action for attorneys fees under 5 ILCS 100/10-55(c) is not brought simultaneously with a challenge to an administrative rule, is a subsequent action for fees barred as res judicata? For our preview of the case, see here. For our report on the oral argument, see here.
     
  • Fennell v. Illinois Central Railroad Co., No. 113812 – Did the trial court err by denying defendant's motion for dismissal pursuant to forum non conveniens of an asbestos injury claim brought by a non-resident of Illinois? For our preview of the case, see here. For our report on the oral argument, see here.

Call of the Docket for September 20:

  • Mashal v. The City of Chicago, No. 112341 – (1) What is a 'decision on the merits' under 735 ILCS 5/2-802 that would preclude the entry of a class decertification order? (2) Whether, in a class action case challenging defendants' practice of issuing parking or standing violations to taxicab drivers and others by mail and without any personal service on the driver or placement of the citation on the offending vehicle, a prior Judge's ruling that the defendants' 'practice of sending a second notice of a parking or standing violation prior to an initial notice being either hand delivered to the driver of the vehicle or affixed to the vehicle is violative of the plain language of the statute and the ordinances' constitutes a decision on the merits under section 2-802 of the Code such that a subsequent judge presiding in the case lacks the authority to decertify the class? (3) Whether, in a class action case challenging defendants' practice of issuing parking or standing violations to taxicab drivers and others by mail and without any personal service on the driver or placement of the citation on the offending vehicle, a prior Judge's ruling that denied the defendants' motion for partial summary judgment on the application of their affirmative defenses of failure to exhaust administrative remedies, res judicata, the collateral attack doctrine, and the voluntary payment doctrine constitutes a decision on the merits under section 2-802 such that a subsequent Judge presiding in the case lacks the authority to decertify the class? (4) Whether, in a class action case challenging defendants' practice of issuing parking or standing violations to taxicab drivers and others by mail and without any personal service on the driver or placement of the citation on the offending vehicle, a Judge's ruling that granted in part the defendants' motion for summary judgment on the application of the statute of limitations constitutes a decision on the merits under section 2-802 such that a subsequent Judge presiding in the case lacks the authority to decertify the class. For our preview of the case, see here. For our report on the oral argument, see here.
     
  • Ferguson v. Patton, No. 112488 -- (1) Does Section 2-56-040 of the Chicago Municipal Code authorize the Inspector General of the City of Chicago to hire private counsel to enforce subpoenas? (2) May the Inspector General sue the Corporation Counsel of Chicago to enforce subpoenas? For our preview of the case, see here. For our report on the oral argument, see here.
     
  • The Hope Clinic for Women v. Adams, No. 112673 et seq. -- Did the trial court properly dismiss an action challenging the constitutionality of the Illinois Parental Notice of Abortion Act, brought solely under state law, on the grounds that the plaintiffs' equal protection and due process claims were barred by collateral estoppel, and the plaintiffs' privacy claim was barred because Federal privacy law would require dismissal, and state privacy protections were interpreted in lockstep with Federal law? For our preview of the case, see here. For our report on the oral argument, see here.

Are Federal Junk Fax Damages Insurable in Illinois?

In the final days of its September term, the Illinois Supreme Court allowed a petition for review in Standard Mutual Insurance Co. v. Lay. [pdf] In Lay, the Court will decide whether the Federal statutory penalty for sending junk faxes is in the nature of punitive damages, and thus uninsurable under Illinois law.

The defendant in Lay is a small real estate agency. According to the complaint, the defendant hired a “fax broadcaster” in connection with advertising a particular property listing. “Fax broadcasters” offer a “blast fax” service, sending advertisements to thousands of fax machines cheaply.

According to the Federal Telephone Consumer Protection Act, it is unlawful to send unsolicited advertisements to a fax machine, whether by use of a fax machine, computer or any other device. 47 USC 227(b)(1)(C).  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.

The fax broadcaster in Lay allegedly represented to the defendant that only persons who had agreed to receive advertisements would get its blast fax. Allegedly this was not so. So not long after the defendant’s blast fax was sent, the underlying action was filed, seeking a trebled penalty of $1,500 for each of the 3,478 faxes purportedly sent.

The defendant tendered its defense to its insurer, which accepted under a reservation of rights. Ultimately, the defendant agreed to settle the underlying action, with the plaintiff class representative agreeing not to execute against the defendant’s assets, with the exception of its insurance policy.

Meanwhile, the insurer had filed a declaratory judgment action, seeking a declaration that the insured’s liability was not covered under the policy. Following the settlement of the underlying action, the class representative became actively involved in the dec action, and the insurer and the class representative filed cross motions for summary judgment. The Circuit Court granted the insurer’s motion, finding no duty to defend or indemnify.

The Appellate Court affirmed. After clearing away a preliminary issue, finding that the insurer’s reservation of rights letter had adequately disclosed the nature of its conflicts with the insured, the Court turned to the TCPA. The class representative argued that the damages from the TCPA action were covered under both the advertising injury and property damage provisions of the policies. The Appellate Court disagreed.

The purpose of the TCPA, according to the Court, is to deter sending of unwanted fax transmissions. The $500-per-fax penalty, the Court pointed out, is far in excess of any damages suffered by the recipient, which are limited to paper, toner and annoyance. If construed as compensatory damages, the penalty is clearly a windfall.

Illinois courts have written that the purposes of punitive damages are (1) retribution against a defendant; (2) deterrence of future wrongs by the defendant; and (3) general deterrence of others. The final two purposes apply equally to the TCPA penalty, the Court found. The Court conceded that at least some other jurisdictions have held that the TCPA is remedial rather than penal in nature, but declined to follow those decisions, pointing out that allowing defendants to get insurance coverage for the penalty would frustrate the purpose of deterring violations. The Court held that TCPA statutory damages are in the nature of punitive damages, and therefore uninsurable as a matter of law in Illinois.

The Supreme Court will likely decide Lay sometime in the first half of next year.

When You're Hit By an Ambulance: Illinois Supreme Court Takes Bookend to Harris

During its May term, the Illinois Supreme Court decided Harris v. Thompson, which posed the question of whether a public entity or employee could be held liable for negligent operation of an ambulance. At the close of its September term, the Court allowed a petition for review in Wilkins v. Williams. Wilkins poses the inevitable follow-up question to Harris: but what if the ambulance is operated by a private company’s employee?

Since Harris may give us clues to the Court’s initial thoughts on Wilkins, let’s start there. (For our preview of Harris, click here, and for our report on the opinion, here.)  Harris reached the Court as a perceived conflict between two statutes. On the one hand, the Local Governmental and Governmental Employees Tort Immunity Act provided that public entities and employees could not be “liable for an injury caused by the negligent operation of a motor vehicle or firefighting or rescue equipment, when responding to an emergency call, including transportation of a person to a medical facility.” On the other hand, the Vehicle Code says that although the driver of an emergency vehicle has certain privileges, he or she still has “the duty of driving with due regard for the safety of all persons.” The Appellate Court had held that the Vehicle Code trumped the Tort Immunity Act, making the driver and employer potentially liable.

But the Supreme Court held that there was no conflict. According to the six-Justice majority, the Vehicle Code extended certain privileges and imposed certain duties. The Tort Immunity Act addressed a different question: whether or not there was a duty involved, was the suit barred? The Court held that it was. Chief Justice Thomas L. Kilbride dissented, arguing that there was an “obvious and undeniable conflict” between the statutes, and the Vehicle Code should have prevailed.

Wilkins involves virtually identical facts: an ambulance transporting a patient on a non-emergency run strikes another vehicle, injuring the driver. Is the driver of the ambulance and her employer liable?  But in Wilkins, the ambulance was privately owned. So rather than the Tort Immunity Act, we have the Emergency Medical Services (EMS) Act to deal with.

Nonetheless, the two statutes seem similar in scope. According to the 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, two questions: (1) Does the EMS Act extend to non-emergency transport of patients? (2) Does the statute extend to injuries sustained by third parties not directly treated by EMS workers?

The first issue may not detain the Supreme Court long. Although the Legislature removed a reference to “transporting a patient” from the EMS Act in an earlier amendment, as the Appellate Court pointed out, the Supreme Court held in Abruzzo v. City of Park Ridge that the statute still impliedly covered transportation of patients. It seems unlikely that the Court will disturb Abruzzo only four years after it was decided.

The second issue is likely to be the focus of the Court’s attention. The Appellate Court concluded that the EMS Act was ambiguous with respect to whether it negated any duty to third party motorists. The Court then turned to Section 11-205 of the Vehicle Code – exactly the same provision that led the Appellate Court astray in Harris – and held that in order to give effect to both provisions, the EMS Act had to be construed as not negating the independent duty to third party motorists imposed on ambulance drivers and every other motorist. The defendants in Wilkins cited the Court to the Tort Immunity Act, but the Court held that the Tort Immunity Act “evidences the legislature clear intent to immunize public entities and employees” – an intent missing in the EMS Act.

Wilkins should be interesting to watch play out at the Supreme Court. Can the plaintiffs persuade at least four members of the Court – necessarily including at least three members of the six-Justice Harris majority -- that there is a meaningful difference between the Tort Immunity Act and the EMS Act? We should find out in between four and eight months.

Can the Language of a Will Prove Lack of Capacity?

We complete our preview of the new civil review grants at the Illinois Supreme Court with DeHart v. DeHart [pdf], a will contest which raises a range of issues from how do you prove lack of testamentary capacity, to undue influence, to whether or not Illinois should adopt the theory of "equitable adoption."

Like many will contests, DeHart has a complex domestic drama wrapped inside. Plaintiff filed a will contest. According to his operative complaint, decedent had held plaintiff out for some sixty years as his son. In addition to telling members of the community for years that plaintiff was his son, decedent gave plaintiff a birth certificate listing his own name as the plaintiff's natural father. There the story remained until 2000, when plaintiff applied for a passport. The government wouldn't accept the copy of plaintiff's birth certificate he had, so for the first time, he requested a certified copy. The certified copy listed an entirely different person as plaintiff's father. When the plaintiff confronted decedent, the decedent said that plaintiff's mother had married the listed father after learning she was pregnant, but that decedent had "secretly" adopted plaintiff two years later. In the years following the 2000 discussion, decedent continued to represent plaintiff as his son; he financed a family vacation for himself, plaintiff and plaintiff's children, and at some point drafted a will leaving bequests to plaintiff and his children.

But then, at approximately eighty-three years of age, decedent married defendant. Only a year later, he signed a new will stating that he had no children and never mentioning plaintiff. When decedent died three months after the will was signed, the widow probated the document.

Plaintiff challenged the will on a litany of grounds: lack of testamentary capacity; defendant's undue influence; a separate tort claim against defendant for fraudulent inducement; and a claim that plaintiff was entitled to share in the estate as his adopted son, either through a contract of adoption or "equitable adoption," a theory which Illinois has neither adopted nor rejected. The Circuit Court dismissed, but the Appellate Court reversed on all counts.

The lack of capacity count is of particular interest. Although plaintiff alleged a host of facts which, on motion to dismiss, sufficiently alleged that plaintiff was a natural object of decedent's bounty, unlike many will contests, the lack of capacity rested on one fact only: decedent's statement in his will that he had no children. The defendant argued that the statement was factually true, but the Court held that that was for the jury to decide -- the statement in the will was sufficient for plaintiff's challenge to the decedent's capacity to proceed.

Reversal of several additional claims was relatively fact-bound: plaintiff alleged undue influence based on the claim that defendant held decedent's power of attorney, and plaintiff's allegations that she had intercepted and destroyed cards and letters from plaintiff. Although the Court noted that plaintiff's tort claim against defendant might ultimately be vulnerable if the will contest succeeded, it declined to affirm dismissal at this point.

The Appellate Court's holdings on adoption, however, may well establish an interesting precedent at the Supreme Court. Relying on Monahan v. Monahan, 14 Ill.2d 449 (1958), the court held that plaintiff had alleged enough circumstantial evidence that a jury could permissibly infer the existence of an enforceable contract to adopt. Presiding Justice Schmidt dissented from this holding, emphasizing the complaint's failure to identify the parties to the purported contract. In the alternative, the Appellate Court became the first court in Illinois to endorse the theory of adoption by equitable estoppel, pursuant to which, when a plaintiff alleges an express or implied contract to adopt, detrimental reliance, and performance of obligations under the de facto relationship, equitable estoppel prevents the alleged parent and those in privity with him from denying the relationship. The Court held that the complaint's allegations of sixty years of conduct by decedent consistent with a parental relationship was sufficient to establish an estoppel applicable against decedent's estate.

The Illinois Supreme Court's First Nicastro Case

We continue our preview of the new civil review grants from the Illinois Supreme Court with Russell v. SNFA, which raises questions of general and specific jurisdiction over a French-based manufacturer.

Russell [pdf] 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 defendant was a French-based manufacturer of custom-made aerospace bearings and helicopter tail-rotor bearings.

And that's where the trouble started. Turns out the helicopter had been built in Italy by an Italian company. From there, it had found its way into the hands of first a Germany company, then a Louisiana-based company, and finally, to the decedent's employer, which was based in Cook County.   The Louisiana company had replaced several of the bearings with replacements made by defendant. Those were manufactured in France, sold in Italy, sold again to the customer's American subsidiary, and then sold to the Louisiana-based former owner (note that we still haven't tied anything to Illinois other than the accident and the domicile of the decedent). Both the original and the replacement bearings had been custom-made by the defendant for the Italian-based customer.

The trial court dismissed for lack of jurisdiction, noting that the only contact between the defendant and Illinois anytime in the general vicinity of the accident had been a single visit to a completely different customer. The court mentioned a little less than a million dollars in sales into the state, but it's not clear whether these sales came straight from the defendant, as opposed to passing through a distributor. The court held that the plaintiff was dependent on general jurisdiction -- which grants authority over any action based on "doing business" -- rather than specific jurisdiction, and plaintiff's showing fell short.

The Appellate Court reversed. Heavily relying on Asahi Metal Industry Co. v. Superior Court, 480 U.S. 102 (1987), the Court held that specific jurisdiction was present over the French defendant. After all, the defendant knew that its Italian customer sold its helicopters throughout the United States, and that the customer had an American subsidiary to facilitate American distribution. So it should expect to be haled into court in Illinois or -- for that matter -- any other state in the country, the Court concluded. Jurisdiction was reasonable since the defendant had designed and manufactured a component that was incorporated into a product that was intended to be, and was in fact sold in the United States, according to the Court.

So why did the Supreme Court take the case? Simple: J. McIntyre Machinery, Ltd. v. Nicastro - decided by the United States Supreme Court three months after Russell came down. Nicastro arose from an accident which occurred in New Jersey. Like the Appellate Court in Russell, the New Jersey Supreme Court affirmed jurisdiction, relying heavily on Asahi. But the Supreme Court reversed.

It was immaterial, the Court held, that the defendant had placed its product into the stream of commerce, and could have expected that it would wind up in New Jersey. It had not "engaged in conduct purposefully directed at New Jersey." The defendant had attended U.S. trade shows, but none in New Jersey; relatively few machines wound up there; the defendant had no office there, paid no taxes, owned no property, and didn't advertise in New Jersey. As Justice Breyer observed in his concurring opinion, a single isolated sale, even if accompanied by a nationwide sales effort, is simply not enough.

Russell should give the Illinois Supreme Court its first opportunity to apply Nicastro. It's bound to be a major opinion, and Appellate Strategist will be following developments closely.

Beware The Sounds of Silence

In a time of budget cuts -- including cuts directed against public employees -- Griggsville Perry Community Unit School District v. Illinois Educational Labor Relations Board [pdf] may wind up offering important guidance to the state and local lawmakers. There, the underlying party worked as a noncertified paraprofessional for the plaintiff school district. After a long series of alleged complaints and counseling sessions, the school board informed the employee that she would be terminated. The employee's board president filed a grievance disputing the allegations of poor job performance, and appeared before the board, but the employee was terminated.

The matter then went to arbitration. First, the arbitrator sustained the grievance and directed that the employee be rehired. The matter went before the Educational Labor Relations Board, which remanded the case, but the arbitrator issued an amended decision and again ordered reinstatement. So the District filed a petition for review with the Appellate Court, which reversed in a sharply worded opinion.

Like most states, the baseline rule in Illinois is at-will employment. The arbitrator acknowledged that nothing in the union contract overrode that principle, but invoked "[the] bargaining history leading up to contractual silence" as grounds for implying a for-cause requirement.

The Appellate Court was decidedly unimpressed. After all, the contract included an integration clause. The bargaining history was irrelevant. And the Court didn't see anything particularly persuasive in the parties' bargaining history anyway: "The arbitrator's decision . . . is not supported by any past practice of the parties." Bottom line: there was nothing in the contract that overrode the at-will principle, so the "due process" the employee was given was more than enough. Justice McCullough dissented, finding that the arbitrator's decision "was drawn from the essence of the parties' collective-bargaining agreement."

So can courts go beyond the plain language of a collective bargaining agreement -- even beyond an integration clause -- to ponder the "sounds of silence"? We should find out within the next year.

The Perils of Self-Insurance

Today we continue our previews of the new civil review grants from the May term of the Illinois Supreme Court.

In Skokie Castings, Inc. v. Illinois Insurance Guaranty Fund, [pdf] the Court will face questions about the operation of the Illinois Insurance Guaranty Fund with respect to self-insurers. A worker was seriously injured on the job. At the time, plaintiff's predecessor company was a self-insurer with respect to workers' compensation insurance, but also held an aggregate excess policy and a specific excess policy.   Following the accident, the employer paid the retention amount, after which the insurer took over, until it went into receivership. The Fund began paying, but ultimately informed plaintiff that it had reached its $300,000 cap on covered claims, and stopped. Plaintiff sued and won its motion for summary judgment.

Skokie turns purely on a question of statutory interpretation. Specifically, according to the Insurance Code, 215 ILCS 5/537.2, the Fund's obligations "shall not . . . exceed $300,000, except that this limitation shall not apply to any workers compensation claims." The Fund argued that the plaintiff's claim for reimbursement of amounts paid was not a "workers compensation claim," but -- noting that the Code states a purpose to protect both claimants and policyholders, 215 ILCS 5/532 -- the Court held that the term encompassed claims brought by policyholders of insolvent insurers.

The broader -- and ultimately perhaps more important -- issue in Skokie is whether the self-insuring employer is an "insurer" within the meaning of the statute, and thus liable to pay the claims until it becomes insolvent before the Fund's liability kicks in. Noting that there was no Illinois law on the subject, the Court surveyed decisions from around the country, concluding that the majority view was that a self-insuring employer was not an "insurer" for purposes of such a statute. Following a decision of the New Mexico Supreme Court, In re Delinquency Proceedings Against Mission Insurance Co., 816 P.2d 502 (N.M. 1991), the Court agreed.   The Court noted that the guaranty statute in New Jersey expressly exempted self-insuring employers, and concluded that if the Illinois legislature had wished to do the same, it would have said so.

Too Late (Part 2): Can Your Fees Request Wait?

Earlier today, we previewed Bjork v. O'Meara, a case about the perils of challenging a will too late. Now we preview a case about timing your claim for attorneys fees: Rodriquez v. Department of Financial and Professional Regulation [pdf].

The defendant Department sued Rodriquez for violating the Medical Practice Act. The parties agreed to stay all proceedings while the defendant argued about the rules of game: he believed that the discovery and evidence rules were unlawful. In the end, he had some success: the courts refused to grant him deposition subpoenas, but struck down section 1110.220 of the Department's rules for administrative proceedings. The Department closed the file, but the plaintiff wasn't finished -- he sued for his legal fees incurred in killing off section 1110.220.

The case turns on Section 55(c) of the Administrative Procedure Act: "In any case in which a party has any administrative rule invalidated by a court for any reason . . . the court shall award the party bringing the action the reasonable expenses of the litigation, including reasonable attorneys' fees."

But when can such a claim be brought, the Attorney General asked -- usually, attorneys' fees claims are coupled with the underlying action. Since the administrative claim was over when the attorneys' fees claim started, had the plaintiff waited too long?

No, the Appellate Court held. The statute said nothing about a time limit, and the claim for fees didn't accrue until the rule was struck down anyway.  The court followed the decision in Town of Libertyville v. Bank of Waukegan, 152 Ill.App.3d 1066, 1073 (1987), holding that a claim for fees was collateral to the underlying action when it was outside the issues in the case and the authorizing statute set no time limit for the claim.

Is a claim for fees lost if it's not coupled with a challenge to administrative rules? One can imagine an efficiency argument for answering the question "yes," despite the lack of limitations in the statute. We should learn the answer late this year or sometime in 2013 from the Illinois Supreme Court.

Too Late: Suing Over the Will

Today in our continuing series of previews for the Illinois Supreme Court, we bring you two cases on the perils of waiting too long: Bjork v. O'Meara and Rodriquez v. Department of Financial and Professional Regulation.

In Bjork [pdf], the plaintiff died, and his will was probated. Plaintiff filed an appearance in the probate proceeding, and sought issuance of citations to discover information and recover property to a certain Trust Company, arguing that she, rather than the estate, was the rightful owner of assets contained in a Trust account. She lost on all counts, and the estate was closed.

So plaintiff sued defendant for tortious interference with a testamentary expectancy, alleging that she had expected to be named pay-on-death beneficiary of the Trust bank account. The defendant cited section 8-1 of the probate Act, which requires that actions to contest the validity of a will must be filed within six months of the admission of the will to probate. 755 ILCS 5/8-1. The Circuit Court agreed and dismissed the suit, and the Appellate Court affirmed.

Bjork involves a traditional conflict of authority. On the one hand, we have Robinson v. First State Bank of Monticello, 97 Ill.2d 174 (1983), which held that an action for tortious interference with testamentary expectancy was governed by the six-month statute of limitations, since it would call into question a probated will. On the other hand, there's In re Estate of Ellis, 236 Ill.2d 45 (2009), where the Court held that the statute of limitations was not implicated, since plaintiff could not have known he was a possible beneficiary of the will until the statute had run, and a successful will contest would not have provided full relief.

But what if the plaintiff had no claim under intestacy law, so that he or she couldn't mount a successful will contest? The Appellate Court held it didn't matter.   The plaintiff clearly knew about the will and her claim, so an action was "available," and even though she had no basis for a will contest, she could and should have brought her tort action while the probate action was pending. Any other result, the Court found, would destabilize wills and estates by allowing the practical invalidation of a will after it emerged from probate.

Do The Taxpayers HAVE To Pay Elected Officials' Legal Fees?

Our second new grant of the May term at the Illinois Supreme Court is McFatridge v. Madigan [pdf]. McFatridge involves a simple question: if an elected official gets sued for his or her official actions, who pays the lawyer? Turns out, there's conflicting statutory language on that one.

Plaintiff used to be the State's Attorney -- an elective position -- in Edgar County. In 1987, he successfully prosecuted two individuals for murder. But many years later, the Federal district court granted both defendants' habeas petitions. So they both sued the plaintiff -- malicious prosecution, false imprisonment, intentional infliction of emotional distress.

Which brings us to the Illinois State Employee Indemnification Act. According to Section 2(b), although the Attorney General should, as a general matter, defend state employees sued for their acts within the scope of their employment, the Attorney General should opt out when the challenged act or omission "was intentional, willful or wanton misconduct." 5 ILCS 350/2(b).

Plaintiff repeatedly asked the Attorney General for representation. In 2005, the Attorney General said no, noting that the plaintiff had been accused of intentional, willful or wanton misconduct. In 2009, same thing. Finally, in 2010, counsel for the plaintiff demanded payment of plaintiff's attorney's fees. Same result: the complaint alleges intentional, willful or wanton misconduct, so you're out of luck. The plaintiff filed a petition for writ of mandamus, asking the Circuit Court to force the Attorney General's hand, but no luck: complaint dismissed.

The Appellate Court reversed. The Circuit Court's error, the Court held, was not reading the second paragraph of Section 2(b), which provided that the State "shall pay" the litigation expenses and attorney's fees of an "elected official" without limitation. So the Attorney General had no discretion, and the Court could order her to comply in mandamus.

Ultimately, the most substantial claim in McFatridge may prove to be the argument that the action was barred by the five-year statute of limitations. 735 ILCS 5/13-205. The Appellate Court held that the statute was not triggered, since the plaintiff's earlier demands had been for representation in the suit, not payment of attorney's fees -- the first demand for payment of fees had come in 2010, not long before the suit was filed.

Perhaps the Supreme Court took McFatridge in order to adopt the holding statewide. But if the Court wants to pull the teeth of the precedent, it would not be surprising to see a holding that the action is barred by the statute of limitations.

When Can Private Security Stop and Detain?

Today we begin a new feature for Appellate Strategist -- detailed previews of civil cases just granted review in the latest term of the Illinois Supreme Court. This week we will review the late May grants, and the feature will continue shortly after the end of each term of the Court.

Poris v. Lake Holiday Property Owners Association [pdf] brings several questions before the Court about the powers of private security forces. Plaintiff owns property in the Lake Holiday Development, and is a member of the defendant Association. The Association Board of Directors has adopted rules and regulations for the governance of Association property, including speed limits. The Board hired private security officers to enforce the limits, bought vehicles and equipped the vehicles with oscillating and flashing lights, radar units and audio and video recording equipment. Officers were empowered to issue citations to homeowners for violations.

Plaintiff was stopped by a security officer for speeding on Association property. The encounter played out pretty much like any traffic stop with a policeman would: officer takes driver's license, driver waits, officer writes citation.

Plaintiff sued the Association, every member of its Board, the chief of security and the officer . Count I sought a declaratory judgment that the practices of the Association's security department were illegal. Counts II and III alleged breach of fiduciary duty and willful and wanton conduct. Count IV alleged false imprisonment. Counts V through XII alleged breach of fiduciary duty and willful and wanton conduct by each board member, and the Chief of Security. Count XIII alleged nuisance and Count XIV sought an accounting. The Circuit Court wasn't impressed, tossing the whole thing on summary judgment.

But the Appellate Court held that the driver had stated certain claims after all. The Illinois Code of Criminal Procedure, 725 ILCS 5/107-3, gives private citizens -- and a private security officer is nothing more than a private citizen in this state -- the authority to make an arrest when he or she has "reasonable grounds to believe than an offense other than an ordinance violation is being committed." But hold on, the Court said -- the officer wasn't stopping the plaintiff for committing an "offense" -- plaintiff got stopped for violating the Association's speeding-on-Association-property rule. So the Association's stop-and-detain rule may be a problem.

Ever wonder who gets to flash red lights on the highways? Under Illinois law, the answer is "[v]ehicles used by a security company, alarm responder, or control agency." 625 ILCS 5/12-215(b)(13). Well, the parties agreed that the Association wasn't an "alarm responder" or "control agency" -- but the Association claimed it was a "security company." Not so fast, the Appellate Court said, quoting from the Association's articles of incorporation. So back goes that claim too.

The Court then reviewed several less controversial claims -- the Association could use its recording equipment since officers turned it off whenever anyone objected, and it could continue to use the radar gun -- the Court turned to the plaintiff's false imprisonment claim. The result of this one was pretty much a foregone conclusion after the holding on stop-and-detain -- the Association clearly had a problem. And so it did: reverse with instructions to enter judgment against the Association with respect to liability.

So what comes next? It's difficult to predict. There is no obvious conflict in authority in the Appellate Court opinion, so the Supreme Court likely concluded that this was a sufficiently common problem across the state to justify its intervention. Also, note how interconnected the claims are. Speeding is both an Association rule and a commonplace offense; if the Court blurs the distinction, the first declaration and the reversal on false imprisonment fall. Although the Association isn't a security company, perhaps the security force is -- if that's so, then the declaration regarding those flashing red lights might be overturned too.