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

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

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

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

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

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

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

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

Image courtesy of Flickr by Steven Depolo (no changes).