The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

Illinois Supreme Court Holds Mandatory Revocation Driver’s License Statute Unconstitutional as Applied

By Kirk Jenkins on October 22, 2015 Posted in Illinois

Section 11-501.6 of the Illinois Vehicle Code provides that when a driver is arrested for a traffic violation related to a fatality or serious personal injury, he or she automatically consents to chemical testing for alcohol and drugs. The statute provides that if the driver refuses to submit to the test, his or her license is automatically suspended.

In McElwain v. The Office of the Illinois Secretary of State, a unanimous Illinois Supreme Court held that Section 11-501.6 could not constitutionally be applied to a driver who was first asked to submit to testing two days after the accident. Our detailed summary of the underlying facts and lower court opinions and report on the oral argument is here.

McElwain began with a 2012 accident between a car and a motorcycle. The driver of the motorcycle was seriously injured, and the passenger died. The plaintiff driver was neither issued a ticket nor asked to take any chemical tests. During their investigation, the police discovered rolling papers and a small plastic bag containing what appeared to be marijuana in the plaintiff’s car, but the officers present at the scene didn’t think the plaintiff appeared to be under the influence.

Two days later, the plaintiff was asked to report to the police station, where he was questioned further about his use of marijuana. After extensive questioning, the plaintiff was issued a ticket for failing to yield in a turn and asked to take a chemical test. The plaintiff refused, and the Secretary of State subsequently suspended his license for three years pursuant to Section 501.6.

The plaintiff petitioned to rescind the suspension, but an Administrative Law Judge upheld it. Once the decision became final, the plaintiff filed a complaint seeking administrative review in the circuit court, contending that the suspension of his license for refusing a test two days after the accident was an unconstitutional search. The Circuit Court agreed and held that the statute could not constitutionally be applied to plaintiff.

In an opinion by Justice Thomas, the Supreme Court affirmed. The Court began by addressing the plaintiff’s claim that the statute had to be read as including an implied time limit on requests for testing. The Court held that notwithstanding the doctrine of constitutional avoidance, it wasn’t possible to preserve the statute, since it was clear that when the legislature intended for a statute to contain a time limitation, it expressly said so. Besides, the legislature has twice refused to enact proposed legislation which would have added an express time limit to the statute.

The Court cited to its earlier decision in King v. Ryan, in which the Court had held facially unconstitutional an earlier version of Section 501.6 which had provided for automatic driver consent to chemical testing whenever the driver was apparently at fault in an accident resulting in personal injuries. There, the Court had held that although the State certainly had a compelling interest in fighting impaired driving, Section 501.6 was at least partly aimed at gathering evidence for use in criminal proceedings, and thus didn’t fall under the special needs exception which authorizes many searches conducted at crime scenes. Four years later in Fink v. Ryan, the Court had upheld the current version of the statute in another facial challenge, but only after the legislature had amended the statute to (1) delete a requirement that testing be premised upon a preliminary finding of fault; (2) delete a provision that test results could be used in civil and criminal proceedings; (3) add a requirement that testing be limited to drivers issued a traffic citation; and (4) limit the types of personal injury triggering the statute. Where all these circumstances were present, the drivers had a reduced expectation of privacy sufficient to preserve the statute.

But Fink, the Court found, was clearly based on the assumption that chemical testing would be done shortly after the accident. The driver’s reduced expectation of privacy was based not merely on his or her status as a driver, but on the legal duty to remain at the scene of the accident. Although the “special need” justifying the statute was the state’s interest in keeping impaired drivers off the roads, a test administered two days after the accident had relatively little probative value with respect to that interest.

For the first time at the Supreme Court, the State tried to preserve the statute by arguing that it should be analyzed under the courts’ “unconstitutional conditions” doctrine – the notion that one cannot be compelled to surrender a constitutional right in exchange for a discretionary benefit with little or no relation to that right. The State argued that it could condition the receipt of a driver’s license on automatic consent to the chemical test, but the Court pointed out that that argument rested, once again, on the State’s interest in fighting impaired driving. The nexus between the condition and that interest was weak-to-nonexistent when testing happened two days after the accident, so the statute could not survive.

The Court concluded by declining to create a bright-line test for how quickly chemical testing must occur in order to pass constitutional muster under the statute. But wherever that line was, the Court commented, two days was simply too long.

Image courtesy of Flickr by Chris Harrison (no changes).

Illinois Supreme Court Holds Pension Board’s Finding Bars City’s Challenge re Health Insurance

By Kirk Jenkins on October 21, 2015 Posted in Illinois

Does a holding of the Police Pension Board of Trustees that an officer is entitled to a line-of-duty pension preclude a separate challenge to the pensioned officer’s entitlement to paid health insurance? In the closing days of its September term, the Illinois Supreme Court unanimously held in Village of Vernon Hills v. Heelan that the answer was “yes.” Our detailed report on the underlying facts and lower court opinions is here. Our report on the oral argument is here.

Vernon Hills began in 2009 when the plaintiff, a twenty-year veteran of the police force, fell on a patch of ice while responding to an emergency call. In an independent medical examination, a physician concluded that the officer’s injury had aggravated preexisting osteoarthritis in his hip. A few months later, the officer underwent a right hip replacement and subsequently returned to light duty. A later examination revealed long-standing osteoarthritis in the opposite hip, which the doctor opined was aggravated by the hip replacement. The officer ultimately underwent a second hip replacement and did not return to work.

The officer applied for a line-of-duty disability pension. The hearing report stated that the Village manager and the attorney for the Village were present at the hearing, but the Village made no attempt to formally intervene. The Pension Board found that the officer was entitled to a line of duty pension.

A few days after the decision, the officer wrote to the Village and asserted that pursuant to Section 10 of the Public Safety Employee Benefit Act, the Board’s finding meant that he was also entitled to have his health insurance premiums paid by the Village.

The Village filed a complaint seeking a declaratory judgment that it was not responsible for the insurance premiums. Although the Supreme Court has held in Krohe v. City of Bloomington that a “catastrophic” injury under Section 10 – the standard for the insurance premium benefit – simply means entitlement to a line-of-duty pension, the Village argued that Krohe was distinguishable. The officer moved in limine to bar any testimony on the question of whether he had suffered a catastrophic injury, based on the Board’s decision. The circuit court granted the motion in limine and at the conclusion of a bench trial held for the officer. A divided panel of the Appellate Court affirmed, rejecting the Village’s claim that it had been denied due process by the order barring any testimony on the issue of catastrophic injury.

The Court held that it had definitively construed the meaning of “catastrophic injury” in Krohe and its progeny, and the legislature’s failure to change the statute indicated that it acquiesced in the Court’s holding. Thus, it was undisputable, given the unchallenged decision of the Pension Board that the officer was entitled to a line-of-duty pension, that the officer had suffered a catastrophic injury under Section 10.

The Court also rejected the Village’s procedural due process claim. The legislature had adopted a statute providing that an officer entitled to a line-of-duty pension was also entitled to the insurance coverage benefit. The enactment of that statute was “all of the process that is due.” The Village was not entitled to litigate an issue which the legislature had definitively decided.

Image courtesy of Flickr by Elliott Bledsoe (no changes).

Illinois Supreme Court to Decide When Waiver of Warranty of Habitability Extends to Succeeding Owners

By Kirk Jenkins on October 20, 2015 Posted in Illinois

The Illinois courts have held that under certain circumstances, it is possible to effectively waive the implied warranty of habitability on a dwelling. In the closing days of its September term, the Illinois Supreme Court agreed to decide Fattah v. Bim, a decision from the First District, Division Five which poses the question of under what circumstances such a waiver impacts subsequent owners of the property.

The house at issue was built in 2007 and purchased by a non-party to the lawsuit for $1.7 million. In the parties’ contracts, the buyer agreed to waive the implied warranty of habitability, and to instead rely upon an express limited one-year warranty included in the contract for her sole remedy. The contract provided that the disclaimer of the implied warranty would be binding upon the “Purchaser and their . . . successors, assigns, heirs, executors, administrators, and legal and personal representative.” Three years after buying the house, the original owner sold it to the plaintiff. The parties’ contract at that time provided that the plaintiff was buying the house “as is.”

Four months after the plaintiff moved into the house, the patio collapsed.

The plaintiff sued the developer/contractor, alleging that they had breached the implied warranty of habitability by delivering the house with latent defects which led to the collapse of the patio. The defendants responded with a motion for summary judgment, arguing that the waiver of the implied warranty signed by the original owner was binding on the plaintiff, and that the plaintiff had further waived the implied warranty when he bought the house “as is.”

In an affidavit attached to the motion for summary judgment, the developer/contractor asserted that he had met with the first owner around the time of the second sale and saw “crumbling and subsiding patio stones along the wall” and that the original owner was “well aware” that the retaining wall of the patio was collapsing. He further testified that the collapse of the retaining wall of the back patio “does not interfere with the home’s habitability.” The court denied the motion for summary judgment and the case proceeded to trial. During the trial, the home inspector who had inspected the home at the time of the second sale testified that the retaining wall had been built with 4-inch thick “block” wall with two hollow holes in each brick, as opposed to the 8-12 inch thick concrete that was needed. He explained that it would have been impossible to spot the problem before the collapse without removing some of the paving bricks on the retaining wall. At the close of the trial, the court found for defendants, holding that the combination of the first owner’s waiver and the second “as is” sale barred the plaintiff’s claim.

The Appellate Court reversed. The Court held that although waiver of the implied warranty of habitability is not barred by public policy in Illinois, an effective waiver must: (1) be conspicuous and include the words “implied warranty of habitability”; (2) fully disclose the consequences of the waiver; and (3) be brought to the plaintiff’s attention, and was, in fact, in the agreement of the parties. Given that the defendant could show none of that, and the plaintiff testified without contradiction that he was unaware of the first owner’s waiver when he bought the house, the Court held that there was no basis for finding that the first owner’s waiver was effective against the second. The Court held that the “as is” provision in the second sale contract was not sufficient to waive the implied warranty inasmuch as it didn’t include the three prerequisites discussed above.

The Appellate Court remanded the action back to the trial court for a factual determination on the remaining elements of the plaintiff’s claim for breach of the implied warranty for habitability.

Image courtesy of Flickr by Jim Kelly (no changes).

Illinois Supreme Court to Decide When Health Insurance Benefits Can Be Terminated for Police Receiving Pensions

By Kirk Jenkins on October 19, 2015 Posted in Illinois

Section 10 of the Public Safety Employee Benefits Act provides that under certain circumstances, police officers receiving line-of-duty pensions are entitled to receive fully paid health insurance coverage for themselves and their families. In the closing days of its September term, the Illinois Supreme Court agreed to decide Vaughn v. City of Carbondale, which poses several related questions about the circumstances triggering a right to insurance coverage, and when – if ever – that coverage benefit may be terminated.

Vaughn arises from an incident in 2005. The plaintiff was talking to a motorist who had asked for directions when he heard a dispatcher calling on his radio. He returned to the car and when he reached inside to retrieve the radio, he struck the top of his head, causing him to “see stars” and a sharp pain in his arm. Nearly two years later, the officer applied for a line-of-duty disability pension under the Illinois Pension Code (40 ILCS 5/3-114.1). The Pension Board rejected his application, but the Circuit Court reversed, finding that he had been injured as a result of his employment. The Fifth District Appellate Court affirmed.

In 2012, the officer requested health insurance coverage pursuant to Section 10 as part of his disability benefits. The City provided the coverage, but that same year, the Board directed the officer to submit to a physical examination. Following that physical, the Board terminated his pension on the grounds that he was fit to return to work as a police officer. The Circuit Court affirmed that decision on administrative review, but the Fifth District reversed, holding that the officer had been denied procedural due process because he was not given notice and an opportunity to be heard.

While that appeal was still pending, the officer filed a complaint seeking a permanent injunction against termination of his health insurance coverage. The Circuit Court declined to enter the injunction, but the officer appealed.

The Fifth District reversed. The Court explained that two prerequisites were necessary before an officer was entitled to the health insurance benefit: (1) he or she must have suffered a catastrophic injury in the line of duty; and (2) the injury must have been received as the result of the officer’s response to fresh pursuit, or to what he or she reasonably believed to be an emergency, an unlawful act perpetrated by another, or during the investigation of a criminal act.

Given that a “catastrophic injury” has been construed by the Supreme Court to mean any injury entitling the officer to a line-of-duty pension, the Court concluded that there was no longer any question that the officer satisfied the first prerequisite, in the wake of the decision reversing termination of his pension.

The Court held that the second prerequisite was satisfied as well, on the grounds that the officer’s injury was received as a result of what he reasonably believed to be an emergency. An “emergency” within the meaning of the statute has been defined as “an unforeseen circumstance involving imminent danger to a person or property requiring an urgent response.” The City argued that this condition was not satisfied, since there was no evidence in the record as to what the nature of the call the officer answered was. But the Court pointed out that an officer was under a duty to respond to dispatchers in a timely manner and to be prepared for any eventuality. Until he or she can eliminate the possibility that the call is an emergency, all calls are treated as one. Therefore, the Court found that the officer was responding to what he reasonably believed was an emergency, and was entitled to health insurance coverage.

Image courtesy of Flickr by Cyro A. Silva (no changes).

Illinois Supreme Court Clarifies Judicial Estoppel, Reverses Dismissal of Tort Suit Not Disclosed in Bankruptcy

By Kirk Jenkins on October 16, 2015 Posted in Illinois

In Seymour v. Collins, the Appellate Court held that where a plaintiff had failed to disclose an in-progress tort suit prior to final resolution of the plaintiff’s bankruptcy, the plaintiff’s tort suit was barred by judicial estoppel. In the closing days of September, the Illinois Supreme Court unanimously reversed in an opinion by Justice Karmeier. Our summary of the underlying facts and lower court opinions in Seymour is here. Our report on the oral argument is here.

Seymour began in 2008 when the plaintiffs filed a petition for Chapter 13 bankruptcy. A motion to modify was filed in February 2010, requesting a reduction in the monthly payment amount on the grounds that the husband had sustained an unrelated work injury and was receiving only temporary total disability benefits. The plan was modified the following month. The following year, the husband had resumed working and was injured once again. The husband then sustained further injuries when the ambulance in which he was being transported was involved in an accident.

The underlying tort suit arising from the ambulance accident was filed in May 2011. The defendants moved for summary judgment, arguing that the plaintiffs’ failure to inform the bankruptcy court of their tort claim prior to receiving their discharge gave rise to a judicial estoppel barring their suit. The Circuit Court agreed, and a divided panel of the Appellate Court affirmed.

The Supreme Court unanimously reversed. The Court explained that five prerequisites were required before a court can invoke judicial estoppel: the party must (1) take two positions; (2) that are factually inconsistent; (3) in separate judicial or quasi-judicial administrative proceedings; (4) intending for the trier of fact to accept the truth of the facts alleged; and (5) have succeeded in the first proceeding and received some benefit from it. A statement under oath was not, however, a requirement for applying judicial estoppel.

The Court next addressed the standard of review. The defendants argued that because applying judicial estoppel was a matter of discretion, review was for abuse of discretion. The plaintiffs argued that because the decision below was a summary judgment, review was de novo. The Court held that a trial court must begin its analysis by determining whether the five prerequisites were present. If they are, then the court must decide whether judicial estoppel is appropriate – an exercise of discretion reviewed for abuse. Whether or not there was an intent to deceive is relevant to that exercise of discretion. When the application of judicial estoppel results in summary judgment, the appellate court strictly construes the record against the movant and affirms only if there is no room for reasonable persons to differ on the weight to be given the various factors.

The Court assumed without deciding that the plaintiffs were under a continuing duty to disclose the unliquidated tort claim. However, the Court concluded that there was no evidence that the plaintiffs had intended to deceive or mislead the court. The lower courts had relied in part upon the fact that the plaintiffs had told the bankruptcy court that the husband was receiving workers compensation benefits, but the Supreme Court pointed out that the workers compensation had been referenced solely as a cause of reduced income. Nothing in the filing suggested that the plaintiffs knew they were required to disclose the unliquidated tort claim.

“Where there is affirmative, uncontroverted evidence that debtors did not deliberately change positions according to the exigencies of the moment, that they did not employ intentional self-contradiction as a means of obtaining unfair advantage,” the purposes of judicial estoppel were not served by applying the doctrine, the Court concluded.

Image courtesy of Flickr by Stock Monkeys.com (no changes).

Illinois Supreme Court Holds Zoo is Not Local Public Entity Under Tort Immunity Act

By Kirk Jenkins on October 15, 2015 Posted in Illinois

The Local Governmental and Governmental Employees Tort Immunity Act provides a one-year statute of limitations for actions against “local public entities.”

So is the Brookfield Zoo – legally known as the Chicago Zoological Society – such an entity? In O’Toole v. The Chicago Zoological Society, a unanimous Illinois Supreme Court held, in an opinion by Justice Theis, that the answer was “no.” Our summary of the underlying facts and lower court opinions in O’Toole is here. Our report on the oral argument is here.

O’Toole began in 2010 when the plaintiff tripped and fell on a paved pathway at the Zoo. Almost two years later, the plaintiff filed a one-count negligence complaint. The defendant moved to dismiss, arguing that the one-year statute of limitations applied rather than the two-year statute in Section 13-202 of the Code of Civil Procedure (735 ILCS 5/13-202.) The Circuit Court granted the defendant’s motion to dismiss, but the Appellate Court reversed.

The Supreme Court affirmed the Appellate Court’s decision. According to the statute, a “local public entity” includes various public and semi-public entities, “as well as any not-for-profit corporation organized for the purpose of conducting public business.” 745 ILCS 10/1-206. No factor was more important in determining whether an entity was conducting “public business” than local governmental control. If the entity were subject to government-only statutes such as the Open Meetings Act or the Freedom of Information Act, that would suggest local governmental control. Evidence that officers of a government entity controlled the corporation would also be relevant. The Court concluded that its case law directly links section 1-205 of the Act, which includes the term “public business,” to section 1-101.1 of the Act, which states that the overarching purpose of the Tort Immunity Act is to shield local public entities and their employees from liability arising out of “the operation of government.”

The Court noted that the Cook County Forest Preserve District maintained control of the real property under the zoo, and the defendant and the District shared control over the other property of the zoo. The District was allowed to access the zoo for supervisory purposes, and the defendant couldn’t sell buildings, enclosures, trees or animals without the District’s approval. However, the defendant had day-to-day management of the zoo, and complete control over hiring, firing and supervising employees; further, the employees didn’t participate in public pension or workers’ compensation funds. Also, the defendant had to maintain liability insurance covering the District. Taxes provide less than half the zoo’s funds, and the zoo’s budget is merely “passed on,” rather than analyzed and approved, by the District – any items not expressly rejected are presumed approved. Finally, the defendant complies with OSHA in operating the zoo, and OSHA doesn’t apply to government employers.

The Court held that because the District didn’t exercise operational control over the defendant, the defendant was not a local public entity under the Tort Immunity Act. Accordingly, the plaintiff’s complaint was not time-barred.

Image courtesy of Flickr by Gregory Smith (no changes).

Illinois Supreme Court Upholds Constitutionality of Filing Fee for Residential Mortgage Foreclosures

By Kirk Jenkins on October 14, 2015 Posted in Illinois

According to Article VI, Section 14 of the Illinois Constitution, “[t]here shall be no fee officers in the judicial system.” Section 15-1504.1 of the Code of Civil Procedure imposes a $50 filing fee in residential mortgage foreclosure cases, 2% of which is retained by the clerk of the court in county where the case is filed.

Does the statute violate the fee officer clause? In Walker v. McGuire, a unanimous Illinois Supreme Court held in an opinion by Justice Theis that the answer was “no.” Our report on the oral argument is here.

Walker began with a putative class complaint against the defendant, the clerk of the Will County Circuit Court, challenging the constitutionality of the filing fee and the Foreclosure Prevention Program funded by the fee. The plaintiff argued that the fee violated separation of powers, equal protection, due process, the uniformity clause and the fee officer clause. The State intervened to defend the statute. The court ultimately granted the plaintiffs’ motion for summary judgment, holding that the filing fee violated the fee officer clause because the clerk retained a small portion of the money.

The Supreme Court reversed. The Court found that the plain language of Section 14 was at least somewhat equivocal. On the one hand, the section as a whole appeared to deal with the compensation of judges. On the other hand, the clause itself referred to fee officers “in the judicial system,” and clerks were certainly officers of the judicial system. So the Court turned to the history of the provision.

The fee officer provision was originally part of the 1962 Constitution. At that time, it said “There shall be no masters in chancery or other fee officers in the judicial system.” When the clause was readopted as part of the 1970 constitution, the reference to “masters in chancery” was dropped as being superfluous. Masters in chancery, the Court explained, were appointed by a court of equity, and frequently took testimony, considered evidence, and recommended findings of fact and conclusions of law to the court. The problem was that the master’s fees were paid by the parties, and added substantially to the cost of litigation. One writer noted that actions in chancery sometimes wind up being settled simply because the client didn’t have the money to pay the master, and eliminating those costs was considered a significant step towards reducing the cost of litigation.

The Court concluded that the clause was aimed at officers who had a direct role in the adjudicative process, and whose compensation was paid directly by the litigants. Since court clerks are nonjudicial officers, they are not subject to the fee officer clause, and the Circuit Court was reversed.

Image courtesy of Flickr by Daniel X. O’Neil (no changes).

Illinois Supreme Court Holds Rental Car Companies May Limit Liability Through Self-Insurance

By Kirk Jenkins on October 13, 2015 Posted in Illinois

The Safety and Family Financial Responsibility Law requires that automobile rental companies operating in Illinois demonstrate their financial responsibility by filing one of three things with the Secretary of State: (1) a liability bond; (2) an insurance policy or other proof of insurance; or (3) a certificate of self-insurance issued by the Director of the Department of Insurance. The statute provides that the company’s minimum liability if it files a bond or insurance policy is $100,000.

In Nelson v. Artley, the Illinois Supreme Court addressed the question of what the potential liability was if the rental company opted to file proof of self-insurance. The Appellate Court had held that the rental company was obligated to cover any judgment – meaning that potential liability was limitless. In an opinion by Justice Karmeier, the Supreme Court reversed. Our detailed summary of the facts and lower court opinions in Nelson is here. Our report on the oral argument is here.

Nelson began when the rental car being driven by the defendant was involved in an accident, injuring the plaintiff and several others. The plaintiff sued the defendant and recovered a default judgment in the amount of $600,000. The plaintiff then filed a supplementary action and issued a citation to discover assets against the rental company, arguing that it was responsible for the judgment. The rental company initially took the position that it had no liability at all for the accident since the defendant was neither its customer nor listed on the rental agreement as an authorized driver. But before the Supreme Court, the company primarily focused on a statutory argument, arguing that pursuant to Fellhauer v. Alhorn, its maximum potential liability was $100,000 – the ceiling for multi-victim accidents where the rental company filed an insurance policy. The rental company asserted that it had paid $50,000 to settle a claim by another injured party arising out of the same argument, and tendered $50,000 into court to allocate between the plaintiff and yet another injured party, thus extinguishing its liability.

The trial court granted relief to the plaintiff, but held that under Fellhauer, the company’s potential liability was limited to the statutory limit for insured companies. The Appellate Court reversed, holding that the statutory limit for insured rental companies didn’t apply to the self-insured.

The Supreme Court unanimously reversed the Appellate Court. The Appellate Court had lost sight of the purpose of financial responsibility statutes, the Court said. The laws weren’t intended to ensure that any judgments would be fully covered; rather, they were meant to provide injured parties with some compensation where they would otherwise receive nothing.

The Court pointed out that Fellhauer had been in place for a decade. Where the courts construe a statute and the legislature leaves that interpretation in place, the courts must presume that the legislature has acquiesced in the judicial interpretation.

Besides, the Court said, although it was true that the liability limit wasn’t expressly extended to self-insuring rental companies, the Appellate Court’s holding rendered the self-insurance option effectively a nullity. If a rental company was faced with the option of limited liability with an insurance policy, or limited liability with a bond, or unlimited liability with self-insurance, what rational rental company would choose self-insurance? “[W]e fail to see any reason why the legislature would have wanted to single such companies out for special treatment,” the Court held.

In closing, the Court took note of the Appellate Court’s adverse comments on the reliance on “common sense” as a basis for the Fellhauer court’s holding. Although the Appellate Court had suggested that common sense was not an appropriate consideration, “there is nothing inherently objectionable about using common sense when deciphering a statute,” according to the Court. Besides, the Fellhauer court had used “common sense” as a “shorthand for deductive reasoning based on the language and purposes of the law and the consequences of a contrary construction.”

Image courtesy of Flickr by Stig Nygaard (no changes).

Illinois Supreme Court Holds Local School Districts Subject to Zoning

By Kirk Jenkins on October 12, 2015 Posted in Illinois

Do the Illinois Constitution and the School Code exempt local school districts from municipal zoning regulations? In Gurba v. Community High School District No. 155, a unanimous Illinois Supreme Court held, in an opinion by Justice Burke, that the answer was “no.” Our report on the underlying facts and lower court opinions is here. Our report on the oral argument is here.

Gurba began when the defendant school board decided to replace the bleachers at the high school football stadium after a failed structural inspection. The Board notified the Regional Superintendent of Schools and received approval and a building permit. They started work without seeking a building permit, zoning approval or storm water management approval from the City.

The City issued a stop-work order. The Board declined to halt construction on the grounds that school property used for school purposes was exempt from all local zoning. Three local homeowners filed suit seeking to privately enforce the zoning regulations. The City filed a third-party complaint. On cross-motions for summary judgment, the court held that the school board was subject to the zoning regulations. The Appellate Court affirmed.

The Supreme Court affirmed the Appellate Court. The Court began by pointing out that, as a home rule municipality, the city had broad powers, including the power to regulate for the protection of the health, safety, morals and welfare of the public. That included zoning. The school board argued that the city’s zoning and storm water ordinances unduly interfered with the General Assembly’s constitutional authority over public education. However, the Court pointed out that the School Code (105 ILCS 5/10-22.13a) authorized a school board to seek zoning changes, variations or special uses for property controlled by the district. The board argued that the language was permissive, not mandatory, but the Court concluded that there was no need to authorize such exceptions if the schools weren’t subject to zoning in the first place. The school board argued as a fallback position that the power to seek variances only applied to school owned land not being used for school purposes, but the Court found that the plain language was to the contrary.

The school board next argued that the city was estopped from objecting to its plans because it hadn’t registered with the regional superintendent to receive notice of the school board’s building plans pursuant to the Health/Life Safety Code. The problem with that argument, the Court found, was that the Health/Life Safety Code prescribed minimum standards for public school facilities; it said nothing about zoning-type issues, such as the size, height, and location of buildings, setback from property lines and the due process rights of neighboring property owners.

Image courtesy of Flickr by Suzie Tremmel (no changes).

Illinois Supreme Court Holds Former Minority Shareholders Lack Standing to Sue Corporate Counsel for Malpractice

By Kirk Jenkins on October 12, 2015 Posted in Illinois

Long-established law holds that when a corporation declines to bring a claim for damages, under certain circumstances shareholders can force the issue by bringing a derivative claim in the name of the corporation. But may the shareholders – in their individual capacities – sue the counsel they retain to prosecute the derivative claim for malpractice? In Stevens v. McGuireWoods LLP, a unanimous Illinois Supreme Court held that the answer was “no.” Our detailed summary of the facts and lower court decisions in Stevens is here. Our report on the oral argument is here.

Stevens began when minority shareholders hired the defendant law firm to bring certain claims against a corporation’s managers and its owner and majority shareholder for misappropriation of intellectual property. The shareholders alleged damages both in their individual capacities and derivatively for the corporation. In 2008, the trial court tossed all the claims against the managers and three of nine claims against the majority shareholder. The plaintiffs then retained new counsel and filed an amended complaint, bringing various claims against the law firm which represented the corporation. The court dismissed all claims against the law firm, finding that all were time-barred, and the plaintiffs’ individual claims against the law firm failed for lack of standing. Not long after, the plaintiffs relinquished their ownership interest in the corporation.

The plaintiffs then filed a one-count complaint against the law firm which had represented them in the earlier suit, alleging that the firm had failed to timely assert the claims against the corporation’s lawyers, ultimately leading to the plaintiffs having to settle for much less than the claim was worth. The trial court dismissed the plaintiffs’ claims, holding that even if the defendant’s representation had been somehow negligent, the plaintiffs could not have been harmed, since even timely brought claims by the shareholders against the corporate counsel would necessarily have been dismissed for lack of standing. The Appellate Court affirmed with respect to the plaintiffs’ individual claims, but reversed with respect to the plaintiffs’ derivative claims.

In an opinion by Justice Thomas, the Supreme Court reversed. The problem, the Court found, was that while the plaintiffs were suing the defendant law firm in their individual capacities, there was no way they could ever have recovered damages in their individual capacities. They had no standing to sue the corporation’s counsel on their own, and even if they’d succeeded in a derivative claim, they wouldn’t have benefited, so any alleged negligence by the defendant cost the plaintiffs nothing. According to long-settled law (both pursuant to common law and the Limited Liability Company Act), any derivative recovery went entirely to the corporation. And even if the plaintiffs’ share price would have been indirectly affected by a successful suit, that wasn’t anything they could ever recover in the derivative action.

The plaintiffs cited Brown v. DeYoung, an 1897 Illinois Supreme Court case, for the proposition that the trial court would have had an equitable right to direct any derivative recovery to the shareholders rather than to the corporation. The Court held that the plaintiffs were wrong for a couple of reasons. First, Brown wasn’t a derivate suit. Second, even if Brown had held that courts could direct a derivative recovery to shareholders, it had been overruled subsequently by the Limited Liability Company Act.

The plaintiffs argued that a holding in the defendant’s favor would essentially immunize counsel in derivative actions from malpractice suits, but the Court pointed out that that wasn’t true. First, the company could sue; second, the current minority shareholders could sue; and third, if the plaintiffs themselves hadn’t sold all their stock, they could have filed a derivative malpractice claim.

Image courtesy of Flickr by William Creswell (no changes).