The Appellate Strategist

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Illinois Supreme Court Clarifies Voidness Doctrine, Strikes Constitutional Finding in Collection Agency Dispute

By Kirk Jenkins on Posted in Illinois

8231671430_e83d55aa51_z(1)In the closing days of February, the Illinois Supreme Court handed down its decision in LVNV Funding, Inc. v. Trice, a direct appeal from the Cook County Circuit Court. LVNV is noteworthy because it clears away ambiguous language in certain cases describing a lack of statutory prerequisites to an action as depriving the court of jurisdiction, thereby clarifying the issue of when a judgment is void versus voidable. In the process, the Court made the Circuit Court’s determination that parts of the Collection Agency Act were unconstitutional unnecessary, and accordingly vacated them. Our report on the oral argument in LVNV is here.

The Act mandates that no “collection agency” may operate in the state without registering pursuant to the Act. (225 ILCS 425/4) Section 14a of the Act permits the Department of Financial and Professional Regulation to enjoin the activities of an unlicensed collection agency. (225 ILCS 425/14a.)

LVNV began when the defendant allegedly paid for plumbing work with a credit card. When the defendant allegedly failed to pay the full amount due, the credit card company sold the debt to the plaintiff. The plaintiff sued the defendant to collect, and got a judgment. Sometime later, now represented by an attorney, the defendant appeared and filed a petition to vacate the judgment under Section 2-1401 of the Code of Civil Procedure (735 ILCS 5/2-1401). The defendant’s argument was simple: the plaintiff was a debt collection agency, suing him was a debt collection activity, and the defendant wasn’t registered, making the judgment – at least in the defendant’s view – void. The Circuit Court disagreed and denied the motion to vacate, but the Appellate Court reversed. The Appellate Court held that if the plaintiff was unlicensed at the time it filed the suit, the resulting judgment would be void. The Court remanded the matter back to the trial court for a hearing on whether the plaintiff was unlicensed when the suit was filed, but made it clear that the defendant was free to challenge the constitutionality of the Act on remand too.

And that’s exactly what the defendant did. The Circuit Court agreed, striking down the statute on grounds of due process, equal protection and vagueness.

The Supreme Court rejected the trial court’s constitutional holding not on its own merits, but by reaching back to the Appellate Court’s holding. The original judgment entered by the Circuit Court wasn’t void, the Court held, so the Section 2-1401 petition should never have been granted in the first place. Void or voidable was ultimately a question of jurisdiction, the Court explained. But it had been settled in Illinois since at least 1964 that with the exception of administrative actions, the Circuit Courts’ jurisdiction doesn’t come from statutes – it comes entirely from the constitution. Therefore, the failure to satisfy a statutory prerequisite never deprives the court of jurisdiction.

Since the failure of the plaintiff to register as a collection agency was merely a failure to satisfy a statutory prerequisite, the resulting judgment was voidable at most, not void. Therefore, although the defendant might have prevailed in a direct appeal, his Section 2-1401 petition should have been denied. And it followed from that, pursuant to the doctrine of constitutional avoidance, that the Circuit Court should never have decided the constitutional issues.

Justice Thomas Kilbride dissented. Justice Kilbride pointed out that the case was before the Court pursuant to Supreme Court Rule 302(a) solely because the trial court had invalidated a law on constitutional grounds – that was the only issue before the Court. Since the Court had previously denied a petition for leave to appeal from the Appellate Court’s holding regarding voidness, Justice Kilbride would have proceeded to the constitutional issues. After all, if the statute was constitutional, he wrote, the Court was assisting the plaintiff in enforcing a judgment based on a lawsuit that violated the law at the time it was instituted.

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

Illinois Supreme Court Likely Poised to Strike Down Pension Reform Act

By Kirk Jenkins on Posted in Illinois, Pension Reform Litigation

9684675705_4dda20b9d4_zThis afternoon, the Illinois Supreme Court heard oral argument on the biggest case on its civil docket, In re Pension Reform Litigation. In re Pension Reform Litigation involves the question of whether SB-1, the pension reform act adopted by the Illinois General Assembly in 2013, violates the Illinois Constitution’s Pension Protection Clause. The Clause provides: “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.”

To review the argument, click here.  For a guide to our previous posts on the pension debate, see here.

Solicitor General Carolyn Shapiro argued the case for the State. She began with the State’s “parade of horribles” for the plaintiffs’ position, arguing that if the pension clause is absolute, then the State will be unable to respond to prolonged inflation, a collapse in the bond rating or a catastrophic epidemic. She argued that the plaintiffs’ position that pensions were absolutely immune from reductions raised serious constitutional problems, and shouldn’t be adopted without explicit and unmistakable language. As the State did in its brief, she argued that the words “diminish or impair” refer back to the contractual relationship – not the benefits themselves. “Diminish or impair” essentially mean the same thing, counsel argued, while the plaintiffs’ construction of the clause elevates that language and renders the first half of the clause meaningless.

As I’ve discussed in earlier posts analyzing its briefs, this argument from the State is problematic. The State has struggled throughout the briefing to explain what meaning should be ascribed to the “diminish or impair” language in its construction. The notion that the words refer to the contractual relationship doesn’t get the State there – simply saying something is “a contract” in the State’s view imports limited protection, and the “diminish or impair” language adds nothing more. So what does the clause mean? And the State gets itself into even greater difficulty with the second half of the clause, insisting that the words “diminish” and “impair” are a redundant rhetorical flourish.

Justice Thomas asked whether, if the Court agreed with the State and allowed it to invoke police powers in response to a funding emergency arguably created by the State, it wouldn’t be giving the State a license to avoid its obligations whenever it wanted to – couldn’t the legislature simply refuse to fund pensions and then claim an emergency? Counsel answered that the State couldn’t invoke the police power whenever it felt like it, but a serious fiscal crisis was enough. Justice Thomas asked how the pension funds would have weathered the recession if they had been fully funded. Counsel responded that while the funds might have survived in better shape, the recession was an unforeseeable event. Justice Thomas suggested that one could argue how unforeseeable recessions are, but isn’t it true that the State left the funds vulnerable to recession? Counsel argued that the pension reform bill did not address the portion of the debt created by underfunding.

Justice Thomas pointed out the inconsistency in the State’s push for a remand. The State had asked for an accelerated schedule, insisting that it needed an answer by May 31, but now the State was seeking a remand for more fact-finding, which would certainly preclude an answer by that date. Counsel agreed that a remand couldn’t be completed by May 31, but suggested that if the Court affirms, holding that no benefit cuts are permissible, the legislature needs to know that as soon as possible.

The State’s argument concluded with a flurry of questions which suggested that at least two Justices had serious qualms about the State’s position. Chief Justice Garman asked counsel whether the legislature had revised or avoided any other contracts in response to the alleged crisis, or whether that was even relevant. Counsel answered yes, the State pays its bills more slowly – but ultimately, that’s a question for remand. When counsel transitioned back into an argument about the changes made by the Act in response to the fiscal emergency, Justice Thomas asked whether there was any problem with the substantial income tax reduction at the beginning of the year in the midst of the supposed dire fiscal situation. Once again, counsel argued that the question was for remand, but the ability to simply raise taxes didn’t inevitably defeat a police powers argument.

Counsel returned to the State’s argument about the Constitutional Convention, which we’ve discussed here, here, and here. Counsel argued that the pension clause was the result of concern over the effects of home rule. Justice Thomas asked what the Court should do, then, with the clear evidence in the Constitutional debates that the delegates intended that there be no benefit cuts in trying times – wasn’t reducing future benefits problematic then? Counsel concluded by once again arguing that if the delegates to the Constitutional Convention intended that the clause be absolute in its protection for employee pensions, then the clause violated the Federal constitution.

Counsel for the union plaintiffs followed. He argued that the pension protection clause was clear and unambiguous, with no stated exception. The clause is a stand-alone provision, not part of the contract clause. The drafters of the clause anticipated exactly the situation the State faces today, counsel argued. In response, they wanted to achieve two things – first, clearly mandate a binding contractual relationship, where benefits could not be considered gratuities. Second, they wanted to ensure that pension benefits were guaranteed. The resulting clause was plain and clear in its meaning, as the Court has recognized numerous times. Counsel argued that the clause was intended to indirectly force full funding of the pensions by making it abundantly clear that the obligations were real. Chief Justice Garman asked whether the police power ever could impair the pension rights, and counsel responded certainly not under these circumstances. The doomsday scenarios posited by the State don’t apply here, counsel argued – surely a simple invocation of fiscal problems isn’t enough to ignore a constitutional command.

The Chief Justice asked whether a remand was necessary then to address the reasonableness of the State’s response to the emergency. Counsel answered no. None of the contracts clause cases the plaintiffs cite involve overriding a constitutional provision. In Kanerva v. Weems, even the dissenter (Justice Burke) agreed that if the monies involved there were a pension benefit, they could not be diminished. Counsel briefly turned in closing to the State’s federalism argument. Counsel argued that the State was mistaken that the police power could never be withdrawn in a state constitution. The police power does not trump affirmative commands of a state constitution, counsel argued, and the State had not cited a single case to the contrary.

Counsel for the State Universities Annuitants Association was next. He argued that it was clear that pension clause was not subject to the police power. Counsel offered his own answer to the Chief Justice’s question about whether the police power ever applies to pensions, arguing that the Constitution tells us when there are exceptions. Counsel cited the Court’s statement in Kanerva that the pension reform clause should not be rewritten to include exceptions not written by the delegates or adopted by the people. Counsel concluded by wondering, if the State could avoid any financial arrangement by invoking a simple fiscal emergency, what would that say for the viability of any other state contract?

When the Solicitor General rose for rebuttal, Justice Karmeier asked a question about the State’s federalism argument. He said that his understanding was that all government power flows from the people, and that power is assigned through the constitution. If the people had adopted a constitution, with a pension protection clause with different language than the contract clause – and with a right to bear arms which explicitly noted an exception for police powers – wasn’t that all there was to say about sovereign power? Counsel responded that the U.S. Supreme Court has said that even the people themselves cannot permanently give up police powers. Counsel briefly touched on the constitutional debates, arguing that the pension protection clause had wound up in a separate place from the contract clause because the concern over home rule which she said had led to its adoption had arisen after the bill of rights was adopted.

Counsel pointed to the plaintiffs’ argument about the absolute language of the pension protection clause, but noted that the contract clause is written in absolute language too – and yet, 150 years of case law says its meaning isn’t absolute. Justice Thomas repeated his question from the Solicitor General’s lead-off argument: the State says allowing a police power exception wouldn’t amount to licensing the avoidance of contracts, but isn’t that exactly what the Court would be doing by allowing the State to avoid a constitutional command because of an emergency the State created? Counsel answered that the State’s power regarding pensions was the same as its power to modify contracts. Justice Thomas asked what the import of the State’s argument was – that a ruling in its favor wouldn’t license the State to modify any contract. Counsel said the State couldn’t modify contracts at will. Justice Thomas asked if the reason is a state-created emergency, why doesn’t that amount to a license to modify the obligation at will? Counsel answered that the situation was created by a combination of the severe recession and inflation. Chief Justice Garman asked whether counsel could cite any case allowing modifications to a contract through the police power outside of purely regulatory situations? Counsel cited the Chief to several teachers’ unions cases from the State’s brief. Counsel concluded by arguing that there is no dispute that the State has a fiscal emergency on its hands – the only dispute is whether the Act is a proper response to it. Counsel urged the Court to remand for consideration of that question.

Based on the intense and almost exclusively skeptical questioning of the State (twenty questions for the State, two for the plaintiffs), affirmance of the Circuit Court’s order striking down the Pension Reform Act seems likely.

The decision should come down on or before May 31.

Image courtesy of Flickr by Patrick Feller (no changes).

The Pension Case: The State’s Reply Brief

By Kirk Jenkins on Posted in Illinois, Pension Reform Litigation

11746064545_4e2d19511c_z(1)In their reply brief in the Public Pension Reform Act appeal, the State immediately zeroes in on what it perceives as the central difficulty of the plaintiffs’ position: the trial court’s conclusion that the Pension Protection Clause had no exceptions at all. Plaintiffs’ “super-contract approach,” the State writes, “would deny the State the ability to protect the public health, safety, and welfare if doing so required even a penny’s reduction in pension benefits.”

The pension clause provides as follows:

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

According to the State, the plaintiffs’ position results in a Clause at war with itself – the very nature of a “contractual relationship” – at least, a contract with the State – is irreconcilable with a relationship “the benefits of which shall not be diminished or impaired.” According to the State, the plaintiffs’ position “negates the plain meaning of ‘contractual relationship’ and results in an internally inconsistent Pension Clause.”

The State offers no explanation, however, of how the “diminished or impaired” language adds additional meaning to the “contractual relationship” part of the clause. Nor does the State attempt to reconcile its argument with the position it took in its opening brief: that the two halves of the Clause were entirely consistent because it was the benefits of the contractual relationship which could not be diminished or impaired – and sovereign entities always have the right to unilaterally modify their contracts.

The plaintiffs argue that the words “diminished” and “impaired” must mean different things – otherwise, one of the two words is surplusage. But no problem, the State claims; the “canon against constitutional surplusage provides only that “the presence of surplusage . . . is not to be presumed in . . . constitutional construction’ and ‘each word, clause or sentence must, if possible, be given some reasonable meaning.’” (Emphasis in the original.) Since in the State’s view it is impossible to ascribe differing meanings to the two words, it is permissible to consider the phrase redundant, like “cease or desist.”

The State claims that the Constitutional Convention debates support its interpretation (see here, here and here for our take on the debates). The State argues that the delegates’ supposed “focus” on merely establishing a distinction between treating pensions as contractual rights and as gratuities “undermine[d] Plaintiffs’ reliance on various delegates’ statements” about the meaning of the Clause. Although the State does not quote either Sponsor Kinney’s statement, (“If a police officer accepted employment under a provision where he was entitled to retire at two-thirds of his salary after thirty years of service, that could not subsequently be changed to say he was entitled to only one-third of his salary after thirty years of service, or perhaps entitled to nothing”), or Sponsor Green’s statement, (“you say when you employ these people, ‘now, if you do this, when you reach sixty-five, you will receive $287 a month,’ that is, in fact, what you will get”), the State insists that “it would not even have occurred to the delegates” that their comments could be construed as absolutely barring reductions in benefits.

The State next turns to the case law relating to the Pension Protection Clause. According to the State, the Supreme Court could not have concluded that “the Pension Clause is absolute” in Felt v. Board of Trustees of Judges’ Retirement System, since if it had, the Court would have held that the Pension Protection Clause “is unconstitutional.” Nor did the Arizona Supreme Court’s decision in Fields v. Elected Officials Retirement Plan, in which the Court held that the Arizona Constitution’s Pension Protection Clause absolutely barred reductions in pension benefits, support the plaintiffs’ argument, since the Arizona Constitution’s clause provided that pension benefits are a “contractual relationship” subject to the constitution’s Contract Clause “and” benefits “shall not be diminished or impaired.” According to the State, the Arizona framers’ decision to provide in an independent clause that benefits may not be diminished or impaired is sufficient grounds for giving that clause independent meaning.

The State next turns to its argument that if the Pension Protection Clause absolutely bars any reduction in benefits, it violates the Federal constitution. The plaintiffs argued that the reserved powers doctrine does not extend to the State unilaterally modifying its economic commitments, but the State disagrees. “’Ensuring the financial integrity of the [government] is a significant public purpose,’” according to the State.

The State concludes by challenging the plaintiffs’ argument that the Pension Reform Act is not severable. The State relies upon the Act’s “explicit and carefully drawn severability provision,” dismissing the plaintiffs’ argument as being reliant on “a comment by a single Senator.”

The oral argument in In re: Pension Reform Litigation will be held at 2:30 p.m. on Wednesday, March 11, 2015. We’ll be back before the argument over at Illinois Supreme Court Review with a preview, focusing on the Court’s history over the past fifteen years with comparable cases.

Image courtesy of Flickr by LendingMemo.com (no changes).

Illinois Supreme Court Holds Innocent Misrepresentation on Malpractice Renewal Grounds for Rescission

By Kirk Jenkins on Posted in Illinois

12616526435_a0e1d4824b_zA law firm partner innocently repeats a misrepresentation by one of his or her partners on a renewal form for the firm’s malpractice insurance. Can the misrepresentation be grounds for completely rescinding the policy? On February 20, a divided Illinois Supreme Court held that the answer was “yes,” reversing an Appellate Court judgment in Illinois State Bar Association Mutual Insurance Co. v. Law Office of Tuzzolino & Terpinas. Our detailed description of the facts and lower court rulings is here. Our report on the oral argument is here.

Tuzzolino arose from litigation over a limited liability corporation which owned a Chicago nightclub. One of the partners in a two-partner law firm represented an investor in the litigation, but allegedly made various errors in handling the case, resulting in a lower-than-expected settlement. The partner convinced his client to try to recover his losses by suing the lawyer who handled the LLC’s bankruptcy for malpractice, but that action was dismissed as time-barred. Client and lawyer had a confrontation, and the partner allegedly offered a substantial sum to settle any possible malpractice claim.

Less than three months later, the firm’s malpractice coverage came up for renewal. The other partner checked the “no” box in response to the form’s question about whether there were any known circumstances which might result in a malpractice claim. About a month after submitting the form, the innocent partner learned of the dispute for the first time when he received a lien letter from an attorney representing the former client. He reported the claim to the malpractice carrier, but a little less than a year later, the insurer sued to rescind the policy – with respect to the firm and both partners.

The insurer successfully moved for summary judgment at the trial court. On appeal, the First District reversed in part, holding that the policy had been properly rescinded as to the allegedly guilty party, but that the innocent insured doctrine operated to preserve coverage with respect to the innocent partner.

The Supreme Court reversed. The issue turned, according to the Court, on Section 154 of the Insurance Code (215 ILCS 5/154), which provides a two-prong test for evaluating claims for rescission based on misrepresentation: (1) the statement must be false; and (2) it must be made with “actual intent to deceive or materially affects either the acceptance of the risk or the hazard assumed by the company.”

The innocent partner didn’t really dispute that the misrepresentation “materially affect[ed] . . . the acceptance of the risk.” Instead, he focused on public policy issues: the possibility that not only the client originally involved in the dispute but other clients of the firm would be left with impaired recoveries, or no recovery at all, in the event of further disputes, simply because the partner who participated in the nightclub litigation failed to inform his partner of what was going on. The innocent partner relied on the innocent insured doctrine, which provides that a breach by one of multiple insured does not necessary eliminate coverage for other insureds not involved in the breach. But there was a material difference between the primary innocent insured case, Economy Fire & Casualty Co. v. Warren, and Tuzzolino, the majority wrote – Economy Fire involved the possible application of a policy exclusion, not an issue of whether the entire policy should be rescinded. The innocent insured’s conduct is relevant to determining the duty to defend an innocent insured pursuant to a policy that was indisputably in effect, the Court wrote – but rescission was a recognized remedy for even innocent misrepresentations in the making of an insurance policy.

Having held that rescission was a permissible remedy pursuant to Section 154 of the Code, the Court then turned to the Appellate Court’s holding that the policy was severable to preserve the innocent partner’s coverage. The Court acknowledged that a severability clause in the policy created a separate agreement with each insured, but the clause also made the statements in the application part of each policy. Thus, the Court held that there was no basis for splitting the policy off from the application, even with respect to to the innocent partner.

Justice Kilbride dissented. He argued that courts have long taken into account a policyholder’s reasonable expectations, as well as the coverage intended by the policy, in determining the scope of coverage. Particularly given that there was nothing in the application or policy expressly imputing the alleged wrongdoing of the partner involved in the nightclub litigation to the innocent partner, Justice Kilbride argued that the innocent insured doctrine should have been applied to preserve the innocent insured’s coverage. Justice Kilbride was also disturbed by the increased exposure of other clients of the firm brought about by the total rescission of the policy.

Image courtesy of Flickr by Brett Jordan (no changes).

Illinois Supreme Court Agrees to Decide Fiduciary Duty Claim Against Former Counsel

By Kirk Jenkins on Posted in Illinois

5716366573_c629bd389e_z(1)In a few weeks’ time over at Appellate Strategist’s sister blog, the Illinois Supreme Court Review, we’ll address the question of just how rare it is to get an unpublished decision – what we in Illinois call a Rule 23 order – accepted for review by the Illinois Supreme Court. As we wrap up our review of the January term, we address a Rule 23 order newly added to the Court’s civil docket – Stevens v. McGuireWoods LLP. Stevens, which arises from Division 4 of the First District, poses a number of related questions regarding issue preclusion in the context of a claim against a law firm.

The plaintiffs in Stevens are former minority shareholders of a corporation. They hired a law firm to bring individual and derivative claims against the corporation’s managers as well as the majority shareholder for misappropriation of trademarks and other intellectual property. The plaintiffs successfully moved to disqualify another law firm from representing the managers in the ongoing litigation.

In the summer of 2008, the trial court dismissed all claims against the managers, and three of nine claims against the owner. The plaintiffs retained new counsel, and later filed two rounds of amended complaints. The second amended complaint purported to state claims “individually and on behalf of” the corporation against the disqualified law firm. The law firm, the managers and the owner/majority shareholder all filed separate motions to dismiss.

The trial court granted the motion to dismiss against the law firm, holding that all counts were time barred. The court nevertheless went on to consider the merits of the claims, holding that the plaintiffs could not bring five of their claims against the firm in an individual capacity, and that plaintiffs had failed to adequately allege derivative claims with respect to several claims. With respect to the claim for conversion, the court held that plaintiff had failed to adequately allege that it had any right to the property at issue, or that the firm had aided or abetted in the alleged conversion. The court therefore dismissed a total of six claims without prejudice. (In other orders, the court dismissed the complaint against the managers in their entirety, and dismissed several counts against the owner/majority shareholder. The case against the owner/majority shareholder was settled a few months later).

In late 2011, the plaintiffs sued their own counsel for breach of fiduciary duty, alleging that counsel had failed to sue the other law firm in a timely manner. According to plaintiffs, the case had been settled for less than it was worth because of the loss of the claims against the opposing law firm.

After limited discovery, the parties filed cross-motions for summary judgment. The law firm defendant argued that the plaintiff’s claims amounted to a collateral attack on the original trial court orders holding that the clients lacked standing to sue the opposing law firm. The trial court granted the defendants’ motion for summary judgment, holding that the plaintiffs’ new claim was barred by collateral estoppel.

The Appellate Court affirmed in part and reversed in part. The court concluded that the lower court in the original action had ruled that any individual claims against the opposing law firm were barred. It didn’t – and indeed, could not have – ruled that derivative claims against the opposing firm were barred. The lower court had dismissed the derivative claims against the opposing firm, but it had done so without prejudice. And besides, the trial court had never dismissed count II for usurpation of corporate opportunities at all. Therefore, although collateral estoppel certainly barred the plaintiffs’ claim against their former counsel with respect to the individual claims, it certainly didn’t with respect to the derivative claims.

The defendant argued that the plaintiffs lacked standing to bring any claim against it arising out of the derivative claims, since the law firm represented the corporation with respect to those claims. The Appellate Court disagreed. The defendant represented the individual plaintiff shareholders, the court found. Just because the law firm advised it to bring derivative as well as individual claims didn’t make the firm the corporation’s attorney.

We expect Stevens to be decided in eight to twelve months.

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

Illinois Supreme Court Agrees to Decide When Tender Will Moot Putative Class Claim

By Kirk Jenkins on Posted in Illinois

3290478769_22af7fdd34_zThe plaintiff files a skeletal class certification motion the same day as his putative class complaint. Subsequently, the defendant tenders a check to the plaintiff representing everything the plaintiff could recover for his action. Is the plaintiff’s class claim moot? That’s the question that the Illinois Supreme Court agreed to decide in the closing days of its January term in Ballard RN Center, Inc. v. Kohll’s Pharmacy and HomeCare, Inc., a decision of the First District, Division 4.

The plaintiff’s complaint alleged that he received an unsolicited fax advertisement from the defendant. The fax purportedly lacked the required “opt out” notice; the plaintiff had no prior relationship with the sender, and had not given general permission for such faxes to be sent. The complaint asserted that the fax sent to plaintiff was part of a mass broadcast of fax advertisements which had been received by at least forty other persons in Illinois. Plaintiff purported to state one claim for violation of the Telephone Consumer Protection Act, one for violation of the Illinois Consumer Fraud Act, and one for conversion.

On the same day that the plaintiff filed its complaint, plaintiff filed a motion seeking certification of three classes. The motion contained no factual allegations justifying certification, and stated that plaintiff would file a memorandum of law “in due course.”

Defendant moved for partial summary judgment on Count I, the TCPA claim, alleging that on three separate occasions, it had made an unconditional tender of a sum covering all damages the plaintiff could possibly recover under the Act. The defendant argued that plaintiff had not filed a sufficient motion for class certification to satisfy the standard of Barber v. American Airlines, and his TCPA claim was therefore moot. The trial court denied the motion for summary judgment, holding that Barber merely requires the filing of some sort of motion for class certification; there are no particular prerequisites for the motion. The court subsequently certified a class, and defendant appealed.

The Appellate Court found that commonality appeared to exist, as there were significant common issues of fact and law pertaining to all class members. The court declined to hold that evidence of consent among class members was sufficient to defeat certification, or that recipients whose faxes were routed straight to a computer, and thus had never printed the blast fax out, might present different issues. The court further found that a class action was appropriate, rejecting the defendants’ view that there was something fundamentally wrong with notifying class members by unsolicited faxes that they were members of a class arising from sending of unsolicited faxes.

Nevertheless, plaintiff’s TCPA claim was moot, the Appellate Court held. Barber held that payment to the class representative doesn’t moot a class claim when the class representative has filed a motion for certification sufficient to bring the interests of the class before the court. Accordingly, the Appellate Court held, a motion sufficient to satisfy Barber had to include sufficient factual allegations to bring the absent class members’ interests before the court. The plaintiff’s motion hadn’t done that, the court found; the plaintiff had merely filed a “shell” motion, and if a shell motion was sufficient to block Barber mootness, then Barber means nothing.

The Appellate Court reversed class certification as to the TCPA claim, but affirmed in all other respects.

We expect Ballard RN to be decided in eight to ten months.

Image courtesy of Flickr by Michelle Kinsey Bruns (no changes).

Illinois Supreme Court Debates Anonymity of Internet Poster

By Kirk Jenkins on Posted in Illinois

2769699053_d359f502bd_zIn the closing days of its January term, the Illinois Supreme Court heard oral argument in Hadley v. Subscriber Doe. Hadley poses the question of whether the defendant is entitled to quash the plaintiff’s subpoena seeking to discover the identity of an anonymous internet poster. Our detailed summary of the underlying facts and lower court orders in Hadley is here.

An anonymous reader posted a defamatory comment about a political candidate at the end of an online newspaper article. The plaintiff sued the poster, using only his online screen-name, and sent the internet service provider a subpoena seeking the poster’s ISP address. The defendant moved to quash the subpoena. At the hearing, the trial court commented that the matter would be better addressed through Supreme Court Rule 224, which is intended to help identify unknown defendants prior to actually filing a complaint. So the plaintiff filed an amended two-count complaint: a defamation claim, and a Rule 224 petition for an order that the poster’s identity and address be disclosed. After a hearing the trial court granted the Rule 224 petition. On reconsideration, the defendant pointed out that the court’s order wasn’t appealable, given that the defamation claim was still pending. The trial court responded by adding Rule 304(a) language.

The majority of the Appellate Court affirmed, holding that the defendant’s screen name was a fictitious name, not a fictitious person, and the filing of the complaint was therefore not a nullity for statute of limitations purposes. The court further held that the trial court’s order was immediately appealable as an ordinary Rule 224 order. Even though the plaintiff had bundled the petition with a claim for defamation which was still pending, the Rule 304(a) language disposed of any doubt as to whether the order was appealable.

Counsel for the defendant began the Supreme Court argument. Counsel began by briefly discussing the timeline, because in defendant’s view, the statute of limitations was central to the case. Justice Freeman asked whether the second action in state court had introduced the Rule 224 issue. Counsel said no. The matter was a routine civil case with litigants Hadley and Doe. The plaintiff had obtained a subpoena to the internet service provider, and the defendant appeared and moved to quash, arguing that the action against the unnamed defendant was void ab initio. The plaintiff then amended what defendant believed was a void complaint, but Rule 224 actions are supposed to be independent actions filed prior to a substantive complaint. The courts have considered an action against a party whose identity is unknown void for more than 100 years. Justice Thomas asked, if the Court found the anonymous poster’s screen name fictitious, what that would do to the argument. Counsel said it would bolster the argument. According to the common law, a fictitiously named party cannot be sued. That’s why we have Rule 224. Justice Thomas asked whether the internet screen name was chosen to preserve anonymity. Counsel said no, the defendant had alleged that he was the same person as the unknown user of the screen name – that was done by the plaintiff only. There are no factual allegations in the plaintiff’s complaint linking the defendant and the screen name. Counsel suggested that the defendant could be one person, a place or an office – the name was a placeholder. Justice Theis asked counsel whether he agreed with earlier case law providing that discovery of the identity of a blogger should be ordered when the allegations can withstand a 2-615 motion. Counsel answered that the standard is intended to balance the interests of the plaintiff and the commentator’s First Amendment rights. Counsel suggested that a more appropriate step would be a Section 2-619 motion or a motion for summary judgment – something extending beyond the four corners of the complaint. Justice Theis suggested that the fundamental issue has not been resolved in Illinois. Counsel agreed, and suggested that at minimum, in the context of a political race, the plaintiff should be required to come up with factual allegations on harm. Justice Theis asked how the plaintiff should proceed in connection with Rule 224. Counsel responded that the plaintiff should file the petition, including specific allegations about how the petition is related to a claim, and how the plaintiff has been damaged. Counsel argued that the case is a SLAPP suit waiting to happen. The only thing a political candidate would have to do to find his or her opponents would be to file a Rule 224 petition and then do nothing. Counsel argued that it was telling that when the plaintiff sought reconsideration, he had asked for the case to be reinstated only long enough for a ruling on the motion to quash. Counsel argued that the plaintiff merely wanted to know the identity of the anonymous website poster – he didn’t actually want to proceed with a defamation claim. Counsel argued that this conclusion was supported by plaintiff’s failure to include a defamation per quod count, which defendant argued was because plaintiff had no damages.

Plaintiff too began his argument by reviewing the procedural history. Plaintiff had filed an amended action, naming the internet service provider, because he had initially failed to learn the identity of the defendant. Counsel argued that the anonymous poster had used a false name, his screen name, and the name “subscriber Doe.” The plaintiff had filed suit against “Subscriber Doe,” using the screen name- which plaintiff argued the defendant had used in Federal court. Plaintiff insisted that it was obvious that Subscriber Doe and the screen name were the same person. The speaker was obviously an actual person, counsel argued. Justice Thomas asked whether the screen name was a fictitious name, a generally known name, or was there a difference. Counsel answered that it was a fictitious name for a real person. Chief Justice Garman asked whether it was essential to plaintiff’s theory that the Court maintain a distinction between a fictitious party and a name. Counsel said yes, one could sue a person by the name that person is using, even if it’s false. The defendant was obviously a real person, plaintiff argued – a non-party can’t file a substantive motion attacking a complaint. Counsel said perhaps Rule 224 needs to be clarified, but if a party is going to file something substantive in an Illinois court, anonymity goes away. Counsel for the defendant had pointed out that the plaintiff won the election, suggesting that he had no damages, but plaintiff’s counsel insisted that had nothing to do with anything. In a defamation per se claim, the only issue was whether the statement was defamatory – which this clearly was – and whether it was published. Justice Thomas asked counsel whether he wanted to respond to counsel’s comment that plaintiff was only concerned with identifying the speaker. Counsel responded that the case wasn’t a fishing expedition. The internet service provider said that the ISP address of the commenter was one person at a private address. At the very least, that meant that Subscriber Doe was a material witness.

Counsel for the defendant concluded the argument with rebuttal, arguing that any number of people could have accessed the relevant IP address. Chief Justice Garman asked why the Court should take steps to protect the identity of someone who hasn’t taken steps to protect his or her own network. Counsel responded that unprotected networks were commonplace. Justice Thomas asked how counsel would know that the plaintiff wasn’t really interested in recovering damages, as opposed to merely identifying the speaker. Counsel suggested that his view was supported by the circumstances; this was a political case in a small town. Justice Thomas asked whether it was more likely that someone accused on the internet of highly improper activities was pursuing the case to preserve his own integrity, as opposed to for the sake of retribution. Counsel argued that taking the story as a whole, and all the comments made, the plaintiff’s reading of the comment as defamatory was untenable. Counsel argued that the defendant and the screen name may be the same entity, or they may not be; counsel represented the defendant only. Justice Theis asked counsel whether he had used both names in a pleading, and counsel said no, he had never suggested that the defendant and the screen name were the same person. Counsel concluded by arguing that it was ridiculous that comments made in an internet chat situation would be construed as assertions of fact.

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

Image courtesy of Flickr by James Cridland (no changes).

Illinois Supreme Court Agrees to Decide Breadth of Misconduct Exception for Unemployment Benefits

By Kirk Jenkins on Posted in Illinois

13689914_d648feba12_zIn the closing days of its January term, the Illinois Supreme Court agreed to hear a case from Division 5 of the First District, Petrovic v. The Department of Employment Security. Petrovic presents an interesting issue on the merits – exactly what has to be proven to trigger the exception to unemployment compensation for employees terminated for misconduct. But it’s possible the Supreme Court may never reach that issue, because Petrovic presents a preliminary standing issue: the plaintiff’s former employer isn’t challenging the award. The Department, the Director and the Board of Review of the Department are.

The plaintiff was a tower planner for an airline. In 2012, she was terminated for allegedly facilitating a gift and a first class upgrade for a passenger without authorization. When the plaintiff filed a claim for unemployment benefits, her employer filed a letter in response, arguing that she had been terminated for violation of a “reasonable and known policy.” The claims adjudicator denied plaintiff’s request for benefits, finding that she had been dismissed for work-related misconduct. Plaintiff appealed to the Department’s referee. During a telephone hearing, she testified that she did not upgrade the passenger herself, no one had objected to her conduct, and her actions did not meet the definition of misconduct. The referee affirmed the decision that the plaintiff was ineligible, and the Board affirmed as well. But the plaintiff filed a petition for administrative review with the trial court, and the court reversed, holding that there was no evidence of misconduct in the record.

On appeal, the plaintiff challenged the standing of the Department, Director and Board to appeal the trial court’s order. The Appellate Court disagreed, holding that the Department was the guardian of the unemployment insurance fund, and as such, has an interest in disputing questionable claims. The court noted that particularly when cases reach the appellate stage, it will often be cheaper for a claimant’s former employer to simply pay the claim than to continue to litigate.

The court then turned to the issues. The Appellate Court pointed out that under the circumstances, the decision before them for review was the administrative decision, not the trial court’s judgment on the petition for administrative review. The court found that to establish misconduct, three elements must be shown: (1) a deliberate and willful violation of a rule or policy of the employer; (2) the rule was reasonable; and (3) the violation either harmed the employer or was repeated by the employee despite explicit instructions from the employer.

The plaintiff argued that she was unaware of any rule or policy contrary to her conduct. But the Appellate Court held that reasonable rules need not be proven by direct evidence. Rather, a rule or policy can be proven by a “commonsense realization that certain conduct intentionally and substantially disregards an employer’s interests.” The Appellate Court held that plaintiff’s conduct satisfied this standard: the upgrade had potentially cost the airline a significant sum, as well as raising alleged safety concerns. Accordingly, the Appellate Court found that the Board’s determination that plaintiff had been dismissed for misconduct was not clearly erroneous. The Appellate Court reversed the Circuit Court’s order, reinstating the Board’s decision.

We expect Petrovic to be decided in eight to twelve months.

Image courtesy of Flickr by Jen Light (no changes).

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