The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

Illinois Supreme Court Debates Jurisdiction Over Pension Dispute

By Kirk Jenkins on Posted in Illinois

The Illinois Supreme Court seemed conflicted during an extremely active oral argument in late January in the high-profile pension case People ex rel. Madigan v. Burge. Burge poses the following issue: can the Attorney General challenge the actions of the Police Pension Board by simply filing suit in the Circuit Court, as opposed to pursuing administrative review in the Appellate Court? Based upon the argument, it appears that whether or not the Court sides with the Attorney General will depend upon whether the Court finds a limiting principle in the Attorney General’s broad claim of standing. Our detailed summary of the facts and lower court holdings in Burge is here. The video of the argument is here.

Burge arises from a notorious case a few years ago. A Chicago police officer was widely believed to have sanctioned and participated in the abuse and torture of arrestees in order to extract confessions. The officer was convicted of two counts of obstruction of justice and one of perjury and sentenced to 54 months in prison.

Section 5-227 of the Pension Code says that pension benefits can’t be paid to anyone "convicted of any felony related to or arising out of or in connection with his service as a policeman." The Board of Trustees of the Retirement Board of the Policemen’s Annuity and Benefit Fund held an evidentiary hearing to determine whether the statute barred further pension payments to the imprisoned officer. At the conclusion of the hearing, the Board split 4-4: the four city-appointed trustees voting to terminate, the four trustees elected by the police officer participants in the pension fund voting to continue payments. Without a majority of the Board voting to discontinue, the motion to discontinue payments failed.

Rather than seeking administrative review of the decision, the Attorney General sued the Board, seeking an injunction to halt the payments. The Attorney General cited section 1-115(b) of the Pension Code, arguing that the statute authorized the Attorney General to seek an injunction to halt any practice which violates the Pension Code. The Pension Board and the officer both moved to dismiss, and the Circuit Court granted the motion. The First District, Division Six of the Appellate Court reversed.

Counsel for the officer argued that the Attorney General was using the statute to collaterally attack a decision by the Board which was subject only to administrative review. Counsel argued that the legislature granted original and exclusive jurisdiction to the Board to make all decisions regarding benefits. Police officers are entitled to expect that the Board and their elected representatives make all decisions regarding their pensions, counsel argued. Because the statute limits judicial review, officers should expect that the Board’s decisions are not subject to collateral attack. Justice Burke asked whether Section 1-115(b) was meant to address situations where the Board was acting ultra vires. Counsel said yes. Justice Burke pointed out that the legislature had in fact provided an opportunity to challenge the Board. Counsel argued that such actions were permitted only when the Board’s conduct was outside the Code. Justice Burke asked if that wasn’t what the Attorney General was alleging. Counsel answered no, and that the Attorney General’s claim that the Board’s action violated the Code made no sense. Section 1-115(b) creates a private right of action, counsel argued, but it’s limited to violations of the Code. Justice Kilbride suggested that that was what the Attorney General was alleging. Counsel answered that the issue was what was the purported violation of the Code. Justice Kilbride pointed out that the Attorney General was arguing that the court had concurrent jurisdiction. So why didn’t the AG’s right to file apply here? Counsel once again argued that there was no Code violation for the Attorney General to pursue. Justice Burke suggested that the Board has authority to discontinue pension benefits. Counsel responded that Section 1-115(b) doesn’t give the Circuit Court authority over that issue. Justice Burke asked whether that was what was decided here, whether the pension should be discontinued. Counsel answered that the Board had clearly acted within its authority. Justice Burke asked what the Attorney General alleged as the Code violation. Counsel answered that the Appellate Court had found that the tie vote was the violation because the Court recognized that the Attorney General hadn’t alleged any violation. Justice Thomas asked whether, once the 4-4 vote had occurred, anyone had sought administrative review. Counsel answered that nobody had sought to intervene in the underlying case.

Counsel for the Board followed. The issue was whether the Attorney General has the right to initiate a civil proceeding to challenge a discretionary decision of an administrative agency, counsel argued. The Administrative Review law contains language specifically barring all other kinds of review where the statute applied.  Because the Board had the burden of proof, when four members voted against stopping payments, the motion failed. Chief Justice Garman asked whether there was a method to challenge an erroneous interpretation of state law by the Board – the annuitant wouldn’t challenge it, and the Board wouldn’t because they made the mistake. Counsel answered that a void act could be challenged any place at any time. Chief Justice Garman wondered whether the statute applied to a mistaken act. Counsel responded that the Attorney General might not like the Board’s action, the newspapers didn’t like it, but an unpopular decision isn’t necessarily a void one. The Chief Justice wondered whether an act had to be ultra vires to authorize an action by the AG. Counsel responded that what was necessary was something beyond the authority given the Board by the legislature.

Once counsel for the Attorney General took the podium, Justice Thomas began by asking what "act or practice" the Attorney General was challenging. Counsel argued that the AG wasn’t seeking review of the Board’s decision. Justice Thomas wondered whether, if the AG’s action was permissible, either the AG or any individual could challenge any Board decision. Counsel responded that the statute was based on years of experience with ERISA. The critical distinction, counsel argued, was between appellate and original jurisdiction. The Circuit Courts have original jurisdiction to decide the ultimate merits – whether an act or practice violates the Code. Justice Burke asked whether, if the Circuit Court could hear this action, anyone could go directly to the Circuit, bypassing administrative review. Counsel responded that a claimant seeking benefits could not obtain them through Section 1-115(b). Justice Burke asked what violation of the Code the Attorney General was alleging. Counsel responded that the violation was payment of benefits barred by Section 2-227 of the Pension Code. Justice Burke responded that those benefits were paid fifteen years before – the Board merely refused to stop benefits. Counsel answered that once the felony conviction was entered, the language of the statute was clear – further payments were barred. Characterizing the action as one for administrative review was misdirection.  Justice Burke asked whether the Pension Board had the authority to decide whether benefits should continue, or the Court did. Counsel responded that the Board and the court had concurrent jurisdiction over the issue. Justice Burke asked whether the Attorney General had the authority to intervene at the Pension Board. Counsel answered yes, but the statute creates a separate vehicle to go straight to the Circuit Court. Justice Burke asked whether the Attorney General had ever gone to court before. Counsel answered no, but this was an important first case for the courts to declare that the Code means what it says. When counsel again argued that the Attorney General had the right to file a separate action, Chief Justice Garman suggested that the Attorney General’s action seemed arguably like waiting till the Board acted, and when the AG didn’t like it, she sought to end-run the process. Counsel answered that this was inherent in concurrent jurisdiction. The Chief Justice asked whether the Attorney General could have intervened at the Board. Counsel answered that the AG didn’t have the resources to monitor thousands of pension cases and intervene at the Board whenever a barred payment was made. The Chief Justice asked whether the Attorney General was acting as the Appellate Court to overrule the Board. Counsel responded that the AG had standing to seek an adjudication by the Court as to whether there had been a violation. Counsel argued that the suit could have been brought the day after the officer’s convictions. Justice Theis asked what the Attorney General’s case would look like – was she asking the Court to decide whether these felonies arose out of the officer’s service? Counsel said yes, and Justice Theis suggested that the AG was relitigating the issue determined by the Board. Counsel responded that the Attorney General’s complaint wasn’t a disagreement with the Board, but rather arguing that paying the pension violated the Code. Justice Burke asked what new evidence would be presented on remand. Counsel answered that the Attorney General wasn’t a party below. The right to intervene and then seek administrative review doesn’t preclude concurrent review. Justice Theis asked whether anyone had standing to seek administrative review of the Board’s 4-4 decision — the Board members who lost? The City? Counsel answered that no one had standing to appeal. The statutory mechanism showed the wisdom of the legislature, counsel argued; there was a non-adversarial process with public money at stake, and nobody available to seek review unless the Attorney General could file a separate action. Justice Theis suggested that at least one case from the Fifth District suggested that the City might have had arguable standing to appeal. Counsel answered that the Attorney General doesn’t agree with the decision cited by Justice Theis, which conflicted with the Supreme Court’s precedent, up to and including Roxana School District. Justice Theis asked whether there was case law saying that members of the Board couldn’t bring administrative review.   Counsel answered that he hadn’t seen a situation where a board member had standing to object to a decision of his or her own agency. Chief Justice Garman asked whether the Attorney General could bring an action based on any error of the Board. Counsel responded that he could imagine incorrect decisions that wouldn’t violate the Code.

Counsel for the officer began his rebuttal by arguing that the statutory bar on benefits doesn’t automatically apply after a conviction. The legislature gave exclusive jurisdiction to the Pension Board over that decision, and authorized limited review pursuant to the Administrative Review law. Counsel concluded by arguing that if a payment was the Code violation, either the Attorney General or anyone else could challenge a Board action in court at any time.

Counsel for the Board pointed out that the thirty-five day filing deadline under the Administrative Review law is jurisdictional. In contrast, Section 1-115(b) has no time limit. So if the Attorney General is correct, there could be challenges to administrative actions years after a board decision. Justice Karmeier asked whether the Attorney General could have intervened before the Board. Counsel answered that the Attorney General could have spoken at the Board. Justice Karmeier asked whether that would give the AG standing to appeal, and counsel said yes. Justice Thomas posed a hypothetical – assume that the Attorney General had no right to intervene. If so, who would challenge a Board error in favor of an annuitant? Counsel answered that the Attorney General could challenge the failure to allow intervention. Justice Burke asked whether the appeal would be over denial of intervention, or the merits of the decision not to stop benefits. Counsel answered that the AG could challenge the denial of intervention, and if she prevailed, the Board would make an appropriate ruling. Justice Karmeier suggested that if the Board denied intervention, the Attorney General would have to file a separate action, since the AG would not be a party with standing to seek review. Counsel argued that the Attorney General could challenge denial of intervention. Justice Thomas again asked whether, if there was no intervention possible and the annuitant prevailed, anyone would or could seek review. Counsel answered that an erroneous decision was different from a void decision which could be challenged in the Circuit Court.

We expect Madigan to be decided within four to six months.

Illinois Supreme Court Upholds Employee Classification Act

By Kirk Jenkins on Posted in Illinois

Yesterday in Bartlow v. Costigan, a unanimous Illinois Supreme Court took a pass, for the most part, on deciding constitutional challenges to provisions of the Employee Classification Act which were amended by the legislature while the appeal was pending. The Court rejected a void-for-vagueness challenge to the section of the statute which was unchanged. Our detailed summary of the facts and underlying court decisions in Bartlow is here. Our report on the oral argument is here. Watch a video of the argument here.

The state legislature concluded that construction contractors were evading various protections extended to workers under the state labor laws, including minimum wage, overtime, workers’ comp and unemployment insurance, by improperly classifying their employees as independent contractors. In 2008, the Department of Labor received a complaint that the plaintiff was misclassifying employees as independent contractors. The Department sent the plaintiffs a notice of investigation and request for documents. The plaintiff provided several hundred documents, and in early 2010, the Department issued a "preliminary determination" that ten individuals had been misclassified. The Department calculated a potential penalty of nearly $1.7 million.

Only a few weeks later, the Department sent the plaintiff a notice of a second investigation, requesting more information. The plaintiff responded by filing suit, challenging the constitutionality of the Act (due process, special legislation, equal protection and bill of attainder) and seeking declaratory and injunctive relief. The circuit court denied plaintiff’s request for a temporary restraining order, but on interlocutory appeal, the Appellate Court reversed. On remand, the circuit court entered an order granting defendants’ motion for summary judgment, rejecting each of the plaintiffs’ constitutional challenges. The Appellate Court affirmed.

In an opinion by Justice Kilbride, a unanimous Supreme Court vacated in part and affirmed in part. The statute had been substantively amended while the appeal was pending, the Court noted. The Department was now required to provide notice and conduct formal administrative hearings within the meaning of the Administrative Review Law – it was the lack of such procedures that formed the core of plaintiff’s constitutional challenge. Following oral argument, the court directed the parties to file supplemental briefing on whether the amended statute applied to their case. The plaintiffs argued that it did not, but the Court disagreed. The case had not proceeded to any final determination of a violation of the Act, and no penalties had been assessed, the Court pointed out. Therefore, the Department’s ability to enforce the Act depended on following the procedural steps set out in the Act. Since the new, amended statute applied to plaintiffs’ case, the court held that the bulk of plaintiffs’ constitutional challenges were moot. Because the Court concluded that it was unable to pass one way or the other on the plaintiffs’ constitutional challenges to the superseded parts of the Act, the court vacated that portion of the Appellate Court’s opinion.

But Section 10, which set forth the statutory exemptions, had not been significantly amended. Therefore, plaintiffs’ challenge to Section 10 was not moot. Section 10(b) sets forth factual criteria which, if a particular individual qualifies, exempt that individual from the Act. In section 10(c), the Act deems "legitimate" and exempt from the Act any sole proprietorship or partnership satisfying certain criteria. The court held that the provisions of Section 10 "provide[d] a person of ordinary intelligence a reasonable opportunity to understand what conduct the Act prohibits," and therefore rejected the plaintiffs’ void-for-vagueness challenge. In rejecting the plaintiffs’ constitutional challenge, the Court noted that the plaintiffs’ strenuous claims that their subcontractors satisfied the elements of Section 10 implicitly amounted to a concession that plaintiffs understood what Section 10 meant. The Court held that plaintiffs’ remaining constitutional claims were forfeited for failure to adequately brief them before the Court.

Argument Report: Illinois Supreme Court Debates the Scope of the Good Samaritan Act

By Kirk Jenkins on Posted in Illinois

Our reports on the oral arguments of the recent term of the Illinois Supreme Court continue with Home Star Bank & Financial Services v. Emergency Care & Health Organization, Ltd. Home Star poses the question of whether physicians who are paid by their physician groups to work in a hospital emergency room can qualify for tort immunity under the Good Samaritan Act. Our detailed summary of the facts and lower court decisions in Home Star is here. Check out the video of the Home Star argument here.

The defendant physician was employed in the emergency room of a hospital.   He responded to a "Code Blue" for a patient being cared for on another floor, complications ensued and the patient suffered permanent brain injury. The guardians of the patient filed suit against the physician and his group, alleging negligence. The defendant moved for summary judgment, arguing that the physician and his employer were immune from liability under the Good Samaritan Act, which provides that any physician "who, in good faith, provides emergency care without fee to a person, shall not, as a result of his or her acts or omissions" be liable for negligence "except willful or wanton misconduct." The plaintiffs pointed out that the defendant was compensated on an hourly basis for his services, but the Circuit Court granted summary judgment, noting that neither the patient nor his insurer had ever been billed. The Appellate Court reversed, holding that a physician was outside the scope of the Act if he or she was paid by anyone for the services provided.

Counsel for the physician began by arguing that reversal was justified based upon the plain language of the Act, and on Estate of Heanue – which the Appellate Court had declined to follow – and its progeny. Counsel argued that the statute provided an express exemption for "emergency care," and it was undisputed that the defendant was engaged in providing emergency care. Justice Theis pointed out that Section 2 of the Act suggests that the legislative purpose was to protect volunteers. Counsel responded that that language was in what several holdings described as the preamble. Justice Theis asked what Section 2 was labeled in the statute itself, and counsel agreed that it was described as the legislative purpose. Chief Justice Garman asked whether the defendant was a volunteer when he rendered the services at issue. Counsel responded no; he was an emergency room doctor being compensated by his physician group. Nevertheless, counsel argued that "volunteer" was not the important concept. The question was whether or not the defendant had provided services to the plaintiff without a fee. Estate of Heanue was on all fours, counsel argued – the patient had not paid any fee, and that was that. Justice Thomas pointed out that defendant believed the issue was whether the patient had been billed, not whether the physician was compensated. Why was this the better interpretation? Counsel argued that it was instructive to look at other parts of the statute, which deliberately chose between the words "without fee" and "without compensation" for different situations. The correct interpretation of the statute depended on the words used and the context, counsel argued. Justice Thomas asked whether the defendant was free to ignore Code Blues from outside the emergency room. Counsel answered that if the defendant was busy in the emergency room, he had no contractual duty to respond. Counsel argued that the statute had once said that the existence of a preexisting duty between the doctor and patient was critical, but the legislature had deliberately removed that language. Justice Theis asked whether counsel was arguing that a preexisting relationship between the doctor and patient was irrelevant to the application of the Act. Counsel answered that a preexisting duty was relevant to the issue of whether the defendant had sent the patient a bill, and why he had not (if no bill was sent). Here, no bill was sent because the defendant’s physician group never billed for responding to Code Blues outside of the emergency room. Justice Burke asked whether that was because defendant would be compensated anyway, but counsel answered that it made no difference for defendant’s compensation whether he attended one Code or many, or attended one patient or many in the ER. Chief Justice Garman asked whether the matter finally came down to good faith. Counsel agreed that it did; the Act applies if the defendant is a physician, the care was on an emergency basis, and the physician had a good faith basis for not billing the patient. The Chief Justice asked whether, if exactly the same events had happened in the ER, the outcome would be the same. Counsel answered that it came down to whether the patient was billed. Justice Thomas pointed out that some have argued that defendant’s construction of the statute meant that the poor often would have no right of action, while the wealthy would have a claim, since hospitals would often not send a bill because they had no hope of payment. Counsel argued that this was a theoretical argument which had not been an issue in the eight years since Heanue.

Counsel for the plaintiff argued that the legislature had never intended to immunize doctors working inside a hospital, and certainly not ones who were not volunteers. Justice Karmeier asked whether the doctor was "paid for services" within the meaning of the statute merely because he had a contract. Counsel agreed. Justice Karmeier asked counsel whether the defendant could disregard a Code Blue. Counsel responded that defendant had admitted that where he had no higher priority in the ER, responding to a Code was part of his job. Justice Karmeier asked whether the result would be different if the defendant’s contract expressly carved out responding to codes. Counsel responded that if it had not been part of defendant’s job to respond to the Code Blue, that would probably change things. Justice Karmeier posited a doctor paid to travel among hospitals treating patients who encounters and treats a patient on the street while between locations. Counsel answered that he didn’t know what the proper result was, but it was a different factual situation. Justice Karmeier asked whether plaintiff maintained that the defendant could not be a Good Samaritan because he was paid, or whether the scope of his duties was what mattered. Counsel answered that both were true. Counsel closed by describing a situation where a defendant had decided not to bill a patient because of a bad result, and under defendant’s formulation of the statute, defendant would be immunized – this was the most absurd result imaginable, counsel argued.

In rebuttal, counsel for the defendant argued that plaintiff’s position meant that the Legislature didn’t know the difference between "without fee" and "without compensation." The legislature didn’t use the different terms randomly, counsel argued; "without fee" was used in emergency care given without prior notice of the need, where "without compensation" described situations of broader immunity (like free clinics). Justice Thomas suggested that certain sections of the Act appeared to use "without fee" and "without compensation" interchangeably. Counsel argued that the defendant would be compensated for his time regardless of whether he attended the Code Blue or not. Justice Thomas suggested a hypothetical – an emergency occurred in the hallway outside of an ER, and the physician happened to roll the patient into the ER to use some sort of apparatus. Would the Act apply? Counsel answered that if care took place in the ER, the defendant’s physician group would bill the patient, and the Act wouldn’t apply. Counsel concluded by arguing that if the Act was intended only to apply to "volunteers," it would be far shorter. The legislature had chosen its terms carefully throughout. The Court may disagree with the public policy choices the legislature had made, counsel argued, but those choices were for the legislature to make.

We expect Home Star Bank to be decided in the next four to six months.

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

By Kirk Jenkins on Posted in Illinois

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

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

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

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

What the Pension Reform Decision in Arizona May Mean for Illinois

By Kirk Jenkins on Posted in Illinois

Today the Arizona Supreme Court has handed down its much-anticipated decision in Fields v. The Elected Officials’ Retirement Plan. In Fields, the Court unanimously struck down a pension reform package enacted by the legislature in 2011, finding that the statute violated the Pension Clause of the Arizona Constitution. The decision will be much debated in Illinois, where the legislature’s 2013 pension reform package is now the subject of at least three different lawsuits.

Arizona is one of a small number of states which expressly protects public pensions as a matter of state constitutional law:

Membership in a public retirement system is a contractual relationship . . . and public retirement system benefits shall not be diminished or impaired.

The Arizona legislature established the Elected Officials’ Retirement Plan in 1985. The Plan is funded by employer and employee contributions and investment proceeds, as well as certain court fees. When the Plan was first created, post-retirement benefit increases were awarded ad hoc – there was no automatic formula. In 1990, the legislature enacted ARS 38-818, creating a statutory mechanism for calculating automatic yearly benefit increases. Section 38-818 isn’t a cost-of-living formula, strictly speaking – benefit increases are based upon how well the Plan’s investments did the previous year, subject to a yearly cap.

Section 38-818 provided that retirees were “entitled to receive a permanent increase in the base benefit” each year, as calculated by the formula. But the statute had a sunset provision set for 1994. When 1994 rolled around, the legislature allowed the increase formula to lapse, but in 1996, the legislature amended the statute by striking the sunset clause entirely. The legislature reduced the cap on yearly increases in 1996, but restored the cap to its original 4% per year in 1998. Later that year, the voters adopted the Arizona Pension Clause.

Beginning in 2000, the Arizona Plan’s funding ratio (assets divided by liabilities) started to decline. In the ten years that followed, the funding ratio dropped from 141.7% to 66.7%. Nevertheless, the statute provided retirees with a 4% benefit increase each year through 2011.

In 2011, the Arizona legislature adopted pension reform. The statute did two things.

First, the statute substantially changed the Plan’s reserve fund. Until 2011, in a year when there was money left over from investment returns after retirees were paid the maximum increase, the excess was placed in the reserve fund to finance increases in years where investments didn’t do well enough to fund additional benefits. The 2011 statute prohibited the transfer of $31 million in excess earnings to the reserve fund. As a result, retirees received only a 2.47% increase in 2011, and none at all in 2012 and 2013.

Second, the 2011 statute changed the formula for calculating future yearly increases, beginning in July 2013. The minimum rate of return necessary to trigger any increase was raised from 9% to 10.5%, and future increases were tied to the Plan’s funding ratio.

The plaintiffs filed a putative class complaint, alleging that the pension reform package violated the state Pension Clause. When the trial court agreed, the Arizona Supreme Court agreed to hear an appeal immediately, bypassing the Court of Appeals.

The Supreme Court affirmed the trial court. The question, the Court wrote, was whether the formula established by Section 38-818 for calculating yearly increases was itself a “benefit” within the meaning of the Pension Clause. The plaintiffs argued that it was, but the State and the Plan argued that retirees had only the right to receive benefits in an amount determined by the most recent formula, whatever it might be.

The Court found that the history of the state pension statutes settled the question of what the voters had in mind when they adopted the Pension Clause. Eight years before the Clause was approved, the legislature had enacted the original version of Section 38-818 providing that retirees were “entitled to receive [a] permanent benefit increase in their base benefit.” When the legislature struck the sunset provision, that phrase in quotes was left: retirees were “entitled” to receive a yearly increase, apparently in perpetuity, and that’s how the statute still read when the Pension Clause was adopted. Given that, the Court unanimously concluded that voters would have regarded the formula for calculating yearly increases as falling within the scope of the “benefits” protected by the constitution.

The Court pointed out that its holding was consistent with its earlier cases. In Yeazell v. Copins, the Court had held that an employee was entitled to have his or her pension calculated pursuant to the pension formula which existed when the employee was hired, not pursuant to any less favorable formula which might be adopted after the employee was on the job. The Court also noted that courts in New York and Illinois – two states with similar pension clauses – had likewise held that benefit formulas were constitutionally protected once a public employee was hired.

Given that the increase formula was a pension “benefit,” this only left the question of whether the 2011 amendments diminished or impaired those benefits. The Court had little trouble concluding that they had. First, by preventing the transfer of excess funds to the reserve fund, the statute had reduced 2011 benefit increases and eliminated 2012 and 2013 hikes. Second, by changing the formula for calculating future increases, the statute ensured that increases after 2013 would be significantly smaller, if indeed retirees received increases at all.

As I noted at the outset, pension reform was adopted in Illinois in 2013. The Illinois Pension Clause is virtually indistinguishable from the Arizona Clause:

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

Evidence that the Illinois Constitutional Convention intended to protect formulas for calculating benefit increases from diminishment is quite strong, and the Illinois courts have so held, almost without exception. Nearly all of the arguments raised in the Arizona case have been debated in recent years in Illinois as the legislature wrestled with pension reform. Given the striking similarities in the law of the two states, the unanimous decision of the Arizona Supreme Court may cast a long shadow as litigation in Illinois moves forward.

Illinois Supreme Court to Decide Scope of State Whistleblower Act

By Kirk Jenkins on Posted in Illinois

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

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

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

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

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

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

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

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

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

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

We expect Pusateri to be decided in approximately eight months.

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

By Kirk Jenkins on Posted in Illinois

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

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

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

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

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

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

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

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

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

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

By Kirk Jenkins on Posted in Illinois

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

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

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

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

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

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

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

The Perils of Incomplete Service

By Kirk Jenkins on Posted in Illinois

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

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

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

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

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

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

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

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

Amendments to Florida Rules of Civil Procedure Effective January 1, 2014

By on Posted in Florida

The Florida Supreme Court has adopted various amendments to the rules of civil procedure that became effective on January 1, 2014.  To see all of the redlined changes and to read the decision of the Court adopting these changes, please click here.  The significant changes are highlighted below.

Deadline Changes

            The amendments made noteworthy changes to the deadlines for certain post-trial motions.

 

Motion

 

 

Rule

 

Old Rule

 

New Rule

 

Service of motion for judgment in accordance with motion for directed verdict

 

1.480(b)

 

10 days after return of verdict

 

15 days

 

Service of a motion for new trial or for rehearing

 

1.530(b)

 

10 days after return of verdict in a jury action or the date of filing of the judgment in a non-jury action

 

15 days

 

Order of rehearing or new trial on court’s initiative

 

1.530(d)

 

10 days after entry of judgment or within the time of ruling on a timely motion for rehearing or a new trial may by the party

 

15 days

Substantive Rule Changes

Rule 1.431 (Trial Jury) – The Court added paragraph (i) which addresses communications between the judge or courtroom personnel and the jury.  It specifies what communications must be on the record, what communications may be off the record, how jurors should be instructed regarding the limitations on communications, and when courtroom personnel should notify the court of juror communications.

Rule 1.442 (Proposals for Settlement) – A proposal no longer has to “identify the claim or claims the proposal is attempting to resolve.”  Instead, the proposal must “state that the proposal resolves all damages that would otherwise be awarded in a final judgment in the action in which the proposal is served.”  Subdivision (F) still requires offerors to “state whether the proposal includes attorneys’ fees and whether attorneys’ fees are part of the legal claim.”

Rule 1.451 (Taking Testimony) – This is a new rule that allows the parties to agree, or one or more parties to request, that the court authorize presentation of witness testimony by contemporaneous video or audio communications equipment.  It states the general rule that a witness must be physically present when testifying at a hearing or trial unless otherwise provided by law or rule.

Rule 1.490 (Magistrates) – This rule was amended to:  require that the notice or order setting a hearing before a magistrate state if electronic recording or a court reporter will be used; allow the magistrate to examine “all witnesses produced by the parties”;  require the magistrate to include certain bolded language in his report; require the filing (not service) of exceptions within 10 days from time of service of the report; specifies that cross-exceptions must be filed within 5 days after service of the exceptions; and require the party filing exceptions to provide to the court a record sufficient to support the exceptions.

Form Changes

            The Court also amended the subpoena forms to require a person with a disability to notify the appropriate person of any needed assistance at least 7 days before the person’s scheduled appearance or immediately upon receipt of the subpoena if the time before the scheduled appearance is less than 7 days.  This change affects:  Rules 1.910 (Subpoena for Trial); 1.911 (Subpoena Duces Tecum for trial); 1.912 (Subpoena for Deposition); 1.913 (Subpoena Duces Tecum for Deposition); 1.922 (Subpoena Duces Tecum without Deposition); and 1.982 (Contempt Notice).

           

 

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