The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

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

By Kirk Jenkins on Posted in Illinois

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

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

Are “Click-Through” Internet Marketing Tax Laws Constitutional?

By Kirk Jenkins on Posted in Illinois

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

PMA arises from an amendment to the Illinois Use Tax Act known as the “Click-Through” Act or the “Amazon tax.” Here’s how it works: everyone has seen third-party advertisements on high-traffic websites, inviting visitors to click on the ad to get more information about a product or special deal. Typically, the third-party advertiser pays the owner of the website based on the number of people who “click through” and buy something. And that’s the nexus that the “Click-Through” Act is based on – any website that has one or more contracts with such advertisers who are “located in Illinois” is defined as a “retailer maintaining a place a business in this State.” And that means that as long as the website realizes $10,000 a year in gross receipts from “click-through” commissions, the site has to charge users for state sales taxes.

The Performance Marketing Association is a nonprofit trade association incorporated in Delaware. It’s the largest trade association in the country representing the “performance marketing” industry – businesses who use marketing methods similar to the internet “click-through” ad. Performance marketing has become relatively commonplace; according to the complaint, there are over 200,000 online publishers nationwide, and over 5,000 advertisers using or supporting performance marketing arrangements.

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

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

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

We expect PMA to be decided in the fall.

Divided Supreme Court Upholds Chicago Condo Association Ordinance

By Kirk Jenkins on Posted in Illinois

Yesterday, the Illinois Supreme Court filed its long-awaited opinion in Palm v. 2800 Lake Shore Drive Condominium Association. Although on its face, Palm relates only to the enforceability of a Chicago city ordinance on document requests to condominium associations, if the dissenters on the Court are correct, it may have long-lasting impact on the Court’s construction of home rule authority.

Palm began in 1999, when the plaintiff sent the then-current condo association board a demand for production of documents, claiming they were necessary for him to investigate possible wrongdoing in several different areas. When the plaintiff’s request was denied, he sued.

The problem in Palm was simple: which law governed, the Chicago ordinance, which gave residents a nearly unrestricted right to demand production of documents, or state law, which limited the scope of such requests and gave associations more time to respond?

After a string of motions (and three separate dismissals without prejudice), the Circuit Court held that the Chicago ordinance was a valid exercise of the City’s home rule authority. The court granted in part the plaintiff’s motion for summary judgment and ordered production of the documents plaintiff was seeking. The plaintiff then petitioned for an award of attorney fees. Although plaintiff acknowledged that he had paid his attorney $200 per hour, he submitted an expert affidavit stating that $300 was well within the market range. The court awarded the fees, approving the $300 rate, and certified the matter for immediate appeal. The Appellate Court affirmed.

In an opinion for the Court by Chief Justice Kilbride, the Supreme Court affirmed. “Home rule is based on the assumption that municipalities should be allowed to address problems with solutions tailored to their local needs,” the Chief Justice wrote. Although the General Assembly may preempt the exercise of home rule authority, it must do so expressly; the home rule clauses of the state constitution are intended to “eliminate or at least reduce to a bare minimum” instances of preemption by “judicial interpretation of unexpressed legislative intention.”

Home rule ordinances are evaluated according to a two-step test, the majority held. First, the court determines whether the disputed ordinance pertains to local government and affairs.   If so, the court then determines whether the General Assembly has preempted local power in the area. If it has not, the home rule jurisdiction may act in the area, even if the General Assembly has also legislated on the same issue.

Both sides agreed that the state statutes (the General Not For Profit Corporation Act and the Condominium Property Act) and the city ordinance at issue in Palm were completely irreconcilable. In the defendant’s view, that was enough to doom the ordinance as a permissible exercise of home rule authority, but the Court disagreed. Even though it was impossible to comply with both the state and city statutes, since the General Assembly had not expressly preempted home rule authority as part of the statutes, the city ordinance governed, and the plaintiff had a right to the documents he sought.

The majority then turned to the lower court’s attorney fees award. According to the city ordinance, plaintiff was entitled to recover “his reasonable attorney fees.” Construing the phrase as referring to whatever the local market rate was, the Court held that the plaintiff could legitimately recover an award of $300 per hour, despite having paid his attorney only $200 per hour. The Court rejected defendant’s argument that this was an unjustified windfall, pointing to testimony that the plaintiff would receive reimbursement only for his actual payments, and the attorney would retain the rest.

Justice Thomas filed a special concurrence in order to directly respond to the dissent. He began by sharply disputing the dissent’s conclusion that the city ordinance was invalid because it didn’t relate to the City’s local government and affairs, pointing out that not only hadn’t the defendant raised the argument, it had criticized the City of Chicago (which had intervened below to defend its ordinance) for even mentioning it. Even though the issue was not properly before the Court, Justice Thomas argued that the ordinance was well within the scope of home rule power. “[T]he dissent’s arguments,” he wrote, “show that, without a doubt, the dissenting justices are simply not comfortable with the system of home rule established by the Illinois Constitution.” As for the dissent’s objections to requiring the General Assembly to recite “magic words” before the Court would find local law preempted, Justice Thomas argued that the requirement came from the constitution, the Court’s own precedents, and the General Assembly itself. “If the legislature wants this to be an area of exclusive state control,” Justice Thomas concluded, “then the legislature can make it such with a single sentence.”

Justice Charles Freeman filed a lengthy dissent, with Justice Anne Burke joining. According to the dissenters, the decision “marks an unnecessary departure from settled law in two important areas – home rule jurisprudence and condominium law.”

Even though the defendant hadn’t challenged the ordinance on the grounds that it didn’t pertain to local government and affairs, the dissenters argued that the Court must address the issue, and it was in fact dispositive. The test, they wrote, for determining “whether a particular problem is of statewide rather than local dimension” involved considering “the nature and extent of the problem, the units of government which have the most vital interest in its solution, and the role traditionally played by local and statewide authorities in dealing with it.”

The legislative debates surrounding the Condominium Property Act made it clear, the dissenters argued, that the General Assembly considered the issue of demands for documents served on condominium associations to be a statewide problem requiring a statewide, uniform solution.  Since the City ordinance at issue did not pertain to local government and affairs, it exceeded the scope of permissible home rule and was unenforceable. And even if the City ordinance were enforceable, Justices Freeman and Burke disagreed with the majority’s ruling with respect to attorney fees too. Since the ordinance authorized the homeowner’s recovery of “his reasonable attorney fees,” the dissenters concluded that it merely authorized recovery of what the homeowner had paid, and no more.

The dissent closes with a call for legislative intervention: "Given the importance of balancing the rights of individual condominium owners against the right of association members as a whole, I urge the General Assembly to take action in this area."

Illinois Supreme Court to Hear Five Civil Cases In May

By Kirk Jenkins on Posted in Illinois

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

Wednesday, May 15:

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

Thursday, May 16:

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

Wednesday, May 22:

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

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

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

The Kilbride Court After Two Years: A Pragmatic and Collegial Team

By Kirk Jenkins on Posted in Illinois

(Note: The following post was originally published on Law360.com on January 24, 2013.)

Reviewing the videotape of every civil oral argument at the Illinois Supreme Court, as I do for my firm’s blog The Appellate Strategist, you can’t help but be impressed by the collegiality of the Illinois Supreme Court. At many courts of last resort, counsel is never entirely sure whether some of the more pointed questions are intended for counsel him- or herself, or instead directed at one of the other justices, either as an attempt to persuade or to challenge. None of that is evident watching the Illinois Supreme Court’s arguments.

To be sure, the Court is nearly always a "hot bench," as appellate lawyers say; questions can come from any, and sometimes from all directions. But the Court’s questions always show a deep grasp of the record and a concern not merely for the implications of the legal rule at issue for future cases, but for doing justice in the case before the Court. And in the Court’s opinions, the occasional sharply worded dissent stands out all the more for how unusual it is in the Court’s jurisprudence.

The Kilbride Court began in Illinois a little more than two years ago, when Chief Justice Thomas L. Kilbride succeeded Chief Justice Thomas R. Fitzgerald, and Justice Mary Jane Theis joined the Court, taking the retiring Chief Justice’s seat. In the twenty-six months since, the Court has decided eighty civil cases (disregarding attorney disciplinary and juvenile matters).

In reviewing those cases, one statistic leaps out, confirming the impression of a highly unified court: 67.5% of the Court’s civil decisions have been unanimous. Significant dissent is rare: 12.5% of the Court’s decisions have had one dissenter, 12.5% have had two, and only 7.5% have involved a 4-3 split. But this overall measurement masks trends in the Court’s terms; for 2012, only 56.4% of the Court’s decisions have been unanimous. Before the Court decided nine of its last twelve civil cases of 2012 unanimously, the Court had decided only 48.1% of its 2012 civil cases without dissent. During that same uncharacteristically contentious period, 37.0% of the Court’s decisions featured two or three dissenters.

Perhaps the most frequently cited statistic among U.S. Supreme Court watchers is the reversal rates for the Federal Circuits. Indeed, those statistics have become something of a political football, with some Senators arguing that the Ninth Circuit’s reversal rate suggests an ideological conflict between the Ninth Circuit and the Supreme Court. So what are the reversal rates in Illinois?

The overall numbers are not surprising. Most appellate lawyers know that appellate courts of last resort typically do not review lower courts’ decisions in order to affirm. The Illinois Supreme Court is no different; over the past two years, the Court has reversed in 66.2% of its civil cases.

But trends emerge when we consider the individual districts. Nearly half of the Kilbride Court’s civil docket — 43.8% — has come from Chicago’s First District. The First hasn’t fared well; five of the six Divisions have a reversal rate of 60% or more, topping out with an 85.7% reversal rate in the Division Two. The First District has had a particularly rough 2012, with a 76.5% reversal rate. The Fifth District, which includes Madison and St. Clair Counties, both sharply criticized as pro-plaintiff environments for tort cases in recent years by the American Tort Reform Foundation, has seen 80% of its civil decisions reversed by the Supreme Court. Two other Districts are similar: two thirds of the decisions reviewed from the Second and Third Districts have been reversed.

But the anomaly comes from the Fourth District, which centers on the state capital of Springfield. The Court has heard eight civil cases from the Fourth District, four involving government parties. In six of those eight cases (including three government wins) the Supreme Court has affirmed: an impressive 75% affirmance rate.

To learn more about the Justices’ inclinations, we calculate the average votes gained by each Appellate Court’s opinions before the Supreme Court. The First and Second Divisions of the First Districts have fared badly, with their opinions gathering an average of only 1.4 votes – including seven unanimous reversals (usually regarded as the ultimate indignity except at the Kilbride court, which has reversed unanimously in 43.8% of its civil cases). The Fifth and Sixth Divisions of the First District have done significantly better, with their opinions gaining an average of 3.5 and 2.1 votes, respectively, although the Fifth Division’s figure is skewed – its four cases have seen two unanimous affirmances and two unanimous reversals. The Fourth District, with its 75% affirmance rate, gets an average of 3.4 votes per decision.

Discerning swing votes in a Court so often in complete agreement is difficult, but interesting patterns do emerge. Justice Robert R. Thomas, for example, has voted with the majority in 94.8% of all the Kilbride Court’s civil cases. Justices Rita B. Garman and Anne M. Burke are on the winning side nearly as often, voting with the majority 93.8% of the time. Justices Lloyd A. Karmeier and Mary Jane Theis are right behind, voting with the majority 93.6% and 93.3% of the time. Only Chief Justice Kilbride lags behind, voting with the majority "just" 80.0% of the time.

When we limit the sample to non-unanimous cases, our conclusions are further confirmed. Justice Thomas has voted with the majority in 83.3% of all non-unanimous civil decisions. Justices Garman, Burke and Karmeier have voted with the majority in an identical 80.8% of all cases. Close behind is Justice Theis, with 79.2% agreement with the majority. Most often finding themselves in the minority of divided Courts are Justice Charles E. Freeman, who votes with the majority in only 63.0% of all non-unanimous civil cases, and Chief Justice Kilbride, who does so only 42.3% of the time.

Justice Thomas’ influence shows up again when we analyze the composition of the Court’s occasional closely divided decisions. To date, the Kilbride Court has handed down sixteen decisions with two or three Justices dissenting. Justice Karmeier has voted with the majority in 12 of those 16 decisions – 75%. Justices Thomas, Garman, Burke have voted with the majority 68.8% of the time, and Justice Theis in 62.5% of the cases. On the other hand, Chief Justice Kilbride and Justice Freeman have joined the majority in only 50% of those closely divided decisions. This data suggests the outline of a voting block on the Court, with a solid core of Justices Thomas, Garman and Karmeier, with Justice Burke and Justice Theis serving as the swing votes in close cases.

Join me below the jump for more data on the Court’s voting patterns. 

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Genesis Healthcare v. Symczyk: Nearly as Many Questions as Answers

By Kirk Jenkins on Posted in Employment

When the petition for certiorari in Genesis Healthcare Corp. v. Symczyk was granted, it appeared that the Supreme Court was poised to resolve a clear split in the Circuits about the permissibility of “pick off” moves, at minimum for actions under the Fair Labor Standards Act if not, at least by inference, under Rule 23 as well. The Court granted cert on the following question: “Whether a case becomes moot, and thus beyond the judicial power of Article III, when the lone plaintiff receives an offer from the defendants to satisfy all of the plaintiff’s claims.”

But when the decision came down early last week, observers were left debating exactly how much the Court had decided, and what the path forward in the lower courts was likely to be.

The FLSA sets federal minimum wage, maximum hour and overtime guarantees which cannot be modified by contract. Although Congress barred traditional Rule 23 class actions under the FLSA in 1947, Congress has provided instead for an FLSA “collective action”: the plaintiff sues on behalf of “all persons similarly situated,” and interested employees must opt-in, rather than opting out.

Symczyk, a registered nurse, filed a collective action FLSA complaint alleging that her employer had deducted meal break times from her paycheck whether or not she had an uninterrupted break. Along with its answer, the defendant served the plaintiff with an offer of judgment under Federal Rule 68, offering the plaintiff all the unpaid wages she was seeking, plus “such reasonable attorneys’ fees, costs, and expenses” as the Court might set. Plaintiff never responded to the offer, and when the time limit ran out, the defendant moved to dismiss on grounds of mootness, the plaintiff having been offered full relief. The district court granted the motion, but the Third Circuit reversed. According to the Third Circuit, even if the individual plaintiff’s claim was mooted by the offer of judgment, the eventual certification of a collective action would relate back to the day the complaint was filed.

In an opinion by Justice Thomas (with the Chief Justice and Justices Scalia, Kennedy and Alito joining), the Supreme Court reversed the Third Circuit. The case was not an appropriate vehicle for resolving the mature split in the Circuits on the issue of whether a collective action plaintiff can be “picked off” by a Rule 68 offer, the majority found. Both the District Court and the Third Circuit had held that Symczyk’s own claim was mooted by the unaccepted offer, and Symczyk had failed to file a cross-petition for certiorari on the point. The plaintiff having waived the point, the majority assumed for purposes of the case – without deciding – that a Rule 68 offer of judgment, whether it’s accepted or not, moots the individual plaintiff’s claim.

Once the majority disposed of that issue, it had little difficulty disposing of the remainder of the case. As we discussed in our detailed preview of Symczyk here, the plaintiffs’ principal argument on appeal was that two 1980 Supreme Court decisions, Deposit Guar. Nat’l Bank of Jackson v. Roper and United States Parole Comm’n v. Geraghty, should be extended from Rule 23 class actions to FLSA collective actions. Roper and Geraghty had both held that under certain circumstances, the mooting of a class representative’s claim does not necessarily moot the action, but the Symczyk majority held that both were distinguishable.

The Roper-Geraghty line of cases, the majority held, turned on the independent legal status of a Rule 23 class once it has been certified. Absent employees who might – or might not – choose to opt in to an FLSA collective action, in contrast, had no such status. The representative plaintiff’s mere interest in continuing with a collective action despite the offer of judgment is not sufficient to overcome mootness. The majority acknowledged that mooting out the current plaintiff’s claim would have the effect of blocking unjoined employees from vindicating any claims they might have in the present suit, but pointed out that there was nothing keeping them from suing on their own.

Justice Kagan dissented, joined by Justices Ginsburg, Breyer and Sotomayor. The dissenters argued that the majority opinion was based on a fallacy: that the unaccepted Rule 68 offer had, in fact, mooted the individual plaintiff’s claim. Given that, in the dissenters’ view, “an unaccepted offer of judgment cannot moot a case,” the remainder of the majority’s decision answered a question that never should have arisen in the first place. Nevertheless, the dissenters made it clear that they disagreed with the majority’s resolution of that issue, arguing that the named plaintiff’s right to represent unjoined employees was just as much a cognizable stake in the action for an FLSA case as the right to represent a Rule 23 class was.

So where does all this leave the law? To be sure, Symczyk has laid to rest the notion that FLSA collective actions are merely Rule 23 class actions under a different name. Given the explosive increase in FLSA filings in recent years, this is important progress. The battle going forward seems certain to be joined on the issue which the majority declined to settle – whether a defendant can moot out an individual plaintiff’s claim by serving a Rule 68 offer of judgment. There seems to be something constitutionally dubious (to put it mildly) about the notion that litigation can or should continue without plaintiffs’ counsel having a named plaintiff with a concrete financial stake in the matter to represent. Nevertheless, whether or not a Rule 68 offer of judgment will moot a representative action will likely depend, at least in the short run, on the Circuit in which a case is pending, with each side of the Circuit split adhering to its own prior precedents until such time as the Supreme Court is ready to take up the issue again.

Illinois Supreme Court to Decide Condominium Dispute on Thursday

By Kirk Jenkins on Posted in Illinois

The Illinois Supreme Court just announced that on Thursday morning, it will file its opinion in Palm v. 2800 Lake Shore Drive Condominium Association, a dispute over an owner’s right to compel the production of documents by his condominium association. Read the opinion of the Appellate Court for the First Appellate District (Division Five) here. Our summary of the Appellate Court opinion is here. The question presented in Palm is:

  • Are the provisions of the Chicago Condominium Ordinance giving the right to compel production of documents, and authorizing interim awards of attorneys’ fees, preempted by purportedly conflicting state law?

Illinois Supreme Court Intervenes in Politically Charged State Pension Battle

By Kirk Jenkins on Posted in Illinois

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

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

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

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

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

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

Why Russell v. SNFA Matters

By Kirk Jenkins on Posted in Illinois

On Thursday morning, the Illinois Supreme Court filed its decision in Russell v. SNFA. We were watching Russell closely here at Appellate Strategist because it was the Court’s first opportunity to apply the United States Supreme Court’s decision in J. McIntyre Machinery, Ltd. v. Nicastro. In Nicastro, a plurality of the high court held that merely placing a product into the stream of commerce with the expectation that it would ultimately reach the forum state was not enough to trigger personal jurisdiction over the manufacturer. Our report on the Russell argument is here.

Russell arose from a helicopter crash in Illinois. The decedent’s estate sued, alleging that one of the helicopter’s tail rotor drive-shaft bearings had failed, fracturing the drive shaft, making the tail rotor inoperable, and leading to the crash. SNFA made the custom bearings.

The helicopter that crashed was built in Italy by Agusta, an Italian company that was unrelated to SNFA. The helicopter had been sold multiple times during its life, as aircraft often are — first to a German company, then to Metro Aviation in Louisiana, and finally to Air Angels in Cook County Illinois. None of these companies had anything to do with SNFA either. Metro — the Louisiana company – had replaced several of the bearings with SFNA replacement parts, but they didn’t get them directly from SNFA. The replacements were sold by SNFA to Agusta in Italy, sold again to Agusta’s American subsidiary, and then to Metro in Louisiana. Indeed, although SNFA did have three U.S.-based customers for its aerospace bearings, it sold no helicopter bearings in the U.S. at all.

The trial court held it had no personal jurisdiction over SNFA, noting that SNFA’s only apparent contact with Illinois had been a single visit to an entirely different customer for an entirely different product. The Appellate Court reversed, holding that SNFA knew that Agusta sold its helicopters in the United States, and since SNFA’s bearings were custom made, Agusta’s U.S. subsidiary essentially was SNFA’s American distributor. The Illinois Supreme Court tossed the case back in the Appellate Court’s lap when Nicastro came down, but not long after, the Appellate Court reversed again, holding that Nicastro made the Court even more certain it was right.

On Thursday morning, a 5-1 majority of the Supreme Court affirmed in an opinion by Chief Justice Kilbride. Although the majority agreed that Illinois lacked general jurisdiction over SNFA – meaning that it could have adjudicated any claim against the company, regardless of whether it was related to Illinois or not – the state did have specific jurisdiction, the majority found. Specific jurisdiction, the majority noted, "requires a showing that the defendant purposefully directed its activities at the forum state and the cause of action arose out of or relates to the defendant’s contacts with the forum state."

Much of the decision in Russell turns on the Court’s construction of recent personal jurisdiction cases from the United States Supreme Court. According to the Court, the high court had held in World-Wide Volkswagen Corp. v. Woodson that a manufacturer may be subjected to liability where it delivers a product into the stream of commerce with the expectation that the product would be purchased in the forum state. On the other hand, in Asahi Metal Indus. Co., Ltd. v. Superior Court, the court had divided between Justice O’Connor’s plurality, holding that jurisdiction required not only delivery into the "stream of commerce" but something more – an affirmative act seeking to reach and serve the forum market – and Justice Brennan’s concurrence, arguing that merely placing a product into the stream of commerce with the expectation that it would reach the forum was enough. According to the majority in Russell, Nicastro had clarified the situation almost not at all. Although the plurality had certainly endorsed Justice O’Connor’s view, Justice Breyer’s concurrence, the majority insisted, had refused to adopt Justice O’Connor’s Asahi opinion, resting on the stream-of-commerce theory from World Wide Volkswagen. So the majority concluded it couldn’t adopt either the Brennan or the O’Connor theory of personal jurisdiction – and it didn’t have to, since SNFA lost under either theory.

The sole market for the custom-made ball bearings SNFA made for Agusta, according to the majority, was Agusta’s helicopters. Since SNFA had no U.S. customers for the bearings themselves, its only way of reaching the U.S. market was through Agusta’s sales of helicopters containingthe bearings. This was sufficient to qualify under Justice Brennan’s theory.

And there was "something more" sufficient to satisfy Justice O’Connor, according to the Court. SNFA had had an ongoing relationship since 1997 with Hamilton Sunstrand in Rockford, Illinois.  SNFA had never sold Hamilton Sunstrand so much as a single one of the helicopter ball bearings it made for Agusta; it sold Hamilton an entirely different product – bearings for fixed-wing aircraft and airplanes. In fact, SNFA had sold Hamilton nearly a million dollars worth of these bearings, and the record contained "hundreds" of invoices listing Rockford, Illinois as the purchasing location (and San Diego, California as the delivery location).

SNFA argued that even if the Hamilton Sunstrand relationship "counted" for purposes of jurisdiction, since the plaintiff’s claim was specific rather than general jurisdiction, the claim still had to arise out of the contacts for jurisdiction to attach – and it clearly didn’t. Not so, the majority held; the standard was "lenient or flexible." There was no basis for distinguishing between varieties of bearings, and besides, all conflicts in the evidence were construed in favor of the plaintiff at this point. So bottom line, SNFA’s sales through Agusta were enough to find specific jurisdiction in Illinois.

Join me below the fold for a review of Justice Garman’s dissent, and some initial thoughts on what it all means.

 

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The Illinois Supreme Court 2012: The Year in Review

By Kirk Jenkins on Posted in Illinois

(Note: The following post was originally published on Law360.com on January 15, 2013.  On Thursday, April 18, the Court’s decision in Russell v. SNFA, which is referred to in the final sentence of the post, was handed down.  Join us back here this weekend for a detailed analysis of Russell and its possible implications for the future of Illinois business.)

During 2012, the Illinois Supreme Court filed seventy-one written opinions, thirty-nine in civil cases. Although the total opinion output was down somewhat from recent years, this represents the Court’s highest number of civil decisions since 2009.

All in all, 2012 was a reasonably good year at the Court for the business defense bar. With a few notable exceptions we’ll review below, the Court turned back attempts to expand the scope of several torts and strengthened trial courts’ power to control abusive practices. The Court gave expansive interpretations to government immunities and rejected an attempt to create long-tail liabilities for dissolved corporations. The Court also gave important protection to the attorney-client privilege in the context of routine business negotiations.

Narrowly Defining Torts. Choate v. Indiana Harbor Belt Railroad Co. arose from an injury to a twelve-year old boy who tried to jump aboard a slow-moving freight train. Illinois landowners have long been subject to a limited duty to minor trespassers. In determining whether a duty exists, the courts have applied a four-factor test, including whether children are incapable of appreciating the risk involved.

The Supreme Court’s opinion finding no duty in Choate is important for several reasons. First, the Court brought Illinois in line with a number of jurisdictions around the country, holding that a moving train is an open and obvious danger to children. Second, the Court held that the test was an objective one for the court, not for the jury, thereby making similar cases subject to summary disposition. Third, the Court recognized that the burden to defendants of avoiding such accidents is often tremendous.

Illinois courts have narrowly defined any duty to preserve evidence, usually insisting on two things: special circumstances and foreseeability. In Martin v. Keeley & Sons, the Court rejected an attempt to turn that limited duty into a significant burden on business. Martin involved personal injuries which occurred when an I-beam collapsed at a construction site. The day after the accident – long before the plaintiffs sued the manufacturer – the plaintiff’s employer ordered the beam destroyed. One by one, the Court rejected propositions which would have created satellite litigation in a host of personal injury cases. Mere possession does not mandate preservation. Nor did defendant’s status as plaintiff’s employer create a duty. Nor did the likelihood of plaintiffs’ injuries ending in litigation against someone mandate a duty.

Bonhomme v. St. James arose from a fraudulent Internet-based relationship which the defendant allegedly maintained with the plaintiff for nearly two years while posing as a man. The complaint alleged a single claim for fraudulent misrepresentation. As the Court pointed out, the tort of fraudulent misrepresentation has its roots in common law deceit, a narrow tort limited to business and financial transactions. The Court properly refused to expand the tort to the parties’ "purely personal" relationship, thus avoiding a potential avalanche of lawsuits arising from the normal rough-and-tumble of daily life.

Nevertheless, there were missteps this year. The Court’s most troubling decision was Doe-3 v. McLean Co. Unit Dist. No. 5. Doe-3 arises from a teacher’s sexual abuse of two children. The claims at issue were not against the plaintiff children’s school, but rather against the teacher’s previous employer – principally that the defendants had negligently completed a verification of employment form, failing to disclose the teacher’s disciplinary suspensions during the school year. The majority held that these allegations adequately stated a duty of care.

Justice Lloyd Karmeier filed a compelling dissent, joined by Justice Mary Jane Theis. The dissenters criticized the weakest point of the majority’s opinion, questioning how it could be reasonably foreseeable that anyone would rely on a routine verification of employment form as the sole indicator of a potential teacher’s character and conduct. The dissenters pointed out that the amorphous duty conjured up by the majority all but moots a long-standing line of authority holding that there is no private right of action for failure to report under the state’s Abused and Neglected Child Reporting Act. The Court characterized the majority’s theory as a duty to report misconduct by inference – a duty to report facts which might (or might not) lead the defendant to uncover misconduct.

The potential for mischief in Simpkins v. CSX Transportation depends on further litigation. The plaintiff alleged that she had contracted mesothelioma from inhaling asbestos brought home on her former husband’s person and work clothes. As Justice Charles Freeman pointed out in dissent, the first medical studies of bystander asbestos exposure were published in 1965. Given that plaintiff’s former husband left the defendant’s employ in 1964, that should have been the end of the matter, with no foreseeability found as a matter of law – the conclusion courts in several other jurisdictions have reached. Unfortunately, a majority of the Court remanded the case to allow the plaintiff to attempt to plead sufficient facts to support the complaint’s conclusory allegation that harm to plaintiff was somehow foreseeable.

Strengthening Tools for Fighting Abuse. The Court also strengthened two important tools for trial courts to control procedural abuse in 2012. Fennell v. Illinois Central Railroad Co. involved allegations that the plaintiff had been exposed to asbestos during nearly four decades of employment. The case had virtually no connection to Illinois at all; the plaintiff was from Mississippi, he worked in Mississippi and nearby states, and the plaintiff’s treating physicians and family lived in and near Mississippi too.

The Supreme Court would have created significant problems for defense counsel if it had affirmed the trial and Appellate Courts and declined to dismiss. But not only did the Court reverse, the majority made several important points. "Decent judicial administration cannot tolerate forum shopping" as a legitimate reason for keeping litigation where it clearly doesn’t belong, the Court wrote. Indeed, combating forum shopping is one of the concerns animating forum non conveniens law. The majority also insisted that trial courts should evaluate all of the public and private factors found in the caselaw in every case – including the often overlooked issue of the practicality of a possible jury view of the premises (whether one seems likely or not).

Mashal v. City of Chicago posed another important question: when does the trial court lose the power to decertify a class? Under Illinois law, the answer is once the court has made a decision on the merits. Mashal was a good example of why the phrase "decision on the merits" should be narrowly defined — the only common question in the case had been litigated and decided relatively early on, obviating any need to proceed as a class.

Mashal could have easily resulted in a circular ruling: the plaintiffs argued that the order adjudicating the common question was itself a "decision on the merits," ending the power to decertify. Had the Court accepted that argument, courts might have been stuck with class adjudication in some cases long after the justification had ended. But the Court unanimously affirmed the Appellate Court, holding that a "decision on the merits" occurred quite late in the litigation process, when a "complete determination of liability" is made.

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