The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

How Is an Appeal from the Certification of a Pollution Control Facility Brought?

By Kirk Jenkins on Posted in Illinois

In the final days of the March term of the Illinois Supreme Court, the Court allowed a petition for leave to appeal in The Board of Education of Roxana Community Unit School District No. 1. v. The Pollution Control Board, et al. Board of Education poses the question: can the challenger to a petition for certification of a system as a pollution control facility appeal directly to the Appellate Court after losing at the Illinois Pollution Control Board?

In October 2010, the respondent submitted 28 separate applications to the Illinois Environmental Protection Agency, seeking certification of various systems, methods, devices and facilities as "pollution control facilities" as defined by the Property Tax Code. If the applications were granted, the Department of Revenue would supplant Madison County as the taxing authority. In August 2011, the Illinois Environmental Protection Agency recommended approval of two of the requests. The following month, the Pollution Control Board accepted the recommendations and certified the two systems. The petitioner School Board moved for reconsideration, and a few weeks later, the Agency recommended approval of the remaining requests for certification. The Pollution Control Board denied the motion for reconsideration, and denied the petitioner’s motions to intervene in the remaining 26 requests for certification. The petitioner appealed the Pollution Control Board’s decisions directly to the Appellate Court.

On appeal, the petitioner contended that the Appellate Court had jurisdiction over the appeal pursuant to the Environmental Protection Act, 415 ILCS 5/41(a).   The Board contended that appellate review was possible only under the Property Tax Code, 35 ILCS 200/11-60, which limited appeal rights to applicants, not challengers.

The Appellate Court dismissed the appeal for lack of jurisdiction. Reaffirming Citizen Against the Randolph Landfill (CARL) v. The Pollution Control Board, the Court held that review must begin at the Circuit Court, rather than reaching the Appellate Court in the first instance. Allowing a party adversely affected by a final order of the Board to directly appeal the matter to the Appellate Court would render Section 11-60 of the Property Tax Code – providing only limited appeal rights — meaningless, the Court held.

Justice Thomas R. Appleton dissented, arguing that the Environmental Protection Act, 415 ILCS 5/41(a) gave the right to appeal to anyone "who filed a complaint on which a hearing was denied." The Appellate Court should "avoid attributing to the legislature an intent to deny judicial review to a local governmental entity when the Board’s allegedly unjustified certification of a facility as a pollution-control facility deprives the local governmental entity of a substantial portion of its tax base," Justice Appleton argued.

Is an Emergency Room Physician Protected From Liability By the Good Samaritan Act?

By Kirk Jenkins on Posted in Illinois

In the final days of the March term, the Illinois Supreme Court granted review in Home Star Bank & Financial Services v. Emergency Care & Health Organization, Ltd., which poses the question of whether physicians qualify for immunity under the Good Samaritan Act when they were paid by their physician groups to provide emergency care in a hospital.

The defendant physician was employed in the emergency department of the hospital. He responded to a "Code Blue" for the patient, who was being cared for on another floor. The defendant attempted to intubate the patient, but 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, 745 ILCS 49/25, 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, except willful or wanton misconduct on the part of the person, in providing the care, be liable for civil damages." In response, plaintiffs argued that the defendant was not a volunteer since he was compensated on an hourly basis for his services. The Circuit Court granted summary judgment, finding that the defendant’s employer had never billed either the patient or his insurer for the defendant’s services.

The Appellate Court reversed. The court declined to follow Estate of Heanue, where the Appellate Court held that a physician who had not billed specifically for emergency care services hadn’t charged a fee within the meaning of the Good Samaritan Act, even if the physician had received some economic benefit from providing services. A physician could not be a volunteer if he or she was paid by anyone for the services provided, the Court held. The defendant was not voluntarily present at the hospital; he was paid by his physician group. "The Good Samaritan Act was meant to protect volunteers," the Court wrote. "It was never meant to be a shelter for practicing physicians who, acting in the scope of their employment, receive payment for their emergency services."

We expect Home Star Bank to be decided in the winter or spring of 2013-2014.

How Late Can a Default on a Foreclosure Suit Be Vacated?

By Kirk Jenkins on Posted in Illinois

In the closing days of the March term, the Illinois Supreme Court allowed a petition for leave to appeal in Wells Fargo Bank, N.A. v. McCluskey, a decision from the Second District reversing an order refusing to vacate a default judgment in a foreclosure suit. McCluskey presents the issue of whether a Section 2-1301(e) motion seeking to set aside the default can be granted after the sheriff’s sale has occurred.

After the defendant failed to make several monthly payments on her mortgage, the plaintiff filed an action of foreclosure. The defendant defaulted. On the day set for the sale, the defendant filed a motion for an emergency stay, seeking to vacate the default and halt the sheriff’s sale. The parties ultimately settled on an agreed order pursuant to which the defendant withdrew her motion, and the plaintiff agreed to postpone the sale for 75 days in order to allow the parties time to renegotiate the loan.

On the new date, the property sold to the plaintiff, who moved to confirm the sale. The defendant moved again to vacate the default, arguing that the plaintiff’s supporting affidavit was insufficient, and that plaintiff lacked standing to sue. The trial court confirmed the sale, holding that the defendant had withdrawn her earlier motion to stay in return for postponement of the sale, implicitly agreeing that the sale could go forward on the postponed date absent an agreement, and she could not now rescind her agreement. The defendant appealed the order denying the motion to vacate.

The plaintiff argued before the Appellate Court that her renewed motion was timely. She denied that she had waived the right to seek a further delay. Citing Mortgage Electronic Registration Systems, Inc. v. Barnes, the defendant responded that any motion to vacate brought after the sheriff’s sale was irreconcilable with Section 15-1508(b) of the Foreclosure Law regulating orders confirming foreclosure sales.

The Appellate Court rejected defendant’s argument and reversed the order denying plaintiff’s motion to vacate. Reaffirming its earlier decision in Merchants Bank v. Roberts, the Court held that in the "rare case" in which the defendant could present both a compelling excuse for his or her lack of diligence and a meritorious defense to the foreclosure action after the judicial sale has occurred, the trial court may vacate a default under Section 2-1301(e).

Having found that the defendant’s motion was timely made, the Court then turned to the merits. The Court held that the parties’ agreed order made no reference to the defendant giving up any right to bring a section Section 2-1301(e) motion. Nor did the Court find any basis for an implied waiver of the right to bring a second motion. Although a Section 2-1301(e) order is reviewed for abuse of discretion, the Court found that denying the motion based on waiver was a refusal to exercise discretion, and therefore by definition an abuse of discretion.

McCluskey should be decided by the Supreme Court in the winter or spring of 2013-2014.

Illinois Supreme Court Declines to Decide the Question Presented in Boyar

By Kirk Jenkins on Posted in Illinois

The Illinois Supreme Court granted leave to appeal in In re Estate of Boyar to decide whether the doctrine of election applies to trusts, and, if it does, to delineate any exceptions to the doctrine. But when the Court’s opinion was filed on Thursday morning, Boyar turned out to be something of a letdown: in a 6-1 opinion by Justice Lloyd A. Karmeier, the Court declined to decide either issue. Our detailed summary of the facts and lower court rulings in Boyar is here. Our report on the oral argument is here.

The decedent set up a trust to distribute his property after his death. Although the trust was amended several times, until 2010, the beneficiaries retained the right to remove the trustee. But then, in the sixth and final amendment, the power to fire the trustee was withdrawn and a new trustee – the defendant in Boyar — was appointed.

Following the decedent’s death, petitioner – one of the decedent’s children – filed a challenge to the sixth amendment, arguing lack of capacity. A few weeks later, the trustee was granted a citation to recover assets belonging to the trust – at least some of which the plaintiff acknowledged that he had received. On the trustee’s motion, the Circuit Court dismissed, citing the doctrine of election, and the Appellate Court affirmed.

The Supreme Court reversed. The problem was that the answer to the questions presented didn’t matter:

Properly understood, the doctrine of election is triggered in the context of wills only when there are two different benefits to which a person is entitled, the testator did not intend the beneficiary to take both benefits, and allowing the beneficiary to claim both would be inequitable to others having claims upon the same property or fund.

Merely accepting property under the instrument you were challenging had never triggered the doctrine of election, the majority held. Since there weren’t two alternative bequests involved, the doctrine of election couldn’t apply, and there was no basis for blocking the petitioner’s challenge. Interestingly, the problems with the record – what appellate judges call a case not being "a good vehicle" for deciding an issue — had not been noticed at the Circuit Court, the Appellate Court, or even in oral argument before the Supreme Court.

Justice Anne M. Burke dissented, objecting to the Court’s refusal to decide the questions presented. "[M]y concern," Justice Burke wrote, is that "this court, on occasion, loses sight of its role in the judicial system and, in issuing opinions that avoid addressing the legal question at issue, functions more like an appellate court." Declining to decide the issue presented, and "trying to limit our decision to the narrowest factual grounds, is both illogical and undermines the role this court plays in the judicial system," Justice Burke wrote.

A Tale of Three Cases: California’s Split Over Concepcion Continues

By Kirk Jenkins on Posted in Commercial Law

In state and Federal courts throughout the country, the defense and plaintiffs’ bars are debating the application of the United States Supreme Court’s landmark 2011 decision in AT&T Mobility v. Concepcion, in which the Court made it significantly easier to enforce waivers of class arbitration in most consumer contracts. My post about Parisi, a new decision from the Second Circuit, is below.

Perhaps nowhere has this battle been more active than in California, the home of the Discover Bank rule overturned by the Supreme Court in Concepcion. As my colleague Michael Walsh reported here, the California Supreme Court heard argument in a case involving an arbitration clause yesterday. Today, I address three cases which illustrate the ongoing debate in California. All three were decided in the final two weeks of March, two in the Second District and one in San Francisco’s First District. The Second District twice refused to enforce arbitration clauses while the First found the clause before it fully enforceable.

Compton v. Superior Court (American Management Services LLC) was the first of the trio, decided by Division Eight of the Second District on March 19. Compton is a putative class action for alleged Labor Code violations in connection with wages.

The plaintiff had signed an arbitration agreement with the defendant when she began work as a property manager. The agreement contained a waiver of class arbitration. After she left her job, she filed her putative class complaint, alleging violations regarding the payment of minimum and overtime wages, rest and meal breaks and reimbursement of expenses. Although the defendant litigated the matter for a time, it immediately filed a petition to compel arbitration after Concepcion was handed down, pointing out that Concepcion had directly overturned Discover Bank and implicitly overruled Gentry v. Superior Court, the two decisions which would have made any earlier petition futile.  The trial court granted the petition, finding the agreement neither procedurally nor substantively unconscionable. The court labeled the plaintiff’s arguments about the purported one-sidedness of the agreement “largely hypothetical.”

The Court of Appeal reversed. According to the two-Justice majority, the agreement was substantively unconscionable because, in several respects, it was one-sided: the agreement required arbitration of the claims the employee was most likely to bring, but not those the employer would bring; it significantly shortened the time limit for the employee to seek arbitration in comparison to the relevant statutory limitations, but imposed no similar limits on the employer; and it suggested that the arbitrator could decline to award attorneys fees in situations where statutes made such an award mandatory. The majority rejected the employer’s argument that cases providing that one-sidedness amounted to substantive unconscionability had not survived Concepcion, writing that “the judicial forum affords plaintiffs” certain advantages which cannot fairly be retained for only one side’s claims. The agreement was also procedurally unconscionable, in the majority’s view, because it failed to disclose the “disadvantages” of arbitration as provided for by the contract over litigation. Presiding Justice Tricia A. Bigelow filed a compelling dissent, arguing that California’s law of unconscionability must be viewed through the lens of Concepcion. She pointed out that the agreement was bilateral with respect to arbitration of wage-and-hour claims, and that the parties hadn’t even raised the issues of attorneys fees and time limitations which the majority had relied upon. “I am compelled to follow the law which incorporates a strong public policy in favor of arbitration,” Presiding Justice Bigelow wrote.

A week after Compton, Division One of the Second District decided Fowler v. Carmax. Fowler was another wage-and-hour case involving an employment agreement expressly waiving class arbitration. After Concepcion, the employer moved to compel arbitration. The trial court granted the petition, finding that Gentry had not survived Concepcion and that plaintiff’s claim under the Private Attorneys General Act was arbitrable on an individual basis. (This PAGA argument is central to Iskanian v. CLS Transportation Los Angeles, an arbitration case from Division Two of the Second District currently before the Supreme Court).

Division One reversed. The Court found “only some evidence” of procedural unconscionability, noting that although the contract had been presented on a take-it-or-leave-it basis, plaintiff made no claim of surprise. Nor did the employer’s reserved right to terminate or modify the agreement on thirty days notice render it substantively unconscionable, according to the Court. The problem was, according to the Court, Gentry was still good law after Concepcion. Therefore, any class action waiver in an arbitration clause of an employment agreement was per se unconscionable if it interfered with employees’ ability to vindicate “unwaivable rights and to enforce the overtime laws.” The Court accordingly remanded the case back to the trial court to determine whether the Gentry rule required that the class action waiver be thrown out.

The day after Fowler was decided, Division One of the First District decided Vasquez v. Greene Motors, and this time, the arbitration clause fared better. Vasquez involved an installment sales contract for a used car. The plaintiff sued under various state statutes, alleging that the financing terms in the contract were inaccurate. The defendant filed a petition to compel arbitration, but the trial court denied the petition, finding the clause unconscionable by reason of “adhesion, oppression and surprise.”

The Court of Appeal unanimously reversed. The mere fact that the arbitration clause was presented in a preprinted form on a take-it-or-leave-it basis made it procedurally unconscionable, the Court conceded, but the degree of unconscionability was relatively minor. Such non-negotiable forms are ubiquitous, and given how highly regulated such transactions are, they may well be the only way for merchants to ensure compliance with the law. Although the plaintiff complained about the densely printed double-sided single sheet contract, the Court pointed out that the use of a single sheet was arguably required by state law, and a multiple-sheet contract would have made it easier to bury the arbitration clause.

The Court’s discussion of substantive unconscionability makes an interesting contrast to the majority in Compton. The Court found that mere one-sidedness was not enough to make an arbitration clause substantively unconscionable. After the Supreme Court’s decision in Pinnacle Museum Tower Ass’n v. Pinnacle Market Development, the agreement must be so seriously one-sided as to shock the conscience in order to be unconscionable. Unconscionability turned not only on one-sidedness, the Court found, but on the absence of any justification for it. The Court carefully reviewed the few grounds raised by plaintiff for finding the arbitration clause one-sided, and concluded that none shocked the conscience, and all were arguably justified. Because the agreement was only minimally procedurally unconscionable, and not substantively unconscionable at all, it was necessarily enforceable.

It seems likely that only clear guidance from the California Supreme Court will bring to a close the distinctions among the Court of Appeal districts in the enforceability of arbitration clauses. With several arbitration clauses on the high court’s docket, that guidance may well come soon.

Illinois Supreme Court to File Opinion in Boyar on Thursday Morning

By Kirk Jenkins on Posted in Illinois

The Illinois Supreme Court has announced that on Thursday morning, it will file its opinion in In re Estate of Boyar. Boyar presents the issue of whether the doctrine of election – which teaches that a party may not accept benefits under an instrument and later challenge that instrument’s validity – applies to trusts. Our detailed summary of the facts and lower court holdings in Boyar is here. Our report on the oral argument is here.

Comcast Corp. v. Behrend: Even More Than Meets the Eye?

By Kirk Jenkins on Posted in Class Actions

On Wednesday, the United States Supreme Court handed down its opinion in another of this term’s major class action cases. Following on the heels of Standard Fire Insurance Co. v. Knowles, where the Court closed a loophole which had allowed plaintiffs to attempt to stipulate around the threat of removal to Federal court pursuant to the Class Action Fairness Act, the Court overturned class certification in Comcast Corp. v. Behrend, holding that plaintiffs had failed to establish that damages could be proven on a class-wide basis. There’s no doubt that Behrend was a big win for the defense bar, but the question which has divided attorneys in the days since it came down is – how big? Our initial post on Behrend, discussing the facts and lower court rulings in depth, is here.

Behrend involved a certified class of more than two million former and current subscribers to Comcast’s cable services in the Philadelphia metropolitan area. The plaintiffs alleged that Comcast had violated Sections 1 and 2 of the Sherman Act by deliberately buying up cable systems in areas where Comcast had a significant market presence, often in return for giving up systems in areas where Comcast was less concentrated. The plaintiffs argued four different theories of antitrust injury, but ultimately only one was certified – the proposition that Comcast’s alleged behavior deterred entry by “overbuilders” – companies who deliberately entered a market where another cable provider was already established.

Comcast’s cert petition presented the case as a slam-dunk violation of Wal-Mart Stores, Inc. v. Dukes, going so far as to seek summary reversal. Comcast argued that the Third Circuit had simply ignored the Supreme Court’s Dukes instruction to conduct a “rigorous analysis” in certification proceedings, whether or not the issues overlapped the merits. After a number of relists, the Supreme Court ultimately granted cert on a somewhat different question: whether a district court could certify a class without deciding whether the plaintiffs had introduced admissible evidence, including expert testimony, to show that damages could be awarded on a class-wide basis. In other words: are Daubert challenges appropriate at the certification stage?

When the opinion came down last week, at first glance it seemed that prospects for a major Daubert/class certification decision had struck an iceberg: the defendants had never raised a Daubert challenge to the plaintiff’s expert. Noting the arguable waiver, the majority reformulated the question presented slightly, announcing that the issue was whether “certification was improper because respondents had failed to establish that damages could be measured on a classwide basis.” But reading the majority opinion as a whole, it appears that the majority arguably answered the question they planned to answer all along.

The district court in Behrend had held that to be entitled to certification under Federal Rule 23(b)(3), the plaintiffs were required to show that “the damages resulting from [the injury] were measurable ‘on a class-wide basis’ through use of a ‘common methodology.’” The sole basis for the court to make that finding was the multiple regression model of cable pricing built by the plaintiffs’ experts. But there was a problem with the model: the expert’s regression didn’t separate out damages flowing from overbuilder deterrence from damages flowing from other issues, including the other three possible theories of antitrust injury proposed by plaintiffs and rejected by the district court (at least for classwide treatment). Instead, the model merely predicted what prices would have purportedly prevailed in a “but-for” world absent the defendant’s alleged anticompetitive activities. The defendants had pointed this out before the Third Circuit, but the court had refused to even consider the issue, labeling it a merits question.

In fact, Justice Scalia’s opinion for a five-Justice majority found, the Court’s recent precedents on Rule 23 not only permitted, but flatly required such an analysis. “The first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event,” the Court noted, quoting the Federal Judicial Center’s Reference Manual on Scientific Evidence. Since the plaintiffs had presented no classwide theory of damages flowing from their one certified theory of injury, Rule 23 was not satisfied and certification was improper. Justices Ginsburg and Breyer filed an unusual joint dissent, joined by Justices Sotomayor and Kagan. The dissenters argued that once the Court discovered the procedural problems with the Daubert issue, the Court should have dismissed certiorari as improvidently granted (what the Court calls a “DIG”).

As I noted above, the bar has been somewhat split in the days since Behrend about just how important a win it is. For example, some attorneys interviewed by Law 360 argued that the decision was a powerful new tool for defense counsel, while others suggested that given the expectations for a full-blown analysis applying Daubert to certification, Behrend had turned out to be much ado about relatively little. Global Regulatory Enforcement Law Blog comments that Behrend is “sure to give class action defendants ammunition to attack expert evidence of classwide damages.” Class Action Countermeasures calls the opinion “limited,” but agreed that it “provides some help” to defendants.

Several conclusions seem clear from the opinion. First, as the employment bar has already noted, cases such as wage and hour class actions, where damages tend to be inherently individualized, may prove significantly harder for plaintiffs to get certified. Second, as Insurance Class Actions Insiderhas correctly pointed out, Behrend will make it far more difficult for the plaintiffs’ bar to persuade lower courts that individual issues in damages calculations are irrelevant to the certification issue, since all of the statements found in Behrend trying to limit the breadth of the majority opinion on this issue are found in the dissent.

But there’s more here than that. The Supreme Court originally granted certiorari on the question of whether a Daubert challenge – the proposition that the plaintiffs had no admissible model of class-wide damages – could block class certification. Although the majority seems to gently turn aside that issue, the majority then holds that the regression model built by plaintiffs’ expert is insufficient because it fails to distinguish between various sources of possible higher-than-competitive pricing. But this is simply another way of saying that had the defendants brought a Daubert challenge, the expert’s model would have been excluded; it answers the wrong question and is therefore irrelevant testimony. Specifying the appropriate number of variables to separately quantify every plausible influence on price is hardly an unusual issue in properly constructing a multiple regression model – it can fairly be said that that is what such models are for. The statistical biases created by using too few variables are well understood in the literature. At the very least, defense counsel should raise every appropriate Daubert challenge at the certification stage post-Behrend in order to give the Court to opportunity to formally and expressly decide the issue they wanted to address here. But closely examining the opinion with an understanding of multiple regression theory suggests that in fact, a majority of the Court has already made up its mind about the Daubert issue.

California Supreme Court To Tackle Arbitration, Foreclosures and Peer Review in Upcoming Oral Arguments

By on Posted in California

In addition to the more typical criminal issues, the oral arguments scheduled for April 3 and 4 in L.A. will also address when to compel arbitration, foreclosure sales and hospital peer review.

On the April 3, the court has two arbitration cases scheduled. The Supreme Court will take a second look at Sonic-Calabasas A, Inc., having previously held that contractual arbitration of a wage claim could not be compelled until after the preliminary non-binding hearing and decision by the Labor Commissioner addressing the same claim. However, the U.S. Supreme Court has since vacated that judgment and ordered further consideration in light of AT&T Mobility LLC v. Concepcion (2011) 563 U.S.__, which upheld contractual arbitration under the FAA even when the arbitration provision was found unconscionable by state law because it barred class arbitration.

Also in an employment context, the court will address in City of Los Angeles whether grievances over imposed furloughs are subject to contractual arbitration, or whether that would be an improper transfer of the city’s discretionary salary-setting and budget-making powers.

On the next day, the court addresses two other issues, foreclosure sales and peer review. The trustee in Biancalana made an error in processing the beneficiary’s “credit bid” during foreclosure proceedings, and thereby announced a required opening bid only a tenth of the intended value. Since it had not yet issued the deed of trust to the highest bidder at the foreclosure sale when the error was discovered, can the trustee set aside the foreclosure sale?

In El-Attar, the Court will address whether the executive committee of the hospital medical staff can delegate to the hospital governing board its authority to designate a peer review panel, and if the review process needs to be restarted if it has already done so.

Look for opinions in each of these cases by July 2013, as the court typically issued opinions within 90 days of the case being submitted.
 

Illinois Supreme Court Debates the Insurability of TCPA Federal Junk Fax Penalties

By Kirk Jenkins on Posted in Illinois

Earlier this month, on the final day of arguments for the March term, the Illinois Supreme Court heard oral argument in Standard Mutual Insurance Co. v. Lay. Lay presents the question of whether the penalty imposed by Federal law for sending unsolicited junk faxes is uninsurable as a matter of Illinois public policy. Our detailed preview of the facts and lower court opinions in Lay is here. The video and audio of the argument is available here.

The Federal Telephone Consumer Protection Act provides that it is unlawful to send unsolicited advertisements to a fax machine. The TCPA creates a strict liability private right of action, with damages equal to actual monetary loss to the plaintiff or $500 per fax, whichever is greater. The penalty is trebled if the violation is willful or knowing. In Lay, the defendant real estate agency hired a "fax broadcaster," allegedly based on its assurances that only persons who had agreed to receive advertisements would get its blast fax. This proved to be false, and the resulting class complaint sought trebled penalties of $1,500 for each of 3,478 faxes purportedly sent. The defendant real estate agency ultimately settled the class action for more than $1.7 million.

Meanwhile, the insurer had filed a declaratory judgment action, seeking a declaration of no coverage. Following the settlement of the underlying action, the class representative became actively involved in the dec action. The insurer and the class representative filed cross motions for summary judgment, and the Circuit Court held that the insurer had no duty to defend or indemnify. The Appellate Court affirmed, holding that TCPA penalties could not be insured as a matter of public policy in Illinois, since they were in the nature of punitive damages.

Counsel for the appellant, the class representative in the underlying action, began his presentation by arguing that the Appellate Court had framed the issue incorrectly, and had therefore never reached the heart of the issue. A proper reading of Beaver v. Country Mutual Insurance Co., counsel argued, is not that the existence of coverage depends on the nature of damages or penalties. Rather, the question of coverage turns, counsel argued, on the nature of the insured’s alleged conduct. Thus, the statement that punitive damages are not insurable actually derives from the proposition that the kind of conduct for which punitive damages are imposed is not insurable. Justice Thomas pointed out that in the same section of the TCPA which provides for the penalty, Congress provided for treble damages for willful and wanton conduct. He asked whether that impacted the question of whether the TCPA penalty was punitive. Counsel responded that willful and wanton conduct was an example of the sort of bad conduct which could not be insured. Because the appropriate question, according to counsel, was the nature of the conduct rather than the nature of the penalty, analysis should turn to Illinois law of punitive damages and the TCPA to see when punitive damages and penalties are applied. The insured’s conduct didn’t come close to the kind of conduct which triggers a finding of no coverage under the Beaver rule, counsel insisted. Justice Thomas asked counsel to comment on the appellee’s allegations of collusion between defendants and plaintiffs’ class action attorneys, and its concern that allowing coverage would mean that insurers are often left "holding the bag." Counsel responded that there was no indication of such a thing in the record, and the appellee’s concerns were mere argument. Justice Garman asked counsel whether he was urging a point by point, "conduct by conduct" analysis to determine whether conduct is insurable as a matter of public policy, and counsel agreed that he was. Justice Freeman asked counsel whether he relied on Valley Forge Insurance Co. v. Swiderski Electronics, and if so, for what proposition? Counsel responded that Swiderski decided that TCPA damages are potentially covered under an advertising injury policy, which according to counsel is what was involved in the case at hand. Justice Freeman asked whether Swiderski was a duty to defend, not a duty to indemnify case like Lay, and counsel agree that it was. Counsel concluded by asking the Court to reverse the Court of Appeal, and invited the Justices to consider defining the nature of conduct which triggers the rule of non-insurability.

As counsel for the insurer began his presentation, Justice Thomas asked whether, if the Court agreed that the penalties were potentially insurable, there were any issues left for the Appellate Court on remand? Counsel responded that the Court could either decide the additional issues itself, or remand to the Appellate Court. Counsel argued that there was a pending question of possible breaches by the insured of the policy. The insurer defended under a reservation of rights letter. Approximately four months after the case was filed, the attorney retained by the insurer had been fired by the insured, and a month or two after that, the insured had agreed to a $1.739 million settlement with a covenant not to execute against any of the insured’s assets.   Calling the settlement a "roll-over," in a case the insurer was still defending, counsel suggested that there were questions of a breach of the cooperation clause and a voluntary payment undertaken.  Justice Thomas repeated the question asked of appellant’s counsel earlier, asking what impact the reference in the statute to treble damages for willful and wanton conduct had on the analysis. Counsel responded that the first half of the statute provided for either actual damages or $500, "whichever is more," but in practice, $500 would always be far more than actual damages from a single junk fax. Justice Burke asked counsel how that damages clause could be simultaneously remedial and punitive? Counsel responded that penal punishments are intended to deter both the defendant and others from similar conduct, and that was the purpose of the TCPA penalties. Chief Justice Kilbride asked whether the insurer knew about and objected to the insured’s settlement. Counsel responded that the insurer had not been aware of the settlement. Justice Burke asked whether, if there is a duty to defend a TCPA claim under Swiderski, that necessarily means there is a potential duty to indemnify – and that the Appellate Court decision therefore conflicts with Swiderski. Counsel responded that Swiderski had dealt with the duty to defend, whereas only the duty to indemnify was at issue here. Justice Garman asked what difference it makes for the analysis whether the conduct at issue is that of an agent – here, the "fax broadcaster." Counsel responded that the fax broadcaster was not the agent of the insured, and even if it was, the statute places liability on the insured as the "sender."

In rebuttal, counsel for the class representative argued that the liability involved in the case below was certainly vicarious, flowing through an agent, and that as such, it should be insurable. Counsel claimed that the insured had the right to settle under the circumstances, and insisted that the insurer had known about the settlement.

We expect Lay to be decided by the Supreme Court in the fall.

Second Circuit Vindicates Concepcion in Gender Discrimination Case

By Kirk Jenkins on Posted in Class Actions

In April 2011, the U.S. Supreme Court handed down its landmark opinion in AT&T Mobility v. Concepcion, holding that the Federal Arbitration Act preempted California’s Discover Bank rule, which had previously voided waivers of class arbitration in most consumer cases. In the nearly two years since Concepcion, the courts and the defense bar have been wrestling with a lengthy succession of theories by which the plaintiffs’ bar has hoped to pull the teeth of Concepcion‘s unequivocal endorsement of arbitration over costly class litigation. I wrote about one of these cases pending before the California Supreme Court, Iskanian v. CLS Transportation Los Angeles, last month for the Washington Legal Foundation. On Thursday, the Second Circuit handed down another, rejecting plaintiffs’ attempt to evade their arbitration agreement in Parisi v. Goldman, Sachs & Co.

Parisi arises from the termination by the defendant of a former managing director. Upon being promoted to managing director, the plaintiff signed an agreement promising to arbitrate "any dispute, controversy or claim arising out of or based upon or relating to Employment Related matters." The arbitration agreement said nothing one way or the other about class arbitration.

Plaintiff sued, filing a putative class complaint alleging gender discrimination in violation of Title VII of the Civil Rights Act.  The defendant moved to compel arbitration, arguing that under Stolt-Nielsen S.A. v. Animal Feeds International Corp., a party could not be forced to arbitrate a class claim unless it had agreed to do so, and accordingly, plaintiff had to arbitrate her claims as an individual claim if at all. Plaintiff responded that the arbitration clause was unenforceable, at least as the defendant interpreted it, because it would effectively wipe out her right to challenge allegedly systemic discrimination at defendant’s workplace.

The magistrate invalidated the arbitration agreement on the grounds that it would make it impossible for the plaintiff to pursue a pattern-and-practice claim under Title VII, and therefore effectively operated as an unlawful waiver of substantive rights. The district court adopted the magistrate judge’s ruling.

The Second Circuit was a potentially high-risk forum for defendants in their attempt to overturn the district court’s holding. In 2012, the Second Circuit filed Am. Express Travel Related Servs. Co. v. Italian Colors Rest., in which the Court invalidated a waiver of class arbitration on the grounds that it would effectively immunize the defendant from liability for antitrust violations, since it was economically infeasible for any particular plaintiff to pursue the antitrust claims, either in court or before an arbitrator, on an individual basis. [Italian Colors is currently pending before the Supreme Court, and was argued in February.]

Nevertheless, the Second Circuit unanimously reversed in Parisi, vindicating the parties’ arbitration agreement. The problem with plaintiffs’ theory, the Court wrote, was that a class-wide "pattern or practice" claim was not a substantive cause of action belonging to the plaintiff; it was merely a method of proof. Therefore, the Supreme Court’s statement in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc. that arbitration agreements could be invalidated where a plaintiff could not vindicate a statutory cause of action in an arbitral forum didn’t save plaintiff’s argument. Ultimately, since plaintiff lost no statutory right by being forced to arbitrate, the parties’ arbitration agreement was fully enforceable.

Parisi is a significant win for defense counsel in the employment bar litigating claims in the Second Circuit, and another step forward in vindicating the Supreme Court’s landmark decision in Concepcion.

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