The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

Argument Report: When You’re Hit By an Ambulance on a Non-Emergency Trip

By Kirk Jenkins on Posted in Illinois

Last week, the Illinois Supreme Court heard oral argument in Wilkins v. Williams. Wilkins is a sequel of sorts to Harris v. Thompson, in which the Court considered the statutory immunity of a publicly owned ambulance involved in an accident. Wilkins poses the flip-side question: what if the ambulance is owned by a private, for-profit company? Our detailed preview of the facts and lower court opinions in Wilkins is here. The video and audio of the argument is available here.

In Wilkins, a privately owned ambulance transporting a patient on a non-emergency run struck another vehicle, injuring the driver. According to the Emergency Medical Services (EMS) Act, no “person, agency or governmental body certified, licensed or authorized pursuant to this Act” who “provides emergency or non-emergency medical services” can be “civilly liable as a result of their acts or omissions in providing such services unless such acts or omissions . . . constitute willful and wanton misconduct.” 210 ILCS 50/3.150(a). So does the EMS Act extend to non-emergency transport of patients? The Court held in Abruzzo v. City of Park Ridge only a few years ago that the statute impliedly covered transportation of patients. But even if it does apply to transportation of patients, does the immunity extend to injured third parties, as opposed to patients being treated by EMS workers?

Counsel for the defendants began by arguing that the initial question faced by the Court is whether EMS immunity applies; defendants’ position is that it does. Justice Freeman asked whether the immunity provision distinguishes between patients and injured third parties. Counsel agreed that it does not. Justice Freeman asked whether the language is ambiguous, and counsel responded that it was not. Justice Thomas asked what the Court should do with the willful and wanton exception to the statute – should the plaintiffs be allowed to replead their complaint? Counsel responded that the facts would not support a willful and wanton allegation. Justice Thomas pointed out that the case had been resolved by summary judgment at the trial court level, and asked whether plaintiffs would have reason to ask for leave to replead. Counsel responded that the court had addressed the nature of the allegations and concluded that summary judgment was justified. Justice Thomas repeated that the trial court dismissed the action on immunity, and wondered again whether the plaintiff could have sought leave to replead a willful and wanton theory. Counsel responded that plaintiff had not done so. Justice Burke asked whether the Court would have to read a limitation into the immunity statute to hold that it doesn’t apply; counsel answered that the Court would have to rewrite the statute to find no immunity. Counsel closed by arguing that restricting liability to willful and wanton conduct would not essentially abrogate the Motor Vehicle Code, as plaintiff claimed.

Counsel for the plaintiff began by emphasizing the requirement of the Motor Vehicle Code that all drivers drive with ordinary care. Justice Thomas asked counsel where in the EMS Act the Court should find a distinction between ambulances with and without flashing lights (i.e., on emergency or non-emergency runs). Counsel responded that the distinction was found in the cases rather than the statute. Justice Thomas commented that based on the statute, it’s somewhat of an artificial distinction. Counsel responded that the applicable rule is that an ambulance must operate according to the rules of the road when not on an emergency run. Justice Burke asked why the ambulance would be on the road without a patient, and counsel answered that there was a variety of reasons, including commuting or carrying an organ donation. Justice Garman asked what the statute means when it says "in the normal course of their duties." Counsel responded that the duty at issue is the one owned to the patient; the EMS Act applies only to professional liability claims by patients. Justice Garman asked whether, if a patient is injured during transport, the patient has a cause of action. Counsel responded that the patient had no claim against the ambulance driver, but might have a claim against the other driver. Justice Garman asked whether that meant that the immunity wasn’t in fact limited to professional negligence. Counsel answered that in certain scenarios, transporting a patient is life-saving, and "services" can include driving. Justice Thomas asked whether a willful and wanton exception was a consistent interpretation of the Act – it didn’t leave the roads in chaos, but merely raised the burden of proof. Counsel repeated that the legislature had limited professional liability claims against EMS workers to willful and wanton conduct, but extending that rule to motor vehicle accidents was inconsistent with a variety of statutes, including the Financial Responsibility law requiring privately owned ambulances to carry insurance. Justice Thomas asked where the case rested since plaintiff didn’t seek to replead. Counsel responded that there were sufficient facts to go back and replead.

In rebuttal, counsel for the defendant stated that to accept the plaintiff’s position, the Court must overrule Abruzzo. No case or statute limits the immunity to professional negligence, counsel argued, and many cases have applied immunity outside the realm of professional negligence.

The Court will likely decide Wilkins in the next three to six months.

Argument Report: How Should a Workers’ Compensation Settlement Be Handled in Calculating Child Support?

By Kirk Jenkins on Posted in Illinois

Last week, the Illinois Supreme Court heard oral argument in Mayfield v. Mayfield, which presents several issues regarding the proper handling of lump sum workers’ compensation payments for purposes of calculating a party’s child support obligation. Given that most of the Justices seemed skeptical of the appellant’s position, it seems likely that the Court will not significantly alter current law on these issues. Our detailed preview of the facts and lower court opinions in Mayfield is here. The video and audio of the argument is available here.

The parties in Mayfield were divorced in 2003, and the husband was ordered to pay child support. In the years that followed, as the children’s living arrangements changed, the child support obligation was adjusted multiple times. Finally in 2011, the wife petitioned to modify child support. At the hearing on the wife’s petition, the husband disclosed that he had received a $300,000 lump-sum workers’ compensation settlement the year before. Following In re Marriage of Dodds, which held that workers’ compensation payments are income for purposes of child support, the Circuit Court ordered the husband to pay 20% of the settlement to his ex-wife, and to continue paying child support. The Appellate Court affirmed, holding that such a settlement payment was certainly "income" within the meaning of the Illinois Marriage and Dissolution of Marriage Act, and that the 20% base multiplier should be applied to the entire amount of the workers compensation award.

Counsel for the husband began by arguing that husband didn’t contest that the settlement was income, but rather believed that the lower courts had erred in their application of the 20% base multiplier. Counsel argued that it was important to make it clear to lower courts that they had discretion in this area, which should be applied with attention to the factors relevant to making a fair division. Among these factors, counsel argued, were the nature and extent of the parent’s injury, and its impact on the injured worker, as well as the relevant economic positions of the parties. Justice Thomas pointed out that far from living on the settlement, the husband had in fact made various other expenditures, including remodeling his house and buying a motorcycle. Counsel responded that while such issues were perhaps relevant, the husband was facing returning to work because he had been unable to establish disability. Justice Garman asked whether the husband had had his child support obligation lowered because of his injury, and counsel agreed he had. Should that be taken into account in the allocation, the Justice asked? Counsel responded that the entirety of the circumstances were relevant. Justice Freeman asked whether the husband’s settlement would have been bigger if paid in monthly installments, and if so, should the 20% base multiplier be applied to that figure, rather than the lump sum. Counsel responded that he had suggested that the 20% multiplier should be applied to that monthly amount at trial. Justice Theis clarified that counsel was now agreeing that the settlement amount was income, and merely challenging the allocation, and then asked whether the allocation had been challenged at the trial court. Counsel responded that he had, and that 20% of the monthly sum would be significantly less. Justice Theis asked counsel what he wanted the Court to do: provide a checklist of factors for the exercise of discretion? Counsel suggested again that the nature and extent of the injury, whether the party was likely to work again and the age of the child were all relevant issues. Justice Theis asked counsel what the error in the Appellate Court decision was. Counsel responded that the lower courts had believed they had no discretion to vary from the 20% base multiplier.

Counsel for the former wife began by arguing that neither the statute nor Dodds made the 20% multiplier mandatory. Rather, the court must merely explain why if it chooses to deviate. Counsel argued that the husband had never argued for a deviation below, and that nothing in the trial court’s opinion suggested that the judge believed he had no discretion to deviate from the multiplier. Justice Garman asked whether it factored into the issue that the settlement was for the rest of the husband’s life. Counsel responded that in fact, it was for the rest of the husband’s working life; it had been set up that way to allow him to seek Social Security disability. Justice Garman asked counsel whether the issue of deviating from the multiplier had been raised in the trial court. Counsel responded that the husband had merely admitted that he received the award, and disclosed how much was left, never mentioning deviation.

On rebuttal, counsel for the husband argued that he had sought deviations from the multiplier at least twice. Justice Theis asked whether the matter had been raised at the Appellate Court, and counsel responded yes. Justice Theis asked where in the trial court’s order the court had said he lacked discretion, and counsel responded that the court had felt compelled to follow Dodds. Justice Theis pointed out that neither the trial court order nor the Appellate Court opinion had actually said that. Justice Thomas asked counsel whether he wanted a ruling that there must be an exercise of discretion, reviewing all the factors, even when the Appellate Court apparently believed that the trial court had acted properly. Counsel argued that the Court should remand to the trial court with instructions that the trial court should exercise its discretion to find a proper allocation.

The Court will likely decide Mayfield in the next three to six months.

Argument Report: The Constitutional Implications of Advance Payment Retainers and Divorce Claw-Back

By Kirk Jenkins on Posted in Illinois

Earlier this week, the Illinois Supreme Court heard oral arguments in Earlywine v. Earlywine. In a fascinating, albeit one-sided argument (there was no appearance for the appellee), the Justices actively debated a wide variety of issues, including the "leveling the playing field" policy in the disgorgement provisions of the Illinois Marriage and Dissolution of Marriage Act ("IDMA"), advance payment attorney retainers, and a host of United States Supreme Court decisions which may (or may not) impact whether or not disgorgement orders are constitutionally permissible under such circumstances. Although I won’t hazard a prediction since there was no opportunity to see the Court’s reaction to an argument for appellee, the Court was highly engaged in the proceedings, asking (by my count) nineteen questions of counsel in only seventeen minutes. Our detailed preview of the facts and lower court opinions in Earlywine is here. The video and audio of the argument is available here.

Earlywine began when the husband agreed to pay his attorney an advance payment retainer financed by his mother, her fiancé, his father and his father’s wife. The wife’s attorney petitioned for an award of $5,000 in interim attorney’s fees pursuant to 750 ILCS 5/501(c-1), the Illinois Marriage and Dissolution of Marriage Act. The wife’s attorney asked the court, if necessary, to order the husband’s attorney to disgorge amounts already paid to him. The Circuit Court granted the motion. The husband’s attorney moved to reconsider, arguing that as an advance payment retainer, the funds had become his property at the moment of payment. The Circuit Court denied reconsideration. The Appellate Court affirmed the order of disgorgement, holding that counsel’s advance payment retainer would frustrate the "leveling the playing field" policy of IDMA.

At oral argument before the Supreme Court, counsel for the appellant characterized the case as a conflict between IDMA and Dowling v. Chicago Options Associates, Inc., in which the Supreme Court recognized advance payment retainers. Justice Burke asked counsel whether the result would be different if the husband had paid the retainer himself. Counsel responded that the Dowling rule that advance payment retainers are not subject to turnover orders would still apply; if a spouse paid fees from marital funds, the opposing spouse might have a claim for dissipation. Justice Burke asked whether the advance payment retainer was for the advantage of the client or the attorney. Counsel responded that it was intended to protect the attorney-client relationship, which is both a personal and property right, for the benefit of the client. Justice Garman asked counsel whether IDMA reflected a policy of parity between the parties. Counsel agreed it was, but argued that there was another policy at issue. Parties had a right of constitutional import to retain counsel to petition government.   Counsel argued that under Arizona Free Enterprise Club v. Bennett, leveling contending parties’ playing field is not a legitimate interest under strict scrutiny review.  Justice Thomas returned to Justice Burke’s question, pointing out that when a third party pays a retainer which is not subject to disgorgement, that gives one party the ability to retain an attorney when they might otherwise not be able to. Counsel responded that the issues in Arizona Free Enterprise were similar – payments from third parties to a political candidate triggered equalizing payments to his or her opponent.

Justice Thomas asked counsel what would happen when the advance payment retainer was taken from marital funds – under appellant’s rule, one side would have an attorney, but the other spouse wouldn’t. Counsel responded that under Arizona Free Enterprise, NAACP v. Button, United Mine Workers of America v. Illinois State Bar Association and Arizona v. Davis, the state was not permitted to burden the right to retain counsel for purposes of speech. Justice Thomas again pointed out the statutory purpose of IDMA – creating parity between the parties, and counsel responded that that was the exact conflict at issue in Arizona Free Enterprise. Chief Justice Kilbride pointed out that under Rule 1.15(c) of the Rules of Professional Conduct, an advance payment retainer must have a stated special purpose, whereas the retainer agreement at issue seemed to be intended solely to defeat the leveling the playing field rule. Counsel responded that the agreement was not about defeating the leveling the playing field rule, but rather about obtaining representation, since no counsel would take a case where the fee was certain to be clawed back pursuant to a disgorgement order. Justice Garman asked whether counsel was arguing that an advance payment retainer immune from disgorgement was constitutionally required. Counsel responded that the simple use of an advance payment retainer under Rule 1.15(c) avoided the constitutional problem.

Earlywine should be decided within three to six months.

Illinois Supreme Court Holds Will’s Language Can Suggest Lack of Capacity, and Adopts Cause of Action for Equitable Adoption

By Kirk Jenkins on Posted in Illinois

A testator has held a younger man out for nearly sixty years as being his son. When the testator drafts a will stating that he has no children, is that statement a sufficient basis to plead a will challenge based on lack of testamentary capacity? On Thursday, a unanimous Supreme Court, in an opinion by Justice Robert R. Thomas, held in DeHart v. DeHart that the answer was “yes.” The Court made further news for wills-and-estates practitioners, adopting into Illinois law the cause of action for “equitable adoption.” Our detailed preview of the facts and lower court opinions in DeHart is here. Our report on the oral argument is here.

The decedent testator had told members of the community that the plaintiff was his son for fully six decades. When he made his funeral arrangements, he listed the plaintiff as his son, and listed the plaintiff’s children and grandchildren as his grandchildren and great-grandchildren. He provided the plaintiff with a birth certificate listing the testator as his father. Only when the plaintiff requested an original birth certificate in 2000, he discovered that the testator was not his biological father. He confronted the testator, who explained that he had married the plaintiff’s mother when plaintiff was two years old. The plaintiff’s natural father had married his mother after she became pregnant, but had subsequently abandoned them, and had not been seen or heard from since. The testator explained that he had hired an attorney to complete a legal adoption of the plaintiff, and he and the plaintiff’s mother had agreed to keep the details of the situation secret. For several years after plaintiff’s discovery, the testator continued to represent the plaintiff as his son, and treat him that way, allegedly making a will naming the plaintiff and his children as beneficiaries.

Things only began to change in 2005, when the 83-year old testator met the fifty-four year old defendant. In the months that followed their marriage, the defendant acquired a power of attorney, and the testator allegedly made her joint tenant on assets worth millions. In the final months before the contested will was drawn up, the defendant allegedly made misrepresentations to the testator about the plaintiff, telling the testator that the plaintiff was not his son, and ultimately began preventing the plaintiff’s cards and letters from reaching the testator. In December 2006, the testator made a new will stating that he had no children.

The testator died three months later. When defendant filed the will, plaintiff filed his complaint, alleging lack of testamentary capacity, undue influence, fraudulent inducement, intentional interference with testamentary expectancy, a contract to adopt the plaintiff and an equitable adoption. The plaintiff sought to depose the attorney who prepared the December 2006 will. On defendant’s motion, the circuit court dismissed the complaint and denied plaintiff’s motion to compel the attorney’s deposition. The appellate court reversed with respect to dismissal of all six counts as well as the refusal to compel the attorney’s deposition.

The Supreme Court affirmed the Appellate Court in all respects. With respect to the lack of testamentary capacity claim, the Court found that the complaint adequately alleged that the plaintiff was the natural object of the testator’s bounty. In addition, because the plaintiff’s statement in the will that he had no children was “completely inconsistent with his life history and prior declarations,” it was sufficient to state a claim. On the second count, the Court agreed that the plaintiff had adequately alleged a presumption of undue influence (which is ultimately decided at trial, at or after the close of plaintiff’s case). The Court noted that the defendant’s power of attorney created a general fiduciary relationship, and the fact that the testator began putting assets amassed over an 84-year period into joint tenancies shortly after the marriage sufficiently suggested undue influence. Although the Court noted that the plaintiff’s tort claims against the defendant would of course fail if his will contest succeeded, the Court held that he had adequately alleged fraudulent inducement and intentional interference with testamentary expectancy, and any dismissal of those claims at the pleading stage would be premature.

The Court held that plaintiff had successfully pled a contract to adopt between the testator and the plaintiff’s mother, supported by plaintiff’s allegations that the testator had hired an attorney to finalize the adoption. The Court found that given that the natural father had permanently abandoned the plaintiff three years after his birth, it was unnecessary for the natural father to be a party to the adoption contract.

Noting that the cause of action had been to some degree foreshadowed by earlier Illinois cases, the Court formally adopted the cause of action for equitable adoption. Following the 2004 California case Estate of Ford v. Ford, the Court declined to require proof of the elements of a contract to adopt in order to plead an equitable adoption. A claim for equitable adoption under Illinois law, the Court found, will require clear and convincing proof of the circumstances of a persistent parent-child relationship, together with “’some direct expression, on the decedent’s part, of an intent to adopt the claimant.”

The Court concluded by affirming the Appellate Court’s decision that plaintiff should have been permitted to depose the attorney who drafted the challenged will. The Court pointed out that attorney-client privilege does not survive the decedent’s death when the attorney prepares and witnesses the decedent’s will, since the decedent would presumably waive the privilege under such circumstances if he or she were still alive in hopes of having his or her true intent carried out. All that was necessary in order to trigger the application of the rule was a prima facie showing that the plaintiff was an heir or next of kin, or a beneficiary of a previous will, in order to establish a right to the attorney’s deposition.

Illinois Supreme Court Adopts Restrictive View of the Authority of Chicago Inspector General

By Kirk Jenkins on Posted in Illinois

In a unanimous opinion reversing in part Division Six of the First District, the Illinois Supreme Court has held in Ferguson v. Patton [pdf] that the Inspector General for the City of Chicago lacks the authority to retain private counsel to enforce his or her subpoenas in court. Instead, the Inspector General is required to rely on the support of the city’s Corporation Counsel or, if the Corporation Counsel has a conflict of interest, upon the support of the Mayor. Our detailed preview of the facts and lower court opinions in Ferguson is here. Our report on the oral argument is here.

Ferguson arose from an apparent award to a former City employee of a sole-source contract without going through the normal competitive process. Opening an investigation, the Inspector General made a written request to the City’s Law Department to produce its files relating to the awarding of the contract. The Law Department made a partial product, withholding certain documents based on asserted work-product and attorney-client privilege. When the Law Department declined the Inspector General’s informal request that it drop its privilege claims, the Inspector General sent the Corporation Counsel, the head of the Law Department, a formal subpoena for the documents. When the Corporation Counsel declined to comply with the subpoena, the Inspector General retained private counsel and filed suit.

The Circuit Court granted the Corporation Counsel’s motion to dismiss, finding that the Inspector General lacked the authority to hire counsel, and the documents were indeed privileged from disclosure. The Appellate Court reversed in part, holding that the Inspector General had authority to sue, and the power to hire private counsel could be reasonably inferred from that power.

In an opinion by Justice Lloyd A. Karmeier, the Supreme Court reversed. The City had taken the position that the Inspector General lacked the authority to sue, since he was merely part of the City of Chicago, meaning that his suit amounted to the city suing itself – an intra-agency spat that belonged in the political branches. The Supreme Court dismissed the argument, noting that the question of the Inspector General’s power was a routine matter of statutory construction. Since the Municipal Code provides that the Inspector General “shall take no action to enforce [his or her] subpoena” for seven days, it necessarily followed that the Inspector General could enforce the subpoena after that short wait was over.

At that point, however, the Inspector General’s case ran aground. Although the Inspector General could appear as a party to an enforcement action, the Municipal Code assigned the power to represent the City, its officers, board and departments in “all actions, suits and proceedings” to the Corporation Counsel – the very entity that the Inspector General was pursuing. The Court recognized that the Corporation Counsel had a conflict of interest when he or she was the target of the subpoena, and could hardly be expected to voluntarily sue him- or herself. Since the conflict was so “patent,” the Inspector General was not even required to ask the Corporation Counsel to do so. But that didn’t mean that the Inspector General was home free, the Court found. The Municipal Code reposed ultimate power to enforce City ordinances and discipline non-civil service officers who violate their duties in the Mayor. So the final decision about whether the Inspector General could sue the Corporation Counsel to enforce the subpoena should have been made by the Mayor. The Court acknowledged the Inspector General’s claim that any such holding significantly weakened the power of his office. But “that is a matter for the City . . . to remedy,” the Court found.

Argument Report: Illinois Supreme Court Considers Whether Cook County Commission on Human Rights Can Award Punitive Damages

By Kirk Jenkins on Posted in Illinois

On Tuesday morning, the Illinois Supreme Court gave little concrete indication of how it will likely rule during oral argument on Crittenden v. Cook County Commission on Human Rights[pdf]. Counsel for the Commission and the plaintiff both appeared and argued, but there was no appearance for the appellees. Our detailed summary of the facts and the Commission and lower court rulings is here. The video of the Supreme Court argument is here.

Crittenden arises out of a sexual harassment claim brought by a former bartender at a Cook County bar. The bartender filed a complaint with the Cook County Commission on Human Rights with respect to her supervisor. The hearing officer recommended an award of lost wages, compensatory and punitive damages, and the Cook County Commission on Human Right adopted the hearing officer’s recommended order. The Circuit Court denied the defendants’ petition for a writ of certiorari to review the administrative decision, effectively affirming the decision. The Appellate Court (First District, Sixth Division) affirmed with respect to a variety of evidentiary challenges, but reversed the Commission’s award of punitive damages, holding that the Cook County Human Rights Ordinance didn’t authorize such an award. The Court declined to follow an earlier decision of Division One of the First District, Page v. City of Chicago, where the Court had held that the Chicago Human Rights Ordinance does permit an award of punitive damages for acts of sexual harassment and discrimination.

Counsel for the Commission began the arguments. Counsel observed that the Appellate Court’s holding was a surprise for two reasons: the earlier decision in Page, and because the facts in the record warranted punitive damages. Counsel argued that three reasons supported a finding that the ordinance authorized punitive damages: (1) the list of enforcement remedies in the ordinance is expressly made non-exclusive; (2) the language of the ordinance is otherwise very broad; and (3) the ordinance gives the Commission the authority to file with the Department of Professional Regulation whenever a licensed real estate broker violates the ordinance, suggesting an intent to facilitate punitive measures. Justice Freeman asked whether the issue was could the ordinance permissibly authorize the Commission to award punitive damages; or was the issue whether the ordinance did in fact authorize an award? Counsel responded that the question was whether the ordinance did authorize an award, and that the power to authorize such an award was clear, given the home rule statutes. Justice Thomas asked whether the ordinance could simply be changed if the Supreme Court found that it did not, as currently written, authorize punitive damages; counsel agreed that it could, but argued that it was important to vindicate the Commission’s implied powers. Counsel also pointed out that the ordinance had not been changed following Page, suggesting an intent to acquiesce in the result. Justice Karmeier noted that the ordinance speaks of fines and asked counsel why it would not have expressly authorized punitive damages. Counsel argued that the list was not exclusive. Justice Theis asked whether the language in the ordinance authorizing the hearing officer to recommend such relief “as is appropriate to make the complainant whole” didn’t suggest that only compensatory damages were permitted. Counsel argued that in fact it was a grant of discretion to the Commission. Justice Garman asked whether the fact that punitive damages are not favored in the law should make the Court reluctant to read implied authority to award them. Counsel responded that the Court had previously found some torts were sufficiently serious to warrant such awards. Justice Freeman asked whether, if the ordinance authorized an award, the case should be remanded for a determination of whether the defendants’ conduct was willful and wanton. Counsel conceded that although the hearing officer had not used those precise words, the officer had found a wanton disregard for the complainant’s rights, which was sufficient.

Counsel for the complainant briefly concluded the argument. He argued that the facts at issue – which included both verbal degradation and physical accosting – met several of the prerequisites for punitive damages. Justice Theis asked whether punitive damages were requested from the hearing officer, and counsel stated that they were. Justice Freeman asked whether the conduct of the employer and the bar patron allegedly involved in the conduct should be separated for determining whether the conduct was willful and wanton, and counsel responded that the challenged conduct of the two individuals could not be disentangled on the record.  Counsel concluded by stressing that despite the alleged outrageousness of the defendants’ conduct, the punitive damages award was modest.

We expect the Court to decide Crittenden within four months.

Supreme Court Unanimously Holds Plaintiffs Can’t Stipulate Around CAFA

By Kirk Jenkins on Posted in Class Actions

On Tuesday morning, a unanimous U.S. Supreme Court decisively closed a loophole in the Class Action Fairness Act, holding in Standard Fire Insurance Co. v. Knowles that a purported stipulation by the named plaintiff to seek less than the $5 million jurisdictional threshold was irrelevant for purposes of determining whether Federal jurisdiction over the class complaint existed.

Knowles began when the plaintiff’s home was allegedly damaged in a hail storm. In the spring of 2011, Knowles filed a putative class complaint for breach of contract against the defendant, alleging that the defendant had concealed its purported obligation to pay a 20% general contractors’ overhead and profit fee routinely added to invoices for the repair or replacement of damaged property. Knowles proposed a class of “hundreds, and possibly thousands” of Arkansas residents who had failed to receive such payments during 2009 and 2010, but appended a sworn stipulation to his complaint stating that he “will not at any time during this case . . . seek damages for the class as alleged in the complaint to which this stipulation is attached in excess of $5,000,000 in the aggregate (inclusive of costs and attorneys’ fees).”

The defendant removed the action to federal court, pointing to three flaws in plaintiff’s attempt to avoid removal: (1) plaintiff had deliberately understated possible damages by limiting the class to two years, although the Arkansas statute of limitations on breach of contract was five years; (2) plaintiff’s counsel has not signed a similar stipulation stating that he would not seek or accept an attorneys’ fees award which would push the total amount in controversy past $5 million; and (3) Knowles lacked the authority to bind absent class members anyway.

The defendant’s desire to keep the action out of Arkansas state courts is hardly surprising, given the discussion by defendant and amici before the Supreme Court of Arkansas’ class action law. Although the plaintiff disputed the characterizations of the defense side, amicus the www.appellatestrategist.com/uploads/file/11-1450_pet_amcu_acc_authcheckdam.pdfArkansas State Chamber of Commerce argued that Arkansas rejects the Federal “rigorous analysis” standard for class certification, requiring only “enough of an analysis to enable us to conduct a meaningful review”; presumes class counsel “will vigorously and competently pursue the litigation”; bars trial courts at the certification stage from considering “whether the plaintiffs will ultimately prevail, or even whether they have a cause of action”; will not examine the standing of the class representative at the certification stage; and will not perform a choice-of-law analysis before certifying multi-state classes.

The district court granted plaintiff’s motion to remand the action to state court, noting that Eighth Circuit law recognized class representatives’ stipulations limiting damages, and that a number of district courts had sent putative class actions back to the state courts based on that precedent, relying on similar stipulations. Worries over absent class members’ due process rights were of no moment, the court held, commenting that if the plaintiffs attempted to evade the stipulation, the case could simply be removed again, and any class members dissatisfied with the stipulation could simply opt out and pursue their own actions.

The Eighth Circuit declined to hear the defendant’s appeal. While the defendant’s petition for rehearing was pending, the Circuit decided Rowling v. Nestle Holdings, which affirmed a remand order based on a similar anti-CAFA stipulation. This brought the Eighth Circuit into conflict with the Tenth, which had rejected a stipulation on damages in Frederick v. Hartford Underwriters Ins. Co., and the Supreme Court’s order granting certiorari followed.

The Supreme Court unanimously reversed, dispatching the issue in a mere seven pages.  The plaintiff had a fundamental problem, the Court pointed out; under Smith v. Bayer Corp., prior to certification, a class member had no authority to diminish the rights of the still-absent class members. Therefore, although the stipulation presumably restrained plaintiff’s damages, it had no impact at all on the class members. The Court acknowledged a long-standing line of authority, heavily relied on by plaintiff in his briefs to the district court and the Supreme Court, that a plaintiff is “master” of his or her complaint, and may deliberately state a cause of action in such a way as to keep it out of federal court if he or she chooses, but the Court distinguished those cases as involved stipulations which actually were binding on all plaintiffs. The Court agreed that reversal was necessary in order to vindicate Congress’ purposes in enacting CAFA. If anti-CAFA stipulations purporting to limit damages were recognized, there were a variety of ways for large class actions of national import to remain locked up in state courts: a state court could certify the class on condition that the stipulation be excised from the complaint; or the court could find that plaintiff was by definition an inadequate class representative, given his attempt to limit the class members’ claims, and replace the representative with another plaintiff with an amended complaint. In fact, if stipulations like the plaintiff’s were effective, the Court suggested that there would be no barrier to another plaintiff dividing a $100 million dispute into twenty-one sub-$5 million classes in the state courts.

Although some observers have wondered (subscription req.) in the forty-eight hours since Knowles came down whether the decision will ultimately result in larger damages claims in future class complaints given that we now know that limiting stipulations are ineffective to manipulate jurisdiction, but the concern seems misplaced. After all, much of the discussion in Knowles turned on the significant number of ways in which such a stipulation could be evaded once jurisdiction was settled, so believing that such a stipulation was the last word on possible exposure seems unjustified. I agree with others (subscription req.) who regard Knowles as a significant and unqualified win for the defense bar. If the Court had agreed that a mere stipulation was sufficient to evade Federal jurisdiction, such stipulations would have become even more commonplace, likely resulting in more class actions surviving certification motions. With that door now slammed shut, major cases will go to Federal court as Congress intended, where they will be governed by the far more rigorous Federal standards of Rule 23, as interpreted in Wal-Mart v. Dukes and its successors.

Illinois Supreme Court Will File Two New Civil Opinions on Thursday Morning

By Kirk Jenkins on Posted in Illinois

This afternoon, the Illinois Supreme Court announced that it will file two opinions in civil cases on 9:00 a.m. on Thursday morning. The upcoming opinions are:

  • Ferguson v. Patton, Case No. 112488 – (1) Does Section 2-56-040 of the Chicago Municipal Code authorize the Inspector General of the City of Chicago to hire private counsel to enforce subpoenas? (2) May the Inspector General sue the Corporation Counsel of Chicago to enforce subpoenas? Our detailed preview of the facts and lower court opinions in Ferguson is here. Our report on the oral argument is here.
     
  • DeHart v. DeHart, Case No. 114137 – (1) Did plaintiff adequately allege lack of testamentary capacity based on decedent’s statement in his probated will that he had no children? (2) Did plaintiff sufficiently allege undue influence on the part of defendant, who held decedent’s power of attorney? (3) Could plaintiff state a viable claim for fraudulent inducement while his will contest was still pending? (4) Did plaintiff adequately allege an oral contract to adopt? (5) Shall Illinois recognize the theory of equitable adoption, and if so, did plaintiff adequately allege such a theory? Our detailed preview of the facts and lower court opinions in DeHart is here. Our report on the oral argument is here.

A Busy Day of Civil Arguments at the Illinois Supreme Court

By Kirk Jenkins on Posted in Illinois, Punitive Damages

Tomorrow will be a busy day for the Illinois Supreme Court’s civil docket, with five cases being argued, beginning at 9:00 a.m. They are:

  • Wilkins v. Williams, Case No. 114310 – (1) Does the immunity conferred by the Emergency Medical Services Act, 210 ILCS 50/3.150(a), extend to the non-emergency transport of patients? (2) Does the statute bar suits in connection with injuries sustained by third parties not directly treated by the EMS workers? Our detailed preview of the facts and lower court opinions in Wilkins is here.
     
  • Standard Mutual Insurance Co. v. Lay, Case No. 114617 – Is the Federal statutory penalty imposed pursuant to the Federal Telephone Consumer Protection Act for sending unsolicited advertisements to a fax machine in the nature of punitive damages, and therefore uninsurable as a matter of Illinois law? Our detailed preview of the facts and lower court opinions in Standard Mutual Insurance is here.
     
  • Mayfield v. Mayfield, Case No. 114655 – (1) Is a lump-sum workers’ compensation settlement “net income” within the meaning of Section 505(a)(3) of the Illinois Marriage and Dissolution of Marriage Act; and (2) If so, is the 20% rule-of-thumb set forth in Section 505(a) of the Act for calculating the per-child support obligation applicable to the entire settlement? Our detailed preview of the facts and lower court opinions in Mayfield is here.
     
  • Earlywine v. Earlywine, Case No. 114779 – Is an advance payment retainer to a spouse’s retained attorney in divorce proceedings the attorney’s property at the moment of payment, and therefore not subject to disgorgement for an award of interim attorney’s fees pursuant to 750 ILCS 5/501(c-1), the Illinois Marriage and Dissolution of Marriage Act? Our detailed preview of the facts and lower court opinions in Earlywine is here.
     
  • Crittenden v. Cook County Commission on Human Rights, Case No. 114876 – May the Cook County Commission on Human Rights award punitive damages? Our detailed preview of the facts and lower court opinions in Crittenden is here.

Don’t Panic – The Fall of Pendergrass and Restoring the Full Fraud Exception to the Parol Evidence Rule May Not Be as Bad as You Think.

By on Posted in California, Commercial Law

In Riverisland Cold Storage, Inc., v. Fresno-Madera Prod. Credit Ass., S190581, the unanimous California Supreme Court recently overturned the widely criticized Pendergrass rule, thus restoring the full breadth of the fraud exception to the parol evidence rule. In 1935, the Court limited the fraud exception to the parole evidence rule – holding that evidence of a promise that was “directly at variance with the promise of the writing” was inadmissible.  (See, Pendergrass (1935) 4 Cal.2d 258, 263.)  This allowed defendants to demur to promissory fraud claims by citing the contract terms, or at least obtain summary judgment. This rule had put California in a minority of one, as it departed from the majority rule, the Restatement, and most treatises. Indeed, Riverisland concluded that Pendergrass is unsupported by the controlling statute (C.C.P. §1856), was contrary to then existing California law, has been widely criticized ever since (resulting in convoluted attempts to distinguish it), and can be used to shelter fraud (begging the question of how the Pendergrass rule managed to survive for nearly 80 years).

While there has been some hand wringing by potential defendants over losing the Pendergrass rule, and it will certainly be more difficult to resolve promissory fraud claims by demurrer or summary judgment, all is not lost. Consider:

  1. California now follows the majority rule, so most of the country has already adapted to this holding.
  2. Plaintiffs still have to meet the more demanding pleadings requirements for any fraud claim, and Riverisland confirms that the intent element of promissory fraud entails more than proof of an unkept promise or mere failure of performance.
  3. In Rosenthal, 14 Cal.4th 394, the Court held that the negligent failure to read a contract precludes a finding that it is void for fraud, although the threshold for this showing might be lower for equitable relief.
  4. Promissory fraud requires justifiable reliance on the defendant’s oral misrepresentation, which ties back into plaintiff’s negligent failure to read the contract.

The Supreme Court in Riverisland refused to decide whether the borrowers justifiably relied on the lender’s oral promises not to execute on the promissory notes for at least a year, notwithstanding the contract terms allowing prompt execution, given the borrowers’ failure to read the contract. So, how to balance these considerations remains an open question. While procedures to fend off such claims are often already in place, California businesses should proactively tighten up their practices and procedures to lessen the potential exposure that Riverisland represents, rather than wait for the courts to address these issues. In particular, the parties should customarily document that no oral promises were relied on in entering into the agreement.  In addition to fending off claims based on an oral promise, such documentation will presumably support an argument that the plaintiff was negligent in failing to read the contract. 
 

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