The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

Illinois Supreme Court Uses State Bank of Cherry as Vehicle For Clarifying Standard for State Court Determination of Federal Law Issues

By Kirk Jenkins on Posted in Illinois

The Illinois Supreme Court took an unexpected turn in its second civil decision of Friday morning, using State Bank of Cherry v. CGB Enterprises, Inc. [pdf] as a vehicle to clarify the standard which Illinois state courts should use to decide Federal law issues. In an opinion written by Justice Rita B. Garman, the Court affirmed the Third District’s holding that the Food Security Act of 1985 requires strict compliance with statutory requirements in crop financing instruments. Our pre-argument preview of State Bank of Cherry is here. Our report on the oral argument is here.

State Bank of Cherry started with an Illinois farmer executing a note in plaintiff’s favor, using certain crops as security. He then sells the crop to the defendant, a grain elevator. The plaintiff sent the Notice of Security Interest, citing the Food Security Act, to the defendant, but the defendant paid the farmer, not the plaintiff. So the plaintiff sued.

The defendant moved to dismiss, citing Farm Credit Midsouth, PCA v. Farm Fresh Catfish Co. to argue that strict compliance was mandatory under the Food Security Act. Since the plaintiff’s Notice omitted the required statement of the county where the crops were located, the buyer took free of the security interest. The plaintiff responded by arguing that the Illinois Commercial Code governed, and cited First National Bank v. Effingham-Clay Service Co. for the proposition that substantial compliance was good enough. The trial court concluded that the Illinois Appellate Court decision governed and granted the plaintiff’s motion for judgment on the pleadings. A divided panel of the Appellate Court reversed, holding that the state Commercial Code was preempted by the Food Security Act.

The Supreme Court unanimously affirmed. The Court had little trouble dismissing First National Bank; the case was decided ten years before Farm Fresh and Federal law governed the case. The Court then turned to the question of how Illinois courts should resolve questions of Federal law when there were Federal decisions on point. For years, the Court noted, Illinois courts had considered Federal circuit decisions persuasive but not binding, absent a decision from the United States Supreme Court. On the other hand, the Court pointed out, where federal courts are not split, maintaining a uniform body of law is an important value. The Court concluded that while the Court is bound only by decisions of the United States Supreme Court, the Court would "give considerable weight" (the emphasis is the court’s) to a uniform federal interpretation of an issue. The Court distinguished two cases cited by plaintiff and concluded that Farm Fresh was the only Federal case on the question of substantial compliance in "direct notice" cases — where the security instrument is delivered directly to the buyer, rather than being filed in a central repository.

So should the Illinois courts routinely follow a uniform Federal construction of Federal law? Well, not where the uniform line of cases is "wrongly decided." This doesn’t mean that the court can follow its own inclinations; if that were the rule, the value of uniformity would be lost. Rather, uniform Federal lines of authority should be applied by state court to Federal law questions unless the decisions are outside "logic" and "reason." Where Federal courts are split – then the Illinois courts can follow their own judgment.

Following that lengthy foundation, the ultimate issue in State Bank of Cherry was quickly resolved. The strict construction analysis in Farm Fresh was sound, the Supreme Court found, and matched the Illinois Supreme Court’s own law on statutory construction. So the Court followed Farm Fresh, holding that strict compliance with the Federal statute was essential for a buyer to take crops subject to a security interest. Since the plaintiff’s notice omitted the mandatory designation of county, the Notice was ineffective and the plaintiff’s case failed.

Justice Charles E. Freeman specially concurred. Justice Freeman opined that the majority’s decision, "as I understand it," merely reaffirmed long-standing Illinois law on the treatment of Federal cases on an issue of Federal law. Justice Freeman wrote separately to object to the Court’s "complicated and needless discussion of the concept of uniformity." The concept had no place in the opinion in Justice Freeman’s view. Farm Fresh was not a "uniform and uncontradicted" view of Federal law — a single opinion could not be "uniform and uncontradicted" with itself. "[A] single on-point decision, even if uncontradicted, does not constitute a ‘uniform’ body of precedent."

Illinois Supreme Court Reaffirms Deferential Review of Arbitrator Decision in Labor Dispute

By Kirk Jenkins on Posted in Illinois

On Friday morning, the Illinois Supreme Court delivered a strong reminder of the importance of arbitration proceedings in labor disputes.  The Court unanimously reaffirmed the highly deferential standard applied to judicial review of an arbitrator’s decision in an opinion by Justice Anne M. Burke in Griggsville-Perry Community Unit School District No. 4. v. Illinois Educational Labor Relations Board. Our in-depth review of the facts and lower court rulings is here. Our pre-argument preview is here. Our report on the oral argument is here.

Griggsville-Perry arose from a school board’s firing of a noncertified paraprofessional who worked in an elementary school library. In 2007, her school principal approached the employee and told her that the school board had received complaints about her performance. The principal began keeping a notebook of events relating to the employee’s performance.  The principal spoke with the employee about her performance twice more during 2007, noting both discussions in the notebook (which was not, however, included in the employee’s file).  The following year the principal recommended that the school board fire the employee. The superintendent of the district notified the employee that she would be fired at an upcoming meeting. The superintendent and principal met with the employee and her union representative twice, and items from her file were produced to her. The employee and her union representative appeared before the school board and the employee testified, but the board decided to fire her anyway.

The union filed a grievance, and after a hearing, the arbitrator ordered the employee reinstated. When the board refused, the union filed an unfair labor practice charge. The arbitrator once again ordered reinstatement, and the Illinois Educational Labor Relations Board affirmed. The Appellate Court reversed the Board, finding that the employee had received all the due process she was entitled to under the labor contract.  The Court held that the arbitrator had "applied his own brand of industrial justice" by "reading a just-cause standard into the agreement" without support either in the integrated contract or the drafting history.

Although the Supreme Court seemed conflicted about the case during oral argument, in the end the Court had no trouble reversing. The arbitrator’s decision turned on his interpretation of section 2.6 of the parties’ collective-bargaining agreement, which provided that employees must be "give[n] reasonable prior written notice of the reasons" for a disciplinary meeting. The court held that the arbitrator’s decision was subject to highly deferential review based on this amorphous standard: "[the arbitrator’s] award is legitimate only so long as it draws its essence from the collective bargaining agreement." The court summarily concluded that "the arbitrator’s determination that the District had violated section 2.6 was clearly rooted in an interpretation of the contract." Accordingly, the court concluded that the Appellate Court "erred in reviewing and rejecting" the arbitrator’s decision.

In the alternative, the District argued that even if section 2.6 of the union contract required some sort of due process, any violations were harmless since the plaintiff was an at-will employee. The court rejected the District’s argument. The court acknowledged that the parties had considered and rejected a standard of dismissal for just cause, but concluded that the arbitrator was nevertheless free to conclude that employees had limited protection from being terminated as a result of an arbitrary proceeding.

Illinois Supreme Court Will File Two Civil Opinions Friday Morning

By Kirk Jenkins on Posted in Illinois

This afternoon, the Illinois Supreme Court announced that it expects to file opinions in two civil cases at 9:00 a.m. on Friday, February 22. They are:

  • Griggsville-Perry Community Unit School District No. 4 v. Illinois Educational Labor Relations Board, No. 113721 et seq. – May an arbitrator apply “industrial common law” to find to find that a terminated employee had a right to a statement of specific acts or omissions allegedly justifying termination where the union contract at issue barred the arbitrator from modifying, nullifying, ignoring or adding to the terms of the contract? Our in-depth review of the facts and lower court rulings is here. Our pre-argument preview is here. Our report on the oral argument is here.
  • State Bank of Cherry v. CGB Enterprises, Inc., No. 113836 — (1) Does the Federal Food Security Act of 1985, 7 U.S.C. § 1631(e), preempt the state UCC for purposes of security interests on crops? (2) If so, does the Act require strict or substantial compliance in order to effectively attach a security interest when crops are sold? Our pre-argument preview is here. Our report on the oral argument is here. 

With Griggsville-Perry and State Bank of Cherry both coming from the Court’s November term, the Court’s announcement leaves three cases still pending from the September Call of the Docket: In re Estate of Boyar, which poses the question of whether the doctrine of election should be recognized with respect to trusts (for our preview, see here, and for our report on the oral argument, see here); Ferguson v. Patton, which involves the powers of the Inspector General of the City of Chicago (preview here, and  report on the oral argument here); and The Hope Clinic for Women v. Adams, which involves a constitutional challenge to the Illinois Parental Notice of Abortion Act (preview here, and report on the oral argument here).

Enforcing Contractual Time Bars on Architect Liability

By Kirk Jenkins on Posted in Illinois

In Gillespie Community Unit School District No. 7 v. Wight & Co., the fourth and final new civil case added to its docket at the close of the January term, the Illinois Supreme Court will address an important issue for Illinois’ architects and construction contractors: the enforcement of contractually-agreed statutes of limitations.

The school district in Gillespie decided to build a new elementary school in 1998. The plaintiff entered into an agreement with the defendant to perform various services preliminary to the designing and construction of the new school building. Among the services the architects agreed to perform was investigating the extent of mining in the building site area, and assessing the risk that mining subsidence might imperil the structural stability of the new school. The architects in turn hired an engineering firm to assess the mining issues.

Once the preliminary work was completed, the school district entered into a further contract with the architectural firm and its contractor. That contract defined the "agreement" between the parties as including the earlier agreement which led to the mine analysis. The final contract further provided that the statute of limitations for any and all possible causes of action between the parties would begin to run not later that the substantial completion of the acts at issue, or at minimum, the date on which the defendant architect’s services were completed.

The building was completed in the fall of 2002, and the school district took possession. In the early spring of 2009, a coal mine subsided beneath the building, causing extensive damage. A few weeks later, the building was declared a total loss. The school district sued the architects, alleging professional negligence, breach of implied warranty and fraudulent misrepresentation. The architects moved for summary judgment, alleging that the action was clearly time-barred. The Circuit Court agreed and dismissed.

The Fourth District affirmed. The school district argued that the accrual provision of what the parties called the "Standard Agreement" had not become part of the Pre-Referendum Service Agreement, but the Appellate Court disagreed, pointing out that the Standard Agreement defined several documents – including the Pre-Referendum Service Agreement – to constitute the "agreement." The school district argued that the accrual provision applied only to claims between the architect and its contractor, but the Appellate Court disagreed, finding that the defendants had defined the limits of their own liability, in part, by the completion of the contractor’s work. The school district argued that "substantial completion" had never occurred given the alleged shortcomings of the mining analysis work, but the Appellate Court disagreed again, finding that the mining work was done under the Pre-Referendum Service Agreement, and the accrual provision, including the "substantial completion" language, was found in the Standard Agreement; one had nothing to do with the other. Finally, the Court rejected the district’s claim that no statute of limitations at all applied to its claim for fraudulent misrepresentation. The Court pointed out that such claims were expressly exempted from 735 ILCS 5/13-214, the statute that provides limitations on claims arising from the design, planning, supervision, observation or management of construction. Therefore, by default the five-year catch-all statute of 735 ILCS 5/13-205 applied.

Gillespie should be decided in late 2013.

Where Is a Retail Seller Liable For Occupation Taxes?

By Kirk Jenkins on Posted in Illinois

At least three different government entities are allowed by Illinois law to impose the local portion of the state’s sales taxes: home rule counties; home rule municipalities; and regional transit authorities. But what happens when a business’ operations span multiple counties — where does the sale take place for tax purposes? This question can make a difference in the many millions of dollars when a particular business has operations in both high- and low-tax counties. The Illinois Supreme Court will resolve the issue in Hartney Fuel Oil Co. v. Hamer, which it agreed to hear in the final days of its January term.

The plaintiff in Hartney resells fuel oil to railroads, trucking companies, gas stations and other fuel distributors. In 1995, the plaintiff moved its sales operation out of its corporate headquarters in Forest View (which is in Cook County). By 2003, the sales operation had landed in Mark (which is in Putnam County). The corporate headquarters remained in Forest View until 2008, when the corporate and accounting staff was also moved to Mark.

The plaintiff had two kinds of sales during the relevant period. First, there were daily purchase orders. The customer was informed by fax or email of the next day’s price, and responded to the sales office: what it needed, how much, where and when. The sales agent in Mark accepted the order and made the arrangements. Second, there were long-term purchase orders. A fully executed contract was mailed from the Mark sales office to the customer. Originals were stored in Mark, with copies to the customer as well as the plaintiff’s accounting department in Forest View.

Once the Mark sales office opened in August 2003, the plaintiff reported that all sales happened in Mark. The Department of Revenue audited the plaintiff for the period of 2005 through mid-2007; the auditors ultimately concluded that all sales occurred in Forest View — in Cook County — rather than Mark, and the plaintiff got a $23.1 million tax bill. The plaintiff paid under protest and sued.  The board of commissioners of Putnam County and board of trustees from Mark got into the act too, suing the Department on the grounds that they were entitled to the local share of the sales taxes. The Circuit Court found for the plaintiffs, concluding by preponderance of the evidence that both daily and long-term orders were accepted in Mark, not Forest View.

Despite the lengthy lead-in, the issue in Hartney is ultimately fairly simple: is the location of the sale determined by the totality of the circumstances, or does the sale occur where the order is accepted? The Third District affirmed the Circuit Court, adopting what it described as a "bright-line test": where acceptance of the order occurs, sales tax liability is fixed. In doing so, the Court refused to follow a twenty-four year old case from the Fourth District, Chemed Corp. v. State, which had adopted the totality of the circumstances test. The majority then turned to the trial court’s factual findings, holding that the Circuit Court’s conclusion that all sales occurred in Mark was not contrary to the manifest weight of the evidence. Justice Robert L. Carter dissented from the panel’s holding, concluding that the state regulations imposed a totality of the circumstances test for determining where a particular sale took place for tax purposes.

Hartney should be decided in late 2013.

Illinois Supreme Court Grants Leave to Appeal Controversial Condominium Decision

By Kirk Jenkins on Posted in Illinois

May a condominium owner refuse to pay monthly and/or special assessments, in whole or in part, on the grounds that the condominium board had failed to maintain and repair the common elements of the condominium property? In the vast majority of jurisdictions around the country, the answer is simple: No. Last summer, in what the Chicago Tribune called a “ground-breaking decision” that “has stunned the condominium community nationwide,” the Appellate Court for the Second District answered the question “sometimes.” Yesterday, the Illinois Supreme Court agreed to review the decision, granting leave to appeal in Spanish Court Two Condominium Association v. Carlson [pdf].

The plaintiff in Spanish Court Two sued the defendant in early 2010 under the Forcible Entry Act. Plaintiff alleged that the defendant had stopped paying monthly assessments in August 2009. Plaintiff allegedly hadn’t paid special assessments either. The plaintiff sought possession of the defendant’s unit and a monetary award.

The defendant filed a combined answer, affirmative defenses and counterclaim. She admitted that she had stopped paying the assessments, but denied that they were owed; according to the defendant, the plaintiff’s failure to repair damage to the roof and certain brickwork directly above her unit had led to water damage to the unit itself. The defendant also alleged that the plaintiff had failed to make certain repairs inside the unit. Based on these factual allegations, defendant pled two affirmative defenses: (1) that the plaintiff was estopped from seeking the assessments because of its breach of the duty to maintain and repair; and (2) that the cost of repairing the damage to her unit should be deducted from any award of the past-due assessments. Defendant’s counterclaim was based on the same allegations.

Section 9-106 of the Forcible Entry Act, 735 ILCS 5/9-106, provides that matters which are “not germane to the distinctive purpose of the proceedings” may not be raised by a defendant. The plaintiff moved to strike the defendant’s defenses and counterclaim, citing Section 9-106, the Circuit Court granted the motion, and the defendant appealed.

The Appellate Court reversed, holding that the defendant’s defenses were potentially viable. The Court reached this conclusion by analogizing the duty to pay assessments to the obligation to pay rent: Illinois law permitted renters to defend a claim for unpaid rent by alleging that the landlord had breached the duty to maintain and repair, and by analogy, condominium owners should be permitted to raise the same defense with respect to non-payment of assessments. Plaintiff sharply challenged this conclusion, arguing that under the Condominium Act, the right of the board to collect assessments is absolute. 735 ILCS 605/18.4(d). However, the Court disagreed. Rather, the Court concluded that the Condominium Declaration and Bylaws should be seen as contracts where the parties exchanged promises: a promise to pay assessments in return for a promise to maintain and repair.  The Court cautioned that relatively minor problems, such as “overgrown bushes and unrepaired sidewalk cracks” might “rarely” constitute material breaches, but otherwise seemed to suggest no limitations to the defense. Continuing its analogy between renters and condominium owners, the Court then affirmed the severance of the defendant’s counterclaim from the Forcible Entry Act action, noting that only counterclaims for overpaid rent were considered germane in such actions involving renters.

In its petition for rehearing, the plaintiff predicted significant adverse effects from the Court’s decision, a concern echoed in the Chicago Tribune’s article on the case. Plaintiff argued that establishing a right to withhold assessments – a condominium board’s only source of income – would make it even less likely that common areas would be repaired, but the Court observed that the same concern could be applied to multiunit rentals, where the defense was established. In response to plaintiff’s prediction of “a crippling of condominium associations” as a result of the Court’s decision, the Court observed: “we question how well a condominium association is currently functioning if one of its unit owners suffers such neglect as defendant has alleged.”

Spanish Court Two is certain to be a spirited battle at the Supreme Court, with multiple amicus applications from entities within Illinois and perhaps outside the state as well. The Supreme Court will likely decide the case in late 2013. 

Are The Illinois Labor Department’s Administrative Fines Unconstitutional?

By Kirk Jenkins on Posted in Illinois

Yesterday, the Illinois Supreme Court granted leave to appeal in four new civil cases. We begin our previews of these newest additions to the court’s docket with Bartlow v. Costigan [pdf], which raises a variety of constitutional challenges to the powers of the Illinois Department of Labor under the Employee Classification Act, 820 ILCS 185/1 et seq.

The state legislature enacted the Act because it suspected that construction contractors were evading various protections extended to workers under the state labor laws by improperly classifying their employees as independent contractors. An investigation begins under the Act when an interested party files a complaint (or the Department may file a complaint itself). If the Department finds cause for an investigation, it has discretion to use any method or combination of methods it chooses. Possible methods include sending a written notice to the contractor explaining the charges and giving an opportunity to present any information in writing bearing on the issues.  Before making a final decision, the Department may – but it not required to – convene a fact-finding conference, either in person or by telephone.

If the Department finds a violation, it has various options open to it: (1) issuing a cease and desist order; (2) attempting to collect wages, salary and/or benefits lost to employees by reason of the violation; or (3) assess civil penalties. The contractor may seek an “informal conference” with the Director of the Department and/or his or her chief legal counsel, but if the contractor fails to pay penalties or comply with the remedies specified in a notice of violation within 30 calendar days, the Department may turn the matter over to the Attorney General for enforcement. Even more severe penalties are possible for a second violation within five years of the first.

The plaintiffs in Bartlow received a notice of investigation and request for documents from the Department in the fall of 2008. The plaintiffs produced the materials, and a conciliator working for the Department interviewed various individuals; finally, in early 2010, the Department sent the plaintiffs notice of having preliminarily found multiple violations of the Act. A fine was set at $1.683 million. When the plaintiffs received a second notice of investigation two weeks later, they filed suit, arguing that the Act and the supporting regulations were unconstitutional on a variety of grounds: due process, special legislation, equal prohibition and bills of attainder. On cross-motions for summary judgment, the Circuit Court rejected each of the plaintiffs’ constitutional challenges.

The Fifth District of the Appellate Court affirmed. First, the plaintiffs argued that the Department was essentially exercising adjudicatory powers without being required to grant a hearing. The Department, on the other hand, claimed that its powers are purely investigatory: it has no authority to enforce any finding of violation itself, and any circuit court proceeding is de novo, with the Department having the burden of proving a violation. The Department characterized its “fines” as amounting to an offer to settle outside of court: the contractor was free to ignore the “fine” without consequence, unless and until the Department went to Court and established the violation anew. Although the Appellate Court expressed its skepticism about the Department’s argument, the Fifth Circuit held that it was compelled by the canon that statutes are held constitutional wherever reasonably possible to adopt the Department’s interpretation of its powers and reject the due process challenge.

The Appellate Court had considerably less difficulty rejecting the plaintiffs’ other constitutional challenges. The Court held that the statute gave sufficient guidance as to who could legitimately qualify as an independent contractor to allow parties to conform their conduct, and accordingly, the statute was not void for vagueness, and/or an unconstitutional delegation of legislative power. The Court rejected the plaintiffs’ equal protection and special legislation claims, applying rational basis review to find that the state had a legitimate interest in revenue lost for various employee-protection programs through misclassification, and that the legislature could have reasonably concluded that workers in the construction industry were most urgently in need of immediate protection through the statute.

The Supreme Court will likely decide Bartlow in late 2013.

Argument Report: Illinois Supreme Court Gets Its First Shot at Interpreting Nicastro

By Kirk Jenkins on Posted in Illinois

In J. McIntyre Machinery, Ltd. v. Nicastro, a plurality of the United States Supreme Court held that merely placing a product into the stream of commerce with the expectation that it would wind up in the forum state was not enough to justify the exercise of personal jurisdiction over the manufacturer. Russell v. SNFA is the Illinois Supreme Court’s first opportunity to apply Nicastro. Our preview of Russell is here. Watch the video of the oral argument here.

Russell arose from a 2003 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.

The helicopter was built in Italy by Agusta, an Italian company that wasn’t related to SNFA. It passed to a German company, then to Metro Aviation, a Louisiana-based company, and finally to Air Angels, the decedent’s employer, which was based in Cook County. The Louisiana company had replaced several of the bearings with replacements manufactured by SNFA. The replacements were custom-made in France, sold to Agusta in Italy, sold again to Agusta Aerospace Corporation in America, and then to Metro Aviation in Louisiana. SNFA had three American customers for its aerospace bearings, but none for its helicopter bearings.

Confused yet? Well, that’s the point. The trial court tossed the case for lack of jurisdiction on the grounds that SNFA’s only contact with Illinois had been a single visit to an entirely different customer. The Appellate Court reversed, relying on Asahi Metal Industry Co. v. Superior Court; the defendant knew that Agusta sold its helicopter throughout the United States, and that it had an American subsidiary – since SNFA’s ball bearings were custom-made, Agusta’s distributors essentially were SNFA’s American distribution arm.

The Supreme Court initially bounced the case back to the Appellate Court, directing the court to reconsider its decision in light of Nicastro. A few days before Christmas 2011, the Appellate Court reaffirmed its decision, holding that Nicastro made the panel even more certain that it was right.

The Appellate Court found jurisdiction under both subsection (a) — "the commission of a tortious act within this State" and subsection (c) — a catchall provision — of 735 ILCS 5/2-209, the long arm statute. SNFA knew that Agusta helicopters were sold throughout the US, the Court noted. Essentially imputing Agusta’s conduct to SNFA, the Court held that Agusta’s five helicopters sold in Illinois during the relevant period were enough to subject SNFA to minimum contacts:

By custom-making parts for a helicopter manufacturer, defendant made itself dependent on the marketing and distribution network of the manufacturer.

Counsel for the defendant opened his argument by emphasizing his client’s complete lack of a corporate, virtual or physical presence in Illinois. SNFA has no, and never has had any, U.S. customers for its helicopter bearings, counsel argued. Justice Theis pointed out that Nicastro was a plurality decision, with a four-Justice decision announcing the judgment. She asked counsel where Federal law stood in the wake of Justice Breyer’s concurrence. Counsel responded that the majority of the Court had certainly rejected the New Jersey Supreme Court’s standard that placing products into the stream of commerce subjected the manufacturer to jurisdiction everywhere the product might go. Instead, a majority of the Court had held that "something more" was necessary – a state-specific design or advertising, etc. Justice Burke asked whether there was some suggestion in the record of Illinois contacts between SNFA and Hamilton Sunstrand. Counsel pointed out that Hamilton Sunstrand involved sales in San Diego of aerospace bearings, not helicopter bearings. Counsel detailed the distinction for the Court between general and specific jurisdiction. Justice Freeman asked why the Court shouldn’t follow Rockwell International Corp. v. Costruzioni Aeronautiche Giovanni Agusta, S.p.A., the case heavily relied upon by the lower court and cited with approval by the Supreme Court in Asahi. Counsel responded that Rockwell was not on point; it was a thirty year old decision which time has passed by. In fact, when Rockwell was decided, even Asahi was five years in the future. Justice Freeman followed up, asking whether the facts of international commerce had changed to a degree that the law should change. Counsel responded that the law had already changed in ways not supportive of a finding of personal jurisdiction.  The law had changed not only to reflect differences in international commerce, but also to reflect a requirement of some knowledge of a particular jurisdiction. The constant lodestar of the law in this area, counsel argued, was the requirement of purposeful availment. Ultimately, Rockwell didn’t govern because both Asahi and Nicastro required knowledge of the specific jurisdiction.

Counsel for the plaintiff began his argument by arguing that Nicastro lacked a majority for either its judgment or reasoning, and thus, the law still stood at World Wide Volkswagen. Justice Garman asked what the defendant had done to satisfy the "something more" of Justice Breyer’s concurrence in Nicastro. Counsel responded that he was not persuaded that Justice Breyer objected to the stream of commerce theory found in World Wide Volkswagen. Justice Breyer was troubled by the Nicastro facts – one product, simply one machine, being the basis of jurisdiction in New Jersey. Justice Freeman asked what the so-called "substantial" connection between SNFA and Illinois was. Counsel responded that many of defendant’s facts were inconsistent with the record; for example Hamilton Sunstrand was not in fact a California corporation. SNFA had signed two purchase agreements with Hamilton Sunstrand in Rockford, Illinois, and two contracts which specifically said that Illinois law applied. Justice Garman asked whether the products sold by SNFA to Illinois entities were the same ones that failed here. Counsel responded that the distinction was irrelevant — SNFA sold ball bearings all over the United States and in Illinois. SNFA is a worldwide operation, counsel insisted, which has heavily penetrated the market in the United States, and worked hard in Illinois to cultivate their contacts. Counsel once again suggested that Nicastro really hadn’t produced much of a rule at all. Chief Justice Kilbride asked how many entities made what counsel had described as "high end ball bearings," and counsel answered that SNFA had fewer than ten competitors worldwide.

In rebuttal, counsel for the defendant suggested that plaintiff had melded general and special jurisdiction in a way that the Supreme Court’s Goodyear decision specifically barred. In fact, the concepts are distinct. Counsel read several passages to the Court from Justice Breyer’s concurrence in Nicastro, arguing that Justice Breyer required an interrelationship between contacts and cause which was absent on this record. Ultimately, Justice Breyer couldn’t reconcile the rule of the New Jersey Supreme Court with the standard of minimum contacts and purposeful availment. Counsel pointed out that the plaintiff’s argument that SNFA knew that its product was being sold throughout the United States necessarily required imputing the Agusta distribution network to SNFA. Neither a national distribution network nor "permeating the U.S. market" was enough to justify jurisdiction. From there, counsel moved to analyzing Justice Ginsburg’s dissent in Nicastro; arguing that in fact, the Nicastro Court might well have been unanimous in finding no jurisdiction in SNFA — at minimum, that Court would have had six votes for "no jurisdiction."

SNFA should be decided in the next three to five months.

Argument Report: Is the State Required to Pay The Legal Fees of an Elected Official Sued for His or Her Official Actions?

By Kirk Jenkins on Posted in Illinois

If a state elected official is sued for his or her official actions, may the Attorney General refuse to defend the official based solely on the allegations of the complaint? That’s the question the Supreme Court debated earlier this month during the oral argument in McFatridge v. Madigan. Our detailed preview of McFatridge, discussing the facts and lower court rulings in detail, is here.  Watch the video of the oral argument here.

The plaintiff was the elected State’s Attorney of Edgar County. Years after he successfully prosecuted two defendants for murder, the Federal district court granted both defendants’ habeas petitions. The defendants sued a number of different government officials, including police officers and the defendant, alleging that they had hidden exculpatory evidence.

Plaintiff asked the Attorney General for representation repeatedly, but the Attorney General refused plaintiff’s requests in 2005, 2009 and again in 2010. The plaintiff filed a petition for writ of mandamus, but the petition was denied.

McFatridge is governed by the State Employee Indemnification Act. The parties argue about how to reconcile three different provisions. According to 5 ILCS 350/2(a), if "any civil proceeding is commenced against any State employee" arising out of any act or omission within the scope of the defendant’s employment, the Attorney General "shall" defend the action. The first paragraph of 5 ILCS 350/2(b) provides that the Attorney General may decline to defend the action where it "involves an actual or potential conflict of interest" or the act or omission at issue was either not within the scope of the defendant’s employment, or "was intentional, willful or wanton misconduct." According to the second subparagraph of subsection (b), the state "shall pay" elected officials’ court costs, litigation expenses and attorneys’ fees, to the extent approved by the Attorney General as reasonable.

The Appellate Court reversed the Circuit Court, holding that the "shall pay" language of the second paragraph of subsection 2(b) denied the Attorney General any discretion about whether or not to pay any elected official’s legal fees.

Justice Freeman asked counsel for the Attorney General whether the arguments raised in his briefs were different from those raised in his petition for leave to appeal – weren’t such arguments forfeited? Counsel responded that the State’s arguments had been the same from start to finish; the issue of the Attorney General’s discretion to make the decision as to whether or not to cover the official’s expenses ran throughout the case. Counsel argued that the plain language of the statute should end the inquiry. Counsel stated that his anecdotal understanding was that the Attorney General had seldom denied funding for a defense before. He argued that the plaintiff’s reading of the Indemnification Act would necessarily eliminate the bar to paying for conduct outside the scope of employment, surely taking the statute outside the credible scope of the legislature’s intent. Justice Freeman asked whether Tully v. Edgar controlled, but counsel for the Attorney General suggested that nothing about Tully was applicable to the case at hand. Counsel argued that the Attorney General was arguing for a facial construction of the statute which avoided reading the Act in a way which ran afoul of constitutional prohibitions on spending state money on private interests. Justice Garman asked whether the various subsections’ use of the phrase "in the event that" suggested that the subsections were meant to be alternatives. Counsel responded that it did not; nothing in the successive subsections suggested that what went before was being overridden. Justice Garman asked whether the Attorney General treated allegations alone as being sufficient to forbid taking over a defense; counsel responded that the statutory term was that the Attorney General should "determine" the issue, meaning that the Attorney General had unfettered discretion.

Counsel for the plaintiff began by arguing that the Attorney General’s claims of a statutory screening process were an after-the-fact cobbled-together justification. Every civil rights claim alleges constitutional violations, counsel pointed out, and the Attorney General had nevertheless denied a defense based on mere allegations. Justice Thomas asked whether any deficiency in the screening process was excused by the promise of post-trial reimbursement; counsel responded that given the financial strain to state officials of having to finance a multi-year defense themselves, after-the-fact reimbursement in no way cured the problem. Justice Karmeier asked whether it was within the purview of the Court to decide whether the Attorney General’s screening was adequate on the facts. Counsel responded that the Court could consider the lack of criterion for any such screening in the statute; if screening had actually been intended by the legislature, the process would have been set out in detail.

Counsel challenged the State’s claim that the Attorney General couldn’t use public funds to defend willful and wanton misconduct, pointing out that the Attorney General had defended police officers who were accused of actively covering up exculpatory information. The Attorney General later settled the case on behalf of the police, using more public funds. Justice Thomas asked whether counsel was saying that the State was estopped from denying a defense. Counsel answered that the matter should be resolved based on the plain language of the statute, but in the alternative, estoppel applied. Justice Theis asked what effect the language of subsection (b), allowing the Attorney General to approve counsel and fees, had; counsel responded that the State’s failure to fund a defense had been a serious problem for the plaintiff. The plaintiff had been entirely without financing for more than two years. Chief Justice Kilbride asked what the basis had been for insurers to negate coverage in declaratory judgment actions, and counsel responded that it had been the definition of the insured, rather than a strict coverage decision. Justice Karmeier suggested that subparagraph (b) of the statute appeared to cross-reference subparagraph (a), but counsel argued that the statute treated elected officials differently as a result of concerns about the effect of partisan politics, authorizing refusal to defend for non-elected, but not elected officials. Counsel argued that if the legislature had intended that the Attorney General be able to refuse coverage based on mere allegations, it could have easily said so in the second paragraph of subsection 2(b) – the only language which expressly and exclusively dealt with elected officials.

In rebuttal, counsel for the state argued that the allegations against the plaintiff were in several respects more serious than those against the police officers. Counsel argued that the speculation that a concern over partisan politics animated the statute was contrary to the Court’s settled precedent, which provided that courts could not presume the bad faith of elected officials. And if the statute was constructed to insulate the decision about whether to take over an elected official’s defense from partisan politics, why was the Attorney General expressly authorized to approve the official’s attorney and fees?

McFatridge should be decided within three to six months.

Argument Report: Will the Mailbox Rule Be Extended to Workers’ Comp Administrative Review?

By Kirk Jenkins on Posted in Illinois

The mailbox rule applies to filing an appeal from an arbitrator to the Workers Compensation Commission. Norris v. Industrial Commission. And it applies to filing an appeal from the Circuit Court’s order on administrative review to the Appellate Court. Harrisburg-Raleigh Airport Authority v. Dept. of Revenue. So does it apply to the intermediate step – initiating an administrative review proceeding of the Commission’s decision at the Circuit Court? Based on the oral argument last week before the Illinois Supreme Court in Gruszeczka v. The Illinois Workers’ Compensation Commission, it appears that the Court will likely extend the mailbox rule to cover this intermediate step. Our preview of Gruszeczka is here. Watch the video of the oral argument here.

The claimant in Gruszeczka filed an application for adjustment of claim with the Commission, seeking workers’ comp benefits in connection with an injury he allegedly sustained on the job in 2004. The arbitrator denied the claim, and the Commission affirmed.

Judicial review of a Commission decision is begun in Illinois by filing a request for issuance of summons and an attorney’s affidavit of payment for the record with the Circuit Court clerk. The proceeding must be "commenced" within 20 days of receipt of notice of the decision. 820 ILCS 305/19(f)(1). The claimant’s request and affidavit were mailed fourteen days after counsel received the decision, but file stamped by the clerk twenty-four days after receipt. So the filing was timely if the mailbox rule applied, and not if it didn’t. The Circuit Court denied a motion to dismiss, but affirmed the Commission on the merits; the Workers’ Compensation Commission Division of the Appellate Court reversed in part, finding that the filing was untimely and the Circuit Court therefore lacked jurisdiction.

Counsel for the claimant began by pointing out that the statute neither defines "commenced" nor says that documents have to be in the hands of the clerk on the twentieth day. Counsel argued that the courts had already applied the mailbox rule to the first step in the process – the appeal from arbitrator to Commission – and the last – from Circuit Court to Appellate Court, and it made no sense for the intermediate step to be handled differently. Justice Thomas noted that the Circuit Court action was technically a new case, but asked whether counsel argued it was akin to an appeal. Counsel responded that he didn’t think it was a new case; the statute calls it a petition for review, and the standard of review is manifest weight of the evidence. Justice Thomas pointed out that the Circuit Court proceeding had a separate case number, and asked once again whether counsel’s argument hinged on that not being a new action. Counsel responded that the new number was inconsequential: the case had already had five numbers in its progress to the Supreme Court. Counsel then argued that a reversal would be a matter of limited impact, not opening the floodgates to further loosening of filing standards, but Justice Karmeier wondered whether a reversal might necessarily impact other administrative review actions. Counsel conceded that it might. When Justice Karmeier asked whether the result might be different if review were initiated by a "complaint," rather than a request for issuance of summons. Counsel answered that the proceeding was an appeal regardless of what the pleading was called. Counsel insisted that having a "doughnut hole" with no mailbox rule in the middle of the progression from arbitrator to Appellate Court was irrational. Justice Karmeier asked counsel whether it was important how the Court characterized the Circuit Court decision in its opinion; counsel responded that calling the proceeding a "new action" was semantics. Justice Burke asked whether the Court should overrule Norris if it affirmed; counsel responded that an affirmance would necessarily call the previous cases into question. Only by reversing and applying the same rule to every step does everything make sense. Counsel concluded by arguing that both sides would benefit by applying the mailbox rule and giving counsel the full twenty days to prepare an appeal, given the number of steps which must be taken in a short time to initiate Circuit Court review.

Chief Justice Kilbride asked counsel for the employer to comment on opposing counsel’s argument that reversal might benefit employers in future cases. Counsel agreed that a decision one way or the other would benefit both sides, but counsel said it was clear to him that the initiating documents must be in the Circuit clerk’s hands in 20 days. Justice Garman asked why the legislature would be so strict in this limited instance when the mailbox rule applies in other instances. Counsel answered that there was nothing in the legislative history one way or the other, and speculated that perhaps the legislature wanted to discourage review filings at the Circuit Court. Justice Burke asked counsel whether the Circuit Court proceeding wasn’t in substance an appeal from the Commission. Counsel responded that although in common parlance it might be so characterized, it was not technically an appeal. Counsel argued that an affirmance would not have to call earlier caselaw into question, and insisted that refusing to apply the mailbox rule gave parties certainty: that way, counsel could check with the clerk on the twenty-first day and know whether the case was over. Justice Thomas pointed out that the same argument could be made against application of the mailbox rule in every case. Counsel agreed that was so, but repeated his claim that refusing to apply the mailbox rule was simple and had the virtue of certainty.

In rebuttal, counsel for the employee asked again why the legislature would want to make the intermediate step in the process the hardest of all. Only one possible resolution, counsel insisted, would make sense and give workers’ compensation practice predictability: reversal of the Appellate Court’s decision and application of the mailbox rule to initiating the administrative review proceeding.

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