The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

Disgorgement of an Advance Payment Retainer as Interim Fees in a Divorce Case?

By Kirk Jenkins on Posted in Illinois

In the closing days of the Illinois Supreme Court’s November term, the Court allowed petitions for leave to appeal in six civil cases. Our previews of the new grants begin with In re Marriage of Earlywine [pdf]. Although Earlywine arises from a divorce, it presents an interesting intersection of domestic relations law and attorney retainers.

In conjunction with divorce proceedings, the husband entered into an attorney-client agreement with his attorney, agreeing to pay an advance payment retainer. An affidavit from the husband’s mother explained that she, her fiancé, the husband’s father and the husband’s father’s wife financed the retainer. During the dissolution proceedings, the evidence showed that the husband was working only sporadically and the wife was unemployed.

The wife’s attorney filed a petition 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 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, finding that the wife was unable to pay her attorney’s fees, and an interim award was appropriate. The husband’s attorney moved to reconsider, attaching a copy of the attorney-client agreement and arguing that, as an advance payment retainer, the funds had become his property at the moment of payment, and therefore were not subject to disgorgement.

The Circuit Court denied reconsideration, holding that the public policy in favor of placing the parties to a divorce in substantial parity overrode any considerations about the nature of the retainer. Counsel refused to pay, asking that he be held in friendly contempt to facilitate an appeal.

The Second District of the Appellate Court affirmed. The Court began by distinguishing a true, classic or general retainer — which is intended to ensure the attorney’s availability for a specific matter, or during a specific period — from a security retainer. A true retainer becomes the attorney’s property immediately, while a security retainer continues to be the client’s property until it is earned.

Ultimately, however, the Court held that the distinction didn’t make a difference. Advance payment retainers — a form of true retainer — are to be used sparingly, and only to accomplish a specific purpose that some other form of retainer would frustrate. Permitting an advance payment retainer to defeat a claim for interim fees would frustrate the primary purpose of section 501(c-1), which is to ensure that the parties are in substantial financial parity during the divorce proceedings, the Court held.

Besides, the Appellate Court found, Section 501(c-1) specifically listed "retainers . . . previously paid" as a source for disgorgement. Given that the Legislature didn’t choose to distinguish between the types of retainers, the terms of the statute should be given their broadest possible construction. The Court acknowledged in closing that the husband had borrowed the money to finance the retainer from his own family, but held that this fact should not change the result.

Earlywine will likely be decided within four to six months.

Why A Fees Claim Can’t Wait: Rodriquez v. Department of Financial and Professional Regulation

By Kirk Jenkins on Posted in Illinois

As we wrote in our preview of Rodriquez v. Department of Financial and Professional Regulation, private attorney general statutes are not uncommon in the law. Such statutes provide that if a private plaintiff provides, by his or her suit, what the legislature regards as a public service, the plaintiff gets his or her attorney’s fees back.

But do you have to bring your fees claim with — or at minimum, just after — your initial lawsuit? With respect to one such statute, Section 10-55(c) of the Illinois Administrative Procedure Act, the Illinois Supreme Court held last week that the answer was "yes," unanimously reversing the Appellate Court.

Rodriquez began when the Department of Financial and Professional Regulation opened an investigation of the plaintiff, filing a complaint under section 22 of the Medical Practice Act. The administrative action was stayed while the plaintiff pursued various challenges. First, the plaintiff unsuccessfully sought an order compelling issuance of deposition subpoenas. The following year, the plaintiff challenged the administrative rule governing hearsay in the Department’s administrative hearings.

The Circuit Court initially granted summary judgment, striking down the rule. But the Department filed a motion for relief from the judgment, and the Circuit Court vacated its own order. On appeal, the Appellate Court reversed, reinstating the original order striking down the rule. More than a year later, the plaintiff filed a petition for an award of attorney’s fees under Section 10-55(c) (5 ILCS 100/10-55(c)):

In any case in which a party has any administrative rule invalidated by a court for any reason . . . the court shall award the party bringing the action the reasonable expenses of the litigation, including reasonable attorney’s fees.

The Circuit Court entered summary judgment against the plaintiff, holding that the attorney’s fees action was barred by res judicata. The Appellate Court reversed, holding that the right to attorney’s fees was a separate action, and that the right to fees only ripened after the initial action ended.

In an opinion by Justice Rita B. Garman, the Supreme Court reversed. The Court held that the words "the court" in the statute referred to the court which invalidated the administrative rule at issue. Therefore, the Court reasoned, a plaintiff must bring a fees claim before the court which heard the rule challenge while it still maintained jurisdiction over the action.

The plaintiff argued that there was no express time limit in the statute, and the Court was not free to import one. But the Court found that in fact the plain language of the statute did include a time limitation — the requirement that an action for fees be brought before the court which heard the original substantive action. The parties disputed exactly when the underlying administrative rule had been overturned — at the time of the original order, or when the Appellate Court reversed the Circuit Court’s order reconsidering its original order — but the Supreme Court held that it didn’t matter: the Circuit Court had lost jurisdiction over the case by the time the plaintiff filed his fees request pursuant to either date.

The Court quickly disposed of two further alternative arguments made by the plaintiff, holding that a fees claim could be brought either with the original rules challenge, or immediately after the rule was struck down, and that a fees claim was not a "collateral" matter over which the court retained jurisdiction indefinitely.

Of course, every statute has to be interpreted in light of its own particular language, case law and legislative history. But the lesson from Rodriquez seems fairly clear: a fees claim which is delayed for any significant period after the original action may well be time-barred.

Illinois Supreme Court Denies Taxpayer Standing in Constitutional Challenge to School Funding Law

By Kirk Jenkins on Posted in Illinois

The Illinois state educational funding statute survived a constitutional challenge last week when the Illinois Supreme Court, in a unanimous opinion by Justice Robert R. Thomas, affirmed an Appellate Court decision dismissing Carr v. Koch for lack of standing. Our pre-argument preview of Carr, which includes a detailed description of the facts and lower court rulings, is here. Our report on the oral argument is here.

The Illinois School Code conditions state aid on a sliding scale, depending on whether the local school district can raise relatively little, nearly all, or more than all of the basic “Foundation Level” of funding calculated by the state. The plaintiffs, property owners in three school districts scattered around the state, challenged the statute under the equal protection clause of the Illinois constitution. The plaintiffs’ theory was that the state statute, in combination with the Illinois Learning Standards promulgated by the Illinois State Board of Education, had a coercive effect on school districts with lower property values, causing them to tax their property owners more heavily than districts with higher property values. The Illinois Supreme Court had already upheld the state system a number of years earlier in Committee for Educational Rights v. Edgar, but the plaintiffs argued that in the years since Edgar, the local school districts had lost control over core education functions as a result of the Illinois Learning Standards. The Circuit Court dismissed, finding that Edgar nevertheless still controlled, and in the alternative, that the plaintiffs lacked standing, since tax rates were a matter of local decision-making not traceable to the state officials named in the suit. The Appellate Court affirmed, agreeing that the taxpayer plaintiffs lacked standing and pointing out that if the court indeed struck down the statute, the court’s decree not only wouldn’t give the plaintiffs the relief they wanted (lower taxes); it would probably lead to higher tax rates.

The Supreme Court affirmed. The School Code was not a taxing statute, the Court pointed out; it simply determined the level of state aid. School districts were not required to impose the tax rate presumed by the statute, and there was no penalty if they didn’t.   With respect to the plaintiffs’ theory that the Illinois Learning Standards tended to coerce poorer school districts into increasing taxes, the Court pointed out that nowhere in the state statutes is general state aid tied to the performance of a district’s students with respect to the ILS. Because the plaintiffs’ alleged injury was not a direct result of the School Code’s funding provisions, or fairly traceable to any of the defendants’ actions in connection with the statute, the plaintiffs lacked standing to proceed.

Khasin v. Hershey: Unduly Narrowing the Preemptive Scope of Pom Wonderful

By on Posted in Products Liability

As we have briefly explored here, the Ninth Circuit has broadly construed Buckman implied preemption of state law claims pertaining to food, drugs, and medical devices, which are regulated under the federal Food, Drug, and Cosmetic Act (“FDCA”). Of particular note, the court held in PhotoMedex that Buckman “limits the ability of a private plaintiff to pursue claims under state law theories where such claims collide with the exclusive enforcement power of the federal government.” PhotoMedex, Inc. v. Irwin, 601 F.3d 919, 924 (9th Cir. 2010). In Pom Wonderful, the Ninth Circuit put an expansive gloss on that holding, stating “PhotoMedex teaches that courts must generally prevent parties from undermining, through private litigation, the FDA’s considered judgments.” Pom Wonderful LLC v. Coca-Cola Co., 679 F.3d 1170 (9th Cir. 2012). Nowhere has the Ninth Circuit stated that implied preemption is limited to federal statutory claims. That, however, was the implication of a recent district court opinion interpreting Pom Wonderful.  

In Khasin, the plaintiff filed a putative class action against Hershey under several California laws including the Unfair Competition Law, Business & Professions Code § 17200 et seq., the Consumers Legal Remedies Act, and the Beverly Song Act. Khasin v. The Hershey Co., 2012 WL 5471153 at * 1 (N.D. Cal. Nov. 9, 2012). Plaintiff alleged Hershey “engaged in misleading conduct by advertising and labeling several of its products in violation of the aforementioned laws and labeling requirements.” Hershey moved to dismiss the amended complaint, inter alia, because each of plaintiff’s claims was preempted by the FDCA.

In support of its position, Hershey argued that plaintiff’s claims were preempted under the Ninth Circuit’s ruling in Pom Wonderful. The Khasin court rejected this argument, noting that Pom Wonderful only recognized preemption of federal Lanham Act claims that require litigation of whether the alleged conduct violated the FDCA. Indeed, the Khasin court noted, Pom Wonderful remanded the California state law claims for determination of a standing issue. Thus, the district court held, Pom Wonderful did not preempt Khasin’s claims because they were based on state law.

The Khasin court’s refusal to apply Pom Wonderful to state law claims suggests that the Ninth Circuit preempted Lanham Act claims simply because they were federal in nature, but a close reading of Pom Wonderful indicates otherwise. In fact, the district court in Pom Wonderful actually preempted only a subset of Lanham Act claims regarding the names and labels of the juice drink at issue, because only those claims intruded upon the FDA’s comprehensive regulation of food and beverage naming and labeling. The Ninth Circuit’s decision to uphold the district court’s preemption ruling was “primarily guided … by Congress’s decision to entrust matters of juice beverage labeling to the FDA and by the FDA’s comprehensive regulation of that labeling.” “[U]nder our precedent, for a court to act when the FDA has not – despite regulating extensively in the area – would risk undercutting the FDA’s expert judgments and authority.” Importantly, though the court acknowledged that “a Lanham Act claim is barred when it would require a court to interpret ambiguous FDA regulations, that is not the only circumstance in which such a claim is barred. PhotoMedex teaches that courts must generally prevent private parties from undermining, through private litigation, the FDA’s considered judgments.” 

There is nothing in these broad statements to indicate that Buckman preemption is limited only to federal claims. The phrase “private litigation” surely encompasses state tort claims. Indeed, PhotoMedex specifically preempted state tort claims. And, while the Ninth Circuit remanded the state law claims in Pom Wonderful, it made clear it was doing so solely on the preliminary question of standing, leaving issues such as express (and, presumably, implied) preemption to be addressed by the district court on remand “as needed.” Thus, the broad language and procedural posture of Pom Wonderful strongly suggest the preemption principle it articulated properly applies with equal force to any state law claim alleging naming or labeling deficiencies, because the FDA alone is entitled to determine those deficiencies in the first instance. Yet the court in Khasin refused to apply Pom Wonderful at all, despite the fact that at least 3 of the 7 claims it allowed to proceed specifically alleged labeling defects. The Khasin court’s refusal to preempt those claims, solely because they sounded in state tort law, indicates an unduly narrow view of the true scope of Buckman preemption as set forth in Pom Wonderful.

Argument Report: When May the Homeowners’ Association Security Stop and Detain?

By Kirk Jenkins on Posted in Illinois

Our reports on the civil oral arguments of the Illinois Supreme Court’s November term conclude with Poris v. Lake Holiday Property Owners Association.  Our pre-argument preview of Poris is here.  You can watch the oral argument here.

The plaintiff owns property in the Lake Holiday Development, and is a member of the defendant Association. The defendant Board of Directors has adopted various rules and regulations for the governance of its property, including speed limits. The Board has hired private security officers to enforce the speed limits, bought vehicles and equipped the vehicles with oscillating and flashing lights, radar units and audio and video recording equipment. The Board’s security officers were empowered to issue citations to homeowners for violations of the rules.

The plaintiff was stopped by a security officer for speeding on Association property. He sued the Association, every member of its Board, the chief of security and the officer who stopped him, seeking a declaration that the practices of the Association’s security department — including its recording of officers’ stops and its use of radar guns — were illegal. The plaintiff also pled claims for false imprisonment, willful and wanton conduct, breach of fiduciary duty, nuisance and an accounting. The Circuit Court granted summary judgment on all counts; but the Appellate Court reversed in part, reinstating the plaintiff’s challenges to the security officers’ stop-and-detain and to the security department’s use of oscillating lights on its vehicles, as well as plaintiff’s false imprisonment claim.

Before the Supreme Court, counsel for the homeowners’ association argued that the subject roads were private, and the fundamental issue at bar was one of self-governance of a private association. Justice Thomas asked whether LaSalle County police officers patrolled the private roads. Counsel responded that they did, but the enabling ordinance didn’t prohibit the Lake Holiday security officers from doing so too. In response to a follow-up question from Justice Thomas, counsel explained that LaSalle officers could issue speeding citations in the development, but this was unusual, since the officers were aware of the development’s security.  Justice Thomas asked whether Lake Holiday Security could issue citations to non-members, and counsel responded that if the non-members were guests of members, the member would be responsible for the citation. Justice Thomas asked whether the general public used the development’s private roads, and counsel responded that very few members of the public did. Justice Garman asked whether the Association’s power to enact rules was unlimited. Counsel responded that the Association could not enact rules that were violative of due process, fraudulent or arbitrary. Justice Burke asked whether Lake Holiday Security could conduct field sobriety tests and issue citations for driving while intoxicated. Counsel said no, since driving under the influence is a violation of the state code, not the Lake Holiday rules. Justice Thomas asked whether the homeowners’ association security was analogous to private university police or mall security. Counsel answered that it was; in the wake of the Appellate Court’s decision, private organizations around the state didn’t know what they could and could not do to enforce their rules. Justice Freeman asked whether DUIs or accidents involving fatalities on Lake Holiday property were reported to the Secretary of State so that licenses could be suspended or revoked. Counsel answered that the LaSalle County sheriff would police such situations. In response to a question from Justice Theis, counsel confirmed that Association citations didn’t affect driving privileges; they were issued to enforce members’ private contract rights. Justice Freeman asked whether there were any consequences for members who sped repeatedly on the property, given that citations were not reported to the Secretary of State. Counsel responded that Lake Holiday Security could speak to the LaSalle County Sheriff.

Plaintiff responded that in fact, drivers from outside the development regularly passed through the "private" streets. Justice Thomas asked plaintiff how plaintiff was detained, and he responded that he had been pulled over, and his license taken. Justice Theis asked whether plaintiff had a right to be heard on the citation. Plaintiff responded that the Citation Committee had sent him to the Board of Directors – the entity which heard his appeal, which he was suing. Justice Garman asked plaintiff whether the security officer had pulled a gun on him during the stop; plaintiff responded that he had been ordered back into his vehicle and had decided to remain there, defusing the situation. Justice Thomas asked plaintiff whether he was cross-appealing the dismissal of his claims for unlawful use of radar and recording equipment. Plaintiff responded that the claims were illustrative of the Security Department’s attempts to act like a police department. Justice Thomas asked plaintiff whether the citation amounted to little more than a warning, since it didn’t go to the Secretary of State – don’t residents want some sort of constraint on people driving through the area at high speed? Plaintiff responded that the Board had a variety of options, including the LaSalle County Sheriff, speed bumps and speed cameras.

On rebuttal, Justice Thomas asked counsel for the homeowners’ association what happened when an officer stopped someone who was neither a resident nor a guest of a resident. Counsel responded that officers warned the driver that he was in violation of Association rules and trespassing. When counsel  analogized the plaintiff’s false imprisonment claim to alleging false imprisonment where a development requested drivers’ licenses at the access gate, Justice Freeman responded that drivers had a choice of whether to enter under such circumstances — plaintiff had no such choice. Counsel argued that the plaintiff had agreed to the rules of the association. Justice Freeman pointed out that the relevant rules had been adopted after the plaintiff acquired his property, but counsel for the homeowners’ association argued that the plaintiff could have fought the rule, run for the association board, or left. Justice Burke asked whether the association’s officers were licensed to carry weapons. Counsel responded that officers could carry weapons for which they had certification, but were specifically barred from carrying guns.

We expect a decision in Poris in two to four months.

Plaintiffs Still Can’t Come to a Nuisance in Illinois

By Kirk Jenkins on Posted in Illinois

 

In Toftoy v. Rosenwinkel [pdf], the 2nd District of the Illinois Appellate Court held that Illinois’ "Right to Farm Act," 740 ILCS 70/1, didn’t bar the plaintiff’s nuisance suit against the defendants and their cattle farm. Today — as we predicted in our pre-argument preview here — the Illinois Supreme Court unanimously reversed in an opinion by Justice Burke [pdf].

The defendants in Toftoy started a cattle farm in March 1992. The farmhouse across the street had been occupied by a tenant since 1985, but the tenant had left four months earlier, and the house was vacant.

The plaintiffs acquired part of the plot across the street by family gift in 1998. Plaintiffs began construction of a new farmhouse, which they finally occupied in 2004. In August 2007, plaintiffs sued the defendants, alleging that the flies attracted by the defendants’ cattle farm made the farm a nuisance. The defendants moved to dismiss, citing the Right to Farm Act, but the Circuit Court denied the motion. A divided panel of the Second District affirmed, holding that to satisfy the statute and bar the action, a "changed condition" had to be the reason that the farm was now a nuisance.

The Supreme Court’s opinion begins by considering Section 3 of the Right to Farm Act, which the Court wrote was "intended to reduce the cost of farming and help prevent the loss of farmland":

No farm or any of its appurtenances shall be or become a private or public nuisance because of any changed conditions in the surrounding area occurring after the farm has been in operation for more than one year, when such farm was not a nuisance at the time it began operation.

As we wrote in our pre-argument preview, the Act codifies the common law concept we’re all familiar with from law school of "coming to the nuisance." The Court agreed, noting that under the doctrine, the fact that a plaintiff acquired or improved land after the nuisance generating activity began affected whether or not the plaintiff could sue.

According to the Court, the plaintiffs contended that they had not "come to the nuisance" because the property across the street from the defendants had always been a farmhouse. But the statutory term "nuisance" was broader than that, the Court held; the change in ownership was the "changed condition" which had given rise to the action. Since the plaintiffs had not acquired their property rights until 1998 — six years after the defendants’ cattle farm began operation — the action was plainly barred by the Right to Farm Act, and the Appellate Court and the Circuit Court were reversed.

 

Illinois Supreme Court: Subject Matter Waiver Doesn’t Apply to Most Non-Court Disclosures

By Kirk Jenkins on Posted in Illinois

This morning, a unanimous Illinois Supreme Court has held that the doctrine of subject matter waiver of attorney-client and work product privileges does not apply in the vast majority of cases to disclosures made outside the context of litigation. For our pre-argument preview of Center Partners, Ltd. v. Growth Head GP, LLC [pdf], see here. For our report on the oral argument, see here.

Defendants – a group of corporations, partnerships and trusts – purchased the assets of a Dutch company, Rodamco. Among those assets was Urban, an Illinois limited partnership which owned high-end retail shopping centers all over the United States. The same day they entered into the purchase agreement, the defendants entered into a side agreement among themselves, governing how much each would pay in the acquisition, and who would get what from Rodamco’s assets.

During the negotiations leading up to the Rodamco purchase, the various defendants disclosed to each other some of their attorneys’ advice on the transaction. They also shared certain documents with one another concerning the legal and financial terms of the transaction, and permitted their individual attorneys to discuss their legal concerns and conclusions with each another.

The plaintiffs – limited partners in Urban – sued the three defendant groups for breach of fiduciary and contractual duties in connection with the acquisition. The Circuit Court granted an initial motion to compel in 2008, requiring the defendants to produce certain privileged documents which had been shared among themselves. About eighteen months later, the plaintiffs moved to compel again, seeking over 1,500 documents – virtually all remaining privileged materials relating to the acquisition. The Circuit Court applied the subject matter waiver doctrine and granted the motion to compel, and the Appellate Court affirmed.

In an opinion by Justice Garman, the Supreme Court unanimously reversed. Writing that the question of whether subject matter waiver applied outside litigation was one of first impression in Illinois, the Court began by sketching the doctrinal basis both for the privilege and for waiver. Specifically, the Court pointed out that subject matter waiver has generally been justified as a matter of “sword and shield” – a party should not be permitted to gain a litigation advantage by disclosing carefully selected bits of legal advice, while hiding “the rest of the story” from his adversary (and the court). From there, the Court carefully reviewed the relatively limited number of cases from around the country considering the matter, contrasting two decisions which refused to apply subject matter waiver outside of litigation, In re Von Bulow and In re Keeper of Records [pdf], with various Federal decisions broadly applying waiver. Ultimately, the Court endorsed Von Bulow and Keeper of Records, providing a bright line rule: “subject matter waiver does not apply to disclosures made in an extrajudicial context when those disclosures are not thereafter used by the client to gain a tactical advantage in litigation.” This was so, the Court found, for three principal reasons: (1) the purpose of the subject matter waiver doctrine is more closely applicable to litigation; (2) the cases limiting waiver are “more thorough and persuasive” than the opposing line of authority; and (3) an opposite rule would provide perverse incentives by causing parties to leave attorneys out of commercial negotiations where their advice is badly needed for fear of later waiver.

In the concluding pages of the opinion, the Court addressed the plaintiffs’ argument that the defendants had, in fact, used partial disclosure for an unfair advantage in the litigation with the limited partners. The Court disagreed, pointing out that several of the instances cited by the plaintiffs had occurred after the Circuit Court had erroneously ruled that the privilege had been waived anyway, and in another deposition, the witness had not testified to the actual content and basis of the legal advice.

Center Partners is an important opinion for Illinois business. As both the amici and the Court itself pointed out, applying subject matter waiver to everyday business negotiations would have been a serious impediment to Illinois business and its lawyers, discouraging candor and free and open discussion. Through today’s opinion and yesterday’s adoption of Illinois Rule of Evidence 502, the Court has provided a significant measure of certainty: sweeping waivers should not be applied in Illinois unless disclosures are made before a court or governmental office or agency. But that certainty comes with an important caveat for those doing business in other states: as the Center Partners opinion shows, this is a matter on which the law varies around the country. So proceed cautiously.

Illinois Supreme Court Adopts Rule 502: Spoiler Alert for Center Partners?

By Kirk Jenkins on Posted in Illinois

Today, the Illinois Supreme Court adopted Rule 502 of the Illinois Rules of Evidence, governing the circumstances in which disclosure of protected materials in a legal proceeding, or before a state or federal office or agency, affects a more general waiver of the attorney-client or work product privilege.

The new state Rule 502 tracks Federal Rule 502 almost word for word: (1) when disclosure happens in a state proceeding, or before a state office or agency, the scope of waiver is decided case-by-case; (2) when disclosure is inadvertent, a general waiver may be avoided by quick and reasonable mitigating steps; and (3) disclosure in a Federal proceeding, another state’s proceeding, or before a Federal or other state’s proceeding is waiver only if it would not qualify as waiver under either Illinois law or the law of the jurisdiction where the disclosure happened.

But here’s the interesting part. The new Rule 502 became an issue in Center Partners, Ltd. v. Growth Head GP, LLC, which will settle the breadth of waiver in a non-litigation case where business partners shared their attorneys’ advice with each other while negotiating a business deal. Center Partners will be released tomorrow morning. Perhaps the adoption of Rule 502 today suggests how the Court will rule in Center Partners tomorrow.

Argument Report: What Happens When a Workers’ Comp Excess Insurer Goes Bankrupt?

By Kirk Jenkins on Posted in Illinois

Our reports on the civil oral arguments of the Illinois Supreme Court’s November term continue with Skokie Castings, Inc. v. Illinois Insurance Guaranty Fund. Our pre-argument preview of Skokie Castings is here. Watch the oral argument here.

Skokie Castings begins with a worker’s on-the-job injury. The worker’s employer was self-insured with respect to workers’ compensation insurance, but held an excess policy. The employer paid the retention on the worker’s award, at which point the excess insurer started paying.

But then the excess insurer went into receivership. The Illinois Insurance Guaranty Fund took over when the excess insurer stopped, paying until its total outlays reached $300,000. At that point, the Fund stopped paying, arguing that its payments on the file were subject to the $300K payment ceiling under 215 ILCS 5/537.2. The plaintiff, the successor-in-interest to the worker’s employer, sued the Fund, seeking a declaratory judgment that the Fund was not entitled to stop paying, and owed the employer for all obligations over $300,000.

Based on the Supreme Court’s questions, it seems fairly likely that the Court will affirm the Appellate Court’s holding that the Fund is liable without limit. Counsel for the Fund began by arguing that the case turned on what were "workers compensation claims" under the Insurance Guaranty Fund Act. Certainly the injured employee’s claim was a workers’ comp claim; but the case turned on what the employer’s claim for reimbursement was. Justice Thomas asked whether counsel’s position was that the New Mexico Supreme Court erred in In re Delinquency Proceedings Against Mission Insurance Co., the case principally relied upon by the Appellate Court — or was Mission Insurance distinguishable? Counsel responded that the case was distinguishable. In Mission Insurance, the issue was whether reinsurance was covered at all, a point not in controversy in Skokie Castings. Chief Justice Kilbride asked whether the worker’s employer or the worker herself received the Fund’s payments. Counsel answered that the record was silent on the matter, but the Fund’s understanding was that its payments had ultimately gone to the worker. Justice Burke asked why it was fair to impose the remaining liability on a self-insuring employer; counsel responded that the Self-Insurers Advisory Board took over liability once a self-insuring employer was no longer able to respond. Justice Burke asked whether the Board responded only for self-insurers without an excess policy, but counsel answered that he believed that a bankrupt excess insurer would trigger the Board’s liability. Justice Thomas asked whether the fact that the Fund had stopped paying, and the employer had then paid the employee for a time, suggested that the underlying claim was for workers comp. Counsel responded that the employer was certainly paying a workers comp claim, but reimbursement by the Fund to the employer was not such a claim. Justice Karmeier asked whether, if the employer had neither primary nor excess insurance, it could have a claim for reimbursement against the Fund, and counsel responded that under such circumstances, the employer’s sole remedy was the Self-Insurers Advisory Board. Chief Justice Kilbride asked why the employer’s claim wasn’t a "covered claim" under the statute. Counsel responded that the issue wasn’t whether it was a "covered claim" — it was. The question was whether or not it was a workers comp claim within the meaning of the statute.

The plaintiff employer opened by arguing that the mechanism of payment – direct payment to the employee or reimbursement – wasn’t relevant since the legislature hadn’t made it relevant. Justice Theis asked counsel to respond to the Fund’s claim that the employer’s only remedy was the Self-Insured Advisory Board. Counsel responded that the Board was a merely theoretical possibility if the employer had gone bankrupt – which it hadn’t here. Justice Burke wondered whether reversing might encourage Illinois employers not to carry excess insurance, if making that choice could subject the employer to unlimited liability. Counsel responded that excess insurance was still probably the best risk management tool available to an employer. Justice Thomas asked whether the employer’s declaratory judgment action, seeking a declaration that the Fund was liable for the employee’s claim, was analogous to an insurer’s dec action challenging its duty to pay for a tort claim — surely no one would ever call that a personal injury claim? Counsel responded that there was no coverage issue here, as in a personal injury dec action. Justice Thomas pressed his question: wasn’t a personal injury dec action about who was going to pay, just like this case? Counsel responded that the Fund shouldn’t benefit by cutting off owed benefits. Justice Karmeier asked whether, rather than being self-insured, an employer could buy primary insurance with a high deductible? Counsel responded that there was likely no distinction in effect between primary insurance with a high deductible and an excess policy.

On rebuttal, Justice Thomas asked counsel for the Fund whether the plaintiff had a public policy argument — equal to the Fund’s argument that it was a source of funds of last resort — that workers comp awards should be paid without limit? Counsel agreed that this was public policy, but argued that the issue was who should bear the financial burden of the award. Following up on earlier questions, counsel argued that the employer could have bought a primary policy, but premiums would have been higher, and it chose not to take that option. Justice Burke pointed out that the argument necessarily meant that if the excess insurer hadn’t gone bankrupt, the employer would be paying forever, despite opting for the lower-cost policy. Counsel repeated that if the employer had paid for a primary policy, the case wouldn’t be before the Court. Justice Karmeier asked what the difference was for the Fund’s purposes between a primary insurer with a high deductible and an excess carrier; counsel responded that since insurers pay in proportion to premiums, both categories pay into the Fund, but primary carriers pay more.

Skokie Castings should be decided in the next two to four months.

Illinois Supreme Court Grants Review in Six New Civil Cases

By Kirk Jenkins on Posted in Illinois

This morning, the Illinois Supreme Court announced that it has allowed petitions for leave to appeal in six new civil cases. They are:

  • Earlywine v. Earlywine, No. 114779 — a case on the construction of the Marriage and Dissolution of Marriage Act arising from the Second District.
     
  • Hooker v. Retirement Board of the Firemen’s Annuity and Benefit Fund of Chicago, No. 114811 – a case on the proper calculation of annuities under the Pension Act for firefighters’ widows arising from the First District, Division Three.
     
  • The Board of Education of Peoria School District No. 150 v. The Peoria Federation of Support Staff, Security/Policemen’s Benevolent and Protective Association Unit No. 114, No. 114853 – a case involving the constitutionality of an amendment to the Illinois Public Labor Relations Act arising from the Fourth District.
     
  • Crittenden v. Cook County Commission on Human Rights, Nos. 114876 and 114911 – an administrative appeal from the decision of the Cook County Commission on Human Rights with respect to a claim for sexual harassment in violation of the Cook County Human Rights Ordinance, arising from the Sixth Division of the First District.
     
  • Relf v. Shatayeva, No. 114925 – a case involving the dismissal of a personal injury action under Section 2-619 of the Code of Civil Procedure where, unbeknownst to the plaintiff, the defendant had died before the original complaint was filed. Relf arises from the First District, Second Division.
     
  • Prazen v. Shoop, No. 115035 – a case involving the return-to-work restrictions of the Illinois Pension Code and their impact on early retirement incentives for municipal employees. Prazen arises from the Fourth District.

As we noted yesterday, the Court has announced that it expects to file four new civil opinions tomorrow morning. Once we’ve completed our analysis of those opinions, we’ll begin our detailed previews of the Court’s six new civil grants.

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