The Appellate Strategist

Insights on appellate issues, trial consultations, and evaluating appeals

Illinois Supreme Court Holds Implied Warranty of Habitability Can Be Waived Forever By First Owner

By Kirk Jenkins on Posted in Illinois

8321924522_2cfeeae5ab_z

The Illinois Supreme Court first adopted the doctrine that newly constructed homes come with an implied warranty of habitability in 1979 in Petersen v. Hubschman Construction Co.  Three years later, the Court held that the implied warranty could pass to the second owner of the house where the first owner hadn’t made a valid and enforceable waiver of it.  That left a question open: could the second owner claim a breach of the implied warranty when the first owner had made a valid and enforceable waiver of it?  In the closing days of its May term, a unanimous Illinois Supreme Court handed the Illinois home construction industry a big win, holding in Fattah v. Bim that a first owner’s valid and enforceable waiver of the implied warranty is fully enforceable against the second owner.  Our detailed summary of the facts and underlying court decisions in Fattah is here.

Fattah began in 2007 when the defendants’ construction company built a house.  In the real estate sales contract, the first owner agreed to “knowingly, voluntarily, fully and forever” waive the implied warranty of habitability in exchange for a one year express warranty from the contractor.  Three years after the house was built, the original owner sold it to the plaintiff.  That sales contract provided that the plaintiff was buying the house “as is,” and stated that the plaintiff had been advised to seek legal advice as to the risks involved in such a purchase.

In February 2011, part of the retaining wall around the rear patio of the house gave way, and a portion of the patio collapsed.  The plaintiff sued the defendants, alleging a claim under the implied warranty of habitability.  The circuit court found for defendant following a bench trial, holding that the first owner’s waiver of the implied warranty was fully enforceable against the plaintiff, but the Appellate Court reversed.

In an opinion by Justice Burke, the Supreme Court unanimously reversed the Appellate Court.  The Court particularly noted that other courts have most frequently held that the implied warranty of habitability can extend to the second owner when doing so doesn’t alter the builder’s expectations as to its potential liabilities.  But here, the second owner wasn’t trying to recover under a claim that the first owner could have made (if he had still owned the house).  All the parties agreed that the first owner’s waiver was enforceable.  As a result, the plaintiff was attempting to significantly alter the defendant’s potential liabilities.

The Court emphasized that doing so would sweep away the financial certainty the builder thought he had acquired by substituting a one-year warranty for the implied warranty.  Since the builder has no way of knowing when the house might be sold, he must assume that potential liabilities could spring back to life at any moment.  If the Court agreed with the plaintiff, it concluded that builders would simply stop entering into agreements to waive the implied warranty.  Besides, the rule advocated by the plaintiff was subject to abuse, the Court noted.  What if a husband and wife purchased a house in the wife’s name, and the wife entered into an enforceable waiver of the implied warranty of habitability.  The wife would then be able to transfer the house to her husband’s name the next day and revive the warranty.  A second buyer is in a much stronger position according to the Court than a first buyer is to negotiate for a warranty, to inquire whether the implied warranty was waived, or to get a reduction in the price to reflect the risk of latent defects.  The Court held that under Illinois law, most second buyers could take advantage of the implied warranty of habitability because they were treated as stepping into the shoes of the first buyer.  But with that benefit came the flipside of any limitations on the first buyer’s potential recovery – here, the complete waiver of the implied warranty.

Image courtesy of Flickr by Laurent Henschen (no changes).

Illinois Supreme Court Dismisses the FutureGen Appeal on Grounds of Mootness

By Kirk Jenkins on Posted in Illinois

7053347549_306c720f6c_z

Late in 2014, the Illinois Supreme Court agreed to clarify the dimensions of the Illinois Commerce Commission’s authority, allowing a petition for leave to appeal in the FutureGen case – Commonwealth Edison Co. v. Illinois Commerce Commission.  The problem was, only a few months after the Court granted review, the Department of Energy suspended all funding for the FutureGen project.  Eleven months after the funding terminated, the FutureGen Alliance Board ceased all project development efforts.  In the final days of its May term, the Illinois Supreme Court dismissed Commonwealth Edison on grounds of mootness.  Our detailed summary of the facts and underlying court decisions in Commonwealth Edison is here.  Our report on the oral argument is here.

FutureGen was created to research and develop near-zero emissions coal technology.  The proposed clean coal electric generating facility, dubbed FutureGen 2.0, was scheduled to begin operating in 2017.  The Illinois Commerce Commission issued an order finding that it could force both public utility companies and private owned and competitively operated Area Retail Electric Suppliers (“ARES”) to purchase all of FutureGen’s output for twenty years.  The petitioners filed suit, arguing that the Commission lacked the authority to require the ARES to enter into sourcing agreements.  The Appellate Court affirmed the order of the Commission, and the Supreme Court allowed the petitioners’ petition for leave to appeal.

Following the Energy Department’s suspension of funding, the Court directed the parties to brief the issue of mootness.  All parties filed briefs agreeing that the appeal was moot, but the petitioners asked the Court to decide the issues anyway under the public interest exception to the mootness doctrine.

In a unanimous decision by Justice Kilbride, the Court declined to do so.  The Court noted that public interest was a very limited exception to the mootness doctrine requiring finding three facts: (1) the question is of a public nature; (2) an authoritative determination of the question is desirable for the future guidance of public officers; and (3) the question is likely to recur.  But none of the three prerequisites were present here, according to the Court.

Any public nature of the question presented had ceased to exist once the FutureGen project was terminated.  The second factor, the need for an authoritative determination, depends to a considerable extent on whether the law is in disarray or conflicting precedent exists.  But the parties agreed that the issue presented was one of first impression.  The petitioners insisted that “nothing . . . prevents another retrofitted clean coal facility” from proposing similar sourcing agreements, but the Court found that the FutureGen project was relatively unique, and the relevant statute had only limited application to retrofitted clean coal facilities.  So there was no reason to imagine that the issue would necessarily ever recur.

The Court concluded its opinion by using its supervisory authority to vacate the Appellate Court opinion (without expressing any opinion on its correctness).  The petitioners asked the Court to also vacate the Commission’s order, but the Court held that there was no need to do so, since the Commission’s orders were nonprecedential, and therefore would not necessarily control a new case.

Image courtesy of Flickr by Alexander G (no changes).

Illinois Supreme Court Holds City Entitled to Terminate Firefighter’s Health Insurance Benefit

By Kirk Jenkins on Posted in Illinois

7426509696_3aaf3245bc_z

Section 10 of the Public Safety Employee Benefits Act provides that police officers receiving line-of-duty pensions are entitled to receive fully paid health insurance coverage for themselves and their families when the officer’s pension was the result of a catastrophic injury suffered in one of four specific circumstances.  In Vaughn v. The City of Carbondale, the Court addressed the question of whether the health insurance benefit is triggered whenever police officers are injured responding to a dispatcher’s call.  Reversing the Fifth District, the Court held that the answer was “no.”  Our detailed summary of the underlying facts and lower court holdings in Vaughn is here.  Our report on the oral argument is here.

Vaughn began in 2005, when the plaintiff, a police officer, stopped to give directions to a motorist.  While talking to the citizen, a call came in from the officer’s dispatcher.  The plaintiff had a portable radio on his uniform, but it was turned off.  He returned to his car to respond to the call, but struck his head on the car door frame.  Not long after, an MRI showed a compression fracture of the plaintiff’s vertebrae.  He never returned to work for the police department.

The plaintiff filed an application with the Police Pension Board for a line-of-duty pension.  The Board rejected his application, but the circuit court reversed, and the Appellate Court affirmed.  The plaintiff then sent the defendant a written demand that it provide the Section 10 health insurance coverage benefit.  Not long after, the Board directed plaintiff to submit to a physical examination.  Following the doctor’s report, the Board terminated the plaintiff’s pension.  The Circuit Court affirmed, but the Appellate Court once again reversed, holding that the Board had violated the plaintiff’s due process rights by terminating the insurance benefit without notice or a proper hearing.

Following the Board’s decision that the plaintiff was no longer disabled, the Board sent plaintiff written notice of termination of his health insurance benefits.  The plaintiff once again sued for injunctive relief, but the Circuit Court rejected plaintiff’s claim, holding that he had not suffered a catastrophic injury in the line of duty.  The Appellate Court reversed the Circuit Court’s judgment, holding that the fact that the plaintiff was still receiving his line-of-duty pension by definition showed that he had suffered a catastrophic injury sufficient to trigger the Section 10 benefit.

In a unanimous opinion by Justice Thomas, the Supreme Court reversed.  Before the Supreme Court, the defendant did not dispute that the plaintiff had suffered a catastrophic injury within the meaning of the statute.  However, the defendant pointed out that Section 10 included a second requirement: the injury must be suffered in response to fresh pursuit, an unlawful act perpetrated by another, during the investigation of a criminal act or in response to what is reasonably believed to be an emergency.

The Appellate Court held that the fourth requirement – reasonable belief that he was responding to an emergency – was satisfied because an officer is required to respond to all calls from the dispatcher as if the call is an emergency until he knows differently.  The defendant argued that the Appellate Court’s holding essentially added a fifth category to Section 10: an officer is injured while responding to a call by a superior.

The Supreme Court held that the facts did not qualify as responding to an emergency.  Answering a call from dispatch is not an unforeseen circumstance, the Court observed, and no unexpected or unforeseen circumstances arose while plaintiff was answering the call.  Finally, there was no showing of imminent danger to a person or property requiring an urgent response in connection with the dispatcher’s call.  Accordingly, the Court found, the plaintiff was not entitled to the Section 10 insurance coverage benefit, and the Circuit Court’s judgment refusing to enjoin the Pension Board from terminating the benefits was not contrary to the manifest weight of the evidence.

In the alternative, the plaintiff argued that once the defendant began paying the insurance benefits, under Section 10 it was barred from terminating the plaintiff’s benefits for any reason aside from those set forth in the statute – obtaining the health insurance by false, fraudulent or misleading oral or written statements, or certain criminal convictions.  Since neither party suggested that the plaintiff was guilty of any of the enumerated acts, termination was barred.  The Court rejected plaintiff’s argument, holding that since the defendant was not required to provide the benefits in the first place, it was entitled to cease paying the benefits.

Image courtesy of Flickr by Jack Snell (no changes).

Illinois Supreme Court Upholds Broad Immunity for Hospital Peer Review Processes

By Kirk Jenkins on Posted in Illinois

4666105421_d61aaeb380_z

In the closing days of its May term, the Illinois Supreme Court affirmed the Appellate Court’s decision in Valfer v. Evanston Northwestern Healthcare, adopting a broad construction of hospitals’ immunity in connection with peer review for purposes of renewing doctors’ credentials.

In 2002, the plaintiff, an obstetrician/gynecologist, applied for reappointment at the defendant hospital.  Hospital personnel conducted an initial review and then a second review of the plaintiff’s cases, and met with him twice to discuss concerns.  The division chief recommended to the hospital executive committee that plaintiff not be reappointed.  In the summer of 2002, the president and CEO of the defendant informed the plaintiff that the recommendation had been accepted.  In 2004, the hospital held a hearing on the matter, at which the plaintiff was represented by counsel, and allowed to present evidence and examine witnesses.  The hearing committee ultimately upheld the executive committee’s recommendation.  The plaintiff requested appellate review, and the appellate review committee upheld the recommendation against reappointment.  The hospital board affirmed that decision in March 2005, at which point the plaintiff’s nonreappointment became final and effective.

Plaintiff filed suit in 2007 against the hospital, seeking damages arising out of the hospital’s decision not to reappoint him.  By 2014, the plaintiff’s claims had been reduced to a breach of contract count.  The plaintiff moved for summary judgment, arguing that it was immune from liability pursuant to the Illinois Licensing Act and the federal Health Care Quality Improvement Act.

The trial court granted summary judgment, holding that the plaintiff was afforded adequate notice and hearing procedures, and that the hospital’s decision was based on patient safety concerns.  The Appellate Court affirmed, holding that the statutory exception for willful and wanton misconduct was limited to allegations of some type of physical harm to a person’s safety or the safety of others.

Before the Supreme Court, the plaintiff challenged that holding, arguing that the statutory exception for willful and wanton misconduct was intended to cover situations where the hospital allegedly did not follow its own bylaws.  In an opinion by Justice Thomas, the Supreme Court rejected plaintiff’s claim.

According to Section 10.2 of the Licensing Act, willful and wanton misconduct “means a course of action that shows actual or deliberate intention to harm or that, if not intentional, shows an utter indifference to or conscious disregard for a person’s own safety and the safety of others.”  (210 ILCS 85/10.2.)  The Court concluded that the phrase beginning with the words “utter indifference to or conscious disregard” was intended to explain the intention to harm intended by the legislature to trigger the exception.  The legislature’s reference to safety, according to the Court, “shows an intent that the harm contemplated is physical.”  Besides, the Court noted, a showing that the hospital had breached its own bylaws was necessary simply to show a breach of contract.  If breach of the bylaws was sufficient to eliminate the immunity, then the immunity would never block liability: the clause would be rendered a nullity.

The Court emphasized that its decision did not effectively give hospitals absolute immunity for their credentialing decisions, contrary to the plaintiff’s argument.  Injunctive and declaratory relief remained available notwithstanding the immunity.  Actions alleging physical harm were still eligible for damages awards.  Further, when the plaintiff alleges well-pleaded facts that the defendant acted for some reason other than “internal quality control . . . or the improving or benefiting of patient care and treatment,” the immunity wouldn’t apply in the first place.  Besides, the Court noted, the Illinois statute certainly did not trump the federal civil rights statutes.

The plaintiff argued that if the Appellate Court correctly interpreted the Licensing Act, the statute was unconstitutional as special legislation, and as a denial of plaintiffs’ right of access to the courts.  The Court held that plaintiff’s special legislation argument rested on the faulty premise that the Appellate Court’s construction of the Licensing Act amounted to absolute immunity for hospital staffing decisions.  As for the right of access claim, the Court reiterated that physicians had several remedies available, even in cases where the immunity still applied.

Image courtesy of Flickr by David Howard (no changes).

Join Us Tomorrow for “Adding an Appellate Specialist to the Trial Team: The Sooner the Better”

By Kirk Jenkins on Posted in Announcements

50763056_9ef6a9ad75_z

On Tuesday, June 7th at 11:00 AM Pacific/2:00 PM Eastern, Sedgwick’s Appellate Task Force will present its webinar “Adding an Appellate Specialist to the Trial Team: The Sooner the Better.” Highlights of the hour-long CLE presentation include:

  • The Appellate Specialist’s Role Before Trial — preparing the motions and briefs which the appeal will often turn on, such as the rapidly evolving area of jurisdictional challenges, dispositive motions, the high-stakes battle over class certification and important evidentiary battles.
  • During Trial and Afterward — protecting the record while the trial team focuses on the factual proof, preventing waiver by ensuring that objections and offers of proof are made, evidence is definitively ruled on, and all important bench conferences are transcribed.
  • “The Big Picture” — managing the client’s appellate strategy, anticipating what the law may soon become, grooming test cases, moving the law through amicus briefs, using appellate mediation to resolve cases more quickly, and when all else fails, cultivating conflict to make Supreme Court review more likely.

For CLE details and to register for the webinar, click here.

Image courtesy of Flickr by Clinton Steeds.

Announcing the California Supreme Court Review

By Kirk Jenkins on Posted in Announcements

5393485546_89f70a3102_z (1)

Early last year, we founded the Illinois Supreme Court Review to bring rigorous, law-review style empirical research founded on data analytic techniques to the study of appellate decision making.  Today, we expand our focus with the California Supreme Court Review, a new blog devoted to sharing insights culled from tens of thousands of pages of opinions about the California Supreme Court, the Justices and their decision-making process and the parties and issues which come before the Court – all based upon a unique database of dozens of data points taken from every one of the 1,600+ decisions handed down by the Court from 2000 to 2015.

Here at Appellate Strategist, the conversation about the latest decisions, oral arguments and issues in appellate law across the country (including Illinois and California) will continue.  And for a longer-term view devoted to the California Supreme Court, using techniques proven in sixty years of empirical academic research into judicial decision making, join us at the California Supreme Court Review.

Image courtesy of Flickr by Jorgen Kesseler (no changes).

Illinois Supreme Court Holds State’s Contractual Obligations Are Implicitly Conditional on Appropriations

By Kirk Jenkins on Posted in Illinois

5071509704_1a5fd63a3c

A state employee union enters into a contract with the State calling for certain wage increases. Ultimately, the legislature refuses to fully fund the increases, and they aren’t paid. Is the State in breach of contract, or are its contractual obligations implicitly conditional on the legislature appropriating the money?

In a ruling with significant potential implications for Illinois’ long-running financial crisis, the Illinois Supreme Court recently held in State of Illinois v. American Federation of State, County and Municipal Employees that the State’s financial obligations were by definition conditioned on legislative appropriations. Our detailed summary of the underlying facts and lower court rulings in AFSCME is here. Our report on the oral argument is here.

In 2008, the State agreed to a four-year collective bargaining agreement with AFSCME, which represents most state employees. AFSCME agreed to defer the wage increases mandated by the contract in 2009 and 2010 as a concession to the recession’s impact on the State.

In early 2011, then-Governor Quinn proposed a budget which included sufficient funds to pay the raises required for the year. When the budget was ultimately approved, it was estimated that there was insufficient money to finance the increases at 14 agencies. AFSCME sought arbitration of the dispute, and the arbitrator ordered the increases paid.

The State filed a complaint in Circuit Court seeking to vacate the award, together with an emergency motion for stay. The trial court granted the stay. In the weeks that followed, the legislature made supplemental appropriations, and several agencies experienced enough attrition to pay the increases to remaining employees, but employees in six agencies remained without the mandated increases. The trial court held that the State’s contractual obligations were conditional on appropriations. The Appellate Court reversed.

In an opinion by Justice Theis for a six-Justice majority, the Supreme Court reversed. The State argued that the arbitrator’s award didn’t draw its essence from the CBA because the arbitrator refused to give any effect to the parties’ agreement that the provisions of the CBA “cannot supersede law.” The Court rejected the State’s view, concluding that the arbitrator’s award was guided by contract principles and not his own views of fairness and justice.

The State’s second argument was that the arbitration award violated public policy. Specifically, the Court pointed to Article 8, Section 2(b) of the state Constitution: “The General Assembly by law shall make appropriations for all expenditures of public funds by the State.” The Court acknowledged that the State has provided that public employees have “full freedom of association, self-organization, and designation of representatives of their choosing” for purposes of collective bargaining (5 ILCS 315/2), but pointed out that that broad statement was tempered by Section 21 of the Act, which provided that employers and employees could negotiate multi-year collective bargaining agreements “subject to the appropriation power of the employer.” (5 ILCS 315/21.)

AFSCME argued that if all collective bargaining agreements are conditional on appropriations, the right to collective bargaining is meaningless. The Court pointed out, however, that a number of collective bargaining agreements over the years have made wage increases expressly contingent upon legislative appropriations. The Appellate Court had held that a contingency for legislative appropriations must be made express in order for the making the State’s obligation contingent not to violate the contracts clause of the state constitution. The Supreme Court majority disagreed, pointing out that statutes and laws in existence at the time of the contract are read into the contract as a matter of law.

Justice Kilbride dissented in part, arguing that the majority’s opinion arguably suggested that the State could avoid contracts with vendors simply by the legislature refusing to make a necessary appropriation. Justice Kilbride wrote that he would hold that “the state employees’ contractual rights to raises continue under the contract clause of the Illinois Constitution . . . even if that obligation cannot immediately be enforced because of lack of appropriations.” In its concluding paragraph, the majority responded to the dissent’s concern, writing that “we disagree with the dissent that our decision creates uncertainty as to the State’s obligations, generally, under its contracts. We reiterate that this case involves a particular contract: a multiyear collective bargaining agreement. Whether other state contracts with different provisions and different controlling law could also be subject to legitlative appropriation without offending the contracts clause is not before us.”

Despite the majority’s comment, some observers have speculated since the opinion was filed that the Court’s emphasis on the exclusivity of the appropriations power casts doubt upon the State’s ability to pay its employees, given that the relevant appropriations for 2016 have not been enacted by the legislature.

Image courtesy of Flickr by Uwe Neon (no changes).

California Limits Ability to Skirt Privilege Using Public Records Request

By on Posted in California

records

In Ardon v. City of Los Angeles, the unanimous California Supreme Court narrowly interpreted a statutory waiver included in the California Public Records Act to exclude “inadvertent” disclosures.  In responding to a public records request, a governmental agency can withhold documents under several exemptions, including that the documents are privileged under the Evidence Code, if it can show that the exemption applies. See, Gov. Code, §§ 6254-6254.30.  However, Gov. Code § 6254.5 provides that any actual production of a document in response to a public records request waives most exemptions that might otherwise apply.

Responding to discovery requests in a class action, the City provided a privilege log, which the trial court later upheld to bar production of the listed documents.  A few years later, plaintiff’s counsel filed a request for related documents under the Public Records Act.  Among the 53 documents provided, two were on the prior privilege log as protected by the attorney-client privilege.  Plaintiff advised opposing counsel of this, but refused the City’s demand to return the documents as inadvertently produced, citing § 6254.5.  Finding a statutory waiver under § 6254.5, the trial court denied the City’s motion to compel return of the documents, and the Court of Appeal affirmed.

The Supreme Court found the statute ambiguous on whether it applied to an inadvertent disclosure, as opposed to “a voluntary and knowing disclosure.”  The Court then considered the legislative history of the Public Records Act, the well-established importance of the attorney-client privilege, and cases holding that an inadvertent disclosure did not constitute a wavier under Evidence Code § 912.  The Court concluded that an inadvertent disclosure was also not a waiver under § 6254.5.

However, this left open the question of whether this was an inadvertent disclosure.  The cases under Evidence Code § 912 largely addressed facts in which counsel inadvertently violated a client’s privilege by accidentally producing privileged documents, often as part of a large production.  In this case, a designated City employee allegedly produced these documents on purpose as part of a production of 53 documents.  Given the ongoing litigation and previous privilege log, the Court expressed skepticism that this disclosure was not inadvertent, but did not decide the issue given the lack of any findings below on this point.  In doing so, the Court warned public agencies that this holding was not an invitation to revisit previous public records productions and that this holding only applied “to truly inadvertent disclosures.”  The lower courts will need to sort out what that might mean in this context.

Image courtesy of pixabay.com

Florida Supreme Court to Decide If the Disclosure of an Attorney’s Referral of a Client to a Doctor is Privileged or Discoverable

By Erin E. Dardis on Posted in Florida

handshake

On May 15, 2015, in Worley v. Central Florida Young Men’s Christian Ass’n, 163 So. 3d 1240 (Fla. 5th DCA 2015), Florida’s Fifth District Court of Appeal held that information regarding a law firm’s referral of its client to a physician was discoverable. Briefing of this case in the Florida Supreme Court was completed on February 10, 2016 and a decision is pending. You can view the Fifth District’s opinion here. You can view the Supreme Court docket here.

After Heather Worley fell in a YMCA parking lot, she treated at a local hospital emergency room and was told to see a specialist for some of her injuries. After she retained the law firm of Morgan & Morgan, she treated with various health care providers. Morgan & Morgan, on behalf of Worley, sued the YMCA for damages.

During discovery, Morgan & Morgan opposed the YMCA’s attempts to learn how Worley became a patient of the health care providers, citing the attorney-client privilege. Over Worley’s objection, the trial court ordered Worley to produce: 1) complete copies of all documents reflecting agreements regarding the billing for patients or any referral of a client by any attorney employed by or affiliated with Morgan & Morgan to any of the subject providers, and vice versa; and 2) the names of all cases where a client was referred by an attorney employed by or affiliated with Morgan & Morgan to any of the subject providers, and vice versa. Although not in its written order, the trial court stated that if the subject providers did not have the requested information, then Morgan & Morgan was to produce it.

Worley petitioned the Fifth District for a writ of certiorari, arguing that the trial court’s order: 1) required production of information protected by attorney-client privilege; (2) required her to produce documents that did not exist; (3) required Morgan & Morgan, a nonparty, to produce the information; (4) required Worley or Morgan & Morgan to engage in an unduly and financially burdensome production; (5) required Morgan & Morgan to incur all of the costs associated with the production of the ordered discovery; and (6) expanded the scope of bias-related discovery that is otherwise permitted.

The Fifth District held that with regard to Worley’s first argument that the information regarding a law firm’s referral of its client to a physician is protected by the attorney-client privilege, the financial relationship between a law firm and a treating physician is not privileged and is relevant to show potential bias. However, before this information is discoverable, the district court noted that there must be some evidence of a referral relationship. In this case, the district court found that such evidence existed, and the YMCA exhausted all avenues to learn how Worley was referred to the subject providers before it asked Worley.

The court also stated that the limited discovery sought by the YMCA concerned only the existence of a referral relationship between Morgan & Morgan and the subject providers, unlike discovery seeking detailed financial and business records that could reveal confidential information protected by the doctor-patient relationship. Such information is relevant, not privileged.

As for Worley’s remaining arguments, the district court stated that Worley did not make the prima facie showing of irreparable harm or of a departure from the essential requirements of law for the writ to issue. As to Worley’s second argument that she had to produce nonexistent documents, the district court said that it interpreted the trial order as meaning if any documents existed, Worley was to produce them. As to the third argument that the trial order required a non-party to produce the information, the court stated that a law firm may be the primary source of discovery, when a doctor has no records or provides nebulous testimony about past referrals. As to Worley’s fourth and fifth arguments concerning the costs to comply with the trial order, the court stated that nothing prevented Worley from seeking reasonable compensation for those costs. As to Worley’s last argument, the court said that the trial order did not require production of any records regarding money exchanged between Morgan & Morgan and the subject providers. Rather, the trial order required Worley to produce information regarding the referral relationship which, in general, defense attorneys are entitled to seek.

The court denied Worley’s petition, but certified conflict with the Second District’s decision in Burt v. Government Employees Insurance Co., which held that the disclosure of a referral of a client by an attorney to a healthcare provider is always protected by the attorney-client privilege.

Image courtesy of Flickr by Mark Morgan (no changes).

Illinois Supreme Court Unanimously Strikes Down Chicago Pension Reform Act

By Kirk Jenkins on Posted in Illinois, Pension Reform Litigation

14114471388_f4b64191b8_zThis morning, the Illinois Supreme Court issued its much-anticipated opinion in Jones v. Municipal Employees’ Annuity and Benefit Fund of Chicago, unanimously striking down Public Act 98-641, the pension reform bill for the City of Chicago. For a detailed summary of the underlying facts and court rulings, see here and here. For our report on the oral argument in Jones, see here. And for the Supreme Court’s most recent two decisions on pension reform, see here (the state reform act) and here.

Jones revolves around two of the four pension systems created to serve employees of the City of Chicago – the Municipal Employees, Officers and Officials Annuity and Benefit Fund (“MEABF”) and the Laborers’ and Retirement Board Employees’ Annuity and Benefit Fund (“LABF”). Prior to the passage of Public Act 98-641, annuity payments under both funds were subject to 3% automatic annual increases, compounded annually. Employees contributed 8.5% of their salary, and the rest of the funding came from contributions from the City and investment returns on the funds’ assets.

Like the state pensions, the City pensions have long been seriously underfunded. As early as 1949, the Illinois Public Employees Pension Laws Commission noted the funds’ “large unfunded accrued liabilities.” As a result of the years-long underfunding, the Illinois Constitutional Convention of 1970 adopted the pension protection clause, which states: “Membership in any pension or retirement system of the State, any unit of local government or school district, or any agency or instrumentality thereof, shall be an enforceable contractual relationship, the benefits of which shall not be diminished or impaired.” The Convention’s apparent hope was that by providing that benefits could not under any circumstances be reduced, state and local government authorities would be forced to adequately fund the pensions.

Nevertheless, underfunding continued, with the City’s contribution levels at a fixed multiple of employee contributions, notwithstanding the magnitude of the funds’ liabilities. Currently, the MEABF and LABF are projected to become insolvent in 10 and 13 years, respectively.

Public Act 98-641 addressed the crisis in several steps. First, it required the City to make sufficient contributions to the funds to bring them both to 90% funding by 2055. If the City fails to make the required contributions, the funds have the right to certify the delinquent amounts to the State Comptroller, who is directed to deduct the missing funds from state grants due to the City. The Act gradually increases employees’ contributions, in steps of 0.5% per year, to 11% of salary, until the City achieves 90% funding, at which point employee contributions step back down to 9.75%. The previously guaranteed 3% annual increases are changed to the lesser of 3%, or half the annual unadjusted percentage increase in the Consumer Price Index. Increases are no longer compounded, and are eliminated completely in certain years.

Two lawsuits were filed, arguing that Public Act 98-641 violated the pension protection clause. The Circuit Court of Cook County agreed, striking down the statute in its entirety, and the direct appeal came to the Supreme Court.

In an opinion by Justice Mary Jane Theis for five members of the Court (Justices Burke and Freeman recused themselves), the Supreme Court affirmed the Circuit Court. The Court has little trouble concluding that the provisions of Public Act 98-641 “have the same impact” as the reforms unanimously struck down last year in In re Pension Reform Litigation. “Accordingly,” the Court held, “based on the plain language of the Act, these annuity reducing provisions contravene the pension protection clause’s absolute prohibition against diminishment of pension benefits, and exceed the General Assembly’s authority.”

The Court then turned to the two defenses offered by the City: (1) read as a whole, the Act offers members a net benefit by insuring that they would actually receive their benefits, as opposed to paper promises from bankrupt funds; and (2) the Act was a bargained-for exchange supported by consideration.

The “net benefit” argument failed at the outset, the Court found, because the provisions of the Act regarding funding methods weren’t a “benefit” under the constitution which could be netted out against payments. The Court has consistently held for forty years that the pension protection clause has nothing at all to say about legislative funding choices. Besides, any funding reforms adopted by this legislature could be altered or repealed entirely by some future legislature.

The City argued that without fundamental reform, City employees would be left with at best a theoretical right to benefits for which only the bankrupt funds were liable – a worthless promise. But it wasn’t a worthless promise, the Court found. City employees had an absolute right to the full amount of their benefits, not just whatever monies happened to remain in the funds when they went bankrupt: “Thus, the General Assembly and the City have been on notice since the ratification of the 1970 Constitution that the benefits of membership must be paid in full, and that they must be paid without diminishing or impairing them.” Although the Court never expressly says so, this passage suggests that there might be extreme circumstances someday in which the Court might be willing to order funding to enforce the employees’ “legally enforceable right.”

Nor could Public Act 98-641 be defended as a “bargained-for exchange” for consideration. The City argued that the Act had been the result of years-long negotiations with 31 City unions, and 28 of 31 had ultimately supported the deal. It was true, the Court commented, that City employees could “knowingly and voluntarily” agreed to modify their pension benefits in exchange for valid consideration. But the problem was, nobody was arguing that the discussions between the City and the unions were a collective bargaining process. Instead, the Court found, they amounted to nothing more than “legislative advocacy on behalf of any interest group.” Therefore, the Court left for another day the question of whether a Union could validly change its members’ pension rights through a majority-vote adoption of a new collective-bargaining agreement with a government employer.

Since Public Act 98-641 contains a broad non-severability clause, providing that if anything in the Act were struck down, the entire Act had to fall, the Court held that the pension reform act was void and unenforceable in its entirety.

Image courtesy of Flickr by Thomas’s Pics (no changes).

LexBlog