Glen E. Amundsen Third Quarter 2005

IDC QuarterlyThird Quarter 2005

Third Quarter 2005 MONOGRAPH Volume 15, Number 3 ISSN-1094-9542 Mandatory Arbitration Clauses in the Summer 2005 Employment Context

Glen E. Amundsen O’Hagan, Smith & Amundsen, L.L.C. - Chicago

President 2005 - 2006 1 Illinois Association of Defense Trial Counsel Illinois Association of IDC QUARTERLY EDITORIAL BOARD Defense Trial Counsel Linda J. Hay, Editor-In-Chief WWW.IADTC.ORG Alholm, Monahan, Klauke, Hay & Oldenburg, L.L.C., Chicago [email protected] PRESIDENT GLEN E. AMUNDSEN Joseph G. Feehan, Executive Editor O’Hagan, Smith & Amundsen, L.L.C., Heyl, Royster, Voelker & Allen, Peoria Chicago [email protected] PRESIDENT-ELECT STEVEN M. PUISZIS Kimberly A. Ross, Associate Editor Hinshaw & Culbertson, Chicago Cremer, Kopon, Shaughnessy & Spina, Chicago 1ST VICE PRESIDENT [email protected] JEFFREY S. HEBRANK Burroughs, Hepler, Broom, MacDonald, Renee J. Mortimer, Assistant Editor Hebrank & True, LLP, Edwardsville Hinshaw & Culbertson, Schererville, IN 2ND VICE PRESIDENT [email protected] GREGORY L. COCHRAN Al J. Pranaitis, Assistant Editor McKenna Storer, Chicago Hoagland, Fitzgerald, Smith & Pranaitis, Alton SECRETARY/TREASURER RICK HAMMOND [email protected] Johnson & Bell, Ltd., Chicago COLUMNISTS DIRECTORS Glen E. Amundsen David H. Levitt DAVID M. BENNETT O’Hagan, Smith & Amundsen, L.L.C., Chicago Hinshaw & Culbertson, Chicago Pretzel & Stouffer, Chtrd., Chicago TROY A. BOZARTH Edward J. Aucoin, Jr. Bradford B. Ingram Burroughs, Hepler, Broom, MacDonald, Hall, Prangle & Schoonveld, LLC, Chicago Heyl, Royster, Voelker & Allen, Peoria Hebrank & True, LLP, Edwardsville Beth A. Bauer Kevin J. Luther C. WM. BUSSE, JR. Burroughs, Hepler, Broom, MacDonald, Busse & Busse, P.C., Chicago Heyl, Royster, Voelker & Allen, Rockford ANDREW D. CASSIDY Hebrank and True, Edwardsville John L. Morel Cassidy & Mueller, Peoria James K. Borcia John L. Morel, P.C., Bloomington JANELLE CHRISTENSEN Tressler, Soderstrom, Maloney & Priess, Chicago Martin J. O’Hara Tressler, Soderstrom, Maloney & Priess, Michael C. Bruck Chicago Quinlan & Carroll, Ltd., Chicago DANIEL K. CRAY Crisham & Kubes, Ltd., Chicago Robert T. Park Iwan Cray Huber Horstman & Roger R. Clayton Snyder, Park & Nelson, P.C., Rock Island Van Ausdall, LLC, Chicago Heyl, Royster, Voelker & Allen, Peoria Michael J. Progar PATRICK C. DOWD Dowd and Dowd, Chicago Brad A. Elward Doherty & Progar, LLC, Chicago BARBARA FRITSCHE Heyl, Royster, Voelker & Allen, Peoria Gregory C. Ray Rammelkamp Bradney, Jacksonville Joseph G. Feehan Craig & Craig, Mattoon R. HOWARD JUMP Heyl, Royster, Voelker & Allen, Peoria Michael L. Resis Jump and Associates, P.C., Chicago DAVID H. LEVITT Stacy Dolan Fulco O’Hagan, Smith & Amundsen, L.L.C., Chicago Hinshaw & Culbertson, Chicago Cremer, Kopon, Shaughnessy & Spina, LLC, Chicago Kimberly A. Ross KEVIN J. LUTHER Linda J. Hay Cremer, Kopon, Shaughnessy & Spina, LLC, Chicago Heyl, Royster, Voelker & Allen, Rockford Alholm, Monahan, Klauke, Hay & JOHN P. LYNCH, JR. Tracy E. Stevenson Cremer, Kopon, Shaughnessy & Spina, Oldenburg, L.L.C., Chicago Chuhak & Tecson, P.C., Chicago Chicago Willis R. Tribler MATTHEW J. MADDOX Tribler Orpett & Meyer, P.C., Chicago Quinn, Johnston, Henderson & Pretorius, Springfield CONTRIBUTORS FRED B. MOORE Durga Bharam Lawrence, Moore, Ogar & Jacobs, Matthew M. Moushon Bloomington Tressler, Soderstrom, Maloney & Priess, Chicago Heyl, Royster, Voelker & Allen, Peoria ANNE M. OLDENBURG Timothy J. Cassidy David B. Mueller Alholm, Monahan, Klauke, Hay Cassidy & Mueller, Peoria Cassidy & Mueller, Peoria & Oldenburg, L.L.C., Chicago Sylvia Coulon MICHAEL RESIS Douglas J. Pomatto O’Hagen, Smith & Amundsen, Chicago Heyl, Royster, Voelker & Allen, Peoria Heyl, Royster, Voelker & Allen, Peoria ALEEN R. TIFFANY James P. DeNardo Thomas Scott Stewart Aleen R. Tiffany, P.C., Crystal Lake McKenna Storer, Chicago Burroughs, Hepler, Broom, MacDonald, KENNETH F. WERTS Craig & Craig, Mt. Vernon Tina L. Fink Hebrank & True, LLC, Edwardsville McKenna Storer, Chicago Edward M. Wagner EXECUTIVE DIRECTOR Shirley A. Stevens Jill Rogers-Manning Heyl, Royster, Voelker & Allen, Urbana PAST PRESIDENTS: Royce Glenn Rowe - James Baylor - Jack Heyl, Royster, Voelker & Allen, Peoria Thomas R. Weiler E. Horsley - John J. Schmidt -Thomas F. Bridgman - William J. Norton, Mancini, Weiler & DeAno, P.C., Chicago Voelker, Jr. - Bert M. Thompson - John F. Skeffington - John G. Langhenry, Jr. - Lee W. Ensel - L. Bow Pritchett - John F. White - R. Lawrence Storms - John P. Ewart - Richard C. Valentine - Richard H. Hoffman - Ellis E. Fuqua - John E. Guy - Leo M. Tarpey - Wil- THE ILLINOIS ASSOCIATION OF DEFENSE TRIAL COUNSEL lis R. Tribler - Alfred B. LaBarre - Patrick E. Maloney - Robert V. P.O. Box 7288 • Springfield, IL 62791 Dewey, Jr. - Lawrence R. Smith - R. Michael Henderson - Paul L. Price - Stephen L. Corn - Rudolf G. Schade, Jr. - Lyndon C. 800-232-0169 • 217-636-7960 • FAX 217-636-8812 Molzahn - Daniel R. Formeller - Gordon R. Broom - Clifford P. [email protected] Mallon - Anthony J. Tunney - Douglas J. Pomatto - Jack T. Riley, Jr. - Peter W. Brandt - Charles H. Cole - Gregory C. Ray - Jennifer SHIRLEY A. STEVENS, Executive Director Jerit Johnson - Stephen J. Heine The IDC Quarterly is the official publication of the Illinois Association of Defense TONYA M. VOEPEL, Publications Manager Trial Counsel. It is published quarterly as a service to its members. Subscriptions for non-members are $75 per year. Single copies are $20 plus $2 for postage and 9865 State Route 124 • P.O. Box 78 • Sherman, IL 62684 handling. Requests for subscriptions or back issues should be sent to the Illinois Association of Defense Trial Counsel headquarters in Springfield, Illinois. Sub- 217-566-2603 • FAX 217-566-2507 scription price for members is included in membership dues. [email protected] In This Issue Lead Article Monograph M-1 Mandatory Arbitration Clauses in the Employment Context, by Durga Bharam, Tina L. Fink, Thomas Scott Stewart, Thomas R. Weiler and James P. DeNardo

Featured Articles 8 Forfeiture of Workers’ Compensation Lien - Borrowman v. Prastein Forwarned is Forearmed, by David B. Mueller and Timothy J. Cassidy 28 Cargill Challenges to Plaintiff’s Complaint in Medical Malpractice Actions: A Primer for the Defense Attorney, by Douglas J. Pomatto and Jill Rogers-Manning 54 The Amendment to the Good Samaritan Act, by Edward M. Wagner

Regular Columns 75 Alternative Dispute Resolution, by John L. Morel 72 Amicus Committee Report, by Michael L. Resis 74 Appellate Practice Corner, by Brad A. Elward 77 Association News 24 Case Note, by Robert T. Park 38 Civil Rights Update, by Bradford B. Ingram and Sylvia Coulon 73 Commercial Law, by James K. Borcia 76 The Defense Philosophy, by Willis R. Tribler 5 Editor’s Note, by Linda J. Hay 18 Employment Law Issues, by Kimberly A. Ross 45 Evidence and Practice Tips, by Joseph G. Feehan 12 Health Law, by Roger R. Clayton and Matthew M. Moushon 80 IDC Annual Meeting Awards 79 IDC New Members 7 IDC Officers and Directors 2005-2006 26 Legal Ethics, by Michael J. Progar 50 Legislative Update, by Gregory C. Ray 41 Medical Malpractice, Edward J. Aucoin, Jr. 16 One Defense Lawyer’s Opinion, by David H. Levitt 4 President’s Message, by Glen E. Amundsen 68 Professional Liability, by Martin J. O’Hara 70 Property Insurance, by Tracy E. Stevenson 55 Recent Decisions, by Stacy Dolan Fulco 64 Supreme Court Watch, by Beth A. Bauer 51 Technology Law, by Michael C. Bruck 15 Workers’ Compensation Report, by Kevin J. Luther

Manuscript Policy Members and other readers are encouraged to submit manuscripts for possible publication in the IDC Quarterly, particularly articles of practical use to defense trial attorneys. Manuscripts must be in article form. A copy of the IDC Quarterly Manuscript Guidelines is available upon request from The Illinois Association of Defense Trial Counsel office in Springfield, Illinois. No compensation is made for articles published, and no article will be considered that has been submitted simultaneously to another publication or published by any other publication. All articles submitted may be subjected to editing and become the property of the IDC Quarterly, unless special arrangements are made. Statements or expression of opinions in this publication are those of the authors and not necessarily those of the Association or Editors. A copy of the IDC Quarterly Editorial Policy is available upon request. Letters to the Editor are encouraged and welcome, and should be sent to the Illinois Association of Defense Trial Counsel headquarters in Springfield. Editors reserve the right to publish and edit all such letters received and to reply to them. IDC Quarterly, Third Quarter, 2005, Volume 15, No. 3. Copyright © 2005 The Illinois Association of Defense Trial Counsel. All rights reserved. Reproduction in whole or in part without permission is prohibited. POSTMASTER: Send change of address notices to IDC Quarterly, The Illinois Association of Defense Trial Counsel, P.O. Box 7288, Springfield, IL 62791. Second-Class postage paid at Springfield, IL and additional mailing offices. This publication was printed by Gooch & Associates, Springfield, Illinois. IDC Quarterly

tarily) or to change the nature of their practice from defending the interests of litigants in court. So what are the steps that need to be taken to keep the President’s Message organization moving forward in a quest for positive evolution that helps take the IDC from good to great? Fundamentally, I believe that the answer lies in determining what we can do By: Glen E. Amundsen that is most useful to our members in their efforts to meet their O’Hagan, Smith & Amundsen, L.L.C. professional challenges and aspirations. Like everything else, Chicago we cannot be content with just doing what we have always done and doing it well. We need to have the foresight to define A hallmark of any highly successful some new roles for the organization that make membership in organization is a culture that fosters the IDC essential for any Illinois attorneys who seriously hold and strives for continuous improve- themselves out to practice as litigators on behalf of defense ment. Organizations that do not em- interests. brace change and that accept “good” I hope to provoke some significant debate on that subject as “good enough,” do not fare well in at our upcoming strategic planning meeting which will focus the end. This is one of the main find- on some ways that the organization can make itself even ings of the research of noted business more important as an essential tool for every Illinois lawyer management guru, Jim Collins, as who seriously holds himself or herself out as a defense trial reported in his book Good to Great.1 attorney. A significant part of that discussion should be about In that book Collins outlines the char- how to build on the terrific foundation we have built in the acteristics of the organizations he studied who successfully past and take the required next steps. built on a platform of the good things accomplished over time In my view that discussion should include, amongst other to ultimately evolve to become the very best at what they do. things: How is that relevant to the IDC? On August 19 and 20 the • Continuing to raise the profile of the organization as a current leadership of the organization, along with its many meaningful voice in promoting a level playing field for liti- past Presidents and other friends, will be gathering for two gants on both sides of litigated matters. For too long we have days to consider the long term strategic direction of the IDC. let our colleagues on the plaintiff’s side of our cases dominate Our focus will be to build upon the many good things that we the agenda, influence decision makers and public opinion do and have accomplished so far in the forty-plus years that about fairness and mutuality in the civil justice system. we have served the needs of our members. Our objective will • Strengthening ties, opening lines of communication be to develop plans to move the organization forward toward and participating in honest debate with other bar related or- positive change that will build on past successes and make ganizations that have an interest in preserving the integrity our organization even more useful to our members – to go and fairness of the civil justice system in Illinois including from good to great, so to speak. organizations like the Illinois Judges Association, the Illinois There can be no doubt that in our profession the pace of Trial Lawyers Association, the Illinois State Bar Association change is accelerating. The demands on our time, financial and the Chicago Bar Association, amongst others. Although resources and the intellectual challenges required to excel at there are clearly differences of perspective among the mem- what we do are increasing at a pace that has required members bers of those organizations, there are many issues of concern and their firms to make hard choices about how they use their to all and areas where both a dialogue and a combined effort time, money and intellectual energy. Fortunately, because of to favorably impact public policy are possible. A very good the past foresight of the leaders of this organization the IDC example is the growing crisis concerning the availability of has remained a strong and vibrant organization that has a ter- funding for our circuit courts. The availability of essential rific platform of programs and opportunities for professional court services and access to jury trials should not be dependent development to help our members serve their clients better. upon the vagaries of the real estate tax base from county to The task before us is to continue to build our organization to county in Illinois. make it relevant to the changing environment that we must • Expanding upon opportunities for win-win collaboration face pragmatically. That changing professional landscape has with our sister state organizations in the Midwest and with driven many to leave the profession (voluntarily or involun- DRI in order to expand the reach/scope of our programs and

4 Third Quarter 2005 bring added value to our members and prospective members. We are blessed to have a very strong national defense organization with leadership that is invested in seeing that State organizations are effective and strong partners in advancing Editor’s Note defense interests. We need to explore the ways that we can further partner with DRI and other state defense organizations to make more valuable what we offer to members. By: Linda J. Hay • Reaching out for dialogue and collaboration with the Alholm, Monahan, Klauke, Hay organizations that represent and advocate the interests of the & Oldenburg, L.L.C. clients we typically represent such as the Illinois Chamber of Chicago Commerce, Illinois Manufacturers’ Association and others similarly situated that are involved in the public debate about All great organizations are formed the direction of the civil justice system. Again, the perspec- on the foundation of members who tives and philosophy of these organizations will not always strive toward continuous improve- coincide with our own but there are many areas of consensus ment or, as our incoming President, and opportunities to work together to make needed changes Glenn Amundsen, so aptly stated, in public policy that will promote fairness and allow access one that, through its membership, to the civil justice system for all the citizens of Illinois. can evolve from “good to great.” As • Helping members expand their practice in areas that Editor-in-Chief of the IDC Quarterly, involve the direct representation of clients and expand the I will strive to continue to improve scope of the services the IDC provides that are relevant to this excellent resource for not only those clients. the IDC membership, but for all of In addition to all of the above, we, of course, need to those clients we vigorously defend. I hope to foster the tradi- focus on improving all of the services and programs that we tion of so many fine Editors before me, and will continue to currently provide members. Fortunately, we have had great make this exceptional defense journal the best it can be. vision in the past generations of leaders who have served our It is an exciting time to practice as a defense attorney in organization so ably to get where we are at now. I am hon- Illinois, particularly for those in the medical malpractice ored to have this opportunity to participate in that tradition, and healthcare arena. This edition of the Quarterly includes and I am very grateful for the honor of being the President a thorough analysis of the Cargill case and related Section of an organization comprised of the best civil trial attorneys 2-622 requirements. Not only will this article assist the in- in Illinois. Please contact me or any member of our Board of dividual defense attorney in the preparation of motions to Directors if you have any ideas about how we can continue dismiss, and to anticipate plainitffs’ responses thereto, but to make positive changes for the IDC to make it even more will also provide the membership with a comprehensive, uni- relevant to the challenges that you face every day. Together fied approach on this issue for the defense bar throughout the we will strive to use the next period of years to take us from state. Thanks to Doug Pomatto and Jill Rogers-Manning for good to great. offering to educate the membership on this important, timely topic. Medical defense attorneys will also find summaries of Endnote the new medical malpractice legislation, and an update on 1 James C. Collins, Good to Great: Why Some Companies Make the the hot topic of property tax exemptions for not-for-profit Leap…and Others Don’t, HarperCollins, 2001 hospitals. Finally, Ed Wagner’s article on the Good Samaritan Law presents some food for thought on a potential defense for physicians in varied settings, and how they may fall within the parameters of the Good Samaritan Act. New case law seems to indicate that with proper advice and evidentiary support, the scope of the Act can be more broadly applied. Many defense practitioners, at some time or another, have had to counsel corporate clients on issues related to employment. For those practitioners, there is a Monograph prepared (Continued on page 11)

5 Illinois Association of Defense Trial Counsel

Officers and Directors President 2005-2006 GLEN E. AMUNDSEN O’Hagan, Smith & Amundsen, L.L.C., Chicago

DAVID M. BENNETT ANDREW D. CASSIDY PATRICK C. DOWD Pretzel & Stouffer, Chartered Cassidy & Mueller Dowd and Dowd Chicago Peoria Chicago

TROY A. BOZARTH JANELLE CHRISTENSEN BARBARA FRITSCHE Burroughs, Hepler, Broom, MacDon- Tressler, Soderstrom, Rammelkamp Bradney ald, H ebrank & True, LLP Maloney & Priess Jacksonville Edwardsville Chicago

C. WILLIAM BUSSE, JR. DANIEL K. CRAY R. HOWARD JUMP Busse & Busse P.C. Iwan Cray Huber Horstman Jump and Associates, P.C. Chicago & Van Ausdall LLC Chicago Chicago President-elect 1st Vice President 2nd Vice President Secretary/Treasurer STEVEN M. PUISZIS JEFFREY S. HEBRANK GREGORY L. COCHRAN RICK HAMMOND Hinshaw & Culbertson Burroughs, Hepler, Broom, Mac- McKenna Storer Johnson & Bell, Ltd. Chicago Donald, Hebrank & True, LLP Chicago Chicago Edwardsville

DAVID H. LEVITT MATTHEW J. MADDOX MICHAEL RESIS Hinshaw & Culbertson. Quinn, Johnston, O’Hagan, Smith & Chicago Henderson & Pretorius Amundsen, L.L.C. Springfield Chicago

KEVIN J. LUTHER FRED B. MOORE ALEEN R. TIFFANY Heyl, Royster, Voelker & Allen Lawrence, Moore, Ogar & Jacobs Aleen R. Tiffany, P.C.. Rockford Bloomington Crystal Lake

JOHN P. LYNCH, JR ANNE M. OLDENBURG KENNETH F. WERTS Cremer, Kopon, Alholm, Monahan, Klauke, Craig & Craig Shaughnessy & Spina Hay & Oldenburg, L.L.C. Mt. Vernon Chicago Chicago IDC Quarterly

Featured Article v. Cyclops Welding Corp., 146 Ill. 2d 155, 585 N.E.2d 1023 (1991). Third, the lien precludes a double recovery by the injured employee. Wilson v. Hoffman Group, Inc., 131 Ill. 2d Forfeiture of Workers’ 308, 321-22 (1989). Procedurally, the courts have diligently protected and enforced an employer’s lien rights. Thus, any Compensation Lien orders in the third party case must take the employer’s interests into account. The same is true of settlements, which require Borrowman v. Prastein the lien to be released. Until recently, the payment of workers’ compensation ben- Forewarned is Forearmed efits has been sufficient to protect the employer’s lien without further documentation in the workers’ compensation record. However, in Borrowman v. Prastein, 356 Ill. App. 3d 546, By: David B. Mueller 826 N.E.2d 600 (4th Dist. 2005), the Fourth District Appellate and Timothy J. Cassidy Court changed the rules adversely to the compensation paying employer. Under the circumstances which are discussed Cassidy & Mueller infra, an unwary employer and its workers’ compensation Peoria carrier may be deprived of their Section 5(b) rights by failing to protect them at the time the compensation case is settled. The ramifications of Borrowman are broader than the facts which the case posed and the issues which were presented Historically, few things have been as well protected and for review in the context of those facts. In Borrowman the sacrosanct as an employer’s workers’ compensation lien. The plaintiff was injured when he fell in a work-related accident. lien arises under Section 5(b) of the Workers’ Compensation Act (820 ILCS 305/5(b)) which provides in pertinent part:

(b) Where the injury or death for which compensation is payable under this Act was caused under circumstances creating a legal liability for damages on the part of some About the Authors person other than his employer to pay damages, then legal proceedings may be taken against such other person David B. Mueller is a partner in the Peoria firm of Cas- to recover damages notwithstanding such employer’s sidy & Mueller. His practice is concentrated in the area of products liability, construction injury litigation, and payment of or liability to pay compensation under this insurance coverage. He received his undergraduate degree Act. In such case, however, if the action against such from the University of Oklahoma and graduated from the other person is brought by the injured employee or his University of Michigan Law School in 1966. He is a past co-chair of the Supreme Court Committee to revise the personal representative and judgment is obtained and rules of discovery, 1983-1993 and presently serves as an advisory member of paid, or settlement is made with such other person, either the Discovery Rules Committee of the Illinois Judicial Conference. He was a member of the Illinois Supreme Court Committee on jury instructions in civil with or without suit, then from the amount received by cases and participated in drafting the products liability portions of the Tort such employee or personal representative there shall Reform Act. He is the author of a number of articles regarding procedural and substantive aspects of civil litigation. He was defense counsel in Prewein v. be paid to the employer the amount of compensation Caterpillar Tractor Co., 108 Ill. 2d 141 (1985), on the issue of comparative paid or to be paid by him to such employee or personal fault under the Structural Work Act. representative including amounts paid or to be paid Timothy J. Cassidy is a partner in the Peoria firm of pursuant to paragraph (a) of Section 8 of this Act. Cassidy & Mueller. His areas of practice include products liability, construction injury litigation, workers’ compen- The lien serves three purposes. First, it permits an innocent sation, and insurance coverage litigation. He received his undergraduate degree from Regis University and gradu- employer to recoup the sums which it has paid. Blagg v. Il- ated from St. Louis University Law School in 1983. He linois F.W.D. Truck and Equipment Co., 143 Ill. 2d 188, 195 is a member of the Peoria County and Illinois State Bar Associations and is admitted to practice in all U.S. district (1991), and In re Estate of Dierkes, 191 Ill. 2d 326, 331-33 courts in the State of Illinois and U.S. Court of Appeals, (2000).1 Second, in conjunction with Section 5(a) it limits or Seventh Circuit. caps a culpable employer’s contribution exposure. Kotecki

8 Third Quarter 2005

While he was receiving workers’ compensation benefits the the circuit court, have the right to enter into agreements which injury was aggravated by the professional negligence of his resolve any and all disputes between them. orthopedist, which led to a subsequent malpractice action. The appellate court reversed the decision below and denied The employer and its workers’ compensation carrier paid the employer’s lien in its entirety. Explicitly the decision was the medical expenses which were attributable to the aggrava- based upon the all-encompassing language of the settlement tion, as well as continuing to pay temporary total disability agreement. Implicitly, the court found that the employer had benefits. While the medical negligence case was pending the knowingly waived its lien rights by not preserving them in the workers’ compensation case was settled for two hundred thirty settlement contract. Both rationales appear in the following thousand dollars ($230,000). The settlement contracts which language of the opinion: were approved by the Illinois Industrial Commission recited: The agreement does not refer to, or contain any res- The above constitutes a full, final[,] and complete ervation of rights (or waiver) with regard to, plaintiff’s settlement of any and all claims for temporary total then-pending malpractice action. Watertower cannot disability, permanent partial and/or permanent total attribute this silence to its lack of knowledge of the disability incurred or to be incurred by said [p]etitioner pending action because the record reveals that in Octo- by reason of an industrial injury occurring on or about ber 1998 in the malpractice action, VNA filed a notice April 7, 1995, or by reasons of any claim or cause of that it intended to depose a representative of Travel- action by [p]etitioner against [r]espondent of any nature ers (Watertower’s insurance carrier). In all fairness to whatsoever. Rights under [s]ections 8(a) and 19(h) of Watertower, it does not assert that it was not aware of the * * * Act are hereby waived by both parties. Borrowman’s malpractice action. Because Watertower was aware of Borrowman’s 826 N.E.2d at 604. Although the employer and its carrier were allegations against Dr. Prastein and the VNA, it is aware of the malpractice action, no reference was made to it reasonable to conclude, by the lack of any reference in the settlement contracts. thereto, that Watertower forfeited its lien rights in its Subsequently, Borrowman settled the professional “full, final[,] and complete settlement” with Borrowman. negligence case for seven hundred fifty thousand dollars It is also reasonable to assume, due to the fact it was not ($750,000). The employer, Watertower Paint & Repair mentioned in the agreement, Watertower’s claim of a Company, asserted a workers’ compensation lien against the potential lien was not an issue during the negotiations settlement proceeds. Borrowman then sought an adjudication surrounding the workers’ compensation settlement. We of both the validity and the amount of the lien. The trial court find nothing in the record to refute the fact that all con- conducted a hearing on the employee’s petition and found that cerned negotiated and bargained (1) in good faith and (2) Watertower was entitled to a lien on the third party settlement with full knowledge of the then-current circumstances in the amount of one hundred seventy-five thousand nine hun- and their impendent rights. dred seventy-three dollars seventy-one cents ($175,973.71). That decision was the result of determining the amount of 826 N.E.2d at 604. compensation and medical payments which were attributable The holding in Borrowman casts a long shadow over every to the initial injury, without the aggravation, as compared to pending and future case in which the plaintiff’s injuries arise those payments which were the result of negligent medical out of and in the course of his employment. However, the care. Borrowman appealed and the employer and its insurer following prerequisites to its application serve to mitigate cross-appealed. Borrowman’s impact: In resolving the dispute the Fourth District Appellate Court acknowledged that the purpose of Section 5(b) is to protect (1) the workers’ compensation settlement must have the employer (citing Freer v. Hysan Corp., 108 Ill .2d 421, been made at a time when the employer knew or 426 (1985), and Blagg v. Illinois F.W.D. Truck & Equipment had reason to know of a potential third party claim, Co., supra, 143 Ill. 2d at 194). However, it also recognized and that the public policy of Illinois encourages the settlement of disputed claims citing to In re Guardianship of Babb, 162 Ill. (2) the language of the settlement contract must purport 2d 153, 169 (1994). On that point the court reasoned that the to discharge any and all claims or disputes between parties, whether before the Illinois Industrial Commission or (Continued on next page)

9 IDC Quarterly

Forfeiture of Workers’ Compensation Lien (Continued) Incorporation of the lien protection language will preserve an employer’s Section 5(b) rights in future cases. However, the employer and the employee. preventive medicine does little to help a patient who already has a terminal disease. Undoubtedly, there are numerous The preceding limitations were specifically considered by pending cases in which workers’ compensation liens have the court in distinguishing the Borrowman settlement from been asserted following the execution and approval of full those considered by the courts in Robinson v. Liberty Mutual and final settlement contracts such as that in Borrowman. Insurance Co., 222 Ill. App. 3d 443 (1st Dist. 1991), and Under the Borrowman rationale, the employer in those cases Kozak v. Moiduddin, 294 Ill. App. 3d 365 (1st Dist. 1997). In has waived its lien rights where the settlement took place after Robinson the appellate court affirmed a proportionate workers’ the third party action was filed or at a time when the employer compensation lien against a medical malpractice settlement. knew or had reason to know that third party proceedings were However, Robinson involved a workers’ compensation award, imminent. as opposed to a dispute-resolving settlement contract. If the liens in those cases have been waived then the In Kozak, the plaintiff and his employer settled the workers’ impact of that waiver must be considered in the context of compensation case before the medical malpractice litigation the tripartite rationale which supports Section 5(b) of the was commenced. The Borrowman court found that distinction Workers’ Compensation Act. Specifically, it appears that the was controlling, stating: “Despite Watertower’s insistence that innocent employer has forfeited his right to reimbursement. the employer’s lack of knowledge of the malpractice claim at Consequently, damages no longer follow fault. In that same the time it settled the workers’ compensation claim in Kozak setting the question arises as to whether the tortfeasor receives was insignificant, we find it was of the utmost importance.” a credit? If not, then the employee makes a double recovery 826 N.E.2d 604 (italics supplied). A comparison of Kozak at his employer’s expense. It is readily apparent that none of and Borrowman leaves open the question of whether waiver these alternatives further any public policy other than encour- applies only where the workers’ compensation case is settled aging settlements at the expense of the employer that honored after the third party case is actually filed or if it will be applied its statutory obligations. where the employer has knowledge that a third party claim is The same type of conundrum exists in cases where the likely. employer was also at fault and is therefore exposed to As prudence is the best defense against improvidence, claims for contribution. (740 ILCS 100/1, et seq.). Except in the Borrowman problem can be obviated in future cases by instances where there is a contractual waiver, e.g., Braye v. specifically reserving the workers’ compensation lien in the Archer-Daniels-Midland Co., 175 Ill. 2d 201, 210-212 (1997) settlement contracts. An example of appropriate language and Liccardi v. Stolt Terminals, Inc., 178 Ill. 2d 540, 545-50 appears below in juxtaposition with that which forfeited the (1997), the employer’s exposure to contribution is limited lien in Borrowman: by the amount of workers’ compensation benefits which it has paid or is obligated to pay. Kotecki v. Cyclops Welding LIEN WAIVER LIEN PROTECTION Corp., supra. In those cases the employer can wait until the LANGUAGE LANGUAGE case, including the contribution action, is tried before decid- The above constitutes The employer/respondent ing whether to waive its lien in exchange for exoneration. a full, final[,] and specifically reserves all of LaFever v. Kemlite Co., a Div. of Dryotech Industries, Inc., complete settlement its rights and remedies 185 Ill. 2d 380, 398-404 (1998). of any and all claims under Section 5 of the Given a situation whereby under Borrowman the lien has . . . by said [p]etitioner Illinois Workers’ been waived in favor of the plaintiff, a question arises whether by reason of an Compensation Act and, Kotecki still affords protection to the employer? Expressed industrial injury . . . or without limitation, otherwise, if the contributing employer no longer has a lien by reasons of any claim specifically reserves any to exchange for his exposure, does Kotecki apply? A corollary or cause of action by workers’ compensation lien to the preceding question is whether a Borrowman waiver [p]etitioner against it may have presently or in automatically discharges liability, e.g., Lannom v. Kosco, 158 [r]espondent of any the future as contemplated Ill. 2d 535 (1994)? If so, what happens in cases such as Braye nature whatsoever. under Section 5. and Liccardi where the Kotecki “cap” does not exist? The authors submit that Borrowman should not alter the fundamental equation which limits an employee’s recovery to the actual damages which he is awarded at trial, with a credit

10 Third Quarter 2005 to the defendant for the amount of workers’ compensation Editor’s Note (Continued from page 5) benefits which he received on account of his injuries. Corre- by Durga Bharam, Tina Fink, Scott Stewart, Thomas spondingly, and subject to the Braye and Liccardi exceptions Weiler and James DeNardo, on the topic of mandatory ar- discussed above, the employer’s third party liability would bitration clauses in the employment law setting. It provides be commensurate with its workers’ compensation exposure, a comprehensive overview of the current law in various state without regard to its lien rights. Where the Kotecki cap is and federal jurisdictions, creative defense arguments and unavailable the employer’s contribution exposure will be potential responses to inventive plaintiff arguments, with the difference between its pro rata share of the total damages reference sources. In addition, it provides straightforward and the amount of the workers’ compensation lien which was practical advice for the practitioner who advises clients on waived. how to best protect their interests. Nonetheless, in cases to which Borrowman applies, the Another excellent resource, and required reading for prac- employer’s purported lien is a nullity. The defendant should titioners in the workers’ compensation field, is the review of be entitled to a credit in the full amount, without regard to the the recent Borrowman v. Prastein decision, written by David attorney’s fees and expense sharing provisions of Section 5(b) Mueller and Timothy Cassidy. This article explains the man- and therefore can negotiate with the plaintiff accordingly. The ner in which the courts, under the Borrowman analysis, inter- innocent compensation paying employer is the net loser. The pret settlement documents, based on the language contained preceding are the authors’ best predictions of how Borrow- in those documents, so as to preserve or waive the workers’ man will play out. However, the problem should be transient, compensation lien. as future settlement contracts should expressly reserve the Along with these excellent scholarly works, this edition of employer’s lien rights. the Quarterly contains the regular columns on various areas of law and practice. I encourage all practitioners to read these Endnote portions of the Quarterly that may be beyond the scope of 1 Subject to proportionate expenses and a 25% attorney’s fee. (820 your individual practice. If you do so, I assure that you will ILCS 305/5(b)). learn about important, and timely issues which may be useful to you or your clients. A review of these columns will keep you up to date on pertinent issues to the defense practitioner overall, and will provide insight into areas of the law that may be useful, analogous or related to you or your clients’ areas of practice or concerns. I encourage all members to get involved and become a part of this publication. If there are any topics of interest, note or substantive importance, please consider submission of an article for publication. I also welcome any comments, suggestions, criticisms or general thoughts on the Quarterly, and its content. Through all of our efforts, we can continuously improve the quality of the Quarterly. I wish to express my sincere thanks to Rick Hammond, the past Editor-in-Chief, for his guidance and wisdom as he left the position, my editorial board for all of their past and future hard work and dedication, each and every author and columnist that has given and continues to give their time, effort and strong abilities, and finally, to our publications manager, Tonya Voepel, for all of her efforts to guide me through this and upcoming editions of the Quarterly. I, along with the efforts of all of those working with me, hope to continue in the fine tradition of this journal, and to take this publication to an even greater level during my tenure.

11 IDC Quarterly

not leased or otherwise used with a view to profit. 35 ILCS 200/15-65. At the outset, the party claiming exemption has an uphill Health Law battle. Constitutional and statutory tax exemptions are to be strictly construed, with all facts and debatable questions resolved in favor of taxation, and the party seeking the ex- By: Roger R. Clayton and Matthew M. Moushon* emption bears the burden of proof. People ex rel. Nordlund Heyl, Royster, Voelker & Allen v. Ass’n of Winnebago Home for the Aged, 40 Ill. 2d 91, 99- Peoria 100, 237 N.E.2d 533, 538 (1968). Further, the party claiming the exemption must prove entitlement by a showing of clear and conclusive evidence. Immanuel Evangelical Lutheran Church of Springfield v. Dep’t of Revenue, 267 Ill. App. 3d 678, 680, 642 N.E.2d 1344, 1346, 205 Ill. Dec. 227 (4th Dist. 1994). Also, when the facts are undisputed, a determination What Every Litigator Needs to of whether property is exempt from taxation is a question of Know About Illinois Non-Profit law for the court to decide. Midwest Physician Group, Ltd. v. Hospitals Maintaining Property Dep’t of Revenue, 304 Ill. App. 3d 939, 951, 711 N.E.2d 381, 389, 238 Ill. Dec. 278 (1st Dist. 1999). Tax Exempt Status Both the Board and Provena rely on Methodist Old Peoples The Champaign County Board of Review (“Board”) has Home v. Korzen, 39 Ill. 2d 149, 157, 233 N.E.2d 537, 541 recommended denial of tax-exempt status of several parcels (1968) to determine when property is used exclusively for of property owned by Provena Covenant Medical Center. charitable purposes. Korzen sets out a fact-intensive, six-factor The Illinois Department of Revenue summarily endorsed the test to determine whether property qualifies for tax-exempt decision of the Board, and Provena appealed internally to an treatment: administrative law judge (ALJ). At the time of this writing, a final decision by the agency has not been issued. According 1. the property is used for the benefit of an indefinite to Stan Jenkins, chair of the Board, a final agency decision is number of persons, persuading them to an edu- expected by the end of summer 2005. cational or religious conviction, for their general As a basis for denying tax-exempt status, the Board alleged, welfare – or in some way reducing governmental inter alia, that much of the area inside the hospital is used burden, by outside, for-profit entities, and that Provena has instituted collection proceedings against community members who fall below poverty level. Brief for Champaign County Board of Review at 2, 5, Dep’t of Revenue v. Provena Covenant Medi- cal Center, (No. 04-PT-0014). The Illinois Hospital Association, Illinois Catholic Health Association, Catholic Conference of Illinois, Metropolitan About the Authors Chicago Healthcare Council, American Hospital Associa- Roger R. Clayton is a partner in the Peoria office of tion, and the Catholic Health Association of the United States Heyl, Royster, Voelker and Allen where he chairs the firm’s healthcare practice group. He also regularly defends physi- have filed a brief as amici curiae in support of Provena. The cians and hospitals in medical malpractice litigation. Mr. outcome of this case could have a dramatic effect on how Clayton is a frequent national speaker on healthcare issues, nonprofit hospitals structure and carry out their operations. medical malpractice and risk prevention. He received his undergraduate degree from Bradley University and law degree from Southern Illinois University in 1978. He is a member of IDC, the Illinois Tax Law Illinois State Bar Association, past president of the Abraham Lincoln Inn of Court, a board member of the Illinois Association of Healthcare Attorneys, and The Illinois Constitution grants the General Assembly the current president of the Illinois Society of Healthcare Risk Management. authority to exempt from taxation property used “exclusively * The author acknowledges the assistance of Matthew A. Moushon, a law for . . . charitable purposes.” Ill. Const. art. IX § 6. According clerk with Heyl, Royster, Voelker & Allen, in the preparation of this article. to the Illinois Property Tax Code, property is exempt when actually and exclusively used for charitable purposes, and

12 Third Quarter 2005

2. the organization has no capital, capital stock, or and shareholders, but the stock conferred no ownership inter- shareholders, earning no profits or dividends, est, was not entitled to receive dividends, and only conferred to shareholders the right to vote on administrative issues. Id. 3. funds are derived mainly from public and private To deny an exemption on that basis, the court reasoned, would charity and holds them in trust for the objects and be a triumph of form over substance. Id. Problems arise where purposes expressed in its charter, directors derive a financial benefit from the operations. Id. at 663 (citing People ex rel. County Collector v. Hopedale 4. dispenses charity to all who need and apply for it, Medical Foundation, 46 Ill. 2d 450, 264 N.E.2d 4 (1970) (no exemption where medical director operated private practice 5. does not provide gain or profit in a private sense to out of office in hospital, received a substantial salary, and any person connected with it, and does not appear derived financial benefits from consulting services carried on to place obstacles of any character in the way of with the aid of foundation personnel)). those who need and would avail themselves of the Even if funds are derived primarily from fees for services, charitable benefits it dispenses, not charitable contributions or grants, the entity may survive scrutiny under the third factor, which requires funds to be 6. the property is primarily used for charity, and not derived mainly from public or private charities. Lutheran any secondary or incidental purpose. General, 231 Ill. App. 3d at 663-64. Where the funds and property are devoted to public purposes, the source of the Id. at 157. funds is not the sole determinant factor. American College of Surgeons v. Korzen, 36 Ill. 2d 340, 348, 224 N.E.2d 7, 11 Application of Illinois Tax Law in Similar Cases (1967), overruled on other grounds, Christian Action Ministry The Korzen guidelines are not hard and fast rules; thus, v. Dep’t of Local Gov’t Affairs, 74 Ill. 2d 51, 383 N.E.2d 958, courts should consider and balance the guidelines by exam- 23 Ill. Dec. 87 (1978). ining the facts of each case and focus on whether and how Factors four and five require the organization to dispense the institution serves the public interest and lessens the state charity to all who need it without placing obstacles in their burden. Midwest Physician Group, 304 Ill. App. 3d at 939 path. In Lutheran General, the Department of Revenue argued (1st Dist. 1999). Incidental acts of charity by an organization that the Foundation did not meet this guideline because the are not enough to establish the organization as charitable; the public benefited only incidentally from the use of the property. property must be used exclusively for charitable purposes. Lutheran General, 231 Ill. App. 3d at 664. The court rejected Alivio Medical Center v. Illinois Dep’t of Revenue, 299 Ill. this argument, as the department had not disputed the ALJ’s App. 3d 647, 650, 702 N.E.2d 189, 192, 234 Ill. Dec. 23 (1st finding that the foundation dispensed charity to all who Dist. 1998). needed and applied for it, and because there was testimony Lutheran General applied the Korzen factors, where a that physicians devoted 52% of their time to performing edu- property tax exemption was allowed. Lutheran General cational, administrative and research activities in addition to Health Care System v. Dep’t of Revenue, 231 Ill. App. 3d providing medical care. Id. Exempt status was denied under 652, 595 N.E.2d 1214, 172 Ill. Dec. 544 (1st Dist. 1992). In these factors in Midwest Physician Group, where the group determining that the applicant was in compliance with the used collection letters and collection agencies in an attempt first factor, the facts the court considered important were that to collect its outstanding bills. 304 Ill. App. 3d at 956-57. The the physicians’ salaries were below what they would receive fact that it wrote off bad debts was a business decision, and in private practice, no patients were turned away because of not a charitable one. Id. inability to pay, and the physicians were required to perform educational, administrative, and research activities to continue Arguments of the Parties their employment. Id. at 661. Because the physicians earned The Board alleges, among other things, that Provena al- less than market value, the property was not used for their lows outside, for-profit entities to use the facilities to generate benefit. Id. personal or corporate profit. Brief for Board at 2 (No. 04- Under the second guideline, even if a nonprofit corpora- PT-0014). According to the Board, neonatal, pediatric, and tion has capital stock and shareholders, an exemption may emergency room doctors, are provided through an outside be allowed. Lutheran General, 231 Ill. App. 3d at 662. In group that bills independently of the hospital and derives Lutheran General, the Foundation had capital, capital stock, (Continued on next page)

13 IDC Quarterly

Health Law (Continued) The question whether or not this is an institution of profit. Id. The Board further alleges that Provena’s Charity public charity depends not at all upon what class of Care program is not available to all who need it, because a physicians are permitted to practice there, so long as the number of patients are being sued, and Provena has retained institution is not conducted for the purpose of benefitting two collection agencies. Id. at 5. These patients are below the the physicians of that class. poverty level, according to the Board, because Land of Lincoln Legal Assistance Foundation has represented members of the Id. at 24, citing Sisters of Third Order of St. Francis v. Board community against Provena. Id. By federal law, clients must of Review of Peoria County, 231 Ill. 317, 323, 83 N.E. 272, be at or below poverty level to receive representation from 274 (1907). More recently, however, courts have been more Land of Lincoln. Id. Also, according to the Board, Provena likely to uphold tax exempt status where the physicians are has not provided any leases, contracts, or other information to on site, and are paid less than market value. See, Lutheran assist the Board in considering Provena’s tax exempt status. General, 231 Ill. App. 3d at 661, Midwest Physician Group, Id. at 2-3. 304 Ill. App. 3d at 954 (no exemption where physician salaries The Amici first advance the public policy argument that set at comparable levels to other physicians and some physi- modern nonprofit hospitals are charitable in nature, and cians engaged in outside practices).

Conclusion Ultimately, the ALJ must affirm the finding of the Board, “The Board further alleges that denying tax exempt status, if Provena has, in fact, failed to produce evidence rebutting the allegations of the Board. As Provena’s Charity Care program noted above, Provena must demonstrate by clear and conclusive evidence that it is entitled to an exemption, but according is not available to all who need to the Board, it has offered no evidence. The thrust of the it, because a number of patients argument of the Amici rests on public policy. While it is true that nonprofit hospitals generally benefit the community by are being sued, and Provena has providing low-cost medical treatment and relieving government burdens, the claimant still must discharge the clear and retained two collection agencies.” convincing burden. However, this assertion is undermined when a nonprofit hospital resorts to aggressive collection procedures against indigents who cannot pay their medical bills. Ultimately, Illinois health care litigators should keep a close eye on the resolution of this case to best advise their clients. should be exempted from property tax because they reduce governmental burden and provide public access to health care services. Brief for Amici at 7, Dep’t of Revenue v. Provena Covenant Medical Center, (No. 04-PT-0014). If nonprofit hospitals are required to pay a substantial property tax, higher charges for services will result, and access to quality hospital services for Illinois residents may be jeopardized. Id. They also argue that the hospital places no obstacle in the path of treatment, even if there is inquiry as to whether a particular patient can pay, so long as no patient is refused medical treatment. Id. at 21-22. Additionally, the Amici advance the argument that Provena does not provide a gain or profit in a private sense to any person connected with it, because as long as the contracts are entered into on an arm’s length basis, the benefit to the private individuals is not contrary to the hospital’s charitable purpose. Id. at 23. For this proposition, the Amici quote a 1907 case,

14 Third Quarter 2005

“disability” as used in Section 8(d)(1) referred only to physical and mental disability. Because there was no claim by the employer that there was a change in the claimant’s physical Workers’ Compensation Report condition, the Industrial Commission found there was no basis for suspending the wage differential payments. This decision of the Industrial Commission was affirmed by the circuit court. By: Kevin J. Luther The respondent attempted to obtain modification of the Heyl, Royster, Voelker & Allen Section 8(d)(1) award by proceeding to the appellate court. Rockford The appellate court rejected the respondent’s position. The appellate court noted that the Industrial Commission was only considering a Section 8(d)(1) motion and not an 8(f) or 19(h) motion, and therefore the appellate court focused on whether the Industrial Commission had jurisdiction to consider the Wage Differentials Pursuant to 8(d)(1) motion filed by the respondent. Section 8(d)(1) – Modification Possible? On this issue of jurisdiction, the employer acknowledged that the petition was brought to modify the award under Sec- It is well established that in order for one to qualify for tion 8(d)(1), and not 19(h) or 8(f). The appellate court pointed a wage differential claim pursuant to Section 8(d)(1) of the out that 8(d)(1) is not one of the two provisions that allows the Workers Compensation Act, the claimant must prove (1) Industrial Commission to reopen or modify a final decision partial incapacity which prevents pursuit of his or her usual (those sections are 19(h) and 8(f)). Because Section 8(d)(1) and customary line of employment, and (2) impairment of does not contain a provision allowing the employer to file a earnings. If the impairment of earnings capacity is established petition to modify an award under Section 8(d)(1), the Indus- pursuant to Section 8(d)(1), then the employee is entitled to 66 trial Commission was without jurisdiction. Additionally, the 2/3% of the difference between the average amount which he appellate court noted that even if the Industrial Commission or she would be able to earn in the full performance of his or assumed that the action was brought under Section 19(h), the her duties in the occupation in which he or she was engaged petition was not filed within the required 30-month period. at the time of the accident, and the average amount that he or For this reason, the appeal of the employer was dismissed, she is earning or is able to earn in some suitable employment the decision of the Industrial Commission was vacated, and or business after the accident. the employer’s motion to suspend wage differential benefits In Cassens Transp. Co. v. Illinois Indus. Comm’n, 354 Ill. was denied. App. 3d 807, 821 N.E.2d 1274, 290 Ill. Dec. 700 (4th Dist. One can argue that implicit within the majority decision 2005), the claimant was awarded Section 8(d)(1) wage dif- is a finding that a Section 8(d)(1) award may be modified ferential benefits in the amount of $203.55 per week. The under 19(h) if it is filed within 30 months and if it is based on award of the Industrial Commission became the final award. a change in either physical or mental condition. Accordingly, Thereafter, more than 30 months after the decision became a Section 12 examination or an opinion from a treating physi- final, the employer, on May 23,2001, filed a motion before the Industrial Commission seeking an order to suspend wage (Continued on next page) differential benefits. The employer filed a motion pursuant to Section 8(d)(l) of the Act. The basis for the motion to suspend wage differential benefits was that the claimant had failed to respond to a request to provide income tax returns to determine About the Author whether a wage loss still existed. Kevin J. Luther is a partner in the Rockford firm of In October 2003, the motion of the employer was denied Heyl, Royster, Voelker & Allen where he concentrates his based on Petrie v. Indus. Comm’n, 160 Ill. App. 3d 165, 513 practice in areas of workers’ compensation, employer liability, professional liability and general civil litigation. He N.E.2d 104, 111 Ill. Dec. 858 (3d Dist. 1987). In Petrie, it was also supervises the workers’ compensation practice group determined that when the legislature used the term “disability” in the Rockford office. Mr. Luther received his J.D. from Washington University School of Law in 1984. He is a in Section 19(h), it was referring to physical and mental dis- member of the Winnebago County, Illinois State and American Bar Associa- ability, not economic disability. The Industrial Commission tions, as well as the IDC. in Cassens relied on Petrie in order to make a finding that

15 IDC Quarterly

Workers’ Compensation (Continued) cian will probably be necessary before a motion can be filed pursuant to Section 19(h). A change in “economic standing” is not enough. One Defense Lawyer’s Opinion In a special concurring opinion, Justice Holdridge agreed with the majority’s decision that the appeal should be dismissed for lack of subject matter jurisdiction. Justice Hold- By: David H. Levitt ridge reasoned that there was no basis to address the merits Hinshaw & Culbertson of the claim since the Workers’ Compensation Commission Chicago lacked jurisdiction to hear the employer’s motion. Justice Holdridge’s concurrent opinion can be interpreted as a warn- ing to employers that they may be subject to penalties if there Discovery of is an attempt to terminate wage differential benefits on a belief Coverage Counsel’s File: that an employee no longer has a continuing disability as de- A Narrow Case with Wide Implications fined by the Act if such a motion is filed more than 30 months after the final decision of the Industrial Commission. Are insurance companies entitled to hire coverage counsel The Illinois Supreme Court has accepted a petition for to represent their interests, and to assert the attorney-client and leave to appeal the appellate court decision in Cassens Transp. work product privileges regarding the work of that counsel? Co. Hopefully, common sense will prevail, and the Illinois Apparently not, according to the Fourth District in Western Supreme Court will recognize that a change in “economic States Ins. Co. v. O’Hara, 828 N.E.2d 842 (4th Dist. 2005). standing” is relevant to wage differential claims and is also A Petition for Leave to Appeal is pending. Hopefully, the consistent with the purpose of Section 8(d)(1). supreme court will accept the case and reverse, or at least discuss it in a way prevents attempts to apply it to a broader range of insurance coverage disputes. It has long been the law that an insurer, faced with multiple claims, may settle some but not all of the claims, even though it leaves the insured without coverage for the remaining claims, as long as the settlements were reasonable and made in good faith. Haas v. Mid America Fire & Marine Ins. Co., 35 Ill. App. 3d 993, 343 N.E.2d 36 (3rd Dist. 1976). But, if the insurer retains coverage counsel to give it advice on that subject, it is the apparent ruling of the O’Hara court that it waives all privileges regarding the advice received from that counsel, not only to the insured, but to the remaining tort claimants as well. The facts of the O’Hara case are not especially unusual or complex. Western State’s insured, Ms. O’Hara, was involved

About the Author

David H. Levitt is a partner in the Chicago office of Hin- shaw & Culbertson. His practice concentrates on the areas of intellectual property, insurance coverage, and commercial litigation, as well as tort defense. He is a past Editor-In- Chief of the IDC Quarterly, and a member of IDC’s Board of Directors.

16 Third Quarter 2005 in a very serious automobile accident, in which five people no other interests at stake, and that the insurer is not entitled to sustained significant injuries. The most serious was that of Ms. separate representation to represent its own separate interests, Lovelace, who suffered a spinal fracture leaving her paralyzed as the O’Hara case seems to do, is to deprive the insurer of the from the waist down. The policy limit of the Western States right to counsel and bad public policy. The insurer is entitled policy was $500,000. Western States retained a law firm to to look after its own interests, as well as those of the insured advise it regarding its rights and obligations to its insured in – the standard in this state for bad faith failure to settle is still resolving these claims. whether the insurer treated the insured’s interests equal to its Western States eventually settled Ms. Lovelace’s claim for own. See, e.g., Scroggins v. Allstate Ins. Co., 74 Ill. App. 3d the policy limit (after having first paid nominal amounts to 1027, 393 N.E.2d 718 (1st Dist. 1979). The insurer ought to settle property damage claims), with notice to and no objec- be able to retain counsel to evaluate its rights and obligations tion from Ms. O’Hara. It then filed a declaratory judgment without concern that counsel’s file will be produced to the action seeking a determination that it had exhausted its policy insured, much less to the claimant. limits, and therefore had no obligation to defend or indemnify Similarly, the question of good faith is not necessarily a Ms. O’Hara for the lawsuit filed against her by the remaining subjective one permitting a fishing expedition into coverage claimants. A dispute arose regarding whether Ms. O’Hara and counsel’s file in the hope of finding something. Here, Western the claimants were entitled to production of the file of Western States had paid its full policy limits to a paraplegic claimant; States’ coverage counsel. Even though that counsel had never that the value of that case exceeded $500,000 is hard to debate. represented Ms. O’Hara or provided her any advice at any As the dissent pointed out in Western States, one ought not time, the appellate court somehow found that both she and the to be allowed to start with an attack on coverage counsel’s claimants were entitled to counsel’s file. file until one first establishes some facts that suggest that the The court first applied the “common interest” rule recog- insurer acted improperly in resolving the first case. nized in Waste Management, Inc. v. International Surplus In any event, the ruling in O’Hara ought to be significantly Lines Ins. Co., 144 Ill. 2d 178, 579 N.E.2d 322 (1991), to restricted to the issues in the case. After all, the particular case hold that O’Hara had the right to coverage counsel’s file. In before the court included as an element of the cause of action Waste Management, the insurers had sought production of the proof of good faith in making the policy-limit exhausting files of the defense counsel in the underlying tort case (whose settlement. The “at issue” exception is intended to be a nar- invoices the insured was seeking to have the insurers pay), row one, not one that swallows the attorney-client privilege. not the files of the opposing coverage counsel in the declara- Most coverage disputes turn on a comparison of the insurance tory judgment action. The Fourth District Appellate Court in policy language to the underlying complaint. Merely filing a Western States held that because Western States and O’Hara declaratory judgment action does not automatically implicate had a common interest in defeating or settling the Lovelace the “good faith” of the insurer. Also, a counterclaim asserting claim, that the “common interest” doctrine applied to prevent bad faith by the insurer does not put counsel’s file “at issue” application of Western States’ attorney-client privilege. either; the law has long been clear that the party whose privi- The court went on to hold that because exhaustion is only lege waiver is at issue must take affirmative steps to put the a policy defense if the first settlement was made in good faith, issue into the case, and a responsive pleading by the oppos- the “at issue” exception to the privilege also applied to require ing party cannot do so. Fischel & Kahn, Ltd. v. Van Straaten production of coverage counsel’s file, even to the claimants’ Gallery, Inc., 189 Ill. 2d 579, 727 N.E.2d 240 (2000). attorney. In other words, the claimants’ attorney was entitled The principles supporting the existence of the attorney- to see the mental impressions and client communications of client and work product privileges are long recognized and coverage counsel, as well as evaluations of defense strategy, sound, even where they prevent discovery of otherwise merely because the insurer asserted that it acted in good faith. potentially relevant evidence. Public policy is not served by There is good reason to question the wisdom of the court’s depriving insurance companies from having the same rights logic as applied to the facts before it, and even more reason as other litigants to obtain the objective advice of counsel, to oppose any attempt to expand this logic to other coverage without concern that its communications with and the mental disputes. Of course it is true that, in every case tendered to an impressions of that counsel will end up as fodder for discovery. insurance company, the insurer and the insured are aligned in the interest of defeating or minimizing the value of the claim. But to suggest that this is the be all and end all, that there are

17 IDC Quarterly

undermined by the company’s taking little action to address the plant’s lack of productivity for several years before closing it. Grimm, 410 F.3d at 386. Employment Law Issues Ultimately, the appellate court found it need not determine whether the plaintiffs adequately demonstrated that they were meeting Alro’s legitimate expectations because they did not By: Kimberly A. Ross* show that Alro treated younger similarly situated employees Cremer, Kopon, Shaughnessy & Spina, LLC more favorably. Id. at 386. While the plaintiffs could show Chicago that, as a group, the warehousemen hired to replace them were younger, none of the individual plaintiffs provided sufficient evidence to show he personally was replaced by a substantially Age younger worker. The court also rejected the plaintiffs’ argument that forcing each worker to figure out who replaced him Comparable Employees Were Those Working would allow employers to get around discrimination laws by in Same Warehouse, Not Sister Warehouse firing and replacing employees in groups instead of one at a In Grimm v. Alro Steel Corp., 410 F. 3d 383 (7th Cir. 2005), time. Id. Alro Steel closed its plant in South Bend, Indiana, as part of a The court found the plaintiffs’ argument irrelevant because larger company restructuring. As a result of the plant closing, the relevant similarly situated workers were not the workers’ 26 warehousemen were terminated. Twelve of those workers replacements, but rather the five warehousemen at the South claimed the decision to let them go was motivated by their Bend plant who were under 40. The court noted that none of age. those five were transferred to the Niles plant. As such, the In restructuring the company, Alro also closed a plant in younger workers were treated exactly the same as the older Benton Harbor, Michigan, and built a new facility in Niles, workers. Id. at 386. Michigan. Declining sales led Alro to close both the Benton Harbor plant and the facility in South Bend. However, in closing the Benton Harbor plant, all 16 of the warehouse Age & Race employees were given the opportunity to transfer to the Niles plant. The South Bend employees were not given the oppor- Time-Barred Acts Can Be Used as Support tunity to transfer to the Niles plant. Rather, Alro hired seven for Timely Filed Race and Age Claim new employees to work at the Niles plant. In West v. Ortho-McNeil Pharmaceutical Corp., 405 F.3d Summary judgment was granted in favor of Alro and the 578 (7th Cir. 2005), Edward West, a 62-year-old African plaintiffs appealed. On appeal, the court noted that in order American, was hired by Ortho-McNeil as a sales represen- to establish a prima facie case of age discrimination, the tative. West was terminated within a year of his hiring for plaintiffs had to show: (1) they were members of a protected class; (2) they were meeting the employer’s legitimate expectations; (3) they were discharged and not rehired or promoted as a result of the employer’s reorganization; and (4) younger, similarly situated employees were treated more favorably. Cerutti v. BASF Corp., 349 F.3d 1055, 1061 (7th Cir. 2003). About the Author The district court found the plaintiffs could not establish a prima facie case because they did not show they were Kimberly A. Ross is a partner with the law firm of Cremer, Kopon, Shaughnessy & Spina, LLC. She received her J.D. meeting Alro’s legitimate expectations or that Alro treated from DePaul University College of Law and her B.A. from younger, similarly situated employees more favorably. On the University of Michigan. Her practice areas include the legitimate expectations issue, the district court highlighted employment law and general tort litigation. Ms. Ross is an Assistant Editor of the IDC Quarterly. In addition to IDC, the statistical evidence showing the South Bend plant was she is a member of the Defense Research Institute, Decalogue one of Alro’s least productive operations. While the appel- Society of Lawyers and the Women’s Bar Association. late court agreed with the district court’s conclusion that the * The author acknowledges the assistance of Jennifer L. Colvin, an associate with Cremer, Kopon, Shaughnessy & Spina, LLC, in the preparation of this plaintiffs’ evidence was weak, it found Alro’s contention that article. the plaintiffs were not meeting legitimate expectations was

18 Third Quarter 2005 violations of company policies. West brought suit alleging told him to disseminate the materials. West, 405 F.3d at 581. he was terminated on the basis of his race and age. The appellate court also noted West’s theory required him At trial, the district court ruled that seven of eight racially to establish that his supervisor influenced the regional business offensive statements alleged to have been made by West’s director’s decision to terminate him. Id. at 581. West claimed supervisor were to be excluded from trial as being too remote that as a result of his supervisor’s racial bias, his supervisor in time from the termination. At trial, Ortho-McNeil’s motion failed to inform the regional business director that he ap- for summary judgment was granted. West appealed. proved the dissemination of the materials in an effort to taint On appeal, Ortho-McNeil asserted that even if the excluded her decision. However, the trial court excluded the evidence statements had been admitted, there was no actionable dis- of bias on the basis that West did not allege a hostile work environment claim and therefore could not rely on it to bring in time-barred acts within the scope of his case. The appellate court disagreed with the trial court’s exclu- “Hence, the issue was whether sion of the evidence of alleged bias. Relying on National Railroad Passenger Corp. v. Morgan, 536 U.S. 101 (2002), West provided sufficient evidence the court noted that on claims other than hostile work environment claims, acts outside the statutory time period cannot be for a reasonable jury to find the basis for liability, but the statute does not bar an employee that his supervisor authorized from using the prior acts as background evidence in support of a timely claim. West, 405 F.3d at 581. Hence, the court noted the distribution of the materials West was able to use the time-barred acts as support for his claim and that with this evidence, there were sufficient facts as part of the plan to get West to enable a reasonable jury to find discrimination. Id. at 581- terminated.” 82. As a result, summary judgment was reversed and the case was remanded to the district court.

ADA

Evidence of Employer’s Pretextual Justification crimination because West was terminated for a legitimate for Termination Cannot Be Relied on business reason. According to Ortho-McNeil, West distributed to Establish Prima Facie Case unauthorized materials to a hospital in order to convince the In Nese v. Julian Nordic Construction Co., 405 F.3d 638 hospital not to replace an Ortho-McNeil drug with a product (7th Cir. 2005), Louis Nese claimed his employer, Julian, vio- from a competing company. West claimed he received ap- lated the Americans with Disabilities Act (ADA), 42 U.S.C. proval to distribute the materials from his immediate super- § 12101, by reducing his wages and then terminating him visor. Ortho-McNeil maintained West’s supervisor had no because of its incorrect perception that he had a disability. involvement in its determination to terminate West and the The district court granted summary judgment for Julian and decision was made by the regional business director. the appellate court affirmed. West maintained his trial testimony raised an issue of fact Nese, who was in his forties at the time of his termination, for the jury that, in accordance with Ortho-McNeil policy, his began having epileptic seizures when he was 15 years old. The supervisor had approved his use of the distributed materials. seizures were controlled by the use of prescription medication, Further, West contended his immediate supervisor encouraged and Nese experienced no side effects from the medication. In him to prepare the materials and then used them against him August 2000, Julian hired Nese to perform carpentry duties by providing a copy of the materials to the regional direc- on a 90-day trial basis at the rate of $22.50 per hour. Upon tor. Hence, the issue was whether West provided sufficient hire, Nese informed Julian he did not have a driver’s license evidence for a reasonable jury to find that his supervisor because he had suffered a seizure. authorized the distribution of the materials as part of the plan In February 2001, Nese’s hourly rate was reduced to $18.00 to get West terminated. The appellate court found there was per hour. Julian claimed the reduction was changed because such sufficient evidence because West testified his supervisor (Continued on next page)

19 IDC Quarterly

Employment Law Issues (Continued) tion every time it takes an employment action for one reason, Nese’s work pace was not up to standard or because other but provides a different explanation to the employee. Nese, workers were making less and the disparity was causing a 405 F.3d at 642. problem. In September 2001, Nese received a performance The appellate court also noted that to show he was disabled evaluation indicating he completed assigned tasks within ac- under the ADA, Nese had to show Julian not only was aware ceptable time frames. of his impairment, but also that Julian believed he was sub- In November 2001, Julian received a letter from a legal stantially limited in a major life activity (working) because of advocacy group acting on Nese’s behalf. The letter accused the impairment. Further, Julian must have believed Nese was Julian of possible discriminatory acts relating to its treatment unable to work in a particular class or broad range of jobs. Id. of Nese. In January 2002, Nese was transferred to the side at 643. The court determined that while Julian was aware of of Julian’s business that did smaller jobs. A few weeks later, Nese’s impairment, there simply was no evidence under this Nese was placed on temporary layoff due to lack of work. By standard that Julian perceived Nese as disabled. The court October 2002, Nese felt he had been fired. specifically noted the evidence was to the contrary because Nese claimed Julian lowered his wages and then terminated Julian hired Nese even though he told Julian he could not him because of his epilepsy. Nese did not claim that his epi- drive due to seizures. Additionally, the court noted nothing lepsy actually made him disabled within the meaning of the indicated a belief that the reason Nese’s work was not quite up ADA. Rather, he claimed Julian perceived him as disabled to par was that he was disabled or unable to perform a broad and then made adverse employment decisions because of that range of jobs. Id. perception. To establish disability discrimination, Nese had to show: (1) that he was disabled within the meaning of the ADA; (2) Race & Retaliation that he was qualified to perform the essential functions of the job, either with or without a reasonable accommodation; Caucasian’s Allegations of Racial Harassment Against and (3) that he suffered from an adverse employment action African-American Workers Insufficient to Establish because of his disability. Byrne v. Board of Educ., School of Workplace Hostile for Caucasians West Allis-West Milwaukee, 979 F.2d 560 (7th Cir. 1992). In Walker v. Mueller Industries, Inc., 408 F.3d 328 (7th Additionally, in order to establish a prima facie case of Cir. 2005), Dennis Walker, a Caucasian, sued his employer, disability, Nese had to show either that: (1) he has a physical Mueller Streamline Company, and his supervisor, Deborah or mental impairment that substantially limits him in one Jones, pursuant to Title VII of the Civil Rights Act of 1964, or more major life activities; (2) he has a record of such an 42 U.S.C. § 2000e-2(a)(1) and 42 U.S.C. § 1981. Walker impairment; or (3) the employer regarded him as having such alleged he was forced to work in a racially hostile work en- an impairment. 42 U.S.C. § 12102(2). If his condition did vironment and that Jones and Mueller retaliated against him not meet one of those categories, even if he was terminated for complaining about incidents of discrimination against his because of some medical condition, Nese was not disabled co-workers. The district court granted summary judgment in within the meaning of the act. Nese, 405 F.3d at 641. favor of defendants. The appellate court affirmed. Moreover, under a “regarded as” claim, Nese had to prove Walker gained employment with Mueller in 1993 and that either: (1) Julian mistakenly believed he had a physical took a position as a warehouse worker. In 2000 he became a impairment that substantially limits a major life activity; or union steward. Beginning in April 2001, Walker complained (2) Julian mistakenly believed that an actual, nonlimiting to Jones, the warehouse manager, that African-American em- impairment substantially limits a major life activity. Amadio ployees were being subjected to racial discrimination in the v. Ford Motor Co., 238 F.3d 919, 925 (7th Cir. 2001). form of derogatory verbal references and written graffiti in the Relying on a case from the Court of Appeals for the Sixth workplace. Walker alleged that after he alerted management to Circuit, Ross v. Campbell Soup Co., 237 F.3d 701 (6th Cir. the discrimination he experienced retaliation, which included 2001), Nese argued he should prevail at the summary judg- exclusion from more desirable work assignments, exclusion ment stage because evidence that Julian was aware of his from a supervisory position and subjection to workplace epilepsy should be combined with evidence that Julian con- harassment. cocted a pretextual justification for the termination, which was The district court granted summary judgment in favor of Nese’s slow work pace. The Seventh Circuit rejected Nese’s the defendants, pointing out that Walker had abandoned any approach, noting that an employer is not guilty of discrimina- claim that he had been discriminated against on the basis of

20 Third Quarter 2005 his own race. Rather, Walker was asserting a derivative claim noted that while Walker was disturbed by the harassment, he of discrimination based on the hostile work environment al- made no attempt to establish that the conduct was so offensive legedly perpetrated against African-American workers. The to him, as a third party, as to render the workplace hostile not district court concluded that claim was foreclosed. The dis- only for him but also for any reasonable employee who like- trict court also held Walker’s retaliation claim failed because wise was a bystander rather than a target of the harassment. none of the purportedly retaliatory conduct cited by Walker Id. As such, the record was insufficient to support Walker’s amounted to an adverse employment action. derivative claim. The appellate court also found Walker’s racial discrimina- In support of his retaliation claim, Walker asserted that after tion claim – that he was subjected to a hostile environment informing management of the discrimination he was assigned due to the racial harassment directed at African-American co- exclusively to handle the job of “order-picking,” which was workers – was foreclosed based on its decision in Bermudez the most physically demanding and undesirable assignment for a warehouse worker. He also claimed he was rejected for the position of lead person, in which he would have acted in Jones’ position when she was absent. Additionally, Walker claimed he was disciplined on false charges of poor attendance “It noted that while Walker was and work performance. disturbed by the harassment, he The court noted that the “order-picking” assignment could not be described as a demotion or other type of adverse made no attempt to establish that employment action because it was a genuine task that any warehouse worker could be directed to perform. The court the conduct was so offensive to also noted the lead person position could not be deemed a promotion because it was not a supervisory position. Lastly, him, as a third party, as to render the court noted the disciplinary warnings were nothing more the workplace hostile not only for than warnings and did not lead to any adverse action against Walker. Hence, in reviewing the alleged adverse actions, the him but also for any reasonable appellate court noted that none of the defendants’ actions amount to the kind of adverse employment action needed to employee who likewise was a by- establish actionable retaliation. Id. at 332. stander rather than a target of the harassment.” National Origin

“Plantation Mentality” Comment Created Issue for Jury in Discrimination Action In Waite v. Board of Trustees of Illinois Community Col- lege District No. 508, 408 F.3d 339 (7th Cir. 2005), Paulette Waite, a Jamaican woman, was hired by City Colleges as v. TRC Holdings, Inc., 138 F.3d 1176 (7th Cir. 1998). The a coordinator of six child development centers run by City court noted the Bermudez decision all but closes the door on Colleges. As a coordinator, Waite was responsible to secure the notion that an employee who observes workplace hostil- funding for the centers by obtaining grants. ity but is not a member of the class of persons to whom the In May 2001, Waite received a contract renewal package harassment was directed may bring a derivative claim for the from the Illinois Department of Human Services (IDHS) harassment. Walker, 408 F.3d at 331. The court noted the claim relating to grants for fiscal year 2002. Waite obtained an was “all but” closed because it concluded in the Bermudez extension to file the package when she realized she would decision that it need not come to rest on the subject because not get approval from the City Colleges Board of Trustees there was lack of proof the harassment poisoned the working in time to submit the package by its due date. Waite finally atmosphere for the plaintiff. Id. obtained approval from the Board of Trustees in August 2002. The appellate court also disposed of Walker’s claim be- However, Waite left for a vacation without finishing the grant cause of a lack of proof that his work atmosphere was toxic. It (Continued on next page)

21 IDC Quarterly

Employment Law Issues (Continued) but later admitted she did not believe the City Colleges would application and instead asked an administrative assistant to lose such funding. submit the documents. The court also noted that while the “plantation mentality” While Waite was on vacation, the IDHS contacted City statement was the only evidence in the record that pointed Colleges to determine whether it would be submitting the to discriminatory intent, it was sufficient evidence since the contract renewal package and informed it that its funding was vice chancellor did nothing to refute Waite’s analysis of what in jeopardy if the package was not returned soon. The City she believed the statement meant. The court further noted Colleges did not lose any funding. Nonetheless, when Waite that the vice chancellor testified she recommended Waite be returned from vacation, she was given a letter explaining she disciplined because she was outraged Waite would leave work was scheduled for a predisciplinary hearing in relation to the delayed submission of the contract renewal package. At the predisciplinary hearing Waite was suspended without pay for 30 days. Waite was eventually terminated for insubordination “Waite asserted her suspension and failing to complete several assigned tasks. Waite asserted her suspension was the result of discrimina- was the result of discrimination on the basis of her national origin. Waite claimed the vice tion on the basis of her national chancellor of student affairs, an African-American woman, stated in a meeting that took place one month before her sus- origin. Waite claimed the vice pension that Waite displayed a “plantation mentality.” Waite, 408 F.3d at 342. Waite believed the remark was a reference chancellor of student affairs, to her national origin because stereotypically “Jamaicans in particular and Caribbean folks in general thought they were an African-American woman, white and treated African-Americans like slaves.” Id. Waite stated in a meeting that took also noted that her replacement, an African-American woman, was unable to submit the fiscal year 2003 contract renewal place one month before her sus- application to the IDHS until October 2002, but that she was not disciplined for the late submission. pension that Waite displayed a The district court granted City Colleges’ motion for sum- ‘plantation mentality.’ ” mary judgment on Waite’s claims arising from her discharge. However, the claims arising from Waite’s suspension went to the jury, which returned a verdict in favor of Waite. Both parties appealed and the appellate court affirmed. With regard to Waite’s suspension, the court looked at the for her to finalize. Thus, the jury could reasonably infer that strength of her prima facie case in determining whether there the vice chancellor felt Waite was treating her like a slave was sufficient evidence to support the jury’s findings that and displaying the “plantation mentality” she accused Waite Waite was discriminated against because she was Jamaican. of exhibiting. Therefore, the jury could infer the “plantation The court found Waite demonstrated she: (1) was a member of mentality” remark was evidence of discriminatory animus. a protected class; (2) was meeting her employer’s legitimate Id. at 344-45. job expectations; (3) suffered an adverse employment action; With respect to Waite’s claims relating to her termination, and (4) her employer treated similarly situated employees the appellate court determined Waite failed to prove a genu- outside her class more favorably. Id. at 343. ine factual issue existed on the question of pretext. The City The court noted Waite provided evidence that tended to Colleges maintained Waite was terminated because she was show the reasons her replacement was treated differently unresponsive to her supervisor and failed to perform assigned were questionable, which entitled a jury to reject testimony tasks. The court noted Waite could provide no reasonable by the vice chancellor to the contrary. The court further found explanation for her refusal to follow the directives of her that the vice chancellor’s credibility problems allowed the supervisor and therefore there was insufficient evidence to jury to find that the vice chancellor’s reasons for suspending convince a reasonable jury that Waite’s insubordination was Waite were pretextual, since the vice chancellor claimed she not the true basis for her termination. Id. at 345. suspended Waite because of the possible loss of IDHS funds

22 Third Quarter 2005

Sex Discrimination ployer’s legitimate expectations; (3) she suffered an adverse & Hostile Work Environment employment action; and (4) similarly situated individuals not in her protected class received more favorable treatment. Plaintiff Failed to Establish Prima Facie Case Stockett v. Muncie Indiana Transit Sys., 221 F.3d 997, 1000 of Sex Discrimination/Hostile Environment (7th Cir. 2000). The appellate court agreed with the district In Moser v. Indiana Dept. of Corrections, 406 F.3d 895 court’s determination that Moser was unable to establish she (7th Cir. 2005), Rhonda Moser worked as an administra- was meeting the DOC’s legitimate expectations. Moser, 406 tive assistant for the Department of Corrections (DOC) at F.3d at 901. Camp Summit Boot Camp. Moser also had additional duties While the appellate court noted Moser had a laudable 20- as Camp Summit’s affirmative action coordinator. In 2000, year performance record with the DOC before her removal, Moser investigated a complaint of sexual harassment made the court pointed out Moser’s performance at the time of the by Gloria Thode against Daniel Ronay, a correctional officer. employment action was the critical time period for its inquiry. Moser found the claim unsubstantiated. However, in April Id. at 901. In analyzing the relevant time period, the court 2001, Moser complained to her supervisor that Ronay was rejected Moser’s characterizations of the incidents alleged sexually harassing her. After Moser confronted Ronay about against her as baseless and absurdly minor. The court found the harassment the harassing behavior stopped. that a rational fact finder could not conclude Moser was meet- In August 2001, the chief investigator for the DOC’s Office ing her employer’s legitimate expectations when engaging in of Internal Affairs began to investigate Thode’s claim against such questionable workplace behavior. Id. Ronay. As part of the investigation, Moser was questioned As to Moser’s hostile work environment claim, the court about her investigation of the claim and her own complaints noted to establish a prima facie case of hostile environment against Ronay. Moser’s own claim of sexual harassment was sexual harassment a plaintiff must show that: (1) she was referred to Jayne Brown, a regional affirmative action coor- subjected to unwelcome sexual harassment; (2) the harass- dinator, for investigation. ment was based on her sex; (3) the harassment unreasonably Brown found Moser’s allegations against Ronay were well interfered with her work performance by creating an intimidat- founded. However, Brown recommended Moser be relieved ing, hostile or offensive working environment that seriously from her duties as the affirmative action coordinator at Camp affected her psychological well-being; and (4) there is a basis Summit based on information that Moser had not always be- for employer liability. Hall v. Bodine Elec. Co., 276 F.3d 345, haved in a professional manner. Brown noted Moser admitted 354-55 (7th Cir. 2002). to using foul language in the office, was aware of sexually The appellate court determined Moser could not establish suggestive gifts being brought to the workplace, had invited Ronay’s harassment unreasonably interfered with her work. a fellow employee to drink hard liquor with her after work Although Ronay regularly made inappropriate comments hours and had contacted an employee’s personal physician to about female anatomy and used foul language, the court found suggest the employee be medicated. As a result of Brown’s that a reasonable person likely would not have found the en- recommendation, Moser was removed as affirmative action vironment at Camp Summit to be hostile within the meaning coordinator and transferred to a new DOC camp. of Title VII because Ronay’s comments were merely headless Moser subsequently brought suit alleging she was disci- jokes and not serious or threatening comments. Moser, 406 plined unfairly because of her sex. Moser also claimed she F.3d at 903. was subjected to a hostile work environment. The district court granted the DOC’s motion for summary judgment, finding Moser had not established that she was meeting the DOC’s legitimate job expectations or that the incidents for which she was disciplined amounted to discrimination. The district court further found Ronay’s conduct toward Moser was not sufficiently severe or pervasive to create an objectively hostile work environment. On appeal, the court noted that to establish a prima facie of sex discrimination a plaintiff must establish that: (1) she belongs to a protected class; (2) her performance met her em-

23 IDC Quarterly

forms, called dollies, carrying containers called pods. The pods could be opened, closed, locked, unlocked, and rotated on the dolly platform when unlocked. As Ms. Dawkins’ cart Case Note passed Mr. Heinbockel, one of the pods spun and struck him. Ms. Dawkins testified that American Airlines employees loaded the pods in the dollies she was pulling, and that she By: Robert T. Park did not notice anything wrong with the dollies or pods before Snyder, Park & Nelson, P.C. the accident. She did not know that her vehicle or anything Rock Island she was carrying struck the plaintiff as she drove past him on her side of the dividing line. The court barred the testimony of an American Airlines union safety steward, finding that such evidence would not Directed Verdict Affirmed in aid the jury in deciding the case. Although he had driven carts Pedestrian-Vehicle Accident for over 19 years, the steward was not an expert because he had no special training or experience regarding the operation The Illinois Supreme Court set a high standard for directed of vehicles, the dollies they pulled or the pods they carried. verdicts in Pedrick v. Peoria & Eastern Railroad Co., 37 Ill. He was also not allowed to testify as a lay witness about his 2d 494, 229 N.E.2d 504 (1967). Verdicts should be directed driving habits since such testimony would not be probative only when all the evidence, viewed in the light most favorable as to whether the defendant had driven properly. to the nonmoving party, so favors the movant that no contrary At the close of the evidence, the trial judge directed a ver- verdict could ever stand. dict for the defendants, finding there was no proof that Ms. Trial courts honor this principle by refusing to direct a Dawkins had driven in an unsafe manner or that the pod broke verdict even where the evidence is clearly one-sided. Occa- free in sufficient time for her to have changed her driving to sionally, a brave judge will grant a DV and be rewarded by avoid striking the plaintiff. appellate court affirmation. The following is such a case. In an opinion by Justice McNulty, the First District Ap- Robert Heinbockel, the plaintiff, was a fleet service clerk for pellate Court affirmed. It first determined that the trial court American Airlines, working at O’Hare Airport. In his job, he did not abuse its discretion in finding that the union safety had to traverse an access route, known as a “depressed road- steward’s credentials did not qualify him as an expert, and that way,” used by both pedestrians and vehicles. The depressed testimony about his driving habits was irrelevant to establish- roadway had two lanes, one for each direction of traffic, ing a standard of care for cart drivers generally. separated by a center dividing line. The appellate court also found that the plaintiff failed to On October 4, 1999, the plaintiff was crossing the de- meet his burden of proving a breach of a duty of care. Specifi- pressed roadway at an unmarked crosswalk protected by stop cally, he failed to show that Ms. Dawkins drove unsafely or signs when he stopped to speak with a coworker driving a had any reason to know that the pod would become dislodged. baggage cart. As he stood on the stopped cart’s side of the Without demonstrating that her failure to avoid striking the centerline, another cart traveling in the opposite direction struck him causing injury. He only saw the oncoming cart briefly and could not describe how it had been operated. Mr. Heinbockel sued American Eagle Airlines, Inc. (“American Eagle”) and its employee, Shaunshell Dawkins, for negligent driving. He alleged that Ms. Dawkins drove at a speed greater than was reasonable and proper, failed to keep a About the Author proper lookout, attached defective articles to her vehicle, and failed to properly attach articles to her vehicle. The plaintiff Robert T. Park is a principal in the firm of Snyder, Park & Nelson, P.C. He received his B.A. and J.D. from the also charged American Eagle with failure to properly train University of Illinois. For 30 years, he has practiced law and supervise Ms. Dawkins in the safe use of the vehicle. in Rock Island, concentrating in defense of civil cases. Mr. Park is a member of DRI, ISBA and IDC, serving The employee with whom the plaintiff had been speaking since 1993 as an IDC Director. He is the most recent past testified that the American Eagle cart pulled wheeled plat- Editor-In-Chief of the IDC Quarterly.

24 Third Quarter 2005 plaintiff was unreasonable, a verdict in his favor would have been inconsistent with the standard of ordinary care and would have represented the imposition of strict liability on the defendants. Judicial Intern Program

“At the close of the evidence, the trial judge directed a verdict for the defendants, finding there was no proof that Ms. Dawkins had driven in an unsafe manner or that the (Thanks to Chris Ruys of Chris Ruys Communications Chicago, for pod broke free in sufficient time for the photo and assistance) her to have changed her driving to Judge James M. Wexstten (left), president of the avoid striking the plaintiff.” Illinois Judges Association (IJA), and Stephen J. Heine (right), of Peoria, a partner in the law firm of Heyl Royster Voelker & Allen and Immediate Past- President of the IDC greet judicial intern Dwayne Simpson during a reception for new interns and judges held recently at the Sangamo Club in Spring- field. In addition to the IDC, other program sponsors Justice Tully dissented. In his view, the jury should have are the Illinois State Bar Association, the Illinois Bar been allowed to decide whether the defendant driver could Foundation, and the Illinois Trial Lawyers Associa- have perceived a danger to the plaintiff and could have taken tion. reasonable steps to avoid striking him. There was no evidence Nearly 20 Illinois judges statewide are new par- that the plaintiff was at fault, nor that Ms. Dawkins could not ticipants in the American Bar Association’s Judicial see him. Further, she admitted that she had no training in the Intern Opportunity Program as the result of an effort inspection of the pods loaded on her dollies, and that she did spearheaded by Judge Wexstten. not inspect the dollies or pods before the accident. The program, which was launched five years ago There was evidence that she may have driven over a bump by the American Bar Association, places minority and as she passed the plaintiff, as well as conflicting evidence financially-disadvantaged law students in full-time, about the speed she was driving and the speed limit for the six-week internships during the summer. The goal is depressed road. If the plaintiff could not identify a specific to foster a judiciary that reflects the society it serves violation that caused the accident, he should have been al- in order to ensure fairness and access to justice. lowed to rely on the doctrine of res ipsa loquitur, according Greg Cochran attended the Chicago reception for to Justice Tully. the Judicial Intern program as the IDC representative. The case is Mulloy, Administrator of Heinbockel v. Ameri- Judge Jesse Reyes spoke on behalf of the Illinois can Eagle Airlines, Inc., 2005 WL 1422228 (Ill. App. 1st Dist. Judges Association. He thanked a short list of orga- June 17, 2005). IDC members, Robert Marc Chemers and nizations for their support, including IDC. Daniel G. Wills of Pretzel & Stouffer, Chartered, in Chicago, represented the defense.

25 IDC Quarterly

The Illinois Supreme Court first applied the common interest doctrine in the context of a dispute between a liability insurer and its insured in Waste Management, Inc. v. Legal Ethics International Surplus Lines Insurance Co., 144 Ill. 2d 178, 579 N.E.2d 322 (1991). In Waste Management, a declaratory judgment action, the insurance companies requested produc- By: Michael J. Progar tion of defense counsel’s files in the underlying lawsuits. De- Doherty & Progar, LLC fense counsel refused to produce certain documents, claiming Chicago attorney-client privilege and work-product. After examining a detailed privilege log, the court ordered production of some of the requested documents. Defense counsel refused and was held in contempt, from which the appeal followed. Waste Management involved an underlying lawsuit filed Common Interest Doctrine against the insureds by third parties, for personal injury and May Bar Application of Attorney-Client property damage allegedly caused by migration of toxic Privilege in Subsequent Dispute wastes from the insureds’ property. The insureds retained counsel, defended and settled the underlying lawsuit. They Between Insurer and Insured then sought indemnification for defense and settlement costs Rule 1.6 of the Illinois Rules of Professional Conduct pro- from the insurers in a declaratory judgment action when the vides, with limited exceptions, that “a lawyer shall not, during insurers denied coverage. or after termination of the professional relationship with the Addressing the attorney-client privilege issue, the supreme client, use or reveal a confidence or secret of the client known court held that under the cooperation clause of the applicable to the lawyer unless the client consents after disclosure.” The insurance policy, as well as the policy as a whole, any expec- term “confidence” is defined by the Rules as information that tation of attorney-client privilege on the part of the insureds is protected by the attorney-client privilege. The term “secret” was unreasonable. The court also concluded that under the is defined more broadly, and includes information gained by common interest doctrine, the attorney-client privilege was the lawyer during the professional relationship that the client not available to the insureds. Despite the fact that the insur- has requested be held inviolate, or the revelation of which ance companies and the insureds were then in an adversarial would be embarrassing to or would likely be detrimental to relationship, they initially had a common interest in defending the client. or settling the claims against the insureds in the underlying The attorney-client privilege is limited to those communi- lawsuit. Therefore, the attorney-client privilege had no ap- cations that the client expressly made in confidence, or which the client could reasonably believe under the circumstances would be understood by the attorney to be confidential. See, Consolidation Coal Co. v. Bucyrus-Erie Co., 89 Ill. 2d 103, 119, 432 N.E.2d 250 (1982). The privilege is perpetual, and continues even after termination of the attorney-client relationship, and even after the death of the client. Only the client About the Author may waive the privilege. Accordingly, the attorney must be Michael J. Progar is a partner with the firm of Doherty & Progar, LLC. He vigilant to guard against situations in which the attorney-client practices in both the Indiana and Illinois offices. A trial attorney with more privilege may not apply, and advise the client accordingly. than 20 years of civil jury trial experience, Mr. Progar has tried over 50 jury trials to verdict in both state and federal courts. Areas of special concentration One instance in which the element of confidentiality may include complex product liability and toxic tort litigation, insurance coverage, be lacking is where the attorney provides joint or simultaneous fraud and bad faith litigation, construction litigation, premises liability and employers’ liability. He received his J.D. from DePaul University College of representation for two different parties who have a common Law in 1981 and his B.A. in American Studies from the University of Notre interest. That situation has been referred to as the “common Dame. Mr. Progar is a member of DRI, IDC, Defense Trial Counsel of Indiana, Indiana State Bar Association, State Bar of Wisconsin and the Lake County, interest doctrine.” Communications made by either party to Indiana Bar Association. He has served on various bar association committees the attorney during the course of that representation are not in the areas of tort and insurance litigation and alternative dispute resolution. necessarily privileged in the event of a subsequent controversy between the two parties.

26 Third Quarter 2005 plication in the subsequent declaratory judgment action. that law firm apparently also had some input about whether Relying on the Illinois Supreme Court’s holding in Waste to settle or defend the underlying claims. Management, the Appellate Court of Illinois, Fourth District, The court concluded that the insured and the insurance recently held that, under the common interest doctrine, the company need not be privy to or in direct communication attorney-client privilege did not protect communications with the attorney in order for the attorney to be acting in the between insurance company representatives and an attorney interests of both. The insured and the insurance company both retained to represent the company with regard to its obliga- had a common interest in defending or settling the underlying tions to its insured under an automobile liability policy in a claims. The court seemed particularly troubled by the fact that declaratory judgment action. Western States Insurance Co. the insurance company did not retain counsel to represent the v. O’Hara, ___ Ill. App. 3d ___, 828 N.E.2d 842 (4th Dist. insured driver while considering settlement of the underlying 2005). The case was decided on May 10, 2005, and the court’s claims, although it retained counsel to protect its own interests opinion has not yet been released for publication. What does this mean for an attorney retained by an insur- While Waste Management held that an insured could not ance company? To avoid a potential waiver of the attorney- claim the attorney-client privilege in a subsequent dispute client privilege, it is important for the attorney to define the with the liability insurer, the appellate court, in Western States, scope of representation. Is the attorney being retained to considered the opposite side of the coin, i.e. whether the insur- represent the interests of the insurance company, the insured, ance company could claim the attorney-client privilege in a or both? declaratory judgment action against the insured. There is a dearth of case law in Illinois addressing the Western States arose out of an automobile accident involv- common interest doctrine in the context of disputes between ing multiple, seriously injured claimants. The insurance com- an insurance company and the insured. However, an obvious pany immediately retained a law firm to represent it regarding lesson to be drawn from Waste Management and Western its obligations to its insureds following the accident. That States is that an attorney retained to advise the insurance firm provided no legal advice or representation to the insured company on coverage issues must undertake no involvement driver. The company also retained counsel to represent the in the underlying claims, or risk inadvertently waiving the insured driver in criminal proceedings following the accident. attorney-client privilege. This is particularly so where the The insurance company ultimately settled two property insurance company has not yet retained defense counsel to damage claims, as well as the most serious personal injury represent the insured’s interests. claim, thereby exhausting its policy limit. The remaining It is unclear whether, under Western States, the appellate claimants filed suit against the insured driver, and the company court would have declined to apply the common interest doc- retained counsel to defend the driver under a reservation of trine if the law firm initially retained by the insurance company rights. At the same time, it filed a declaratory judgment action, would have carefully defined the scope of its representation, or contending that it had no obligation to defend or indemnify if the insurance company had simultaneously retained defense the insured driver in the underlying lawsuit because it had counsel to represent the insured’s interests. However, in view exhausted its policy limit. of this opinion, in any case where coverage is or may become In response to the insureds’ discovery requests in the de- an issue, an attorney retained by an insurance company, as claratory judgment action, the insurance company refused to well as an attorney retained as defense counsel for the insured, produce certain documents relating to its consideration of the should carefully define the scope of their representation, and underlying claims, claiming that they were protected by the advise their clients of the potential application of the common attorney-client privilege. After an in camera examination of interest exception to the attorney-client privilege. the documents, the court ordered production, finding that the common interest exception to the attorney-client privilege applied. The insurance company refused to produce the documents, and the court found it in civil contempt, from which the appeal followed. The appellate court affirmed, holding that the common interest doctrine applied, following Waste Management. Although the insurance company had retained a law firm to advise it regarding its obligations under the insurance policy,

27 IDC Quarterly

Featured Article malpractice, to wit: the filing of an attorney’s affidavit and a report “authored by a qualified reviewing health professional” stating that the action is meritorious and setting forth the bases Cargill Challenges for that determination. Additionally, in what appeared to be clear language in the 1998 amendment, Section 2-622 required to Plaintiff’s Complaint that “the report shall include the name and address of the health professional.” 735 ILCS 5/2-622(a)(1) (West 2005). in Medical (Emphasis added.) Cargill confirmed that Section 2-622, as passed in P.A. 90-579, meant what it said and upheld these Malpractice Actions: requirements. The impact of the Cargill ruling is significant to healing art A Primer for the Defense malpractice plaintiffs because many plaintiff attorneys have Attorney refused to comply with the plain language requirements of Section 2-622 since the enactment of P.A. 90-579. Prior to Cargill, trial courts rarely enforced the plain language of Sec- tion 2-622, particularly the provision requiring the disclosure By: Douglas J. Pomatto of the name and address of the reviewing health professional. and Jill Rogers-Manning The Fourth District Appellate Court in Cargill was not Heyl, Royster, Voelker & Allen the first appellate court to comment on this issue. In 2002, the Second District Appellate Court, in Giegoldt v. Condell Rockford Medical Center, 328 Ill. App. 3d 907 (2d Dist. 2002), stated that a plaintiff’s 2-622 report and affidavit would be insufficient in part if it failed to contain the health professional’s No case in recent months has generated more legal activ- address. And now, subsequent to the holding in Cargill, the ity by medical malpractice attorneys, plaintiff and defense Fourth District Appellate Court has upheld a trial court’s dis- lawyers alike, than the Fourth District Appellate Court case of Cargill v. Czelatdko, 353 Ill. App. 3d 654 (4th Dist. 2004). A flurry of motions to dismiss have been filed by defense counsel based on the Cargill decision, and each challenge to a plaintiff’s complaint has been met by the plaintiff’s counsel’s About the Authors creative arguments opposing the applicability and/or effect of the ruling. What follows is an attempt to outline rapidly Douglas J. Pomatto is a partner in the Rockford office of changing developments in this area of the law and to provide Heyl, Royster, Voelker & Allen. He has spent his entire legal career with Heyl Royster, beginning in 1977 in the Peoria the medical malpractice defense attorney with tools to support office. He became a partner in 1984 and was responsible for a Cargill motion to dismiss. opening the firm’s Rockford office in 1985 and has since been managing partner for that office. He concentrates his practice on areas of civil litigation. He represents insured Introduction and self-insured clients, especially in complex cases in the areas of medical On November 12, 2004, in Cargill v. Czelatdko, the Fourth malpractice, products, and professional liability. Mr. Pomatto is a past Presi- dent of the IDC. He is also a member of DRI, the International Association of District Appellate Court ruled that the Legislature’s 1998 Defense Counsel and the Society of Trial Lawyers. amendments to Section 2-622 of the Illinois Code of Civil Procedure, otherwise known as P.A. 90-579, resurrected the Jill Rogers-Manning is with the Rockford office of Heyl, Royster, Voelker & Allen, where she concentrates her amendments to that section that had previously been found practice in the defense of medical malpractice litigation, unconstitutional on the basis that the Section 2-622 provisions particularly the defense of physicians. She is registered to practice before the United States Patent and Trademark were nonseverable from other code changes and therefore Office and is a member of the Illinois State, Michigan held unconstitutional by the Illinois Supreme Court in Best v. State and American Bar Associations, Michigan Intellectual Taylor Machine Works, 179 Ill. 2d 367, 471 (1997). With P.A. Property Association and American Intellectual Property Law Association. She received her B.S. in Chemistry and 90-579, Section 2-622 of the Code of Civil Procedure con- Biology from Rockford College in 1993 and her J.D.. from Northern Illinois tinued to prescribe specific procedures that had to be adhered University in 1999. to by plaintiffs when filing a complaint alleging healing art

28 Third Quarter 2005 missal with prejudice for a plaintiff’s failure to comply with a plaintiff’s failure to comply with the name and address Section 2-622, citing, among other things, that the plaintiff’s disclosure requirement of Section 2-622. In many jurisdic- 2-622 affidavit failed to contain “the name and address of the tions, the term “Cargill motion” has become a term of art. In health professional as required by Section 2-622(a)(1) of the Cook County on April 21, 2005, Presiding Judge William D. Procedure Code.” Cothren v. Thompson, 356 Ill. App. 3d 279 Maddux entered an order consolidating the pending “Cargill (4th Dist. 2005). motions,” challenging the sufficiency of 2-622 reports on the Further, the First District has recently indicated in dicta, grounds that the name and address of the health care profes- that Section 2-622 requires the disclosure of the name and sionals were missing. Additionally, all Cargill motions filed in address of the consulting physician. In Beauchamp v. Zim- Cook County are subject to special procedures to streamline merman, the First District overturned the lower court’s grant the process, promote judicial economy, and create a system of a Section 2-1401 petition, in part, because the Plaintiff of consistent rulings in Cook County as of the preparation of failed to comply with the requirements of Section 2-622 this article. Given the statutory construction of Section 2-622 by failing to file a physician’s certificate of merit when he used by the First District in Beauchamp, discussed above, it refiled his case after a voluntary dismissal. This was de- would seem to follow that the Cook County cases will adopt spite previously filing an unsigned certificate of merit in his the same construction as Cargill and Beauchamp. Unlike initial action, explaining, “because the report failed to include Cook County, trial courts in northern Illinois have already had the name and address of the consulting physician, plaintiff’s fully briefed and have ruled on the Cargill motions, granting affidavit and report were insufficient to satisfy Section 2-622.” those motions, and dismissing plaintiffs’ complaints but only 735 ILCS 5/2-622(a)(1) (West 2002) (The report shall include “without prejudice” and usually allowing additional time (up the name and address of the health professional.) Beauchamp to 90 days) to file an amended complaint and to make the v. Zimmerman, 2005 WL 1552845 (Ill. App. 1st Dist, June 30, necessary 2-622(a)(1) health professional disclosure. 2005). (Opinion published, but not yet officially released). In addition, just prior to the press date of this article, one Historical Background trial court judge in Winnebago County ruled that the disclosure Section 2-622 of the Illinois Code of Civil Procedure was requirements of Section 2-622 conflict with Supreme Court originally enacted on August 15, 1985. It was amended in Rule 201. Further, there has been a motion to reconsider filed 1995 as part of the Civil Justice Reform Amendments of 1995 at the trial court level in the original Cargill action, follow- pursuant to the enactment of P.A. 89-7. In pertinent part, P.A. ing the dismissal with prejudice granted in that case, arguing 89-7 amended Section 2-622 to require the disclosure of the that the legislation recently passed by both houses to amend name and address of the health professional and to require Section 2-622 (SB 475, discussed below) is evidence of the the attorney filing the affidavit certify that he “has not previ- legislature’s intent. ously voluntarily dismissed an action based on the same or Both prior to and after Cargill, plaintiff attorneys have substantially the same acts, omissions, or occurrences.” argued that the legislative history of P.A. 90-579 fails to In 1997, certain core provisions of the Civil Justice Reform document the legislative intent of the General Assembly to Act of 1995 were declared unconstitutional by the supreme resurrect the language struck down by Best, and thus the court in Best v. Taylor Machine Works, 179 Ill. 2d 367, 471 language was never resurrected. Other arguments submit- (1997). The provisions amending Section 2-622 were not ted against finding that P.A. 90-579 resurrected the pre-Best considered by the court in Best but were declared void solely language include: (1) challenges to the constitutionality of on the grounds of severability, not on their merits. As such, Section 2-622; (2) the decision of Cargill is obiter dictum; the General Assembly is free to reenact whatever provisions (3) the Legislature, in passing P.A. 90-579, failed to follow its it deems desirable or appropriate.” Best, 179 Ill. 2d at 471. own rules; (4) proposed legislation should be given weight; The General Assembly once again amended Section (5) the “health professional” is a Supreme Court Rule 201 2-622 in February 1998 by utilizing the pre-Best version of “consultant” (a colorful variation of the separation of pow- Section 2-622 (i.e., including language struck down by Best) ers constitutional challenge); and (6) any relief sought by and adding the words “or naprapath” to Section 2-622(a)(1) the defendant under Section 2-622 for plaintiff’s failure to when it passed P.A. 90-579. Governor George Ryan signed comply should be less than an actual dismissal. Each of these P.A. 90-579 into law in May 1998. The plain language of arguments is discussed more fully below. Section 2-622, pursuant to the amendments of P.A. 90-579, The Cargill opinion created a multitude of motion filings required the disclosure of the name and address of the health in the trial courts by defense attorneys seeking dismissal for (Continued on next page)

29 IDC Quarterly

Cargill (Continued) The trial court in Cargill denied the defendants’ motions professional as well as the certification that the action has not to dismiss but granted the defendants’ motion to certify three been previously voluntarily dismissed. questions for review pursuant to Supreme Court Rule 308(a). After 90-579 initially passed, motions to dismiss were The questions certified were: filed by defense counsel where the plaintiff failed to identify the name and address of the 2-622 health professional. 1. Did P.A. 90-579 resurrect the amendments to [S]ec- For some unknown reason, and despite the clear language of tion 2-622 of the Code of Civil Procedure (inserted Section 2-622(a)(1), these motions were met with a lukewarm by P.A. 89-7) which had been found unconstitutional response from many judges. Many trial courts would simply by the Illinois Supreme Court’s decision in Best v. not dismiss a plaintiff’s complaint for lack of a 2-622(a)(1) Taylor Machine Works, 179 Ill. 2d 367 [228 Ill. Dec. disclosure, apparently buying into the various arguments 636, 689 N.E.2d 1057 (1997)]? made by plaintiffs’ counsel, not the least of which was the 2. If the response to the first question listed above is in claim that the Legislature did not really mean to do what it the affirmative, then in a refiled healing art malprac- did. Plaintiffs argued that all the trial courts had to do was tice case, does the [c]ircuit [c]ourt have discretion review the legislative history of the passage of P.A. 90-579, pursuant to [S]ection 2-622(a)(2) to “waive” the and they would see that there was no discussion about resur- requirement found at 735 ILCS 5/2-622(a)(2) that recting pre-Best 2-622 language. a plaintiff’s attorney certify that he “has not previ- As a result, in many jurisdictions, without any ruling at ously voluntarily dismissed an action based upon the appellate level that supported the disclosure provision the same or substantially the same acts, omissions, of 2-622(a)(1), and in the face of numerous unfavorable or occurrences?” rulings denying defense counsels’ motions to dismiss on the 2-622 basis, these challenges to the lack of disclosure of the 3. Assuming an answer in the affirmative to question name and address of the plaintiff’s health care consultant, [N]o. 1 above, and assuming that the [c]ircuit [c]ourt fell out of favor. does not have discretion to waive this certification requirement mandated by [S]ection 2-622(a)(2), Cargill v. Czelatdko does the [p]laintiff’s attorney’s failure to provide Finally, the statutory construction of Section 2-622, and the certification mandate dismissal of an action with particularly, the issue of whether P.A. 90-579 resurrected prejudice under [S]ection 2-622(g)? Cargill, 353 Ill. the pre-Best language, was evaluated by the Fourth District App. 3d at 655. Appellate Court in November 2004 in Cargill v. Czelatdko, 353 Ill. App. 3d 654 (4th Dist. 2004). In Cargill, the plaintiff On appeal, the appellate court answered the first and third originally filed a healing art malpractice action with an af- questions in the affirmative and answered “no” to the second fidavit stating that counsel was unable to obtain the requisite question. health professional report as allowed by Section 2-622 prior In answering the first question and determining whether to the expiration of the statute of limitations. Based on the af- Section 2-622, as enacted by P.A. 90-579, resurrected the fidavit, the plaintiff was granted a 90-day extension to procure amendments inserted by P.A. 89-7, the Fourth District made the health professional’s report. The plaintiff then voluntarily several presumptions based on prior supreme court rulings. dismissed his case prior to filing any health professional report First, the court presumed that the General Assembly knew as required by Section 2-622. about the Best ruling when it passed P.A. 90-579: “[W]here One year later, the plaintiff refiled his action for healing statutes are enacted after judicial opinions are published, it art malpractice without any health professional’s report as must be presumed that the legislature acted with knowledge required by Section 2-622, but his attorney did file an affidavit of the prevailing case law.” People v. Hickman, 163 Ill. 2d stating that he was unable to procure the health professional 250, 262 (1994). This presumption is particularly significant report required by Section 2-622. The defendants filed motions because the provisions of 2-622 were not found to be inde- to dismiss based on a failure to comply with the language of pendently unconstitutional in Best but were only held infirm Section 2-622 as amended by P.A. 90-579, which does not on the basis of their nonseverability from the other core allow a plaintiff to file an original action without a physician’s provisions that were held unconstitutional. The Cargill court certificate of merit, followed by a voluntary dismissal and found that the supreme court in Best explicitly emphasized subsequent refiling without a certificate. that the General Assembly could reenact any of the provisions

30 Third Quarter 2005 it deemed appropriate. Cargill, 353 Ill. App. 3d at 659, citing Finally, the Cargill court considered the plaintiff’s argu- Best, 179 Ill. 2d at 471. ment that P.A. 90-579 could not have reenacted the language Next, the Cargill court presumed that the Legislature was struck down by Best because the pre-Best language had not aware of the “construction previously placed upon such law been italicized, and such construction would violate Section and by its reenactment to have intended that it should have the 5 of the Statute on Statutes, which states: same effect.” Cargill, 353 Ill. App. 3d at 659, citing Svenson In construing an amendatory Act printed in any volume v. Hanson, 289 Ill. 242, 248 (1919). Finally, the Cargill court of the session laws published after January 1, 1969, mat- presumed that the statute was constitutional as passed, citing ter printed in italics shall be construed as new matter added by the amendatory Act, and matter shown crossed with a line shall be construed as a matter deleted from the “The Cargill court promptly law by the amendatory Act. 5 ILCS 70/5. (West 2005). distinguished Reedy based on The Cargill Court considered this argument and disposed of it by determining that “[S]ection 5 does not require italics differences in the chronology of for new matters to be valid.” Cargill, 353 Ill. App. 3d at 660. the legislative events and court The purpose of Section 5 is to clarify the procedures of the legislature, i.e., “when italics are used, such items shall be opinions, as compared to the construed as adding new matter by the amendatory act.” 353 Ill. App. 3d at 661. In other words, when items are italicized, amendments to Section 2-622 and they are to be construed as new matter, but failure to italicize is not fatal to a legislative act adding new matter, or reenacting their relation in time to the Best old matter. Therefore, the failure of the legislature to italicize decision.” the verbiage of the reenacted language does not invalidate the disclosure requirement, or any of the other language reenacted in P.A. 90-579.

Life after Cargill – Defense Positions Despite the clear and unambiguous ruling in Cargill, as People v. Wright, 194 Ill. 2d 1, 24 (2000). Cargill, 353 Ill. well as the precedent of stare decisis, resistance by plain- App. 3d at 660. tiffs’ counsel continues against the disclosure requirement The Cargill court considered the relevance of People v. of Section 2-622(a)(1). With the Cargill decision in hand, Reedy, 186 Ill. 2d 1 (1999), which was cited by the plaintiff defense counsel representing physicians, hospitals, and other for the proposition that curative language or evidence that the healing art malpractice defendants have again taken up filing amendment was intended was necessary to cure or validate of challenges to plaintiff’s 2-622 health professional’s report defective legislation. The Cargill court promptly distinguished by way of a motion to dismiss based upon Section 2-619 of Reedy based on differences in the chronology of the legislative the Illinois Code of Civil Procedure. In turn, plaintiffs have events and court opinions, as compared to the amendments to filed multifaceted responses to Cargill motions reiterating Section 2-622 and their relation in time to the Best decision. the positions originally argued and disposed of in Cargill The Cargill court further distinguished Reedy based upon the and also presenting new arguments, including challenges supreme court’s explicit invitation to the Legislature in Best to the constitutionality of Section 2-622. What appear to be to reenact provisions from P.A. 89-7 and the fact that the Sec- “canned” responses (i.e., virtually identical response briefs tion 2-622 language at issue was never held unconstitutional which propound the same or similar arguments) by plaintiff in Best. Cargill, 353 Ill. App. 3d at 660. attorneys are being utilized throughout many jurisdictions in Conversely, the Cargill court agreed with the Second Illinois to attack the Cargill holding. District’s holding in Giegoldt v. Condell Medical Center, par- One of defendants’ main arguments in support of the re- ticularly the implicit recognition that P.A. 90-579 resurrected sult in Cargill is that the clear and unambiguous language of the portions of Section 2-622 struck down by Best. Cargill, Section 2-622 eliminates the need to examine the legislative 353 Ill. App. 3d at 660. history. Plaintiffs have been citing the lack of supporting (Continued on next page)

31 IDC Quarterly

Cargill (Continued) Attacks on the constitutionality of Section 2-622 include legislative history in the form of legislative debates as a basis allegations that the section violates due process, equal pro- for defying the precedent of Cargill. This argument must fail tection, and special legislation violations of the Constitution. because the language of Section 2-622 is clear and unambigu- The supreme court has consistently determined that the 2-622 ous. The supreme court has clearly set forth the guidelines for requirements are rationally related to the legitimate purpose statutory construction. The supreme court, in discussing the of eliminating frivolous medical malpractice claims at the objective and procedure for statutory construction, stated: pleading stage and thus do not violate due process or equal protection. McAlister v. Schick, 147 Ill. 2d 84 (1992); see Our primary objective in construing Section 1(D)(m) also DeLuna v. St. Elizabeth’s Hospital, 147 Ill. 2d 57 (1992) is to give effect to the intent of the legislature. The (2-622 does not burden any fundamental right and does not most reliable indicator of the legislature’s intent is the implicate any suspect or quasi-suspect classification and language of the statute, which must be given its plain survives the rational relationship test for due process, equal and ordinary meaning. Where the language is clear and protection, and special legislation). unambiguous, it will be given effect without resort to Special attention is given to the constitutional attack based other aids of construction. (Citations omitted.) In re D.F., on separation of powers despite the Illinois Supreme Court’s et al., Minors (People of the State of Illinois v. Lashawn previous determination that the requirement of providing a F.), 208 Ill. 2d 223, 229 (2003). health professional’s report does not violate the separation of powers clause. See, McAlister v. Schick, 147 Ill. 2d 84, The supreme court elaborated on how legislative intent is (1992); see also, DeLuna v. St. Elizabeth’s Hospital, 147 Ill. to be determined in Benjamin v. Cable Programming Invest- 2d 57 (1992). To wit, in DeLuna, the court stated: ments, 114 Ill. 2d 150, 157 (1986), stating: [W]e do not consider that a health care professional In determining legislative intent, consideration must be performing the functions specified by Section 2-622 given to the entire statute, its nature, object, and purpose is exercising a judicial function. Here, the health to be attained, and the evil to be remedied. However, professional who must be consulted under Section if the intent of the legislature can be ascertained from 2-622 does not exercise a judicial power. Rather, the the language of the statute itself, then that intent will health professional simply certifies that in his opinion prevail without resort to extrinsic aids for construction. the action has reasonable merit. Expression of that opin- (Citations omitted.) (Emphasis added.) ion does not become a judicial power simply because the failure to comply with the statute by submitting Further, “[w]here the language of a statute is plain and the certification of the health professional may result unambiguous, a court need not consider its legislative his- in dismissal of the action. DeLuna, 147 Ill. 2d at 69. tory.” Envirite Corp. v. Illinois E.P.A., 158 Ill. 2d 210 (1994) (Emphasis added.). “[A] court should not attempt to read a The court in DeLuna found that the legislative enactment statute other than in the manner in which it was written. In of Section 2-622 did not “encroach upon inherent judicial applying plain and unambiguous language, it is not necessary powers or conflict with any of our rules.” Id. Based on the for a court to search for any subtle or not readily apparent foregoing, the additional requirement of disclosing the name intention of the legislature.” Envirite, 158 Ill. 2d at 217. Thus, and address of the reviewing health professional is not suf- the Cargill court properly followed the procedure set forth for ficient to invoke a violation of separation of powers, as this statutory construction by first examining the plain language of requirement does not encroach on the inherent judicial powers the statute, and then and upon finding it to be unambiguous, and does not conflict with the court’s rules. by ending its inquiry. Based upon these rulings alone, a trial court should spend Aside from the Legislative history argument, plaintiffs have little time with and should easily dispense with these consti- set forth numerous additional arguments in their responses tutional challenges. to defendants’ motions to dismiss pursuant to Section 2-622. The following are some of the defense responses to these 2. The Language of Cargill is not Obiter Dictum arguments. But Rather, Precedent In addition, allegations abound that the resurrection of 1. Section 2-622 is Constitutional the pre-Best language in Section 2-622, which requires the

32 Third Quarter 2005 disclosure of the health professional’s name and address, is 3. The Court Cannot Invalidate Legislation Based merely obiter dictum and is not binding on other courts. This on the Legislature’s Failure to Follow its Own argument is disingenuous. Rules The Illinois Supreme Court, in Nudell v Forest Preserve Another argument cited by plaintiffs in opposition to the District of Cook County, 207 Ill. 2d 409 (2003), described that statutory construction provided by the Cargill court is that the there are two types of dictum: obiter dictum (“a remark or Illinois Senate failed to follow its own rules of amendment opinion uttered by the way”) and judicial dictum (“an expres- when preparing P.A. 90-579. Each of the houses of the leg- sion of opinion upon a point in a case argued by counsel and islature has technical rules that are supposed to be followed deliberately passed upon by the court, though not essential for the amendment of statutes. For instance, Senate Rule to the disposition of the cause”). 5-1(e) and House Rule 37(e) both require that amendments to In Cargill, the ruling of the Fourth District on the issue of statutes be indicated by underlining the additions and striking out the deletions. In the case of P.A. 90-579, however, the only language underlined was “or naprapaths.” No language was stricken. Plaintiffs argue that the failure to strike the old “However, courts do not have the language of Section 2-622, and to underline the reenacted portions of 2-622, is clear evidence of the legislative intent. authority to enforce the Illinois However, courts do not have the authority to enforce the Illinois Senate Rules, nor can they invalidate legislation Senate Rules, nor can they invali- because the Senate did not follow its own rules. A court has date legislation because the Senate “the authority to invalidate legislation only when it violates a provision of the federal or state statute and ‘cannot handle did not follow its own rules.” matters which in effect are attempts to overrule decisions of a legislative body based upon alleged failure to follow requirements imposed by that body itself’.” Durjak v. Thompson, 144 Ill. App. 3d 594, 596 (1st Dist. 1986), citing Chirikos v. Yel- low Cab Co., 87 Ill. App. 3d 569, 574 (1st Dist. 1980). While Durjak dealt with the legislature’s failure to follow a different the proper statutory construction of Section 2-622 as amended internal rule (i.e., pertaining to the reading and printing of bills by P.A. 90-579 was essential to the disposition of the cause, as well as other, similar internal procedural rules), the First and thus was not dicta of either variety. The parties in Cargill District rejected the argument that the failure to follow those thoroughly briefed and argued the issue of the proper statu- internal rules could not render the legislation at issue (the tory construction. The Cargill court then determined that “[w] Income Tax Act) invalid or otherwise enforceable. Durjak, hen the legislature passed Public Act 90-579, with the same 144 Ill. App. 3d at 596. Similarly, the Legislature’s failure language as in Public Act 89-7, we find the General Assembly to underline the reenacted portions of P.A. 90-579 or strike intended it to have the same effect and was simply following any older provisions is insufficient grounds for invalidating the supreme court’s pronouncement that desirable provisions Section 2-622. could be reenacted.” Cargill, 353 Ill. App. 3d at 660. Thus, the Cargill court specifically found that P.A. 90-579 resur- 4. Proposed Legislation Not Yet Signed by the Gover- rected the amendments to Section 2-622 of the Illinois Code nor does not Invalidate the Clear Language of of Civil Procedure (inserted by P.A. 89-7) that had been found Section 2-622 unconstitutional by the Illinois Supreme Court’s decision in One of the primary arguments presented in the “canned” Best. Common sense requires that the holding in Cargill be briefs by plaintiff’s counsel involves utilizing the text of pro- applied to all of the resurrected portions of Section 2-622, posed legislation seeking to amend Section 2-622. Examples and thus the ruling is not dicta. of proposed legislation from various legislative sessions since the enactment of 90-579 are appearing as exhibits attached to responses to Cargill motions. The most recent piece of proposed legislation offered as evidence of legislative intent is Senate Bill 475, which was passed by both houses on May (Continued on next page)

33 IDC Quarterly

Cargill (Continued) Based on the foregoing, it is clear that absent any contrary 30, 2005, but which, at the time of this writing, had not been appellate decision, trial courts must follow the decisions of signed by Governor Rod R. Blagojevich. both the Fourth and Second Appellate Districts and find that As discussed above, there are rules in the legislature for P.A. 90-597 amended Section 2-622 to require the disclosure the amendment of laws. Under those rules, the legislator proof the reviewing health professional’s name and address; that posing a change in the law is supposed to take the text of the trial courts should rule the disclosure is mandatory and should current law and show the modifications to it by underlining dismiss plaintiffs’ complaints if the disclosure is not made. or striking out text to show new and deleted text. In several pieces of proposed legislation which advocate amendments 5. The Reviewing Health Professional is Not a Con- to Section 2-622, the legislation proposed uses a hybrid sultant Pursuant to Supreme Court Rule 201(b)(3) version of Section 2-622, which includes the verbiage from A new and creative argument that seems to have caught P.A. 90-579 which includes naprapaths, but also incorporates the eye of some trial courts is the argument that the disclosure the original text of the language of Section 2-622, i.e., the of the name and address of the health professional violates text which pre-dates the original amendments made by P.A. separation of powers because it encroaches upon the court’s 89-7, (i.e. the language adding naprapaths is included, but it authority to supervise litigation, and, in particular, Section is inserted into the pre-P.A. 89-7 version). In addition, some 2-622 conflicts with the provisions of Supreme Court Rule of the legislation proposed attempts to reinsert the disclosure 201(b)(3) with respect to nondisclosure of “pure consultants.” requirement back into this odd, hybrid version of Section While a supreme court rule will prevail over a conflicting 2-622. The argument being advanced by plaintiff’s attorneys statutory provision, this is only the case “when a statute is that the legislators themselves believe that the language was directly and irreconcilably conflicts with a supreme court not enacted by P.A. 90-579, as is evidenced by the failure to rule***.” Real Estate Buyer’s Agents v. Foster, 234 Ill. App. include the language added by P.A. 89-7 and 90-579 in the 3d 257, 260 (2d Dist. 1992). Further, the court must “seek to proposed legislation, and further by the new attempts to re- reconcile the legislation with the judicial rule, where reason- introduce the measures back into the law. ably possible.” Burger v. Lutheran General Hospital, 198 Ill. However, proposed legislation should not be given any 2d 21, 33 (2001). As discussed below, the different chronology weight because it cannot answer the question of legislative of the litigation to which these provisions apply, as well as intent of previous General Assemblies. In Matsuda v. Cook the supreme court’s discussions on the role of the reviewing County Employees and Officers Annuity and Benefit Fund, 278 health professional, make it clear that the provisions can and Ill. App. 3d 378, 385 (1st Dist. 1996), the court responded to should be reconciled. the submission of proposed legislation provided as extrinsic The purpose of Section 2-622 is to require that a plain- evidence of statutory construction by stating: “We refuse to tiff, or his attorney, confer with a health care professional give any weight to proposed legislation that was not passed regarding the basic facts of his case prior to the filing of the by Congress.” Likewise, the proposed legislation proffered case and to further require that the health care professional in this instance should be disregarded. reviewing the facts submit a report as a prerequisite to filing Further, stare decisis requires compliance with the holding a medical malpractice claim to discourage and eliminate in Cargill. Simply put, the trial courts must follow the deci- frivolous healing art malpractice lawsuits in the early stages. sions of Cargill, Giegoldt and Cothren. At this point, at least Hobbs v. Lorenz, 337 Ill. App. 3d 566 (2d Dist. 2003). Sec- two appellate courts, in three separate opinions, have stated tion 2-622 was clearly designed to act as a filter for frivolous that Section 2-622 requires the disclosure of the reviewing healing art malpractice claims by requiring someone trained health professional’s name and address. “Under the Illinois in the same branch of health care to review and deem rule of stare decisis, a circuit court must follow the precedent that action meritorious before the action is filed. “Section of the appellate court of its district, if such precedent exists; 2-622 makes clear that it is a pleading requirement. The af- if no such precedent exists, the circuit court must follow the fidavit and reports must be attached to the original and all precedent of other districts.” Schramer v. Tiger Athletic As- subsequent versions of the complaint. Thus, the affidavit and soc. of Aurora, 351 Ill. App. 3d 1016, 1020 (2d Dist. 2004). report are considered part of the complaint, not merely in The supreme court has indicated that the circuit court has no the nature of discovery documents that can be supplemented discretion in following the decision of the appellate courts: “It periodically.” Giegoldt v. Condell Medical Center, 328 Ill. is the absolute duty of the circuit court to follow the decisions App. 3d 907 (2d Dist. 2002). See also, McCastle v. Mitchell of the appellate court.” In re A.A., 181 Ill. 2d 32, 36 (1998). B. Sheinkop, M.D., Ltd., 121 Ill. 2d 188, 193 (1987) (Section

34 Third Quarter 2005

2-622 is a pleading requirement, not a substantive defense.) or otherwise pleading until 30 days after being served with Supreme Court Rule 201(b)(3), on the other hand, is part the health care professional’s report certifying the action as of the “General Discovery Provisions” of the Illinois Su- meritorious. 735 ILCS 5/2-622 (West 2005). Therefore, the preme Court Rules. Pursuant to this very supreme court rule, bulk of information available to any plaintiff for forming the discovery cannot be noticed or otherwise initiated until the basis of her strategy (i.e., deposition testimony, other extrin- time that defendants have appeared or are required to appear sic evidence) is not even available at the time during which unless leave of court is granted upon a showing of good cause. plaintiff must “consult” with a health professional. S. Ct. R. 201(d). Therefore, this Rule is not even applicable Section 2-622 and Supreme Court Rule 201(b)(3) are until after the requirements of Section 2-622 are met. easily separated. Rule 201(b)(3) explicitly defines the term The basis for the claim is two references to derivations “consultant”:

A consultant is a person who has been retained or spe- “However, nowhere in Section cially employed in anticipation of litigation or preparation for trial but who is not to be called at trial. The 2-622 does the Legislature re- identity, opinions, and work product of a consultant are discoverable only upon a showing of exceptional fer to the reviewing health care circumstances under which it is impracticable for the professional as a ‘consultant’ party seeking discovery to obtain facts or opinions on the same subject matter by other means. S. Ct. R. 201(b) but rather consistently refers (3). (West 2005). (Emphasis added).

to that person as a ‘health pro- The consultant described above is different than the health fessional.’” care professional described in Section 2-622, whose opinions are mandatorily disclosed by operation of compliance with the statute. Taking plaintiff’s argument to its logical (or illogical) end, even the opinions formed by the 2-622 health professional would not be disclosed due this supposed conflict with Supreme Court Rule 201(b)(3), which in turn would obfuscate of the word “consult” in Section 2-622, namely, (1) the lan- the intent and purpose of Section 2-622. This makes no legal guage requiring that the plaintiff’s attorney, or the plaintiff, sense. Based on the supreme court’s ruling in Sullivan, which if filing pro se, file an affidavit declaring “that the affiant has requires only a threshold “advisory” opinion by the 2-622 consulted and reviewed the facts of the case with a health health professional, it seems clear that the supreme court does professional***,” and (2) the language requiring that the not consider the health care professional referenced in Section attorney certify “on the basis of the reviewing health profes- 2-622 to be a “consultant.” sional’s review and consultation that there is a reasonable In addition, Section 2-622 requires the disclosure of the and meritorious cause for filing.” (Emphasis added). 735 reviewing health professional’s “reasons for the reviewing ILCS 5/2-622 (West 2005). However, nowhere in Section health professional’s determination that a meritorious cause 2-622 does the Legislature refer to the reviewing health care for filing the action exists,” which would, if this court were to professional as a “consultant” but rather consistently refers accept this argument, also violate the provisions of Supreme to that person as a “health professional.” Court Rule 201. As discussed in Sullivan, these reasons are The supreme court has expressed that the 2-622 reviewing not required “to rise to the level of a substantive claim for health professional does not have to consider all of the evi- medical malpractice,” thus they cannot be held to rise to the dence contemplated by plaintiff’s counsel to be used at trial, level of work product protected by Rule 201. The supreme nor would most of the evidence be available prior to the start court explained the role of the 2-622 health professional in of discovery. Sullivan v. Edward Hospital, 209 Ill. 2d 100 DeLuna v. St. Elizabeth’s Hospital: (2004). Further, as set forth in Supreme Court Rule 201(d), A consideration of the function performed by the health discovery is not even permitted until the time for defendants professional under Section 2-622 in making the required to appear has passed. S. Ct. R. 201(d) (West 2005). In fact, certification demonstrates that his task in that regard Section 2-622(a)(2) excuses the defendant from answering (Continued on next page)

35 IDC Quarterly

Cargill (Continued) Services, 356 Ill. App.3d 300 (5th Dist. 2005). While it may is essentially no different from the function he is later be within the discretion of the court to dismiss with or without called upon to perform at trial. In medical malpractice prejudice, the court should base its decision on the particular cases, the applicable standard of care and its breach circumstances of the case. See, Peterson v. Hinsdale Hospital, must normally be established through expert testimony. 233 Ill. App. 3d 327, 330 (2d Dist. 1992). Clearly, giving such testimony at trial does not constitute In the attempt to avoid the reality of Section 2-622(a)(1), a the exercise of a judicial function. By the same token, whole generation of “urban legends” about defense attorneys there can be no claim that requiring the submission of and insurance companies has been spawned in the imagina- similar information when an action is filed operates as a tions of plaintiff attorneys. Canned briefs and oral arguments delegation of judicial authority, improper or not. Section are fraught with vague allegations of nameless vicious defense 2-622 merely accelerates the time by which an expert attorneys stalking, harassing, and intimidating poor defense- opinion must be obtained. That Section 2-622 requires less reviewing health professionals, and the alleged behaviors the submission of a health professional’s report even in are cited as a reason for gaining special court protections, such cases in which expert testimony might not be necessary as submission of disclosures under seal or protective orders. at trial merely reflects the Legislature’s assessment of For example, a paragraph in one of the “canned briefs” reads: the statute’s desired scope. DeLuna v. St. Elizabeth’s Hospital, 147 Ill. 2d 57, 70 (1992). If the name and address of Plaintiffs’ consultant/reviewing health care professional are provided to defendants The supreme court does not refer to the 2-622 health profes- and their insurance carrier, there is a substantial risk sional as a consultant but as a “health professional,” consistent that the information will be used to adversely affect the with the language of Section 2-622. Clearly, the supreme court practice of, and/or intimidate, the consultant physicians recognized that a health professional’s opinions are analogous and Defendants, their counsel, and Defendants’ insur- to an expert’s opinions, rather than a consultant’s, due to the ance company may use this information to gain undue fact that it is necessary for the opinions of the 2-622 health advantage over Plaintiff’s case and harass the reviewing professional, as well as those of any experts, be disclosed at health care professional. (Emphasis added.) the time of pleading and prior to trial. Therefore, as the two provisions can be reconciled, Supreme Court Rule 201(b)(3) Alternatively, anecdotes of evil insurance companies using the does not conflict with Section 2-622, thus making disclosure names of the health professionals for ill gain have been cited as of the name of the health professional along with the health a basis for orders of confidentiality. Like urban legends, these professional’s reasons for determining that the action is meri- allegations are unfounded in fact and are lacking in any basis. torious required under Section 2-622(a)(1). Another remedy sought is the “friendly contempt order.” 6. Granting a Cargill Challenge Requires Dismissal This is a mechanism that allows a party to refuse to comply of Plaintiffs’ Complaint with a discovery order when they dispute the propriety of that order. “Friendly contempt orders” are proper for discovery One of the more interesting aspects of the Cargill debate disputes. Upon receiving the “friendly contempt” order, a arises in the context of remedies sought by plaintiff attorneys party may appeal the contempt order immediately and re- refusing to comply with the disclosure requirement of Sec- quest a ruling from the appellate court. Here, the remedy is tion 2-622. Rather than conceding the remedy provided in improper, as Section 2-622 imposes pleading requirements. the statute itself, or through the judicial interpretations of Thus, discovery sanctions are not applicable. Section 2-622 (i.e., dismissal of plaintiff’s complaint), plain- In new medical malpractice cases filed by plaintiffs since tiffs are routinely asking courts to design remedies to avoid the holding in Cargill and now that the Cargill decision has the remedies at law. However, in a 2-622 situation, the only come down and the petition for leave to appeal has been remedy available to the court is dismissal pursuant to 735 denied, Cargill v. Czelatdko, 214 Ill. 2d 528 (2005), defense ILCS 5/2-619, as provided for in 735 ILCS 5/2-622(g). “The counsel should argue that nothing short of a dismissal with failure to file a certificate as required by this section shall be prejudice is warranted. This argument can be made now grounds for dismissal under Section 2-619.” 735 ILCS 5/2- with the Cargill decision in hand, as the court has discretion 622(g) (West 2005). The remedy for failing to comply with to decide whether the dismissal should be with or without Section 2-622 is not discretionary. “When the plaintiff fails to prejudice, and it cannot be said that the plaintiff did not have satisfy the requirements of Section 2-622(a)(1) of the Code, knowledge of the Cargill decision when the plaintiff placed a dismissal is mandatory.” Hull v. Southern Illinois Hospital

36 Third Quarter 2005 a complaint on file with a 2-622 health professional’s report miss based on failure to disclose the name and address of the blatantly lacking the name and address of the health profes- reviewing health professional. At the time, no appellate court sional. had specifically ruled on this 2-622 issue. Secondly, Gulley makes it clear that merely filing an answer is not sufficient to raise the forfeiture issue. See also, Thompson v. Heydemann, 231 Ill. App. 3d 578, 581 (1st Dist. 1992) (filing an answer does not preclude the filing of a Section 2-619 Motion to “While it may be within the discre- Dismiss unless there is a showing that the plaintiff is unfairly tion of the court to dismiss with or prejudiced). Also, it is important to remember that the Gulley decision was based on the defendants’ failure to timely object without prejudice, the court should to the plaintiff’s noncompliance in providing any 2-622 report, a report required under every version of the law since its base its decision on the particular inception. Suffice it to say that the 2-622(a)(1) nondisclosure issue is a different situation than the 2-622 issue in Gulley, circumstances of the case.” and it is only with the recent and more definitive ruling in Cargill that defense attorneys and trial courts alike can have confidence in what the law requires on the disclosure issue.

Conclusion Cargill has finally provided legal justification to the inter- Plaintiffs’ Waiver Arguments and Defense Responses pretation of Section 2-622 that many defense attorneys have A Cargill challenge could also be filed in a pending case, presented to various trial courts over the past several years. but the challenge by defense counsel is made more difficult if While the issues of legislative intent and constitutionality of the defendant has answered the complaint and/or has moved Section 2-622 have been presented as complex by the plaintiffs ahead with discovery. This situation was dealt with in the case in these cases, it is clear that the plain and simple language of Gulley v. Noy, 316 Ill.App3d 861 (4th Dist. 2000). of the amendments of P.A. 90-579 provide the best indicator In Gulley, the plaintiff filed a healing art malpractice of legislative intent. Further, Section 2-622 is clearly a plead- complaint against the defendant doctor and medical group ing requirement and should not be treated like discovery, nor and attached to it an affidavit stating that the plaintiff was should discovery provisions of the Supreme Court Rules unable to obtain a health professional’s report prior to the apply. Section 2-622, as interpreted by Cargill, merely ac- tolling of the statute of limitations. Defendants filed an answer complishes the goals of the Legislature, goals that benefit all to the complaint in September 1997. The case proceeded in of society – the elimination of frivolous suits against health discovery until March 2000, when the defendants filed a mo- care providers. tion to dismiss the plaintiff’s complaint for failing to file any certificate of merit in compliance with Section 2-622. The Gulley court ruled that the defendants, by answering the pleadings and proceeding with affirmative acts manifesting an intent to move the case forward, as well as failing to raise their objection for more than two and a half years, forfeited their right to move for dismissal pursuant to Section 2-622. The Gulley court was quick to point out that merely answering the complaint would not necessarily result in a forfeiture of their rights and was careful not to draw any lines to delineate any specific point at which forfeiture would definitively result. While many plaintiffs are attempting to use the forfeiture argument in Gulley to quash a Cargill challenge on cases filed prior to Cargill, there are some strong defense responses that can be made to these attempts. First, prior to Cargill, many trial court judges were routinely not granting motions to dis-

37 IDC Quarterly

While Section 1981 is similar to Title VII in many respects, in that it prohibits racial discrimination, there are relevant differences between Title VII and Section 1981. For example, Civil Rights Update the protection given to plaintiffs against discrimination in the workforce under Section 1981 only applies to the making, performance, modification and termination of an employment By: Bradford B. Ingram and Sylvia Coulon* contract, and not to problems arising from conditions of con- Heyl, Royster, Voelker & Allen tinued employment. Patterson v. McLean Credit Union, 491 Peoria U.S. 164 (1989). The Patterson decision means that a plaintiff seeking redress for employment discrimination under Section 1981 can only bring a cause of action if the employer’s conduct created a change in the employment relationship, such as a promotion, which created a new and distinct contractual right. Id. “Legitimate Nondiscriminatory Reason” Another cognizable difference between Section 1981 and Remains Best Defense to Section 1981 Title VII is that Section 1981 solely applies to racial dis- and Title VII Discrimination Claims crimination and does not apply to gender or national origin claims. Saint Francis College v. Al-Khazraji, 481 U.S. 604 Discrimination claims brought pursuant to 42 U.S.C. (1987). Also, claims brought pursuant to Section 1981 have § 1981 as well as Title VII are not won by simply stating a a four-year statute of limitations governed by 28 U.S.C. prima facie case. Plaintiffs are not entitled to judgment if the § 1658, Jones v. R.R. Donnelley & Sons Co., 541 U.S. 369 defendant can articulate a legitimate nondiscriminatory reason (2004); and unlike Title VII, Section 1981 claims cannot be for its employment decision. Many plaintiff’s attorneys are based on employment procedures that have a disparate im- pursuing employment discrimination claims under Section pact on minorities. Rather, Section 1981 is only applicable 1981 because of the increased potential for recovery of signifi- to disparate treatment claims caused by intentional racially cant attorney’s fees and to avoid statutory caps on damages. motivated bias. General Building Contractors Ass’n, Inc. v. This article will review the Seventh Circuit’s recent deci- Pennsylvania, 458 U.S. 375, 382-85 (1982). sion in Blise v. Antaramian, 409 F.3d 861 (7th Cir. 2005), Some of the benefits of bringing a Section 1981 claim where the defendant successfully articulated a legitimate include the fact that Section 1981 can be equally applied to nondiscriminatory basis for its employment decision and employment actions when there is no direct employer/em- obtained summary judgment in a Section 1981 case. ployee relationship. All that is required for standing to sue under Section 1981 is that the discriminating person or entity 42 U.S.C. Section 1981 Claims: Burden of Proof interfered with the plaintiff’s ability to enter into an employ- 42 U.S.C. § 1981, as part of the Civil Rights Act of 1866, ment contract on the basis of race. Daniels v. Pipefitters’ Ass’n was enacted pursuant to the 13th Amendment to the United States Constitution. The amended Section 1981 provides that all persons shall have the right to make and enforce contracts as enjoyed by white citizens and provides in a relevant part:

All persons within the jurisdiction of the United States About the Authors shall have the same right in every State and Territory to make and enforce contracts, to sue, be parties, give Bradford B. Ingram is a partner with Heyl, Royster, evidence, and to the full and equal benefit of all laws Voelker & Allen. His practice concentrates on the defense of civil rights and municipal entities and the defense of and proceedings for the security of persons and property employers in all types of discrimination claims. He is a as is enjoyed by white citizens, and shall be subject to frequent speaker before local and national bar associations like punishment, pains, penalties, taxes, licenses, and and industry groups. exactions of every kind, and to no other. * The author acknowledges the assistance of Sylvia Coulon, a law clerk with Heyl, Royster, Voelker & Allen, in the preparation of this article.

38 Third Quarter 2005

Local Union No. 597, 945 F.2d 906, 914-15 (7th Cir. 1991). first stage of the interview involved a volunteer panel designed Section 1981 claims also can be brought against an employer to winnow down the number of job candidates. The volunteer with fewer than 15 employees, while Title VII claims cannot. panel consisted of three volunteers not employed by the city. Fadeyi v. Planned Parenthood Ass’n of Lubbock, Inc., 160 Id. The second stage of the interview consisted of a panel of F.3d 1048, 1049 (5th Cir. 1998). city officials, who determined the final offer of employment The remedies of relief available under Section 1981 also based on a score given to each applicant after the interview. vary from Title VII claims. Unlike Title VII, Section 1981 does Id. The scores given to each applicant were based on previous not have a statutorily proscribed remedy, other than the award employment, prior experience, and how well each individual of attorney’s fees and expert fees given to the prevailing party. scored during the interview panel. Id. at 865. Additionally, because Section 1981 does not have a statutory Thirty-two people applied for the position, including Blise cap on the method of relief, a plaintiff may be entitled to a and a white woman named Jan Davis. Only 12 of the appli- larger monetary award if he or she brings a cause of action cants, including Blise and Davis, met the basic criteria for the pursuant to Section 1981. position. During the first stage of the interview, Blise received The burden of proof in employment discrimination claims the highest score. Id. During the second stage of the interview, remains with the plaintiff. Defendants can satisfy their burden however, Blise came in sixth out of seven candidates, and the of production and prevail at summary judgment by offering position was offered to the highest scoring individual who a legitimate nondiscriminatory reason for the adverse em- accepted the position. Id at 865. ployment action. St. Mary’s Honor Ctr. v. Hicks, 509 U.S. 502 (1993). Plaintiffs who allege that they are discriminated The City’s Articulated Reason for Not Hiring against because of race must prove their case beyond merely Blise Was a Legitimate Nondiscriminatory stating the prima facie case for discrimination. Employment Decision The prima facie case for a Section 1981 claim of racial Blise v. Antaramian, 409 F.3d 861 (7th Cir. 2005) discrimination is made when: Blise held that the plaintiff had set forth a prima facie case of racial discrimination under Section 1981. However, the (1) The plaintiff shows that he or she belongs to a defendant, her employer, had articulated a legitimate non- protected class; discriminatory reason for not hiring the plaintiff. The plaintiff (2) The plaintiff applied for and was qualified for the was not the highest ranked applicant at the conclusion of position; the application process. The plaintiff failed to show that this legitimate basis for not being hired was pretextual. (3) Despite his or her qualifications, the plaintiff was rejected; and, Factual Background (4) After his or her rejection, the position remained In Blise, an African-American woman brought suit against open and the employer continued to seek applica- the city of Kenosha, Wisconsin, the city’s mayor, the city tions from persons with the plaintiff’s qualifica- administrator and the director of personnel alleging that tions, or the position was filled by a nonminority the city violated her constitutional right to equal protection applicant. Id. at 866. through an ongoing policy and practice of not promoting blacks to positions of influence and authority. 409 F.3d 861 This test for racial discrimination in the workplace was (7th Cir. 2005). Blise worked for the city of Kenosha in vari- first set forth in McDonnell Douglas under the direct method ous capacities beginning in 1979. Id. at 863. In March 2001, of proof test. McDonnell Douglas Corp. v. Green, 411 U.S. the position of Operations Coordinator (“OC”) for the city’s 792 (1973). Under this test, Blise claimed that the city and Public Service Department became available. Responsibilities each individual defendant discriminated against her because for the OC position included performing and coordinating of her race in violation of Section 1981. Simply making out functions affiliated with the Public Services Department, such a prima facie case for employment discrimination under the as the resolution of problems and expediting service requests McDonnell Douglas test, however, does not entitle the plaintiff of citizens, as well as the preparation and management of the to a judgment in his or her favor, or even the chance to present Public Service budget. Id. the case to a jury. Blise v. Antaramian, 409 F.3d at 867. In In order to be considered for the OC position, each appli- order to prevail under a Section 1981 claim for employment cant had to go through a two-stage interview. Id. at 864. The (Continued on next page)

39 IDC Quarterly

Civil Rights Update (Continued) becoming more important in an increasingly service-oriented discrimination, the plaintiff must show that he or she was a economy. Personal qualities also factor heavily into an em- victim of intentional discrimination. Id. (emphasis added). ployment decision concerning supervisory or professional This intention can be shown through either direct or indirect occupations. Thus, traits such as common sense, good judg- evidence. Direct evidence of discrimination, however, usually ment, originality, ambition, loyalty and tact often must be requires an admission by the decision-maker that their actions assessed in a subjective fashion, which is entirely appropriate were based on a prohibited animus. Circumstantial evidence, for a decision maker. Id. on the other hand, can be presented to the jury by construct- ing a “convincing mosaic” of intentional discrimination. Id. at 866, quoting Koszola v. Bd. of Educ. of City of Chicago, 385 F.3d 1104, 1109 (7th Cir. 2004). Once the plaintiff makes out a prima facie case for employ- “From a defense lawyer’s ment discrimination, however, the defendant is still entitled perspective, the need for a defen- to summary judgment as a matter of law in the event the defendant cannot articulate a nondiscriminatory reason for dant to set forth a legitimate the employment decision. Id. at 867. If a nondiscriminatory reason is given by the defendant, the burden of proof then nondiscriminatory reason for the shifts back to the plaintiff to prove that the reason given by the defendant was merely pretextual, and that a prohibited hiring decision is fairly logical animus more likely than not motivated the hiring decision. Id. because not every plaintiff who From a defense lawyer’s perspective, the need for a defendant to set forth a legitimate nondiscriminatory reason for the makes out a prima facie case of hiring decision is fairly logical because not every plaintiff who makes out a prima facie case of employment discrimination is employment discrimination is a a victim of an invidious animus. Anti-discrimination laws did victim of an invidious animus.” not come into existence in order to protect against unforseen disappointment or lost expectations. David S. Schwartz, The Case of the Vanishing Protected Class: Reflections on Reverse Discrimination, Affirmative Action, and Racial Balancing, 2000 Wis. L. Rev. 657 (2000). Anti-discrimination laws were adopted to prevent unlawful discrimination based on “immu- Conclusion table characteristics” that cannot be changed or traced back to Whether an employment discrimination claim is brought occupational job qualifications. Furthermore, not every form pursuant to Title VII or Section 1981, a plaintiff must estab- of discrimination in the workplace is prohibited by law. An lish that the employment decision was based on a prohibited employer’s decision to favor one candidate over another can animus rather than merit. Courts are not designed to sit as be “mistaken, ill-considered or foolish,” but, so long as the superpersonnel departments where disappointed applicants employer honestly believed he or she had legitimate reason or employees can have the merits of a hiring decision repeat- for the hiring decision, misconceived pretext has not been edly replayed before a court. Holmes v. Potter, 384 F.3d 356, shown. Blise v. Antaramian, 409 F.3d at 867, quoting Jordan 361-62 (7th Cir. 2004). v. Summers, 205 F.3d 337, 343 (7th Cir. 2000). A successful defense of an employment discrimination In Blise’s case, the court held that a legitimate nondis- claim brought pursuant to 42 U.S.C. § 1981 requires employ- criminatory reason did exist for the hiring decision. Blise, 409 ers to articulate a legitimate, nondiscriminatory reason for F.3d at 867 (emphasis added). The court held that the city of their adverse employment decision. Successfully marshaling Kenosha had a legitimate reason not to hire Blise because evidence in support of this defense will entitle employers to she was not the highest ranked applicant for the position. Id. summary judgment and defeat the Section 1981 claim. Furthermore, nothing in Title VII bans the outright use of subjective criteria during an interview. Id. at 868. Subjective evaluations of an employment candidate are often critical to the decision-making process, and subjective evaluations are

40 Third Quarter 2005

involved. For instance, only $500,000 in economic damages can be awarded in a judgment against a single physician defendant for wrongful death, even if there are three separate Medical Malpractice plaintiffs who have brought the action. Section 2-1706.5 also mandates that the jury verdict forms be drafted as to allow for specific awards of damages for economic loss and non- By: Edward J. Aucoin, Jr. economic loss. The jury is not to be informed of these caps Hall, Prangle & Schoonveld, LLC on non-economic damages. Chicago Section 2-1706.5 also creates a presumption of economic damages for a plaintiff who earns less than the annual average weekly wage as determined by the Illinois Workers Compen- sation Commission. 735 ILCS 5/2-1706.5(b). This section clearly addresses the “homemaker” arguments forwarded Senate Bill 475 by the plaintiff’s bar during debate over the bill, where a More Than Simply Caps on stay-at-home caregiver or minimum wage employee would Non-Economic Damages presumably have little or no future wage loss claim. Under this section as provided, a jury may award past and future lost On May 30, 2005, the Illinois General Assembly took income awards based upon a plaintiff’s actual pay or upon the another shot at reforming medical malpractice liability by statewide average weekly wage at the time that the action was passing Senate Bill 475. Almost immediately, the hallways of filed, which was $788.99 per week for the first half of 2005. local courthouses were full of conversations, and sometimes It will be interesting to see how this amendment affects the arguments, regarding the proposed caps on non-economic “value of household services” component present in so many damages under that bill. While the proposed caps on dam- economic reports. ages received the spotlight on the local airwaves, Senate The $1 million cap on non-economic damages for hos- Bill 475 includes reforms to the medical malpractice system pitals applies to the hospital’s personnel and affiliates as that extend beyond a limitation on non-economic damages. well. Therefore, the naming of nurses, residents and other In fact, Senate Bill 475 includes reforms aimed at medical employees of the hospital individually would not result in any malpractice litigation, the discipline of physicians by the State additional recoverable non-economic damages in the same ac- Medical Disciplinary Board, and the regulation of medical tion. Likewise, the $500,000 cap against physicians includes liability insurers. This article will concentrate on the medical their corporate entities, thereby denying two recoveries of the malpractice litigation reforms included in Senate Bill 475 and limit if the physician and his group are named separately. how they may affect the day-to-day practice by attorneys in this area. Senate Bill was submitted to Governor Blagojevich (Continued on next page) on June 29, 2005, thereby allowing him 60 days thereafter to either sign, veto or amend the document.

Non-Economic Damages Caps The section of Senate Bill 475 that garners the most attention among attorneys and the general public relates to caps About the Author on non-economic damages in medical malpractice cases. Edward J. Aucoin, Jr. is an associate in the Chicago Senate Bill 475 amends the Code of Civil Procedure to add firm of Hall, Prangle & Schoonveld, LLC. He has eight Section 2-1706.5, entitled, “Standards for Economic and years of experience in medical malpractice defense, com- Non-Economic Damages.” Under that section, judgments mercial litigation, and contract litigation practice. Mr. Aucion’s substantial client base includes private hospitals entered against a hospital, its personnel, or hospital affili- and medical practice groups, physicians and other medical ates for non-economic damages are limited to $1 million per professionals, and national commercial corporations. He has extensive experience in preparing complex litigation claim. Judgments in that same action against a physician, that for trial, and has second-chaired medical malpractice trials in Cook County physician’s business or healthcare professionals are limited and DuPage County. Mr. Aucoin received his B.A. from Loyola University of New Orleans and his J.D. from Loyola University of New Orleans School of to $500,000. (735 ILCS 5/2-1706.5) These limitations apply Law. He is also a member of the IDC. to the individual action, regardless of the number of plaintiffs

41 IDC Quarterly

Medical Malpractice (Continued) The Sorry Works! Pilot Program The section is silent as to a hospital’s liability for non- Senate Bill 475 also establishes the Sorry Works! Pilot economic damages when the sole basis of liability forwarded Program, which is open to one hospital in the first year of against it is apparent agency. Subsection (a)(1) of Section the program’s operation. That hospital must be located in a 2-1706.5 refers to “any award” against the hospital, of which, county with a population greater than 200,000 and which is arguably, apparent agency liability would be included. If this contiguous with the Mississippi River. Under the program, is true, can a plaintiff recover $1.5 million in non-economic the hospital and physicians involved in the care at issue would damages against a hospital and an independent physician promptly acknowledge and apologize for mistakes and patient under apparent agency, while only recovering $1 million care and “promptly” offer fair settlements to those patients. in non-economic damages when the physician was actually The hospital initially participating in the program is required to an employee of the hospital? This result seems somewhat submit a report to an oversight committee created by the bill, inequitable, since plaintiff’s apparent agency claim and the which details its costs in defending human error malpractice resulting judgment presume the physician to be an agent of verdicts for the preceding five years. The committee deter- the hospital. Therefore, future reviewing courts will have to mines the average yearly cost by the hospital and should the determine if a finding by the trier of fact that the physician is actual cost incurred by the participating hospital in the Sorry an apparent agent of the hospital transforms that agent into Works! Pilot Program exceed that average, the hospital can “hospital personnel” under Section 2-1706.5(a)(1). petition for a grant from the Sorry Works fund for the difference in those amounts. The amount of reimbursement under The “I’m Sorry” Rule the Sorry Works fund is limited to $2 million per participating Senate Bill 475 also amended Section 8-1901 of the hospital per year. Code of Civil Procedure, in that it added limited protection for a healthcare provider’s expression of “grief, apology or Expert Witness Qualifications explanation” to the patient about the care at issue. 735 ILCS Senate Bill 475 amended Section 8-2501 of the Illinois 5-8-1901(b). Under that subsection, any expression of grief, Code of Civil Procedure, which deals with expert witness apology or explanation, including the words “I’m sorry,” standards. The amended section is very similar to the ver- about an inadequate or unanticipated treatment or care out- sion previously enacted by Public Act 89-7, which was held come that is provided within 72 hours of when the provider unconstitutional by the Illinois Supreme Court in, Best v. knew or should have known about the potential cause of Taylor Machine Works, 179 Ill. 2d 367 (1997). Subsection such outcome is not admissible as evidence in any case. The (a) of Section 8-2501 mandates that the court, in determining Illinois Legislature follows the lead of several other states, whether a witness qualifies as an expert witness can therefore which have hypothesized that an apology from the physician testify on the appropriate standard of care, must determine or health care provider reduces the likelihood that the patient whether the witness is board certified, board eligible or has will bring suit for the alleged negligent actions. completed a residency in the same or substantially similar Subsection (b) creates a “discovery rule” by including the medical specialties as the defendant and is otherwise qualified qualification that the expression be made within 72 hours of by “significant” experience with the standard of care, methods, when the healthcare provider “knew or should have known” procedures, and treatments relevant to the allegations against of the potential cause of the injury. Therefore, the rule would the defendant. 735 ILCS 5/8-2501(a). Previously, the physi- appear to be based upon the subjective knowledge of the pro- cian did not need to be board certified or eligible in the same vider rather than the reasonable person standard. The inclusion or substantially similar medical specialties as the defendant. of the word “explanation” as a type of expression covered Future reviewing courts will have to determine what under this subsection increases the breadth of that section’s “significant experience” equates to under the amended Sec- coverage to include discussions beyond mere apologies, and tion 8-2501, but they may receive some guidance from the arguably includes details of the procedure or treatment at is- amendment to subsection (b) therein. Subsection (b) states sue. This amendment has no effect on the discoverability and that the witness must have devoted a majority, as opposed admission of medical records or other materials prepared for to the previous “substantial portion,” of his or her work time the medical chart. to the practice of medicine, teaching or university-based research relating to the medical care and type of treatments at issue. 735 ILCS 5/8-2501(b). Subsection (c) requires that the expert witness have the same class of license as an individual

42 Third Quarter 2005 defendant upon whose care he is commenting. 735 ILCS 5/8- ture also decided that a single written report should be filed 2501(c). This amendment has the most immediate implication to cover each defendant in the action, which helps delineate upon nurses, therapists, technicians and other medical care which acts of negligence are attributed to each defendant. providers who can receive different degrees of licensure in Amended Section 2-622 departs from previous versions their professions. in its differentiation between individuals and all other defen- Amended Section 8-2501 also requires the expert witness dants. As to individuals, the written report must be from a to provide evidence of active practice, teaching or engage- health professional licensed in the same profession with the same class of license as the defendant. Therefore, individually named nurses and therapists require reports from individuals licensed in their fields, whereas previously, a physician was qualified to prepare the report for both. “Finally, the amended section For defendants other than individuals, the written report states that an expert who has not must be from a physician licensed to practice medicine in all its branches “who is qualified by experience with the actively practiced, taught or been standard of care, methods, procedures and treatment relative to the allegations at issue in the case.” This differentiation engaged in university based re- sets up another dichotomy in the treatment of the hospital or search during the preceding five healthcare institution defendant, namely, a different reviewing health professional could be required to complete the report years may not be qualified as an as to a hospital depending on whether individual, employed medical care providers are named as additional parties in the expert witness, which is a reduc- suit. The question also arises as to whether two reports are required when an individual hospital employee is named, one tion from the ten year requirement against the hospital and one against the individual. under Public Act 89-7.” Amended Section 2-622 also provides that preparation of the written report by the reviewing health professional shall not be used to discriminate against that professional in the issuance or determination of premium for medical liability insurance. Further, professional organizations may not discriminate against the reviewing health professional due to his preparation of a written report under this section. This ment in university-based research. If retired, the expert must amendment clearly attempts to address the practice by certain provide evidence of attendance and completion of continuing medical societies of revoking or suspending the membership education courses for three years prior to giving the testimony. of individuals who prepare written reports for medical mal- Finally, the amended section states that an expert who has not practice complaints that are deemed to be inappropriate or not actively practiced, taught or been engaged in university based based on good faith. Amended Section 2-622 also requires research during the preceding five years may not be qualified that the reviewing healthcare professional’s name, address, as an expert witness, which is a reduction from the ten year current license number and state of licensure be attached to requirement under Public Act 89-7. the attorney’s affidavit required under the act. Subsection (a)(2) of Section 2-622 was amended in two Amendments to Section 2-622 respects. First, the requirement that a plaintiff state the case The amendments to 735 ILCS 5/2-622 to be enacted by has not previously been voluntarily dismissed when also al- Senate Bill 475 are few, but have far reach and impact. Un- leging that he or she was unable to obtain a consultation with a der subsection (a)(1) of Section 2-622, the reviewing health reviewing health professional prior to expiration of the statute professional need only practice or teach in the same area of of limitations has been eliminated. This requirement was the healthcare or medicine at issue in the action within the last five subject of the Fourth District’s decision in Cargill v. Czlatdko, years, as opposed to the previous six years. However, now the 353 Ill. App. 3d 654, 818 N.E.2d 898, 288 Ill. Dec. 963 (4th reviewing health professional must meet the expert witness Dist. 2004), which was detailed in this column last quarter. standards set forth in amended Section 8-2501. The legisla- (Continued on next page)

43 IDC Quarterly

Medical Malpractice (Continued) cost of an annuity should a verdict against that defendant be The legislature’s omission of that requirement will certainly reached. This section also addresses the often-cited concern have some impact on the numerous Cargill motions pending by the plaintiff’s bar during debate of the bill that defendants in the circuit courts throughout the state. Subsection (a)(2) could not ensure whether a company providing the annuity further provides that additional 90-day extensions under that would be solvent when future funds were needed. section shall not be granted except where there has been a withdrawal of the plaintiff’s counsel, presumably within the Good Samaritan Protection Extended initial 90-day extension. The final area of medical litigation reform proposed under Senate Bill 475 relates to the Illinois Good Samaritan Act. Use of Annuities for Payment of Future Medical Ex- Specifically, retired physicians are now included among penses and Costs of Life Care healthcare providers exempt from civil liability for services Senate Bill 475 adds Section 2-1704.5 to the Illinois Code performed without compensation through free medical clinics of Civil Procedure, entitled Guaranty Payment of Future Med- or to patients who have been referred from free medical clin- ical Expenses and Costs of Life Care. That section provides ics. 745 ILCS 49/30. A second significant change to Section that within five days of a verdict in which a plaintiff is awarded 30 of the Good Samaritan Act is that the patients receiving the future medical expenses and costs of life care, either party to free services no longer are required to be “medically indigent.” the action may elect, or the court may enter its own order, to have payment of those future expenses through purchasing an What Does It All Mean? annuity. If selected, the defendant will pay 20% of the present According to the Illinois General Assembly, Senate Bill cash value of future medical expenses and costs of life care 475 is a package of reforms that seek to enhance the State’s in a lump sum to the plaintiff. Thereafter, the defendant may oversight of physicians and medical liability insurance carriers purchase an annuity from a company highly rated by two of while simultaneously reducing the number of nonmeritorious the four financial rating services specified in that section. The medical malpractice actions and encouraging physicians to annuity must guarantee that the plaintiff will receive annual practice in Illinois. That seems like a noble goal. What is payments equal to 80% of the current year annual cost of certain is should Governor Blagojevich sign Senate Bill 475 future medical expenses and costs of life care inflated by the and allow its reforms to take effect, the resulting Public Act annual composite rate for the life of the plaintiff. will be attacked by the plaintiff’s bar without fail. Most likely, Under Section 2-1704.5, the trier of fact is charged with the debate will end up before the Illinois Supreme Court, determining the present cash value of the plaintiff’s future which will have to decide if the current effort by the General medical expenses and costs of life care, the current year an- Assembly ignored its reasoning in Best v. Taylor Machine nual cost of the plaintiff’s future medical expenses and costs Works or whether they got it right this time. of life care, and the annual composite rate of inflation that should be applied to the current year annual cost. The trier of fact is allowed to vary the amount of future costs from year to year to account for different annual expenditures but cannot be informed of the use of an annuity. Should the company providing the annuity become unable to pay the amounts due the plaintiff, the defendant is required to secure a replacement annuity from a company with the same financial rating. A plaintiff receiving future payments through an annuity may seek leave of court to assign his or her rights to those payments in exchange for a lump sum value if he or she demonstrates “unanticipated financial hardship” under such terms as approved by the court. In catastrophic injury cases, the use of an annuity to pay for 80% of future medical care costs and cost of life care can result in substantial savings for the medical defendant. The five-day window provided by Section 2-1704.5 dictates that defendants need to consult their financial planner prior to trial and have some estimate for the

44 Third Quarter 2005

is not entitled to damages greater than the amount she was obligated to pay, and any additional sums would constitute a windfall. Defendants also argued that the difference between Evidence and Practice Tips the amount charged and the amount actually paid is “illusory” and not subject to the collateral source rule. The appellate court, with one justice dissenting, reversed the circuit court’s By: Joseph G. Feehan entry of partial summary judgment for the defendants. Arthur Heyl, Royster, Voelker & Allen v. Catour, 345 Ill. App. 3d 804, 803 N.E.2d 647, 281 Ill. Peoria Dec. 243 (3rd Dist. 2004). The appellate court held that the “plaintiff’s damages are not limited to the amount paid by her insurer, but may extend to the entire amount billed, provided those charges are reasonable expenses of necessary medical care.” 345 Ill. App. 3d at 808. The Illinois Supreme Court allowed the defendants’ pe- Illinois Supreme Court Holds That titions for leave to appeal. The court also granted leave to Collateral Source Rule Does Not the Illinois Trial Lawyers Association to submit an amicus Prohibit a Plaintiff from Recovering curiae brief in support of the plaintiff and allowed the Il- the Entire Amount of Medical Bills linois Association of Defense Trial Counsel to submit an amicus curiae brief in support of the defendants’ position. Initially Billed Even Though the The defendants conceded that the collateral source rule ap- Medical Providers Ultimately Accepted a plied to the $13,577.97 that Blue Cross paid and plaintiff’s Discounted Amount from Plaintiff’s Insurer medical providers accepted as payment in full. However, the in Full Satisfaction of the Bills defendants contended that the collateral source rule should not apply to the $5,777.28 difference between the amount In Arthur v. Catour, Nos. 97920, 97946, 2005 WL 1693760 billed and the amount paid. Conversely, the plaintiff argued (July 21, 2005), the plaintiff, Joyce Arthur, fractured her leg that the collateral source rule protected the entire amount when she stepped in a hole on defendant Laurie Catour’s of $19,355.25 initially billed by the medical providers. The property. The plaintiff incurred medical bills of $19,355.25 Illinois Supreme Court rejected the defendants’ arguments for treatment of her injuries. The plaintiff had group medical and affirmed the appellate court’s decision. In reaching its insurance with Blue Cross/Blue Shield through her husband’s (Continued on next page) employer. Because of the insurer’s contractual agreements with the healthcare providers, only $13,577.97 was required to pay off all of the plaintiff’s medical bills. Thus, it was not necessary for the plaintiff or her insurer to pay the $5,777.28 difference between the billable amount and the amount accepted as payment in full. At trial, the defendants filed a motion for partial summary judgment seeking to limit the plaintiff’s claim for medical expenses to the amount paid rather than the amount billed. The trial court granted the defendants’ motion, finding that About the Author allowing the plaintiff to recover the larger amount “would only serve to punish the defendants punitively and provide a Joseph G. Feehan is a partner in the Peoria office of Heyl, windfall for the plaintiff.” 2005 WL 1693760 at *2. The trial Royster, Voelker & Allen, where he concentrates his practice in commercial litigation, products liability and personal court ruled that the plaintiff should be limited to “seeking injury defense. He received his B.S. from Illinois State compensatory damages not exceeding those actually paid to University and his J.D. (Cum Laude) from the Northern Illinois University College of Law. Mr. Feehan is a member her medical providers.” Id. of the ISBA Tort Law Section Council and is also a member The Third District Appellate Court allowed the plaintiff’s of the Peoria County, Illinois State and American Bar Associations. He can be application for leave to appeal pursuant to Supreme Court contacted at [email protected] Rule 308. On appeal, the defendants argued that the plaintiff

45 IDC Quarterly

Evidence and Practice Tips (Continued) and defendants is the reasonable value of the services conclusion, the Arthur court reviewed the history of the col- rendered. The certified question merely asks whether lateral source rule under Illinois law, stating: certain evidence is admissible in such cases. Arthur, 2005 WL 1693760 at *4-5. Clearly, . . . the collateral source rule . . . applies only to prevent defendants from introducing evidence that a plaintiff’s losses have been compensated for, even in part, by insurance. “In the present case, plaintiff However, the collateral source rule is not an evidentiary rule that permits a defendant to limit a plaintiff’s ability received health-care services and to introduce evidence of the reasonable cost of health became liable for the resulting care necessitated by the defendant’s conduct. expenses upon receipt of those * * * In the present case, plaintiff received health-care services, not when the final bill services and became liable for the resulting expenses was eventually issued.” upon receipt of those services, not when the final bill was eventually issued. Her liability was not somehow nonexistent merely because the providers submitted bills directly to her insurer. Indeed, it is not uncommon for an insurer, upon receipt of such bills, to deny coverage, leaving the patient/plaintiff personally liable for The Arthur court then analyzed principles of Illinois evi- the balance. For example, the policy might have lapsed dence law regarding the standards for admissibility of medical for nonpayment of premiums, or the policy may not bills in a personal injury case. The Arthur court stated that cover some services, such as cosmetic or reconstruc- it is well settled that a plaintiff can introduce a medical bill tive surgery. into evidence if the plaintiff establishes that the bill has been paid or by introducing testimony that the bill represented the The medical expenses for which plaintiff was liable usual and customary charges for such services. The Arthur were covered in full by her health insurance. The bill court noted that a defendant “may rebut the prima facie was paid in part and the balance written off pursuant reasonableness of a medical expense by presenting proper to a contractual arrangement between the insurer and evidence casting suspicion upon the transaction.” Id. at *5. the provider—a contract in which the plaintiff was not The Arthur court concluded that a plaintiff’s damages are not a party. Thus, the collateral source was the insurance related to the amount paid by her insurer, but may extend to company and not the so-called “discount.” To restate the entire amount initially billed by the medical providers, if the obvious: plaintiff did not receive a discount from those charges were reasonable expenses for necessary medical the provider. Rather, plaintiff received the benefit of her care. The Arthur court stated: bargain with her insurance company—full coverage for incurred medical expenses. Applying these principles to the present case, plaintiff cannot make a prima facie case of reasonableness based This leads us to the certified question, which presents on the bill alone, because she cannot truthfully testify a question of proof rather than of entitlement, i.e., a that the total billed amount has been paid. Instead, she question involving an evidentiary component of the must establish the reasonable cost by other means—just collateral source rule and not a substantive rule of as she would have to do if the services had not yet been damages. Plaintiff, of course, is entitled to recover rendered, e.g., in the case of required future surgery, or if as compensatory damages the reasonable expense of the bill remained unpaid. Defendants, of course, are free necessary medical care resulting from defendants’ to challenge plaintiff’s proof on cross-examination and negligence, if proved. (Citations omitted.) The only to offer their own evidence pertaining to reasonableness relevant question in the litigation between plaintiff of the charges. Id. at *6.

46 Third Quarter 2005

The Arthur court did not address whether its holding is Chief Justice McMorrow then undertook a detailed analysis specifically limited to situations where an insurance carrier of the majority’s opinion and highlighted several of the ques- or employer negotiates a discounted bill or has a preferred tions that remain unanswered, stating: provider agreement. For example, it remains unclear whether Arthur will apply to situations where medical bills are reduced The majority then reiterates its holding by stating that due to payments made by Medicare or Medicaid, where medi- “[p]laintiff may present to the jury the amount that her cal bills are discharged in bankruptcy, or where the medical health-care providers initially billed for services ren- provider simply writes off a portion of the medical bills. It is dered.” (Citation omitted.) questionable whether the collateral source rule should apply in these situations because the plaintiff did not extend any What does this mean? Although the majority answers funds (such as insurance premiums) to obtain the benefit of the certified question by ruling that plaintiff may present the reduced bills. In fact, the Third District Appellate Court the billed amount to the jury as the appropriate measure conceded that the application of the collateral source rule is of damages, the majority then contradicts this statement “less compelling” in cases where medical providers accepted by holding that plaintiff cannot make a prima facie case reduced payments from public programs such as Medicare or of reasonableness based upon the bill alone, as plaintiff Medicaid as full payment. Arthur, 345 Ill. App. 3d at 808. “cannot truthfully testify that the total billed amount It appears that the Arthur decision provides more ques- has been paid.” (Citation omitted.) The majority also tions than answers regarding the correct application of the holds that plaintiff must establish the reasonable cost collateral source rule by the trial court. In a lengthy dissent, of her medical expenses “by other means,” but those Chief Justice McMorrow lamented that the majority opinion “other means” remain unspecified. Further, the majority avoided the issues presented by the certified question and as a would allow defendants “to challenge plaintiff’s proof result, the court’s opinion “dramatically changes trial practice on cross-examination and to offer their own evidence with respect to this issue.” Arthur, 2005 WL 1693760 at *8. pertaining to the reasonableness of the charges,” but Justice McMorrow stated: provides no insight as to what this evidence might be. (Citation omitted.) In its opinion, however, the majority avoids the questions presented by this appeal. The certified question is Several questions and concerns arise from the majority’s a straightforward one: can plaintiff seek compensation analysis and holding in this case. First, what is to be- for the amount billed or the amount paid for medical come of the well-settled rule in this state that a plaintiff services rendered? The majority gives an answer that establishes a prima facie case that a medical expense is amounts to no answer at all. The majority opinion crafts reasonable if that expense has been paid? Under ordinary an unworkable analytical framework and arrives at a rules of evidence, the paid bill would be the appropriate holding that represents a major change in trial prac- measure of damages. Yet, for unexplained reasons, this tice. It is my position that such a significant alteration is not the answer in the matter at bar. should be approached carefully, and only after this court has had the benefit of input from the bench and On the other hand, the majority appears to implicitly ac- bar affected by the change. This has not occurred in the knowledge that “evidence of the amount charged alone instant matter. The majority opinion compromises the does not indicate reasonableness.” (Citation omitted.) traditional protections afforded by the collateral source Thus, because plaintiff’s charged bill was not paid, the rule and may necessitate a trial within a trial whenever majority admits that plaintiff cannot use the charged bill the reasonableness of a plaintiff’s medical expenses are to show that the expenses were prima facie reasonable. at issue. Because the majority’s analysis of the issues The majority states that plaintiff must establish reason- presented in this case is inadequate, and because the able costs by unspecified “other means,” yet fails to majority’s holding dramatically changes trial practice elaborate on exactly what plaintiff may do. Id. at *13-14. with respect to this issue, I cannot join in the majority opinion. I express no opinion on the ultimate disposition Chief Justice McMorrow concluded her dissent by contem- of the issue presented in this appeal. Id. plating how the majority opinion will “dramatically” change

(Continued on next page)

47 IDC Quarterly

Evidence and Practice Tips (Continued) from a collateral source—her insurance company—and trial practice and render it “unworkable,” stating: therefore violate the collateral source rule. Thus, under such a scenario, defendants may very well have no The majority’s opinion will likely result in the parties means of challenging the reasonableness of the billed conducting a trial within a trial on the issue of the rea- amount of medical services as the measure of plaintiff’s sonableness of a plaintiff’s medical expenses. Instead of damages. the current practice wherein stipulations are often made between the parties with respect to the reasonableness If, by its opinion, the majority is signaling that such a of medical bills, the parties will be forced to gather line of questioning by defendants is acceptable under information about the billing practices of every health- these facts, then I point out that the majority is compro- care provider in the case. In addition, witnesses familiar with the billing practices of each provider will have to be called to testify with respect to each amount charged, and the reasonableness of that amount for the specific procedure performed, given the provider’s experience “Unfortunately, the Arthur decision and reputation and the relevant medical community. This evidentiary process directly contravenes the rationales does little to clarify Illinois law on for holding that a paid bill constitutes prima facie evidence that the bill is reasonable: that a free and voluntary the collateral source rule and the payment of a charge shows the reasonable value of admissibility of medical payments that service, and that it comports with efficient judicial administration by eliminating unnecessary cost and and medical bills.” inconvenience to the parties by having to call multiple witnesses. Presenting testimony with respect to billing practices and procedures will no doubt add considerable time and expense for the court and the litigants without advancing the goals of recovery for the plaintiff. mising the protections of the collateral source rule—the In addition, I note that the majority holds that defendants very rule that it is claiming to support. The majority may challenge plaintiff’s proof on cross-examination, emphasizes—and I agree—that the collateral source or “offer their own evidence pertaining to the reason- rule prevents evidence that a medical bill was paid by ableness of the charges.” (Citation omitted.) Again, no insurance. Yet, under the majority’s opinion, if evidence guidance is offered by the majority to the bench and bar is proffered that health-care providers initially charged on what may be introduced. plaintiff a certain amount and later accepted a reduced amount as payment in full, the jury may be confused and It is my belief that the evidentiary procedure required left to create an explanation. It may be that jurors would by the majority will be unworkable. A possible scenario deduce the presence of insurance. Allowing evidence of may unfold as follows. Plaintiff, with supporting testi- both the billed and discounted amounts compromises the mony from witnesses familiar with the billing practices collateral source rule, confuses the jury, and potentially of the provider, will present the amount initially billed prejudices both parties in the case. Each jury will resolve by her health-care providers as the reasonable measure the issue differently, leading to inconsistency wherein of her damages to the jury. Defendant, attempting to similarly situated parties will be treated differently. It is show that the billed amount does not reflect the reason- my belief that the majority’s opinion will only further able value of the services provided, will cross-examine confuse the bench and bar on these already confusing plaintiff’s witnesses and question whether the amounts issues. Id. at 14-15. charged by the provider are the amounts actually paid by the patient for the services rendered. It is very likely Chief Justice McMorrow concluded that the majority’s that plaintiff’s counsel would immediately object to such opinion “creates a new evidentiary procedure that represents a line of questioning on the basis that these questions a major change in trial practice, and which appears to be would ultimately reveal that plaintiff received payment unworkable.” Id. at 16.

48 Third Quarter 2005

Unfortunately, the Arthur decision does little to clarify Il- The Arthur decision also creates numerous questions to be linois law on the collateral source rule and the admissibility addressed by plaintiff’s counsel when presenting their case of medical payments and medical bills. For example, although at trial. If the jury hears evidence of both the amount billed the Arthur court has stated that a defendant may challenge and of the discounted amount accepted as full payment, will the reasonableness of a medical bill “by presenting proper the jury conclude that insurance must have paid plaintiff’s evidence casting suspicion upon the transaction,” it did not medical expenses? Further, will the jury believe that plaintiff specify whether “proper evidence” includes evidence that the is being greedy in asking for damages in the amount of the medical provider accepted a lesser amount in full satisfaction entire bill—even though the provider accepted a significantly of a medical bill. Id. at *6. (Emphasis added.) Further, the reduced amount in full payment? Arthur court did not clarify the proper evidentiary procedure Defendants typically file motions in limine prohibiting any to be utilized by a defendant who is attempting to prove that reference to the defendant’s liability insurance coverage. If the the providers accepted a lesser amount as full payment. Is defendant is permitted to inform the jury that plaintiff’s bills the defendant required to call the billing personnel from the were paid in part by insurance, will plaintiff argue that the jury medical providers to establish that they accepted a reduced should hear evidence of defendant’s liability insurance cover- amount as full payment? Is the defendant permitted to ask age? such a witness to explain why the medical provider agreed The numerous questions created by the Arthur decision to accept the reduced amount? Do the jury instructions for undoubtedly will be addressed by the various appellate court medical expenses need to be modified to reflect the different districts in the future. It will be interesting to monitor whether medical bills figures presented to the jury? With respect to the appellate court decisions or future Illinois Supreme Court future medical expenses, is the defendant allowed to intro- decisions will provide additional guidance to trial counsel on duce evidence that the anticipated future medical bills will the collateral source rule and the admissibility of medical pay- be reduced because of preferred provider agreements? ments and medical bills.

49 IDC Quarterly

substantially. Also the funeral expense payable in the event of a worker’s death is substantially increased. Employers face increased potential for penalties for unrea- Legislative Update sonable delay in making payment of benefits. An employer who fails to be properly self insured or fails to carry workers compensation insurance faces misdemeanor and in some cases By: Gregory C. Ray felony prosecution rather than a mere civil penalty imposed Craig & Craig by the Workers Compensation Commission under the prior Mattoon statute. The Governor will need to sign the bill not later than July 27, 2005 for it to become law. It has an immediate effective date. House Bill 174 amends the Code of Civil Procedure to The Illinois General Assembly’s spring session concluded permit a six-person jury demand for claims for damages of on a timely basis, with a number of bills being sent to Gover- up to $50,000, increasing the amount from its current $15,000 nor Blagojevich that may be of interest to you. There was an level. As under the current statute, either party can demand enormous amount of publicity concerning medical malpractice a twelve-person jury rather than a six-person jury for claims and “caps.” A bill is awaiting signature by the Governor at within this time frame. If signed by the Governor by August the time of the preparation of this article. Details about the 14, 2005, the amendment becomes effective January 1, 2006. bill appear elsewhere in this Quarterly. House Bill 190 amends the Health Care Services Lien Act While the doctors and other healthcare providers were to include licensed long-term care facilities within the defini- directing their attention to medical malpractice legislation, tion of healthcare providers who may claim liens under the a small group of representatives of the business and labor Act. Assuming the Governor signs the Bill, it will be effective communities was meeting to fashion substantial changes in January 1, 2006 and apply to causes of action accruing on or the Workers Compensation Act, some of which directly af- after its effective date. fect healthcare providers and, to their perception, most likely Senate Bill 1907 expands the category of those who can adversely. House Bill 2137 has two provisions directed to request records from a “health care facility” or “facility” un- healthcare providers. First, a provider cannot balance bill der Section 8-2001 of the Code of Civil Procedure. The bill an injured worker for charges not paid by the employer or expands the scope of persons who are permitted to see or copy workers compensation insurance company while a workers the records to “. . . any person, entity or organization present- compensation claim is pending. Second, a medical fee sched- ing a valid authorization for the release of records signed by ule has been created which caps the amount the employer will the patient or the patient’s legally authorized representative.” have to pay at 85% of the 90th percentile of the charges in the It is of some interest that the bill does not similarly modify provider’s relevant geographic area as established by historical Section 8-2003 which addresses the records of “health care data and then adjusted into future years by the percentage of practitioners” meaning, essentially, physicians and similar change in the Consumer Price Index. From the perspective of individual practitioners. The Governor must sign the bill by employers, this result is a major step to control total workers August 15, 2005 for it to become law. If signed, it will be compensation costs. More than half of each workers compen- effective January 1, 2006. sation dollar is paid for medical care. Accordingly, the only meaningful way to gain control over the total cost of workers compensation is to gain control over medical care costs, because it would not be politically feasible to keep benefits About the Author paid directly to workers for lost time or permanent disability Gregory C. Ray is a partner with firm of Craig & Craig static, much less reduce such benefits. In 1996, the medical in its Mattoon office. He is a 1976 graduate of the Uni- lobby was able to prevent a similar bill being passed by the versity of Illinois Law School. He is an officer of the IDC and a member of the IDC and Illinois Appellate Lawyers General Assembly. Association. He has served as a member of the Board of Benefits payable to injured workers are also increased. Directors of the IDC and is a past Editor-in-Chief of the Higher amounts will be paid for permanent disability as a IDC Quarterly. His primary practice areas include trials of tort matters, appellate practice, and workers’ compensation defense. Mr. Ray percentage of loss of use of specified body parts. Minimum is the immediate Past President of the IDC. amounts payable to low paid workers are increased quite

50 Third Quarter 2005

does not supersede other provisions of the Constitution “and, in particular, does not displace the rule that States may not give a discriminatory preference to their own producers.” Id. at Technology Law 1890. Significantly, the court continued that state policies are protected under the 21st Amendment “when they treat liquor produced out of state the same as its domestic equivalent.” By: Michael C. Bruck Id. Crisham & Kubes, Ltd. Michigan and New York also argued that their regula- Chicago tory schemes protected their states against the ills of under- age drinking. The court rejected this argument because the states provided little evidence that the purchase of wine over the Internet by minors is a problem. Id. at 1905. The court concluded that teenagers simply have easier ways to obtain The Supreme Court Uncorks E-Commerce alcohol than waiting around for an interstate shipment of wine in Internet Wine Sales Decision to be delivered to them. Id. According to the court, “[t]echnological improvements, In a case with landmark implications for e-commerce, in particular the ability of wineries to sell wine over the the U.S. Supreme Court recently struck down state laws that Internet, have helped make direct shipments an attractive restricted direct Internet sales over state lines by wineries to sales channel.” Id. at 1893. It added that “interstate direct consumers. In Granholm v. Heald, 125 S. Ct. 1885 (2005), shipping represent[s] the single largest regulatory barrier to the court held that Michigan’s and New York’s regulatory expanded e-commerce in wine.” Id. The court adopted this systems that allowed in-state wineries to ship their wines view from a July 2003 Federal Trade Commission (FTC) directly to consumers, but limited the access of out-of-state report titled “Possible Anticompetitive Barriers to E-Com- wineries, violated the Commerce Clause. U.S. Const. art. I, merce: Wine.” See, FTC Report, Possible Anticompetitive § 8, cl. 3. The decision will likely mark the beginning of an Barriers to E-Commerce: Wine (July 2003), available at expansion of e-commerce in several major industries presently http://www.ftc.gov/os/2003/07/winereport2.pdf. impeded by legal barriers. Without question, Granholm will States may not enact laws to burden out-of-state producers be the impetus for many legal challenges of state regulatory or shippers simply to provide a competitive advantage to in- schemes. state businesses, the court declared. Granholm, 125 S. Ct. at 1895. Such laws deprive citizens of their right to have access The Court’s Decision to markets on equal terms. Id. at 1896. The court described The Granholm decision consists of three consolidated the current patchwork of laws as the product of an ongoing cases that challenged laws in Michigan and New York. Justice low-level trade war that stands in direct conflict with the Anthony Kennedy wrote the court’s 5-4 opinion. Commerce Clause. Id. The court stated that “Michigan and New York regulate the sale and importation of alcoholic beverages, including wine, (Continued on next page) through a three-tier distribution system. Separate licenses are required for producers, wholesalers, and retailers . . . the three-tier system is . . . mandated by Michigan and New York only for sales from out-of-state wineries. In-state wineries, by contrast, can obtain a license for direct sales to consumers.” About the Author Granholm, 125 S. Ct. at 1892. The court determined that this differential treatment between in-state and out-of-state Michael C. Bruck is a partner in the Chicago law firm of Crusham & Kubes, Ltd. He is a trial lawyer focusing wineries “constitutes explicit discrimination against interstate on the defense of professionals in malpractice actions, commerce.” Id. commercial cases and intellectual property litigation. Mr. Michigan and New York tried to argue that the 21st Amend- Bruck received his B.S. from Purdue University in 1984 and his J.D. from DePaul College of Law in 1988. He is a ment granted the states unlimited power to control the sale of member of DRI, IDC, ISBA, CBA and The Illinois Society alcohol. In response, the court stated that the 21st Amendment of Trial Lawyers.

51 IDC Quarterly

Technology Law (Continued) Granholm, has been a common stumbling block for interstate e-commerce. Some Doors Will Open, Others Will Remain Shut – The In addition, some states are considering requiring Internet Impending Challenges Will Decide auction companies such as eBay to apply for the licenses re- The e-commerce wine industry will feel the most direct quired for a typical in-state auctioneer. See, Public Workshop: effects of the Granholm decision. E-commerce, a promis- Possible Anticompetitive Efforts to Restrict Competition on ing sales avenue for wine, has, in the past, represented only the Internet at 15. These policies entail high licensing fees an estimated 1% to 3% of wine sales nationwide. See, FTC and lengthy procedures. These types of restrictions, if overly Report, Possible Anticompetitive Barriers to E-Commerce: burdensome, may be unlawful after Granholm. Wine (July 2003), available at http://www.ftc.gov/os/2003/07/ winereport2.pdf. However, after Granholm, that may soon change. The court’s decision, therefore, may mark the beginning of success for the online wine businesses previously “The court’s decision, therefore, hindered by the protectionist state legislation. Beyond the wine industry, the most important and promis- may mark the beginning of success ing aspect of the Granholm decision is the effect it will have on other industries that, similar to wine, are prevented from for the online wine businesses pre- online growth by protectionist state legislation. Accordingly, viously hindered by the protection- Granholm is about much more than wine – it marks the beginning of online business growth for these industries, and it ist state legislation.” demonstrates that the court will uphold the Commerce Clause against anticompetitive state regulation. In 2003, the Federal Trade Commission held a public workshop entitled Possible Anticompetitive Barriers to E- Commerce that examined the effect of protectionist state legislation on several industries, including wine. See, Public States, after Granholm, also will find it increasingly dif- Workshop: Possible Anticompetitive Efforts to Restrict Com- ficult to prohibit all out-of-state direct sales of a product but petition on the Internet available at http://www.ftc.gov/opp/ allow in-state sales. One industry potentially affected is the ecommerce/anticompetitive/021008antitrans.pdf. Many of online sale of automobiles directly from the manufacturer the laws cited by the FTC as hindering e-commerce may be to the consumer. Economists estimate that consumers, if al- lifted by the decision in Granholm. For example, some states lowed to buy directly from the manufacturer over the Internet, require that out-of-state online mortgage lenders maintain an stand to save hundreds or even thousands of dollars off the in-state office. The court in Granholm struck down a similar regular price. See, FTC Public Workshop Agenda, Possible restriction on the wine industry, noting: Anticompetitive Efforts to Restrict Competition on the Internet (October 2002), available at http://www.ftc.gov/opp/ecom- [T]he expense of establishing a bricks-and-mortar merce/anticompetitive/agenda.htm. distribution operation in 1 state, let alone all 50, is States, along with in-state automobile dealers, argue that prohibitive. It comes as no surprise that not a single there are legitimate concerns about Internet sales by manufac- out-of-state winery has availed itself of New York’s turers. They claim that the laws prohibiting direct automobile direct-shipping privilege . . . . New York’s in-state pres- sales protect the consumer from deceitful manufacturers. In ence requirement runs contrary to our admonition that the past, courts would have been deferential to the states in States cannot require an out-of-state firm “to become a such economic policies; however, after Granholm, it appears resident in order to compete on equal terms.” that state regulation requires solid evidence to advance discriminatory policies. Granholm, 125 S. Ct. at 1897, quoting Halliburton Oil Well Nevertheless, certain industries may be harder to crack Cementing Co. v. Reily, 373 U.S. 64, 72 (1963). The court open. For example, the Internet has the potential to deliver greatly helped e-commerce organizations by recognizing certain types of legal services, including estate planning and that laws that require them to become part of the state are preparation of real estate documents. See, FTC Public Work- discriminatory. The physical presence requirement, until shop Agenda. However, states have had a long and successful

52 Third Quarter 2005 history of excluding nonlawyers or unlicensed lawyers from the unauthorized or multijurisdictional practice of law. Likewise, states highly regulate the field of medicine. Nonetheless, the Internet can provide cost savings and greater access to medical care through online services such as the sale of prescription drugs or access to digital imaging technology. See, FTC Public Workshop Agenda. A large body of case law exists that supports the rights of states to regulate these areas. See, e.g., Goldfarb v. Virginia State Bar, 421 U.S. 773, 789 (1975) (The Supreme Court addressed the effect of the Sherman Act on certain anticompetitive conduct of lawyers). Indeed, lawyers and medical professionals have significant responsibilities undoubtedly justifying certain regulation of these professions. However, in the wake of Granholm, future litigation probably will chip away at the areas where professional or industry regulations cloak unjustifiable anticompetitive activities. An interesting legal fight also is looming over Internet gambling. Presently, nine states prohibit the placement of online bets. See, Kevin Smith, US Cross-Border Commerce Ruling Could Affect I-Gaming, Interactive Gaming News (May 18, 2005). In Granholm, the court rejected Michigan’s and New York’s arguments that their regulatory schemes protected against the harms associated with teenage drinking. Granholm, 125 S. Ct. at 1890. However, these nine states can probably present stronger arguments that address the morality and social ills of gambling. A teenager is probably more apt to engage in Internet gambling than wait around for a case of wine to be delivered to his parent’s house. The legal challenges over online gambling are sure to test the judiciary’s role in evaluating the validity of public mores.

Conclusion The Granholm decision will potentially benefit many areas of e-commerce outside of the wine industry. As states are forced to do away with protectionist legislation, Internet companies previously burdened by a patchwork of state legislation may gain access to consumers equal to that currently enjoyed by in-state companies. For now, you can relax with a glass of the new California wine that you just had delivered to your door and watch the ramifications of Granholm unfold.

53 IDC Quarterly

Featured Article immunity. In cases decided since the 1998 amendment, the courts have enforced the statute as written, and have refused efforts to place further limitations on immunity. The Amendment to the In Neal v. Yang, 352 Ill. App. 3d 820, 816 N.E.2d 853, 287 Ill. Dec. 886 (2d Dist. 2004), the defendant was the on-call Good Samaritan Act anesthesiologist present in the hospital who was paged as part of the neonatal team trying to resuscitate an unresponsive newborn. When the anesthesiologist arrived, the resuscita- tion effort was already in progress. She participated until By: Edward M. Wagner cardiac activity was achieved, which allowed the infant to be Heyl, Royster, Voelker & Allen airlifted to a major neonatal intensive care unit. However, the Urbana child was neurologically impaired and died at age four. The anesthesiologist did not charge a fee for her services. Once suit was brought, the anesthesiologist sought immunity under the Good Samaritan Act , and the plaintiff opposed dismissal The 1998 Amendment to the Good by claiming her on-call status established a pre-existing duty Samaritan Act Broadened the Available that prevented application of the Act. The court rejected this attempt to limit immunity and held that the Act did not spe- Immunity, and Since Then the Courts Have cifically state that a defendant’s pre-existing duty to respond Applied This Statutory Immunity Correctly to an emergency would be an element that could disallow the Within and Outside Hospital Settings available protection of the Act. The court ruled that it “must Prior to 1998, doctors seeking immunity from an alleged apply the Act as it is written, and any change must be done by medical negligence suit available under Illinois’ Good Sa- the legislature.” 352 Ill. App. 3d at 830. The suit was dismissed maritan Act, 745 ILCS 49/25, needed to pass a three-part as to that anesthesiologist. test, namely: (1) they must not have had any prior notice of In Estate of Heanue ex rel. Heanue v. Edgcomb, 355 Ill. the illness or injury treated; (2) the care provided must be App. 3d 645, 823 N.E.2d 1123, 291 Ill. Dec. 537 (2d Dist. emergency care; and (3) they must not have charged a fee. 2005), the courts continued to interpret the available im- Blanchard v. Murray, 331 Ill. App. 3d 961, 967, 771 N.E.2d munity under the act liberally, but also noted one element 1122, 265 Ill. Dec. 163 (1st Dist. 2002). If doctors were able included in the Act that had been overlooked in most prior to show all three elements existed at the time of the specific decisions – namely the element of “good faith.” In Heanue, treatment at issue, they could defeat a case of alleged medical the defendant was a member of a medical group and a partner negligence from the outset. However, prior to 1998, the first of the patient’s treating physician. This patient was in the part of this three-part test gave rise to some decisions unfair hospital after a catheter insertion procedure and under the care to the healthcare professional. The position of hospital staff of the defendant’s partner. A nurse observed some medica- physician or “on-call” physician at a hospital often resulted tion problems and called the medical group’s office and told in a denial of the available statutory immunity for emergency them to send a doctor over immediately. Shortly thereafter, care because of the “prior notice of the illness or injury” element in the Blanchard case. See e.g., Johnson v. Matviuw, 176 Ill. App. 3d 907, 531 N.E.2d 970, 126 Ill. Dec. 343 (1st Dist. 1988). If a physician was on call at home and summoned to the hospital for the sole purpose of rendering emergency About the Author care, such as delivering a baby for another practitioner, the physician was held to possess “prior notice” and denied any Edward M. Wagner is a partner in the Urbana office of immunity. Heyl, Royster, Voelker & Allen where he concentrates his practice in physician medical malpractice, hospital and These inequities were addressed in 1998 when the legis- nursing home defense case. He received his J.D. from lature removed the first “prior notice” requirement from the Creighton University School of Law (cum laude) in 1980 Good Samaritan Act and broadened the available statutory and he is also currently a member of the Illinois Supreme Court Rules Committee.

54 Third Quarter 2005 the defendant arrived and took over treatment of the patient, who later died. The defendant moved to dismiss, asserting the decedent was not his patient and that he did not charge a fee for the care he provided. The estate opposed dismissal, Recent Decisions claiming the defendant was acting as a compensated agent of the medical group and that he had an independent duty to provide care to a patient of his group practice. The court By: Stacy Dolan Fulco ruled that although the defendant may have received some Cremer, Kopon, Shaughnessy & Spina, LLC economic benefit from his medical group for their care to this Chicago patient, this particular defendant-physician did not charge a fee for his specific services rendered to this patient that were the subject of the suit. The legislature specifically chose the term “fee” as opposed to “obtaining any economic benefit” and thus, the court rejected this argument to limit immunity, General Contractor Had No Duty of Care and the defendant was dismissed. to Injured Employee of Sub-Contractor The Heanue court also rejected another attempted limitation of the Act, namely that this defendant had a pre-existing, In Downs v. Steel and Craft Builders, Inc., 2005 WL independent duty to care for this patient, even though he 1492077 (2d Dist., June 22, 2005), the plaintiff, Richard had never personally rendered any care for her. In this situ- Downs, an employee of an independent contractor, was seri- ation, the court noted that the Good Samaritan Act draws no ously injured when a trench collapsed at a construction site. distinction between physicians who are just passing by and The plaintiff sued the defendant, Steel and Craft Builders, render emergency aid to patients with whom they have no Inc., the general contractor of the site, alleging common law relationship and physicians who have an existing treating negligence. The circuit court granted summary judgment in relationship with the patients. The court then framed the real favor of the defendant and the plaintiff appealed. issue in these cases—namely, can the care deemed “in good At the time of the accident, the plaintiff was an employee faith” be emergency care, and was the decision not to send a of P & M Water and Sewer, Inc., which was hired by the bill to the patients “in good faith”? The court noted that the defendant to work at various stages of the construction job. Act specifically requires “good faith” in both of the two ele- Pursuant to the contract, the defendant could order work ments necessary to invoke immunity, and as the trial court to start or stop, order changes to the plans and approve the made no finding on this issue, the case was remanded for that workmen, subcontractors, or material suppliers hired by P & sole issue to be addressed. M. Otherwise, the defendant placed the burden and the re- After Heanue, the courts will specifically address the sponsibility of completing the work on P & M. Downs, 2005 “good faith” basis for the claim of immunity under the Good WL 1492077 at *1. Samaritan Act, but that effort is merely a necessary measure (Continued on next page) required by the statute itself to insure that physicians providing emergency care are not attempting to avoid liability simply by omitting from an itemized bill any specific charge for the services that may be the subject of a suit. While there is no case that holds it is bad faith for doctors not to bill for services that they normally would have, there will need to be some evidence that the doctors decided not to charge a fee for reasons other than simply avoiding liability. With this About the Author requirement in mind, physicians should be reassured that the Stacy Dolan Fulco is an associate at the Chicago law firm primary goal of the legislature in broadening the immunity of Cremer, Kopon, Shaughnessy & Spina, LLC. She prac- available in the Good Samaritan Act is being advanced and tices primarily in the areas of premises liability, products enforced by the judiciary in Illinois. liability and wrongful death defense. Ms. Fulco received her undergraduate degree from Illinois State University and her J.D./M.B.A. degree from DePaul University. She is a member of the IDC.

55 IDC Quarterly

Recent Decisions (Continued) give effect to the parties’ intent as determined by the plain On the day of the accident, the owner of the defendant was and ordinary meaning of the language of the contract. The at the construction site, but he did not observe the accident question in this case was whether the contract between the or the work being done by P & M, nor did he instruct P & M defendant general contractor and P & M evidenced an intent on the work. He did not direct, supervise, or participate in by the defendant to retain any control over safety at the con- the work, the means, or the methods of P & M. He frequently struction site. visited the site to look only at the work’s progress and he Generally, in a construction negligence case involving a observed no safety violations. He relied on the subcontrac- contract between a defendant general contractor and an in- tors for safety, providing them with no classes, inspectors or dependent contractor that employed the plaintiff, summary equipment. The appellate court initially noted that in a negligence action, a plaintiff must present sufficient evidence to establish “Even though the appellate court that the defendant owed a duty to the plaintiff. The existence of a duty is a question of law to be decided by the court and concluded that the contract did if no duty exists there is no recovery. The plaintiff presented three bases for the existence of a duty of care: (1) defendant’s not grant the defendant sufficient contractual right to control and actual retention of control control over P & M’s work to under Section 414 of the Restatement (Second) of Torts; (2) the applicable safety regulations; and (3) defendant’s status create a duty to the plaintiff, its as possessor of the land under Section 343 of the Restatement (Second) of Torts. Downs, 2005 WL 1492077 at *2. analysis of Section 414 did not The plaintiff argued that the defendant owed him a duty of care pursuant to Section 414 of the Restatement (Second) end there.” of Torts, because the defendant retained control of certain aspects of the work performed by P & M. Generally, one who employs an independent contractor is not liable for the latter’s acts or omissions. In Illinois, a recognized exception to this rule is found in Section 414 of the Restatement (Second) of judgment is improperly granted to a general contractor that Torts, which states: “One who entrusts work to an independent had agreed to retain control over safety at a construction site contractor, but who retains the control of any part of the work, (see, Moorehead v. Mustang Construction Co., 354 Ill. App. is subject to liability for physical harm to others for whose 3d 456 (3d Dist. 2004)), or where a general contractor goes safety the employer owes a duty to exercise reasonable care, to great lengths to control safety at the construction site even which is caused by his failure to exercise his control with though an independent contractor contracts to control its reasonable care.” Comment c to Section 414 explains the own work. See, Bokodi v. Foster Wheeler Robbins, Inc., 312 “retained control” concept: “In order for the [exception] to Ill. App. 3d 1051 (1st Dist. 2000); Brooks v. Midwest Grain apply, the employer must have retained at least some degree Products of Illinois, Inc., 311 Ill. App. 3d 871 (3d Dist. 2000). of control over the manner in which the work is done. It is Alternatively, summary judgment in favor of the general not enough that he has merely a general right to order the contractor is appropriate where an independent contractor is work stopped or resumed, to inspect its progress * * * or to contractually responsible for jobsite safety and the defendant prescribe alterations and deviations. Such a general right is general contractor takes no active role in ensuring safety (see, usually reserved to employers, but it does not mean that the Steuri v. Prudential Insurance Co. of America, 282 Ill. App. contractor is controlled as to his methods of work, or as to 3d 753 (1st Dist. 1996); Fris v. Personal Products Co., 255 Ill. operative detail. There must be such a retention of a right of App. 3d 916 (3d Dist. 1994)), or where the general contractor supervision that the contractor is not entirely free to do the reserves the general right of supervision over the independent work in his own way.” Downs, 2005 WL 1492077 at *2-3. contractor but does not retain control over the incidental as- The appellate court advised that the best indicator of wheth- pects of the independent contractor’s work. Downs, 2005 WL er a contractor has retained control over the subcontractor’s 1492077 at *3; see also, Rangel v. Brookhaven Constructors, work is the parties’ contract, if one exists. When interpreting Inc., 307 Ill. App. 3d 835 (1st Dist. 1999). a contract, the court must consider the entire document to

56 Third Quarter 2005

After reviewing the evidence, the appellate court deter- OSHA creates a government program to enforce compli- mined that in this case, the defendant neither controlled nor ance with federal occupational safety and health standards by was responsible for the safety measures employed at the employers in the private sector. 29 U.S.C. Sections 651, 654 construction site. The rights retained by the defendant to (2000). OSHA explicitly declares that it shall not be construed schedule and to stop work, to order changes and to approve to supersede, to enlarge, to diminish, or to affect in any man- hiring were general rights of supervision and not a retention ner “the common law or statutory rights, duties, or liabilities of control over the incidental aspects of the work done by P of employers and employees under any law with respect to & M. injuries * * * of employees arising out of, or in the course of, Even though the appellate court concluded that the contract employment.” 29 U.S.C. Section 653(b)(4) (2000). did not grant the defendant sufficient control over P & M’s The appellate court noted that based on its prior Section 414 work to create a duty to the plaintiff, its analysis of Section 414 analysis, the defendant could not be held liable under the plain- did not end there. The court found that it is possible that a duty tiff’s theories, as governed by Illinois law. Therefore, liability to a subcontractor’s employee may be created by the contrac- in this case would result only from affecting the defendant’s tor’s actions undertaken in the absence of an agreement. As right to contract away private liability for injuries, or from support for this, the appellate court pointed to a recent First enlarging the defendant’s liabilities to the plaintiff under Sec- District decision in which the contractor and subcontractor tion 414, by declaring that, via OSHA, the defendant retained had not agreed on the scope of the contractor’s control over control of the work of P & M. The appellate court determined the subcontractor’s work. Downs, 2005 WL 1492077 at *4; that doing so would “create an exception that would swallow see also, Bieruta v. Klein Creek Corp., 331 Ill. App. 3d 269 the rule, because no matter what steps defendant would take to (1st Dist. 2002). shield itself from liability, the OSHA inevitably would pierce Based on the ruling in Bieruta, the appellate court noted defendant’s armor, striking a fatal blow that otherwise would that in this case, the defendant, by its conduct, could have cre- be blocked under the theories advanced by plaintiff.” For these ated a duty to the plaintiff by exercising control over P & M’s reasons, the appellate court affirmed summary judgment on work. However, the facts indicated that the defendant did not this issue as well. Downs, 2005 WL 1492077 at 5-6. control the subcontractor’s work. There was no evidence that The appellate court next looked to CSA. CSA predates the defendant exerted control over the construction site, other OSHA and it provides occupational safety and health pro- than by telling the independent contractors where to work and tections only to employees who work on federal, federally when. Nothing indicated that that the defendant directed the financed, or federally assisted construction projects. Under “operative details” of the excavation or that P & M was not CSA, to the extent that a subcontractor agrees to perform a free to perform the work in its own way. Furthermore, even certain task, the general contractor and that subcontractor are if it was assumed that the conditions and methods used were deemed to have joint responsibility with respect to that task. dangerous and led to the plaintiff’s injuries, there was no 29 C.F.R. Section 1926.16(c) (2004). The plaintiff relied on evidence that the defendant knew or had notice that P & M this section for his proposition that the defendant has a non- employed a hazardous method in dangerous conditions at the delegable duty under CSA. time of the accident. Therefore, the appellate court determined The appellate court stated that while maintaining employee that the defendant controlled not the “incidental aspects” of safety at the workplace is an important public policy, in this the independent contractor’s work, but rather only the desired case the defendant did not volunteer to abide by any safety ends. Therefore, the appellate court found that summary judg- regulations, nor did the defendant volunteer to ensure compli- ment in favor of the defendant was appropriate as to this issue. ance with the applicable regulations. Instead, the defendant The next argument submitted by the plaintiff that was ad- shifted the responsibility for compliance to P & M by actually dressed by the appellate court was whether a general contrac- and contractually avoiding control over the work of P & M. tor may delegate its responsibilities under the Occupational For these reasons, the appellate court affirmed summary judg- Safety and Health Administration (OSHA) and the Construc- ment on this issue. Downs, 2005 WL 1492077 at *6-7. tion Safety Act (CSA) to an independent contractor for the The plaintiff’s last argument was that the defendant owed purposes of avoiding liability in a private cause of action for him a duty of care pursuant to Section 343 of the Restatement injuries sustained by an employee of the independent contrac- (Second) of Torts, because the defendant possessed the land tor. The appellate court noted that this was a question of first where the plaintiff was injured. Section 343 subjects a pos- impression. Downs, 2005 WL 1492077 at *5. sessor of land to liability for physical harm caused to invitees (Continued on next page)

57 IDC Quarterly

Recent Decisions (Continued) plaintiff’s counsel removed two lamps that he believed were by a condition on the land that the possessor, who failed to the potential cause of the fire. After it was determined that exercise reasonable care to protect such invitees, knew or these lamps were not the cause, the plaintiff’s focus shifted should have known involved an unreasonable risk of harm to to a “Garden Lavender Botanical Candle” that he said was the invitees, who did not discover the danger or who failed to located on an end table near the couch in the living room. protect themselves against it. At some point shortly after the fire, Ms. Kubasak hired The appellate court noted that a possessor of land is not Action Fire Restoration to clean up the debris and repair the liable for injuries caused by open and obvious dangers, un- damage. State Farm paid Action Fire for its services. Unbe- less the injured party was distracted from those dangers by knownst to the plaintiff, many of his belongings, including the focusing on some other condition or hazard. See, Clifford v. end table and couch, plus the carpet that Ms. Kubasak owned, Wharton Business Group, LLC, 353 Ill. App. 3d 34 (1st Dist. were removed and destroyed. Also shortly after the fire, State 2004). In this case, the danger of a cave-in was open and ob- Farm retained Crawford & Company to examine the house and vious, evidenced by the fact that the plaintiff discussed ways determine the extent of the damage. Crawford, in turn, hired to avoid it before the incident took place. Furthermore, even Joe Mazzone to investigate the cause of the fire. thought the plaintiff was focused on installing pipes, he was Mr. Mazzone opined that after ruling out the home’s wiring, never distracted from the danger of a cave-in so as to warrant appliances, and fixtures, he believed one possible cause of the imposing a duty under Section 343. For these reasons, sum- fire was a candle placed on the end table. Mr. Mazzone also mary judgment in favor of the defendant was warranted as stated that he and Donald Hitchcock, a fire investigator with to this issue as well. Downs, 2005 WL 1492077 at *7-8. As a the Illinois State Fire Marshall’s office, both agreed that the result, the circuit court’s grant of summary judgment for the place where the fire started was the table. Because the end defendant was upheld in its entirety. table, couch, and carpet had been destroyed, however, there was no physical evidence that would either support or refute the plaintiff’s statement as to the candle’s location. Adams, Spoliation of Evidence – As Allegation 2005 WL 1252266 at *1-2. In the circuit court’s order granting BBW’s motion to dis- and as Motion for Sanctions miss, the court found two separate grounds on which to dis- In Adams v. Bath and Body Works, Inc., 2005 WL 1252266 pose of the plaintiff’s claims: (1) the plaintiff and his counsel (1st Dist., May 26, 2005), the plaintiff, Steve Adams, individu- had the opportunity and the responsibility to preserve relevant ally and as the special administrator of the estate of his wife, evidence and failed to do so and framed their theory of the Dixie Adams, filed a three count complaint against defendants case only after allowing relevant evidence over which they Bath & Body Works, Inc. (BBW), Globaltech Industries, Inc. had control to be destroyed (see, Boyd v. Travelers Insurance and Sharon Kubasak after he was injured and his wife was Co., 166 Ill. 2d 188 (1995)), and (2) the plaintiff had offered killed in a fire in their rented house. The plaintiff alleged that no competent expert witness opinion testimony to present at a candle, manufactured by Globaltech and sold by BBW, trial with respect to cause and origin. The court found that the was the cause of the fire. Ms. Kubasak was the owner of the disposition of the plaintiff’s claims had the practical effect of property. mooting out the other claims among and between the parties. Each defendant filed cross-claims against the plaintiff for Adams, 2005 WL 1252266 at *2. negligently failing to preserve evidence. BBW also filed a The appellate court began its analysis by citing to a recent third party complaint against Ms. Kubasak’s insurer, State Illinois Supreme Court case, Dardeen v. Kuehling, 213 Ill. Farm, for negligent spoliation of evidence. The circuit court 2d 329 (2004), which addressed spoliation of evidence and granted a motion filed by BBW and joined by Globaltech discussed the two leading spoliation of evidence cases, Boyd dismissing the plaintiff’s complaint as a discovery sanction v. Travelers Insurance Co., 166 Ill. 2d 188 (1995) and Shi- pursuant to Supreme Court Rule 219(c) for failing to preserve manovsky v. General Motors Corp., 181 Ill. 2d 112 (1998). evidence. The plaintiff appealed the ruling. Reciting the duty element for a spoliation claim it had outlined The facts revealed that six days after the fire, the plaintiff in Boyd, the court stated: “The general rule is that there is no retained counsel. Though both state and city fire inspectors duty to preserve evidence; however, a duty to preserve evi- were unable to pin down the cause of the fire, they were able to dence may arise through an agreement, a contract, a statute, determine that the fire began near a couch located in the living or other special circumstance. Moreover, a defendant may room. Based on comments from one of these inspectors, the voluntarily assume a duty by affirmative conduct. In any of

58 Third Quarter 2005 the foregoing instances, a defendant owes a duty of due care including dismissal, when a party is disadvantaged by the to preserve evidence if a reasonable person in the defendant’s loss.” The court reiterated that only where a party’s conduct position should have foreseen that the evidence was material can be characterized as “deliberate, contumacious or an un- to a potential civil action.” warranted disregard of the court’s authority” that the drastic The appellate court stressed that the leading Illinois sanction of dismissal is justified, and, even then, only “as a Supreme Court spoliation of evidence cases demonstrate last resort and after all the court’s other enforcement powers that there are two available remedies: a claim for negligent have failed to advance the litigation.” spoliation of evidence as discussed in Boyd and dismissal as In those instances where evidence is destroyed due to mere a sanction under Rule 219(c) as discussed in Shimanovsky. negligence, a prejudiced litigant can seek redress by bringing a claim for negligent spoliation of evidence against the responsible party. The question in this case was whether the “The appellate court stressed that plaintiff’s conduct leading to the destruction of the end table, the leading Illinois Supreme Court couch, and carpet was sanctionable and, if so, whether the circuit court’s sanction of dismissal was appropriate. Adams, spoliation of evidence cases 2005 WL 1252266 at *4-5. Even where evidence is destroyed, altered, or lost, a defen- demonstrate that there are two dant is not automatically entitled to a specific sanction. See, available remedies: a claim for Stringer v. Packaging Corp. of America, 351 Ill. App. 3d 1135 (4th Dist. 2004). Illinois Supreme Court Rule 219(c) instead negligent spoliation of evidence as grants the circuit court the discretion to impose a sanction, including dismissal of the cause of action, upon any party who discussed in Boyd and dismissal unreasonably refuses to comply with any discovery rule or any as a sanction under Rule 219(c) as order entered pursuant to such rule. When determining an appropriate sanction, a trial court is to consider the following: (1) discussed in Shimanovsky.” the surprise to the adverse party; (2) the prejudicial effect of the proffered testimony or evidence; (3) the nature of the testimony or evidence; (4) the diligence of the adverse party in seeking discovery; (5) the timeliness of the adverse party’s objection to the testimony or evidence; and (6) the good faith of the party These are separate and distinct remedies. In other words, when offering the testimony or evidence. See, Boatmen’s National a party is confronted with the loss or destruction of relevant, Bank of Belleville v. Martin, 155 Ill. 2d 305 (1993). material evidence at the hands of an opponent, the party may When preparing a just order, the circuit court is to remem- either (1) seek dismissal of his opponent’s complaint under ber that the purpose of a sanction is not merely to punish the Rule 219(c), or (2) bring a claim for negligent spoliation of dilatory party, but to effectuate the goals of discovery. A just evidence. The mode of relief most appropriate will depend order is one that is “commensurate with the seriousness of the upon the opponent’s culpability in the destruction of the evi- violation” and “ensures both the accomplishment of discovery dence. Adams, 2005 WL 1252266 at *3-5. and a trial on the merits.” Because an order to dismiss with A dismissal under Rule 219(c) requires conduct that is de- prejudice is a drastic sanction, it should be invoked “only in liberate, contumacious or evidences an unwarranted disregard those cases where the party’s actions show a deliberate, con- of the court’s authority and should be employed only “as a last tumacious, or unwarranted disregard of the court’s authority”; resort and after all the court’s other enforcement powers have employed only “as a last resort and after all the court’s other failed to advance the litigation.” See, Shimanovsky, 181 Ill. 2d enforcement powers have failed to advance the litigation.” at 123. A claim for negligent spoliation of evidence requires Adams, 2005 WL 1252266 at *6. mere negligence, or the failure to foresee that the destroyed In this case, the plaintiff’s conduct, though potentially evidence was material to a potential civil action. See, Boyd, negligent, could not be characterized as deliberate, contuma- 166 Ill. 2d at 195. cious, or an unwarranted disregard of the court’s authority. The appellate court rejected the defendants’ reliance on The plaintiff did not engage in any “knowing and willful those cases that held “that negligent or inadvertent destruction or alteration of evidence may result in a harsh sanction, (Continued on next page)

59 IDC Quarterly

Recent Decisions (Continued) faith” pursuant to the Contribution Act. This payment, the defiance of the discovery rules or the trial court’s authority” parties stated, “shall be paid irrespective of whether Litgen as the destruction of the end table, couch and carpet occurred takes an appeal of the finding of good faith.” long before plaintiff filed his lawsuit. The carpet belonged to The settling defendants also agreed to pay the plaintiffs an Ms. Kubasak, and it was questionable whether the plaintiff additional $4.5 million for the assignment of any claims they could have compelled her to preserve it. Furthermore, even may have against Litgen arising from the fire. The plaintiffs if he could have preserved this evidence, the plaintiff had promised that they had not already released their claims against no knowledge that it might have been relevant and material. Finally, the plaintiff played no role in, nor had any notice of, the destruction of the evidence that the defendants claim was essential to their defense. “The appellate court stated that Though a potential litigant owes a duty to take reasonable measures to preserve the integrity of relevant and material the settlement agreements allowed evidence, the appellate court determined that the defendants offered no “reasonable measures” that the plaintiff could settling defendants to recoup have, but failed, to undertake to protect the evidence, short of their share of damages, perhaps treating the second floor of the house owned by Ms. Kubasak like a crime scene. The appellate court could not find and the make a profit, and yet be shielded parties did not cite to any case, either in Illinois or elsewhere, which has required such action. Adams, 2005 WL 1252266 from contribution under the at *7. Therefore, the appellate court reversed the dismissal of Contribution Act.” the plaintiff’s complaint.

Settlement Agreements: Assignments of Claims Found to Litgen, that they would not release these claims without the be in Violation of Contribution Act written consent of the settling defendants, and that they would The case of BHI Corp. v. Litgen Concrete Cutting & Cor- “reasonably cooperate” with the settling defendants in the pur- ing Co., 214 Ill. 2d 356, 827 N.E.2d 435, 292 Ill. Dec. 906 suit of the assigned claims against Litgen. The settling defen- (March 24, 2005) has a long and detailed factual and proce- dants, in turn, promised to reimburse the plaintiffs for the cost dural history and has been in front of the Illinois Supreme of their cooperation. BHI Corp., 827 N.E.2d at 437. Court on three occasions. In 1989, a building that housed art The circuit court found the settlement agreements to be in galleries and studios in Chicago’s River North district was good faith pursuant to Section 2(c) of the Contribution Act destroyed in a fire. Many gallery owners and artists filed and dismissed Litgen’s contribution claims against the settling separate complaints against the owners and managers of the defendants pursuant to Section 2(d) of the Act. See, 740 ILCS building, as well as the general contractors and subcontractors 100/2(c-d). The trial court allowed the plaintiffs to nonsuit hired to renovate it. The complaint alleged that the various their claims against Litgen. Litgen appealed, arguing that the defendants, including Litgen Concrete Cutting and Coring trial court erred in finding the agreements were made in good Company (Litgen), caused or contributed to the fire. The faith. plaintiffs eventually settled all of their claims against all of While this appeal was pending, the settling defendants filed the defendants except Litgen. a complaint on the assigned claims against Litgen. Before The settlement agreements charged that a Litgen employee the appellate court, the settling defendants filed a motion to caused the fire, but that Litgen “does not wish to cooperate dismiss Litgen’s appeal, asserting that the new complaint with the Plaintiffs and Settling Defendants.” The settling rendered the trial court’s good-faith finding nonfinal and unap- defendants agreed to pay the plaintiffs $4.5 million for the pealable, robbing the appellate court of jurisdiction. The ap- release of any claims arising from the fire: “This amount shall pellate court agreed with the settling defendants and dismissed be paid to Plaintiffs on the condition that the trial Court grants Litgen’s appeal. See, Dubina v. Mesirow Realty Development, the parties***a finding that the***settlement is made in good Inc., 283 Ill. App. 3d 36, 669 N.E.2d 694 (1st Dist. 1996). The

60 Third Quarter 2005

Illinois Supreme Court then reversed and remanded to the appealed and the appellate court affirmed. Then, for the third appellate court. See, Dubina v. Mesirow Realty Development, time, the Illinois Supreme Court granted the petition for leave Inc., 178 Ill. 2d 496, 687 N.E.2d 871 (1997). to appeal. BHI Corp., 827 N.E.2d at 438-139. On remand, the appellate court noted that if the settling The Illinois Supreme Court first addressed the Contribu- defendants could shed their roles as tortfeasors for the roles of tion Act. The Contribution Act codified the Court’s opinion in unfettered plaintiffs, they could pursue a recovery otherwise Skinner v. Reed-Prentice Division Package Machinery Co., prohibited by the Contribution Act. The appellate court stated 70 Ill. 2d 1, 374 N.E.2d 437 (1977), and created a right of that the settlement agreements allowed settling defendants contribution among joint tortfeasors. See, 740 ILCS 100/2(a) to recoup their share of damages, perhaps make a profit, and (West 2002). A defendant who has paid more than its pro rata yet be shielded from contribution under the Contribution Act. share of damages to the plaintiff has a right of contribution “The result is antithetical to the Contribution Act, whether it from its codefendants. A good-faith settlement discharges any is achieved by ‘assignment’ or ‘contribution,’ and whether contribution liability for settling defendants and it reduces the settling defendants are labeled ‘plaintiffs’ or ‘joint tortfea- the amount of any recovery against nonsettling defendants. A sors.’ The assignments allow the settling defendants to seek good-faith settlement, however, does not entitle settling de- indirectly a reimbursement the Contribution Act prohibits and fendants to recover contribution from nonsettling defendants. undermine the equitable sharing of damages.” See, Dubina, See, 740 ILCS 100/2(b-e)(West 2002). 308 Ill. App. 3d at 357. The appellate court held that the trial In this case, the settling defendants argued that the court’s court erred in finding the agreements were in made good opinion did not affect the legal validity of the settlement agree- faith, reversed the dismissal of Litgen’s contribution claims, ments or the assignments that they contained. The settling and remanded to the trial court for further proceedings. The defendants insisted that they simply wished to abandon the Illinois Supreme Court then granted the settling defendants’ protection that a good-faith settlement would provide under petition for leave to appeal and affirmed. the Act and proceed on the assigned claims against Litgen, In its decision to affirm the appellate court, the Illinois subject to its contribution claims. BHI Corp., 827 N.E.2d at Supreme Court concluded that the settlement agreements, 440. and by extension the assignments, violated the terms of and The supreme court responded that it has consistently stated policies behind the Act. First, the agreements and assignments that the Contribution Act furthers two policies: promoting violated Section 2(c) of the Act because they deprived Litgen settlement and ensuring equitable apportionment of dam- of its statutory right to a setoff. The settling defendants labeled ages. See, Johnson v. United Airlines, 203 Ill. 2d 121, 784 half of the $9 million it gave to the plaintiffs as a payment for N.E.2d 812 (2003). Specifically, the Act promotes settlement the assignments; if Litgen lost at trial, it would not receive by providing that a defendant who enters into a good-faith credit for $4.5 million exchanged between its joint tortfeasors settlement with the plaintiff is discharged from any contri- and the plaintiffs. Second, the agreements and assignments bution liability to a nonsettling defendant. The Act ensures defeated the Act’s goal of equitable apportionment of damages equitable apportionment of damages, mainly, by creating among joint tortfeasors. The settling defendants would recoup a right of contribution among defendants. It also ensures the settlement amount – $4.5 million – as well as any damages equitable apportionment of damages “by providing that the exceeding the $9 million it gave to the plaintiffs from Litgen amount that the plaintiff recovers on a claim against any other if they succeeded on the assigned claims. Third, and finally, nonsettling tortfeasors will be reduced or set off by the amount the settlement agreements and assignments violated the Act stated in the settlement agreement.” See, In re Guardianship because they allowed the settling defendants to accomplish of Babb, 162 Ill. 2d 153, 642 N.E2d 1195 (1994). Further, the indirectly that which they could not do directly – recover Act provides that a settling joint tortfeasor may not recover contribution from Litgen. Because the agreements and the contribution from a nonsettling joint tortfeasor. This rule, too, assignments violated the Act, they did not satisfy the good- fosters equitable apportionment because it prevents a settling faith requirement of the Act. See, Dubina, 197 Ill. 2d at 196. defendant, who decides how to value its liability, from obtain- On remand, the settling defendants again refiled their com- ing contribution from a nonsettling defendant, whose pro rata plaint on the assigned claims against Litgen. Litgen filed a share of damages has not yet been fixed by a fact finder. BHI motion to dismiss, arguing that the settling defendants could Corp., 827 N.E.2d at 440-441. not pursue the assigned claims because the settlement agree- The settling defendants in this case focused on their ment that contained the assignments was not made in good purported willingness to forgo the protections that the Act faith. The trial court granted Litgen’s motion and dismissed (Continued on next page) the settling defendants’ complaint. The settling defendants 61 IDC Quarterly

Recent Decisions (Continued) she saw nothing unusual about her surroundings and nothing offers to joint tortfeasors who settle in good faith. However, was distracting her. the supreme court noted that they have no choice, after the The City moved for summary judgment, stating that it did holding in the prior opinion that the settlement agreements not owe the plaintiff a duty of care because the condition of and assignments together violated Section 2(e) of the Act. See, the sidewalk was open and obvious. The plaintiff responded Dubina, 197 Ill. 2d at 196. Section 2(e) provides, “A tortfea- by arguing that the City caused the defect when it removed a sor who settles with a claimant pursuant to paragraph (c) is tree and she asserted that the distraction exception applied to not entitled to recover contribution from another tortfeasor impose a duty. The trial court granted the City’s motion and whose liability is not extinguished by the settlement.” 740 in doing so held that the plaintiff presented no evidence that ILCS 100/2(e)(West 2002). the City created the defect, that it was aware of the defect or Whether the recovery sought by the settling defendants that the City should have reasonably foreseen that the plaintiff is grounded upon the Contribution Act or the assignments, would become distracted and fail to appreciate the defect. Dur- it is still contribution from a nonsettling tortfeasor. As the ing a motion for rehearing, the court clarified that its ruling appellate court stated, “the assignments flowing from a bad was based on the fact that the defect was open and obvious settlement cannot sanitize the settling defendants’ attempt to and there was no evidence that the plaintiff was distracted or collect contribution.” Therefore, an arrangement by which any evidence that the City should have reasonably foreseen a settling defendant attempts to obtain indirect contribution that the plaintiff would have become distracted. Sandoval, from a nonsettling defendant by an assignment of claims 2005 WL 1322782 at *1-2. violates the Contribution Act. The Court determined that it The appellate court noted that in order to sustain her cause could not allow the settling defendants to contract an end for negligence, the plaintiff was required to establish that the run around Section 2(e). Accordingly, the Court held that the defendant owed her a duty of care by showing that she and settling defendants may not pursue the assigned claims. BHI the defendant stood in such a relationship to one another that Corp., 827 N.E.2d at 441. the law imposed an obligation on the defendant of reasonable conduct for the benefit of the plaintiff. The factors to consider when determining whether such a duty exists are: (1) the The Distraction Exception to the foreseeability that defendant’s conduct will result in injury to another; (2) the likelihood of injury; (3) the magnitude Open and Obvious Defense of guarding against it; and (4) the consequences of placing In Sandoval v. City of Chicago, 2005 WL 1322782 (1st that burden on the defendant. Sandoval, 2005 WL 1322782 Dist., June 3, 2005), the plaintiff, Catalina Sandoval, was at *2-3; see also, Bonner v. City of Chicago, 334 Ill. App. 3d caring for her neighbor’s young son when she tripped and fell 481 (1st Dist. 2002). due to a crater-like defect in the sidewalk in front of her home As to the reasonable foreseeability of injury element, Il- causing her to become injured. The plaintiff and child were linois law holds that persons or entities who own or control outside when the plaintiff lost sight of the child. The plaintiff land are not required to foresee and protect against injuries became “concerned” that the child wandered toward her yard from potentially dangerous conditions that are open and obvi- and was “afraid” he would attempt to descend the stairs to ous. See, Bucheleres v. Chicago Park District, 171 Ill. 2d 435 her house. The plaintiff then began walking toward her yard (1996). “Open and obvious” conditions include those where when her foot became wedged in the sidewalk defect. The the condition and risk are apparent to, and would be recog- plaintiff sued the City of Chicago for negligence. nized by, a reasonable person exercising ordinary perception, The plaintiff admitted that the sidewalk defect had been in intelligence and judgment in visiting an area. Therefore, the the same location in front of her home for four years before determination of whether a condition is open and obvious her accident, she walked past it “millions of time” and was depends not on plaintiff’s subjective knowledge but, rather, aware of the defect at the time of her fall. The defect was in a on the objective knowledge of a reasonable person confronted five by six foot square of sidewalk with most of the concrete with the same condition. This is because property owners are missing and the dirt underneath was exposed with some con- entitled to the expectation that those who enter upon their crete protruding through the surface. The plaintiff contacted property will exercise reasonable care for their own safety. her alderman about the defect less than a year before her ac- See, Bonner, 334 Ill. App. 3d 481; see also, Bucheleres v. cident. The plaintiff admitted that at the time of her accident, Chicago Park District, 171 Ill. 2d 435 (1996). nothing obstructed her view of the sidewalk where she fell, In this matter, the plaintiff argued that an exception to the

62 Third Quarter 2005 open and obvious rule applied – the distraction exception. that she had walked by it “millions of times,” she knew it was Under the “distraction exception,” a defendant-property there on the day of the accident, she was fully aware of the owner can be found to owe a duty of care, despite an open missing concrete, of the exposed dirt, and most importantly, and obvious condition, if he has reason to expect that the of the elevated “island” in this slab of sidewalk. In addition plaintiff-invitee’s attention might be distracted so that she to agreeing that the condition was open and obvious, the would not discover, or may forget that she had previously plaintiff specifically admitted that at the precise time of the discovered, the obvious condition. The appellate court noted accident, nothing obstructed her view of the sidewalk, nothing was unusual about her surroundings and, significantly, nothing was distracting her. Based on this testimony alone, “The large five-by-six-foot section the appellate court found it to be clear that plaintiff failed to present evidence to show she was distracted at the time of her of the sidewalk was missing most fall and the City could not have reasonably foreseen that the of its concrete surface, and the dirt plaintiff would be distracted as she walked on the sidewalk. Sandoval, 2005 WL 1322782 at *5. underneath was exposed.” The appellate court went on to note that primarily, in those instances where Illinois courts have applied the distraction exception to impose a duty upon a landowner, it is clear that the landowner created, contributed to, or was responsible in some way for the distraction which diverted the plaintiff’s that cases applying this exception involve situations in which attention from the open and obvious condition and, thus, was the injured plaintiff was distracted from the open and obvious charged with reasonable foreseeability that an injury might condition because circumstances required that she focus her occur. In contrast, the occurrence in this case falls within the attention on some other condition or hazard. line of cases that reinforces that when a plaintiff’s attention is Under the distraction exception, the defendant is not re- diverted by her own independent acts for which the defendant quired to anticipate the specific plaintiff’s own negligence has no direct responsibility, the distraction exception does not or make her premises injury-proof. However, if it is reason- apply. See, Prostran v. City of Chicago, 349 Ill. App. 3d 81 able for the defendant to anticipate injury to an invitee who (1st Dist. 2004); Bonner v. City of Chicago, 334 Ill. App. 3d is otherwise exercising general care for her safety but may 481 (1st Dist. 2002); and Richardson v. Vaughn, 251 Ill. App. reasonably be expected to be distracted to an obvious condi- 3d 403 (2d Dist. 1993). tion on the premises, then a duty is owed. Sandoval, 2005 WL The appellate court found that the City was in no way re- 1322782 at *3-4. sponsible for, contributed to, or created this situation, which The appellate court reviewed the record, which contained began when the plaintiff brought the child outside to the photographs of the defect, and noted that the defect was clearly parkway. Accordingly, it found that the City owed no duty a condition of open and obvious danger. The large five-by-six- to the plaintiff to warn or otherwise safeguard her from po- foot section of the sidewalk was missing most of its concrete tential harm posed by the open and obvious sidewalk defect surface, and the dirt underneath was exposed. While the dirt in front of her home, where her injury resulted not from a comprised a level surface, a big chunk of concrete remained, distraction that could be reasonably anticipated by the City sticking upright some three to four inches from the dirt. The but, instead, was the result of her own inattentiveness in not appellate court went on to note that being confronted with looking forward where she was walking. Sandoval, 2005 WL these circumstances, any reasonable person exercising ordi- 1322782 at *6-7. Therefore, the entry of summary judgment nary care in visiting this area would recognize and appreciate was affirmed. the risk involved in traversing this portion of the sidewalk and, specifically, the changes in elevation. Therefore, the court found that the condition was undeniably open and obvious. Sandoval, 2005 WL 1322782 at *4. The appellate court next analyzed whether the distraction exception would apply. The plaintiff testified that this particular sidewalk defect had existed right outside of her own home for some four years prior to the accident. She stated

63 IDC Quarterly

Consequently, the plaintiffs filed this case for contribution against the physician in the Circuit Court of Cook County. In the meantime, the victims’ case went to verdict in federal Supreme Court Watch court, and they were awarded damages of approximately $1.5 million. In this case the physician filed a motion to dismiss the con- By: Beth A. Bauer tribution claim based on Laue, and argued that a contribution Burroughs, Hepler, Broom, MacDonald, claim must be brought in the original proceedings. The trial Hebrank and True court denied the physician’s motion and he subsequently filed Edwardsville a motion for Rule 308 certification, which was granted. The certified question was stated as follows: “May a contribution claim be brought in accordance with Illinois law in a separate proceeding if the party first attempted to bring the claim in the Can a Contribution Claim be original proceedings in a separate jurisdiction and was denied leave by that court to file said contribution claim?” 354 Ill. Filed Separately from an App. 3d at 430. Underlying Action in Which the Court The plaintiffs assert that the First District, without oral Denied Leave to File the Claim? argument, decided to answer the certified question in the negative, which effectively dismissed the plaintiffs’ contribution Harshman v. DePhillips, 354 Ill. App. 3d 429, 820 N.E.2d claim for failure to file the contribution action in the original 1164 (1st Dist. 2004), app. allowed, 214 Ill. 2d 531 (Doc. No. proceeding. 99805). The plaintiffs seek reversal by the Illinois Supreme Court, The plaintiffs in this action were sued in an underlying arguing that the First District has created a “Catch-22” situ- case in the Federal District Court for the Northern District of ation. The plaintiffs ask the supreme court to find that by fil- Indiana by the victims of an automobile accident involving ing the motion for leave to bring a contribution action in the the plaintiffs’ truck and the victims’ car. One of the victims underlying proceeding, the plaintiffs have actually complied received medical treatment from a physician who performed with the requirements of Laue. The plaintiffs argue that Laue a four-level spinal fusion. In the underlying case, the victims merely requires that the contribution claim be asserted in the asserted no claim against the physician. underlying action, citing Cook v. General Electric Co., 146 The plaintiffs in this case attempted to file a contribution Ill. 2d 548, 588 N.E.2d 1087 (1992) and Anderson v. Alberto- claim against the physician in the underlying case when expert Culver USA, Inc., 337 Ill. App. 3d 643, 789 N.E.2d 304 (1st testimony revealed that a spinal fusion performed on one of Dist. 2003). the victims was unnecessary and actually worsened the injuries. According to the plaintiffs, the federal court refused to allow the contribution claim, finding that reopening discovery, postponing the scheduled trial date, and introducing the new issues of the physician’s alleged negligence would be unduly prejudicial to the victims. The federal court further “advised” the plaintiffs “that under Illinois law, ‘a contribution claim may be brought in a separate action even if not filed while the underlying action is still pending.’” (354 Ill. App. 3d at 431). About the Author The federal court went on to say that Laue v. Leifheit, 105 Ill. 2d 191, 473 N.E.2d 939 (Ill. 1984), which the plaintiffs in this Beth A. Bauer concentrates her practice in the area of case had argued would bar them from bringing a contribution appellate practice at Burroughs, Hepler, Broom, MacDon- ald, Hebrank and True in Edwardsville. She graduated claim after the underlying case was closed, was abrogated by cum laude from St. Louis University School of Law in statute when the Illinois Joint Tortfeasor Contribution Act, 740 2000 and received her B.A. with honors from Washington University in 1997. Ms. Bauer is a member of the Illinois ILCS 100/0.01, et. seq., was amended in 1995, citing Credit and Missouri State Bar Associations and National Christian General Insurance Co. v. Midwest Indemnity Corp., 916 F. Legal Society. Supp. 766, 774 (N.D. Ill. 1996).

64 Third Quarter 2005

that the Fifth District improperly minimized the possibility Supreme Court to Consider Another of a jury view, refused to acknowledge the plaintiff’s list of Intrastate Forum Non Conveniens Case witnesses, virtually all of which reside in Clinton County, and gave undue weight to the location of the decedent’s physicians Langenhorst v. Norfolk Southern Railway Co., 354 Ill. App. and plaintiff’s counsel’s investigator. Further, according to the 3d 1103, 822 N.E.2d 480 (5th Dist. 2004), app. allowed, 214 defendant, the public interest factors require transfer to Clinton Ill. 2d 535 (Doc. No. 99924). County. The defendants also contend that the Fifth District The plaintiff filed suit against the defendants in St. Clair improperly found that court congestion is not significantly County, Illinois, alleging that her decedent drove his truck in worse in St. Clair County than in Clinton County and that it front of the railroad defendant’s train in Clinton County, Illi- improperly gave undue weight to the location of the offices nois. The defendants filed a motion to transfer the case to Clin- of the attorneys. ton County based on the doctrine of forum non conveniens, The defendants aggressively assert that Dawdy is control- claiming that Clinton County was a more convenient county ling regarding the outcome of this case and mandates transfer than St. Clair County for the trial of this case. The defendants’ to Clinton County. Alternatively, the defendants request that motion was supported not only by affidavit, demonstrating the supreme court exercise its supervisory authority and enter that the accident occurred in Clinton County, that plaintiff, her an order transferring the case to Clinton County. decedent and the vast majority of relevant potential witnesses resided in Clinton County, but also the plaintiff’s discovery responses, which the defendants contended demonstrate that the only eyewitnesses, pre-occurrence witnesses, and/or post- Insurance Policy Suit Limitations occurrence witnesses reside in Clinton County. The trial court Provision Deemed Waived denied the motion to transfer. Only after the Illinois Supreme Court issued a supervisory Mathis v. Lumbermen’s Mutual Casualty Ins. Co., 354 Ill. order directing the Fifth District to vacate its original denial App. 3d 854, 822 N.E.2d 543 (5th Dist. 2004), app. allowed, of the petition for leave to appeal in light of Dawdy v. Union 214 Ill. 2d 535 (Doc. No. 100042). Pacific R.R. Co., 207 Ill. 2d 167, 797 N.E.2d 687 (2003) and The plaintiff filed suit against the defendant alleging that First American Bank v. Guerine, 198 Ill. 2d 511, 764 N.E.2d the defendant issued a homeowner’s policy, insuring her resi- 54 (2002), did the Fifth District accept the defendants’ petition dence between June 6, 2000, and June 6, 2001. The complaint for leave to appeal. After considering the issue, however, the further alleged that on July 16, 2000, a fire destroyed the Fifth District affirmed the circuit court’s order denying the plaintiff’s home and that the defendant breached the insurance defendants’ motion to transfer. The Fifth District ruled that contract by refusing to pay under the insurance policy for the the convenience factors do not strongly favor a transfer of the plaintiff’s damages claim arising out of the fire. Count II of case, specifically finding that: two potential witnesses (one a the complaint alleged defamation regarding an unspecified treating doctor and the other the plaintiff’s attorney’s inves- communication allegedly made by the defendant that the tigator) live in St. Clair County; the lawyers who will try the plaintiff had committed arson. The defendant filed a motion case both have offices near the St. Clair County courthouse; to dismiss pursuant to 735 ILCS 5/2-619(a)(5), arguing that all the doctors who treated the decedent live in or closer to Count I was time-barred by the one-year suit limitations provi- St. Clair County than Clinton County; the two counties are on sion in the insurance policy. In response, the plaintiff argued nearly equal footing regarding disposal of civil cases seeking that the defendant waived its right to raise the one-year suit damages in excess of $50,000; and St. Clair County residents limitation provision because it failed to advise the plaintiff in have an interest in the case. Thus, a St. Clair County jury its December 7, 2000, denial letter of the number of days she would not necessarily be burdened by deciding the issues in had left to file suit against the defendant as allegedly required the case. under an administrative regulation of the Illinois Department The defendants seek reversal by the Illinois Supreme Court, of Insurance. The trial court agreed with plaintiff’s waiver contending that the Fifth District’s published opinion mis- argument and granted the plaintiff leave to file amended construes the Illinois Supreme Court’s controlling authority pleadings. as stated in Dawdy and Guerine as well as other forum non conveniens cases. The defendants state that the private interest factors require the transfer of the case to Clinton County and (Continued on next page)

65 IDC Quarterly

Supreme Court Watch (Continued) the proposition that compliance with a contractual suit limita- After its motion to reconsider was denied, the defendant tion provision is a condition precedent to recovery under an filed a motion for Rule 308 certification, and the trial court insurance policy, and the Fifth District declined to follow that granted that motion certifying the following question for authority. Instead, it created a new exception to enforcement immediate appeal: “Where a homeowner’s insurance policy of the contractual suit limitation provision in direct contra- contains a one[-]year suit[-]filing limitation, can a Department vention to the Fourth District’s decision in Valla v. Pacific of Insurance administrative regulation, that requires an insurer Insurance Co., Ltd., 296 Ill. App. 3d 968, 695 N.E.2d 581 to advise [the insured] of the number of days the limitations (4th Dist.1998), which held that Section 143.1 of the Insur- period was tolled under 50 Ill. Adm. Code Section 919.80(d) ance Code did not apply and the one-year limitation period (8)(C), form the basis of an insurer’s alleged waiver of the was not tolled where the insurer denied the claim before the extended contractual limitation suit[-]filing time period?” 354 insured filed a proof-of-loss. Ill. App. 3d at 855 Relying on California case law, the Fifth District answered the certified question in the affirmative, finding that an in- Refusal to Defend Based on surer’s violation of Section 919.80(d)(8)(C) can provide a Untimely Notice of Suit: basis for an insurer’s waiver of a time-limitation provision contained in an insurance policy. The court held that the de- Must an Insurer Justify Its Decision fendant waived the policy’s proof-of-loss requirement when with a Showing of Prejudice? it denied the claim on grounds other than the failure to file a Country Mutual Ins. Co. v. Livorsi Marine, Inc., __ Ill. proof-of-loss. App. 3d __, __ N.E.2d __, 2004 WL 2715453 (1st Dist. Doc. The defendant seeks reversal by the Illinois Supreme Court, Nos. 1-03-2832 and 1-03-2912), app. allowed, __Ill. 2d __ arguing that the Fifth District unduly expanded the reach of (Doc. No. 99807). Section 143.1 of the Insurance Code and the Department of Insurance regulation at issue. The defendant contends that in The insurer filed a declaratory judgment action challenging the absence of tolling, Section 919.80(d)(8)(C) does not re- whether it is obligated to indemnify or defend the defendants- quire an insurer to advise of the number of days left before the insureds concerning trademark infringement actions between insured must file suit under the policy, nor does it require the the insureds. Both of the insureds, according to their Petition insurer to restate the terms of the contractual suit limitations for Leave to Appeal, purchased CGL insurance policies from provision. The defendant argues that because no proof-of-loss the insurer, which are materially identical, providing coverage was ever filed in this case, tolling is not at issue, and as such, to the insureds for “advertising injury.” The insureds state that it could not have violated the administrative code. the policies define the term “advertising injury,” in pertinent The defendant also avers that the Fifth District’s reliance part, as “infringement of copyright, title, or slogan” and “mis- on Spray, Gould & Bowers v. Associated International Ins. appropriation of advertising ideas or style of doing business.” Co., 71 Cal. App. 4th 1260, 84 Cal. Rptr. 2d 552 (1999) was The scope of coverage for “advertising injury” includes dam- error because the regulation at issue here is not as broad as ages from an adverse judgment as well as a “duty to defend the California regulation at issue in that case. ‘suit’ seeking those damages.” The insureds recount that the The defendant further requests reversal because the appel- policies listed conditions for coverage, including a duty to late court’s opinion creates an irreconcilable conflict with the notify the insurer “as soon as practicable” in the event of an other appellate court districts, citing Garcia v. Metropolitan occurrence, offense, claim or suit and to “immediately send” Property and Casualty Ins. Co., 281 Ill. App. 3d 368, 666 the insurer copies of any demands, notices, summonses, or N.E.2d 802 (1st Dist.1996); Williams v. Prudential Property legal papers in connection with a claim or suit. & Casualty Ins. Co., 223 Ill. App. 3d 654, 585 N.E.2d 1110 The trademark infringement actions were filed on Decem- (2d Dist.1992); Florsheim v. Travelers Indemnity Co., 75 Ill. ber 1, 1999. The parties stipulated that the insurer did not App. 3d 298, 393 N.E.2d 1223 (1st Dist.1979); McMahon v. receive actual and sufficient notice of the underlying case until Millers National Ins. Co., 131 Ill. App. 2d 339, 266 N.E.2d August 1, 2001. The trial of the infringement suit began on 714 (1st Dist.1971); and Village of Lake in the Hills v. Illinois March 1, 2002. The circuit court entered declaratory judgment Emcasco Ins. Co., 153 Ill. App. 3d 815, 506 N.E.2d 681 (2d in favor of the insurer and against the insureds and found that Dist.1987). According to the defendant, these cases stand for the insurer had no duty to defend the insureds due to the late notice.

66 Third Quarter 2005

The First District Appellate Court framed the issue on ap- Would You Like Fries With That? peal as follows: “When an insured is required by its contract Marshall v. Burger King Corp., 355 Ill. App. 3d 685, 824 with its insurer to give timely notice of a lawsuit against it, N.E.2d 661 (2d Dist. 2005), app. allowed, __ Ill. 2d __ (Doc. but does not do so and has no excuse for not doing it, does the No. 100372). insurer have to prove prejudice before it can avoid coverage?” The First District concluded that an insurer’s failure to prove The plaintiff’s decedent was killed when the defendant’s prejudice is a factor to consider when determining whether the patron crashed her automobile into a wall and windows of insured’s notice was unreasonably and inexcusably late but the defendant’s building, causing fatal injuries to the dece- that once it is determined the insured’ s notice was unreason- dent who was inside the restaurant. The defendant moved to ably and inexcusably late, the failure of the insurer to prove dismiss the plaintiff’s complaint for negligence, arguing that it suffered prejudice is irrelevant. no duty exists under Illinois law requiring the defendant to The insureds seek reversal by the supreme court, contend- protect the plaintiff’s decedent from injuries caused by the ing that the appellate court erred in affirming the trial court’s automobile. Further, the defendant argued that, as a matter narrowly construed position on insurance policy notice proof law, the occurrence was not foreseeable. The trial court visions. The insureds’ perspective is that both lower courts concluded the duty that the plaintiff sought to impose upon ignored the important public policy promoting coverage and the defendant was too high and not supported by Illinois law: the modern approach requiring consideration of insurance The trial court reasoned that to impose such a duty “would company prejudice. The insureds argue that in notice-of-suit require fortifying every building within striking distance of cases, the insurer must show some degree of prejudice to be any crazed or incredibly inept driver.” 355 Ill. App. 3d at 687. relieved of its duty to defend, citing Illinois Founders Ins. Co. The Second District appellate court reversed, with one v. Barnett, 304 Ill. App. 3d 602 (1st Dist. 1999); Montgomery justice dissenting, finding that the defendant owed a duty to Ward and Co., Inc. v. Home Insurance Co., 324 Ill. App. 3d protect against an out-of-control driver who drives her auto- 441 (1st Dist. 2001); Rice v. AAA Aerostar, Inc., 294 Ill. App. mobile into a restaurant. 3d 801 (4th Dist. 1998); Vega v. Gore, 313 Ill. App. 3d 632 Requesting supreme court reversal, the defendant con- (2d Dist. 2000); Cincinnati Insurance Co. v. Baur’s Opera tends that Illinois law directly supports the trial court’s rul- House, Inc., 296 Ill. App. 3d 1011 (4th Dist. 1998), and Fre- ing dismissing the plaintiff’s complaint on the basis that the mont Indemnity Co. v. Special Earth Equipment Corp., 131 plaintiff has failed to state a cause of action, citing Simmons Ill. App. 3d 108 (5th Dist. 1985). v. Aldi-Brenner Co., 162 Ill. App. 3d 238, 515 N.E.2d 403 (3d The insureds further argue that due to the insurer’s conflict Dist. 1987). According to the defendant, the Simmons case of interest, as a matter of law, it could not show prejudice by is directly on point and in it the Third District declined to any delay in notice. The insureds aver that the insurer’s con- impose exactly the duty which the Second District imposed flict of interest would have required it to permit the insureds in this case. The defendant also cites Stutz v. Kamm, 204 Ill. to choose their own independent counsel and that it would App. 3d 898, 562 N.E.2d 399 (4th Dist. 1990) which it con- have had no control over the litigation in any respect. As such, tends followed the Simmons decision, refusing to impose a it could not suffer any prejudice. duty where a driver drove her vehicle into a driver’s license Finally, the insureds argue that the lower court should have examination facility. alternatively applied a reasoned equitable approach by adopt- The defendant further argues that the supreme court should ing a “no pre-notice defense cost rule,” which would punish review this decision because the design of the defendant’s the delayed notice but otherwise would require the insurer to building did not proximately cause the injury to plaintiff’s accept the duty to defend the insureds after notice was given decedent. Stated otherwise, the defendant’s allegedly negli- of the lawsuit. gent conduct did not cause the driver to hit the lamp post, put the car in drive, or apply excessive force to the accelerator. As such, according to the defendant, the driver’s subsequent independent act is the sole proximate cause of the injury to plaintiff’s decedent, citing In re Estate of Elsayer, 327 Ill. App. 3d 1076, 1083, 757 N.E.2d 581 (1st Dist. 2001).

67 IDC Quarterly

chran firm rendered the firm liable for Mr. Schuman’s acts and omissions. The complaint alleged that Schuman erred by failing to contest a forfeiture of $6,000, failing to contest Professional Liability the miscalculated fine in the plea agreement and failing to provide adequate representation. Paulsen alleged that, with proper representation, he would have received probation as By: Martin J. O’Hara opposed to a fine and jail sentence. Quinlan & Carroll, Ltd. The defendants moved to dismiss the complaint on vari- Chicago ous grounds, including Paulsen’s failure to allege that he was innocent of the crime for which he was convicted. The defendants asserted that the “actual innocence” rule precluded The “Actual Innocence” Rule Paulsen’s legal malpractice complaint. The trial court agreed, and dismissed Paulsen’s complaint with prejudice pursuant Continues to Provide Significant to Section 2-619 of the Illinois Code of Civil Procedure (735 Protection for Criminal ILCS 5/2-619). Defense Attorneys On appeal, the Paulsen court affirmed. The court initially set forth the standard elements for a legal malpractice claim: Criminal defense attorneys in Illinois are well aware that 1) the existence of an attorney-client relationship; 2) a duty clients can become disgruntled when convicted. Convicted arising from that relationship; 3) a breach of that duty on the clients have long asserted claims of ineffective assistance of part of the attorney; 4) proximate cause; and (5) damages. counsel in an effort to reverse the conviction. However, a Paulsen, 826 N.E.2d at 530. However, the court noted that an more recent trend has been for convicted persons to file civil “additional element is required of a criminal defendant who claims for legal malpractice. The First District Appellate Court must prove his innocence before he may recover from his recently reaffirmed that the “actual innocence” rule provides criminal defense attorney’s malpractice.” Id., citing Kramer a very difficult hurdle for plaintiffs pursuing such claims. v. Dirksen, 296 Ill. App. 3d 819, 695 N.E.2d 1288, 231 Ill. Paulsen v. Cochran, 356 Ill. App. 3d 354, 826 N.E.2d 526, Dec. 169 (1st Dist. 1998). 292 Ill. Dec. 385 (1st Dist. 2005). The Paulsen court discussed the genesis and rationale for In 2002, Michael Paulsen, a Chicago resident, was arrested requiring this additional element. The “actual innocence” rule in Arizona and charged with conspiracy to transport marijuana. is derived from the doctrine of collateral estoppel, whereby Paulsen sought representation from the Cochran firm. He was a valid criminal conviction acts as a bar to overturning that referred to Mr. Anthony Schuman, an attorney not associated conviction in a civil damages suit. Levine v. Kling, 123 F.3d with the Cochran firm. Schuman then sought assistance from 580, 583 (7th Cir. 1997); Appley v. West, 832 F.2d 1021, 1025- Mr. Joel Schwartz, a Missouri attorney. 26 (7th Cir. 1987); Scherer v. Balkema, 840 F.2d 437, 442 (7th In August of 2002, Paulsen signed a plea agreement stat- Cir. 1988); Restatement (Second) of Judgments, § 85(2)(a) ing that he would plead guilty to the conspiracy charge in and comment e (1982). In Levine, Judge Posner held that the exchange for a mitigated sentence and a reduced fine. The agreement also stipulated that Paulsen, upon acceptance of the agreement, gave up any and all claims or defenses that he could assert thereafter with regard to the entry of judgment against him. The agreement further stated that Paulsen discussed the case and his rights with his lawyer, and that he was signing the agreement voluntarily. About the Author Paulsen subsequently filed a petition for postconviction relief seeking resentencing as to the fine, but he did not with- Martin J. O’Hara is a partner with the Chicago firm draw his guilty plea. Paulsen’s fine was reduced from $88,500 of Quinlan & Carroll, Ltd. His practice is devoted to litigation, including commercial cases, and the defense of to $50,000 because of a miscalculation in the plea agreement. professionals in malpractice actions. Mr. O’Hara received Thereafter, Paulsen filed a legal malpractice action against his B.A. from Illinois State University and J.D. with honors from John Marshall Law School. He is a member the Cochran firm, Schuman and Schwartz, arguing that the of DRI, IDC, ISBA and CBA. fee arrangement made between Mr. Schuman and the Co-

68 Third Quarter 2005

“only way in which a criminal defendant could establish injury Recognizing that the Morris exception did not apply to his in a case of malpractice against his defense counsel would claim, Paulsen argued that a second exception to the “actual be by showing that competent counsel would have obtained innocence” rule be created. Specifically, Paulsen argued that an acquittal for him.” 123 F.3d at 582. Fundamentally, tort in cases where the malpractice claim alleges something other law is meant to provide damages to a plaintiff whose legally than wrongful conviction, neither Illinois law nor public protected interests have been impeded; a guilty criminal’s policy requires a criminal defendant to prove “actual inno- liberty is not a legally protected interest. Id. Further, Judge cence” to state a cause of action. Paulsen, 826 N.E.2d at 529. Posner found that to award the defendant, who was justly Paulsen contended that the “actual innocence” rule should not convicted and imprisoned, money for the loss of his liberty be applied to a criminal defendant who has pled guilty, but “is to give him relief to which criminal law, and the federal does not believe that his attorney negotiated the best possible constitutional right to counsel, does not entitle him.” Id. sentence. Id. at 532. Because he was not asserting that the Since 1998, Illinois courts have applied the “actual in- malpractice resulted in a wrongful conviction, but instead nocence” requirement for former criminal defendants who the malpractice resulted in an incorrect sentence, Paulsen become malpractice plaintiffs. Kramer, 296 Ill. App. 3d 819, argued that the “actual innocence” rule had no application. 821 (1st Dist. 1998). The Kramer court held that a legal mal- Conversely, the defendants asserted that because there was practice case was properly dismissed under Section 2-619 of no evidence of intentional or wilful betrayal of Paulsen, the the Illinois Code of Civil Procedure where the plaintiff, a for- “actual innocence” rule had to be applied. Id. at 529. mer criminal defendant who was found guilty, could not prove The court found that the issue raised by Paulsen had not his actual innocence. Id. The court reasoned that the “actual been addressed by any Illinois court. The court therefore innocence” requirement in legal malpractice cases, where the considered foreign cases that had been cited by the parties. underlying case was criminal, eliminated the possibility that Paulsen cited to cases from Ohio, Maryland and Louisiana a plaintiff, who had been found guilty of the crime, would that permitted criminal defendants to pursue legal malpractice profit from his criminal activity. Id.; Paulsen, 826 N.E.2d at claims relating to negligence that occurred in connection with 530; see also, Levine, 123 F.3d at 582. sentencing, even though the criminal defendants could not The Paulsen court noted that there is a recognized excep- prove that they actually were innocent. The Paulsen court tion to the “actual innocence” rule in Illinois as a result of found that the cases relied on by Paulsen were from states the decision in Morris v. Margulis. Morris, 307 Ill. App. 3d that have not adopted the “actual innocence” rule. Because 1024, 1039, 718 N.E.2d 709, 241 Ill. Dec. 138 (5th Dist. Illinois has adopted the “actual innocence” rule, the court 1999); rev’d on other grounds, 197 Ill. 2d 28, 754 N.E.2d found Paulsen’s cases unpersuasive. 314, 257 Ill. Dec. 656 (2001). In Morris, the plaintiff alleged Thus, the Paulsen court rejected the invitation to create a that the defendant attorneys had breached their fiduciary duty second exception to the “actual innocence” rule. The court by disclosing confidential information to the assistant U.S. held firm that the only exception recognized in Illinois in- attorneys who were prosecuting the plaintiff. The defendants volves cases where criminal defense attorneys intentionally asserted that the plaintiff could not prevail in his action unless breach their fiduciary duties to clients. Because this exception he proved that he was actually innocent of the charges for is quite narrow, the “actual innocence” rule remains alive and which he was ultimately convicted. The Morris court rejected well, and should continue to provide significant protection for the defendants’ assertion. criminal defense attorneys against claims of legal malpractice The court held that it would be unconscionable to apply brought by former clients who have been convicted. the “actual innocence” rule in cases where criminal defense attorneys intentionally work to ensure their clients’ conviction. Morris, 307 Ill. App. 3d at 1039. To do otherwise would allow criminal defense attorneys to urge juries to convict their clients, and then allow them to defend their actions by arguing that the criminal defendants were found guilty. Id. The Morris court thus held that the “‘actual innocence’ rule will not be applied to situations where an attorney wilfully or intentionally breaches the fiduciary duties he owes to his criminal defense client.” Id.

69 IDC Quarterly

When is a Conveyance Fraudulent? Generally, to establish that a conveyance is fraudulent in law, three elements must be present: (1) there must be a Property Insurance transfer made for no or inadequate consideration; (2) there must be an existing or contemplated indebtedness against the transferor; and (3) it must appear that the transferor did not By: Tracy E. Stevenson retain sufficient property to pay his indebtedness. See, Can- Chuhak & Tecson P.C. non v. Whitman Corp., 212 Ill. App. 3d 79, 82, 569 N.E.2d Chicago 1114, 1117 (5th Dist. 1991), cert. denied, 141 Ill. 2d 536, 580 N.E.2d 109 (1991). The Uniform Fraudulent Transfer Act 160/5(a) provides that a transfer made by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made, if the debtor made the transfer with actual intent to A Judgment has Been Entered: hinder, delay, or defraud any creditor of the debtor. 740 ILCS Can the Debtor Protect His Assets? 160/5(a). Further, Section 5(b) provides, in relevant part: This article follows closely on the heels of last quarter’s in determining the actual intent under paragraph (1) column dealing with the use of citations to discover assets of subsection (a), consideration may be given, among following the entry of a judgment against an individual or a other factors, to whether . . . (2) the debtor retained corporation. Here, a brief overview of the Illinois Fraudulent possession or control of the property transferred after Conveyance Act may shed some light on the manner in which the transfer; . . . (4) before the transfer was made or property is transferred when a claim is pending and when a obligation was incurred, the debtor had been sued or transfer of property must occur to keep the transfer from being threatened with suit; . . . (5) the transfer was substantially found void by a court of law. The law governing a majority of all the debtor’s assets; . . . (6) the debtor absconded; . . . the issues surrounding conveyances of property is codified at (7) the debtor removed or concealed assets; . . . (9) the 740 ILCS 160/1 et seq. This article will give a brief overview debtor was insolvent or became insolvent shortly after of this statute and its impact on judgment debtors. the transfer was made or the obligation was incurred. 740 ILCS 160/5(b). Where are the Assets? First, following a judgment, the creditor must locate the When determining whether a conveyance is fraudulent, assets of the debtor often through use of a citation to discover actual insolvency is not required; the test is whether the con- assets. While this tool is handy to locate assets currently in veyance directly tended to or did impair the rights of creditors. the possession of a judgment debtor, it can also be vital to Falcon v Thomas, 258 Ill. App. 3d 900, 629 N.E.2d 789 (4th identifying assets once held by the judgment debtor but no longer in the debtor’s possession. The Illinois Fraudulent Conveyance Act Statute can permit a creditor to recover assets which have been transferred to a third party. As counsel for either party, it behooves us to remember that a person can be a debtor within the meaning of the Fraudulent Conveyance Act, even if he, she or it (with reference to corporate clients), is not directly liable on a claim, if that person or corporation About the Author participated in a fraudulent conveyance. Firstar Bank, N.A. v. Faul, ___F. Supp. 2d___, 2001 U.S. Dist. LEXIS 21294 (N.D. Tracy E. Stevenson is a partner in the Chicago firm of Chu- Ill. Dec. 19, 2001). Thus a transfer under the law may not be a hak and Tecson, P.C., where she concentrates her practice in medical malpractice defense and insurance defense. She protection; it may simply permit the number of debtors from has defended cases on behalf of physicians and hospitals whom a creditor can collect to multiply. and represented various major insurance companies in claims for personal injury. She is licensed in Michigan as well as Illinois.

70 Third Quarter 2005

Dist. 1994). Further, for purposes of the Illinois Fraudulent When Must the Action be Brought? Transfer Act, a debtor is insolvent if the sum of the debtor’s The limitation for the time in which an action pursuant to debts is greater than all of the debtor’s assets at a fair valu- the Illinois Fraudulent Conveyance Act must be brought is ation. 740 ILCS 160/3(a). In addition, for the purposes of set forth within 740 ILCS 160/10: determining insolvency, assets do not include property that has been transferred, concealed, or removed with the intent to § 740 ILCS 160/10. [Limitation of actions] hinder, delay, or defraud creditors or that has been transferred Sec. 10. A cause of action with respect to a fraudulent in a manner making the transfer voidable under the Act. 740 transfer or obligation under this Act is extinguished un- ILCS 160/3(d). Thus transferring of property or other assets less action is brought: for purposes of estate or tax planning may still be construed as a fraudulent conveyance if sufficient income is not available (a) under paragraph (1) of subsection (a) of Section 5 to satisfy a debt stemming from a claim which arose prior to [740 ILCS 160/5], within 4 years after the transfer the time of transfer. was made or the obligation was incurred or, if later, within one year after the transfer or obligation was Does Timing Matter? or could reasonably have been discovered by the The general law in Illinois is that only those creditors who claimant; had existing claims at the time of the transfer may complain (b) under paragraph (2) of subsection (a) of Section that the transfer of property was made in derogation of the 5 [740 ILCS 160/5] or subsection (a) of Section 6 creditors rights and the burden is on the creditor to establish [740 ILCS 160/6], within 4 years after the transfer the existence of a pre-existing debt. An exception to the gen- was made or the obligation was incurred; or eral rule provides that a voluntary conveyance may be set aside at the instance of subsequent creditors upon proof of (c) under subsection (b) of Section 6 [740 ILCS 160/6], actual fraudulent intent. Mandolini Co. v. Chicago Produce within one year after the transfer was made or the Suppliers, Inc., 184 Ill. App. 3d 578, 540 N.E.2d 505 (1st obligation was incurred. Dist. 1989). The Illinois version of the Fraudulent Transfer Act provides Importantly, the four-year statute of limitations set forth that a transfer is fraudulent as to a creditor whose claim rose in subsection (a) begins to run, not from the date a final judg- before the transfer was made if the debtor was insolvent at ment is rendered in a court of law but rather from the date the that time or the debtor became insolvent as a result of the transfer is made. Levy v. Markal Sales Corp., 311 Ill. App. transfer. 740 ILCS 160/6(a). Note that the time of the claim 3d 552, 724 N.E.2d 1008, 2000 Ill. App. LEXIS 53 (1st Dist. is the trigger mechanism, not the time a final judgment is 2000). In light of the increasing span of time between the date rendered. Failure to be aware of the possible fraudulent a claim is filed through the date a judgment is entered, it is conveyance implications of a conveyance made while a tort conceivable that a potential debtor may have transferred assets claim was pending that was later reduced to judgment, did not and be protected by the statute of limitations. However, the prevent the application of Illinois fraudulent conveyance law. statute does have a notice clause which permits filing a cause Tcherepnin v. Franz, 457 F. Supp. 832 (N.D. Ill. 1978). That is, of action later than four years. One can file “within one year even if a party inadvertently transfers assets for estate planning after the transfer or obligation was or could reasonably have purposes or as a gift, that transfer can be deemed fraudulent been discovered by the claimant.” 740 ILCS 160/10 (a). It is under the law, without need to show intent on the part of the important to identify compliance with the statute of limita- transferor. “Fraud in law will be found when a conveyance is tions. “When drafting a complaint, it is also required that the made for inadequate or no consideration. Fraud is presumed complaint set forth an explanation of why discovery of the in these circumstances and intent is immaterial.” Stoller v. alleged fraud could not have occurred prior to the expiration Exchange National Bank, 199 Ill. App. 3d 674, 557 N.E.2d of the limitations period or risk dismissal.” Gilbert Bros v. 438 (1st Dist. 1990). It behooves all potential transferor’s to Gilbert, 258 Ill. App. 3d 395, 630 N.E.2d 189 (4th Dist.) ap- ascertain the status of any potential claims which may exist peal denied, 157 Ill. 2d 499, 642 N.E.2d 1278 (1994). against them before transferring any asset, or risk a court voiding the transfer regardless of the penalties or good intent.

(Continued on next page)

71 IDC Quarterly

Property Insurance (Continued) Second Judicial District James DeAno Conclusion Norton, Mancini, Argentati, Weiler & DeAno While there is no law against the transfer of assets gener- 109 N. Hale Street ally, when a claim is pending against an individual or an entity, Wheaton, Illinois 60187 reference to the Illinois Fraudulent Conveyance Act may be (312) 668-9440 in the best interest of the transferor prior to completing the Third Judicial District transaction. The Act mandates the time and manner in which Karen L. Kendall a transfer of property can be made. While many transfers Heyl, Royster, Voelker & Allen are made without intent to defraud, when a person attempts 124 SW Adams Street to circumvent the law and/or indebtedness, the Act imposes Bank One Building, Suite 600 relief for a creditor even to the detriment of a transferee in Peoria, Illinois 61602 some instances. (309) 676-0400 Fourth Judicial District Robert W. Neirynck Costigan & Wolrab, P.C. 308 E. Washington Street, P.O. Box 3127 Bloomington, Illinois 61701 Amicus Committee Report (309) 828-4310 Fifth Judicial District Stephen C. Mudge Reed, Armstrong, Gorman, Coffey, Thompson, By: Michael L. Resis Gilbert & Mudge O’Hagan, Smith & Amundsen, L.L.C. 101 North Main Street, P.O. Box 368 Chicago Edwardsville, Illinois 62025-0368

During its May term, the Illinois Supreme Court accepted While we cannot file a brief in every case in which we are the defendants’ petition for leave to appeal in Marshall v. asked, we encourage your participation in making the views Burger King Corp., Docket No. 100372. There the appellate of our members known to the reviewing courts on the legal court (355 Ill. App. 3d 685, 824 N.E.2d 661 (2nd Dist. 2005) issues that affect us. We need your input and your support. If (a detailed discussion of this case is set forth in the Supreme you are interested in writing an amicus brief or submitting a Court Watch column)), with one justice dissenting, held that case for review by the committee, please contact any of us. a business owner/operator owed a legal duty to erect barriers to prevent an out-of-control vehicle from crashing through the restaurant’s premises and causing a patron’s fatal injuries. On June 29, 2005, the IDC sought leave to appear and file an amicus brief in support of the defendants-appellants. On About the Author behalf of the IDC, I prepared the amicus brief in support of the defendants-appellants. Michael L. Resis is a founding partner and chairman of As a reminder for future submissions, the amicus curiae O’Hagan, Smith & Amundsen’s appellate department. He concentrates his practice in the areas of appeals, insur- committee members are: ance coverage and toxic, environmental and mass torts. He has practiced law in Chicago for 20 years and handled First Judicial District more than 400 appeals. Mr. Resis has represented govern- John J. Piegore ment, business and professional organizations as amicus curiae before the Illinois Supreme Court and the Illinois Appellate Court. He Sanchez & Daniels received his B.A. degree, magna cum laude, from the University of Illinois at 333 W. Wacker Drive, Suite 500 Champaign-Urbana in 1978, and a J.D. degree from the University of Illinois at Champaign-Urbana in 1981. Mr. Resis currently serves on the Board of Chicago, Illinois 60606 Directors for IDC. (312) 641-1555

72 Third Quarter 2005

economic loss.” 125 S. Ct. at 1631. The Court found that at the moment a securities transaction takes place, the plaintiff has suffered no loss, in that the inflated purchase payment is Commercial Law offset by ownership of a share that at the time of purchase possesses equivalent value. The Court also found that the link between the inflated share purchase price and any later By: James K. Borcia economic loss was not sufficient, in that the longer the time Tressler, Soderstrom, Maloney & Priess between the purchase and sale, the more likely it was that Chicago other factors could cause the loss. The other potential factors cited included “changed economic circumstances, changed investor expectations, new industry-specific or firm-specific facts, conditions or other events, which taken separately or Supreme Court Rejects Inflated together account for some or all of that lower price.” 125 S. Ct. at 1632. While acknowledging that the higher purchase Purchase Price Theory for Establishing price will sometimes play a role in bringing about a future Liability in Securities Fraud Cases loss, the Court noted that to “touch upon” a loss is not the same as causing a loss, and the securities laws require loss Dura Pharmaceuticals v. Broudo, __U.S.__, 125 S. Ct. causation to be pled and proved. Id. 1627, 161 L.Ed.2d 577 (No. 03-932, April 19, 2005). Finally, the Court noted that the Ninth Circuit’s approach The United States Supreme Court held that a plaintiff in a overlooked an important securities law objective. While the securities fraud action cannot satisfy the requirement of loss securities laws were designed to deter fraud, they were not causation by alleging that a securities price at the time of designed to provide investors with broad insurance against purchase was inflated because of an alleged misrepresentation. market losses. Rather, the laws were designed only to protect The case was brought by stockholders of Dura Pharma- them against those economic losses that misrepresentations ceuticals, Inc. (“Dura”) who claimed that the price of Dura actually caused. The Court found that the Ninth Circuit ap- shares that they bought between April 15, 1997 and February proach would allow for recovery where a misrepresentation 24, 1998 was inflated by the company’s misrepresentations of led to an inflated purchase price but nonetheless did not two of its products, the Albuterol Spiros asthma-spray device proximately cause any economic loss. and the Ceclor CD antibiotic. Dura’s news releases during the This decision is a significant victory for those who are subject period allegedly claimed good sales and suggested that faced with defending securities fraud claims. The decision the spray device, which required approval from the Food and will require those asserting securities fraud claims to plead Drug Administration (“FDA”), had been testing well. After and prove that the alleged misrepresentations actually caused the company disclosed lower than forecasted revenue and a loss. The decision will also give those facing such claims earnings, an acknowledgment that the sales of its products more leeway to argue that there were intervening causes that had been declining and that the FDA would not approve the resulted in the loss. spray device, the company’s stock plunged from a high of $53 a share to below $10 in November, 1998. Plaintiffs brought a class action complaint alleging that in reliance on the integrity of the market, they paid artificially inflated prices for Dura’s securities. The federal district court dismissed the complaint on the grounds that the plaintiffs About the Author had failed to adequately allege “loss causation,” i.e., a causal connection between the alleged misrepresentation and the James K. Borcia is a partner with the Chicago firm of loss. The Ninth Circuit Court of Appeals reversed, finding Tressler, Soderstrom, Maloney & Priess, and is active in the firm’s litigation practice with an emphasis on commercial that plaintiffs pled loss causation by alleging that the price and complex litigation. He was admitted to the bar in 1989 they paid on the date of purchase was inflated because of the after he received his J.D. from Chicago-Kent College of misrepresentation. The Supreme Court reversed the Ninth Law. Mr. Borcia is a member of the Chicago and Illinois State Bar Associations, as well as the IDC and DRI. Circuit’s decision, finding that “an inflated purchase price will not itself constitute or proximately cause the relevant

73 IDC Quarterly

clarification did not constitute a valid post-trial motion, and as such, R&G’s notice of appeal, filed within 30 days of the ruling on the motion for clarification, but well beyond the 30 Appellate Practice Corner days for filing from the original order, was untimely. In R&G, the court specifically overruled its prior decision in Knapp v. City of Decatur, 160 Ill. App. 3d 498, 513 N.E.2d 534 (4th By: Brad A. Elward Dist. 1987), which had considered a “motion for findings” a Heyl, Royster, Voelker & Allen proper motion under Section 2-1203(a). Peoria In the underlying case, the trial court entered a docket order dismissing the plaintiff’s complaint, but did not specify any grounds for its decision. R&G then moved to clarify, asking Motions Requesting Clarification the court to specify which of the many grounds raised by the Do Not Constitute a Proper Post-Trial defendants supported its ruling. The trial court granted the Motion Under Section 2-1203(a) motion, and indicated that it had relied on all of the grounds in the defendant’s motion to dismiss. R&G then appealed, over a One of the more stressful situations for an appellate month and a half after the trial court’s initial ruling. practitioner arises when a trial court either fails to set forth As part of its reasoning, the appellate court found that in any reasons for its rulings, or fails to rule on all of the issues order to be a valid motion, a post-trial motion must attack presented. Counsel seeking to review such a decision is at a and be directed at the underlying judgment from which the distinct disadvantage on appeal because there is no rationale appeal arose. The court further held that Section 2-1203(a), to attack. This means that both the attorneys and the court which governs post-trial motions in non-jury cases, did not must spend time and money to consider each potential basis list a motion to clarify as a valid post-trial motion. Instead, of a trial court’s ruling. Counsel is then presented with the Section 2-1203(a) included only “a motion for a rehearing, dilemma of, “Should I file for clarification or should I simply or a retrial, or modification or the judgment, or to vacate the appeal? And if I file for clarification, what effect does that judgment, or for other relief.” The appellate court noted that motion have on my time to appeal?” the “other relief” listed in Section 2-1203(a) “must be similar A quick review of Supreme Court Rule 303(a), which in nature to the other forms of relief specified in that section.” governs appeals from final judgments in civil cases, reveals See, Marsh v. Evangelical Covenant Church, 138 Ill. 2d 458, that a motion for clarification does not fall within the lan- 461, 563 N.E.2d 459 (1990). Addressing the specifics of guage of the Rule because it is not technically a motion R&G’s motion, the appellate court commented that the mo- directed against the underlying judgment. Moreover, Section tion simply requested certain findings not stated by the trial 2-1203(a) of the Code of Civil Procedure, which governs court as to the legal basis for its decision. The motion did not post-judgment motions in non-jury cases, lists motions for challenge the trial court’s judgment. rehearing, retrial, modification, or one to vacate a judgment. Decided a month later, the Fourth District reached the A motion for clarification, however, is not listed. 735 ILCS same conclusion in Welton v. Ambrose, 351 Ill. App. 3d 627, 5/2-1203(a). 814 N.E.2d 970 (4th Dist. 2004). There, on slightly different Two recent Fourth District Appellate Court decisions have lessened this dilemma by holding that motions to clarify do not constitute valid post-judgment motions under Section 2-1203(a), and further that they do not toll the time for filing About the Author the notice of appeal. R&G, Inc. v. Midwest Region Founda- Brad A. Elward is a partner in the Peoria office of tion for Fair Contracting, 351 Ill. App. 3d 381, 812 N.E.2d Heyl, Royster, Voelker & Allen. He practices in the area 1044 (4th Dist. 2004); Welton v. Ambrose, 351 Ill. App. 3d of appellate law, with a sub-concentration in workers’ compensation appeals and asbestos-related appeals. He 627, 814 N.E.2d 970 (4th Dist. 2004); see also, Giammanco received his undergraduate degree from the University of v. Giammanco, 253 Ill. App. 3d 750, 756-67, 625 N.E.2d 990 Illinois, Champaign-Urbana, in 1986 and his law degree (2d Dist. 1993). In R&G, Inc. v. Midwest Region Foundation from Southern Illinois University School of Law in 1989. Mr. Elward is a member of the Illinois Appellate Lawyers for Fair Contracting, 351 Ill. App. 3d 381, 812 N.E.2d 1044 Association, the Illinois State, Peoria County, and American Bar Associations, (4th Dist. 2004), the court found that R&G’s motion for and a member of the ISBA Workers’ Compensation Section Counsel.

74 Third Quarter 2005 facts, the court ruled that it did have jurisdiction to address the merits of an appeal, where the plaintiff filed an appeal prior to the defendant having filed its motion to clarify. In that case, the trial court entered summary judgment on all counts of the Alternative Dispute Resolution complaint on June 18, 2003, but did not enter a written order, only a docket entry. On July 14, 2003, the plaintiffs filed a notice of appeal. That same day, the defendant moved for By: John L. Morel clarification of the judgment order (seeking to correct a double John L. Morel, P.C. negative), but did not seek to challenge the overall ruling. The Bloomington trial court, after a hearing on the defendant’s motion, granted the clarification and issued a written order on July 31, 2003. On appeal, the defendant moved to dismiss the plaintiff’s Conflict Resolution notice of appeal as premature. There is a substantial growth of conflict resolution and an increasing recognition by the general public of the economy “As part of its reasoning, the and time within which there can be a resolution of their dispute. The general public and parties to litigation, have become appellate court found that in order aware, or more aware, of mediation as one method or avenue for the resolution of their claim. to be a valid motion, a post-trial The “neutrality” of a mediator can raise some concern motion must attack and be directed among the parties. Many people are suspicious about neutrality. They often do not trust a mediator. Many are also at the underlying judgment from suspicious of the concept and question whether a mediator can genuinely be as neutral, impartial, and unbiased as they which the appeal arose.” are led to believe. Most partie, rely heavily on a neutral stance to obtain trust and credibility but parties may nonetheless doubt one’s impartiality. Ironically, people who participate in mediation report high levels of satisfaction. The appellate court denied the defendant’s motion to dis- Some parties are often willing to give up on the hope for miss, finding that the motion to clarify did not challenge the vindication, but they will do this only if they feel they are underlying judgment. Thus, under Rule 303(a) and Section giving or have given their best shot at obtaining it. Vindica- 2-1203(a), there was no post-trial motion, and therefore, the tion may, in fact, represent a person’s deepest needs. Seldom plaintiff’s notice of appeal was valid. Unlike R&G, the Wel- do parties feel/believe that arbitration or mediation is a way ton court did not overrule Knapp, but distinguished the case, to obtain their goal. noting that in Knapp, the motion did not expressly accept the (Continued on next page) court’s judgment. Similar to Welton, the appellate court in In re Application of the County Treasurer, 356 Ill. App. 3d 1102, 827 N.E.2d 526 (4th Dist. 2005), refused to find a notice of appeal premature, where the plaintiff had moved to reconsider and strike two About the Author factual findings included in the trial court’s order. The motion did not challenge the trial court’s judgment. John L. Morel concentrates his practice in civil trial The lesson from these decisions is as follows: even where and appellate practice, as well as insurance law, at his Bloomington firm of John L. Morel, P.C. He received his a trial court’s order is unclear, if counsel does not intend to B.A. from Western Illinois University and his J.D. from ask (meritoriously) for the specific relief set forth in Section the University of Illinois. Mr. Morel is a member of the McLean County, Illinois State, and American Bar As- 2-1203(a) and attack the judgment rendered, a party should sociations. He is also a member of the IDC, FDCC, DRI, file a notice of appeal any time it wishes to challenge the trial National Association of College and University Attorneys and the Illinois Appellate Lawyers Association. Mr. Morel sits on the Board court’s ruling. A motion asking for clarification alone will not of Directors for the IDC. toll the time for appeal.

75 IDC Quarterly

Alternative Dispute Resolution (Continued) successful resolution if done in advance of the mediation, Some believe engaging in conflict resolution is risky and to permit the parties to evaluate their respective positions. If scary. Their counsel and the mediator or arbitrator must con- representing a defendant-insured, the insurer’s representative vince them that it is a safe environment in which they can may very well change or alter their position, i.e., increase their discuss their concerns without fear of retaliation. For many, offer based upon the presentation at mediation. safety is more likely to be experienced in a formal process During the mediation when the attorney and client are with very clear rules and procedures. Then again, some par- alone, the attorney has an excellent opportunity to further ties believe that they can engage in and avoid conflict at the educate or otherwise enlighten the client with his or her per- same time. ceptions and what the client may anticipate. In most litigation, however, following the completion When one leaves a mediation without having reached of discovery the parties wish to settle the case. Obviously, a settlement that does not mean that the mediation was of this can be accomplished through arbitration, mediation, or little value. As to those cases that are not resolved during the negotiation. It’s a given that if both parties wish to resolve mediation, many settle as a result of the mediation. Having the case they must go to mediation with an open mind. Each participated in the mediation, your client, with you, will be in side should approach the mediation with the intent to reach a better position to make an informed decision as to whether an agreement to settle the case. Unfortunately, there are par- the case should be tried, given the amount of time for media- ties and counsel who attend the mediation only because it is tion as opposed to a jury trial and the cost of participating or court-ordered. In those instances, and in other mediations that trying the case. With proper preparation, mediation can be a are not court-ordered, some counsel and parties merely show less expensive, more productive way to resolve cases. up without having prepared anything and do not participate in good faith. In those instances, their intent is to learn Plaintiff’s position and the prospective evidence or intentions at trial. In addition, the other party may reveal some of the exhibits they intend to offer into evidence. Some parties go to a mediation with unrealistic expectations (such as a settlement amount). Under those circumstances, the mediator should give that party/client a “reality check.” An overview, together with the risks attendant to trial, versus mediation, generally provide the client an education on the issues and the process and similar cases with verdicts The Defense Philosophy through litigation. Prior to a mediation, counsel should attempt to convince their client that they should keep an open mind. They should be By: Willis R. Tribler advised to consider, carefully, the comments and observations Tribler Orpett & Meyer, P.C. of the mediator. A decision has to be made at the outset how Chicago much counsel is going to present in the open caucus. Should you hold back some of the evidence you intend to produce at trial? Do you want the other side to know everything you Cleaning out the Case have? If the answer to that is yes, having done so will it make a difference in the trial of the case? Do you or should you Most readers will recall that singer Michael Jackson, the “show” your opponent exhibits, charts, or illustrations that self-anointed “king of pop,” was found not guilty of child you intend to use at trial? This can cut two ways. It can im- molestation in June. Whether or not Jackson was guilty, the press the other side to know that you are a highly competent case provides valuable guidance for trial lawyers. and well prepared counsel. It may be too late, however, for The prosecution was concerned that filing a narrow case the defense hierarchy to make a prompt decision regarding of child molestation would turn totally on the testimony of authority to resolve the case. In this author’s opinion, each Jackson’s young accuser. Therefore, it added a count of serv- party should show their hand, (exhibits, case authority, etc). ing alcohol to minors plus a charge that Jackson had conspired The opportunity to share this information may be enough to to kidnap and detain the child’s mother at his ranch. In addi- alter their position one way or another. This may lead to a tion, the prosecutor presented evidence of a similar 1993 case

76 Third Quarter 2005 which was dismissed when the complaining witness reached an accord with Jackson. These counts all required testimony by the boy’s mother and opened a world-class can of worms. The defense was able Association News to prove that the mother had previously committed welfare fraud, that she had lied in an earlier civil suit, and that she had left the ranch to get her legs waxed while she claimed that she was being held against her will. IDC Quarterly I was not on the jury, did not attend the trial and really do Editorial Changes Announced not know what happened. However, I wonder if the prosecution’s “shotgun” attack and its decision not to focus on the This issue of the Quarterly reflects the annual shift of edito- molestation charge were a significant cause of the not guilty rial positions and the appointment of a new staff member to verdict. fill the vacancy which was left when Rick Hammond finished This tactic also caused a trial that should have taken two his five-year editorial board position with the previous issue. weeks to drone on for four months. I feel that jurors tend to Linda Hay has moved up to fill the position of Editor-in- be bored by long trials and that they may have concluded in Chief and will take on the role of final editing and approval this case that this was more of a persecution than a prosecu- of the Quarterly before “the presses roll.” She advances to tion. It is also likely that the jury was offended by bringing this position after serving on the editorial board for the past up 12-year-old complaints that had been dropped. five years. Linda is a partner in the Chicago firm of Alholm, This general point was discussed in the April 2005 A.B.A. Monahan, Klauke, Hay & Oldenburg, L.L.C., which defends Journal, which reprinted “The Case Against Clutter,” a July its clients throughout the mid-west in the areas of professional 1999 column by James McElhaney in which Professor McEl- liability, general liability, employment claims, appeals, insur- haney recommended that you remove extraneous matters from ance coverage disputes and workers’ compensation. your case. McElhaney likens this to dumping the contents of The newest member of the editorial board is Al Pranaitis, your desk and putting back the things that really belong. The who joins the Quarterly board from the firm of Hoagland, things that stay in your case should go to the heart of the mat- Fitzgerald, Smith & Pranaitis. Al is a partner in the Alton ter and prove that your client is not responsible. McElhaney firm, which has held a presence in Madison County for 75 recommends that just because you have potential evidence, years. He has extensive civil jury trial practice with numerous you do not have to use all of it. This article is excellent, and verdicts in state and federal courts in areas of product liability, I suggest that you read it and keep it in mind. medical malpractice, employment discrimination, civil rights, When you get right down to it, it is unfair to blame pros- construction accidents, truck and other over-the-road motor ecutorial decisions for the Jackson result. However, we will vehicle accidents, farm equipment accidents, premises liabil- never know if the result would have been different with a less ity, and transactional matters. Al fills the position of Assistant cluttered case. Editor. The editorial shift continues as Joseph G. Feehan of Heyl, Royster, Voelker & Allen in Peoria, moves to the position of Execitive Editor. This allows Kimberly Ross of the Chicago firm of Cremer, Kopon, Shaughnessy & Spina to assume the position of Associate Editor. Renee Mortimer of Hinshaw & Culberston in Schererville, Indiana, continues her second year on the editorial board as Assistant Editor. Thanks to the consorted effort and devotion of these five About the Author members of the editorial board, the IDC continues to produce and offer a top-notch publication to its membership. Without Willis R. Tribler is a director of the firm of Tribler Orpett & Meyer, P.C. in Chicago. He is a graduate the editorial board and contributing authors, this publication of Bradley University and the University of Illinois would not be possible. We continue to acknowledge and ap- College of Law, and served as President of the IDC in 1984-1985. preciate their dedication.

77 Annual AwardsMeeting

Other awards presented were: Presidential Commendation to Michael Tootooian for chairing the 2005 Spring Seminar, to Dan Cray for chairing the Seminar, Defending the Sexual Torts, and to Mark Hansen for two years as chair of the Rookie Seminar. The IDC Commitment award was presented to John Morel for his 11 years as an IDC Director. John was appointed in 1994 to fill Doug Pomatto’s term and then elected three times.

Steve Heine presented Robert Park with the IDC Commitment award for his 12 years Glen Amundsen, incoming President, presented as an IDC Director. Steve Heine with the IDC’s Presidential Award and Bob was appointed in the Exceptional Performance Award from DRI. 1993 to fill Tony Tun- ney’s term and then elected three times.

Steve Heine presented Rick Hammond with the IDC Quarterly Award Steve Heine presented Aleen Tiffany with a Presidential Commendation for her two years as Trial Academy Chair. Steve Heine presented Dave Bennett with a Presi- dential Commendation for his year as Chair and two years as Board Liaison to the Rookie Seminar. W elcome ... New IDC Members

Jennifer E. Dicken Elisha S. Rosenblum Thomas, Mamer & Haughey, LLP, Champaign O’Hallaron, Kosoff, Geitner & Cook, P.C.,  Sponsored by: Thomas Harden Northbrook  Sponsored by: Gerard W. Cook Richard L. Elsliger Kiesler & Berman, Chicago Mark D. Sheaffer  Sponsored by: John R. Garofalo Garretson & Santora, Ltd., Chicago Anne K. Kordenbrock  Sponsored by: Richard E. Nugent Hoagland, Fitzgerald, Smith & Pranaitis, Alton  Sponsored by: Al Pranaitis Melanie Strubbe LaBarge, Campbell & Lyon, Chicago Troy Radunsky  Sponsored by: Bruce Lyon O’Hagan, Smith & Amundsen, Chicago  Sponsored by: Glen Amundsen & Dennis Cotter

IDC MONOGRAPH — Third Quarter 2005

THE IDC MONOGRAPH:

MANDATORY ARBITRATION CLAUSES IN THE EMPLOYMENT CONTEXT

Durga Bharam Tressler, Soderstrom, Maloney & Priess Chicago, Illinois

Tina L. Fink McKenna Storer Chicago, Illinois

Thomas Scott Stewart Burroughs, Hepler, Broom, MacDonald, Hebrank & True, LLC Edwardsville, Illinois

Thomas R. Weiler Norton, Mancini, Weiler & DeAno, P.C. Chicago, Illinois

James P. DeNardo McKenna Storer Chicago, Illinois

M-1 IDC Quarterly Vol. 15 No. 3

During the 40 years since the federal government en- process violations, involuntary waivers of the right to trial acted the first legislation to prohibit discrimination in the in court, and lack of consideration are some of the grounds workplace, the employer-employee relationship has grown invalidating an arbitration clause or agreement.6 increasingly regulated by state and federal laws. Title VII of Illinois adopted the Uniform Arbitration Act (“UAA”)7 for the Civil Rights Act of 1964, the Americans with Disabilities the “general purpose to make uniform the law of those states Act (ADA), and the Age Discrimination in Employment Act which enact it.”8 Similar to Section 2 of the FAA, under the (ADEA), along with state legislative and common law, now UAA, “a written agreement to submit any existing controversy provide a number of opportunities for employees to pursue ju- to arbitration or a provision in a written contract to submit dicial remedies against their employers for perceived wrongs. to arbitration any controversy thereafter arising between the Settlements in employment cases have reached epic pro- parties is valid, enforceable and irrevocable save upon such portions. In 1996, Texaco, Inc. settled a race discrimination grounds as exist for the revocation of any contract . . .”9 In lawsuit for $176 million. The following year, Home Depot, general, if a party can prove there is a valid agreement to Inc. paid $104 million to settle a class action sex discrimina- arbitrate, the court will order arbitration.10 tion lawsuit. In 2000, Coca-Cola Company agreed to pay Since the UAA was adopted, the Illinois Supreme Court $192.5 million to settle a race discrimination suit. has recognized that interpretation of court decisions in other Jury verdicts in employment cases are no less astounding. jurisdictions will be given greater-than-usual deference since An Indiana jury awarded $1,050,000 for lost back wages, lost the general purpose of a uniform act is to make consistent the future income and mental distress to an ADA claimant in his laws of the states that enacted it.11 lawsuit against Schepel Buick & GMC Truck, Inc. In 1999, Other statutes may also make reference to arbitration. a New Jersey jury awarded a female newscaster $7.3 million For example, under the Illinois Public Labor Relations Act12 in lost wages, emotional distress and punitive damages in her there is a presumption that all disputes are subject to arbitra- retaliation and handicap discrimination claim. Another New tion unless the parties intended to exclude the matter from Jersey jury awarded two female branch managers over $4.2 arbitration.13 Section 301 of the Labor Management Relations million in their age discrimination lawsuits against National Act14 requires that arbitration and other dispute options must State Bank. be “exhausted” before an employee may sue his employer.15 In an effort to manage these risks and liabilities, more and There has also been some attempt to introduce legislation more employers are requiring their employees to execute that excludes all employment contracts from the arbitration mandatory arbitration agreements. This article discusses the provisions of the FAA.16 statutes and public policy supporting arbitration, examines the types of employment-related claims subject to mandatory B. Public Policy arbitration, provides practice tips for drafting enforceable There is a strong federal public policy endorsed by the U.S. arbitration agreements in the employment context, and tracks Supreme Court in Circuit City encouraging arbitration as the the resurgence of contract analysis in the wake of the United preferred resolution alternative to litigation in employment States Supreme Court’s rulings in Circuit City Stores, Inc. v. disputes.17 Arbitration allows issues to be resolved without the Adam1 and EEOC v. Waffle House, Inc.2 time and cost of litigation, among other benefits.18 Likewise, the Illinois Supreme Court also adopted the public policy I. General Concepts of Arbitration favoring arbitration as a means of dispute resolution.19 It is important to note, however, that public policy favor- A. Applicable Statutes ing arbitration does not trump the plain language of a statute, The Federal Arbitration Act (“FAA”) governs arbitration such as Title VII, or a contract. As noted by the U.S. Supreme agreements.3 Congress originally enacted the FAA in 1925 to Court in Waffle House, public policy favoring arbitration does reverse hostility to arbitration agreements and to place arbi- not trump the ability of the EEOC to litigate precedent-setting tration agreements upon the same footing as other contracts.4 cases and police situations where the public interest is not be- Section 2 of the FAA provides that, in most cases, arbitration ing served by a particular arbitration agreement.20 Therefore, agreements “shall be valid, irrevocable, and enforceable, save despite the parties’ private arbitration agreement and a strong upon such grounds as exist at law or in equity for the revoca- public policy favoring such agreements, the EEOC may still tion of any contract.”5 As further addressed in this article, due pursue litigation for victim-specific remedies. As noted by the

M-2 IDC MONOGRAPH — Third Quarter 2005

Court, “permitting the EEOC access to victim-specific relief D. Consideration in cases where the employee has agreed to binding arbitra- An arbitration agreement must be supported by sufficient tion, but has not yet brought a claim in arbitration, will have a consideration, as would any other contract.26 When both 21 negligible effect on the federal policy favoring arbitration.” parties agree to arbitrate disputes, courts have consistently held that this mutual agreement alone is sufficient consider- C. Written Agreement ation.27 In addition, continued employment and payment of Arbitration is a matter of contract and, as noted by the wages have been held to be sufficient consideration to support U.S. Supreme Court, a party cannot be required to submit an enforcement of an arbitration agreement.28 Again, however, 22 issue to arbitration that he or she has not agreed to submit. there is a contradictory trend emerging resulting in courts The FAA mandates that arbitration agreements or clauses be reexamining what constitutes sufficient consideration.29 in writing.23 Employees have attempted to argue that they did not knowingly and voluntarily agree to submit their claims to E. Due Process arbitration. Some courts – particularly pre-Circuit City – have In general, mandatory arbitration clauses in and of them- held that a person who signs or accepts a written contract con- selves do not deprive employees of due process.30 In O’Brien taining an arbitration agreement is conclusively presumed to v. Pipkin, the defendant, who sought to vacate an arbitration know its contents and to assent to them in the absence of fraud award against him, argued that the National Futures Asso- 24 or other wrongful act on the part of another contracting party. ciation (“NFA”) violated his due process rights by requiring Recently, however, as explained below, a contradictory trend registrants to agree to abide by its rules, including the Member has emerged, and courts are beginning to question whether Arbitration Rules.31 The Seventh Circuit Court of Appeals held the waiver of the right to a trial was voluntarily given.25

About the Authors

Durga M. Bharam is a partner in the Chicago firm of Scott Stewart is a partner in the law firm of Burroughs, Tressler, Soderstrom, Maloney & Priess and chairs the firm’s Hepler, Broom, MacDonald, Hebrank & True, LLP. He con- Employment Law Group. She concentrates her practice in centrates his practice in labor and employment law, defend- commercial and employment matters. As a frequent author ing and counseling employers. He earned his undergraduate and lecturer on employment-related issues, Ms. Bharam degree from St. Lawrence University (B.A., cum laude, has written and lectured on a national and local basis on 1985), his law degree from Saint Louis University School of employment trends, discrimination, sexual harassment and Law (J.D., magna cum laude, 1995) and served as a United recent decisions of the U.S. Supreme Court. Born in Andhra States Army Intelligence officer from 1985 through 1989. Pradesh, India, Durga grew up in New Jersey. She returned to India for college where she received her Bachelor of Commerce degree from Andhra Pradesh Thomas R. Weiler is a partner in the Chicago office ofNorton, Mancini, Weiler University with highest honors. She received her law degree in 1990 from & DeAno. He devotes a substantial part of his practice to municipal, civil rights Northwestern Law School where she was an editor for Northwestern’s Journal and employment litigation, practicing in both state and federal court. He received of Criminal Law and Criminology. Ms. Bharam is licensed in Illinois and is a his B.B.A. in 1980 from the University of Notre Dame and his J.D. in 1983 from member of the Federal Trial Bar. Loyola University of Chicago School of Law. He is a member of the DRI, IDC and Illinois State Bar Association. Tina L. Fink is an associate in the Chicago firm ofMcKenna Storer where she concentrates her practice in the areas of James P. DeNardo is a partner in the Chicago firm of civil rights defense, employment discrimination and personal McKenna Storer where he concentrates on appellate practice, injury. She received her B.A. in history from Loras College equal employment litigation, labor law and insurnce cover- in Dubuque, Iowa and her J.D. from DePaul University. age. Mr. DeNardo is a member of the Federal Trial Bar and Ms. Fink is a member of the Chicago Bar Association, DRI is a member of the Army Judge Advocate General Corps. and the IDC. He has tried over 70 cases to verdict.

* The authors acknowledge the assistance of Sarah J. Rodeman, an associate with Burroughs, Hepler, Broom, MacDonald, Hebrank & True, LLC, Lauren Norris, a law clerk with Norton, Mancini, Weiler and DeAno, and Kelly Waller, an associate, and Christina Brewer, a law clerk with Tressler, Soderstrom, Maloney & Priess in preparing this article.

M-3 IDC Quarterly Vol. 15 No. 3

that the NFA’s requirement that registrants submit to manda- reversed, and the U.S. Supreme Court granted certiorari.43 tory arbitration was an authorized act, was not arbitrary and The U.S. Supreme Court affirmed Interstate’s ability to did not deny Pipkin’s Fifth Amendment right to due process.32 enforce the arbitration clause at issue and agreed with its find- Likewise, under Illinois law, contracts are not valid simply ing in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, because parties have unequal bargaining power, “even if the Inc.44 that, “by agreeing to arbitrate a statutory claim, a party contract is a so-called ‘take-it-or-leave-it’ deal and ‘consent does not forego the substantive rights afforded by the statute; to [the] agreement is secured because of hard bargaining po- it only submits to their resolution in an arbitral, rather than a sitions or the pressure of financial circumstances.”33 Rather, judicial, forum.”45 to void a contract, “the conduct of the party obtaining the advantage must be shown to be tainted with some degree of fraud or wrongdoing.”34 “Once the arbitration clause or F. Principles Governing Whether to Compel Arbitration agreement satisfies basic constitution- When considering if arbitration is appropriate, the court al and contract principles, looks to see if the parties intended to arbitrate the matter.35 If the written contract clearly indicates the parties intended the subject matter of the clause to agree to arbitrate the matter, then arbitration should be compelled.36 If the contract clearly indicates the parties did or agreement must be subject to not intend to arbitrate the matter, arbitration should not be compelled.37 When the contract is not clear as to whether the compulsory arbitration.” parties intended to arbitrate the matter, an arbitrator should determine if the matter is subject to arbitration.38

II. Arbitration of Employment Claims

A. Employment Claims Subject to Arbitration In conjunction with the U.S. Supreme Court’s prior deci- Once the arbitration clause or agreement satisfies basic sion in Perry v. Thomas,46 which held that the FAA preempts constitutional and contract principles, the subject matter state law, Gilmer has been interpreted to enforce arbitration of the clause or agreement must be subject to compulsory agreements relating to state statutory employment-related arbitration. Before addressing whether federal statutory em- claims. For example, the statute at issue in Perry – § 229 ployment-related claims are subject to arbitration in Gilmer of the California Labor Code – provides that actions for the v. Interstate/Johnson Lane Corporation,39 the U.S. Supreme collection of wages may be maintained “without regard to Court upheld and enforced arbitration agreements relating the existence of any private agreement to arbitrate.”47 The to claims arising under the Sherman Act, § 10(b) of the employer moved to compel arbitration based upon Section Securities Exchange Act of 1934, the civil provisions of the 2 of the FAA and an arbitration agreement signed by the Racketeer Influenced and Corrupt Organizations Act, and plaintiff.48 The Supreme Court in Perry reversed the lower § 12(2) of the Securities Act of 1933.40 Prior to Gilmer, there courts’ decision prohibiting the arbitration, in light of § 229 was a split among the Courts of Appeals regarding the arbi- of the California Labor Code, and enforced the arbitration trability of ADEA claims.41 With Gilmer, the U.S. Supreme agreement.49 The Supreme Court held that Section 2 of Court set the standard for enforcing arbitration agreements the FAA is a “congressional declaration of a liberal federal in the employment context. policy favoring arbitration agreements, notwithstanding any In Gilmer, the plaintiff alleged that his former employer, state substantive or procedural policies to the contrary” and Interstate, had terminated him in violation of the ADEA. preempts state-created rights.50 Interstate moved to compel arbitration of Gilmer’s claim After the Gilmer and Perry decisions, Illinois courts, pursuant to the FAA and an arbitration agreement.42 The trial as well as most courts in other jurisdictions, held that state court refused to compel the arbitration, the appellate court statutory employment claims are subject to arbitration. Like

M-4 IDC MONOGRAPH — Third Quarter 2005

federal courts, Illinois courts have a strong policy favoring 1. Can Class Claims be Arbitrated? 51 the enforcement of arbitration agreements. In Johnson v. The first question to be asked is whether class actions can 52 Noble, the plaintiff alleged, among other things, that he be heard in the arbitration context. The U.S. Supreme Court in was not paid certain commissions in violation of the Illinois Green Tree Financial Corp. v. Bazzle 60 explicitly recognized 53 Wage Payment and Collection Act (“IWPCA”). His former the viability of class action arbitrations by ruling that whether employer moved to compel arbitration based upon an arbi- the parties’ agreement allowed for class action arbitrations 54 tration provision to which the plaintiff had agreed. Johnson was for the arbitrator to decide.61 Significantly, there was argued that his IWPCA claim was not arbitrable because it no suggestion anywhere within the opinion that arbitrators was a state statutory employment claim. The Illinois Appel- cannot hear and decide class claims. Prior to Green Tree, a late Court disagreed and referred the claim to an arbitrator, number of courts recognized the ability of arbitrators to hear 55 specifically stating that the FAA preempted IWPCA. and determine class actions.62

B. Employment Claims Not Subject To Arbitration 2. When the Contract Prohibits Class Action Even though there are numerous federal and state statutory Arbitrations employment-related claims subject to arbitration after Gilmer, Courts generally will try to enforce the intention of parties there is a small category of claims exempt from arbitration. as expressed in the written agreement. Therefore, if the parties Section 1 of the FAA states in pertinent part that: specially agreed to class arbitrations, a court will enforce the same. However, the case law is still developing as to whether [N]othing herein contained shall apply to contracts of a court should enforce an agreement that specifically prohib- employment of seamen, railroad employees, or any its class arbitration, also referred to as “class action shield” other class of workers engaged in foreign or interstate provisions.63 In general, a court will not compel or allow class 56 commerce. arbitration where there is a class action shield provision, unless the prohibition is deemed unconscionable or a violation Courts have consistently construed this provision very nar- of state public policy. rowly to apply only to those workers employed in the trans- In Livingston v. Associates Finance, Inc., et al., the arbitra- portation industries, like seamen and railroad employees. The tion agreement specifically precluded parties from bringing section does not prohibit arbitration of claims arising from “class claims or pursuing ‘class action arbitration.’”64 The employment contracts just because the employer is involved Seventh Circuit found the arbitration agreement enforceable 57 in interstate commerce. and held that the agreement’s terms must be given full force and effect. Therefore, the court was “obliged to enforce the C. Class Arbitrations type of arbitration to which these parties agreed, which [did] Class actions are gaining popularity in today’s courtrooms, not include arbitration on a class basis.”65 but whether class actions can and should be arbitrated still In Ragan v. AT&T Corp.,66 an Illinois appellate court al- remains unclear and is an issue of fierce debate. As evidence lowed and enforced the provision precluding class actions. of this debate, JAMS, an alternative dispute resolution agency, In Ragan, customers filed a class action lawsuit based on the recently reversed its policy of refusing to enforce contract carrier overcharging customers for contributions to a fund. clauses that prohibit consumer or employee class action ar- AT&T brought a motion to compel arbitration pursuant to an 58 bitrations. arbitration clause contained in the consumer service agree- Significantly, neither the FAA nor any other statute specifi- ments signed by the customers. The appellate court held that 59 cally addresses the treatment of class arbitrations. Most ar- the motion should be granted because the customers were bitration agreements do not specifically address class actions. found to have accepted the terms of the consumer services Typically, if an arbitration agreement addresses the issue, it agreement, including the arbitration provision, by their silence specifically precludes class arbitrations. Alternatively, the and continued use of AT&T’s services. The court also applied agreement may specifically provide that class actions may the applicable state law to determine if the “preclusion of be adjudicated through arbitration or the agreement is silent class action relief” made the contract unconscionable.67 Upon or ambiguous on the issue. applying New York law, the court concluded that precluding class action relief did not make a contract unconscionable or

M-5 IDC Quarterly Vol. 15 No. 3

violate public policy.68 behind such a decision is to enforce the parties arbitration as In contrast, in Kinkel v. Cingular Wireless, LLC, another Il- they wrote it, despite possible inefficiencies created by such 77 linois appellate court held that an arbitration clause prohibiting an enforcement. This decision, however, predates the U.S. class arbitration was unconscionable and thus unenforceable.69 Supreme Court decision in Green Tree. The dispute in Kinkel involved a $150 early termination fee In Green Tree Financial Corp. v. Bazzle, the U.S. Supreme imposed whenever a customer wanted to cancel their service Court held that when the arbitration clause is silent on class ar- with Cingular. The court found the prohibition of class arbi- bitration, the FAA does not foreclose class arbitration, and the tration to be substantively unconscionable because the cost issue should be decided based on state-law contract interpreta- 78 of pursuing an individual claim and retaining an attorney tion by the arbitrator. The homeowners in that case, who had would exceed the $150 the plaintiff wanted to recover. The secured loans from a commercial lender, Green Tree, brought court stated that in essence, consumers in the plaintiff’s posi- a class action in state court against the lender claiming violation are left without an effective remedy in the absence of a tions of the South Carolina Consumer Protection Code. The mechanism for class arbitration or litigation.70 The court also loan documents included a mandatory arbitration agreement found the prohibition clause to be procedurally unconscio- which provided that “all disputes, claims or controversies nable because it was viewed to be one-sided in that cellular arising from or relating to [the loan agreement] . . . [were to] telephone service providers, like Cingular, typically do not be resolved by binding arbitration by one arbitrator selected 79 sue their customers in class action lawsuits.71 Significantly, by [Green Tree] with the consent of the [homeowners].” The the court held the remainder of the arbitration clause could homeowners commenced two separate state court actions. be severed from the unconscionable provision because: (1) The South Carolina Supreme Court upheld both class action the arbitration provision does not depend upon the provision awards. The court held when “arbitration clauses are silent as excluding class relief for its efficacy; (2) the agreement had to whether arbitration might take the form of class arbitration a severability clause; and (3) there is a strong public policy . . . South Carolina law interprets the contracts as permitting 80 favoring enforcing arbitration agreements.72 Accordingly, class arbitration.” In the first case, the plaintiffs sought the plaintiff could proceed with a class arbitration despite class certification, and Green Tree moved to have the class 81 the prohibition. However, in Snowden v. Checkpoint Check certification issue arbitrated, which the trial court granted. Cashing, the Fourth Circuit rejected the argument that a class The arbitrator certified the class and awarded the class sig- 82 action shield provision was unconscionable given the small nificant damages. The trial court affirmed the damages and amount of damages involved especially since the applicable the defendant appealed, claiming the “class arbitration was 83 statute provided for recovery of attorneys’ fees by the prevail- legally impermissible.” In the second case, the plaintiffs also 84 ing party. 73 sought class certification and Green Tree sought arbitration. This time, the trial court granted both the class certification 3. When the Contract is Silent or Ambiguous as and the arbitration.85 After the arbitrator awarded the class to Class Arbitrations damages, Green Tree appealed to the court, again claiming the 86 More often than not, an arbitration agreement does not spe- “class action was legally impermissible.” The United States cifically address the treatment of class actions. A majority of Supreme Court vacated the judgment. The Court noted that the the circuits, such as the Second, Fifth, Sixth, Eighth, Ninth and arbitration clause was broad and submitted to the arbitrator all Eleventh Circuits, have held that, absent an express provision disputes relating to the loan agreement. The Court, therefore, in the parties’ arbitration agreement, the duty to rigorously ruled that whether the arbitration provision, which was silent enforce arbitration agreements does not allow the courts to on the question of class arbitration, encompassed class claims order consolidated arbitration, even where such consolidation was for the arbitrator to decide, because it was an issue of would be more efficient.74 Likewise, the Seventh Circuit, in contract interpretation and it was the arbitrator who was to Champ v. Siegel Trading Co. Inc., has held that class certifica- interpret the contract. 87 tion in arbitration proceedings could not be ordered if there In Bess v. DirecTV, Inc., a case decided in 2004, an Il- was no provision for such certification in the arbitration agree- linois appellate court for the Fifth District applied the holding ment.75 The court found that Section 4 of the FAA precludes in Green Tree and refused to find unconscionable a manda- federal judges from ordering class arbitration when the parties’ tory arbitration provision that was silent on the issue of class 88 arbitration agreement is silent on the matter.76 The rationale actions. In that case, the plaintiff filed a class action suit

M-6 IDC MONOGRAPH — Third Quarter 2005

against DirecTV regarding late fees assessed to the plaintiff’s tion is allowed, the courts will likely not compel class action account. Bess received a Customer Agreement upon setting arbitration, because the courts want to enforce the agreement up her DirecTV service. While the agreement was silent as as the parties intended it. Rather, the court will likely allow to class actions, it did provide an arbitration provision that the arbitrator to decide whether class action arbitration is explicitly read, “[a]rbitration means that you waive your permitted, as it is typically the arbitrator’s role to interpret right to a jury trial.”89 If the subscriber did not agree to those the contract. terms, the subscriber was to notify DirecTV immediately to cancel service. Bess did not notify DirecTV and continued III. Practice Tips for Drafting Mandatory to use her service. The trial court found that the agreement Arbitration Agreements was “substantially unconscionable and unenforceable.”90 The As discussed, the overarching theme in the case law is that appellate court, however, relying on Green Tree, disagreed arbitration agreements are contracts and should be treated as and found that silence as to class arbitration did not render such. The standard contract defenses apply and can render an agreement “unconscionable and unenforceable.”91 The an arbitration agreement unenforceable. When drafting an court upheld the policy that a valid arbitration agreement is arbitration agreement, it therefore is important to consider the applicable state’s laws regarding contracts.94

A. Make the Arbitration Agreement Separate and “If the agreement specifically pre- Distinct From an Employee Handbook Generally, arbitration agreements within an employee cludes class action arbitration, the handbook are unenforceable, especially when an employee has confirmed only receipt of the handbooks and not specifically court will look to the applicable acknowledged reading the arbitration agreement.95 Contract state’s law and, if it does not violate terms may be referenced in a separate document, including an employee handbook if state contract law allows,96 but it is public policy, the court will uphold safest to make the agreement separate and distinct from the handbook. the exclusion of class arbitration B. Broadly Define the Scope of Arbitral Claims even if it would be less efficient.” Courts look to the language of the clause to determine the scope of disputes subject to arbitration.97 Ambiguities in the language should be resolved in favor of arbitration, but courts should not override the clear intent of the parties or the plain text of the contract simply because of the policy favoring arbitration.98 The classic language of a broad clause is “any binding where there are no grounds in Illinois law or in equity controversy arising out of or related to” an agreement.99 In for revocation of the agreement,92 and remanded the case to Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Intern., the trial court level to address plaintiff’s arguments as to the Ltd., the Seventh Circuit held that the terms “ ‘arising out’ of validity of the arbitration provision including whether she reach all disputes having their origin or genesis in the contract, knowingly and voluntarily waived her right to a trial by jury.93 whether or not they implicate interpretation or performance In summary, when dealing with class action arbitrations, of the contract per se,” recognizing the policy in favor of most courts will enforce the agreements as written, applying interpreting arbitration language broadly.100 Also, consider the rules of construction used when interpreting contracts. If the treatment of class actions. the agreement specifically precludes class action arbitration, the court will look to the applicable state’s law and, if it does not violate public policy, the court will uphold the exclusion of class arbitration even if it would be less efficient. If the agreement is silent or ambiguous on whether class arbitra-

M-7 IDC Quarterly Vol. 15 No. 3

C. Provide for Procedural and Substantive 4. Attorney’s Fees (Cost-Splitting Clauses) Fairness to Avoid the Contract Defense of The general rule is that attorney’s fees and cost-splitting Unconscionability clauses should not deter a substantial number of potential The goal in drafting a mandatory arbitration agreement litigants from seeking vindication of their rights.110 However, should be to make it as fair as possible. If an arbitration potential litigants should not have to pay more than they would agreement is too one-sided, it may be determined to be unen- have to pay in court.111 Courts should take a case-by-case ap- 101 forceable due to the contract defense of unconscionability. proach towards assessing costs.112 In Hagendorn v. Veritas Software Corp., the court held that The Seventh Circuit has held that the FAA itself does not an agreement requiring the employee to arbitrate any dispute authorize a district court to award attorneys’ fees to a party – but leaving the employer with the option to use a judicial who successfully confirmed an arbitration award in federal forum for any disputes the employer may bring – was one- court, following the general American rule that each party 102 sided and substantively unconscionable. Historically, an bear its own fees.113 However, if an arbitration agreement arbitration clause is generally not held unconscionable simply authorizes the prevailing party to recover attorneys’ fees because it is presented on a “take it or leave it” basis or is incurred in any action to enforce the agreement in a judicial 103 part of a standard, form agreement. However, there is an arbitration proceeding, the arbitrator will not exceed his au- 104 emerging trend against this rule. thority if he awards attorneys’ fees.114 Also, if the applicable statute permits the recovery of attorneys’ fees, an arbitrator 1. Set Forth a Procedure for Appointing an is within his powers to award attorneys’ fees.115 Arbitrator An arbitration agreement will be unenforceable if it limits If the agreement has not created a method of naming or or changes the remedies available to potential litigants. There- appointing an arbitrator, the court will designate and appoint fore, if a statute allows the recovery of attorney’s fees, and one who will act under the agreement with the same force an arbitration agreement states that each party “shall pay its 105 and effect as if he had been specifically named. own costs and attorneys’ fees, regardless of the outcome of the arbitration agreement,” the arbitration agreement will be 2. Do Not Limit or Change Available Remedies unenforceable.116 Courts have held that arbitration agreements must provide potential litigants with an effective substitute for the judicial 5. Forum 106 forum. Part of that determination is the similarity of rem- The arbitral forum must provide litigants with an effective edies available. For example, the Ninth Circuit held in Circuit substitute for the judicial forum.117 In Cole v. Burns Intern. City Stores, Inc., v. Adams that an arbitration agreement that Security Svcs., the D.C. Circuit listed five basic requirements failed to provide for all of the types of relief that would oth- that an arbitral forum must meet: (1) provide for neutral ar- 107 erwise be available in court was unenforceable. However, bitrators; (2) provide for more than minimal discovery; (3) even where an employee may have a statutory claim, such require a written award; (4) provide for all of the types of as a claim for discrimination under Title VII, so long as she relief that would otherwise be available in court; and (5) do can vindicate her claim in the arbitral forum, the arbitration not require employees to pay either unreasonable costs, or 108 clause will be upheld. any arbitrators’ fees or expenses, as a condition of access to the arbitration forum.118 3. Do Not Significantly Limit Statute of Limitations IV. Post-Circuit City and Waffle House Trends Be careful when limiting the statute of limitations, as These two fairly recent U.S. Supreme Court cases stirred courts have held that arbitration agreements that significantly new interest in mandatory arbitration of employment claims. decrease the limitation periods are unenforceable because they Circuit City Stores, Inc. v. Adams seems to have settled any are unconscionable. For example, in Alexander v. Anthony lingering doubts that employment arbitration agreements re- Int’l L.P., the Third Circuit held that an arbitration agreement ally are enforceable under the FAA and do not conflict with that allowed thirty days to file employment related claims was federal laws that protect employees from discrimination.119 109 unconscionable. The Supreme Court, in a 5-4 decision, rejected the notion that the advantages of arbitration disappear when applied to

M-8 IDC MONOGRAPH — Third Quarter 2005

the employment context.120 Circuit City reinforces the public FAA specifically provides that states are to regulate arbitra- policy in favor of arbitration, even for claims that an employee tion agreements “upon such grounds as exist at law or in might file in court against its employer.121 equity for the revocation of any contract.”127 Courts enforcing Unfortunately, Circuit City’s victory for employers was agreements must consider basic contract requirements such as short-lived. Disappointment soon followed in EEOC v. Waffle offer, acceptance, consideration, and other doctrines – even House, Inc., when the Supreme Court declined to expand unconscionability.128 Though judges are required to examine the scope of the FAA for mandatory arbitration agreements these contract formation and enforcement requirements, they in the employment context.122 The Supreme Court, in a 6-3 still must exercise a certain amount of restraint. Arbitration agreements may not be subjected to more burdensome contract formation requirements than other contracts.129 As a matter of strategy, since Circuit City endorsed manda- “Despite Circuit City’s holding, tory arbitration agreements in the employment context, the plaintiffs’ bar has been aggressively probing for weaknesses however, employers must realize in the agreements used by employers. Some of the courts, for their part, have proven increasingly receptive to the employ- that merely producing a copy of their ee’s arguments regarding contract formation and defenses to enforcement. Indeed, some appear to have stretched contract employee’s agreement is not analysis to its breaking point in an effort to strike arbitration a ‘get out of court free’ card.” agreements and provide employees with a judicial forum. A. Offer and Acceptance When examining employment arbitration agreements, courts now are looking closely at the first two requirements of valid contracts: offer and acceptance. Also known as mutual assent, these elements make up the proverbial “meeting decision, held that an arbitration agreement did not preclude of the minds.”130 The courts will not enforce an arbitration the Equal Employment Opportunity Commission (EEOC) agreement if a true meeting of the minds has not occurred. 123 from pursuing employee-specific relief in court. Despite Traditional contract theory defines an offer as a “manifesta- the public policy favoring arbitration, Waffle House reaffirmed tion of willingness to enter into a bargain . . . so as to justify the principle that “[a]rbitration under the [FAA] is a matter of another person in understanding that his assent is invited and 124 consent, not coercion.” Because the EEOC was not a party will conclude it.”131 An offer must be sufficiently definite in to any arbitration agreement between the complainant and the its terms.132 employer, the agency did not consent to the agreement and In Owen v. MBPXL Corp., the United States District 125 the agreement did not bind the agency. Court for the Northern District of Iowa held that the terms Although there has been some debate about the degree to of a dispute resolution plan were sufficiently definite to which Waffle House undermines Circuit City, many employ- constitute an offer under Iowa law.133 The court adopted a ers continue to require their employees to execute mandatory three-factor test to determine whether a dispute resolution arbitration agreements. Despite Circuit City’s holding, how- plan constituted an offer: (1) whether the provisions were ever, employers must realize that merely producing a copy merely policy statements or were directives; (2) whether the of their employee’s agreement is not a “get out of court free” language was detailed or general and vague; and (3) whether card. As important as Circuit City is, Waffle Housereaffirmed the employer had the power to alter the terms at will.134 The a very simple principle: arbitration agreements are nothing text used mandatory language (e.g., “differences shall be more than contracts. As the Seventh Circuit Court of Ap- arbitrated”).135 Additionally, the agreement was clear because peals has explained, “[i]n the wake of Circuit City, it is clear the duties of the parties were specifically set out.136 While the that arbitration agreements in the employment context, like agreement did provide that the employer was free to amend arbitration agreements in other contexts, are to be evaluated or discontinue the agreement, the court held that this was not 126 according to the same standards as any other contract.” The an Achilles heel.137 When viewed in the context of the other

M-9 IDC Quarterly Vol. 15 No. 3

provisions, which are decidedly mandatory and binding, an the arbitration agreement constitutes acceptance. Many courts employer’s ability to amend or discontinue the plan does not have been willing to uphold these agreements. For example, defeat the otherwise clear and definite terms of the plan.138 in Hightower v. GMRI, Inc., the Fourth Circuit Court of Ap- Along with the requirement that its terms be definite, a valid peals held that an employee’s continued employment, with offer must also reach the offeree. Without sufficient communi- actual notice of an implemented dispute resolution program, cation of the offer, there can be no acceptance, and therefore evidenced the employee’s assent to the binding arbitration no contract. Insufficient communication of an employers’ new agreement.153 Courts in both Texas and Georgia also have arbitration agreement has provided some courts, in a handful upheld continued employment as valid acceptance.154 of cases, with grounds to refuse their enforcement. The employer, in Owen, asserted that it sufficiently B. Knowing and Voluntary Assent communicated its new dispute resolution plan (DRP) to Prior to Circuit City and Waffle House, the Ninth Circuit its employees.139 The DRP was mailed to the employees’ Court of Appeals adopted a “heightened” knowing and vol- homes, was posted on the company’s internal website, and untary assent requirement for the enforcement of arbitration employee meetings were held to introduce the plan.140 The agreements.155 The standard looks to: (1) the specificity of employer, however, was not able to produce any verification the agreement language; (2) the plaintiff’s experience and that it actually mailed the plans to the employee or that it background; (3) the plaintiff’s opportunity for deliberation; notified the employees of the website posting.141 Owen did and (4) whether the employer advised the plaintiff to consult admit to attending one of the informational meetings,142 but an attorney. Both the First and Seventh Circuit Courts of Ap- he testified that he did not receive a copy of the plan, just a peal endorsed, without adopting, the standard.156 The Third summary presentation.143 The Owen court acknowledged that, and Eighth Circuits expressly rejected it.157 The Third Circuit under Iowa law, a failure to read a contract does not prevent held that application of this heightened standard would be its formation.144 However, this rule assumes that the party inconsistent with the provisions of the FAA.158 Nothing short seeking to avoid enforcement had an opportunity to read the of fraud, duress, mistake or some other ground recognized by contract.145 Owen denied the employer’s motion to compel law applicable to contracts can excuse a court from enforce- arbitration because there was insufficient communication of ment of an arbitration agreement.159 In 2001, the Seventh the agreement to employees. Circuit returned to the issue. In Penn v. Ryan’s Steakhouse, Similarly, a Massachusetts court has refused to enforce an Inc., the Seventh Circuit questioned the continued validity of a arbitration agreement due to insufficient notice. InCampbell heightened “knowing and voluntary assent” requirement, cit- v. General Dynamics Government Systems Corporation, the ing Circuit City’s statement: “We have been clear in rejecting employer disseminated its new dispute resolution policy and the supposition that the advantages of the arbitration process binding arbitration plan through an e-mail message.146 The somehow disappear when transferred to the employment message contained no indication that it was binding on em- context.”160 ployees or that it changed their legal rights.147 The message The Appellate Court of Illinois, Fifth District, however, included two links by which employees could access the full has expressly adopted the heightened standard. In Melena v. text of the policy, but no mechanism was set up ensuring that Anheuser Busch, the Fifth District denied enforcement of an employees did so.148 An employee seeking to avoid enforce- arbitration agreement on the basis that the employee had not ment of the agreement testified that he did not remember re- entered into it voluntarily.161 Melena filed a claim against her ceiving the e-mail.149 The court, noting that First Circuit cases employer for retaliatory discharge.162 The employer requested require actual knowledge or sufficient notice for an employee that the court compel arbitration pursuant to an arbitration to forfeit his statutory rights to a judicial forum,150 ruled that agreement that Melena had signed.163 Anhueser Busch had the agreement was unenforceable due to the insufficient no- presented the agreement to Melena with an ultimatum: sign tification and the employee’s lack of actual knowledge of its or you’re fired.164 The court observed that, given the economic terms.151 realities facing the plaintiff, we find that any so called choice Most arbitration agreements require the employee’s she had was illusory.165 It did, however, suggest a highly signature to acknowledge acceptance.152 Some employers, skilled employee, genuinely in the position to negotiate the however, use arbitration agreements that merely state that an terms of an employment contract, might support a “voluntary” employee’s continued employment after (sufficient) notice of assent under circumstances similar to Melena.166

M-10 IDC MONOGRAPH — Third Quarter 2005

The United States District Court for the Northern District Using a similar test, but reaching the opposite conclusion, of Illinois refused to expand Melena to cover a prospective the Supreme Court of New Jersey recently enforced an arbi- employee. In Campbell v. Sterling Jewelers, the employee tration agreement.176 In Martindale v. Sandvik, the plaintiff signed an arbitration agreement during her application pro- signed an arbitration agreement as part of her application for cess.167 Discussing Melena, the Campbell court noted that the employment.177 In determining whether her signature was Fifth District stated: “unlike a job applicant, Melena, as a cur- knowing and voluntary, the court noted such factors as her rent employee, did not have the benefit of other job leads.”168 business sophistication, her ability to review the agreement Because the plaintiff in Campbell was merely an applicant, and ask questions, and her ability to consult with an attorney.178 These recent cases out of Illinois, New Jersey and the Sixth Circuit Court of Appeals may indicate a trend toward a heightened standard of assent for evaluating mandatory employment arbitration agreements.

“These recent cases out of Illinois, C. Consideration New Jersey and the Sixth Circuit Basic contract principles render a promise enforceable against the promisor if the promisee gave some consideration Court of Appeals may indicate a for the promise.179 Ordinarily, in analyzing whether a valid contract exists, courts need not consider the adequacy of the trend toward a heightened standard consideration given.180 This is particularly true when one or of assent for evaluating mandatory both of the values exchanged are uncertain or difficult to measure.181 The mere existence of some bargained for exchange employment arbitration agreements.” is sufficient.182 Recently, however, some courts have been questioning the adequacy of consideration in cases involving employment arbitration agreements. Employers often contend that their consideration of an applicant’s application, the employee’s continuing employment, or the employer’s reciprocal promise to arbitrate, all constitute consideration given for entering into an arbitration agreement. Whether courts are the Northern District found that her assent to the agreement willing to accept these various promises and forebearances was voluntary.169 as consideration is an open question. The Sixth Circuit Court of Appeals also has recently ad- Before Circuit City was decided, courts routinely found opted the knowing and voluntary standard for enforcement consideration in an employer’s promise merely to consider an of arbitration agreements. In Walker v. Ryan’s Family Steak applicant for emloyment.183 Recently, the Sixth and Seventh Houses, Inc., the Sixth Circuit set forth a test for determining Circuit Courts of Appeal and the Supreme Court of West whether employees have knowingly and voluntarily waived Virginia all have considered this issue in cases involving their judicial forum:170 (1) the plaintiff’s experience, back- Ryan’s Family Steak Houses.184 Ryan’s used an unconven- ground and education; (2) the amount of time a plaintiff is tional method to set up its employee arbitration agreements. given to consider the agreement; (3) the clarity of the waiver; It entered into a contract with a private company (EDS) (4) the consideration given for the wavier; and (5) the totality specializing in employment arbitration.185 Individuals who of the circumstances.171 applied with Ryan’s were required to sign agreements with In Walker, the court held that a class of Ryan’s Family EDS.186 The agreement expressly stated that Ryan’s was not Steak House workers did not knowingly and voluntarily waive a party to the contract, but was a third party beneficiary.187 their right to a judicial forum.172 Most of the plaintiffs had not The agreement contained two full pages detailing the types finished high school and were in dire financial shape.173 They of claims employees were required to arbitrate.188 The only often were hired after a brief interview, in which a manager mention of any EDS responsibility was a provision that it would give them numerous documents to sign without expla- would provide the forum for arbitration.189 nation.174 The waiver furthermore did not use clear language.175

M-11 IDC Quarterly Vol. 15 No. 3

In each case, Ryan’s employees argued the agreements valid consideration, brings mixed results. The Sixth Circuit were invalid due to a lack of consideration.190 Ryan’s coun- Court of Appeals, in Dantz v. Amercian Apple Group, LLC, tered that their agreement merely to consider employing an recently held that an employee’s promise to submit future applicant constituted consideration.191 Both the Sixth and claims to binding arbitration, in exchange for her employer’s Seventh Circuits rejected this argument as completely unsupported under both Indiana and Tennessee law.192 The West Virginia Supreme Court took a different approach, avoiding the adequacy of the consideration issue: “Generally an act done by a promisee at the request of a promisor is a sufficient consideration to form the basis of a binding contract “In recent years the doctrine of when the promises are made with full knowledge of all the unconscionability has also circumstances.”193 The West Virginia court still struck down the agreement by finding that the plaintiff did not agree with reemerged in the battle over wheth- full knowledge.194 The agreement expressly misrepresented that Ryan’s also was bound to arbitrate through EDS.195 The er to enforce mandatory arbitration Plaintiff’s lack of knowledge led the court to conclude that Ryan’s “meager promise” to consider her application was of employment claims.” insufficient consideration to support enforcement.196 Employers generally are able to satisfy the consideration requirement when the agreement binds them to arbitrate their disputes as well. In Michalski v. Circuit City, the Seventh Circuit Court of Appeals held that Circuit City’s promise to be bound under the arbitration agreement served as consideration.197 All of the courts which have considered the issue promise to continue to employ her, was sufficient consider- appear to concur.198 ation.206 Other courts, however, disagree. Similarly, Texas Conversely, employers generally are not allowed to en- courts recently have found that “[a]t-will employment does force arbitration agreements in which they retain the right to not preclude formation of other contracts between employer amend or alter the agreement at any time. In Snow v. BE & and employee, so long as neither party relies on continued K Const. Co., the employer argued that it provided sufficient employment as consideration for the contract.”207 consideration for the employee’s promise to arbitrate.199 BE In Illinois, continued employment as consideration for & K promised to retain the employee (at-will) and to abide an employee’s promise to arbitrate is unclear. In a case not by the agreement’s terms as well.200 The agreement, however, involving an arbitration agreement, the Supreme Court of contained a disclaimer stating that “[t]his document in no way Illinois held that continued employment does not constitute effects [sic] any other terms or the nature of your employment, consideration for an employer’s unilateral modification of an and is not an employee agreement. The Company reserves the existing employment contract in an employee handbook.208 In right to modify or discontinue this program at any time.”201 Doyle v. Holy Cross Hospital, the handbook provided detailed The court found that this disclaimer made the employer’s policies for employee layoffs and rehiring.209 Holy Cross later promise illusory and rendered the agreement unenforceable.202 added “at-will” employment disclaimers to the handbook.210 Similarly, in Hill v. PeopleSoft USA, Inc., a Maryland court When the hospital terminated the plainitffs, they argued that refused to compel arbitration when the employer had reserved the inclusion of the disclaimers were ineffective because they the right to make changes to the arbitration agreement without were unsupported by consideration.211 Holy Cross countered notice.203 In doing so, the employer created no real promise to that the plaintiffs’ continued employment consituted consider- arbitrate.204 It appears, however, that the courts may be willing ation for the change to the handbook.212 The Court disagreed: to find consideration in cases where employers are required to “consideration must be found elsewhere, whether in the form provide some notice of changes or amendments to arbitration of a new benefit to the employee or a new detriment to the agreements.205 employer, or as the product of mutual consideration.”213 Finally, promising to continue to employ a worker, for At least one court has distinguished Holy Cross. In Bauer v.

M-12 IDC MONOGRAPH — Third Quarter 2005

Morton’s of Chicago, the United States District Court for the Court of Appeals has adopted a test that, when applied, almost Northern District of Illinois held that an employer’s unilateral always strikes down an employment arbitration agreement: addition of a mandatory arbitration agreement to existing em- a take-it-or-leave-it contract (one of adhesion), offered to a ployee handbooks was enforceable.214 The plaintiff cited Doyle party with greatly unequal bargaining power, is procedurally and argued that, in adding the provision to the handbook, the unconscionable.226 In Ingle v. Circuit City Stores, Inc., the employer provided nothing of value to employees and did Ninth Circuit invalidated an arbitration agreement on just this not incur any disadvantage.215 The Court disagreed with the basis.227 The defendant, a large corporation with substantially plaintiff and found Doyle uncontrolling for two reasons: the more bargaining power than its employees, drafted the arbi- Morton’s arbitration agreement did not change any existing tration agreement and required its new employees to sign it provision regarding arbitration between the parties and the as a condition of employment.228 Similarly, the Third Circuit added provision contained mutual promises to arbitrate.216 Court of Appeals also has adopted this rule.229 Other courts, however, have been less willing to apply D. Unconscionability such a rule. In Gibson v. Neighborhood Health Clinics, Inc., In recent years the doctrine of unconscionability has also a pre-Circuit City case, the Seventh Circuit Court of Appeals reemerged in the battle over whether to enforce mandatory advised: “there ought to be realistic requirements for achieving arbitration of employment claims. Defining an “unconscio- a valid arbitration agreement in the context of employment. nable contract” remains as elusive as ever: one court describes These requirements must recognize that we are dealing in it as “the absence of meaningful choice on the part of one most cases with a contract of adhesion: agree to arbitrate or party combined with contract terms that unreasonably favor lose your job.”230 Relying on Gibson, the United States Dis- the other party.”217 Another court waxes poetic: “such that no trict Court for the Southern District of Indiana refused to find sensible man not under delusion, duress, or in distress would procedural unconscionablity based solely on a take it or leave make [it], and such as no honest and fair man would accept it contract.231 Additionally, courts within the Seventh Circuit [it].”218 require “gross” inequality in bargaining power in order to find Unconscionablity has two components: procedural defects procedural unconsionabilty: “If we were to find that no low- and substantive defects. Contracts, including arbitration level employee can be held to an arbitration agreement due to agreements, are analyzed regarding both procedural and a supposed disparity in bargaining power between employer substantive defects. Most courts require some finding of and employee, then most arbitration agreements to resolve both procedural and substantive unconscionability in striking employment disputes would be rendered ineffective.”232 down an arbitration clause.219 Procedural unconscionability Like the Seventh Circuit, the Sixth Circuit Court of Ap- refers to the manner in which the agreement was negotiated peals is using a more stringent test for considering adhesion and the circumstances of the parties at that time.220 Substan- contracts while analyzing procedural unconscionability. In tive unconscionability focuses on the fairness or oppressive Cooper v. MRM Investment Co., the Sixth Circuit held that nature of the agreement’s terms.221 The two prongs, however, a take-it-or-leave-it contract was not necessarily adhesive.233 need not be present in the same degree; a sliding scale of Looking to Tennessee law, the court observed that contracts unfairness can be used.222 “[T]he more substantively op- are not adhesive unless the offeree can prove that refusal to pressive the contract terms, the less evidence of procedural sign causes some detriment other than the inability to deal unconsionablity is required to come to the conclusion that the with the offeror.234 In the employment arbitration context, this term is unenforceable, and vice versa.”223 The Supreme Court means that the employee also must show an inability to find of Washington, however, recently slid the scale so far to one other employment.235 The district court found the arbitration side that it has held merely that oppressive terms, without agreement procedurally unconscionable due to its adhesive any evidence of procedural defects, can support a finding of nature and the parties’ inequality in bargaining power.236 In unconsionablity in a mandatory arbitration agreement.224 The reversing, the Sixth Circuit preferred a more realistic approach Washington Court cited just two provisions in support of its to employment arbitration agreements: “While the district finding of substantive unconscionability – one waiving the court’s compassion for job applicants is laudable, under its employee’s right to attorney’s fees and the other providing a approach practically every condition of employment would be 180-day statute of limitations.225 an adhesion contract which could not be enforced because it Regarding procedural unconscionablity, the Ninth Circuit would have been presented to the employee by the employer in

M-13 IDC Quarterly Vol. 15 No. 3

a situation of unequal bargaining power on a ‘take it or leave Conclusion 237 it’ basis.” The district court’s approach, it observed, would There are significant reasons for the use of mandatory contravene Congressional intent that employment disputes arbitration agreements. In general, the advantages of using 238 be subject to arbitration under the FAA. mandatory arbitration agreements in the workplace outweigh The substantive unconscionability analysis is being used to the disadvantages. The following is a summary of the advan- invalidate many provisions common to employment arbitra- tages and disadvantages. tion agreements. The courts are looking to terms or provisions 239 that are so one-sided they “shock the conscience.” Recently, — Experienced labor arbitrators have a better under- some courts have found the following shocking provisions: standing of the issues/circumstances.253 greatly shortened statutes of limitation;240 excessive filing 241 242 fees; arbitration fee cost splitting; and limitations on — Arbitration reduces costs and is less expensive than 243 obtainable remedies. litigation. In Board of Trustees v. Cook County Not surprisingly, the Ninth Circuit has not been particu- College Teachers Union,254 the court stated that larly employer-friendly in analyzing employment arbitration arbitration is a favored method of settling disputes agreements. In Ingle, the court considered an arbitration because its objective is to achieve a final resolution agreement which expressly applied to claims brought only in “an easier, more expeditious, and less expensive 244 by the employee. The court found that this provision was manner than by litigation.”255 substantively unconscionable.245 But it went even further. Seizing an opportunity to address a “broad concern with — Arbitration is faster than litigation and avoids the respect to arbitration agreements between employers and delays people often encounter during litigation.256 employees,” the Ninth Circuit held that employment arbitra- Arbitration is a favored alternative to litigation 246 tion agreements are presumptively unconscionable. Ingle because it is “a speedy, informal, and relatively determined that the only claims realistically affected by an inexpensive procedure for resolving controver- employment arbitration agreement are those brought by the sies.”257 employee.247 Arbitration agreements, it therefore concluded, are substantially one-sided, even without expressly limiting — Compared to litigation, arbitration is more infor- 248 the arbitratable claims to those of the employee. mal.258 In a footnote, the Ninth Circuit attempted to soften the blow 249 it dealt to all employment arbitration agreements: “We do — Arbitration relieves congestion in courts.259 not here utter a blanket rule outlawing arbitration agreements in the employment context . . . . [M]oreover, . . . a court may — Arbitration avoids the sympathy that juries tend to only refuse to enforce a contract or a contract provision if it show to employees over employers.260 is both substantively and procedurally unconscionable.”250 However, this provides little relief to employers in the Ninth — Arbitration decisions are generally final, and “[j] Circuit, especially in light of the fact that this Circuit has ad- udicial review of an arbitration award is even more opted the position that mere inequality in bargaining power, limited than appellate review of a trial court’s deci- with regard to an adhesion contract, will support a finding sions.”261 of proceedural unconscionabilty. One wonders whether any arbitration agreement can ever survive scrutiny in this jurisi- Although strongly favored by court, compelling arbitration 251 diction. The Fifth Circuit Court of Appeals has examined may be easier said than done. Despite the Supreme Court the Ninth Circuit’s unconscionability presumption for employ- in Circuit City solidifying the validity and enforceability ment arbitration agreements and, not so shockingly, declined of employment arbitration agreements under the FAA, the 252 to follow it. plaintiffs’ bar has aggressively pursued creative arguments to keep employment claims in front of the courts. Other contract defenses beyond those addressed here, including mistake, fraud or duress, also may be used to invalidate arbitration agreements.262 All of these arguments are fact intensive and

M-14 IDC MONOGRAPH — Third Quarter 2005

provide the courts with ample opportunity to apply the general Endnotes rules, or fashion exceptions to them. Drafting enforceable mandatory arbitration agreements will require keeping a close 1 532 U.S. 105, 121 S. Ct. 1302 (2001). watch on this rapidly developing body of law. 2 534 U.S. 279, 122 S. Ct. 754 (2002). 3 9 U.S.C. § 1 et seq. 4 Gilmer v. Interstate/Johnson Lane Corporation, 500 U.S. 20, 24, 111 S. Ct. 1647, 1651, 114 L.Ed.2d 26 (1991). 5 9 U.S.C. § 2. 6 See, Cooper v. MRM Investment Co., 367 F.3d 493, 498 (6th Cir. 2004). 7 710 ILCS 5/1. 8 710 ILCS 5/20. 9 710 ILCS 5/1. 10 710 ILCS 5/2 § 2(a). 11 See, Reed v. Doctor’s Assoc., 331 Ill. App. 3d 618, 772 N.E.2d 372, 265 Ill. Dec. 334 (5th Dist. 2002). 12 5 ILCS 315/1 et seq. (West 1994). 13 Illinois Fraternal Order of Police Labor Council v. Town of Cicero, 301 Ill. App. 3d 323, 330, 703 N.E.2d 559, 564, 234 Ill. Dec. 698, 703 (1st Dist. 1998). 14 29 U.S.C. § 185. 15 See, Huffman v. Westinghouse Elec. Corp., 752 F.2d 1221, 1223 (7th Cir. 1985), citing Clayton v. International Union, 451 U.S. 679, 682, 101 S. Ct. 2088, 2091, 68 L.Ed.2d 538 (1981). 16 See, Preservation of Civil Rights Protections Act of 2001 (S2435, H.R. 2282, 107th Congress). 17 532 U.S. at 123. 18 Id. 19 Jensen v. Quik Int., 213 Ill. 2d 119, 820 N.E.2d 462, 289 Ill. Dec. 686 (2004). 20 534 U.S. at 295-296. 21 Id. at 290 n.7. 22 AT&T Technologies v. Communication Workers of Am., 475 U.S. 643, 648, 106 S. Ct. 1415, 1418, 89 L.Ed.2d 648 (1986). 23 9 U.S.C. §§ 2, 3. 24 Maye v. Smith Barney, Inc., 897 F. Supp. 100, 108 (S.D.N.Y. 1995). See also, Comprehensive Accounting Corp. v. Rudell, 760 F.2d 138, 140 (7th Cir. 1985); Breckenridge v. Cambridge Homes, 246 Ill. App. 3d 810, 819, 616 N.E.2d 615 (2nd Dist. 1993). 25 See, infra at Section IV, paragraph B. 26 Boomer v. AT&T Corp., 309 F.3d 404, 414-15 (7th Cir. 2002).

M-15 IDC Quarterly Vol. 15 No. 3

27 Dantz v. American Apple Group, LLC, 123 Fed. Appx. 702 (6th Cir. 55 Id. at 735, 737.

2005); Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 869 (7th Cir. 1985); 56 Sauer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d 348, 350 (7th 9 U.S.C. § 1. Cir. 1983); Hellenic Lines, Ltd. v. Louis Dreyfus Corp., 372 F.2d 753, 57 See, Miller Brewing Co. v. Brewery Workers Local Union No. 9, 739 758 (2nd Cir. 1967). F.2d 1159, 1162 (7th Cir. 1984); Pietro Scalzatti Co. v. International 28 Alejandro v. L.S. Holding, Inc., 2005 WL 1099141 (3rd Cir. 2005); Union of Operating Engineers, 351 F.2d 576, 579-80 (7th Cir. 1965); Oblix, Inc. v. Winiecki, 374 F.3d 488 (7th Cir. 2004). Asplundh Tree Expert Co. v. Bates, 71 F.3d 592 (6th Cir. 1995). 58 29 See, infra at Section IV, paragraph C. Justin Scheck, JAMS Reverses Class Action Policy, The Recorder (March 14, 2005), available at http://www.law.com. 30 Gilmer, 500 U.S. at 29-33; Rodriguez de Quijas, et al. v. Shearson/ 59 American Express, 490 U.S. 477, 483, 109 S. Ct. 1917, 1921, 104 The Class Action Fairness Act, 28 U.S.C. § 9, enacted on February L.Ed.2d 526 (1989). 18, 2005, does not specifically address arbitration of class action claims. However, one of the purposes of the Act is to deliver a more efficient 31 O’Brien v. Pipkin, 64 F.3d 257, 262 (7th Cir. 1995). resolution of duplicative class actions, which is consistent with allowing

32 class arbitrations. For more information about this Act see Bradley C. Id. at 262-63. Nahrstadt and Brian Y. Boyd, The IDC Monograph: The Class Action 33 167 F.3d 361 at 367, citing from Kewanee Prod. Credit Ass’n v. G. Fairness Act of 2005 – What Is It All About?, IDC Quarterly, Vol. 15, Larson & Sons Farms, 146 Ill. App. 3d 301, 305, 496 N.E.2d 531, 534 No. 2 (2005). (3rd Dist. 1986). 60 539 U.S. 444, 123 S. Ct. 2402, 156 L.Ed.2d 414 (2003). 34 Id. 61 539 U.S. at 453-454, 123 S. Ct. at 2408. 35 United Cable Television Corp. v. Northwest Illinois Cable Corp., 128 62 Alfred G. Feliu, Class Action Arbitration, Resource Book for Manag- Ill. 2d. 301, 307, 538 N.E.2d 547 (1989). ing Employment Disputes, CPR Institute for Dispute Resolution, Inc. 36 Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr, 124 Ill. 2d 435, (2004) (citations omitted). 449, 530 N.E.2d 439, 445, 125 Ill. Dec. 281, 287 (1988). 63 Id. 37 Id. 64 339 F.3d 553, 559 (7th Cir. 2003). 38 Id. at 449-50; See also, Bahuriak v. Bill Kay Chrysler Plymouth, Inc., 65 Id. at 559. 337 Ill. App. 3d 714,718, 786 N.E.2d 1045, 1049, 272 Ill. Dec. 211, 215 (2d Dist. 2003). 66 355 Ill. App. 3d 1143, 824 N.E.2d 1183, 291 Ill. Dec. 933 (5th Dist. 2005). 39 500 U.S. 20, 111 S. Ct. 1647, 114 L.Ed.2d 26 (1991). 67 Id. at 1194. 40 Id. at 26 (citations omitted). 68 Id. at 1193. 41 Id. at 24. 69 42 357 Ill. App. 3d 556, 828 N.E.2d 812, 293 Ill. Dec. 502 (5th Dist. Id. 2005). 43 Id. 70 Id. 44 473 U.S. 614, 105 S. Ct. 3346, 87 L.Ed.2d 444 (1985). 71 Id. 45 Gilmer, 500 U.S. at 26, quoting Mitsubishi, supra, 473 U.S. at 628. 72 Id. See also, Williams v. Katten, Muchin & Zavis, 473 U.S. at 628, 105 S. Ct. at 3354. 73 Snowden v. Checkpoint Check Cashing, 290 F.3d 631 (4th Cir. 2002), cert. denied, 537 U.S. 1087, 123 S. Ct. 695, 154 L.Ed.2d 631 (2002). 46 482 U.S. 483 (1987). 74 Champ v. Siegel Trading Co., Inc., 55 F.3d 269, 275 (7th Cir. 1995). 47 Perry v. Thomas, 483 U.S. 483, 484 (1987). 75 Id. at 274. 48 Id. at 485. 76 Id. 49 Id. at 489. 77 Id. 50 Id. at 489-91. 78 539 U.S. 444, 123 S. Ct. 2402, 156 L.Ed.2d 414 (2003). 51 Acme-Wiley Holdings, Inc. v. Buck, 343 Ill. App. 3d 1098, 1103, 799 N.E.2d 337 (1st Dist. 2003). 79 Id. at 445. 52 240 Ill. App. 3d 731, 608 N.E.2d 537 (1st Dist. 1992). 80 Id. at 447. 53 Id. at 734. 81 Id. at 449. 54 Id. 82 Id.

M-16 IDC MONOGRAPH — Third Quarter 2005

83 Id. at 449. 113 Menke v. Monchecourt, 17 F.3d 1007, 1009 (7th Cir. 1994). 84 Id. at 448-9. 114 See, Gingiss Intern., Inc. v. Bormet, 58 F.3d 328, 332 (7th Cir. 1995). 85 Id. at 449. 115 Eljer Mfg., Inc. v. Kowin Development Corp., 14 F.3d 1250, 1257 (7th Cir. 1994). 86 Id. at 449. 116 87 See, McCaskill v. SCI Management Corp., 298 F.3d 677 (7th Cir. Bess v. DirecTV, Inc., 351 Ill. App. 3d 1148, 815 N.E.2d 455, 287 Ill. 2002) (The court held that an arbitration provision between employee Dec. 52 (5th Dist. 2004). and employer denying the recovery of attorney’s fees to either side 88 Bess v. DirectTV, Inc., 351 Ill. App. 3d 1148, 1155-56 (5th Dist. 2004). was unenforceable, either because it limited the employee’s ability to recover attorney fees under Title VII or because the provision denied 89 Id. at 1150. the employee a remedy authorized by Title VII.). 90 Id. at 1149. 117 Id. 91 Id. at 1156. 118 105 F.3d 1465, 1482 ( D.C. Cir. 1997). 92 Id. 119 532 U.S. 105, 123, 121 S. Ct. 1302, 1313, 149 L.Ed.2d 234

93 (2001). There is at least one exception to Circuit City’s holding: the Id. FAA provides an exemption for transportation workers’ employment 94 Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1130 contracts. (7th Cir.1997) (citing, First Options of Chicago, Inc. v. Kaplan, 514 120 Id. U.S. 938, 944, 115 S. Ct. 1920, 1924, 131 L.Ed.2d 985 (1995)). 121 95 Some thought that this question already had been answered in Gilm- Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756, 761 (9th Cir. ore v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S. Ct. 1647, 1997). 1651, 114 L.Ed.2d 26 (1991) (finding that “by agreeing to arbitrate a 96 See, Gibson, 121 F.3d at 1131. statutory claim, a party does not forego the substantive rights afforded by the statute; it only submits to their resolution in an arbitral, rather 97 EEOC v. Waffle House, Inc.,534 U.S. 279, 122 S. Ct. 754, 762 (2002). than a judicial, forum”) (citation omitted). 98 Id. at 764. 122 534 U.S. 279, 122 S. Ct. 754, 151 L.Ed.2d 755 (2002). 99 Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852, 861 (1984); 123 Id. at 282-85. The holding in Waffle House regarding EEOC Prima Paint Corp. v. Flood &Conklin Mfg. Co., 388 U.S. 395, 87 S. enforcement actions has little effect on most employers’ arbitration Ct. 1801, 1807 (1967). agreements due to the small percentage of cases actually brought to court by the EEOC. See, Buron, Chad E., EEOC v. Waffle House: Employers 100 1 F.3d 639, 642 (7th Cir.1993). Win, Again, Defense Counsel Journal (January, 2004). Additionally, 101 Circuit City Stores, Inc., v. Adams, 279 F.3d 889, 895 (9th Cir. 2002). Waffle House left open the question of whether an employee’s settlement or an arbitration judgment would affect the enforcement rights of the 102 250 F. Supp. 2d 857, 861-62 (S.D. Ohio 2002). EEOC. 103 Oblix, Inc. v. Winiecki, 374 F.3d 488 (7th Cir. 2004). 124 Id. at 294 (quoting Volt v. Inf. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Univ.¸ 489 U.S. 468, 479, 109 S. Ct. 1248, 1256, 104 See, infra at Section IV, paragraph D. 103 L.Ed.2d 488 (1989)). 105 9 U.S.C. § 5; see also, Schulze and Burch Biscuit Co. v. Tree Top, Inc., 125 Id. The courts have easily applied the Waffle House ruling. The 642 F. Supp. 1155, 1157 (Ill. N.D. 1986) (The court held that “even if the United States District Court for the Eastern District of New York granted parties’ prior dealings did not dictate who would arbitrate the dispute” an employer’s motion to compel arbitration of its former employee’s the court was authorized to appoint an arbitrator upon either parties’ Title VII claims pursuant to a signed arbitration agreement. EEOC v. application.). Rappaport, Hertz, Cherson & Rosenthal, P.C., 273 F. Supp. 2d 260, 264 106 Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S. Ct. (E.D.N.Y. 2003). But the court did not compel the EEOC to arbitrate 1647, 1652 (1991). because it found that the agency was not a party to the arbitration agreement. Id. See also, EEOC v. Woodmen of the World Life Ins. Soc., 330 107 279 F.3d 889, 895 (9th Cir. 2002). F. Supp. 2d 1049 (D.Neb. 2004) (reaching the same conclusion under 108 Gilmer, 111 S. Ct. at 1653. similar facts). 126 109 341 F.3d 256 (3rd Cir. 2003). Penn v. Ryan’s Family Steak House, 269 F.3d 753, 758 (7th Cir. 2001). 110 Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 658 (6th Cir. 127 2003). 9 U.S.C. § 2. 128 111 Id. Indeed, employers might have taken note that, on remand from the Supreme Court, the Ninth Circuit Court of Appeals again refused to en- 112 Id. at 663. force Circuit City’s mandatory arbitration clause, finding the agreement unconscionable. Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (2002).

M-17 IDC Quarterly Vol. 15 No. 3

129 Martindale v. Sandvik, Inc., 173 N.J. 76, 84, 800 A.2d 872, 158 Seus, 146 F.3d at 183-84.

876 (2002) (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 159 20, 24, 111 S. Ct. 1647, 1651, 114 L.Ed.2d 26 (1991)). Id. 160 130 See, Restatement (Second) of Contracts § 17 (1991). 269 F.3d 753, 761 (7th Cir. 2001). See, Circuit City Stores, Inc. v. Adams, 532 U.S. 105, 123, 121 S. Ct. 1302, 1313, 149 L.Ed.2d 131 Owen v. MBPXL Corp., 173 F. Supp. 2d 905, 918 (N.D.Iowa 234 (2001). 2001) (quoting res. (second) of contracts § 24 (1991)). 161 352 Ill. App. 3d 699, 707, 816 N.E.2d 826, 833 (5th Dist. 132 Id. 2004). 133 Id. at 918-21. 162 Id. 134 Id. 163 Id. 135 Id. 164 Id. at 707, 833. 136 Id. at 920. 165 Id. 137 Id. 166 Id. 138 Id. 167 No. 04-C-5891, 2005 WL 991771 (N.D.Ill. 2005). 139 Id. at 921. 168 Id. at *3 (quoting Melena, 352 Ill. App. 3d at 708-09, 816 N.E.2d at 834) (emphasis added). 140 Id. 169 Id. 141 Id. at 922-23. 170 400 F.3d 370, 381 (6th Cir. 2005). 142 Id. at 923. 171 Id. 143 Id. 172 Id. at 383. 144 Id. at 924. 173 Id. at 381. 145 Id. 174 Id. at 381-82. 146 321 F. Supp. 2d 142 (D.Mass. 2004). 175 Id. at 382-83. 147 Id. at 144. 176 148 Martindale v. Sandvik, Inc., 173 N.J. 76, 96-97, 800 A.2d 872, Id. 884 (2002). 149 Id. 177 Id. at 875. 150 Id. at 147. See, Ramirez-De-Arellano v. American Airlines, 178 Id. at 884. 133 F.3d 89, 91 n.2 (1st Cir. 1997); Rosenberg v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 170 F.3d 1, 19 (1st Cir. 1999). 179 Id.

151 Campbell, 321 F. Supp. 2d at 149-50. 180 restatement (Second) of Contracts § 79. 152 Owen v. MBPXL Corp., 173 F. Supp. 2d 905, 923 (N.D. Iowa 181 Id. 2001). 182 Id. 153 272 F.3d 239, 243 (4th Cir.2001). 183 See, e.g., Johnson v. Circuit City Stores, 148 F.3d 373, 378 154 See, In re: Halliburton Co., 80 S.W.3d 566 (Tex. 2002); Caley (4th Cir. 1998) (although employer did agree to be mutually bound by v. Gulfstream Aerospace Corp., 333 F. Supp. 2d 1367 (N.D.Ga. 2004). agreement, court would not foreclose that employer’s willingness to

155 consider application alone could constitute consideration); Sheller by See, Prudential Ins. Co. of America v. Lai, 42 F.3d 1299 (9th Scheller v. Frank’s Nursery & Crafts, Inc., 957 F.Supp. 150, 153 (N.D. Cir. 1994); Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756 (9th Ill. 1997). Cir. 1997). 184 156 See, Walker v. Ryan’s Family Steak Houses, Inc., 400 F.3d See, Bercovitch v. Baldwin School, Inc., 133 F.3d 141, 143 370, 380 (6th Cir. 2005); Penn v. Ryan’s Family Steak House, 269 F.3d (1st Cir. 1998); Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 753, 760 (7th Cir. 2001); State v. Wilkes, No. 32042, 2005 WL 1125327 1126 (7th Cir. 1997). (W.Va. May 11, 2005). 157 See, Seus v. John Nuveen & Co., 146 F.3d 175, 183-84 (3d 185 Penn, 269 F.3d at 755. Cir. 1998); Patterson v. Tenet Healthcare, Inc., 113 F.3d 832, 838 (8th Cir. 1997). 186 Id.

M-18 IDC MONOGRAPH — Third Quarter 2005

187 Id. 214 No. 99-C-5996, 2000 WL 149287 (N.D.Ill. February 9, 2000). 188 Id. 215 Id. at *2. 189 Id. 216 Id. 190 Id. at 760; Walker, 400 F.3d at 373; Wilkes, 2005 WL 1125327 217 Ingle v. Circuit City Stores, 328 F.3d 1165, 1170 (9th Cir. at *8. 2003). 191 Penn, 269 F.3d at 760; Walker, 400 F.3d at 380; Wilkes, 2005 218 Geiger v. Ryan’s Family Steakhouse, Inc., 134 F. Supp. 2d WL 1125327 at *8. 985, 997 (S.D.Ind. 2001). 192 Penn, 269 F.3d at 760; Walker, 400 F.3d at 381. 219 See, Vanyo v. Clear Channel Worldwide, 808 N.E.2d 482, 486

193 (Ct. App. Ohio 2004); Ingle, 328 F.3d at 1170; Alexander v. Anthony, See, Wilkes, 2005 WL 1125327 at *9 (citing Lowther Oil Co. 341 F.3d 256, 265 (3d Cir. 2003). v. Guffey, 43 S.E.101, 102 (W.Va. 1903) (any amount of consideration forms a sufficient basis for an enforceable contract “unless fraud can be 220 Ingle, 328 F.3d at 1171. shown or the contract is so unfair and uneven as to render its enforce- 221 ment the equivalent to the perpetration of fraud”)). Id. 222 194 Id. Id. 223 195 Id. Id. (quoting 15 Williston on Contracts § 1763A, at 226-27 (3d ed. 1972)). 196 Id. 224 See, Adler v. Fred Lind Manor, 153 Wash.2d 331, 103 P.3d 773 (2005). 197 177 F.3d 634, 636 (7th Cir. 1999). 225 Id. at 786-88. 198 See, e.g., Blair v. Scott Specialty Gases, 283 F.3d 595, 603 226 (3rd Cir. 2002); Ticknor v. Choice Hotels Intern., Inc., 265 F.3d 931, Ingle, 328 F.3d at 1171-72. 944 (9th Cir. 2001) (decided under Maryland law); Dodds v. Hallibur- 227 Id. ton Energy Serv., Inc., 273 F.3d 1094 (5th Cir. 2001) (not selected for publication in the Federal Reporter); and Meyer v. Starwood Hotels & 228 Id.

Resorts Worldwide, Inc., No. 00-8339, 2001 WL 396447 (S.D.N.Y. April 229 18, 2001). See, Alexander, 341 F.3d at 266. 230 199 126 F. Supp. 2d 5, 13 (D.Maine 2001). 121 F.3d 1126, 1132 (7th Cir. 1997). 231 200 Id. Feltner v. Bluegreen Corp., No. 02-0873-C-M/S, 2002 WL 31399106 *6 (S.D.Ind. 2002); see also, Abbott v. Lexford Apartment 201 Id. at 13-14. Services, Inc., 2002 WL 1800320 (S.D.Ind. Aug. 2, 2002). 202 Id. at 14. 232 Abbott, 2002 WL 1800320 at *5 n.2. See also, Koveleskie v. SBC Capital Markets, Inc., 167 F.3d 361, 367 (7th Cir. 1999). 203 333 F. Supp. 2d 398, 405 (D.Md. 2004). 233 367 F.3d 493, 500 (6th Cir. 2004). 204 Id. 234 Id. 205 See, e.g., Holloman v. Circuit City Stores, No. 1145, 2005 WL 1033314 (Md. App. May 5, 2005); Batory v. Sears, Roebuck and Co., 235 Id. at 502. Nos. 03-15661, 03-15781, 2005 WL 434457 (9th Cir. Feb. 25, 2005). 236 Id. at 503-04. 206 2005 WL 465253 at *5. 237 Id. at 505. 207 See, Harmon v. Hartman Mgmt., L.P., No. H-04-1597 238 (S.D.Tex. Aug. 24, 2004) (quoting J.M. Davidson Inc. v. Webster, 128 Id. S.W.3d 223, 228 (Tex. 2003)). 239 Id.; Ingle v. Circuit City Stores, 328 F.3d 1165, 1172 (9th Cir. 208 See, Doyle v. Holy Cross Hospital, 186 Ill. 2d 104, 708 N.E.2d 2003). 1140 (Ill. 1999). 240 Ingle, 328 F.3d at 1175; Alexander v. Anthony, 341 F.3d 256, 209 Id. at 1142. 267 (3rd Cir. 2003); Adler v. Fred Lind Manor, 153 Wash.2d 331, 356, 103 P.3d 773, 787 (2005). 210 Id. at 1143. 241 Ingle, 328 F.3d at 1177. 211 Id. at 1144. 242 Id.; Ferguson v. Countrywide Credit Industries, Inc., 298 F.3d 212 Id. 778, 786 (9th Cir. 2002). 213 Id. at 1145. 243 Ingle, 328 F.3d at 1179; Alexander, 341 F.3d at 267; Adler, 103 P.3d at 786.

M-19 IDC Quarterly Vol. 15 No. 3

244 Ingle, 328 F.3d at 1173. 257 Id. (quoting, in part, J & K Cement Construction, Inc., 119 Ill. App. 3d 663, 667-68 (1983)). 245 Id. 258 Id. 246 Id. at 1173-74. 259 247 See, Seaboard Coast Line Railroad v. National Rail Passenger Corp., Id. at 1174. 554 F.2d 657, 660 (App. 1977), where the court stated that the policy of 248 Id. the FAA is to encourage arbitration and reduce congestion in the court. 260 249 Id. at n.10. arbitrating Employment Disputes: Avoiding 10 Mistakes in Preparing and Implementing a Pre-Dispute Arbitration Program, 250 Id. at n.10 (emphasis in original). SK013 ALI-ABA 829. 251 See, Id. at 1172. 261 Taxman v. First Ill. Bank of Evanston, 336 Ill. App. 3d 92,

252 96, 782 N.E.2d 803, 807, 270 Ill. Dec. 244, 248 (1st Dist. 2002) (The See, Carter v. Country-Wide Credit Indus., Inc., 362 F.3d 294, court held that an arbitrator’s decision to grant or deny a continuance 301 n.5 (5th Cir. 2004). of an arbitration hearing rests with the discretion of the arbitrator, and 253 United Steel Workers of America v. Warrior & Gulf Navigation Co., therefore the standard of review was abuse of discretion.). 363 U.S. 574, 582, 80 S. Ct. 1347, 1352, 4 L.Ed.2d 1409 (1960). 262 For example, a Texas Appellate Court has invalidated an employment 254 102 Ill. App. 3d 681, 683, 430 N.E.2d 249, 251, 58 Ill. Dec. arbitration agreement on the basis of “economic duress.” See, In Re: 307, 309 (1st Dist. 1981). RLS Legal Solutions, LLC, 156 S.W.3d 160, 163-65. 255 Id. 256 Board of Managers v. IKO Chicago, Inc., 183 Ill. 2d 66, 71, 697 N.E.2d 727, 730, 231 Ill. Dec. 942, 945 (1998).

M-20