IDC Quarterly
Third Quarter 2005
Third Quarter 2005
MONOGRAPH
Volume 15, Number 3
Mandatory Arbitration
Clauses in the
Employment Context
ISSN-1094-9542
Summer 2005
Glen E. Amundsen
O’Hagan, Smith & Amundsen, L.L.C. - Chicago
President 2005 - 2006
Illinois Association of Defense Trial Counsel
1
Illinois Association of
Defense Trial Counsel
IDC QUARTERLY EDITORIAL BOARD
Linda J. Hay, Editor-In-Chief
Alholm, Monahan, Klauke, Hay & Oldenburg, L.L.C., Chicago
lhay@illinois-law.com
Joseph G. Feehan, Executive Editor
Heyl, Royster, Voelker & Allen, Peoria
jfeehan@hrva.com
Kimberly A. Ross, Associate Editor
Cremer, Kopon, Shaughnessy & Spina, Chicago
kross@cksslaw.com
Renee J. Mortimer, Assistant Editor
Hinshaw & Culbertson, Schererville, IN
rmortimer@hinshawlaw.com
Al J. Pranaitis, Assistant Editor
Hoagland, Fitzgerald, Smith & Pranaitis, Alton
alpran@il-mo-lawfirm.com
WWW.IADTC.ORG
PRESIDENT
GLEN E. AMUNDSEN
O’Hagan, Smith & Amundsen, L.L.C.,
Chicago
PRESIDENT-ELECT
STEVEN M. PUISZIS
Hinshaw & Culbertson, Chicago
1ST VICE PRESIDENT
JEFFREY S. HEBRANK
Burroughs, Hepler, Broom, MacDonald, Hebrank & True, LLP, Edwardsville
2ND VICE PRESIDENT
GREGORY L. COCHRAN
McKenna Storer, Chicago
SECRETARY/TREASURER
RICK HAMMOND
Johnson & Bell, Ltd., Chicago
DIRECTORS
DAVID M. BENNETT
Pretzel & Stouffer, Chtrd., Chicago
TROY A. BOZARTH
Burroughs, Hepler, Broom, MacDonald, Hebrank & True, LLP, Edwardsville
C. WM. BUSSE, JR.
Busse & Busse, P.C., Chicago
ANDREW D. CASSIDY
Cassidy & Mueller, Peoria
JANELLE CHRISTENSEN
Tressler, Soderstrom, Maloney & Priess, Chicago
DANIEL K. CRAY
Iwan Cray Huber Horstman &
Van Ausdall, LLC, Chicago
PATRICK C. DOWD
Dowd and Dowd, Chicago
BARBARA FRITSCHE
Rammelkamp Bradney, Jacksonville
R. HOWARD JUMP
Jump and Associates, P.C., Chicago
DAVID H. LEVITT
Hinshaw & Culbertson, Chicago
KEVIN J. LUTHER
Heyl, Royster, Voelker & Allen, Rockford
JOHN P. LYNCH, JR.
Cremer, Kopon, Shaughnessy & Spina, Chicago
MATTHEW J. MADDOX
Quinn, Johnston, Henderson & Pretorius, Springfield
FRED B. MOORE
Lawrence, Moore, Ogar & Jacobs, Bloomington
ANNE M. OLDENBURG
Alholm, Monahan, Klauke, Hay
& Oldenburg, L.L.C., Chicago
MICHAEL RESIS
O’Hagen, Smith & Amundsen, Chicago
ALEEN R. TIFFANY
Aleen R. Tiffany, P.C., Crystal Lake
KENNETH F. WERTS
Craig & Craig, Mt. Vernon
EXECUTIVE DIRECTOR
Shirley A. Stevens
PAST PRESIDENTS: Royce Glenn Rowe - James Baylor - Jack
E. Horsley - John J. Schmidt -Thomas F. Bridgman - William J.
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 - Willis R. Tribler - Alfred B. LaBarre - Patrick E. Maloney - Robert V.
Dewey, Jr. - Lawrence R. Smith - R. Michael Henderson - Paul
L. Price - Stephen L. Corn - Rudolf G. Schade, Jr. - Lyndon C.
Molzahn - Daniel R. Formeller - Gordon R. Broom - Clifford P.
Mallon - Anthony J. Tunney - Douglas J. Pomatto - Jack T. Riley,
Jr. - Peter W. Brandt - Charles H. Cole - Gregory C. Ray - Jennifer
Jerit Johnson - Stephen J. Heine
The IDC Quarterly is the official publication of the Illinois Association of Defense
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
handling. Requests for subscriptions or back issues should be sent to the Illinois
Association of Defense Trial Counsel headquarters in Springfield, Illinois. Subscription price for members is included in membership dues.
COLUMNISTS
Glen E. Amundsen
David H. Levitt
O’Hagan, Smith & Amundsen, L.L.C., Chicago
Hinshaw & Culbertson, Chicago
Edward J. Aucoin, Jr.
Bradford B. Ingram
Hall, Prangle & Schoonveld, LLC, Chicago
Heyl, Royster, Voelker & Allen, Peoria
Beth A. Bauer
Kevin J. Luther
Burroughs, Hepler, Broom, MacDonald,
Heyl, Royster, Voelker & Allen, Rockford
Hebrank and True, Edwardsville
John L. Morel
James K. Borcia
John L. Morel, P.C., Bloomington
Tressler, Soderstrom, Maloney & Priess, Chicago
Martin J. O’Hara
Michael C. Bruck
Quinlan & Carroll, Ltd., Chicago
Crisham & Kubes, Ltd., Chicago
Robert T. Park
Roger R. Clayton
Snyder, Park & Nelson, P.C., Rock Island
Heyl, Royster, Voelker & Allen, Peoria
Michael J. Progar
Brad A. Elward
Doherty & Progar, LLC, Chicago
Heyl, Royster, Voelker & Allen, Peoria
Gregory C. Ray
Joseph G. Feehan
Craig & Craig, Mattoon
Heyl, Royster, Voelker & Allen, Peoria
Michael L. Resis
Stacy Dolan Fulco
O’Hagan, Smith & Amundsen, L.L.C., Chicago
Cremer, Kopon, Shaughnessy & Spina, LLC, Chicago
Kimberly A. Ross
Linda J. Hay
Cremer, Kopon, Shaughnessy & Spina, LLC, Chicago
Alholm, Monahan, Klauke, Hay &
Tracy E. Stevenson
Oldenburg, L.L.C., Chicago
Chuhak & Tecson, P.C., Chicago
Willis R. Tribler
Tribler Orpett & Meyer, P.C., Chicago
CONTRIBUTORS
Durga Bharam
Tressler, Soderstrom, Maloney & Priess, Chicago
Timothy J. Cassidy
Cassidy & Mueller, Peoria
Sylvia Coulon
Heyl, Royster, Voelker & Allen, Peoria
James P. DeNardo
McKenna Storer, Chicago
Tina L. Fink
McKenna Storer, Chicago
Jill Rogers-Manning
Heyl, Royster, Voelker & Allen, Peoria
Matthew M. Moushon
Heyl, Royster, Voelker & Allen, Peoria
David B. Mueller
Cassidy & Mueller, Peoria
Douglas J. Pomatto
Heyl, Royster, Voelker & Allen, Peoria
Thomas Scott Stewart
Burroughs, Hepler, Broom, MacDonald,
Hebrank & True, LLC, Edwardsville
Edward M. Wagner
Heyl, Royster, Voelker & Allen, Urbana
Thomas R. Weiler
Norton, Mancini, Weiler & DeAno, P.C., Chicago
THE ILLINOIS ASSOCIATION OF DEFENSE TRIAL COUNSEL
P.O. Box 7288 • Springfield, IL 62791
800-232-0169 • 217-636-7960 • FAX 217-636-8812
idcoffice@gcctv.com
SHIRLEY A. STEVENS, Executive Director
TONYA M. VOEPEL, Publications Manager
9865 State Route 124 • P.O. Box 78 • Sherman, IL 62684
217-566-2603 • FAX 217-566-2507
tvoepel@direcway.com
In This Issue
Lead Article
MonographM-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
President’s Message
By: Glen E. Amundsen
O’Hagan, Smith & Amundsen, L.L.C.
Chicago
A hallmark of any highly successful
organization is a culture that fosters
and strives for continuous improvement. Organizations that do not embrace change and that accept “good”
as “good enough,” do not fare well in
the end. This is one of the main findings of the research of noted business
management guru, Jim Collins, as
reported in his book Good to Great.1
In that book Collins outlines the characteristics of the organizations he studied who successfully
built on a platform of the good things accomplished over time
to ultimately evolve to become the very best at what they do.
How is that relevant to the IDC? On August 19 and 20 the
current leadership of the organization, along with its many
past Presidents and other friends, will be gathering for two
days to consider the long term strategic direction of the IDC.
Our focus will be to build upon the many good things that we
do and have accomplished so far in the forty-plus years that
we have served the needs of our members. Our objective will
be to develop plans to move the organization forward toward
positive change that will build on past successes and make
our organization even more useful to our members – to go
from good to great, so to speak.
There can be no doubt that in our profession the pace of
change is accelerating. The demands on our time, financial
resources and the intellectual challenges required to excel at
what we do are increasing at a pace that has required members
and their firms to make hard choices about how they use their
time, money and intellectual energy. Fortunately, because of
the past foresight of the leaders of this organization the IDC
has remained a strong and vibrant organization that has a terrific platform of programs and opportunities for professional
development to help our members serve their clients better.
The task before us is to continue to build our organization to
make it relevant to the changing environment that we must
face pragmatically. That changing professional landscape has
driven many to leave the profession (voluntarily or involun4
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
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
that is most useful to our members in their efforts to meet their
professional challenges and aspirations. Like everything else,
we cannot be content with just doing what we have always
done and doing it well. We need to have the foresight to define
some new roles for the organization that make membership in
the IDC essential for any Illinois attorneys who seriously hold
themselves out to practice as litigators on behalf of defense
interests.
I hope to provoke some significant debate on that subject
at our upcoming strategic planning meeting which will focus
on some ways that the organization can make itself even
more important as an essential tool for every Illinois lawyer
who seriously holds himself or herself out as a defense trial
attorney. A significant part of that discussion should be about
how to build on the terrific foundation we have built in the
past and take the required next steps.
In my view that discussion should include, amongst other
things:
• Continuing to raise the profile of the organization as a
meaningful voice in promoting a level playing field for litigants on both sides of litigated matters. For too long we have
let our colleagues on the plaintiff’s side of our cases dominate
the agenda, influence decision makers and public opinion
about fairness and mutuality in the civil justice system.
• Strengthening ties, opening lines of communication
and participating in honest debate with other bar related organizations that have an interest in preserving the integrity
and fairness of the civil justice system in Illinois including
organizations like the Illinois Judges Association, the Illinois
Trial Lawyers Association, the Illinois State Bar Association
and the Chicago Bar Association, amongst others. Although
there are clearly differences of perspective among the members of those organizations, there are many issues of concern
to all and areas where both a dialogue and a combined effort
to favorably impact public policy are possible. A very good
example is the growing crisis concerning the availability of
funding for our circuit courts. The availability of essential
court services and access to jury trials should not be dependent
upon the vagaries of the real estate tax base from county to
county in Illinois.
• Expanding upon opportunities for win-win collaboration
with our sister state organizations in the Midwest and with
DRI in order to expand the reach/scope of our programs and
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
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.
• Reaching out for dialogue and collaboration with the
organizations that represent and advocate the interests of the
clients we typically represent such as the Illinois Chamber of
Commerce, Illinois Manufacturers’ Association and others
similarly situated that are involved in the public debate about
the direction of the civil justice system. Again, the perspectives and philosophy of these organizations will not always
coincide with our own but there are many areas of consensus
and opportunities to work together to make needed changes
in public policy that will promote fairness and allow access
to the civil justice system for all the citizens of Illinois.
• Helping members expand their practice in areas that
involve the direct representation of clients and expand the
scope of the services the IDC provides that are relevant to
those clients.
In addition to all of the above, we, of course, need to
focus on improving all of the services and programs that we
currently provide members. Fortunately, we have had great
vision in the past generations of leaders who have served our
organization so ably to get where we are at now. I am honored to have this opportunity to participate in that tradition,
and I am very grateful for the honor of being the President
of an organization comprised of the best civil trial attorneys
in Illinois. Please contact me or any member of our Board of
Directors if you have any ideas about how we can continue
to make positive changes for the IDC to make it even more
relevant to the challenges that you face every day. Together
we will strive to use the next period of years to take us from
good to great.
Endnote
James C. Collins, Good to Great: Why Some Companies Make the
Leap…and Others Don’t, HarperCollins, 2001
1
Editor’s Note
By: Linda J. Hay
Alholm, Monahan, Klauke, Hay
& Oldenburg, L.L.C.
Chicago
All great organizations are formed
on the foundation of members who
strive toward continuous improvement or, as our incoming President,
Glenn Amundsen, so aptly stated,
one that, through its membership,
can evolve from “good to great.” As
Editor-in-Chief of the IDC Quarterly,
I will strive to continue to improve
this excellent resource for not only
the IDC membership, but for all of
those clients we vigorously defend. I hope to foster the tradition of so many fine Editors before me, and will continue to
make this exceptional defense journal the best it can be.
It is an exciting time to practice as a defense attorney in
Illinois, particularly for those in the medical malpractice
and healthcare arena. This edition of the Quarterly includes
a thorough analysis of the Cargill case and related Section
2-622 requirements. Not only will this article assist the individual defense attorney in the preparation of motions to
dismiss, and to anticipate plainitffs’ responses thereto, but
will also provide the membership with a comprehensive, unified approach on this issue for the defense bar throughout the
state. Thanks to Doug Pomatto and Jill Rogers-Manning for
offering to educate the membership on this important, timely
topic. Medical defense attorneys will also find summaries of
the new medical malpractice legislation, and an update on
the hot topic of property tax exemptions for not-for-profit
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
2005-2006
President
GLEN E. AMUNDSEN
O’Hagan, Smith
& Amundsen, L.L.C., Chicago
DAVID M. BENNETT
Pretzel & Stouffer, Chartered
Chicago
ANDREW D. CASSIDY
Cassidy & Mueller
Peoria
PATRICK C. DOWD
Dowd and Dowd
Chicago
TROY A. BOZARTH
Burroughs, Hepler, Broom, MacDonald, H ebrank & True, LLP
Edwardsville
JANELLE CHRISTENSEN
Tressler, Soderstrom,
Maloney & Priess
Chicago
BARBARA FRITSCHE
Rammelkamp Bradney
Jacksonville
C. WILLIAM BUSSE, JR.
Busse & Busse P.C.
Chicago
DANIEL K. CRAY
Iwan Cray Huber Horstman
& Van Ausdall LLC
Chicago
R. HOWARD JUMP
Jump and Associates, P.C.
Chicago
President-elect
STEVEN M. PUISZIS
Hinshaw & Culbertson
Chicago
1st Vice President
JEFFREY S. HEBRANK
Burroughs, Hepler, Broom, MacDonald, Hebrank & True, LLP
Edwardsville
2nd Vice President
GREGORY L. COCHRAN
McKenna Storer
Chicago
DAVID H. LEVITT
Hinshaw & Culbertson.
Chicago
MATTHEW J. MADDOX
Quinn, Johnston,
Henderson & Pretorius
Springfield
KEVIN J. LUTHER
Heyl, Royster, Voelker & Allen
Rockford
FRED B. MOORE
Lawrence, Moore, Ogar & Jacobs
Bloomington
JOHN P. LYNCH, JR
Cremer, Kopon,
Shaughnessy & Spina
Chicago
ANNE M. OLDENBURG
Alholm, Monahan, Klauke,
Hay & Oldenburg, L.L.C.
Chicago
Secretary/Treasurer
RICK HAMMOND
Johnson & Bell, Ltd.
Chicago
MICHAEL RESIS
O’Hagan, Smith &
Amundsen, L.L.C.
Chicago
ALEEN R. TIFFANY
Aleen R. Tiffany, P.C..
Crystal Lake
KENNETH F. WERTS
Craig & Craig
Mt. Vernon
IDC Quarterly
Featured Article
Forfeiture of Workers’
Compensation Lien
Borrowman v. Prastein
Forewarned is Forearmed
By: David B. Mueller
and Timothy J. Cassidy
Cassidy & Mueller
Peoria
Historically, few things have been as well protected and
sacrosanct as an employer’s workers’ compensation lien. The
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
person other than his employer to pay damages, then legal proceedings may be taken against such other person
to recover damages notwithstanding such employer’s
payment of or liability to pay compensation under this
Act. In such case, however, if the action against such
other person is brought by the injured employee or his
personal representative and judgment is obtained and
paid, or settlement is made with such other person, either
with or without suit, then from the amount received by
such employee or personal representative there shall
be paid to the employer the amount of compensation
paid or to be paid by him to such employee or personal
representative including amounts paid or to be paid
pursuant to paragraph (a) of Section 8 of this Act.
The lien serves three purposes. First, it permits an innocent
employer to recoup the sums which it has paid. Blagg v. Illinois F.W.D. Truck and Equipment Co., 143 Ill. 2d 188, 195
(1991), and In re Estate of Dierkes, 191 Ill. 2d 326, 331-33
(2000).1 Second, in conjunction with Section 5(a) it limits or
caps a culpable employer’s contribution exposure. Kotecki
8
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
308, 321-22 (1989). Procedurally, the courts have diligently
protected and enforced an employer’s lien rights. Thus, any
orders in the third party case must take the employer’s interests
into account. The same is true of settlements, which require
the lien to be released.
Until recently, the payment of workers’ compensation benefits 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,
826 N.E.2d 600 (4th Dist. 2005), the Fourth District Appellate
Court changed the rules adversely to the compensation paying employer. Under the circumstances which are discussed
infra, an unwary employer and its workers’ compensation
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
for review in the context of those facts. In Borrowman the
plaintiff was injured when he fell in a work-related accident.
About the Authors
David B. Mueller is a partner in the Peoria firm of Cassidy & Mueller. His practice is concentrated in the area
of products liability, construction injury litigation, and
insurance coverage. He received his undergraduate degree
from the University of Oklahoma and graduated from the
University of Michigan Law School in 1966. He is a past
co-chair of the Supreme Court Committee to revise the
rules of discovery, 1983-1993 and presently serves as an advisory member of
the Discovery Rules Committee of the Illinois Judicial Conference. He was a
member of the Illinois Supreme Court Committee on jury instructions in civil
cases and participated in drafting the products liability portions of the Tort
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.
Caterpillar Tractor Co., 108 Ill. 2d 141 (1985), on the issue of comparative
fault under the Structural Work Act.
Timothy J. Cassidy is a partner in the Peoria firm of
Cassidy & Mueller. His areas of practice include products
liability, construction injury litigation, workers’ compensation, and insurance coverage litigation. He received his
undergraduate degree from Regis University and graduated from St. Louis University Law School in 1983. He
is a member of the Peoria County and Illinois State Bar
Associations and is admitted to practice in all U.S. district
courts in the State of Illinois and U.S. Court of Appeals,
Seventh Circuit.
Third Quarter 2005
While he was receiving workers’ compensation benefits the
injury was aggravated by the professional negligence of his
orthopedist, which led to a subsequent malpractice action.
The employer and its workers’ compensation carrier paid
the medical expenses which were attributable to the aggravation, as well as continuing to pay temporary total disability
benefits. While the medical negligence case was pending the
workers’ compensation case was settled for two hundred thirty
thousand dollars ($230,000). The settlement contracts which
were approved by the Illinois Industrial Commission recited:
The above constitutes a full, final[,] and complete
settlement of any and all claims for temporary total
disability, permanent partial and/or permanent total
disability incurred or to be incurred by said [p]etitioner
by reason of an industrial injury occurring on or about
April 7, 1995, or by reasons of any claim or cause of
action by [p]etitioner against [r]espondent of any nature
whatsoever. Rights under [s]ections 8(a) and 19(h) of
the * * * Act are hereby waived by both parties.
826 N.E.2d at 604. Although the employer and its carrier were
aware of the malpractice action, no reference was made to it
in the settlement contracts.
Subsequently, Borrowman settled the professional
negligence case for seven hundred fifty thousand dollars
($750,000). The employer, Watertower Paint & Repair
Company, asserted a workers’ compensation lien against the
settlement proceeds. Borrowman then sought an adjudication
of both the validity and the amount of the lien. The trial court
conducted a hearing on the employee’s petition and found that
Watertower was entitled to a lien on the third party settlement
in the amount of one hundred seventy-five thousand nine hundred seventy-three dollars seventy-one cents ($175,973.71).
That decision was the result of determining the amount of
compensation and medical payments which were attributable
to the initial injury, without the aggravation, as compared to
those payments which were the result of negligent medical
care. Borrowman appealed and the employer and its insurer
cross-appealed.
In resolving the dispute the Fourth District Appellate Court
acknowledged that the purpose of Section 5(b) is to protect
the employer (citing Freer v. Hysan Corp., 108 Ill .2d 421,
426 (1985), and Blagg v. Illinois F.W.D. Truck & Equipment
Co., supra, 143 Ill. 2d at 194). However, it also recognized
that the public policy of Illinois encourages the settlement of
disputed claims citing to In re Guardianship of Babb, 162 Ill.
2d 153, 169 (1994). On that point the court reasoned that the
parties, whether before the Illinois Industrial Commission or
the circuit court, have the right to enter into agreements which
resolve any and all disputes between them.
The appellate court reversed the decision below and denied
the employer’s lien in its entirety. Explicitly the decision was
based upon the all-encompassing language of the settlement
agreement. Implicitly, the court found that the employer had
knowingly waived its lien rights by not preserving them in the
settlement contract. Both rationales appear in the following
language of the opinion:
The agreement does not refer to, or contain any reservation of rights (or waiver) with regard to, plaintiff’s
then-pending malpractice action. Watertower cannot
attribute this silence to its lack of knowledge of the
pending action because the record reveals that in October 1998 in the malpractice action, VNA filed a notice
that it intended to depose a representative of Travelers (Watertower’s insurance carrier). In all fairness to
Watertower, it does not assert that it was not aware of
Borrowman’s malpractice action.
Because Watertower was aware of Borrowman’s
allegations against Dr. Prastein and the VNA, it is
reasonable to conclude, by the lack of any reference
thereto, that Watertower forfeited its lien rights in its
“full, final[,] and complete settlement” with Borrowman.
It is also reasonable to assume, due to the fact it was not
mentioned in the agreement, Watertower’s claim of a
potential lien was not an issue during the negotiations
surrounding the workers’ compensation settlement. We
find nothing in the record to refute the fact that all concerned negotiated and bargained (1) in good faith and (2)
with full knowledge of the then-current circumstances
and their impendent rights.
826 N.E.2d at 604.
The holding in Borrowman casts a long shadow over every
pending and future case in which the plaintiff’s injuries arise
out of and in the course of his employment. However, the
following prerequisites to its application serve to mitigate
Borrowman’s impact:
(1) the workers’ compensation settlement must have
been made at a time when the employer knew or
had reason to know of a potential third party claim,
and
(2) the language of the settlement contract must purport
to discharge any and all claims or disputes between
(Continued on next page)
9
IDC Quarterly
Forfeiture of Workers’ Compensation Lien (Continued)
the employer and the employee.
The preceding limitations were specifically considered by
the court in distinguishing the Borrowman settlement from
those considered by the courts in Robinson v. Liberty Mutual
Insurance Co., 222 Ill. App. 3d 443 (1st Dist. 1991), and
Kozak v. Moiduddin, 294 Ill. App. 3d 365 (1st Dist. 1997). In
Robinson the appellate court affirmed a proportionate workers’
compensation lien against a medical malpractice settlement.
However, Robinson involved a workers’ compensation award,
as opposed to a dispute-resolving settlement contract.
In Kozak, the plaintiff and his employer settled the workers’
compensation case before the medical malpractice litigation
was commenced. The Borrowman court found that distinction
was controlling, stating: “Despite Watertower’s insistence that
the employer’s lack of knowledge of the malpractice claim at
the time it settled the workers’ compensation claim in Kozak
was insignificant, we find it was of the utmost importance.”
826 N.E.2d 604 (italics supplied). A comparison of Kozak
and Borrowman leaves open the question of whether waiver
applies only where the workers’ compensation case is settled
after the third party case is actually filed or if it will be applied
where the employer has knowledge that a third party claim is
likely.
As prudence is the best defense against improvidence,
the Borrowman problem can be obviated in future cases by
specifically reserving the workers’ compensation lien in the
settlement contracts. An example of appropriate language
appears below in juxtaposition with that which forfeited the
lien in Borrowman:
LIEN WAIVER LANGUAGE­
LIEN PROTECTION LANGUAGE­
The employer/respondent
specifically reserves all of
its rights and remedies
under Section 5 of the
Illinois Workers’
Compensation Act and,
without limitation,
specifically reserves any
workers’ compensation lien
it may have presently or in
the future as contemplated
under Section 5. ­
10
The above constitutes
a full, final[,] and complete settlement of any and all claims
. . . by said [p]etitioner
by reason of an industrial injury . . . or
by reasons of any claim
or cause of action by
[p]etitioner against
[r]espondent of any nature whatsoever.
Incorporation of the lien protection language will preserve
an employer’s Section 5(b) rights in future cases. However,
preventive medicine does little to help a patient who already
has a terminal disease. Undoubtedly, there are numerous
pending cases in which workers’ compensation liens have
been asserted following the execution and approval of full
and final settlement contracts such as that in Borrowman.
Under the Borrowman rationale, the employer in those cases
has waived its lien rights where the settlement took place after
the third party action was filed or at a time when the employer
knew or had reason to know that third party proceedings were
imminent.
If the liens in those cases have been waived then the
impact of that waiver must be considered in the context of
the tripartite rationale which supports Section 5(b) of the
Workers’ Compensation Act. Specifically, it appears that the
innocent employer has forfeited his right to reimbursement.
Consequently, damages no longer follow fault. In that same
setting the question arises as to whether the tortfeasor receives
a credit? If not, then the employee makes a double recovery
at his employer’s expense. It is readily apparent that none of
these alternatives further any public policy other than encouraging settlements at the expense of the employer that honored
its statutory obligations.
The same type of conundrum exists in cases where the
employer was also at fault and is therefore exposed to
claims for contribution. (740 ILCS 100/1, et seq.). Except in
instances where there is a contractual waiver, e.g., Braye v.
Archer-Daniels-Midland Co., 175 Ill. 2d 201, 210-212 (1997)
and Liccardi v. Stolt Terminals, Inc., 178 Ill. 2d 540, 545-50
(1997), the employer’s exposure to contribution is limited
by the amount of workers’ compensation benefits which it
has paid or is obligated to pay. Kotecki v. Cyclops Welding
Corp., supra. In those cases the employer can wait until the
case, including the contribution action, is tried before deciding whether to waive its lien in exchange for exoneration.
LaFever v. Kemlite Co., a Div. of Dryotech Industries, Inc.,
185 Ill. 2d 380, 398-404 (1998).
Given a situation whereby under Borrowman the lien has
been waived in favor of the plaintiff, a question arises whether
Kotecki still affords protection to the employer? Expressed
otherwise, if the contributing employer no longer has a lien
to exchange for his exposure, does Kotecki apply? A corollary
to the preceding question is whether a Borrowman waiver
automatically discharges liability, e.g., Lannom v. Kosco, 158
Ill. 2d 535 (1994)? If so, what happens in cases such as Braye
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
Third Quarter 2005
to the defendant for the amount of workers’ compensation
benefits which he received on account of his injuries. Correspondingly, and subject to the Braye and Liccardi exceptions
discussed above, the employer’s third party liability would
be commensurate with its workers’ compensation exposure,
without regard to its lien rights. Where the Kotecki cap is
unavailable the employer’s contribution exposure will be
the difference between its pro rata share of the total damages
and the amount of the workers’ compensation lien which was
waived.
Nonetheless, in cases to which Borrowman applies, the
employer’s purported lien is a nullity. The defendant should
be entitled to a credit in the full amount, without regard to the
attorney’s fees and expense sharing provisions of Section 5(b)
and therefore can negotiate with the plaintiff accordingly. The
innocent compensation paying employer is the net loser. The
preceding are the authors’ best predictions of how Borrowman will play out. However, the problem should be transient,
as future settlement contracts should expressly reserve the
employer’s lien rights.
Endnote
Subject to proportionate expenses and a 25% attorney’s fee. (820
ILCS 305/5(b)).
1
Editor’s Note (Continued from page 5)
by Durga Bharam, Tina Fink, Scott Stewart, Thomas
Weiler and James DeNardo, on the topic of mandatory arbitration clauses in the employment law setting. It provides
a comprehensive overview of the current law in various state
and federal jurisdictions, creative defense arguments and
potential responses to inventive plaintiff arguments, with
reference sources. In addition, it provides straightforward
practical advice for the practitioner who advises clients on
how to best protect their interests.
Another excellent resource, and required reading for practitioners in the workers’ compensation field, is the review of
the recent Borrowman v. Prastein decision, written by David
Mueller and Timothy Cassidy. This article explains the manner in which the courts, under the Borrowman analysis, interpret settlement documents, based on the language contained
in those documents, so as to preserve or waive the workers’
compensation lien.
Along with these excellent scholarly works, this edition of
the Quarterly contains the regular columns on various areas
of law and practice. I encourage all practitioners to read these
portions of the Quarterly that may be beyond the scope of
your individual practice. If you do so, I assure that you will
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
Health Law
By: Roger R. Clayton and Matthew M. Moushon*
Heyl, Royster, Voelker & Allen
Peoria
What Every Litigator Needs to
Know About Illinois Non-Profit
Hospitals Maintaining Property
Tax Exempt Status
The Champaign County Board of Review (“Board”) has
recommended denial of tax-exempt status of several parcels
of property owned by Provena Covenant Medical Center.
The Illinois Department of Revenue summarily endorsed the
decision of the Board, and Provena appealed internally to an
administrative law judge (ALJ). At the time of this writing, a
final decision by the agency has not been issued. According
to Stan Jenkins, chair of the Board, a final agency decision is
expected by the end of summer 2005.
As a basis for denying tax-exempt status, the Board alleged,
inter alia, that much of the area inside the hospital is used
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 Medical Center, (No. 04-PT-0014). The Illinois Hospital Association, Illinois Catholic Health
Association, Catholic Conference of Illinois, Metropolitan
Chicago Healthcare Council, American Hospital Association, and the Catholic Health Association of the United States
have filed a brief as amici curiae in support of Provena. The
outcome of this case could have a dramatic effect on how
nonprofit hospitals structure and carry out their operations.
Illinois Tax Law
The Illinois Constitution grants the General Assembly
authority to exempt from taxation property used “exclusively
for . . . charitable purposes.” Ill. Const. art. IX § 6. According
to the Illinois Property Tax Code, property is exempt when
actually and exclusively used for charitable purposes, and
12
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
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 exemption bears the burden of proof. People ex rel. Nordlund
v. Ass’n of Winnebago Home for the Aged, 40 Ill. 2d 91, 99100, 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
of whether property is exempt from taxation is a question of
law for the court to decide. Midwest Physician Group, Ltd. v.
Dep’t of Revenue, 304 Ill. App. 3d 939, 951, 711 N.E.2d 381,
389, 238 Ill. Dec. 278 (1st Dist. 1999).
­ Both the Board and Provena rely on Methodist Old Peoples
Home v. Korzen, 39 Ill. 2d 149, 157, 233 N.E.2d 537, 541
(1968) to determine when property is used exclusively for
charitable purposes. Korzen sets out a fact-intensive, six-factor
test to determine whether property qualifies for tax-exempt
treatment:
1. the property is used for the benefit of an indefinite
number of persons, persuading them to an educational or religious conviction, for their general
welfare – or in some way reducing governmental
burden,
About the Authors
Roger R. Clayton is a partner in the Peoria office of
Heyl, Royster, Voelker and Allen where he chairs the firm’s
healthcare practice group. He also regularly defends physicians and hospitals in medical malpractice litigation. Mr.
Clayton is a frequent national speaker on healthcare issues,
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 State Bar Association, past president of the Abraham Lincoln Inn of
Court, a board member of the Illinois Association of Healthcare Attorneys, and
the current president of the Illinois Society of Healthcare Risk Management.
* The author acknowledges the assistance of Matthew A. Moushon, a law
clerk with Heyl, Royster, Voelker & Allen, in the preparation of this article.
Third Quarter 2005
2. the organization has no capital, capital stock, or
shareholders, earning no profits or dividends,
3. funds are derived mainly from public and private
charity and holds them in trust for the objects and
purposes expressed in its charter,
4. dispenses charity to all who need and apply for it,
5. does not provide gain or profit in a private sense to
any person connected with it, and does not appear
to place obstacles of any character in the way of
those who need and would avail themselves of the
charitable benefits it dispenses,
6. the property is primarily used for charity, and not
any secondary or incidental purpose.
Id. at 157.
Application of Illinois Tax Law in Similar Cases
The Korzen guidelines are not hard and fast rules; thus,
courts should consider and balance the guidelines by examining the facts of each case and focus on whether and how
the institution serves the public interest and lessens the state
burden. Midwest Physician Group, 304 Ill. App. 3d at 939
(1st Dist. 1999). Incidental acts of charity by an organization
are not enough to establish the organization as charitable; the
property must be used exclusively for charitable purposes.
Alivio Medical Center v. Illinois Dep’t of Revenue, 299 Ill.
App. 3d 647, 650, 702 N.E.2d 189, 192, 234 Ill. Dec. 23 (1st
Dist. 1998).
Lutheran General applied the Korzen factors, where a
property tax exemption was allowed. Lutheran General
Health Care System v. Dep’t of Revenue, 231 Ill. App. 3d
652, 595 N.E.2d 1214, 172 Ill. Dec. 544 (1st Dist. 1992). In
determining that the applicant was in compliance with the
first factor, the facts the court considered important were that
the physicians’ salaries were below what they would receive
in private practice, no patients were turned away because of
inability to pay, and the physicians were required to perform
educational, administrative, and research activities to continue
their employment. Id. at 661. Because the physicians earned
less than market value, the property was not used for their
benefit. Id.
­ Under the second guideline, even if a nonprofit corporation has capital stock and shareholders, an exemption may
be allowed. Lutheran General, 231 Ill. App. 3d at 662. In
Lutheran General, the Foundation had capital, capital stock,
and shareholders, but the stock conferred no ownership interest, was not entitled to receive dividends, and only conferred
to shareholders the right to vote on administrative issues. Id.
To deny an exemption on that basis, the court reasoned, would
be a triumph of form over substance. Id. Problems arise where
directors derive a financial benefit from the operations. Id.
at 663 (citing People ex rel. County Collector v. Hopedale
Medical Foundation, 46 Ill. 2d 450, 264 N.E.2d 4 (1970) (no
exemption where medical director operated private practice
out of office in hospital, received a substantial salary, and
derived financial benefits from consulting services carried on
with the aid of foundation personnel)).
Even if funds are derived primarily from fees for services,
not charitable contributions or grants, the entity may survive
scrutiny under the third factor, which requires funds to be
derived mainly from public or private charities. Lutheran
General, 231 Ill. App. 3d at 663-64. Where the funds and
property are devoted to public purposes, the source of the
funds is not the sole determinant factor. American College
of Surgeons v. Korzen, 36 Ill. 2d 340, 348, 224 N.E.2d 7, 11
(1967), overruled on other grounds, Christian Action Ministry
v. Dep’t of Local Gov’t Affairs, 74 Ill. 2d 51, 383 N.E.2d 958,
23 Ill. Dec. 87 (1978).
Factors four and five require the organization to dispense
charity to all who need it without placing obstacles in their
path. In Lutheran General, the Department of Revenue argued
that the Foundation did not meet this guideline because the
public benefited only incidentally from the use of the property.
Lutheran General, 231 Ill. App. 3d at 664. The court rejected
this argument, as the department had not disputed the ALJ’s
finding that the foundation dispensed charity to all who
needed and applied for it, and because there was testimony
that physicians devoted 52% of their time to performing educational, administrative and research activities in addition to
providing medical care. Id. Exempt status was denied under
these factors in Midwest Physician Group, where the group
used collection letters and collection agencies in an attempt
to collect its outstanding bills. 304 Ill. App. 3d at 956-57. The
fact that it wrote off bad debts was a business decision, and
not a charitable one. Id.
Arguments of the Parties
The Board alleges, among other things, that Provena allows outside, for-profit entities to use the facilities to generate
personal or corporate profit. Brief for Board at 2 (No. 04PT-0014). According to the Board, neonatal, pediatric, and
emergency room doctors, are provided through an outside
group that bills independently of the hospital and derives
(Continued on next page)
13
IDC Quarterly
Health Law (Continued)
profit. Id. The Board further alleges that Provena’s Charity
Care program is not available to all who need it, because a
number of patients are being sued, and Provena has retained
two collection agencies. Id. at 5. These patients are below the
poverty level, according to the Board, because Land of Lincoln
Legal Assistance Foundation has represented members of the
community against Provena. Id. By federal law, clients must
be at or below poverty level to receive representation from
Land of Lincoln. Id. Also, according to the Board, Provena
has not provided any leases, contracts, or other information to
assist the Board in considering Provena’s tax exempt status.
Id. at 2-3.
The Amici first advance the public policy argument that
modern nonprofit hospitals are charitable in nature, and
The question whether or not this is an institution of
public charity depends not at all upon what class of
physicians are permitted to practice there, so long as the
institution is not conducted for the purpose of benefitting
the physicians of that class.
Id. at 24, citing Sisters of Third Order of St. Francis v. Board
of Review of Peoria County, 231 Ill. 317, 323, 83 N.E. 272,
274 (1907). More recently, however, courts have been more
likely to uphold tax exempt status where the physicians are
on site, and are paid less than market value. See, Lutheran
General, 231 Ill. App. 3d at 661, Midwest Physician Group,
304 Ill. App. 3d at 954 (no exemption where physician salaries
set at comparable levels to other physicians and some physicians engaged in outside practices).
Conclusion
“The Board further alleges that
Provena’s Charity Care program
is not available to all who need
it, because a number of patients
are being sued, and Provena has
retained two collection agencies.”
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
Ultimately, the ALJ must affirm the finding of the Board,
denying tax exempt status, if Provena has, in fact, failed to
produce evidence rebutting the allegations of the Board. As
noted above, Provena must demonstrate by clear and conclusive evidence that it is entitled to an exemption, but according
to the Board, it has offered no evidence. The thrust of the
argument of the Amici rests on public policy. While it is true
that nonprofit hospitals generally benefit the community by
providing low-cost medical treatment and relieving government burdens, the claimant still must discharge the clear and
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.
Third Quarter 2005
Workers’ Compensation Report
By: Kevin J. Luther
Heyl, Royster, Voelker & Allen
Rockford
Wage Differentials Pursuant to
Section 8(d)(1) – Modification Possible?
It is well established that in order for one to qualify for
a wage differential claim pursuant to Section 8(d)(1) of the
Workers Compensation Act, the claimant must prove (1)
partial incapacity which prevents pursuit of his or her usual
and customary line of employment, and (2) impairment of
earnings. If the impairment of earnings capacity is established
pursuant to Section 8(d)(1), then the employee is entitled to 66
2/3% of the difference between the average amount which he
or she would be able to earn in the full performance of his or
her duties in the occupation in which he or she was engaged
at the time of the accident, and the average amount that he or
she is earning or is able to earn in some suitable employment
or business after the accident.
In Cassens Transp. Co. v. Illinois Indus. Comm’n, 354 Ill.
App. 3d 807, 821 N.E.2d 1274, 290 Ill. Dec. 700 (4th Dist.
2005), the claimant was awarded Section 8(d)(1) wage differential benefits in the amount of $203.55 per week. The
award of the Industrial Commission became the final award.
Thereafter, more than 30 months after the decision became
final, the employer, on May 23,2001, filed a motion before
the Industrial Commission seeking an order to suspend wage
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
whether a wage loss still existed.
­ In October 2003, the motion of the employer was denied
based on Petrie v. Indus. Comm’n, 160 Ill. App. 3d 165, 513
N.E.2d 104, 111 Ill. Dec. 858 (3d Dist. 1987). In Petrie, it was
determined that when the legislature used the term “disability”
in Section 19(h), it was referring to physical and mental disability, not economic disability. The Industrial Commission
in Cassens relied on Petrie in order to make a finding that
“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
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.
The respondent attempted to obtain modification of the
Section 8(d)(1) award by proceeding to the appellate court.
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
8(d)(1) motion filed by the respondent.
­On this issue of jurisdiction, the employer acknowledged
that the petition was brought to modify the award under Section 8(d)(1), and not 19(h) or 8(f). The appellate court pointed
out that 8(d)(1) is not one of the two provisions that allows the
Industrial Commission to reopen or modify a final decision
(those sections are 19(h) and 8(f)). Because Section 8(d)(1)
does not contain a provision allowing the employer to file a
petition to modify an award under Section 8(d)(1), the Industrial Commission was without jurisdiction. Additionally, the
appellate court noted that even if the Industrial Commission
assumed that the action was brought under Section 19(h), the
petition was not filed within the required 30-month period.
For this reason, the appeal of the employer was dismissed,
the decision of the Industrial Commission was vacated, and
the employer’s motion to suspend wage differential benefits
was denied.
One can argue that implicit within the majority decision
is a finding that a Section 8(d)(1) award may be modified
under 19(h) if it is filed within 30 months and if it is based on
a change in either physical or mental condition. Accordingly,
a Section 12 examination or an opinion from a treating physi(Continued on next page)
About the Author
Kevin J. Luther is a partner in the Rockford firm of
Heyl, Royster, Voelker & Allen where he concentrates his
practice in areas of workers’ compensation, employer liability, professional liability and general civil litigation. He
also supervises the workers’ compensation practice group
in the Rockford office. Mr. Luther received his J.D. from
Washington University School of Law in 1984. He is a
member of the Winnebago County, Illinois State and American Bar Associations, as well as the IDC.
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.
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 Holdridge reasoned that there was no basis to address the merits
of the claim since the Workers’ Compensation Commission
lacked jurisdiction to hear the employer’s motion. Justice
Holdridge’s concurrent opinion can be interpreted as a warning to employers that they may be subject to penalties if there
is an attempt to terminate wage differential benefits on a belief
that an employee no longer has a continuing disability as defined by the Act if such a motion is filed more than 30 months
after the final decision of the Industrial Commission.
The Illinois Supreme Court has accepted a petition for
leave to appeal the appellate court decision in Cassens Transp.
Co. Hopefully, common sense will prevail, and the Illinois
Supreme Court will recognize that a change in “economic
standing” is relevant to wage differential claims and is also
consistent with the purpose of Section 8(d)(1).
One Defense Lawyer’s Opinion
By: David H. Levitt
Hinshaw & Culbertson
Chicago
Discovery of
Coverage Counsel’s File:
A Narrow Case with Wide Implications
Are insurance companies entitled to hire coverage counsel
to represent their interests, and to assert the attorney-client and
work product privileges regarding the work of that counsel?
Apparently not, according to the Fourth District in Western
States Ins. Co. v. O’Hara, 828 N.E.2d 842 (4th Dist. 2005).
A Petition for Leave to Appeal is pending. Hopefully, the
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 Hinshaw & 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-InChief 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
sustained significant injuries. The most serious was that of Ms.
Lovelace, who suffered a spinal fracture leaving her paralyzed
from the waist down. The policy limit of the Western States
policy was $500,000. Western States retained a law firm to
advise it regarding its rights and obligations to its insured in
resolving these claims.
Western States eventually settled Ms. Lovelace’s claim for
the policy limit (after having first paid nominal amounts to
settle property damage claims), with notice to and no objection from Ms. O’Hara. It then filed a declaratory judgment
action seeking a determination that it had exhausted its policy
limits, and therefore had no obligation to defend or indemnify
Ms. O’Hara for the lawsuit filed against her by the remaining
claimants. A dispute arose regarding whether Ms. O’Hara and
the claimants were entitled to production of the file of Western
States’ coverage counsel. Even though that counsel had never
represented Ms. O’Hara or provided her any advice at any
time, the appellate court somehow found that both she and the
claimants were entitled to counsel’s file.
The court first applied the “common interest” rule recognized in Waste Management, Inc. v. International Surplus
Lines Ins. Co., 144 Ill. 2d 178, 579 N.E.2d 322 (1991), to
hold that O’Hara had the right to coverage counsel’s file. In
Waste Management, the insurers had sought production of the
files of the defense counsel in the underlying tort case (whose
invoices the insured was seeking to have the insurers pay),
not the files of the opposing coverage counsel in the declaratory judgment action. The Fourth District Appellate Court in
Western States held that because Western States and O’Hara
had a common interest in defeating or settling the Lovelace
claim, that the “common interest” doctrine applied to prevent
application of Western States’ attorney-client privilege.
The court went on to hold that because exhaustion is only
a policy defense if the first settlement was made in good faith,
the “at issue” exception to the privilege also applied to require
production of coverage counsel’s file, even to the claimants’
attorney. In other words, the claimants’ attorney was entitled
to see the mental impressions and client communications of
coverage counsel, as well as evaluations of defense strategy,
merely because the insurer asserted that it acted in good faith.
There is good reason to question the wisdom of the court’s
logic as applied to the facts before it, and even more reason
to oppose any attempt to expand this logic to other coverage
disputes. Of course it is true that, in every case tendered to an
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
no other interests at stake, and that the insurer is not entitled to
separate representation to represent its own separate interests,
as the O’Hara case seems to do, is to deprive the insurer of the
right to counsel and bad public policy. The insurer is entitled
to look after its own interests, as well as those of the insured
– the standard in this state for bad faith failure to settle is still
whether the insurer treated the insured’s interests equal to its
own. See, e.g., Scroggins v. Allstate Ins. Co., 74 Ill. App. 3d
1027, 393 N.E.2d 718 (1st Dist. 1979). The insurer ought to
be able to retain counsel to evaluate its rights and obligations
without concern that counsel’s file will be produced to the
insured, much less to the claimant.
Similarly, the question of good faith is not necessarily a
subjective one permitting a fishing expedition into coverage
counsel’s file in the hope of finding something. Here, Western
States had paid its full policy limits to a paraplegic claimant;
that the value of that case exceeded $500,000 is hard to debate.
As the dissent pointed out in Western States, one ought not
to be allowed to start with an attack on coverage counsel’s
file until one first establishes some facts that suggest that the
insurer acted improperly in resolving the first case.
In any event, the ruling in O’Hara ought to be significantly
restricted to the issues in the case. After all, the particular case
before the court included as an element of the cause of action
proof of good faith in making the policy-limit exhausting
settlement. The “at issue” exception is intended to be a narrow one, not one that swallows the attorney-client privilege.
Most coverage disputes turn on a comparison of the insurance
policy language to the underlying complaint. Merely filing a
declaratory judgment action does not automatically implicate
the “good faith” of the insurer. Also, a counterclaim asserting
bad faith by the insurer does not put counsel’s file “at issue”
either; the law has long been clear that the party whose privilege waiver is at issue must take affirmative steps to put the
issue into the case, and a responsive pleading by the opposing party cannot do so. Fischel & Kahn, Ltd. v. Van Straaten
Gallery, Inc., 189 Ill. 2d 579, 727 N.E.2d 240 (2000).
The principles supporting the existence of the attorneyclient and work product privileges are long recognized and
sound, even where they prevent discovery of otherwise
potentially relevant evidence. Public policy is not served by
depriving insurance companies from having the same rights
as other litigants to obtain the objective advice of counsel,
without concern that its communications with and the mental
impressions of that counsel will end up as fodder for discovery.
17
IDC Quarterly
Employment Law Issues
By: Kimberly A. Ross*
Cremer, Kopon, Shaughnessy & Spina, LLC
Chicago
Age
Comparable Employees Were Those Working
in Same Warehouse, Not Sister Warehouse
In Grimm v. Alro Steel Corp., 410 F. 3d 383 (7th Cir. 2005),
Alro Steel closed its plant in South Bend, Indiana, as part of a
larger company restructuring. As a result of the plant closing,
26 warehousemen were terminated. Twelve of those workers
claimed the decision to let them go was motivated by their
age.
In restructuring the company, Alro also closed a plant in
Benton Harbor, Michigan, and built a new facility in Niles,
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
employees were given the opportunity to transfer to the Niles
plant. The South Bend employees were not given the opportunity to transfer to the Niles plant. Rather, Alro hired seven
new employees to work at the Niles plant.
Summary judgment was granted in favor of Alro and the
plaintiffs appealed. On appeal, the court noted that in order
to establish a prima facie case of age discrimination, the
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).
The district court found the plaintiffs could not establish
a prima facie case because they did not show they were
meeting Alro’s legitimate expectations or that Alro treated
younger, similarly situated employees more favorably. On
the legitimate expectations issue, the district court highlighted
the statistical evidence showing the South Bend plant was
one of Alro’s least productive operations. While the appellate court agreed with the district court’s conclusion that the
plaintiffs’ evidence was weak, it found Alro’s contention that
the plaintiffs were not meeting legitimate expectations was
18
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.
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
show that Alro treated younger similarly situated employees
more favorably. Id. at 386. While the plaintiffs could show
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
younger worker. The court also rejected the plaintiffs’ argument that forcing each worker to figure out who replaced him
would allow employers to get around discrimination laws by
firing and replacing employees in groups instead of one at a
time. Id.
The court found the plaintiffs’ argument irrelevant because
the relevant similarly situated workers were not the workers’
replacements, but rather the five warehousemen at the South
Bend plant who were under 40. The court noted that none of
those five were transferred to the Niles plant. As such, the
younger workers were treated exactly the same as the older
workers. Id. at 386.
Age & Race
Time-Barred Acts Can Be Used as Support
for Timely Filed Race and Age Claim
In West v. Ortho-McNeil Pharmaceutical Corp., 405 F.3d
578 (7th Cir. 2005), Edward West, a 62-year-old African
American, was hired by Ortho-McNeil as a sales representative. West was terminated within a year of his hiring for
About the Author
Kimberly A. Ross is a partner with the law firm of Cremer,
Kopon, Shaughnessy & Spina, LLC. She received her J.D.
from DePaul University College of Law and her B.A. from
the University of Michigan. Her practice areas include
employment law and general tort litigation. Ms. Ross is an
Assistant Editor of the IDC Quarterly. In addition to IDC,
she is a member of the Defense Research Institute, Decalogue
Society of Lawyers and the Women’s Bar Association.
* The author acknowledges the assistance of Jennifer L. Colvin, an associate
with Cremer, Kopon, Shaughnessy & Spina, LLC, in the preparation of this
article.
Third Quarter 2005
violations of company policies. West brought suit alleging
he was terminated on the basis of his race and age.
At trial, the district court ruled that seven of eight racially
offensive statements alleged to have been made by West’s
supervisor were to be excluded from trial as being too remote
in time from the termination. At trial, Ortho-McNeil’s motion
for summary judgment was granted. West appealed.
On appeal, Ortho-McNeil asserted that even if the excluded
statements had been admitted, there was no actionable dis-
“Hence, the issue was whether
West provided sufficient evidence
for a reasonable jury to find
that his supervisor authorized
the distribution of the materials
as part of the plan to get West
terminated.”
told him to disseminate the materials. West, 405 F.3d at 581.
The appellate court also noted West’s theory required him
to establish that his supervisor influenced the regional business
director’s decision to terminate him. Id. at 581. West claimed
that as a result of his supervisor’s racial bias, his supervisor
failed to inform the regional business director that he approved the dissemination of the materials in an effort to taint
her decision. However, the trial court excluded the evidence
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 exclusion of the evidence of alleged bias. Relying on National
Railroad Passenger Corp. v. Morgan, 536 U.S. 101 (2002),
the court noted that on claims other than hostile work environment claims, acts outside the statutory time period cannot be
the basis for liability, but the statute does not bar an employee
from using the prior acts as background evidence in support of
a timely claim. West, 405 F.3d at 581. Hence, the court noted
West was able to use the time-barred acts as support for his
claim and that with this evidence, there were sufficient facts
to enable a reasonable jury to find discrimination. Id. at 58182. As a result, summary judgment was reversed and the case
was remanded to the district court.
ADA
crimination because West was terminated for a legitimate
business reason. According to Ortho-McNeil, West distributed
unauthorized materials to a hospital in order to convince the
hospital not to replace an Ortho-McNeil drug with a product
from a competing company. West claimed he received approval to distribute the materials from his immediate supervisor. Ortho-McNeil maintained West’s supervisor had no
involvement in its determination to terminate West and the
decision was made by the regional business director.
West maintained his trial testimony raised an issue of fact
for the jury that, in accordance with Ortho-McNeil policy, his
supervisor had approved his use of the distributed materials.
Further, West contended his immediate supervisor encouraged
him to prepare the materials and then used them against him
by providing a copy of the materials to the regional director. Hence, the issue was whether West provided sufficient
evidence for a reasonable jury to find that his supervisor
authorized the distribution of the materials as part of the plan
to get West terminated. The appellate court found there was
such sufficient evidence because West testified his supervisor
Evidence of Employer’s Pretextual Justification
for Termination Cannot Be Relied on
to Establish Prima Facie Case
In Nese v. Julian Nordic Construction Co., 405 F.3d 638
(7th Cir. 2005), Louis Nese claimed his employer, Julian, violated the Americans with Disabilities Act (ADA), 42 U.S.C.
§ 12101, by reducing his wages and then terminating him
because of its incorrect perception that he had a disability.
The district court granted summary judgment for Julian and
the appellate court affirmed.
Nese, who was in his forties at the time of his termination,
began having epileptic seizures when he was 15 years old. The
seizures were controlled by the use of prescription medication,
and Nese experienced no side effects from the medication. In
August 2000, Julian hired Nese to perform carpentry duties
on a 90-day trial basis at the rate of $22.50 per hour. Upon
hire, Nese informed Julian he did not have a driver’s license
because he had suffered a seizure.
In February 2001, Nese’s hourly rate was reduced to $18.00
per hour. Julian claimed the reduction was changed because
(Continued on next page)
19
IDC Quarterly
Employment Law Issues (Continued)
Nese’s work pace was not up to standard or because other
workers were making less and the disparity was causing a
problem. In September 2001, Nese received a performance
evaluation indicating he completed assigned tasks within acceptable time frames.
In November 2001, Julian received a letter from a legal
advocacy group acting on Nese’s behalf. The letter accused
Julian of possible discriminatory acts relating to its treatment
of Nese. In January 2002, Nese was transferred to the side
of Julian’s business that did smaller jobs. A few weeks later,
Nese was placed on temporary layoff due to lack of work. By
October 2002, Nese felt he had been fired.
Nese claimed Julian lowered his wages and then terminated
him because of his epilepsy. Nese did not claim that his epilepsy actually made him disabled within the meaning of the
ADA. Rather, he claimed Julian perceived him as disabled
and then made adverse employment decisions because of that
perception.
To establish disability discrimination, Nese had to show:
(1) that he was disabled within the meaning of the ADA; (2)
that he was qualified to perform the essential functions of
the job, either with or without a reasonable accommodation;
and (3) that he suffered from an adverse employment action
because of his disability. Byrne v. Board of Educ., School of
West Allis-West Milwaukee, 979 F.2d 560 (7th Cir. 1992).
Additionally, in order to establish a prima facie case of
disability, Nese had to show either that: (1) he has a physical
or mental impairment that substantially limits him in one
or more major life activities; (2) he has a record of such an
impairment; or (3) the employer regarded him as having such
an impairment. 42 U.S.C. § 12102(2). If his condition did
not meet one of those categories, even if he was terminated
because of some medical condition, Nese was not disabled
within the meaning of the act. Nese, 405 F.3d at 641.
Moreover, under a “regarded as” claim, Nese had to prove
that either: (1) Julian mistakenly believed he had a physical
impairment that substantially limits a major life activity; or
(2) Julian mistakenly believed that an actual, nonlimiting
impairment substantially limits a major life activity. Amadio
v. Ford Motor Co., 238 F.3d 919, 925 (7th Cir. 2001).
Relying on a case from the Court of Appeals for the Sixth
Circuit, Ross v. Campbell Soup Co., 237 F.3d 701 (6th Cir.
2001), Nese argued he should prevail at the summary judgment stage because evidence that Julian was aware of his
epilepsy should be combined with evidence that Julian concocted a pretextual justification for the termination, which was
Nese’s slow work pace. The Seventh Circuit rejected Nese’s
approach, noting that an employer is not guilty of discrimina20
tion every time it takes an employment action for one reason,
but provides a different explanation to the employee. Nese,
405 F.3d at 642.
The appellate court also noted that to show he was disabled
under the ADA, Nese had to show Julian not only was aware
of his impairment, but also that Julian believed he was substantially limited in a major life activity (working) because of
the impairment. Further, Julian must have believed Nese was
unable to work in a particular class or broad range of jobs. Id.
at 643. The court determined that while Julian was aware of
Nese’s impairment, there simply was no evidence under this
standard that Julian perceived Nese as disabled. The court
specifically noted the evidence was to the contrary because
Julian hired Nese even though he told Julian he could not
drive due to seizures. Additionally, the court noted nothing
indicated a belief that the reason Nese’s work was not quite up
to par was that he was disabled or unable to perform a broad
range of jobs. Id.
Race & Retaliation
Caucasian’s Allegations of Racial Harassment Against
African-American Workers Insufficient to Establish
Workplace Hostile for Caucasians
In Walker v. Mueller Industries, Inc., 408 F.3d 328 (7th
Cir. 2005), Dennis Walker, a Caucasian, sued his employer,
Mueller Streamline Company, and his supervisor, Deborah
Jones, pursuant to Title VII of the Civil Rights Act of 1964,
42 U.S.C. § 2000e-2(a)(1) and 42 U.S.C. § 1981. Walker
alleged he was forced to work in a racially hostile work environment and that Jones and Mueller retaliated against him
for complaining about incidents of discrimination against his
co-workers. The district court granted summary judgment in
favor of defendants. The appellate court affirmed.
Walker gained employment with Mueller in 1993 and
took a position as a warehouse worker. In 2000 he became a
union steward. Beginning in April 2001, Walker complained
to Jones, the warehouse manager, that African-American employees were being subjected to racial discrimination in the
form of derogatory verbal references and written graffiti in the
workplace. Walker alleged that after he alerted management to
the discrimination he experienced retaliation, which included
exclusion from more desirable work assignments, exclusion
from a supervisory position and subjection to workplace
harassment.
The district court granted summary judgment in favor of
the defendants, pointing out that Walker had abandoned any
claim that he had been discriminated against on the basis of
Third Quarter 2005
his own race. Rather, Walker was asserting a derivative claim
of discrimination based on the hostile work environment allegedly perpetrated against African-American workers. The
district court concluded that claim was foreclosed. The district court also held Walker’s retaliation claim failed because
none of the purportedly retaliatory conduct cited by Walker
amounted to an adverse employment action.
The appellate court also found Walker’s racial discrimination claim – that he was subjected to a hostile environment
due to the racial harassment directed at African-American coworkers – was foreclosed based on its decision in Bermudez
“It noted that while Walker was
disturbed by the harassment, he
made no attempt to establish that
the conduct was so offensive to
him, as a third party, as to render
the workplace hostile not only for
him but also for any reasonable
employee who likewise was a bystander rather than a target of the
harassment.”
noted that while Walker was disturbed by the harassment, he
made no attempt to establish that the conduct was so offensive
to him, as a third party, as to render the workplace hostile not
only for him but also for any reasonable employee who likewise was a bystander rather than a target of the harassment.
Id. As such, the record was insufficient to support Walker’s
derivative claim.
In support of his retaliation claim, Walker asserted that after
informing management of the discrimination he was assigned
exclusively to handle the job of “order-picking,” which was
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
and work performance.
The court noted that the “order-picking” assignment could
not be described as a demotion or other type of adverse
employment action because it was a genuine task that any
warehouse worker could be directed to perform. The court
also noted the lead person position could not be deemed a
promotion because it was not a supervisory position. Lastly,
the court noted the disciplinary warnings were nothing more
than warnings and did not lead to any adverse action against
Walker. Hence, in reviewing the alleged adverse actions, the
appellate court noted that none of the defendants’ actions
amount to the kind of adverse employment action needed to
establish actionable retaliation. Id. at 332.
National Origin
“Plantation Mentality” Comment Created
Issue for Jury in Discrimination Action
v. TRC Holdings, Inc., 138 F.3d 1176 (7th Cir. 1998). The
court noted the Bermudez decision all but closes the door on
the notion that an employee who observes workplace hostility but is not a member of the class of persons to whom the
harassment was directed may bring a derivative claim for the
harassment. Walker, 408 F.3d at 331. The court noted the claim
was “all but” closed because it concluded in the Bermudez
decision that it need not come to rest on the subject because
there was lack of proof the harassment poisoned the working
atmosphere for the plaintiff. Id.
The appellate court also disposed of Walker’s claim because of a lack of proof that his work atmosphere was toxic. It
In Waite v. Board of Trustees of Illinois Community College District No. 508, 408 F.3d 339 (7th Cir. 2005), Paulette
Waite, a Jamaican woman, was hired by City Colleges as
a coordinator of six child development centers run by City
Colleges. As a coordinator, Waite was responsible to secure
funding for the centers by obtaining grants.
In May 2001, Waite received a contract renewal package
from the Illinois Department of Human Services (IDHS)
relating to grants for fiscal year 2002. Waite obtained an
extension to file the package when she realized she would
not get approval from the City Colleges Board of Trustees
in time to submit the package by its due date. Waite finally
obtained approval from the Board of Trustees in August 2002.
However, Waite left for a vacation without finishing the grant
(Continued on next page)
21
IDC Quarterly
Employment Law Issues (Continued)
application and instead asked an administrative assistant to
submit the documents.
While Waite was on vacation, the IDHS contacted City
Colleges to determine whether it would be submitting the
contract renewal package and informed it that its funding was
in jeopardy if the package was not returned soon. The City
Colleges did not lose any funding. Nonetheless, when Waite
returned from vacation, she was given a letter explaining she
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
and failing to complete several assigned tasks.
Waite asserted her suspension was the result of discrimination on the basis of her national origin. Waite claimed the vice
chancellor of student affairs, an African-American woman,
stated in a meeting that took place one month before her suspension that Waite displayed a “plantation mentality.” Waite,
408 F.3d at 342. Waite believed the remark was a reference
to her national origin because stereotypically “Jamaicans in
particular and Caribbean folks in general thought they were
white and treated African-Americans like slaves.” Id. Waite
also noted that her replacement, an African-American woman,
was unable to submit the fiscal year 2003 contract renewal
application to the IDHS until October 2002, but that she was
not disciplined for the late submission.
The district court granted City Colleges’ motion for summary 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
strength of her prima facie case in determining whether there
was sufficient evidence to support the jury’s findings that
Waite was discriminated against because she was Jamaican.
The court found Waite demonstrated she: (1) was a member of
a protected class; (2) was meeting her employer’s legitimate
job expectations; (3) suffered an adverse employment action;
and (4) her employer treated similarly situated employees
outside her class more favorably. Id. at 343.
The court noted Waite provided evidence that tended to
show the reasons her replacement was treated differently
were questionable, which entitled a jury to reject testimony
by the vice chancellor to the contrary. The court further found
that the vice chancellor’s credibility problems allowed the
jury to find that the vice chancellor’s reasons for suspending
Waite were pretextual, since the vice chancellor claimed she
suspended Waite because of the possible loss of IDHS funds
22
but later admitted she did not believe the City Colleges would
lose such funding.
The court also noted that while the “plantation mentality”
statement was the only evidence in the record that pointed
to discriminatory intent, it was sufficient evidence since the
vice chancellor did nothing to refute Waite’s analysis of what
she believed the statement meant. The court further noted
that the vice chancellor testified she recommended Waite be
disciplined because she was outraged Waite would leave work
“Waite asserted her suspension
was the result of discrimination on the basis of her national
origin. Waite claimed the vice
chancellor of student affairs,
an African-American woman,
stated in a meeting that took
place one month before her suspension that Waite displayed a
‘plantation mentality.’ ”
for her to finalize. Thus, the jury could reasonably infer that
the vice chancellor felt Waite was treating her like a slave
and displaying the “plantation mentality” she accused Waite
of exhibiting. Therefore, the jury could infer the “plantation
mentality” remark was evidence of discriminatory animus.
Id. at 344-45.
With respect to Waite’s claims relating to her termination,
the appellate court determined Waite failed to prove a genuine factual issue existed on the question of pretext. The City
Colleges maintained Waite was terminated because she was
unresponsive to her supervisor and failed to perform assigned
tasks. The court noted Waite could provide no reasonable
explanation for her refusal to follow the directives of her
supervisor and therefore there was insufficient evidence to
convince a reasonable jury that Waite’s insubordination was
not the true basis for her termination. Id. at 345.
Third Quarter 2005
Sex Discrimination
& Hostile Work Environment
Plaintiff Failed to Establish Prima Facie Case
of Sex Discrimination/Hostile Environment
In Moser v. Indiana Dept. of Corrections, 406 F.3d 895
(7th Cir. 2005), Rhonda Moser worked as an administrative assistant for the Department of Corrections (DOC) at
Camp Summit Boot Camp. Moser also had additional duties
as Camp Summit’s affirmative action coordinator. In 2000,
Moser investigated a complaint of sexual harassment made
by Gloria Thode against Daniel Ronay, a correctional officer.
Moser found the claim unsubstantiated. However, in April
2001, Moser complained to her supervisor that Ronay was
sexually harassing her. After Moser confronted Ronay about
the harassment the harassing behavior stopped.
In August 2001, the chief investigator for the DOC’s Office
of Internal Affairs began to investigate Thode’s claim against
Ronay. As part of the investigation, Moser was questioned
about her investigation of the claim and her own complaints
against Ronay. Moser’s own claim of sexual harassment was
referred to Jayne Brown, a regional affirmative action coordinator, for investigation.
Brown found Moser’s allegations against Ronay were well
founded. However, Brown recommended Moser be relieved
from her duties as the affirmative action coordinator at Camp
Summit based on information that Moser had not always behaved in a professional manner. Brown noted Moser admitted
to using foul language in the office, was aware of sexually
suggestive gifts being brought to the workplace, had invited
a fellow employee to drink hard liquor with her after work
hours and had contacted an employee’s personal physician to
suggest the employee be medicated. As a result of Brown’s
recommendation, Moser was removed as affirmative action
coordinator and transferred to a new DOC camp.
Moser subsequently brought suit alleging she was disciplined unfairly because of her sex. Moser also claimed she
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-
ployer’s legitimate expectations; (3) she suffered an adverse
employment action; and (4) similarly situated individuals
not in her protected class received more favorable treatment.
Stockett v. Muncie Indiana Transit Sys., 221 F.3d 997, 1000
(7th Cir. 2000). The appellate court agreed with the district
court’s determination that Moser was unable to establish she
was meeting the DOC’s legitimate expectations. Moser, 406
F.3d at 901.
While the appellate court noted Moser had a laudable 20year performance record with the DOC before her removal,
the court pointed out Moser’s performance at the time of the
employment action was the critical time period for its inquiry.
Id. at 901. In analyzing the relevant time period, the court
rejected Moser’s characterizations of the incidents alleged
against her as baseless and absurdly minor. The court found
that a rational fact finder could not conclude Moser was meeting her employer’s legitimate expectations when engaging in
such questionable workplace behavior. Id.
As to Moser’s hostile work environment claim, the court
noted to establish a prima facie case of hostile environment
sexual harassment a plaintiff must show that: (1) she was
subjected to unwelcome sexual harassment; (2) the harassment was based on her sex; (3) the harassment unreasonably
interfered with her work performance by creating an intimidating, hostile or offensive working environment that seriously
affected her psychological well-being; and (4) there is a basis
for employer liability. Hall v. Bodine Elec. Co., 276 F.3d 345,
354-55 (7th Cir. 2002).
The appellate court determined Moser could not establish
Ronay’s harassment unreasonably interfered with her work.
Although Ronay regularly made inappropriate comments
about female anatomy and used foul language, the court found
that a reasonable person likely would not have found the environment at Camp Summit to be hostile within the meaning
of Title VII because Ronay’s comments were merely headless
jokes and not serious or threatening comments. Moser, 406
F.3d at 903.
23
IDC Quarterly
Case Note
By: Robert T. Park
Snyder, Park & Nelson, P.C.
Rock Island
Directed Verdict Affirmed in
Pedestrian-Vehicle Accident
The Illinois Supreme Court set a high standard for directed
verdicts in Pedrick v. Peoria & Eastern Railroad Co., 37 Ill.
2d 494, 229 N.E.2d 504 (1967). Verdicts should be directed
only when all the evidence, viewed in the light most favorable
to the nonmoving party, so favors the movant that no contrary
verdict could ever stand.
Trial courts honor this principle by refusing to direct a
verdict even where the evidence is clearly one-sided. Occasionally, a brave judge will grant a DV and be rewarded by
appellate court affirmation. The following is such a case.
Robert Heinbockel, the plaintiff, was a fleet service clerk for
American Airlines, working at O’Hare Airport. In his job, he
had to traverse an access route, known as a “depressed roadway,” used by both pedestrians and vehicles. The depressed
roadway had two lanes, one for each direction of traffic,
separated by a center dividing line.
On October 4, 1999, the plaintiff was crossing the depressed roadway at an unmarked crosswalk protected by stop
signs when he stopped to speak with a coworker driving a
baggage cart. As he stood on the stopped cart’s side of 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
proper lookout, attached defective articles to her vehicle, and
failed to properly attach articles to her vehicle. The plaintiff
also charged American Eagle with failure to properly train
and supervise Ms. Dawkins in the safe use of the vehicle.
The employee with whom the plaintiff had been speaking
testified that the American Eagle cart pulled wheeled plat-
24
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
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
did not notice anything wrong with the dollies or pods before
the accident. She did not know that her vehicle or anything
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
aid the jury in deciding the case. Although he had driven carts
for over 19 years, the steward was not an expert because he
had no special training or experience regarding the operation
of vehicles, the dollies they pulled or the pods they carried.
He was also not allowed to testify as a lay witness about his
driving habits since such testimony would not be probative
as to whether the defendant had driven properly.
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 pod broke
free in sufficient time for her to have changed her driving to
avoid striking the plaintiff.
In an opinion by Justice McNulty, the First District Appellate Court affirmed. It first determined that the trial court
did not abuse its discretion in finding that the union safety
steward’s credentials did not qualify him as an expert, and that
testimony about his driving habits was irrelevant to establishing a standard of care for cart drivers generally.
The appellate court also found that the plaintiff failed to
meet his burden of proving a breach of a duty of care. Specifically, he failed to show that Ms. Dawkins drove unsafely or
had any reason to know that the pod would become dislodged.
Without demonstrating that her failure to avoid striking the
About the Author
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
University of Illinois. For 30 years, he has practiced law
in Rock Island, concentrating in defense of civil cases.
Mr. Park is a member of DRI, ISBA and IDC, serving
since 1993 as an IDC Director. He is the most recent past
Editor-In-Chief of the IDC Quarterly.
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
pod broke free in sufficient time for
her to have changed her driving to
avoid striking the plaintiff.”
Justice Tully dissented. In his view, the jury should have
been allowed to decide whether the defendant driver could
have perceived a danger to the plaintiff and could have taken
reasonable steps to avoid striking him. There was no evidence
that the plaintiff was at fault, nor that Ms. Dawkins could not
see him. Further, she admitted that she had no training in the
inspection of the pods loaded on her dollies, and that she did
not inspect the dollies or pods before the accident.
There was evidence that she may have driven over a bump
as she passed the plaintiff, as well as conflicting evidence
about the speed she was driving and the speed limit for the
depressed road. If the plaintiff could not identify a specific
violation that caused the accident, he should have been allowed to rely on the doctrine of res ipsa loquitur, according
to Justice Tully.
The case is Mulloy, Administrator of Heinbockel v. American Eagle Airlines, Inc., 2005 WL 1422228 (Ill. App. 1st Dist.
June 17, 2005). IDC members, Robert Marc Chemers and
Daniel G. Wills of Pretzel & Stouffer, Chartered, in Chicago,
represented the defense.
(Thanks to Chris Ruys of Chris Ruys Communications Chicago, for
the photo and assistance)
Judge James M. Wexstten (left), president of the
Illinois Judges Association (IJA), and Stephen J.
Heine (right), of Peoria, a partner in the law firm of
Heyl Royster Voelker & Allen and Immediate PastPresident of the IDC greet judicial intern Dwayne
Simpson during a reception for new interns and
judges held recently at the Sangamo Club in Springfield. In addition to the IDC, other program sponsors
are the Illinois State Bar Association, the Illinois Bar
Foundation, and the Illinois Trial Lawyers Association.
Nearly 20 Illinois judges statewide are new participants in the American Bar Association’s Judicial
Intern Opportunity Program as the result of an effort
spearheaded by Judge Wexstten.
The program, which was launched five years ago
by the American Bar Association, places minority and
financially-disadvantaged law students in full-time,
six-week internships during the summer. The goal is
to foster a judiciary that reflects the society it serves
in order to ensure fairness and access to justice.
Greg Cochran attended the Chicago reception for
the Judicial Intern program as the IDC representative.
Judge Jesse Reyes spoke on behalf of the Illinois
Judges Association. He thanked a short list of organizations for their support, including IDC.
25
IDC Quarterly
Legal Ethics
By: Michael J. Progar
Doherty & Progar, LLC
Chicago
Common Interest Doctrine
May Bar Application of Attorney-Client
Privilege in Subsequent Dispute
Between Insurer and Insured
Rule 1.6 of the Illinois Rules of Professional Conduct provides, with limited exceptions, that “a lawyer shall not, during
or after termination of the professional relationship with the
client, use or reveal a confidence or secret of the client known
to the lawyer unless the client consents after disclosure.” The
term “confidence” is defined by the Rules as information that
is protected by the attorney-client privilege. The term “secret”
is defined more broadly, and includes information gained by
the lawyer during the professional relationship that the client
has requested be held inviolate, or the revelation of which
would be embarrassing to or would likely be detrimental to
the client.
The attorney-client privilege is limited to those communications 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
may waive the privilege. Accordingly, the attorney must be
vigilant to guard against situations in which the attorney-client
privilege may not apply, and advise the client accordingly.
One instance in which the element of confidentiality may
be lacking is where the attorney provides joint or simultaneous
representation for two different parties who have a common
interest. That situation has been referred to as the “common
interest doctrine.” Communications made by either party to
the attorney during the course of that representation are not
necessarily privileged in the event of a subsequent controversy
between the two parties.
26
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.
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 production of defense counsel’s files in the underlying lawsuits. Defense counsel refused to produce certain documents, claiming
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
against the insureds by third parties, for personal injury and
property damage allegedly caused by migration of toxic
wastes from the insureds’ property. The insureds retained
counsel, defended and settled the underlying lawsuit. They
then sought indemnification for defense and settlement costs
from the insurers in a declaratory judgment action when the
insurers denied coverage.
Addressing the attorney-client privilege issue, the supreme
court held that under the cooperation clause of the applicable
insurance policy, as well as the policy as a whole, any expectation of attorney-client privilege on the part of the insureds
was unreasonable. The court also concluded that under the
common interest doctrine, the attorney-client privilege was
not available to the insureds. Despite the fact that the insurance companies and the insureds were then in an adversarial
relationship, they initially had a common interest in defending
or settling the claims against the insureds in the underlying
lawsuit. Therefore, the attorney-client privilege had no ap-
About the Author
Michael J. Progar is a partner with the firm of Doherty & Progar, LLC. He
practices in both the Indiana and Illinois offices. A trial attorney with more
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
include complex product liability and toxic tort litigation, insurance coverage,
fraud and bad faith litigation, construction litigation, premises liability and
employers’ liability. He received his J.D. from DePaul University College of
Law in 1981 and his B.A. in American Studies from the University of Notre
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,
Indiana Bar Association. He has served on various bar association committees
in the areas of tort and insurance litigation and alternative dispute resolution.
Third Quarter 2005
plication in the subsequent declaratory judgment action.
Relying on the Illinois Supreme Court’s holding in Waste
Management, the Appellate Court of Illinois, Fourth District,
recently held that, under the common interest doctrine, the
attorney-client privilege did not protect communications
between insurance company representatives and an attorney
retained to represent the company with regard to its obligations to its insured under an automobile liability policy in a
declaratory judgment action. Western States Insurance Co.
v. O’Hara, ___ Ill. App. 3d ___, 828 N.E.2d 842 (4th Dist.
2005). The case was decided on May 10, 2005, and the court’s
opinion has not yet been released for publication.
While Waste Management held that an insured could not
claim the attorney-client privilege in a subsequent dispute
with the liability insurer, the appellate court, in Western States,
considered the opposite side of the coin, i.e. whether the insurance company could claim the attorney-client privilege in a
declaratory judgment action against the insured.
Western States arose out of an automobile accident involving multiple, seriously injured claimants. The insurance company immediately retained a law firm to represent it regarding
its obligations to its insureds following the accident. That
firm provided no legal advice or representation to the insured
driver. The company also retained counsel to represent the
insured driver in criminal proceedings following the accident.
The insurance company ultimately settled two property
damage claims, as well as the most serious personal injury
claim, thereby exhausting its policy limit. The remaining
claimants filed suit against the insured driver, and the company
retained counsel to defend the driver under a reservation of
rights. At the same time, it filed a declaratory judgment action,
contending that it had no obligation to defend or indemnify
the insured driver in the underlying lawsuit because it had
exhausted its policy limit.
In response to the insureds’ discovery requests in the declaratory judgment action, the insurance company refused to
produce certain documents relating to its consideration of the
underlying claims, claiming that they were protected by the
attorney-client privilege. After an in camera examination of
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,
that law firm apparently also had some input about whether
to settle or defend the underlying claims.
The court concluded that the insured and the insurance
company need not be privy to or in direct communication
with the attorney in order for the attorney to be acting in the
interests of both. The insured and the insurance company both
had a common interest in defending or settling the underlying
claims. The court seemed particularly troubled by the fact that
the insurance company did not retain counsel to represent the
insured driver while considering settlement of the underlying
claims, although it retained counsel to protect its own interests
What does this mean for an attorney retained by an insurance company? To avoid a potential waiver of the attorneyclient privilege, it is important for the attorney to define the
scope of representation. Is the attorney being retained to
represent the interests of the insurance company, the insured,
or both?
There is a dearth of case law in Illinois addressing the
common interest doctrine in the context of disputes between
an insurance company and the insured. However, an obvious
lesson to be drawn from Waste Management and Western
States is that an attorney retained to advise the insurance
company on coverage issues must undertake no involvement
in the underlying claims, or risk inadvertently waiving the
attorney-client privilege. This is particularly so where the
insurance company has not yet retained defense counsel to
represent the insured’s interests.
It is unclear whether, under Western States, the appellate
court would have declined to apply the common interest doctrine if the law firm initially retained by the insurance company
would have carefully defined the scope of its representation, or
if the insurance company had simultaneously retained defense
counsel to represent the insured’s interests. However, in view
of this opinion, in any case where coverage is or may become
an issue, an attorney retained by an insurance company, as
well as an attorney retained as defense counsel for the insured,
should carefully define the scope of their representation, and
advise their clients of the potential application of the common
interest exception to the attorney-client privilege.
27
IDC Quarterly
Featured Article
Cargill Challenges
to Plaintiff’s Complaint
in Medical
Malpractice Actions:
A Primer for the Defense
Attorney
By: Douglas J. Pomatto
and Jill Rogers-Manning
Heyl, Royster, Voelker & Allen
Rockford
No case in recent months has generated more legal activity by medical malpractice attorneys, plaintiff and defense
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
creative arguments opposing the applicability and/or effect
of the ruling. What follows is an attempt to outline rapidly
changing developments in this area of the law and to provide
the medical malpractice defense attorney with tools to support
a Cargill motion to dismiss.
Introduction
On November 12, 2004, in Cargill v. Czelatdko, the Fourth
District Appellate Court ruled that the Legislature’s 1998
amendments to Section 2-622 of the Illinois Code of Civil
Procedure, otherwise known as P.A. 90-579, resurrected the
amendments to that section that had previously been found
unconstitutional on the basis that the Section 2-622 provisions
were nonseverable from other code changes and therefore
held unconstitutional by the Illinois Supreme Court in Best v.
Taylor Machine Works, 179 Ill. 2d 367, 471 (1997). With P.A.
90-579, Section 2-622 of the Code of Civil Procedure continued to prescribe specific procedures that had to be adhered
to by plaintiffs when filing a complaint alleging healing art
28
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
for that determination. Additionally, in what appeared to be
clear language in the 1998 amendment, Section 2-622 required
that “the report shall include the name and address of the
health professional.” 735 ILCS 5/2-622(a)(1) (West 2005).
(Emphasis added.) Cargill confirmed that Section 2-622, as
passed in P.A. 90-579, meant what it said and upheld these
requirements.
The impact of the Cargill ruling is significant to healing art
malpractice plaintiffs because many plaintiff attorneys have
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 Section 2-622, particularly the provision requiring the disclosure
of the name and address of the reviewing health professional.
The Fourth District Appellate Court in Cargill was not
the first appellate court to comment on this issue. In 2002,
the Second District Appellate Court, in Giegoldt v. Condell
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
address. And now, subsequent to the holding in Cargill, the
Fourth District Appellate Court has upheld a trial court’s dis-
About the Authors
Douglas J. Pomatto is a partner in the Rockford office of
Heyl, Royster, Voelker & Allen. He has spent his entire legal
career with Heyl Royster, beginning in 1977 in the Peoria
office. He became a partner in 1984 and was responsible for
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
and self-insured clients, especially in complex cases in the areas of medical
malpractice, products, and professional liability. Mr. Pomatto is a past President of the IDC. He is also a member of DRI, the International Association of
Defense Counsel and the Society of Trial Lawyers.
Jill Rogers-Manning is with the Rockford office of Heyl,
Royster, Voelker & Allen, where she concentrates her
practice in the defense of medical malpractice litigation,
particularly the defense of physicians. She is registered to
practice before the United States Patent and Trademark
Office and is a member of the Illinois State, Michigan
State and American Bar Associations, Michigan Intellectual
Property Association and American Intellectual Property
Law Association.­­She received her B.S. in Chemistry and
Biology­ from Rockford College in 1993 and her J.D.. from Northern Illinois
University in 1999­.
Third Quarter 2005
missal with prejudice for a plaintiff’s failure to comply with
Section 2-622, citing, among other things, that the plaintiff’s
2-622 affidavit failed to contain “the name and address of the
health professional as required by Section 2-622(a)(1) of the
Procedure Code.” Cothren v. Thompson, 356 Ill. App. 3d 279
(4th Dist. 2005).
Further, the First District has recently indicated in dicta,
that Section 2-622 requires the disclosure of the name and
address of the consulting physician. In Beauchamp v. Zimmerman, the First District overturned the lower court’s grant
of a Section 2-1401 petition, in part, because the Plaintiff
failed to comply with the requirements of Section 2-622
by failing to file a physician’s certificate of merit when he
refiled his case after a voluntary dismissal. This was despite previously filing an unsigned certificate of merit in his
initial action, explaining, “because the report failed to include
the name and address of the consulting physician, plaintiff’s
affidavit and report were insufficient to satisfy Section 2-622.”
735 ILCS 5/2-622(a)(1) (West 2002) (The report shall include
the name and address of the health professional.) Beauchamp
v. Zimmerman, 2005 WL 1552845 (Ill. App. 1st Dist, June 30,
2005). (Opinion published, but not yet officially released).
In addition, just prior to the press date of this article, one
trial court judge in Winnebago County ruled that the disclosure
requirements of Section 2-622 conflict with Supreme Court
Rule 201. Further, there has been a motion to reconsider filed
at the trial court level in the original Cargill action, following the dismissal with prejudice granted in that case, arguing
that the legislation recently passed by both houses to amend
Section 2-622 (SB 475, discussed below) is evidence of the
legislature’s intent.
Both prior to and after Cargill, plaintiff attorneys have
argued that the legislative history of P.A. 90-579 fails to
document the legislative intent of the General Assembly to
resurrect the language struck down by Best, and thus the
language was never resurrected. Other arguments submitted against finding that P.A. 90-579 resurrected the pre-Best
language include: (1) challenges to the constitutionality of
Section 2-622; (2) the decision of Cargill is obiter dictum;
(3) the Legislature, in passing P.A. 90-579, failed to follow its
own rules; (4) proposed legislation should be given weight;
(5) the “health professional” is a Supreme Court Rule 201
“consultant” (a colorful variation of the separation of powers constitutional challenge); and (6) any relief sought by
the defendant under Section 2-622 for plaintiff’s failure to
comply should be less than an actual dismissal. Each of these
arguments is discussed more fully below.
The Cargill opinion created a multitude of motion filings
in the trial courts by defense attorneys seeking dismissal for
a plaintiff’s failure to comply with the name and address
disclosure requirement of Section 2-622. In many jurisdictions, the term “Cargill motion” has become a term of art. In
Cook County on April 21, 2005, Presiding Judge William D.
Maddux entered an order consolidating the pending “Cargill
motions,” challenging the sufficiency of 2-622 reports on the
grounds that the name and address of the health care professionals were missing. Additionally, all Cargill motions filed in
Cook County are subject to special procedures to streamline
the process, promote judicial economy, and create a system
of consistent rulings in Cook County as of the preparation of
this article. Given the statutory construction of Section 2-622
used by the First District in Beauchamp, discussed above, it
would seem to follow that the Cook County cases will adopt
the same construction as Cargill and Beauchamp. Unlike
Cook County, trial courts in northern Illinois have already had
fully briefed and have ruled on the Cargill motions, granting
those motions, and dismissing plaintiffs’ complaints but only
“without prejudice” and usually allowing additional time (up
to 90 days) to file an amended complaint and to make the
necessary 2-622(a)(1) health professional disclosure.
Historical Background
Section 2-622 of the Illinois Code of Civil Procedure was
originally enacted on August 15, 1985. It was amended in
1995 as part of the Civil Justice Reform Amendments of 1995
pursuant to the enactment of P.A. 89-7. In pertinent part, P.A.
89-7 amended Section 2-622 to require the disclosure of the
name and address of the health professional and to require
the attorney filing the affidavit certify that he “has not previously voluntarily dismissed an action based on the same or
substantially the same acts, omissions, or occurrences.”
In 1997, certain core provisions of the Civil Justice Reform
Act of 1995 were declared unconstitutional by the supreme
court in Best v. Taylor Machine Works, 179 Ill. 2d 367, 471
(1997). The provisions amending Section 2-622 were not
considered by the court in Best but were declared void solely
on the grounds of severability, not on their merits. As such,
the General Assembly is free to reenact whatever provisions
it deems desirable or appropriate.” Best, 179 Ill. 2d at 471.
The General Assembly once again amended Section
2-622 in February 1998 by utilizing the pre-Best version of
Section 2-622 (i.e., including language struck down by Best)
and adding the words “or naprapath” to Section 2-622(a)(1)
when it passed P.A. 90-579. Governor George Ryan signed
P.A. 90-579 into law in May 1998. The plain language of
Section 2-622, pursuant to the amendments of P.A. 90-579,
required the disclosure of the name and address of the health
(Continued on next page)
29
IDC Quarterly
Cargill (Continued)
professional as well as the certification that the action has not
been previously voluntarily dismissed.
After 90-579 initially passed, motions to dismiss were
filed by defense counsel where the plaintiff failed to identify the name and address of the 2-622 health professional.
For some unknown reason, and despite the clear language of
Section 2-622(a)(1), these motions were met with a lukewarm
response from many judges. Many trial courts would simply
not dismiss a plaintiff’s complaint for lack of a 2-622(a)(1)
disclosure, apparently buying into the various arguments
made by plaintiffs’ counsel, not the least of which was the
claim that the Legislature did not really mean to do what it
did. Plaintiffs argued that all the trial courts had to do was
review the legislative history of the passage of P.A. 90-579,
and they would see that there was no discussion about resurrecting pre-Best 2-622 language.
As a result, in many jurisdictions, without any ruling at
the appellate level that supported the disclosure provision
of 2-622(a)(1), and in the face of numerous unfavorable
rulings denying defense counsels’ motions to dismiss on the
2-622 basis, these challenges to the lack of disclosure of the
name and address of the plaintiff’s health care consultant,
fell out of favor.
Cargill v. Czelatdko
Finally, the statutory construction of Section 2-622, and
particularly, the issue of whether P.A. 90-579 resurrected
the pre-Best language, was evaluated by the Fourth District
Appellate Court in November 2004 in Cargill v. Czelatdko,
353 Ill. App. 3d 654 (4th Dist. 2004). In Cargill, the plaintiff
originally filed a healing art malpractice action with an affidavit stating that counsel was unable to obtain the requisite
health professional report as allowed by Section 2-622 prior
to the expiration of the statute of limitations. Based on the affidavit, the plaintiff was granted a 90-day extension to procure
the health professional’s report. The plaintiff then voluntarily
dismissed his case prior to filing any health professional report
as required by Section 2-622.
One year later, the plaintiff refiled his action for healing
art malpractice without any health professional’s report as
required by Section 2-622, but his attorney did file an affidavit
stating that he was unable to procure the health professional
report required by Section 2-622. The defendants filed motions
to dismiss based on a failure to comply with the language of
Section 2-622 as amended by P.A. 90-579, which does not
allow a plaintiff to file an original action without a physician’s
certificate of merit, followed by a voluntary dismissal and
subsequent refiling without a certificate.
30
The trial court in Cargill denied the defendants’ motions
to dismiss but granted the defendants’ motion to certify three
questions for review pursuant to Supreme Court Rule 308(a).
The questions certified were:
1. Did P.A. 90-579 resurrect the amendments to [S]ection 2-622 of the Code of Civil Procedure (inserted
by P.A. 89-7) which had been found unconstitutional
by the Illinois Supreme Court’s decision in Best v.
Taylor Machine Works, 179 Ill. 2d 367 [228 Ill. Dec.
636, 689 N.E.2d 1057 (1997)]?
2. If the response to the first question listed above is in
the affirmative, then in a refiled healing art malpractice case, does the [c]ircuit [c]ourt have discretion
pursuant to [S]ection 2-622(a)(2) to “waive” the
requirement found at 735 ILCS 5/2-622(a)(2) that
a plaintiff’s attorney certify that he “has not previously voluntarily dismissed an action based upon
the same or substantially the same acts, omissions,
or occurrences?”
3. Assuming an answer in the affirmative to question
[N]o. 1 above, and assuming that the [c]ircuit [c]ourt
does not have discretion to waive this certification
requirement mandated by [S]ection 2-622(a)(2),
does the [p]laintiff’s attorney’s failure to provide
the certification mandate dismissal of an action with
prejudice under [S]ection 2-622(g)? Cargill, 353 Ill.
App. 3d at 655.
On appeal, the appellate court answered the first and third
questions in the affirmative and answered “no” to the second
question.
In answering the first question and determining whether
Section 2-622, as enacted by P.A. 90-579, resurrected the
amendments inserted by P.A. 89-7, the Fourth District made
several presumptions based on prior supreme court rulings.
First, the court presumed that the General Assembly knew
about the Best ruling when it passed P.A. 90-579: “[W]here
statutes are enacted after judicial opinions are published, it
must be presumed that the legislature acted with knowledge
of the prevailing case law.” People v. Hickman, 163 Ill. 2d
250, 262 (1994). This presumption is particularly significant
because the provisions of 2-622 were not found to be independently unconstitutional in Best but were only held infirm
on the basis of their nonseverability from the other core
provisions that were held unconstitutional. The Cargill court
found that the supreme court in Best explicitly emphasized
that the General Assembly could reenact any of the provisions
Third Quarter 2005
it deemed appropriate. Cargill, 353 Ill. App. 3d at 659, citing
Best, 179 Ill. 2d at 471.
Next, the Cargill court presumed that the Legislature was
aware of the “construction previously placed upon such law
and by its reenactment to have intended that it should have the
same effect.” Cargill, 353 Ill. App. 3d at 659, citing Svenson
v. Hanson, 289 Ill. 242, 248 (1919). Finally, the Cargill court
presumed that the statute was constitutional as passed, citing
“The Cargill court promptly
distinguished Reedy based on
differences in the chronology of
the legislative events and court
opinions, as compared to the
amendments to Section 2-622 and
their relation in time to the Best
decision.”
Finally, the Cargill court considered the plaintiff’s argument that P.A. 90-579 could not have reenacted the language
struck down by Best because the pre-Best language had not
been italicized, and such construction would violate Section
5 of the Statute on Statutes, which states:
In construing an amendatory Act printed in any volume
of the session laws published after January 1, 1969, matter 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
law by the amendatory Act. 5 ILCS 70/5. (West 2005).
The Cargill Court considered this argument and disposed
of it by determining that “[S]ection 5 does not require italics
for new matters to be valid.” Cargill, 353 Ill. App. 3d at 660.
The purpose of Section 5 is to clarify the procedures of the
legislature, i.e., “when italics are used, such items shall be
construed as adding new matter by the amendatory act.” 353
Ill. App. 3d at 661. In other words, when items are italicized,
they are to be construed as new matter, but failure to italicize
is not fatal to a legislative act adding new matter, or reenacting
old matter. Therefore, the failure of the legislature to italicize
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
People v. Wright, 194 Ill. 2d 1, 24 (2000). Cargill, 353 Ill.
App. 3d at 660.
The Cargill court considered the relevance of People v.
Reedy, 186 Ill. 2d 1 (1999), which was cited by the plaintiff
for the proposition that curative language or evidence that the
amendment was intended was necessary to cure or validate
defective legislation. The Cargill court promptly distinguished
Reedy based on differences in the chronology of the legislative
events and court opinions, as compared to the amendments to
Section 2-622 and their relation in time to the Best decision.
The Cargill court further distinguished Reedy based upon the
supreme court’s explicit invitation to the Legislature in Best
to reenact provisions from P.A. 89-7 and the fact that the Section 2-622 language at issue was never held unconstitutional
in Best. Cargill, 353 Ill. App. 3d at 660.
Conversely, the Cargill court agreed with the Second
District’s holding in Giegoldt v. Condell Medical Center, particularly the implicit recognition that P.A. 90-579 resurrected
the portions of Section 2-622 struck down by Best. Cargill,
353 Ill. App. 3d at 660.
Despite the clear and unambiguous ruling in Cargill, as
well as the precedent of stare decisis, resistance by plaintiffs’ counsel continues against the disclosure requirement
of Section 2-622(a)(1). With the Cargill decision in hand,
defense counsel representing physicians, hospitals, and other
healing art malpractice defendants have again taken up filing
of challenges to plaintiff’s 2-622 health professional’s report
by way of a motion to dismiss based upon Section 2-619 of
the Illinois Code of Civil Procedure. In turn, plaintiffs have
filed multifaceted responses to Cargill motions reiterating
the positions originally argued and disposed of in Cargill
and also presenting new arguments, including challenges
to the constitutionality of Section 2-622. What appear to be
“canned” responses (i.e., virtually identical response briefs
which propound the same or similar arguments) by plaintiff
attorneys are being utilized throughout many jurisdictions in
Illinois to attack the Cargill holding. One of defendants’ main arguments in support of the result in Cargill is that the clear and unambiguous language of
Section 2-622 eliminates the need to examine the legislative
history. Plaintiffs have been citing the lack of supporting
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31
IDC Quarterly
Cargill (Continued)
legislative history in the form of legislative debates as a basis
for defying the precedent of Cargill. This argument must fail
because the language of Section 2-622 is clear and unambiguous. The supreme court has clearly set forth the guidelines for
statutory construction. The supreme court, in discussing the
objective and procedure for statutory construction, stated:
Our primary objective in construing Section 1(D)(m)
is to give effect to the intent of the legislature. The
most reliable indicator of the legislature’s intent is the
language of the statute, which must be given its plain
and ordinary meaning. Where the language is clear and
unambiguous, it will be given effect without resort to
other aids of construction. (Citations omitted.) In re D.F.,
et al., Minors (People of the State of Illinois v. Lashawn
F.), 208 Ill. 2d 223, 229 (2003).
The supreme court elaborated on how legislative intent is
to be determined in Benjamin v. Cable Programming Investments, 114 Ill. 2d 150, 157 (1986), stating:
In determining legislative intent, consideration must be
given to the entire statute, its nature, object, and purpose
to be attained, and the evil to be remedied. However,
if the intent of the legislature can be ascertained from
the language of the statute itself, then that intent will
prevail without resort to extrinsic aids for construction.
(Citations omitted.) (Emphasis added.)
Further, “[w]here the language of a statute is plain and
unambiguous, a court need not consider its legislative history.” Envirite Corp. v. Illinois E.P.A., 158 Ill. 2d 210 (1994)
(Emphasis added.). “[A] court should not attempt to read a
statute other than in the manner in which it was written. In
applying plain and unambiguous language, it is not necessary
for a court to search for any subtle or not readily apparent
intention of the legislature.” Envirite, 158 Ill. 2d at 217. Thus,
the Cargill court properly followed the procedure set forth for
statutory construction by first examining the plain language of
the statute, and then and upon finding it to be unambiguous,
by ending its inquiry.
Aside from the Legislative history argument, plaintiffs have
set forth numerous additional arguments in their responses
to defendants’ motions to dismiss pursuant to Section 2-622.
The following are some of the defense responses to these
arguments.
1. Section 2-622 is Constitutional
32
Attacks on the constitutionality of Section 2-622 include
allegations that the section violates due process, equal protection, and special legislation violations of the Constitution.
The supreme court has consistently determined that the 2-622
requirements are rationally related to the legitimate purpose
of eliminating frivolous medical malpractice claims at the
pleading stage and thus do not violate due process or equal
protection. McAlister v. Schick, 147 Ill. 2d 84 (1992); see
also DeLuna v. St. Elizabeth’s Hospital, 147 Ill. 2d 57 (1992)
(2-622 does not burden any fundamental right and does not
implicate any suspect or quasi-suspect classification and
survives the rational relationship test for due process, equal
protection, and special legislation).
Special attention is given to the constitutional attack based
on separation of powers despite the Illinois Supreme Court’s
previous determination that the requirement of providing a
health professional’s report does not violate the separation
of powers clause. See, McAlister v. Schick, 147 Ill. 2d 84,
(1992); see also, DeLuna v. St. Elizabeth’s Hospital, 147 Ill.
2d 57 (1992). To wit, in DeLuna, the court stated:
[W]e do not consider that a health care professional
performing the functions specified by Section 2-622
is exercising a judicial function. Here, the health
professional who must be consulted under Section
2-622 does not exercise a judicial power. Rather, the
health professional simply certifies that in his opinion
the action has reasonable merit. Expression of that opinion does not become a judicial power simply because
the failure to comply with the statute by submitting
the certification of the health professional may result
in dismissal of the action. DeLuna, 147 Ill. 2d at 69.
The court in DeLuna found that the legislative enactment
of Section 2-622 did not “encroach upon inherent judicial
powers or conflict with any of our rules.” Id. Based on the
foregoing, the additional requirement of disclosing the name
and address of the reviewing health professional is not sufficient to invoke a violation of separation of powers, as this
requirement does not encroach on the inherent judicial powers
and does not conflict with the court’s rules.
Based upon these rulings alone, a trial court should spend
little time with and should easily dispense with these constitutional challenges.
2.
The Language of Cargill is not Obiter Dictum
But Rather, Precedent
In addition, allegations abound that the resurrection of
the pre-Best language in Section 2-622, which requires the
Third Quarter 2005
disclosure of the health professional’s name and address, is
merely obiter dictum and is not binding on other courts. This
argument is disingenuous.
The Illinois Supreme Court, in Nudell v Forest Preserve
District of Cook County, 207 Ill. 2d 409 (2003), described that
there are two types of dictum: obiter dictum (“a remark or
opinion uttered by the way”) and judicial dictum (“an expression of opinion upon a point in a case argued by counsel and
deliberately passed upon by the court, though not essential
to the disposition of the cause”).
In Cargill, the ruling of the Fourth District on the issue of
“However, courts do not have the
authority to enforce the Illinois
Senate Rules, nor can they invalidate legislation because the Senate
did not follow its own rules.”
the proper statutory construction of Section 2-622 as amended
by P.A. 90-579 was essential to the disposition of the cause,
and thus was not dicta of either variety. The parties in Cargill
thoroughly briefed and argued the issue of the proper statutory construction. The Cargill court then determined that “[w]
hen the legislature passed Public Act 90-579, with the same
language as in Public Act 89-7, we find the General Assembly
intended it to have the same effect and was simply following
the supreme court’s pronouncement that desirable provisions
could be reenacted.” Cargill, 353 Ill. App. 3d at 660. Thus,
the Cargill court specifically found that P.A. 90-579 resurrected the amendments to Section 2-622 of the Illinois Code
of Civil Procedure (inserted by P.A. 89-7) that had been found
unconstitutional by the Illinois Supreme Court’s decision in
Best. Common sense requires that the holding in Cargill be
applied to all of the resurrected portions of Section 2-622,
and thus the ruling is not dicta.
3. The Court Cannot Invalidate Legislation Based
on the Legislature’s Failure to Follow its Own
Rules
Another argument cited by plaintiffs in opposition to the
statutory construction provided by the Cargill court is that the
Illinois Senate failed to follow its own rules of amendment
when preparing P.A. 90-579. Each of the houses of the legislature has technical rules that are supposed to be followed
for the amendment of statutes. For instance, Senate Rule
5-1(e) and House Rule 37(e) both require that amendments to
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
language of Section 2-622, and to underline the reenacted
portions of 2-622, is clear evidence of the legislative intent.
However, courts do not have the authority to enforce the
Illinois Senate Rules, nor can they invalidate legislation
because the Senate did not follow its own rules. A court has
“the authority to invalidate legislation only when it violates
a provision of the federal or state statute and ‘cannot handle
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. Yellow Cab Co., 87 Ill. App. 3d 569, 574 (1st Dist. 1980). While
Durjak dealt with the legislature’s failure to follow a different
internal rule (i.e., pertaining to the reading and printing of bills
as well as other, similar internal procedural rules), the First
District rejected the argument that the failure to follow those
internal rules could not render the legislation at issue (the
Income Tax Act) invalid or otherwise enforceable. Durjak,
144 Ill. App. 3d at 596. Similarly, the Legislature’s failure
to underline the reenacted portions of P.A. 90-579 or strike
any older provisions is insufficient grounds for invalidating
Section 2-622.
4. Proposed Legislation Not Yet Signed by the Governor does not Invalidate the Clear Language of
Section 2-622
One of the primary arguments presented in the “canned”
briefs by plaintiff’s counsel involves utilizing the text of proposed legislation seeking to amend Section 2-622. Examples
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)
30, 2005, but which, at the time of this writing, had not been
signed by Governor Rod R. Blagojevich.
As discussed above, there are rules in the legislature for
the amendment of laws. Under those rules, the legislator proposing a change in the law is supposed to take the text of the
current law and show the modifications to it by underlining
or striking out text to show new and deleted text. In several
pieces of proposed legislation which advocate amendments
to Section 2-622, the legislation proposed uses a hybrid
version of Section 2-622, which includes the verbiage from
P.A. 90-579 which includes naprapaths, but also incorporates
the original text of the language of Section 2-622, i.e., the
text which pre-dates the original amendments made by P.A.
89-7, (i.e. the language adding naprapaths is included, but it
is inserted into the pre-P.A. 89-7 version). In addition, some
of the legislation proposed attempts to reinsert the disclosure
requirement back into this odd, hybrid version of Section
2-622. The argument being advanced by plaintiff’s attorneys
is that the legislators themselves believe that the language was
not enacted by P.A. 90-579, as is evidenced by the failure to
include the language added by P.A. 89-7 and 90-579 in the
proposed legislation, and further by the new attempts to reintroduce the measures back into the law.
However, proposed legislation should not be given any
weight because it cannot answer the question of legislative
intent of previous General Assemblies. In Matsuda v. Cook
County Employees and Officers Annuity and Benefit Fund, 278
Ill. App. 3d 378, 385 (1st Dist. 1996), the court responded to
the submission of proposed legislation provided as extrinsic
evidence of statutory construction by stating: “We refuse to
give any weight to proposed legislation that was not passed
by Congress.” Likewise, the proposed legislation proffered
in this instance should be disregarded.
Further, stare decisis requires compliance with the holding
in Cargill. Simply put, the trial courts must follow the decisions of Cargill, Giegoldt and Cothren. At this point, at least
two appellate courts, in three separate opinions, have stated
that Section 2-622 requires the disclosure of the reviewing
health professional’s name and address. “Under the Illinois
rule of stare decisis, a circuit court must follow the precedent
of the appellate court of its district, if such precedent exists;
if no such precedent exists, the circuit court must follow the
precedent of other districts.” Schramer v. Tiger Athletic Assoc. of Aurora, 351 Ill. App. 3d 1016, 1020 (2d Dist. 2004).
The supreme court has indicated that the circuit court has no
discretion in following the decision of the appellate courts: “It
is the absolute duty of the circuit court to follow the decisions
of the appellate court.” In re A.A., 181 Ill. 2d 32, 36 (1998).
34
Based on the foregoing, it is clear that absent any contrary
appellate decision, trial courts must follow the decisions of
both the Fourth and Second Appellate Districts and find that
P.A. 90-597 amended Section 2-622 to require the disclosure
of the reviewing health professional’s name and address; that
trial courts should rule the disclosure is mandatory and should
dismiss plaintiffs’ complaints if the disclosure is not made.
5.
The Reviewing Health Professional is Not a Consultant Pursuant to Supreme Court Rule 201(b)(3)
A new and creative argument that seems to have caught
the eye of some trial courts is the argument that the disclosure
of the name and address of the health professional violates
separation of powers because it encroaches upon the court’s
authority to supervise litigation, and, in particular, Section
2-622 conflicts with the provisions of Supreme Court Rule
201(b)(3) with respect to nondisclosure of “pure consultants.”
While a supreme court rule will prevail over a conflicting
statutory provision, this is only the case “when a statute
directly and irreconcilably conflicts with a supreme court
rule***.” Real Estate Buyer’s Agents v. Foster, 234 Ill. App.
3d 257, 260 (2d Dist. 1992). Further, the court must “seek to
reconcile the legislation with the judicial rule, where reasonably possible.” Burger v. Lutheran General Hospital, 198 Ill.
2d 21, 33 (2001). As discussed below, the different chronology
of the litigation to which these provisions apply, as well as
the supreme court’s discussions on the role of the reviewing
health professional, make it clear that the provisions can and
should be reconciled.
The purpose of Section 2-622 is to require that a plaintiff, or his attorney, confer with a health care professional
regarding the basic facts of his case prior to the filing of the
case and to further require that the health care professional
reviewing the facts submit a report as a prerequisite to filing
a medical malpractice claim to discourage and eliminate
frivolous healing art malpractice lawsuits in the early stages.
Hobbs v. Lorenz, 337 Ill. App. 3d 566 (2d Dist. 2003). Section 2-622 was clearly designed to act as a filter for frivolous
healing art malpractice claims by requiring someone trained
in the same branch of health care to review and deem
that action meritorious before the action is filed. “Section
2-622 makes clear that it is a pleading requirement. The affidavit and reports must be attached to the original and all
subsequent versions of the complaint. Thus, the affidavit and
report are considered part of the complaint, not merely in
the nature of discovery documents that can be supplemented
periodically.” Giegoldt v. Condell Medical Center, 328 Ill.
App. 3d 907 (2d Dist. 2002). See also, McCastle v. Mitchell
B. Sheinkop, M.D., Ltd., 121 Ill. 2d 188, 193 (1987) (Section
Third Quarter 2005
2-622 is a pleading requirement, not a substantive defense.)
Supreme Court Rule 201(b)(3), on the other hand, is part
of the “General Discovery Provisions” of the Illinois Supreme Court Rules. Pursuant to this very supreme court rule,
discovery cannot be noticed or otherwise initiated until the
time that defendants have appeared or are required to appear
unless leave of court is granted upon a showing of good cause.
S. Ct. R. 201(d). Therefore, this Rule is not even applicable
until after the requirements of Section 2-622 are met.
The basis for the claim is two references to derivations
“However, nowhere in Section
2-622 does the Legislature refer to the reviewing health care
professional as a ‘consultant’
but rather consistently refers
to that person as a ‘health professional.’ ”
of the word “consult” in Section 2-622, namely, (1) the language requiring that the plaintiff’s attorney, or the plaintiff,
if filing pro se, file an affidavit declaring “that the affiant has
consulted and reviewed the facts of the case with a health
professional***,” and (2) the language requiring that the
attorney certify “on the basis of the reviewing health professional’s review and consultation that there is a reasonable
and meritorious cause for filing.” (Emphasis added). 735
ILCS 5/2-622 (West 2005). However, nowhere in Section
2-622 does the Legislature refer to the reviewing health care
professional as a “consultant” but rather consistently refers
to that person as a “health professional.”
The supreme court has expressed that the 2-622 reviewing
health professional does not have to consider all of the evidence contemplated by plaintiff’s counsel to be used at trial,
nor would most of the evidence be available prior to the start
of discovery. Sullivan v. Edward Hospital, 209 Ill. 2d 100
(2004). Further, as set forth in Supreme Court Rule 201(d),
discovery is not even permitted until the time for defendants
to appear has passed. S. Ct. R. 201(d) (West 2005). In fact,
Section 2-622(a)(2) excuses the defendant from answering
or otherwise pleading until 30 days after being served with
the health care professional’s report certifying the action as
meritorious. 735 ILCS 5/2-622 (West 2005). Therefore, the
bulk of information available to any plaintiff for forming the
basis of her strategy (i.e., deposition testimony, other extrinsic evidence) is not even available at the time during which
plaintiff must “consult” with a health professional.
Section 2-622 and Supreme Court Rule 201(b)(3) are
easily separated. Rule 201(b)(3) explicitly defines the term
“consultant”:
A consultant is a person who has been retained or specially employed in anticipation of litigation or preparation for trial but who is not to be called at trial. The
identity, opinions, and work product of a consultant
are discoverable only upon a showing of exceptional
circumstances under which it is impracticable for the
party seeking discovery to obtain facts or opinions on
the same subject matter by other means. S. Ct. R. 201(b)
(3). (West 2005). (Emphasis added).
The consultant described above is different than the health
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
the intent and purpose of Section 2-622. This makes no legal
sense. Based on the supreme court’s ruling in Sullivan, which
requires only a threshold “advisory” opinion by the 2-622
health professional, it seems clear that the supreme court does
not consider the health care professional referenced in Section
2-622 to be a “consultant.”
In addition, Section 2-622 requires the disclosure of the
reviewing health professional’s “reasons for the reviewing
health professional’s determination that a meritorious cause
for filing the action exists,” which would, if this court were to
accept this argument, also violate the provisions of Supreme
Court Rule 201. As discussed in Sullivan, these reasons are
not required “to rise to the level of a substantive claim for
medical malpractice,” thus they cannot be held to rise to the
level of work product protected by Rule 201. The supreme
court explained the role of the 2-622 health professional in
DeLuna v. St. Elizabeth’s Hospital:
A consideration of the function performed by the health
professional under Section 2-622 in making the required
certification demonstrates that his task in that regard
(Continued on next page)
35
IDC Quarterly
Cargill (Continued)
is essentially no different from the function he is later
called upon to perform at trial. In medical malpractice
cases, the applicable standard of care and its breach
must normally be established through expert testimony.
Clearly, giving such testimony at trial does not constitute
the exercise of a judicial function. By the same token,
there can be no claim that requiring the submission of
similar information when an action is filed operates as a
delegation of judicial authority, improper or not. Section
2-622 merely accelerates the time by which an expert
opinion must be obtained. That Section 2-622 requires
the submission of a health professional’s report even in
cases in which expert testimony might not be necessary
at trial merely reflects the Legislature’s assessment of
the statute’s desired scope. DeLuna v. St. Elizabeth’s
Hospital, 147 Ill. 2d 57, 70 (1992).
The supreme court does not refer to the 2-622 health professional as a consultant but as a “health professional,” consistent
with the language of Section 2-622. Clearly, the supreme court
recognized that a health professional’s opinions are analogous
to an expert’s opinions, rather than a consultant’s, due to the
fact that it is necessary for the opinions of the 2-622 health
professional, as well as those of any experts, be disclosed at
the time of pleading and prior to trial. Therefore, as the two
provisions can be reconciled, Supreme Court Rule 201(b)(3)
does not conflict with Section 2-622, thus making disclosure
of the name of the health professional along with the health
professional’s reasons for determining that the action is meritorious required under Section 2-622(a)(1).
6.
Granting a Cargill Challenge Requires Dismissal
of Plaintiffs’ Complaint
One of the more interesting aspects of the Cargill debate
arises in the context of remedies sought by plaintiff attorneys
refusing to comply with the disclosure requirement of Section 2-622. Rather than conceding the remedy provided in
the statute itself, or through the judicial interpretations of
Section 2-622 (i.e., dismissal of plaintiff’s complaint), plaintiffs are routinely asking courts to design remedies to avoid
the remedies at law. However, in a 2-622 situation, the only
remedy available to the court is dismissal pursuant to 735
ILCS 5/2-619, as provided for in 735 ILCS 5/2-622(g). “The
failure to file a certificate as required by this section shall be
grounds for dismissal under Section 2-619.” 735 ILCS 5/2622(g) (West 2005). The remedy for failing to comply with
Section 2-622 is not discretionary. “When the plaintiff fails to
satisfy the requirements of Section 2-622(a)(1) of the Code,
a dismissal is mandatory.” Hull v. Southern Illinois Hospital
36
Services, 356 Ill. App.3d 300 (5th Dist. 2005). While it may
be within the discretion of the court to dismiss with or without
prejudice, the court should base its decision on the particular
circumstances of the case. See, Peterson v. Hinsdale Hospital,
233 Ill. App. 3d 327, 330 (2d Dist. 1992).
In the attempt to avoid the reality of Section 2-622(a)(1), a
whole generation of “urban legends” about defense attorneys
and insurance companies has been spawned in the imaginations of plaintiff attorneys. Canned briefs and oral arguments
are fraught with vague allegations of nameless vicious defense
attorneys stalking, harassing, and intimidating poor defenseless reviewing health professionals, and the alleged behaviors
are cited as a reason for gaining special court protections, such
as submission of disclosures under seal or protective orders.
For example, a paragraph in one of the “canned briefs” reads:
If the name and address of Plaintiffs’ consultant/reviewing health care professional are provided to defendants
and their insurance carrier, there is a substantial risk
that the information will be used to adversely affect the
practice of, and/or intimidate, the consultant physicians
and Defendants, their counsel, and Defendants’ insurance company may use this information to gain undue
advantage over Plaintiff’s case and harass the reviewing
health care professional. (Emphasis added.)
Alternatively, anecdotes of evil insurance companies using the
names of the health professionals for ill gain have been cited as
a basis for orders of confidentiality. Like urban legends, these
allegations are unfounded in fact and are lacking in any basis.
Another remedy sought is the “friendly contempt order.”
This is a mechanism that allows a party to refuse to comply
with a discovery order when they dispute the propriety of that
order. “Friendly contempt orders” are proper for discovery
disputes. Upon receiving the “friendly contempt” order, a
party may appeal the contempt order immediately and request a ruling from the appellate court. Here, the remedy is
improper, as Section 2-622 imposes pleading requirements.
Thus, discovery sanctions are not applicable.
In new medical malpractice cases filed by plaintiffs since
the holding in Cargill and now that the Cargill decision has
come down and the petition for leave to appeal has been
denied, Cargill v. Czelatdko, 214 Ill. 2d 528 (2005), defense
counsel should argue that nothing short of a dismissal with
prejudice is warranted. This argument can be made now
with the Cargill decision in hand, as the court has discretion
to decide whether the dismissal should be with or without
prejudice, and it cannot be said that the plaintiff did not have
knowledge of the Cargill decision when the plaintiff placed
Third Quarter 2005
a complaint on file with a 2-622 health professional’s report
blatantly lacking the name and address of the health professional.
“While it may be within the discretion of the court to dismiss with or
without prejudice, the court should
base its decision on the particular
circumstances of the case.”
miss based on failure to disclose the name and address of the
reviewing health professional. At the time, no appellate court
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
Dismiss unless there is a showing that the plaintiff is unfairly
prejudiced). Also, it is important to remember that the Gulley
decision was based on the defendants’ failure to timely object
to the plaintiff’s noncompliance in providing any 2-622 report, a report required under every version of the law since its
inception. Suffice it to say that the 2-622(a)(1) nondisclosure
issue is a different situation than the 2-622 issue in Gulley,
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
Plaintiffs’ Waiver Arguments and Defense Responses
A Cargill challenge could also be filed in a pending case,
but the challenge by defense counsel is made more difficult if
the defendant has answered the complaint and/or has moved
ahead with discovery. This situation was dealt with in the case
of Gulley v. Noy, 316 Ill.App3d 861 (4th Dist. 2000).
In Gulley, the plaintiff filed a healing art malpractice
complaint against the defendant doctor and medical group
and attached to it an affidavit stating that the plaintiff was
unable to obtain a health professional’s report prior to the
tolling of the statute of limitations. Defendants filed an answer
to the complaint in September 1997. The case proceeded in
discovery until March 2000, when the defendants filed a motion 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-
Cargill has finally provided legal justification to the interpretation of Section 2-622 that many defense attorneys have
presented to various trial courts over the past several years.
While the issues of legislative intent and constitutionality of
Section 2-622 have been presented as complex by the plaintiffs
in these cases, it is clear that the plain and simple language
of the amendments of P.A. 90-579 provide the best indicator
of legislative intent. Further, Section 2-622 is clearly a pleading requirement and should not be treated like discovery, nor
should discovery provisions of the Supreme Court Rules
apply. Section 2-622, as interpreted by Cargill, merely accomplishes the goals of the Legislature, goals that benefit all
of society – the elimination of frivolous suits against health
care providers.
37
IDC Quarterly
Civil Rights Update
By: Bradford B. Ingram and Sylvia Coulon*
Heyl, Royster, Voelker & Allen
Peoria
“Legitimate Nondiscriminatory Reason”
Remains Best Defense to Section 1981
and Title VII Discrimination Claims
Discrimination claims brought pursuant to 42 U.S.C.
§ 1981 as well as Title VII are not won by simply stating a
prima facie case. Plaintiffs are not entitled to judgment if the
defendant can articulate a legitimate nondiscriminatory reason
for its employment decision. Many plaintiff’s attorneys are
pursuing employment discrimination claims under Section
1981 because of the increased potential for recovery of significant attorney’s fees and to avoid statutory caps on damages.
This article will review the Seventh Circuit’s recent decision in Blise v. Antaramian, 409 F.3d 861 (7th Cir. 2005),
where the defendant successfully articulated a legitimate
nondiscriminatory basis for its employment decision and
obtained summary judgment in a Section 1981 case.
42 U.S.C. Section 1981 Claims: Burden of Proof
42 U.S.C. § 1981, as part of the Civil Rights Act of 1866,
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
shall have the same right in every State and Territory
to make and enforce contracts, to sue, be parties, give
evidence, and to the full and equal benefit of all laws
and proceedings for the security of persons and property
as is enjoyed by white citizens, and shall be subject to
like punishment, pains, penalties, taxes, licenses, and
exactions of every kind, and to no other.
38
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,
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
contract, and not to problems arising from conditions of continued employment. Patterson v. McLean Credit Union, 491
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.
­ Another cognizable difference between Section 1981 and
Title VII is that Section 1981 solely applies to racial discrimination and does not apply to gender or national origin
claims. Saint Francis College v. Al-Khazraji, 481 U.S. 604
(1987). Also, claims brought pursuant to Section 1981 have
a four-year statute of limitations governed by 28 U.S.C.
§ 1658, Jones v. R.R. Donnelley & Sons Co., 541 U.S. 369
(2004); and unlike Title VII, Section 1981 claims cannot be
based on employment procedures that have a disparate impact on minorities. Rather, Section 1981 is only applicable
to disparate treatment claims caused by intentional racially
motivated bias. General Building Contractors Ass’n, Inc. v.
Pennsylvania, 458 U.S. 375, 382-85 (1982).
Some of the benefits of bringing a Section 1981 claim
include the fact that Section 1981 can be equally applied to
employment actions when there is no direct employer/employee relationship. All that is required for standing to sue
under Section 1981 is that the discriminating person or entity
interfered with the plaintiff’s ability to enter into an employment contract on the basis of race. Daniels v. Pipefitters’ Ass’n
About the Authors
Bradford B. Ingram is a partner with Heyl, Royster,
Voelker & Allen. His practice concentrates on the defense
of civil rights and municipal entities and the defense of
employers in all types of discrimination claims. He is a
frequent speaker before local and national bar associations
and industry groups.
* The author acknowledges the assistance of Sylvia
Coulon, a law clerk with Heyl, Royster, Voelker & Allen, in the preparation
of this article.
Third Quarter 2005
Local Union No. 597, 945 F.2d 906, 914-15 (7th Cir. 1991).
Section 1981 claims also can be brought against an employer
with fewer than 15 employees, while Title VII claims cannot.
Fadeyi v. Planned Parenthood Ass’n of Lubbock, Inc., 160
F.3d 1048, 1049 (5th Cir. 1998).
The remedies of relief available under Section 1981 also
vary from Title VII claims. Unlike Title VII, Section 1981 does
not have a statutorily proscribed remedy, other than the award
of attorney’s fees and expert fees given to the prevailing party.
Additionally, because Section 1981 does not have a statutory
cap on the method of relief, a plaintiff may be entitled to a
larger monetary award if he or she brings a cause of action
pursuant to Section 1981.
The burden of proof in employment discrimination claims
remains with the plaintiff. Defendants can satisfy their burden
of production and prevail at summary judgment by offering
a legitimate nondiscriminatory reason for the adverse employment action. St. Mary’s Honor Ctr. v. Hicks, 509 U.S.
502 (1993). Plaintiffs who allege that they are discriminated
against because of race must prove their case beyond merely
stating the prima facie case for discrimination.
Blise v. Antaramian, 409 F.3d 861 (7th Cir. 2005)
Blise held that the plaintiff had set forth a prima facie case
of racial discrimination under Section 1981. However, the
defendant, her employer, had articulated a legitimate nondiscriminatory reason for not hiring the plaintiff. The plaintiff
was not the highest ranked applicant at the conclusion of
the application process. The plaintiff failed to show that this
legitimate basis for not being hired was pretextual.
Factual Background
In Blise, an African-American woman brought suit against
the city of Kenosha, Wisconsin, the city’s mayor, the city
administrator and the director of personnel alleging that
the city violated her constitutional right to equal protection
through an ongoing policy and practice of not promoting
blacks to positions of influence and authority. 409 F.3d 861
(7th Cir. 2005). Blise worked for the city of Kenosha in various capacities beginning in 1979. Id. at 863. In March 2001,
the position of Operations Coordinator (“OC”) for the city’s
Public Service Department became available. Responsibilities
for the OC position included performing and coordinating
functions affiliated with the Public Services Department, such
as the resolution of problems and expediting service requests
of citizens, as well as the preparation and management of the
Public Service budget. Id.
­In order to be considered for the OC position, each applicant had to go through a two-stage interview. Id. at 864. The
first stage of the interview involved a volunteer panel designed
to winnow down the number of job candidates. The volunteer
panel consisted of three volunteers not employed by the city.
Id. The second stage of the interview consisted of a panel of
city officials, who determined the final offer of employment
based on a score given to each applicant after the interview.
Id. The scores given to each applicant were based on previous
employment, prior experience, and how well each individual
scored during the interview panel. Id. at 865.
Thirty-two people applied for the position, including Blise
and a white woman named Jan Davis. Only 12 of the applicants, including Blise and Davis, met the basic criteria for the
position. During the first stage of the interview, Blise received
the highest score. Id. During the second stage of the interview,
however, Blise came in sixth out of seven candidates, and the
position was offered to the highest scoring individual who
accepted the position. Id at 865.
The City’s Articulated Reason for Not Hiring
Blise Was a Legitimate Nondiscriminatory
Employment Decision
The prima facie case for a Section 1981 claim of racial
discrimination is made when:
(1) The plaintiff shows that he or she belongs to a
protected class;
(2) The plaintiff applied for and was qualified for the
position;
(3) Despite his or her qualifications, the plaintiff was
rejected; and,
(4) After his or her rejection, the position remained
open and the employer continued to seek applications from persons with the plaintiff’s qualifications, or the position was filled by a nonminority
applicant. Id. at 866.
This test for racial discrimination in the workplace was
first set forth in McDonnell Douglas under the direct method
of proof test. McDonnell Douglas Corp. v. Green, 411 U.S.
792 (1973). Under this test, Blise claimed that the city and
each individual defendant discriminated against her because
of her race in violation of Section 1981. Simply making out
a prima facie case for employment discrimination under the
McDonnell Douglas test, however, does not entitle the plaintiff
to a judgment in his or her favor, or even the chance to present
the case to a jury. Blise v. Antaramian, 409 F.3d at 867. In
order to prevail under a Section 1981 claim for employment
(Continued on next page)
39
IDC Quarterly
Civil Rights Update (Continued)
discrimination, the plaintiff must show that he or she was a
victim of intentional discrimination. Id. (emphasis added).
This intention can be shown through either direct or indirect
evidence. Direct evidence of discrimination, however, usually
requires an admission by the decision-maker that their actions
were based on a prohibited animus. Circumstantial evidence,
on the other hand, can be presented to the jury by constructing 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 employment discrimination, however, the defendant is still entitled
to summary judgment as a matter of law in the event the
defendant cannot articulate a nondiscriminatory reason for
the employment decision. Id. at 867. If a nondiscriminatory
reason is given by the defendant, the burden of proof then
shifts back to the plaintiff to prove that the reason given by
the defendant was merely pretextual, and that a prohibited
animus more likely than not motivated the hiring decision. Id.
­ From a defense lawyer’s perspective, the need for a defendant to set forth a legitimate nondiscriminatory reason for the
hiring decision is fairly logical because not every plaintiff who
makes out a prima facie case of employment discrimination is
a victim of an invidious animus. Anti-discrimination laws did
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 “immutable characteristics” that cannot be changed or traced back to
occupational job qualifications. Furthermore, not every form
of discrimination in the workplace is prohibited by law. An
employer’s decision to favor one candidate over another can
be “mistaken, ill-considered or foolish,” but, so long as the
employer honestly believed he or she had legitimate reason
for the hiring decision, misconceived pretext has not been
shown. Blise v. Antaramian, 409 F.3d at 867, quoting Jordan
v. Summers, 205 F.3d 337, 343 (7th Cir. 2000).
In Blise’s case, the court held that a legitimate nondiscriminatory reason did exist for the hiring decision. Blise, 409
F.3d at 867 (emphasis added). The court held that the city of
Kenosha had a legitimate reason not to hire Blise because
she was not the highest ranked applicant for the position. Id.
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
becoming more important in an increasingly service-oriented
economy. Personal qualities also factor heavily into an employment decision concerning supervisory or professional
occupations. Thus, traits such as common sense, good judgment, originality, ambition, loyalty and tact often must be
assessed in a subjective fashion, which is entirely appropriate
for a decision maker. Id.
“From a defense lawyer’s
perspective, the need for a defendant to set forth a legitimate
nondiscriminatory reason for the
hiring decision is fairly logical
because not every plaintiff who
makes out a prima facie case of
employment discrimination is a
victim of an invidious animus.”
Conclusion
Whether an employment discrimination claim is brought
pursuant to Title VII or Section 1981, a plaintiff must establish that the employment decision was based on a prohibited
animus rather than merit. Courts are not designed to sit as
superpersonnel departments where disappointed applicants
or employees can have the merits of a hiring decision repeatedly replayed before a court. Holmes v. Potter, 384 F.3d 356,
361-62 (7th Cir. 2004).
A successful defense of an employment discrimination
claim brought pursuant to 42 U.S.C. § 1981 requires employers to articulate a legitimate, nondiscriminatory reason for
their adverse employment decision. Successfully marshaling
evidence in support of this defense will entitle employers to
summary judgment and defeat the Section 1981 claim.
Third Quarter 2005
Medical Malpractice
By: Edward J. Aucoin, Jr.
Hall, Prangle & Schoonveld, LLC
Chicago
Senate Bill 475
More Than Simply Caps on
Non-Economic Damages
On May 30, 2005, the Illinois General Assembly took
another shot at reforming medical malpractice liability by
passing Senate Bill 475. Almost immediately, the hallways of
local courthouses were full of conversations, and sometimes
arguments, regarding the proposed caps on non-economic
damages under that bill. While the proposed caps on damages received the spotlight on the local airwaves, Senate
Bill 475 includes reforms to the medical malpractice system
that extend beyond a limitation on non-economic damages.
In fact, Senate Bill 475 includes reforms aimed at medical
malpractice litigation, the discipline of physicians by the State
Medical Disciplinary Board, and the regulation of medical
liability insurers. This article will concentrate on the medical
malpractice litigation reforms included in Senate Bill 475 and
how they may affect the day-to-day practice by attorneys in
this area. Senate Bill was submitted to Governor Blagojevich
on June 29, 2005, thereby allowing him 60 days thereafter to
either sign, veto or amend the document.
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
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 noneconomic loss. The jury is not to be informed of these caps
on non-economic damages.
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 Compensation Commission. 735 ILCS 5/2-1706.5(b). This section
clearly addresses the “homemaker” arguments forwarded
by the plaintiff’s bar during debate over the bill, where a
stay-at-home caregiver or minimum wage employee would
presumably have little or no future wage loss claim. Under
this section as provided, a jury may award past and future lost
income awards based upon a plaintiff’s actual pay or upon the
statewide average weekly wage at the time that the action was
filed, which was $788.99 per week for the first half of 2005.
It will be interesting to see how this amendment affects the
“value of household services” component present in so many
economic reports.
The $1 million cap on non-economic damages for hospitals applies to the hospital’s personnel and affiliates as
well. Therefore, the naming of nurses, residents and other
employees of the hospital individually would not result in any
additional recoverable non-economic damages in the same action. Likewise, the $500,000 cap against physicians includes
their corporate entities, thereby denying two recoveries of the
limit if the physician and his group are named separately.
(Continued on next page)
Non-Economic Damages Caps
The section of Senate Bill 475 that garners the most attention among attorneys and the general public relates to caps
on non-economic damages in medical malpractice cases.
Senate Bill 475 amends the Code of Civil Procedure to add
Section 2-1706.5, entitled, “Standards for Economic and
Non-Economic Damages.” Under that section, judgments
entered against a hospital, its personnel, or hospital affiliates for non-economic damages are limited to $1 million per
claim. Judgments in that same action against a physician, that
physician’s business or healthcare professionals are limited
to $500,000. (735 ILCS 5/2-1706.5) These limitations apply
to the individual action, regardless of the number of plaintiffs
About the Author
Edward J. Aucoin, Jr. is an associate in the Chicago
firm of Hall, Prangle & Schoonveld, LLC. He has eight
years of experience in medical malpractice defense, commercial litigation, and contract litigation practice. Mr.
Aucion’s substantial client base includes private hospitals
and medical practice groups, physicians and other medical
professionals, and national commercial corporations. He
has extensive experience in preparing complex litigation
for trial, and has second-chaired medical malpractice trials in Cook County
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
Law. He is also a member of the IDC.
41
IDC Quarterly
Medical Malpractice (Continued)
The section is silent as to a hospital’s liability for noneconomic damages when the sole basis of liability forwarded
against it is apparent agency. Subsection (a)(1) of Section
2-1706.5 refers to “any award” against the hospital, of which,
arguably, apparent agency liability would be included. If this
is true, can a plaintiff recover $1.5 million in non-economic
damages against a hospital and an independent physician
under apparent agency, while only recovering $1 million
in non-economic damages when the physician was actually
an employee of the hospital? This result seems somewhat
inequitable, since plaintiff’s apparent agency claim and the
resulting judgment presume the physician to be an agent of
the hospital. Therefore, future reviewing courts will have to
determine if a finding by the trier of fact that the physician is
an apparent agent of the hospital transforms that agent into
“hospital personnel” under Section 2-1706.5(a)(1).
The “I’m Sorry” Rule
Senate Bill 475 also amended Section 8-1901 of the
Code of Civil Procedure, in that it added limited protection
for a healthcare provider’s expression of “grief, apology or
explanation” to the patient about the care at issue. 735 ILCS
5-8-1901(b). Under that subsection, any expression of grief,
apology or explanation, including the words “I’m sorry,”
about an inadequate or unanticipated treatment or care outcome that is provided within 72 hours of when the provider
knew or should have known about the potential cause of
such outcome is not admissible as evidence in any case. The
Illinois Legislature follows the lead of several other states,
which have hypothesized that an apology from the physician
or health care provider reduces the likelihood that the patient
will bring suit for the alleged negligent actions.
Subsection (b) creates a “discovery rule” by including the
qualification that the expression be made within 72 hours of
when the healthcare provider “knew or should have known”
of the potential cause of the injury. Therefore, the rule would
appear to be based upon the subjective knowledge of the provider rather than the reasonable person standard. The inclusion
of the word “explanation” as a type of expression covered
under this subsection increases the breadth of that section’s
coverage to include discussions beyond mere apologies, and
arguably includes details of the procedure or treatment at issue. This amendment has no effect on the discoverability and
admission of medical records or other materials prepared for
the medical chart.
42
The Sorry Works! Pilot Program
Senate Bill 475 also establishes the Sorry Works! Pilot
Program, which is open to one hospital in the first year of
the program’s operation. That hospital must be located in a
county with a population greater than 200,000 and which is
contiguous with the Mississippi River. Under the program,
the hospital and physicians involved in the care at issue would
promptly acknowledge and apologize for mistakes and patient
care and “promptly” offer fair settlements to those patients.
The hospital initially participating in the program is required to
submit a report to an oversight committee created by the bill,
which details its costs in defending human error malpractice
verdicts for the preceding five years. The committee determines the average yearly cost by the hospital and should the
actual cost incurred by the participating hospital in the Sorry
Works! Pilot Program exceed that average, the hospital can
petition for a grant from the Sorry Works fund for the difference in those amounts. The amount of reimbursement under
the Sorry Works fund is limited to $2 million per participating
hospital per year.
Expert Witness Qualifications
Senate Bill 475 amended Section 8-2501 of the Illinois
Code of Civil Procedure, which deals with expert witness
standards. The amended section is very similar to the version previously enacted by Public Act 89-7, which was held
unconstitutional by the Illinois Supreme Court in, Best v.
Taylor Machine Works, 179 Ill. 2d 367 (1997). Subsection
(a) of Section 8-2501 mandates that the court, in determining
whether a witness qualifies as an expert witness can therefore
testify on the appropriate standard of care, must determine
whether the witness is board certified, board eligible or has
completed a residency in the same or substantially similar
medical specialties as the defendant and is otherwise qualified
by “significant” experience with the standard of care, methods,
procedures, and treatments relevant to the allegations against
the defendant. 735 ILCS 5/8-2501(a). Previously, the physician did not need to be board certified or eligible in the same
or substantially similar medical specialties as the defendant.
Future reviewing courts will have to determine what
“significant experience” equates to under the amended Section 8-2501, but they may receive some guidance from the
amendment to subsection (b) therein. Subsection (b) states
that the witness must have devoted a majority, as opposed
to the previous “substantial portion,” of his or her work time
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
Third Quarter 2005
defendant upon whose care he is commenting. 735 ILCS 5/82501(c). This amendment has the most immediate implication
upon nurses, therapists, technicians and other medical care
providers who can receive different degrees of licensure in
their professions.
Amended Section 8-2501 also requires the expert witness
to provide evidence of active practice, teaching or engage-
“Finally, the amended section
states that an expert who has not
actively practiced, taught or been
engaged in university based research during the preceding five
years may not be qualified as an
expert witness, which is a reduction from the ten year requirement
under Public Act 89-7.”
ment in university-based research. If retired, the expert must
provide evidence of attendance and completion of continuing
education courses for three years prior to giving the testimony.
Finally, the amended section states that an expert who has not
actively practiced, taught or been engaged in university based
research during the preceding five years may not be qualified
as an expert witness, which is a reduction from the ten year
requirement under Public Act 89-7.
Amendments to Section 2-622
The amendments to 735 ILCS 5/2-622 to be enacted by
Senate Bill 475 are few, but have far reach and impact. Under subsection (a)(1) of Section 2-622, the reviewing health
professional need only practice or teach in the same area of
healthcare or medicine at issue in the action within the last five
years, as opposed to the previous six years. However, now the
reviewing health professional must meet the expert witness
standards set forth in amended Section 8-2501. The legisla-
ture also decided that a single written report should be filed
to cover each defendant in the action, which helps delineate
which acts of negligence are attributed to each defendant.
Amended Section 2-622 departs from previous versions
in its differentiation between individuals and all other defendants. As to individuals, the written report must be from a
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.
For defendants other than individuals, the written report
must be from a physician licensed to practice medicine in
all its branches “who is qualified by experience with the
standard of care, methods, procedures and treatment relative
to the allegations at issue in the case.” This differentiation
sets up another dichotomy in the treatment of the hospital or
healthcare institution defendant, namely, a different reviewing
health professional could be required to complete the report
as to a hospital depending on whether individual, employed
medical care providers are named as additional parties in the
suit. The question also arises as to whether two reports are
required when an individual hospital employee is named, one
against the hospital and one against the individual.
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
amendment clearly attempts to address the practice by certain
medical societies of revoking or suspending the membership
of individuals who prepare written reports for medical malpractice complaints that are deemed to be inappropriate or not
based on good faith. Amended Section 2-622 also requires
that the reviewing healthcare professional’s name, address,
current license number and state of licensure be attached to
the attorney’s affidavit required under the act.
Subsection (a)(2) of Section 2-622 was amended in two
respects. First, the requirement that a plaintiff state the case
has not previously been voluntarily dismissed when also alleging that he or she was unable to obtain a consultation with a
reviewing health professional prior to expiration of the statute
of limitations has been eliminated. This requirement was the
subject of the Fourth District’s decision in Cargill v. Czlatdko,
353 Ill. App. 3d 654, 818 N.E.2d 898, 288 Ill. Dec. 963 (4th
Dist. 2004), which was detailed in this column last quarter.
(Continued on next page)
43
IDC Quarterly
Medical Malpractice (Continued)
The legislature’s omission of that requirement will certainly
have some impact on the numerous Cargill motions pending
in the circuit courts throughout the state. Subsection (a)(2)
further provides that additional 90-day extensions under that
section shall not be granted except where there has been a
withdrawal of the plaintiff’s counsel, presumably within the
initial 90-day extension.
Use of Annuities for Payment of Future Medical Expenses and Costs of Life Care
Senate Bill 475 adds Section 2-1704.5 to the Illinois Code
of Civil Procedure, entitled Guaranty Payment of Future Medical Expenses and Costs of Life Care. That section provides
that within five days of a verdict in which a plaintiff is awarded
future medical expenses and costs of life care, either party to
the action may elect, or the court may enter its own order, to
have payment of those future expenses through purchasing an
annuity. If selected, the defendant will pay 20% of the present
cash value of future medical expenses and costs of life care
in a lump sum to the plaintiff. Thereafter, the defendant may
purchase an annuity from a company highly rated by two of
the four financial rating services specified in that section. The
annuity must guarantee that the plaintiff will receive annual
payments equal to 80% of the current year annual cost of
future medical expenses and costs of life care inflated by the
annual composite rate for the life of the plaintiff.
Under Section 2-1704.5, the trier of fact is charged with
determining the present cash value of the plaintiff’s future
medical expenses and costs of life care, the current year annual cost of the plaintiff’s future medical expenses and costs
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
cost of an annuity should a verdict against that defendant be
reached. This section also addresses the often-cited concern
by the plaintiff’s bar during debate of the bill that defendants
could not ensure whether a company providing the annuity
would be solvent when future funds were needed.
Good Samaritan Protection Extended
The final area of medical litigation reform proposed under
Senate Bill 475 relates to the Illinois Good Samaritan Act.
Specifically, retired physicians are now included among
healthcare providers exempt from civil liability for services
performed without compensation through free medical clinics
or to patients who have been referred from free medical clinics. 745 ILCS 49/30. A second significant change to Section
30 of the Good Samaritan Act is that the patients receiving the
free services no longer are required to be “medically indigent.”
What Does It All Mean?
According to the Illinois General Assembly, Senate Bill
475 is a package of reforms that seek to enhance the State’s
oversight of physicians and medical liability insurance carriers
while simultaneously reducing the number of nonmeritorious
medical malpractice actions and encouraging physicians to
practice in Illinois. That seems like a noble goal. What is
certain is should Governor Blagojevich sign Senate Bill 475
and allow its reforms to take effect, the resulting Public Act
will be attacked by the plaintiff’s bar without fail. Most likely,
the debate will end up before the Illinois Supreme Court,
which will have to decide if the current effort by the General
Assembly ignored its reasoning in Best v. Taylor Machine
Works or whether they got it right this time.
Third Quarter 2005
Evidence and Practice Tips
By: Joseph G. Feehan
Heyl, Royster, Voelker & Allen
Peoria
Illinois Supreme Court Holds That
Collateral Source Rule Does Not
Prohibit a Plaintiff from Recovering
the Entire Amount of Medical Bills
Initially Billed Even Though the
Medical Providers Ultimately Accepted a
Discounted Amount from Plaintiff’s Insurer
in Full Satisfaction of the Bills
In Arthur v. Catour, Nos. 97920, 97946, 2005 WL 1693760
(July 21, 2005), the plaintiff, Joyce Arthur, fractured her leg
when she stepped in a hole on defendant Laurie Catour’s
property. The plaintiff incurred medical bills of $19,355.25
for treatment of her injuries. The plaintiff had group medical
insurance with Blue Cross/Blue Shield through her husband’s
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
allowing the plaintiff to recover the larger amount “would
only serve to punish the defendants punitively and provide a
windfall for the plaintiff.” 2005 WL 1693760 at *2. The trial
court ruled that the plaintiff should be limited to “seeking
compensatory damages not exceeding those actually paid to
her medical providers.” Id.
The Third District Appellate Court allowed the plaintiff’s
application for leave to appeal pursuant to Supreme Court
Rule 308. On appeal, the defendants argued that the plaintiff
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
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
entry of partial summary judgment for the defendants. Arthur
v. Catour, 345 Ill. App. 3d 804, 803 N.E.2d 647, 281 Ill.
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’ petitions for leave to appeal. The court also granted leave to
the Illinois Trial Lawyers Association to submit an amicus
curiae brief in support of the plaintiff and allowed the Illinois Association of Defense Trial Counsel to submit an
amicus curiae brief in support of the defendants’ position.
The defendants conceded that the collateral source rule applied to the $13,577.97 that Blue Cross paid and plaintiff’s
medical providers accepted as payment in full. However, the
defendants contended that the collateral source rule should
not apply to the $5,777.28 difference between the amount
billed and the amount paid. Conversely, the plaintiff argued
that the collateral source rule protected the entire amount
of $19,355.25 initially billed by the medical providers. The
Illinois Supreme Court rejected the defendants’ arguments
and affirmed the appellate court’s decision. In reaching its
(Continued on next page)
About the Author
Joseph G. Feehan is a partner in the Peoria office of Heyl,
Royster, Voelker & Allen, where he concentrates his practice
in commercial litigation, products liability and personal
injury defense. He received his B.S. from Illinois State
University and his J.D. (Cum Laude) from the Northern
Illinois University College of Law. Mr. Feehan is a member
of the ISBA Tort Law Section Council and is also a member
of the Peoria County, Illinois State and American Bar Associations. He can be
contacted at jfeehan@hrva.com
45
IDC Quarterly
Evidence and Practice Tips (Continued)
conclusion, the Arthur court reviewed the history of the collateral source rule under Illinois law, stating:
­ learly, . . . the collateral source rule . . . applies only
C
to prevent defendants from introducing evidence that a
plaintiff’s losses have been compensated for, even in
part, by insurance.
However, the collateral source rule is not an evidentiary
rule that permits a defendant to limit a plaintiff’s ability
to introduce evidence of the reasonable cost of health
care necessitated by the defendant’s conduct.
***
In the present case, plaintiff received health-care
services and became liable for the resulting expenses
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 balance. For example, the policy might have lapsed
for nonpayment of premiums, or the policy may not
cover some services, such as cosmetic or reconstructive surgery.
The medical expenses for which plaintiff was liable
were covered in full by her health insurance. The bill
was paid in part and the balance written off pursuant
to a contractual arrangement between the insurer and
the provider—a contract in which the plaintiff was not
a party. Thus, the collateral source was the insurance
company and not the so-called “discount.” To restate
the obvious: plaintiff did not receive a discount from
the provider. Rather, plaintiff received the benefit of her
bargain with her insurance company—full coverage for
incurred medical expenses.
This leads us to the certified question, which presents
a question of proof rather than of entitlement, i.e., a
question involving an evidentiary component of the
collateral source rule and not a substantive rule of
damages. Plaintiff, of course, is entitled to recover
as compensatory damages the reasonable expense of
necessary medical care resulting from defendants’
negligence, if proved. (Citations omitted.) The only
relevant question in the litigation between plaintiff
46
and defendants is the reasonable value of the services
rendered. The certified question merely asks whether
certain evidence is admissible in such cases. Arthur,
2005 WL 1693760 at *4-5.
“In the present case, plaintiff
received health-care services and
became liable for the resulting
expenses upon receipt of those
services, not when the final bill
was eventually issued.”
The Arthur court then analyzed principles of Illinois evidence law regarding the standards for admissibility of medical
bills in a personal injury case. The Arthur court stated that
it is well settled that a plaintiff can introduce a medical bill
into evidence if the plaintiff establishes that the bill has been
paid or by introducing testimony that the bill represented the
usual and customary charges for such services. The Arthur
court noted that a defendant “may rebut the prima facie
reasonableness of a medical expense by presenting proper
evidence casting suspicion upon the transaction.” Id. at *5.
The Arthur court concluded that a plaintiff’s damages are not
related to the amount paid by her insurer, but may extend to
the entire amount initially billed by the medical providers, if
those charges were reasonable expenses for necessary medical
care. The Arthur court stated:
­ pplying these principles to the present case, plaintiff
A
cannot make a prima facie case of reasonableness based
on the bill alone, because she cannot truthfully testify
that the total billed amount has been paid. Instead, she
must establish the reasonable cost by other means—just
as she would have to do if the services had not yet been
rendered, e.g., in the case of required future surgery, or if
the bill remained unpaid. Defendants, of course, are free
to challenge plaintiff’s proof on cross-examination and
to offer their own evidence pertaining to reasonableness
of the charges. Id. at *6.
Third Quarter 2005
The Arthur court did not address whether its holding is
specifically limited to situations where an insurance carrier
or employer negotiates a discounted bill or has a preferred
provider agreement. For example, it remains unclear whether
Arthur will apply to situations where medical bills are reduced
due to payments made by Medicare or Medicaid, where medical bills are discharged in bankruptcy, or where the medical
provider simply writes off a portion of the medical bills. It is
questionable whether the collateral source rule should apply
in these situations because the plaintiff did not extend any
funds (such as insurance premiums) to obtain the benefit of
the reduced bills. In fact, the Third District Appellate Court
conceded that the application of the collateral source rule is
“less compelling” in cases where medical providers accepted
reduced payments from public programs such as Medicare or
Medicaid as full payment. Arthur, 345 Ill. App. 3d at 808.
It appears that the Arthur decision provides more questions than answers regarding the correct application of the
collateral source rule by the trial court. In a lengthy dissent,
Chief Justice McMorrow lamented that the majority opinion
avoided the issues presented by the certified question and as a
result, the court’s opinion “dramatically changes trial practice
with respect to this issue.” Arthur, 2005 WL 1693760 at *8.
Justice McMorrow stated:
In its opinion, however, the majority avoids the questions presented by this appeal. The certified question is
a straightforward one: can plaintiff seek compensation
for the amount billed or the amount paid for medical
services rendered? The majority gives an answer that
amounts to no answer at all. The majority opinion crafts
an unworkable analytical framework and arrives at a
holding that represents a major change in trial practice. It is my position that such a significant alteration
should be approached carefully, and only after this
court has had the benefit of input from the bench and
bar affected by the change. This has not occurred in the
instant matter. The majority opinion compromises the
traditional protections afforded by the collateral source
rule and may necessitate a trial within a trial whenever
the reasonableness of a plaintiff’s medical expenses are
at issue. Because the majority’s analysis of the issues
presented in this case is inadequate, and because the
majority’s holding dramatically changes trial practice
with respect to this issue, I cannot join in the majority
opinion. I express no opinion on the ultimate disposition
of the issue presented in this appeal. Id.
Chief Justice McMorrow then undertook a detailed analysis
of the majority’s opinion and highlighted several of the questions that remain unanswered, stating:
­ he majority then reiterates its holding by stating that
T
“[p]laintiff may present to the jury the amount that her
health-care providers initially billed for services rendered.” (Citation omitted.)
What does this mean? Although the majority answers
the certified question by ruling that plaintiff may present
the billed amount to the jury as the appropriate measure
of damages, the majority then contradicts this statement
by holding that plaintiff cannot make a prima facie case
of reasonableness based upon the bill alone, as plaintiff
“cannot truthfully testify that the total billed amount
has been paid.” (Citation omitted.) The majority also
holds that plaintiff must establish the reasonable cost
of her medical expenses “by other means,” but those
“other means” remain unspecified. Further, the majority
would allow defendants “to challenge plaintiff’s proof
on cross-examination and to offer their own evidence
pertaining to the reasonableness of the charges,” but
provides no insight as to what this evidence might be.
(Citation omitted.)
Several questions and concerns arise from the majority’s
analysis and holding in this case. First, what is to become of the well-settled rule in this state that a plaintiff
establishes a prima facie case that a medical expense is
reasonable if that expense has been paid? Under ordinary
rules of evidence, the paid bill would be the appropriate
measure of damages. Yet, for unexplained reasons, this
is not the answer in the matter at bar.
On the other hand, the majority appears to implicitly acknowledge that “evidence of the amount charged alone
does not indicate reasonableness.” (Citation omitted.)
Thus, because plaintiff’s charged bill was not paid, the
majority admits that plaintiff cannot use the charged bill
to show that the expenses were prima facie reasonable.
The majority states that plaintiff must establish reasonable costs by unspecified “other means,” yet fails to
elaborate on exactly what plaintiff may do. Id. at *13-14.
Chief Justice McMorrow concluded her dissent by contemplating how the majority opinion will “dramatically” change
(Continued on next page)
47
IDC Quarterly
Evidence and Practice Tips (Continued)
trial practice and render it “unworkable,” stating:
­ he majority’s opinion will likely result in the parties
T
conducting a trial within a trial on the issue of the reasonableness of a plaintiff’s medical expenses. Instead of
the current practice wherein stipulations are often made
between the parties with respect to the reasonableness
of medical bills, the parties will be forced to gather
information about the billing practices of every healthcare 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
and reputation and the relevant medical community. This
evidentiary process directly contravenes the rationales
for holding that a paid bill constitutes prima facie evidence that the bill is reasonable: that a free and voluntary
payment of a charge shows the reasonable value of
that service, and that it comports with efficient judicial
administration by eliminating unnecessary cost and
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.
In addition, I note that the majority holds that defendants
may challenge plaintiff’s proof on cross-examination,
or “offer their own evidence pertaining to the reasonableness of the charges.” (Citation omitted.) Again, no
guidance is offered by the majority to the bench and bar
on what may be introduced.
It is my belief that the evidentiary procedure required
by the majority will be unworkable. A possible scenario
may unfold as follows. Plaintiff, with supporting testimony from witnesses familiar with the billing practices
of the provider, will present the amount initially billed
by her health-care providers as the reasonable measure
of her damages to the jury. Defendant, attempting to
show that the billed amount does not reflect the reasonable value of the services provided, will cross-examine
plaintiff’s witnesses and question whether the amounts
charged by the provider are the amounts actually paid
by the patient for the services rendered. It is very likely
that plaintiff’s counsel would immediately object to such
a line of questioning on the basis that these questions
would ultimately reveal that plaintiff received payment
48
from a collateral source—her insurance company—and
therefore violate the collateral source rule. Thus, under
such a scenario, defendants may very well have no
means of challenging the reasonableness of the billed
amount of medical services as the measure of plaintiff’s
damages.
If, by its opinion, the majority is signaling that such a
line of questioning by defendants is acceptable under
these facts, then I point out that the majority is compro-
“Unfortunately, the Arthur decision
does little to clarify Illinois law on
the collateral source rule and the
admissibility of medical payments
and medical bills.”
mising the protections of the collateral source rule—the
very rule that it is claiming to support. The majority
emphasizes—and I agree—that the collateral source
rule prevents evidence that a medical bill was paid by
insurance. Yet, under the majority’s opinion, if evidence
is proffered that health-care providers initially charged
plaintiff a certain amount and later accepted a reduced
amount as payment in full, the jury may be confused and
left to create an explanation. It may be that jurors would
deduce the presence of insurance. Allowing evidence of
both the billed and discounted amounts compromises the
collateral source rule, confuses the jury, and potentially
prejudices both parties in the case. Each jury will resolve
the issue differently, leading to inconsistency wherein
similarly situated parties will be treated differently. It is
my belief that the majority’s opinion will only further
confuse the bench and bar on these already confusing
issues. Id. at 14-15.
Chief Justice McMorrow concluded that the majority’s
opinion “creates a new evidentiary procedure that represents
a major change in trial practice, and which appears to be
unworkable.” Id. at 16.
Third Quarter 2005
­Unfortunately, the Arthur decision does little to clarify Illinois law on the collateral source rule and the admissibility
of medical payments and medical bills. For example, although
the Arthur court has stated that a defendant may challenge
the reasonableness of a medical bill “by presenting proper
evidence casting suspicion upon the transaction,” it did not
specify whether “proper evidence” includes evidence that the
medical provider accepted a lesser amount in full satisfaction
of a medical bill. Id. at *6. (Emphasis added.) Further, the
Arthur court did not clarify the proper evidentiary procedure
to be utilized by a defendant who is attempting to prove that
the providers accepted a lesser amount as full payment. Is
the defendant required to call the billing personnel from the
medical providers to establish that they accepted a reduced
amount as full payment? Is the defendant permitted to ask
such a witness to explain why the medical provider agreed
to accept the reduced amount? Do the jury instructions for
medical expenses need to be modified to reflect the different
medical bills figures presented to the jury? With respect to
future medical expenses, is the defendant allowed to introduce evidence that the anticipated future medical bills will
be reduced because of preferred provider agreements?
The Arthur decision also creates numerous questions to be
addressed by plaintiff’s counsel when presenting their case
at trial. If the jury hears evidence of both the amount billed
and of the discounted amount accepted as full payment, will
the jury conclude that insurance must have paid plaintiff’s
medical expenses? Further, will the jury believe that plaintiff
is being greedy in asking for damages in the amount of the
entire bill—even though the provider accepted a significantly
reduced amount in full payment?
Defendants typically file motions in limine prohibiting any
reference to the defendant’s liability insurance coverage. If the
defendant is permitted to inform the jury that plaintiff’s bills
were paid in part by insurance, will plaintiff argue that the jury
should hear evidence of defendant’s liability insurance coverage?
The numerous questions created by the Arthur decision
undoubtedly will be addressed by the various appellate court
districts in the future. It will be interesting to monitor whether
the appellate court decisions or future Illinois Supreme Court
decisions will provide additional guidance to trial counsel on
the collateral source rule and the admissibility of medical payments and medical bills.
49
IDC Quarterly
Legislative Update
By: Gregory C. Ray
Craig & Craig
Mattoon
The Illinois General Assembly’s spring session concluded
on a timely basis, with a number of bills being sent to Governor Blagojevich that may be of interest to you. There was an
enormous amount of publicity concerning medical malpractice
and “caps.” A bill is awaiting signature by the Governor at
the time of the preparation of this article. Details about the
bill appear elsewhere in this Quarterly.
While the doctors and other healthcare providers were
directing their attention to medical malpractice legislation,
a small group of representatives of the business and labor
communities was meeting to fashion substantial changes in
the Workers Compensation Act, some of which directly affect healthcare providers and, to their perception, most likely
adversely. House Bill 2137 has two provisions directed to
healthcare providers. First, a provider cannot balance bill
an injured worker for charges not paid by the employer or
workers compensation insurance company while a workers
compensation claim is pending. Second, a medical fee schedule has been created which caps the amount the employer will
have to pay at 85% of the 90th percentile of the charges in the
provider’s relevant geographic area as established by historical
data and then adjusted into future years by the percentage of
change in the Consumer Price Index. From the perspective of
employers, this result is a major step to control total workers
compensation costs. More than half of each workers compensation 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
paid directly to workers for lost time or permanent disability
static, much less reduce such benefits. In 1996, the medical
lobby was able to prevent a similar bill being passed by the
General Assembly.
Benefits payable to injured workers are also increased.
Higher amounts will be paid for permanent disability as a
percentage of loss of use of specified body parts. Minimum
amounts payable to low paid workers are increased quite
50
substantially. Also the funeral expense payable in the event
of a worker’s death is substantially increased.
Employers face increased potential for penalties for unreasonable 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
felony prosecution rather than a mere civil penalty imposed
by the Workers Compensation Commission under the prior
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
permit a six-person jury demand for claims for damages of
up to $50,000, increasing the amount from its current $15,000
level. As under the current statute, either party can demand
a twelve-person jury rather than a six-person jury for claims
within this time frame. If signed by the Governor by August
14, 2005, the amendment becomes effective January 1, 2006.
House Bill 190 amends the Health Care Services Lien Act
to include licensed long-term care facilities within the definition of healthcare providers who may claim liens under the
Act. Assuming the Governor signs the Bill, it will be effective
January 1, 2006 and apply to causes of action accruing on or
after its effective date.
Senate Bill 1907 expands the category of those who can
request records from a “health care facility” or “facility” under Section 8-2001 of the Code of Civil Procedure. The bill
expands the scope of persons who are permitted to see or copy
the records to “. . . any person, entity or organization presenting a valid authorization for the release of records signed by
the patient or the patient’s legally authorized representative.”
It is of some interest that the bill does not similarly modify
Section 8-2003 which addresses the records of “health care
practitioners” meaning, essentially, physicians and similar
individual practitioners. The Governor must sign the bill by
August 15, 2005 for it to become law. If signed, it will be
effective January 1, 2006.
About the Author
Gregory C. Ray is a partner with firm of Craig & Craig
in its Mattoon office. He is a 1976 graduate of the University of Illinois Law School. He is an officer of the IDC
and a member of the IDC and Illinois Appellate Lawyers
Association. He has served as a member of the Board of
Directors of the IDC and is a past Editor-in-Chief of the
IDC Quarterly. His primary practice areas include trials of
tort matters, appellate practice, and workers’ compensation defense. Mr. Ray
is the immediate Past President of the IDC.
Third Quarter 2005
Technology Law
By: Michael C. Bruck
Crisham & Kubes, Ltd.
Chicago
The Supreme Court Uncorks E-Commerce
in Internet Wine Sales Decision
In a case with landmark implications for e-commerce,
the U.S. Supreme Court recently struck down state laws that
restricted direct Internet sales over state lines by wineries to
consumers. In Granholm v. Heald, 125 S. Ct. 1885 (2005),
the court held that Michigan’s and New York’s regulatory
systems that allowed in-state wineries to ship their wines
directly to consumers, but limited the access of out-of-state
wineries, violated the Commerce Clause. U.S. Const. art. I,
§ 8, cl. 3. The decision will likely mark the beginning of an
expansion of e-commerce in several major industries presently
impeded by legal barriers. Without question, Granholm will
be the impetus for many legal challenges of state regulatory
schemes.
The Court’s Decision
The Granholm decision consists of three consolidated
cases that challenged laws in Michigan and New York. Justice
Anthony Kennedy wrote the court’s 5-4 opinion.
The court stated that “Michigan and New York regulate the
sale and importation of alcoholic beverages, including wine,
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.”
Granholm, 125 S. Ct. at 1892. The court determined that
this differential treatment between in-state and out-of-state
wineries “constitutes explicit discrimination against interstate
commerce.” Id.
Michigan and New York tried to argue that the 21st Amendment granted the states unlimited power to control the sale of
alcohol. In response, the court stated that the 21st Amendment
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
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.”
Id.
Michigan and New York also argued that their regulatory schemes protected their states against the ills of underage 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
alcohol than waiting around for an interstate shipment of wine
to be delivered to them. Id.
According to the court, “[t]echnological improvements,
in particular the ability of wineries to sell wine over the
Internet, have helped make direct shipments an attractive
sales channel.” Id. at 1893. It added that “interstate direct
shipping represent[s] the single largest regulatory barrier to
expanded e-commerce in wine.” Id. The court adopted this
view from a July 2003 Federal Trade Commission (FTC)
report titled “Possible Anticompetitive Barriers to E-Commerce: Wine.” See, FTC Report, Possible Anticompetitive
Barriers to E-Commerce: Wine (July 2003), available at
http://www.ftc.gov/os/2003/07/winereport2.pdf.
States may not enact laws to burden out-of-state producers
or shippers simply to provide a competitive advantage to instate businesses, the court declared. Granholm, 125 S. Ct. at
1895. Such laws deprive citizens of their right to have access
to markets on equal terms. Id. at 1896. The court described
the current patchwork of laws as the product of an ongoing
low-level trade war that stands in direct conflict with the
Commerce Clause. Id.
(Continued on next page)
About the Author
Michael C. Bruck is a partner in the Chicago law firm
of Crusham & Kubes, Ltd. He is a trial lawyer focusing
on the defense of professionals in malpractice actions,
commercial cases and intellectual property litigation. Mr.
Bruck received his B.S. from Purdue University in 1984
and his J.D. from DePaul College of Law in 1988. He is a
member of DRI, IDC, ISBA, CBA and The Illinois Society
of Trial Lawyers.
51
IDC Quarterly
Technology Law (Continued)
Some Doors Will Open, Others Will Remain Shut – The
Impending Challenges Will Decide
The e-commerce wine industry will feel the most direct
effects of the Granholm decision. E-commerce, a promising sales avenue for wine, has, in the past, represented only
an estimated 1% to 3% of wine sales nationwide. See, FTC
Report, Possible Anticompetitive Barriers to E-Commerce:
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
hindered by the protectionist state legislation.
Beyond the wine industry, the most important and promising aspect of the Granholm decision is the effect it will have
on other industries that, similar to wine, are prevented from
online growth by protectionist state legislation. Accordingly,
Granholm is about much more than wine – it marks the beginning of online business growth for these industries, and it
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 ECommerce that examined the effect of protectionist state
legislation on several industries, including wine. See, Public
Workshop: Possible Anticompetitive Efforts to Restrict Competition on the Internet available at http://www.ftc.gov/opp/
ecommerce/anticompetitive/021008antitrans.pdf. Many of
the laws cited by the FTC as hindering e-commerce may be
lifted by the decision in Granholm. For example, some states
require that out-of-state online mortgage lenders maintain an
in-state office. The court in Granholm struck down a similar
restriction on the wine industry, noting:
[T]he expense of establishing a bricks-and-mortar
distribution operation in 1 state, let alone all 50, is
prohibitive. It comes as no surprise that not a single
out-of-state winery has availed itself of New York’s
direct-shipping privilege . . . . New York’s in-state presence requirement runs contrary to our admonition that
States cannot require an out-of-state firm “to become a
resident in order to compete on equal terms.”
Granholm, 125 S. Ct. at 1897, quoting Halliburton Oil Well
Cementing Co. v. Reily, 373 U.S. 64, 72 (1963). The court
greatly helped e-commerce organizations by recognizing
that laws that require them to become part of the state are
discriminatory. The physical presence requirement, until
52
Granholm, has been a common stumbling block for interstate
e-commerce.
In addition, some states are considering requiring Internet
auction companies such as eBay to apply for the licenses required for a typical in-state auctioneer. See, Public Workshop:
Possible Anticompetitive Efforts to Restrict Competition on
the Internet at 15. These policies entail high licensing fees
and lengthy procedures. These types of restrictions, if overly
burdensome, may be unlawful after Granholm.
“The court’s decision, therefore,
may mark the beginning of success
for the online wine businesses previously hindered by the protectionist state legislation.”
States, after Granholm, also will find it increasingly difficult to prohibit all out-of-state direct sales of a product but
allow in-state sales. One industry potentially affected is the
online sale of automobiles directly from the manufacturer
to the consumer. Economists estimate that consumers, if allowed to buy directly from the manufacturer over the Internet,
stand to save hundreds or even thousands of dollars off the
regular price. See, FTC Public Workshop Agenda, Possible
Anticompetitive Efforts to Restrict Competition on the Internet
(October 2002), available at http://www.ftc.gov/opp/ecommerce/anticompetitive/agenda.htm.
States, along with in-state automobile dealers, argue that
there are legitimate concerns about Internet sales by manufacturers. They claim that the laws prohibiting direct automobile
sales protect the consumer from deceitful manufacturers. In
the past, courts would have been deferential to the states in
such economic policies; however, after Granholm, it appears
that state regulation requires solid evidence to advance discriminatory policies.
Nevertheless, certain industries may be harder to crack
open. For example, the Internet has the potential to deliver
certain types of legal services, including estate planning and
preparation of real estate documents. See, FTC Public Workshop Agenda. However, states have had a long and successful
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
The Amendment to the
Good Samaritan Act
By: Edward M. Wagner
Heyl, Royster, Voelker & Allen
Urbana
The 1998 Amendment to the Good
Samaritan Act Broadened the Available
Immunity, and Since Then the Courts Have
Applied This Statutory Immunity Correctly
Within and Outside Hospital Settings
Prior to 1998, doctors seeking immunity from an alleged
medical negligence suit available under Illinois’ Good Samaritan Act, 745 ILCS 49/25, needed to pass a three-part
test, namely: (1) they must not have had any prior notice of
the illness or injury treated; (2) the care provided must be
emergency care; and (3) they must not have charged a fee.
Blanchard v. Murray, 331 Ill. App. 3d 961, 967, 771 N.E.2d
1122, 265 Ill. Dec. 163 (1st Dist. 2002). If doctors were able
to show all three elements existed at the time of the specific
treatment at issue, they could defeat a case of alleged medical
negligence from the outset. However, prior to 1998, the first
part of this three-part test gave rise to some decisions unfair
to the healthcare professional. The position of hospital staff
physician or “on-call” physician at a hospital often resulted
in a denial of the available statutory immunity for emergency
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
care, such as delivering a baby for another practitioner, the
physician was held to possess “prior notice” and denied any
immunity.
These inequities were addressed in 1998 when the legislature removed the first “prior notice” requirement from the
Good Samaritan Act and broadened the available statutory
54
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.
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
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 resuscitation effort was already in progress. She participated until
cardiac activity was achieved, which allowed the infant to be
airlifted to a major neonatal intensive care unit. However, the
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
by claiming her on-call status established a pre-existing duty
that prevented application of the Act. The court rejected this
attempt to limit immunity and held that the Act did not specifically state that a defendant’s pre-existing duty to respond
to an emergency would be an element that could disallow the
available protection of the Act. The court ruled that it “must
apply the Act as it is written, and any change must be done by
the legislature.” 352 Ill. App. 3d at 830. The suit was dismissed
as to that anesthesiologist.
In Estate of Heanue ex rel. Heanue v. Edgcomb, 355 Ill.
App. 3d 645, 823 N.E.2d 1123, 291 Ill. Dec. 537 (2d Dist.
2005), the courts continued to interpret the available immunity under the act liberally, but also noted one element
included in the Act that had been overlooked in most prior
decisions – namely the element of “good faith.” In Heanue,
the defendant was a member of a medical group and a partner
of the patient’s treating physician. This patient was in the
hospital after a catheter insertion procedure and under the care
of the defendant’s partner. A nurse observed some medication problems and called the medical group’s office and told
them to send a doctor over immediately. Shortly thereafter,
About the Author
Edward M. Wagner is a partner in the Urbana office of
Heyl, Royster, Voelker & Allen where he concentrates his
practice in physician medical malpractice, hospital and
nursing home defense case. He received his J.D. from
Creighton University School of Law (cum laude) in 1980
and he is also currently a member of the Illinois Supreme
Court Rules Committee.
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,
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
ruled that although the defendant may have received some
economic benefit from his medical group for their care to this
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,
and the defendant was dismissed.
The Heanue court also rejected another attempted limitation of the Act, namely that this defendant had a pre-existing,
independent duty to care for this patient, even though he
had never personally rendered any care for her. In this situation, the court noted that the Good Samaritan Act draws no
distinction between physicians who are just passing by and
render emergency aid to patients with whom they have no
relationship and physicians who have an existing treating
relationship with the patients. The court then framed the real
issue in these cases—namely, can the care deemed “in good
faith” be emergency care, and was the decision not to send a
bill to the patients “in good faith”? The court noted that the
Act specifically requires “good faith” in both of the two elements necessary to invoke immunity, and as the trial court
made no finding on this issue, the case was remanded for that
sole issue to be addressed.
After Heanue, the courts will specifically address the
“good faith” basis for the claim of immunity under the Good
Samaritan Act, but that effort is merely a necessary measure
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
requirement in mind, physicians should be reassured that the
primary goal of the legislature in broadening the immunity
available in the Good Samaritan Act is being advanced and
enforced by the judiciary in Illinois.
Recent Decisions
By: Stacy Dolan Fulco
Cremer, Kopon, Shaughnessy & Spina, LLC
Chicago
General Contractor Had No Duty of Care
to Injured Employee of Sub-Contractor
In Downs v. Steel and Craft Builders, Inc., 2005 WL
1492077 (2d Dist., June 22, 2005), the plaintiff, Richard
Downs, an employee of an independent contractor, was seriously injured when a trench collapsed at a construction site.
The plaintiff sued the defendant, Steel and Craft Builders,
Inc., the general contractor of the site, alleging common law
negligence. The circuit court granted summary judgment in
favor of the defendant and the plaintiff appealed.
At the time of the accident, the plaintiff was an employee
of P & M Water and Sewer, Inc., which was hired by the
defendant to work at various stages of the construction job.
Pursuant to the contract, the defendant could order work
to start or stop, order changes to the plans and approve the
workmen, subcontractors, or material suppliers hired by P &
M. Otherwise, the defendant placed the burden and the responsibility of completing the work on P & M. Downs, 2005
WL 1492077 at *1.
(Continued on next page)
About the Author
Stacy Dolan Fulco is an associate at the Chicago law firm
of Cremer, Kopon, Shaughnessy & Spina, LLC. She practices primarily in the areas of premises liability, products
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)
On the day of the accident, the owner of the defendant was
at the construction site, but he did not observe the accident
or the work being done by P & M, nor did he instruct P & M
on the work. He did not direct, supervise, or participate in
the work, the means, or the methods of P & M. He frequently
visited the site to look only at the work’s progress and he
observed no safety violations. He relied on the subcontractors for safety, providing them with no classes, inspectors or
equipment.
The appellate court initially noted that in a negligence action, a plaintiff must present sufficient evidence to establish
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
if no duty exists there is no recovery. The plaintiff presented
three bases for the existence of a duty of care: (1) defendant’s
contractual right to control and actual retention of control
under Section 414 of the Restatement (Second) of Torts; (2)
the applicable safety regulations; and (3) defendant’s status
as possessor of the land under Section 343 of the Restatement
(Second) of Torts. Downs, 2005 WL 1492077 at *2.
The plaintiff argued that the defendant owed him a duty
of care pursuant to Section 414 of the Restatement (Second)
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
Torts, which states: “One who entrusts work to an independent
contractor, but who retains the control of any part of the work,
is subject to liability for physical harm to others for whose
safety the employer owes a duty to exercise reasonable care,
which is caused by his failure to exercise his control with
reasonable care.” Comment c to Section 414 explains the
“retained control” concept: “In order for the [exception] to
apply, the employer must have retained at least some degree
of control over the manner in which the work is done. It is
not enough that he has merely a general right to order the
work stopped or resumed, to inspect its progress * * * or to
prescribe alterations and deviations. Such a general right is
usually reserved to employers, but it does not mean that the
contractor is controlled as to his methods of work, or as to
operative detail. There must be such a retention of a right of
supervision that the contractor is not entirely free to do the
work in his own way.” Downs, 2005 WL 1492077 at *2-3.
The appellate court advised that the best indicator of whether a contractor has retained control over the subcontractor’s
work is the parties’ contract, if one exists. When interpreting
a contract, the court must consider the entire document to
56
give effect to the parties’ intent as determined by the plain
and ordinary meaning of the language of the contract. The
question in this case was whether the contract between the
defendant general contractor and P & M evidenced an intent
by the defendant to retain any control over safety at the construction site.
Generally, in a construction negligence case involving a
contract between a defendant general contractor and an independent contractor that employed the plaintiff, summary
“Even though the appellate court
concluded that the contract did
not grant the defendant sufficient
control over P & M’s work to
create a duty to the plaintiff, its
analysis of Section 414 did not
end there.”
judgment is improperly granted to a general contractor that
had agreed to retain control over safety at a construction site
(see, Moorehead v. Mustang Construction Co., 354 Ill. App.
3d 456 (3d Dist. 2004)), or where a general contractor goes
to great lengths to control safety at the construction site even
though an independent contractor contracts to control its
own work. See, Bokodi v. Foster Wheeler Robbins, Inc., 312
Ill. App. 3d 1051 (1st Dist. 2000); Brooks v. Midwest Grain
Products of Illinois, Inc., 311 Ill. App. 3d 871 (3d Dist. 2000).
Alternatively, summary judgment in favor of the general
contractor is appropriate where an independent contractor is
contractually responsible for jobsite safety and the defendant
general contractor takes no active role in ensuring safety (see,
Steuri v. Prudential Insurance Co. of America, 282 Ill. App.
3d 753 (1st Dist. 1996); Fris v. Personal Products Co., 255 Ill.
App. 3d 916 (3d Dist. 1994)), or where the general contractor
reserves the general right of supervision over the independent
contractor but does not retain control over the incidental aspects of the independent contractor’s work. Downs, 2005 WL
1492077 at *3; see also, Rangel v. Brookhaven Constructors,
Inc., 307 Ill. App. 3d 835 (1st Dist. 1999).
Third Quarter 2005
After reviewing the evidence, the appellate court determined that in this case, the defendant neither controlled nor
was responsible for the safety measures employed at the
construction site. The rights retained by the defendant to
schedule and to stop work, to order changes and to approve
hiring were general rights of supervision and not a retention
of control over the incidental aspects of the work done by P
& M.
Even though the appellate court concluded that the contract
did not grant the defendant sufficient control over P & M’s
work to create a duty to the plaintiff, its analysis of Section 414
did not end there. The court found that it is possible that a duty
to a subcontractor’s employee may be created by the contractor’s actions undertaken in the absence of an agreement. As
support for this, the appellate court pointed to a recent First
District decision in which the contractor and subcontractor
had not agreed on the scope of the contractor’s control over
the subcontractor’s work. Downs, 2005 WL 1492077 at *4;
see also, Bieruta v. Klein Creek Corp., 331 Ill. App. 3d 269
(1st Dist. 2002).
Based on the ruling in Bieruta, the appellate court noted
that in this case, the defendant, by its conduct, could have created a duty to the plaintiff by exercising control over P & M’s
work. However, the facts indicated that the defendant did not
control the subcontractor’s work. There was no evidence that
the defendant exerted control over the construction site, other
than by telling the independent contractors where to work and
when. Nothing indicated that that the defendant directed the
“operative details” of the excavation or that P & M was not
free to perform the work in its own way. Furthermore, even
if it was assumed that the conditions and methods used were
dangerous and led to the plaintiff’s injuries, there was no
evidence that the defendant knew or had notice that P & M
employed a hazardous method in dangerous conditions at the
time of the accident. Therefore, the appellate court determined
that the defendant controlled not the “incidental aspects” of
the independent contractor’s work, but rather only the desired
ends. Therefore, the appellate court found that summary judgment in favor of the defendant was appropriate as to this issue.
The next argument submitted by the plaintiff that was addressed by the appellate court was whether a general contractor may delegate its responsibilities under the Occupational
Safety and Health Administration (OSHA) and the Construction Safety Act (CSA) to an independent contractor for the
purposes of avoiding liability in a private cause of action for
injuries sustained by an employee of the independent contractor. The appellate court noted that this was a question of first
impression. Downs, 2005 WL 1492077 at *5.
OSHA creates a government program to enforce compliance with federal occupational safety and health standards by
employers in the private sector. 29 U.S.C. Sections 651, 654
(2000). OSHA explicitly declares that it shall not be construed
to supersede, to enlarge, to diminish, or to affect in any manner “the common law or statutory rights, duties, or liabilities
of employers and employees under any law with respect to
injuries * * * of employees arising out of, or in the course of,
employment.” 29 U.S.C. Section 653(b)(4) (2000).
The appellate court noted that based on its prior Section 414
analysis, the defendant could not be held liable under the plaintiff’s theories, as governed by Illinois law. Therefore, liability
in this case would result only from affecting the defendant’s
right to contract away private liability for injuries, or from
enlarging the defendant’s liabilities to the plaintiff under Section 414, by declaring that, via OSHA, the defendant retained
control of the work of P & M. The appellate court determined
that doing so would “create an exception that would swallow
the rule, because no matter what steps defendant would take to
shield itself from liability, the OSHA inevitably would pierce
defendant’s armor, striking a fatal blow that otherwise would
be blocked under the theories advanced by plaintiff.” For these
reasons, the appellate court affirmed summary judgment on
this issue as well. Downs, 2005 WL 1492077 at 5-6.
The appellate court next looked to CSA. CSA predates
OSHA and it provides occupational safety and health protections only to employees who work on federal, federally
financed, or federally assisted construction projects. Under
CSA, to the extent that a subcontractor agrees to perform a
certain task, the general contractor and that subcontractor are
deemed to have joint responsibility with respect to that task.
29 C.F.R. Section 1926.16(c) (2004). The plaintiff relied on
this section for his proposition that the defendant has a nondelegable duty under CSA.
The appellate court stated that while maintaining employee
safety at the workplace is an important public policy, in this
case the defendant did not volunteer to abide by any safety
regulations, nor did the defendant volunteer to ensure compliance with the applicable regulations. Instead, the defendant
shifted the responsibility for compliance to P & M by actually
and contractually avoiding control over the work of P & M.
For these reasons, the appellate court affirmed summary judgment on this issue. Downs, 2005 WL 1492077 at *6-7.
The plaintiff’s last argument was that the defendant owed
him a duty of care pursuant to Section 343 of the Restatement
(Second) of Torts, because the defendant possessed the land
where the plaintiff was injured. Section 343 subjects a possessor of land to liability for physical harm caused to invitees
(Continued on next page)
57
IDC Quarterly
Recent Decisions (Continued)
by a condition on the land that the possessor, who failed to
exercise reasonable care to protect such invitees, knew or
should have known involved an unreasonable risk of harm to
the invitees, who did not discover the danger or who failed to
protect themselves against it.
The appellate court noted that a possessor of land is not
liable for injuries caused by open and obvious dangers, unless the injured party was distracted from those dangers by
focusing on some other condition or hazard. See, Clifford v.
Wharton Business Group, LLC, 353 Ill. App. 3d 34 (1st Dist.
2004). In this case, the danger of a cave-in was open and obvious, evidenced by the fact that the plaintiff discussed ways
to avoid it before the incident took place. Furthermore, even
thought the plaintiff was focused on installing pipes, he was
never distracted from the danger of a cave-in so as to warrant
imposing a duty under Section 343. For these reasons, summary judgment in favor of the defendant was warranted as
to this issue as well. Downs, 2005 WL 1492077 at *7-8. As a
result, the circuit court’s grant of summary judgment for the
defendant was upheld in its entirety.
Spoliation of Evidence – As Allegation
and as Motion for Sanctions
In Adams v. Bath and Body Works, Inc., 2005 WL 1252266
(1st Dist., May 26, 2005), the plaintiff, Steve Adams, individually and as the special administrator of the estate of his wife,
Dixie Adams, filed a three count complaint against defendants
Bath & Body Works, Inc. (BBW), Globaltech Industries, Inc.
and Sharon Kubasak after he was injured and his wife was
killed in a fire in their rented house. The plaintiff alleged that
a candle, manufactured by Globaltech and sold by BBW,
was the cause of the fire. Ms. Kubasak was the owner of the
property.
Each defendant filed cross-claims against the plaintiff for
negligently failing to preserve evidence. BBW also filed a
third party complaint against Ms. Kubasak’s insurer, State
Farm, for negligent spoliation of evidence. The circuit court
granted a motion filed by BBW and joined by Globaltech
dismissing the plaintiff’s complaint as a discovery sanction
pursuant to Supreme Court Rule 219(c) for failing to preserve
evidence. The plaintiff appealed the ruling.
The facts revealed that six days after the fire, the plaintiff
retained counsel. Though both state and city fire inspectors
were unable to pin down the cause of the fire, they were able to
determine that the fire began near a couch located in the living
room. Based on comments from one of these inspectors, the
58
plaintiff’s counsel removed two lamps that he believed were
the potential cause of the fire. After it was determined that
these lamps were not the cause, the plaintiff’s focus shifted
to a “Garden Lavender Botanical Candle” that he said was
located on an end table near the couch in the living room.
At some point shortly after the fire, Ms. Kubasak hired
Action Fire Restoration to clean up the debris and repair the
damage. State Farm paid Action Fire for its services. Unbeknownst to the plaintiff, many of his belongings, including the
end table and couch, plus the carpet that Ms. Kubasak owned,
were removed and destroyed. Also shortly after the fire, State
Farm retained Crawford & Company to examine the house and
determine the extent of the damage. Crawford, in turn, hired
Joe Mazzone to investigate the cause of the fire.
Mr. Mazzone opined that after ruling out the home’s wiring,
appliances, and fixtures, he believed one possible cause of the
fire was a candle placed on the end table. Mr. Mazzone also
stated that he and Donald Hitchcock, a fire investigator with
the Illinois State Fire Marshall’s office, both agreed that the
place where the fire started was the table. Because the end
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,
2005 WL 1252266 at *1-2.
In the circuit court’s order granting BBW’s motion to dismiss, the court found two separate grounds on which to dispose of the plaintiff’s claims: (1) the plaintiff and his counsel
had the opportunity and the responsibility to preserve relevant
evidence and failed to do so and framed their theory of the
case only after allowing relevant evidence over which they
had control to be destroyed (see, Boyd v. Travelers Insurance
Co., 166 Ill. 2d 188 (1995)), and (2) the plaintiff had offered
no competent expert witness opinion testimony to present at
trial with respect to cause and origin. The court found that the
disposition of the plaintiff’s claims had the practical effect of
mooting out the other claims among and between the parties.
Adams, 2005 WL 1252266 at *2.
The appellate court began its analysis by citing to a recent
Illinois Supreme Court case, Dardeen v. Kuehling, 213 Ill.
2d 329 (2004), which addressed spoliation of evidence and
discussed the two leading spoliation of evidence cases, Boyd
v. Travelers Insurance Co., 166 Ill. 2d 188 (1995) and Shimanovsky v. General Motors Corp., 181 Ill. 2d 112 (1998).
Reciting the duty element for a spoliation claim it had outlined
in Boyd, the court stated: “The general rule is that there is no
duty to preserve evidence; however, a duty to preserve evidence may arise through an agreement, a contract, a statute,
or other special circumstance. Moreover, a defendant may
voluntarily assume a duty by affirmative conduct. In any of
Third Quarter 2005
the foregoing instances, a defendant owes a duty of due care
to preserve evidence if a reasonable person in the defendant’s
position should have foreseen that the evidence was material
to a potential civil action.”
The appellate court stressed that the leading Illinois
Supreme Court spoliation of evidence cases demonstrate
that there are two available remedies: a claim for negligent
spoliation of evidence as discussed in Boyd and dismissal as
a sanction under Rule 219(c) as discussed in Shimanovsky.
“The appellate court stressed that
the leading Illinois Supreme Court
spoliation of evidence cases
demonstrate that there are two
available remedies: a claim for
negligent spoliation of evidence as
discussed in Boyd and dismissal
as a sanction under Rule 219(c) as
discussed in Shimanovsky.”
These are separate and distinct remedies. In other words, when
a party is confronted with the loss or destruction of relevant,
material evidence at the hands of an opponent, the party may
either (1) seek dismissal of his opponent’s complaint under
Rule 219(c), or (2) bring a claim for negligent spoliation of
evidence. The mode of relief most appropriate will depend
upon the opponent’s culpability in the destruction of the evidence. Adams, 2005 WL 1252266 at *3-5.
A dismissal under Rule 219(c) requires conduct that is deliberate, contumacious or evidences an unwarranted disregard
of the court’s authority and should be employed only “as a last
resort and after all the court’s other enforcement powers have
failed to advance the litigation.” See, Shimanovsky, 181 Ill. 2d
at 123. A claim for negligent spoliation of evidence requires
mere negligence, or the failure to foresee that the destroyed
evidence was material to a potential civil action. See, Boyd,
166 Ill. 2d at 195.
The appellate court rejected the defendants’ reliance on
those cases that held “that negligent or inadvertent destruction or alteration of evidence may result in a harsh sanction,
including dismissal, when a party is disadvantaged by the
loss.” The court reiterated that only where a party’s conduct
can be characterized as “deliberate, contumacious or an unwarranted disregard of the court’s authority” that the drastic
sanction of dismissal is justified, and, even then, only “as a
last resort and after all the court’s other enforcement powers
have failed to advance the litigation.”
In those instances where evidence is destroyed due to mere
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
plaintiff’s conduct leading to the destruction of the end table,
couch, and carpet was sanctionable and, if so, whether the
circuit court’s sanction of dismissal was appropriate. Adams,
2005 WL 1252266 at *4-5.
Even where evidence is destroyed, altered, or lost, a defendant is not automatically entitled to a specific sanction. See,
Stringer v. Packaging Corp. of America, 351 Ill. App. 3d 1135
(4th Dist. 2004). Illinois Supreme Court Rule 219(c) instead
grants the circuit court the discretion to impose a sanction,
including dismissal of the cause of action, upon any party who
unreasonably refuses to comply with any discovery rule or any
order entered pursuant to such rule. When determining an appropriate sanction, a trial court is to consider the following: (1)
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
offering the testimony or evidence. See, Boatmen’s National
Bank of Belleville v. Martin, 155 Ill. 2d 305 (1993).
When preparing a just order, the circuit court is to remember that the purpose of a sanction is not merely to punish the
dilatory party, but to effectuate the goals of discovery. A just
order is one that is “commensurate with the seriousness of the
violation” and “ensures both the accomplishment of discovery
and a trial on the merits.” Because an order to dismiss with
prejudice is a drastic sanction, it should be invoked “only in
those cases where the party’s actions show a deliberate, contumacious, or unwarranted disregard of the court’s authority”;
employed only “as a last resort and after all the court’s other
enforcement powers have failed to advance the litigation.”
Adams, 2005 WL 1252266 at *6.
In this case, the plaintiff’s conduct, though potentially
negligent, could not be characterized as deliberate, contumacious, or an unwarranted disregard of the court’s authority.
The plaintiff did not engage in any “knowing and willful
(Continued on next page)
59
IDC Quarterly
Recent Decisions (Continued)
defiance of the discovery rules or the trial court’s authority”
as the destruction of the end table, couch and carpet occurred
long before plaintiff filed his lawsuit. The carpet belonged to
Ms. Kubasak, and it was questionable whether the plaintiff
could have compelled her to preserve it. Furthermore, even
if he could have preserved this evidence, the plaintiff had
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.
Though a potential litigant owes a duty to take reasonable
measures to preserve the integrity of relevant and material
evidence, the appellate court determined that the defendants
offered no “reasonable measures” that the plaintiff could
have, but failed, to undertake to protect the evidence, short of
treating the second floor of the house owned by Ms. Kubasak
like a crime scene. The appellate court could not find and the
parties did not cite to any case, either in Illinois or elsewhere,
which has required such action. Adams, 2005 WL 1252266
at *7. Therefore, the appellate court reversed the dismissal of
the plaintiff’s complaint.
Settlement Agreements:
Assignments of Claims Found to
be in Violation of Contribution Act
The case of BHI Corp. v. Litgen Concrete Cutting & Coring Co., 214 Ill. 2d 356, 827 N.E.2d 435, 292 Ill. Dec. 906
(March 24, 2005) has a long and detailed factual and procedural history and has been in front of the Illinois Supreme
Court on three occasions. In 1989, a building that housed art
galleries and studios in Chicago’s River North district was
destroyed in a fire. Many gallery owners and artists filed
separate complaints against the owners and managers of the
building, as well as the general contractors and subcontractors
hired to renovate it. The complaint alleged that the various
defendants, including Litgen Concrete Cutting and Coring
Company (Litgen), caused or contributed to the fire. The
plaintiffs eventually settled all of their claims against all of
the defendants except Litgen.
The settlement agreements charged that a Litgen employee
caused the fire, but that Litgen “does not wish to cooperate
with the Plaintiffs and Settling Defendants.” The settling
defendants agreed to pay the plaintiffs $4.5 million for the
release of any claims arising from the fire: “This amount shall
be paid to Plaintiffs on the condition that the trial Court grants
the parties***a finding that the***settlement is made in good
60
faith” pursuant to the Contribution Act. This payment, the
parties stated, “shall be paid irrespective of whether Litgen
takes an appeal of the finding of good faith.”
The settling defendants also agreed to pay the plaintiffs an
additional $4.5 million for the assignment of any claims they
may have against Litgen arising from the fire. The plaintiffs
promised that they had not already released their claims against
“The appellate court stated that
the settlement agreements allowed
settling defendants to recoup
their share of damages, perhaps
make a profit, and yet be shielded
from contribution under the
Contribution Act.”
Litgen, that they would not release these claims without the
written consent of the settling defendants, and that they would
“reasonably cooperate” with the settling defendants in the pursuit of the assigned claims against Litgen. The settling defendants, in turn, promised to reimburse the plaintiffs for the cost
of their cooperation. BHI Corp., 827 N.E.2d at 437.
The circuit court found the settlement agreements to be in
good faith pursuant to Section 2(c) of the Contribution Act
and dismissed Litgen’s contribution claims against the settling
defendants pursuant to Section 2(d) of the Act. See, 740 ILCS
100/2(c-d). The trial court allowed the plaintiffs to nonsuit
their claims against Litgen. Litgen appealed, arguing that the
trial court erred in finding the agreements were made in good
faith.
While this appeal was pending, the settling defendants filed
a complaint on the assigned claims against Litgen. Before
the appellate court, the settling defendants filed a motion to
dismiss Litgen’s appeal, asserting that the new complaint
rendered the trial court’s good-faith finding nonfinal and unappealable, robbing the appellate court of jurisdiction. The appellate court agreed with the settling defendants and dismissed
Litgen’s appeal. See, Dubina v. Mesirow Realty Development,
Inc., 283 Ill. App. 3d 36, 669 N.E.2d 694 (1st Dist. 1996). The
Third Quarter 2005
Illinois Supreme Court then reversed and remanded to the
appellate court. See, Dubina v. Mesirow Realty Development,
Inc., 178 Ill. 2d 496, 687 N.E.2d 871 (1997).
On remand, the appellate court noted that if the settling
defendants could shed their roles as tortfeasors for the roles of
unfettered plaintiffs, they could pursue a recovery otherwise
prohibited by the Contribution Act. The appellate court stated
that the settlement agreements allowed settling defendants
to recoup their share of damages, perhaps make a profit, and
yet be shielded from contribution under the Contribution Act.
“The result is antithetical to the Contribution Act, whether it
is achieved by ‘assignment’ or ‘contribution,’ and whether
the settling defendants are labeled ‘plaintiffs’ or ‘joint tortfeasors.’ The assignments allow the settling defendants to seek
indirectly a reimbursement the Contribution Act prohibits and
undermine the equitable sharing of damages.” See, Dubina,
308 Ill. App. 3d at 357. The appellate court held that the trial
court erred in finding the agreements were in made good
faith, reversed the dismissal of Litgen’s contribution claims,
and remanded to the trial court for further proceedings. The
Illinois Supreme Court then granted the settling defendants’
petition for leave to appeal and affirmed.
In its decision to affirm the appellate court, the Illinois
Supreme Court concluded that the settlement agreements,
and by extension the assignments, violated the terms of and
policies behind the Act. First, the agreements and assignments
violated Section 2(c) of the Act because they deprived Litgen
of its statutory right to a setoff. The settling defendants labeled
half of the $9 million it gave to the plaintiffs as a payment for
the assignments; if Litgen lost at trial, it would not receive
credit for $4.5 million exchanged between its joint tortfeasors
and the plaintiffs. Second, the agreements and assignments
defeated the Act’s goal of equitable apportionment of damages
among joint tortfeasors. The settling defendants would recoup
the settlement amount – $4.5 million – as well as any damages
exceeding the $9 million it gave to the plaintiffs from Litgen
if they succeeded on the assigned claims. Third, and finally,
the settlement agreements and assignments violated the Act
because they allowed the settling defendants to accomplish
indirectly that which they could not do directly – recover
contribution from Litgen. Because the agreements and the
assignments violated the Act, they did not satisfy the goodfaith requirement of the Act. See, Dubina, 197 Ill. 2d at 196.
On remand, the settling defendants again refiled their complaint on the assigned claims against Litgen. Litgen filed a
motion to dismiss, arguing that the settling defendants could
not pursue the assigned claims because the settlement agreement that contained the assignments was not made in good
faith. The trial court granted Litgen’s motion and dismissed
the settling defendants’ complaint. The settling defendants
appealed and the appellate court affirmed. Then, for the third
time, the Illinois Supreme Court granted the petition for leave
to appeal. BHI Corp., 827 N.E.2d at 438-139.
The Illinois Supreme Court first addressed the Contribution Act. The Contribution Act codified the Court’s opinion in
Skinner v. Reed-Prentice Division Package Machinery Co.,
70 Ill. 2d 1, 374 N.E.2d 437 (1977), and created a right of
contribution among joint tortfeasors. See, 740 ILCS 100/2(a)
(West 2002). A defendant who has paid more than its pro rata
share of damages to the plaintiff has a right of contribution
from its codefendants. A good-faith settlement discharges any
contribution liability for settling defendants and it reduces
the amount of any recovery against nonsettling defendants. A
good-faith settlement, however, does not entitle settling defendants to recover contribution from nonsettling defendants.
See, 740 ILCS 100/2(b-e)(West 2002).
In this case, the settling defendants argued that the court’s
opinion did not affect the legal validity of the settlement agreements or the assignments that they contained. The settling
defendants insisted that they simply wished to abandon the
protection that a good-faith settlement would provide under
the Act and proceed on the assigned claims against Litgen,
subject to its contribution claims. BHI Corp., 827 N.E.2d at
440.
The supreme court responded that it has consistently stated
that the Contribution Act furthers two policies: promoting
settlement and ensuring equitable apportionment of damages. See, Johnson v. United Airlines, 203 Ill. 2d 121, 784
N.E.2d 812 (2003). Specifically, the Act promotes settlement
by providing that a defendant who enters into a good-faith
settlement with the plaintiff is discharged from any contribution liability to a nonsettling defendant. The Act ensures
equitable apportionment of damages, mainly, by creating
a right of contribution among defendants. It also ensures
equitable apportionment of damages “by providing that the
amount that the plaintiff recovers on a claim against any other
nonsettling tortfeasors will be reduced or set off by the amount
stated in the settlement agreement.” See, In re Guardianship
of Babb, 162 Ill. 2d 153, 642 N.E2d 1195 (1994). Further, the
Act provides that a settling joint tortfeasor may not recover
contribution from a nonsettling joint tortfeasor. This rule, too,
fosters equitable apportionment because it prevents a settling
defendant, who decides how to value its liability, from obtaining contribution from a nonsettling defendant, whose pro rata
share of damages has not yet been fixed by a fact finder. BHI
Corp., 827 N.E.2d at 440-441.
The settling defendants in this case focused on their
purported willingness to forgo the protections that the Act
(Continued on next page)
61
IDC Quarterly
Recent Decisions (Continued)
offers to joint tortfeasors who settle in good faith. However,
the supreme court noted that they have no choice, after the
holding in the prior opinion that the settlement agreements
and assignments together violated Section 2(e) of the Act. See,
Dubina, 197 Ill. 2d at 196. Section 2(e) provides, “A tortfeasor who settles with a claimant pursuant to paragraph (c) is
not entitled to recover contribution from another tortfeasor
whose liability is not extinguished by the settlement.” 740
ILCS 100/2(e)(West 2002).
Whether the recovery sought by the settling defendants
is grounded upon the Contribution Act or the assignments,
it is still contribution from a nonsettling tortfeasor. As the
appellate court stated, “the assignments flowing from a bad
settlement cannot sanitize the settling defendants’ attempt to
collect contribution.” Therefore, an arrangement by which
a settling defendant attempts to obtain indirect contribution
from a nonsettling defendant by an assignment of claims
violates the Contribution Act. The Court determined that it
could not allow the settling defendants to contract an end
run around Section 2(e). Accordingly, the Court held that the
settling defendants may not pursue the assigned claims. BHI
Corp., 827 N.E.2d at 441.
The Distraction Exception to the
Open and Obvious Defense
In Sandoval v. City of Chicago, 2005 WL 1322782 (1st
Dist., June 3, 2005), the plaintiff, Catalina Sandoval, was
caring for her neighbor’s young son when she tripped and fell
due to a crater-like defect in the sidewalk in front of her home
causing her to become injured. The plaintiff and child were
outside when the plaintiff lost sight of the child. The plaintiff
became “concerned” that the child wandered toward her yard
and was “afraid” he would attempt to descend the stairs to
her house. The plaintiff then began walking toward her yard
when her foot became wedged in the sidewalk defect. The
plaintiff sued the City of Chicago for negligence.
The plaintiff admitted that the sidewalk defect had been in
the same location in front of her home for four years before
her accident, she walked past it “millions of time” and was
aware of the defect at the time of her fall. The defect was in a
five by six foot square of sidewalk with most of the concrete
missing and the dirt underneath was exposed with some concrete protruding through the surface. The plaintiff contacted
her alderman about the defect less than a year before her accident. The plaintiff admitted that at the time of her accident,
nothing obstructed her view of the sidewalk where she fell,
62
she saw nothing unusual about her surroundings and nothing
was distracting her.
The City moved for summary judgment, stating that it did
not owe the plaintiff a duty of care because the condition of
the sidewalk was open and obvious. The plaintiff responded
by arguing that the City caused the defect when it removed a
tree and she asserted that the distraction exception applied to
impose a duty. The trial court granted the City’s motion and
in doing so held that the plaintiff presented no evidence that
the City created the defect, that it was aware of the defect or
that the City should have reasonably foreseen that the plaintiff
would become distracted and fail to appreciate the defect. During a motion for rehearing, the court clarified that its ruling
was based on the fact that the defect was open and obvious
and there was no evidence that the plaintiff was distracted or
any evidence that the City should have reasonably foreseen
that the plaintiff would have become distracted. Sandoval,
2005 WL 1322782 at *1-2.
The appellate court noted that in order to sustain her cause
for negligence, the plaintiff was required to establish that the
defendant owed her a duty of care by showing that she and
the defendant stood in such a relationship to one another that
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
foreseeability that defendant’s conduct will result in injury
to another; (2) the likelihood of injury; (3) the magnitude
of guarding against it; and (4) the consequences of placing
that burden on the defendant. Sandoval, 2005 WL 1322782
at *2-3; see also, Bonner v. City of Chicago, 334 Ill. App. 3d
481 (1st Dist. 2002).
As to the reasonable foreseeability of injury element, Illinois law holds that persons or entities who own or control
land are not required to foresee and protect against injuries
from potentially dangerous conditions that are open and obvious. See, Bucheleres v. Chicago Park District, 171 Ill. 2d 435
(1996). “Open and obvious” conditions include those where
the condition and risk are apparent to, and would be recognized by, a reasonable person exercising ordinary perception,
intelligence and judgment in visiting an area. Therefore, the
determination of whether a condition is open and obvious
depends not on plaintiff’s subjective knowledge but, rather,
on the objective knowledge of a reasonable person confronted
with the same condition. This is because property owners are
entitled to the expectation that those who enter upon their
property will exercise reasonable care for their own safety.
See, Bonner, 334 Ill. App. 3d 481; see also, Bucheleres v.
Chicago Park District, 171 Ill. 2d 435 (1996).
In this matter, the plaintiff argued that an exception to the
Third Quarter 2005
open and obvious rule applied – the distraction exception.
Under the “distraction exception,” a defendant-property
owner can be found to owe a duty of care, despite an open
and obvious condition, if he has reason to expect that the
plaintiff-invitee’s attention might be distracted so that she
would not discover, or may forget that she had previously
discovered, the obvious condition. The appellate court noted
“The large five-by-six-foot section
of the sidewalk was missing most
of its concrete surface, and the dirt
underneath was exposed.”
that cases applying this exception involve situations in which
the injured plaintiff was distracted from the open and obvious
condition because circumstances required that she focus her
attention on some other condition or hazard.
Under the distraction exception, the defendant is not required to anticipate the specific plaintiff’s own negligence
or make her premises injury-proof. However, if it is reasonable for the defendant to anticipate injury to an invitee who
is otherwise exercising general care for her safety but may
reasonably be expected to be distracted to an obvious condition on the premises, then a duty is owed. Sandoval, 2005 WL
1322782 at *3-4.
The appellate court reviewed the record, which contained
photographs of the defect, and noted that the defect was clearly
a condition of open and obvious danger. The large five-by-sixfoot section of the sidewalk was missing most of its concrete
surface, and the dirt underneath was exposed. While the dirt
comprised a level surface, a big chunk of concrete remained,
sticking upright some three to four inches from the dirt. The
appellate court went on to note that being confronted with
these circumstances, any reasonable person exercising ordinary care in visiting this area would recognize and appreciate
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
that she had walked by it “millions of times,” she knew it was
there on the day of the accident, she was fully aware of the
missing concrete, of the exposed dirt, and most importantly,
of the elevated “island” in this slab of sidewalk. In addition
to agreeing that the condition was open and obvious, the
plaintiff specifically admitted that at the precise time of the
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 appellate court found it to be clear that plaintiff failed to
present evidence to show she was distracted at the time of her
fall and the City could not have reasonably foreseen that the
plaintiff would be distracted as she walked on the sidewalk.
Sandoval, 2005 WL 1322782 at *5.
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
attention from the open and obvious condition and, thus, was
charged with reasonable foreseeability that an injury might
occur. In contrast, the occurrence in this case falls within the
line of cases that reinforces that when a plaintiff’s attention is
diverted by her own independent acts for which the defendant
has no direct responsibility, the distraction exception does not
apply. See, Prostran v. City of Chicago, 349 Ill. App. 3d 81
(1st Dist. 2004); Bonner v. City of Chicago, 334 Ill. App. 3d
481 (1st Dist. 2002); and Richardson v. Vaughn, 251 Ill. App.
3d 403 (2d Dist. 1993).
The appellate court found that the City was in no way responsible for, contributed to, or created this situation, which
began when the plaintiff brought the child outside to the
parkway. Accordingly, it found that the City owed no duty
to the plaintiff to warn or otherwise safeguard her from potential harm posed by the open and obvious sidewalk defect
in front of her home, where her injury resulted not from a
distraction that could be reasonably anticipated by the City
but, instead, was the result of her own inattentiveness in not
looking forward where she was walking. Sandoval, 2005 WL
1322782 at *6-7. Therefore, the entry of summary judgment
was affirmed.
63
IDC Quarterly
Supreme Court Watch
By: Beth A. Bauer
Burroughs, Hepler, Broom, MacDonald, Hebrank and True
Edwardsville
Can a Contribution Claim be
Filed Separately from an
Underlying Action in Which the Court
Denied Leave to File the Claim?
Harshman v. DePhillips, 354 Ill. App. 3d 429, 820 N.E.2d
1164 (1st Dist. 2004), app. allowed, 214 Ill. 2d 531 (Doc. No.
99805).
The plaintiffs in this action were sued in an underlying
case in the Federal District Court for the Northern District of
Indiana by the victims of an automobile accident involving
the plaintiffs’ truck and the victims’ car. One of the victims
received medical treatment from a physician who performed
a four-level spinal fusion. In the underlying case, the victims
asserted no claim against the physician.
The plaintiffs in this case attempted to file a contribution
claim against the physician in the underlying case when expert
testimony revealed that a spinal fusion performed on one of
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).
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
case had argued would bar them from bringing a contribution
claim after the underlying case was closed, was abrogated by
statute when the Illinois Joint Tortfeasor Contribution Act, 740
ILCS 100/0.01, et. seq., was amended in 1995, citing Credit
General Insurance Co. v. Midwest Indemnity Corp., 916 F.
Supp. 766, 774 (N.D. Ill. 1996).
64
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
court, and they were awarded damages of approximately $1.5
million.
In this case the physician filed a motion to dismiss the contribution claim based on Laue, and argued that a contribution
claim must be brought in the original proceedings. The trial
court denied the physician’s motion and he subsequently filed
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
original proceedings in a separate jurisdiction and was denied
leave by that court to file said contribution claim?” 354 Ill.
App. 3d at 430.
The plaintiffs assert that the First District, without oral
argument, decided to answer the certified question in the negative, which effectively dismissed the plaintiffs’ contribution
claim for failure to file the contribution action in the original
proceeding.
The plaintiffs seek reversal by the Illinois Supreme Court,
arguing that the First District has created a “Catch-22” situation. The plaintiffs ask the supreme court to find that by filing the motion for leave to bring a contribution action in the
underlying proceeding, the plaintiffs have actually complied
with the requirements of Laue. The plaintiffs argue that Laue
merely requires that the contribution claim be asserted in the
underlying action, citing Cook v. General Electric Co., 146
Ill. 2d 548, 588 N.E.2d 1087 (1992) and Anderson v. AlbertoCulver USA, Inc., 337 Ill. App. 3d 643, 789 N.E.2d 304 (1st
Dist. 2003).
About the Author
Beth A. Bauer concentrates her practice in the area of
appellate practice at Burroughs, Hepler, Broom, MacDonald, Hebrank and True in Edwardsville. She graduated
cum laude from St. Louis University School of Law in
2000 and received her B.A. with honors from Washington
University in 1997. Ms. Bauer is a member of the Illinois
and Missouri State Bar Associations and National Christian
Legal Society.
Third Quarter 2005
Supreme Court to Consider Another
Intrastate Forum Non Conveniens Case
Langenhorst v. Norfolk Southern Railway Co., 354 Ill. App.
3d 1103, 822 N.E.2d 480 (5th Dist. 2004), app. allowed, 214
Ill. 2d 535 (Doc. No. 99924).
The plaintiff filed suit against the defendants in St. Clair
County, Illinois, alleging that her decedent drove his truck in
front of the railroad defendant’s train in Clinton County, Illinois. The defendants filed a motion to transfer the case to Clinton County based on the doctrine of forum non conveniens,
claiming that Clinton County was a more convenient county
than St. Clair County for the trial of this case. The defendants’
motion was supported not only by affidavit, demonstrating
that the accident occurred in Clinton County, that plaintiff, her
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 postoccurrence witnesses reside in Clinton County. The trial court
denied the motion to transfer.
Only after the Illinois Supreme Court issued a supervisory
order directing the Fifth District to vacate its original denial
of the petition for leave to appeal in light of Dawdy v. Union
Pacific R.R. Co., 207 Ill. 2d 167, 797 N.E.2d 687 (2003) and
First American Bank v. Guerine, 198 Ill. 2d 511, 764 N.E.2d
54 (2002), did the Fifth District accept the defendants’ petition
for leave to appeal. After considering the issue, however, the
Fifth District affirmed the circuit court’s order denying the
defendants’ motion to transfer. The Fifth District ruled that
the convenience factors do not strongly favor a transfer of the
case, specifically finding that: two potential witnesses (one a
treating doctor and the other the plaintiff’s attorney’s investigator) live in St. Clair County; the lawyers who will try the
case both have offices near the St. Clair County courthouse;
all the doctors who treated the decedent live in or closer to
St. Clair County than Clinton County; the two counties are on
nearly equal footing regarding disposal of civil cases seeking
damages in excess of $50,000; and St. Clair County residents
have an interest in the case. Thus, a St. Clair County jury
would not necessarily be burdened by deciding the issues in
the case.
The defendants seek reversal by the Illinois Supreme Court,
contending that the Fifth District’s published opinion misconstrues the Illinois Supreme Court’s controlling authority
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
that the Fifth District improperly minimized the possibility
of a jury view, refused to acknowledge the plaintiff’s list of
witnesses, virtually all of which reside in Clinton County, and
gave undue weight to the location of the decedent’s physicians
and plaintiff’s counsel’s investigator. Further, according to the
defendant, the public interest factors require transfer to Clinton
County. The defendants also contend that the Fifth District
improperly found that court congestion is not significantly
worse in St. Clair County than in Clinton County and that it
improperly gave undue weight to the location of the offices
of the attorneys.
The defendants aggressively assert that Dawdy is controlling regarding the outcome of this case and mandates transfer
to Clinton County. Alternatively, the defendants request that
the supreme court exercise its supervisory authority and enter
an order transferring the case to Clinton County.
Insurance Policy Suit Limitations
Provision Deemed Waived
Mathis v. Lumbermen’s Mutual Casualty Ins. Co., 354 Ill.
App. 3d 854, 822 N.E.2d 543 (5th Dist. 2004), app. allowed,
214 Ill. 2d 535 (Doc. No. 100042).
The plaintiff filed suit against the defendant alleging that
the defendant issued a homeowner’s policy, insuring her residence between June 6, 2000, and June 6, 2001. The complaint
further alleged that on July 16, 2000, a fire destroyed the
plaintiff’s home and that the defendant breached the insurance
contract by refusing to pay under the insurance policy for the
plaintiff’s damages claim arising out of the fire. Count II of
the complaint alleged defamation regarding an unspecified
communication allegedly made by the defendant that the
plaintiff had committed arson. The defendant filed a motion
to dismiss pursuant to 735 ILCS 5/2-619(a)(5), arguing that
Count I was time-barred by the one-year suit limitations provision in the insurance policy. In response, the plaintiff argued
that the defendant waived its right to raise the one-year suit
limitation provision because it failed to advise the plaintiff in
its December 7, 2000, denial letter of the number of days she
had left to file suit against the defendant as allegedly required
under an administrative regulation of the Illinois Department
of Insurance. The trial court agreed with plaintiff’s waiver
argument and granted the plaintiff leave to file amended
pleadings.
(Continued on next page)
65
IDC Quarterly
Supreme Court Watch (Continued)
After its motion to reconsider was denied, the defendant
filed a motion for Rule 308 certification, and the trial court
granted that motion certifying the following question for
immediate appeal: “Where a homeowner’s insurance policy
contains a one[-]year suit[-]filing limitation, can a Department
of Insurance administrative regulation, that requires an insurer
to advise [the insured] of the number of days the limitations
period was tolled under 50 Ill. Adm. Code Section 919.80(d)
(8)(C), form the basis of an insurer’s alleged waiver of the
extended contractual limitation suit[-]filing time period?” 354
Ill. App. 3d at 855
Relying on California case law, the Fifth District answered
the certified question in the affirmative, finding that an insurer’s violation of Section 919.80(d)(8)(C) can provide a
basis for an insurer’s waiver of a time-limitation provision
contained in an insurance policy. The court held that the defendant waived the policy’s proof-of-loss requirement when
it denied the claim on grounds other than the failure to file a
proof-of-loss.
The defendant seeks reversal by the Illinois Supreme Court,
arguing that the Fifth District unduly expanded the reach of
Section 143.1 of the Insurance Code and the Department of
Insurance regulation at issue. The defendant contends that in
the absence of tolling, Section 919.80(d)(8)(C) does not require an insurer to advise of the number of days left before the
insured must file suit under the policy, nor does it require the
insurer to restate the terms of the contractual suit limitations
provision. The defendant argues that because no proof-of-loss
was ever filed in this case, tolling is not at issue, and as such,
it could not have violated the administrative code.
The defendant also avers that the Fifth District’s reliance
on Spray, Gould & Bowers v. Associated International Ins.
Co., 71 Cal. App. 4th 1260, 84 Cal. Rptr. 2d 552 (1999) was
error because the regulation at issue here is not as broad as
the California regulation at issue in that case.
The defendant further requests reversal because the appellate court’s opinion creates an irreconcilable conflict with the
other appellate court districts, citing Garcia v. Metropolitan
Property and Casualty Ins. Co., 281 Ill. App. 3d 368, 666
N.E.2d 802 (1st Dist.1996); Williams v. Prudential Property
& Casualty Ins. Co., 223 Ill. App. 3d 654, 585 N.E.2d 1110
(2d Dist.1992); Florsheim v. Travelers Indemnity Co., 75 Ill.
App. 3d 298, 393 N.E.2d 1223 (1st Dist.1979); McMahon v.
Millers National Ins. Co., 131 Ill. App. 2d 339, 266 N.E.2d
714 (1st Dist.1971); and Village of Lake in the Hills v. Illinois
Emcasco Ins. Co., 153 Ill. App. 3d 815, 506 N.E.2d 681 (2d
Dist.1987). According to the defendant, these cases stand for
66
the proposition that compliance with a contractual suit limitation provision is a condition precedent to recovery under an
insurance policy, and the Fifth District declined to follow that
authority. Instead, it created a new exception to enforcement
of the contractual suit limitation provision in direct contravention to the Fourth District’s decision in Valla v. Pacific
Insurance Co., Ltd., 296 Ill. App. 3d 968, 695 N.E.2d 581
(4th Dist.1998), which held that Section 143.1 of the Insurance Code did not apply and the one-year limitation period
was not tolled where the insurer denied the claim before the
insured filed a proof-of-loss.
Refusal to Defend Based on
Untimely Notice of Suit:
Must an Insurer Justify Its Decision
with a Showing of Prejudice?
Country Mutual Ins. Co. v. Livorsi Marine, Inc., __ Ill.
App. 3d __, __ N.E.2d __, 2004 WL 2715453 (1st Dist. Doc.
Nos. 1-03-2832 and 1-03-2912), app. allowed, __Ill. 2d __
(Doc. No. 99807).
The insurer filed a declaratory judgment action challenging
whether it is obligated to indemnify or defend the defendantsinsureds concerning trademark infringement actions between
the insureds. Both of the insureds, according to their Petition
for Leave to Appeal, purchased CGL insurance policies from
the insurer, which are materially identical, providing coverage
to the insureds for “advertising injury.” The insureds state that
the policies define the term “advertising injury,” in pertinent
part, as “infringement of copyright, title, or slogan” and “misappropriation of advertising ideas or style of doing business.”
The scope of coverage for “advertising injury” includes damages from an adverse judgment as well as a “duty to defend
‘suit’ seeking those damages.” The insureds recount that the
policies listed conditions for coverage, including a duty to
notify the insurer “as soon as practicable” in the event of an
occurrence, offense, claim or suit and to “immediately send”
the insurer copies of any demands, notices, summonses, or
legal papers in connection with a claim or suit.
The trademark infringement actions were filed on December 1, 1999. The parties stipulated that the insurer did not
receive actual and sufficient notice of the underlying case until
August 1, 2001. The trial of the infringement suit began on
March 1, 2002. The circuit court entered declaratory judgment
in favor of the insurer and against the insureds and found that
the insurer had no duty to defend the insureds due to the late
notice.
Third Quarter 2005
The First District Appellate Court framed the issue on appeal as follows: “When an insured is required by its contract
with its insurer to give timely notice of a lawsuit against it,
but does not do so and has no excuse for not doing it, does the
insurer have to prove prejudice before it can avoid coverage?”
The First District concluded that an insurer’s failure to prove
prejudice is a factor to consider when determining whether the
insured’s notice was unreasonably and inexcusably late but
that once it is determined the insured’ s notice was unreasonably and inexcusably late, the failure of the insurer to prove
it suffered prejudice is irrelevant.
The insureds seek reversal by the supreme court, contending that the appellate court erred in affirming the trial court’s
narrowly construed position on insurance policy notice provisions. The insureds’ perspective is that both lower courts
ignored the important public policy promoting coverage and
the modern approach requiring consideration of insurance
company prejudice. The insureds argue that in notice-of-suit
cases, the insurer must show some degree of prejudice to be
relieved of its duty to defend, citing Illinois Founders Ins. Co.
v. Barnett, 304 Ill. App. 3d 602 (1st Dist. 1999); Montgomery
Ward and Co., Inc. v. Home Insurance Co., 324 Ill. App. 3d
441 (1st Dist. 2001); Rice v. AAA Aerostar, Inc., 294 Ill. App.
3d 801 (4th Dist. 1998); Vega v. Gore, 313 Ill. App. 3d 632
(2d Dist. 2000); Cincinnati Insurance Co. v. Baur’s Opera
House, Inc., 296 Ill. App. 3d 1011 (4th Dist. 1998), and Fremont Indemnity Co. v. Special Earth Equipment Corp., 131
Ill. App. 3d 108 (5th Dist. 1985).
The insureds further argue that due to the insurer’s conflict
of interest, as a matter of law, it could not show prejudice by
any delay in notice. The insureds aver that the insurer’s conflict of interest would have required it to permit the insureds
to choose their own independent counsel and that it would
have had no control over the litigation in any respect. As such,
it could not suffer any prejudice.
Finally, the insureds argue that the lower court should have
alternatively applied a reasoned equitable approach by adopting a “no pre-notice defense cost rule,” which would punish
the delayed notice but otherwise would require the insurer to
accept the duty to defend the insureds after notice was given
of the lawsuit.
Would You Like Fries With That?
Marshall v. Burger King Corp., 355 Ill. App. 3d 685, 824
N.E.2d 661 (2d Dist. 2005), app. allowed, __ Ill. 2d __ (Doc.
No. 100372).
The plaintiff’s decedent was killed when the defendant’s
patron crashed her automobile into a wall and windows of
the defendant’s building, causing fatal injuries to the decedent who was inside the restaurant. The defendant moved to
dismiss the plaintiff’s complaint for negligence, arguing that
no duty exists under Illinois law requiring the defendant to
protect the plaintiff’s decedent from injuries caused by the
automobile. Further, the defendant argued that, as a matter
of law, the occurrence was not foreseeable. The trial court
concluded the duty that the plaintiff sought to impose upon
the defendant was too high and not supported by Illinois law:
The trial court reasoned that to impose such a duty “would
require fortifying every building within striking distance of
any crazed or incredibly inept driver.” 355 Ill. App. 3d at 687.
The Second District appellate court reversed, with one
justice dissenting, finding that the defendant owed a duty to
protect against an out-of-control driver who drives her automobile into a restaurant.
Requesting supreme court reversal, the defendant contends that Illinois law directly supports the trial court’s ruling dismissing the plaintiff’s complaint on the basis that the
plaintiff has failed to state a cause of action, citing Simmons
v. Aldi-Brenner Co., 162 Ill. App. 3d 238, 515 N.E.2d 403 (3d
Dist. 1987). According to the defendant, the Simmons case
is directly on point and in it the Third District declined to
impose exactly the duty which the Second District imposed
in this case. The defendant also cites Stutz v. Kamm, 204 Ill.
App. 3d 898, 562 N.E.2d 399 (4th Dist. 1990) which it contends followed the Simmons decision, refusing to impose a
duty where a driver drove her vehicle into a driver’s license
examination facility.
The defendant further argues that the supreme court should
review this decision because the design of the defendant’s
building did not proximately cause the injury to plaintiff’s
decedent. Stated otherwise, the defendant’s allegedly negligent 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
Professional Liability
By: Martin J. O’Hara
Quinlan & Carroll, Ltd.
Chicago
The “Actual Innocence” Rule
Continues to Provide Significant
Protection for Criminal
Defense Attorneys
Criminal defense attorneys in Illinois are well aware that
clients can become disgruntled when convicted. Convicted
clients have long asserted claims of ineffective assistance of
counsel in an effort to reverse the conviction. However, a
more recent trend has been for convicted persons to file civil
claims for legal malpractice. The First District Appellate Court
recently reaffirmed that the “actual innocence” rule provides
a very difficult hurdle for plaintiffs pursuing such claims.
Paulsen v. Cochran, 356 Ill. App. 3d 354, 826 N.E.2d 526,
292 Ill. Dec. 385 (1st Dist. 2005).
In 2002, Michael Paulsen, a Chicago resident, was arrested
in Arizona and charged with conspiracy to transport marijuana.
Paulsen sought representation from the Cochran firm. He was
referred to Mr. Anthony Schuman, an attorney not associated
with the Cochran firm. Schuman then sought assistance from
Mr. Joel Schwartz, a Missouri attorney.
In August of 2002, Paulsen signed a plea agreement stating that he would plead guilty to the conspiracy charge in
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.
Paulsen subsequently filed a petition for postconviction
relief seeking resentencing as to the fine, but he did not withdraw his guilty plea. Paulsen’s fine was reduced from $88,500
to $50,000 because of a miscalculation in the plea agreement.
Thereafter, Paulsen filed a legal malpractice action against
the Cochran firm, Schuman and Schwartz, arguing that the
fee arrangement made between Mr. Schuman and the Co-
68
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
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
opposed to a fine and jail sentence.
The defendants moved to dismiss the complaint on various 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
Paulsen’s legal malpractice complaint. The trial court agreed,
and dismissed Paulsen’s complaint with prejudice pursuant
to Section 2-619 of the Illinois Code of Civil Procedure (735
ILCS 5/2-619).
On appeal, the Paulsen court affirmed. The court initially
set forth the standard elements for a legal malpractice claim:
1) the existence of an attorney-client relationship; 2) a duty
arising from that relationship; 3) a breach of that duty on the
part of the attorney; 4) proximate cause; and (5) damages.
Paulsen, 826 N.E.2d at 530. However, the court noted that an
“additional element is required of a criminal defendant who
must prove his innocence before he may recover from his
criminal defense attorney’s malpractice.” Id., citing Kramer
v. Dirksen, 296 Ill. App. 3d 819, 695 N.E.2d 1288, 231 Ill.
Dec. 169 (1st Dist. 1998).
The Paulsen court discussed the genesis and rationale for
requiring this additional element. The “actual innocence” rule
is derived from the doctrine of collateral estoppel, whereby
a valid criminal conviction acts as a bar to overturning that
conviction in a civil damages suit. Levine v. Kling, 123 F.3d
580, 583 (7th Cir. 1997); Appley v. West, 832 F.2d 1021, 102526 (7th Cir. 1987); Scherer v. Balkema, 840 F.2d 437, 442 (7th
Cir. 1988); Restatement (Second) of Judgments, § 85(2)(a)
and comment e (1982). In Levine, Judge Posner held that the
About the Author
Martin J. O’Hara is a partner with the Chicago firm
of Quinlan & Carroll, Ltd. His practice is devoted to
litigation, including commercial cases, and the defense of
professionals in malpractice actions. Mr. O’Hara received
his B.A. from Illinois State University and J.D. with
honors from John Marshall Law School. He is a member
of DRI, IDC, ISBA and CBA.
Third Quarter 2005
“only way in which a criminal defendant could establish injury
in a case of malpractice against his defense counsel would
be by showing that competent counsel would have obtained
an acquittal for him.” 123 F.3d at 582. Fundamentally, tort
law is meant to provide damages to a plaintiff whose legally
protected interests have been impeded; a guilty criminal’s
liberty is not a legally protected interest. Id. Further, Judge
Posner found that to award the defendant, who was justly
convicted and imprisoned, money for the loss of his liberty
“is to give him relief to which criminal law, and the federal
constitutional right to counsel, does not entitle him.” Id.
Since 1998, Illinois courts have applied the “actual innocence” requirement for former criminal defendants who
become malpractice plaintiffs. Kramer, 296 Ill. App. 3d 819,
821 (1st Dist. 1998). The Kramer court held that a legal malpractice case was properly dismissed under Section 2-619 of
the Illinois Code of Civil Procedure where the plaintiff, a former criminal defendant who was found guilty, could not prove
his actual innocence. Id. The court reasoned that the “actual
innocence” requirement in legal malpractice cases, where the
underlying case was criminal, eliminated the possibility that
a plaintiff, who had been found guilty of the crime, would
profit from his criminal activity. Id.; Paulsen, 826 N.E.2d at
530; see also, Levine, 123 F.3d at 582.
The Paulsen court noted that there is a recognized exception to the “actual innocence” rule in Illinois as a result of
the decision in Morris v. Margulis. Morris, 307 Ill. App. 3d
1024, 1039, 718 N.E.2d 709, 241 Ill. Dec. 138 (5th Dist.
1999); rev’d on other grounds, 197 Ill. 2d 28, 754 N.E.2d
314, 257 Ill. Dec. 656 (2001). In Morris, the plaintiff alleged
that the defendant attorneys had breached their fiduciary duty
by disclosing confidential information to the assistant U.S.
attorneys who were prosecuting the plaintiff. The defendants
asserted that the plaintiff could not prevail in his action unless
he proved that he was actually innocent of the charges for
which he was ultimately convicted. The Morris court rejected
the defendants’ assertion.
The court held that it would be unconscionable to apply
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.
Recognizing that the Morris exception did not apply to his
claim, Paulsen argued that a second exception to the “actual
innocence” rule be created. Specifically, Paulsen argued that
in cases where the malpractice claim alleges something other
than wrongful conviction, neither Illinois law nor public
policy requires a criminal defendant to prove “actual innocence” to state a cause of action. Paulsen, 826 N.E.2d at 529.
Paulsen contended that the “actual innocence” rule should not
be applied to a criminal defendant who has pled guilty, but
does not believe that his attorney negotiated the best possible
sentence. Id. at 532. Because he was not asserting that the
malpractice resulted in a wrongful conviction, but instead
the malpractice resulted in an incorrect sentence, Paulsen
argued that the “actual innocence” rule had no application.
Conversely, the defendants asserted that because there was
no evidence of intentional or wilful betrayal of Paulsen, the
“actual innocence” rule had to be applied. Id. at 529.
The court found that the issue raised by Paulsen had not
been addressed by any Illinois court. The court therefore
considered foreign cases that had been cited by the parties.
Paulsen cited to cases from Ohio, Maryland and Louisiana
that permitted criminal defendants to pursue legal malpractice
claims relating to negligence that occurred in connection with
sentencing, even though the criminal defendants could not
prove that they actually were innocent. The Paulsen court
found that the cases relied on by Paulsen were from states
that have not adopted the “actual innocence” rule. Because
Illinois has adopted the “actual innocence” rule, the court
found Paulsen’s cases unpersuasive.
Thus, the Paulsen court rejected the invitation to create a
second exception to the “actual innocence” rule. The court
held firm that the only exception recognized in Illinois involves cases where criminal defense attorneys intentionally
breach their fiduciary duties to clients. Because this exception
is quite narrow, the “actual innocence” rule remains alive and
well, and should continue to provide significant protection for
criminal defense attorneys against claims of legal malpractice
brought by former clients who have been convicted.
69
IDC Quarterly
When is a Conveyance Fraudulent?
Property Insurance
By: Tracy E. Stevenson
Chuhak & Tecson P.C.
Chicago
A Judgment has Been Entered:
Can the Debtor Protect His Assets?
This article follows closely on the heels of last quarter’s
column dealing with the use of citations to discover assets
following the entry of a judgment against an individual or a
corporation. Here, a brief overview of the Illinois Fraudulent
Conveyance Act may shed some light on the manner in which
property is transferred when a claim is pending and when a
transfer of property must occur to keep the transfer from being
found void by a court of law. The law governing a majority of
the issues surrounding conveyances of property is codified at
740 ILCS 160/1 et seq. This article will give a brief overview
of this statute and its impact on judgment debtors.
Where are the Assets?
First, following a judgment, the creditor must locate the
assets of the debtor often through use of a citation to discover
assets. While this tool is handy to locate assets currently in
the possession of a judgment debtor, it can also be vital to
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
participated in a fraudulent conveyance. Firstar Bank, N.A. v.
Faul, ___F. Supp. 2d___, 2001 U.S. Dist. LEXIS 21294 (N.D.
Ill. Dec. 19, 2001). Thus a transfer under the law may not be a
protection; it may simply permit the number of debtors from
whom a creditor can collect to multiply.
70
Generally, to establish that a conveyance is fraudulent
in law, three elements must be present: (1) there must be a
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
retain sufficient property to pay his indebtedness. See, Cannon v. Whitman Corp., 212 Ill. App. 3d 79, 82, 569 N.E.2d
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
hinder, delay, or defraud any creditor of the debtor. 740 ILCS
160/5(a). Further, Section 5(b) provides, in relevant part:
in determining the actual intent under paragraph (1)
of subsection (a), consideration may be given, among
other factors, to whether . . . (2) the debtor retained
possession or control of the property transferred after
the transfer; . . . (4) before the transfer was made or
obligation was incurred, the debtor had been sued or
threatened with suit; . . . (5) the transfer was substantially
all the debtor’s assets; . . . (6) the debtor absconded; . . .
(7) the debtor removed or concealed assets; . . . (9) the
debtor was insolvent or became insolvent shortly after
the transfer was made or the obligation was incurred.
740 ILCS 160/5(b).
When determining whether a conveyance is fraudulent,
actual insolvency is not required; the test is whether the conveyance directly tended to or did impair the rights of creditors.
Falcon v Thomas, 258 Ill. App. 3d 900, 629 N.E.2d 789 (4th
About the Author
Tracy E. Stevenson is a partner in the Chicago firm of Chuhak and Tecson, P.C., where she concentrates her practice
in medical malpractice defense and insurance defense. She
has defended cases on behalf of physicians and hospitals
and represented various major insurance companies in
claims for personal injury. She is licensed in Michigan as
well as Illinois.
Third Quarter 2005
Dist. 1994). Further, for purposes of the Illinois Fraudulent
Transfer Act, a debtor is insolvent if the sum of the debtor’s
debts is greater than all of the debtor’s assets at a fair valuation. 740 ILCS 160/3(a). In addition, for the purposes of
determining insolvency, assets do not include property that
has been transferred, concealed, or removed with the intent to
hinder, delay, or defraud creditors or that has been transferred
in a manner making the transfer voidable under the Act. 740
ILCS 160/3(d). Thus transferring of property or other assets
for purposes of estate or tax planning may still be construed as
a fraudulent conveyance if sufficient income is not available
to satisfy a debt stemming from a claim which arose prior to
the time of transfer.
Does Timing Matter?
The general law in Illinois is that only those creditors who
had existing claims at the time of the transfer may complain
that the transfer of property was made in derogation of the
creditors rights and the burden is on the creditor to establish
the existence of a pre-existing debt. An exception to the general rule provides that a voluntary conveyance may be set
aside at the instance of subsequent creditors upon proof of
actual fraudulent intent. Mandolini Co. v. Chicago Produce
Suppliers, Inc., 184 Ill. App. 3d 578, 540 N.E.2d 505 (1st
Dist. 1989).
The Illinois version of the Fraudulent Transfer Act provides
that a transfer is fraudulent as to a creditor whose claim rose
before the transfer was made if the debtor was insolvent at
that time or the debtor became insolvent as a result of the
transfer. 740 ILCS 160/6(a). Note that the time of the claim
is the trigger mechanism, not the time a final judgment is
rendered. Failure to be aware of the possible fraudulent
conveyance implications of a conveyance made while a tort
claim was pending that was later reduced to judgment, did not
prevent the application of Illinois fraudulent conveyance law.
Tcherepnin v. Franz, 457 F. Supp. 832 (N.D. Ill. 1978). That is,
even if a party inadvertently transfers assets for estate planning
purposes or as a gift, that transfer can be deemed fraudulent
under the law, without need to show intent on the part of the
transferor. “Fraud in law will be found when a conveyance is
made for inadequate or no consideration. Fraud is presumed
in these circumstances and intent is immaterial.” Stoller v.
Exchange National Bank, 199 Ill. App. 3d 674, 557 N.E.2d
438 (1st Dist. 1990). It behooves all potential transferor’s to
ascertain the status of any potential claims which may exist
against them before transferring any asset, or risk a court
voiding the transfer regardless of the penalties or good intent.
When Must the Action be Brought?
The limitation for the time in which an action pursuant to
the Illinois Fraudulent Conveyance Act must be brought is
set forth within 740 ILCS 160/10:
§ 740 ILCS 160/10. [Limitation of actions]
Sec. 10. A cause of action with respect to a fraudulent
transfer or obligation under this Act is extinguished unless action is brought:
(a) under paragraph (1) of subsection (a) of Section 5
[740 ILCS 160/5], within 4 years after the transfer
was made or the obligation was incurred or, if later,
within one year after the transfer or obligation was
or could reasonably have been discovered by the
claimant;
(b) under paragraph (2) of subsection (a) of Section
5 [740 ILCS 160/5] or subsection (a) of Section 6
[740 ILCS 160/6], within 4 years after the transfer
was made or the obligation was incurred; or
(c) under subsection (b) of Section 6 [740 ILCS 160/6],
within one year after the transfer was made or the
obligation was incurred.
Importantly, the four-year statute of limitations set forth
in subsection (a) begins to run, not from the date a final judgment is rendered in a court of law but rather from the date the
transfer is made. Levy v. Markal Sales Corp., 311 Ill. App.
3d 552, 724 N.E.2d 1008, 2000 Ill. App. LEXIS 53 (1st Dist.
2000). In light of the increasing span of time between the date
a claim is filed through the date a judgment is entered, it is
conceivable that a potential debtor may have transferred assets
and be protected by the statute of limitations. However, the
statute does have a notice clause which permits filing a cause
of action later than four years. One can file “within one year
after the transfer or obligation was or could reasonably have
been discovered by the claimant.” 740 ILCS 160/10 (a). It is
important to identify compliance with the statute of limitations. “When drafting a complaint, it is also required that the
complaint set forth an explanation of why discovery of the
alleged fraud could not have occurred prior to the expiration
of the limitations period or risk dismissal.” Gilbert Bros v.
Gilbert, 258 Ill. App. 3d 395, 630 N.E.2d 189 (4th Dist.) appeal denied, 157 Ill. 2d 499, 642 N.E.2d 1278 (1994).
(Continued on next page)
71
IDC Quarterly
Property Insurance (Continued)
Conclusion
While there is no law against the transfer of assets generally, when a claim is pending against an individual or an entity,
reference to the Illinois Fraudulent Conveyance Act may be
in the best interest of the transferor prior to completing the
transaction. The Act mandates the time and manner in which
a transfer of property can be made. While many transfers
are made without intent to defraud, when a person attempts
to circumvent the law and/or indebtedness, the Act imposes
relief for a creditor even to the detriment of a transferee in
some instances.
Amicus Committee Report
By: Michael L. Resis
O’Hagan, Smith & Amundsen, L.L.C.
Chicago
During its May term, the Illinois Supreme Court accepted
the defendants’ petition for leave to appeal in Marshall v.
Burger King Corp., Docket No. 100372. There the appellate
court (355 Ill. App. 3d 685, 824 N.E.2d 661 (2nd Dist. 2005)
(a detailed discussion of this case is set forth in the Supreme
Court Watch column)), with one justice dissenting, held that
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
behalf of the IDC, I prepared the amicus brief in support of
the defendants-appellants.
As a reminder for future submissions, the amicus curiae
committee members are:
First Judicial District
John J. Piegore
Sanchez & Daniels
333 W. Wacker Drive, Suite 500
Chicago, Illinois 60606
(312) 641-1555
72
Second Judicial District
James DeAno
Norton, Mancini, Argentati, Weiler & DeAno
109 N. Hale Street
Wheaton, Illinois 60187
(312) 668-9440
Third Judicial District
Karen L. Kendall
Heyl, Royster, Voelker & Allen
124 SW Adams Street
Bank One Building, Suite 600
Peoria, Illinois 61602
(309) 676-0400
Fourth Judicial District
Robert W. Neirynck
Costigan & Wolrab, P.C.
308 E. Washington Street, P.O. Box 3127
Bloomington, Illinois 61701
(309) 828-4310
Fifth Judicial District
Stephen C. Mudge
Reed, Armstrong, Gorman, Coffey, Thompson, Gilbert & Mudge
101 North Main Street, P.O. Box 368
Edwardsville, Illinois 62025-0368
While we cannot file a brief in every case in which we are
asked, we encourage your participation in making the views
of our members known to the reviewing courts on the legal
issues that affect us. We need your input and your support. If
you are interested in writing an amicus brief or submitting a
case for review by the committee, please contact any of us.
About the Author
Michael L. Resis is a founding partner and chairman of
O’Hagan, Smith & Amundsen’s appellate department. He
concentrates his practice in the areas of appeals, insurance coverage and toxic, environmental and mass torts.
He has practiced law in Chicago for 20 years and handled
more than 400 appeals. Mr. Resis has represented government, business and professional organizations as amicus
curiae before the Illinois Supreme Court and the Illinois Appellate Court. He
received his B.A. degree, magna cum laude, from the University of Illinois at
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
Directors for IDC.
Third Quarter 2005
Commercial Law
By: James K. Borcia
Tressler, Soderstrom, Maloney & Priess
Chicago
Supreme Court Rejects Inflated
Purchase Price Theory for Establishing
Liability in Securities Fraud Cases
Dura Pharmaceuticals v. Broudo, __U.S.__, 125 S. Ct.
1627, 161 L.Ed.2d 577 (No. 03-932, April 19, 2005).
The United States Supreme Court held that a plaintiff in a
securities fraud action cannot satisfy the requirement of loss
causation by alleging that a securities price at the time of
purchase was inflated because of an alleged misrepresentation.
The case was brought by stockholders of Dura Pharmaceuticals, Inc. (“Dura”) who claimed that the price of Dura
shares that they bought between April 15, 1997 and February
24, 1998 was inflated by the company’s misrepresentations of
two of its products, the Albuterol Spiros asthma-spray device
and the Ceclor CD antibiotic. Dura’s news releases during the
subject period allegedly claimed good sales and suggested that
the spray device, which required approval from the Food and
Drug Administration (“FDA”), had been testing well. After
the company disclosed lower than forecasted revenue and
earnings, an acknowledgment that the sales of its products
had been declining and that the FDA would not approve the
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
had failed to adequately allege “loss causation,” i.e., a causal
connection between the alleged misrepresentation and the
loss. The Ninth Circuit Court of Appeals reversed, finding
that plaintiffs pled loss causation by alleging that the price
they paid on the date of purchase was inflated because of the
misrepresentation. The Supreme Court reversed the Ninth
Circuit’s decision, finding that “an inflated purchase price
will not itself constitute or proximately cause the relevant
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
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
economic loss was not sufficient, in that the longer the time
between the purchase and sale, the more likely it was that
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
together account for some or all of that lower price.” 125 S.
Ct. at 1632. While acknowledging that the higher purchase
price will sometimes play a role in bringing about a future
loss, the Court noted that to “touch upon” a loss is not the
same as causing a loss, and the securities laws require loss
causation to be pled and proved. Id.
Finally, the Court noted that the Ninth Circuit’s approach
overlooked an important securities law objective. While the
securities laws were designed to deter fraud, they were not
designed to provide investors with broad insurance against
market losses. Rather, the laws were designed only to protect
them against those economic losses that misrepresentations
actually caused. The Court found that the Ninth Circuit approach would allow for recovery where a misrepresentation
led to an inflated purchase price but nonetheless did not
proximately cause any economic loss.
This decision is a significant victory for those who are
faced with defending securities fraud claims. The decision
will require those asserting securities fraud claims to plead
and prove that the alleged misrepresentations actually caused
a loss. The decision will also give those facing such claims
more leeway to argue that there were intervening causes that
resulted in the loss.
About the Author
James K. Borcia is a partner with the Chicago firm of
Tressler, Soderstrom, Maloney & Priess, and is active in the
firm’s litigation practice with an emphasis on commercial
and complex litigation. He was admitted to the bar in 1989
after he received his J.D. from Chicago-Kent College of
Law. Mr. Borcia is a member of the Chicago and Illinois
State Bar Associations, as well as the IDC and DRI.
73
IDC Quarterly
Appellate Practice Corner
By: Brad A. Elward
Heyl, Royster, Voelker & Allen
Peoria
Motions Requesting Clarification
Do Not Constitute a Proper Post-Trial
Motion Under Section 2-1203(a)
One of the more stressful situations for an appellate
practitioner arises when a trial court either fails to set forth
any reasons for its rulings, or fails to rule on all of the issues
presented. Counsel seeking to review such a decision is at a
distinct disadvantage on appeal because there is no rationale
to attack. This means that both the attorneys and the court
must spend time and money to consider each potential basis
of a trial court’s ruling. Counsel is then presented with the
dilemma of, “Should I file for clarification or should I simply
appeal? And if I file for clarification, what effect does that
motion have on my time to appeal?”
A quick review of Supreme Court Rule 303(a), which
governs appeals from final judgments in civil cases, reveals
that a motion for clarification does not fall within the language of the Rule because it is not technically a motion
directed against the underlying judgment. Moreover, Section
2-1203(a) of the Code of Civil Procedure, which governs
post-judgment motions in non-jury cases, lists motions for
rehearing, retrial, modification, or one to vacate a judgment.
A motion for clarification, however, is not listed. 735 ILCS
5/2-1203(a).
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
the notice of appeal. R&G, Inc. v. Midwest Region Foundation for Fair Contracting, 351 Ill. App. 3d 381, 812 N.E.2d
1044 (4th Dist. 2004); Welton v. Ambrose, 351 Ill. App. 3d
627, 814 N.E.2d 970 (4th Dist. 2004); see also, Giammanco
v. Giammanco, 253 Ill. App. 3d 750, 756-67, 625 N.E.2d 990
(2d Dist. 1993). In R&G, Inc. v. Midwest Region Foundation
for Fair Contracting, 351 Ill. App. 3d 381, 812 N.E.2d 1044
(4th Dist. 2004), the court found that R&G’s motion for
74
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
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
Dist. 1987), which had considered a “motion for findings” a
proper motion under Section 2-1203(a).
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
the court to specify which of the many grounds raised by the
defendants supported its ruling. The trial court granted the
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
month and a half after the trial court’s initial ruling.
As part of its reasoning, the appellate court found that in
order to be a valid motion, a post-trial motion must attack
and be directed at the underlying judgment from which the
appeal arose. The court further held that Section 2-1203(a),
which governs post-trial motions in non-jury cases, did not
list a motion to clarify as a valid post-trial motion. Instead,
Section 2-1203(a) included only “a motion for a rehearing,
or a retrial, or modification or the judgment, or to vacate the
judgment, or for other relief.” The appellate court noted that
the “other relief” listed in Section 2-1203(a) “must be similar
in nature to the other forms of relief specified in that section.”
See, Marsh v. Evangelical Covenant Church, 138 Ill. 2d 458,
461, 563 N.E.2d 459 (1990). Addressing the specifics of
R&G’s motion, the appellate court commented that the motion simply requested certain findings not stated by the trial
court as to the legal basis for its decision. The motion did not
challenge the trial court’s judgment.
Decided a month later, the Fourth District reached the
same conclusion in Welton v. Ambrose, 351 Ill. App. 3d 627,
814 N.E.2d 970 (4th Dist. 2004). There, on slightly different
About the Author
Brad A. Elward is a partner in the Peoria office of
Heyl, Royster, Voelker & Allen. He practices in the area
of appellate law, with a sub-concentration in workers’
compensation appeals and asbestos-related appeals. He
received his undergraduate degree from the University of
Illinois, Champaign-Urbana, in 1986 and his law degree
from Southern Illinois University School of Law in 1989.
Mr. Elward is a member of the Illinois Appellate Lawyers
Association, the Illinois State, Peoria County, and American Bar Associations,
and a member of the ISBA Workers’ Compensation Section Counsel.
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
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
clarification of the judgment order (seeking to correct a double
negative), but did not seek to challenge the overall ruling. The
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
notice of appeal as premature.
“As part of its reasoning, the
appellate court found that in order
to be a valid motion, a post-trial
motion must attack and be directed
at the underlying judgment from
which the appeal arose.”
The appellate court denied the defendant’s motion to dismiss, finding that the motion to clarify did not challenge the
underlying judgment. Thus, under Rule 303(a) and Section
2-1203(a), there was no post-trial motion, and therefore, the
plaintiff’s notice of appeal was valid. Unlike R&G, the Welton court did not overrule Knapp, but distinguished the case,
noting that in Knapp, the motion did not expressly accept the
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
factual findings included in the trial court’s order. The motion
did not challenge the trial court’s judgment.
The lesson from these decisions is as follows: even where
a trial court’s order is unclear, if counsel does not intend to
ask (meritoriously) for the specific relief set forth in Section
2-1203(a) and attack the judgment rendered, a party should
file a notice of appeal any time it wishes to challenge the trial
court’s ruling. A motion asking for clarification alone will not
toll the time for appeal.
Alternative Dispute Resolution
By: John L. Morel
John L. Morel, P.C.
Bloomington
Conflict Resolution
There is a substantial growth of conflict resolution and an
increasing recognition by the general public of the economy
and time within which there can be a resolution of their dispute. The general public and parties to litigation, have become
aware, or more aware, of mediation as one method or avenue
for the resolution of their claim.
The “neutrality” of a mediator can raise some concern
among the parties. Many people are suspicious about neutrality. They often do not trust a mediator. Many are also
suspicious of the concept and question whether a mediator
can genuinely be as neutral, impartial, and unbiased as they
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.
Some parties are often willing to give up on the hope for
vindication, but they will do this only if they feel they are
giving or have given their best shot at obtaining it. Vindication may, in fact, represent a person’s deepest needs. Seldom
do parties feel/believe that arbitration or mediation is a way
to obtain their goal.
(Continued on next page)
About the Author
John L. Morel concentrates his practice in civil trial
and appellate practice, as well as insurance law, at his
Bloomington firm of John L. Morel, P.C. He received his
B.A. from Western Illinois University and his J.D. from
the University of Illinois. Mr. Morel is a member of the
McLean County, Illinois State, and American Bar Associations. He is also a member of the IDC, FDCC, DRI,
National Association of College and University Attorneys
and the Illinois Appellate Lawyers Association. Mr. Morel sits on the Board
of Directors for the IDC.
75
IDC Quarterly
Alternative Dispute Resolution (Continued)
Some believe engaging in conflict resolution is risky and
scary. Their counsel and the mediator or arbitrator must convince them that it is a safe environment in which they can
discuss their concerns without fear of retaliation. For many,
safety is more likely to be experienced in a formal process
with very clear rules and procedures. Then again, some parties believe that they can engage in and avoid conflict at the
same time.
In most litigation, however, following the completion
of discovery the parties wish to settle the case. Obviously,
this can be accomplished through arbitration, mediation, or
negotiation. It’s a given that if both parties wish to resolve
the case they must go to mediation with an open mind. Each
side should approach the mediation with the intent to reach
an agreement to settle the case. Unfortunately, there are parties and counsel who attend the mediation only because it is
court-ordered. In those instances, and in other mediations that
are not court-ordered, some counsel and parties merely show
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
through litigation.
­ Prior to a mediation, counsel should attempt to convince
their client that they should keep an open mind. They should be
advised to consider, carefully, the comments and observations
of the mediator. A decision has to be made at the outset how
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
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
“show” your opponent exhibits, charts, or illustrations that
you intend to use at trial? This can cut two ways. It can impress the other side to know that you are a highly competent
and well prepared counsel. It may be too late, however, for
the defense hierarchy to make a prompt decision regarding
authority to resolve the case. In this author’s opinion, each
party should show their hand, (exhibits, case authority, etc).
The opportunity to share this information may be enough to
alter their position one way or another. This may lead to a
76
successful resolution if done in advance of the mediation,
to permit the parties to evaluate their respective positions. If
representing a defendant-insured, the insurer’s representative
may very well change or alter their position, i.e., increase their
offer based upon the presentation at mediation.
During the mediation when the attorney and client are
alone, the attorney has an excellent opportunity to further
educate or otherwise enlighten the client with his or her perceptions and what the client may anticipate.
When one leaves a mediation without having reached
a settlement that does not mean that the mediation was of
little value. As to those cases that are not resolved during the
mediation, many settle as a result of the mediation. Having
participated in the mediation, your client, with you, will be in
a better position to make an informed decision as to whether
the case should be tried, given the amount of time for mediation as opposed to a jury trial and the cost of participating or
trying the case. With proper preparation, mediation can be a
less expensive, more productive way to resolve cases.
The Defense Philosophy
By: Willis R. Tribler
Tribler Orpett & Meyer, P.C.
Chicago
Cleaning out the Case
Most readers will recall that singer Michael Jackson, the
self-anointed “king of pop,” was found not guilty of child
molestation in June. Whether or not Jackson was guilty, the
case provides valuable guidance for trial lawyers.
The prosecution was concerned that filing a narrow case
of child molestation would turn totally on the testimony of
Jackson’s young accuser. Therefore, it added a count of serving alcohol to minors plus a charge that Jackson had conspired
to kidnap and detain the child’s mother at his ranch. In addition, the prosecutor presented evidence of a similar 1993 case
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
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.
I was not on the jury, did not attend the trial and really do
not know what happened. However, I wonder if the prosecution’s “shotgun” attack and its decision not to focus on the
molestation charge were a significant cause of the not guilty
verdict.
This tactic also caused a trial that should have taken two
weeks to drone on for four months. I feel that jurors tend to
be bored by long trials and that they may have concluded in
this case that this was more of a persecution than a prosecution. It is also likely that the jury was offended by bringing
up 12-year-old complaints that had been dropped.
This general point was discussed in the April 2005 A.B.A.
Journal, which reprinted “The Case Against Clutter,” a July
1999 column by James McElhaney in which Professor McElhaney recommended that you remove extraneous matters from
your case. McElhaney likens this to dumping the contents of
your desk and putting back the things that really belong. The
things that stay in your case should go to the heart of the matter and prove that your client is not responsible. McElhaney
recommends that just because you have potential evidence,
you do not have to use all of it. This article is excellent, and
I suggest that you read it and keep it in mind.
When you get right down to it, it is unfair to blame prosecutorial decisions for the Jackson result. However, we will
never know if the result would have been different with a less
cluttered case.
About the Author
Willis R. Tribler is a director of the firm of Tribler
Orpett & Meyer, P.C. in Chicago. He is a graduate
of Bradley University and the University of Illinois
College of Law, and served as President of the IDC in
1984-1985.
Association News
IDC Quarterly
Editorial Changes Announced
This issue of the Quarterly reflects the annual shift of editorial positions and the appointment of a new staff member to
fill the vacancy which was left when Rick Hammond finished
his five-year editorial board position with the previous issue. Linda Hay has moved up to fill the position of Editor-inChief and will take on the role of final editing and approval
of the Quarterly before “the presses roll.” She advances to
this position after serving on the editorial board for the past
five years. Linda is a partner in the Chicago firm of Alholm,
Monahan, Klauke, Hay & Oldenburg, L.L.C., which defends
its clients throughout the mid-west in the areas of professional
liability, general liability, employment claims, appeals, insurance coverage disputes and workers’ compensation.
The newest member of the editorial board is Al Pranaitis,
who joins the Quarterly board from the firm of Hoagland,
Fitzgerald, Smith & Pranaitis. Al is a partner in the Alton
firm, which has held a presence in Madison County for 75
years. He has extensive civil jury trial practice with numerous
verdicts in state and federal courts in areas of product liability,
medical malpractice, employment discrimination, civil rights,
construction accidents, truck and other over-the-road motor
vehicle accidents, farm equipment accidents, premises liability, and transactional matters. Al fills the position of Assistant
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
members of the editorial board, the IDC continues to produce
and offer a top-notch publication to its membership. Without
the editorial board and contributing authors, this publication
would not be possible. We continue to acknowledge and appreciate their dedication.
77
Awards
Annual
Meeting
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.
Glen Amundsen, incoming President, presented
Steve Heine with the IDC’s Presidential Award and
the Exceptional Performance Award from DRI.
Steve Heine presented
Robert Park with the
IDC Commitment
award for his 12 years
as an IDC Director.
Bob was appointed in
1993 to fill Tony Tunney’s term and then
elected three times.
Steve Heine presented Rick Hammond with the IDC
Quarterly Award
Steve Heine presented
Dave Bennett with a Presidential Commendation for
his year as Chair and two
years as Board Liaison to the
Rookie Seminar.
Steve Heine presented Aleen Tiffany with a
Presidential Commendation for her two years
as Trial Academy Chair.
W elcome ... New IDC Members
Jennifer E. Dicken
Thomas, Mamer & Haughey, LLP, Champaign
Sponsored by: Thomas Harden
Richard L. Elsliger
Kiesler & Berman, Chicago
Sponsored by: John R. Garofalo
Anne K. Kordenbrock
Hoagland, Fitzgerald, Smith & Pranaitis, Alton
Sponsored by: Al Pranaitis
Troy Radunsky
O’Hagan, Smith & Amundsen, Chicago
Sponsored by: Glen Amundsen
& Dennis Cotter
Elisha S. Rosenblum
O’Hallaron, Kosoff, Geitner & Cook, P.C., Northbrook
Sponsored by: Gerard W. Cook
Mark D. Sheaffer
Garretson & Santora, Ltd., Chicago
Sponsored by: Richard E. Nugent
Melanie Strubbe
LaBarge, Campbell & Lyon, Chicago
Sponsored by: Bruce Lyon
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 enacted the first legislation to prohibit discrimination in the
workplace, the employer-employee relationship has grown
increasingly regulated by state and federal laws. Title VII of
the Civil Rights Act of 1964, the Americans with Disabilities
Act (ADA), and the Age Discrimination in Employment Act
(ADEA), along with state legislative and common law, now
provide a number of opportunities for employees to pursue judicial remedies against their employers for perceived wrongs.
Settlements in employment cases have reached epic proportions. In 1996, Texaco, Inc. settled a race discrimination
lawsuit for $176 million. The following year, Home Depot,
Inc. paid $104 million to settle a class action sex discrimination lawsuit. In 2000, Coca-Cola Company agreed to pay
$192.5 million to settle a race discrimination suit.
Jury verdicts in employment cases are no less astounding.
An Indiana jury awarded $1,050,000 for lost back wages, lost
future income and mental distress to an ADA claimant in his
lawsuit against Schepel Buick & GMC Truck, Inc. In 1999,
a New Jersey jury awarded a female newscaster $7.3 million
in lost wages, emotional distress and punitive damages in her
retaliation and handicap discrimination claim. Another New
Jersey jury awarded two female branch managers over $4.2
million in their age discrimination lawsuits against National
State Bank.
In an effort to manage these risks and liabilities, more and
more employers are requiring their employees to execute
mandatory arbitration agreements. This article discusses the
statutes and public policy supporting arbitration, examines
the types of employment-related claims subject to mandatory
arbitration, provides practice tips for drafting enforceable
arbitration agreements in the employment context, and tracks
the resurgence of contract analysis in the wake of the United
States Supreme Court’s rulings in Circuit City Stores, Inc. v.
Adam1 and EEOC v. Waffle House, Inc.2
I. General Concepts of Arbitration
A. Applicable Statutes
The Federal Arbitration Act (“FAA”) governs arbitration
agreements.3 Congress originally enacted the FAA in 1925 to
reverse hostility to arbitration agreements and to place arbitration agreements upon the same footing as other contracts.4
Section 2 of the FAA provides that, in most cases, arbitration
agreements “shall be valid, irrevocable, and enforceable, save
upon such grounds as exist at law or in equity for the revocation of any contract.”5 As further addressed in this article, due
M-2
process violations, involuntary waivers of the right to trial
in court, and lack of consideration are some of the grounds
invalidating an arbitration clause or agreement.6
Illinois adopted the Uniform Arbitration Act (“UAA”)7 for
the “general purpose to make uniform the law of those states
which enact it.”8 Similar to Section 2 of the FAA, under the
UAA, “a written agreement to submit any existing controversy
to arbitration or a provision in a written contract to submit
to arbitration any controversy thereafter arising between the
parties is valid, enforceable and irrevocable save upon such
grounds as exist for the revocation of any contract . . .”9 In
general, if a party can prove there is a valid agreement to
arbitrate, the court will order arbitration.10
Since the UAA was adopted, the Illinois Supreme Court
has recognized that interpretation of court decisions in other
jurisdictions will be given greater-than-usual deference since
the general purpose of a uniform act is to make consistent the
laws of the states that enacted it.11
Other statutes may also make reference to arbitration.
For example, under the Illinois Public Labor Relations Act12
there is a presumption that all disputes are subject to arbitration unless the parties intended to exclude the matter from
arbitration.13 Section 301 of the Labor Management Relations
Act14 requires that arbitration and other dispute options must
be “exhausted” before an employee may sue his employer.15
There has also been some attempt to introduce legislation
that excludes all employment contracts from the arbitration
provisions of the FAA.16
B. Public Policy
There is a strong federal public policy endorsed by the U.S.
Supreme Court in Circuit City encouraging arbitration as the
preferred resolution alternative to litigation in employment
disputes.17 Arbitration allows issues to be resolved without the
time and cost of litigation, among other benefits.18 Likewise,
the Illinois Supreme Court also adopted the public policy
favoring arbitration as a means of dispute resolution.19
It is important to note, however, that public policy favoring arbitration does not trump the plain language of a statute,
such as Title VII, or a contract. As noted by the U.S. Supreme
Court in Waffle House, public policy favoring arbitration does
not trump the ability of the EEOC to litigate precedent-setting
cases and police situations where the public interest is not being served by a particular arbitration agreement.20 Therefore,
despite the parties’ private arbitration agreement and a strong
public policy favoring such agreements, the EEOC may still
pursue litigation for victim-specific remedies. As noted by the
IDC MONOGRAPH — Third Quarter 2005
Court, “permitting the EEOC access to victim-specific relief
in cases where the employee has agreed to binding arbitration, but has not yet brought a claim in arbitration, will have a
negligible effect on the federal policy favoring arbitration.”21
C. Written Agreement
Arbitration is a matter of contract and, as noted by the
U.S. Supreme Court, a party cannot be required to submit an
issue to arbitration that he or she has not agreed to submit.22
The FAA mandates that arbitration agreements or clauses be
in writing.23 Employees have attempted to argue that they did
not knowingly and voluntarily agree to submit their claims to
arbitration. Some courts – particularly pre-Circuit City – have
held that a person who signs or accepts a written contract containing an arbitration agreement is conclusively presumed to
know its contents and to assent to them in the absence of fraud
or other wrongful act on the part of another contracting party.24
Recently, however, as explained below, a contradictory trend
has emerged, and courts are beginning to question whether
the waiver of the right to a trial was voluntarily given.25
D.Consideration
An arbitration agreement must be supported by sufficient
consideration, as would any other contract.26 When both
parties agree to arbitrate disputes, courts have consistently
held that this mutual agreement alone is sufficient consideration.27 In addition, continued employment and payment of
wages have been held to be sufficient consideration to support
enforcement of an arbitration agreement.28 Again, however,
there is a contradictory trend emerging resulting in courts
reexamining what constitutes sufficient consideration.29
E. Due Process
In general, mandatory arbitration clauses in and of themselves do not deprive employees of due process.30 In O’Brien
v. Pipkin, the defendant, who sought to vacate an arbitration
award against him, argued that the National Futures Association (“NFA”) violated his due process rights by requiring
registrants to agree to abide by its rules, including the Member
Arbitration Rules.31 The Seventh Circuit Court of Appeals held
About the Authors
Durga M. Bharam is a partner in the Chicago firm of
Tressler, Soderstrom, Maloney & Priess and chairs the firm’s
Employment Law Group. She concentrates her practice in
commercial and employment matters. As a frequent author
and lecturer on employment-related issues, Ms. Bharam
has written and lectured on a national and local basis on
employment trends, discrimination, sexual harassment and
recent decisions of the U.S. Supreme Court. Born in Andhra
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
University with highest honors. She received her law degree in 1990 from
Northwestern Law School where she was an editor for Northwestern’s Journal
of Criminal Law and Criminology. Ms. Bharam is licensed in Illinois and is a
member of the Federal Trial Bar.
Tina L. Fink is an associate in the Chicago firm of McKenna
Storer where she concentrates her practice in the areas of
civil rights defense, employment discrimination and personal
injury. She received her B.A. in history from Loras College
in Dubuque, Iowa and her J.D. from DePaul University.
Ms. Fink is a member of the Chicago Bar Association, DRI
and the IDC.
Scott Stewart is a partner in the law firm of Burroughs,
Hepler, Broom, MacDonald, Hebrank & True, LLP. He concentrates his practice in labor and employment law, defending and counseling employers. He earned his undergraduate
degree from St. Lawrence University (B.A., cum laude,
1985), his law degree from Saint Louis University School of
Law (J.D., magna cum laude, 1995) and served as a United
States Army Intelligence officer from 1985 through 1989.
Thomas R. Weiler is a partner in the Chicago office of Norton, Mancini, Weiler
& DeAno. He devotes a substantial part of his practice to municipal, civil rights
and employment litigation, practicing in both state and federal court. He received
his B.B.A. in 1980 from the University of Notre Dame and his J.D. in 1983 from
Loyola University of Chicago School of Law. He is a member of the DRI, IDC
and Illinois State Bar Association.
James P. DeNardo is a partner in the Chicago firm of
McKenna Storer where he concentrates on appellate practice,
equal employment litigation, labor law and insurnce coverage. Mr. DeNardo is a member of the Federal Trial Bar and
is a member of the Army Judge Advocate General Corps.
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 mandatory arbitration was an authorized act, was not arbitrary and
did not deny Pipkin’s Fifth Amendment right to due process.32
Likewise, under Illinois law, contracts are not valid simply
because parties have unequal bargaining power, “even if the
contract is a so-called ‘take-it-or-leave-it’ deal and ‘consent
to [the] agreement is secured because of hard bargaining positions or the pressure of financial circumstances.”33 Rather,
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
F. Principles Governing Whether to Compel Arbitration
When considering if arbitration is appropriate, the court
looks to see if the parties intended to arbitrate the matter.35
If the written contract clearly indicates the parties intended
to agree to arbitrate the matter, then arbitration should be
compelled.36 If the contract clearly indicates the parties did
not intend to arbitrate the matter, arbitration should not be
compelled.37 When the contract is not clear as to whether the
parties intended to arbitrate the matter, an arbitrator should
determine if the matter is subject to arbitration.38
reversed, and the U.S. Supreme Court granted certiorari.43
The U.S. Supreme Court affirmed Interstate’s ability to
enforce the arbitration clause at issue and agreed with its finding in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth,
Inc.44 that, “by agreeing to arbitrate a statutory claim, a party
does not forego the substantive rights afforded by the statute;
it only submits to their resolution in an arbitral, rather than a
judicial, forum.”45
“Once the arbitration clause or
agreement satisfies basic constitutional and contract principles,
the subject matter of the clause
or agreement must be subject to
compulsory arbitration.”
II. Arbitration of Employment Claims
A. Employment Claims Subject to Arbitration
Once the arbitration clause or agreement satisfies basic
constitutional and contract principles, the subject matter
of the clause or agreement must be subject to compulsory
arbitration. Before addressing whether federal statutory employment-related claims are subject to arbitration in Gilmer
v. Interstate/Johnson Lane Corporation,39 the U.S. Supreme
Court upheld and enforced arbitration agreements relating
to claims arising under the Sherman Act, § 10(b) of the
Securities Exchange Act of 1934, the civil provisions of the
Racketeer Influenced and Corrupt Organizations Act, and
§ 12(2) of the Securities Act of 1933.40 Prior to Gilmer, there
was a split among the Courts of Appeals regarding the arbitrability of ADEA claims.41 With Gilmer, the U.S. Supreme
Court set the standard for enforcing arbitration agreements
in the employment context.
In Gilmer, the plaintiff alleged that his former employer,
Interstate, had terminated him in violation of the ADEA.
Interstate moved to compel arbitration of Gilmer’s claim
pursuant to the FAA and an arbitration agreement.42 The trial
court refused to compel the arbitration, the appellate court
M-4
In conjunction with the U.S. Supreme Court’s prior decision in Perry v. Thomas,46 which held that the FAA preempts
state law, Gilmer has been interpreted to enforce arbitration
agreements relating to state statutory employment-related
claims. For example, the statute at issue in Perry – § 229
of the California Labor Code – provides that actions for the
collection of wages may be maintained “without regard to
the existence of any private agreement to arbitrate.”47 The
employer moved to compel arbitration based upon Section
2 of the FAA and an arbitration agreement signed by the
plaintiff.48 The Supreme Court in Perry reversed the lower
courts’ decision prohibiting the arbitration, in light of § 229
of the California Labor Code, and enforced the arbitration
agreement.49 The Supreme Court held that Section 2 of
the FAA is a “congressional declaration of a liberal federal
policy favoring arbitration agreements, notwithstanding any
state substantive or procedural policies to the contrary” and
preempts state-created rights.50
After the Gilmer and Perry decisions, Illinois courts,
as well as most courts in other jurisdictions, held that state
statutory employment claims are subject to arbitration. Like
IDC MONOGRAPH — Third Quarter 2005
federal courts, Illinois courts have a strong policy favoring
the enforcement of arbitration agreements.51 In Johnson v.
Noble,52 the plaintiff alleged, among other things, that he
was not paid certain commissions in violation of the Illinois
Wage Payment and Collection Act (“IWPCA”).53 His former
employer moved to compel arbitration based upon an arbitration provision to which the plaintiff had agreed.54 Johnson
argued that his IWPCA claim was not arbitrable because it
was a state statutory employment claim. The Illinois Appellate Court disagreed and referred the claim to an arbitrator,
specifically stating that the FAA preempted IWPCA.55
B. Employment Claims Not Subject To Arbitration
2. When the Contract Prohibits Class Action Arbitrations
Even though there are numerous federal and state statutory
employment-related claims subject to arbitration after Gilmer,
there is a small category of claims exempt from arbitration.
Section 1 of the FAA states in pertinent part that:
[N]othing herein contained shall apply to contracts of
employment of seamen, railroad employees, or any
other class of workers engaged in foreign or interstate
commerce.56
Courts have consistently construed this provision very narrowly to apply only to those workers employed in the transportation industries, like seamen and railroad employees. The
section does not prohibit arbitration of claims arising from
employment contracts just because the employer is involved
in interstate commerce.57
C. Class Arbitrations
Class actions are gaining popularity in today’s courtrooms,
but whether class actions can and should be arbitrated still
remains unclear and is an issue of fierce debate. As evidence
of this debate, JAMS, an alternative dispute resolution agency,
recently reversed its policy of refusing to enforce contract
clauses that prohibit consumer or employee class action arbitrations.58
Significantly, neither the FAA nor any other statute specifically addresses the treatment of class arbitrations.59 Most arbitration agreements do not specifically address class actions.
Typically, if an arbitration agreement addresses the issue, it
specifically precludes class arbitrations. Alternatively, the
agreement may specifically provide that class actions may
be adjudicated through arbitration or the agreement is silent
or ambiguous on the issue.
1. Can Class Claims be Arbitrated?
The first question to be asked is whether class actions can
be heard in the arbitration context. The U.S. Supreme Court in
Green Tree Financial Corp. v. Bazzle 60 explicitly recognized
the viability of class action arbitrations by ruling that whether
the parties’ agreement allowed for class action arbitrations
was for the arbitrator to decide.61 Significantly, there was
no suggestion anywhere within the opinion that arbitrators
cannot hear and decide class claims. Prior to Green Tree, a
number of courts recognized the ability of arbitrators to hear
and determine class actions.62
Courts generally will try to enforce the intention of parties
as expressed in the written agreement. Therefore, if the parties
specially agreed to class arbitrations, a court will enforce the
same. However, the case law is still developing as to whether
a court should enforce an agreement that specifically prohibits class arbitration, also referred to as “class action shield”
provisions.63 In general, a court will not compel or allow class
arbitration where there is a class action shield provision, unless the prohibition is deemed unconscionable or a violation
of state public policy.
In Livingston v. Associates Finance, Inc., et al., the arbitration agreement specifically precluded parties from bringing
“class claims or pursuing ‘class action arbitration.’”64 The
Seventh Circuit found the arbitration agreement enforceable
and held that the agreement’s terms must be given full force
and effect. Therefore, the court was “obliged to enforce the
type of arbitration to which these parties agreed, which [did]
not include arbitration on a class basis.”65
In Ragan v. AT&T Corp.,66 an Illinois appellate court allowed and enforced the provision precluding class actions.
In Ragan, customers filed a class action lawsuit based on the
carrier overcharging customers for contributions to a fund.
AT&T brought a motion to compel arbitration pursuant to an
arbitration clause contained in the consumer service agreements signed by the customers. The appellate court held that
the motion should be granted because the customers were
found to have accepted the terms of the consumer services
agreement, including the arbitration provision, by their silence
and continued use of AT&T’s services. The court also applied
the applicable state law to determine if the “preclusion of
class action relief” made the contract unconscionable.67 Upon
applying New York law, the court concluded that precluding
class action relief did not make a contract unconscionable or
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violate public policy.68
In contrast, in Kinkel v. Cingular Wireless, LLC, another Illinois appellate court held that an arbitration clause prohibiting
class arbitration was unconscionable and thus unenforceable.69
The dispute in Kinkel involved a $150 early termination fee
imposed whenever a customer wanted to cancel their service
with Cingular. The court found the prohibition of class arbitration to be substantively unconscionable because the cost
of pursuing an individual claim and retaining an attorney
would exceed the $150 the plaintiff wanted to recover. The
court stated that in essence, consumers in the plaintiff’s position are left without an effective remedy in the absence of a
mechanism for class arbitration or litigation.70 The court also
found the prohibition clause to be procedurally unconscionable because it was viewed to be one-sided in that cellular
telephone service providers, like Cingular, typically do not
sue their customers in class action lawsuits.71 Significantly,
the court held the remainder of the arbitration clause could
be severed from the unconscionable provision because: (1)
the arbitration provision does not depend upon the provision
excluding class relief for its efficacy; (2) the agreement had
a severability clause; and (3) there is a strong public policy
favoring enforcing arbitration agreements.72 Accordingly,
the plaintiff could proceed with a class arbitration despite
the prohibition. However, in Snowden v. Checkpoint Check
Cashing, the Fourth Circuit rejected the argument that a class
action shield provision was unconscionable given the small
amount of damages involved especially since the applicable
statute provided for recovery of attorneys’ fees by the prevailing party. 73
3. When the Contract is Silent or Ambiguous as to Class Arbitrations
More often than not, an arbitration agreement does not specifically address the treatment of class actions. A majority of
the circuits, such as the Second, Fifth, Sixth, Eighth, Ninth and
Eleventh Circuits, have held that, absent an express provision
in the parties’ arbitration agreement, the duty to rigorously
enforce arbitration agreements does not allow the courts to
order consolidated arbitration, even where such consolidation
would be more efficient.74 Likewise, the Seventh Circuit, in
Champ v. Siegel Trading Co. Inc., has held that class certification in arbitration proceedings could not be ordered if there
was no provision for such certification in the arbitration agreement.75 The court found that Section 4 of the FAA precludes
federal judges from ordering class arbitration when the parties’
arbitration agreement is silent on the matter.76 The rationale
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behind such a decision is to enforce the parties arbitration as
they wrote it, despite possible inefficiencies created by such
an enforcement.77 This decision, however, predates the U.S.
Supreme Court decision in Green Tree.
In Green Tree Financial Corp. v. Bazzle, the U.S. Supreme
Court held that when the arbitration clause is silent on class arbitration, the FAA does not foreclose class arbitration, and the
issue should be decided based on state-law contract interpretation by the arbitrator.78 The homeowners in that case, who had
secured loans from a commercial lender, Green Tree, brought
a class action in state court against the lender claiming violations of the South Carolina Consumer Protection Code. The
loan documents included a mandatory arbitration agreement
which provided that “all disputes, claims or controversies
arising from or relating to [the loan agreement] . . . [were to]
be resolved by binding arbitration by one arbitrator selected
by [Green Tree] with the consent of the [homeowners].”79 The
homeowners commenced two separate state court actions.
The South Carolina Supreme Court upheld both class action
awards. The court held when “arbitration clauses are silent as
to whether arbitration might take the form of class arbitration
. . . South Carolina law interprets the contracts as permitting
class arbitration.”80 In the first case, the plaintiffs sought
class certification, and Green Tree moved to have the class
certification issue arbitrated, which the trial court granted.81
The arbitrator certified the class and awarded the class significant damages.82 The trial court affirmed the damages and
the defendant appealed, claiming the “class arbitration was
legally impermissible.”83 In the second case, the plaintiffs also
sought class certification and Green Tree sought arbitration.84
This time, the trial court granted both the class certification
and the arbitration.85 After the arbitrator awarded the class
damages, Green Tree appealed to the court, again claiming the
“class action was legally impermissible.”86 The United States
Supreme Court vacated the judgment. The Court noted that the
arbitration clause was broad and submitted to the arbitrator all
disputes relating to the loan agreement. The Court, therefore,
ruled that whether the arbitration provision, which was silent
on the question of class arbitration, encompassed class claims
was for the arbitrator to decide, because it was an issue of
contract interpretation and it was the arbitrator who was to
interpret the contract.
In Bess v. DirecTV, Inc.,87 a case decided in 2004, an Illinois appellate court for the Fifth District applied the holding
in Green Tree and refused to find unconscionable a mandatory arbitration provision that was silent on the issue of class
actions.88 In that case, the plaintiff filed a class action suit
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against DirecTV regarding late fees assessed to the plaintiff’s
account. Bess received a Customer Agreement upon setting
up her DirecTV service. While the agreement was silent as
to class actions, it did provide an arbitration provision that
explicitly read, “[a]rbitration means that you waive your
right to a jury trial.”89 If the subscriber did not agree to those
terms, the subscriber was to notify DirecTV immediately to
cancel service. Bess did not notify DirecTV and continued
to use her service. The trial court found that the agreement
was “substantially unconscionable and unenforceable.”90 The
appellate court, however, relying on Green Tree, disagreed
and found that silence as to class arbitration did not render
an agreement “unconscionable and unenforceable.”91 The
court upheld the policy that a valid arbitration agreement is
“If 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.”
binding where there are no grounds in Illinois law or in equity
for revocation of the agreement,92 and remanded the case to
the trial court level to address plaintiff’s arguments as to the
validity of the arbitration provision including whether she
knowingly and voluntarily waived her right to a trial by jury.93
In summary, when dealing with class action arbitrations,
most courts will enforce the agreements as written, applying
the rules of construction used when interpreting contracts. If
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-
tion is allowed, the courts will likely not compel class action
arbitration, because the courts want to enforce the agreement
as the parties intended it. Rather, the court will likely allow
the arbitrator to decide whether class action arbitration is
permitted, as it is typically the arbitrator’s role to interpret
the contract.
III. Practice Tips for Drafting Mandatory
Arbitration Agreements
As discussed, the overarching theme in the case law is that
arbitration agreements are contracts and should be treated as
such. The standard contract defenses apply and can render
an arbitration agreement unenforceable. When drafting an
arbitration agreement, it therefore is important to consider
the applicable state’s laws regarding contracts.94
A. Make the Arbitration Agreement Separate and Distinct From an Employee Handbook
Generally, arbitration agreements within an employee
handbook are unenforceable, especially when an employee has
confirmed only receipt of the handbooks and not specifically
acknowledged reading the arbitration agreement.95 Contract
terms may be referenced in a separate document, including
an employee handbook if state contract law allows,96 but it is
safest to make the agreement separate and distinct from the
handbook.
B. Broadly Define the Scope of Arbitral Claims
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
controversy arising out of or related to” an agreement.99 In
Sweet Dreams Unlimited, Inc. v. Dial-A-Mattress Intern.,
Ltd., the Seventh Circuit held that the terms “ ‘arising out’ of
reach all disputes having their origin or genesis in the contract,
whether or not they implicate interpretation or performance
of the contract per se,” recognizing the policy in favor of
interpreting arbitration language broadly.100 Also, consider
the treatment of class actions.
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C. Provide for Procedural and Substantive
Fairness to Avoid the Contract Defense of Unconscionability
The goal in drafting a mandatory arbitration agreement
should be to make it as fair as possible. If an arbitration
agreement is too one-sided, it may be determined to be unenforceable due to the contract defense of unconscionability.101
In Hagendorn v. Veritas Software Corp., the court held that
an agreement requiring the employee to arbitrate any dispute
– but leaving the employer with the option to use a judicial
forum for any disputes the employer may bring – was onesided and substantively unconscionable.102 Historically, an
arbitration clause is generally not held unconscionable simply
because it is presented on a “take it or leave it” basis or is
part of a standard, form agreement.103 However, there is an
emerging trend against this rule.104
1. Set Forth a Procedure for Appointing an Arbitrator
If the agreement has not created a method of naming or
appointing an arbitrator, the court will designate and appoint
one who will act under the agreement with the same force
and effect as if he had been specifically named.105
2. Do Not Limit or Change Available Remedies
Courts have held that arbitration agreements must provide
potential litigants with an effective substitute for the judicial
forum.106 Part of that determination is the similarity of remedies available. For example, the Ninth Circuit held in Circuit
City Stores, Inc., v. Adams that an arbitration agreement that
failed to provide for all of the types of relief that would otherwise be available in court was unenforceable.107 However,
even where an employee may have a statutory claim, such
as a claim for discrimination under Title VII, so long as she
can vindicate her claim in the arbitral forum, the arbitration
clause will be upheld.108
3. Do Not Significantly Limit Statute of
Limitations
Be careful when limiting the statute of limitations, as
courts have held that arbitration agreements that significantly
decrease the limitation periods are unenforceable because they
are unconscionable. For example, in Alexander v. Anthony
Int’l L.P., the Third Circuit held that an arbitration agreement
that allowed thirty days to file employment related claims was
unconscionable.109
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4. Attorney’s Fees (Cost-Splitting Clauses)
The general rule is that attorney’s fees and cost-splitting
clauses should not deter a substantial number of potential
litigants from seeking vindication of their rights.110 However,
potential litigants should not have to pay more than they would
have to pay in court.111 Courts should take a case-by-case approach towards assessing costs.112
The Seventh Circuit has held that the FAA itself does not
authorize a district court to award attorneys’ fees to a party
who successfully confirmed an arbitration award in federal
court, following the general American rule that each party
bear its own fees.113 However, if an arbitration agreement
authorizes the prevailing party to recover attorneys’ fees
incurred in any action to enforce the agreement in a judicial
arbitration proceeding, the arbitrator will not exceed his authority if he awards attorneys’ fees.114 Also, if the applicable
statute permits the recovery of attorneys’ fees, an arbitrator
is within his powers to award attorneys’ fees.115
An arbitration agreement will be unenforceable if it limits
or changes the remedies available to potential litigants. Therefore, if a statute allows the recovery of attorney’s fees, and
an arbitration agreement states that each party “shall pay its
own costs and attorneys’ fees, regardless of the outcome of
the arbitration agreement,” the arbitration agreement will be
unenforceable.116
5.Forum
The arbitral forum must provide litigants with an effective
substitute for the judicial forum.117 In Cole v. Burns Intern.
Security Svcs., the D.C. Circuit listed five basic requirements
that an arbitral forum must meet: (1) provide for neutral arbitrators; (2) provide for more than minimal discovery; (3)
require a written award; (4) provide for all of the types of
relief that would otherwise be available in court; and (5) do
not require employees to pay either unreasonable costs, or
any arbitrators’ fees or expenses, as a condition of access to
the arbitration forum.118
IV. Post-Circuit City and Waffle House Trends
These two fairly recent U.S. Supreme Court cases stirred
new interest in mandatory arbitration of employment claims.
Circuit City Stores, Inc. v. Adams seems to have settled any
lingering doubts that employment arbitration agreements really are enforceable under the FAA and do not conflict with
federal laws that protect employees from discrimination.119
The Supreme Court, in a 5-4 decision, rejected the notion
that the advantages of arbitration disappear when applied to
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the employment context.120 Circuit City reinforces the public
policy in favor of arbitration, even for claims that an employee
might file in court against its employer.121
Unfortunately, Circuit City’s victory for employers was
short-lived. Disappointment soon followed in EEOC v. Waffle
House, Inc., when the Supreme Court declined to expand
the scope of the FAA for mandatory arbitration agreements
in the employment context.122 The Supreme Court, in a 6-3
“Despite Circuit City’s holding,
however, employers must realize
that merely producing a copy of their
employee’s agreement is not
a ‘get out of court free’ card.”
FAA specifically provides that states are to regulate arbitration agreements “upon such grounds as exist at law or in
equity for the revocation of any contract.”127 Courts enforcing
agreements must consider basic contract requirements such as
offer, acceptance, consideration, and other doctrines – even
unconscionability.128 Though judges are required to examine
these contract formation and enforcement requirements, they
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 mandatory arbitration agreements in the employment context, the
plaintiffs’ bar has been aggressively probing for weaknesses
in the agreements used by employers. Some of the courts, for
their part, have proven increasingly receptive to the employee’s arguments regarding contract formation and defenses to
enforcement. Indeed, some appear to have stretched contract
analysis to its breaking point in an effort to strike arbitration
agreements and provide employees with a judicial forum.
A. Offer and Acceptance
decision, held that an arbitration agreement did not preclude
the Equal Employment Opportunity Commission (EEOC)
from pursuing employee-specific relief in court.123 Despite
the public policy favoring arbitration, Waffle House reaffirmed
the principle that “[a]rbitration under the [FAA] is a matter of
consent, not coercion.”124 Because the EEOC was not a party
to any arbitration agreement between the complainant and the
employer, the agency did not consent to the agreement and
the agreement did not bind the agency.125
Although there has been some debate about the degree to
which Waffle House undermines Circuit City, many employers continue to require their employees to execute mandatory
arbitration agreements. Despite Circuit City’s holding, however, employers must realize that merely producing a copy
of their employee’s agreement is not a “get out of court free”
card. As important as Circuit City is, Waffle House reaffirmed
a very simple principle: arbitration agreements are nothing
more than contracts. As the Seventh Circuit Court of Appeals has explained, “[i]n the wake of Circuit City, it is clear
that arbitration agreements in the employment context, like
arbitration agreements in other contexts, are to be evaluated
according to the same standards as any other contract.”126 The
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
of the minds.”130 The courts will not enforce an arbitration
agreement if a true meeting of the minds has not occurred.
Traditional contract theory defines an offer as a “manifestation of willingness to enter into a bargain . . . so as to justify
another person in understanding that his assent is invited and
will conclude it.”131 An offer must be sufficiently definite in
its terms.132
In Owen v. MBPXL Corp., the United States District
Court for the Northern District of Iowa held that the terms
of a dispute resolution plan were sufficiently definite to
constitute an offer under Iowa law.133 The court adopted a
three-factor test to determine whether a dispute resolution
plan constituted an offer: (1) whether the provisions were
merely policy statements or were directives; (2) whether the
language was detailed or general and vague; and (3) whether
the employer had the power to alter the terms at will.134 The
text used mandatory language (e.g., “differences shall be
arbitrated”).135 Additionally, the agreement was clear because
the duties of the parties were specifically set out.136 While the
agreement did provide that the employer was free to amend
or discontinue the agreement, the court held that this was not
an Achilles heel.137 When viewed in the context of the other
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provisions, which are decidedly mandatory and binding, an
employer’s ability to amend or discontinue the plan does not
defeat the otherwise clear and definite terms of the plan.138
Along with the requirement that its terms be definite, a valid
offer must also reach the offeree. Without sufficient communication of the offer, there can be no acceptance, and therefore
no contract. Insufficient communication of an employers’ new
arbitration agreement has provided some courts, in a handful
of cases, with grounds to refuse their enforcement.
The employer, in Owen, asserted that it sufficiently
communicated its new dispute resolution plan (DRP) to
its employees.139 The DRP was mailed to the employees’
homes, was posted on the company’s internal website, and
employee meetings were held to introduce the plan.140 The
employer, however, was not able to produce any verification
that it actually mailed the plans to the employee or that it
notified the employees of the website posting.141 Owen did
admit to attending one of the informational meetings,142 but
he testified that he did not receive a copy of the plan, just a
summary presentation.143 The Owen court acknowledged that,
under Iowa law, a failure to read a contract does not prevent
its formation.144 However, this rule assumes that the party
seeking to avoid enforcement had an opportunity to read the
contract.145 Owen denied the employer’s motion to compel
arbitration because there was insufficient communication of
the agreement to employees.
Similarly, a Massachusetts court has refused to enforce an
arbitration agreement due to insufficient notice. In Campbell
v. General Dynamics Government Systems Corporation, the
employer disseminated its new dispute resolution policy and
binding arbitration plan through an e-mail message.146 The
message contained no indication that it was binding on employees or that it changed their legal rights.147 The message
included two links by which employees could access the full
text of the policy, but no mechanism was set up ensuring that
employees did so.148 An employee seeking to avoid enforcement of the agreement testified that he did not remember receiving the e-mail.149 The court, noting that First Circuit cases
require actual knowledge or sufficient notice for an employee
to forfeit his statutory rights to a judicial forum,150 ruled that
the agreement was unenforceable due to the insufficient notification and the employee’s lack of actual knowledge of its
terms.151
Most arbitration agreements require the employee’s
signature to acknowledge acceptance.152 Some employers,
however, use arbitration agreements that merely state that an
employee’s continued employment after (sufficient) notice of
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the arbitration agreement constitutes acceptance. Many courts
have been willing to uphold these agreements. For example,
in Hightower v. GMRI, Inc., the Fourth Circuit Court of Appeals held that an employee’s continued employment, with
actual notice of an implemented dispute resolution program,
evidenced the employee’s assent to the binding arbitration
agreement.153 Courts in both Texas and Georgia also have
upheld continued employment as valid acceptance.154
B. Knowing and Voluntary Assent
Prior to Circuit City and Waffle House, the Ninth Circuit
Court of Appeals adopted a “heightened” knowing and voluntary assent requirement for the enforcement of arbitration
agreements.155 The standard looks to: (1) the specificity of
the agreement language; (2) the plaintiff’s experience and
background; (3) the plaintiff’s opportunity for deliberation;
and (4) whether the employer advised the plaintiff to consult
an attorney. Both the First and Seventh Circuit Courts of Appeal endorsed, without adopting, the standard.156 The Third
and Eighth Circuits expressly rejected it.157 The Third Circuit
held that application of this heightened standard would be
inconsistent with the provisions of the FAA.158 Nothing short
of fraud, duress, mistake or some other ground recognized by
law applicable to contracts can excuse a court from enforcement of an arbitration agreement.159 In 2001, the Seventh
Circuit returned to the issue. In Penn v. Ryan’s Steakhouse,
Inc., the Seventh Circuit questioned the continued validity of a
heightened “knowing and voluntary assent” requirement, citing Circuit City’s statement: “We have been clear in rejecting
the supposition that the advantages of the arbitration process
somehow disappear when transferred to the employment
context.”160
The Appellate Court of Illinois, Fifth District, however,
has expressly adopted the heightened standard. In Melena v.
Anheuser Busch, the Fifth District denied enforcement of an
arbitration agreement on the basis that the employee had not
entered into it voluntarily.161 Melena filed a claim against her
employer for retaliatory discharge.162 The employer requested
that the court compel arbitration pursuant to an arbitration
agreement that Melena had signed.163 Anhueser Busch had
presented the agreement to Melena with an ultimatum: sign
or you’re fired.164 The court observed that, given the economic
realities facing the plaintiff, we find that any so called choice
she had was illusory.165 It did, however, suggest a highly
skilled employee, genuinely in the position to negotiate the
terms of an employment contract, might support a “voluntary”
assent under circumstances similar to Melena.166
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The United States District Court for the Northern District
of Illinois refused to expand Melena to cover a prospective
employee. In Campbell v. Sterling Jewelers, the employee
signed an arbitration agreement during her application process.167 Discussing Melena, the Campbell court noted that the
Fifth District stated: “unlike a job applicant, Melena, as a current employee, did not have the benefit of other job leads.”168
Because the plaintiff in Campbell was merely an applicant,
Using a similar test, but reaching the opposite conclusion,
the Supreme Court of New Jersey recently enforced an arbitration agreement.176 In Martindale v. Sandvik, the plaintiff
signed an arbitration agreement as part of her application for
employment.177 In determining whether her signature was
knowing and voluntary, the court noted such factors as her
business sophistication, her ability to review the agreement
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
for the promise.179 Ordinarily, in analyzing whether a valid
contract exists, courts need not consider the adequacy of the
consideration given.180 This is particularly true when one or
both of the values exchanged are uncertain or difficult to measure.181 The mere existence of some bargained for exchange
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
willing to accept these various promises and forebearances
as consideration is an open question.
Before Circuit City was decided, courts routinely found
consideration in an employer’s promise merely to consider an
applicant for emloyment.183 Recently, the Sixth and Seventh
Circuit Courts of Appeal and the Supreme Court of West
Virginia all have considered this issue in cases involving
Ryan’s Family Steak Houses.184 Ryan’s used an unconventional method to set up its employee arbitration agreements.
It entered into a contract with a private company (EDS)
specializing in employment arbitration.185 Individuals who
applied with Ryan’s were required to sign agreements with
EDS.186 The agreement expressly stated that Ryan’s was not
a party to the contract, but was a third party beneficiary.187
The agreement contained two full pages detailing the types
of claims employees were required to arbitrate.188 The only
mention of any EDS responsibility was a provision that it
would provide the forum for arbitration.189
Court of Appeals may indicate a
trend toward a heightened standard
of assent for evaluating mandatory
employment arbitration agreements.”
the Northern District found that her assent to the agreement
was voluntary.169
The Sixth Circuit Court of Appeals also has recently adopted the knowing and voluntary standard for enforcement
of arbitration agreements. In Walker v. Ryan’s Family Steak
Houses, Inc., the Sixth Circuit set forth a test for determining
whether employees have knowingly and voluntarily waived
their judicial forum:170 (1) the plaintiff’s experience, background and education; (2) the amount of time a plaintiff is
given to consider the agreement; (3) the clarity of the waiver;
(4) the consideration given for the wavier; and (5) the totality
of the circumstances.171
In Walker, the court held that a class of Ryan’s Family
Steak House workers did not knowingly and voluntarily waive
their right to a judicial forum.172 Most of the plaintiffs had not
finished high school and were in dire financial shape.173 They
often were hired after a brief interview, in which a manager
would give them numerous documents to sign without explanation.174 The waiver furthermore did not use clear language.175
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In each case, Ryan’s employees argued the agreements
were invalid due to a lack of consideration.190 Ryan’s countered that their agreement merely to consider employing an
applicant constituted consideration.191 Both the Sixth and
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
when the promises are made with full knowledge of all the
circumstances.”193 The West Virginia court still struck down
the agreement by finding that the plaintiff did not agree with
full knowledge.194 The agreement expressly misrepresented
that Ryan’s also was bound to arbitrate through EDS.195 The
Plaintiff’s lack of knowledge led the court to conclude that
Ryan’s “meager promise” to consider her application was
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
appear to concur.198
Conversely, employers generally are not allowed to enforce arbitration agreements in which they retain the right to
amend or alter the agreement at any time. In Snow v. BE &
K Const. Co., the employer argued that it provided sufficient
consideration for the employee’s promise to arbitrate.199 BE
& K promised to retain the employee (at-will) and to abide
by the agreement’s terms as well.200 The agreement, however,
contained a disclaimer stating that “[t]his document in no way
effects [sic] any other terms or the nature of your employment,
and is not an employee agreement. The Company reserves the
right to modify or discontinue this program at any time.”201
The court found that this disclaimer made the employer’s
promise illusory and rendered the agreement unenforceable.202
Similarly, in Hill v. PeopleSoft USA, Inc., a Maryland court
refused to compel arbitration when the employer had reserved
the right to make changes to the arbitration agreement without
notice.203 In doing so, the employer created no real promise to
arbitrate.204 It appears, however, that the courts may be willing
to find consideration in cases where employers are required to
provide some notice of changes or amendments to arbitration
agreements.205
Finally, promising to continue to employ a worker, for
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valid consideration, brings mixed results. The Sixth Circuit
Court of Appeals, in Dantz v. Amercian Apple Group, LLC,
recently held that an employee’s promise to submit future
claims to binding arbitration, in exchange for her employer’s
“In recent years the doctrine of
unconscionability has also
reemerged in the battle over whether to enforce mandatory arbitration
of employment claims.”
promise to continue to employ her, was sufficient consideration.206 Other courts, however, disagree. Similarly, Texas
courts recently have found that “[a]t-will employment does
not preclude formation of other contracts between employer
and employee, so long as neither party relies on continued
employment as consideration for the contract.”207
In Illinois, continued employment as consideration for
an employee’s promise to arbitrate is unclear. In a case not
involving an arbitration agreement, the Supreme Court of
Illinois held that continued employment does not constitute
consideration for an employer’s unilateral modification of an
existing employment contract in an employee handbook.208 In
Doyle v. Holy Cross Hospital, the handbook provided detailed
policies for employee layoffs and rehiring.209 Holy Cross later
added “at-will” employment disclaimers to the handbook.210
When the hospital terminated the plainitffs, they argued that
the inclusion of the disclaimers were ineffective because they
were unsupported by consideration.211 Holy Cross countered
that the plaintiffs’ continued employment consituted consideration for the change to the handbook.212 The Court disagreed:
“consideration must be found elsewhere, whether in the form
of a new benefit to the employee or a new detriment to the
employer, or as the product of mutual consideration.”213
At least one court has distinguished Holy Cross. In Bauer v.
IDC MONOGRAPH — Third Quarter 2005
Morton’s of Chicago, the United States District Court for the
Northern District of Illinois held that an employer’s unilateral
addition of a mandatory arbitration agreement to existing employee handbooks was enforceable.214 The plaintiff cited Doyle
and argued that, in adding the provision to the handbook, the
employer provided nothing of value to employees and did
not incur any disadvantage.215 The Court disagreed with the
plaintiff and found Doyle uncontrolling for two reasons: the
Morton’s arbitration agreement did not change any existing
provision regarding arbitration between the parties and the
added provision contained mutual promises to arbitrate.216
D.Unconscionability
In recent years the doctrine of unconscionability has also
reemerged in the battle over whether to enforce mandatory
arbitration of employment claims. Defining an “unconscionable contract” remains as elusive as ever: one court describes
it as “the absence of meaningful choice on the part of one
party combined with contract terms that unreasonably favor
the other party.”217 Another court waxes poetic: “such that no
sensible man not under delusion, duress, or in distress would
make [it], and such as no honest and fair man would accept
[it].”218
Unconscionablity has two components: procedural defects
and substantive defects. Contracts, including arbitration
agreements, are analyzed regarding both procedural and
substantive defects. Most courts require some finding of
both procedural and substantive unconscionability in striking
down an arbitration clause.219 Procedural unconscionability
refers to the manner in which the agreement was negotiated
and the circumstances of the parties at that time.220 Substantive unconscionability focuses on the fairness or oppressive
nature of the agreement’s terms.221 The two prongs, however,
need not be present in the same degree; a sliding scale of
unfairness can be used.222 “[T]he more substantively oppressive the contract terms, the less evidence of procedural
unconsionablity is required to come to the conclusion that the
term is unenforceable, and vice versa.”223 The Supreme Court
of Washington, however, recently slid the scale so far to one
side that it has held merely that oppressive terms, without
any evidence of procedural defects, can support a finding of
unconsionablity in a mandatory arbitration agreement.224 The
Washington Court cited just two provisions in support of its
finding of substantive unconscionability – one waiving the
employee’s right to attorney’s fees and the other providing a
180-day statute of limitations.225
Regarding procedural unconscionablity, the Ninth Circuit
Court of Appeals has adopted a test that, when applied, almost
always strikes down an employment arbitration agreement:
a take-it-or-leave-it contract (one of adhesion), offered to a
party with greatly unequal bargaining power, is procedurally
unconscionable.226 In Ingle v. Circuit City Stores, Inc., the
Ninth Circuit invalidated an arbitration agreement on just this
basis.227 The defendant, a large corporation with substantially
more bargaining power than its employees, drafted the arbitration agreement and required its new employees to sign it
as a condition of employment.228 Similarly, the Third Circuit
Court of Appeals also has adopted this rule.229
Other courts, however, have been less willing to apply
such a rule. In Gibson v. Neighborhood Health Clinics, Inc.,
a pre-Circuit City case, the Seventh Circuit Court of Appeals
advised: “there ought to be realistic requirements for achieving
a valid arbitration agreement in the context of employment.
These requirements must recognize that we are dealing in
most cases with a contract of adhesion: agree to arbitrate or
lose your job.”230 Relying on Gibson, the United States District Court for the Southern District of Indiana refused to find
procedural unconscionablity based solely on a take it or leave
it contract.231 Additionally, courts within the Seventh Circuit
require “gross” inequality in bargaining power in order to find
procedural unconsionabilty: “If we were to find that no lowlevel employee can be held to an arbitration agreement due to
a supposed disparity in bargaining power between employer
and employee, then most arbitration agreements to resolve
employment disputes would be rendered ineffective.”232
Like the Seventh Circuit, the Sixth Circuit Court of Appeals is using a more stringent test for considering adhesion
contracts while analyzing procedural unconscionability. In
Cooper v. MRM Investment Co., the Sixth Circuit held that
a take-it-or-leave-it contract was not necessarily adhesive.233
Looking to Tennessee law, the court observed that contracts
are not adhesive unless the offeree can prove that refusal to
sign causes some detriment other than the inability to deal
with the offeror.234 In the employment arbitration context, this
means that the employee also must show an inability to find
other employment.235 The district court found the arbitration
agreement procedurally unconscionable due to its adhesive
nature and the parties’ inequality in bargaining power.236 In
reversing, the Sixth Circuit preferred a more realistic approach
to employment arbitration agreements: “While the district
court’s compassion for job applicants is laudable, under its
approach practically every condition of employment would be
an adhesion contract which could not be enforced because it
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
it’ basis.”237 The district court’s approach, it observed, would
contravene Congressional intent that employment disputes
be subject to arbitration under the FAA.238
The substantive unconscionability analysis is being used to
invalidate many provisions common to employment arbitration agreements. The courts are looking to terms or provisions
that are so one-sided they “shock the conscience.”239 Recently,
some courts have found the following shocking provisions:
greatly shortened statutes of limitation;240 excessive filing
fees;241 arbitration fee cost splitting;242 and limitations on
obtainable remedies.243
Not surprisingly, the Ninth Circuit has not been particularly employer-friendly in analyzing employment arbitration
agreements. In Ingle, the court considered an arbitration
agreement which expressly applied to claims brought only
by the employee.244 The court found that this provision was
substantively unconscionable.245 But it went even further.
Seizing an opportunity to address a “broad concern with
respect to arbitration agreements between employers and
employees,” the Ninth Circuit held that employment arbitration agreements are presumptively unconscionable.246 Ingle
determined that the only claims realistically affected by an
employment arbitration agreement are those brought by the
employee.247 Arbitration agreements, it therefore concluded,
are substantially one-sided, even without expressly limiting
the arbitratable claims to those of the employee.248
In a footnote, the Ninth Circuit attempted to soften the blow
it dealt to all employment arbitration agreements:249 “We do
not here utter a blanket rule outlawing arbitration agreements
in the employment context . . . . [M]oreover, . . . a court may
only refuse to enforce a contract or a contract provision if it
is both substantively and procedurally unconscionable.”250
However, this provides little relief to employers in the Ninth
Circuit, especially in light of the fact that this Circuit has adopted the position that mere inequality in bargaining power,
with regard to an adhesion contract, will support a finding
of proceedural unconscionabilty. One wonders whether any
arbitration agreement can ever survive scrutiny in this jurisidiction.251 The Fifth Circuit Court of Appeals has examined
the Ninth Circuit’s unconscionability presumption for employment arbitration agreements and, not so shockingly, declined
to follow it.252
M-14
Conclusion
There are significant reasons for the use of mandatory
arbitration agreements. In general, the advantages of using
mandatory arbitration agreements in the workplace outweigh
the disadvantages. The following is a summary of the advantages and disadvantages.
— Experienced labor arbitrators have a better understanding of the issues/circumstances.253
— Arbitration reduces costs and is less expensive than
litigation. In Board of Trustees v. Cook County
College Teachers Union,254 the court stated that
arbitration is a favored method of settling disputes
because its objective is to achieve a final resolution
in “an easier, more expeditious, and less expensive
manner than by litigation.”255
— Arbitration is faster than litigation and avoids the
delays people often encounter during litigation.256
Arbitration is a favored alternative to litigation
because it is “a speedy, informal, and relatively
inexpensive procedure for resolving controversies.”257
— Compared to litigation, arbitration is more informal.258
— Arbitration relieves congestion in courts.259
— Arbitration avoids the sympathy that juries tend to
show to employees over employers.260
— Arbitration decisions are generally final, and “[j]
udicial review of an arbitration award is even more
limited than appellate review of a trial court’s decisions.”261
Although strongly favored by court, compelling arbitration
may be easier said than done. Despite the Supreme Court
in Circuit City solidifying the validity and enforceability
of employment arbitration agreements under the FAA, the
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
IDC MONOGRAPH — Third Quarter 2005
provide the courts with ample opportunity to apply the general
rules, or fashion exceptions to them. Drafting enforceable
mandatory arbitration agreements will require keeping a close
watch on this rapidly developing body of law.
Endnotes
532 U.S. 105, 121 S. Ct. 1302 (2001).
1
534 U.S. 279, 122 S. Ct. 754 (2002).
2
9 U.S.C. § 1 et seq.
3
Gilmer v. Interstate/Johnson Lane Corporation, 500 U.S. 20, 24, 111
S. Ct. 1647, 1651, 114 L.Ed.2d 26 (1991).
4
9 U.S.C. § 2.
5
See, Cooper v. MRM Investment Co., 367 F.3d 493, 498 (6th Cir.
2004).
6
710 ILCS 5/1.
7
710 ILCS 5/20.
8
710 ILCS 5/1.
9
10
710 ILCS 5/2 § 2(a).
See, Reed v. Doctor’s Assoc., 331 Ill. App. 3d 618, 772 N.E.2d 372,
265 Ill. Dec. 334 (5th Dist. 2002).
11
12
5 ILCS 315/1 et seq. (West 1994).
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).
13
14
29 U.S.C. § 185.
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).
15
See, Preservation of Civil Rights Protections Act of 2001 (S2435,
H.R. 2282, 107th Congress).
16
17
532 U.S. at 123.
18
Id.
Jensen v. Quik Int., 213 Ill. 2d 119, 820 N.E.2d 462, 289 Ill. Dec. 686
(2004).
19
20
534 U.S. at 295-296.
21
Id. at 290 n.7.
AT&T Technologies v. Communication Workers of Am., 475 U.S. 643,
648, 106 S. Ct. 1415, 1418, 89 L.Ed.2d 648 (1986).
22
23
9 U.S.C. §§ 2, 3.
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).
24
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
Dantz v. American Apple Group, LLC, 123 Fed. Appx. 702 (6th Cir.
2005); Matterhorn, Inc. v. NCR Corp., 763 F.2d 866, 869 (7th Cir. 1985);
Sauer-Getriebe KG v. White Hydraulics, Inc., 715 F.2d 348, 350 (7th
Cir. 1983); Hellenic Lines, Ltd. v. Louis Dreyfus Corp., 372 F.2d 753,
758 (2nd Cir. 1967).
27
Alejandro v. L.S. Holding, Inc., 2005 WL 1099141 (3rd Cir. 2005);
Oblix, Inc. v. Winiecki, 374 F.3d 488 (7th Cir. 2004).
28
29
See, infra at Section IV, paragraph C.
Gilmer, 500 U.S. at 29-33; Rodriguez de Quijas, et al. v. Shearson/
American Express, 490 U.S. 477, 483, 109 S. Ct. 1917, 1921, 104
L.Ed.2d 526 (1989).
30
31
O’Brien v. Pipkin, 64 F.3d 257, 262 (7th Cir. 1995).
32
Id. at 262-63.
167 F.3d 361 at 367, citing from Kewanee Prod. Credit Ass’n v. G.
Larson & Sons Farms, 146 Ill. App. 3d 301, 305, 496 N.E.2d 531, 534
(3rd Dist. 1986).
33
34
Id.
United Cable Television Corp. v. Northwest Illinois Cable Corp., 128
Ill. 2d. 301, 307, 538 N.E.2d 547 (1989).
35
Donaldson, Lufkin & Jenrette Futures, Inc. v. Barr, 124 Ill. 2d 435,
449, 530 N.E.2d 439, 445, 125 Ill. Dec. 281, 287 (1988).
36
37
Id.
Id. at 449-50; See also, Bahuriak v. Bill Kay Chrysler Plymouth, Inc.,
337 Ill. App. 3d 714,718, 786 N.E.2d 1045, 1049, 272 Ill. Dec. 211, 215
(2d Dist. 2003).
38
55
Id. at 735, 737.
56
9 U.S.C. § 1.
See, Miller Brewing Co. v. Brewery Workers Local Union No. 9, 739
F.2d 1159, 1162 (7th Cir. 1984); Pietro Scalzatti Co. v. International
Union of Operating Engineers, 351 F.2d 576, 579-80 (7th Cir. 1965);
Asplundh Tree Expert Co. v. Bates, 71 F.3d 592 (6th Cir. 1995).
57
Justin Scheck, JAMS Reverses Class Action Policy, The Recorder
(March 14, 2005), available at http://www.law.com.
58
The Class Action Fairness Act, 28 U.S.C. § 9, enacted on February
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
resolution of duplicative class actions, which is consistent with allowing
class arbitrations. For more information about this Act see Bradley C.
Nahrstadt and Brian Y. Boyd, The IDC Monograph: The Class Action
Fairness Act of 2005 – What Is It All About?, IDC Quarterly, Vol. 15,
No. 2 (2005).
59
60
539 U.S. 444, 123 S. Ct. 2402, 156 L.Ed.2d 414 (2003).
61
539 U.S. at 453-454, 123 S. Ct. at 2408.
Alfred G. Feliu, Class Action Arbitration, Resource Book for Managing Employment Disputes, CPR Institute for Dispute Resolution, Inc.
(2004) (citations omitted).
62
63
Id.
64
339 F.3d 553, 559 (7th Cir. 2003).
65
Id. at 559.
355 Ill. App. 3d 1143, 824 N.E.2d 1183, 291 Ill. Dec. 933 (5th Dist.
2005).
66
39
500 U.S. 20, 111 S. Ct. 1647, 114 L.Ed.2d 26 (1991).
40
Id. at 26 (citations omitted).
41
Id. at 24.
42
Id.
43
Id.
70
Id.
44
473 U.S. 614, 105 S. Ct. 3346, 87 L.Ed.2d 444 (1985).
71
Id.
72
Id.
Gilmer, 500 U.S. at 26, quoting Mitsubishi, supra, 473 U.S. at 628.
See also, Williams v. Katten, Muchin & Zavis, 473 U.S. at 628, 105 S.
Ct. at 3354.
45
46
482 U.S. 483 (1987).
47
Perry v. Thomas, 483 U.S. 483, 484 (1987).
48
Id. at 485.
49
Id. at 489.
50
Id. at 489-91.
Acme-Wiley Holdings, Inc. v. Buck, 343 Ill. App. 3d 1098, 1103, 799
N.E.2d 337 (1st Dist. 2003).
51
67
Id. at 1194.
68
Id. at 1193.
357 Ill. App. 3d 556, 828 N.E.2d 812, 293 Ill. Dec. 502 (5th Dist.
2005).
69
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).
73
74
Champ v. Siegel Trading Co., Inc., 55 F.3d 269, 275 (7th Cir. 1995).
75
Id. at 274.
76
Id.
77
Id.
78
539 U.S. 444, 123 S. Ct. 2402, 156 L.Ed.2d 414 (2003).
79
Id. at 445.
Id. at 447.
52
240 Ill. App. 3d 731, 608 N.E.2d 537 (1st Dist. 1992).
80
53
Id. at 734.
81
Id. at 449.
54
Id.
82
Id.
M-16
IDC MONOGRAPH — Third Quarter 2005
83
Id. at 449.
113
84
Id. at 448-9.
114
85
Id. at 449.
115
86
Id. at 449.
Bess v. DirecTV, Inc., 351 Ill. App. 3d 1148, 815 N.E.2d 455, 287 Ill.
Dec. 52 (5th Dist. 2004).
87
Menke v. Monchecourt, 17 F.3d 1007, 1009 (7th Cir. 1994).
See, Gingiss Intern., Inc. v. Bormet, 58 F.3d 328, 332 (7th Cir. 1995).
Eljer Mfg., Inc. v. Kowin Development Corp., 14 F.3d 1250, 1257
(7th Cir. 1994).
See, McCaskill v. SCI Management Corp., 298 F.3d 677 (7th Cir.
2002) (The court held that an arbitration provision between employee
and employer denying the recovery of attorney’s fees to either side
was unenforceable, either because it limited the employee’s ability to
recover attorney fees under Title VII or because the provision denied
the employee a remedy authorized by Title VII.).
116
88
Bess v. DirectTV, Inc., 351 Ill. App. 3d 1148, 1155-56 (5th Dist. 2004).
89
Id. at 1150.
90
Id. at 1149.
117
91
Id. at 1156.
118
92
Id.
119
93
Id.
Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d 1126, 1130
(7th Cir.1997) (citing, First Options of Chicago, Inc. v. Kaplan, 514
U.S. 938, 944, 115 S. Ct. 1920, 1924, 131 L.Ed.2d 985 (1995)).
94
Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756, 761 (9th Cir.
1997).
95
96
See, Gibson, 121 F.3d at 1131.
97
EEOC v. Waffle House, Inc., 534 U.S. 279, 122 S. Ct. 754, 762 (2002).
98
Id. at 764.
Southland Corp. v. Keating, 465 U.S. 1, 104 S. Ct. 852, 861 (1984);
Prima Paint Corp. v. Flood &Conklin Mfg. Co., 388 U.S. 395, 87 S.
Ct. 1801, 1807 (1967).
99
100
1 F.3d 639, 642 (7th Cir.1993).
Circuit City Stores, Inc., v. Adams, 279 F.3d 889, 895 (9th Cir. 2002).
101
250 F. Supp. 2d 857, 861-62 (S.D. Ohio 2002).
102
Oblix, Inc. v. Winiecki, 374 F.3d 488 (7th Cir. 2004).
103
See, infra at Section IV, paragraph D.
104
9 U.S.C. § 5; see also, Schulze and Burch Biscuit Co. v. Tree Top, Inc.,
642 F. Supp. 1155, 1157 (Ill. N.D. 1986) (The court held that “even if the
parties’ prior dealings did not dictate who would arbitrate the dispute”
the court was authorized to appoint an arbitrator upon either parties’
application.).
105
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 111 S. Ct.
1647, 1652 (1991).
106
279 F.3d 889, 895 (9th Cir. 2002).
107
Gilmer, 111 S. Ct. at 1653.
108
341 F.3d 256 (3rd Cir. 2003).
109
Morrison v. Circuit City Stores, Inc., 317 F.3d 646, 658 (6th Cir.
2003).
110
Id.
111
Id. at 663.
112
Id.
105 F.3d 1465, 1482 ( D.C. Cir. 1997).
532 U.S. 105, 123, 121 S. Ct. 1302, 1313, 149 L.Ed.2d 234
(2001). There is at least one exception to Circuit City’s holding: the
FAA provides an exemption for transportation workers’ employment
contracts.
120
Id.
Some thought that this question already had been answered in Gilmore v. Interstate/Johnson Lane Corp., 500 U.S. 20, 24, 111 S. Ct. 1647,
1651, 114 L.Ed.2d 26 (1991) (finding that “by agreeing to arbitrate a
statutory claim, a party does not forego the substantive rights afforded
by the statute; it only submits to their resolution in an arbitral, rather
than a judicial, forum”) (citation omitted).
121
122
534 U.S. 279, 122 S. Ct. 754, 151 L.Ed.2d 755 (2002).
Id. at 282-85. The holding in Waffle House regarding EEOC
enforcement actions has little effect on most employers’ arbitration
agreements due to the small percentage of cases actually brought to court
by the EEOC. See, Buron, Chad E., EEOC v. Waffle House: Employers
Win, Again, Defense Counsel Journal (January, 2004). Additionally,
Waffle House left open the question of whether an employee’s settlement
or an arbitration judgment would affect the enforcement rights of the
EEOC.
123
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,
103 L.Ed.2d 488 (1989)).
124
Id. The courts have easily applied the Waffle House ruling. The
United States District Court for the Eastern District of New York granted
an employer’s motion to compel arbitration of its former employee’s
Title VII claims pursuant to a signed arbitration agreement. EEOC v.
Rappaport, Hertz, Cherson & Rosenthal, P.C., 273 F. Supp. 2d 260, 264
(E.D.N.Y. 2003). But the court did not compel the EEOC to arbitrate
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
F. Supp. 2d 1049 (D.Neb. 2004) (reaching the same conclusion under
similar facts).
125
126
Penn v. Ryan’s Family Steak House, 269 F.3d 753, 758 (7th
Cir. 2001).
127
9 U.S.C. § 2.
Indeed, employers might have taken note that, on remand from the
Supreme Court, the Ninth Circuit Court of Appeals again refused to enforce Circuit City’s mandatory arbitration clause, finding the agreement
unconscionable. Circuit City Stores, Inc. v. Adams, 279 F.3d 889 (2002).
128
M-17
IDC Quarterly Vol. 15 No. 3
Martindale v. Sandvik, Inc., 173 N.J. 76, 84, 800 A.2d 872,
876 (2002) (citing Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.
20, 24, 111 S. Ct. 1647, 1651, 114 L.Ed.2d 26 (1991)).
129
130
See, Restatement (Second) of Contracts § 17 (1991).
Owen v. MBPXL Corp., 173 F. Supp. 2d 905, 918 (N.D.Iowa
2001) (quoting res. (second) of contracts § 24 (1991)).
131
158
Seus, 146 F.3d at 183-84.
159
Id.
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
234 (2001).
160
2004).
161
352 Ill. App. 3d 699, 707, 816 N.E.2d 826, 833 (5th Dist.
132
Id.
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
139
Id. at 921.
168
140
Id.
141
Id. at 922-23.
142
Id. at 923.
143
Id.
144
Id. at 924.
145
Id.
146
147
321 F. Supp. 2d 142 (D.Mass. 2004).
Id. at 144.
148
Id.
149
Id.
Id. at 147. See, Ramirez-De-Arellano v. American Airlines,
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).
150
151
Campbell, 321 F. Supp. 2d at 149-50.
2001).
152
153
Owen v. MBPXL Corp., 173 F. Supp. 2d 905, 923 (N.D. Iowa
272 F.3d 239, 243 (4th Cir.2001).
See, In re: Halliburton Co., 80 S.W.3d 566 (Tex. 2002); Caley
v. Gulfstream Aerospace Corp., 333 F. Supp. 2d 1367 (N.D.Ga. 2004).
154
See, Prudential Ins. Co. of America v. Lai, 42 F.3d 1299 (9th
Cir. 1994); Nelson v. Cyprus Bagdad Copper Corp., 119 F.3d 756 (9th
Cir. 1997).
155
See, Bercovitch v. Baldwin School, Inc., 133 F.3d 141, 143
(1st Cir. 1998); Gibson v. Neighborhood Health Clinics, Inc., 121 F.3d
1126 (7th Cir. 1997).
156
See, Seus v. John Nuveen & Co., 146 F.3d 175, 183-84 (3d
Cir. 1998); Patterson v. Tenet Healthcare, Inc., 113 F.3d 832, 838 (8th
Cir. 1997).
157
M-18
No. 04-C-5891, 2005 WL 991771 (N.D.Ill. 2005).
Id. at *3 (quoting Melena, 352 Ill. App. 3d at 708-09, 816
N.E.2d at 834) (emphasis added).
169
Id.
170
171
Id.
172
Id. at 383.
173
Id. at 381.
174
175
400 F.3d 370, 381 (6th Cir. 2005).
Id. at 381-82.
Id. at 382-83.
Martindale v. Sandvik, Inc., 173 N.J. 76, 96-97, 800 A.2d 872,
884 (2002).
176
177
Id. at 875.
178
Id. at 884.
179
Id.
180
Restatement (Second) of Contracts § 79.
181
Id.
182
Id.
See, e.g., Johnson v. Circuit City Stores, 148 F.3d 373, 378
(4th Cir. 1998) (although employer did agree to be mutually bound by
agreement, court would not foreclose that employer’s willingness to
consider application alone could constitute consideration); Sheller by
Scheller v. Frank’s Nursery & Crafts, Inc., 957 F.Supp. 150, 153 (N.D.
Ill. 1997).
183
See, Walker v. Ryan’s Family Steak Houses, Inc., 400 F.3d
370, 380 (6th Cir. 2005); Penn v. Ryan’s Family Steak House, 269 F.3d
753, 760 (7th Cir. 2001); State v. Wilkes, No. 32042, 2005 WL 1125327
(W.Va. May 11, 2005).
184
185
Penn, 269 F.3d at 755.
186
Id.
IDC MONOGRAPH — Third Quarter 2005
187
Id.
214
188
Id.
215
Id. at *2.
189
Id.
216
Id.
190
Id. at 760; Walker, 400 F.3d at 373; Wilkes, 2005 WL 1125327
at *8.
217
Penn, 269 F.3d at 760; Walker, 400 F.3d at 380; Wilkes, 2005
WL 1125327 at *8.
218
191
Penn, 269 F.3d at 760; Walker, 400 F.3d at 381.
192
See, Wilkes, 2005 WL 1125327 at *9 (citing Lowther Oil Co.
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
shown or the contract is so unfair and uneven as to render its enforcement the equivalent to the perpetration of fraud”)).
193
2003).
No. 99-C-5996, 2000 WL 149287 (N.D.Ill. February 9, 2000).
Ingle v. Circuit City Stores, 328 F.3d 1165, 1170 (9th Cir.
Geiger v. Ryan’s Family Steakhouse, Inc., 134 F. Supp. 2d
985, 997 (S.D.Ind. 2001).
See, Vanyo v. Clear Channel Worldwide, 808 N.E.2d 482, 486
(Ct. App. Ohio 2004); Ingle, 328 F.3d at 1170; Alexander v. Anthony,
341 F.3d 256, 265 (3d Cir. 2003).
219
220
Ingle, 328 F.3d at 1171.
221
Id.
Id.
222
Id.
195
Id.
223
196
Id.
197
194
177 F.3d 634, 636 (7th Cir. 1999).
See, e.g., Blair v. Scott Specialty Gases, 283 F.3d 595, 603
(3rd Cir. 2002); Ticknor v. Choice Hotels Intern., Inc., 265 F.3d 931,
944 (9th Cir. 2001) (decided under Maryland law); Dodds v. Halliburton Energy Serv., Inc., 273 F.3d 1094 (5th Cir. 2001) (not selected for
publication in the Federal Reporter); and Meyer v. Starwood Hotels &
Resorts Worldwide, Inc., No. 00-8339, 2001 WL 396447 (S.D.N.Y. April
18, 2001).
198
199
126 F. Supp. 2d 5, 13 (D.Maine 2001).
200
Id.
201
Id. at 13-14.
Id. at 14.
202
203
204
333 F. Supp. 2d 398, 405 (D.Md. 2004).
Id.
See, e.g., Holloman v. Circuit City Stores, No. 1145, 2005 WL
1033314 (Md. App. May 5, 2005); Batory v. Sears, Roebuck and Co.,
Nos. 03-15661, 03-15781, 2005 WL 434457 (9th Cir. Feb. 25, 2005).
Id. (quoting 15 Williston on Contracts § 1763A, at 226-27
(3d ed. 1972)).
224
225
Id. at 786-88.
226
Ingle, 328 F.3d at 1171-72.
227
Id.
228
Id.
229
See, Alexander, 341 F.3d at 266.
230
121 F.3d 1126, 1132 (7th Cir. 1997).
Feltner v. Bluegreen Corp., No. 02-0873-C-M/S, 2002 WL
31399106 *6 (S.D.Ind. 2002); see also, Abbott v. Lexford Apartment
Services, Inc., 2002 WL 1800320 (S.D.Ind. Aug. 2, 2002).
231
Abbott, 2002 WL 1800320 at *5 n.2. See also, Koveleskie v.
SBC Capital Markets, Inc., 167 F.3d 361, 367 (7th Cir. 1999).
232
233
234
Id.
235
Id. at 502.
236
Id. at 503-04.
237
Id. at 505.
238
Id.
205
206
2005 WL 465253 at *5.
See, Harmon v. Hartman Mgmt., L.P., No. H-04-1597
(S.D.Tex. Aug. 24, 2004) (quoting J.M. Davidson Inc. v. Webster, 128
S.W.3d 223, 228 (Tex. 2003)).
207
See, Doyle v. Holy Cross Hospital, 186 Ill. 2d 104, 708 N.E.2d
1140 (Ill. 1999).
208
Id. at 1142.
209
Id. at 1143.
210
211
Id. at 1144.
212
Id.
213
Id. at 1145.
See, Adler v. Fred Lind Manor, 153 Wash.2d 331, 103 P.3d 773 (2005).
367 F.3d 493, 500 (6th Cir. 2004).
Id.; Ingle v. Circuit City Stores, 328 F.3d 1165, 1172 (9th Cir.
2003).
239
Ingle, 328 F.3d at 1175; Alexander v. Anthony, 341 F.3d 256,
267 (3rd Cir. 2003); Adler v. Fred Lind Manor, 153 Wash.2d 331, 356,
103 P.3d 773, 787 (2005).
240
241
Ingle, 328 F.3d at 1177.
Id.; Ferguson v. Countrywide Credit Industries, Inc., 298 F.3d
778, 786 (9th Cir. 2002).
242
Ingle, 328 F.3d at 1179; Alexander, 341 F.3d at 267; Adler,
103 P.3d at 786.
243
M-19
IDC Quarterly Vol. 15 No. 3
244
Ingle, 328 F.3d at 1173.
245
Id.
246
Id. at 1173-74.
247
Id. at 1174.
248
Id.
249
Id. at n.10.
250
Id. at n.10 (emphasis in original).
251
See, Id. at 1172.
See, Carter v. Country-Wide Credit Indus., Inc., 362 F.3d 294,
301 n.5 (5th Cir. 2004).
252
United Steel Workers of America v. Warrior & Gulf Navigation Co.,
363 U.S. 574, 582, 80 S. Ct. 1347, 1352, 4 L.Ed.2d 1409 (1960).
253
102 Ill. App. 3d 681, 683, 430 N.E.2d 249, 251, 58 Ill. Dec.
307, 309 (1st Dist. 1981).
254
255
Id.
Board of Managers v. IKO Chicago, Inc., 183 Ill. 2d 66, 71, 697
N.E.2d 727, 730, 231 Ill. Dec. 942, 945 (1998).
256
M-20
Id. (quoting, in part, J & K Cement Construction, Inc., 119
Ill. App. 3d 663, 667-68 (1983)).
257
258
Id.
See, Seaboard Coast Line Railroad v. National Rail Passenger Corp.,
554 F.2d 657, 660 (App. 1977), where the court stated that the policy of
the FAA is to encourage arbitration and reduce congestion in the court.
259
Arbitrating Employment Disputes: Avoiding 10 Mistakes
Preparing and Implementing a Pre-Dispute Arbitration Program,
SK013 ALI-ABA 829.
260
in
Taxman v. First Ill. Bank of Evanston, 336 Ill. App. 3d 92,
96, 782 N.E.2d 803, 807, 270 Ill. Dec. 244, 248 (1st Dist. 2002) (The
court held that an arbitrator’s decision to grant or deny a continuance
of an arbitration hearing rests with the discretion of the arbitrator, and
therefore the standard of review was abuse of discretion.).
261
For example, a Texas Appellate Court has invalidated an employment
arbitration agreement on the basis of “economic duress.” See, In Re:
RLS Legal Solutions, LLC, 156 S.W.3d 160, 163-65.
262