Quick takes on Thursday's Illinois Supreme Court Civil opinions

Our panel of leading appellate attorneys review Thursday's Illinois Supreme Court opinions in the civil cases Stevens v. McGuireWoods, LLP,  Lake Environmental Inc. v. Arnold, Seymour v. Collins, The Village of Vernon Hills v. Heelan and O’Toole  v. The Chicago Zoological Society.

CIVIL

Stevens v. McGuireWoods L.L.P.

By Michael T. Reagan, Law Offices of Michael T. Reagan

The court’s unanimous opinion in Stevens v. McGuireWoods, LLP, is grounded on the established points that legal malpractice plaintiffs must be able to establish actual monetary loss as damages, that such a plaintiff cannot be in a better position by bringing suit against the attorney than if the underlying action had been prosecuted successfully, and that damages obtainable in a corporate derivative action belong to the corporation, and not to plaintiff shareholders. 

The plaintiffs here are former minority shareholders in an LLC.  They had retained the defendant law firm to bring claims against managers of the LLC as well as its majority shareholder.  Those claims were brought in both individual and derivative capacities.  Substituted counsel brought additional claims against the LLC’s corporate counsel.  Those claims were dismissed for various reasons, including standing and statutes of limitations and repose.  The plaintiff shareholders settled the underlying case, and relinquished all ownership interest in the LLC.

On this appeal in the malpractice action against their original counsel, the court readily affirmed, without issue being made, the dismissal of plaintiffs’ individual claims against corporate counsel for the LLC for lack of standing.  Corporate counsel’s duties ran solely to the corporation, and not to individual shareholders.  The supreme court also concluded that plaintiffs could never succeed on their requisite burden of proving damages on their derivative claims because the proceeds of a derivative suit flow exclusively to the corporation, and not to the nominal plaintiffs.  Thus, successful plaintiffs in shareholder derivative suits benefit only indirectly, such as through an increased value of their shares.  But because recovery in malpractice cases is limited to actual damages, any judgment in the underlying case would have been awarded to the LLC, and not to the shareholders.

These particular plaintiffs divested themselves of their rights to assert claims on the LLC’s behalf when they divested themselves of their ownership interest in the LLC.  Building on that point, the court stated that it was compelled to decide the unargued point that plaintiffs lacked standing to bring their derivative claims.  Plaintiffs could no longer demonstrate any injury to a legally cognizable interest.  The court took up that issue in the interest of maintaining a uniform body of precedent and because “we would not want anyone to construe our silence on this point as a tacit recognition that plaintiffs have standing.”

Lake Environmental, Inc. v. Arnold

By Karen Kies DeGrand, Donohue Brown Mathewson & Smyth LLC

Supreme Court Rule 137 permits a circuit court to sanction a party or his counsel for certain types of misbehavior in litigation. If a court takes this drastic step, under section (d) of the Rule, it must explain why. In this case, the Illinois Supreme Court addressed whether that requirement also applies to orders denying motions for sanctions. The supreme court held that it does not.

The supreme court found that the language of Rule 137(d) is unambiguous. It states that “[w]here a sanction is imposed under this rule, the judge shall set forth with specificity the reasons and basis” for the ruling. Observing that the drafters of the rule had clearly limited the requirement to situations in which the a court imposes sanctions, the supreme court found nothing in the Rule’s language implying that denial orders require the same explicit findings. The supreme court reasoned that the authors of the rule would have included such language if they intended to impose this requirement.

The supreme court observed that imposing the explanation requirement comports with the purpose of the Rule, which is designed to discourage frivolous filings and not to punish losing litigants. Logically, it makes sense to require a court to articulate a reason for imposing sanctions, so that the party at fault and future litigants will know what conduct steps over the line. No similar need exists when a motion is denied. Moreover, the supreme court found, a record is not inherently insufficient if a sanction motion is denied without explanation. The appellate court can, and should, focus on whether the record provides an adequate basis for upholding the circuit court’s decision, and not on its reasons for doing so.

Seymour v. Collins

By Michael T. Reagan, Law Offices of Michael T. Reagan

Seymour v. Collins reversed both the circuit and appellate courts which had applied judicial estoppel to grant summary judgment in favor of defendants in a personal injury suit where the plaintiffs had not advised the bankruptcy court of potential claims for workers’ compensation and personal injury during the course of a Chapter 13 proceeding. Justice Schostok had dissented in the appellate court, expressing the view that application of judicial estoppel on those facts resulted in a “grave injustice.”  Plaintiffs had advised the bankruptcy court of the receipt of workers’ compensation benefits from an earlier claim (perhaps in service of a request for reduction of payments) but expressed their belief that they did not have an obligation to report subsequent injuries or claims. Departing from what the court perceived the federal rule to be, the court stated that “we are not so ready, as the federal courts appear to be, to penalize, via presumption, the truly inadvertent omissions of good-faith debtors in order to protect the dubious, practical interests of bankruptcy creditors.”

The supreme court spoke broadly to the elements of judicial estoppel. Resolving an uncertainty, the court held that a statement under oath is not required for the application of judicial estoppel. The court also stated that “judicial estoppel, like all estoppels, must be proved by clear and convincing evidence.”  

The court devoted considerable analysis to the standard of review, on which there is a great deal of national debate.  Tension arises because the application of judicial estoppel is a matter of discretion for the trial court, normally reviewed for abuse of discretion, yet estoppel was applied here via a motion for summary judgment, normally reviewed de novo. The supreme court gave direction to trial courts as to the sequence of their decisions. The court then held that where a trial court has exercised discretion in the application of judicial estoppel, appellate review is for abuse of discretion.  However, the court also stated that de novo review must be applied to ascertain that the case is an appropriate one for summary judgment. The court noted that because of its ultimate disposition of the case, it could have declined to resolve the conflict in the standards of review, but decided to address the issue in order to provide guidance in future cases, noting that judicial dictum is entitled to much weight.  

The opinion has other useful statements. When a court fails to exercise its necessary discretion, that failure itself may constitute an abuse of discretion, “precluding deferential consideration on appeal.” Also, deferential review is not warranted where discretion was “clearly abused by reason of erroneous assessment of the evidence.”

The Village of Vernon Hills v. Heelan

By Karen Kies DeGrand, Donohue Brown Mathewson & Smyth LLC

In this case the supreme court concluded that tying a municipality’s obligation to pay for an injured police officer’s health insurance to the award of the officer’s line-of-duty disability pension did not violate the municipality’s due process rights. The court considered this issue in the context of injuries sustained by William Heelan, a police officer who was injured in the course of responding to an emergency call. The 20-year employee of the Village did not return to work after experiencing problems with both hips that an independent medical examiner related to the on-the-job injury. Heelan applied for and received a line-of-duty disability pension pursuant to the Illinois Pension Code. The Board of Trustees of the Vernon Hills Police Pension Fund heard evidence on the application. In a proceeding of which the Village was aware but did not intervene, the Board determined that Heelan qualified for the pension he requested.

Heelan then sent a letter to the Village in which Heelan contended that the Village was responsible for paying for health care for Heelan and his dependents, based upon the disability award and the Public Safety Employee Benefits Act,  820 ILCS 320/10 (West 2010). Seeking a declaratory judgment that it was not obligated to pay the health insurance premium under the Benefits Act, the Village sued Heelan. The Village lost in both the circuit and appellate courts, which ruled that the Benefits Act compelled the conclusion that Heelan was entitled to the insurance benefit under the statute, based on the award of the line-of-duty pension, which, in turn, established a catastrophic injury.

The supreme court agreed. It followed supreme court decisions that construed the phrase “catastrophic injury” in the Benefits Act to be synonymous with an injury meriting a line-of-duty disability pension. The supreme court reasoned that it was not invoking the doctrine of collateral estoppel, as the Village argued. Rather, the statute compelled the conclusion as a matter of law.

Nor was there a procedural due process violation, the supreme court found. The enactment of the Benefits Act provided all of the process to which the Village was due. Moreover, by failing to intervene in Heelan’s disability pension proceeding before the Board, despite its knowledge of that proceeding, the Village forfeited any procedural due process claim.

O'Toole v. The Chicago Zoological Society

By Alyssa M. Reiter, Williams, Montgomery & John Ltd.

The Brookfield Zoo is not a “local public entity” according to this decision. Therefore, Ms. O’Toole’s suit, which was filed within two years of her trip and fall, but not within the one-year limitations period provided under the Local Governmental and Governmental Employees Tort Immunity Act (the “Act”), was timely.

The term “local public entity” is defined in the Act broadly and includes not-for-profit corporations that perform “public business.” The Court had previously interpreted the term “public business” and held that the key factor was control: “Without evidence of local governmental control, it cannot be said that a not-for-profit corporation conducts ‘public business’.” In its opinion here, the Court restated the key issue as “whether the not-for-profit corporation seeking tort immunity remains subject to ‘operational control by a unit of local government.’”

The Court considered the facts that the Forest Preserve District of Cook County controls the real property under the zoo, while the District and the Zoological Society share control over the other zoo property. The Society controls the daily operations of the zoo. Taxes provided less than half the zoo’s funds. The Society complies with OSHA, which does not apply to government employers.

The Court concluded that the District “does not exercise operational control over the Society” so the Society is not a local public entity under the Act and the one-year limitations period in the Act did not apply.

The Supreme Court issued opinions in several other cases today.  The issues include:

• Whether school property is subject to municipal zoning laws. Gurba v. Community High School District No. 155, 2015 IL 118332 (residential neighbors’ challenge to football stadium bleachers on school property)
• Whether a filing fee in residential mortgage foreclosure cases, where 2% of the fee is retained by the clerk of the court, violates the judicial fee officer prohibition in the Illinois Constitution. Walker v. People ex rel. Madigan , 2015 IL 117138
• Whether the Truth-in-Lending Act restricts the right to rescind only to “obligors” and whether a trustee under a land trust maintains an ownership interest subject to the security interest such that it is entitled to TILA disclosures and may exercise the right to rescind. Financial Freedom Acquisition, LLC v. Standard Bank and Trust Company, 2015 IL 117950