Quick Takes on Illinois Supreme Court Opinions Issued Thursday, March 21
The Illinois Supreme Court handed down opinions in six cases on Thursday, March 21. In People v. Webb, the court held that the unlawful use of weapons statute that provides that it is unlawful to possess or carry a stun gun in public is unconstitutional under the Second Amendment, and in People v. Drake, remanded a defendant’s appealed aggravated battery conviction to the circuit court for a retrial. In City of Chicago v. City of Kankakee, the court held that the Illinois Department of Revenue has the exclusive authority to audit disputed sales transactions and to distribute or redistribute resulting tax revenues due to any error. In 1550 MP Road LLC v. Teamsters Local Union No. 700, the court held that a union’s lease and purchase agreement that was in violation of the Property of Unincorporated Associations Act and the union’s bylaws was unenforceable. The court issued three opinions in Wingert v. Hradisky. In Van Dyke v. White, the court addressed whether the Illinois Secretary of State Securities Department has the authority to bring an administrative action against someone also subject to regulation by the Department of Insurance.
By Kerry J. Bryson, Office of the State Appellate Defender
Isiah Webb and Richard Greco were separately arrested in DuPage County based on possession of a stun gun; Webb had a stun gun in his jacket pocket while in his vehicle, and Greco had a stun gun in his backpack in a forest preserve. Each was charged with unlawful use of weapons in violation of 720 ILCS 5/24-1(a)(4). The DuPage County circuit court held that the statute’s complete ban on carrying a stun gun or Taser in public was unconstitutional under the Second Amendment.
In a relatively short opinion, the Illinois Supreme Court unanimously affirmed. The state conceded that stun guns and Tasers are “bearable arms” entitled to the protection of the Second Amendment. The court accepted that concession, noting that in District of Columbia v. Heller, the U.S. Supreme Court clarified that the Second Amendment applies to all bearable arms, not just those that were in existence at the time of the nation’s founding.
The state argued, however, that Section 24-1(a)(4) was not a complete ban but instead was a constitutionally permissible regulation. Specifically, because section 24-1(a)(4)(iv) provides that the ban does not apply to weapons carried or possessed in accordance with the Concealed Carry Act, a person can carry a stun gun or Taser so long as he or she has a valid concealed carry license.
The court rejected that argument. Under the plain language of the Concealed Carry Act (430 ILCS 66/10), a person cannot obtain a concealed carry license for a stun gun or Taser. The Act provides licensing for “firearms,” which by definition does not include stun guns or Tasers. Further, section 24-2(a-5) of the UUW statute, provides that 24-1(a)(4) does not affect anyone carrying a pistol, revolver, or handgun if they have a valid concealed carry license, but makes no mention of stun guns or Tasers. Thus, the court concluded that section 24-1(a)(4) was a complete ban on carrying a stun gun or Taser in public.
The state made no argument that such a complete ban could withstand constitutional scrutiny. Accordingly, citing to People v. Aguilar, 2013 IL 112116, Moore v. Madigan. 702 F. 3d 933 (7th Cir. 2012), and People v. Mosley, 2015 IL 115872, the court held that portion of the UUW statute facially unconstitutional under the Second Amendment.
By Kerry J. Bryson, Office of the State Appellate Defender
Defendant Gerald Drake was convicted of aggravated battery based on burn injuries that his stepson suffered in a bathtub. The appellate court reversed the conviction on the basis that improper hearsay testimony had been admitted at Drake’s trial, specifically testimony by the treating nurse that the child said Drake had injured him by pouring hot water on him. Rather than remanding for a new trial, however, the appellate court concluded that double jeopardy principles would be violated by retrial because the state had not proved Drake guilty beyond a reasonable doubt.
In a unanimous opinion, the supreme court disagreed. The court recounted the evidence from Drake’s trial, including expert testimony that the child’s injuries were caused by forcible immersion and testimony of a DCFS investigator that defendant was the sole caregiver for eight or nine children at the time of the incident, that the child was not taken to the hospital until later that night when his mother arrived home, that defendant provided a false name at the hospital, and that the hot and cold water lines had been reversed when installed on a new water heater a couple of days prior. The court also clarified that the improper hearsay evidence regarding the child’s statement to the nurse had to be considered, as well, citing People v. Olivera, 164 Ill. 2d 382 (1995) (a reviewing court must consider improperly admitted evidence in determining the sufficiency of the evidence at the original trial).
Reviewing all of the evidence in the light most favorable to the prosecution, as is the required standard for sufficiency-of-the-evidence review, the court concluded that a rational trier of fact could have found defendant proved guilty beyond a reasonable doubt. In addition to the hearsay statement that defendant was the person who caused the child’s injuries, there was evidence that the child’s injuries were not the result of an accident and that Drake was the only adult in the home, did not seek prompt treatment, and provided false information at the hospital, indicating consciousness of guilt. Accordingly, the supreme court vacated the outright reversal and instead remanded the matter to the circuit court for a new trial.
City of Chicago v. City of Kankakee
By Michael T. Reagan, Law Offices of Michael T. Reagan
For at least 25 years, examination of the subject matter jurisdiction of circuit courts has been a recurring theme of supreme court opinions. That issue controlled the outcome of this sales and use tax case. With Justice Theis writing for a unanimous court, with Justice Neville not participating, the court held that the Illinois Department of Revenue has the exclusive authority to audit disputed sales transactions and to distribute or redistribute resulting tax revenues due to any error, to the exclusion of the circuit court’s jurisdiction to entertain those claims.
The Retailers’ Occupation Tax Act (sales tax) and the Use Tax Act (use tax) complement each other. The sales tax is imposed on the sale of tangible personal property purchased in Illinois; the use tax is imposed on the privilege of using in Illinois tangible personal property purchased from a retailer outside the state. The receipt of sales tax proceeds are distributed 5 percent to the state, 1 percent to the municipality where the sale is deemed to have occurred, and the remaining .25 percent to the relevant county. The distribution of use tax receipts is more complicated, and is divorced from geographical considerations within Illinois. After the 5 percent allocation to the state, 20 percent goes to Chicago, 10 percent to an RTA fund, .6 percent to the Madison County Mass Transit District, and a capped dollar amount to the Build Illinois Fund. The balance is distributed to all other municipalities, except Chicago, based upon their proportionate share of population. The key metric is that a municipality therefore receives a larger amount from local sales subject to the sales tax than from a comparable sale subject to the use tax.
In the final alignment of parties before the supreme court, the City of Chicago and the Village of Skokie complain of sales processed through Kankakee and involving other non-municipal defendants. The gist of plaintiffs’ claims is that defendants encouraged and assisted internet retailers to misreport the situs of sales in order to swap the use tax for the sales tax. Plaintiffs allege that although the internet retailers’ acceptance of orders occurred outside Illinois, they reported to the Department of Revenue that the sales took place in the defendant municipalities, thus subjecting those sales to the sales tax, rather than the use tax, thereby depriving plaintiffs of their local share of use tax and diverting tax proceeds to the defendant municipalities in the form of a share of the sales tax.
Hartney Fuel Oil Company v. Hamer, 2013 IL 115130, involved the question of where a sale took place within Illinois for purposes of the sales tax. The court held that it was a fact-intensive inquiry requiring an analysis of all of the circumstances. A department of revenue regulation was held to be invalid, and it was subsequently repealed. The court states that with the repeal of that regulation, the conduct allegedly engaged in here is no longer possible. The question before the court then was whether the circuit court had the power to assess the propriety of the challenged pre-Hartney transactions, or whether the department of revenue had the exclusive authority to do that. Although circuit courts have original jurisdiction over all justiciable matters, excepting the exclusive and original jurisdiction of the supreme court, there is also a line of cases holding that the General Assembly may vest original jurisdiction in an administrative agency rather than the courts when it enacts a comprehensive statutory scheme that creates rights and duties that have no counterpart in common law or equity. Although that divestment of jurisdiction must be clear, it need not be explicit. Rather, legislative intent may be discerned by considering the statutory framework as a whole.
The court found that the department of revenue has been vested with exclusive authority to audit the reported transactions and to distribute or redistribute the tax revenue due to any error. Although the municipal code authorizes a municipality that claims to have been denied sales tax revenue because of a rebate agreement in violation of the municipal code to file suit against only the offending municipality, no such corresponding authorization exists with respect to use taxes. The circuit court did not have subject matter jurisdiction to entertain these claims. The circuit court’s dismissal of the claims was affirmed.
1550 MP Road LLC v. Teamsters Local Union No. 700
By Joanne R. Driscoll, Forde Law Offices LLP
In this case, an officer of a local union executed a lease and purchase agreement (LPA) in violation of the Property of Unincorporated Associations Act (Act) (765 ILCS 115/2 (West 2010)) and the union’s bylaws. The issue in this case was whether that violation rendered the LPA void ab initio and unenforceable. In a unanimous opinion authored by Justice Burke, the supreme court held that the LPA was unenforceable and reversed the judgment of the circuit court that had been affirmed by the appellate court.
The supreme court began its analysis by explaining that the Act was an exception to the common-law rule that unincorporated associations in Illinois were not legal entities distinct from their members and could not sue or be sued, acquire or hold real estate or enter into contracts. The Act contravened the common law by empowering unincorporated associations, through a presiding officer and the secretary or officer keeping the records, to execute leases and real estate purchase agreements in the association’s name “when authorized by a vote of the members present at a regular meeting held by said lodge *** after at least ten days’ notice has been given to all members.” 765 ILCS 115/2; see also id. §§ 1, 3. It was undisputed that the members of the local union did not receive notice of the proposed LPA; they did not vote to authorize execution of the LPA at a regular meeting; and only one officer (the secretary-treasurer) signed the LPA.
The Act was silent as to the consequences of a failure to comply with these requirements. As a result, the court applied two statutory construction rules: first, that statutes in derogation of the common law must be strictly construed to effect the least alteration of the common law; and second, that courts are to ascertain and give effect to the intent of the legislature by following the plain language of the statute. Finding that the language of the Act clearly expressed a public policy to protect the individual members of an association from liability arising out of contracts entered by its leadership, the court held that the union’s failure to give notice to its members and obtain a membership vote authorizing execution of the LPA rendered the LPA void ab initio and unenforceable. (The court’s opinion did not reach the issue of whether two signatures were necessary to render the LPA enforceable.)
The court then addressed and rejected several of the plaintiff’s arguments to compel enforcement of the LPA, including ratification and apparent authority. As to the former, the court held that equitable doctrines did not apply to contracts that are void ab initio. As to apparent agency, it reasoned that when the principal (here, the union) had no authority to enter into a contract, the agent of the principal (the union’s secretary-treasurer) had no authority to bind the principal to the contract.
By Michael T. Reagan, Law Offices of Michael T. Reagan
The Drug Dealer Liability Act, which has been in effect since 1996, mirrors the model Drug Dealer Liability Act which has been adopted, or some version of it, by 18 states. Two categories of potential defendants are defined by the Act. 740 ILCS 57/25(b)(1) creates liability upon “a person who knowingly distributed, or knowingly participated in the chain of distribution of, an illegal drug that was actually used by the individual drug user.” Section 25 (b)(2) of the same Act creates liability upon “a person who knowingly participated in the illegal drug market if,” paraphrased, a) the place of illegal drug activity by the user is within the illegal drug market target community of the defendant, b) the defendant’s participation in the illegal drug market was connected with the same type of illegal drug, and c) the defendant participated in the illegal drug market at any time during the individual drug user’s period of drug use. The opinion refers to Section 25(b)(1) liability as the “Direct Liability Provision” and to Section 25(b)(2) liability as the “Area Liability Provision.”
This case for civil liability under the Act is brought on behalf of the minor son for the death of his father caused by a drug overdose. The defendant is the administrator of the estate of the deceased alleged drug dealer. The defendant moved to dismiss on due process grounds, claiming that the Act imposed an irrebuttable presumption of causation that has no rational connection between defendant’s knowing participation in the illegal drug market and causation of the user’s injuries, and further because due process was violated by using a market share theory of liability which had been disallowed by the court in Smith v. Eli Lilly & Co., 137 Ill.2d 222 (1990). The trial court denied the motion as to Section 25(b)(1) but granted the motion as to Section 25(b)(2), finding that it violated due process. Later, the court granted summary judgment for the defendant on the Section 25(b)(1) claim.
Plaintiff appealed directly to the supreme court pursuant to Rule 302(a). An important procedural note is that the supreme court then retained jurisdiction, but remanded the matter to the trial court for the limited purpose of making findings in compliance with Rule 18.
The supreme court’s disposition of the case resulted in three opinions. Justice Thomas’ lead opinion delivered the judgment of the court, joined by Chief Justice Karmeier and Justice Garman. Justice Burke concurred in part and dissented in part; her opinion was joined by Justice Neville. Justice Theis concurred in part and dissented in part; her opinion was joined by Justice Kilbride. Section 25(b)(1), the Direct Liability Provision, was found to be constitutional by Justices Thomas, Karmeier, Garman, Theis, and Kilbride, with Justices Burke and Neville finding it to be unconstitutional. Section 25(b)(2), the Area Liability Provision, was found to be unconstitutional by Justices Burke, Karmeier, Garman, and Neville. Justices Theis and Kilbride found it to be constitutional.
The lead opinion first took up Section 25(b)(2). The court defined both procedural due process and substantive due process, with the latter “barr(ing) governmental action that infringes upon a protected interest when such an action is itself arbitrary.” The court stated that this issue involved a substantive due process claim. A liberty interest constituting a fundamental right was not alleged, therefore the level of scrutiny is rational basis. The opinion stated that the legislative purpose of the Act is legitimate, but it then focused upon whether Section 25(b)(2) bore a reasonable relationship to the legislative purpose which was neither arbitrary or unreasonable. The opinion stated that that section did not meet that standard, being both arbitrary and unreasonable. The opinion disagreed with both defendant’s argument and the trial court’s analysis that that section created an irrebuttable presumption of causation. Rather, the opinion states that “the Act creates a new cause of action that does not require proof of causation, as that term is typically understood in the common law of negligence.” That fact alone did not render the section unconstitutional, but rather the opinion found that the section went “far beyond” relieving the plaintiff of the need to prove causation. “In a truly unprecedented legislative move, … (it) allows a plaintiff to recover substantial civil damages from a defendant … who has no relationship with or connection to the identified illegal drug user.” Because that section imposes liability on persons having no connection to or nexus with the drug use, “it is difficult to conceive of a civil liability statute more unreasonable or arbitrary.”
Turning to the direct liability provision, the lead opinion found that summary judgment was improperly granted because under the terms of the Act “a plaintiff need only establish that the defendant ‘knowingly distributed, or knowingly participated in the chain of distribution of, an illegal drug that was actually used by the individual drug user.’” The opinion found that Section 25(b)(1) “imposes liability only in cases in which the parties have an existing and proven transactional connection.”
Justice Burke’s opinion concluded that both sections of the Act are unconstitutional, offering hypotheticals to establish those points.
Justice Theis’ opinion expressed the conclusions that both sections of the Act are constitutional. Her opinion relies heavily upon the lengthy express legislative findings, stating that “they draw an unmistakable link between drug dealers and drug users in a community.” In Justice Theis’ view, “dealers at all levels together have created a demand for illegal drugs, as well as a supply chain to serve that demand, “and that “the legislature sought to undermine the entire legal drug market by adopting a new form of liability – market liability.” Justices Theis and Kilbride are of the opinion that “although Section 25(b)(2) pushes the boundary of civil liability by dispensing of traditional notions of causation, it cannot be said that the means that the legislature has chosen … is not rationally related” to the state’s interest in dealing with the costly impact of the illegal drug market.
By Karen Kies DeGrand, Donohue Brown Mathewson & Smyth LLC
Here the Illinois Supreme Court addressed whether the Illinois Secretary of State Securities Department (“Department”) had the authority to bring an administrative action against Richard Lee Van Dyke. Van Dyke was subject to regulation by both the Illinois Department of Insurance, in his role as a licensed insurance producer, and by the state’s securities department, as an investment advisor.
Following the receipt of a complaint by the adult children of one of Van Dyke’s deceased clients, the department audited both Van Dyke’s investment advisor files and his insurance files. Based on a review of Van Dyke’s insurance files, the secretary filed charges that Van Dyke has defrauded more than 21 senior citizen clients of approximately $263,000. The department contended that the purchase transactions violated section 130.853 of the department’s administrative regulations prohibiting an investment advisor from effectuating excessive or unsuitable securities transactions and that constitute a fraudulent, deceptive or manipulative act.
After a hearing, the secretary determined that Van Dyke violated several sections of the Illinois Securities Law of 1953 (the “Act”), 815 ILCS 5/1 et seq. (West 2012). The secretary revoked Van Dyke’s investment advisor registration; prohibited him, permanently, from offering or selling securities in Illinois; fined him $330,000; and ordered him to pay the costs of the investigation and the department’s expert witness. Van Dyke challenged the department’s order, unsuccessfully in the circuit court and successfully in the appellate court, which reversed all aspects of the secretary’s final order.
The supreme court considered whether Van Dyke’s involvement in recommending and effectuating the sale of indexed annuity contracts and purchase of replacement indexed annuity contracts was within the department’s enforcement authority over the transactions as involving a “security” under the Act. The secretary contended that the appellate court erred in holding that the indexed annuities involved in the purchase transactions for Van Dyke’s clients, all between 61-82 years of age, did not constitute transactions involving “securities.”
The supreme court began its analysis by considering whether the indexed annuities involved in the transactions constituted “securities” as defined in and subject to the Act, or whether the financial instrument Van Dyke recommended to his clients constituted an insurance product within the sole purview of the director of insurance under the Illinois Insurance Code. In determining whether the indexed annuities are securities, the supreme court noted that it should construe the term “security” broadly to effectuate the legislative intent of the Act: protecting innocent persons persuaded to invest in speculative enterprises they do not control. While noting federal cases addressing indexed annuities under the Federal Securities Act of 1933, the supreme court observed that key distinctions exist between the federal and state statutory regimes. One is that, under Illinois law, regulatory control over the sale of variable annuities is assigned to the department of insurance, a critical difference from federal law, which does not contain a similar provision.
The supreme court reasoned that, by Illinois statute, both traditional and variable annuities are insurance products regulated by the department of insurance; accordingly, indexed annuities, a hybrid of the two, also would fall within the regulatory authority of the department of insurance. Consequently, Van Dyke’s recommendation concerning the purchase of indexed annuities could not constitute a violation of the Act to the extent the securities department’s charges applied only to transactions involving securities.
The secretary defended its order on the alternative basis that, even if the indexed annuities did not qualify as “securities,” Section 12(J) of the Act still prohibited fraudulent, deceptive, or manipulative conduct by Van Dyke in recommending the purchase of these financial instruments. Section 12(J) broadly prohibits any scheme to defraud by an individual acting as an investment advisor, and violations fall within the securities department’s purview. Again, however, the supreme court determined that the department fell short. While finding that Van Dyke acted as an investment advisor as defined by Illinois statute—that Van Dyke was providing investment advice to his clients, and thus owed them a fiduciary duty—the court held that department’s order, following a six-day hearing, was against the manifest weight of the evidence. The supreme court determined that the department’s evidence offered to prove that Van Dyke breached his fiduciary duty and committed fraud on his clients was based on loss calculations relying on an inaccurate analysis. The supreme court found fundamental errors in the projections of the department’s witnesses with respect to the claim that the annuity contracts were not in the best interests of Van Dyke’s clients. The court also found that the department’s analysis did not take into the account the individual needs, financial status or wishes of Van Dyke’s clients.
Seeking cross relief, Van Dyke asserted a claim for attorney fees, an issue he raised in the appellate court. The supreme court denied Van Dyke’s request. The court held that, despite the department’s erroneous reasoning, it had authority to bring the enforcement action and did not engage in improper rulemaking.