Our panel of leading appellate attorneys review Thursday's Illinois Supreme Court opinions in the Civil cases Pielet v. Pielet, Khan v. Deutsche Bank AG, Lawlor v. North American Corporation of Illinois, Moore v. Chicago Park District, Martin v. Keeley & Sons, Inc. and Country Preferred Insurance Company v. Whitehead and the Criminal cases People v. Lara and People v. Geiger.

CIVIL

Pielet v. Pielet

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

The complexity of the facts in Pielet v. Pielet precludes meaningful summary in this format. The case involved the reorganization of a long-established business by the addition of new participants, followed by further reorganization and additional parties. At the outset of that process, the founder of the business sold his interest and entered into a consulting agreement which provided for a yearly fee of $130,000 for his lifetime and also for that of his wife, should she survive his death. When the ultimate owners of the business ran into financial difficulties, the payments were stopped. This suit followed, brought against various ownership participants.

One of the primary issues decided by the court was whether Section 12.80 of the Business Corporation Act, which permits the pursuit of remedies by or against a dissolved corporation for five years after the date of dissolution, applies where the alleged breach of contract did not take place until after the corporation was dissolved. The reader begins to look forward to the rest of the opinion with anticipation when the court began its analysis saying "Until the appellate court ruled in this case, precedent uniformly indicated that the answer to this question would be no." In addition to reviewing Illinois appellate authority on point, the court also devoted considerable attention to a federal district court opinion from 1981 which had engaged in much the same analysis. That court analyzed the effect of a change in the statute, and drew a distinction between those claims brought by a dissolved corporation as opposed to claims brought against a dissolved corporation. (By quoting from the district court opinion with express approval, the court might have implicitly introduced, perhaps for the first time, into Illinois state cases the notion of an explicit Hohfeldian rights analysis.) The supreme court held that "only causes of action against a corporation which have actually accrued prior to the corporation’s dissolution are preserved by Section 12.80."

Next taking up claims against other parties, the court analyzed the requirements of a novation. Because there was "considerable room for dispute as to whether the parties intended for there to be an entirely new contractual arrangement," the court concluded that the appellate court acted correctly in holding that summary judgment was not appropriate.

Those defendants next contended that the appellate court erred in going on to assess whether there would be grounds for holding them liable should it turn out on remand that a novation did not exist. The supreme court agreed. The court  spoke to when it is appropriate for a reviewing court to address issues likely to recur on remand. While acknowledging that the discretion to do so exists, the court stated that "courts should refrain from deciding an issue when resolution of the issue will have no effect on the disposition of the appeal presently before the court."

Justice Burke, joined by Justice Freeman, concurred in part and dissented in part. That dissent addressed the last point above – whether the appellate court had issued an improper advisory opinion with respect to matters beyond the existence of a novation.

Khan v. Deutsche Bank AG

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

Plaintiffs Shahid Kahn and his wife were advised by certain defendants that by engaging in certain investment strategies they could both potentially realize a substantial profit and greatly minimize their income tax liability. The central components of at least one of the plans was the purchase and sale of both long and short options, each costing approximately $35 million, with a fractional difference in price which yielded a premium to the defendant bank.

In their complaint, plaintiffs allege that the options were structured in such a way that a defendant would make substantial fees while the plaintiffs were destined to never make the alleged tantalized profit, that the large losses which they claimed on their tax returns as part of the strategy were disallowed by the Internal Revenue Service, and that the IRS has issued a notice of deficiency stating that plaintiffs owed substantial back taxes and significant penalties and interest. Plaintiffs further allege that they were advised by some or all of the defendants to not participate in a federal tax amnesty program, in part because such participation would have required plaintiffs to disclose to the IRS the names of the participants in these attempted tax avoidance plans.

As with today’s Pielet opinion, this summary cannot do justice to the facts of the case, the arguments of the parties nor all the details of the court’s opinion.

The first major issue taken up is the application of the statute of limitations as to certain defendants. It was agreed that the five-year period provided by 735 ILCS 5/13-205 applies, but the heart of the dispute was determining when it began to run. At the earliest, a statute does not begin to run until a cause of action accrues, meaning that all of the elements of an action must be present, including resulting injury or damage. The court devoted considerable analysis to the discovery rule, which postpones the start of the period of limitations until a party knows or reasonably should know both of injury and that the injury was wrongly caused. The exact nature of the wrongful conduct need not be known to plaintiff to permit the discovery rule to activate.

The dispute was whether the statute began to run at various early times such as the payment of fees consequential to the fraud, or when plaintiffs had reason to hire independent tax counsel, or alternatively on the long end not until an assessment or settlement with the IRS. The court concluded that while a portion of plaintiffs’ injuries occurred early on, because of the alleged actions of certain defendants, plaintiffs could not have discovered at that time that their injury was wrongfully caused. The court held that the limitations period began to run when the IRS issued a notice of deficiency to the plaintiff, even though that was not yet a final determination of the taxpayer’s full liability. In arriving at that result, the court acknowledged that the defendants here were not acting as tax accountants, but stated that the focus should be on the nature of the harm caused, not on the status of the parties. The majority opinion also noted that the "major benefit promised to them" by certain defendants and their alleged coconspirators was that they would be able to deduct losses on their tax returns regardless of whether they made any profit on the investments themselves. "[T]he (alleged) essence of the investment strategies was to provide plaintiffs with a tax benefit, not to make a profit."

Certain defendants had also filed a Section 2-615 motion, asserting a deficiency in the allegations of a claim for breach of fiduciary duty. The court’s analysis turned on the potential applicability of documents executed by plaintiffs in which plaintiffs purportedly disclaimed any reliance on advice by defendants, thereby negating the duty of a fiduciary relationship. The court noted conflicts among documents, and discussed whether the documents were even properly considered in the analysis. The court also took up and rejected the assertion that because the plaintiff was assertedly a sophisticated business man and that this transaction was both isolated and adversarial, that a fiduciary relationship could not exist as a matter of law.

A separate statute of limitations analysis was engaged in with respect to a defendant public accounting firm. That analysis largely turned upon the interpretation of 735 ILCS 5/13-214.2, pertaining to periods of both limitation and repose for persons registered pursuant to the Public Accounting Act. The court concluded that plaintiffs’ complaint was not time-barred.

Justice Theis, joined by Justice Kilbride, concurred in part and dissented in part. The dissenters agreed with the trial court’s conclusion that the discovery rule is activated much earlier than under the majority’s analysis, at a time by which plaintiffs knew that the investments had not yielded a profit, that plaintiffs had received audit notices from the IRS, and that they had hired independent tax counsel.

Significantly shaping the dissenter’s view, their opinion states that although plaintiffs may not have known the full extent of their injuries at that earlier time, that they were then under a burden to inquire further as to the possible existence of a cause of action. The dissent characterizes the majority opinion as turning upon a determination of what the "major benefit" was that plaintiffs sought by their transactions. The dissenters complained "Our discovery rule does not delay commencement of the limitations, until the plaintiff knows of some unfulfilled ‘major benefit’ resulting in major injury."

Martin v. Kelley & Sons, Inc.

By Karen Kies DeGrand of Donohue Brown Mathewson & Smyth LLC

The Illinois Supreme Court ruled that the general "no duty" rule prevailed in a negligent spoliation case where, the day after a construction accident, the plaintiffs' employer destroyed an I-beam involved in the accident. The plaintiffs, employees of a general contractor, were working on a bridge reconstruction project at the time of the accident. A concrete I-beam supporting the deck upon which the plaintiffs were standing collapsed, causing the plaintiffs to fall and sustain injury. Following inspections by the Illinois Department of Transportation (IDOT) and the Occupational Safety and Health Administration (OSHA), which resulted in OSHA notifying the employer of citations and penalties, the employer told workers to break up the beam. 

In a subsequent lawsuit, the plaintiffs sued the employer, the manufacturer of the I-beam and the designer of the bearing assembly that supported it. The plaintiffs and the co-defendants all asserted claims for negligent spoliation of evidence. Finding that the employer had no duty to preserve the I-beam, the circuit court entered summary judgment for the employer. The appellate court held that the employer had voluntarily undertaken a duty to preserve the beam for the benefit of other potential litigants and reversed the judgment.

The supreme court disagreed that the employer had a duty to preserve the evidence. The majority found that the plaintiffs and counter-claimants had not met the relationship prong of the two-party duty test. It found no voluntary undertaking; the court observed that the employer had not performed any testing of the beam and that the record did not indicate that the employer intended to preserve the beam as evidence. The court also rejected the argument that the employer's status as the plaintiffs' employer, its possession and control of the beam, and its status as a potential litigation did not qualify as special circumstances under the case law.

Chief Justice Kilbride dissented. He wrote that the majority failed to account for the quick destruction of the beam, one day after the accident, which made it impossible for the plaintiffs to request preservation.

Country Preferred Insurance Company v. Whitehead

By Karen Kies DeGrand, Donohue Brown Mathewson & Smyth LLC

In the context of applying an automobile insurance policy's time limit for bringing an uninsured motorist claim, the Illinois Supreme Court ruled that public policy does not require the insurance policy's limitations period to equal the time allowed for filing a lawsuit for injuries resulting from the accident. The insured, Terri Whitehead, was hurt in a car accident that occurred in Delavan, Wisconsin. Under Wisconsin law, Whitehead had three years to sue the other vehicle's driver, who did not have insurance. When Whitehead's insurer, Country Preferred Insurance Company, challenged the timeliness of her written demand for uninsured motorist arbitration based upon a two-year time limit in her automobile insurance policy, Whitehead argued that the provision violated public policy.

The supreme court majority considered whether the insurance policy was "so capable of producing harm that its enforcement would be contrary to the public interest.” Distinguishing Whitehead's insurance coverage dispute from her dispute with the uninsured driver, the court ruled that public policy did not require the contractual time limit to correspond precisely with the time limit for filing an action against the negligent driver. The court noted that while the Wisconsin legislature had decided that three years, rather than two, as in Illinois, is the amount of time sufficient to allow a negligence action, Wisconsin's policy determination for negligence actions should not control whether the contractual provision allowed sufficient time to initiate an uninsured motorist claim. 

Chief Justice Thomas Kilbride disagreed. The uninsured motorist statute was intended to place the injured party in the same position she would enjoy if the negligent driver had been insured; accordingly, in Justice Kilbride's view, the insurance policy's time limit in effect shortened the applicable statute of limitations from three years to two years and violated Illinois public policy. 

Moore v. Chicago Park District

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

An employee of the defendant Park District plowed snow on a parking lot adjoining a fieldhouse. Plaintiff’s decedent, while walking to her car, attempted to step over a five-inch high pile of snow adjoining a curb of equal height. She fell, fractured her femur, underwent surgery, suffered complications, and subsequently died. This Supreme Court Rule 308 appeal presented the question for decision, "Does an unnatural accumulation of snow and ice constitute the ‘existence of a condition of any public property’ as this expression is used in Section 3-106 of the Tort Immunity Act?". The majority of the appellate court held that the activity of defendant’s employee negated the ability of the defendant to rely on the qualified immunity offered by Section 3-106. Justice Connors dissented. That dissent suffused the opinion of the supreme court.

The supreme court agreed with Justice Connors that it was first important to determine if characterizing the accumulation as being "unnatural" had any bearing on the resolution of the case. The court concluded that the fact that the snow and ice constituted an alleged unnatural accumulation is irrelevant to the question of immunity. The court then undertook to decide whether snow and ice, of any stripe, is a "condition" of public property. The court stated the general premise of its holdings that Section 3-106 immunizes a defendant from liability in negligence where the property itself is unsafe, but that the qualified immunity is not afforded where unsafe activities are conducted upon otherwise safe property.

The court concluded that the existence of snow and ice, even though created by an agent of defendant, was not an activity, but rather a condition of the property. It was not the employee’s actions, but the snowy and icy condition of the parking lot which caused the injury. The condition of the property was merely changed by the new condition of the snow and ice.

Chief Justice Kilbride, with Justice Freeman joining, dissented. The dissenters took the contrary view that "the injury here was not caused by the property itself, but by the allegedly negligent snow removal activity.”

There is a unique procedural wrinkle. The circuit judge, after denying defendant’s motion for summary judgment, vacated that denial and issued the certified question under Supreme Court Rule 308. The supreme court noted that an interlocutory order (the denial of the motion) was a necessary precedent to the appellate court obtaining jurisdiction to entertain that appeal. However, the court stated that rather than vacating the appellate court’s opinion to restart a process which would inevitably lead back to the supreme court, it would exercise its supervisory authority to hear the appeal.

Lawlor v. North American Corporation of Illinois

By Karen Kies DeGrand, Donohue Brown Mathewson & Smyth, LLC

A bitter dispute between a successful saleswoman and her former employer led to a trial involving accusations of obtaining phone records through subterfuge and leaking confidential information to competitors. Reviewing judgments awarding damages to both parties on their respective claims after a trial that was part bench, part jury, among other rulings, the Illinois Supreme Court recognized a new tort and reduced a punitive damage award so that it would equal the compensatory award.

Plaintiff Kathleen Lawlor filed a lawsuit seeking outstanding commissions and alleging that her former employer, North American Corporation of Illinois, which sold corporate-branded promotional items, embarked on an investigation of her shortly after she left North American by having someone pretend to be her to obtain her private telephone records.  Lawlor experienced a number of problems as a result, including sleeplessness and anxiety for herself and her family's safety. North American countered with claims that Lawlor had received excess commissions and breached her fiduciary duty by communicating confidential corporate sales information to a competitor. After judgments were entered for both sides -- including punitive damages against both of the parties -- the circuit court remitted the $1.75 million punitive award against North American to $650,000, ten times the compensatory award for Lawlor. The appellate court reinstated the original punitive award and reversed the judgment on North American's breach of fiduciary duty claim.

The supreme court first addressed an issue not raised by the parties - whether the tort of intrusion upon seclusion is actionable in Illinois. Following precedent of all five districts of the Appellate Court of Illinois and the majority of other jurisdictions, the Illinois Supreme Court recognized this tort, which originates from a right of privacy and, as explained in the Restatement (Second) of Torts, Section 652B (1977), focuses on the invasion of one's privacy by examining his private records, such as by opening his personal mail, or searching his safe, wallet or bank accounts. 

After determining that the evidence sufficiently supported the imposition of vicarious liability upon the former employer for the work of its investigator and a sub-agent, the court addressed the punitive award against the employer. It found that the trial court had abused its discretion - but not, as the appellate court had found, in reducing the award. Rather, the supreme court found that the trial court did not go far enough. It concluded that the evidence was sufficient to support the jury's determination to award no more than the compensatory award.

Chief Justice Thomas Kilbride dissented on one aspect of the majority's ruling. He found that the majority had failed to apply the abuse of discretion standard of review to the trial court's reduction of the punitive award.  In his view, the majority was not sufficiently deferential to the trial court's post trial remittitur ruling; Justice Kilbride would have allowed the $650,000 punitive award to stand.

CRIMINAL

People v. Lara

By Kerry J. Bryson, Office of the State Appellate Defender

An 8-year-old girl alleged that defendant had touched her vagina on two separate occasions. In a statement to police, defendant admitted touching the girl’s vagina, stating that he had inserted one finger as far as his fingernail or cuticle.  At trial, defendant denied ever touching the girl or putting his hand in her pants. A jury convicted defendant of two counts of predatory criminal sexual assault of a child.

The appellate court reversed the convictions finding that the corpus delicti rule was not satisfied where there was no corroborating evidence of defendant’s admission to penetration.

Taking the opportunity to clarify the corpus delicti rule, the Supreme Court held that the rule does not require corroboration of every element of the offense. The rule “requires only that the corroborating evidence correspond with the circumstances recited in the confession and tend to connect the defendant with the crime. The independent evidence need not precisely align with the details of the confession on each element of the charged offense, or indeed to any particular element...”. The Court found that defendant’s confession was sufficiently corroborated, even though there was no independent evidence of the element of penetration.

This decision is not a departure from existing law, but rather a clarification of what corpus delicti rule requires.  Or, more precisely, it is a clarification of what the rule does not require.

In a special concurrence, Justice Thomas explained that he would have overruled the Court’s recent decision in another corpus delicti case – Sargeant, 239 Ill. 2d 166 (2010) – believing now that the Court had wrongly decided that case (acknowledging that he voted with the majority at the time). Justice Thomas explained that corroboration of one act of sexual assault against the complainant should be allowed to serve as corroboration of other acts of sexual assault against the same complainant. Justice Thomas also noted the trend toward abolishing altogether the corpus delicti rule, and seemed to foreshadow his own feeling that the time may have come for Illinois to follow the lead of other jurisdictions who have done just
that.

People v. Geiger

By Kerry J. Bryson, Office of the State Appellate Defender

Terrell Geiger was found guilty of direct criminal contempt for refusing to testify as a State’s witness at the murder trial of Javar Hollins and was sentenced to 20 years of imprisonment. Geiger did not challenge the contempt finding, but did argue that the 20-year sentence was grossly disproportionate to the nature of the offense. The Supreme Court agreed.

Acknowledging that trial courts have the inherent power to punish for contempt in order to maintain control over the courtroom and that there is no sentencing range or classification for contempt, the Court noted that contempt sentences, like any other, are subject to review for an abuse of discretion.  Here, the court found that a “less onerous” sentence is in order, and remanded to the circuit court for imposition of a “more reasonable sentence.”

While the Court did not indicate what an appropriate sentence might be in this case – or in future cases for that matter – the Court did provide guidance on what should be considered in fashioning a contempt sentence. Specifically, the Court cited with approval four factors set out in United States v. United Mine Workers of America, 330 U.S. 258, 302-03 (1947), to be considered when fashioning an appropriate sentence for criminal contempt: (1) the extent of the willful and deliberate defiance of the court’s order, (2) the seriousness of the consequences of the contumacious behavior, (3) the necessity of effectively terminating the defendant’s defiance as required by the public interest, and (4) the importance of deterring such acts in the future.

Justice Freeman specially concurred, noting that he would have reduced the sentence to time served.

Justice Kilbride dissented, noting the great deference afforded to trial court sentencing decisions. He would have affirmed the 20-year term, finding that the trial judge properly weighed the relevant factors and defendant’s criminal history.