Our panel of leading appellate attorneys review Thursday's Illinois Supreme Court opinions in the civil cases Wells Fargo Bank v. McCluskey, Hartney Fuel Oil Company v. Hamer, The Board of Education of Roxana Community Unit School District No. 1 v. The Pollution Control Board, Schultz v. Performance Lighting, Inc., Rogers v. Imeri and the criminal cases People v. Radojcic and People v. Pikes.

CIVIL

Hartney Fuel Oil Company v. Hamer

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

This case involves the issue of the proper situs for retail occupation tax liability under three statutes: the Home Rule County Retailers’ Occupation Tax Law, the Home Rule Municipal Retailers’ Occupation Tax Act, and the Regional Transportation Authority Act. The Supreme Court found the applicable regulations governing the issue invalid because they allowed for a single-factor test, rather than requiring a fact-intensive inquiry. But the taxpayer won its battle, as it had properly relied on those regulations.

Hartney had a home office in Forest View that set fuel prices and handled administrative matters such as billing.  Hartney had a separate sales office which changed locations several times (last of all in Mark). Hartney contracted with local businesses for a clerk to take fuel orders from the sales office. According to Hartney’s interpretation of the applicable regulations governing the local Acts, there was a bright-line test: the situs of the sale was where the seller accepted the purchase order. Thus, Hartney did not believe it owed taxes to Cook County, the Village of Forest View, or the Regional Transportation Authority.  

The Department of Revenue decided, after auditing Hartney, that the proper situs of the sales was the Forest View office. Hartney paid over $23 million in interest and penalties and sued for a refund (under the Protest Monies Act). The circuit court and appellate court concurred with Hartney that the situs of the sale was where the purchase orders were accepted.

The Illinois Supreme Court agreed with Hartney’s interpretation of the governing regulations in the Administrative Code which defined the situs of the sale. However, the Court held that the regulations impermissibly narrowed the local Acts and was contrary to the legislature’s intent to allow local governments to collect taxes from retailers in their jurisdictions. The Court explained that it had previously interpreted the plain meaning of a tax on the “business of selling” under the Retailers’ Occupation Tax Act and had determined it to be a tax on the “occupation of retail selling, and not sales themselves.” The Court held there was ample precedent under that Act that whether there is taxable “business of selling” is fact-intensive and depends upon a number of factors. The local Acts should be interpreted similarly. Finding the regulations “too inconsistent with the statutes and case law to stand,” the Court held the regulations invalid.  

Hartney, however, was entitled to rely on the regulations. The Court affirmed that part of the lower court judgment which held that the Department had a duty to abate Hartney’s penalties and taxes for the audit period.

Wells Fargo Bank, N.A., v. McCluskey

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

What is justice? What considerations inform the court’s equitable understanding of whether justice is being done? Those large questions were expressly written about in a finely crafted opinion written by Justice Theis for a unanimous court, with one justice not participating. The setting is whether a default in a foreclosure action could be vacated after the sale but before the filing of a motion to confirm the sale. An issue decided by the court is whether Section 2-1301(e) of the Code of Civil Procedure or section 15-1508(b) of the Foreclosure law applied. The resolution of that problem turned on whether they are inconsistent. Equitable considerations pertain strongly to the former; the latter is more expressly tailored to foreclosure procedure, but with a plenary provision "if justice was otherwise not done." Although under both sections, "justice is the driving force; it is the nature, procedural posture, and the facts and circumstances of the case that inform the court’s equitable discretion and understanding of whether justice is being done." The court noted that after a motion to confirm the sale has been filed, that the court still seeks to do justice, "but the balance of interests has shifted."

Here, the Code was found to apply, but the circuit court’s denial of the motion to vacate was affirmed.

The Board of Education of Roxana Community Unit School District No. 1 v. The Pollution Control Board

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

The appellate court’s dismissal of this attempt at judicial review by a school district of a Pollution Control Board decision for lack of jurisdiction in the appellate court was affirmed, but for different reasons. The underlying issue was whether remodeled facilities and processes at an oil refinery could be certified as "pollution control facilities." If answered in the affirmative, the owner would have obtained preferential tax treatment, causing a loss of tax revenue to the school district.

Normally, judicial review must be sought in the circuit court under the Administrative Review Law. Section 41 of the Environmental Protection Act provides for the initiation of review in the appellate court by a party to a Board hearing, persons who filed "complaints," any party "adversely affected," and certain others. The Property Tax Code provides only for review in the circuit court. The Supreme Court was not willing to go as far as the appellate court did in concluding that the Property Tax Code left no room for resort to the direct appeal provisions under the Environmental Protection Act. The Supreme Court held that the school board did not qualify as a party or other interested entity within the meaning of Section 41. The court further noted that the school board had no right to intervene, because the underlying action is "a technical one between the entity seeking certification and state regulatory officials." The court noted that the schools will have their day later, when the Department of Revenue assesses the value of the facilities. Then, any person aggrieved may apply for review, seek a correction, and ask for a hearing–in the circuit court.

Rogers v. Imeri

By Karen Kies DeGrand, Donohue Brown Mathewson & Smyth LLC

Answering the certified question posed to the Illinois Supreme Court affected the amount recoverable in this case by the parents of a young man killed in a head on collision with an intoxicated, underinsured driver.  The supreme court resolved conflicting appellate interpretations of the recovery available in a statutory dramshop action where the Illinois Guaranty Fund must step in to defend a bar owner whose insurer goes belly-up. 

Under the Illinois Insurance Code, which establishes the Guaranty Fund, third-parties making claims against individuals or entities insured by companies that become insolvent may recover from the Fund, with statutory limitations.  See 215 ILCS 5/532 (West 2012).  The supreme court ruled that section 546(a), the provision of the Guaranty Fund requiring a reduction for “other insurance,” applies against the bar owner’s statutory liability. 

The court found that the plain language of the applicable Guaranty Fund provisions and the damage cap of the Dramshop Act, 235 ILCS 5/6-21(a) (West 2012), required the calculation to begin with the maximum statutory dramshop recovery of $130,338.51. The parents’ recovery of proceeds from the automobile liability carriers of the responsible driver ($26,550) and of the plaintiffs’ son ($80,000) had to be subtracted from the dramshop cap to arrive at the total potential obligation of the Fund.  Reasoning that the parents’ claims under the automobile insurance policies arose from the same facts as did the “covered claim” against the Guaranty Fund, the supreme court ruled that other recoveries reduced the Fund’s obligation, which the Dramshop Act defined.  In the supreme court’s view, the plaintiffs’ reliance on the requirement that a jury determine damages in dramshop cases did not mean that “other insurance” is subtracted from the jury’s verdict rather than from the bar owner’s maximum statutory liability.

Schultz v. Performance Lighting, Inc.

By Karen Kies DeGrand, Donohue Brown Mathewson & Smyth LLC

Individuals seeking to compel employers to withhold child support under the Income Withholding for Support Act, 750 ILCS 28/35 (West 2010), must strictly comply with the notice requirements of the statute.  In this case, the plaintiff failed to supply the social security number of her ex-husband and other pertinent information in court documents. The Illinois Supreme Court found that the plaintiff did not provide valid notice of the obligation and upheld the dismissal of plaintiff’s lawsuit against the spouse’s employer. 

Under section 35 of the Act, an employer who fails to withhold to meet its employee’s court-ordered child support obligations may face a $100/day penalty if the employer knowingly fails to withhold income after receiving notice under the Act. The payments must be made to the State Disbursement Unit if the party seeking support meets the unequivocal statutory requirements for supplying notice to an employer.

In this case, alleging that her ex-husband’s employer knowingly failed to make the required payments to the State Disbursement Unit, the plaintiff filed a lawsuit under the Act.  She contended that the defendant’s breach triggered the daily penalty. The supreme court determined that the notice provision was invalid based on the omission of the social security number from the notice and rejected plaintiff’s argument that she had substantially complied with the notice provisions. The court emphasized that, by singling out the lack of a signature as an omission that would not affect the validity of notice, the General Assembly had expressed its intent that the other 11 requirements of the statute absolutely were required.  The supreme court also observed that the statute provides a safe harbor for an employer complying with the withholding obligation only to the extent that the notice contains the statutorily required information. The employer could face a Catch-22 if the statute were interpreted as the plaintiff urged; an employer faces civil liability for withholding wages unless the request to do so meets the statutory requirements. 

The supreme court noted the troubling lack of communication between the party who sought but, for two years, did not receive payment, and the employer who had notice, albeit defective notice. Recent amendments to the statute requiring follow-up address this concern.

CRIMINAL

People v. Radojcic

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

Defendant Radojcic was charged with several financial crimes as part of a conspiracy with several other individuals. The conspiracy allegedly involved, among other things, the sale of condominiums to straw buyers through the use of fraudulently obtained mortgages.

The State listed defendant’s former attorney, Mark Helfand, as a witness who it would call in exchange for use immunity. The State asserted that Helfand would not have to disclose confidential communications to testify, but that if he did the crime-fraud exception to the attorney-client privilege would apply. The trial court disagreed, and the State filed a certificate of impairment.

The Supreme Court first confronted the question of what standard of review should apply.  While trial court decisions are often accorded deferential review, the de novo standard was applied here because the State had not offered live testimony and thus the trial court was not in a position superior to that of the reviewing court in evaluating the evidence offered by the State. Further, the trial court did not make any factual findings and thus no deference was required.

The Court noted that the modern view of the attorney-client privilege protects both communications from the client to the attorney and the attorney’s advice to the client. One way to breach that privilege is the crime-fraud exception, which is triggered “when a client seeks or obtains the services of an attorney in furtherance of criminal or fraudulent activity.” The rationale for the exception is that the client is either conspiring with the attorney or deceiving the attorney, thereby abusing the professional relationship in some form.

To establish the crime-fraud exception, the proponent of the evidence must establish that a prudent person would have a reasonable basis to suspect
the perpetration or attempted perpetration of a crime or fraud and that the subject communications were in furtherance thereof. The communication
itself cannot be the lone basis for finding the crime-fraud exception.

The Court did not break new ground here, but rather adhered to the approach previously adopted in In re Marriage of Decker, 153 Ill. 2d 298 (1992). Under that approach, the proponent of the evidence must first show a factual basis supporting a reasonable, good faith belief that an in camera review of confidential materials may reveal evidence to establish the crime-fraud exception. The required showing is less than that ultimately need to establish the exception.  Ideally, a resulting in camera review will be conducted by a different judge than the one who would ultimately preside over the trial. The in camera review must be narrowly tailored to avoid needless disclosure of confidential information.

The Court went on to note that in camera review is not always required, but rather is a matter of discretion. In camera review need not be conducted
if the crime-fraud exception is adequately demonstrated without it.

Following this approach, the Court concluded that the grand jury testimony satisfied the State’s burden. Even if Radojcic and Helfand had not communicated directly regarding the fraudulent mortgage applications, the State showed that any legal consultations which related to the real estate transactions “furthered” the mortgage fraud scheme, especially where the banks would not have loaned the money to the straw purchasers without the sales documents and closings which were handled by Helfand.

The Court noted that the crime-fraud exception does not subject all attorney-client communications between client and counsel to release, but rather only those communications relating to the matters identified in charging instrument. Thus, it is important for involved parties to remain diligent about the limits of disclosure under the crime-fraud exception.

People v. Pikes

By Jay Wiegman, Office of the State Appellate Defender

In August of 2006, a Gangster Disciples member sparked a feud with the Four Corner Hustlers by shooting at one of its members. In mid-August, Quentez Robinson, a Gangster Disciple, rode a scooter through Four Corner Hustlers territory; Lamont Donegan, a member of the Four Corner Hustlers,
shot at Robinson. A Gangster Disciples car that was following Robinson struck Donegan. Donegan recruited Keith Pikes to help him exact revenge.
Two days later, Lorne Mosley was killed in a drive-by shooting. Donegan and Pike were charged with Mosley’s murder, and were tried simultaneously
before separate juries.

At trial, the State sought admission of evidence demonstrating that Pike and Donegan were members of the Four Corner Hustlers. The State also sought admission of evidence about the “scooter shooting.” The State reasoned that the scooter shooting was related to Mosley’s shooting and thus provided an explanation for it. The trial court admitted the evidence, finding it to be relevant, more probative than prejudicial, and necessary to understanding the context in which the Mosley shooting occurred. The jury found defendant guilty and the trial court sentenced him to a 27-year term.

The Appellate Court reversed and remanded for a new trial, concluding that the trial court erred by admitting evidence concerning a prior crime committed not by defendant but by his co-defendant, Donegan. The Appellate court determined that, when the State seeks admission of other-crimes evidence, it must first show that a crime took place and that the defendant committed it or participated in its commission. Because the State had not met this threshold requirement, evidence of the scooter shooting by Donegan was inadmissible against Pikes.

In People v. Pikes, 2013 IL 115171, the Illinois Supreme Court reversed the Appellate Court after determining that the scooter shooting was not other-crimes evidence. Chief Justice Garman, writing for a unanimous Court, stated that the “fact that the challenged evidence consists of an uncharged offense does not, standing alone, require it to be analyzed under other-crimes principles.  It is only when the defendant is alleged to have committed the prior offense that those principles apply.” People v. Pikes, 2013 IL 115171, ¶20. The Court concluded that the evidence of the scooter shooting evidence in this case should be judged under the ordinary principles of relevance. People v. Pikes, 2013 IL 115171, ¶20.  Given that the scooter shooting showed defendant’s motive for the subsequent drive-by shooting that resulted in Mosley’s death, the scooter shooting was found to be relevant. The Supreme Court therefore reversed the Appellate Court, but remanded the matter to the Appellate Court for consideration of other issues defendant had raised on appeal that were not considered by that Court after it found reversible error.