The Bar News

Quick takes on Friday's Illinois Supreme Court opinions

Our panel of leading appellate attorneys review Friday's Illinois Supreme Court opinions in the civil cases Skokie Castings, Inc. v. Illinois Insurance Guarnty Fund, Performance Marketing Association, Inc. v. Hamer, The Board of Education of Peoria School District No. 150 v. The Peoria Federation of Support Staff, Relf v. Shatayeva and Prazen v. Shoop.

Skokie Castings, Inc. v. Illinois Insurance Guaranty Fund

By Karen Kies DeGrand, Donohue Brown Mathewson & Smyth LLC

The Illinois Supreme Court finds no distinction between primary and excess workers’ compensation policies in applying the workers’ compensation exception to the statutory cap of the Illinois Guaranty Fund.  The court ruled in favor of an employer obligated to pay lifetime benefits to a seriously injured employee, where the employer’s excess insurer became insolvent.

The employer, Wells Manufacturing, the predecessor of Skokie Castings, had sued the Fund when it refused to pay the claim after reaching the $300,000 statutory cap applicable to the Fund under the statute, 215 ILCS 5/537.2 (West 2010).  Wells contended that the statutory exemption from the cap “for any workers compensation claims” required the Fund to shoulder the financial burden above the statutory limit.  The circuit court, appellate court, and supreme court agreed with Wells.  Observing the purpose of the fund – to protect policy holders of insolvent insurers and injured third parties making claims under policies of insurers who become insolvent – the supreme court characterized the Fund as a “substitute for the defunct insurer,” in this instance, Home Insurance.  The supreme court determined that the claim in question qualified as a covered workers’ compensation claim, and thus fell within the exception to the statutory cap, based on Home’s agreement to help Wells pay workers’ compensation awards granted by the Industrial Commission pursuant to the Workers’ Compensation Act.  In the court’s view, characterizing this claim differently based on the excess carrier’s obligation to reimburse the employer for payments made to an injured employee rather than to pay the employee directly would place mechanics over substance. 

In separate dissents, Chief Justice Kilbride and Justice Thomas rejected the notion that the case turned on a distinction between primary and excess policies.  Both dissenters focused on the policy language and reasoned that the claims of Wells did not amount to a claim for workers’ compensation benefits but, rather, to a claim for indemnification.  The excess policy required the insurer not to assume Wells’ obligation to pay workers’ compensation claims but to reimburse the employer for payment of such claims. Thus, the dissenters concluded that the claims at issue did not fall within the exception for workers’ compensation claims. 

Performance Marketing Association, Inc. v. Hamer

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

The tension in the Illinois Supreme Court between reaching or avoiding important questions was again played out in this case involving the enforceability of a tax law.  

In 2011, the State of Illinois enacted an Act (Public Act 96-1544) which amended the definition of a retailer “maintaining a place of business in this state” to include out-of-state retailers who use internet affiliate arrangements to generate sales.  A trade group challenged the law and the circuit court concluded that relevant portions were preempted by the federal Internet Tax Freedom Act and violated the commerce clause of the United States Constitution.

On direct review to the Illinois Supreme Court, the Court affirmed the judgment, finding that the Act was preempted by federal law.  The Court explained that the federal Act (the ITFA) prohibits a state from imposing discriminatory taxes on electronic commerce.  It determined that the Illinois Act did discriminate and was therefore preempted by the federal Act.  Because it found the Act preempted, the majority, authored by Justice Burke, chose not to reach the issue of whether the Illinois Act violated the commerce clause.

Justice Karmeier, dissenting, disagreed with the reasoning of the majority.  He also criticized the majority’s failure to resolve the commerce clause issue.  He emphasized that the issue was a matter of “considerable interest, concern and significance.”  He further pointed out that Justice Burke has frequently dissented and taken the Court to task for not reaching important legal issues presented by an appeal.

The Board of Education of Peoria School District No. 150 v. The Peoria Federation of Support Staff

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

This case considers the issue of what is a “special law” prohibited by the special legislation clause of the 1970 Illinois Constitution, which provides that “[t]he General Assembly shall pass no special or local law when a general law is or can be made applicable….”

The Board of Education of Peoria School District No. 150 (the District) employed 26 employees as “security agents and guards.”  In July 2010, Public Act 96-1257 became effective.  It amended the Illinois Public Labor Relations Act by purporting to remove “peace officers” employed by “a school district” in “its own police department in existence on the effective date of this amendatory Act” from the jurisdiction of the Illinois Educational Labor Relations Board (emphasis added).  The Act redefined these employees as “public employees” who were subject to the IPLRA and the jurisdiction, instead, of the Illinois Labor Relations Board.

When the Public Act 96-1257 was passed, it applied only to the District.  The Supreme Court could find no legitimate state interest for the closing of the affected class by reference to the statute’s effective date.  The Court surveyed prior law and reaffirmed the following principle: “a law the legislature considers appropriately applied to a generic class presently existing, with attributes that are in no sense unique or unlikely of repetition in the future, cannot rationally, and hence constitutionally, be limited of application by a date restriction that closes the class as of the statute’s effective date.”  The Court further qualified that the constitution only prohibits passage of a special law when a general law is or can be made applicable.  The current Act was unconstitutional because a general law could have been enacted that would have affected a generic class of individuals.

Relf v. Shatayeva

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

Relf v. Shatayeva provides a modern compendium of the law pertaining to the appointment of personal representatives for suits against the estates of decedents, and, via judicial dicta, for the appointment of representatives to bring suit on behalf of decedents. Plaintiff filed suit not knowing that the named defendant was deceased. Upon learning of the death upon the failure of service, plaintiff had an assistant in counsel’s office appointed as "special administrator." However, letters of office had already been issued to a personal representative pursuant to the Probate Act. The circuit court’s dismissal of the case was reversed by the appellate court. The supreme court reinstated the dismissal.

The court restated the principle that a suit against a dead person alone does not invoke the court’s jurisdiction. 735 ILCS 5/13-209 offers a remedy, but it must be carefully complied with. The court noted that diligence in learning of the death is not required by the statute, but that reasonable diligence is thereafter required in identifying a personal representative. The central issue in the case was whether plaintiff’s actions once she learned of the death complied with the conditions required by Section 13-209(c).Appointment of a "special administrator" is appropriate only where action by the representative designated by the decedent may be adverse to the interest of the estate. Suit had to have been brought against the executor, to whom letters of office had been issued. The court said it was without power to adopt what it described as the "no harm, no foul" approach advocated by plaintiff in light of the availability of insurance. Justice Kilbride dissented.

Prazen v. Shoop

By Karen Kies DeGrand, Donohue Brown Mathewson & Smyth LLC

The Illinois Supreme Court addressed the touchy topic of Illinois’ pension obligations in the context of an early retired municipal employee who seemed to have his cake and eat it, too. The supreme court considered whether Joseph Prazen, who retired from the electrical department of the City of Peru under an early retirement incentive plan, forfeited his early retirement benefits by violating a return to work provision of the Illinois Pension Code, 40 ILCS 5/7-141(g) (West 2010).  

Two weeks before his retirement, Prazen incorporated a business he owned, Electrical Consultants, Inc. (“ECI”), which provided electrical services. A few days before his retirement from the City, ECI entered into a contract to manage the City’s electrical department beginning the day after Prazen retired. Peru’s mayor, who also was Prazen’s business associate, signed the agreement. The mayor testified in an affidavit that the City entered the agreement to cover the electrical supervisor position while the City searched for Prazen’s replacement. Prazen’s lawyer contacted the Illinois Municipal Retirement Fund (“IMRF”); in one of several communications, the lawyer received confirmation that an “early out” employee could work for a corporation contracting with the City, so long as the corporation hired out to the general public and was not created to avoid IMRF regulations.

Approximately 12 years after Prazen’s retirement and one year after ECI was dissolved, general counsel for IMRF notified Prazen that his post-retirement relationship violated the Pension Code’s prohibition against early retirees from accepting employment with or entering into a personal service contract with an IMRF employer.  According to the IMRF Benefit Review Board, Prazen had received an overpayment of $307,000 as a result of the violation.  

The supreme court rejected the IMRF Board’s interpretation of the forfeiture provisions. While acknowledging that Prazen had a lucrative arrangement, the supreme court disagreed that the Board had the authority to plug a statutory loophole. In essence, the Board assumed a legislative role; it created a new condition not listed in the statute without prior notice to annuitants. As a creature of statute, the Board did not have the power to find that a corporation constituted a guise to circumvent unambiguous provisions in the Pension Code. Accordingly, the supreme court affirmed the judgment of the appellate court, which reversed the Board’s determination.

In his dissent, joined by Justice Burke, Justice Freeman contended that the majority should not have concluded that the Board lacked the power to question whether a municipal employee accepting the benefits of early retirement was circumventing the forfeiture provisions. In Justice Freeman’s view, Board has the authority and fiduciary responsibility to consider whether corporate arrangements are fraudulent under the relevant Pension Code provisions.

Posted on October 18, 2013 by Chris Bonjean
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