11-9-2015; IL Supreme Court Pulls Our State Back From Legal WC and GL Chaos, Sort Of; Nathan Bernard, J.D. Analyzes an Important Restrictive Covenant Ruling and more

Synopsis: Illinois Supreme Court Pulls Our State Back from Legal Chaos and Confusion, Sort Of.

Editor’s comment: It is hard to imagine Illinois subtly but certainly facing legal/legislative turmoil, confusion and disarray at the hands of the Illinois Trial Lawyers Ass’n but we assure you it was present. We send kudos to the august members of our highest state court for pulling our state back to a semblance of political and judicial normalcy.

What Almost Happened? 

Try to imagine a complete end-run around the WC system by Plaintiff-Petitioner lawyers. Try to imagine new and unexpected work-injury claims for seven and eight-figure damages along with punitive damages. Try to imagine being at the mercy of Illinois’ aggressive and pro-Plaintiff judiciary.

Well, in Folta v. Ferro Engineering, Plaintiff’s decedent claimed he was exposed to products containing asbestos in the course of his employment with Defendant 41 years before he was diagnosed with mesothelioma. The defense team at KCB&A has defended various claims for such alleged exposures and we are sure many of the claims may be very strained and difficult to believe. Many folks, when they come down with cancer, like to blame their employers and not their lifestyle choices.

The now-deceased Plaintiff filed this civil action one month after his cancer diagnosis. The claim was taken over by his widow. Defendant Ferro Engineering’s motion to dismiss based upon the exclusive remedy provisions of the Occupational Diseases Act was routinely granted. The IL Appellate Court shockingly reversed that dismissal, accepting Plaintiff’s argument this disease “was not compensable under the Act” because of the operation of the 25 year period of repose in the Act, so he had never had an opportunity to recover any benefits under the IL WC Act. As the injury was both covered and then barred under the IL WC Act, the Court ruled the injury “was not compensable under the Act” and fell under an exception to the operation of exclusive remedy contained in Section 5 of the Act.

Here, the injury was indisputably the type of work-related injury/exposure which fell within the purview of the Act, and therefore the Supreme Court ruled the employer’s liability was governed exclusively by the IL WC Act. The majority ruling accurately indicates “The litmus test is not whether there is an ability to recover [workers comp] benefits.” The Court said it was aware of the “harsh result” in the case. However, the ruling noted whether a different balance concerning the historic bargain under the Workers’ Compensation Act is a question for the legislature, and not the courts. The decision indicates “It is not our role to inject a compromise but, rather, to interpret the acts as written.”

We have three thoughts:

First, with respect to our Court’s members, we don’t consider the outcome harsh at all. Workers’ comp benefits are an all-or-nothing-at-all situation. The value of this IL WC claim at the IWCC would probably be in the range of $1.5M. Gosh only knows what the value might be in front of a friendly jury. We find it difficult, if not impossible to believe there was strong and irrefutable evidence the disease from which decedent suffered was inextricably linked solely or partially to work he performed for an unstated duration during the decade of the 1970’s. If he lived to testify, we are sure he would have testified to support such a claim but how could an employer truly “rebut” or defend those assertions more than forty years later? How could the employer know where Claimant later worked or how he conducted his life outside of work for those four-plus decades? In our view, a 25-year period of repose is plenty of time within which someone should have to demonstrate the effects of a deleterious workplace exposure.

Second, please also note this ruling, if it had been allowed to stand would basically have sucked every Illinois employer and employers across the state into the impossible litigation morass that is the Madison County, IL Asbestos Docket. Please note Edwardsville, IL which has the Madison County courthouse in its quaint downtown is a tiny southern IL town with less than 25,000 citizens. In years past, court records show there were 659 new asbestos cases filed there in 2008; 814 in 2009; 752 in 2010; 953 in 2011 and 1,563 in 2012; in 2013, they had 1,678 new filings with 1300 claims filed in 2014. In those seven years, there were 7,719 new asbestos filings in that city. Lots of rural and similarly populated IL counties don’t have 200 major law suits filed in a year.

Without question, tiny Madison County, IL has the largest asbestos docket in the country. They have literally hundreds of asbestos claims set for trial every month of every year. It was dubbed the "epicenter" of U.S. asbestos litigation by the American Tort Reform Association in its 2013 “Judicial Hellholes” report. If you aren’t sure this is an ever-growing legal cottage industry funded by the Plaintiff’s bar and the many settlements of such challenging claims.

If the Folta ruling wasn’t overturned by our highest state court, just imagine every major Illinois employer being joined as parties defendant in all that messy and endless asbestos litigation—we are sure hundreds of Illinois employers would be screaming to the highest heavens seeking relief and/or pulling up stakes and moving to saner shores. Thankfully, the IL Supreme Court staunched such concerns.

Third, please also remember the legal theory espoused by the Plaintiff lawyer in the Folta claim wouldn’t be limited to asbestos WC/OD claims. Every claimant across the state could then have asserted they injured their [insert body part] and didn’t notice symptoms until the typical three-year IL WC statute of limitations had run. When that happened, it would be Katie-bar-the-door with lots of new GL litigation taking over for WC claims in the Circuit Court. Judges and juries could then decide liability and damages and maybe even punitive damages against hapless Illinois employers. Again, we are happy to report this isn’t going to happen—let’s make a collective sigh of relief.

What Else Almost Happened (and Might Still Come Back to Bite U.S. Business)? 

In Price v. Philip Morris, Inc., we again saw our State again pulled back from the precipice of chaos, sort of. Please note you could probably write a great book about this uproarious multi-billion dollar claim which has the feel of an entertaining but eventually scary Broadway play. In the first episode of this litigation, two of the world’s largest tobacco companies were sued in a class action in tiny and semi-rural Edwardsville, IL. Plaintiff’s class action claim was focused on the concept of marketing/selling “light” cigarettes. Plaintiff’s counsel asserted this was misleading because the term “light” sounds like the cancer-sticks have less nicotine when they don’t. For reasons we have never heard, neither tobacco company sought removal of the matter to federal court or filed a jury demand. These two mistakes could have been the biggest mistakes in the history of U.S. (and maybe world) jurisprudence. The mistakes put these tobacco companies in front of a wildly Plaintiff-friendly judge in a bench trial presented by a Plaintiff attorney who legally supported this judge with substantial contributions for his elections. After the bench trial in March 2003, this trial judge gave a whopping $10 billion dollar verdict with a $1.1 billion dollar attorney fee award!

Passing on the massive verdict, we are confident the attorney fee award of $1.1 billion is the highest hourly attorney fee award in the history of this planet. Please note the matter didn’t have a lot of pretrial discovery and there weren’t hundreds of experts called at trial—it was a relatively quick hearing. Please try to grasp just how much money $1.1 billion is—if claimant’s counsel expended 10,000 hours trying the Price claim, the award would be $100,000 per hour! If they put 100,000 hours into the claim, the award would still be $10,000 an hour. Most federal and state court judges start to balk when hourly fee awards start to near $1,000 a hour. In our view, without any true reasoning or justification, this hourly award was exponentially higher.

Either way, the billion dollar money judgment was reversed by the IL Supreme Court upon a direct review under SCR 302(b). That plurality opinion found the Federal Trade Commission specifically authorized the use of descriptors for light cigarettes, thereby effectively barring Plaintiffs’ complaint by operation of Section 10b(1) of the Consumer Fraud Act. The claim was dismissed about a decade ago.

About two years ago, Plaintiff’s counsel filed a petition for relief from judgment in the Madison County Circuit Court, asserting new evidence existed, primarily consisting of an amicus brief filed by the FTC before SCOTUS which was said to reflect the opinion of the FTC on the use of such descriptors. Ultimately, Circuit Court Judge Dennis Ruth, the former IWCC Chairman considered the merits of Plaintiffs’ petition and denied it, deciding Plaintiffs failed to show the IL Supreme Court would have decided the case differently if it had the evidence contained in Plaintiffs’ petition. The wildly pro-Plaintiff Fifth District Appellate Court reversed Judge Ruth, stating it was “easy to see” how the IL Supreme Court’s analysis “would have been changed.” The Appellate Court directed Judge Ruth to reinstate the original multi-billion dollar judgment.

Last week, the IL Supreme Court held a litigant cannot file a Section 2-1401 petition in the Circuit Court to vacate the judgment of a reviewing court because it would not be filed in the same court in which the judgment being challenged was entered. The Court also found support for its decision in Article VI of the Illinois Constitution. Our Supreme Court stated it was expressing no opinion on the merits of a motion to recall the mandate, “should such a motion be filed in this court at a future date.” This leaves the door open for more chaos, as we are certain Plaintiff’s counsel is going to continue to pursue the gigantic pot of gold at the end of this rainbow.

Madison County Court Carnival Legal Side-Show Number One

The appeal bond for the 2003 appeal of the Price ruling to the IL Supreme Court would have been over $16 billion dollars. This would have bankrupted both tobacco companies. They went to the IL Supreme Court on an emergency motion and the appeal bond requirement was reduced to $600M. Statutory interest runs on such appeal bonds and is split between the State and the County—in this case, the interest on this whopping appeal bond eventually brought almost $90M in unexpected cash to this tiny and mostly rural county. In the spirit of kleptocracy, the county fathers/mothers avoiding using this largesse for the poor and downtrodden and instead chose to spend it mostly on themselves. They completely redid the County Courthouse so it is now one of the largest court buildings in the U.S. and stands out like a giant sore thumb in the tiny town of Edwardsville, IL. They computerized the courts and also put some money into the police department. With the money left over, it seems they grabbed it and ran--they all took early retirement!

Madison County Court Carnival Legal Side-Show Number Two

The pendency of the Price ruling contributed to an enormous and sometimes ugly battle over the election and later retention of the seat of current IL Supreme Court Justice Lloyd Karmeier. He is the Supreme Court justice for the position that is elected from far southern IL. A television attack ad was aired by political action group Campaign for 2016urging voters to remove Karmeier from the bench. The ad and subsequent campaign, funded mainly by Plaintiffs' attorneys, accused him of ruling in favor of big business after receiving donations of $4 million from pro-business interests during his 2004 campaign. The ad ended with the phrase "Our justice is not for sale." What is ironic is the Plaintiff bar was not shy about six-figure donations during the initial campaign to his opponent from interested Plaintiff firms from all over the U.S.—why would a law firm from outside Illinois contribute so heavily to a Supreme Court candidate in our state or fight for the removal of a sitting judge? Can there be any other reason than to see Plaintiff interests and multi-billion dollar rulings protected?

In response, the Republican State Leadership Committee, a national PAC, stepped in and began heavily campaigning in support of Justice Karmeier. Their ad commended Karmeier for standing strong against "Chicago trial lawyers who have tried to buy the courts." Additionally, the Republican State Leadership Committee also began pouring money into Karmeier's campaign ($950,000).

A Common Sense Warning about Madison County Carnival Legal Side-Shows and the Illinois Plaintiff Bar

We want our readers, the Governor, the Supreme Court, presidential candidates on both sides and anyone else interested to remember this warning. The reason Madison County, IL is such an outlier when compared to almost all other counties in the United States is the willingness of the Plaintiff bar to invest heavily in judicial and other elections. The concept of “justice” in that county is so pro-Plaintiff, it has drawn intense national criticism. Former President Bush visited Madison County and worked to reform national class action law to thwart what some felt were abuses. The Price case was felt to be one such abuse.

If one of Madison County’s leading Plaintiff attorneys recovers a judgment paying legal fees of what now are supposedly $1.8 billion dollars, the attorney is going to be wealthier than our Governor and almost anyone else in our state. That Plaintiff lawyer will have a giant war chest from which to lawfully fund his choice of candidates across our state in legislative, judicial and gubernatorial elections. Such a Plaintiff lawyer is certain to want to legally use that money to de-form Illinois into their image and likeness. We are confident that image and likeness isn’t one that is pro-business. If this sort of judgment with such legal fees is paid out, we are fairly sure Madison County may become a hub to seek gigantic judgments against any U.S. business they can pull into their web.

A Caveat from Your Editor

We don’t want to get sued for libel, particularly in nutty Madison County. The facts outlined are presented to the best of our knowledge and research. The opinions voiced are those of your editor and we assert we are entitled to our opinions. Feel free to carefully post your best thoughts and comments on our award-winning blog.

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Synopsis: Keep Employer-Employee Restrictive Covenants “Reasonable” to Protect Your Legitimate Business Interests or Skip the Whole Concept.

Editor’s comment: The defense team at KCB&A are expert on handling restrictive covenants and the law in this area is fairly simple. We are confident our rates to create and review effective documents are dramatically lower than our competition. In drafting or approving such documents, we advise our clients that, rather than impose undue hardship on a what may become a former employee or result in a loss of trade to the public, make sure the activity, time, and geographic restrictions are narrowly related to the business and current customers/clients or lose any chance to enforce the agreement at all. 

In Assured Partners, Inc. v. Schmitt, 2015 IL App (1st) 141863 (October 27, 2015) the First Division Appellate Court decided the issue whether to allow an employer to enforce a noncompetition, non-solicitation and confidentiality provision in an employment agreement with its former employee. The restrictive covenant was found to act as a blanket prohibition intended to bar a former employee from working as a broker, in any capacity, within the entire professional liability insurance business nationwide, and was thus overbroad and unenforceable. The former employee was a wholesale insurance broker who began working in the insurance industry in the early 1990's. Since 2003, his business centered on the lawyers' professional liability insurance (LPLI) market. He built a "substantial" book of wholesale lawyers’ professional liability insurance business during many years prior to his employment with the employer, to the extent that he placed millions of dollars in LPLI with insurers in the United States and also in the United Kingdom. In addition, during that time, he established contacts with LPLI retail brokers and insurers, which spanned approximately a dozen of the fifty United States as well as the United Kingdom.

In 2006, the former employee was recruited by the employer in the position of senior vice-president to spearhead, promote and build the business and relationships throughout the United States and foreign jurisdictions where it conducted business. The former employee signed a noncompetition, non-solicitation and confidentiality provision. In 2013, a dispute led to a resignation and a lawsuit to prevent the former employee from purportedly transferring their business/customer list. Public policy favors enforcement of a restrictive covenant where an employee behaves dishonestly in blatantly stealing the employer's lists of customers.

The court uses a “rule of reasonableness test” to determine the enforceability of any restrictive covenant.  A restraint on trade is reasonable only if it: 

(1) is no greater than is required to protect a legitimate business interest of the employer; 

(2) does not impose undue hardship on the employee; and

(3) is not injurious to the public.

Factors considered to be relevant to this analysis include, but are not limited to, the near-permanence of customer relationship and, the employee's acquisition of confidential information through his employment (activity), and time and place of restrictions. No single factor bears greater value than the other in the assessment. 

Here, the Court found restrictive covenants unreasonable because the former employee was prevented from any business activity related to any type of professional liability insurance, and not just LPLI. It would prohibit the former employee from soliciting any business or potential acquisition of not only the employers more than 30 affiliate brokerages in the U.S. and U.K., but also restricted him from soliciting any not yet-acquired customer. The employer did not have legitimate protectable business interest in protecting customers they didn’t even have yet! Technically, the restrictive covenant would allow the former employee to work in other insurance-related business that did not involve any professional liability insurance products or services anywhere outside of a 50 mile radius of West Orange, New Jersey. But this was illusory as the former employee had not worked in any capacity other than as a wholesale insurance focusing on LPLI since 2003. Plus, it prevented the former employee from work in any insurance-related business for a period of 28 months. This was a significant period to impose on a former employee whose effective term of employment lasted only 20 months.

The prohibition imposed an undue hardship on the former employee because he had developed contacts over many years even prior to coming to work for the employer. The employer did not provide him with any training, technology, or other specialized information unique to assist him in building his book of wholesale LPLI business, and he was hired specifically due to his contacts with LPLI retail brokers and insurers and his expertise in placing and serving wholesale LPLI.

Finally, it was an unreasonable restraint on business activity to not just prevent the former employee from soliciting their customers but precluded him from working, in any capacity, in the industry in which the employer did business. It would prevent the former employee from earning a living as a wholesale broker for all professional liability insurance products and services in every location within the 50 states and territories of the United States and effectively force him to work in another country which would result in loss of trade in the U.S. 

Beware! Just because the court may ultimately find a restrictive covenant to be unreasonable doesn’t mean the prohibition cannot be judicially modified so as to narrow the scope of the restraint on the former employee’s activities. The courts are willing to limit the geographic scope of the noncompetition provision and to limit only those clients of the employer the former employee had interactions with during his employment. In determining whether modification is appropriate, the fairness of the restraints contained in the contract is a key consideration. In this case, the restrictive covenant contained several overbroad restrictive covenants that effectively prevented the former employer from practicing his trade anywhere. This was significant as it wasn’t just one minor deficiency, but several deficiencies that rendered it too great to permit modifications as this would be tantamount to fashioning a new agreement. The drafter of a contract, generally the employer, is the one who suffers if there are disputes. The less the agreement was negotiated, the more it can be argued the contract was "forced" especially as often the former employer will argue the restrictive covenant was a “take it or leave it” requirement for employment. So if there is ever a disagreement, the employer should choose the most important issues to fight about and not change minor issues. 

This article was researched and written by Nathan S. Bernard who can be reached at nbernard@keefe-law.com or (312) 756-3726 with any questions or comments.