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The Illinois Association of Defense Trial Counsel

Fourth Quarter 2016 l Volume 26, Number 4 l ISSN-2169-3668

MONOGRAPH Wage Peace, Not War: What Employers Need to Know About the Fair Labor Standards Act

FEATURE ARTICLES An Employer and Educator’s Guide to LGBT Rights Against the Wind: Practical and Ethical Implications of Artificial Intelligence in the Practice of Law Role of Technology Experts in Antitrust Litigation

Illinois Association of Defense Trial Counsel WWW.IADTC.ORG PRESIDENT R. MARK MIFFLIN Giffin, Winning, Cohen & Bodewes, P.C., Springfield PRESIDENT-ELECT MICHAEL L. RESIS SmithAmundsen LLC, Chicago 1ST VICE PRESIDENT BRADLEY C. NAHRSTADT Lipe, Lyons, Murphy, Nahrstadt & Pontikis, Ltd., Chicago 2ND VICE PRESIDENT WILLIAM K. MCVISK Johnson & Bell, Ltd., Chicago SECRETARY/TREASURER NICOLE D. MILOS Cremer, Spina, Shaughnessy, Jansen & Siegert, LLC, Chicago DIRECTORS DENISE BAKER-SEAL Brown & James, P.C., Belleville ELIZABETH K. BARTON Ancel, Glink, Diamond, Bush, DiCianni & Krafthefer, P.C., Chicago LAURA K. BEASLEY Joley, Oliver & Beasley, P.C., Belleville JOSEPH A. BLEYER Bleyer and Bleyer, Marion JEREMY T. BURTON Falkenberg Fieweger & Ives, Chicago ADAM C. CARTER Cray Huber Horstman Heil & VanAusdal LLC, Chicago R. MARK COSIMINI Rusin & Maciorowski, Ltd., Champaign BRUCE DORN Bruce Farrel Dorn & Associates, Chicago DONALD PATRICK ECKLER Pretzel & Stouffer, Chartered, Chicago TERRY A. FOX Kelley Kronenberg, Chicago EDWARD K. GRASSÉ Busse, Busse & Grassé, P.C., Chicago JOHN P. HEIL, JR. Heyl, Royster, Voelker & Allen, P.C., Peoria DAVID A. HERMAN Giffin, Winning, Cohen & Bodewes, P.C., Springfield ANTHONY G. JOSEPH HeplerBroom LLP, Chicago THOMAS L. O’CARROLL Hinshaw & Culbertson LLP, Chicago DONALD J. O’MEARA, JR. Pretzel & Stouffer, Chartered, Chicago IAN RUSSELL Lane & Waterman, LLP, Davenport BENJAMIN J. SAMUELSON Betty, Neuman & McMahon, P.L.C., Davenport TRACY E. STEVENSON Law Office of Tracy E. Stevenson, P.C., Chicago PATRICK W. STUFFLEBEAM HeplerBroom LLC, Edwardsville MICHELLE M. WAHL Swanson, Martin & Bell, LLP, Chicago EXECUTIVE DIRECTOR Sandra J. Wulf, CAE, IOM PAST PRESIDENTS: Royce Glenn Rowe • James Baylor • Jack E. Horsley • John J. Schmidt • Thomas F. Bridgman • William J. Voelker, Jr. • Bert M. Thompson • John F. Skeffington • John G. Langhenry, Jr. • Lee W. Ensel • L. Bow Pritchett • John F. White • R. Lawrence Storms • John P. Ewart • Richard C. Valentine • Richard H. Hoffman • Ellis E. Fuqua • John E. Guy • Leo M. Tarpey • Willis R. Tribler • Alfred B. LaBarre • Patrick E. Maloney • Robert V. Dewey, Jr. • Lawrence R. Smith • R. Michael Henderson • Paul L. Price • Stephen L. Corn • Rudolf G. Schade, Jr. • Lyndon C. Molzahn • Daniel R. Formeller • Gordon R. Broom • Clifford P. Mallon • Anthony J. Tunney • Douglas J. Pomatto • Jack T. Riley, Jr. • Peter W. Brandt • Charles H. Cole • Gregory C. Ray • Jennifer Jerit Johnson • Stephen J. Heine • Glen E. Amundsen • Steven M. Puiszis • Jeffrey S. Hebrank • Gregory L. Cochran • Rick Hammond • Kenneth F. Werts • Anne M. Oldenburg • R. Howard Jump • Aleen R. Tiffany • David H. Levitt • Troy A. Bozarth

COLUMNISTS James K. Borcia — Tressler LLP, Chicago Julie A. Bruch — O’Halloran Kosoff Geitner & Cook, LLC, Northbrook Catherine A. Cooke — Robbins, Salomon & Patt, Ltd., Chicago Donald Patrick Eckler — Pretzel & Stouffer, Chartered, Chicago John Eggum— Foran Glennon Palandech Ponzi & Rudloff P.C., Chicago Ryan M. Frierott — Goldberg Segalla LLP, Chicago John P. Heil, Jr. — Heyl, Royster, Voelker & Allen, P.C., Peoria Scott L. Howie — Pretzel & Stouffer, Chartered, Chicago M. Elizabeth D. Kellett — HeplerBroom LLC, Edwardsville Seth D. Lamden — Neal, Gerber & Eisenberg, LLP, Chicago R. Mark Mifflin — Giffin, Winning, Cohen & Bodewes, P.C., Springfield Bradford J. Peterson — Heyl, Royster, Voelker & Allen, P.C., Rockford Patrick W. Stufflebeam — HeplerBroom LLC, Edwardsville John F. Watson — Craig & Craig, LLC, Mattoon Dede K. Zupanci — HeplerBroom LLC, Edwardsville

CONTRIBUTORS Karin Anderson — O’Halloran Kosoff Geitner & Cook, LLC, Northbrook Jill B. Berkeley — Neal, Gerber & Eisenberg, LLP, Chicago James L. Craney — Craney Law Group LLC, Edwardsville Brian D’Andrade, Ph.D., PMP, CISSPE, P.E. — Exponent, Washington, D.C. Alex Z. Kattamis, Ph.D., P.E. — Exponent, New York Ashley S. Koda — Pretzel & Stouffer, Chartered, Chicago Kevin P. Lolli — Goldberg Segalla LLP, Chicago Patrick F. Murphy, Ph.D., P.E. — Exponent, New York Howard J. Pikel — Pretzel & Stouffer, Chartered, Chicago Kimberly A. Ross — Ford & Harrison LLP, Chicago Shukri J. Souri, Ph.D. — Exponent, New York Stephanie Toth — Goldberg Segalla LLP, Chicago W. Scott Trench — Brady, Connolly & Masuda, P.C., Chicago Lynsey A. Welch — Heyl, Royster, Voelker & Allen, P.C., Rockford

IDC QUARTERLY

EDITORIAL BOARD

IN THIS ISSUE

John F. Watson, Editor-in-Chief Craig & Craig, LLC, Mattoon [email protected] Tara Wiebusch Kuchar, Executive Editor HeplerBroom LLC, Edwardsville [email protected] J. Matthew Thompson, Associate Editor Heyl, Royster, Voelker & Allen, P.C., Peoria [email protected] Catherine A. Cooke, Assistant Editor Robbins, Salomon & Patt, Ltd., Chicago [email protected] Jeremy T. Burton, Assistant Editor Falkenberg Fieweger & Ives, Chicago, Chicago [email protected] James P. DuChateau, Assistant Editor HeplerBroom LLC, Chicago [email protected]

The IDC Quarterly is the official publication of the Illinois Association of Defense Trial Counsel. It is published quarterly as a service to its members. Subscriptions for non-members are $100 per year. Single copies are $25 plus $5 for postage and handling. Requests for subscriptions or back issues should be sent to the Illinois Association of Defense Trial Counsel headquarters in Rochester, Illinois. Subscription price for members is included in membership dues.

Manuscript Policy

Members and other readers are encouraged to submit manuscripts for possible publication in the IDC Quarterly, particularly articles of practical use to defense trial attorneys. Manuscripts must be in article form. A copy of the IDC Quarterly Stylistic Requirements is available upon request from The Illinois Association of Defense Trial Counsel office in Rochester, Illinois. No compensation is made for articles published, and no article will be considered that has been submitted simultaneously to another publication or published by any other publication. All articles submitted will be subjected to editing and become the property of the IDC Quarterly, unless special arrangements are made. Statements or expression of opinions in this publication are those of the authors and not necessarily those of the Association or Editors. Letters to the Editor are encouraged and welcome, and should be sent to the Illinois Association of Defense Trial Counsel headquarters in Rochester, Illinois. Editors reserve the right to publish and edit all such letters received and to reply to them. IDC Quarterly, Fourth Quarter 2016, Volume 26, No. 4., Copyright © 2016 The Illinois Association of Defense Trial Counsel. All rights reserved. Reproduction in whole or in part without permission is prohibited. THE ILLINOIS ASSOCIATION OF DEFENSE TRIAL COUNSEL • P.O. Box 588 • Rochester, IL 62563-0588 800-232-0169 • 217-498-2649 • FAX 866-230-4415 [email protected] • www.iadtc.org

Monograph M-I

Wage Peace, Not War: What Employers Need to Know About the Fair Labor Standards Act, by Kimberly A. Ross, James L. Craney, W. Scott Trench and Karin Anderson

Feature Articles

4

An Employer and Educator’s Guide to LGBT Rights, by Julie A. Bruch

20

Against the Wind: Practical and Ethical Implications of Artificial Intelligence in the Practice of Law, by Donald Patrick Eckler and Ashley S. Koda

38

Role of Technology Experts in Antitrust Litigation, by Patrick F. Murphy, Ph.D., Brian D’Andrade Ph.D., Alex Z. Kattamis, Ph.D., and Shukri J. Souri, Ph.D.

Columns

14

Appellate Practice Corner, by Scott L. Howie



53

Association News

47 Civil Practice and Procedure, by Donald Patrick Eckler and Howard J. Pikel

18

Civil Rights Update, by John P. Heil, Jr.



30

Commercial Law, by James K. Borcia



3



51

Employment Law, by Julie A. Bruch



67

IDC Membership and Committee Applications



62

IDC New Members



55

IDC Notice of Election



66

IDC Spring Symposium Preview



26

Insurance Law Update, by Seth D. Lamden and Jill B. Berkeley



34

Legislative Update, by John Eggum



24

Medical Malpractice Update, by Dede K. Zupanci



2



45

Product Liability, by Ryan M. Frierott, Kevin P. Lolli and Stephanie Toth



35

Property Insurance Law, by Catherine A. Cooke



10

Supreme Court Watch, by M. Elizabeth D. Kellett



43

Technology Law, by Patrick W. Stufflebeam



31

Workers’ Compensation Report, by Bradford J. Peterson and Lynsey A. Welch

Editor’s Note, by John F. Watson

President’s Message, by R. Mark Mifflin

SANDRA J. WULF, CAE, IOM, Executive Director

Fourth Quarter 2016 | IDC QUARTERLY | 1

President’s Message R. Mark Mifflin Giffin, Winning, Cohen & Bodewes, P.C., Springfield

As mentioned in my last President’s Message, the Illinois Association of Defense Trial Counsel (IDC) tirelessly advocates for fairness in the Illinois civil justice system. I am the first to acknowledge that the political climate in Illinois is not always favorable to our efforts, that we are not always successful, and that much work remains to be done. However, we must not be deterred from our efforts to improve the system. The Illinois Supreme Court’s recent decision in Kakos v. Butler, 2016 IL 120377, preserving the right to a twelveperson jury is a beacon of hope for IDC’s efforts to protect the jury system and the entire civil justice system. Let this decision strengthen our resolve to improve the system and protect it from efforts to undermine its fairness. We are all aware of many examples of unfairness in the current structure. The admissibility of billed amounts of medical charges, even though such evidence results in a windfall for plaintiffs who recover amounts that were never paid and, in many cases were never intended to be paid, is just not right. Similarly, the admissibility of evidence of an injured party’s failure to use a seatbelt also results in a recovery, or greater recovery, for plaintiffs who have failed to take this simple, lawfully required step to protect themselves. Recent discussions in the legislative arena have shined a light on inequities in the Illinois workers’ compensation system, but resolutions remain elusive. Many more examples could be cited. 2 | IDC QUARTERLY | Fourth Quarter 2016

Within this framework of issues that need to be addressed in the Illinois civil justice system and a difficult climate, the Board of Directors of the IDC has chosen to seek incremental change in the legislature. The Board recognizes that some of these issues have been created by the courts and others have been created by statutes enacted by the legislature and signed by the Governor. We will continue to work in the legislature on a variety of

having their percentage of fault calculated based upon the total proximate cause of the injury or damage for which recovery is sought. Defendants, on the other hand, are left to have their percentage of fault calculated based only upon the defendants remaining at the time the case is submitted to the trier of fact. By calculating plaintiffs fault based upon the total proximate cause, plaintiffs are often found to be less than fifty percent at fault and therefore able to recover. Conversely, by calculating defendants percentage of fault based only upon the remaining parties, defendants are more likely to exceed the twenty-five percent threshold for joint and several liability. The result is that even minimally culpable defendants may be found to be jointly and severally liable for all remaining damages

The Illinois Supreme Court’s recent decision in Kakos v. Butler, 2016 IL 120377, preserving the right to a twelve-person jury is a beacon of hope for IDC’s efforts to protect the jury system and the entire civil justice system. Let this decision strengthen our resolve to improve the system and protect it from efforts to undermine its fairness.

bills and will continue to work in the courts through the cases themselves and amicus briefs to address the issues as they arise. This year, we have chosen two issues to pursue in the legislature. The IDC will work with sponsors in the House and the Senate to level the playing field between plaintiffs and defendants with reference to joint and several liability. Specifically, we will pursue legislation to ensure that defendants are treated like plaintiffs in the consideration of the percentage of fault. Plaintiffs now enjoy the luxury of

because the fault of the other tortfeasors is not included in the calculation. This dichotomy is patently unfair. Plaintiffs and defendants should be treated alike, and the same calculation should be made to determine whether plaintiffs are less than fifty percent at fault and whether a defendant’s fault is twenty-five percent or greater. As if to add insult to injury, the jury is currently instructed that a finding that a plaintiff is more than fifty percent at fault will bar the plaintiff’s recovery,

Editor’s Note which may cause a jury to reduce the plaintiff’s fault to preserve the plaintiff’s right to recover, effectively nullifying the otherwise pure calculation by the jury of the facts relating to the percentage of fault. Contrary to plaintiffs’ calculation, the jury is not instructed as to the consequences of the calculation of the percentage of fault of defendants, and therefore is not advised that a finding of twenty-five percent of fault or greater would expose defendants to joint and several liability for all damages. Our proposal, which will be identical to Senate Bill 2310 and House Bill 4426 of the current legislature, will apply the same rules to the calculation of fault for both plaintiffs and defendants. That calculation will be based upon the percentage of the total proximate cause of the injury or damage for both the plaintiff and the defendant. It will also eliminate the requirement that the court instruct the jury as to the consequences of any finding of fault as to plaintiffs or defendants, thereby allowing the jury to fulfil its function as to findings of fact and will leave to the court the application of law to those facts. Most importantly, this bill will eliminate the current inequities in the law and will apply the law equally to both plaintiffs and defendants. The IDC anticipates that this legislation will be introduced after the new legislature convenes in January of 2017. There will be postings on the IDC website and likely emails to members about the filing of these bills. We ask that you support this legislation and contact your respective legislators to ask them to support these bills. If you desire any additional information about the legislation or when it is filed, please do not hesitate to contact the Legislative Committee of the IDC or any of the Board members. As always, we welcome and encourage your involvement and support.

John F. Watson Craig & Craig, LLC, Mattoon

The fall is always a busy time. This year has been even busier with the national and local elections, for which many of us have both professional and personal interests with friends and family members running for office. The courts have also been busy issuing significant decisions from the Illinois Supreme Court down to the circuit court courts. Just as the bar and bench have been busy, so too have our columnists. This volume of the IDC Quarterly covers a wide range of issues directly affecting civil matters. Practitioners of employment law will be keenly interested in the IDC Monograph authored by Kimberly A. Ross, from Ford & Harrison LLP, Chicago, with James L. Craney, W. Scott Trench and Karin Anderson, which discusses various issues under the Fair Labor Standards Act. Julie Bruch with O’Halloran Kosoff Geitner & Cook, LLC, Northbrook, Illinois, has prepared a very interesting and informative Feature Article on an employer and educator’s guide to LGBT rights and the evolving legal standards under federal and state laws. This issue of the Quarterly also offers Feature Articles from Donald Patrick Eckler and Ashley S. Koda, Pretzel & Stouffer, Chartered, on the practical and ethical implications of artificial intelligence in the practice of law. Finally, several expert engineers from Exponent have authored an interesting Feature Article on the roles of technology experts in antitrust litigation. Their thoughts and experiences on the role technology experts are noteworthy on complex, sophisticated, and high-value antitrust litigation. This volume also features fourteen of our

regular columns. Ryan M. Frierott, Kevin P. Lolli and Stephanie Toth authored an article on recent developments in product liability law. Seth D. Lamden and Jill B. Berkeley authored a column on developments with regard to CGL coverages and issues relating to the insurance agreement. John P. Heil, Jr. from Heyl, Royster, Voelker & Allen, P.C., focuses on a recent federal authority in civil rights actions. This issue also offers our regular columns on the Legislative Review, Appellate Practice Corner, Commercial Law, Employment Law, Civil Practice and Procedure, Medical Malpractice, Property Insurance and Workers’ Compensation. Importantly, we have a new column on Technology Law written by Patrick W. Stufflebeam with HeplerBroom LLC. Patrick’s very interesting article discusses the ethical considerations of Wi-Fi connections and the ways attorneys can keep clients’ data and information protected. That the IDC Quarterly has a new column is fitting for this busy season. Indeed, the content of this volume reminds me of all the hard work IDC members have undertaken in spite of busy lives. The successes and work of the Amicus Committee, representing the IDC’s focus on civil justice for all is to be lauded. The work of our Legislative Committee and those working to make our laws work better for all litigants is important; as is the work of our other substantive committees who commit themselves to make the Illinois defense bar better. Last but not least, I appreciative for the editors who have guided me, and the authors who continue to make the IDC Quarterly a “must read.” Fourth Quarter 2016 | IDC QUARTERLY | 3

Feature Article Julie A. Bruch O’Halloran Kosoff Geitner & Cook, LLC, Northbrook

An Employer and Educator’s Guide to LGBT Rights Recent developments in the area of access to restrooms and locker rooms by transgender individuals have brought the issue of the rights of lesbian, gay, bisexual and transgender (LGBT) employees and students to the forefront. Transgender refers to people whose gender identity is different from the sex assigned to them at birth. This article will discuss LGBT legal issues in the employment and educational context under both state and federal law. The article will also focus on the current state of the law with respect to access of bathrooms and locker rooms based on an individual’s gender identity. Illinois State Law Protects Employees from Discrimination Based on Sexual Orientation The Illinois Human Rights Act provides that it is a civil rights violation for an employer to refuse to hire, to segregate, or to act with respect to recruitment, hiring, promotion, renewal of employment, selection for training or apprenticeship, discharge, discipline, tenure or terms, privileges or conditions of employment on the basis of unlawful discrimination. 774 ILCS 5/2-102. Thus, it is unlawful for employers to take any of the above actions against an employee because of the employee’s sex, which is defined as the status of being male or female. 775 ILCS 5/1-103(O). In addition, the Illinois Human Rights Act also prohibits discrimination because of an employee’s sexual orientation, 4 | IDC QUARTERLY | Fourth Quarter 2016

which is defined as actual or perceived heterosexuality, homosexuality, bisexuality, or gender-related identity, whether or not traditionally associated with the person’s designated sex at birth. “Sexual orientation” does not include a physical or sexual attraction to a minor by an adult. 775 ILCS 5/1-103(O-1). Similarly, the Cook County Human Rights Ordinance also contains prohibitions on discrimination based on sexual orientation and gender identity. Cook Cnty., Ill., Ordinance No. 93–O–13 Introduction (1993); Cook Cnty., Ill., Human Rights Ordinance § 42-30 (2015)). The Evolving Legal Standards on LGBT Employee Protections under Title VII of the Civil Rights Act of 1964 In contrast to Illinois state law, Title VII of the Civil Rights Act of 1964 does not prohibit discrimination based on an employee’s sexual orientation. There have been a number of proposed amendments to Title VII that would expand the definition, but as of this writing, Congress has not passed those measures. In Ulane v. Eastern Airlines, Inc., 742 F.2d 1081, 1086 (7th Cir. 1984), the Court of Appeals for the Seventh Circuit rejected a claim of discrimination on the basis of an employee’s status as a transsexual holding that “[f]or us to now hold that Title VII protects transsexuals would take us out of the realm

of interpreting and reviewing and into the realm of legislating.” However, in Price Waterhouse v. Hopkins, 490 U.S. 228 (1989), the United States Supreme Court held that discrimination based on the failure of an employee to conform to gender stereotypes is discrimination “because of sex” under Title VII. Price Waterhouse, 490 U.S. at 251-52. Following Price Waterhouse, the Seventh Circuit decided the case of Doe v. City of Belleville, 119 F.3d 563 (7th Cir. 1997), concluding that sexual harassment of a man by other men is actionable under Title VII when the male employee was harassed because of his sex. The Doe court did not explicitly overrule Ulane even though the decision was discussed at length in the opinion. Like the Seventh Circuit, the Court of Appeals for the Tenth Circuit rejected a claim brought by a transsexual diagnosed with gender identity disorder (GID) on the basis that discrimination based on person’s status as transsexual was not discrimination “because of sex” under Title VII. Etsitty v. Utah Transit Auth., 502 F.3d 1215 (10th Cir. 2007). In contrast, the First, Sixth, Ninth, and Eleventh Circuits have extended federal sex discrimination laws to provide protection to transgender individuals. Rosa v. Park West Bank & Trust Co., 214 F.3d 213, 215-16 (1st Cir. 2000) (Equal Credit Opportunity Act); Smith v. City of Salem, 378 F.3d 566, 575 (6th Cir. 2004) (Title

About the Author Julie A. Bruch is a partner with O’Halloran Kosoff Geitner & Cook, LLC. Her practice concentrates on the defense of governmental entities in civil rights and employment discrimination claims.

VII); Schwenk v. Hartford, 204 F.3d 1187, 1201-02 (9th Cir. 2000) (Gender Motivated Violence Act); and Glenn v. Brumby, 663 F.3d 1312, 1316 (11th Cir. 2011) (equal protection clause). The EEOC has also taken the position in cases involving federal employment that transgender discrimination is per se a form of sex discrimination. Macy v. Holder, No. 0120120821, 2012 WL 1435995 (E.E.O.C. April 20, 2012). The EEOC also has stated that sexual orientation discrimination is per se sex discrimination. Baldwin v. Foxx, No. 0120133080, 2015 WL 4397641 (E.E.O.C. July 16, 2015). On December 15, 2014, the Attorney General issued a memorandum to all United States Attorneys in the Department of Justice on the subject of Treatment of Transgender Employment Discrimination Claim Under Title VII of the Civil Rights Act of 1964. Eric H. Holder, Jr., Office of the Att’y. Gen., Memorandum, Treatment of Transgender Employment Discrimination Claims Under Title VII of the Civil Rights Act of 1964 (Dec. 15, 2014), https://www.justice.gov/ sites/default/files/opa/press-releases/ attachments/2014/12/18/title_vii_memo. pdf. In this memorandum, the Attorney General recognized that the federal government’s approach to the issue of gender identity or transgender status has evolved over time. While the Department had once stated in litigation that Title VII did not prohibit such discrimination per se, the Department’s current position was that Title VII’s prohibition of sex discrimination encompasses discrimination based on gender identity, including transgender status. Courts have also accepted discrimination claims brought by lesbian, gay, or bisexual plaintiffs claiming gender

[T]he Attorney General recognized that the federal government’s approach to the issue of gender identity or transgender status has evolved over time. While the Department had once stated in litigation that Title VII did not prohibit such discrimination per se, the Department’s current position was that Title VII’s prohibition of sex discrimination encompasses discrimination based on gender identity, including transgender status. stereotyping. Spearman v. Ford Motor Co., 231 F.3d 1080, 1085 (7th Cir. 2000). In order to bring such claims, plaintiffs must establish that the employer actually relied on the plaintiff’s gender in making its decision. Thus, a court will consider any sexually explicit language or stereotypical statements within the context of all of the evidence of harassment in the case, and then determine whether the evidence as a whole creates a reasonable inference that the plaintiff was discriminated against because of his sex because “[r]emarks at work that are based on sex-stereotypes do not inevitably prove that gender played a part in a particular employment decision.” Spearman, 231 F.3d at 1085; see also Prowel v. Wise Bus. Forms, Inc., 579 F.3d 285, 289-92 (3d Cir. 2009) (reversing summary judgment in favor of employer on gay male employee’s Title VII gender stereotyping claim). However, Judge Posner’s concurring opinion in Hamm v. Weyauwega Milk Products, Inc., 332 F.3d 1058, 1068 (7th Cir. 2003) (Posner, J., concurring), is worth reading to appreciate the difficulty that courts have in determining what type of conduct

is prohibited. In Judge Posner’s view, “[s]ex stereotyping” should not be regarded as a form of sex discrimination, though it will sometimes, as in the Hopkins case, be evidence of sex discrimination.” Hamm, 332 F.3d at 1068. Courts are Considering Whether GID is a Disability Entitled to Protection under the Americans with Disabilities Act The Americans with Disabilities Act contains an exclusion for “transsexualism . . . [and] gender identity disorders not resulting from physical impairments” in the ADA’s definition of “disability.” 42 U.S.C. § 12211(b) (1) (the GID Exclusion). Currently, a Pennsylvania transgender woman has filed suit against Cabela’s challenging the constitutionality of this exclusion by claiming that the exclusion violates the Due Process Clause of the Fifth Amendment, and that the updated diagnosis of gender dysphoria falls outside the scope of that exclusion as defined in the law. Blatt v. Cabela’s Retail, Inc., — Continued on next page

Fourth Quarter 2016 | IDC QUARTERLY | 5

Feature Article | continued

No. 5:14-cv-4822-JFL (E.D. Pa. Aug. 15, 2014). The Justice Department has submitted a statement of interest in that case suggesting that the plaintiff’s gender dysphoria falls outside the GID Exclusion because a growing body of scientific evidence suggests that it may result from a physical impairment. Second Statement of Interest of the United States, Blatt, No. 5:14-cv-4822-JFL, Doc. No. 67, at 6 (filed Aug. 15, 2014), http://www.glad. org/uploads/docs/cases/blatt-v-cabelas/ blatt-v-cabelas-doj-soi-11-16-15.pdf. As a result, the DOJ’s position is that gender dysphoria could be a disability protected under the ADA.

In terms of employee benefits, the Supreme Court has ruled that the right to marry is a fundamental right inherent in the liberty of the person[.]

FMLA Rights of Same-Sex Couples In terms of employee benefits, the Supreme Court has ruled that the right to marry is a fundamental right inherent in the liberty of the person, and under the Due Process and Equal Protection Clauses of the Fourteenth Amendment, couples of the same-sex may not be deprived of that right and that liberty. Obergefell v. Hodges, 135 S. Ct. 2584 (2015). Under Obergefell, states are required to recognize same-sex marriages performed in states where such marriages 6 | IDC QUARTERLY | Fourth Quarter 2016

are permitted. In light of Obergefell, as well as the Illinois Human Rights Act prohibition on discrimination based on sexual orientation, employers must ensure that their Family Medical Leave Act policies include a same-sex spouse in the definition of family members for which an eligible employee may take FMLA leave. The Evolving Laws on Restroom/ Locker Room Access In April 2015 the United States Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) announced it would require federal contractors subject to Executive Order 11246, as amended (which prohibits discrimination based on both sex and gender identity), to allow transgender employees to use the restrooms and other facilities consistent with their gender identity. Pursuant to the amended 41 C.F.R. § 60-1.8, a contractor must ensure that facilities provided for employees are provided in such a manner that segregation cannot result on the basis of sexual orientation or gender identity. Segregated Facilities, 41 C.F.R. § 60-1.8. The contractor may neither require such segregated use by written or oral policies nor tolerate such use by employee custom. The contractor’s obligation extends further to ensuring that its employees are not assigned to perform their services at any location, under the contractor’s control, where the facilities are segregated. The term “facilities,” as used in that section, means waiting rooms, work areas, restaurants and other eating areas, time clocks, restrooms, wash rooms, locker rooms, and other storage or dressing areas, parking lots, drinking fountains, recreation or entertainment areas, transportation, and housing pro-

vided for employees; provided that separate or single-user restrooms and necessary dressing or sleeping areas shall be provided to assure privacy between the sexes. 41 C.F.R. § 60-1.8. The North Carolina Laws On February 22, 2016, the City Council of Charlotte, North Carolina amended the city’s Non-Discrimination Ordinance, requiring that every government and business bathroom and shower be simultaneously open to both sexes. In response to this ordinance, the North Carolina General Assembly passed the Public Facilities Privacy and Security Act, preempting the Charlotte ordinance and providing that public employees and public school students use bathrooms and showers correlating with their biological sex, defined as the sex noted on their birth certificate. 2015 North Carolina House Bill No. 2, North Carolina 2015 General Assembly, 2016 Second Extra Session (House Bill 2). After signing the Act, North Carolina Governor Patrick L. McCrory issued Executive Order 93 to Protect Privacy and Equality (EO 93). EO 93 expanded non-discrimination protections to state employees on the basis of gender identity, while providing that cabinet agencies should require multiple occupancy intimate facilities, like bathrooms, to be designated for use only by persons based on their biological sex. EO 93 directed agencies to make reasonable accommodations when practicable. On May 9, 2016, the Department of Justice and North Carolina filed separate lawsuits against each other over the proper interpretation of Title VII and the issue of gender identity. United States v. State of North Carolina, No. 1:16-cv425 (M.D. N.C. May 9, 2016); McCrory v. United States, No. 5:16-cv-238-BO

(E.D. N.C. May 9, 2016). Both lawsuits are currently pending. Title IX and Educational Institutions Policies on Restroom and Locker Room Access by Transgender Students Title IX of the Educational Amendments of 1972 (Title IX) and its implementing regulations prohibit sex discrimination in educational programs and activities operated by recipients of Federal Financial Assistance. 20 U.S.C. §§ 1681-1688; 34 C.F.R. pt. 54. Title IX regulations provide that “no person shall, on the basis of sex, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any academic, extracurricular, research, occupational training, or other education program or activity operated by a recipient which receives Federal Financial assistance.” 34 C.F.R. § 106.31(a). The regulations further provide that funding recipients shall not, on the basis of sex: (1)   treat one person differently from another in determining whether such person satisfies any requirement or condition for the provision of such aid, benefit, or service; (2)  provide different aid, benefits, or services or provide aid, benefits, or services in a different manner; (3)  deny any person any such aid, benefit, or service; (4)  subject any person to separate or different rules of behavior, sanctions, or other treatment; *** (7) otherwise limit any person in the enjoyment of any right, privilege, advantage, or opportunity. 34 C.F.R. § 106.31(b).

Educational institutions across the country must develop or amend policies for use of restrooms and lockers rooms by transgender students or risk losing federal funding.   The Department of Education (DOE) regulations implementing Title IX permit the provision of “separate toilet, locker room, and shower facilities on the basis of sex, but such facilities provided for students of one sex shall be comparable to such facilities for students of the other sex.” 34 C.F.R. § 106.33. Title IX and its regulations do not address gender identity. However, the federal government treats a student’s gender identity as the student’s sex for purposes of Title IX and its implementing regulations. In an opinion letter dated January 7, 2015, the DOE Office of Civil Rights (OCR) interpreted how Section 106.33 of the regulations should apply to transgender individuals. The letter provided that “When a school elects to separate or treat students differently on the basis of sex . . . a school generally must treat transgender students consistent with their gender identity.” G.G., ex rel. Grimm v. Gloucester Cnty. Sch. Bd., 822 F.3d 709, 715 (4th Cir. 2016), mandate recalled and stay granted by Gloucester Cnty. Sch. Bd. v. G.G., ex rel Grimm, 136 S. Ct. 2442 (2016). In Grimm, a transgender boy in his junior year of high school sued his school board for prohibiting him use of the boys’ restroom. Ultimately, the Fourth Circuit Court of Appeals deferred to the DOE’s position that prohibition against sex discrimination under Title IX requires educational institutions to give transgender students restroom and

locker room access consistent with their gender identity. Educational institutions across the country must develop or amend policies for use of restrooms and lockers rooms by transgender students or risk losing federal funding. On May 13, 2016, the United States Departments of Justice and Education Civil Rights Divisions (the Departments) jointly issued guidance for schools regarding the civil rights of transgendered students. The Departments stated that “[t]his guidance does not add requirements to applicable law, but provides information and examples to inform recipients about how the Departments evaluate whether covered entities are complying with their legal obligations.” See U.S. Departments of Justice and Education, Dear Colleague Letter on Transgender Students, at p. 1, available at https://www.justice. gov/opa/file/850986/download (Letter). Under the Letter, when a student or the student’s parent or guardian notifies the school administration that the student will assert a gender identity that differs from previous representations or records, the school must begin treating the student consistent with the student’s gender identity. When the notification occurs, a school may not require that the student provide a medical diagnosis or proof of treatment as a condition of the school treating students consistent with their gender identity. The guidance asserts that — Continued on next page

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“[a]s is consistently recognized in civil rights cases, the desire to accommodate others’ discomfort cannot justify a policy that singles out and disadvantages a particular class of students.” Letter, at p. 2. Thus, a school’s failure to treat students consistent with their gender identity may create or contribute to a hostile work environment in violation of Title IX. Id. As part of a school’s equal treatment of transgender students, staff and contractors must use pronouns and names consistent with the student’s gender identity. Id., at p. 3. When a school provides sex-segregated activities and facilities, transgender students must be allowed to participate in such activities and access to such facilities consistent with their gender identity. Id. For restrooms and locker rooms, a school may provide separate facilities on the basis of sex, but must allow transgendered students access to such facilities consistent with their gender identity. Id. Schools may not require transgendered students to use individual-user facilities when other students are not required to do so, but may make such options available to all students who voluntarily seek additional privacy. Id. In the case of athletics, however, the Letter does not require schools to treat a student’s gender identity as the student’s sex for the purpose of Title IX compliance. Id. Instead, the Letter leaves intact Title IX regulations allowing schools to restrict athletic teams to members of one biological sex. Id. The only change that the Letter makes to athletic programs is that schools may not “rely on overly broad generalizations or stereotypes” about students. Id. Otherwise, differentiating sports teams on the basis of sex—not gender identity—is consistent with the Letter. On May 25, 2016 officials from 11 states: Alabama, Georgia, Louisiana,

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Oklahoma, Tennessee, Texas, Utah, West Virginia, and Wisconsin, plus Arizona’s Department of Education and Maine’s governor filed suit against the federal government seeking to have the Departments’ guidance declared unconstitutional. The lawsuit, captioned Texas v. United States, was brought in the United States District Court for the Northern District of Texas seeking declaratory and injunctive relief. Texas v. United States, No. 7:16-cv-00054-O (N.D. Tex. May 25, 2016). In Illinois, on December 2, 2015, the Department of Education Office of Civil Rights (OCR) entered into an agreement with Township High School District 211 following a complaint brought by a biologically male student who identifies as a female seeking the right to use the girls’ locker rooms at her high school. OCR Case No. 05-14-1055, http:// www2.ed.gov/documents/press-releases/ township-high-211-agreement.pdf. The agreement provided that based on the student’s representation that she will change in private changing stations in the girls’ locker rooms, the District agreed, among other items, to provide the female student access to locker room facilities designated for female students at school and to take steps to protect the privacy of its students by installing and maintaining sufficient privacy curtains (private changing stations) within the girls’ locker rooms to accommodate the female student and any students who wish to be assured of privacy while changing. In response to this agreement, a group representing 73 parents and 63 students impacted by the Department of Education’s legislative rule defining sex in Title IX to include gender identity filed suit on May 4, 2016 in the United States District Court for the Northern District of Illinois against the federal and state government, Cook County, and District

211 seeking injunctive and declaratory relief finding the Department of Education’s legislative decree to be unlawful. Students and Parents for Privacy v. U.S. Dept. of Educ., No. 16-cv-4945 (N.D. Ill. May 4, 2016) at Doc. No. 1. This lawsuit is currently pending. While the Departments of Justice and Education have taken a strong stance on students’ equal access to the restrooms or locker rooms based on gender identity, the success of employees making similar arguments in claims brought under Title VII or the equal protection clause has been mixed. Not surprisingly, the EEOC’s position is that denial of gender identity appropriate restroom access was a form of sex discrimination under Title VII. Lusardi v. McHugh, Appeal No. 0120133395 (E.E.O.C. Apr. 1, 2015). On the other hand, the district court in Johnston v. University of Pittsburgh, No. 3:13-213 (W.D. Pa. Mar. 13, 2015), rejected an equal protection claim brought by a transgender student seeking access to the male locker room and restroom. Ultimately, in light of the pending federal lawsuits in North Carolina and Texas, this issue is likely headed to the United States Supreme Court. Employer Guidance Published by State and Federal Agencies Whether currently actionable in the Seventh Circuit or not, claims of sex discrimination and/or gender identity/ transgender status are on the rise. The EEOC reports that in fiscal year 2015, the EEOC received 1,412 charges that included such allegations, representing an increase of 28% over the total LGBT charges filed in 2014. What You Should Know About EEOC and the Enforcement Protections for LGBT Workers, EEOC, available at https:// www1.eeoc.gov//eeoc/newsroom/wysk/

enforcement_protections_lgbt_workers. cfm?renderforprint=1. In 2015, the EEOC resolved 1,135 LGBT charges including voluntary agreements in which employers paid approximately $3.3 million in monetary relief for affected workers and agreed to change policies so that discrimination would not recur. Id. A number of federal and state agencies provide guidance to employers on LGBT issues. The EEOC published a brochure titled Preventing Employment Discrimination Against Lesbian, Gay, Bisexual or Transgender Workers, EEOC, available at https://www1.eeoc. gov//eeoc/publications/brochure-gender_stereotyping.cfm?renderforprint=1. The United States Office of Personnel Management has also issued gender identity guidance for federal employment that may be useful for all employers. Guidance Regarding the Employment of Transgender Individuals in the Federal Workplace, U.S. Office of Pers. Mgmt., available at https://www.opm.gov/ policy-data-oversight/diversity-andinclusion/reference-materials/genderidentity-guidance/. The guidance recommends that agencies evaluate and consider eliminating gender-specific dress and appearance rules and once an employee has informed management that he or she is transitioning, the employee should apply dress codes in the same way that such codes are applied to employees of that gender. Id. All employees should be required to use the names and pronouns appropriate to the gender the employee is then presenting at work. Id. The Illinois Department of Human Rights (IDHR) provides training for employers on issues related to discrimination of employees based on sexual orientation. In the IDHR manual, LGBTQI & U Out and Equal in the Workplace: Building Bridges with

In light of the federal and state government’s increasing protections for the rights of LGBT employees and students, employers and educators should educate themselves on the various laws and interpretations and develop policies that are in compliance with such laws.

LGBTQI Employees, IDHR presents recommendations and guidelines for managerial employees such as never asking an employee whether they are a “real” man or woman; never asking an employee if (s)he is the man or woman in a relationship; not requiring transgender individuals to provide proof of gender unless all person are asked to verify their gender; and not attempting to disclose or “out” someone based on their sexual orientation or transgender status. Building Bridges, Guide for Managerial Employees. IDHR recommends that managers allow employees to have access to the bathroom, locker room, and changing room of the gender that the employee identifies with. IDHR further recommends that managers interrupt discriminatory behaviors as they occur and ensure confidentiality when an employee’s sexual identify is shared with a manager but not widely known in the workplace. Id. On June 1, 2015, OSHA published a guide regarding restroom access for transgender works. A Guide to Restroom Access for Transgender Workers, OSHA, https://www.osha.gov/Publications/ OSHA3795.pdf. In this publication, OSHA presented guidance for employers on best practices for employers to adopt regarding restroom access for transgender employees. The publication references the Transgender Law Center’s

model employer policy that contains an extensive section on restrooms. Model Transgender Employment Policy, available at http://transgenderlawcenter. org/issues/employment/modelpolicy. On May 3, 2016, the EEOC released a document titled “Fact Sheet: Bathroom Access Rights for Transgender Employees Under Title VII of the Civil Rights Act of 1964” (Fact Sheet), available at https://www.eeoc.gov/eeoc/publications/ fs-bathroom-access-transgender.cfm. The Fact Sheet states that Title VII’s prohibition of invidious discrimination on the basis of sex extends to gender identity. It further provides that employers that do not allow employees to use the bathroom and other intimate facilities of their choosing are liable for unlawful discrimination on the basis of sex. In light of the federal and state government’s increasing protections for the rights of LGBT employees and students, employers and educators should educate themselves on the various laws and interpretations and develop policies that are in compliance with such laws. For those employers and educators who are opposed to these legal developments, they must be prepared to argue their position in court, potentially lose federal funding, or trust that a higher court issues an injunction or declaratory relief finding that the government’s current legal interpretations are unconstitutional.

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Supreme Court Watch M. Elizabeth D. Kellett HeplerBroom LLC, Edwardsville

What Information Must be Given to the Public in Order to Satisfy the Open Meeting Act’s Public Recital Requirement? Board of Education of Springfield School District No. 186 v. Attorney General, No. 120343, Fourth District No. 4-14-0941 The plaintiff, the Board of Education of Springfield School District No. 186 (Board), voted to terminate the employment of its superintendent. Bd. of Educ. of Springfield School Dist. No. 186 v. Attorney General, 2015 IL App (4th) 140941, ¶ 1. During a closed meeting on February 4, 2013, six of the seven Board members signed the Separation Agreement and Release. Bd. of Ed. of Springfield, 2015 IL App (4th) 140941, ¶ 6. On March 1, 2013, the Board published the agenda of its March 5, 2013 public meeting on its website. Id. ¶ 6. The agenda listed “Approval of a Resolution regarding the Separation Agreement and Release Between Superintendent Dr. Walter Milton, Jr. and the Board.” Id. ¶ 7. The Board’s website also included a link to the entire Agreement. Id. ¶ 39. At the March 5, 2013 public meeting, the Board’s president stated: I have item 9.1, approval of a resolution regarding the . . . Agreement. The Board president recommends that the Board . . . vote to approve the . . . Agreement between . . . Milton . . . and the Board. Id. ¶ 7. The Board then approved the Agreement and dated it March 5, 2013. Id. 10 | IDC QUARTERLY | Fourth Quarter 2016

One of the defendants, who was acting on behalf of a local newspaper, notified the other defendant, the Attorney General of Illinois (AG), that the Agreement was signed and approved in violation of the Open Meetings Act (Act) (5 ILCS 120/1). Id. ¶ 8. Section 2(e) of the Act provides: Final Action. No final action may be taken at a closed meeting. Final action shall be preceded by a public recital of the nature of the matter being considered and other information that will inform the public of the business being conducted. 5 ILCS 120/2(e). The AG investigated and found that (1) signing the Agreement at the February 4, 2013 closed meeting constituted a final action in violation of section 2(e) of the Act; and (2) if the Agreement was ratified at the March 5, 2013 public meeting, the Board still violated section 2(e) of the Act because “it failed to adequately inform the public of the nature of the matter under consideration or the business being conducted.” Id. ¶ 9. The Board sought administrative review of the AG’s opinion. Id. ¶ 10. The circuit court found that the AG erred when it concluded that signing

the Agreement at the February 4, 2013 closed meeting was a final action, but remanded as to the issue of whether the Board adequately informed to public. Id. Following remand, the AG again concluded that the Board did not adequately inform the public in violation of section 2(e). Id. ¶ 11. Specifically, the AG found: [T]he Board’s posting of the . . . Agreement on its website did not constitute a public recital during an open meeting within the scope of section 2(e) of [the Act]. Further, the few comments made during the discussion leading to the vote were insufficient to provide the public with information from which it might comprehend the purpose and effect of the Board’s action. Id. The matter returned to the circuit court, which again reversed the AG’s opinion. Id. ¶ 12. The circuit court found

About the Author M. Elizabeth D. Kellett is an associate at HeplerBroom LLC. Ms. Kellett is a litigation attorney with a primary emphasis in the defense of complex, multi-party civil cases and class actions, including all aspects of product liability, particularly pharmaceutical drugs and devices. Prior to joining HeplerBroom, Ms. Kellett practiced law in Washington, D.C. and represented institutions of higher learning in administrative hearings and proceedings before the U.S. Department of Education. She also represented insurance and financial corporations and individuals in proceedings before the Securities and Exchange Commission, civil and criminal litigation, and in matters of corporate governance and compliance. Ms. Kellett earned her B.A. from Georgetown University in Washington D.C. in 2002 and her J.D. from Georgetown University Law Center in 2006.

Reviewing the case de novo, the Illinois Appellate Court Fourth District affirmed the circuit court’s judgment. The Fourth District first held that signing the Agreement during the February 4, 2013 closed meeting did not constitute a final action because “a ‘final action,’ as contemplated by the Act, can only occur at a properly conducted public forum where the public entity expresses its opinion.”

that the AG improperly expanded the Act by requiring that “the public body explain the significance of the final action to be taken” instead of simply advising the public of the nature of the final action. Id. The AG appealed. Reviewing the case de novo, the Illinois Appellate Court Fourth District affirmed the circuit court’s judgment. Id. ¶¶ 23, 45. The Fourth District first held that signing the Agreement during the February 4, 2013 closed meeting did not constitute a final action because “a ‘final action,’ as contemplated by the Act, can only occur at a properly conducted public forum where the public entity expresses its opinion.” Id. ¶ 31. Citing Grissom v. Board of Education of Buckley-Loda Community School District No. 8, 55 Ill. App. 3d 667 (1977), the Fourth District also noted that section 2 of the Act “does not prohibit holding closed sessions to consider information regarding appointment, employment or dismissal of an employee.” Id. ¶ 33. Second, the Fourth District held that the Board adequately informed the public about the Agreement as required by section 2(e). In support of this decision,

the Fourth District noted that the agenda for the public meeting was posted on the Board’s website, the website included a link to the entire Agreement, and the Board “introduced the Agreement consistent with the general terms of the agenda and recommended that the Board approve the item.” Id. ¶ 39. The Fourth District found that these facts satisfied section 2(e)’s requirements because “[a] s written, section 2(e) of the Act requires that the public entity advise the public about the general nature of the final action to be taken and does not, as the AG claims, require that the public body provide a detailed explanation about the significance or impact of the proposed final action.” Id. ¶ 42. The AG now seeks review by the Illinois Supreme Court. First, the AG argues that the Fourth District’s holding is inconsistent with section 2(e) of the Act and the Act’s purpose of keeping the public “informed as to the conduct of their business.” 5 ILCS 120/1. Section 2(e) not only requires that the public be informed about the “general nature of the final action” but also requires a public recital of “other information that

will inform the public of the business being conducted.” 5 ILCS 120/2(e). Therefore, in order for the public to be properly informed, the Board should have provided the public with a summary of the Agreement’s key provisions. The AG next notes that the Fourth District’s decision, that the contents of an agenda may satisfy section 2(e)’s public recital requirement and that section 2(e) only requires public bodies to inform the public of the general nature of contemplated final action, has rendered the public recital requirement of section 2(e) meaningless. Section 2.02 of the Act already requires public disclosure of meeting agendas that “set forth the general subject matter of any resolution or ordinance that will be the subject of final action at the meeting.” 5 ILCS 120/2.02(c). Therefore, according to the AG, section 2(e)’s public notice requirement must require something more than just satisfying section 2.02. The AG also points out that, while beneficial, posting an agenda on a website ignores the fact that many people lack Internet access and may not review an agenda before attending a public meeting. Therefore, public meetings should be conducted so that members of the public who are in attendance are adequately informed even if they did not review the agenda. Finally, the AG argues that the Fourth District erred when it relied on Grissom to find that the Board validly approved the Agreement during the March 5 open meeting. Grissom held that a school board did not violate the Act when it wrote and signed findings dismissing a teacher in a closed session and then, in an open meeting, publicly acknowledged those signatures. Grissom, 75 Ill. 2d at 327. The AG argues that Grissom is — Continued on next page

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distinguishable because it was decided before the Act was amended to add the public recital requirement to section 2(e). Because here the Board failed to comply with the public recital requirement, no final action was taken at the March 5 meeting and the Board effectively and improperly took final action at the Febru-

ary 4 closed meeting. The AG urges the Supreme Court to overturn the Fourth District’s holding because the Board’s actions were inconsistent with the Act’s purpose of keeping the public “informed as to the conduct of their business.” 5 ILCS 120/1.

When Sued Under FELA, Can a Railroad Ever Argue That a Third Party Was The Sole Cause of an Injury? Wardwell v. Union Pacific R.R. Co., No. 120438, Fifth District No. 10-L-106 The plaintiff is a railroad company employee (employee). Wardwell v. Union Pacific R.R. Co., 2016 IL App (5th) 140461, ¶ 3. The defendant is Union Pacific Railroad Company and the plaintiff’s employer (Union Pacific). Wardwell, 2016 IL App (5th) 140461, ¶ 1. The plaintiff was injured in a car accident when a professional driver, who hired by Union Pacific to drive the plaintiff and two other employees, was rear-ended by a drunk driver. Id. ¶ 4. There was a dispute regarding how long the professional driver was in the lane before being rear-ended. Id. ¶ 7. The professional driver testified that she was in the lane for 20 seconds. Id. The employee testified that she was in the lane for one or two seconds. Id. The professional driver also testified that she “failed to check her rearview mirror and failed to look over her right shoulder to check her blind spot prior to changing lanes just before the collision occurred.” Id. ¶ 17 The employee sued Union Pacific under the Federal Employers’ Liability Act (FELA), 45 U.S.C. § 51, based on the 12 | IDC QUARTERLY | Fourth Quarter 2016

negligent acts of Union Pacific’s driver. Under FELA: Every common carrier by railroad while engaging in commerce . . . shall be liable in damages to any person suffering injury while he is employed by such carrier in such commerce . . . for such injury . . . resulting in whole or in part from the negligence of . . . such carrier .... 45 U.S.C. § 51. Therefore, an employee can recover his entire damages from his railroad employer even if the railroad’s negligence only partially caused the employee’s injury. Wardwell, 2016 IL App (5th) 140461, ¶¶ 13, 14. At trial, Union Pacific argued and presented evidence that the sole cause of the accident was the drunk driver. Id. ¶ 5. The employee moved to exclude this argument and evidence, arguing that FELA does not permit a sole cause defense based on a nonrailroad third-party’s negligence. Id. The trial

court denied the employee’s motion and allowed Union Pacific to present a sole cause defense. Id. The jury found in favor of Union Pacific. Id. ¶ 9. The employee moved for judgment notwithstanding the verdict and to vacate the jury verdict or for a new trial, arguing that, under FELA, Union Pacific should not have been allowed to present a sole cause defense. Id. The trial court denied the employee’s motions and the employee appealed. Id. Reviewing the case for an abuse of discretion, the Illinois Appellate Court Fifth District reversed the trial court’s order, finding that Union Pacific did not have the right to present a sole cause defense. Id. ¶ 11. Citing Rogers v. Missouri Pacific Railroad Co., 352 U.S. 500, 506-507 (1957), the Fifth District described the issue before it as “whether the conclusion may reasonably be drawn that the [Railroad’s] negligence played any part at all in the injury.” Id. ¶ 18. If the answer was yes, the Railroad should not have been allowed to present a sole-cause defense. The Fifth District first noted that, under FELA and as held by Norfolk Western Railway Co. v. Ayers, 538 U.S. 135, 165-66 (2003), if a railroad’s negligence played any part in producing the injury, the railroad is liable and there will be no apportionment of damages between railroad and nonrailroad causes even if the injury was also caused in part by the actions of a nonrailroad third party. Id. ¶ 14. Moreover, the railroad is liable even if the injury was not probable or foreseeable. Id. ¶ 15. Next, the Fifth District stated that the employee presented “a significant amount of evidence of [the Railroad’s] negligence” including the fact that the professional driver failed to comply with her training. Id. ¶ 16. Therefore,

the jury could have reasonably made the inference that the Railroad was negligent and the employee met his burden under FELA. Id. ¶ 18. Under Ayers, the Fifth District noted, “[a] nonrailroad third party’s alleged negligence is inadmissible when evidence is presented, albeit entirely circumstantial, that the railroad contributed to the injury.” Id. ¶ 20. Because “the jury could have reasonably concluded that [the Railroad] was negligent, at least in part . . . the trial court erred in permitting [the Railroad’s] sole cause defense.” Id. Justice Moore filed a dissenting opinion, finding that the jury was properly instructed on FELA and there was evidence to sustain the jury’s verdict that the Railroad was not negligent. Id. ¶¶ 36, 37. Justice Moore first noted that, while FELA does not permit apportionment of damages between a railroad and a nonrailroad third-party, there is “nothing in the law that stands for the proposition . . . that the mere production of testimony that could be construed by a jury as evidence of the negligence of the railroad precludes the railroad from putting forth additional evidence in the case, and a jury from considering, that a third party was the sole cause of the injury.” Id. ¶ 37. Contrary to the majority opinion, Justice Moore found that the Rogers opinion did not require taking the causation question away from the jury. Id. ¶ 38. Rather, under Rogers, a verdict should not be disturbed if it is supported by the evidence. Id. ¶ 39. Because the jury could have concluded that the professional driver was in her lane for 20 seconds before the accident, the jury could have properly found that the Railroad was free of negligence. Id. ¶ 40. Finally, Justice Moore noted that, under Inman v. Baltimore & Ohio Railroad Co., 361 U.S. 138 (1959),

Reviewing the case for an abuse of discretion, the Illinois Appellate Court Fifth District reversed the trial court’s order, finding that Union Pacific did not have the right to present a sole-cause defense. sole cause evidence must be considered in determining whether plaintiff has a FELA claim. Id. ¶ 41. In Inman, a drunk driver hit a railroad employee and the jury found that the railroad was negligent because it did not provide enough protection for its employee. Id. The Supreme Court affirmed reversal of the jury verdict because there was no evidence that the railroad was negligent. Id. According to Judge Moore, Inman shows that “one simply cannot make a factual determination as to whether the railroad was a cause, at least in part, of the accident if one does not consider all of the circumstances surrounding the occurrence, including whether another party was the sole cause. Id. The Railroad seeks review in Illinois Supreme Court. First, the Railroad argues that the majority opinion conflicts with FELA. Under FELA, a railroad is liable if it is wholly or partially negligent. When the Fifth District held that the sole cause defense was inadmissible, it removed the jury’s ability to consider all of the circumstances in the case, including whether the railroad was a cause, in part, of the accident. The Railroad further points out that, under the Fifth District’s opinion, a FELA defendant can never argue that a third party was the sole cause of an injury. This conflicts with numerous cases in which railroads were permitted to present sole causes defenses at trial and the jury was instructed on the sole

cause defense. Second, the Railroad argues that the Fifth District’s opinion conflicts with Illinois caselaw. In Mikus v. Norfolk and Western Railway Co., 312 Ill. App. 3d 11, 15 (1st Dist. 2000), the jury heard evidence that would support a finding of negligence on the part of the railroad. Yet, the jury received the same sole-cause defense instruction as in this case. Mikus, 312 Ill. App. 3d at 107-08. The court held that it was not an abuse of discretion to provide a sole cause defense instruction. Id. at 108. In Lowe v. Norfolk and Western Railway Co., 124 Ill. App. 3d 80 (5th Dist. 1984), multiple defendants were sued but only one remained at the time of trial. Lowe, 124 Ill. App. 3d 80. Despite this fact, the court still gave a sole cause defense instruction because “[a]ll that is required to justify the giving of an instruction is that there be some evidence in the record to justify the theory of the instruction.” Id. at 118. In light of these decisions, the Railroad argues, the trial court properly allowed the sole cause defense. Third, the Railroad argues that the Fifth District’s opinion conflicts with federal caselaw. In Armstrong v. Kansas City Southern Railway Co., 752 F.2d 1110 (5th Cir. 1985), a taxi hired by a railroad was hit by a drunk driver and a railroad employee was injured. Armstrong, 752 F.2d at 1112-13. Despite the fact that there was evidence of the taxi — Continued on next page

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driver’s negligence, the railroad was allowed to present a sole-cause defense. Id. at 1113-14. Similarly, in Inman, the U.S. Supreme Court upheld reversal of a jury verdict against a railroad company where the railroad played no part in plaintiff’s injury. Inman, 361 U.S. at 140. Finally, the Railroad distinguishes the cases cited by the Fifth District. Despite the fact that Rogers held that a FELA jury should not be deprived of determining causation, the majority holds that where an employee has produced evidence from which a jury could reasonably infer the railroad’s negligence, the railroad should not be allowed to argue that another party was the sole cause of the injury. And although Norfolk & Western Railway Co. v. Ayers holds that FELA damages cannot be apportioned between multiple joint tortfeasors (a railroad and a third party), once a railroad has been adjudged negligen, the Fifth District incorrectly stated that Ayers held that a third party’s negligence is inadmissible when evidence is presented that the railroad contributed to the injury. However, the holding in Ayers applies only after a railroad has been found negligent and says nothing regarding whether a railroad can argue that a third party was wholly negligent, which was the sole cause defense the Railroad asserted at trial. Norfolk & Western Ry. Co. v. Ayers, 538 U.S. 135 (2003).

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Appellate Practice Corner Scott L. Howie Pretzel & Stouffer, Chartered, Chicago

Blumenthal v. Brewer: Supreme Court Rule 304(a) Finding Not Enough for Appellate Jurisdiction An entire volume could be written—or at least a whole column—on the myths and misconceptions that surround appellate practice and procedure. This edition of the Appellate Practice Corner reviews a recent decision in which the Illinois Supreme Court disposed of one such mistaken impression: the notion that a finding under Supreme Court Rule 304(a) makes an otherwise nonfinal order appealable. Blumenthal v. Brewer, 2016 IL 118781. In Blumenthal, the supreme court held that Illinois public policy continues to preclude unmarried cohabitants from bringing claims against one another to enforce mutual property rights where the rights asserted are rooted in a marriage-like relationship between the parties. Blumenthal, 2016 IL 118781, ¶¶ 74-82. While that principle deserves a volume of its own, this column is concerned with a procedural issue that arose from the defendant’s appeal of the dismissal of her counterclaim. Although the circuit court dismissed five distinct counts of the counterclaim and made a written finding pursuant to Illinois Supreme Court Rule 304(a), the supreme court held that the finding did not give the appellate court jurisdiction over four of the five counts of the counterclaim, and that the appellate court had erred in considering that portion of the appeal. This column examines the reasons for that holding and its implications for attorneys who are considering pursuing appeals under Rule 304(a).

Facts of Blumenthal Blumenthal was a partition action arising from the dissolution of a domestic partnership. The parties were a same-sex couple who had maintained a long-term domestic relationship but had never married. Blumenthal, 2016 IL 118781, ¶ 2. After the parties’ relationship ended, the plaintiff filed a complaint seeking partition of the Chicago home they jointly owned. Id. The defendant “counterclaimed for various common-law remedies, including sole title to the home as well as an interest in [the plaintiff’s] ownership share in a medical group so that the couple’s overall assets would be equalized now that the couple had ended their relationship.” Id. ¶ 3. All but one of the counterclaim’s five counts concerned the disposition of

About the Author Scott L. Howie is a partner at Pretzel & Stouffer, Chartered, in Chicago, specializing in post trial and appellate practice in the state and federal courts. He received his undergraduate degree from Northwestern University in 1989 and his law degree from ChicagoKent College of Law in 1994. Mr. Howie is a member and past director of the Illinois Appellate Lawyers Association, where he co-chairs the Moot Court Committee.

the same home that was the subject of the original partition action. Id. ¶ 9. The remaining count sought a constructive trust over the annual net earnings or the sale of the plaintiff’s share of her medical practice, or in the alternative, restitution of funds that the plaintiff had appropriated from the couple’s joint account to purchase the practice. Id. The plaintiff moved to dismiss the counterclaim pursuant to the supreme court’s holding in Hewitt v. Hewitt, 77 Ill. 2d 49 (1979), which held that Illinois public policy, as set forth in the statutory prohibition against common-law marriage, precludes unmarried cohabitants from bringing claims against one another to enforce mutual property rights where the rights asserted are rooted in a marriage-like relationship. Blumenthal, 2016 IL 118781, ¶¶ 3, 10 (citing Hewitt, 77 Ill. 2d 49). The circuit court agreed and dismissed the counterclaim in its entirety. It also made a written finding pursuant to Supreme Court Rule 304(a) that there was no just reason to delay enforcement or appeal of the order. Id. ¶¶ 3, 24; see Ill. S. Ct. R. 304(a) (eff. Mar. 8, 2016). The defendant appealed the dismissal of her counterclaim, arguing that Hewitt should be rejected. Id. ¶ 4. The circuit court denied the defendant’s motion to stay the underlying partition proceeding while the dismissal of the counterclaim was on appeal, and the defendant did not seek review of that order. Id. ¶ 31. Without a stay, the parties continued to litigate the plaintiff’s partition action, which eventually led to a trial and resulted in a final judgment as to the parties’ respective shares in the ownership of the home. Id. ¶¶ 32-34. Neither party appealed that judgment, and the defendant eventually purchased the plaintiff’s share. Id. ¶ 35.

The appellate court later reversed the dismissal of the defendant’s counterclaim, agreeing with the defendant’s argument that changes in the state’s public policy had made Hewitt obsolete. Id. ¶ 5. The supreme court granted the plaintiff’s petition for leave to appeal. Appellate Jurisdiction Before examining the substantive issue of whether unmarried cohabitants could enforce claimed mutual property rights rooted in a marriage-like relationship, the court addressed the plaintiff’s argument that it did not have jurisdiction over certain aspects of the appeal. The plaintiff maintained that because four counts of the counterclaim concerned the disposition of the home—a matter that remained in dispute and was not resolved by the dismissal of those counts—those counts should not have been addressed in the appellate court and were not properly before the supreme court. Id. ¶ 21. The supreme court agreed, finding that the appellate court’s reversal of the dismissal of those counts was “fatally flawed” for procedural reasons unrelated to the substantive legal issues. Id. The principal flaw, the supreme court found, was that the appellate court lacked the jurisdiction to consider the appeal. Id. ¶ 22. As set forth in the Illinois Constitution, the appellate court has jurisdiction to hear appeals of final judgments entered by the circuit courts. Id. (citing Ill. Const. 1970, art. VI, § 6). Because the circuit court’s dismissal of the defendant’s counterclaim in Blumenthal left the plaintiff’s complaint for partition still to be litigated, the dismissal was not a final judgment within the meaning of the Illinois Constitution. The state constitution also authorizes the supreme court to enact rules allowing

for appeals of circuit court rulings and orders “other than final judgments.” Blumenthal, 2016 IL 118781, ¶ 22 (citing Ill. Const. 1970, art. VI, § 6). Pursuant to that constitutional authority, the supreme court enacted Rule 304(a), which permits an appeal of a “final judgment” that does not dispose of an entire proceeding “if the trial court has made an express written finding that there is no just reason for delaying either enforcement or appeal or both.” Ill. S. Ct. R. 304(a). The language of Rule 304(a) is significant in that it recognizes that the finality of a circuit court’s order does not depend on or require the disposal of the entire proceeding; an order may be “final” even as the parties continue to litigate other aspects of the same case. “An order or judgment is considered to be final and appealable for purposes of this rule if it terminates the litigation between the parties on the merits or disposes of the rights of the parties, either on the entire controversy or a separate part thereof.” Id. (emphasis added) (citing In re Marriage of Gutman, 232 Ill. 2d 145, 151 (2008)). The circuit court in Blumenthal had made the written finding required by Rule 304(a), which the defendant cited as the basis for appellate jurisdiction. Id. ¶ 24. But the supreme court recognized that a Rule 304(a) finding alone did not make for appellate jurisdiction; the ruling being appealed still had to qualify as a final judgment or order. Id. The finding “will make a final order appealable, but it will not confer appellate jurisdiction if the order is not final.” Id. (citing Kellerman v. Crowe, 119 Ill. 2d 111, 115 (1987), and EMC Mortgage Corp. v. Kemp, 2012 IL 113419, ¶ 14). — Continued on next page

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The dismissal of the counts that set forth the defendant’s theories for how the home should be partitioned did not meet the requirement of finality for purposes of Rule 304(a). “While the order need not dispose of all the issues presented by the pleadings, it must be final in the sense that it disposes of the rights of the parties, either upon the entire controversy or upon some definite and separate part thereof.” Blumenthal, 2016 IL 118781, ¶ 25 (emphasis added) (citing Kellerman, 119 Ill. 2d at 115). The dismissal of the counts containing the defendant’s partition theories related to the home did not meet this definition because the partition of the home remained a matter in dispute; it was the subject of the plaintiff’s complaint, which was still pending after the dismissal of the counterclaim. Those counts “arose from the same set of operative facts and sought precisely the same thing as the underlying cause of action asserted by [the plaintiff]: division of the value of the parties’ Chicago home.” Id. ¶ 26. The dismissal of the defendant’s theories did not resolve any distinct and separate part of the controversy: Rather than being distinct and separate from [the plaintiff’s] action, these counts merely advanced different analytical approaches for determining how the home or its proceeds should be allocated between the parties. They were, in effect, different iterations of the very same claim. When they were dismissed, the ultimate question—how the value of the residence should be split—remained unresolved. The dismissal served only to narrow the criteria applicable to that decision. Id. (emphasis added). 16 | IDC QUARTERLY | Fourth Quarter 2016

The supreme court compared the jurisdictional posture of Blumenthal to similar circumstances in which Rule 304(a) findings are ineffective to confer appellate jurisdiction over subjects that are still in dispute. The dismissal of fewer than all counts in a complaint, for instance, is not appealable—even with a Rule 304(a) finding—if the claim set forth in those counts is stated differently and continues to proceed in counts that remain pending. Id. ¶ 27 (citing Davis v. Loftus, 334 Ill. App. 3d 761, 766 (1st Dist. 2002)). Likewise, a finding under Rule 304(a) will not confer appellate jurisdiction over an order that “disposes only of certain issues relating to the same basic claim[.]” Blumenthal, 2016 IL 118781, ¶ 27 (citing In re Marriage of Leopando, 96 Ill. 2d 114, 119–20 (1983)). In the context of counterclaims, such as the one at issue in Blumenthal, most tort cases are unlikely to involve the sort of mirror-image counts in which opposing parties allege opposite or adverse versions of essentially the same claims. But such counterclaims are common in other settings. Contract disputes, for instance, including insurance-coverage matters, frequently involve competing interpretations of contracts or agreements. A defendant in such a case might respond to the plaintiff’s complaint with a counterclaim, containing a “different analytical approach” and offering the defendant’s own answer to the “ultimate question” posed by the complaint. See Blumenthal, 2016 IL 118781, ¶ 26. Blumenthal stands for the proposition that the dismissal of those claims, even accompanied by a Rule 304(a) finding, will not be appealable as long as the plaintiff’s original claims on the same subjects remain pending. It also bolsters the principle, set forth in Davis and Leopando, that the dismissal of part of a

plaintiff’s complaint may not be appealable under Rule 304(a) if the remaining parts concern the same issues or claims. Blumenthal is the latest decision to set forth the principle that a written finding under Rule 304(a) is not dispositive of jurisdiction and does not necessarily make an order appealable. See Blumenthal, 2016 IL 118781, ¶ 24. The supreme court’s disposition of the jurisdictional issue evokes AT&T v. Lyons & Pinner Electric Co., 2014 IL App (2d) 130577, in which the appellate court dismissed an appeal that had been filed pursuant to Rule 304(a), concluding that the circuit court had abused its discretion in making the written finding. The appellate court in AT&T set forth the factors that a circuit court must consider when determining if there is any just reason for delaying the appeal: “(1) the relationship between the adjudicated and unadjudicated claims; (2) the possibility that the need for review might or might not be mooted by future developments in the [trial] court; (3) the possibility that the reviewing court might be obliged to consider the same issue a second time; (4) the presence or absence of a claim or counterclaim which could result in set-off against the judgment sought to be made [appealable]; [and] (5) miscellaneous factors such as delay, economic and solvency considerations, shortening the time of trial, frivolity of competing claims, expense, and the like.” AT&T, 2014 IL App (2d) 130577, ¶ 22 (quoting Geier v. Hamer Enters., Inc., 226 Ill. App. 3d 372, 379 (1st Dist. 1992) (quoting Allis-Chalmers Corp. v. Philadelphia Elec. Co., 521 F.2d 360, 364 (3d Cir. 1975))) (editorial brackets added in AT&T). But the judge who made the finding in AT&T had considered none of these factors; rather, he had made the Rule

304(a) finding because he felt that a disputed legal issue deserved appellate review. AT&T, 2014 IL App (2d) 130577, ¶¶ 25-26. The appellate court acknowledged that he was not required to give any reasons for making the finding—but since he had done so, the court observed, his reasons were relevant to assessing its validity. Id. ¶ 27. The appellate court further suggested that the issue being appealed might have been suitable for an interlocutory appeal under Supreme Court Rule 308, which has considerably different procedural requirements. Id. ¶ 28 (citing Ill. S. Ct. R. 308 (eff. Jan. 1, 2016)). In Blumenthal, the jurisdictional problem with the Rule 304(a) finding was the first prong of the rule: the circuit court’s dismissal of the counterclaim was not actually final. In AT&T, the problem was the second prong: the circuit court had not actually determined there to be no just reason to delay enforcement or appeal, even though its order said that it had. Both cases, however, speak to the broader principle that a reviewing court should not reflexively accept a Rule 304(a) finding as determinative of appellate jurisdiction, but should consider the finality of the order at issue, the lower court’s stated reasons for making the finding, and whether the claim being appealed can be severed from those claims still in dispute. Apart from the jurisdictional defect created by the insufficient Rule 304(a) finding in Blumenthal, the supreme court found a second procedural flaw unrelated to jurisdiction: In refusing to apply existing supreme court precedent to the issue of whether the partition counts were legally recognizable without a marital relationship, the appellate court had effectively overruled precedent handed down by a higher court—something it

had no authority to do. Blumenthal, 2016 IL 118781, ¶ 28. The supreme court further held that the defendant’s appeal of the dismissal of the partition-related counts in the counterclaim could not proceed because it could lead to a decision inconsistent with the final judgment on the partitionrelated issues in the plaintiff’s complaint. After the defendant’s counterclaim was dismissed, the partition-related issues were ultimately tried and reduced to a final judgment. Id. ¶¶ 36-37. While the defendant had moved to stay the proceedings on the plaintiff’s partition action while the appeal was pending, the circuit court had denied that motion, and the defendant had not appealed that order—as she could have done, under Supreme Court Rule 307. Id. ¶ 39 (citing Ill. S. Ct. R. 307(a)(1) (eff. Feb. 26, 2010)). Nor had she appealed the circuit court’s final decision on the plaintiff’s complaint for partition. Rather, the defendant had accepted the circuit court’s partition ruling and purchased the plaintiff’s share of the property according to the court’s valuation. Id. ¶¶ 40, 43. This would have foreclosed her from pursuing the partition-related counts of her counterclaim even if they had been properly appealed. Id. ¶ 41. Were a reviewing court to reinstate the defendant’s residence-partition counts, the supreme court observed, a subsequent decision on those counts might contradict the decision that had already been rendered on the plaintiff’s complaint. Id. ¶ 42. Skeptical of the notion that “the circuit court could undo its final judgment, set aside the partition, and consider anew how the value of the home should be divided,” the supreme court noted that such an outcome would be barred by the doctrine of res judicata, which is meant to allow disputes that have been resolved

to remain concluded. Id. ¶¶ 38, 42. Such a result, it held, “would be tantamount to permitting [the defendant] to proceed with a new and separate action with respect to division of the home’s value,” which the court rejected as “impermissible.” Id. ¶ 41. Conclusion The supreme court’s jurisdictional holding in Blumenthal serves as a stark reminder that a Rule 304(a) finding is not conclusive for purposes of establishing appellate jurisdiction. When a circuit court dismisses some but not all of a party’s claims, and the subject matter of the dismissed claims concerns a subject that remains pending in the circuit court, a Rule 304(a) finding does not dispositively confer appellate jurisdiction. It may not always be as obvious as it was in Blumenthal that the dismissed claims concern the same subject matter as those that are still pending, and there may be room for argument as to whether the same subject matter is at issue. Prudence may call for filing a notice of appeal in all but the most obvious cases, so as not to forfeit a legitimate appeal. But an appellee should not hesitate to cite Blumenthal as authority for the dismissal of an appeal when the subject matter of the dismissed claim or claims remains in dispute in the circuit court. Each case will differ, of course, and reasonable people may differ as to whether the still-pending counts concern the same issue as those that were dismissed—but when there is a colorable argument that they do, Blumenthal may be authority for dismissing the appeal.

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Civil Rights Update John P. Heil, Jr. Heyl, Royster, Voelker & Allen, P.C., Peoria

Animal Abuse Case Provides Reminder as to the Low Federal Pleading Standard The Court of Appeals for the Seventh Circuit’s recent opinion in Neita v. City of Chicago, No. 15-1404, 2016 U.S. App. LEXIS 13191 (7th Cir. July 19, 2016), reaffirmed the low bar plaintiffs face in successfully pleading 42 U.S.C. § 1983 claims in federal court. In so doing, the court reminds us that the summary judgment stage—and not the pleading stage—is the true “put up or shut up” moment for civil rights plaintiffs. Background The facts in Neita are simple. The plaintiff owned a dog-grooming business called “A Doggie Business.” Neita, 2016 U.S. App. LEXIS 13191, at *2. He claimed that he brought two dogs—one that was overly aggressive and killed another dog, and another that became ill after whelping a litter of puppies—to the Chicago Department of Animal Care and Control for help. Id. Upon observing the dogs, an Animal Control employee called the police. Two Chicago police officers arrived, interviewed the Animal Control worker, and arrested the plaintiff. Id. The plaintiff was prosecuted for animal cruelty and for breaching various animal owners’ duties under state law. He was acquitted of all charges. Id. The plaintiff timely filed a section 1983 suit against, among others, the arresting police officers and the City of Chicago. Id. at *2, *7. His complaint included constitutional claims for false arrest and illegal searches of his person, 18 | IDC QUARTERLY | Fourth Quarter 2016

his vehicle, and his business. Id. at *2-3. The defendants prevailed twice on motions to dismiss the complaint brought pursuant to Federal Rule of Civil Procedure 12(b)(6). Neita, 2016 U.S. App. LEXIS 13191, at *3. On the second occasion, the district court dismissed the complaint with prejudice. The court held that the plaintiff was unable to articulate a violation of his constitutional rights, and that further amendment would be futile under the circumstances. Id. This appeal followed. The Seventh Circuit reversed the trial court’s ruling finding that the plaintiff adequately pleaded deprivations of his Fourth Amendment rights. Id. at *1-2. The court’s analysis may be useful to defense counsel when considering whether to challenge the sufficiency of a pleading through a Rule 12(b)(6) motion. The Plaintiff’s False Arrest Claim The Seventh Circuit’s analysis began with the plaintiff’s false arrest claim. To substantiate a false arrest claim at trial, the plaintiff must show that the police lacked probable cause for the arrest. Probable cause exists if, “at the time of the arrest, the facts and circumstances within the officer’s knowledge . . . are sufficient to warrant a prudent person, or one of reasonable caution, in believing, in the circumstances shown, that the suspect has committed, is committing, or is about to commit an offense.” Id. at *4 (quoting Thayer v. Chiczewski, 705

F.3d 237, 246 (7th Cir. 2012)). The Neita court observed that the determination of probable cause depends upon the elements of the underlying criminal offense. Neita, 2016 U.S. App. LEXIS 13191 at *4 (citing Stokes v. Bd. of Educ., 599 F.3d 617, 622 (7th Cir. 2010)). The court analyzed the elements of the animal cruelty offense and the statutory language explaining an animal owner’s duties in Illinois, then turned its attention to the complaint. Neita, 2016 U.S. App. LEXIS 13191, at *4-5 (citing 510 ILCS 70/3 and 70/3.01). It boiled down the plaintiff’s false arrest claim as alleging that the plaintiff “showed up at Animal Control to surrender two dogs, neither of which showed signs of abuse or neglect, and was arrested without any evidence that he had mistreated either dog.” Neita, 2016 U.S. App. LEXIS 13191, at *5-6. This was sufficient for pleading purposes. The court found that, if the plaintiff’s allegations were true, “no reasonable person would have cause to believe that Neita had abused or neglected an animal.” Id. at *6. It consequently

About the Author John P. Heil, Jr. is a partner in the Peoria office of Heyl, Royster, Voelker & Allen, P.C., where he chairs the firm’s drone law practice group and is vice-chair of the business and commercial litigation practice group. He also regularly defends complex civil rights cases, qui tam actions and catastrophic tort suits in state and federal court. Prior to joining Heyl Royster in 2007, Mr. Heil was an Assistant State’s Attorney in Cook County for eleven years. He received his undergraduate degree from Bradley University in 1993 and his law degree from Chicago-Kent College of Law, with honors, in 1996. He is a member of the Illinois Association of Defense Trial Counsel, the Federal Bar Association, the Illinois State Bar Association, the Peoria County Bar Association, and the Abraham Lincoln American Inn of Court.

Successfully pleading false arrest is, of course, easier than proving it. After all, “as long as a reasonably credible witness or victim informs the police that someone has committed, or is committing, a crime . . . officers have probable cause.”

reversed the district court’s dismissal of the false arrest claim. Id. at *2. Successfully pleading false arrest is, of course, easier than proving it. After all, “as long as a reasonably credible witness or victim informs the police that someone has committed, or is committing, a crime . . . officers have probable cause.” Spiegel v. Cortese, 196 F.3d 717, 723 (7th Cir. 1999). At summary judgment and beyond, the officer’s first-hand observations of the appearance of the animals (alleged by the defense to be “patently indicative of abuse or neglect”) may yet prove crucial. Neita, 2016 U.S. App. LEXIS 13191, at *6. Multiple Searches Attacked Through Multiple Doctrines The complaint further alleged that the arresting officers violated the plaintiff’s Fourth Amendment rights through illegal searches of his person, his vehicle, and his business. Id. The Seventh Circuit found that the plaintiff sufficiently pleaded each claim for different, but important, reasons. First, the complaint alleged that the officers illegally searched the plaintiff’s person at the time of his arrest. Id. A search incident to lawful arrest is a well-established exception to the Fourth Amendment’s warrant requirement, so the district court dismissed this claim.

On appeal, the Seventh Circuit easily found that, because the plaintiff successfully pleaded false arrest, this claim must necessarily proceed. Id. at *6-7. Next, the complaint claimed that, after his arrest, the two police officers took Neita’s car keys and proceeded to search his vehicle without his consent. Id. at *7. This claim did not debut until the plaintiff’s second amended complaint, which was filed after the two-year limitations period controlling section 1983 claims filed in Illinois expired. The district court, therefore, dismissed the claim as untimely. Id. On appeal, the plaintiff conceded that he filed this claim late, but argued that it was saved by the relation-back doctrine. Neita, 2016 U.S. App. LEXIS 13191, at *8. Federal Rule of Civil Procedure 15(c)(1)(B) provides that an amendment to a complaint relates back to the filing date of the original, timely pleading if the amendment sets forth a claim arising out of the same conduct, transaction, or occurrence described in the original pleading. Id. The doctrine applies if the defendant has sufficient notice of the nature and scope of the new claim from the original pleading such that the amendment does not result in surprise. Id. (quoting Santamarina v. Sears, Roebuck & Co., 466 F.3d 570, 573 (7th Cir. 2006)). The court found that the “relevant transaction” in this case was the plain-

tiff’s arrest. Neita, 2016 U.S. App. LEXIS 13191, at *8. Because the subsequent search of his car flowed from the arrest, the original complaint put the defendants on notice “that they would have to defend against all claims arising out of this encounter, including the related search of Neita’s vehicle.” Id. at *8-9. The Seventh Circuit consequently reversed the district court’s ruling as to the vehicle search, as well. Finally, the plaintiff argued on appeal that the search of his business was also erroneously dismissed. Id. at *9. In analyzing this argument, the court noted that the Fourth Amendment’s protections against warrantless searches extend to commercial properties. Id. (citing Dow Chem. Co. v. United States, 476 U.S. 227, 237-38 (1986)). The district court dismissed this claim on qualified immunity grounds, ruling that the officers possessed the statutory authority, pursuant to section 10 of the Humane Care for Animals Act, 510 ILCS 70/10, to “‘enter during normal business hours upon any premises where the animal or animals described in the complaint are housed or kept, provided such entry shall not be made into any building which is a person’s residence, except by search warrant or court order.’” Neita, 2016 U.S. App. LEXIS 13191, at *9 (quoting section 10 of the Act). In following Illinois law, the officers “did not violate any clearly established statutory or constitutional rights of which a reasonable person would have known.” Id. at *9-10. Again, the Seventh Circuit disagreed with the district court. It interpreted the complaint as alleging that the officers either never received a complaint of abuse or neglect to animals or, alternatively, that they knew such complaints were false. Id. at *10. This interpretation — Continued on next page

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necessarily removed reliance upon the Humane Care for Animals Act as a defense. For pleading purposes, the court found that the plaintiff sufficiently pleaded an unlawful search of his business premises. Id. Although qualified immunity may still prove effective at summary judgment, the Seventh Circuit was unwilling to apply it here without discovery. Conclusion: Is a Motion to Dismiss the Right Move? The Neita decision provides a succinct review of the federal pleading standard applicable to run-of-the-mill section 1983 claims. The defendants presented a number of arguments that, if made in a summary judgment motion, may have carried the day. A Rule 12(b) (6) motion, on the other hand, must contend with notice pleading and its low “plausibility” standard as articulated in Bell Atlantic Corporation v. Twombly, 550 U.S. 544, 570 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). So long as a complaint alleges a plausible cause of action, it will be difficult to secure a dismissal that will survive appellate review. Although all efforts to end a case at the pleading stage should be considered, the better part of valor may dictate patience until a well-supported motion for summary judgment can be filed. Previewing one’s arguments early, as occurred here, may dictate the course of discovery such that unwelcome questions of material fact may jeopardize an otherwise dispositive motion down the road.

Feature Article Donald Patrick Eckler and Ashley S. Koda Pretzel & Stouffer, Chartered, Chicago

Against the Wind: Practical and Ethical Implications of Artificial Intelligence in the Practice of Law The Rules of Professional Conduct are slow to adjust to changes in the practice of law and as the pace of technological innovation increases, it can be expected that the rules will lag behind. This will leave attorneys to navigate these issues armed with rules that are illequipped to address the challenges that are coming. Many of those challenges are not even known. While it is unlikely in the foreseeable future that we will see a true “robot lawyer” try a case, artificial intelligence is already being used to do legal research. Cecil De Jesus, AI Lawyer “Ross” Has Been Hired by its First Official law Firm, Futurism (May 11, 2016), http://futurism. com/artificially-intelligent-lawyer-rosshired-first-official-law-firm/. The ethical implications of such developments are legion. Lawyers have the obligation to “keep abreast of changes in the law and its practice, including the benefits and risks associated with relevant technology.” Ill. Rule of Prof’l Conduct 1.1, cmt. 8. Lawyers also have the duty to supervise non-lawyer staff. Ill. Rule of Prof’l Conduct 5.3. These potentially competing obligations, and more, will challenge lawyers in their own practice and the practice of law as a whole. Background Since at least the 1970s, the legal profession has been uncomfortable

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with technological advances that, on the surface, seem to circumvent the demand for lawyers. According to Professor Ronald Staudt at Chicago-Kent College of Law, at that time, the ABA had a debate on whether Lexis should provide publicaccess terminals showcasing federal statutes, case law and tax documents.

About the Authors Donald Patrick Eckler is a partner at Pretzel & Stouffer, Chartered, handling a wide variety of civil disputes in state and federal courts across Illinois and Indiana. His practice has evolved from primarily representing insurers in coverage disputes to managing complex litigation in which he represents a wide range of professionals, businesses and tort defendants. In addition to representing doctors and lawyers, Mr. Eckler represents architects, engineers, appraisers, accountants, mortgage brokers, insurance brokers, surveyors and many other professionals in malpractice claims. Ashley S. Koda is an associate at Pretzel & Stouffer, Chartered. Prior to joining Pretzel & Stouffer, she worked at an in-house counsel firm for a national insurance company. She earned her J.D., cum laude, from Chicago-Kent College of Law. While in law school, she worked as a law clerk at an insurance defense firm, as a Judicial Extern for the Honorable Franklin Valderrama of the Circuit Court of Cook County, and as an intern for Chicago-Kent’s Criminal Defense Clinic. Additionally, Ms. Koda was the recipient of the CALI Excellence for the Future Award for her performance in Complex Litigation.

Interview with Ronald W. Staudt, Professor, Chicago-Kent College of Law, in Chi., Ill. (Aug. 11, 2016). Today, it is almost impossible to imagine a world where the public does not have instant access to “the law.” Nearly every opinion of the courts of review, published and unpublished, is available free to the public on websites maintained by those courts. In addition, websites like Cornell’s Legal Information Institute fill the internet with statutes, ordinances, regulations, rules, court opinions, and other information. It would be absurd to argue that these websites are engaging in the practice of law. But consider sites that go several steps further and use artificial intelligence to provide assistance to the public. Take, for example, www.DoNotPay. co.uk, a site created by 19-year-old Stanford student, Joshua Browder, that touts itself as the “World’s First Robot Lawyer.” This website has two purposes: to help drivers contest parking tickets in New York City and the United Kingdom; and, to help flyers obtain compensation for delayed flights. The website works by allowing the user to sign up (for free) and to then proceed to answer questions such as, “Which of these best describes why you shouldn’t receive a parking ticket?” The website offers twelve options from which to choose, including, among others: my car was stolen; I entered the incorrect date on a permit; missing details on the ticket; and problem with the signage. The user chooses one of these options and the website generates a form in which to enter information concerning the circumstances of the ticket. Mr. Browder explained that he spoke with attorneys before creating this website because the issue of legality was one of his main concerns. Telephone Interview with Joshua Browder, Creator, www.DoNotPay.co.uk (Aug. 8, 2016).

He contends that he is not engaging in the practice of law, and compares his website to self-help sites such as LegalZoom, which provide pre-packaged forms to the public. Professor Staudt tends to agree. However, some believe that Mr. Browder’s website (and sites like LegalZoom) constitutes the unlicensed practice of law. How does Illinois Define the “Practice of Law”? Proponents of self-help legal websites that provide forms for the public’s use argue that “[o]nline legal help systems just provide information. Words. They do not do anything physically.” Marc Lauritsen, Are We Free to Code the Law?, 56 Communications of the ACM 60, 62 (2013). Nor do they provide legal advice. When a user enters their information into Mr. Browder’s website, they are simply entering information into a form. Professor Staudt analogizes the website’s code to a “decision tree.” The code is the same for every user; but the outcome is different depending on the selections the user makes. Unlike legal advice, it is not personalized. It is simply the entry of data into a blank template, which generates an answer (similar to a search engine). The Illinois Supreme Court has defined the practice of law as “[t]he giving of advice or rendition of any sort of service by any person, firm or corporation when the giving of such advice or rendition of such service requires the use of any degree of legal knowledge or skill.” People ex rel. Illinois State Bar Ass’n v. Schafer, 404 Ill. 45, 51 (1949). This definition may be overinclusive and outdated. With the advent of legal self-help and the public’s ease of access to online statutes, regulations

and case law, the definition may no longer represent what the law should be. Notwithstanding this evolution, it could be that Mr. Browder’s Robot Lawyer is engaging in the practice of law. In fact, the Illinois State Bar Association advises that “the practice of law is not limited to appearing in court, but also the giving of advice or rendering of any service requiring the use of any legal skill or knowledge. This includes, for example, the preparation of documents.” ISBA and the Unauthorized Practice of Law—What the Public Needs to Know, available at www.isba.org/sites/ default/files/committees/upl/uplfaq.pdf. While the website prepares generalized legal forms in the literal sense, it does not prepare forms for each individual based on their needs. There seems to be little difference between providing legal information available to the public, such as the propriety of a parking ticket, and advising someone on how to dispose of their property, which requires deeper legal analysis. Analyses such as the latter are not available in neat rules, but rather are formed by applying many rules to the facts of a particular case and invoking legal knowledge beyond what is gathered by reading a statute. The Cook County Circuit Court distinguishes legal advice from legal information as follows: “‘legal information’ is a description of the law and the legal process whereas ‘legal advice’ involves analyzing the application of the law to a litigant’s situation or making a suggestion of what action a litigant should take on a legal issue.” Cir. Ct. Cook Co. Ill. R. 13.4, comm. cmt. (eff. Jan 6, 2016). While this rule applies specifically to domestic relations proceeding, the distinction between advice and information likely transcends all areas of — Continued on next page

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the law. It is unclear whether the Robot Lawyer is providing legal advice under this definition. The application gathers information from an individual, inserts it into a decision tree and provides the best available pre-packed form for that individual’s situation. While the written code analyzes the situation, it does not “suggest” anything. Is an Attorney-Client Relationship Created? Other ethical issues exist with websites that provide self-help legal services and computer generated forms. Does the website form an attorneyclient relationship? And further, do these websites hold themselves out to be lawyers? An attorney-client relationship is a “consensual relationship that forms when the attorney and the client both consent to its formation.” Wildey v. Paulsen, 385 Ill. App. 3d 305 (1st Dist. 2008). This requires the client to authorize the attorney to work on his or her behalf, and the attorney to accept that authority. Assuming that online self-help legal services like those discussed in this article constitute legal advice, Illinois would probably hold that an attorney client relationship has been formed. By logging on to one of these websites, the user consents to the site’s terms and conditions. In turn, the creator of the website accepts the user’s authorization by providing its services. However, under the comments to Illinois Rule of Professional Conduct 1.18, “[a] person who communicates information to a lawyer, without any reasonable expectation that the lawyer is willing to discuss the possibility of a client-lawyer relationship is not a ‘prospective client.’” Ill. Rule of Prof’l Conduct 1.18, cmt. 2. 22 | IDC QUARTERLY | Fourth Quarter 2016

Some legal self-help websites disclaim that such a relationship exists. LegalZoom, for example, states that it is “not a law firm or a substitute for an attorney or law firm” and that it “cannot provide any kind of advice . . . or recommendation about possible legal rights.” See www.legalzoom.com. Therefore, one commentator writes, “users of LegalZoom do not likely form a reasonable expectation that an attorney-client relationship exists with the company, because the disclaimer that such a relationship will not exist must be agreed upon by the user before the requested document can be purchased.” Lindzey Schindler, Skirting the Ethical Line: The Quandary of Online Legal Forms, 16 Chap. L. Rev. 185 (Spring 2012). On the other hand, users of www. DoNotPay.co.uk arguably do agree to an attorney-client relationship. That site’s disclaimer does not contain language similar to LegalZoom’s. It disclaims warranties and liabilities but it fails to clarify that it is not a substitute for an attorney. See www.DoNotPay.co.uk. In the absence of this disclaimer, the Robot Lawyer may very well be establishing an attorney-client relationship every time a user logs in to appeal a parking ticket. Other Jurisdictions and the Newfangled “Practice of Law” While Illinois has not had the occasion to determine whether legal self-help websites constitute the practice of law, other jurisdictions have. The Court of Appeals for the Ninth Circuit, for example, considered a scenario in which a non-attorney ran a website that prepared bankruptcy petitions and offered informational guides advising on various aspects of bankruptcy law. In re Reynoso, 477 F. 3d 1117 (9th Cir. 2007). When the

site generated a bankruptcy petition, it asked the user to agree to the terms and conditions which stated, in relevant part, that the contents of the petition are based on the user’s own research and that “no one gave [him] legal advice or told [him] to include or omit any information from [his] documents.” Reynoso, 477 F.3d at 1121. However, the court found that the website was the unauthorized practice of law because it held itself out to be offering legal services and compared itself to a “top-notch bankruptcy lawyer.” Id. at 1125. The court further noted that the software went “far beyond providing clerical services. It determined where (particularly, in which schedule) to place information provided by the debtor, selected exemptions for the debtor and supplied relevant legal citations. Providing such personalized guidance has been held to constitute the practice of law.” Id. at 1126. Unlike the software in Reynoso, the Robot Lawyer does not provide “personalized” guidance as it simply inputs a user’s information: name, address and why the user believes that they were wrongly issued a ticket. Inputting this information into a pre-programmed appeal form could be seen as more akin to a clerical, rather than legal, service. LegalZoom has been a defendant in numerous lawsuits alleging the unauthorized practice of law. Some states have found it to be engaged in the practice of law while others, like South Carolina, have found otherwise. In Medlock v. LegalZoom.com, Inc., the court characterized LegalZoom’s business as the seller of “interactive self-help form documents” and described the consumer’s role as “creat[ing] legal documents using an automated process.” Medlock v. LegalZoom.com, Inc., No. 2012-208067, 2013 S.C. Lexis 362, at

The Court of Appeals for the Ninth Circuit, for example, considered a scenario in which a non-attorney ran a website that prepared bankruptcy petitions and offered informational guides advising on various aspects of bankruptcy law.

*4 (2013). South Carolina recognizes a “scrivener” exception to the practice of law: “A scrivener is ‘someone who does nothing more than record verbatim’ what the . . . [customer] says.” Medlock, 2013 S.C. Lexis, at *17. The court distinguished this from the preparation of forms that actually involves the giving of advice, consultation, explanation, or recommendations on matters of law. Id. at *15. To the extent the website’s role is to take a user’s information and insert it into a form and not to advise, consult, or recommend on matters of law, South Carolina would likely consider the Robot Lawyer to be more of a Robot Scrivener.

vided to consumers and the inclusion of a disclosure that it is not a substitute for the advice or services of an attorney. N.C. Gen. Stat. § 84-2.2(a)(2) (2016). The provider may not disclaim warranties or liability, and the provider must offer a consumer satisfaction process. N.C. Gen. Stat. §§ 84-2.2(a)(5) and (a)(7) (2016). In response to the North Carolina legislation, the FTC and DOJ drafted a joint letter in support of websites like Mr. Browder’s and recommended that North Carolina consider the benefits to consumers. They requested the state loosen the requirements for disclosures. The agencies wrote:

Where does this Leave the Law?

Interactive software for generating legal forms may be more cost-effective for some consumers, may exert downward price pressure on licensed lawyer services, and may promote the more efficient and convenient provision of legal services. Such products may also help increase access to legal services by providing consumers additional options for addressing their legal situations.

Whether or not online legal services constitute the practice of law, perhaps the better question is, should they? According to the Federal Trade Commission and the United States Department of Justice, the answer seems to be a resounding no. In June 2016, the General Assembly of North Carolina enacted a law that effectively cools the business of legal selfhelp websites. While this law excludes interactive self-help websites like www. DoNotPay.co.uk from the definition of “practice of law,” its conditions are stringent. They require, among other things, that the website provider has an attorney review each blank template pro-

Joint Letter from Marina Lao, Director, Office of Policy Planning, Federal Trade Commission and Robert Potter, Chief of the Legal Policy Section of the Antitrust

Division, U.S. Department of Justice to Bill Cook, North Carolina Senator (June 10, 2016), https://www.ftc.gov/system/ files/documents/advocacy_documents/ comment-federal-trade-commissionstaff-antitrust-division-addressing-northcarolina-house-bill-436/160610commentncbill.pdf . Further, the agencies contend that some laws defining the “practice of law” are unnecessarily broad (perhaps such as Illinois’), and belief that these laws will “inhibit the development of innovative ways to deliver legal services to consumers.” Joint Letter, supra, at 3. Accordingly, the FTC and DOJ recommend narrowing the definition to one incorporating just two elements: (1) where specialized legal skills are necessary to effectuate the transaction; and (2) a client relationship of trust or reliance exists. Id. The Illinois Supreme Court could potentially take the position of the FTC/ DOJ. A few years ago, it promulgated a new Supreme Court Rule providing for uniform, automated, state court forms. Ill. S. Ct. R. 10-101. According to Professor Staudt, the Supreme Court’s actions are just like Mr. Browder’s—it is providing pre-packaged forms to consumers. Interview with Ronald W. Staudt, supra. If a litigant uses one of these forms, such as a petition to approve a minor’s settlement, is the Illinois Supreme Court engaging in the practice of law? Is the Supreme Court providing legal advice? Common sense dictates that it is simply providing easily accessible legal information. So, too, is Mr. Browder. If coding the law is not the same as practicing the law, is it unconstitutional to prohibit it? If states determine that self-help legal websites such as www.DoNotPay. co.uk constitute the practice of law, those — Continued on next page

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states, according to some commentators, may be violating the First Amendment’s right to free speech. According to Professor Staudt, writing code is like writing a book. Id. Writing a book is protected by the First Amendment’s guarantee of free speech. There is a fine line between practicing the law and speaking about the law. An individual does not need a law license to read aloud a statute. Nor would she need a law license to write a blog post, available to the masses. Conclusion The profession has debated the use of legal information in the public domain for over 40 years. As the Internet becomes more powerful than ever before, the profession will likely continue to debate the distinction between legal advice and legal information well into the future. In the next ten years, we are likely to see more opinions come down regarding the ethics of such websites and whether their prohibition violates the First Amendment. Internet based legal services are providing services to consumers that they desire and at prices they are willing to pay. If the Rules of Professional Conduct and the laws related to the practice of law are to be anything more than protecting lawyers’ jobs, the profession must adapt to these new technologies and determine if there are ways to incorporate these technologies into the practice. Lawyers also will have to contend with whether, and to what extent, they can assist in the development of such online legal services.

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Medical Malpractice Update Dede K. Zupanci HeplerBroom LLC, Edwardsville

The Relevancy of a Medical Expert’s Own Personal Practice Illinois cases speak to the proposition that the standard of care of the defendant-physician in a medical malpractice case must be established through testimony of an expert witness. Borowski v. Von Solbrig, 60 Ill. 2d 418, 423 (1975). That witness must be familiar with the issues that are the subject of the alleged negligence. Garley v. Columbia LaGrange Mem. Hosp., 351 Ill. App. 3d 398, 407 (1st Dist. 2004). The expert has typically performed the same procedure, made the same diagnoses, or otherwise experienced similar patient conditions as the defendant physician. A natural and possibly important question then arises for the expert: What would you have done? But is an expert’s personal practice admissible, and is it relevant. It is well-established in Illinois that a medical expert’s personal practice cannot be the exclusive foundation for establishing standard of care. Schmitz v. Binette, 368 Ill. App. 3d 447, 461 (1st Dist. 2006) (citing Walski v. Tiesenga, 72 Ill. 2d 249, 261-62 (1978)). However, the subject may be relevant to a jury for evaluating the credibility of an expert and his or her opinions, especially in the case where the expert’s practice differs from the defendant’s. Schmitz, 368 Ill. App. 3d. at 461. The Illinois Supreme Court weighed in on this issue in Walski v. Tiesenga, 72 Ill. 2d 249 (1978). In Walski, the plaintiff received treatments for her thyroid over several years, including prior surgeries that left scar tissue. Walski, 72 Ill. 2d at 253. Plaintiff began experiencing post-

operative difficulty breathing and speaking following a subtotal thyroidectomy performed by the defendant, general surgeon. Id. Plaintiff filed suit, alleging that the surgeon failed to identify the left recurrent laryngeal nerve and because of this failure, the nerve was severed, resulting in her injuries. Id. at 254. The trial court entered a directed verdict in favor of the defendants after the plaintiff failed to present evidence of the standard of care to which the general surgeon must adhere. Id. at 252. The Illinois Appellate Court First District affirmed, as did the Illinois Supreme Court. At issue was whether the testimony of the plaintiff’s expert established the standard of care on identifying the laryngeal nerve during a thyroidectomy. Id. at 255. Plaintiff’s expert stated that he could only testify “on the basis of my own opinion as to what I consider the proper option.” Id. He also could not say whether other institutions taught differently, he could speak to what was taught where he was trained.” Id. The expert never testified as to what the generally-accepted practice was in

About the Author Dede K. Zupanci is a partner in the Edwardsville office of HeplerBroom LLC. Her practice focuses on the defense of medical malpractice actions, as well as other healthcare litigation. She is a 2002 graduate of Saint Louis University School of Law.

this situation, and instead, plaintiff’s only evidence on standard of care was based upon the expert’s own personal practice. Id. at 259. The supreme court held that standard of care cannot be established solely by showing that another physician would have acted differently. Id. at 261. Cases decided since Walski have maintained this principle and illustrated when an expert’s own practice is relevant. For instance, a jury may find it relevant that the expert’s personal practice differs from what he has stated is the standard of care. Schmitz, 368 Ill. App. 3d at 459-62. In Schmitz, the plaintiff brought a claim alleging negligence against a gynecologist following surgery for urinary incontinence. Id. at 449. During surgery, the plaintiff claimed that a stitch was placed through her ureter, causing an obstruction. Id. The plaintiff’s expert testified that the defendant-physician deviated from the standard of care by not performing a dye test to verify the integrity of the ureter. Id. at 450. Contrarily, defendant’s expert testified that a dye test is not required to meet the standard of care. Id. However, defendant’s expert also testified at his discovery deposition that he routinely performs the dye test during bladder surgeries Id. Plaintiff’s counsel filed a motion in limine asking the court to allow cross-examination of the defense expert on that issue, and the court denied the motion, finding that the expert’s personal practice was not relevant because the expert’s practice met and exceeded the standard of care. Id at 451. The jury found for the defendant and the plaintiff appealed. Id. The Illinois Appellate Court First District reversed. Id at 462. Specifically, while the court agreed with Walski, and confirmed that an expert’s personal practice cannot be the exclusive foundation for establishing standard of care, it also held that what a

physician expert witness would do in the same situation that is at issue in the case is relevant to a jury in its evaluation of the expert’s credibility. Id. at 458. In Gallina v. Watson, 354 Ill. App. 3d 515 (4th Dist. 2004), the Illinois Appellate Court Fourth District distinguished Walski. The medical issue in Gallina involved the defendant surgeon’s decision not to operate on the patient’s ankle fracture. Gallina, 354 Ill. App. 3d at 517. In his discovery deposition, the defendant’s expert testified that he typically operates on Type II fractures, but may not operate on a Type I. Id. at 518. This was significant because the defendant testified that the ankle fracture was a Type II. Id. The trial court granted defendant’s motion in limine to exclude this testimony, finding that the defense expert’s personal practice was irrelevant to the determination of the standard of care. Id. at 517. Plaintiff appealed, and the appellate court reversed. Id. at 523. On appeal, the defendant relied upon Walski, arguing that the expert’s personal practice is irrelevant to the determination of the standard of care. Id. at 519. The Fourth District, however, found that while the defendant’s expert’s testimony did not establish that the defendant breached the standard of care, evidence of his personal practice is relevant because it can assist the fact finder in assessing the “credibility and persuasive value” of the expert’s opinions. Id. at 520. Similar to Schmitz, the appellate court distinguished Walski because in that case, the plaintiff presented no evidence to establish the standard of care other than the expert’s personal preferences. Id. at 519. The Gallina plaintiff did not rely upon the defense expert to establish his prima facie case. Likewise, the First District has also held that a defendant-physician may

not use an expert’s personal practice as evidence establishing that the defendant complied with the standard of care. Bergman v. Kelsey, 375 Ill. App. 3d 612 (1st Dist. 2007). In Bergman, plaintiff’s expert based his opinions in part on his work experience at various hospitals. Bergman, 375 Ill. App. 3d at 615. The defendant introduced guidelines from those hospitals upon cross-examination of the plaintiff’s expert for impeachment purposes. Id. at 622. However, at trial the defendant was barred from introducing hospital guidelines and testimony relating to the expert’s personal practice as evidence of standard of care. Id. at 634. Defendant argued that because he was allowed to impeach the expert with the guidelines, he should also be able to use that evidence to prove that he did not deviate from the standard of care. Id. at 635. The appellate court disagreed, however, finding that the defendant should not be able to introduce evidence of other physicians’ personal practice in establishing standard of care. Id. Conclusion The prevailing Illinois cases speak to the proposition that neither party may rely upon a medical expert’s personal practice to establish the standard of care in a medical malpractice case, and such testimony can be properly barred. However, expert testimony as to personal practice may well be relevant and admissible for the purpose of evaluating the credibility and opinions of the expert. In practice, counsel should be aware of what their experts would have done and what they typically do when faced with the same medical situation at issue in the case, and if it differs, they should have solid reasoning as to why it differs.

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Insurance Law Update Seth D. Lamden and Jill B. Berkeley Neal, Gerber & Eisenberg, LLP, Chicago

Coverage for Indemnity Claims in Illinois—Is That Indemnity Agreement You Just Drafted Really an “Insured Contract”? Contractual indemnification clauses are among the most overused and misunderstood rights that parties argue over and negotiate for in commercial contracts. In negotiating indemnification clauses, many attorneys take comfort in the belief that their client’s commercial general liability (CGL) policy will cover indemnity claims for bodily injury and property damage. In many instances, that belief is incorrect. This article provides an overview of Illinois law as it relates to CGL coverage for contractual indemnity claims under the “insured contract” exception to the exclusion in a standard CGL policy for liability assumed under contract. CGL Coverage for an Insured’s Assumption of Third-Party Tort Liability The insuring agreement in a standard CGL policy obligates the insurer to pay “those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’” that occurs during the policy period and is caused by an “occurrence” (i.e., an “accident”). (ISO CGL Coverage Form CG 00 01 04 13, Section I, Coverage A.) Often, the insured’s liability for bodily injury or property damage is the result of a negligence lawsuit brought directly against the insured. However, the insured also may become liable for 26 | IDC QUARTERLY | Fourth Quarter 2016

bodily injury or property damage because the insured agreed in a commercial contract to indemnify another party for bodily injury or property damage. The CGL insuring agreement does not distinguish between tort liability and contractual liability, but standard CGL policies contain “Contractual Liability” exclusions, which eliminate coverage for “‘[b]odily injury’ or ‘property damage’ for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” (ISO CGL Coverage Form CG 00 01 04 13, Section I at Exclusion (b)). The “Contractual Liability” exclusion is subject to an exception that restores coverage for liability “[a]ssumed in a contract or agreement that is an ‘insured contract,’ provided the ‘bodily injury’ or ‘property damage’ occurs subsequent to the execution of the contract or agreement . . . .” Id. The term “insured contract” is defined to include, among other things, “[t]hat part of any other contract or agreement pertaining to [the named insured’s] business . . . under which [the named insured] assume[s] the tort liability of another party to pay for ‘bodily injury’ or ‘property damage’ to a third person or organization. Tort liability means a liability that would be imposed by law in the absence of any contract or agreement.” Id. at Section V. When the CGL insuring agreement, “Contractual Liability” exclusion, and

definition of “Insured Contract” are read together, it would appear that a named insured, as an indemnitor, is entitled to coverage for a contractual indemnity claim brought by an indemnitee seeking damages for bodily injury or property damage caused by an occurrence. Under Illinois law, however, the scope of

About the Authors Seth D. Lamden is a litigation partner at Neal, Gerber & Eisenberg LLP in Chicago. He concentrates his practice on representing corporate and individual policyholders in coverage disputes with their insurers. In addition to dispute resolution, Mr. Lamden counsels clients on matters relating to insurance and risk management, including maximizing insurance recovery for lawsuits and property damage, policy audits and procurement, and drafting contractual insurance specifications and indemnity agreements. He obtained his B.A. from Brandeis University and his J.D., magna cum laude, from The John Marshall Law School. Jill B. Berkeley of Neal, Gerber & Eisenberg LLP chairs the firm’s Insurance Policyholder Practice Group. Ms. Berkeley represents policyholders and claimants in insurance coverage disputes involving toxic torts and hazardous wastes, environmental pollution, construction, products liability, intellectual property, first-party property, business interruption and excess liability matters. In addition to her robust litigation practice, Ms. Berkeley offers her clients strategic advice on insurance coverage to help them manage risk and has served as an arbitrator and mediator. She has counseled clients in connection with all types of insurance policies, including directors’ and officers’ and professional liability, commercial general liability, first-party property and builder’s risk, and personal and advertising injury liability. Her client base is focused on utilities, general contractors, manufacturers, professional service providers, financial institutions, trucking companies, and real estate developers, though her experience stretches to other industries as well.

As the Illinois Supreme Court has observed, “[t]here is an important distinction between contribution, which distributes the loss among the tortfeasors by requiring each to pay his proportionate share, and indemnity, which shifts the entire loss from one tortfeasor who has been compelled to pay it to the shoulders of another who should bear it instead.” “Insured Contract” coverage is much narrower than that. Many Indemnity Agreements Do Not Qualify as “Insured Contracts” in Illinois The Illinois Supreme Court has interpreted the “insured contract” exception to apply only in situations in which the named insured expressly assumes liability for the indemnitee’s own negligence. See Virginia Sur. Co., Inc. v. N. Ins. Co. of N.Y., 224 Ill. 2d 550, 565 (2007); Pekin Ins. Co. v. Designed Equip. Acquisition Corp., 2016 IL App (1st) 151689, ¶ 29 (“We find that an insured contract exists because the language of the indemnity provision clearly and explicitly evidences the parties’ intent that [the indemnitor] agreed to indemnify [the indemnitee] against [the indemnitee’s] own negligence.”). Under Illinois law, it is rare that an indemnity agreement would be construed to indemnify a party for that party’s own negligence. Although nothing in Illinois law prohibits parties from specifically contracting to provide for indemnity for one’s own negligence in non-construction related contracts, “[i]t is quite generally held that an indemnity contract will not be construed

as indemnifying one against his own negligence, unless such a construction is required by clear and explicit language of the contract or such intention is expressed in unequivocal terms.” Buenz v. Frontline Transp. Co., 227 Ill. 2d 302, 316 (2008) (citing Westinghouse Elec. Elevator Co. v. LaSalle Monroe Bldg. Corp., 395 Ill. 429, 433 (1946)). If an indemnification agreement does not expressly provide contractual indemnity for the indemnitee’s own negligence (i.e., “true” indemnity), the indemnitee’s indemnification rights will be limited to the liability arising out of the indemnitor’s negligence only, which is nothing more than an allocation provided by the Illinois Joint Tortfeasor Contribution Act, 740 ILCS 100/0.01. See Hankins v. Pekin Ins. Co., 305 Ill. App. 3d 1088, 1093 (5th Dist. 1999); McNiff v. Millard Maint. Serv. Co., 303 Ill. App. 3d 1074, 1077 (1st Dist. 1999); see also Liccardi v. Stolt Terminals, Inc., 178 Ill. 2d 540, 549-50 (1997); Braye v. Archer-Daniels-Midland Co., 175 Ill. 2d 201, 217-18 (1997). By way of example, an agreement that provides that “[Indemnitor] will indemnify the [Indemnitee] for claims relating to or arising from [Indemnitor’s] negligence or breach of this Agreement,” does not give rise to

an enforceable right to indemnification because that language does not contain any rights indicating that the indemnitor has agreed to provide indemnification for claims arising out of the indemnitee’s own negligence. This rule derives from the legal distinction between contribution and indemnity. As the Illinois Supreme Court has observed, “[t]here is an important distinction between contribution, which distributes the loss among the tortfeasors by requiring each to pay his proportionate share, and indemnity, which shifts the entire loss from one tortfeasor who has been compelled to pay it to the shoulders of another who should bear it instead.” Virginia Sur., 224 Ill. 2d at 555 (quoting W. Prosser, Handbook of the Law of Torts, sec. 51, at 310 (4th ed. 1971)). An “indemnity provision” that requires the indemnitor to “indemnify and hold harmless” the indemnitee for only the indemnitor’s negligence is not really indemnity at all, but is actually a form of contractual contribution (sometimes labeled “partial indemnity”). See Stevens v. Silver Mfg. Co., 70 Ill. 2d 41, 46 (1977) (“Although stated in terms of partial indemnity rather than contribution, the prayer for relief clearly seeks contribution based on the relative degree to which the employer’s misuse of the product or assumption of the risk contributed to cause plaintiff’s injuries.”). Under Virginia Surety, a “contractual contribution” or “partial indemnity” provision does not give rise to a valid claim for indemnification and would not constitute an “insured contract” in Illinois because it is not an assumption by the indemnitor of the indemnitee’s tort liability for the indemnitee’s own negligence. — Continued on next page

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Illustrative Case: Bituminous Casualty Corp. v. Plano Molding Co. Based on its plain language, the determination of whether there is coverage under the “Insured Contract” exception is based on the nature of the indemnitee’s liability to the third party (i.e., the liability assumed under contract), not the nature of the insured’s liability to the indemnitee. However, as noted above, the Illinois Supreme Court held in Virginia Surety, 224 Ill. 2d 550, that only an agreement to indemnify a third party for that party’s own negligence qualifies as an “insured contract” in Illinois. As illustrated by Bituminous Casualty Corp. v. Plano Molding Co., 2015 IL App (2d) 140292, the Virginia Surety holding has served to dramatically limit the scope of CGL coverage for liability assumed under contract. In Plano Molding, the insured, Plano, manufactured and sold storage boxes, which were produced from steel injection molds. In 2004, Plano ordered two molds from China. World Commerce Services (World) arranged to ship the molds from China to Illinois. World issued a bill of lading which defined “merchant” to include Plano. The bill of lading stated, in relevant part, that “[m] erchant warrants that the stowage and seals of the containers are safe and proper and suitable for handling and carriage and indemnifies Carrier for any injury, loss or damage caused by breach of this warranty.” Plano Molding, 2015 IL App (2d) 140292, ¶ 3. The molds were loaded onto a shipping container and transported by sea to California, at which time Union Pacific Railroad Company began transporting the molds by rail. The train derailed in

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Oklahoma when the molds broke through the floor of the rail car. Various cargo owners sued Union Pacific for damage to their cargo that occurred as a result of the derailment. Union Pacific, in turn, sued Plano, seeking reimbursement for the cargo owners’ property damage claims. Id. ¶ 4. Union Pacific’s lawsuit against Plano alleged counts for negligence and for contractual indemnity under World’s bill of lading. Plano’s CGL insurer defended Plano against Union Pacific’s lawsuit until the court in that lawsuit dismissed Union Pacific’s negligence counts, but held that Union Pacific had valid causes of action against Plano that stemmed from Plano’s contractual obligations under the bill of lading. Id. ¶ 5. Following that ruling, Plano’s CGL insurer denied coverage based on the contractual liability exclusion in Plano’s CGL policy. The contractual liability exclusion in Plano’s policy stated that the policy did not cover property damage “for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” Id. ¶ 9. Plano agreed with the insurer that the bill of lading was a contract and that the contractual liability exclusion applied to the claims under the bill of lading, but argued that the exception to the contractual liability exclusion for “insured contracts” restored coverage for Union Pacific’s claims. According to Plano, this exception restored coverage because Union Pacific was seeking indemnification for Union Pacific’s tort liability to the third-party cargo owners. In response, the insurer argued that the bill of lading was not an “insured contract” because Plano was only liable for its own breach of warranty under the

bill of lading and did not assume liability for Union Pacific’s negligence. Id. ¶ 10. The Plano Molding court agreed with the insurer, holding that the bill of lading was not an “insured contract” and, therefore, Union Pacific’s claims against Plano were not covered, because “a contract in which the insured agrees to indemnify against the insured’s own negligence is not an insured contract.” Id. ¶ 15 (citing Virginia Surety, 224 Ill. 2d at 565). As the Plano Molding court explained, the bill of lading provided that Plano would indemnify Union Pacific: “for any injury, loss or damage caused by breach of this warranty.” The language of the agreement unequivocally states that defendant warranted that the stowage and seals of the containers were safe and proper and suitable for handling and carriage. Therefore, defendant agreed to indemnify [Union Pacific] for [Plano’s] breach of those warranties. The agreement says nothing about indemnifying [Union Pacific] against [its] own negligence. It is generally held that an indemnity contract will not be construed as indemnifying the indemnitee against its own negligence unless such a construction is required by the clear and explicit language of the contract, or such intention is expressed in unequivocal terms. Plano Molding, 2015 IL App (2d) 140292, ¶ 18. In ruling in favor of the insurer, the Plano court also rejected the insured’s argument that tort liability can mean “tort-liability-as-imposed-by-law, rather than negligence.” Id. ¶ 16.

A Recent Decision by the Southern District of Illinois Provides Guidance for Drafting an “Insured Contract” The decision in BNSF Railway Co. v. Gilster-Mary Lee Corp., No. 15-cv-250, 2016 U.S. Dist. LEXIS 85332 (S.D. Ill. June 30, 2016), provides some guidance as to what an “insured contract” would look like under Illinois law. At issue in Gilster-Mary Lee was whether an indemnification agreement in a railroad shipping contract that included a provision for allocating liability when both the customer and shipper were liable for an injury qualified as an “insured contract.” The dispute between the insurer and insured centered on whether the indemnity provision in the shipping contract constituted an agreement by the customer to indemnify the shipper for the shipper’s own negligence. The indemnity agreement in BNSF Railway stated, on one hand, that the customer would indemnify the shipper for “any and all losses” and, on the other hand, that if both customer and shipper were negligent, they would apportion fault. See Gilster-Mary Lee, 2016 U.S. Dist. LEXIS 85332, at *7-8. The Gilster-Mary Lee court held that while an agreement to indemnify the shipper for “any and all losses,” without more, would constitute an agreement to indemnify the shipper for its own negligence, the inclusion of proportionate liability provisions in the agreement meant that there was no clear intent that the customer would indemnify the shipper for the shipper’s own negligence. Id. at *12-13. The court held that absent clear intent in the agreement that the customer would indemnify the shipper for the shipper’s own negligence, it could

not construe the indemnity agreement as indemnifying the shipper for its own negligence and, therefore, the indemnity agreement was not an “insured contract.” Id. at *14. As the court explained: Read together . . . the first and second sentences of the indemnity clause create uncertainty about if and when the parties intended for [Customer] to indemnify [Shipper] for its own negligence. The first sentence provides for full indemnity regardless of degree of fault; the second sentence provides for proportionate indemnity based on degree of fault. For example, assume [Shipper] and [Customer] were each partially at fault but [Shipper] is adjudged to have 100% liability under FELA based on breach of its non-delegable statutory duty to provide a reasonably safe work environment. Sentence one would provide for full indemnity from [Customer] for the entire judgment. Sentence two, on the other hand, would provide for indemnity for only [Customer’s] percentage of fault. Because the sentences are inconsistent with each other, they cannot be said to amount to the “clear and explicit language” or expression of intent “in unequivocal terms” as required . . . before an indemnity agreement will be read to indemnify a party for its own negligence.

Importantly, the court rejected the shipper’s argument that the agreement to indemnify the shipper for “any and all losses” constituted an agreement to indemnify the shipper for its own negligence when the customer was 0% at fault and the shipper was 100% at fault. Id. at *13-14. The court noted, however, that if that were the parties’ intent, the indemnity provisions could have been modified by: combining the two sentences and connecting them with, “. . . ; Provided, if any claim or liability shall arise from the joint or concurring negligence . . . .” That would imply the second sentence is an exception to the first. This understanding could also have been accomplished by introducing the second sentence with language such as, “Notwithstanding the foregoing, if any claim or liability shall arise from the joint or concurring negligence . . . .” Id. at *15. Conclusion It is a commonly-held assumption that a CGL policy covers bodily injury and property damage claims that fall within the broad indemnification agreements included in many commercial contracts. Some indemnitors may be surprised to learn that their indemnification obligations are, in fact, not broad enough to fall within the scope of “insured contract” coverage provided by their CGL policies.

Id. at *13-14.

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Commercial Law James K. Borcia Tressler LLP, Chicago

Supreme Court Holds that Concrete Harm is Required to Recover Statutory Damages The United States Supreme Court recently issued its long-awaited decision in Spokeo, Inc. v. Robins, 136 S. Ct. 1540 (2016), in which it was asked whether plaintiffs have Article III standing if they allege a bare violation of a statute (i.e., an injury in law) but no concrete harm (i.e., an injury in fact). The Court held that an injury in law alone is insufficient and that plaintiffs must plead and prove concrete harm in order to satisfy Article III. Spokeo Inc., 136 S. Ct. at 1549.

able procedures to assure maximum possible accuracy of” consumer reports, and the posting of toll-free numbers that consumers can call to request reports. 15 U.S.C. §§ 1681e(b) and 1681j(a), respectively. Robins also alleged that those violations were “willful,” which he hoped would entitle him—and every other member of a putative class—to statutory damages plus fees and costs under 15 U.S.C. § 1681n(a). Spokeo Inc., 136 S. Ct. at 1545. The district court

The Court reasoned that the “judgment of Congress” is “instructive and important” because the standing requirement “is grounded in historical practice” and Congress is “well positioned to identify intangible harms that meet minimum Article III requirements.

Spokeo is a search engine that provides information on people based on computerized searches in various databases. Id. at 1544. The plaintiff, Thomas Robins, filed suit against Spokeo because he learned that it had reported that he was in his fifties, employed, married, and affluent. Id. at 1546. Robins alleged that he is in fact younger, unemployed, unmarried, and of modest means. Id. Robins alleged that these inaccuracies resulted from various violations of the Fair Credit Reporting Act, which requires among other things the use of “reason30 | IDC QUARTERLY | Fourth Quarter 2016

dismissed his claim due to the lack of an injury-in-fact. Id. at 1546. The Court of Appeals for the Ninth Circuit reversed, reasoning that a “violation of a statutory right is usually sufficient injury in fact to confer standing.” Id. at 1544-45. The Supreme Court, in an opinion authored by Justice Alito, vacated the Ninth Circuit’s decision. The Court held that Article III is not satisfied unless an alleged injury is both “concrete and particularized.” Id. at 1548. Because the Ninth Circuit had “focused on the second characteristic (particularity)”

and “overlooked the first (concreteness),” the Court vacated the Ninth Circuit’s decision and remanded for further proceedings consistent with its opinion, which went on to clarify how the standing requirement should work in “no injury” cases. Id. at 1549. The Court reiterated that standing is an “irreducible constitutional minimum” and that it is “settled that Congress cannot erase Article III’s standing requirements by statutorily granting the right to sue to a plaintiff who would not otherwise have standing.” Id. The Court reasoned that the “judgment of Congress” is “instructive and important” because the standing requirement “is grounded in historical practice” and Congress is “well positioned to identify intangible harms that meet minimum Article III requirements.” Id. But it also made clear that that judgment is not conclusive, noting that Congress’ role in identifying and elevating intangible harms does not mean that a plaintiff automatically satisfies the injury-in-fact requirement whenever a statute grants a person a statutory right and purports to authorize that person to sue to vindicate that right. Id. The Court held that Article III standing requires a concrete injury even in the context of a statutory violation.

About the Author James K. Borcia is a partner with the Chicago firm of Tressler LLP, and is active in the firm’s litigation practice with an emphasis on commercial and complex litigation. He was admitted to the bar in 1989 after he received his J.D. from Chicago-Kent College of Law. Mr. Borcia is a member of the Chicago and Illinois State Bar Associations, as well as the IDC and DRI.

Workers’ Compensation Report For that reason, Robins could not, for example, allege a bare procedural violation, apart from any concrete harm, and satisfy the injury-in-fact requirement of Article III. In other words, although “Congress plainly sought to curb the dissemination of false information by adopting procedures designed to decrease that risk,” a private plaintiff “cannot satisfy the remands of Article III by alleging a bare procedural violation.” Id. at 1550. That is because some violations—for example the act of reporting “an incorrect zip code”—will not “work any concrete harm” and only plaintiffs who establish a “concrete harm” can satisfy Article III. Id. The Spokeo ruling is a victory for those defendants facing statutory damages claims and will likely have a significant effect on how “no injury” statutory damages cases are litigated. The decision also is particularly important in class actions, which represent most of these “no injury” cases, because it creates hurdles not only to stating a claim but also to seeking class certification. If named plaintiffs must prove that they have a “concrete harm” in order to establish a claim for statutory damages, it follows that they must also prove that unnamed plaintiffs also have suffered such harm in order to obtain certification. This standing requirement may prove to be an insurmountable obstacle to certification if the existence and concreteness of the alleged harm turns on individualized issues.

Bradford J. Peterson and Lynsey A. Welch Heyl, Royster, Voelker & Allen, P.C., Rockford

Commission Issues Proposed Amendments to Rules of Practice The Workers’ Compensation Commission recently issued proposals for amendments to its rules of practice. 2016 Illinois Register: Rules of Governmental Agencies, Ill. Sec. of State, vol. 40, issue 31, pp. 10149-10311 (July 29, 2016), available at https://www. cyberdriveillinois.com/departments/ index/register/register_volume40_ issue31.pdf. In reviewing the proposals, it is apparent that many of the changes were in order to update archaic, outdated rules. In fact, the Workers’ Compensation Commission, in the introduction to the Notice of Proposed Amendments, admits that many rules are being amended to reflect today’s practice and the implementation of an electronic database at the Commission. However, several proposed changes to the rules governing practice before the Workers’ Compensation Commission are regarding pre-arbitration, arbitration, and settlement and should be given some attention. The Notice of Proposed Amendments was made public and published in the Illinois Register. Pre-Arbitration Proposal for amendment to section 9020.10 includes exclusion of all ex parte communication. This includes Applications for Adjustment of Claim, Attorneys’ Appearances, Motions and Petitions for Review, and correspondence. In today’s practice, all email communication with the Workers’ Compensation Commission arbitrators,

commissioners, or assistants should include a carbon copy to opposing counsel. Section 9020.20 is being amended to include language requiring proper completion of an Application for Adjustment of Claim. The applications must — Continued on next page

About the Authors Bradford J. Peterson is a partner in the Rockford office of Heyl, Royster, Voelker & Allen, P.C. Mr. Peterson concentrates his practice in the defense of workers’ compensation, construction litigation, auto liability, premises liability, and insurance coverage issues. In recent years, Mr. Peterson has become a leader in the field on issues of Medicare Set Aside trusts and workers’ compensation claims. He has written and spoken frequently on the issue. He was one of the first attorneys in the State of Illinois to publish an article regarding the application of the Medicare Secondary Payer Act to workers’ compensation claims, “Medicare, Workers’ Compensation and Set Aside Trusts,” Southern Illinois Law Journal (2002). Lynsey A. Welch, a partner in the Rockford office of Heyl, Royster, Voelker & Allen, P.C., and dedicates a significant portion of her practice to the defense of workers’ compensation cases. She has authored a variety of articles on Workers’ Compensation law and Workers’ Compensation appeals. Ms. Welch is a graduate of Northern Illinois University College of Law and she received her undergraduate degree from the University of Illinois.

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Workers’ Compensation Report | continued

In reviewing the proposals, it is apparent that many of the changes were in order to update archaic, outdated rules. In fact, the Workers’ Compensation Commission, in the introduction to the Notice of Proposed Amendments, admits that many rules are being amended to reflect today’s practice and the implementation of an electronic database at the Commission.

now be completed in full when filed with the Commission. In practice, many applications are filed with such terms as “to be determined.” It remains to be seen whether this would qualify as proper completion under section 9020.20. In practice, if the Commission does not reject the application at the time of filing, a motion to dismiss the application may be reasonable to enforce this rule and require strict compliance. The existence of a “motion practice” before the Illinois Workers’ Compensation Commission is controversial to the petitioner’s bar. Section 9020.30 is being amended to require an attorney representation agreement to accompany an appearance filed by a petitioner’s attorney. The amendments to this section also allow subsequent counsel to file a motion for substitution of counsel supported by a properly executed attorney representation agreement. The motion for substitution will then be set for hearing before the arbitrator. In practice, this should streamline any substitutions when there is a lack of cooperation between counsel. The arbitrator, upon a showing of proper notice to all parties and attorneys of record, may grant the motion for substitution. 32 | IDC QUARTERLY | Fourth Quarter 2016

The proposed amendment to section 9020.40 would allow the Commission the ability to refer individuals to the Attorney Registration & Disciplinary Commission (ARDC) for unauthorized practice of law. Representation of a party before the Commission is limited to attorneys licensed to practice in the State of Illinois or attorneys licensed to practice in states other than Illinois with leave of the Commission. Arbitrators and Commissioners would have the ability to report any indiscretions to the ARDC for investigation. Section 9020.50 is being amended to allow the Commission discretion to set a venue for a claim based on balancing an arbitrator’s caseload. Currently, in the downstate venues, there are three arbitrators that rotate over a three-month period. The Commission would have increased discretion to assign matters to equalize caseloads. The amendment to section 9020.60 requires that the monthly status calls be conducted by an arbitrator, not an individual designated by the Chairman. This should preclude staff attorneys or other staff members at the Commission from conducting status hearings. In practice, this should increase efficiency, as other various staff members do not have power to hear motions and enter orders.

Section 9020.70 is being amended to indicate that a notice of motion and order not accompanied by the motion shall be stricken. Further, section 9020.70 is being amended to clarify the time of notice prescribed in section 9020.70(b)(1)(A). Specifically, for all motions except petitions for immediate hearing and motions requesting a date for trial, service shall be effected five days preceding the day of the status call. If the pleading is mailed, the copy of the notice and supporting papers needs to be deposited in the post office at least ten days before the motion is to be heard. In instances of petitions for immediate hearing and motions requesting a trial date, service remains at 15 days preceding the status call date. The amendment to section 9020.90 includes language that contested petitions to reinstate shall have a record made of the hearing. Further, the amendment now allows the respondent to file a response to a petition to reinstate; however, there is no requirement to do so. Arbitration Section 9030.10 is being amended to allow the Commission to assign cases on a random basis. The prior rule required a computer program to assign cases randomly. The Commission would now be able to assign cases. Further, when a petitioner files multiple claims, the subsequent claims are to be assigned to the arbitrator of the claim first filed. Previously, the new filings were randomly assigned by the computer program and rarely ended up with the same arbitrator. The proposed amendment does allow the parties to oppose such an automatic assignment together based upon a showing of good cause. Motions to consolidate multiple claims are to be heard by the arbitrator assigned to the earliest filed

claim. The arbitrator assigned to the earliest filed claim would likely be the arbitrator receiving the assignment of the later filings. Additionally, this section proposes to include language that the arbitrator retains the case when it has been dismissed or otherwise closed and subsequently refiled. This should dissuade arbitrator shopping. The amendment to section 9030.20 will clarify that any party has the opportunity to set a case for trial at the monthly status call. Further, the time for the parties to appear is now between 8:45 a.m. to 9:30 a.m., an extension from 9:15 a.m. The arbitrator is able to establish the order in which cases shall proceed to hearing. The proposed amendment will also now eliminate the mandatory requirement for bifurcated cases to conclude within three months after the first hearing. It does remain advisory, however. The amendment to section 9030.50 will no longer require personal service of a subpoena. The amended language only requires service of a subpoena. Parties should pay the statutory fee and travel expense. In order to enforce a subpoena against anyone failing to comply, an application to the circuit court shall be served on the opposing party with a copy of the subpoena and proof of service. The moving party shall then notice the application for a hearing before the assigned arbitrator pursuant to 9020.70. Section 9030.60 is being amended to allow the Commission to hold a hearing and issue a dedimus potestatem order if there is no agreement as to a deposition. The opposing party is allowed an opportunity to object to the issuance of the dedimus potestatem. Again, the amendment clearly states that a dedimus potestatem order is used only in instances where the parties do not agree. There is

no need for this to be a routine motion practice. Section 9030.70 is being amended to state that the Illinois Rules of Evidence apply to proceedings before the Commission, Arbitration or Review, unless they conflict with the Workers’ Compensation Act or the Workers’ Occupational Disease Act. Section 9030.80 deals with proposed decisions. It is the arbitrator’s discretion whether to require parties to prepare a proposed decision or a brief within 14 days of closing proofs. Further, an arbitrator’s written decision should now include a statement of the requirements for perfecting a review. The rule is being amended to state that proposed decisions are not considered admissions and are not part of the record. With regard to requirements for perfecting a review, section 9040.10(a) (1) is being amended to allow the filing of petitions for review electronically. It remains to be seen when the Commission will have the technology to do so, however. The authenticated transcript can be filed in person, by mail, or by any manner provided by the Commission as set forth in the notice of the return date on review. If the Commission later has capabilities for electronic filing, this could be available with a simple change in the notice of the return date on review. If a party chooses to file the transcript by mail, timely filing is shown by the date applied by the U.S. Postal Service, not the party, to the envelope in which the transcript is received by the Commission at least two calendar days prior the return date on review. In practice, the best way to confirm compliance is still filing in person at the Commission. Section 9040.40 concerns review hearings. The proposed amendment eliminates the opportunity to offer ad-

ditional evidence. Additionally, at the time of filing the statement of exceptions, a party is allowed to file five interrogatories in which they would like the Commission to make a special finding upon questions of law or fact. Section 9040.60 is being amended to allow for a continuance of oral argument or extensions for filing statement of exceptions only when good cause is shown. The amendment to section 9040.70 will allow any party that files a review to file its own statement of exception(s), as well as a response, regardless of who filed first. The statement of exception(s) is to be filed within 30 days from the return date on review with the response filed within 15 days from the last day allowed for the filing of the statement of exceptions. All written briefs should be no more than 20 pages or contain no more than 5,200 words, whichever is greater. While brevity is key, the amendment proposed does not preclude parties from petitioning the Commission for an extension necessary for complex matters. Settlement Contracts and Lump Sum Petitions Section 9070.10 requires that settlement contracts be filed in quadruplicate. However, in instances of consolidated matters, only one additional copy needs to be provided for each additional case number listed on the settlement contract. The proposed amendments require that the settlement contract be accompanied by the attorney representation agreement, if not previously filed. This amendment may make it more difficult for respondents to present settlement contracts in matters where the petitioner is represented. Fourth Quarter 2016 | IDC QUARTERLY | 33

Legislative Update John Eggum Foran Glennon Palandech Ponzi & Rudloff P.C., Chicago

Molly’s Law and the General Assembly’s 2016 Spring Session Although many of the 565 articles that the Chicago Tribune published this year about the Illinois General Assembly suggest deadlock and limited legislative activity in Illinois, 2016 has been a busy year for both legislators and the IDC’s Legislative Committee. The legislature took action on more than 3,600 House bills and more than 3,100 Senate bills this year, and the Legislative Committee has diligently monitored and investigated the legislation passing through the General Assembly. Consistent with the IDC’s Mission and Core Values, the Committee

the course of the Spring Session (the first half of the year), the Committee worked directly with legislators and other stakeholders to improve bills that were introduced, resulting in positive changes that benefited potential defendants from a wide spectrum. One area where the IDC was instrumental in facilitating change was with regard to the recently enacted legislation known as “Molly’s Law” (Public Act 99-0587, effective January 1, 2017). Named in memory of Molly Young, a woman who died from a gunshot wound

In connection with comments from the IDC and others, the concept of a new discovery rule was abandoned. As amended, Molly’s Law instead increased the time for bringing wrongful death actions to five years if the death is the result of violent intentional conduct, or within one year after the final disposition of the criminal case if the defendant is charged with murder, manslaughter, or certain other crimes.

evaluates legislation to ensure it promotes a fair, unbiased, and independent judiciary, and to ensure the rights of individuals and entities are safeguarded from legislative action that would unjustly tilt the playing field against them before they take their first step into court as defendants in civil cases. Over 34 | IDC QUARTERLY | Fourth Quarter 2016

in 2012, the law’s proponents sought to ensure that delays in criminal investigations would not foreclose the ability to pursue a culpable person. In Ms. Young’s case, her father filed a wrongful death action that was dismissed because it was brought after the 2-year limitations period. Supporters of Molly’s Law did

not want other families to face a similar outcome. Proposed in February as House Bill 6083, Molly’s Law amended Illinois’ Wrongful Death Act to extend the time for filing certain wrongful death actions. As originally filed, Molly’s Law would have created a “discovery rule” for wrongful death actions, providing that such actions be brought within two years after the discovery of evidence indicating that a wrongful death may have occurred. In connection with comments from the IDC and others, the concept of a new discovery rule was abandoned. As amended, Molly’s Law instead increased the time for bringing wrongful death actions to five years if the death is the result of violent intentional conduct, or within one year after the final disposition of the criminal case if the defendant is charged with murder, manslaughter, or certain other crimes. Even with this amendment, the IDC Legislative Committee was concerned that Molly’s Law still risked unintended and unfairly prejudicial consequences.

About the Author John Eggum is an attorney with Foran Glennon Palandech Ponzi & Rudloff P.C., where he concentrates his practice on insurance coverage matters and commercial litigation. He represents insurers, TPAs, brokers, and captive managers in professional liability disputes, and also litigates cyber/technology liability claims. Mr. Eggum’s law degree was obtained, with distinction, from The University of Iowa College of Law, and following law school, he served as the law clerk to the Hon. Bruce A. Markell in the United States Bankruptcy Court for the District of Nevada, in Las Vegas. Mr. Eggum serves as the Vice-Chair of the IDC Legislative Committee and the ViceChair for the IDC’s Young Lawyers Division.

Property Insurance Law Ensuring that victims’ families have recourse against criminals is a rational public policy objective, but even as amended, the law risked prejudicing persons who were not criminals. These non-criminals risked being included in a wrongful death action far after the historical two-year limitations period, merely because a criminal was involved. Limitations periods serve valid and valuable purposes, ensuring claims are brought in a timely manner, before evidence is lost and the memories of witnesses fade. Extending them without just cause is contrary to ensuring fairness to civil defendants. Here, the motivations of the Molly’s Law proponents—preserving the right to bring wrongful death claims against killers and violent criminals notwithstanding a lengthy investigatory process—were not advanced by extending the limitations period against all of the possible defendants to a wrongful death action. The IDC’s Legislative Committee expressed these concerns to a variety of interested parties, and a subsequent amendment supplemented Molly’s Law to pinpoint the criminal actor as the only person to whom the extended limitations period applies. The Legislative Committee is happy to report its participation in the process and the outcome achieved— Molly’s Law was enacted addressing the matters of concern to its proponents, and an unnecessary expansion of the Wrongful Death Act’s limitations period was avoided. Given the upcoming election, a large number of further developments are not anticipated during this legislative year, but the Committee’s work continues and we look forward to continued productive impact throughout Illinois.

Catherine A. Cooke Robbins, Salomon & Patt, Ltd., Chicago

Insurer Estopped from Asserting Policy Sublimit Due to Failure to Supplement Discovery Responses In an interesting decision with a very severe result, the Illinois Appellate Court First District recently refused to allow an insurance company to assert a policy sublimit because the defense attorney retained by the insurance company to represent the insured in the underlying lawsuit failed to supplement discovery responses to disclose that the policy sublimit, not the full limit, applied. Harwell v. Fireman’s Fund Ins. Co. of Ohio, 2016 IL App (1st) 152036. Background Facts and Trial Court Proceedings In 2006, Kipling Development Corporation was building a home in Will County, Illinois, and, as general contractor, hired subcontractors to handle specific parts of the construction job. Harwell, 2016 IL App (1st) 152036, ¶ 3. The plaintiff, Brian Harwell, entered the construction site to replace a furnace filter and was injured when the stairs leading into the basement collapsed beneath him. Id. He filed suit against Kipling as the general contractor alleging that Kipling was negligent in failing to properly supervise and direct construction and failing to furnish Harwell with a safe workspace. Id. Harwell also sued two subcontractors alleging they had modified or failed to secure the stairwell where the injury occurred. Id. During discovery, Kipling’s attorneys (paid for by Fireman’s Fund, as the insurance company had a duty to defend Kipling)

answered Harwell’s interrogatories and stated that Kipling had liability insurance with Fireman’s Fund and that the maximum liability limit under the policy was $1 million. Id. Kipling’s policy with Fireman’s Fund included an endorsement that required Kipling to obtain certificates of insurance and hold harmless agreements from all subcontractors. Id. ¶ 4. The endorsement also provided that if Kipling failed to do so at the time of an occurrence involving a subcontractor, Fireman’s Fund would pay a maximum of $50,000 for all damages and defense costs due to any bodily injury arising out of any covered acts of the subcontractor. Id. After Kipling’s attorneys answered Harwell’s interrogatories, Fireman’s Fund sent Kipling a series of letters to Kipling informing it that because it failed — Continued on next page

About the Author Catherine A. Cooke is a shareholder at Robbins, Salomon & Patt, Ltd. and concentrates her practice in the area of commercial litigation and creditors’ rights. She earned her undergraduate degree from Indiana University– Bloomington in 2003, and law degree from The John Marshall Law School in 2006, where she served as Administrative Editor of The John Marshall Law Review. She is licensed to practice law in both Illinois and Indiana.

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Property Insurance law | continued

to comply with the endorsement, the limits of Fireman’s Fund’s liability had been reduced from $1 million to $50,000. Id. However, Kipling’s attorneys–who also represented Fireman’s Fund–did not amend the interrogatory answer to reflect this change and Harwell’s attorneys had no knowledge of the reduction. Id. In 2012, the case went to a jury trial solely against Kipling, with Kipling’s defense funded by Fireman’s Fund. Harwell prevailed with the jury finding Kipling negligent and awarding Harwell $255,186 in damages. Id. ¶ 5. Kipling went out of business at some point in the litigation and did not have sufficient assets to satisfy the judgment, so in 2013, Harwell filed a declaratory judgment suit against Kipling and Fireman’s Fund seeking a declaration that Fireman’s Fund’s policy on Kipling covered Harwell’s damages. Id. ¶ 6. Fireman’s Fund asserted that the endorsement limited its liability to $50,000, and that limit had been reached in paying for Kipling’s defense. Id. Both parties moved for summary judgment and the trial court granted Fireman’s Fund’s motion. Harwell appealed. Id. ¶ 7. Appellate Court Ruling The appellate court began by noting that years before Harwell asked Fireman’s Fund to pay damages for his accident, and years before Harwell proceeded to a jury trial to determine Kipling’s negligence for the accident, Fireman’s Fund had already informed Kipling that it was limiting its liability to $50,000. Id. ¶ 11. Yet, Kipling’s lawyers (paid for by Fireman’s Fund) after informing Harwell that the policy limit was $1 million, failed to inform Harwell

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that it was changing its position. The court noted that this violated Illinois Supreme Court Rule 213(i) which states that a party had a duty to seasonably supplement or amend any prior discovery answers if new or additional information becomes known. Id. The appellate court reiterated that the Illinois Supreme Court’s position that their rules “are not mere suggestions. Rather they have the force of law, and the presumption must be that they will be obeyed and enforced as written.” Id. ¶ 12 (quoting People v. Houston, 226 Ill. 2d 135, 152 (2007)). To allow parties to ignore the mandatory language of Rule 213 defeats its purpose and encourages tactical gamesmanship. Harwell, 2016 IL App (1st) 152036, ¶ 12; Clayton v. Cnty. of Cook, 346 Ill App. 3d 367, 378 (1st Dist. 2003). The court noted that enforcement of Rule 213 can go so far as to reverse a jury verdict. See, e.g., Copeland v. Stebro Products Corp., 316 Ill. App. 3d 932, 946 (1st Dist. 2000). In this case, the impact of the Rule 213 violation was clear: if Harwell had known in 2008 that Fireman’s Fund was limiting its liability to only $50,000, he could have pursued settlement with Kipling or reevaluated his trial strategy. Harwell, 2016 IL App (1st) 152036, ¶ 13. The court stated that it accomplished nothing for Fireman’s Fund to argue that it owed its duty to disclose only to Kipling, its insured, since Fireman’s Fund was controlling Kipling’s defense and had a duty to be forthcoming under the Illinois Supreme Court Rules. Id. ¶ 13. It also was of no avail that the interrogatory answer technically was correct that the policy had a $1 million limit because the asserted limit of $50,000 constituted “additional” information that Fireman’s Fund should

have disclosed through Kipling because the $1 million limit noted in the original interrogatory answer was no longer accurate. Id. Instead of disclosing the asserted $50,000 limit, Fireman’s Fund went forward with Kipling’s defense at trial. Id. ¶ 14. Fireman’s Fund’s counsel also admitted at oral argument that regardless of the trial outcome, Fireman’s Fund would not have paid out on the policy because of the endorsement limiting liability to $50,000 due to subcontractor involvement in Harwell’s injury. Id. Thus, by failing to supplement the interrogatory answer, in the appellate court’s words, “Kipling and Fireman’s Fund’s counsel fashioned a ‘heads I win, tails I win’ outcome.” Id. In a petition for rehearing, Fireman’s Fund’s counsel argued that following the appellate court’s ruling would have required them to withdraw from representing both Kipling and Fireman’s Fund, implicitly acknowledging the conflict of interest inherent in the court’s analysis. The appellate court sharply criticized the litigation conduct, stating: Fireman’s Fund’s agenda seems clear: deny coverage to Kipling, control the flow of information to Harwell, fight Harwell tooth and nail through the original case, and after losing the trial– reveal the endorsement. This smacks of sandbagging, which we do not condone. Instead, we find that equity demands that Fireman’s Fund be estopped from asserting the endorsement against Harwell. Id. ¶ 15.

Fireman’s Fund’s counsel also admitted at oral argument that regardless of the trial outcome, Fireman’s Fund would not have paid out on the policy because of the endorsement limiting liability to $50,000 due to subcontractor involvement in Harwell’s injury. Id. Thus, by failing to supplement the interrogatory answer, in the appellate court’s words, “Kipling and Fireman’s Fund’s counsel fashioned a ‘heads I win, tails I win’ outcome.”

The appellate court reasoned that this outcome adheres to a fundamental maxim of common law which prevents a party from taking advance of a wrong which he or she has committed, and that such outcome applied when dealing with improper discovery disclosures. Id. Estoppel prevents a party from asserting a contractual condition if that party, through words or conduct, has given the impression that the condition will not be asserted as a legal defense. Id. (citing Nationwide Mut. Ins. Co. v. Filos, 285 Ill. App. 3d 528, 533 (1st Dist. 1996)). A party seeking to claim the benefit of estoppel must show reasonable reliance on the other party’s acts without “knowledge or convenient means” of discovering the truth and the reliance results in prejudice or detriment. Harwell, 2016 IL App (1st) 152036, ¶ 16; Nat’l Ben Franklin Ins. Co. v. Davidovitch, 123 Ill. App. 3d 88, 93 (1st Dist. 1984). Put simply, Fireman’s Fund informed Harwell in its interrogatory answer that Kipling’s insurance policy had a liability limit of $1 million, and after changing its

position on the liability limit did not tell Harwell, who was relying on Fireman’s Fund’s representations to be truthful while handling Kipling’s defense. Harwell, 2016 IL App (1st) 152036, ¶ 16. The appellate court concluded that Harwell relied on those representations to his detriment and Fireman’s Fund was now preventing him from collecting damages. Id. In closing, the appellate court did note that typically the estoppel doctrine applies when an insurance company withholds information from or misleads the insured party. Id. ¶ 17; RLI Ins. Co. v. Ill. Nat’l Ins. Co., 335 Ill. App. 3d 633, 645 (1st Dist. 2002). In this case, while Kipling was the insured and Firemen’s Fund did inform Kipling early on about the endorsement’s effect, Kipling went out of business during the litigation and played no role in either suit. It was therefore Harwell who needed to know about the endorsement and liability limit to make informed decisions regarding litigation strategy, and Kipling’s attorneys (paid for by Fireman’s Fund)

owed a duty to Harwell to supplement the interrogatory answer pursuant to Illinois Supreme Court Rules. Harwell, 2016 IL App (1st) 152036, ¶ 17. The appellate court concluded that “[b]road principles of equity—the desire to prevent fraud and injustice—dictate that Fireman’s Fund should not benefit from its attempted ruse.” Id. Practical Takeaways Several commentators have noted that the appellate court did not cite any authority to support the holding that a non-party insurer may be held responsible for its retained attorneys’ violation of Supreme Court Rule 213(i). The result essentially deprives Fireman’s Fund of its right to enforce a policy limitation due to its insured’s failure to fulfill the requirements that would otherwise have limited Fireman Fund’s exposure. While the harshness of the result depends on the chair in which you sit, the clear message is that insurance defense counsel must be vigilant in supplementing discovery responses should a policy defense or sublimit become asserted or known. The failure to do so could result in your client being on the hook for damages it otherwise would have had no obligation to pay.

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Feature Article Patrick F. Murphy, Alex Z. Kattamis and Shukri J. Souri Exponent, New York Brian D’Andrade Exponent, Washington, D.C.

Role of Technology Experts in Antitrust Litigation Antitrust litigation matters often involve highly complex technological issues from product design and manufacturing to the way products function and are used by purchasers in the marketplace. Economists have historically been the key expert witnesses in antitrust matters. Karin A. DeMasi & Jonathan J. Clarke, The Expert Economist: An antitrust litigator’s guide to working with these crucial witnesses, N.Y. L. J. (Jan. 18, 2011), available at http://www. newyorklawjournal.com/id=120247815 0338?keywords=DeMasi+Clarke+The +Expert+Economist&publication=New +York+Law+Journal. In fact, former Deputy Assistant Attorney General in the Antitrust Division of the United States Department of Justice (DOJ) William J. Kolasky has noted, “[b]ecause expert economic testimony is critical to most antitrust disputes, the admissibility of that testimony under Daubert has become a key battleground in many antitrust trials.” William Kolasky, Antitrust Litigation: What’s Changed in Twenty-Five Years?, Antitrust, vol. 27, no. 1, at 12 (Fall 2012), available at http://awa2013.concurrences.com/IMG/ pdf/antitrust_litigation_whats_changed_ in_25_years.pdf. In antitrust cases, economists construct economic and financial models and often make assumptions about the technology, market, and product in question. Recently, however, there has been 38 | IDC QUARTERLY | Fourth Quarter 2016

a “remarkable, and widespread” convergence in antitrust economics. Pierre Cremieux & Aaron Yeater, The Myth

of Divided Antitrust Economics (2015 Year in Review), Analysis Group, at 6 (2015), available at http://www.analysis group.com/forums/2015-year-in-review/ myth-divided-antitrust-economics/. The result of this broad consensus in economic methodology is that “subtle differences” and “minor discrepancies” in initial assumptions or data selection can lead to economists reaching “vastly different” conclusions. Id. Therefore, assumptions made by economists in antitrust cases related to the technology,

About the Authors Patrick F. Murphy, Ph.D., P.E. is a Senior Managing Engineer in the Electrical Engineering & Computer Science Practice at Exponent. Dr. Murphy’s background is in electrical and electronic engineering, including electronic and optoelectronic devices, circuits, and networks. His project experience includes investigations regarding the condition, structure, and function of electronic components and systems. Dr. Murphy received his Ph. D. and M. A. degrees in Electrical Engineering at Princeton University in 2009 and 2004 respectively. He received his B.S. degree in Electrical Engineering from Boston University in 2002. Alex Z. Kattamis, Ph.D., P.E. is a Senior Managing Engineer in the Electrical Engineering & Computer Science Practice at Exponent. Dr. Kattamis has expertise in the design, fabrication, and failure analysis of semiconductor devices including: thin-film electronics, large-area flexible electronics, memories, LEDs, LCDs, AMOLEDs, integrated circuits, and printed circuit boards. He also has expertise in power systems, transmission, distribution, and protection. Dr. Kattamis received his Ph. D. and M. A. degrees in Electrical Engineering at Princeton University in 2007 and 2004 respectively. He received his B.S. degree in Electrical Engineering from the University of Connecticut in 2002.

Brian D’Andrade, Ph.D., PMP, CISSP, P.E. is a licensed professional electrical and computer engineer with 17 years of experience including electrical, electronic, computer, software, network, semiconductor and optical. His expertise is used in a variety of litigation matters including intellectual property, antitrust, commercial and product liability. Dr. D’Andrade received his Ph. D. and M. A. degrees in Electrical Engineering at Princeton University in 2004 and 2001 respectively. He received his B.S.E.E. degree in Electrical Engineering from Pennsylvania State University in 1999. Shukri J. Souri, Ph.D. is a Corporate Vice President & Practice Director at Exponent and is a Principal in the Electrical Engineering & Computer Science Practice with expertise in microelectronics and computing systems. His professional activities involve advising industrial and legal clients as well as government entities addressing issues related to intellectual property, product reliability, and failure analysis. He has led complex investigations involving electronics, computer communications, and software controls for safety-critical applications in the medical device, automotive, aviation and process controls industries. Dr. Souri received his Ph. D. and M.S. degrees in Electrical Engineering from Stanford University in 2003 and 1994 respectively. He received his B.A. degree in Engineering Science at the University of Oxford, UK, in 1992.

materials, manufacturing process, and use of products could be critical to the outcome of a case. Technology experts and advisors can provide valuable support for economic analysis by providing a sound basis for the assumptions and data that go into economic and financial models. Several recent federal lawsuits brought against manufacturers of thin-film transistor liquid crystal display (TFT-LCD) flat panel displays offer informative examples of the role of technology experts. In these cases, several manufacturers were accused of conspiring to raise and fix the prices of TFT-LCD panels and certain products containing those panels for over a decade. A central issue in these cases was the amount of the alleged overcharge collected by the various defendants. Deidre A. McEvoy & Melissa R. Ginsberg, The Use of Expert Witnesses for Penalty Determinations in Criminal Antitrust Cases: A Study of United States v. AU Optronics, Antitrust, vol. 28, no. 3, at 95 (Summer 2014), available at https://www.pbwt.com/ content/uploads/2015/07/Use-of-ExpertWitnesses_Antitrust_Summer14_ McEvoy.pdf. Testimony of technology experts regarding the assumptions and analyses of economic expert witnesses proved influential to the outcomes of these TFT-LCD antitrust trials.

Background on Antitrust Law Antitrust laws “prohibit business practices that unreasonably deprive consumers of the benefits of competition, resulting in higher prices for products and services.” Antitrust Enforcement and the Consumer, U.S. Dep’t of Justice, available at https://www.justice.gov/atr/ file/800691/download. Notable federal

Economics experts usually assist in defining a relevant market, identifying and weighing procompetitive and anticompetitive effects of the challenged conduct, and quantifying economic impact and damages. • • • Technology experts can assist in defining relevant products, explaining technical similarities and differences among products, and evaluating technical assumptions related to economic models and damages calculations.

antitrust statutes include the Sherman Act and the Clayton Act. Pertinent to the case studies below, the Sherman Act states that “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal . . .” and “[e]very person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony . . . .” 15 U.S.C. §§ 1-2. Certain restraints of trade are known as “horizontal restraints.” Horizontal restraints include the agreement among competitors to fix prices, allocation, or division of markets between competitors, and refusal to deal with entities outside the cartel. Joseph N. Eckhardt & Andrea L. Hamilton, US Antitrust Law: Unreasonable Restraints of Trade under Section I of the Sherman Act, Comp. L., at 259 (2003), available at http://docplayer.

net/11563810-Section-us-antitrust-lawunreasonable-restraints-of-trade-undersection-1-of-the-sherman-act-joseph-neckhardt-and-andrea-l-hamilton.html. Other forms of restraints are known as “vertical restraints.” Vertical restraints include resale price floors and ceilings, customer and territorial restraints, limiting channel of distribution, exclusive dealing or distributor arrangements, and arrangements tying purchase of products. Id. at 262. Analysis of restraints of trade may include a technological aspect, as illustrated in the case studies presented herein. Expert Roles and Risks Technology experts and economic experts are generally assigned distinct roles in antitrust cases. ABA Section of Antitrust Law, 2010 Antitrust Class Actions Handbook 189. Economics experts usually assist in defining a relevant market, identifying and weighing procompetitive and anticompetitive — Continued on next page

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effects of the challenged conduct, and quantifying economic impact and damages. Economics experts may rely on market research, transactional data produced during discovery, and economic modeling. Id. at 192. Technology experts (or “industry experts”) and advisors “may be better informed about the specifics of the industry at issue” and tend to have a better understanding of the institutional details of the technology and industry at issue. Id. at 194. Technology experts can assist in defining relevant products, explaining technical similarities and differences among products, and evaluating technical assumptions related to economic models and damages calculations. Technology experts and advisors may rely on scientific and engineering calculations and models, experiments, and detailed comparisons of technical documentation, or other techniques. A well-known risk related to expert testimony is the exclusion of expert testimony under Daubert or Federal Rule of Evidence 702. For an expert to survive a Daubert challenge, the Court must find that: (1) the testimony is based upon sufficient facts or data; (2) the testimony is the product of reliable principles and methods; and (3) the witness has applied the principles and methods reliably to the facts of the case. Id. at 190. A study of Daubert and Rule 702 challenges to economic expert testimony in cases across a broad range of areas of law indicates that 45% of these challenges were successful. James Langenfeld & Christopher Alexander, Daubert and Other Gatekeeping Challenges of Antitrust Experts, Antitrust, vol. 25, no. 3, at 23 (Summer 2011), available at http://www.americanbar. org/content/dam/aba/administrative/ litigation/materials/2012_class_action/ F3_Daubert_and_Other_Gatekeeping 40 | IDC QUARTERLY | Fourth Quarter 2016

_Challenges_of_Antitrust_Experts.authcheckdam.pdf. For the antitrust litigations studied, 39% of challenges to economic expert testimony were at least partially successful. Id. According to the authors of this study, challenges in these antitrust cases mainly targeted the economic expert’s methodology and the data that formed the basis of their opinions. As antitrust laws are applied to increasingly technologically complex products and services in, for example, the software, biology, chemistry, or electronics industries, it is a reasonable conclusion that risks related to understanding and effectively explaining technological issues in antitrust cases will increase. The following three case studies highlight the importance of testimony from technology experts in antitrust cases.

Case Studies Case Study 1: United States v. Microsoft Corp. The need of technology experts in antitrust cases is clear when the products and technology at issue are highly complex, such as for software. In 1998, the United States of America, through the Department of Justice (DO”), and 20 states sued the Microsoft Corporation alleging violations of the Sherman Act. United States v. Microsoft Corp., 84 F. Supp. 2d 9, 12-13 (D.D.C. 1999). A key issue in the case was whether the bundling of Microsoft’s Internet Explorer browser with the Microsoft Windows operation system constituted illegal tying of multiple products. Andrew Chin, Decoding Microsoft: A First Principles Approach, 20 Wake Forest L. Rev. 1, 33 (2005). Analysis and testimony from technology experts were major components of the litigation strategies

of both sides, as Microsoft asserted that its Internet Explorer browser was not a separate product from the operating system, but was an integrated feature that could not be removed. Id. at 1. To show Microsoft’s Internet Explorer “browser product” could be removed from Windows, the DOJ relied on the expert analysis and testimony from a noted computer scientist. Id. at 42. The DOJ’s expert developed a computer program to remove the Internet Explorer browser from Windows without any degradation of the software performance. Id. at 43. The expert demonstrated this during the trial. Id. In addition, the DOJ’s expert accused Microsoft of altering Windows through an update that occurred midway through the case to make it incompatible with the tools he had developed. Id. The cross examination of this “assertive, combative” expert was described in the media as “apparently fruitless” because the expert “gave not an inch” to Microsoft’s attorney. Joel Brinkley, Microsoft Accused of Sabotaging Witness’s Computer Program, N.Y. Times (Dec. 15, 1998), available at http:// www.nytimes.com/1998/12/15/business/microsoft-accused-of-sabotagingwitness-s-computer-program.html?_r=0. The tying claim against Microsoft was eventually dropped after the Court of Appeals ruled that the DOJ had failed to establish “a precise definition of browsers” and “a careful definition of the tied good market” at trial. Chin, Decoding Microsoft, supra, at 3. The first issue pertains directly to the technological definition of a “software product” versus “software code.” According to some observers, the DOJ’s tying claims ultimately failed because the DOJ and the courts did not give sufficient weight to the role of technology (i.e., computer science and software) as compared to the

role of economic theory. Observers also suggested that a conceptual “disconnect” between the trial attorneys and technology experts was in part responsible for this outcome. Id. at 8.

on this provision, the DOJ alleged that the AUO’s gains were in excess of $500 million, and sought twice that figure as a penalty. Deidre A. McEvoy & Melissa R. Ginsberg, The Use of Expert Witnesses

According to some observers, the DOJ’s tying claims ultimately failed because the DOJ and the courts did not give sufficient weight to the role of technology (i.e., computer science and software) as compared to the role of economic theory.

Case Study 2: United States v. AU Optronics Corp. This, and the following case study, offer contrasting scenarios on how experts have been used in antitrust litigations related to the same types of products and technologies. Since 2001, there have been a series of criminal and civil litigations involving manufacturers of TFT-LCD panels. Such panels are in products such as televisions, computer monitors, and mobile devices. In 2001, the DOJ alleged price fixing of TFTLCD panels, which led to a number of plea agreements and $900 million in fines. The Taiwanese manufacturer AU Optronics (AUO) was found guilty by a federal jury and fined $500 million. United States v. AU Optronics Corp., No. 09-CR-0110 SI, 2012 WL 2120452, at *4 (N.D. Cal. June 11, 2012). Though the Sherman Act carries a $100 million statutory maximum fine, the alternative fines provision of 18 U.S.C. § 3571(d) allows for penalties of up to “twice the gross gain or twice the gross loss” associated with the violation. Based

for Penalty Determinations in Criminal Antitrust Cases: A Study of United States v. AU Optronics, Antitrust, vol. 28, no. 3, at 95 (Summer 2014), available at https://www.pbwt.com/ content/uploads/2015/07/Use-of-ExpertWitnesses_Antitrust_Summer14_McEvoy.pdf. To succeed, the government had to prove those “overcharges” to the jury beyond a reasonable doubt. Id.; also see AU Optronics Corp., 2012 WL 2120452, at *4. The DOJ relied on the economics expert testimony of Dr. Keith Leffler to prove that AUO’s gains were in excess of $500 million. Id. According to Dr. Leffler, to receive $500 million in gains, AUO would have had to apply an overcharge of “2.1 percent, or approximately $4.30 per LCD panel.” McEvoy & Ginsberg, The Use of Expert Witnesses, supra, at 96; AU Optronics Corp., 2012 WL 2120452, at *4. Dr. Leffler’s analysis showed that cartel-related overcharges tend to be 15 percent or greater; that margins were actually “$53 per panel higher during the cartel period than in the post-cartel period;” and that AUO’s actual total

gains were likely greater than $2 billion. McEvoy & Ginsberg, The Use of Expert Witnesses, supra, at 95. While the jury’s verdict and district court’s sentence were affirmed by the Court of Appeals for the Ninth Circuit, AUO could have challenged the technological bases relied on by Dr. Leffler. For example, the Ninth Circuit’s decision noted that the testimony of the government’s expert “created some ambiguity” regarding the TFT-LCD panels that are manufactured abroad and are incorporated into finished consumer goods sold in the United States. United States v. Hui Hsiung, 778 F.3d 738, 758 (9th Cir. 2014). A technology expert well-versed in the manufacturing processes and requirements for consumer goods could have provided testimony to clarify this issue, or, could have gathered data via a representative sample to determine the rate at which TFT-LCD panels manufactured by AUO were found in these consumer goods. The following case study provides an example where analysis and testimony from technology experts played an important role in subsequent TFT-LCD civil antitrust litigation. Case Study 3: In re TFT LCD (Flat Panel) Antitrust Litigation Following the case against AUO, a series of class action suits were filed on behalf of purchasers of TFT-LCD panels and of products containing TFT-LCD panels. See In re TFT-LCD (Flat Panel) Antitrust Litig., 267 F.R.D. 291, 298 (N.D. Cal. 2010), abrogated on other grounds by In re ATM Fee Antitrust Litig., 686 F.3d 741 (9th Cir. 2012). Some of the defendants formed a joint defense — Continued on next page

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group consisting of TFT-LCD panel manufacturers, and faced a series of trials. See In re TFT-LCD (Flat Panel) Antitrust Litigation, Analysis Group (2016), available at http://www.analysisgroup. com/insights/cases/in-re--tft-lcd-(flatpanel)-antitrust-litigation/ (noting retention of experts by a joint defense group). The technology and products at issue were similar as in the federal criminal cases in United States v. AU Optronics. Both sides in these matters relied on economics and technology experts. One trial included Best Buy as plaintiffs against Toshiba and HannStar. See In re: TFT-LCD (Flat Panel) Antitrust Litigation, No. 3:07-md-01827-SI (N.D. Cal. 2010) (jury verdict) available at http://www.americanbar.org/content/ dam/aba/publications/antitrust_law/ at320050_tft_verdict.authcheckdam. pdf; also see Bruce L. Simon & Thomas K. Boardman. Reverse Engineering Your Antitrust Case: Plan for Trial Even Before You File Your Case, Antitrust, vol. 28, no. 2, at 41 (Spring 2014), available at http://www.pswlaw.com/ documents/Sprng14-SimonC.pdf.pdf; also see Cremieux & Yeater, The Myth of Divided Antitrust Economics, supra, at 6-7. The plaintiffs relied on an economics expert to calculate the “overcharge” gained by the defendants as a result of the alleged conspiracy to fix prices of TFT-LCD panels. Id. The economic analysis was based in part on the producer price index (PPI), an economic statistic collected by the United States Bureau of Labor Statistics that measures the average change over time in the selling prices received by domestic producers of goods and services. Id. While there is no PPI for TFT-LCD panels, economic experts for the plaintiffs relied on the PPI for microprocessors. Id. The plaintiffs’ experts later relied on economic argu42 | IDC QUARTERLY | Fourth Quarter 2016

While the economists’ methodologies were essentially the same, and both “agreed on the importance of various measures of costs and demand in determining prices,” the key difference was the selection of an appropriate PPI ments to opine that such TFT-LCD panels were substitutable both in manufacturing and in end-use and therefore suitable for a price fixing conspiracy. Id. The plaintiffs’ economics expert also relied on testimony by a technology expert to support these assumptions. This expert opined that TFT-LCD panels were all basically the same and therefore substitutable and that microprocessors are similar to TFT-LCD panels. Id. The defendants relied on analysis and testimony by an economics expert who selected several other applicable electronics-based PPIs to calculate a far lower “overcharge.” The defendants’ economics expert also relied on testimony of a technology expert, who described the variety of technologies and applicationspecific designs across TFT-LCD panels, and explained how microprocessors and TFT-LCD products are not similar in manufacturing and use. Id. The jury in this case found that plaintiffs did not show that Toshiba participated in a conspiracy to fix the prices of TFT-LCDs, but found that plaintiffs did show that HannStar had participated in such a conspiracy. Beth Winegarner, Best Buy Loses LCD Price-Fixing Trial Against Toshiba, Law360 (Sep. 3, 2013), available at http://www.law360.com/ articles/469722/best-buy-loses-lcd-pricefixing-trial-against-toshiba. The jury award was much closer to the amount calculated by the defense’s economic

experts and was less than one tenth of the $770 million overcharge calculated by the economics expert witnesses for plaintiffs. Id. While the economists’ methodologies were essentially the same, and both “agreed on the importance of various measures of costs and demand in determining prices,” the key difference was the selection of an appropriate PPI. Cremieux & Yeater, The Myth of Divided Antitrust Economics, supra, at 7. Testimony from the defendant’s technology expert laid out the substantive differences in the materials, manufacturing processes, and underlying technology of TFT-LCDs as compared to microprocessors. Id. This type of testimony can be highlighted in closing arguments for the defense and could play a significant role in a jury’s rejection of a plaintiffs’ calculation of damages. Conclusion Antitrust and derivative class actions frequently involve complex issues and require expert testimony on both sides. The central role of experts means that expert disqualification poses an outsized impact in such cases. Oftentimes parties look no further than an economics expert, and as the case studies show, they do so at their peril. Teaming up economics and technology experts can be essential in strengthening the bases for expert opinions, mitigating this litigation risk.

Technology Law Patrick W. Stufflebeam HeplerBroom LLC, Edwardsville

Avoid the Pineapples! There are many way to initiate attacks on law firm networks and personal electronic devices. Malware and ransomware are real threats to a law firm’s security. Although a lot of common sense can prevent attacks, accidents can happen. One wrong click on a phishing email has the ability to lead to an entire network being compromised. The purpose of this column is not to explore all potential electronic threats to a law firm, but rather to discuss a potential breach in security of which many of our members are probably guilty—conducting work over a public Wi-Fi connection.

Illinois Rules of Professional Conduct. Technological advancements are progressing at a rapid speed. It is not uncommon for lawyers to work remotely on a tablet that has complete access to client files and is capable of performing tasks from simple email to document redaction and production. Often this work is performed on the secure Wi-Fi networks of our law firm where safeguards have been taken to protect the data. There are times, however, when we are chasing that elusive Wi-Fi connection in order to edit that final pre-trial report or discovery responses.

Sometimes people believe that if you login to a network that requires a password, it is a secure network. Unless you have control of the network, best practices dictate that you consider such a network an open network that you are sharing with strangers, albeit strangers who have the same password.

networks. Sometimes people believe that if you login to a network that requires a password, it is a secure network. Unless you have control of the network, best practices dictate that you consider such a network an open network that you are sharing with strangers, albeit strangers who have the same password. As we know, the Rules of Professional Conduct command lawyers to safeguard our client’s information. Ill. Rule of Prof’l Conduct 1.6. Open WiFi networks are one of the easiest ways to make your client’s data vulnerable to attack. There are a variety of ways to compromise your device on a public Wi-Fi network. One method is called the “Man-in-the-Middle” attack. For example, you may see “SouthwestWi-Fi” when your device searches for Wi-Fi networks. You have seen this network before, so you click to connect. There are inexpensive devices that “spoof” Wi-Fi networks. For example, the Wi-Fi Pineapple can broadcast an identical service set identifier (SSID), which may be the name of the network that your device identifies and recognizes. Anyone with this Wi-Fi Pineapple device and an internet connection could broadcast his — Continued on next page

About the Author All devices have a vulnerability regardless of operating system. As was seen with the recent fight between the government and Apple over whether or not Apple was required to engineer a backdoor into a “secure” iPhone, the phone was ultimately accessed without the help of Apple. Therefore, we need to understand the security vulnerabilities of the devices we use and how we use them to make sure we are complying with the

Lawyers do not need to search far for a Wi-Fi connection. Open Wi-Fi networks are all around, and, as many traveling lawyers know, some airlines, hotels, and restaurants now offer free Wi-Fi. Often, these networks are open Wi-Fi networks that do not require you to login to get internet access. Yes, that means that anyone can login with you. Even some Wi-Fi networks that require you to login with a password are open

Patrick W. Stufflebeam is a partner of HeplerBroom LLC in its Edwardsville (Madison County), Illinois office. He concentrates his practice primarily in the areas of toxic tort, product liability, premises liability, and commercial litigation. He received his J.D. from Saint Louis University School of Law and his B.A. from Western Illinois University. Mr. Stufflebeam is a member of the IDC Board of Directors, DRI, and the Madison County Bar Association.

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Technology Law | continued

[M]any tablets have the capability to install a sim card and have access to secure data. Many phones allow you to create a personal hotspot that would allow other Wi-Fi enabled devices to connect to a secure network. Most cellular providers also have the option of a mobile hotspot device.

or her own “SouthwestWi-Fi” network. So although you thought you logged in Southwest’s “SouthwestWi-Fi,” you actually logged in to the network created by the hacker sitting next to you at Gate B9. When connected to such a network, someone could see your emails, apps installed, texts, and web browsing. So are there solutions? Yes. The simplest solution to eliminate this risk is for lawyers to avoid using open WiFi networks. Although it is risky on a personal level (e.g., online banking), performing work presents an ethical risk. There are many platforms for accessing client documents, and running the risk of those documents being intercepted is too great. It is also very important to learn your device and understand what information may be transmitted without you knowing. Although you may not have an app open, you need to find out whether or not an app may run in the background that could transmit client data. If you have an app or software installed that can transmit data without you knowing, such a feature should be disabled to prevent inadvertent transmission over an unsecured network. Another solution would be to utilize a device that can access data directly and securely. For example, many tablets have the capability to install a sim card and 44 | IDC QUARTERLY | Fourth Quarter 2016

have access to secure data. Many phones allow you to create a personal hotspot that would allow other Wi-Fi enabled devices to connect to a secure network. Most cellular providers also have the option of a mobile hotspot device. A mobile hotspot creates a secure local Wi-Fi network for your devices. If you are using a mobile hotspot, it is important to make sure the network is secured with a strong password that is safeguarded. Your phone and mobile hot spot will not work in all locations. For example, such devices are not allowed during flight, and although data coverage is improving across the country, there may be times when your phone or mobile hotspot will not have service. If you find yourself in a situation like this and you need to access documents or other work, you may be left with only the option of an open Wi-Fi network. If you are in this situation, you should consider a Virtual Private Network (VPN). A VPN creates a secure, encrypted connection between your device and the VPN server. A VPN creates a virtual tunnel where you can safely send and receive work without anyone being able to see into the tunnel. If working on an open Wi-Fi network, a VPN prevents anyone on the same Wi-Fi network from seeing your device’s traffic

over the network. Although some firms will have firm-wide VPN technology available, there are also many individual VPN options available. Many law firms have knowledgeable and experienced IT departments. It is important to consult with your IT department before implementing any individual security measures to verify that such actions will not interfere with the firm’s network and are in compliance with any firm IT policy. I encourage you to also work with your firm’s IT department or someone knowledgeable to identify the appropriate safeguard for you.

The simplest solution to eliminate this risk is for lawyers to avoid using open Wi-Fi networks.

We are bound as lawyers to provide competent representation to a client, which includes the benefits and risks associated with relevant technology. Ill. Rule of Prof’l Conduct 1.1, cmt. 8. Mobile devices have become ubiquitous with the practice of law. With that comes the need for accessible, secure data. There may be times when secure data is not accessible, and before just logging on to a Starbucks free Wi-Fi, I hope this column has provided you some insight into alternatives or safeguards to maintain our ethical obligations to our clients.

Product Liability Ryan M. Frierott, Kevin P. Lolli and Stephanie Toth Goldberg Segalla LLP, Chicago

Illinois Appellate Court Holds that Plaintiff Must Experience Physical Symptoms of an Asbestos-Related Disease to Recover in Products Liability Action

for another to use is subject to liability to those whom the supplier should expect to use the chattel with the consent of the other or to be endangered by its probable use, for physical harm caused by the use of the chattel in the manner for which and by a person for whose use it is supplied, if the supplier: — Continued on next page

As asbestos-related lawsuits continue to fill court dockets throughout the United States, advancements in medical research and testing has produced litigation in which a plaintiff diagnosed with an asbestos-related disease is capable of filing a products liability action before the onset of physical symptoms. The Illinois Appellate Court Fourth District recently faced a case with this fact pattern and responded by effectively barring such an action. Sondag v. Pneumo Abex Corp., 2016 IL App (4th) 140918, ¶¶ 23, 29. In Sondag, the plaintiffs, a retired plasterer and his wife, filed a products liability action against Tremco, Inc. alleging that asbestos-containing tape manufactured by the defendant and used by the plaintiff in his profession caused him to develop pleural plaques and interstitial fibrosis. Sondag, 2016 IL App (4th), ¶ 1. At trial, the plaintiff’s doctor testified that he diagnosed the plaintiff with asbestosis after a 2007 chest x-ray revealed pleural plaques and scarring in his lungs. Id. ¶ 14. Significantly, however, the plaintiff never complained of symptoms associated with this diagnosis, such as shortness of breath, chest pain, wheezing or any other restrictions. Id. ¶ 15. Moreover, as of the date of the trial, the plaintiff still had no restrictive lung disease, no pulmonary symptoms, no respiratory distress or limitation. Id. ¶ 16. In fact, at age 82, the

plaintiff could climb two flights of stairs, at a running pace, without difficulty. Id. The jury returned a verdict in plaintiffs’ favor, awarding them damages. Id. ¶ 1. The defendant appealed, and the Fourth District reversed the trial court’s judgment after finding that the trial court should have granted the defendant’s motion for a directed verdict based on the evidence and testimony presented during trial. Id. ¶ 1. In that regard, the Fourth District held that the evidence showed that the plaintiff was asymptomatic and thus had not suffered “physical harm,” an essential element of his products liability claim. Id. What Constitutes Physical Harm? In reversing the trial court’s judgment, the Fourth District noted that “physical harm” is an essential element for any products liability action, regardless of whether the action sounds in negligence or strict liability. Id. ¶ 23. In support, the court noted that the Supreme Court of Illinois adopted the Restatement (Second) of Torts, and that section 388, which governs products liability actions premised on negligence, provides as follows: one who supplies directly or through a third person a chattel

About the Authors Ryan M. Frierott is a partner in Goldberg Segalla LLP’s Chicago office. He focuses his litigation practice in the fields of products liability, toxic torts, complex insurance coverage, and professional liability. He has represented clients in state and federal courts throughout the United States, and has extensive experience defending cases involving fires, product defect, expert witness challenges, and toxic tort exposure. K e v i n P. L o l l i i s a n associate in Goldberg Segalla LLP’s Chicago office. His practice focuses on product liability and general liability defense. His experience also includes insurance coverage and construction negligence cases. Mr. Lolli has defended product liability cases in state and federal courts in Illinois. Stephanie Toth is a law clerk at Goldberg Segalla LLP’s Chicago office. She received a B.A. in Medical Humanities and Chemistry from Baylor University, and will receive her J.D. degree from Loyola University Chicago School of Law. In addition to clerking at Goldberg Segalla, Ms. Toth is a Health Law Fellow and staff writer on the Annals of Health Law Journal, and has externed at Baxter International, the Rehabilitation Institute of Chicago, and the Circuit Court of Cook County’s Law Division.

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Product Liaibility | continued

(a) knows or has reason to know that the chattel is or is likely to be dangerous for the use for which it is supplied, and (b) has no reason to believe that those for whose use the chattel is supplied will realize its dangerous condition, and (c) fails to exercise reasonable care to inform them of its dangerous condition or of the facts which make it likely to be dangerous.

In light of Sondag, defendants who are facing products liability claims must identify the injury the plaintiff is alleging and confirm that the injury caused the plaintiff an identifiable “loss or detriment.” In completing this analysis, defendants may now be able to argue that a plaintiff’s alleged injury does not constitute “physical harm” as he or she did not suffer a resultant loss of function. Indeed, Sondag creates additional avenues for defendant’s to explore when defending product liability claims.

Id. ¶ 24 (citing Restatement (Second) of Torts § 338 (1965)). Further, the Fourth District pointed out that the term “harm” is defined in the Restatement (Second) of Torts as “the existence of loss or detriment in fact of any kind to a person resulting from any cause.” Sondag, 2016 IL App (4th), ¶ 27. In contrast, the word “injury” is defined in the Restatement as “the invasion of any legally protected interest of another.” Id. The Fourth District concluded that the reason for the distinction is that, in some circumstances, the common law recognizes a cause of action for conduct that invades or “injures” a legally protected interest, even though the conduct causes no harm. Id. ¶ 28. Accordingly, as the plaintiff’s pleural plaques and interstitial fibrosis were asymptomatic, the Fourth District determined that they caused him no physically impairing loss or detriment. Id. ¶ 30. In fact, but for the x-ray and CT scan, “he would have remained blissfully unaware of any condition in his lungs.” Id. As such, because the plaintiffs presented no evidence of “physical harm” as the 46 | IDC QUARTERLY | Fourth Quarter 2016

term is defined in the Restatement—an essential element of plaintiffs’ cause of action—the trial court should have granted the defendant’s motion for a directed verdict. Id. ¶ 36. Room for Argument Justice Harris dissented, in-part, as he disagreed with the majority’s analysis of section 388 of the Restatement (Second) of Torts for two reasons. Id. ¶¶ 40-45 (Harris, J., dissenting). First, he pointed out that the majority determined that the mere presence of pleural plaques and interstitial fibrosis in the plaintiff’s lungs did not constitute a “physical harm,” however, failed to recognize that the plaintiff also sought damages for a “shortened life expectancy, loss of normal life, and pain and suffering.” Id. ¶ 42. Second, Justice Harris disagreed with the majority’s analysis of plaintiff’s lung condition using the Restatement’s definition of the term “harm” rather than the definition for the term “physical

harm.” In that regard, Justice Harris pointed out that the Restatement’s definition of “bodily harm,” a term used interchangeably in the Restatement with “physical harm,” appeared to accurately describe the condition of pleural plaques and interstitial fibrosis in the plaintiff’s lungs. Id. ¶ 44. Implications In light of Sondag, defendants who are facing products liability claims must identify the injury the plaintiff is alleging and confirm that the injury caused the plaintiff an identifiable “loss or detriment.” In completing this analysis, defendants may now be able to argue that a plaintiff’s alleged injury does not constitute “physical harm” as he or she did not suffer a resultant loss of function. Indeed, Sondag creates additional avenues for defendant’s to explore when defending product liability claims.

Civil Practice and Procedure Donald Patrick Eckler and Howard J. Pikel Pretzel & Stouffer, Chartered, Chicago

Legal Malpractice Claim Dismissed Under Six-Year Statute of Repose Where Plaintiffs Alleged Negligent Legal Advice in Underlying Breach of Contract Lawsuit As detailed in a previous IDC Monograph, the statute of repose applicable to attorneys presents a vexing set of problems. Donald Patrick Eckler & Matthew F. Tibble, As Clear As Mud: The Limitations Periods Applicable to Attorneys Under 735 ILCS 5/13/214.3 in Estate Planning Situations, IDC Quarterly, Vol. 23, No. 1, at M-6 to M-8 (2013). Two recent cases have further expanded the issues related to the statute of repose. In Terra Foundation for American Art v. DLA Piper LLP (US), 2016 IL App (1st) 153285, the court addressed when the statute of repose begins to run outside of the estate planning context. Further development in the area occurred in Prospect Development, LLC v. Donald Kreger, 2016 IL App (1st) 150433, which addressed the doctrines of fraudulent concealment and equitable estoppel as they relate to the statute of repose. Terra Foundation for American Art v. DLA Piper LLP (US) Arising out of a real estate transaction, the defendant lawyers prepared a sale agreement for the subject property which included a provision for further payments either to, or from, the plaintiff seller. Terra Found. for Am. Art, 2016 IL App (1st) 153285, ¶¶ 1-5. The sale involved a property upon which a mixed

use building was to be built, with portions for retail, residential, and office space. Id. ¶ 4. The area of the retail space was not known at the time of the closing and so a baseline square footage of the retail space was determined and the agreement provided that the seller would receive $5,500 per square foot above the baseline and would pay $5,500 per square foot for every foot below the baseline. Id. ¶ 5. This difference in square footage calculation, called the retail parcel credit, could cause a several million dollar difference either owing to the seller or to be paid by the seller. The parties executed a term sheet setting forth the agreement in April 2005. Id. ¶ 5. The term sheet included an exclusionary provision which provided that the common areas would not be included in the square footage calculation. Id. ¶ 6. However, in the initial version of the purchase agreement executed in June 2005, which was intended to memorialize the term sheet, the exclusionary language was not included. Id. ¶¶ 7-8. Various versions of the original purchase agreement were executed in 2007, 2008, 2009, and 2010, in which changes were made to the amount of the retail space, yet none of these versions of the purchase agreement included the exclusionary language. Id. ¶¶ 9-12.

Prior to the completion of the building, disputes arose between the buyer and seller as to the square footage to be included in the calculation of the retail parcel credit and the parties submitted the disputes to an arbitration process. Id. ¶¶ 16-19. The buyer prevailed at both arbitrations and was awarded $3.8 million for the retail parcel credit to be paid by the plaintiff seller. Id. ¶¶ 16-19. The plaintiff seller paid the award to the buyer and then instituted a legal malpractice action against the defendant law firm — Continued on next page

About the Authors Donald Patrick Eckler is a partner at Pretzel & Stouffer, Chartered, handling a wide variety of civil disputes in state and federal courts across Illinois and Indiana. His practice has evolved from primarily representing insurers in coverage disputes to managing complex litigation in which he represents a wide range of professionals, businesses and tort defendants. In addition to representing doctors and lawyers, Mr. Eckler represents architects, engineers, appraisers, accountants, mortgage brokers, insurance brokers, surveyors and many other professionals in malpractice claims. Howard John Pikel is a partner at Pretzel & Stouffer, Chartered. He is licensed in Illinois, Indiana and Missouri, and a member of the Federal Trial Bar for the Northern District of Illinois. Mr. Pikel has defended doctors, pharmacists, lawyers, homeowners, businesses and not-for-profit organizations involving wrongful death, catastrophic injuries and property damage. His practice includes professional malpractice, asbestos injuries and death, premises and product liability, construction, contracts, fires and explosions, and auto and trucking liability. Before practicing at Pretzel & Stouffer, Mr. Pikel was a prosecutor for the Cook County State’s Attorney’s Office, where he supervised the Narcotics Felony Trial Unit, and tried numerous felony jury and bench trials.

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Civil Practice and Procedure | continued

for failing to include the exclusionary language in the executed purchase agreements. Id. ¶¶ 19-20. Legal Malpractice Suit In the malpractice action filed on February 23, 2015, the plaintiff seller alleged that the law firm failed to advise that the definition of the space would include the common areas and ignored the plaintiff’s concern that the exclusionary language had been removed from the purchase agreement. Id. ¶¶ 20-21. The plaintiff sought $6.4 million in damages, which represented the $3.8 million had to pay as compared to the $2.6 million it claimed it should have recovered from the buyer. Id. ¶ 22. Though the lawsuit was actually filed in February 2015, the filing was deemed to have occurred on October 7, 2014 pursuant to a tolling agreement entered into between the defendant law firm and the plaintiff. Id. ¶ 20. The defendant law firm filed a motion to dismiss claiming that, notwithstanding the tolling agreement, the complaint was not timely filed because the statute of repose had expired prior to the execution of the tolling agreement. Id. ¶¶ 23-24. The trial court agreed and found that the negligence occurred when the purchase agreement was executed in 2007 because it was that document that did not include the exclusionary language present in the term sheet. Id. ¶ 24. Appellate Court Opinion In upholding the trial court’s dismissal, the appellate court first found that the event giving rise to the plaintiff’s injury occurred on May 29, 2007, when the parties executed the purchase agreement and therefore, the plaintiff had 48 | IDC QUARTERLY | Fourth Quarter 2016

until May 29, 2013 to file the complaint. Id. ¶¶ 33-34. The court noted that both arbitration awards against the plaintiff were entered and the closing took place during the repose period. Id. ¶ 35. The court rejected the plaintiff’s claim that the last act of the defendant attorneys, in this case the representation of the plaintiff at the closing in 2013, was the triggering event for the statute of repose to begin to run. Id. ¶¶ 35, 49. The court specifically rejected the plaintiff ’s argument that transactional practice should be treated different from litigation practice as it relates to the statute of repose. Id. ¶ 36. While acknowledging that some courts have pointed to a distinction between transactional and litigation practice, the language of 735 ILCS 5/13-214.3 makes no such distinction and only addresses “acts,” “omissions,” and “performance of professional services.” Id. ¶¶ 37-38. The court also distinguished the case of Snyder v. Heidelberger, 2011 IL 111052, and stated that while that court had said that the last act of the attorney was when the statute of repose began to run, that does not mean that this applies in every case. Id. ¶¶ 43-46. In disposing of the last of the plaintiff’s arguments, the court stated that its ruling was consistent with prior cases that held that the statute of repose is not tolled by the continuation of the attorney-client relationship, and because the failure to correct the omitted exclusionary language through the many years of continued representation did not exacerbate the plaintiff’s injury, the repose period was not extended. Id. ¶¶ 49-53.

Prospect Development, LLC v. Donald Kreger This legal malpractice lawsuit arose out of Prospect Development’s unsuccessful suit for breach of contract filed against the City of Prospect Heights. Prospect Dev., LLC, 2016 IL App (1st) 150433, ¶ 1. As detailed in the unpublished appellate decision in the underlying matter, in 1997, Prospect Development and its agent John Wilson entered into a contract with the City of Prospect Heights to build a sports arena that was to be financed by tax increment financing (TIF) bonds. Prospect Dev., LLC v. City of Prospect Heights, 2012 IL App (1st) 103759-U, ¶¶ 1-3. The arena was never built and by 2004 the project was not going to be completed, which the developer plaintiff alleged was as a result of the City’s failure to sell the bonds, and which the City claimed was as a result of “a lack of investor confidence in an inexperienced, incompetent developer that had been bribing the City’s attorney for his influence.” Prospect Dev., LLC, 2012 IL App (1st) 103759-U, ¶ 1. The City’s attorney, Donald Kreger, a partner at Schiff Hardin LLP was general counsel for Prospect Heights between 1977 and 2003. Id. ¶ 2. He and Prospect Development’s agent, John Wilson, were social friends who shared an interest in building a hockey arena in the northwest suburbs of Chicago. Id. ¶ 2. Based upon that mutual interest, Kreger introduced Wilson to a Prospect Heights alderman and an entity created by Wilson undertook a feasibility study to determine if Prospect Heights was an appropriate location for the proposed arena. Id. Following that study, Prospect Development, another entity created by Wilson, entered into the contract with the City. Id. A sufficient amount of the TIF

bonds were not sold by the City and the deal collapsed, allegedly leaving Wilson with $25 million in expenses incurred because of this failure. Id. ¶ 4. Wilson filed suit against the City and in response, the City alleged that the developer failed to perform and that the developer, Wilson, had unclean hands. Id. ¶ 4. Prospect Development alleged in its original pleading in the underlying matter that Kreger solicited a loan from Wilson. Id. Specifically, in paragraph 25 of the complaint, plaintiffs alleged: In addition, during this time, Kreger, one of the City’s agents, approached Developer’s principal Wilson on multiple occasions to “request” a $100,000 loan in connection with a personal financial problem. In light of the close role that City’s Agents had played in the Arena Project, Wilson granted such a loan in excess of $100,000 for fear that its refusal would adversely affect the Developer’s ability to complete the arena Project. Id. Indeed, Wilson, as an agent of Prospect Development, “loaned” Kreger, as an agent of the City, $150,000 between December 1996 and October 2001. Id. ¶ 10. These loans were never disclosed to the City. Id. Kreger alleged that Wilson advised him that it was not necessary to advise the City of the loan. Id. ¶ 2. On July 23, 2010, following a bench trial in the underlying matter, the court found that the City breached the contract. Id. ¶ 1. The court, however, denied plaintiffs’ recovery of damages based on the doctrine of unclean hands. Id. ¶ 11. In support, the trial court cited to Paragraph 25 of plaintiffs’ complaint,

and made a specific factual finding that Wilson knew that the loans to Kreger were improper, that he and his company engaged in bad faith, and that there was clear misconduct in not disclosing the “friendship” loan and his relationship with Kreger. Id. Both parties appealed and on March 30, 2012, the First District entered its order affirming the trial court’s judgment. Id. ¶ 35. Legal Malpractice Lawsuit Almost two years after the entry of the judgment in the underlying matter, on July 12, 2012, Prospect Development and Wilson filed a legal malpractice suit against Kreger and his law firm alleging that defendants provided negligent legal advice that caused them not to disclose the loan to the City. Prospect Dev., 2016 IL App (1st) 150433, ¶ 12. Specifically, the plaintiffs alleged that Kreger told them (1) the loans were legal, proper, and would not jeopardize the plaintiffs’ contract with the City; (2) the City hired Bruce Huvard to represent it so that the relationship between the plaintiffs and defendants no longer presented a problem; (3) plaintiffs did not need to and, in fact, should not disclose the loans to the City; and (4) plaintiffs did not need to seek outside counsel concerning the loans. Id. ¶ 23. Further, the plaintiffs claimed that as a result they were unable to recover from the City in the underlying lawsuit. Id. ¶ 12. Defendants moved to dismiss plaintiffs’ malpractice complaint pursuant to section 2-619(a)(5) under the statute of repose, citing paragraph 25 of the plaintiffs’ January 2005 breach of contract complaint. Id. After initial motion practice, in 2013 the plaintiffs filed a second amended complaint in which they acknowledged

that they filed their legal malpractice suit after expiration of the six-year statute of repose. Id. ¶ 13. In order to maintain their cause of action, the plaintiffs now asserted that the statute of repose was tolled under the doctrines of equitable estoppel and fraudulent concealment. Id. The fraudulent concealment claim was based upon the following allegations: (1) Kreger concealed the fact that the loans were improper and impaired the rights of Prospect Development LLC and Prospect Development Corporation to enforce their legal rights against the City of Prospect Heights; (2) Kreger concealed the fact that his legal opinions were not based on sound legal analysis; (3) Kreger concealed the fact that his recusal from negotiations with Prospect Development was insufficient to mitigate or cure Kreger’s conflicts; (4) Kreger concealed the fact that the appointment by the City of Prospect Heights of independent counsel Bruce Huvard did not resolve Kreger’s conflicts of interest; and (5) Kreger concealed the fact that his own disclosures to the City about his relationship with Jack Wilson were insufficient. Id. ¶ 14. Further, plaintiffs alleged that they did not know Kreger’s statements were false until the conclusion of the breach of contact action on July 23, 2010. Id. ¶ 13. — Continued on next page

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Civil Practice and Procedure | continued

After initially denying the motion to dismiss, the trial court reconsidered its denial and dismissed plaintiffs’ lawsuit with prejudice. The trial court initially held that the plaintiffs did not suffer any injury that would trigger the statute of repose to run until the entry of the decision in the underlying case. Id. ¶ 15. In reversing its initial ruling, the trial court found that the plaintiffs were on notice by January 2005 that they could not rely on Kreger’s advice with respect to the loans and that they had a cause of action for legal malpractice. Id. ¶ 16. Appellate Court Opinion On appeal, plaintiffs argued solely that their lawsuit should not have been dismissed under the statute of repose and that Kreger’s malpractice was concealed from them until the underlying trial court’s ruling in 2010. Id. ¶ 20. The statute of repose in legal malpractice actions is governed by section 13-214.3(c) of the Illinois Code of Civil Procedure which states: “[e]xcept as provided in subsection (d), an action described in subsection (b) may not be commenced in any event more than 6 years after the date on which the act or omission occurred.” 735 ILCS 5/13-214.3(c); Prospect Dev., 2016 IL App (1st) 150433, ¶ 22. At the outset, the court noted the difference between statutes of repose and statutes of limitations. Id. ¶ 22 (citing Evanston Ins. Co. v. Riseborough, 2014 IL 114271). The court noted that “[u]nlike a statute of limitations, which begins running upon accrual of a cause of action, a statue of repose begins running when a specific event occurs, regardless of whether any action has accrued or whether an injury has resulted.” Prospect Dev., 2016 IL App (1st) 150433, ¶ 22. The court acknowledged that the statute 50 | IDC QUARTERLY | Fourth Quarter 2016

of repose can create a harsh result. Id. ¶ 22. The “specific event” alleged by the plaintiffs occurred in October 2001 when Kreger last received a loan payment. Id. ¶ 13. Therefore, the plaintiffs had six years, until October 2007, to file their legal malpractice lawsuit. Recognizing the potential problem, the plaintiffs claimed that the statute of repose was tolled. In disposing of the plaintiffs’ argument that the statue of repose was tolled by equitable estoppel and fraudulent concealment, the court held that the doctrines do not toll the statute of repose where the plaintiff should have discovered the cause of action through ordinary diligence and a reasonable time remains within the remaining limitation period to file suit. Smith v. Cook Cnty. Hosp., 164 Ill. App. 3d 857, 862 (1st Dist. 1987). As to fraudulent concealment, that claim is premised on 735 ILCS 5/13-215 which states that “[i]f a person liable to an action fraudulently conceals the cause of such action from the knowledge of the person entitled thereto, the action may be commenced at any time within 5 years after the person entitled to bring the same discovers that he or she has such cause of action, and not afterwards.” 735 ILCS 5/13-215. Applying the statute, the court found that plaintiffs knew by January 2005 that the loans and Kreger’s legal advice may have been inappropriate and generated a conflict of interest. Prospect Dev., 2016 IL App (1st) 150433, ¶ 25. Further, the plaintiffs had two years, from January 2005, when they admitted knowledge of Kreger’s conduct, until October 2007 to file their lawsuit. Id. ¶ 25. The court also held that plaintiffs could not successfully assert equitable estoppel to claim that they did not know

the statements of Kreger were false until the conclusion of the breach of contact action on July 23, 2010. Id. ¶ 27. The application of the equitable estoppel doctrine is similar to fraudulent concealment and neither doctrine applies when a party is on inquiry notice of a claim. Id. ¶ 28. Here, the trial court in the breach of contract action issued a final judgment on the merits necessarily finding that plaintiffs had notice of the alleged legal malpractice by January 2005 when they filed their breach of contract lawsuit. Id. ¶ 29. Therefore, plaintiffs were not allowed to re-litigate whether they had notice of their legal malpractice claim in January 2005. Id. Finally, plaintiffs argued that the trial court ruling only provided that plaintiffs may have known that the loans and Kreger’s advice presented a conflict, and therefore, the statute of repose did not apply. Id. ¶ 31. The court disposed of plaintiffs’ final argument by citing well-settled Illinois authority that holds that statutes of repose apply where plaintiffs should have discovered the potential cause of action through ordinary diligence and a reasonable time remains within the remaining limitation period. Smith, 164 Ill. App. 3d at 862. Conclusion These two opinions are very favorable to the defense of lawyers as they limit the period within which to bring malpractice claims. The Terra Foundation opinion reaffirms and brings together three key points with respect to the statute of repose. First, the statute of repose is treated the same in both the transactional or litigation context. Second, continued representation does not extend the running of the statute of repose. Third, the statute begins to run

Employment Law when the injury occurred, and so long as the injury is not made worse, the continued failure to correct the mistake does not extend the repose period. The interesting point in the Prospect Development case is that the plaintiffs’ loss of both of their lawsuits and their appeal was caused by three self-inflicted injuries. The plaintiffs pleaded that they had knowledge of the legal malpractice claim in their breach of contract lawsuit, failed to appreciate the potential legal effect of their pleading, and waited almost three years after the statute of repose expired to file their legal malpractice lawsuit following their loss in the breach of contract suit. The Prospect Development court also reaffirmed two important points regarding application of the statute of repose in legal malpractice actions that should be kept in mind by practitioners. First, the triggering event for application of the statute of repose in not when the cause of action accrues, but rather, when an event occurs whereby a plaintiff should have discovered the potential cause of action with reasonable diligence. Second, a plaintiff’s actual knowledge of a potential claim is not required. In sum, courts will not permit legal malpractice plaintiffs to avoid the statute of repose where they should have discovered the potential cause of action through ordinary diligence and when a reasonable time remains within the remaining limitation period.

Julie A. Bruch O’Halloran Kosoff Geitner & Cook, LLC, Northbrook

Death to the “Convincing Mosaic” Test in the Seventh Circuit Courts in the Court of Appeals for the Seventh Circuit may no longer use “convincing mosaic” as a legal test or standard to determine whether there is sufficient evidence in an employment discrimination test. Ortiz v. Werner Enters., Inc., No. 15-2574, 2016 WL 4411434, at *3-4 (7th Cir. Aug. 19, 2016). Courts are also precluded from separating “direct” and “indirect” evidence when analyzing summary judgment motions. Ortiz, 2016 WL 4411434, at *5. In Ortiz v. Werner Enterprises, Inc., a Mexican freight broker, Henry Ortiz, was fired after seven years of employment for falsifying business records. Id. at *1. Ortiz sued Werner Enterprises under 42 U.S.C. § 1981 and the Illinois Human Rights Act, 775 ILCS 5/1-101 to 5/10-104, claiming that he was fired because of his Mexican ethnicity and that he was subjected to a hostile work environment under state law. Freight brokers at Werner Enterprises were assigned to regions and were responsible for matching customers in need of transportation for loads with available carriers. Ortiz, 2016 WL 4411434, at *1. Freight brokers were eligible to earn commissions based on the difference between what Werner charged the customers and what the carriers charged to transport the load. Id. Ortiz claimed that in the months prior to his termination, Werner assigned him to a less lucrative region and that an assistant manager directed another broker to book six unprofitable loads in Ortiz’s name. Id.

Werner terminated Ortiz after discovering that he changed records to reflect that he had not booked the loads or to show lower rates that he thought the carriers had agreed to charge. Id. Ortiz defended his conduct by claiming that brokers and managers always notify one another when booking an unprofitable load in some else’s name and that it was atypical from someone else to book so many unprofitable loads without a courtesy email or phone call. Id. at *2. Ortiz claimed that he repeatedly questioned the assistant manager about the unprofitable load and, rather than answering, the manager responded: “Why won’t you just quit already?” Id. Ortiz asserted that he removed his name from three loads based on past practice in which branch managers permitted brokers to delete their names from unprofitable loads. Id. He also testified that the reason why he changed the other records to show lower rates charged by the carrier was because it is standard practice in the industry for freight — Continued on next page

About the Author Julie A. Bruch is a partner with O’Halloran Kosoff Geitner & Cook, LLC. Her practice concentrates on the defense of governmental entities in civil rights and employment discrimination claims.

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Employment Law | continued

On appeal, the Seventh Circuit put a death knell to the “use of disparate methods and the search for elusive mosaics [which] has complicated and sidetracked employment-discrimination litigation for many years.” The court reversed eleven prior Seventh Circuit decisions (including one as recent as July 14, 2016) to the extent such opinions rely on “convincing mosaic” as a governing legal standard.

brokers to negotiate a lower rate after a late delivery and he did so in this instance after three carriers had not picked up the load on time. Id. Ortiz claimed that he tried to provide this information to the branch manager at the time of his termination, but the manager showed no interest in verifying his allegations. Id. Ortiz also claimed that both the branch manager and assistant had frequently referred to him using a host of derogatory ethnic slurs, including “beaner,” “taco eater,” “dumb Mexican,” “stupid Puerto Rican,” and “dumb Jew,” and that the frequency and intensity of these slurs increased in the months leading up to his discharge. Id. Werner denied Ortiz’s claims and moved for summary judgment, arguing that the claim of hostile work environment should be dismissed for failure to exhaust administrative remedies. Id. The district court granted summary judgment in favor of Werner on Ortiz’s hostile work environment claim, which Ortiz did not appeal. Id. Werner also moved for summary judgment on the termination claim which the district court granted as well. Id. The district court analyzed the evidence through the “direct” and “indirect” methods of proof without aggregating the possibilities to find an overall likelihood 52 | IDC QUARTERLY | Fourth Quarter 2016

of discrimination. Ultimately, the district court concluded that Ortiz had failed to present a “convincing mosaic” under either method of proof. Id. On appeal, the Seventh Circuit put a death knell to the “use of disparate methods and the search for elusive mosaics [which] has complicated and sidetracked employment-discrimination litigation for many years.” Id. at *3. The court reversed eleven prior Seventh Circuit decisions (including one as recent as July 14, 2016) to the extent such opinions rely on “convincing mosaic” as a governing legal standard. Id. Practitioners be warned, the court further stated that “[f]rom now on, any decision of a district court that treats this phrase as a legal requirement in an employment discrimination case is subject to summary reversal, so that the district court can evaluate the evidence under the correct standard.” Id. at *4. The proper legal standard in discrimination cases is “whether the evidence would permit a reasonable factfinder to conclude that the plaintiff’s race, ethnicity, sex, religion, or other proscribed factor caused the discharge or other adverse employment action.” Id. All relevant evidence must be considered as a whole without regard to whether the evidence is direct or indirect. Id. The court then went

on to reverse ten prior Seventh Circuit decisions which separated “direct” from “indirect” evidence and proceeded as if they were subject to different legal standards. Id. at *5. In making this ruling, the court clarified that its opinion had no effect on the burden-shifting framework of McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), which is sometimes referred to as an “indirect” means of proving employment discrimination. Ortiz, 2016 WL 4411434, at *5. Following this proper standard, the court found that in light of anti-Hispanic comments by management and Ortiz’s evidence that others engaged in similar practices without being terminated, a reasonable juror could infer that the supervisors did not like Hispanics and tried to pin heavy losses on Ortiz to force him out the door, and when that didn’t work, they fired him for using techniques that were tolerated when practiced by non-Hispanic freight brokers. Id. In light of conflicting evidence on material facts, the Seventh Circuit reversed summary judgment on the discriminatory termination claim and remanded the case for a jury trial. Id. at *6. In light of the Ortiz decision, attorneys drafting motions for summary judgment in employment discrimination cases based on federal law must be careful to avoid using the term “convincing mosaic” or analyzing the evidence by separating direct and indirect evidence. Attorneys should also use caution when citing any of the reversed Seventh Circuit decisions and should avoid referencing the now improper analyses employed in those decisions. Rather, each piece of evidence should be looked at in terms of whether such evidence would permit a reasonable factfinder to conclude that the plaintiff’s protected status caused the adverse action.

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Notice of Election In accordance with the Illinois Association of Defense Trial Counsel’s bylaws, an election must be held to fill the vacancies of the directors whose terms expire in 2017. The following directors’ terms will expire at the Annual Meeting in June 2017. Jeremy T. Burton Falkenberg Fieweger & Ives LLP John P. Heil, Jr. Heyl, Royster, Voelker & Allen, P.C. Edward K. Grassé Busse, Busse & Grassé, P.C. Benjamin J. Samuelson Betty, Neuman & McMahon, P.L.C. Ian J. Russell Lane & Waterman, LLP Patrick W. Stufflebeam HeplerBroom LLC Recommendations for nominations of six (6) persons to be elected to the Board of Directors are now being solicited from the general membership.

Individual members of the IDC are eligible for election to the Board of Directors unless otherwise excluded by the bylaws. The bylaws declare that corporate, educator, and law student members are ineligible to serve on the Board of Directors.

The bylaws declare that the IDC’s Board of Directors shall be representative of the entire State of Illinois. To this end, two Districts are declared: “Cook County,” and for all remaining counties, “Statewide.” No more than four of the six directors elected each year shall office within the same District and only the four persons receiving the most votes may be elected from within the District. If all individual members filing nominating petitions are from the same District, only four shall be elected and the board shall seek and appoint two directors from the other District. In addition, no more than two voting members of the combined Executive Committee and Board of Directors shall be partners or associates or otherwise practice together in the same law firm. A nomination for election to the Board of Directors is complete and filed only if it includes the following: n The Nominating Petition. The signatures of three (3) members in good standing must support each individual nominated. n A statement by that member of his availability and commitment to serve actively on the board.

nd Availability a Statement of ent Sample Commitm

n A head and shoulders picture (highresolution jpg format, preferred). n A short biography (1-2 paragraphs maximum). n A statement from the member, not to exceed 200 words, stating why the member thinks he or she should be elected to the Board of Directors. Below, please find a sample Nominating Petition and Commitment to Serve Statement. Nominations must be sent electronically to IDC Secretary/Treasurer Nicole D. Milos, Cremer, Spina, Shaughnessy, Jansen + Siegert, LLC, [email protected] and IDC Executive Director Sandra J. Wulf, CAE, IOM at idc@iadtc. org. Nominations must be accompanied with the five items listed above. All candidates will be featured with their biography, statement of candidacy, and picture in the IDC Quarterly. If more than six petitions are received, the feature will be sent to the membership. All nominating petitions must arrive at the IDC office no later than Friday, March 10, 2017. All candidates who have filed a complete nominating petition are eligible to receive an electronic copy of the IDC membership listing, upon request.

Nominat

in

g Petitio We, the un n Sample dersigned , hereby d in good sta ecla n _, Trial Coun ding of the Illinois A re that we are mem ____________ __ __ __ be s ssociation __ e l. __ __________ of Defens rs standing of od go in r I, __________ e be em W e, the und that I am a m nsel and I do ersign hereby declare ense Trial Cou (fi ef D rm of to t on name, add ed, further nominate ti en ia m it oc m ss m A is co d no li ress, c (nam the Il ability an Director o and affirm my f the Illino ity, state, zip code e of person) of of the Illinois rs to ec hereby warrant ir ) for the p D is of A ssociation ositio on the Board of Defens . el ns serve actively ou C al e Trial Co n of ense Tri ef J D o h of unsel. n on ti D ia o e (signatu Assoc re) __. 20 , J __ a n __ e __ D __ oe (sign ________ ature) ___ day of ____ Jack Doe _ Dated this ____ __ __ (s __ ig __ n __ a ture) Dated this ____________ ______ da ____________ __ __ __ __ __ y of ____ __ ________ ______, 2 Signature 0__. Fourth Quarter 2016 | IDC QUARTERLY | 55

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The IDC is proud to welcome the following members to the Association: Bide Akande Heyl Royster Voelker & Allen, P.C., Chicago Tyler Anderson Heyl Royster Voelker & Allen, P.C., Peoria David Berwin Evans & Dixon, LLC, St. Louis William Bingle Cremer, Spina, Shaughnessy, Jansen + Siegert, LLC, Chicago Sponsor: John P. Lynch Melvin Blaser Brown & James, P.C., Belleville Michael D. Eberle HeplerBroom LLC, Edwardsville Jill Eckhaus Hickey, O’Connor & Battle, LLP, Chicago Brian Ginley Skawski Law Offices, LLC, Oak Brook Corinne Haack HeplerBroom LLC, Edwardsville Sarah Kitlinksi Loyola University, Chicago Nathan Kolb Thomas, Mamer & Haughey, LLP, Champaign Katharine Lennox O’Halloran Kosoff Geitner & Cook LLC, Northbrook Bridget Liccardi HeplerBroom LLC, Chicago Brandon Lobberecht Betty, Neuman & McMahon, P.L.C. , Davenport Arsenio Mims Sandberg, Phoenix & von Gontard, P.C., St. Louis Mimi Moon Pretzel & Stouffer, Chtd., Chicago Temi F. Oduala HeplerBroom LLC, Chicago Sponsor: Aleen Tiffany Jaime L. Padgett Segal McCambridge Singer & Mahoney, Ltd., Chicago Daniel Pylman Brennan Garvey, LLC, Chicago Jennifer Schwendener The Miller Law Group, Hinsdale Jonathon Sommerfeld Loyola University, Chicago 62 | IDC QUARTERLY | Fourth Quarter 2016

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THE IDC MONOGRAPH: Wage Peace, Not War: What Employers Need to Know About the Fair Labor Standards Act Kimberly A. Ross Ford & Harrison LLP, Chicago James L. Craney Craney Law Group LLC, Edwardsville W. Scott Trench Brady, Connolly & Masuda, P.C., Chicago Karin Anderson O’Halloran Kosoff Geitner & Cook, LLC, Northbrook

IDC QUARTERLY | Volume 26 Number 4

Wage Peace, Not War: What Employers Need to Know About the Fair Labor Standards Act I. Introduction Over the past 15 years, employers have faced lawsuits under the Fair Labor Standards Act (FLSA) 1 with greater frequency and with increased damages. In fact, FLSA cases have surpassed all other types of employment cases. According to figures from PACER, on a national basis there were a total of 8,954 FLSA lawsuits filed in 2015, compared to only 4,021 in 2005, and 888 in 1990. The number of FLSA lawsuits decreased in only two years over the past 25 (2003 and 2007). Between 1990 and 2001 there was a relatively marginal increase from year to year. Then 9/11 happened, the “dot com” market took a large hit, and there were nearly double the number of FLSA lawsuits filed in 2002 (3,886) compared to 2001. Another spike between 2008 and 2010 likely correlates with the 2008 recession, when more employees were laid off. Overall, FLSA lawsuits have increased about 450% since just 2000. If new overtime regulations go into effect, employers can likely expect another spike thereafter. U.S. Department of Labor (DOL) statistics show that, in 2015, the DOL filed 10,642 minimum wage violation cases and 10,496 overtime violations. The DOL successfully recovered $37,828,554 for unpaid minimum wage violations and $137,701,703 for overtime violations.2 Multi-million dollar verdicts and settlements for FLSA suits are now commonplace. In addition to the country’s general economic status, increases in the number of FLSA cases can probably be traced to

About the Authors Kimberly A. Ross is a partner in the Chicago office of Ford & Harrison LLP. She received her J.D. from DePaul University College of Law and her B.A. from the University of Michigan. She practices employment law, including handling claims involving harassment and discrimination under federal and state laws, wage and hour claims, general employment practices, and common law torts such as negligent hiring and retention, retaliatory discharge, and defamation. In addition to her litigation practice, Ms. Ross frequently conducts seminars for clients in the area of employment law, including harassment and discrimination under Title VII, the Age Discrimination in Employment Act, the Americans with Disabilities Act, and the Illinois Human Rights Act. She also counsels clients on general employment policies and practices, including reductions in force, hiring, performance evaluations, disciplining, conducting investigations, and terminations. In addition, Ms. Ross also drafts employee handbooks and other policies and drafts and reviews agreements between employers and their employees. Ms. Ross was a past Editor-in-Chief of the IDC Quarterly. In addition to the IDC, she is a member of Defense Research Institute (DRI) (serving as Community Chair of the Employment and Labor Law Committee), the Decalogue Society of Lawyers, and the Women’s Bar Association. James L. Craney is the founding partner of Craney Law Group LLC. His areas of practice include insurance coverage litigation and general litigation with an emphasis upon trial. Mr. Craney also has extensive experience with employment law, municipal law, environmental litigation, first party insurance litigation and complex business litigation. In addition, he regularly appears before the EEOC and Illinois Department of Human Rights representing employers throughout the administrative review process. Mr. Craney

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obtained the Health Law Certificate from St. Louis University Law School, and previously clerked with the U.S. Department of Health and Human Services, Office of Inspector General. Prior to his legal career, he worked as a statistical data analyst with Washington University Medical School, and has published extensively in medical and psychiatric journals. W. Scott Trench is a senior associate in the civil litigation department of Brady, Connolly & Masuda, P.C.’s Chicago office. His practice includes insurance coverage litigation and the defense of insured and self-insured clients in state and federal courts in construction, premises liability, employment, and commercial litigation matters. He received his undergraduate degree from Arizona State University in 1995 and his law degree from the DePaul University College of Law in 1999. Karin Anderson is an attorney with O’Hallaron Kosoff Geitner & Cook, LLC and has been with the firm since 2011. Ms. Anderson focuses her practice on employment law, §1983 civil rights litigation, municipal liability defense, and general tort defense. Her comprehensive employment law practice encompasses litigation, training, and consulting. She has extensive experience with cases involving Title VII, ADEA, FLSA, FMLA, ADA, Retaliatory Discharge, IWPCA and IMWL. Before joining OKGC, Ms. Anderson practiced employment law for eight years, primarily in the private sector. She operated her own firm for two years and provided consulting and training services for private employers on compliance with anti-discrimination statutes, various leave laws, employment contracts and miscellaneous human resource matters. She frequently presents on employment law topics and has also served as the Editor of the Illinois Employment Newsletter.

an increase in the number of attorneys who find the field lucrative given the fee-shifting provision in the law. FLSA claims are typically filed as collective actions, which helps increase the overall potential attorneys’ fees. Common sense dictates that more layoffs mean more disgruntled employees. The further we get from 1938, when the law was enacted, the more outdated and antiquated the original law and definitions become, and the less similarities there are to the economic realities and conditions that existed nearly 80 years ago. The country has moved from the manufacturingcentered economy that existed in 1938 to a more service-based economy, and the changes in technology in the past 80 years are immeasurable. Twenty-first century employees are more savvy and educated on their rights due to the ease with which they can research the law and communicate with others on the Internet. Further, large wins for employees are often publicized. In 2003, which is the last time an IDC Monograph was published on the subject of the FLSA, the article discussed, among other things, the fact that there were proposals for new regulations to increase the minimum payment for an employee to qualify for one of the “white collar” exemptions from overtime laws from $155 to $425 per week.3 In 2004, the final minimum amount was $455. In May 2016, the DOL issued regulations to increase that number to $913 per week (six times more than just 13 years ago and double the current threshold) effective December 1, 2016. On November 22, 2016, however, a federal District Court in Texas issued a nation-wide injunction halting the implementation of the new overtime rules. Therefore, as of publication, it is unknown whether these new regulations will ever be implemented,

The purpose of this Monograph is to provide the reader with an overview of the Fair Labor Standards Act, including a detailed analysis of the main exemptions from overtime and minimum wage requirements, the most common mistakes in misclassifying employees as exempt or as independent contractors, proper and improper wage deductions, issues that have increased with a growth in telecommuting, and current issues in litigating FLSA cases.

or whether under a new presidential administration, they will be scaled back or repealed. We will not know until either the new administration or the court speaks to the issue, and there is no way to predict which may occur first. The 2003 IDC Monograph also discussed recent large verdicts and settlements in the amounts of $10 million, $18 million, and $29.9 million.4 More recently, there have been settlement payments of $73 million (Bank of America) in 2013, $56.5 million (Brinker Restaurant Corp.) in 2014, and $228 million (FedEx) in 2015. In light of these numbers and recent trends, employers must become better educated about the requirements of the FLSA to avoid the often overwhelming effects of litigating wage claims. Employers should also be familiar with their own state’s wage and hour laws. The parallel state law in Illinois is the Minimum Wage Law,5 which generally mirrors the requirements of the FLSA, but carries different penalties. The purpose of this Monograph is to provide the reader with an overview of the Fair Labor Standards Act, includ-

ing a detailed analysis of the main exemptions from overtime and minimum wage requirements, the most common mistakes in misclassifying employees as exempt or as independent contractors, proper and improper wage deductions, issues that have increased with a growth in telecommuting, and current issues in litigating FLSA cases. Importantly, this Monograph will discuss the new regulations pertaining to overtime for white collar workers that were enacted on May 18, 2016 and which were scheduled to go into effect on December 1, 2016 but which are on hold (at least temporarily and possibly permanently). Note that this Monograph is limited to provisions dealing with private employers; it will not address the FLSA provisions relating to government employers.

II. Overview Enacted in 1938 as a result of the serious socioeconomic circumstances during the Great Depression, the FLSA was designed to protect “certain groups of the population from substandard — Continued on next page

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wages and excessive hours which endangered the national health and well-being and the free flow of goods in interstate commerce.”6 The FLSA mandates that, with certain exceptions, employees must be paid overtime (time and a half) for any hours over 40 during a workweek, as well as minimum wage (based on either the federal minimum wage or an individual state’s minimum wage if it is higher than the federal level). Employees who fall within one of the exceptions are referred to as “exempt,” which means they do not have to be paid time and a half (or minimum wage in certain circumstances) if they work more than 40 hours in a week. Although there are dozens of specific exemptions from FLSA regulations (for overtime, minimum wage, or both), the Department of Labor estimates that 86% of the workforce falls into the non-exempt classification. There is no prohibition against paying an exempt employee by the hour and paying overtime; rather, employers are prohibited from not paying overtime to non-exempt employees. The FLSA is enforced by the Wage and Hour Division (WHD) of the DOL. Lawsuits can also be filed in federal courts throughout the country.

III. Coverage Under FLSA Not every employer is subject to the provisions of the FLSA; nor is every employee protected by the FLSA. An “employer” is defined by the FLSA as “any person acting directly or indirectly in the interest of an employer in relation to an employee . . . .”7 An “employer,” therefore, may be an individual, a corporation, a partnership, an association, or a representative of a corporation. Note, however, that the DOL regulations implementing the FLSA provide that an

Even where an individual’s employer is not governed by the FLSA under Enterprise Coverage, the individual may be protected by the FLSA if his or her work regularly involves interstate commerce.

employee may have more than one employer.8 Such “joint employment” arises when the employee “performs work which simultaneously benefits two or more employers” and “one employer is acting directly or indirectly in the interest of the other employer (or employers) in relation to the employee.”9 In fact, joint employment cases are gaining the attention of the DOL. On January 20, 2016, the WHD issued an Administrator’s Interpretation establishing new standards for determining joint employment under the FLSA. It is anticipated that the WHD will use the Administrator’s Interpretation as justification for charging a greater number of employers with violations of the FLSA by arguing that they are joint employers with the entity committing the actual violations.10 The FLSA applies to all employees of certain enterprises engaged in interstate commerce (Enterprise Coverage). Employees of businesses not covered through Enterprise Coverage can be covered as individuals if they are involved in interstate commerce, i.e., “Individual Coverage.”11 Hence, an employer may be subject to the FLSA on an enterprise basis or it may be subject to the law only with respect to certain individual employees. Under an “enterprise” application, all non-exempt employees who work for certain businesses or enterprises are pro-

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tected by the FLSA. Courts have broadly interpreted Enterprise Coverage.12 If an enterprise meets the threshold gross dollar volume amount of at least $500,000 a year in revenue, all employees of the employer are covered under the FLSA as long as some of its employees are: 1) engaged in commerce; 2) engaged in the production of goods for commerce; or 3) engaged in handling, selling, or otherwise working on goods or materials that have been moved in or produced for commerce.13 Hospitals, businesses providing medical or nursing care for residents, schools and preschools, and government agencies are automatically deemed to be “enterprises” engaged in commerce subject to the FLSA regardless of the annual gross sales volume of those businesses.14 Even where an individual’s employer is not governed by the FLSA under Enterprise Coverage, the individual may be protected by the FLSA if his or her work regularly involves interstate commerce. If an individual is engaged in interstate commerce, production of goods for interstate commerce, handling or working on goods or materials that are moving in interstate commerce, or is in an occupation that is closely related or directly essential to the production of goods for interstate commerce, that employee is covered on an individual basis by the FLSA.15 Under an individual

theory of coverage, “[t]he test under this present act . . . is not whether the employee’s activities affect or indirectly relate to interstate commerce but whether they are actually in or so closely related to the movement of the commerce as to be a part of it.”16 Examples of employees involved in interstate commerce include those who produce goods that will be sent out of state (such as a factory worker), who regularly make telephone calls to persons located in other states, who handle records of interstate transactions or travel to other states on their jobs, or who perform janitorial work in buildings where goods are produced for shipment outside the state. Also, domestic service workers, such as housekeepers, full-time babysitters, and cooks, are normally covered by the FLSA. A. Exemptions from Overtime and Minimum Wage under FLSA The most common exemptions from overtime and minimum wage laws are executive, administrative, and professional. 17 There are also exemptions for commission salespersons,18 certain computer professionals,19 outside salespersons,20 salespersons, parts men, and mechanics at automobile dealerships,21 artists, 22 and certain farmworkers, 23 among many others. Some of these exemptions are discussed below as a general guide, but it must be understood that within each definition provided by the regulations interpreting the FLSA, many more terms must be defined and understood to perform a thorough analysis. The below summaries are not intended to be full substitutes for reviewing the law, but rather, an overview of the general principles of the exemptions.

1. Executive An executive is an employee whose primary duty is managing the enterprise or managing a customarily recognized department or subdivision of the enterprise. The executive employee must be compensated on a “salary basis” at a rate of not less than $455 per week or $23,660 per year.24 The executive employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent and must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement or promotion or any other change of status of other employees must be given particular weight.25 Many employers believe that if they call someone a “manager,” that person falls within the exemption, which is not the case. The regulations provide a detailed list of what constitutes “management” under the exemption, including activities such as interviewing, selecting, and training of employees; setting and adjusting employees’ rates of pay and hours of work; directing the work of employees; maintaining production or sales records for use in supervision and control; appraising employees’ productivity and efficiency for the purpose of recommending promotions or other status changes; handling employee complaints and grievances; disciplining employees; planning the work; determining the techniques to be used; apportioning the work among the employees; determining the type of materials, supplies, machinery, equipment or tools to be used or merchandise to be bought, stocked and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety and security of the em-

ployees or the property; planning and controlling the budget; and monitoring or implementing legal compliance measures.26 2. Administrative The administrative exemption is perhaps one of the most commonly misapplied and misunderstood exemptions. In addition to the compensation being on a salary or fee basis at a rate not less than $455 per week (with the increase on hold), an administrative employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers. The employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.27 It is this last element that perhaps causes the most room for error, as employers must analyze the concepts of “discretion and independent judgment” and “matters of significance.” The regulations provide many examples of these concepts. “Discretion and independent judgment” involves the comparison and evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. Factors to consider include, but are not limited to: whether the employee has authority to create, enforce, or deviate from management policies without higher level approval; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree; and whether the employee has — Continued on next page

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authority to commit the employer in matters that have significant financial impact. The fact that an employee’s decisions are revised or reversed after review does not mean that the employee is not exercising discretion and independent judgment.28 The term “matters of significance” refers to the level of importance or consequence of the work performed.29 A few examples of employees who fall under the administrative exemption provided in the regulations may include insurance claims adjusters, employees in the financial services industry, an executive or administrative assistant to a business owner or senior executive of a large business, and human resources managers. 30 It must be understood, however, that there are specific qualifiers for each of these examples. 3. Professional Professionals are employees who are compensated on a salary or fee basis at a rate not less than $455 per week (with the increase on hold). Their primary duty must be the performance of work requiring advanced knowledge, defined as work that is predominantly intellectual in character and that includes work requiring the consistent exercise of discretion and judgment. The advanced knowledge must be in a field of science or learning and must be customarily acquired by a prolonged course of specialized intellectual instruction (i.e. typically an education that results in an advanced degree). 31 Common examples of “professionals” under the FLSA include physicians, attorneys, accountants, architects, pharmacists, and certain scientists and engineers, although there are certainly others who may fall into the exemption.32

Professionals are employees who are compensated on a salary or fee basis at a rate not less than $455 per week (with the increase on hold). Their primary duty must be the performance of work requiring advanced knowledge, defined as work that is predominantly intellectual in character and that includes work requiring the consistent exercise of discretion and judgment.

FLSA regulations also provide that an employee holding a valid license or certificate permitting the practice of law or medicine is exempt if the employee is actually engaged in such a practice. Thus, a lawyer working as a barista will be considered non-exempt in that position because the salary and salary basis requirements do not apply to bona fide practitioners of law or medicine. Those practicing law or medicine, however, do not have to be paid in excess of the salary threshold.33 Teachers are also exempt under the professional category if their primary duty is teaching, tutoring, instructing, or lecturing in the activity of imparting knowledge and if they are employed and engaged in this activity in an educational establishment.34 Examples of exempt teachers include, but are not limited to: regular academic teachers, kindergarten or nursery school teachers, driving instructors, and music teachers.35 The possession of elementary or secondary teaching certificates is a clear means of identifying the individuals contemplated as being within the scope of the exemption for teaching professionals.36 Also falling under this exemption are “creative professionals,” whose

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primary duty must be the performance of work requiring invention, imagination, originality, or talent in a recognized field of artistic or creative endeavor. A “recognized field of artistic or creative endeavor” includes such fields as music, writing, acting, and the graphic arts.37 The requirement of “invention, imagination, originality or talent” generally is met by actors, musicians, composers, conductors, and soloists; painters (who at most are given the subject matter of their painting); cartoonists; essayists, novelists, short-story writers and screen-play writers who choose their own subjects and hand in a finished piece of work to their employers (the majority of such persons are, of course, not employees but rather are self-employed); and persons holding the more responsible writing positions in advertising agencies.38 There is also an exception for highly compensated employees if they are paid at least $100,000 per year (with the previously scheduled increase of $134,000 also on hold as of publication), perform office or non-manual work, and customarily and regularly perform at least one of the duties of an exempt executive, administrative, or professional employee.

4. Computer The computer exemption from both minimum wage and overtime pay applies to computer systems analysts, computer programmers, software engineers and other similarly skilled workers in the computer field who meet certain tests regarding their job duties and who are paid at least $455 per week (with the increase on hold), or who are paid at a rate of not less than $27.63 per hour (which will not change no matter what happens with the previously scheduled increase).39 For the computer exemption to apply, the employee’s primary duties must consist of: 1) the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications; 2) the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications; 3) the design, documentation, testing, creation, or modification of computer programs related to machine operating systems; or 4) a combination of the aforementioned duties, the performance of which requires the same level of skills.40 5. Outside Sales The outside sales exemption applies to employees whose primary duty is making sales within the meaning of section 3(k) of the FLSA, or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer. The employee must be customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty. In

determining the primary duty of an outside sales employee, work performed incidental to and in conjunction with the employee’s own outside sales or solicitations, including incidental deliveries and collections, shall be regarded as exempt outside sales work. Other work that furthers the employee’s sales efforts also shall be regarded as exempt work including, for example, writing sales reports, updating or revising the employee’s sales or display catalogue, planning itineraries and attending sales conferences.41 6. Commission Employees The commission exemption applies to: 1) sales employees of retail or service establishments, 2) if more than half of the employee’s earnings come from commissions and, 3) the employee averages at least one-and-a-half times minimum wage for each hour worked.42 Certain salesmen, parts men, and mechanics in automobile dealerships are also exempt from overtime pay provisions of the FLSA.43 However, they are not exempt from minimum wage requirements and, therefore, these employees must be required to keep track of their hours no differently than non-exempt employees so that the employer at all times is paying minimum wage, especially if little or no commissions are paid in a particular week. B. New FLSA Regulations As mentioned above, one of the requirements common to the executive, administrative, and professional employee exemptions (as well as for computer employees) is a minimum weekly salary, which is currently $455 per week, or $23,660 per year. On May 18, 2016, the DOL published its new regulations on overtime rules and has

now set the minimum weekly wage at $913, or $47,476 per year.44 Accordingly, in order for employees to be treated as exempt under the above four categories of workers (in addition to performing the duties unique to each), they would have to earn at least $913 per week. As previously mentioned, this increase is currently on hold, possibly to never go into effect and possibly to be modified or eventually enacted as is. The DOL’s goal was to set the standard salary level at the 40th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, which is currently the South. If they do not meet this threshold, they must be paid overtime for any hours they work over 40 in a work week, even if they perform all the duties required for the exemption. Because as of publication, the status of the increase of the overtime threshold for white collar workers is fluctuating, this Monograph will still discuss what the new rule was set to change. There are several other changes of which employers need to be aware. First, the total annual compensation of a “Highly Compensated Employee” (HCE) would increase to $134,004 (up from $100,000). The goal was to set the total annual compensation requirement for HCEs to the annual equivalent of the 90th percentile of full-time salaried workers nationally. The new rule would amend the “salary basis test” to allow employers to use nondiscretionary bonuses and incentive payments (including commissions) to satisfy up to 10 percent of the new standard salary level. These payments would need to be made on a quarterly or more frequent basis. Discretionary bonuses, such as holiday bonuses, will not be allowed to satisfy any portion of — Continued on next page

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the new standard salary level. Further, the new rule, as written, would establish a mechanism for automatically updating the salary and compensation levels every three years to maintain the levels at the above percentiles. The first increase of the standard salary level was set to be on January 1, 2020 and then occur every three years thereafter. These dates could change should any increase ever finally go through due to the delay.   With the new rule previously set to go into effect on December 1, 2016, employers were working to assess their workforce to determine their next steps, and would have had to do the same before each of the automatic increases every three years. Companies with exempt employees who were only slightly below the new minimum weekly wage had to decide whether it made more sense to simply increase salaries to meet the new minimum rather than pay overtime. Employers were analyzing the number of hours over 40 their exempt employees had been working to make the determination. For situations in which the salary levels were much lower than the future minimum, or if it was going to be cost prohibitive for the company to raise salary levels, companies would need to begin treating those employees as non-exempt and pay them overtime (or take active steps to prevent overtime work if the company cannot afford to pay overtime). Companies can calculate an appropriate hourly rate that takes into consideration the expected number of overtime hours the employee will work. If these calculations are performed accurately, the overtime hours remain consistent, and limitations on performing overtime work are enforced, the new rules and subsequent triennial increases do not have to cost companies more in

An employee is not paid on a salary basis if “deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business.”

the long run. With the new overtime rules being on hold, employers are scrambling to understand what they should do. Some had already set in motion the changes, including by notifying employees of their status change (and potential salary increase) and fear decreased morale if they do not go through with the change. For now, employers who do not wish to implement the changes do not have to do so. This will have to be an individual business decision for each employer. In addition, companies would need to make sure that they are keeping track of their newly non-exempt employees’ hours the same way they do for their previously non-exempt employees’ hours (as is required under the FLSA). Moreover, companies would need to be aware of the laws of the states in which they have employees, as some states (including Illinois, Wisconsin, and California, to name a few) require tracking of all employees’ hours, regardless of exemption status. C. Salary Basis and Wage Deductions for Exempt Employees The “salary basis test” (used in the executive, administrative, professional, and Computer exemptions) prohibits deductions from pay subject to few exceptions.45 Consequently, an employer

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may unwittingly convert an otherwise exempt employee to non-exempt by improperly deducting wages. 46 An employee is not paid on a salary basis if “deductions from the employee’s predetermined compensation are made for absences occasioned by the employer or by the operating requirements of the business.”47 So long as the employee is “ready, willing and able to work, deductions may not be made for time when work is not available.”48 1. Permissible Deductions for Exempt Employees The FLSA’s implementing regulations set forth permissible deductions that include the following: Personal Days: An employer may make wage deductions when an exempt employee is absent from work for personal reasons, other than sickness or disability.49 The deduction only applies to full day absences.50 Accordingly, if an employee takes off a full day and a half day the employer may only deduct for one full-day absence.51 Sickness/Disability Absences: Deductions for full day absences due to sickness, disability or work-related accidents are permitted if made “in accordance with a bona fide plan, policy or practice of providing compensation for loss of salary” due to the sickness

or disability.52 Wage deductions may also be taken for one or more full day absences where salary replacement benefits are provided by a State’s disability insurance law or workers’ compensation statute.53 Jury Fees and Military Duty Pay: An employer may not make wage deductions of an exempt employee for jury duty, attendance as a witness or temporary military leave.54 However, the employer may offset any amounts received by an employee for jury fees, witness fees or military pay for a particular week against salary due for that week.55 Safety Violations: Employers may take deductions for penalties imposed in good faith for infractions of “safety rules of major significance.”56 Safety rules of major significance include rules designed to prevent danger in the workplace or to other employees.57 Disciplinary Suspensions: An exempt employee may be suspended without pay for one or more full days for violation of a workplace conduct rule if done in good faith and pursuant to a written policy applicable to all employees.58 First and Last Week of Employment: Employers are not required to pay full salary in the initial or terminal week of employment if the employee works less than the full week.59 FMLA: When unpaid leave is taken under the Family Medical Leave Act, an employer may pay a proportionate part of the full salary for time actually worked.60 2. Effect of Improper Salary Reductions of Exempt Employees The loss of exemption status is triggered when the facts demonstrate the employer did not intend to pay employees on a salary basis.61 This intent is demonstrated where the employer has

an “actual practice” of making improper deductions.62 The FLSA’s implementing regulations list several factors to consider in determining whether such an actual practice exists: 1) the number of deductions, particularly as compared to the number of employee infractions warranting discipline; 2) the time period during which the employer made improper deductions; 3) the number and geographic location of employees whose salary was improperly reduced; 4) the number and geographic location of managers responsible for taking the improper deductions; and 5) whether the employee has a clearly communicated policy permitting or prohibiting deductions.63 If an actual practice of making improper deductions is established, the exemption is lost during the time period in which the improper deductions were made.64 The loss of exemption status applies to all employees in the same job classification working for the same managers responsible for the actual improper reductions.65 The FLSA’s implementing regulations do provide employers with protection against loss of exemption status for “isolated or inadvertent” improper deductions if the employer reimburses its employees.66 In addition, the regulations provide that employers with a “clearly communicated policy” which prohibit improper deductions and include a complaint mechanism can avoid losing exemption status. 67 Employers must still reimburse employees subjected to improper deductions and make a good faith effort to comply in the future. 68 The best evidence of a clearly communicated policy is a written policy distributed to employees.69 Consequently, employers should incorporate a policy prohibiting improper salary deductions, with an

established complaint mechanism, in employee handbooks or other written material readily available to employees. D. Wage Deductions for Non-Exempt Employees In order to determine how much compensation a non-exempt employee is entitled to receive, employers must know the number of compensable hours worked by that employee.70 Employers can run afoul of the FLSA by failing to properly pay employees for certain work activities that are compensable even though performed outside of the employee’s scheduled shift hours or away from workplace.71 The FLSA defines “employ” as to “suffer or permit to work.”72 The onus is on the employer to exercise control to ensure work it does not want performed is not performed.73 An employer may not turn a blind eye and accept the benefits of work without compensating its employees.74 An employee who voluntarily continues to work past the end of his scheduled shift is compensable where the employer knows or has reason to believe work is continuing.75 Compensable hours may also include work performed away from the job site or even at home where the employer knows or has reason to know such work is being performed.76 1. On Duty and Off Duty Time Employees are entitled to compensation when “on duty,” which may include periods of inactivity. 77 The FLSA’s regulations include several examples of compensable time for on duty periods of inactivity such as a factory worker chatting with his co-workers while waiting for machinery repairs.78 These — Continued on next page

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periods of compensable inactivity are unpredictable and typically of short duration.79 Consequently, the employee is unable to use the time effectively for his or her own purposes; the time belongs to and is controlled by the employer.80 An employee will be considered “off duty” when completely relieved from duty for such period of time sufficient to allow the worker to effectively use the time for his or her own purposes.81 2. Rest and Meal Periods The FLSA does not mandate rest or meal breaks; however, employers must comply with certain rules if they do allow such breaks. Also, certain states, such as Illinois, do require meal breaks and/or rest breaks. Rest periods of short duration, generally 5 to 20 minutes, are considered to promote efficiency in the workplace and must be counted as hours worked.82 In contrast, bona fide meal periods, which do not include coffee breaks or time for snacks, and are typically 30 minutes or longer, are not considered work time.83 The employee must be completely relieved of duty for the purpose of eating regular meals. 84 It is not necessary that the employee be permitted to leave the premises if he is otherwise completely freed from duties during the meal period.85 Again, employers must check their state’s laws as to whether meal breaks are mandatory. 3. Lectures, Meetings, and Training Programs When an employer requires an employee to attend a lecture, meeting, training program, or similar activity, the time is considered compensable work time. Attendance at such activities need not be counted as compensable

hours if four conditions are satisfied: 1) attendance is outside of the employee’s regular working hours; 2) attendance is in fact voluntary; 3) the course, lecture, or meeting is not directly related to the employee’s job; and 4) the employee does not perform any productive work during such attendance.86 4. Travel Time The Portal-to-Portal Act provides employers with protection from liability under the FLSA for failing to compensate employees for travel “to and from the actual place of performance of the principal activity or activities which such employee is employed to perform.”87 As a result, normal commuting to and from work is not compensable work time.88 However, there are several situations in which travel is deemed compensable work time. An employee who regularly works at a fixed location in one city and is given a special one-day assignment requiring travel to another city is not regarded as normal home-to-work commuting and is compensable.89 The employer may offset the employee’s normal commute time against the special assignment city-to-city travel time since the employee would have been required to report to the regular work location but for the special assignment.90 Travel that is “all in a day’s work” is compensable, such as travel from job site to job site.91 Finally, overnight travel away from home is considered work time when it cuts across the employee’s regular work hours because the employer is simply substituting travel for other duties.92 However, time spent in travel away from home outside of regular work hours as a passenger on an airplane, train, boat, bus, or automobile is not considered work time.93

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5. Preliminary and Postliminary Activities (Donning and Doffing) The Portal-to-Portal Act also limits an employers’ liability with respect to compensation for activities which are “preliminary to or postliminary to” the principal activity or activities that an employee is employed to perform during the workday.94 Principal activities include all activities which are an integral and indispensable part of the principal activities.95 Consequently, when donning and doffing of protective gear and clothing is required at the workplace before or after a regular work shift, it is generally compensable under the FLSA.96 However, section 203(o) of the FLSA provides that time spent “changing clothes or washing” at the beginning or end of a shift may be excluded from compensable time through a collective bargaining agreement.97 In Sandifer v. United States Steel Corp.,98 the Supreme Court addressed a claim by union employees that they were not properly compensated for donning and doffing items including: flame-retardant jackets, pants, and hood; hard hats; gloves; wristlets; leggings; steel-toe boots; safety glasses; earplugs; and a respirator.99 The employer argued the time was non-compensable under its collective bargaining agreement because the donning and doffing was “time spent changing clothes” under section 203(o).100 The Supreme Court provided a definition of “clothes” as “items that are both designed and used to cover the body and are commonly regarded as articles of dress.”101 Of the items at issue, only safety glasses, earplugs and the respirator were deemed to fall outside of section 203(o)’s definition of “changing clothes.”102 In affirming judgment for the employer, the Supreme Court articulated

In addition to employers potentially losing an exemption by making improper deductions from employees’ salaries, employers also frequently make mistakes in the classification of employees in the first place.

the test for courts was whether the preshift or post-shift period “on the whole” is fairly characterized as time spent in changing clothes or washing.103 If an employee spends the “vast majority” of time putting on and off equipment and other non-clothes items, the entire period would not qualify as “time spent changing clothes” under section 203(o), even if some clothes were donned and doffed as well.104 E. Misclassification: Exempt vs. Non-exempt In addition to employers potentially losing an exemption by making improper deductions from employees’ salaries, employers also frequently make mistakes in the classification of employees in the first place. Misclassification accounts for a significant number of lawsuits and DOL claims. Sometimes this is out of confusion over or misunderstanding of the law, or even simply ignorance of the law. Other times, the misclassification is an intentional attempt to take advantage of workers who may not know better. With proper education and training of employers, many of the most common mistakes in classifying employees can be avoided.

1. Common Mistakes and Misunderstandings Method of Pay: A frequent mistake in classification of employees occurs simply due to a misunderstanding of the concept of the methods of paying employees. Many employers incorrectly hold the belief that if they pay their employees a salary instead of an hourly wage, the employees are exempt from overtime laws, without even considering their job duties. Salary versus hourly is not akin to exempt versus non-exempt. In other words, salary and hourly are merely methods of paying employees, but the method has nothing to do with determining whether their specific job duties make them exempt from overtime or minimum wage requirements. For instance, an employer can tell a job applicant that he will be paid a salary of $40,000 per year to work as a receptionist. Calling the pay salary, however, does not exempt that employee from overtime laws. The $40,000 salary can be determined by roughly calculating an hourly rate of $19.25 and multiplying it by 40 hours a week and 52 weeks a year. If the receptionist (assuming he is only performing tasks such as greeting customers and answering phones) works more than 40 hours in a week, he must be paid overtime, regardless of the fact that the employer quoted him a salary of $40,000 per year.

Job Titles: Another common mistake is the belief that if the employer gives an employee an important-sounding title, he becomes exempt. Calling the above receptionist who is merely greeting customers and answering phones an “Executive Assistant,” or even “CEO” or “Controller,” will not exempt the employee from overtime laws. Likewise, an employee performing the duties of a CEO with the title of “receptionist” would still be exempt. Better Benefits to Exempt Employees: Even if the classification as exempt technically results in a benefit to the employee, the FLSA is still being violated. Again, many common mistakes occur due to ignorance of the law with employers believing they are helping their employees by paying them as if they are exempt. For instance, some employers may offer more or better benefits for their exempt employees than their non-exempt employees. Believing they are helping their otherwise non-exempt employees, they may decide to treat those employees as exempt. Even if the employer set the exempt salary level at a rate that takes into consideration the amount of expected overtime the employees would work, which would not actually result in a loss for the employees, such a scheme would violate the FLSA and subject the employer to significant damages and attorneys’ fees. 2. Penalties for Misclassification as Exempt The penalties that can result from misclassified employees can be devastating to an employer, even where the mistake was unintentional or even when it did not result in a significant loss to the employee. If an employee was treated as exempt, but was actually — Continued on next page

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non-exempt, he would be entitled to back pay of all overtime hours worked or minimum wages not paid.105 Further, the back pay damages will be liquidated (doubled) unless the employer can prove “to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that he had reasonable grounds for believing that his act or omission was not a violation of the FLSA.”106 As the Seventh Circuit has explained, however, “Doubling [the unpaid overtime] is not some disfavored ‘penalty.’” Although doubling is discretionary rather than mandatory, there remains “a strong presumption in favor of doubling, a presumption overcome only by the employer’s ‘good faith . . . and reasonable grounds for believing that [the] act or omission was not a violation.’ . . . Double damages are the norm, single damages the exception, the burden on the employer.”107 If the violation is found to be “willful,” which is defined as the employer knowing or having reckless disregard for whether its conduct was in violation of the FLSA, the statue of limitations is three years from the date of the underpayment. Otherwise, the statute of limitations is only two years.108 “A two-year period is the norm, a three-year period the exception, and the burden is on the employee to show that the violation was ‘willful.’ So it must be easier to get double damages than to extend the statute of limitations.”109 Employees who are improperly classified as exempt may also recover attorneys’ fees and litigation costs if they are successful. 110 Front pay or reinstatement may be available if the employee can prove retaliatory discharge for raising a FLSA violation.111 It should also be noted that the Illinois Minimum Wage Law (IMWL)

In addition to employers misclassifying employees as exempt when they are actually non-exempt, employers also frequently run into trouble with misclassifying employees as “independent contractors.”

mirrors the FLSA in terms of requiring payment of minimum wage and overtime and what constitutes a violation for misclassification of employees as exempt. The IMWL, however, contains different damages provisions. Under the IMWL, damages for underpayments (either for overtime or minimum wage) are not liquidated, but are automatically subject to interest of 2% for each month following the date of the underpayment.112 Actions under the IMWL must be brought within three years from the date of the underpayment.113 (There is no two year statute of limitations like there is under the FLSA.) Further, it is the employer’s duty to keep accurate records of the time worked, (three years under the FLSA114 and IMWL115) and in the case of litigation it will be the employer’s burden to prove that the employee did not work overtime or worked less overtime than the employee is claiming, or was at all times paid minimum wage. Because many employers also mistakenly do not require their “salaried” employees whom they are treating as exempt to keep accurate time records of their hours, they face an uphill battle in trying to meet their burden. This is just one reason why it is important for employers to require all employees, regardless of their FLSA status and regardless of their method of payment, to keep exact records of their time worked. Illinois, and a few other states, mandate keeping time records

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for all employees, not just exempt employees.116 Reclassifying employees to their proper status can be difficult and painful to a company’s bottom line, but done with proper guidance, it can frequently be performed with minimal damage. Failing to reclassify employees to their proper status when the error is realized will most often result in a much more costly situation, especially when more than one employee is involved, which is frequently the case. In addition to the potential for FLSA violations putting companies out of business, individual employees and officers can face personal liability for the violations, including monetary penalties and even imprisonment. Therefore, employers of any size can greatly benefit from having an attorney or human resources professional perform regular audits of their job classifications to make sure all employees are properly classified. F. Misclassification: Independent Contractor v. Employee In addition to employers misclassifying employees as exempt when they are actually non-exempt, employers also frequently run into trouble with misclassifying employees as “independent contractors.” The DOL has described the misclassification of employees

as independent contractors as “one of the most serious problems facing affected workers, employers and the entire economy.”117 In recent years the DOL has increased its enforcement activities through the “Misclassification Initiative,” by collaborating with the Internal Revenue Service and partnering with 30 states to share information and coordinate enforcement activities. 118 For fiscal year 2015, the DOL reports collecting $74 million in back wages for more than 102,000 employees. 119 Beyond increased enforcement by the DOL, well-publicized lawsuits against ride-hailing companies Uber and Lyft are likely to spur even more employee misclassification litigation. The FLSA defines “employee” as “any individual employed by an employer.”120 The term “employ” is defined as “to suffer or permit to work.”121 These statutory definitions are broad and comprehensive in order to accomplish the remedial purposes of the statute.122 As a result, some individuals who might not qualify as an employee under traditional agency law principles will meet the statutory definition of an employee under the FLSA.123 Moreover, employee status is not controlled by the “label” used by the parties to describe the employment relationship or even a contract describing an individual as an independent contractor.124 When deciding whether individuals are employees under the FLSA, courts apply the “economic reality” test and consider all the circumstances of the work activity.125 The test seeks to determine whether, as a matter of economic reality, individuals are dependent upon the business to which they render service or are in business for himself or herself.126 Application of the economic reality test generally involves the analysis of six

non-exclusive factors, often referred to as the Silk127 factors, although no single factor is dispositive or controlling.128 1. Work Integral to the Business The extent to which the service rendered is an integral part of the alleged employer’s business is a factor to be considered.129 Workers are more likely to be deemed employees under the FLSA where the service performed was a primary function of the alleged employer’s business.130 For example, migrant workers who harvested pickles for a business that sold pickles performed work integral to the business.131 Workers hired as maids to clean homes for a housekeeping business performed the primary function of the business.132 2. Managerial Skill for Profit/Loss Whether an individual’s managerial skill affects the worker’s opportunity for profit or loss is taken into account. A worker’s ability to work more hours or earn more by performing work more efficiently has little to do with the exercise of managerial skill and does not necessarily suggest an independent contractor relationship.133 Individuals who make capital investments, advertise, determine location and set pricing exhibit managerial skill which impacts profit and loss.134 When these types of decisions are controlled by the employer, an independent contractor relationship is not indicated.135 Hiring other employees may support independent contractor status as long as the ability to hire is not controlled by the employer.136

3. Relative Investment An individual’s investment in work tools or equipment needed to perform his or her job does not preclude a finding of employee status.137 Significant personal investments are more representative of an independent contractor than an employee.138 When analyzing this factor it is appropriate to compare the workers’ individual investment to the employer’s overall investment in the business.139 4. Skill and Initiative The Court of Appeals for the Seventh Circuit has admonished that skills “are not the monopoly of independent contractors.”140 The fact a worker has a specialized skill is not alone indicative of independent contractor status.141 To support an independent contractor relationship, the individual’s specialized skill should be used in an independent way demonstrating business initiative.142 For example, workers with specialized skills such as nurses143 and pipe welders144 have been found to be employees under the economic reality test. 5. Permanency of the Relationship The more permanent the working relationship is the more likely this factor will weigh in favor of employee status.145 Independent contractors generally have a fixed employment period and offer their services to different employers.146 A lack of permanency or long duration of employment is not necessarily dispositive. Courts will make allowances for workers in industries with unique operational characteristics such as seasonal workers.147 — Continued on next page

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6. Control The control factor looks both at the alleged employer’s exercise of control over the manner in which the work is done and whether the worker exerts control over a meaningful part of the business to stand as a separate economic entity.148 Workers who lack control over hiring and firing, amount of pay, hours of work, and how the work is performed are less likely to be considered independent contractors. 149 Direct supervision of an individual’s work is not required. Homeworkers of many varieties who are generally subject to little direct supervision have consistently been found to be employees under the FLSA.150 Business needs of an employer will not excuse compliance with the FLSA.151 Where the nature of the business requires the exercise of control over workers, the employer must hire employees, not independent contractors.152 Similar to misclassification of a nonexempt employee as exempt, employers who improperly classify employees as independent contractors face significant exposure. A misclassified employee is entitled to recover the amount of any unpaid minimum wages, unpaid overtime and an additional equal amount as liquidated damages together with costs and reasonable attorney’s fees.153 Absent a showing of good faith and reasonable belief by the employer that it was in compliance with the FLSA, there exists a presumption that double damages be awarded.154 In addition to actual damages, federal courts have authority to restrain violations of the FLSA through an injunction. 155 Injunctive relief is appropriate after FLSA violations are established if there are insufficient assurances that defendants will comply with the FLSA in the future.156 Liability

The most recent Gallup poll on work and education estimates that 37% of United States workers telecommute at least two days per month, that is, they work from home using a computer or other technology. This means that there is a good chance that some of the 194,000 workers in Illinois who would have been reclassified may occasionally work from home.

under the FLSA for misclassification of employees as independent contractors is not an employer’s only concern. Employee misclassification also has significant implications for employers under the Illinois Unemployment Insurance Act157 and the Internal Revenue Code.158

IV. FLSA Issues in Telecommuting The DOL estimates that of the 4.2 million workers newly eligible for overtime under the FLSA (as of December 1, 2016), 194,000 of those workers reside in Illinois.159 The most recent Gallup poll on work and education estimates that 37% of United States workers telecommute at least two days per month, that is, they work from home using a computer or other technology.160 This means that there is a good chance that some of the 194,000 workers in Illinois who would have been reclassified may occasionally work from home. Should employers continue to allow employees to telecommute? What if an employee’s status changes from exempt to non-exempt (i.e. eligible for overtime) either under new

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DOL regulations or through job duties? What if the employee works from home as a reasonable accommodation under the ADA? Best practices suggest that employers should avoid making any hasty decisions regarding telecommuting arrangements currently in place whether or not new overtime rules are enacted. Employees who have been telecommuting may have been hired pursuant to a work-from-home arrangement or may have become accustomed to the telecommuting arrangement and now rely on it. Exempt employees do not have to worry about punching in or out or tracking their hours. They work at their convenience to complete the job satisfactorily without regard to the time it takes to get the job done. Reclassifying such employees to non-exempt status would require a change in mindset for both the employee and the employer. Some may have telecommuted to accommodate child care needs or other family obligations while others may simply live too far from the office to drive in each day. Employees may also have been approved for telecommuting as a reasonable accommodation under the ADA.

Should any new regulations come to fruition, no matter the form, employers should take the time before that to review their employment policies, modify job descriptions and meet with employees to discuss new job expectations and compliance with any new rules. 161 Employees would have to document their time in accordance with the FLSA and forego some of their flexibility, while employers would have to implement new timekeeping measures and ensure that employees comply. The FLSA does not require any specific method of tracking time, but it does mandate that an employee’s time be recorded accurately. Employers must maintain payroll records regarding the hours worked each workday and total hours worked each workweek for each employee subject to the minimum wage and overtime provisions.162 The Illinois Wage Payment and Collection Act requires Illinois employers to keep track of all employees’ hours, regardless of their exempt status. 163 While this task may seem daunting with respect to employees working offsite, it is more feasible now thanks to the advent of electronic time-tracking solutions. Employers can (and should) purchase software that tracks the actual start and end time of each work day and the start and end time of unpaid breaks. These programs take random screen shots when an employee is logged in and allow employers to view the employee’s screen to be sure the employee is performing work and not simply surfing the internet. There are also mobile phone applications that not only track time, but also provide clock in/out reminders, employee breaks and overtime alerts. Employees can also enter time manually and allocate time to certain projects or tasks. For employees who travel during the work day, GPS

location points can be added to time tracking applications. These locations are attached to the individual employee’s time sheet when he or she clocks in or out. Pricing for these applications vary and employers may be able to take advantage of free trial periods. For those employers who are unwilling or unable to purchase time-tracking software or mobile phone applications, the DOL suggests low-tech alternatives.164 For employees who work a fixed schedule that rarely varies, the employer may simply keep a record of the schedule and indicate the number of hours the worker actually worked only when the worker varies from the schedule. This is the “payroll by exception” approach. For an employee with a flexible schedule, an employer does not need to require an employee to sign in each time she starts and stops work. An employer could allow an employee to just provide the total number of hours she worked each day, including the number of overtime hours, by the end of each weekly pay period. This is the “weekly time sheet” approach. These lower-tech approaches, however, may pose extra difficulty for Illinois employers, who, under the Illinois One Day Rest in Seven Act, must also provide meal breaks to all employees (regardless of exemption status). It follows that best practices would have employers accurately keeping track of meal breaks to make sure that employees who are scheduled to work seven and a half or more hours in a day take a minimum of 20 minutes for a meal break within the first five hours of the day.165 The only way to absolutely ensure compliance with the Act (and the ability to prove compliance) is to require employees to clock in and out for their meal breaks. Moreover, even though meal breaks are not required under the FLSA like they are

under Illinois law, the FLSA regulations provide that if meal breaks are granted, employers can generally only deduct for meal breaks of 30 or more minutes.166 Therefore, Illinois employers must pay for breaks if they are between 20 and 30 minutes, so they may want to require breaks to be at least 30 minutes if they do not want to pay for meal breaks. Inherent in both of these low-tech approaches is the lack of safeguards for employers to reduce inaccuracies in employees’ time entries. An employee can easily claim that he or she worked additional hours before or after a shift or during a meal break and that the supervisor forgot, or refused, to record it. To alleviate these potential problems, employers who opt for the payroll by exception or weekly time sheet approaches should require their employees to record their time each day, rather than at the end of the week or pay period. Employers should also require employees to sign off on their hours at the end of each pay period. While this will not eliminate claims for unpaid overtime, it can be used to defend such claims. Employers should strongly consider setting out in writing a specific telecommuting agreement, which addresses the requirements for tracking hours, the expected hours during which the employee is expected to work, expectations regarding availability during those hours, frequency the employee is expected to check voicemail and email messages, and rules regarding preapproval for working overtime, among other things. Finally, employers must train their supervisors to communicate with their employees about the new timekeeping requirements and to review employee time records regularly to ensure strict compliance with the new overtime rule. — Continued on next page

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Employers managing disabled employees have additional factors to consider when determining if employees can telecommute because working from home can be a reasonable accommodation under the Americans with Disabilities Act.167 The ADA does not require an employer to allow telecommuting, but according to Global Workplace Analytics, a consulting and research firm that focuses on the business case for emerging workplace strategies, 463,000 disabled employees regularly work from home as a reasonable accommodation under the ADA.168 The ADA requires an employer to provide a reasonable accommodation to a qualified employee with a disability as long as the accommodation does not cause an undue hardship for the em-

less it imposes an undue hardship on the employer, i.e., a significant expense or a substantial burden, change or disruption of the employer’s operations.172 An employee may work from home as a reasonable accommodation under the ADA even if the employer does not otherwise allow telecommuting because changing the location of where work is performed is a modification of workplace policies.173 The employer might also provide the telecommuting employee with a software time-tracking application to help alleviate the employer’s burden of keeping accurate time records. As long as the employee can perform the essential functions of the job and not impose an undue burden on the employer, telecommuting should remain a viable option for qualified employees with a disability.

When defending FLSA claims, many issues arise that are particular to that cause of action. In addition to the obvious dangers presented by the FLSA’s fee-shifting provisions, specific features of FLSA claims require intensive analysis and strategic decision-making.

ployer.169 A reasonable accommodation is any change in the work environment or in the way things are customarily done that would enable the employee with a disability to enjoy equal employment opportunities.170 Examples of reasonable accommodations are making facilities more accessible, job restructuring, modifying workplace policies and schedules, acquiring equipment and providing leave.171 An employer must provide a reasonable accommodation un-

Employers should not eliminate working from home as a reasonable accommodation simply because of the new overtime rule. Such a knee-jerk reaction could result in unnecessary claims of disability discrimination.

V. Litigating FLSA Claims

  When defending FLSA claims, many issues arise that are particular to that cause of action. In addition to the

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obvious dangers presented by the FLSA’s fee-shifting provisions,174 specific features of FLSA claims require intensive analysis and strategic decision-making. This is particularly so with respect to FLSA claims brought as class-actions, and when faced with the settlement of FLSA claims. Moreover, FLSA litigation involves particularized issues relating to damages and affirmative defenses. A. Collective Actions and Class Actions The FLSA authorizes so-called “collective actions,” which are typically treated by courts in the same fashion as class-action cases, despite the fact that they fundamentally differ from class-actions.175 For example, the FLSA requires potential plaintiffs to opt in to a collective action. In contrast, plaintiffs in a class action filed under Federal Rule of Civil Procedure 23(b)(3) are included in the class definition until they opt out.176 The number of collective actions filed under the FLSA has risen dramatically in recent years.177 With the increase in such litigation, plaintiffs’ attorneys are experimenting with different strategies to maximize their odds of recovery. Often, plaintiffs will attempt to bring both a class action and a FLSA collective action. This allows the plaintiffs to pursue the FLSA statutory claims, and to simultaneously litigate supplemental state-law claims as a Rule 23(b)(3) class-action. As an example of this, in Ervin v. OS Restaurant Services, the plaintiffs alleged that an Outback Steakhouse violated the FLSA, the Illinois Minimum Wage Law,178 and the Illinois Wage Payment and Collection Act.179 The plaintiffs moved for a conditional approval of a

federal collective action under section 16(b) of the FLSA. 180 Plaintiffs also sought certification of the class under Rule 23(b)(3), relating to the alleged violations of the class-action claims.181 The district court denied class certification of the state-law claims, on the basis that there was a “clear incompatibility between the ‘opt out’ nature of a Rule 23 action and the ‘opt in’ nature of a section 216 [FLSA] action.” 182 The Seventh Circuit Court of Appeals disagreed and reversed the district court, noting: Outback complains that permitting a plaintiff who ends up in only the Rule 23(b)(3) class (because she neither opted out of that class nor opted in to the FLSA collective action) to proceed as part of the state-law class is in tension with the idea that disinterested parties were not supposed to take advantage of the FLSA. But such a plaintiff is doing no such thing. She will not be entitled to a single FLSA remedy, because she is not part of the FLSA litigating group. The most that one can say is that her state claim has found its way into federal court under the court’s supplemental jurisdiction. *** It does not seem like too much to require potential participants to make two binary choices: (1) decide whether to opt in and participate in the federal action; (2) decide whether to opt out and not participate in the state-law claims.183

To the defense attorney not experienced with FLSA claims, settlement of employees’ grievances could prove fraught with danger. The FLSA, including case law interpreting that statute, requires that any settlement of a claim under the FLSA must be supervised and approved by the Department of Labor, or a trial court.

Thus, employees may pursue FLSA collective actions in addition to class actions premised upon other statutes or doctrines. As a result, the complexity of such actions—particularly in states such as Illinois, with a robust wage and hour statutory framework—can be expected to increase. In addition, the ready availability of a collective and class action creates a target-rich environment for specialized plaintiffs’ attorneys who can more easily devote resources to one cause of action or focus upon one employer. B. Court Approval of Settlements To the defense attorney not experienced with FLSA claims, settlement of employees’ grievances could prove fraught with danger. The FLSA, including case law interpreting that statute, requires that any settlement of a claim under the FLSA must be supervised and approved by the Department of Labor, or a trial court. In many areas of civil litigation, once a settlement is reached, drafting the settlement agreement and obtaining a dismissal of the lawsuit are considered nearly a ministerial formality. However, in the context of the FLSA, a great deal of attention and

thought should be put into settlement of an employee’s claim. One issue that arises is in FLSA litigation is whether a so-called “private settlement” is enforceable. A private settlement is a settlement between an employer and an employee to settle a FLSA claim that is not approved by the court or the DOL. The U.S. Supreme Court, in two seminal cases, held that private settlements are not permitted under the FLSA.184 Federal courts have generally held that settlements of FLSA claims will be upheld under two circumstances: through a settlement supervised and approved by the Department of Labor, or when the settlement is approved by a court.185 The DOL is given authority to supervise a settlement of a FLSA claim through 29 U.S.C. § 216(c). Federal courts have found that a private action initiated under 29 U.S.C. § 216(b) may be settled when approved by the court. From the point of view of an employer, one serious issue is the confidentiality of settlements. Where FLSA litigation has been commenced, this creates a problem for settlement. If a claim brought under the FLSA is being litigated, submitting — Continued on next page

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C. Individual Liability under FLSA

Typically, the defendant employers in an employment action take the form of a corporation, limited liability company, or some other business form that shields individual owners and managers from liability. However, in the context of FLSA claims, owners, shareholders, managers and other personnel may find themselves subject to individual liability.

that claim to the DOL for a supervised settlement will mean that the terms of the settlement arrangement will not be confidential. The employer may be justified in worrying that the details of a settlement, if they become public, could encourage further FLSA claims. A similar problem emerges if the parties submit a settlement for court approval. A private FLSA claim initiated under 29 U.S.C. § 216(b) may be resolved through a stipulated judgment entered by the court, which has determined that the proposed settlement is a fair and reasonable resolution of a bona fide dispute over the FLSA’s application.186 Depending upon the position of the litigants, and the view of the particular trial court, it may be difficult or impossible to keep the terms of the settlement confidential. Some district court judges may allow the settlement agreement, itself, to be presented to the court for an in camera inspection and then enter a dismissal order specifically stating that the court has reviewed the agreement and finds it to be a fair and reasonable resolution of a bona fide dispute. The difficulties are also vexing when litigation has not yet been commenced. Employers often seek to settle “pre-suit”

demands quickly and quietly, in order to avoid additional suits from similarlysituated employees. However, in light of the law as discussed above, such a settlement will very likely be held invalid if challenged. Some employers may consider creative options for avoiding the difficulties associated with settling a FLSA claim. Where the matter is in litigation, the employer could forego a release, and simply contract for a dismissal with prejudice, hoping that a subsequent action initiated by the plaintiff employee is barred. In the “pre-suit” context, an employer may attempt to insulate itself from a subsequent FLSA claim by having the employee confirm in writing that they have been made whole through the complete payment of wages, and penalties under the FLSA. Employers should know that any such maneuver is extremely risky in light of prevailing trends in FLSA case law. However, in the right situation, it may well be worth the risk, particularly when the employee is represented by counsel.

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Typically, the defendant employers in an employment action take the form of a corporation, limited liability company, or some other business form that shields individual owners and managers from liability. However, in the context of FLSA claims, owners, shareholders, managers and other personnel may find themselves subject to individual liability. The FLSA defines an “employer” as “any person who acts, directly or indirectly, in the interest of an employer to any of the employees of such employer.” In this vein, recent courts have noted that individuals may be subject to liability under the FLSA. For example, in Lamonica v. Safe Hurricane Shutters, the Court of Appeals for the Eleventh Circuit held that any individual with control over an employer’s financial affairs who could potentially cause an employer to violate FLSA regulations could be subject to liability under the Act.187 This is so, even if he or she spends as little as one week per month at work. In Schneider v. Cornerstone Pints, the District Court for the Northern District of Illinois considered this issue, and analyzed the potential limits of this doctrine.188 In that case, wage violations were alleged at a restaurant operated by a corporate defendant and one individual defendant. Those two defendants conceded liability, and the court held a bench trial to determine whether two additional individual defendants—the owners’ brothers-in-law and investors in the business—were jointly liable as “employers” under the FLSA. In reaching the conclusion that the individual investor defendants were not joint-owners, the Schneider court noted that in order to be an “employer” under the FLSA, the following factors must be

considered: (a) a person must act in the interests of an employer in relation to an employee, although more than supervision of an employee is required; (b) all relevant facts should be considered, including the four commonly-bundled “economic realities factors;” (c) to be an employer, the defendant’s conduct must have caused, in whole or in part, the alleged violation; and (d) the defendant must have actually exercised his authority, at least enough to have caused the violation in whole or in part.189 Because the investors in Schneider “did not control the company’s operations, whether considered day-to-day or big picture, and in particular . . . the work issues for the employees,” and because they were not aware of the unlawful wage practices, the investors were not “employers” for purposes of FLSA liability. The court concluded that the investors “at most acted as sounding boards for Lewis and his ideas, and occasionally injected more money into the project.”190 The practical reality of Lamonica, Schneider and cases like them, are that individual owners, supervisors and investors should be aware of the potential for individual liability under the FLSA. Employers should consult with lawyers who are knowledgeable about this area of law, and conduct an assessment of policies and procedures, to determine whether personnel within the company may be subject to individual liability. D. Emotional Distress for Claims of FLSA Retaliation The FLSA provides that it is a violation for any person to “discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted or caused to be instituted any proceeding under or

related to this Act, or has testified or is about to testify in any such proceeding, or has served or is about to serve on an industry committee.”191 In order to assert a prima facie claim of retaliation under this provision of the FLSA, a plaintiff must prove: (1) that he or she engaged in an activity protected by the FLSA; (2) that he or she suffered adverse action by the employer subsequent to or contemporaneous with such protected activity; and (3) that a causal connection existed between the employee’s activity and the employer’s adverse action.192 Once an employee establishes a prima facie claim of retaliation, the burden shifts to the employer to provide a legitimate reason for the adverse action.193 If the employer successfully sets out a non-discriminatory basis for its adverse reaction, the plaintiff may put forth evidence to demonstrate the pretextual nature of the explanation proffered.194 The anti-retaliation provisions of the FLSA also describe the damages available under such an action. “Any employer who violates the provisions of section 215(a)(3) of this Act shall be liable for such legal or equitable relief as may be appropriate to effectuate the purposes of section 215(a)(3), including without limitation employment, reinstatement, promotion, and the payment of wages lost and an additional equal amount as liquidated damages.”195 Various federal circuit courts have held that “legal or equitable relief” includes emotional distress damages.196 Notably, the Court of Appeals for the Seventh Circuit has held that emotional distress damages are available under the FLSA.197 In light of these holdings, employers should be aware that verdicts resulting from FLSA claims may include more than wages awards, penalties and attorney’s fees. They may also include

emotional distress damages, which under certain circumstances could be quite high. E. Affirmative Defenses to FLSA Claims Defense counsel should be aware of the affirmative defenses available to a FLSA claim. Traditionally, employers have raised two “good faith” affirmative defenses that are available under sections 10 and 11 of the Portal to Portal Act.198 However, other affirmative defenses are provided by the courts. Because this is an ever-developing area of the law, an attorney practicing in the area of FLSA claims should stay closely apprised of the case law analyzing FLSA defenses. 1. “Section 10” Defense Section 10 of Portal-to-Portal Act excuses an employer’s violation of the FLSA’s minimum wage and overtime requirements if the employer can prove that it acted in conformity with—and in reliance upon any written administrative regulation, order, ruling, approval, or interpretation of the Wage and Hour Division of the United States Department of Labor.199 This defense applies only in relation to a written ruling, policy, regulation or order of the Wage and Hour Administrator.200 Even where the Department of Labor may later rescind the ruling on which the employer relied, the employer may avoid liability as long as its actions were allowed when taken. To escape liability, an employer’s actions must conform to the opinion, regulation, or other ruling relied upon. Where there are material differences between the facts considered in the ruling and those in your case, the defense is — Continued on next page

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not available. Reliance will be deemed “in good faith” if the employer acted as a reasonably careful person would have acted under the same or similar circumstances.201 2. “Section 11” Defense Under section 11 of the Portal-toPortal Act, an employer may avoid or reduce a liquidated damages award upon proof that the employer acted in good faith, with reasonable grounds to believe the employer was not violating the FLSA.202 A defense under section 11 does not prevent a back-pay award. However, a successful section 11 defense will reduce or prevent an additional liquidated damages award. A successful section 11 defense is supported by evidence that the employer acted with actual good faith, meaning an intention to follow the law, with no reason to believe FLSA violations were occurring. In some cases, employers have supported this defense with evidence that they relied upon their lawyer’s legal advice that their conduct was consistent with the FLSA. 3. Other Defenses Other affirmative defenses may be available to a FLSA claim, depending upon the circumstances of the case. Of course, affirmative defenses can be raised based on the plaintiff falling into one (or more) of the recognized exemptions. Even if this affirmative defense is ultimately unsuccessful, the facts can often help with the section 11 affirmative defense of acting in good faith, as some exemptions leave a lot of room for interpretation and contain quite a number of terms that require advanced defining. Likewise, employers

can raise as an affirmative defense, if the plaintiff prevails on the underlying claim, that their conduct was not willful, and therefore, the statute of limitations should be limited to two instead of three years under 29 U.S.C. § 255(a). At least one court has held that where the employee fails to notify the employer of the time worked through the established overtime record-keeping system, the failure to pay overtime is not an FLSA violation.203 An employer may also claim that the employee is estopped from collecting back pay or liquidated damages because the employee has deceived or misled the employer to the employer’s detriment. This defense may apply where, for example, the employee has falsified his time record without his employer’s knowledge.204 The defense of estoppel is not available where the employer had knowledge of the deceit.205 Another defense available to employers is that the compensable time alleged is de minimis. Under the de minimis rule, employees generally cannot recover for otherwise compensable time if it amounts only to a few seconds or minutes of work beyond scheduled working hours. 206 When determining whether a claim is for de minimis time, courts will consider: (a) the practical administrative difficulty of recording the additional time; (b) the aggregate amount of compensable time; and (c) the regularity of the additional work.207 Some courts have found that periods of approximately 10 minutes or less are de minimis.208 However, other courts have found that small but regular daily amounts of time aggregated over a period of years are not de minimis.209

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VI. Conclusion With the ever-changing economic, political and technological environments, it is not difficult to predict that the FLSA and its interpreting regulations will continue to evolve. After nearly 80 years since its enactment, it must change in order to keep up with the times. Will the next major issue tackled include paid sick leave? Or a higher minimum wage? Or mandatory meal breaks? Only time will tell. Some changes may be announced (and discussed) with much fanfare, while other more minor changes may sneak past uneducated employers. It is the role of the employment attorney to make sure that each employer remain educated as to all changes, major and minor. Recommendations should be made for employers to conduct internal audits to make sure their employees are all properly classified and are keeping accurate records of their time worked, and to ensure employers are paying their employees properly and are not making illegal deductions.

(Endnotes)

29 U.S.C. §§ 201-219.

1

WHD Enforcement Statistics: All Acts, U.S. Dep’t of Labor (2015), available at https://www.dol.gov/whd/statistics/statstables.htm. 2

The IDC Monograph, IDC Quarterly, Vol. 13, No. 2 (2d Quarter 2003). 3

Victoria Roberts, Attorneys Explore Reasons for Surge in Wage and Hour Lawsuits, Daily Lab. Rep. (BNA) C-1 (Dec. 12, 2002); see also Michael Orey, Lawsuits From Workers Looking to Get Overtime Pay, Wall St. J. (May 30, 2002) (in 2001, SBC Pacific Bell, Coca-Cola Bottling Co., and Bank of America Corp. settled FLSA suits for $35 million, $20.2 million, and $22 million, respectively).

15

29 U.S.C. § 207(a)(1).

40

29 C.F.R. 541.400(b).

16 McLeod v. Threlkeld, 319 U.S. 491, 497 (1943).

41

29 C.F.R. § 541.500.

42

29 U.S.C. § 207(i).

43

29 U.S.C. § 213(b)(10)(A).

29 U.S.C. § 213(a)(1).

17

29 U.S.C. § 207(i).

18

44 See Final Rule: Overtime, U.S. Dep’t of Labor (eff. Dec. 1, 2016), available at https://www.dol.gov/whd/overtime/ final2016/.

29 U.S.C. § 213(a)(17).

19

29 U.S.C. § 213(a)(1).

20

4

In Illinois, titled the Minimum Wage Law, 820 ILCS 105/1-105/15. 5

Brooklyn Sav. Bank v. O’Neil, 324 U.S. 697, 706 (1945); see also Rutherford Food Corp. v. McComb, 331 U.S. 722, 727 (1947). 6



29 U.S.C. § 203(d).

7

29 C.F.R. § 791.2(a) (“A single individual may stand in the relation of an employee to two or more employers at the same time” under the FLSA). 8

29 U.S.C. § 213(b)(10)(A).

45

29 C.F.R. § 541.302.

46

21

22

Ellis v. J.R.’s Country Stores, Inc., 779 F.3d 1184 (10th Cir. 2015).

29 U.S.C. § 213(a)(6).

23

29 C.F.R. §§ 791.2(b), 791.2(b)(2).

Administrator’s Interpretation No. 2016-1, U.S. Dep’t of Labor (Jan. 20, 2016), https://www.dol.gov/whd/flsa/Joint_ Employment_AI.pdf. 29 U.S.C. §§ 206(a), 207(a).

29 C.F.R. § 541.102.

52

29 C.F.R. § 541.200.

53

29 C.F.R. § 541.202.

54

Id.

55

29 C.F.R. § 541.203.

56

29 C.F.R. § 541.300.

57

29 C.F.R. § 541.301(c).

58

29 C.F.R. § 541.304.

59

29 C.F.R. § 541.303(a).

60

29 C.F.R. § 541.303(b).

61

29 C.F.R. § 541.303(c).

62

29 C.F.R. § 541.302(b).

63

29 C.F.R. § 541.302(c).

64

29 C.F.R. § 541.602(b)(2). Id.

27

29 C.F.R. § 541.602(b)(3).

28

Id.

29

29 C.F.R. § 541.602(b)(4).

30

Id. 29 C.F.R. § 541.602(b)(5).

29 U.S.C. §§ 203(s)(1)(B) and (C).

29 C.F.R. § 541.602(b)(7).

34

36

14

29 C.F.R. § 541.602(b)(6).

33

See Boekemeier v. Fourth Universalist Soc’y, 86 F. Supp. 2d 280 (S.D.N.Y. 2000). Boekemeier, 86 F. Supp. 2d at 285; 29 U.S.C. § 203(s).

Id.

50

Id.

26

35

13

29 C.F.R. § 541.602(b)(1).

49

51

11

12

Id.

48

Id.

25

32 10

29 C.F.R. § 541.602(a).

47

Under Section III.B., below, this amount will be increasing on December 1, 2016 to $913 week or $47,476 per year. The “salary basis test,” including deductions, will also be discussed separately below in Section III.C); 29 C.F.R. § 541.100. 24

31



9

29 C.F.R. § 541.602.

29 C.F.R. § 541.603. Id. 29 C.F.R. § 541.603(a).

37

29 C.F.R. § 541.603(b).

38

29 U.S.C. § 213(a)(17); 29 C.F.R. 541.400. 39

— Continued on next page

Fourth Quarter 2016 | Monograph | IDC QUARTERLY | M-21

Id.

ers/Misclassification/index.htm.

94

29 U.S.C. § 254(a)(2).

118

IBP, Inc. v. Alvarez, 546 U.S. 21, 37 (2005).

119

65

Id.

93

66

29 C.F.R. § 541.603(c).

67

29 C.F.R. § 541.603(d).

68

Id.

95

IBP, Inc., 546 U.S. at 37

Id. Id.

120

29 U.S.C. § 203(e)(1).

121

29 U.S.C. § 203(g).

96 69

Id.

29 U.S.C. § 203(o).

97 70

29 C.F.R. § 785.1.

Sandifer v. U.S. Steel Corp., 134 S. Ct. 870, 874 (2014). 98

71

29 C.F.R. § 785.9.

72

29 U.S.C. § 203(g).

99

73

29 C.F.R. § 785.13.

100

Id.

74

Id.

101

Id. at 876.

75

29 C.F.R. § 785.11.

102

Id. at 880.

76

29 C.F.R. § 785.12.

103

Id. at 881.

77

29 C.F.R. § 785.15.

104

Id.

78

Id.

105

29 U.S.C. § 216(b).

79

Id.

106

29 U.S.C. § 260.

80

Id.

81

29 C.F.R. § 785.16.

107 Walton v. United Consumers Club, Inc., 786 F.2d 303, 310 (7th Cir. 1986).

Sandifer, 134 S. Ct. at 874.

Sec’y of Labor v. Lauritzen, 835 F.2d 1529, 1534 (7th Cir. 1987). 122

Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 326 (1992). 123

Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1311 (11th Cir. 2013). 124

Lauritzen, 835 F.2d at 1534 (citing Rutherford Food Corp. v. McComb, 331 U.S. 722, 730 (1947)). 125

126

29 C.F.R. § 785.18.

29 U.S.C. § 255(a); McLaughlin v. Richland Shoe Co., 486 U.S. 128 (1988).

83

29 C.F.R. § 785.19.

109

84

Id.

110

85

29 C.F.R. § 785.19(b).

111

86

29 C.F.R. § 785.27.

112

87

29 U.S.C. § 254(a)(1).

113

88

29 C.F.R. § 785.35.

114

89

29 C.F.R. § 785.37.

115

90

Id.

116

91

29 C.F.R. § 785.38.

108

29 C.F.R. § 785.39.

United States v. Silk, 331 U.S. 704, 71314 (1947) (partial abrogation by statute noted in Nationwide Mut. Ins. Co. v. Darden, 503 U.S. 318, 325 (1992) (stating that “[t]o be sure, Congress did not, strictly speaking, ‘overrule’ our interpretation of those statutes, since the Constitution invests the Judiciary, not the Legislature, with the final power to construe the law. But a principle of statutory construction can endure just so many legislative revisitations, and Reid’s presumption that Congress means an agency law definition for ‘employee’ unless it clearly indicates otherwise signaled our abandonment of Silk’s emphasis on construing that term ‘in the light of the mischief to be corrected and the end to be attained.’”).

127

82

92

Lauritzen, 835 F.2d at 1534.

Walton, 786 F.2d at 310.

29 U.S.C. § 216(b).

Id. 820 ILCS 105/12(a).

See Silk, 331 U.S. 704 at 714.

Id.

128

29 C.F.R. § 516.5(a).

129

820 ILCS 105/8.

Donovan v. DialAmerica Marketing, Inc., 757 F.2d 1376 (3d Cir. 1985).

56 Ill. Adm. Code 300.630.

Misclassification of Employees as Independent Contractors, U.S. DEP’T OF LABOR, available at www.dol.gov/whd/work-

Lauritzen, 835 F.2d at 1535.

130

131

Lauritzen, 835 F.2d at 1537.

117

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Perez v. Super Maid, LLC, 55 F. Supp. 3d 1065 (N.D. Ill. 2014). 132

Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1316 (11th Cir. 2013). 133

155 29 U.S.C. § 217.

170

156

Perez, 55 F.Supp.3d at 1080.

157

820 ILCS 405.

135

158

26 U.S.C. § 3509.

Keller v. Miri Microsystems LLC, 781 F.3d 799 (6th Cir. 2015).

159 A state-by-state breakdown of workers affected by the DOL’s final overtime regulation can be found at State-by-State Breakdowns of Workers Affected by Department of Labor’s Final Overtime Regulation, whitehouse.gov, https://www.whitehouse. gov/sites/whitehouse.gov/files/documents/ OT_state_by_state_fact_sheet_final_rule_ v3b.pdf.

Donovan v. Sureway Cleaners, 656 F.2d 1368, 1372 (9th Cir. 1981). 134

Sureway Cleaners, 656 F.2d at 1372.

136

137 Dole v. Snell, 875 F.2d 802 (10th Cir. 1989).

Perez, 55 F. Supp. 3d at 1077.

138

Baker v. Flint Eng’g & Constr. Co., 137 F.3d 1436 (10th Cir. 1998). 139

Jeffrey M. Jones, In U.S., Telecommuting for Work Climbs to 37%, Gallup (Aug. 19, 2015), available at https://www.gallup. com/poll/184649/telecommuting-workclimbs.aspx. The results were based on the annual poll conducted August 5-9, 2015.

29 C.F.R. § 1630.2(o).

171 See Enforcement Guidance on Reasonable Accommodation and Undue Hardship Under the Americans with Disabilities Act, EEOC, note 100 (Oct. 17, 2002), available at https://www.eeoc.gov/policy/docs/accommodation.html#N_100_. 172

29 C.F.R. § 1630.2(p). 

See Enforcement Guidance, supra, note 171.

173

174

29 U.S.C. § 216(b).

McMahon v. LVNV Funding, Inc., 744 F.3d 1010, 1017 (7th Cir. 2014). 175

160

Lauritzen, 835 F.2d at 1537.

140

Brock v. Superior Care, Inc., 840 F.2d 1054 (2d Cir. 1988). 141

Brock v. Mr. W. Fireworks, Inc., 814 F.2d 1042 (5th Cir. 1987). 142

Superior Care, Inc., 840 F.2d at 1054.

143

Robicheaux v. Radcliff Material, Inc., 697 F.2d 662 (5th Cir. 1983). 144

Schultz v. Capital Int’l Sec., Inc., 466 F.3d 298, 309 (4th Cir. 2006). 145

Donovan v. Sureway Cleaners, 656 F.2d 1368, 1372 (9th Cir. 1981). 146

Mr. W Fireworks, Inc., 814 F.2d at 1054.

147

Scantla Scantland v. Jeffry Knight, Inc., 721 F.3d 1308, 1313 (11th Cir. 2013). 148

Superior Care, Inc., 840 F.2d at 1060.

149

DialAmerica Marketing, Inc., 757 F.2d at 1386. 150

Scantland, 721 F.3d at 1316.

151

Id.

152

29 U.S.C. § 216(b).

153

154 Super Maid, LLC, 55 F. Supp. 3d at 1080.

See Final Rule: Overtime, supra, note 44. 161

29 U.S.C. § 216(b); Ervin v. OS Rest. Servs., 632 F.3d 971, 973 (7th Cir. 2011). 176

See Lisa Nagele-Piazza, Uptick in FLSA Litigation Expected to Continue in 2016, Bloomberg BNA (Nov. 27, 2015), available at http://www.bna.com/uptick-flsa-litigation-n57982064020/#!. 177

162

29 C.F.R. § 516.2.

178

820 ILCS 105/1.

163

56 Ill. Adm. Code 300.630.

179

820 ILCS 115/1; Ervin, 632 F.3d at 974.

See Final Rule: Overtime, supra, note 44; also see Overtime Final Rule and Higher Education, U.S. Dep’t of Labor, https:// www.dol.gov/sites/default/files/overtimehighereducation2.pdf.

180

29 U.S.C. § 216(b).

181

Ervin, 632 F.3d at 974-975.

182

Id. at 975.

820 ILCS 140/3 (known as the Illinois “One Day Rest in Seven Act”); 56 Ill. Adm. Code 220.800.

183

Id. at 978.

164

165

166

29 C.F.R. 785.19.

See Work at Home/Telework as a Reasonable Accommodation, EEOC, available at https://www.eeoc.gov/facts/telework. html. 167

Latest Telecommuting Statistics, Global Workplace Analytics (June 24, 2016), available at http://globalworkplaceanalytics.com/telecommuting-statistics. 168

169

42 U.S.C. § 12112 (b)(5)(A).

184 See Brooklyn Savings Bank v. O’Neil, 324 U.S. 697, 704 (1945) (holding that an employee who accepted a delayed payment from his employer of the basic statutory wages due under the FLSA did not release and waive his right to recover liquidated damages under the FLSA); D.A. Schulte, Inc., v. Gangi, 328 U.S. 108, 116 (1946) (holding that even in cases of a controversy over coverage, private settlements are not permitted, and wages and liquidated damages may not be compromised); See also Lewis v. Giordano’s Enterprises, 397 Ill. App. 3d 581, 588-89 (1st Dist. 2009).

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Lewis, 397 Ill. App. 3d at 590.

185

186 Lynn’s Food Stores, Inc. v. United States, 679 F.2d 1350, 1355 (11th Cir. 1982).

Lamonica v. Safe Hurricane Shutters, Inc., 11 F.3d 1299, 1313 (11th Cir. 2013). 187

Schneider v. Cornerstone Pints, Inc., 148 F. Supp. 3d 690 (N.D. Ill. 2015). 188

Schneider, 148 F. Supp. 3d at 698.

189

Id. at 699.

190

29 U.S.C. § 2 15(a)(3).

191

See Conner v. Schnuck Markets Inc., 121 F.3d 1390, 1394 (10th Cir.1997).

192

Conner, 121 F.3d at 1394.

193

Id.

194

29 U.S.C. § 216(b).

195

196 See Moore v. Freeman, 355 F.3d 558, 563-64 (6th Cir. 2004) (emotional distress damages are recoverable under the anti-re-

taliation provision of the FLSA); Broadus v. O.K. Indus., Inc., 238 F.3d 990, 992 (8th Cir. 2001) (emotional distress damages are recoverable in Equal Pay Act retaliation case); Lambert v. Ackerley, 180 F.3d 997, 1017 (9th Cir. 1999) (reversing and remanding emotional distress award under anti-retaliation provision of FLSA for determination of appropriate amount of emotional distress damages). 197 Avitia v. Metro. Club of Chi., Inc., 49 F.3d 1219, 1228-29 (7th Cir. 1995); Travis v. Gary Cmty. Mental Health Ctr., Inc., 921 F.2d 108, 111-12 (7th Cir. 1990).

29 U.S.C. § 251.

198

29 U.S.C. § 259.

199

200 See, e.g., Usery v. Godwin Hardware, 426 F. Supp. 1243 (W.D. Mich. 1976).

See, e.g., Mortenson v. Western Light & Tel. Co., 42 F. Supp. 319, 322 (D. Iowa 1941). 204

205 Burry v. Nat. Trailer Convoy, Inc., 338 F.2d 422 (6th Cir. 1964); see also Duncan v. Brockway Standard, Inc., No. 90-CV-2867, 1992 WL 510256, at *7-8 (N.D. Ga. Sept. 21, 1992) (summary judgment in favor of the employer was not appropriate on an estoppel theory where employer’s knowledge of unreported overtime was question of fact).

Anderson v. Mt. Clemens Pottery Co., 328 U.S. 680, 692 (1946); Reich v. Monfort, Inc., 144 F.3d 1329 (10th Cir. 1998); Lindow v. U.S., 738 F.2d 1057, 1062 (9th Cir. 1984). 206

207

208

Id. at 1062.

209

Id. at 1063.

29 C.F.R. § 790.15.

201

29 U.S.C. § 260.

202

Brown v. ScriptPro, LLC, 700 F.3d 1222, 1230-31 (10th Cir. 2012). 203

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Lindow, 738 F.2d at 1063.