Illinois Evidence and Business Records: Injured Worker’s Insurance Claim Properly Admitted At Trial

 

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The plaintiff filed a wrongful discharge suit against his employer when he was fired after he lodged a workers’ comp claim for a work-related injury.  A jury sided with the plaintiff and awarded him about $4.2M including some $3.6M in punitive damages. The employer appealed on the basis that the court allowed some damaging documents into evidence at trial.

Affirming the jury verdict, the court in Holland v. Schwan’s Home Service, Inc., 2013 IL App (5th) 110560 answered some important questions concerning the reach of the attorney-client privilege, the contours of the work-product doctrine and the application of the business records hearsay exception to an insurance claim file.

The plaintiff’s insurance claim file ( the “Claim File”), a document authored by both the defendant’s insurer and its third-party claims administrator, was a key piece of evidence relied on by the plaintiff at trial.  The employer argued that the file (which contained some damaging admissions by the employer and the administrator) was privileged and should have been excluded at trial.

The Fifth District disagreed and stated the applicable evidence rules that controlled the Claim File’s admission:

– business records are admitted into evidence as an exception to the hearsay rule under Supreme Court Rule 236 and the Illinois Evidence Rule 803(6) (see earlier posts for foundation requirements) ;

– the rationale for allowing out-of-court business documents (e.g. invoices, ledgers, etc.) into evidence is the belief that businesses are motivated to keep accurate records;

– because accurate record-keeping is so crucial, business records are cloaked with a level of trustworthiness that doesn’t apply to non-business records;

– a document made in anticipation of litigation is not admissible as a hearsay exception since it doesn’t contain the built-in level of trustworthiness that ordinary business records do;

– the “in anticipation of litigation” rule doesn’t apply where the challenged document is sought to be introduced against the party that prepared it (as opposed to being used in support of a summary judgment motion, for example)

– an employee’s statement is admissible against his corporate employer where (a) it’s made during the existence of the employment relationship; and (b) concerns a matter within the scope of the employment;

– statements made by a party’s agent about a matter within the scope of his agency are binding on the principal;

– The attorney-client privilege (A/C Privilege) is designed to promote and encourage open dialogue between an attorney and client;

– the A/C Privilege extends to communications between an insured and its insurer where statements made to an insurer are relayed to an attorney for the protection or defense of the insured;

– where a communication is made to an insurer for the dominant purpose of transmitting the information to an attorney for the protection of the insured’s interest, the insurer-insured privilege applies;

– the work-product doctrine offers separate and distinct protection from the A/C Privilege;

– work-product means material prepared by or for a party in preparation for trial and discloses the theories, mental impressions or litigation plans of the attorney;

– relevant information that doesn’t disclose an attorney’s “conceptual data” is freely discoverable.

(¶¶ 186-206); SCR 201(b)(2)

Under these guideposts, the Fifth District found that the Claim File was properly admitted in evidence at trial over the defendant’s A-C privilege, work-product and “in anticipation of litigation” objections.

First, there was no record that the Claim File was prepared for the “dominant purpose” of transmitting it to an attorney in order to protect the insured’s interests.  Instead, it was a general business record that consisted of basic information about the plaintiff’s medical condition.

The court found that the plain text of the Claim File and accompanying notes from the adjuster showed that the File was made in the regular course of the insurer’s business and wasn’t created for the purpose of defending the plaintiff’s retaliatory discharge claim.  As a result, no attorney-client or work-product protection attached to the Claim File. (¶¶ 201-202).

Take-aways: the attorney-client privilege applies to insurer-insured communications.  Especially if the main purpose of those communications is to protect the insured in a potential lawsuit.  In addition, a document prepared in the regular course of business, by definition, will almost always not be protected as a document prepared in anticipation of litigation.  Also, a document that doesn’t contain mental impressions or legal theories and strategy will likely be viewed as a general business record and won’t garner attorney-client or work-product doctrine protection.

Law School Grads’ Fraud Suit Dismissal Against Chicago Law School Upheld (Part I of II)

imageSeveral former law students sued their alma mater (DePaul) under consumer fraud and common law fraud theories when their job prospects weren’t as promising and their salaries not as high as they were led to believe.

In Phillips v. DePaul University, 2014 IL App (1st) 122817, the plaintiffs claimed they relied on DePaul’s published job and salary stats by staying enrolled at the school for three years and that they suffered monetary damages by paying thousands of tuition dollars and taking out loans that will fiscally shackle them for decades.

The plaintiffs sought to recover a percentage of their tuition payments plus the additional lifetime income they would have earned had they obtained employment and salaries congruent with the school’s published data.  The trial court granted the school’s motion to dismiss on multiple grounds.

Held: Affirmed.

Reasons: The Court agreed with the trial court that the plaintiffs’ consumer fraud claim failed.  To state a consumer fraud claim, a complaint must set forth specific facts showing: (1) a deceptive act or practice by the defendant; (2) the defendant’s intent that the plaintiff rely on the deception; (3) the deception occurred in the course of trade or commerce; and (4) the consumer fraud proximately caused the plaintiff’s injury.

A consumer fraud claimant must also plead and prove ‘actual damages.’  Unlike common law fraud, reliance is not an element of statutory consumer fraud.

A deceptive act or practice under the Consumer Fraud Act includes the use or employment of any false promise, misrepresentation or concealment of a material fact, with intent that others rely on the deception in the conduct of any trade or commerce. 815 ILCS 505/2.

Here, the plaintiffs failed to pinpoint which specific jobs or salary information disseminated by DePaul was false.  The law alums’ conclusory allegations that DePaul’s jobs data was false were not detailed enough to plead a deceptive act or practice by the school. (¶¶ 32-33).

The Court also cited record evidence that plaintiffs knew the school’s jobs and salary information was based on surveys that DePaul sent to recent graduates and their voluntary survey responses. 

The plaintiffs argued that DePaul deceived them by hiding that “only a small percentage” of the graduate surveys were returned and so the statistics were based on a limited number of completed surveys. 

The Court rejected this argument as the plaintiffs failed to plead facts showing the actual percentage of surveys returned versus the number of surveys the school sent out.  Absent more factual specificity on this point, the Court found the plaintiff’s claims too conclusory under Illinois’ heightened fraud pleading rules.

The Court also rejected plaintiffs’ claims that DePaul committed a deceptive act by failing to inform them of the percentages of graduates employed in nonlegal or part-time legal positions versus full-time law jobs.  The Court found that while DePaul could have been more specific about the types of employment (e.g. law and non-law jobs) it included in its stats, the plaintiffs still failed to identify an affirmative misrepresentation by DePaul concerning those figures.  

Two other bases for the Court’s decision were (1) the absence of any allegations that DePaul promised the plaintiffs they would earn at or above the average salaries listed in the published data coupled with (2) an American Bar Association (ABA) publication that expressed hat “[t]he highest-paying jobs were the exception rather than the rule.” ¶ 47

The Court found that plaintiffs could have easily cross-referenced DePaul’s data with the ABA’s information and noted that one published ABA source specified that recent law graduates obtained “legal, nonlegal, administrative and full-and part-time jobs.”  Because the ABA’s jobs and salary data was equally accessible to the plaintiffs, the Court found that they were on notice that DePaul’s information shouldn’t be taken as gospel. (¶¶ 43-45).

Another reason the Court found the plaintiffs’ consumer fraud claim lacking was because the plaintiffs got what they bargained for: a legal education and a J.D. degree.  Plaintiffs pointed to no promises made to them by DePaul about their post-graduation job prospects or any guaranty of full-time legal employment report or a set salary.

Afterwords: Consumer fraud requires heightened factual specificity – especially in the context of a lawsuit against a higher-education defendant.  A colorable fraud claim requires specific factual allegations that a defendant made an affirmative representation or omitted crucial information he was under a duty to dispense.  Conclusory allegations without factual and (here) numerical back-up will doom a consumer fraud claim that’s premised on flawed salary and job statistics.  In addition, the case shows that a Court won’t imply a promise where an express one doesn’t exist.

Pre-Development Surveying Work Is Lienable: Illinois 2d District (Part I of II)

survey (photo credit: google images; www.state-engineering.com (visited 11.5.14))

In October 2014, the Second District expanded on the Illinois mechanics’ lien act’s (the “Act”) substantive and timing requirements and also examined Illinois agency law and discussed what services are and aren’t lienable in Young v. CES, 2014 IL App (2d) 131090-U. 

Plaintiff owned two parcels of farm land that were going to be developed into residential subdivisions. He hired a real estate developer to develop the property. That developer, in turn, hired the defendant engineering firm to perform preparatory surveying, grading, storm and sewer work along with construction drawings and elevations for both sites.  There was no direct contract between the plaintiff and the engineering firm.

The two developments stalled and the owner plaintiff filed a quiet title suit.

After a bench trial, the court found for the engineering firm in its mechanics lien countersuit against the owner and entered a foreclosure judgment on the firm’s two mechanics’ liens totaling nearly $150,000 on the two parcels.

The owner appealed arguing that the lien was facially invalid, that he didn’t authorize the developer to hire the engineering firm and that the engineering firm sought to recover for nonlienable services.

Held: Foreclosure judgment affirmed

Reasoning:

Upholding the judgment for the engineering firm, the Court stated and applied some recurring mechanics lien and agency law principles:

–  Mechanics liens exist to permit a lien on property where a benefit has been received by a property owner and where value of the property has been augmented due to the furnishing of labor or materials;

– To establish a valid lien claim, the contractor must show (1) a valid contract, (2) with the property owner, (3) to furnish services or materials, and (4) the contractor performed pursuant to the contract or had a valid excuse for nonperformance;

– A contractor must file its lien within four months after completion of the work, verify the lien, include a statement of the contract, set forth the balance due and describe the liened property;

– Section 1 of the Act provides that anyone who authorizes or knowingly permits an agent to contract to improve land may have a lien attach to the land;

– To “knowingly permit” (an agent to contract for an owner) under Section 1 of the Act means to be aware of or to consent to property improvements;

– Illinois agency law has two key elements: (1) the principal has the right to control the manner and method of the agent’s work; and (2) the agent has the power to subject the principal to personal liability;

– The parties don’t have to use the word ‘agency’ nor characterize their relationship as a principal-agent one for a court to find an agency arrangement;

– A principal doesn’t have to actually control the agent for a court to find an agency relationship; all that’s required is the principal has the right to control the agent;

– A course of dealing that is ratified by a principal can lead to an agency relationship finding

(¶¶ 99-115, 122-123)

Finding for the engineering firm, the court first held that the defendant’s description of the contract was sufficient under the Act.  Even though the firm made a technical mistake by saying its contract was with the owner (it was actually with the developer), the court still found the engineering firm’s lien was valid where it correctly identified the property, the property owner and because the owner was the developer’s principal (and the developer was the owner’s agent).

In finding an agency relationship between the owner and the developer, the court pointed to the two contracts between the owner and the developer for work on the two sites as well as the owner’s deposition testimony that he completely relied on the developer to handle all aspects of the properties’ improvements.

The court also credited the developer’s testimony that he believed he had expansive authority to handle all aspects of the properties’ development including hiring and scheduling the engineering, surveying and related activities completed by the plaintiff engineering firm. ¶¶ 115-116.

Key Lessons:

(1) An owner’s right to control is all that is required for an agent to bind the owner to a contract affecting the owner’s real estate; (2) Hyper-precision in a recorded lien’s contract description isn’t required for the claim to be valid.  As long as the Act’s other required information (property description, contract price, completion date, etc.) is accurate, the lien will likely comply with the Act; (3) if there is evidence that a landowner knows a third party has worked on  property coupled with proof of communications between an owner and the third party, a court will likely find for the lien claimant against a lack of privity (“we have no contract”) defense.