Lack of clear rules for recusal underpins high stakes case against State Farm

By The Madison County Record | Mar 5, 2014

As Illinois Supreme Court Justice Lloyd Karmeier's time to decide whether to seek another 10-year term nears, one of his most controversial cases just won't stay dead.

Avery v. State Farm Mutual Automobile Insurance was hatched nearly 17 years ago in Williamson County resulting in a $1 billion judgment. It has been rejected twice by the Illinois Supreme Court and once by the U.S. Supreme Court which refused to hear an appeal in 2006. Resurrected as a RICO case in 2012, the plaintiff’s arguments in the new Hale v. State Farm turn on whether Karmeier was out of line when he did not recuse himself from the case. State Farm, one of the largest insurance companies in the world, headquartered in Bloomington, was a significant contributor to Karmeier’s 2004 election campaign. Now, plaintiffs in the case are arguing Karmeier’s vote constituted racketeering so the insurer could avoid paying the billion-dollar penalty to a class that could include as many as 4.7 million people.

At the heart of the case itself are allegations State Farm processed auto insurance claims by replacing broken car parts with inferior ones, according to the original suit. Originally filed in 1997, a jury awarded the class $456,180,000 in damages. Williamson County Circuit Judge John Speroni added $600 million in punitive damages, for a total of $1,056,180,000.

Fifth Circuit appellate judges in Mount Vernon affirmed Speroni's judgment in 2001. Gordon Maag, the judge Karmeier would defeat in the 2004 election for Supreme Court, delivered the court's opinion and Thomas M. Welch and Chief Judge of the Eighth Judicial Circuit Robert L. Welch, sitting by assignment, concurred.

In 2005, mere months after an election campaign infamous for being the most expensive state supreme court campaign in U.S. history at the time, Karmeier’s vote was among those that reversed the billion-dollar judgment. Justice Mary Anne McMorrow wrote the opinion, with Karmeier, Thomas Fitzgerald and Rita Garman concurring and Thomas Kilbride and Charles Freeman dissenting in part. Robert Thomas did not take part. The justices unanimously found that individual issues predominated over class issues, and that the judge in the case improperly applied the state consumer fraud law to other states.

State Farm has argued that even if Karmeier had not participated in the 4-2 decision, the outcome would have been the same.

In 2011, plaintiffs filed a petition to the Illinois Supreme Court asking it to reconsider the case, pointing toward the funds State Farm had, in one way or another, directed toward Karmeier’s campaign. The petition was denied in November 2011.

State Farm donated $350,000 to Karmeier’s campaign, but plaintiffs submitted an affidavit from Daniel Reece, a retired FBI agent, who swore Karmeier was aware State Farm had used the Illinois Civil Justice League to funnel money into his campaign. Lawyers for the plaintiffs also alleged State Farm may have indirectly contributed more than $3 million to Karmeier using the U.S. Chamber of Commerce and ICJL as proxies.

Plaintiffs Mark Hale, Todd Shadle and Carly Morse revived the Avery suit in 2012, based around the racketeering allegations against Karmeier.

The stakes are high, even for a corporation as large as State Farm: The original $1 billion in damages, with 14 years of interest figured in, would triple to $3.14 billion. Other defendants in the RICO case include State Farm’s attorney, William Shepherd, and Ed Murnane, president of the Illinois Civil Justice League.

Murnane declined to comment on the case.

Should the original ruling be voided, it would also reverse precedent that formed the basis of dozens of class action rulings. State Farm lawyers have pointed to Avery citations in 11 Illinois Supreme Court decisions, 105 Illinois appellate court decisions, 148 Illinois federal court decisions, and decisions by other courts throughout the country.

Situations where the perception of a conflict of interest for a judge is bound to become more common as state supreme court races increasingly become another theater of warfare in the campaign fundraising “arms race,” said Alicia Bannon, counsel for the Brennan Center for Justice’s Democracy Project.

“The explosion of spending on supreme court races we have seen over the past decade or so is increasingly creating these kinds of situations where judges are hearing cases where parties that are appearing before them have spent large amounts of money by directly contributing to them or otherwise getting elected, and it raises serious concerns about the fairness of those proceedings and public confidence in those proceedings,” Bannon said.

The problem is compounded by the fast and loose interpretation of what constitutes a conflict of interest, Bannon said. There are no concrete rules in Illinois mandating judges to recuse themselves from hearing cases involving entities that contributed to their election campaigns.

The lack of clear rules for recusal is a serious oversight that causes a major perception problem for judges, said John Jackson, visiting professor at Southern Illinois University’s Paul Simon Public Policy Institute.

“What is needed is a clarification and codification of the rules with regards to whom you can take money from and when a judge should recuse in cases where prior contributors are involved before the court,” Jackson said. “It is the appearance of a conflict of interest which we find to be a problem.”

And while fundraising laws in Illinois haven’t really changed, the thinking of special interests has, said Steve Lubet, Director of Northwestern University Law School's Bartlit Center on Trial Advocacy.

Illinois campaign fundraising laws recently imposed annual limits on donors, but they still allow substantially higher donation limits than in federal races. Karmeier’s race, and other state supreme court races around the country that have seen unprecedented fundraising, are indicative of special interest groups approaching policy with an eye toward the judicial side, Lubet said.

“I think special interests realize that they can influence these elections,” Lubet said. “It’s not just happening in Illinois. It’s become politics by other means.”

As Karmeier’s May 4 deadline to signal his intention to run for retention looms, he may be deposed in federal court in Hale.

It remains difficult to defeat a judge for retention, Lubet said, a fact that may mean a quieter race than the 2004 recordbreaker.

“It’s certainly difficult to defeat a judge for retention, so I wouldn’t be surprised if there is no major spending,” Lubet said.

Another potentially tangled aspect of the case is the possibility of one of the original lawyers for the plaintiffs, Patrick Murphy, being involved on a plaintiffs' team of lawyers that numbers close to 20. Murphy served alongside Chief U.S. District Judge David Herndon, who has ruled favorably for the plaintiffs in the Hale case.

Most recently, Herndon denied State Farm’s motion to dismiss the case in December, saying at the time that the court “remains convinced” of the validity of hearing the plaintiffs’ RICO claim.

Murphy originally filed the 1997 suit in Williamson County before being appointed as a federal judge by the Clinton administration. Though Murphy didn’t originally devise the theory that State Farm violated its policies by servicing cars with inferior parts, he greatly expanded it, creating a class that included every state but Arkansas and Tennessee.

Murphy retired from the bench Dec. 1. He could not be reached for comment.

 The Madison-St. Clair Record is owned by the U.S. Chamber Institute for Legal Reform. 

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