Antitrust Law Daily Wrap Up, RICO—S.D. Ill.: Ruling that policyholders stated RICO claims against State Farm withstands motion to alter or amend, (Dec 6, 2013)

By Peter Reap, J.D., LL.M.

A ruling that State Farm Mutual Automobile Insurance Co. policyholders stated RICO claims against State Farm and two individual defendants allegedly involved in recruiting an Illinois Supreme Court justice and funding his campaign in order to acquire a vote to overturn a $1.05 billion judgment the policyholders had obtained in the Illinois lower courts against State Farm withstood State Farm’s motion to alter or amend the ruling, the federal district court in East St. Louis, Illinois, has decided (Hale v. State Farm Mutual Automobile Insurance Co., December 4, 2013, Herndon, D.). The motion was denied.

In addition, State Farm’s motion in the alternative for certification for interlocutory review because State Farm failed to show that there were controlling questions of law or that exceptional circumstances justified an interlocutory appeal.

Background. State Farm allegedly committed mail fraud by misrepresenting to the Illinois Supreme Court its involvement in the justice’s campaign in order to permit the justice to vote in the judgment and to ensure the judgment was not vacated later. In Avery v. State Farm Mutual Automobile Insurance Co., a class of State Farm policyholders obtained a $1.05 billion judgment against State Farm, which was upheld on appeal by an Illinois appellate court (Avery v. State Farm Mutual Automobile Insurance Co., 321 Ill. App. 3d 269 (Ill. App. Ct. 5th Dist. 2001)). On October 2, 2002, the Illinois Supreme Court accepted State Farm’s appeal. The case was briefed, argued, and submitted by May 2003, but remained without a decision until August 18, 2005.

From fall 2003 until November 2004, trial Judge Lloyd Karmeier campaigned for a vacant seat on the Illinois Supreme Court, ultimately winning election. According to the complaint, State Farm—acting through the Illinois Civil Justice League, Citizens for Karmeier, and related individuals—recruited Karmeier, directed his campaign, and contributed as much as $4 million of his $4.8 million campaign contributions.

On August 15, 2005, the Illinois Supreme Court overturned the $1.05 billion judgment against State Farm (Avery v. State Farm Mutual Automobile Insurance Co., 216 Ill.2d 100 (Ill. 2005)), with now-Justice Karmeier voting for State Farm and participating in deliberations. After discovering State Farm’s involvement in Karmeier’s campaign, the policyholders petitioned the court to vacate that decision, but their petition was denied on November 17, 2011.

In 2012, the policyholders filed suit in federal court, alleging that State Farm and two individuals involved in Karmeier’s campaign had committed and conspired to commit violations of the RICO Act. The policyholders alleged that State Farm made written misrepresentations to the Illinois Supreme Court that concealed its involvement in Karmeier’s campaign to permit him to vote on the judgment in 2005 and withheld information in 2011 that could have led it to vacate the decision.

In its March 28, 2013 ruling, the court held that the statute of limitations had not run on the RICO allegations in the policyholders’ complaint; that the policyholders had sufficiently alleged that the defendants’ conduct had proximately caused their injury; and that the policyholders had adequately alleged a pattern of racketeering activity, a RICO enterprise, and predicate acts of mail fraud in support of their RICO claims. Finally, the court held that the policyholders had stated a RICO conspiracy claim.

Motion to alter or amend judgment. A motion to alter or amend judgment filed pursuant to Rule 59(e) may only be granted if a movant shows there was mistake of law or fact, or presents newly discovered evidence that could not have been discovered previously, the court noted. State Farm contended that the court: (1) failed to consider judicially noticeable facts and misapprehended the legal standards for a motion to dismiss; (2) misapprehended the law and facts as to the Rooker-Feldman issue; (3) overlooked controlling Seventh Circuit law when it found that plaintiffs’ claims were not time-barred; (4) overlooked judicially noticeable facts establishing the absence of causation regarding the RICO claims; and (5) misapprehended the legal principles as to the RICO predicate acts.

State Farm neither presented newly discovered evidence nor identified a manifest error of law of fact, the court held. The court did not overlook judicially noticeable facts, as State Farm suggested. Instead, State Farm’s motion merely took umbrage with the court’s ruling and rehashed old arguments.

In rendering its ruling and the 43-page memorandum and order denying the motions to dismiss, the court examined the evidence and case law submitted by the parties. The court remained convinced of the correctness of its position. Thus, State Farm’s motion to alter or amend the March 28 ruling was rejected.

Interlocutory appeal. Section 1292(b) states that when a district court judge believes that an order for an interlocutory appeal involves 1) a controlling question of law, 2) to which there is a substantial ground for difference of opinion, and 3) an immediate appeal from the order may materially advance the ultimate termination of the litigation, then the district judge may certify the request for such an appeal.

Here, State Farm failed to demonstrate that there were controlling questions of law, the court reasoned. A “question of law” under section 1292(b) must be a pure question of law, something the court of appeals could decide quickly and cleanly without having to study the record, such as a question of the meaning of a statutory or constitutional provision, regulation, or common law doctrine. Application of a legal standard is a question of law.

However, the determination here did not involve pure questions of law, but would require the Seventh Circuit to look at evidence, facts and affidavits, the court explained.

Judicial efficiency is an underlying principle behind section 1292(b), the court noted. Certification by a district court for an interlocutory appeal may be justified upon the basis that it will expedite litigation. State Farm provided no evidence that an immediate appeal from the ruling would materially advance the termination of this litigation and there was no evidence that approving State Farm’s motion would expedite this litigation.

Further, exceptional circumstances did not exist to allow the interlocutory appeal. As pleaded in the complaint and as stated numerous times by the court, this case did not seek a review of Avery; rather it was a new and different cause of action based on entirely different conduct. State Farm’s arguments missed the mark. Therefore, an immediate appeal would not materially advance the litigation, the court concluded.

The case is No. 12-0660-DRH.

Attorneys: Charles F. Barrett (Charles Barrett, PC) for Mark Hale. Joseph A. Cancila, Jr. (Schiff Hardin LLP) for State Farm Mutual Automobile Ins. Co.

Companies: State Farm Mutual Automobile Ins. Co.

Cases: RICO IllinoisNews