Proof of Mailing Receipts and Delivery Green Cards Matter

When you send something through the U.S. Postal Service by certified mail, return receipt requested, you receive two bits of paperwork. One is a receipt for the certified mailing, which is stamped by the post office and shows proof of mailing. The other is a "green postcard" that is mailed back to you showing that the article you mailed was received at the other end. These are pesky little pieces of paper that can be easy to lose, but sometimes they can be very important.

National City Mortgage v. Hillside Lumber, Inc., 2012 IL App (2d) 101292 (Mar. 8, 2012), illustrates what can happen if you lose those bits of paper. Plaintiff lender brought a foreclosure proceeding against its borrower and joined defendant because it had recorded a mechanic's lien. However, under the Mechanics Lien Act, 770 ILCS 60/24, defendant Hillside was required to serve plaintiff with notice of its mechanics lien. The parties cross-moved for summary judgment, with plaintiff claiming defendant had never served notice of the lien, and Hillside claiming it had. Normally, one would imagine that competing stories like this would preclude the entry of summary judgment. However, that is not the case where the question is whether notice was served. The court noted that in Illinois, service of notice is an issue that can be decided as a matter of law by the judge, under the right circumstances.

Here, the two sides provided competing affidavits that said "I never received notice," and "But I mailed it." At the hearing, the court asked whether the defendant had the receipt or the green card proving mailing or delivery, but defendant had to admit it could not produce them. Based on that, the court granted plaintiff's motion and denied defendant's motion. On appeal, the court held that the Mechanics Lien Act requires service of actual notice, and the burden was on the lienor to prove that notice was complied with. "[O]nce plaintiff asserted its lack of notice at the summary judgment stage, Hillside had to prove that plaintiff actually received notice. Hillside admitted that it could not produce documentation that it even sent notice, let alone documentation that notice was received." Therefore, the court affirmed the victory for plaintiff.

One might ask why the affidavit that the notice was mailed was insufficient to establish a fact issue. After all, there are many situations in which documents are lost, and a sworn affidavit is used to testify to facts even in the absence of the documents. Here, however, it seems that National City Bank stands for the rule that if there are dueling affidavits about whether or not notice of a mechanics lien was properly given, summary judgment is still possible and there is no substitute for producing the actual proof of mailing or proof of delivery documentation.

Seventh Circuit Rejects Theory That State Cause of Action Is "End-Run" Around Absence of Express Private Right of Action

The U.S. Court of Appeals for the Seventh Circuit Court has issued an important decision about the Home Affordable Mortgage Program (or "HAMP"), finding that a putative class action stated claims under various Illinois common-law and statutory theories. Wigod v. Wells Fargo Bank, N.A., No. 11-1423, 2012 WL 727646 (7th Cir. Mar. 7, 2012). One of the important aspects of the case is that it appears to be the first federal appellate court to address consumer claims involving HAMP. Indeed, the opinion itself says the court has identified more than 80 federal cases in which mortgagors brought HAMP-related claims. It is also important in that the court decided in favor of the plaintiffs, reversing the dismissal of a number of their claims. So it is a significant case because of its implications for a national program affecting a sector that has played a major role in the current economic situation facing our country.

However, it is also an important decision beyond the substantive area of law involved because it puts to rest (at least in the Seventh Circuit) the concept of denying claims because they are an "end-run around the absence of a private right of action." To be sure, the concept has some surface appeal -- it is easy to imagine that when Congress enacted a new legislative scheme to right some sort of wrong, but did not expressly create a right for private parties to enforce that scheme in court, it meant that people shouldn't be able to sue at all for 'violation' of the statute. Therefore, the theory goes, a plaintiff who uses state common law or statutory causes of action to sue regarding conduct that would be a violation of the federal scheme is actually trying to achieve an impermissible "end-run" around Congressional intent. The Seventh Circuit has now firmly rejected that theory.

In Wigod, Wells Fargo Bank was sued by a mortgagor for failure to provide a permanent loan modification after a four-month 'trial period' modification was successfully implemented. The mortgagor alleged, on behalf of a putative class, that this went against what she had been promised, and she filed a complaint alleging breach of contract, promissory estoppel, fraudulent misrepresentation, violation of the Illinois Consumer Fraud and Deceptive Business Practices Act, and several other theories. The district court granted Wells Fargo's motion to dismiss, based primarily on their argument that plaintiff's allegations were an "impermissible end-run around the lack of a private action" in HAMP. On appeal, Wells Fargo continued to pursue that theory, arguing that "If Congress had intended courts to be adjudicating whether a borrower qualified for a loan modification under ... HAMP, it would have provided a private right of action -- but it chose not to do so."

The Seventh Circuit held that "[t]he end-run theory is built on the novel assumption that where Congress does not create a private right of action for violation of a federal law, no right of action may exist under state law, either." However, that assumption has no support in the law. The court thought the concept probably arose from conflating two distinct lines of cases: (1) the law of implied private rights of action; and (2) federal preemption of state law. It distinguished the first line, observing that the issue was not about whether to imply a private right of action in HAMP because the plaintiff had not sued for violation of HAMP. The Supreme Court's trend for some time has been to avoid implying private rights of action, so it is not surprising that the Seventh Circuit observed that if this case involved whether to recognize a federal right of action under HAMP the caselaw "would certainly weigh in favor of judicial caution."

As to the second line, the court thought that "the end-run theory lies in a doctrinal no-man's land, and its adoption would upset a century or two of preemption and arising-under jurisdicational precedents." It firmly held:

"The absence of a private right of action from a federal
statute provides no reason to dismiss a claim under a state
law just because it refers to or incorporates some element
of the federal law. ... To find otherwise would require
adopting the novel presumption that where Congress provides
no remedy under federal law, state law may not afford one
in its stead."

The court also observed that the Second Circuit had decided a case in favor of the "end-run theory," Grochowski v. Phoenix Construction, 318 F.3d 80 (2d Cir. 2003), but the Seventh Circuit praised the dissenting opinion that had rejected that theory. It agreed with the dissent that if a state provides a right or remedy, any plaintiff has an absolute right to invoke it, unless that law is contrary to or is preempted by federal law. Here, Wells Fargo had not been able to demonstrate from the mere absence of an express cause of action that Congress intended to preclude states from enacting one. "It seems to us that the Grochowski end-run theory is really just an 'end-run' around well-established preemption doctrine, and we decline to adopt it."

The Wigod case promises to have a lasting impact on future cases involving statutes not incorporating express private rights of action.

UPDATE (3/9/2012): I am quoted in a Chicago Tribune story about the Wigod opinion. Go to http://trib.in/wWLeWS for the story.

Counting Days for Statutes of Limitation

My understanding has long been that in counting out time for a statute of limitations, one begins with the day aftrer the triggering event. The Federal Rules of Civil Procedure tell us to do that (Fed. R. Civ. P. 6(a)(1)(A)), and my state jurisdiction, Illinois, has a statute that seems to say so as well (the Statute on Statutes, 5 ILCS 70). The Illinois provisions states:

"The time within which any act provided by law is to be done shall be computed by excluding the first day and including the last, unless the last day is Saturday or Sunday or is a holiday as defined or fixed in any statute now or hereafter in force in this State, and then it shall also be excluded. If the day succeeding such Saturday, Sunday or holiday is also a holiday or a Saturday or Sunday then such succeeding day shall also be excluded." (5 ILCS 70/1.11.)

Federal Rule 6(a)(1)(A) uses similar language, telling us to "exclude the day of the event that triggers the period".

This seems straightforward enough. However, as Joseph R. Marconi recently wrote in an article published by ISBA Mutual (a provider of lawyers' professional liability insurance), it may not be as clear as we thought. One intermediate appellate court and one Justice of the Illinois Supreme Court have treated the issue as subject to debate, raising the possibility that a limitations period actually expires on the day before the anniversary date of a triggering event. See his article, "What Can You Count On These Days?" for details.

One thing is clear -- don't wait until the last day to file. While the law seems to be settled for now, even the mere possibility that the ultimate day is really the penultimate day should be enough incentive to file earlier.

Illinois Supreme Court Requires Redaction of Social Security Numbers in Filings Starting in 2012

Pursuant to Section 40 of the Identity Protection Act, 5 ILCS 179/40, passed in 2010 and designed to protect Social Security numbers, the Illinois Supreme Court has adopted new Rule 138 requiring parties not to include Social Security numbers within any filings "unless required for a particular filing". Presumably that means you can't include a Social Security number unless there is a good reason that the number itself matters to a particular filing. Such a situation is hard to imagine because a filer generally should be able to refer to a number's existence without actually spreading the number itself of record. For example, a claim about identity theft could be drafted to satisfy pleading requirements without revealing to the world the actual Social Security number at issue. In any event, if you must include the number the rule requires that you use just the last four digits in the public filing, and accompany it with a sealed filing disclosing the full number.

The rule does not specify how documents that the filer did not create (e.g., photocopied exhibits) that include embedded Social Security numbers should be brought into compliance. However, the wording of the rule implies that the filer should redact the document to make the number unreadable.

Filers should take care that their redaction technique actually accomplishes the redaction, becuase sometimes when you think something has been redacted, the supposedly covered-up information is still accessible. See the Administrative Office of U.S. Courts' admonition here, and an interesting discussion of failed redaction at this blog. The National Security Agency has published some tips on ways to properly redact documents, available here and here. Some district courts have posts about it, such as the District of New Jersey.

The new rule also states that the Illinois courts are not responsible for checking individual filings for compliance. In other words, a clerk is not supposed to take on the responsiblity of checking your filing to see whether you let a Social Security number slip through. The only policing mechanism is that "a party or identified person" who sees that a Social Security number has been publicly filed can move the court to order compliance, and if they prove the infraction was "willful" then they can be awarded fees and costs for bringing the motion. This rule should not spawn a cottage industry of 'file scrubbers' who troll the dockets looking for infractions because only a party to the actual case or the person whose Socual Security number was disclosed appear to have standing to file the motion.

The new rule originally was to be effective starting November 1, 2011. However, the court has now changed the effective date to January 1, 2012.

This rule brings the Illinois courts in line with federal courts, whose Judicial Conference began addressing this issue in 2000 (see their report here), which led to the adoption of rules such as Fed. R. Civ. P. 5.2 (effective Dec. 1, 2007) requiring redacted filings.

Experts in Federal Practice

Today I spoke at the annual federal civil procedure update seminar presented in Chicago by the Practising Law Institute. This year's program was entitled “Federal Civil Practice Update 2011: A Practical Guide to New Developments, Procedures & Strategies.” I presented two topics relating to experts in federal practice: (1) methods of challenging an opponent’s experts, and (2) the 12/1/2010 amendments to the Federal Rules of Civil Procedure regarding expert discovery. I authored two articles that were published in the PLI Handbook for the seminar, which I am making available for download here:

"Challenging An Expert’s Opinion and Testimony"

"The 2010 Amendments to the Expert Discovery Rules"

I hope you find these materials useful.

Seventh Circuit Examines Pleading Requirements After Twombly/Iqbal

The Seventh Circuit has issued an opinion in Swanson v. Citibank, N.A., No. 10-1122, 614 F.3d 400 (7th Cir. July 30, 2010), that explores the nature of federal civil pleading after Bell Atlantic Corp. v. Twombly, 500 U.S. 544 (2007), Erickson v. Pardus, 551 U.S. 89 (2007), and Ashcroft v. Iqbal, 556 U.S. 662 (2009). In an opinion by Judge Wood, joined by Judge Easterbrook, the majority evaluated the Supreme Court's new "plausibility" standard and ruled that the district court had raised the bar too high in dismissing plaintiff's complaint. In dissent, Judge Posner said that the majority's ruling was difficult to square with Iqbal because the plaintiff's allegations of housing discrimination were implausible.

Swanson clarified the Seventh Circuit's pleading standard, and should be required reading for all practitioners with civil cases in Illinois, Indiana and Wisconsin federal courts.

In Swanson, the majority held that the Supreme Court's movement away from the long-standing rule of Conley v. Gibson, 355 U.S. 41, 45-46 (1957), meant that it is now clear "that a plaintiff must do better than putting a few words on paper that, in the hands of an imaginative reader, might suggest that something has happened to her that might be redressed by the law." However, the "question with which courts are still struggling is how much higher the Supreme Court meant to set the bar" when it decided Twombly, Erickson and Iqbal. The majority framed the issue this way: "On the one hand, the Supreme Court has adopted a 'plausibility' standard, but on the other hand, it has insisted that it is not requiring fact pleading, nor is it adopting a single pleading standard to replace Rule 8, Rule 9, and specialized regimes like the one in the Private Securities Litigation Reform Act."

The majority emphasized that Rule 8 has never been abandoned, and that the Supreme Court "was not engaged in a sub rosa campaign to reinstate the old fact-pleading system." This was shown by the pronouncement in Erickson that the short-and-plain-statement required under Rule 8 "need only give the defendant fair notice of what the . . . claim is and the grounds upon which it rests" and "[s]pecific facts are not necessary." Erickson, 551 U.S. at 93. It also is evident from the Court's reaffirmance of the validity of Swierkiewicz v. Sorema N.A., 534 U.S. 506 (2002), cited with approval in Twombly, 550 U.S. at 556, under which the Court struck down attempts to impose heightened pleading requirements not listed in Fed. R. Civ. P. 9(b).

Given the continued validity of notice pleading, the majority held that under the new requirement that a pleader "state a claim to relief that is plausible on its face" (Twombly, 550 U.S. at 570; Iqbal, 129 S. Ct. at 1949), plausibility "does not imply that the district court should decide whose version to believe, or which version is more likely than not." It set forth the Seventh Circuit's view of what the requirements now are for pleading in civil cases not governed by Fed. R. Civ. P. 9(b) or special statutory pleading requirements:

"As we understand it, the Court is saying instead that the plaintiff must give enough details about the subject-matter of the case to present a story that holds together. In other words, the court will ask itself could these things have happened, not did they happen. For cases governed only by Rule 8, it is not necessary to stack up inferences side by side and allow the case to go forward only if the plaintiff’s inferences seem more compelling than the opposing inferences."

Judge Posner disagreed with the majority because in his view the plaintiff's housing discrimination claim simply was implausible, and the majority gave too much leeway to allow pleading of a mere possibility. He emphasized that while Iqbal stated, "The plausibility standard is not akin to a 'probability requirement'" (quoted by the majority), the rest of the sentence said, "but it asks for more than a sheer possibility that a defendant has acted unlawfully." As I read Posner's dissent, he seems to be saying that the majority's holding that a district court "will ask itself could these things have happened, not did they happen," would allow the "sheer possibility" that Iqbal expressly rejected.

The case also includes an interesting discussion of the role of discovery in this debate. The majority acknowledged that "one powerful reason that lies behind the Supreme Court’s concern about pleading standards is the cost of the discovery that will follow in any case that survives a motion to dismiss on the pleadings." It noted that the Supreme Court's new standard was intended to make it more difficult to earn the right to engage in discovery. But it drew the line at using judicial interpretation to impose higher pleading standards than Rules 8 and 9 contemplate, which is what the majority evidently thought was the consequence of the dissent's approach.

In his dissent, Judge Posner wrote that the asymmetrical nature of much discovery in a pure notice-pleading regime was a structural flaw that helps explain and justify the Supreme Court's new approach. "It requires the plaintiff to conduct a more extensive precomplaint investigation than used to be required and so creates greater symmetry between the plaintiff’s and the defendant’s litigation costs, and by doing so reduces the scope for extortionate discovery." To those who argue that a restrictive interpretation of the "plausibility" requirement would close the courthouse door too easily, Judge Posner offered an intriguing suggestion:

"If the plaintiff shows that he can’t conduct an even minimally adequate investigation without limited discovery, the judge presumably can allow that discovery, meanwhile deferring ruling on the defendant’s motion to dismiss. Miller v. Gammie, 335 F.3d 889, 899 (9th Cir. 2003) (en banc); Coss v. Playtex Products, LLC, No. 08 C 50222, 2009 WL 1455358 (N.D. Ill. May 21, 2009); Edward A. Hartnett, 'Taming Twombly, Even After Iqbal,' 158 U. Pa. L. Rev. 473, 507-14 2010); Suzette M. Malveaux, 'Front Loading and Heavy Lifting: How Pre-Dismissal Discovery Can Address the Detrimental Effect of Iqbal on Civil Rights Cases,' 14 Lewis & Clark L. Rev. 65 (2010)."

Judge Posner also offered an interesting opinion, echoing Judge Easterbrook of the majority, on the practical aspects of the use of magistrate judges to handle discovery disputes. It appears that in his view, district courts do not limit discovery as effectively as a restrictive interpretation of the "plausibility" requirement would:

"It is true, as critics of Twombly and Iqbal point out, that district courts have authority to limit discovery. [Citations omitted.] But especially in busy districts, which is where complex litigation is concentrated, the judges tend to delegate that authority to magistrate judges. And because the magistrate judge to whom a case is delegated for discovery only is not responsible for the trial or the decision and can have only an imperfect sense of how widely the district judge would want the factual inquiry in the case to roam to enable him to decide it, the magistrate judge is likely to err on the permissive side. 'One common form of unnecessary discovery (and therefore a ready source of threatened discovery) is delving into ten issues when one will be dispositive. A magistrate lacks the authority to carve off the nine unnecessary issues; for all the magistrate knows, the judge may want evidence on any one of them. So the magistrate stands back and lets the parties have at it. Pursuit of factual and legal issues that will not matter to the outcome of the case is a source of enormous unnecessary costs, yet it is one hard to conquer in a system of notice pleading and even harder to limit when an officer lacking the power to decide the case supervises discovery.' Frank H. Easterbrook, 'Discovery as Abuse,' 69 B.U. L. Rev. 635, 639 (1989)."

The court's split illustrates the great difficulty encountered in attempting to apply a "plausibility" standard without straying into evaluating probabilities, which Iqbal said was not the proper approach, or flat-out requiring fact pleading, which the Court repeatedly rejected. The majority's view in Swanson is that it is better to apply plausibility by applying a sliding scale of factual detail, varying with the particular case, so that there is just enough to tell a coherent story from which the legal conclusions plausibly could flow.

Illinois Supreme Court Considering Allowing Discovery Depositions at Trials

I previously reported on the Illinois practice of differentiating between "discovery depositions" and "evidence depositions, and the unfortunate consequences that sometimes result -- as in the case of Berry v. American Standard, Inc., 382 Ill. App.3d 895 (2008). Motivated by the situation discussed in Berry and the strict result mandated under the current version of the applicable rule, the Illinois Supreme Court Rules Committee has proposed an amendment to Supreme Court Rule 212 to allow the use of a discovery deposition transcript as trial evidence in a very limited set of circumstances. The Committee's comments for the proposal state:

"The Committee believes that a trial court should have the discretion under Rule 212(a)(5) to permit the use of a party’s discovery deposition at trial. The current version of the Rule is absolute in its prohibition against the use of a party’s discovery deposition at trial. It appears, however, that there may be rare, but compelling circumstances under which a party’s discovery deposition should be permitted to be used. In the Committee’s view, Berry presents such circumstances. Given that in most cases, counsel will have the opportunity to preserve a party’s testimony via an evidence deposition, it is expected that the circumstances that would justify use of a discovery deposition would be extremely limited."

Click here for the proposed rules change. The Rules Committee is holding public hearings on the proposal in Chicago on July 28, 2010.

Supreme Court Clarifies Corporation's Citizenship for Diversity Jurisdiction

In Hertz Corp. v. Friend, 130 S.Ct. 1181 (Feb. 23, 2010), the Supreme Court unanimously held that a corporation's state of citizenship for diversity purposes is its nerve center. For a detailed discussion of the background of this case, see the article I posted previously.

New Seventh Circuit Appellate Court Nominee Receives Senate Confirmation

The U.S. Court of Appeals for the Seventh Circuit will be adding a new judge to its roster. The Blog of the Legal Times of Washington, D.C. reports that David Hamilton, Chief Judge of the U.S. District Court for the Southern District of Indiana in Indianapolis, and President Obama's first judicial nominee, was confirmed by a vote of 59 to 39. According to his page on the District Court's website, Judge Hamilton was appointed in 1994, and previously was a partner at Barnes & Thornburg in Indianapolis. He served as Counsel to the Governor of Indiana from 1989 to 1991 and from 1984 to 1989 was an associate at Barnes & Thornburg.

U.S. Supreme Court Hears Argument On Corporation's Location For Diversity Purposes

The U.S. Supreme Court heard argument yesterday in Hertz Corp. v. Friend, No. 08-1107 (U.S.), cert. granted at 129 S. Ct. 2766 (June 8, 2009). The case concerns the vexing question of which state(s) constitute a corporation's state of citizenship for purposes of federal diversity jurisdiction under 18 U.S.C. §1332. Section 1332(a)(1) specifies that diversity exists between "citizens of different States," and §1332(c)(1) expressly provides that for purposes of diversity "a corporation shall be deemed to be a citizen of any State by which it has been incorporated and of the State where it has its principal place of business."

That begs the question of how one should determine where a corporation has its principal place of business. The federal appellate courts have taken multiple approaches to deciding that question, and it appears that Hertz Corp. will allow the Supreme Court to resolve the split in the circuits. In the opionion below, Friend v. Hertz Corp., 297 Fed. Appx. 690 (9th Cir. Oct. 30, 2008), the Ninth Circuit held that its "place of operations" test was corerctly applied. Under that framework, if the conglomeration of a corporation’s business activity in one State is significantly larger than that in any other state in which the corporation conducts business, that State is the corporation’s principal place of business. The entirety of the unpublished opinion below is reprinted here:

Hertz's Notice of Appeal makes clear that Hertz removed this class action under the Class Action Fairness Act (CAFA). 28 U.S.C. § 1453(c). Therefore, even assuming we lack authority “to accept an appeal from the denial of a motion to remand when a class action has been removed to federal court on the basis of traditional diversity jurisdiction,” Saab v. Home Depot U.S.A., Inc., 469 F.3d 758, 759 (8th Cir.2006), rather than pursuant to CAFA, we have jurisdiction over Hertz's timely appeal from the district court's order remanding this class action to state court. 28 U.S.C. § 1453(c)(1).

The district court correctly applied the “place of operations” test to determine Hertz's principal place of business. Tosco Corp. v. Communities for a Better Env't., 236 F.3d 495 (9th Cir.2001); Industrial Tectonics v. Aero Alloy, 912 F.2d 1090 (9th Cir.1990).

Taking the facts as set forth in the Declaration of Krista Memmelaar, Hertz's relevant business activities are “significantly larger” in California than in the next largest state, Florida. Although the difference between the amount of Hertz's business activity in California and the amount of its activity in Florida is not as large as the difference deemed to be significant in Tosco, California nevertheless “contains a substantial predominance” of Hertz's operations. Tosco Corp., 236 F.3d at 500.

Neither Tosco nor Industrial Tectonics supports Hertz's argument that we must consider the comparative population of states in which a corporation operates to determine whether activities are significantly larger in one state than another. Id.; Industrial Tectonics, 912 F.2d at 1092. Nor do policy concerns mandate the application of a per capita calculation. With its extensive California contacts and business activities, Hertz is not in jeopardy of being mistreated in California courts.

Because California is Hertz's principal place of business under the “place of operations” test, we do not apply the nerve center test. Tosco, 236 F.3d at 500.

In contrast, the "headquarters" or "nerve center" test looks for the location at which the corporation operates its headquarters. Illinois Bell Tel. Co. v. Global NAPs Ill., Inc., 551 F.3d 587, 590 (7th Cir. 2008). Hertz argued that the headquarters test should be applied instead of the conglomeration method used in the Ninth Circuit. The question presented in its petition for certiorari was "Whether, for purposes of determining principal place of business for diversity jurisdiction citizenship under 28 U.S.C. §1332, a court can disregard the location of a nationwide corporation's headquarters - i.e., its nerve center."

The NLJ reported that at yesterday's oral argument, the Court appeared to be sympathetic to a "headquarters" standard. See their pair of interesting articles posted yesterday and today. Click here to download the Supreme Court brief of Hertz, the opposition brief of Friend, the reply brief of Hertz, and the amicus brief supporting Hertz.