Kenneth Lowe Mar. 5, 2014, 11:16am

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 and resulted in a $1 billion judgment that was later overturned. 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 in 2012 as a federal case under the Racketeer Influenced and Corrupt Organizations (RICO) Act, the plaintiffs' arguments in Hale v. State Farm turn on whether Karmeier was out of line when he did not recuse himself from the Avery case.

Bloomington-based State Farm, one of the largest insurance companies in the world, was a significant contributor to Karmeier’s 2004 election campaign.

Now, plaintiffs in the Hale case claim Karmeier’s vote -- one of three that made up the court's majority that overturned the billion-dollar judgment in Avery-- constituted racketeering so the insurer could avoid paying penalty to a class that could include as many as 4.7 million people.

At the heart of the Avery 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.

The Fifth District Appellate Court 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 Robert L. Welch, the since retired chief judge of the Eighth Judicial Circuit who sat on the panel 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.

The late Justice Mary Anne McMorrow wrote the opinion, with Karmeier,  now-Chief Justice Rita Garman and the since-retired Thomas Fitzgerald concurring and Justices Thomas Kilbride and Charles Freeman dissenting in part. Justice Robert Thomas did not take part in the ruling.

The justices unanimously found that individual issues predominated over class issues, and that the lower court had 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, the 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 to Karmeier’s campaign. The petition was denied in November 2011.

State Farm donated $350,000 to Karmeier’s campaign, but Daniel Reece, a retired FBI agent swore in an affidavit that Karmeier was aware State Farm had used the Illinois Civil Justice League to funnel more 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 the 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 ICJL. Murnane declined to comment on the case.

Should the original ruling be voided, it could 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 the Hale case.

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

“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 latest in the Hale case can be found in a story -- "Magistrate: Karmeier will contest subpoena in case against State Farm" -- published today in the Madison-St. Clair Record and more on the upcoming retention race can be read in the Feb. 20 Record story, "Karmeier has until May to decide whether to seek retention; observers say Supreme Court races have become public policy battlegrounds."

Editor's note: The Cook County Record and the Madison-St. Clair Record are owned by the U.S. Chamber Institute for Legal Reform.

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