Bridgeview Health Care Center, Ltd. v. State Farm Fire and Casualty Company ( 2014 )

2014 IL 116389
IN THE
SUPREME COURT
OF
THE STATE OF ILLINOIS
(Docket No. 116389)
BRIDGEVIEW HEALTH CARE CENTER, LTD., Appellant, v. STATE FARM
FIRE & CASUALTY COMPANY, Appellee.
Opinion filed May 22, 2014.
JUSTICE BURKE delivered the judgment of the court, with opinion.
Chief Justice Garman and Justices Freeman, Thomas, Kilbride, Karmeier, and
Theis concurred in the judgment and opinion.
OPINION
¶1 This appeal presents the following question: When a federal district court sitting in
a sister state makes a prediction under Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938),
that the supreme court of that state would resolve a legal issue in a way that is at odds
with Illinois law, does that prediction, in itself, establish an actual conflict between the
two states’ laws for purposes of a choice-of-law analysis? For the reasons that follow,
we answer that question in the negative.
¶2 BACKGROUND
¶3 Bridgeview Health Care Center, Ltd. (Bridgeview), an Illinois corporation, filed a
three-count, class action complaint in the federal district court of Northern Illinois
against Jerry Clark, d/b/a Affordable Digital Hearing. Clark is an Illinois resident who
operates Affordable Digital Hearing, a sole proprietorship dealing in the sale and repair
of hearing aids, out of Terre Haute, Indiana. Bridgeview’s complaint alleged that Clark
sent Bridgeview and others across the United States unsolicited faxes in June of 2006.
Count I of the complaint sought recovery under the Telephone Consumer Protection
Act of 1991 (TCPA) (47 U.S.C. § 227 (2006)). Count II alleged that Clark was liable
for common law conversion of Bridgeview’s fax machine paper and toner. Count III
alleged a violation of the Consumer Fraud and Deceptive Business Practices Act (815
ILCS 505/2 et seq. (West 2010)).
¶4 Clark was insured under a comprehensive general liability policy issued by State
Farm Fire and Casualty Company, an Illinois corporation. The policy was purchased
through an agent in Indiana and issued to Clark at his business address in Indiana out of
State Farm’s West Lafayette, Indiana office. Relevant here, the policy provided certain
business liability coverage under both a “property damage” provision and an
“advertising injury” provision.
¶5 Clark tendered defense of Bridgeview’s suit to State Farm, which accepted the
defense under a reservation of rights. In March 2010, State Farm filed a complaint for
declaratory judgment in the circuit court of Vigo County, Indiana, against Clark and
Bridgeview, seeking a declaration that it had no duty to defend Clark in the underlying
federal lawsuit under either the property damage or advertising injury provisions of its
policy. This action was eventually dismissed for want of personal jurisdiction over
Bridgeview.
¶6 In June 2010, Bridgeview filed a declaratory judgment action against State Farm
and Clark in Cook County, seeking a declaration that State Farm had a duty to defend
and indemnify Clark because the unwanted faxes fell within both the advertising injury
and property damage provisions of the insurance policy. State Farm, in turn, filed a
counterclaim against Bridgeview and Clark, seeking a declaration it had no duty to
defend or indemnify Clark.
¶7 Both Bridgeview and State Farm moved for partial summary judgment on the
question of whether State Farm had a duty to defend. In its motion, State Farm
acknowledged that, under Illinois law, coverage was provided under both relevant
provisions of the insurance policy. State Farm maintained, however, that Illinois law
conflicts with Indiana law on the coverage issues. State Farm conceded there were no
Indiana state court cases which addressed whether coverage was provided, but relied
on two unreported federal district court decisions from the Southern District of Indiana.
These decisions predicted that the Indiana Supreme Court would hold there is no
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coverage under a general comprehensive liability policy for the claims raised in
Bridgeview’s complaint. State Farm maintained that these decisions, in themselves,
created a conflict with Illinois law. Further, State Farm contended Indiana law should
apply in this case because Indiana had the most significant contacts with the dispute.
Thus, State Farm maintained its policy provided no coverage.
¶8 Bridgeview, in its motion, argued there was no conflict between Indiana and
Illinois law. Bridgeview relied on a recent appellate court decision, Pekin Insurance
Co. v. XData Solutions, Inc., 2011 IL App (1st) 102769, which held that a federal
district court decision which merely predicts what state law would be does not, in itself,
constitute “state law,” and, further, when there is no state case law on a question, there
can be no conflict. Bridgeview also maintained that, even assuming Illinois and Indiana
law were in conflict, Illinois had the most significant contacts. Therefore, according to
Bridgeview, Illinois law should apply. Clark adopted Bridgeview’s position.
¶9 On May 17, 2012, the circuit court of Cook County granted Bridgeview’s motion
for partial summary judgment and denied State Farm’s motion. The circuit court agreed
with Bridgeview that Pekin controlled the outcome; that there was no conflict between
Illinois and Indiana law; and, thus, there was no need to conduct a choice-of-law
analysis. Thereafter, the circuit court made a written finding pursuant to Supreme
Court Rule 304(a) (Ill. S. Ct. R. 304(a) (eff. Feb. 26, 2010)), that there was no just
reason to delay appeal.
¶ 10 The appellate court reversed and remanded. 2013 IL App (1st) 121920. The
appellate court concluded that Pekin conflicted with the purpose of the choice-of-law
doctrine and chose not to follow that decision. Instead, the appellate court held that the
federal decisions cited by State Farm were sufficient to raise the possibility of a conflict
between Illinois and Indiana law and “that the potential for conflict between Indiana
law and Illinois law requires the trial court to engage in a choice-of-law analysis for the
case.” Id. ¶ 22. We granted Bridgeview’s petition for leave to appeal. Ill. S. Ct. R.
315(a) (eff. July 1, 2013).
¶ 11 ANALYSIS
¶ 12 This case brings before us the circuit court’s grant of partial summary judgment in
favor of Bridgeview. Summary judgment is properly granted when “the pleadings,
depositions, and admissions on file, together with the affidavits, if any, show that there
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is no genuine issue as to any material fact and that the moving party is entitled to a
judgment as a matter of law.” 735 ILCS 5/2-1005(c) (West 2010). Summary judgment
rulings are reviewed de novo. Hooker v. Retirement Board of the Firemen’s Annuity &
Benefit Fund, 2013 IL 114811, ¶ 15.
¶ 13 The parties do not dispute that, under Illinois law, State Farm has a duty to defend
the underlying complaint pursuant to the insurance policy’s “advertising injury” and
“property damage” coverage. See Valley Forge Insurance Co. v. Swiderski Electronics,
Inc., 223 Ill. 2d 352 (2006) (coverage provided under the advertising injury provision);
Insurance Corp. of Hanover v. Shelborne Associates, 389 Ill. App. 3d 795 (2009)
(coverage provided under the property damage provision). Nevertheless, State Farm
maintains that the circuit court erred in granting Bridgeview’s summary judgment
motion because Indiana law applies.
¶ 14 “[A] choice-of-law analysis begins by isolating the issue and defining the conflict.”
Townsend v. Sears, Roebuck & Co., 227 Ill. 2d 147, 155 (2007); 1A C.J.S. Actions § 45
(2005); 15A C.J.S. Conflict of Laws § 30 (2012). A choice-of-law determination “is
required only when a difference in law will make a difference in the outcome.”
Townsend, 227 Ill. 2d at 155; Barbara’s Sales, Inc. v. Intel Corp., 227 Ill. 2d 45, 59
(2007). The party seeking the choice-of-law determination bears the burden of
demonstrating a conflict, i.e., that there exists a difference in the law that will make a
difference in the outcome. See Chicago Board Options Exchange, Inc. v. International
Securities Exchange, L.L.C., 2012 IL App (1st) 102228, ¶ 44. Once a conflict between
laws is established, the analysis turns to which law should be applied. Townsend, 227
Ill. 2d at 157.We review de novo a circuit court’s decision on a choice of law issue. Id.
at 153-54.
¶ 15 No Indiana state court has addressed the question of whether the sending of
unsolicited faxes falls within a comprehensive liability policy’s provisions, either as an
advertising injury or as property damage. However, two unreported federal district
court decisions, Ace Mortgage Funding, Inc. v. Travelers Indemnity Co. of America,
No. 1:05-cv-1631-DFH-TAB, 2008 WL 686953 (S.D. Ind. Mar. 10, 2008), and Erie
Insurance Exchange v. Kevin T. Watts, Inc., No. 1:05-cv-867-JDT-TAB, 2006 WL
1547109 (S.D. Ind. May 30, 2006), have predicted Indiana law. These decisions
predicted that the Indiana Supreme Court would hold there is no coverage for claims
such as Bridgeview’s under comprehensive general liability policies. In so holding, the
district courts relied on American States Insurance Co. v. Capital Associates of
Jackson County, Inc., 392 F.3d 939 (7th Cir. 2004). In that decision, the Seventh
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Circuit looked at Illinois law and predicted that this court would hold that coverage was
unavailable under a comprehensive general liability policy. That position was
subsequently rejected by this court in Valley Forge Insurance Co. v. Swiderski
Electronics, Inc., 223 Ill. 2d 352 (2006). The question before us in this case is whether
the federal district court decisions can be the source of an outcome determinative
conflict so as to trigger a choice-of-law analysis. State Farm contends they can. State
Farm maintains that the federal district court decisions, in and of themselves, establish
a conflict between Illinois and Indiana law. We disagree.
¶ 16 Under Erie R.R. Co. v. Tompkins, 304 U.S. 64 (1938), a federal district court in a
diversity action must apply the law of the state in which the court sits with respect to
substantive matters. In the absence of prevailing authority from the state’s highest
court, the district court “must make a predictive judgment as to how the supreme court
of the state would decide the matter if it were presented presently to that tribunal.”
Allstate Insurance Co. v. Menards, Inc., 285 F.3d 630, 635 (7th Cir. 2002). Such a
predictive judgment is not, in fact, state law; it is an “ ‘Erie guess’ ” as to what state law
would be. Id. at 638. As one commentator has noted, “even if the rule in question is
embraced by the state’s highest court at a later date it remains true that the rule applied
in federal court did not in fact constitute a sovereign command of the state.” Bradford
R. Clark, Ascertaining the Laws of the Several States: Positivism and Judicial
Federalism After Erie, 145 U. Pa. L. Rev. 1459, 1505 (1997); see also, e.g., Pekin
Insurance Co. v. XData Solutions, Inc., 2011 IL App (1st) 102769, ¶ 23 (federal district
court decision making an Erie prediction is not state law); Paul A. LaBel, Legal
Positivism and Federalism: The Certification Experience, 19 Ga. L. Rev. 999, 1015
(1985) (“When a federal court makes an Erie determination of a question of first
impression, the ‘law of the state’ that the federal court purports to apply to the case is,
in reality, federal law.”). As in Illinois, Indiana courts recognize that federal district
court decisions making an Erie prediction are not binding on questions of state law;
Indiana courts are under no obligation to accept federal district court decisions as the
law of Indiana. League of Women Voters of Indiana, Inc. v. Rokita, 929 N.E.2d 758,
763 (Ind. 2010); Harris v. State, 985 N.E.2d 767, 781 (Ind. Ct. App. 2013).
¶ 17 Because a federal district court’s Erie prediction is not state law, such a prediction
cannot, by itself, establish a conflict between state laws. Thus, the fact that the federal
district court decisions cited by State Farm in this case predicted that the Supreme
Court of Indiana would reach a result at odds with Illinois law is not, standing alone,
sufficient to establish a conflict between the law of Illinois and Indiana. This is not to
say, however, that when a circuit court in Illinois is confronted with a motion alleging a
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conflict of laws it may not consider what the federal district court has to say about our
sister state’s law. If, for example, the federal district court bases its Erie prediction on
the holdings of the state’s intermediate appellate courts (see, e.g., Menards, 285 F.3d at
637), that would be a relevant consideration for the circuit court. But the focus must be
on the underlying state law, and not merely the fact of the Erie prediction itself. Only
when the movant establishes a conflict between state laws to the circuit court’s
satisfaction is a choice-of-law analysis required.
¶ 18 State Farm maintains, however, that in Phillips Petroleum Co. v. Shutts, 472 U.S.
797 (1985), the United States Supreme Court relied upon a federal district court’s Erie
prediction to find a conflict between state laws. In Shutts, the Kansas state courts, in a
class action lawsuit, applied Kansas law to claims concerning the awarding of interest
on suspended royalty payments from gas leases, even though 99% of the gas leases at
issue and 97% of the plaintiffs had no connection to Kansas. Id. at 814-15. On appeal to
the Supreme Court, the defendant argued that this violated due process. The Supreme
Court agreed. In addressing the issue, the Court noted it was required to determine
whether Kansas law conflicted with other states’ law, particularly Oklahoma and
Texas. With respect to Oklahoma, the Court concluded that Oklahoma law required an
interest rate on the royalties of 6%, not the higher 15% imposed by Kansas. Id. at
816-17. Thus, Oklahoma and Kansas law conflicted. In reaching this conclusion, the
Court cited to an Oklahoma statute and supreme and appellate court case law. Id.
¶ 19 With respect to Texas, several conflicts existed, including the interest rates. The
Court again cited to a Texas statute and Texas state court case law to reach this
conclusion. Although the Court did reference one published Northern District of Texas
case interpreting Texas law in a “moreover” sentence, it had already found at least one
clear conflict. The basis for reversal was the conflicting interest rates, and, because of
this conflict alone, the Court concluded the Kansas courts erred in holding that Kansas
law applied to all transactions. Id. at 818. The Supreme Court did not hold that a federal
district court’s Erie prediction, by itself, established a conflict of state laws.
¶ 20 State Farm also relies on Sears, Roebuck & Co. v. National Union, 331 Ill. App. 3d
347 (2002), for the proposition that a federal district court’s Erie decision establishes a
conflict between state law. Sears does not so hold. In Sears, the parties conceded that
Pennsylvania law applied. The question before the court was whether an Illinois circuit
court could accept a federal district court decision interpreting Pennsylvania law over a
Pennsylvania intermediate court decision. Sears, 331 Ill. App. 3d at 351. The court
answered that question in the negative. Specifically, it held, “[b]ased on the holdings in
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Moscov [v. Mutual Life Insurance Co. of New York, 387 Ill. 378 (1944)] and
Continental-Midwest Corp. [v. Hotel Sherman, Inc., 13 Ill. App. 2d 188 (1957)] and
applying the principles set forth above, this court holds that Illinois state courts have
the discretion to rely on persuasive federal diversity decisions in predicting how a sister
state’s supreme court would rule on a matter at issue, in the absence of controlling
authority from the sister state’s supreme court or intermediate appellate court.”
(Emphasis added.) Id. at 353. In Sears, the choice of a sister state’s law was already
established. The issue for the circuit court in that case was how to determine the sister
state’s law in a situation where the court had to do so. Sears did not, however, address
how a conflict of laws is to be established and Sears did not hold that a federal district
court’s Erie prediction is sufficient, in itself, to establish a conflict of state laws. That
question simply was not before the court.
¶ 21 State Farm also points to Moscov and Continental-Midwest Corp. and contends that
a circuit court can consider all data to ascertain a state’s law, including federal district
court decisions, and whether there is a conflict between two states’ laws. While it may
generally be true that a court can consider all data in ascertaining or interpreting
another state’s law, neither of these cases involved a discussion of whether it was
appropriate to utilize a federal district court’s Erie prediction to determine whether an
actual conflict exists between state laws. The question before these courts was whether
a state lower court decision could be deemed that state’s law. In Moscov, we held that
Illinois courts must accept the decision of an intermediate court of review as stating the
law of another jurisdiction in the absence of any conflicting decision by another
appellate court of coordinate jurisdiction in that state or by its highest court of review.
Moscov, 387 Ill. at 389. This holding was followed in Continental-Midwest Corp.,
which concluded that a Delaware chancery court decision stated that state’s law.
Continental-Midwest Corp., 13 Ill. App. 2d at 196. Neither Moscov nor
Continental-Midwest Corp. holds that a federal district court’s Erie prediction,
standing alone, establishes a conflict of state laws.
¶ 22 State Farm also relies on Banks v. RIBCO, Inc., 403 Ill. App. 3d 646 (2010), for the
proposition that the circuit court can rely on a federal district court’s Erie prediction to
establish a state-law conflict. Again, Banks does not support this position. In Banks, the
parties agreed there were several “critical” conflicts between Illinois and Iowa
dramshop laws. In identifying one of those conflicts, the appellate court set forth an
Iowa statute as well as a published federal district court case interpreting that statute. In
identifying a second conflict, the court set forth an Iowa statute. Id. at 649. Because a
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“real conflict” between state laws had been identified, the court conducted a
choice-of-law analysis.
¶ 23 Lastly, State Farm argues that the mere potential for a conflict between state laws is
sufficient to warrant a choice-of-law analysis. The appellate court below reached the
same conclusion. The appellate court reasoned that when the law of another
jurisdiction is uncertain, courts should undertake a choice-of-law analysis to determine
which state’s law applies. According to the appellate court, “because the application of
Indiana law could possibly lead to a different result than that reached under Illinois law,
the trial court must first determine which state has the most significant contacts to the
dispute, and then apply to the dispute the law of the state with the most significant
contacts.” 2013 IL App (1st) 121920, ¶ 22. In reaching this result, the appellate court
below relied on Sterling. Sterling Finance Management, L.P. v. UBS PaineWebber,
Inc., 336 Ill. App. 3d 442 (2002).
¶ 24 The question before the court in Sterling was the scope of the corporate
attorney-client privilege. In defining the scope, Illinois applies the control group test.
Id. at 448. New York law on that question was not clear. The Sterling court correctly
recited the principle that a choice-of-law determination is “not implicated unless there
is an actual conflict in the law of the two states.” (Emphasis added.) Id. at 447. The
court concluded that a “true conflict” existed between Illinois and New York law. Id. at
451. Confusingly, however, the court also stated that “[b]ased on the uncertainty of
New York law, and its rejection of the control group test in a different context, we
believe it prudent to consider that an actual conflict may exist” and therefore, undertake
a choice-of-law analysis. (Emphasis added.) Id.
¶ 25 To the extent that Sterling holds that a mere possibility of a conflict of laws is
sufficient to require a choice-of-law analysis, we disagree. As the United States
Supreme Court has observed, “there can be no injury” in applying the local forum’s law
if that law is not in actual conflict with the law of another jurisdiction. Shutts, 472 U.S.
at 816. Applying Illinois law in this case does no injury to State Farm if Indiana law is
not in actual conflict with Illinois. Further, it is unclear what the appellate court below
and State Farm mean by a “potential” conflict of laws. There is always a “potential” for
differences to arise on state-law questions, even on matters that have previously been
addressed. A “potential” conflict standard would appear to create substantial
uncertainty in deciding what law to apply. We adhere to settled law: a choice-of-law
determination is required only when the moving party has established an actual conflict
between state laws.
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¶ 26 Apart from the Erie predictions made in the Indiana federal district court decisions,
State Farm does not argue that Indiana law is in conflict with Illinois law. Indeed, State
Farm asserts that “what the law of Indiana actually is has no bearing on the dispositive
question presented in this appeal—whether a federal district court’s Erie prediction can
be the source of an outcome determinative conflict so as to trigger the most significant
contacts test.” Because State Farm identifies no Indiana law on point, we conclude that
State Farm has failed to meet its burden of demonstrating an actual conflict exists
between Illinois and Indiana law. We note that this holding does not offend the notions
of full faith and credit. We are not refusing to give “the public Acts, Records, and
judicial Proceedings of every other State” (U.S. Const., art. IV, § 1), here Indiana, the
credit they deserve since none of those exist in Indiana on the question at bar.
¶ 27 CONCLUSION
¶ 28 For the foregoing reasons, the judgment of the appellate court is reversed. The
judgment of the circuit court awarding partial summary judgment in favor of
Bridgeview is affirmed.
¶ 29 Appellate court judgment reversed.
¶ 30 Circuit court judgment affirmed.
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