Thursday, 22 September 2011 15:46

Fmr. U.S. Sen. Fred D. Thompson and Other Lawyers Allege State Farm Court Fraud in Avery v. State Farm

This month a group of lawyers filed a petition accusing State Farm Insurance of defrauding the Illinois Supreme Court by covering up its “extraordinary support of Justice (Lloyd) Karmeier’s campaign and to thwart Justice Karmeier’s disqualification” from the Avery v State Farm class-action case originally tried in 1999.

Lloyd Karmeier was the successful 2004 Republican candidate in the most expensive state judicial race in U.S. history, which was conducted during the appeal of Avery v State Farm. The petition is based on an investigation by former FBI agent Michael Reece. Reece stated in his affidavit accompanying the petition: “The bottom line of my investigation is that State Farm used the Illinois Civil Justice League to elect Judge Karmeier and Judge Karmeier knew it.”

While there are no hard and fast rules as to when a Justice should recuse himself the U.S. Supreme Court said a WV appelate court judge should have recused himself in a case because he received $3 million in campaign contributions, then overturned a verdict against a contributor. The U.S. Supreme Court decided the judge should have recused himself because of the “serious risk of actual bias.”

But the latest petition argues that State Farm attorney and lobbyist William Shepherd was on the executive committee of Illinois Civil Justice League (ICJL), which recruited Karmeier and donated (through its political action committee) $1.1 million in direct and in-kind contributions to Karmeier’s campaign. Also at the time, an affidavit in the case points out, State Farm CEO Ed Rust was part of the U.S. Chamber’s leadership team that selected which judicial campaigns to target, and Illinois was identified as a “Tier 1” state to target. State Farm donated $1 million to the U.S. Chamber’s judicial election efforts, the U.S. Chamber donated over $2 million to the Illinois Republican Party, and that organization in turn bought $1.94 million in advertising for the Karmeier campaign

In 1999, the landmark class action lawsuit Avery v State Farm rocked the collision industry with not only its staggering $1.8 billion dollar judgment but also its implications for the viability of the aftermarket industry. Louisiana resident Michael Avery and four other named plaintiffs brought the class action in Illinois against State Farm. The original circuit court jury found in favor of the plaintiffs, and awarded the $1.8 billion. This ruling was affirmed on appeal by the state appelate court, except that the judgment was reduced to $1.05 billion.

It wasn’t until the case got to the Illinois Supreme Court that the judgment against State Farm was overturned. The Supreme Court found that, because of the various types of language used in State Farm’s different insurance policies, it was an error for the circuit court to certify a nationwide class as to the contract claims. The court also held that the plaintiffs had failed to establish any breach of contract on the part of State Farm, or that they had even established any contract damages. To completely twist the knife in the plaintiffs’ case, the Supreme Court further found that only one of the five named plaintiffs had his vehicle assessed and repaired in Illinois, and since he couldn’t prove he suffered damages, the class action judgment was completely reversed. It seemed a slam dunk for State Farm.

In 2006 the Illinois Supreme Court was petitioned to review the case on the grounds that then-circuit Judge Lloyd Karmeier, declined to recuse himself, and then ruled for one of his biggest campaign contributors, State Farm. Justice Karmeier, who received over $350,000 in direct contributions from State Farms employees, lawyers and others, and over $1 million more from groups of which State Farm was a member or to which it contributed, won both the fundraising battle and the election. Justice Karmeier then declined to recuse himself from Avery, which had been pending before the Illinois Supreme Court during the campaign. In the appeal, Justice Karmeier cast the decisive vote reversing a lower courts breach of contract verdict of over $450 million against State Farm. The Supreme Court denied the recusal petition and did not hear the case.

This month the Supreme Court was again petitioned by a group of Avery attorneys—including former TV actor, U.S. senator—and briefly candidate for the GOP nominee for President—Fred Thompson allege State Farm lied and mislead the court, hiding its “extraordinary support of Justice  Karmeier’s campaign and to thwart Justice Karmeier’s disqualification.” The petition asks the court to restore at least part of the billion-dollar judgment against State Farm on the grounds that months before siding with State Farm in the questioned August 2005 ruling, Karmeier refused calls that he recuse himself despite concerns that the hundreds of thousands of dollars he allegedly got directly from State Farm for his campaign could taint his judgment.

State Farm’s lawyers have insisted the company itself gave no money to Karmeier, who this month’s petition asserted was recruited by the company to run for the court as a “pro-business candidate” and actually got $2.5 million to $4 million in contributions through State Farm.

Much of that money came through a political action committee (JUSTPAC) bankrolled by insurance companies and others who lobby for damage award caps, with Karmeier well aware of State Farm’s involvement in his campaign, the plaintiffs’ filing said.

Such contributions “created a constitutionally unacceptable risk of bias such that (Karmeier’s) participation and vote to reverse the $1.05 billion judgment deprived (the) petitioners of their due-process rights,” according to the petition, which asks the state’s Supreme Court to rehear the case without Karmeier. Ironically perhaps, the plaintiffs also petitioned that Justice Karmeier not be allowed to participate in the decision as to whether or not he should be excluded.

“In the final analysis, this evidence not only substantiates, but confirms, once and for all, that State Farm deliberately lied to and misled this court, and concealed information from this court in 2005,” reads the filing. State Farm said in a statement that “this case was resolved by the Illinois Supreme Court years ago, and (the) plaintiffs’ attempt to appeal to the U.S. Supreme Court was rejected.”

State Farm responded to the charge of excessive support of Karmeier in 2005 by flatly denying “engineering contributions” to Karmeier’s campaign “for the purpose of impacting the outcome of this case [Avery].”
Background on Avery v State Farm
The original complaint was filed in July 1997 in a breach of contract case in which the plaintiffs alleged that State Farm promised “to restore plaintiffs’ vehicles to their pre-loss condition using parts of ‘like kind and quality,’” but, it was claimed, State Farm’s uniform practice was to specify the use of non-OEM crash parts to repair its policyholders’ cars in every instance in which such cheaper parts were available.

At the core of the case in the Supreme Court appeal was the meaning of the term “like kind and quality” as used in State Farm’s insurance contracts, and whether, as the plaintiffs argued, the term meant “like kind and quality to OEM parts”—or, as State Farm argued, it meant “sufficient to restore a vehicle to its preloss condition.” However, in the circuit court, the plaintiffs also alleged that the non-OEM parts at issue in this case were ‘categorically inferior’ to their OEM counterparts. In the plaintiffs view, non-OEM parts could never satisfy State Farm’s “like kind and quality” obligation. The plaintiffs argued: “As a practical matter, [State Farm’s] obligation could be met only by requiring the exclusive use in repairs of factory-authorized or OEM parts.”

The Illinois Supreme Court ultimately sided with State Farm as to the meaning of “like kind and quality,” noting that two main State Farm policy forms outlined the option to use non-OEM parts in the repair—or, required the insured to pay the cost of parts that resulted in “better than like kind and quality.” The inference was that better than must refer to OEM and therefore like kind and quality must not refer to OEM.

Another key to the class action’s validity was whether or not State Farm’s contractual obligation was the same for all members of the class. State Farm argued repeatedly that it had many different contracts, and that certification of the class action should not be based on a uniform, singular contract with insureds.

At circuit trial, the court and jury were charged with resolving the classwide question of whether State Farm, by requiring the uniform use of non-OEM crash parts, and through the course of conduct it designed to conceal the true import of this practice from its policyholders, breached its contractual obligations and committed consumer fraud.

The court gave the jury instructions that State Farm’s contractual obligation was “exactly the same, whether State Farm promised to pay for crash parts of like kind and quality or promised to pay for crash parts which restore a vehicle to its pre-loss condition.” This disputed instruction became a key to the outcome of the Supreme Court’s reversal.

The circuit court trial began on August 16, 1999, and lasted several days, involving hundreds of exhibits and testimony by dozens of witnesses. Each side presented the testimony of experts and body shop witnesses in support of their respective positions.

The class-members were awarded $1.186 billion and State Farm immediately appealed the decision only to have the Appellate Court affirm the decision in 2001, albeit with an award reduced to just over $1 billion. In 2002, State Farm again appealed the case to the Illinois Supreme Court who eventually, in 2005, voted 4–2 to overturn the Appellate Court decision in favor of State Farm.

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