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Illinois Law Blog Legal updates, news, and commentary from the attorneys of Baker Sterchi Cowden & Rice LLC

Ninth Circuit Allows Class Action Against Facebook under Illinois' Biometric Information Privacy Act to Proceed in California

September 25, 2019 | Lisa Larkin

Those on Facebook know the site is quite good at recognizing others in posted photos and suggesting friends to tag. Most click on the tag suggestion and move on with little to no thought on just how this happens behind the scenes. A class action filed in the Northern District of California will be allowed to proceed to consider whether Facebook’s behind-the-scenes face-recognition technology violates Illinois’ Biometric Information Privacy Act (BIPA). Patel v. Facebook, Inc., 932 F.3d 1264 (9th Cir. 2019). 

Nimesh Patel, individually and on behalf of all others similarly situated, filed a purported class action against Facebook alleging Facebook subjected the named plaintiffs and the purported class to facial-recognition technology without complying with BIPA, which is intended to safeguard their privacy. BIPA, 740 ILCS 14/1 et seq. (2008), prohibits the collecting, using, and storing of biometric identifiers, including a “scan” of “face geometry”. Plaintiffs alleged Facebook used scans of their photos without obtaining a written release and without establishing a compliant retention schedule.

For years, Facebook has allowed its users to “tag” their Facebook friends in photos. In 2010, Facebook launched a feature called “Tag Suggestions.” This feature uses facial-recognition technology to analyze whether the user’s Facebook friends are in photos and then “suggest” a tag. It does so by scanning the photo, extracting various geometric data points that make a face unique, and creating a face signature or map. It then compares the face signature to other faces in Facebook’s database and matches it to other user profiles. These user templates are stored on Facebook servers in nine data centers, none of which is in Illinois. The named Plaintiffs are all Illinois residents who uploaded photos to Facebook while in Illinois. Facebook created and stored face templates for each of them.

Facebook moved to dismiss the complaint for lack of standing on the ground that the Plaintiffs had not alleged any concrete injury. Plaintiffs, in turn, moved to certify the class. The district court denied the Motion to Dismiss and certified a class of “Facebook users located in Illinois for whom Facebook created and stored a face template after June 7, 2011.”

On appeal of the standing issue, the 9th Circuit noted standing is established where a plaintiff has suffered an “injury-in-fact” defined as an invasion of a legally protected interest which is: (a) concrete and particularized; and (b) actual or imminent, not conjectural or hypothetical. It is not enough for a plaintiff to allege that a defendant has violated a statutory right without also showing that the plaintiff suffered a concrete injury-in-fact due to the statutory violation.

In terms of BIPA, the appellate court noted that the Illinois General Assembly found that the development and use of biometric data presents risks to Illinois’ citizens. Citing to the Illinois Supreme Court’s opinion in Rosenbach v. Six Flags Entm’t Corp., 2019 IL 123186, which we previously discussed here, the court concluded that the statutory provisions at issue in BIPA were established to protect an individual’s “concrete interests” in privacy, not merely his procedural rights related to how his biometric information was stored and used.

The question then became whether the specific statutory violations alleged by the Plaintiffs in this case actually harmed or presented a material risk of harm to such privacy interests. The relevant conduct according to Plaintiffs was Facebook’s collection, use and storage of biometric identifiers without a written release and a failure to maintain a retention schedule or guidelines for destroying biometric identifiers. Plaintiffs asserted this allows Facebook to create and use a face template and retain it indefinitely. The court noted that because the privacy right protected by BIPA is the right not to be subject to such collection and use, Facebook’s alleged violation would necessarily violate the Plaintiffs’ substantive privacy interests. It concluded, therefore, that Plaintiffs have alleged a concrete injury-in-fact sufficient to confer standing.

On the class certification issue, Facebook argued the district court erred in certifying the class because the Illinois legislature did not intend for BIPA to have extraterritorial effect. Because Facebook’s collection, storage, and template creation took place on its serves outside Illinois, Facebook argued the district court would have to consider whether each relevant event took place inside or outside Illinois. The Court of Appeals disagreed. It is reasonable to infer that the General Assembly contemplated BIPA’s application to individuals located in Illinois, even if some relevant events occurred outside the state. The court held that these are threshold questions of BIPA’s application which can be decided on a class-wide basis. 

Facebook also argued that the possibility of a large class-wide statutory damages award defeats the superiority requirement for a class action. Again, the appellate court disagreed. The question of whether the potential for enormous liability can justify a denial of class certification depends on legislative intent. Here, there is nothing in BIPA’s text or legislative history indicating a large statutory damages award would be contrary to the intent of the Illinois General Assembly. The court, therefore, affirmed the district court’s order certifying the class.

The law surrounding BIPA continues to develop, which is unsurprising considering the speed with which relevant technological capabilities develop. With this opinion, the extraterritorial reach of BIPA is established and may well lead to more litigation outside the confines of the Illinois state and federal courts.

Terms of "Confidential" Co-Defendant Settlement Prove Party Bad Faith and Earn Counsel a Disciplinary Referral

September 5, 2019 | Lisa Larkin

A well-established and often referred to as sacred part of American jurisprudence is the confidential nature of settlement negotiations and terms. In a recent opinion, Illinois’ First District Appellate Court reminded litigants that such confidentiality, in fact, can be lost. 

In Chernyakova v. Puppala, et al., 2019 IL App (1st) 173066, Plaintiff Elena Chernyakova sued Northwestern Memorial Hospital, McGaw Medical Center of Northwestern University and Vinaya Puppala, M.D. alleging that while she was hospitalized at Northwestern for alcohol intoxication, Dr. Puppala, an employee of McGaw, electronically accessed Plaintiff’s medical chart and took and posted photos of her on social media. Plaintiff and Dr. Puppala knew each other socially, and while she was admitted, Dr. Puppala visited Plaintiff twice just hours after admission. He used his credentials to view Plaintiff’s electronic medical chart and spoke with Plaintiff’s treating physicians regarding her progress and possible discharge. On his second visit, Dr. Puppala took photographs of Plaintiff in what was still an intoxicated state and posted them to Facebook and Instagram. Plaintiff contested that she had consented to Dr. Puppala accessing her medical records, speaking to her treating physicians, or taking and posting her photograph.

The Cook County Circuit Court granted summary judgment to Northwestern and McGaw, and Plaintiff proceeded to trial against Dr. Puppala. During trial, Plaintiff settled with Dr. Pappula and the parties requested an on the record “hearing” wherein the attorneys outlined the terms of the “confidential” settlement for the trial judge. Separately, Plaintiff pursued an appeal of the summary judgment in Northwestern and McGaw’s favor.

During the pendency of the appeal, Northwestern and McGaw’s counsel obtained information that the terms of the “confidential” settlement called in question the validity of the factual underpinnings of the lawsuit. Defense counsel moved the trial court to unseal the transcript of the settlement hearing so that it might be considered by the appellate court on a motion to dismiss the appeal even though those proceedings had no direct connection to the summary judgment proceedings. The trial court ultimately unsealed the transcript, and the parties agreed it would be filed in the appellate court under seal.

While generally the appellate court’s review of summary judgment orders is strictly limited to the materials of record before the Circuit Court at the time the summary judgment was entered, this case presented a unique situation. As the appellate court noted, it implicated the appellate court’s responsibility to “strive to enhance and maintain confidence in our legal system.” The appellate court found the contents of the settlement transcript lead to the inescapable conclusion that the appeal was frivolous and being pursued in bad faith. The transcript disclosed that at the hearing counsel stated the amount Dr. Puppala agreed to pay and that Plaintiff agreed to write favorable letters on the doctor’s behalf stating that her underlying allegations were “mistaken” and that she consented to the photos and postings. Significantly, the appellate court learned that after the Circuit Court ordered the settlement hearing transcript unsealed, Plaintiff’s counsel had nevertheless instructed the court reporter to not provide a copy to Defendants.

On appeal, Plaintiff argued there is a presumption that favors the validity of confidentiality provisions in settlement agreements such that the settlement hearing transcript could not be unsealed as a matter of law. The appellate court explained that Plaintiff’s argument demonstrated a misunderstanding of the confidentiality protection afforded to settlement agreements. Once Plaintiff’s counsel described the terms of the settlement to the trial judge, any confidences evaporated and sealing the confidential terms did nothing to save them. By informing the trial judge of the settlement terms on the record, counsel made those terms a part of the public record which could not be sealed.

The appellate court also found Plaintiff’s counsel was incorrect in his assertion that Illinois Supreme Court Rule 408 protected the confidential nature of the settlement terms. Rule 408 provides that evidence of “furnishing or offering or promising to furnish – or accepting or offering or promising to accept – a valuable consideration in compromising or attempting to compromise the claim” and “conduct or statements made in compromise negotiations regarding the claim” is inadmissible “to prove liability… or to impeach through a prior inconsistent statement or contradiction[.]” Such evidence may, however, be admissible to establish bad faith. Here, the inquiries into settlement negotiations was to establish wrongdoing and Rule 408 offered no protection to Plaintiff.

The appellate court found it significant that Plaintiff did not directly question the substantive accuracy of the settlement terms, which on their fact are irreconcilable with Plaintiff’s continued pursuit of her claim against the Defendants. Plaintiff, through counsel, affirmatively agreed to fully exonerate Dr. Puppala by providing a letter completely contradicting the factual bases of the lawsuit. She knew those letters would be sent to favorably influence regulatory or financial decisions involving Dr. Puppala, while simultaneously continuing her quest for money damages against the Defendants under theories she asserted were “mistaken.”

The appellate court dismissed the appeal as frivolous and not pursued in good faith. Further, it found Defendants entitled to their reasonable attorney fees and costs incurred as a result of defending against the frivolous appeal. The court also concluded that it could not turn a blind eye to Plaintiff’s counsel’s instruction to the court reporter to not provide the Defendants will a copy of the hearing transcript in contravention of the trial court order. As a result, the court instructed the clerk of the appellate court to forward a copy of the opinion to the Attorney Registration and Disciplinary Commission.

The decision corrects any misconceptions that settlement negotiations and terms are absolutely protected. One must question how far this holding might reach as there are many proceedings which are held “on the record” but with the transcripts later sealed. Perhaps more importantly, the opinion cautions counsel against showing a lack of respect for the Circuit Court and for the appellate process in a blind drive for a successful outcome.

Taxation of Lost Wages Awards Under the FELA: the Illinois Appellate Court Applies Loos v. BNSF

August 21, 2019 | John Lord

In Munoz v. Norfolk Southern Railway Company, 2018 IL App (1st) 171009 (Munoz I), Plaintiff Munoz sued his railroad employer under the FELA for an on-duty personal injury. A jury awarded Munoz a large sum attributed to past and future lost wages. After the verdict, the railroad moved for a setoff, claiming Munoz owed taxes on the lost wages award under the Railroad Retirement Tax Act (RRTA). Munoz argued that the award of lost wages should be treated the same as personal injury awards that are not subject to income taxes. 

The trial court denied the railroad’s motion, relying on the Missouri Supreme Court’s opinion in Mickey v. BNSF Railway Co., 437 S.W. 2d 207 (Mo. banc 2014). In Mickey, the Missouri Supreme Court held that, like the exclusion for personal injury awards under Internal Revenue Code § 104(a)(2), an FELA lost wages award does not constitute income. Therefore, lost wages do not qualify as taxable compensation under the RRTA.

The railroad appealed, arguing that the plain language of the RRTA, when read in conjunction with the Railroad Retirement Act, supports a finding that an FELA lost wages award is compensation subject to withholding taxes. The Illinois Appellate Court disagreed and affirmed the trial court. The Appellate Court found that the RRTA defines “compensation” as money paid to an employee for “services rendered” and lost wages cannot be paid to an employee for “services rendered”.

Shortly thereafter, the U.S. Supreme Court considered the same issue in BNSF Railway Co. v. Loos, 129 S. Ct. 893 (2019), and held that FELA lost wages awards are compensation subject to taxation. The Illinois Supreme Court then directed the Appellate Court to vacate its initial judgment in Munoz I and consider the effect of the Loos case. Upon reconsideration, the Appellate Court concluded that Munoz’s lost wages award was taxable compensation under the RRTA. Munoz v. Norfolk Southern Railway Company, 2019 IL App (1st) 171009-B (Munoz II).

The Munoz II  Court observed that in Loos the Supreme Court looked to the Social Security Act (SSA) and the Federal Insurance Contributions Act (FICA) for guidance as to the meaning of “compensation.”  The Supreme Court found that the RRTA’s definition of compensation was “materially indistinguishable” from FICA’s definition of “wages”, to include remuneration for “any service, of whatever nature, performed . . . by an employee.”

Previous Supreme Court cases held that “wages” under the SSA and FICA included awards of backpay and severance payments.  These cases held that such awards represented pay for active service, in addition to pay for periods of absence from active service.  As a result, the Supreme Court held that “compensation” under the RRTA can encompass pay for periods of absence from active service, as long as the remuneration in question “stems from the employer-employee relationship.”

The Supreme Court found that damages for lost wages awarded under the FELA “fit comfortably” within these parameters. Wage loss damages compensate an employee for time during which he or she is “wrongfully separated” from employment, and this is akin to an award of back pay. An award of back pay that compensates an employee for wrongful discharge constitutes wages under the SSA, even though the wages were awarded because of the employer’s wrongdoing.  Based on this reasoning, “there should be no dispositive difference between a payment voluntarily made and one required by law.”

The Munoz II Court reiterated the distinction between personal injury damages that are not taxable under the Internal Revenue Code with FELA lost wage awards. Personal injury damages are excluded from “gross income” by the Code. And, “gross income” cannot be conflated with “compensation” under the RRTA, which Congress treated as discrete tax bases.

CONCLUSION

The Illinois Appellate Court is likely the first of many courts that will apply the Loos decision and find that an award of lost wages in an FELA case is subject to taxation. The resolution of the split on this issue will have practical ramifications in FELA litigation, including modification of jury instructions and, potentially, attempts to allocate settlement proceeds to sources other than lost wages.


* Kelly M. “Koki” Sabatés, Summer Law Clerk, assisted in the research and drafting of this post. Sabatés is a 3L student at the University of Missouri-Columbia.

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About Illinois Law Blog

The BSCR Illinois Law Blog examines significant developments, trends and changes in Illinois law on a broad range of topics that are of interest to Illinois practitioners and to businesses evaluating risks under Illinois law or managing litigation subject to Illinois law. Learn more about the editor, Lisa Larkin.

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