Palos Cmty. Hosp. v. Humana Ins. Co.

2021 IL 126008

183 N.E.3d 677

451 Ill.Dec. 220

PALOS COMMUNITY HOSPITAL, Appellant,

v.HUMANA INSURANCE COMPANY, INC., Appellee.

Docket No. 126008

Supreme Court of Illinois.

Opinion filed May 20, 2021.

Separate opinion upon denial of rehearing filed December 6, 2021

Donald R. Dixon, of Palos Community Hospital, of Palos Heights, and Everett J. Cygal, Neil Lloyd, David Y. Pi, Kirstie Brenson, and Kylie S. Wood, of Schiff Hardin LLP, of Chicago, for appellant.

Tacy F. Flint, Ashley E. Dalmau-Holmes, Emily Scholtes, and Marriam Shah, of Sidley Austin LLP, and Scott C. Solberg and James W. Joseph, of Eimer Stahl LLP, both of Chicago, for appellee.

JUSTICE THEIS delivered the judgment of the court, with opinion.

¶ 1 At issue is whether the "test the waters" doctrine constitutes a valid basis on which to deny a party's motion for substitution of judge as of right under section 2-1001(a)(2) of the Code of Civil Procedure (Code) ( 735 ILCS 5/2-1001(a)(2) (West 2016)). We conclude that the doctrine conflicts with the plain language of the statute. Therefore, we reverse the appellate court's judgment.

¶ 2 BACKGROUND

¶ 3 Palos Community Hospital (Palos) is a not-for-profit community hospital located in Palos Heights, Illinois. Humana Insurance Company, Inc.¹ (Humana), insures and administers health insurance plans for millions of people located throughout the United States, including the greater Chicagoland area. In June 2013, Palos filed its initial complaint in Cook County circuit court for fraud, breach of contract, and other relief against Humana and other entities. In December 2013, Palos filed an amended complaint for fraud, breach of contract, and other relief against Humana and two other defendants. The other defendants ultimately settled with Palos before trial.

¶ 4 According to Palos, Humana underpaid for medical services that Palos provided to members of its health insurance plans, including its preferred provider organization (PPO) plan. Palos alleged that, to induce it to provide discounted PPO rates, Humana represented that its members would seek services from Palos in sufficient numbers to justify the discounted rates. Palos alleged that Humana made these representations in bad faith and instead reimbursed it at materially lower rates than agreed to by the parties. As a direct result of Humana's conduct, Palos alleged that it sustained roughly $20 million in damages. In January 2014, Humana moved to dismiss the amended complaint under section 2-619.1 of the Code (id. § 2-619). Humana argued that Palos failed to state a claim for either common-law or constructive fraud because its complaint did not satisfy the strict requirements for pleading fraud. It further contended that Palos's breach of contract claim was time-barred.

¶ 5 Judge Sanjay Tailor initially presided over the action. In April 2014, the trial court granted Humana's motion to dismiss the complaint with prejudice. Palos moved the court to reconsider its dismissal of the claims against Humana. In early July 2014, the trial court partially granted Palos's motion to reconsider. As relevant here, the court reinstated Palos's claim for breach of contract.

¶ 6 Over the next two years, the parties filed numerous motions to compel and other "emergency" discovery motions. Accordingly, on his own motion, in October 2016 Judge Tailor entered an order appointing retired judge James Sullivan to serve as a discovery master. The trial court ordered the parties to confer with Judge Sullivan on all pending discovery disputes. The court asked Judge Sullivan to attempt to mediate the disputes. If the parties ultimately were unable to resolve them, the court ordered Judge Sullivan to prepare and submit a report and recommendation on the outstanding discovery issues, with a copy to the parties. The trial court permitted the parties to file objections within seven days of receiving the report and recommendation.

¶ 7 On March 20, 2017, Judge Sullivan sent a letter with certain recommendations to Judge Tailor. He recommended that "the court order Palos to produce the documents and data that reflect the rates that Palos expected to be paid by Humana," including "the rate sheets from 1989 through 2004 and other related documents and data from 1989 through 2010." Judge Sullivan sent a copy of his letter to all counsel of record. At a status hearing the next day, Judge Diane Shelley began presiding over the case. Palos clarified that Humana was the main defendant and that a single count for breach of contract remained against the company.

¶ 8 Palos also explained that Judge Tailor had ordered the parties to engage in mediation with Judge Sullivan and that his recommendation letter is what they intended to address at the hearing. Noting that Judge Tailor had established a procedure for the parties to object to the report and recommendation, Palos requested leave of court to file an objection. Additionally, Palos contended that the trial court lacked authority to appoint a special master or mediator to oversee discovery. Judge Shelley granted Palos's request to submit the filings, noting that she would keep "a very open mind." At the same time, the trial court saw no "need to deviate from the procedure that Judge Tailor had already established in the case" and would likely "continue to follow it," unless the parties presented "something new" to the court.

¶ 9 In early April 2017, Palos filed a memorandum in support of its motion to strike the discovery master. It also filed an objection to the content of Judge Sullivan's report. On April 13, 2017, the trial court conducted a hearing on Palos's motion to strike. Palos noted that its motion to strike was "intimately tied in with Palos's objection to his report that he submitted to the court." In its view, there was "a fundamental jurisdictional issue with the appointment of Judge Sullivan." Palos also observed that, if the trial court agreed with its analysis, "the merits of the other briefing [did not] need to be addressed."

¶ 10 The trial court noted that the prior judge "made a determination that he needed the assistance of Judge Sullivan in trying to resolve the discovery issues in this case." And though the court would not "mak[e] an announcement at this juncture," it observed that there was "precedent for a judicial officer to seek assistance in matters of this nature." In response, Palos noted that it had "spent a lot of time researching this issue" and opined that it had "found all the pertinent authority out there." After pledging to review the cases cited in its motion, the trial court concluded the hearing.

¶ 11 On April 20, 2017, citing section 2-1001(a)(2) of the Code, Palos moved for substitution of judge as a matter of right. Under that section, "[w]hen a party timely exercises his or her right to a substitution without cause as provided in this paragraph (2)," "[e]ach party shall be entitled to one substitution of judge without cause as a matter of right." 735 ILCS 5/2-1001(a)(2)(i) (West 2016). In relevant part, the statute further provides that "[a]n application for substitution of judge as of right shall be made by motion and shall be granted if it is presented before trial or hearing begins and before the judge to whom it is presented has ruled on any substantial issue in the case." Id. § 2/1001(a)(2)(ii). Palos observed that the trial court had not made any substantial ruling and that neither a trial nor hearing had been conducted in the action. Therefore, Palos asked the court to grant its motion.

¶ 12 On May 4, 2017, the trial court conducted a hearing on Palos's motion for substitution of judge. The court observed that "these motions are usually liberally granted, except when the parties have had an opportunity to test the waters." The court noted that, at both prior hearings, it affirmed that precedent existed for the appointment of a discovery master. Palos's motion for substitution of judge followed shortly thereafter. Noting that counsel had an obligation to advocate for and strategize on behalf of their clients, the trial court assured Palos that it did not take offense at the substitution motion. Nonetheless, the court found that testing the waters "remain[ed] an exception to the substitution of judge motion in the First District."

¶ 13 In a written order entered the same day, the trial court denied Palos's motion for substitution of judge as a matter of right. The trial court noted that a "substitution of judge may be had when a party timely exercises the right to a substitution." However, the trial court asserted that such a motion "is considered untimely when the party moving for a substitution of judge has discussed issues with the judge, who has indicated a position on a particular point." Even if no actual ruling was issued, the trial court stated that a substitution motion can be denied when the party "had an opportunity to test the waters and form an opinion as to the court's disposition of an issue." The court found that testing the waters was an exception to motions for substitution of judge as of right, and it concluded that this was "clearly a case where the movant tested the waters and determined that the court may be reluctant to strike the discovery master and his report which recommended that certain contentious documents be produced." Thus, the court ruled that Palos's motion was untimely.

¶ 14 On May 16, 2017, Palos moved the trial court to reconsider its denial of the motion for substitution of judge. Alternatively, it asked the court to certify the issue for immediate appeal under Illinois Supreme Court Rule 308 ( Ill. S. Ct. R. 308 (eff. Jan. 1, 2016)). Palos noted that, if there was no immediate appeal and a reviewing court later determined that the motion should have been granted, all proceedings after the erroneous denial would be void. The trial court denied Palos's motion for reconsideration and its request for an immediate appeal.

¶ 15 Discovery proceeded. In January 2018, Humana...