With today’s news cycles, it’s sometimes hard to believe that
anything still happens outside of Washington DC. You probably didn’t
hear about it, but something pretty remarkable happened in early September
in Illinois: State Farm, the “good neighbor” insurance company,
agreed to pay $250 million to settle a civil racketeering case which was
about to go to trial in Illinois.
That figure is not a misprint. State Farm voluntarily settled for
a quarter of a billion dollars in a civil case.
State Farm denied wrongdoing, as corporate defendants always do when they
settle civil cases. But one has to figure it was pretty worried if it
rolled over and parted with that much money.
The origins of this legal dispute are complicated and go back decades.
Basically, it all began when customers brought a lawsuit claiming they
received inferior parts when State Farm paid for vehicle repairs. That
resulted in a 1999 verdict for more than a billion dollars against State
Farm in Illinois state court.
Naturally, State Farm appealed the verdict all the way to the Illinois
Supreme Court. While the case was pending, a sitting Supreme Court justice
retired. That meant a vacancy opened on the court which would be deciding
the fate of the case. And that’s where the legal thriller-level
of intrigue and backroom dealing begins.
It apparently occurred to State Farm that it might be worth the effort
to put a friendly justice on the court where the huge verdict against
it was pending. According to the plaintiffs, State Farm then decided to
bankroll a previously obscure Republican candidate, Lloyd Karmeier, for
the vacant seat.
This resulted in the most expensive judicial election up to that point
in history. Karmeier and his Democratic opponent spent $9.3 million trying
to win the seat. Karmeier won that election in 2004. He took his seat
on the court, and then - you guessed it - cast the deciding vote taking
away the billion-dollar plus verdict against State Farm.
The problem is not so much that State Farm paid for a large part of Karmeier’s
election campaign. According to the plaintiffs, the problem is that it
did so secretly. They alleged that State Farm essentially used proxies
to funnel millions of dollars to Karmeier. This concealment effort prevented
two things: (1) an open discussion of Karmeier’s donors and what
they might expect for their largesse, and (2) consideration of whether
Karmeier should participate at all in hearing an appeal of a huge verdict
against State Farm.
After the Illinois Supreme Court killed the class action, the plaintiffs
did not give up. Instead, they brought a new, separate action for racketeering.
They alleged that State Farm engaged in a quasi-criminal scheme to rig
the Supreme Court in its favor.
State Farm denied those claims, of course, but it ultimately paid a quarter
billion dollars rather than face a jury. In doing so, it prevented an
ugly scenario: a state Supreme Court justice (surprisingly, Karmeier still
is one) being forced to testify in federal court about a secret “electioneering”
effort of one of the largest insurance companies in America.
There are a few observations which readily come to mind about this whole
First, judicial elections matter. State Farm obviously thought so, because
it quietly pumped millions of dollars into the campaign of its go-to candidate.
Second, judicial elections need to be absolutely transparent. Because judges
are supposed to be neutral and free of political influence, it’s
critical to know who is funding their campaigns - and possibly trying
to exercise influence over their decisions.
Third, judges need to recuse themselves for cases where there is
any question about their ability to be impartial. People in Illinois will
probably have doubts about the fairness of their civil justice system,
and the Illinois Supreme Court in particular, for many years because of this.
Fourth, never underestimate how far corporate defendants will go to try
and get their preferred outcomes in court. State Farm’s conduct
in this case sounds like something straight out of a John Grisham novel.
According to the plaintiffs, it literally tried to rig the highest court
in Illinois in its favor. The racketeering claims it faced are usually
reserved for heinous forms of organized crime, like drug cartels and money
Predictably, State Farm denied the allegations. However, when it was time
to face a jury and defend itself, it chose to pay a quarter billion dollars
instead. That makes one wonder if it’s really such a good neighbor
We’ve criticized confidentiality agreements (otherwise known as secret
settlements or “hush money” deals) for years. Several months
ago, this blog discussed how confidentiality agreements allowed Harvey
Weinstein to continue his abusive behavior for years.
Now a Pennsylvania grand jury has come out with a deeply troubling report
about abuse in the Catholic Church. The report describes decades of abuse
in Pennsylvania committed by priests and covered up by church officials.
It contains the following recommendation:
[W]e need a law concerning confidentiality agreements. They've become
a hot topic in recent months in sexual harassment cases - but it turns
out the church has been using them for a long time. [Church] records contained
quite a few confidentiality agreements, going back decades: payouts sealed
by silence. There are arguments on both sides about whether it's proper
to use these agreements in securing lawsuit settlements. But there should
be no room for debate on one point: no non-disclosure agreement can or
should apply to criminal investigations. If the subject of a civil lawsuit
happens also to concern criminal activity, then a confidentiality agreement
gives neither party either the right or the obligation to decline cooperation
with law enforcement. All future agreements should have to say that in
big bold letters. And all this should be enacted into a law.
We couldn’t agree more. It’s become painfully obvious that
confidential settlements have allowed sexual predators to get away with
illegal and downright horrifying behavior. No one can argue with a straight
face anymore that the benefits of this practice outweigh the harms.
Even the issues surrounding Donald Trump’s payment to adult film
actress Stormy Daniels arise from confidentiality. The payment itself
would not have been illegal - except that everyone involved in making
the deal failed to report it. Whatever one thinks about President Trump
or the entire situation, it’s just one more example of how hush
money settlements create problems in criminal and civil law.
There are certainly cases where the parties might want to keep the
amount of a settlement confidential. An abused person might, for example, just
not want opportunistic friends to know they received six or seven-figure
money. An agreement on that point isn’t a problem if it’s
freely negotiated between the parties. The problem is that many confidential
agreements are much broader: they impose gag orders prohibiting discussion of the
conduct which caused the case to be brought.
One might reasonably ask why the law on confidential settlements hasn’t
been reformed already. The regrettable answer is that many wealthy and
powerful people - including corporate executives, high-ranking clergy,
and rich individuals - like being able to buy silence. At this point,
however, we’ve seen enough abuse to know that their desire to pay
for secrecy can cause great societal and legal harm. It also tilts the
legal playing field in favor of the rich and well-connected, giving them
yet another advantage over less wealthy adversaries.
The time has come to place legal limits on confidentiality for legal disputes.
If Congress won’t take up the issue, then the individual states
need to step up. Otherwise, some of the most shocking forms of sexual
abuse, along with other criminal or otherwise repugnant behavior, will
continue to get swept under the rug.