Tax break scratched for Illinois gasohol

Legislation giving Illinois-produced gasohol a preferential tax rate was found to violate the commerce clause of the U.S. Constitution by the Illinois Supreme Court in a decision filed September 22.

Amendments to the Use Tax Act and the Retailer's Occupation Tax Act narrowed the definition of gasohol qualifying for a reduced tax rate: (1) gasohol produced in Illinois or in states granting a reciprocal advantage to Illinois gasohol and (2) only gasohol with an ethanol component "obtained from cereal grains or food processed by-products essentially derived from cereal grain" (see Illinois Revised Statutes 1985, ch. 120, sees. 439.3, and ch. 120, sec. 441).

The court said that "each act. . . discriminates against interstate commerce in favor of local interests." Its decision was based on those of the U.S. Supreme Court. The reciprocity clause was seen as attempting to force other states to adopt legislation favorable to Illinois, a goal held unconstitutional by the U.S. Supreme Court. Since 99.4 percent of Illinois ethanol fits the new definition while 12 percent of ethanol produced nationally does not, the Illinois court ruled that the "effect is principally outside of Illinois and imposes a disproportionately heavy burden on interstate commerce."

Justice Daniel P. Ward wrote the decision in Stewart Oil Co. v. State of Illinois (124 Ill. 2d 116). Justice John J. Stamos did not participate.

Alcoholic beverages: same kick, same tax

In 1986 the Department of Revenue ruled that a beverage called "New Products" containing less than 14 percent alcohol obtained from distillation and added to other liquids should be taxed $2 per gallon, the rate for "spirits." The manufacturer argued that it should be taxed $.23 per gallon, the rate for wine and other fermented beverages with no more than 14 percent alcohol. Since the department administratively applies this lower rate to wine coolers, the manufacturer argued its product was similar and should be taxed the same. On October 20 the Illinois Supreme Court agreed with the manufacturer.

The Illinois Constitution provides for uniformity of classification for tax purposes (see art. IX, sec. 2), and the Liquor Control Act (Ill. Rev. Stat. 1985, ch. 43, sec. 93.9 et seq) attempts to tax alcoholic beverages uniformly. The act defines alcoholic beverages according to method of production and establishes levels of taxation for each. The court said, however, that " . . .rigid application of these definitions to products which have only recently entered the market cannot meet the constitutional mandate of uniform taxation."

Justice William G. Clark's opinion in Federated Distributors v. Johnson (Docket No. 66213) provided an admirable short course both on methods of producing alcoholic beverages and the history of their taxation, going back to 1791. This research was the basis for the court's finding of no "real and substantial difference" between the product in question and wine coolers. Clark pointed out that this did not bar the legislature from imposing a statutory tax on these new products, and Justice Ben Miller's special concurrence underlined this point.

Court decrees lawyers must snitch on each other

In a case that may be the first in the nation the Illinois Supreme Court suspended for one year an attorney who failed to report misconduct by another lawyer in violation of the Code of Professional Responsibility (107 Ill. 2d R. 1-103(a)). Punishment meted out by the September 22 decision went beyond recommendations coming out of the attorney disciplinary process. It seemed to sustain the contention of the administrator of the Attorney Registration and Disciplinary Commission (ARDC) that "the profession will be on notice that a violation of Rule 1-103(a) will not be tolerated."

The situation was this: Attorney John R. Casey had obtained a settlement for a client in her claim for injuries sustained in an accident. After he converted the funds to his own use she enlisted the help of attorney James H. Himmel. He obtained a partial payment of funds due the client without charging a fee. Himmel further negotiated an agreement whereby Casey was to make an additional payment with the client agreeing not to pursue civil, criminal or disciplinary charges against Casey. Himmel was to receive one-third of this amount. When Casey failed to pay up, Himmel sued Casey. The ARDC investigated, which led to Casey's disbarment.

When Himmel's knowledge of Casey's actions became apparent the administrator of the ARDC filed a complaint against Himmel. The outcome of the three-stage investigative process was the appeal board's decision that Himmel had violated no rule and its recommendation that the complaint be dismissed, but the ARDC administrator filed exceptions with the Supreme Court, which has ultimate jurisdiction in matters of attorney discipline and regulation.

The Supreme Court held that the client's desire only to recover her share of the initial settlement, her direction to Himmel to take no further steps if there was successful recovery and Himmel's performance of this service for no fee did not relieve him of the responsibility under Rule l-103(a) to report Casey's actions. The court said: "A lawyer may not choose to circumvent the rules by simply asserting that his client asked him to do so." It rejected Himmel's claim that the information was privileged since the client discussed it with him in the presence of others and agreed that he should contact the insurance company that made the initial payment.

The court imposed a stiffer penalty than any suggested during the earlier proceedings because Himmel's failure to report potentially interfered with the investigation of Casey. Snitching on Casey might have prevented him from subsequently converting funds of other clients.

Justice John J. Stamos wrote the opinion for In re Himmel (Docket No. 65946).

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Legislature needs to clarify verdicts for mentally ill

On September 22 the Illinois Supreme Court pointed out ambiguity between the statute authorizing the verdict of guilty but mentally ill (GBMI) and that governing the verdict of insane (see Ill. Rev. Stat. 1981, ch. 38, sec. 115-40) and (1983) ch. 38, sees. 3-2(b), 6-2(e)). The court invited the legislature "to carefully review the interplay between these unclear and confusing statutes."

For a verdict of GBMI the state must prove the defendant sane beyond a reasonable doubt. The statute on insanity verdicts had previously required a defendant seeking that verdict to present evidence of insanity beyond a reasonable doubt, but it was amended, effective January 1, 1984, to require proof by a preponderance of the evidence. The GBMI was not amended at that time, creating an anomaly: " [D]efendants whose sanity is a close question, the very group one would think should be covered by the GBMI verdict, may not be found GBMI because they fall into the gap between 'preponderance' and 'beyond a reasonable doubt.' " The decision was written by Justice Howard C. Ryan (Justice John J. Stamos not participating) in People v. Fierer (124 Ill. 2d 176).

State and U.S. agree on retaliatory discharge

Workers covered by a collective bargaining contract are not preeempted from filing a suit alleging retaliatory discharge, even if they have already exhausted grievance procedures under the contract. The Illinois Supreme Court's decision of October 20 is in agreement with a decision by the U.S. Supreme Court, which recently reversed the U.S. Seventh Circuit Court of Appeals in a similar case, Lingle v. Norge Division of Magic Chef, Inc. In the Lingle case, the U.S. Supreme Court said that the applicable section of the National Labor Relations Act ". . . merely ensures that federal law will be the basis for interpreting collective bargaining agreements, and says nothing about the substantive rights a state may provide to workers. This was in agreement with the Illinois court in its decision in Ryherd v. General Cable Co. Pocket No. 64420). Justice William G. Clark wrote the opinion. Justice John J. Stamos did not participate.

The same principle operated in a another decision filed October 20 by the Illinois Supreme court. In this one, an employee had sued his employer and two of his superiors, claiming retaliatory discharge and malicious defamation. Because he had used grievance procedures under a collective bargaining contract, the circuit court had dismissed the complaint on the ground that it was preempted by federal law. The Illinois court disagreed. It said, "The right to be free from malicious defamation . . . does not arise out of the rights negotiated in the labor contract, but out of State law."

Justice Daniel P. Ward's opinion in Kransinski v. United Parcel Service (Docket No. 65439) cited Lingle as well as earlier Illinois case law. Justice John J. Stamos did not participate.

Tax info not confidential

The Illinois Supreme Court ruled on October 20 that information and documents given to an accountant for preparation of tax returns are not covered by a privilege of confidentiallity in the Illinois Public Accounting Act.

The statute simply says: "A public accountant shall not be required by any court to divulge information or evidence which has been obtained by him in his confidential capacity as a public accountant" (see Ill. Rev. Stat 1985, ch. 111, sec. 5533). A Cook County accountant had cited this provision in his refusal to comply with a subpoena issued in a grand jury investigation, but the court interpreted the legislative intent as applying only to information received in confidence. The court applied the same logic to accountant-client confidentiality as it does to lawyer-client confidentiality when involving tax returns. The court explained that such information given an accountant is likely to be revealed on a tax form, which is available to a third party through a tax form. The court held, therefore, that such information could not be regarded as confidential and was not protected by the statutory exclusion.

Justice Daniel P. Ward wrote the opinion in In re October 1985 Grand Jury (Docket No. 65221) with Justice John J. Stamos not participating, and Justice William G. Clark dissenting.           F. Mark Siebert

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