On The Case

Behind $250 million State Farm settlement, a wild tale of dark money in judicial elections

(Reuters) - The biggest difference between a John Grisham novel and the allegations in a racketeering class action State Farm settled Tuesday for $250 million is that Grisham would have had the insurance company buy off a state Supreme Court candidate with a briefcase full of cash.

By contrast, the amended complaint attached as an exhibit to the State Farm settlement agreement alleges that the insurer installed a hand-picked justice on the Illinois Supreme Court by leveraging its influence over – and financial contributions to – nonprofits like the U.S. Chamber and the Illinois Civil Justice League, which, in turn, pushed Lloyd Karmeier to a seat on the state high court in 2004. The following year, Justice Karmeier sided with four other state justices to overturn a billion-dollar judgment against State Farm. The RICO complaint alleges a quid pro quo between the justice and his insurance-company patrons.

A cautionary note: State Farm has always denied allegations that it improperly influenced the outcome of the appeal or, for that matter, did anything wrong. Its press release about Tuesday’s settlement said the insurer considers the lawsuit’s claims to be meritless and settled only “to bring an end of the litigation.” A spokesman for the Illinois Supreme Court said in an email response to a request for comment from the court and Justice Karmeier that court rules prohibit state judges from commenting on pending cases. State Farm’s $250 million settlement received same-day preliminary approval from U.S. District Judge David Herndon of East St. Louis, Illinois, but awaits a hearing in December on final approval.

Plaintiffs’ lawyer Robert Clifford of the Clifford Law Offices, who has been working on two different iterations of the State Farm case since 2002, said the litigation has exposed important truths about hidden corporate influence in judicial elections. “We learned a lot about dark money in America,” Clifford told me Wednesday. “The U.S. Chamber of Commerce, the Institute for Legal Reform – this is their mission. It’s wild.” (Two representatives for ILR didn’t respond to my email requesting comment on the Chamber’s involvement in the 2004 Karmeier campaign, plaintiffs’ allegations in the State Farm case and Clifford’s comments.)

“It’s not just Illinois,” said Clifford, who said he would this week have questioned Justice Karmeier before an already-selected jury had State Farm not settled the case on Tuesday. “And it’s not going to change unless there’s campaign finance reform (because) it’s not illegal. It may be insidious. It may have a smell to it. But it’s not illegal.”

This story begins nearly two decades ago, when State Farm auto insurance customers brought a consumer fraud class action in Illinois state court, claiming the insurer refused to pay for original parts when policyholders’ cars needed repair work. In 2001, an intermediate appellate court in Illinois affirmed a $1.06 billion judgment against the company. State Farm successfully petitioned the state Supreme Court to hear its appeal, which was fully briefed, argued and submitted in May 2003.

The state justices had not issued a decision as the campaign to fill an open seat on the court began to heat up. It was a brutal campaign. The two candidates reportedly spent nearly $10 million in total, at the time a record in judicial campaigns. Karmeier, a former state trial judge who had the backing of the Illinois Civil Justice League, won the election.

Several months later, the Illinois Supreme Court issued its decision vacating the judgment against State Farm. The class asked for a rehearing. After that petition was denied, plaintiffs’ lawyers hired a former FBI agent to investigate State Farm’s ties to Justice Karmeier. Based on the evidence he turned up, the class asked the Supreme Court again in 2011 to reconsider its decision to vacate the judgment against State Farm. The court once again refused.

So in 2012, some of the named plaintiffs from the original consumer fraud class action filed a racketeering class action in federal court, alleging that State Farm, the Illinois Civil Justice League and executives from both conspired to hide the insurer’s role in Justice Karmeier’s election and engaged in mail and wire fraud in filing at the Supreme Court in 2005 and 2011 when the company denied involvement.

Judge Herndon allowed the plaintiffs in the racketeering case to depose Justice Karmeier in 2015, a year after he won re-election to his seat on the high court. Earlier this year, the federal judge denied two State Farm motions for summary judgment. Last week, the two sides picked a 10-person jury. Opening arguments and testimony were scheduled to begin this week.

In their final amended complaint, plaintiffs claimed State Farm contributed as much as $4 million to Karmeier’s 2004 campaign – but, as I mentioned, those alleged contributions were not nearly as tangible as direct donations. State Farm’s engagement with Justice Karmeier’s campaign, according to the complaint, began with the company’s influence over the Illinois civil justice group, ICJL, and its political action committee. Only in 2011, the complaint contends, did plaintiffs learn that a State Farm executive sat on the group’s executive committee. That allegedly secret role, according to the racketeering complaint, means State Farm was actually pulling the levers at the civil justice group, which had a firm hand on the Karmeier campaign.

Campaign records show the group’s PAC contributed more than $1 million to the campaign. The racketeering complaint asserts that money “can now be attributed to State Farm, as it controlled the ICJL” and its PAC. Along the same line of reasoning, the complaint alleges that all of ICJL’s 2004 operating expenditures, about $719,000, should be considered an in-kind contribution to Karmeier’s campaign, attributable to State Farm.

Another $2 million, the plaintiffs allege, came via State Farm’s relationship with the U.S. Chamber of Commerce. The Chamber, according to the complaint, contributed about $2 million to the Illinois Republican party, which spent nearly that amount on television ads backing Justice Karmeier’s campaign. The complaint contends the Chamber’s indirect support for Karmeier came after State Farm donated $1 million to the national business group. “While it may not have been a State Farm-endorsed check that wound up in the bank account of Citizens for Karmeier,” the complaint said, “$1 million of those funds originated from State Farm.”

The complaint alleged that State Farm’s CEO “steered” another $1 million in contributions from other corporate donors to Justice Karmeier’s campaign. In all, the plaintiffs claimed, State Farm accounted for nearly 90 percent of Karmeier’s reported $4.8 million campaign war chest in 2004.

Justice Karmeier has denied he knew the source of his campaign donations. The complaint asserts that’s not credible because the candidate was on email chains discussing contributions. Clifford said the justice’s deposition testimony will likely be made public after the settlement receives final approval.

Clifford told me he’s going to keep talking about corporate influence in judicial elections despite the end of this case. “It’s been an eye-opener,” he said. “People need to know.”