It is not unusual for clients to inquire during the course of a litigation about the importance of a court’s ruling in a case with similar facts to those of the client’s case, especially if the opinion is not from an Illinois court. Generally speaking, all rulings by the Illinois Supreme Court on an issue are considered “precedential authority” which must be followed by the Illinois courts which are subsequently asked to consider the same issue involving a substantially similar set of facts. Such a precedent must be followed in order for Illinois law, especially case law, to be applied consistently.
Conversely, the opinions of out-of-state courts are not given precedential status. In fact, Illinois courts are not bound by decisions from another state’s court. This does not mean, however, that Illinois courts will not consider the opinion of an out-of-state court when deciding a similar issue. To the extent that facts in the out-of-state opinion are similar to the facts being considered by the Illinois court and the Illinois court is unable to locate an Illinois court’s opinion that speaks to the issue raised, the Illinois court may consider the out-of-state opinion as “persuasive authority.” The Illinois court may choose to follow the out-of-state opinion if it agrees with the reasoning set forth in the opinion.
The persuasiveness of out-of-court case law may also depend on the history of the development of a particular area of case law within the state whose opinion is being considered. The best example of this is the development of corporate law in the State of Delaware. As a result of a well developed corporate statutory scheme and the resulting case law interpreting the same, the Delaware courts’ opinions regarding most issues involving corporate law from formation to governance to dissolution are not only persuasive but often set the standard on how such issues will be ruled upon by the courts of other states.
An example can be found in the Delaware court’s opinion in the case of In Re The Walt Disney Co., in which the shareholders tried to recover the $130 million severance paid to Walt Disney Co.’s (“Walt Disney”) former President, Michael Ovitz, from Walt Disney’s directors. The shareholders alleged the directors breached their fiduciary duty to the company by approving the payment. In an opinion issued in August 2005, the Delaware court criticized Michael Eisner and the Walt Disney Board for a series of actions which fell “significantly short of the best practices of ideal corporate governance.” The court went on to hold, however, that Walt Disney’s Board members did not breach their fiduciary duty to Walt Disney and thus were not personally liable for their bad judgment because they were protected by the business judgment rule. This rule prevents directors from being held personally liable for decisions which, while in error, were made in good faith with the company’s interest in mind.
Because of the depth of the Delaware’s court’s analysis of issues ruled upon in the Walt Disney opinion, courts throughout the United States will almost certainly rely on the Delaware court’s opinion when ruling on similar corporate governance and compensation issues.