Thu 05/20/2021 13:38 PM
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Opinion

The Supreme Court of Illinois ruled this morning that no “reasonable ground” existed under section 11-303 of the Illinois Code of Civil Procedure for the taxpayer challenge brought by Illinois Policy Institute CEO John Tillman, which sought to enjoin the disbursement of public funds in service of $14 billion in general obligation bonds issued by the state in 2003 and 2017. To read more of our Americas Municipals' coverage of the IL supreme court decision as well as our coverage of other timely, objective and actionable intelligence covering higher yielding and liquid municipal issuers request a trial here.

In reversing the appellate court’s decision, the Supreme Court reaches the same conclusion as the trial court, which denied the petition in August 2019, but the state’s highest court elects to rely on different reasoning than the trial court. Unlike the circuit court, which used a frivolous or malicious standard in reaching its conclusion, the Illinois Supreme Court relies solely on the doctrine of laches, an equitable defense that forecloses an action based on the complainant knowingly sleeping on his rights to the detriment of the opposing party. Therefore, the court finds that the circuit court did not abuse its discretion in denying the petition, although it ultimately reaches the same conclusion on different grounds than those relied upon by the circuit court.

Today’s opinion sidesteps the constitutional question of whether the Illinois constitutional debt limit can be invoked to invalidate previously issued debt, instead focusing its ruling on whether the trial court abused its discretion in denying Tillman’s petition, ultimately concluding it did not.

The Illinois Appellate for the Fourth District previously overturned the decision by the Seventh Judicial Circuit of Illinois denying the Tillman petition for leave to file a two-count taxpayer action against public officials in Illinois seeking to enjoin the disbursement of public funds in the service of bonds issued by the state in 2003 and 2017. The circuit court had concluded that no reasonable grounds existed for bringing the Illinois GO bond challenge, and permitting Tillman to file his complaint would result in an unjustified interference with the application of public funds.

Opinion

The opinion begins by recounting the standard of review for a taxpayer action seeking to restrain or enjoin the disbursement of public funds, noting that such action must be preceded by a petition to the court for leave to file the action. A circuit court’s decision whether to permit the filing of a taxpayer action under section 11-303 of the Illinois Code of Civil Procedure is reviewed under an abuse of discretion standard, the opinion says.

The Supreme Court states that before addressing whether the circuit court abused its discretion in finding that “no reasonable grounds existed” for filing the petitioner’s action, the court must define the phrase “‘reasonable ground.’” According to the opinion, this question is one of statutory interpretation, which is “guided by familiar, well-established principles” with the “primary” goal being to ascertain the Illinois Legislature’s intent.

The opinion rejects outright the the petitioner’s argument that “‘reasonable ground’” within the meaning of section 11-303 is limited to whether a complaint is “frivolous or filed for a malicious purpose,” which does not permit the circuit court to analyze the merits of the complaint to determine whether it states a legally sufficient cause of action. The Supreme Court also rejects the petitioner’s view that the reasonable ground determination excludes consideration of any affirmative defenses raised by the defendant.

The opinion characterizes the petitioner’s interpretation as “narrow” and stemming from a misreading of the court’s prior decision in Strat-O-Seal. The opinion summarizes the Strat-O-Seal ruling, explaining that contrary to Tillman’s argument, Strat-O-Seal did not hold that the exclusive grounds for denying a section 11-303 petition are whether the proposed complaint is “frivolous or malicious.” Rather, the opinion says, the court held that an 11-303 petition “may also be denied if ‘a filing of the complaint is otherwise unjustified.’”

The Supreme Court states that there is nothing in Strat-O-Seal that purports to limit the plain language in section 11-303, which gives the trial court discretion to determine whether the proposed taxpayer action is supported by a reasonable ground. “In determining whether reasonable grounds exist, the statute does not expressly preclude the reviewing court from examining the legal merits of the complaint or addressing what are ordinarily considered to be affirmative defenses,” the opinion concludes (emphasis added).

The Illinois Supreme Court adds that courts have considered other arguments beyond addressing the legal merits of a petition, including whether the proposed complaint is barred by the statute of limitations, res judicata and collateral attack on ordinances, for example. On this basis, the opinion finds that petitioner’s argument and the appellate court’s holding that the trial court is limited to addressing whether a proposed complaint is frivolous or malicious when deciding whether to allow a section 11-303 petition are incorrect.

Having reached these conclusions, the opinion considers whether the circuit court abused its discretion in denying Tillman’s petition. The opinion notes that the Supreme Court may sustain the circuit court’s judgment on “any ground supported by the record, even a ground not relied on by that court.” Additionally, the Supreme Court declines to consider the state’s request for it to address the merits of Tillman’s constitutional claims, stating that it should determine whether there are any nonconstitutional grounds for affirming the circuit court decision first.

The opinion addresses whether the petition lacks reasonable grounds because the proposed complaint is barred by laches. The court notes that unlike a statute of limitations, as noted above, laches is an equitable defense that forecloses an action based on the complainant knowingly sleeping on his rights to the detriment of the opposing party. The two fundamental elements of laches are (i) ‘“lack of due diligence by the party asserting the claim’” and (ii) “‘prejudice to the opposing party.’”

The court notes that the facts here relevant to determine laches are “readily apparent from the record.” First, the opinion says, it is undisputed that Tillman waited to file his taxpayer action until after 16 years had elapsed after the 2003 bond authorization statute was enacted and two years had elapsed following enactment of the 2017 bond authorization statute. “We find that this delay is unreasonable and supports the application of laches to petitioner’s complaint,” the Supreme Court holds.

Moreover, the opinion asserts that Tillman was presumably on constructive notice of the facts supporting his claim by virtue of the bond authorization statutes being matters of public record. Further, Tillman also had constructive notice as of the dates the statutes were enacted that the state intended to issue bonds for the purposes outlined in the laws. “Nevertheless, petitioner offers no excuse for why he waited 2 years (in the case of the 2017 bonds) and 16 years (in the case of the 2003 bonds) to file his action challenging the constitutionality of the bonds,” the opinion states (emphasis added).

Addressing the second element of laches, the Supreme Court states that in taxpayer suits filed against public officers, courts have held that the “prejudice element” is satisfied where the plaintiff waits to file until the defendant has expended large sums of money or where the defendant “has made irrevocable transactions rendering it impossible to return circumstances to the status quo.” “Both aspects of prejudice are present in this case,” the opinion concludes.

Specifically, the Supreme Court explains that the state issued and sold the 2003 bonds, applied the proceeds as specified in the law, and made payments on the bonds for years while Tillman did nothing. He asked the court to declare the bonds invalid and enjoin the state from making payment on them 16 years later. The court finds the same logic applies for the 2017 bonds:
“It is patently obvious that the State will suffer some prejudice if relief is granted at this extremely late stage. Respondents maintain that granting relief to petitioner would amount to a de facto default on outstanding bonds that are backed by the full faith and credit of the State. We agree.”

The opinion adds that at the very least, enjoining the state from paying its obligations on its general obligation bonds would negatively affect the state’s credit rating. Further, the court rejects Tillman’s position that his complaint seeks to only enjoin future payments, thus his delay does not prejudice the state, finding that a petitioner seeking only prospective relief does not preclude the application of laches where he had constructive notice of his legal claims years before filing his complaint.

On these grounds, the Supreme Court concludes that “[t]here is no reasonable ground under section 11-303 of the Code for filing petitioner’s proposed complaint. We therefore affirm the circuit’s order denying the instant petition, although on different grounds than those relied upon by that court.”
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