In Strauss v. City of Chicago, 2022 IL 127149, the Illinois Supreme Court reviewed a municipal zoning ordinance previously discussed in our July 2021 newsletter.

The plaintiff was the president of a corporation that owned a building located in the Wicker Park neighborhood of Chicago. One of the building’s tenants – a music venue – caused numerous difficulties with the property, including lease violations, excessive noise levels, use of illegal substances, alcohol abuse, and property damage. These problems resulted in the corporation terminating the venue’s lease and a successful eviction action.

The venue’s owners happened to have a friendly relationship with the local Alderman, who allegedly made several attempts to “encourage” the corporation to reverse the venue’s eviction or otherwise the Alderman would ensure the property would be rezoned. The lot on which the property sat was subsequently “downzoned” by the City, resulting in losses of almost $3.1 million in property value for the owner.

The complaint against the City alleged violations of substantive due process and equal protection under the Illinois Constitution, and various tort claims involving intentional infliction of emotional distress, tortious interference of contract, and tortious interference with prospective economic advantage. The plaintiff argued that the downzoning was illegal spot zoning, motivated by the Alderman’s personal agenda; no other building was zoned as such; the City’s actions were objectively unreasonable, intentional, and made with malice; and the Alderman’s intent to keep the tenant in the building mitigated the City’s claim it acted to alleviate the problems associated with the tenant’s use of the building.

The appellate court held that the downzoning ordinance was not unconstitutional because, under the rational basis test, it was reasonably related to a legitimate governmental interest. It also found that the City was immune from the plaintiff’s tort claims under the Local Government and Local Government Employees Tort Immunity Act (“Act”).

On appeal, the Illinois Supreme Court found no need to address the constitutional challenges because the matter could be resolved entirely on the issue of the City’s immunity under the Act. Reviewing the requirements for immunity under the statute, the Court found the City to be immune: the City’s re-zoning of the property was within the use of policymaking discretion covered by the Act, regardless of any evidence of an individual alderman’s negligent, willful, and/or wanton conduct. The Court further noted that this extension of immunity reaches even corrupt and malicious abuses of municipal authority, because the Act’s analysis of whether immunity is warranted looks solely to the policymaking conduct, and not the actor’s intent.

The Court affirmed judgment in favor of the City.

In Jilani v. Berger, 2022 IL App (1st) 220184U, the First Appellate District affirmed a trial court’s dismissal of a real estate investor’s claims seeking to rescind a real estate sales contract on grounds of fraud prohibited by the Illinois Consumer Fraud Act.

In April 2020, Jilani alleged that Berger induced Jilani to enter into a contract to purchase an apartment complex by falsely representing: the property’s rental income for years 2017-2018; inaccurate delinquent payment history of the then-current tenants; and the complex’s size and condition. Jilani alleged that Berger’s actions violated the Illinois Consumer Fraud Act (“Act”), and sought recission of the contract in addition to money damages. Berger then filed a motion to dismiss, arguing that Jilani’s complaint failed to establish Jilani was a “consumer” under the Act or, in lieu of failure to be a “consumer,” to establish a “consumer nexus” that would bring his claim within the Act.

Defendant Berger supported his motion to dismiss by providing the sales contract, which listed Jilani as the “purchaser,” and Berger’s solely owned LLC as the “seller.” The contract also featured a “rider,” which included an “as-is” clause providing that Jilani agreed not to rely on any representations made by Berger regarding the property.

After several procedural back-and-forths, the circuit court granted Berger’s motion to dismiss Jilani’s Consumer Fraud claims. The court ruled that Jilani failed to establish that he was a “consumer” within the meaning of the Act; and that Jilani failed to meet the “consumer nexus” test because the transaction involved two (2) businesses engaged in an “isolated deceptive practice” that did not impact consumer protection interests in general.

On appeal, the First District relied on the Act’s plain language to affirm the circuit court’s ruling regarding Jilani’s failure to establish himself as a “consumer.” To be a “consumer,” the Act requires that the individual or entity must be making the transaction at issue for their own personal use, or that of a household member’s; a resale purchase made in the ordinary course of trade or business falls outside the Act’s protections. The First District held that because Jilani conceded that he was an investor, and that the property was purchased for such purposes, neither Jilani individually nor his LLC could meet the definition of “consumer.”

Illinois courts analyze four elements to determine whether a “consumer nexus” exists that allows a non-consumer to bring an action under the Act. One element is that the controversy must involve general consumer protection issues. In this case, the appellate court held that the parties’ transaction failed to meet that essential element because it involved two (2) businesses and Jilani failed to establish that Berger made misrepresentations to any other person or entity than Jilani, or that Berger’s actions affected other consumers.

In Station Place Townhouse Condominium Association v. Village of Glenview, 2022 IL App (1st) 211131, the village sold a downtown parcel and part of a municipal right-of-way to a developer for residential and commercial use. The developer requested several zoning changes allowing it to scale up the development in size and height and to reduce required parking.

After several zoning committee hearings on the proposed project, the village authorized 68 residential units with parking and first-floor commercial space. Nearby neighboring owners were not pleased with the scale of the proposed development and the loss of public parking.

Plaintiff neighbors filed suit against the village. They claimed, among other things, that 1) the sales contract between the village and the developer was invalid because it did not follow the Illinois Municipal Code’s procedures for selling surplus property; 2) the rezoning process violated their procedural due process rights because the public was inadequately informed about the nature of the zoning hearings; 3) their substantive due process rights were violated because the zoning ordinance was arbitrary and capricious; and 4) the zoning hearings held virtually in 2020 violated the Open Meetings Act.

The circuit court dismissed all counts against the village. The plaintiffs appealed. The appellate court affirmed all of the dismissals.

1. Municipal Code. The Illinois Municipal Code sets out a detailed procedure for how a municipality may sell property that is not needed. The village admitted that it did not follow that procedure in this case. It argued, however, that as a home rule unit it was not obligated to do so. The appellate court agreed. It noted that the Illinois Constitution granted broad powers to home rule units to legislate any matter “pertaining to its own government and affairs.”  The court found that selling property fell clearly within that authority.

Even though there were some comments during the 1970 Constitutional Convention that home rule was not meant to extend power to address matters such as “contracts, real property, and divorce,” the court found that this limitation, which was not codified in the Constitution, was not meant to cover local decisions to buy and sell real estate.

2. Procedural Due Process. Procedural due process requires notice and an opportunity to be heard. Plaintiffs claimed that the notice given for the zoning hearings was inadequate because it did not use the word “zoning” and, therefore, plaintiffs were not adequately informed of the nature of the hearings. The court disagreed. Even though the notice did not specifically include the word “zoning”, the nature of the proposal to approve a planned development and requested variations by the developer clearly involved zoning matters and was adequate. Further, many people attended the hearings and all were allowed to speak.

3. Substantive Due Process. Plaintiffs asserted the rezoning was arbitrary and capricious. However, they did not back up their claims with specific facts and simply made conclusory and contradictory allegations. For example, the plaintiffs complained that the proposed development was inconsistent with the existing neighborhood but, in fact, there were other nearby buildings taller and more densely populated than the project approved by the village. The court could not find adequate support for concluding that the rezoning was arbitrary or capricious.

4. Open Meetings Act. Finally, the plaintiffs claimed that the rezoning should be voided because the village had violated the Illinois Open Meetings Act by holding virtual hearings when the Covid pandemic began in 2020. The OMA does provide that a final action taken in violation of the OMA can be voided—but only when the action is taken during a closed session. Since no final actions were taken in closed sessions, the remedy requested by the plaintiffs was not available. The court affirmed dismissal of this count along with all of the others.

In PML Development LLC v. Village of Hawthorne Woods, 2022 IL App (2d) 200779, Plaintiff was a fill and grading company. Plaintiff removed topsoil and clay from property it owned and sold it to construction contractors. For a fee, it also allowed contractors to deposit fill on the property.

In this case, Plaintiff intended to fill and grade a vacant site in the village to a level useable for development. Plaintiff and the Village executed a contract in which the Village agreed to issue permits for the filling and grading in exchange for obtaining title to the site from Plaintiff when the project was completed in two years. Plaintiff agreed to pay property taxes while the parcel was in its possession.

Trouble started quickly when Plaintiff wanted to begin the project at the back of the property in order to avoid having to move the fill more than once, but the Village refused to permit it. The Village apparently had not figured out how it wanted to use the property once it obtained title, where it might build on the parcel, and what its long-term plan was, all of which affected where and when fill should be deposited. To keep its options open while it worked on its plan, the Village limited Plaintiff’s initial work to a small portion at the front of the parcel, continued to delay approvals, dictated what additional land could be used (requiring Plaintiff to move dirt more than once), prohibited construction of a “haul road”, and after two years, still had not completed its own plan for development.

Plaintiff filed suit against the Village when it refused to extend the contract for another two years as provided in the contract. The trial court ordered the contract extended, but the Village continued to interfere with Plaintiff’s orderly work and still could not decide on its plans for the property. Plaintiff meanwhile had not paid any property taxes, resulting in a tax sale.

Plaintiff then claimed the Village was in breach of contract and asked the court to issue a mandamus ruling requiring the Village to accept a deed in lieu of foreclosure and to award it damages for losses incurred in the four years of delays. The Village counter-sued, claiming it was Plaintiff who had breached the contract because its failure to pay property taxes meant it could not convey title by a clean warranty deed.

The trial court found that the Village had materially breached the contract by interfering with and delaying Plaintiff’s work, which excused Plaintiff’s failure to pay property taxes. The court awarded Plaintiff $5.3 million in damages and attorney’s fees. The Village appealed.

The appellate court affirmed the lower court’s ruling that the Village had materially breached the contract. The court explained that every contract carries with it the obligation to act reasonably and in good faith. In this case, the Village did not act in good faith because it did not have a plan for using the property, which caused it to delay and interfere with Plaintiff’s work. Although the Village had not technically violated any particular clause of the contract and it had the authority to grant or deny needed permits, its failure to meet the overriding implied obligation to act in good faith constituted a material breach.

However, the court disagreed with the award of damages to Plaintiff. First, it found that when a party claims a material breach of contract, it can abandon the contract and claim damages up to that point, or it can continue the contract and sue for continued performance by the other party. If it does the former, it has no obligation to continue to fulfill its end of the bargain. But if it elects the latter, it must continue to perform its own duties under the contract.

The court determined that Plaintiff elected to continue the contract by filing a mandamus action to get the Village to adhere to the terms of the contract. Consequently, Plaintiff also had to continue its own obligations, which included paying real estate taxes. Because it failed to make any payments, resulting in a tax sale and an inability to give the Village a warranty deed free of tax liabilities as the contract required, Plaintiff also committed a material breach.

To obtain damages under the terms of a contract, a party must come with clean hands and not be in material default. Under long-standing precedent, the court found that when both parties are in breach of contract, neither party can obtain damages.

The appellate court reversed the trial court’s award in favor of Plaintiff and affirmed the decision against the Village.