City of Chicago v. City of Kankakee
2017 IL App (1st) 153531
| Ill. App. Ct. | 2017Background
- Chicago and Skokie sued Kankakee and Channahon (and broker and retailer-related entities) alleging rebate schemes that caused out-of-state online sales to be reported as in-municipality "sales tax" rather than statewide "use tax," diverting funds away from plaintiffs.
- Plaintiffs alleged municipalities received greater local shares of tax proceeds and rebated portions to retailers/brokers; plaintiffs sought disgorgement via unjust enrichment and constructive-trust claims and proposed adding multiple internet retailers as defendants.
- The trial court dismissed plaintiffs' third amended complaint and denied leave to file a fourth amended complaint, concluding IDOR had primary/exclusive authority over tax assessment/distribution issues and that plaintiffs sought relief encroaching on IDOR's functions.
- Plaintiffs appealed, arguing their claims were equitable (unjust enrichment/constructive trust) and thus within circuit-court jurisdiction and not preempted by IDOR's statutory authority.
- The appellate court accepted plaintiffs' pleaded facts as true, analyzed statutory scheme for sales/use tax distribution and IDOR's powers, and examined whether plaintiffs' claims sought impermissible tax collection/redistribution.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether IDOR has exclusive jurisdiction over plaintiffs' equitable claims | Plaintiffs: unjust enrichment claims seek disgorgement of funds wrongfully retained by municipalities/brokers/retailers and do not require re-taxation or redistribution by IDOR | Defendants: IDOR's comprehensive statutory scheme for levying, collecting, and reallocating sales/use tax divests courts of jurisdiction; J&J Ventures framework supports exclusivity | Court: IDOR does not have exclusive jurisdiction over equitable unjust-enrichment claims seeking disgorgement of diverted use-tax shares; circuit court has jurisdiction |
| Whether the third amended complaint adequately pleaded unjust enrichment against municipalities and brokers | Plaintiffs: alleged municipalities/brokers received benefits (sales-tax proceeds/rebates) through a wrongful missourcing scheme and retained them unjustly | Defendants: plaintiffs lack direct connection to rebates and claims improperly seek recovery of funds paid to third parties; relief would interfere with statutory tax processes | Court: Third amended complaint sufficiently alleged unjust enrichment against municipal and broker defendants; dismissal was error |
| Whether leave to amend to add internet retailers and assert unjust enrichment should be permitted | Plaintiffs: proposed fourth amended complaint alleged retailers participated in missourcing and retained rebates, stating claims against retailers | Defendants: amendment would be futile, overly general, and would impinge on IDOR functions | Court: Denial of leave to file was an abuse of discretion; amended claims against retailers sufficiently alleged unjust enrichment and should be permitted |
| Availability of constructive trust as remedy | Plaintiffs: constructive trust appropriate remedy to prevent unjust enrichment and recover identifiable funds | Defendants: constructive trust requires identifiable res and possession by defendant; taxes paid to IDOR not plaintiffs' property | Court: Because unjust enrichment claims are viable, constructive trust is an appropriate equitable remedy; allegations support imposition at later stage |
Key Cases Cited
- Edelman, Combs & Latturner v. Hinshaw & Culbertson, 338 Ill. App. 3d 156 (appellate court 2003) (pleading-rule guidance: accept well-pleaded facts on section 2-615 de novo review)
- HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 131 Ill. 2d 145 (Ill. 1989) (elements of unjust enrichment; remedy when defendant retained benefit unjustly)
- Village of Itasca v. Village of Lisle, 352 Ill. App. 3d 847 (appellate court 2004) (municipal suit over missourced sales-tax revenue under municipal-code authority)
- People ex rel. Shirk v. Glass, 9 Ill. 2d 302 (Ill. 1956) (tax levy, assessment, and collection are statutory and governed by statute)
- Smithberg v. Illinois Municipal Retirement Fund, 192 Ill. 2d 291 (Ill. 2000) (constructive trust as remedy to prevent unjust enrichment)