City of Chicago v. City of Kankakee
2017 IL App (1st) 153531
| Ill. App. Ct. | 2017Background
- Chicago and Skokie sued Kankakee, Channahon, and various broker/consultant and retailer entities, alleging a scheme in which out‑of‑state retailers were induced to report internet sales as occurring inside Kankakee or Channahon so those municipalities received local sales‑tax shares and then rebated portions to retailers/brokers.
- Plaintiffs alleged the miscoding deprived them of the portion of use‑tax distributions they would have received (Chicago: 20% of the use‑tax fund; Skokie: population‑based share).
- Plaintiffs pleaded unjust enrichment and sought constructive trust and disgorgement of the amounts that should have flowed to them as use‑tax distributions.
- The trial court dismissed the third amended complaint with prejudice, and denied leave to file a fourth amended complaint, reasoning that IDOR has primary/exclusive authority over tax assessments/distributions and that plaintiffs’ claims would intrude on IDOR’s functions and statutory scheme.
- On appeal the court reviewed jurisdiction de novo and accepted plaintiffs’ well‑pleaded facts; it ultimately reversed, holding the circuit court has jurisdiction over equitable unjust‑enrichment claims and that plaintiffs adequately pled unjust enrichment against municipalities, brokers, and proposed retailer defendants.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether IDOR has exclusive jurisdiction that bars circuit‑court equitable claims | Plaintiffs: IDOR does not have exclusive jurisdiction over equitable unjust‑enrichment claims seeking disgorgement from municipalities/brokers/retailers | Defendants: IDOR’s comprehensive statutory scheme for assessing, collecting, and distributing sales/use taxes precludes circuit‑court relief | Held: IDOR does not have exclusive jurisdiction over these equitable unjust‑enrichment claims; circuit court has jurisdiction |
| Whether third amended complaint states unjust‑enrichment claim vs. municipalities and brokers | Plaintiffs: Alleged municipalities and brokers were unjustly enriched by rebates paid from diverted local sales‑tax receipts that should have funded use‑tax distributions | Defendants: Plaintiffs lack standing/connection; taxes collected by IDOR do not belong to plaintiffs; relief would require tax redistribution by IDOR | Held: Complaint sufficiently alleged unjust enrichment against municipalities and brokers |
| Whether leave to amend to add retailers should have been allowed | Plaintiffs: Proposed fourth amended complaint alleges retailers participated in the scheme and received rebates — states unjust‑enrichment claims | Defendants: Proposed amendment is conclusory, improperly tries to directly challenge tax allocation and would create chaotic parallel litigation | Held: Denial was an abuse of discretion; leave to file counts I & II of revised fourth amended complaint must be allowed as unjust‑enrichment claims were adequately alleged against retailers |
| Availability of constructive trust remedy | Plaintiffs: A constructive trust is an appropriate remedy for unjust enrichment/disgorgement of specific funds | Defendants: Constructive trust fails because there is no identifiable res or possession by defendants | Held: Constructive trust is an appropriate remedy where unjust enrichment is established; claims survive pleading stage |
Key Cases Cited
- HPI Health Care Services, Inc. v. Mt. Vernon Hosp., 131 Ill. 2d 145 (1989) (elements of unjust enrichment)
- Smithberg v. Illinois Municipal Retirement Fund, 192 Ill. 2d 291 (2000) (constructive trust as remedy to avoid unjust enrichment)
- Employers Mut. Cos. v. Skilling, 163 Ill. 2d 284 (1994) (statutory divestiture of circuit‑court jurisdiction requires inquiry into legislative intent)
- People v. NL Indus., 152 Ill. 2d 82 (1992) (consider statute as whole when assessing jurisdictional divestiture)
- Village of Itasca v. Village of Lisle, 352 Ill. App. 3d 847 (2004) (municipal suit for missourced sales tax — distinguishable)
- Ritz Camera Ctrs., Inc. v. Beeler, Schad & Diamond, P.C., 377 Ill. App. 3d 990 (2007) (jurisdictional discussion under prior framework)
- City of Champaign v. Dep’t of Revenue, 89 Ill. App. 3d 1066 (1980) (context on tax refund/distribution disputes)