City of Chicago v. City of Kankakee
2017 IL App (1st) 153531
| Ill. App. Ct. | 2017Background
- Chicago and Skokie sued Kankakee, Channahon, brokers, and (proposed) internet retailers alleging a rebate scheme: retailers reported out-of-state online sales as having situs in Kankakee/Channahon, triggering local sales-tax distributions; municipalities then rebated portions to brokers/retailers.
- Plaintiffs claim the misreporting diverted use-tax proceeds (which fund Chicago, RTA, and other entities) to the municipalities, depriving plaintiffs of their statutory share; they pleaded unjust enrichment and sought constructive trusts and accounting.
- The circuit court dismissed the third amended complaint with prejudice and denied leave to file a fourth amended complaint, reasoning IDOR has exclusive authority over tax assessment/distribution and that plaintiffs’ claims would intrude on IDOR’s domain and statutory scheme.
- Plaintiffs appealed; the appellate court accepted well-pleaded facts as true and reviewed jurisdiction and pleading sufficiency de novo (deny-of-amend reviewed for abuse of discretion).
- The appellate court held that although IDOR has exclusive authority to levy, assess, collect, and distribute taxes, plaintiffs’ equitable unjust-enrichment claims seek disgorgement of benefits (not to re-tax or re-assess) and therefore do not fall within IDOR’s exclusive jurisdiction.
- The court found the third amended complaint stated unjust-enrichment claims against the municipalities and brokers, and the proposed fourth amended complaint sufficiently alleged unjust-enrichment claims against the retailers; constructive trust is an available remedy. The dismissal and denial of leave to amend were reversed and remanded.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether IDOR has exclusive subject-matter jurisdiction over plaintiffs’ claims | Plaintiffs: claims are equitable disgorgement/unjust enrichment, not tax assessment or redistribution, so circuit court retains jurisdiction | Defendants: IDOR’s comprehensive statutory scheme (assessment, auditing, correction, redistribution) divests courts of jurisdiction | Held: IDOR has exclusive authority over tax assessment/collection, but plaintiffs’ equitable disgorgement claims do not require reassessment or redistribution by IDOR; circuit court has jurisdiction over unjust-enrichment claims |
| Whether the third amended complaint stated a claim for unjust enrichment against municipalities and brokers | Plaintiffs: alleged defendants were unjustly enriched by diverted sales-tax receipts that should have been use-tax funds for plaintiffs | Defendants: plaintiffs lack direct relation to rebates; taxes paid to IDOR don’t "belong" to plaintiffs; claims would intrude on tax scheme | Held: Third amended complaint sufficiently pleaded unjust enrichment against municipal and broker defendants |
| Whether leave to file the proposed fourth amended complaint (adding retailers) should have been allowed | Plaintiffs: amended complaint alleges retailers participated in missourcing and retained rebates; equitable claims can reach benefits received from third parties | Defendants: proposed amendment is conclusory and improperly lumps many retailers; would create chaotic litigation | Held: Denial of leave was an abuse of discretion; proposed fourth amended complaint adequately alleged unjust enrichment against retailers and leave must be granted |
| Whether constructive trust remedy is available | Plaintiffs: constructive trust appropriate where unjust enrichment shown and identifiable property/res exists | Defendants: constructive trust requires identifiable res and possession; taxes aren’t plaintiffs’ property | Held: Because plaintiffs stated unjust-enrichment claims, imposition of a constructive trust is an appropriate remedial option |
Key Cases Cited
- Hartney Fuel Oil Co. v. Hamer, 2013 IL 115130 (Illinois Supreme Court) (invalidated IDOR regulation governing situs of sale prospectively)
- J & J Ventures Gaming, LLC v. Wild, Inc., 2016 IL 119870 (Illinois Supreme Court) (framework for determining when administrative agency has exclusive jurisdiction)
- HPI Health Care Servs., Inc. v. Mt. Vernon Hosp., Inc., 131 Ill. 2d 145 (Illinois Supreme Court) (elements of unjust enrichment claim)
- Employers Mut. Cos. v. Skilling, 163 Ill. 2d 284 (Illinois Supreme Court) (discussion of divestiture of circuit court jurisdiction)
- People v. NL Indus., 152 Ill. 2d 82 (Illinois Supreme Court) (statutory-scheme analysis for jurisdictional intent)
- Village of Itasca v. Village of Lisle, 352 Ill. App. 3d 847 (App. Ct.) (prior case on municipal recovery of missourced sales tax)
- City of Kankakee v. Dep’t of Revenue, 2013 IL App (3d) 120599 (App. Ct.) (context on IDOR audits and tax distribution disputes)
- Smithberg v. Ill. Mun. Retirement Fund, 192 Ill. 2d 291 (Illinois Supreme Court) (constructive trust as remedy for unjust enrichment)