2021 IL App (1st) 191992
Ill. App. Ct.2021Background
- Keystone Montessori, a nonprofit school, began operating on a commercially zoned River Forest parcel in 1998 and purchased it the same year using tax-exempt bond financing.
- To obtain a planned development permit, Keystone signed a Forbearance Agreement and a Tax Agreement that required Keystone not to seek or accept a property tax exemption while it owned or occupied the parcel, with penalties if it became tax-exempt.
- Keystone paid roughly $1.1 million in property taxes over ~20 years and applied for a tax exemption in April 2018; the Village opposed the exemption and litigation followed.
- Keystone sued in 2018 seeking declaratory relief that the Tax Agreement (and its permit condition) was void as against public policy (and on other grounds); the Village counterclaimed for breach, enforcement, and indemnification.
- The trial court granted summary judgment for Keystone, holding the Tax Agreement void as contrary to public policy and denying the Village’s counterclaims; the court dismissed Keystone’s unjust-enrichment claim. Both parties appealed (Village appealed; Keystone cross-appealed re: sanctions and unjust enrichment).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of Tax Agreement waiver of school exemption (public policy) | Waiver violates Illinois Constitution and Tax Code; exemptions serve public interest and are unwaivable | Parties freely contract; exemptions can be waived by agreement; Village bargained for permit consideration | Tax-waiver provision is contrary to public policy and unenforceable; Tax Agreement void ab initio |
| Severability — can the rest of the Tax Agreement survive? | The exemption waiver is the agreement’s object; voiding it defeats the whole contract | Severability clause preserves enforceable provisions (damages, obligations) | Waiver is central and not severable; entire Tax Agreement void |
| Timeliness / laches / 90-day zoning-review bar | Contract void ab initio so not time-barred; suit seeks declaration of ongoing harm | Claims barred by contract and zoning-review limitations and laches after ~20 years | Limitations and 90-day zoning-review period do not bar a timely challenge to a void-agreement; laches not shown to prejudice Village on declaratory claims |
| Unjust enrichment (recovery of past taxes) | Village unjustly retained tax revenue after agreement found void; equitable relief appropriate | Keystone had adequate legal remedies (could have applied earlier); payments were voluntary; delay prejudiced Village | Dismissed: Keystone had adequate legal remedy (tax-exemption process) and court affirmed dismissal (also laches/delay as alternate ground) |
Key Cases Cited
- Assessors of Dover v. Dominican Fathers Province of St. Joseph, 137 N.E.2d 225 (Mass. 1956) (municipal zoning negotiations cannot validly condition or determine tax-exemption matters)
- Town of Saugus v. Refuse Energy Systems Co., 448 N.E.2d 716 (Mass. 1983) (delegated municipal assessment power does not allow contracting away general tax policies)
- Town of Williston v. Pine Ridge School, 321 A.2d 24 (Vt. 1974) (procedural noncompliance cannot create forfeiture of substantive exemption rights)
- Society of the Holy Child Jesus v. City of Summit, 13 A.3d 886 (N.J. Super. Ct. App. Div. 2011) (statutory exemptions for educational institutions reflect paramount state policy and cannot be frustrated by local land-use conditions)
- In re Application of Clark, 80 Ill. App. 3d 1010 (Ill. App. 1980) (discussed waiver of exemption in dicta where appellate court concluded landowner was not a charitable organization)
- Northwest Suburban Fellowship, Inc. v. Department of Revenue, 298 Ill. App. 3d 880 (Ill. App. 1998) (lease language ambiguous; court declined to find an exemption waiver)
- Mohanty v. St. John Heart Clinic, S.C., 225 Ill. 2d 52 (Ill. 2006) (general principles favor freedom of contract but public-policy exceptions exist)
- 1550 MP Road LLC v. Teamsters Local Union No. 700, 2019 IL 123046 (Ill. 2019) (standard for declaring contractual terms unenforceable on public-policy grounds)