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PENNWALT CORP. v. METRO. SAN. DIST. OF GR. CHICAGO

December 12, 1973

PENNWALT CORPORATION, A CORPORATION, PLAINTIFF,
v.
THE METROPOLITAN SANITARY DISTRICT OF GREATER CHICAGO, A MUNICIPAL CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Bauer, District Judge.

  MEMORANDUM OPINION AND ORDER

This cause comes on the plaintiff's motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure.

This is a diversity of citizenship action seeking to redress the alleged unjust enrichment of the defendant Metropolitan Sanitary District of Greater Chicago ("Sanitary District") by its refusal to reimburse the plaintiff Pennwalt Corporation ("Pennwalt") for Pennwalt's discharge of the Sanitary District's legal obligation to pay Illinois Use Tax.

The parties have agreed, solely for the purpose of the disposition of the instant action, to the following stipulation of facts:

  1. The amount in controversy in this action exceeds
     $10,000 exclusive of interest and costs, and this
     Court has jurisdiction of the parties and of the
     subject matter by virtue of diversity of
     citizenship among the parties and the amount in
     controversy.
  2. Pennwalt is a corporation organized under the laws
     of Pennsylvania and has its principal place of
     business in that state. Until March 31, 1969,
     Pennwalt's name was "Pennsalt Chemical
     Corporation."
  3. Pennwalt, is and at all times relevant hereto was,
     engaged in the manufacture and sale of industrial
     chemicals including ferric chloride.
  4. The Sanitary District is a municipal corporation
     organized under the laws of Illinois. The primary
     functions of the Sanitary District are to provide
     water purification and sewage treatment and
     disposal for the Chicago metropolitan area.
  5. One of the chemicals used by the Sanitary District
     in performing its functions is ferric chloride. On
     the 10th day of April, 1958, Pennwalt and the
     Sanitary District entered into Contract No. 58-17
     under which Pennwalt agreed to sell, and the
     Sanitary District agreed to purchase, quantities
     of real ferric chloride in solution during
     quarterly periods beginning

     May 1, 1958 to March 31, 1963.
  6. At the time the parties entered into the contract
     for the purchase and sale of ferric chloride, and
     at all times thereafter, Illinois levied a tax on
     the purchase of tangible personal property sold
     for use or consumption in Illinois. That tax is
     and was known as the Illinois Use Tax.
  7. The Sanitary District's acquisition of ferric
     chloride from Pennwalt constituted a purchase by
     the Sanitary District of tangible personal
     property not purchased for resale.
  8. From May 1958 until July 1961, the Sanitary
     District was exempt from the Illinois Use Tax by
     reason of its status as a "governmental body."
  9. From August 1, 1961 to March 23, 1963 the Sanitary
     District was not exempt from the Illinois Use Tax.
  10. The Sanitary District did not pay Illinois Use
      Tax to Pennwalt on its purchases of ferric
      chloride during the period August 1, 1961 to
      March 23, 1963. The only reason given by the
      Sanitary District for not paying the Use Tax on
      its purchases of ferric chloride from Pennwalt
      during the period August 1, 1961 until March 23,
      1963 was that it had contracted with Pennwalt for
      such purchases at a time when it was exempt from
      the Illinois Use Tax.
  11. Beginning in October of 1961, Pennwalt attempted
      to collect the 3 1/2% Illinois Use Tax from the
      Sanitary District on sales of ferric chloride by
      the issuance of debit memoranda.
  12. On November 14, 1961, E.A. Janssen, Engineer of
      Estimate and Inspection for the Sanitary
      District, advised Haskins & Sells, the certified
      public accountants for Pennwalt, that Pennwalt's
      attempted collection of the Illinois Use Tax was
      erroneous because the contract under which the
      sales were made was awarded prior to July 15,
      1961. Pennwalt accepted the Sanitary District's
      contention that no Illinois Use Tax was due on
      sales of ferric chloride under Contract No. 58-17
      and made no further attempts between November
      1961 and May 1963 to collect said tax.
  13. Under date of May 6, 1963, Pennwalt executed a
      release in favor of the District. The release
      recites as consideration the payment to Pennwalt
      by the District of $14,658.50, which was the
      undisputed balance due Pennwalt on Contract
      58-17.
  14. On April 18, 1963, the Sanitary District advised
      Pennwalt that its exemption from the Illinois Use
      Tax was reinstated as of March 21, 1963 and that
      the Sanitary District was not subject to the Use
      Tax on deliveries made after that date even
      though the contract ...

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