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Midwest Tv v. Champaign Communications





APPEAL from the Circuit Court of Champaign County; the Hon. BIRCH E. MORGAN, Judge, presiding.


Midwest Television, Inc. (Midwest), brought a class action suit as a taxpayer and property owner against defendants Champaign-Urbana Communications, Inc. (CUCI), the City of Champaign (City), American Television and Communications Corporation (ATC) and Delbert Smith. The complaint was in five counts, and sought, among other relief, a declaratory judgment that the cable television franchise issued by the City to CUCI is void and that defendant Smith be required to refund consultant fees paid to him by the City. All five counts were dismissed by the trial court. Midwest appeals.

All five counts will be treated separately. However, the facts alleged which are common to all the counts will be set forth here.

In December, 1971, the City Council of Champaign, acting in conjunction with the City Council of Urbana, created the Champaign-Urbana Joint Committee on CATV (cable television). The purpose of the Joint Committee was to study cable television and the possibility of granting a cable television franchise for the two cities. In April, 1972, the Committee, with the authorization of the Champaign City Council, hired Delbert Smith as an expert consultant on cable television. He was to receive as payment $13,000, two-thirds to be contributed by Champaign, one-third by Urbana. His duties were to consult with and advise the Joint Committee, design system parameters and specifications, hold public meetings and hearings, announce the system requirements, solicit bids by potential franchisees, analyze the bids, make recommendations to the Committee on the bids, and prepare alternative ordinance provisions.

In October, 1972, eight companies submitted applications to become the CATV franchisee for Champaign and Urbana. Smith made recommendations about the applicants to the Joint Committee. Upon his advice the Committee recommended to their respective city councils acceptance of the application of defendant CUCI. CUCI was a newly formed company. Fifty percent of the stock was held by American Television and Communications Corporation (ATC), a corporation involved nationwide in cable TV and fifty percent by Champaign-Urbana Communications, Inc., which was formed by a group of local residents of Champaign and Urbana. In February, 1973, the City of Champaign passed an ordinance granting CUCI the cable television franchise for 15 years.

The complaint also alleges that in June, 1972, Smith accepted compensation from the National Cable Television Association (NCTA) for appearance before the Federal Communications Commission to advocate that there be little or no State regulation of cable television. Later in 1972, Smith was hired as a consultant to the Wisconsin Cable Television Association (WCCA). The complaint alleges that Smith did not inform all of the members of the Joint Committee, City Councils of Champaign and Urbana, the applicants for the franchise and the public of his employment by NCTA or WCCA. The complaint also alleged that ATV or its member systems are members of NATV and WCCA, and one official of that organization advocated the hiring of Smith by the WCCA. None of the unsuccessful applicants have joined in this appeal. We are advised that Federal regulations prohibit Midwest Television, Inc., from holding a cable television franchise. Midwest alleges that its interest is its concern over the proper application of tax moneys.


The first count is against defendants Champaign, CUCI and ATV. It seeks to have the ordinance granting CUCI the franchise declared void. The basis for the request is that the various employments of Smith violated the common-law prohibition against conflicts of interest.

Defendants question whether Midwest, as a taxpayer and property owner, has standing to raise any of its claims. In Illinois Broadcasting Co. v. City of Decatur (1968), 96 Ill. App.2d 454, 238 N.E.2d 261, this court held that a taxpayer would have standing to question the validity of an ordinance which would require public moneys to be spent. Defendants however, raise an issue that was not discussed or decided in Illinois Broadcasting. They contend that Midwest must first make a demand upon the City before commencing a taxpayer's suit. Admittedly Midwest had not made a demand. Plaintiff contends that demand is excused where it would be useless. In view of our determination of the other questions presented, we find it unnecessary to decide whether a demand was necessary under the facts as alleged.

As we have stated, the first count is based upon the common law which prohibits public officials from acting or voting on contracts in which they are directly or indirectly interested. Defendants vigorously contend that the facts as alleged do not constitute a conflict of interest, as Smith's employment as a consultant to cable television trade associations is not the kind of interest which would affect his actions as consultant to the Joint Committee. We do not decide that question.

There are apparently no cases in Illinois in which the common-law prohibitions against conflicts of interest are directly in issue. In several cases, the courts have remarked that specific statutes codify the existing common law. (McCarthy v. City of Bloomington, 127 Ill. App. 215, 217; Panozzo v. City of Rockford, 306 Ill. App. 443, 28 N.E.2d 748.) All of the cases in Illinois involve public officers; no case appears in which the person alleged to have a conflict was a mere employee. The issue therefore is whether the common-law prohibitions cover, not only officials, but also employees.

Plaintiff has cited Seaman v. City of New York, 159 N.Y. Supp. 563, 172 App. Div. 740 (1916), as an example of a jurisdiction which recognizes employee conflict of interests. Seaman has been described as "overly-dignified dicta." (Kaplan & Lillich, Municipal Conflicts of Interest: Inconsistencies and Patchwork Limitations, 58 Columbia L. Rev. 157, 166 (1958).) As one court has stated, any survey of laws and cases in this area reveals that the problem is of great complexity and the treatment by different States is disharmonious and without uniformity. (Brockbank v. Rampton (1968), 22 Utah 2d 19, 447 P.2d 376.) The vast majority of the cases arise in a statutory context, hence most of the discussion concerning the limits and extent of the common law is contained in the literature. The writers seem in agreement that there is no rational distinction between the public officer and the public employee given the rationale for the conflict of interest rules, namely the duty of an agent to his principal. Ancel, Municipal Contracts, 1961 U. Ill. L.F. 357, 369.

• 1 However, there is another side of the issue. The problem is trying to draw a line where some remedy can be afforded "to collapses of public morality without being destructive to the system itself." (Eisenberg, Conflicts of Interest Situations and Remedies, 13 Rutgers L. Rev. 666, 668 (1959).) If potential conflicts of interests are interpreted broadly and the prohibitions reach both officers and employees, these restrictions can work a severe hardship, especially at the municipal level. Many persons might be discouraged from working at that level since it would require divestment of substantial business interests so that the government may make intermittent or even uncompensated use of their services. (Note, Conflicts of Interests: State Government Employees, 47 Va. L. Rev. 1034, 1051 (1961).) It should be emphasized here that the prohibitions are against even the appearance of illegality. Nevertheless, to judicially extend broad conflict of interest prohibitions to employees, and in the process, to define what is or is not a conflict, especially at the local level, and to determine whether to establish a rule of per se conflict involving the prohibition would require a careful, detailed study of factors which are far beyond the confines of the facts of this case. It would also involve, not the application of an established rule of the common law but rather the creation of a new one. Its impact upon government at all ...

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