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Chicago Ex Rel. Cohen v. Keane

OPINION FILED OCTOBER 1, 1976.

THE CITY OF CHICAGO EX REL. JANICE COHEN, APPELLANT,

v.

THOMAS E. KEANE ET AL., APPELLEES.



Appeal from the Appellate Court for the First District; heard in that court on appeal from the Circuit Court of Cook County; the Hon. Nathan M. Cohen, Judge, presiding.

MR. JUSTICE SCHAEFER DELIVERED THE OPINION OF THE COURT:

Rehearing denied December 2, 1976.

The complaint in this case was filed in the circuit court of Cook County by Janice Cohen on behalf of the City of Chicago. It seeks an accounting from the defendants, Thomas E. Keane, Adeline Keane, and John Hennessey, Sr., for all profits made by them through an alleged scheme to defraud the City and its citizens. The circuit court dismissed the complaint, and the plaintiff's appeal was brought here under Rule 302(b). Only the defendant Thomas E. Keane (for convenience referred to hereafter as "the defendant") has filed a brief as appellee.

The complaint alleges that the plaintiff is a taxpayer and resident of the City, and that the defendant was at all material times an alderman and the chairman of the Committee on Finance of the city council.

Summarized, the conduct alleged in the complaint is as follows: As a result of his official position, the defendant was able to ascertain in advance that certain areas in the City would be the site of urban renewal and housing projects. Acting through nominees, he purchased, at scavenger tax sales, various tax delinquent parcels lying within those areas. Upon the purchase of the land, legal title was placed in land trusts in which the defendant held a substantial beneficial interest. Some of the property acquired was at that time subject to the liens of unpaid special assessments. The defendant, in his capacity as chairman of the Committee on Finance, recommended to the city council, without disclosure of his interest, that the council clear those liens by foreclosure or by an alternative procedure termed a "Compromise Offer in Lieu of Foreclosure." The defendant's recommendations were adopted by the council. After the liens had been cleared, the defendant used his official position and influence to induce the Chicago Housing Authority, the Chicago Dwellings Association, the Metropolitan Sanitary District, and the Department of Urban Renewal of the City of Chicago to purchase some of the properties which he had purchased.

The present action was commenced on May 10, 1974, after an indictment had been returned in the United States District Court for the Northern District of Illinois on May 2, 1974, which charged the defendant with mail fraud and conspiracy in connection with the same property transactions. A jury found the defendant guilty, and his conviction was affirmed by the Court of Appeals for the Seventh Circuit on August 18, 1975. (United States v. Keane, 522 F.2d 534, cert. denied (1976), 424 U.S. 976, 47 L.Ed.2d 746, 96 S.Ct. 1481.) The charges in the Federal indictment, a copy of which was filed in the present case by the defendant, are identical to the allegations of the present complaint, except that the latter omits references to the use of the mails.

The basis for the circuit court's dismissal of the plaintiff's suit, as appears from the court's memorandum opinion, was that a municipal taxpayer has no right to sue unless there has been a diversion or misappropriation of public funds or property that had once been in the possession of the municipality. The rationale of this limitation is that only in the situation described will the plaintiff's taxes be affected. The trial court was of the opinion that the complaint did not allege that any of the land involved had been bought from or sold to the City, or that any municipal funds had been expended. Accordingly, the court reasoned, the City itself would have no right of action against the defendant, and as a consequence no derivative right of action existed on the part of the plaintiff or any other taxpayer.

For this conclusion the trial court relied on Golden v. City of Flora (1951), 408 Ill. 129. In that case the taxpayer plaintiffs challenged the validity of a collective bargaining agreement between the City and employees of municipally owned utilities, on the ground that the agreement would increase the employees' wages. Those wages were paid out of the revenue earned by the utilities and not out of tax funds. The court pointed out that the plaintiffs "do not seek relief as consumers of the utilities concerned," and concluded that the plaintiffs lacked standing to sue because they would suffer no injury as taxpayers. (408 Ill. at 132-33.) The principle of the Golden decision is not applicable here, because if the City has a right of action against the defendant for an accounting of his profits, recovery of those profits would necessarily reduce, pro tanto, the amount of taxes which the plaintiff and other taxpayers would otherwise have to pay.

We note initially that, contrary to the view taken by the trial court, the complaint does allege that some of the property in which the defendant held an interest was sold to the Department of Urban Renewal of the City of Chicago. The Department is not an entity separate from the City but is an agency of the City, and land acquired for urban renewal purposes by purchase or condemnation is paid for in part with City funds. (Ill. Rev. Stat. 1975, ch. 67 1/2, pars. 91.102, 91.109.) The defendant asserts, without support in the record, that in the present case the land was purchased by the Department with funds received from the Federal government. However that may be, we find the point irrelevant, since we hold that the liability of a government officer for profits gained upon the purchase and resale of property in a situation of the kind here involved is not limited to those instances in which the property was sold to a governmental entity.

The defendant appears to concede that liability may arise out of third-party transactions, but only, he contends, if the circumstances are such as to properly invoke the doctrine which prohibits a governmental officer from misappropriating a business opportunity belonging to the municipality. Such an opportunity could not exist here, it is said, because the purchase of property at a scavenger sale "was not in the line of the city's activities and the city had no legitimate interest or expectancy therein." Under the applicable statutes, however, the City had the power to become a bidder at the scavenger sale. (Ill. Rev. Stat. 1975, ch. 120, pars. 716a, 725.) If in fact the City did not exercise that power, its omission in that regard would furnish no defense to the defendant in view of his failure to disclose his own adverse interest in the matter. Kerrigan v. Unity Savings Association (1974), 58 Ill.2d 20, 28-29; Vendo Co. v. Stoner (1974), 58 Ill.2d 289, 304-05.

Two statutory provisions bear upon the case before us. One is section 3-14-4 of the Municipal Code (Ill. Rev. Stat. 1975, ch. 24, par. 3-14-4), which provides:

"No municipal officer shall be interested, directly or indirectly, in any contract, work, or business of the municipality, or in the sale of any article, whenever the expense, price, or consideration of the contract, work, business, or sale is paid either from the treasury or by any assessment levied by any statute or ordinance. No municipal officer shall be interested, directly or indirectly, in the purchase of any property which (1) belongs to the municipality, or (2) is sold for taxes or assessments, or (3) is sold by virtue of legal process at the suit of the municipality."

The other is section 3 of the Corrupt Practices Act (Ill. Rev. Stat. 1975, ch. 102, par. 3), which reads ...


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