Appeal from the Circuit Court of Cook County; the Hon. Donald
J. O'Brien, Judge, presiding.
MR. JUSTICE MORAN DELIVERED THE OPINION OF THE COURT:
Rehearing denied May 27, 1977.
In 1851, by "An Act to incorporate the Illinois Central Railroad company" (1851 Private Laws of Illinois 61, hereinafter, the charter), the Illinois General Assembly authorized construction of a railroad line between Chicago and Cairo with a branch to the Mississippi River via Galena, and granted for that purpose a 200-foot right-of-way and approximately 2.6 million additional acres along that right-of-way. Most of this land derived from Federal land grants of the prior year. The line constructed pursuant to this charter (the charter line) includes 705.5 miles of main line. This, in addition to 1,820 miles of non-charter-line track, was operated by the Illinois Central (IC) until August 10, 1972, when, pursuant to a plan of reorganization (Plan) approved by the Interstate Commerce Commission (Commission), the IC sold and conveyed all of its assets to the defendant, Illinois Central Gulf Railroad Company (Gulf), a newly formed Delaware corporation, in exchange for stock. The IC distributed this stock to its shareholders and purportedly dissolved. Gulf has since owned and operated the IC's former charter line and the non-charter lines, as well as the former Gulf, Mobile & Ohio Railroad lines. In the same manner as the IC before it, Gulf has paid the 7% gross revenue tax imposed on IC's charter line. This tax, under sections 18 and 22 of the charter (which may be found, as modified, in Ill. Rev. Stat. 1975, ch. 120, pars. 373, 374), was imposed on IC in lieu of ordinary taxes. Gulf, likewise, has paid it in lieu of other taxes, and it has been thus accepted for the years 1972 through 1975 without challenge by the defendant State of Illinois officials (State).
The instant dispute arises from the claim of Robert H. Snow, an Illinois taxpayer, that State funds are being disbursed to effect the collection from Gulf of the illegal 7% tax on charter properties. He brings this action under "An Act in relation to suits to restrain and enjoin the disbursement of public moneys by officers of the state" (Ill. Rev. Stat. 1975, ch. 102, par. 11 et seq.) (the Public Monies Act). The essence of the action is that this 7% tax was an exemption personal to IC, not applicable to Gulf, and is being illegally collected in lieu of other taxes which would ordinarily be due from the charter line. Marvin E. Schatzman (as a Cook County taxpayer), Edward J. Rosewell (as Cook County treasurer), and Stanley T. Kusper, Jr. (as Cook County clerk), intervened. On cross motions, the circuit court rendered summary judgment for the plaintiff on May 17, 1976, finding that under the plan of reorganization the tax on the charter line did not become an obligation of Gulf, and Gulf did not acquire IC's special tax exemption. The chancellor decreed IC dissolved, enjoined the State from continuing to collect the charter tax from Gulf and from expending public funds in connection therewith, and ordered the Director of the Department of Local Government Affairs, effective August 10, 1972, to "assess the Charter Property in the same manner as he assesses the property of other railroads in the State" and to "transmit the lists and information to the various proper taxing authorities of the Illinois counties in which Charter Property is located."
On appeal, Gulf urges that the charter property tax obligation and corresponding immunity from other tax were contract rights passed to Gulf by virtue of the Commission's approval of its plan of reorganization. Gulf further urges that, should this court disagree with this proposition, the trial court's order requiring Gulf's charter line to be assessed in the same manner as other Illinois railroads should be applied prospectively only.
The State agrees with Gulf that the 7% charter tax is due and owing, but contends it is due from IC; that the contract rights created in the charter between IC and the State may not be unilaterally abrogated by the IC or by the powers of the Commission to approve the Plan. Additionally, the State asserts that Snow lacks standing to attack the voluntary payment of a tax by another, and that administrative review, rather than suit under the Public Monies Act, is the proper vehicle for this action.
With reference to the question of standing and appropriateness of this action under the Public Monies Act, the State asserts that the amounts collected by the 7% tax total over $5.6 million per year, whereas the $41,400 expended in auditor's salary for its collection are de minimis, and that therefore Snow and the other taxpayers he represents have no interest in preventing the token expenditure. The State ignores the fact evidenced by the record that the time of literally hundreds of State employees is devoted in some part to the assessment and collection of this tax. Furthermore, there is no requirement that a taxpayer's individual interest in a suit under the Public Monies Act be substantial. In the case of Krebs v. Thompson (1944), 387 Ill. 471, 475-76, the court acknowledged that, "[u]nder the settled rule in this State, every taxpayer is injured by the misapplication of public funds, whether the amount be great or small. Such injury is not prevented by the fact that the State may thereafter receive fees under an unconstitutional statute in excess of the cost of its administration." Long before the enactment of the Public Monies Act, the citizens and taxpayers of this State have been permitted to sue to enjoin the misuse of public funds. (See Barco Manufacturing Co. v. Wright (1956), 10 Ill.2d 157, 160, and Fergus v. Russel (1915), 270 Ill. 304, 314, and cases cited therein. See also Cusack v. Howlett (1969), 44 Ill.2d 233, 236.) Furthermore, a taxpayer may bring suit to enjoin the misuse of public funds in administering an illegal legislative act even though the taxpayer is not subject to the provisions of that act. (Mansfield v. Carpentier (1955), 6 Ill.2d 455, 460-61; Bode v. Barrett (1952), 412 Ill. 204, 233-34; Krebs v. Thompson (1944), 387 Ill. 471, 474.) The case of Droste v. Kerner (1966), 34 Ill.2d 495, cited by the State for the proposition that the taxpayers have no standing to sue because the public funds allegedly disbursed illegally were de minimis, was a consolidated appeal from two actions: one attacking a legislative enactment conveying State lands brought under the Public Monies Act; another attacking the same enactment on a theory of public trust. The court found that the Public Monies Act did not give the plaintiffs standing to maintain the first action, for conveyance of public lands was not the improper "disbursement" of public "funds" contemplated by the Act. In the second action, under the public trust doctrine, the plaintiff alleged that certain State funds would be expended for land surveys, title reports and the like to carry out the protested act. The court viewed these allegations as "no more than speculative conclusions" and then determined that "in any event, the expenditures which plaintiff alleges are de minimis for purposes of standing to sue as a taxpayer." (Droste v. Kerner (1966), 34 Ill.2d 495, 505.) The court's statement regarding de minimis expenditures specifically referred to standing to sue under the public trust doctrine rather than under the Public Monies Act. Furthermore, this aspect of Droste was overruled in Paepcke v. Public Building Com. (1970), 46 Ill.2d 330, 341. Droste is clearly irrelevant to the issue of standing in the case at hand. Other cases which the State cites to demonstrate that the Public Monies Act is an inappropriate vehicle for this suit are not on point. Daly v. County of Madison (1941), 378 Ill. 357, 361, brought by taxpayers to enjoin an election, was characterized by the court as an action involving a political question which the courts> of equity have no power to resolve. The case of People ex rel. Morse v. Chambliss (1948), 399 Ill. 151, was not brought under the Public Monies Act. The plaintiff taxpayer there sued the property owner to enforce a tax lien of about $13,500 against defendant's property, which lien he claimed to have arisen as a result of taxing officials' unauthorized acceptance of $14,500 as full satisfaction for back taxes of $28,000. The court in Chambliss observed that "[t]here can be no question but that the suit is for the collection of taxes alleged to be due and owing" 399 Ill. 151, 153), that the taxing body must direct the bringing of such suit, and that an individual taxpayer has no right to bring suit for the collection of taxes. The case sub judice is clearly distinguishable. It is designed to prevent the continued acceptance of an allegedly unlawful tax in lieu of all other taxes, when the appropriate taxing authorities have declined, and still decline, to follow applicable statutory procedures requiring them to assess all of Gulf's property in the same manner as other railroad properties assessed.
The State asserts that administrative review is the appropriate method for determining the correctness of a tax, and that the Public Monies Act is an inappropriate vehicle because it was not intended to enlarge the rights of citizens or extend the established jurisdiction of a court of equity. (Daly v. County of Madison (1941), 378 Ill. 357, 376.) Owens-Illinois Glass Co. v. McKibbin (1943), 385 Ill. 245, 256-57, reviewed the decisions of this court regarding injunctive relief in tax matters and acknowledged the firmly established principle that "equity has jurisdiction to enjoin the collection of an unauthorized tax, although there exists a concurrent remedy at law." This principle continues to be viable (see Sta-Ru Corp. v. Mahin (1976), 64 Ill.2d 330, 334; Illinois Bell Telephone Co. v. Allphin (1975), 60 Ill.2d 350, 359-61) despite a modification to that rule created in Illinois Bell. In Illinois Bell (60 Ill.2d 350, 359), this court held that the above proposition from Owens was no longer applicable where an administrative remedy was available under the Administrative Review Act. The State, for the first time on appeal, asserts that prior to bringing this suit the plaintiffs failed to invoke correct administrative remedies (presumably administrative review of defendant Kirk's assessment, or lack thereof, on the charter property). Since this argument was presented for the first time on appeal, it is deemed waived, and the rule of Illinois Bell is thus inapplicable. We conclude that this action is one traditionally entertained by courts> of equity. We do not, therefore, address the applicability of the Owens rule in an action seeking an injunction under the Public Monies Act where administrative remedies are allegedly available. For the reasons above, we hold that plaintiff had standing and may properly maintain this action under the Public Monies Act.
It is the position of both Gulf and the State that the imposition of the charter tax in the years 1972 to 1975 was lawful, but their rationales differ. Gulf claims that all of IC's rights and obligations, including the charter tax and exemption from other taxes, were transferred to Gulf under the "plenary power" of the Commission to effectuate such transfer. The State argues that the charter constitutes a contract between IC and the State; that it was beyond the power of the Commission, by approving the plan of reorganization, to transfer the charter properties, rights, and obligations to Gulf in abrogation of the charter contract; and that, therefore, IC has not been dissolved and the charter tax is still due and owing from it.
Plaintiff Snow maintains that the tax rights and obligations derived under the charter were personal to IC and were nontransferable without the consent of the Illinois General Assembly; that the language of the charter itself anticipates and authorizes the sale of the IC charter property; that the charter itself expressly cuts off the right to IC's tax exemptions when the charter property is sold to third persons; that the Commission's approval of the Plan did not purport to transfer IC's charter tax rights and immunities to Gulf; that the Commission's power extends to all acts necessary to effectuate the Plan (including the sale of all IC assets to Gulf) but its power does not extend to matters of taxation exclusively reserved to the States; and that the effect of the approved sale of all IC's property to Gulf was the dissolution of IC by operation of law.
The history of IC's organization is well recorded in the judicial opinions of this State. Most of the land was provided to the IC by land grant from the Federal government through the State.
"The Congress of the United States * * * in 1850 passed an act granting to the State of Illinois a right of way through the public lands and the ownership of every alternate section of land for more than six miles in width on each side thereof, to aid the State in constructing the railroad finally built by [IC]." (People v. Illinois Central R.R. Co. (1916), 273 Ill. 220, 234.)
"The act provided that the lands granted should be subject to the disposal of the legislature of Illinois and be applied to the construction of the said road and branches, and to no other purpose. * * * By section 15 of the charter appellee was granted all the lands ceded to the State by the act of Congress of 1850; also depot grounds in the city of Cairo, the right of way and all the improvements made thereon by the Internal Improvement Commission and the Great Western Railway Company under the acts of 1837. This latter property was in ...