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Chicago Park Dist. v. Kenroy

OPINION FILED JANUARY 10, 1978.

CHICAGO PARK DISTRICT ET AL., PLAINTIFFS-APPELLANTS,

v.

KENROY, INCORPORATED, ET AL., DEFENDANTS-APPELLEES. — (THE CITY OF CHICAGO, INTERVENING PLAINTIFF-APPELLANT.)



APPEAL from the Circuit Court of Cook County; the Hon. WALTER P. DAHL, Judge, presiding.

MR. JUSTICE DOWNING DELIVERED THE OPINION OF THE COURT:

These appeals arise from the dismissal of two amended complaints. Plaintiffs, Chicago Park District (Park District) and Public Building Commission of Chicago, Illinois (PBC), brought an action against defendants, Kenroy, Incorporated (Kenroy), Edgewater Company, La Salle National Bank and others, seeking the imposition of a constructive trust to recover damages. By its additional, intervening action against defendants, the intervening plaintiff, City of Chicago (City), sought a constructive trust and damages. The amended complaint of the Park District and PBC was dismissed on the ground that the action constituted a collateral attack upon the final judgment order in another case; the City's amended complaint was dismissed for its failure to state a cause of action.

The Park District and PBC contend that their action does not constitute a collateral attack upon a connected, prior eminent domain judgment. The City contends that its amended complaint states a cause of action. All of the appellants contend that a public body may recoup funds which were fraudulently extracted from it, and that such a body may have a constructive trust imposed upon the funds.

The amended complaint of the Park District and PBC alleged that on or about March 14, 1972, the Park District, acting through its Board of Commissioners, passed an ordinance directing its general superintendent to take all necessary steps to acquire a parcel of property commonly known as Edgewater Golf Club. Such acquisition was to be accomplished whether through negotiation with the owners or by exercise of the right of eminent domain. On or about September 28, 1972, the Park District filed an action in the circuit court of Cook County to acquire the property through its eminent domain powers. Before and after the filing of the eminent domain suit, the Park District had the property appraised by qualified appraisers and also deposed numerous appraisers retained by defendants. The Park District did so to obtain various opinions of the fair cash market value of the property so as to determine the amount to pay the owners as just compensation.

During the pendency of the eminent domain proceeding, on November 14, 1972, the Park District's Board of Commissioners authorized the general superintendent to request that the property be acquired by the PBC for the construction of park and recreational facilities. The Park District would then lease the property from PBC for 20 years. On November 20, 1972, PBC passed Ordinances No. 993 and 993A designating the property as a site to be acquired by the PBC in accordance with the 20-year lease plan. On January 24, 1973, the Chicago City Council ratified such designation by ordinance. Pursuant to a motion of the Park District, the judge in the eminent domain case, the Honorable Edward Healy, substituted PBC as the petitioner on August 1, 1974.

The amended complaint also alleged that pursuant to the Public Building Commission Act and the Chicago Park District Act, the Park District was obligated and will continue to be obligated to levy a tax in an amount sufficient to amortize the PBC's cost of the acquisition. Prior to the filing of the eminent domain case, on or about March 14, 1969, the Chicago City Council acted on a petition by defendants and rezoned the property from R-4 Residential Use to Planned Development No. 67. During the time period of the eminent domain case, depositions were taken of various appraisers wherein each gave opinions of value based on the rezoning classification of Planned Development No. 67. One of those giving an opinion was Roy Gottlieb, an officer of Kenroy and a general partner in the Edgewater partnership. Predicated upon the appraised valuations, an agreement was entered into on February 27, 1974, between the parties of the eminent domain case and others, whereby all concerned agreed that just compensation would be $10,300,000.

In accordance with the agreement, on August 1, 1974, Judge Healy entered an order whereby PBC was to pay LaSalle $10,300,000 as just compensation for the taking of the property. (See judgment order in Public Building Commission of Chicago v. LaSalle National Bank, et al., Circuit Court of Cook County, No. 72 L 12246.) Plaintiffs alleged that throughout the period of the eminent domain case and during the negotiations that led to the valuation, all of the defendants in this appeal maintained that the property was properly rezoned from R-4 to Planned Development No. 67. Yet on October 3, 1974, in a case pending in the United States District Court for the Northern District of Illinois, Roy Gottlieb and Kenneth Tucker, officers of Kenroy and members of the Edgewater partnership, testified that the rezoning was secured by means of bribery and fraud. United States v. Wigoda (N.D. Ill. 1975), 74 CR 291 (unreported decision), aff'd (7th Cir. 1975), 521 F.2d 1221, cert. denied (1976), 424 U.S. 949, 47 L.Ed.2d 355, 96 S.Ct. 1421.

The Park District and PBC further alleged that under the State and Federal constitutions they were obligated to pay just compensation; that in determining just compensation the highest and best use to which property may be used is considered; and that the zoning of a parcel is a principle controlling the highest and best use. Plaintiffs also alleged that defendants knew or should have known that the rezoning they secured substantially increased the property's valuation for eminent domain purposes. Thus, defendants knew or should have known that the value of the property had been fraudulently enhanced by defendants' illegal acts.

Plaintiffs alleged that due to defendants' illegal acts, the taxpayers of the Park District were and are required to pay an amount for the property substantially in excess of the value had the property not been rezoned. In computing the amount of unjust enrichment, plaintiffs alleged that the amount to be recovered is the difference between the value of the property zoned R-4 and the value as rezoned Planned Development No. 67; that is, $5,000,000. In addition, plaintiffs alleged that defendants now hold that excess amount as constructive trustees for plaintiffs and the taxpayers of the Park District. Plaintiffs, therefore, sought the following relief: that defendants be declared constructive trustees of that portion of the proceeds which equals the difference in valuation between the value of the property as zoned R-4 and rezoned Planned Development No. 67; that such constructive trust be imposed for the benefit of plaintiffs and the taxpayers of the Park District; that upon just terms, the funds be ordered returned to the treasury of the Park District; that until the time such funds are returned the court impose an equitable lien on defendants' properties in an amount equal to the funds held by them as constructive trustees; and any other relief deemed appropriate.

In another count, plaintiffs alleged that the defendants at all times intended and acted to deliberately defraud plaintiffs. Thus, plaintiffs also sought the sum of $10,000,000 as punitive damages, plus costs. Finally, plaintiffs alleged that defendants knew that the property was improperly rezoned; that defendants purposely concealed by their words and actions the improper rezoning of Planned Development No. 67; that defendants intended to induce and did induce the appraisers to rely upon defendants' representations of the propriety of Planned Development No. 67 in making their respective opinions of the property's highest and best use; that defendants intended to induce and did induce plaintiffs to rely upon defendants' representations in order to secure an agreement that just compensation was $10,300,000; and that as a result of defendants' tortious misrepresentation of fact, plaintiffs suffered damages in an amount equal to the difference between the valuation before and after rezoning or $5,000,000. Plaintiffs then prayed for $5,000,000 as actual damages and $10,000,000 as punitive damages.

The City, in its amended complaint, alleged that in 1967, 1968, and 1969, defendants appeared before the Chicago Plan Commission to seek approval of the rezoning; in 1968 and 1969, defendants appeared before the Chicago City Council's Committee on Building and Zoning to seek approval of the rezoning; and in 1967, 1968, and 1969, defendants made application to the City of Chicago's Department of Development and Planning to have the property rezoned. Moreover, the City alleged that defendants made representations to each of those bodies and in reliance thereon each of the bodies recommended enactment of the zoning change. The City, therefore, claimed that defendants failed to disclose their illegal activities and fraud in seeking approval from the aforementioned agencies and departments.

The City alleged that subsequent to the rezoning of the property in question, Gottlieb and Tucker transferred an envelope containing $50,000 in cash to Paul Wigoda. Wigoda was at that time a City alderman and a member of the Chicago Plan Commission, the City Council, and the Council's Committee on Building and Zoning. As a member of each of those bodies, Wigoda voted to approve defendants' application for a zoning change. As stated in United States v. Wigoda (7th Cir. 1975), 521 F.2d 1221, 1225, "* * * the jury could properly find that the defendant [Wigoda] received a $50,000 cash payment in return for his assistance with respect to the Edgewater property and that he did not report this sum on his 1969 income tax return." The City further claimed that defendants' activities injured and adversely affected the economy of the City in that (a) excessive tax revenues are required from the citizens of Chicago to pay the exaggerated price of the property; (b) Chicago citizens were defrauded of the honest and loyal services of an alderman; and (c) the agencies and bodies of the City were deprived of the full knowledge of defendants' interest and representation with regard to the property. As relief, the City sought the imposition of a constructive trust, a return of the excess amount to the treasury of the Park District, the reduction of each taxpayer's aliquot share of taxes, attorneys' fees, and costs.

In another count the City brought its suit as a class action on behalf of the class of all citizens and taxpayers of Chicago. The City therein alleged that defendants' nondisclosure of their activities was fraudulent in that the various agencies and bodies would not have acted as they did had they known of defendants' activities. The basis for the claim of alleged fraud upon Chicago citizens was that they must ultimately pay the inflated price of the rezoned property.

The final count of the City's amended complaint alleged that in 1969 defendants, or some of them, instituted an action in the circuit court, seeking to have the City's building commissioner issue a building permit pursuant to the Planned Unit Development ordinance. Defendants prevailed in that suit and in the appellate court. (La Salle National Bank v. Fitzgerald, No. 69 L 16155, aff'd (1st Dist. 1973), 15 Ill. App.3d 1016, 305 N.E.2d 355.) When the commissioner duly prosecuted his appeal to the Illinois Supreme Court, defendants obtained an agreement with plaintiff to dismiss the commissioner's appeal and permit the entry of an adverse judgment. (See order in La Salle National Bank v. Fitzgerald (1974), 56 Ill.2d 587.) The City alleged that the stipulation was conditioned upon defendants having obtained the purchase of the property upon the excessive value earlier described. In addition, the City claimed that the filing, continuation, proceedings, and the stipulation to dismiss was an abuse of process and a part of and continuance ...


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