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Melbourne Corp. v. City of Chicago





APPEAL from the Circuit Court of Cook County; the Hon. ABRAHAM W. BRUSSELL and the HON. REGINALD J. HOLZER, Judges, presiding.


Rehearing denied October 15, 1979.

Plaintiff, Melbourne Corporation, brought a two-count action against the city of Chicago in the circuit court of Cook County. Count I alleged that the denial of renewal of Melbourne's city nursing home license, pursuant to an ordinance later adjudged unconstitutional, resulted in the abandonment and loss of its nursing home business. Count II alleged that Melbourne had sustained damages because the city failed to comply with a circuit court order mandating issuance of the city nursing home license. The city was held liable on each count and judgment subsequently was entered in the amount of $927,760. The city appeals both liability and damages. Melbourne has cross-appealed, contending that damages should be increased to $1,518,876.50.

Melbourne Corporation did business as a duly licensed nursing home from 1963 until June 30, 1971, in Chicago, Illinois. In February of 1971, Melbourne applied to the City of Chicago for renewal of its license. The city maintains dual responsibility for the licensing and regulation of nursing homes along with the State, pursuant to section 15 of the Nursing homes, sheltered care homes, and homes for the aged Act (Ill. Rev. Stat. 1971, ch. 111 1/2, par. 35.30). At that time, section 136-15 of the Municipal Code of Chicago governed city licensing and regulation of nursing homes. Municipal Code of Chicago 1958, ch. 136, sec. 136-15.

On June 25, 1971, the Hearing Board on Denial and Revocation of Licenses for Nursing Homes, Sheltered Care Homes and Homes for the Aged of the city of Chicago (Board), a division of the Chicago Board of Health, made specific findings of violations of various Board of Health rules and regulations regarding building maintenance and patient care. The Board, therefore, denied Melbourne's application for renewal of its city license.

On June 29, 1971, Melbourne filed an administrative review proceeding in the circuit court of Cook County. On July 1, 1971, that court stayed the decision of the Board pending final disposition of the administrative review proceeding.

On June 30, 1971, the Illinois Department of Public Health cancelled Melbourne's State nursing home license because of the findings and decision of the Board. In 1971 the Melbourne Nursing Home had a capacity of 188 beds. On June 30, 1971, Melbourne's census indicated a patient population of 160. Of those patients, all but two were placed in Melbourne and had their treatment funded by either the Illinois Department of Public Aid or the Illinois Department of Mental Health.

The State of Illinois immediately began withdrawing its patients from the Melbourne Nursing Home after June 30. By July 21, 1971, all State patients had been removed and only two private patients remained.

On October 15, 1971, the circuit court entered a final order on administrative review reversing the determination of the Board. The circuit court found that the Board's decision was not contrary to the manifest weight of the evidence. However, the court held that section 136-15 of the Municipal Code of Chicago was invalid because it failed to require expressly that the minimum requirements of the State Department of Health be observed. Accordingly, the circuit court ordered the city to issue Melbourne a 1971 license. It was further ordered that defendant and its agents were restrained and enjoined from interfering with the lawful operation of Melbourne's nursing home.

On October 21, 1971, counsel for Melbourne sent a copy of the circuit court's order to the Department of Public Health. Counsel received a letter in reply, dated November 4, 1971, signed by the chief of the Division of Health Facilities. The substance of that letter was that cancellation of Melbourne's State license was predicated upon the Board's order denying issuance of a city license, and "[t]herefore, this Department will not make any determination with respect to the restoration or reinstatement of the State license previously issued to this facility until the time for appeal by the City of Chicago has elapsed or a final determination has been made in this matter by the Appellate Court."

On October 22, 1971, Melbourne made a written demand upon the city collector for issuance of the city license in compliance with the circuit court's order. No city nursing home license was issued. Instead, the city filed a notice of appeal on November 12, 1971, and on December 2, 1971, obtained an order from this court staying execution of the circuit court's order.

Following the entry of the stay pending appeal, the owners of Melbourne were advised by counsel that keeping the nursing home open during the pendency of the appeal would be impractical. Counsel advised them to mitigate their losses by closing the nursing home and selling the building and equipment. On December 3, 1971, Melbourne abandoned its nursing home business.

On September 20, 1973, this court affirmed the circuit court order of October 15, 1971 (Melbourne Corp. v. Chicago Hearing Board (1973), 14 Ill. App.3d 589, 302 N.E.2d 729). *fn1 Defendant appealed to the Supreme Court of Illinois which, on November 27, 1974, affirmed the appellate court, with three justices dissenting. Melbourne Corp. v. Chicago Hearing Board (1974), 59 Ill.2d 409, 322 N.E.2d 481.

On June 22, 1972, during the pendency of this appellate litigation, Melbourne filed the instant suit against the City of Chicago. The complaint alleged, inter alia, that defendant, through its Board, cancelled Melbourne's license pursuant to an ordinance subsequently found to be unconstitutional. Cancellation of Melbourne's State nursing home license and the resultant withdrawal of State patients was predicated upon the determination of defendant's Board. In short, Melbourne alleged that consequences resulting from the Board's determination forced plaintiff to discontinue its nursing home business. Therefore, Melbourne prayed for the fair market value of its business on or about June 30, 1971, in the amount of $1,500,000.

On February 18, 1975, Melbourne amended its complaint by adding a second count in which Melbourne stated that all State patients were removed by July 21, 1971, and that both private patients departed by September 30, 1971. Nonetheless, Melbourne maintained its place of business with a reduced work force, but with no patients in its care, while awaiting the disposition of the administrative review proceedings in the circuit court. Melbourne intended to resume the operation of its business in the event of a favorable ruling. On October 15, 1971, the circuit court reversed the Board. Melbourne sent a written demand and certified copy of this order to defendant, but no license was issued. Instead, the city sought and obtained an appellate court stay of the circuit court order. When this stay was entered on December 2, 1971, it became apparent to Melbourne that there would be an extended period of time before the circuit court order could be enforced. Melbourne alleged it was compelled to abandon its business and suffered damages amounting to the value of its business.

Defendant's motion to dismiss both counts of the complaint was denied. Subsequently, by agreement of the parties, the issues of liability and damages were tried separately.

In connection with the trial on liability, the parties filed stipulations of fact and authenticity of documents, setting forth the chronology of events substantially as alleged in the complaint as amended. A bench trial was conducted on the issue of liability.

Ruby Boyd, who had been an assistant to the bookkeeper at Melbourne in 1971, testified that her duties included keeping a daily patient census. She testified that in July 1971, a caseworker from the Illinois Department of Public Aid appeared and informed her that patients would be moved out from day to day because their license was not renewed. By late July only two private patients were left.

Dr. Arthur J. Wolski, who with his wife was half owner of Melbourne, testified that he opened the Melbourne Nursing Home in 1963. From 1968 on, it operated at full capacity of 188 patients and at a profit. Dr. Wolski further testified that in July 1971, he received notice that Melbourne's Public Aid and Mental Health patients would be removed. He also testified that he had a discussion with counsel after the city appealed the circuit court's order. Counsel advised him that Melbourne's license would be withheld until the appeal was decided and that a decision would probably take a year or so. A purchaser for the Melbourne property was sought toward the end of 1971, and at the end of 1972 a sale was consummated.

On July 12, 1976, the circuit court entered judgment in favor of Melbourne on the issue of liability. On November 2, 1977, trial commenced on the issue of damages. As a result of testimony elicited and exhibits received, the court entered judgment for Melbourne and made the following findings:

"1. On June 30, 1971, the nursing home business of Plaintiff had a market value of $927,760.00;

2. Plaintiff is entitled to recover from Defendant, the June 30, 1971 market value of its nursing home business, exclusive of alleged future profit losses or interest on the said market value of said business prior to entry of this Order."

The city filed a timely notice of appeal of the circuit court orders, contesting both its liability and the evidentiary support for the damages afforded. Melbourne cross-appealed, seeking the recovery of an additional $555,246 from the city for loss of profits.

We reverse on the issue of liability. Accordingly, contentions concerning damages need not be addressed.


Count I alleges that the city is liable for the termination of Melbourne's business because its board denied renewal of a city nursing home license based upon an ordinance later adjudged invalid and unconstitutional. Melbourne argues that withdrawal of its State license and patients was wholly predicated upon the Board's unlawful actions. We agree with the city's contention that provisions of the Local Governmental and Governmental ...

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