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November 29, 1984


The opinion of the court was delivered by: Shadur, District Judge.


Morton Arboretum ("Arboretum"), one of the major holders of Northern Illinois Toll Highway Revenue Bonds, Series of 1955 ("Bonds"), challenges the 1984 amendment (the "Amendment," P.A. 83-1258) to the statute (the "Act," Ill.Rev.Stat. ch. 121, ¶¶ 100-1 to 100-35) creating the Illinois State Toll Highway Authority ("Authority").*fn1 Arboretum says the new provisions of the Amendment impair the terms of the Bond resolution (the "Resolution") covering the original issuance of the Bonds, in violation of Arboretum's rights under (1) the Contract Clause (U.S. Const. art. I, § 10), (2) the Fourteenth Amendment*fn2 and (3) the Illinois Constitution's version of the Contract Clause (Ill. Const. art. I, § 16).*fn3 For the reasons stated in this memorandum opinion and order, defendants' Fed.R.Civ.P. ("Rule") 12(b)(6) motion is granted and Arboretum's Complaint and this action are dismissed.

Bondholders' Rights Under the Resolution

As the name "revenue bonds" indicates, holders of the Bonds cannot look to the faith and credit or taxing power of the State of Illinois (Res. § 7.01), but only to "Revenues" of the tollway system (the "Facility," as it is termed in the Resolution). In a fashion typical of revenue bond issues, the Resolution has a number of provisions designed to protect the integrity of the Bond payment provisions:

    1. All revenues from tolls charged to users of
  the Facility and from other collateral income
  derived from the Facility (collectively
  "Revenues") are a trust fund "exclusively and
  irrevocably pledged . . . for the security and
  payment or redemption of, and for the security
  and payment of interest on," the Bonds (Res.
  § 2.04).
    2. Authority is obligated to set tolls at
  levels at least sufficient to service the
  Facility and to meet the current obligations
  (including minimum Sinking Fund requirements) on
  the Bonds (Res. § 4.01.1).
    3. No Revenues will be used for any purposes
  except those specified in the Resolution (Res.
  § 7.10).
    4. No other bonds can be issued by Authority,
  nor can it create any other lien or charge on the
  Facilities or the Revenues (Res. § 7.04).
    5. Minimum Sinking Fund requirements call for
  accelerating deposits typical of revenue bond
  issues, self-amortizing over the life of the
  Bonds (Res. § 4.03.2 (Third)). Excess Revenues must
  also be transferred to the Sinking Fund Account
  (Res. § 4.03.2(g)). All amounts in the Sinking Fund
  must be applied to payment and retirement or
  redemption of the Bonds (Res. § 5.04).

Authority has no obligation to create surpluses to accelerate retirement of the Bonds beyond the mandatory Sinking Fund requirements. Indeed Act ¶ 100-19 requires that tolls be fixed "at the lowest possible rate that will provide funds sufficient" to service the Facility and the Bonds, including Sinking Fund requirements (more of this later). Resolution § 4.01(4) specifically gives Authority the right to reduce tolls, conditioned only on (1) notice to interested parties, (2) current compliance with the funding requirements and (3) certification that the reduced rate will provide sufficient Revenues to meet the funding requirements for the next ten fiscal years.

1984 Amendment

To facilitate the construction, operation and maintenance of a new projected North-South Tollway, the 1984 Amendment provides for the issuance of Refunding Bonds for purposes of refunding the Bonds (Act ¶ 100-20.1). Under Act ¶ 100-20.1(f) all the Bonds will be "deemed paid and no longer . . . outstanding for purposes of [the] [R]esolution . . . and all rights and obligations under [the] [R]esolution . . . shall be deemed discharged . . ." upon establishment of an irrevocable trust with either:

    (a) funds adequate to meet all payment
  obligations on the Bonds; or
    (b) obligations issued or guaranteed by the
  United States government, the amount of which is
  sufficient to pay the Bonds; or
    (c) the same kinds of obligations in an amount
  that, taking into account investment earnings on
  those obligations, will be sufficient to pay the

Bondholders of course will retain "an irrevocable and unconditional right to payment in full of all principal of and premium, if any, and interest on such outstanding bonds, at maturity or upon prior redemption, from the amounts on deposit in such trust" (Act ¶ 100-20.1(f)) — the difference being that they will look to the trust funds and not to the Revenues of the Facility.

Rule 12(b)(6) Principles

Last Term the Supreme Court announced the rule of Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957) was still alive and well and living in Washington. Hishon v. King & Spalding, ___ U.S. ___, 104 S.Ct. 2229, 2233, 81 L.Ed.2d 59 (1984) phrased the applicable standard as requiring that a complaint survive unless "it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations." But as Judge Bua ...

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