APPELLATE COURT OF ILLINOIS, FIRST DISTRICT, FIFTH DIVISION
541 N.E.2d 1330, 186 Ill. App. 3d 73, 133 Ill. Dec. 892 1989.IL.1057
Appeal from the Circuit Court of Cook County; the Hon. Mary M. Conrad, Judge, presiding.
PRESIDING JUSTICE MURRAY delivered the opinion of the court. LORENZ and PINCHAM, JJ., concur.
DECISION OF THE COURT DELIVERED BY THE HONORABLE JUDGE MURRAY
Defendant Department of Revenue of the State of Illinois (Department) appeals from an order of the trial court reversing its decision denying a charitable tax exemption on certain real estate located in Cook County to plaintiff Community Mental Health Council, Inc. (Council) (appeal No. 88--2991). The Department also filed a notice of appeal from a later order entered by the trial court requiring it to refund $5,827.74 to the Council for taxes it paid on the subject property in 1986 (appeal No. 89--0427). In its first appeal, the Department argues that (1) this court must dismiss the appeal because the Council failed to name the Community Mental Health Foundation (Foundation) as a party defendant in its administrative review action in the trial court and (2) the trial court erred in finding that the Council was entitled to a charitable tax exemption on its property. In its second appeal, the Department did not file a brief and, on an oral motion during argument before this court, it moved to have its brief in the first appeal stand as its brief in the second appeal. We granted the Department's motion. The issue involved therein will be discussed later in this opinion.
The record discloses that the Council was incorporated as a not-for-profit corporation on February 13, 1975. Its purpose is to "promote positive mental health" within a community on the south side of Chicago and, accordingly, it is governed by the Illinois Community Mental Health Act (Ill. Rev. Stat. 1987, ch. 91 1/2, par. 300.1 et seq.). The Council receives 95% of its funding for operation of its services from an annual grant provided by the Department of Mental Health. The Council subsequently created the Foundation as a "holding company," since under the terms of the annual operation grant received from the Department of Mental Health the Council may not, among other things, use it to purchase real estate or make mortgage payments.
On July 14, 1986, the Council entered into a contract with Northwestern University to purchase the property at issue here (a three-story building with a full basement and two parking lots located at 8704 South Constance in Chicago), subject to a lease held by Illinois Bell which was to expire on December 31, 1986. The property was bought to house the Council's headquarters. The Council's $100,000 down payment on the property was made with funds from a reimbursable grant received from the Department of Mental Health. The grant agreement provides that should the building generate any income in excess of the Council's expenses, such excesses are to be remitted to the Department of Mental Health until the $100,000 is repaid. At the time of closing, the Council signed a conveyance nominating the Foundation as "purchaser of the property" and the property was accordingly deeded to the Foundation on September 15, 1986.
At the time of the purchase of the property, Illinois Bell's monthly rental payment on the entire property to Northwestern was $4,382. Based on the real estate sale contract between the Council and Northwestern, the Foundation was required to make a monthly mortgage payment in the amount of $5,999.16, beginning October 1, 1986, plus a monthly $4,000 payment to an escrow account to pay a balloon payment of $246,085.73, which was to be paid at the end of five years.
From September 15 through December 31, 1986, Illinois Bell used only one-third of the building and the two parking lots; two-thirds of the building remained vacant. At that time, Illinois Bell agreed to allow the Council full use of the vacant portion of the building, notwithstanding that it was paying rent on the entire building. The Council then began preparations to renovate the building for its purposes; its development staff, architects, and 12 different contractors frequented and had unfettered access to the vacant two-thirds of the building. In January 1987, Illinois Bell vacated the building. The Council then took possession of the building and parking lots and began paying rent to the Foundation.
The Council subsequently applied to the Board of Tax Appeals for a charitable tax exemption on the property from September 15 to December 31, 1986. The Board granted it a partial exemption, but the Department later reversed the Board. The Council then filed an administrative review action in the circuit court of Cook County. The court reversed the Department's decision and remanded the case back to the Department for a hearing to calculate the amount of the exemption the Council was entitled to on the building and the two parking lots. The Department then filed an appeal from this order (appeal No. 88--2991).
On January 9, 1989, after the agency's hearing on the amount of tax exemption due the Council, the trial court entered an order requiring the Department to refund $5,826.74 to the Council for taxes paid on the property in 1986 pursuant to a stipulation between the parties that the exemption for the building amounted to $5,426.36, for the rear parking lot, $290.70, and for the adjacent parking lot, $109.68. The Department then filed a notice of appeal from the order (appeal No. 89--0427) and subsequently moved to consolidate the appeal with appeal No. 88--2991, which this court granted.
We reject the Department's first argument in appeal No. 88-2991 that the appeal must be dismissed because the Council did not name the Foundation as a party defendant in its administrative action as required by section 3-107 of the Administrative Review Law (Ill. Rev. Stat. 1985, ch. 110, par. 3-107). Section 3-107 provides that an "administrative agency and all persons, other than the plaintiff, who were parties of record to the proceedings before the administrative agency shall be made defendants." (Emphasis added.) (Ill. Rev. Stat. 1985, ch. 110, par. 3-107.) We first observe that even though the Department now argues that the Foundation was a necessary party in the Council's administrative action, the Department itself did not name the Foundation as a party in the hearing in which it denied the Council an exemption on its property, notwithstanding the fact that it had served the Foundation with notice of the hearing. The Department's argument that the Foundation "participated" in the hearing does not a party of record make; in fact, no witness even appeared solely on behalf of the Foundation. This point is established by reference to the Department's administrative law Judge's statements in his "Recommended Disposition" where, under the caption of "APPEARANCES," he referred to the witnesses and attorneys who appeared before him as appearing "on behalf of the Community Mental Health Council, Inc.," and referred to himself as having appeared on behalf of the "Illinois Department of Revenue." Thus, he did not state that the Foundation was a party of record. Since the Foundation was not a party of record, as the term is used in section 3-107, the Council was not statutorily required to make the Foundation a defendant in its administrative review action.
Secondly, as the Council further points out, the Department's brief is incorrect in stating that "the tax was levied against the Foundation as legal title holder of the property" and, therefore, (1) the Foundation was a necessary party to the administrative review action and (2) the trial court lacked subject matter jurisdiction in the absence of the Foundation as a party to review its decision denying the tax exemption. (See People ex rel. Illinois Department of Human Rights v. Arlington Park Race Track Corp. (1984), 122 Ill. App. 3d 517, 461 N.E.2d 505.) In fact, the face of the tax bill shows the taxpayer to be "COMMUNITY MENTAL HEALTH"; it does not indicate whether the taxpayer is the Council or the Foundation. In addition, the Department's assertion is inconsistent with a notation made by its law Judge who referred to the Council as the taxpayer, i.e., the Department's exhibit 2F was marked at the direction of the Judge as "Taxpayer: COMMUNITY MENTAL HEALTH COUNCIL, INC." Finally, we note that a failure to name a necessary party is not a jurisdictional defect so that the ...