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In re Application Of County Collector Of The County Of Winnebago

September 16, 1996

IN THE MATTER OF: THE APPLICATION OF COUNTY COLLECTOR OF THE COUNTY OF WINNEBAGO, ILLINOIS, APPEAL OF: MICHAEL F. O'BRIEN, ALICE J. O'BRIEN, EDWARD M. MAHER, ET AL.


Appeal from the United States District Court for the Northern District of Illinois, Western Division. Nos. 92 C 20331, 93 C 20310 & 94 C 50357 Philip G. Reinhard, Judge.

Before POSNER, Chief Judge, and FLAUM and RIPPLE, Circuit Judges.

FLAUM, Circuit Judge.

ARGUED JUNE 7, 1996

DECIDED SEPTEMBER 16, 1996

Appellants (the "tax objectors") filed tax objections in Illinois state court, claiming that the Rockford Board of Education, School District No. 205 (the "school district"), levied taxes against their property in violation of Illinois law. The taxes were levied as a result of a federal lawsuit against the school district alleging racial discrimination. In that suit, the school district agreed to, and the district court approved, a consent decree that sought to remedy racial imbalance in the Rockford schools. The consent decree authorized the school district to fund remedial programs by levying taxes under the Illinois Local Government and Governmental Employees Tort Immunity Act, 745 ILCS 10/1-101 et seq. (the "Tort Immunity Act"). The tax objectors contended in state court that the Tort Immunity Act did not provide the school district with authority to levy taxes to finance the remedial measures contained in the consent decree. The school district intervened in the tax objection proceedings and promptly removed the cases to district court. The objectors then moved to remand the tax objections to state court, asserting that the district court lacked jurisdiction over what were essentially state law cases. The district court held that, because the state tax cases could effectively frustrate the school district's implementation of the consent decree entered in the discrimination lawsuit, the cases were properly removed under the Civil Rights Removal Statute, 28 U.S.C. sec. 1443, and the All Writs Act, 28 U.S.C. sec. 1651(a). On the merits of the tax objections, the district court concluded that the Tort Immunity Act authorized the disputed levies. We conclude that because the district court lacked jurisdiction over the state law tax objections, the tax cases must be remanded to state court, and we therefore reverse the district court's judgment.

I.

The litigation that spawned the taxes at issue began in 1989, when a class-action complaint was filed in the case of People Who Care v. Rockford Board of Education, No. 89 C 20168 (N.D. Ill.) (the "PWC case"). The complaint alleged that the school district had violated the Equal Protection Clause of the Fourteenth Amendment by intentionally segregating and discriminating against students on the basis of race. *fn1 As the PWC case progressed, the parties entered into, and the district court approved, settlement agreements making interim provisions for various aspects of the Rockford school system implicated by the litigation. On April 24, 1991, the district court entered a consent decree known as the Second Interim Order, which called for the school district's adoption of certain remedial measures. The Second Interim Order specifically addressed the funding of these remedial measures and the ability of the school district to levy taxes under state law:

The District is subject to the provisions of the [Tort Immunity Act]. The Tort Immunity Act empowers and directs a local public entity such as the District to pay any liability imposed upon it for a tortious act under Federal or State common or statutory law or to pay any tort judgment or settlement for compensatory damages based on any injury caused by an alleged negligent or alleged wrongful act or omission of the local public entity. The Board of Education of the District may, if it considers the action advisable, issue general obligation bonds without referendum to pay such liability, judgment, or settlement. In addition thereto (or in the alternative), the District may pay for such recurring and continual incremental costs for such programs specified in this Order by additional levies in the District's Tort Immunity Fund. Pursuant to this Order, the District is mandated to fund the cost of the activities required herein . . . . This Court has considered the provisions of Article IX--Payment of Claims and Judgment--of the Tort Immunity Act and finds that the funding by the District of the cost of said activities constitutes and is the payment by the District of a liability, tort judgment or settlement that authorizes the issuance of the District's non-referendum general obligation bonds referred to in Section 9-105 of the Tort Immunity Act or the levying of an annual rate of tax in the District's annual levy for Tort Immunity purposes, to pay for annual and recurring program costs (other than the institution of capital improvements) as required by this Order.

The funding section of the Second Interim Order further provided that:

[T]he District has the responsibility for funding the activities required by all Sections of this Order. The parties and the Court have already taken possible financial constraints into consideration, and those matters have been allowed for in formulating the particular requirements of this Order. Accordingly, the District has discretion to determine what sources of funds shall be used for that purpose, but this discretion relates solely to the manner of funding the requirements of the Order.

At the time the Second Interim Order was entered, the school district had not admitted engaging in discrimination nor had the district court made a determination of liability.

To finance its obligations under the consent decree, the school district issued bonds and levied real estate taxes in 1991, 1992, and 1993 under the Tort Immunity Act. The taxes levied to pay for the Second Interim Order's equitable remedies represented a significant portion of the school district's annual revenues in those years. *fn2 The appellants paid these taxes under protest and annually filed tax objections in state court pursuant to Illinois statute. *fn3 The tax objectors alleged that the Tort Immunity Act did not grant the school district authority to levy the taxes at issue. Specifically, the tax objectors contended that the cost of complying with the prospective equitable relief mandated by the Second Interim Order did not constitute the payment of "compensatory damages," for which public entities are authorized to levy taxes under the Tort Immunity Act. *fn4

In each tax objection proceeding, the school district quickly intervened and removed the case to federal district court. The tax objectors moved to remand each case, maintaining that the district court lacked subject matter jurisdiction over the three state law tax disputes. The school district argued before the district court that any relief granted by the state court in the three tax objection proceedings would effectively prevent the school district from fulfilling its mandatory responsibilities under the Second Interim Order. Following this characterization of the tax disputes, the school district advanced two bases for the district court's subject matter jurisdiction. First, the possibility of interference with the federal consent decree created a federal question, thereby providing the court with removal jurisdiction under 28 U.S.C. sec. 1441. Second, the school district in levying the taxes was carrying out the order of a federal court in a civil rights case, allowing for removal under the civil rights removal statute, 28 U.S.C. sec. 1443. The district court determined that the cases were properly removed under 28 U.S.C. sec. 1443 and that the All Writs Act, 28 U.S.C. sec. 1651(a), provided an independent basis of removal jurisdiction because the tax disputes could effectively frustrate the entire consent decree. Reaching the merits of the tax objections, the court granted summary judgment for the school district, holding that "compensatory damages" under the Tort Immunity Act includes the costs of complying with mandatory injunctive relief.

While the tax objections were pending before the district court, extensive evidence was presented in the PWC case regarding the liability of the school district under the Equal Protection Clause of the Fourteenth Amendment. On February 16, 1994, after all the taxes disputed in the current case had been levied, the district court found that the school district had unlawfully segregated and discriminated against students on the basis of race and ethnic origin. See People Who Care v. Rockford Bd. of Educ., 851 F. Supp. 905, 930-33 (N.D. Ill. 1994). Based on this adjudication of liability, the district court, on March, 29, 1994, entered a Declaratory Judgment and Permanent Injunction Order enjoining the school district from "segregating or discriminating against its African-American and Hispanic students on the basis of their race, ethnicity or national origin" and directing the school district to "eliminate root and branch, throughout the Rockford public school system, all vestiges of racial, ethnic and national origin segregation or discrimination against African-American and Hispanic students." The parties and the court then worked to formulate a comprehensive remedial order, the final portion of which the district court entered on June 7, 1996, the same day oral argument was heard in this appeal. *fn5

II.

The consent decree is a unique construct in the legal realm. As a contract wrapped in a judgment, the consent decree has attributes of both. Thus, although a consent decree can casually be labelled a "contract" or a "judgment," one must closely examine the nature of the dispute to determine the implications of the agreement embodied in a consent decree. The parties in the PWC case agreed in the Second Interim Order that the school district had the capacity to levy taxes under the Tort Immunity Act to pay for the costs of complying with the equitable relief contained in that order. The district court, in approving the consent decree, concurred in the parties' understanding that the taxes were authorized by the Tort Immunity Act. It is clear that the tax objectors, who were not parties to the consent decree, are not bound by the consent decree and are entitled to their "own day in court" to challenge actions taken under the decree. Martin v. Wilks, 490 U.S. 755, 762 (1989). But in what forum may such disputes be litigated? The question before us today is whether the court-approved agreement of the parties in the PWC case that the school district could levy the taxes under the Tort Immunity Act (and the district court's "finding" to that effect) permits the removal of the tax objections filed in state court challenging the school district's authority to levy the taxes. We conclude that the tax objections should be remanded to state court.

We begin with the fundamental principle that federal courts are courts of limited jurisdiction. All federal courts, excluding the Supreme Court, derive their jurisdiction from Congress' power under the Constitution to "ordain and establish" inferior courts. U.S. CONST. art. III, sec. 1; Lockerty v. Phillips, 319 U.S. 182, 187 (1943); Abercrombie v. Office of Comptroller of Currency, 833 F.2d 672, 674 (1987). Removal jurisdiction is therefore completely statutory, and we cannot construe jurisdictional statutes any broader than their language will bear. Cook v. Weber, 698 F.2d 907, 909 (7th Cir. 1983). The party seeking removal has the burden of establishing the jurisdiction of the district court, Wellness Community-National v. ...


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