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Phoenix Bond and Indemnity Co. v. Pappas

November 09, 1999


Appeal from the Circuit Court of Cook County No. 98 CO 008 The Honorable Francis J. Barth, Judge Presiding.

The opinion of the court was delivered by: Presiding Justice Cousins

The plaintiffs are tax buyers at the annual Cook County tax sale. In response to perceived anti-competitive practices among the bidders at the auction, the Cook County treasurer and ex officio county collector instituted a rule that properties on which multiple, simultaneous identical bids were made would not be sold at the auction. The plaintiffs brought this action seeking an injunction against the enforcement of this rule. The circuit court granted a preliminary injunction, which this court affirmed without opinion.

The defendant, surmising that the plaintiffs might be guilty of collusion, attempted to discover materials that would support her equitable defense of unclean hands. The plaintiffs moved that the discovery requests be quashed, and the circuit court granted their motion. The parties then filed cross motions for summary judgment. The circuit court ruled in favor of the plaintiffs and against the defendant, entering a permanent injunction preventing the collector from enforcing the disputed rule.

The defendant now appeals, arguing that: (1) the trial court erred in granting summary judgment for the plaintiffs and denying her motion for summary judgment; and (2) the trial court erred in quashing her discovery requests.


Many procedures are available to an Illinois county collector to secure payment of delinquent property taxes. See generally D. Karlen & R. Slutsky, Tax Collection and Methods of Enforcement, in Real Estate Taxation (Ill. Inst. for Cont. Legal Educ. 1997). As a first step the collector generally proceeds in rem and files with the circuit court for judgment in the amount of taxes due plus costs and an order authorizing sale in satisfaction of the judgment. If the circuit court grants its approval, the delinquent property goes to a public auction. Rosewell v. Chicago Title & Trust Co., 99 Ill. 2d 407, 410, 459 N.E.2d 966, 967 (1984); 35 ILCS 200/21-190 (West 1996). There, tax buyers who are registered and (in Cook County) satisfy a bond requirement bid upon the property. 35 ILCS 200/21-220 (West 1996). The tax buyers pay the judgment and in exchange receive a tax lien on the property.

A person with an ownership interest in the property may redeem the parcel within two years of the purchase by the tax buyer. Ill. Const. 1970, art. IX, §8; 35 ILCS 200/21-345 et seq. (West 1996). In order to redeem the property, the person must pay to the tax buyer the judgment along with interest, the tax buyer's costs and a penalty which accrues at six-month intervals. If the property is not redeemed within the allowable period, the tax buyer files for a tax deed. The tax deed gives the tax buyer ownership in fee simple subject only to certain exceptions for public easements or covenants running with the land. 35 ILCS 200/22-70 (West 1996).

At the public auction, the tax buyers bid on the rate of penalty they will take at a redemption. The maximum allowable rate is 18% for each six-month period or fraction thereof. 35 ILCS 200/21-215 (West 1996). If there are no bids for a tract at the auction, the property is, in the terminology of the statute, "forfeited to the State." 35 ILCS 200/21-215 (West 1996). The term "forfeited to the State" can be confusing in this context, for title to the parcel does not change hands, and the state does not acquire an interest in the property. When a property is "forfeited," this simply means that other collection methods will be employed to collect the delinquent taxes. 32 Ill. L. & Prac. Revenue §331 (1957).

After a property is declared forfeited, it may be disposed of in several ways. First, in a rarely used provision, when the collector determines that the value of the parcel is less than the amount of delinquent taxes, she sells the property and applies any proceeds to the tax bill in a "special tax sale." 32 Ill. L. & Prac. Revenue §336 (1957); 35 ILCS 200/21-225 (West 1996). Another possibility is that the owner of the delinquent property may redeem it from the county by paying the judgment and a penalty determined at a rate of 12% semi-annually. Also, a tax buyer may acquire a tax lien with a "forfeiture sale." A forfeiture sale is like a purchase at the public auction, except that the penalty rate is set at 12%. The county collector also has the option of proceeding in personam in a civil action against the taxpayer. 35 ILCS 200/21-440 (West 1996).

Property more than two years delinquent may go to a "scavenger sale." 35 ILCS 200/21-260 et seq. (West 1996). The scavenger sale resembles the tax sale auction, but in the scavenger sale the penalty rate is (in effect) set at 6%, and the buyers bid instead on how much of the delinquent taxes they are willing to pay. The bidding starts at half of the delinquent taxes or $250, whichever is greater. Long delinquent property may also be sold at a "tax foreclosure sale[]" (35 ILCS 200/21-75 (West 1996)), which operates similarly to a scavenger sale.

This case concerns the conduct of the Cook County public tax auction. The plaintiffs are tax buyers who bid in the auction of 1996 tax delinquencies, which commenced in January 1998. There were 8 to 12 bidders participating at any particular time. From the beginning of the auction, for almost every tract offered, all the bidders simultaneously bid 18%, the maximum allowable bid, and then no further bids were made. The normal practice at the auction in the case of identical bids is to award the property to the first bidder. However, since the bids were simultaneous, the auctioneer had no way to determine a winner and was forced to award the property at random.

From January 12 to January 20, 95% of the properties went in this fashion. The penalty rate was bid down in only 5% of the cases. On January 21, the auctioneer made the following announcement:

"As you are all aware the statute provides that during this sale the property in question shall be awarded to the bidder who bids the least penalty percentage. In accordance with the statute, the following procedure will be implemented.

Only the person offering to pay the amount due on each property for the least penalty percentage will be the successful purchaser of that property.

No bid shall exceed 18% and if multiple simultaneous bids of the same percentage are made, no one of these bids being the least, none will be accepted.

If multiple simultaneous bids are received at the same percentage, bidders will be given an opportunity to bid at a lower percentage and if no bid of a lower percentage is received, the property will be forfeited."

After this rule was instituted, only four properties were forfeited due to multiple simultaneous bids. By January 26, 1998, fewer than 1% of the properties sold were for 18% penalty, and in each case there was a clear winning bid. The four plaintiffs filed this action for an injunction to prevent enforcement of the rule. On January 27, 1998, the plaintiffs obtained a temporary injunction blocking enforcement of the rule. Immediately thereafter the tax buyers resumed making multiple simultaneous bids at 18%. The Cook County treasurer ex officio county collector (the collector) appealed the grant of the ...

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