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ALEXANDER v. PHOENIX BOND & INDEMNITY

July 3, 2001

EDWARD P. ALEXANDER AND MARILYN M. ALEXANDER, ON BEHALF OF THEMSELVES AND OTHER SIMILARLY SITUATED INDIVIDUALS, PLAINTIFFS,
v.
PHOENIX BOND & INDEMNITY COMPANY, NATIONAL INDEMNITY CORPORATION, MIDWEST REAL ESTATE INVESTMENT COMPANY, MILFORD ARDELL, ALLEN KAPLAN AND FRED SHANDLING, INDIVIDUALLY AND D/B/A REGENT PROPERTIES, REGENT PROPERTIES, CAPITAL ASSET RESEARCH CORPORATION, LTD., OAK PARK INVESTMENTS, INC., BARRETT ROCHMAN, INDIVIDUALLY AND D/B/A S.I. SECURITIES, S.I. SECURITIES, INC., FIRST FINANCIAL FUNDING CO., DAVID GRAY AND BONNIE GRAY D/B/A PARTNERS, C.B.B.B., INC., D.S. TAX ASSOCIATES, LTD., NOBLE TAX INVESTORS, INC., DEFENDANTS.



The opinion of the court was delivered by: Wayne R. Andersen, District Judge

    MEMORANDUM OPINION AND ORDER

This case is before the Court on a collective motion for summary judgment filed by all remaining defendants and individual motions for summary judgment. In this case, plaintiffs allege violations of the Sherman Act and the Illinois Antitrust Act. Plaintiffs allege that defendants conspired to fix the bidding rate at the 1996 Annual Cook County Property Tax Sale. In support of their allegations, plaintiffs highlight the fact that the average winning bid rate at the 1996 Tax Sale was 15.71%, compared to the average rates of 2.1% and 3.11% for the two previous years. For the following reasons, defendants' motions for summary judgment are granted in part and denied in part.

BACKGROUND

I. General Tax Sale Background

The Cook County Collector has a variety of procedures to obtain payment of delinquent property taxes. Phoenix Bond and Indemnity et al v. Pappas, 2000 Ill. App. Lexis 35, *1 (Illinois Appellate Court 1st Dist. 2000). The Collector will generally proceed in rem and file, in the Circuit Court of Cook County, for a judgment in the amount of taxes due plus costs and obtain a court order authorizing sale in satisfaction of the judgment. Id. If the Circuit Court grants approval, the delinquent taxes go to public auction. Pursuant to the Illinois Property Tax Code, the Collector publishes a list of parcels for which property taxes are delinquent. The Collector also publishes notice of its intention to apply for a judgment and order of sale of the tax delinquent properties. 35 ILCS 200/21-110 (West 2001). The delinquent properties are then sold at the Cook County Annual Tax Sale.

Under the rules of the auction, the auctioneer will not seek a lower bid. The bidding is descending, which means that the bidding starts with the highest penalty rate and then makes its way downward. Buyers shout out penalty rates. The buyer to shout the lowest rate is granted the property. If tie bids are shouted simultaneously and no lower bid is submitted, the auctioneer will select the winning bidder in a manner so that no particular bidder obtains a disproportionate share of the properties available.

If no bid is made on a property, that property is forfeited. There are several options for the Collector after a forfeit, but the only one that concerns this lawsuit is that tax buyers may redeem the forfeited property from the County and receive a statutorily set 12% penalty rate.

In order to participate in the Cook County Annual Tax Sale, prospective bidders must file an irrevocable letter of credit or bond at least ten days prior to participating in the auction. 35 ILCS 200/21-220 (West 2001). The amount of the letter of credit must be 1.5 times the value of the total tax due on any and all properties purchased. Id. It is the responsibility of the tax buyer to maintain credit in the amount of 1.5 times the value of any unpaid portion of tax, from which the Collector can draw in the event payment is not made forthwith by the tax buyer. Id.

A new auction participant emerged in the 1992 Annual Tax Sale, held in 1994, and changed the dynamic of the tax sale. One of the defendants, Capital Asset Research Corporation, joined the Cook County sale for the first time. Its goal was to garner as many tax certificates as it could. Capital Asset registered multiple bidders for the sale. Registering multiple bidders is a strategy employed to garner more than a pro rata share of the taxes because, if the bids are tied, then the auctioneer attempts to divide equally the properties between the registered bidders. If one corporation has several bidders present, then each of those bidders will receive a share of the divided properties. Capital Asset also employed a strategy of bidding the properties down, which led to much lower penalty rates at auction.

Capital Asset's success led other tax buyers to follow suit and register multiple bidders. This led to even lower average winning rates. Defendants' expert has calculated the average winning bid rates from 1984 through 1996. Plaintiffs's expert calculated the distribution of winning bids, but only calculated those figures for the period between 1989 and 1996. We first list the most common bid followed by the percent of all properties in which that penalty rate was the winning bid.

YEAR Properties Sold Average Winning Most Common Bid Rate Winning Bid
1984 17,099 11.23% 1985 17,853 8.48% 1986 20,008 9.95% 1987 20,084 10.43% 1988 19,186 12.51% 1989 23,140 12.14% 18% (41.73%) 1990 22,500 11.14% 18% (41.51%) 1991 27,442 8.20% 18% (28.40%) 1992 21,852 4.12% 0% (54.01%) 1993 22,044 3.98% 0% (58.65%) 1994 24,797 3.11% 0% (73.03%) 1995 26,159 2.10% 0% (79.73%) 1996 28,287 15.71% 18% (78.19%)
II. Plaintiffs' Timeline for the 1996 Annual Tax Sale

Plaintiffs argue that defendants had multiple opportunities to conspire before the beginning of the 1996 Tax Sale. Most of the defendants had principals and agents researching properties in records maintained in the Cook County Clerk's office on the 4th floor of the County Building at the same time. Many deponents testified that they would see and converse with employees or agents of other tax buyers. Furthermore, several defendants had formerly worked for or with other defendants. For example, Alexander, employed by National Indemnity Corporation, had formerly been employed by Phoenix Bond. Kovacevic, employed by Phoenix Bond, had bid for Midwest at previous sales.

The principals of many of the defendants also had various connections. Many defendants participated in trade organizations. Furthermore, some of the defendants were friends. However, plaintiffs have failed to provide any evidence which suggests that the social activities were involved in this alleged conspiracy, but they argue that the social activities serve as evidence that defendants had the opportunity to conspire.

On January 6, 1998, Ardell and Kaplan, of Regent, and Michael Nadler, Capital Assets' National Risk Manager, had lunch. Plaintiffs allege, without direct evidence, that the parties agreed to forego the use of multiple bidders at this meeting. Ardell and Kaplan testified that they discussed issues unrelated to the upcoming Cook County Tax Sale.

On January 9, 1998, Berland of National informed Cruz, National's lead bidder, that she would be National's only bidder. On January 2, 1998, National had registered 21 bidders for the Tax Sale.

The 1996 Annual Tax Sale began on January 12, 1998. On the first property offered for sale at the Tax Sale plaintiffs allege that Regent, Midwest, Phoenix Bond and First Financial simultaneously entered identical bids for 18%. First Financial, Phoenix Bond and Regent deny that they bid on the first item offered for sale.

Most defendants registered multiple bidders for the Tax Sale, but only Q.T.S. (An original defendant which has settled with the plaintiffs) and Regent actually sat their multiple bidders in the bidding area. Only Q.T.S. actually used its multiple bidders to bid on properties. Defendants allege that three others, Midwest, Phoenix Bond and Capital Asset, brought multiple bidders, but had them wait in another room, uninvolved, at the beginning of the sale.

Q.T.S., through its multiple bidders, won a large share of the initial properties. After one of the multiple bidders won an item, Cheryl Prosen, Q.T.S.'s lead bidder, had a conversation with Andrew Marks. Marks asked Prosen why she was using multiple bidders. Prosen responded that she could bring as many bidders as she wanted to the Tax Sale. Marks responded by stating: "[w]ell, we can bring as many bidders as we want to a sale, too, and if you keep them here, we will." The parties disagree about the appropriate interpretation of Marks' statement. Plaintiffs argue that Marks was referring to the conspiracy, but defendants argue he was merely referring to the family business. Plaintiffs further argue that the conversation is proof of the conspiracy policing its members because Q.T.S., after the conversation, sent away its multiple bidders.

The 1996 Sale, like all Cook County Tax Sales, began with properties located in Barrington. Thirty-three out of the first thirty-six properties sold at 18%. From January 12 to January 20, 1998, 95% of the properties were bought by a simultaneous bid of 18%. On January 21, the auctioneer made this statement:

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.

The Tax Collector instituted the rule in order to guarantee and promote competitiveness. The imposition of the forfeiture rule led to lower bids. Furthermore, after the forfeiture rule was instituted, only four properties were forfeited due to multiple simultaneous bids. On the second day of the forfeiture rule, January 22, 1998, three items in a row and one later received only simultaneous bids at 18%. These items were forfeited despite the fact that the auctioneer gave the group the opportunity to go lower. The next day, Cruz of National bought the four items "over the counter". Therefore, she received a penalty rate of 12% for those four properties.

Phoenix Bond, Midwest, Oak Park and S.I. brought an action for a temporary restraining order and a permanent injunction in the Circuit Court of Cook County. The four forfeited items formed the basis for their complaint. On January 27, 1998, the plaintiffs obtained a temporary restraining order blocking enforcement of the forfeiture rule. Immediately thereafter, tax buyers resumed making simultaneous 18% bids. A string of nearly 500 items in a row were bought at 18%.

Plaintiffs submitted several sets of numbers comparing the 1996 Tax Sale to the 1995 Tax Sale. At the 1996 Annual Tax Sale, 78.19% of properties sold for 18% penalty rate. At the 1995 Sale, 79.73% of the properties sold for 0% penalty rate. At the 1995 Sale, there were only three runs of 10 or more items in a row sold at 18%. At the 1996 Sale there were 426 such runs.

III. Procedural Background
A. State Case

Maria Pappas, the Cook County Treasurer and ex-officio County Collector of Cook County, appealed the Circuit Court decision granting the TRO and summary judgment in favor of the tax buyers. The Illinois Appellate Court reversed the Circuit Court and ordered entry of summary judgment in favor of the County Collector. Phoenix Bond and Indemnity Co. et al v. Pappas, 2000 Ill. App. Lexis 35, *21 (1st Dist. 2000). The tax buyers appealed that decision to the Illinois Supreme Court. The Illinois Supreme Court affirmed the Illinois Appellate Court, finding that the County Collector had the authority to institute the forfeiture rule. Phoenix Bond & Indemnity Co., et al v. Pappas, 2000 Ill. Lexis 1715, *9 (2000).

B. Federal Case

Alexander, on behalf of himself and similarly situated plaintiffs, filed his First Amended three-Count Complaint before this court on July 22, 1998. In Count I, he alleged a violation of Section 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, and sought treble damages under Section 15 of the Clayton Act, 15 U.S.C. § 15. In Count II, he alleged a violation of Section 10/3(1) of the Illinois Antitrust Act, 740 ILCS 10/3(1) (West 2001). In Count III, he alleged a violation of Section 10/3(2) of the Illinois Antitrust Act, 740 ILCS 10/3(2) (West 2001). As a remedy for the violations alleged in Counts II and III, he sought treble damages under Section 7 of the Illinois Antitrust Act, 740 ILCS 10/7 (West 2001).

On September 30, 1999, we granted plaintiffs' motion for class certification in part and certified a class consisting of all property owners or other persons responsible for payment of real estate taxes for property located in Cook County, Illinois whose taxes for the tax year 1996 were sold by the Cook County Treasurer at the 1996 Annual Tax Sale for a penalty rate greater than 0%.

DISCUSSION

Summary judgment is appropriate when the pleadings and supplemental material present no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317 (1986). To survive a defendant's motion for summary judgment, a plaintiff must present sufficient evidence to show the existence of each element of its case on which it will bear the burden at trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-86 (1986). Because this case comes to us on defendants' motions for summary judgment, "[t]he evidence of [respondents] is to be believed, and all justifiable inferences are to be drawn in [their] favor." Anderson v. Liberty Lobby. Inc., 477 U.S. 242, 255 (1986).

The parties dispute what standard we should apply to a summary judgment on an antitrust case. Plaintiffs reference an old standard disfavoring the use of summary judgment for antitrust claims. Plaintiffs note the that the Supreme Court has stated that "summary procedures should be used sparingly in complex antitrust litigation where motive and intent play leading roles, the proof is largely in the hands of the alleged conspirators, and hostile witnesses thicken the plot . . . Trial by affidavit is no substitute for trial by jury ...


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