Appeal from the Circuit Court of Du Page County. No. 04-L-620 Honorable Edward R. Duncan, Jr., Judge, Presiding.
The opinion of the court was delivered by: Presiding Justice Grometer
This appeal involves a dispute as to the amount, if any, of additional franchise tax due under the Illinois Business Corporation Act of 1983 (Business Corporation Act) (805 ILCS 5/1.01 et seq. (West 2004)) as a result of the merger of Nalco Neighborhood Development Corporation (Neighborhood) into plaintiff, NDC LLC, d/b/a Nalco NDC LLC (NDC or plaintiff). NDC filed a multiple-count complaint against defendants, Judy Baar Topinka, as Treasurer of the State of Illinois (Treasurer), and Jesse White, as Secretary of State of Illinois (Secretary), pursuant to the State Officers and Employees Money Disposition Act (Protest Act) (30 ILCS 230/1 et seq. (West 2004)), seeking, inter alia, reimbursement of additional franchise taxes paid, under protest, on Neighborhood's behalf. Defendants appeal from the order of the circuit court of Du Page County granting plaintiff's motion for summary judgment. For the reasons set forth below, we affirm in part, reverse in part, and remand with directions.
The following facts are taken from the pleadings, depositions, affidavits, and exhibits contained in the record on appeal. Prior to March 2004, Neighborhood was a Delaware corporation authorized to do business in Illinois. Neighborhood was a subsidiary of Nalco Company and had its principal place of business in Naperville, Illinois. Beginning in October 2003, Neighborhood underwent a corporate reorganization. Before the reorganization, Neighborhood had reported to the Secretary paid-in capital in the amount of $509,997, represented by 20 shares of $1 par value common stock. As part of the reorganization, Neighborhood cancelled all of its then-outstanding 20 shares of $1 par value common stock and authorized the issuance of 40,000 shares of new $0.01 par value common stock. On or about October 31, 2003, Neighborhood issued 10 shares of $0.01 par value common stock in exchange for the 20 shares of the outstanding $1 par value common stock. On November 4, 2003, Neighborhood issued 6,036.46 shares of its $0.01 par value common stock in exchange for consideration in the amount of $301,823,000. On November 11, 2003, Neighborhood issued 22,650 shares of its $0.01 par value common stock in exchange for consideration in the amount of $1,132,867,759. As a result of these transactions, Neighborhood's paid-in capital increased from $509,997 to $1,435,200,756. In furtherance of the corporate reorganization, on March 29, 2004, Neighborhood was merged into NDC, a newly formed Delaware limited liability company. NDC, whose principal place of business was also in Naperville, was created immediately prior to the merger and pursuant to an "Agreement and Plan of Merger" between NDC and Neighborhood. On March 29, 2004, Neighborhood and NDC filed with the appropriate Delaware authority a "Certificate of Merger of Nalco Neighborhood Development Corp. into NDC LLC" (Certificate).
On March 30, 2004, the Certificate was submitted to the Secretary's Department of Business Services (Department). An employee of the Department issued a handwritten note indicating that the Department would not accept the Certificate until form BCA--14.30 was filed, showing any changes to Neighborhood's paid-in capital that had occurred since the filing of Neighborhood's last annual report. Form BCA--14.30, captioned "Cumulative Report of changes [sic] in Issued Shares and Paid-In Capital," requires the payment of additional franchise tax if the cumulative change to paid-in capital during certain specified reporting periods is positive. See www.cyberdriveillinois.com/publications/pdf_publications/bca1430.pdf. Early in May, NDC prepared a draft of form BCA--14.30, in the name of Neighborhood, showing the changes that had occurred to Neighborhood's paid-in capital, including the increases and the decreases in paid-in capital resulting from the reorganization and merger. A net decrease in paid-in capital was reported on the draft form, resulting in no franchise tax due and owing. Pursuant to an informal practice, NDC tendered the draft to the Department. At that time, Robert Durchholz, the head of the Department's corporate division, told NDC that the proposed reduction in paid-in capital did not comply with the Business Corporation Act. Thereafter, a representative of NDC met with Durchholz to discuss the proposed filing. Durchholz stated that the form would not be approved for filing as long as it showed a reduction in paid-in capital resulting from the merger.
On May 28, 2004, NDC tendered for filing under protest form BCA--14.30, showing the changes to Neighborhood's paid-in capital from April 1, 2003, through and including March 29, 2004, the date of the merger, but not including the effect of the merger itself. NDC indicated on the form that it was being "filed under protest because taxpayer is entitled, and should have been allowed, to report a reduction in paid-in capital on this form in the amount of $1,435,200,756." NDC included a statutory "Notice of Payment Under Protest" and a corresponding check in the amount of $2,152,041, which included a $5 filing fee. See 30 ILCS 230/2a.1 (West 2004). Later that day, Durchholz rejected in writing the form and payment, stating that the form would not be accepted unless the protest language were removed and the $5 filing fee were omitted from the protested payment. Whereupon, NDC tendered for filing the same form without the protest language as well as a check for $2,152,041, of which $2,152,036 (the disputed tax) was paid under protest pursuant to the Protest Act. Durchholz approved the form for filing on May 28, 2004, and accepted the "Notice of Payment Under Protest" and corresponding retendered check. NDC's payment was placed by the Treasurer in a special fund known as the "protest fund" for 30 days from the date of payment under protest, pending entry of an order for injunctive relief. See 30 ILCS 230/2a (West 2004).
On June 11, 2004, NDC filed a four-count complaint in the circuit court of Du Page County. The complaint, which named the Treasurer and the Secretary as defendants, sought a preliminary injunction restraining the transfer of the disputed tax from the protest fund until the entry of a final order or judgment in this action. NDC also sought a determination by the court as to the proper disposition of such monies. According to NDC, the reduction in paid-in capital Neighborhood experienced when it was merged into NDC could be used to offset increases in Neighborhood's paid-in capital resulting from the reorganization occurring during the same taxable period. See 805 ILCS 5/14.30 (West 2004). Plaintiff also argued that (1) the franchise tax was improperly imposed on NDC, which, as a limited liability company, was not subject to the tax, and (2) the Secretary's interpretation and application of the Business Corporation Act violated the uniformity clause of the Illinois Constitution of 1970 (Ill. Const. 1970, art. IX, §2) and/or the equal protection clauses of the United States and Illinois Constitutions (U.S. Const., amend XIV; Ill. Const. 1970, art. I, §2). On June 15, 2004, the trial court entered a preliminary injunction enjoining the Treasurer from transferring out of the protest fund the money paid by NDC under protest.
On October 15, 2004, defendants filed a motion to dismiss NDC's complaint pursuant to sections 2--619(a)(1) and 2--619(a)(9) of the Code of Civil Procedure (735 ILCS 5/2--619(a)(1), (a)(9) (West 2004)). In their motion, defendants argued that (1) the matter was not ripe because the Secretary had not "given written notice of any disapproval as to Neighborhood's filing" and (2) plaintiff 's payment of the disputed tax was voluntary. The trial court denied defendants' motion to dismiss. Subsequently, the parties filed cross-motions for summary judgment. On November 4, 2005, the trial court granted plaintiff's motion for summary judgment and denied defendants' motion. Thereafter, defendants filed a timely notice of appeal.
A. Exhaustion of Administrative Remedies
On appeal, defendants first argue that this matter is not ripe for judicial review because plaintiff did not exhaust its administrative remedies. Defendants concede that where there is a notice of assessment regarding funds due the State of Illinois, the Protest Act "potentially" provides an alternate mechanism of review, apart from the administrative process. It is the position of defendants, however, that this case involves, not the assessment of a tax, but the discretion of the Secretary to accept a particular form for filing. Since the Secretary never issued to plaintiff an assessment of funds due, defendants conclude that plaintiff should not be allowed to invoke the Protest Act as a way to circumvent the Administrative Review Law (735 ILCS 5/3--101 et seq. (West 2004)).
Plaintiff responds that defendants waived their exhaustion claim by expressly representing to the trial court at the hearing on their motion to dismiss that they were not arguing exhaustion of administrative remedies. Waiver aside, plaintiff asserts that this case involves the payment of a disputed tax. According to plaintiff, the Illinois Supreme Court has expressly held that the Protest Act provides an alternative to the Administrative Review Law for seeking judicial review of such matters. Additionally, plaintiff contends that by paying the additional franchise tax under protest, it notified the Secretary that it disputed the payment of the tax, and the Secretary, by filing the form BCA--14.30 plaintiff tendered, determined that plaintiff did in fact owe the tax. Our review is de novo. National City Corp. & Subsidiaries v. Department of Revenue, 366 Ill. App. 3d 37, 39 (2006) (concluding that issues involving statutory interpretation, a ruling on a motion to dismiss, and ripeness are reviewed de novo).
Initially, we address plaintiff's suggestion that defendants waived their exhaustion claim. Defendants' initial argument focuses on exhaustion of administrative remedies. It has been held that "[t]he principles of ripeness and exhaustion of remedies are closely related in that both involve the general issue of the prematurity of the action." Schwanke, Schwanke & Associates v. Martin, 241 Ill. App. 3d 738, 748 (1992). The issue of ripeness is a question of subject matter jurisdiction. See Village of Maywood Board of Fire & Police Commissioners v. Department of Human Rights, 296 Ill. App. 3d 570, 575 (1998). Ergo, the issue of exhaustion of remedies must also present a question of subject matter jurisdiction. See Jagielnik v. Board of Trustees of Police Pension Fund, 211 Ill. App. 3d 26, 32 (1991); see also Gerardi v. City of Bridgeport, 99 Conn. App. 315, 317, 913 A.2d 1076, 1079 (2007) (noting that exhaustion of administrative remedies implicates subject matter jurisdiction), quoting Neiman v. Yale University, 270 Conn. 244, 250, 851 A.2d 1165, 1169 (2004); Blue Cross Blue Shield of Texas v. Duenez, 201 S.W.3d 674, 675 (Tex. 2006); Green v. City of St. Louis, 870 S.W.2d 794, 796 (Mo. 1994). Our supreme court has often held that issues of subject matter jurisdiction may not be waived. Segers v. Industrial Comm'n, 191 Ill. 2d 421, 427 (2000); Currie v. Lao, 148 Ill. 2d 151, 157 (1992); Smith v. Jones, 113 Ill. 2d 126, 130 (1986). Accordingly, we will address this issue.
The Administrative Review Law applies to and governs "every action to review judicially a final decision of any administrative agency where the Act creating or conferring power on such agency, by express reference, adopts the provisions of *** this Act." 735 ILCS 5/3--102 (West 2004). As the aforementioned passage suggests, the Administrative Review Law requires a "final" agency determination before judicial review may commence. Absent a final agency determination, the trial court lacks jurisdiction to consider the matter. Jagielnik, 211 Ill. App. 3d at 32.
The Business Corporation Act adopts the Administrative Review Law. 805 ILCS 5/1.45 (West 2004). However, by its express terms, the scope of section 1.45 is limited to situations in which the Secretary "revoke[s] the certificate of authority to transact business in this State of any foreign corporation" or "fail[s] to approve any articles of incorporation, amendment, merger, consolidation, dissolution, petition for reduction or refund, or any other document required by [the Business Corporation Act] to be approved by the Secretary *** before same shall be filed in his or her office." (Emphasis added.) 805 ILCS 5/1.45 (West 2004); see also Roanoke Agency, Inc. v. Edgar, 101 Ill. 2d 315, 317 (1984); Investors Syndicate of America, Inc. v. Hughes, 378 Ill. 413, 417 (1941).*fn1 The former situation is not at issue here. In a case in which the Secretary fails to approve a filing, he must, within 10 days of delivery, give written notice of the disapproval, specifying the reasons therefor. 805 ILCS 5/1.45 (West 2004). The Secretary's decision is then subject to judicial review under the Administrative Review Law. 805 ILCS 5/1.45 (West 2004).
In this case, pursuant to an informal practice of the Department, NDC, acting on Neighborhood's behalf, tendered to the Secretary a draft of form BCA--14.30. The draft showed a net decrease in paid-in capital. At that time, Durchholz told NDC that the proposed reduction in paid-in capital did not comply with the Business Corporation Act. Thereafter, a representative of NDC met with Durchholz to discuss the proposed filing. Durchholz stated that the form would not be approved for filing as long as it showed a reduction in paid-in capital resulting from the merger. NDC then tendered the form with the changes suggested by Durchholz. However, NDC indicated on the face of the form that it was being filed under protest. Attached to the form was a statutory "Notice of Payment Under Protest" and a corresponding check in the amount of $2,152,041, which included a $5 filing fee. In response, Durchholz issued a written statement on the Secretary's letterhead, rejecting the form and the payment. Durchholz explained that the form would not be accepted unless the protest language were removed and the $5 filing fee were omitted from the protested payment. NDC revised the form to comport with Durchholz's request. It then tendered the revised form to the Secretary together with a check for $2,152,041, of which $2,152,036 was paid under protest pursuant to the Protest Act. A stamp bearing the word "filed," the date of May 28, 2004, and the Secretary's name appear on the revised form. In addition, the Secretary accepted the "Notice of Payment Under Protest" and corresponding retendered check. These acts of the Secretary indicate that he "approved" the revised form for filing. See 805 ILCS 5/1.10(e)(3) (West 2004) (requiring the Secretary to find that a document "conforms to law" before filing it). Stated differently, because the Secretary did not "fail to approve" the form tendered by plaintiff, plaintiff was not required to exhaust its administrative remedies before seeking relief in the circuit court.
Our conclusion is supported by the Protest Act (30 ILCS 230/1 et seq. (West 2004)) and the cases interpreting that statute. The Protest Act applies to, among others, the "officers of the Executive Department of the State Government" (30 ILCS 230/1 (West 2004)), including the Secretary (see Ill. Const. 1970, art. V, §1 (listing the Secretary as a member of the executive branch)). See E & E Hauling, Inc. v. Ryan, 306 Ill. App. 3d 131 (1999); Venture Stores, Inc. v. Ryan, 286 Ill. App. 3d 673 (1997). The Protest Act provides a mechanism for a party to challenge the propriety of money paid to the State of Illinois. To do so, the party must tender the money under protest. 30 ILCS 230/2a, 2a.1 (West 2004). The recipient of funds paid under protest must then notify the Treasurer. 30 ILCS 230/2a (West 2004). The Treasurer then places the money in a special fund known as the "protest fund." 30 ILCS 230/2a (West 2004). At the end of 30 days after payment, the money may be transferred out of the protest fund and deposited into the appropriate fund in which it would have been placed had there been payment without protest, unless the party making the payment under protest has filed a complaint and secured a temporary restraining order or a preliminary injunction restraining the transfer of the money. 30 ILCS 230/2a (West 2004). Once a temporary restraining order or preliminary injunction is issued, the money must remain in the protest fund until the final judgment of the circuit court. 30 ILCS 230/2a (West 2004). In this case, it is undisputed that plaintiff followed the procedure outlined in the Protest Act.
In Chicago & Illinois Midland Ry. Co. v. Department of Revenue, 63 Ill. 2d 474, 478 (1976), the supreme court held that a taxpayer may seek under the Protest Act a judicial determination of the propriety of a disputed tax without first exhausting its administrative remedies. In that case, the Department of Revenue informed the taxpayer that an audit of its books showed a use tax deficiency. The taxpayer paid the tax under protest before it received a formal notice of tax liability. It then sought a temporary injunction and a judicial determination of the dispute, pursuant to the Protest Act. The defendants argued that the Department of Revenue, rather than the circuit court, should determine the disposition of the protested funds because the taxpayer had not exhausted its administrative remedies. The supreme court disagreed, stating that the Protest Act allowed courts "to consider the merits of a claim in those cases where no final administrative decision has been made" and that the Protest Act gives taxpayers "an alternative to the departmental hearings reviewable under the Administrative Review Act." Chicago & Illinois Midland Ry., 63 Ill. 2d at 482, 484.
Chicago & Illinois Midland Ry. has yet to be overturned. Indeed, its continuing vitality was recently confirmed in National City, 366 Ill. App. 3d 37. At issue in National City was whether the taxpayer was required to exhaust its administrative remedies prior to filing a cause of action under the Protest Act when challenging its income tax liability. National City, 366 Ill. App. 3d at 38. In National City, the Department of Revenue sent the taxpayer a notice of proposed deficiency after auditing its tax return. In a letter accompanying the notice, the Department of Revenue advised the taxpayer that it could pay the deficiency under protest, but that, in any case, it must pay the entire tax and any interest within six days. The taxpayer paid the deficiency under protest and filed a complaint pursuant to the Protest Act, seeking to enjoin the Department of Revenue from transferring from the protest fund the money paid under protest. The Department of Revenue filed a motion to dismiss the complaint. The trial court denied the motion to dismiss and entered a preliminary injunction. The Department of Revenue appealed, arguing that the taxpayer's complaint was not ripe for adjudication because it had not yet issued a final notice of deficiency subject to judicial review.
In addressing the Department of Revenue's argument, the court examined the statutes and regulations governing protested tax liabilities and examined previous decisions interpreting the Protest Act. The court agreed that the Department of Revenue had not issued a final decision subject to administrative review. National City, 366 Ill. App. 3d at 42. Yet, the court pointed out, the taxpayer brought its action pursuant to the Protest Act, not the Administrative Review Law, and the Protest Act does not, on its face, require the issuance of a final notice of deficiency for a taxpayer to avail itself of the statute's provisions. National City, 366 Ill. App. 3d at 43. Therefore, the court determined that the informal notice of proposed tax liability was sufficient to confer jurisdiction under the Protest Act because the notice alerted the taxpayer of the Department of Revenue's belief that the taxpayer owed taxes on income the taxpayer believed was not taxable. National City, 366 Ill. App. 3d at 46-47.
While neither Chicago & Illinois Midland Ry. nor National City involved the payment of a franchise tax, the courts of this state have adjudicated franchise tax disputes under the Protest Act. For instance, in Venture Stores, Inc., 286 Ill. App. 3d at 676, the taxpayer, who was contesting a payment of the franchise tax, was permitted to proceed under the Protest Act despite the absence of a formal assessment. In that case, the taxpayer reported to the Secretary a reduction in paid-in capital. The taxpayer tendered its franchise tax based on the reduced paid-in capital. The Secretary's office refused to approve the reduction in paid-in capital. As a result, the taxpayer paid under protest the amount required by the Secretary, in accordance with the Protest Act. The matter was resolved by the circuit court even though the Secretary did not issue an assessment. Similarly, in Jewel Tea Co. v. Rowe, 414 Ill. 495, 496-99 (1953), the taxpayer reported a net increase in stated capital and paid-in surplus of $2,500,000. The taxpayer based on the net increase its calculation of the additional franchise tax due. The Secretary refused to accept the taxpayer's report on the basis that the version of the Business Corporation Act then in effect required that a reduction in the amount of stated capital and paid-in surplus be reported separately from an increase in the amount of stated capital and paid-in surplus. As a consequence of the Secretary's interpretation, the taxpayer was required to report a net increase in stated capital and paid-in surplus of $7,500,000. The taxpayer tendered, under protest, a check to the Secretary for additional franchise tax based on the increase of $7,500,000. The taxpayer then filed suit in the circuit court "to restrain payment into the State treasury and to secure a refund of the disputed amount." Jewel Tea Co., 414 Ill. at 496. Likewise, courts in several other cases, including the following, have permitted the taxpayer to adjudicate a franchise tax dispute under the Protest Act: (1) Illinois Bell Telephone Co. v. Powell, 48 Ill. 2d 375 (1971); (2) United States Borax & Chemical Corp. v. Carpentier, 14 Ill. 2d 111 (1958); (3) E & E Hauling, 306 Ill. App. 3d 131; (4) Caterpillar Finance Corp. v. Ryan, 266 Ill. App. 3d 312 (1994); (5) Allstate Enterprises Stock Fund, Inc. v. Lewis, 36 Ill. App. 3d 154 (1976); and (6) Yellow Equipment & Terminals, Inc. v. Lewis, 35 Ill. App. 3d 875 (1976).
Defendants attempt to distinguish all of the aforementioned cases. Defendants first point out that none of the cases reviewing franchise tax matters under the Protest Act addressed a "ripeness" argument. Thus, defendants reason that those decisions cannot speak to the matters raised in this appeal. However, an appellate court has an independent duty to insure that jurisdiction is proper regardless of whether either party has raised the issue on appeal. See People v. Aldama, 366 Ill. App. 3d 724, 725 (2006); National City, 366 Ill. App. 3d at 46. The fact ...