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Phoenix Bond & Indemnity Co. v. Bridge

September 1, 2010


The opinion of the court was delivered by: James F. Holderman, Chief Judge


In these two consolidated cases, Plaintiffs Phoenix Bond & Indemnity Co. ("Phoenix") and BCS Services, Inc. ("BCS") (collectively "Plaintiffs") have sued various Cook County tax lien purchasers asserting claims under the Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. § 1961 et seq., and claims for tortious interference with prospective business advantage under Illinois law. These claims are based on the purchasers' alleged conspiracies to violate the Cook County Treasurer's Single Simultaneous Bidder Rule during various Cook County tax lien sales. The SI Defendants,*fn1 Wheeler Defendants,*fn2 Michael Deluca and Gary Branse, Heartwood 88, LLC and BankAtlantic, the BG Defendants,*fn3 the Sass Defendants,*fn4 and the Salta Defendants*fn5 (collectively "Defendants") each moved for summary judgment on Plaintiffs' RICO and tortious interference claims (Case No. 05 C 4095, Dkt. No. 620; Case No. 07 C 1367, Dkt. Nos. 708, 713, 716, 722, 723, and 725).*fn6 On August 24, 2010, this court issued minute orders in both Phoenix Bond & Indemnity Co. v. Bridge, Case No. 05 C 4095, and the consolidated case, BCS Services, Inc. v. Heartwood 88, LLC, Case No. 07 C1367, granting Defendants' motions for summary judgment. (Case No. 05 C 4095, Dkt. No. 657; Case No. 07 C 1367, Dkt. No. 816.) The reasons for those orders are explained below.


I. Cook County Treasurer's Annual Tax Lien Sales Every year the Cook County

Treasurer's Office sells tax liens at an auction on properties for which the owner, after having been given due notice, has failed to pay real estate taxes. During the auction, potential purchasers bid a percentage penalty which the delinquent owner must pay, in addition to the taxes and interest owed, to the winning purchaser to clear the lien. The winning bidder pays the County the delinquent taxes on the property and then owns the tax lien; it has the opportunity to obtain the tax deed, and thus own the property, if the delinquent owner does not pay the penalty, taxes, and interests within the statutory redemption period. (Case No. 07 C 1367, Dkt. No. 748 ("Pls.' Local R. 56.1(b)(3) Resp. Heartwood") ¶¶ 5-7.)

The penalty percentage that the potential purchasers may bid is capped at a maximum of 18% by statute and a minimum of 0% by County regulation. The winning bids are those at the lowest penalty rate. For liens awarded at the 0% rate, the purchaser of the lien would not make a profit on the penalty percentage of past-due taxes, but could make a profit from the 12% penalty which accrues on subsequent taxes or from enforcement of the lien if the owner fails to redeem the property. (Id. ¶¶ 8, 10, 12.)

Under usual procedures, once there is a winning bidder on a property, the winning bidder must provide notice to the owner of the property in accordance with Illinois law to complete the sale of the tax lien or to later petition for a deed to the property. Within four months and fifteen days of the purchase of the lien, buyers provide notice pursuant to 35 Ill. Comp. Stat. 200/22-5 ("22-5 notice") to the County that the County then mails to the owner. The buyer pays for the mailings to the owner. In addition, if the owner were not to redeem the property within the statutory period and the buyer wishes to petition for a deed, the buyer must file a petition five months before the end of the redemption period and provide notice of the petition pursuant to 35 Ill. Comp. Stat. 200/22-10 ("22-10 notice") to the owners, occupants, or other interested parties to the property. The County sheriff serves the 22-10 notice of the deed petition on the owners, occupants, or interested parties. Certified mail is used to send 22-10 notices to parties residing outside the state.*fn7

Before the tax lien sale held in 2001, the Cook County Treasurer's Office instituted the Single, Simultaneous Bidder Rule ("SSBR"). (See, e.g., Case No. 05 C 4095, Dkt. No. 636 ("SI Defs.' Resp. to Pls.' Local R. 56.1(b)(3)(C) Stmt. of Add'l Facts") ¶39.) The SSBR prevents related entities from bidding at the same time at the auctions:

One tax buying entity (principal) may not have its/his/her/their actual or apparent agents, employees, or related entities, directly or indirectly register under multiple registrations for the intended or perceived purpose of having more than one person bidding at the tax sale at the same time for the intended or perceived purpose of increasing the principal's likelihood of obtaining a successful bid on a parcel.

This rule does not prevent a single bidder from alternating the identity of the buyer for whom they are bidding at any given time, so long as related bidding entities, or entities perceived to be related, are not bidding at the same time. (Case No. 07 C 1367, Dkt. No. 751, Pls.' Com. App. 37 at CCT00029 (emphasis in original).)*fn8

A "Related Bidding Entity" is "any individual, corporation, partnership, joint ventures, limited liability companies, business organizations, or other entities that have a shareholder, partner, principal, officer, general partner or other person or entity having an ownership interest in common with, or contractual relationship with, any other registrant in the . . . Annual Tax Sale." (Id.) All bidders must register with the Treasurer to participate in the auction and, at that time, the bidders must affirm under penalty of perjury compliance with the SSBR. (Id. at CCT00015, CCT00029.)

II. Plaintiffs' Claims Against Defendants

In Case No. 05 C 4095 and consolidated Case No. 07 C 1367, Plaintiffs filed complaints against Defendants, claiming substantive RICO and RICO conspiracy violations with mail fraud as the predicate act against Defendants in addition to asserting claims for tortious interference with prospective business advantage under Illinois law. Specifically, Plaintiffs allege that for the tax lien sales occurring in years 2002 through 2007 various combinations of Defendants formed three different "rigged bidding enterprises" to act together as related bidders and bid on the same properties at the lowest penalty rate in order to increase their share of allotted properties. Those enterprises, according to Plaintiffs, schemed to defraud both the Treasurer and competing buyers of tax liens by falsely representing that they were non-related bidders and falsely affirming to follow the SSBR. Each enterprise's scheme was alleged to be executed through the use of the mail, in that the successful bidders caused to be sent the 22-5 and 22-10 forms to the delinquent owners in order to complete the sale of the tax lien or to petition for a deed to the property. Defendants have moved for summary judgment on these claims.


Under Federal Rule of Civil Procedure 56(c), summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In making this assessment, "[a]ll facts and reasonable inferences are to be construed in favor of the nonmoving party," but "[i]nferences that are supported by only speculation or conjecture will not defeat a summary judgment motion." Fischer v. Avanade, Inc., 519 F.3d 393, 401 (7th Cir. 2008) (quoting South v. Ill. EPA, 495 F.3d 747, 751 (7th Cir. 2007), and McDonald v. Vill. of Winnetka, 371 F.3d 992, 1001 (7th Cir. 2004)).

"[W]hen confronted with a motion for summary judgment, a party who bears the burden of proof on a particular issue may not rest on its pleading, but must affirmatively demonstrate, by specific factual allegations, that there is a genuine issue of material fact which requires trial." Beard v. Whitley County REMC, 840 F.2d 405, 410 (7th Cir. 1988) (emphasis in original). "To put it somewhat less delicately, summary judgment 'is the "put up or shut up" moment in a lawsuit, when a party must show what evidence it has that would convince a trier of fact to accept its version of events.'" Walsh v. Long Term Disability Coverage, 601 F. Supp. 2d 1035, 1046 (N.D. Ill. 2009) (quoting Johnson v. Cambridge Indus., Inc., 325 F.3d 892, 901 (7th Cir. 2003)).


I. Defendants' Motions for Summary Judgment on Plaintiffs' RICO Claims

The RICO statute provides a civil cause of action for "[a]ny person injured in his business or property by reason of a violation of section 1962 of this chapter." 18 U.S.C. § 1964(c).

Section 1962, which contains RICO's criminal provisions, makes it "unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate . . . commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity." § 1962(c). "Racketeering activity," as defined by the statute, covers a number of predicate acts including mail fraud. § 1961. Additionally, under §1962(d), "[i]t [is] unlawful for any person to conspire to violate any of the provisions of [§1962]."

Defendants have moved for summary judgment on Plaintiffs' RICO claims, arguing that Plaintiffs cannot prove that Defendants' alleged violations of the Cook County Treasurer's SSBR proximately caused Plaintiffs' injuries. Specifically, Defendants contend that a number of independent and unaccountable variables prevent Plaintiffs from proving proximate cause, including (1) Plaintiffs cannot establish that the tax liens were awarded pursuant to the "equal allocation" system previously alleged by Plaintiffs; (2) Plaintiffs have no evidence of what remedy the Cook County Treasurer, Maria Pappas, would have imposed for violations of the SSBR (e.g., whether a defendant would have been barred from only one sale, permanently barred, or barred at all);(3) Plaintiffs cannot identify the specific liens they bid on at the 0% penalty rate and lost to a Defendant violating the SSBR; (4) Plaintiffs lack any evidence of how ...

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