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Fiala v. B & B Enterprises

United States Court of Appeals, Seventh Circuit

December 26, 2013

Ed FIALA, Plaintiff-Appellee,
v.
B & B ENTERPRISES, et al., Defendants-Appellants.

Argued Nov. 19, 2013.

Page 848

Brianne M. Connell, James P. Newman & Associates, St. Charles, IL, for Plaintiff-Appellee.

Robert K. Villa, Griffin Villa Williams LLP Geneva, IL, for Defendants-Appellants.

Before POSNER, WILLIAMS, and HAMILTON, Circuit Judges.

POSNER, Circuit Judge.

This appeal arises out of a RICO class action suit that the district judge dismissed without deciding whether to certify it as a class action. The appeal is from the judge's denial of the defendants' application for an award of their attorneys' fees under Fed.R.Civ.P. 11.

The principal defendant, B & B Enterprises, is a residential real estate developer, mostly of high-end custom-home subdivisions. Active in Wasco, a community in northeastern Illinois, in 1994 B & B (actually a company controlled by it but we can ignore that detail) received from the Wasco Sanitary District permits to connect to the district's sewage system almost 800 houses and other buildings that B & B and other developers were building in a subdivision called Fox Mill. (Some allegations concern other subdivisions in the same general area, but, again to simplify the opinion, we'll refer to all the subdivisions as Fox Mill.) In 2010 plaintiff Fiala, the owner of a home in Fox Mill, joined by Tim Kobler Custom Houses, a homebuilder, brought this suit charging that B & B

Page 849

(and other developers, whom we can ignore) had violated RICO by engaging in a " pattern of racketeering activity" (in RICO-speak) consisting of bribery, theft, and fraud, all designed to deprive homeowners and builders of property. 18 U.S.C. § 1962. Kobler has since dropped out of the case, leaving Fiala as the sole plaintiff and appellee.

The alleged scheme involved what are called " Population Equivalents" (" PEs" )— specified quantities of sewage (generally 100 gallons per day) that a house or other building (this case is just about houses, however) is estimated to dump into the local sewage system. 225 ILCS 225/3(6); 35 Ill. Admin. Code § 301.345. The more PEs that a house connected to the system produces, the larger and so more costly the system must be to handle all the wastewater discharged into it, and therefore the higher the fee that the sanitary district would be apt to charge for a permit to connect the house to the district's sewage system. The fee is charged to the builder and thus becomes one of the costs that he tries to recoup in the price that he charges for the house.

The Wasco Sanitary District decided to allot 3.5 PEs to each house that would be built in its district because that is the allotment that the state recommends, though does not require, for single-family houses. 35 Ill. Admin. Code § 370, Appendix A.

The complaint alleges that B & B had, mainly through family connections, improperly taken control of the Wasco Sanitary District and used that control to divert to itself permit fees that should have gone to the district to finance an expansion of its sewage system. As Fox Mill expanded, the number of PEs that the sanitary district could grant without having to expand its sewer system ran out; the system was surfeited. B & B, the suit charged, decided— so that it could continue the expansion of Fox Mill— to " steal" PEs from existing homes and sell the stolen PEs to builders, like Kobler. The " stolen" PEs would enable the builder to obtain a sewage permit for the buyer of each of the houses he built.

Why was B & B (allegedly) doing this?

Suppose a sewage treatment facility can process up to 20,000 gallons of wastewater a day— equivalent to 200 PEs. A sanitary district that followed Illinois's recommendation to allot 3.5 PEs to every single-family house would therefore allow only 57 houses to be connected to the sanitary district's sewage system. But 3.5 PEs per house is only an estimate of average wastewater discharge. Those 57 houses might generate more, or fewer, than 20,000 gallons of wastewater per day— fewer if 3.5 PEs per house is a con servative estimate of the amount of wastewater ...


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