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Bueker v. Madison County

Court of Appeals of Illinois, Fifth District

September 7, 2016

SCOTT BUEKER, VIRGIL STRAETER, and RICHESON REAL ESTATE, LLC, Plaintiffs-Respondents,
v.
MADISON COUNTY, ILLINOIS; FRED BATHON; KURT PRENZLER, in His Official Capacity as Madison County Treasurer; JIM FOLEY; ALAN J. DUNSTAN; MARK VON NIDA; BARRETT ROCHMAN; KENNETH ROCHMAN; BLUE SKY VINEYARDS, LLC; CDBR, LLC; SABRE GROUP, LLC; SI SECURITIES, LLC; DENNIS BALLINGER, JR.; EMPIRE TAX CORPORATION; VISTA SECURITIES, INC.; JOHN VASSEN; JOSEPH VASSEN; V.I. INC.; SCOTT McLEAN; LAND OF LINCOLN SECURITIES, LLC; PRAIRIE STATE SECURITIES, LLC; ROBERT LUKEN; LUKEN INVESTMENT CO.; SCOTT SIERON; RAVEN SECURITIES, INC.; ILLINOIS MOBILE HOMES, LLC; ILLINOIS REALTY GROUP HOLDINGS, LLC; ILLINOIS REALTY GROUP, LLC; JOHN W. SCOTT; EDWARD BEASLEY; RLI INSURANCE CO.; and WESTERN SURETY COMPANY, Defendants Madison County, Illinois; Jim Foley; Barrett Rochman; Kenneth Rochman; Blue Sky Vineyards, LLC; CDBR, LLC; Sabre Group, LLC; SI Securities, LLC; Dennis Ballinger, Jr.; Empire Tax Corporation; Vista Securities, Inc.; John Vassen; Joseph Vassen; V.I. Inc.; Scott Sieron; Raven Securities, Inc.; Illinois Mobile Homes, LLC; Illinois Realty Group Holdings, LLC; and Illinois Realty Group, LLC, Defendants-Petitioners.

         Appeal from the Circuit Court of Madison County. No. 13-L-276, Honorable William J. Becker, Judge, presiding.

          Attorneys for Appellants Andrew R. Kasnetz, Timothy C. Sansone, Natalie J. Kussart, Michele L. Parrish, Sandberg, Phoenix & von Gontard, P.C., 600 Washington Avenue, 15th Floor, St. Louis, MO 63101-1313 (attorneys for Blue Sky Vineyards, LLC, CDBR, LLC, Barrett Rochman, Kenneth Rochman, Sabre Group, LLC, SI Securities, LLC); Gordon B. Nash, Daniel J. Delaney, Drinker Biddle & Reath LLP, 191 North Wacker Drive, Suite 1698, Chicago, IL 60606 (attorneys for Dennis Ballinger, Jr., Empire Tax Corporation, Vista Securities, Inc.); Paul T. Slocomb, Hoffman & Slocomb, 1115 Locust Street, Suite 400, St. Louis, MO 63101 (attorneys for V.I. Inc., John Vassen, Joseph Vassen); Alvin C. Paulson, Attorney at Law, 5111 West Main Street, Belleville, IL 62226 (attorneys for Illinois Mobile Homes, LLC, Illinois Realty Group Holdings, LLC, Illinois Realty Group, LLC, Raven Securities, Inc., Scott Sieron); Craig L. Unrath, Heyl, Royster, Voelker & Allen, 300 Hamilton Blvd., P.O. Box 6199, Peoria, IL 61601-6199; Michael D. Schag, Patrick D. Cloud, Ann C. Barron, Heyl, Royster, Voelker & Allen, 105 West Vandalia, Suite 100, P.O. Box 467, Edwardsville, IL 62025 (attorneys for James Foley, Madison County, Illinois)

          Attorneys for Appellees Steven C. Giacoletto, Giacoletto Law Office, P.C., 30 Summer Tree Lane, Collinsville, IL 62234; Aaron G. Weishaar, Boris A. Kaupp, Reinert, Weishaar & Associates, P.C., 812 North Collins, Laclede's Landing, St. Louis, MO 63102; Nelson L. Mitten, Paul A. Grote, Riezman Berger P.C., 7700 Bonhomme Avenue, Seventh Floor, St. Louis, MO 63105 (attorneys for Scott Bueker, Richeson Real Estate, LLC, Virgil Straeter)

          WELCH JUSTICE delivered the judgment of the court, with opinion. Presiding Justice Schwarm and Justice Chapman concurred in the judgment and opinion.

          OPINION

          WELCH JUSTICE.

         ¶ 1 The plaintiffs, Scott Bueker, Virgil Straeter, and Richeson Real Estate, LLC, filed a motion for class certification. The plaintiffs sought to recover damages for alleged losses resulting from the manner in which former Madison County Treasurer Fred Bathon conducted property tax sale auctions from 2005 through 2008. Following a hearing, the circuit court of Madison County granted class certification. For the reasons that follow, we affirm in part as modified, vacate in part, and remand for further proceedings.

         ¶ 2 Every year the Madison County Treasurer collects taxes on real property on behalf of taxing districts within the county. 35 ILCS 200/19-35, 20-5 (West 2012). If property owners fail to make timely payments, an automatic penalty of 1.5% is assessed for each month that the taxes are not paid. 35 ILCS 200/21-15, 21-20 (West 2012). Where the property taxes remain delinquent, the Property Tax Code sets forth the statutory procedure for the collection of the delinquent property taxes. 35 ILCS 200/21-70 et seq. (West 2012).

         ¶ 3 After various procedural steps, a tax sale is held where individuals and companies (known as tax buyers) have the opportunity to buy the right to collect the delinquent taxes from the delinquent taxpayers. 35 ILCS 200/21-70 et seq. (West 2012). The tax sale is conducted on a parcel-by-parcel basis. The tax buyers do not bid a dollar amount for each parcel with delinquent taxes. Instead, the tax buyers bid a penalty (interest) rate that they are willing to charge the owner if the owner later redeems the property. 35 ILCS 200/21-215 (West 2012). The penalty rate can range by statute up to 18%, which is the maximum allowed by law. 35 ILCS 200/21-215 (West 2012). If there are no bids on a particular parcel, its delinquent taxes are awarded to the State of Illinois. 35 ILCS 200/21-225 (West 2012). A tax buyer who purchases delinquent property taxes is required to pay the entire amount of taxes and automatic penalties outstanding as well as open taxes for prior years. 35 ILCS 200/21-240 (West 2012). After the tax buyer delivers payment to the county, the tax buyer receives a "certificate of purchase" evidencing payment of the taxes. 35 ILCS 200/21-240, 21-250 (West 2012).

         ¶ 4 Property owners have the right to redeem their delinquent property taxes that were sold at the tax sale. 35 ILCS 200/21-345 (West 2012). In order to redeem the delinquent property taxes, a property owner must pay all taxes, automatic penalties, and costs paid by the tax buyer at the time of the sale as well as interest at the penalty rate percentage bid by the tax buyer at the sale. 35 ILCS 200/21-355 (West 2012). The penalty accrues at the rate set during the auction and compounds every six months if the property remains unredeemed. 35 ILCS 200/21-355 (West 2012). The increase is equal to the amount of the initial rate originally bid. 35 ILCS 200/21-355 (West 2012). The statutory period of redemption ranges from six months to 2½ years depending on the type of property. 35 ILCS 200/21-350 (West 2012). Redemptions occur at the county clerk's office, and the funds received for redemption are forwarded to the tax buyer once the tax buyer presents the applicable certificate of purchase. 35 ILCS 200/21-355 (West 2012). The county does not retain the taxes or the penalty rate paid by the property owner. If the property owner fails to redeem the property taxes, the person or entity holding the certificate of purchase can file a petition for a tax deed, and, if ordered by the circuit court, the tax deed conveys merchantable title free and clear from any previous interest in the property. 35 ILCS 200/22-30 through 22-70 (West 2012).

         ¶ 5 The class-action plaintiffs are owners of real property in Madison County who failed to timely pay their real estate taxes and had their delinquent property taxes sold at a tax sale between 2005 and 2008. The plaintiffs named the following as defendants in the suit: Frederick Bathon, the former treasurer of Madison County; certain individuals and entities that purchased delinquent taxes between 2005 and 2008 (collectively "tax purchaser defendants"); Jim Foley, an employee of the Madison County treasurer's office; Madison County; and Kurt Prenzler, in his official capacity as the current Madison County treasurer.

         ¶ 6 The class-action complaint alleged the following causes of action: (1) civil conspiracy against all of the defendants except Madison County, Prenzler, and RLI Insurance; (2) money had and received against all of the defendants except Prenzler, Foley, and RLI Insurance; (3) violations of section 3(1) of the Illinois Antitrust Act (740 ILCS 10/3(1) (West 2012)) against all of the defendants except Madison County, Prenzler, and RLI Insurance; (4) violations of section 3(2) of the Illinois Antitrust Act (740 ILCS 10/3(2) (West 2012)) against all of the defendants except Madison County, Prenzler, and RLI Insurance; (5) violations of section 3(3) of the Illinois Antitrust Act (740 ILCS 10/3(3) (West 2012)) against all the defendants except Madison County, Prenzler, and RLI Insurance; (6) breach of fiduciary duty against Bathon; (7) an action against Bathon's bond as treasurer and collector of Madison County; and (8) sale in error against Madison County and Prenzler. Madison County is only named as a defendant in the money had and received count and the sale in error count.

         ¶ 7 The class-action complaint alleged that Bathon and the tax purchaser defendants conspired to implement a "no trailing bid" policy at the property tax sale auctions, which required all bidders to bid at once with the winning bid being the lowest bid heard by the auctioneer. The complaint alleged that the named tax purchaser defendants entered into an agreement with Bathon that each would bid the statutory maximum of 18% in the simultaneous bidding. The complaint also alleged that Bathon used a seating chart to ensure that the tax purchaser defendants were recognized by the auctioneer as winning bidders and directed the auctioneer to disperse the winning bids from the various auctions between the tax purchaser defendants. The complaint alleged that Bathon received campaign contributions in exchange for his participation in the fixed tax sales. The complaint alleged that the actions of Bathon and the tax purchaser defendants resulted in excessive penalty rates being bid and that those excessive rates were ultimately charged to delinquent taxpayers who sought to redeem their property taxes after a tax sale auction.

         ¶ 8 The class-action complaint explained that in February 2013, prior to the filing of the class-action complaint, Bathon pled guilty in federal court to a Sherman Act violation relating to his handling of the tax sale auctions held in 2005 through 2008. Scott McLean, Barrett Rochman, and John Vassen, other named defendants in the class action, also pled guilty to federal antitrust charges stemming from their involvement. As part of their guilty pleas, these defendants admitted that they reached an implicit mutual understanding that they would typically bid only the statutory maximum interest rate of 18% and not compete to reduce the interest rate when purchasing property tax liens.

         ¶ 9 In the motion seeking class certification, [1] the plaintiffs argued that the four prerequisites for maintaining a class action had been met. Thereafter, the various defendants[2] filed oppositions to the motion for class certification. The objections, inter alia, argued that class certification should be denied, as individual questions predominated over issues common to the class, specifically with regard to damages. In particular, the defendants argued that the resolution concerning whether a delinquent taxpayer was damaged by the alleged wrongful conduct and in what amount would require an individualized evaluation of each parcel sold at the tax sale, as the amount a tax purchaser would be willing to bid on a particular tax lien depended on numerous factors and the subjective judgment of that tax purchaser.

         ¶ 10 In support of its argument, the defendants pointed to the conclusions reached by the United States Department of Justice (Department) following an investigation of the tax auctions. According to the Department, the tax buyers at the tax sale auctions selectively purchased tax liens based upon a number of subjective variables, such as the location of the property, the state of repair of the structure on the land, the homeowner's payment history, the size of the tax bill, the assessed value of the property, and the real estate market where the property was located. The Department noted that at every Madison County tax sale, even those conducted with competitive bidding, a significant portion of the sales resulted in homeowners being charged the statutory maximum 18% penalty rate. It explained that tax buyers evaluated the risk factors differently and, as a result, were many times unwilling to purchase certain tax liens unless they received the highest interest rate. The Department concluded that legitimate economic considerations routinely resulted in many tax liens being sold for 18% even during a perfectly lawful tax sale that was conducted free of collusion. The Department concluded that some of the homeowners with delinquent property taxes sold at the tax auctions would have been charged 18% even had the scheme never existed.

         ¶ 11 To determine out-of-pocket loss for restitution purposes, the Department was faced with the task of determining which properties would have received which rates during the 2005 to 2008 auctions in the absence of the alleged conspiracy. Following its investigation, the Department concluded that the "data can tell us averages, but it cannot tell us with any level of certainty which particular properties experienced inflated tax bills nor can the data alone tell us what interest rate would have been bid in the absence of the scheme." (Emphasis in original.)

         ¶ 12 The Department further concluded that such a determination would require the evaluation of a number of subjective variables and that it was entirely impracticable to retain an expert to review and assess each of the 9299 parcels for which tax liens were sold during the alleged scheme. In reaching this conclusion, the Department consulted with two experts in the field of Illinois tax sales. The consensus was that it was not possible to calculate out-of-pocket loss at the individual level in this scenario. The Department also consulted with Kent Prenzler, as Prenzler had developed his own methodology for computing the damages. However, the Department concluded that Prenzler's approach was an estimate based on averages. The Southern District of Illinois agreed and found that it was "highly impracticable to perform a complete accounting of the losses to each individual victim given the complex issues of fact related to the large number of victims." Thus, the court found that no restitution award could be entered.

         ¶ 13 Relying on the federal proceedings, the defendants in this class-action case argued that there were questions unique to individual class members in regard to the issues of causation and damages, which precluded the use of the class-action device. The defendants argued property owners would be required to prove, on an individual basis, that the penalty rate was artificially inflated for that particular property in any given year and not all of the property owners in the class would be able to prove that the alleged conspiracy caused damages. Further, the defendants argued that for those class members who were able to prove that the delinquent taxes on their particular properties would have received lower penalty rates in the absence of the alleged conspiracy, these class members would also have to prove what penalty rate would have been awarded for the delinquent taxes on their particular property. Therefore, each property owner would be required to adduce evidence to prove the amount of damages by proving a specific penalty rate that his particular property would have received for its delinquent taxes. Because this would require individual trials for each claimant for each property, the defendants argued that individual issues would predominate over the issues common to the class.

         ¶ 14 In addition, the defendants argued that the plaintiffs failed to establish that they or their counsel would adequately protect the interests of the class and failed to prove that pursuing a class action was an appropriate method for the fair and efficient adjudication of the controversy. Moreover, Madison County filed an opposition to class certification with regard to the specific counts that were alleged against it, i.e., sale in error and money had and received. Madison County argued that the plaintiffs had failed to explain how the claims against it for sale in error and money had and received could be addressed on a class-wide basis and that the plaintiffs had failed to establish that they had a viable claim for sale in error and money had and received against Madison County, which was a threshold question for class certification.

         ¶ 15 Following a hearing, the circuit court entered an order for class certification. The court noted that the numbers varied but that it was generally agreed that a significant number of properties were sold in those years and that the Department noted that almost 10, 000 delinquent tax sales occurred in the relevant time. Thus, the court concluded that the numerosity requirement for class certification was met.

         ¶ 16 In addition, the circuit court found that the predominance of common questions of law or fact requirement for class certification had been satisfied. Although the court noted that various defendants were charged with involvement under varying theories of liability in various counts of the complaint, the court concluded that the central issue was the involvement of the defendants in the alleged tax sale scheme. The court stated as follows with regard to the predominance issue:

"If any or all defendants are not liable under any particular theory or count, the jury or the court can so find. The court fails to see how having multiple trials for what is essentially the same issue does anything other than create multiple cases and multiple possibilities for an inconsistent result. If each person whose property was sold for delinquent taxes in the alleged fraudulent tax sales filed a separate suit alleging various theories of liability, this court, in the absence of a motion to consolidate, would likely consolidate the ...

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