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Trilisky v. The City of Chicago

Court of Appeals of Illinois, First District, Fourth Division

September 26, 2019

NINA TRILISKY, individually and on behalf of all others similarly situated, Plaintiff-Appellant,
v.
THE CITY OF CHICAGO, Defendant-Appellee.

          Appeal from the Circuit Court of Cook County No. 15 CH 16334 Honorable Michael F. Otto, Judge Presiding.

          Attorneys for Appellants: Elizabeth A. Fegan and Daniel J. Kurowski, of Hagens Berman Sobol Shapiro LLP, of Chicago, for appellant David Freydin, of Freydin Law Firm LLP, of Skokie, Illinois, for appellant

          Attorneys for Appellees: Mark A. Flessner, Benna Ruth Solomon, Myriam Zreczny Kasper, and Suzanne M. Loose, of Corporation Counsel of the City of Chicago, for appellee.

          REYES JUSTICE delivered the judgment of the court, with opinion. Presiding Justice Gordon and Justice Burke concurred in the judgment and opinion.

          OPINION

          REYES JUSTICE.

         ¶ 1 Plaintiff Nina Trilisky appeals from an order of the circuit court of Cook County granting defendant, city of Chicago's (City), motion to dismiss her amended class action complaint pursuant to section 2-615 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615 (West 2018)). Plaintiffs amended class action complaint (amended complaint) alleged that sales to and from the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are exempt from the Chicago Real Property Transfer Tax (transfer tax) (Chicago Municipal Code § 3-33-010 et seq. (added Dec. 15, 1992)) because the transfers involve "real property acquired by or from any governmental body" (Chicago Municipal Code § 3-33-060(B) (amended May 8, 2013)). Plaintiff further claimed the City has been improperly collecting the transfer tax on such sales. The City moved to dismiss the amended complaint, arguing that (1) Fannie Mae and Freddie Mac (the enterprises) are not governmental bodies, and (2) plaintiff failed to exhaust her administrative remedies. The circuit court agreed with the City that the enterprises were not governmental bodies and dismissed the amended complaint pursuant to section 2-615 of the Code (735 ILCS 5/2-615 (West 2018)).

         ¶ 2 On appeal, plaintiff contends the circuit court erred in dismissing her amended complaint because the court improperly concluded that the enterprises are not "governmental bodies" exempt from the transfer tax (Chicago Municipal Code § 3-33-060(B) (amended May 8, 2013)). For the reasons that follow, we affirm.

         ¶ 3 I. BACKGROUND

         ¶ 4 Plaintiff filed a class action complaint in the circuit court of Cook County alleging that she was improperly assessed the City's transfer tax (Chicago Municipal Code § 3-33-010 et seq. (added Dec. 15, 1992)) on property transferred to her by Fannie Mae in 2014. Specifically, plaintiff claimed that the transfer tax was preempted by federal law which expressly exempted the enterprises from all state and local taxation.

         ¶ 5 Trilisky's case was consolidated with another separate class action suit filed by Lelani Fetrow that alleged the same theory of recovery. The matters were transferred to the law division. Thereafter the cases were stayed pending the resolution of federal litigation in the Northern District of Illinois involving the same issue. After the Seventh Circuit determined that the City's transfer tax was not preempted when assessed against private parties purchasing real property from the enterprises (Federal National Mortgage Association v. City of Chicago, 874 F.3d 959 (7th Cir. 2017)), Trilisky requested and was granted leave to file an amended complaint.

         ¶ 6 The amended complaint named only Trilisky (and "all others similarly situated") and included only her case number. Trilisky abandoned her original theory in the amended complaint and alleged purchases from the enterprises were exempt from the transfer tax under the Chicago Municipal Code (Municipal Code) because they involved "real property acquired by or from any governmental body." Chicago Municipal Code § 3-33-060(B) (amended May 8, 2013). Trilisky based her theory on Congress's creation of the Federal Housing Finance Agency (Agency) in 2008 and the fact that the Agency (1) subsequently placed the enterprises into a conservatorship, (2) appointed itself as conservator, and (3) consequently succeeded to "all rights, titles, powers, and privileges of [the enterprises]." Trilisky alleged she voluntarily "paid the taxes on the mistaken assumption that they were due as she did not know that the transfer taxes were exempt, did not know the details regarding application of the taxes, and did not have knowledge of any facts that could be used to frame a protest of the transfer taxes."

         ¶ 7 In support of her new theory, Trilisky alleged the following facts about the enterprises. Government-sponsored enterprises like Fannie Mae and Freddie Mac have long had a role in the nation's real estate financing. In 1938, the United States Congress established Fannie Mae as a federal agency. Its mandate was to "establish secondary market facilities for residential mortgages, " to "provide stability in the secondary market for residential mortgages, " and to "promote access to mortgage credit throughout the Nation." 12 U.S.C. § 1716 (2018). By purchasing loans insured by the Federal Housing Administration from private lenders, Fannie Mae created liquidity in the mortgage market, providing lenders with money to fund new home loans. In 1954, Congress transformed Fannie Mae from a government agency into a public- private, mixed ownership corporation. Congress also exempted Fannie Mae from all state and local taxes, except real property taxes. In 1968, Congress reorganized Fannie Mae from a mixed ownership corporation to a for-profit, shareholder-owned company.

         ¶ 8 Congress established Freddie Mac in 1970 to help small "thrift" banks manage challenges associated with interest rate risk. Freddie Mac was initially authorized to purchase long-term mortgages from thrifts, increasing their capacity to fund additional mortgages and reducing their interest rate risk. Congress also authorized the enterprises to buy and sell mortgages not insured or guaranteed by the federal government. Congress subsequently reorganized Freddie Mac's corporate structure to one similar to Fannie Mae's: a for-profit corporation owned by private shareholders.

         ¶ 9 Trilisky further alleged that from 1989 to 2008, both of the enterprises were private companies. During the 2008 sub-prime mortgage housing crisis, however, Congress created the Agency (through the Housing and Economic Recovery Act of 2008 (12 U.S.C. § 4511 (2018))) in order to regulate the enterprises. The Agency was granted the power to place either enterprise into a conservatorship or receivership and to otherwise preserve and conserve the enterprises' assets. 12 U.S.C. § 4617 (2018). In September 2008, the director of the Agency placed the enterprises into a conservatorship and appointed the Agency as conservator, with the Agency succeeding to all rights, powers, and privileges of the enterprises. 12 U.S.C. § 4617(b)(2) (2018). Congress also granted the Agency the authority to transfer or sell any asset or liability of the enterprises. 12 U.S.C. § 4617(b)(2)(G) (2018). The enterprises and the Agency were exempt from "all taxation" imposed by any state or local government, with one exception that does not apply here. 12 U.S.C. § 1723a(c)(2) (2018); 12 U.S.C. § 1452(e) (2018); 12 U.S.C. 4617(j)(2) (2018).

         ¶ 10 Trilisky additionally alleged the City imposes the transfer tax on "the privilege of transferring title to, or beneficial interest in, real property located in the city." The transfer tax is composed of two portions, the "City portion" and the "C.T.A. portion." Chicago Municipal Code § 3-33-030(A), (F) (amended Nov. 16, 2011). The "City portion" of the transfer tax is imposed "on the purchaser, grantee, assignee or other transferee, " at a rate of $3.75 per $500.00 of the transfer price. Chicago Municipal Code § 3-33-030(A), (C) (amended Nov. 16, 2011). In addition, the "C.T.A. portion" imposes a supplemental tax at the rate of $1.50 per $500 of the transfer price for the purpose of providing financial assistance to the Chicago Transit Authority. Chicago Municipal Code § 3-33-030(F) (amended Nov. 16, 2011). The C.T.A. portion is paid by the transferor, "provided that if the transferor is exempt from the tax solely by operation of state or federal law, " then the tax is to be paid by the transferee. Chicago Municipal Code § 3-33-030(F) (amended Nov. 16, 2011). The transfer tax ordinance further provides that "[t]ransfers involving real property acquired by or from any governmental body" are exempt from the tax. Chicago Municipal Code § 3-33-060(B) (amended May 8, 2013). Trilisky alleged that the enterprises are governmental bodies and purchases from them are therefore exempt from the transfer tax.

         ¶ 11 Trilisky sought (1) a declaratory judgment that the City cannot impose the transfer tax on purchasers of real property from the enterprises, (2) an injunction, and (3) a refund of the amount paid to the City.

         ¶ 12 The City filed a motion to dismiss pursuant to sections 2-615 and 2-619(a)(9) of the Code (735 ILCS 5/2-615, 2-619(a)(9) (West 2018)) arguing that (1) the enterprises were not governmental bodies, and thus Trilisky was appropriately assessed the tax, and (2) Trilisky failed to exhaust her administrative remedies prior to filing her complaint in the circuit court.

         ¶ 13 In response, Trilisky asserted the enterprises were governmental bodies because the Agency was appointed as their conservator and succeeded to all of their rights, titles, powers, and privileges. Trilisky further maintained DuPage County considers the enterprises to be governmental bodies and exempts them from a similar tax. In support of this proposition, Trilisky relied on a memorandum issued by the DuPage County Recorder stating that "the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are exempt from real estate transfer taxes." Trilisky additionally argued she was not required to exhaust the administrative remedies prior to filing the instant lawsuit where (1) the tax was unauthorized by law or levied upon exempt property, and (2) there were no issues of fact presented and agency expertise was not involved.

         ¶ 14 After the matter was fully briefed and argued, the circuit court granted the City's motion to dismiss pursuant to section 2-615 of the Code, holding that the enterprises were not governmental bodies and transfers of real property from them therefore were not exempt under the transfer tax. The circuit court acknowledged that the only authority Trilisky cited for her proposition that the enterprises were governmental bodies was the DuPage County Recorder's memorandum, which the court stated contained no discussion or analysis and did not address whether the enterprises were governmental bodies. The circuit court further observed that the only case referenced in the memorandum issued by the DuPage County Recorder, Fannie Mae v. Hamer, 2013 WL 591979 (N.D. Ill. Feb. 13, 2013), simply held that the enterprises' federal charters expressly exempt them from state and local taxes. In addition, the circuit court concluded it would not have dismissed the amended complaint for Trilisky's failure to exhaust administrative remedies because she satisfied an exception to the general rule of exhaustion by challenging the tax as "unauthorized by law."

         ¶ 15 Following the decision rendered by the Seventh Circuit in Federal National MortgageAssociation, Fetrow did not amend her complaint and pursued the matter no further. FederalNational Mortgage Association,874 F.3d 959. She subsequently voluntarily dismissed her complaint with prejudice pursuant to an agreed dismissal order. The order stated that the circuit court's order granting the City's motion to dismiss Trilisky's amended complaint "disposed of ...


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