City of Chicago v. Prologis ( 2008 )

FIFTH DIVISION
June 6, 2008
No. 1-07-0108
THE CITY OF CHICAGO, a Municipal ) Appeal from the
Corporation, ) Circuit Court of
) Cook County.
Plaintiff-Appellee, )
)
v. ) No. 06 L 50329
)
PROLOGIS, a Maryland Real Estate Investment ) Honorable
Trust, f/k/a ProLogis Trust, f/k/a Security Capital ) Sheldon Gardner,
Industrial Trust, ) Judge Presiding.
)
Defendant-Appellant )
)
(Dennis J. Hiffman; John F. Cash; Sylvia )
Doyne Collins Irrevocable Trust dated )
dated 4/10/96; Keith Bank Declaration )
of Trust dated 12/14/94; Edward R. )
Hulina Trust dated 5/10/94; JKS-3D Two )
Trust; Mark D. Christensen; Holly D. )
Hulina Trust dated 5/10/94; Elizabeth E. )
Hulina Trust dated 5/10/94; Bonnie E. )
Hulina Trust dated 5/10/94; and Richard )
E. Hulina Trust dated 5/10/94, )
)
Intervenors-Appellants; )
)
ProLogis-Macquarie Illinois-Ohio, LLC, a )
Delaware Limited Liability Company; )
ProLogis O'Hare, LLC, a Delaware Limited )
Liability Company; Crane and Norcross; )
Prudential Insurance Company of )
America; American National Bank & Trust )
Company of Chicago; ProLogis )
Management, Inc., a Delaware Corporation; )
Concordia International Forwarding )
Corporation; JAL Trans, Inc.; )
Purolator USA, Inc., an Illinois )
Corporation; Morrison Express Corporation, )
1-07-0108
a California Corporation; Kuehne & Nagel, )
Inc., a California Corporation; Exel )
Global Logistics, Inc., a New York )
Corporation; Aeroground, Inc., a )
California Corporation; Hellmann )
Worldwide Logistics, Inc., a Delaware )
Corporation; Catamount Holdings, LLC, )
an Illinois Limited Liability Company; Hassett )
Storage Warehouse, Inc., an Illinois )
Corporation; Nippon Express, USA, Inc., an )
Illinois Corporation; Maria Pappas, Cook )
County Treasurer; David Orr, Cook County )
Clerk; John L. Novak, Treasurer and County )
Collector of DuPage County; Gary A. King, )
County Clerk of DuPage County; and Unknown )
Owners, )
)
Defendants.) )
PRESIDING JUSTICE FITZGERALD SMITH delivered the opinion of the court:
Although complexities relating to the expansion of O'Hare Airport figure in the
background of this case, this appeal presents a single issue: whether compensation must be paid
to holders of certain bonds. Defendant ProLogis, a Maryland real estate investment trust, f/k/a
ProLogis Trust, f/k/a Security Capital Industrial Trust (defendant or ProLogis), owned property
that included a redevelopment project area for which tax increment financing (TIF) bonds had
been sold. After the plaintiff City of Chicago (plaintiff or the City) brought an eminent domain
action against ProLogis to acquire the property for the planned airport expansion, bondholders
Dennis Hiffman, John Cash, Sylvia Doyne Collins Irrevocable Trust dated 4/10/96, Keith Bank
Declaration of Trust dated 12/14/94, Edward R. Hulina Trust dated 5/10/94, JKS-3D Two Trust,
Mark Christensen, Holly D. Hulina Trust dated 5/10/94, Elizabeth E. Hulina Trust dated 5/10/94,
Bonnie E. Hulina Trust dated 5/10/94, and Richard E. Hulina Trust dated 5/10/94 (collectively,
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intervenors or bondholders), intervened. ProLogis and the bondholders filed a counterclaim for
inverse condemnation, which the circuit court denied. On appeal, they contend that the City was
required to pay just compensation for rendering the TIF bonds worthless. We disagree and, for
the reasons that follow, we affirm the ruling of the circuit court.
The factual background concerning the creation of the redevelopment project in the
Village of Bensenville (the Village or Bensenville) and the TIF bonds is not disputed. According
to the record, the Village prepared a redevelopment plan for certain property adjacent to O'Hare
Airport (referred to as the O'Hare Cargo Center Redevelopment Project Area) for the purpose of
furthering the Village's growth and increasing the assessed valuation of village real estate. The
Village prepared the plan, entered an agreement with a developer and enacted ordinances and
resolutions ratifying the plan and agreement.
In 1996, the Village entered a redevelopment agreement with a developer, Hiffman
Shaffer Acquisitions, Inc., which then made an assignment of its rights and obligations to
purchase the redevelopment property as well as the entire redevelopment agreement to defendant
ProLogis. Under the agreement, the developer was to acquire the property and have certain
buildings constructed in order to generate additional tax revenue for the Village; of an entire
project cost of more than $52 million, slightly less than $9 million was made eligible for tax
increment financing.
In April 1996, the TIF bonds were issued to facilitate the development of the project and
were meant to be the source of funding for the TIF costs; the redevelopment agreement made
note of the "extremely limited" number of potential buyers that existed at the stage before tenants
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had committed to the project. ProLogis agreed to purchase the TIF bonds and the Village agreed
to issue $2.8 million in TIF bonds to ProLogis and $4.2 million in TIF bonds to either ProLogis
or its nominees.
The $7 million in TIF bonds were issued pursuant to a village ordinance (bond ordinance)
that authorized their issuance and which explicitly created a contract between the Village and the
registered bondholders. In the bond ordinance, the Village pledged to pay the bond principal plus
10% annual tax-exempt interest for a 20-year term. The bond ordinance stated, in detailing the
security of the bonds, that the principal and interest payments were to be made exclusively from
certain property taxes, the "pledged taxes," which were also known as the incremental or ad
valorem taxes:
"The Bonds, together with the interest *** if any, thereon, are
limited obligations of the Village, payable solely and only from the
Pledged Taxes. *** No holder of any Bond shall have the right to
compel the exercise of any taxing power of the Village for payment
of principal thereof or interest *** if any, thereon. THE BONDS
DO NOT CONSTITUTE AN INDEBTEDNESS OF THE
VILLAGE OR A LOAN OF CREDIT THEREOF WITHIN THE
MEANING OF ANY STATUTORY OR CONSTITUTIONAL
PROVISION."
The TIF bonds, which indicated a similar source of payment, ad valorem taxes and
amounts pledged and deposited to the O'Hare Cargo Center Redevelopment Project Area Special
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Tax Incremental Allocation Fund, were considered investments subject to known risk. The
bondholders signed certificates of purchase that explicitly indicated their awareness of the risks
associated with these investment bonds and an understanding of the respective security
arrangement. Specifically, the bondholders warranted that they independently investigated "the
circumstances surrounding the issuance of the Bonds and the security and sources of payment
therefor." (Emphasis added.) The certificates enumerated the various documents at the
purchasers' disposal and contained acknowledgment that the purchasers could request, and had
received, "information relating to the Bonds, the Village and the Project that the Purchaser deems
necessary to make an independent determination to purchase the Bonds." The bondholders also
stated in the certificates that they had "assumed responsibility for obtaining such information and
making such review." Additionally, they characterized themselves as sophisticated investors able
to handle, analyze, and evaluate risks, economic and otherwise, associated with the investment of
these bonds: "The purchaser is a sophisticated investor, can bear the economic risk of the
purchase of the Bonds, and has such knowledge and experience in business and financial matters,
including the analysis of a participation in the purchase of similar investments, as to be capable
of evaluating the merits and risks of an investment in the Bonds." The terms of each bond are
identical and explicitly state that the bonds are "limited obligations" of the Village and that they
are secured only by the incremental taxes, "if any." The bonds state, as does the ordinance, that
the holders do not have "the right to compel the exercise of any taxing power of the village for
payment of principal *** or interest."
Over five years, ending in 2001, construction on the buildings in the redevelopment
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project was completed. ProLogis held the title to the property and leased the buildings to
commercial tenants. In about 2002, the City identified the property as necessary for the
expansion of O'Hare.
In April 2006, the City filed a condemnation action against ProLogis and all others with
interests in the property to acquire the property comprising the O'Hare Distribution Complex,
referred to as the subject property. However, the City did not seek to acquire the bonds attached
to the subject property.
The following month, the bondholders filed the petition to intervene in the action and,
with ProLogis, they filed the counterclaim for inverse condemnation. The bondholders and
ProLogis are owners of the TIF bonds issued by the Village and secured by the incremental real
estate taxes of the subject property. In the counterclaim, ProLogis and the bondholders sought
just compensation for the bonds because, they claimed, the City's acquisition of the subject
property would cause the redevelopment property to become exempt from real estate taxes,
meaning the Village would not be able to collect incremental taxes for payment of future interest
and remaining principal, thereby reducing the value of the bonds to nothing.
On August 14, 2006, the court entered an agreed final judgment order in which details of
the payment for the land taken was directed. In the order, the court found that the City had the
authority to exercise its right of eminent domain, the subject property was subject to that right,
and the City's right to exercise eminent domain was not being exercised improperly. The final
just compensation for the subject property was determined in the total amount of $94, 500,000;
the compensation award was to be paid for the fee simple title to the property, constituting the
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full and final compensation and satisfaction of all claims by the defendants, but which did not
include "any compensation (if any is owed)" for the intervenors' bonds. The order stated that "the
Parties further agree that the entry of this Agreed Final Judgment Order does not waive, prevent,
diminish or affect Defendant-Owner's right to claim or Plaintiff's right to challenge whether
Plaintiff's acquisition of the Subject Property constitutes a taking of the portion of the Bonds
owned by Defendant-Owner requiring payment of additional just compensation." It further stated
that, although the parties agreed not to appeal the order, neither the intervenors nor the City was
"waiving any right to appeal from any order regarding the Bonds."
Ultimately, the court denied the bondholders' inverse condemnation counterclaim. In a
written memorandum decision and judgment order issued on December 19, 2006, the court
concluded that the City took the subject property, not the TIF bonds, and that the total
elimination of the bonds' value was a risk assumed by the intervenors. On that basis, the court
concluded that intervenors held valueless bonds and would not receive just compensation from
the City because their loss was a consequential one, which had resulted from a lawful taking.
On appeal, ProLogis and the bondholders contend the circuit court improperly denied
their inverse condemnation claim because their right to receive incremental real estate taxes from
the subject property constitutes a protected property interest requiring just compensation. The
City challenges the assertion of a compensable property interest, contending instead that the
bondholders do not have a legitimate expectation of guaranteed repayment and their asserted
right to receive an income stream is not an encumbrance on the redevelopment property. We
agree with the City.
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The question involved presents a question of law, thus it is reviewed de novo.
Department of Transportation v. Lowderman, LLC, 367 Ill. App. 3d 502, 504, 854 N.E.2d 261
(2006); Southwestern Illinois Development Authority v. Al-Muhajirum, 318 Ill. App. 3d 1005,
1008, 744 N.E.2d 308 (2001).
The takings clause of the fifth amendment to the United States Constitution, made
applicable to the State of Illinois through the fourteenth amendment, and the Illinois
Constitution, require just compensation for private property taken by the exercise of eminent
domain. U.S. Const., amend. V; Ill. Const. 1970, art. I, §15; Lingle v. Chevron U.S.A. Inc., 544
U.S. 528, 536-37, 161 L. Ed. 2d 876, 886-87, 125 S. Ct. 2074, 2080 (2005); see also Canel v.
Topinka, 212 Ill. 2d 311, 331-32, 818 N.E.2d 311 (2004); Lamar Whiteco Outdoor Corp. v. City
of West Chicago, 355 Ill. App. 3d 352, 359, 823 N.E.2d 610 (2005). Illinois also requires that
just compensation be made for damaged private property. 735 ILCS Ann. 5/7-101 (Smith-Hurd
2003);1 Lamar Whiteco Outdoor Corp., 355 Ill. App. 3d at 359; see also St. Lucas Ass'n v. City
1
The citation given is to the version of the Eminent Domain Act that was in effect at the
time this action was litigated. Since then, the entire Act has been repealed (Pub. Act 94-1055,
eff. January 1, 2007). The Act was reenacted and recodified (see 735 ILCS Ann. 30/1-1-1 et seq.
(Smith-Hurd 2007)), but the provisions pertinent here remain unchanged. An exception exists in
the revised version of the statute which provides that a "condemning authority may exercise the
power of eminent domain for the acquisition or damaging of property under the O'Hare
Modernization Act as provided for by law in effect prior to the effective date of this Act." 735
ILCS Ann. 30/5-5-5(a-5) (Smith-Hurd Supp. 2007).
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of Chicago, 212 Ill. App. 3d 817, 833-34, 571 N.E.2d 865 (1991). Condemnation proceedings to
acquire property may properly be instituted by a municipality where just compensation is paid for
the property. See 735 ILCS Ann. 5/7-101 (Smith-Hurd 2003), repealed by Pub. Act 94-1055, eff.
January 1, 2007; 735 ILCS Ann. 30/10-5-5(a) (Smith-Hurd Supp. 2007); see also Lingle, 544
U.S. at 537, 161 L. Ed. 2d at 886-87, 125 S. Ct. at 2080; Lamar Whiteco Outdoor Corp., 355 Ill.
App. 3d at 367.
In addition to taking by direct physical invasion of private property by the government,
takings may also result from the impact of governmental regulation. See Lucas v. South Carolina
Coastal Council, 505 U.S. 1003, 1014, 120 L. Ed. 2d 798, 812, 112 S. Ct. 2886, 2893 (1992);
Byron Dragway, Inc. v. County of Ogle, 326 Ill. App. 3d 70, 73, 759 N.E.2d 595 (2001). Illinois
courts have held that compensable property includes personal, tangible or intangible property, as
well as real property. Illinois Cities Water Co. v. City of Mt. Vernon, 11 Ill. 2d 547, 550-51, 144
N.E.2d 729, 731 (1957); but see Citizens Utilities Company of Illinois v. Metropolitan Sanitary
District of Greater Chicago, 25 Ill. App. 3d 252, 259, 322 N.E.2d 857 (1974) (loss of business
profits and consequential deterioration in property value are not elements of damage). Inverse
condemnation is a means by which a property owner may recover just compensation for private
property that was taken or damaged without a condemnation action having been instituted.
Byron Dragway, Inc., 326 Ill. App. 3d at 73. However, when the damage or loss in value is the
consequence of a lawful taking, courts have held no compensation is mandated.
In Omnia Commercial Co. v. United States, 261 U.S. 502, 67 L. Ed. 773, 43 S. Ct. 437
(1923), the plaintiff company had acquired by contract the right to purchase a large quantity of
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steel plate from a steel company at a price under market; had the contract been carried out, it
would have produced large profits for the plaintiff. However, before any deliveries on the
contract had been made, the government requisitioned the steel company's entire production of
steel plate for a year and directed the plaintiff company not to comply with the terms of the
contract. The plaintiff brought an action alleging that there had been, effectively, a taking of its
right of priority to the steel plate and, thus, an appropriation of its property for public use.
Although the contract in question was held to be property within the fifth amendment
meaning (Omnia Commercial Co., 261 U.S. at 508, 67 L. Ed. at 775, 43 S. Ct. at 437), the
Supreme Court concluded that for consequential loss or injury resulting from a lawful
governmental action, the law affords no remedy (Omnia Commercial Co., 261 U.S. at 510, 67 L.
Ed. at 776, 43 S. Ct. at 438). The court reiterated that, if a contract or other property was taken
for public use, the government would be liable for compensation, but if the property is injured or
destroyed by lawful action, without a taking, the government is not liable for the damage. Omnia
Commercial Co., 261 U.S. at 510, 67 L. Ed. at 776, 43 S. Ct. at 438. In examining the specific
contract at issue, the court stated that the government requisitioned the future product of the steel
company, but the contract was so far identified with its fulfillment that the plaintiff appeared to
have confused the contract with its subject matter. Omnia Commercial Co., 261 U.S. at 510, 67
L. Ed. at 776, 43 S. Ct. at 438. However, there was no acquisition of the obligation or right to
enforce the contract and, as a result of the lawful governmental action of requisition, the
performance of the contract was rendered impossible; the contract was not appropriated, but
ended. Omnia Commercial Co., 261 U.S. at 510-11, 67 L. Ed. at 776, 43 S. Ct. at 438.
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Therefore, the effect of the requisition was not to keep the contract alive for the use of the
government, but to bring it to an end and, accordingly, the loss of the plaintiff company's right to
the production of the steel plate was not a taking or appropriation for public use. Omnia
Commercial Co., 261 U.S. at 513, 67 L. Ed. at 777, 43 S. Ct. at 439.
The holding in Omnia Commercial Co. was later applied to a situation in which bonds
were rendered worthless as a consequence of a lawful taking of real property in John K. &
Catherine S. Mullen Benevolent Corp. v. United States, 290 U.S. 89, 78 L. Ed. 192, 54 S. Ct. 38
(1933) (hereinafter Mullen). There, a holder of municipal bonds that had been rendered
worthless when the land was acquired by the federal government for construction of a reservoir
claimed that the government's liability arose from its acquisition of the underlying real property.
Mullen, 290 U.S. at 90, 78 L. Ed. at 193, 54 S. Ct. at 39. The bondholder argued that the bonds
were also property that was taken, claiming the acquisition of the land destroyed the value of the
securities and gave rise to an implied promise to pay the sums remaining due to the bondholders.
Mullen, 290 U.S. at 91-92, 78 L. Ed. at 194, 54 S. Ct. at 39.
In rejecting that argument, the Supreme Court examined the statutory basis for the
creation of the bonds. The state statutes provided for creation of improvement districts for
construction of the type of public works at issue; a process was set forth including the passage of
ordinances, which, among other things, describe the area to be improved, create the district, and
provide for taxation and assessment of the cost upon all parcels of land within the district.
Mullen, 290 U.S. at 92-93, 78 L. Ed. at 194-95, 54 S. Ct. at 40. Under the statute, the
municipality was allowed to provide for payment by installments rather than levying the entire
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assessment at one time and it could issue improvement bonds of the district payable in
installments; reassessment on all property in the district was also allowed. Mullen, 290 U.S. at
93, 78 L. Ed. at 195, 54 S. Ct. at 40. The Court determined that, under the statute, the
municipality was not liable for the amount of the bonds but was under a duty only to collect the
assessments and place them in a separate fund for payment of principal and interest; in fulfilling
that obligation, the city could sue to recover from each lot the amount of any assessment against
it, or, if it failed to do so, the bondholder could proceed in his own name and foreclose the lien of
the assessment because the bonds transferred to the holder all the right and interest of the
municipality in such assessment. Mullen, 290 U.S. at 93-94, 78 L. Ed. at 195, 54 S. Ct. at 40.
The Court stated that the bondholder is the owner in equity of the assessment fund and as a real
party in interest, it could, upon the city's default in collection, enforce the city's right to collect
the assessment out of the land. Mullen, 290 U.S. at 94, 78 L. Ed. at 195, 54 S. Ct. at 40.
However, the bonds had no general lien upon the lands in the district and, but for the assessment,
no special lien on any tract. Mullen, 290 U.S. at 94, 78 L. Ed. at 195, 54 S. Ct. at 40.
The Court rejected the bondholder's insistence that the bonds were, in legal effect, taken
(because the sole source of payment was the reassessment upon the lots in the improvement
districts, and the government's action rendered such procedure vain, effectually destroying the
chose in action) and it held, to the contrary, that there was not a taking of the bonds. Mullen, 290
U.S. at 94, 78 L. Ed. at 195, 54 S. Ct. at 40. Acknowledging that, at the date of acquisition of the
property, the real estate was subject to assessment in the future for taxes, including those for
reassessments, which could not be levied on property which had passed to the government, the
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Court held that such action did not mean "that the government appropriated the right to assess
them in futuro, nor that it took the benefit which might accrue to bondholders consequent on
such future levies. By purchase of the lands the United States at most frustrated action by the
city to replenish the assessment fund." Mullen, 290 U.S. at 94-95, 78 L. Ed. at 195-96, 54 S. Ct.
at 40. Also rejecting an argument based upon an implied contract theory as to any unpaid
balance on the outstanding bonds, and specifically citing Omnia Commercial Co., the Court
applied its earlier holding and held that the government's action was not a taking of the
bondholder's property. Mullen, 290 U.S. at 95, 78 L. Ed. at 196, 54 S. Ct. at 40-41.
This court considered a similar question concerning a school district's claim regarding the
loss of future real estate tax revenue from a condemnation proceeding by a forest preserve
district. Lake County Forest Preserve District v. First National Bank of Waukegan, 213 Ill. App.
3d 309, 313-14, 571 N.E.2d 1115 (1991). The court found the school district's allegations of
future harm from the removal of the real property at issue from the tax rolls to be an insufficient
interest to give it standing to intervene. Lake County Forest Preserve District, 213 Ill. App. 3d at
314. There, after determining that the school district could not be considered a party to the
action, the court emphasized that a nonparty has standing to appeal if it has a direct and
substantial interest in the subject matter which would be prejudiced by the judgment or benefitted
by its reversal. Lake County Forest Preserve District, 213 Ill. App. 3d at 314. The court found
the school district's position analogous to that of individual property taxpayers who did not have
standing to file lawsuits in attempts to force the return of exempt parcels of real estate to the tax
rolls. Lake County Forest Preserve District, 213 Ill. App. 3d at 314 (citing Schlenz v. Castle, 115
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Ill. 2d 135, 503 N.E.2d 241 (1986), in which the taxpayers' interest in the taxation of any parcel
of exempt property was held to be extremely remote). Likewise, the school district, in essence,
had no property interest that was affected by the condemnation because its interest in receiving
tax revenue from the subject property was too remote to give it standing to appeal. Lake County
Forest Preserve District, 213 Ill. App. 3d at 314.
In the instant case, the circuit court found the City was authorized by statute, the O'Hare
Modernization Act, to take the property for the O'Hare expansion plan. See 620 ILCS 65/15
(West 2006). It stated that the City exercised its authority to do so when it instituted the
condemnation action in April 2006 to acquire the private real property owned by ProLogis and
noted that since the City's complaint omitted the intervenors' bonds as property to be acquired,
the inverse condemnation case was initiated. In rejecting the intervenors' arguments, the court
found the situation distinguishable from scenarios presented in their authorities because it
involves simultaneous condemnation and inverse condemnation actions and a consequential loss
that was the result of a lawful governmental taking. The court explicitly stated that it was not
addressing whether the bonds at issue were compensable private property because the bonds'
complete lack of value was a consequence of a lawful taking rather than a taking separate from
that of the subject real property.
Finding the situation here to be essentially the same as that presented in Omnia
Commercial Co. and Mullen, the court determined that the resulting loss of value of the bonds
was a consequence of the City's taking of the subject property. The court noted the intervenors
were, by their own certification, sophisticated investors who assumed the known risk that the
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subject property might be taken by the City. The court further noted that the language used by
the bondholders in their petition constituted an admission that the diminution of the bonds' value
was a consequence, an indirect result, of the City's taking of the subject property, evincing their
"attempt to recover for the consequences of their known risky investment." We think the circuit
court correctly assessed the situation concerning the bonds' loss of value.
Contrary to the bondholders' assertion that their right to receive incremental real estate
taxes from the underlying property constituted a protected property interest, no compensation
was required for the bonds' loss in value. Here, the contractual terms and the explicit language of
the bonds provided that repayment was to be exclusively from incremental taxes, if any. As the
City points out, the bondholders had no legitimate expectation of guaranteed repayment; in fact,
as the language of the bonds makes clear, the bondholders do not have the right to compel the
Village to exercise its taxing power to pay the bonds.
As the City further notes, the existence of the incremental taxes, which was the only
security for the bonds, was far from a guaranteed income stream from the bonds. Rather, it was
contingent on conditions outside the bondholders' control. The City posits numerous situations
that might have prevented the generation of incremental taxes, such as a decline in the property's
value below the assessment value; such decline might be the result of failure of the project, a
general downturn in the economy, or a lessening of the desirability of the location, among other
things, and if, for any of those reasons, incremental taxes did not exist, the bondholders would
not receive anything. Furthermore, incremental taxes depended on the Village's collection of real
estate taxes, which would not occur if, for example, a private entity had purchased the property
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for some tax-exempt use. In such instance, just as in the taking of the property by the City, the
incremental taxes would cease to be available for collection. The situation here is like that
presented in Mullen, in that the bonds here were created upon a statutory basis and ultimately
rendered worthless as a consequence of a lawful taking. There, however, the bondholder could,
upon the city's default, enforce the municipality's right to collect the assessments, while here, the
bondholders do not even have the right to compel the Village to exercise its taxing power for
payment of the bonds. Again, the bondholders' assertion concerning the existence of incremental
taxes did not constitute an entitlement to such revenue but was, rather, merely an expression of
their expectation of such.
ProLogis and the bondholders support their assertion concerning such purported right or
entitlement with the statutory origin of the ordinances creating the TIF and the bonds. However,
there is no dispute that the TIF was created pursuant to statutory authority. Other than the
statutory basis for the bonds' creation, which is not at issue, the bondholders rely primarily upon
four federal cases to support their position. Thus, the bondholders attempt to support their
position with cases which are not binding on this court (see, e.g., Bowman v. American River
Transportation Co., 217 Ill. 2d 75, 91-92, 838 N.E.2d 94 (2005)) and essentially without support
in Illinois law. Even considering their authorities, we nonetheless find the four cases readily
distinguishable in that they involve encumbrances on the real property at issue.
In United States v. Aho, 68 F. Supp. 358 (D. Or. 1944), the federal government
condemned property within a drainage district that had been established under Oregon law.
There, the district claimed a right to be compensated for assessments it was authorized to impose
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in the future on the condemned land. Under state statute, the drainage district was created as a
public corporation; the district issued bonds for building certain improvements and it assessed
the properties that benefitted, in order to pay for the bonds. Aho, 68 F. Supp. at 360-61. The
court ultimately concluded that the future assessments constituted an encumbrance on the real
property. Aho, 68 F. Supp. at 360-66. Likewise, United States v. Florea, 68 F. Supp. 367 (D. Or.
1945), also involved condemnation by the federal government of land within an Oregon drainage
district, which sought compensation for future assessments. Florea, 68 F. Supp at 367-68.
There, the court held that the condemnation was "destroying the right of the landowners in the
aggregate, to levy upon the parcel," and that future drainage assessments were "appurtenant to the
fee of the condemned" land and therefore passed to the government with the fee. Florea, 68 F.
Supp at 375.
The court in People ex rel. v. 25.09 Acres of Lands, 329 F. Supp. 230 (S.D. Cal. 1971),
reached a similar conclusion: there, the federal government operated an irrigation project located
within the boundaries of land the state sought to acquire for highway purposes and, after the state
condemned the land, the federal government sought compensation for future annual assessments.
The court held that, under California and federal law, the future assessments were an equitable
servitude upon the land, thus requiring compensation to the federal government. 25.09 Acres of
Lands, 329 F. Supp. at 239-40. Similarly, in United States v. 129.4 Acres of Land, 446 F. Supp.
1 (D. Ariz. 1976), where condemned land was subject to assessment for an irrigation project, the
court held there to be a compensable interest where the obligations and benefits from the district
were "appurtenant to the land within the [d]istrict" and condemnation would cause the remaining
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landowners to pay increased assessments for the irrigation system. 129.4 Acres of Land, 446 F.
Supp. at 5.
Unlike the assessments in those four cases, the bonds in the instant case do not encumber
the fee simple title to the redevelopment property. They are, rather, separate. Again, as pointed
out by the City, the bonds here were not secured by the property. Further, we find the
bondholders' arguments concerning the intent of the TIF Act (65 ILCS 5/11-74.4-1 et seq. (West
2006) ("Tax Increment Allocation Redevelopment Act")), as well as their recitation of certain
actions taken under the redevelopment agreement to be irrelevant. Thus, here, as in Mullen, no
compensable interest was held by the bondholders. Having so determined, we need not discuss
the bondholders' further analogies to state charters,2 liens, or the doctrine of vested rights (arising
2
In their reply brief, the bondholders insist particularly that they have a property interest
similar to the toll company's right to collect tolls in City of Belleville v. St. Clair County
Turnpike Co., 234 Ill. 428, 84 N.E. 1049 (1908). There, a municipality took possession of the
company's turnpike after extension of the city limits by annexation and was granted an injunction
restraining the further collection of tolls; the company's charter had given it the right to collect
tolls so long as the state failed to purchase the road. The court, considering the statute governing
the toll road operation, decided that due process was violated by taking the turnpike without
compensation (City of Belleville, 234 Ill. at 437); further, such taking was not justified by the
exercise of police powers (City of Belleville, 234 Ill. at 437-39). However, in the instant case, as
previously stated, there is no issue as to the statutory basis for the taking of the real property or
the lawfulness of the taking of the real property.
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1-07-0108
from performance and detrimental reliance) in the context of zoning law, which we find also to
be irrelevant. Likewise, because the bonds were not secured by the subject real property taken by
the City, the bondholders' additional claims of greater protection under the Illinois Constitution,
as well as their assertions concerning the assumption of risk for their investment, are unavailing.
Therefore, because the bonds at issue in the instant case were not secured by the real
property that was taken by the City, the circuit court properly denied the inverse condemnation
claim. Rather, under the specific circumstances presented here, the loss in value of the bonds
was, as in Mullen, a consequence of a lawful taking for which no compensation was required.
Accordingly, we affirm the judgment of the circuit court.
Affirmed.
GALLAGHER and O'MARA FROSSARD, JJ., concur.
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1-07-0108
REPORTER OF DECISIONS - ILLINOIS APPELLATE COURT
______________________________________________________________________________
THE CITY OF CHICAGO, a Municipal Corporation,
Plaintiff-Appellee,
v.
PROLOGIS, a Maryland Real Estate Investment Trust, f/k/a ProLogis Trust, f/k/a
Security Capital Industrial Trust,
Defendant-Appellant
(Dennis J. Hiffman; John F. Cash; Sylvia Doyne Collins Irrevocable Trust dated 4/10/96;
Keith Bank Declaration of Trust dated 12/14/94; Edward R. Hulina Trust dated 5/10/94;
JKS-2D Two Trust; Mark D. Christensen; Holly D. Hulina Trust dated 5/10/94; Elizabeth
E. Hulina Trust dated 5/10/94; Bonnie E. Hulina Trust dated 5/10/94; and Richard E.
Hulina Trust dated 5/10/94,
Intervenors-Appellants;
ProLogis-Macquarie Illinois-Ohio, LLC, a Delaware Limited Liability Company;
ProLogis O'Hare, LLC, a Delaware Limited Liability Company; Crane and Norcross;
Prudential Insurance Company of America; American National Bank & Trust Company of
Chicago; ProLogis Management, Inc., a Delaware Corporation; Concordia International
Forwarding Corporation; JAL Trans, Inc.; Purolator USA, Inc., an Illinois Corporation;
Morrison Express Corporation, a California Corporation; Kuehne & Nagel, Inc., a
California Corporation; Exel Global Logistics, Inc., a New York Corporation; Aeroground,
Inc., a California Corporation; Hellmann Worldwide Logistics, Inc., a Delaware
Corporation; Catamount Holdings, LLC, an Illinois Limited Liability Company; Hassett
Storage Warehouse, Inc., an Illinois Corporation; Nippon Express, USA, Inc., an Illinois
Corporation; Maria Pappas, Cook County Treasurer; David Orr, Cook County
Clerk; John L. Novak, Treasurer and County Collector of DuPage County; Gary A. King,
County Clerk of DuPage County; and Unknown Owners,
Defendants.)
______________________________________________________________________________
-20-
1-07-0108
No. 1-07-0108
Appellate Court of Illinois
First District, Fifth Division
June 6, 2008
______________________________________________________________________________
PRESIDING JUSTICE FITZGERALD SMITH delivered the
opinion of the court:
Gallagher and O'Mara Frossard, JJ., concur.
____________________________________________________________________________
Appeal from the Circuit Court of Cook County
06 L 50329
The Hon. Sheldon Gardner, Judge Presiding.
______________________________________________________________________________
FOR DEFENDANT-APPELLANT and
INTERVENORS-APPELLANTS:
William E. Ryan
Michael W. Ryan
Lauren E. Ryan FOR PLAINTIFF-APPELLEE:
Ryan & Ryan
33 N. Dearborn St., Suite 1530 Benna Ruth Solomon
Chicago, IL 60602 Deputy Corporation Counsel
Myriam Zreczny Kasper
Chief Assistant Corporation Counsel
William R. Quinlan Christopher Grunewald
James A. Niewiara Assistant Corporation Counsel
Brian J. Alesia Of Counsel
Quinlan & Carroll, Ltd.
30 North LaSalle St., Suite 2900 Mara S. Georges
Chicago, IL 60602 Corporation Counsel of the City of Chicago
30 N. LaSalle St., Suite 800
Chicago, IL 60602
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