State Farm v. City of Chicago ( 2010 )

SIXTH DIVISION
February 26, 2010
No. 1-08-0679
STATE FARM MUTUAL AUTOMOBILE INSURANCE ) Appeal from
COMPANY, MICHAEL BALESTRI and PEDRO LUNA, ) the Circuit Court
) of Cook County
Plaintiffs-Appellants, )
)
v. ) No. 07 CH 10728
)
THE CITY OF CHICAGO, a Municipal Corporation, ) Honorable
) William O. Maki,
Defendant-Appellee. ) Judge Presiding.
PRESIDING JUSTICE CAHILL delivered the opinion of the court:
Plaintiffs State Farm Automobile Insurance Company (State Farm), Michael Balestri and
Pedro Luna appeal a trial court order dismissing a declaratory judgment action against the City of
Chicago (City). The trial court ruled that the complaint failed to allege an actual controversy.
We disagree and reverse and remand for further proceedings.
Balestri and Luna were involved in unrelated car accidents with City-owned vehicles. The
City's Department of Revenue sent Balestri, a City employee, a "notice of employee
indebtedness." The notice alleged Balestri owed the City $895.38, the amount the City
maintained it suffered in property damage to a police car Balestri hit. The notice read in part:
"Pursuant to [section] 2-32-392 of the Municipal Code of Chicago [(Code)
(Chicago Municipal Code §2-32-392 (2009))], the failure by an employee of the
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City of Chicago *** to pay a debt due and owing to the City shall be considered a
violation of the Municipal Code of Chicago. Any person who violates this section
shall be subject to wage garnishment proceedings to satisfy the outstanding debt.
Your department is being notified of your outstanding debt and failure to come
into compliance may result in discipline, up to and including discharge ***.
Furthermore, employee debt (including names and amounts owed) can be
requested and publicized per the Freedom of Information Act, as well as posted on
the City's Website."
The notice offered Balestri two choices: (1) pay the debt in full; or (2) negotiate a payment plan
with the City.
Luna, who was not a City employee, received a certified complaint alleging he violated
section 8-4-120 of Code (Chicago Municipal Code §8-4-120 (2009)), which prohibits damage to
City property. Unlike Balestri, Luna received a notice of hearing. The notice directed Luna to
appear before the City's Department of Administrative Hearings (DOAH) for a hearing on the
City's complaint.
Balestri and Luna had car insurance policies with State Farm. Both asked State Farm to
defend and indemnify them against the City's claims. Rather than defend the claims before the
City's DOAH, State Farm, joined by Balestri and Luna, filed this declaratory judgment action.
Their complaint alleged the City's method for enforcing property damage claims was unlawful and
asked for, among other things, an order enjoining the City from prosecuting its property damage
claims against Balestri and Luna through the City's DOAH. The City moved to dismiss the
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complaint on the ground that the complaint failed to allege an actual controversy. The trial court
agreed, granted the City's motion and dismissed plaintiffs' complaint with prejudice.
Plaintiffs filed a notice of appeal from the trial court's order. While the appeal was
pending, the City dismissed the DOAH complaint against Luna. Plaintiffs agree that Luna's
declaratory judgment action against the City is now moot. We are asked to decide only whether
the declaratory judgment complaint alleged an actual controversy between Balestri and the City.
We review this question de novo. See Doe v. Chicago Board of Education, 213 Ill. 2d 19, 23-24,
820 N.E.2d 418 (2004) (a ruling on a motion to dismiss is reviewed de novo); Walker v. State
Board of Elections, 65 Ill. 2d 543, 553, 359 N.E.2d 113 (1976) (whether an actual controversy
exists and is ripe for adjudication is reviewed de novo).
A complaint for declaratory judgment must allege an actual controversy between the
parties. Best v. Taylor Machine Works, 179 Ill. 2d 367, 382-83, 689 N.E.2d 1057 (1997). An
actual controversy exists if "the underlying facts and issues of the case are not moot or premature,
so as to require the court to pass judgment on mere abstract propositions of law, render an
advisory opinion[] or give legal advice as to future events." Underground Contractors Ass'n v.
City of Chicago, 66 Ill. 2d 371, 375, 362 N.E.2d 298 (1977). Where an administrative decision is
involved, the plaintiff must show the decision is "ripe" for adjudication. See Bio-Medical
Laboratories, Inc. v. Trainor, 68 Ill. 2d 540, 546, 370 N.E.2d 223 (1977). The purpose of the
ripeness doctrine " 'is to prevent the courts, through avoidance of premature adjudication, from
entangling themselves in abstract disagreements over administrative policies, and also to protect
the agencies from judicial interference until an administrative decision has been formalized and its
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effects felt in a concrete way by the challenging parties.' " Bio-Medical Laboratories, 68 Ill. 2d at
546, quoting Abbott Laboratories v. Gardner, 387 U.S. 136, 148-49, 18 L. Ed. 2d 681, 691, 87
S. Ct. 1507, 1515 (1967).
At issue here is whether the City's notice to Balestri created an actual controversy ripe for
adjudication. Plaintiffs argue the notice created an actual controversy because it threatened
Balestri's legal interests. The City responds that the notice had no impact on Balestri because no
further administrative action was taken to collect on the debt. Absent from the City's response is
an explanation of why the notice informs Balestri of the consequences of not paying the debt
(possible discharge, wage garnishment) but fails to inform him of his right to challenge the debt.
Under section 2-32-392 of the Code, the City is authorized to garnish the wages of an
employee who owes the City a debt. Chicago Municipal Code §2-32-392(a) (2009). But before
doing so, the City is required to give the employee notice that his wages may be garnished if he
does not, within 30 days, either pay the debt, enter into a payment plan for the debt or file a
written request for a hearing to dispute the debt. Chicago Municipal Code §2-32-392(b) (2009).
Hearings to dispute a debt are held by the DOAH before an administrative law officer. Chicago
Municipal Code §2-32-392(c) (2009). The City is required at the hearing to prove by a
preponderance of the evidence the existence of the debt and the debt amount. Chicago Municipal
Code §2-32-392(d)(i) (2009). "After the conclusion of the hearing, the administrative law officer
shall make a final determination on the record as to whether or not a debt due and owing to the
city exists against the employee. If the administrative law officer finds that a debt does exist, he
or she shall issue a written order of deduction which shall also state the total amount found due
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and owing to the city by the employee." Chicago Municipal Code §2-32-392(e) (2009).
Plaintiffs cite cases in their brief that stand for the proposition that a plaintiff may seek
declaratory judgment despite the absence of a real injury if the threat of injury casts doubt,
insecurity and uncertainty on the plaintiff's legal interests. See, e.g., Best, 179 Ill. 2d at 383-84
(personal injury plaintiffs could seek declaratory judgment on the constitutionality of a law that
capped personal injury damages even though the plaintiffs' damages had not yet been decided and
could be too low to trigger the law); Miles Kimball Co. v. Anderson, 128 Ill. App. 3d 805, 807,
471 N.E.2d 595 (1984) (plaintiff could seek declaratory judgment to determine parties'
contractual rights where the defendant sent a letter to the plaintiff's counsel referring to the
"controversy" between the parties and demanding $150,000 to settle claim); Peoples Energy
Corp. v. Illinois Commerce Com'n, 142 Ill. App. 3d 917, 934, 492 N.E.2d 551 (1986) (actual
controversy arose where agency sent corporation a citation directing corporation to appear before
it to argue either that the agency lacked jurisdiction over the company's corporate reorganization
or that the reorganization was in the public interest). Of the cases cited by plaintiffs, we find Bio-
Medical Laboratories most applicable to the facts of this case.
The plaintiff in Bio-Medical Laboratories filed a complaint to enjoin the Department of
Public Aid from terminating the plaintiff's participation in the Medicaid program. Bio-Medical
Laboratories, 68 Ill. 2d at 546. The complaint alleged that the Department performed an audit of
Medicaid payments made to the plaintiff and concluded that the plaintiff had been overpaid. Bio-
Medical Laboratories, 68 Ill. 2d at 544. The Department's auditors filed a report recommending
that the plaintiff's participation in the Medicaid program be terminated and action be taken to
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recoup the overpayments. Bio-Medical Laboratories, 68 Ill. 2d at 544-45. At issue was whether
the auditor's recommendation gave rise to an actual controversy. Bio-Medical Laboratories, 68
Ill. 2d at 545. The court held: "Absent defendant's announced intention, we would agree that
plaintiff's action was premature. Defendant's threat of action, however, along with the
recommendation of the auditors, constituted a sufficient final determination to warrant judicial
consideration." Bio-Medical Laboratories, 68 Ill. 2d at 546.
The City argues Bio-Medical Laboratories is distinguishable because the agency there left
no doubt of its intention to take further action against the plaintiff. The City maintains it never
notified Balestri of an intent to initiate wage garnishment proceedings. We disagree. The City's
notice to Balestri announces a determination of liability, indicating that Balestri's employer "is
being" notified of the debt and Balestri's indebtedness "can be requested and publicized per the
Freedom of Information Act, as well as posted on the City's Website." The notice makes clear:
either pay the debt or be subject to wage garnishment and/or discharge. There is no mention of
the right to an administrative hearing to contest the debt. As in Bio-Medical Laboratories, we
find the notice "constituted a sufficient final determination to warrant judicial consideration."
Bio-Medical Laboratories, 68 Ill. 2d at 546. Cf. National Marine, Inc. v. Illinois Environmental
Protection Agency, 159 Ill. 2d 381, 383, 388-89, 639 N.E.2d 571 (1994) (agency notice
informing the plaintiff that "it may be potentially liable" is not a final determination of liability and
does not give rise to a justiciable claim).
The City cites the exhaustion of administrative remedies doctrine as an alternative ground
for affirmance. That doctrine requires that a party aggrieved by an administrative action first
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pursue all available administrative remedies before resorting to the courts. See Poindexter v.
State, 229 Ill. 2d 194, 206-07, 890 N.E.2d 410 (2008). The problem with the City's exhaustion
argument is that there was nothing in the notice to Balestri letting him know there was an
administrative remedy available to him. The notice of employee indebtedness did not initiate an
administrative proceeding under section 2-32-392 of the Code because it failed to inform Balestri
of his right to a hearing. See Chicago Municipal Code §2-32-392(b) (2009). Even if it had,
plaintiffs would not be required to exhaust administrative remedies because their complaint sought
a declaration that the City was without authority to resolve property damage disputes through the
DOAH. See Landfill, Inc. v. Pollution Control Board, 74 Ill. 2d 541, 550, 387 N.E.2d 258
(1978) ("[e]xhaustion is not required where a statute or rule under which an administrative body
purports to act is challenged as unauthorized").
The judgment of the circuit court is reversed and the cause is remanded for further
proceedings consistent with this opinion.
Reversed and remanded.
J. GORDON and McBRIDE, JJ., concur.
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