Hopedale Medical Foundation v. Tazewell County Collector

Decision Date11 May 1978
Docket NumberNo. 76-548,76-548
Citation17 Ill.Dec. 92,375 N.E.2d 1376,59 Ill.App.3d 816
Parties, 17 Ill.Dec. 92 The HOPEDALE MEDICAL FOUNDATION, Plaintiff-Appellant, v. TAZEWELL COUNTY COLLECTOR, Defendant-Appellee, and Robert Burroughs, Intervening Petitioner.
CourtUnited States Appellate Court of Illinois

David B. Mueller and Richard D. Price, Jr., Cassidy, Cassidy, Mueller & Price, Peoria, for plaintiff-appellant.

Bruce Black, State's Atty., Tazewell County, Pekin, for defendant-appellee; Carl F. Reardon, Sp. Asst. State's Atty., East Peoria, and Mary Patricia Benz, of counsel.

SCOTT, Justice.

This is an appeal from various judgment orders entered by the circuit court of Tazewell County. On September 3, 1976, the trial court awarded judgment to the defendant, Tazewell County Collector, on eight consolidated tax objection cases (for the years 1967 through 1974) in which the plaintiff, The Hopedale Medical Foundation, was seeking a declaration that its real estate was used for charitable purposes and therefore exempt from real estate taxation. On September 16, 1976, the trial court granted relief sought by the defendant in its counterclaim by finding that the plaintiff was liable for penalties due to its failure to pay taxes during the years in question. Robert Burroughs intervened in the trial court proceedings by claiming tax deeds to the real estate in question but the intervenor made no court appearances, did not pursue his claim and is not a party to this appeal.

We would be guilty of prolixness if we set forth a detailed recital of the origin and development of The Hopedale Medical Foundation for the same is already clearly and adequately set forth in the case of People ex rel. County Collector v. Hopedale Medical Foundation (1970), 46 Ill.2d 450, 264 N.E.2d 4, hereinafter referred to as 1970 Tax Case. We will recite additional facts as they become pertinent to this appeal.

In the 1970 Tax Case decided in 1970 our supreme court denied the plaintiff foundation exemption from real estate taxation for the reason that it was not used exclusively for charitable purposes. The tax years involved in the 1970 Tax Case were 1961 through 1966. The litigation which is the subject of this appeal was commenced on March 15, 1976, some five and one-half years after our supreme court decision in the 1970 Tax Case. The litigation which is the subject of this appeal commences with tax objections for the year 1967 and for the next seven consecutive years and the paramount issue is the same as that which was raised in the 1970 Tax Case, to-wit, whether or not the plaintiff, The Hopedale Medical Foundation, is entitled to a real estate exemption because it is used for charitable purposes.

One may well ask why the trial court permitted this question to be relitigated and it may well be that it should not have been permitted on the theory of estoppel by verdict. (Turn Verein Lincoln v. Paschen (1960), 20 Ill.2d 229, 170 N.E.2d 111.) We are aware, however, that the doctrine of res judicata is technically inapplicable in tax cases because each claim of exemption for a particular tax year constitutes a separate cause of action. We therefore quarrel not with the trial court's denial of the defendant's motion which attempted to bar a relitigation of the issue relating to the plaintiff foundation's claim of tax exemption.

The trial court permitted the plaintiff foundation to have its day in court and in this appeal we are naturally confronted with the question as to whether in the years subsequent to 1966 there was a change in the circumstances and operation of the plaintiff foundation. The answer to this question is in the negative. The record in this cause discloses that all of the directors of the foundation admitted that no changes had been effected or authorized in the operation and organization of the plaintiff foundation since the supreme court decision of 1970. It is apparent from the record that the operation and organization of the plaintiff foundation was the same as it had been in the years of 1961 through 1966 which our supreme court found to be such as to defeat a claim for tax exemption.

From 1967 through 1971 Dr. Rossi continued to operate a private medical practice, a private pharmacy, and a consultation business on the property of the foundation.

The law is settled that it is incumbent upon a property owner to show clearly that its organization and use of property falls within the provisions of the statute respecting the exemption of charitable organizations from taxation. Rotary International v. Paschen (1958), 14 Ill.2d 480, 153 N.E.2d 4.

The statutory provisions relating to the exemption of property used for charitable purposes are as follows:

"All property described in Sections 19.1 through 19.24 to the extent therein limited, is exempt from taxation. * * * " Ill.Rev.Stat.1975, ch. 120, sec. 500.

"500.7-Charitable Institutions. § 19.7. All property of institutions of public charity, all property of beneficent and charitable organizations, whether incorporated in this or any other state of the United States, and all property of old people's homes, when such property is actually and exclusively used for such charitable or beneficent purposes, and not leased or otherwise used with a view to profit; * * * ." Ill.Rev.Stat.1975, ch. 120, sec. 500.7.

The foregoing statutory provisions implemented the authority for the tax exemption of property used exclusively for charitable purposes which was granted in article IX, section 3 of the Constitution of the State of Illinois 1870, and which is found in article IX, section 6 of the Constitution of Illinois 1970.

The all encompassing issue raised by the plaintiff foundation in this appeal is that it is an institution of public charity as defined by statute (Ill.Rev.Stat.1975, ch. 120, sec. 500.7) and consequently is entitled to a real estate taxation exemption. In buttressing this contention the plaintiff foundation first argues that the record in this cause fails to show a disqualifying benefit which was received by anyone and secondly, that in any event the primary use of the property involved was charitable.

We recognize that our reviewing courts in determining whether tax exemption should be granted to certain institutions have considered the theories of "inurement of benefit" and the "primary and secondary use." We do not deem it necessary to analyze the holdings of these various cases since we believe that the law is still well settled to the effect that when the income of an institution inures to the benefit of a private individual engaged in managing a charity, the institution loses its status as a charitable institution even though that institution might primarily be of a charitable nature. Sisters of Third Order of St. Francis v. Board of Review (1907),231 Ill. 317, 83 N.E. 272.

The plaintiff foundation asserts that the St. Francis case no longer sets forth the applicable law as to the test for charitable institutions seeking tax exemption and advances the argument that there can be no benefit to any individual if that individual exchanges "value for value." It is the plaintiff foundation's theory that any compensation received by Dr. Rossi was commensurate with the actual services rendered by him. This approach in determining whether or not there was any inurement of a benefit to an individual is a novel one and we find no law supporting the proposition that the courts of this state must make a quid pro quo analysis in determining the inurement of benefits.

Assuming arguendo that a quid pro quo analysis should be made we direct our attention to the facts in the instant case. At the outset we are cognizant of the fact that the trial court, as well as counsel for all parties, recognized the dedication and ability of Dr. Rossi and the benefits inuring to the Hopedale community from the medical complex which was created and has been perpetuated largely through the doctor's efforts. Unfortunately dedication and ability do not erase disqualifying benefits received by an individual. Dr. Rossi's life became so imbued in and enmeshed with the activities and affairs of the medical complex that he either could not or would not divorce his private financial activities from those of the foundation. The 1970 Tax Case clearly set forth guidelines and rang a bell of warning as to what the doctor's role in the foundation should be in future years if a tax exemption was to be forthcoming, yet in the next eight consecutive years he continued to commingle his private affairs with that of the foundation.

Throughout the years in question in the instant case, to-wit, 1967-1974, Dr. Rossi served as medical director and administrator of the foundation. His salary throughout these years ranged from $15,000 to $60,000 per annum. While the foundation had a board of directors it is abundantly clear from the record that day to day decisions on both routine and policy matters were left to the decision of the doctor. There was never any vote by the board to authorize the payment of an $11,000 judgment plus attorney fees which had been entered against the doctor, yet the same was paid by the foundation. The doctor continued throughout the years to practice medicine on the facilities of the foundation. His income from this practice was from $30,000 to $40,000 per year. It is significant to note that the foundation opened and maintained what was referred to as satellite offices in the nearby villages of Emden, McLean and Manito. Dr. Rossi as well as other doctors used these medical offices and the rental to be paid for such use was determined by Dr. Rossi. He paid the sum of $100 per month while other doctors paid the sum of $800 per month. For the years of 1969, 1970, and 1974 Dr. Rossi paid no rent but over the course of years treated the second highest number of patients in the satellite offices. Throughout the years in question the doctor received a total of $459,489.72 as direct payments...

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    ... ... School (1957), 12 Ill.2d 113, 117, 145 N.E.2d 80; Hopedale Medical Foundation v. Tazewell County Collector (1978), 59 ... ...
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