Keystone Montessori Sch. v. Vill. of River Forest
| Decision Date | 17 July 2018 |
| Docket Number | No. 18 C 2010,18 C 2010 |
| Citation | 316 F.Supp.3d 1061 |
| Parties | KEYSTONE MONTESSORI SCHOOL, a not-for-profit Illinois corporation, Plaintiff, v. VILLAGE OF RIVER FOREST, an Illinois municipal corporation, Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
John William Mauck, Noel W. Sterett, Sorin Adrian Leahu, Mauck & Baker, LLC, Chicago, IL, for Plaintiff.
Lance C. Malina, Caitlyn Rae Culbertson, Gregory T. Smith, John A. Wall, Kathleen Marie Terese, Klein, Thorpe & Jenkins, Ltd., Chicago, IL, for Defendant.
Twenty years ago, the Keystone Montessori School, a primary and secondary school with tax-exempt status under Section 501(c)(3) of the Internal Revenue Code, was looking for a new home in the Village of River Forest. It reached an agreement with the River Forest School District to purchase a building formerly used as a public school, but the Village Board "killed" the sale because it preferred to develop residences on the site in order to generate tax revenue.1 The Board steered Keystone instead to a long-vacant building formerly used for commercial business. But because the Village's zoning code precluded Keystone from operating as a school at that site, Keystone submitted a "Request for Forbearance" asking the Village to withhold strict enforcement of the zoning code while it applied for a Planned Development Permit and undertook renovations to bring the site into compliance with the zoning ordinance. See Compl., Exh. A. In the Request for Forbearance, Keystone acknowledged the risk that its permit application might be denied and that it could lose any investments it made in anticipation of occupancy. Id. at 2.
Keystone began operating at the site under lease in September of 1998, with renovations underway and its application for a Planned Development Permit pending. In early October, the Village informed Keystone that a permit would be granted only if Keystone agreed not to seek a property tax exemption. On November 23, 1998, the Village passed Ordinance No. 2797, which granted Keystone's Planned Development Permit subject to the condition that Keystone enter into a certain "Agreement Regarding Property Taxes" with the Village (the "Agreement"). Compl., Exh. B.2 The Agreement provides that the property would remain "fully subject to real estate taxes" throughout Keystone's use or occupancy of the premises, and that Keystone would not seek or obtain any property tax exemption. Id. The Agreement also sets forth the Village's rights and remedies against Keystone in the event the property were to become tax exempt. These include the right to declare any Planned Development Permit authorizing Keystone's operation on the premises null and void (which the parties stipulated would render Keystone's continued operation at the site a violation of the zoning code), and the right to recover $100,000 annually, with interest, for each year the property remains tax exempt. The Agreement further provides that if Keystone fails to pay this amount, the Village may sue Keystone for breach of contract and recover liquidated damages of $500,000. Id. at 2-3.
The Agreement stipulates that in any legal proceeding brought to enforce the Agreement, the Village is entitled to judgment in its favor on the pleadings; that any allegations the Village raises are deemed conclusive; and that the Village is entitled to the relief it seeks. On top of that, Keystone agrees to "immediate entry of judgment against it," explicitly relinquishing any right to trial by judge or jury "or any other pre-trial procedure"; its right to engage in discovery or demand the presentation of evidence; and its right to appeal any judgment that is entered. Id. at 3. The Agreement provides that the Agreement shall terminate, and all of Keystone's obligations to the Village shall cease, if Keystone transfers title to the property to a non-related entity in a bona fide transfer and the property ceases to function as a school. Id. Keystone explicitly represented that its legal counsel and Board of Trustees had reviewed and approved the Agreement. Id.
Keystone purchased the property at issue in December of 1998 and has made numerous improvements to the building over the years. Beginning in 2002, Keystone has sought to amend the Agreement. It made formal requests to the Village to reduce its tax burden in 2003, 2004, 2007, 2009, and 2011, and it has made repeated proposals that the school be permitted to obtain a real estate tax exemption while making certain negotiated payments in lieu of taxes. The Village has not agreed to any of Keystone's proposals. Keystone continues to make payments on its mortgage loan, but its property taxes for Tax Years 2016 and 2017 are delinquent, and the property is now in foreclosure. Shea Decl., Pl.'s PI Mem., Exh. 3 at ¶¶ 10, 25. To date, Keystone has paid approximately $1.1 million in real estate taxes.
Keystone filed this action in the Circuit Court of Cook County on March 6, 2018, and the Village removed on the ground that I have original jurisdiction over two of Keystone's claims, of which it asserts five in total. In Counts I-IV, Keystone seeks declarations that the Agreement is void because: it contravenes public policy; it constitutes an unconstitutional condition because it coerces Keystone into giving up its right to a tax exemption; it constitutes an illegal zoning contract; and it is an illegal perpetual contract. In Count V, Keystone asserts that the Village violated its constitutional right to equal protection by singling it out as the only Village not-for-profit entity required to forfeit its right to a property tax exemption. The Village has moved to dismiss the complaint, and both parties have moved for a preliminary injunction. I resolve these motions as follows.
The Village seeks to dispose of all of Keystone's claims at the threshold on the ground that they are barred by a two year (for the federal claims) or a five year (for the contract claims) statute of limitations.3 The Village acknowledges that this affirmative defense is not ordinarily appropriate for resolution at the pleadings stage but insists that in this case, it is obvious from the complaint that Keystone's claims accrued when the Agreement was formed on November 3, 1998, and thus expired years ago.
The Village also seeks dismissal of both constitutional claims and all but one contracts claim (saving the claim that the Agreement is illegal as a perpetual contract) under Fed. R. Civ. P. 12(b)(6). In this portion of its motion, the Village argues that the allegations supporting the contracts claims and the "unconstitutional conditions" claim are contradicted by the face of Agreement and that the equal protection claim fails on the allegations themselves, which reveal a rational basis—the Village's desire to obtain tax revenue from Keystone's property—for singling out Keystone among Village schools.
Because this case was removed on the basis of original federal jurisdiction, it makes sense to begin with Keystone's federal claims, since if those drop out of the case, the appropriate course is to remand to state court. RWJ Management Co., Inc. v. BP Products North America, Inc. , 672 F.3d 476, 478 (7th Cir. 2012) ().
The unconstitutional conditions doctrine "vindicates the Constitution's enumerated rights by preventing the government from coercing people into giving them up." Koontz v. St. Johns River Water Management Dist. , 570 U.S. 595, 604, 133 S.Ct. 2586, 186 L.Ed.2d 697 (2013). Accordingly, a plaintiff invoking the doctrine must plausibly allege that the government's coercive conduct caused it to relinquish a right rooted in the Constitution. In Koontz (...
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Keystone Montessori Sch. v. Vill. of River Forest
...could be granted.¶ 18 In July 2018, the federal court granted the motion regarding counts II and V. Keystone Montessori School v. Village of River Forest , 316 F. Supp. 3d 1061 (N.D. Ill. 2018). While count II alleged an unconstitutional condition, the right that the Village allegedly coerc......