ECO Brite Linens LLC v. City of Chi.

2023 IL App (1st) 210665

215 N.E.3d 1067

465 Ill.Dec. 862

ECO BRITE LINENS LLC, Plaintiff-Appellant,

v.The CITY OF CHICAGO, Defendant-Appellee.

No. 1-21-0665

Appellate Court of Illinois, First District, First Division.

Filed January 30, 2023

Charles Aaron Silverman, of Charles Aaron Silverman P.C., of Skokie, for appellant.

Celia Meza, Corporation Counsel, of Chicago (Myriam Zreczny Kasper, Suzanne M. Loose, and Julian N. Henriques Jr., Assistant Corporation Counsel, of counsel), for appellee.

JUSTICE PUCINSKI delivered the judgment of the court, with opinion.

¶ 1 Plaintiff-appellant Eco Brite Linens LLC filed a single-count complaint against Defendant-appellee City of Chicago (City), seeking declaratory relief in the form of a finding that plaintiff was not liable to the City for unpaid taxes, interest, and penalties pursuant to the City's Personal Property Lease Transactions Tax Ordinance. Defendant filed a motion to dismiss the complaint pursuant to section 2-619 of the Code of Civil Procedure ( 735 ILCS 5/2-619(a)(1) (West 2020)), arguing that plaintiff failed to exhaust the available administrative remedies, which required plaintiff to bring the matter to the City's Department of Administrative Hearings, as the body authorized under Illinois law to hear and adjudicate alleged violations of the City's municipal code. The circuit court granted the City's motion, and plaintiff now appeals from that order.

¶ 2 I. BACKGROUND

¶ 3 Plaintiff is a corporation that operates a laundry service in the Village of Skokie. It provides laundered linens to residential care facilities in Chicago for their temporary use. Plaintiff asserts that it does not operate within Chicago, and only gives its linens to residential care facilities free of charge. According to plaintiff, in exchange for receiving plaintiff's linens, customers agree to use plaintiff's laundry service, including payment of a laundry service fee. On September 21, 2020, the City's Department of Finance (DOF) sent plaintiff a discovery notice, notifying plaintiff that it was being investigated for possible noncompliance with two City ordinances: (a) the Chicago Personal Property Lease Transaction Tax Ordinance (Chicago Municipal Code § 3-32-010 (added Dec. 15, 1992)) (Ordinance) and (b) the Chicago Use Tax Ordinance for Nontitled Personal Property (Chicago Municipal Code § 3-27-10 (added Nov. 22, 1991)). The latter ordinance is not at issue in this appeal. The former creates a duty on lessors to collect and remit to the DOF a lease transaction tax on the lease or rental of personal property within the city or for the use within the city of personal property that is leased or rented outside the city. Chicago Municipal Code § 3-32-030(A) (amended Nov. 26, 2019).

¶ 4 On November 23, 2020, plaintiff brought the underlying action against the City, claiming that its transactions did not constitute leases pursuant to the Ordinance and seeking a declaratory judgment that it was not liable for the lease transaction tax. On November 30, 2020, the DOF issued plaintiff two notices of tax determination and assessment, one for failure to collect and remit the lease transaction tax pursuant to section 3-32 (Notice and Assessment) and one for failure to pay the use tax pursuant to section 3-27. The DOF then issued plaintiff a lease transition tax assessment in the amount of $1,324,063.49 in unpaid taxes, interest, and penalties and notified plaintiff that the assessment would become final unless plaintiff filed a written protest and petition for administrative hearing with the DOF within 35 days of receiving the notice.

¶ 5 On December 21, 2020, the City moved to dismiss the case on the basis that plaintiff had failed to exhaust its available administrative remedies. Plaintiff then timely filed with the DOF a protest of the assessment and a petition for administrative hearing. The administrative hearing had not reached its conclusion prior to plaintiff filing the underlying case. On May 12, 2021, the circuit court granted the City's motion to dismiss. Plaintiff now appeals from that order, arguing that it was not required to exhaust its administrative remedies because (a) the case required no specific investigation of the facts that needed to be developed before the agency, (b) there was no need for the agency's expertise in this matter, and (c) the law was well established that the City could not tax suburban businesses for transactions that took place outside the city.

¶ 6 II. ANALYSIS

¶ 7 A. Standard of Review

¶ 8 An order of dismissal pursuant to section 2-619 of the Code of Civil Procedure ( 735 ILCS 5/2-619 (West 2020) ) is reviewed de novo. Porter v. Decatur Memorial Hospital , 227 Ill. 2d 343, 352, 317 Ill.Dec. 703, 882 N.E.2d 583 (2008). The section 2-619 motion admits as true all well-pleaded facts, all reasonable inferences to be drawn from the facts, and the legal sufficiency of the claim. Id. In addition, all pleadings and supporting documents must be construed in the light most favorable to the nonmoving party. Id. A dismissal of a pleading pursuant to section 2-619 is based on certain defects or defenses that defeat the claim. Richter v. Prairie Farms Dairy, Inc. , 2016 IL 119518, ¶ 18, 402 Ill.Dec. 870, 53 N.E.3d 1.

¶ 9 A motion to dismiss under section 2-619(a)(9) specifically argues that the pleadings are barred by an affirmative matter not otherwise listed in this section. 735 ILCS 5/2-619(a)(9) (West 2020). An affirmative matter under section 2-619(a)(9) is "something in the nature of a defense that negates the cause of action completely or refutes crucial conclusions of law or conclusions of material fact contained in or inferred from the complaint." In re Estate of Schlenker , 209 Ill. 2d 456, 461, 283 Ill.Dec. 707, 808 N.E.2d 995 (2004). In a section 2-619(a)(9) motion, "[t]he defendant does not admit the truth of any allegation in plaintiff's complaint that may touch on the affirmative matter raised in the 2-619 motion." Barber-Colman Co. v. A&K Midwest Insulation Co. , 236 Ill. App. 3d 1065, 1073, 177 Ill.Dec. 841, 603 N.E.2d 1215 (1992). Where the movant supplies an affirmative matter, the opposing party cannot rely on bare allegations alone to raise issues of material fact. Atkinson v. Affronti , 369 Ill. App. 3d 828, 835, 308 Ill.Dec. 186, 861 N.E.2d 251 (2006). Neither conclusory allegations nor conclusory affidavits are sufficient to defeat properly submitted facts in a section 2-619 motion. Allegis Realty Investors v. Novak , 379 Ill. App. 3d 636, 641, 319 Ill.Dec. 54, 885 N.E.2d 325 (2008). The question on appeal is "whether the existence of a genuine issue of material fact should have precluded the dismissal or, absent such an issue of fact, whether dismissal is proper as a matter of law." Kedzie & 103rd Currency Exchange, Inc. v. Hodge , 156 Ill. 2d 112, 116-17, 189 Ill.Dec. 31, 619 N.E.2d 732 (1993).

¶ 10 B. Chicago Personal Property Lease Transaction Tax Ordinance

¶ 11 The Ordinance imposes a tax on "(1) the lease or rental in the city of personal property, or (2) the privilege of using in the city personal property that is leased or rented outside the city." Chicago Municipal Code § 3-32-030(A) (amended Nov. 26, 2019). The Ordinance defines both "lease" and "rental" as "any transfer of the possession or use of personal property, but not title or ownership, to a user for consideration, whether or not designated as a lease, rental, license or by some other term." Chicago Municipal Code § 3-32-020(I) (amended Nov. 21, 2017). It further defines "lease price" and "rental price" to include "any and all charges that the lessee pays incidental to obtaining the lease or rental of personal property, including but not limited to any and all related markups, service fees, convenience fees, facilitation fees, cancellation fees, late return fees, late payment fees and other such charges, regardless of terminology." Id. § 3-32-020(K). The Ordinance imposes a duty on lessors to collect the rental tax from lessees and to remit the amount to the DOF. If a lessor fails to collect or remit the tax, the lessor is liable to the City for the amount of the tax. Chicago Municipal Code § 3-32-070(A) (amended Nov. 19, 2008).

¶ 12 The City notified plaintiff that the DOF had found plaintiff to be liable under the Ordinance for uncollected and unremitted taxes, interest, and penalties based on its charging of an incidental service fee for the leasing of its linens to residential care facilities within the city. Plaintiff sued the City, seeking a declaratory judgment that it was not required to pay the lease transaction tax because it did not lease its linens, but rather gave them out for free, and the laundry service fee would only be applied if a facility chose to use plaintiff's laundry service. The City moved to dismiss the complaint on the basis that plaintiff had failed to exhaust its available administrative remedies before filing suit.

¶ 13 C. Administrative Review Law

¶ 14 It is well established that a party ordinarily cannot seek judicial relief from an administrative action without first exhausting all administrative remedies. Arvia v. Madigan , 209 Ill. 2d 520, 531, 283 Ill.Dec. 895, 809 N.E.2d 88 (2004) ; County of Knox ex rel. Masterson v. The Highlands, L.L.C. , 188 Ill. 2d 546, 551, 243 Ill.Dec. 224, 723 N.E.2d 256 (1999). The Administrative Review Law states, "Unless review is sought of an administrative decision within the time and in the manner herein provided, the parties to the proceeding before the administrative agency shall be barred from obtaining judicial review of such administrative decision." 735 ILCS 5/3-102 (West 2020). The requirement of exhaustion of administrative remedies "allows the administrative agency to fully develop and consider the facts of the cause before it; it allows the agency to utilize its expertise; and it allows the aggrieved party to ultimately succeed before the agency, making judicial review unnecessary." Castaneda v....