Northshore Univ. Healthsystem v. Ill. Dep't of Revenue

2017 IL App (1st) 153647

77 N.E.3d 661

NORTHSHORE UNIVERSITY HEALTHSYSTEM, Plaintiff-Appellant,

v.The ILLINOIS DEPARTMENT OF REVENUE, the Board of Education of Niles Township High School District No. 219, and Administrative Law Judge Kenneth J. Galvin, Defendants-Appellees,

No. 1-15-3647

Appellate Court of Illinois, First District, SECOND DIVISION.

Filed March 28, 2017

Rehearing denied April 21, 2017

Mayer Brown LLP (Timothy S. Bishop, Tyrone C. Fahner, Patrick J. McNerney, Daniel K. Storino, and Alexandra L. Newman, of counsel), McCarthy & Associates (Thomas J. McCarthy, Chelsea K. Skaw, and Jeffrey W. Finke, of counsel), and Thomas M. Tully & Associates (Thomas M. Tully and John J. Tully, Jr., of counsel), all of Chicago, for appellant.

Lisa Madigan, Attorney General, of Chicago (David L. Franklin, Solicitor General, and Christina T. Hansen, Assistant Attorney General, of counsel), for appellees Illinois Department of Revenue and Kenneth J. Galvin.

Hauzer Izzo, LLC, of Flossmoor (John M. Izzo and Eugene C. Edwards, of counsel), for other appellee.

OPINION

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

¶ 1 NorthShore University Healthsystem was granted certain property tax exemptions by the Illinois Department of Revenue. The local school district filed timely applications for hearings with the Department to challenge some of the Department's exemption decisions. NorthShore moved to dismiss the petitions, contending that the Department lacked jurisdiction where the petitions for hearing failed to set forth the mistakes alleged to have been made or the new evidence to be presented at the hearing, as required by statute. An administrative law judge denied the motion to dismiss. NorthShore filed a complaint in the circuit court seeking equitable relief from the ALJ's order. The circuit court dismissed NorthShore's complaint for lack of subject matter jurisdiction, since NorthShore had not exhausted its administrative remedies. NorthShore appeals. For the following reasons, we affirm.

¶ 2 BACKGROUND

¶ 3 NorthShore University Healthsystem (NorthShore) is an Illinois not-for-profit hospital system that owns and operates Skokie Hospital. NorthShore filed applications with the Cook County Board of Review seeking property tax exemptions for tax years 2009, 2010, and 2011 for all tax parcels comprising Skokie Hospital's campus.¹ The applications sought exemptions under multiple sections of the Property Tax Code (35 ILCS 200/1-1 et seq. (West 2010)), and specifically sought exemptions as a school (35 ILCS 200/15-35(a) (West 2010)) and as a charitable purpose (35 ILCS 200/15-65 (West 2010) ), as well as exemptions for the campus' parking areas (35 ILCS 200/15-125 (West 2010) ). In response to each of the applications, Niles Township High School District No. 219 (the District) sought leave to intervene before the Illinois Department of Revenue (Department).²

¶ 4 In September 2011, then-Governor Patrick Quinn issued a moratorium on Department actions related to not-for-profit hospital tax exemptions in the wake of our supreme court's decision in Provena Covenant Medical Center v. Department of Revenue , 236 Ill.2d 368, 339 Ill.Dec. 10, 925 N.E.2d 1131 (2010). See Kathy Bergen and Moritz Honert, Illinois Nonprofit Hospitals Get Reprieve on Reevaluation of Tax-Exempt Status , Chicago Tribune, Sept. 23, 2011.

¶ 5 The General Assembly subsequently enacted Public Act 97-0688 § 5-55 (eff. June 14, 2012) (adding 35 ILCS 200/15-86 ), which created a "charitable property tax exemption to be applied to not-for-profit hospitals and hospital affiliates in lieu of the existing ownership category of ‘institutions of public charity’." The Department then instructed NorthShore to file additional exemption applications directly to the Department under section 15-86 of the Property Tax Code for the tax years 2009, 2010, and 2011. NorthShore also filed a section 15-86 exemption application for tax year 2012 with the Cook County Board of Review for Skokie Hospital.

¶ 6 Between April and October 2013, the Department granted NorthShore certain property tax exemptions for the tax years 2009 through 2012, and issued exemption certificates to NorthShore. The exemption certificates did not identify under which section of the Property Tax Code the exemptions were granted.

¶ 7 After the exemptions were granted, the District filed letters with the Department, requesting hearings on NorthShore's exemptions. The District's requests for hearing in connection with NorthShore's exemptions for tax years 2009 through 2011 each stated that the District "is requesting a formal hearing regarding the granting of NorthShore's * * * tax exemption." The letters requested that the Department "advise as soon as possible" whether any other steps needed to be taken "in order to have a formal hearing" before the Department. The District's letter in connection with the 2012 exemptions stated that the District was requesting a formal hearing "because it believe[d] NorthShore was not entitled to such exemptions based upon the deficiencies of North Shore's submissions and because of the invalidity of the provision of the Property Tax Code (35 ILCS 200/15-86 ) of which NorthShore relies."³ The letter again requested the Department to "advise as soon as possible if any other steps need to be taken in order to have a formal hearing set before [the Department]."

¶ 8 Relevant to this appeal, NorthShore filed a motion to dismiss the administrative proceedings for lack of jurisdiction.⁴ It argued that the District's letters did not comply with section 8-35(b) of the Property Tax Code (35 ILCS 200/8-35(b) (West 2012)) because the letters did not identify any mistakes made by the Department in its exemption decisions or identify any new evidence that would be presented at a hearing. NorthShore argued section 8-35(b) allows a party aggrieved by the Department's exemption decision to file an application for hearing, but that section 8-35(b) requires that the application "shall state concisely the mistakes alleged to have been made or the new evidence to be presented." 35 ILCS 200/8-35(b) (West 2010). NorthShore contended that the use of "shall" indicated that an application that did not set forth any alleged errors or evidence to be presented did not properly invoke the Department's jurisdiction.

¶ 9 In a written order, the Administrative Law Judge (ALJ) denied NorthShore's motion to dismiss. The ALJ first looked to section 110.145(c) of the Illinois Administrative Code (Administrative Code) (86 Ill. Admin. Code § 110.145(c) (2012) ), which states that: "Petitions for hearing shall state concisely the mistakes alleged to have been made or the new evidence to be presented." The ALJ then observed that section 110.145(h) of the Administrative Code states that section 200.120(a) of the Administrative Code applies to proceedings under the Illinois Property Tax Code. 86 Ill. Admin. Code § 110.145(h) (2012). Section 200.120(a) of the Administrative Code provides that, for non-income tax matters, "no communication with the Department shall be considered a valid protest unless, at the very least, it is timely, in writing, clearly identifies the particular action (assessment, deficiency, denial of claim, etc.) of the Department that is being protested and specifically requests a hearing thereon." 86 Ill. Admin. Code § 200.120(a) (2012). The ALJ found that he was bound to follow the Department's rules and to construe them together to produce a "harmonious whole." Viewing the provisions together, he found that the District's requests for a hearing identified the action being protested, which satisfied section 8-35 of the Property Tax Code and section 110.145(c) of the Administrative Code. The ALJ determined that because the Department's exemption certificates did not identify the statutory basis for the exemptions, "requiring the [District] to file a more extensive or specific protest would be unreasonable." The ALJ therefore denied North Shore's motion to dismiss.

¶ 10 NorthShore moved to reconsider. The Department filed a brief in support of NorthShore's motion to reconsider, urging the ALJ to dismiss the District's petitions for failing to specify the basis for its challenge or identify any new evidence to be considered at a hearing. The Department did not, however, argue that the dismissal should be based on a lack of jurisdiction. The ALJ denied the motion to reconsider.

¶ 11 On July 2, 2015, NorthShore filed a five-count complaint in the circuit court against the Department, the District, and the ALJ (collectively, defendants). The complaint sought a writ of prohibition, a writ of mandamus , injunctive and declaratory relief, and a writ of certiorari , all premised on the Department's alleged lack of jurisdiction over the District's applications.

¶ 12 The defendants moved to dismiss NorthShore's complaint. The District filed a combined section 2-615 and section 2-619 motion to dismiss to pursuant to section 2-619.1 of the Code of Civil Procedure (the Code) (735 ILCS 5/2-619.1 (West 2014) ), while the Department and the ALJ filed a motion to dismiss pursuant section 2-619 of the Code (735 ILCS 5/2-619 (West 2014) ). All of the defendants' section 2-619 motions argued that the circuit court lacked subject matter jurisdiction because NorthShore failed to exhaust its administrative remedies since "[n]o action for the judicial review of any exemption decision of the Department shall be allowed unless the party commencing the action has filed an application for a hearing and the Department has acted upon the application." (35 ILCS 200/8-35(b) (West 2010)). The Department and the ALJ additionally argued that whether the District's applications were defective for failing to comply with a mandatory statutory requirement did not affect the Department's authority to hear the applications. The District also argued that none of NorthShore's claims were well-pleaded and therefore subject to dismissal...