A fine surprise: City may owe millions in refunds

Mayor Rahm Emanuel / Brian Jackson

A fine surprise: City may owe millions in refunds

FRI, 06/27/2014 - 1:58PM

FRAN SPIELMAN

@FSPIELMAN | EMAIL

Chicago taxpayers could be on the hook to refund millions of dollars in fines levied by administrative hearing officers over the years because the city did not require corporate defendants to be represented by licensed attorneys.

The surprise liability stems from a May 20 Illinois Appellate Court ruling in a case filed by Stone Street Partners, a limited liability corporation that owned Gold Coast real estate.

A caretaker had appeared before an administrative hearing officer to contest a 1999 building code violation, triggering a $1,000 judgment.

Eleven years later, the partners got notice of a default judgment and moved to vacate it on grounds they had not been properly served and that the city had allowed the corporation to be represented by a person who was not authorized to practice law.

The Appellate Court agreed.

“Representation of corporations at administrative hearings — particularly those which involved testimony from sworn witnesses, interpretation of laws and ordinances and can result in the imposition of punitive fines — must be made by a licensed attorney at law,” the decision stated.

 “The city’s actions in this case are troubling and its system of adjudicating ordinance violations deserves to be reviewed.”

Rick Linden, an attorney representing Stone Street Partners, said the ruling could have a devastating impact on Chicago taxpayers.

“If a corporation appears without a licensed lawyer, the proceedings are null and void. It’s like they never happened. That means any fines levied as a result of those proceedings have to be returned,” Linden said.

Linden said he has no idea how many of the 503,541 administrative hearing cases filed last year — 422,802 of them triggering fines under $10,000 — involved corporations.

But, he said, “It’s safe to say there are thousands of cases over the years where corporations appeared without a licensed lawyer. The potential cost could be millions.”

Law Department spokeswoman Shannon Breymaier agreed that the Stone Street decision “could have serious ramifications, which is why we are fighting the decision in court and recently submitted a petition for leave to appeal the decision to the Illinois Supreme Court.”

The Emanuel administration was even more blunt in its court filing condemning the Appellate Court ruling.

“Because the majority declined to give its ruling only prospective effect, millions of dollars of state and local government funds obtained through administrative judgments that were valid under the Appellate Court’s prior precedent are now in jeopardy,” the city’s appeal states.

City Hall accused the Appellate Court of “putting in jeopardy every administrative judgment ever entered in Illinois against a corporation that chose not to be represented by counsel.”

Ald. Bob Fioretti (2nd) is so concerned about the financial hit that he introduced a resolution at Wednesday’s City Council meeting demanding the “expeditious appointment” of a council task force to “immediately cure the deficiencies of the city’s administrative hearing practices.”

“This could be hundreds of millions of dollars that have to be returned,” he said.

The city’s liability might not be limited to corporate defendants, Fioretti said, noting that there’s another pending lawsuit that challenges the city’s failure to have attorneys prosecute cases before the Department of Administrative Hearings.

The Law Department has moved pre-emptively to staff more court calls, sources said.

 “The hearing officers are not only making decisions; they also act as the prosecution in these cases. There’s no separation. There’s a serious lack of due process. Under Illinois law, you need to have a fair determination. That requires prosecution by an attorney,” Fioretti said. “We ought to cure the deficiencies and make sure this is no longer a kangaroo court — that people have due process.”

In 1996, then-Mayor Richard M. Daley moved to consolidate all 280,000 noncriminal cases filed by the city each year under a newly created Office of Administrative Adjudication, continuing a trend that started in 1990 with city parking tickets.

The goal was to exact swift and harsh punishment for a parade of offenses — from vagrancy, noise, smoking and fly-dumping to pollution control, public urination, animal care and cable TV theft — by removing thousands of cases from the courts.

Two years later, hearing officers were given the muscle to enforce their own judgments. Daley subsequently elevated the office to full department status as the number of cases mushroomed.

During the first quarter of this year, there were 101,848 cases filed with 91,0151 under $10,000.

The Department of Administrative Hearings has long been a political pinata for Chicago aldermen, who have griped about rude hearing officers and sham proceedings where virtually every defendant is found guilty and appeals have no chance.

Breymaier strongly disagreed, adding, “These hearings serve an important role, handling small claims through a process that is simpler, less expensive and more efficient than Circuit Court.”

The potential for millions of dollars in refunds dating back years could not come at a more difficult time.

A Wall Street rating agency already has dropped Chicago’s bond rating four notches in eight months with a negative outlook, citing the city’s $20 billion pension crisis and crushing debt.

If the bond rating drops one more notch, Emanuel could be stuck with another $200 million tab, thanks to Daley’s decision to bet heavily on risky, interest rate “swaps.”

The Chicago Sun-Times has reported that the deals require the city to maintain a certain credit rating. Now that Chicago’s bond rating is just three levels above junk status, City Hall is at risk of having financial institutions terminate the swap deals and demand immediate payment.

Emanuel agreed to hold the line on property taxes and substitute a 56 percent increase in the monthly surcharge tacked onto telephone bills to convince Gov. Pat Quinn to sign a bill to reform and save two of Chicago’s four city employee pension funds.

But the phone tax produces nowhere near the $750 million in property tax collections over five years that would have been generated by the mayor’s original plan to raise property taxes by $250 million.

That’s why Emanuel’s commitment to freeze property taxes lasts only one year.

The mayor has made no promises about the remaining four years of the deal, well aware that Chicago is facing a state-mandated, $600 million payment  to save police and fire pension funds even closer to running out of money than the other two.