Illinois Supreme Court Blocks Bond Lawsuit, Reversing Appellate Court Decision
On May 20, 2021, in Tillman v. Pritzker, 2021 IL 12687 (2021), the Illinois Supreme Court determined the doctrine of laches applies to an action brought by Illinois Policy Institute CEO John Tillman challenging the constitutionality of $16 billion ($14 billion outstanding at the time of the Complaint) of the state’s general obligation bonds issued in 2003 and 2017. The decision, while not addressing the underlying constitutional question, effectively precludes the current, as well as future, challenges to the constitutionality of these bond issuances.
As discussed in a prior Advisory, in 2019, Tillman filed a petition with the Sangamon County Circuit Court pursuant to Section 11-301 of the Illinois Code of Civil Procedure, seeking leave to file a taxpayer complaint to restrain and enjoin the disbursement of public funds by Illinois public officials, including Governor J.B. Pritzker, Treasurer Michael W. Frerichs, and Comptroller Susana A. Mendoza, to make future payments on the Disputed Issuances.
To proceed with a complaint under Section 11-301, the court must first be “satisfied that there is reasonable ground for the filing of [the taxpayer] action.” 735 ILCS 5/11-303 (West 2018). Tillman asserted that the Illinois Constitution limited the legislature’s authority to incur debt, including that the debt be issued for a “specific” purpose rather than general, recurring expenses. The Complaint alleged that the bonds were issued for a general rather than specific purpose—namely, to make pension contributions and to pay past debts.
The state officials argued that Tillman failed to establish a reasonable ground for the filing of his Complaint because, among other things, his constitutional claims were invalid on the face of the Complaint or, alternatively, because Tillman’s Complaint was barred by the doctrine of laches, an equitable defense asserted against a party “who has knowingly slept upon his rights and acquiesced for a great length of time,” Tillman, ¶ 25 (citing Pyle v. Ferrell, 12 Ill. 2d 547, 552 (1958)), because he waited to file his action until years after the authorizing statutes were enacted and the bonds were issued, and by then, the state had already made substantial payments on the bonds. See Tillman, ¶ 10.
The Circuit Court denied the petition, concluding that the legislature stated with reasonable detail the specific purposes for the issuance of the bonds, as well as the objectives to be accomplished by the enactment of the underlying legislation. Accordingly, the Circuit Court concluded no reasonable ground existed for the filing of the Complaint because the claims lacked legal merit. Id. ¶ 11.
The Illinois Appellate Court, however, disagreed, and held that the “reasonable ground” analysis was limited to determining whether a complaint is frivolous or filed for a malicious purpose. Without expressing any opinion on the merits of the claims or the state officials’ arguments based on laches, the Appellate Court held that Tillman presented a colorable reading of the Illinois Constitution that did not appear frivolous on its face. Id. ¶ 12.
Illinois Supreme Court’s Decision: The Bonds Are Saved by Laches
On appeal to the state Supreme Court, Tillman argued—in line with the Appellate Court’s holding—that the “reasonable ground” standard was limited to determining whether a complaint is frivolous or filed for a malicious purpose. That approach would not permit the court, at this initial stage, to analyze the merits of a complaint and would exclude the consideration of any affirmative defenses, such as laches or the statute of limitations. The Supreme Court rejected this “narrow” interpretation of Section 11-303 and noted that the Supreme Court’s decision in Strat-O-Seal Manufacturing Co. v. Scott, 27 Ill. 2d 563 (1963), which Tillman relied on, also held that a petition may be denied if a filing of the complaint is otherwise unjustified, and did not preclude the reviewing court from examining the legal merits of the complaint or considering affirmative defenses, including that a proposed complaint is barred by the statute of limitations. Tillman, ¶ 21.
The Supreme Court declined to address the merits of the constitutional claims before determining whether nonconstitutional grounds for affirming the Circuit Court’s decision existed, and noted that it may “sustain the circuit court’s judgment on any ground supported by the record, even a ground not relied on by that court.” Id. ¶ 24.
The state officials argued that there are no reasonable grounds for filing the taxpayer action because the proposed Complaint was barred by laches. In Illinois, there are two fundamental elements of laches: (1) “lack of due diligence by the party asserting the claim” and (2) “prejudice to the opposing party.” Id. ¶ 25 (citing Van Milligan v. Board of Fire & Police Commissioners of the Village of Glenview, 158 Ill. 2d 85, 89 (1994)). Despite laches not being determined by the lower courts, the Supreme Court held that, based on the record in the case, the fundamental elements of laches were met in this case because (1) Tillman demonstrated a lack of diligence due to his unreasonable delay in filing the petition—16 years after the enactment of the 2003 bond authorization statute and two years after the enactment of the 2017 bond authorization statute, and (2) Respondents suffered undue prejudice as a result of Tillman’s delay in filing the action—the state made payments on the 2003 bonds for years, the proceeds from the sale of the 2017 bonds were used to pay billions of dollars in unpaid state vouchers in the intervening years. The Supreme Court agreed with the state officials that granting the requested relief now would amount to a de facto default on the bonds backed by the full faith and credit of the state, resulting, at the very least, in a detrimental effect on the state’s credit rating. Tillman, ¶29.
© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.