Illinois Appellate Court Clears Way for Bond Lawsuit
On August 6, 2020, the Illinois Appellate Court for the Fourth District of Illinois (the Appellate Court) overturned the decision of Sangamon County Associate Judge Davis II (the Circuit Court) denying Illinois Policy Institute CEO John Tillman's petition for leave to file a two-count taxpayer action against public officials in Illinois seeking to enjoin the disbursement of public funds to make future payments on nearly $14 billion of municipal bonds issued by the state in 2003 and 2017.1 The Appellate Court's decision expressly offers no opinion on the merits of Tillman's claims, but concludes that Tillman cleared the low threshold requirement to file his complaint.
On July 1, 2019, John Tillman filed a petition with the Circuit Court seeking leave to file an action to enjoin the officers of the state of Illinois from using public funds to make future payments on nearly certain bonds issued by the State in 2003 and 2017 (the Tillman Complaint). The Tillman Complaint alleges that the issuance of such bonds were unconstitutional on both substantive and procedural grounds.
According to Tillman, Article IX of the Illinois Constitution provides limitations on the legislature's authority to incur debt. Specifically, Section 9(c) through (e) of the Illinois Constitution provide for limitations on short term borrowing of general funds to cover budget deficits or refinance existing debt.2 Tillman further contends that Section 9(b) provides both a procedural requirement, as well as a substantive limitation - that debt be issued for a purpose other than general funds (i.e., a "specific" purpose). According to Tillman, specific purposes amount to special projects, capital improvements and other nonrecurring costs, not regularly recurring costs.
Tillman asserts the 2003 bonds were issued for the purpose of making pension contributions, and such contributions were recurring expenses typically made from the general revenue fund. Thus, the purpose of the bond was general, and not specific. Similarly, Tillman claims that the 2017 bond offering was substantively and procedurally improper because the funds were used to pay past debts (a general, not specific purpose) and the statute did not specifically identify the past debts to be paid.
The Illinois Attorney General objected to Tillman's petition arguing that, among other things, the 2003 and 2017 bond issuances were constitutional, the complaint was barred by laches, the five-year statute of limitations applied with respect to the 2003 bond issuance, and Tillman failed to name bondholders as defendants.
Procedural History and Appellate Court Conclusion
Procedurally, Tillman filed a petition for leave to file a taxpayers' suit (with a complaint attached to the petition) pursuant to 735 ILCS 5/11-303 (West 2018).3 Section 11-303 provides that any citizen and taxpayer may petition for leave to file an "action to restrain and enjoin the disbursement of public funds by any officer or officers of the State government."
To safeguard against indiscriminate suits, Section 11-303 provides for an initial, or summary, proceeding to determine if the complaint should be filed.
In August 2019, the Circuit Court conducted a hearing and subsequently issued a written decision denying Tillman's petition finding no reasonable grounds existed for the filing of the Tillman Company and that "to allow the filing of the complaint would result in an unjustified interference with the application of public funds." The Circuit Court also noted that "Tillman asks this court to address a non-justiciable political question and substitute its judgement for the Illinois Legislature some two decades after it occurred. To do so would be improper and would violate the separation of powers."
Upon review, the Appellate Court noted that Strat-O-Seal Manufacturing Co. v. Scott, 27 Ill. 2d 563, 190 N.E.2d 312 (1963) is the seminal case on the trial court's inquiry at the initial hearing. Strat-O-Seal concluded that the "sole question … is whether the facts alleged in the petition and proposed complaint, taken as true, disclose a reasonable ground for the filing of a suit." Id. at 564-65.
Without expressing any opinion on the ultimate merits of Tillman's claims, the Appellate Court—under an abuse of discretion standard—applied Strat-O-Seal and reversed the Circuit Court concluding:
- the Tillman Complaint sets forth a colorable reading of the Illinois Constitution that does not appear to be frivolous on its face;
- the petition and Tillman Complaint state reasonable grounds for filing suit; and
- nothing in the record indicates that the proposed complaint was frivolous, filed for a malicious purposes or is otherwise unjustified.
The Appellate Court remanded the case to the Circuit Court to permit Tillman to file his complaint.
The Bonds at issue in the Tillman Compliant include the following:
- $10,000,000,000 General Obligation Bonds, Pension Funding Series of June 2003 (Taxable) issued on June 12, 2003, as described in that certain Official Statement, dated June 5, 2003;
- $1,500,000,000 General Obligation Bonds, Series of November 2017 issued on November 8, 2017, as described in that certain Official Statement, dated October 17, 2017; and
- $4,500,000,000 General Obligation Bonds, Series of November 2017D issued on November 8, 2017, as described in that certain Official Statement, dated October 25, 2017
© Arnold & Porter Kaye Scholer LLP 2020 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.
The Circuit Court Case is Captioned John Tillman v. J.B. Pritzker, Michael Frerichs and Susana Mendoza, No. 19CH235 (Circuit Court of Sangamon County). The Appellate Court Case Number is 2020 IL App (4th) 190611.
Article IX, Section 9 of the Illinois Constitution provides:
(a) No State debt shall be incurred except as provided in this Section. For the purpose of this Section, "State debt" means bonds or other evidences of indebtedness which are secured by the full faith and credit of the State or are required to be repaid, directly or indirectly, from tax revenue and which are incurred by the State, any department, authority, public corporation or quasi-public corporation of the State, any State college or university, or any other public agency created by the State, but not by units of local government, or school districts.
(b) State debt for specific purposes may be incurred or the payment of State or other debt guaranteed in such amounts as may be provided either in a law passed by the vote of three-fifths of the members elected to each house of the General Assembly or in a law approved by a majority of the electors voting on the question at the next general election following passage. Any law providing for the incurring or guaranteeing of debt shall set forth the specific purposes and the manner of repayment.
(c) State debt in anticipation of revenues to be collected in a fiscal year may be incurred by law in an amount not exceeding 5% of the State's appropriations for that fiscal year. Such debt shall be retired from the revenues realized in that fiscal year.
(d) State debt may be incurred by law in an amount not exceeding 15% of the State's appropriations for that fiscal year to meet deficits caused by emergencies or failures of revenue. Such law shall provide that the debt be repaid within one year of the date it is incurred.
(e) State debt may be incurred by law to refund outstanding State debt if the refunding debt matures within the term of the outstanding State debt.
(f) The State, departments, authorities, public corporations and quasi-public corporations of the State, the State colleges and universities and other public agencies created by the State, may issue bonds or other evidences of indebtedness which are not secured by the full faith and credit or tax revenue of the State nor required to be repaid, directly or indirectly, from tax revenue, for such purposes and in such amounts as may be authorized by law.
Section 11-303 provides:
Action by private citizen. Such action, when prosecuted by a citizen and taxpayer of the State, shall be commenced by petition for leave to file an action to restrain and enjoin the defendant or defendants from disbursing the public funds of the State. Such petition shall have attached thereto a copy of the complaint, leave to file which is petitioned for. Upon the filing of such petition, it shall be presented to the court, and the court shall enter an order stating the date of the presentation of the petition and fixing a day, which shall not be less than 5 nor more than 10 days thereafter, when such petition for leave to file the action will be heard. The court shall also order the petitioner to give notice in writing to each defendant named therein and to the Attorney General, specifying in such notice the fact of the presentation of such petition and the date and time when the same will be heard. Such notice shall be served upon the defendants and upon the Attorney General, as the case may be, at least 5 days before the hearing of such petition.
Upon such hearing, if the court is satisfied that there is reasonable ground for the filing of such action, the court may grant the petition and order the complaint to be filed and process to issue. The court may, in its discretion, grant leave to file the complaint as to certain items, parts or portions of any appropriation Act sought to be enjoined and mentioned in such complaint, and may deny leave as to the rest.