Judicial Rulings

THE FRAMERS of the 1970 Illinois Constitution intended to give lawmakers broad powers to grant property tax exemptions, the Illinois Supreme Court said October 21 when it upheld the constitutionality of the 1975 homestead improvement exemption and of the exemptions for parsonages (1957) and fraternity and sorority houses (1967), based on their religious or educational use.

In the case, Kurt McKenzie v. J. Thomas Johnson, the Champaign County Circuit Court had ruled the parsonage and fraternity/sorority house exemptions valid but struck down the homestead improvement exemption as unconstitutional. Johnson, director of the Illinois Department of Revenue, appealed directly to the Illinois Supreme Court.

The lower court had said that Article IX, section 6 of the 1970 Constitution authorizes the legislature to exempt homesteads, not homestead improvements. In 1975, the legislature did authorize homestead exemptions when increases in property tax assessments are due to homestead improvements. Good for four years, each exemption is equal to the value of the improvement, up to $25,000 a year.

Justice Seymour Simon, writing for the high court, said, "The debates of the [Constitutional] convention . . . indicate that it was the intention of the delegates ... to grant the legislature broad powers to fashion homestead exemptions that would promote . . . legitimate social policies . . . ." Such policies could include improvement of existing housing units, the promotion of jobs and adding to the value of the local property tax base. Simon said delegates failed to pass an amendment that would have limited homestead exemptions to the elderly and/or needy.

McKenzie, a taxpayer in Champaign County, had claimed the 1957 parsonage exemption and the 1967 fraternity/sorority house exemptions were unconstitutional because the residential nature of the property violates the constitutional requirement that it be used exclusively for the exempted categories — religious and educational purposes. Simon said the high court has long held that property satisfies the exclusive-use requirement if it is primarily used for the exempted purpose. Simon said, "Whether a particular parsonage may be entitled to exemption turns on the evidence showing how the parsonage is being used, but the language exempting parsonages ... is not unconstitutional on its face."

McKenzie had also argued the exemptions were unconstitutional because the statutes were broader than the Constitution. Speaking of both religious and educational property, Simon said the statute does not unlawfully enlarge the area of allowable exemptions. He said the statute lists parsonages "to illustrate or describe one type of property that under appropriate circumstances may qualify for the general religious property exemption. ..."

DOW JONES has won its fight to keep the Chicago Board of Trade from using its stock market indexes as the basis for a new contract market for stock index futures contracts. The Illinois Supreme Court split 4-3 October 21, granting protective product rights to Dow for its indexes. Justices Seymour Simon, Daniel P. Ward and Thomas J. Moran dissented, with Simon saying the majority's finding, in effect, greatly liberalized Illinois laws on unfair competition, a move he said the court should have left to the legislature.

In the case, The Board of Trade of the City of Chicago v. Dow Jones & Company, Inc., the board had asked for a declaratory judgment on whether its use of Dow's indexes violated Dow's rights. The Cook County Circuit Court found in favor of the board, while the First District Appellate Court found in favor of Dow Jones.

The board, the nation's oldest commodities exchange, is licensed as a market for exchanging futures contracts for agricultural, precious metal and financial instrument commodities. Futures contracts are those in which parties are bound to a specific exchange of commodities at a specific date in the future.

The board was seeking a license as a market for trading the relatively new stock market index futures contracts, in which parties exchange the values of stock market indexes rather than commodities, using certified promissory notes instead of cash. (Entering into stock market index futures contracts, like selling stocks, is designed as a "hedge" against the "systematic risk" that the stock market as a whole will decline. Futures contracts, however, are a much cheaper "hedge" than selling stocks.)

Commodities exchanges may be licensed as markets for trading the new stock market index futures contracts, if their new futures contracts are based on well-established stock market indexes. The board's new futures contracts were to be based on the stock market indexes published by Dow Jones. The board subscribes to the Dow Jones News Service which allows the board to use the Dow Jones industrial, transportation and utility averages at the Chicago Board of Trade, but the "use" as an index in futures trading was not covered in their contract.

The board wanted a conservative interpretation of Illinois laws on unfair competition, arguing that denying it the use of Dow's indexes would give Dow a monopoly. Dow pushed for a liberal interpretation, arguing that the board was free to develop its own indexes.

The majority of the high court held that Dow's right to protection for its product outweighed the board's right to access to a new market. Writing for the majority, Justice Joseph H. Goldenhersh said that denying the board the use of Dow's indexes would "stimulate creation" of new stock market indexes that, as the basis for new futures contracts, could prove to be a better hedge against "systematic risk."

"Whether protection against appropriation is necessary to foster creativity," Goldenhersh said, "depends in part upon the expectations of that sector of the business community which deals with the particular intangible. If the creator of an intangible product expects to be able to control the licensing or distribution of the intangible in order to profit from his effort, and similarly those who would purchase the product expect and are willing to pay for the use of the intangible, a better argument can be made in favor of granting protection."

Simon said, "The majority is swayed by what it sees as 'unjust' enrichment — the Board of Trade's plan to earn a profit by the free use of an idea developed by Dow Jones at considerable cost. I do not regard this as 'unjust' in the least. The Board of Trade proposed to use information that Dow Jones had freely allowed the public to acquire in a business that Dow Jones has not shown the slightest interest in pursuing. If 'unjust enrichment' has become the only element for the tort of misappropriation in Illinois, I fear that there will be few commercial ideas and little information left in the public domain."                         Diane Ross