THOMAS W. KELTY, Chief Counsel,
Illinois Municipal League

DO IT RIGHT!

This month's article discusses two cases involving widely varied legal principles which have an underlying theme that is applicable to all public officials. "Do it right." In the cases discussed below, one court protects and another court attacks actions of public officials based upon the same simple principle.

Kinzer v. City of Chicago
_Ill.2d_,_N.E.2d_,
_ Ill. Dec. _, 1989 WL 37068
(1989)

In the June, 1988 edition of this column, I discussed the case of Kinzer v. City of Chicago. The decision of the Appellate Court in this case has been successfully appealed to the Illinois Supreme Court reversing a holding that was fraught with danger for municipal officials. Kinzer filed her complaint against the City of Chicago and certain individuals including the Comptroller, Daniel Grim. The Complaint alleged that expenditures made for Chicagofest were illegal because they were in violation of the prior appropriation requirement contained in the Municipal Code (Chapter 24, Paragraph 8-1-7) and that the officials involved (including Grim) were personally liable to the City for repayment of these unlawfully expended funds. After a series of procedural moves which resulted in a judgment for Chicago and Grim, the action was appealed to the First District Appellate Court.

On appeal, the Appellate Court announced three holdings, two of which created the danger to municipal officials. First, the Appellate Court held that the expenditures did violate the "prior appropriation" rule which requires that prior to expenditure of any municipal funds, there must be an appropriation for that expenditure made by the corporate authority. Second, the Appellate Court ruled that Grim was not protected by the Local Governmental and Governmental Employees Tort Immunity Act (Tort Immunity Act). And, third, Grim would be held to a strict liability standard of care (no defense available that he acted in "good faith"). This final holding had the practical result of making the Comptroller personally liable for the improper expenditures.

After the decision of the Appellate Court, the City and Grim appealed the decision to the Illinois Supreme Court. On April 20, 1989 in an opinion authored by Chief Justice Thomas J. Moran, the Illinois Supreme Court rejected the rationale of the Appellate Court and articulated several principles which are important to all municipal officials.

The first holding by the Court pertains to the prior appropriation requirement applicable to all municipalities. The Illinois Supreme Court agreed with the Appellate Court that expenditure of the funds violated the prior appropriation requirement of Paragraph 8-1-7. Grim had argued that expenditure of the funds for this purpose constituted an exception to the prior appropriation requirement because the funds disbursed were proceeds of a special fund as opposed to corporate funds of the municipality. The Court partially rejected the theory advanced by Grim. The Court agreed that an exception to the prior appropriation rule does exist where an expenditure is to be made from a special fund, but that exception only exists if the expenditure is limited to the proceeds of that fund. In other words, the exception does not exist where the possibility exists that the funds to be paid could exceed the balance of funds available in the special fund.

Neither the prior appropriation rule nor the special fund exception are new or novel holdings. They are

June 1989 / Illinois Municipal Review / Page 9

simply reinforcements of longstanding principles of Illinois law that bear repeating. This holding applies not only to larger municipalities, but to all municipalities in the State of Illinois. The second holding of the Court was with regard to the application of the Tort Immunity Act to Grim. The Appellate Court had held that because the violations of law alleged by Kinzer were not torts, the Tort Immunity Act could not protect Grim from liability. However, the Court found that Grim had immunity for his actions based upon the common law public officials immunity doctrine. Speaking for the Court, Justice Moran stated "a public officer is immune from individual liability for the performance of discretionary duties in good faith." Because, according to the Court, Grim sought the advice and approval of the City Attorney prior to entering into the contracts which resulted in the improper expenditures, Grim was acting in good faith as contemplated by the doctrine, and, therefore, was immune from personal liability for the improper expenditures which he made,

This holding of the Court should not be misunderstood as a blanket form of immunity for all actions by municipal officials. The doctrine only extends to those actions which are taken by a municipal official in good faith. The Court applies the doctrine in this case by identifying specific facts and actions taken by Grim that indicate he acted with the belief that the actions he was performing and the expenditures that he was making were proper. In the absence of such objective facts, the Court could have easily found Grim personally liable because of its holding that the actions complained of in Kinzer's Complaint were not immunized by the Tort Immunity Act.

Because the Court found that Grim was immune from liability for his actions, it declined to address what should be the proper standard of care that should be applied in judging such an action. The Court has thus left this issue open for decision in another case. Since Grim had been found to not be protected by the Tort Immunity Act and if he had been found not to be immunized by the public official immunity doctrine, the standard of care could have determined that Grim was personally liable for repayment of the funds.

The law recognizes a variety of standards of care that persons are to employ in their acts. With the standard of care undetermined in actions of this type, municipal officials should be particularly vigilant to exercise caution in conducting municipal affairs in order to insure that their actions are performed in good faith and that they exercise sufficient caution to enable them to demonstrate to a court that at the time actions were taken it was their belief that the actions were proper. While these preemptive steps by municipal officials will not overcome a holding of a municipal official to a standard of strict liability, they can help insure that all possible steps have been taken to determine that their actions are legal and proper.

Bates v. Board of Education,
Allendale Community Consolidated School District
_ Ill. App. 3d _, _ N.E.2d _,
_ Ill. Dec. _
(Ill. App. 5 Dist. 1989)

The Allendale Board of Education issued "life safety" bonds in 1986 to remodel existing school buildings and to construct another. In June of that year, Bates and the other plaintiffs filed an action challenging the authority of the Board of Education to pay interest on those bonds in excess of 7%. The 7% limitation is contained in the paragraph which authorizes the issuance of life safety bonds. The simple answer of the plaintiffs was that Chapter 17, Paragraph 6602, Ill. Rev. Stat, 1987, the Public Corporation Interest Act (the "Act") authorized payment of a rate of interest in excess of that authorized in the life safety bonds paragraph. The Circuit Court agreed and dismissed one count of the complaint against the Board of Education, thereby finding that the bonds were valid. The Appellate Court disagreed and reversed the trial court, which is where this case really begins.

On April 28, 1989, Justice Harrison of the Fifth District Appellate Court issued an opinion reversing the trial court. The focus of that opinion centered upon the language contained in the life safety bonds paragraph. The language in the paragraph focused upon by the Appellate Court is contained in two sentences. The first pertains to the rate of interest permitted on the bonds:

"Such bonds shall bear interest at a rate not to exceed 7% per annum, shall mature within 20 years from date, and shall be signed by the president and secretary of the school board and the treasurer of the school district."

The second is the final sentence of the paragraph regarding the scope of the power granted by the Section:

"This Section is cumulative and constitutes complete authority for the issuance of bonds as provided in this Section notwithstanding any other statute or law to the contrary."

Page 10 / Illinois Municipal Review / June 1989

This opinion focused on (a) the mandatory nature of the interest rate requirement, specifically the word "shall" and, (b) the sentence in the paragraph which allegedly limits the authority granted under the paragraph to that paragraph.

The Act authorizes the paying of higher rates of interest and states that the provisions of that paragraph may be utilized "notwithstanding the provisions of any other law to the contrary...." The Appellate Court held that this Act was a general act and the School Code provisions is a specific provision. Therefore, applying recognized rules of statutory construction, the Court states "there is a specific statutory provision, and where there is general statutory provision either in the same or in another act which relates to the same subject that the specific provision relates to, the specific provisions controls over the general statute." (quoting Welch v. Stocks, 152 Ill. App. 3d 5, 503 N.E.2d 1082).

After the issuance of the opinion on April 28, shudders went through the bond market both in and out of Illinois. The broad nature of the holding had the effect of bringing into question the validity of all bonds issued which paid rates in excess of a rate authorized in a specific paragraph. Numerous bond issues that were contemplated by public bodies in Illinois came to a screeching halt. Counsel for the Board of Education immediately filed a Petition for Rehearing or issuance of Certificate of Importance that would have required the Illinois Supreme Court to hear the case. In denying both requests, the Appellate Court supplemented its opinion to strengthen its position with respect to the mandatory nature of the word "shall" and its opinion on the "cumulative" nature of the paragraph in Chapter 17. The supplemental statements placed in the opinion by the Court reinforced the holding of April 28.

Subsequent to this reissuance of the opinion on May 12, counsel for the Board of Education filed a petition asking that the case be heard by the Illinois Supreme Court. In addition, the League, municipal issuers, bond counsel and other participants in the bond market approached the leaders of the Illinois General Assembly to obtain legislative relief from the decision. Through the cooperation of these leaders, a bill has been prepared and introduced to correct the deficiency cited by the Bates court in holding the bonds invalid. At the writing of this article, the bill is completing its path through the Legislature, having been passed by the Senate and under consideration by the House. It is expected that by the publication date of this article, the legislative process will be complete and the Governor will have signed the act which is immediately effective. When this occurs, the deficiency will be corrected and the uncertainty surrounding the issuance of municipal bonds at a rate in accordance with the Public Corporation Interest Rate Act will be removed. However, aside from the difficulty encountered by municipal issuers, there is a lesson in this case for municipal legislators.

When the Legislature adopted the Public Corporation Interest Rate, it did so in a fashion that was intended to affect all statutes which permitted the issuance of bonds. However, the Legislature did not identify and amend each of the statutes (including the life safety bond paragraph) to accomplish this end. The Appellate Court's opinion in Bates calls into question not only the paragraphs at issue but also the general method of attempting to amend statutes by reference. The Legislature has done this on other occasions and I am aware that, from time to time, municipal legislative bodies (city councils and village boards) do exactly the same thing. The opinion in Bates points out the risk in amendment of legislative acts in this fashion.

If a city council or village board desires to make a blanket amendment to a group of provisions, it should do so specifically and should amend each provision of its ordinances that contain the provision to be affected. Bates makes clear that the general rules of statutory construction can be applied to a general statute to eliminate its amending effect on a specific provision. The final effect to city ordinances could be identical to that in Bates, invalidation.

* * *

Both of these cases illustrate a very simple principle. Things done properly by municipal officials will be protected by the Court; things done wrong will be invalidated. The Court in Kinzer protected public officials by the declaration that an official is immune when he acts in good faith. The Court in Bates invalidated an action because public officials had not acted in accord with the clearly established bounds of law. Simply stated, two Illinois courts have said in these cases "do things right." That advice in the conduct of the public business is concise, accurate and timely. Public officials, acting properly, will be protected by the courts. It is for this reason that public officials throughout the State of Illinois should seek the best advice available to them in the conduct of their legal business and follow that advice. Not always will that advice result in the absence of a law suit but it will, more often than not, result in prevailing in the law suit. •

June 1989 / Illinois Municipal Review / Page 11