By: Christian G. Spesia and Michael A. Santschi
It should come as no surprise to any sophisticated reader that, in the vast majority of cases, a municipality’s legal jurisdiction is limited to its “corporate boundaries.” In other words, a municipality cannot, with some important exceptions, exercise legal authority beyond the furthest reaches of the properties that have been annexed thereto. Thus, the only way for a municipality to grow and spread its rule-making authority is to annex new territory, and only by so growing can a municipality bring about the ordered development and consistent regulation that are its primary purpose.
Annexations are governed by Article 7, Division 1 of the Illinois Municipal Code (65 ILCS 5/7-1-1 through 5/7-1-49). In general, the decision of whether or not to annex any particular property is a legislative function of a municipality and as such it will not normally be subject to judicial challenge outside of the clearly established objection procedures set out in the Illinois Municipal Code. See e.g. 65 ILCS 5/7-1-3 and 5/7-1-4. However, because the effect of an annexation is to subject additional landowners to municipal regulations and taxes, the annexation provisions of the Municipal Code are liberally construed in favor of the public, and compulsory annexations are extremely disfavored (i.e. the goal is to allow the taxpayers to decide whether or not they should be subjected to municipal taxes, wherever feasible). See e.g. People ex. rel. Vill. of Northbrook v. Vill. of Glenview, 194 Ill. App. 3d 560, 565–566 (1st Dist. 1989). Moreover, this same policy of allowing the taxpayer to have the final say on whether or not they should be subjected to municipal taxes is also present in the courts’ interpretations of the Municipal Code’s disconnection provisions (65 ILCS 5/7-3-1 through 5/7-3-8). See Indian Valley Golf Club, Inc. v. Vill. of Long Grove, 135 Ill. App. 3d 543, 550–551 (2d Dist. 1985) (“[t]he statute as to disconnection of lands from municipalities should be liberally construed”); see also Harris Trust & Sav. Bank v. Vill. of Barrington Hills, 177 Ill. App. 3d 673, 677 (2d Dist. 1988) (“[Illinois] Courts have liberally construed disconnection statutes in favor of disconnection”). Thus, the relationship between a municipality’s statutory authority to annex territory in furtherance of its corporate purposes and the statutory construction employed by Illinois courts when analyzing annexation and disconnection proceedings are naturally in friction with one another: a municipality wants to annex property and grow it borders and areas of influence, whereas the courts generally look for ways to allow a landowner to avoid paying municipal taxes if they are so inclined.
The most striking incidence of this friction occurs where a landowner on a border of a municipality seeks to disconnect their property from the municipality at the same time that the municipality is trying to annex surrounding properties. In order to be eligible for disconnection, a landowner must be able to prove, inter alia, that their property is both (1) “located on the border of the municipality” and (2) situated such that disconnection will not “isolate[e] . . . any part of the municipality from the remainder of the municipality.” 65 ILCS 5/7-3-6. Because well-established Illinois law holds that the situation of the property at the time of the hearing on the disconnection petition controls for the purposes of determining whether the landowner is entitled to disconnection (Frank v. Vill. of Barrington Hills, 106 Ill. App. 3d 747, 755 (2d Dist. 1982); Indian Valley, 135 Ill. App. 3d at 551), it is possible for a landowner’s ability to carry their burden of proof to disintegrate over the course of their petition’s life. In particular, in situations where a municipality is actively annexing territory in the vicinity of a parcel that is the subject of a disconnection petition, it is not only conceivable but likely that by the time the disconnection petitioner manages to bring their case to a hearing, the municipality will have annexed some other parcel that either (1) prevents the petitioner’s property from being “on the border” of the municipality or else (2) will be isolated if disconnection is allowed.
Clearly, this state of the law is ripe for abuse. However, Illinois Courts have developed an analytical mechanism that is designed to prevent as much abuse as possible while still balancing the legitimate rights of both municipalities (which have a legitimate interest in annexing territory and expanding their borders) and landowners (which have a clear interest in avoiding municipal taxes and control). In a series of cases, Illinois Courts have reacted to situations where municipalities seek to protect the integrity of their existing borders through the use of “sham” annexations and other “legal gimmicks.” In particular, two such decisions (the Fox River decision and the Austin Bank decision) are illustrative of what the courts have found to be a “sham” and what this analytical mechanism means for Illinois Municipalities.
In Vill. of Fox River Valley Gardens v. Lake Cty. Forest Preserve Dist., a forest preserve district sought to condemn certain property located within the Village of Fox River. Vill. of Fox River Valley Gardens v. Lake Cty. Forest Preserve Dist., 224 Ill. App. 3d 919, 922–923 (2d Dist. 1992). In an effort to thwart the forest preserve’s plans, the owner of the land deeded a twenty-foot-wide strip of land on the border between his parcel and the forest preserve’s territory to the village. Fox River, 224 Ill. App. 3d at 923. The landowner’s goal was to create a barrier between his property and the forest preserve’s territory that would render them non-contiguous. Id. at 932. Unfortunately for the landowner’s plan, the twenty-foot strip of land was, in addition to being small, located entirely in the middle of a river. Id. at 923, 932. Considering this fact, as well as other testimony and evidence that clearly showed that the sole intent of the landowner and the village was to block the forest preserve district from exercising its eminent domain authority, the Fox River court found that this transaction was nothing more than a “sham” and a “legal gimmick.” Id. 933–936. The village’s only intent in acquiring the twenty-foot-strip in Fox River was to contravene the forest preserve district’s statutory authority, and for this reason it’s ownership of the strip parcel was “not . . . for an appropriate public purpose.” Id. at 936.
In 2009, the First District applied this same concept of a “sham transaction” to a situation where a municipality tried to protect its borders by engineering a situation where the landowner could not satisfy the isolation element of the disconnection statute. See generally Austin Bank v. Vill. of Barrington Hills, 396 Ill. App. 3d 1 (1st Dist. 2009). In Austin Bank, the Village of Barrington Hills entered into an agreement with a third-party landowner whereby that landowner would disconnect the majority of its property from the village but sever two “barrier parcels” from the rest of the property and leave these barrier parcels in the village. Austin Bank, 396 Ill. App 3d at 2–3. These two barrier parcels were specifically and intentionally designed to act as “legal spite strips” that would prevent the plaintiff from subsequently disconnecting its property. Id. at 3–4. Faced with the fact that the village had admitted that its primary purpose in securing the barrier parcels was to prevent the petitioner from disconnecting his property, the Austin Bank Court found that the artificial creation of the barrier parcels constituted a “mere subterfuge” and a “legal gimmick” and that for this reason the disconnection petition must be granted even though it would result in the isolation of the barrier parcels. Id. at 11. According to the Austin Bank court, the village’s purpose was in “direct conflict with the legislature’s intent favoring disconnection” and therefore its actions were void. Id. at 9–10.
Based on the foregoing it is clear that although a municipality is clearly authorized to annex property (see 65 ILCS 5/7-1-1 through 7-1-49) and such an annexation can have the effect of blocking a landowner’s attempt at disconnection (Frank, 106 Ill. App. 3d at 755; Indian Valley, 135 Ill. App. 3d at 551), the courts will carefully scrutinize the manner in which such an annexation is accomplished as well as the municipality’s legislative purpose for undertaking it. Before seeking to annex territory abutting a property that is or may soon be the subject of a petition for disconnection, a municipality must be cognizant of (1) the nature, shape, size, and potential usefulness of any parcel so annexed (the Austin Bank parcels were small, two-acre strips that served “no engineering [purpose]” (Austin Bank, 396 Ill. App. 3d at 2–3)); (2) the timing of any such annexation relative to any pending or likely disconnection petition (in Indian Valley the court found it “offensive” that the municipality had waited for “nearly a year and a half” after the petitioner had filed its disconnection petition before annexing a parcel to defeat the petition, which annexation it had announced on “the date of trial” (Indian Valley, 135 Ill. App. 3d at 546, 548, 550)); and (3) the purpose of the annexation (in both Austin Bank and Fox River, the courts found the respective villages’ actions to be inappropriate where they admitted that their goal was to create a barrier (Austin Bank, 396 Ill. App. 3d at 3–4, 10; Fox River, 224 Ill. App. 3d at 934, 936)). If a municipality fails to do so, it may fall prey to the Austin Bank court’s resounding declaration that “border protection may not occur by any means.” Austin Bank, 396 Ill. App. 3d at 11.
1. Although the Fox River decision is not a disconnection case, it analysis regarding the nature of a “sham transaction” was later followed by the Court in Austin Bank, which is a disconnection case. Thus, even though Fox River is factually distinct from the current topic of inquiry, it is nevertheless important to look at the Court’s reasoning therein.