by Christian G. Spesia
Recent case law from the Second and Third District Appellate Courts opens areas in which municipalities can assert estoppel, which is more often attempted against municipalities, as a defense against private parties. These cases rely on the notion that what a private party may assert against a municipality, a municipality may assert against a private party.
Estoppel Against Local Public Entities- The Hard Line
In theory, though not always in practice, estoppel is supposed to be a hard case to make against a municipality. Case law leads one to believe that estoppel against a municipality should nearly always be that bridge too far – an equitable distance that courts will seldom cross, if doing so impedes a local government’s ability to conduct its affairs reasonably free from threats of litigation.
As articulated by Illinois courts, the disfavor with which estoppel is viewed is as resolute as it is harsh[1]: the concept is “little favored” and found only in “rare and unusual circumstances.”[2] Public policy is against it, too, especially where public revenues are concerned – with little or no regard for a party’s detrimental reliance. [3] Further, it is wholly unwise to rely on the representations – or actions even – of an agent of the local government, where the possibility exists that the agent has exceeded his or her authority. Such reliance is a bad estoppel bet, with courts showing a distinct lack of sympathy for anyone who has failed to do due diligence as to whether the agent works within the scope of his or her authority.[4]
Finally, inaction on the part of a local entity is not enough to support a claim for estoppel.[5]
Finding Exceptions to the General Rule
Of course, the general rule is less than absolute. Estoppel may be invoked against a municipality, particularly where the act that induced reliance, and which was otherwise worthy enough to warrant estoppel, is the affirmative act of the municipality.[6]
[1] Harshness, in the eyes of Illinois courts, is relative when it comes to estoppel. Despite head note law that posits estoppel will seldom lie, it often does. See Cities Service Oil Company v. City of Des Plaines, 171 N.E.2d 605 (Ill. 1961) (holding estoppel was sufficiently pled where municipality waited seven (7) months before it acted to revoke building permits); New-Mark Builders, Inc. v. City of Aurora, 233 N.E.2d 44 (2d Dist. 1968) (holding that the plaintiff stated a claim for estoppel against a municipality where it alleged that the municipality had approved and annexed two phases of an overall development but refused to annex the contiguous third phase based on a new condition that the municipality did not apply to the first two phases).
[2] County of Cook v. Patka, 85 Ill.App.3d 5, 12 (1st Dist. 1980)
[3] Id. at 13 (holding that public policy opposes the application of estoppels against a public entity even where detrimental reliance is shown).
[4] Id. at 12 (holding that a person dealing with a municipality is presumed to know the limits of an agent’s authority, even if the agent does not).
[5] Id. at 13.
[6] Id.
Crossing the Hard Line
Thus, no matter the supposed hard line against the imposition of estoppel against municipalities, courts do hold that estoppel may lie against them. The Third District recently analyzed its own and Illinois Supreme Court case law on the subject in Humphrey Property Group, L.L.C. v. Village of Frankfort.[7] The court’s analysis, however, was ultimately used, not in support of the applicability of estoppel against a municipality, but to support a municipality’s use of estoppel against a private party – a shift from the usual fare.
In Humphrey, the court’s analysis was limited to a question certified to it under Supreme Court Rule 308. The issue was whether a municipality may invoke estoppel against a property owner under an annexation agreement based on the conduct of a previous property owner, which, the municipality contended, amended the annexation agreement. Central to the question was whether estoppel would lie where the parties did not amend the annexation agreement in accordance with the agreement’s terms or in compliance with statute.[8]
Reviewing its holding in a prior case, Mahoney Grease Service, Inc. v Joliet,[9] the Third District explained that when a municipality receives and accepts the benefits of a contract, the municipality is estopped from denying the validity of the contract. [10]
The obvious caveat to this pronouncement, the court noted, is that when a contract is beyond the power of the municipality in the first place, the contract is “absolutely void and cannot be ratified by later municipal action.”[11] The court qualified this, noting that it had previously held that a municipality’s defective or irregular making of a contract otherwise within the corporate powers does open the door to ratification.[12]
The court also looked the Mahoney Court’s analysis of the Illinois Supreme Court’s 1947 holding in Branigar v. Village of Riverdale.[13] In Branigar, the Supreme Court held that estoppel would lie against a municipality that tried to rely on an irregularity in the making of a contract to defeat that contract.[14]
Based on its analysis of these cases, the Humphrey Court held that “equitable estoppel is an available defense against a municipality’s attempt to avoid the terms of a valid agreement on the grounds that it failed to comply with the applicable statute.”[15] The Humphrey Court also held that “[E]stoppel is an available remedy in proceedings on a contract where a municipality sought to avoid the terms of the contract by challenging the validity of a statutory act adopted pursuant to and/or in furtherance of the contract.”[16]
The court further held that estoppel was applicable “equally to challenges to actions undertaken pursuant to contract or statute, or to actions undertaken under one pursuant to an agreement or requirement stated in the other.”[17]
[7] 392 Ill.App.3d 611 (3d Dist. 2009).
[8] Id. at 612.
[9] 85 Ill.App.3d 578.
[10] Humphrey, 392 Ill.App.3d at 615 (citing Mahoney, 85 Ill.App.3d at 583).
[11] Id.
[12] Id.
[13] 396 Ill.534 (1947).
[14] Humphrey, 392 Ill.App.3d at 616 (citing Branigar, 396 Ill. at 546).
[15] Humphrey, 392 Ill.App.3d at 616.
If It’s Good for the Goose
However, as noted above, the Humphrey court’s analysis was prologue. The court’s real task was to determine whether the municipality could invoke estoppel. The court held that it could.
Humphrey involved an annexation agreement between a municipality and a development corporation and bank.[18] By its terms, the annexation agreement zoned the subject property and listed authorized uses for the property.[19] A successor in interest purchased part of the property that was subject to the annexation agreement and proposed one of the authorized uses.[20] The municipality, though it had not amended the annexation agreement by the procedure required in the agreement or as provided for under 65 ILCS 5/11-15.1-3, said no, and the plaintiff filed an action for declaratory judgment.[21]
Plaintiff argued that the non-statutory change in the annexation agreement, without regard for notice and hearing requirements, was void.[22]
The municipality argued that it had relied on a request from the plaintiff’s predecessor in interest to re-zone the subject property, and that said property was, therefore, no longer suitable for the plaintiff’s proposed use, though said use had been allowed by the terms of the agreement.[23]
The municipality also argued that the agreement had been effectively amended by the later agreement between it and plaintiff’s predecessor to re-zone, and that the municipality had relied on that agreement to change its position with respect to what uses were allowed.[24] The municipality further argued that the plaintiff stood in the shoes of its predecessor, and would be estopped from complaining after its predecessor orally agreed to the modification.[25]
The Third District agreed, holding that estoppel was available to private parties against municipalities and that there was “[n]othing in the court’s prior decisions [to indicate] that estoppel principles should not apply with equal force to a nonmunicipal party to the challenged agreement. The court has never relied on the fact that the party against which it applied estoppel was a public body.”[26]
The Third Circuit’s holding makes in clear that estoppel is a defense that municipalities should consider when claims are made against them under contracts or statutes when the plaintiff’s have been complicit in “irregularities.”
[16] Id. at 615-17.
[17] Id. at 617.
[18] Id.
[19] Id. at 612.
[20] Id.
[21] Id. at 613.
[22] Id.
[23] Id.
[24] Id.
[25] Id. at 614.
More Sauce for the Goose
In another recent decision, Falcon Funding, LLC v. City of Elgin,[27] the Second District similarly held that it would be inequitable to allow estoppel to be raised against governmental bodies in disconnection proceedings, but not to allow governmental bodies to raise the same defense in such proceedings.[28]
In Falcon, a municipality and a petitioner[29] for disconnection from the municipality, pursuant to 65 ILCS 5/7-3-6 had, some years previously, entered into an annexation agreement, which provided, in part, that the petitioner would develop the property and the municipality would construct sanitary sewer and water system improvements to the tune of $8 million, at no cost to the petitioner.[30] The petitioner never developed the property; however, the municipality did construct the required improvements.[31]
After the annexation agreement expired, the petitioner sought disconnection under Section 7-3-6, and the municipality asserted equitable estoppel as an affirmative defense, predicated on its construction of the sanitary sewer and water improvements and the petitioner’s acceptance of the benefits thereof.[32] The parties filed a cross motions for summary judgment. The trial court held in favor of the petitioner and disconnection, accepting the petitioner’s argument that it had met the conditions for disconnection under Section 7-3-6 and that equitable estoppel was not a valid basis for denying disconnection.[33]
The municipality appealed the trial court’s rejection of its equitable estoppel affirmative defense.[34]
The Second District noted, as it held in a 2006 case, Gaylor v. Village of Ringwood,[35] that Section 7-3-6 requires not only that six statutory requirements be met for disconnection, but also that the property be “otherwise entitled to disconnection.”[36] The “entitled” provision, the court had held in Gaylor, meant that affirmative defenses must be taken into account before disconnection will be granted.[37]
[26] Id. at 618.
[27] 210 Ill.App. LEXIS 202 (2d. Dist. 2010).
[28] Id. at 28.
[29] The petitioner, Falcon Funding, LLC, was, in fact, a successor in interest.
[30] Id. at 1-4.
[31] Id. at 4.
[32] Id.
[33] Id. at 5-7.
[34] Id. at 9.
[35] 363 Ill.App.3d (2d Dist. 2006)
[36] Falcon, 2010 Ill.App.LEXIS at 12.
[37] Id.
The Falcon Court recounted the facts in Gaylor, explaining that the issue there had been a landowner’s attempt to disconnect pursuant to Section 7-3-6 while an annexation agreement between the landowner and the municipality was in force.[38] The parties stipulated that the landowner had met the requirements enumerated in the statute.[39] Still, the Falcon Court held that “the existence of the annexation agreement presented an affirmative defense to the disconnection petition or estopped the landowners from petitioning for disconnection.”[40]
The municipality in Falcon argued that Gaylor opened the way for it to assert equitable estoppel as an affirmative defense to the disconnection, as Gaylor had not placed limits on the types of affirmative defenses available to the municipality in a disconnection proceeding.[41]
Relying on the fact that the annexation agreement at issue in Gaylor had remained in force, the petitioner in Falcon argued that the expired annexation agreement between it and the municipality did not form a similar basis for an affirmative defense to disconnection.[42]
The Falcon court sided with the municipality, holding that equitable estoppel is an available affirmative defense to a disconnection petition filed pursuant to Section 7-3-6.[43] The court further held that there are no limits on the types of affirmative defenses that can be asserted in a disconnection proceeding.[44]
Harmonizing this holding with prior case law, the Falcon court noted that certain cases relied on by the petitioner, which had held against the availability of equitable estoppel as an affirmative defense by a municipality, had not presented the same facts as it had before it – namely the municipality’s expenditures made in reliance on the expired annexation agreement.[45]
Despite the Falcon court’s holding in favor of the municipality’s propositions, however, the municipality failed to adequately plead equitable estoppel, and the court ruled in favor of the petitioner.
As the court explained, the municipality was required to demonstrate the following to plead equitable estoppel:
(1) petitioner misrepresented or concealed material facts; (2) petitioner knew at the time it made the representations that they were untrue; (3) the [municipality] did not know that the representations were untrue when they were made and when they were acted upon; (4) petitioner intended or reasonably expected that the [municipality] would act upon the representations; (5) the [municipality] reasonably relied upon the representations in good faith and to its detriment; and (6) the [municipality] would be prejudiced by its reliance on the representations if petitioner is permitted to deny the truth thereof.[46]
Holding that the municipality failed to adequately plead the first two elements and thereby raise a question of fact for trial, the court affirmed the trial court’s granting of summary judgment in favor of the petitioner. [47]
[38] Id. at 12
[39] Id.
[40] Id. at 13-14.
[41] Id. at 12-15.
[42] Id. at 15.
[43] Id. at 16.
[44] Id.
[45] Id. at 16-20.
Conclusion
Though its is more likely to be invoked against a municipality, the Humphrey and Falcon decisions make it clear that equitable estoppel is equally available to municipalities against private parties. While no mention of the elements for pleading equitable estoppel is mentioned in Humphrey, in which the issue was an amendment to an annexation agreement by a predecessor in interest, Falcon’s enumeration of what a municipality must plead to make its case for estoppel may require exacting attention toward ensuring every element is properly pled, specifically in a motion for summary judgment. As always, the applicability of estoppel is fact intensive, but the Humphrey and Falcon decisions help to clarify the legal underpinnings for estoppel claims raised by and against municipalities.
[1] Harshness, in the eyes of Illinois courts, is relative when it comes to estoppel. Despite head note law that posits estoppel will seldom lie, it often does. See Cities Service Oil Company v. City of Des Plaines, 171 N.E.2d 605 (Ill. 1961) (holding estoppel was sufficiently pled where municipality waited seven (7) months before it acted to revoke building permits); New-Mark Builders, Inc. v. City of Aurora, 233 N.E.2d 44 (2d Dist. 1968) (holding that the plaintiff stated a claim for estoppel against a municipality where it alleged that the municipality had approved and annexed two phases of an overall development but refused to annex the contiguous third phase based on a new condition that the municipality did not apply to the first two phases).
[46] Id. at 33.
[47] Id. at 37-38.
