Real Assets - Real Value

A Landmark Change in Illinois Zoning Law: The Klaeren Case

In October 2002, the Illinois Supreme Court sent shock waves through the development community and municipal governments in overturning long-standing Illinois land use law concerning the nature of special use permit decisions. In People ex rel. Klaeren v. Village of Lisle, 202 Ill.2d 164 (2002), the Court made two rulings that are worth noting: (1) decisions by municipal governments on special use permits are quasi-judicial decisions and not legislative decisions; and (2) parties interested in such proceedings cannot be denied the right to present evidence and cross-examine witnesses appearing at public hearings. For all those working in real estate, it is important to understand the Supreme Court’s ruling in Klaeren and the implications for the future.

Prior to the Klaeren decision, Illinois law treated all decisions made by city councils and village boards as legislative decisions regardless of whether or not the corporate authorities were actually passing legislation. This practice, as it related to decisions affecting existing property rights such as special use applications, was contrary to the "clear weight of authority in the United States [which] holds that a legislative body acts administratively when it rules on applications for special use permits." City of Chicago Heights v. Living Word Outreach Full Gospel Church & Ministries, Inc., 196 Ill. 2d 1 (2001).

In Living Word, a case decided by the Supreme Court a year before Klaeren, the Court clearly signaled that it was concerned by the practice of treating decisions on special use applications as legislative decisions. To many, treating special use permit decisions as legislative decisions is the preferred approach because it facilitates the deal-making on applications that Illinois is known for. However, for many the practice was disconcerting because it ignored the fact that the municipality was adjudicating property rights in determining whether to issue permits allowing for the use of land. As the Court acknowledged in Klaeren, a municipality "acts in a fact-finding capacity to decide disputed adjudicative facts based upon evidence adduced at the hearing and ultimately determines the relative rights of the interested parties" when it considers a special use permit application. Thus, rather than acting legislatively, a municipality was in fact acting administratively (also referred to as quasi-judicially) in making decisions on special use applications.

Second, by treating decisions on special use permits as legislative acts, the practice protected municipal action on such permits from legal challenge. Although municipalities ultimately pass an ordinance granting or denying a special use permit, the reality is that the passing of this type of ordinance is not really a legislative function – such as when a municipality adopts legislation. Nevertheless, as long as the decision was treated as a legislative act, it was very difficult to challenge decisions on special use permits because a legislative body’s decision is reviewed for arbitrariness as set forth in La Salle National Bank v. County of Cook, 12 Ill. 2d 40, 145 N.E.2d 65 (1957). Courts will not interfere with legislative acts unless shown to be arbitrary, capricious or unrelated to the public health, safety and morals.

Thus, the Illinois Supreme Court put all on notice in the Living Word case that it was becoming uncomfortable with the fact that Illinois treated all decisions by village boards and city councils on special use applications as legislative decisions. However, it was not until the Klaeren case a year later that the Court acted to overrule long standing Illinois law.

At issue in Klaeren was a joint hearing on a special use permit conducted before the Village Board, Plan Commission and Zoning Board of Appeals of the Village of Lisle, Illinois, to allow the construction of a Meijer store. At the public hearing, the Mayor announced that the public’s comments would be limited to two minutes for each speaker and stated that questions raised by the audience would not be answered. The public hearing proceeded with the applicant’s presentation and public comment. During the public comment period, the Mayor cut off speakers and 2 issued warnings to the speakers that their allotted time was about to end. The Mayor stated that the record would be kept open until the end of that month for the submission of written comments.

Certain opponents were not satisfied with the way the public hearing was conducted, and filed suit seeking judicial relief in the form of a preliminary injunction preventing Meijer from acting on any of the approvals granted by the Village. The Court granted the injunction, concluding that the original public hearing was not proper because a "public hearing," as it was defined in the Illinois Supreme Court case Braden v. Much, 403 Ill. 507, 513 (1949) included the right of the public to hear and examine witnesses whose testimony was presented.

In its decision, the Illinois Supreme Court upheld the trial court’s and the appellate court’s decisions and discussed the procedural safeguards necessary at public hearings generally and the standard upon which a judicial review of the decisions made at any such hearing are to be reviewed. Regarding procedural safeguards, the Court stated that "[t]he reasons for classifying zoning hearings as . . . quasi-judicial are manifest . . . [because] the property rights of the interested parties are at issue." Since the property rights of the interested parties were critical, the thoughtful and careful treatment of such rights required decisions of this nature to be treated as quasi-judicial. The Court indicated that although the full panoply of due process rights are not necessarily afforded to interested parties at such a public hearing, the fundamental principles of justice and fair play dictate that interested parties at least have the right to cross examine witnesses testifying in favor of a special use permit request.

Also in Klaeren, before discussing procedural safeguards, the Court contemplated the judicial review of special use permits and stated that because the procedures used and the decisions made at such a hearing are administrative or quasi-judicial in nature, the appropriate standard for review is whether the decision is against the manifest weight of the evidence, as opposed to the "arbitrary, capricious or unrelated to the public health, safety and morals" standard that is applied to legislative decisions. By doing so, the Klaeren Court brought Illinois law in harmony with other states, indicating its awareness that no other state distinguishes between the process of a public hearing and the substantive decision reached as a result of the hearing – they are both consistently construed as administrative proceedings and administrative decisions.

Given the Klaeren ruling, an applicant requesting a special use permit should come well prepared for their public hearing presentations. Although not every public hearing will merit the same level of preparation, it is important to think about the implications of Klaeren before the public hearing. Is this project controversial? Are there known objectors? If the answer to these questions is yes, then a greater level of preparation and attention to detail is strongly advised. Rules of procedure for the hearing should be updated by the municipality in light of Klaeren. All parties should be given a reasonable opportunity to present evidence and cross-examine witnesses, although the right of cross-examination under Klaeren is not unlimited and may be tailored by the municipality to the specific circumstances presented. Even though it has been a year since Klaeren, many municipalities have not updated their hearing procedures and are continuing such questionable practices as limiting testimony and cross-examination. Applications should encourage municipalities to update their hearing procedures to ensure that favorable decisions on special use permits will withstand judicial scrutiny.

All witnesses should swear under oath that the testimony they are about to provide is truthful in all respects, and parties submitting written reports or studies should confirm that their statements and conclusions within such reports are truthful. Witnesses should be experts in their fields and be prepared to answer questions from the general public as well as from the municipal board or staff. Most importantly, testimony should directly address the standards set forth in the ordinances or issues raised by staff or cross-examiners. Exhibits used during the presentation should be clearly demonstrated, marked and entered into the record, as they would at trial.

The applicant should ensure that a full and complete record be developed at the public hearing stage, including a transcript of the proceedings and copies of all documents, graphics, plans and other materials used at the public hearing. Certainly, this level of preparation may result in additional expenses for municipalities and applicants. However, the investment in good preparation will insure that the final decision on the special use permit will withstand judicial scrutiny.

Administrative/quasi-judicial decisions may be appealed to court in two different ways. The first is to seek review under the Administrative Review Law ("ARL"). However, appeals via the ARL are only available when the municipality has adopted an ordinance directing that final decisions are appealed to court via the ARL. For example, decisions from the City of Chicago Zoning Board of Appeals on special use permits are deemed final and reviewed in court via the ARL. Currently, most municipalities do not direct that final decisions on special use permits be appealed to court via the ARL and thus are appealed to court via the common law writ of certiorari.

In reviewing administrative or quasi-judicial decisions, courts are limited to reviewing the record created at the public hearing and may not consider new or additional evidence in support of – or in opposition to – any finding, order, determination or decision made by the municipality. This is a significant change as well – pre-Klaeren, courts permitted parties challenging the denial or granting of special use permits to create a new record before the court. Now, as discussed above, it is critical that all the relevant information on an application be submitted as part of the record and considered by the municipal board or council in making its final decision.

Under Klaeren, decisions by city councils and village boards on special use permits are now reviewed by courts to determine whether the decision is against the manifest weight of the evidence – a lower standard of review than the legislative/arbitrariness standard that existed pre-Klaeren. A municipality’s findings of fact on a special use permit decision will be determined to be against the manifest weight of the evidence if all reasonable people would agree that the finding is erroneous and that the opposite conclusion is clearly evident. All conclusions of law are reviewed de novo by courts reviewing administrative/ quasi-judicial decisions.

As with any decision that overturns long-standing law, there are more questions left unanswered than answered. And since Klaeren, the courts have only addressed issues such as whether the law should have retroactive effect. Some of the questions raised by Klaeren have to do with how far the Supreme Court will go in applying the administrative/quasi-judicial distinction. In addition to decisions on special use permits, decisions on conditional use permits will probably be treated as quasi-judicial decisions. Although there often is confusion over the use of the terms "special use," "special exceptions" and "conditional uses," they are almost always substantively the same and the only distinction is the term used in the enabling legislation. But, what about variances – will decisions on variances be deemed to be quasi-judicial and not legislative? At this point, the Supreme Court has provided no direction. However, looking to the majority of other states that have adopted this distinction, most treat decisions on area variances (i.e., set back, height and FAR variances) as quasi-judicial, and decisions involving use variances (i.e., variances to permit uses otherwise prohibited), annexations and rezones as legislative decisions.

Since the distinction between quasi-judicial and legislative is a common law (i.e., court-created law) distinction, it will take time for the courts to answer all of the questions raised by Klaeren. Thus, it is reasonable to expect that the legislature might take up the issue to clarify the meaning and extent of Klaeren and provide the real estate community the necessary certainty it requires.

Illinois House Bill 0422 ("HB0422") passed the Illinois General Assembly in Spring 2003. The bill was sponsored by Representative Karen May in the House and is now sponsored by Senator Terry Link in the Senate, both of whom are from Lake County. If passed by the Illinois Senate and signed by Governor Blagojevich, HB0422 would regulate isolated wetlands in Illinois by explicitly approving various county stormwater ordinances, authorizing other counties to enact their own standards, and enacting one set of standards for the rest of the state subject to the regulation of the Illinois Department of Natural Resources ("IDNR").

On November 18, 2003, HB0422 was assigned to the Senate Committee on Environment and Energy. Senator James Clayborne, Jr., who is the Chairperson of that Committee, proposed an amendment to HB0422 which would give the Illinois Environmental Protection Agency ("IEPA"), not IDNR, regulatory authority over wetlands, and home rule authority to regulate wetlands would be preempted, except for county governments (Lake, DuPage and Kane) that implemented wetlands regulation programs prior to March 1, 2003. Those counties would be allowed to regulate wetlands under their existing ordinances until July 31, 2007 at which time they too will be preempted. Accordingly, under HB0422, all of these counties would be permitted to continue to follow their own ordinances but if the Senate amendment is adopted by both houses, only Kane, DuPage and Lake Counties would be permitted to do so. HB0422, as amended, is currently pending before the Illinois Senate Rules Committee.

HB0422 is opposed by a broad coalition of business, labor, and other interests. This coalition joined forces to participate in a committee of the Illinois Environmental Regulatory Group to formulate alternate isolated wetlands legislation, which was circulated during the Spring 2003 legislative session. The alternate bill is a product of many compromises on the part of the regulated community, is very protective of isolated wetlands and is quite similar in scope to HB0422. The major difference between HB0422 and the coalition’s alternate proposal is reflected not in their respective levels of protection of isolated wetlands but rather in the way that the proposals reflect the turf battle among various county stormwater management commissions to maintain their existing programs. A variety of business interests have long maintained that these stormwater management commissions are exceeding their limited statutory authority to promote interests other than sensible stormwater management. The coalition’s version of the bill would place all isolated wetlands under one set of clear protections under the authority of the Illinois Environmental Protection Agency.

Stay tuned for updates during the 2004 legislative session.

GCD presents a solid real estate practice with five principal areas of focus: development and land use; financing and investment; representation of non-profit institutions; leasing and property management; and corporate services. During the last two years, using foresight and strategic planning, we have doubled the size of our real estate group and are able to offer our clients the legal skills and the critical mass to take on even the most complex and sizable of matters. The stature of the group has grown with the addition of six highly successful and seasoned partners and four talented associates selected for their unique abilities.

In keeping with our intent to strengthen and develop the transactional practices of the real estate group, five of the new partners have built their reputations on legal matters involving commercial and institutional investment financing, lending and leasing. Three of the new associates support this focus. This has resulted in our ability to offer sophisticated and experienced means to meet the demands presented by each transaction, no matter how difficult. Another one of our goals has been to further expand and support our ongoing robust land use practice. We met this goal by adding a partner with a depth of experience in zoning legislation and governmental affairs, and enhancing the already impressive credentials of this group. Finally, thanks to the efforts of one of our highly talented partners, our representation of colleges and universities on a variety of legal issues, including real estate, has grown to the point where it was appropriate to create a Higher Education Practice that offers interdepartmental and interdisciplinary legal services.

As we have grown, so have our clients. We have been pleased to offer them a group of attorneys that have enabled them to maximize the value of their real property assets in 2003 and look forward to building on this experience in 2004.

Copyright 2004 Gardner Carton & Douglas

This article is not intended as legal advice, which may often turn on specific facts. Readers should seek specific legal advice before acting with regard to the subjects mentioned here.