Cicero 31, LLC v. State of Illinois, Illinois Environmental Protection Agency

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OPINION

BIRNBAUM, C J. This claim is before the Court upon a recommendation from Commissioner Herbert B. Rosenberg following an evidentiary hearing.

Claimant, Cicero 31, LLC, is seeking damages of $343,510.17 along with prejudgement interest and costs for a breach of contract by Respondent. In 2006, Claimant was interested in purchasing a piece of real estate located at the southeast corner of 31st Street and South Cicero Avenue in Cicero, Illinois (the "Property"). At the time Respondent was involved with litigation against multiple persons for violations of the Illinois [*120] Environmental Protection Act (the "Act") that had occurred at the Property. Respondent had previously collected money from certain persons including, Loews Chicago Cinema.

Inc., that was being held in a Waste Removal Trust Fund ("Fund"). Litigation was still ongoing against three trucking companies: Ganna Construction, Inc. ("Ganna"), K-Five Construction Corporation ("K-Five"), and Lindahl Brothers, Inc. ("Lindahl"). Due to the litigation, on December 14, 2006 Claimant and Respondent entered into a Prospective Purchaser Agreement and Covenant Not to Sue Pursuant to the Illinois Environmental Protection Act ("PPA"). Upon successful completion of the PPA, Claimant would have no further environmental liability for pre-existing conditions at the Property. The PPA contains the following paragraph, section A.4:

The State has determined that during the period 1988 to 1991 additional materials were illegally disposed on the berms in the southern portion of the property. The Attorney General's office has successfully prosecuted several of the defendants; cleanup monies collected have been placed in a Waste Removal Trust Fund ("Fund") at LaSalle Bank N.A., which has a present value of approximately $1,594,000; the Attorney General's office is currently engaged in litigation against additional defendants, and additional cleanup monies (which do not include civil penalties and attorneys' fees and costs), if collected, will be placed into the Fund. Pursuant to Section C of this Agreement the State agrees to use the cleanup monies in the Fund to reimburse Purchaser for costs incurred in carrying-out the Berm Materials Handling and Disposal Plan ("Handling and Disposal Plan") to completion.

Subsequent to the execution of the PPA, Ganna filed for bankruptcy and Respondent did not collect any money from Ganna. Respondent reached settlements in the litigation against K-Five and Lindahl. Respondent collected $175,000 from Lindahl and $125,000 from KFive. At issue is whether the settlement money Respondent collected from Lindahl and KFive is additional cleanup monies under the terms of the PPA. Claimant alleges that the settlement money Respondent collected from Lindahl and K-Five is additional cleanup money and that Respondent breached the PPA by not placing the settlement money into the Fund and reimbursing Claimant for its costs expended completing the Berm Materials Handling and Disposal Plan ("Plan"). Respondent alleges that the settlement money Respondent collected from Lindahl and K-Five is not additional cleanup monies.

Thus, Respondent did not breach the PPA.

Additionally, Claimant alleges that Respondent withheld $43,510.17 which was in the Fund from Claimant. Claimant had expended approximately $6 million carrying out the Plan to completion. Claimant received $1,624,547.62 from the Fund on 6/12/2008.

Claimant also received $56,489.83 from the Fund on 1/14/2009. Claimant alleges that the balance in the Fund in January of 2009 should have been $100,000, so Respondent withheld $43,510.17 due to Claimant under the PPA.

An evidentiary hearing was held. Mr. Michael P. Doss of Sidley Austin, LLP appeared on behalf of the Claimant. Mr. Michael A. Schnitzer and Ms. Lindsay Valcho from the Office of the Illinois Attorney General appeared on behalf of the Respondent. Ms. Dianne M. Sofiak of Sofiak Reporting Services, a Certified Shorthand Reporter, produced a transcript of the hearing.

[*121] FACTS

AND

LEGAL

ANALYSIS

For a Claimant to recover in a breach of contract claim, the Claimant must prove all of the elements of a contract by a preponderance of the evidence. Weidmann v. State, 57 Ill.Ct.Cl. 209 (2005). The evidence must show the existence of a valid and enforceable contract, substantial performance by Claimant, a breach by Respondent, and resulting damages. Evans v. State, 65 Ill.Ct.Cl. 207 (2012). Only a duty imposed by the terms of a contract can give rise to a breach. Id.

The PPA is an agreed exhibit, so there is no dispute that the PPA is a valid and enforceable contract between Claimant and Respondent. There is no dispute that Claimant has substantially performed under the PPA. Claimant expended approximately $6 million carrying out the Plan and received $1,624,547.62 from the Fund on 6/12/2008 and $56,489.83 from the Fund on 1/14/2009. At issue is whether Respondent's refusal to deposit into the Fund to reimburse Claimant the settlement monies collected from Lindahl and K-Five constitutes a breach of the PPA by the Respondent. Also at issue is whether Respondent withheld money in the Fund from Claimant in breach of the PPA. The issues are examined as follows:

Settlement Money Collected from Lindhal by Respondent Respondent collected $175,000 from Lindahl pursuant to a Consent Order with Lindahl Brothers, Inc., Only ("Lindahl Order") which was entered in the Circuit Court of Cook County on April 17, 2008 and jointly included as Exhibit 10. The threshold question is whether the $175,000 is additional cleanup money under the PPA. If the $175,000 is additional cleanup money, then Respondent would have breached the PPA. In this event, Respondent should have placed the money into the Fund pursuant to section A.4. of the PPA and used the money to reimburse Claimant for costs expended carrying out the Plan.

The PPA does not define what constitutes cleanup money, so the term is ambiguous.

An ambiguous term allows the use of extrinsic evidence since extrinsic evidence is not admissible unless the Court determines that the written contract is ambiguous or that essential terms of the agreement were not embodied in the writing. Sams v. Bd. Of Trs. of Ill.

State Univ., 65 Ill.Ct.Cl. 127 (2013). However, the extrinsic evidence cannot contradict or vary the written instrument. Id.

The language used in the PPA states that cleanup money does not include civil penalties and attorneys' fees and costs. While the PPA has language that expressly excludes civil penalties along with attorneys' fees and costs from cleanup money, the PPA does not expressly define what should be included as cleanup money. In this case, we will employ the rule of contra proferentum which states that a contract must be construed most strongly against the drafter. Genie Construction Co., Inc. v. State, 51 Ill.Ct.Cl. 153 (1999). Under rule of contra proferentum, "the risk of ambiguity, lack of clarity, and absence of proper warning is on the drafting party which would have forestalled the controversy." Id. at 166. The testimony in the record establishes that the language at issue in section A.4. of the PPA was drafted by agents of the Respondent. The PPA does not contain enough clear language which would neutralize the rule of contra proferentum. Therefore, any ambiguity will be [*122] resolved in favor of the Claimant and against the Respondent. Based on the language utilized in the PPA, and resolving the ambiguity against the Respondent, the best definition of cleanup money is money collected from the litigation defendants Lindahl and K-Five that is not a civil penalty or not attorneys' fees and costs. Express exclusions were made in the PPA for civil penalties and attorneys' fees and costs. Therefore, the most reasonable interpretation for cleanup monies would be any money received by Respondent that is not expressly excluded as a civil penalty or as attorneys' fees and costs.

The Lindahl Order states that the $175,000 payment was made "not as a penalty but as a settlement amount." According to the plain language of the Lindahl Order, the $175,000 payment is not a penalty. Additionally, at the hearing Claimant's witness Matthew Joseph Dunn testified that no portion of the payment was for attorneys' fees and costs. Since the $175,000 payment is not a penalty and the $175,000 payment is not for attorneys' fees and costs, the $175,000 should be considered cleanup money under the terms of the PPA.

Respondent maintains that despite the language used in the Lindahl Order, the $175,000 payment should still be considered a penalty since the State did not seek cleanup money from Lindahl in the underlying environmental litigation. The Respondent's position fails for two reasons.

First, the language used in the Lindahl Order is clear; the $175,000 settlement amount is not a penalty. Since this language is clear and not ambiguous under Sams v. Bd. of Trs. of Ill. State Univ., supra, extrinsic evidence would be inadmissible in determining whether the $175,000 payment is a penalty. Secondly, the State did have the power to compel Lindahl to cleanup the Property under the underlying environmental litigation. According to page 36 of Exhibit 3, in addition to any penalties being brought under the Act, the State was seeking an order for Lindahl to remove all waste from the Property under an allegation for open dumping. Under Section 3.405 of the Act, the term remove means cleanup. See 415 ILCS 5/3.405. Also, under Section 45 of the Act, the court has the power to compel the removal of waste by a party found to have contributed to open dumping. See 415 ILCS 5/45. Therefore, the State does have the power under the Act to compel a person found liable for open dumping to remove hazardous substances from the Property (i.e. cleanup the Property). However, the State chose not to pursue that remedy. Rather than continuing to pursue Lindahl for civil penalties or an injunctive order compelling Lindahl to cleanup the Property, the State made a strategic decision in the litigation to settle the case with Lindahl. The settlement payment is a replacement for not only potential civil penalties, but also for any compulsory injunctive relief available under the Act.

One further point worth noting with respect to the Lindahl Order is that as indicated in Exhibit 16, the language utilized in the Lindahl Order was modified to specifically remove the term "civil penalty" and replace it with the term "settlement amount." The language in the Lindahl Order was a result of negotiation between Lindahl and the State. The record does not indicate the purpose behind this change in language, but reasons for the parties to want to change the language may exist such as the disallowance of tax deductions for penalties paid to the government contained in Section 162(f) of the Internal Revenue Code.

Regardless of the reason, the State bargained to use the term "settlement amount" rather than "penalty" in the Lindahl Order, so the State must accept the results of its choice of language.

The $175,000 cannot be treated as something other than a penalty in one situation, but treated as a penalty under the PPA. The State cannot have it both ways.

[*123] As the $175,000 payment is determined to be cleanup money under the PPA, the Claimant has established that Respondent breached the PPA contract since the Respondent did not place the $175,000 payment into the Fund and use the money to reimburse Claimant for Claimant's expenditures in carrying out the Plan. With respect to damages, the Claimant is awarded $ 175,000 for breach of contract.

Settlement Money Collected from K-Five by Respondent Respondent collected $125,000 from K-Five pursuant to a Consent Order with K-Five Construction Corporation Only ("K-Five Order") which was entered in the Circuit Court of Cook County on April 17, 2008 and jointly included as Exhibit 12. The threshold question is whether the $125,000 is additional cleanup money under the PPA. If the $125,000 is additional cleanup money, then Respondent would have breached the PPA contract. In this event, Respondent should have placed the money into the Fund pursuant to section A.4 of the PPA and used the money to reimburse Claimant for costs expended to carry out the Plan.

The K-Five Order states that "K-Five shall make a payment of One Hundred Twenty Five Thousand Dollars ($125,000)." Unlike the Lindahl Order, the K-Five Order does not contain any language that states that the payment is "not as a penalty but as a settlement amount." The $125,000 is described merely as a "payment."

As previously determined by employing the rule of contra proferentum, the most reasonable interpretation for cleanup monies in the PPA would be any money received that is not expressly excluded as a civil penalty or as attorneys' fees and costs. Testimony of Claimant's witness Matthew Joseph Dunn at the hearing established that no portion of the payment was for attorneys' fees and costs. The question to be determined is whether the $125,000 payment under the K-Five Order related to penalties.

Since the K-Five Order is unclear and ambiguous with respect to whether the $125,000 payment under the K-Five Order related to penalties, extrinsic evidence may be examined. Like the Lindahl Order, the K-Five Order was created as part of a settlement of underlying environmental litigation between K-Five and the State. In fact, it was the same piece of litigation which included claims of open dumping and sought the removal of hazardous substances from the Property (i.e. cleanup the Property) in addition to civil penalties. Like the claim against Lindahl, the State chose to settle with K-Five rather than continuing to pursue K-Five for civil penalties or an injunctive order compelling K-Five to cleanup the Property. Like the language in the Lindahl Order, the language in the K-Five Order was also the product of negotiation. Exhibit 15 shows that a prior draft of the K-Five Order stated "K-Five shall pay a civil penalty of One Hundred Twenty Five Thousand Dollars ($125,000)." The result of bargaining between K-Five and the State was that the $125,000 would be a "payment" and not a "civil penalty". Since the term "civil penalty" was removed from the K-Five Order, the $125,000 payment should not be treated as a penalty.

As the $125,000 payment is not a penalty and the $125,000 payment is not for attorneys' fees and costs, the $125,000 is determined to be cleanup money under the PPA.

The Claimant has established that Respondent breached the PPA contract since the Respondent did not place the $125,000 payment into the Fund and use the money to reimburse Claimant for Claimant's expenditures in carrying out the Plan. With respect to damages, the Claimant is awarded $125,000 for breach of contract.

[*124] Payments to Claimant from the Waste Removal Trust Fund Under the PPA, Claimant is entitled to reimbursement for the costs incurred in carrying out the Plan. Exhibit 16 contains account statements for the Fund from 5/1/2006 through 12/31/2008. Exhibit 16 shows an account balance of $1,560,921.81 on 12/1/2006 which is not materially dissimilar to the estimate of $1,594,000 referenced in the PPA, which was executed on 12/14/2006. A review of the statements in Exhibit 16 shows that Claimant received $1,624,547.62 from the Fund on 6/12/2008. The other account activity during that time period was limited to investment management activity, federal tax payments, and bank fees. Exhibit 22, which is the account statement for January of 2009, shows that Claimant received $56,489.83 from the Fund on 1/14/2009. The ending balance on 1/31/2009 was $1,500.00. Claimant has questioned whether Claimant has received all payments from the Fund required by the PPA. In particular, Claimant has questioned the legitimacy of a $20,000 federal tax payment paid on 12/15/2008.

However, the PPA states that Claimant will be reimbursed after Fund administration costs are subtracted. Claimant has not provided any testimony or evidence to show that the $20,000 payment on 12/15/2008 was not a legitimate administration cost of the Fund or the $1,500.00 balance remaining on 1/31/2009 was not used for legitimate administration costs of the Fund. Under Weidmann v. State, supra, Claimant must prove all elements of a breach of contract claim by the preponderance of the evidence. In this situation, Claimant has not sustained the burden of proof to establish a breach of contract.

Claimant's request for $43,510.17 is denied.

SUMMARY AND DAMAGES

Claimant has established by a preponderance of the evidence a breach of contract claim for $175,000 related to the settlement payment received by Respondent under the Lindahl Order and a breach of contract claim for $125,000 related to the payment received by Respondent under the K-Five Order. Claimant has not established by a preponderance of the evidence a breach of contract claim for $43,510.17 alleged to be owed to Claimant under the terms of the PPA. Claimant is awarded $300,000 in total.

With respect to damages, Claimant has requested prejudgment interest along with attorneys' fees. The general rule for interest is that the State is not liable for interest in the absence of a statute expressly subjecting the State to such liability. Centola v. State, 41 Ill.Ct.Cl. 119 (1988). No such statute is pleaded here. Attorneys' fees and costs are not recoverable unless provided under specific statutory authorization, Tully v. State, 47 Ill.Ct.Cl. 400 (1994), or the contract expressly provides for attorneys' fees and costs. Glenstone Homeowners Assn. v. State, 48 Ill.Ct.Cl. 388 (1996). No statutory authorization is provided, and the PPA does not contain any express provision for attorneys' fees and costs.

Therefore, prejudgment interest and attorneys' fees and costs are denied.

IT IS HEREBY ORDERED:

Claimant is awarded $300,000 for breach of contract.