SUPREME COURT OF THE STATE OF ILLINOIS

Transcription

1 NO IN THE SUPREME COURT OF THE STATE OF ILLINOIS PATRICK ENGINEERING, INC., v. Plaintiff-Appellee, CITY OF NAPERVILLE, Defendant-Appellant. BRIEF OF AMICUS CURIAE OF THE ILLINOIS MUNICIPAL LEAGUE IN SUPPORT OF THE CITY OF NAPERVILLE Petition for Leave to Appeal from the Illinois Appellate Court Second District, No There heard on Appeal from the Circuit Court of DuPage County No. 09-L-114 The Honorable John T. Elsner, Judge Presiding Brian Day Ashley Niebur Roger Huebner Illinois Municipal League 500 East Capitol Avenue Springfield, Illinois (217) Attorneys for The Illinois Municipal League

2 TABLE OF CONTENTS I. POINTS AND AUTHORITIES... iii II. PRELIMINARY STATEMENT... 1 A. Interest of the Amicus Curiae...1 B. Statement of the Case...2 C. Issue Presented...5 III. ARGUMENT... 6 A. The limits of applying equitable estoppel against a government...7 B. A contract entered into by a non-authorized party is void and is, therefore, not subject to equitable estoppel Equitable estoppel cannot be applied to a void contract A public contract that is entered into by an unauthorized agent is void...12 C. It is unreasonable to rely on the apparent authority of nonauthorized employees Reasonable reliance is a required element of equitable estoppel Those entering a public contract are required to seek information concerning the authority of any agent to make that contract...19 i

3 3. A claim based on apparent authority means that the asserting party failed in the duty to ascertain the necessary facts D. Allowing a non-authorized party to contractually bind the municipality would usurp the proper role and functions of government Allowing equitable estoppel based on apparent authority would strip decision-making authority from the duly elected officials Allowing equitable estoppel based on apparent authority would make public contracts impractical if not impossible to administer...25 IV. Conclusion Appendix ii

4 I. POINTS AND AUTHORITIES II. PRELIMINARY STATEMENT... 1 A. Interest of the Amicus Curiae ILCS 5/1-8-1 (West 2010)...1 B. Statement of the Case...2 C. Issue Presented...5 III. ARGUMENT... 6 A. The limits of applying equitable estoppel against a government...7 Geddes v. Mill Creek Country Club, Inc., 196 Ill. 2d 302, 313 (2001) Am. Jur. 2d 28 at Am. Jur. 2d 30 at City of Quincy v. Sturhan, 18 Ill. 2d 604, 614 (1960)...7 Hickey v. Illinois Cent. R. Co., 35 Ill. 2d 427, 447 (1966)...7 McDonald v. Illinois Dept. of Human Services, 406 Ill. App.3d 792, 803 (4 Dist. 2010)...7 Michael A. Rosenhouse, Estoppel of State or Local Government in Tax Matters, 21 A.L.R. 4th 573 at 587 (1983) McQuillin on Municipal Corporations 49:36.10, at 38 (3d rev. ed and 2011 Supp.)...8 Chicago Limousine Services, Inc. v. City of Chicago, 335 Ill. App.3d 489, 499 (1 Dist. 2002)...8 Halleck v. County of Cook, 264 Ill. App.3d 887, 893 (1 Dist. 1994)...8 Comment Note, Applicability of doctrine of estoppel against government and its governmental agencies, 1 A.L.R.2d 338 at 349 (1948) McQuillin on Municipal Corporations 49:36.10, at 38 (3d rev. ed and 2011 Supp.)...8 People v. Brown, 67 Ill. 435, 438 (1873)...9 J. Burton Co. v. City of Chicago, 236 Ill. 383, 390 (1908)...9 iii

5 Sinclair Refining Co. v. City of Chicago, 246 Ill. App. 152, (1 st Dist. 1927)...10 People ex rel Satas v. City of Chicago, 5 Ill. App. 3d 109, 113 (1 Dist. 1972)...10 Schivarelli v. Chicago Transit Authority, 355 Ill. App. 3d 93, 103 (1 Dist. 2005)...11 B. A contract entered into by a non-authorized party is void and is, therefore, not subject to equitable estoppel Equitable estoppel cannot be applied to a void contract...11 Branigar v. Village of Riverdale, 396 Ill. 534, (1947)...12 McMahon v. City of Chicago, 339 Ill. App.3d 41, 48 (1 Dist. 2003) A public contract that is entered into by an unauthorized agent must be considered to be void ILCS 5/8-1-1 (West 2010) ILCS 5/ (West 2010)...12 Chicago Food Management v. City of Chicago, 163 Ill. App. 3d 638 (1 Dist. 1987)...12 Bank of Pawnee v. Joslin, 166 Ill. App. 3d 927 (4 Dist. 1988)...13 Village of Woodridge v. Bohnen, 60 Ill. App. 3d 692 (1 Dist. 1978)...13 City of Bellville v. Illinois Fraternal Order of Police Labor Council, 312 Ill. App. 3d 561, 563 (5 Dist.)...13 Nielsen-Massey Vanillas, Inc. v. City of Waukegan, 276 Ill. App. 3d 146, (2 Dist. 1995)...13 Villa v. City of Chicago, 924 F.2d 629, (7 Cir. 1991)...13 D.C. Consulting Engineers, Inc. v. Batavia Park District, 143 Ill. App.3d 60, 63 (2 Dist. 1986)...15 Kenny Construction Co. of Illinois v. Metropolitan Sanitary District of Greater Chicago, 52 Ill. 2d 187, (1971)...15 iv

6 Stahelin v. Board of Education, School Dist. 4, 878 Ill. App. 2d 28, 42 (2 Dist. 1967)...15 Marziani v. Lake County Zoning Board of Appeals, 87 Ill. App. 3d 425, 428 (2 Dist. 1980)...16 County of DuPage v. K-Five Construction Corporation, 267 Ill. App. 3d 266, 273 (2 Dist. 1994)...16 C. It is unreasonable to rely on the apparent authority of nonauthorized employees Reasonable reliance is a required element of equitable estoppel...18 Geddes, 196 Ill. 2d at Hickey v. llinois Central R.R. Co., 35 Ill. 2d 427, 447 (1966)...19 Koczor v. Melnyk, 407 Ill. App. 3d 994, 1001(1 Dist. 2011) Those entering a public contract are required to seek information concerning the authority of any agent to make that contract...19 City Service Oil Co. v. City of Des Plaines, 21 Ill. 2d 157, 161 (1961)...19 McMahon v. City of Chicago, 339 Ill. App. 3d 41, 46 (1 Dist. 2003)...19 Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947)...19 U.S. Neurosurgical, Inc. v. City of Chicago, 572 F.3d 325, 331 (7 Cir. 2009) McQuillin on Municipal Corporations 29.4, at (3d rev. ed. 2009) A claim based on apparent authority means that the asserting party failed in the duty to ascertain the necessary facts D. Allowing a non-authorized party to contractually bind the municipality would usurp the proper role and functions of government...21 People v. Lieberman (In re Lieberman), 201 Ill. 2d 300, (2002)...21 v

7 1. Allowing equitable estoppel based on apparent authority would strip decision-making authority from the duly elected officials..22 McDonald, 406 Ill. App. 3d at ILCS 120/2 (West 2010) Allowing equitable estoppel based on apparent authority would make public contracts impractical if not impossible to administer...25 Office of Personnel Management v. Richmond, 496 U.S. 414, 433 (1990) ILCS 525/5 (West 2010) ILCS 5/8-9-1 (West 2010) ILCS 5/ (West 2010) ILCS 130/4 (West 2010) ILCS 557/10 (West 2010)...26 IV. CONCLUSION vi

8 II. PRELIMINARY STATEMENT A. Interest of the Amicus Curiae. The Illinois Municipal League is a not-for-profit, non-political association of 1,131 municipalities in the State of Illinois. State statutes designates the League as the instrumentality of its members. 65 ILCS 5/1-8-1 (West 2010). The League's mission is to articulate, defend, maintain, and promote the interests and concerns of Illinois communities. The League has a specific interest in this matter because allowing the Appellate Court s decision to stand would threaten the functions of municipal government. The Appellate Court s decision to reject longstanding precedent and allow equitable estoppel based on apparent authority essentially means that any municipal employee has the power to bind a municipality under a contract. Letting this decision stand would degrade the powers of the corporate authorities of a municipality to effectively govern. Further, the Appellate Court s decision was made in stark contrast to a plethora of relevant decisions handed down by Illinois courts. 1

9 B. Statement of the case. This is a case to determine whether equitable estoppel against a public body may be based on the representations of those who have apparent, but not actual, authority to bind the public body under a contract. For the purposes of this brief, the Illinois Municipal League adopts the Statement of Facts as set forth in the brief filed by the City of Naperville. The City of Naperville entered into a contract with Patrick Engineering, a vendor. Under the contract, Patrick Engineering would provide consulting services in connection with the development of a stormwaterasset-management system and geographic information system for up to 20 square miles. The contract required Patrick Engineering to complete, and for Naperville to approve, a portion of the project (the pilot area ), before completing work on the balance of the project area. Section 2 of the contract required that any additional services other than those specified in the scope of the contract must be agreed to in writing between the parties, and that, if Patrick Engineering did not receive confirmation that the additional services were approved by the City, then Patrick Engineering was not obligated to perform, and would not be paid, for those services. 2

10 Shortly after beginning work on the project, Patrick Engineering demanded a change order to increase the budget for the project. Naperville refused the change order, and Patrick Engineering stopped work. Patrick alleged that it resumed work on the project after receiving a letter from Naperville employee Beth Lang, the Strategic Services Manager for the Department of Public Works. The letter, attached as Exhibit 5 to Patrick s Complaints and included in the Appendix attached in this brief, stated that Upon delivery and review of the pilot data, the City will work with Patrick to determine if a change in scope to complete the remainder of Area B is required. At that time, the project specifications, feature count projections, and budget will undergo thorough review and any necessary changes will be made. Besides the letter from Beth Lang, Patrick Engineering alleged that Beth Lang and Larry Gunderson, the City s Information Technology Team Leader, verbally informed representatives of Patrick Engineering that a change order would be issued once the pilot area of the project was accepted. Finally, Patrick Engineering alleged that other Naperville employees were aware that it was performing additional services, but did not instruct Patrick to discontinue their performance. Patrick did not allege that Beth Lang, Larry Gunderson, or any of the employees who 3

11 allegedly failed to stop it from performing additional services outside the scope of the contract were authorized to modify or enter into contracts on behalf of Naperville. Naperville would not pay Patrick Engineering the amounts it claimed to be owed, so Patrick Engineering terminated the contract and sued. In its suit, Patrick Engineering claimed, among other things, that Naperville was equitably estopped from denying liability to pay for hundreds of thousands of dollars of additional services outside the scope of the contract. Naperville moved to dismiss the suit on the basis that no additional services had been approved by the City in the manner agreed upon in the parties contract, and that any modification allegedly approved by Naperville s employees would be void because Patrick Engineering had not pled, in any of its five complaints, that those employees had been authorized by the corporate authorities of the City to enter into such a modification. Therefore, the vendor was not justified in relying on any statements that Naperville employees allegedly made. The trial court dismissed the suit, but the Appellate Court reversed. 4

12 In doing so, the Second District Appellate Court rejected a long-standing line of precedent holding that any claim of equitable estoppel against the government must be predicated on actual rather than apparent authority. The Appellate Court held that Patrick Engineering could pursue its equitable estoppel claim based on the apparent rather than actual authority of the employees who made the representations. C. Issue presented: Illinois courts have long adhered to the rule that the affirmative acts that induce reliance by a party asserting estoppel must be acts of the pubic body, itself, rather than merely the unauthorized act of a ministerial officer or a ministerial misinterpretation. The Appellate Court held that this line of precedent was a creature of appellate courts only, and that equitable estoppel may be based on the unauthorized acts of employees. Should equitable estoppel be used to allow unauthorized employees to bind a public body under a contract? 5

13 III. Argument While this case concerns a number of contractual issues, this amicus brief focuses solely on the Appellate Court s decision to jettison the longstanding rule that equitable estoppel against a public body must be predicated on actual rather than apparent authority. Ultimately, this issue is about who has the power to bind a public body under a contract. There are three reasons why this Court should not allow equitable estoppel to be used as a tool to allow non-authorized employees to make binding decisions concerning the affairs and functions of the government: A contract entered into by a non-authorized party is void and not subject to equitable estoppel; It is unreasonable to rely on the apparent authority of nonauthorized employees; Allowing a non-authorized party to contractually bind the municipality would usurp the proper role and functions of government. For these reasons, the Illinois Municipal League requests this court to reverse the Appellate Court and reaffirm the long-standing rule of law that any claim of equitable estoppel against the government must be predicated on actual rather than apparent authority. 6

14 A. The limits of applying equitable estoppel against a government. Equitable estoppel is a judicial remedy by which a party may be precluded, by its own act or omission, from asserting a right to which it otherwise would have been entitled or from pleading or proving an otherwise important fact. Geddes v. Mill Creek Country Club, Inc., 196 Ill. 2d 302, 313 (2001); see also, 28 Am. Jur. 2d 28 at 453. Equitable estoppel is an equitable remedy and should be judiciously applied. In determining the application of the doctrine, the counter equities of the parties are entitled to due consideration. See generally, 28 Am. Jur. 2d 30 at 459. The doctrine of equitable estoppel is applied only for the purpose of preventing fraud and injustice. City of Quincy v. Sturhan, 18 Ill. 2d 604, 614 (1960)(quoting Melin v. Community Consol. School Dist. No 76, 312 Ill. 376, 384 (1924). In general, the doctrine of estoppel is not applied to public bodies to the same extent as against individuals and private corporations. Hickey v. Illinois Cent. R. Co., 35 Ill. 2d 427, 447 (1966); McDonald v. Illinois Dept. of Human Services, 406 Ill. App.3d 792, 803 (4 Dist. 2010); see also, Michael A. Rosenhouse, Estoppel of State or Local Government in Tax Matters, 21 A.L.R. 7

15 4th 573 at 587 (1983); 17 McQuillin on Municipal Corporations 49:36.10, at 38(3d rev. ed and 2011 Supp.). Estoppel against public bodies is rare and is not preferred. It is allowed only in rare and unusual circumstances that are designed to prevent fraud and injustice. Chicago Limousine Services, Inc. v. City of Chicago, 335 Ill. App.3d 489, 499 (1 Dist. 2002); Halleck v. County of Cook, 264 Ill. App.3d 887, 893 (1 Dist. 1994). Ordinarily, a public body is not estopped by a mistake, unauthorized act, laches, dereliction, or wrongful conduct on the part of a government official, and no estoppel can grow out of dealings with municipal public officers of limited authority where that authority has been exceeded. See, Comment Note, Applicability of doctrine of estoppel against government and its governmental agencies, 1 A.L.R.2d 338 at 349 (1948) (citing, Hibbard, S.B. & Co. v. Chicago, 173 Ill. 91 (1898); Snyder v. Mt. Pulaski, 176 Ill. 397 (1898); J. Burton Co. v. Chicago, 236 Ill. 383 (1908)); see also, 17 McQuillin on Municipal Corporations 49:36.10, at 38 (3d rev. ed and 2011 Supp.). 8

16 The rationale behind the courts reluctance to apply equitable estoppel against a public body lies with the protection of the public. The possibility of the application of estoppel may impair the functioning of the public body in the discharge of its duties and valuable public interests may be jeopardized or lost by the negligence, mistakes, or inattention of public officials. Hickey, 35 Ill. 2d at (relying on United States v. State of California, 332 U.S. 19, 39, 67 S.Ct. 1658, 1669 (1947); People v. Brown, 67 Ill. 435, 438 (1873). In applying equitable estoppel against public bodies, Illinois courts have long cleaved to the rule that the affirmative acts that induce reliance by a party asserting estoppel must be acts of the public body, itself, rather than merely the unauthorized act of a ministerial officer or a ministerial misinterpretation. A litany of cases, going back more than a century, supports this rule of law. See e.g.: J. Burton Co. v. City of Chicago, 236 Ill. 383, 390 (1908): The city was not estopped from denying the validity of a permit because the commissioner of public works was without authority to issue the permit. The rationale behind this holding was that an agent of a 9

17 municipal corporation cannot bind the corporation beyond the authority conferred upon him. Sinclair Refining Co. v. City of Chicago, 246 Ill. App. 152, (1 st Dist. 1927): The city was not estopped from objecting to the construction of a filling station without council approval because of the fact that the chief of fire prevention and public safety issued a permit. People ex rel Satas v. City of Chicago, 5 Ill. App. 3d 109, 113 (1 Dist. 1972): A zoning employee approved a license contrary to the requirements of the city s zoning ordinance. The issuance of the license did not estop the city because the unauthorized acts of ministerial officers cannot be deemed to be the positive acts of the municipality, itself. Schivarelli v. Chicago Transit Authority, 355 Ill. App. 3d 93, 103 (1 Dist. 2005): Equitable estoppel did not arise from a lease agreement entered into by a tenant and the head of the transit authority s real estate department because the head of the real estate department 10

18 acted without approval of the corporate authorities when entering into the lease agreement. These are just a small sampling of cases on this point. In its brief to this Court, the City of Naperville cites numerous other cases holding that equitable estoppel must be predicated on actual authority. It is this longstanding rule that the Appellate Court abandoned. B. A contract entered into by a non-authorized party is void and is, therefore, not subject to equitable estoppel. Equitable estoppel cannot be applied to a void contract. A public contract that is entered into by a person without proper authority must be considered void rather than voidable. Therefore equitable estoppel must not be applied to a public contract that is entered into by an unauthorized person. 1. Equitable estoppel cannot be applied to a void contract. Equitable estoppel cannot be based on unauthorized acts. A public body is never estopped by an ultra vires act; equitable estoppel may, however, be 11

19 based only on a contract that is voidable and otherwise within the proper authority of the public body to make. Branigar v. Village of Riverdale, 396 Ill. 534, (1947); McMahon v. City of Chicago, 339 Ill. App.3d 41, 48 (1 Dist. 2003). 2. A public contract that is entered into by an unauthorized agent is void. The corporate authority of a municipality controls the finances of a municipality. 65 ILCS 5/8-1-1 (West 2010). Any ordinance or resolution that creates a financial liability against the municipality must be passed by a majority vote of the corporate authorities. 65 ILCS 5/ (West 2010). Entering into a contract is a legislative function that can be undertaken only (i) directly by the corporate authority or (ii) indirectly through a duly-designated agent. If the corporate authority has not delegated the power to approve contracts to a designated agent, then only the corporate authority, itself, has the power to contractually bind the municipality. See e.g.: Chicago Food Management v. City of Chicago, 163 Ill. App. 3d 638 (1 Dist. 1987): The authority of the superintendent of police to manage 12

20 the department did not include the authority to contract unless specifically designated by the city council. Bank of Pawnee v. Joslin, 166 Ill. App. 3d 927 (4 Dist. 1988): The city manager and clerk were unable to bind the municipality to a contract through the general authority granted to those offices by statute. Village of Woodridge v. Bohnen, 60 Ill. App. 3d 692 (1 Dist. 1978): Motions passed by the village board of trustees to recommend to the mayor and board that low bids be accepted were insufficient to create an acceptance of bids so that a contract was formed. A pubic body is not responsible for acts taken by its officials in excess of their authority even if those officials purport to act on the municipality s behalf. City of Belleville v. Illinois Fraternal Order of Police Labor Council, 312 Ill. App. 3d 561, 563 (5th Dist. 2000); Nielsen-Massey Vanillas, Inc. v. City of Waukegan, 276 Ill. App. 3d 146, (2 Dist. 1995); see also, Villa v. City of Chicago, 924 F.2d 629, (7 Cir. 1991). 13

21 In the case of City of Belleville v. Illinois Fraternal Order of Police Labor Council, the city and a labor union had entered into a collective bargaining agreement. Shortly before leaving office, the mayor entered into an addendum to the collective bargaining agreement ostensibly on behalf of the city. The addendum would have bound the city to new costs and obligations. The mayor did not submit the addendum to the city council for approval, and there was no appropriation of funds to cover the city's increased financial burden under the addendum. The Fifth District Appellate Court held that the mayor (who would have significantly more apparent authority to bind a city than the employees in the Patrick Engineering case) did not have the authority to enter into the addendum, and that the addendum was void. In reaching its decision the court cited the well-established principles that: Only corporate authorities have the power to bind the city in a contract unless that power is delegated to another, and that: one who deals with a municipal corporation is presumed to know the extent of its power to contract. City of Belleville, 312 Ill. App. 3d at 563. If an employee purports to bind the public body by contract without the prior approval, in violation of an applicable statute, then the contract is 14

22 utterly void. In this situation, there can be no implied contract, nor can the contract be validated by the principles of ratification or estoppel. D.C. Consulting Engineers, Inc. v. Batavia Park District, 143 Ill. App.3d 60, 63 (2 Dist. 1986). There have been no cases in Illinois where equitable estoppel has been used to contractually bind a public body due to the actions of nonauthorized agents. There are, however, a number of cases where the representations of duly authorized agents have triggered the application of equitable estoppel. See e.g.: Kenny Construction Co. of Illinois v. Metropolitan Sanitary District of Greater Chicago, 52 Ill. 2d 187, (1971): Equitable estoppel applied against a sanitary district in a contract modification because the board of trustees was aware of the additional costs and took action to approve some of the costs and the board president personally participated in the discussions of the additional costs. Stahelin v. Board of Education, School Dist. 4, 878 Ill. App. 2d 28, 42 (2 Dist. 1967): Equitable estoppel applied against a school district in a contract modification based on architect s representations because 15

23 (i) the school board delegated express authority to the architect concerning costs of alterations in the contract and (ii) the school board president informed the contractor in writing to take his orders and directions only from the architect. Marziani v. Lake County Zoning Board of Appeals, 87 Ill. App. 3d 425, 428 (2 Dist. 1980): Equitable estoppel applied against a municipality in a zoning matter based on the building inspector s issuance of a permit because corporate authorities expressly granted the building inspector the right and discretion to issue building permits. County of DuPage v. K-Five Construction Corporation, 267 Ill. App. 3d 266, 273 (2 Dist. 1994): The county was estopped due to representations of the county building inspector because the inspector had been specifically delegated to determine compliance with the relevant county ordinances. In each of these cases, the representations were made by somebody with the actual authority to make those representations. That is not the case with Patrick Engineering. Patrick Engineering did not plead that the 16

24 Naperville municipal employees had the authority to make the representations which serve as the basis for equitable estoppel. A public contract is an instrument that affects the management of public body. It binds the public under duties and financial obligations. Accordingly, the decision-makers of a government should be involved in (or at least aware of) the decision to bind the public body under a contract. This approval by the proper parties is not a mere irregularity or technical deficiency in the formation of the contract. As we have seen, Illinois courts have, thus far, been unwilling to treat the proper approval by the corporate authority or duly designated agents as an unnecessary technicality to contract formation. The Illinois Supreme Court should resist the invitation to do so now. C. It is unreasonable to rely on the apparent authority of non-authorized employees. Equitable estoppel can apply only if the reliance by the asserting party was reasonable and, in relying on any representations, he or she cannot shut his eyes to obvious facts or neglect to seek easily obtainable information. It is not reasonable to rely on apparent authority in a public 17

25 contract because any person who deals with a public body through its agent is bound to know the nature and extent of that agent s authority. Therefore, equitable estoppel cannot apply if the representations were made by apparent rather than actual authority. 1. Reasonable reliance is a required element of equitable estoppel. Illinois courts have established a six-prong test to determine whether equitable estoppel applies. To establish equitable estoppel, the asserting party must plead and demonstrate that: (1) the other party either misrepresented or concealed material facts; (2) the other party knew, at the time that he or she made the representations, that those representations were untrue; (3) the party asserting estoppel did not know that the representations were untrue both (i) when the representations were made and (ii) when they were acted on; (4) the other party intended or reasonably expected that the party asserting estoppel would act upon the representation; (5) the party claiming estoppel reasonably relied upon the representations, in good faith, to his or her detriment; and (6) the party asserting estoppel would be prejudiced by his or her reliance on the representations. See, Geddes, 196 Ill. 2d at (emphasis added). 18

26 Equitable estoppel requires that the asserting party has relied on the representations of the other party and that reliance must be reasonable. A party claiming the benefit of estoppel cannot shut his eyes to obvious facts or neglect to seek information that is easily accessible. Hickey v. llinois Central R.R. Co., 35 Ill. 2d 427, 447 (1966); Koczor v. Melnyk, 407 Ill. App. 3d 994, 1001(1 Dist. 2011). 2. Those entering a public contract are required to seek information concerning the authority of any agent to make that contract. The general and well-settled rule is that one who makes a contract with a public body is bound to take notice of both (i) the limitations on the public body to contract and (ii) the power of the particular officer or agency to make the contract. Any person who deals with a public body through its agent is bound to know the nature and extent of that agent s authority. City Service Oil Co. v. City of Des Plaines, 21 Ill. 2d 157, 161 (1961); McMahon v. City of Chicago, 339 Ill. App. 3d 41, 46 (1 Dist. 2003); see also, Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947); U.S. Neurosurgical, Inc. v. City of Chicago, 572 F.3d 325, 331 (7 Cir. 2009); 10 McQuillin on Municipal Corporations 29.4, at (3d rev. ed. 2009). 19

27 The purpose for this general and well-settled rule is to protect the public. A contrary doctrine would be fraught with danger. It is better that the contracting party suffers from the municipality s mistake than to adopt rules that, through improper combination or collusion, could be detrimental or injurious to the public. 10 McQuillin on Municipal Corporations 29.4, at 324 (3d rev. ed. 2009). 3. A claim based on apparent authority means that the asserting party failed in the duty to ascertain the necessary facts. Equitable estoppel cannot apply based on apparent authority because that would mean that the asserting party, by definition, failed in his or her duty to ascertain the nature and extent of an agent s authority. And it simply cannot be reasonable for one to rely on a representation without investigation--when he or she had an affirmative duty to investigate. To hold otherwise would simply eviscerate the law concerning public contracts. While this reasoning applies to all public contracts, it is particularly pertinent to the contract in this case. The contract between Patrick Engineering and Naperville actually set forth procedures for validating 20

28 representations made by employees. Patrick Engineering opted not to follow this contract provision and rely and relied instead on the statements of employees who were not authorized to bind the city under a contract. Not only did Patrick Engineering fail to follow its general duty under the law to ascertain the power of two municipal employees to make contractual decisions on behalf of the City of Naperville, it failed to follow the terms of the contract that it entered into. The situation in this case illustrates the absurdity of what public bodies and the courts can expect if this Court abandons the principle that equitable estoppel against public bodies must be based on representations made with actual authority. D. Allowing a non-authorized party to contractually bind the municipality would usurp the proper role and functions of government. When interpreting the law, the court must consider the practical effects that its interpretation would have. Courts should avoid interpretations that would cause hardship or injustice or that would prejudice the public interest. See, People v. Lieberman (In re Lieberman), 201 Ill. 2d 300, (2002). 21

29 If equitable estoppel were applied in cases of apparent authority, it would have the practical effect of allowing non-authorized individuals to contractually bind the public body. There are two ways in which it would be harmful to the public interest to allow non-authorized people to make contracts on behalf of the public body: It would strip decision-making authority from the duly elected officials; and It would make public contracts impractical if not impossible to administer. Because of these public-policy reasons, this Court should reject any rule that equitable estoppel against public bodies may be based on apparent rather than actual authority. 1. Allowing equitable estoppel based on apparent authority would strip decision-making authority from the duly elected officials. A public body acts for the public benefit. In municipal government, the corporate authorities are elected to make fundamental decisions concerning the operations and functions of the municipality. The corporate authorities are responsible for crucial activities such as developing infrastructure and exercising police power. The powers have been conferred on the corporate authorities because the public interest 22

30 will best be served this way. The imprudent application of equitable estoppel would impair the functioning of the corporate authorities in the discharge of its functions because valuable public interests may be jeopardized or lost by the negligence, mistakes, or inattention of public officials. McDonald, 406 Ill. App. 3d at 803. If equitable estoppel were to be imposed based on only apparent authority, then the authority and responsibility for making decisions would devolve from the corporate authorities to any person who appears to operate under municipal color. Certain acts and mistakes of its employees would create new duties and impose obligations on the government that have not been vetted through the proper decisionmaking process. Consequently, the administration of laws would be based on unforeseen events rather than on deliberate and deliberative official process and the public interest would be harmed due to the loss of the uniformity of the administration of laws and the equal rights of citizens. Not only would the administration of laws be adversely affected, but the corporate authorities accountability to the citizens would be jeopardized. The corporate authorities are accountable to the citizens through the 23

31 election process. But if municipal decisions are made outside of the authority, delegation, or acquiescence of the elected officials, then there is a breakdown in the chain of accountability between the citizens and their elected government. Finally, allowing equitable estoppel based on apparent authority will reduce the transparency of public bodies. The Open Meetings Act requires that public bodies, generally, make decisions before the public in open meetings. See 5 ILCS 120/2 (West 2010). This process allows the citizens to monitor the activities of their government. If a municipality is contractually bound under the auspices of apparent authority, that, by definition, means that the corporate authorities did not approve of or delegate the approval of the contract to another party. Consequently, no decision concerning the contract was made in a public meeting, and there is no way for the public to monitor the activities of the government with respect to that contract. This would lead to a situation where neither the public nor the corporate authorities would know what policies and decisions are being made on behalf of the municipality. 24

32 2. Allowing equitable estoppel based on apparent authority would make public contracts impractical if not impossible to administer. It takes little imagination to foresee the chaos that would ensue if public bodies were to be estopped by apparent authority. Every provision in every contract would be subject to shadow modification or at least litigation demanding a modification. The threat of increased and incessant litigation is a very real danger. The United States Supreme Court recognized this principle in the case of Office of Personnel Management v. Richmond, 496 U.S. 414, 433 (1990)( to open the door to estoppel claims would only invite endless litigation over both real and imagined claims by disgruntled citizens, imposing an unpredictable drain on the public finances ). If public bodies are bound by contracts through apparent authority, then the authorities will be unable to administer certain legal requirements that pertain to public contracts. For instance, the Public Works Contract Change Order Act requires that contracts for public works be resubmitted for competitive bidding if a change order increases the price of the contract by 50% or more. 50 ILCS 525/5 (West 2010). If a public body is subject to an after-the-fact contract due to a conversation by an employee, 25

33 the corporate authorities will not be aware of the increase in price, which would trigger rebidding. Consequently, the public body would be in violation of the statute. Illinois statutes contain a number of requirements that must be included in public contracts, such as public bidding (65 ILCS 5/8-9-1; 65 ILCS 5/8-10-1), prevailing wage requirements (820 ILCS 130/4), and the notification of the physical conditions of property (30 ILCS 557/10). There are a myriad of factors that must be considered when a public body enters into a contract. Allowing contracts based on apparent authority would make it impossible for a public body to comply with the necessary requirements. The Patrick Engineering case provides an excellent example of how easy it would be to abuse the principle of equitable estoppel. In this case, the contracting parties actually foresaw the problem of representations with respect to contract modifications. The contract included a procedure for contract modifications that required written approval by the proper authorities. Patrick Engineering opted to ignore the contractual provision and, instead, rely on statements made by two employees who were not authorized to make contracts on behalf of the city. If Patrick Engineering were to prevail, there would be no way to draft a contract that would 26

34 avoid the problem of estoppel by conversation. Any statement by an employee could be used to override the contract. If the Court allows equitable estoppel claims to be based on mere apparent authority, it will see many more cases like this one. IV. Conclusion. In cases where a municipality is a party, it may be tempting to think that it is the government entity, itself, that has the interest at stake. It is not. This is not a case against the Mayor of Naperville or against the Naperville City Council or against the Naperville Public Works Department. This is a case against the citizens of Naperville. At issue in this case is whether the citizens of Naperville will be required to pay for $341, for work that was outside of the scope of a contract. There are dangerous issues at play in this case. This is a far cry from a trivial academic exercise. The impact of this case could affect the very nature and functions of government in Illinois. Illinois has an extensive legal history of applying equitable estoppel only against the actions of the public body, itself or its designees. This Court should be extremely 27

35 reticent to open up the doctrine of equitable estoppel to the point where it becomes a backdoor around the city council. Because of this, the Illinois Municipal League requests that this Court to reverse the Appellate Court and reaffirm the long-standing rule of law that any claim of equitable estoppel against public bodies must be predicated on actual rather than apparent authority. Respectfully submitted, The Illinois Municipal League One of its Attorneys Brian Day Ashley Niebur Roger Huebner Illinois Municipal League 500 East Capitol Avenue Springfield, Illinois (217)

36 CERTIFICATION I certify that this brief conforms to the requirements of Rules 341(a) and (b). The length of this brief, excluding the appendix pages containing the Rule 341(d) cover, the Rule 341(h)(1) statement of points and authorities, the Rule 341(c) certificate of compliance, the certificate of service, and those matters to be appended to the brief under Rule 342(a), is 28 pages. BRIAN DAY Lead Staff Attorney Illinois Municipal League 29

37 APPENDIX TABLE OF CONTENTS Letter from Beth Lang, Naperville Strategic Service Manager, to Scott Stocking, Patrick Engineering, which was attached to Patrick Engineering s Complaint as evidence of a representation triggering equitable estoppel concerning the persomance of additional work under the contract... A-1 30

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