IL Clean Energy Comm v. Filan, John B. ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
No. 04-2277
ILLINOIS CLEAN ENERGY COMMUNITY FOUNDATION,
Plaintiff-Appellee,
v.
JOHN B. FILAN, Director, Illinois Governor’s
Office of Management and Budget,
Defendant-Appellant.
____________
Appeal from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 03 C 7596—Amy J. St. Eve, Judge.
____________
ARGUED OCTOBER 25, 2004—DECIDED DECEMBER 22, 2004
____________
Before POSNER, KANNE, and WILLIAMS, Circuit Judges.
POSNER, Circuit Judge. This is a suit to enjoin the State
of Illinois from enforcing a demand that the plaintiff
foundation turn over $125 million of its assets to the state.
This is not a tax, but a taking. Brown v. Legal Foundation of
Washington, 538 U.S. 216, 233-35 (2003). The district court
2 No. 04-2277
granted summary judgment for the plaintiff, ruling that the
demand if enforced would be a taking of private property
for public use without just compensation, and therefore un-
constitutional; and the state appeals.
In 1999, the Illinois Commerce Commission authorized
Commonwealth Edison to sell its seven fossil-fuel power
plants for $4.8 billion. The sale turned a “huge” profit
according to Generation Week, Dec. 22, 1999; see also Peter
Kendall, “Push Grows to Alter ComEd Deal,” Chicago Tri-
bune, Mar. 30, 1999, p. DN 6. The state argues, and for
purposes of this appeal we accept, that the commission,
whose permission was required for the sale, 220 ILCS 5/7-
102(c), could have conditioned permission on ComEd’s
agreeing to pass on most or perhaps all of the profit to the
company’s ratepayers in the form of rate reductions; but
that instead, by way of generous “compromise,” the state
legislature “authorized” (realistically meaning—the state
contends and ComEd hardly bothers to deny—“commanded”)
the company to establish the plaintiff foundation and fund
it with $225 million of the proceeds from the sale of the
plants. 220 ILCS 5/16-111.1. The authorizing statute pro-
vided that the amount would be $250 million unless ComEd
contributed $25 million to Southern Illinois University for
projects relating to clean coal, but it did so and therefore
had to contribute only $225 million to the foundation.
The foundation’s mission, as prescribed by the statute, is
to make grants to public and private institutions in Illinois
for projects to conserve energy and improve the environ-
ment. The statute authorizes the foundation’s trustees to de-
cide what grants to make within these broad limits of subject
matter, except that $25 million of ComEd’s contribution must
be kept available for the funding of projects relating to clean
coal (this is separate from the $25 million mandated contribu-
tion to Southern Illinois University) and that up to $1
No. 04-2277 3
million a year for seven years must to be given to the
Citizens Utility Board. The foundation has complied with
these conditions.
The foundation was organized under the state’s char-
itable-foundation statute, 805 ILCS 105/101.01 et seq., and
none of its employees are public employees. Nor are grants
made by the foundation subject to the state’s rules govrning
the expenditure of public funds. The authorizing statute
requires that there be six voting trustees, each appointed for
a five-year term. One is to be appointed by ComEd, one by
the Governor of Illinois, another by the Speaker of the
Illinois House of Representatives, another by the President
of the Illinois Senate, and the remaining two by the minority
leaders of the two houses. The statute contains no provision
for the removal of trustees against their will (if they quit,
their successors are appointed in the same manner as they
were), but the foundation has adopted a bylaw authorizing
the officials who appoint trustees to remove them.
In June 2003, the Illinois legislature amended the authoriz-
ing statute to require the trustees, upon written demand by
the state’s budget director (the defendant, sued in his
official capacity), to turn over to the state’s treasury and
state environmental agencies up to $125 million, which is to
be used for funding the agencies and repaying state general
obligation bonds. A demand for the entire $125 million ($9
million for bond repayment, the rest for the agencies) was
made the next month, and this suit followed.
The state argues that the foundation is the state and
therefore cannot sue the state and, even if it could, may not
complain about a taking of its property because its property
is the state’s property. The state relies on the background of
the statute authorizing the creation of the foundation, a
background which suggests that ComEd would not have
been allowed to keep the $250 million of the proceeds from
4 No. 04-2277
its sale of the power plants had it not agreed to establish
and fund the foundation. The state also relies on the re-
strictions that the statute places on grants by the foundation
and on the fact that five of the six trustees are appointed by
state officials. And it argues that a state has a right to amend
its statutes.
The last argument is quickly disposed of as a basis for the
state’s action. Of course a state can amend its statutes; and
it can also, whether by amendment or otherwise, regulate
private entities extensively before it goes so far as to be
deemed to have made a regulatory taking, that is, a taking
that, unlike the one here, does not transfer title to property
from the owner to the state but achieves the same end by
unreasonably restricting the use of the property, causing
its value to plummet, perhaps to zero. See Lucas v. South
Carolina Coastal Council, 505 U.S. 1003, 1015 (1992); Penn
Central Transportation Co. v. City of New York, 438 U.S. 104
(1978); Raceway Park, Inc. v. Ohio, 356 F.3d 677, 684-87 (6th
Cir. 2004); cf. Pittman v. Chicago Board of Education, 64 F.3d
1098, 1104-05 (7th Cir. 1995). But obviously the state cannot
lawfully enlarge its regulatory power by deciding to take
someone’s property by the device of amending an existing
statute rather than enacting a new one. Lucas v. South
Carolina Coastal Council, supra, 505 U.S. at 1027-28; Bowen v.
Public Agencies Opposed To Social Security Entrapment, 477
U.S. 41, 54-55 (1986); Great Lakes Higher Education Corp. v.
Cavazos, 911 F.2d 10, 17 (7th Cir. 1990); Cienega Gardens v.
United States, 331 F.3d 1319, 1323-24 (Fed. Cir. 2003). It
cannot lawfully amend its corporation law to confiscate the
assets of all corporations incorporated, or licensed to do
business, in Illinois by virtue of that law. The fact that the
state legislature authorized the creation of the plaintiff
foundation does not make the foundation a state agency; for
the legislature also authorizes the creation of business and
No. 04-2277 5
professional corporations, not to mention religious and
charitable corporations, without thereby acquiring a right to
confiscate such entities’ assets. Trustees of Dartmouth College v.
Woodward, 17 U.S. 518, 638-40 (1819); Northrip v. Federal
National Mortgage Ass’n, 527 F.2d 23, 30-31 (6th Cir. 1975).
What is true is that claims of unconstitutional taking are
matters of expectation, and so a grant that is expressly
provisional would not create a property right and alterna-
tively the acceptance of the grant by the grantee would be
treated as a waiver of any complaint should the grant later
be rescinded in accordance with its terms. This suit would
go nowhere had the statute creating the plaintiff foundation
reserved the right of the state to confiscate the foundation’s
assets. Bowen v. Agencies Opposed to Social Security Entrap-
ment, supra, 477 U.S. at 51-52; Dayton-Goose Creek Ry. v.
United States, 263 U.S. 456, 484 (1924); Great Lakes Higher
Education Corp. v. Cavazos, supra, 911 F.2d at 15-17; Texas
Catastrophe Property Ins. Ass’n v. Morales, 975 F.2d 1178, 1182
(5th Cir. 1992); Education Assistance Corp. v. Cavazos, 902 F.2d
617, 628-29 (8th Cir. 1990); cf. Pittman v. Chicago Board of
Education, supra, 64 F.3d at 1103-04. There is no such
reservation.
The coercive element in the history of the authorizing
statute is irrelevant. Suppose the state didn’t think that
lawyers should be permitted to incorporate, and passed a
law requiring that all professional corporations of lawyers
be converted to partnerships. Would the partnership assets
be public property? Obviously not. Supposing the state
could indeed have forced ComEd to disgorge $125 million
of its profits from the sale of the power plants, or indeed
much more, to the ratepayers, could it then, years later, have
ordered the ratepayers to contribute their rebates to the state
treasury, on the ground that it was really the state’s money?
We cannot see what difference it makes that the disgorge-
6 No. 04-2277
ment was to a foundation rather than to individuals. By
forcing a transfer of private property from one private entity
to another, the state did not destroy the private character of
the property. If the state orders a criminal to make restitu-
tion of a sum of money to the victim of his crime, it cannot
snatch the money back from the victim on the ground that
it’s the state’s money.
All the state is left to argue is that the appointment of five-
sixths of the foundation’s trustees by state officials made the
foundation a state agency. Not so. By whomever appointed,
the trustees of a charitable foundation have a fiduciary duty
to conserve the foundation’s assets. 760 ILCS 55/15(a)(2);
see also Schweickart v. Powers, 613 N.E.2d 403, 410 (Ill. App.
1993); In re Wabash Valley Power Ass’n, Inc., 72 F.3d 1305,
1319 (7th Cir. 1995); Blue Cross & Blue Shield Mutual of Ohio
v. Blue Cross & Blue Shield Ass’n, 110 F.3d 318, 324 and n. 1
(6th Cir. 1997); Boston Children’s Heart Foundation, Inc. v.
Nadal-Ginard, 73 F.3d 429, 433-34 (1st Cir. 1996); Louisiana
World Exposition v. Federal Ins. Co., 864 F.2d 1147, 1151-52
(5th Cir. 1989). That no doubt is why the trustees authorized
this suit—biting the hand that appointed them, as it were.
In any event there was more than one hand. Of the five
trustees appointed by officials, no more than three can be
from the same political party, since two of the five have to
be legislative minority leaders. The sixth trustee is ComEd’s
nominee. Even if both houses of the legislature are con-
trolled by the governor’s party, and even if the governor has
firm control over the leaders of the houses by virtue of being
from the same party as they (which is by no means always
the case), he controls at most half the trustees. It would be
a fiction therefore to suggest that because public officials
appoint most of the trustees, the state “controls” the founda-
tion. If it really controlled it, we wouldn’t have this lawsuit.
No. 04-2277 7
Because the removal power is also vested in the indi-
vidual appointers rather than in the state, and because, in
any event, the trustees, however threatened they are by
removal, or however frequently replaced, owe by law their
entire loyalty to the foundation and not to the officials who
appointed them or to the state, the existence of that power
(which anyway is created not by the statute but by a bylaw
that the trustees could rescind at any time) does not make
the foundation a public agency.
In fact the foundation differs little from one that an elec-
trical utility might “voluntarily” establish in response to
pressure from “greens,” clean-fuel enthusiasts, and persons
concerned with global warming. The property of such a foun-
dation would certainly be private despite the foundation’s
being entangled with the state by virtue of the vesting in the
state attorney general of responsibility for enforcing the
terms of charitable trusts. People ex rel. Smith v. Braucher, 101
N.E. 944, 945-46 (Ill. 1913); Brown v. Ryan, 788 N.E.2d 1183,
1191-92 (Ill. App. 2003) .
The state falls back on Lebron v. National Railroad Passenger
Corp., 513 U.S. 374 (1995), which held that Amtrak is subject
to the First Amendment. Amtrak is a federally chartered,
but formally private, corporation. It is a for-profit corpora-
tion (though it has never turned a profit) and therefore has
common stock, which is privately owned; the federal gov-
ernment owns its preferred stock and the President of the
United States appoints two-thirds of its trustees. The
Supreme Court expressed concern that if Amtrak were held
to be a private entity and therefore unregulated by the First
Amendment the government could evade constitutional
restraints by farming out federal government functions to
federally chartered corporations. So for First Amendment
and perhaps some other constitutional purposes Amtrak is
public, but it does not follow that for takings purposes it is
8 No. 04-2277
public. Suppose Congress ordered Amtrak to turn over its
entire assets to the U.S. Treasury. Those assets belong to
Amtrak, which is to say to its common shareholders. The
hypothetical law would be a confiscation of private property
and so fall under the bar of the Fifth Amendment’s just-
compensation clause.
And remember Marsh v. Alabama, 326 U.S. 501 (1946),
where the Supreme Court held that a company town was
bound by the First Amendment? Would anyone have argued
that the government could have confiscated the company’s
land and buildings without compensation? The Court
thought unjustified “the State’s permitting a corporation to
govern a community of citizens so as to restrict their fun-
damental liberties and the enforcement of such restraint
by the application of a State statute” authorizing private
ownership of land. Id. at 509. That concern is not engaged
by a case such as this. The foundation is not accused of
stifling anyone’s First Amendment, or other constitutional,
rights.
We conclude that the State of Illinois would be violating
the Constitution if it confiscated any part of the foundation’s
assets. The judgment in favor of the foundation is therefore
AFFIRMED.
No. 04-2277 9
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—12-22-04