Court Opinion

ID: 9367004
Source: CourtListenerOpinion
Date Created: 2023-01-30 16:13:34.750028+00
Date Added: 2024-06-11T17:15:56.588609
License: Public Domain

2023 IL App (1st) 210665
                                           No. 1-21-0665
                                Rule 23 order filed: December 19, 2022
                                   Opinion filed: January 30, 2023

                                                                                        First Division

                                               IN THE

                                APPELLATE COURT OF ILLINOIS

                                    FIRST JUDICIAL DISTRICT

 ECO BRITE LINENS LLC,                                    )      Appeal from the Circuit Court of
                                                          )      Cook County, Chancery Division.
         Plaintiff-Appellant,                             )
                                                          )
 v.                                                       )      No. 20 CH 06922
                                                          )
 THE CITY OF CHICAGO,                                     )      The Honorable
                                                          )      John J. Curry,
         Defendant-Appellee.                              )      Judge Presiding.

         JUSTICE PUCINSKI delivered the judgment of the court, with opinion.
         Justices Hyman and Coghlan concurred in the judgment and opinion.

                                              OPINION

¶1      Plaintiff-Appellant Eco Brite Linens LLC filed a single-count complaint against

Defendant-Appellee City of Chicago (City), seeking declaratory relief in the form of a finding that

plaintiff was not liable to the City for unpaid taxes, interest, and penalties in the amount of pursuant

to the City’s Personal Property Lease Transactions Tax Ordinance. Defendant filed a motion to

dismiss the complaint pursuant to section 2-619 of the Code of Civil Procedure (735 ILCS 5/2-

619(a)(1) (West 2020)), arguing that plaintiff failed to exhaust the available administrative
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remedies, which required plaintiff to bring the matter to the City’s Department of Administrative

Hearings as the body authorized under Illinois law to hear and adjudicate alleged violations of the

City’s Municipal Code. The circuit court granted the City’s motion, and plaintiff now appeals from

that order.

¶2                                       I. BACKGROUND

¶3      Plaintiff is a corporation that operates a laundry service in the Village of Skokie. It provides

laundered linens to residential care facilities in Chicago for their temporary use. Plaintiff asserts

that it does not operate within Chicago, and only gives its linens to residential care facilities free

of charge. According to plaintiff, in exchange for receiving plaintiff’s linens, customers agree to

use plaintiff’s laundry service, including payment of a laundry service fee. On September 21, 2020,

the City’s Department of Finance (DOF) sent plaintiff a discovery notice, notifying plaintiff that

it was being investigated for possible noncompliance with two City ordinances: (a) the Chicago

Personal Property Lease Transaction Tax Ordinance (Chicago Municipal Code § 3-32-010 (added

Dec. 15, 1992)) (Ordinance) and (b) the Chicago Use Tax Ordinance for Nontitled Personal

Property (Chicago Municipal Code § 3-27-10 (added Nov. 22, 1991)). The latter ordinance is not

at issue in this appeal. The former creates a duty on lessors to collect and remit to the DOF a lease

transaction tax on the lease or rental of personal property within the city or for the use within the

city of personal property that is leased or rented outside the city. Chicago Municipal Code § 3-32-

030(A) (amended Nov. 26, 2019).

¶4      On November 23, 2020, plaintiff brought the underlying action against the city, claiming

that its transactions did not constitute leases pursuant to the Ordinance and seeking a declaratory

judgment that it was not liable for the lease transaction tax. On November 30, 2020, the DOF

issued plaintiff two notices of tax determination and assessment, one for failure to collect and remit

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the lease transaction tax pursuant to section 3-32 (Notice and Assessment) and one for failure to

pay the use tax pursuant to section 3-27. The DOF then issued plaintiff a lease transition tax

assessment in the amount of $1,324,063.49 in unpaid taxes, interest, and penalties and notified

plaintiff that the assessment would become final unless plaintiff filed a written protest and petition

for administrative hearing with the DOF within 35 days of receiving the notice.

¶5     On December 21, 2020, the City moved to dismiss the case on the basis that plaintiff had

failed to exhaust its available administrative remedies. Plaintiff then timely filed with the DOF a

protest of the assessment and a petition for administrative hearing. The administrative hearing had

not reached its conclusion prior to plaintiff filing the underlying case. On May 12, 2021, the circuit

court granted the City’s motion to dismiss. Plaintiff now appeals from that order, arguing that it

was not required to exhaust its administrative remedies because (a) the case required no specific

investigation of the facts that needed to be developed before the agency, (b) there was no need for

the agency’s expertise in this matter, and (c) the law was well established that the City could not

tax suburban businesses for transactions that took place outside the city.

¶6                                         II. ANALYSIS

¶7                                     A. Standard of Review

¶8     An order of dismissal pursuant to a section 2-619 of the Code of Civil Procedure (735

ILCS 5/2-619 (West 2020)) is reviewed de novo. Porter v. Decatur Memorial Hospital, 227 Ill.

2d 343, 352 (2008). The section 2-619 motion admits as true all well-pleaded facts, all

reasonable inferences to be drawn from the facts, and the legal sufficiency of the claim. Id. In

addition, all pleadings and supporting documents must be construed in the light most favorable

to the non-moving party. Id. A dismissal of a pleading pursuant to section 2-619 is based on

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certain defects or defenses that defeat the claim. Richter v. Prairie Farms Dairy, Inc., 2016 IL

119518, ¶ 18.

¶9        A motion to dismiss under section 2-619(a)(9) specifically argues that the pleadings are

barred by an affirmative matter not otherwise listed in this section. 735 ILCS 5/2-619(a)(1) (West

2020). An affirmative matter under section 2-619(a)(9) is “something in the nature of a defense

that negates the cause of action completely or refutes crucial conclusions of law or conclusions of

material fact contained in or inferred from the complaint.” In re Estate of Schlenker, 209 Ill. 2d

456, 461 (2004). In a section 2-619(a)(9) motion, “[t]he defendant does not admit the truth of any

allegation in plaintiff’s complaint that may touch on the affirmative matter raised in the 2-619

motion.” Barber-Colman Co. v. A&K Midwest Insulation Co., 236 Ill. App. 3d 1065, 1073 (1992).

Where the movant supplies an affirmative matter, the opposing party cannot rely on bare

allegations alone to raise issues of material fact. Atkinson v. Affronti, 369 Ill. App. 3d 828, 835

(2006). Neither conclusory allegations nor conclusory affidavits are sufficient to defeat properly

submitted facts in a section 2-619 motion. Allegis Realty Investors v. Novak, 379 Ill. App. 3d 636,

641 (2008). The question on appeal is “whether the existence of a genuine issue of material fact

should have precluded the dismissal or, absent such an issue of fact, whether dismissal is proper

as a matter of law.” Kedzie & 103rd Currency Exchange, Inc. v. Hodge, 156 Ill. 2d 112, 116-17

(1993).

¶ 10               B. Chicago Personal Property Lease Transaction Tax Ordinance

¶ 11      The Ordinance imposes a tax on “(1) the lease or rental in the city of personal property, or

(2) the privilege of using in the city personal property that is leased or rented outside the city.”

Chicago Municipal Code § 3-32-030(A) (amended Nov. 26, 2019). The Ordinance defines both

“lease” and “rental” as “any transfer of the possession or use of personal property, but not title or

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ownership, to a user for consideration, whether or not designated as a lease, rental, license or by

some other term.” Chicago Municipal Code § 3-32-020(I) (amended Nov. 21, 2017). It further

defines “lease price” and “rental price” to include “any and all charges that the lessee pays

incidental to obtaining the lease or rental of personal property, including but not limited to any and

all related markups, service fees, convenience fees, facilitation fees, cancellation fees, late return

fees, late payment fees and other such charges, regardless of terminology.” Id. § 3-32-020(K). The

Ordinance imposes a duty on lessors to collect the rental tax from lessees and to remit the amount

to the DOF. If a lessor fails to collect or remit the tax, the lessor is liable to the city for the amount

of the tax. Chicago Municipal Code § 3-32-070(A) (amended Nov. 19, 2008).

¶ 12    The city notified plaintiff that the DOF had found plaintiff to be liable under the Ordinance

for uncollected and unremitted taxes, interest, and penalties based on its charging of an incidental

service fee for the leasing of its linens to residential care facilities within the city. Plaintiff sued

the City, seeking a declaratory judgment that it was not required to pay the Lease Transaction Tax

because it did not lease its linens, but rather gave them out for free, and the laundry service fee

would only be applied if a facility chose to use plaintiff’s laundry service. The city moved to

dismiss the complaint on the basis that plaintiff had failed to exhaust its available administrative

remedies before filing suit.

¶ 13                                C. Administrative Review Law

¶ 14    It is well established that a party ordinarily cannot seek judicial relief from an

administrative action without first exhausting all administrative remedies. Arvia v. Madigan, 209

Ill. 2d 520, 531 (2004); County of Knox ex rel. Masterson v. The Highlands, L.L.C., 188 Ill. 2d

546, 551 (1999). The Administrative Review Law states, “Unless review is sought of an

administrative decision within the time and in the manner herein provided, the parties to the

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proceeding before the administrative agency shall be barred from obtaining judicial review of such

administrative decision.” 735 ILCS 5/3-102 (West 2020). The requirement of exhaustion of

administrative remedies “allows the administrative agency to fully develop and consider the facts

of the cause before it; it allows the agency to utilize its expertise; and it allows the aggrieved party

to ultimately succeed before the agency, making judicial review unnecessary.” Castaneda v.

Illinois Human Rights Comm’n, 132 Ill. 2d 304, 308 (1989).

¶ 15    There are several exceptions to the exhaustion requirement, which our supreme court

explained in in Castaneda, as follows:

        “An aggrieved party may seek judicial review of an administrative decision without

        complying with the exhaustion of remedies doctrine where a statute, ordinance or rule is

        attacked as unconstitutional on its face [citations], where multiple administrative

        remedies exist and at least one is exhausted [citations], where the agency cannot provide

        an adequate remedy or where it is patently futile to seek relief before the agency

        [citations], where no issues of fact are presented or agency expertise is not involved

        [citations], where irreparable harm will result from further pursuit of administrative

        remedies [citations], or where the agency’s jurisdiction is attacked because it is not

        authorized by statute [citation].” Castaneda, 132 Ill. 2d at 308-09.

¶ 16   The Illinois Municipal Code allows municipalities to “provide by ordinance for a system

of administrative adjudication of municipal code violations.” 65 ILCS 5/1-2.1-2 (West 2020).

Accordingly, the Department of Administrative Hearings (DOAH) was established “to conduct

administrative adjudication proceedings for departments and agencies of the city, and for other

units of government acting pursuant to intergovernmental agreements with the city.” Chicago

Municipal Code § 2-14-010 (amended Feb. 15, 2012). In the present case, the administrative

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remedy available to plaintiff to contest the DOF’s decision, as provided in the Notice and

Assessment, was to timely file a written protest and petition for an administrative hearing and then

proceed with the hearing before the DOAH. Plaintiff instead first filed suit against the city and

then filed a timely petition for administrative hearing.

¶ 17        D. Whether Plaintiff Was Required to Exhaust Its Administrative Remedies

¶ 18   In challenging the city’s argument that the case before the circuit court was not properly

brought, plaintiff argues that it was not required to exhaust its administrative remedies because the

facts are clear and require no further development and there is, in plaintiff’s wording, a “near

foregone conclusion.” See also Illinois Bell Telephone Co. v. Allphin, 60 Ill. 2d 350, 358 (1975).

Plaintiff claims that, because there are no determinations of fact to be made, this is purely a matter

of statutory—or rather, ordinance—review, which is properly brought before the circuit court. See

Emerald Casino, Inc. v. Illinois Gaming Board, 346 Ill. App. 3d 18, 25 (2003) (“The doctrine is

not a bar to judicial determination when the issue ‘is one of a statutory and case law interpretation,

and therefore it falls within the scope of our particular expertise and not the State Board’s.’ ”

(quoting Office of the Cook County State’s Attorney v. Illinois Local Labor Relations Board, 166

Ill. 2d 296, 306 (1995))). Furthermore, plaintiff claims that requiring it to seek relief from an

administrative court in these circumstances would increase costs and delay justice, and therefore

it cannot be compelled to proceed before the DOAH. See Van Laten v. City of Chicago, 28 Ill. 2d

157, 159 (1979) (requirement that landowner must seek an amendment of the zoning ordinance

before challenging the applicability of the ordinance to his land in court did not apply in the

circumstances of this matter, where it have been futile for landowners to seek amendment of

ordinance).

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¶ 19    Plaintiff explains that there is no dispute or factual uncertainty regarding plaintiff’s

business—which is to provide linens, free of charge—to residential care facilities both within and

outside of Chicago. It is also undisputed that plaintiff offered its laundry services to those facilities

that received its linens, charges a laundry service fee only if such services are provided, and

launders its linens in Skokie. The only disagreement, according to plaintiff, is whether laundry

service constitutes a taxable lease under the Ordinance. Plaintiff further argues that the City’s

functionaries, who would hear the matter if it proceeded before the DOAH, do not have any greater

expertise in interpreting city ordinances than the circuit court and that the matter “will likely find

its way before this body sooner or later.”

¶ 20    As the City notes in response, plaintiff cannot use a declaratory judgment action to

circumvent the requirement that it exhaust its administrative remedies before seeking judicial

review of an administrative decision. See Dudley v. Board of Education, Bellwood School District

No. 88, 260 Ill. App. 3d 1100, 1106 (1994); DeChene v. Firemen’s Pension Fund of the City of

Blue Island, 184 Ill. App. 3d 828, 831 (1989). The City further argues that none of the three

exceptions that plaintiff lists in support of its position that it was not required to exhaust its

administrative remedies apply in this matter. Regarding the claim that there are no disputed factual

issues to determine in this matter, the City points to the parties’ disagreement over whether

plaintiff’s provision of linens to businesses in Chicago constituted taxable leases as a question

requiring findings of fact. The City contends that the facts necessary to this determination have

not yet been adjudicated, having only plaintiff’s unsworn allegations and the information that was

available to DOF’s officials from which to base a decision. The City further explains that the

information available to DOF at the time of its determination is not equatable to a factfinder’s

determination because administrative proceedings had not yet commenced. During administrative

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proceedings, DOF would be able to conduct discovery and obtain sworn testimony, and DOF’s

prior factual determinations would be tested alongside plaintiff’s proffered evidence.

¶ 21      Plaintiff responds that the City does not offer any undisputed issues beyond whether the

tax applies to plaintiff’s business, which plaintiff contends is a question of law, rather than a

challenge to any fact presented by plaintiff. It further argues that, were the matter to proceed before

the DOAH, the discovery process available during an administrative hearing would only provide

support for what the City already knows, and the City has not identified any question that could

be resolved by more factfinding. Therefore, according to plaintiff, the only question left to resolve

is a question of law, making the first exception to administrative exhaustion applicable to this

matter.

¶ 22      Plaintiff misunderstands the disputed issues in this matter. It is true that no party is

contesting whether plaintiff is a business that provides linens to residential care facilities and

launders those linens in Skokie in exchange for a fee. The City claims that it has not formally

conducted discovery, as would be available through administrative proceedings, and relies only on

what plaintiff has claimed about its own business practices. Contrary to what plaintiff contends,

the City is not required to list what further facts it needs in order to show that there exist disputed

facts in this matter—there is no requirement that the city must predict what information might be

uncovered in future factfinding. It is sufficiently clear that the City should be able to conduct

further factfinding beyond accepting plaintiff’s self-serving assertions that its business practices

fall outside the application of the Ordinance. The Ordinance provides specific definitions for what

constitutes a taxable lease or rental, and a lease or rental price, with certain conditions that must

be met. See Chicago Municipal Code §§ 3-32-020 (amended Nov. 21, 2017), 3-32-030 (amended

Nov. 26, 2019). This is precisely the line of inquiry that would be developed over the course of an

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administrative hearing. Plaintiff’s case in support of why this matter falls under the exception of

no factual questions to determine is inapposite. In Emerald Casino, we held that the plaintiff casino

was not required to exhaust its administrative remedies in seeking license renewal because the only

determination at issue was over the scope and authority of the Illinois Gaming Board, based on the

interpretation of the word “shall” in the relevant section of the state’s Riverboat Gambling Act.

Emerald Casino, Inc., 346 Ill. App. 3d at 25-26. This question of statutory interpretation was

proper for the court to consider without first requiring the casino to exhaust its administrative

remedies, as doing so would be time-consuming and useless. Id. at 26. In the present matter, where

there are further factual determinations to be made, the exception does not apply, and those

findings should properly be made before the DOAH. Plaintiff’s efforts to seek a declaratory

judgment from the court before the DOAH had completed the administrative review process were

premature. By extension, the present appeal is premature. We make no judgment on the merits of

plaintiff’s claim or on any finding of facts; the sole proper decision before us is to affirm the circuit

court’s ruling that plaintiff was required to complete the administrative review process prior to

filing suit in the courts.

¶ 23    The next exception that plaintiff cites is where no agency expertise is required.

Adjudicating a dispute over whether a business’s transactions constitute a taxable lease under the

Ordinance is precisely a task within the purview of an administrative law officer. This is why

plaintiff has the administrative remedy available to it as per the Notice—to challenge the DOF’s

determination that plaintiff owed the lease transaction tax. There is nothing unusual or nonstandard

about plaintiff’s challenge to the Ordinance. The DOF found that plaintiff was in the business of

leasing its linens within Chicago, was charging a fee incidental to its service, and was liable for

unremitted taxes under the Ordinance. Plaintiff contests this determination.

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¶ 24    The Illinois Municipal Code allows municipalities to provide by ordinance “a system of

administrative adjudication of municipal code violations.” 65 ILCS 5/1-2.1-2 (West 2020). That

is what the city has done here. Plaintiff argues that this court is better able to interpret the relevant

ordinances and statutes than the administrative hearing officers. This is not a reason to bypass the

administrative remedies available to plaintiff. As we have explained above, an administrative

hearing is an appropriate process through which the parties can conduct discovery and develop

their respective arguments. Plaintiff again relies on Emerald Casino to argue that the question

presented in this matter falls outside of agency expertise and is a question of statutory interpretation

for this court. However, in Emerald Casino, the question presented related to the scope of the

Illinois Gaming Board’s power and authority, which was a question of statutory interpretation for

the courts to determine, rather than the agency. Emerald Casino, Inc., 346 Ill. App. 3d at 25; see

also County of Knox, 188 Ill. 2d 546 at 554 (determination of the scope and power of an agency is

a judicial function and not a question to be determined by the agency itself). That is distinct from

the question presented here, which is whether plaintiff is liable to the City for the lease transaction

tax. Again, we find that the administrative review process is appropriate to resolve plaintiff’s

issues. Plaintiff was required to complete that process and avail itself of its administrative remedies

before filing its complaint.

¶ 25    The third exception is that administrative exhaustion is not required where it would be

“patently futile to seek relief before the agency.” Castaneda, 132 Ill. 2d at 308-09. As we have

explained, there is no reason to believe that the DOAH cannot or should not adjudicate the parties’

dispute. As the city notes, even if the agency’s determination is highly likely to not be in plaintiff’s

favor, that does not mean plaintiff may avoid the requirement of exhausting its administrative

remedies. See id. at 328 (“[T]he fact that there are clear indications that the agency may or will

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rule adversely is generally inadequate to terminate the administrative process or to avoid the

exhaustion requirement.”). We need not address this exception any further, beyond referring to the

discussion above. Because there is no basis in the record to determine that it would be futile to

seek relief before the DOAH, plaintiff’s suit was premature. Plaintiff cannot use the courts to skirt

a potentially negative outcome before the agency. Even if plaintiff does not have a high likelihood

of success in its efforts to seek administrative relief, this does not permit it to file the present

complaint before the conclusion of administrative proceedings.

¶ 26   Plaintiff’s final argument is that it need not exhaust its administrative remedies because it

is mounting a constitutional challenge to the City’s decision on its face. See Poindexter v. State,

229 Ill. 2d 194, 207 (2008) (“A party who challenges the validity of a statute on its face, however,

is not required to exhaust administrative remedies.”). It claims that it was not required to exhaust

its administrative remedies when arguing that City’s attempt to tax a suburban business outside of

the city’s boundaries, for transactions that occurred outside the city, regardless of where its

customers were located, violates the Illinois Constitution. In making this argument, plaintiff cites

Hertz Corp. v. City of Chicago, 2017 IL 119945, in which our supreme court upheld the circuit

court’s ruling that the city revenue department’s decision to tax the use of vehicles leased outside

the city was unconstitutional. This matter also involved the lease transaction tax pursuant to the

Ordinance; the plaintiffs were car rental companies, seeking a declaratory judgment against the

City that its enforcement of the Ordinance as applied to suburban car rental companies located

outside of the city’s borders, based on the presumption that Chicago residents who rented vehicles

might use them within the city, was an unconstitutional overreach of the city’s taxing authority.

Id. ¶ 4. Our supreme court held that the City’s tax on leases occurring outside of the city’s

boundaries violated the home rule article of the Illinois Constitution. Id. ¶ 30. Plaintiff seeks to

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equate the facts in Hertz with the city’s determination in the present matter that plaintiff’s Skokie-

based business was required to collect and remit the lease transaction tax for the business it

conducted in Skokie.

¶ 27   We agree with the City that this is a mischaracterization of plaintiff’s contention with the

DOF’s decision. Plaintiff’s claim is not a facial constitutional challenge to the City’s decision,

pursuant to the Ordinance; the question of whether the City has the authority to tax non-Chicago

businesses for leases occurring outside of the city, for the use of the leased property within the

city, is not at issue. That is expressly permitted by the Ordinance, and plaintiff does not argue

otherwise. See Chicago Municipal Code § 3-32-030(A)(2) (amended Nov. 26, 2019) (the city

imposes a tax on “the privilege of using in the city personal property that is leased or rented outside

the city”). In Hertz, the City taxed vehicle rentals that occurred outside the city based on the

presumption that some of the vehicles would be used within the city; here, plaintiff admits that it

provides linens to residential care facilities located within the city, and nothing in the record

suggests that the Chicago facilities use these linens anywhere but on their premises. Plaintiff’s

dispute with the City is about whether its business transactions constituted a lease or rental of

personal property and whether its laundry service fee was a lease or rental fee under the Ordinance.

¶ 28   A legislative enactment is constitutionally invalid on its face “only if no set of

circumstances exist under which it would be valid.” Napleton v. Village of Hinsdale, 229 Ill. 2d

296, 305 (2008). A party mounting such a challenge need not exhaust its administrative remedies

because administrative review “is confined to the proofs offered and the record created before the

agency”; a facial challenge does not depend on the specific facts of the case but presents purely

legal questions. (Internal quotation marks omitted.) Poindexter, 229 Ill. 2d at 207. Here, plaintiff

does not claim that the city exceeded its taxation authority generally; rather, it argues that its

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particular business transactions do not fall within the category of taxable lease or rental

transactions. That argument necessarily requires a review of the facts in the record, a task that is

appropriate for administrative proceedings. We therefore find that plaintiff does not mount a facial

challenge to the constitutionality of any enactment or rule and, instead, challenges the City’s

decision in a manner appropriate for administrative review. Plaintiff was therefore required to

exhaust its administrative remedies before seeking judicial relief.

¶ 29                                   III. CONCLUSION

¶ 30   For the foregoing reasons, the judgment of the circuit court of Cook County is affirmed.

¶ 31   Affirmed.

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             Eco Brite Linens LLC v. City of Chicago, 2023 IL App (1st) 210665

Decision Under Review:        Appeal from the Circuit Court of Cook County, No. 20-CH-
                              06922; the Hon. John J. Curry, Judge, presiding.

Attorneys                     Charles Aaron Silverman, of Charles Aaron Silverman P.C., of
for                           Skokie, for appellant.
Appellant:

Attorneys                     Celia Meza, Corporation Counsel, of Chicago (Myriam Zreczny
for                           Kasper, Suzanne M. Loose, and Julian N. Henriques Jr.,
Appellee:                     Assistant Corporation Counsel, of counsel), for appellee.

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