Cook County Record

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NorthShore asks court to slice class action demanding IL hospitals repay for improper tax exemptions

By Dan Churney | Jul 4, 2017

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Saying the basis for the suit has been amputated by Illinois’ highest court, NorthShore University Health System is asking a Cook County judge to dismiss a class-action suit, which demanded hospitals be made to pay back Illinois property taxpayers who have allegedly overpaid because, the plaintiffs allege, the state’s hospitals have wrongly enjoyed tax-exempt status.

In May 2016, Thornmeadow Partners LP filed suit in Cook County Circuit Court against NorthShore University Health System, as a representative of all other hospitals in Illinois. NorthShore operates hospitals in Evanston, Highland Park, Glenbrook and Skokie.

Thornmeadow owns a residential property in the 4800 block of West Dakin on Chicago’s northwest side. According to Cook County property tax records, the taxes were paid by Sabra Management, of Northfield. State records indicate Sabra is headed by Jack Gore, a Northfield lawyer.

Thornmeadow claimed NorthShore and other hospitals throughout Illinois should pay property taxes. The plaintiff cited a January 2016 Illinois Fourth District Appellate Court opinion, regarding a Champaign County case between state and local taxing bodies and the Carle Foundation, which runs a hospital in Urbana. The appellate opinion struck down as unconstitutional the state law allowing Illinois’ nonprofit hospitals to avoid property taxes if they provide a certain level of charity care.

As a result of this allegedly improper tax exemption, Thornmeadow said property owners in the state have had to make up the difference by paying higher taxes. Thornmeadow wants hospitals to reimburse taxpayers for the extra taxes they have forked over since 2014, with interest. Thornmeadow did not estimate the amount.

NorthShore has filed a motion to dismiss the suit, saying the Illinois First District Appellate Court ruled in December 2016, in a different suit, the tax-exempt law was constitutional. Then in March 2017, the Illinois Supreme Court vacated the Fourth District ruling.

NorthShore acknowledged the state high court upended the Fourth District on procedural grounds, saying the Fourth District lacked jurisdiction. The high court did not address the constitutionality of the tax exemption, but nonetheless did overturn it, NorthShore noted. As a consequence, Thornmeadow's case collapses, as it was built on the Fourth District ruling, with the First District decision further tamping down the case, in NorthShore's view.

"That holding (the First District decision) is now the law of the land," NorthShore said.

NorthShore further argued that apart from the appellate and supreme court rulings, the law allowing exemptions was nevertheless in place at the time NorthShore took advantage of it -- NorthShore was simply enjoying a legal exemption. This fact alone makes Thornmeadow's "case theory fundamentally flawed," according to NorthShore.

NorthShore went on to contend there is no basis for it to repay taxes to the Illinois Department of Revenue, much less to any private parties like Thornmeadow.

Thornmeadow claimed NorthShore misused public funds, but NorthShore countered only a public body can misuse funds, not a private entity such as NorthShore. At any rate, NorthShore said the plaintiff has not shown how failing to pay taxes, pursuant to a valid exemption, is a "misuse."

In this connection, Northshore pointed out plaintiff lacks standing to bring a suit under the status of a taxpayer, because such an action has to seek relief from illegal acts by public officials; plaintiff has not shown evidence of such acts.

The Thornmeadow suit also names Cook County Treasurer Maria Pappas and Cook County Clerk David Orr as defendants, as they are responsible for processing property taxes. Pappas and Orr have filed a separate motion to dismiss the suit.

Plaintiff said it tapped NorthShore as a defendant, because NorthShore is based in Cook County, and is in a position to best represent other hospitals in the class action.

Judge Celia Gamrath is presiding over the case. The next hearing is Aug. 14.

The Chicago firm of Winston & Strawn is defending NorthShore University HealthSystem. The Cook County State's Attorney's Office is defending the county treasurer and clerk.

Chicago lawyer Larry D. Drury is representing Thornmeadow.

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Organizations in this Story

Winston and Strawn LLPNorthshore University HealthsystemIllinois Supreme CourtIllinois First District Appellate CourtIllinois Fourth District Appellate CourtLarry D. Drury Ltd.