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Saturday, August 17, 2019

Illinois Supreme Court: Man's procedural misstep dooms challenge to 'unconstitutional' IL estate tax

By Jonathan Bilyk | May 24, 2018


A man who claimed the state wrongly used a new state law to collect more than $400,000 in taxes on the estate of his mother, who died four days before the tax law took effect, can’t pursue his claims against the state, because he filed in the wrong court, the Illinois Supreme Court has ruled.

On May 24, the state high court issued a unanimous decision overturning the ruling of the Illinois Second District Appellate Court, which had rejected state officials’ contentions plaintiff Paminder Parmar could not sue the state in DuPage County Circuit Court, but rather needed to bring his case in the Illinois Court of Claims, a special state court established specifically for handling legal complaints against state officials.

The Supreme Court’s opinion was authored by Justice Mary Jane Theis. Chief Justice Lloyd Karmeier and justices Charles Freeman, Robert Thomas, Rita Garman, Thomas Kilbride and Anne Burke all concurred in the judgment and opinion.


Justice Mary Jane Theis | Illinoiscourts.gov

The decision reaffirmed the justices’ opinion that state officials can’t be sued in county circuit courts in most instances, unless a state law specifically authorizes such lawsuits or unless a particular exemption applies, based on officials’ conduct, known as the officer-suit exemption.

In this case, the Supreme Court justices said, neither exemption applies, adding they believed the justices of the Elgin-based Second District appeals court erred in finding otherwise.

The lawsuit landed in DuPage County Circuit Court in 2015, as Parmar contended the state had improperly collected tax on his mother’s estate, violating the U.S. and Illinois constitutions.

Parmar served as executor of the $5 million estate of Dr. Surinder K. Parmar, who died Jan. 9, 2011. At the time of her death, there had been no estate tax in Illinois since January 2010. However, four days after her death, the Illinois General Assembly reimposed the estate tax, and made the tax retroactive on the estates of all who died in Illinois after Dec. 31, 2010.

Parmar paid more than $400,000 in taxes and interest. However, he later filed suit, demanding a refund, because he argued the state had unconstitutionally retroactively applied the tax to his mother’s estate, and he actually should have owed no state tax at all.

In response, however, the state argued Parmar could not bring his lawsuit in the DuPage court, because it actually belonged at the Illinois Court of Claims, because that court is the proper venue under Illinois state law for handling claims against the state based on a law or regulation.

Parmar, however, argued he believed the law establishing the estate tax authorized the county courts to handle the case, as the law dictated “all disputes” over the tax belonged in circuit court.

A DuPage County judge sided with the state. However, that decision was overturned on appeal, as Second District Appellate Justice Joseph Birkett and two concurring justices found the state’s reliance on so-called sovereign immunity – legal protections generally shielding the state and its officials from being sued for official actions and policies – was misapplied in this case.

In the appellate decision, Birkett noted Parmar alleged the state officials acted illegally in retroactively imposing the tax.

“Sovereign immunity affords no protection when it is alleged that the State’s agent acted in violation of statutory or constitutional law or in excess of his authority, and in those instances an action may be brought in circuit court,” Birkett said in that decision.

Further, the appellate justices found Parmar had paid the taxes “under duress,” out of fear of penalties, negating a state argument Parmar had “voluntarily” paid the taxes, and so, again, could not sue for a refund.

The state appealed the case to the state Supreme Court, and justices there found Parmar’s legal reasoning lacking.

The justices affirmed the DuPage judge’s ruling, determining Parmar’s case amounted to a claim against state officials acting within their legal, official capacity, and therefore no exemptions applied to allow his case to be brought in circuit court.

While Parmar alleged the state officials – in this case, the attorney general and treasurer – acted illegally by enforcing “an unconstitutional statute,” the Supreme Court justices said Parmar is also demanding a refund of his taxes paid, seeking “damages … for a past wrong,” rather than seeking to “enjoin future conduct by the defendants that was contrary to law.”

 Legal precedent, they said, “makes plain that a complaint seeking damages for a past wrong does not fall within the officer suit exception to sovereign immunity.”

Further, the justices said, while Parmar argues the estate tax law appears to designate the circuit court as the proper venue for disputes over estate taxes, the law also does not specifically waive the state’s sovereign immunity exemption from lawsuits over the collection of estate taxes.

“The absence of affirmative language … waiving the State’s immunity from suit leads us to conclude that the General Assembly only intended to fix jurisdiction and venue for all disputes that do not implicate sovereign immunity,” the justices said.

And the high court justices further sided with the state in finding Parmar could have paid his taxes “under protest,” which would have allowed him to sue for a refund, under the state’s Protest Moneys Act. To avoid this requirement, Parmar argued he had paid his taxes under duress, as the appellate justices had determined.

The justices appeared to take a dim view of the appellate court’s “expansive view of duress,” noting the belief that, if paying taxes out of fear of penalties would allow a plaintiff to sue the state, the state’s protection under the law “is eroded to the point of irrelevance.” They noted they believed the appellate court’s findings on the question are “contrary to case law” from the state Supreme Court.

However, the justices did not rule on the question of “duress,” saying their findings on the primary question of whether the state can be sued allowed the secondary legal wrangling to resolve the “tension” between the two views to “wait for another day.”

“Even if we concluded, as the appellate court did, that plaintiff paid the taxes involuntarily, such conclusion would not allow plaintiff to avoid the jurisdictional bar of sovereign immunity,” the justices said. “In other words, where sovereign immunity applies, as it does here, the manner in which plaintiff paid the taxes is irrelevant.”

Parmar was represented by attorneys Nicholas P. Hoeft and Eric H. Jostock, of Jostock & Jostock P.C., of Chicago.

State defendants were represented by the Illinois Attorney General's office.

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Organizations in this Story

Circuit Court of Dupage County Illinois Attorney General Illinois Court of Claims Illinois General Assembly Illinois Second District Appellate Court Illinois Supreme Court Illinois Treasurer