Defense of Foreclosure of Statutory Liens for User Charge Fees

A Case Study Under the Illinois Metropolitan Water Reclamation Act

The national news has been devoted over the last few years to coverage of the plight of victimized homeowners facing a glut of residential foreclosures engendered by the recent recession. Yet, little or no attention has been given to actions brought by bodies corporate and politic for foreclosure of statutory liens. Such liens often present themselves in environmentally-related contexts. This article will explore the nature of defending one such lien, i.e., for “user charges” for utilization of the sanitary sewer system operated by the Metropolitan Water Reclamation District of Greater Chicago (“MWRD”).

I. MWRD Must Comply with the Statutory Prerequisite for Bringing an Action to Foreclose Liens for User Charges Under the Metropolitan Water Reclamation District Act, 70 ILCS 2605/7.

Any industrial entity whose effluent exceeds limits established by the MWRD’s User Charge Ordinance (User Charge Ordinance as Amended December 15, 2011 (“UCO”)) is subject to assessment of user charges whereby “the operations, maintenance, and replacement costs incurred by the Metropolitan Water Reclamation District of Greater Chicago in treating and disposing of the sewage, industrial wastes and other wastes generated by each User is charged to that User for his or her use of the sewage collection and treatment facilities…” (UCO, Section 1.) When such user charges are unpaid, Section 7 of the Metropolitan Water Reclamation District Act, 70 ILCS 2605/7 (“70 ILCS 2605/7”) authorizes MWRD to file liens against real estate owned by the user, and, under certain specified circumstances, to foreclose thereon, as follows:

• Any user charge, industrial waste surcharge or industrial cost recovery charge imposed by a sanitary district, together with all penalties, interest and costs imposed in connection therewith, shall be liens against the real estate which receives the service or benefit for which the charges are being imposed; provided, however, such liens shall not attach to such real estate until such charges or rates have become delinquent as provided by the ordinance of the sanitary district…The Sanitary District shall have the power to foreclose such lien in like manner and with like effect as in the foreclosure of mortgages on real estate. (Emphasis added.)

In other words, 70 ILCS 2605/7 requires that liens for user charges imposed by a sanitary district “shall not attach to such real estate until such charges or rates have become delinquent as provided by the ordinance of the sanitary district.” However, in actuality, the UCO fails to provide when a user charge assessed thereunder becomes delinquent. Since the UCO fails to provide when user charges become delinquent, then purported liens for user charges thereunder “shall not attach to such real estate” under 70 ILCS 2605/7. Any complaint for foreclosure brought by MWRD will inherently fail to satisfy the statutory prerequisite that it provide by ordinance when the user charges that are the subject of the purported liens set forth in the complaint become delinquent.

As an exercise of legislative authority, 70 ILCS 2605/7 and all other statutes which authorize the imposition of liens and the taking of property through the foreclosure thereof must be strictly construed. For example, Illinois courts have held that while the Illinois Mechanics’ Lien Act should be construed liberally as a remedial one, it, being in derogation of the common law, is strictly construed with reference to the requirements upon which the right to a lien depends. Robinette v. Servite Fathers, 49 Ill. App. 3d 585, 586-587 (1st Dist. 1977). Mechanics’ liens exist only by virtue of the statute creating them, and such statutes must be strictly followed with reference to all requirements upon which the right to a lien exists. Id. In other words, the party seeking to enforce the lien bears the burden of proving that each requisite has been satisfied. Bale v. Barnhart, 343

Ill. App. 3d 708, 713 (4th Dist. 2003).

Such an exercise of restraint is consistent with the limited constitutional grant of authority to special districts such as the MWRD. As set forth in the Constitution of the State of Illinois, Art. 7, Section 8:

• Townships, school districts, special districts and units, designated by law as units of local government, which exercise limited governmental powers or powers in respect to limited governmental subjects shall have only powers granted by law.

In construing this provision, Illinois courts have found that this constitutional provision continues in force for the described entities a doctrine known as “Dillon’s Rule,” which previously applied to all subdivisions of state government. Buffalo, Dawson, Mechanicsburg Sewer Commission v. Boggs, 128 Ill. App. 3d 688, 690 (4th Dist. 1984). The substance of that rule is that such entities have no inherent powers, but only those powers either expressly granted by the legislature or necessarily incident thereto. Id. This provision has been held applicable to the powers of the MWRD. Metropolitan Sanitary District of Greater Chicago v. On-Cor Frozen Foods, Inc., 36 Ill. App. 3d 239, 242-243 (1st Dist. 1976).

Thus, here, where the legislature under 70 ILCS 2605/7 has expressly conditioned the authority of MWRD to foreclose upon liens to such liens upon which “charges or rates have become delinquent as provided by the ordinance of the sanitary district,” MWRD must actually have provided by ordinance when such user charges “have become delinquent.” MWRD is not free to choose to do otherwise. Yet, the UCO fails to provide when a user charge assessed thereunder becomes delinquent. In that regard, Sections 7(b) and 7(c) of the UCO provide, in pertinent part, as follows:

• b. Monthly Payments. The District will send to Users…monthly payment notification. These payments are due and payable on the 20th day of the month to which they pertain following receipt of an invoice sent to the User by the District.
• c. Billing. The District shall bill any User who is in any manner delinquent in the performance of its obligations under this Ordinance. … The District reserves the right to bill delinquent Users based on estimated quantities

While Section 7(c) of the UCO purportedly authorizes MWRD to “bill any User who is in any manner delinquent in the performance of its obligations under this Ordinance,” the word “delinquent” as used in that context is merely a reference to any User that fails to make an interim payment pursuant to “monthly payment notification” of estimated user charges under Section 7(b) of the UCO. On the other hand, nothing in either Sections 7(b) or 7(c) of the UCO provides when an unpaid user charge becomes delinquent after a bill is sent and it becomes due and payable. Additionally, while under Section 7(c) of the UCO MWRD purportedly “reserves the right to bill delinquent Users based on estimated quantities” nothing under Section 7(c) of the UCO or 70 ILCS 2605/7, authorizes MWRD to file liens based upon estimated quantities. In summary, nothing in either Section 7(c) or elsewhere in the UCO provides when user charges billed thereunder “have become delinquent.” MWRD has thereby failed to satisfy the statutory condition precedent under 70 ILCS 2606/7 to the attachment of the liens to any real estate and the bringing of an action for foreclosure.

The appropriation of private property against an owner’s will is harsh and against the common right. Forest Preserve District of Du Page County v. Miller, 339 Ill.App.3d 244, 254 (2nd Dist. 2003). Being in derogation of the common law, conferring statutes and enabling ordinances must be strictly construed in order to protect the right of property owners. Id. The UCO fails to meet that standard or any other.

As set forth in People v. Davidson, 233 Ill.2d 30 (2009), the best indication of legislative intent is the statutory language, as follows:

• The fundamental rule of statutory construction is to ascertain and give effect to the legislature’s intent. *** The best indication of legislative intent is the statutory language, given its plain and ordinary meaning. *** When the statute contains undefined terms, it is entirely appropriate to employ a dictionary to ascertain the plain and ordinary meaning of those terms. *** Where the language is clear and unambiguous, we will apply the statute without resort to further aids of statutory construction. ***

The statutory language set forth in 70 ILCS 2605/7 is “clear and unambiguous” in its requirement that no lien for user charges shall attach to real estate “until such charges or rates have become delinquent as provided by the ordinance of the sanitary district.”

Moreover, the General Assembly well knew what it required of MWRD when it directed MWRD to provide by ordinance when its user charges have become “delinquent” and subject to a lien. With respect to a different statutory requirement, the General Assembly, itself, defined “delinquent” in the very next section of the Metropolitan Water Reclamation District Act, 70 ILCS 2605/1 et seq., at Section 7a, 70 ILCS 2605/7a (“70 ILCS 2605/7a”). The word “delinquent” was defined there, in 70 ILCS 2605/7a(d)(11), in delineating when a failure to pay civil penalties for dumping sewage into a sewerage system without a permit becomes delinquent and subject to a lien. In this regard, subsection (b) of 70 ILCS 2605/7a provides that “It shall be unlawful for any person to discharge sewage…into the sewerage system of a sanitary district …except upon the terms and conditions that the sanitary district might reasonably impose…” Subsection (c) of 70 ILCS 2605/7a provides that a violation of subsection (b) is punishable by, inter alia, a “civil penalty in an amount specified by the [MWRD] Board of Commissioners that is not less than $100 nor more than $2,000 per day for each day of discharge of effluent in violation of this Act as provided in subsection (d).” Subsection (d)(9) and (d)(10) of 70 ILCS 2605/7a respectively provide that civil penalties specified by the MWRD Board of Commissioners pursuant to subsection (c) of 70 ILCS 2605/7a “shall be paid within 35 days” after the date of the order assessing civil penalties. Finally, under subsection (d)(11) the General Assembly has provided when unpaid civil penalties assessed under subsection (c) of 70 ILCS 2605/7a become “delinquent” and subject to a lien, as follows:

• Civil penalties not paid by the times specified above shall be delinquent and subject to a lien recorded against the property of the person ordered to pay the penalty.

Thus, the General Assembly has specified that civil penalties assessed by the Board of Commissioners for illegal dumping of sewage pursuant to Section 7a of the Metropolitan Water Reclamation District Act, 70 ILCS 2605/7a, become “delinquent” and subject to a lien if not paid within 35 days of the date of the order assessing the penalty. Contrast that language to the language in Section 7 of the Metropolitan Water Reclamation District Act, 70 ILCS 2605/7, that any user charge may be subject to a lien upon becoming “delinquent as provided by the ordinance of the sanitary district.”

The situation calls to mind the principle of statutory construction known as expressio unius est exclusio alterius. As explained in Metzger v. DaRosa, 209 Ill. 2d 30, 44 (2004):

• The familiar maxim expressio unius est exclusio alterius is an aid of statutory interpretation meaning “the expression of one thing is the exclusion of another.” Black’s Law Dictionary 581 (6th ed. 1990). “Where a statute lists the things to which it refers, there is an inference that all omissions should be understood as exclusions ***.” ***. This rule of statutory construction is based on logic and common sense. It expresses the learning of common experience that when people say one thing they do not mean something else. The maxim is closely related to the plain language rule in that it emphasizes the statutory language as it is written.

Thus, here, the General Assembly clearly demonstrated that in one instance, i.e., that of the assessment of civil penalties for illegal dumping under 70 ILCS 2605/7a, the statute, itself, would provide when unpaid penalties become delinquent. In the other instance, under 70 ILCS 2605/7, the General Assembly could have likewise provided when unpaid user charges became delinquent. However, it chose not to do so. Instead, the General Assembly expressly delegated the duty to MWRD to provide by ordinance when user charges become “delinquent.” Moreover, by expressly setting forth the meaning of “delinquent” in 70 ILCS 2605/7a, the General Assembly demonstrated to MWRD just exactly what it meant when it directed MWRD to set forth the meaning of “delinquent” under 70 ILCS 2605/7. It meant MWRD must expressly provide a definition by ordinance, just like the General Assembly expressly provided one by statute.

MWRD has “no inherent powers, but only those powers either expressly granted by the legislature or necessarily incident thereto.” Buffalo, Dawson, Mechanicsburg Sewer Commission v. Boggs, 128 Ill. App. 3d at 690; Metropolitan Sanitary District of Greater Chicago v. On-Cor Frozen Foods, Inc., 36 Ill. App. 3d at 242-243. Accordingly, MWRD, having no statutory basis for such any such action, may not bring any complaint to foreclose user charge liens.

II. The Requirement that MWRD Demonstrate that User Charges “have become delinquent as provided by the ordinance of the Sanitary District” is a Condition Precedent to the Attachment of Such Purported Liens to Any Real Estate and to MWRD’s Bringing of any Action For Lien Foreclosure Under The Mortgage Foreclosure Law.

The courts of Illinois have original jurisdiction over all justiciable matters. (Ill. Const. 1970, art. VI, Section 9.) Employers Mutual Companies v. Skilling, 163 Ill. 2d 284, 287 (1994). Section 7 of the Metropolitan Water Reclamation District Act, 70 ILCS 2605/7, the law which authorizes the foreclosure of liens for user charges, specifically states in reference to such liens that jurisdiction over lien foreclosure actions lies in the Circuit Court, as follows:

• The Sanitary District shall have the power to foreclose such lien in like manner and with like effect as in the foreclosure of mortgages on real estate.

MWRD must, therefore, proceed as any secured creditor “in like manner” under the Illinois Mortgage Foreclosure Law, 735 ILCS 5/15-1101, et seq. (the “Mortgage Foreclosure Law”), and face the same defenses that would be available to any defendant in any foreclosure action. The circuit court has authority over actions brought under the Mortgage Foreclosure Law and of “all matters arising out of the foreclosure. 735 Ill. Comp. Stat. Ann. 5/15-1103 (West 2000).” Plaza Bank v. Kappel, 334 Ill. App. 3d 847, 850 (1st Dist. 2002).

Before any action for lien foreclosure may be brought under the Mortgage Foreclosure Law, MWRD must demonstrate that the user charges that are the subject of the purported liens “have become delinquent as provided by the ordinance of the sanitary district” under 70 ILCS 2606/7. The requirement that MWRD demonstrate that the user charges “have become delinquent as provided by the ordinance of the sanitary district” is a condition precedent to the attachment of such purported liens to any real estate and to MWRD’s bringing of any action for lien foreclosure under the Mortgage Foreclosure Law. As set forth in Section I of this article, above, MWRD has failed to enact an ordinance that provides when user charges, “have become delinquent” thereunder.

Whether a special district such as MWRD is required to comply with a statutory condition precedent prior to bringing a foreclosure action for unpaid charges was the subject of Skillet Fork River Outlet Union Drainage District v. Fogle (“Skillet Fork River”), 382 Ill. 77 (1943). There, the Court interpreted a statute, Section 5-25 if the Illinois Drainage Code, 70 ILCS 605/5-25 (formerly Section 34a of the Levee Act), containing language in certain respects identical to 70 ILCS 2606/7, in that both allow for the foreclosure of liens “in like manner and with like effect as in foreclosure of mortgages.” That statute states, in pertinent part:

• In case the owner or owners of any lands lying in any district,*** and which are assessed, fails or neglects to pay any assessment or assessments…when due, and the same be not collected on or before the annual sale of lands for nonpayment of taxes, the commissioners of such drainage district may file a petition or bill in the circuit court of the county *** for a foreclosure of such lien… to foreclose such lien, in like manner and with like effect as in foreclosure of mortgages… 382 Ill. at 83.

The plaintiff filed a complaint to foreclose the lien of an assessment levied for the construction of a drainage system. Defendants, both in a motion to dismiss and in an amended answer and amended counterclaim averred that a delinquent return to the county collector is a prerequisite to a foreclosure action under the statute. The Court, in upholding the trial court’s dismissal of the complaint, agreed, holding:

• A condition precedent to instituting a foreclosure action is that delinquent assessments shall not have been collected “on or before the annual sale of lands for nonpayment of taxes.” This provision exhibits a legislative intent that there must be recourse to the procedure incident to the annual sale of lands. Otherwise, it is meaningless. We are not warranted in attributing to the General Assembly an intent to place superfluous provisions in the statute… [T]he statutory command must be obeyed. This, plaintiffs have failed to do. 382 Ill. at 85.

Similarly, under 70 ILCS 2606/7, which likewise provides that the “Sanitary District shall have the power to foreclose such lien in like manner and with like effect as in the foreclosure of mortgages on real estate,” MWRD has failed to obey the statutory command that it demonstrate that the user charges “have become delinquent as provided by the ordinance of the sanitary district.” Thus, like the plaintiff drainage district in Skillet Fork River, MWRD has failed to comply with a statutory condition precedent to maintaining a foreclosure action. Any defendant to such an action is authorized under Skillet Fork River to raise that failure by motion to dismiss, as a defense in its answer or in a counterclaim.

III. The Doctrine of Exhaustion Has Never Been Applied to a Party Defendant.

MWRD may attempt to argue that before any defense to a foreclosure action may be asserted, the defendant must exhaust its administrative remedies under Section 9 of the UCO. Section 9(a) of the UCO provides, in pertinent part:

• Right to Appeal to Director. Any User subject to this Ordinance…shall have a right to appeal to the Director the amount billed…

Other administrative appeal procedures follow in Section 9. If the administrative appeal procedures have not been followed, MWRD may argue the defendant could have pursued his administrative remedies in challenging that debt, but allegedly failed to do so.

Yet, nowhere in a typical foreclosure action does MWRD allege either computed user charges or that there was a failure to pay user charges. Instead, MWRD typically will not have filed a common law collection action, but, instead, will have filed a statutory lien foreclosure action. Section 7 of the Metropolitan Water Reclamation District Act, 70 ILCS 2605/7 specifically authorizes MWRD to file common law collection actions, as follows:

• The foregoing provisions for asserting liens against real estate by the sanitary district to secure payment of user charges, industrial waste surcharges or industrial cost recovery charges imposed by the sanitary district shall be in addition to and not in derogation of any other remedy or right of recovery, in law or equity, which the sanitary district may have, with respect to the collection or recovery of such charges imposed by such sanitary district.

Thus, 70 ILCS 2605/7 specifies that the statutory lien foreclosure action provided for therein does not supplant other options available at common law. If the defendant actually owed a purported debt for user charges, MWRD would have the option of filing a collection action, rather than a statutory lien foreclosure action, as provided in 70 ILCS 2605/7. MWRD, thus, could choose to file a collection action, but typically will not have done so. Since MWRD opts, instead, to file a statutory action for foreclosure of purported liens for such purported user charges, then it must follow the statutory prerequisites.

IV. Given That Concurrent Jurisdiction Lies in the Courts, Exhaustion Does Not Bar the Courts From Exercising Their Jurisdiction Over Affirmative Defenses and Counterclaims.

As set forth above, MWRD may argue that a foreclosure defendant may only have challenged the terms of the UCO by raising such issues at the administrative level. Yet, never before in the precedential history of the courts of Illinois has any court applied the doctrine of exhaustion to a party defendant. Never before in the precedential history of the courts of Illinois has any court found that a party defendant could be barred from raising defenses and counterclaims by the doctrine of exhaustion. Were any Court to do so, it would be a singular judicial event. Furthermore, it would be doing so in the face of definitive precedent to the contrary.

Exhaustion applies where a public agency has been given exclusive jurisdiction to hear an action. People v. N.L. Industries, 152 Ill. 2d 82, 95-96 (1992). Exhaustion does not apply where the statutory framework provides for jurisdiction under both the administrative agency and the court, as in the case at bar. Id. Thus, in People ex rel. Scott v. Janson, 57 Ill. 2d 451, 459 (1974), the Court held that concurrent jurisdiction in both the court and the proper administrative agency existed under the Illinois Environmental Protection Act, 415 ILCS 5/45(a), for enforcement actions to prevent pollution and for cost recovery thereunder.

Similarly, under Section 7 of the Metropolitan Water Reclamation District Act, 70 ILCS 2605/7, sanitary districts are authorized to impose user charges to which the Mortgage Foreclosure Law is prescribed to apply. Thus, concurrent jurisdiction exists under 70 ILCS 2605/7 for actions in relation to user charges. Once a sanitary district, having imposed user charges and filed a lien thereon, files an action in the circuit court for enforcement of such lien, it has divested itself of jurisdiction over the matter and jurisdiction becomes vested the court. This is the logic that led the Court in People v. N.L. Industries, 152 Ill. 2d at 95-101, to conclude exhaustion did not apply to a cost recovery and enforcement action brought by the State of Illinois under the Illinois Environmental Protection Act, 415 ILCS 5/1 et seq., and “that the circuit court should be vested with concurrent jurisdiction” to hear such an action. People v. N.L. Industries, 152 Ill. 2d at 100-101.

Similarly, where MWRD, itself, brings an action in the circuit court to enforce its own statutory authority, the courts have held that exhaustion of remedies “has no application.” Metropolitan Sanitary District of Greater Chicago v. United States Steel Corporation, 30 Ill. App. 3d 360, 375 (1st Dist. 1975). Given that such concurrent jurisdiction lies in this Court, exhaustion does not bar this Court from exercising the jurisdiction vested in it over the affirmative defenses and counterclaims.

In this regard, the affirmative defenses arise under Section 5/15-1106(e) of the Mortgage Foreclosure Law, 735 ILCS 5/15-1106(e), and under Section 5/15-1103 of the Mortgage Foreclosure Law, 735 ILCS 5/15-1103. Section 5/15-1106(e) provides, in pertinent part:

• (e) Supplementary General Principles of Law. General principles of law and equity, such as those relating to capacity to contract, principal and agent, marshalling of assets, priority, subrogation, estoppel, fraud, misrepresentations, duress, collusion, mistake, bankruptcy or other validating or invalidating cause, supplement this Article unless displaced by a particular provision of it. …

Section 5/15-1103 of the Mortgage Foreclosure Law grants courts authority and jurisdiction over the “disposition of all matters arising out of the foreclosure.” A court’s jurisdiction over the “disposition of all matters arising out of the foreclosure” includes jurisdiction over all common law defenses pursuant to 735 ILCS 5/15-1106(e). See, Spec-Cast, Inc. v. First National Bank & Trust Company of Rockford, 128 Ill. 2d 167, 173-178 (1989) (interpreting language at Section 5/1-103(b) of the Uniform Commercial Code, 810 ILCS 5/1-103(b) which is virtually identical to that at 735 ILCS 5/15-1106(e), as providing for the availability of common law defenses.) See also, Farm Credit Bank v. Whitlock, 144 Ill. 2d 440, 444 (1991). See also, City of St. Petersburg v. Division of Administration, State Department of Transportation, 293 So. 2d 781, 784 (Fla. App. 1974) (affirmative defenses must be pleaded in proceeding to enforce statutory lien).

Additionally, the Mortgage Foreclosure Law specifically provides that “[a]ny party may assert its interest by counterclaim.” 735 ILCS 5/15-1504(h). Illinois case law is well settled that any defendant has a right to plead any claim against a plaintiff, whether in the nature of setoff, recoupment, crossclaim or otherwise, and whether in tort, contract, for liquidated or unliquidated damages, or for other relief under 735 ILCS 5/2-608 (formerly Ill. Rev. Stat. ch. 110, par. 2-608). Clay v. Pepper Construction Company, 205 Ill. App. 3d 1018, 1022 (1st Dist. 1990). Thus, a counterclaim may be brought in a foreclosure action under 70 ILCS 2605/7, as well.

In People v. Fiorini, 143 Ill. 2d 318 (1991), after the State filed an action against various dumpsite owners for violations of the Illinois Environmental Protection Act, 415 ILCS 5/1 et seq. (formerly Ill. Rev. Stat., ch. 111 ½, par. 1001 et seq.), the dumpsite owners filed a third-party complaint against a municipality, church and certain business owners. The trial court dismissed the third-party complaint. The Supreme Court upheld a reversal by the appellate court, holding that the dumpsite owners were not required by the doctrine of exhaustion of administrative remedies to bring their third-party action before the Illinois Pollution Control Board. In so holding, the Court stated:

• In the instant case, the trial court had jurisdiction over the original action when the Attorney General filed the complaint in the circuit court. To require that a portion of the instant action be heard before the Pollution Control Board at this juncture would frustrate judicial economy and common sense. *** Accordingly, we reject third-party defendants’ argument that the third-party complaint is barred since third-party plaintiffs failed to exhaust administrative remedies.

Similarly, in actions for foreclosure under 70 ILCS 2605/7, courts have jurisdiction over a complaint filed pursuant to the Mortgage Foreclosure Law for the foreclosure of liens for user charges. To allow that part of the action, i.e., the complaint in foreclosure, to proceed, but to require that “a portion of the action,” i.e., any affirmative defenses or counterclaim, to be heard only in administrative proceedings before MWRD “would frustrate judicial economy and common sense.”

In conclusion, since the UCO fails to provide when user charges become delinquent, then purported liens for user charges thereunder “shall not attach to such real estate” under 70 ILCS 2605/7. Any complaint for foreclosure brought by MWRD will inherently fail to satisfy the statutory condition precedent that it provide by ordinance when the user charges that are the subject of the purported liens set forth in the complaint become delinquent. This defense may be raised in a motion to dismiss, affirmative defense or counterclaim.