Most Worshipful Grand Lodge of Ancient Free and Accepted Masons v. Department of Revenue

SUPREME COURT CASES

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State: Illinois

Court: 4th District Appellate

Docket No: 4-07-0404 Rel

Case Date: 12/28/2007

Preview:NO. 4-07-0404 IN THE APPELLATE COURT OF ILLINOIS FOURTH DISTRICT

Filed 12/28/07

THE MOST WORSHIPFUL GRAND LODGE OF ) Appeal from ANCIENT FREE AND ACCEPTED MASONS OF ) Circuit Court of THE STATE OF ILLINOIS, an Illinois ) Moultrie County Corporation; and THE ILLINOIS MASONIC ) No. 06MR16 HOME, an Illinois Not-for-Profit ) Corporation, ) Plaintiffs-Appellants, ) v. ) THE DEPARTMENT OF REVENUE OF THE ) STATE OF ILLINOIS and BRIAN A. HAMER, ) Director of Revenue of the State of ) Honorable Illinois, ) Dan L. Flannell, Defendants-Appellees. ) Judge Presiding. _________________________________________________________________ JUSTICE STEIGMANN delivered the opinion of the court: In November 2003, plaintiffs, the Most Wonderful Grand Lodge of Ancient Free and Accepted Masons of the State of Illinois and the Illinois Masonic Home (collectively, the Lodge), filed an application for a nonhomestead property-tax exemption for 2003, pursuant to sections 15-65 and 15-125 of the Property Tax Code (35 ILCS 200/15-65, 15-125 (West 2002)). In January

2004, defendants, the Department of Revenue of the State of Illinois and Brian A. Hamer (collectively, the Department), denied the application. The Lodge later filed a petition under

section 8-35 of the Code (35 ILCS 200/8-35 (West 2004)), requesting reconsideration of the application. Following a July 2006

hearing, the Department accepted the administrative law judge's (ALJ's) recommendation that the Lodge did not qualify for the specific tax exemption it sought. In December 2006, the Lodge

filed a complaint for administrative review, pursuant to section 8-40 of the Code (35 ILCS 200/8-40 (West 2006)), seeking reversal of the Department's determination. Following an April 2007

hearing, the circuit court affirmed the Department's decision. The Lodge appeals, arguing that (1) the guidelines set forth in Methodist Old Peoples Home v. Korzen, 39 Ill. 2d 149, 233 N.E.2d 537 (1968), should be applied with regard to the evolving definition of "charitable use" and (2) the Department erroneously considered the property in isolation from the Lodge's integrated community and overarching charitable mission. disagree and affirm. I. BACKGROUND A. The Lodge Founded in 1904, the Lodge is an Illinois not-forprofit corporation that provides nursing-care services. In We

December 1917, the property owned by the Lodge was deemed tax exempt. See Most Worshipful Grand Lodge of Ancient Free &

Accepted Masons of the State of Illinois v. Board of Review of Moultrie County, 281 Ill. 480, 485-86, 117 N.E. 1016, 1018 (1917) (concluding that the land owned by the Lodge fell within the statutory definition of lands actually and exclusively used for charitable or beneficent purposes). Prior to 1997, the Lodge offered only two types of assistance and living programs--sheltered care and intermediate care. In 1997, the Lodge began to offer a third type of care, The Lodge

referred to as the "independent-living program." - 2 -

implemented this program based on survey results indicating that older residents desired to live where nursing care would be readily available. In response, the Lodge developed apartment

and duplex housing so that residents could "age in place" and easily transition within the Lodge's "continuum of care" as their physical and medical needs changed. The Lodge's continuum of

care consists of approximately 72 sheltered-care beds, 237 intermediate-care beds, and 48 independent-living units. These

different levels of assistance are located in separate buildings on the Lodge's property. Prior to 1999, the Lodge's application procedures required prospective residents to surrender all assets in exchange for lifetime care. In 1999, the Lodge altered the admisThe

sions procedures to include a fee-for-service program.

procedures included an option to request financial-subsidy assistance through the Lodge's endowment-assistance program for residents in financial need. Prospective independent-living residents must enter into a "life right contract" where they agree, in pertinent part, to (1) provide detailed information regarding their current health and financial status before entering into the contract; (2) provide, at their own expense, updated health and financial information as requested by the Lodge; (3) not deplete assets to the extent the applicant cannot meet the financial obligations of the contract; and (4) pay a $1,000 application fee. Independent-living residents must also pay 25% of the - 3 -

Lodge's initial unit fee upon occupancy or 60 days after signing the contract. $117,000. The initial unit fee ranges from $18,000 to

In addition, residents are required to pay a monthly Both fees are

maintenance fee that ranges from $292 to $804.

contingent upon the type (apartment or duplex), size, and location of the unit. Residents in independent-living units may

qualify for the endowment-assistance program if they exhaust their funds while living in the residence, but they still must pay the initial fee. The Lodge's independent-living unit terms and conditions state, in pertinent part, that (1) the Lodge can terminate the agreement if a resident fails to pay monthly service fees and (2) if the resident cannot pay the independent-living unit fees, the Lodge has the right to reasonably accommodate the resident in another residential program where public or private assistance is available. When residents vacate their units, a portion of their

initial fee is returned based upon their length of stay (ranging from an 80% to 95% refund for duplex residents and 55% to 90% refund for apartment residents). B. Administrative Proceedings In November 2003, the Lodge applied for a nonhomestead property-tax exemption for 2003, pursuant to sections 15-65(a), (c), and 15-125 of the Code (35 ILCS 200/15-65(a), (c), 15-125 (West 2002)). Prior to the Department's decision on the applica-

tion, the Lodge and the Department stipulated that (1) the Lodge's request for a tax exemption applied only to the property - 4 -

where the independent-living units were located and (2) the remainder of the Lodge's property continued to be tax exempt. In

January 2004, the Department denied the application, upon finding that the property in question was neither owned nor used exclusively for charitable purposes. The Lodge later requested

reconsideration under section 8-35 of the Code (35 ILCS 200/8-35 (West 2004)), and the matter proceeded to a hearing before an ALJ. Following a June 2004 hearing, the ALJ recommended that the portion of the Lodge's property containing the independentliving units did not qualify for a tax exemption. Specifically,

the ALJ made the following findings of fact: (1) before prospective residents can live in the independent-living units, they must pay a substantial fee that varies according to the size and desirability of the unit; (2) prospective residents must complete an application that demonstrates they have the financial and physical ability to reside in the units; (3) despite a provision in the Lodge's bylaws that it will waive fees in certain circumstances, initial fees for the independent-living program were not waived; (4) none of the residents in the independent-living units received assistance from the endowment-assistance program; (5) the Lodge does not have the legal obligation to keep residents in the units; and (6) the Lodge can remove residents for failure to pay fees. Based upon the guidelines announced by our supreme

court in Methodist Old Peoples Home, 39 Ill. 2d at 156-57, 233 N.E.2d at 541-42, the ALJ determined that the primary use of the - 5 -

independent-living program "appear[ed] to be to provide housing to residents who can pay for it." accepted the ALJ's recommendation. In June 2005, the Lodge filed a petition under section 8-35 of the Code (35 ILCS 200/8-35 (West 2004)), seeking reconsideration. The Lodge argued that the Department's decision (1) In May 2005, the Department

failed to adequately reflect evidence that the Lodge's charitable mission included providing a continuum of care, (2) incorrectly divided various elements of the Lodge's charitable program not intended to be operated in isolation from the remainder of the Lodge's programs, and (3) arbitrarily faulted the Lodge for not waiving initial fees prior to the original hearing. In June

2005, the Department accepted the ALJ's order denying the Lodge's petition. The Lodge later filed its first complaint for administrative review, pursuant to section 8-40 of the Code (35 ILCS 200/8-40 (West 2006)), seeking reversal of the Department's determination. In February 2006, the circuit court remanded the

matter to the Department with instructions to "conduct a rehearing and re-open [sic] proofs" to permit the Lodge to introduce additional financial evidence. Following a June 2006 rehearing, the ALJ again recommended that the Lodge's application be denied. The ALJ

acknowledged that the Lodge "provided evidence that the independent[-]living units did not generate a profit" but reaffirmed that the facts "do not support a finding that the primary - 6 -

use of the apartment and duplexes is charitable."

In November

2006, the Department accepted the ALJ's recommendation. In December 2006, the Lodge filed another complaint for administrative review, pursuant to section 8-40 of the Code (35 ILCS 200/8-40 (West 2006)), arguing that the Department's decision was (1) contrary to law and (2) against the manifest weight of the evidence. Following an April 2007 hearing, the circuit

court denied the Lodge's complaint, upon finding that the Department's decision was not against the manifest weight of the evidence. This appeal followed. II. ANALYSIS A. The Standard of Review Prior to addressing the merits, we must determine the appropriate standard of review. The Lodge contends that the The Department

appropriate standard of review is de novo.

responds that this court's review is under the clearly erroneous standard. We agree with the Department. We first note that the appellate court's role is to review the administrative decision, not the circuit court's decision. Metro Developers, LLC v. City of Chicago Department of

Revenue, 377 Ill. App. 3d 395, 397, 877 N.E.2d 785, 788 (2007). The appropriate standard of review concerning administrative decisions is contingent upon whether the question being reviewed is one of fact, law, or both. Express Valet, Inc. v. City of

Chicago, 373 Ill. App. 3d 838, 847, 869 N.E.2d 964, 972 (2007). - 7 -

"An administrative agency's decision on questions of fact are entitled to deference and are reversed only if against the manifest weight of the evidence." Friends of Israel Defense

Forces v. Department of Revenue, 315 Ill. App. 3d 298, 302, 733 N.E.2d 789, 792-93 (2000). An administrative agency's decisions

on questions of law are not afforded deference and thus are reviewed de novo. Friends of Israel Defense Forces, 315 Ill. However, when a case "in-

App. 3d at 302, 733 N.E.2d at 793.

volves an examination of the legal effect of a given set of facts, it involves a mixed question of fact and law." City of

Belvidere v. Illinois State Labor Relations Board, 181 Ill. 2d 191, 205, 692 N.E.2d 295, 302 (1998). In such cases, we review City

the agency's decision under the clearly erroneous standard.

of Belvidere, 181 Ill. 2d at 205, 692 N.E.2d at 302; see Board of Trustees of the University of Illinois v. Illinois Labor Relations Board, 224 Ill. 2d 88, 97, 862 N.E.2d 944, 950 (2007) ("As we explained in City of Belvidere, the clearly erroneous standard of review is proper when reviewing a decision of [an administrative agency] because the decision represents a mixed question of fact and law"). Under this standard, the agency's decision will

not be deemed clearly erroneous unless the reviewing court is left with the definite and firm conviction that a mistake has been committed. Daley v. Lakeview Billiard Caf

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