Find Legal Information

No. 1-02-3874

The trial court entered a judgment in favor of theplaintiff, Furniture L.L.C. (Furniture), finding that it had avested right to build a residential structure on property whichit owned that was later down-zoned. The defendant, the City ofChicago (the City), appeals this ruling, arguing that Furnituredid not have a vested right to build under the prior zoningordinance. For the reasons that follow, we affirm the trialcourt's decision.
 

BACKGROUND

Furniture is a limited liability company that has threemanagers: William Smith, Gordon Segal and Stanley Nitzberg. Smith is a real estate developer; Segal is the founder and chiefexecutive officer of Crate & Barrel; and Nitzberg is a principalof Mid-America Realty and a commercial real estate developer. Furniture was formed in 1996 to purchase and develop a parcel ofland located at 840-860 West Blackhawk Street, in Chicago,Illinois. The property at issue sits on a site that was formerlya Homemaker's Furniture showroom and is located inside an area ofChicago known as the Halsted Triangle.

On October 30, 1997, Furniture closed on the purchase of theHomemaker's site, for which it paid $12.5 million. The propertywas zoned C3-5 at the time of the purchase. This zoningclassification required that the ground level be used for retailor commercial purposes and allowed the other floors to bedeveloped for residential use up to 325 units. At trial,Furniture's managers testified that they intended to develop theHomemaker's site for residential use and that Furniture would nothave purchased the property for $12.5 million if that was notpossible.

After purchasing the property, Furniture hired thearchitectural firm of Papageorge & Haymes, Ltd., to perform somepreliminary work to determine "what sort of footprint on the landwould be required for [a] residential building." In February1998, Furniture decided to sell the front portion of theHomemaker's site with the existing building on it for $12million, while retaining the rear portion of the site forresidential development. The rear portion of the site is theproperty that is at issue in this litigation.

Furniture initially negotiated to sell the front portion toCostco Wholesale Club (Costco) for $12.5 million. However, oneof Crate & Barrel's major stores is located in the very nearvicinity of the front parcel. Segal believed that a Costco wouldbring congestion and the wrong type of customer to the area. Consequently, Segal decided to purchase a slightly smallerportion of the front for $12 million. The design plans fromPapageorge and Haymes were abandoned in early 1998, after thefront portion of the property was sold to Segal.

In December 1997, Furniture retained the architectural firmof Booth Hansen. The Booth Hansen architectural firm undertookthe preparation and drafting of detailed architectural plans fora residential high-rise building above a commercial retail baseon the back portion. Initially, Furniture intended to build amultiplex movie theater and a parking lot at the base of thehigh-rise residential structure. In 1998, Booth Hansen draftedarchitectural plans depicting a residential high rise with movietheaters at its base. Furniture, however, was unable tosubsequently secure financing for the theater portion of theproject. Thereafter, in December 1998, Furniture retained thearchitectural firm of Lucien Lagrange to prepare a new design. Lucien Lagrange created new plans for a single residential towerwith a retail base.

On March 10, 1999, Alderman Theodore Matlak proposed anordinance to the Chicago city council to create a plannedmanufacturing district (PMD) that would cover the HalstedTriangle. Matlak testified that PMDs are created to protect theexisting manufacturers and businesses which are located in therelevant area from residential encroachment that is notcompatible to the existing businesses. Matlak testified thatwhen he submitted the proposed ordinance, he was unaware of anyplan by Furniture to develop a residential structure on theHomemaker's site. On March 19, 1999, Matlak sent a letter to thezoning administrator, Paul Woznicki, informing him of theproposed zoning change and requesting that the City hold allbuilding permits in the Halsted Triangle while the proposedordinance was pending.

On or about June 11, 1999, Furniture's managers learned thatAlderman Matlak had proposed an ordinance that would rezone theHalsted Triangle as a PMD. Robert Bruno, a member of Furniture,and Smith testified that on that day they received a facsimilefrom Segal's attorney, Harvey Silverstone, that contained a copyof the proposed ordinance.

In the summer of 1999, Furniture retained structuralengineers and real estate consultants. Its architectural firmcontinued to prepare the plans necessary for submission as partof Furniture's application for a caisson permit. Furnitureapplied for and obtained a house numbers certificate, inSeptember 1999. Furniture also submitted its application for acaisson permit in September 1999. In October 1999, Furniturereceived a driveway permit for its proposed development. TheCity informed Furniture in December 1999 that it would notreceive zoning clearance on its permit application because a holdhad been placed on applications in the Halsted Triangle duringthe pendency of Alderman Matlak's proposed ordinance.

Matlak testified that on February 9, 2000, the Department ofPlanning and Development held a public meeting regarding theproposed PMD for the Halsted Triangle. Some of those whoattended the meeting approved of the idea of keeping residentialuse out, but they voiced opposition to rezoning the area as aPMD. Accordingly, Matlak stated that he introduced a new C5zoning classification. This classification is less restrictivethan a PMD but serves the same function of protecting theexisting commercial, retail and manufacturing uses to theexclusion of residential uses in the area. The C5 classificationwas enacted on August 13, 2000, and on February 7, 2001, theHalsted Triangle was rezoned as a C5 district.

In July 2000, Furniture filed a verified complaint fordeclaratory judgment and injunctive relief. The complaintrequested that the trial court find that Furniture had acquired avested right to complete its residential project in accordancewith the prior C3-5 zoning and enjoin the City from applying thenew C5 zoning.

On November 19, 2002, the trial court entered a declaratoryjudgment in favor of Furniture. The trial court held thatFurniture had a vested right to develop the Homemaker's site inaccordance with the C3-5 zoning, and enjoined the City fromwithholding the issuance of any permits to Furniture inconnection with its development of the Homemaker's site under theC3-5 zoning district on the basis that Furniture's permitapplications do not comply with the new C5-4 zoning district.

Specifically, the trial court found that Furniture had notreceived notice of the proposal for a new zoning ordinance untilJune 1999. The trial court also made a credibility determinationthat the managers of Furniture bought the Homemaker's site withthe intention to build a residential structure and never waveredfrom that intention.

ANALYSIS

The standard for review for zoning cases is that thefindings of the trial court will not be disturbed unless againstthe manifest weight of the evidence. Pioneer Trust & SavingsBank v. County of Cook, 71 Ill. 2d 510, 516-17 (1978). Ajudgment is against the manifest weight of the evidence only whenan opposite conclusion is clearly evident or the factual findingson which it is based are unreasonable, arbitrary or not based onthe evidence. 1350 Lake Shore Associates v. Mazur-Berg,339 Ill.App. 3d 618, 628-29 (2003).

Generally, there is no vested right in the continuation of azoning classification. Wakeland v. City of Urbana, 333 Ill.App. 3d 1131, 1142 (2002), citing County of Kendall v. AuroraNational Bank Trust No. 1107, 219 Ill. App. 3d 841, 848 (1991). However, the Illinois Supreme Court has held:

"'[W]here there has been a substantial change ofposition, expenditures or incurrence of obligationsmade in good faith by an innocent party under abuilding permit or in reliance upon the probability ofits issuance, such party has a vested property rightand he may complete the construction and use thepremises for the purposes originally authorized,irrespective of subsequent zoning or a change in zoningclassifications.'" Pioneer Trust, 71 Ill. 2d at 522-23, quoting People ex rel. Skokie Town House Builders,Inc. v. Village Morton Grove, 16 Ill. 2d 183, 191(1959).

See Industrial National Mortgage Co. v. City of Chicago, 95 Ill.App. 3d 666, 670-71 (1981).

There is no bright-line test for determining whether aparty's expenditures have been made in good-faith reliance on theprobability that a zoning certificate or a building permit willissue. It has been stated that " '[a] probability that approvalis forthcoming exists when the property at issue is zoned topermit the use requested by the landowner.' " 1350 Lake ShoreAssociates v. Mazur-Berg, 339 Ill. App. 3d 618, 632 (2003),quoting Bank of Waukegan v. Village of Vernon Hills, 254 Ill.App. 3d 24, 31 (1993); see also People ex rel. Shell Oil Co. v.Town of Cicero, 11 Ill. App. 3d 900, 904 (1973). "[E]xpensesincurred at a time when the current zoning permits the intendeduse and when the property owner has no knowledge that anamendment to the ordinance is being considered are incurred ingood-faith reliance on the issuance of a zoning certificate and abuilding permit and, if substantial, create a vested right." 1350 Lake Shore Associates, 339 Ill. App. 3d at 632; see IllinoisMason Contractors, Inc. v. City of Wheaton, 19 Ill. 2d 462(1960); O'Connell Home Builders, Inc. v. City of Chicago, 99 Ill.App. 3d 1054 (1981); Mattson v. City of Chicago, 89 Ill. App. 3d378 (1980). "It has been held, however, that expenses which aproperty owner incurs with knowledge that an amendatoryordinance, pursuant to which the intended use would not bepermitted, is pending, are not incurred in good-faith reliance onthe probability that a zoning certificate or a building permitwill issue." 1350 Lake Shore Associates, 339 Ill. App. 3d at632-33; see VonBokel v. City of Breese, 100 Ill. App. 3d 956(1981).

"Generally, one cannot reasonably rely on the indefinitecontinuation of a zoning classification. Like any legislation,zoning ordinances can be amended, and one buys land with thatunderstanding.

'Although property owners have a right to rely upon theclassification of their property and know that theclassification will not be changed unless required forthe public good, they also acquired their propertyknowing that amendments could be made to the ordinancewithin the limits of the law.' Thompson v. Cook CountyZoning Board of Appeals, 96 Ill. App. 3d 561, 577, 421N.E.2d 285, 298 (1981).

To come within the rule of Pioneer Trust, Industrial NationalMortgage, and similar cases, the buyer must take action todevelop the property within a reasonable time or else a city'sright to amend its zoning ordinance in response to changingconditions would be greatly impaired." Wakeland, 333 Ill. App.3d at 1143.

Initially, the City argues that the trial court erred as amatter of law when it determined that Furniture had acquired avested right in the former C3-5 zoning classification simply byspending enough money before the prior zoning ordinance wasamended. The City contends that Furniture has not acquired avested right because "a property owner must show a reasonablegood faith reliance on an affirmative act by a municipalitybefore the municipality will be estopped from applying thecurrent zoning ordinance."

Relying on Tim Thompson, Inc. v. Village of Hinsdale, 247Ill. App. 3d 863, 878-79 (1993), and a variety of other cases,the City contends that it has not been equitably estopped fromchanging the existing zoning ordinance for the Halsted Triangle.

In Tim Thompson, Inc., the court stated:

"Equitable estoppel is a doctrine developed inequity to prevent a party from asserting rights wherethe assertion of those rights would work a fraud orinjustice. [Citation.] In Illinois, the doctrine ofequitable estoppel is applicable to municipalcorporations. [Citations.] Where the doctrine is tobe invoked against a governmental body acting in theexercise of its governmental functions, particularlythose relating to public revenues, estoppel should liein only extraordinary [citation] or compellingcircumstances [citation].
Generally, the party seeking to claim the benefitof the principle must have relied upon the actions orrepresentations of the other and must have had noknowledge or convenient means of knowing the truefacts. [Citation.] A party seeking to invoke thedoctrine of equitable estoppel against a municipalitymust establish (1) an affirmative act on the part ofthe municipality; (2) that the affirmative act inducedthe complained-of action; and (3) that it substantiallychanged its position as a result of its justifiablereliance. [Citation.] The affirmative acts whichinduce reliance must be the acts of the municipality,such as legislation, and not merely the unauthorizedacts of a ministerial officer. [Citation.]" (Emphasisomitted.) Tim Thompson, 247 Ill. App. 3d at 878-79.

The City maintains that the trial court erred when itdetermined that all Furniture was required to show in order toobtain a vested right in the prior zoning ordinance for its sitewas that it had spent a substantial amount of money before theordinance that ultimately down-zoned its property was brought toits attention. Instead, the City avers that Furniture could onlyacquire a vested right if the City gave Furniture an affirmativeassurance that it could build under the old zoning ordinance. The City relies on a great many cases, including Tim Thompson. Tim Thompson is particularly enlightening. In Tim Thompson,a developer brought an action against a municipality seeking toenjoin enforcement of a local zoning ordinance. There, themunicipality approved the plat of a subdivision. At the time ofthe approval, the subdivision conformed to the requirements ofthe then-existing zoning ordinance.

Shortly thereafter, the plaintiff purchased three lots inthe subdivision. Under the terms of the sales contract, theplaintiff agreed to guarantee an irrevocable letter of credit,payable to the municipality, whereby the plaintiff guaranteed theinstallation of certain public improvements in the subdivision.

Thereafter, the municipality changed the existing zoningordinance. Following the zoning change, the plaintiff expendedapproximately $72,000 to complete the subdivision improvementwork required by the municipality. The municipality theninformed the plaintiff that one of the lots could not bedeveloped and that another lot would require a variation prior todevelopment because of the new zoning ordinance.

The plaintiff was then denied a building permit to build onone of the lots, and the municipality continued to insist thatthe plaintiff complete the required subdivision improvementsunder the irrevocable letter of credit. The plaintiff appliedfor a map amendment to rezone its three lots. The municipalitydenied the plaintiff's application.

On appeal, the plaintiff argued that it had a vested rightin the continuation of the prior zoning ordinance and that themunicipality was equitably estopped from changing the priorzoning ordinance.

The Tim Thompson court dealt with each issue separately. The court did not blur the distinction between the plaintiff'svested rights and its equitable estoppel argument, as the Citywould have us do here.

Applying the principles stated in Pioneer Trust, the courtfound that the plaintiff did not have a vested right in thecontinuation of the prior zoning ordinance because it was onnotice prior to making its expenditures that the prior zoningordinance could be changed. As such, the court determined thatthe plaintiff did not substantially change its position inreliance on the prior zoning classification or the probability ofthe issuance of building permits without constructive notice ofthe proposed zoning change. Tim Thompson, 247 Ill. App. 3d at876.

The court then went on to determine that the municipalitywas not equitably estopped from changing the existing zoningordinance because the plaintiff was on notice of a possiblechange to the then-existing zoning ordinance. The court statedthat, "It is our opinion that where a party seeks to invoke thedoctrine of equitable estoppel, the party cannot be said to havejustifiably relied on the conduct of a public entity where thatparty has made expenditures with knowledge of zoning problemsthat may later affect its use of the subject property." TimThompson, 247 Ill. App. 3d at 879.

Here, the City erroneously attempts to merge the doctrinesof equitable estoppel and vested rights. The case law clearlymakes a distinction between these two doctrines. Nowhere in therequirements to show a vested right does the property owner needto show that it received some kind of an assurance from themunicipality that it would be issued a building permit.

Furniture does not have to show that it received previousassurances from the City in order to show that it has acquired avested right in the continuation of the prior zoning ordinance. Instead, in order to establish that it had a vested right,Furniture only needs to show that it made substantialexpenditures in good-faith reliance on the probability that abuilding permit would be issued, as required by Pioneer Trust.

The evidence demonstrates that Furniture has shown ajustifiable reliance. The zoning at the time that Furniturepurchased the property allowed for the development of aresidential structure on the Homemaker's site. At trial, themanagers of Furniture stated that they only acquired theHomemaker's site because they intended to build a residentialstructure there.

After hearing the evidence, the trial court made acredibility determination concerning the testimony of Furniture'smanagers, Smith and Segal, and found that they purchased theHomemaker's site with the intention of building a residentialdevelopment and never wavered from that intention. "It must beremembered that it was the trial court who saw the witnesses andheard them testify. 'It is axiomatic that a reviewing court maynot reweigh the evidence or substitute its judgment for that ofthe trier of fact. Findings of fact are entitled to deference,and this is particularly true of credibility determinations.'[Citations.]" Eychaner v. Gross, 202 Ill. 2d 228, 270 (2002).

The evidence further shows that Furniture immediately beganto work on its project of building a 28-story residentialbuilding by hiring soil engineers, architects and marketingconsultants. After purchasing the Homemaker's site, Furnitureimmediately began to act on its objective of building aresidential structure and consequently comes within the rule of Pioneer Trust. See Wakeland, 333 Ill. App. 3d at 1143.

The City goes on to argue that Furniture did not makesubstantial expenditures in reasonable reliance on theprobability that a permit would issue. The City maintains thateven if Furniture had shown justifiable reliance, this is notenough for it to acquire a vested right. The City claims thatthe trial court erroneously considered money that Furniture spenteven after it was put on notice that the zoning for the HalstedTriangle could potentially be changed. The City points out thatthe trial court determined that Furniture was put on notice ofthe potential zoning change in June 1999. The City contends thatthe trial court nevertheless improperly considered monies thatFurniture spent after June 1999.

Furthermore, the City urges that the cost of the propertyshould not be taken into consideration when determining whether Furniture made substantial expenditures. The City argues thatthis money should not be taken into consideration becauseFurniture can recover this cost by simply selling the property ordeveloping it for another use.

Additionally, the City claims that the monies that Furniturespent on architectural designs which it abandoned should also beexcluded. The City contends that the reason that Furnitureabandoned these plans had nothing to do with the City rezoningthe Halsted Triangle. The City maintains that these expendituresby Furniture do not represent a substantial change in reliance onthe issuance of a building permit because Furniture itself neverdetermined that these were projects for which it would evenpursue a permit.

Here, we find that Furniture made substantial expendituresthrough June 1999, when it was finally put on notice of theproposed zoning changes. It is undisputed that Furniture was notput on notice of the possibility that the zoning for the HalstedTriangle could change until June 1999. At this time, Furniturehad expended approximately $900,000 towards the development ofthe Homemaker's site. We find that the monies, $362,905.13,which Furniture expended after June 1999 was erroneouslyconsidered by the trial court.

Specifically, the evidence shows that Furniture expended$901,530.65 through June 1999. The trial court excludedexpenditures that Furniture made to Papageorge and Haymes architectural firm for $7,454.23, leaving a total of $894,076.42through June 1999. This total includes the $500,000 thatFurniture spent on acquiring the land. This cost was properlyconsidered when the court evaluated the expenditures thatFurniture made. See American National Bank & Trust Co. OfChicago v. City of Chicago, 19 Ill. App. 3d 30, 34 (1974) (whichstates that "the rule in Illinois [is] that substantiality isdetermined without regard to any proportional test and byconsidering the cost of the land").

The costs of the architectural plans that Furniture laterabandoned were also properly considered by the trial court. Furniture never wavered in its intention to build a residentialstructure on the Homemaker's site. The Booth Hansen plans calledfor a movie theater to be located at the base of the residentialstructure. Furniture was unable to gain financing for thetheaters and needed to change its direction. At this time, BoothHansen began working on another major project, so Furniturechanged architects. As such, the Booth Hansen plans were justpart of the development cost of the entire project.

Furniture's expenditures meet the test of substantiality. An examination of the amount that courts have deemed to besubstantial for purposes of vested rights support this finding. See Mattson v. City of Chicago, 89 Ill. App. 3d 378, 382-83(1980)(sufficient that property owner demolished $40,000 buildingand spent approximately $4,100 for architectural and demolitionservices); Renieris v. Village of Skokie, 85 Ill. App. 2d 418,426 (1967)(sufficient that property owner paid a total of $96,000in expenditures); Constantine v. Village of Glen Ellyn, 217 Ill.App. 3d 4, 25 (1991)(sufficient that property owner paid $70,000to purchase property and $1,400 for architect); Pioneer Trust, 71Ill. 2d at 523(sufficient that property owner paid approximately$125,000 in various costs, including architect, engineers andsoil and water tests).

As such, we find that Furniture acquired a vested right tobuild a residential structure on the Homemaker's site because itmade substantial expenditures in good faith reliance that abuilding permit would issue.

For the foregoing reasons, the decision of the trial courtis affirmed.

Affirmed.

Campbell, J., concurs

Justice O'Brien, dissenting:

I respectfully dissent from the majority and would reversethe trial court.

The majority asserts that Furniture LLC acquired a vestedright on the Homemaker's site because it made substantialexpenditures in a good faith reliance that a building permitwould issue.

However, the record reflects that the City made no explicitor implicit assertions to Furniture LLC and that Furniture LLCdid nothing, except expend assets, to protect the zoning of thereal estate in question.

Based upon those facts, there is no good faith reliance thata building permit would issue; I respectfully dissent from themajority and would reverse the trial court.