City of Joliet v. Mid-City National Bank of Chicago et al

Filing 911

OPINION and Order. Signed by the Honorable Charles R. Norgle, Sr on 9/17/2014.(rm, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
CITY OF JOLIET, an Illinois Municipal
Corporation,

Plaintiff
No.05 CY 6746
V.

Hon. Charles R. Norgle

MID.CITY NATIONAL BANK OF
CHICAGO, et al,
Defendants.

OPINION AND ORDER
This eminent domain and Fair Housing Act ("FHA"), 42 U.S.C. $ 3601, et seq., action
between Plaintiff City of Joliet ("Joliet" or the

"City") and Defendants New West, L.P., New

Bluff, L.P., et al. (collectively, 'oNew WestA.lew Bluff')l began in 2005. The matter was
removed to this Court on November 29, 2005. Following seven years of extensive litigation,
including appeals to the Seventh Circuit and an unsuccessful petition for writ of certiorari before
the United States Supreme Court, this case proceeded to bench trial on September

27,2012. The

bench trial lasted approximately one hundred days-spanning over 19,000 pages of transcripts-

and concluded on .}day 21, 2014, when the Court heard the parties' closing arguments. The
parties submitted their proposed findings of fact and conclusions of law pursuant to the Local
1

Defendants New West/New Bluff include the following: Mid-City National Bank of Chicago (n/k/a MB
Financial Bank, N.A.) as Successor Trustee to United of America Bank, Trustee under Trust Agreement

Dated 51911980 and known as Trust No. 1252; the Beneficiaries under Trust No. 1252; Burnham
Management Company; Burnham Residential Venture I, Corp.; Burnham Residential I, L.P.; New West,
an Illinois Limited Partnership; New Bluff, and Illinois Limited Partnership; Mid-City National Bank of
Chicago (n/k/a MB Financial Bank, N.A.), as Successor Trustee to United of America Bank, Trustee
under Trust No. 1335; the Beneficiaries under Trust No. 1335; Burnham Residential Venture VII, L.P.;
Burnham Residential Venture VII, Corp.; Ralph W. Gidwitz; and Ronald J. Gidwitz. These defendants
are for-profit entities and individual investors who, among other things, receive tax benefits related to
their structure and enterprises.

Rule Guidelines for Proposed Findings of Fact and Conclusions of Law, which the Court has
considered together with witness testimony, and trial exhibits that were introduced into evidence.

The Court declines to admit any and all evidence made by way of offers of proof which was
submitted after the close of evidence at trial and which was previously rejected by the Court.

The following constitutes the Court's Findings of Fact and Conclusions of Law pursuant to
Federal Rule of Civil Procedure 52(a). For the reasons set forth below, the Court finds in favor

of Joliet and against New WestA.{ew Bluff on all claims.

I. FINDINGS OF FACT
A.

The Parties

This action arises out of Joliet's efforts to acquire the properties known as Evergreen
Terrace

I ("ET I") and Evergreen

Terrace

II ("ET II") (collectively, "ET" or the 'oproperty") by

exercising its power of eminent domain. ET is a 356-unit apartment complex subsidized by the
federal govemment under the United States Housing Act of 1937 ("Section

8"). It is owned by

New West/New Bluff, subject to mortgages held by the United States Department of Housing
and Urban Development

("HUD").

1. Plaintilf City of Joliet
Joliet is an Illinois municipal corporation organized and existing under the laws of the
State

of Illinois, including, inter alia, the Illinois Municipal Code, 65 Ill. Comp. Stat.5ll-l-l et

seq., and other applicable statutes of the State of Illinois. It is located approximately forty miles
southwest of Chicago in an area referred to by the United States Census Bureau as the "Chicago-

Joliet-Naperville Metropolitan Area." Joliet is located primarily in Will County, Illinois, but a
small portion of its western border is in Kendall County. Downtown Joliet is located along the
east side of the Des Plaines River, adjacent to ET, which is located on the west side of the river.

Joliet is a home rule unit of local government. See Ill. Const., art. VII, $

6.

The Joliet

city council is comprised of five district council members, three at-large council members, and
the mayor, who is also elected at-large. Joliet also has a city manager who is appointed to
oversee day-to-day operations of the
passed Ordinance

City. On October 4, 2005,

the city council unanimously

No. 15298, authorizing the condemnation of ET

I

and ET

II in order to

eradicate what the City found to be blight at the property and to extend a pre-existing city park

known as the Riverwalk through the property along the Des Plaines River. Three days later, on
October 7, 2005, Joliet filed the instant eminent domain action in the Circuit Court of Will
County, Illinois against the record owners of ET, New WestA.{ew

Bluff.

Shortly thereafter, on

November 29,2005, the case was removed to this Court.

2, Defendants
a. New West/New Bluff
New West Limited Partnership ('New West") is an Illinois limited partnership and, at all
times relevant to this action, has been the beneficiary of Mid-City National Bank of Chicago
(n/Wa/ MB Financial Bank, N.A.) Trust No. 1252, which is the land trust that owns the real
estate and property commonly known as ET

own ET

I.

I. New West was formed in 1980 to purchase and

One percent of New West is owned by general partners, which are Burnham

Residential Venture

I, L.P. and Burnham Residential

Venture

I Corp.

These entities are

controlled by Ronald Gidwitz and his cousin Ralph Gidwitz, who are limited partners and
shareholders. The remaining ninety-nine percent of New West is owned by limited partners who
are comprised of approximately thirty to forty individuals and trusts-many of whom include
members of the Gidwitz family. The Gidwitz famlly real estate interests are managed by Ronald

Gidwitz.

New Bluff Limited Partnership ("New Bluff') is an Illinois limited partnership and, at all
times relevant to this action, has been the beneficiary of Mid-City National Bank of Chicago

(n/WaMB Financial Bank N.A.) Trust No. 1335, which is the land trust that owns the real estate
and property commonly known as ET
purchasing and owning ET

VII, L.P.

Bluff.

II.

II.

New Bluff was formed in 1982 for the purpose of

The general partners of New Bluff, Burnham Residential Venture

and Burnham Residential Venture

VII, Corp., own

one percent of the interests in New

These entities are controlled by Ralph and Ronald Gidwitz, who are limited partners and

shareholders. As with New West, the remaining ninety-nine percent of New Bluff is owned by

limited partners who consist of a combination of individuals and trusts, including numerous
members of the Gidwitz family.

Bumham Management Company ("Burnham") is an Illinois corporation which is owned

by eight members of the Gidwitz family, including Ronald Gidwitz.2 HUD considers Burnham

to be an identity-of-interest management company because of the overlap in the ownership of
ET's management company and the owners of the property-namely, the Gidwitz famlly. Since
the early 1980's, Burnham has served as the property manager for ET

I and ET II. Burnham is

also the property manager for five other project-based Section 8 properties, in addition to other

commercial and residential properties throughout the Chicago metropolitan area that are owned

by the Gidwitz family interests. Of the five other Section 8 properties managed by Burnham,
three provide housing for elderly and disabled residents and contain forty-three, fifty-two, and
100 units, respectively. The remaining two provide housing for families, one of which contains

twenty-seven units, and the other which contains ninety-nine units. Even combined, these five

other Section 8 properties managed by Burnham contain less than the 356 units at

ET. Each

The seven other Gidwitz family members include Ronald's siblings: James, Peter, Thomas, and Nancy;
and their cousins: Ralph, Alan (now deceased), and Betsy.

'

year, Burnham is paid approximately $300,000 for the management of ET, which is greater than
the management foes that

it collects on all of its other properties.

Jake Paschen ("Paschen") has been the president ofBurnham since 2010, and he attended

almost every day of the lengthy trial as the corporate representative of New WestA.lew Bluff.
Paschen reports directly to the general partners of New West/New

Bluff. Prior to 2010, Herbert

Halperin ("Halperin") had been the.president of Burnham for approximately twenty years. New
West/New Bluff are the only remaining defendants in this condemnation action. They have
raised affirmative defenses pursuant to the FHA to oppose Joliet's attempts to condemn the

property, arguing that Joliet acted with a discriminatory intent or effect through its use of
eminent domain.

b, HUD
On March 9, 2006, the Court granted New WestAtrew Bluff s motion to join HUD as a
necessary party pursuant

to Federal Rule of Civil Procedure 19(a). HUD holds mortgage and

reversionary interests in ET

I and ET II by virtue of two mortgages

agreements, which were recorded by the

6,2006.

These agreements,

the operation of

and incorporated regulatory

Will County, Illinois Recorder of Deeds on November

in conjunction with several federal statutes and regulations, govern

ET. During HUD's tenure in this lawsuit, it opposed Joliet's attempt to acquire

the propertyby, inter alia, raising FHA defenses. On November 12,2013, HUD was dismissed

from this action pursuant to a settlement agreement entered into between the federal government,

HUD and Joliet. The comprehensive HUD settlement agreement was entered into evidence
during the bench trial.

c.

The Named:IenAnls

On January 31,2008, the Court granted a motion to intervene brought by several lowincome ten'ants who resided at ET pursuant to leases and benefited from federal Section
subsidies provided for their

units. Some of the original

8

named-tenants withdrew during the

pendency of the lawsuit and were replaced by other tenants of

ET. At

the time of trial, there

were four named-tenant defendants: Teresa Davis, Elvis Foster, Arnetris Renee Griffin, and

Alfreda Eubanks. Of the four named-tenants, only Teresa Davis and Elvis Foster had been

of ET since the beginning of the lawsuit in 2005. Like New West/New Bluff

residents

and

HUD, the named-tenants opposed Joliet's eminent domain action and raised affirmative defenses
pursuant to the

FHA. On January

T0, 2014, the Court entered an agreed order

of dismissal

pursuant to a settlement agreement between Joliet and the named-tenants, wherein Teresa Davis,

Elvis Foster, Arnetris Renee Griffin, and Alfreda Eubanks were dismissed from this action with
prejudice.

B. The Property
ET consists of eight buildings on approximately 9.5 acres of land located on the west side

of the Des Plaines River in Joliet, Illinois. ET I is currently comprised of four residential
buildings, one administrative office building, and a guard building known as the "welcome
center" that is staffed by security officers. Those buildings are located at 350, 358,362,363, and

366 North Broadway Street. ET
3I

l,

and

3 16

II

consists of three residential buildings located at 300, 301,

North Bluff Street.

As recipients of Section 8 project-based assistance, HUD requires New WestA.{ew Bluff
to limit admission at ET to only low-income families. Thus, all tenants of ET must qualify under

HUD's definition for "low income," "very low income," or "extremely low income." 24 C.F.R.

$$ 5.603, 5.653. Pursuant to the HUD program, no less than forty percent of the units at ET
must be available for extremely low-income families. 24 C.F.R. $ 5.653(c).

For more than a decade, ninety percent of the tenants living at ET have been, and are,
young, female, African-American heads-of-households with children. There is no evidence that
New WestA.{ew Bluff have ever marketed the property in such a way as to achieve a less racially
segregated resident

living at ET

population. At any given time, there are between 400 and 600 children

I and ET II. At present, there are approximately

agreements as tenants of

780 residents listed on lease

ET. The property is currently at a ninety-nine percent occupancy level,

and has a lengthy waiting list for prospective low-income tenants. Notwithstanding the high
occupancy level, the property has a tenant-turnover rate of approximately twenty-five percent
each year.

The property was originally constructed in the late 1960's and operated for ten years as a

low-income subsidized housing project. By the mid to late-l970's however, the original owners
defaulted on their mortgage and the property went into foreclosure. The original owners
identified the following problems that led to their ultimate failure with the project: crime, a high
number of calls to the police and fire departments, vandalism, a related difficulty in attracting
lease compliant tenants, their acceptance

of any tenants in an effort to maintain occupancy, code

violations, a lack of building maintenance and deferred maintenance, inadequate management
and security, and excessive density. Pl.'s Ex. 90, at pp. 3-1

l; see also Trial Tr. vol. 2,207,233,

City of Joliet v. Mid-City Nat'l Bank of Chi., No. 05-6746 (N.D. Ill. Oct. 4, 2013) (testimony of
John Mezera). The City then solicited proposals for redevelopment of the project for use as,
among other things, elderly and low-income housing.

On May 29,1979, Joliet selected Burnham Development Company to acquire, redevelop,
and manage the property. Shortly thereafter, New West and New

Bluff were formed to purchase

the property. HUD sold the two pieces of the property to New WestA.{ew Bluff for $1 each.

New WestA{ew Bluff then obtained $14 million from HUD to repair and rehabilitate the
property, which would be developed into the two phases now known as ET I and ET

II. During

this time, Joliet granted all permits and zoning variances necessary for the redevelopment. While

Joliet approved the plans for the existing building and unit sizes, at the time, the City believed
that New West/New Bluff intended to redevelop the project as mixed-use housing for senior
citizens, and moderate to low-income families-not solely for use as housing for low-income
families with children. This intended mixed-use, with a majority of the units to be designated for
elderly housing, was consistent with the Regulatory Use Agreements and Housing Assistance
Payment ("HAP") Agreements that New WestA{ew Bluff entered into with HUD.

The agreements with HUD provided for forty-year mortgages on ET I and ET II, as well
as twenty-year

HAP contracts. Under these agreements, New WestA.{ew Bluff received above-

market rents for the units from

HUD. Specifically, HUD paid New

WestA.[ew Bluff monthly

assistance payments, which was the difference between the contract rent contained

in the HAP

agreements and the tenant's share of the contract rent for a unit, based upon the tenant's income,

among other criteria. Because of the extremely low income of many tenants at ET, a large
number of tenants pay nothing for their units and the entire rent is subsidized by

HUD. Under

the HAP agreements, New WestA.{ew Bluff are required to maintain the property in a safe,
decent, and sanitary condition.

HUD serves

as the

HAP contract administrator for ET I, while Joliet served as the HAP

contract administrator for ET

II from 1982 to2007. HUD issued the HAP contract assistance

pa)rments

for ET II to Joliet, who would then distribute the money to New Bluff. As contract

administrator for ET II, Ioliet was required to inspect the units at ET

II on an annual basis and

identify violations that needed to be corrected. Joliet would then certify to HUD that the units
had been inspected and that the payments made to New Bluff were in accordance with HUD's
regulations and requirements. Irrespective of these yearly certifications, Joliet communicated its
concerns to both HUD and New WestA{ew

Bluff

as

to the numerous code violations at ET I and

ET II, and ET II's failure to meet HUD's standards. Indeed, even HUD, as contract
administrator for ET I, continued to provide funds when it knew that the entire property was in

violation of its standards, having failed its Real Estate Assessment Center ("REAC") inspections
in numerous years, including 2002,2003, and2012.3 HUD REAC conducts physical inspections

of properties subsidized by HUD to ensure that families have housing that is decent, safe,
sanitary, and in good repair.

C. Exercise of the Power of Eminent Domain by the Joliet City Council

1.

Joliet's Discussions with HaD and New West/New Blulf During the Mark-toMurket Process Prior to Exercise of Eminent Domain
In early 2000, Joliet became aware that New West/New Bluff s contracts with HUD for
ET were set to expire in 2002 and 2003. During this time period, Joliet's then-city manager,
John Mezera ("Mezera") met with New WestArlew Bluff to discuss a possible sale

of the

property to Joliet. Upon discovering that New WestA.{ew Bluff were unwilling to sell the
property for less than $5 million in excess of their existing mortgages on ET, Joliet ended
negotiations.

Shortly thereafter, in 2001 and 2003, New WestA.{ew Bluff applied for a restructuring

of

their debt on ET and for an extension of the Section 8 contracts with HUD under HUD's Mark-

3

IftID did not conduct

REAC inspections from 2005 through 2011 while renovations were ongoing.
9

to-Market ("M2M") program. M2M was created to carry out Congress' objectives pursuant to
the Multifamily Assisted Housing Reform and Affordability Act

of 1997,42 U.S.C. $ 1437f

("MAHRAA"). Among other things, MAHRAA provides for the reduction of rents subsidized
by the federal government at project-based Section 8 housing when their contract terms expire.
Under MAHRAA and M2M, the debts on Section 8 properties are to be restructured in order for
projects to remain viable even with lowered rent subsidies paid to the owners. However, certain

Section 8 properties, like ET, are incapable

of

operating on market-rate rents because the

properties have an increased risk of defaulting on their debts and going into foreclosure, thereby
increasing the FHA's insurance claims. Thus, under M2M, HUD has authority to use exception

rents, which are above comparable market rents, in order to preserve certain projects. With
respect to ET, New West/New

Bluff and HUD agreed that the property could not be sustained on

market-rate rents and would still require rent subsidies at above-market rates or exception rents

in order to stay operable.

HUD manages the M2M program by using Participating Administrative Entities ("PAE")
that provide evaluations and assessments of a property prior to determining whether

it qualifies

for M2M restructuring. HUD originally appointed the Illinois Housing Development Authority

("IHDA")

as the

PAE for ET

I.

Later, Heskin-Signet was appointed as the PAE for both ET I

and ET II.

Joliet was considered a stakeholder in the M2M process, and as such, both HUD and the
PAE solicited Joliet's input and consulted with the City during the restructuring process. To the
extent that New West/New Bluff argue that Joliet attempted to "block" restructuring, the Court

rejects that proposed finding as unsupported by the evidence. Although a stakeholder in the

10

process, Joliet did not have the power to approve or prevent

restructuring-that power belonged

solely to HUD.

From the beginning of the process in 2002, up until the adoption of the eminent domain
ordinance in 2005, Joliet made

it known to HUD

and the various PAE's that

it opposed the

restructuring of ET's contracts and mortgages. Joliet maintained that the proposed restructuring

would be, and is, inadequate to address blight at the property due to, among other things,
structural problems with the buildings, crime, and functional obsolescence. Joliet's position, as a

stakeholder

housing

or

in the process, was that the property should be redeveloped into mixed-income
subsidized housing, only

if it

could be done

in

such

a way as to avoid

the

reoccuffence of the problems that the property has continuously experienced in the past. Joliet
consistently expressed its concern regarding the longstanding problems that

it experienced with

ET and the effects that it had on the surrounding area. Joliet also provided HUD with numerous

plans for redevelopment of the property into a mixed-income community, which had been
accomplished with projects in other cities all over the country, including in Chicago. See Order,

Aug. 8, 2013 (Doc. No. 772) (taking judicial notice of facts concerning the relocation of the
approximately 25,000 residents of the former Robert Taylor Homes public housing project in
Chicago following its demolition and redevelopment). Indeed, HUD specifically requested
redevelopment plans from the City to address the potential relocation of ET's tenants in the event
that the property was redeveloped.

On March 28,2003,IHDA submitted a M2M restructuring plan to HUD with respect to
ET I, despite Joliet's objections. On May 16,2003, HUD accepted the plan and initially moved
forward by issuing a M2M restructuring commitment to New West for ET

I.

Before learning

that IHDA's plan had been approved, Joliet expressed its opinion that the plan was completely

ll

inadequate and did not sufficiently address the large amount

of repairs needed, nor did it

appropriately provide for the cost of operating the property, including security and maintenance.

HUD later agreed with Joliet and abandoned IHDA's restructuring plan. HUD eventually
appointed a new PAE, Heskin-Signet, for ET to provide a more realistic restructuring plan.
On July 16,2003, HUD met with Joliet to discuss the problems at ET and the issues that

the City had with the deficiencies in IHDA's restructuring plan. During this meeting, HUD
discussed the variety

of options

available

to Joliet with respect to the property, including:

(1) purchasing ET from New West/New Bluff and opting out of the HAP contracts, which would

resrilt

in the issuance of HUD Section 8

Housing Choice Vouchers

to the residents;a

(2) exercising its right of eminent domain to acquire ET; or (3) finding a third party or non-profit
entity to acquire ET from New West/New Bluff.

In September of 2003, Joliet once again met with HUD officials, including then-Secretary

of HUD, Mel Martinez, to discuss ET. At that time, HUD officials indicated that they would
stop the IHDA restructuring from going forward

if

they were legally able to do so. However,

because HUD had already issued a restructuring commitment to New West months earlier for ET

I, it determined that it was legally obligated to go forward with a restructuring. Recognizirgthe
deficiencies in IHDA's plan, HUD assigned Heskin-Signet to redo a due-diligence examination
of the property and to address more of the physical and operational problems.

By July of 2005, Charles Williams of HUD called Mezera, Joliet's then-city manager, to
inform the City that Heskin-Signet's M2M restructuring plan was going to be approved. On July
13, 2005, a letter was sent to then-Secretary of HUD, Alphonso Jackson, from Illinois Senators

Barack Obama and Richard Durbin and Congressman Jerry Weller, the representative of the
o

Unlike project-based Section 8 assistance which remains with a specific unit, HIID Section 8 Housing
Choice Vouchers are issued to qualifying individuals who can take the vouchers and move anywhere they
choose into a unit where a landlord accepts such vouchers and that meets HUD's approval.

t2

district in which Joliet is located. The letter provided, inter alia, "We know that [HUD] is
currently considering [M2M] designation for

[ET]. We believe that designation would reward

current management with an undeserved opportunity to retain management control. We ask that

you meet with us to discuss and reconsider that designation." Pl.'s Ex. 577. Shortly thereafter,
then-Senator Obama, Congressman Weller, and representatives sent on behalf of Senator Durbin

met in Washington, D.C. with HUD officials, including Charles Williams and then-Secretary
Alphonso Jackson. At the meeting, the participants discussed the options that Joliet had in light

of the M2M restructuring plan that had been accepted-namely, that Joliet could allow
restructuring

the

to go forward, acquire ET through eminent domain, purchase ET from New

WestA.{ew Bluff, or find a third-party to purchase the property from New WestA.{ew

Bluff.

On August I1,2005, Senators Obama and Durbin and Congressman Weller sent a letter

to Joliet's then-mayor, Art Schultz, informing him that they had met with HUD and were told
that HUD considered itself legally bound to go forward with the M2M for ET, and would do so

by the end of the month

if

Joliet did not present another viable alternative, i.e., an offer by the

City or other third-party to purchase the property, or the City's exercise of eminent domain.
HUD official Charles Williams testified that on August Tl, 2005, a conference call was held
between Joliet, HUD, and Congressman Weller's officer as a follow-up to the meeting held in

Washington,

D.C. The information

exchanged

in this meeting was memoialized in a letter

written by Joliet city manager, Mezera, to Williams, dated August 12,2005. The letter stated
that the parties once again discussed the three options available to Joliet in light of HUD's

intention to move forward with the restructuring, and that HUD indicated that

if

Joliet

condemned the property, HUD would provide Housing Choice Vouchers or portable vouchers to

13

.

all eligible ET residents.s After eliminating all other options, Joliet initiated steps to take the
property by eminent domain.

2. Joliet's Initiation of Eminent Domain Procedures
On August 17, 2005, the Joliet city council passed Resolution No. 5655 with respect to
ET, which declared that it was authorized and appropriate for the City to use its eminent domain

authority to eliminate the blighted conditions existing at Evergreen Terrace. Pl.'s Ex. 2. Among
other things, Resolution No. 5655 provides the following:

WHEREAS, the buildings, improvements and grounds of the real property
commonly known as [ET I and ET II] have become extremely dilapidated, unsafe
and dangerous, unsanitary, crime-infested and a substantial threat to the health,
safety and welfare of the residents of [ET] and their families and guests; and
WHEREAS, the conditions at [ET] unreasonably interfere with the lawful
use of nearby private and public properties, divert important public resources such
as police protection, fire protection and emergency medical services, impair the
orderly development of nearby properties, depress property values, increase the
cost of public services and adversely affect the tax base of the City, local schools
and other public agencies; and
WHEREAS, the City Manager, the Police Chief, the Fire Chief, the
Director of Community and Economic Development, the Director of Inspection
Services and other City officials have inspected [ET] and nearby properties and
have prepared reports documenting the deplorable conditions existing at and near
the propertyi and
WHEREAS, based on the foregoing, the Mayor and City Council hereby
find and declare that [ET] is unsafe and dangerous, a public nuisance and a

blightedarea....

Id. The city council further found that in order to abate the public nuisance and eliminate the
blight at ET, the City would need to acquire the property through purchase, condemnation, or
otherwise. Id. Following this action by the city council, on September 1, 2005, Senators Obama
and Durbin and Congressman Weller sent another letter to the Secretary of HUD, informing him

that Joliet had initiated erninent domain proceedings for ET, which was one of the options that

5

Pursuant to the settlement agreement entered into between Joliet and HUD, HUD has agreed to provide
Housing Choice Section 8 vouchers to eligible residents of ET in the event that Joliet obtains the
property.

I4

had been discussed in meetings

with HUD. The letter also requested additional time for Joliet to

negotiate a purchase with the owners or to file its eminent domain case.

On August 26,2005, just over one week after the city council passed Resolution No.
5655, New WestA{ew Bluff sent Joliet a non-binding summary of key terms for the purchase

ET. In the summary, New

WestA.{ew

of

Bluff proposed a purchase price of $24 million. Pl.'s Exs.

243-244. This proposed price was more than double the amount of the existing mortgages on the
property at the time, which amounted to over $10 million. While New WestA.{ew Bluff did not

submit an accompanyrng appraisal along with their proposed demand, appraisals
conducted by HUD less than a year earlier in November

million for ET I and

$

1

.92

of ET

of 2004 indicated a value of $3.327

million for ET II, for a total value of $5.247 million for the property.

Meanwhile, Joliet obtained its own appraisal of ET in order to make a good faith offer of
purchase to New West/New

Bluff. This

offer made to New WestArlew

appraisal, however, was not included with the eventual

Bluff. On or about September 21,2005, Joliet

submitted its offer

of $7.1 million for ET I and $3.6 million for ET II, for atotal of $10.7 million for the property to
New WestA.{ew Bluff, free and clear of all HUD interests. Although this offer exceeded Joliet's
appraised value of the property,

it was rejected by New WestA.{ew Bluff because it was less than

the amount of the remaining mortgages on the property and thus insufficient to compensate the

owners. After the City's good faith offer of purchase was rejected, the City proceeded with
eminent domain.

In the interim, HUD issued a new M2M restructuring commitment for ET I based on the
Heskin-Signet plan

in

September

of 2005. On October 24, 2005, HUD issued a M2M

restructuring commitment for ET II based on the Heskin-Signet plan, which was fully executed

15

on November 11, 2005. The financing for the restructuring and maintenance

of ET I and ET II,

however, was not completed for another year.

In September of 2006, HUD issued amended M2M restructuring commitments to New
West/New Bluff so that the restructuring transactions for ET could proceed without a private or

third party lender providing the first mortgages. Pursuant to the amended restructuring
commitments, there would be two closings each for ET I and ET

Il-the

first consisting of direct

loans from HUD sufficient to pay off the existing mortgages, and the second to be reserved for
after the culmination of the instant condemnation proceeding to consist of first mortgages on the

property from private or third party lenders, insured by HUD.

As part of the new M2M plan, HUD required New WestA.[ew Bluff to provide
$1,553,671.69 of their own money up front to help finance the renovations. HUD promised to
repay this money to New West/New Bluff plus interest at a rate of 7 .50/o.6 The first phase of the
closings for ET

I and ET II occurred on Novemb er 4,20O6,when the M2M

were finalized, and became effective on December

l,

and HAP contracts

2006. The approved maintenance

and

repairs for ET did not begin until January of 2007 and were not completed until April of 2012.

Throughout this time period, HUD maintained oversight and guidance of the process through
frequent telephone conferences with New WestA.{ew Bluff.

3. Eminent Domain Ordinance und Lawsuit
On October 4,2005, Joliet's mayor and city council unanimously adopted Ordinance No.
15298, authorizing the acquisition

of ET through eminent domain. Among other things, the

ordinance provides:

.
6

WHEREAS, the buildings, structures, improvements and grounds of [ET]
are extremely dilapidated, unsafe and dangerous, substandard, unsanitary,

The Court notes that HUD loaned money to New WestA{ew Bluff at a significantly less favorable

interest rate of only

1olo.

16

crime-infested and a substantial threat to the health, safety and welfare of its
residents, their families and guests, the owners and occupants of nearby properties
and to the general public; and
WHEREAS, [ET] is a "blighted or slum area" within the meaning of
Section 11-11-1 of the Illinois Municipal Code in that it is an area exceeding two
acres and a detriment to public safety by reason of dilapidation, overcrowding,
faulty alrangement or design, lack of ventilation, light or sanitation facilities and
deleterious land uses; and
WHEREAS, [ET] is also blighted by substandard buildings or structures
within the meaning of Section lI-13-I7 of the Illinois Municipal Code; and
WHEREAS, the conditions at [ET] unreasonably interfere with the lawful
use of nearby private properties, schools and public parks, divert important public
resources such as police protection, fire protection and emergency medical
services, impair the orderly development of nearby properties, depress property
values, increase the cost of public services and adversely affect the ta4base of the
City, local schools and other public agencies; and
WHEREAS, the City manager, the Police Chiel the Fire Chief, the
Director of Community and Economic Development, the Director of Inspection
Services and other City officials have inspected [ET] and nearby properties and
have reported to the Mayor and City Council the deplorable, unlawful and unsafe
conditions existing at and near [ET]; and
WHEREAS, the blighted, unsafe and dangerous substandard condition of
[ET] is chronic and has persisted for decades despite substantial financial

investment;and....

WffBneaS, the Mayor and City Council find that the abatement of

these

conditions, the elimination of the blight and the rehabilitation and redevelopment
of the area requires that the City of Joliet acquire fee simple title to the Subject

Property;and....
WHEREAS, the Mayor and City Council further declare that it is in the
public interest that the redevelopment of the Subject Property include affordable
housing and other compatible residential land uses; and
WHEREAS, the Mayor and City Council further declare that it is in the
public interest that the redevelopment of [ET] include a public park and
recreational facility to be owned or controlled by the City of Joliet and available
for use by the residents of the Subject Property and the general public; and . . . .

WHEREAS, the proposed redevelopment of the Subject Property is
consistent with previous plans approved by the Mayor and City Council; and
WHEREAS, the Subject Property is designated as an integrated project for
rehabilitation and redevelopment; and
WHEREAS, the Mayor and City Council find and determine that the
acquisition of the property interests described herein is necessary, convenient,
useful, advantageous and desirable for municipal purposes or public welfare . . . .

t7

Pl.'s Ex.

l.

At the time that the Ordinance was passed, the City had no formal or specific plans

to support its purported redevelopment of ET. Now, Joliet's proposed redevelopment is guided

by the Settlement agreement with HUD. In addition, Joliet has retained a management

and

development company, Holsten Real Estate Development Corporation and Holsten Managernent

Corporation, to prepare a development plan for the property and act as the property manager in
the event that the City acquires ET.
Three days after the Ordinance was passed, on October 7,2005, Joliet filed the instant
eminent domain action in the Circuit Court of

Will County. On or about this same time, Joliet

filed and recorded a lis pendens against ET in the Will County Recorder's office. The

/zs

pendens provides constructive notice of the pending condemnation litigation to those who might

acquire an interest in the property. The Court rejects New WestArlew

proposed findings that the mere

Bluffs argument and

filing of the lis pendens somehow delayed the M2M

restructuring and repairs. There is simply no evidence that the City filed the lis pendens to
purposefully delay funding in any way. The Court draws no negative inference from the filing

of

the lis pendens. The /rs pendens filed by the City was routine and, in accordance with Illinois

law governing the matter, 735lll. Comp. Stat. 5/2-1901.

D. Joliet's Public Purpose to Acquire ET through Eminent Domain in 2005
The trial in this case was held to determine, inter alia, (1) whether Joliet had a valid

public purpose to use its power of eminent domain to acquire the property in 2005, and
(2) whether that public purpose still exists now, or at the time of the taking. The Court makes
the following factual findings.

With respect to the public purpose in 2005, the Court finds as follows. On October 4,
2005, through the enactment of Ordinance No. 15298, Joliet declared that

t8

it had two

public

purposes for which to use its power of eminent domain to acquire

and second, to extend the Riverwalk, a public

ET-first, to eliminate blight,

park. Although a legislative determination of

blight is presumed to be for a public purpose under the governing Illinois statute, 735 lll. Comp.
Stat. 30/5-5-5(c), New West/New Bluff nevertheless argue that Joliet lacks a public purpose
because the property was not blighted in 2005 and the
a

City's finding to the contrary was merely

pretext for racial discrimination. The Court rejects New WestA.{ew Bluff s challenge as to the

existence of blight at ET in 2005 and earlier. From 2000 to 2005, Joliet's Building Services

Division, Neighborhood Services Division, Fire Department, and Police Department reported
numerous serious and ongoing health, safety, and quality of life hazards at

ET. The results of

those inspections and the blighted condition of the property were further corroborated by HUD

REAC inspections conducted at the time, witness testimony, and other evidence presented at

trial. The weight of the evidence supports the factual finding that ET

was blighted in 2005.

1. 2003 und 2005 Building Services and Fire Department Inspections of ET
The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings of Fact numbers 53 to 70, which detail the recurring violations at ET found

during Joliet's Building Services Division and Joliet's Fire Department 2003 and
inspections, as well as the hazards these violations posed to the residents of

ET.

2005

These findings

include the following: dysfunctional and missing emergency and hallway lighting; broken exit

signs; inoperable elevators; damaged and missing pull box covers on fire alarm stations;
defective fire doors incapable of self-closing and positive latching; exterior doors incapable

closing; unsanitary stairwells due to urine and smell

of urine; inoperable

of

smoke detectors;

decrepit parking lots; broken, damaged, or missing windows and window screens; non-operating
fire/smoke doors in hallways and stairwells; non-operating fire doors to garbage chutes; damaged

t9

and inoperative fire standpipe systems and connections; missing portable fire extinguishers;
structural instability of exterior brick walls; extensive rust and corrosion to exit stairwells; nonaddressable fire alarm system; no proof of last fire sprinkler, standpipe system or fire pump test;

aged and decrepit building facades with loose or missing bricks; damaged doors; missing,
broken, and loose electrical outlets and/or lighting fixtures; damaged walls and floors; urine in

interior common spaces; and improperly stored fire safety equipment. The conditions present
during the 2003 and 2005 Building Services Division and Fire Department inspections were
dangerous and posed a significant danger to the residents at ET and contribute to the overall

finding of blight present at ET in 2005.

2. 2003 und 2005 Neighborhood

Services Inspections

The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings of Fact numbers

7l to 19, which detail the recurring

violations at ET found

by Joliet's Neighborhood Services Division following inspections performed in 2003 and 2005

of the tenant living units at the property. Leading up to the 2005 condemnation, Joliet's
Neighborhood Services Division reported a number of serious and recurring health and quality of

life violations within the living units at ET, including the following: unit overcrowding; roach
infestation; leaking plumbing; defective or missing window screens; broken windows or window
panes; missing electrical outlet covers; mold; defective and damaged doors; defective or
damaged kitchen cabinetry; damaged walls and ceilings; decrepit parking lots; damaged air

conditioning units; defective or missing fire extinguishers; defective or missing smoke detectors;
defective electrical outlets; water damage; poorly maintained exterior common areas; damaged
exterior lights; broken exit lights; damaged brick and mortar work; exterior doors left propped
open; exterior garbage cans overflowing; and an overwhelming smell of urine in the stairwells

20

and

hallways. These recurring and un-remedied deplorable conditions contribute to the overall

finding of blight in 2005.

3. Police Department

Reports

from 2000 to 2005

The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings of Fact numbers 80 to 98, which detail problems with crime experienced at

the property, including the large numbers

of calls for service to ET by the Joliet

Police

Department and specific reports of crimes and incidents at ET from 2000 to 2005.

For example, in 2000, Joliet police responded to 1,514 calls for service at ET, which
averaged over four calls for service per day to

ET. In 2001, Joliet police responded to 1,662

calls for service at ET, which averaged over four calls for service per day to ET. In 2002, Joliet
police responded to 1,953 calls for service at ET, which averaged over five calls for service per
day to

ET. In 2003, Joliet police responded to I,790 calls for service

nearly five calls for service per day to

ET. In 2004,

at ET, which averaged

Joliet police responded to 1,747 calls for

service at ET, which averaged nearly five calls for service per day to

ET. From

2000 to 2004,

the Joliet Police Department responded to an average of 4.75 calls for service a day at

ET. The

need for constant police responses at the property during this time was costly to the

City.

In

2001, the City spent over $735,000 in police services for ET alone. Although New WestA.{ew

Bluff paid approximately one third of that particular bill, the evidence shows that in the

years

leading up to condemnation, the owners failed to pay Joliet for the off-duty police officers that

provided security at ET.
Furthermore, from 2000

to 2004, there were a total of 3,404 reported crimes at ET,

including 250 that were classified as violent-which amount to an average of 1.86 reported
crimes occurring daily at ET during this time period. An additional 640 reported crimes

2I

occurred at ET

in 2005. The record also includes evidence of specific crimes, such as an

incident that occurred in June of 2005 where ET management was notified by ET residents that
the maintenance employees were selling drugs at the property and that the maintenance staff also

gave drug dealers keys to vacant apartments to store and sell drugs. This evidence of repeated

crime and excessive calls for service from 2000 to 2005 further supports the finding of blight at
ET in 2005.

4, Reports from HUD,

New lvest/New Bluff, the Tenants of ET and Governmental
Representatives that Support the Finding of Blight in 2005
The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings of Fact numbers 99 to 105, which provide evidence of the horrid conditions at

ET in 2005 from the perspective of HUD, New WestA.{ew Bluff, the tenants, and other political
and government

figures. Specifically, the documents and statements describe the vast amount of

problems, repairs, and maintenance that had been deferred-despite the immediate need for

corrections-including issues with rodent infestations and a complete lack of security. These
various statements and documents from HUD, the tenants, goverrmental leaders, and New
WestA.{ew

Bluff all corroborate the finding that ET was blighted in 2005.

5. HaD REAC Inspections Conducted Between 1999 and 2005 Coruoborate loliet's
Inspections
The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings

of Fact numbers 106 to 110, which detail the results of failed

inspections conducted by HUD at ET from 1999 to 2005. Specifically, ET

I

and ET

REAC

II

were

inspected annually by HUD REAC from 1999 to 2005. Many of those inspections resulted in

failing numerical scores of well below 60, and every inspection disclosed exigent health, safety,

22

and fire deficiencies at the property.T For example,

in

1999, ET

I received a REAC

score

of

50c*, and ET II received a 51b*; in 2000, ET I received a score of 75c, and ET II received a63b;
in 2001, ET I received a score of 79c*, and ET II received a72b*;in2002, ET I received a score

of 56c*, and ET II received a 42c*; in 2003, ET I received a 25.c*, and ET II received
2004, ET I received a 60c*, and ET

II received

a

62c*. While

II received a76c; and in 2005, ET I received

a 47 c;

in

a 61c*, and ET

a REAC score of below 60 does not equate to a designation of blight

on the property, it is nevertheless relevant to the determination of whether a property is blighted.
These REAC scores leading up to the City's exercise of eminent domain support a finding

of

blight at ET in 2005.

6. ET Was Functionally Obsolete and lll-Suited to Its Use in 2005
The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings

of Fact numbers 111 to 131, which detail how ET was functionally obsolete

and ill-suited to its use as a multi-family residence in 2O05-particularly one which houses at

least 780 residents, with young families. ET

I

contains seven studio apartments, 126 one-

bedroom apartments, 106 two-bedroom apartments, and two three-bedroom apartments; and ET

II contains sixteen studio

apartments,

fifty-two one-bedroom apartments, thirty-six two-bedroom

7

A property's final REAC score can range from 0 to 100 points. Any score of 60 points orbelow is a
failing score. HIID considers a property with a failing score to be in default of its contractual obligations
with HUD and to be failing to provide residents "decent, safe, sanitary housing in good repair." See Trial
Tr. vol. 47,6852, City of Joliet v. Mid-City Nat'l Bank of Chi., No. 05-6746 (N.D. Ill. Mar. 18, 2013)
(testimony of Hinsberger). A property's numerical score is accompanied by an alphabetical annotation to
highlight the serious nature of cited exigent health and safety violations. See HUD Ex. 330, atpp.417l4173. Scores annotated with an "a" signi$, that no health and safety deficiencies aside from smoke
detectors were observed. Id. Scores annotated with a "b" indicate that one or more non-life threatening
health and safety violations other than smoke detector deficiencies were observed, but no exigent/fire
ooc"
indicate that one or more exigent/fire
safety deficiencies were observed. Id. Scores annotated with a
health and safety deficiencies were observed. Id. Scores further arurotated with an asterisk (*) indicate
that smoke detector deficiencies were observed. Id.
23

apartments, and eleven three-bedroom apartments. Many large families are living in apartments
much too small for their needs.

Furthermore, even though anywhere from 400 to 600 children live at ET at any given

time, the property had only one playground in 2005, which was built and maintained by the
educational non-profit group Catholic Charities' Head Start program, not New WestAllew Bluff.

After the M2M renovations in 2012, a new playground was installed, but

it is still

grossly

insufficient and ill-equipped to provide recreation and enjoyrnent for the number of children of
various age groups who reside at the property. The new playground also fails to provide a safe
environment, as

it is located outside of the security

gates and fencing that surround

ET

I and

contain the "welcome center" guard house.

Additionally, the elevators at the 358 N. Broadway Street, 363 N. Broadway Street, and
366 N. Broadway Street buildings were completely inoperable for nine years, from 2003 to

April

of 2012. The property suffered, and continues to suffer, from faulty design and arrangement for
its current resident population.

7. Joliet Had a Good Faith Basis to Believe that Eminent Domuin

Was Necessary to

Cure the Blighted Conditions at the Property

The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings

of Fact numbers 132 to 199, which outline a history of problems at ET,

problems with managemont, issues with deferred maintenance, and the insufficiencies of the

M2M plans-all of which lead to the Court's conclusion that the City had a good faith basis to
believe that the only way to cure the blight in 2005 was to take the property by eminent domain.
Despite improvements and repairs that have been made over the history of the property, it

continues to

fall into the

same cycle

of disrepair. For example, during trial, following

the

viewing of a video tape of a 1989 inspection and a 1994 inspection of ET, the Court entered
24

findings that the conditions depicted

in the inspection videos were clearly

dangerous, and that the hallways were dark, unlit,

and obviously

md without windows. Indeed, New

West/New Bluff admitted that the conditions depicted in the 1994 video were not appropriate for
a family living

facility. Although approximately $750,000 to $1,000,000 was spent on repairs

following the 1994 inspections, ET once again fell into disrepair by the late 1990's and the early

2000's. When owner, Ronald Gidwitz, was asked why New WestA.{ew Bluff did not spend any
money on security, repairs, and improvements at the property until receiving money from HUD,
he testified that

it would not be a good business risk. He said that investing the money necessary

to maintain and improve ET would be equivalent to a charitable donation, and if the owners had
wanted to make charitable donations, there were better options. See Trial Tr. vol. 95, 15619,
15642, City of Joliet v. Mid-City

Nat'l Bank of Chi., No. 05-6746 (N.D. Ill. Dec. 16, 2013)

(Testimony of Ronald Gidwitz); Trial Tr. vol.23,3575, City of Joliet v. Mid-City Nat'l Bank of
Chi., No. 05-6746 (N.D. Ill. Dec. 19,2012) (testimony of Paschen). Lastly, the fact that HUD

ultimately approved M2M restructuring for ET does not in any way affect Joliet's legislative
determination that the property was blighted in 2005. The Court rejects New West/New Bluff

s

argument that Joliet's actions in pursuing eminent domain were irrational and pretextual. In
sum, the Court finds that ET I and ET

II were blighted in 2005, and therefore Joliet had a valid

public purpose to exercise its power of eminent domain at the time of the ordinance.

8. Joliet's Additional Public Purpose to Condemn the Property
Park

for

Use us a Public

In addition to arguing that Joliet's 2005 finding of blight was a pretext for racial
discrimination, New WestA.lew Bluff also argue that Joliet's other public purpose-the extension

of a public park-is pretextual

because the

City did not have a good flaith basis to assert this

purported public pu{pose; and thus, Joliet acted arbitrarily in passing the ordinance authorizing
25

eminent domain. The Court rejects this argument. The evidence presented at trial shows that
Joliet had plans to obtain the portion of the property along the riverfront to use for the extension

of

Bicentennial Park since

1990. This intention was further reiterated during the initial

discussions of the M2M process with

HUD. The construction and expansion of the Riverwalk

was part of a long term development plan of the

City. Therefore, Joliet's

assertion in its eminent

domain ordinance that the property would be taken, in part, for the creation a public park is not
pretextual; rather, the Court finds that it is a good faith, and non-arbitrary public use.

E. Public Purpose to Acquire the Property at the Time of the Taking
Due to the passage of time from the enactment of the ordinance in 2005 and the taking,

the Court ruled that the present condition of the property is also relevant. Specifically, New
WestA.{ew Bluff bear the burden to show by clear and convincing evidence that the blighted
conditions at ET have been eradicated. See Norfolk Redev. & Hous. Auth. v. C & C Real Estate.

Inc., 630 S.E.2d 505, 509-510 (Va.

2006). For the following

reasons, the Court finds that New

WestA.{ew Bluff have failed to meet their burden, and that blight at ET has not been eradicated,
despite the expenditure of $5 million in federal funds during 2007 throudh 2012 to repair and
rehabilitate the property.

1. Failed 2012 REAC Inspections
The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings

of Fact numbers 207 to 217, v'rhich provide the results and circumstances

surrounding the 2012 falled REAC inspections at ET

I

and ET

II, all of which were later

officially discarded by HUD under highly unusual circumstances. See Opinion & Order, Oct.
24,2013 [Doc. No. 824] (providing further details regarding the failed 2012 REAC inspections
and their untimely disclosure and noting that the Court found that Hinsberger's testimony on the

26

matter was not credible). On May 17 and May 18, 2012, a HUD REAC inspection of ET I took

place. Following this inspection, ET I received a failing score of 57c*, with the ooc" indicating
the presence of serious exigent health and safety violations. For the reasons discussed in the
aforementioned incorporated findings of fact, HUD removed or purged these inspection results,

without disclosing them to the City or the Court. The May 2012 REAC inspection of ET II was
canceled.

New 2012 REAC inspections were scheduled for the property for July of 2012. At the
JluJy

2012 inspection, ET

I scored a 46c*, significantly

West appealed the results of this inspection, but ET

lower than its May 2012 score. New

I still received a failing score. ET II

was

inspected by REAC on July 18 and July 19, 2012. ET II received a failing score of 50c*. As a

result of these failing scores, on October I1,2012, HUD sent New WestA.{ew Bluff (1) notices

of violation of HUD's Regulatory Agreements for ET I and ET II, and (2) a notice of default of
the HAP contract for ET

I.

Some of the deficiencies from ET

I reported in the notice of default

included: hazardous sharp edges; ground erosion; overgrown and penetrating vegetation; parking
lots, driveways and roads had settlement and heaving; retaining walls were damaged, falling, and

leaning; obstructed or missing accessibility routes; the foundations had spalling and exposed
rebar; doors had damaged hardware and locks; outlets and switches were missing and had broken

cover plates; windows were missing and had deteriorated caulking, seals, and glazing
compounds; inoperable HVAC; bathrooms had leaking plumbing, faucets, and pipes; insect
infestations; inoperable kitchen refrigerators; electrical hazards with exposed wire and open
panels; inoperable smoke detectors; mold and mildew; inoperable ground fault intemrpters or
GFI;8 inoperable emergency and fire exits; and missing exit signs. See HUD Ex. 486.

8

GFI are designed to prevent electrical shocks by tripping circuit breakers when a certain amount of
electrical current is detected. SeeAndersonv. P.A. Radocy& Sons. Inc.,67 F.3d619,620 n.l (7thCir.
27

On November 2, 2012, notwithstanding the fact that ET was officially in default with

HUD based upon the failed July inspections, New WestA.{ew Bluff disingenuously and
outrageously created
WestA.{ew

a video-starring, among other people, Bumham President and New

Bluff s corporate representative, Paschen-which purported to show that ET I and ET

II were decent,

safe, sanitary, and in good repair. This video was made during trial at the request

of New WestA[ew Blufls attorneys, with the support of HUD's attorneys, and without Joliet's
knowledge. Shortly after the video's creation, Paschen testified regarding its substance, lauding
the conditions of the property, without mentioning that the property was in default, and that it
been found to be indecent, unsafe, unsanitary, and not in good repair after

it had failed three

different REAC inspections in2012. On November 21,2012, however, the notice of default and
notices of violations were withdrawn and the

Jily

2012 REAC inspection results were once

again removed or purged by HUD for reasons unexplained.

The Court finds that the property was not decent, safe, sanitary, or in good repair
following $5 million in repairs and renovations, in the midst of the current litigation, and with
plenty of notice to New West/New Bluff; this fact supports the finding that blight at the property
has not been eradicated as

2.

of 2012 or later.

The Refinancing and Repairs Did Not Eradicate the

Blight at ET

The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings of Fact numbers 218 to 232,which detail some of the recurring problems at

ET in the years following the filing of the instant eminent domain lawsuit in2005, including the
time after the M2M repairs and rehabilitation were completed. The evidence shows that mold in
the units has remained a problem, as well as pervasive German cockroach and Norwegian rat

1995)

("A GFI is a device which shuts off electricity when it

leakage to ground.").

28

senses an imbalance in the

circuit caused by

infestations. Notably, Smithereens, a new exterminator, had to be hired because the former
exterminator could not handle the magnitude of the infestations at the property.
From 2007 to 2012, the following repairs, replacements, and improvements were made at

ET using the $5 million in M2M funds: capital improvements, upgrades and repairs to the
interior and exterior of the buildings, including the replacement of the elevators in ET I; a new
state-of-the-art security system; new exterior fencing, landscaping and lighting; tuck-pointing

and other fagade work; extensive unit renovations

of the kitchens and bathrooms; the

construction of a guard building known as the welcome center, which is staffed around the clock

by a security company; a commercial-grade children's playground; and a new storm
system for ET

I

and replacement of its parking

every resident of ET who is above the age

of

lot.

See

se\Mer

New West/New Bluff Ex. 413. Also,

18 years possesses a key card that contains the

resident's picture and unit information. The key card allows access into the building where he or
she resides. Resident access is

restricted. Guests must register and are banned at the discretion

of management.
These repairs and improvements, however, have proven insufficient to eliminate blight at

the property. For example, with respect to the new state-of-the-art security system, ET
management received reports

of camera's being stolen, and at one point Property

Manager

Danny Davis suggested that they needed cameras watching the cameras. The new fencing at the

property only surrounds ET

I,

leaving ET

II and the surrounding

areas, including the new

playground, completely unprotected. Similarly, the welcome center guard building is positioned
at the opening in the fencing only around ET

I.

In addition, New WestA.{ew Bluff have already

had to change security companies because the employees could not handle the work at ET.
Specifically, security guards were being threatened and harassed, including a pregnant security

29

officer, and residents reported that the security staff members are too afraid to confront people
who enter the property. In one instance in 2010, shots were fired from a BB gun into the guard

building, shattering a glass window, which took over a year to replace. There have also been
reports of people paylng residents to obtain visitor passes for them. Criminal suspects have been
found on the property who were not residents and who did not have a visitor pass.

It is undisputed that New WestA.{ew Bluff have made capital improvements with the
money from the M2M restructuring, but the historical evidence shows that they are unable to

maintain the property even following mass improvements and renovations. New WestAriew

Bluff s policy of deferred maintenance simply

does not work for a property that has proven to be

in need of constant maintenance and repairs. Deferred maintenance only allows the problems to
compound, as they have done in the past. The evidence shows that New WestA.{ew Bluff have
been unable to provide a pennanent remedy to the many problems at ET and eradicate blight in

their more than thirty years of ownership, despite periodic infusions of cash from HUD.

3. High Crime

Rutes and

High Callsfor Service

The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings

of Fact numbers 233 to 260, which provide the high rates of arrests, criminal

incidents, and calls for service, as well as the details of specific crimes reported in the years

following the filing of the eminent domain lawsuit from 2006 to 2011. These facts lead to

a

finding that blight has not been eradicated at the time of the taking.
The total number of reported incidents at ET between 2006 and 2009 was 2,444; or at
average

of 611 incidents per year and I.67 reported incidents per day. The number of criminal

incidents and arrests occurring at ET remained high, even after new security measures were put

into place using M2M funds. For example, although the welcome center guard house was

30

operational in January of 2009, the Joliet Police Department reported 270 arrests made at the

property that year, and 371 arrests according to the dbfendant's own expert wiiness, Merrick
Bobb. And at a time when Joliet experienced a reduction in the number of arrests city-wide from
2008 to 2011, ET still had293 reported arrests in 2010 and223

in20ll.

With respect to calls for service, New West/New Bluff do not contest the exceedingly
large number of calls-an average of 4.68 per day

in 2006 through 2009. As with the high

number of calls for service pre-2005, however, New WestA.[ew Bluff argue that calls for service
are not good indicators

of a crime rate, but rather are used to measure the activity of officers at

specific times and places. Even so, because police, fire, and medical emergency personnel have
to respond to so many calls for service from the property, the high numbers of calls for service
indicate how many of the City's resources are expended at

ET-which

houses only a fraction

of

Joliet's population. This continued diversion of "important public resources such as police
protection, fire protection, and emergency medical services" is precisely one of the reasons for
which Joliet found the property to be blighted in 2005. Pl.'s Ex.

1.

Additionally, New WestA{ew Bluff contend that, although crime is experienced at the
property, ownership and management have procedures in place to deal with the incidents and to

try to prevent further occurrences. These procedures include background checks on applicants
before allowing them to move into the property, the installation of security cameras, contracts

with security services and the Joliet Police Department for patrol of the property, and the
banning or eviction

of any resident or visitor

engaged

in criminal activity. As in the past,

however, these measures have proven insufficient. There are numerous reports that the security

staff are too afraid to deal with loiterers and those who commit crime on the property. Further,
security guards have had their lives threatened on multiple occasions. While certain visitors are

31

placed on a list of people banned from the property or from receiving a visitor pass, there have

still been incidents where such people otherwise gain access and have been found on the
property. Although New WestA.{ew Bluff claim that all tenants involved in criminal activity are
evicted, there has beerr specific evidence to the contrary. In January of 2011, former named-

tenant defendant and member

of ET's Resident Council, Elvis Foster, was caught with

a

screwdriver and a drill attempting to break into a unit in the 358 N. Broadway St. building, but
he was not evicted for the incident. See Pl.'s Ex. 659. According to the evidence presented at

trial, the new security measures have been unable to sufficiently abate criminal activity at the
property.

HUD's expert witness, Susan Connor (ooConnor"), testified that the occuffence of crimes,
even multiple crimes, does not alone lead to a finding of

blight. The level of criminal activity at

ET, however, is significant, and rises above the level of multiple isolated incidents of crime. In
any event, the occurrence of crimes is not the only evidence of

blight. As discussed above, the

Court finds that blight has not been eradicated at ET based upon multiple factors, which includes
the high rate of criminal activity and the large numbers of calls for service. Although Connor

testified that, in her opinion, she did not believe that any individual inspection, infestation, safety

violation, or crime lead to a finding of blight in 2005 or at any time thereafter, the Court is not
basing its finding on an individual incident. Rather, the Court finds that the property was
blighted, and continues to be blighted based on all of the evidence discussed above. Indeed, it is

the severity and extensive number of health and safety problems at ET in the aggregate that
support the Court's finding of blight.

Lastly, the Court notes that all of the failed inspections, safety violations, unsanitary
conditions, and criminal activity at ET post-2005 occurred during the pendency of this litigation,

32

and under the watchful eye of

HUD-at

a time when management and ownership put forth their

best efforts to maintain the property. The evidence shows that even New WestA.{ew

efforts have failed to make a meaningful difference to eradicate blight at the

Bluffls best

property. For

all

of these reasons, New WestA.{ew Bluff failed to prove by clear and convincing evidence that
blight has been eradicated at ET I and ET II.

F. No Evidence that Joliet Acted With An Intent to Discriminate

Against African-

Americans

The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings of Fact numbers 261 to 300, which show that the record contains no credible

evidence that Joliet acted pretextually or with an intent to discriminate on the basis

of

race.

Indeed, as discussed above, Joliet sets forth valid and legitimate public purposes for its use

of

eminent domain-namely that the property was and is blighted, and that the City wants to extend
the Riverwalk public park. The eminent domain ordinance passed by Joliet's city council is not

facially discriminatory. Nevertheless, New WestA.,lew Bluff argue that they have presented
circumstantial evidence of Joliet's discriminatory

intent. Specifically, New

WestA.{ew

Bluff

argue that (1) Joliet lacks a public purpose for eminent domain; (2) the effect of eminent domain

would be to make housing or subsidized housing in Joliet unavailable to African-Americans and
perpetuate segregation; and (3) former Joliet city councilman Timothy Brophy ("Brophy")
allegedly referred to the residents of ET as "rats."
First, as stated above, the Court finds that Joliet had, and continues to have, a valid public
purpose to use its power of eminent domain.

Second, there is no evidence that Joliet intended to condemn the property

make housing, particularly subsidized housing, unavailable
WestA{ew Bluff seek

in order to

to African-Americans.

New

to equate the Housing Authority of Joliet's (the "HAJ") actions of
JJ

demolishing other public housing in Joliet to that of the City of Joliet. The Court rejects these
arguments. The HAJ serves all of Will County, Illinois, not just Joliet. Joliet and the HAJ are
completely separate entities. And, the HAJ is not a party to the instant lawsuit. Furthermore, in
demolishing the public housing complex in Joliet known as Poole Gardens, the HAJ acted with
the express approval of

HUD. Moreover, no subsidized housing was lost in that action

because

the 106 units at Poole Gardens were replaced with 106 Housing Choice Vouchers and

148

subsidized units in the newly constructed Liberty Meadows housing project.

Similarly, the City did not condemn ET with the intent to discriminate by limiting the
number of subsidized housing units available to African-Americans because the evidence shows
that there

will be no such effect from a successful taking. Pursuant to the HUD settlement,

356 units at ET

the

will be replaced with at least 115 subsidized units at the redeveloped property,

and the remaining units

will

be replaced with Housing Choice Vouchers that the voucher-holders

can use to rent housing in Joliet or elsewhere should they so choose. Specifically, the HUD

settlement agreement provides the following: (1) unless approved

by HUD and replaced

elsewhere in Joliet, at least 115 units subsidized under the terms of the existing HAP contracts,

which will be transferred to Joliet or a Joliet-controlled entity, will remain on the property, Pl.'s

Ex. 1133

fllT 39-a0;

(2) HUD will issue additional vouchers to replace each unit removed from

the site, and the residents of those units will receive the vouchers to use for relocation, id. at fl 40;
(3) Joliet will provide all tenants who are relocated due to the redevelopment of the property and

reduction of units at least one year for relocation, and will pay relocation costs, id.; and (a)

if

a

resident who has been issued a voucher and identifies that he or she wishes to remain in Joliet or

Will County cannot find a unit affordable with the issued voucher, Joliet shall identify a unit that
meets HUD requirements or maintain additional units on the property sufficient to cover each

34

such resident.

Id. New

WestA.{ew

Bluff argue that'residents will be unable to find housing with

vouchers. The evidence, however, does not support this mere assertion. Although Joliet
only 22%o of the population of

Joliet-which indicates
Furthermore,

Will County,

has

a majority of the county's voucher holders reside in

that housing for voucher holders is available in Joliet.

the plan contained within the HUD settlement agreement is

not

substantially different from those plans put forth by Joliet starting in 2002 around the beginning

of the M2M process. For example, in 2002, Joliet prqposed a phased relocation of the residents
of ET over a multi-year period using: vouchers, available public housing in the City, and various
subsidized home ownership programs. The proposal also recognized the need for relocation
assistance to be provided to the residents, just as in the

HUD settlement. Joliet's 2003 and 2005

redevelopment plan, referred to as the Program of Choice, is practically identical to the terms

the HUD settlement agreement. That Joliet has maintained substantially the same
throughout this process, suggests that the City never intended

of

plans

to discriminate or eliminate

subsidized housing by redeveloping ET.

In addition, the demographic statistics presented by the parties is conclusive evidence that

Joliet does not intend to discriminate against African-Americans by eliminating "the only
housing available to them" in the City. The portion of Joliet and the census tract which contains

ET is neither predominantly white, nor predominantly upper income. In 2010, the population of

Joliet Township, where ET is located, was

45o/o

non-Hispanic white, 35% Hispanic, and 24Yo

African-American.e Also, the minority population in the entire City increased from 2000 to
2010, further discrediting New WestA.lew

Bluffs

argument that Joliet was trying

to

make

housing unavailable to African-Americans or to minorities in general during this time period.

e

According to 2010 census data, Joliet's population as a whole was 53% non-Hispanic white, 15.6Yo nonHispanic African-American, 27 .8% Hispanic, and I .9o/o non-Hispanic Asian.
35

With respect to New WestA{ew Bluff s allegations that Joliet somehow seeks to ereate

a

segregated population on the west side of the river by condemning the property, the Court notes

that ET itself could not be more segregated than

it is in its current state, with a resident

population that is over ninety-five percent African-American. Accordingly, the evidence shows
that the City never intended to discriminate against African-Americans by eliminating housing
and subsidized housing available to them.

Lastly, New West/New Bluff argue that the alleged comments

of former Joliet city

councilman Brophy are evidence that Joliet acted with an intent to discriminate in pursuing
eminent domain for

ET.

Brophy's first allegedly discriminatory comment occurred during

meeting with HUD in the fall

of 1999. No

a

notes were taken at this meeting and there is no

record supporting what was discussed. Only one witness, the discredited Hinsberger of HUD,
recalled that Brophy stated that all of the residents from ET were from Chicago and that he
wanted to send the "rats" back to Chicago. Trial Tr., vol. 39, 6556, 6571-73, City of Joliet v.

Mid-City Nat'l Bank of Chi., No. 05-6746 (N.D. Ill. Mar. 13, 201,3) (testimony of Hinsberger).
The second alleged Brophy-comment occurred during another meeting with Joliet, HUD, and

IHDA on July 16,2003. Once again, no notes from this meeting were produced,

and there are no

other documents supporting that the discussion took place. None of the witnesses who testified

regarding the comments-Hinsberger, Harry West, and Beverly Bishop

of HUD, and Marie

Gottschlich of IHDA-could recall much about the meeting that occurred ten years earlier. The
witnesses agreed, however, that Brophy made a comment about Chicago tearing down its public
housing and that the people from the Chicago Public Housing or "rats" came to Joliet to live at

ET. At worst, this isolated evidence

shows that Brophy had a negative attitude toward people

from Chicago or residents from Chicago Public Housing

36

in 1999 and 2003.

Accepting that

Brophy's comments were racially motivated, of which there is sparse evidence, the personal
opinions of a single city councilman uttered years before Joliet enacted its eminent domain
ordinance to condemn ET, cannot be attributed to the City as a whole or its legislative actions.

The overwhelming evidence supports the fact that all other representatives of Joliet, including

the city manager and fire and police departments, repeatedly discussed in good faith the
extensive crime and fire safety problems at ET, the blight, the functional obsolescence, and the

options that the City had with respect to the property, including eminent domain. There is

simply no evidence

to

support New WestArlew

Bluffs

argument that Joliet intended to

discriminate on the basis of race through the use of its power of eminent domain.

G. No Evidence of a Discriminatory Effect Due to Joliet's Use of Eminent Domain
The Court hereby incorporates by reference and accepts as findings of fact Joliet's
Proposed Findings of Fact numbers 301 to 335, which provide that there is no evidence that that

Joliet's use of eminent domain will have a discriminatory effect or disparate impact on African-

Americans. In support of their argument that Joliet's condemnation of ET would have

a

discriminatory effect or disparate impact, New West/New Bluff rely largely on the testimony and

reports

of their expert

witness, Calvin Bradford ("Bradford"), who

is a sociologist

with

experience in the use of statistics, and Andrew Beveridge ("Beveridge"), who is a sociologist
called by HUD as an expert in disparate impact. Both experts testified that there is a correlation
between race and income level in Joliet and Will County. They also testified that, in 2010, there
was a higher percentage of low income African-American households in Joliet and

Will County

than low income white households. For instance, in 2010 in Joliet, fifteen percent of African-

American households made less than $10,000, while only three percent of white households
made less than $10,000. Thus, the experts concluded that because there are more low income

37

African-American households than low income white households in the area, any reduction in

the number

of

subsidized housing available would have

a

disparate impact

on African-

Americans. Beveridge did an additional analysis based solely on the racial make-up of ET.
Beveridge testified that 3.2 percent of all African-Americans in Joliet live at ET, and only .029
percent of all whites in Joliet live at ET, which results in a ratio of 92:1. He then concluded that,
because more African-Americans

live at ET than whites, the removal of any units at ET would

have a disparate impact on African-Americans.

Neither expert was asked to do an analysis regarding the potential removal of subsidized

units and the replacement thereof with new units or vouchers. And neither expert took into
account other minority groups in the area, particularly the large Hispanic population in both
Joliet and Will County. Notably, based on the statistics, the experts testified that the disparate
impact would be the same whether the City's policy led to the loss of one unit at ET or all 365.

With respect to the residents who will be relocating with vouchers, there is no evidence
that they will be unable to use the vouchers in a reasonable geographical proximity to ET should

they so choose-which includes Joliet, Will County, and the Chicago-Joliet-Naperville
Metropolitan area. The defendants failed to present any reliable evidence that housing could not

be found in those areas for up to 241 new voucher holders. Although the expert witnesses
testified as to a shortage in subsidized housing, they admitted that a general shortage of tenantbased and voucher subsidies exists

in the entire United States, not just Joliet. Furthermore, the

settlernent agreement with HUD specifically provides that

if

a resident wants to stay

in Joliet or

Will County, but is unable to find a unit, the City will increase the number of subsidized units
available at the redeveloped property accordingly.

38

Because the Court finds, pursuant to the HUD settlement, that all units at ET

replaced with either new units

will

be

in the redeveloped property or housing choice vouchers, the

experts' conclusions relying solely on the loss

of

subsidized units are largely irrelevant.

Importantly, both experts conceded, and the Court agrees, that if the vouchers are issued and can
be used in a reasonatile geographic area, of which there is no credible evidence to the contrary,
there is no disparate impact that

will affect

II.

the residents of ET.

CONCLUSIONS OF LAW

A. Jurisdiction
The Seventh Circuit previously found that "the presence of the national government

[HUD] as a party with a security interest in the real estate [ET] supplies [subject matter]
jurisdiction" in this case. City of Joliet v. New West.

L.P.

, 562 F.3d 830, 833 (7th Cir. 2009).

Specifically, jurisdiction is found pursuant to 28 U.S.C. $$ 1444, 2410, which allow, inter alia,
the federal govemment to be named in an action to condemn "real or personal property on which
the United States has or claims a mortgage or other

lien." 28 U.S.C. $ 2al0(a). Although HUD

is no longer a party in this litigation, the Court retains supplemental jurisdiction over

the

remaining parties and claims pursuant to 28 U.S.C. $ 1367(a). See also Pac. Mut. Life Ins. Co.

v. Am. Nat'l Bank & Trust Co. of Chi.,642F. Supp. 163, 165 (N.D.m. 1986) (finding that
pendant party jurisdiction would apply for other parties in a foreclosure suit against the federal

govemment under 28 U.S.C. $$ 1340, 2alQ; HSBC Bank USA. N.A. v. Garcia, No. 12 CV
6561,2014 U.S. Dist. LEXIS 108541, at *10 (N.D.

I11.

Aug. 6,2014) ("[T]he court has subject-

matter jurisdiction over HSBC's claim against the United States pursuant to 28 U.S.C. $ 1331,

and has supplemental jurisdiction over the remaining claims [and parties] under 28 U.S.C.
$ 1367(a).")

39

B. Joliet Properly Exercised lts Right of Eminent Domain to Acquire the Property
7. Governing Law
Illinois state law governs the eminent domain proceedings in this action. In2007,Illinois
revised its eminent domain statute and enacted the current version, the Eminent Domain Act,735

Ill. Comp. Stat.30/1-1-1, et seq. (the *2007 Act"), effective January 1,2007. The 2007 Act
applies "to complaints to condemn that are filed on or after its effective date." 735

lll.

Comp.

Stat. 30/90-5-5. Joliet filed its Second Amended Complaint on March 9,2012 (Doc. No. 324),
and thus, thC 2007 Act applies here. In addition to

the 2007 Act,the Court applies provisions of

the Illinois Municipal Code relating to the City's power of eminent domain. The issues of
whether Joliet has a valid public purpose and whether Joliet's purpose of blight is a pretext for

racial discrimination, however, are governed by controlling federal constitutional and statutory
law, including the FHA.

2. Public

Use

The Fifth Amendment to the United States Constitution limits the exercise of the
government's eminent domain powers by requiring the taking to be for "public use" and that just
compensation be paid to the property owner. Brown v. Legal Found. of Wash., 538 U.S. 216,
231

(2003). It is well established that the government is not permitted to take p.op.rty under the

mere pretext of a public purpose. Kelo v. City of New London. Conn., 545 U.S. 469, 478

(2005). A taking of private property will only satisfy the U.S. Constitution's public use
requirement

if it

serves a legitimate public purpose within the govemment's authority. See id. at

479.

Illinois law limits the govemment's power of eminent domain by requiring

a condemning

authority to act in strict conformance with the statutes granting it such power. See, e.9., People

40

ex rel. Dir. of Fin. Young Women's Christian Ass'n of Springfield, 427 N.E.zd 10,76 (Ill.
1981);

Vill. of Cary v. Trout Vallev Ass'n,667 N.E.2d 1082, 1088 Gl. App. Ct. 1996); Vill. of

Skokie v. Gianoulis, 632N.8.2d 106, l l

l

(ru. App. Ct. 1994). The 2007 Act expressly provides

that it shall be strictly construed as a limitation on the government's exercise of eminent domain.

735

lll. Comp.

Stat. 30/90-5-15. Section 5-5-5(a) of the 2007 Act states,

"[i]n addition to all

other limitations and requirements, a condemning authority may not take or damage property by

the exercise of the power of eminent domain unless

Section." 735

I11.

it is for a public

use, as set forth

in this

Comp. Stat. 30/5-5-5(a). The acquisition of property by eminent domain for a

"public use" is an exercise of the legislative power and reaches to the fulI extent of

the

sovereign's police power. See City of Joliet v. New West, No. 05 C 6746,2012WL 5463792, at

*5 (N.D. Ill. Nov. 5, 2012) (quoting Hawaii Hous. Auth. v. Midkiff, 467 U.S. 229,239-40
(1984)). The Supreme Court has long interpreted "public use" to mean "public purpose." Id.
(citing Kelo, 545 U.S. at 480).

As applicable here, the 2007 Act provides: "If the exercise of eminent domain authority

is to acquire property for public ownership and control, then the condemning authority must
prove that (i) the acquisition of the property is necessary for a.public purpose and
acquired property

will be owned

(ii) the

and controlled by the condemning authority or another

governmental entity." 735

lll. Comp. Stat. 30/5-5-5(b).

between HUD and Joliet,

if

Pursuant to the terms of the settlement

the City is successful in the taking,

it will

retain ownership and

control over the property. As to a public purpose, the evidence shows that Joliet's taking of ET
serves

two legitimate public uses: the eradication of blight and the extension of a park. It

has

long been recognized that the eradication of blight serves as a valid public purpose and is

a

legitimate use of a municipality's eminent domain power. Zurn v. Citlz of Chi., 59 N.E.2d 18,25

4t

(Ill. 1945) (holding that the taking of private property for the purpose of eliminating blight meets
all the requirements of a public use and public purpose within the principles of the law of
eminent domain); see also Berman v. Parker, 348 U.S. 26 (1954). There is no dispute that, on its
face, the eradication of blight constitutes a valid public purpose. It is also well established that
the taking of private property for use as a park is a valid public purpose under Illinois

Vill. of Depue v.

Banschbach, 113 N.E. 156, 158

willing to foot the bill, it is hard to

See

(Ill. 1916). Additionally, as the Seventh

Circuit stated, "[i]f Joliet thinks that agiven parcel of land should be put to
a park, and is

law.

see any obstacle

a

public use, such as

in federal law." New West.

L.P. v. Citlz of Joliet, 491 F.3d 717,721 (7th Cir. 2007).

3. Eminent Domain Action Authorized

by Applicable Stututes

Illinois law requires a condemning body to negotiate in good faith with the property
owner over the amount of compensation to be paid as a "condition precedent" to initiating
eminent domain proceedings. Forest Pres. Dist. of DuPage Cnty. v. First Nat'l Bank of Franklin

(Ill.20l1) (citing Dep't of Transp. ex rel. People v. 151 Interstate

Park,961 N.E.2d 775,792

Road Corp., 810 N.E.2d 1,7 (Ill. 2004)); see 735 I11. Comp. Stat. 30/10-5-10(a). Here, Joliet
negotiated

in good faith with New WestA.{ew Bluff when it offered $10.7 million for

the

property on or about September 21, 2005. New WestA.{ew Bluff rejected this offer, having
previously demanded over $20 million for ET. New WestA.{ew Bluff stated that they would not
accept less than the amount of the existing mortgages, which exceeded the appraised values

the property at the

time.

of

Leaving no further room for negotiation, Joliet properly initiated

eminent domain proceedings.

42

A municipality's power to condemn is conferred by

a specific legislative enactment.

City

of Batavia v. Sandberg, 677 N.E.2d I0I0, 1013 Gl. App. Ct. 1997). Joliet has exercised its
power of eminent domain under the following sections of the Illinois municipal code:

l.

Section l1-61-1 of the Illinois Municipal Code,65 Ill. Comp. Stat. 5/11-61-1,
permits the City to exercise the right of eminent domain to acquire real property
useful, advantageous or desirable for municipal purposes or public welfare.

2.

Section 11-11-1 of the Illinois Municipal Code,65 Ill. Comp. Stat 5/11-11-1,
permits the City to exercise the right of eminent domain to acquire any improved
or unimproved real property the acquisition of which is necessary or appropriate
for the rehabilitation or redevelopment of any blighted or slum area. A "blighted
or slum area" is defined as "any area where buildings or improvements, by reason
' of dilapidation, overcrowding, faulty alrangement or design, lack of ventilation,
light or sanitation facilities, deleterious land uses, or any combination of these
factors, are a detriment to public safety, health or morals, and an area of not less
in the aggregate than 2 acres has been designated by ordinance or resolution as an
integrated project for rehabilitation or redevelopment." 65 Ill. Comp. Stat 5/1111-1.

3.

Section ll-13-17 of the Illinois Municipal Code,65 Ill. Comp. Stat.5/11-1317, permits the City to exercise the right of eminent domain to acquire all land
which is necessary or appropriate for the rehabilitation or redevelopment of any
area blighted by substandard buildings or structures.

4.

Section

ll-13-I7 of the Illinois Municipal Code,65

I1l. Comp. Stat.5/11-13-

to exercise the right of eminent domain to acquire buildings
and structures which do not conform to the standards fixed by the corporate
authorities pursuant to Section 11-13-1 of the Illinois Municipal Code.
17, permits the City

5. Section ll-61-2 of the Illinois Municipal Code, 65 Ill. Comp. Stat. 5/1I-61-2,
permits the City to exercise the right of eminent domain to acquire property
necessary for the establishment, opening, extension and improvement of public
parks and other public grounds.
6. Section ll-94-l of the Illinois Municipal Code, 65 Ill. Comp. Stat. 5/ll-94-I,
permits the City to exercise the right of eminent domain to acquire property
necessary for the construction, improvement and operation of recreational
facilities.
Pursuant to these sections

of the Illinois Municipal Code, Joliet

passed the eminent domain

ordinance for ET I and ET II, Ordinance No. 15298, on October 4,2005.

43

In Ordinance No. 15298, the Joliet city council determined through legislative action that
ET was a blighted property. The 2007 Act provides that "[a]n acquisition of property primarily
for the purpose of the elimination of blight is rebuttably presumed to be for a public purpose and

primarily for the benefit, use, or enjoyment of the public under this subsection." 735 Ill. Comp.
Stat. 30/5-5-5. Thus, Joliet's determination of blight at ET in 2005 is presumed to be correct.

New WestA.{ew Bluff fails to rebut this presumption. The city council's determination that ET
was blighted in 2005 is rational and supported by the

record. So too is its exercise of the City's

power of eminent domain to eradicate that blight.
Due to the large gap in time from the city council's original finding of blight in 2005 and
the taking, however, the Court has previously ruled that the conditions of the property after 2005

are also to be considered for purposes of determining

blight. In that respect, the Court agrees

with the position taken by the Virginia Supreme Court in Norfolk Redevelopment & Housing
Authoritlz v. C&C Real Estate Inc., 630 S.E.2d 505 (Va. 2006). There, the court found that,

while the original determination fof blight] retains the strong presumption of
validity attached to such legislative acts, the current status of the property must be
considered when determining whether the original purpose of the acquisition
rernains viable at the time the condemnation occurs. . . . Therefore, in this case, to
rebut the presumption of validity, fthe party opposing condemnation] bore the
burden to show by clear and convincing evidence that the Property no longer was
a blight or no longer exerted a blighting influence on the surrounding area.
Id. at 509-510. As applied here, New WestA.{ew Bluff had to show by clear and convincing
evidence that ET is no longer a blighted property at the time of the taking (or, realistically, at the
close of the evidence in this case). New West/New

Bluff failed to make this showing. Weighing

all of the evidence, the Court concludes that ET was and is blighted in accordance with
statutory factors set forth in 65 Ill. Comp. Stat. 5/11-11-1.

44

the

Furthermore,

"[i]t is well settled that

unless there is a clear abuse of discretion by the

municipality, this court cannot interfere." Wheeline v. Exchange Nat'1 Bank of Chi.,572N.E.2d

966,971(Ill. App. Ct. 1991). The general rule in Illinois is that:
where the legislature has delegated to a corporation the authority to exercise the
power of eminent domain, the corporation has the authority to decide the
necessity for exercising the right, and its decision will be conclusive in the
absence of a clear abuse of the power granted. Absent a showing of an abuse of
discretion, of which there is no indication here, the defendants must show that the
ordinance is arbitrary, unreasonable or capricious. Again, the burden of going
forward with the evidence was on the defendants . . . .

Id. at 971-972 (internal quotation marks and citations omitted). New WestA.{ew Bluff fail to
prove that Joliet acted in bad faith or abused its discretion in finding the property blighted or in

stating its intention to acquire the property for use as a public

park.

Therefore, the Court

concludes that Joliet's Ordinance No. 15298 is valid.

4. The Doctrine of Equitable

Estoppel

Nevertheless, New WestA{ew

Bluff contend that Joliet is barred by the doctrine of

equitable estoppel from arguing that ET is blighted. However, "a finding of estoppel against a

public body is not favored" and "fe]quitable estoppel should not be invoked against a public
entity except under compelling circumstances, where to do so would not defeat the operation of

public policy." Metro. Water Reclamation Dist. of Greater Chi. v. Civil Serv. Bd. of Metro.
Water Reclamation Dist. of Greater Chi., 684 N.E.2d786,790 Ol. App. Ct. 1997). To establish
equitable estoppel, New WestA{ew Bluff must show:

(l)

an affirmative act on the part of Joliet;

and (2) that the affirmative act induced substantial reliance to New WestAllew

See

id.

Bluff s detriment.

New WestA.{ew Bluff argue that Joliet is equitably estopped from relying on its 2005

action or otherwise arguing that ET is blighted because, as contract administrator to ET II until
2007, the City annually certified to HUD that the units at ET II had been inspected and that the

45

payments made to New

Bluff were in accordance with HUD's regulations and requirements.

This evidence falls short of showing that New West/New Bluff substantially relied on Joliet's
certifications to HUD. Indeed, any reliance on the yearly certifications is unreasonable in light

of Joliet's communications to both HUD and New WestA.{ew Bluff of its concerns as to the
numerous code violations at ET

I

and ET

II,

and ET

II's failure to

meet HUD's standards.

Therefore, the Court rejects this argument.

5.

The Doctrine of Prior Public Use

New WestA.{ew Bluff also argue that Joliet is prohibited from taking ET by the doctrine

of prior public use. The "prior public use" doctrine dictates that a general grant of eminent
domain power does not authorize the taking of property that is already devoted to a public use.

Dep't of Pub. Works & Bldgs. v. Ells, 179 N.E.2d 679, 679 (Ill. 1962). New West/New Bluff
argue that ET

is already subject to a public use, that of providing affordable housing, and

therefore it cannot be taken under the guise of a different public use. Although this doctrine has

never been applied to private property
nonetheless applies, citing

in Illinois before, New

WestA.{ew

Bluff argue that it

a 1965 case out of Maine, Oxford County Aericultural Society

School Administrative District No. 17,211 A.zd 893, 895 (Me. 1965). New West/I.lew
contend that privately owned property falls within this doctrine

if

v.

Bluff

the owner has devoted the

property to a public use, which he is under alegal obligation to maintain.

Id.

The Court rejects

the extension of this doctrine to private property. In any event, New WestA.[ew Bluff are not
under a legal obligation to maintain ET as affordable housing. Private owners under contracts

with HUD, like New WestA.Jew Bluff, "are entitled to withdraw their properties from the
program at any time . . . .

All they have to do is pay off the federally insured loan." City of

46

{rlbr

Joliet, 562F.3d at 835. Accordingly, the Court finds and concludes that the doctrine of prior
public use does not prohibit Joliet from taking ET by eminent domain.

C. The Fair Housing Act

Does Not Bar Joliet's Eminent Domain

Action

Lastly, New WestA.lew Bluff ask this Court to conclude that Joliet's stated public
purposes to take

ET-the eradication of blight and the extension of a public park-are mere

pretexts for racial discrimination, and thus Joliet's taking would violate the
conclusion, however,

FHA.

is not supported by the evidence submitted at tial, and is

This

therefore

rejected.

The FHA makes it unlawful to "refuse to sell or rent...or otherwise make unavailable or

deny, a dwelling to any person because of race, color, religion, sex, familial status, or national

origin." 42U.S.C. $ 360a(a). In this case, New WestA'{ew Bluff claim that Joliet's eminent
domain acquisition of ET would make housing in Joliet or in the area of Joliet around ET
unavailable to African-Americans. A violation of the FHA can be proven against a city or other

locality by demonstrating that a city policy or practice either has a discriminatory intent or, under
some circumstances, a discriminatory effect, or disparate impact. City of Joliet, 562

g3g; Metro. Hous. Dev. Com. v.

F

.3d at 837 -

Vill. of Arlington Heiehts, 558 F.2d 1283,1289-1290 (7th Cir.

lg77) fhereinafter Arlington Heiqhts III; Snyder v. Barry Realty. Inc.,953 F. Supp. 217,220
(N.D. Il1. 1996). Specifically, then, in order to prevail in their FHA defense, New WestA'{ew

Bluff must demonstrate that Joliet either intentionally used its eminent domain powers to make
housing in Joliet or the area in which ET is located unavailable to African-Americans or that the

effect of Joliet's eminent domain acquisition of ET was to do so, without sufficient legitimate
reason. Citv of Joliet,562F.3d at 837-838; Arlineton Heiqhts II, 558 F.2d at 1289-1290.

47

I

r)

1. No Intentional Discrimination
Official action motivated by racially discriminatory intent or purpose violates the Equal
Protection Clause and is unconstitutional. Washineton v. Davis,426U.5.229,242 (1976). New
WestA.{ew

Bluff, however, are not req'uired to prove that a discriminatory purpose was the sole

motivation of Joliet's eminent domain action in order to prevail in a showing of discriminatory

intent. Vill. of Arlington Heiehts v. Metro. Hous. Dev. Corp.,429 U.5.252,265-266 (1977)
[hereinafter Arlington Heishts

I].

"Determining whether invidious discriminatory purpose was a

motivating factor demands a sensitive inquiry into such circumstantial and direct evidence of
intent as may be available." Id. at266.

New West/New Bluff bear the burden of establishing that Joliet intended to discriminate
against the residents of ET because of race, and discriminatory intent may be proved by direct
evidence or circumstantial evidence. Id.; Kormoczy

v. Sec'y United

States Dept.

of Hous. &

Urban Dev., 53 F.3d 82I, 823-824 (7th Cir. 1995). New WestA.{ew Bluff do not purport to rely

on direct evidence of disparate treatment, such as a facially discriminatory policy or
acknowledgment of discrimination. See. e.q.,

id. On its face, Joliet's

an

eminent domain ordinance

for ET does not discriminate against African-Americans or any group in general, but is based on
legitimate public purposes for eminent domain. See Sn)rder,953 F. Supp. at

220.

The

statements of intent in the ordinance itself and in the minutes created at the time of its unanimous

approval

by Joliet's city council focus entirely on non-discriminatory public purposes

appropriate for an eminent domain action-the elimination of blight and the extension

of

a

public park. There is no direct evidence of discriminatory intent.
Instead, New WestA.{ew Bluff purport to rely on circumstantial evidence to prove their

claim of intentional discrimination. Circumstantial evidence of intentional discrimination

48

I

{)

rr

includes the historical background of the decision, the legislative history and contemporaneous
statements

by members of the decision-making body, whether legitimate reasons exist for the

decision, and other statements by supporters or ambiguous statements by the City in enacting the

Ordinance. See Arlington Heiehts I, 429 U.S. at 267-271; Daveri Dev. Group. LLC v. Vill. of
Wheelins, 934 F. Supp. 2d 987,996-1000 (N.D. Ill. 2013).

New WestA.{ew Bluff argue that the following constitute circumstantial evidence of
intentional discrimination: (1) Joliet's lack of a public purpose for eminent domain; (2) the effect

of eminent domain would be to make housing or subsidized housing in Joliet unavailable to
African-Americans and perpetuate segregation; and (3) former Joliet city councilman Brophy
allegedly referred to the residents of ET as 'orats."

As to the first

argument, the Court has already rejected New West/New Bluffs

contention that Joliet lacks a valid public purpose.

Likewise, as discussed above, the Court finds that Joliet's exercise of eminent domain on
ET would not have the effect of making housing unavailable to African-Americans or perpetuate
segregation. No units of affordable housing

will be lost should the City be successful in

the

taking of ET. A number of units will be maintained at the property or at another location and all
other residents will be given portable vouchers for housing of their choice, in Joliet or elsewhere.

Moreover, given the demographics of Joliet, and of the portion of Joliet in which ET is located in
particular, New WestA{ew Bluff s argument is senseless. As the demographic statistics show,
Joliet is a very diverse city, not an enclave of predominantly white affluent residents. In 2010,

Joliet was fifty-throe percent non-Hispanic white, twenty-eight percent Hispanic, and sixteen
percent African-American;I0 the census tract containing ET was seventeen percent non-Hispanic

'o Like the statistics for white persons, the statistics given for African-American persons here excludes
Hispanic persons who identify themselves in that category also. See HUD 8x.466-468.

49

i {) r

white (down from thirty-two percent in 2000), thirty-seven percent Hispanic, and forty-five
percent African-American; and Joliet Township was forty-five percent non-Hispanic white,

thirty-five percent Hispanic, and twenty-four percent African-American. Pursuant to the
settlement with HUD, Joliet must maintain 115 subsidized housing units at the property. This
leaves, at most, the relocation

of 240 ET families to a location of their choice, including in Joliet.

This few amount of people cannot be reasonably believed to affect the overall demographics of
Joliet or of ET's surrounding area, which has a population of 147,433 as of 2010. Therefore, this
circumstantial evidence relied on by New West/New Bluff cannot support the conclusion that
Joliet possesses a discriminatory intent.

Lastly, New West/New Bluff rely on the alleged comments
councilman Brophy, who they claim referred to the residents

Chicago." As the Court stated above, even

if

of

former Joliet city

of ET as oorats" or

'orats from

the comments were made, the comments were

spoken by a single city councilman at meetings with

HUD-not within an official legislative

setting and not representative of Joliet as a whole. The name-calling,

if

true, happened years

before the eminent domain ordinance for ET was passed. Moreover, the overwhelming evidence
shows that the City and its representatives were concerned with the crime, fire safety, unsanitary

conditions, functional obsolescence and overall blight at the property. Put another way, the City
was concerned about the health and safety of the residents of ET, not eliminating housing for
African-Americans in the

City. Additionally, Brophy is no longer on Joliet's city council,

and

there is no evidence that the current members have any discriminatory intent in their decision to
continue this eminent domain action. "Rats" has proven to be nothing more than a red herring.
There is simply no evidence that Joliet, through its legislative decision to take ET by eminent

50

{ Ir r

domain, was in any way motivated by racial discrimination. The evidence here fails to support a
conclusion of discriminatory intent in violation of the FHA.

2. No Discriminatory Elfect

A party may be in violation of the FHA in some circumstances even in the

absence

of

discriminatory intent, based on the discriminatory effect of the actions. Arlineton Heieahts II,
558 F.2d at 129A. Longstanding case law provides, however, that a discriminatory effect under

the FHA does not exist simply because there is some identifiable negative effect. Instead, the

FHA's concem with discriminatory effect is to preclude municipalities from systematically
depriving minorities of housing opportunities. ld. at 1289. Therefore, the Seventh Circuit has
repeatedly held that only significant or substantial discriminatory effects that actually affect the

availability of housing by a racial group can constitute a violation of the

FHA. Id.;

South-

Suburban Hous. Ctr. v. Greater S. Suburban Bd. of Realtors,935F.2d 868,888 (7th Cir. 1991);

Vill. of Bellwood v. Dwivedi, 895 F.2d 1521,

1533 (7th Cir. 1990); Southend Neiehborhood

Improvement Ass'n v. Cnty. of St. Clair,743 F.2d 1207,1209-1210 (7th Cir. l98a); see also
Hispanics United of DuPage Co. v.

Vill. of Addison,

988 F. Supp. 1130, 1156 (N.D.

Ill.

1997)

(focusing on evidence of substantial disparate impact).
There are two kinds of discriminatory effect: (1) where the act complained of has "a
greater adverse impact on one racial group than on anothero" and (2) when the act perpetuates
segregation and prevents interracial association. Arlington Heights
WestA.{ew

II

558 F.2d at 1291. New

Bluff contend that Joliet's pattern and practice of discrimination aimed at making

housing within Joliet unavailable to African-Americans, through the instant condemnation action
and its practice of demolishing nearly all the public housing in the city, results in both tlpes

51

of

a{!r

discriminatory effect under Arlington Heights
WestA.{ew

II.

In an attempt to prove these allegations, New

Bluff proceed under a modified disparate impact theory.ll

The Seventh Circuit has developed a four factor balancing test to determine whether FHA

disparate impact claimants have established their prima facie case: (1) the strength

of the

showing of discriminatory effect; (2) the presence of some evidence of discriminatory intent,
even

if circumstantial

and less than sufficient to satisfy Washington v. Davis,426 U.5.229

(1976); (3) the offending party's interest in taking the action complained of, and (4) whether the
moving parties seek to compel the opposingparty to affirmatively provide housing for members

of minority groups or merely restrain the opposing party from interfering with individual
property owners who wish to provide such housing. Arlinston Heiehts

II, 558 F.2d at 1290.

As to the first factor, New WestA.{ew Bluff fail to show a significant, negative effect
from Joliet's use of eminent domain on ET. It is inevitable that any redevelopment or reduction

in units at ET will disproportionately affect African-Americans-ET residents are over ninety
percent African-American. But, Joliet's plan, as set forth in the settlement agreement with HUD,

eliminates any substantial or negative effects. Any units removed in the redevelopment of the

property

will be replaced with a housing

choice voucher that can be used

in the same

neighborhood, Joliet Township, or other areas of Joliet and the surrounding areas which have
lower minority and low-income populations,

if the voucher-holders

so choose. Pursuant to the

Joliet-HUD settlement, voucher-holders will be assured of finding housing in Joliet

if they so

desire. Nevertheless, New West/New Bluff argue that there would still be a discriminatory effect

"

The Court notes that the United States Supreme Court has yet to decide the issue of whether disparate
impact claims are even cognizable under the FHA. See Twp. of Mt. Holl),. N.J. v. Mt. Holly Gardens
Citizens in Action. Inc., No. 11-1507 (S. Ct. Nov. 13,2013) (dismissing case on question of whether
disparate impact claims are cognizable under the FHA prior to oral argument and decision due to
settlement of the parties). Thus, this Court proceeds under the current law in this circuit which provides
for disparate impact claims under the FHA. See Arlineton Heiehts II, 558 F.2d at 1290.
52

(ftv

or perpetuation of segregation

if

some residents who are given vouchers choose to leave the

neighborhood or Joliet and go to areas that are even more concentrated with low-income or

minority residents. However, providing the residents of ET with the ability to exercise increased
choice over where they live, even

if it is not to a statistically

preferable location, is not the kind

of effect that the FHA is intended to prevent. Accordingly, this factor does not weigh in favor

of

New WestAllew Bluff s disparate impact claim.

With respect to the second factor, the Court has already determined that New WestA.{ew

Bluff fail to present any evidence of Joliet acting with a discriminatory intent. Similarly, the
third factor also weighs against New West/New Bluff s claim because the Court found that Joliet
has two valid public purposes for which to take the
as a public

property-the elimination of blight and

use

park. With three out of the four balancing factors weighing heavily in favor of Joliet,

the Court concludes that New WestA.{ew Bluff have failed to meet their burden of establishing a

prima facie claim of disparate impact. Thus, the Court rejects New West/New Bluff s claim that
Joliet's exercise of eminent domain will have a discriminatory effect in violation of the FHA.

53

.

III.

CONCLUSION

For the foregoing reasons, the Court rules in favor of Joliet on all of its claims, and
against New WestA.{ew

Bluff on all of their claims. The parties may now proceed to the takings

phase of this eminent domain action.

IT IS SO ORDERED.

ENTER:

CHARLES RONALD N
United States District Court

DATE:

September 17,2014

54