Supreme Court Summaries

Opinions filed February 2, 2012

Innovative Modular Solutions v. Hazel Crest School District 152.5, 2012 IL 112052

Appellate citation: 407 Ill. App. 3d 143.

CHIEF JUSTICE KILBRIDE delivered the judgment of the court, with opinion.

Justices Freeman, Thomas, Garman, Karmeier, Burke, and Theis concurred in the judgment and opinion.

Effective December 6, 2002, the General Assembly adopted the Downstate School Finance Authority for Elementary Districts Law, which permits the creation of separate entities to manage the finances of troubled public school districts. On December 9, 2002, the Hazel Crest School District Finance Authority was created to administer the finances of that Cook County school district. Pursuant to the enabling statute, the new authority had the power "to make, cancel, modify, and execute contracts, leases, subleases, and all other instruments or agreements."

The plaintiff in this Cook County lawsuit, Innovative, had four contracts of five years each to lease portable classrooms to the school district at different locations. Each lease contract had a provision for payment of fees on cancellation or default. The new authority ultimately cancelled all the leases prior to their expiration, but no fees for cancellation were paid. The Authority instructed the school district not to pay. Seeking compensation, Innovative is the appellant in the supreme court.

The supreme court said here that the purpose of the enabling statute is to permit a school district to continue in operation "while permitting the district to meet its obligations to its creditors and the holders of its debt." The Authority does not have the power to discharge a school district's lawful debt, and the supreme court declined to construe the Law as providing bankruptcy relief for school districts facing financial difficulty. The supreme court did not agree with the appellate court's theory that it was legally impossible for the district to pay. The doctrine of legal impossibility is not applicable where, as here, the Authority's refusal to pay Innovative what it was owed was itself invalid. The court noted that the Authority has the power to borrow money and levy property taxes for the benefit of the school district.

Insofar as the circuit court had entered a declaratory judgment in favor of Innovative, finding that the Authority had to comply with the cancellation terms of the leasing contracts, it was affirmed.

The cause was remanded to the circuit court for further proceedings in accordance with these principles.