author: JUSTICE McNAMARA PRESIDING JUSTICE RAKOWSKI,

text:
    JOSEPH ROCK, Plaintiff-Appellant, v. JACK R. PICKLEMAN, Defendant-Appellee.
    First District (6th Division)
    No. 1—90—0427
    Opinion filed February 1, 1991.
    Modified on denial of rehearing June 21, 1991.

      RAKOWSKI, P.J., specially concurring.
    Lisco & Field, of Chicago (Robert F. Lisco, of counsel), for appellant.
    Baker & McKenzie, of Chicago (Francis D. Morrissey, J. Patrick Herald, and Michael A. Pollard, of counsel), for appellee.
   JUSTICE McNAMARA

delivered the opinion of the court:

Plaintiff, Joseph Rock, filed a medical malpractice suit against defendant, Dr. Jack Pickleman, alleging that defendant negligently administered multiple enemas which caused plaintiff to sustain a heart attack. Upon defendant’s motion made the morning of trial, the trial court barred plaintiff from presenting Dr. Milner’s expert testimony on the applicable standard of care, then granted defendant’s motion for summary judgment after plaintiff’s counsel stated that without his expert’s testimony, he would be unable to establish the standard of care. Plaintiff filed a post-judgment motion to vacate the summary judgment and for additional time to substitute a new expert. The trial court denied both motions. Plaintiff appeals, contending that barring his expert’s testimony and denying his motion to vacate were erroneous rulings.

According to plaintiff’s complaint, in early August 1982, he underwent triple bypass heart surgery at Foster McGaw Hospital. A few weeks later, while recovering at home, plaintiff inadvertently swallowed a toothpick, which lodged in his rectum and caused an ischiorectal abscess. On August 23, 1982, plaintiff was again admitted to Foster McGaw Hospital, where defendant performed ischiorectal repair surgery. During plaintiff’s postoperative recovery, defendant ordered that plaintiff receive three or four enemas or “until clear.” On August 25, 1982, plaintiff received five enemas. While the enemas were being administered, plaintiff developed pain in the left side of his chest and his enzyme level increased, indicating myocardial damage. The complaint alleged that plaintiff suffered a heart attack which resulted from the stress caused by the multiple enemas. Plaintiff was transferred to the coronary unit on August 26 and remained in the hospital until September 4, 1982.

Plaintiff filed this suit in April 1983. On January 21, 1985, the motion judge ordered plaintiff to disclose his experts by March 20, 1985. After several continuances which allowed plaintiff additional time to disclose his expert, defendant filed a motion on August 3, 1987, to bar plaintiff from calling any expert at trial. By August 26, 1987, however, plaintiff identified Dr. Larry Milner as his expert under Supreme Court Rule 220 (134 Ill. 2d R. 220), and the court entered and continued the motion to bar.

Dr. Milner, a board-certified internist with subspecialties in hematology and oncology, never performed surgery. He had, however, treated many patients with rectal abscesses and regularly treated cardiac patients. In his response to interrogatories, plaintiff indicated Dr. Milner’s conclusion:

“There was a breach of the standard of care by the attending physicians and surgeons caring for the plaintiff herein in that enemas should not have been prescribed for the patient who had suffered a recent myocardial infarction and the plaintiff was already at high risk for another myocardial infarction and a dilation of the rectum is known as an inciting factor for precipitating another myocardial infarction.”

At Dr. Milner’s deposition in June 1988, he testified that he asked plaintiff’s counsel to obtain a surgeon’s consultation prior to being deposed and completing his review in order to confirm his preexisting opinion that defendant was negligent. Indeed, according to Dr. Milner, without the surgeon’s opinion, he would not have felt qualified to give his own opinion. Dr. Milner specifically stated that he “would not consider [himself] as expert witness with relation to whether, from a surgical standpoint, [tap water enemas] are indicated or not.” For that reason, he requested a surgeon’s opinion.

Dr. Milner stated that in formulating his opinion, he relied upon a letter to plaintiff’s attorney from Dr. Mark Pomerantz. After reviewing plaintiff’s hospital records, Dr. Pomerantz, a board-certified surgeon, wrote:

“It is my considered surgical opinion that it was below the standard of care for the surgeons involved in this case to have administered enemas to this patient immediately after his rectal surgery in view of his recent myocardial infarction. He was already at high risk for another infarct, and dilation of the rectum was a known inciting factor for another infarction.”

Dr. George Block, defendant’s expert witness, testified at his deposition that defendant acted prudently in ordering enemas and that the enemas had a “miniscule” effect on plaintiff.

When the trial began on December 6, 1989, 18 months after Dr. Milner’s deposition, defendant for the first time made a motion in limine to bar Dr. Milner from testifying at trial, contending that: the doctor admitted in his deposition that he was not qualified to testify as to an expert surgical standard of care; and Dr. Pomerantz’s letter was not a proper basis for Dr. Milner’s expert opinion. Plaintiff responded that postoperative care, not surgical care, was the central issue, that Dr. Milner was properly qualified to render an expert opinion, and that Dr. Pomerantz’s letter merely confirmed Dr. Milner’s own opinion. Plaintiff’s counsel also informed the trial court that without the testimony of Dr. Milner, plaintiff’s case would be effectively terminated.

The trial court granted defendant’s motion in limine barring Dr. Milner’s testimony. The trial court referred to Dr. Milner as “a surrogate of Dr. Pomerantz” and concluded that all Dr. Milner offered was his opinion that he himself was unqualified and Dr. Pomerantz’s opinion that defendant did not meet the applicable standard of care. The trial court apparently agreed that Dr. Milner was qualified as an expert in the treatment of patients with rectal abscesses and cardiac conditions in nonoperative settings.

Plaintiff again reminded the court that without Dr. Milner’s testimony, he would not have an expert available to establish the standard of care. Defendant therefore immediately presented a summary judgment motion, supported by Dr. Block’s deposition and defense counsel’s affidavit. In the absence of any evidence to contradict defendant’s expert, the trial court granted summary judgment in favor of defendant.

Plaintiff thereafter moved to vacate the summary judgment order and requested additional time to substitute a new expert. Plaintiff’s counsel argued, among other things, that he was taken by surprise by the motion in limine filed on the morning of trial 18 months after Dr. Milner’s deposition. The trial court denied the motion after a hearing on January 22,1990.

Plaintiff first contends that the trial court erred in finding Dr. Milner unqualified to render an expert medical opinion on the applicable standard of medical care. Plaintiff asserts that Dr. Milner established at his deposition sufficient experience and knowledge to qualify him as an expert. Plaintiff states that although Dr. Milner is not a surgeon, the disputed medical procedure was not surgical, as the trial court expressly recognized. Further, plaintiff maintains that although Dr. Milner relied on Dr. Pomerantz’s letter, he formulated his own opinion and used the letter merely to “buttress his preexisting opinion.” Defendant responds that Dr. Milner’s admitted lack of expertise on the issue in the case required the court to find him unqualified, relying on Landers v. Ghosh (1986), 143 Ill. App. 3d 94, 491 N.E.2d 950.

We believe that the trial court erroneously concluded that Dr. Milner was unqualified.

In order for an expert medical witness to render an opinion on the proper standards of diagnosis, care and treatment, the party offering the expert must affirmatively establish the expert’s qualifications and competence to testify. (Purtill v. Hess (1986), 111 Ill. 2d 229, 489 N.E.2d 867.) An expert’s opinion is allowed on the basis of his knowledge or experience which may aid the trier of fact, and “the weight and value of expert testimony *** largely depends on the foundations of fact and reason upon which the opinion stands.” Skaug v. Johnson (1975), 29 Ill. App. 3d 238, 242, 330 N.E.2d 265, 268.

Here, the trial court based its decision to bar Dr. Milner’s testimony on the doctor’s supposed “admission” that he was not qualified. The doctor’s statements, however, must not be taken out of context. A complete reading of the deposition shows that Dr. Milner unequivocally questioned the propriety of ordering multiple enemas for plaintiff, who was already at risk for another heart attack. Although Dr. Milner requested a surgeon’s input before presenting his opinion, he relied upon the surgeon only to confirm his independently formed opinion. Indeed, he distinctly and unmistakeably expressed his disagreement with defendant’s judgment in ordering the enemas, stating at his deposition:

“My criticism was that an enema was ordered that was not, according to me, necessary. And that since the patient had had recent heart surgery there should have been an awareness that this would have put him at risk of recurrent MI and I felt that the MI that developed did occur from the incident of the enemas. And therefore, I felt that there was a deficiency in the standard of care in ordering the enemas in the first place.”

Defendant mischaracterizes the doctor’s testimony, attempting to show that Dr. Milner relied entirely upon the surgeon’s letter in forming his opinion. However, a thorough reading of Dr. Milner’s deposition shows that he plainly and repeatedly articulated his opinion that defendant’s care was negligent. Our review of the deposition does not indicate that Dr. Milner was a surrogate of Dr. Pomerantz.

Defendant relies principally on Landers v. Ghosh to support his argument that Dr. Milner’s alleged “admissions” disqualified him as an expert. In Landers, the trial court excluded the testimony of plaintiff’s expert, a pathologist, on the reparability of a wound. Based upon the pathologist’s statements that he was not qualified to state whether one wound was reparable and another not, the court concluded that the witness did not believe that he was qualified and, as such, was, in fact, not qualified. This court affirmed, concluding that the trial court did not abuse its discretion.

We find Landers distinguishable. In Landers, the plaintiff imprudently offered a pathologist to testify about a surgical procedure, the likelihood of the reparability of a wound. By contrast, in the present case, plaintiff offered Dr. Milner, an internist, to testify about a nonsurgical procedure. The trial court here explicitly recognized that the alleged malpractice related to the attendant medical care and that the proper standard of care was not surgical. Because the care of an infection, like plaintiff’s, is not exclusively within the domain of surgery, a pathologist or internist may be sufficiently qualified to testify on the issue. Unlike this case, in Landers, the defendant offered a pathologist to testify as to an obviously surgical procedure, the reparability of a wound.

We also believe that Dr. Milner could properly rely on Dr. Pomerantz’s letter in forming his opinion. Under Rule 703 of the Federal Rules of Evidence (Fed. R. Evid. 703), as adopted by our supreme court in Wilson v. Clark (1981), 84 Ill. 2d 186, 196, 417 N.E.2d 1322, 1327, an expert may rely on data presented to him “outside of court and other than by his perception,” so long as it is of a type ordinarily relied upon by experts in the field in forming their opinions. (Fed. R. Evid. 703.) Further, the Federal Advisory Committee’s note further recognizes:

“[T]he rule is designed to broaden the basis for expert opinions beyond that current in many jurisdictions and to bring the judicial practice into line with the practice of the experts themselves when not in court. Thus a physician in his own practice bases his diagnosis on information from numerous sources and of considerable variety, including statements by patients and relatives, reports and opinions from nurses, technicians and other doctors, hospital records, and X rays.” (Emphasis added.) Fed. R. Evid. 703, advisory committee note.

We find that the holding in Melecosky v. McCarthy Brothers Co. (1986), 115 Ill. 2d 209, 503 N.E.2d 355, is instructive. In Melecosky, the trial court excluded the expert testimony of a nontreating doctor consulted solely to render an opinion at trial because the expert relied in part on plaintiff’s unsworn subjective statements about his injuries. The supreme court reversed the trial court’s exclusion of the expert’s opinions, concluding that because a doctor in his own practice ordinarily relies on a patient’s statements, then so too could a testifying expert. The court recognized the value of cross-examination and the role of the jury, stating:

“[Defendants would have been free to bring out the fact that [the expert’s] opinion was based upon plaintiff’s subjective statements and could have suggested to the jury that plaintiff had reason to exaggerate his symptoms. It would have then, been up to the jury to decide what weight to give to [the expert’s] opinion.” (Melecosky, 115 Ill. 2d at 216-17, 503 N.E.2d at 358.)

In so deciding, the Melecosky court quoted with approval the statement of the circuit court of appeals that “ ‘[g]reat liberality is allowed the expert in determining the basis of his opinions under Rule 703. Whether an opinion should be accepted is not for the trial judge. That is for the finder of fact.’” Melecosky, 115 Ill. 2d at 216, 503 N.E.2d at 358, quoting Mannino v. International Manufacturing Co. (6th Cir. 1981), 650 F.2d 846, 853.

Here, Dr. Pomerantz’s statement is similar to the statements in Melecosky because both are ordinarily relied upon by doctors in forming opinions. Just as doctors commonly rely upon their patients’ statements, doctors frequently consult other doctors, often specialists, and find them reliable in forming opinions. (See Piano v. Davison (1987), 157 Ill. App. 3d 649, 672, 510 N.E.2d 1066, 1082 (“Reports and opinions from other doctors are considered facts or data reasonably relied upon by experts in the field”).) Moreover, as the committee’s note shows, the drafters of Rule 703 explicitly envisioned that a testifying expert would rely on other doctors’ opinions. Thus, Dr. Milner’s reliance on Dr. Pomerantz’s opinion was reasonable and sufficiently trustworthy.

Defendant relies primarily on Dugan v. Weber (1988), 175 Ill. App. 3d 1088, 530 N.E.2d 1007, to support his argument that Dr. Pomerantz’s letter is not the type of information reasonably relied upon by experts. In Dugan, the trial court precluded defendant’s expert, Dr. Weil, from relying on the report of another doctor, Dr. Sheinkop, as a basis for his opinion. This court affirmed, concluding that the medical report prepared by Dr. Sheinkop was not of the type normally relied upon by experts in their own practice. Rather, the Dugan court wrote that “the reports envisioned by the [supreme] court as providing reliability were reports made and utilized during the course of medical practice, not reports formed for litigation purposes.” Dugan, 175 Ill. App. 3d at 1098, 530 N.E.2d at 1013.

We find Dugan to be distinguishable for several reasons. First, in Dugan the expert at issue, Dr. Weil, relied not only upon another doctor’s report, but also upon the doctor’s deposition. Unlike a deposition, which is secured solely for litigation purposes, a doctor’s brief oral or written consulting opinion may be used simply to assist a doctor in formulating his own diagnosis. In fact, consults by nontreating doctors are so customary that such opinions are sufficiently trustworthy and credible to make reliance reasonable. Further, although informal oral consults may be more common, a brief, written consult does not differ in substance from an oral consult. The writing itself may, in fact, enhance the opinion’s reliability.

Second, in Dugan, the expert doctor relied upon another doctor’s report made after a physical examination of plaintiff and a transcript of the doctor’s subsequent deposition. By contrast, Dr. Milner relied only upon a five-sentence letter from Dr. Pomerantz.

Third, in Dugan, before trial, Dr. Weil indicated at his deposition that he had no opinion on plaintiff’s disability or on the findings in Dr. Sheinkop’s report. This court noted that the expert’s later use of Dr. Sheinkop’s report would be inconsistent with his deposition statement. Unlike the expert in Dugan, Dr. Milner at his deposition unambiguously and without hesitation stated his opinion as to defendant’s negligence and openly indicated his reliance upon and agreement with Dr. Pomerantz. Thus, the Dugan court’s concern about the expert’s inconsistent statements is absent here. The Dugan court was also troubled by the fact that the defendant originally engaged Dr. Sheinkop as his expert and later refused to produce him, despite numerous opportunities to do so. The court believed that Dr. Sheinkop’s report was, in fact; unfavorable to defendant’s position. Such situation also distinguishes Dugan from this case.

Nor do we believe that Denny v. Burpo (1984), 124 Ill. App. 3d 73, 463 N.E.2d 1074, requires us to conclude that Dr. Milner could not reasonably rely upon Dr. Pomerantz’s letter. In Denny, on cross-examination, plaintiff’s counsel asked defendant’s expert witness, Dr. Scrivner, whether he agreed with statements published in a medical journal about the origin of the medical condition at issue. Dr. Scrivner responded that several days before he “posed this very case to [Dr. Fair, the head of the hospital urology department],” and then recited the specifics of Dr. Fair’s contrary opinion. (124 Ill. App. 3d at 77.) The Denny court, in a split decision, found Dr. Scrivner’s report of Dr. Fair’s statement inamissible hearsay because it related to the origin of plaintiff’s specific claim, not the journal article, and was “unresponsive” to the question asked. We find Denny distinguishable. Unlike plaintiff in Denny, who did not learn of Dr. Scrivner’s reliance on Dr. Fair’s opinion until cross-examination, defendant here knew about Dr. Pomerantz’s opinion 18 months before trial was to begin. He, therefore, had extensive access through discovery to information comprising the foundation of Dr. Milner’s opinion and would have had the ability to challenge that foundation during cross-examination. The extent to which defendant actually availed himself of discovery measures is of no import. We also believe that the supreme court’s decision in Melecosky v. McCarthy Brothers Co. (1986), 115 Ill. 2d 209, 503 N.E.2d 355, effectively rejects the holding of Denny.

In sum, we believe the trial court erred in precluding Dr. Milner from testifying as an expert because he relied on Dr. Pomerantz’s opinion in forming his own opinion as to defendant’s negligence. We thus reverse the trial court’s order granting defendant’s motion in limine.

It follows that the summary judgment order must also be reversed. The trial court granted summary judgment based upon defendant’s expert’s deposition and the complete lack of any expert testimony by plaintiff to contradict defendant’s expert. If the trial court had allowed Dr. Milner’s testimony, as we have concluded that it should have, the experts’ conflicting testimony on the standard of care would have adequately established reasonability on a key issue of fact sufficient to preclude summary judgment for defendant. Mahrenholz v. County Board of School Trustees (1984), 125 Ill. App. 3d 619, 466 N.E.2d 322.

Although in view of the above holding, it is not necessary to consider plaintiff’s other contention on appeal, we shall briefly discuss the issue. Plaintiff maintains that the trial court erred in denying his motion to vacate the summary judgment in order to give him time to obtain another expert opinion. Plaintiff filed the timely motion to vacate two weeks after the court granted summary judgment in favor of defendant.

This case is unlike many other decided cases where summary judgment was granted after plaintiff failed to offer an opinion critical of defendant’s care despite ample time and numerous continuances. (See Brandeis v. Salafsky (1990), 206 Ill. App. 3d 31, 563 N.E.2d 1026; Smith v. South Shore Hospital (1989), 187 Ill. App. 3d 847, 543 N.E.2d 868; Gordon v. Nasr (1989), 182 Ill. App. 3d 964, 538 N.E.2d 843; Bennett v. Raag (1982), 103 Ill. App. 3d 321, 431 N.E.2d 48.) Here, plaintiff retained Dr. Milner well in advance of trial and submitted him for deposition 18 months before trial. Moreover, as previously noted, Dr. Milner’s deposition testimony unambiguously criticized defendant’s care.

As defendant correctly states, a summary judgment motion may be brought at any time (Ill. Rev. Stat. 1989, ch. 110, par. 2—1005(b)), even on the first day of trial. However, plaintiff’s surprise at having to defend Dr. Milner’s qualifications at the start of trial was understandable given that defendant knew for so long about Dr. Milner’s reliance on Dr. Pomerantz without ever indicating an objection. Therefore, plaintiff could not reasonably anticipate Dr. Milner’s disqualification and after his timely request should have been allowed additional time to obtain a new expert.

Plaintiff adequately demonstrated that, given a reasonable amount of time, he would be able to present such expert medical testimony. It is evident that he could obtain the requisite expert opinion either through Dr. Milner or Dr. Pomerantz, possibly even offering Dr. Pomerantz as that expert "witness.

We cannot see sufficient prejudice to defendant in this case to justify overriding plaintiff’s right to proceed to trial on the merits. We believe that presented with the motion to vacate, the trial court should have balanced the interests of the parties by fashioning an order allowing plaintiff a reasonable period of time to obtain a new expert.

For the foregoing reasons, the judgment of the circuit court of Cook County barring Dr. Milner from testifying and granting summary judgment in favor of defendant is reversed, and the cause is remanded for further proceedings consistent with this opinion.

Reversed and remanded.

LaPORTA, J., concurs.

PRESIDING JUSTICE RAKOWSKI,

specially concurring:

I concur, for reasons set forth in the majority opinion, that Dr. Milner was qualified to testify as an expert with respect to a post-operative standard of care. For this reason I agree that the motion in limine should have been denied.

Where the majority and I differ is with respect to whether Dr. Milner could properly rely upon and utilize Dr. Pomerantz’s letter in the formulation of his opinion. I respectfully submit that he could not. While it is true that Dr. Milner had an opinion that there was a breach of the applicable standard of care in a post-operative setting, he had no opinion whatsoever as to whether defendant’s actions were proper in a surgical setting; he relied exclusively upon the Pomerantz letter. In effect, rather than utilize the Pomerantz letter in the formulation of his own opinion, Dr. Milner is expressing Dr. Pomerantz’s opinion with respect to an area (surgery) in which he (Milner) has no expertise. It is for this reason that the Pomerantz letter is not the type of outside data “reasonably relied upon by experts in the particular field in forming their opinions.” See Fed. R. Evid. 703; Wilson v. Clark (1981), 84 Ill. 2d 186, 417 N.E.2d 1322.

Thus, while I agree that a doctor may consider opinions of other doctors in the formulation of his own opinion, he should not be allowed to adopt another doctor’s opinion as his own with respect to an area in which he has no expertise. Contrary to the majority, I find nothing in Melecosky v. McCarthy Brothers Co. (1986), 115 Ill. 2d 209, 503 N.E.2d 355, or Federal Rule 703 that would sanction such a result. More applicable to the present situation is the case of Denny v. Burpo (1984), 124 Ill. App. 3d 73, 463 N.E.2d 1074. There the court held that a consulting expert’s opinion of a case could not be characterized as information of the type “reasonably relied upon” in the field because the consulting expert was speaking with regard to a specific case, not from general medical knowledge. (124 Ill. App. 3d at 77-78.) It is my opinion that Dr. Milner’s reliance upon and utilization of the Pomerantz letter would amount to inadmissible hearsay in accord with Denny.


source: Caselaw Access Project

author: JUSTICE RIZZI

license: Public Domain

text:
    KATHLEEN BOONSTRA, Independent Adm'r with the Will Annexed of the Estate of Joseph Zawistowski, Deceased, Indiv. and on Behalf of All Persons Similarly Situated, Plaintiff-Appellant, v. THE CITY OF CHICAGO, Defendant-Appellee.
    First District (3rd Division)
    No. 1—89—2759
    Opinion filed March 6, 1991.
    Modified on denial of rehearing June 12, 1991.

      Edward A. Cohen, Carolyn M. Schiess, and Ward L. Zielinski, of Chicago, for appellant.
    Kelly R. Welsh, of Chicago (Ruth M. Moscovitch and Frederick S. Rhine, of counsel), for appellee.
   JUSTICE RIZZI

delivered the opinion of the court:

Plaintiff Kathleen Boonstra, administrator of the estate of Joseph Zawistowski, deceased, filed a citation petition against defendant City of Chicago for recovery of assets belonging to the decedent’s estate. Plaintiff’s action was brought by plaintiff as administrator of the estate of Joseph Zawistowski, deceased, and as a class action on behalf of all administrators of estates similarly situated. Defendant filed a motion to dismiss the citation petition for failure to state a cause of action. The trial court granted the motion to dismiss. Plaintiff has appealed the order. We reverse and remand.

The asset that is involved in this case is public passenger vehicle license No. 2545, which is a Chicago taxicab license to operate a taxicab in the City of Chicago. The Illinois General Assembly has authorized each municipality, including the City of Chicago, to license and regulate taxicab operations within its municipality. (Ill. Rev. Stat. 1961, ch. 24, par. 11—42—6.) Pursuant to this legislation, in 1963 the City of Chicago adopted a comprehensive scheme for the licensing of taxicab operations in an ordinance entitled “Public Passenger Vehicles.” The ordinance included a provision for the issuance of taxicab licenses. The ordinance also provided for the creation of 4,600 taxicab licenses which were subject to a $60 annual renewal licensing fee. The ordinance further provided that all taxicab licenses which had not been revoked, cancelled or surrendered were entitled to renewal upon their expiration for the calendar year. In addition, the ordinance provided that taxicab “licenses and the rights and privileges herein granted shall be assignable” and in “the event of a licensee’s death, the assignment shall be made by his legal representatives.” (Chicago Municipal Code §28—9.1 (1963).) If a taxicab license was assigned to a qualified assignee, the taxicab license was “transferred to him by the Commissioner, subject to payment of a transfer fee of $50.00.” Chicago Municipal Code §28—9.1 (1963).

On March 3, 1981, Joseph Zawistowski purchased by assignment one of the taxicab licenses that had been previously issued by the City of Chicago, and pursuant to his ownership of the taxicab license, he became an independent taxicab operator/owner. In order to effectuate the assignment, Zawistowski completed an application and other standard forms provided by the City of Chicago for the assignment of taxicab licenses. The application and completed forms were filed with the City of Chicago and the assignment of the taxicab license was approved and accepted by the City of Chicago. The City of Chicago never rejected an application for assignment of a taxicab license from the time that the 1963 public passenger vehicles ordinance was adopted.

On July 16, 1982, the commissioner of the Department of Consumer Services of the City of Chicago (Commissioner) unilaterally issued a moratorium on the assignment of all taxicab licenses. On July 26, 1982, however, a Federal district court issued a preliminary injunction ordering the Commissioner to process the licensees’ assignments of their licenses in the ordinary course of the established procedure. (See Flower Cab Co. v. Petitte (N.D. Ill. 1987), 658 F. Supp. 1170, 1172.) The seventh circuit granted the City of Chicago’s motion for a stay pending appeal. Flower Cab Co. v. Petitte (7th Cir. 1982), 685 F.2d 192.

On September 15, 1982, while the Flower Cab case was pending in the seventh circuit, the City of Chicago passed an ordinance which contained several amendments dealing with taxicab licenses. One of the amendments repealed chapter 28, section 28—9.1, and created a new provision retroactively banning the assignment of taxicab licenses as of July 16, 1982, the date of the moratorium that had been set by the Commissioner. (Chicago Municipal Code §28—8 (1982); see Flower Cab Co. v. Petitte (N.D. Ill. 1987), 658 F. Supp. 1170, 1173.) The 1982 ordinance provides:

“No license issued pursuant to this chapter shall be assigned, transferred, sold, pledged, encumbered or hypothecated, either voluntarily or involuntarily; nor shall it be subject to attachment, garnishment or execution.” Chicago Municipal Code §9—112-130 (1982).

See also Chicago Municipal Code §9—112—130 (1990).

On October 7, 1982, the seventh circuit vacated the Federal district court’s preliminary injunction in the Flower Cab case. In addition, noting the change in circumstances created by the passage of the September 15, 1982, ordinance by the City of Chicago, the seventh circuit remanded the case to the district court to consider the effect of the new ordinance on the case. Flower Cab Co., 658 F. Supp. at 1173.

In the meantime, Zawistowski paid the annual fee for the renewal of his taxicab license for the years 1982 through 1984, and the license was renewed. On November 2, 1984, however, Zawistowski died. Two days after his death, the City of Chicago, through its agent, went to the decedent’s home and demanded and received the taxicab license on the premise that after the City of Chicago ordinance was amended in 1982, the taxicab license was not assignable and it therefore belonged to the City of Chicago. No compensation was given for the taking of the taxicab license. Prior to the time that the City of Chicago ordinance was amended in 1982, a taxicab license had a market value ranging from $25,000 to $27,000.

On March 27, 1987, the Federal district court entered a summary judgment in the Flower Cab case. (Flower Cab Co. v. Petitte (N.D. Ill. 1987), 658 F. Supp. 1170, 1178.) The Federal district court found that the action of the Commissioner in 1982, which imposed a moratorium on the assignment of taxicab licenses, violated the procedural and substantive due process rights of taxicab licensees as a matter of law. The Federal district court also found that the licensees in the case before it were entitled to damages during the duration of the moratorium on the assignment of taxicab licenses. (Flower Cab Co., 658 F. Supp. at 1182.) The City of Chicago did not appeal the Flower Cab case.

In January 1988, however, the City of Chicago passed another ordinance which repealed the prohibition against the assignment of taxicab licenses and again authorized the assignment of taxicab licenses. The 1988 ordinance provided that all taxicab licenses “shall be freely transferable to any person qualified under the provision of this chapter to be a license holder.” The 1988 ordinance also provided that for purposes of the ordinance, “the word ‘transfer’ shall include buying, selling and assigning a license or licenses.” Chicago Municipal Code §28—19(f)(1) (1988).

In July 1990, the Municipal Code of the City of Chicago (Code) was reorganized and recodified for the first time in over 50 years. The 1990 Code includes both the 1988 ordinance which permits the transfer of taxicab medallions (Chicago Municipal Code §28—19(f)(1) (1988), recodified as §9—80—130 (1990)), and the 1982 ordinance which prohibits the transfer of taxicab medallions (Chicago Municipal Code §9—112—130 (1990)). Although the two ordinances appear to be inconsistent, the City apparently ignores the 1982 ordinance that is included in the 1990 Code, and permits the transfer of taxicab medallions pursuant to the 1988 ordinance that is included in the 1990 Code.

The 1990 Code was adopted while the case sub judice and a companion class action case remain pending. (See Dilanjian Taxi Service, Inc. v. City of Chicago (1990), 203 Ill. App. 3d 300, 560 N.E.2d 1195.) The Dilanjian case is pending in the circuit court of Cook County chancery division after a dismissal of the case for a lack of standing was reversed on appeal. The only real difference between the Dilanjian case and the present case is the fact that the present case involves a decedent’s estate and therefore emanates from the probate division of the circuit court of Cook County.

In the present case, the citation petition alleges that the plaintiff’s decedent had a constitutionally protected property interest in the taxicab license and its assignability. In addition, the citation petition alleges that the 1982 ordinance of the City of Chicago is unlawful and unconstitutional because it deprives the plaintiff’s decedent’s estate of property rights without due process of law in the following particulars: (1) it abrogates one’s property rights without notice and an opportunity for a hearing; (2) it allows the taking of one’s property without just compensation; and (3) it is wholly without any rational basis and fails to serve any legitimate governmental interest. Finally, the citation petition alleges that the plaintiff was injured by the unconstitutional ordinance of 1982 in that the City of Chicago took specific property “which belongs to and was an asset of the estate, without any compensation.”

In its motion to dismiss, the City of Chicago contends that a “taxicab license is not property” and that “even if one assumes that an assignable taxicab license constitutes property, as long as it acts through the legislative process, the government may reorder the property rights of its citizens as it chooses even depriving citizens of property.” The motion therefore concludes that because the City of Chicago does not have “possession or control of any personal property of the Decedent” the “Citation Petition should be dismissed.”

On appeal, the City of Chicago first argues that we lack jurisdiction to hear this appeal. The City of Chicago states: “The order dismissing the petition does not indicate that the motion is with prejudice. The dismissal of a complaint under §2—615 [of the Code of Civil Procedure (Ill. Rev. Stat. 1989, ch. 110, par. 2—615)] has generally been held not to be appealable unless it contains a statement that the dismissal is with prejudice, since it is otherwise not apparent whether the trial court believed that it was impossible for plaintiff to state a cause of action, or merely that the present complaint was insufficient.” We disagree.

The appealability of an order is determined by its substance rather than its form. Where a dismissal is based upon a determination that the complaint is not sufficient to state a cause of action, the order is final and appealable by its nature. Thus, an order of dismissal for failure to state a cause of action which is not followed by a request to amend is a final, appealable order and does not require a specific declaration by the plaintiff that he wishes to stand on the complaint. In addition, an order is not deprived of finality merely because it does not include the words “with prejudice.” (See In re Estate of Hopkins (1988), 166 Ill. App. 3d 652, 655, 520 N.E.2d 415, 417; Dunavan v. Calandrino (1988), 167 Ill. App. 3d 952, 957, 522 N.E.2d 347, 349 (effect of involuntary dismissal); Ill. Rev. Stat. 1989, ch. 110½, par. 273.) We therefore hold that where, as here, a plaintiff neither sought nor received permission to amend her complaint, the order of dismissal for failure to state a cause of action is a final and appealable order.

The City of Chicago also contends that the order appealed from in this case is not a final and appealable order “because the trial court did not address the class allegation of the petition.” We disagree. Although the citation petition was filed “individually and on behalf of all persons similarly situated,” no motion had been made and no order had been entered for class certification when the case was dismissed for failure to state a cause of action. Under the circumstances, we conclude that the order entered by the trial court disposed of the case completely and ended the litigation in the trial court. We therefore hold that the order from which the appeal is being taken is a final and appealable order. See Rutan v. Republican Party of Illinois (7th Cir. 1989), 868 F.2d 943, 946-47, aff'd in part & rev’d in part on other grounds (1990), 497 U.S. 62, 111 L. Ed. 2d 52, 110 S. Ct. 2729.

We next address the issues in the City of Chicago’s motion to dismiss. Whether the plaintiff has a constitutionally protected property interest in the taxicab license and its assignability must be assessed by analyzing the nature of a property interest. The hallmark of constitutionally protected property is an individual entitlement which cannot be removed except for cause or with just compensation. The types of interests which contain this entitlement are varied and virtually impossible to identify under any nomenclature. Some examples of interests which have been held to be a constitutionally protected property interest, however, are enlightening: Barry v. Barchi (1979), 443 U.S. 55, 61 L. Ed. 2d 365, 99 S. Ct. 2642 (horse trainer’s license protected); Mathews v. Eldridge (1976), 424 U.S. 319, 47 L. Ed. 2d 18, 96 S. Ct. 893 (disability benefits); Bell v. Burson (1971), 402 U.S. 535, 29 L. Ed. 2d 90, 91 S. Ct. 1586 (driver’s license); Goldberg v. Kelly (1970), 397 U.S. 254, 25 L. Ed. 2d 287, 90 S. Ct. 1011 (welfare benefits); see Logan v. Zimmerman Brush Co. (1982), 455 U.S. 422, 71 L. Ed. 2d 265, 102 S. Ct. 1148.

We believe that the examples of interests, stated above, which have been held to be constitutionally protected property interests share the same characteristics as taxicab licenses and their assignability. It would certainly be incongruous to conclude that a horse trainer’s license is a protected property interest under the fourteenth amendment, as was done in Barry, and that a taxicab license and its assignability is not a constitutionally protected property interest. See Logan v. Zimmerman Brush Co. (1982), 455 U.S. 422, 431, 71 L. Ed. 2d 265, 275, 102 S. Ct. 1148, 1155.

Moreover, the facts under which the taxicab license in the present case was issued and assigned support the conclusion that the taxicab license and its assignability is a constitutionally protected property interest. Here, the City of Chicago expressly limited the number of taxicab licenses to be issued and expressly provided that they were assignable. Also, the City of Chicago provided standard forms and applications for the assignment of the taxicab licenses, and the assignment forms and applications had to be filed with and approved by the City of Chicago. The City of Chicago never rejected an application for assignment. Under the circumstances, for more than 20 years, the City of Chicago, pursuant to its ordinance, plainly fostered and participated in the assignment of the taxicab licenses. In effect, the City of Chicago created for its citizens a public market place for the assignment of its taxicab licenses. Thus, the taxicab licenses in reality became more than just mere personal permits granted by a governmental body to a person to pursue some occupation or to carry on some business subject to regulation under the police power. (See Black’s Law Dictionary 829 (5th ed. 1979).) In a functional sense, the taxicab licenses embraced the essence of property in that they were securely and durably owned and marketable. See Flower Cab Co. v. Petitte (N.D. Ill. 1987), 658 F. Supp. 1170, 1175, quoting Reed v. Village of Shorewood (7th Cir. 1983), 704 F.2d 943, 948.

Plainly, the characteristics which the City of Chicago, itself, gave to its taxicab licenses and their assignability are all consistent with an individual entitlement which cannot be removed except for cause or with just compensation. We therefore conclude that the taxicab license in the present case is constitutionally protected property and its assignability is an important aspect in the assemblage of rights that comprise that property interest. (Flower Cab Co. v. Petitte (N.D. Ill. 1987), 658 F. Supp. 1170, 1176.) Thus, we hold that the taxicab license and its assignability is a constitutionally protected property interest pursuant to the fourteenth amendment.

The City of Chicago next contends that even if an assignable taxicab license constitutes property, the City of Chicago may reorder the property rights of its citizens if it chooses, even depriving citizens of its property. We, of course, do not dispute the City of Chicago’s right to amend existing legislation. Also, we recognize that a legislative body may elect not to confer a property interest as it chooses. A legislative body, however, may not authorize the deprivation of such an interest, once conferred, without appropriate constitutional safeguards. Thus, what the City of Chicago did here must be analyzed in constitutional terms.

One constitutional limitation on the right of a legislative body to amend or repeal legislation is a prohibition against affecting vested property rights without due process and just compensation. (See Sagittarius, Inc. v. Village of Arlington Heights (1980), 90 Ill. App. 3d 401, 413 N.E.2d 90.) Here, when the City of Chicago adopted the taxicab ordinance in 1963 and issued taxicab licenses which were assignable pursuant to the ordinance, it created and conferred property rights in the taxicab licenses which accrued to those persons who purchased the taxicab licenses as assignees and were approved by the City of Chicago. Thus, when the City of Chicago amended the taxicab ordinance in 1982 by summarily precluding those persons already having an assignable property interest in taxicab licenses from being able to assign their property interests, the City of Chicago’s action constituted a taking of property without due process and without just compensation. We therefore reject the City of Chicago’s contention.

The City of Chicago also contends that the plaintiff waived her due process argument because the citation petition “contains no allegations whatsoever concerning the purported lack of notice or indicating what the city did or did not do to afford notice to cab drivers and other interested persons prior to the passage of the ordinance.” The City of Chicago’s contention is without merit because the citation petition plainly alleges that the 1982 ordinance is unlawful and deprives the plaintiff of her property rights without due process of law, and that it “abrogates one’s property rights without notice and an opportunity for a hearing,” and “it allows the taking of one’s property without just compensation.” In addition, the citation proceeding makes factual allegations that are sufficient to support the plaintiff’s theory. In ruling upon a motion to dismiss, the court should deny the motion unless it clearly appears that no set of facts can be proved which would entitle the plaintiff to recover. (Ogle v. Fuiten (1984), 102 Ill. 2d 356, 360-61, 466 N.E.2d 224, 226.) Here, there is a set of facts alleged which, if proved, would entitle the plaintiff to recover. There is no issue of waiver by the plaintiff involved in either the trial court or on appeal. The City of Chicago’s contention is therefore untenable.

Next, we note that the transcript of the hearing before the trial court reflects the apparent reason that the trial court dismissed the citation petition. The trial court felt that because Zawistowski paid the annual fee for renewal of his taxicab license for the years 1983 and 1984, neither he nor his estate could challenge the constitutionality of the 1982 ordinance. We disagree.

As a result of the 1982 ordinance, Zawistowski’s taxicab license was no longer marketable, and not usable by him unless he paid the annual renewal fee. Thus, if he had not paid the annual renewal fee he would have voluntarily relinquished the taxicab license and use of his existing property interest in the taxicab license. If that had occurred, however, neither he nor his estate would have had standing to challenge the constitutionality of the 1982 ordinance. (See County Court v. Allen (1979), 442 U.S. 140, 154-55, 60 L. Ed. 2d 777, 790, 99 S. Ct. 2213, 2223; Kujawinski v. Kujawinski (1978), 71 Ill. 2d 563, 569, 376 N.E.2d 1382, 1385; People v. Capitol News, Inc. (1990), 137 Ill. 2d 162, 168-69, 560 N.E.2d 303, 305-06.) On the other hand, according to the trial court, because Zawistowski paid the annual renewal fee he voluntarily relinquished his existing property interest in the taxicab license and neither he nor his estate could challenge the constitutionality of the 1982 ordinance. If both of these options are true, Zawistowski had a Hobson’s choice. If both of the options are true, it would also constitute a perversion of the law that is as strange and unfair as one can imagine. Plainly, the City of Chicago cannot whipsaw its citizens into “voluntarily” choosing one of two means by which they will be divested of an existing property interest without due process or just compensation.

We therefore conclude that by renewing his taxicab license for 1983 and 1984, Zawistowski maintained rather than waived his right and the right of his estate to challenge the constitutionality of the 1982 ordinance. The City of Chicago apparently recognizes that there is no merit to the position taken by the trial court since on appeal it does not defend or even mention the reason expressed by the trial court as to why the citation petition was dismissed. It follows that the reason expressed by the trial court for dismissing the citation proceeding is without merit, and also waived by the City of Chicago.

Finally, in a footnote on the last page of its brief, the City of Chicago states: “It also appears that plaintiffs’ citation petition, which was filed almost seven years after §28—8 was enacted, is barred by the statute of limitations.” This is the first and only time and place that the City of Chicago makes reference to an alleged statute of limitations defense, which plainly could have been raised in the trial court as part of its section 2—615 motion to dismiss. No affidavits would have been necessary to raise the alleged statute of limitations defense in the trial court since the date that the citation petition was filed is of record and plainly stamped on the citation petition itself, and a copy of the 1982 ordinance was attached to the citation petition as an exhibit. The exhibit expressly shows that section 28—8 was passed by the City of Chicago on September 15, 1982. Thus, the statement in the City of Chicago’s footnote that it did not raise the alleged statute of limitations defense in the trial court as part of its section 2—615 motion to dismiss because it did not want to file a hybrid section 2— 615 and section 2—619 motion is unavailing. See Ill. Rev. Stat. 1989, ch. 110, pars. 2-615, 2-619.

This is not a case involving a special limitations period created by a statutory cause of action. The alleged statute of limitations defense, therefore, is a procedural issue and an affirmative defense which must be raised in apt time in the trial court or it is waived. (Hugley v. Alcaraz (1986), 144 Ill. App. 3d 726, 494 N.E.2d 706; Phillips v. Elrod (1985), 135 Ill. App. 3d 70, 478 N.E.2d 1078; see generally Rallo v. The Crossroads Clinic, Inc. (1990), 206 Ill. App. 3d 676, 685, 565 N.E.2d 15, 20; Wilson v. The Hoffman Group, Inc. (1989), 131 Ill. 2d 308, 315, 546 N.E.2d 524.) In addition, our supreme court has stated on numerous occasions that questions not raised in the trial court are deemed waived and may not be raised for the first time on appeal. (Western Casualty & Surety Co. v. Brochu (1985), 105 Ill. 2d 486, 500, 475 N.E.2d 872, 879.) We therefore conclude that the City of Chicago may not raise an alleged statute of limitations defense for the first time on appeal. We give no consideration to the footnote in the City of Chicago’s brief.

Under the circumstances, we conclude that the citation petition sufficiently states a cause of action upon which relief can be granted and that the trial court erred in granting the City of Chicago’s motion to dismiss.

Accordingly, the order of the trial court is reversed and the case is remanded for further proceedings consistent with what we have stated in this opinion.

Reversed and remanded.

CERDA, P.J., and WHITE, J., concur.

       In County Court, the court stated: “A party has standing to challenge the constitutionality of a statute only insofar as it has an adverse impact on his own rights.” (442 U.S. at 154-55, 60 L. Ed. 2d at 790, 99 S. Ct. at 2223.) In the present case, if Zawistowski had relinquished his taxicab license by not renewing it, the unconstitutionality of the 1982 ordinance would not have an adverse impact on his own rights or those of his estate and as a corollary, neither he nor his estate would have standing to challenge the constitutionality of the ordinance.


author: PRESIDING JUSTICE RAKOWSKI

text:
    THE HOLDING COMPANY, Plaintiff-Appellant, v. THE DEPARTMENT OF REVENUE, Defendant-Appellee.
    First District (6th Division)
    No. 1—90—0514
    Opinion filed April 5, 1991.
    Rehearing denied July 8, 1991.

      Neal, Gerber & Eisenberg, of Chicago (Diane M. Anderson, of counsel), for appellant.
    Roland Burris, Attorney General, of Springfield (Robert J. Ruiz, Solicitor General, and Deborah L. Ahlstrand, Assistant Attorney General, of Chicago, of counsel), for appellee.
   PRESIDING JUSTICE RAKOWSKI

delivered the opinion of the court:

The subject of this appeal is an order entered by the circuit court of Cook County on administrative review which upheld the decision of the Illinois Department of Revenue assessing a tax deficiency for the Holding Company’s fiscal tax year ending August 31, 1980 (TYE 8/31/80). The issues raised on appeal are: (1) whether the IL—1120—X form filed by the Holding Company for the TYE 8/31/80 is a return under the Illinois Income Tax Act (Act) (Ill. Rev. Stat. 1979, ch. 120, par. 1—101 et seq.); (2) whether the statute of limitations bars any tax liability for the TYE 8/31/80; and (3) whether the Holding Company is entitled to a “loss carryback” to abate its tax liability. We affirm.

During the relevant time period, the Holding Company was a Delaware corporation with all of its income allocated to Illinois for State tax purposes. Plaintiff was also a member of an affiliated group of entities that filed a consolidated Federal income tax return. In order to determine its taxable income in Illinois, the plaintiff, as a consolidated corporation, was required to include with its State income tax return a copy of its U.S. Form 1120 and attachments.

Plaintiff’s original State tax return (IL—1120) for the TYE 8/31/ 80 was due to be filed with the Illinois Department of Revenue (Department) by November 15, 1980, pursuant to section 505 of the Act (Ill. Rev. Stat. 1979, ch. 120, par. 5 — 505(a)(1)). However, the plaintiff obtained an extension for the filing of its return until May 15, 1981. Approximately 14 months later on July 1, 1982, the plaintiff filed an “Amended Corporation Income and Replacement Tax Return” (IL—1120—X) for the TYE 8/31/80. Form IL—1120—X, which is the form prescribed for amended returns, reported the tax originally due for the tax year at issue as $27,376. The IL — 1120—X form also reported an income loss for the TYE 8/31/81 which was then carried back to the previous tax year to reduce plaintiff’s tax liability for that year to zero. The plaintiff indicated on the IL—1120—X form that no tax had been paid for the TYE 8/31/80, and that no refund was claimed.

On October 4, 1982, the Department notified the plaintiff that its original IL—1120 return for the TYE 8/31/80 could not be located, and a copy of the original return with supporting documents was requested. The Department also requested copies of the Federal forms in support of the net operating loss (NOL) which was carried back to the TYE 8/31/80. On February 25, 1983, the plaintiff furnished the Department with the Federal documents but failed to provide the Department with copies of its IL — 1120 for the TYE 8/31/80 or any of the supporting documents.

The Department subsequently conducted an audit of the plaintiff for the TYE 8/31/80 and found a tax liability of $27,367 plus interest and penalty. On April 11, 1985, the Department issued a notice of deficiency to the plaintiff in the amount of $34,220, which included the taxes, interest and penalty. The plaintiff filed a timely protest to the deficiency notice and requested a hearing, which was held on April 22, 1986. At the hearing, the plaintiff argued that the “carryback” was a “math error,” that the lien provisions of the Income Tax Act barred collection by the Department, and that the filing of the IL— 1120 — X constituted the filing of plaintiff’s return for the TYE 8/31/ 80. On January 8, 1987, the Department issued its notice of decision, upholding the tax deficiency and penalties assessed against the plaintiff. The administrative law judge (ALJ) found that the plaintiff failed to file an IL-1120 form for the TYE 8/31/80, the IL-1120-X form did not constitute an original or an amended return, the tax liability was not assessed as a result of a math error, the plaintiff could not carry back its NOL for the TYE 8/31/81, and the plaintiff’s failure to file an IL — 1120 return was not due to reasonable cause. On February 13, 1987, the plaintiff filed a complaint for administrative review. The circuit court affirmed the Department’s decision.

Plaintiff first contends that the IL — 1120—X form filed by the plaintiff constitutes a return under the Act because it contains all of the information necessary to compute the plaintiff’s Illinois tax liability. Plaintiff’s Illinois tax return, Form IL — 1120 for the TYE 8/31/80, was initially due to be filed by November 15, 1980. Plaintiff did not file its return at that time and made no payment of estimated taxes. Plaintiff subsequently obtained an extension of its filing date until May 15, 1981, but still failed to file its IL — 1120 return. Approximately 14 months later, on July 1, 1982, plaintiff filed an “Amended Corporation Income and Replacement Tax Return” (Form IL — 1120— X). On this form, the plaintiff claimed that its Federal taxable income for the TYE 8/31/80 was reduced from $400,000 to zero due to a Federal NOL carryback from the TYE 8/31/81. Plaintiff further claimed that no Illinois tax was due. On the IL — 1120—X, plaintiff noted that “the income tax of $15,986 and replacement tax of $11,390 were not paid with the original return; a refund is not claimed.” (Emphasis in original.) On October 4, 1982, the Department informed the plaintiff that plaintiff’s original IL — 1120 and supporting documents could not be found. The Department requested copies of the missing documents as well as copies of Federal forms in support of the NOL carryback. However, plaintiff did not file Form 1139 with the Internal Revenue Service in order to reduce its Federal taxable income for the TYE 8/ 31/80 until February 25, 1983. Plaintiff subsequently provided the Department with a copy of Federal Form 1139, but did not furnish the Department with a copy of the IL — 1120 or its supporting documents.

According to agency regulations, the form prescribed for filing an original return is the IL—1120 form. A corporation determines its Illinois taxable income based on calculations from its reportable Federal taxable income on U.S. Form 1120. (Ill. Rev. Stat. 1979, ch. 120, pars. 2—201, 2— 202, 2—203(b), (e)(1); Bodine Electric Co. v. Allphin (1980), 81 Ill. 2d 502, 505, 410 N.E.2d 828.) When a corporation’s taxable income is included in a consolidated Federal income tax return with its subsidiaries, the corporation is required to recompute its Federal taxable income on a separate basis in order to determine its Illinois taxable income. Therefore, with its IL — 1120 form, the affiliated corporation is required to include pro forma copies of schedules L, M—1, M—2 and U.S. 1120 as if they had been filed on a separate basis. (See Searle Pharmaceuticals, Inc. v. Department of Revenue (1987), 117 Ill. 2d 454, 460-61, 512 N.E.2d 1240.) The Illinois tax due is payable “on or before the date fixed for filing such return (determined without regard to any extension of time for filing the return) pursuant to regulations prescribed by the Department.” (Ill. Rev. Stat. 1979, ch. 120, pars. 6—601(a), 6—602(a).) The Act also provides for the filing of amended returns where the Federal taxable income is altered and reflects a change in the Illinois base income. (See Ill. Rev. Stat. 1979, ch. 120, par. 5—506(b).) A net operating loss (NOL) carry-back is one method for adjusting Federal income. The Internal Revenue Code provides for a NOL carryback to reduce Federal taxable income for three preceding years in which the loss was sustained. (26 U.S.C. §§ 172(a), (b)(1)(A) (1982).) Thus, where this change in Federal income occurs, the Illinois taxpayer may file an amended return and request a refund of any overpayment of taxes previously paid. (Ill. Rev. Stat. 1989, ch. 120, par. 9—911(b)(1); see Searle, 117 Ill. 2d 454.) (Prior to Searle, consolidated corporations were only allowed to carry a NOL forward. See discussion below.) Pursuant to the Act, a refund is only allowed if the required payment for the tax year has been made. (Ill. Rev. Stat. 1979, ch. 120, par. 9— 909(a).) In addition, a refund by amendment may only be filed if the return for the taxable year has been filed. 86 Ill. Adm. Code §100.9110(f) (1985).

Based on these provisions, the proper procedure for this plaintiff would have been to: (1) file its IL—1120 corporate return with supporting and pro forma Federal documents for the TYE 8/31/80 by the original filing date along with the income tax due or file a tentative return with the payment of an estimated tax by the filing date; (2) file State and Federal returns for the TYE 8/31/81; (3) amend its Federal return for 8/31/80 to reduce its taxable income by carrying back the NOL of the succeeding year (an election not available to plaintiff prior to the Illinois Supreme Court’s ruling in Searle); and (4) file an amended IL—1120—X form and claim a refund of overpayment.

In this case, no return or payment of taxes due for the TYE 8/31/ 80 was filed by the original or extended filing date. Contrary to the provisions of the Act, plaintiff filed an IL—1120—X form 14 months after the extended filing date. Plaintiff thus attempted to bypass the provisions requiring the timely filing of an original return with the payment of taxes and negate its State tax liability by the belated filing of an IL—1120—X return after its 1981 loss had been sustained. In addition, although plaintiff reported its change in Federal taxable income to Illinois in July 1982, the loss carryback and change in Federal taxable income were not reported to the Internal Revenue Service until February 1983.

Although plaintiff fails to characterize the IL—1120—X which it filed in July 1982 as an original or amended return, plaintiff claims that the form was a return because it contained all of the information necessary to compute plaintiff’s Illinois income tax liability for the TYE 8/31/80. Plaintiff relies on Germantown Trust Co. v. Commissioner of Internal Revenue (1940), 309 U.S. 304, 84 L. Ed. 770, 60 S. Ct. 566, in support of this argument. In Germantown Trust Co., a trustee timely filed an original fiduciary income tax return rather than a corporate return which was subsequently determined to be the correct form to file. The United States Supreme Court held that the fiduciary return, which was timely filed by the taxpayer, constituted an original return pursuant to the relevant Federal statutes because it disclosed all of the data which would have been on the corporate tax return.

In this case, plaintiff failed to file a timely return, pay the taxes due or provide the necessary supporting documents, original State return or pro forma Federal forms. Plaintiff claims that the missing information was a math error. However, even if the missing information could be labeled as a math error, the form would still not qualify as a return under the facts of Germantown Trust Co., where the Court made no such exception for this deficiency. Germantown Trust Co. is further distinguishable because the trustee in that case filed the fiduciary return with the good-faith belief that it was the appropriate form. In this case, plaintiff did not inadvertently file the wrong form but knowingly tried to combine two separate tax actions in a single form. In doing so, plaintiff has attempted to create its own filing procedures rather than comply with the procedures of the Department and legislature. The Supreme Court in Commissioner of Internal Revenue v. Lane-Wells Co. (1944), 321 U.S. 219, 84 L. Ed. 684, 64 S. Ct. 511, addressed a similar situation where the taxpayer failed to file the required returns. The Court stated:

“Congress has given discretion to the Commissioner to prescribe by regulation forms of returns and has made it the duty of the taxpayer to comply. It thus implements the system of self-assessment which is so largely the basis of our American scheme of income taxation. The purpose is not alone to get tax information in some form but also to get it with such uniformity, completeness, and arrangement that the physical task of handling and verifying returns may be easily accomplished.” (Lane-Wells Co., 321 U.S. at 223-24, 84 L. Ed. at 687, 64 S. Ct. at 513.)

Although Lane-Wells Co. involved Federal income tax provisions, we find the Court’s reasoning applicable to the facts of this case.

We thus conclude that the IL — 1120—X did not constitute a return. It was not an original return because the form required for an original return was the IL — 1120 form, and it was not an amended return because no original return had been filed to amend. In addition, the form was not filed until 14 months after the extended filing date, and no taxes were paid by the original filing date of November 15, 1980, or the extended filing date of May 15, 1981, as required by the Act. Finally, the form did not contain all of the required information and did not qualify as a return under the holding of Germantown Trust Co.

Although a conclusion that the IL — 1120—X did not constitute a return renders the remaining parts of plaintiff’s argument moot, they are briefly addressed below. The plaintiff’s remaining argument is that the loss carryback claimed on the return was a math error because it directly violated the Illinois statute in effect when the IL— 1120 — X was filed. Because the loss carryback was a math error, it is not subject to plaintiff’s protest or administrative review. As a consequence, the Department was required to serve the plaintiff with a notice of lien within two years from the date of the filed return. Plaintiff concludes that because the Department has not yet served the plaintiff with this notice, it is now barred from holding the plaintiff liable for any taxes, penalty or interest.

The plaintiff argues that the loss carryback is a math error pursuant to section 1501 of the Illinois Income Tax Act (Ill. Rev. Stat. 1981, ch. 120, par. 15—1501(a)(12)(D)) because it was an attempt to claim a deduction in a manner contrary to the provisions of the Act. The provision to which the plaintiff refers is section 203 of the Illinois Income Tax Act (Ill. Rev. Stat. 1981, ch. 120, par. 2—203(e)(2)(E)) which, at the time the plaintiff claimed its loss carryback, prohibited a member of an affiliated group of corporations from carrying back a separate Illinois NOL on its Illinois income tax return based on the fact that the members of the group filed a consolidated Federal return. This provision was subsequently found to be unconstitutional in Searle Pharmaceuticals, Inc. (117 Ill. 2d at 478-79).

The application of subsection D of the math error provision was recently addressed in Department of Revenue v. Walsh (1990), 196 Ill. App. 3d 772, 554 N.E.2d 433. The court discussed the meaning of the terms “directly contrary,” stating that where there was reasonable doubt that the Act and the regulations clearly prohibited the claimed item, it should not be treated under the mathematical error provision of the Act. The court further stated that substantive matters requiring extensive analysis should not be treated as math errors. (Walsh, 196 Ill. App. 3d at 784.) In view of the complexity of section 203(e)(2)(E) and the fact that the constitutionality of this provision was being challenged at the time of the administrative hearing, we conclude that the ALJ’s finding that the plaintiff’s loss carryback deductions were deficiencies rather than math errors was proper. Therefore, under the current provisions of the Act, the Department has three years from the date that “all proceedings in court for the review of such assessment have terminated.” (Ill. Rev. Stat. 1989, ch. 120, par. 11—1101(c).) As a result, the Department is not barred by the statute of limitations from ruling that tax liability, penalty and interest are owed by the plaintiff.

The plaintiff next contends that even if the Department is not barred by the statute of limitations, plaintiff is entitled to a loss carryback to reduce its tax liability. A credit against tax liability is only allowed if an overpayment is made. (Ill. Rev. Stat. 1981, ch. 120, par. 9—909(a).) In addition, Department regulations require that in order to claim a refund by amendment, the taxpayer must have previously filed a return for the relevant tax year. 86 Ill. Adm. Code §100.9110(f)(1985).

Because the plaintiff did not file an original return and did not pay any of the taxes owed for the TYE 8/31/80, the plaintiff cannot now use a loss carryback to reduce its liability.

Accordingly, the judgment of the circuit court on administrative review is affirmed.

Judgment affirmed.

EGAN and LaPORTA, JJ., concur.


author: JUSTICE O’CONNOR

text:
    FIDELITY FINANCIAL SERVICES, INC., Plaintiff and Counterdefendant-Appellant, v. JOSEPH HICKS et al., Defendants (Joseph Hicks et al., on Behalf of Themselves and All Others Similarly Situated, Counterclaimants-Appellees; Fidelity Acceptance Corporation et al., Third-Party Defendants).
    First District (1st Division)
    No. 1—89—1115
    Opinion filed April 8, 1991.
    Rehearing denied June 14, 1991.

      Peterson, Ross, Schloerb & Seidel, of Chicago (Lawrence X. Pusateri, Craig A. Varga, and Jonathan N. Ledsky, of counsel), for appellant.
    Law Offices of Daniel A. Edelman and Lawrence Walner & Associates, Ltd., both of Chicago (Daniel A. Edelman, Lawrence Walner, and Francine Schwartz, of counsel), for appellees.
   JUSTICE O’CONNOR

delivered the opinion of the court:

Fidelity Financial Services, Inc. (Fidelity), instituted a mortgage foreclosure against Joseph and Thelma Hicks. Mr. and Mrs. Hicks counterclaimed, alleging violation of section 4.1a of the Illinois Interest Act (Ill. Rev. Stat. 1987, ch. 17, par. 6406). Fidelity moved to dismiss, arguing that section 4.1a had been impliedly repealed. The trial court denied Fidelity’s motion and certified this interlocutory appeal to determine the validity of section 4.1a. Because the appeal arises pursuant to section 2—615 of the Code of Civil Procedure (Ill. Rev. Stat. 1987, ch. 110, par. 2—615), the allegations of the second amended counterclaim are assumed true, and all inferences are drawn most favorably to Mr. and Mrs. Hicks. For the reasons below, we affirm.

Mr. and Mrs. Hicks allege that in August 1985, they contracted with Budget Construction Company (Budget) to rebuild the back porch on their home for $5,845. Budget prepared a retail installment contract, financing the $5,845 at an annual percentage rate of 18%, with 120 monthly payments of $106.05, for a total amount of $12,726. The installment contract loan was secured by a mortgage on the Hicks home at 546 West 65th Street in Chicago. The mortgage, recorded on October 3, 1985, was neither provided for nor disclosed by the installment contract. Budget later agreed to find financing at better terms than those provided in the installment contract.

Mr. and Mrs. Hicks further allege that on September 27, 1985, they were taken to the Fidelity office in Lansing, Illinois, and told to sign several partially prepared loan documents, including an “itemization, promissory note and security agreement,” a trust deed, and an insurance certificate issued by Admiral Life Insurance Company (Admiral), an affiliate of Fidelity. Mr. and Mrs. Hicks allege they signed the documents relying on Budget’s representations that Fidelity provided the most favorable financing available.

The completed Fidelity documents financed an amount of $22,425.46 at an annual percentage rate of 25.93%, in 120 monthly payments of $525, for total payments of $63,000. Mr. and Mrs. Hicks were also to pay prepaid finance charges, or “points,” amounting to 13.64% of the principal. In addition, Fidelity obtained a mortgage on the Hicks home, recorded on October 4, 1985. Mr. and Mrs. Hicks’ monthly income was $1,800 from Mr. Hicks’ job as a janitor at Oakton Community College.

Mr. and Mrs. Hicks further allege that in October 1985, Mr. Hicks became totally disabled with emphysema and was unable to continue working. Mr. and Mrs. Hicks filed a claim on the Admiral disability insurance to continue payments on the loan. Admiral refused to pay. Subsequently, Fidelity foreclosed on the mortgage.

Mr. and Mrs. Hicks counterclaimed against Budget, Fidelity, and Admiral. The first amended counterclaim alleged that “a first mortgage would secure the [Fidelity] loan.” The second amended counterclaim alleged that the Fidelity loan was secured by a junior mortgage. Count I of the second amended counterclaim alleged violation of section 4.1a of the Illinois Interest Act (Ill. Rev. Stat. 1987, ch. 17, par. 6406), which limits charges in connection with loans to 3% of the loan, or “points.” Count VI alleged violation of section 2 of the Illinois Consumer Fraud and Deceptive Business Practices Act (the Consumer Fraud Act or CFA) (Ill. Rev. Stat. 1987, ch. 121½, par. 262), by using deceptive practices with the intent to acquire the equity in Mr. and Mrs. Hicks' home. The other counts are not appealed.

Fidelity moved to dismiss counts I and VI of the second amended counterclaim, arguing that section 4 of the Interest Act (Ill. Rev. Stat. 1987, ch. 17, par. 6404), which allows lenders to charge “any rate or amount of interest or compensation” on loans, had implicitly repealed section 4.1a. Fidelity further argued that, due to the implied repeal of section 4.1a, its transactions fell within statutory exceptions to the CFA. The trial court denied Fidelity’s motion and certified this interlocutory appeal.

Fidelity first argues that section 4 of the Interest Act implicitly repealed section 4.1a, requiring dismissal of counts I and VI of the counterclaim, the former because it alleged violations of section 4.1a, and the latter because absent section 4.1a, Fidelity’s transactions fell within statutory exceptions to the CFA. Fidelity’s arguments are without merit.

Section 4.1a, last amended in 1978, addresses “Charges for items paid or incurred in connection with loans,” and provides in relevant part:

“Where there is a charge in addition to the stated rate of interest payable directly or indirectly by the borrower and imposed directly or indirectly by the lender as a consideration for the loan, or for or in connection with the loan of money, whether paid or payable by the borrower, the seller, or any other person on behalf of the borrower to the lender or to a third party, or for or in connection with the loan of money, *** whether denominated ‘points,’ ‘service charge,’ ‘discount,’ ‘commission,’ or otherwise, *** the rate of interest shall be calculated in the following manner:
The percentage of the principal amount of the loan represented by all of such charges shall first be computed, which in the case of a loan with an interest rate in excess of 8% per annum secured by residential real estate, *** shall not exceed 3% of such principal amount.” (Emphasis added.) (Ill. Rev. Stat. 1987, ch. 17, par. 6406.)

Section 4, enacted in 1979, and as amended, provides in relevant part: “General Interest Rate. ***

* * *
*** It is lawful to charge, contract for, and receive any rate or amount of interest or compensation with respect to the following transactions:
* * *
(1) Loans secured by a mortgage on real estate.” (Ill. Rev. Stat. 1987, ch. 17, par. 6404.)

Fidelity argues that because section 4 was enacted after section 4.1a, and allows charges of “any rate or amount of interest or compensation,” it superseded the limit of 3 points provided in section 4.1a, and implicitly repealed section 4.1a. Fidelity relies on the only case addressing the relation between the statutes, Currie v. Diamond Mort gage Corp. (7th Cir. 1988), 859 F.2d 1538, which stated, in dicta, that section 4 implicitly repealed section 4.1a.

In Currie, an alleged violation of section 4.1a was dismissed by a Federal bankruptcy court on grounds of preemption, and alternatively, implied repeal of section 4.1a. The district court affirmed on the basis of preemption. (Currie v. Diamond Mortgage Corp. (N.D. Ill. 1987), 83 Bankr. 536.) The Seventh Circuit affirmed, holding that the State statutes were preempted. The opinion continued, however, and stating that the language of the two statutes could not be reconciled, given the inconsistency between the “deregulatory impetus” of section 4 and the limitations established by section 4.1a, concluded that section 4 implicitly repealed section 4.1a. (Currie, 859 F.2d at 1542-43.) An opinion letter of the Illinois Department of Financial Institutions, dated February 28, 1989, also cited by Fidelity, followed Currie.

But neither the Seventh Circuit nor the opinion letters of State agencies bind State courts. The contention that section 4.1a was repealed implies that the legislature has, for the last dozen years, neglected to remove a superseded statute from the books. We are not persuaded.

We presume, by its mere existence, the validity of section 4.1a, which is not rebutted here because section 4.1a demonstrates that the legislature intended to limit certain types of charges connected to loans, and that legislative intent is consistent with the “deregulatory impetus” of section 4.

Section 4 is titled “General Interest Rate,” and provides that “any rate or amount of interest or compensation” may be charged and received on loans. Section 4 addresses transactions beyond consumer loans, and allowing any amount of “compensation,” as well as interest, anticipates that where a transaction involves more sophisticated parties, such as corporations (section 4(1)(a)), sole proprietor-ships (section 4(1)(m)), securities brokers (section 4(1)(g)), banks (section 4(1)(h)), or pension funds (section 4(1)(j)), or concerns nonconsumer transactions, such as advances of money made upon warehouse receipts, bills of lading, certificates of stock or deposit, bills of exchange, bonds, or other negotiable instruments (section 4(l)(b)), or credit transactions between merchandise wholesalers and retailers (section 4(l)(c)), the parties might choose to pay the cost of money in a form other than interest. See Ill. Rev. Stat. 1987, ch. 17, par. 6404.

The money available for lending is a commodity whose cost fluctuates according to economic conditions in the lending market, and by removing restrictions on the amount of interest or compensation, section 4(1) gave lenders greater ability to reflect the cost of money. The cost of money is also affected by the term of a loan, and a lender may lose money when a borrower prepays a long-term loan. Sections 4(2) and 4(3), however, prohibit charges for prepayment of loans, or interest charges for any period after the loan is paid in full. Thus, the lender must account for the cost of any prepayment in the interest or compensation charged.

Read in its entirety, section 4 makes money more freely available to the borrowing market by allowing a lender to pass the cost to the borrower while requiring the terms of the loan, interest and period of repayment, and not additional charges, to reflect the effect of the marketplace on the cost of money. Thus, section 4 serves the legislature’s deregulatory intent.

While section 4 addresses the “general interest rate,” or the actual cost of the money available for lending (including costs imposed by increased regulation of the lending market), section 4.1a addresses “charges for or in connection with the loan of money,” ancillary charges not dictated by the cost of the commodity, but imposed by lenders in connection with loans. Those charges may be legitimate compensation for providing and managing the loan, but it should be noted that they may also be confusing to the ordinary consumer, or worse, “gimmicks, charges added on to squeeze a few extra nickels out of the borrower.” (Allen, The High Cost of Closing, The Chicago Tribune, May 11, 1990.) Section 4.1a helps prevent an unscrupulous lender from luring an unsophisticated borrower with low interest rates that may undercut legitimate competition, only to impose additional, onerous, or undisclosed fees to compensate for the artificially low interest rate. A borrower is also protected from the discriminatory practice of “redlining,” which is accomplished by charging prohibitively high fees to customers within disfavored groups.

Thus, section 4.1a protects the borrower by tying ancillary charges to the principal, a variable not influenced by the lending market. A lender may, under section 4, charge any amount necessary to reflect the cost of money, but must, under section 4.1a, limit charges not connected to the cost of the commodity to 3% of the principal, whether those charges are called “points,” “service charges,” “discounts,” “commissions,” or otherwise.

Because section 4.1a remains part of the Interest Act 12 years after its ostensible “repeal,” we presume the legislature intended that section 4.1a remain in effect. More importantly, section 4 and section 4.1a address charges of a different nature and are not incompatible. Section 4.1a, rather than being inimical to the intent of section 4, fa-

cilitates section 4. By permitting any amount or rate of interest, the legislature provided that the cost of money could be passed to the borrower, assuring more money for lending. By limiting ancillary charges in connection with loans, the legislature assured that costs passed to borrowers accurately reflected the cost of money, assuring a more competitive market while limiting the possibilities for abuse. Because reasonable interpretations reconcile the statutes, we decline to repeal section 4.1a by implication.

Assuming the effect of section 4.1a, count I of the Hickses’ second amended counterclaim was sufficient to state a claim for violation of section 4.1a. The exhibits to the counterclaim show that on a principal amount of $22,425.46, Fidelity charged a “prepaid finance charge” of $3,058.02, or 13.46% of the principal, well in excess of the 3% limit of section 4.1a. Although the loan agreement showed that the prepaid finance charge was part of the total amount of interest, the terms of the loan, $525 for 120 months, indicated that Mr. and Mrs. Hicks would pay the amount of the prepaid finance charge twice. Further, section 6 of the Interest Act (Ill. Rev. Stat. 1987, ch. 17, par. 6413) provides penalties for knowingly collecting unlawful charges. Here, Fidelity prepared the loan documents and imposed the charges; clearly, any charge or collection of points exceeding 3% of the loan amount was “knowing.” Thus, count I of the counterclaim was sufficient.

Count VI of the second amended counterclaim sufficiently stated a violation of section 2 of the Consumer Fraud Act (Ill. Rev. Stat. 1987, ch. 121½, par. 262) through the use of deceptive lending practices with the intent to acquire the equity in Mr. and Mrs. Hicks’ home. The count alleged that Fidelity deliberately structured the loan to create payments and charges it knew Mr. Hicks could not afford, to precipitate a default and foreclosure.

Fidelity contends that absent limits on interest rate or charges, the loan fell within the statutory exception provided by section 10b of the CFA (Ill. Rev. Stat. 1987, ch. 121½, par. 270b), which excepts transactions authorized by law. But given the validity of section 4.1a, the finance charge exceeding three points was not authorized by law. Moreover, count VI incorporated paragraphs 1 through 39 of the counterclaim, which alleged deceptive and misleading practices without regard to section 4.1a. Even had section 4.1a been repealed, implicitly or explicitly, count VI was sufficient.

Fidelity also contends that count VI cannot stand because section 2E (Ill. Rev. Stat. 1987, ch. 121½, par. 262E) and section 2F (Ill. Rev. Stat. 1987, ch. 121½, par. 262F) of the CFA allow actions only against multiple, “willful” and “material” violations. But Fidelity misreads the CFA when it asserts that section 2F requires multiple violations, as that section provides penalties for violation of “any Illinois statutory provision regulating the extension of credit.” (Ill. Rev. Stat. 1987, ch. 121½, par. 262F.) Further, the requirement of multiple violations in section 2E does not apply to section 2F, as Fidelity contends, and the case upon which Fidelity relies for that proposition does not so hold. (See Lanier v. Associates Finance, Inc. (1986), 114 Ill. 2d 1, 499 N.E.2d 440.) Fidelity’s arguments concerning the insufficiency of count VI are without merit.

Finally, we address whether section 4.1a was preempted here by section 501 of the Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA) (12 U.S.C. §1735f-7a (1988) (as amended)). Section 501 of DIDMCA provides in relevant part:

“(1) The provisions of the constitution or the laws of any State expressly limiting the rate or amount of interest, discount points, finance charges, or other charges which may be charged, taken, received, or reserved shall not apply to any loan, mortgage, credit sale, or advance which is—
(A) secured by a first lien on residential real property, by a first lien on all stock allocated to a dwelling unit in a residential cooperative housing corporation, or by a first lien on a residential manufactured home ***.” (12 U.S.C. §1735f—7a(a)(1)(A) (1988).)

Fidelity does not now argue that section 4.1a was preempted by DIDMCA, relying, rather, on its argument of implied repeal. But Fidelity raised preemption in support of its motion to dismiss, and now maintains that if section 4.1a is given effect, the issue of preemption remains as a question of fact. The record and pleadings appear sufficient, however, to support a ruling that section 4.1a was not preempted.

In the late 1970s, interest rates exceeded the levels lenders could legally charge under State usury laws. The resulting reduction in funds available for borrowing was particularly hard on the housing industry: less money was available for mortgages, and greater down payments and shorter mortgage terms were required. Congress responded by enacting DIDMCA, which eliminated interest rate limits set by State usury laws with respect to first mortgage real estate financing. By removing limits to the interest on mortgages, more funds became available for lending. See In re Russell (E.D. Pa. 1987), 72 Bankr. 855; Mitchell v. Trustees of United States Mutual Real Estate Investment Trust (1985), 144 Mich. App. 302, 375 N.W.2d 424. See also Ewing & Vickers, Federal Pre-Emption of State Usury Laws Affecting Real Estate Financing, 47 Mo. L. Rev. 171 (1982).

But Congress did not intend to repudiate the principle that there should be limits to the rate of interest that a lender can legally charge. Congress recognized, correctly, that the forces that compelled DIDMCA were not permanent and, accordingly, the statute provided that if, between April 1, 1980, and April 1, 1983, a State declined to have Federal preemptions apply, the State usury laws would become effective. 12 U.S.C. 1735f-7a(b)(2) (1988).

Given the legislative intent of DIDMCA and its interrelationship with State statutes, it is appropriate to apply DIDMCA only to those transactions clearly provided within its scope (In re Russell, 72 Bankr. at 867), and section 501 provides three criteria to determine its applicability. First, section 501, by its terms, would not preempt a State statute such as section 4.1a unless the loan was secured by a mortgage with priority over other mortgages or liens. Second, as section 501 reflects the congressional intent to stimulate the housing industry, the “first lien on residential real property” language should be interpreted to apply only to purchase-money mortgages. (Mitchell v. Trustees of United States Mutual Real Estate Investment Trust (1985), 144 Mich. App. 302, 310, 375 N.W.2d 424, 431.) Finally, the creditor must bear the burden of showing that the transaction in issue fell within the scope of DIDMCA. In re Russell, 72 Bankr. at 867-68.

Here, section 4.1a clearly was not preempted by DIDMCA because the Fidelity loan was not a purchase-money mortgage. Further, it is unclear that the trust deed securing the Fidelity loan was a “first lien.” The second amended counterclaim alleged the mortgage was a junior mortgage, and the record contains the trust deed obtained by Fidelity and the earlier mortgage obtained by Budget. The pleadings allege a subordinated mortgage, and that allegation is supported by the exhibits. Because the allegations are assumed true, we assume the subordinate nature of the Fidelity trust deed.

Further, when Fidelity raised the preemption argument to support its motion to dismiss, it offered no indication that it could establish that the transaction fell within the scope of DIDMCA. Rather, Fidelity maintained that the first amended counterclaim alleged that the Fidelity loan was to be secured by a first mortgage, and because that counterclaim was verified, the allegation must stand as a binding admission, notwithstanding the allegation of the second amended counterclaim. Amended pleadings generally supersede prior pleadings, but where the earlier pleadings were verified, they remain part of the record, and any admissions not the product of mistake or inadvertence become binding judicial admissions. Rynn v. Owens (1989), 181 Ill. App. 3d 232, 235, 536 N.E.2d 959.

Here, the allegations of the respective counterclaims do not appear contradictory. Paragraph 17 of the first amended counterclaim alleged:

“The papers that [Mr. and Mrs. Hick] signed, as eventually completed by [Fidelity], provided for a loan with an amount financed of $22,425.46, prepaid finance charges or ‘points’ of $3,058.02, and interest of $37,516.52, making the total obligation $63,000. A first Mortgage or trust deed would secure the loan.” (Emphasis added.)

Paragraph 22 of the second amended counterclaim alleged:

“The papers that [Mr. and Mrs. Hicks] signed, as eventually completed by [Fidelity], provided for a loan with the following terms:
(a) A purported amount financed of $22,425.46.
(b) Prepaid finance charges or ‘points,’ purportedly in the amount of $3,058.02.
(c) Interest of $37,516.52.
(d) A purported finance charge of $40,574.54.
(e) Total payments of $63,000.
(f) A junior mortgage, which was duly recorded on October 4,1985.”

The allegation in the first amended counterclaim appears subjunctive, alleging the anticipated form of the security interest, while the allegation in the second amended counterclaim appears retrospective, stating the form that the security interest ultimately took. The former did not preclude the latter, thus Fidelity’s assertion was without merit.

Even if the record was insufficient to determine whether the Fidelity loan was within the scope of DIDMCA, it would be inappropriate to rule that section 4.1a was preempted. This appeal arises from a motion to dismiss the counterclaim as insufficient, but the counterclaim alleges sufficient facts to remove the Fidelity transaction from the scope of DIDMCA. Even if no ruling was made with respect to preemption, the counts could not be dismissed, and Fidelity would have the burden, on remand, to show that the State statutes were preempted.

In summary, section 4.1a was not preempted here because the second amended counterclaim alleged sufficient facts to show that the Fidelity loan was not within the scope of DIDMCA. It was alleged that the loan was secured by a junior mortgage, the loan was not a purchase-money loan, and Fidelity offered no showing to the contrary in its motion to dismiss. Accordingly, the second amended counterclaim properly alleges State law claims.

In conclusion, we hold that section 4.1a remains valid, and therefore, counts I and VI of the second amended counterclaim were sufficient to state claims. Further, without regard to the Interest Act, count VI sufficiently alleged violations of the Consumer Fraud Act. Finally, because the pleadings allege the Fidelity loan was not a purchase-money loan, and secured with a junior mortgage, and because those allegations are supported by exhibits in the record, the State law claims were not preempted. Accordingly, we affirm the trial court’s denial of Fidelity’s motion to dismiss and remand for proceedings consistent with our rulings.

Affirmed and remanded.

MANNING, P.J., and CAMPBELL, J., concur.