Illinois Supreme Court Puts the Squeeze on Not-For-Profit Corporations Claiming Immunity By Strictly Construing the Definition of a "Local Public Entity"
February, 2002
The purpose of the Illinois Local Governmental and Governmental Tort Immunity Act (Act) is “to protect local public entities and public employees from liability arising from the operation of government.” (745 ILCS 10/1-101.1). As a result, any organization deemed a “local public entity” as that term is defined by the Act may be able to claim any one of a number of specifically enumerated immunities in order to stave off a plaintiff’s lawsuit.
In a case of first impression, the Illinois Supreme Court in Carroll v. Paddock, 2002 Ill. LEXIS 13 (Ill. Feb. 7, 2002), strictly construed the “local public entity” definition, thereby restricting the number of not-for-profit corporations falling within the scope of that definition and narrowing the class of entities that can assert the defenses provided by the Act.
Section 1-206 of the Act defines a “local public entity” as:
A county, township, municipality, municipal corporation, school district . . . ‘local public entity’ also includes . . . any not-for-profit corporation organized for the purpose of conducting public business. It does not include the State or any office, officer, department, division, bureau, board, commission, university or similar agency of this State.
In most cases where this statute is at issue, the pivotal question is whether the not-for-profit corporation is “organized for the purpose of conducting public business.”
Prior to Carroll, the Illinois appellate courts considered several factors in determining whether a not-for-profit corporation conducted “public business,” including: whether that entity was almost entirely government funded; the amount of government regulation to which the entity was subjected; and whether the entity provided services typically provided by the government.
The Carroll court defined “public business” as follows:
‘Public’ is defined as ‘pertaining to a state, nation, or whole community: proceeding from, relating to, or affecting the whole body of people or an entire community. Open to all . . . Belonging to the people at large: not limited or restricted to any particular class of the community. Thus, to conduct ‘public business’ under the Act, a corporation must pursue an activity that benefits the entire community without limitation. In addition, the phrase ‘public business’ is also today commonly understood to mean the business of government.
But the Court did not stop there - - it further restricted the definition of “conducting public business” when it mandated that the not-for-profit either be established or controlled by a local governmental entity. The Court explained:
Without evidence of local governmental control, it cannot be said that a not-for-profit corporation conducts ‘public business’ for purposes of the Act. Thus, in order to receive the benefits of the Act, the not-for-profit corporation must also be subject to the kinds of organizational regulations and control that are typical of other governmental units.
Public business is the business of government and a local public entity must either be owned or operated and controlled by a local governmental unit. . . Therefore, a not-for-profit is involved in the operation of the government’s public business if and only if the not-for-profit is tightly enmeshed with government either through direct governmental ownership or operational control by a unit of local government.
Applying this new standard to the facts in Carroll led the Court to conclude that neither the not-for-profit charitable hospital, nor the not-for-profit mental healthcare organization involved were “local public entities.” Although the hospital’s articles of incorporation established that it was incorporated exclusively for charitable purposes to care for the sick persons of the county without regard to their ability to pay for services and without regard to their race, color or creed, the hospital’s board of directors did not include members of the County Board of Edgar County, nor was there any difference in the purpose and operation of the hospital from other for-profit hospitals. Likewise, the defendant mental health center was privately created and privately managed as its board of directors consisted of private citizens, even though it was organized exclusively for charitable purposes, no part of its income would inure to the benefit of private individuals, and it would not be operated for the benefit of private individuals or private interests because it was to promote and conserve the mental health of the people of Edgar and Clark Counties.
Learning Point:
In order to meet Carroll’s strict construction of the “local public entity” definition, defense counsel must affirmatively show that a local government or a unit of local government has a direct hand in either establishment of or control over the not-for-profit corporation. After Carroll, it does not appear sufficient to show that (in the absence of a direct link to local government), the not-for-profit carries out the same types of activities or services offered to the community at large which a local government typically would provide. In order to establish “local public entity” status, defense counsel should present evidence that local government exerts control over the not-for-profit by demonstrating, for example, that the governing body of the not-for-profit corporation is subject to regulations such as the Open Meetings Act or the Freedom of Information Act; that local ordinances specifically dictate the methods to be used by the not-for-profit in conducting its business; or that members of the county board or other local governing bodies control the governing body of the not-for-profit.
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