After a two hour hearing in a crowded courtroom full of attorneys and county officials, visiting judge William Becker, an associate circuit judge from Clinton County, has taken under consideration a motion to certify a class seeking damages from Madison County “alleged bad guys” over inflated tax sales.
Becker hinted that he might certify a class for the purpose of determining liability but remained unsure about whether to allow class certification on damages.
He expressed reluctance to hear thousands of individual “mini trials” or hearings if class certification is not approved.
Becker assumed an appeal would follow regardless of which way he ruled.
The consolidated class action seeks damages for property owners who claim they had to pay artificially high prices to redeem their overdue taxes during the period of time when former Madison County treasurer Fed Bathon was in office. Attorneys for plaintiffs say that up to 10,000 property owners may have been affected.
Bathon, who served as treasurer from 1998 until his resignation in 2009, pleaded guilty in 2013 to violating the Sherman Antitrust Act in relation to rigged tax sales. He was sentenced to 30 months in federal prison. Tax buyers John Vassen, Scott McLean and Barrett Rochman also pleaded guilty in connection with the scheme and are serving prison sentences.
During the hearing, Becker repeatedly referred to the defendants as “alleged bad guys” as a result of the tax bid rigging actions of Bathon and his “co-conspirators.”
“If you’re the bad guy, why do you get the benefit of the doubt?” Becker asked the defendants.
However, defense attorney Patrick Cloud of Heyl Royster in Edwardsville, said that when considering what allegations are brought against defendants, his client - Madison County - is not one of the “bad guy” alleged to have engaged in civil conspiracy. Instead, the allegations against the county are accusations of negligence.
During the hearing, defendants focused primarily on the following arguments:
- It is the plaintiff’s burden to prove that class certification is proper;
- Not all tax sales were assessed at unfairly escalated percentages;
- Damages for each potential class member would have to be calculated individually; and
- The statute of limitations will come into play.
Plaintiff attorney Steve Giacoletto of Collinsville likened the defendants’ arguments against class certification to a bowl of spaghetti, claiming they are essentially throwing the entire bowl of spaghetti against the wall to see what argument sticks.
Plaintiff attorney Don Weber of Reinert Weishaar & Associates in St. Louis added that class certification is necessary for the alleged victims to recover damages.
“These homeowners, a vast majority of the homeowners, were cheated out of thousands of dollars by a bunch of millionaire tax buyers,” Weber said. “And if this class is not certified, the criminals keep their money and the homeowners never get compensation.”
Burden of proof
Cloud argued that plaintiffs have not met their burden because they failed to prove class certification is proper based on the evidence. He challenged the court to conduct a “rigorous analysis” by looking beyond the pleadings.
“I think there is a reason [the plaintiffs] don’t want us to look beyond the pleadings,” he said.
Becker wasn’t buying it.
As a hypothetical, Becker asked why he shouldn’t be held responsible if he took $5 from Cloud and gave it to the court reporter. He said that regardless whether he got any part of the money, Cloud is still out $5 and the court reporter has money that shouldn’t belong to her.
Cloud responded by saying Madison County is a “pass through,” meaning it just handed the money from one party to the next.
Paul Slocomb of Hoffman & Slocomb, attorney for John Vassen, V.I. Inc. Retirement Plan and V.I. Inc. added that no one in the courtroom received any money from Bathon’s actions, and asked, “So how are we on the hook?”
Becker said, “Let’s assume for the sake of this argument, that all of the alleged bad guys, the defendants, got together and determined that we can rig this game. Today I might get money from you, tomorrow the court reporter. We don’t know which victim … or how much, but we know we are going to get it.
“In the broadest sense, if the defendants are the alleged bad guys and concocted this scheme to take money from the victims … why do you get the benefit of the illegal scheme?”
“Why is the monkey on my back?”
Becker went on to say that it doesn't make sense in a lawsuit where criminal action has already been proven to make the plaintiffs prove thousands of individual cases.
He questioned why he would want to hear 10,000 individual cases for damages when the allegations against the “bad guys” is true.
Slocomb agreed that it would be a burden to go forward with thousands of individual cases while the proof rests on the plaintiffs’ shoulders, but that’s the law.
Timothy Sansone of Sandberg Phoenix & von Gontard represents defendants Barrett Rochman, Sabre GroupLLC and S.I. Securities. He said that in order for class certification to be proper, the plaintiffs must show that damages are readily determinable. In this case, he said that isn’t possible.
“It doesn’t matter if they are guilty, those are the rules,” he said.
“Someone doesn’t get to walk in and get a windfall just because there was wrong doing. “There is a due process for everyone, even for guilty people.”
Weber countered, “But it is OK for Mr. Rochman to keep his $3 million in stolen money, and that’s not a windfall?”
Individual damages calculation
The defense explained that the court is going to have to hear the individual claims no matter what, whether as a class or in individual hearings.
Cloud argued that in order to properly calculate damages, the class would have to determine what would have been the proper percentage for each and every potential member.
Sansone stated that he had retained a forensic analyst to put together a list of factors that would need to be determined for each individual property. He rattled off a list of more than 30 variables to consider.
However, plaintiff attorney Nelson Mitten of Riezman Berger in St. Louis said the individual variables are not applicable in this case, because “the entire conspiracy was based on the idea to get all of those elements out of the issue.” He said that instead tax buyers bid 18 percent without ever considering those elements.
Weber added that defendants cherry-picked properties that were valuable and drove the percentage up on those specific properties, saying they knew the owners would come in to redeem their homes or businesses.
Defense: Not all tax sales were fraudulently escalated to 18 percent
Speaking on behalf of the defense, Cloud explained that it is not uncommon for delinquent properties to sell at 18 percent.
Daniel Delaney of Drinker, Biddle & Reath in Chicago, attorney for Dennis D. Ballinger, Jr., Empire Tax Corp., and Vista Securities, Inc. argued that each of the alleged victims will have to prove that their property was not one of those that would have sold for 18 percent irrespective of fraud.
He said that if no "honest" bidder shows up to bid on the properties, then those automatically go to the county trustee at the maximum rate.
Cloud said that one out of every five go to the trustee at 18 percent.
“I think you could conclude that some of these were going to go at 18 or 17 percent no matter what,” Cloud said.
Delaney pointed out that the average bid in Henry County (Illinois) was 17.95 percent in 2007, and a number of counties switched to an automated computer bidding program where every property sells at 18 percent.
Statute of limitations
When determining whether the statute of limitations has run its course in this case, the parties must determine when the plaintiffs knew or should have known of the illegal tax sales.
However, the defendants agreed that it is unclear whose knowledge from which they will base that determination.
Slocomb explained that plaintiff Scott Bueker says he didn’t know anything about the alleged scheme until Bathon was indicted.
Plaintiff Virgil Straeter, on the other hand, said he knew something was “rotten” back in 2010. So if the court takes his knowledge into account, a portion of the case wouldn’t survive under statute of limitations.
Additionally, Weber is counsel to this case, but he is also a potential class member after his property was sold at 18 percent. Defendants questioned whether the court should rely on Weber’s knowledge.
Weber responded, “If the U.S. attorney didn’t know about all this, how could anyone else know? We all knew it was fishy, but we didn’t know it was criminal until these people pled guilty."
Giacoletto agreed that statute of limitations could be a factor if a potential class member knew or should have known of the illegal tax bidding, but the burden falls on the defendant “to go and find that bad apple.”
Madison County Circuit Court case number 13-L-276