Dr. Franklin Perkins School v. Freeman

• Decision Date: 14 August 1984
• Docket Number: Nos. 82-2490,83-1538 and 83-1645,83-1465,s. 82-2490
• Citation: 741 F.2d 1503
• Parties: 19 Ed. Law Rep. 881 DR. FRANKLIN PERKINS SCHOOL, Plaintiff-Appellant, and Cross-Appellee, v. Dr. Arthur J. FREEMAN, Defendant-Appellee, and Cross-Appellant. Arthur J. FREEMAN and Rhea J. Freeman, Plaintiffs-Appellants, and Cross- Appellees, v. DR. FRANKLIN PERKINS SCHOOL, Defendant-Appellee, and Cross-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1503

741 F.2d 1503

19 Ed. Law Rep. 881

DR. FRANKLIN PERKINS SCHOOL, Plaintiff-Appellant, and Cross-Appellee, v. Dr. Arthur J. FREEMAN, Defendant-Appellee, and Cross-Appellant.

Arthur J. FREEMAN and Rhea J. Freeman, Plaintiffs-Appellants, and Cross- Appellees, v. DR. FRANKLIN PERKINS SCHOOL, Defendant-Appellee, and Cross-Appellant.

Nos. 82-2490, 83-1465, 83-1538 and 83-1645.

United States Court of Appeals,

Seventh Circuit.

Argued Jan. 9, 1984.

Decided Aug. 14, 1984.

Rehearing in No. 83-1465 Denied Sept. 17, 1984.

George J. Casson, Jr., Bell, Boyd & Lloyd, Chicago, Ill., for plaintiff-appellant and cross-appellee.

Leland W. Hutchinson, Jr., Freeborn & Peters, Chicago, Ill., for defendant-appellee and cross-appellant.

Before CUMMINGS, Chief Judge, and WOOD and COFFEY, Circuit Judges.

COFFEY, Circuit Judge.

On May 18, 1981, Dr. and Mrs. Arthur J. Freeman ¹ commenced this diversity action ² in the Northern District of Illinois against the Dr. Franklin Perkins School ("School"). The complaint was later amended to allege (1) breach of contract for failure to apply for financial support from the State of Illinois, (2) intentional infliction of emotional distress, and (3) fraud and misrepresentation with respect to the School's statement that it would apply for and obtain funding from the State of Illinois to cover the costs of the Freemans' daughter's education for the 1980-81 academic year.

On June 12, 1981, the School commenced a separate diversity action against Dr. Freeman in the District of Massachusetts, alleging the breach of an express and implied contract to pay the School for services rendered in the care and education of his daughter, April Freeman, from 1979 through 1981. In the alternative, the School alleged the right to recover the reasonable value of those services on a quantum meruit theory. On February 10, 1982, the action commenced by the School was transferred to the District Court for the Northern District of Illinois. The two actions were then consolidated for discovery purposes and subsequently tried together before a jury. ³

The trial was bifurcated; the issues of liability were tried separately from the issues of damages. In the liability phase of the trial, the jury found the School liable to Dr. Freeman for breach of contract and fraud, and further found the School liable to Mrs. Freeman for intentional infliction of emotional distress. However, the jury relieved the School of any liability to Dr. Freeman for intentional infliction of emotional distress. As to the School's claims, the jury found no liability on Dr. Freeman's part for either breach of contract or quantum meruit.

In the damage phase of the trial the jury granted $4,000 in compensatory damages to Dr. Freeman on his contract claim, $4,000 in compensatory damages and $30,000 in punitive damages to Dr. Freeman on his fraud claim, and $50,000 in compensatory damages to Mrs. Freeman on her emotional distress claim. The School then filed a supplemental motion for judgment notwithstanding the verdict, or in the alternative, for a new trial with regard to the jury's damage awards. ⁴ The district court granted the School's motion to set aside the jury's liability determinations with respect to Dr. Freeman's fraud claim and Mrs. Freeman's emotional distress claim. The court also set aside the jury's punitive damage award. It denied, however, the School's motion with respect to Dr. Freeman's breach of contract claim. ⁵

On March 14, 1983, the district court taxed costs of $5,436.78 against the Freemans because they had failed to recover the requisite jurisdictional amount ($10,000) for a diversity action, 28 U.S.C. Sec. 1332. In addition, the court held that Dr. Freeman had waived costs in the action commenced by the School as he had failed to file a bill of costs within ten days of judgment as required by local rule 45(a) of the Northern District of Illinois. Both parties appeal. We affirm in part and reverse in part.

I.

Dr. Franklin Perkins School is a private, residential school for mentally handicapped children and adults located in Lancaster, Massachusetts. Dr. and Mrs. Freeman are residents of Evanston, Illinois. Their daughter, April, who suffers from Downs' Syndrome, ⁶ was enrolled at the Perkins School from March 25, 1972 until June 20, 1981. April Freeman was a legal resident of Evanston, Illinois while she was enrolled at the School. The State of Illinois requires local school districts to provide care and education for children, such as April, who are handicapped. Ill.Ann.Stat. ch. 122, Sec. 14-7.01 (Smith-Hurd 1983-1984 Supp.). If the local school district determines that it is unable to provide proper educational opportunities for such children, then it is required to pay for qualified private care, even if it requires the placement of the child in an out-of-state facility such as the Perkins School. Id.

The State of Illinois has a specific procedure for purchasing education and care for handicapped children enrolled in out-of-state private schools when public school programs are inadequate. The State's "purchased care" program is administered by two Illinois agencies. The first is a unit of the Illinois State Board of Education ("ISBE") called "Nonpublic School Approval." This agency determines whether a particular school's educational program is eligible. The second agency is the Illinois Review Board whose task is to review all cost information submitted by those providers who were previously determined to be academically eligible and in turn to establish the amount of reimbursement the State will provide to local school districts. The rate set by the Illinois Review Board ("Illinois Rate") represents the maximum amount an Illinois school district may pay a private school for services provided to students. ⁷ Based on the rate designated by the Illinois Review Board, the local school district will enter into a contract with the eligible school.

The State of Massachusetts also has a procedure for determining the maximum tuition rate to be charged for the care and education of handicapped children. Each school is required to provide detailed cost information to the Massachusetts Rate Setting Commission which in turn sets the school's maximum tuition rate. The rate set by the Commission is equivalent to the amount of public assistance provided to Massachusetts' residents attending that school in any given year. A school may request a rate increase from the Commission through an administrative adjustment procedure, which if granted can have a retroactive effect.

In 1973, the Freemans began to receive tuition assistance from Illinois to pay for the private care April Freeman received at the Perkins School. As a result of Massachusetts and Illinois using different criteria in analyzing the cost data in setting their respective tuition rates for the education of handicapped children, the amounts the Freemans received in assistance from the State of Illinois proved to be insufficient to cover the costs of April's attendance at the Perkins School and, thus, Dr. Freeman was forced to make periodic payments to cover the difference.

In the latter part of the 1970's the Perkins School's tuition rate increased dramatically as a result of its attempting to comply with the more stringent educational, health and safety standards imposed by the State of Massachusetts on those schools educating and caring for handicapped children. In order to achieve compliance with these standards, the Dr. Franklin Perkins School was required to make extensive and costly changes and improvements in its program which were not fully implemented until 1980. As a result, the School's reimbursable cost rose from $7,200 to $19,802 per student during the period from July 1, 1978 to June 30, 1981. ⁸

During the period when the School was engaged in upgrading the program it began to experience financial difficulties. Part of the problem was the fact that many out-of-state students at the Perkins School were not paying the full Massachusetts Commission tuition rate. In an effort to alleviate this problem with respect to Illinois' reimbursements, on May 7, 1979, the then executive director of the Perkins School, Franklin Perkins, Jr., wrote a letter to the Illinois Review Board requesting a tuition rate increase for those Illinois residents attending the School in the 1979-1980 school year. He advised the Board that the Massachusetts rate had been increased to $9,969 and also that the School anticipated a further increase in the School's rate to approximately $11,000 for the full 12-month program. ⁹ On August 22, 1979, the Illinois Review Board informed the School of the 1979-1980 Illinois rate ¹⁰ and in addition notified the School that any appeal of the 1979-1980 Illinois rate must be made within 60 days. The 1979-1980 Illinois rate would have been almost sufficient to cover April's tuition for the 1979-1980 academic year at the School, if the School's costs had not continued to escalate.

In mid-October of 1979, however, the Perkins School submitted an application to the Massachusetts Rate-Setting Commission for another increase in tuition. In December of 1979 or January of 1980, the School's consultant, Paul McLaughlin, contacted the Illinois Review Board to determine what procedure to follow to obtain a similar adjustment of the Illinois rate. He was told that after the Massachusetts Commission had acted on the School's application for the tuition increase, he should submit the same application and supporting materials to the Illinois authorities. On January 28, 1980, the Massachusetts Commission approved a new tuition rate of $17,636 per year, which retroactively took effect on August 31, 1979. Shortly thereafter, the School appealed to the Illinois Reimbursed Care Review Board for an identical increase in its Illinois tuition rate. On April 4, 1980, the Illinois Review Board denied the School's request for a higher Illinois rate...