Gray v. Mundelein College

• Decision Date: 17 June 1998
• Docket Number: Nos. 1-97-0605,1-97-0622,s. 1-97-0605
• Citation: 296 Ill.App.3d 795,695 N.E.2d 1379,231 Ill.Dec. 260
• Parties: , 231 Ill.Dec. 260, 127 Ed. Law Rep. 376 Yohma GRAY and Elvira Fernandez Hasty, Plaintiffs-Appellees, v. MUNDELEIN COLLEGE, Defendant-Appellant (Loyola University of Chicago, Defendant). Judith R. MYERS, Yohma Gray and Elvira Fernandez Hasty, Plaintiffs-Appellants, v. LOYOLA UNIVERSITY OF CHICAGO and Mundelein College, Defendants-Appellees.
• Court: United States Appellate Court of Illinois

Page 1379

695 N.E.2d 1379

296 Ill.App.3d 795, 231 Ill.Dec. 260,

127 Ed. Law Rep. 376

Yohma GRAY and Elvira Fernandez Hasty, Plaintiffs-Appellees, v. MUNDELEIN COLLEGE, Defendant-Appellant (Loyola University of

Chicago, Defendant).

Judith R. MYERS, Yohma Gray and Elvira Fernandez Hasty, Plaintiffs-Appellants, v. LOYOLA UNIVERSITY OF CHICAGO and Mundelein College,

Defendants-Appellees.

Nos. 1-97-0605, 1-97-0622.

Appellate Court of Illinois First District, Third Division.

June 17, 1998.

Jill M. Rappis, Associate Gen. Counsel, Chicago, for Loyola University.

Ellen M. Babbitt, Ira J. Belcove and Harry J. Nelson, Saltarelli & Boyd, Chicago, for Mundelein and Loyola.

Arthur J. O'Donnell and Kenneth N. Flaxman, Chicago, for Gray and Hasty and Myers.

MODIFIED ON DENIAL OF REHEARING

Justice CAHILL delivered the opinion of the court:

We revisit plaintiffs' breach of contract suit against defendants Mundelein College and Loyola University. In an earlier appeal we reversed summary judgment for defendants, holding that an issue of fact remained about whether the coming together of Loyola and Mundelein extinguished Mundelein's tenure obligations to plaintiffs. After a trial on remand, the trial court entered judgment for plaintiffs Yohma Gray and Elvira Fernandez Hasty against Mundelein only, including prejudgment interest. Judgment was entered against plaintiff Judith Myers. The trial court also granted summary judgment to Loyola on plaintiffs' successor liability claims. We now affirm the trial court's judgment in favor of plaintiffs Gray and Hasty against Mundelein and summary judgment for Loyola. We reverse the judgment against plaintiff Myers and the award of prejudgment interest to plaintiffs.

Defendants Loyola and Mundelein argue on appeal that: (1) the trial court exceeded the mandate of Gray v. Loyola University of Chicago, 274 Ill.App.3d 259, 210 Ill.Dec. 330, 652 N.E.2d 1306 (1995) (Gray I ); (2) the trial court's interpretation of Mundelein's faculty manual "contradicts all evidence of intent presented at trial"; (3) plaintiffs did not prove that Mundelein's breach caused damages beyond two years' salary; (4) the trial court erroneously retained jurisdiction to award future damages; and (5) the trial court erred in awarding prejudgment interest.

Plaintiffs cross-appeal. They argue that the trial court erred by finding Loyola, as a successor corporation, is not liable for Mundelein's breach. Plaintiff Myers argues that the trial court erred in finding that she waived her right to sue for loss of her tenure at Mundelein by accepting a five-year teaching contract with Loyola.

Plaintiffs were tenured professors at Mundelein College until 1992. Under Mundelein's faculty manual, tenured positions could be terminated for the following reasons: (1) financial exigency; (2) the discontinuance of a program or department; (3) health; or (4) cause. The manual also explained how "financial exigency" was to be established:

"If, after consultation with the administration, faculty, and other bodies, the [board of trustees] determines that the financial viability of the institution is endangered and that a state of exigency exists, the Board shall so declare a state of financial exigency."

In 1989 and 1990, Mundelein was faced with serious financial problems. But the board of trustees never declared a state of financial exigency. In the summer of 1989, Mundelein borrowed $4 million from Continental Bank. The Catholic Order of the Sisters of Charity of the Blessed Virgin Mary (the BVM Order) agreed to guarantee the loan. In exchange, Mundelein gave the BVM Order a security interest in some of its property. Mundelein also agreed not to obtain other loans without approval of the BVM Order and not to borrow from Mundelein's endowment fund. Should Mundelein violate the agreement, Mundelein's board of trustees would have 90 days to either "cure the breach" or vote to close the college within 18 months.

In October and November 1990, Mundelein borrowed from its endowment fund to pay bills. The BVM Order demanded that Mundelein's board of trustees "cure the breach" or vote to close the school.

To prevent closing, Mundelein negotiated with Loyola. On April 15, 1991, Mundelein and Loyola agreed to an "affiliation." Under their agreement, Loyola acquired Mundelein's assets and assumed certain Mundelein financial obligations. Mundelein was to remain in existence as a separate college governed and administered by Loyola. Loyola agreed to continue Mundelein's educational mission and to accept its students. Loyola agreed to offer 26 of Mundelein's tenured faculty tenured positions at Loyola; to offer 11 tenured faculty a five-year appointment; and to offer three tenured faculty payments equal to two years' salary in lieu of employment. The agreement was finalized on June 14, 1991.

On April 29, 1991, Mundelein sent to all tenured faculty a document entitled "1991-92 CONDITIONAL AND TERMINAL CONTRACT FOR TENURED FACULTY." This document stated that it was conditioned on Mundelein remaining independent and that if Mundelein College became part of Loyola, the document would not take effect.

When Mundelein joined Loyola, the three plaintiffs in this suit were not offered tenured faculty positions at Loyola. Loyola offered Myers a five-year nontenured position. She accepted. Loyola offered Gray and Hasty two years' salary, which they rejected.

In the first appeal of this case, we reversed the trial court's finding that plaintiffs' tenure rights were extinguished when Mundelein affiliated with another school and ceased to exist as an independent college. We found "no law to support the proposition that an independent college ceases to exist and its contractual obligations are extinguished when it becomes part of a university." Gray I, 274 Ill.App.3d at 264, 210 Ill.Dec. 330, 652 N.E.2d 1306. We held that the question of whether the tenure rights of Mundelein faculty survived the "coming together" of Mundelein and Loyola could not be resolved as a matter of law because the faculty manual did not address "the fate of the faculty in the case of an affiliation, merger, or de facto merger." Gray I, 274 Ill.App.3d at 266, 210 Ill.Dec. 330, 652 N.E.2d 1306. The silence of the manual on the issue of tenure after affiliation created a question of fact as to the intent of the parties.

On remand, the trial court heard testimony about the parties' intent regarding Mundelein's tenure obligations in the event of affiliation. Plaintiffs testified that, although the effect of an affiliation on tenure was never discussed, they expected Mundelein to "safeguard" their tenure rights.

Mundelein presented two witnesses who testified about the custom of educational institutions with respect to tenure after affiliation. Peter Ruger, an attorney with 20 years' experience representing educational institutions, testified that the American Association of University Professors (the AAUP) publishes a "Red Book" that contains "views of faculty on a variety of issues that affect faculty." Ruger testified that the "Red Book" is "used by the higher education community to determine the meaning of tenure." According to Ruger, under the "prevailing view of the academic community" and the "Red Book," an affiliating college is not obliged to preserve tenure for all tenured faculty. Ruger testified that under AAUP guidelines a declaration of a financial exigency is not required before a college terminates tenure as a consequence of affiliation.

Lawrence White, who served as counsel for the AAUP and as in-house counsel for several schools, described the AAUP as an organization of university professors that "formulate[s] and disseminate[s] policies [about] the rights and duties of faculty members across the country." White testified that according to the custom of educational institutions and AAUP standards, an institution that acquires another in an affiliation is not required to hire all the tenured faculty. Nor must the acquired institution insist that all its tenured faculty be hired. Both Ruger and White suggested that such requirements would hamper negotiations and discourage affiliation.

The trial court ruled that the Mundelein faculty manual set out the reasons and procedures for tenure termination and made no provisions for termination when an affiliation occurs. Although financial exigency was a valid reason to terminate tenure, no financial exigency had been declared by Mundelein's board of trustees as required under the manual. The trial court further ruled that even if Mundelein had declared a financial exigency, a bona fide exigency did not exist. The court acknowledged Mundelein's "cash flow" problems, but noted that Mundelein still had valuable assets. The court also found that Mundelein's board of trustees "triggered a breach" of the agreement with the BVM Order, thereby causing the financial crisis on which Mundelein relied to "justify" affiliation.

The trial court did not find useful the testimony regarding the common practices of affiliating institutions or the AAUP guidelines. The court reasoned that "the parties never agreed that the AAUP [guidelines] would abrogate tenure rights upon an affiliation." Even if the AAUP guidelines controlled, the AAUP guidelines required a bona fide financial exigency, faculty involvement, and due process to end tenure in the event of affiliation.

The trial court ruled in favor of plaintiffs Gray and Hasty on their breach of contract claims and awarded damages in the amounts of $262,371 anD $205,349. the trial court ruled against plaintifF myers, holding that she had waived her claim by accepting a five-year nontenured teaching position at Loyola.

Plaintiffs moved for a recalculation of damages. The trial court then recalculated damages through December 31, 1996, and ruled that Gray and Hasty were entitled to prejudgment interest. The trial court also said that plaintiffs may bring future actions for...