Ret. Plan for Chi. Transit Auth. Emps. v. Chi. Transit Auth.

• Decision Date: 31 March 2020
• Docket Number: No. 1-18-2510,1-18-2510
• Citation: 156 N.E.3d 86,441 Ill.Dec. 86,2020 IL App (1st) 182510
• Parties: RETIREMENT PLAN FOR CHICAGO TRANSIT AUTHORITY EMPLOYEES, Plaintiff-Appellant, v. The CHICAGO TRANSIT AUTHORITY, Defendant-Appellee.
• Court: United States Appellate Court of Illinois

2020 IL App (1st) 182510

156 N.E.3d 86

441 Ill.Dec. 86

RETIREMENT PLAN FOR CHICAGO TRANSIT AUTHORITY EMPLOYEES, Plaintiff-Appellant,

v.The CHICAGO TRANSIT AUTHORITY, Defendant-Appellee.

No. 1-18-2510

Appellate Court of Illinois, First District, First Division.

Opinion filed March 31, 2020

James L. Kopecky and Daryl M. Schumacher, of Kopecky Schumacher Rosenburg LLC, of Chicago, for appellant.

Karen G. Seimetz, Corporation Counsel (Stephen L. Wood and Irina Y. Dmitrieva, of counsel), and John Kennedy and Allison Czerniak, of Taft Stettinius & Hollister LLP, both of Chicago, for appellee.

JUSTICE HYMAN delivered the judgment of the court, with opinion.

¶ 1 This dispute involves prescription drug rebates. The Retirement Plan for Chicago Transit Authority Employees (RP), a pension fund, manages retirement benefits, including health care and prescription drug benefits, for Chicago Transit Authority (CTA) retirees and their dependents. RP and the CTA agreed that RP would pay the CTA for the "actual cost" of retirees' prescription drugs. RP contends the CTA breached that agreement by retaining rebates the CTA received from its prescription drug provider, Caremark. RP asserts the rebates depended on the number of prescription drugs purchased and seeks the rebates associated with its retirees' prescription drug purchases. RP brought claims for an accounting, breach of contract, breach of the Illinois Pension Code, and breach of fiduciary duty.

¶ 2 The trial court granted partial summary judgment to the CTA, finding the breach of contract claims barred by the statute of limitations and the voluntary payment doctrine. After a bench trial, the trial court ruled in favor of the CTA on the remaining counts, finding RP failed to present clear and convincing evidence it had a fiduciary relationship with the CTA. RP contends the trial court erred in (i) determining when the statute of limitations actually began, (ii) applying the voluntary payment doctrine to its breach of contract claims, and (iii) finding RP and the CTA did not have a fiduciary relationship.

¶ 3 We affirm. The trial court properly granted summary judgment on RP's contract claims based on the statute of limitations and its finding that the parties did not have a fiduciary relationship was not against the manifest weight of the evidence. Under the discovery rule, the statute of limitations began to run when RP learned it had not been credited for the rebates; claims accrued more than five years before RP filed its complaint (June 13, 2013) are barred. Further, RP failed to show that the CTA was acting as its agent in negotiating with Caremark or had sufficient dominance over it to create a fiduciary relationship.

¶ 4 BACKGROUND

¶ 5 In 1949, a Retirement Plan Agreement (Agreement) between the CTA and various labor unions formed RP to manage retired employees' retirement benefits, including health care benefits. (A separate agreement between the CTA and the unions covers current employees' health care benefits.) Staffed by 13 to 15 employees (many on leave from the CTA), The Retirement Allowance Committee (RAC) administered RP. It consists of 10 members—5 appointed by the CTA and 5 by the CTA employee's union. John Kallianis, a CTA employee, has served as RP's executive director since 2000. Kallianis supervised all RP's "routine matters in connection with the administration," including managing staff, reviewing and paying invoices, setting the agenda, and preparing materials for the monthly RAC meetings.

¶ 6 Under the Agreement, the CTA provided health care, including prescription drugs, to CTA retirees and their dependents. The CTA administered the retiree health benefit, which involved organizing the open enrollment process, providing customer service and claims management services, and contracting with prescription drug suppliers, like Walgreens and Caremark.

¶ 7 Before 2003, the CTA used a "balance billing" system, invoicing RP monthly for the estimated costs of retirees' health care. A 2002 audit revealed a $42 million shortfall for the health costs retirees incurred the previous seven years, and RP reimbursed the CTA the full amount. To avoid another shortfall, RP and the CTA agreed that the CTA would invoice RP for retirees' "actual" cost of health care, including prescription drugs. Though not formalized in writing, this change in the CTA's billing method was noted in the minutes of the RAC's January 22, 2003, meeting. The CTA used this billing method from February 2003 until mid-2009.

¶ 8 In 2003, the CTA, in coordination with six other local government agencies, including the City of Chicago, the Chicago Park District, and the Chicago Housing Authority, accepted bids for a new pharmacy benefits manager. The coalition selected Caremark, and each agency negotiated its own contract. RP did not participate in the bidding process or the contract negotiations. Also, RP was not a party to the CTA's contract with Caremark.

¶ 9 The availability of rebates for prescription drugs emerged as an important factor in selecting Caremark. Under the contract, Caremark agreed to issue rebates to the CTA under certain conditions. The amount of the rebates depended on the price, volume, and method of dispensing drugs, as well as the way the CTA designed its prescription drug plan. If the CTA met the requirements, it qualified for higher, "three-tier structure" rebates; otherwise, it received a lower rebate under a different "two-tier" structure. Caremark agreed "to issue all rebates and other amounts due and owning the Client." The contract also provided that "for purposes of the Federal Anti-Kickback Statute, these client credits "shall constitute and shall be treated as discounts against the price of drugs within the meaning of 42 U.S.C. 1320a 7b(b)(3)(A)."

¶ 10 Three years later, in November 2006, an RAC member asked Kallianis a question, and Kallianis sent an e-mail to the CTA's benefits manager, Larry Wall, inquiring if the CTA was paying RP a share of the prescription drug rebates it received from Caremark. Wall told Kallianis he would get back to him with information about the rebates. On February 8, 2007, Kallianis sent a follow-up to Wall stating, "I had initially asked you about Caremark rebates available to the Retirement Plan last November. * * * At that time, you had indicated that there were rebates available from Caremark and that you were still trying to figure out how the rebates would be credited to the Plan." Kallianis also asked Wall to provide "a written description of how the Caremark rebate program works, what rebates the Retirement Plan is entitled to, and when we will receive our portion of the rebate."

¶ 11 In 2008, the Illinois legislature replaced the RAC with the Retirement Healthcare Trust. In July 2009, this trust took over responsibility for providing healthcare benefits to retirees and their beneficiaries. During the transition, RP retained a firm to audit its healthcare and prescription drug payments. The auditors inquired about how the Caremark rebate program worked. Wall responded by letter on August 25, 2009, stating that "historically, CTA has not provided any portion of [the prescription drug] rebates to the Plan and the Plan has never requested any portion of the rebates."

¶ 12 After receiving a copy of Wall's letter, Kallianis wrote Wall on August 28, 2009, asking him "to immediately provide the data on all rebates the CTA had received on prescription drugs related to the retiree prescriptions going back to January 2003." He further stated, "I am assuming that the Trustees will want to pursue reimbursement for the amount of prescription drug rebates that have been received by the CTA related to retiree prescriptions."

¶ 13 Wall wrote back on October 23, 2009, informing Kallianis that an estimated 69% of prescription drugs covered by Caremark's contract with the CTA had been provided to retirees, and that, since 2004, Caremark had paid the CTA about $7.3 million in rebates attributable to retirees' prescription drugs. Wall further stated that if RP claimed a share of the Caremark rebates, the CTA would seek recovery of "administrative costs" from RP. Wall stated the CTA had not previously asked RP for reimbursement because the rebates partially offset its administrative costs.

¶ 14 Believing it was entitled to a portion of the Caremark rebates, RP filed its initial complaint against the CTA on June 10, 2013. In its second amended complaint, RP asserted claims for (i) an accounting (count I), (ii) breach of express contract, (iii) breach of implied contract in fact (pled in the alternative to count II), (iv) unjust enrichment (count IV) (pled in the alternative to counts II and III), (v) prohibited transaction in violation of the Illinois Pension Code ( 40 ILCS 5/1-110(a)(4), (b)(1) (West 2012)) (counts V and VI), and (vi) breach of fiduciary duty (count VII).

¶ 15 The CTA asserted several affirmative defenses, including the statute of limitations. The CTA counterclaimed to recover administrative costs it incurred in handling the healthcare claims for retirees and their dependents under theories of unjust enrichment and quantum meruit .

¶ 16 Summary Judgment

¶ 17 The CTA moved for summary judgment on all counts. After a hearing, the trial court held that all RP's claims that accrued more than five years before filing its complaint, that is, before June 13, 2008, were barred. Applying the discovery rule, the court found that RP knew or should have known that rebates had been credited toward its remittances and, at the latest, should have known as of February 8, 2007, the date Kallianis e-mailed Wall about the rebates. "[T]hat is the moment where Kallianis had sufficient information that would allow him to inquire as to whether the Retirement Plan had sustained an actionable injury."

¶ 18 The court also granted summary judgment based on the voluntary payment doctrine for RP's claims of breach of express contract, breach of contract implied in fact, and...