Scachitti v. Ubs Financial Services
| Decision Date | 03 June 2005 |
| Docket Number | No. 97866.,No. 97023.,97023.,97866. |
| Parties | Raymond G. SCACHITTI et al., Appellants, v. UBS FINANCIAL SERVICES et al., Appellees. The Illinois Health Facilities Authority ex rel. Raymond G. Scachitti et al., Appellants, v. Morgan Stanley Dean Witter & Company et al., Appellees. |
| Court | Illinois Supreme Court |
Clinton A. Krislov, Jason P. Stiehl, Chicago, for appellants.
Taras A. Gracey, of Winston & Strawn, L.L.P., Chicago, Steven F. Molo, Rebecca J. Trent, of Shearman & Sterling, L.L.P., New York, New York, Louis R. Cohen, Gordon Pearson, of Wilmer, Cutler, Pickering, Hale & Dorr, L.L.P., Washington, D.C., for appellee UBS Financial Services, Inc. in No. 97023.
Alan N. Salpeter, Michele Odorizzi, Jonathan C. Medow, of Mayer, Brown, Rowe & Maw, L.L.P., Chicago, for appellee Deloitte & Touche, L.L.P. in No. 97023.
Lisa Madigan, Attorney General, Springfield (Gary Feinerman, Solicitor General, Chaka Patterson, Christopher M. McClellan, Assistant Attorneys General, Chicago, of counsel), intervenor in No. 97023.
Dolores M. Veninga, Chicago, for amici curiae People of the State of Illinois ex rel. David Sipich and George C. Hook in No. 97023.
Tracy L. Netzel, Chicago, Deborah Zuckerman, Sarah Lock, Michael Schuster, Washington, D.C., for amicus curiae AARP.
Michael I. Behn, of Futterman & Howard, Chrtd., Chicago, Jim Moorman, Amy Wilken, Bret Boyce, Washington, D.C., for amicus curiae Taxpayers Against Fraud.
Richard A. Devine, State's Attorney, Chicago, Patrick D. Driscoll, Jr., Paul A. Castiglione, Assistant State's Attorneys for amicus curiae Cook County Treasurer Maria Pappas in No. 97023.
Douglas J. Kurtenbach, Mark J. Nomellini, John E. Tangren, of Kirkland & Ellis, L.L.P., Chicago, for appellee Morgan Stanley Dean Witter & Co. in No. 97866.
Stanley J. Parzen, James C. Schroeder, of Mayer, Brown, Rowe & Maw, L.L.P., Chicago, for appellee Ernst & Young, L.L.P. in No. 97866.
In these related appeals we address: (1) whether taxpayers have standing to assert common law claims on behalf of the State of Illinois; (2) whether private citizens have standing to maintain a cause of action on behalf of the state for recovery of fraudulently obtained public funds under section 20-104(b) of article XX of the Code of Civil Procedure (article XX) (735 ILCS 5/20-104(b) (West 2002)); and (3) whether private persons have standing to bring suit on behalf of the state under the qui tam provisions of the Whistleblower Reward and Protection Act (Act) (740 ILCS 175/1 et seq. (West 2002)). The circuit court of Cook County dismissed plaintiffs' complaints, holding this court's recent opinion in Lyons v. Ryan, 201 Ill.2d 529, 269 Ill.Dec. 374, 780 N.E.2d 1098 (2002), foreclosed plaintiffs' claims. The circuit court further held the entire Act unconstitutional based on this court's reasoning in Lyons.
We allowed plaintiffs' direct appeals. See 134 Ill.2d R. 302(a). We affirm in part and reverse in part, and hold: (1) taxpayers lack standing to assert common law claims on behalf of the state; (2) private citizens lack standing to maintain a cause of action on behalf of the state for recovery of fraudulently obtained public funds under section 20-104(b) of article XX (735 ILCS 5/20-104(b) (West 2002)); (3) private persons have standing to bring suit on behalf of the state under the qui tam provisions of the Act (740 ILCS 175/1 et seq. (West 2002)); and (4) the circuit court erred in declaring the Act unconstitutional.
Plaintiffs' counsel issued 278 requests to various state and local governmental units under the Freedom of Information Act (5 ILCS 140/1 et seq. (West 2002)), seeking documents relating to nearly 300 bond clearance transactions. As a result of information obtained from the requests, plaintiffs brought these actions.
These cases essentially repleaded pendent state claims dismissed in earlier suits filed in the United States District Court for the Northern District of Illinois. The federal cases were dismissed for lack of subject matter jurisdiction.
On November 21, 2002, plaintiffs, Raymond G. Scachitti, Patrick J. Houlihan, and Robert F. Rifkin, filed a "taxpayer derivative action" on behalf of the State of Illinois against defendants, Payne Webber Group, Inc., now known as UBS Financial Services (UBS), and Deloitte & Touche, L.L.P. (Deloitte). The lawsuit sought to recover, on behalf of the state, overcharges made by UBS in connection with advance refunding bond transactions in 1992. UBS served as the lead underwriter for the state's issuance of new bonds to refinance, at lower rates, certain bonds issued by the state between 1985 and 1992.
Plaintiffs' complaint alleged UBS overcharged the state in connection with the 1992 advance refunding bond transactions. An advance refunding bond transaction is a financial investment vehicle allowing the sale of new bonds and using the proceeds to purchase securities. These securities are held in a defeasance escrow to assure the future payment of outstanding bonds that cannot presently be redeemed because the call provisions are for a future date. Deloitte was the accounting firm engaged by the state to verify the accuracy of the escrow account. According to plaintiffs' complaint, federal law restricts the overall yield governmental units can earn on securities placed in a defeasance escrow. Charging more than the market value is referred to as "burning" the yield on the securities. Plaintiffs allege "yield burning" violates IRS regulations requiring securities to be purchased at market value and any profit resulting from positive arbitrage be paid to the United States Treasury to prevent the refunding bonds from losing tax-exempt status.
Plaintiffs, on behalf of the state, sought recovery of fraudulently obtained public funds from UBS under article XX (735 ILCS 5/20-101 et seq. (West 2002)). Section 20-102 of article XX provides that any person who receives fraudulently obtained public funds, whether or not that person has committed the fraud, must refund the money. 735 ILCS 5/20-102 (West 2002). Section 20-103 states that a person who receives compensation, benefits or remuneration "to which he is not entitled, or in a greater amount than that to which he is entitled" shall be liable to repay those amounts and, in addition, is liable for civil penalties, including treble damages. 735 ILCS 5/20-103 (West 2002).
Plaintiffs also sought recovery, on behalf of the state, of fraudulently obtained public funds from defendants under the qui tam provisions of the Act (740 ILCS 175/1 et seq. (West 2002)). Plaintiffs, as taxpayers, further asserted common law claims on behalf of the state as follows: breach of fiduciary duty against defendants for misrepresenting the fair market value of the treasury securities it sold the state to be held in the defeasance escrow for the 1992 refunding bonds; fraud and breach of contract against UBS; and breach of contract, accountant malpractice, and negligent and fraudulent misrepresentation against Deloitte.
Plaintiffs sought: (1) compensatory, treble, or other damages and civil penalties; (2) rescission of contracts "between, or for the benefit of," the state and defendants and an award of restitution damages; (3) attorney fees and expenses; and (4) "extraordinary equitable and/or injunctive relief, including attaching, impounding, imposing a constructive trust upon or otherwise restricting defendants' assets." Although plaintiffs' complaint was filed as a putative class action, the prayer for relief did not seek class certification.
Plaintiffs served a copy of the complaint upon the Attorney General. After reviewing plaintiffs' complaint and submission of evidence, the Attorney General declined to intervene in the action. Plaintiffs attempted to litigate the case on behalf of the state. The circuit court of Cook County granted defendants' motions to dismiss, holding plaintiffs lacked standing to sue on behalf of the state. The circuit court also declared the Act unconstitutional in light of Lyons, 201 Ill.2d 529, 269 Ill.Dec. 374, 780 N.E.2d 1098, as a usurpation of the exclusive authority of the Attorney General to sue on behalf of the state.
This court allowed plaintiffs' direct appeal. See 134 Ill.2d R. 302(a). Although the Illinois Attorney General was never involved in the proceedings below, we granted the Illinois Attorney General leave to intervene in the appeal (see 735 ILCS 5/2-408 (West 2002)) and to file a brief addressing the constitutionality of the Act. We granted the AARP and Taxpayers Against Fraud, and relators David Sipich and George C. Hook, leave to submit amicus curiae briefs in support of plaintiffs. See 155 Ill.2d R. 345. Cook County Treasurer Maria Papas was granted leave to file an amicus curiae brief in support of defendants. See 155 Ill.2d R. 345.
On September 13, 2002, Raymond G. Scachitti, Patrick J. Houlihan, and Robert F. Rifkin filed a "taxpayer derivative action" on behalf of the Illinois Health Facilities Authority (Authority) against Morgan Stanley Dean Witter & Company (Morgan), and Ernst & Young, L.L.P. (Ernst). The lawsuit sought to recover, on behalf of the Authority, overcharges made by Morgan in connection with advance refunding bond transactions in 1993.
Morgan served as the lead underwriter for the Authority's issuance of new bonds to refinance, at lower rates, certain revenue bonds issued by the Authority in 1989. Ernst was the accounting firm engaged by the Authority to verify the accuracy of the escrow account.
Plaintiffs' complaint sought recovery of fraudulently obtained public funds from Morgan under sections 20-102 and 20-103 of article XX (735 ILCS 5/20-102, 20-103 (West 2002)). Plaintiffs' complaint also sought recovery of fraudulently obtained public funds from defendants under the qui tam provisions of the...
To continue reading
Request your trial
-
West Farms Mall, LLC v. West Hartford
... ... the anticipated [proposal]." The resolution directed the town manager to "retain the services of independent experts to analyze the potential impact of Blue Back Square ... including, but not ... Page 653 ... other town officials spoke in favor of the project and its financial benefits ... On July 14, 2004, the town approved an ordinance making the ... See Scachitti v. UBS Financial Services, 215 Ill.2d 484, 493, 294 Ill.Dec. 594, 831 N.E.2d 544 (2005) ("[a] ... ...
-
United States ex rel. Absher v. Momence Meadows Nursing Ctr., Inc.
... ... diem amount for each resident and did not reimburse the facility separately for specific services provided. A–257–59. To receive reimbursement, Momence was required to provide government ... See Scachitti v. UBS Fin. Servs., 215 Ill.2d 484, 294 Ill.Dec. 594, 831 N.E.2d 544, 557 (2005); see also U.S ... ...
-
Lutkauskas v. Ricker
... ... and is designed to ensure that a school district has enough funds on hand to meet its financial obligations pending the deposit of tax receipts. 105 ILCS 5/202, 203, 204 (West 2010). Section 204 ... Scachitti v. UBS Financial Services, 215 Ill.2d 484, 494, 294 Ill.Dec. 594, 831 N.E.2d 544 (2005). In such ... ...
-
People ex rel. Schad v. My Pillow, Inc.
... ... The Act closely mirrors the federal False Claims Act originally enacted in 1863. Scachitti v. UBS Financial Services , 215 Ill.2d 484, 506, 294 Ill.Dec. 594, 831 N.E.2d 544 (2005) ; see ... ...