Harper v. Health Care Serv. Corp.

228 N.E.3d 931

2023 IL App (1st) 220078

Kathleen HARPER, as a Taxpayer of the City of Chicago, an Illinois Municipal Corporation, and as a Taxpayer of Cook County Illinois, an Entity of Local Government, and Suing Derivatively on Behalf of the City of Chicago and Cook County, Plaintiff-Appellant,

v.HEALTH CARE SERVICE CORPORATION, and the City of Chicago, Defendants-Appellees,

No. 1-22-0078

Appellate Court of Illinois, First District, FOURTH DIVISION.

Filed May 4, 2023

Appeal from the Circuit Court of Cook County, No. 18 L 010842, Honorable Patrick J. Sherlock, Judge, presiding.

Stephen W. Heil, of Cray Huber Horst-man Heil & VanAusdal LLC, of Chicago, and I ana A. Vladimirova and Scott Helfand, of Husch Blackwell LLP, of Madison, Wisconsin, for appellant.

Steven F. Molo, Megan Cunniff Church, and Pamela I. Yaacoub, of MoloLamken LLP, of Chicago, for appellee Health Care Service Corporation.

Celia Meza, Corporation Counsel, of Chicago (Myriam Zreczny Kasper, Suzanne Loose, Alexandra Weiss, and Tara D. Kennedy, Assistant Corporation Counsel, of counsel), for other appellee.

OPINION

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

¶ 1 Plaintiff, Kathleen Harper, brought a taxpayer derivative suit on behalf of the City of Chicago (City) and Cook County, against defendant, Health Care Service Corporation (HCSC), which administers the City’s employee health care program.

Plaintiff sought the return of taxpayer funds that the City used to pay HCSC, and she asserted various theories of recovery pursuant to section 8-10-10 of the Illinois Municipal Code (65 ILCS 5/8-10-10 (West 2020)), section 2-92-050 of the Chicago Municipal Code (Chicago Municipal Code § 2-92-050 (amended July 19, 2000)), article VIII of the Illinois Constitution (Ill. Const. 1970, art. VIII), section 2.5 of the Freedom of Information Act (FOIA) (5 ILCS 140/2.5 (West 2020)), and section 22.2(f) of the Medical Practice Act of 1987 (Medical Practice Act) (225 ILCS 60/22.2(f) (West 2020)). Plaintiff amended her complaint multiple times, culminating in the fourth amended complaint containing eight counts. The circuit court dismissed all eight counts of the fourth amended complaint pursuant to section 2-615 of the Code of Civil Procedure (735 ILCS 5/2-615 (West 2020)) and, additionally, dismissed counts VI and VIII pursuant to section 2-619 (id. § 2-619). Plaintiff appeals the dismissal of her fourth amended complaint as well as the court’s prior order denying her motion for partial summary judgment with respect to counts I and II of her third amended complaint. We affirm.

¶ 2 Certain pertinent facts regarding the administration of the City’s employee health care plan (the Plan) are undisputed and/or of public record and are subject to judicial notice although not pleaded. See Kopnick v. JL Woode Management Co., 2017 IL App (1st) 152054, ¶ 26, 412 Ill.Dec. 665, 76 N.E.3d 105; Smyth v. Kaspar American State Bank, 6 Ill. App. 2d 64, 76, 127 N.E.2d 149 (1955). Specifically, the Chicago City Council (City Council) passed a resolution in 1986 establishing the procedure for the mayor to exercise authority over the Plan, including its administration. The first step was for the mayor to approve of each company providing hospital and medical insurance coverage for City employees. The second step was for the mayor and the corporation counsel to approve of the policy provisions and rates.

¶ 3 In 1989, the mayor issued an executive order establishing a benefits committee to review and evaluate proposals for Plan administration services and advise the mayor thereon.

¶ 4 In 1994, the benefits committee recommended that HCSC, an Illinois mutual insurance company, be retained as the Plan administrator. The mayor approved the selection of HCSC. The City and HCSC negotiated the terms and conditions by which HCSC would administer the Plan, and the City Council passed an appropriations ordinance allocating funding for administration of the Plan. HCSC warranted that it was "ready, willing and able to perform the [administration services] as of the effective date of [the 1994 agreement]." The term of the 1994 agreement was stated as January 1, 1994, through December 31, 2006, with the possibility of a one-year extension, and it contained a provision requiring HCSC to continue to administer the Plan after the termination of the agreement until those services could be transitioned to another provider. HCSC began administering the Plan on January 1, 1994. The mayor did not actually sign the 1994 agreement until November 2006, but the parties treated the agreement as if it related back to its effective date of January 1,1994. See Janowiak v. Tiesi, 402 Ill. App. 3d 997, 1003, 342 Ill.Dec. 442, 932 N.E.2d 569 (2010) ("Such relation back *** contravenes no principle of law and is determined by the intent of the parties as deduced from the instrument itself." (Internal quotation marks omitted.)).

¶ 5 After the expiration of the 1994 agreement, HCSC continued to administer the Plan pursuant to the contractual provision requiring it to do so until a new administrator was in place.

¶ 6 In 2008, the City Council again passed an appropriations ordinance allocating funding for administration of the Plan, the mayor again approved the selection of HCSC as Plan administrator, and the City and HCSC entered into an agreement for HCSC to administer the Plan beginning January 1, 2008. The term of the 2008 agreement was from January 1, 2008, to December 31, 2016, with the possibility of a two-year extension, and it also contained the provision requiring HCSC to continue to administer the Plan after the termination of the agreement until those services could be transitioned to another provider. The mayor signed the 2008 agreement no earlier than January 1, 2014, but the parties treated the agreement as if it related back to its effective date of January 1, 2008.

¶ 7 Plaintiff filed her taxpayer derivative suit on October 5, 2018, purportedly acting as a taxpayer on behalf of the City whose taxes were used to pay HCSC for its administration of the Plan. In her original complaint, she alleged that as Plan administrator, HCSC contracted with health care providers for discounted rates on providers’ services but then fraudulently billed the City at the full, undiscounted rates.

¶ 8 Plaintiff subsequently filed a second amended complaint, adding a claim for breach of fiduciary duty.

¶ 9 In March 2019, plaintiff filed her third amended complaint against HCSC, alleging claims for fraud, breach of fiduciary duty, fraudulent misrepresentation, negligent misrepresentation, constructive fraud, breach of contract, and equitable accounting. This complaint also named Cook County as a nominal plaintiff and real party in interest and the City as a nominal defendant. HCSC moved to dismiss. Following briefing on the motion, plaintiff voluntarily dismissed Cook County as a real party in interest. The circuit court then dismissed plaintiff's claims against HCSC for breach of fiduciary duty and constructive fraud, allowing plaintiff's other claims to proceed.

¶ 10 After the completion of written discovery, plaintiff moved for partial summary judgment on counts I and II of the third amended complaint on the theory that the 2008 agreement was void under section 8-10-10 of the Illinois Municipal Code (65 ILCS 5/8-10-10 (West 2018)) and section 2-92-050 of the Chicago Municipal Code (Chicago Municipal Code § 2-92-050 (amended July 19, 2000)) because it was signed by the mayor years after its effective date. Plaintiff argued that because HCSC had no valid contract with the City from 2008 to 2014, it must return all taxpayer funds it received from the City for those years. The circuit court denied plaintiff's motion for partial summary judgment, concluding that "[t]his theory is nowhere to be found in the operative complaint." The circuit court further concluded that even if that theory had been properly pleaded, plaintiff still was not entitled to summary judgment because neither section 8-10-10 of the Illinois Municipal Code nor section 2-92-050 of the Chicago Municipal Code applied to the 2008 agreement.

¶ 11 Plaintiff then filed her fourth amended taxpayer derivative action on September 2, 2021, against HCSC. Count I was brought pursuant to sections 8-10-10 and 8-10-21 of the Illinois Municipal Code. Section 8-10-10 states:

"Every contract involving amounts in excess of $10,000 shall be signed by the mayor or his duly designated agent, by the comptroller and by the purchasing agent, respectively, of such municipality." 65 ILCS 5/8-10-10 (West 2020).

¶ 12 Section 8-10-21 states:

"Any purchase order or contract executed in violation of this Division 10 shall be null and void as to the municipality and if public funds shall have been expended thereupon the amount thereof may be recovered in the name of the municipality in an appropriate action instituted therefor." Id. § 8-10-21.

¶ 13 Plaintiff alleged that the 1994 and 2008 agreements between HCSC and the City involved amounts in excess of $10,000 and that each of those agreements are null and void under sections 8-10-10 and 8-10-21 of the Illinois Municipal Code because they were not timely signed by the mayor, comptroller, and purchasing agent prior to or on their effective dates. Plaintiff further alleged that HCSC "currently fails to have a valid contract for the provision of its services signed by the mayor, the comptroller, and purchasing agent from December 31, 2018, until the present day." Plaintiff sought the return of all taxpayer funds paid to HCSC by the City.

¶ 14 Count II was brought pursuant to section 2-92-050 of the Chicago Municipal Code, which states:

"No contract shall be binding upon the city, nor shall any work contracted for be commenced, or any materials or supplies be delivered thereunder, until the contract, in the requisite number of copies, has been duly executed." Chicago Municipal Code § 2-92-050 (amended July 19, 2000).

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