Kay v. Frerichs

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by Reporter of

Decisions

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Illinois Official Reports the accuracy and

integrity of this

document

Appellate Court Date: 2023.03.28

13:26:52 -05'00'

Kay v. Frerichs, 2021 IL App (1st) 192271

Appellate Court MELISSA KAY, on Behalf of Herself and a Class of All Others

Caption Similarly Situated, Plaintiff-Appellant, v. MICHAEL W. FRERICHS,

in His Official Capacity as Illinois State Treasurer, Defendant-

Appellee.

District & No. First District, Fifth Division

No. 1-19-2271

Filed May 28, 2021

Decision Under Appeal from the Circuit Court of Cook County, No. 18-CH-2119; the

Review Hon. Pamela McLean Meyerson, Judge, presiding.

Judgment Affirmed.

Counsel on Matthew Hurst and Matthew Heffner, of Heffner Hurst, of Chicago,

Appeal for appellant.

Kwame Raoul, Attorney General, of Chicago (Jane Elinor Notz,

Solicitor General, and Carson R. Griffis, Assistant Attorney General,

of counsel), for appellee.

Panel JUSTICE CUNNINGHAM delivered the judgment of the court, with

opinion.

Presiding Justice Delort and Justice Hoffman concurred in the

judgment and opinion.

OPINION

¶1 The plaintiff-appellant, Melissa Kay, filed a putative class action complaint in the circuit

court of Cook County against Michael Frerichs, in his official capacity as Treasurer of the State

of Illinois, alleging that he was administering the Illinois College Savings Pool in an illegal

manner. The circuit court granted the Treasurer’s motion for summary determination and held

that sovereign immunity barred Ms. Kay from seeking any recovery against the Treasurer other

than prospective injunctive relief. The circuit court also denied Ms. Kay leave to amend her

complaint. Ms. Kay now appeals those rulings. For the following reasons, we affirm the

judgment of the circuit court of Cook County.

¶2 BACKGROUND

¶3 We begin with a brief summary of legislative history relevant to this matter. In 1996,

Congress authorized the states to establish “qualified tuition plans,” commonly known as 529

plans, that allow individuals to make contributions to tax-free investment accounts in order to

pay for higher education. See 26 U.S.C. § 529 (2018). In 2000, the Illinois General Assembly

passed section 16.5 of the State Treasurer Act (Act). Pub. Act 91-607, § 5 (eff. Jan. 1, 2000)

(adding 15 ILCS 505/16.5). Under section 16.5(b) of the Act, the Treasurer has the authority

to establish and administer college savings programs, in which he “may receive, hold, and

invest moneys paid into the Pool and perform such other actions as are necessary to ensure that

the Pool operates as a qualified tuition program.” 15 ILCS 505/16.5(b) (West 2018).

¶4 Pursuant to that statutory authority, the Treasurer’s office established two college savings

programs, which comprise the College Savings Pool (Pool): Bright Start and Bright Directions.

Bright Start is sold directly to, and managed by, participants; Bright Directions is sold to, and

managed by, investment advisors. Both Bright Start and Bright Directions are trusts with the

Treasurer serving as trustee, as the trust deeds name Illinois’s currently elected treasurer as the

trustee.

¶5 On February 16, 2018, Ms. Kay filed a putative class action complaint against the

Treasurer, explaining that she has been a participant in the Bright Start plan since 2013. 1 The

complaint alleged that the Treasurer improperly managed the Pool. The complaint contained

five counts: alleging breach of fiduciary duty (count I), alleging a constructive trust (count II),

seeking an accounting (count III), alleging unjust enrichment (count IV), and a mandamus

action (count V). Specifically, the complaint alleged that the Treasurer illegally charged fees

against the Pool’s assets rather than its earnings, illegally retained excess administrative fees

that should have been returned to the participants, and illegally charged all administrative fees

against fewer than all investment funds, allowing some funds to incur no fees while others

1

The complaint further explained that “[d]ue to recent changes in the *** Pool, [Ms.] Kay is

currently a participant [in the Pool] through the Bright Directions plan.”

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incur more than their share. Ms. Kay averred that, therefore, the Treasurer had violated section

16.5 of the Act and financially harmed the participants of the Bright Start and Bright Direction

programs. For relief, Ms. Kay sought:

“A. An order requiring an accounting of the income and expenses related to the

State Administrative Fee and Program Management Fee;

B. An order requiring the Treasurer to return to the participants, based on their

respective contributions, the State Administrative Fees and Program Management Fees

collected in excess of actual expenses;

C. An award of damages incurred as a result of the Treasurer illegally withholding

excess State Administrative Fees and Program Management Fees, including any

earnings that should have accrued on those excess amounts;

D. An order requiring the Treasurer to account for penalties collected;

E. An order requiring the Treasurer to return to the participants, based on their

respective payments of the State Administrative Fees, penalties collected in excess of

actual expenses as required by the Act;

F. An injunction requiring the Treasurer to include the amount collected as

penalties as income for determining the excess State Administrative Fees collected as

required by the Act;

G. An injunction requiring the Treasurer to return penalties collected to the

participants as required by the Act;

H. An injunction requiring the Treasurer to take Program Management and State

Administrative Fees from earnings only as required by the Act, the regulations, and the

Declarations of Trust;

I. An injunction requiring the Treasurer to assess [the] State Administrative Fee on

all accounts and investment types as required by the Act;

J. An injunction requiring the Treasurer to not assess the State Administrative Fee

or Program Management Fee in any month where earnings would not cover those fees

as required by the Act; and

K. All other relief, including attorney’s fees and costs, to which Plaintiff and the

Class may be entitled.”

¶6 On July 6, 2018, the Treasurer filed a motion for summary determination of a major issue.

His motion asked the trial court to rule that sovereign immunity limited Ms. Kay’s recovery to

only prospective injunctive relief. He accordingly requested the trial court to strike paragraphs

A-G and K of the complaint’s request for relief.

¶7 In response, Ms. Kay argued that sovereign immunity was inapplicable to this case because

she was not seeking damages from state funds. She also filed a cross-motion for summary

determination of a major issue, asking the trial court to find that the Treasurer violated section

16.5 of the Act.

¶8 On October 25, 2018, Ms. Kay filed a motion for leave to amend her complaint. Her motion

explained that her proposed amended complaint would name the Treasurer in “both his official

and individual capacities,” which was “relevant to the sovereign immunity issue.” The trial

court denied her motion, noting that the Treasurer’s duty at issue in the case is a duty that he

owes “only because of his [S]tate employment.” The trial court further stated: “It’s unlike a

duty to drive carefully or to practice medicine without negligence or to practice law without

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the negligence. So my holding is that the source of duty is [the Treasurer’s] state employment

and the proposed amendment would not cure the defect.”

¶9 The trial court then ordered the parties to brief the issues in their motions for summary

determination. On June 24, 2019, just days before oral argument was scheduled, the Illinois

Governor signed into law some amendments to section 16.5 of the Act established by the

Illinois General Assembly (the 2019 amendments). The 2019 amendments revised section 16.5

of the Act to clarify, inter alia, that the Treasurer “may collect fees” (Pub. Act 101-26, § 5 (eff.

June 21, 2019) (amending 15 ILCS 505/16.5(c))) and added a clause stating that

“[a]dministrative fees, costs, and expenses, including investment fees and expenses, shall be

paid from the assets of the *** Pool” (id. (amending 15 ILCS 505/16.5(e))). The amendment

also deleted language stating that the Treasurer’s regulations shall provide for the

administration expenses to be paid from the Pool’s earnings and for the excess to be credited

to participants’ accounts monthly. See id. (amending 15 ILCS 505/16.5(n)). The trial court

ordered the parties to submit supplemental briefing on the impact of the 2019 amendments.

¶ 10 On October 7, 2019, following a hearing on the issues, the trial court entered an order

granting the Treasurer’s motion for summary determination, holding that sovereign immunity

barred Ms. Kay from seeking any recovery other than prospective injunctive relief. In its

written order granting the motion, the trial court cited Illinois State Treasurer v. Illinois

Workers’ Compensation Comm’n, 2013 IL App (1st) 120549WC, and noted that the

dispositive question is whether a judgment rendered in the case could operate to control the

actions of the State or subject it to liability. The trial court explained that it was therefore

required to analyze the nature of Trust 668, a “non-appropriated special trust fund” in which

the Treasurer deposits administrative fees collected from the Pool; Trust 668 pays for the

Pool’s operation expenses and also serves as a reserve fund. The trial court rejected Ms. Kay’s

argument that the funds in Trust 668 are not state funds because they include fees from the

Pool’s participants’ accounts that have never been part of the state’s general revenue fund. The

trial court stated:

“The Court finds that the funds in Trust 668 are, in fact, state funds. Trust 668 was

not set up for the purpose of paying claims such as those brought in this case. Moreover,

a judgment rendered in this case could operate to control the actions of the [S]tate. The

Act does not require the Treasurer to set up an account such as Trust 668. In his

discretion, the Treasurer set up Trust 668 to receive the administrative fees the

Treasurer charged and collected from the Pool. The Act requires the Treasurer to ‘use

his or her best efforts to keep these fees as low as possible and consistent with

administration of high quality competitive college savings programs.’ 15 ILCS

505/16.5(e). This gives the Treasurer broad discretion to decide what expenses to pay,

when, and how, in order to meet the goals expressed in the Act.

***

A large out-of-the-ordinary withdrawal from Trust 668, such as a judgment in this

case, would impact the Pool’s financial strategy and could send it scrambling to cover

other expenses. Plainly, this could operate to control the actions of the State, as it

interferes with the State’s discretion to decide the appropriate level of reserves in

accord with fiscally responsible practices.”

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¶ 11 Further, the trial court held that mandamus was not available in this case, contrary to Ms.

Kay’s assertion, because “the Treasurer’s alleged infractions in this case do not involve

violation of a clear duty to perform a non-discretionary act.”

¶ 12 In the same order, the trial court also denied Ms. Kay’s cross-motion for summary

determination, which sought a determination that the Treasurer violated section 16.5 of the

Act. In denying her motion, the trial court stated:

“Given the [c]ourt’s ruling on the Treasurer’s motion, the issue on [Ms. Kay]’s

cross-motion is significantly narrowed. Because of sovereign immunity, [Ms. Kay]

cannot recover damages for any past violations. She can only seek an order enjoining

the Treasurer from future violations.

Under these circumstances, the parties’ briefs with respect to the [2019]

amendments to the Act are largely moot. Most of their arguments focused on whether

or not the [2019] amendments to the Act should apply retroactively. [Ms. Kay]

concedes that requests to enjoin the Treasurer from taking actions in the future are

‘obviously’ governed by the Act as amended. *** [Ms. Kay] does not contend that the

Treasurer’s alleged practices violate the Act as it now stands. Therefore, [Ms. Kay]’s

cross-motion is denied.”

¶ 13 On November 6, 2019, upon the Treasurer’s oral motion for a final judgment, the trial court

entered a final judgment dismissing the complaint entirely since Ms. Kay conceded that her

remaining claims were moot under the amended Act. The trial court accordingly dismissed the

case with prejudice, “disposing of all matters.” This appeal followed.

¶ 14 ANALYSIS

¶ 15 We note that we have jurisdiction to consider this matter, as Ms. Kay filed a timely notice

of appeal. See Ill. S. Ct. R. 301 (eff. Feb. 1, 1994); R. 303 (eff. July 1, 2017). 2

¶ 16 Ms. Kay presents the following issues on appeal: (1) whether the trial court erred in

granting the Treasurer’s motion for summary determination and ruling that sovereign

immunity barred Ms. Kay from any recovery other than prospective injunctive relief and that

mandamus is inapplicable and (2) whether the trial court erred in denying Ms. Kay leave to

amend her complaint. Both parties also ask us to decide whether the 2019 amendments to the

Act apply retroactively, an issue that was briefed before the trial court but not ruled upon. 3

¶ 17 Ms. Kay first argues that the trial court erred when it granted the Treasurer’s motion for

summary determination and held that sovereign immunity barred relief other than prospective

injunctive relief. She claims that sovereign immunity cannot apply here because the funds in

Trust 668 are not state funds. Rather, she asserts that the funds in Trust 668 are “private money

illegally taken from participants and held in a segregated account” from the general revenue

fund, so any judgment satisfied in this case would not involve “a single dollar of state funds.”

2

Ms. Kay filed an original notice of appeal following the trial court’s order on October 7, 2019,

granting the Treasurer’s motion for summary determination and denying her cross-motion. The notice

of appeal also challenged the October 25, 2018, order, which denied Ms. Kay’s motion for leave to

amend her complaint. Following the trial court’s final judgment on November 7, 2019, dismissing the

entire case, Ms. Kay filed an amended notice of appeal to encompass the November 7, 2019, judgment.

3

Ms. Kay does not challenge the trial court’s order denying her cross-motion for summary

determination nor the trial court’s final judgment on November 7, 2019, dismissing the case entirely.

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She also argues that, regardless of sovereign immunity, she had a valid mandamus action to

compel the Treasurer to return fees to participants. She asks us to reverse the trial court’s order

granting the Treasurer’s motion for summary determination.

¶ 18 Section 2-1005(d) of the Code of Civil Procedure (Code) allows a party to seek a summary

determination of “ ‘one or more, but less than all, of the major issues in the case, [if] the court

finds that there is no genuine issue of material fact as to that issue or those issues.’ ” Fifth Third

Bank, N.A. v. Rosen, 2011 IL App (1st) 093533, ¶ 21 (quoting 735 ILCS 5/2-1005(d) (West

2008)). We review a summary determination ruling de novo. Id.

¶ 19 The Treasurer’s motion for summary determination was based on sovereign immunity. The

doctrine of sovereign immunity precludes a citizen from suing the State or its departments

without the State’s consent. Jackson v. Alverez, 358 Ill. App. 3d 555, 559 (2005). The doctrine

protects the State from interference in its performance of the functions of government and

preserves its control over state coffers. Illinois Collaboration on Youth v. Dimas, 2017 IL App

(1st) 162471, ¶ 30. When the Illinois Constitution was amended in 1970, it abolished the

application of sovereign immunity as it was then configured, “[e]xcept as the General

Assembly may provide by law.” (Internal quotation marks omitted.) Id. ¶ 28; Ill. Const. 1970,

art. XIII, § 4. In response, the General Assembly enacted the State Lawsuit Immunity Act (745

ILCS 5/0.01 to 1.5 (West 2018)). Consequently, the Court of Claims Act (705 ILCS 505/1

et seq. (West 2018)) creates a forum for all claims against the State of Illinois, with some

limited exceptions. 705 ILCS 505/8(a) (West 2018); Parmar v. Madigan, 2018 IL 122265,

¶ 20.

¶ 20 In this case, Ms. Kay filed her complaint against the Treasurer in his official capacity. A

lawsuit against a state official in his or her official capacity is a suit against the official’s office,

which is no different than a lawsuit against the State. Parmar, 2018 IL 122265, ¶ 21. However,

it is well established that “the determination of whether an action is one against the State

depends upon the issues involved and the relief sought and not simply the formal identification

of the parties.” Id. ¶ 22. For example, where a plaintiff alleges that a state officer’s conduct

violates statutory or constitutional law or is in excess of his or her authority, such conduct

strips the officer of his or her official status, and so the principles of sovereign immunity would

not be offended. Id.

¶ 21 Although Ms. Kay claims that the Treasurer acted outside of his authority, her allegations

concern the Treasurer’s administration of the Pool’s finances, which is within his statutory

duty and to be performed pursuant to his official capacity. See Brandon v. Bonell, 368 Ill. App.

3d 492, 506-07 (2006) (an action resulting from a state employee’s breach of a duty imposed

solely by a statute pertaining only to state employees is protected by sovereign immunity).

Indeed, the Treasurer is the only person with the authority to administer the funds at issue.

These are the precise circumstances for which the sovereign immunity doctrine is designed.

¶ 22 Moreover, the monetary relief sought by Ms. Kay further establishes that sovereign

immunity applies to this case. As the trial court noted, any damages awarded in this matter

would be taken from Trust 668, which would control how the Treasurer manages the remaining

funds and, in turn, control the actions of the State. See Currie v. Lao, 148 Ill. 2d 151, 158

(1992) (sovereign immunity applies in an action brought nominally against a state employee

in his individual capacity where a judgment for the plaintiff could operate to control the actions

of the State or subject it to liability). And since Ms. Kay now concedes that the 2019 legislative

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amendments regarding the Pool make any prospective injunctive relief moot, there is no

possible relief.

¶ 23 Ms. Kay nonetheless argues that a mandamus action provides her a path for relief around

sovereign immunity and that the trial court could and should have used a mandamus action to

compel the Treasurer to return “illegally collected” fees to participants. However, a mandamus

action is an extraordinary remedy and is improper if it substitutes the court’s discretion or

judgment for that of the official. Cordrey v. Prisoner Review Board, 2014 IL 117155, ¶ 18. As

the trial court noted, since the Pool is managed within the Treasurer’s discretion, imposing a

mandamus order would not be appropriate. Not to mention, the issuance of a mandamus order

is only available when there is no other adequate remedy. Id. Here, Ms. Kay could pursue her

claim in the Court of Claims. Indeed, it should be noted that she should have brought her claim

in the Court of Claims in the first place. See 705 ILCS 505/8(a) (West 2018) (the Illinois Court

of Claims “shall have exclusive jurisdiction to hear and determine *** [a]ll claims against the

State”).

¶ 24 In sum, no genuine issue of material fact exists as to whether Ms. Kay is barred from

seeking monetary damages by the doctrine of sovereign immunity. Accordingly, the trial court

properly granted summary determination on that issue.

¶ 25 Next, Ms. Kay argues that the trial court erred when it denied her leave to amend her

complaint. She claims that she should have been allowed to file her proposed amended

complaint, which named the Treasurer in his individual capacity. Specifically, Ms. Kay argues

that her amended complaint clarified that the Treasurer is the trustee of Trust 668 and breached

his fiduciary duties, rendering sovereign immunity inapplicable, and so the trial court should

have granted her leave to file an amended complaint naming the Treasurer in his individual

capacity.

¶ 26 Section 2-616(a) of the Code provides that amendments to complaints may be allowed at

any time before judgment, on just and reasonable terms. 735 ILCS 5/2-616(a) (West 2018).

The decision to allow an amendment to a pleading rests within the sound discretion of the trial

court, and absent an abuse of discretion, we will not disturb the trial court’s decision. Mandel

v. Hernandez, 404 Ill. App. 3d 701, 705 (2010). A trial court abuses its discretion when no

reasonable person would take the view adopted by the trial court. Steele v. Provena Hospitals,

2013 IL App (3d) 110374, ¶ 93. In order to determine whether the trial court abused its

discretion in denying a party leave to file an amended pleading, “we consider the following

factors: ‘(1) whether the proposed amendment will cure the defective pleading; (2) whether the

proposed amendment would surprise or prejudice the opposing party; (3) whether the proposed

amendment was timely filed; and (4) whether the moving party had previous opportunities to

amend.’ ” CIMCO Communications, Inc. v. National Fire Insurance Co. of Hartford, 407 Ill.

App. 3d 32, 38 (2011) (quoting Board of Directors of Bloomfield Club Recreation Ass’n v. The

Hoffman Group, Inc., 186 Ill. 2d 419, 432 (1999)).

¶ 27 As it is the only one in dispute, we confine our analysis to the first factor, which is whether

the proposed amended complaint would cure the defective pleading. Regardless of how Ms.

Kay frames her claims against the Treasurer, they all directly relate to his management of the

Pool, which arises from his position in his official capacity as Illinois State Treasurer and is

therefore within the scope of his official duties. Accordingly, her allegations that the Treasurer

mismanaged the Pool’s funds are clearly allegations that relate directly to his responsibilities

as Treasurer and have nothing to do with his individual capacity. See Alencastro v. Sheahan,

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297 Ill. App. 3d 478, 485 (1998) (a plaintiff may bring a lawsuit against the officer in his or

her individual capacity only if the alleged acts are illegal, unconstitutional, or outside the

officer’s authority). There is no conceivable way in which Ms. Kay could allege that the

Treasurer’s actions as described in her complaint relate to his individual capacity.

Consequently, Ms. Kay’s proposed amended complaint would not have cured her original

defective pleading, such that sovereign immunity would no longer apply. Therefore, under

those circumstances, it cannot be said that the trial court abused its discretion in denying Ms.

Kay leave to file her amended complaint. See Butler v. BRG Sports, LLC, 2019 IL App (1st)

180362, ¶ 72 (because the amendment that plaintiffs envision would not have cured the fatal

flaw in the plaintiffs’ pleadings, the trial court did not abuse its discretion when it denied

plaintiffs the opportunity to amend). Thus, we affirm the trial court’s order denying Ms. Kay

leave to file an amended complaint.

¶ 28 Finally, both parties ask us to decide whether the 2019 amendments to section 16.5 of the

Act apply retroactively. This issue was briefed before the trial court but not ruled upon, as the

trial court found the issue to be moot based on its sovereign immunity ruling. It is well

established that reviewing courts will not decide moot or abstract questions and will not review

cases merely to establish precedent. Greater Pleasant Valley Church in Christ v. Pappas, 2012

IL App (1st) 111853, ¶ 43; GlidePath Development LLC v. Illinois Commerce Comm’n, 2019

IL App (1st) 180893, ¶ 27.

¶ 29 CONCLUSION

¶ 30 For the foregoing reasons, we affirm the judgment of the circuit court of Cook County.

¶ 31 Affirmed.

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