Babbitt Municipalities, Inc. v. Health Care Service Corp.

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Appellate Court Date: 2016.12.07

11:40:40 -06'00'

Babbitt Municipalities, Inc. v. Health Care Service Corp., 2016 IL App (1st) 152662

Appellate Court BABBITT MUNICIPALITIES, INC., Plaintiff-Appellant, v.

Caption HEALTH CARE SERVICE CORPORATION, an Illinois Mutual

Legal Reserve Company, d/b/a Blue Cross Blue Shield of Illinois,

Defendant-Appellee.

District & No. First District, First Division

Docket No. 1-15-2662

Filed October 11, 2016

Decision Under Appeal from the Circuit Court of Cook County, No. 14-CH-08460; the

Review Hon. Neil H. Cohen, Judge, presiding.

Judgment Affirmed.

Counsel on Edelson PC, of Chicago (Jay Edelson, Rafey S. Balabanian, Ryan D.

Appeal Andrews, and J. Aaron Lawson, of counsel), and Anapol Weiss, of

Philadelphia, Pennsylvania (David S. Senoff, of counsel), for

appellant.

Kirkland & Ellis LLP, of Chicago (Helen E. Witt, Stacey G. Pagonis,

and Jeffery Lula, of counsel), for appellee.

Panel JUSTICE MIKVA delivered the judgment of the court, with opinion.

Presiding Justice Connors and Justice Harris concurred in the

judgment and opinion.

OPINION

¶1 This is an appeal from the circuit court’s dismissal of claims for breach of contract and

declaratory judgment brought by plaintiff, Babbitt Municipalities, Inc. (Babbitt), against

defendant, Health Care Service Corporation (HCSC). Babbitt alleged that HCSC had a duty,

pursuant to its originating documents, to act as a not-for-profit company for the mutual benefit

of its policyholder-members. Babbitt alleged that HCSC breached this duty by accumulating a

large cash surplus, rather than spending any amount exceeding a reasonable reserve for the

benefit of its members. Concluding that Babbitt’s second amended complaint failed to cure the

defects identified in its prior pleadings, the circuit court dismissed Babbitt’s claims with

prejudice pursuant to section 2-615 of the Code of Civil Procedure (Code) (735 ILCS 5/2-615

(West 2014)). The court determined that Babbitt did not adequately allege a specific

contractual provision that HCSC breached, a concrete injury, an actual controversy based on

HCSC’s present conduct, or facts that, if proved, would rebut the presumption of good faith

afforded by the business judgment rule. For the more limited reasons that follow, we affirm the

judgment of the circuit court.

¶2 BACKGROUND

¶3 Defendant, HCSC, is an Illinois mutual legal reserve insurance company—a not-for-profit

company owned by its policyholder-members— operating as a licensee of Blue Cross and

Blue Shield (BCBS). Plaintiff, Babbitt Municipalities, Inc. (Babbitt), is one of HCSC’s

policyholder-members.

¶4 HCSC’s “Amended and Restated Articles of Incorporation” (Articles) state that “[t]he

object for which [HCSC] is founded is to do all things necessary, proper or convenient for the

purpose of promoting, establishing, maintaining and operating a non-profit health care service

plan as authorized by the laws of the State of Illinois.” In accordance with this stated objective,

HCSC’s “Amended and Restated By-Laws” (Bylaws) set forth the companies “purposes”:

“(a) To do all things necessary, proper or convenient for the purpose of promoting,

establishing, maintaining and operating a mutual health care insurance company as

authorized by applicable laws ***;

(b) To do all things necessary, proper or convenient for the purpose of promoting,

establishing, maintaining and operating said mutual health care insurance company and

any other business activity reasonably complementary or supplementary to its

insurance business; and

(c) To engage in any lawful act or activity in which a mutual insurance company

may engage under applicable laws.”

¶5 HCSC’s Bylaws also state that the company “shall operate on a not-for-profit basis for the

mutual benefit of its Members” and “[n]o person or entity shall receive, directly or indirectly,

any profits from [HCSC].” The Bylaws further provide, however, that “[c]ompensation for

services performed or reimbursement for reasonable expenses shall not be considered profit.”

Compensation of the company’s officers is “fixed from time to time by the Board of

Directors,” and compensation of all other executives is determined by the president and CEO

pursuant to compensation policies approved by the board’s compensation committee.

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¶6 Babbitt filed three successive complaints in this matter, asserting claims for both breach of

contract and declaratory judgment based on the above provisions. Babbitt’s initial complaint

relied on slightly different legal theories and is not at issue in this appeal. The allegations

summarized here are those contained in Babbitt’s second amended complaint for declaratory

judgment, as well as allegations from its first amended complaint that were incorporated by

reference in its claim for breach of contract, which Babbitt preserved for review.

¶7 Babbitt alleged that HCSC failed to live up to its stated purpose of operating as a

not-for-profit company for the benefit of its members, and in fact acted contrary to this goal, by

“stockpiling (rather than using) profits.” In support of this allegation, Babbitt cited HCSC’s

financial statements indicating that the company’s combined net income from operations for

the years 2009 through 2013 totaled over $4 billion. According to Babbitt, HCSC “branch[ed]

out and conduct[ed] activities separate and apart from its mission” by, for example, generating

“enormous fees” for the administration of its members’ health care benefits and using its

“ever-increasing accumulation of profits” to “expand its business operation without

corresponding mutual benefit to its members.” Babbitt alleged that, by the end of 2013, HCSC

had accumulated $10.29 billion.

¶8 Babbitt further alleged that the surplus earnings retained by HCSC were excessive when

compared with certain fiscal benchmarks. Babbitt alleged, for example, that “under an

exceedingly conservative standard previously used by [BCBS] Plans[,] there was no need to

set aside profits equal to more than three months [sic] worth of expenses, as that amount would

cover nearly any conceivable financial contingency.” According to Babbitt, HCSC historically

kept a surplus of about twice that amount. Babbitt also alleged that a comparison of HCSC’s

assets in relation to the amount and type of risk it faced resulted in “Risk Based Capital levels

*** three times higher than internal BCBS standards, four times higher than Federal

Affordable Care Act and leading actuarial suggested guidelines, and over ten times higher than

minimum regulatory standards” (emphasis in original), the latter of which are used to

determine when control of a company should be ceded to regulators.

¶9 Babbitt additionally alleged that HCSC’s reserves were excessive when compared with

those held by other nonprofit companies like California Blue, which recently pledged to cap its

net income at 2% of revenue, and Wellmark, Inc., a plan operating in Iowa and South Dakota,

which recently “announced a corporate philosophy and goal of zero profit for the mutual

benefit of its policyholder-owners.”

¶ 10 According to Babbitt, HCSC’s executives stood to gain from the company’s retention of

surplus earnings. Babbitt noted, for example, that HCSC’s CEO Patricia Hall received total

compensation of $16 million in 2012 (including $14.9 million in bonuses) and $11.2 million in

2013 (including $10 million in bonuses). Between 2011 and 2013, Babbitt alleged that “the top

ten executives at HCSC ha[d] earned nearly 96 million in bonus money.” Babbitt further

alleged that HCSC “established a corporate structure with a primary profit motive” and

incentivized the accumulation of excess profit by tying its executives’ compensation to

“membership growth and earnings growth,” an action Babbitt claimed violated prohibitions on

profit sharing in the company’s Bylaws.

¶ 11 Rather than retaining excess earnings, Babbitt alleged that HCSC had a duty to use any

funds in excess of a reasonable reserve for the benefit of its members by, for example,

“lowering its policyholders-members’ [sic] deductibles and co-pays, providing free generic

drugs, providing free or enhanced health and wellness programs, or enhancing the

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policyholder-members’ benefits for certain critical and/or underfunded healthcare needs.” As a

policyholder-member of HCSC since 2009, Babbitt sought to represent a class of other,

similarly situated entities that it alleged had thus been harmed in “tangible ways” and

“deprived of the benefits owed to them under [HCSC’s] Articles and Bylaws.”

¶ 12 In support of its claim for breach of contract, Babbitt alleged that HCSC’s Articles and

Bylaws constitute binding contracts between HCSC and its policyholder-members, pursuant to

which those members pay premiums in exchange for health insurance services. Babbitt further

alleged that the Articles and Bylaws establish “three principle duties” with which HCSC is

bound to comply: the duty to operate (1) “as a nonprofit entity,” (2) “for the mutual benefit of

its Members,” and (3) “with no distribution of any profit to anyone.” (Emphasis in original.)

Babbitt contended that HCSC breached these duties by “adopt[ing] a financial plan dedicated

to accumulating as much excess profit as possible,” pursuant to which it “regularly earned

hundreds of millions, and in some cases billions, of dollars in yearly profits.” As a result,

Babbitt alleged, HCSC’s policyholder-members were “deprived of some $5 billion worth of

improved health care.”

¶ 13 Babbitt also sought declarations, pursuant to section 2-701 of the Code (735 ILCS 5/2-701

(West 2014)), that HCSC’s Articles and Bylaws impose a duty on HCSC to act both “in a

manner consistent with a nonprofit corporation” and “as a mutual legal reserve company for

the mutual benefit of its Members;” that the Articles and Bylaws “provide standards of

conduct” and “specify the manner in which HCSC must act to be in accordance with th[ese]

dut[ies];” and that HCSC “[wa]s not currently operating as a nonprofit corporation” or “as a

mutual legal reserve company for the mutual benefit of its Members, consistent with its

Articles and Bylaws.” According to Babbitt, a “current and continuing threat” existed “that

HCSC w[ould] continue to ignore the terms of its Articles and Bylaws.”

¶ 14 Babbitt further asserted that “HCSC’s profit-seeking behavior was not the result of its

executives making informed business decisions in the company’s best interest,” but rather, that

“its profit-seeking behavior was a plain example of bad faith and self-dealing.” According to

Babbitt and the expert witnesses whose affidavits Babbitt attached to its complaint, the surplus

held by HCSC was “clearly excessive,” had “no actuarial justification,” and was indeed so

high that it could not be the result of an honest mistake or inadvertence. Babbitt asserted that

HCSC’s “profit accumulation [wa]s so far beyond what could reasonably be necessary to

protect against solvency risks that it must [have] be[en] driven by its executives’ desire for

higher bonuses.”

¶ 15 On August 27, 2015, the circuit court granted HCSC’s motion to dismiss Babbitt’s first

amended complaint pursuant to section 2-615 of the Code (735 ILCS 5/2-615 (West 2014)) for

failure to state a claim. The court determined that Babbitt’s claim for breach of contract failed

because, although the complaint alleged that HCSC had behaved like a for-profit company by

maintaining an unnecessarily large surplus, Babbitt failed to identify any specific provision of

the company’s Articles or Bylaws that prohibited HCSC’s alleged conduct. The court pointed

out that “[t]here is no provision in the Articles or Bylaws that provide[s] any amount or

formula regarding the surplus that may be maintained by HCSC.” Noting that the Bylaws

expressly provided that compensation for services performed was not considered profit, the

circuit court also rejected Babbitt’s allegations that the bonuses paid to HCSC’s executives

constituted improper profit sharing. The court further determined that Babbitt failed to

adequately plead an injury resulting from the claimed breach where it alleged only that

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HCSC’s policyholder-members incurred injuries in the amount of approximately $5 billion,

but “fail[ed] to allege facts showing how this amount was calculated.” Finally, the court

concluded that Babbitt’s claim for breach of contract was deficient because Babbitt “fail[ed] to

allege any specific facts showing fraud, bad faith or self-dealing on the part of HCSC’s

directors” and Babbitt’s conclusory allegations were insufficient to overcome the presumption

of good faith afforded by the business judgment rule.

¶ 16 The circuit court also dismissed Babbitt’s claim for declaratory judgment, which was based

on the same facts as its claim for breach of contract, finding Babbitt had not clearly alleged the

existence of a tangible legal interest. The court’s dismissal of Babbitt’s first amended

complaint was without prejudice.

¶ 17 Babbitt filed its second amended complaint on April 27, 2015, asserting modified claims

for declaratory judgment and realleging its claim for breach of contract to preserve that claim

for appeal. HCSC again moved to dismiss pursuant to section 2-615 of the Code and the circuit

court again granted HCSC’s motion. For one of the same reasons it rejected Babbitt’s earlier

claim for breach of contract—the failure to allege a specific, enforceable duty established by

the Articles and Bylaws that HCSC had breached—the circuit court determined that Babbitt

failed to allege the existence of an actual controversy amenable to resolution by declaratory

judgment. As the court explained:

“Plaintiff seeks declarations that HCSC is not operating in accordance with its

Articles and Bylaws, but fails to identify any action of HCSC that is arguably contrary

to any actual provision of the Articles and Bylaws. Conclusory allegations that HCSC

is not acting as a proper non-profit or mutual legal reserve company are insufficient to

allege an actual controversy regarding the terms of the Articles and Bylaws. Because

Plaintiff has failed to identify any provision of the Articles and Bylaws which are

currently in dispute, Plaintiff is effectively asking this court to render an advisory

opinion as to HCSC’s future conduct. This is not the purpose of declaratory judgment.

[Citation.] Plaintiff has not alleged the existence of any concrete dispute between the

parties capable of a definite determination by this court.”

¶ 18 The circuit court also concluded, citing Brandt Construction Co. v. Ludwig, 376 Ill. App.

3d 94, 103 (2007), that this claim should be dismissed because “[d]eclaratory judgment is not

meant to address past conduct.”

¶ 19 Rejecting Babbitt’s argument that it was premature to apply the business judgment rule at

the pleadings stage, the circuit court again concluded that the core of Babbitt’s allegations

concerned its disagreement with the manner in which HCSC conducted its business. Absent

specific allegations of fraud, bad faith, or self-dealing, however, those business decisions were

protected by the business judgment rule. The court rejected as unsupported Babbitt’s argument

that the business judgment rule did not apply to claims for declaratory judgment. Because

Babbitt had failed to remedy the deficiencies in its allegations after three attempts, the circuit

court dismissed Babbitt’s second amended complaint with prejudice.

¶ 20 JURISDICTION

¶ 21 The circuit court entered its final order dismissing Babbitt’s claims with prejudice on

August 27, 2015. Babbitt timely filed its notice of appeal on September 18, 2015. We therefore

have jurisdiction pursuant to Illinois Supreme Court Rules 301 and 303 governing appeals

from final judgments entered below. Ill. S. Ct. R. 301 (eff. Feb. 1, 1994); R. 303 (eff. May 30,

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2008).

¶ 22 ANALYSIS

¶ 23 Our review of an order granting a motion to dismiss is de novo. Neppl v. Murphy, 316 Ill.

App. 3d 581, 583 (2000). A motion to dismiss brought pursuant to section 2-615 of the Code is

a facial challenge to the sufficiency of the complaint. 735 ILCS 5/2-615 (West 2014); Oliviera

v. Amoco Oil Co., 201 Ill. 2d 134, 147 (2002). We must accept as true all well-pleaded facts

and draw all reasonable inferences in the plaintiff’s favor. Marshall v. Burger King Corp., 222

Ill. 2d 422, 429 (2006). Because Illinois is a fact-pleading jurisdiction, however, a plaintiff

must make sufficient factual allegations to bring its claim within a legally recognized cause of

action. Id. at 429-30. Unsupported conclusions of law or fact are thus not taken as true and not

considered. In re Estate of DiMatteo, 2013 IL App (1st) 122948, ¶ 58.

¶ 24 On appeal, Babbitt contends the circuit court erred when it determined that Babbitt failed to

state a claim for breach of contract or declaratory relief. Contrary to the court’s findings,

Babbitt insists that the statements of purpose set out in HCSC’s Articles and Bylaws establish a

definite and enforceable duty requiring HCSC’s officers and directors to operate the company

as a not-for-profit company and to spend any surplus beyond a reasonable reserve for the

mutual benefit of HCSC’s members. Babbitt additionally argues that it is not required to

calculate damages to survive a motion to dismiss, but may instead make general allegations of

harm to HCSC’s members. Also, Babbitt asserts that it has alleged an “actual controversy” that

is the proper subject of an action for declaratory judgment (i.e., a declaration specifying what

HCSC’s Articles and Bylaws require it to do, if anything, with net earnings) and that such a

declaration, though based on HCSC’s past conduct, would serve to determine the parties’

rights going forward. Finally, Babbitt contends that the business judgment rule—a basis for

dismissal relied on by the circuit court in connection with both of Babbitt’s claims—does not

apply to these claims for breach of contract and for a declaratory judgment and that, even if it

does, Babbitt alleged sufficient facts to rebut the rule’s presumption that HCSC’s officers or

directors exercised their business judgment in good faith.

¶ 25 In response, HCSC argues that the circuit court properly dismissed Babbitt’s claims for the

reasons stated in the court’s orders. We consider the two claims and each basis the court gave

for dismissal in turn.

¶ 26 A. Breach of Contract

¶ 27 “The essential elements of a breach of contract are: (i) the existence of a valid and

enforceable contract, (ii) performance by the plaintiff, (iii) breach of the contract by the

defendant, and (iv) [a] resultant injury to the plaintiff.” Batson v. Oak Tree, Ltd., 2013 IL App

(1st) 123071, ¶ 35.

¶ 28 In this case, it is clear that the contractual relationship between HCSC and its

policyholder-members is defined, in part, by the company’s Articles and Bylaws. See Lubin v.

Equitable Life Assurance Society of the United States, 326 Ill. App. 358, 365 (1945) (“the

rights and interests of policyholders in the assets of a mutual life insurance company are

contractual in nature and are measured by their policies and by the statutes, charter and

by-laws, if any, which comprise the terms of their contract”). HCSC furthermore does not

allege that Babbitt failed to perform any part of the parties’ agreement. Thus, the first two

elements of a breach of contract claim are clearly met. The parties disagree, however,

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regarding whether Babbitt sufficiently alleged that HCSC breached the parties’ contract or

identified damages flowing from that breach.

¶ 29 “To be enforceable, the material terms of a contract must also be definite and certain.”

Szafranski v. Dunston, 2015 IL App (1st) 122975-B, ¶ 67. Babbitt recognizes that this is

necessary to provide the circuit court with a “basis for deciding whether the agreement has

been kept or broken.” Halloran v. Dickerson, 287 Ill. App. 3d 857, 868 (1997). Babbitt

nevertheless argues that it was sufficient for it to allege that HCSC breached its general

obligation to act as a not-for-profit mutual insurance company. Babbitt insists that “[t]he Court

need not worry, at this stage, about determining precisely what that obligation means for the

parties” because “[d]evelopment of the factual record will illuminate the character and extent

of HCSC’s breach.” We disagree. Illinois is a fact-pleading jurisdiction; “a plaintiff must

allege facts,” not merely conclusions, “that are sufficient to bring his claim within the scope of

a legally recognized cause of action.” Teter v. Clemens, 112 Ill. 2d 252, 256 (1986). Moreover,

the broadly worded statements of purpose in HCSC’s Articles and Bylaws that Babbitt relies

on are too indefinite to enforce by way of a claim for breach of contract because those

provisions do not impose upon HCSC a specific, legally enforceable duty to limit the amount

of the company’s reserve fund or to take any specific action with respect to its net earnings.

¶ 30 If the contract terms are too uncertain or indefinite to enforce, allegations of a breach of

those terms will not provide a basis for a breach of contract claim. Compare Wait v. First

Midwest Bank/Danville, 142 Ill. App. 3d 703, 708 (1986) (holding the plaintiff alleged an

enforceable agreement to loan money in the future where he alleged that the parties agreed on

the amount to be loaned, how the interest rate would be computed, and the fact that payments

would be made on a periodic basis), with Champaign National Bank v. Landers Seed Co., 165

Ill. App. 3d 1090, 1094 (1988) (holding, as a matter of law, that a lender’s agreement with a

borrower that the lender would not collect on a promissory note “as long as [the parties] ma[d]e

progress toward profitability” and “had a chance at profitability” (internal quotation marks

omitted) was unenforceable because, as the court noted, “[w]ho is to judge the element of

‘progress towards profitability’ or the element of ‘chance of profitability?’ ”).

¶ 31 This is exactly what the circuit court in this case recognized when it observed that “[t]here

is no provision of [HCSC’s] Articles or Bylaws that provide any amount or formula regarding

the surplus that may be maintained by HCSC.” Babbitt insists that this observation is “beside

the point” because “[t]he proper inquiry is whether HCSC is using its money for the mutual

benefit of [its] members.” Babbitt has not alleged, however, that the company spends none of

its money for the mutual benefit of its members. The gravamen of Babbitt’s complaint is

instead that HCSC spends some money on its members, just not enough. The parties’ contract,

however, does not indicate what “enough” spending would be in this context, beyond the

unhelpful general proposition that HCSC is intended to operate as a not-for-profit mutual

reserve insurance company. See Szafranski, 2015 IL App (1st) 122975-B, ¶ 67 (“a court [must

be] able to ascertain what the parties agreed to, using proper rules of construction and

applicable principles of equity” (internal quotation marks omitted)).

¶ 32 Babbitt admits that what constitutes “enough” spending in this context does not lend itself

to a ready determination. Babbitt posits that the “goal” of a mutual insurance company is to

provide insurance “substantially at cost,” but also points out that the qualifier “substantially” is

necessary because “[n]o one *** expects clairvoyance” and “some play in the joints is

necessary” when assessing a company’s efforts to achieve this goal. The sort of vague,

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aspirational language, that Babbitt relies on for its breach of contract claim, however, does not

define a specifically enforceable contractual duty.

¶ 33 In an attempt to fill this void and supply its own definition of “enough” spending, Babbitt

included in its complaint its own experts’ recommendations and allegations regarding the

actions taken by other insurers. These statements tell the court nothing, however, about what

the parties to this dispute agreed to or what the contract terms mean. Indeed, by comparing the

reserve held by HCSC with those held by other health care organizations that have specifically

pledged to cap their net income at a certain percentage of revenue, Babbitt underscores what is

missing here. HCSC’s Articles and Bylaws contain no such pledge or definite promise that

could be enforced by a court.

¶ 34 Babbitt’s argument appears to be that the reserve held by HCSC is so overwhelmingly

excessive that a breach of the duty to act as a not-for-profit mutual reserve company is apparent

and the court need not concern itself at this juncture with precisely how excessive the reserve

is. Taken as true in the light most favorable to Babbitt, however, the allegations in this case at

most establish that HCSC’s reserves have exceeded various minimum requirements set by

regulators or the BCBS internal standards. Nowhere does Babbitt allege the existence of any

requirement regarding the maximum reserve that may be held by a mutual insurance company,

except to cite its own experts’ conclusions. In sum, Babbitt may have alleged a general duty,

but not one specific enough to enforce in an action for breach of contract.

¶ 35 The cases that Babbitt cites do not persuade us otherwise. Babbitt cites Penn Mutual Life

Insurance Co. v. Lederer, 252 U.S. 523 (1920), for the proposition that “HCSC’s obligation to

act for the mutual benefit of its members is clearly ascertainable, as it has been recognized by

the courts for decades.” Penn Mutual was not a breach of contract case, but one in which a

mutual insurance company sought to recover income tax collected on dividends paid to its

members that it asserted did not comprise part of the company’s income. Id. at 524. Although

the Supreme Court in that case did note that “[i]t is of the essence of mutual insurance that the

excess in the premium over the actual cost as later ascertained shall be returned to the policy

holder” (emphasis added), it also recognized that the premiums charged by such companies are

intentionally greater than the expected cost of insurance because “the redundancy in the

premium furnishes the guaranty fund out of which extraordinary losses may be met.” Id. at

525. The Court’s decision in Penn Mutual noted both that the payment of dividends by a

mutual insurance company was an act within the discretion of the company or its board of

directors (id. at 527 n.4) and that the amount of premiums set aside to establish a reasonable

reserve varied “greatly” from year to year and company to company, particularly where “the

margin between the probable losses and those reasonably possible [was] very large” (id. at 525

n.2). Thus, far from establishing a clear contractual duty on the part of a mutual insurance

company to spend its surplus when a specific reserve has been achieved, Penn Mutual

highlights the reasons why such matters are typically left to the discretion of the company’s

board of directors.

¶ 36 Babbitt also cites Indianapolis Life Insurance Co. & Subsidiary v. United States, 940

F. Supp. 1370 (S.D. Ind. 1996), aff’d, 115 F.3d 430 (7th Cir. 1997), to support its argument

that HCSC had an obligation to act for the benefit of its member-policyholders. That was also a

tax case, not a breach of contract claim. In determining what constituted taxable income of a

mutual life insurance company, the court confirmed Babbitt’s point that a mutual life insurance

company is owned by and supposed to act for the benefit of its policyholders. Id. at 1371-72.

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However, this does nothing to support Babbitt’s effort to enforce the contractual rights it

asserts exist in this case.

¶ 37 Babbitt argues that, if HCSC’s duties to act as a not-for-profit company and for the mutual

benefit of its members are not specifically enforceable terms of the parties’ agreement, then

those provisions might as well not exist, a result it claims is inconsistent with the general rule

that “[a] court will not interpret a contract in a manner that would nullify or render provisions

meaningless” (Thompson v. Gordon, 241 Ill. 2d 428, 442 (2011)). Although it is true that a

contract “should be construed, if possible, so that no clause or sentence is rendered

superfluous” (emphasis added) (Wigod v. Chicago Mercantile Exchange, 141 Ill. App. 3d 129,

132 (1986)), it is equally true that, “[w]here certainty is lacking in the essential terms of [a]

contract, the court will not supply the missing essential terms” (O’Neil & Santa Claus, Ltd. v.

Xtra Value Imports, Inc., 51 Ill. App. 3d 11, 14 (1977)).

¶ 38 Because we conclude that Babbitt failed to allege that HCSC breached a legally

enforceable duty defined in the parties’ agreement, we need not consider whether Babbitt

sufficiently alleged damages resulting from that alleged breach.

¶ 39 B. Declaratory Judgment

¶ 40 Babbitt also sought binding declarations that, in contravention of HCSC’s Articles and

Bylaws, the company was “not currently operating as a nonprofit corporation” or “as a mutual

legal reserve company for the mutual benefit of its Members.” The circuit court dismissed

these claims, finding Babbitt’s inability to point to a specific provision of the Articles or

Bylaws that HCSC had violated and Babbitt’s allegations concerning only HCSC’s past

conduct did not support the existence of an actual controversy between the parties.

¶ 41 We agree with Babbitt that the allegations here are not necessarily barred by the

prohibition, which the trial court noted, citing Brandt Construction Co. v. Ludwig, 376 Ill.

App. 3d 94 (2007), that “[d]eclaratory judgment is not meant to address past conduct.” As in

Brandt, the parties here have an ongoing relationship and thus a declaratory judgment action

might be appropriate to guide their future conduct.

¶ 42 However, there still must be an actual controversy, and as the circuit court noted, the

problem remains that Babbitt cannot point to a provision of the Articles or Bylaws under which

it can ask the court to declare that HCSC has specific obligations.

¶ 43 Section 2-701 of the Code provides that a circuit court may, “in cases of actual controversy,

make binding declarations of rights, having the force of final judgments.” 735 ILCS 5/2-701

(West 2014). Although the declaratory judgment statute is “liberally construed and should not

be restricted by unduly technical interpretations” (First of America Bank, Rockford, N.A. v.

Netsch, 166 Ill. 2d 165, 174 (1995)), its application must still comport with the general rule that

“[c]ourts cannot pass judgment on mere abstract propositions of law, render advisory opinions,

or give legal advice as to future events” (Shipp v. County of Kankakee, 345 Ill. App. 3d 250,

255 (2003)). Declaratory relief is therefore only proper if there is an actual legal controversy

between the parties, i.e., if there is “a concrete dispute admitting of an immediate and definite

determination of the parties’ rights, the resolution of which will aid in the termination of the

controversy or some part thereof.” Underground Contractors Ass’n v. City of Chicago, 66 Ill.

2d 371, 375 (1977).

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¶ 44 Although Babbitt insists that “[t]he parties actively dispute whether HCSC’s governing

documents require the company to spend a portion of its surplus on its member-policyholders,”

Babbitt did not allege that HCSC has refused to spend any money for its members’ benefit.

Instead, the parties’ dispute centers on what portion of any surplus the company is obligated to

spend. No disputed provision of the parties’ contract, however, sheds any light on this

determination. Thus, just as Babbitt alleged a contractual duty that was not definite and

enforceable, it alleged a controversy incapable of “immediate and definite determination”

(Shipp, 345 Ill. App. 3d at 255) and not “susceptible of accurate determination” (Howlett v.

Scott, 69 Ill. 2d 135, 144 (1977)).

¶ 45 That the same flaw requires the dismissal of both claims is unsurprising, given that the

declaratory judgment statute was designed to expand the scope of available relief available to

litigants, not to create any new substantive rights. Goldberg v. Valve Corp. of America, 89 Ill.

App. 2d 383, 388 (1967). Here, Babbitt failed to identify an enforceable duty that HCSC

breached in the past and likewise failed to identify such a duty going forward that HCSC was

likely to breach absent a judicial declaration of rights.

¶ 46 C. Business Judgment Rule

¶ 47 We do not think that the business judgment rule provided an alternative basis for

dismissing Babbitt’s claims. “The business judgment rule is a presumption that directors of a

corporation make business decisions on an informed basis, in good faith, and with the honest

belief that the course taken [i]s in the best interests of the corporation.” Ferris Elevator Co. v.

Neffco, Inc., 285 Ill. App. 3d 350, 354 (1996). Although the presumption can serve as a

complete defense in some cases, it is not an affirmative defense that must be asserted by a

defendant. Id. at 355. Rather, it is a rebuttable presumption that arises as a matter of law; the

burden is thus on the plaintiff to present sufficient evidence to rebut it. Id. In the context of a

section 2-615 motion to dismiss, this means that a plaintiff alleging injury as a result of a

business decision made by a company’s board of directors must plead facts that, if proved,

would rebut the presumption. See Stamp v. Touche Ross & Co., 263 Ill. App. 3d 1010, 1017-18

(1993) (affirming dismissal of claims for negligence and breach of fiduciary duty where the

plaintiff’s complaint questioned the business decisions of the board of directors but contained

no allegations to counter the presumption). Accordingly, where the rule applies, allegations

that the company’s directors acted fraudulently, illegally, in bad faith, while under a conflict of

interest, or without due care and proper diligence are “facts, the existence of which are

necessary to enable a plaintiff to recover.” Id. at 1018.

¶ 48 In this case, the circuit court concluded that the business judgment rule applied to both

Babbitt’s claim for breach of contract and its claims for declaratory relief. The parties dispute

whether the business judgment rule can apply to such claims and also, if it does, whether

Babbitt alleged sufficient facts to overcome the presumption in this case.

¶ 49 Although Babbitt “does not concede the rule’s application” in connection with either

claim, it cites authority only for the proposition that the rule “is no defense to a breach of

contract claim.” (Internal quotation marks omitted.) Willmschen v. Trinity Lakes Improvement

Ass’n, 362 Ill. App. 3d 546, 551 (2005). In Willmschen, residential homeowners sued their

property association and its board of directors, alleging that those parties breached covenants

calling for them to maintain common areas, including portions of lakes that the homeowners

alleged had been allowed to fill with “noxious vegetation and algae.” Id. at 548. The circuit

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court dismissed the homeowners’ breach of contract claims, finding they were defeated by the

business judgment rule. Id. at 549. The appellate court reversed in part, noting that the rule is

typically applied in cases where relief is sought against individual board members for

“mismanagement per se” and not where the corporation itself is sued for breach of contract. Id.

at 550-51. Quoting the New York case Dinicu v. Groff Studios Corp., 690 N.Y.S.2d 220,

221-22 (App. Div. 1999), the Willmschen court noted that, although “ ‘it may be good business

judgment to walk away from a contract, *** this is no defense to a breach of contract claim.’ ”

Willmschen, 362 Ill. App. 3d at 551.

¶ 50 HCSC relies on Hill v. State Farm Mutual Automobile Insurance Co., 83 Cal. Rptr. 3d 651

(Ct. App. 2008), a more recent California case applying Illinois law, where the court

distinguished Willmschen and applied the business judgment rule. In Hill, policyholders sued

their auto insurer, alleging it breached its contractual duties by amassing larger-than-necessary

surpluses, which had the effect of reducing the dividends paid to the policyholders. Id. at 657.

The trial court granted summary judgment in favor of the insurer on the basis that the

company’s actions were protected by the business judgment rule and the appellate court

affirmed. Id. The appellate court found cases like Willmschen, in which the company’s

contractual obligations left it with no discretion, to be inapplicable. Id. at 676. The contract in

Hill, by contrast, left the insurer with discretion in the performance of its duties because it did

not require the company to issue dividends in any specific amount, at any particular time, or

from any particular source. Id. at 675.

¶ 51 The facts of this case are similar to those in Hill. However, in this court’s view, the

discretion left to HCSC under its governing documents prevents Babbitt from stating a claim

for breach of contract or declaratory judgment. And, if HCSC had in fact breached an

enforceable contractual obligation, we would have to agree with the court in Willmschen that,

although “it may be good business judgment” on the part of a company’s officers or directors

“to walk away from a contract, *** this is no defense to a breach of contract claim” brought

against the company itself. Willmschen, 362 Ill. App. 3d at 551. Thus, the business judgment

rule does not provide an alternative basis for dismissing Babbitt’s claims.

¶ 52 Affirmed.

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