Gross v. University of Chicago

302 N.E.2d 414, 14 Ill. App. 3d 326, 1973 Ill. App. LEXIS 1845
Appellate Court of Illinois·Decided August 20, 1973·No. 57956·Published·Cited by 18 cases

Opinion

Mr. JUSTICE EGAN

delivered the opinion of the court:

The plaintiffs, purporting to represent 3500 current and former employees of Argonne National Laboratory (hereafter, Argonne or Laboratory), filed this complaint as a class action against the University of Chicago (hereafter, the University). The complaint alleged, in substance, that the University operates the Laboratory for the benefit of the Atomic Energy Commission (hereafter, the Commission); that the Laboratory instituted a Group Retirement Plan for the benefit of its employees on January 1, 1948, under which the Laboratory was to contribute amounts in designated ratios to amounts contributed by the employees; and that the Laboratory breached its contract and its fiduciary relationship with the employees by improperly converting to its own use sums which belonged to the amount accumulated by the employees in the Plan. The complaint prayed for an accounting of the amounts converted; and that the defendant be mandatorily enjoined to apply certain amounts for the benefit of the employees.

In the answer denying that it breached any obligations, or that a fiduciary relationship existed, the defendant affirmatively defended on the grounds of: the Statute of Limitations; Laches; the Statute of Frauds; the failure of the plaintiffs to exhaust administrative remedies; and that the complaint failed to state a claim supporting a class action. After a trial, the judge entered judgment for the defendant. The determinative issues are whether a fiduciary relationship existed between the parties and what comprised the terms of the contract between them. In view of our decision on these issues, it is unnecessary for us to pass on the affirmative defenses advanced.

The property comprising Argonne National Laboratory is owned by the Atomic Energy Commission, which has a contract with the University of Chicago. Under the terms of that contract the University operates the Laboratory. The Atomic Energy Commission maintains a bank account at the First National Bank of Chicago, which it uses to pay the expenses and costs in the operation of the Laboratory. This is a revolving account, and Argonne National Laboratory draws checks on it for the purposes of paying its operating costs. The funds are periodically replenished by the Commission. The University operates the Laboratory for a fee, but it is not reimbursed for all expenses nor does it advance any funds.

In 1948, a mandatory plan was instituted for the employees of the Laboratory which would provide for their retirement. Under the contract that went into effect with Prudential Insurance Company, an amount equal to 10% of each employee’s current annual salary was to be used to purchase from the insurer an annuity pension at age 65. The employee was required to contribute 2Vz% of his gross wages up to a certain breakpoint, which was a specific wage level, and 5% of his gross wages in excess of that breakpoint for the purchase of the annuity. The Laboratory was to contribute an amount equal to 1%% of such employees’ monthly wages up to the breakpoint and 5% of his monthly wages in excess of the breakpoint. The Plan contained a 10-year vesting requirement, and an employee would receive his contribution plus interest if he terminated his employment prior to the 10-year vesting period.

A dividend under an annuity or any other type of insurance policy is different from one in a commercial enterprise. Both actuaries who testified, Harry M. Sarason for the plaintiffs and Willard Burger for the defendant, explained that it is impossible to determine what an annuity will actually cost since it involves a projection many years into the future. The premium or cost is based, in part, on assumptions made by the actuary, which, for the safety of the company, reflect adverse conditions. It is also based on the anticipated life span of the individual, upon the actual investment earnings and the accumulated reserve. Experience, so they testified, does not always follow what the actuary assumed. When the cost turns out to be less than the amount anticipated and charged, there is an excess of accumulation of funds; this is divisible surplus. Under participating contracts such as the one in question, this divisible surplus can be declared as a dividend. In short, it is a return of that part of the purchase price of the annuity which the insurance company decides is not necessary to meet its obligations.

Withdrawal credits arise when an employee terminates participation in the Plan before acquiring vested rights under a paid-up annuity. The annuity is then canceled and the participant gets back his contribution plus some interest. The balance, essentially what the employer contributed, less administrative charges, goes back as a withdrawal credit to the employer. This lawsuit centers on the question of which of the parties is entitled to the divisible surplus and the withdrawal credits.

John McKinley, the business manager of the Laboratory in the fall of 1946 until February 29, 1972, was, from the inception of the Plan, a member of a group, consisting of the business manager of the University, the controller at the University, and Doctor Dahn, which participated in the retirement plan negotiations with Prudential. McKinley testified that initially it was the intention of the Laboratory that the dividends and withdrawal credits would be applied to the Plan to purchase additional benefits. Prior to January 1, 1948, the date the Plan went into effect, it was submitted to the Commission for approval. The Commission did approve the considerations in the Plan with respect to the employees and employers but at that time did not approve the use of dividends nor the withdrawal credits for the benefit of the Laboratory. However, the issue of applications of dividends and withdrawal credits was not dropped by the Laboratory. Further efforts were made, but unsuccessfully, to seek the application of dividends and withdrawal credits for the employees’ benefits with Commission approval.

The final contract between the Laboratory and Prudential was received by the Laboratory in the early part of 1949. The pertinent parts of that contract are as follows:,

“Provision V. CANCELATION OF NORMAL RETIREMENT ANNUITY:
# * #
2. Reapplication of Employer’s Contributions:
If Normal Retirement Annuity purchased for a Participant by
Employers Contributions is canceled for any reason other than the death of the Participant, and if evidence satisfactory to the Prudential that the Participant was in good health on the date of cancelation is submitted to the Prudential within six months thereafter, then, as of the Contract Anniversary following cancelation, the following amounts of such Employers Contributions previously applied shall be available for reapplication as Employers Contributions then or next thereafter becoming due under this Contract:
# * *
Provision XI. DIVISIBLE SURPLUS:

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Gross v. University of Chicago, 302 N.E.2d 414, 14 Ill. App. 3d 326, 1973 Ill. App. LEXIS 1845 (Ill. Ct. App. 1973).

302 N.E.2d 414 (Gross v. University of Chicago) — published by Counsel Stack Legal Research, free access to 12M+ legal documents.

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