CHICAGO — A state appeals panel said the CTA isn’t obligated to share prescription drug rebates with the organization that manages its employee retirement plan.
The agreement between the Chicago Transit Authority and the Retirement Plan for CTA Employees dates to 1949, including a provision requring the Plan to pay the CTA for the “actual cost” of members' prescriptions. In a 2013 Cook County lawsuit, the Plan alleged the CTA breached that deal by keeping rebates the transit agency received from pharmaceutical provider Caremark.
Cook County Circuit Judge David Atkins granted partial summary judgment to the CTA, saying the Plan’s breach of contract claims weren’t filed on time and also conflicted with the voluntary payment doctrine. Atkins then conducted a bench trial, ruling in favor of the CTA on the remaining counts. The Plan appealed to the First District Appellate Court, which issued its ruling March 31, also siding with Judge Atkins' take on the case.
Justice Michael Hyman wrote the opinion; Justices John Griffin and Carl Walker concurred.
The panel said Atkins correctly determined the five-year window for the Plan to sue about the rebates started with a Feb. 8, 2007, email exchange indicating the CTA was not crediting the rebates to the Plan. On appeal, the Plan said the time should’ve started in August 2009, the date the Plan knew the CTA wouldn’t start issuing the credits without an offset in administrative costs.
“The parties agreed (the Plan) would pay the CTA the ‘actual’ costs of retirees’ prescription drugs,” Hyman wrote. “If, as (the Plan) contends, the amount of the rebates directly relates to the amount of retirees’ prescription drug purchases, then the purported breach of contract occurred when the CTA received a rebate check and failed to credit (the Plan). At that time, the CTA was charging (the Plan) for more than the actual costs of prescription drugs.”
With the statutory issue resolved, and summary judgment deemed appropriate, the panel turned to the trial verdict that the CTA and Plan didn’t have an established fiduciary relationship. The Plan said CTA was acting as its agent by negotiating a contract with Caremark and by administering the prescription drug program for its members.
The panel again sided with the CTA, saying the Plan “played no role in the procurement or negotiation of the Caremark contract and had no authority ‘to control the method or manner’ in which the CTA came to an agreement with Caremark.” Furthermore, the Plan had no legal obligations or liabilities under the contract and “several witnesses testified (the rebates) were meant to offset administrative costs.”
Hyman said there was other evidence disproving the existence of a fiduciary relationship. He noted the Plan is “a sophisticated entity headed by an independent, experienced executive director,” adding it had a staff of more than a dozen people and hired its own investment adviser to manage $1.7 billion in assets, retained an auditing firm and an independent outside attorney.
The fact the Plan trusted the CTA to negotiate a contract allowing prescription drug benefits for its members “did not give rise to a relationship fiduciary in nature.” Hyman wrote.
“The parties merely had a contractual relationship; nothing in the record demonstrates the CTA dominated (the Plan)," Hyman wrote. "Rather, (the Plan) was a separate entity, managed itself and established its own decision-making structure.”
The Plan was represented by attorneys James L. Kopecky and Daryl M. Schumacher, of Kopecky Schumacher Rosenburg LLC, of Chicago.
The CTA was represented by CTA corporation attorneys Karen G. Seimetz, Stephen L. Wood and Irina Y. Dmitrieva, and attorneys John Kennedy and Allison Czerniak, of Taft Stettinius & Hollister LLP, of Chicago.