CHICAGO — A state appeals panel has upheld the decision to end a class action lawsuit accusing Illinois Treasurer Michael Frerichs of mishandling the state’s college savings plans and improperly assessing fees on participants.
Lake County resident Melissa Kay sued Frerichs in February 2018 in Cook County Circuit Court, alleging Frerichs was “illegally administering the $9 billion Illinois College Savings Pool, commonly known as Bright Start and Bright Directions.”
Illinois’ plans are organized under federal rules for qualified tuition programs, known as 529 plans. Participants buy and manage Bright Start funds, while investment advisers buy and manage Bright Directions portfolios. Kay’s complaint said the state overcharged plan participants for nearly a decade. Her funds have been invested in age-based portfolios, which carry administrative and program management fees. She accused Frerichs of charging both fees against average daily net assets of each portfolio instead of earnings only.
Cook County Judge Pamela Meyerson granted summary judgment to Frerichs, agreeing he was immune from any recovery aside from a potential injunction. Meyerson denied Kay the chance to amend her complaint, but she appealed that ruling to the Illinois First District Appellate Court, which issued its opinion May 28.
Justice Joy Cunningham wrote the panel’s opinion; Justices Mathias Delort and Thomas Hoffman concurred.
In arguing against the summary determination motion, Kay said sovereign immunity wasn’t applicable because she wasn’t seeking damages from state funds. Instead, she wanted the judge to order money held in a constructive trust and to initiate an accounting of administrative fees. She also sought to recover earnings that should have been accrued had the fees been assessed in accordance with her view of state law, and a court order forcing Frerichs to take program management and administrative fees as the law requires.
Kay also filed a cross motion for summary judgment, asking Meyerson to determine Frerichs violated the state law defining his office. Meyerson denied Kay’s October 2018 motion to amend her complaint to name Frerichs a defendant as an individual.
“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,” Cunningham wrote. “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.”
The panel further said Kays pursuit of financial damages also shows why sovereign immunity is applicable, because the money she sought would have come from a specific trust and therefore controlled how Frerichs managed the remaining money. It also noted her concession that when Gov. JB Pritzker signed amendments in June 2019 allowing the state treasurer to collect fees, the revised law made “any prospective injunctive relief moot,” ultimately negating her lawsuit.
Still, Kay pushed for a court to order Frerichs to return “illegally collected” fees. But the panel said doing so would improperly allow judges to substitute their policy desires for that of the state official elected to make such decisions. The panel also upheld Meyerson’s denial of Kay’s request to sue Frerichs as an individual.
“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,” Cunningham wrote. “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.”
Representing Kay in the matter were attorneys from Heffner Hurst, of Chicago.