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Docket Nos. 96250, 96294 cons.-Agenda 12-May 2004.
PHL, INC., et al., Appellees, v. PULLMAN BANK AND TRUSTCOMPANY et al. (Judy Baar Topinka, Treasurer, Appellant).-PHL,INC., et al., Appellees, v. PULLMAN BANK AND TRUSTCOMPANY et al. (Pullman Bank and Trust Company, Appellant).

Opinion filed June 3, 2005.

CHIEF JUSTICE McMORROW delivered the opinion of thecourt:

Section 8(b) of the Court of Claims Act provides that the Courtof Claims shall have exclusive jurisdiction over "[a]ll claims againstthe State founded upon any contract entered into with the State ofIllinois." 705 ILCS 505/8(b) (West 2000). At issue in this case iswhether plaintiffs' claim for breach of contract, which was broughtagainst the Treasurer of the State of Illinois, constitutes an action"against the State" so as to come within this provision. The appellatecourt concluded that it did not. No. 5-00-0206 (unpublished orderunder Supreme Court Rule 23). For the reasons that follow, wereverse.

BACKGROUND

In 1982, the State of Illinois established the Illinois InsuredMortgage Pilot Program (Mortgage Program) in an effort to stimulateeconomic development within the state. Although the workings of theMortgage Program are somewhat complicated, it may be said, ingeneral, that the program was implemented through the creation of atrust, funded with state money, from which loans were made tovarious commercial enterprises that had difficulty obtainingconventional financing.⁽¹⁾

The details of the Mortgage Program, including the termsgoverning the creation of the trust and the manner in which loans wereto be made by the trustee, were embodied in a purchase agreement, atrust indenture and a servicing agreement (collectively, the TrustAgreement). The Trust Agreement was executed on July 14, 1982, bythe State of Illinois, acting through Treasurer Jerome Cosentino, withthe concurrence of Governor James Thompson, and AmericanNational Bank and Trust Company of Chicago, both individually andas trustee. Under the terms of the Trust Agreement, the state is thesole owner of the trust estate and, through the Treasurer, directs thetrust's activities.

In November 1982, in connection with the Mortgage Program,a first mortgage loan in the amount of $13.4 million was made to anIllinois limited partnership known as the Collinsville Hotel Venture.The funds from the loan were used by the partnership to finance ahotel in Collinsville, Illinois, which is now known as the CollinsvilleHoliday Inn. In December 1983, a first mortgage loan was made toanother limited partnership, known as the President Lincoln HotelVenture, in the amount of $15.5 million. The funds from this loanwere used to finance the construction of a hotel in Springfield, Illinois,which is now known as the Springfield Renaissance Hotel.

Throughout the 1980s, both hotel ventures had difficultiesmeeting their obligations under the Mortgage Program loans. As aresult, both loans were restructured on at least two occasions. In1992, a dispute arose between the hotel ventures and then-TreasurerPatrick Quinn regarding a term of the restructured loan agreementswhich required each hotel venture to provide the Mortgage Programtrustee with a yearly "reliance letter." The trustee and Treasurerthreatened to declare the loans in default because they believed thatthe reliance letters they had received were inadequate. In response, thehotel ventures filed suit against the Treasurer and trustee to enjoin thedeclaration of default.

The circuit court of Cook County dismissed the hotel ventures'action based on the doctrine of sovereign immunity. In October 1994,the appellate court affirmed. See President Lincoln Hotel Venture v.Bank One, 271 Ill. App. 3d 1048 (1994). The hotel ventures' requestfor rehearing in the appellate court was denied on May 5, 1995.Thereafter, the hotel ventures filed a petition for leave to appeal in thiscourt, which remained pending until October 1995.

In November 1994, defendant Judy Baar Topinka was electedTreasurer of the State of Illinois. After assuming office, TreasurerTopinka installed defendant Pullman Bank and Trust Company(Pullman Bank) as trustee of the Mortgage Program trust.

Beginning in December 1994, and continuing through the firstpart of 1995, the hotel ventures engaged in discussions with TreasurerTopinka about the possibility of purchasing the hotel venture loansfrom the state. The terms of sale which were discussed included thesettlement of the reliance letter litigation, which was still ongoing atthat time. As a result of these discussions, the plaintiffs in this case,which are two entities described in the record as having a "businessrelationship" with the hotel ventures, agreed to purchase the hotelventure loans. Plaintiff PHL, Inc., agreed to buy the first mortgageloan relating to the Collinsville Holiday Inn for $6.3 million, whileplaintiff The President Lincoln Hotel Corporation agreed to pay $3.7million to acquire the first mortgage loan relating to the SpringfieldRenaissance Hotel.

On April 19, 1995, plaintiffs entered into separate buy-sellagreements with Pullman Bank, as trustee of the Mortgage Programtrust, to purchase the hotel venture loans. The agreements wereidentical, except for the name of the buyer and the purchase price.Joinders to the agreements were signed by the hotel ventures andTreasurer Topinka. Both buy-sell agreements expressly stated thatthey were being entered into, in part, to settle the reliance letterlitigation and both agreements contained provisions in which the stateagreed not to pursue any claims against the hotel ventures in relationto the loans. Closing on the buy-sell agreements was set for June1995.

After the Treasurer and trustee signed the buy-sell agreements,Attorney General Jim Ryan publicly stated that he would review theterms of the agreements. In July 1995, the Attorney Generalannounced that he would not approve the buy-sell agreements.

The Attorney General's decision to withhold approval of theagreements rested on two grounds, the first of which was financial. Ina report prepared by a group of University of Illinois professors, thecombined value of the two hotel venture loans was estimated atapproximately $18 million to $19 million. Thus, because the state wasto receive a total of only $10 million under the buy-sell agreements,the Attorney General concluded that the consideration the state wasto receive for the hotel venture loans and the settlement of the relianceletter litigation was inadequate.

The second reason the Attorney General gave for withholdingapproval of the buy-sell agreements was found in an opinion letterissued by the Attorney General on July 10, 1995. See 1995 Ill. Att'yGen. Op. No. 95-003. In this opinion, the Attorney General observedthat the Trust Agreement, as it then existed, did not authorize theMortgage Program trustee to settle mortgage loans for an amount lessthan their full value. The buy-sell agreements, however, did so.Therefore, the Attorney General concluded, unless the TrustAgreement was amended, at the direction of the state, the trusteewould have no authority to surrender or execute the documentsnecessary to close on the buy-sell agreements.

The Attorney General's opinion further observed that the TrustAgreement did not specify who may execute the consent to amend theTrust Agreement on behalf of the state, nor the form the consentshould take. The Attorney General noted, however, that theGovernor's involvement was "indispensable to the creation andongoing operation" (1995 Ill. Att'y Gen. Op. No. 95-003, at 7) of theMortgage Program and, further, "that in 1992, when a similaroutstanding loan was settled, the Governor's signature was affixed tothe direction authorizing the Trustee to execute the instrumentsnecessary to accept the settlement." 1995 Ill. Att'y Gen. Op. No.95-003, at 7-8. Moreover, according to the Attorney General, theTrust Agreement itself provides "that the parties to the Agreementinclude the Trustee and the State of Illinois, which is described as'acting by and through its Treasurer ***, with the consent of itsGovernor ***.' " 1995 Ill. Att'y Gen. Op. No. 95-003, at 8. Fromthis, the Attorney General concluded that

"it was clearly contemplated by the parties that therepresentatives of the State, for purposes of acting under theTrust Agreement, are the Treasurer and the Governor, andthat the concurrence of both the Governor and the Treasureris necessary to validate actions taken on behalf of the Statethereunder. Consequently, it is my opinion that both theGovernor and the Treasurer must authorize the amendmentof the Trust Agreement and give their consent to theproposed transaction in order to effectuate it." 1995 Ill. Att'yGen. Op. No. 95-003, at 9.

Because the Governor had not authorized any amendment of the TrustAgreement or consented to the buy-sell agreements, the AttorneyGeneral concluded that the agreements were invalid.

After the Attorney General made his views on the buy-sellagreements known, Treasurer Topinka publicly indicated that shedisagreed with the Attorney General's financial assessment of theagreements. The Treasurer stated that, in her view, the buy-sellagreements represented the best financial deal that could be made bythe state with respect to the hotel venture loans. Nevertheless, basedon the legal opinion of the Attorney General, and because theGovernor had not consented to the buy-sell agreements, the Treasurerdeclined to close on the agreements.

In October 1995, the hotel ventures, the Treasurer, Pullman Bankas the Mortgage Program trustee, and the Attorney General executedan agreement settling the reliance letter litigation. Plaintiffs in the caseat bar were not parties to this settlement, which did not reference thebuy-sell agreement or any sale of the hotel venture loans. The sameday that the settlement agreement was reached, the hotel ventureswithdrew their petition for leave to appeal in the reliance letterlitigation which was pending before this court. See President LincolnHotel Venture v. Pullman Bank & Trust Co., 163 Ill. 2d 586 (1995)(petition for leave to appeal withdrawn).

Approximately two months after the settlement of the relianceletter litigation, on December 29, 1995, plaintiffs filed the presentaction in the circuit court of Madison County against the Treasurerand Pullman Bank. In their complaint, plaintiffs alleged that theTreasurer possessed the "unqualified constitutional authority" toapprove the sale of the hotel venture loans without the concurrence ofthe Governor. Plaintiffs further alleged that, by adhering to theAttorney General's legal opinion and failing to close on the buy-sellagreements, the Treasurer was "acting in derogation of herconstitutional duties and in abuse of her discretion and authority."Plaintiffs requested the circuit court to "[o]rder the Treasurer toperform her constitutional duties" and to enforce the provisions of thebuy-sell agreements calling for the state to sell the hotel venture loans.

The litigation which followed the filing of plaintiffs' suit waslengthy and involved. It is recounted here only as necessary to addressthe issues presented in this appeal.

After plaintiffs filed their complaint, both the Treasurer andPullman Bank filed motions to dismiss, in which they argued thatplaintiffs' cause of action was barred by sovereign immunity.Defendants maintained that, although plaintiffs' suit for breach ofcontract was brought against the Treasurer in her individual capacity,the state was in fact the real party in interest because a judgment infavor of plaintiffs would require the state to divest itself of the hotelventures loans. In addition, because Pullman Bank was merely theagent of the state and could only act at the direction of the Treasurerwith respect to the trust estate, defendants maintained that any actionagainst Pullman Bank was also against the state. Defendants furthernoted that, under section 8(b) of the Court of Claims Act (705 ILCS505/8(b) (West 2000)), the Court of Claims has exclusive jurisdictionover claims brought against the state for breach of contract. Thus,defendants argued that the circuit court lacked jurisdiction to hearplaintiffs' complaint and that the suit properly belonged in the Courtof Claims. The circuit court denied defendants' motions to dismiss.

Thereafter, the Treasurer filed a motion for summary judgmentin which she argued that the buy-sell agreements were unenforceableas a matter of law both because the Governor had not consented tothem and because they lacked the Attorney General's approval. Thislatter argument was based on the fact that the buy-sell agreementswere not simply contracts, but also settlement agreements whichconclusively resolved the then-pending reliance letter litigation. Citingto Gust K. Newberg, Inc. v. Illinois State Toll Highway Authority, 98Ill. 2d 58 (1983), the Treasurer maintained that it is the prerogative ofthe Attorney General to settle pending litigation in which the state isinvolved. Thus, according to the Treasurer, because the AttorneyGeneral had not consented to the settlement portions of the buy-sellagreements, the settlement was invalid. And, the Treasurer argued,because the settlement of the reliance litigation was a materialcovenant to the buy-sell agreements, the agreements themselves neverbecame valid contracts and were therefore unenforceable. PullmanBank also filed a motion for summary judgment which raised similararguments.

In response to defendants' motions, plaintiffs filed a cross-motionfor summary judgment, in which they argued that the Treasurer hadthe exclusive authority to close on the buy-sell agreements and thatthe Attorney General's approval of the buy-sell agreements wasunnecessary. Plaintiffs did not dispute defendants' contention that, ingeneral, it is the prerogative of the Attorney General to settle statelitigation. However, plaintiffs argued that, in this case, the settlementof the reliance letter litigation in October 1995, although separatefrom the buy-sell agreements, nevertheless rendered the settlementportions of the buy-sell agreements irrelevant. Accordingly, becausethe settlement portions of the buy-sell agreements were no longer atissue, plaintiffs maintained that the Attorney General's approval wasnot needed and that the court could order specific performance of thebuy-sell agreements.

After hearing argument, the circuit court denied defendants'motions for summary judgment and granted plaintiffs' cross-motion.In so ruling, the circuit court held that consent of neither the Governornor the Attorney General was necessary to render the buy-sellagreements enforceable. In a subsequent order, the court held thatplaintiffs had been ready, willing and able to fulfill their obligationsunder the buy-sell agreements in June 1995. Finally, on March 13,2000, the circuit court entered judgment in favor of plaintiffs. Thecourt ordered the Treasurer and Pullman Bank, as trustee of theMortgage Program trust, to specifically perform the buy-sellagreements. Defendants appealed.

In a divided opinion, the appellate court affirmed. No. 5-00-0206(unpublished order under Supreme Court Rule 23). The appellatecourt rejected defendants' contention that plaintiff's suit was barredby sovereign immunity. In so holding, the appellate court observedthat an exception to the doctrine of sovereign immunity applies whenthe state officer who is the subject of the complaint acts in excess ofhis or her authority. The appellate court reasoned that this exceptionwas applicable in the case at bar because the Treasurer had "back[ed]out of an obligation based on an opinion of the Attorney General"and, in so doing, had improperly "relegat[ed]" her constitutionalauthority as Treasurer to the Attorney General.

Both defendants filed separate petitions for leave to appeal in thiscourt. The petitions were allowed and defendants' appeals wereconsolidated.

ANALYSIS

The Illinois Constitution of 1970 abolished the doctrine ofsovereign immunity "[e]xcept as the General Assembly may provideby law." Ill. Const. 1970, art. XIII,