Thomas L Pearson and the Pearson Family Members Foundation, The v. University of Chicago, The
Filing
46
OPINION AND ORDER by Chief Judge Gregory K Frizzell ; granting in part and denying in part 27 Motion to Dismiss (lah, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF OKLAHOMA
THE THOMAS L. PEARSON AND THE
PEARSON FAMILY MEMBERS
FOUNDATION,
Plaintiff and Counterclaim
Defendant,
v.
Case No. 18-CV-99-GKF-FHM
THE UNIVERSITY OF CHICAGO,
Defendant, Counterclaimant,
and Third-Party Plaintiff,
v.
THOMAS L. PEARSON,
Third-Party Defendant.
OPINION AND ORDER
Before the court is The University of Chicago’s Rule 12(b)(6) Motion to Dismiss the
Plaintiff’s Complaint [Doc. No. 27]. For the reasons set forth below, the motion is granted in
part and denied in part.
I.
Background
This case involves a Grant Agreement executed April 3, 2015, by and among the
University of Chicago, the Foundation, and Thomas L. Pearson.
Under the terms of the
Agreement, the University was to create a new institute to be known as The Pearson Institute for
the Study and Resolution of Global Conflicts (the “Pearson Institute”) and The Pearson Global
Forum (the “Pearson Forum”), a program for the purpose of conducting conferences, awards, and
events advocating the application of the Pearson Institute’s research findings and bringing
together leading scholars and policy makers from around the world to exchange ideas and to
maximize the potential to prevent and resolve violent conflicts. The Foundation alleges the
following in its Complaint:
Under the terms of the Grant Agreement, the University was obligated to perform certain
tasks that were fundamental to the purpose of the Foundation’s grant and to the establishment
and operation of the Pearson Institute and the Pearson Forum, but the University failed to
perform those obligations in a number of respects. [Doc. No. 2, p. 5, ¶ 16].
First, the University was obligated to appoint an Institute Director for the Institute by
September 1, 2016, with a one-year cure period ending September 1, 2017. [Id., pp. 5–6, ¶ 17].
The Institute Director was to be the Institute’s senior leadership and management executive,
directing the day-to-day operations of the Institute. [Id., p. 6, ¶ 18]. The University has failed to
appoint an Institute Director. [Id., p. 6, ¶ 19]. In June 2016, the University appointed Professor
James Robinson as “Faculty Director,” stating in a corresponding press release that the position
was “newly created.” [Id., p. 6, ¶ 20]. Professor Robinson is not tasked with the “day-to-day
operations” and management role required of an Institute Director, and Robinson’s status as a
Professor exempts him from administrative/management duties. [Id., p. 6, ¶ 21]. The University
specifically advised the Pearsons that Professor Robinson did not have the skill set or interest to
fulfill the administrative, management and fund-raising responsibilities, among others, required
for the Institute Director position. [Id., p. 6, ¶ 22]. On August 29–30, 2017, just prior to the
expiration of the cure period on September 1, 2017, the University secretly altered the Institute’s
website, without notice to the Pearsons or the Foundation, to change Professor Robinson’s title
from Faculty Director to Institute Director. [Id., p. 6, ¶ 23]. Although the University was
required to keep the Foundation informed regarding the appointment of an Institute Director, the
University deliberately concealed Professor Robinson’s retitling. [Id., p. 7, ¶¶ 24–25].
2
Second, the Grant Agreement required the University to fill four chaired faculty
positions. [Id., p. 7, ¶ 28]. The parties understood that funding chaired professorships was
essential to attract the caliber of distinguished scholars with the profile and reputation desired to
establish the Institute as a quickly emerging world class entity. [Id., pp. 7–8, ¶ 29]. The
University has not appointed the final faculty chair, and has filled two of the other positions with
junior, non-tenured professors from academic institutions that are ranked below the University in
national academic standings. [Id., p. 8, ¶ 30]. These non-tenured professors were given their
chaired professorships at the Pearson Institute because they are protégés and former students of
Professor Robinson. [Id., p. 8, ¶¶ 31–32]. Although the Agreement requires the University to
keep the Foundation informed regarding the recruitment of chaired professors, the University did
not disclose the pre-existing relationships with Professor Robinson. [Id., p. 8, ¶ 33].
Third, the University is required to hold the first annual Pearson Forum by October 31,
2018, with a two-year cure period ending October 31, 2020. [Id., p. 9, ¶ 36]. The University
stated in March 2017 that it would not be able to hold the Pearson Forum by October 31, 2018,
and that it had not planned or done the necessary preparatory work to hold the Forum by that
date. [Id., p. 9, ¶ 37]. Instead, the University stated it intended to meet its obligation by
involving the Institute in the 2018 Irish Catholic Bishops World Meeting of Families Congress.
[Id., p. 9, ¶ 37]. The Foundation alleges that participation in a conference organized by another
organization, and which has its own agenda and purpose, is inconsistent with the University’s
obligation under the Agreement. [Id., p. 9, ¶¶ 38–39].
Fourth, the Grant Agreement obligated the University to produce and deliver to the
Pearsons by March 31, 2017, the Institute’s first definitive operating plan and budget. [Id., p. 9,
¶ 40]. The University delivered a document purporting to be the required operating plan and
3
budget, but the document was replete with material errors and did not meet intended standards of
quality or professionalism, nor was it fit for its intended use. [Id., p. 9, ¶ 41]. The University
subsequently delivered a revised version, which was similarly unacceptable. [Id., p. 9–10, ¶ 41].
In a footnote, the University advised the Foundation for the first time that the University believed
it had the right to charge to the Institute many millions of dollars of operating expenses of the
University’s Harris School of Public Policy Studies, of which the Pearson Institute and the
Pearson Forum are parts. [Id., p. 10, ¶ 42]. These operating expenses could result in the
Institute’s budget having to absorb an increase in expenses of approximately 50%, which would
either cause the shutdown of the Institute and Forum, or would require the Pearsons and the
Foundation to make enormous additional contributions in order to preserve their investment and
maintain the viability of the Institute and Forum. [Id., p. 10, ¶ 43]. The Foundation would not
have agreed to the Grant Agreement if the University had disclosed its intent to reserve to itself
the possibility of charging these additional Harris School expenses to the Institute. [Id., p. 10, ¶
44].
Fifth, the University was obligated to administer the awarding of a specified number of
Pearson Fellow and Pearson Scholar scholarships.
The scholarships were intended to be
awarded pursuant to a discernable standard that would recognize exceptionally accomplished
graduate level students who had shown commitment to the study of conflict resolution. [Id., p.
10, ¶ 45]. The University awarded these scholarships without discernable, objective standards,
and unilaterally altered the number of scholarships it awards annually. [Id., p. 11, ¶¶ 46–47].
Sixth, the Grant Agreement required the University to “create” and “develop” an
academic curriculum for the Institute relating to the study of global conflicts resolution. [Id., p.
11, ¶ 48]. The University did not meet this obligation, but instead substantially relied on course
4
materials already developed at other institutions or taught previously at the University, and
which had little or no connection to the Institute’s mission. [Id., p. 11, ¶ 49].
Seventh, the Foundation alleges that the University has failed to provide promised
leadership for the Pearson Institute from within the University’s senior management. From late
October or early November of 2014, the Foundation’s primary point of contact with the
University was Daniel Diermeier, the Dean of the Harris School. [Id., p. 11, ¶ 53]. In March
2016, only six months after the announcement of the $100 million grant, the University
announced that, effective July 1, 2016, Dean Diermeier would become Provost of the University.
[Id., p. 12, ¶ 54]. The University advised the Foundation the Dean’s position at the Harris
School would be filled on an interim basis by a faculty member of the Harris School. In
response, the Pearsons expressed that it was unacceptable for an interim dean to serve as the
primary contact for communications with and management of the University’s responsibilities
and obligations under the Grant Agreement. [Id., p. 12, ¶ 55]. The parties then agreed, subject
to reducing their understanding to writing in a new amended and restated Grant Agreement, that
Dean Diermeier, as he transitioned into the Provost position, would retain primary responsibility
for communication and sole management responsibility on behalf of the University for the
operation and welfare of the Institute, and for the proper stewardship of the Foundation’s grant.
[Id., p. 12, ¶ 56]. Since that time, the Foundation has repeatedly requested the Grant Agreement
be amended and restated in its entirety to reflect the parties’ agreement and understanding
regarding Provost Diermeier’s continuing role and responsibilities, but the University has refused
to provide the Foundation with information required to modify the Agreement and has failed to
amend and restate the it. [Id., pp. 12–13, ¶¶ 57–58]. Provost Diermeier has refused and failed to
5
adequately discharge his responsibilities to properly administer and manage the Institute and
steward the Foundation’s grant. [Id., p. 13, ¶ 59].
The Foundation also alleges the University breached a variety of additional obligations
under the Grant Agreement, including obligations: to provide annual reports to the Foundation;
to hire a Grants Administrator by June 30, 2016; to develop strategies for additional fundraising
by June 30, 2017; to have the Institute Director and the Dean of the Harris School meet at least
semi-annually with the Pearson family; to keep the Pearson family appraised of, and extend
invitations to the Pearson family for, events and activities at the Institute; to report to the
Foundation within 30 days of discovery any failure or breach of certain specified material
obligations under the Grant Agreement; to launch an Institute website by September 1, 2016; and
to create a visual identity and branding plan for the Institute and Forum by June 2016. [Id., pp.
13–15, ¶¶ 62–77]. The Foundation also alleges the University has failed to act in good faith.
[Id., pp. 15–16, ¶¶ 78–82].
The Foundation asserts five causes of action in its Complaint: (I) breach of contract; (II)
breach of fiduciary duty; (III) fraudulent concealment; (IV) breach of the duty of good faith and
fair dealing; and (V) anticipatory repudiation. [Id., pp. 16–20, ¶¶ 83–115].
II.
Documents Considered
In support of its motion to dismiss, the University asks the court to consider the Grant
Agreement, as well as 2015–2016 and 2016–2017 Annual Reports. When ruling on a motion to
dismiss for failure to state a claim, the court must exclude matters outside the pleadings. FED. R.
CIV. P. 12(d). However, the court can “consider documents attached to or referenced in the
complaint if they ‘are central to the plaintiff’s claim and the parties do not dispute [their]
authenticity.’” Brokers’ Choice of America, Inc. v. NBC Universal, Inc., 861 F.3d 1081, 1103
6
(10th Cir. 2017) (quoting Jacobsen v. Deseret Book Co., 287 F.3d 936, 941 (10th Cir. 2002)).
Here, the Grant Agreement is properly before the court, because it was filed as an exhibit to, and
referenced in, the Complaint, and because it is central to the Foundation’s claims. [Doc. Nos. 5–
6; 21–22]. However, the court will not consider the Annual Reports at this stage of the litigation,
because they were not attached to the Complaint and, though they are referenced in ¶ 27, they are
not central to the Foundation’s claims, as the Foundation could have plead its claims without
reference to them. See Maher v. Oklahoma, 165 F. Supp. 3d 1089, 1094 (W.D. Okla. 2016)
(holding a written statement quoted in plaintiff’s complaint was not central because plaintiff
could have pled his case without any mention of it).
III.
Applicable Law
The Grant Agreement provides “[t]his agreement shall be governed by and construed in
accordance with the laws of the State of New York without regard to the conflicts of laws
principles thereof.” [Doc. No. 6, p. 32, § 10.4]. “In cases like this one, where subject matter
jurisdiction is based on diversity of citizenship, federal courts must look to the forum state’s
choice-of-law rules to determine the effect of a contractual choice-of-law clause.” MidAmerica
Constr. Mgmt., Inc. v. MasTec North America, Inc., 436 F.3d 1257, 1260 (10th Cir. 2006).
“Under Oklahoma law, a contract will be governed by the laws of the state where the contract
was entered into unless otherwise agreed and unless contrary to the law or public policy of the
state where enforcement of the contract is sought.” Been v. O.K. Indus., Inc., 495 F.3d 1217,
1236 (10th Cir. 2007) (emphasis added). Here, both parties agree the Grant Agreement’s choiceof-law clause applies and that New York law governs the Foundation’s claims. See [Doc. Nos.
2, p. 3, ¶ 11; 27, p. 11]. The court will therefore apply New York’s substantive law and federal
7
procedural law. Racher v. Westlake Nursing Home Ltd. P’ship, 871 F.3d 1152, 1162 (10th Cir.
2017).
IV.
Federal Pleading Standard
In considering a motion to dismiss under FED. R. CIV. P. 12(b)(6), a court must determine
whether the plaintiff has stated a claim upon which relief can be granted. A complaint must
contain “enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007).
The plausibility requirement “does not impose a
probability requirement at the pleading stage; it simply calls for enough facts to raise a
reasonable expectation that discovery will reveal evidence” of the conduct necessary to make out
the claim. Id. at 556. “[A] plaintiff’s obligation to provide the grounds of his entitlement to
relief requires more than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Id. at 555 (quotations omitted). The court “must determine whether
the complaint sufficiently alleges facts supporting all the elements necessary to establish an
entitlement to relief under the legal theory proposed.” Lane v. Simon, 495 F.3d 1182, 1186 (10th
Cir. 2007) (quoting Forest Guardians v. Forsgren, 478 F.3d 1149, 1160 (10th Cir. 2007)).
V.
Analysis
As previously stated, the Foundation asserts five counts, all of which the University
moves to dismiss. The court will separately consider each count.
a.
Breach of Contract
“To state a claim for breach of contract under New York law, ‘the complaint must allege:
(i) the formation of a contract between the parties; (ii) performance by the plaintiff; (iii) failure
of defendant to perform; and (iv) damages.’” Orlander v. Staples, Inc., 802 F.3d 289, 294 (2d
Cir. 2015) (quoting Johnson v. Nextel Commc’ns, Inc., 660 F.3d 131, 142 (2d Cir. 2011)). The
8
University argues the Foundation has failed to sufficiently allege actionable breaches of the
Grant Agreement, and/or damages.
i.
Actionable Breaches
Under the Grant Agreement, the University has Founding Obligations, which relate to the
establishment of the Institute and Forum, and Maintenance Obligations, which relate to the
ongoing operation of the Institute and Forum. The University’s Founding Obligations (and
corresponding due dates and cure periods) are listed in Exhibit A to the Agreement:
[Doc. No. 6, p. 39, Exhibit A]. Similarly, the University’s Maintenance Obligations are listed in
Exhibit B:
9
[Id., p. 40, Exhibit B].
In addition to these Founding and Maintenance Obligations, the
University agreed to timely establish and conduct staffing, programs, and operations for the
Institute and the Forum in accordance with an “Initial Operating Plan,” attached as Exhibit C to
the Agreement. [Id., pp. 41–46, Exhibit C].
The Grant Agreement also contains a provision protecting the University of Chicago’s
academic independence. Section 3.5(b) provides:
The [Foundation] acknowledges and agrees that neither it, nor any member of the
Pearson Family, nor the Advisory Council, nor any Donor Members, will have
any role or authority with respect to making appointments (academic or
professional) to the Pearson Institute or the Pearson Forum, setting the research
agenda of the Pearson Institute, or the selection of topics or presenters for the
Pearson Forum.
[Doc. No. 6, pp. 15–16].
The Foundation alleges the University breached its Founding Obligations to appoint an
Institute Director, appoint faculty chairs, hold the first Pearson Forum, and create the first
definitive operating plan and budget.
It alleges the University breached its Maintenance
Obligation to provide the agreed-upon annual reports to the Foundation. It alleges the University
10
breached its additional obligations, largely found in the Initial Operating Plan, including to
award fellowships and scholarships, create and develop curriculum, retain University Provost
Daniel Diermeier as the Foundation’s primary contact, have the Institute Director and the Dean
of the Harris School meet semi-annually with the Foundation, invite the Pearson family to
Institute events, hire a Grants Administrator, develop strategies for additional fundraising, timely
launch an Institute website, create a visual identity and branding plan for the Institute and Forum,
and report known breaches of Founding and Maintenance obligations.
1.
Whether the Alleged Breaches are Actionable
The University argues many of the alleged breaches are not actionable, because the cure
periods have not expired.
The Foundation responds that, under the terms of the Grant
Agreement, the cure periods apply only if the Foundation elects to terminate the contract, which
it has not done. These arguments turn on different interpretations of the Grant Agreement’s
remedies provisions.
“Under New York law, the initial interpretation of a contract is a matter of law for the
court to decide. Where a contract is unambiguous, a court . . . interprets the plain language of the
agreement as a matter of law.” Serdarevic v. Centex Homes, LLC, 760 F. Supp. 2d 322, 328
(2010) (quoting Kamfar v. New World Rest. Grp., Inc., 347 F. Supp 2d. 38, 48–49 (S.D.N.Y.
2004)). “On a motion to dismiss, the [c]ourt may resolve issues of contract interpretation . . .,
but must resolve all ambiguities in the contract in [p]laintiff’s favor.” Id. (citing Banks v. Corr.
Servs. Corp., 475 F. Supp. 2d 189, 195 (E.D.N.Y. 2007). “However, the mere fact that the
[p]arties disagree on the proper interpretation of the contract does not render the contractual
language ambiguous.” Id. at 329 (citing Metro. Life Ins. Co. v. RJR Nabisco, Inc., 906 F.2d 884,
889 (2d Cir. 1990)). “Contract language is not ambiguous if it has a ‘definite and precise
11
meaning, unattended by a danger of misconception in the purport of the contract itself, and
concerning which there is no reasonable basis for a difference of opinion.” Id. (quoting Hunt
Ltd. V. Lifschultz Fast Freight, Inc., 889 F.2d 1274, 1277 (2d Cir. 1989)).
The disputed provisions are §§ 6.2, 6.4, and 6.6:
6.2
Termination by the [Foundation].
Agreement if:
The [Foundation] may terminate this
(a)
(b)
at any time before March 1, 2030, the University has breached any
Maintenance Obligation and has failed to cure such breach in all material
respects within the “Cure Period” specified for such Maintenance
Obligations in Exhibit B . . .; or
(c)
6.4
the University (i) has failed to meet any Founding Obligation by the “Due
Date” specified for such Founding Obligations in Exhibit A . . . and (ii)
has failed to cure such failures in all material respects within the “Cure
Period” specified for such Founding Obligations in Exhibit A;
the University has breached in any material respect any of its other
obligations contained in this Agreement, and has failed to cure in all
material respects such breach within one (1) year . . . .
Rights of Reversion. Upon termination of this Agreement pursuant to Section
6.2(a) or 6.2(b) . . ., and only upon termination of this Agreement pursuant to
Section 6.2(a) or 6.2(b) . . ., the [Foundation] shall have the following rights of
reversion:
(a)
Upon termination of this Agreement pursuant to Section 6.2(a) . . .:
(1)
(2)
(b)
the University shall refund to the [Foundation], all amounts paid to
the University under this Agreement . . ., such refund and
termination being the [Foundation’s] sole and exclusive remedy for
the University’s failure . . .; and
neither party hereto shall have any further rights or obligations
under this Agreement . . . .
Upon termination of this Agreement pursuant to Section 6.2(b):
(1)
the University shall refund to the [Foundation] all amounts paid to
the University under this Agreement . . ., but less the amount of
such funds previously expended by the University in support of the
Pearson Institute or the Pearson Forum, such termination and
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refund being the Donor’s sole and exclusive remedy for the
University’s failure . . .; and
(2)
6.6
neither party hereto shall have any further rights or obligations
under this Agreement . . . .
Ongoing Obligations. The University acknowledges that after the expiration of
the time periods specified in Sections 6.2(a) [and] 6.2(b) . . . for the exercise by
the [Foundation] of its reversion rights, the University will continue to use the
Pearson Fund to support the Pearson Institute and the Pearson Forum in
accordance with applicable law, and after the expiration of such time periods, the
exclusive remedy provisions in Section 6.4 . . . shall cease to be effective and the
[Foundation] will be entitled to any remedies available to it under applicable law
arising from the University’s breach of its obligations.
[Doc. No. 6, pp. 24–25, 27–28].
The University contends that § 6.4 conditions the Foundation’s right to a refund of
contributions “[u]pon termination . . . and only upon termination” pursuant to §§ 6.2(a) and
6.2(b), and that § 6.6 “confirms that only after the expiration of [the applicable cure period] may
the Foundation pursue ‘any remedies available to it under applicable law arising from the
University’s breach of its obligations.’” [Doc. No. 37, p. 4] (quoting the Grant Agreement, §
6.6).
In response, the Foundation argues § 6.2 creates an optional right to terminate, and § 6.4
states the Foundation’s remedies in the event of termination.
Absent contrary language,
however, the Foundation argues termination should not be construed as its exclusive remedy.
[Doc. No. 35, pp. 19–20]. Here, the Foundation is not seeking termination, and therefore argues
these termination provisions simply do not apply.
Although the parties disagree about the proper interpretation of §§ 6.2, 6.4, and 6.6, the
disputed portions are not ambiguous. Section 6.2 gives the Foundation the right to terminate the
Grant Agreement in the event the University breaches its obligations and fails to cure. Section
6.4 provides that a refund of all amounts paid to the University is the Foundation’s sole and
13
exclusive remedy upon termination pursuant to §§ 6.2(a) or 6.2(b). Section 6.6 states that after
the expiration of the time periods specified in §§ 6.2(a) and 6.2(b) for the exercise of the
Foundation’s rights of reversion the exclusive remedy provisions in § 6.4 cease to be effective.
The court agrees with the Foundation that termination pursuant to § 6.2 is not its
exclusive remedy for breach of the University’s obligations.
“Under New York Law,
contractual remedies are deemed to be nonexclusive absent some indication of contrary intent,”
Inter-American Dev. Bank v. Nextg Telecom Ltd., 503 F. Supp. 2d 687, 698 (S.D.N.Y. 2007),
and §§ 6.2, 6.4, and 6.6 do not indicate an intent to make termination the Foundation’s exclusive
remedy.1 The alleged breaches are actionable even though their cure periods have not expired,
because the cure periods apply only if the Foundation elects to terminate the contract.
2.
Whether the Allegations State a Claim for Breach
a.
Founding Obligations
Institute Director. Section 3.2(a) of the Grant Agreement provides:
[t]he University shall . . . appoint a faculty director to direct the day-to-day
operations of the Pearson Institute (the “Institute Director”) . . . . The Institute
Director shall be selected . . . to hold a named professorship in the Harris School
to be designated as the “The Reverend Dr. Richard L. Pearson Professor of Global
Conflicts Studies and Faculty Director, The Pearson Institute for the Study of
Global Conflicts Studies and Faculty Director.” The Institute Director shall be a
prominent faculty member with an established record of published scholarship
that demonstrates his or her commitment to issues pertinent to the Mission and to
the work of the Pearson Institute.
[Doc. No. 6, p. 13]. The Foundation alleges that the University has failed to appoint an Institute
Director. [Doc. No. 2, p. 6, ¶ 19]. It alleges that, in June of 2016, the University appointed
1
Nor does the University actually argue termination is the Foundation’s exclusive remedy. See
[Doc. No. 37, p. 5] (“[W]hether section 6.2’s termination provisions are properly described as
[optional and permissive] is irrelevant.”). Rather, much of the University’s argument appears to
be directed toward whether the Foundation can seek a refund of contributions without electing to
terminate the Grant Agreement. The court need not decide that issue at this juncture, as it goes to
the Foundation’s available remedies, not to whether the alleged breaches are actionable.
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Professor James Robinson as “Faculty Director,” but that Faculty Director Robinson is not
tasked with, and, by the University’s alleged admission, is not suited for, the day-to-day
operations and management role required by an Institute Director. [Id., p. 6, ¶¶ 20–21]. Rather,
his “responsibilities and duties [are] separate and distinct from those of the Institute Director.”
[Id., p. 6, ¶ 22]. According to the Foundation, Faculty Director Robinson’s status as a University
Professor specifically exempts him from administrative and management duties or obligations,
and University representatives specifically advised the Pearsons that Professor Robinson did not
have the skill set or interest to fulfill the administrative, management, and fundraising
responsibilities, among others, required for the Institute Director position. [Id., p. 6, ¶¶ 21–22].
The University argues these allegations fail to state a claim for breach, because § 3.2(a)
uses the terms “Faculty Director” and “Institute Director” interchangeably. But the Foundation
is not claiming the University simply mistitled Professor Robinson’s position; rather, the
Foundation alleges that, regardless of how he is titled, Professor Robinson’s job responsibilities
are “separate and distinct from those of the Institute Director,” and do not include “direct[ing]
the day-to-day operations of the Pearson Institute” as required by the Grant Agreement. Taken
as true, the Foundation states a claim for breach of § 3.2(a).
Faculty Chairs. Section 3.4 requires “the University [to] establish three (3) named
professorships in the Harris School (the “Faculty Chairs”) . . . .” [Doc. No. 6, p. 14]. Section 5.1
requires “the University [to] keep the [Foundation] reasonably informed of its progress in
recruiting the initial and any subsequent . . . Faculty Chairs in the Pearson Institute.” [Id., p. 23].
The Foundation alleges that the University has not appointed the final faculty chair or kept the
Foundation reasonably informed of its efforts to do so, and has filled the other two positions with
junior, non-tenured professors from lesser academic institutions. [Doc. No. 2, p. 8, ¶ 30]. The
15
Foundation further alleges these non-tenured professors were hired because they are protégés and
former students of Professor Robinson, and that the University did not inform the Foundation of
the non-tenured professors’ pre-existing relationships with Professor Robinson. [Id., p. 8, ¶¶ 31–
33].
As to the two positions already filled, the University contends § 3.5(b) expressly
precludes the Foundation from challenging their qualifications. [Doc. No. 6, pp. 14–15]. The
University also argues disclosure of their status as Robinson’s former students was not required
by § 5.1’s mandate that it keep the Foundation “reasonably informed about its progress in
recruiting.” Regardless, the Foundation’s allegations that the University has not appointed the
final faculty chair and has not kept the Foundation reasonably informed of its efforts to do so
adequately state claims for breach of §§ 3.4 and 5.1. The University’s only argument to the
contrary is that its failure to appoint the final faculty chair is not actionable because the cure
period has not run. However, for the reasons previously stated, the cure periods apply only if the
Foundation elects to terminate the contract.
First Pearson Forum. The Grant Agreement requires the University to hold the first
Pearson Forum by October 31, 2018. [Doc. No. 6, p. 39]. The Foundation alleges the University
has stated it will not be able to hold the Pearson Forum by that date. [Doc. No. 2, p. 9, ¶ 37].
This allegation adequately states a claim for breach.
The University’s argument to the
contrary—that the cure period for holding the first Pearson Forum has not expired yet—is again
foreclosed because the cure periods apply only if the Foundation elects to terminate the contract.
Operating Plan and Budget. The Grant Agreement obligates the University to produce
and deliver the Institute’s first definitive operating plan and budget by March 31, 2017. [Doc.
No. 6, p. 39]. The Foundation alleges the University delivered a document, which purported to
16
be the required operating plan and budget, but that the document was replete with material
errors, did not meet intended standards of quality or professionalism, and was not fit for its
intended use. [Doc. No. 2, p. 9, ¶ 41]. The University allegedly made at least one unsuccessful
attempt to revise the document. [Id., p. 9–10, ¶ 41].
The University contends these allegations fail for vagueness and because the Grant
Agreement does not specify the budget’s required content. Upon review, the court concludes the
allegations are sufficient to state a claim for breach of the University’s obligation to produce and
deliver the first definitive operating plan and budget.2
b.
Maintenance Obligations
The Foundation alleges the University breached its Maintenance Obligation, found in §
5.1(b), to provide to the Foundation annual reports regarding the Pearson Institute’s performance
and financials in the previous fiscal year. [Doc. No. 6, p. 23].
The University responds that this allegation is contradicted by another paragraph in the
Complaint wherein the Foundation references information in two documents titled 2015–2016
Annual Report and 2016–2017 Annual Report. See [Doc. No. 2, p. 7, ¶ 27]. However, the
Foundation’s reference to information in the annual reports does not necessarily contradict its
assertion that the University failed to deliver the reports to the Foundation. Furthermore, the
allegation that the University failed to provide “the required annual reports” may also be
construed as alleging that the reports were materially deficient.
Regardless, the allegation
sufficiently states a claim for breach of § 5.1(b).
2
The University also argues the Foundation has failed to state a claim for breach of the Grant
Agreement based on the University’s appointment of two University employees to the Advisory
Council. See [Doc. No. 27, pp. 18–19]. However, the Foundation’s allegations regarding the
Advisory Council appear to be made in regards to its claim for breach of the duty of good faith
and fair dealing, not for breach of any particular provision of the Grant Agreement. See [Doc.
No. 2, p. 15, ¶¶ 79–81].
17
c.
Additional Obligations
As to the University’s additional obligations, largely found in the Initial Operating Plan
attached to the Grant Agreement as Exhibit C, it is not necessary at this stage of the litigation to
consider each obligation and alleged breach, as the court has determined that the Foundation has
adequately stated a claim for breach of the Grant Agreement based on the Founding and
Maintenance obligations. See AKB Wireless, Inc. v. Wireless Toyz Franchise, LLC, 2015 WL
1637593, *7 (E.D. Mich. Apr. 13, 2015) (declining to consider defendants’ arguments as to other
alleged breaches where the plaintiff brought a single count for breach of contract and sufficiently
pled that defendants breached the contract in at least one way) (citing In re Pressure Sensitive
Labelstock Antitrust Litig., 566 F. Supp. 2d 363, 373 (M.D. Penn. 2008) (“Nothing in Twombly,
however, contemplates [such a] ‘dismemberment’ approach to assessing the sufficiency of a
complaint. Rather, a district court must consider a complaint in its entirety without isolating each
allegation for individualized review.”)).
ii.
Damages
The University argues the Foundation has not sufficiently pled damages for breach of
contract. In conjunction with the factual allegations discussed above, the Foundation alleges
that,
[a]s a direct and proximate result of the [University’s] material breaches of the
Grant Agreement, the Foundation has been injured. The Foundation agreed to
grant substantial sums of money to the [University] for [the Pearson Institute and
the Pearson Forum] on the condition that it would be used to fulfill the
Foundation’s objectives under the Grant Agreement. The [University] has not
performed as promised under the Grant Agreement.
[Doc. No. 2, p. 16, ¶ 87]. The Foundation requests the court “order the . . . return of all amounts
paid pursuant to the Grant Agreement; attorney’s fees, expenses, and costs; and such other relief
as this Court may deem just and proper and to which the Foundation may be entitled as a matter
18
of law.” [Doc. No. 2, p. 16]. At this stage of the litigation, the Foundation’s allegations provide
sufficient notice to the University on the issue of damages. The cases cited in reply by the
University dismissing breach of contract claims for insufficiently pled damages are
distinguishable because, unlike here, the plaintiffs’ allegations of damages were coupled with
insufficient factual allegations regarding the alleged breaches. See Bravo v. MERSCORP, Inc.,
2013 WL 1652325, *5–6 (E.D.N.Y. Apr. 16, 2013) (dismissing breach of contract claim where
plaintiff failed to allege adequate performance, breach, or causally connected damages); Amer.
Fidelity Assurance Co. v. Bank of N.Y. Mellon, CIV-11-1284-D, 2013 WL 12091102, at *3
(W.D. Okla. Jan. 18, 2013) (noting that “plaintiff indirectly concede[d] the lack of sufficient
factual allegations to support its breach of contract claims,” and that “the factual allegations
supporting the three counts are unclear and, often, conclusory”).
b.
Breach of Fiduciary Duty
The University argues the Foundation has failed to plead the existence or breach of a
fiduciary relationship, because the Foundation’s allegations are coterminous with its breach of
contract claim.
Under New York law, “[a] fiduciary relationship arises between two persons when one of
them is under a duty to act for or to give advice for the benefit of another upon matters within the
scope of the relation.” Sejin Precision Indus. Co., Ltd. v. Citibank, N.A., 235 F. Supp. 3d 542,
557 (S.D.N.Y. 2016) (quoting Roni LLC v. Arfa, 963 N.E.2d 123, 124 (N.Y. 2011)). “Put
differently, [a] fiduciary relation exists when confidence is reposed on one side and there is
resulting superiority and influence on the other.”
Roni LLC, 963 N.E.2d at 125 (internal
quotation marks omitted). “If the parties . . . do not create their own relationship of higher trust,
courts should not ordinarily transport them to the higher realm of relationship and fashion the
19
stricter duty for them.” EBC I, Inv. v. Goldman, Sachs & Co., 832 N.E.2d 26, 31 (N.Y. 2005)
(quoting Northeast Gen. Corp. v. Wellington Adv., 624 N.E.2d 129, 131 (N.Y. 1993)). Dismissal
of a claim for breach of fiduciary duty is appropriate where the plaintiff “has not alleged any
facts suggesting that the relationship between the plaintiff and defendants was anything other
than arm’s-length.” Phillips v. American Inter. Grp., Inc., 498 F. Supp. 2d 690, 696 (S.D.N.Y.
2007) (granting motion to dismiss where plaintiff alleged defendants held themselves out as
experts and plaintiff believed, trusted, and relied upon them in purchasing annuity contracts).
While the Foundation is correct that a fiduciary duty may “aris[e] out of [a] relationship created
by contract,” the duty still must be “independent of the contract itself.” 37 E. 50th St. Corp. v.
Restaurant Grp. Mgt. Servs., L.L.C., 156 A.D.3d 569, 570 (N.Y. App. Div. 2017); see also EBC
I, 832 N.E.2d at 31 (noting that, while the contract may not have created a fiduciary duty, “a
cause of action for fiduciary duty may survive, for pleading purposes, where the complaint party
sets forth allegations that, apart from the terms of the contract, the [parties] created a relationship
of higher trust than would arise from the [contract] alone”).
The Foundation alleges the existence of a fiduciary duty based on its “donor-donee
relationship” with the University:
By establishing [the Pearson Institute and the Pearson Forum], and undertaking
the commitment to administer the funds in accordance with the terms of the Grant
Agreement, including that [the Pearson Institute and the Pearson Forum] would
have ‘the highest level of success and recognition’, the [University] undertook a
position of trust and a corresponding fiduciary duty to the Foundation to achieve
the objectives of the grant.
[Doc. No. 2, p. 17, ¶ 89]. The Foundation directs the court to allegations in the Complaint that it
selected the University of Chicago because of its representations as one of the world’s great
academic institutions [Id., p. 4, ¶ 14], and intended the University to use reasonable academic
hiring standards in recruiting and appointing faculty chairs, to properly use grant funds for the
20
Pearson Institute and Pearson Forum, to award scholarships pursuant to a discernable standard
recognizing accomplished graduate level students who had shown a commitment to the study of
conflict resolution, and to advance the reputation of the Institute as a leading academic and
research center [Id., pp. 8–11, ¶¶ 31, 37–39, 42–44, 45, 50].
These allegations do not suggest the Foundation’s relationship with the University was
anything other than arm’s-length. To the contrary, the allegations acknowledge the Foundation
evaluated multiple academic institutions, and engaged in months of discussions and weeks of
negotiations with the University of Chicago regarding the terms of the Grant Agreement. [Doc.
No. 2, pp. 4–5, ¶ 5]; see Abercrombie v. Andrew College, 438 F. Supp. 2d 243, 275 (S.D.N.Y.
2006) (“Nor can it be said that the mere relationship between an alumnae and her alma mater,
even if a close one, automatically imposes a fiduciary duty on the college when accepting a
donation, particularly where the Complaint acknowledges the alumnae was represented by
counsel in the transaction.”). As the University argues, most of these allegations are either
derived from the University’s existing obligations under the Grant Agreement—and therefore
insufficient to plead a “relationship of higher trust” existing “apart from the terms of the
contract,” EBC I, Inc., 832 N.E.2d at 31—or precluded by § 3.5(b) of the Grant Agreement,
which provides that the Foundation is to have no “role or authority with respect to making
appointments (academic or professional) to the Pearson Institute or the Pearson Forum, setting
the research agenda of the Pearson Institute, or the selection of topics or presenters for the
Pearson Forum.” [Doc. No. 6, pp. 15–16].
This case is similar to New York Univ. v. International Brain Research Found., 2016
N.Y. Misc. Lexis 856 (N.Y. Sup. Ct. Mar. 14, 2016), which involved a 2010 grant agreement
between the New York University School of Medicine and the International Brain Research
21
Foundation, wherein the research foundation agreed to make a series of annual contributions of
$300,000 to support the brain injury research of a particular professor. Id. at *1. The school of
medicine subsequently sued the research foundation for failing to remit payments, and the
research foundation filed a counterclaim for, inter alia, breach of fiduciary duty. Id. at *3–4.
The school of medicine moved to dismiss the counterclaim, arguing in pertinent part that the
research foundation had failed to adequately allege the existence of a fiduciary relationship based
on the donation. Id. at 10–11. The trial court dismissed the fiduciary duty claim, because the
counterclaim did not allege facts suggesting that the parties intended to create a relationship of
higher trust beyond their contractual grantor-grantee relationship. Id. at *11. The research
foundation’s conclusory allegations to the contrary were insufficient. Id. The trial court also
held the fiduciary duty claim failed because it merely duplicated the breach of contract claim,
given that the counterclaim did not plead any factors supporting breach of a duty independent of
the Grant Agreement. Id. at *11–12.
Similarly, the Foundation has not adequately alleged that the parties intended to create a
relationship of higher trust beyond their contractual grantor-grantee relationship, and the alleged
breaches are either for duties arising from the Grant Agreement itself or are precluded by §
3.5(b). The Foundation has therefore failed to sufficiently allege the existence or breach of a
fiduciary relationship. The University’s motion to dismiss is granted as to Count II (Breach of
Fiduciary Duty).
c.
Fraudulent Concealment
The University moves to dismiss the Foundation’s fraudulent concealment claim as
duplicative of the breach of contract claim, and because the Foundation failed to allege a material
omission. To state a claim for fraudulent concealment, the complaint must allege: “(1) the
22
defendant made a misrepresentation or a material omission of fact which was false and which the
defendant knew to be false; (2) the misrepresentation was made for the purpose of inducing the
plaintiff to rely upon it; (3) the plaintiff justifiably relied on the misrepresentation or material
omission; [] (4) injury[;] . . . [and (5)] the defendant had a duty to disclose the material
information.” Bannister v. Agard, 125 A.D.3d 797, 798 (N.Y. App. Div. 2015).
The Foundation’s claim for fraudulent concealment is based on the University’s alleged
failure to disclose to the Foundation its retitling of Professor Robinson on the Pearson Institute
website from “Faculty Director” to “Institute Director” on August 29–30, 2017. The Foundation
alleges the University knew that Professor Robinson was not the Institute Director when it
retitled him, and that his roles and responsibilities as faculty director have not changed since his
retitling. [Doc. No. 2, pp. 18–19, ¶¶ 98–99, 105]. The Foundation further alleges that the
University retitled Professor Robinson secretly, and without communicating or disclosing to the
Foundation that this change was going to take place. [Id., p. 18, ¶ 100]. The Foundation alleges
the University had duties to keep the Foundation reasonably informed regarding its progress in
recruiting the first and subsequent Institute Directors, and to promptly notify the Foundation of
proposed changes to the website that are inconsistent with media or public documents previously
approved by the Foundation. [Id., pp. 18–19, ¶¶ 102–03]. In alleged reliance on the University’s
performance of those duties, the Foundation did not discover Professor Robinson’s retitling for
months. [Id., p. 19, ¶¶ 103–04]. The Foundation further alleges that Professor Robinson’s
retitling as Institute Director will require correction and cause public confusion and a diminished
reputation for the Pearson Institute and the Pearson Forum. [Id., p. 19, ¶ 106].
The court is unconvinced that the alleged omission regarding Professor Robinson’s
retitling was immaterial. As discussed previously, the Foundation is not claiming the University
23
simply mistitled Professor Robinson’s position; rather, the Foundation alleges that, regardless of
what he was titled, Professor Robinson’s job responsibilities are “separate and distinct from
those of the Institute Director,” and do not include “direct[ing] the day-to-day operations of the
Pearson Institute” as required by the Grant Agreement. Failing to disclose to the Foundation that
the University was holding this position of leadership out to the world as filled, while knowing
that it was in fact vacant, would be material.
However, the University correctly notes that, in New York, “[i]t is axiomatic that a cause
of action for fraud does not arise where . . . the fraud alleged relates to a breach of contract.
Thus, absent a legal duty owed to plaintiff by defendants, independent of that encompassed by
the contract, plaintiff's causes of action grounded on fraud are not cognizable.” Egan v. New
York Care Plus Ins. Co., 277 A.D.2d 652, 653 (N.Y. App. Div. 2000). Here, the Foundation
does not allege the existence of a duty to disclose the alleged retitling of Professor Robinson that
arises other than from the terms of the Grant Agreement. See [Doc. No. 2, p. 7, ¶ 24] (alleging
“[t]he Grant Agreement requires the [University] to keep the Foundation informed regarding the
appointment of an Institute Director”). The University’s motion to dismiss is granted with
respect to Count III.
d.
Breach of the Duty of Good Faith and Fair Dealing
The University moves to dismiss the Foundation’s claim for breach of the duty of good
faith and fair dealing on the ground that it is duplicative of the Foundation’s contract claims. See
Bus. Payment Sys., LLC v. Bus. Payment Sys.-Rocky Mountain, LLC, 2013 WL 12192486, at *6
(D. Colo. Feb. 20, 2013) (“Under New York law, which the parties agree governs this claim, a
claim for breach of the covenant of good faith and fair dealing should be dismissed if it is
redundant of a breach of contract claim.”).
However, the court does not find the claims
24
duplicative; rather, they are “based on allegations different from those underlying the
accompanying breach of contract claim.” ARS Kahirwala, LP v. El Paso Kabirwala Cayman
Co., 2017 WL 3396422, at *4 (S.D.N.Y. Aug. 8, 2017) (quoting JPMorgan Chase Bank, N.A. v.
IDW Grp., LLC, 2009 WL 321222, *5 (S.D.N.Y. Feb. 9, 2009)). Separate from its allegations
regarding breach of the Grant Agreement, the Foundation also alleges the University has failed
“to deal with the Foundation with honesty, forthrightness, and transparency, by engaging in
deliberate misrepresentations to the Foundation over a period of more than two years, and by
failing to discharge its obligations with the care an ordinarily prudent person in a like position
would exercise under similar circumstances.” [Doc. No. 2, pp. 19–20, ¶ 109]. The Complaint
further details alleged failures by the University to act in good faith which are not based on
breaches of any particular provision of the Grant Agreement. Such alleged failures include the
appointment of two allegedly inexperienced University employees to the Advisory Council and
the reservation of the right to charge millions of dollars of Harris School expenses to the Pearson
Institute. [Doc. No. 2, pp. 15–16, ¶¶ 78–82]. For that reason, the University’s motion to dismiss
is denied as to Count IV. See Bus. Payment Sys., LLC, 2013 WL 12192486, at *5 (applying New
York law and declining to dismiss plaintiff’s claim for breach of the covenant of good faith and
fair dealing as redundant with its breach of contract claim, where plaintiff’s allegations regarding
its breach of covenant claim went beyond the breach of contract claim); Cruz v. FXDirectDealer,
LLC, 720 F.3d 115, 125 (2d Cir. 2013) (“[W]hen a complaint alleges both a breach of contract
and a breach of the implied covenant of good faith and fair dealing on the same facts, the latter
claim should be dismissed as redundant.”).
25
e.
Anticipatory Repudiation
To state a claim for anticipatory repudiation, a complaint must allege that “a clear
manifestation of intent communicated in advance of the time for performance that when the time
for performance arrives the required performance will not be rendered.” O’Shanster Res., Inc. v.
Niagara Mohawk Power Corp., 915 F. Supp. 560, 567 (W.D.N.Y. 1996) (citing Wester v. Casein
Co. of America, 206 N.Y. 506, 513–14 (1912)). “The expression of intention not to perform
must be positive and unequivocal.” Id. (quoting Record Club of America v. United Artists
Records, 643 F. Supp. 925, 936 (S.D.N.Y. 1986)). “Whether such a repudiation took place is a
‘factual determination [and] heavily dependent upon a determination of whether a breaching
party’s words or deeds are unequivocal.’” Fonda v. First Pioneer Farm Credit, ACA, 86 A.D.3d
693, 695 (N.Y. App. Div. 2011) (quoting O’Connor v. Sleasmen, 14 A.D.3d 986, 987–88 (N.Y.
App. Div. 2011)).
The Foundation’s claim of anticipatory repudiation is based on the University’s alleged
refusal to comply with its Founding Obligation to hold the first Pearson Forum by October 31,
2018.3 According to the Complaint, the University has informed the Foundation that it has not
and will not do the necessary preparatory work to hold the Pearson Forum by that date. [Doc.
No. 2, p. 20, ¶ 113]. Rather, the University has stated to the Foundation its intention to involve
TPI in the Bishops Congress, a conference with its own agenda and purpose, in purported
3
In its response, the Foundation seeks to expand the scope of its anticipatory repudiation claim to
other alleged breaches by invoking its paragraph “restat[ing] and incorpora[ing] by reference” all
preceding paragraphs. However, as the University contends, this would place an “inordinate
burden” on the University and the court, “requiring them to parse the narrative repeatedly and
attempt to independently extract the particular factual averments that are relevant to [this] claim.”
Greenway Nutrients, Inc. v. Blackburn, 33 F. Supp. 3d 1224, 1260 (D. Colo. 2014) (quoting
Jacobs v. Credit Suisse First Boston, 2011 WL 4537007, *6 (D. Colo. Sept. 30, 2011)). More
fundamentally, the Foundation has not alleged a factual basis for this claim beyond the alleged
refusal to hold the Pearson Forum.
26
discharge of its obligation to hold the Pearson Forum. [Id., p. 20, ¶ 114]. The Foundation
alleges the University’s failure to plan and prepare for the first Pearson Forum, combined with its
stated intent to participate in the Bishops Congress in lieu of holding the first Pearson Forum, are
positive and unequivocal expressions of the University’s intent to not perform as required by the
Grant Agreement.
The University argues that its alleged repudiation could not have been unequivocal
because the cure period for holding the first Pearson Forum does not expire until 2020. This
argument fails for two reasons. First, as previously discussed, the cure periods apply only if the
Foundation elects to terminate the contract. Second, in New York “[t]he non-breaching party’s
obligation to provide notice and give an opportunity to cure . . . is excused when the breaching
party has repudiated the contract.” 28 N.Y. Prac., Contract Law § 13:12 (citing In re Best
Payphones, Inc., 432 B.R. 46, 54 (S.D.N.Y 2010) (“Once a party anticipatorily repudiates, the
other party is excused from complying with any conditions precedent in the contract, including
the obligation to give notice of breach and an opportunity to cure.”)).
The court concludes that the Foundation has adequately stated a claim for anticipatory
repudiation.
Whether the communication was in fact “unequivocal” may be addressed at
summary judgment. The University’s motion to dismiss is denied as to Count V.
VI.
Conclusion
WHEREFORE, The University of Chicago’s Rule 12(b)(6) Motion to Dismiss the
Plaintiff’s Complaint [Doc. No. 27] is granted as to the Foundation’s claims of breach of
fiduciary duty (Count II) and fraudulent concealment (Count III). The motion is otherwise
denied.
27
IT IS SO ORDERED this 29th day of June, 2018.
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