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Gust K. Newberg, Inc. v. Toll Highway Auth.





APPEAL from the Circuit Court of Du Page County; the Hon. JOHN J. BOWMAN, Judge, presiding.


Rehearing denied March 12, 1982.

Defendant, the Illinois State Toll Highway Authority (the Authority), appeals from a judgment of the circuit court of Du Page County finding it liable to plaintiff, Gust K. Newberg, Inc. (Newberg), in the sum of $2,750,000 as damages for breach of a settlement agreement between the parties. The Authority contends the agreement was invalid and unenforceable because it was not approved by the Attorney General and, also, that the trial court improperly assessed damages. Newberg cross-appeals, contending it is entitled to prejudgment interest.

The underlying action was commenced in 1975 by Newberg and other parties against the Authority, alleging it had breached a contract between the parties for construction of a portion of the East-West Tollway for which plaintiffs sought damages of $9,000,000. Thereafter, at the direction of the Authority's executive director, Richard Blakely, assistant Attorney General John Lavery, chief of the legal department of the Authority, entered into settlement negotiations with counsel for Newberg. In early July 1976 Newberg's counsel informed Lavery it would accept $2,750,000 in settlement of the litigation and on July 12, Lavery advised then Attorney General William J. Scott of that offer by letter. He informed the Attorney General that the offer would be presented to a meeting of the board of directors of the Authority later in July and that if it decided to settle the litigation a resolution doing so would be adopted. On July 30, Lavery did present a formal resolution encompassing the terms of the settlement to the board of directors and advised it the litigation could thereby be resolved; the settlement resolution was unanimously adopted by the board.

On August 4, 1976, however, Attorney General Scott advised the board chairman by letter that the settlement was premature as discovery on behalf of the Authority had not yet been taken in the case and there were insufficient facts available to determine whether the settlement was reasonable. He also advised the chairman of the board that he believed Newberg's claim was without merit. Again, on August 25, Attorney General Scott advised the board of directors by letters to each of its members that he disapproved of the settlement of the claims against the Authority made by it. He characterized them as questionable and noted the Authority had a substantial counterclaim to present. He also stated that there may be responsible third parties who would be required to contribute to any settlement of this matter. On October 1, the chairman of the Authority responded to the Attorney General that it would defer implementation of the resolution pending further advice from him, and in August 1977 the board of directors of the Authority, as then reconstituted, adopted a resolution rescinding the settlement.

When the Authority failed to carry out the terms of the settlement resolution Newberg amended its complaint to add a third count based upon the alleged breach of the settlement agreement. That count was dismissed by the trial court on motion of the Authority on the grounds, inter alia, it did not state a cause of action for failure to affirmatively allege the Attorney General had approved the settlement. At that stage the record did not disclose whether the Attorney General had approved or disapproved the settlement or suggest any basis for his disapproval of either the form of the resolution or the termination of the litigation by that means. The Authority's motion to dismiss relied solely upon the failure of the complaint to allege that approval of the Attorney General had been given. Newberg appealed, and this court concluded that the powers of the Attorney General to examine and approve contracts of the Authority and to control its litigation were not absolute so as to require pleading his approval as a condition precedent which had been met for the complaint to be sufficient, and reversed its dismissal. On remand, the Authority and Attorney General were invited to assert by responsive pleadings any lawful basis which may exist which would prevent the settlement agreement from being carried out. Newberg-Krug-Brighton v. Illinois State Toll Highway Authority (1978), 63 Ill. App.3d 780, 782-83, 380 N.E.2d 1029, 1031-32, appeal denied (1979), 72 Ill.2d 583.

In the trial court the Authority then answered count III of Newberg's complaint, denying it had authority to compromise the pending litigation or that the settlement resolution had been validly adopted by it. It also raised a number of affirmative defenses, including several directed to alleged form or constitutional infirmities in the resolution. Its response also alleged that the Attorney General had not approved the resolution as to its form and constitutionality nor had he approved settlement by this means of the pending litigation to which the Authority was a party. This action was then consolidated with a separate suit which had been brought by the Authority in 1978 against Newberg and other defendants in which liquidated damages were sought for their alleged failure to complete portions of the East-West Tollway extension in accordance with the contracts. The Authority there sought recovery of damages against both Newberg and the sureties under its performance bonds. Count III of the complaint, with which this appeal is concerned, was severed for trial.

After considering the evidence presented, the trial court made findings, inter alia, that the Authority and the Attorney General had failed to establish any defects in form or constitutionality which would prevent enforcement of the settlement resolution. It also determined that the affirmative defenses raised by the Authority were without support in the evidence. The trial court determined the settlement resolution was a binding contract of the Authority and awarded Newberg the sum therein agreed upon by the parties. It dismissed counts I and II of Newberg's complaint but provided that they may be reinstated in the event of the reversal of the trial court's judgment under count III.

The issue presented on this appeal, as framed by the Authority, is whether approval by the Attorney General is required for settlement of suits defended by the Attorney General involving state agencies?

The Authority does not now assert there were defects in the form of the settlement resolution adopted by its board of directors or that it is in some manner constitutionally infirm. The Authority argues, however, that the Attorney General had a reasonable basis for withholding approval of the settlement of the litigation he was conducting on its behalf and thus appropriately exercised his power to control the litigation of this State agency. Newberg contends that as the Authority is authorized by statute to contract and carry out its powers with reference to toll highways, it may do so without interference from the Attorney General in order to settle a dispute arising out of highway construction. It also contends the Attorney General did in fact approve the settlement resolution adopted by the Authority.

The Toll Highway Authority Act (Ill. Rev. Stat. 1979, ch. 121, pars. 100-1 et seq.) vests in the Authority, acting through its board of directors, all powers necessary to carry out the purposes of the Act. Section 8 expressly provides:

"The Authority shall have the power:

(b) To enter into all contracts and agreements necessary or incidental to the performance of its powers under this Act. * * *." (Ill. ...

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