The opinion of the court was delivered by: REBECCA R. PALLMEYER
Magistrate Judge Rebecca R. Pallmeyer
REPORT AND RECOMMENDATION
This case challenges the procedures through which federal funding is routed to local school districts by state agencies. Plaintiffs, the Boards of Education of four Cook County school districts (Township High School District Number 205, Consolidated High School District Number 230, Community High School District Number 233, and Community Consolidated School District Number 54), individually and on behalf of all entities similarly situated, seek declaratory and injunctive relief and damages from Defendants, State Superintendent of Education Robert Leininger, Illinois State Comptroller Roland W. Burris, Illinois State Treasurer Jerome Cosentino, and Regional Superintendent of Education of Cook County Richard J. Martwick, individually and in their official capacities.
Plaintiffs allege that Defendants are the first recipients of federal funds earmarked for educational programs. Rather than immediately disbursing these funds to the school districts that provide educational services, Plaintiffs contend, Defendants instead apply the monies to short-term investments for Defendants' own use. Plaintiffs contend that Defendants' use of these funds wrongfully impairs Plaintiffs' entitlement to these payments and violates various federal funding statutes and federal mandates which require that the funds he disbursed immediately. Before this court are Defendants' motions to dismiss. For reasons that follow, the motions should be granted.
Plaintiffs receive federal financial assistance from the State of Illinois to be used in various educational programs. Plaintiffs operate these programs pursuant to certain federal statutes and their implementing regulations. Once federal government awards are granted to the state, the Defendant Illinois State Treasurer of the State of Illinois deposits the funds in interest-bearing accounts prior to disbursing them to Plaintiffs, the subgrantees. The Illinois State Board of Education determines the amount of financial assistance to which each subgrantee is entitled and directs the Comptroller of the State of Illinois to draw a warrant upon the Treasurer payable to the regional superintendents. The Treasurer then disburses the money upon presentment of the warrants by regional superintendents, including Defendant Regional Superintendent Martwick, or retains the funds in an interest-bearing account prior to disbursement. The regional superintendents are responsible for disbursing the funds to the local school districts. Plaintiffs allege that certain federal funding statutes obligated Defendant Martwick to invest the funds so that they earn interest at market rates during the period the funds are held and then to promptly disburse the funds, together with earned interest, to the school districts. Instead, according to Plaintiffs, Defendant Martwick distributes the principal payments only some time after he receives them and distributes them to Plaintiffs on a schedule of his own choosing.
In September 1985, Plaintiffs filed a twelve-count complaint claiming that Defendants failed to invest federal funds at market interest rates and failed to disburse to the school districts interest earned on federal funds during holding periods following the state agencies' receipt of the funds. Plaintiffs divided themselves into two groups: the "Illinois class," which received federal funds disbursed through the Illinois State Board of Education and/or the Treasurer, and the "Cook County class," which received federal or state financial assistance disbursed through the Regional Superintendent.
In Counts I, II, and III, Plaintiffs invoked remedies made available by 42 U.S.C. §§ 1983 and 1988. Count I named the Illinois class against the State Defendants; Count II named the Cook County class against the Regional Superintendent; and Count III named the Cook County class against Defendant Amalgamated Trust & Savings Bank ("Bank"), the Financial institution in which the funds were held prior to disbursement. Plaintiffs sought a declaration that Defendants had a duty under the federal funding statutes to disburse to the school districts all interest earned on the federal assistance during the holding periods (Counts I, II, and III), to disburse the assistance within the time required by law (Count I), and to establish procedures to assure that the holding periods did not exceed that allowed by the federal statutes (Count I). Plaintiffs also sought injunctive relief, damages equal to the interest earned during the holding periods to date, prejudgment interest, and costs and attorney's fees. In addition, Plaintiffs requested a declaration of the appropriate market rates of interest applicable to the federal funds.
Counts IV-VI sought relief under five acts which Plaintiffs termed the "federal funding statutes," namely, (a) the Education of Individuals with Disabilities Act, 20 U.S.C. §§ 1400 et seq. (1988 & Supp. II 1990);
(b) the Carl D. Perkins Vocational Education Act, 20 U.S.C. §§ 2301 et seq. (1988 & Supp. II 1990); (c) the Education Consolidation and Improvement Act of 1981, 20 U.S.C. §§ 3801 et seq. (repealed 1988);
(d) the National School Lunch Act, 42 U.S.C. §§ 1751 et seq. (1988 & Supp. I 1989); and (e) the Child Nutrition Act of 1966, 42 U.S.C. §§ 1771 et seq. (1988). As in Counts I-III, Count IV named the Illinois class against the State Defendants, Count V named the Cook County class against the Regional Superintendent; and Count VI named the Cook County class against the Bank. In Counts IV, V, and VI, Plaintiffs sought the same relief they requested in Counts I, II, and III.
In Counts VII and VIII, Plaintiff Cook County class asserted state law claims under the School Code of Illinois, Ill. Rev. Stat. ch. 122, paras. 1-1 et seq. (1991), against the Regional Superintendent and against the Bank, seeking relief similar to that requested in the other counts. in Count IX, the Cook County class brought a state law claim for unjust enrichment against the Regional Superintendent, Cook County, the Board of Commissioners of Cook County, and the Commissioners in their individual capacities, alleging that the Regional Superintendent deposited the federal funds with Defendant Bank prior to disbursement. According to Plaintiffs' allegations, the Bank rendered to the Regional Superintendent the services of wire transferring and mailing federal funds to the school districts at no charge in exchange for the Bank's use of the federal funds during the holding periods. Count X alleged the same claim against Defendant Bank. Under both Counts IX and X, Plaintiffs sought the amount of the value to which Defendants were unjustly enriched, i.e., the greater of either the market value of the wire transferring and mail services rendered by the Bank, or an amount equal to the market rate of interest on the federal funds during the holding periods.
In Count XI, Plaintiff Cook County class alleged two negligence claims against Defendant Cook County, Defendant Board of Commissioners, and Defendant Commissioners in their individual capacities: (1) these Defendants were negligent in failing to reject the Regional Superintendent's annual reports, which did not reflect disbursements in an amount representing the interest that should have been earned on the federal funds during the holding periods; and (2) these Defendants were negligent in failing to increase the penalty of a bond issued by Defendant Western Surety Company on behalf of the Regional Superintendent in favor of the County Board to an amount commensurate with the amount of -- and the Regional Superintendent's responsibility for -- the federal funds. Plaintiffs sought an amount representing the interest that the Regional Superintendent should have disbursed.
Count XII alleged a contract claim by the Cook County class against Defendant Western Surety Company, which had issued the bond on behalf of the Regional Superintendent in favor of the County Board in the sum of $ 25,000 and had conditioned the bond upon the faithful discharge of the Regional Superintendent's duties. Plaintiffs alleged that the Regional Superintendent breached his duty by failing to earn and disburse interest on the federal funds during the holding periods. As relief, Plaintiffs sought the amount of the surety bond.
The State Defendants moved to dismiss Counts I and IV on the grounds that any claim for money damages against the state was barred by the Eleventh Amendment and that both counts failed to state a claim upon which relief may be granted. The County Defendants and the Western Surety Company moved to dismiss Counts II, V, VII, IX, XI, and XII pursuant to Fed. R. Civ. P. 12(b)(6). The Amalgamated Trust and Savings Bank moved to dismiss Counts III, VI, VIII, and X for failure to state a claim upon which relief may be granted.
In May 1987, District Judge John A. Nordberg referred this case to Magistrate Judge Joan Humphrey Lefkow for a Report and Recommendation on Defendants' motions to dismiss. In April 1988, Magistrate Judge Lefkow recommended granting Defendants' motions to dismiss for failure to state a claim; the Magistrate Judge did not find that any of the federal statutes or regulations conferred a right upon Plaintiffs to receive interest earned on the federal grants prior to the disbursement of such funds to the local agencies.
In September 1989, Judge Nordberg issued a memorandum opinion and order, in which he: (1) dismissed the Illinois State Board of Education as a defendant in this case with prejudice on Eleventh Amendment grounds; (2) dismissed the Amalgamated Trust and Savings Bank from Counts III, VIII, and X without prejudice, and granted Plaintiffs leave to file an amended complaint; (3) dismissed with prejudice Counts IV, V, and VI which were based on the federal funding statutes; (4) adopted the Recommendation of Magistrate Judge Lefkow with regard to Counts I, II, and III that Plaintiffs had no per se right to the interest earned on federal advances, and postponed ruling on whether Plaintiffs have a right under the federal funding statutes to interest earned on reimbursements or a right to prompt disbursement of any federal funds (advances or reimbursements) pending further briefing; (5) deferred ruling on the state law claims in Counts VII, IX, and XI; (6) dismissed Counts IX and XI with prejudice to the extent that they sought to state claims against the Cook County Board of Commissioners or the Commissioners themselves in their official capacities; and (7) dismissed Counts IX and XI without prejudice with respect to Cook County and the Commissioners in their individual capacities for lack of subject matter jurisdiction.
Plaintiffs' second amended complaint, filed February 6, 1990, contains only five counts. In Count 1, Plaintiffs allege, pursuant to 42 U.S.C. § 1983, that Defendants deprived the Illinois schools of federal funds, prompt disbursement of the funds, and reimbursement of expenditures for program purposes. Count II asserts the same claims also pursuant to § 1983, against Regional Superintendent Richard J. Martwick on behalf of the Cook County schools. In Count III, Plaintiffs allege that the Regional Superintendent breached his fiduciary duty in administering the federal and state financial assistance. Count IV alleges that the Regional Superintendent violated the Illinois Public Funds Investment Act, III. Rev. Stat., ch. 85, paras. 900 et seq. (1991), and the Illinois Public Funds Deposit Act, III. Rev. Stat. ch. 102, paras. 33.9 et seq. (1991). Finally, Count V alleges that the Regional Superintendent violated the equitable doctrine of unjust enrichment by allowing federal and state funds to be deposited at below market rates of return rather than promptly disbursing the public funds to Cook County schools.
On March 1, 1990, Defendants Leininger, Burris, and Cosentino moved to dismiss Count I of Plaintiffs' second amended complaint for failure to state a claim upon which relief may be granted. That same day, Defendant Martwick filed his motion to dismiss, also for failure of the complaint to state a claim upon which relief may be granted. Briefing on the motion was completed on September 20, 1990. Judge Nordberg referred the case to Magistrate Judge Lefkow on December 14, 1990 for a Report and Recommendation on Defendants Leininger, Burris, and Cosentino's motion to dismiss and Defendant Martwick's motion to dismiss. This case was reassigned to these chambers pursuant to an order of the Executive Committee dated October 10, 1991.
On a motion to dismiss, the court must limit its inquiry to the sufficiency of the facts alleged in the complaint. The court must accept as true the allegations of the complaint, and draw all reasonable inferences in favor of the plaintiffs. Ellsworth v. City of Racine, 774 F.2d 182, 184 (7th Cir. 1985); Illinois Hosp. Ass'n v. Edgar, 765 F.Supp. 1343, 1347 (N.D. Ill. 1991). The case may be dismissed only it appears beyond doubt that plaintiffs will be unable to prove any set of facts entitling them to relief. Conley v. Gibson, 355 U.S. 41, 45-46 (1957).
A. Counts I and II: Section 1983 Actions
Section 1983 provides a private cause of action for the "deprivation of any rights, privileges, or immunities, secured by the Constitution and laws" of the United States. In Maine v. Thiboutot, 448 U.S. 1, 6-8 (1980), the Supreme Court recognized that § 1983 provides a cause of action not only for violations of the Constitution, but also for violations of federal statutes. Since Thiboutot, the Court has recognized two exceptions to the application of § 1983 to federal statutory violations. First, no cause of action will lie where the relevant statute does not "'create enforceable rights, privileges, or immunities within the meaning of § 1983.'" Second, § 1983 is unavailable where "'Congress has foreclosed such enforcement of the statute in the enactment itself.'" Wilder v. Virginia Hospital Ass'n, 496 U.S. 498, 508 (1990) (quoting Wright v. Roanoke Redevelopment and Housing Authority, 479 U.S. 418, 423 (1987)).
1. Enforceable Rights within the Meaning of Section 1983 and the Wilder Test
Unfortunately, the parties briefed the motions to dismiss only shortly before the Supreme Court issued its ruling in Wilder v. Virginia Hospital Ass'n, 496 U.S. 498 (1990). Wilder held that hospital recipients of medical funds have a cause of action under § 1983 to enforce rights created by a statute enacted pursuant to the Spending Clause. The parties did supplement their briefing following the issuance of Wilder, however, and accordingly, did have an opportunity to discuss the significance and application of that decision to the present case.
Wilder described a three-part test for courts to apply in determining whether a federal statute creates an "enforceable right" within the meaning of § 1983. The court must assess (1) whether the pertinent statutory provision "'was intended to benefit the putative plaintiff.'" Wilder, 496 U.S. at 509 (quoting Golden State Transit Corp. v. Los Angeles, 493 U.S. 103, 106 (1989)). If the provision was so intended, then that plaintiff has an enforceable right under § 1983 unless: (2) the statute "reflects merely a 'congressional preference' for a certain kind of conduct rather than a binding obligation on the governmental unit," Wilder, 496 U.S. at 509 (quoting Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 19 (1981); or unless (3) the plaintiffs ...