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Joseph E. Prazen v. Marvin Shoop

August 31, 2012

JOSEPH E. PRAZEN,
PLAINTIFF-APPELLANT,
v.
MARVIN SHOOP, JR., AS PRESIDENT OF THE
BOARD OF TRUSTEES OF THE ILLINOIS MUNICIPAL RETIREMENT FUND; THE BOARD OF TRUSTEES OF THE ILLINOIS MUNICIPAL RETIREMENT FUND; THE ILLINOIS MUNICIPAL RETIREMENT FUND;
AND LOUIS W. KOSIBA, AS THE EXECUTIVE DIRECTOR OF THE ILLINOIS MUNICIPAL RETIREMENT FUND,
DEFENDANTS-APPELLEES.



Appeal from Circuit Court of Sangamon County No. 11MR427 Honorable John Schmidt, Judge Presiding.

The opinion of the court was delivered by: Justice Knecht

JUSTICE KNECHT delivered the judgment of the court, with opinion. Justices Steigmann and Pope concurred in the judgment and opinion.

OPINION

¶ 1 Plaintiff, Joseph E. Prazen, appeals the trial court's judgment affirming the decision of the Illinois Municipal Retirement Fund (IMRF) Board of Trustees (IMRF Board) finding defendant forfeited his early retirement incentives by returning to work for an IMRF employer in violation of section 7-141.1(g) of the Illinois Pension Code (Pension Code) (40 ILCS 5/7-141.1 (g) (West 2010)). Specifically, the IMRF Board found forfeiture of plaintiff's early retirement incentives and the return of $307,100.50 was appropriate after it determined plaintiff's corporation was created solely as a guise to circumvent the return-to-work restrictions of the Pension Code.

¶ 2 I. BACKGROUND

¶ 3 A. ERI Retirement and Formation of Electrical Consultants, Ltd.

¶ 4 Joseph E. Prazen retired from his position as superintendent of the electric department for the City of Peru, Illinois (City), under the early retirement incentive (ERI) plan previously adopted by the City pursuant to section 7-141.1 of the Pension Code (40 ILCS 5/7-141.1 (West 1998)). He retired on December 31, 1998, after purchasing five years' age-enhancement credit resulting in a pension based on 32.833 years of service rather than 27.333 years. At the time of retirement, his annual salary was $82,284.20.

¶ 5 Three years prior, in 1995, Prazen formed a business, Peru Development Land Trust (PLDT), with then-mayor Donald Baker and Joe Hogan. The purpose of PLDT was to renovate and convert real estate in Peru, Illinois. In 1995, PLDT purchased a vacant building with the intention of turning it into condominiums. The renovation required extensive electrical upgrades and modifications. Prazen planned to perform this work under the auspices of his then-unincorporated business, Electrical Consultants, Ltd. (ECL).

¶ 6 On December 18, 1998, 13 days prior to his retirement, Prazen incorporated ECL. At the time of incorporation, he was the secretary and president of ECL. (In 2003, Prazen's wife, Diane, took over as secretary and president.) On December 21, 1998, three days after ECL's incorporation and 10 days prior to his retirement, ECL and the City entered into a management and supervision agreement for operation of the electric department (Agreement) to begin on January 1, 1999, one day after Prazen retired.

¶ 7 Pursuant to the Agreement, ECL was to provide a full-time person to perform the contractor's duties for the City for a term of three years, with the first year of compensation set at $89,816.74 to be paid on a biweekly basis to ECL. The Agreement stated, "All work, services, and other functions furnished or to be performed by [ECL] for the City *** shall be in [ECL's] position as an independent contractor and to no extent and in no manner shall either [ECL] or any of its personnel *** be regarded as an employee, servant, or agent of the City." The Agreement gave the City the right to terminate the Agreement "upon reasonable cause determined within the City's sole discretion" following a 30-day written notice to ECL. The Agreement between ECL and the City was extended eight times following the initial 1999 Agreement.

¶ 8 ECL employed three people during its life, Prazen, his wife Diane, and their daughter, Natalie. The City paid ECL biweekly as required by the Agreement. ECL then paid its employees. Prazen, Diane, and Natalie received W-2 forms from ECL for each year they worked for the corporation.

¶ 9 On February 17, 2009, ECL informed the City in writing it would be terminating the Agreement effective March 18, 2009, as allowed by the eighth rider extending the Agreement. ECL was voluntarily dissolved on November 30, 2009.

¶ 10 B. Correspondence From Plaintiff's Attorney

¶ 11 In 1998 and twice in 2002, Prazen's attorney, Douglas Schweickert, who was also outside legal counsel for the City, contacted IMRF on Prazen's behalf to inquire about any impact the Agreement may have on his pension. We note defendants assert Schweickert was the City attorney and not Prazen's personal attorney. Schweickert was acting as plaintiff's agent when he contacted IMRF. Thus, it is irrelevant in what official capacity he initiated the discussion with IMRF. Schweickert documented these conversations with IMRF in three letters he wrote to Prazen.

¶ 12 The first letter dated September 15, 1998-two months before ECL's incorpora- tion and approximately 2 1/2 monthsbefore Prazen's retirement from the City-stated Schweickert had spoken with an IMRF representative, who advised him "a former employee who elected the IMRF Early Retirement Incentive may work for a non-IMRF employer who contracts for services with an IMRF employer." Schweickert advised against this, but he noted the IMRF representative also stated "a former employee may also contract with an IMRF employer as an independent contractor."

¶ 13 In the second letter dated March 21, 2002, Schweickert informed Prazen he contacted IMRF per Prazen's request and confirmed everything set forth in the 1998 letter still applied.

¶ 14 In the last letter dated November 19, 2002, Schweickert explained as follows:

"[The IMRF representative] confirmed that a retired 'early out' IMRF employee may work for a separate corporation which is then contracted to do work for the City from which the IMRF employee retired. I specifically questioned whether that retired IMRF employee may be an owner of the corporation contracting with the City. She stated that was permiss[i]ble, but she added that the corporation cannot just be a guise to avoid the IMRF regulations. Specifically, if the corporation hires itself out to the general public in addition to the municipality for which it has contracted, that would be fine."

Schweickert suggested Prazen should run some advertisements to expand ECL's visibility and hire other employees, even ...


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