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The Thomas L. Pearson and The Pearson Family Members Foundation v. University of Chicago

United States District Court, N.D. Oklahoma

June 29, 2018

THE UNIVERSITY OF CHICAGO, Defendant, Counterclaimant, and Third-Party Plaintiff,
THOMAS L. PEARSON, Third-Party Defendant.



         Before the court is The University of Chicago's Rule 12(b)(6');">6');">6');">6');">6');">6');">6');">6) Motion to Dismiss the Plaintiff's Complaint [Doc. No. 27');">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');">6');">6');">6');">6');">6');">6');">6].

         First, the University was obligated to appoint an Institute Director for the Institute by September 1, 2016');">6');">6');">6');">6');">6');">6');">6, with a one-year cure period ending September 1, 2017. [Id., pp. 5-6');">6');">6');">6');">6');">6');">6');">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');">6');">6');">6');">6');">6');">6');">6, ¶ 18]. The University has failed to appoint an Institute Director. [Id., p. 6');">6');">6');">6');">6');">6');">6');">6, ¶ 19]. In June 2016');">6');">6');">6');">6');">6');">6');">6, the University appointed Professor James Robinson as “Faculty Director, ” stating in a corresponding press release that the position was “newly created.” [Id., p. 6');">6');">6');">6');">6');">6');">6');">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');">6');">6');">6');">6');">6');">6');">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');">6');">6');">6');">6');">6');">6');">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');">6');">6');">6');">6');">6');">6');">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].

         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');">6');">6');">6');">6');">6');">6');">6]. 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');">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');">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 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');">6');">6');">6');">6');">6');">6');">6-47].

         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 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');">6');">6');">6');">6');">6');">6');">6, only six months after the announcement of the $100 million grant, the University announced that, effective July 1, 2016');">6');">6');">6');">6');">6');">6');">6, 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');">6');">6');">6');">6');">6');">6');">6]. 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 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');">6');">6');">6');">6');">6');">6');">6; 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');">6');">6');">6');">6');">6');">6');">6; and to create a visual identity and branding plan for the Institute and Forum by June 2016');">6');">6');">6');">6');">6');">6');">6. [Id., pp. 13-15, ¶¶ 6');">6');">6');">6');">6');">6');">6');">62-77]. The Foundation also alleges the University has failed to act in good faith. [Id., pp. 15-16');">6');">6');">6');">6');">6');">6');">6, ¶¶ 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');">6');">6');">6');">6');">6');">6');">6-20, ¶¶ 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');">6');">6');">6');">6');">6');">6');">6 and 2016');">6');">6');">6');">6');">6');">6');">6-2017 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., 6');">6');">6');">6');">6');">6');">6');">61 F.3d 1081');">86');">6');">6');">6');">6');">6');">6');">61 F.3d 1081, 1103 (10th Cir. 2017) (quoting Jacobsen v. Deseret Book Co., 287 F.3d 936');">6');">6');">6');">6');">6');">6');">6');">287 F.3d 936');">6');">6');">6');">6');">6');">6');">6, 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');">6');">6');">6');">6');">6');">6');">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');">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, 6');">6');">6');">6');">6');">6');">6');">65 F.Supp.3d 1089');">16');">6');">6');">6');">6');">6');">6');">65 F.Supp.3d 1089, 1094 (W.D. Okla. 2016');">6');">6');">6');">6');">6');">6');">6) (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');">6');">6');">6');">6');">6');">6');">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., 6');">6');">6');">6');">6');">6');">6');">6 F.3d 1257');">436');">6');">6');">6');">6');">6');">6');">6 F.3d 1257, 126');">6');">6');">6');">6');">6');">6');">60 (10th Cir. 2006');">6');">6');">6');">6');">6');">6');">6). “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., 217');">495 F.3d 1217, 1236');">6');">6');">6');">6');">6');">6');">6 (10th Cir. 2007) (emphasis added). Here, both parties agree the Grant Agreement's choice-of-law clause applies and that New York law governs the Foundation's claims. See [Doc. Nos. 2, p. 3, ¶ 11; 27');">27, p. 11]. The court will therefore apply New York's substantive law and federal procedural law. Racher v. Westlake Nursing Home Ltd. P'ship, 871 F.3d 1152, 116');">6');">6');">6');">6');">6');">6');">62 (10th Cir. 2017).

         IV. Federal Pleading Standard

         In considering a motion to dismiss under Fed.R.Civ.P. 12(b)(6');">6');">6');">6');">6');">6');">6');">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');">6');">6');">6');">6');">6');">6');">6. “[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');">6');">6');">6');">6');">6');">6');">6 (10th Cir. 2007) (quoting Forest Guardians v. Forsgren, 478 F.3d 1149, 116');">6');">6');">6');">6');">6');">6');">60 (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., 6');">6');">6');">6');">6');">6');">6');">66');">6');">6');">6');">6');">6');">6');">60 F.3d 131');">6');">6');">6');">6');">6');">6');">6');">66');">6');">6');">6');">6');">6');">6');">60 F.3d 131, 142 (2d Cir. 2011)). The 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:

         (Image Omitted)

         [Doc. No. 6');">6');">6');">6');">6');">6');">6');">6, p. 39, Exhibit A]. Similarly, the University's Maintenance Obligations are listed in Exhibit B:

         (Image Omitted)

         [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');">6');">6');">6');">6');">6');">6');">6, 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 ...

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