Basham et al v. American National County Mutual Ins Co et al

Filing 298

ORDER granting 264 Motion to Dismiss for Failure to State a Claim. Claims against 21st Century Casualty Company, 21st Century Insurance Company, 21st Century Insurance Company of the Southwest, and 21st Century Insurance Group are dismissed without prejudice. Signed by Honorable Susan O. Hickey on March 10, 2015. (mll) Modified docket text on 3/10/2015. (mll)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
TEXARKANA DIVISION
EDDIE BASHAM, as administrator
of the estate of James Basham, and
FREDA MCCLENDON, individually
and as class representatives on behalf
of all similarly situated persons
V.

PLAINTIFFS

CASE NO. 4:12-CV-4005

AMERICAN NATIONAL COUNTY
MUTUAL INS. CO., et al.

DEFENDANTS
ORDER

Before the Court is a Motion to Dismiss (ECF No. 264) filed on behalf of 21st Century
Casualty Company, 21st Century Insurance Company, 21st Century Insurance Company of the
Southwest, and 21st Century Insurance Group (collectively, “21st Century”). Plaintiffs have
filed responses to the motion. (ECF No. 274 & 277). Twenty-First Century has filed a reply.
(ECF No. 282). The Court finds this matter ripe for consideration.
BACKGROUND
This action is against over seventy insurance companies, including 21st Century, and it
arises from their alleged use of a computer software program known as “Colossus.” Colossus is
a program that was developed, sold, and marketed by the Computer Science Corporation
(“CSC”). The program was marketed to insurance companies nationwide as a “knowledge-based
system for assessing general damages for bodily injury claims.” (ECF No. 246, ¶ 3). According
to Plaintiffs, Colossus was capable of being “tuned” or “calibrated” to achieve the goal of
underpaying claims by up to twenty percent. Through the use of the Colossus software program,
Plaintiffs allege that Defendants “systematically and uniformly pay and paid claimants…less
than they were owed for bodily injury claims[.]” Id. at ¶ 6. This alleged use of Colossus and the
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resulting underpayments form the basis of this class action. The proposed class is comprised of
“residents of the state of Arkansas” who “made a covered claim for bodily injury damages,
before September 31, 2009...where [a] Defendant utilized Colossus in evaluation of the claim.”1
Id. at ¶ 92.
Plaintiffs allege the following claims against all Defendants in their First Amended
Complaint (ECF No. 246): breach of contract; breach of the covenant of good faith and fair
dealing (insurance bad faith); unjust enrichment; fraud; constructive fraud; and tortious
interference with contract.

While Plaintiffs’ Amended Complaint does not allege civil

conspiracy or fraudulent concealment as independent causes of action, the Amended Complaint
does allege that Defendants were involved in a conspiracy to fraudulently conceal their use of
Colossus. (ECF No. 246, ¶ 100-118). Plaintiffs allege that, by virtue of their participation in a
Colossus conspiracy, Defendants “have subjected themselves to co-equal responsibility for the
actions of all fellow conspirators.” Id. These conspiracy allegations and their impact on this
Court’s jurisdiction over certain Defendants are the primary focus of the present motion to
dismiss.
Plaintiffs’ conspiracy allegations are detailed in the Amended Complaint under the
heading, “The nature of the underpayment conspiracy and concert of action among Defendants.”
(ECF No. 246, ¶ 53-91).

The allegations set out in some detail the history of Colossus’s

development and how CSC introduced it to the American insurance industry as a cost-saving
tool. Plaintiffs claim that CSC, a non-party to this case, and Defendants had the goal of using
Colossus to depress the value of bodily injury claims nationwide. As evidence of this organized
goal, Plaintiffs point to a CSC presentation stating that Colossus is used by “‘more than 60% of
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There are only thirty days in the month of September—not thirty-one as Plaintiffs’ Amended Complaint
suggests. Accordingly, the Court assumes that Plaintiffs’ proposed class is comprised of residents of the
state of Arkansas who made a covered claim for bodily injury damages before September 30, 2009.

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the auto liability market’ and has offered ‘19.8% average reduction to [bodily injury]
settlements.’” Id. at ¶ 68. Plaintiffs make the leap that, based on these figures, Defendants and
CSC “recognized” that the use of Colossus would not only lower their individual payouts but
would depress the value of nationwide bodily injury claims, including those in Arkansas.

If

there is any documentary evidence of this “recognition” or agreement among Defendants to
depress the value of claims nationwide, it is not included in the Amended Complaint.
Plaintiffs’ conspiracy claims hinge largely on their allegations of secrecy surrounding
Colossus. Plaintiffs allege that “each Defendant adopted efforts suggested by CSC and fellow
Scheme members to keep the true nature and purpose of Colossus a secret.” Id. at ¶ 67.
Plaintiffs make multiple references to Defendants collectively “agreeing” to keep Colossus a
secret from insureds and third parties. Plaintiffs’ allegations of collective secrecy appear to arise
from CSC’s Colossus licensing agreement. Pursuant to the licensing agreement with CSC, an
insurance company using Colossus was required to report to CSC if the insurance company was
asked to produce Colossus information to a plaintiff in discovery or in a regulatory proceeding or
audit. CSC claimed that this notification was necessary in order to “take appropriate action to
avoid disclosure of trade secrets and other confidential information.” Id. at ¶ 76. Based on this
information, Plaintiffs conclude that “all fellow Scheme members took the position that almost
all items related to Colossus were confidential or trade secrets in an effort to prevent the true
nature and purpose of the program from being discovered.” The details regarding how or when
this alleged position of collective secrecy was forged among Defendants is not alluded to in the
Amended Complaint.
Plaintiffs’ final conspiracy allegations involve the existence of “Colossus groups” that
were sponsored by CSC. According to Plaintiffs, CSC utilized advisory councils and user

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communities made up of various insurance companies “‘to help CSC understand the issues
facing insurance companies on a day to day basis as well as being a good venue for to [sic] share
industry information and learn from the experiences of other industry leaders.’” Id. at ¶ 80.
Plaintiffs claim that these user communities allowed Colossus procedures to “cross-pollinate”
through insurance companies. Plaintiffs also allege that, through CSC, “best practices” tips were
individually disseminated to Defendants. Plaintiffs make no specific allegations and provide no
evidence as to what procedures were “cross-pollinated,” which Defendants received this “best
practices” information from CSC, or which Defendants might have participated in these CSCsponsored user groups and advisory councils.
In sum, Plaintiffs claim that “Defendants acted jointly and in concert by entering into a
mutual agreement, albeit a non-written agreement, to commit a fraud against their own
customers as well as those of other insurance companies through the reciprocal non-disclosure
policy, and then participated in this fraud through the implementation of their individual
Colossus schemes as part and parcel of the overarching Colossus Scheme.” Id. at ¶ 89.
Twenty-First Century’s Motion to Dismiss raises multiple grounds for dismissal
including lack of personal jurisdiction; lack of standing; insufficient particularity under Federal
Rule of Civil Procedure 9(b); and insufficient conspiracy and contract-based allegations under
Federal Rule of Civil Procedure 12(b)(6).
DISCUSSION
A. Personal Jurisdiction
The Court will first address the threshold issue of personal jurisdiction and the related
standard of review. Federal Rule of Civil Procedure 12(b)(1) provides that a party may move to
dismiss claims for lack of jurisdiction over the person. To defeat a motion to dismiss for lack of

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personal jurisdiction, a plaintiff must make a prima facie showing of jurisdiction. Bell Paper
Box, Inc. v. U.S. Kids, Inc., 22 F.3d 816, 818 (8th Cir. 1994). This prima facie showing must be
tested, not by the complaint alone, but “by the affidavits and exhibits presented with the [motion
to dismiss] and in opposition thereto.” Block Indus. v. DHJ Indus., Inc., 495 F.2d 256, 259 (8th
Cir. 1974). When conclusory allegations in a complaint are contested and a plaintiff supplies no
factual foundation, the complaint’s conclusory allegations are insufficient to confer personal
jurisdiction over a nonresident defendant. See Dever v. Hentzen Coatings, Inc., 380 F.3d 1070,
1072–1073 (8th Cir. 2004). While Plaintiffs ultimately bear the burden of proof on the issue,
personal jurisdiction does not have to be proved by a preponderance of the evidence until trial or
an evidentiary hearing. See Dakota Indus., Inc. v. Dakota Sportswear, Inc., 946 F.2d 1384, 1387
(8th Cir. 1991).
Three of the four 21st Century Defendants are licensed to do business in Arkansas and
have registered agents to accept service in Arkansas. The remaining Defendant, 21st Century
Insurance Group, is not licensed to do business in Arkansas. All four of the 21st Century
Defendants argue that there is no basis for personal jurisdiction in this case because they never
engaged in the business of insurance in Arkansas, they maintain no physical or financial
presence in Arkansas, they employ no persons in Arkansas, and they have never written or
earned any direct premiums in Arkansas. In sum, 21st Century argues that Plaintiffs have sued
them in a forum to which they have no meaningful connection.
Plaintiffs argue that, despite 21st Century’s lack of contacts, the exercise of personal
jurisdiction is appropriate at least as to the three 21st Century Defendants who are licensed to do
business in Arkansas and have a registered agent to accept service in Arkansas. Alternatively,

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Plaintiffs argue that the exercise of personal jurisdiction is appropriate as to all four of the 21st
Century Defendants under the conspiracy theory of personal jurisdiction.
A federal court sitting in a diversity action may assume jurisdiction over a nonresident
defendant to the extent permitted by the long arm statute of the forum state. Arkansas's long-arm
statute provides that:
[t]he courts of this state shall have personal jurisdiction of all persons, and
all causes of action or claims for relief, to the maximum extent permitted by
the due process of law clause of the Fourteenth Amendment of the United
States Constitution.
Ark. Code Ann. § 16-4-101(B).

Accordingly, the question before the Court is whether

exercising personal jurisdiction over 21st Century is consistent with the due process clause of the
Fourteenth Amendment.

The Fourteenth Amendment permits the exercise of personal

jurisdiction over a nonresident defendant who has “certain minimum contacts with [the forum
state] such that the maintenance of the suit does not offend ‘traditional notions of fair play and
substantial justice.’” International Shoe Co. v. Washington, 326 U.S. 310, 316 (1945) (quoting
Milliken v. Meyer, 311 U.S. 457, 463 (1940)). This minimum contacts requirement is met if the
case arises out of a sufficient number of activities a defendant directs at the forum state (specific
jurisdiction), or if a defendant has continuous and systematic contacts with the forum state
(general jurisdiction). See Burger King Corp. v. Rudzewicz, 471 U.S. 462, 472–76, 105 S.Ct.
2174, 85 L.Ed.2d 528 (1985); Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408,
413–16, 104 S.Ct. 1868, 80 L.Ed.2d 404 (1984). As a general matter, “[t]hose who live or
operate primarily outside a State have a due process right not to be subjected to judgment in its
courts[.]” Pangaea, Inc. v. The Flying Burrito LLC, 647 F.3d 741, 746 (8th Cir. 2011).
Courts consider the following five factors in determining whether the exercise of
jurisdiction comports with due process: (1) the nature and quality of the contacts with the forum,
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(2) the quantity of such contacts, (3) the relation of the cause of action to the contacts, (4) the
interest of the forum state in providing a forum for its residents, and (5) the convenience of the
parties. Dakota Indus., Inc. v. Dakota Sportswear, Inc., 946 F.2d 1384, 1390 (8th Cir. 1991). In
establishing personal jurisdiction, “it is essential in each case that there be some act by which the
defendant purposefully avails itself of the privilege of conducting activities within the forum
State, thus invoking the benefits and protections of its laws.” Hanson v. Denckla, 357 U.S. 235,
253, 78 S.Ct. 1228, 2 L.Ed.2d 1283 (1958).
1. Personal Jurisdiction Based on Arkansas License and Registered Agent
The Court will first address whether a license to do business in Arkansas and the
appointment of an agent for service of process confers jurisdiction over the following 21st
Century Defendants: 21st Century Casualty Company, 21st Century Insurance Company, and
21st Century Insurance Company of the Southwest.
Arkansas requires foreign insurers applying for a certificate of authority to transact
business in Arkansas to appoint a registered agent for service of process. See Ark. Code Ann §§
23-63-301 and 304. “The whole purpose of requiring designation of an agent for service is to
make a nonresident suable in the local courts.” Knowlton v. Allied Van Lines, Inc., 900 F.2d
1196, 1199 (8th Cir. 1990). While “the effect of such a designation can be limited to claims
arising out of in-state activities,” Id. at 1199, there is nothing in Ark. Code Ann § 23-63-304
limiting service to claims arising out of defendant’s activities within the state:
(a) The registered agent of a licensed foreign insurer or a licensed domestic
reciprocal insurer is the insurer's agent for service of process, notice, or
demand required or permitted by law to be served on the insurer.
The provision above demonstrates that the service agent appointed by these three 21st Century
Defendants has authority to receive service for any cause of action, whether or not the cause of

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action arises out of Defendants’ activities within Arkansas. Hicks v. Am. Heritage Life Ins. Co.,
332 F. Supp. 2d 1193, 1198 (W.D. Ark. 2004) (interpreting an identically worded Arkansas
statute); Sondergard v. Miles, Inc., 985 F.2d 1389, 1394 (8th Cir. 1993) (interpreting a similarly
worded South Dakota statute). Accordingly, appointing an agent for service under § 23-63-304
amounts to consent to general personal jurisdiction in Arkansas. See Knowlton, 900 F.2d at 1200
(“[A]ppointment of an agent for service of process…gives consent to the jurisdiction of
Minnesota courts for any cause of action, whether or not arising out of activities within the
state.”); Hicks, 332 F. Supp. 2d at 1198 (“Defendant's designation of an agent, therefore, confers
general personal jurisdiction in Arkansas.”). Because this consent is a valid basis for exercising
personal jurisdiction over Defendants, the Court does not need to “resort to minimum-contacts or
due-process analysis to justify the jurisdiction[.]” Knowlton, 900 F. 2d at 1200.

See also

Sondergard, 985 F.2d at 1396 (“This court recently held that a state's requirement that a foreign
corporation submit to the jurisdiction of that state's courts in order to qualify to do business did
not need to be tested under the due process ‘minimum contacts’ analysis....[W]e are bound by
that decision…”); Foster v. Air Wisconsin Airlines Corp., No. CIV.05-1391, 2005 WL 2977814,
at *1 (D. Minn. Nov. 7, 2005) (“Knowlton unequivocally held that when jurisdiction is based on
consent, a court need not engage in a factual analysis of minimum contacts or due process.”). 2
Accordingly, the Court finds that the exercise of personal jurisdiction over 21st Century
Casualty Company, 21st Century Insurance Company, and 21st Century Insurance Company of
the Southwest is appropriate due to their licensure in Arkansas and their appointment of an agent
for service of process.

2

It should be noted that Plaintiffs have not even attempted to discuss or argue the five minimum contacts
factors as they relate to these three Defendants.

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2. Conspiracy Theory of Personal Jurisdiction
The Court has determined that it may exercise personal jurisdiction over 21st Century
Casualty Company, 21st Century Insurance Company, and 21st Century Insurance Company of
the Southwest. Thus, the only remaining 21st Century Defendant left for consideration is 21st
Century Insurance Group.

Twenty-First Century Insurance Group maintains that it is not

licensed to do business in Arkansas, it has no appointed agent for service in Arkansas, it has
never engaged in the business of insurance in Arkansas, it maintains no physical or financial
presence in Arkansas, it employs no persons in Arkansas, and it has never written or earned any
direct premiums in Arkansas. Plaintiffs do not dispute these assertions. Accordingly, it is clear
that 21st Century Insurance Group has not conducted activities within the state of Arkansas to
the extent that the five minimum contacts factors would justify the exercise of jurisdiction over
them.
Plaintiffs implicitly acknowledge that significant minimum contacts between 21st
Century Insurance Group and Arkansas are lacking. In fact, Plaintiffs have not even attempted
to discuss or argue the five minimum contacts factors. Rather, Plaintiffs seem to argue that 21st
Century Insurance Group’s lack of direct contact with Arkansas is irrelevant because personal
jurisdiction has been established by 21st Century Insurance Group’s participation in a civil
conspiracy. In Gibbs v. PrimeLending, 381 S.W.3d 829, 834 (Ark. 2011), the Arkansas Supreme
Court held that exercising jurisdiction under the “conspiracy theory” of personal jurisdiction is
permissible under Arkansas's long arm statute. Jurisdiction based on a conspiracy theory is
established when “(1) two or more individuals conspire to do something (2) that they could
reasonably expect to lead to consequences in a particular forum, if (3) one co-conspirator
commits overt acts in furtherance of the conspiracy, and (4) those acts are of a type which, if

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committed by a non-resident, would subject the non-resident to personal jurisdiction under the
long-arm statute of the forum state...” Gibbs, at 832 (citing Cowley v. Bloch, 544 F.Supp. 133 (D.
Md. 1982)). “Mere allegations of conspiracy, without some sort of prima facie factual showing
of a conspiracy, cannot be the basis of personal jurisdiction of co-conspirators outside the
territorial limits of the court.” Agency Servs. of Arkansas, Inc. v. Mongar, No. 4:14CV00012,
2014 WL 1760894, at *4 (E.D. Ark. May 2, 2014) (internal quotations omitted). Courts have
required plaintiffs to plead with particularity specific facts “showing the participation in a
conspiracy affecting the forum state that, when challenged, are supported by some evidence.”
SFRL, Inc. v. Galena State Bank & Trust Co., CIV. 10-4152, 2011 WL 4479065 at *4 (D.S.D.
Sept. 22, 2011). See, e.g., Jungquist v. Sheikh Sultan Bin Khalifa Al Nahyan, 115 F.3d 1020,
1031 (D.C. Cir. 1997); Baldridge v. McPike, Inc., 466 F.2d 65, 68 (10th Cir. 1972).
The Court finds that Plaintiffs have failed to make a prima facie showing that 21st
Century Insurance Group was involved in a conspiracy with the other named Defendants. The
Amended Complaint is devoid of facts that, even if taken as true, would support their conspiracy
claims. Plaintiffs state that Defendants, including 21st Century Insurance Group, “recognized”
that the use of Colossus would lower their individual payouts and depress the value of
nationwide bodily injury claims, including those in Arkansas. Plaintiffs also state that “each
Defendant adopted efforts suggested by CSC and fellow Scheme members to keep the true
nature and purpose of Colossus a secret.” As proof of this alleged collective secrecy, Plaintiffs
point to Defendants’ individual licensing agreements with CSC which required each Defendant
to report to CSC if they were asked to produce Colossus information to a plaintiff in discovery or
in a regulatory proceeding or audit. Plaintiffs also reference “best practices” Colossus groups

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that Defendants participated in, but Plaintiffs have not specifically alleged or offered any
evidence to show that 21st Century Insurance Group participated in these groups.
The Court finds that these allegations are insufficient to support a conspiracy theory of
personal jurisdiction. While 21st Century Insurance Group and the other Defendants’ alleged use
of Colossus might have had the effect of depressing the value of claims nationwide, Plaintiffs
have not submitted any allegations or evidence to show that 21st Century Insurance Group or
any of the other Defendants actually had this agreed upon goal. Plaintiffs have not specifically
alleged that 21st Century Insurance Group had any communication with the other Defendants or
exchanged any Colossus-related materials with the other Defendants. In essence, Plaintiffs are
asking the Court to infer that there was an agreement between the Defendants solely based on the
fact that all of the Defendants allegedly used Colossus and all of the Defendants allegedly took
steps to keep Colossus a secret. The Court declines to make this inference. If Colossus is an
abusive program that allowed each Defendant to underpay their claims by 20%, as Plaintiffs
alleged, Defendants’ individual use of Colossus and their desire to keep it a secret was in their
own best interest, independent of the other Defendants. The alleged secrecy by each Defendant,
in and of itself, does not evidence an agreement.
In sum, the Court finds that Plaintiffs have failed make a prima facie showing that 21st
Century Insurance Group participated in a conspiracy with knowledge of its effects in Arkansas
so that it can be said to have purposefully availed itself of the privilege of conducting business in
Arkansas. Even if Plaintiffs had made the requisite prima facie showing of a conspiracy, as
explained above, their allegations are not specific enough to warrant the inference that 21st

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Century Insurance Group participated in that conspiracy. For these reasons, the Court finds no
basis on which to exercise personal jurisdiction over 21st Century Insurance Group. 3
B. Other grounds for dismissal
All of the 21st Century Defendants argue that, even if the Court finds that it can exercise
personal jurisdiction over them, Plaintiffs’ claims are subject to dismissal because Plaintiffs’
fraud-based conspiracy allegations have been pled with insufficient particularity under Federal
Rule of Civil Procedure 9(b), and Plaintiffs’ conspiracy allegations are insufficient under Federal
Rule of Civil Procedure Rule 8.
1. Plaintiffs’ Conspiracy Allegations
Because all of Plaintiffs’ claims against 21st Century are dependent on the sufficiency of
their conspiracy allegations, the Court must determine whether Plaintiffs have sufficiently pled
their conspiracy claim. A conspiracy claim is not independently actionable under Arkansas law,
“but a recovery may be had for damages caused by acts committed pursuant to the conspiracy.”
Faulkner v. Arkansas Children's Hosp., 347 Ark. 941, 961, 69 S.W.3d 393, 406 (Ark. 2002).
Stated another way, conspirators may be vicariously liable for wrongdoing that is independently
actionable under state law and in furtherance of a conspiracy. In this case, the independently
actionable claims that give rise to Plaintiffs’ conspiracy claim are breach of contract, bad faith,
unjust enrichment, tortious interference, and fraud. Plaintiffs do not allege that 21st Century
independently engaged in actions giving rise to each of these claims. For example, it is
undisputed that Plaintiffs are not insureds of 21st Century and have no contract with 21st
Century. Thus, 21st Century cannot be directly liable for Plaintiffs’ claims of breach of contract,
unjust enrichment, or bad faith. Instead, Plaintiffs allege that, by engaging in a conspiracy to
3

The Court’s analysis as to 21st Century Insurance Group would also apply to 21st Century Casualty Company,
21st Century Insurance Company, and 21st Century Insurance Company of the Southwest if these Defendants did
not have a registered agent for service in Arkansas.

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fraudulently conceal the use of Colossus and devalue claims nationwide, 21st Century is
vicariously liable for the alleged breach of contract committed by Plaintiffs’ insurers, Separate
Defendants Metropolitan Group Property & Casualty Company and American National Property
& Casualty Company. This conspiracy-based vicarious liability extends to all of the claims
against 21st Century in Plaintiffs’ Complaint (ECF No. 246). 4
Twenty-First Century argues that Plaintiffs have offered nothing but insufficient,
conclusory allegations that do not state a viable conspiracy claim under Rule 8 or the more
stringent standards of Rule 9(b). Given that all of Plaintiffs’ claims against 21st Century depend
on the existence of a viable conspiracy claim, 21st Century argues that a dismissal of all claims
against them is warranted. While Plaintiffs do not dispute that all of their claims against 21st
Century are dependent on a viable conspiracy claim, 5 they maintain that they have met their
pleading burden at this stage in the proceedings.

4

Breach of contract, ¶ 124: “As a result of the close participation between Defendants in the conspiracy and the
obviously wrongful nature and purpose of the conspiracy, each Defendant is liable for the breach of contract by
every other Defendant.” Bad faith, ¶ 133: “Because of the high level of cooperation between Defendants in carrying
out the wrongful and improper acts of the conspiracy, which resulted in each Defendant knowingly breaching its
duty of good faith and fair dealing to its insureds, and knowingly allowing and encouraging every other Defendant
to breach its duty of good faith and fair dealing to its insureds, each Defendant is liable for the breach of duties owed
by every other Defendant.” Unjust enrichment, ¶ 145: “Each Defendant was unjustly enriched by every other
Defendant’s participation in the Colossus Scheme described herein. By participating in the Colossus Scheme, each
Defendant was allowed to improperly pay less on bodily injury claims by virtue of the other Defendant’s
participation in the scheme. Thus, each Defendant contributed to the unjust enrichment of every other Defendant.”
Fraud, ¶ 164: “Because of the close cooperation among Defendants in perpetuating the Colossus Scheme and
because of each Defendant’s active role in keeping the scheme hidden from Plaintiffs and Class Members, each
Defendant is responsible for the fraud of every other Defendant. Additionally, each Defendant had a duty to disclose
the improper nature and purpose of the Scheme, but did not do so. As a result of their participation in and failure to
disclose the improper Scheme, each Defendant is liable for the wrongful conduct of every other Defendant.”
Tortious interference, ¶ 174: “Through a concerted conspiracy of silence and secrecy, the Defendants who did not
insure Plaintiffs or Class Members intentionally interfered with the insurance contract of Plaintiffs and Class
Members by allowing, encouraging and abetting the Defendants who did hold such policies to serially breach the
express terms of such agreements and the implied duty of good faith and fair dealing contained in such insurance
contracts by knowingly and intentionally underpaying UM/UIM claims through the use of Colossus.”

5

The Court infers Plaintiffs’ agreement on this point based on the way Plaintiffs’ claims are pled. Furthermore, in
their response to 21st Century’s Motion to Dismiss, Plaintiffs exclusively focused on their conspiracy allegations to
support their claims for breach of contract, bad faith, unjust enrichment, fraud, and tortious interference.

13

“To prove a civil conspiracy, a plaintiff must show that two or more persons have
combined to accomplish a purpose that is unlawful or oppressive or to accomplish some purpose,
not in itself unlawful, oppressive or immoral, but by unlawful, oppressive or immoral means, to
the injury of another.” Faulkner v. Arkansas Children's Hosp., 347 Ark. 941, 961, 69 S.W.3d
393, 406 (Ark. 2002). “A conspiracy may be shown by direct evidence of an actual agreement or
understanding between conspirators, but it may also be shown by circumstantial evidence.”
Mason v. Funderburk, 247 Ark. 521, 529, 446 S.W.2d 543, 548 (Ark. 1969). “It also may be
inferred from actions of alleged conspirators, if it be shown that they pursued the same unlawful
object, each doing a part, so that their acts, although apparently independent, are in fact
connected and cooperative, indicating a closeness of personal association and a concurrence of
sentiment.” Id.
Plaintiffs summarize their conspiracy claim as follows:
With respect to the overarching Colossus conspiracy and the individual
Colossus schemes, Defendants acted jointly and in concert by entering
into a mutual agreement, albeit a non-written agreement, to commit a
fraud against their own customers as well as those of other insurance
companies through the reciprocal non-disclosure policy, and then
participated in this fraud through the implementation of their individual
Colossus schemes as part and parcel of the overarching Colossus
Scheme.
(ECF No. 246, ¶ 89). Plaintiffs further allege that “Defendants’ acts of participation in the
Colossus Scheme constitute positive acts of fraud that were furtively planned and secretly
executed in a manner that was designed to conceal the conspiracy and its wrongful acts.” Id. at ¶
105.
The parties disagree about which pleading standard should apply when considering the
conspiracy allegations set forth above. Twenty-First Century maintains that the conspiracy claim
should be held to the Rule 9(b) particularity standard because the conspiracy claim, and all of the
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underlying causes of action, are based on fraud.

Plaintiffs contend that the more lenient

plausibility standard under Rule 8 should apply. The Court will consider the sufficiency of
Plaintiffs’ conspiracy claim under both standards.
2. The sufficiency of the conspiracy allegations under Rule 9(b)
Conspiracy claims do not, as a general rule, have to be pled with particularity. See
Stephenson v. Deutsche Bank AG, 282 F. Supp. 2d 1032, 1070 (D. Minn. 2003). However, when
a conspiracy claim is based on fraud, Rule 9(b) requires the fraud to be pled with particularity.
Siegel v. Deutsche Bank Nat. Trust Co., 409 F. App'x 975, 976 (8th Cir. 2011) (affirming district
court dismissal where Plaintiff had “not established their state common-law fraud and civil
conspiracy claims with sufficient particularity, as required under Rule 9(b)[.]”); Cincinnati Life
Ins. Co. v. Beyrer, 722 F.3d 939, 948 (7th Cir. 2013) (affirming district court’s dismissal of a
“conspiracy to commit fraud” claim because plaintiff had failed to meet the heightened Rule 9(b)
pleading standard); In re Insurance Brokerage Antitrust Litigation, 618 F.3d 300, 347 (3d Cir.
2010) (“Rule 9(b) requires fraud to be pled with particularity in all claims based on fraud.”)
(citations and quotation marks omitted).
In this case, Plaintiffs’ conspiracy claims seem to rest on their allegations of fraud,
thereby triggering the application of Rule 9(b).

The thrust of the alleged conspiracy was

Defendants’ non-disclosure of Colossus information.

Plaintiffs allege that this purposeful

withholding of information was an effort to mislead, defraud, and deprive Plaintiffs of benefits
“through fraudulent conduct.” (ECF No. 246, ¶ 113). It was this alleged conspiracy to defraud
that resulted in the underpayment and devaluation of claims which in turn gave rise to Plaintiffs’
claims for breach of contract, bad faith, unjust enrichment, fraud, constructive fraud, and tortious

15

interference. Accordingly, the Court finds that the application of Rule 9(b) is appropriate as to
Plaintiffs’ conspiracy claim.
Fraud-based conspiracy allegations must amount to more than mere conclusions in order
to comply with Rule 9(b). Rule 9(b) requires that the complaint must plead “such facts as the
time, place, and content of the defendant’s false representations, as well as the details of the
defendant’s fraudulent acts, including when the acts occurred, who engaged in them, and what
was obtained as a result.” U.S. ex rel. Joshi v. St. Luke’s Hosp., Inc. ̧ 441 F.3d 552, 556 (8th Cir.
2006). In sum, the “complaint must set forth the who, what, when, where, and how surrounding
the alleged fraud.” E-Shops Corp. v. U.S. Bank National Ass’n, 678 F.3d 659, 663 (8th Cir.
2012).
After reviewing Plaintiffs’ fraud-based conspiracy allegations, the Court finds that
Plaintiffs have failed to plead the allegations with sufficient particularity. In an extremely
conclusory fashion, Plaintiffs repeatedly allege that all Defendants “conspired to use Colossus to
reduce the amount paid on bodily injury claims” and “conspired to withhold information from
insureds and the public about the true nature and purpose of Colossus.” To support these
assertions, Plaintiffs state that Defendants “recognized” that the use of Colossus would lower
their individual payouts and depress the value of nationwide bodily injury claims, including
those in Arkansas. Plaintiffs also state that “each Defendant adopted efforts suggested by CSC
and fellow Scheme members to keep the true nature and purpose of Colossus a secret.” The only
factual allegations related to these secrecy efforts are that Defendants had individual licensing
agreements with CSC that required each Defendant to report to CSC if they were asked to
produce Colossus information and that Defendants participated in “best practices” Colossus
groups where Colossus procedures and best practices “cross-pollinated” through the insurance

16

companies. Plaintiffs do not identify which Defendants participated in these groups. Plaintiffs
do not offer any information about when these groups might have convened or who was present.
Plaintiffs do not allege which specific “best practice” policies were fraudulent or which polices
were actually implemented by any Defendant.

Plaintiffs generally allege that Defendants

“agreed to commit fraud” but they have offered no factual allegations regarding when or how
such an agreement was made. Plaintiffs have not alleged that any specific Defendant had any
contact whatsoever with another Defendant.
In sum, Plaintiffs’ Amended Complaint lacks the specificity to show any fraud-based
conspiratorial agreement between the Defendants or concerted actions or conduct undertaken in
furtherance of an agreement. Because all of Plaintiffs’ claims against 21st Century are based on
this insufficiently pled, fraud-based conspiracy claim, the Court finds that all of Plaintiffs’ claims
against 21st Century should be dismissed.
3. The sufficiency of the conspiracy allegations under Rule 8
Even if the Rule 9(b) particularity requirement is not applied to Plaintiffs’ conspiracy
claim, the claim is insufficient under the more lenient plausibility standard of Rule 8. Rule 8
requires a complaint to make “a short and plain statement of the claim showing that the pleader
is entitled to relief.” Fed. R. Civ. P. 8(a)(2). A plaintiff must plead “enough facts to state a claim
to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007).
A complaint states a plausible claim for relief if its “factual content…allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v.
Iqbal, 556 U.S. 662, 663 (2009). While the Court must generally take a plaintiff’s factual
allegations as true in the Rule 12(b)(6) context, this tenet does not apply to “legal conclusions or
‘formulaic recitation of the elements of a cause of action’[.]” Braden v. Wal-Mart Stores, Inc.,

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588 F.3d 585, 594 (8th Cir. 2009) (quoting Iqbal, 556 U.S. at 678). “Factual allegations must be
enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555.
In the context of conspiracy claims, the Eighth Circuit has noted that, because
conspiracies “are by their nature usually clandestine,” Rule 8 does not require that a plaintiff
have “direct evidence of a conspiratorial agreement” to withstand a motion to dismiss. White v.
Walsh, 649 F.2d 560, 561 (8th Cir. 1981) (quoting Sparkman v. McFarlin, 601 F.2d 261, 278
n.19 (Swygert, J., dissenting)).

However, the conspiracy allegations must be “sufficiently

specific.” Id. There “must be allegations that the defendants [] directed themselves toward an []
action by virtue of a mutual understanding” and “some factual allegations suggesting such a
‘meeting of the minds.’” Id. (quoting Sparkman v. McFarlin, 601 F.2d 261, 268 (7th Cir.
1979)). “Whether sufficiently specific facts are alleged in any case must ultimately be
determined on a case-by-case basis.” Id.
Plaintiffs’ fraud-based conspiracy claims fail to meet the Rule 8 requirements for many
of the same reasons the claims failed to meet the requirements under Rule 9(b): the claims are
highly conclusory, extremely broad, and very thin on facts. Plaintiffs’ conspiracy claims largely
rest on their allegations of parallel conduct among Defendants—not on evidence of an actual
agreement among the Defendants. While 21st Century and the other Defendants’ alleged use of
Colossus might have had the effect of depressing the value of claims nationwide, Plaintiffs have
not submitted any allegations or evidence to show that 21st Century or any of the other
Defendants actually had this agreed upon goal. If Colossus is an abusive program that allowed
each Defendant to underpay their claims by 20%, as Plaintiffs’ have alleged, Defendants’
individual use of Colossus and their desire to keep it a secret was in their own best interest,
independent of the other Defendants. The alleged secrecy by each Defendant, in and of itself,

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does not evidence an agreement, and Plaintiffs have not specifically alleged that 21st Century
had any communication with the other Defendants or exchanged any Colossus-related materials
with the other Defendants. Because Plaintiffs have not supported their parallel conduct claims
with factual allegations that suggest an actual agreement among Defendants, the Court finds that
the conspiracy claim falls short of plausibility. Accordingly, the Court finds that Plaintiffs’
conspiracy claim should be dismissed.
Due to Plaintiffs’ failure to state a claim for conspiracy, all of Plaintiffs’ underlying
causes of action which were premised on the existence of a conspiracy must also be dismissed.
This includes Plaintiffs’ claims for breach of contract, breach of the covenant of good faith and
fair dealing (insurance bad faith), unjust enrichment, tortious interference with contract, fraud,
and constructive fraud. 6
CONCLUSION
For the reasons stated above, the Court finds that 21st Century’s Motion to Dismiss (ECF
No. 264) should be and hereby is GRANTED. All of Plaintiffs’ claims against 21st Century are
hereby DISMISSED WITHOUT PREJUDICE.
IT IS SO ORDERED, this 10th day of March, 2015.
/s/ Susan O. Hickey
Susan O. Hickey
United States District Judge

6

Because the Court has found that Plaintiffs’ conspiracy claims are not viable, each named Plaintiff only has
standing to pursue claims against Defendants with whom they had a contractual relationship. Canady v. Allstate
Ins. Co., 162 F.3d 1163 (8th Cir. 1998) ([A]bsent a viable claim of conspiracy, plaintiffs lack standing to sue
defendants with whom they had no contact.”); Hall v. Lhaco, Inc., 140 F.3d 1190, 1196 (8th Cir.1998) (when a
plaintiff “does not have standing to pursue his claim…it is immaterial whether any member of the potential class
would have standing to pursue [the] claim. [The plaintiff] is not a proper representative of the class where he himself
lacks standing to pursue the claim.”). Accordingly, to the extent that the named Plaintiffs are pursuing direct, nonconspiracy based claims on behalf of proposed class members who are insureds of 21st Century, the claims are
dismissed pursuant to Federal Rule of Civil Procedure 12(b)(1).

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