Basham et al v. American National County Mutual Ins Co et al
ORDER granting 266 Motion to Dismiss for Lack of Jurisdiction. Claims against Farm Bureau are dismissed without prejudice. Signed by Honorable Susan O. Hickey on March 10, 2015. (mll)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF ARKANSAS
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
CASE NO. 4:12-CV-4005
AMERICAN NATIONAL COUNTY
MUTUAL INS. CO., et al.
Before the Court is a Motion to Dismiss (ECF No. 266) filed on behalf of Farm Bureau
Property & Casualty Insurance Company (“Farm Bureau”). Plaintiffs have filed a response to
the motion. (ECF No. 277). Farm Bureau has filed a reply. (ECF No. 289). The Court finds
this matter ripe for consideration.
This action is against over seventy insurance companies, including Farm Bureau, 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
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
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
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.
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.
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
Plaintiffs’ final conspiracy allegations involve the existence of “Colossus groups” that
were sponsored by CSC. According to Plaintiffs, CSC utilized advisory councils and user
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.
Farm Bureau argues in its Motion to Dismiss that the Court lacks personal jurisdiction
over it due to its lack of contacts with Arkansas. Plaintiffs argue that Farm Bureau’s lack of
direct contact with Arkansas is irrelevant because personal jurisdiction has been established by
Farm Bureau’s participation in a civil conspiracy
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 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).
Farm Bureau argues that there is no basis for personal jurisdiction in this case because
they do not sell insurance in Arkansas, they are not licensed to do business in Arkansas, they do
not have employees or operations in Arkansas, and none of the members of the putative class
(i.e. Arkansas residents) are insureds of Farm Bureau.
In sum, Farm Bureau argues that
Plaintiffs have sued them in a forum to which they have no meaningful connection.
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
Ark. Code Ann. § 16–4–101(B).
Accordingly, the question before the Court is whether
exercising personal jurisdiction over Farm Bureau is consistent with the due process clause of the
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,
(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).
In this case, Farm Bureau has not conducted activities within the state of Arkansas to the
extent that their contacts would justify the exercise of jurisdiction over them. It is undisputed
that Farm Bureau’s principal place of business is in a state other than Arkansas and that they are
incorporated in states other than Arkansas. Farm Bureau does not have any office, agent,
representative or employee in Arkansas and is not licensed to sell insurance in Arkansas.
Moreover, Farm Bureau does not have an authorized agent for service of process in Arkansas,
and has not directed its commercial or marketing activities or sales ventures towards Arkansas
Plaintiffs implicitly acknowledge that significant minimum contacts between Farm
Bureau 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 Farm Bureau’s lack of
direct contact with Arkansas is irrelevant because personal jurisdiction has been established by
Farm Bureau’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 committed by a non-resident, would subject the nonresident 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 Farm
Bureau was involved in a conspiracy with the other named Defendants.
Complaint is devoid of facts that, even if taken as true, would support their conspiracy claims.
Plaintiffs state that Defendants, including Farm Bureau, “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 that Defendants participated in, but
Plaintiffs have not specifically alleged or offered any evidence to show that Farm Bureau
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.
The Court finds that these allegations are insufficient to support a conspiracy theory of
personal jurisdiction. While Farm Bureau 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 Farm Bureau or any of the other Defendants
actually had this agreed upon goal. Plaintiffs have not specifically alleged that Farm Bureau 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
In sum, the Court finds that Plaintiffs have failed to make a prima facie showing that
Farm Bureau participated in a conspiracy with knowledge of its effects in Arkansas so that Farm
Bureau 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 Farm
Bureau participated in that conspiracy. For these reasons, the Court finds no basis on which to
exercise personal jurisdiction over Farm Bureau.
For the reasons stated above, the Court finds that Farm Bureau’s Motion to Dismiss (ECF
No. 266) should be and hereby is GRANTED. All of Plaintiffs’ claims against Farm Bureau 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
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