St. John's Hospital Sisters of the Third Order of St. Francis v. National Guardian Risk Retention Group, Inc. et al

Filing 64

ORDER entered by Judge Sue E. Myerscough on 08/23/2016. SEE WRITTEN ORDER. The Court ADOPTS the Report and Recommendation (d/e 61 ) of Judge Schanzle-Haskins, with the exception of Footnote 5. Defendant National Guardian Risk Retention Group, Inc.& #039;s Motion to dismiss Plaintiffs' Second Amended Complaint (d/e 55 ) and Defendants' Rule 12(b)(6) motion to Dismiss Plaintiffs' Second Amended Complaint (d/e 53 ) are GRANTED IN PART. Count I of the Second Amended Complaint is DISMISSED with prejudice. Counts II through V are DISMISSED without prejudice and with leave to replead. Plaintiffs shall file a Third Amended Complaint, if any, on or before September 6, 2016.(DM, ilcd)

E-FILED

Tuesday, 23 August, 2016 02:04:25 PM
Clerk, U.S. District Court, ILCD

IN THE UNITED STATES DISTRICT COURT
CENTRAL DISTRICT OF ILLINOIS
SPRINGFIELD DIVISION
ST. JOHN’S HOSPITAL OF THE
HOSPITAL SISTERS OF THE
THIRD ORDER OF ST. FRANCIS,
PATRICIA FUGATE, and ROBERT
FUGATE,

)
)
)
)
)
)
Plaintiffs,
)
)
v.
)
)
NATIONAL GUARDIAN RISK
)
RETENTION GROUP, INC.,
)
EMERGENCY CONSULTANTS,
)
INC., CENTRAL ILLINOIS
)
EMERGENCY PHYSICIANS, P.C., )
a/k/a CENTRAL ILLINOIS
)
EMERGENCY PHYSICIANS, LLP, )
JAMES M. JOHNSON, M.D.,
)
ROBERT M. WILLIAMS, M.D., and )
DERIK K. KING, M.D.,
)
)
Defendants.
)

No. 15-3292

ORDER
SUE E. MYERSCOUGH, U.S. District Judge.
This cause is before the Court on the Objections to the June
1, 2016 Report and Recommendation (d/e 62) filed by Defendants
Emergency Consultants, Inc., Central Illinois Emergency

Physicians, P.C. a/k/a Central Illinois Emergency Physicians, LLP,
James A. Johnson, M.D., Robert M. Williams, M.D., and Derik K.
King M.D. (the Medical Defendants) and Objections to Magistrate’s
Report and Recommendation (d/e 63) filed by Defendant National
Guardian Risk Retention Group, Inc. The Court has reviewed the
Report and Recommendation, the Second Amended Complaint, the
Motions to Dismiss and responses thereto, and the objections filed
by Defendants. The objections are overruled in part and sustained
in part. The Court adopts the Report and Recommendation with
the exception of Footnote 5.
I. LEGAL STANDARD
This Court reviews de novo any part of the Report and
Recommendation to which a proper objection has been made. 28
U.S.C. § 636(b)(1)(C); Fed. R. Civ. P. 72(b). This Court reviews
findings of the Report and Recommendation to which no objection
has been made for clear error. Johnson v. Zema Sys. Corp., 170
F.3d 734, 739 (7th Cir. 1999). Upon review of the Report and
Recommendation, this Court may accept, reject, or modify the
recommended disposition; receive further evidence; or recommit

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the matter to the magistrate judge with instructions. 28 U.S.C.
§ 636(b)(1); Fed. R. Civ. P. 72(b)(3).
II. ANALYSIS
In March 2016, Plaintiffs St. John’s Hospital of the Hospital
Sisters of the Third Order of St. Francis, Patricia Fugate, and
Robert Fugate filed a Second Amended Complaint alleging
violations under the Racketeer Influenced and Corrupt
Organizations Act (RICO) and state law claims for fraud,
conspiracy, breach of contract, and breach of fiduciary duty. The
litigation centers around National Guardian, Emergency
Consultants, Inc., and Central Illinois Emergency Physicians,
P.C.’s position that the applicable coverage for the Fugate’s state
court medical malpractice action is $1 million total rather than $1
million for each of the allegedly responsible physicians—Drs.
Elizabeth McDaniel, Aamir Banday, and John Byrnes. The
physicians assigned their interests in any cause of action to
Plaintiffs. Defendants filed motions to dismiss.
On June 1, 2016, United States Magistrate Judge Tom
Schanzle-Haskins issued a Report and Recommendation (d/e 61)
recommending that the motions to dismiss be granted in part and
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that Plaintiffs be granted leave to replead the state law claims.
Specifically, Judge Schanzle-Haskins found that Plaintiffs failed to
state a claim for a RICO violation in Count I because Plaintiffs
failed to allege a pattern of racketeering activity. Judge SchanzleHaskins recommended that Count I be dismissed with prejudice.
Believing that Plaintiffs might be able to allege diversity
jurisdiction regarding the remaining state law claims, Judge
Schanzle-Haskins reviewed those claims. Judge Schanzle-Haskins
found that Plaintiffs failed to state a claim for fraud, civil
conspiracy, breach of contract, and breach of fiduciary duty.
Judge Schanzle-Haskins recommended, however, that the state
law claims be dismissed with leave to replead.
Despite the fact that they substantially succeeded on their
motions to dismiss, Defendants filed objections to the Report and
Recommendation (d/e 62) (d/e 63). Plaintiffs have filed neither
objections nor responses to Defendants’ objections.
In its Objection, National Guardian argues that this Court
should decline to exercise jurisdiction over the state law claims,
that a claim for breach of the policy is premature, and that
National Guardian owes no duty to indemnify without a finding of
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fault or an adverse verdict against National Guardian’s insureds,
Drs. McDaniel, Banday, and Byrnes. National Guardian’s
Objections are overruled.
In the Second Amended Complaint, Plaintiffs allege that this
Court has jurisdiction over the state law claims under either
supplemental jurisdiction (28 U.S.C. § 1367) or diversity
jurisdiction (28 U.S.C. § 1332). See Sec. Am. Compl. ¶ 1. Had
Plaintiff only alleged supplemental jurisdiction, the Court would
likely relinquish jurisdiction over the state law claims. See 28
U.S.C. § 1367(c) (a court may decline to exercise supplemental
jurisdiction over a claim if the court dismisses all claims over
which it has original jurisdiction). However, Plaintiffs also alleged
diversity jurisdiction, although they failed to allege the citizenship
of the newly added Plaintiffs Patricia and Robert Fugate. The
Court finds that granting Plaintiffs leave to replead diversity would
not be futile, as the Fugates are likely Illinois citizens (and not
citizens of the same states as Defendants) and the amount in
controversy exceeds $75,000. Therefore, Plaintiffs should be
granted at least one opportunity to replead, particularly in light of
the fact that the Fugates were not added as plaintiffs to the lawsuit
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until the filing of the Second Amended Complaint. See, e.g., Foster
v. DeLuca, 545 F.3d 582, 584 (7th Cir. 2008) (courts generally give
plaintiffs at least one opportunity to amend the complaint).
As for National Guardian’s other objections, the Court finds,
as Judge Schanzle-Haskins did, that the Second Amended
Complaint does not state a claim on any of the state law counts,
including the breach of contract challenged by National Guardian.
However, Plaintiffs should be granted the opportunity to plead
facts that give fair notice of the alleged damages from the alleged
breach. National Guardian’s arguments can be raised in a motion
to dismiss if and when Plaintiffs file a Third Amended Complaint.
In their Objections, the Medical Defendants object to Judge
Schanzle-Haskins statement in Footnote 5 that Plaintiffs alleged
that Defendants engaged in commercial bribery because Plaintiffs
only alleged a “to-be-offered inducement,” meaning that no bribe
had been offered or attempted. See Obj. ¶¶ 5, 6 (d/e 62). The
Medical Defendants also argue that Judge Schanzle-Haskins
incorrectly found in Count V, the breach of fiduciary duty claim,
that Plaintiffs should be granted leave to allege that the doctors
who allegedly committed malpractice paid money to settle the
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claims because the document assigning the doctors’ claims to St.
John’s Hospital shows they paid no money to settle the claims.
Finally, the Medical Defendants argue that Judge SchanzleHaskins improperly found that St. John’s Hospital is an insured
under the National Guardian Policy.
The Medical Defendants’ objections are sustained in part and
overruled in part. Judge Schanzle-Haskins recommended that
Count I be dismissed with prejudice for failure to allege a pattern
of racketeering activity, and Plaintiffs have not objected to that
recommendation. The statements in Footnote 5 regarding whether
Plaintiffs alleged facts that plausibly constitute a conspiracy were
unnecessary to Judge Schanzle-Haskins’ ultimate conclusion. In
light of the Medical Defendants’ objection to Footnote 5, this Court
will adopt the Report and Recommendation with the exception of
Footnote 5.
The Medical Defendants’ other two objections are overruled.
The Court finds, as Judge Schanzle-Haskins did, that the Second
Amended Complaint does not state a claim on any of the state law
counts, including breach of fiduciary duty and breach of contract.
The Medical Defendants’ additional arguments for why these
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counts fail to state a claim can be raised in a motion to dismiss if
and when Plaintiffs filed a Third Amended Complaint.
THEREFORE, for the reasons stated, the Court ADOPTS the
Report and Recommendation (d/e 61) of Judge Schanzle-Haskins,
with the exception of Footnote 5. Defendant National Guardian
Risk Retention Group, Inc.’s Motion to dismiss Plaintiffs’ Second
Amended Complaint (d/e 55) and Defendants’ Rule 12(b)(6) motion
to Dismiss Plaintiffs’ Second Amended Complaint (d/e 53) are
GRANTED IN PART. Count I of the Second Amended Complaint is
DISMISSED with prejudice. Counts II through V are DISMISSED
without prejudice and with leave to replead. Plaintiffs shall file a
Third Amended Complaint, if any, on or before September 6, 2016.
ENTER: August 23, 2016
FOR THE COURT:
s/Sue E. Myerscough
SUE E. MYERSCOUGH
UNITED STATES DISTRICT JUDGE

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