Hoffman et al v. Nationwide Mutual Insurance Company et al

Filing 36

MEMORANDUM Opinion and Order Signed by the Honorable Robert M. Dow, Jr on 7/26/2011. Notices Mailed by Judge's Staff (tbk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JOHN HOFFMAN and HOFFMAN
FINANCIAL SERVICES, INC.,
Plaintiffs,
v.
NATIONWIDE MUTUAL INSURANCE
COMPANY and ROSS KIMMEY,
Defendants.

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Case No. 10-cv-3841
Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER
Before the Court is Defendants’ motion [21] to dismiss Plaintiffs’ complaint for failure to
state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). For the reasons stated below,
Defendants’ motion is granted, and Plaintiffs’ claims are dismissed without prejudice.
I.

Background1
Plaintiff John Hoffman (“Hoffman”) is an Illinois resident who is the sole owner and

president of Plaintiff Hoffman Financial Services, Inc., an Illinois corporation. Plaintiffs and
Defendant Nationwide Mutual Insurance Company, Inc. (“Nationwide Mutual”) were parties to
an “Agent’s Agreement,” effective August 1, 1998, to sell insurance and financial products that
Nationwide and affiliated companies (collectively referred to in this opinion as “Nationwide”)

1

For purposes of Defendant’s motion to dismiss, the Court assumes as true all well pleaded allegations
set forth in the complaint. See, e.g., Killingsworth v. HSBC Bank Nevada, N.A., 507 F.3d 614, 618 (7th
Cir. 2007).

offered.2

Defendant Ross Kimmey (“Kimmey”) was an in-house loan consultant whom

Nationwide employed.
Nationwide set a goal of becoming the “number 3 insurer by share,” countrywide, by
2009. In pursuit of that goal, Nationwide decided to increase its points of distribution by adding
new storefronts and providing its sales managers with bonuses based on their success in
developing those additional offices and “other expansion criteria.” Nationwide encouraged
agents to take out Capital Access Program loans (“CAP loans”) and Independent Agency
Acquisition loans (“IAA loans”) to capitalize the expansion effort. Nationwide and Kimmey
prepared business plans and “pro formas” for agents that described the expansion initiative and
set forth the business assumptions and estimates associated with the loans. The business plans
and pro formas contained projected income and expenses from satellite offices, as well as
performance growth requirements.
Nationwide Bank provided the CAP and IAA loans to agents and/or agencies that
acquired a Nationwide book of business, merged with an existing Nationwide agency, opened a
new Nationwide storefront, or purchased an independent agency with the intention of converting
it into a Nationwide agency.3 Agents were to put up their future earnings as collateral for the
loans. When an agent took out more than one loan, each loan provided that a default on one loan
would constitute a default on any other loan or credit that the agent had obtained from
Nationwide Bank.

Each loan was cross-collateralized with any other collateral in which

2

The family of “Nationwide” companies includes: Nationwide Mutual Insurance Company, Nationwide
Mutual Fire Insurance Company, Nationwide Life Insurance Company, Nationwide General Insurance
Company, Nationwide Property and Casualty Insurance Company, Nationwide Variable Life Insurance
Company, and Colonial Insurance Company of California.

3

Nationwide Bank is not a defendant in this action.

2

Nationwide Bank had a security interest in connection with other loans or credits. Nationwide
would agree to waive repayment of the loan(s) if the agent met the performance requirements set
forth in the business plans and pro formas.
Plaintiffs allege that Nationwide and Kimmey induced them to take out CAP loans and/or
IAA loans in order to develop additional offices and hire staff. Plaintiffs claim that Nationwide
chastised Plaintiffs that they would not be “team players” if they did not engage in these
expansion activities. In April 2004, Plaintiffs took out an IAA loan in order to acquire the
McCabe Agency in Peoria, Illinois. The acquisition was governed by a business plan and pro
forma that Nationwide and Kimmey had prepared. In 2006, Plaintiffs decided to open a satellite
office in Plano, Texas. Plaintiffs took out a CAP loan to finance the Plano expansion effort. The
CAP loan was governed by a pro forma and a Performance Agreement that Plaintiffs and
Nationwide entered into in February 2006.
Plaintiffs allege that the pro formas associated with the CAP and IAA loans contained
knowingly false projected incomes and expenses that painted a rosier picture of the financial
viability of the expansion efforts than was actually possible. Plaintiffs further allege that the
performance growth requirements set forth in the loan-related documents were not reasonable or
achievable. As a result, Plaintiffs allege, Nationwide “knowingly misrepresented to the agents
hope.”

[19, at ¶ 20.]

Plaintiffs claim that Nationwide intentionally included these

misrepresentations in order to induce agents to enter into various loans, to the agents’ detriment.
Plaintiffs allege that they in fact relied on these misrepresentations when they took out the CAP
and IAA loans. After taking out the CAP and IAA loans, Plaintiffs claim that Nationwide
changed the rules, goals, and requirements for agents, and competed with its agents by selling
insurance through Allied Insurance, an affiliate agency. Plaintiffs allege that as a result of the

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purported misrepresentations and post-agreement changes in agent performance growth
requirements, they were deprived of compensation, incurred expenses, lost time and effort that
they could have devoted to other enterprises, became personally indebted for the CAP and IAA
loans, and accrued interest on those loans when the performance growth requirements were not
met. Plaintiffs allege that Nationwide, meanwhile, profited by receiving interest from Plaintiffs
that was payable to Nationwide Bank.
In their first amended complaint [19], Plaintiffs seek to recover damages:
Defendants

Nationwide

and

Kimmey

for

fraudulent

inducement

and

from

intentional

misrepresentation with respect to the 2006 Texas CAP loan (Count I); from Nationwide and
Kimmey for fraudulent inducement / intentional misrepresentation of the Illinois IAA loan
(Count II);4 from Nationwide for breach of contract (Count III); and from Nationwide for
fraudulent inducement (Count IV). Defendants have filed a motion to dismiss Plaintiff’s first
amended complaint in its entirety [22].
II.

Legal Standard on a Rule 12(b)(6) Motion
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) tests the

sufficiency of the complaint, not the merits of the suit. See Gibson v. City of Chicago, 910 F.2d
1510, 1520 (7th Cir. 1990) (citations omitted).

A complaint must satisfy the several

requirements of Rule 8 to survive a 12(b)(6) motion to dismiss. FED. R. CIV. P. 8. First, the
complaint must provide “a short and plain statement of the claim showing that the pleader is

4

The heading for Count II of Plaintiff’s first amended complaint states: “Fraudulent
Inducement/Intentional Misrepresentation Illinois CAP Loan (Defendants Nationwide and Kimmey).”
[19, at 11.] However, all of the allegations supporting Count II reference the IAA loan that Plaintiffs took
out in April 2004. The Court therefore assumes that Count II concerns the 2004 IAA loan to acquire the
McCabe Agency in Peoria (and that Count I alone concerns the 2006 CAP loan to open a satellite office
in Plano).

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entitled to relief,” FED. R. CIV. P. 8(a)(2), such that the defendant is given “fair notice of what the
* * * claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S.
544, 545 (2007) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Second, the factual
allegations in the complaint must be sufficient to raise the possibility of relief above the
“speculative level,” assuming that all of the allegations in the complaint are true. E.E.O.C. v.
Concentra Health Servs., Inc., 496 F.3d 773, 776 (7th Cir. 2007) (quoting Bell Atlantic, 550 U.S.
at 555, 569 n.14). “[O]nce a claim has been stated adequately, it may be supported by showing
any set of facts consistent with the allegations in the complaint.” Bell Atlantic, 550 U.S. at 57980.

The Court accepts as true all of the well-pleaded facts alleged by Plaintiffs and all

reasonable inferences that can be drawn therefrom. See Barnes v. Briley, 420 F.3d 673, 677 (7th
Cir. 2005).
When a complaint sounds in fraud, the allegations of fraud must satisfy the heightened
pleading requirements of Rule 9(b). FED. R. CIV. P. 9(b); see also Borsellino v. Goldman Sachs
Group, Inc., 477 F.3d 502, 507 (7th Cir. 2007) (citing Rombach v. Chang, 355 F.3d 164, 170-71
(2d Cir. 2004)). Rule 9(b) states that for “all averments of fraud or mistake, the circumstances
constituting fraud or mistake shall be stated with particularity.” FED. R. CIV. P. 9(b). A
complaint satisfies Rule 9(b) when it alleges “the who, what, when, where, and how: the first
paragraph of a newspaper story.” Borsellino, 477 F.3d at 507 (quoting DiLeo v. Ernst & Young,
901 F.2d 624, 627 (7th Cir. 1990)). Rule 9(b), read in conjunction with Rule 8, requires that
Plaintiffs plead “the time, place and contents” of the purported fraud. Fujisawa Pharm. Co., Ltd.
v. Kapoor, 814 F. Supp. 720, 726 (N.D. Ill. 1993). “The purpose of this heightened pleading
requirement is to ‘force the plaintiff to do more than the usual investigation before filing his

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complaint.’” Amakua Dev. LLC v. H. Ty Warner, 411 F. Supp. 2d 941, 953 (N.D. Ill. 2006)
(citations and internal quotation marks omitted).
III.

Analysis
A.

Whether the Court May Consider Exhibits to Defendants’ Motion to Dismiss

As an initial matter, the Court must determine whether it can properly consider certain
exhibits that Defendants attached to their motion to dismiss, without converting the motion to
one for summary judgment. Defendants attached four exhibits to their motion: the Agent’s
Agreement that Plaintiffs and Nationwide entered into on August 1, 1998 (Exhibit A); the pro
forma and business plan associated with the 2004 IAA loan that financed Plaintiffs’ acquisition
of the McCabe Agency in Peoria, Illinois (Exhibit B); the Performance Agreement associated
with the 2006 CAP loan that financed Plaintiffs’ opening of a satellite office in Plano, Texas
(Exhibit C); and two recent decisions by the Eastern District of Michigan dismissing fraud
claims that other former Nationwide agents brought against Nationwide (Exhibit D). Plaintiffs
concede that the Court may properly consider Exhibits B and C because the IAA loan-related pro
forma and business plan and the CAP loan-related Performance Agreement “are referenced in
and relied upon in Plaintiff’s pleading.”5 [31, at 4.] However, Plaintiffs argue that Exhibits A
and D may not be considered by the Court without converting Nationwide’s motion to dismiss
into a motion for summary judgment.
Under Rule 12(d), when a party presents “matters outside the pleadings” as part of the
party’s Rule 12(b)(6) motion, the motion must be treated as one for summary judgment. FED. R.
CIV. P. 12(d); see also, e.g., R.J.R. Servs., Inc. v. Aetna Cas. and Sur. Co., 895 F.2d 279, 281 (7th

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Plaintiffs attached the pro forma associated with the 2006 CAP loan to their opposition brief, and
similarly argue that the Court can consider the document as it was referenced and relied upon in the first
amended complaint.

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Cir. 1988) (holding that “if matters outside the pleadings are presented to and considered by the
court in connection with a motion to dismiss, the district court is required to treat the motion to
dismiss as a summary judgment motion”). However, in Tierney v. Vahle, the Seventh Circuit
stated that when a document otherwise falling under Rule 12(d) is (1) referred to in the
complaint, (2) concededly authentic, and (3) central to the plaintiff’s claim, the document may be
considered even if it was not attached to the plaintiff’s pleadings. 304 F.3d 734, 738 (noting that
“the usual example is a contract, in a suit for breach of contract”). The Seventh Circuit has
further noted that:
[t]his court has been relatively liberal in its approach to the rule articulated in
Tierney. See, e.g., Wright v. Associated Ins. Cos., 29 F.3d 1244, 1248 (7th Cir.
1994) (upholding consideration of an agreement quoted in the complaint and
central to the question whether a property interest existed for purposes of 42
U.S.C. § 1983); Venture Associates v. Zenith Data Sys., 987 F.2d 429, 431 (7th
Cir. 1992) (admitting letters, to which the complaint referred, that established the
parties’ contractual relationship); Ed Miniat, Inc. v. Globe Life Ins. Group, Inc.,
805 F.2d 732, 739 (7th Cir. 1986) (permitting reference to a welfare plan referred
to in the complaint in order to decide whether the plan qualifies under ERISA).
556 F.3d 575, 582 (7th Cir. 2009) (holding that although plaintiffs contested the truthfulness of
certain statements in the documents attached to the defendants’ motion to dismiss, the documents
“fit within the exception to Rule 12(d)’s general instruction”).
With respect to Exhibit A, Plaintiffs concede that they reference the Agent’s Agreement
in their first amended complaint. The second paragraph of the complaint states: “Plaintiffs and
Defendant NATIONWIDE MUTUAL INSUR[A]NCE COMPANY, Inc., entered into an Agent’s
Agreement, effective August 1, 1998, to sell the various lines of insurance and financial products
offered by the Nationwide family of companies.” [19, at ¶ 2.] Plaintiffs at no point contest the
authenticity of the Agent’s Agreement. However, Plaintiffs object to the Court’s consideration
of the Agent’s Agreement on the ground that the first amended complaint “neither seeks to

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incorporate by reference any of the provisions of this Agreement, nor do Plaintiffs rely in any
way on its content to support the claims pled.” [31, at 4.]
Reading the complaint as a whole, it appears that Plaintiffs’ breach of contract claim is
based in part on the Agent’s Agreement. Under the heading, “Count III, Breach of Contract
(Defendant Nationwide),” the complaint states:
52.
53.

54.

Plaintiffs reallege the preceding paragraphs 1 through 28 and 38 through 51 as if
fully set forth herein.
The agreements made by Plaintiffs and Defendant constitute a contract in which
Defendant represented to Plaintiffs that they would be provided the opportunity to
succeed as a sales producer of Nationwide products and Defendant would not
compete against Plaintiffs through selling direct to customers or through Allied
Insurance, an insurer owned by NATIONWIDE.
The Defendant breached its agreement * * *.

[19, at ¶¶ 52-54 (emphasis added).] And, in a more general sense, Plaintiffs’ relationship with
Nationwide and decision to expand its Nationwide business was based on and flowed out of the
Agent’s Agreement. The Court therefore concludes that the Agent’s Agreement is central to
Plaintiff’s claim and that, in exercise of its discretion, the Court may consider the document
without converting Defendants’ motion into a summary judgment motion.
With respect to Exhibit D, the Court may take judicial notice of matters of public record
for purposes of deciding a motion to dismiss without converting the 12(b)(6) motion into a
motion for summary judgment. See Palay v. United States, 349 F.3d 418, 425, n.5 (7th Cir.
2003) (holding that “in resolving a motion to dismiss, the district court is entitled to take judicial
notice of matters in the public record”); Anderson v. Simon, 217 F.3d 472, 474-75 (7th Cir. 2000)
(same). The two Eastern District of Michigan opinions that Defendants attach as Exhibit D to
their motion to dismiss are matters of public record. The Court therefore may consider them –
just as the Court may consider any other pertinent judicial decision – without converting the
motion to a motion for summary judgment.

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B.

Whether Counts I and II Are Pleaded with Sufficient Particularity to Satisfy
Rule 9(b)

Defendants argue that Counts I and II of Plaintiffs’ first amended complaint must be
dismissed because they fail to satisfy the pleading requirements of Rule 9(b). As stated above,
Rule 9(b) provides that “in alleging fraud or mistake, a party must state with particularity the
circumstances constituting fraud or mistake.” FED. R. CIV. P. 9(b); see also Borsellino, 477 F.3d
at 507; Windy City Metal Fabricators & Supply, Inc. v. Midwest Ink Comp., 536 F.3d 663, 66869 (7th Cir. 2008) (holding that Rule 9(b) requires a complaint to plead the circumstances of
fraud or mistake, including “‘the identity of the person who made the misrepresentation, the
time, place and content of the misrepresentation, and the method by which the misrepresentation
was communicated to the plaintiff’” (quoting Gen. Elect. Capital Corp. v. Lease Resolution
Corp., 128 F.3d 1074, 1078 (7th Cir. 1997)), and that failure to do so must result in dismissal).
Plaintiffs concede that Rule 9(b) applies to its fraudulent inducement claims against Nationwide
and Kimmey, but argue that they satisfied the pleading standard that the Rule sets forth.
Plaintiffs’ complaint alleges that Defendants are liable for fraud because the pro formas
associated with the IAA and CAP loans included erroneous information, understated the
expenses that would be incurred in the expansion efforts, and set forth unachievable performance
growth requirements. For example, Plaintiffs allege that although Defendants promised that fifty
percent of the existing book of business at the McCabe Agency would be rolled into Plaintiffs’
business, in fact only twenty percent actually was converted. In addition, Plaintiffs allege that
Defendants’ Texas sales manager misrepresented that ninety percent of Texas agents exceeded
the pro forma revenue and growth projections. Plaintiffs further claim that the interest rates for
the loans were uncompetitive and that Nationwide’s own business strategy was counter to and
undermined the business strategies that Nationwide required of its agents.

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Relying largely on DiLeo v. Ernst & Young, Defendants argue that Plaintiffs’ allegations
are not pleaded with sufficient particularity to withstand dismissal. In DiLeo, a securities fraud
case, the Seventh Circuit described the underlying events as one familiar to securities litigation
(and, for purposes of this motion, analogous to the insurance agency scenario as well): “At one
time the firm [or principal] bathes itself in a favorable light. Later the firm discloses that things
are less rosy. The plaintiff contends that the difference must be attributable to fraud.” 901 F.2d
at 627. Yet, the investor-plaintiff in DiLeo did not cite “a single concrete example” of the
purported problems and inaccuracies in loans issued by the defendant accounting firm. Id. at
626-27. Although investors eventually lost money as a result of these problematic loans, the
plaintiffs failed to “point to some facts suggesting that the difference [in what a firm discloses
about its financial stability] is attributable to fraud.” Id. at 627. The court of appeals noted that
“[s]ecurities laws do not guarantee sound business practices and do not protect investors against
reverses. When a firm loses money in its business operations, investors feel the loss keenly.
Shifting these losses from one group of investors to another does not diminish their amplitude
any more than rearranging the deck chairs on the Titanic prevents its sinking.” Id. As “[t]here is
no ‘fraud by hindsight,’” the court of appeals affirmed the district court’s dismissal of the
complaint for failure to plead with particularity. Id. at 630 (quoting Denny v. Barber, 576 F.2d
465, 470 (2d Cir. 1978)).
Here, as in DiLeo, Plaintiffs allege that Nationwide provided projections and estimates
regarding expansion opportunities that were so unrealistic and overly optimistic that they
amounted to misrepresentations proffered for the sake of defrauding Plaintiffs. Plaintiffs allege
that they took out the CAP and IAA loans and expanded their agencies on the basis of the
projections and estimates. Plaintiffs claim that when those forecasts did not bear out, Plaintiffs

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suffered financial losses; for example, their loan payments were not waived because they failed
to meet the purportedly unrealistic performance goals.
Defendants argue that Plaintiffs provide no support for their allegations of fraud by
identifying: (1) what facts or allegations, projections, or estimates Nationwide actually
misrepresented to Plaintiffs; (2) who prepared the growth plans, growth programs, and other
documents that purportedly misrepresented the financial viability of the expansion efforts; (3)
when the misrepresentations were made; or (4) how they were conveyed to Plaintiffs.
Defendants point out that Plaintiffs make no allegations that undercut the notion that the
projections were good faith estimates that simply did not pan out. Indeed, Plaintiffs fail to
address a disclaimer in at least one of the pro formas that advised Plaintiffs that Nationwide
could not guarantee a particular outcome from the expansion effort. [See 22, at 11.] Similarly,
with respect to Defendant Kimmey, Plaintiffs fail to identify the purported misrepresentations
that Kimmey made, or when or where they were made. Even with respect to the most specific of
Plaintiffs’ allegations, Defendants state that Plaintiffs do not identify the “Texas sales manager”
who allegedly misrepresented to Plaintiffs that ninety percent of agents in Texas were exceeding
growth projections, or how that representation was made.
Plaintiffs contend that the business plans and pro formas contain the misrepresentations
that Defendants purportedly made, and that as Defendants themselves attached one pro forma to
their motion to dismiss and Plaintiffs attached another pro forma to their opposition brief,
“Defendants need only look to the pro forma and business plans themselves” to see the who,
what, where, when, and why of the fraud allegations. [31, at 7-8.] Specifically, Plaintiffs say
that “Defendants, and the Court, need only look to Defendants’ Exhibit C to identify Defendant
Kimmey as the prepare[r] of the business and pro forma for the Texas CAP loan.” [31, at 8.]

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Plaintiffs concede that they did not identify the name of the Texas sales manager who
purportedly misrepresented agents’ success rates to Plaintiffs or state when or how the
misrepresentation was made.

However, Plaintiffs ask in their opposition brief:

“does

Nationwide truly contend that it does not know the identity of its Texas sales manager in 2006?”
[31, at 6.] Plaintiffs further argue that because every other allegation they make in the complaint
states that misrepresentations were made in writing, Defendants could reasonably infer that the
sales manager’s misrepresentation was made orally.
Although it may be true that Nationwide is aware of the identities of its personnel and
that the purported misrepresented projections may be unearthed in the voluminous exhibits that
Defendants and Plaintiffs attached to their motion to dismiss and opposition brief, respectively, it
is also true – and Plaintiffs do not contest – that this information is simply not alleged in
Plaintiffs’ complaint. Plaintiffs contend that they are unable to plead certain details additional to
those provided in the complaint because those details are exclusively within Defendants’
possession. The Seventh Circuit has held that “[s]pecificity requirements may be relaxed * * *
when the details are within defendant’s exclusive knowledge.” Jepson, Inc. v. Makita Corp., 34
F.3d 1321, 1328 (7th Cir. 1994). Here, however, Plaintiffs presumably have knowledge at least
of what statements within the pro formas and business plans were knowingly misrepresentative,
as well as some information regarding when, by whom, and how they were made. Yet, Plaintiffs
do not articulate their knowledge of these purported facts in their complaint.
At most, as Defendants point out, Plaintiffs themselves describe the statements in the pro
formas and business plans as projections and estimates, not guaranteed results. Indeed, the crux
of Plaintiffs’ allegations appears to be that Defendants “misrepresented * * * hope.” [19, at ¶
20.] But, as the court in DiLeo stated, there is no fraud by hindsight, and, standing alone,

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financial loss after holding out the prospect of gain cannot substantiate a claim of fraudulent
misrepresentation. See DiLeo, 901 F.2d at 630 (quoting Denny v. Barber, 576 F.2d 465, 470 (2d
Cir. 1978)). The Court therefore concludes that Plaintiffs have not pleaded with sufficient
particularity the facts available to them. Counts I and II thus fail to satisfy the heightened
pleading requirement of Rule 9(b), and must be dismissed.
C.

Whether Counts I and II Would State Causes of Action Even if Pleaded
Sufficiently

Defendants argue that even if Plaintiffs had met the Rule 9(b) pleading standards,
Plaintiffs’ fraud claims would fail as a matter of law because they are based on Nationwide’s
statements concerning projected earnings and future promises rather than representations of past
or existing facts. Under Illinois law, “statements regarding future events or circumstances are
not a basis for fraud. Such statements are regarded as mere expressions of opinion or mere
promises or conjectures upon which the other party has no right to rely.” Madison Assocs. v.
Bass, 511 N.E.2d 690, 699 (Ill. App. Ct. 1st Dist. 1987) (internal citations omitted); see also
North Am. Plywood Corp. v. Oshkosh Trunk & Luggage Co., 263 F.2d 543, 545 (7th Cir. 1959)
(holding that, in an action in tort rather than contract, “we are not concerned with the
enforcement of a promise by defendants” and that “failure to comply with a future promise does
not constitute fraud” under Illinois law). An exception to the general rule pertains “where the
false statements were part of a fraudulent scheme.” Madison, 511 N.E.2d at 700. A plaintiff
may plead fraud in such a case if he can show that the defendant in bad faith made false promises
that it never intended to keep, for the purpose of inducing the plaintiff’s reliance to his detriment.
See Lillien v. Peak6 Investments, L.P., 417 F.3d 667, 671 (7th Cir. 2005).
Here, Defendants contend that the pro formas and other representations upon which
Plaintiffs’ fraud claims are in part based are forward-looking estimates or projections. See

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Niemeth v. Kohls, 524 N.E.2d 1085, 1094 (Ill. App. Ct. 1st Dist. 1988) (holding that a pro forma
statement was a future projection of income and expenses and that representations contained
therein therefore could not form the basis of a fraud action); Sohaey v. Van Cura, 607 N.E.2d
253, 273 (Ill. App. Ct. 2d Dist. 1992) (holding that pro formas were not actionable under the
Illinois Consumer Fraud Act because “they were mere expressions of opinions with respect to
future events”). Moreover, Defendants point out, the pro forma issued to Plaintiffs explicitly
stated that “Nationwide cannot and does not guarantee the plan as outlined will result in
achieving the desired objectives.” [22 at 11.]
Because, for the reasons stated above, the Court dismisses Counts I and II of Plaintiffs’
complaint for failure to satisfy the heightened pleading requirements of Rule 9(b), the Court need
not address at this juncture whether the counts alternatively would require dismissal because they
allege false representations based on intent or future conduct. The Court cautions, however, that
if Plaintiffs seek to re-file these counts in a manner that satisfies Rule 9(b), they must also plead
around the Illinois rule barring fraud based on future conduct if they can do so in good faith.
D.

Whether Count III States a Claim for Breach of Contract

Count III of Plaintiffs’ complaint alleges that Nationwide breached its contract with
Plaintiffs when it promised Plaintiffs that Nationwide (1) would provide Plaintiffs with an
opportunity to succeed as a sales producer, but instead created rates and rules that caused
Plaintiffs to lose a substantial amount of business; (2) would not compete with Plaintiffs by
selling to customers directly or through affiliated businesses, but ultimately sold insurance
through its affiliate, Allied Insurance; (3) would roll fifty percent of the book of business of the
McCabe Agency into Plaintiffs’ Nationwide business, but instead only converted twenty percent

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of that business; and (4) would deduct outstanding loan balances from extended earnings, but
failed to do so.
Defendants argue that Count III of Plaintiffs’ first amended complaint must be dismissed
because it fails to state a claim for breach of contract. Defendants point out that Plaintiffs do not
identify a contract or contract provision that Defendants allegedly breached. Defendants contend
that the only agreements between Plaintiffs and Defendants that are identified in the complaint –
the Agent’s Agreement and the Performance Agreement – do not include any contractual terms
or promises that Defendants could have breached. For example, neither agreement guarantees
Plaintiffs’ success, prohibits Nationwide’s sales to customers directly or through affiliated
companies, or guarantees that Nationwide would convert fifty percent of the book of business of
McCabe Agency.6 Defendants argue that the only contract that Plaintiffs reference explicitly in
Count III is the Credit Agreement and Promissory Note, and that it was this contract only that
promised to deduct outstanding loan balances from Plaintiffs’ extended earnings. However,
Defendants state that the Credit Agreement and Promissory Notes were contracts that Plaintiffs
entered into with Nationwide Bank, which is not a party to this action. Accordingly, Defendants
argue that Plaintiffs have failed to state a claim against Nationwide for breach of contract.
The Court finds Defendants’ arguments persuasive. Plaintiffs have failed to identify any
contractual terms between the named Defendants and Plaintiffs that Defendants breached. If
anything, the documents before the Court show that the agreements between Defendants and

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Indeed, Defendants contend that the Agent’s Agreement contains a provision that retains the rights of
Nationwide to conduct its business as it deems appropriate (including, presumably, selling through its
affiliates). Defendants also contend that the IAA business plan and pro forma only estimated – rather
than promised – that Nationwide could convert up to fifty percent of the McCabe Agency’s existing book
of business to Nationwide.

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Plaintiffs set forth only promises, not guarantees, that were never realized. The Court therefore
dismisses Count III of Plaintiffs’ complaint.
E.

Whether Count IV States a Claim for Unjust Enrichment

Defendants argue that Plaintiffs’ unjust enrichment claim must be dismissed because the
remedy for that claim falls within the Agent’s Agreement and Performance Agreement that
governed Plaintiffs and Defendants’ relationship. Under Illinois law, when a claim falls within
an express contract, the remedy of unjust enrichment is unavailable. See Utility Audit, Inc. v.
Horace Mann Serv. Corp., 383 F.3d 683, 688-89 (7th Cir. 2004) (holding that “[w]hen two
parties’ relationship is governed by contract, they may not bring a claim of unjust enrichment
unless the claim falls outside the contract”). To determine whether a claim falls outside a
contract, a court should look to the subject matter of the contract as a whole rather than to
contractual terms or provisions related to the claim. Id. at 689.
Count IV of Plaintiffs’ complaint states that Nationwide was unjustly enriched by the
additional storefronts, advertising of its business, acquisition of new books of business, relations
with other insureds, and loan repayments and interest that it gained from Plaintiffs’ work.
Plaintiffs concede that the Agent’s Agreement and the Performance Agreement governed their
relationship with Defendants, and do not, by way of this litigation, seek to invalidate those
agreements. Furthermore, Plaintiffs do not contest that the subject matter of these agreements
concerned Plaintiffs’ business relationship and expansion efforts with Nationwide. Plaintiffs’
unjust enrichment claim thus falls squarely within Agent’s Agreement and Performance
Agreement. The claim therefore fails as a matter of law.

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IV.

Conclusion
For the reasons stated above, the Court grants Defendants’ motion to dismiss [21] in its

entirety. Plaintiffs’ first amended complaint [19] is dismissed without prejudice. Plaintiffs are
given leave to file an amended complaint within 28 days if they believe that they can address
some or all of the deficiencies in their existing complaint.

Dated: July 26, 2011

____________________________________
Robert M. Dow, Jr.
United States District Judge 

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