Mercola et al v. Abdou et al

Filing 60

MEMORANDUM Opinion and Order Written by the Honorable Gary Feinerman on 6/5/2015.Mailed notice.(jlj, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JOSEPH MERCOLA, as Trustee of the Joseph M.
Mercola Declaration of Trust, JANET SELVIG, as Trustee
of the Mercola Insurance Trust, and MERCOLA.COM
HEALTH RESOURCES, LLC,
Plaintiffs,
vs.
MOSTAFA ABDOU, MARK ZIEBOLD, and THE
KOENIG GROUP, LLC,
Defendants.

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14 C 8170
Judge Feinerman

MEMORANDUM OPINION AND ORDER
Joseph Mercola says that he was swindled into purchasing several “premium financed life
insurance” policies and lost more than $3 million as a result. Mercola—actually he and his
sister, in their capacities as trustees of the trusts that were the policies’ beneficiaries, along with
his company, another beneficiary, but for ease of exposition the court will refer to all plaintiffs
collectively as “Mercola”—filed this suit in October 2014 against the attorney (Mark Ziebold),
the insurance broker (Mostafa Abdou), and the broker’s employer (Koenig Group, LLC) who
allegedly hoodwinked him into purchasing the policies, alleging legal malpractice (against
Ziebold), breach of fiduciary duty (against Abdou and Koenig), fraud (against Abdou), and a
violation of the Illinois Consumer Fraud and Deceptive Businesses Practices Act (“ICFA”), 815
ILCS 505/1 et seq. (also against Abdou). Doc. 1. Abdou and Ziebold separately have moved
under Federal Rule of Civil Procedure 12(b)(6) to dismiss the complaint solely on statute of
limitations grounds. Docs. 22, 24. The motions are denied.

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Background
On a Rule 12(b)(6) motion to dismiss, the court must accept the complaint’s well-pleaded
factual allegations, with all reasonable inferences drawn in Mercola’s favor, but not its legal
conclusions. See Smoke Shop, LLC v. United States, 761 F.3d 779, 785 (7th Cir. 2014); Munson
v. Gaetz, 673 F.3d 630, 632 (7th Cir. 2012). The court must also consider “documents attached
to the complaint, documents that are critical to the complaint and referred to in it, and
information that is subject to proper judicial notice,” along with additional facts set forth in
Mercola’s brief opposing dismissal, so long as those additional facts “are consistent with the
pleadings.” Phillips v. Prudential Ins. Co. of Am., 714 F.3d 1017, 1020 (7th Cir. 2013) (internal
quotation marks omitted) (quoting Geinosky v. City of Chicago, 675 F.3d 743, 745 n.1 (7th Cir.
2012)). The facts are set forth as favorably to Mercola as those materials permit. See Meade v.
Moraine Valley Cmty. Coll., 770 F.3d 680, 682 (7th Cir. 2014); Gomez v. Randle, 680 F.3d 859,
864 (7th Cir. 2012).
In late 2009, on the recommendation of his financial advisor, Mercola called Abdou
about purchasing premium financed life insurance as part of his estate plan. Doc. 1 at ¶¶ 18-19.
Mercola told Abdou that he wanted “to avoid high-risk investments and … large commitments of
capital.” Id. at ¶ 19. Abdou responded that premium financed life insurance was “perfect” for
Mercola. Ibid. In January 2010, Mercola spoke to Abdou again, this time with Ziebold on the
line. Id. at ¶ 20. Abdou urged Mercola to retain Ziebold as his lawyer, reasoning that Ziebold
“was familiar with premium financed life insurance arrangements, and … was an excellent estate
planning attorney.” Ibid. Mercola agreed to retain Ziebold, and he told Ziebold about “his
desire to avoid high-risk investments, and his desire to avoid large commitments of capital.”
Ibid.

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Mercola spoke to each of them several times in the first half of 2010. Id. at ¶ 21. Abdou
continued to push premium financed life insurance on Mercola, never disclosing any of its risks;
to the contrary, Abdou “repeatedly guarantee[d] the suitability, lack of risk, and ‘bullet proof’
nature of the premium financed life insurance arrangement.” Id. at ¶ 26; see id. at ¶¶ 22-25.
“Abdou explained to Dr. Mercola that premium financed life insurance would allow [Mercola] to
secure a large amount of life insurance by using a bank’s money to pay the life insurance
premiums, [so] that there would be no out-of-pocket expenses. Abdou represented that the only
collateral required for the loans would be the policies themselves plus an initial cash deposit. …
Abdou further represented that the accumulated values would earn returns that would both cover
the loan interest and eventually repay the loan principal.” Id. at ¶ 23.
With Abdou and Ziebold’s encouragement and assistance, between August and
November 2010 Mercola eventually purchased four policies, with an aggregate $100 million
coverage and nearly $6 million in annual premiums. Id. at ¶¶ 32-33. A senior vice president of
the lending bank, Northern Trust, told Mercola that he would have to assign the policies to
Northern Trust and post $550,000 cash as collateral. Id. at ¶ 35. Abdou and Ziebold reassured
Mercola that “no additional collateral would be needed because the fixed 3% returns generated
by the policies would be sufficient to cover the fixed 3% interest rate on the loans.” Id. at ¶ 36.
In July 2011, Northern Trust told Mercola that unless he posted an additional $530,000
cash collateral, it would not advance the second year’s premiums to the insurer. Id. at ¶ 39. The
bank required additional collateral mainly for two reasons: because interest on the loan had been
added to the balance (thus increasing the effective size of the loan), and because the bank was
counting only 95% of the “surrender value” of each policy as collateral. Id. at ¶ 40. Neither
Abdou nor Ziebold had ever told Mercola that these terms were part of the financing

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arrangement or that they would necessitate his posting additional cash collateral. Id. at ¶ 42. In
September 2011, Northern Trust demanded another $194,000 in cash collateral, for the same
reasons. Id. at ¶ 41. Mercola posted the additional $724,000 in collateral ($530,000 + $194,000)
so that the bank would pay the second year’s premiums on the four policies. Id. at ¶ 44.
Thereafter, to avoid the accumulated interest’s increasing the loan’s effective balance,
Mercola began directly making interest payments to the bank. Id. at ¶ 46. Sometime in 2012,
Abdou told Mercola that he had been able to renegotiate the loan’s interest rate from 3% to 2%;
in August 2012, Northern Trust informed Mercola that he did not need to post any additional
collateral to fund the third year’s premiums. Id. at ¶¶ 45, 47-48.
In September 2013, Northern Trust told Mercola he had to post an additional $2.9 million
cash collateral to extend the loans so that the bank could pay the fourth year’s premiums. Id. at
¶ 49. Unbeknownst to Mercola, each of the policies had a rider, called a “Surrender Value
Enhancement Agreement,” which allowed him to surrender the policies within three years of
issuance in exchange for a full refund of the premiums he had paid to that point; accordingly, the
policies’ surrender values remained high during that time frame. Id. at ¶¶ 50-51. Once three
years elapsed, however, the rider expired and the policies’ surrender values plummeted,
precipitating Northern Trust’s $2.9 million collateral demand. Id. at ¶¶ 50-52.
Had Mercola known about the rider or that it would expire after three years without
possibility of renewal, he never would have purchased the premium financed life insurance
policies. Id. at ¶ 53-54. Not until October 2013 did Abdou finally disclose to Mercola the full
collateral obligations for the premium financed insurance, which would require Mercola to post
up to $8.4 million by 2016. Id. at ¶ 58. In February 2014, Mercola opted to surrender all four
policies and repay the Northern Trust loans rather than continue to incur large collateral

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obligations; as a result, he ultimately lost more than $3 million on the deal. Id. at ¶¶ 60-61.
Mercola filed this suit in October 2014.
Discussion
Ziebold and Abdou have moved to dismiss the complaint under Rule 12(b)(6) only on
statute of limitations grounds. Docs. 21, 25. All parties agree that Illinois law, including its
statute of limitations, governs, and that the governing limitations period is two years. See 735
ILCS 5/13-214.3(b) (“An action for damages based on tort, contract, or otherwise … against an
attorney arising out of an act or omission in the performance of professional services … must be
commenced within 2 years from the time the person bringing the action knew or reasonably
should have known of the injury for which damages are sought.”); 735 ILCS 5/13-214.4 (“All
causes of action brought by any person or entity under any statute or any legal or equitable
theory against an insurance producer, registered firm, or limited insurance representative
concerning the sale, placement, procurement, renewal, cancellation of, or failure to procure any
policy of insurance shall be brought within 2 years of the date the cause of action accrues.”).
The parties also agree that the discovery rule may toll the limitations period in this case.
“The discovery rule delays the commencement of the relevant statute of limitations until the
plaintiff knows or reasonably should know that he has been injured and that his injury was
wrongfully caused.” Jackson Jordan, Inc. v. Leydig, Voit & Mayer, 633 N.E.2d 627, 630-31 (Ill.
1994); see Halperin v. Halperin, 750 F.3d 668, 671 (7th Cir. 2014) (Illinois law) (“The statute of
limitations does not begin to run until the wronged ‘person knows or reasonably should know of
his injury and also knows or reasonably should know that it was wrongfully caused. At that
point the burden is upon the injured person to inquire further as to the existence of a cause of
action.’”) (quoting Witherell v. Weimer, 421 N.E.2d 869, 874 (Ill. 1981)). So even though

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Mercola purchased the policies in 2010, the limitations period did not begin to accrue until he
was on “inquiry notice” of his injury. Witherell, 421 N.E.2d at 874; see Halperin, 750 F.3d at
671. Defendants argue that this occurred no later than July 2011, when Northern Trust asked
him to post the additional $530,000 collateral. Doc. 21 at 8, ¶¶ 32-33; Doc. 25 at 6-7. Mercola
counters that, at the earliest, it was September 2013, when he first learned of the surrender value
enhancement rider’s expiration and the resulting $2.9 million collateral requirement. Doc. 27 at
9-11; Doc. 28 at 10-13.
The Seventh Circuit has cautioned that “because the period of limitations is an
affirmative defense it is rarely a good reason to dismiss under Rule 12(b)(6).” Reiser v.
Residential Funding Corp., 380 F.3d 1027, 1030 (7th Cir. 2004); see Sidney Hillman Health Ctr.
of Rochester v. Abbott Labs., Inc., 782 F.3d 922, 928 (7th Cir. 2015). “Only when the plaintiff
pleads itself out of court—that is, admits all the ingredients of an impenetrable defense—may a
complaint that otherwise states a claim be dismissed under Rule 12(b)(6).” Xechem, Inc. v.
Bristol-Myers Squibb Co., 372 F.3d 899, 901 (7th Cir. 2004); see Chicago Bldg. Design, P.C. v.
Mongolian House, Inc., 770 F.3d 610, 613-14 (7th Cir. 2014) (“a motion to dismiss based on
failure to comply with the statute of limitations should be granted only where the allegations of
the complaint itself set forth everything necessary to satisfy the affirmative defense”) (internal
quotation marks omitted).
Mercola has plausibly alleged that he did not discover his true injury until 2013; after all,
the problems (as he saw them) that forced him to post additional collateral in 2011 had, he
thought, been remedied by his paying interest directly to Northern Trust and by Abdou’s
renegotiating the interest rate from 3% down to 2%—as evidenced by Mercola’s not needing to
post additional collateral in 2012 for the third year’s premiums. Only when the surrender value

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enhancement rider expired in 2013 did Mercola finally realize he had truly been injured by
Abdou and Ziebold’s wrongful actions. Or so, at least, a reasonably sympathetic reader of his
complaint could conclude—and, at the Rule 12(b)(6) stage, the court must view the complaint in
the light most favorable to Mercola. At any rate, it means that Mercola has not pleaded himself
out of court by “admit[ting] all the ingredients of an impenetrable defense,” Xechem, 372 F.3d at
901, and so dismissal under Rule 12(b)(6) is inappropriate.
Conclusion
For the foregoing reasons, Abdou’s and Ziebold’s motions to dismiss are denied. They
shall answer the complaint by June 26, 2015.

June 5, 2015
United States District Judge

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