Woerner v. Bankers Life and Casualty Company
Filing
35
MEMORANDUM Opinion and Order Signed by the Honorable Thomas M. Durkin on 10/27/2016:Mailed notice(jms, )
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
JOSEPH WOERNER, individually and on
behalf of all others similarly situated,
Plaintiff,
No. 16 C 5296
v.
Judge Thomas M. Durkin
BANKERS LIFE AND CASUALTY COMPANY,
Defendant.
MEMORANDUM OPINION AND ORDER
Joseph Woerner was an insurance agent for Bankers Life and Casualty
Company. He alleges that his hiring by Bankers Life was part of a pyramid scheme
in which Bankers Life hires more agents than it needs in order to exact the fees it
charges new agents, and to claw back sales commissions under false pretenses when
surplus agents inevitably leave the company. Woerner alleges that Bankers Life’s
conduct constitutes: a violation of his agency contract (Count I); a violation of the
covenant of good faith and fair dealing under Illinois law (Count II); and a violation
of the Illinois Consumer Fraud Act (Count III). R. 1-1. Bankers Life has moved to
dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure
12(b)(6). R. 16. For the following reasons, that motion is denied in part and granted
in part.
Legal Standard
A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g.,
Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7, 570 F.3d 811, 820 (7th
Cir. 2009). A complaint must provide “a short and plain statement of the claim
showing that the pleader is entitled to relief,” Fed. R. Civ. P. 8(a)(2), sufficient to
provide defendant with “fair notice” of the claim and the basis for it. Bell Atl. Corp.
v. Twombly, 550 U.S. 544, 555 (2007). This standard “demands more than an
unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556
U.S. 662, 678 (2009). While “detailed factual allegations” are not required, “labels
and conclusions, and a formulaic recitation of the elements of a cause of action will
not do.” Twombly, 550 U.S. at 555. The complaint must “contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”
Iqbal, 556 U.S. at 678 (quoting Twombly, 550 U.S. at 570). “‘A claim has facial
plausibility when the plaintiff pleads factual content that allows the court to draw
the reasonable inference that the defendant is liable for the misconduct alleged.’”
Mann v. Vogel, 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal, 556 U.S. at 678). In
applying this standard, the Court accepts all well-pleaded facts as true and draws
all reasonable inferences in favor of the non-moving party. Mann, 707 F.3d at 877.
Background
Woerner is a resident of Virginia, and Bankers Life is a Delaware corporation
headquartered in Chicago. R. 1-1 at 7 (¶¶ 9-10). In October 2014, Woerner signed a
contract to be an insurance agent for Bankers Life. Id. at 9 (¶¶ 17). The contract
2
was a standard form signed by all Bankers Life agents (the “Agent Contract”). Id. at
4-5 (¶ 2), 37-48. The Agent Contract provides that the agent will be compensated by
commissions on policies the agent sells. Id. at 9-10 (¶ 19), 39 (¶ 9). The Agent
Contract also allows Bankers Life to “reject any application for insurance submitted
by the agent without specifying the reason therefore,” id. at 40 (¶ 12), and provides
that “[w]henever a premium has been refunded to an applicant or policyholder, the
agent agrees to immediately return to [Bankers Life] any commissions received on
the amount refunded.” Id. at 40 (¶ 13). Bankers Life also has permission to “deduct”
any commissions an agent is obligated to return to Bankers Life from any future
commissions (or other payments Bankers Life may owe to the agent). Id. at 41 (¶
14). When Bankers Life requires an agent to return a commission it is known as a
“chargeback.” Id. at 5 (¶ 4). Agents generally continue to receive commissions on
premiums for renewal of policies they sold even after they have left Bankers Life.
Id.
Woerner alleges that Bankers Life’s business model “requires a huge number
of agents,” and that many agents quit or are fired within less than a year of their
state date. Id. at 8 (¶ 13). Bankers Life requires new agents to pay “hundreds of
dollars in non-refundable fees,” including “licensing fees [and] list fees.” Id. at 8 (¶
15). Bankers Life also requires new agents to pay “approximately $300” to create a
“holdback” account out of which Bankers Life deducts chargebacks. Id.
Woerner alleges that “it is common company practice at Bankers Life for
senior agents to ‘re-write’ policies [sold] by former agents in order to justify
3
commission chargebacks and to reassign the policy [renewal] commission stream
from the [former agent] to a current senior agent.” Id. at 5 (¶ 4). According to
Woerner, “the ‘re-writing’ of the policies is pretextual, with Bankers Life typically
making nothing more than an immaterial change, such as altering the policy
name.” Id. Bankers Life then seeks repayment of commissions from the former
agent based on these “re-writes,” while a current agent receives the commission for
the “rewritten” policy.
In the form letter Bankers Life sends to former agents seeking repayment of
commissions, Bankers Life does not provide a specific justification for the
chargeback, but instead lists the potential reasons for the chargeback. According to
the form letter, these potential reasons include the following: the relevant policy
“lapsed, canceled or issued as out for signature and not completed [sic],” or the
policy’s “automatic bank draft was canceled,” the policy’s “Errors and Omissions
Insurance premiums were unrecovered,” or “other contractual charges were
applied.” Id. at 11 (¶ 24). Woerner alleges that none of these stated reasons “is a
legitimate basis for requiring a [former agent] to refund a commission” under the
terms of the Agent Contract. Id. at 11 (¶ 25). Indeed, according to Woerner, the “rewrite” process does not “typically” involve refunding the premium to the policyholder, id. at 11-12 (¶ 25), and Woerner contends that a premium refund is the only
basis for a chargeback under the terms of the Agent Contract.
Woerner alleges that his agency agreement with Bankers Life was
terminated because he expressed that he did not want to participate in the “re-
4
write” process. Id. at 12-13 (¶¶ 28-30). After his termination, Woerner received a
letter from Bankers Life requesting the return of $473.96 in commissions. Id. at 14
(¶ 33). The letter did not specify the relevant policies for which premiums had been
returned. Woerner alleges that Bankers Life responded to his request for an
accounting with “a largely indecipherable account log which does not validate the
debts or otherwise explain the charges or how they are derived.” Id. at 15 (¶ 38).
Bankers Life sent two additional letters to Woerner explaining that the amount of
commissions he was obligated to return had increased to $696.58. Id. at 14-15 (¶¶
34, 37). Woerner then received a notice from a debt collator regarding this amount
due. Id. at 15 (¶ 39). Woerner’s complaint includes many statements posted to the
internet by other former Bankers Life agents complaining of similar chargeback
demands by Bankers Life. Id. at 16-28 (¶¶ 40-57).
Analysis
I.
Breach of Contract
Woerner claims that Bankers Life breached his Agent Contract by seeking
chargebacks on policies for which the premiums were not returned. Woerner also
alleges that Bankers Life’s policy of charging new agents certain fees violates the
Agent Contract.
A.
Chargebacks
Bankers Life concedes that “if Woerner alleged that certain chargebacks were
improper, that would state a claim.” R. 17 at 16. Bankers Life, however, argues that
Woerner has failed to state such a claim because he admits that he does not know
5
whether the chargebacks Bankers Life seeks from him are legitimate. But it would
be unrealistic and improper to require Woerner to allege with such specificity that
Bankers Life’s chargebacks lack justification when it is likely that only Bankers
Life has access to the evidence that could confirm Woerner’s claims. Woerner
alleges that he sought such justification, but Bankers Life provided him with an
account log that he was unable to decipher. In the context of fraud claims, the
Seventh Circuit has held that plaintiffs are not required to fully comply with the
heightened pleading standard of Federal Rule of Civil Procedure 9(b) when the
evidence is necessarily in the possession of the defendant. See Pirelli Armstrong
Tire Corp., Retiree Medical Benefits Trust v. Walgreen Co., 631 F.3d 436, 443 (7th
Cir. 2011). This reasoning should certainly also apply to Rule 8’s lower standard of
pleading. Since Bankers Life possesses the evidence necessary to determine
whether Woerner’s claims are meritorious, his failure to allege the existence of such
facts does not require dismissal of his claims at this stage of the proceedings.
In any event, just because Woerner does not have certain knowledge that the
particular chargebacks against him are unjustified does not mean that he has failed
to allege a plausible claim for breach of contract. See In re Text Messaging Antitrust
Litig., 630 F.3d 622, 629 (7th Cir. 2010) (“the complaint must establish a
nonnegligible probability that the claim is valid; but the probability need not be as
great as such terms as ‘preponderance of the evidence’ connote”); see also In re
London Silver Fixing, Ltd., Antitrust Litig., 2016 WL 5794777, at *6 (S.D.N.Y. Oct.
3, 2016) (“‘Plausibility’ is not certainty.”); Innospec Fuel Specialties, LLC v. Isochem
6
N. Am., LLC, 2012 WL 715875, at *3 (D.N.J. Mar. 5, 2012) (“The plausibility
standard of Iqbal does not require total certainty.”). Despite Woerner’s failure to
specifically allege that Bankers Life lacks justification for the chargebacks it seeks
from him, the facts Woerner has alleged are a sufficient basis for the Court to
plausibly infer that Bankers Life has breached its Agent Contract with Woerner.
Woerner alleges that when he was an agent for Bankers Life, he was instructed to
“re-write” policies that had been sold by former agents for the specific purpose of
forcing the former agent to pay commissions back to Bankers Life for the benefit of
current agents. He also alleges that this was not a one-time occurrence but rather a
“common company practice.” This is enough reason for Woerner to believe that the
chargebacks Bankers Life seeks from him are illegitimate. And Bankers Life does
not argue that these allegations are improperly pled. Therefore, the Court will not
dismiss Woerner’s breach of contract claim at this stage of the proceedings.1
1 Bankers Life attached to its motion a document called the “Agent Manual.”
Bankers Life contends that this document is incorporated into the Agent Contract,
which provides, “The authority given in this contract is subject to the provisions and
limitations contained herein, and in the Company’s manual, rate books, rules and
regulations.” R. 1-1 at 39 (¶ 8). To the extent the Agent Manual is incorporated into
the Agent Contract, the Manual might be read to expand the circumstances under
which Bankers Life can issue chargebacks to its agents because it provides,
“Commissions are charged back whenever premiums are refunded, or in situations
where commissions are advanced, and the advanced commissions are considered
unearned because the policy has been either cancelled, downgraded, or the policy
has been removed from PPSP.” R. 17-2 at 19. Bankers Life has not argued that this
is a basis to dismiss Woerner’s breach of contract claim based on impermissible
chargebacks. But even if Bankers Life had made this argument, and even if the
Court were to find that the Agent Manual is incorporated into the Agent Contract
such that it is proper for the Court to consider the Manual on this motion to
dismiss, the Court would not find that the Agent Manual requires Woerner’s claim
to be dismissed at this stage of the proceedings. Woerner has sufficiently alleged
7
B.
Fees
Woerner alleges that Bankers Life “has breached the Agent Contract by
requiring [him and other agents] to pay hundreds of dollars in non-refundable fees
unfront for licensing fees, list fees, and ‘holdback accounts.’” R. 1-1 at 31 (¶ 75). But
Woerner’s allegations do not explain how these charges constitute breaches of the
Agent Contract. Indeed, Section 10(b) of the Agent Contract requires agents to “pay
for the renewal state agent license fees, and any occupational license fees required
under local ordinances.” R. 1-1 at 40 (¶ 10(b)). Additionally, Bankers Life attached
to its motion an addendum to the Agent Contract that permits Bankers Life to
withhold ten percent of an agent’s commissions to establish a “holdback” account
from which Bankers Life can deduct “chargebacks.” See R. 17-2 at 14. The terms of
the Agent Contract belie Woerner’s allegations with respect to licensing fees and
holdback accounts.
Bankers Life also attached an additional agreement purportedly signed by
Woerner, pursuant to which he agreed to pay for “marketing programs and lead
generation expenses,” otherwise known as listing fees. R. 17-2 at 23. This contract is
not referenced in Woerner’s complaint, so the Court will not rely on it. Nevertheless,
Woerner has not explained how the Agent Contract prohibits Bankers Life from
that Bankers Life has a practice of seeking impermissible chargebacks and that this
practice was applied to his commissions. The Agent Manual might be a basis to
demonstrate that some or all of the chargebacks are legitimate. But it is impossible
to make that determination without knowing on which policies Bankers Life seeks
each of the chargebacks at issue. As discussed, nobody knows the answer to that
question except for Bankers Life, and Woerner’s breach of contract claim cannot be
addressed one way or another without that information.
8
charging agents listing fees. There may not be a provision in the Agent Contract
that expressly permits listing fee charges, but there also does not appear to be a
provision that prohibits it. Woerner’s failure to plead why “listing fees” are in
violation of the Agent Contract dooms his claim. Thus, Woerner’s breach of contract
claim is also dismissed to the extent he alleges that Bankers Life breached the
Agent Contract by charging him listing fees.
II.
Breach of the Covenant of Good Faith and Fair Dealing
Woerner contends that Bankers Life has “the discretion to determine when . .
. a refund will be made” that legitimately triggers a chargeback. See R. 29 at 14.
Woerner argues that the covenant of good faith and fair dealing requires Bankers
Life to exercise its discretion fairly, and its failure to do so is a basis for a cause of
action for breach of that covenant.
Illinois courts are clear that the duty imposed by the covenant of good faith
and fair dealing generally does not give rise to a cause of action in tort for breach of
that duty. See Voyles v. Sandia Mortg. Corp., 751 N.E.2d 1126, 1130-31 (Ill. 2001);
see also Cramer v. Ins. Exch. Agency, 675 N.E.2d 897, 903 (Ill. 1996) (“This
contractual covenant is not generally recognized as an independent source of duties
giving rise to a cause of action in tort.”). Rather, the covenant “is used only as a
construction aid in determining the intent of contracting parties.” Cramer, 675
N.E.2d at 906 (citing Martindell v. Lake Shore Nat. Bank, 154 N.E.2d 683, 690 (Ill.
1958) (“Every contract implies good faith and fair dealing between the parties to it,
and where an instrument is susceptible of two conflicting constructions, one which
9
imputes bad faith to one of the parties and the other does not, the latter
construction should be adopted.”)). Illinois courts have primarily recognized an
independent cause of action for breach of the covenant in the “narrow context” of an
insurance company’s duty to settle with a third party. Voyles, 751 N.E.2d at 1131.
“The [Illinois Supreme Court] reasoned that in that setting the insured relies on the
insurer for defense of the action, yet the insurer’s interest in defeating the claim
may conflict with the insured’s interest in avoiding a judgment that exceeds the
amount of the policy limits. The policy does not spell out the insurer’s duty to settle,
however, and therefore tort law remains an appropriate ground on which to
evaluate the insurer’s conduct.” Id. (emphasis in original) (citing Cramer, 675
N.E.2d at 904).
Here by contrast, Woerner has not alleged a breach of the covenant of good
faith and fair dealing that is distinct from his breach of contract claim. To the
extent Bankers Life has discretion to determine whether circumstances exist that
justify a chargeback, Bankers Life must exercise that discretion in good faith. See
Dayan v. McDonald’s Corp., 466 N.E.2d 958, 972 (Ill. App. Ct. 1st Dist. 1984)
(application of the covenant of good faith and fair dealing frequently arises when
“the contractual obligation of one party was contingent upon a condition peculiarly
within the power of that party.”). If it becomes necessary for the Court to determine
whether Bankers Life acted in good faith, the Court might have occasion to apply
the covenant of good faith and fair dealing. But even if the covenant is relevant to
such an analysis, the same evidence demonstrating bad faith will demonstrate that
10
the chargeback is not permitted under the contractual agreements between
Woerner and Bankers Life. In other words, if Woerner is correct that Bankers Life
acted unfairly in determining whether to seek a chargeback from him, that
necessarily means that Bankers Life is seeking a chargeback in violation of the
contractual agreements between the parties, in which case the proper remedy is for
breach of contract. Woerner has not shown that a separate remedy in tort is
necessary to provide relief to him or others in similar circumstances. Nor has he
cited any case law supporting his argument. Rather, the cases he cites involve
courts applying the covenant of good faith and fair dealing to breach of contract
claims. See R. 29 at 11. Since Woerner’s claims for breach of contract and breach of
the covenant of good faith and fair dealing are coextensive, the latter is dismissed.
III.
Fraud
Woerner alleges that Bankers Life violates the ban on “pyramid schemes”
contained in the Illinois Consumer Fraud and Deceptive Business Practices Fraud
Act (the “Consumer Fraud Act”), 815 ILCS 505/2A(2). R. 1-1 at 33 (¶ 87). This claim
fails substantively, and also because Woerner has not alleged the required
connection to Illinois.
A.
Insufficient Connection to Illinois
The Illinois Supreme Court has held that a non-Illinois plaintiff, like
Woerner, “may pursue a private cause of action under the Consumer Fraud Act if
the circumstances that relate to the disputed transaction occur primarily and
substantially in Illinois.” Avery v. State Farm Mut. Auto. Inc. Co., 835 N.E.2d 801,
11
853-54 (Ill. 2005). In Avery, the court rejected a claim by an out-of-state plaintiff
under the following circumstances:
Avery resides in Louisiana, not Illinois. His car was
garaged in Louisiana and his accident occurred there as
well. Avery’s estimate was written in Louisiana and he
received his “Quality Replacement Parts” brochure in
Louisiana. The alleged deception in this case—the failure
to disclose the inferiority of non-OEM parts [which State
Farm uses to repair its customers’ cars following
accidents]—also occurred in Louisiana. The repair of
Avery’s car took place in Louisiana. Damage to Avery, if
any occurred in Louisiana. Moreover, there is no evidence
that Avery ever met or talked to a State Farm employee
who works in Illinois. Avery’s contact with State Farm
was through a Louisiana agent, a Louisiana claims
representative, and Louisiana adjustor. In sum, the
overwhelming majority of the circumstance which relate
to Avery’s . . . claims proceedings—the disputed
transaction in this case—occurred outside Illinois.
Id. at 854. In another case, the Illinois Supreme Court came out in favor of applying
the Consumer Fraud Act under the following circumstances:
(1) the contracts containing the deceptive statements were
all executed in Illinois; (2) the defendant’s principal place
of business was in Illinois; (3) the contract contained
express choice-of-law and forum-selection clauses
specifying that any litigation would be conducted in
Illinois under Illinois law; (4) complaints regarding the
defendant’s performance were to be directed to its Chicago
office; and (5) payment for the defendant’s services were
to be sent to its Chicago office.
Id. at 855 (citing Martin v. Heinold Commodities, Inc., 510 N.E.2d 840 (Ill. 1987)).
Woerner argues that his allegations are like the facts in Martin because he
alleges that Bankers Life “ran a pyramid scheme in violation of the [Consumer
Fraud Act] (1) which was headquartered in Illinois; (2) where plaintiffs and every
12
class member were required to sign a contract with [Bankers Life] that ‘provides for
litigation in Illinois under Illinois law’ and (3) where several wrongful acts in
furtherance of the pyramid scheme emanated from Illinois.” R. 29 at 16. These
allegations are insufficient. The choice of law clause might be evidence that the
parties anticipated that certain conduct would take place in Illinois, but it is not
evidence that any conduct relevant to the fraud Woerner alleges actually did take
place in Illinois. Woener’s remaining allegation—that the “pyramid scheme was
designed, initiated, and perpetrated out of Illinois where Bankers Life maintains its
corporate headquarters,” R. 1-1 at 34 (¶ 90)—is an insufficient basis on which to
apply the Illinois Consumer Fraud Act. A number of courts have found that the
allegation that a fraudulent scheme emanated from Illinois is insufficient to apply
the Consumer Fraud Act to an out-of-state resident. See Avery, 835 N.E.2d at 855
(“scheme to defraud was ‘disseminated’ from [defendant’s] headquarters [in Illinois
was] insufficient” to state a claim under the Consumer Fraud Act); Int’l Profit
Assocs., Inc. v. Linus Alarm Corp., 971 N.E.2d 1183, 1194 (Ill. App. Ct. 2d Dist.
2012)
(allegations
regarding
“activities
that
occur
routinely
in
corporate
headquarters” are insufficient); Phillips v. Bally Total Fitness Holding Corp., 865
N.E.2d 310, 316 (Ill. App. Ct. 2d Dist. 2007) (“Under Avery, plaintiffs’ claim that the
deceptive policies were devised in and promulgated from Illinois is not sufficient to
establish a nexus with Illinois.”); Sgouros v. Transunion Corp., 2016 WL 4398032,
at *5 (N.D. Ill. Aug. 18, 2016) (headquarters in Illinois is insufficient); Greene v.
Sears Protection Co., 2016 WL 397375, at *3 (N.D. Ill. Feb. 2, 2016) (same); Haught
13
v. Motorola Mobility, Inc., 2012 WL 3643831, at *4 (N.D. Ill. Aug. 23, 2012) (holding
that Consumer Fraud Act protection should not be extended to the plaintiff’s
transaction with the defendant even though “the alleged misrepresentations were
designed in Illinois and disseminated on a website registered and hosted in Illinois”
and “the terms of an agreement relating to his use of [the defendant’s services]
provide[d] for the resolution of disputes under Illinois law”); Van Tassell v. United
Mktg. Grp., LLC, 795 F. Supp. 2d 770, 781 (N.D. Ill. 2011) (“While the defendant
insurer had its headquarters in Illinois and the deceptive practices were devised
and disseminated from those headquarters, the Illinois Supreme Court held those
allegations were insufficient as a matter of law to support an [Consumer Fraud Act]
claim.”). Moreover, none of Woerner’s other allegations point to Illinois: he is a
Virginia resident; he signed his Agent Contract in Virginia; he solicited customers
and sold policies in Virginia; he does not allege that he ever traveled to Illinois on
business for Bankers Life; he does not allege that he ever interacted with anyone
from Bankers Life in Illinois or made any payments to Bankers Life in Illinois; the
return address and area code on the letter he received from Bankers Life regarding
chargebacks are from Indiana. In sum, Woerner has failed to allege that the fraud
scheme occurred in Illinois at all, let alone “primarily and substantially.” For this
reason, his Consumer Fraud Act claim is dismissed.2
2 Bankers Life argues that Woerner’s Consumer Fraud Act claim should be
dismissed because he is not a “consumer.” R. 17 at 11. But the purpose of the
Consumer Fraud Act is “to protect [not only] consumers, [but] borrowers, and
business persons [as well].” Robinson v. Toyota Motor Credit Corp., 775 N.E.2d 951,
960 (Ill. 2002). “Courts have held that two types of persons can state claims under
14
B.
Failure to Allege a Pyramid Scheme
Even if Woerner had sufficiently alleged a connection to Illinois (which he has
not), his allegations also fail to state a claim for a pyramid scheme. Under the
Consumer Fraud Act, a “pyramid sales scheme” is defined as:
any plan or operation whereby a person in exchange for
money or other thing of value acquires the opportunity to
receive a benefit or thing of value, which is primarily
based upon the inducement of additional persons, by
himself or others, regardless of number, to participate in
the same plan or operation and is not primarily
contingent on the volume or quantity of goods, services, or
other property sold or distributed to be sold or distributed
to persons for purposes of resale to consumers.
815 ILCS 505/1(g). Woerner contends that his allegations fit the statute because his
complaint “clearly alleges that (1) [he] and new agents pay fees in order to acquire
the opportunity to generate commissions for marketing Bankers Life policies; and
(2) the commissions they generate are created mainly by re-writing the policies
previously written by prior new agents. And this scheme repeats itself, over and
over, as new agents are hired and slightly older agents are terminated.” R. 29 at 13.
Although Woerner alleges that “approximately 60% of Bankers Life’s
business is based on this scheme,” R. 1-1 at 34 (¶ 89), the Court cannot see how it
could be lucrative for Bankers Life. Although Woerner argues that commissions are
the Act: “‘consumers’ and persons who, although non-consumers, have suffered
damages resulting from conduct that is either directed toward the market or
otherwise implicates consumer protection concerns.” Wilo USA, LLC v. Desert
Boilers & Controls, Inc., 2014 WL 4214839, at *2 (N.D. Ill. Aug. 22, 2014). It may be
that Woerner is not the type of person or entity that can bring a claim under the
Consumer Fraud Act. But the parties failed to address the relevant authority, so
the Court will not apply it here.
15
“generated” by “re-writing” policies, that is not what he alleges, and it would not be
plausible if he did. Nowhere does Woerner allege that the “re-writes” cause policyholders to be required to pay an additional premium, which is of course the source
of a commission. It would be surprising if Bankers Life’s customers tolerated a
practice of having to pay additional premiums because Bankers Life decided to “rewrite” their policies for “non-material reasons,” as Woerner alleges. R. 1-1 at 10 (¶
22). But this is not what Woerner actually alleges. Instead, he alleges that “rewriting” the policies serves the purpose of taking commissions (and the right to
receive future commissions from policy renewals) from former agents and giving
them to current agents. Id. at 10-11 (¶¶ 22-23). Woerner has alleged how “rewriting” policies might be lucrative for new Bankers Life agents, but Woerner’s
allegations do not explain how this practice would be lucrative for Bankers Life
itself, because he has not alleged that it generates any additional revenue. Thus,
Woerner has failed to allege a plausible pyramid scheme.
Similarly, to the extent Woerner alleges that Bankers Life’s business model is
based on hiring many more agents than it requires in order to profit from the fees
assessed to new agents, these allegations also fail to allege a pyramid scheme.
Although agents might be said to pay the fees in order to acquire the “opportunity”
to sell Bankers Life policies, or have the “opportunity” to benefit from “re-writing”
the policies of former agents, neither of these benefits is “primarily based upon the
inducement of additional persons . . . to participate in the same plan or operation
and is not primarily contingent on the volume or quantity of goods, services, or
16
other property sold.” 815 ILCS 505/1(g). For Woerner’s allegations to state a claim,
he would have to allege that it is in the agents’ interests to recruit more agents “to
participate in the same plan.” Id. But under Woerner’s allegations it is distinctly
not in the agents’ interests to recruit new agents. In fact, according to Woerner, the
new agents cannibalize the former agents’ commissions. And as discussed, no
matter how many policies are “re-written,” the commissions are only ever generated
from “the volume or quantity of goods, services, or other property sold” in the form
of sales of policies. Although Bankers Life might plausibly generate revenue from
the fees it charges new agents, thereby giving Bankers Life an incentive to cycle
through as many new agents as possible, the agents do not join in this incentive. By
contrast, the Consumer Fraud Act requires the recruiter of “additional persons,”
and the “additional persons” themselves, to be part of the “same plan.” 815 ILCS
505/1(g). Woerner’s allegations demonstrate a fundamental disconnect between the
incentives of Bankers Life and its agents such that they cannot plausibly be said to
be part of the same pyramid scheme plan. Therefore, Count III is dismissed.
Conclusion
For the foregoing reasons, Bankers Life’s motion, R. 16, is denied with
respect to Count I’s allegations regarding chargebacks; and granted with respect to
Count I’s allegations regarding fees, Count II, and Count III, which are dismissed
without prejudice. Should Woerner believe he can cure the deficiencies the Court
has described in this opinion and order, he may file a motion for leave to file an
amended complaint by December 2, 2016. The motion should attached a proposed
17
amended complaint and be supported by a brief of no more than five pages
describing how the proposed amended complaint cures the deficiencies in the
current complaint. Should Woerner choose to file such a motion, Bankers Life
should not respond unless ordered to do so by the Court. At the status hearing set
for November 8, 2016, Woerner should be prepared to inform the Court and
Bankers Life whether he intends to file a motion for leave to amend.
ENTERED:
______________________________
Honorable Thomas M. Durkin
United States District Judge
Dated: October 27, 2016
18
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?