Minnesota Life Insurance Company v. Eischen et al

Filing 27

MEMORANDUM AND ORDER: Defendants' Motion to Dismiss Counts I, II, and IV of MLIC's Complaint 13 is granted with prejudice. Defendants' Motion to Dismiss Count III is granted as to Eischen without prejudice and denied as to AME. Signed by the Honorable Sharon Johnson Coleman on 4/10/2018. Mailed notice.(ym, )

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
MINNESOTA LIFE INSURANCE
COMPANY

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)
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Plaintiffs,
)
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v.
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MICHAEL A. EISCHEN and AME
)
FINANCIAL STRATEGIES NETWORK, )
INC.,
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Defendants.
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Case No. 16-cv-11231
Judge Sharon Johnson Coleman

MEMORANDUM AND ORDER
Plaintiff, Minnesota Life Insurance Company (“MLIC”) brings this action against Michael A.
Eischen (“Eischen”) and AME Financial Strategies Network, Inc. (“AME”) based on two separate
agreements: the “2009 Contract” between MLIC and Eischen, and the “2013 Contract” between
MLIC and AME. MLIC alleges that Eischen and AME breached their respective contracts or,
alternatively, were both unjustly enriched by their actions. Defendants now move to dismiss MLIC’s
entire Complaint for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).
For the foregoing reasons, defendants’ Motion to Dismiss is granted in part and denied in part.
Background
The following facts are taken as true for the purpose of deciding this motion. MLIC is a
Minnesota Corporation operating in Minnesota. Eischen is an Illinois resident and AME is an
Illinois corporation that operates in Chicago. Despite the existence of forum selection clauses in
both contracts, MLIC made the informed decision to waive the agreed upon venues and file this
lawsuit in the Northern District of Illinois. (Dkt. 26). Defendants do not contest the venue or
request arbitration. (Dkt. 25).

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The 2009 Broker Sales Contract
On August 15, 2009, MLIC and Eischen entered into a Broker Sales Contract (“2009
Contract”), under which MLIC agreed to pay Eischen a commission for each MLIC life insurance
customer he procured. The 2009 Contract contains the following “claw-back” or recapture
provisions:
2.1 COMMISSIONS
(a) Your compensation consists of commissions on products You sell. We will pay
commissions as We receive premiums in cash, subject to Our established practices in
effect at the time.
* * * *
(d) We have the right to refund any premiums paid on a policy if We believe this is proper where a
policy is rescinded, cancelled, or not accepted, or for any other reason We believe is proper. You agree
to return to Us, when we ask for it, all earnings which we credited to You on any premiums which
We refund.
* * * *
2.3 ADJUSTMENTS
(a) RETURNED PREMIUMS. All compensation paid to You as provided in
Section 2.1 under the applicable Brokerage Commission Schedule, on any premiums
that are subsequently returned or otherwise not received by Us shall, upon Our
demand, become a debt You owe to Us, payable according to paragraph 2.3(b)
FIRST CLAIM ON EARNINGS; and
(b) FIRST CLAIM ON EARNINGS. You agree to promptly repay all debts to Us
including reasonable interest as We determine. We have first claim on all of Your
earnings earned through Us. This means that, as and when elected, We may keep all
or any part of Your earnings to reduce any debt You owe Us . . .
(Dkt. 1, Ex. A)(emphasis added).
Pursuant to 2.1(d), the 2009 Contract allowed MLIC to recapture any commissions paid to
Eischen if MLIC refunded the insurance policy’s premiums to an insured in the case of rescission,
cancellation, not accepted, or any additional reason that is proper.

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The Dowling Policy
On November 10, 2011, Eischen submitted an application to MLIC for an insurance policy
on the life of Ronald L. Dowling (“Dowling”), which resulted in the issuance of a life insurance
policy to the Ronald R. Dowling Life Insurance Trust II (“Dowling Policy”) effective December 10,
2011. On December 1, 2011, the servicing firm acting on behalf of Eischen informed MLIC that
certain adjustments were made to the Dowling Policy based on a Life Insurance Policy Illustration
prepared by Eischen on September 29, 2011. As a result of this information, MLIC amended and
backdated the Dowling Policy to February 2, 2011 in order to “save age.” “Saving age” is when a
policyholder pays a few months in premium up front in order to set the effective date of a life
insurance policy strategically at the “younger age” to lock in a price. The Dowling Policy was then
assigned to Enterprise Bank and Trust (“Bank”) in order to finance the premiums due. The
Dowling Policy was issued and MLIC paid Eischen a commission of $612,215.96 in accordance with
the 2009 Contract.
On December 1, 2014, Mr. Dowling’s premium financing loan became due. At that time,
the cash surrender value of the Dowling Policy was $569,406.00 less than the amount owed on the
loan. As a result of the difference, the life insurance policyholder and Bank decided to surrender the
Dowling policy effective January 29, 2015. A “surrender” is when the insurance company pays out
the policy’s cash value because the policyholder voluntarily terminated the policy before its maturity
or the insured event occurred. After the surrender, MLIC paid out the Dowling Policy’s proceeds of
2,507,740.04 (minus the $20 administrative fee) to the Bank.
On December 16, 2014, Eischen filed a consumer complaint with the Illinois Department of
Insurance (“IDOI”). The complaint stated that changing the effective date from December 10,
2011 to February 2, 2011 in order to “save age” caused irreparable harm to the policy with regards
to its accumulation value. IDOI notified MLIC of the consumer complaint two days later and

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advised them that the Dowling Policy should not have been issued with a “save age” of more than 6
months. Since the Dowling Policy was backdated by more than 10 months, IDOI found that it was
issued in violation of Section 225(b) of the Illinois Insurance Code, 215 ILCS 5/225(b).
Accordingly, MLIC took steps to remedy the situation by notifying the Bank and Dowling
policyholder of the available remedies, which included rescission. A rescission is an agreement
between the policyholder and insurance company to return the parties to status quo as though the
contract were never made. It requires a return of all premiums paid. On March 18 and 19, 2015,
respectively, the policyholder and Bank decided to rescind the Dowling Policy.
As a result of the rescission, MLIC sent the Bank an additional refund of $463,248.22, which
equaled the net return of premiums minus the surrender amount previously paid to the Bank. On
March 27, 2015, almost two months after the Dowling Policy was surrendered, MLIC notified
Eischen that the policyholder and Bank rescinded the Dowling Policy, which permitted recapture of
his commission in accordance with the 2009 Contract. MLIC determined that Eischen owed MLIC
$400,135.96 (“Dowling Debt”) after factoring in his earning credits and interest.
On April 23, 2015, MLIC sent a letter to Eischen stating that his account was negative and
demanding payment in 30 days. Eischen refused to repay the Dowling Debt, which MLIC contends
breached the 2009 Contract. MLIC has continued to demand payment from Eischen for the
Dowling Debt to no avail.
Nevel Policy
On March 1, 2013, MLIC and AME Financial Strategies Network, Inc. entered into a
“Brokerage General Agency Contract” (“2013 Contract”). The agreement permitted MLIC to
appoint AME as a brokerage general agent and in return AME committed to procure applications
for life insurance products offered by MLIC. (Dkt. 2, Ex. B). Eischen was the president of AME
and signed the 2013 Contract in the officer section. The 2013 Contract contained compensation,

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recapture, and adjustment provisions that were substantially similar to the 2009 Contract, except the
designated brokerage general agent was AME. (Dkt. 1, Ex. A and B). The same day Eischen
executed an “Irrevocable Assignment of Commissions on Fixed Products” (“Assignment”), which
permitted Eischen to assign any or all of the first year and renewal commissions due or to become
due to him “under the terms and provisions of Assignor’s Broker Sales Contract with Minnesota
Life dated March 1, 2013” to AME. (Dkt. 1, Ex. C).
On March 8, 2013, AME and Eischen applied for life insurance on behalf of Ira T.
Nevel (“Nevel”) that resulted in a policy to the Ira T. Nevel Irrevocable Insurance Trust
(“Nevel Policy”). The Nevel Policy included a “Surrender Value Enhancement Agreement”
(“SVEA”) that was in effect until August 22, 2016. (Dkt. 1, Ex. D). Defendants agreed that
a surrender of the Nevel Policy while the SVEA was in place would result in a compensation
recapture in the following payment scheme:
100% of compensation paid in the last 12 months prior to surrender;
90% of compensation paid in the last 12-24 month period prior to surrender;
80% of compensation paid in the last 25-36 month prior to surrender.
(Dkt 1, Ex. D).
On August 19, 2016, the Nevel Policy holder of the Nevel Policy elected to
surrender the Nevel Policy in return for the proceeds of $4,943,532.90 (minus $20
administration fee). As a result of the surrender, MLIC attempted to recapture $548,458.25
(“Nevel Debt”) of the commission given to AME. On November 1, 2016, MLIC sent
Eischen a letter demanding repayment within fourteen days. Defendants refused and MLIC
continued demand recapture of the commission to AME for the Nevel Policy to no avail.
Legal Standard
A motion to dismiss pursuant to rule 12(b)(6) challenges the legal sufficiency of the
complaint, not its merits. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 569, 127 S.Ct. 1955, 167 L. Ed.

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2d 929 (2007). When ruling on a motion to dismiss, the Court must accept all well-pleaded factual
allegations in the complaint as true and draw all reasonable inferences in a plaintiff’s favor. Wigod v.
Wells Fargo Bank, N.A., 673 F.3d 547, 555 (7th Cir. 2012). To survive the dismissal, the complaint
must provide defendants with fair notice of the claim’s basis and must be facially plausible. Ashcroft v.
Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L. Ed. 2d 868 (2009). Contracts included as
attachments to and referenced in the pleadings can be adopted as part of the pleadings and
considered in the Court’s decision. 188 LLC v. Trinity Indus. Inc., 300 F.3d 730, 735 (7th Cir. 2002);
Levenstein v. Salafsky, 164 F.3d 345, 347 (7th Cir. 1998); Fed. R. Civ. P. 10(c).  
Discussion 
As an initial matter, despite the presence of a “choice-of-law” provision requiring the
application of Minnesota law neither party asserted this right, and both parties applied Illinois law in
their filings on this issue. The Court finds that the choice-of-law has been waived and accordingly,
applies the law of the present forum. McCoy v. Iberdrola Renewables, Inc., 760 F.3d 674, 684 (7th Cir.
2014)(citing Camp v. TNT Logistics Corp., 553 F.3d 502, 505 (7th Cir. 2009))(“When no party raises
the choice of law issue, the federal court may simply apply the forum state’s substantive law.”).
Count I - Breach of the 2009 Contract
Eischen argues that the claim for breach of the 2009 Contract fails because rescinding the
Dowling Policy after it was surrendered was a legal impossibility. He asserts that the policyholder’s
decision to first surrender the policy terminated the contract and thereafter foreclosed any
opportunity for further action on it. Thus, MLIC could not recapture Eischen’s commission. In
response, MLIC contends that the noncompliant provision of the policy rendered the contract void
ab initio, rendering rescission the only means of making the policyholder whole. So, MLIC claims
that Eischen must return his commission because the 2009 Contract permits recapture of
commissions in the event of rescission.

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The Illinois Insurance Code (“Code”) prohibits the inclusion of certain types of provisions
in life insurance policies. Despite such noncompliance, an insurance policy that includes prohibited
provisions, “shall be held valid, but shall be construed in accordance with the requirements of the
section that the said policy . . . violates.” 215 ILCS 5/442; Hubner v. Grinnell Mut. Reinsurance Co., 4 F.
Supp. 2d 803, 807 (C.D. Ill. 1998). Section 225(b) of the Code prohibits the inclusion of any
“provision by which the policy purports to be issued or take effect more than 6 months before the
original application for the insurance was made.” 215 ILCS 5/225(b).
In the instant case, MLIC alleges that the Illinois Department of Insurance (“IDOI”)
determined that the Dowling Policy was issued out of compliance with the Code because the “save
age” provision of more than six months violated Section 225(b) of the Code. Even in the case
where policies are issued out of compliance with the law, Section 442 is read to invalidate the noncompliant provision, not the entire contract. Ellis v. Sentry Ins. Co., 124 Ill. App. 3d 1068, 1073, 465
N.E.2d 565, 569 (1984); Harris v. St. Paul Fire & Marine Ins. Co., 248 Ill. App. 3d 52, 57, 618 N.E.2d
330, 333 (Ill. App. Ct. 1993). Accordingly, in light of Section 442, the Court should construe the
Dowling Policy as valid and in effect despite the noncompliant provision, not void ab initio as MLIC
contends.
By surrendering the policy on January 29, 2015 and acquiring its proceeds, the Dowling
Policy was effectively terminated, and the policyholder no longer had the right to exercise options
related to it. See Boyd v. Aetna Life Ins. Co., 35 N.E.2d 99, 100 (1941)(finding that by electing to
surrender the policy and receive the cash value of the policy, the holder waived any further rights
under the insurance policy); Gen. Acci. Fire & Life Assurance Corp. v. Browne, 217 F.2d 418, 424 (7th
Cir. 1954); see also TIG Ins. Co. v. Freeland (In re Consol. Indus. Corp.), 330 B.R. 709, 711 (Bankr.
N.D. Ind. 2004)(citing Couch on Insurance 3d, § 31:49)(“cancellation of an insurance policy

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terminates the contract, and the parties are relieved from any liability that might otherwise accrue
under the policy, though not from liability already accrued.”).
The Complaint alleges that the Dowling Policy was surrendered as of January 29, 2015,
which would have made the subsequent rescission and attempt at recapturing the commission two
months after impermissible. Further, the surrender option involves the payout of a policy’s
proceeds and not the premiums, so the commission for the surrendered Dowling policy was not
subject to the recapture provision. Since MLIC fails to allege a factual basis under which Eischen
was required to pay back his commission pursuant to the 2009 Contract, the Court dismisses Count
I.
Counts II and IV – Unjust enrichment
Eischen and AME move to dismiss Counts II and IV, arguing that unjust enrichment is an
improper remedy where contracts exist and govern the relationship between the parties. MLIC
alleges that Eishen and AME are being unjustly enriched because refusing to return the commission
violated the terms of the contracts between the parties.
Unjust enrichment occurs when a defendant retains benefits to a plaintiff’s detriment, and
retention of that benefit violates the principles of justice, equity, and good conscience. Cleary v. Philip
Morris Inc., 656 F.3d 511, 516 (7th Cir. 2011).  “Illinois law [however,] does not permit a party to
recover on a theory of quasi-contract[, like unjust enrichment,] when an actual contract governs the
parties’ relations on that issue.” Keck Garrett & Assocs., Inc. v. Nextel, 517 F.3d 476, 487 (7th Cir.
2008)(citing Illinois ex rel. Hartigan v. E & E Hauling, Inc., 153 Ill. 2d 473, 607 N.E.2d 165, 177 (Ill.
1992)).
Here, unjust enrichment is unavailable as a remedy because there are contracts that govern
the relationship between the parties and the terms for recapturing commissions. Further, a
“[p]laintiff’s unjust enrichment claim must not include allegations of a specific contract governing

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the parties relationship,” and both Counts II and IV do. Canadian Pac. Ry. Co. v. Williams-Hayward
Protective Coatings, Inc., No. 02 C 8800, 2003 U.S. Dist. LEXIS 6518, at *14 (N.D. Ill. Apr. 16,
2003)(St. Eve, J.). This Court finds that unjust enrichment is not viable as an alternative basis for
recovery here, so Counts II and IV of the Complaint are dismissed.
Count III - Breach of the 2013 Contract
AME moves to dismiss Count III of MLIC’s Complaint because it fails to allege
performance of its obligations under the contract—a necessary element of a breach claim. MLIC
contends that all the elements can be implied by the facts alleged in the Complaint.
To state a claim for breach of contract claim in Illinois, MLIC must allege: “(1) offer and
acceptance, (2) consideration, (3) definite and certain terms, (4) performance by the plaintiff of all
required conditions, (5) breach, and (6) damages.” Ass’n Ben. Servs. v. Caremark Rx, Inc., 493 F.3d 841,
849 (7th Cir. 2007). “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.” McReynolds v. Merrill Lynch & Co., 694 F.3d 873, 885 (7th Cir. 2012)(citing Ashcroft v. Iqbal,
556 U.S. 662, 678, 129 S. Ct. 1937 (2009)). Courts have found that elements of claims not explicitly
stated can be surmised from the facts in the complaint so long as the facts alleged go beyond stating
a “sheer possibility” that is consistent with a defendant’s liability. Ashcroft v. Iqbal, 556 U.S. at 678; see
e.g. Hi-Lite Prods. Co. v. Am. Home Prods. Corp., 11 F.3d 1402, 1410 (7th Cir. 1993)(finding that the
Complaint alleged sufficient facts to reasonably infer that a party caused third-party breaches even
though plaintiff failed to allege the whether the third parties terminated their contracts).
Here, the Court finds that the Complaint against AME alleges sufficient facts to state a
plausible breach-of-contract claim. First, MLIC provides that the terms of the 2013 Contract
require that MLIC pay AME a commission when AME procures insurance clients on MLIC’s
behalf. (Dkt. 1, ¶ 28). The Complaint also alleges that AME applied for and secured the Nevel

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Policy on behalf of MLIC. (Dkt. 1, ¶ 29). Finally, Count III specifically requests recovery of the
portion of the compensation that defendants earned on the Nevel Policy. (Dkt. 1, ¶ 53). Defendants
do not contest whether or not MLIC actually paid them the commission. Defendants merely argue
the technicality that MLIC did not expressly state that it gave defendants compensation for the
Nevel Policy in the Complaint. Reading the explicitly alleged facts in a light most favorable to the
MLIC, the Court finds that there is a sufficient basis to draw the reasonable inference that MLIC
compensation was given to defendants for securing the Nevel Policy. Consequently, this Court
finds the factual allegations in the Complaint state a claim that AME breached the 2013 Contract,
and defendants’ Motion as to Count III against AME is denied.
Eischen also moves to dismiss Count III because he claims he is not a party to the 2013
Contract that was allegedly breached. MLIC’s only support for Eischen’s personal liability is that he
signed the 2013 Contract. Under Illinois law, an agent acting on behalf of a corporation when
executing a contract cannot be personally liable for the contract unless there is some evidence
demonstrating contrary intent. Zahl v. Krupa, 399 Ill. App. 3d 993, 1012, 927 N.E.2d 262, 278 (2010);
Sullivan v. Cox, 78 F.3d 322, 326 (7th Cir. 1996).
Here, Eischen signed the contract in the section designated for the company’s “officer,”
which demonstrates that he intended to act as a proxy and not assume personal liability for the
agreement. See Sullivan, 78 F.3d at 326 (“When an officer signs a document and indicates next to his
signature his corporate affiliation, then absent evidence of contrary intent in the document, the
officer is not personally bound.”). MLIC does not allege any additional facts to demonstrate that
Eischen had a contrary intent or that there was another basis for individual liability. Thornbrook Int'l v.
Rivercross Found., No. 03 C 1113, 2004 U.S. Dist. LEXIS 12431, at *27 (N.D. Ill. July 6,
2004)(Kennelly, J.). As the law is clear that an officer’s signature in their representative capacity
alone is not sufficient to connect Eischen to the agreement, this Court finds that MLIC fails to state

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a claim of breach of contract against Eischen and Count III is dismissed against him without
prejudice.
Conclusion
Based on the foregoing, defendants’ Motion to Dismiss Counts I, II, and IV of MLIC’s
Complaint is granted with prejudice. Defendants’ Motion to Dismiss Count III is granted as to
Eischen without prejudice and denied as to AME.
IT IS SO ORDERED.

ENTERED:

SHARON JOHNSON COLEMAN
United States District Court Judge

Dated: 4/10/2018

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