Frederking v. Zurich North America Insurance et al
Filing
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ORDER: Defendant Zurich American Insurance Company's Motion to Dismiss Counts II through V of Plaintiff's Second Amended Complaint (Doc. 52 ) is GRANTED in part and DENIED in part. Signed by Judge Staci M. Yandle on 7/25/2016. (hjg)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
THOMAS FREDERKING, Individually and
on behalf of all similarly situated,
Plaintiff,
vs.
Case No. 14-cv-1041-SMY-SCW
ZURICH AMERICAN INSURANCE
COMPANY and TRIPLE CROWN
SERVICES COMPANY,
Defendants.
MEMORANDUM AND ORDER
This matter is before the Court on Zurich American Insurance Company's (Zurich)
Motion to dismiss Counts II-V and VII of Plaintiff's Second Amended Complaint (Doc. 52).
Plaintiff has filed a Response (Doc. 60).
For the following reasons, Zurich's motion is
GRANTED in part and DENIED in part.
The Complaint
According to his Amended Complaint, Plaintiff is an owner-operator truck driver who, as
a condition of employment, was required to sign a Contractor Operating Agreement
("Agreement") with Defendant Triple Crown (Doc. 48, ¶¶ 9-10, 17-18, Ex. 2). The Agreement
provides that the relationship between Triple Crown and its drivers/employees is "a relationship
of independent contractor and contractee and not an employer-employee, partnership or joint
venture relationship" (Doc. 48, Ex. 2, p. 15). Pursuant to the Agreement, Plaintiff is required to:
[A]ssume responsibility for and purchase, maintain and keep in force workers'
compensation and employers' liability insurance, at [Plaintiff's] expense, for [Plaintiff's]
own benefit and for the benefit of the drivers or other employees and agents, and all other
persons required to be covered under the workers' compensation law of any state that is
likely to have jurisdiction over Contractor's business operations. The workers'
compensation insurance policy shall apply as principal coverage in Indiana as well as
states in which the work is principally localized, shall provide total other states coverage
that excludes only North Dakota, Ohio, Washington, West Virginia and Wyoming, and
shall be in such amounts not less than the statutory limits required by applicable state
law. Such coverage shall also meet carrier's minimum criteria and be no less
comprehensive than the coverage carrier will facilitate on contractor's behalf if contractor
so chooses, as provide in this Agreement. (Doc. 48, Ex. 2, p. 10, ¶ 16(b)(3)).
Also, "[Plaintiff] may, as an alternative to obtaining workers' compensation coverage,
obtain occupational accident insurance coverage that meets [Defendant Triple Crown]'s
minimum requirements set for here. The coverage must provide benefits no less
comprehensive than the coverage [Triple Crown] will facilitate on [Plaintiff]'s behalf if
Plaintiff so chooses under this Agreement." (Doc. 48, Ex. 2, p. 10, ¶ 16(b)(3).
According to Plaintiff, the "alternative" insurance policy that Defendant Triple Crown
agreed to facilitate on the drivers' behalf in paragraph 16(b)(3) of the Agreement is specifically
identified as a Zurich American Insurance Company Occupational Accident Insurance policy
(Doc. 48, Ex. 1).
Plaintiff alleges that as a requirement of employment with Triple Crown,
drivers were required to sign an Appendix A to the Agreement, which authorized Triple Crown
to deduct premiums for the Zurich Operational Accident Insurance Policy from the drivers'
compensation. In other words, Plaintiff claims that as a condition of employment, he was
required to purchase Zurich's insurance policy and was prohibited from electing to be covered
under the Illinois Workers' Compensation Act. Plaintiff further alleges that instead of paying
workers' compensation premiums for its drivers in accordance with the Illinois Workers'
Compensation Act, Triple Crown deducted the premiums for workers' compensation insurance—
"deceptively calling said policy 'occupational accident insurance'"—from its drivers' paychecks
and paid the insurance premiums directly to Zurich.
Discussion
When a complaint includes allegations of fraud, Federal Rule of Civil Procedure 9(b)
requires that "a party must state with particularity the circumstances constituting
fraud…[m]alice, intent, knowledge, and other conditions of a person's mind may be alleged
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generally." Fed. R. Civ. P. 9(b). A plaintiff ordinarily must describe the "who, what, when,
where, and how" of the fraud—"the first paragraph of any newspaper story." Pierlli Armstrong
Tire Corp Retiree Medical Benefits Trust v. Walgreen Co., 631 F.3d 436 (7th Cir. 2011) (citing
United States ex rel. Lusby v. Rolls—Royce Corp., 570 F.3d 849, 854 (7th Cir. 2009). Although
Rule 9(b) does not require the plaintiff to plead facts sufficient to prove that the alleged
misrepresentations were false, it does require the plaintiff to state "the identity of the person
making the misrepresentation, the time, place, and content of the misrepresentation, and the
method by which the misrepresentation was communicated to the plaintiff." Camasta v. Jos. A.
Bank Clothiers, Inc., 761 F.3d 732, 737 (7th Cir. 2014) (quoting Uni*Quality, Inc. v. Infotronx,
Inc., 974 F.2d 918, 923 (7th Cir. 1992) (citations omitted)).
Count II –Illinois Consumer Fraud Act
To bring a claim under the Consumer Fraud Act, Plaintiff must allege (1) a deceptive act
or practice by Defendant, (2) an intent by Defendant that Plaintiff rely on the deception, and (3)
that the deception occurred in a course of conduct involving trade or commerce. Siegel v. Levy
Org. Dev. Co., 607 N.E.2d 194, 198 (Ill. 1992). See Miller v. Showcase Homes, Inc., 1999 WL
199605. Zurich argues that Plaintiff has failed to plead fraud with particularity to satisfy Rule
9(b) because, for example, Plaintiff does not provide any details regarding who made the alleged
misrepresentations to Plaintiff regarding the Truckers Occupational Accident Insurance policy.
Further, Zurich asserts that the allegations do not specify where the alleged misrepresentations
were made, the time or the method by which the alleged misrepresentations were made.
Plaintiff argues that he has met the requirements of Rule 9(b), but that even if he has not,
he is not required to do so because he did not allege deception but rather unfairness pursuant to
the Illinois Consumer Fraud Act. However, it is clear from the Amended Complaint that
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Plaintiff is alleging a deceptive practice: "[p]laintiff and class members, as a proximate result of
the defendant Zurich's misrepresentation, were tricked and deceived into paying Zurich their own
workers' compensation premiums…" (Doc. 48, p. 15, par. 46) (emphasis added). Thus, Plaintiff
must meet the heightened standard for pleading fraud under Rule 9(b).
Upon review of the Amended Complaint including the Exhibits attached thereto, the
Court finds that Plaintiff has properly pled fraud. Exhibit 3 to the Amended Complaint contains
a letter from Jennifer Pough, a Zurich Claim Professional, which indicates that its Occupational
Accident coverage is not a Worker's Compensation Plan. As such the letter sets forth the who,
what, where, when and how necessary to satisfy the pleading requirements of Rule 9(b).
Accordingly, Zurich's Motion to Dismiss Count II is denied.
Count III – Civil Conspiracy
Zurich also argues that Plaintiff has not sufficiently pled a civil conspiracy cause of
action because that claim is contingent upon the purported fraud. "'A civil conspiracy is a
combination of two or more persons acting in concert to commit an unlawful act…the principal
element of which is an agreement between the parties to inflict a wrong against or an injury upon
another, an overt act that results in damages.'" Cooney v. Casady, 735 F.3d 514, 519 (7th Cir.
2013) (quoting Hampton v. Hanrahan, 600 F.2d 600,621 (7th Cir. 1979). Because the purpose
of the alleged conspiracy was to commit fraud, Federal Rule of Civil Procedure 9(b) requires a
heightened pleading standard for conspiracy. Borsellino v. Goldman Sachs Group, Inc., 477
F.3d 502 (7th Cir. 2007). Courts "require a plaintiff to allege the parties, the general purpose,
and the approximate date of the conspiracy" to survive dismissal. Id. at 442-43.
The Court has found that Plaintiff has sufficiently pled fraud, thus the requisite
underlying cause of action exists. However, the Amended Complaint provides very little detail
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about the particulars of the alleged conspiracy. Plaintiff has alleged no dates for the conspiracy
or which individuals at Triple Crown and Zurich arranged the conspiracy. Plaintiff has alleged
that a conspiracy existed to commit deceptive and coercive acts, but without more facts as to the
"who" and "when," Plaintiff's claim of civil conspiracy must fail and Zurich's Motion to Dismiss
is granted as to Count III.
Count IV – RICO Violation
Next, Zurich asserts that Plaintiff's Amended Complaint fails to allege racketeering
because Plaintiff failed to allege that the mail communications were fraudulent, that he relied on
the purported statements or that Defendants acted with the specific intent to deceive or defraud.
Additionally, Zurich contends that Plaintiff failed to allege a "pattern of racketeering activity"
and that Plaintiff's RICO claims are time-barred. Zurich also argues that Plaintiff failed to
satisfy the requirements of Rule 9(b) by failing to allege who, when, where, how and why
regarding the alleged RICO violations.
Zurich argues that Plaintiff should have discovered his alleged RICO injuries prior to
September 26, 2010 - four years before this lawsuit was filed. Zurich notes that Plaintiff
affirmatively alleges that the first act of racketeering activity occurred when Triple Crown
mailed Plaintiff a "Dray Statement" on December 29, 2009. Therefore, according to Zurich,
Plaintiff should have known of his alleged injury on December 29, 2009, and that the statute of
limitations expired on December 29, 2013 with respect to this claim.
RICO claims are subject to a four-year statute of limitations. Rotella v. Wood, 528 U.S.
549, 555 (2000). The four-year period begins to run when the plaintiff discovers or should have
discovered his injury. Id. However, a plaintiff is not required to anticipate and overcome
affirmative defenses in a complaint.
Sidney Hillman Health Ctr. of Rochester v. Abbott
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Laboratories, 782 F.3d 922, 928 (7th Cir. 2015). "As long as there is a conceivable set of facts,
consistent with the complaint, that would defeat a statute-of-limitations defense, questions of
timelines are left for summary judgment (or ultimately at trial), at which point the district court
may determine compliance with the statute of limitations based on a more complete factual
record." Id.
Here, it is unclear when Plaintiff discovered his alleged injury. While Zurich argues that
Plaintiff discovered his injury when he received the Dray Statement, the Amended Complaint
does not state whether Plaintiff knew the withdrawals were wrongful at that time. When Plaintiff
knew or should have known that he was potentially wronged remains a question. Accordingly,
at this juncture, the Court cannot conclude that Plaintiff's RICO claim is time barred.
According to 18 U.S.C. §1962(c),
it is "unlawful for any person employed by or
associated with any enterprise engaged in, or the activities with affect, interstate or foreign
commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's
affairs through a pattern of racketeering activity or collection of unlawful debt" 18 U.S.C.
§1962(c). A RICO claim that rests on the predicate act of mail fraud must meet the particularity
requirement of Rule 9(b). Jepson, Inc. v. Makita Corp., 34 F.3d 1321, 1328 (7th Cir. 1994).
A RICO claim satisfies Rule 9(b) if it "within reason, describe[s] the time, place and
content of the mail…communications and…the parties to those communications." Id. The
mailings need not be fraudulent in and of themselves, but they must in some manner further a
scheme that entails some type of fraudulent misrepresentations or omissions. Jepson, Inc. v.
Makita Corp., 34 F.3d 1321, 1326-27 (7th Cir. 1994). "'Loose references to mailings…' in
furtherance of a purported scheme to defraud will not do." Jepson, Inc. v. Makita Corp., 34 F.3d
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at 1328 (quoting R.E. Davis Chem. Corp. v. Nalco Chem. Co., 757 F.Supp. 1499, 1516 (N.D. Ill.
1990).
Plaintiff has alleged that a representative from Zurich sent two letters which state that the
Occupational Accident Coverage was not a workers' compensation plan. Doc. 48, Exs. 3 & 4.
The letters contain the date and a signature by a claims representative. Doc. 48, Exs. 3 & 4. The
letters also indicate that they were sent to Plaintiff's attorneys and note that Plaintiff is the subject
of the letters. Thus, the letters meet the heightened requirement of Rule 9(b) for mail fraud under
RICO.
Additionally, Plaintiff has alleged that Zurich "mailed multiple pleadings in plaintiff
Frederking's Illinois Workers' Compensation claim…" (Doc. 48, p. 26). However, the complaint
allegations fail to state who sent the pleadings, where they sent the pleadings or to describe the
contents of the mailings other than as "multiple pleadings."
Nevertheless, Plaintiff has
sufficiently alleged two instances of mail fraud for purposes of RICO.
A RICO plaintiff must also identify an "enterprise."
United Food & Commercial
Workers Unions & Employers Midwest Health Benefits Fund v. Walgreen Co., 719 F.3d 849,
853 (7th Cir. 2013).
An "'enterprise' includes any individual, partnership, corporation,
association, or other legal entity, and any union or group of individuals associated in fact
although not a legal entity." 18 U.S.C. §1961(4). This term is to be interpreted broadly. Boyle v.
United States, 556 U.S. 938, 944 (2009). "Such an enterprise…is proved by evidence of an
ongoing organization, formal or informal, and by evidence that the various associates function as
a continuing unit." Id. at 944-45.
Here, Plaintiff alleges that Zurich and Triple Crown worked together to defraud Plaintiff that Triple Crown withheld premiums from Plaintiff's paycheck and sent the premiums to Zurich.
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Plaintiff further alleges that while both Defendants claim that he was not entitled to Illinois
Worker's Compensation Insurance because there was no employee/employer relationship, Zurich
and Triple Crown nevertheless used premiums from the Occupational Accident Policy to pay
workers' compensation claims. These allegations satisfy the pleading requirement for
establishing an enterprise.
Plaintiff however, has not sufficiently pled a "pattern of racketeering." A pattern of
racketeering requires at least two predicate acts of racketeering within a ten year period. 18
U.S.C §1961(5). Establishing a pattern requires a showing of the "continuity plus relationship"
test: that the racketeering predicates are related to one another and pose a threat of continued
activity. Pursuant to Rule 9(b), Plaintiff must detail the circumstances surrounding the fraud,
including when it began. EQ Financial, Inc. v. Personal Financial Co., 421 F.Supp.2d 1138,
1145 (N.D. Ill. March 23, 2006).
Plaintiff alleges that the pattern of racketeering has been ongoing for ten years using the
United States mail system, but has failed to allege with particularity when the activity actually
commenced and who the representatives were for either defendant. A vague assertion that the
activity has been ongoing for 10 years is not sufficient. Plaintiff is required to allege with
specificity the time and place connected with the pattern of activity. Because this element of the
RICO claim fails, Plaintiff's entire RICO claim fails.
Count V – Preliminary Injunction
In urging the dismissal of Count V, Zurich asserts that a complaint is not the proper
vehicle to bring a preliminary injunction action. The Court agrees. A request for a preliminary
injunction should be filed in a separate motion in accordance with Federal Rule of Civil
Procedure 65 and Rule 7(b). Accordingly, Count V is STRICKEN.
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Count VII – Unjust Enrichment
Finally, Zurich argues that Count VII must be dismissed because Plaintiff has failed to
sufficiently allege any underlying improper conduct. To state a cause of action for unjust
enrichment under Illinois law, a plaintiff must allege that the defendant has unjustly retained a
benefit to plaintiff's detriment and that the defendant's retention of the benefit violates
fundamental principles of justice, equity and good conscience. Cleary v. Phillip Morris Inc., 656
F.3d 511, 516 (7th Cir. 2011). "[I]f the unjust enrichment claim rest on the same improper
conduct alleged in another claim, then the unjust enrichment claim will be tied to this related
claim—and, of course, unjust enrichment will stand or fall with the related claim." Id. at 517.
Here, Plaintiff's unjust enrichment clalim rests on his claim of fraud ("Zurich has been
unjustly enriched by its fraud" (Doc. 48, p. 35, ¶124)). Plaintiff has sufficiently pled fraud and
has also sufficiently pled unjust enrichment. Plaintiff alleges that Zurich collected premiums
under false pretenses and that the policy Zurich supplied allegedly provided significantly fewer
benefits to Plaintiff and did so fraudulently. Plaintiff also alleges that Zurich's retention of the
financial gains was fraudulent.
For the foregoing reasons, Zurich's Motion to Dismiss Plaintiff's Second Amended
Complaint is DENIED as to Counts II and VII and is GRANTED without prejudice as Counts
III and IV as they relate to Defendant Zurich. Count V is STRICKEN. Plaintiff may file a
Third Amended Complaint within 30 days of the entry of this Order.
IT IS SO ORDERED.
Date: July 25, 2016
s/ Staci M. Yandle
STACI M. YANDLE
DISTRICT JUDGE
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