United Ironworkers, Inc. v. Travelers Insurance Co. et al

Filing 64

ORDER GRANTING 41 Motion to Dismiss filed by Defendant NEC Insurance, Inc. and 49 Motion to Dismiss filed by the Travelers Defendants. The Travelers Defendants' first Motion to Dismiss (Doc. 24 ) is DENIED as moot. Count I is dismissed for improper venue pursuant to Rule 12(b)(3), as it is subject to arbitration. Count III is dismissed with prejudice for failure to state a claim pursuant to Rule 12(b)(6). The Motion to Stay Arbitration filed by Plaintiff United Ironworkers, Inc. (Doc. 45 ) is DENIED as moot. Finally, Defendant Paul Dickey is DISMISSED without prejudice for failure to prosecute. The only claim currently remaining in this case is Count II, United's claim for breach of contract against Defendant NEC. Signed by Judge Nancy J. Rosenstengel on 1/2/2019. (mlp)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ILLINOIS
UNITED IRONWORKERS, INC.,
Plaintiff,
vs.
TRAVELERS PROPERTY CASUALTY
COMPANY OF AMERICA, TRAVELERS
INDEMNITY COMPANY,
NEC INSURANCE, INC., and
PAUL K. DICKEY,
Defendants.

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Case No. 3:18-CV-553-NJR-DGW

MEMORANDUM AND ORDER
ROSENSTENGEL, District Judge:
This matter is before the Court on the Motion to Dismiss Count III of Plaintiff’s
Amended Complaint filed by Defendant NEC Insurance, Inc. (“NEC”) (Doc. 41), the Motion
to Dismiss filed by Defendants Travelers Indemnity Company and Travelers Property
Casualty Company of America (“Travelers” or “Travelers Defendants”) (Doc. 49), and the
Motion to Stay Arbitration filed by Plaintiff United Ironworkers, Inc. (“United”) (Doc. 45).
For the reasons set forth below, the Court grants the motions to dismiss.
JURISDICTION
On December 18, 2017, United filed a complaint against Travelers and NEC in the
Circuit Court for Randolph County, Illinois (Doc. 1). Travelers was served on February 7,
2018, and NEC was served on February 8, 2018 (Docs 1-1, 1-3). On March 8, 2018, Travelers
and NEC jointly removed the case to this Court under 28 U.S.C. §§ 1332 and 1441, as the case
falls within this Court’s diversity jurisdiction (Id.). Specifically, United is an Illinois

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corporation with its principal place of business in Steeleville, Illinois, the Travelers
Defendants are both Connecticut corporations with their principal place of business in
Hartford, Connecticut, and NEC is a Missouri corporation with its principal place of business
in Pacific, Missouri (Id.). Additionally, the $75,000 amount in controversy requirement is met,
as United claims it was overcharged $1,791,512 under the insurance policies at issue and also
seeks punitive damages.
On April 25, 2018, United filed an Amended Complaint adding Paul Dickey as a
defendant, as well as a claim under the Racketeer Influenced and Corrupt Organizations Act
(“RICO”), 18 U.S.C. § 1964, et seq. Dickey’s citizenship has not been pleaded and is unknown
for purposes of diversity jurisdiction; however, the RICO claim creates federal question
subject matter jurisdiction pursuant to 28 U.S.C. § 1331.
BACKGROUND
United is a company that specializes in assembling rebar inside concrete and in the
erection of structural steel (Doc. 28, ¶ 3). Defendant Paul Dickey was the Controller/Account
Manager for United until the end of 2016 (Id., ¶ 6). As the Controller, Dickey was responsible
for securing the company’s workers’ compensation insurance policies (Id.). Dickey retained
NEC as United’s insurance broker and allegedly took payments from NEC in the form of
dinners, golf, drinks, and other entertainment for himself and his girlfriend (Id.). In exchange,
Dickey allegedly misrepresented and concealed from United’s President Kim Rasnick the
“fraudulent and excessive nature” of the workers’ compensation policies he obtained
through NEC (Id.). Dickey allegedly also prevented other brokers from bidding for United’s
workers’ compensation insurance business (Id.).
On behalf of United, Dickey executed contracts—called Insurance Program
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Agreements (IPAs)—for workers’ compensation insurance with Travelers in 2015 and 2016.
These IPAs charged United for both “guaranteed cost coverage” and “retrospective
coverage,” which in effect “double-billed” United (Id., ¶ 8). Meanwhile, the actual insurance
policies for 2015 and 2016 only reflected premium payments for “retrospective” coverage
(Id.).
United alleges that NEC, which had an obligation to provide United with sufficient
information to obtain accurate information regarding premiums and coverage, engaged in a
scheme with Dickey and an agent for Travelers to defraud United (Id., ¶ 10). United claims
NEC had an interest in Travelers receiving the highest possible premiums because it was paid
by Travelers based on the total premiums paid and that Travelers benefitted from this
“corrupt NEC arrangement” (Id., ¶¶ 12-13). Meanwhile, Dickey concealed that Travelers was
double-billing United and mischaracterized payments of retrospective premiums, claiming
the payments were for underestimated payroll (Id., ¶10).
Prior to 2015, Travelers, through United’s broker NEC, provided workers’
compensation coverage to United through a guaranteed cost policy. In May 2014, however,
Travelers greatly over-reserved for a single employee claim, raising the workers’
compensation plan’s reserve by $777,193. This drove United’s experience modification rate
(“EMR”) to a point where United had to seek insurance for workers’ compensation either
through the state risk pool, which was served only by Travelers, or directly from Travelers
(Id., ¶ 13). United alleges neither Travelers nor NEC investigated the May 2014 increase in
reserves, which led to United paying exorbitant premiums when the cost guaranteed policy
of previous years was changed to a cost guaranteed and retrospective policy (Id.). United
claims it paid an additional premium of more than $800,000 per year as a result, even though,
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as of March 16, 2015, the United employee was back at work full time with no work
restrictions and the reserve could have been reduced to more accurately reflect the exposure
(Id., ¶¶ 13, 19).
United also claims Travelers and NEC did not deliver the applicable insurance
documents for signature until after the 2015 and 2016 policy years had begun (Id., ¶ 20). While
a proposal was sent to Dickey on December 19, 2014, the actual 2015 policy was not issued
until January 20, 2015 (Id.). The 2016 policy was not signed by Dickey until January 22, 2016
(Id., ¶¶ 21-22). United alleges this violated Illinois law, which requires an insurance company
to notify its insured within thirty days from the expiration of the policy in order to give the
insured time to obtain quotes for replacement coverage (Id., ¶ 23). United contends this
eliminated any realistic possibility for it to obtain quotes from other insurers and asserts this
was a scheme developed by Travelers and NEC to put United in the position of having no
other insurance options other than insuring again with Travelers (Id.).
United further claims there are misrepresentations in the insurance policies
themselves. According to United, the 2015 and 2016 policies are described only as
retrospective policies, not as guaranteed cost policies (Id., ¶ 24). The policies provide that “the
only agreements relating to this insurance are stated in this policy. The terms of this policy
may not be changed or waived except by endorsement issued by us to be part of this policy.”
To United’s knowledge, no endorsement was ever issued (Id.). Therefore, it alleges, the
guaranteed cost premium was fraudulently added to the retrospective plan. United estimates
that Travelers overcharged premiums by at least $1.782 million over 2015 and 2016 (Id., ¶ 28).
United’s Amended Complaint asserts three counts. Count I is a claim under the
Illinois Consumer Fraud and Deceptive Business Practice Act against Travelers (“ICFA”) (Id.,
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¶¶ 32-40). Count II asserts a breach of contract claim against NEC (Id., ¶¶ 41-48). Count III
asserts a claim under the Racketeer Influenced and Corrupt Organizations Act (“RICO”)
against Travelers, NEC, and Dickey (Id., ¶¶ 49-66).
On March 22, 2018, Travelers demanded that United arbitrate all disputes arising out
of or concerning the payment of premium or other program charges (Doc. 49-1). In doing so,
Travelers relied on identical arbitration provisions in the 2015 and 2016 IPAs (Doc. 28-6,
pp. 27-29; Doc. 28-9, pp. 2-4). While objecting to arbitration, United also named its partyappointed arbitrator so as to not waive any rights regarding the selection of the arbitrator.
On May 24, 2018, in response to United’s Amended Complaint, NEC filed a motion to
dismiss Count III, the RICO Act claim against all Defendants, for failure to state a claim under
Rule 12(b)(6) of the Federal Rules of Civil Procedure (Doc. 41). On May 29, 2018, Travelers
filed a motion to dismiss Counts I and III of the Amended Complaint under Rule 12(b)(3)
because those claims are subject to the arbitration provisions contained in the IPAs for 2015
and 2016 (Doc. 49). 1 Alternatively, Travelers asks the Court to dismiss those counts under
Rule 12(b)(6) for failure to state a claim.
Also before the Court is a motion to stay arbitration filed by United (Doc. 45). United
asserts that its ICFA and RICO claims do not fall within the scope of the arbitration
agreement. Accordingly, the arbitration proceedings should be stayed pending the Court’s
ruling on the motions to dismiss.
LEGAL STANDARD
A motion to dismiss under Federal Rule of Civil Procedure 12(b)(6) is meant to “test

Travelers also filed a Motion to Dismiss the original Complaint. Because the Amended Complaint is now the
operative pleading, Travelers’ first Motion to Dismiss (Doc. 24) is moot.
1

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the sufficiency of the complaint, not to decide the merits” of the case. Gibson v. City of Chi.,
910 F.2d 1510, 1520 (7th Cir. 1990) (citation omitted). In evaluating a motion to dismiss, the
Court must accept all well-pleaded allegations in the complaint as true and draw all reasonable

inferences in the plaintiff’s favor. Cole v. Milwaukee Area Tech. Coll. Dist., 634 F.3d 901, 903 (7th
Cir. 2011); Thompson v. Ill. Dep’t. of Prof’l Regulation, 300 F.3d 750, 753 (7th Cir. 2002). Pursuant
to Federal Rule of Civil Procedure 8(a)(2), a complaint must include a short and plain
statement of the claim, showing that the pleader is entitled to relief. FED. R. CIV. P. 8(a)(2).
Accordingly, the Court may grant a motion to dismiss under Rule 12(b)(6) only if a complaint
lacks “enough facts to state a claim [for] relief that is plausible on its face.” Ashcroft v. Iqbal,
556 U.S. 662, 697, 129 S. Ct. 1937, 1960 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544,
570, 127 S. Ct. 1955, 1974 (2007)); Swanson v. Citibank, N.A., 614 F.3d 400, 404 (7th Cir. 2010).
“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.” Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 556, 127 S. Ct. at
1955). While a complaint need not include detailed factual allegations, there “must be enough
to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. “Threadbare
recitals of the elements of a cause of action, supported by mere conclusory statements, do not
suffice.” Iqbal, 556 U.S. at 678, 129 S. Ct. at 1949 (citing Twombly, 550 U.S. at 556, 127 S. Ct. at
1955). These requirements ensure that “the defendant [receives] fair notice of what the . . .
claim is and the grounds upon which it rests . . . .” Twombly, 550 U.S. at 556, 127 S. Ct. at 1964
(quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 103 (2007)).
In the context of a defendant’s motion to dismiss for improper venue under Rule
12(b)(3), the plaintiff bears the burden of proving that venue is proper. See Nathan v. Morgan
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Stanley Renewable Dev. Fund, LLC, No. 11 C 2231, 2012 WL 1886440, at *11 (N.D.Ill. May 22,
2012) (Lefkow, J.) (citing Interlease Aviation Invs. II (Aloha) LLC. v. Vanguard Airlines, Inc., 262
F.Supp.2d 898, 913 (N.D. Ill. 2003) (Alesia, J.)). In making this determination, a “court may
examine facts outside the complaint . . . .” First Health Grp. Corp. v. Sanderson Farms, Inc., No.
99 C 2926, 2000 WL 139474, at *2 (N.D. Ill. Jan. 31, 2000) (Manning, J.) (citations omitted).
DISCUSSION
I.

Travelers’ Motion to Dismiss for Improper Venue Pursuant to the IPAs’
Arbitration Provisions
Travelers first moves to dismiss Counts I and III of the Amended Complaint under

Rule 12(b)(3) because they fall under the arbitration provision contained in the executed IPAs
for 2015 and 2016 (Doc. 49).
“[T]he Seventh Circuit has instructed district courts that a motion seeking dismissal
based on an arbitration agreement should be decided under Rule 12(b)(3) . . . .” Soucy v.
Capital Mgmt. Servs., L.P., No. 14 C 5935, 2015 WL 404632, at *3 (N.D. Ill. Jan. 29, 2015) (citing
Gabbanelli Accordions & Imports, LLC v. Gabbanelli, 575 F.3d 693, 695 (7th Cir. 2009));
Faulkenberg v. CB Tax Franchise Sys., LP, 637 F.3d 801, 807 (7th Cir. 2011) (quoting Auto. Mechs.
Local 701 Welfare & Pension Funds v. Vanguard Car Rental USA, Inc., 502 F.3d 740, 746 (7th Cir.
2007) (“[W]e have held that a motion to dismiss based on a contractual arbitration clause is
appropriately “conceptualized as an objection to venue, and hence properly raised under
Rule 12(b)(3).”)). When ruling on a motion to dismiss for improper venue, the district court
is not “obligated to limit its consideration to the pleadings [or to] convert the motion to one
for summary judgment” if the parties submit evidence outside the pleadings. Faulkenberg, 637
F.3d at 809-10 (quoting Cont’l Cas. Co. v. Am. Nat. Ins. Co., 417 F.3d 727, 733 (7th Cir. 2005)).

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The Federal Arbitration Act (“FAA”) requires courts “to place written arbitration
agreements on the same footing as other contracts.” Scheurer v. Fromm Family Foods LLC, 863
F.3d 748, 752 (7th Cir. 2017); see also Gore v. Alltel Commc’ns, LLC, 666 F.3d 1027, 1032 (7th Cir.
2012) (The FAA “embodies both a liberal federal policy favoring arbitration and the
fundamental principle that arbitration is a matter of contract.”). Pursuant to the FAA,
arbitration should be compelled if three elements are present: (1) an enforceable written
agreement to arbitrate, (2) a dispute within the scope of the arbitration agreement, and (3) a
refusal to arbitrate. Scheurer, 863 F.3d at 752. “[A]n enforceable agreement to arbitrate must
first exist between the parties before the courts can compel arbitration.” Stone v. Doerge, 245
F.Supp.2d 878, 881 (N.D. Ill. 2002), aff’d, 328 F.3d 343 (7th Cir. 2003). “[A] party cannot be
required to submit to arbitration any dispute which he has not agreed so to submit.” Gore,
666 F.3d at 1032 (citation omitted).
Whether a dispute is subject to arbitration pursuant to a valid arbitration agreement
is a threshold issue to be decided by the court. Howsam v. Dean Witter Reynolds, Inc., 537 U.S.
79, 83-83 (2002). When the existence of a binding arbitration agreement is in dispute, “the
district court must accept the non-movant’s evidence as true, drawing all reasonable
inferences in his favor.” Sanato v. Sears, Roebuck & Co., No. 15-CV-7486, 2016 WL 9631332, at
*2 (N.D. Ill. Feb. 11, 2016).
A.

Validity of the Arbitration Provisions

In this case, Travelers argues that the 2015 and 2016 IPAs contained valid arbitration
provisions stating that “any arbitration proceeding arising out of or related to this Agreement
shall be governed by the Federal Arbitration Act (‘FAA’).” And under Connecticut law, the
law under which the IPAs state they are to be governed, an agreement in a contract to settle
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by arbitration any controversy arising out of that contract shall be valid, irrevocable, and
enforceable. See CONN. GEN. STAT. § 52-408. Because it is undisputed that United signed the
contracts containing the arbitration provisions, Travelers asserts, they are valid and
enforceable.
United does not dispute that it, via Dickey, executed written contracts containing
arbitration provisions (Docs. 28-6, 28-7, 28-8, 28-9, 28-10). Instead, United challenges the
validity of the formation of the 2015 and 2016 IPAs as a whole. It is well-established, however,
that “[u]nless the challenge is to the arbitration clause itself, the issue of the contract’s validity
is considered by the arbitrator in the first instance.” Buckeye Check Cashing, Inc. v. Cardegna,
546 U.S. 440, 445–46 (2006). Thus, “a court may consider a claim that a contracting party was
fraudulently induced to include an arbitration provision in the agreement but not claims that
the entire contract was the product of fraud.” James v. McDonald’s Corp., 417 F.3d 672, 680 (7th
Cir. 2005) (emphasis added) (citing Sweet Dreams Unlimited v. Dial–A–Mattress Int’l, Ltd., 1
F.3d 639, 641 n. 4 (7th Cir. 1993)).
That is exactly the claim United is making here: the contracts signed by United were
the result of Travelers’ unfair or deceptive acts and, thus, are invalid. United’s citation to
Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287 (2010), is unhelpful to its position, as
United apparently confuses the Supreme Court’s reference to “formation of the parties’
arbitration agreement” with formation of the agreement generally. See Granite Rock, 561 U.S.
at 299-302. Because it is undisputed that the 2015 and 2016 IPAs contained valid arbitration
provisions, the issue of whether the contracts themselves were validly formed is an issue is
for the arbitrator, not this Court, to decide.

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B.

Scope of the Arbitration Provisions

Travelers next argues that United’s claims are within the scope of the arbitration
provisions. The IPAs’ arbitration provisions cover disputes “about the parties’ rights and
duties relative to payment of premiums and other charges under this Agreement and the
Policies” and all disputes regarding “whether and how much [Travelers’] claims handling
practices . . . may impact the amount of premiums and other charges which [United] may
owe [Travelers] under this Agreement and the Policies.” Travelers asserts that United cannot
avoid arbitration by framing its claims against Travelers as violations of the ICFA and the
RICO Act.
In response, United asserts that its ICFA claim goes to “the very heart of the sale of
this insurance contract” and is not simply about the payment of insurance premiums or claim
handling (Doc. 56, p. 8). With regard to its RICO claim, United criticizes Seventh Circuit case
law holding that RICO claims are arbitrable and goes on to assert that this case is not a simple
dispute regarding payment of insurance premiums or a “garden-variety contract claim”
intended to be governed by the arbitration clause.
Whether a party has agreed to arbitrate a particular dispute is a question for the courts
to decide. United Steel, Paper & Forestry, Rubber, Mfg., Energy, Allied Indus. & Serv. Workers Int’l
Union v. TriMas Corp., 531 F.3d 531, 535 (7th Cir. 2008). In determining whether a contract’s
arbitration clause applies to a dispute, federal courts apply state-law principles of contract
formation. Gore v. Alltel Commc’ns, LLC, 666 F.3d 1027, 1032 (7th Cir. 2012) (citing Rosenblum
v. Travelbyus.com Ltd., 299 F.3d 657, 662 (7th Cir. 2002)). If it is clear that the parties have a
contract providing for arbitration of some issues between them, any doubt concerning the
scope of the arbitration clause is resolved in favor of arbitration as a matter of federal law. Id.
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“Therefore, a court should compel arbitration ‘unless it may be said with positive assurance
that the arbitration clause is not susceptible of an interpretation that covers the asserted
dispute.’” Welborn Clinic v. MedQuist, Inc., 301 F.3d 634, 639 (7th Cir. 2002) (quoting United
Steelworkers of Am. v. Warrior & Gulf Navigation Co., 363 U.S. 574, 582-83 (1960)). “Despite this
strong pro-arbitration tilt, agreements must not be construed so broadly as to force arbitration
of claims that the parties never agreed to submit to arbitration.” Id.
In Illinois, courts interpret contracts to ascertain and give effect to the intent of the
parties by considering “the objective manifestations of the parties, including the language
they used in the contract.” Id. (quoting Carey v. Richards Bldg. Supply Co., 856 N.E.2d 24, 27
(Ill. App. Ct. 2006)). Where the contract’s language is plain, the agreement should be enforced
as written. Id.
In this case, the arbitration provision in both the 2015 and 2016 IPAs are narrowly
written. They do not, as many arbitration provisions often do, provide for the resolution of
all claims and controversies “arising out of or relating to” the contract. Instead, the provisions
specifically state that the parties agree to arbitrate disputes involving “the parties’ rights and
duties relative to payment of premium and other charges under this Agreement and the
Policies” and “whether and how much [Travelers’] claims handling practices (e.g.,
investigation, administration, payments in connection with any claims under the Policies)
may impact the amount of premium and other charges which [United] may owe to
[Travelers]" (Doc. 28-6, p. 27; Doc. 28-9, p. 2) (emphasis added).
In its ICFA claim, United alleges, among other things, that Travelers over-reserved for
a single employee claim, thereby artificially inflating United’s loss history and increasing the
future premiums United would have to pay because of the claim by one employee (Doc. 28,
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¶¶ 34, 39(g)). United also alleges Travelers put its own interests ahead of United by “doublebilling” United for insurance premiums while also failing to advise United of that fact (Id.,
¶¶ 37-39(d)).
The Court finds that these issues relate to United’s duty to pay premiums and
Travelers’ claim-handling practices and, thus, fall within the scope of the arbitration
provisions in the 2015 and 2016 IPAs. At the very least, the Court cannot positively say that
the arbitration clause cannot be interpreted to cover the asserted dispute, and any doubt must
be resolved in favor of arbitration. Thus, United’s ICFA claim is subject to arbitration.
The same cannot be said, however, for United’s RICO claim. In sum, United alleges
Travelers, NEC, and Dickey created an enterprise with the common purpose of defrauding
United by over-reserving, double-billing, and preventing other insurance brokers from
quoting insurance. While United does allege that Travelers’ double-billing and charging of
excessive premiums was part of the scheme, when viewed as a whole, the RICO claim relates
more generally to Defendants’ concerted efforts to defraud United. These allegations do not
fall within the limited scope of the arbitration provisions and, therefore, are not subject to
arbitration.
C.

Waiver

Lastly, United argues that Travelers waived arbitration when it removed the case to
this Court rather than immediately enforcing its arbitration rights in state court. This
argument is a non-starter.
It is true that the “election to proceed before a nonarbitral tribunal for the resolution
of a contractual dispute is a presumptive waiver of the right to arbitrate.” Cabinetree of
Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 390 (7th Cir. 1995). For an enforcing
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party to waive its arbitration rights, it must have acted inconsistently with an intent to
arbitrate—an inconsistency that can be demonstrated by the enforcing party’s actions
throughout the case. Kawasaki Heavy Indus., Ltd. v. Bombardier Recreational Prods., Inc., 660 F.3d
988, 995 (7th Cir. 2011). A number of points are relevant to the implied waiver inquiry, among
them the extent of a party’s diligence in seeking arbitration, the extent of a party’s delay in
moving for arbitration, and the extent of the party’s participation in litigation, including its
participation in discovery. Cooper v. Asset Acceptance, LLC, 532 F. App’x 639, 641 (7th Cir.
2013).
To date, Travelers has not engaged in any discovery. While it did remove the case to
this Court on the basis of diversity jurisdiction, it has taken no other steps to litigate the case
in federal court. Instead, it responded to United’s complaint with a Motion to Dismiss the
counts against it because United’s claims are subject to arbitration. See All Am. Roofing, Inc. v.
Zurich Am. Ins. Co., 934 N.E.2d 679, 684 (Ill. App. Ct. 2010). When United subsequently filed
an Amended Complaint, Travelers again responded with a Motion to Dismiss. Because
Travelers has not acted inconsistently with its intent to arbitrate, the Court finds that
Travelers has not waived its arbitration rights.
Because the 2015 and 2016 IPAs contain valid arbitration provisions that apply to
United’s ICFA claims, and because the IPAs direct arbitration outside this District, dismissal
of United’s ICFA claim for lack of venue under Rule 12(b)(3) is appropriate. United’s RICO
claim is not subject to arbitration, however, and it remains in this action.
II.

Travelers’ and NEC’s Motion to Dismiss United’s RICO Act Claim
Having dismissed the ICFA claim for improper venue, the Court now turns to

Defendants’ Motions to Dismiss Count III of the Amended Complaint for failure to state a
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claim. Defendants argue that Count III should be dismissed because United has failed to
adequately allege the elements of a RICO Act claim.
As argued by NEC, the purpose of the RICO Act was to eradicate organized crime in
the United States and curb the infiltration of legitimate business organizations by racketeers,
not to cover all instances of wrongdoing or turn garden-variety state law fraud claims into
RICO claims. See Pub. L. No. 91-452, 84 Stat. 922 (1970); Jennings v. Auto Meter Products, Inc.,
495 F.3d 466, 472 (7th Cir. 2007); Gamboa v. Velez, 457 F.3d 703, 710 (7th Cir. 2006) (“Civil RICO
plaintiffs persist in trying to fit a square peg in a round hole by squeezing garden-variety
business disputes into civil RICO actions. While the scope of civil RICO extends beyond the
prototypical mobster or organized crime syndicate, it is equally evident that RICO has not
federalized every state common law cause of action available to remedy business deals gone
sour.”). Yet, that is what United is attempting to do in this case: turn ordinary business
relationships into a criminal enterprise.
United seeks relief under 18 U.S.C. § 1962(c), which makes it “unlawful for any person
employed by or associated with any enterprise engaged in, or the activities of which 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.” Accordingly, to state a claim for a RICO violation, a plaintiff must allege a cognizable
injury to its business or property resulting from the “(1) conduct (2) of an enterprise
(3) through a pattern (4) of racketeering activity.” Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S.
479, 496 (1985).
The Supreme Court has explained that “an association-in-fact enterprise must have at
least three structural features: a purpose, relationships among those associated with the
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enterprise, and longevity sufficient to permit these associates to pursue the enterprise’s
purpose.” Boyle v. United States, 556 U.S. 938, 946 (2009). While an enterprise can be informal,
i.e., not a legal entity, it must have some structure, evinced by a common purpose, some
longevity, and relationships among those associated with it. Patel v. Fendler, No. 15-CV-0366MJR-PMF, 2016 WL 6248285, at *2 (S.D. Ill. Oct. 26, 2016) (citing Boyle, 556 U.S. at 945-47).
Each person or entity targeted for liability for a violation of 18 U.S.C. § 1962(c) must have
“participated in the operation or management” of the enterprise, such that it played a role
“in directing the enterprise’s affairs” and not just its own operations. Id. (quoting Reves v.
Ernst & Young, 507 U.S. 170, 185 (1993)). Furthermore, the enterprise must engage in a pattern
of “racketeering,” which is defined as behavior that violates certain enumerated federal
statutes or state laws addressing specific topics and bearing specific penalties. Guaranteed
Rate, Inc. v. Barr, 912 F. Supp. 2d 671, 681 (N.D. Ill. 2012) (citing 18 U.S.C. §§ 1962(c); 1961(1)).
Here, United asserts Travelers, NEC, and Dickey constituted an enterprise whose
activities affected interstate or foreign commerce in that Travelers and NEC provided
insurance policies throughout the country. Moreover, the enterprise had the common
purpose to defraud United of money and property. United claims Travelers hatched the
scheme by greatly over-reserving for a single employee claim, driving United’s EMR to the
point that United would be put in a risk pool serviced only by Travelers. Then NEC, “whose
actions can be imputed to Travelers, was corrupting United’s Controller, Mr. Dickey.” This
corruption allegedly enabled NEC to offer only Travelers policies in 2015 and 2016 without
Dickey soliciting any other bids for workers’ compensation policies. To top it off, the policies
issued by Travelers were inflated and double-billed United.
For at least three years, United asserts, Travelers, NEC, and Dickey worked together
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to defraud United by over-reserving, double-billing, and preventing other insurance brokers
from quoting insurance. United claims each party directed the enterprise’s affairs in that
Travelers directed the scheme to over-reserve and double-bill (and then hide the doublebillings by having Dickey sign the IPAs rather than the actual policies), NEC directed the
enterprise by “compromising” Dickey so that he would continue to retain NEC as United’s
broker, and Dickey directed the enterprise by preventing another insurance broker from
soliciting competing workers’ compensation bids for United. United then asserts that
Defendants engaged in racketeering activity (mail and wire fraud) by causing various
documents, including proposed insurance policies, IPAs, invoices, and payments to be
transmitted in interstate commerce and interstate mail. Finally, United claims there was a
pattern of racketeering in that for close to three years Defendants engaged in mail and wire
fraud for the purpose of preventing another insurance broker who could solicit competitive
bids to be hired.
NEC and Travelers argue that these allegations amount to nothing more than the
makings of ordinary business relationships. While United claims Travelers, NEC, and Dickey
worked together with a common purpose, there are no allegations that suggests Travelers
was in on the alleged scheme between NEC and Dickey or that Travelers and Dickey even
knew each other. Furthermore, while United tries to imply that NEC’s actions could be
imputed to Travelers, it also describes NEC as a separate corporate entity and independent
broker. And, Travelers notes, independent brokers like NEC are agents of the insured, not
the insurer. Indeed, there are no factual allegations, Defendants contend, that indicate the
parties promoted the alleged enterprise as a distinct entity “rather than simply pursuing their
own individual affairs and interests.” See Saleh v. Merchant, No. 14-CV-09186, 2018 WL
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287748, at *4 (N.D. Ill. Jan. 4, 2018). Even if the Court were to believe that United was conned
into purchasing exorbitant Travelers workers’ compensation policies because NEC bought
off Dickey with dinner, golf, and drinks, Defendants assert there are no factual allegations to
demonstrate that Defendants “joined together to create a distinct entity” for those purposes.
See United Food & Commer. Workers Union & Emplrs. Midwest Health Bens. Fund v. Walgreen Co.,
719 F.3d 849, 855 (7th Cir. 2013).
First, the Court notes that, according to the docket, Dickey has never been served with
the Amended Complaint. United never requested summons to be issued as to Dickey, and
the time for doing so has expired. See FED. R. CIV. P. 4(m). Accordingly, the Court finds Dickey
should be dismissed for United’s failure to prosecute pursuant to Rule 41(b).
But even if Dickey had been properly served, the Court finds that United’s allegations
fall short of stating a facially plausible RICO claim because United has not adequately alleged
that Defendants were conducting the affairs of an enterprise. In fact, United has not alleged
any facts connecting Travelers with NEC’s payments or gifts to Dickey, other than claiming
that NEC’s actions can be “imputed” to Travelers (even though NEC was United’s agent, not
Travelers’ agent). And there is no indication that anyone from Travelers even knew who
Dickey was.
United simply has not alleged any facts creating a reasonable inference that
Defendants were acting in concert on behalf of an enterprise as opposed to conducting their
own affairs to advance their own self-interests. See United Food & Commercial Workers Unions
& Employers Midwest Health Benefits Fund v. Walgreen Co., 719 F.3d 849, 854 (7th Cir. 2013).
Because United has not adequately alleged an essential element of a RICO Act claim, the
claim must be dismissed pursuant to Rule 12(b)(6), and Defendants’ Motions to Dismiss as
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to Count III must be granted.
CONCLUSION
For these reasons, the Motion to Dismiss filed by the Travelers Defendants (Doc. 49)
is GRANTED. Travelers’ first Motion to Dismiss (Doc. 24) is DENIED as moot. The Motion
to Dismiss filed by NEC Insurance, Inc. (Doc. 41) is GRANTED. Count I is dismissed
for improper venue pursuant to Rule 12(b)(3), as it is subject to arbitration in
Connecticut. Count III is dismissed with prejudice for failure to state a claim pursuant to
Rule 12(b)(6). The Motion to Stay Arbitration filed by Plaintiff United Ironworkers, Inc.
(Doc. 45) is DENIED as moot. Finally, Defendant Paul Dickey is DISMISSED without
prejudice for failure to prosecute.
The only claim currently remaining in this case is Count II, United’s claim for breach
of contract against Defendant NEC.
IT IS SO ORDERED.
DATED: January 2, 2019
___________________________
NANCY J. ROSENSTENGEL
United States District Judge

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