Owner's Management Company v. Arthur J. Gallagher & Co. et al

Filing 25

Opinion and Order. Motion of Defendant Arthur J. Gallagher & Co. to Dismiss (Related doc # 11 ) is granted in part and denied in part. Judge Christopher A. Boyko on 12/1/2017. (H,CM)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION

OWNER’S MANAGEMENT CO.,

)
)
Plaintiff,
)
)
vs.
)
)
ARTHUR J. GALLAGHER & CO., et al.,)
)
Defendants.
)

CASE NO. 1:17CV881
JUDGE CHRISTOPHER A. BOYKO
OPINION AND ORDER

CHRISTOPHER A. BOYKO, J.:
This matter comes before the Court upon the Motion (ECF DKT #11) of Defendant,
Arthur J. Gallagher & Co. (“Gallagher”), to Dismiss all the claims against Gallagher in
Plaintiff’s Complaint. For the following reasons, the Motion is granted in part and denied in
part.
I. FACTUAL BACKGROUND
Plaintiff Owner’s Management Company (“OMC”) filed the instant Complaint on
April 25, 2017, against HealthSmart Benefit Solutions, Inc. (“HBS”) and Gallagher for breach
of contract, breach of fiduciary duties, negligent misrepresentation and for an accounting.
Plaintiff is an independent senior living and multi-family residences property

management company. Gallagher is an insurance brokerage and risk management company.
HBS is a healthcare management company.
Plaintiff had a long-standing relationship with Gallagher and relied upon Gallagher’s
expertise and advice for its employee healthcare benefit needs. (Complaint, ECF DKT #1 at
¶¶ 14-15). Plaintiff placed “special trust and confidence” in Gallagher to select and procure
an employee healthcare plan that was in Plaintiff’s best interests. (Complaint, ECF DKT #1
at ¶¶ 16-17). Gallagher recommended a self-funded employee healthcare benefit plan from
November 1, 2014 through October 31, 2015 that allegedly minimized Plaintiff’s cost and
potential exposure. (“the Plan”). (Complaint, ECF DKT #1 at ¶¶ 20-22). Gallagher also
recommended that Plaintiff utilize HBS as Claims Administrator. Plaintiff selected the Plan
based upon Gallagher’s advice.
On November 1, 2014, Plaintiff, as Plan Sponsor, Administrator and Fiduciary,
entered into the HealthSmart Benefit Solutions, Inc. Administrative Services Agreement with
HBS. (ECF DKT #1-2). Gallagher was not a party to that Agreement. According to the
Complaint, however, Gallagher and HBS modified how the assets of the Plan would be
managed and how the costs, including the amount of approved benefit claims, were to be
paid, all without Plaintiff’s knowledge or consent. Allegedly, Gallagher did not correctly and
adequately advise Plaintiff that the Plan posed a much higher risk than other options; that the
cost of the Plan would be much higher than Gallagher represented; that Plaintiff would be
required to satisfy various reporting requirements and obligations for self-funded plans under
the Affordable Care Act and ERISA; and that Plaintiff would need to create proper reserves to
guard against cash flow fluctuations. (Complaint, ECF DKT #1 at ¶¶ 26, 28, 30, 31).

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Ultimately, as the result of the alleged failures, mismanagement and misconduct of Gallagher
and HBS, the Plan was underfunded and Plaintiff “caused the Plan to be terminated.”
(Complaint, ECF DKT #1 at ¶ 52).
On July 26, 2017, Gallagher moved for dismissal of Count I (Breach of Contract);
Count III (Breach of Common Law Fiduciary Duties); Count V (Breach of ERISA Fiduciary
Duties); Count VII (Negligent Misrepresentations or Concealments); and Count IX (Action
on Accounting). Gallagher argues that the Complaint is mostly conclusory, containing few
facts. Further, Gallagher insists that Plaintiff’s Claims are either preempted by ERISA or
simply not viable as a matter of law.
II. LAW AND ANALYSIS
Civil Rule 12(b)(6) Standard
In deciding a motion to dismiss under Fed. R. Civ. P. 12(b)(6), the court must accept
as true all of the factual allegations contained in the complaint. Erickson v. Pardus, 551 U.S.
89, 93-94 (2007). The court need not, however, accept conclusions of law as true:
Under Federal Rule of Civil Procedure 8(a)(2), a pleading must contain a “short
and plain statement of the claim showing that the pleader is entitled to relief.” As
the Court held in [Bell Atlantic v.] Twombly, 550 U.S. 544, 127 S.Ct. 1955
[(2007)], the pleading standard Rule 8 announces does not require “detailed
factual allegations,” but it demands more than an unadorned,
the-Defendant-unlawfully-harmed-me accusation. Id. at 555. A pleading that
offers “labels and conclusions” or “a formulaic recitation of the elements of a
cause of action will not do.” Id. at 555. Nor does a complaint suffice if it tenders
“naked assertion[s]” devoid of “further factual enhancement.” Id. at 557.
To survive a motion to dismiss, a complaint must contain sufficient factual matter,
accepted as true, to “state a claim to relief that is plausible on its face.” Id. 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. Id. at 556. The plausibility standard is not akin to a
“probability requirement,” but it asks for more than a sheer possibility that a
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Defendant has acted unlawfully. Id. Where a complaint pleads facts that are
“merely consistent with” a Defendant’s liability, it “stops short of the line
between possibility and plausibility of ‘entitlement to relief.’” Id. at 557.
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009).
According to the Sixth Circuit, the standard described in Twombly and Iqbal “obliges
a pleader to amplify a claim with some factual allegations in those contexts where such
amplification is needed to render the claim plausible.” Weisbarth v. Geauga Park Dist., 499
F.3d 538, 541 (6th Cir.2007) (quoting Iqbal v. Hasty, 490 F.3d 143, 157-58 (2nd Cir.2007)).
The Court should disregard conclusory allegations, including legal conclusions
couched as factual allegations. Twombly, 550 U.S. at 555; J & J Sports Prods. v. Kennedy,
No. 1:10CV2740, 2011 U.S. Dist. LEXIS 154644, *4 (N.D.Ohio Nov. 3, 2011).
“Rule 12(b)(6) does not countenance ... dismissals based on a judge’s disbelief of a
complaint’s factual allegations ... a well-pleaded complaint may proceed even if it strikes a
savvy judge that actual proof of those facts is improbable ...” Twombly, 550 U.S. at 556.
ERISA preemption
“ERISA can preempt state-law claims in two ways: complete preemption under 29
U.S.C. § 1132(a) and express preemption under 29 U.S.C. § 1144.” Loffredo v. Daimler AG,
500 F.App’x. 491, 500 (6th Cir. 2012) (Moore, J., concurring). “[A] completely preempted
state-law claim arises under federal law and thus vests the district court with federal-question
jurisdiction.” Id. (internal quotation marks omitted). A claim is completely preempted if the
Plaintiff “could have brought his claim under ERISA and there is no other independent legal
duty implicated by a defendant’s actions.” Id. (internal quotation marks omitted).
Viewing Plaintiff’s allegations in the most favorable light, the Court finds that ERISA

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preemption does not apply. The state law claims against Gallagher, as insurance broker, are
not attempts to enforce responsibilities governed by federal ERISA law. Kloots v. American
Express Tax and Business Services, Inc., 233 F.App’x 485, 488 (6th Cir. 2007). The
relationship between Plaintiff and Gallagher is distinguishable from, and independent of, the
relationship created by an ERISA-qualified plan. Kloots, 233 F.App’x at 489.
Breach of Contract (Count I)
According to the Complaint, following a long-standing course of dealings, Plaintiff
and Gallagher entered into a contractual relationship whereby Gallagher agreed to select and
procure a health care benefits plan appropriate to Plaintiff’s needs. In return, Gallagher
received remuneration in the form of a commission. (Complaint, ECF DKT #1 at ¶ 59).
Gallagher allegedly breached the contract by providing incorrect and inadequate advice about
the Plan which led to underfunding and ultimately to the Plan’s termination.
At this juncture, the Court finds that the allegations of Count I are sufficient to state a
plausible claim for breach of an oral contract.
Breach of Common Law Fiduciary Duties (Count III)
Plaintiff alleges that it placed special trust and confidence in Gallagher’s expertise.
Plaintiff alleges it relied upon Gallagher’s advice and counsel in selecting the Plan to provide
healthcare benefits to its employees at low cost and with low risk. Plaintiff suffered injury in
the nature of unanticipated costs and obligations. The issue confronting the Court is whether
these allegations in Count III can plausibly establish a fiduciary relationship under Ohio law.
The Court finds they do not. Generally, “the relationship between an insurance agent
and an insured, without more, is not a fiduciary relationship, but an ordinary business

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relationship.” Long v. Time Ins. Co., 572 F.Supp.2d 907, 914 (S.D.Ohio 2008). To
demonstrate a fiduciary relationship, a plaintiff must show the existence of “a relationship of
special trust over and above the typical insurer-insured relationship.” O’Donnell v. Financial
American Life Ins. Co., No. 2:14-cv-1071, 2015 WL 1879905, *8 (S.D.Ohio Apr. 23, 2015)
(citing Greenberg v. Life Ins. Co. of Va., 177 F.3d 507 (6th Cir. 1999).
Plaintiff has not met its obligation to plead facts, beyond bare allegations, that could
establish a special relationship of trust between Plaintiff and Gallagher, i.e., a relationship
having qualities other than a typical arm’s-length transaction. The allegations in the
Complaint, particularly in Count III, do not allow the Court to draw the reasonable inference
that Gallagher is liable for breach of common law fiduciary duties. Like the Greenberg court
found, to hold otherwise would impose fiduciary obligations on sellers/brokers in the majority
of ordinary transactions simply because the sellers/brokers possessed superior knowledge of
the product offered for sale. Id. at 521-22.
Negligent Misrepresentation or Concealment (Count VII)
Plaintiff alleges that Gallagher had a duty to use reasonable care in providing advice
and counsel and making representations to Plaintiff about the options for an employee
healthcare benefits plan. (Complaint, ECF DKT #1 at ¶ 100). Moreover, Plaintiff was an
entity which Gallagher could have and should have expected to rely on Gallagher’s advice,
counsel and representations. Id. In Count VII, Plaintiff lists items of information which were
misrepresented or concealed, causing Plaintiff and/or the Plan to incur reporting requirements,
legal obligations, damages, costs and expenses that should not have been incurred.
Gallagher contends that Plaintiff’s claim is insufficient and can be summarized as

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“buyer’s remorse.” Gallagher insists that none of the information provided was false and that
omissions or silence will not satisfy an Ohio negligent misrepresentation claim. In addition,
Gallagher notes that a negligent misrepresentation claim brought along with a breach of
contract claim must show distinct injury and damages arising from conduct other than the
contractual breach. C. Norris Mfg., LLC v. BRT Heavy Equipment, LLC, No. 5:14CV2797,
2016 WL 4079752, *5 (N.D.Ohio Aug. 1, 2016).
Ohio law holds that a claim for negligent misrepresentation arises when:
[O]ne who, in the course of his business, profession or employment, or in any
other transaction in which he has a pecuniary interest, supplies false
information for the guidance of others in their business transactions, is subject
to liability for pecuniary loss caused to them by their justifiable reliance upon
the information, if he fails to exercise reasonable care or competence in
obtaining or communicating the information. Andersons, Inc. v. Consol, Inc.,
348 F.3d 496, 505 (6th Cir. 2003) (quoting Delman v. Cleveland Hts., 41 Ohio
St.3d 1, 4 (1989).
Normally, “the existence of a recovery for the breach of contract ‘excludes the
opportunity to present the same case as a tort claim.’” Textron Financial Corp. v. Nationwide
Mutual Insurance Co., 115 Ohio App.3d 137, 151 (9th Dist. 1996). By the same token, Ohio
law does tolerate an exception to this general rule “when the alleged negligent
misrepresentation was intended to induce a party into entering into a contract.” C. Norris,
2016 WL 4079752 at *5; see also Gutter v. Dow Jones, Inc., 22 Ohio St.3d 286 (1986).
The Court finds that Plaintiff’s allegations in Count VII, accepted as true, state a
plausible claim against Gallagher for negligent misrepresentation intended to induce Plaintiff
to enter into a contract.
Breach of ERISA Fiduciary Duties (Count V)
In Count V of the Complaint, Plaintiff alleges that, by reason of Gallagher’s conduct
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regarding establishing the Plan and the subsequent modification of the Plan, Gallagher
became a “de facto fiduciary” and assumed and owed fiduciary duties with respect to the
Plan. (Complaint, ECF DKT #1 at ¶ 86). Furthermore, Gallagher allegedly breached its
fiduciary duties and caused the Plan and/or Plaintiff to incur reporting requirements, legal
obligations, damages, costs and expenses that should not have been incurred. Id. at ¶ 90.
The Court agrees with Gallagher that Count V does not sufficiently allege injury to
Plaintiff or to the Plan for which Gallagher is plausibly liable under ERISA. There is no
allegation of specific injury to the Plan, such as outstanding balances, outstanding claims or
outstanding debts. As a matter of fact, Plaintiff clearly alleges that the Plan was terminated
on some undefined date prior to the filing of the lawsuit. (Complaint, ECF DKT #1 at ¶ 52).
Do the alleged facts support Plaintiff’s right to recover damages for a Plan which no longer
exists? Although Plaintiff asserts in its Brief (ECF DKT #17 at 20) that it may legally recover
on the Plan’s behalf the funds necessary to make the Plan whole, is that possible if the Plan is
terminated? The Court must question if Plaintiff’s Complaint establishes Plaintiff’s continued
standing as Plan Sponsor, Administrator and Fiduciary after the Plan has ended and been
substituted with a fully-insured benefit plan.
The Court holds that Count V lacks facial plausibility. Plaintiff has failed to plead
factual content that allows the Court to draw the reasonable inference that Gallagher is liable
to the terminated Plan or to Plaintiff for breach of ERISA fiduciary duties.

Action on Accounting (Count IX)
Gallagher moves for dismissal of this Claim as it is derivative of Plaintiff’s failed

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Claims. Based upon this Court’s ruling, the Action for an Accounting can be maintained for
now, but only as a dependent claim to those causes of action which survive dismissal.
III. CONCLUSION
For these reasons, the Motion (ECF DKT #11) of Defendant, Arthur J. Gallagher &
Co. (“Gallagher”), to Dismiss all the claims against Gallagher in Plaintiff’s Complaint is
granted in part and denied in part. Counts III and V are dismissed and Counts I, VII and IX
remain for further adjudication.
IT IS SO ORDERED.

s/ Christopher A. Boyko
CHRISTOPHER A. BOYKO
United States District Judge
Dated: December 1, 2017

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